Zahmol Properties Ltd. v. Richardson Bros. (Olds) Ltd., 2011 ABQB 136

Court of Queen ’ s Bench of Alberta Citation: Zahmol Properties Ltd. v. Richardson Bros. (Olds) Ltd., 2011 ABQB 136 Date: 20110304 Docket: 1001 18201 Registry: Calgary Between: Zahmol Properties Ltd. Applicant - and - Richardson Bros.(Olds) Ltd. Respondent _______________________________________________________ Reasons for Judgment of K.R. Laycock, Master in Chambers _______________________________________________________ [ 1 ] The respondent has filed a builder’s lien against the lands owned by the applicant claiming the amount of $953,492.45.

The respondent claims to have supplied labour, equipment and materials for road building, graveling, leveling and landscaping on the applicant’s development site. The lien is registered against 22 lots. [ 2 ] The applicant owner entered into a construction contract with the respondent for road building. A dispute has arisen between the parties about any balance payable to the respondent on the contract. The application, brought pursuant to the Builders Lien Act RSA 2000

Chapter B-7,

section 48, is for an order to discharge the lien from 21 of the 22 development lots.

[ 3 ] The applicant argues that, based on the current fair market value of the remaining lot, there is sufficient security given by the owner to satisfy the respondents lien claim, interest and costs. [ 4 ] Builders liens are the creation of statute which provide contractors and subcontractors with some security for payment for improvements made to real property. The basic concept is that anyone who does work or supplies material on, or in respect of, an improvement to land has a lien against the land for so much of the value of the work or materials as is unpaid.

The lien is registered against the estate of the owner who benefits from the work done or materials supplied. [ 5 ] In Alberta it is necessary for the lien claimant to preserve its lien rights by commencing legal proceedings and filing a certificate of lis pendants against the land within 180 days of the date of the registration of the lien. The lien continues to be registered against the land pending trial of the action. [ 6 ] The act contemplates the removal of the builders lien prior to trial by either the unconditional payment of the lien claim or, by bringing an application to court pursuant to

section 48. (See appendix) This

section allows the court to remove a lien from title to land “where security is given or payment is made into court for the amount of the lien and any costs that the court may fix”. [ 7 ] The applicant does not propose paying money into court to cover the lien, interest and costs. The applicant argues that the respondent will have his lien “secured”by one lot and therefore it is unnecessary to leave the lien on all of the lands.

If no further work is performed on the lot and if the value of the lot does not depreciate, the respondent may have enough security in the one building lot to satisfy his lien claim, interest and costs. [ 8 ] The respondent may not be “secured” by the one lot if the value of the lot depreciates. If future work is conducted to improve the lot, it is possible that other liens may be filed. The respondent may then be in a position of having to share pro rata with other lien holders when this lot is subsequently sold.

Worse still is the prospect that subsequent lien holders may be employees of the owner, contractor or subcontractor who would have a priority for six weeks of wages.(s. 61(3)(b)) There may be other additional unforeseen circumstances which reduces the security of the lot. [ 9 ] Besides these practical problems, the legal issue for the court to determine is the intention of the legislature in allowing an owner to apply to court pursuant to

section 48 to discharge the lien “where security is given”. Surprisingly this issue has never been the subject of a written decision, according to counsel for the applicant and respondent who have diligently searched for Canadian case authority. Similarly the courts investigation has failed to find any cases directly on point. [ 10 ] Several cases dealing with the appropriateness of the security offered by an owner have been reported. [ 11 ] In Grand Pacific Holdings Ltd. v.

Progressive Sheet Metals Ltd. (1993), 15 C.P.C. (3d) 398 (B.C.S.C.) , Master Brandreth- Gibbs had before her the issue of whether to discharge a lien based on the security of a bond, pursuant to the Builders Lien Act , R.S.B.C. 1979, c. 40. The British Columbia Act gave no guidance, but simply required that “the claim be paid or that cash or sufficient security be posted”: para. 1. Neither the Master nor counsel could find any authority on the issue.

The Master returned to first principles and held that the lien holder should not be put in a less favourable position by translating its charge against the land into security. She weighed the matter in favour of maintaining the lien holder’s security, as opposed to the convenience of the applicant. In the result, she refused to accept the substitute security, especially as there was little information about the proposed bond company. The Master required a letter of credit in order to vacate the lien holder’s in rem security. [ 12 ] In 360090 B.C. Ltd. v.

Tham Demolition Ltd. (1994), 18 C.L.R. (2d) 161 (B.C.S.C.) , Master Tokarek approved of the reasoning in Grand Pacific . Master Tokarek also had before him a dispute about the adequacy of a lien bond as security. He could find no authority on point except for the Grand Pacific decision. The Master found that discharging the lien and allowing the bond as security could jeopardize the respondent’s position. The bond had peculiar wording, and the respondent had raised concerns regarding the bond company’s financial position relative to a class “A” security.

He applied the reasoning in Grand Pacific and dismissed the application. [ 13 ] In Tom Jones Corp v. OSBBC Ltd (1997), 34 C.L.R. (2d) 44 (Ont. Gen. Div.) , Kozak J. allowed the Applicant to reduce the lien amount paid into court, and to substitute a lien bond in place of cash security. The judge held at para. 43 that it would be “unduly

restrictive and perhaps absurd” not to allow the substitution of one type of security for another. Kozak J. found that such an

interpretationwas counter to the object of the Construction Lien Act, R.S.O. 1990, c. C.30, especially given that the Ontario Divisional Court had heldin Northern Air Construction v. Borough of York Public Library Board (1985), (ON SC), 50 O.R. (2d) 201 (Div. Ct.)that payment into court, a letter of credit, and filing of a lien bond were equivalent. [14] The most recent decision is that of Campbell J. in ADI International Inc. v. WCI Waste Conversion Inc., 2002 PESCTD 89,221 Nfld. & P.E.I.R. 298, which approved of Grand Pacific.

Campbell J. refused to discharge a Mechanics Lien where the respondentargued that the bond offered as substitute security did not adequately protect its interests. The Judge held that the preservation of the lienholder’s security was paramount to ease of financing for the applicant. Campbell J. distinguished the Northern Air decision cited in TomJones, finding the court there had stated that cash, a letter of credit, and a lien bond were equivalent only in the sense that the method ofpayment had no effect on priority.

Further, Campbell J. held that where the claimant disputed the adequacy of the substituted security,the onus rested on the party seeking to vacate the lien to show that the replacement security did not diminish the security granted to thelien holder by the applicable statute. There was sufficient concern about the bond issuer and conditions of the bond that lead the court toconclude that the applicant had not discharged its onus. It is noteworthy that Campbell J. made a passing reference to substitution ofother lands as security.

While Campbell J. decided ADI International under s.53 of the Mechanics Lien Act, R.S.P.E.I. 1988, c. M-4, thatsection is very similar to s.48(1)(

a) of the Act. Both sections are cited in the Appendix. [15] This decision is consonant with the purpose of the Act as stated in Alberta case law. In Maple Reinders Inc. v. W. DaltonEnergy Corp., 2007 ABCA 247, 412 A.R.133, aff’g 2006 ABQB 150, 393 A.R. 375, Hunt J.A. held that the purpose of the Act is toallow lien holders to easily and cheaply enforce liens, while preventing prejudice against owners. The Act seeks to balance the interestsof owners and lien holders.

Section 48(1) permits funds to continue to flow despite the filing of a lien, allowing the parties to focus onproject completion instead of litigation. In order to balance the interests of the lien holder and the owner, and to allow s.48(1) to act as analternative to immediate litigation on the lien, the interests of the lien holder should not be prejudiced by the substitute security. [16] Here, the applicant asks the Court to discharge the lien against 21 lots, and argues that the remaining lot provides adequatesecurity.

The respondent deposes, through the affidavit of Stephen Richardson of January 11, 2011, that the lot would not be adequatesecurity. The respondent notes that applicant would not have incentive to deal with the respondent’s claim or the lot, with all of its otherlots freed of the claim: at para. 7. As well, the value of the lot is at best equivalent to the value of the lien; on its face, the amount of thesecurity may be inadequate. Next, it appears that the land would remain in the control of the applicant, who could allow other liens orcharges to be made against it.

Further, the value of the land may decline over time. Due to these risks, substituting land as security issignificantly different than providing money, a letter of credit, or a bond. Both as regards the terms of realization and the amount ofsecurity offered, this “substitute security” would leave the lien holder in a less secure position. [17] Arguably, the granting of this application would be incompatible with the law regarding general liens. General liens relievesuppliers of the burden of allocating the services or materials supplied to a multi-lot development against individual units.

The effect ofthis application is not to offer substitute security, but rather to reduce the security of a lien holder under a general lien from all of thelands that benefitted from the work, to only one lot. Both the Act and jurisprudence suggest that the purpose of the Act is to burden eachunit with its proportionate share of the work See s. 8(1) of the Act; the Queen’s Bench decision in Reinders at para. 26; David I.

Bristow et al., Construction Builders’ and Mechanics’ Liens in Canada, 7th ed., looseleaf (Toronto: Carswell, 2010), §3.13. [18] It is my conclusion that the Legislature did not intend that s. 48(1) be used to discharge a validly filed builders lien from someof the improved land. The

section contemplates the payment of money or the granting of security to stand in place of the land. The lienwill only be discharged upon the court determining that the substituted security will not diminish the security of the lien against the land.Having some of the land stand in place of all of the land is not a concept that is easy to import into the legislation. [19] I note that this was not an application for discharge of the lien from one or several of the lots on payment of a proportionateamount of the total lien claim. Therefore, the decisions provided by counsel namely, Wesson Developments Ltd. v.

Glow Construction (AB KB), 1980 CarswellAlta 79, 13 Alta.L.R. (2d) 243, 15 R.P.R. 206, 40 A.R. 261 and George Wimpey CanadaLtd. v. AGR Electric Contractors Ltd. (AB KB), 1982 CarswellAlta 173, 22 Alta. L.R. (2d) 107, 40 A.R. 219 do notapply. [20] An oral decision was provided to counsel earlier, with this written decision to follow. Having dismissed this part of theapplication, counsel for the applicant asked for directions on payment of monies to obtain a discharge of the lien.

An order was granteddirecting that, upon the payment of money into court, or into trust, to cover the total of the lien claim plus interest and a pre-estimate ofthe costs of a fully contested action, the lien could be discharged.

[ 21 ] While some counsel in builders lien applications recommend costs be fixed in the amount of 10 to 15% of the lien claim, I find such a formula to either underestimate or overestimate the amount of costs that ought to be paid as security. A genuine calculation of the anticipated costs of the proceeding should be undertaken. Counsel should be able to inform the court that the lien issue will either be

summary in nature or a fully contested proceeding. Heard on the 19 th day of January, 2011. Dated at the City of Calgary, Alberta this 4 th day of March, 2001. K.R. Laycock M.C.C.Q.B.A. Appearances: George C. Stewart Stewart and Stewart for the Applicant Aaron V. Robertson Martinson & Harder for the Respondent

Appendix Builders ’ Lien Act , R.S.A. 2000, c. B-7: Limitation of lien 8(1) When the same lien attaches to estates or interests in more than one lot in respect of a separate improvement on each such lot, the lien does not apply so as to make the owner of any one lot liable in respect of that lot for a sum in excess of the price of the work done or material furnished in respect of the improvement on the lot less a proportionate share of any money paid to the person claiming the lien in respect of the work done on or the material furnished for all the lots to which the lien attaches.

(2) In this section, “lot” means a lot, block or parcel. 48(1) The court may, on application by originating notice, order that the registration of a lien be removed from the title to the land concerned (

a) where security is given or payment is made into court for (

i) the amount of the claim, (ii) the maximum amount for which the lien may properly attach under section 18(3) or (4) or 23(3) or (4), or (iii) such lesser amount as the court determines, and any costs that the court may fix (

b) where the relevant lien fund has been paid out under this Act, or (

c) on any ground not referred to in clause (

a) or (

b) as the court considers proper.

(2) Money paid into court or any security given under subsection (1) (

a) stands in place of the land, (

b) is subject to the claims of the person whose lien has been removed, and (

c) shall not affect the amount required to be retained under section 18(1) or (1.1) or 23(1) or (1.1). Mechanics ’ Lien Act , R.S.P.E.I. 1988, c. M-4 as cited in ADI International : 53.

(1) A judge at any time may receive security for, or payment into court of, the amount claimed in a registered claim of lien together with such costs as the judge may fix, and the judge may thereupon order that the registration of the claim of lien be discharged.

(2) A judge may order discharged the registration of a claim of lien upon any other grounds.

(3) Moneys paid into court, or any security given in an action,

(

a) takes the place of the land against which the claim of lien was registered; and (

b) subject to subsection (4) is subject to the claim of every person who has registered a lien and, before the time limited by

section 27 has expired, has commenced an action, to the same extent as if the money had been realized by a sale of the property in an action to enforce the lien.

(4) The amount found by the judge to be owing to the person, the registration of whose claim of lien has been discharged under this section, shall be a first charge upon the money or security so paid in or given.

(5) Whenever a judge orders a registration of a claim of lien to be discharged, the order shall forthwith be registered in the proper registry office.