Excessive lien claim ruled an ‘abuse of process’

Registering a lien against an opposing party as part of a payment dispute is a common occurrence in the construction industry.

Respondents will typically file security equal to the lien claim in order to vacate the lien and allow development to continue. However, there’s a responsibility to be reasonable in terms of the lien amount claimed and to provide backup substantiating those amounts.

Contractor Darwin Construction (BC) Ltd. and Developer PC Urban had entered a standard form contract for the construction of multi-phase townhouses in North Vancouver. The value of the contract was just under $16 million exclusive of taxes and subject to approved change orders.

As outlined by the court, Darwin and PC Urban got into a dispute. PC Urban terminated the contract, claiming Darwin had failed to correct deficiencies and adequately supervise the construction work. Darwin, in turn, filed a $3 million claim of lien against PC Urban on the basis it was owed money. It followed up with a civil action to enforce the lien.

PC Urban applied to either cancel the lien or have the amount reduced on the basis that it had already paid over $14 million to Darwin.

Furthermore, with the contract terminated, PC Urban paid costs of nearly $2 million to complete the project, plus an additional $1.2 million for the delays caused. Detailed evidence of these costs was provided to the court. PC Urban took the position that any lien amount therefore should not be $3 million but in the range of $1.6 to $1.9 million, that being the difference between what was contracted and what had been paid.

Darwin was requested several times to substantiate its $3 million claim. As the court of appeal noted, Darwin’s counsel did provide a letter outlining its claim one year later. However, after two years, when PC Urban’s application was finally heard, supporting evidence had still not been provided.

In a lower court decision, the security amount required to be paid by PC Urban was reduced to $500,000 due to Darwin’s failure to substantiate its claim.

Darwin appealed this decision to the Court of Appeal of British Columbia. At the same time, PC Urban’s cross appealed, on the basis that the lower court judge erred by failing to either cancel the lien or to reduce the lien security to the nominal amount of $1.

In the final result, the court of appeal ruled in favour of PC Urban and dismissed Darwin’s lien in its entirety.

“The significant impediment to Darwin’s appeal is that, despite an extended opportunity to do so, it filed neither evidence nor a formal response to (PC Urban’s) application to cancel the lien,” Justice Susan Griffin wrote in her ruling. “Darwin’s silence in the face of (PC Urban’s) application and evidence is fatal to Darwin’s appeal and must result in the success of (PC Urban’s) appeal.”

Justice Griffin further noted while a lien claim is a powerful tool designed to protect contractors from exploitation, it also carries “significant consequences” for respondents whose property or finances are “tied up by the lien.”

“Just as non-payment of a contractor can be used improperly to extract an advantage to underpay a contractor, a contractor’s excessive lien claim can also be used improperly to extract payment that is not due. In the circumstances of this case, I would conclude that the lien claim was an abuse of process.”

Anthony Burden, partner at Field Law LLP, and student-at-law Aiden Nicholson, write excessive or exaggerated lien claims can be reduced, or as this case demonstrates, dismissed. However, they note lien respondents also need to substantiate their position when arguing a lien is excessive.

“If an amount cannot be shown to be excessive on the facts and evidence, a lien is unlikely to be reduced or cancelled. This case confirms the importance of evidence needed to prove the amount of a lien claim, and the potential drastic consequences for failing to provide that evidence.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.