What’s the big deal? Implications of wrongfully filing a claim of lien?

The registration against the title of a claim of lien is a powerful tool in a contractor’s toolbox. Not only does it secure an interest in land for work done or materials supplied, but it can also often assist in an expedited negotiated resolution of construction disputes. However, as a recent decision of the Supreme Court of British Columbia illustrates there are pitfalls, and potentially significant cost implications, which need to be considered before registering a claim of lien.

Section 19 of the Builders Lien Act (B.C.) (the “BLA”) creates a statutory right of recovery for costs and damages incurred by a landowner in circumstances where a claim of lien is improperly filed:

A person who files a claim of lien against an estate or interest in land to which the lien claimed does not attach is liable for costs and damages incurred by an owner of any estate or interest in the land as a result of the wrongful filing of the claim of lien.

However, the BLA is silent regarding the extent of, or the method of calculating, the costs and damages that are recoverable.

In Century Group GP Co. Ltd. v KRS Excavating Ltd., 2022 BCSC 357 [KRS], the Supreme Court of British Colombia had occasion to consider this question (potentially as a matter of first instance) in a costs application against a lien claimant who had been found to have improperly registered a lien. The owner had expended significant amounts of money to initially discharge and secure the claim of lien (by way of letter of credit) and on legal fees to establish that the claim of lien did not attach to the land.

The landowner advanced a claim for both the costs incurred to secure the letter of credit and the actual legal fees incurred. The lien claimant argued that only party-and-party costs were recoverable –– a cost award that is calculated in accordance with the Supreme Court Civil Rules, and is inevitably significantly less than the actual legal fees paid.

In finding for the landowner, the Court interpreted the term “costs and damages” in s. 19 of the BLA as comprising:

1. 1. the actual reasonable legal expenses incurred for the investigation of the lien, and the facts and law relevant to it, advising the client contemplating the discharge of the lien, and possibly including negotiating replacement security;
   2. legal expenses incurred in the legal proceedings taken to challenge the lien, – in this case the court application – but calculated on a party-and-party basis; and
   3. damages including the out-of-pocket ‘costs’ and the other consequences arising from the wrongful filing of the lien, which in this case were the costs related to the letter of credit which was initially posted as security for removing the lien from title to the property.

Takeaways

A claim of lien remains a powerful tool. However, there are several takeaways to be considered if one is contemplating filing, or challenging, a claim of lien:

1. 1. a party who successfully challenges a wrongfully filed lien is entitled to recover its reasonable out-of-pocket legal costs incurred when investigating and removing the lien.
   2. a party who successfully challenges a wrongfully filed lien is entitled to recover legal costs associated with “legal proceedings taken to challenge a lien,” but those costs are to be assessed according to the Supreme Court Civil Rules, and generally on a party-and-party basis.
   3. a party who successfully challenges a wrongfully filed lien is entitled to recover damages for financial losses caused by the filing of the lien.

It is important to seek legal advice prior to filing a lien to ensure that you have a right to do so as this case emphasizes the significant risks that can be faced. For further information relating to claims of lien, or any other issues relating to construction projects, please feel free to contact Jeremy West.

Jeremy West is a Partner in our Litigation & Dispute Resolution Group.