The appellant contractor, Darwin, entered into a standard form contract with the respondent real estate developers, PC Urban, for a multi-phase residential townhouse project in North Vancouver. The contract price totalled $15,958,282.79, inclusive of taxes. It also stipulated that defective work was to be corrected at Darwin’s expense and that work would be substantially completed by March 13, 2020. PC Urban paid Darwin $14,004,124.84, inclusive of taxes and a holdback, for work done on the project, giving rise to a dispute over whether PC Urban had an outstanding balance owing to Darwin.

PC Urban brought an action alleging that Darwin did not provide adequate supervision over the project and failed to correct deficiencies in their work. PC Urban argued that the maximum possible lien claim would be somewhere between $1.6 million and $1.9 million – the difference between the total amount invoiced by Darwin and the actual amount PC Urban paid to Darwin.

Darwin registered a construction lien for just over $3 million. Days later, it filed a notice of civil claim against PC Urban to enforce the lien but the notice contained no explanation for the lien amount. Counsel for PC Urban made several requests for Darwin to provide an accounting to establish an evidentiary basis for their lien claim, but Darwin never did so. To complete the construction on the project, PC Urban had to pay over $1.8 million out-of-pocket. In addition, PC Urban incurred expenses amounting to over $1.2 million because delays. Thus, in total, the expenses PC Urban incurred directly owing to Darwin’s failure to perform the contract were over $3 million.

PC Urban disputed the lien claim, arguing it was an excessive abuse of process, and applied to cancel the lien in its entirety or, in the alternative, reduce the security to a nominal amount. An order made in the BC Supreme Court reduced the amount of the lien claim from over $3 million to $500,000. Darwin appealed that order, and PC Urban cross appealed on the basis that the Judge erred in failing to cancel or reduce the lien security to a nominal amount.

What the Court Said

The lower court reduced the lien security to $500,000 because the $3 million figure was wholly unsupported by the evidence, yet there was some basis for a claim of $500,000. The Court of Appeal held that this was inappropriate.

Foundational to this case, therefore, was the following issue: whether the lien should be cancelled because it was vexatious, frivolous, or an abuse of process owing to its excessive and unsubstantiated amount. Under the relevant statutory provisions in this case, the applicant bore the burden of putting forth an arguable claim that the lien was excessive or unwarranted. The Court underscored how risky it is for a lien claimant to file no evidence in response to such a claim.

The Court pointed out that sometimes lien claimants will concede that they miscalculated the lien and will explain the error so the claim can rightly be reduced. That did not happen in this case. The Court found that certain of Darwin’s actions – or lack thereof – were not only fatal to their appeal but indeed precipitated the ultimate success of PC Urban’s cross appeal. Of note, Darwin did not enter evidence or file a response to PC Urban’s application to cancel the lien. Nor did they provide an accounting that established their claimed lien amount, thus failing to provide an evidentiary basis for the claim.

All of Darwin’s arguments hinged on bald assertions that enough aspects of the lien claim were arguable to justify the security. This was not only unsatisfactory in the Court’s view but also unmeritorious because the assertions were not grounded in actual evidence. The Court held that the lien claim was indeed so excessive as to amount to an abuse of process. In the result, Darwin’s appeal was dismissed, PC Urban’s cross appeal was allowed, and the lien was cancelled in its entirety.

Takeaways

If a lien claim is excessive, courts can reduce or altogether vacate an exaggerated or excessive lien. For example, in the 2009 Alberta case of Lansdowne Equity Ventures Ltd. v. Alsa Road Construction Ltd., the developer was entitled to a reduction in the value of the lien because they were able to show that the claim included an amount for work that was not done. On the other hand, if an amount cannot be shown to be excessive on the facts and evidence, a lien is unlikely to be reduced or cancelled. For example, in the 2020 Alberta case of Britannia Block General Partnership Inc. v. Dawson Wallace Construction Ltd., a contractor obtained a lien against Britannia who subsequently applied for a reduction, but the application was dismissed for lack of evidence establishing that the amount was excessive.

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.

Contact Anthony Burden in our Calgary office, Ryan Krushelnitzky in our Edmonton office, or any other member of Field Law’s Construction Law Group if you would like assistance with your construction contracts or find yourself in a dispute.

Link to the decision: Darwin Construction (BC) Ltd. v. PC Urban Glenaire Holdings Ltd., 2023 BCCA 436