A recent decision of the British Columbia Supreme Court re-visits the issue of when the lien period starts to run upon termination of a head contract.
In Frontier Kemper Constructors, Inc. v. Rio Tinto Alcan Inc., 2022 BCSC 868 (Frontier), the owner brought a preliminary application to the court to strike a Claim of Lien, arguing it was filed out of time based on the date that the head contract was terminated. The court was not asked to decide, however, the validity of the termination, which was disputed by the Contractor. The court’s reasoning and conclusions provide an important reminder to owners and contractors that the means and methods of termination of a head contract could impact key timelines for lien rights.
The Builders Lien Act, S.B.C. 1997, c. 45 (BLA) creates the right to place a lien on title to land, thereby securing the rights of those who contribute to improving land. The BLA was drafted with the intent of balancing the interests of those who perform work with those who receive the benefit of that work. As the BLA creates rights not otherwise available in law, its provisions must be strictly followed and the courts have no power to extend the timelines allowed for filing liens. These overriding principles guide courts in their interpretation of the BLA.
The fact pattern in Frontier is not unusual. In early April 2020, the owner provided the contractor with a default notice indicating that the contractor was in breach of the contract by ceasing production and reducing its workforce on site. As was required by the contract, the owner provided the contractor with notice that it was required to remedy the breach.
On April 22, the owner provided notice to the contractor that it had failed to rectify the breach and accordingly the contract was terminated effective immediately. On June 8, 2020, the contractor placed a $96.9M lien on title to the lands, securing its claim for unpaid work.
Section 20(2)(a) of the BLA provides that a claim of lien may be filed no later than 45 days after a head contract has been terminated (this clause does not apply to a trade contract or subcontract). The date of termination of the head contract, therefore, triggers the commencement of the 45 day deadline to file a claim of lien. An owner may apply to strike a claim of lien where it is defective, but when an application to strike is brought in the early stages of litigation, a court has a limited scope of review as the issues have not been fully determined between the parties.
In Frontier, the owner brought an application to strike the lien, arguing that the lien was filed out of time because it had not been filed within 45 days of the date of the termination notice. The owner argued that it had followed the terms of the contract which required it to provide a default notice, an opportunity to rectify the default, and then a termination notice. While the owner acknowledged that on this preliminary application the court was not being asked to determine the validity of the termination itself, it had complied with the requirements of the contract and therefore had “terminated” the contract for the purpose of the BLA.
While the contractor accepted receipt of the termination notice, it disputed that the contract was validly terminated. The owner could have only provided a proper default notice if the contractor had breached the contract – and that had not yet been established. Additionally, the owner could only have terminated the contract on April 22 if the contractor had failed to rectify the breach – and that had not yet been established. As this was a preliminary application brought to cancel the lien, the contractor argued that it was outside of the court’s powers to determine the contract had been terminated on April 22, for the purpose of striking the lien.
The court considered whether it was possible for it to make a finding that the owner had terminated the contract for the purpose of s. 20(2)(a) of the BLA, by satisfying the notice requirements for termination found in the contract, but still leave the issue of the validity of the purported termination unresolved. Noting that “termination” is not defined in the BLA, the court reviewed the purposes of the BLA and the wording of section 20 which requires that the contract “has been … terminated”. Ultimately, the court concluded that it would be inconsistent with the objectives of the BLA if a contract could be terminated for the purpose of the BLA when a court might later decide that it had not been properly terminated.
Accordingly, the court concluded that it could only strike a lien on a summary basis based on the expiration of the 45 day time limit for filing a claim of lien under section 20(2) of the BLA in circumstances where the parties agree that the contract between them was terminated, where one party expressly accepted the other party’s election to terminate the contract, or where the head contract allowed one party to terminate unilaterally.
From an owner’s perspective, the effect of this decision is that, the only way an owner who is contemplating the termination of a head contract can guarantee for itself that the 45 day period to file a lien will start to run upon termination is if the owner unilaterally terminates the head contract. Under standard construction contracts, however, the unilateral termination of a contract will trigger financial obligations payable by the owner to the contractor. Leaving some uncertainly as to the closing of the 45 day lien period may outweigh the financial obligations that could arise from unilateral termination.
However, from a contractor’s perspective, this decision does not render the 45 day lien period irrelevant upon termination of a head contract. While the court was unable on this preliminary application to determine whether the head contract had been validly terminated, the validity of the termination remains alive for an eventual determination on the merits and a lien filed after 45 days could still be found out of time.
Accordingly, contractors, whether they agree as to the validity of a termination notice, must still ensure that they file claims of lien within 45 days of any purported termination of the head contract. However, a prudent contractor may also choose to dispute the validity of a head contract termination notice to potentially postpone the commencement of the 45 day lien period, particularly in circumstances where there is uncertainty as to the closure of the lien period.
Rebecca Cleary is associate counsel and member of the construction and engineering practice at Alexander Holburn Beaudin & Lang LLP.
