On May 23, 2024, the Manitoba Court of Appeal released its decision in Sterling Parkway Residences Inc v Gypsum Drywall Interiors Ltd, 2024 MBCA 46, by which it provided clarity on the process and considerations for applications to vacate builders’ liens without alternate security, pursuant to s. 55(3) of The Builders’ Liens Act, C.C.S.M. c B91 (the “Act”).
Background
The appellant, Sterling Parkway Residences Inc. (the “Owner”), was the owner and developer of an apartment complex. The respondent, Gypsum Drywall Interiors Ltd. (the “Subcontractor”) was a subcontractor engaged to perform work on the project by the general contractor, Boretta Construction 2002 Ltd. (“the “Contractor”). The Contractor was terminated mid-way through the project, at which point the Owner represented to the Subcontractor that its subcontract was being assigned to it and that the Owner would assume payment obligations to the Subcontractor.
The project proceeded to completion, following which the Owner then refused to pay to the Subcontractor all amounts payable to it. The Subcontractor registered a builder’s lien on the project lands, claiming the owed amount plus statutory holdback.
Following the project’s completion, the Owner asserted that the Subcontractor’s contract had not in fact been assigned to it. The Owner denied that it was required to make payment to the Subcontractor for completed work and denied responsibility for maintaining holdback for the work performed prior to the termination of the Contractor.
The Owner brought an application to discharge the Subcontractor’s builder’s lien without provision of alternate security pursuant to s. 55(3) of the Act, rather than s.55(2) of the Act which would have required posting of security in an amount equal to the face value of the lien.
Lower Court decision
The application judge dismissed the application, finding in part that the Subcontractor had a valid lien right.
Notwithstanding the Owner’s assertion – following completion of the project – that it had not in fact assigned the Subcontractor’s contract to itself and that the Subcontractor should instead look to the Contractor for payment, the application judge found that those disputed issues should be resolved in concurrent litigation between the parties that was underway rather than on the application. The application judge also commented that there had been a lack of good faith in the Owner’s dealings with the Subcontractor, relating in part to the Owner’s representations to the Subcontractor having been incorrect or untrue.
On Appeal
The Owner’s appeal of the application judge’s decision to the Manitoba Court of Appeal was unsuccessful.
The Court of Appeal confirmed that an Order vacating a lien under s. 55(3) of the Act without posting security should only be granted in the clearest of cases, where no material facts are in dispute and where it is patently demonstrable that no right of lien exists. The Court of Appeal also stated that credibility assessments, weighing of the evidence and drawing factual inferences are the functions of a trial judge or a judge on a summary judgment motion, and are not the functions of a judge on an application to vacate a lien without alternate security pursuant to s. 55(3) of the Act.
As there were material facts in dispute, it was not open to the application judge to vacate the lien under s. 55(3) of the Act, and the appeal was dismissed.
Key takeaways
Prompt removal of liens is normally necessary on construction projects. Owners and contractors seeking to remove such liens must be aware that – unless it is clear and undisputed that no right of lien exists – judges on applications to vacate will very likely require that alternate security be posted. This will ensure that the lienholder is not prejudiced and can later litigate its claimed entitlement in Court. Where there are material facts in dispute, it is unlikely that a Court will vacate a builder’s lien without the posting of alternate security. This new, clear standard is more onerous to meet and obtaining prompt, knowledgeable legal advice when liens are filed remains crucially important.
If you have any questions about considerations specific to your construction project, contract or organization, please reach out to Tyler Kochanski or contact a member of the MLT Aikins Construction Litigation group, who would be pleased to assist.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.