Summary

In the recent decision in Brook Construction (2007) Inc. v. Blackwood Contractors Ltd, the Newfoundland and Labrador Court of Appeal held that the charge against the holdback under s.12(5) of the Newfoundland and Labrador Mechanics’ Lien Act (the NL Act) is the same as, and “parasitic” to, the lien against the land.

Accordingly, since the subcontractor did not have a lien against the land – because the land was owned by the Crown – the subcontractor also did not have a lien against the holdback held by the owner.

The British Columbia Court of Appeal arrived at the opposite result in its 2003 decision in Shimco Metal Erectors Ltd. v. Design Steel Constructors Ltd.

In that decision, the B.C. Court of Appeal held that under s. 4(9) of the B.C. Builders Lien Act (the BC Act), the lien against the holdback is a separate and distinct lien and might be asserted even though the subcontractor had not commenced an action within the time to assert a lien against the land.

Can these decisions be rationalized? What is the law on this subject in the other provinces?

Reasoning of the Newfoundland and Labrador Court of Appeal

In Brook Construction, the majority of the Newfoundland and Labrador Court of Appeal arrived at its decision for the following reasons:

  1. Section 12(5) of the NL Act, which creates the charge upon the holdback, starts with the words “Where there is a lien under section 6”. In the view of the majority of Newfoundland and Labrador Court of Appeal:

“Section 6 is the provision that creates the statutory lien. Without its operation, there would be no claim on the land benefitted by the work. The right to the lien on the holdback is parasitic upon the existence of a lien on the benefitted land.” (underlining added)

  1. The NL Act does not contain a trust fund section. Accordingly, the rationale for imposing a charge against the holdback is not as persuasive in Newfoundland and Labrador as it is in provinces, such as New Brunswick, in which a trust fund provision exists. In provinces like New Brunswick, the trust fund section was introduced into the lien statute precisely because the charge upon the holdback was dependent on the lien against the land. So in Newfoundland and Labrador, where there is no trust fund section, the parasitic nature of the charge upon the holdback must be recognized.
  1. Accordingly, since Crown land is not subject to a lien in Newfoundland and Labrador, a lien against the holdback cannot arise if the building is on Crown land.

The majority of the Newfoundland and Labrador Court of Appeal also held that, even if a charge against the holdback could arise under the NL Act, the subcontractor was obliged to sue the Crown which held the holdback. Even if (contrary to the majority’s conclusion) the lien against the holdback might otherwise exist, that lien was discharged since the subcontractor did not sue the Crown.

Justice Welsh dissented. He held that the combined effect of sections 5 and 12(5) of the NL Act is that the Crown is subject to that Act. This conclusion flowed from the exception to lien rights stated in those sections for roads and highways. That exception in the NL Act necessarily meant that Crown land was otherwise subject to the Act. Due to this conclusion, Justice Welsh did not determine whether the holdback charge is a separate or a “parasitic” lien.

Neither the majority nor minority of the Newfoundland and Labrador Court of Appeal referred to the decision of the BC Court of Appeal in the Shimco case.

Reasoning Of The BC Court Of Appeal

In Shimco, the BC Court of Appeal arrived at the opposite conclusion to that reached by the majority of the Newfoundland and Labrador Court of Appeal, for the following reasons:

  1. Sub-section 4(9) of the BC Act states that “a holdback required to be retained under this section is subject to a lien under this Act. “ The sub-section does not say “the lien under the Act.” The use of the words “a lien” suggests that the lien against the holdback is different than the lien against the land created by section 2.
  1. If the lien against the holdback was dependent on the lien against the land, then the second part of sub-section 4(9) would not have been necessary or inserted. That part reads: “…each holdback is charged with payment of all persons engaged, in connection with the improvement, by or under the person from whom the holdback is retained.”
  1. The lien against the holdback is of a different nature and potentially benefits a different group of persons than the lien against the land.

The lien against the holdback is a monetary and trust remedy. That lien is for the benefit of all persons who have improved the land and applies to all persons, including the owner or contractor, who hold a holdback under the project.

The lien against the land is a real estate remedy and applies to the owner.

When the owner acts as its own contractor, the lien against the land could have different consequences than the lien against the holdback: there will be as many holdbacks as there are contractors because there will be a separate holdback under each contract, but all of the subcontractors will have a lien against the land irrespective of which contractor engaged them.

  1. Sub-section. 8(4) of the BC Act reinforces the existence of a separate lien upon the holdback. That sub-section states as follows:

“8(4) Payment of a holdback required to be retained under section 4 may be made after expiry of the holdback period, and all liens of the person to whom the holdback is paid, and of any person engaged by or under the person to whom the holdback is paid, are then discharged unless in the meantime a claim of lien is filed by one of those persons or proceedings are commenced to enforce a lien against the holdback.” (underlining added)

The underlined words acknowledge that there is a separate lien against the holdback which is not otherwise extinguished if a timely action to enforce the lien against the holdback is commenced.

  1. There is nothing awkward or impractical about the conclusion that the holdback lien is different than the lien against the land. Subject to the other provisions of the Act, owners and contractors holding amounts falling within the lien regime can (so far as the holdback lien is concerned) pay them out until an action is commenced to enforce the holdback lien. While, under the holdback lien provision, the subcontractors under a particular contractor will have to share the holdback with all subcontractors who have commenced actions to enforce their holdback lien, and not just with those who have preserved and protected their lien against the land, there is nothing inherently unfair in that result.

Discussion

It seems inherently impracticable to have different regimes across Canada for the holdback charge or lien. It also seems unlikely that the provincial legislatures intended to have different regimes. However, each provincial lien statute must be individually interpreted to determine whether the holdback charge or lien stands or falls with the lien against the land. Until the Supreme Court of Canada considers this issue or provincial legislatures make the holdback lien provision uniform across Canada, different holdback lien regimes may continue to exist.

The Supreme Court of Canada did consider the charge against the holdback in Westeel-Rosco Ltd. v. South Saskatchewan Hospital Centre, 1976 CarswellSask 114, [1977] 2 S.C.R.. There, the Supreme Court held that a waiver of the lien did not constitute a waiver of the holdback charge, but only of the lien against the land. The waiver read as follows:

do hereby renounce and waive any right, which …….. have or may have to any lien for work done, services rendered or to be rendered, or materials supplied or to be supplied, for or in connection with the building now in course of construction upon the said land hereinafter described and any and all right to register a claim of Lien against the said land or building,…” (underling added)

Despite the apparent all-inclusive wording of the underlined words, the Supreme Court held that this waiver did not affect the holdback charge, only the lien against the land. Does this holding suggest that the holdback charge and the lien against the land are separate encumbrances? This decision was not referred to in either the Brook Construction or Shimco decisions.

In this state of affairs, what regime will be held to apply in provinces other than B.C. and Newfoundland and Labrador?

It should be first noted that the BC Act is the only provincial lien statue in which the relevant section (section 4(9) in the BC Act) states that the holdback is subject to a “lien” on the holdback. That sub-section then states that “each holdback is charged” with payment of all persons engaged on the improvement. In the other lien statutes, the relevant section states that the holdback is subject to a “charge” on the holdback. This wording may distinguish the BC Act from all the other lien statutes. However, In Brook Construction, the Newfoundland and Labrador Court of Appeal referred to the holdback charge as a “lien against the holdback”, so this distinction in the statutory wording between “charge” and “lien” may not be significant.

The result arrived at in BC may most likely apply in the Northwest Territories, Nunavut and the Yukon where the holdback lien is stated to be “In addition to all other rights or remedies given by this Act.” It might also apply in Manitoba where the holdback lien section states that a person who has “a lien” has “a charge” on the holdback, thereby using the “a lien” wording upon which the BC Court of Appeal relied. In some provinces, such as New Brunswick, the definition section states that “lien” means “a lien created by this Act”, thereby possibly introducing the concept that there is more than one lien created by the Act. Other lien statutes, such as Nova Scotia and Ontario, use the words “the lien”, suggesting that there is only one lien, of which the holdback charge is a part. In those provinces or territories which do have a trust fund section in their lien statute, it may also be more likely to be found that the holdback charge is a self-standing charge.

The issue of whether the holdback charge or lien is a separate lien or a lien dependant on the lien against the land, has a number of consequences.

First, if the project involves land against which no lien may be asserted, then if the holdback lien is dependent on the lien against the land, no holdback lien can be asserted for that project unless the legislation provides to the contrary. That is what the majority of the Newfoundland and Labrador Court of Appeal held in Brook Construction.

Section 16(3) of the Ontario Act deals with this situation by providing that where “the lien” does not attach to the land (because the Crown is the owner or the land is a public street or highway owned by a municipality or a railway right of way), the lien constitutes “a charge” on the holdback, and section 34(1)(b) then provides for the preservation of the lien –so far as the charge on the holdback – by notice to the owner of the land, rather than registration of the lien.

A similar provision to section 34 of the Ontario Act is found in other provincial lien statutes. In Newfoundland and Labrador, it is found in section 22(5) of the NL Act, which reads as follows:

(5) Where there is no lien on the land by virtue of section 5, a person who is asserting a claim under subsection 12(5) for work done or materials placed or provided shall give written notice of his or her claim to the owner, to every person in whose hands sums are retained under section 12 to which his or her claim may relate and to the municipal authority in whose area of authority the land is situated within 30 days after the completion or abandonment of the work or the placing or providing of the materials.

The majority of the Newfoundland and Labrador Court of Appeal in Brook Construction referred to section 22(5) in support of its conclusion that the owner must be sued in order for the holdback charge to be operative. However, section 22(5) did not apply to the case since section 5 precludes a lien in respect of public streets, roads and highways, not other Crown land as was involved in that case (a school). The underlined words recognize that a holdback charge may exist when the improvement is to a public street, road or highway even if there is not a lien against the land.

Second, if the holdback lien is dependent on the continued existence of the lien against the land, then unless the lien legislation provides otherwise the lienholder may have to protect the holdback lien by registering the lien against the land, and may have to preserve the lien against the land by starting an action (and include the owner as a party). If this is the situation, a person seeking to enforce the charge against the holdback will not be able to ignore the lien registration and preservation stages.

Furthermore, if the holdback lien is not dependant on the lien against the land, there is the further question of whether the holdback lien action must be commenced within the time specified in the provincial lien statue, or the time provided in the general limitations statute for the commencement of a civil action. Logically, it would seem to be the latter, but that might cause real problems for the cash flow on a construction project.

In Shimco, the plaintiff had registered a lien and started its action within the one year period provided in the BC Act for the commencement of an action in relation to a lien against the land, but had failed to register a certificate of pending litigation within that one year period with the result that the Land Title Office had removed its lien claim of lien from the title to the property. Nevertheless, the BC Court of Appeal held that the holdback claim was valid.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 16, part 5

Brook Construction (2007) Inc. v. Blackwood Contractors Ltd., 2015 CarswellNfld 100, 47 C.L.R. (4th) 1 (N.L.C.A.)

Shimco Metal Erectors Ltd. v. Design Steel Constructors Ltd., 2003 CarswellBC 649, 2003, 23 C.L.R. (3d) 163 (B.C.C.A.).

Construction and Builders’ Liens –Lien against the hold back – whether the holdback lien is a separate lien from the lien against the land

Thomas G. Heintzman O.C, Q.C., FCIArb                             October 2, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.