Discharging a Builders' Lien: Is Cash King?
January 2022 - 4 min read
Posting either a lien bond or cash as security to discharge a builders' lien is standard practice in Alberta. Seemingly, this is because the lien claimant is not prejudiced by the posting of one form of security over the other.
But is a lien bond as good as cash? Is a lien claimant in a worse position if a lien bond is accepted as security? The Manitoba Court of Queen's Bench was faced with this scenario in Bird Construction Group v. Trotter and Morton Industrial Contracting Inc., 2021 MBQB 233.
Bird was the general contractor in the construction of a wastewater treatment plant for the City of Selkirk. The project was being constructed on Crown lands. Trotter and Morton was the major subcontractor on the project.
The parties were involved in a dispute, and Trotter and Morton provided notice of two liens to the owner. In response to the lien claims, Bird filed an application under sections 55(2) and 55(3) of The Builders' Liens Act (the "Manitoba BLA") to discharge the liens upon posting lien bonds into Court. Trotter and Morton opposed the application, arguing that a lien bond was an inappropriate form of security. It argued Bird should be required to post cash.
Is a Lien Bond as Good as Cash?
The Court held that in this scenario where the lien in question was with respect to Crown lands, and as such only represented a charge against the holdback but not the lands, a lien bond is not as good as cash. The Court reasoned that when cash is posted as security to discharge a lien, the lien claimant need only apply to the court to receive payment if it obtains a judgment. In the case of a lien bond, there is always the chance that the credit worthiness of the surety will have diminished by the time of judgment and, following a successful judgment, the lien claimant must then take steps to enforce the lien bond against the surety.
In addition, the Court also stated that normally, in contracts involving lien claims against land, there is little relationship between the lien provisions and the trust provisions of the Manitoba BLA. However, section 16 of the Manitoba BLA gives a lien claimant a form of security through enabling the claimant to assert a charge against the holdback (cash) retained by the owner, resulting in a tighter relationship between the trust and lien remedies. These holdback monies, against which a lien on a Crown land project is asserted, are the same monies designated as trust monies.
If the holdback monies are retained or paid into Court, there is no risk that a general contractor would improperly use the trust funds, because the general contractor never receives them and there is a practical restraint on the use of those monies imposed by the Manitoba BLA.
In contrast, if a lien bond is paid into Court, a general contractor could receive the holdback from the owner. Although the funds could only be used in accordance with the trust provisions of the Manitoba BLA, a subcontractor lien claimant has no practical ability to ensure compliance with the trust provisions. Although the same situation could arise if cash is posted as security, there is a practical advantage that the cash is held up in Court and available to the successful lien claimant.
The Court noted that in a situation where a lien is registered against land (i.e. a project not involving Crown lands), a lien bond is acceptable security, as “a lien bond from a reputable surety is as good as, if not better than, a charge on the land against which the lien has been registered.”
Applicability in Alberta
The Court's comments on why lien bonds are not an appropriate form of security would likely not apply in Alberta. Like Manitoba, section 48 of the Alberta Builders' Lien Act (the “Alberta BLA”) allows security to be paid into court to discharge liens. In Alberta, the Courts contemplate lien bonds and cash as security interchangeably, with the template orders under section 48 of the Alberta BLA permitting either cash or a bond to be posted.
However, unlike in Manitoba, the Alberta BLA does not provide any lien rights against the Crown at all – whether against the holdback or otherwise. Lien rights are only against the lands. As such, whether security is posted in the form of cash or a lien bond, a lien claimant is in no worse position in respect of enforcement of their lien if a lien bond from a reputable surety is used.
In Alberta, the Public Works Act (the “PWA”) creates a separate claims process for work performed on Crown lands. Notably, section 15(4) of the PWA allows the Crown to pay money into Court in the event of disputed entitlement, whereas section 48 of the Alberta BLA refers to “security” or “payment” into Court.
As such, the Manitoba Court’s conclusion is consistent with Alberta legislation to the extent that for disputed claims on Crown lands, only cash is acceptable security to be paid into Court.
While the Court’s reasoning very likely will not apply to payments into Court pursuant to the Alberta BLA, it may be persuasive in other Canadian jurisdictions in which Crown lands are subject to construction/builders’ liens to some extent. These include British Columbia, Saskatchewan, Ontario, Nova Scotia, and Prince Edward Island. For a more in-depth analysis of the differences among Canadian Provinces and Territories concerning lien rights against Crown lands, please consult The Canadian Treatment of Construction and Builders' Liens on Crown Lands.
Contact Anthony Burden or Logan Maddin from Field Law's Calgary office with any questions related to this case, builders' liens, or PWA claims.