Validity of builder lien claims

JVD Installations Inc. v. Skookum Creek Power Partnership, 2020 BCSC 374

On March 13, 2020, the Supreme Court of British Columbia released its decision in JVD Installations Inc. v. Skookum Creek Power Partnership, 2020 BCSC 374. This decision discussed and clarified the validity of builders liens filed by contractors who performed or provided work or services in relation to a project being constructed on multiple parcels of land. The issue before the Court was whether the plaintiffs performed work in relation to an improvement located on the liened lands.

By way of background, JVD and IDL Projects Inc. commenced two actions, which arose out of the construction of a hydroelectric facility near Squamish, BC (the “Project”). Construction commenced in 2012 and was completed in 2014. The plaintiffs completed their work, filed liens to secure the unpaid amounts and commenced the actions to recover those amounts.

JVD was a shareholder in the general contractor, SSP Construction, while also acting as a subcontractor to SSP Construction. JVD entered into an owner, engineer, contractor partnership subcontract (“OECP Subcontract”) with SSP Construction and then entered into a subcontract with IDL, its wholly owned subsidiary, whereby IDL agreed to perform all of JVD’s obligations under the OECP Subcontract.

JVD/IDL were primarily responsible for the concrete work and mechanical work, including: pouring and forming the concrete for intake, power house and substation; installing the mechanical systems in the two buildings; compacting the ground for the penstock; and fitting and welding the penstock pipe. The construction budget was approximately $78 million, and the final cost of construction was about $93 million. The parties disagree about who was responsible for overall construction cost and delay.

JVD/IDL invoiced the owners on a cost plus basis as required under the OECP Subcontract. JVD/IDL issued a total of 25 invoices. The first 17 invoices were approved and paid, four other invoices were approved but not paid and the remaining four invoices were neither approved nor paid.

Almost all of the Project was constructed on unlienable Crown land, save and except for approximately 1.5km where the transmission line ran across two parcels of privately owned land (“Transmission Line Lands”). In April, May and June 2014, JVD/IDL registered liens against the Transmission Line Lands and the Rights of Way registered on those lands (the “Liens”). In August 2014, all of the Liens were cancelled by consent order upon posting of a lien bond for $4,500,000, which was subsequently reduced to $3,690,790.11.

Validity of the Lien Claims

The defendants submitted that the plaintiffs’ Liens were invalid because they did not perform or provide work in relation to an improvement located on the lands described in the Liens and/or that they were not contractors or subcontractors. As such, the Court undertook an analysis of section 2 of the Builders Lien Act (the “Act”).

The Act defines “work” as “work, labour or services, skilled or unskilled, on an improvement.” “Improvement” is defined as “anything made, constructed, erected, built, altered, repaired or added to, in, on or under land, and attached to it or intended to become a part of it, and also includes any clearing, excavating, digging, drilling, tunnelling, filling, grading or ditching of, in, or under land.”

There was no dispute that IDL performed work on the Project or that the Project is an improvement within the meaning of the Act. The Court determined that although JVD subcontracted the work to IDL, it still provided work by performing its contractual obligation to construct portions of the Project by subcontracting that work to IDL.

More significantly, the Court found both plaintiffs were entitled to the Liens even though neither plaintiff performed any work on the Transmission Line Lands themselves. The Court found that the Act does not require a lien claimant to perform or provide work on the lands described in a lien; it requires the lien claimant to perform or provide work “in relation to an improvement” that is located on the lienable lands. The Court set out its analysis as follows:

1. A claimant must establish that it performed work “in relation to” an improvement. If it does so, it is entitled to a lien against any land that the improvement touches: Sandhill Development Ltd. v. Green Valley Developments Ltd., 2008 BCSC 1646 at para. 33.
2. A claimant’s work is deemed to be done “in relation to” an improvement where it forms an “integral and necessary part of the actual physical construction” of the improvement: Northern Thunderbird Air Ltd. v. Royal Oak & Kemess Mines Inc., 2002 BCCA 58 at para 48. The Court held there were two ways to satisfy the “integral and necessary” test without actually performing any work on the liened lands:
   • performing work off-site that may be incorporated into and form an essential physical part of the finished improvement; or
   • performing work on one part of a single integrated improvement that is located on more than one parcel of land.

The Court found that the Project was a single integrated improvement as its various components were mutually interdependent and integral and necessary to each other.

The Court further clarified that there is not an additional requirement that the work performed benefit the land itself in order to be deemed integral and necessary to the improvement: Pedre Contractors Ltd. v. 2725312 Canada Inc. and 360 Fibre Ltd., 2004 BCSC 1112.

Of course, determining whether particular work performed or provided by a contractor is integral and necessary to an improvement will be done on a case-by-case basis. However, considerations such as whether the work performed by the lien claimant served purposes other than the improvement and was a direct or indirect benefit to the improvement are important. A comparison of the Pedre case and the case of Action Holdings Ltd. v. Trend Homes Ltd., 2011 BCSC 381 is helpful.

In the case of Action, the plaintiff installed road, curb and sidewalk for a new housing development and filed liens against the lands on which the houses were located. The Court found it was not entitled to its liens as the work performed naturally benefitted the public without directly impacting an improvement on the properties. The Court compared the work with water and sewer connections, which directly impact the construction of homes on subdivided lots, and found that the work did not provide the type of benefit discussed in Pedre.

The Court found that a lien claimant need not demonstrate that the work it performed directly benefits the land over which it seeks a lien. If it has performed or provided work on any party of a single integrated improvement, it is entitled to a lien over any lienable lands that the improvement touches. The finding that the improvement is single and integrated in nature necessitated that conclusion. As the Court found that the Project was a single integrated improvement, it follows that JVD/IDL established this aspect of its entitlement to the Liens.

To complete its analysis under s. 2(1) of the Act, the Court found JVD/IDL were subcontractors within the meaning of the Act as they were contracted by an owner and, therefore, entitled to the Liens.

Key takeaways from the JVD decision for members of the construction industry are as follows:

1. A subcontractor who subcontracted all of its work under its subcontract to a sub-subcontractor is still able to file a claim of lien against the lands upon which an improvement was constructed.
2. A lien claimant is able to file a lien over any lands that the improvement touches if that improvement is a single integrated improvement.
3. A lien claimant will be able to establish its entitlement to a lien over any lands the improvement touches if the work performed or provided is integral and necessary to the improvement.

For any questions or clarification on the above or any construction related inquiries, feel free to reach out to the writer.