In Lonsdale Quay Market Corporation v. Klondike Contracting Corporation (Lonsdale Quay Market), the British Columbia Court of Appeal issued a clear caution to owners who receive notice that a subcontractor has filed a lien. In determining the amount to be paid into court to discharge the lien, payments an owner makes to the contractor after receiving such notice do not reduce the “amount owing” to the contractor. As a result, an owner who continues paying the contractor after notice must pay into court both its actual holdback and the full amount of the notified lien claim.
The Facts
Lonsdale Quay Market concerned a construction project that ran into financial difficulties. The appellant, Lonsdale Quay Market Corporation (Lonsdale), engaged Klondike Contracting Corporation (Klondike) to act as its general contractor. After Klondike ceased paying its subcontractors, 18 lien claims were filed, totalling approximately C$2.1-million. J.A.W. Fabricators Co. Ltd. (J.A.W.), the respondent, filed a lien claim in the amount of C$428,353.01 (the J.A.W. Lien). The J.A.W. Lien was served on Lonsdale’s registered and records office. After receiving notice of the J.A.W. Lien, Lonsdale paid Klondike an additional C$807,535.67. Klondike later became insolvent.
The Application
Lonsdale applied, pursuant to section 23 of the B.C. Builders Lien Act (BLA), to discharge its liability and clear title by paying the statutory holdback into court (C$521,008.12). J.A.W. opposed the discharge.
Section 23 of the BLA provides that an owner may discharge subcontractors’ lien claims by paying into court the lesser of: (i) the total amount of the claim or claims filed; and (ii) the “amount owing” to its contractor, provided that amount is at least equal to the required holdback. There was no dispute that the amount of the lien claims was larger, so the key issue became what the “amount owing” to Klondike was.
J.A.W. submitted that section 34 of the BLA applied. Subsection 34(2)(c) states that a payment made by an owner to a contractor after the owner has actual notice of a subcontractor’s filed lien claim does not, to the extent of the lien, reduce the “amount owing” to the contractor. Accordingly, J.A.W. argued that Lonsdale was required to pay into court the amount of the statutory holdback plus the amount of the J.A.W. Lien, representing C$949,361.13.
In response, Lonsdale relied on section 34(3) of the BLA, which allows an owner to apply money held in excess of the required holdback to remedy a contractor’s default. The Court found that section 34(3) had no application, as the amount Lonsdale actually held back — C$515,758.14 — did not exceed the required statutory holdback. In any event, the Court was not willing to treat Londsdale’s payments to Klondike as sums notionally withheld from the contractor. Lonsdale had actual notice of the J.A.W. Lien and paid Klondike anyway.
The Court ultimately held that Londale was required to pay into court a total of C$944,111.15, representing the C$515,758.14 actually held back from Klondike and the J.A.W. Lien.
The Appeal
On appeal, Lonsdale alleged, among other things, that the judge erred in her interpretation of section 34(3), arguing that she failed to consider Lonsdale’s significant costs to remedy Klondike’s work. The Court of Appeal disagreed, holding that to interpret section 34(3) as reducing the “amount owing” to Klondike would tip the balance to favour owners much more than subcontractors, leaving them with incomplete recourse even where they have taken steps to provide notice to an owner. It also agreed with J.A.W.’s submission that it would be unjust to allow Lonsdale to benefit from its own intentional actions.
The Court also found that the judge’s interpretation of section 34 did not result in a double recovery for J.A.W., as the decision was limited to calculating the amount required to clear title. How those funds would be distributed among the lien claimants would be decided later.
J.A.W. cross-appealed, alleging, among other things, that the judge miscalculated the amount owing when she referred to Lonsdale’s actual holdback rather than the statutory holdback. The Court of Appeal disagreed, confirming that the “amount owing” was the greater of the actual amount held back from Klondike, inclusive of the J.A.W. Lien (C$944,111.15) and the statutory holdback (C$521,008.12).
The appeal and cross-appeal were dismissed.
Key Takeaways
Under the B.C. Builders Lien Act, owners and contractors that become aware of lien claims by subcontractors they do not directly engage would be wise to proceed with caution. They should be aware of Lonsdale Quay Market and carefully consider both the risk presented by a lien claim and the nature of their contractual relationships before making any additional payments to a defaulting contractor or subcontractor. While remaining cognizant of trust obligations, in many instances it may be safer to pay an unpaid subcontractor directly. Where the decision is made to continue paying a defaulting contractor or subcontractor, Lonsdale Quay Market provides that payment into court of more than just the statutory holdback may be required to discharge lien claims.
For more information, please contact the authors or any other member of our Arbitration or Litigation & Dispute Resolution groups.
