In Kingdom Langley Project Ltd. Partnership v. WQC Mechanical Ltd. (Kingdom Langley), the British Columbia Court of Appeal reaffirmed the validity of what are commonly referred to as “Shimco liens.” Shimco liens are liens against the statutory holdback that must be maintained by owners, contractors and subcontractors under the Builders Lien Act (Act). Shimco liens were recognized by the B.C. Court of Appeal in its much-debated 2003 ruling in Shimco Metal Erectors Ltd. v. North Vancouver (District) (Shimco). Shimco confirmed that the Act establishes a distinct lien against the holdback, separate and apart from a lien against land and improvements.
Before a five-member division of the B.C. Court of Appeal, the Court in Kingdom Langley was invited to overturn Shimco. However, while admitting that Shimco has created certain practical difficulties for owners and contractors, the Court reaffirmed the dual-lien structure and confirmed that posting security under section 24 of the Act does not cancel or extinguish a lien against the holdback.
Shimco Lien: Historical Context
Under the Act, contracting parties are required to hold back 10% of each payment made down the payment chain to protect those lower down the chain in the event of non-payment. The Act also confers on unpaid contractors, subcontractors and workers a lien which attaches to the owner’s interest in the land and to the improvements made to that land.
However, the B.C. Court of Appeal confirmed in Shimco that the Act also creates a separate lien against the holdback. Unlike the statutory lien against land and improvements, a Shimco lien is not subject to the time limits set out in the Act, does not follow the same expiry rules and is not registered at the Land Title Office. The result of Shimco was that unpaid contractors, subcontractors and workers may still have lien rights against holdback funds for as long as those holdback funds are maintained, even if they no longer have a valid lien against land and improvements.
The Shimco decision introduced conceptual and procedural uncertainties, specifically creating potential delays in the release of holdback funds.
Kingdom Langley: Background
The dispute in Kingdom Langley arose from the construction of a residential development project where Western Quality Construction (WQC) performed subcontracted work under a contract with the general contractor Metro-Can Construction Ltd. (Metro-Can). Metro-Can held a prime contract with the owner, Kingdom Properties Ltd. (Kingdom).
WQC filed a builders lien against the land for unpaid work. To discharge the lien from title, Metro-Can posted a lien bond as security under section 24 of the Act. Metro-Can also filed its own builders lien against the land, with Kingdom then depositing the amount claimed by Metro-Can in trust with its lawyers as security for Metro-Can’s liens. The security posted by Kingdom included the holdback funds retained from Metro-Can. Over time, other subcontractors also filed builders liens, with those liens being cancelled by granting them the right to claim against the security posted by Kingdom.
In 2023, WQC brought an application for payment of its undisputed entitlement out of the security posted by Kingdom, relying on Shimco for its right to claim against the holdback funds. WQC took the alternative position that it should be entitled to pursue a claim against the lien bond posted by Metro-Can. Kingdom disputed WQC’s ability to claim a lien against the holdback funds, arguing that WQC’s in rem claim against the holdback had been cancelled by Metro-Can’s deposit of a lien bond as security.
Relying on Shimco, the chambers judge held that WQC had not given up its in rem claim to the holdback by accepting the security. Rather, the lien against the holdback was independent and enforceable, and Kingdom was ordered to release WQC’s proportionate share of those funds.
B.C. Court of Appeal: Shimco Precedent Remains Binding
On appeal before a five-member division, Kingdom argued that Shimco was wrongly decided. It asserted that the Act should be interpreted as creating only one lien against the land, improvements and holdback.
The Court of Appeal acknowledged that Shimco created certain difficulties for the construction industry but saw no basis to overrule the decision. According to the Court, Shimco was not wrong to conclude that the unambiguous language of the Act pointed to a separate holdback lien. The Court noted that Kingdom’s alternative interpretation, while plausible, would require rewriting the statute, something beyond the scope of the judiciary.
The Court also found that Shimco’s conclusion, that the holdback lien is not subject to the statutory extinguishment provisions, flows from the structure of the Act, as section 24 and related provisions refer only to liens against land or improvements. The Court determined that the section 24 security order and associated lien bond posted by Metro-Can had no effect on WQC’s lien against the holdback, and that there was nothing in the Act limiting WQC to enforcing its lien against the lien bond rather than the holdback.
Key Takeaways
The Court of Appeal reaffirmed that the Act treats liens against land and holdbacks as distinct legal mechanisms.
Notably, owners and contractors should also be aware that, while posting security under section 24 of the Act will cancel liens registered against land, it will not extinguish holdback liens. While the Court did not preclude the possibility that a Shimco lien could be cancelled by a court order, it confirmed that the Act does not provide a means to cancel a Shimco lien other than resolving the claim on the merits.
For further information about any aspect of this bulletin, please contact the authors or any other member of our Litigation & Dispute Resolution group.
