Alberta – allocation of lien security to subcontractors adjourned pending arbitration between owners and general contractor – #492

In Avli BRC Developments Inc v. BMP Construction Management Ltd, 2021 ABQB 412, Master Andrew R. Robertson Q.C. adjourned an application for costs claimed against security provided further to an order under Alberta’s Builders’ Lien Act, RSA 2000, c B-7, holding that he could not determine and allocate amounts owing to subcontractors or related costs until a pending arbitration decided the amounts owing between the building owners and the general contractor.

The decision involved disputes stemming from the construction in 2019 of two (2) residential condominium projects.  Avli BRC Developments Inc. (“Avli”) owned the one in Calgary and William Off Whyte Developments Ltd.  (“William”) owned the one in Edmonton.  Each project retained BMP Construction Management Ltd. (“BMP”) as the general contractor.

Disputes arose. Avli and William did not pay BMP some of its invoices and BMP did not pay some of its subcontractors.  Master Robertson recorded that the disputes between Avli, William and BMP were submitted to arbitration and that the non-payments lead to a “a host of builders’ liens being registered” by BMP and its subcontractors and suppliers.

Avli and William each applied under section 48 of Alberta’s Builders’ Lien Act, RSA 2000, c B-7 for an order that registration of the liens be removed from the title to the land concerned in exchange for security given.  Those applications were granted on November 12, 2020 with security posted in the form of lien bonds.

[19] The security posted under section 48 of the BLA was not cash deposits with the clerk of court, but rather lien bonds, but the appropriate order can be made for funds to be paid either to the clerk, to the owners’ or general contractor’s counsel, or directly to counsel for the subcontractors for the appropriate distribution.  (The alternative might be for the clerk of the court to call on the lien bond and then make the distribution, but no one has asked for that formal step and it should not be necessary.)

Some of the lien claimants had preserved their liens by filing statements of claim and registering certificates of lis pendens and other lien claimants had not. See the partial list of lien claims listed at para. 36 of Master Robertson’s reasons.

Avli and William applied to reduce the security for those liens lacking preservation steps.

Among several issues presented by the parties, Master Robertson noted that the “primary issues” included, among others, (i) whether an interim or final distribution could be made to the subcontractors from the funds preserved by the section 48 orders and (ii) how to address claims related to costs.

Master Robertson noted that some of the issues had been resolved before the hearing and that partial payments were to be made by BMP to subcontractors. To resolve the remaining demands made by the parties, Master Robertson observed that the security comprised two (2) components. 

First, there is a minimum of 10% of the value of the work done or material furnished.  The parties call this “Part A” of the major lien fund”.

The second component of the major lien fund, or “Part B”, is any additional sum due and owing to the general contractor, but the owners of both projects claim to be entitled to set off their claims for damages against this second component”.

Master Robertson’s reasons address the consequences of the lien litigations and the payments of interim amounts pending final payments once the lien claims had been quantified.  He acknowledged that the arbitration between the owners and BMP would impact the calculations of the final amounts.  Part A could be determined now but Part B would remain uncertain until the arbitration concluded.

[45] As discussed above, an owner may deduct, as damages, amounts to reduce the amount payable to the general contractor BMP Construction, but may not reduce the 10% minimum hold back that is secured for the benefit of the lien claimants.  After the dispute between the owners and BMP Construction have been resolved in arbitration there may be an “additional amount due and owing but unpaid” to BMP Construction.   

[46] With this approach, it is clear that the final amount of the major lien fund cannot be determined at this time, but a minimum amount can be determined”.

Master Robertson had authority to determine and allocate payments from sums paid into court further to a court order.  That said, two (2) further issues arose. 

First, for the quantum of such orders, he recognized that his authority to settle those amounts remained conditional to the arbitration of other, related amounts which he would use in his determinations and allocations. 

Second, aside from the eventual payments to BMP and the subcontractors, counsel for the subcontractors also sought payment of their costs under section 69 of the Builders Lien Act.  Master Robertson noted that section 69 did not refer to if or how a party could claim for costs from the lien amounts deposited with the court.

[52] However, the section makes no reference to the major lien fund or security posted under section 48.  That is, the extent to which a claim for costs is to be recoverable from the major lien fund (or a minor lien fund, if one exists) seems to arise, at best, from an order under section 69.  But it does expressly not say that.

[53] The BLA as a whole is at best oblique on the point.  The creation of the lien entitlement says nothing about an entitlement to costs.  It says that the lien is created “for so much of the price of the work or material as remains due to the [lien claimant]”: section 6.   Section 48 says that security may be posted by Court order including an amount for “any costs that the court may fix”.  That provision would not necessarily create an automatic entitlement to the major lien fund for payment of costs.  It may refer to the entitlement to costs where there is a specific award made under section 69, which would require making a determination at the conclusion of the dispute”.

As a result, he adjourned the applications for costs but expressly allowed the parties to re-apply if and when they found relevant authority to resolve the dispute over costs.

[55] My current view is that I do not appear to be in a position to determine if any costs should be directed under this section without having seen the award of the arbitrator.  The arbitration process is underway, but only barely.

[56] Accordingly, I adjourned Mr. Smith’s request for costs sine die, and it will likely be inappropriate to bring that part of the application back before the Court before the arbitration is complete.  The applications for costs by other lien claimants are also adjourned sine die.

[57] However, further legal research may support bringing that part of the application back before the arbitration is complete.  I do not discourage that.  I was simply not prepared to make an award as to costs at this juncture”.

urbitral notes – First, for a related decision regarding the release of security for costs in lien litigation, see the earlier Arbitration Matters note “Ontario – court defers to arbitrator court’s discretion to release statutory deposit of court costs for lien litigation – #119” regarding Man-Shield Construction Inc. et al. v. 1876030 Ontario Inc. et al., 2018 ONSC 5231. Mr. Justice F. Bruce Fitzpatrick deferred to an arbitrator the exercise of the court’s discretion to release monies deposited into court as security for costs in lien litigation under Ontario’s Construction Act, RSO 1990, c C.30.  In light of the parties’ submission to arbitration, Fitzpatrick J. held that the discretion to determine the amount of those costs and their release now rested with an arbitrator, despite that the Construction Act expressly granted that discretion to the court.

Second, for an adjournment of a proceeding in court pending determination of a key related issue in arbitration, see the earlier Arbitration Matters note “Québec – bankruptcy proceedings stayed pending arbitration on merits of creditor’s claim – #110”.  Mr. Justice Pierre C. Bellavance in Syndic de Station touristique Massif du Sud (1993) Inc., 2018 QCCS 3605 suspended the court’s determination of a creditor’s application for a bankruptcy order under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (“BIA”) pending the result of an imminent arbitration on the merits between the creditor and debtor. Though the debtor applied for the immediate dismissal of the creditor’s court application, arguing that the highly publicized litigation harmed its operations, Bellavance J. exercised his discretion under the BIA to suspend the court process. Bellavance J. did so because the court was not the appropriate forum for doing so and the parties were soon to proceed on the merits before the arbitration tribunal having jurisdiction. The forthcoming arbitration award would soon resolve the court litigation.