Amid 20-year high interest rates and uncertainty impacting new investment, the construction industry is paying increased attention to collecting payment.
British Columbia continues to await the introduction of prompt payment legislation as set out by the Select Standing Committee on Finance and Government Service in its Report on the Budget 2023 which recommended that the government prioritize prompt payment legislation. The Committee noted that construction is the only sector in British Columbia in which it is standard practice for purchasers of services to require 90 or 120 payment terms, and then to delay payment even on those terms.
Unfortunately, little has occurred since that recommendation was made in August 2022 and while some progress has been made at the federal level, the construction industry in British Columbia continues to suffer from significant issues related to delayed payment, heightened now by current economic realities. Without prompt payment legislation, the construction industry is required to rely on the Builders Lien Act and civil court proceedings to collect on unpaid amounts. With a recent re-emphasis on timely collections, it is important that options to pursue collections are properly utilized and understood.
The Builders Lien
When outstanding amounts are owed during a project, the importance of properly asserting a claim of builders lien cannot be overstated. While in good economic times many contractors rely on the strength of long-term working relationships to ensure payment, properly securing lien rights when accounts are unpaid is critical to preserving lien rights.
A recent case has again outlined the importance of properly filing a claim of builders lien. While the principles asserted are not new, it serves as a timely reminder of the importance of strictly complying with the Builders Lien Act. In Orbital Construction Inc. v. Hansen, 2023 BCSC 712, the court struck a claim of builders lien on the basis that the lien claimant improperly named the owner of the property as the party indebted to the lien claimant.
The owner of the property had not contracted with the lien claimant, but the lien claimant argued that the claim of lien form substantially complied with the requirements of the Builder Lien Act because the owner of the property was an indirect debtor to the lien claimant, by reason of having an interest in the land. The court rejected this argument finding that while the Builders Lien Act does not penalize inconsequential errors made while completing a claim of lien form, the improper identification of the party liable in contract to the lien claimant was not an inconsequential error and necessitated the striking of the builder lien filed.
Failing to file a lien within the time limits prescribed by the Builders Lien Act or filing a lien but making a material error in the claim of lien, will result in the extinguishment of the lien and can result in depriving a creditor on a construction project from pursuing its claim for unpaid accounts through the lien process.
Civil Actions
Once a claim of lien is filed, an action to enforce the lien must be commenced within one year (or earlier if served with notice) and a certificate of pending litigation is filed against the land. Enforcement of the lien requires the lien claimant to prove their lien in a Supreme Court civil action and to obtain judgement from the court.
However, even when a creditor has missed the deadline to file a claim or lien or has improperly filed a claim of lien, it may nevertheless pursue a claim for unpaid services or materials through the civil court process.
Where holdback funds have been retained, a claim for breach of trust or a claim against holdback funds which remain in trust may be asserted against those funds. Legal advice should be sought in a timely fashion to properly determine the deadline within which to commence a claim in breach of trust or against the holdback funds.
Where no holdback funds have been retained, or those funds have already been disbursed, a breach of contract action in debt may be commenced within two years of the breach. For unpaid accounts of less than $35,000 which do not involve a builders lien, a debt claim may be brought in small claims court which provides a faster and more economic road to obtaining a judgement than a proceeding in Supreme Court.
Proposed Money Judgement Enforcement Act
Once judgement has been obtained, if a debtor continues to refuse to pay the amounts owed, steps must be taken to enforce the judgement. Where the B.C. government has stalled on prompt payment legislation, it has acted to expedite the collection of judgements for money.
In May 2023, Bill 27 the Money Judgment Enforcement Act (the Act), was introduced as legislation. Once passed and brought into force, the Act will simplify the procedure for creditors to collect unpaid debts after judgement is obtained through a civil action.
The Act significantly expands the types of property that can be subject to enforcement proceedings. Unlike current legislation, once passed the Act will make every type of property which a debtor has an interest in, potentially subject to enforcement proceedings, subject only to exceptions contained in the Act.
Further, the Act will create a Money Judgement Registry which will create a universal publicly searchable registry for registered judgements. The registry system will provide a process whereby a debtor’s bank accounts and wages can be garnished, without having to proceed to court to obtain a garnishing order, which the current system requires. This will significantly streamline garnishment proceedings from the current system which can require numerous court applications.
Collecting unpaid accounts in uncertain economic times requires careful attention and planning so that rights which may arise under the Builders Lien Act are not inadvertently lost. While the proposed Money Judgement Enforcement Act will serve to streamline collections once judgement is obtained, prompt payment legislation continues to be sorely needed by B.C.’s construction industry.
Rebecca Cleary is associate counsel and member of the construction and engineering practice at Alexander Holburn Beaudin & Lang LLP.
