If an owner agrees to pay amounts owed by a contractor to its subcontractors to avoid lien claims being filed, how does this affect the owner's right to pay the holdback into court under section 23 of the Builders Lien Act, S.B.C. 1997, c. 45 (the Act) to discharge lien claims? The Court of Appeal in Pinnacle Living (Capstan Village) Lands Inc. v. Fairway Recycle Group Inc.¹ has recently weighed in on this important question.

Section 23 of the Act allows an owner to discharge lien claims from title by paying a prescribed holdback amount into court as security if the lien claims are filed by a class of lien claimants “other than a class of lien claimants engaged by the owner.”

BC Supreme Court decision

We first reported on the case back in 2023. You can find our insight summarizing the lower court decision here.

The case begins with an owner applying to pay the holdback into court to discharge a sub-subcontractor’s claim of lien. The owner had previously agreed to pay outstanding amounts owed to the sub-subcontractor in an effort to avoid the sub-subcontractor filing the claim of lien altogether.

The chambers judge held that by agreeing to pay the sub-subcontractor’s invoices, which could give rise to a lien, the owner created a direct contractual relationship with the sub-subcontractor. The effect of this agreement was that the sub-subcontractor was no longer one step removed from the owner, as section 23 of the Act requires. Consequently, the owner was not permitted to pay the holdback into court to discharge the sub-subcontractor's lien claim². The owner and head contractor appealed.

Court of Appeal decision

The BC Court of Appeal allowed the appeal, distinguishing between the two contractual arrangements:

(a) the original agreement between the subcontractor and sub-subcontractor for work and services, which was to be paid by the subcontractor; and

(b) the owner’s subsequent agreement to pay for the sub-subcontractor’s completed work in exchange for forbearance of its lien claim.

The Court of Appeal ruled that the subsequent contractual arrangement to pay for the sub-subcontractor’s completed work did not create new lien rights or transform the existing obligations formed under the original agreement. The work that formed the basis of the lien claim was not supplied under a contract with the owner. The owner’s subsequent agreement to pay for the work did not change the nature of the prior contractual agreement or the lien rights and obligations stemming from that prior agreement.

The owner was permitted to discharge the sub-subcontractor’s lien claim on payment of the statutory holdback into court, relying on section 23 of the Act.

Key takeaways

In this case, the Court of Appeal overturned the BC Supreme Court’s incorrect decision that where an owner had direct dealings with sub-subcontractors regarding payment, it loses its right to discharge sub-subcontractor’s lien claims by paying the holdback into court. The case is an important affirmation of the owner’s right to use section 23 of the Act to remove lien claims from title to its land by paying the holdback into court.

If you are in the construction industry and have questions about this case specifically or your rights and obligations under the Act more generally, please reach out to your trusted legal advisors at Dentons Canada's Construction group.

[1] Pinnacle Living (Capstan Village) Lands Inc. v. Tarrier Group Inc., 2024 BCCA 172

[2] Pinnacle Living (Capstan Village) Lands Inc. v. Tarrier Group Inc., 2024 BCCA 172 at paras 34 – 35.