B.C. Court denies attempt to circumvent Builders Lien Act – Constructive trusts, a bridge too far in construction debt disputes

The B.C. Supreme Court recently released a decision which highlights the importance of complying with the deadlines set out in the Builders Lien Act, [SBC 1997] c 45 (“BLA”), and the limits of a contractor’s remedies if they fail to comply with the BLA.

Background

In NV Electrical Inc. v. Meola, 2022 BCSC 666, the plaintiff contractor, NV Electrical Inc. (the “Contractor”) entered a contract with one of the two defendant property owners (the “Owners”) to carry out electrical work on the Owners’ property (the “Property”). Due to unpaid invoices totaling $46,733.79, the Contractor filed a claim of builders lien against the Property.

The Owners served the Contractor with a 21-day notice under the BLA, which requires the lien claimant to commence a lien enforcement action and register a Certificate of Pending Litigation (CPL) against the Property within 21 days. While the Contractor filed a Notice of Civil Claim within the time limit, they failed to file a CPL. The Contractor was forced to discharge its claim of lien and CPL due to this mistake.

The Contractor subsequently filed an Amended Notice of Civil Claim. In addition to their breach of contract claim, they alleged that the Owners were unjustly enriched (by the unpaid work), and sought an order that a constructive trust be issued over the Property. A constructive trust would provide the Contractor with a proprietary interest in the Property up to the value of its claim. The Contractor also filed a second CPL against the Property to provide notice of its constructive trust claim.

The Owners allege that the constructive trust claim and CPL were an improper attempt to circumvent the time limits in the BLA.

Unjust Enrichment

With respect to the alleged unjust enrichment, the Court refused to strike the claim via summary judgment as it did not find that the claim was bound to fail on the basis of the pleadings.

In a claim for unjust enrichment, a plaintiff must demonstrate:

1. enrichment of the defendant;
2. a corresponding deprivation of the plaintiff; and
3. the absence of a juristic reason for the enrichment.

The first two requirements were not at issue, since the Owners were “enriched” by the Contractor’s work, and the Contractor was “deprived” since they were allegedly not fully paid for their services.

The Court cited its prior decision of Hans Demolition & Excavating Ltd. v. Green Oak Development (7^th) Corp., 2021 BCSC 1472, in noting that unjust enrichment claims in the construction context were “exceedingly rare” and might only be appropriate where there was no clear demarcation in the business relationship between a homeowner and a contractor. Nevertheless, the court concluded that the claim was not bound to fail.

Specifically, there was a potential basis to find that there was no juristic reason for the enrichment. This was because one of the Owners was not a party to the contract with the Contractor. Therefore, this owner potentially stood to be enriched with no juristic reason. Accordingly, the Court found a reasonable basis for the unjust enrichment claim and declined to strike the claim.

Constructive Trust and Second CPL

With respect to the constructive trust claim and the second CPL, the Court agreed with the Owners that both claims were without merit. In a claim for a constructive trust over a property, a plaintiff must plead material facts which demonstrate:

1. a substantial and direct link or connection between the claim and the property upon which the constructive trust is to be impressed; and
2. that a monetary award is inadequate, insufficient or inappropriate in the circumstances.

The Court held that the Contractor failed to show that a monetary award was insufficient. It noted that the parties’ reasonable expectations and the likelihood of a monetary award are relevant considerations. Further, and notably so, the Court stated that the fact that the dispute was within the context of the construction industry is particularly relevant, as claims in this area were generally resolved through contract law or the BLA. Absent “unusual circumstances”, breach of contract and builders liens were the extent of a contractor’s remedies. In “arms-length business transactions” where the dispute is monetary in nature, an equitable proprietary remedy such as a constructive trust was not appropriate. The Court finally noted that even if the Owners may potentially be insolvent, that is not an extraordinary situation that justifies a proprietary remedy. Permitting such relief would undermine the purposes of the BLA.

Key takeaways from this decision

This decision provides a number of key takeaways for those in the construction industry:

1. If a lien claimant fails to perfect their claim of lien by filing a Court action and a CPL on the subject property within the time limits provided by the BLA, Courts will generally not allow that claimant to make any further claims against the land.
2. Construction claims arising from monetary, arms-length business transactions are generally resolved through contract law or through the BLA. As such, constructive trust remedies which grant a right to property are not appropriate and will likely not be granted.
3. This case reinforces the need for lien claimants to strictly follow the time limits and requirements imposed by the BLA. Filing a lien within the 45-day deadline does not mean the lien claimant is “out of the woods”. Properly responding to a 21-day notice is another hurdle that must be cleared by the lien claimant in order to maintain and protect their lien rights.