The British Columbia Court of Appeal recently ruled that a defendant’s strong financial position is an irrelevant consideration to obtaining security for costs against an impecunious corporate plaintiff.
The Court also confirmed that the process for removing a certificate of pending litigation (“CPL“) from land under s. 252 of the Land Title Act RSBC 1996, c 250 (the “LTA“) cannot be used to cancel a lien filed under the Builders Lien Act, SBC 1997, c 45 (the “BLA“).
In Parkbridge Lifestyle Communities Inc. v. New West Custom Homes (Kelowna) Inc., 2022 BCCA 299, the Court heard a dispute between a general contractor, New West Custom Homes (Kelowna) Inc. (“New West“) and a large property developer, Parkbridge Lifestyle Communities Inc. (“Parkbridge“). On appeal were applications by the defendant Parkbridge for New West to post security for costs and to cancel a builder’s lien registered by New West.
Parkbridge owned lands in Kelowna, British Columbia upon which it was developing a large residential construction project known as Solstice at Tower Ranch (the “Project“). On May 17, 2017, the parties entered into a contract for New West to act as the general contractor on the Project, which entailed construction of 42 homes for $12,374,954.30, exclusive of taxes (the “Contract“). New West had been incorporated for the purpose of carrying out the Contract.
By 2018, the Project ran into difficulties that resulted in Parkbridge issuing a notice of default to New West on April 4, 2018, which required it to correct deficiencies within five (5) working days. New West denied the default alleged by Parkbridge and did not take any steps to correct the alleged default. As a result, Parkbridge terminated the Contract on April 12, 2018.
On April 20 2018, New West filed a builder’s lien of $3,995,935.74 against the Project lands pursuant to the BLA (the “New West Lien“). The New West Lien subsumed various other liens claimed by subcontractors and material suppliers engaged by New West. Seven (7) days later, Parkbridge issued a notice to New West to commence an action to enforce the New West Lien within 21 days. On May 2, 2018, New West filed a notice of civil claim to enforce the New West Lien (the “Action“) and registered a CPL on the Project lands two (2) days later. Parkbridge filed a counterclaim in the Action, wherein it sought damages for numerous causes of action, including breach of contract.
In parallel with the Action, Parkbridge commenced petition proceedings seeking to cancel the New West Lien and CPL upon posting security pursuant to s. 24 of the BLA. Master Wilson granted the relief sought by Parkbridge in the petition proceeding and the ordered the New West Lien, other liens it subsumed, and the CPL be discharged from the Project lands upon Parkbridge posting a letter of credit for $3,995,935.74. The letter of credit was ordered to stand as security in place of the various liens.
The Chambers Applications in the Action
On August 5, 2020, Parkbridge applied in the Action for an order under s. 25 of the BLA to cancel the New West Lien and an order that New West post $60,000 in security for costs (the “Chambers Applications“).
For the first order sought, Parkbridge relied upon s. 252 of the LTA, which allows a land owner to apply for cancellation of a CPL if no steps have been taken in the proceeding for one year. Apart from stating that this application ought to have been brought in the petition proceeding, the chambers judge also held, among other things, that the cancellation of a CPL pursuant to s. 252 of the LTA would not result in the cancellation of a claim of lien in any event. Put another way, s. 252 of the LTA did not provide a basis for Parkbridge to apply to cancel the New West Lien itself.
With respect to the second order sought, Parkbridge established that New West had insufficient assets to satisfy a costs award and that Parkbridge had a reasonable defence to New West’s claim. However, the chambers judge held New West was not required to post security, because: (1) New West’s claim would probably be stifled; and (2) an order for security for costs would have essentially no impact on Parkbridge, given the large scope of Parkbridge’s overall assets and operations.
Parkbridge appealed the results of the Chamber Applications.
Court of Appeal
On appeal, Parkbridge relied on, among other things: (1) section 33(1) of the BLA, which requires a lien claimant to commence an lien enforcement action and to register a CPL no later than one year after filing the lien, unless the lien has been removed or cancelled under s. 24 of the BLA; (2) section 33(5) of the BLA, which provides that a lien is extinguished if this procedure is not followed, and the procedure set out in the BLA that allowed a land owner to then apply for cancellation of the lien in the event it is extinguished; and (3) section 252(1) of the LTA, which as set out above allows a land owner to apply for cancellation of a CPL if no step has been taken in the proceeding for one year.
Parkbridge submitted that the BLA and LTA should be read together to create a new deadline on lien claimants such that a builder’s lien or a claim against substituted security can be extinguished if no step is taken in the proceeding within a year, despite the action being commenced within s. 33(1) BLA‘s time limit.
The Court of Appeal rejected this submission, holding that Parkbridge’s interpretation was not supported by the legislation or authorities. The Court clarified that registration of a CPL does not create a substantive right to an interest in land, but rather serves only to give notice to the world of a proprietary claim against land which could impact priorities and otherwise restrain dealings while the claim is being determined. The Court confirmed that s. 252 of the LTA is limited to cancelling a CPL and it does not engage any provisions of the BLA that would allow the court to cancel a lien.
The Court held that a fundamental problem with Parkbridge’s submission was that at the time of the Chambers Applications, the CPL had been discharged from title and replaced with substitute security. In the absence of a CPL, the Court found the chambers judge had no jurisdiction to make an order under s. 252 of the LTA and dismissed the appeal in respect of the lien cancellation.
With respect to the security for costs application, the Court of Appeal considered section 236 of the Business Corporations Act, SBC 2007, c 57 (the “BCA“), which is the statutory basis for awarding security for costs against a corporate plaintiff. This provision gives a court the discretion to order a corporate plaintiff to provide security to a defendant if it appears that the corporation will be unable to pay the costs of the defendant if the defendant is successful in its defence.
The Court of Appeal previously stated that once the applicant for security has shown that the plaintiff will not be able to pay costs should the claim fail, security is generally ordered unless the court is satisfied that there is no arguable defence.
In light of New West’s impecuniosity, it was uncontested that New West would be unable to pay a costs award if so ordered. It was also uncontested that Parkbridge had a reasonable defence to New West’s claim.
The Court noted that New West was seeking approximately $4,000,000 in damages, which would benefit New West’s shareholders if litigation was successful. Comparatively, the security that Parkbridge sought was a ‘small fraction of that sum’. The Court further noted that the purpose of s. 236 of the BCA is to provide protection to a defendant who is sued by an impecunious corporate plaintiff who will be unable to pay the defendant’s costs.
The Court held New West had failed to provide evidence which demonstrated its Action would be stifled by an order for security for costs and the chambers judge had erred in finding otherwise. In particular, the Court held that New West’s impecuniosity was the very reason for Parkbridge’s application for security for costs; the same could not be used to defeat the application. New West had not established on evidence that it lacked the means of raising money for security.
The Court further found that the chambers judge had erred in refusing to order security for costs because of Parkbridge’s financial strength, which it held was not a proper consideration. The Court held that the relevant issue was whether the plaintiff would be able to pay the costs if the defendant was successful, not whether the costs would make an impact on the defendant given its financial status.
In the result, the Court ordered New West to post security for costs of $30,000. This was less than the $60,000 Parkbridge sought because, regardless of New West’s claim, Parkbridge would incur significant costs through pursuing its counterclaim which concerned the same facts.
The result of this case should give a measure of comfort to well-financed defendants with respect to obtaining security for costs against a corporate plaintiff, particularly where that plaintiff is impecunious. The decision also clarifies that under the BLA, there is no right to use the cancellation of a CPL (which merely serves as a notice) to affect substantive rights afforded by a builder’s lien.
Please see a copy of the decision here, and contact Joseph Romanoski, Amy Peck, or Alexandre Maltas with any questions regarding this case or any of your litigation and construction related matters.
Written by Joseph Romanoski with assistance from articling student Matthew Wong.