Sterling Parkway Residences Inc. v. Gypsum Drywall Interiors Ltd., 2024 MBCA 46

The decision in this case follows an appeal from the decision of the Manitoba Court of King’s Bench in Sterling Parkway Residences Inc. v. Gypsum Drywall Interiors Ltd, 2022 MBKB 218. The King’s Bench dismissed an application by the Appellant Sterling Parkway Residences Inc. (“Sterling”) to vacate a builder’s lien registered against its property by the Respondent, Gypsum Drywall Interiors Ltd. (“Drywall”) without requiring Sterling to post any security.

This case is significant as it addresses the applicable test under section 55(3) of the Builders’ Liens Act, CCSM c B91 (Manitoba) (the “Manitoba BL Act”). Section 55(3) of the Manitoba Act allows a court to discharge a lien on grounds “other than” those outlined in section 55(2). Although there is no direct equivalent of this provision in the builders’ lien legislation of most other provinces, the courts in all provinces have general broad powers with respect to removal of liens. The issue raised in this case, therefore, addresses the general question as to whether a lien can be vacated without posting security in court.  

Background

The Appellant Sterling was the owner and developer of a construction project, with Boretta Construction 2002 Ltd. (“Boretta”) serving as the general contractor. The Respondent Drywall was one of several subcontractors engaged by Boretta.

Following the termination of the general contract with Boretta, Sterling notified Drywall that their subcontract would be reassigned to them, and that they would assume the payment obligations for the work performed. Despite this arrangement, construction on the project continued without Sterling formally terminating the earlier contracts or entering into a new contract with Drywall. Subsequently, Drywall informed Sterling of unpaid invoices for the completed work. Sterling countered by stating that all Drywall invoices incurred prior to the termination date had been fully settled, as they had paid Boretta in full under their contract.

In response, Drywall registered a lien against Sterling’s property for the outstanding amount owed. Sterling refused to pay Drywall, arguing that since they had compensated Boretta, they had no further obligation to Drywall.

Sterling then filed an application to vacate the subcontractor’s lien under section 55(3) of the Manitoba BL Act, seeking an order to vacate the lien unconditionally. Alternatively, Sterling requested an order under section 55(2) of the Manitoba BL Act to vacate the lien contingent upon the owner depositing funds into the court as security.

Decision of the lower court

The Manitoba Court of King’s Bench found that Drywall had a valid lien right. The application judge dismissed the application brought under section 55(3) of the Manitoba BL Act. The court also found that Sterling had established a direct contractual relationship with the Respondent, making it responsible for any breaches of subcontracts. Consequently, any payments made by the applicant to Boretta, which were intended to cover the Respondent’s work, did not relieve the Applicant Sterling of its obligations under the general contract or diminish the Respondent’s right to claim a lien under the Manitoba BL Act. Consequently, the court stated that Sterling had to exercise the option to pay the full amount of the lien into court as security for vacating the lien.

Court of Appeal decision

The Manitoba Court of Appeal upheld the dismissal of Sterling’s appeal but provided a different rationale than that of the lower court. The appellate court ruled that an order to vacate a lien under section 55(3) of the Manitoba BL Act, without requiring the posting of security, should only be granted in the clearest cases where no material facts are in contention and it is clear that no builder’s lien exists. In its application of this standard, the Court of Appeal indicated that this is not (i) a case in which there are no material facts in dispute, (ii) nor is it evident that the lien is invalid. Consequently, the application judge lacked the authority to vacate the lien under section 55(3) of the Manitoba BL Act, as there remained an ongoing dispute in trial concerning the facts of the case.

Key takeaways

In Manitoba, builders’ liens can be discharged through two primary methods under the Manitoba BL Act. Section 55(2) allows for a lien to be vacated by posting security, such as funds paid into court or held in trust, enabling the project to proceed without interruption. In contrast, section 55(3) permits the vacating of a lien without the need for posting security. However, the criteria for applying section 55(3) is stringent, requiring that no material facts be in dispute. If a dispute exists, such as issues surrounding payment or the validity of the contract, the court cannot summarily vacate the lien, and the matter must advance to trial or further litigation, where no security is deposited in court. Accordingly, the Manitoba Court of Appeal dismissed Sterling’s appeal, ruling that section 55(3) of the Manitoba BL Act was unavailable due to the presence of material disputes, including questions of payment and contractual relationships. This decision highlights that the applicability of section 55(3), and as such applicability of the general powers of court surrounding the vacating of liens without posting security in court, is reserved for that rare situation where the key facts of a matter are unequivocal and uncontested, and no material dispute exists. As acknowledged by the Manitoba Court of Appeal in this decision, vacating a registered lien on property by posting security of the required amount in court remains the most practical and expeditious option for discharging a lien to ensure the continuity of construction progress or to ensure that the title to land can be kept free and clear of liens without having to go through lengthy trials.

Should you have any questions, please do not hesitate to reach out to a member of Miller Thomson’s Construction and Infrastructure group.