Lien Entitlement: An “Overall Project” Perspective

A recent decision of the Alberta Court of King's Bench provides a reminder that supplying work and materials to a project does not necessarily result in builders’ lien rights. When assessing lien rights, the Court will consider contextual information, including details about the nature of the project. Does the project involve the construction of something on the lands, or is it a maintenance project? Such a distinction may dictate whether lien rights exist or not.

Court Decision

In Young EnergyServe Inc. v. LR Ltd., LR Processing Partnership (“EnergyServe”), the Court assessed whether a Contractor’s builders’ lien was valid.

The Contractor was retained to perform a turnaround project at a gas processing plant (the “Project”). In this case, the Project specifically involved cleaning, repairing, and relining the interior of all tanks and pressure vessels, and the repair or replacement of worn or faulty piping and pressure valves at the plant (the “Work”).

Prior to commencement of the Project, the plant was shut down pending regulatory approval. The Work was required in order for the plant to pass certain inspections, obtain regulatory approval, and continue to operate efficiently and economically. Following completion of the Work, the Contractor registered a lien in relation to the Work.

In order to assess the validity of the lien, the Court analyzed the prerequisites to lien entitlement under Alberta’s Builders’ Lien Act. The Court highlighted the following principles:

1. Courts will assess a party’s entitlement to a lien from the perspective of the “overall project”. Simply put, this means that when assessing the validity of a lien, the Court will not only consider the nature of the work but will also consider the nature of the project.
   
2. In this regard, the Courts have drawn a distinction between work performed as part of a construction process on a building site and work performed as maintenance. The former, which is related to ‘making and constructing’, could entitle a contractor to a builders’ lien. The latter does not, even if the maintenance is required to remain compliant with regulations.

Having regard to these principles, the Court in EnergyServe considered whether the Work was part of an overall project to construct something on the lands, as opposed merely being a maintenance project.

In the result, the Court decided that the Contractor did not have a valid lien. The Court determined that the Work was not part of a project to build or expand the plant, and that the Work was merely in the category of maintenance services.

Implications

Whether you are a contractor who expects to rely on lien rights for your work, or an owner seeking to remove or prevent an invalid lien, it is crucial for you to consider the context of the work underlying the lien. Identical work may be lienable on a construction project but not on a maintenance project – and some projects may involve both construction and maintenance, leaving questions as to the scope of lien rights. The EnergyServe decision demonstrates that, even in the event of a significant and necessary project involving work on a building or lands, the overall context of the project may ultimately determine whether valid lien rights exist.

For any further information or questions regarding the post above, please contact Graham Henderson or any other member of the McLennan Ross Construction Industry Group.