Doing business in the construction industry inevitably leads to the possibility of involvement in legal disputes, which are often about payment. Construction claims can be resolved in different ways, by litigation or by the “alternative” dispute resolution procedures of mediation and arbitration.
Usually, a party against whom a claim may be prosecuted in a legal action will not want to encourage, let alone force, the claimant to commence the action. This is because of the possibility that a claimant may decide not to pursue an action, and because it is in any event sometimes desirable to postpone as long as possible having to incur the legal expense and time and effort involved in defending a lawsuit. Under the British Columbia Limitation Act, the general time period within which a civil action relating to a construction claim must be commenced is two years after the existence of the claim is discovered.
Lien claims must be enforced by legal action. A builders lien claim is subject to special time limits, which reflect the “extraordinary” nature of the lien remedy, in particular the fact that it involves a charge against the title of the project property improved by construction-related services or work. The basic time limit for a lien claimant to commence an action to enforce the lien, which must be prosecuted in the Supreme Court of British Columbia regardless of the amount of the lien, is up to one year from the date of the filing of its Claim of Lien. However, an owner or its authorized agent or another person who has already commenced a lien enforcement action can serve on the lien claimant a Notice to Commence an Action, which instead requires the lien claimant to start its lawsuit within the short period of 21 days after service of the Notice.
Why would someone want to require a lien claimant to sue them, at all or sooner rather than later?
An owner or its authorized agent for this purpose, such as a general contractor dealing with subtrade liens, may serve a Notice to Commence an Action to see whether the lien claimant will follow through with a lawsuit or abandon its lien claim. This tactic is often used when the amount of the lien is low enough that it will potentially not justify the claimant’s incurring the expense of taking proceedings in the Supreme Court of British Columbia. In that situation, a claimant may prefer to drop its lien claim and prosecute the non-lien components of its claim, if at all, in the Provincial Court (Small Claims), which otherwise has jurisdiction over claims involving amounts up to $35,000.00, and has simpler and less costly procedures than the Supreme Court. Even if a lien claimant on whom a Notice is served commences a lien enforcement action in the Supreme Court, it will no longer be able to simply sit on its lien, but will be forced to incur the cost of actively moving its claim toward resolution.
The owner or its authorized agent may also serve one or more Notices to Commence an Action in order to have multiple builders lien claims be commenced and proceed together rather than in a haphazard fashion at the discretion of the respective lien claimants. This approach is justified by the principle of builders lien law that lien claims of the same class cannot proceed to execution after judgment until all of them have been adjudicated and the practice that such claims should be tried together to save time and expense and avoid inconsistent results. This is particularly desirable in the case of multiple subtrade lien claimants against a single holdback.
A lien claimant who has already commenced a lien enforcement action may also decide to serve a Notice to Commence an Action to have all other lien claims advance toward resolution together with its lien, in order to shorten the time until it can as necessary execute on a lien judgment.
If a lien claimant does not commence its lien enforcement action within the one-year or 21-day limitation period, as applicable, its lien will be extinguished and can be discharged from the project property title unilaterally by the party who served the Notice to Commence an Action. If the lien was previously discharged from title by the posting of security, the securing party will be entitled to the return of its security. As referred to above, the claimant’s non-lien claims will persist and remain actionable, subject to the operation of applicable other limitation periods.