Understanding The Use Of Lien Bonds On Crown Land

• Published date: 23 August 2023
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Construction & Planning
• Law Firm: Borden Ladner Gervais LLP
• Author: Richard Yehia, James MacLellan and Evan Ivkovic

"Ensuring payment of contractors and subcontractors and encouraging liquidity in the flow of funds to them are both significant preoccupations in the construction industry." This quote from the Supreme Court of Canada remains as applicable now as it was when we cited it in our previous article, discussing the case of Bird Construction Group v Trotter and Morton Industrial Contracting Inc., 2021 MBQB 233. In that article, we considered the potential adverse effects of the decision on the flow of funds on construction projects on Crown lands, and, respectfully, the errors in the application judge's reasoning.

In Bird Construction Group v Trotter and Morton Industrial Contracting Inc., 2023 MBCA 64, the Manitoba Court of Appeal overturned the decision of the application judge and ruled that lien bonds could be used as security to vacate claims for lien on Crown lands. In doing so, the Court of Appeal provided much needed clarity on the use of lien bonds on construction projects, and their importance in encouraging liquidity and the flow of funds.

Background

The background of the case is relatively straightforward.

• The Manitoba Water Services Board hired Bird Construction Group (Bird) as contractor on a wastewater treatment project at the City of Selkirk in Manitoba (the Project). Bird subcontracted with Trotter and Morton Industrial Contracting (TM) to perform a defined scope of work on the Project.
• There was a dispute between Bird and TM over payments, and TM delivered two notices of claim for lien.
• Bird attempted to vacate the claims for lien by posting two lien bonds.
• TM challenged Bird's application, arguing that a lien bond was not appropriate security in the case of Crown lands, which was the case for the Project.
• The application judge held that lien bonds were an inadequate form of security for Crown lands.

The details of the application judge's decision (and our respectful opinion on his decision) can be found in our previous article. In short, there were errors in the application judge's reasoning, and, unsurprisingly, Bird appealed the application judge's decision.

Lien bonds an adequate alternative to cash security

The Court of Appeal began by confirming the jurisdiction of the Court to vacate claims for lien on Crown lands. It next analyzed the sufficiency of lien bonds as security to vacate liens.

The Court of Appeal first noted that the application judge's decision regarding the adequacy of the proposed security to vacate the lien is...