IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Iberdrola Energy Projects Canada Corporation v. Factory Sales & Engineering Inc. d.b.a. FSE Energy,

 

2017 BCSC 1776

Date: 20171003

Docket: S54218

Registry: Kamloops

Between:

Iberdrola Energy Products Canada Corporation

Petitioner

And

Factory Sales & Engineering Inc. d.b.a. FSE Energy, Acuren Group Inc., Norweld Stress (1994) Ltd., Peter Makin, Canyon Tree Farms Inc., Shic Enterprises Ltd. d.b.a. Alpha Design, Aluma Systems Inc., Enviroblast and NDT Inc., Dnow Canada ULC, Irwin’s Safety and Industrial Labour Services Ltd., United Rental of Canada Inc., Price Industries Ltd., TVE Industrial Services Ltd., Acier Marquis Inc., All Therm Services Inc., Coast Crane Ltd., Moyes & Company Building Materials Ltd., Prime Quality Construction Inc., Merritt Green Energy Limited Partnership and Merritt Green Energy General Partner Ltd.

Respondents

Before: The Honourable Mr. Justice Dley

Reasons for Judgment

Counsel for the Petitioner:

R. Morse
T.C. Louman-Gardiner

Counsel for the Respondents, TVE Industrial Services Ltd. and Acier Marquis Inc.:

C.J. Moore

Counsel for the Respondents, Fort St. James Energy General Partner, Merritt Green Energy Limited Partnership and Merritt Green Energy Ltd.:

K.A. Reilly

Counsel for the Respondents, All Therm Services Inc.:

D.H. Coles

Counsel for the Respondents, Aluma Systems Inc.:

M.G. Armstrong, Q.C.

Counsel for the Respondents, Prime Quality Construction Inc.:

G.J.R. Thomson

Counsel for the Respondents, Chubb Insurance Company of Canada formerly ACE/INA Insurance Company:

J.M. Moshonas

Counsel for the Respondent, Canyon Tree Farms Inc.:

C. McKechnie

Place and Date of Trial/Hearing:

Kamloops, B.C.

September 21, 2017

Place and Date of Judgment:

Kamloops, B.C.

October 3, 2017

Introduction

[1]             Iberdrola Energy Projects Canada Corporation (“Iberdrola”) was the general contractor on major construction projects in Merritt (the “Merritt project”) and Fort St. James (the “Fort St. James project”), British Columbia. Iberdrola contracted with Factory Sales & Engineering Inc. (“FSE”) to supply and install boilers (the “Boiler Contract”). FSE in turn engaged subcontractors to provide the necessary labour and supplies.

[2]             FSE encountered financial difficulties (it is presently insolvent). In order to complete the projects and, at a significantly increased price, Iberdrola agreed to advance money earmarked for payment to subcontractors.

[3]             The issue is whether the advances are to be included as part of the amount to be used for calculating Iberdrola’s 10% holdback requirement under the Builders’ Lien Act, S.B.C. 1997, c. 45 [the “Act”].

Background Facts

[4]             Iberdrola and FSE entered into a fixed price contract for the construction of boilers. After construction commenced, it became apparent to Iberdrola that FSE had not paid some of its subcontractors.

[5]             Iberdrola was faced with penalties if the project was not completed on time.

[6]             In order to keep the subcontractors working, Iberdrola entered into a series of agreements with FSE so that Iberdrola either paid subcontractors directly, or their invoices were paid out of a joint account funded by Iberdrola.

[7]             While the agreements were titled differently (e.g. Settlement Agreement; Payment Agreement), they were all designed to pay the subcontractors working for FSE. The agreements stated that those monies advanced by Iberdrola were to be set off or deducted from any amount that Iberdrola owed to FSE.

[8]             FSE defaulted on its obligations and left the job sites in November, 2016.

[9]             For the Merritt project, Iberdrola paid FSE over $30 million USD (all dollar amounts are expressed in USD). Iberdrola calculates the holdback amount at $3,888,961. For the Fort St. James project, Iberdrola paid FSE over $32 million and calculates the holdback amount at $3,564,232.

[10]         The actual amount paid by Iberdrola (including those payments directly to subcontractors or through the Iberdrola-funded joint account) for the supply and installation of the boiler at the Merritt project was over $74 million. The lien claimants say that the holdback amount should be $7,422,046.

[11]         The actual amount paid by Iberdrola for the supply and installation of the boiler at the Fort St. James project was over $65 million. The lien claimants say that the holdback amount should be $6,553,223.

Issue

[12]         The amount of the appropriate holdback is governed by s. 4 of the Act:

4 (1) The person primarily liable on each contract, and the person primarily liable on each subcontract, under which a lien may arise under this Act must retain a holdback equal to 10% of the greater of

(a) the value of the work or material as they are actually provided under the contract or subcontract, and

(b) the amount of any payment made on account of the contract or subcontract price.

(2) The obligation to retain the holdback under subsection (1) applies whether or not the contract or subcontract provides for periodic payments or payment on completion.

(3) For the purposes of subsection (1), value must be calculated on the basis of the contract or subcontract price or, if there is no specific price, on the basis of the actual value of the work or material.

[13]         The narrow issue for determination is whether the 10% holdback is to be calculated on the amount that Iberdrola paid to FSE under the initial Boiler Contract, or on the total amount paid for the supply and installation of the boilers, which account for the subsequent payments made by Iberdrola to subcontractors.

Discussion

[14]         The purpose of the holdback provision under s. 4(1) of the Act is to provide a fund from which unpaid subcontractors and suppliers may claim. The fund is to be 10% of the value of the work or material under the contract, or on the amount of any payment made on account of the contract.

[15]         The amount paid for the supply and installation of the boiler for the Merritt project was over $74 million. That would mean that for the purposes of this application (the lien holders must still prove their respective claims) the value of the work relating to the Merritt boiler was also over $74 million. The same reasoning would apply to the amounts paid and value of the work for the Fort St. James project.

[16]         Section 4 of the Act requires a holdback equal to 10% of the value or amount of payment made on account of the contract – whichever is greater. Here it makes little difference since the figures relating to value or payment are essentially the same.

[17]         Iberdrola and FSE changed the manner in which they conducted business between themselves. The initial fixed price contract was amended or abandoned. It was apparent that the value of the projects had increased dramatically or that FSE had under-bid the contract.

[18]         Iberdrola took the necessary steps to complete the projects by ensuring the subcontractors were paid the increased amount. The agreements between Iberdrola and FSE did not change the scope or nature of the work. The agreements simply changed the manner in which the subcontractors were to be paid by giving Iberdrola more control over the payments. The contract remained the same; FSE was to supply and install boilers - only the cost of providing those services had increased.

[19]         Whether the arrangement between Iberdrola and FSE was a loan is not determinative of the issue for resolution. The question as to the amount required for a holdback can be answered by simply looking at the value of the work and the amount paid for it. That is what the clear language of s. 4 requires.

[20]         Iberdrola argues that the Act cannot be construed so as to increase its liabilities. It argues that if the holdback is based on the total value or amounts paid for the boiler installations, then it is required to hold back more than the amount set out in the initial fixed price contract.

[21]         In these circumstances, Iberdrola’s liabilities under the Act have not increased. Iberdrola agreed to pay the increased costs for the completion of the work set out in the contract. If Iberdrola had retained the required holdback based on the amended agreement, its liability would not have increased. It is only because Iberdrola failed to do what it was required to do by statute that it is now compelled to account for the proper holdback amount: Denston Co. v. Delta School District No. 37, 1958 CarswellBC 144 at paras. 4-5.

[22]         I am, therefore, satisfied that the required holdback is to be calculated based on the actual amount paid under the contract to supply and install the boilers; that is the amount submitted by the lien claimants. The required holdbacks are $7,422,046 USD for the Merritt project and $6,553,223 USD for the Fort St. James project.

[23]         Iberdrola has applied to have the liens discharged pursuant to either ss. 23 or 24 of the Act.

[24]         An Order under s. 23 is a final order discharging the owner and that may prejudice the lien claimants since FSE is insolvent. An Order under s. 24 is interlocutory and does not limit the lien claimants as in the case of a final order.

[25]         Therefore, the claims of lien shall be removed and the Certificates of Pending Litigation cancelled with respect to the affected lands upon Iberdrola posting sufficient security to satisfy the required holdback amounts.

[26]         The lien claimants appearing at this hearing shall be entitled to their costs in the cause.

Summary

[27]          The following Orders are made:

1) The required holdback for the Merritt project is $7,422,046 USD;

2) The required holdback for the Fort. St. James project is $6,553,223 USD;

3) Pursuant to s. 24 of the Act, the claims of lien shall be removed and the Certificates of Pending Litigation cancelled with respect to the affected lands upon Iberdrola posting sufficient security to satisfy the required holdback amounts; and

4) The lien claimants appearing at his hearing shall be entitled to costs in the cause.

“S.D. Dley J.”

DLEY J.