Friday, 17 July 2015

Arbitration Clauses and Lien Rights

Author: Corbin Devlin

Lien rights can’t be enforced through arbitration, but many construction contracts provide for mandatory arbitration. In a recent decision, West Coast Installations, Inc. v. Frazier Industrial Co., the Alberta Court explained how arbitration clauses and liens can co-exist. This is not new law, but it is useful clarification of an issue that comes up time and again.

Arbitration Clauses
Many construction contracts provide that the parties choose to resolve their disputes outside of court, usually by arbitration. The courts will give effect to these agreements – that is, a party who has agreed to resolve a dispute by arbitration may find his case thrown out if he tries to proceed instead by way of a lawsuit.

Lien Rights

Lien rights can only be enforced by the courts. Section 8 of the Builders’ Lien Act makes it clear that the parties cannot contract out of the remedies provided by the Act. As stated by the court, in the West Coast Intallations case: “That does not mean that the parties to a contract cannot agree to have the substance of any dispute referred to arbitration, but it means that the party who has done the work cannot be prevented from claiming a builder’s lien and similarly the landowner or the general contractor cannot be prevented from providing security to stand in place of the lien under section 48 of the Builders’ Lien Act. These are remedies available under the legislation.”

A Pause in the Legal Process 

In the West Coast Installations case, the lien claimant sued despite the existence of a mandatory arbitration clause. (In fact, the lien claimant probably had no choice but to sue, to preserve its’ lien rights in accordance with the Builders’ Lien Act.) On a court application by the counterparty, the court issued a stay of proceedings. That is, the court referred the dispute to be resolved by arbitration, and directed that the parties could return to court only after the arbitration concluded, or upon settlement of the dispute, for the court to give directions in respect of the claimant’s lien rights. In this way, the court process would be put on pause, the substantive dispute between the parties would be resolved by an arbitrator, and then a judge would (if necessary) give effect to the arbitrator’s decision by enforcing the claimant’s lien rights. 

Allowing for some minor variations in the process, there is no doubt that lien rights and arbitration clauses can co-exist. In many cases, co-existence would not be the subject of any real dispute; the court process would be paused (“stayed”) by agreement while the arbitration proceeds.