|
Construction - Liens (2). 1995636 Ontario Inc. C.O.B. 2B Developments v. 5010729 Ontario Inc. C.O.B. as Astute Capital Corp.
In 1995636 Ontario Inc. C.O.B. 2B Developments v. 5010729 Ontario Inc. C.O.B. as Astute Capital Corp. (Ont Divisional Ct, 2024) the Ontario Court of Appeal allowed an appeal from a dismissed motion to stay [under R63.02(1)], here of an order discharging a CA lien.
The court considered liens under the Construction Act:[31] At this point, it is important to review the characteristics of a lien.
[32] First, a lien is a statutory right under the Act. (Sections 14 and 15).
[33] Second, the parties agree that the discharge of a lien is irrevocable, and once gone, cannot in any way be reversed by the court, even on appeal. See JDM Developments Inc. v. J. Stollar Construction Ltd., [2006] O.J. No. 2620 (Sup. Ct.), per Justice Valin at para. 9.
[34] The lien stands as security for the amount owed as proven by the lien claimant if the defendant is unable to satisfy a monetary judgment against it.
....
[37] Although 2B can proceed against Astute on a judgment, a refusal to stay the discharge of the lien will cause irreparable harm to the moving party that cannot be compensated with costs.
[38] A request in a Notice of Appeal requesting a reinstatement of a lien is moot. As stated in JDM at para. 11, “The registered discharges of the liens and certificates of action are irrevocable. A discharged lien cannot be revived in any manner.”
[39] H.I.R.A. Limited v. Middlesex Standard Condominium Corporation No. 823, 2018 ONSC 3661, is instructive. Justice Morawetz (as he was then) had to determine if the order appealed from was interlocutory (thereby requiring leave in the Divisional Court) or final. He first determined that an order that reduces a portion of the claim from being secured to unsecured is a substantive issue and deprives a lien claimant of certain legal rights and hence the order is final. He then determined the stay motion and found that the lien claimant’s loss of security would result in a loss of security and hence would be considered irreparable.
[40] At para. 19 in Warren Woods Land Corporation v. 1636891 Ontario Inc., 2012 ONCA 12, at para. 19, the court stated that “Irreparable harm is harm that cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other”. However, the lien holds specialized relief and is significant right under the Act and if a stay is not granted, it will be lost forever.
....
[45] Astute argues that a lien is a statutory right but not an absolute one as it is a privilege under the law which can be removed under the appropriate circumstances. Astute submits that 2B does not come to court with clean hands given the deception and the extensive findings of lack of credibility made by the trial Judge. See Urbacon Building Groups Corp. v. Guelph (City), 2014 ONSC 3840. There have been findings of bad faith on the part of 2B by the trial judge, so it does not come to court with “clean hands”.
[46] In Kamali Design Home Inc. v. Bondarenko, 2013 ONSC 5506, Justice McEwen quotes from Louch v. Louch, 2011 ONSC 2998, where Justice Power at para. 29 states that: “The right to register a lien and a certificate of action is a privilege under our law. However, it is a privilege that can be removed in appropriate circumstances.”
[47] Justice Power referred to Master Albert’s decision in Federated Contractors Inc. v. Ann-Maura Developments Inc., 2010 CarswellOnt 370, 2010 ONSC 346. In Louch, the court stated at para. 40 that: “The court will not be an accomplice to an abuse of the Construction Lien Act. The Act is designed to provide an extraordinary remedy to legitimate suppliers of materials and services to construction projects.” In the Federated case, the court found that the lien claimant did not come to court with clean hands and hence forfeited any entitlement to benefit from the act and its extraordinary remedy.
[48] Justice Power found that the lien claim was false and was an attempt to frustrate the mortgagees in their attempts to pursue the mortgagee remedies.
[49] In Morguard Residential v. Mandel, 2017 ONCA 177, at para. 18 the court stated that a stay is a discretionary remedy and hence the court must consider the “clean hands” doctrine. At para. 29, the court found that the Landlord and Tenant Board’s finding of bad faith on the part of the moving parties militated against the exercise of the court’s discretion to stay the order. . Demikon Construction Ltd. v. Oakleigh Holdings Inc. [s.44 - 'Vacating lien by payment into court']
In Demikon Construction Ltd. v. Oakleigh Holdings Inc. (Div Court, 2024) the Ontario Divisional Court allowed a Construction Act appeal, here against an order which reduced the required amount of posted lien bond in order to vacate "a claim for a construction lien on the title of the project land".
Here the court considers the correct application of CA s.44(5) ['Vacating lien by payment into court - Reduction of amount paid into court']:[7] In May 2017, Demikon entered into a Construction Management Contract (the “Contract”) with Aurelia to act as the Project’s construction manager. The Contract required Demikon as general contractor to retain and manage subcontractors to perform the necessary work for the Project. Upon the supply of services or materials for the Project, Demikon became entitled to a lien on Aurelia’s interest in the Project land pursuant to s. 14(1) of the Construction Act, R.S.O. 1990, c. C.30. Section 14(1) provides:Creation of lien
14(1) A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved for the price of those services or materials. [8] By letter dated March 29, 2021, Aurelia notified Demikon that Aurelia was terminating Demikon’s right to perform the work under the Contract. Aurelia alleged numerous delays to the Project, deficiencies in the work of Demikon and its subcontractors, and failures to cure defaults incurred by Demikon. In its letter, Aurelia noted that it had previously sent notices to Demikon of its intention to pay Demikon’s subcontractors for work performed on the Project, or of actual payments made. The letter also stated that Aurelia was providing notice under s. 28 of the Construction Act of its “intention to continue paying certain of Demikon’s subcontractors who have completed work at the Project in order to further mitigate Aurelia’s losses at the Project, including, but not limited to, Magest Building Systems Ltd.” In March 2022, Aurelia provided Demikon with a further notice of intention under s. 28 to make direct payments to Demikon’s subcontractors: see Motion Decision, at para. 20(iii).
[9] Section 28 [which is in Part IV (holdbacks) of the Construction Act] provides:Direct payment to person having lien
28 Where an owner, contractor or subcontractor makes a payment without obligation to do so to any person having a lien for or on account of any amount owing to that person for services or materials supplied to the improvement and gives written notice of the payment or the intention to pay to the proper payer of that person, the payment shall be deemed to be a payment by the owner, contractor or subcontractor to the proper payer of that person, but no such payment reduces the amount of the holdback required to be retained under this Part [IV] or reduces the amount that must be retained in response to a written notice of lien given by a person other than the person to whom payment is made. [Emphasis added.] [10] As defined in s. 1(1) of the Construction Act:“person having a lien” includes both a lien claimant and a person with an unpreserved lien;
“lien claimant” means a person having a preserved or perfected lien;
[Emphasis added.] ....
III. Motion to reduce posted security
[15] By Notice of Motion dated December 23, 2022, Aurelia sought an order that the security Aurelia previously posted be reduced from $5,085,812.66 to “a lesser and reasonable amount determined by the Court pursuant to s. 44(5) of the Construction Act”. Section 44(5) provides:Reduction of amount paid into court
(5) Where an amount has been paid into court or security has been posted with the court under this section, the court, upon notice to such persons as it may require, may order where it is appropriate to do so,
(a) the reduction of the amount paid into court, and the payment of any part of the amount paid into court to the person entitled; or
(b) the reduction of the amount of security posted with the court, and the delivery up of the security posted with the court for cancellation or substitution, as the case may be. ....
[19] In the Motion Decision, at para. 8, in addition to ss. 14, 28 and 44(5), the motion judge set out the following sections of the Construction Act as being relevant for the motion:Limitation on value of lien
17(1) The lien of a person is limited to the amount owing to the person in relation to the improvement and, subject to Part IV (holdbacks), it is further limited to the least amount owed in relation to the improvement by a payer to the contractor or to any subcontractor whose contract or subcontract was in whole or in part performed by the supply of services or materials giving rise to the lien.
Idem
(2) Subject to Part IV, the total value of the liens of all members of a class, as defined in section 79, is limited to the least amount owed in relation to the improvement by a payer to the contractor or to any subcontractor whose contract or subcontract was in whole or in part performed by the supply of services or materials made by the members of the class.
Set off
(3) Subject to Part IV, in determining the amount of a lien under subsection (1) or (2), there may be taken into account the amount that is, as between a payer and the person the payer is liable to pay, equal to the balance in the payer's favour of all outstanding debts, claims or damages, whether or not related to the improvement….
...
Basic holdback
22.(1) Each payer under a contract or subcontract under which a lien may arise shall retain a holdback equal to 10 per cent of the price of the services or materials, as they are actually supplied under the contract until all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under this Act.
...
Discharge of lien
29. Payments made in accordance with this Part [IV (holdbacks)] operate as a discharge of the lien to the extent of the amount paid. ....
VII. Analysis and conclusion
[42] As explained below, I have concluded that the motion judge erred in interpreting the scope of s. 28 of the Construction Act. To the extent that the motion judge’s analysis related to questions of mixed fact and law, he erred with respect to an extricable question of law, reviewable on a correctness standard.
[43] By its terms, s. 28 applies to direct payments made by third parties “to any person having a lien for or on account of any amount owing to that person for services or materials supplied to the improvement”. In s. 1(1) of the Construction Act, “improvement” is defined as follows:“improvement” means, in respect of any land,
(a) any alteration, addition or capital repair to the land,
(b) any construction, erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the land, building, structure or works, or
(c) the complete or partial demolition or removal of any building, structure or works on the land; [44] Properly interpreted, s. 28 applies to direct payments to a “person having a lien” relating to “any amount owing to that person for services or materials supplied to the improvement” (emphasis added). The motion judge’s error was interpreting the latter quoted words as expanding the scope of s. 28 to include payments to other subcontractors who were not persons “having a lien”, who may include (i) subcontractors who supplied equipment or other chattels (or related services) that did not form part of an “improvement” in the land as defined in the Construction Act, and (ii) subcontractors who previously had a lien that has since expired by operation of the Construction Act or had otherwise resolved. The use of the words “owing to that person” in s. 28 is inconsistent with the motion judge’s conclusion that the scope of s. 28 extends beyond direct payments to a “person having a lien”. Otherwise, including the words “owing to that person” in s. 28 would serve no purpose.
[45] Consistent with that interpretation, in Harvey J. Kirsh & Matthew R. Alter, A Guide to Construction Liens in Ontario, 3rd ed. (Toronto: LexisNexis Canada, 2011), at pp. 84-85, the application of s. 28 was interpreted as not extending beyond direct payments to a “person having a lien”:Section 28 of the Construction Lien Act provides that, where an owner, contractor or subcontractor makes a direct payment to “any person having a lien” with whom he or she does not have privity of contract, that payment is deemed to be a payment to the person who was contractually obliged (i.e., “the proper payer”) to pay the person having the lien. In these circumstances, the amount so paid may be deducted from the debt owing to the proper payer of the person having the lien, but only so long as written notice of the actual payment or the intention to pay is given to the proper payer. [Emphasis added.] [46] That interpretation is also consistent with the commentary relating to s. 28 of the draft Construction Lien Act (the predecessor to the current legislation) contained in Ministry of the Attorney General, Report of Attorney General's Advisory Committee on the Draft Construction Lien Act (Toronto: April 1982),[1] at pp. 71-72. The Attorney General appointed that Committee to prepare a report on recommended changes to rework and replace the Mechanics Lien Act, R.S.O. 1980, c. 261. The Committee’s report has been frequently referenced in other cases.
[47] Limiting the scope of the s. 28 payments to persons having a lien makes sense when considered in the context of the statutory scheme and the purpose of the legislation. While a person has a lien, they have an interest in the owner’s premises and in the holdbacks: Construction Act, ss. 14, 21. The owners have an interest in seeing liens resolved because their lands can be tied up and because they have holdback obligations. This interest, however, disappears once the liens expire or are resolved. Once the liens expire, there is no practical reason under the Construction Act to allow payors to ‘jump the rung’ to avoid privity of contract, which is what s. 28 permits. This analysis is consistent with the conclusion that s. 28 “merely provides a method of preventing the registration of a lien or to facilitate the removal of a lien already registered”: see David Bristow, Duncan Glaholt & R. Bruce Reynolds, Construction Builders’ and Mechanics’ Liens in Canada, loose-leaf, 7th ed. (Toronto: Carswell, 2005, rev. to 2018), at p. 4-27.
[48] In light of the motion judge’s fundamental error in interpreting s. 28, it is unnecessary to further address Demikon’s other submissions, including those related to holdback and the motion judge’s evidentiary determinations.
[49] As previously noted, the motion judge reduced the required amount of posted security by the amount that he found, at para. 39, to be “valid payments under s. 28” of the Construction Act. Given his error as to s. 28’s scope, he did not make findings of fact on the extent that Aurelia made direct payments to subcontractors that met the statutory definition of a “person having a lien” and otherwise fell within s. 28. The record on appeal does not provide a basis for making that determination. In these circumstances, the motion judge’s order cannot stand.
|
