ASL Paving Ltd. v. Magnus Construction Ltd. and Royal Bank of Canada, (1994) 120 Sask.R. 104 (CA)

• Judge: Vancise, Gerwing and Jackson, JJ.A.
• Court: Court of Appeal (Saskatchewan)
• Case Date: March 25, 1994
• Jurisdiction: Saskatchewan
• Citations: (1994), 120 Sask.R. 104 (CA)

ASL Paving Ltd. v. Magnus Constr. (1994), 120 Sask.R. 104 (CA);

    68 W.A.C. 104

MLB headnote and full text

ASL Paving Ltd. (respondent/plaintiff) v. Magnus Construction Ltd. and Royal Bank of Canada (appellants/defendants)

(Appeal File No. 1259)

Indexed As: ASL Paving Ltd. v. Magnus Construction Ltd. and Royal Bank of Canada

Saskatchewan Court of Appeal

Vancise, Gerwing and Jackson, JJ.A.

March 25, 1994.

Summary:

The bank loaned monies to a contractor to complete several government construction contracts. The bank took as security a speci­fic assignment of the proceeds of one con­tract. The contractor, by letter, authorized the Crown to send advance cheques directly to the bank. The bank applied $100,000 of monies so received to reduce the contractor's debt. The $100,000 was subject to a trust imposed by s. 3(1) of the Mechanics' Lien Act. The payment of $100,000 constituted a misappropriation of trust funds, unless s. 3(6) of the Act applied. If s. 3(6) did not apply, a lien claimant had priority over the bank. ASL (lien claimant) sued the contrac­tor and bank, claiming priority.

The Saskatchewan Court of Queen's Bench, in a judgment reported 103 Sask.R. 172, allowed the action. Section 3(6) did not apply, because the contractor did not freely exercise its discretion to pay the $100,000 to the bank in preference to lienholders. ASL had priority and was entitled to the $100,000 plus prejudgment interest. The bank appealed.

The Saskatchewan Court of Appeal allowed the appeal in part. The court affirmed that s. 3(6) did not apply and that the $100,000 remained subject to the trust. However, the trial judge erred in awarding prejudgment interest.

Interest - Topic 5302

As damages (prejudgment interest) - In­terest on payment of money or debt with­held - Improper withholding - What constitutes - A bank applied monies pay­able to a contractor to reduce the con­tractor's debt - The monies were held in trust under s. 3(1) of the Mechanics' Lien Act and were ordered repaid to a lienholder - The bank unsuccessfully claimed it was entitled to the monies under s. 3(6) of the Act - The trial judge awarded the lienholder prejudgment inter­est under the Pre-judgment Interest Act - The Saskatchewan Court of Appeal held that the Pre-judgment Interest Act did not apply, because the cause of action accrued before the Act was enacted - The lienholder was entitled to prejudgment interest at common law only if there was a wrongful withholding of an amount due by the bank to the lienholder - The court stated that there was no wrongful with­holding, where two claimants competed for a fund created by statute - Accordingly, the trial judge erred in awarding prejudg­ment interest - See paragraphs 44 to 46.

Mechanics' Liens - Topic 7525

Trust fund - Bank deposits - Duty of bank - A contractor received a bank loan to complete government projects - The contractor authorized the Crown to send advances directly to the bank - The bank applied $100,000 so received to reduce the contractor's debt - Section 3(1) of the Mechanics' Lien Act provided that monies received by the contractor were held in trust for, inter alia, subcontractors - An unpaid subcontractor filed a lien and claimed entitlement to the $100,000 as misappropriated trust funds - Section 3(6) excepted repayment of loan monies by the contractor from the trust if, inter alia, the contractor freely exercised its discretion to repay the loan in preference to lienholders - The Saskatchewan Court of Appeal affirmed that s. 3(6) did not apply - The contractor was compelled by the bank to authorize direct sending of advances to the bank, accordingly, the contractor did not freely exercise its discretion as required by s. 3(6) - The lienholder had priority to the $100,000 misappropriated trust funds.

Cases Noticed:

Canadian Advanced Air Ltd. v. Peel Board of Education et al. (1980), 118 D.L.R.(3d) 699 (Ont. Co. Ct.), refd to. [para. 14].

Bank of Montreal v. Sidney (Township), [1955] O.W.N. 581 (H.C.), refd to. [para. 18].

Standard Industries Ltd. v. Treasury Trails Holdings Ltd. (1976), 24 C.B.R.(N.S.) 8 (Ont. Co. Ct.), refd to. [para. 18].

Minneapolis-Honeywell Regulator Co. v. Irvine & Reeves Ltd., [1955] S.C.R. 694, refd to. [para. 18].

Minneapolis-Honeywell Regulator Co. v. Empire Brass Manufacturing Co. - see Minneapolis-Honeywell Regulator Co. v. Irvine & Reeves Ltd.

Clarkson Co. v. Canadian Bank of Com­merce, [1966] S.C.R. 513; 57 D.L.R.(2d) 193, refd to. [para. 25].

Perlmutter Shore Ltd. v. Bank of Montreal (1981), 34 O.R.(2d) 577 (H.C.), refd to. [para. 25].

Overhead Door Co. of Regina (1973) Ltd. v. Saskatchewan Economic Development Corp. et al., [1985] 2 W.W.R. 458; 37 Sask.R. 313 (Q.B.), affd. [1988] 2 W.W.R. 572; 64 Sask.R. 42 (C.A.), refd to. [para. 36].

Canadian Industrial Gas & Oil Ltd. v. Saskatchewan et al. (1978), 23 N.R. 257; 91 D.L.R.(3d) 555 (S.C.C.), refd to. [para. 44].

Piedmontese Breeding Co-operative Ltd. v. Madill (1985), 40 Sask.R. 144 (C.A.), refd to. [para. 45].

Prince Albert Pulp Co. and Parsons v. Foundation Co. of Canada Ltd., [1976] 4 W.W.R. 586; 8 N.R. 181 (S.C.C.), refd to. [para. 45].

Statutes Noticed:

Mechanics' Lien Act, R.S.S. 1978, c. M-7, sect. 3(1), sect. 3(6), sect. 5(1) [para. 10].

Pre-judgment Interest Act, S.S. 1984-85-86, c. P-22.2, generally [para. 15].

Queen's Bench Act, R.S.S. 1978, c. Q-1, sect. 46 [para. 44].

Counsel:

G.J. Kuski, Q.C., and M. Sawatsky, for the appellants;

R.C. Touet and G. Bainbridge, for the respondent.

This appeal was heard on March 5, 1993, before Vancise, Gerwing and Jackson, JJ.A., of the Saskatchewan Court of Appeal.

On March 25, 1994, Vancise, J.A., delivered the following judgment for the Court of Appeal.