RSG Mechanical Inc. v. 1398796 Ontario Inc. et al.

• Jurisdiction: Ontario
• Court: Superior Court of Justice of Ontario (Canada)
• Judge: Swinton, Harvison Young and Lederer, JJ.
• Citation: (2015), 339 O.A.C. 9 (DC),2015 ONSC 2070
• Date: 22 May 2015

RSG Mechanical v. 1398796 Ont. (2015), 339 O.A.C. 9 (DC)

MLB headnote and full text

Temp. Cite: [2015] O.A.C. TBEd. JN.036

RSG Mechanical Incorporated (plaintiff/appellant) v. 1398796 Ontario Inc., 1398796 Ontario Inc. o/a Bloorwood Group, London Guarantee Insurance Company, Northern Indemnity Inc., Realty Growth & Revenue Fund General Partner Inc., Marketpoint Development Corp. and MCAP Financial Corporation (defendants/respondents)

(328/14; 2015 ONSC 2070)

Indexed As: RSG Mechanical Inc. v. 1398796 Ontario Inc. et al.

Court of Ontario

Superior Court of Justice

Divisional Court

Swinton, Harvison Young and Lederer, JJ.

May 22, 2015.

Summary:

RSG Mechanical Inc. had carriage of a consolidated action involving 11 construction liens.

A Master of the Ontario Supreme Court, in a decision reported at [2013] O.T.C. Uned. 1606, determined that, by vacating liens through the posting of security and obtaining an order of the court pursuant to s. 44 of the Construction Lien Act, a mortgagee, the respondent Realty Growth & Revenue Fund General Partner Inc., had taken itself out of the priority scheme envisaged in ss. 78(2) and 78(6) of the Act. Therefore, the lien claimants were entitled not only to the amount of the deficiency of the holdback, but to the full extent of their proven liens. This conclusion rendered the other issues moot. The Master made alternate findings each of which arrived at the same result. Realty Growth objected to confirmation of the Master's Report.

The Ontario Supreme Court, in a decision reported at 2014 ONSC 3936, refused to confirm the Report. It found that the Master had made several errors of principle and made changes to the Report which had the effect of reversing the Master. The court ordered that there would be no cost of the reference apart from the $107,000 in "carriage costs", which were to be borne pari passu by the successful lien claimants who were before the Master. The court awarded $50,000 in costs to Realty Growth on the motion to oppose confirmation. RSG Mechanical appealed.

The Ontario Divisional Court dismissed the appeal. The court awarded Realty Growth costs of the appeal in the amount of $20,000 as agreed to by the parties.

Courts - Topic 1008

Masters - General - Confirmation hearing - Scope of review - [See Mechanics' Liens - Topic 8161 and Mechanics' Liens - Topic 8248 ].

Mechanics' Liens - Topic 3

General principles and definitions - General principles - Purpose of mechanics' lien legislation - An appellant submitted that the Construction Lien Act had a single value and narrow purpose: to protect lien claimants - The Ontario Divisional Court stated that "... this is more a policy proposition than an understanding of the law. Counsel referred the court to the Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act, April 8, 1982. ... This Report and the quotations referred to have little, if any, probative value. It is the words of the statute that govern its interpretation. They are to be read 'in their grammatical and ordinary sense in harmony with the legislative framework in which the provision is found'. ... When the Act is read as a whole, it is clear that the Report enshrines no underlying policy proposition directed solely to protecting lien claimants. Like most remedial legislation, the Construction Lien Act balances a series of competing values ... There is nothing in this that suggests that the Construction Lien Act includes any overarching intention to favour lien claimants above the interests of mortgagees beyond the value of the holdbacks the legislation requires." - See paragraphs 24 to 29.

Mechanics' Liens - Topic 4

General principles and definitions - General principles - Interpretation of mechanics' lien legislation - [See Mechanics' Liens - Topic 3 ].

Mechanics' Liens - Topic 4

General principles and definitions - General principles - Interpretation of mechanics' lien legislation - Section 58(4) of the Construction Lien Act provided that: "A master or case management master to whom a reference has been directed has all the jurisdiction, powers and authority of the court to try and completely dispose of the action and all matters and questions arising in connection with the action, including the giving of leave to amend any pleading and the giving of directions to a receiver or trustee appointed by the court." - The Ontario Divisional Court held that this "section does nothing other than provide for the conduct of the reference. It does not change the position of the referee within our judicial structure. The Master continues to have the status and place that comes from being a Master. He does not, for the purposes of the reference, obtain the standing of or become a judge. On this basis, he would be bound to follow the decision of a single judge of the Superior Court." - See paragraphs 36 and 37.

Mechanics' Liens - Topic 1301

The owner - What constitutes an owner - Conditions precedent - General - "Owner" was defined in the Construction Lien Act as follows: "'owner' means any person, including the Crown, having an interest in a premises at whose request and, (a) upon whose credit, or (b) on whose behalf, or (c) with whose privity or consent, or (d) for whose direct benefit, an improvement is made to the premises but does not include a home buyer." - The Ontario Divisional Court discussed the meaning of "owner" as found in the Act - The court stated that "... if the party of concern does not have an interest in the premises at the time the lien claimant supplied services or materials to the improvement, he, she or it cannot be an owner for the purpose of any claim concerning that work. When a subsequent purchaser acquires an interest, he, she, it or they do so as subsequent purchasers, with notice of the lien liability, but not as owners as defined by the statute. ... The relevant time to determine ownership is when the work or improvement was requested, not sometime later." - See paragraphs 44 to 60.

Mechanics' Liens - Topic 1305

The owner - What constitutes an owner - Conditions precedent - "Request" for work or materials - [See Mechanics' Liens - Topic 1301 ].

Mechanics' Liens - Topic 2844

The holdback - Duties of owner - Amount of holdback required - General - An owner acted as its own general contractor - The Ontario Divisional Court held that a Master erred in treating the holdback as being calculated based on the value of the project as a whole and concluding that the deficiency in the holdback required to be maintained was greater than the amount of the proven lien claims - "[T]he Master erred when he calculated the deficiency in the holdback by adding up and determining the sum of all of the lien claims and setting that value against a pooling of all of the holdbacks and the relative value he inferred. The effect was to treat each of the lien claimants as if they were sub-contractors instead of suppliers each with its own privity of contract with the owner. ... Each can look to the 10% associated with its own contract and nothing more." - See paragraphs 61 to 75.

Mechanics' Liens - Topic 6301

Priorities - Between lienholder and mortgagees - General - [See Mechanics' Liens - Topic 3 and Mechanics' Liens - Topic 8248 ].

Mechanics' Liens - Topic 6301

Priorities - Between lienholder and mortgagees - General - A first mortgagee delivered $424,533 to a subsequent mortgagee (Realty Growth) for the purpose of vacating liens - At issue was whether the delivery of the $424,533 was an advance as that word was used in s. 78(6) of the Construction Lien Act - The Ontario Divisional Court stated that "... the issue is whether the borrower [Realty Growth] had control of the funds before the liens were vacated. ... The funds were delivered to counsel for Realty Growth to be held in escrow and used only for the purposes of security to be posted in order to vacate the liens. The condition upon which the funds were delivered was the vacating of the liens. Once vacated, the lien claimants would have recourse to the security that had been posted. They would have no further claim in priority to the mortgagee. The borrower never had control of the funds prior to the vacating of the liens. Control did not pass until the liens were cleared but, once the liens were vacated, the money was no longer available. It was in court as the posted security. ... it cannot be that funds that are transferred so that they can be posted as security to replace liens which will, as a result, be vacated, are an advance that is protected by the posted security. ... The lien claimants are protected by the security that has been posted, but they have no further claim in priority to the mortgagee."- See paragraphs 76 to 84.

Mechanics' Liens - Topic 6301

Priorities - Between lienholder and mortgagees - General - At issue in a priority dispute between a mortgagee and lien holders was whether "advances" had been made before the liens were vacated (Construction Lien Act, s. 78(6)) - The Ontario Divisional Court held, inter alia, that the Master erred when he made a finding of law deeming an advance to have been made when liability was incurred - He should have followed the statute and determined the timing of the advance - See paragraphs 85 to 89.

Mechanics' Liens - Topic 8161

Practice - Appeals - General (incl. standard of review) - RSG Mechanical Inc. had carriage of a consolidated action involving 11 construction liens - A Master determined that, by vacating liens through the posting of security and obtaining an order of the court pursuant to s. 44 of the Construction Lien Act, a mortgagee (Realty Growth) had taken itself out of the priority scheme envisaged in ss. 78(2) and 78(6) of the Act - The Master found, inter alia, that the lien claimants were entitled not only to the amount of the deficiency of the holdback, but to the full extent of their proven liens - Realty Growth objected to confirmation of the order (the Report) - Myers, J., refused to confirm the Report - He found that the Master had made several errors of principle and made changes to the Report which had the effect of reversing the Master - RSG Mechanical appealed - The Ontario Divisional Court held that the standard of review applicable to the motion heard by Myers, J., and the appeal of his order, were the same - "Findings of fact are not to be overturned in the absence of a 'palpable and overriding error'. On a pure question of law, the standard of review is correctness. Issues of mixed fact and law fall on a 'spectrum of particularity'. Where the proposition is one of general application, it tends towards the correctness end; where it concerns a set of circumstances that are particular and, thus, not likely to have much application beyond the case at hand, it tends towards to the other end, that of palpable and overriding error." - See paragraphs 24 to 29.

Mechanics' Liens - Topic 8248

Practice - Filing of security or lien bond - Payment out of court - RSG Mechanical Inc. had carriage of a consolidated action involving 11 construction liens - A Master determined that, by vacating liens through the posting of security and obtaining an order of the court pursuant to s. 44 of the Construction Lien Act, a mortgagee (Realty Growth) had taken itself out of the priority scheme envisaged in ss. 78(2) and 78(6) of the Act - Therefore, the lien claimants were entitled not only to the amount of the deficiency of the holdback, but to the full extent of their proven liens - Realty Growth objected to confirmation of the order (the Report) - Myers, J., held that the Master's failure to follow binding cases was an error in principle and he refused to confirm the Report - One of those cases stated that "[w]hen a lender or other person posts security to vacate liens pursuant to s. 44(6) of the Act, the security is simply a substitute for the land. The posting of the security cannot enlarge the rights of a lien claimant .... The posted bond does not become security for the full amount claimed as owing by the lien claimant, but only for the lien itself -- that portion of the full amount which an owner (or a contract) was required to hold back." - Myers, J., made changes to the Report which had the effect of reversing the Master - RSG Mechanical appealed - The Ontario Divisional Court dismissed the appeal - See paragraphs 30 to 43.

Mechanics' Liens - Topic 8800

Costs - General - RSG Mechanical Inc. had carriage of a consolidated action involving 11 construction liens - A Master determined that, by vacating liens through the posting of security and obtaining an order of the court pursuant to s. 44 of the Construction Lien Act, a mortgagee (Realty Growth) had taken itself out of the priority scheme envisaged in ss. 78(2) and 78(6) of the Act - Therefore, the lien claimants were entitled not only to the amount of the deficiency of the holdback, but to the full extent of their proven liens - The Master made alternate findings each of which arrived at the same result - Myers, J., refused to confirm the report - He found that the Master had made several errors of principle and made changes to the Report which had the effect of reversing the Master - Regarding costs, Myers, J., found that the lien claimants had not succeeded on any of the grounds of real controversy before the Master and both sides had been prejudiced by the manner in which the reference had proceeded - Accordingly, he ordered that there would be no cost of the reference apart from the $107,000 in "carriage costs" - "Carriage costs" were costs incurred by counsel to whom carriage of the litigation was assigned that exceeded the costs incurred by that counsel just for his or her own client - Carriage costs were to be borne pari passu by the successful lien claimants who were before the Master - Myers, J., awarded $50,000 in costs to Realty Growth on the motion to oppose confirmation - RSG Mechanical appealed - The Ontario Divisional Court dismissed the appeal - Regarding costs, the court found no error in principle warranting its interference - See paragraphs 90 to 102.

Statutes - Topic 1648

Interpretation - Extrinsic aids - Legislative history - Legislative committee reports and minutes - [See Mechanics' Liens - Topic 3 ].

Statutes - Topic 2601

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context) - General principles - [See Mechanics' Liens - Topic 3 ].

Words and Phrases

Advances - The Ontario Divisional Court discussed the meaning of the word "advances" as found in s. 78(6) of the Construction Lien Act, R.S.O. 1990, c. C-30 - See paragraphs 76 to 89.

Words and Phrases

Owner - The Ontario Divisional Court discussed the meaning of the word "owner" as found in the Construction Lien Act, R.S.O. 1990, c. C-30 - See paragraphs 44 to 60.

Cases Noticed:

Zenon Developments Ltd. v. Barna, [1986] O.J. No. 1300 (H.C.), refd to. [para. 22, footnote 17].

Heyday Homes Ltd. v. Gunraj, [2005] O.T.C. 605 (Sup. Ct.), refd to. [para. 22, footnote 18].

Jordan v. McKenzie (1987), 26 C.P.C.(2d) 193 (Ont. H.C.), affd. (1990), 39 C.P.C.(2d) 217 (Ont. C.A.), refd to. [para. 22, footnote 19].

Quatro Painting & Decorating Inc. v. Wild Country Developments, [2004] O.T.C. 560; 2004 Can LII 163484 (Sup. Ct.), refd to. [para. 22, footnote 19].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 211 D.L.R.(4th) 577; [2002] 7 W.W.R. 1; 2002 SCC 33, refd to. [para. 22, footnote 10].

Bell ExpressVu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1; 2002 SCC 42, refd to. [para. 28, footnote 25].

Gilvesy Construction v. 810941 Ontario Ltd. (1994), 22 C.L.R.(2d) 203 (Ont. Gen. Div.), appld. [para. 33, footnote 27].

Michaud Roofing Ltd. v. National Trust Co. et al., [1978] O.J. No. 3674 (Sup. Ct.), affd. [1979] O.J. No. 4545 (Div. Ct.), affd. [1980] O.J. No. 3503 (C.A.), refd to. [para. 34, footnote 28].

Basic Drywall v. 1539304 Ontario Inc., 2012 ONSC 6931, appld. [para. 38, footnote 34].

Reliance Electric Ltd. v. G.N.S. Contractors Inc. et al. (1989), 35 C.L.R. 310; 70 O.R.(2d) 364 (H.C.), refd to. [para. 38, footnote 35].

Sloot Construction-Design Ltd. v. North Maple Mall Ltd. et al., [1999] O.T.C. Uned. B82; 50 C.L.R.(2d) 145 (Sup. Ct.), refd to. [para. 38, footnote 35].

Godoy v. 475920 Ontario Ltd. et al., [2008] O.A.C. Uned. 557; 59 R.F.L.(6th) 246; 2008 ONCA 801, refd to. [para. 40, footnote 39].

South Side Woodwork (1979) Ltd. v. R.C. Contracting Ltd. et al. (1989), 95 A.R. 161; 1989 CanLII 3384 (Q.B. Master), refd to. [para. 40, footnote 39].

Harvey v. Dominion Textile (1917), 49 S.C.R. 508, refd to. [para. 42, footnote 42].

Krelginger (G. & C.) v. New Patagonia Meat & Cold Storage Co., [1914] A.C. 25, refd to. [para. 42, footnote 42].

Parkland Plumbing and Heating Ltd. v. Minaki Lodge Resort 2002 Inc. et al. (2009), 250 O.A.C. 232; 2009 ONCA 256, refd to. [para. 47, footnote 44].

Bird Construction Co. Ltd. v. Ownix Developments Ltd. and Phoenix Assurance Co. Ltd. et al., [1984] 2 S.C.R. 199; 54 N.R. 109; 5 O.A.C. 109, refd to. [para. 47, footnote 44].

Northern Electric Co. v. Manufacturers Life Insurance Co., [1977] 2 S.C.R. 762; 12 N.R. 216; 18 N.S.R.(2d) 32; 20 A.P.R. 32, refd to. [para. 47, footnote 44].

Hamilton (City) v. Cipriani, [1977] 1 S.C.R. 169; 9 N.R. 83, refd to. [para. 47, footnote 44].

Leyburn Electric Ltd. v. Merton Development Corp., [1998] O.J. No. 2428 (Div. Ct.), consd. [para. 55, footnote 51].

Lindsay Brothers Construction Ltd. v. Halton Hills Development Corp. (1992), 11 O.R.(3d) 23 (Gen. Div.), appld. [para. 64, footnote 60].

Lansing Building Supply (Ont.) Ltd. v. Kemp (1993), 39 A.C.W.S.(3d) 565 (Ont. Gen. Div.), refd to. [para. 65, foofnote 62].

Marsil Mechanical v. A. Reissing-Reissing Enerprise Ltd., [1966] O.J. No. 279 (Gen. Div.), refd to. [para. 65, footnote 63].

Celebrity Flooring Systems Ltd. v. One Shaftesbury Community Association et al., [2006] O.T.C. 846; 55 C.L.R.(3d) 184; 152 A.C.W.S.(3d) 20 (Sup. Ct.), refd to. [para. 66, footnote 64].

M.W.M. Construciton of Kitchener Ltd. v. Valley Ridge Inc. (1993), 8 C.L.R.(2d) 25; 38 A.C.W.S.(3d) 868 (Ont. Gen. Div.), refd to. [para. 68, footnote 66].

George and Asmussen Ltd. v. MCM Holdings Inc. (1992), 6 O.R.(3d) 645 (Gen. Div.), refd to. [para. 68, footnote 67].

XDG Ltd. v. 1099606 Ontario Ltd. et al., [2002] O.T.C. 1062; 23 C.L.R.(3d) 67; 121 A.C.W.S.(3d) 18 (Sup. Ct.), affd. (2004), 186 O.A.C. 33; 130 A.C.W.S.(3d) 678 (Div. Ct.), refd to. [para. 80, footnote 81].

Statutes Noticed:

Construction Lien Act, R.S.O. 1990, c. C-30, sect. 44(1) [para. 30]; sect. 44(6) [para. 86, footnote 85]; sect. 58(4) [para. 36]; sect. 78(2) [para. 31]; sect. 78(6) [para. 77, footnote 75].

Authors and Works Noticed:

Ontario, Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act (1982), p. 179 [para. 28, footnote 26].

Perell, Paul M., and Morden, John W., The Law of Civil Procedure in Ontario (2nd Ed. 2014), para. 2.89 [para. 40, footnote 38].

Counsel:

Antonio Conte, for the plaintiff/appellant;

Michael A. Handler and Mario Middonti, for the defendant/respondent, Realty Growth & Revenue Fund General Partner Inc.

This appeal was heard at Toronto, Ontario, on March 19 and 20, 2015, by Swinton, Harvison Young and Lederer, JJ., of the Ontario Divisional Court. Lederer, J., delivered the following decision for the court on May 22, 2015.