COURT FILE NO.: 1374
ONTARIO
DIVISIONAL COURT
SUPERIOR COURT OF JUSTICE
CUNNINGHAM, A.C.J.O, KENT, R.S.J. and McKINNON J.
IN THE MATTER OF THE CONSTRUCTION LIEN ACT
B E T W E E N:
TCG ASPHALT & CONSTRUCTION INC.
Donald E. Short, for the Plaintiff (Appellant)
Plaintiff
(Appellant)
- and -
NEWPORT PROPERTIES LIMITED, THE CORPORATION OF THE CITY OF LONDON, CANTEBURY ESTATES LIMITED PARTNERSHIP, RANDA INVESTMENTS LIMITED and PACIFIC & WESTERN TRUST CORPORATION
Geoffrey P. Belch, for the DefendantThe Corporation of the City of London (Respondent)
Defendants
(Respondents)
HEARD: April 19, 2004.
On appeal from the Judgment of the Honourable Mr. Justice Kerr
dated January 29, 2003.
C. McKINNON J.
[1] At issue in this appeal is the proper interpretation of s. 17(4) of the Ontario Construction Lien Act.
Factual Background
[2] The facts are not in dispute. The case proceeded by way of an agreed statement of facts before Justice Kerr. All Defendants, with the exception of The Corporation of the City of London, were released from the action in the proceedings before Justice Kerr. The issue in this appeal concerns only the Appellant and the Respondent Corporation of the City of London.
[3] On November 4, 1988 a subdivision agreement was entered into between the Township of London and Hanny Shousher and Jessie Kadrie in trust. The plan of subdivision consisted of approximately 75 lots for single family homes, some blocks of land, together with road allowances for municipal roads, including the services. The plan was registered on April 17, 1989. It was referred to as the Cantebury Estates Subdivision. The agreement provided that it would be binding upon the Township and its successors or assigns. In the agreement Shousher and Kadrie are the subdividers and agree with the Township to construct various municipal works, including roadways, street signs, curbs, storm sewers, catch basins, grading, landscaping, street lighting and water supply. All services would be constructed and installed at the expense of the subdivider.
[4] Under the agreement the subdivider was obliged to provide an estimate of the cost of the works within 12 months of the registration of the subdivision plan. The work was to be constructed upon property dedicated to the Township as a public highway that would be assumed by the Township for maintenance under bylaw. The assumption would occur only when all works, not just the paving of roads, had been completed by the subdivider. The assumption by the Township was conditional upon the confirmation of the final completion certificate and issuance of a Certificate of Final Acceptance by the Township engineer.
[5] On May 31, 1989 Randa Investments Limited became the registered owner of the lands by deed registered that day. Randa is a related corporation to the original subdividers. The lands were annexed to the City of London on January 1, 1993. Some work under the agreement had been done by that time, but it is not known exactly what work had been completed. When the City of London assumed the subdivision, only 12 homes had been built.
[6] On August 2, 1994 Randa and the City of London entered into an amending agreement. The City of London was named as successor to the Township. In the amending agreement an estimate of the remaining municipal works was conducted by an engineer who valued the remaining work at $1,215,435. The agreement provided that security calculated in accordance with the Ontario Construction Lien Act was to be provided by Randa to the City by way of a bond. Simcoe & Erie General Insurance Company provided the bond to ensure "all works required under the amended subdivision agreement (including servicing, cost overruns, construction liens and warranty in the event of default by the subdivider". A separate agreement was entered into between Simcoe & Erie and the City of London whereby Simcoe agreed to indemnify the City for any default of Randa under the subdivision agreement up to the limit of $1,215,435. This satisfied the requirement of Randa to post security in the amending agreement.
[7] In August of 2000 the Plaintiff TCG Asphalt received an invitation on behalf of Randa to quote a price for various works relating to "assumption requirements – surface works", which included the adjustment of storm manholes; the adjustment of sanitary manholes; the adjustment of catch basin frames and grates; the milling of existing base asphalt and the placing of surface asphalt. The initial estimate for this work amounted to $107,241.50. A contract was negotiated between Stantec Consulting Limited, the consulting engineer acting on behalf of Randa, and TCG. TCG commenced work on September 11, 2000 and completed its work October 31, 2000. Stantec inspected the work and eventually approved invoices totalling $222,786.71. TCG preserved its construction lien on December 15, 2000 due to nonpayment of its invoices. On September 10, 2001 TCG obtained judgment against Randa and Cantebury for the amount of its claim, together with interest, for a total judgment of $248,835.28.
[8] At the same time as TCG Asphalt was retained to do work, other subcontractors were retained by Stantec Consulting to perform work on behalf of Randa.
[9] As stated, the original subdivision agreement provided in paragraph 3 "that the subdivider shall, as soon as practicable, but within 12 months" submit for the approval of the Township engineer detailed engineering plans, lot grading plans, specification for contracts in respect of an estimate of the cost of the works specified in Schedule 'C'. Schedule 'C' provided for a general servicing plan "and is intended by the parties hereto to be only a general statement of the proposed location and type of works to be constructed, installed, maintained and repaired by the subdivider in accordance with the subdivision agreement". It went on to generally describe the provision of roadways, street signs, storm sewers, grading, landscaping, street lighting and water supply.
[10] Also, the original subdivision agreement provided that every provision of the agreement by which the subdivider is obliged in any way shall be deemed to include the words "at the expense of the subdivider".
[11] Clause 27 of the agreement provided that the subdivider "shall pay promptly those employed in the construction, installation, maintenance and repair of the works, but shall hold back such sums as are required to be held back by the Construction Lien Act and the subdivider shall indemnify the Township against claims, actions or demands for Construction Liens or otherwise in connection with the works…"
[12] It would appear that no estimate was provided in accordance with paragraph 3 of the original subdivision agreement. Prior to the amended agreement being entered into on August 2, 1994 an estimate of the uncompleted work was provided by the engineering firm of M.M. Dillon, acting for the City of London. This estimate was the foundation for the security agreement between Simcoe & Erie and the City of London limited to the sum of $1,215,435.
[13] The estimate for the completion of the roads was $70,000. It is noted that this was far less than the sum actually invoiced by the Plaintiff in the amount of $222,000.
The Construction Lien Act
[14] The relevant provisions of the Construction Lien Act, R.S.O. 1990 c.C. 30, are:
1.-(1) In this Act.
"contract" means the contract between the owner and the contractor, and includes any amendment to that contract;
"contractor" means a person contracting with or employed directly by the owner or an agent of the owner to supply services or materials to an improvement;
"holdback" means the 10 per cent of the value of the services or materials supplied under a contract or subcontract required to be withheld from payment by Part IV
"improvement" means,
(a) any alteration, addition or repair to, or
(b) any construction, erection or installation on,
any land, and includes the demolition or removal of any building, structure or works or part thereof, and "improved" has a corresponding meaning;
"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;
"payer" means the owner, contractor or subcontractor who is liable to pay for the materials or services supplied to an improvement under a contract or subcontract;
"subcontract" means any agreement between the contractor and a subcontractor, or between two or more subcontractors, relating to the supply of services or materials to the improvement and includes any amendment to that agreement;
"subcontractor" means a person not contracting with or employed directly by the owner or an agent of the owner but who supplies services or materials to the improvement under an agreement with the contractor or under the contractor with another subcontractor;
PART III
THE 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.
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.
17.-(4)
Despite subsection (1), where land is dedicated to a municipality as a public street or highway and an improvement is made to the land at the written request of, or under an agreement with, the municipality, but not at its expense, the municipality shall nevertheless, on default of payment by the proper payer, be liable to the value of the holdbacks under Part IV that would have been required were the improvement made at the expense of the municipality, and the procedure for making a claim under this subsection shall be the same as for enforcing a claim for lien against a municipality in respect of a public street or highway. (emphasis added)
PART IV
HOLDBACKS
22.-(1)
Each payer upon 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 or subcontract until all liens that may be claimed against the holdback have expired as provided in Part V, or have been satisfied, discharged or provided for under section 44 (payment into court).
[15] Part V of the Act deals with the expiry, preservation and perfection of liens. Unless preserved by registration of the claim for lien in the Land Registry Office or by giving the owner a copy of the claim with an affidavit of verification in the event the lien does not attach to specific premises, liens arising from the supply of services or materials to an improvement expire within 45 days after completion or substantial performance of the contract or subcontract or supply of materials.
[16] The Act sets out detailed procedures for the preservation and prosecution of lien rights, including the procedure to vacate liens through payment into court.
The Position of the Parties
[17] The Appellant maintains that the effect of s. 17(4) of the Act is to confer on a municipality the same liability for retaining holdbacks that an owner has with respect to its general contractor. The Appellant argues that a municipality can be an "owner" under the Act despite the fact that the improvements to the land are not made at the municipality's expense. An owner is a person having an interest in premises at whose request and on whose behalf or for whose direct benefit an improvement is made to premises. The Appellant argues that in this case the streets were dedicated to and owned by the City of London; the subdivision agreement required the developer to construct the improvements and the improvements benefited the City of London through the development of city streets.
[18] The Appellant argues that s. 17(4) specifically references the subdivision agreement to which the holdbacks are to be calculated, and that liability under s. 17(4) arises when there is "an agreement with the municipality". The only agreement with the municipality is the subdivision agreement. Thus the City of London is the owner of lands on which TCG Asphalt made improvements required by the City under the development agreement and the City is the equivalent of an owner of the lands in the normal construction lien chain. The agreement pursuant to which the improvement was made at the City's request is the development agreement. Because the agreement provided that the City was not responsible for paying for the improvements to be constructed by the developer, the City could avoid liability for holdbacks. The rationale for s. 17(4) makes the municipality liable for holdbacks that would have been required if the municipality were responsible for paying for the improvements, namely, if the municipality had to pay for the improvements required by the development agreement.
[19] The Appellant states that s. 17(4) simply returns to the City the holdback liability it would have if the development agreement had provided that the City would pay the developer for constructing the improvements. Thus the relationship between the City, the developer and TCG Asphalt is analogous to the relationship among the owner, contractor and subcontractor in the normal construction holdback chain. The Appellant argues that the security required by the City related to a contract worth $1,215,435. Ten percent of that sum amounts to $121,543.50. The Appellant argues that the Act is remedial legislation which should be liberally interpreted and was passed to provide an effective right for workers and suppliers to claim and obtain payment for work and materials supplied.
[20] The City of London contends that TCG Asphalt's position is inconsistent with the express terms and scheme of the Act, and fails to take into account that the holdback obligation under Part IV is to be determined by reference to the contract between TCG and Randa Investments Limited and not by reference to any security money maintained for the City's benefit in a separate unregistered side agreement between the City and Simcoe & Erie Insurance Company to which TCG was not a party. The City argues that for s. 17(4) of the Act to come into operation four preconditions must be satisfied. First, land has to be dedicated to a municipality as a public street or highway; second, an improvement has to be made to the dedicated land at the written request of or under an agreement with the municipality; third, the improvement to the dedicated land is not to be made at the expense of the municipality; fourth, there must be default payment of the lien claimant by the proper payer.
[21] Thus s. 17(4) applies in circumstances in which there are two levels of agreement. The first level is between the City and the owner of the land which was accomplished through the 1988 subdivision agreement between Shousher and Kadrie in trust and the Township of London. That agreement was amended in 1994 following annexation so that the City stepped into the shoes of the Township of London and Randa Investments Limited had acquired the interest of Shousher and Kadrie.
[22] The second level agreement is the individual contracts between the subdivider and the various contractors who supply materials and install the services described in the subdivision agreement as amended by the 1994 agreement. The City of London contends that each contract entered into by the subdivider represents "an improvement to the land under an agreement with the municipality" which interpretation conforms to the definition of "improvement" in the Act. Since each of these individual improvements is also a "contract" within the meaning of the Act, these individual contracts provide a basis on which the holdback obligation must be determined.
[23] It is submitted that all four preconditions were satisfied in this case, namely, land was dedicated to the City of London as a public street; the improvement by TCG to the street was an obligation which Randa was required to fulfill under the amended subdivision agreements; as a consequence of the fact that TCG's contract was with Randa and not the City and in accordance with the provisions of the subdivision agreement itself, TCG's work was to be at Randa's expense exclusively and not at the expense of the municipality. And finally, there was a default of payment by the proper payer, Randa, so that the core question is the extent to which the City of London is liable to TCG for Randa's failure to pay on its contract with TCG.
[24] The City contends that subsection 17(4) of the Act provides that the municipality shall be liable "to the value of the holdbacks under Part IV that would have been required were the improvements made at the expense of the municipality". The City submits that Justice Kerr correctly determined that the City's liability was the holdback liability under Part IV of the Act in the amount of $22,278.67, being 10 percent of TCG's account for services rendered as between it and the proper payer, Randa Investments Limited.
Analysis
[25] It has been previously held in this court that the provisions of the Act determining whether a particular claimant is entitled to a lien and those creating the lien, such as the sections prescribing time periods for preserving and perfecting lien rights are to be strictly construed: see Sesco Ltd. v. Life Centre Non-Profit Housing Corp.(Ajax) (1998), 37 O.R. (3d) 764 (Ont.Div.Ct.) wherein the court quoted with approval from Harvey J. Kirsh, Kirsh's Guide to Construction Liens in Ontario 2d. ed. (Toronto: Butterworths, 1995) at p. 4:
Despite the fact that lien legislation is a derogation from the common law, the courts have traditionally refused to construe it strictly, but have taken the view that it is remedial legislation deserving of a liberal interpretation, particularly with respect to the enforcement of the rights it confers upon those to whom it applies. However, the provisions determining whether a particular claimant is entitled to a lien, and those essentially creating the lien, such as the sections prescribing the time limits for preserving and perfecting lien rights, are to be strictly construed.
(emphasis added)
[26] It has also been held that the scheme of the Act is to facilitate the early release of the basic holdback: see Lindsay Brothers Construction Ltd. v. Halton Hills Development Corp. (1992), 11 O.R. (3d) 23 (O.C.G.D.) per Fortier J.
[27] The Act provides that where the preconditions in s. 17(4) are met, a municipality shall nevertheless on default of the proper payer"be liable to the value of the holdbacks under Part IV that would have been required were the improvement made at the expense of the municipality".
[28] The word "improvement" is a defined term in the Act. It means first, any alteration, addition or repair to, or second, any construction, erection or installation on, any land.
[29] The value of the holdbacks under Part IV is calculated in accordance with s. 22 which requires that each payer upon a contract or subcontract under which a lien may arise shall retain a holdback equal to 10 percent of the price of the services or materials as they are actually supplied under the contract or subcontract, until all liens that may be claimed against the holdback have expired as provided in Part V or been satisfied, discharged or provided for under s. 44 (payment into court).
[30] The second requirement of s.22(1) does not refer to the "project" or to the "improvement" but rather to "a contract" or a "subcontract" under which a lien might arise: see Lindsay Brothers, supra.
[31] This raises the fundamental question which is, under which contract does a holdback obligation arise? The City contends that this refers to the individual contract under which the specific improvement by TCG occurred. We agree. This is clear from the words which follow the reference to Part IV holdbacks, specifically "that would have been required were the improvement made at the expense of the municipality". The words "the improvement" refers to the earlier use of the words where "an improvement is made to the land" which is in the singular.
[32] "Holdback" and "contract" are defined terms under the Act. They are interrelated. A holdback means 10 percent of the value of services or material supplied under a contract or subcontract. "Contract" means "the contract between the owner and the contractor, and includes any amendment to that contract". In this case, TCG's contract was a separate contract between the subdivider Randa Investments and TCG.
[33] Were the argument of the Appellant to succeed, there could be no payment or pay down of security until all of the work in the subdivision was complete and it had been finally determined what other liens might arise to completion.
[34] Part V of the Act deals with the expiry of liens and provides separate rules for the expiry of contract liens. Stated simply, s. 31 of the Act allows the pay-out of the holdback to the contractor who has completed his contract and whose lien rights have expired by the passage of the 45 day period: see Lindsay Brothers, supra.
[35] Were the Appellant's argument accepted, a municipality could not safely pay down security even where particular components of the work performed under the subdivision agreement were certified complete. As an example, if sewer work had been completed in 1995 and that work certified complete and the expiry of liens under the work occasioned under s. 31, the municipality would still be required to hold on to an amount representing 10 percent of its security for the sewer work even though the lien period had expired under Part V. In interpreting s. 22(1) of the Act, the Court in Lindsay Brothers noted that the holdback is to be equal to 10 percent of the price of the services or materials as they are actually applied under the contract or subcontract. The Court held that the reference to the "contract" refers to each individual contract and does not extend to 10 percent of all the contracts for the whole project or improvement.
[36] A similar argument to that urged by the Appellant was posed to Glass J. in G.M. Sernas & Associates Ltd. v. 846539 Ontario Ltd., [1999] O.J. No. 3714 (S.C.J.). In that case Glass J. concluded that "there is one holdback figure for the claim of the Plaintiff for work done by it for the developer". Applying the reasoning in Lindsay Brothers, Glass J. concluded that the holdback is 10 percent of the value of the services or materials under "a contract", being a contract in the singular. He noted that had s. 22 referred to 10 percent of the "improvement" rather than 10 percent of the "value of services or materials under the contract" then the interpretation urged by the lien claimants might have been considered. He concluded that any other interpretation of the issue of the determination of the holdback liability than by reference to the individual contract between the subdivider and the claimant would result in an irrational interpretation under which an owner would have to hold back funds that would include holdback funds already paid out pursuant to s. 31 of the Act.
[37] We find that the scheme of the Act fully supports that interpretation. Counsel for the Appellant valiantly attempted to distinguish Lindsay Brothers and Sernas on the basis that these cases dealt with the priority of lien claimants over mortgagees, which is specifically provided in s. 78(2) of the Act. We conclude that this is a distinction without a difference.
[38] The Appellant submitted that the "contract" contemplated in s. 17(4) means the subdivision agreement. We are unable to agree with that submission. The subdivision agreement sets out the obligations of the developer leading to the assumption of the highways by the municipality. The subdivision agreement contemplates estimates of the value of work to be performed. It is upon these estimates that security was obtained from Simcoe & Erie. Clearly, however"the value of the holdbacks under Part IV" arising "on default of payment by the proper payer" refer to the individual contracts and subcontracts that are negotiated in furtherance of the subdivision agreement. The Appellants would require the municipality to hold back 10 percent of the cost of estimated work. We find no support for that submission in the wording of the Act. In our view, the wording is quite clear. The holdbacks are those required by Part IV. They relate to individual contracts and subcontracts. As noted by Glass J., in Sernas, any other interpretation would lead to absurd results.
[39] We need not comment on the fact that a municipality could be an "owner", but suffice to say nothing in the Act prohibits a municipality from being its own general contractor. That was not the case here.
[40] The appeal from the decision of Kerr J. is dismissed. Costs are fixed in favour of The Corporation of the City of London in the amount of $4,000.
C. McKINNON J.
I agree
CUNNINGHAM A.C.J.
I agree
KENT R.S.J.
Released: July 7, 2004.
COURT FILE NO.: 1374
ONTARIO
DIVISIONAL COURT
SUPERIOR COURT OF JUSTICE
B E T W E E N :
TCG ASPHALT & CONSTRUCTION INC.
Plaintiff (Appellant)
- and -
NEWPORT PROPERTIES LIMITED, THE CORPORATION OF THE CITY OF LONDON, CANTEBURY ESTATES LIMITED PARTNERSHIP, RANDA INVESTMENTS LIMITED and PACIFIC & WESTERN TRUST CORPORATION
Defendants (Respondents)
D E C I S I O N
C. McKinnon J.
Cunningham A.C.J.
Kent R.S.J.
Released: July 7, 2004.