RSG Mechanical Incorporated v. 1398796 Ontario Inc., 2015 ONSC 2070

CITATION: RSG Mechanical Incorporated v.1398796 Ontario Inc., 2015 ONSC 2070

DIVISIONAL COURT FILE NO.: 328/14 DATE: 20150522

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

In the Matter of the Construction Lien Act,

R.S.O. 1990, c. C 30

SWINTON, HARVISON YOUNG, LEDERER JJ.

BETWEEN:

RSG MECHANICAL INCORPORATED

Plaintiff/Appellant

– and –

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

Antonio Conte, for the Plaintiff/Appellant

Michael A. Handler & Mario Middonti, for the Defendant/Respondent, Realty Growth & Revenue Fund General Partner Inc.

HEARD at Toronto: March 19 & 20, 2015

LEDERER J.:

BACKGROUND

[1] RSG Mechanical Incorporated has carriage of a consolidated action involving eleven construction liens. It appeals an order of Mr. Justice Myers in which he refused to confirm a report issued by Master Polika.[^1] The Master had 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. (“Realty Growth”), had taken itself out of the priority scheme envisaged in sections 78(2) and 78(6). The Master found 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. As the Master saw it, this conclusion rendered the other issues placed before him moot. Nonetheless, he went on to make a number of alternate findings each of which arrived at the same result. The lien claimants had recourse to the security posted in court, not only to the value of any deficiency in the holdback, but for the full value of their claims. Mr. Justice Myers found that the Master made several errors of principle and made changes to the Report which had the effect of reversing the Master.

[2] On a first reading, this appears to be a complicated question concerning an esoteric area of the law. In the end, the case tests a principle that is fundamental to the values and methods of our system of civil justice. What happens when a decision fails to follow the guidance provided by earlier cases and ignores stare decisis (“let the decision stand”)? I will return to this idea later in these reasons.

FACTS

[3] The general outline of what transpired is not disputed. It was explained by the Master, who made a series of factual findings[^2], and summarized by Mr. Justice Myers.[^3] I rely on both but, principally, the latter.

[4] The defendant, 1398796 Ontario Inc., was the developer of a construction project. It adopted the trade name Bloorwood Group (“Bloorwood”). Its principal shareholder was a real estate broker, John Rego. In 1999, John Rego came upon some land. He saw an opportunity to build townhouses and a high rise condominium building. He wanted to buy the land but was without the necessary funds. John Rego entered into an agreement of purchase and sale with a long closing date. He borrowed money for the project from the defendant, Realty Growth. These loans were secured by a mortgage.

[5] Construction financing was provided by another of the defendants, MCAP Financial Corporation (“MCAP Financial”). Realty Growth subordinated its mortgage security to MCAP Financial and to the insurer defendants, London Guarantee Insurance Company and Northern Indemnity Inc. MCAP Financial was the first mortgagee, the insurers were second and Realty Growth was third.

[6] John Rego sought to secure the interest of his shareholders. He did this by granting a mortgage to the last of the named defendants, Marketpoint Development Corp. (“Marketpoint”), a company owned by him and the other shareholders of Bloorwood. The Marketpoint mortgage stood in the fourth position behind MCAP Financial, the insurers and Realty Growth. The Marketpoint mortgage was not supported by any advance from Marketpoint to Bloorwood. However, as a condition of approving Bloorwood as a builder for new home warranty purposes, Tarion[^4] required Bloorwood to post security of approximately $1.2 million. Bloorwood entered into an agreement with Joe Maio to have his company, 1189875 Ontario Limited (“1189875”), provide support for that security. In return, Marketpoint assigned its fourth mortgage to 1189875.

[7] Bloorwood acted as its own general contractor. All the lien claimants contracted directly with it. They are all contractors under the statute and not sub-contractors claiming up through a general contractor. By May, 2004, Bloorwood had built and sold forty-nine of sixty-one planned townhouses, but it had also run out of money. Its available credit facilities were exhausted. Fourteen claims for liens had been delivered by the eleven lien claimants represented in this action. The last day of work claimed by any lien claimant, found by the Master to have a valid lien, was October 15, 2004.

[8] On June 4, 2004, Bloorwood’s registration with Tarion expired. It had no ability to pay for new home warranty work on the forty-nine townhouses that had been sold. It could no longer sell new homes. During the summer of 2004, some work was being finished, but from May to September, the office of the superintendent was not staffed. Construction was effectively halted.

[9] There were twelve more townhouses to be finished and sold. There was another portion of the land proposed for high-rise development. The Master referred to Helyar Report No. 13, a report from a quantity surveyor which put the extent of the deficiencies in the holdback at $424,537.00 as of March 2004. Helyar was responsible for assessing the work done in furtherance of the project and determining when and what payments should be made to the contractors. The value of the holdback obligation would be increased by further work at the site.

[10] In August 2004, Joe Maio took action to protect his position. His company continued to hold the fourth mortgage. It bought out the first mortgage held by MCAP Financial. As a result, Joe Maio was in position to control the progress of the development. Bloorwood advised that, of the remaining twelve townhouses, seven had already been sold. Of those, four were nearly ready to close and would produce proceeds of over $1 million.

[11] In September, Tarion started carrying out warranty work on some of the 49 townhouses that had closed. It used its own trades; it was not involved in the twelve townhouses that remained. The work to complete six of the last twelve townhouses was undertaken by 1189875, the company owned by Joe Maio, which used its own construction forces through a related company, Maystar General Contractors Inc. (“Maystar”). It started work on November 1, 2004.

[12] On December 1, 2004, John Rego met with representatives of the mortgage lenders. The work being done by Maystar, to get the first six of the twelve remaining townhouses ready for closing, was underway. There were only six to be closed as one of the seven purchasers had backed out. The six were to be completed at a cost of $309,465.00. The cost had not yet been billed, but was subsequently paid[^5] by 1189875, the first mortgagee. The lenders wanted these transactions to close. They wanted to realize the proceeds of the sales. The liens that had been registered needed to be dealt with before the sales could be completed. It was agreed that Realty Growth would post security to “bond off” all the registered liens. Once the security was posted, an order could be obtained pursuant to s. 44 of the Construction Lien Act vacating the liens. With the liens off title, the transactions could be closed. To that end, 1189875, the first mortgagee, provided $424,533.00 to Realty Growth as a holdback advance to assist in the posting of the security. That money was paid in escrow to Realty Growth’s counsel and was not to be released until the liens were vacated. Section 44 requires that the full claims of the lien claimants, and not just the portion referable to deficiencies in holdbacks, be secured by the payment into court. Accordingly, $978,588.74 was posted.[^6] An order vacating or clearing the liens was obtained from Madam Justice Herman on December 30, 2004.[^7] It was registered on title on January 5, 2005. The lien claimants obtained charge over the money that was posted in court. The sales of the first six townhouses could close. They did.

[13] In January, 2005, the insurers, as second mortgagee, delivered notices of sale by power of sale. Shortly thereafter, Realty Growth bought out the second mortgage. It also bought out the first mortgage held by 1189875. It had work done by Maystar to ready the last six townhouses for sale at a cost of $339,671.50. It sold the townhouses and the remaining high-rise land by power of sale.

THE ACTION

[14] The Statement of Claim, in this action, was issued on June 9, 2004 and a Statement of Defence in the name of Realty Growth, dated August 5, 2004, was served and filed. By order, dated December 30, 2005, the action as against the defendants, London Guarantee Insurance Company and Northern Indemnity Inc., was dismissed.

[15] On February 13, 2006, judgment was granted as against the defendants, 1398796 Ontario Inc., 1398796 Ontario Inc., o/a Bloorwood and Marketpoint Development Corp., each of which had been noted in default. Judgment was in the amount of $306,779, plus interest in the sum of $14,316.40. The action as against the remaining defendants was referred to the Master at Toronto for trial. The Master was directed to determine all questions in the action in the reference, including costs of the action and the reference.

[16] During September and October 2008, the Master conducted a trial that took fourteen days. His reasons are lengthy. Before they were completed, on February 22, 2013, nearly four-and-a-half-years after the trial had been completed, the Master issued a document entitled, “In Writing Pre-trial for Directions”. It lists eight cases which the Master advised had come to his attention, had not been cited in the submissions of counsel and appeared to the Master to have a bearing on the issues he was to decide. The Master noted that he did not wish to determine the case without affording counsel a chance to address the cases referred to or, for that matter, any other cases that would be relevant to the issues decided in the cases he had listed. The document sets a time and date (five days later, February 27, 2013) for a telephone conference to consider if counsel wished to make submissions and, if so, when and how. As described by counsel before us, at some point, without guidance as to why or for what purpose, the Master required counsel to appear to deal with these matters. It was not made clear what the point was or what was said or done in response.

[17] The reasons of the Master were released on March 15, 2013 and “released as amended” on April 5, 2013. The amendments followed an appearance that took place on the same day as the second release and dealt with what was referred to as six “typographical errors” (quotes in the original). Supplementary reasons relating to the appearance of April 5, 2013 were released on April 9, 2013.

[18] Rule 54.09 of the Rules of Civil Procedure explains when a Report is to be taken as confirmed. Where the order directing a reference does not require the party conducting the reference to report back, it is confirmed if each of the parties files a consent or, on the expiration of fifteen days after a copy of the report with proof of service on each of the parties has been filed in the applicable office, unless a notice of motion to oppose confirmation has been served. In this case, Realty Growth opposed confirmation. The motion was heard by Mr. Justice Myers over two days in June 2014. The decision was released on June 27, 2014 with Supplementary Reasons being released on August 13, 2014 and Second Supplementary Reasons on August 22, 2014.

THE MASTER’S REPORT

[19] The Master made a series of findings. He concluded that, regardless of how the matter was approached, or on what basis it was decided, the lien claimants were to be paid the full value of their claims (not just the deficiency in the required holdback). He considered the issues raised before him in the following sequence:

First

There were eight lien claimants who proved valid claims. The legislation permits the security that had been posted. This was done to allow the lien claims to be cleared so the property could be sold. The Master determined that the lien claimants were to be paid, from the posted security, the full amount of the principal of their liens, not just the deficiency referable to the holdback of each of them.[^8]

Second

The finding that the posted security was available to satisfy the full lien claims resolved the issues before the Master on the reference. The remaining issues were moot. Nonetheless, recognizing a possibility that he could be wrong, the Master went on to consider whether Realty Growth had become an “owner” as defined by the Act. As an “owner”, Realty Growth would be liable for the lien claims in full, at least in respect of the work or improvements it had requested, making the security it had posted available to satisfy the lien claims in their entirety. The Master found that Realty Growth was an “owner”.[^9]

Third

The Master went on to suppose that, as to Realty Growth being an owner, he could also be wrong. What if Realty Growth was not an owner? What would happen then? The Master noted that, at that point, the lien claimants would not be able to look to the posted security beyond the value of any deficiency in the holdback. The Master found that the amount available should be based on the pro rata share of the pooled amounts of all unreleased holdbacks of all contractors who did work as listed in the Helyar Report. The result was that the deficiency in the holdback exceeded the amount of the claims. Thus, even in this situation, the lien claims were to be paid in full.[^10]

Fourth

Finally, the Master identified three “advances” that he determined had been made on account of mortgages that were in place. This included the $309,465.00 paid to the subsequent contractor (Maystar) by 1189875 for completion of the six townhouse units which were subject to agreements of purchase and sale; the $424,533.00 provided to Realty Growth to assist in posting the security pursuant to s. 44(1) of the Construction Lien Act; and, the $339,671.50 which was paid to Maystar by Realty Growth for completing the remaining six units in 2005. The sale of the six units that were subject to agreements of purchase and sale was the first realization following the preservation of the claims for lien. The Master observed that the monies realized from these sales exceeded the priority of the lien claimants in the amount of $541,452.40. The lien claimants were entitled to payment of that amount from the proceeds of the sale in priority to the mortgagees. This being so, the results remain the same. The lien claimants were entitled to payment of their proven claims for lien out of the monies that had been posted in court ahead of the money said to have been advanced.[^11]

THE DECISION OF THE MOTION JUDGE

[20] The motion to oppose confirmation of the Master’s Report was heard by Mr. Justice Myers. He determined that the Master was wrong in principle in respect of each of the primary determinations he had made:

• the security, as posted, was not available to satisfy the lien claims. These funds were available only to the extent of any deficiency in the holdback required by the Construction Lien Act;[^12]

• Realty Growth was not an “owner” at any time that would have made it liable for any part of any of the lien claims;[^13]

• holdbacks for the liens of others contractors that are not preserved under s. 31 of the Act are not included in the pool when calculating the total holdback available;[^14] and,

• the monies delivered to complete the two sets of six townhouses ($309,465.00 and $339,671.50) and the funds used to post security ($426,533.00) were not advances made prior to the liens being vacated; accordingly, the lien claimants held no priority over the rights attributable to those advances. [^15]

[21] Mr. Justice Myers found that the Report of the Master needed revision and outlined the changes that he required.[^16] It is the order that reflects these findings and determination that RSG Mechanical Incorporated, on behalf of itself and the other lien claimants, appeals. The motion judge`s determination as to costs of the reference are also being appealed.

STANDARD OF REVIEW

[22] The motion to oppose confirmation of the Report of the Master was not an appeal.[^17] It is in “the nature of an appeal”.[^18] Nonetheless, a motion judge may, at this stage, identify and deal with errors or omissions which emerge from the report of the Master. The authority of a motion judge is set by rule 54.09(5) of the Rules of Civil Procedure. He or she “may confirm the report in whole or in part or make such other order as is just”. The motion judge owed the Master considerable deference. On a motion to oppose confirmation of a report, the judge ought not to interfere with the results unless there has been an error in principle, an absence or excess of jurisdiction or some patent misapprehension of the evidence. Further, the award should not be disturbed unless it appears unsatisfactory on all of the evidence.[^19] This is consistent with the standard of review as outlined in Housen v. Nikolaisen.[^20]

[23] Accordingly, the standard of review applicable to the motion heard by Mr. Justice Myers was the same as it is on this appeal of his order. 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.[^21]

ANALYSIS

(a) Introduction

[24] Counsel for the appellant submitted that the Construction Lien Act has a single value and narrow purpose: to protect lien claimants. To my mind, 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. The Report, as its name suggests, comments on what became the Construction Lien Act, 1983. It replaced the pre-existing legislation: the Mechanics Lien Act, and represented what was intended to be a substantial amendment to a complicated system of substantive rights created by the legislation.

[25] Counsel used the Report to support his idea that the legislation must be taken to favour lien claimants over the interests of mortgagees. Among others, he referred to the following quotation:

The essential purpose of the lien created by the Act is to ensure that those who have contributed their services or materials towards the improvement of a premises will be entitled to claim against that premises in priority to the general creditors of the owner.[^22]

[26] This takes the Report out of context. It refers to protecting lien claimants, but that protection was said to be limited to the value of the holdback the [then] current draft of the legislation proposed:

These provisions [s. 80 of the Committee Draft and s. 24 of the Discussion Draft] are intended to provide greater security for the holdback than exists under the present law.[^23]

[27] The approach found in the draft was stated as:

Like its antecedents, section 80 deals with the relative priority of the lien and competing interests in the premises. However, section 80 also serves to secure the holdback (which represents ten per cent of the value of services and materials that have been supplied to the improvement of the premises) as an interest in the premises. It protects this interest from being eroded by arrears and the payment of a mortgage, particularly arrears of interest. It does this by giving the lien priority over any building mortgage, and also over any mortgage registered after the commencement of work on the improvement, to the extent of any deficiency in the holdback available to satisfy the lien claimants.[^24]

[28] 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”.[^25] 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:

The priority [a lien has over a building mortgage to the extent of any deficiency in the holdbacks] applies irrespective of whether the mortgage was registered prior to or subsequent to the first work being done on the improvement. In the opinion of the Committee, subsection 2 [s. 80(2)] provides a reasonable balance between the interests of the mortgagees who finance the construction of the improvement and the lien claimants who do the actual work on the improvement.[^26]

[29] 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. Nonetheless, it is that perspective that underlies most of what was said on behalf of the appellant.

(b) Section 44(1) and s. 78(2) of the Construction Lien Act

[30] In this case, the security was posted, an order obtained and the liens vacated pursuant to s. 44(1) of the Construction Lien Act:

Upon the motion of any person, without notice to any other person, the court shall make an order vacating,

(a) where the lien attaches to the premises, the registration of a claim for lien and any certificate of action in respect of that lien; or

(b) where the lien does not attach to the premises, the claim for lien,

where the person bringing the motion pays into court, or posts security in an amount equal to, the total of,

(c) the full amount claimed as owing in the claim for lien; and

(d) the lesser of $50,000 or 25 per cent of the amount described in clause (c), as security for costs.

[31] Counsel for the appellant took the position that this section operates independently of s. 78(2) of the Act. Section 78(2) says:

Where a mortgagee takes a mortgage with the intention to secure the financing of an improvement, the liens arising from the improvement have priority over that mortgage, and any mortgage taken out to repay that mortgage, to the extent of any deficiency in the holdbacks required to be retained by the owner under Part IV, irrespective of when that mortgage, or the mortgage taken out to repay it, is registered.

[32] It was submitted that the limit to the priority given to a lien claimant in s. 78(2) (to the extent of any deficiency in the holdback) does not extend to s. 44(1). On this basis, the lien claimant acting to collect from security that was the subject of an order under the latter section can look beyond the deficiency in the holdback and seek the full value of the lien. This was the substance of the ruling of the Master which Mr. Justice Myers set aside.

[33] Was there an error in principle? In Gilvesy Construction, a Division of Gilvesy Enterprises Inc. v. 810941 Ontario Ltd.[^27] (“Gilvesy Construction”), a letter of credit was posted by a mortgagee and an order made pursuant to s. 44. The liens were vacated. This was done in order to permit the sale of the property free of the liens. The mortgagee agreed that, pursuant to s. 78(2), the lien claimants had priority over it for the amount of the holdback that was to have been retained by the owner. The Divisional Court held that the issue continued to be governed by the law as it had been under the prior legislation. The legislation did not intend a different priority between lien holders and mortgagees based only on the fact that a mortgagee moved under s. 44 to vacate the liens in order to facilitate a sale. The upshot is that s. 78(2) and the limit it imposes on the priority provided to lien claimants applies where security is posted and an order made under s. 44.

[34] The Master did not follow Gilvesy Construction. He assumed that this was a decision of a Superior Court judge and he concluded that the judge had made his decision relying on a case that had been determined years before the passage of the Construction Lien Act and without regard for the changes it had made:

…Carruthers J. appears not to have [been] directed to the new provisions which were enacted some 10 years before rendering the rationale of P. Michaud [Roofing Ltd. v. National Trust Co. Ltd. et al.] inapplicable on the basis of the statutory changes.[^28]

[35] Mr. Justice Myers observed that this statement was incorrect. The judge had referred, among others, to ss. 44 and 78(2) of “the current Act”.[^29] Mr. Justice Myers quoted from Gilvesy Construction:

…Despite the able argument of counsel to the contrary, we can see no material change in subs. 44(9) of the current Act from its predecessor provisions subs. 29(4) of the Mechanic’s Lien Act, R.S.O. 1980, c. 261 and the earlier subs. 25(4) of the Mechanic’s Lien Act, R.S.O. 1970, c. 267, which latter provision was in effect when P. Michaud Roofing was decided. It is clear from the Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act that no change to the P. Michaud Roofing principle was intended by that part of subs. 44(9), which reads ‘and shall be distributed among all lien claimants in accordance with the priorities provided for in section 80’…

It was argued that subs. 78(10), an entirely new provision, now provides the practical alternative for a mortgagee that was missing under the old legislation, an absence which inspired the decision in P. Michaud Roofing Inc.… [The lien claimants’ position] as was previously held in P. Michaud Roofing Inc., is at odds with the scheme of the Act when read as a whole. A mortgagee is not a general insurer for all contractors and subcontractors on a project to which a mortgage relates [citations omitted][^30].

[36] Counsel for the appellant submitted that the Master was not bound by Gilvesy Construction. Counsel pointed to s. 58(4) of the Construction Lien Act:

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.

[37] Counsel submitted that having the “…jurisdiction, powers and authority of the court…” has the effect of making the referee, in this case the Master, a judge of the Superior Court of Ontario. Thus, the Master would not be bound to follow the decision of judges of the Superior Court or its predecessors. He would have been bound only by courts at a higher level: the Divisional Court or the Court of Appeal. As I see it, this is incorrect. The 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.[^31] If I am mistaken in this, it does not matter. Both counsel were wrong when they advised Mr. Justice Myers that the decision in issue was made by the Ontario Superior Court or a predecessor. Gilvesy Construction was a stated case.[^32] Pursuant to the Construction Lien Act, it was stated to the Divisional Court.[^33] As such, it was a decision of this Court and binding on the Master.

[38] Gilvesy Construction is not the only decision of the Divisional Court that the Master failed to follow. In Basic Drywall v. 1539304 Ontario Inc.[^34] (“Basic Drywall”), a mortgagee (ICICI Bank) posted security under s. 44 of the Construction Lien Act in order to vacate liens. A lien claimant (Basic Drywall Inc.) sought a determination of whether, in such circumstances, it (in that case, a subcontractor) was only entitled to its proportionate share of the basic holdback or whether it was entitled to a proportionate share of the money owed by the owner to the general contractor. The mortgagee characterized this as a priority issue under s. 78. The lien claimant argued that its lien was a charge upon the entire amount that was owed. The Divisional Court held that this was a priority issue governed by s. 78 of the Construction Lien Act and that the security was limited to the holdback. It observed that:

When 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.[^35]

[39] Rather than adopt or follow these cases, the Master undertook his own analysis which he said had not been undertaken or considered by either the motion judge or the Divisional Court. It was on this basis that he found that the decision was not binding on him.[^36] For his part, Mr. Justice Myers understood the problem:

…the Master found that he was not bound by the Divisional Court because he believed that he had done a more detailed analysis of the statute and the Divisional Court had not addressed his analysis. In so finding, he ignored the fundamental rule of stare decisis or binding precedent on which our legal system is built.[^37]

[40] I return to the observation made at the outset of these reasons. The doctrine of stare decisis requires that lower courts follow the decisions of higher courts (referred to as “vertical stare decisis”[^38]). This is so even for the Court of Appeal, much less the Master. In Godoy v. 474920 Ontario Ltd.[^39], a case dealing with different circumstances and different legal issues, the Court of Appeal said:

Given the decisions of this court and the decision of the Supreme Court of Canada in Murphy v. Welsh, 1993 SCC 59, [1993] 2 S.C.R. 1069, if there is to be any change in the law it will have to come from the Supreme Court of Canada.[^40]

[41] The Master would have been well-advised to follow this directive as it fit the circumstances of this case. As noted by Mr. Justice Myers, the Master was not entitled to ignore the binding precedent of a senior court.[^41]

[42] Counsel for the appellant attempted to rationalize and explain the failure of the Master to follow the precedent that bound him. He submitted that there were limits to the application of the doctrine. “[O]nly that part of a judicial decision is binding as authority which enunciates the principle on which the question before the court has been actually determined…”[^42] As Mr. Justice Myers also noted, albeit with different words “…mere dicta… do not bind even the lowest courts”.[^43] In this case, the Master was not considering dicta. The Master misread what it was that the judge had relied on in Gilvesy Construction. Contrary to the view expressed by the Master, the judge was aware of and considered the law as it stood, not as it had been. The Master did not follow Basic Drywall. He preferred his own analysis. This does not allow him to step around what the Divisional Court had decided in earlier cases. The decision he made runs to the core of those decisions. The proposition that, following the posting of security and an order made pursuant to s. 44, the priority of a lien claimant is limited to any deficiency in the holdback was not removed from the substance of the decision; it answers directly the question the Court was asked.

[43] Mr. Justice Myers was correct and well within his authority to find that the failure to follow cases which were binding was an error in principle and, on that basis, to refuse to confirm this finding in the Report of the Master.

(c) Was Realty Growth an Owner?

[44] If Realty Growth was an owner, the security it posted would be available to satisfy the lien claims in their entirety. The rights of the lien claimant to realize on the debt owed to them would extend beyond the value of the deficiency in the holdback.

[45] “Owner” is defined in the Construction Lien Act:

‘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.

[Emphasis added]

[46] There are three elements in this definition: (1) an interest in the premises; (2) an improvement made at the request of the person; and (3) a request made upon one of the four bases referred to.

[47] Fundamental to an understanding of ownership is the injunction that it is the substance and not the form which governs an understanding of the relationship:

In Phoenix, the Supreme Court of Canada cautioned that the overall arrangements between the parties must be scrutinized in an 'ownership' inquiry to ascertain the real substance of the enterprise at issue… Indeed, the jurisprudence of the Supreme Court of Canada confirms that the form of the parties' arrangements cannot be allowed to mask their true character…[^44]

[48] In this case, the Master examined the relationship of Realty Growth to the project. When it “arrived on scene” and its two credit facilities were accepted, the purchase of the land, by John Rego or his companies, had not yet taken place. With the closing complete, Realty Growth had advanced more than $1 million above the purchase price, meaning that the owner had that money in hand to begin developing the land (make the improvements). The Master speculated that “…it could be said that Realty Growth was the real owner”[^45] because it had elected to take its profit as up-front charges for the two credit facilities, plus 18% interest compounded monthly. There is no evidence to support this conclusion. John Rego testified that the actual rate of interest was 15% and that the rate was not high. He found it “cheaper”. “It was a combination of equity and debt”.[^46] In any event the Master did not, on this basis, make a finding that Realty Growth was an owner.

[49] The Master went on to indicate that Realty Growth dictated the amount of the construction financing and the financing to secure the bond of the Ontario New Home Warranty Program (“ONHWP”). With the building financing in place, Realty Growth ensured that it would receive the same reports as the building mortgagee so that it was fully informed as to the progress of the project. The Master noted that Realty Growth subordinated its remaining mortgage to the building mortgage and to the mortgage given as security to the ONHWP.

[50] This was the situation when the fourteen lien claims were filed during 2004 and when, on June 4, 2004, Bloorwood’s registration with ONHWP (Tarion)[^47] had expired. The Master was clear: “At that point [he] could not have inferred on the basis of the totality of the evidence…that Realty [Growth] was an owner.”[^48]

[51] At this point, the work undertaken by the lien claimants was over. October 15, 2014 was the last day that work done by a lien claimant resulted in a valid lien. During September, warranty work was carried out on behalf of ONHWP. It used its own trades. 1189875 paid out the first mortgagee and took an assignment of the building mortgage. It moved to complete the six townhouses subject to agreements of purchase and sale. This was the work that began on November 1, 2004. It was undertaken on behalf of 1189875 by Maystar, the contractor of Joe Maio.

[52] For its part, Realty Growth chose to act in respect of the remaining six townhouses. It paid out and took assignments of the first and second mortgages. It made a further advance in the amount of $554,055.74 directed to the posting of the security. It proceeded to complete the six townhouses. This was done later in 2005 after the liens had been vacated. The Master found that, at that time, the three constituents of ownership were in place:

…The work was done at Realty [Growth’s] request who had an interest in the premises on its credit with its consent and for its direct benefit utilizing a shelf company, Marmellata Investments Inc.[^49]

[53] On this basis, the Master found, “taking into account the totality of the evidence...”,[^50] that Realty Growth was an owner, as defined in the Construction Lien Act, and that the lien claimants were entitled to be paid their lien claims (not just the value of the deficiency in the holdback) from the security posted in court. In other words, the Master determined that Realty Growth was an owner, not just from the point where it had “requested” the completion of the final six townhouses, but all the way back to its first involvement: the provision of funds to complete the purchase of the land and the $1 million for the commencement of the improvements.

[54] The Master was unable to find, from the evidence available in 2004, that (1) at the time the lien claims were registered; (2) at the time ONHWP began to settle the new home warranty claims; and (3) at the time the registration with ONHWP failed, Realty Growth was an owner. Accordingly if, after that time no further work was done by the lien claimants and the lien claims were then registered, the Master could not properly have found Realty Growth to be an owner and no liability for the lien claims could have been imposed. As it is, the Master’s decision suggests that if, at some later time, a party is identified as an owner, it will be liable for the entirety of the lien claims made throughout the course of its involvement with the project.

[55] This ignores that there is a temporal aspect that is part of an assessment of whether an individual, corporation or other entity is an owner. In Leyburn Electric Ltd. v. Merton Development Corp.[^51], this court observed:

The position…adopted by the motions court judge, is that the relevant time for determination of whether a person is an ‘owner’ within the meaning of the statute is the date on which the claimant supplied services or materials to the improvement.[^52]

[56] This being so, 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.[^53]

[57] Understood from this perspective, it becomes apparent that Mr. Justice Myers was correct when he said:

The Master found that Realty Growth was not an owner due to anything done by it up to the summer of 2004. He found that 1189875 became an owner in November, 2004 and Realty Growth became an owner thereafter. They only became owners, said the Divisional Court, by reference to the date of the supply of goods or services to the improvement. There is nothing in the statute that relates the finding of ownership back to a time prior to the person becoming an owner.[^54]

[58] Nonetheless, counsel for the appellant argued that, Mr. Justice Myers misread the Master. He took the judge to be saying that the Master did not find Realty Growth to be an owner prior to 2004 when, in fact, the Master determined that Realty Growth was an owner from the beginning of its involvement with the project. Mr. Justice Myers understood full well the finding of the Master. The difficulty is that, to make that finding, the Master had to take into account things which did not happen until 2005, after all of the work on which the lien claims were founded had been completed. In finding a party an owner for the purposes of the Construction Lien Act, you cannot look back. It is not a matter of hindsight. Phoenix v. Bird Construction[^55], on which counsel for the appellant relied, does not help. In that case, the issue was whether the party for which a building was being constructed was an owner under the Mechanics’ Lien Act[^56], which applied at the time. As counsel noted, when the “overall arrangements” were examined, the party in question was an owner. This had nothing to do with timing; that is when the characteristics of ownership came into being. Rather, it dealt with the overall understanding of the complicated set of agreements that structured the project.[^57]

[59] Counsel for the appellant goes further in his suggestion that Mr. Justice Myers failed to understand the Master. Counsel submitted that the Master was correct in his failure to rely on Leyburn Electric Ltd. v. Merton Development Corp. To counsel the case stands for nothing more than the proposition that a corporation that did not exist at the time the work or material was requested, in that case a condominium corporation, cannot have been an owner for the purpose of that work. This is not what the case said (see: para. [55], above). It did not impose a narrow limitation. It made a positive assertion. The relevant time to determine ownership is when the work or improvement was requested, not sometime later.

[60] I go back to the observations made at the beginning of these reasons and at the outset of this Analysis. It would have been better if the Master had adhered to the principle of stare decisis. Mr. Justice Myers found that the Master had erred in principle in failing to follow Leyburn Electric Ltd. v. Merton Development Corp.[^58] He was correct to do so; but there is more to the problem than that. The Master for whatever reason and with whatever purpose in mind, has wrongly attempted to re-set the law by re-shaping the determination of what makes someone an owner.

(d) Was the holdback larger than the lien claims?

[61] The Master recognized that if he was wrong his first two conclusions it would be necessary to determine the extent of the deficiency in the holdback. This would indicate how much of the posted security would be subject to the priority lien claimants obtained through the operation of s. 78(2) of the Act.[^59]

[62] The Master calculated the quantum of the holdback deficiencies by looking at the total holdbacks for all contractors, not just those with valid lien claims. He noted that the Helyar Report No. 13, at March 18, 2004, assessed the deficiency in the holdbacks required to be retained by the owner at $424,537.00. As a result of his own findings, the Master increased the amounts attributed to the holdbacks by $60,796.43 for a total of $485,334.34. There were a number of contractors listed in the Helyar Report No. 13 that were not addressed in assessing the deficiency in the holdback. The Master was troubled by the fact that the defendants did not produce any evidence in respect of these parties. They had the necessary information. Based on these findings, the Master inferred that the defendants accepted “the gross cost incurred figures” and took no issue that a holdback at 10% was attributable to the supplies they represented. On that basis, he calculated that the extent of the deficiencies of the holdbacks required to be retained exceeded the value of the proven lien claims ($541,452.40). Since the deficiency in the holdbacks was more than the value of the claims, they were to be paid out, in their entirety, from the posted security.

[63] Mr. Justice Myers found that, once again, the Master failed to follow cases that were binding on him. This is the point where it becomes important to remember that Bloorwood did not retain a general contractor. The lien claimants are not sub-contractors (see: para. [7], above). They each had a separate and independent privity of contract with the owner. Where there is a general contractor, it is the cost of that contract with the owner that governs the value of the 10% holdback. It is the role of the general contractor to deal with the claims of the sub-contractors. In this case each of the contractors, having contracted separately with the owner, is subject to its own 10% holdback.

[64] Mr. Justice Myers referred to Lindsay Brothers Construction Ltd. v. Halton Hills Development Corp. (“Lindsay Brothers”)[^60]:

Fortier J. held that holdbacks for liens of other contractors that are not preserved under s. 31 of the statute are not included in the pool. Section 31 of the statute provides that liens that are not properly preserved expire. In a much-cited reference from page 9 of the case report, Fortier J. wrote:

I, therefore, find that in the circumstances of this case, the contract of each lien claimants stands on its own and has a separate holdback to which the lien claimant may look to payment. The holdback amounts to 10% of the services or materials actually supplied under the contract and does not extend to 10% of all contracts entered into for the whole project or improvement.[^61]

[65] Lindsay Brothers has been relied on by this court. Mr. Justice Myers referred to Lansing Building Supply (Ontario) Ltd. v. Kemp[^62] where the Divisional Court had overturned an order of Master Saunders. He had held that a mortgagee takes, subject to the 10% of all holdbacks that the owner ought to have retained for the improvement, as a whole and not just for 10% of the contracts relating to valid lien claims. The Divisional Court overruled the decision:

In our view, the Master erred in his interpretation of Section 22. The effect of his decision renders Section 31 meaningless. We adopt the reasoning of Justice Fortier in Lindsay v. Halton Hills released October 27, 1992 and believe it is correct and applicable to this case.[^63]

[66] The situation was clearly explained in Celebrity Flooring Systems Ltd. v. One Shaftesbury Community[^64], as follows:

The issue in the case before me is mostly one of fact, i.e., under what contract did the liens of each of Trexcon, Group 4, Crudden, Celebrity, Premier and Sanderson arise? Or put another way, who did each of these lien claimants contract with? If they contracted with the Association, who is clearly an ‘owner’, then they are ‘contractors’ – see s. 1(1) – and the ‘Lindsay’ principle, above described, applies and the holdbacks to be retained are 10 percent of each of their six separate contracts which produces a maximum priority of $122,113.12 to cover $416,197.75 of lien claims. But if it is found that they contracted with 124 (who would then be what is commonly called a general contractor) who, in turn, contracted with the Association to build the entire project, making the Association a ‘payer’ and 124 a ‘contractor’, and the lien claimants ‘subcontractors’ then, the holdback to be retained is 10 percent of the 124–Association ‘contract’, which works out to be somewhere between $1.5 million and $2.1 million, and which priority would cover 100% of the lien claims of $416,197.75.[^65]

[67] Given the assertion found in Lindsay Brothers, the 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.

[68] Counsel for the appellant also relied on M.W.M. Construction of Kitchener Ltd. v. Valley Ridge Inc.[^66]; and George and Asmussen Ltd. v. MCM Holdings Inc.[^67]. In doing so, he made the mistake of confusing the treatment of sub-contractors who fall under the contract of a general contractor and those who contract directly with the owner. It is true that, in the first of the two cases, the contractor of concern (“Wackenhut”) did have a contract with the owner. However, the owner and the general contractor, by whom other lien claimants had been engaged, were owned by the same person. The fact of the separate contract was used to argue that the claim of Wackenhut should be limited to 10% of the holdback attributed to its contract rather than allowing it to share in the pool available to others under the umbrella of the general contractor and the holdback held on its account. The court found that the unique circumstances of the case called for a piercing of the corporate veil, allowing Wackenhut to share in the broader pool. In other words, for the purpose of its lien claim, Wackenhut was to be treated as a sub-contractor. In the second of the two cases, the lien claimant (St. Mary’s Cement) was a sub-contractor. The problem was that the contractor that hired St. Mary’s Cement did not file a lien. It chose, instead, to accept a mortgage on another piece of property. It was accepted that, had the contractor filed a lien claim, it would have been entitled to payment. The legislation provided that, in such circumstances, St. Mary’s Cement would have been paid out in priority to the contractor. In the circumstances, St. Mary’s Cement was entitled to be paid the full amount of its contractor’s pro rata share even though the contractor had not filed a lien. It was the position of St. Mary’s Cement as a sub-contractor that was the issue.

[69] It is the confusion between the treatment of contractors and sub-contractors that has misled the appellant. Generally, the concept of a pool of money to be shared refers to funds available to suppliers who are members of a class.[^68] A class is comprised of persons having a lien who have supplied services to the same payer.[^69] A payer is “...the owner, contractor or subcontractor who is liable to pay for the materials or services supplied to an improvement under a contract or subcontract”.[^70] Accordingly, where there is a contract between an owner and only one supplier, there is no class and there is no pool of funds. There is only the 10% holdback to be retained on behalf of the single supplier. Where there is a general contractor and a group of subcontractors, the general contractor is the payer and the subcontractors are the members of a class. The 10% holdback applicable to the contract between the owner and the general contractor makes up a pool.

[70] In Lindsay Brothers, the owner (the defendant) acted as its own general contractor. Lien claims were registered by contractors with whom the owner had contracted directly. The owner was insolvent and unable to pay the claims. Standard Trust, a mortgagee, moved to enforce its mortgage and posted security in order to complete a power of sale. It settled with fourteen of the twenty-one lien claimants. There was a dispute between the seven remaining lien claimants and Standard Trust about the priority of the respective claims. The court held that the contract of each claimant stood on its own with a separate holdback. The holdback was 10% of the services or materials actually supplied under each individual contract. It did not extend to 10% of all contracts entered into for the whole project or improvement. To put it simply, there was no pool because there was no class in respect of any of the contracts. The requirement to maintain the holdback is found in s. 22(1) of the Construction Lien Act.[^71] As is pointed out in Lindsay Brothers, the section does not refer to the “project” or to the “improvement”. It refers to “a contract” or “a subcontract”, under which a lien might arise.[^72]

[71] Counsel for the appellant associates the ratio in Lindsay Brothers with the presence of a pool of funds:

[Lindsay Brothers] simply holds that once holdback monies are properly paid out by an owner, in accordance with the provisions of the Act, such properly paid out holdbacks are not to be added to the priority pool.[^73]

[72] This reflects on the fact the project had largely been completed two years before the lien claims were made. All but five homes had been conveyed to third-party purchasers. The liens were registered against the five unsold lots. The question was whether contracts that had been released, pursuant to s. 31 of the Construction Lien Act in 1988, could be revived to top up the holdback. The court held it was not rational to suggest that the present holdback should include 10% of the holdback of a contract paid out pursuant to s. 31. Counsel sees this in terms of its impact on the pool:

In particular the pool cannot be said to consist simply of 10% of the entire contract. ^74

[73] There was no pool in Lindsay Brothers. There was no pool because each of the seven lien claimants had separately contracted with the owner. That is the import of the determination of Fortier J., as quoted by Mr. Justice Myers (see: para. [64], above). Counsel for the appellant continues to assume that there is a class and, accordingly, a pool. There are no subcontractors. Each contractor has its own contract with the owner. Each can look to the 10% associated with its own contract and nothing more.

[74] This serves to demonstrate the error in the reasoning of the Master when he concluded that the deficiency in the holdback required to be maintained was greater than the amount of the proven lien claims. In doing this, he treated the holdback as being calculated based on the value of the project as a whole. He made the calculation using the Helyar Report No. 13, the increase arising from his own findings and the additional holdback for contractors that had not registered claims for lien. He treated the result as a pool of funds available to all the lien claimants. He was wrong to do so. In doing so, he failed to follow Lindsay Brothers.

[75] There is a pattern. The Master consistently failed to follow the cases that were binding on him; presumably, to arrive at a decision he found appropriate and in keeping with his perception of a just result. I can only repeat what has been an underlying concern throughout these reasons. Within our system of civil justice, it is not right for a decision-maker to attempt to bend the facts and re-shape the law to fit a particular result. Judges and Masters are bound to go where precedent and other proper emanations of the law (common law, statutes and the constitution) direct, having regard to the facts. To do what the Master did was an error in principle.

(e) Advances

[76] The Master addressed what he referred to as three advances:

(1) the $424,533 advance to Realty Growth to assist in the posting of security;

(2) the $309,465 paid to Maystar for completion of the townhouse units which were subject to Agreements of Purchase and Sale; and,

(3) the $339,671.50 paid to Maystar to complete the last six units.

[77] The first two amounts were the subject of agreement between the lenders at the meeting of December 1, 2004 (see: para. [12], above). They were to be paid under the first mortgage in order that the liens be “bonded off” (vacated in return for the security pursuant to an order made under s. 44(1)). In such a situation, the Master held that the liens would have priority over these advances under s. 78(6)[^75] of the Construction Lien Act. As pointed out by Mr. Justice Myers, the issue turns on whether the funds were “advances” and, if so, whether the advances were made while there was a preserved or perfected lien against the premises, which is to say, before the liens were bonded off by the payment into court and the corresponding court order.

[78] In evidence, Gordon Robert McClellan, the solicitors for Realty Growth, described the $424,533[^76] as a loan. The Master was unprepared to accept this characterization. No loan agreement was produced. All the documentation, including the cheque paying over the funds from 1189875 to Realty Growth, described the payment as a “holdback advance” under the first mortgage. In cross-examination, Gordon Robert McClellan agreed it could be considered to be an advance under the first mortgage. He admitted that a fair characterization of the payment of the $424,533.00 to Realty Growth by the first mortgagee was as an advance under the first mortgage.[^77] Despite this, the Master evinced some concern for accepting this as an advance. He noted that it appeared on its face to be a loan.[^78] Despite these concerns, he treated it as an advance.

[79] On this appeal counsel for the appellant argued the delivery of the $424,533.00 was an advance. He said it was referred to in the “defendant’s own documents”[^79] as having been “advanced” on December 23, 2004. It was added to the mortgage debt at that time and interest was charged from that time.

[80] In Marsil Mechanical v. A. Reissing-Reissing Enterprise Ltd.[^80], the judge noted:

In considering the definition of ‘advance’, it seems to me that, for the purposes of the Construction Lien Act, it must mean when the owner, or owner’s delegate, acquires actual control of the money....[^81]

[81] In that case, the funds were delivered to the solicitor of the borrower by cheque, dated September 6, 1990, enclosed with a letter, dated September 5, 1990. The letter referred to the date of the advance as September 6, 1990. The law clerk who was responsible for the receipt and subsequent delivery of the funds to the borrower testified, and the court accepted, that the funds would not have been, and were not delivered to the borrower until after the lien that had been registered was discharged. The lien was discharged on September 10, 1990. Despite the delivery of the funds to the solicitor before the discharge and despite interest being charged from the date of that delivery, the advance did not occur until the funds were in the hands of the borrower (the owner). Until that time, the owner did not have control of the money.

[82] Similarly, in this case, the issue is whether the borrower had control of the funds before the liens were vacated. The Master made no finding as to when control of the funds passed to the borrower. 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. Moreover, as Mr. Justice Myers observed, 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. Mr Justice Myers referred to this as a “circularity.”[^82] The lien claimants are protected by the security that has been posted, but they have no further claim in priority to the mortgagee. This is so in regard to the re-payment of the money used to post the security through the realization that came with the subsequent sale of the remaining townhouses or otherwise.

[83] It should be noted that, while Realty Growth took the funds, it never paid them into court. Instead, it posted a letter of credit from a financial institution presumably paying the costs of the letter of credit and then made use of the $424,533.00.[^83] This does not change anything. Realty Growth did not obtain control of the funds until the liens were discharged.

[84] The $424,533.00 was not an advance made while there was a preserved or perfected lien against the premises. Mr. Justice Myers correctly held it was an error in principle for the Master to say that it was.

[85] I turn to the $309,465 paid to Maystar for completion of the townhouse units which were subject to agreements of purchase and sale. Was this an advance? The Master noted that the work had been contracted for. The work had not yet been billed or paid. Nonetheless, he found that, as the liability had been incurred, if it was to be recouped under the mortgages from the proceeds of sale, it amounts to an advance under the first mortgage which the lien claimants had a priority over pursuant to the application of subsection 78(6).[^84] Mr. Justice Myers saw this as another example of the Master’s failure to be bound by the law as it stands. The Master 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. When was it made?

[86] In the absence of the Master having examined the issue, Mr Justice Myers did. On January 14, 2005, after the liens had been vacated, before the sale of the six units had closed, the lawyer for Realty Growth was provided with a mortgage discharge statement. It sought interest on the advance from January 2, 2005. Mr. Justice Myers noted that this was after the order had been made vacating the liens, but before it was registered on title. Counsel for the appellant understood that the order did not take effect until it was registered. Mr. Justice Myers pointed out that subsection 44(6) of the Construction Lien Act[^85] provides that it is the making of the order and not its registration that causes liens to be vacated and become a charge on the proceeds in court. Accepting that the advance was made on January 2, 2005, by the time it was made, the liens ceased to attach to the premises and holdbacks.

[87] Mr. Justice Myers went on to observe that it was apparent from the minutes of the meeting of December 1, 2004 that, by agreement of those present, the $309,465 payment to Maystar was only to be made after the liens had been vacated. He found that there was no reason for the advance to have been made before the parties knew that the liens had been vacated and found, on a balance of probabilities, that the funds were not advanced prior to the liens ceasing to attach to the land and holdbacks. On this basis, subsection 78(6) would not provide priority to lien claimants ahead of the payment of the advance.

[88] Again, it seems that the Master chose to go his own way rather than abide by what past experience and the statute provided.

[89] Finally, there is the $339,671.50 paid to Maystar to complete the last six units. The Master concluded that the lien claimants had priority over the mortgagees with respect to these funds.[^86] There is nothing within the decision of the Master that would explain this priority. It is not discussed in the reasons of Mr. Justice Myers. It is identified in the Responding Factum of Realty Growth, but not discussed there or in the Factum of the Plaintiff. Little was said of it in submissions to the court. Counsel did acknowledge that the work done to complete the final six units was not undertaken until 2005, as I understood it, some months into that year. In such circumstances, it is apparent that any advance would have occurred sometime after the liens were vacated with the claimants’ recourse being to the funds in court. On this basis, the priority identified by the Master would not be present.

(f) Costs before the Master and Mr. Justice Myers

[90] Counsel for the appellants seeks to appeal the costs orders made by Mr. Justice Myers.

[91] On June 4, 2007, the Master gave carriage of the reference to counsel for the plaintiff (the appellant). He ordered that the lien actions be consolidated. He directed that each lien claimant could claim costs up to June 4, 2007, the date of the consolidation. Thereafter, only one set of costs could be claimed by the plaintiff. Lien claimants other than the plaintiff, who assisted in the preparation for the trial, could claim those costs subject to arguments by the defendants respecting unnecessary duplication and attendance time.

[92] The Master awarded costs consistent with his findings in favour of the lien claimants and the process he directed.

[93] Mr. Justice Myers had the jurisdiction to review the Master’s findings as to costs. They are included within the Report that was the subject of the motion opposing confirmation. Costs are a matter of discretion. However, Mr. Justice Myers correctly observed that, in light of the outcome of the motion to oppose confirmation, the award the Master made was based on a wrong premise that the lien claimants were successful overall and this conclusion could not stand. The result on this appeal sustains that view.

[94] For an appeal of the order made by Mr. Justice Myers to succeed, it would be necessary for this court to find that he acted on a wrong principle. He did not. Mr. Justice Myers made clear that he had accounted for the discretion to award costs under s. 86 of the Construction Lien Act and s. 131 of the Courts of Justice Act[^87], as well as the factors set out in rule 57.01. He noted that:

Costs should be a reasonable assessment of the amount which the unsuccessful party ought to have expected to pay and should be proportionate in terms of the issues and complexity in the case. [^88]

[95] Mr. Justice Myers considered what had taken place before the Master:

• The defence was reasonably conducted.

• The quantum and timeliness of many of the successful lien claims were admitted before trial or were settled early in the trial.

• The bulk of the evidence and contentious issues at the trial concerned questions of whether the mortgagees were liable as owners or for the advances made.

• The evidence of years of chronology was not relevant.[^89]

[96] With respect to the costs of the reference heard by the Master, Mr. Justice Myers determined that, while he was reluctant to deprive the successful plaintiff of its costs, the most just course was that each side pay its own costs. As Mr. Justice Myers saw it, the lien claimants had not succeeded on any of the grounds of real controversy before the Master and both sides were prejudiced by the manner in which the reference had proceeded.

[97] Accordingly, he ordered that there would be no cost of the reference apart from “carriage costs”.

[98] “Carriage costs are costs incurred by counsel to whom carriage of the litigation was assigned that exceed the costs incurred by that counsel just for his or her own client.”[^90] The Master accepted that carriage costs were valued at $107,000 in total. Mr. Justice Myers concluded that there was no error in principle in that determination. Carriage costs were to be borne pari passu by the successful lien claimants who were before the Master.

[99] There is no error in principle in the award of costs made by Mr. Justice Myers in respect of the reference conducted by the Master and, therefore, no reason to grant the appeal.

[100] As to the motion to oppose confirmation, Mr. Justice Myers awarded costs to the successful party but awarded less than was asked for, as the hearing time had taken less than expected and less than was accounted for in the request for costs that was made.

[101] He awarded Realty Growth costs in the amount of $50,000.

[102] There is no error in principle in the award of costs made by Mr. Justice Myers in respect of the motion opposing confirmation and, therefore, no reason to interfere with his disposition of costs.

CONCLUSION

[103] The appeal, in all parts, is dismissed.

COSTS

[104] As agreed to by the parties, costs of this appeal are awarded to respondent (Realty Growth) in the amount of $20,000.

___________________________ LEDERER J.

SWINTON J.

HARVISON YOUNG J.

Released: May 22, 2015

CITATION: RSG Mechanical Incorporated v.1398796 Ontario Inc., 2015 ONSC 2070

DIVISIONAL COURT FILE NO.: 328/14 DATE: 20150522

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

In the Matter of the Construction Lien Act,

R.S.O. 1990, c. C 30

SWINTON, HARVISON YOUNG, LEDERER JJ.

BETWEEN:

RSG MECHANICAL INCORPORATED

Plaintiff/Appellant

– and –

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

REASONS FOR JUDGMENT

LEDERER J.

Released: May 22, 2015

[^1]: Construction Lien Act, R.S.O. 1990 c. C. 30 at s.71 (1): Subject to subsection (3), an appeal lies to the Divisional Court from a judgment or an order on a motion to oppose confirmation of a report under this Act.

[^2]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., 2013 ONSC 1606 (Master Polika), at para. 56.

[^3]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., 2014 ONSC 3936 (Mr. Justice Myers), at paras. 4-19.

[^4]: Tarion is a private corporation which protects the rights of new home buyers and regulates new home builders. It administers the Ontario New Home Warranties Program in Ontario.

[^5]: RSG Mechanical Incorporated v. 1398796 Ontario Inc. (Master Polika), supra, (fn. 2), at paras. 56(84), 56(94), 56(119), 221 and 226.

[^6]: Ibid, at paras. 6, 14, 56(90), 136, 138 and 146.

[^7]: Neither the Appeal Book and Compendium filed by the appellant or the Compendium of Realty Growth include a copy of this order. While nothing turns on it, there is some confusion as to its date. In the decision of the Master, at the bottom of a chart at para. 14, it is referred to as November 30, 2004; and at paras. 6 and 56(90) as December 30, 2004.

[^8]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at para. 199; and RSG Mechanical Incorporated. v. 1398796 Ontario Inc., supra, (fn. 3) (Mr. Justice Myers), at para. 20.

[^9]: Ibid, (Master Polika), at para. 220.

[^10]: Ibid, at para. 225.

[^11]: Ibid, at paras. 225-227.

[^12]: RSG Mechanical Incorporated. v. 1398796 Ontario Inc., supra, (fn. 3) (Mr. Justice Myers), at para. 38.

[^13]: Ibid, at para. 41.

[^14]: Ibid, at para. 45.

[^15]: Ibid, at para. 48.

[^16]: Ibid, at para. 58.

[^17]: Zenon Developments Ltd. v. Barna, [1986] O.J. No. 1300 (H.C.J.), at p. 2 of 3, where the Court goes on to observe that an appeal from the report was repealed by an amendment to the Construction Lien Act made by The Courts of Justice Act, 1984, R.S.O. 1990 c. C.43, s. 165.

[^18]: Heyday Homes Ltd. v. Gunraj, [2005] O.J. No. 2986, 44 C.L.R. (3d) 169 (S.C.J.), at para. 9.

[^19]: Jordan v. McKenzie (1987), 26 C.P.C. (2d) 193 (Ont. H.C.), aff’d (1990), 39 C.P.C. (2d) 217 (Ont. C.A.), at p. 5, quoted at Quatro Painting & Decorating Inc. v. Wild Country Developments, 2004 163484 (Ont. S.C.J.), at para. 4.

[^20]: Heyday Homes Ltd. v. Gunraj, supra, (fn. 18), at para. 10, referring to Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, 211 DLR (4th) 577; [2002] 7 WWR 1.

[^21]: Ibid, (Housen v. Nikolaisen), at paras. 8, 10 and 28.

[^22]: Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act, April 8, 1982, at p. 177.

[^23]: Ibid, at p. 178.

[^24]: Ibid, at p. 189.

[^25]: Bell ExpressVu Limited Partnership v. Rex, [2002] 2 SCR 559, 2002 SCC 42, at para. 55.

[^26]: Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act, April 8, 1982, at p. 179.

[^27]: [1994] O.J. No. 4206 (Ont. Ct. (G.D.)).

[^28]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at para. 178, referring to P. Michaud Roofing Ltd. v. National Trust Co. Ltd. et al., [1978] O.J. No. 3674 (Ont. Sup. Ct.), as affirmed by the Divisional Court [1979] O.J. No. 4545 (Div. Ct.), and in the Court of Appeal, [1980] O.J. No. 3503 (C.A.).

[^29]: Gilvesy Construction, a Division of Gilvesy Enterprises Inc. v. 810941 Ontario Ltd, supra, (fn. 27), at para. 8.

[^30]: RSG Mechanical Incorporated. v. 1398796 Ontario Inc., supra, (fn. 3) (Mr. Justice Myers), at para. 31, quoting from Gilvesy Construction, a Division of Gilvesy Enterprises Inc. v. 810941 Ontario Ltd, supra, (fn. 27), at paras. 8 and 9.

[^31]: Mr. Justice Myers felt it was unnecessary to make this finding. He said, at RSG Mechanical Incorporated v. 1398796 Ontario Inc., Ibid, at fn. 1: Under subsection 58(4) of the act [sic], the Master is exercising the authority of the Court in carrying out the reference. I do not need to decide if this goes so far as to enable him to decide that he is not bound [by] decisions of this Court.

[^32]: Gilvesy Construction, a Division of Gilvesy Enterprises Inc. v. 810941 Ontario Ltd., supra, (fn. 27), at para. 11: Judgments are also to issue in accordance with paras. 29 and 30 of the stated case. That this was a stated case is confirmed by Gilvesy Construction v. 810941, [1994] O.J. No. 3206, 22 C.L.R. (2d) 203 (Gen. Div.), which returned the matter to the trial judge to implement the findings of the Divisional Court.

[^33]: Construction Lien Act, s. 70.

[^34]: 2012 ONSC 6931 (Div. Ct.).

[^35]: Ibid, at para. 21, referring to Reliance Electric Ltd. v. G.N.S. Contractors Inc. (1989), 1989 4110 (ON SC), 70 O.R. (2d) 364, [1989] O.J. No. 1815 (S.C.), at paras. 2-5, including the quotation from Sloot Construction-Design Ltd. v. North Maple Mall Ltd., [1999] O.J. No. 4927, 50 C.L.R. (2d) 145 (S.C.J.), at paras. 42.

[^36]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at paras. 197-198: The decision was appealed to the Divisional Court. The Divisional Court as well did not address the issue on the basis of my [Master Polika’s] analysis as set out above nor did they address the application of section 78 by reading it along with subsection 14(1) and section 44(6), nor by considering the purpose of section 44 as compared with the purpose of section 78(10) in relation to the exercise of a power of sale by a mortgagee as opposed to posting security to keep an improvement going. On that basis I find the decision not to be binding. (para. 198)

[^37]: RSG Mechanical Inc., supra, (fn. 3) (Mr. Justice Myers), at para. 35.

[^38]: Morden & Perell, The Law of Civil Procedure in Ontario, Second Edition, LexisNexus, 2014, at para. 2.89; and, Garner, Editor in Chief, Black’s Law Dictionary Tenth Edition, Thompson Reuters 229, 2014 .

[^39]: 2008 ONCA 801, 59 RFL (6th) 246, at para. 1; also see: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 3) (Mr. Justice Myers), at para. 36, quoting South Side Woodwork v. R.C. Contracting, 1989 3384 (AB QB), at paras. 51-53.

[^40]: Ibid, (Godoy), at para. 1.

[^41]: RSG Mechanical Inc. v. 1398796 Ontario Inc., supra (fn. 3) (Mr. Justice Myers), at para. 37.

[^42]: Harvey v. Dominion Textile (1917), 49 S.C.R. 508, at p. 537, referring to Krelginger (G. & C.) v. New Patagonia Meat & Cold Storage Co. Ltd., [1914], A.C. 25, at pp. 39-40; and, Latham v. Johnson, [1913] 1 K.B. 398, at p. 408.

[^43]: Ibid, (Harvey v. Dominion Textile), at p. 537; and, RSG Mechanical Incorporated. v. 1398796 Ontario Inc., supra (fn. 3) (Mr. Justice Myers), at para. 37.

[^44]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at para. 208, quoting from Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort 2002 Inc., [2009] O.J. No. 1195, 2009 ONCA 256, at para. 58, in turn, referring to Phoenix v. Bird Construction, 1984 79 (SCC), [1984] 2 S.C.R. 199, at pp. 208-209, 214-215 and 217-218; Northern Electric Company Limited v. Manufacturers Life Insurance Company, 1976 203 (SCC), [1977] 2 S.C.R. 762, at pp. 765 and 774; and, City of Hamilton v. Cipriani, 1976 35 (SCC), [1977] 1 S.C.R. 169, at p. 173.

[^45]: Ibid, at para. 210.

[^46]: Transcript of the Trial Proceedings: Testimony of John Rego, at p. 1395, lines 4-16.

[^47]: See: fn. 4 above.

[^48]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at para. 214.

[^49]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at para. 218.

[^50]: Ibid, at para. 220.

[^51]: [1998] O.J. No. 2428 (Div. Ct.).

[^52]: Ibid, at para. 7.

[^53]: Ibid, at para. 9.

[^54]: RSG Mechanical Incorporated v.1398796 Ontario Inc., supra, (fn. 3) (Mr. Justice Myers), at para. 41.

[^55]: [1984] 2 S.C.R. 1999.

[^56]: R.S.O. 1970, c. 267.

[^57]: Phoenix v. Bird Construction, supra, (fn. 56), at pp. 208-209.

[^58]: RSG Mechanical Inc. v. 1398796 Ontario Inc., supra (fn. 3) (Mr. Justice Myers), at para. 42.

[^59]: S. 78(2) is quoted at para. [31], above.

[^60]: (1992), 1992 7511 (ON SC), 11 O.R. (3d) 23 (Ont. Ct. (G.D.)).

[^61]: RSG Mechanical Inc. v. 1398796 Ontario Inc., supra (fn. 3) (Mr. Justice Myers), at para. 43, quoting from Lindsay Brothers, supra, at p. 9.

[^62]: (1993), 39 A.C.W.S. (3d) 565 (Ont. Ct. (G.D.))

[^63]: RSG Mechanical Incorporated. v. 1398796 Ontario Inc., supra (fn. 3) (Mr. Justice Myers), at para. 44, quoting from Ibid. Mr. Justice Myers also made mention of Marsil Mechanical v. A. Reissing-Reissing Enterprise Ltd., [1966] O.J. No. 279 (Ont. Ct. (G.D.)), at para. 32: In the end, I do not find that there is any real distinction between this case and the principle set out in the Lindsay case, that when a lien claimant has contracted directly with the owner, the amount of the holdback for which the plaintiff lien claimant has priority pursuant to s. 78(2) of the Construction Lien Act is 10% of this lien claimant's contract price, namely, $1760.

[^64]: [2006] O.J. No. 3952, 55 C.L.R. (3d) 184, 152 A.C.W.S. (3d) 20 (S.C.J.).

[^65]: Ibid, at para. 126.

[^66]: [1993] O.J. No. 493, 8 C.L.R. (2d) 25, 38 A.C.W.S. (3d) 868 (Ont. Ct. (G.D.))

[^67]: (1992), 1992 7562 (ON SC), 6 O.R. (3d) 645, [1992] O.J. No. 103 (Ont. Ct. (G.D.)).

[^68]: Construction Lien Act, supra, (fn. 1), s. 80(1).

[^69]: Ibid, at s. 79.

[^70]: Ibid, at s.1(1).

[^71]: Section 22(1) says: 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). [Emphasis added]

[^72]: Lindsay Brothers v. Halton Hills, supra, (fn. 60), at pp. 31 and 32.

[^73]: Factum of the Plaintiff, at para.55.

[^75]: S.78(6) of the Construction Lien Act, says: Subject to subsections (2) and (5), a conveyance, mortgage or other agreement affecting the owner’s interest in the premises that is registered after the time when the first lien arose in respect to the improvement, has priority over the liens arising from the improvement to the extent of any advance made in respect of that conveyance, mortgage or other agreement, unless, (a) at the time when the advance was made, there was a preserved or perfected lien against the premises; or (b) prior to the time when the advance was made, the person making the advance had received written notice of a lien.

[^76]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at paras. 49 and 56(84).

[^77]: Ibid, at paras. 56(84), 56(95).

[^78]: Factum of the Plaintiff, at para. 63.

[^79]: Supra, (fn. 63).

[^80]: Ibid, at para. 14. This definition of “advance” was quoted and followed in XDG Ltd. v. 1099606 Ontario Ltd., [2002] O.J. No. 5307, 23 C.L.R. (3d) 67, 121 A.C.W.S. (3d) 18 (S.C.J.), at paras. 95 and 96, aff’d 2004 15997 (ON SCDC), [2004] O.J. 1695, 186 O.A.C. 33, 130 A.C.W.S. (3d) 678 (Div. Ct.).

[^81]: RSG Mechanical Incorporated. v. 1398796 Ontario Inc., supra, (fn. 3) (Mr. Justice Myers), at para. 47.

[^82]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at fn. 10.

[^83]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at paras. 56(84) and 226. For s. 78(6). see: fn. 71

[^84]: S. 44(6) says: Where an order is made under clause (1)(a) or subsection (2), the lien ceases to attach to the premises and ceases to attach to the holdbacks and other amounts subject to a charge under section 21, and becomes instead a charge upon the amount paid into court or security posted, and the owner or payer shall, in respect of the operation of sections 21, 23 and 24, be in the same position as if the lien had not been preserved or written notice of the lien had not been given.

[^85]: RSG Mechanical Incorporated v. 1398796 Ontario Inc., supra, (fn. 2) (Master Polika), at paras. 56(119) and 226.

[^86]: R.S.O. 1990, c. C. 43

[^87]: RSG Mechanical Incorporated. v. 1398796 Ontario Inc., supra, (Mr. Justice Myers), at para. 54.

[^88]: RSG Mechanical Incorporated. v. 1398796 Ontario Inc., 2014 ONSC 4692 (Mr. Justice Myers-Costs), at para. 8.

[^89]: Ibid, at para. 9.