35 Mercer Limited v. Intact Insurance Company, 2025 ONSC 2353

COURT FILE NO.: CV-23-697926
DATE: 2025-04-15
COURT: Superior Court of Justice – Ontario

Introduction

IN THE MATTER OF a reference under rule 54 of the Rules of Civil Procedure, RRO 1990, Reg 194 and s. 58 of the Construction Act, RSO 1990, c C.30, as amended

RE: 35 Mercer Limited, Plaintiff
- and -
Intact Insurance Company and The Guarantee Company of North America, Defendants

BEFORE: Associate Justice Todd Robinson

Appearances

• R. Kennaley and R. Prestayko, for Brunco Insulation Ltd. (moving party)
• M. Tamblyn and J. Siemon, for 35 Mercer Limited, Madison Properties Inc., Maconma Limited, HTS Engineering Ltd., and Cantrio Koncepts
• F. Souza, for Urban Integrated Group Inc., Urban Mechanical Contracting Ltd., and Baaron Group Inc.
• N. Maragna, for 1086289 Ontario Inc. o/a Urban Electrical Contractors
• K. Eccleston, for Independent Electric Supply Inc. and Independent Mechanical Supply Inc.
• I. Ozier, for Next Plumbing & Hydronics Supply Inc. and Noble Corporation
• C. Holder, for Desco Plumbing and Heating Supply Inc.
• N. Sandhu, for Flocor Inc.
• A. Flesias, for Elgin Sheet Metal Supplies Inc.
• E. Ivkovic, for Intact Insurance Company and The Guarantee Company of North America

HEARD: 2024-12-13 (by videoconference)

Reasons for Decision (Distribution of Admitted Basic Holdback)

Background

[1] Brunco Insulation Ltd. (“Brunco”) has brought this motion seeking distribution of the minimum holdback obligation admitted by the owner, 35 Mercer Limited (“Mercer”), under Mercer’s contracts with Urban Integrated Group Inc. (“UIG”) for electrical, mechanical, and HVAC work in the construction of the Nobu Residences condominium complex in Toronto. With one exception, all lien claimants and parties in the various proceedings within this reference either support or take no position on the allocation and distribution proposed by Brunco. The proposal would essentially result in pro rata payments being made to four lien claimants, with the balance of holdback funds allocated to the remaining lien claimants and held pending a determination on validity of their liens.

[2] 1086289 Ontario Inc. o/a Urban Electrical Contractors (“UEC”) is the only party opposing Brunco’s proposed distribution. It argues that it should be entitled to participate in the current holdback distribution in an amount greater than Brunco’s proposal or, alternatively, should have that holdback amount allocated and separately retained pending a decision on validity of its lien.

[3] The main difficulty I have faced in deciding this motion is how to deal with UEC’s disputed lien. Several lien claimants argue that it cannot be proven. Mercer has advanced arguments on why I should treat UEC as one and the same as UIG and, accordingly, should not include UEC in any holdback distribution. However, validity of UEC’s lien, including its quantum, is a triable issue remaining in dispute in this reference. There is insufficient evidence before me to find that UEC cannot prove arm’s length dealings with UIG or the quantum of its lien as claimed, which it has maintained on this motion.

[4] Ultimately, I agree with Brunco that a final decision on classes of lien claimants and any priority between UEC and other lien claimants to holdback funds is beyond the scope of this motion. Doing so will require me to resolve disputes about the interrelationship between UIG and both of its first tier subcontractors, Urban Mechanical Contracting Ltd. (“UMC”) and UEC. That will necessitate factual evidence that is not available to me on this motion. Nevertheless, although the classes and priorities may need to be determined before final distribution of holdback, that does not preclude an interim allocation of the admitted minimum holdback obligation and partial distribution to lien claimants with valid liens.

[5] I am accordingly fixing Mercer’s minimum basic holdback obligation and allocating it between all the lien claimants on the basis that UEC’s positions are provable. That allocation may be revisited as this reference continues to unfold. I am directing that Mercer pay the admitted holdback into court and am further ordering pro rata payment out of court from those funds to those lien claimants to whom payment is unopposed.

Analysis

Relationship of the Parties

[6] This reference involves various lien, bond, and contract claims arising from the construction of the Nobu Residences condominium complex. Mercer directly contracted with various contractors to perform different aspects of the work. Those contractors engaged various subcontractors and suppliers.

[7] The disputes before me concern one contract stream involving Mercer and UIG. UIG was contracted to perform the electrical, mechanical/plumbing, and HVAC scope of work for the project. Based on the affidavit of Ian McCutchean, the Chief Financial Officer of UIG and UMC, UIG entered three subcontracts on the project: one with UMC for mechanical/plumbing work, a second with UMC for HVAC work, and a third with UEC for electrical work. UMC subcontracted fire protection work to Standard Fire Protection Inc. (“Standard Fire”). UIG, UMC, UEC, and Standard Fire are all related corporations.

[8] In each subcontract stream, there were multiple subtrades and suppliers. Only ten of them preserved and perfected liens against the project. For ease, I have grouped them under the party with whom they contracted:

• UMC: Brunco, Baaron Group Inc. (“Baaron”), Cantrio Koncepts Inc. (“Cantrio”), Desco Plumbing and Heating Supply Inc. (“Desco”), Elgin Sheet Metal Supplies Inc. (“Elgin”), HTS Engineering Ltd. (“HTS”), Independent Mechanical Supply Inc. (“Independent Mechanical”), Next Plumbing & Hydronics Supply Inc. (“Next Plumbing”), and Noble Corporation (“Noble”) were all subcontracted by UMC to perform various portions of the mechanical/plumbing and HVAC work;
• Standard Fire: Flocor Inc. (“Flocor”) was subcontracted by Standard Fire (itself subcontracted by UMC) to supply fire protection system materials; and
• UEC: Independent Electrical Supply Inc. (“Independent Electrical”) was subcontracted by UEC to perform certain electrical work.

Relevant Legal Framework

[9] I previously determined that the Construction Act, RSO 1990, c. C.30 as it read on June 29, 2018 – i.e., the former Construction Lien Act (the “CLA”) – continues to apply to the improvement and the liens and lien actions subsumed in this reference: 35 Mercer Limited v. Intact Insurance Company, 2024 ONSC 6466.

[10] The funds at issue on this motion are the basic holdback amounts that Mercer was required to retain under its contracts with UIG. Mercer admits that it has a total basic holdback obligation of $2,688,869.84. UIG’s position is that Mercer’s actual basic holdback obligation is much higher, but that dispute turns on the total price of services and materials actually supplied by UIG, which remains to be decided in this reference.

[11] In the circumstances of this case, proper distribution of holdback involves considering the interrelationship between various provisions of the CLA, notably the provisions governing holdback, owner liability, and the classes and priorities of lien claimants.

[12] The CLA creates two distinct holdback obligations. The first holdback obligation, referred to as “basic holdback”, is to retain an amount equal to 10% of the price of the services or materials actually supplied under a contract. That basic holdback must be withheld until all liens have expired or have been satisfied, discharged, or otherwise provided for under the CLA (s. 22(1)). The second holdback obligation, often referred to as “notice holdback”, is an additional obligation on a payer, upon receipt of a written notice of lien, to retain an amount sufficient to satisfy that lien before further payments on a contract or subcontract are made. Those payments may not exceed 90% of the price of services or materials supplied, less the amount retained (s. 24). A “payer” is the owner, contractor, or subcontractor who is liable to pay for the services or materials supplied to an improvement under a contract or subcontract (s. 1(1)).

[13] Because the fund at issue is admitted basic holdback in the hands of Mercer, the provisions of the CLA governing the extent of owner liability are engaged. In particular, the CLA creates direct liability of an owner to lien claimants who have valid liens against the owner’s interest in the premises (despite a lack of any privity of contract) to the extent of holdbacks that the owner is required to retain (s. 23(1)-(2)). Where the defaulting payer is a subcontractor, the owner’s liability is limited to the lesser of the holdbacks that the owner is required to retain and the holdbacks required to be retained by the contractor or a subcontractor from the lien claimant’s defaulting payer (s. 23(3)).

[14] Where, as in this case, there are multiple tiers of subcontractors and different subcontract streams, ss. 79-80 of the CLA addresses priorities between different lien claimants. The relevant portion of those provisions is as follows:

Persons who comprise class

79 All persons having a lien who have supplied services or materials to the same payer comprise a class, and a person who has supplied services or materials to more than one payer is a member of every class to the extent to which the person’s lien relates to that class.

Priority between and within class

80 (1) Except where it is otherwise provided by this Act,

(a) no person having a lien is entitled to any priority over another member of the same class;

(b) all amounts available to satisfy the liens in respect of an improvement shall be distributed rateably among the members of each class according to their respective rights; and

(c) the lien of every member of a class has priority over the lien of the payer of that class.

Allocation and Distribution of Basic Holdback

[15] There remains a dispute between Mercer and the surety over what is the bonded contract between Mercer and UIG, which is relevant to Mercer’s bond claim. However, there is no dispute that three separate contracts were signed between Mercer and UIG. On an unopposed basis, I previously confirmed the findings of the vetting committee, which I had directed be formed to review the liens other than UIG and UEC, with only a few caveats. My order included confirming the vetting committee’s recommendation that the parties proceed on the basis that there is one holdback. I accordingly ordered that Mercer’s holdback obligation is a single holdback obligation as between Mercer and UIG, without prejudice to any position taken by Intact that there were three separate prime contracts.

[16] UEC’s distribution proposal is based on the total minimum basic holdback being allocated rateably between all lien claimants. Both Brunco and UIG/UMC propose that, at least on an interim basis, Mercer’s total basic holdback obligation should be allocated based on Mercer’s admitted contract values under the three contracts with UIG. All parties other than UEC have agreed with (or do not oppose) the latter proposal. It would see electrical contract holdback notionally allocated for UEC’s lien with the mechanical/plumbing and HVAC contract holdback amounts notionally allocated for UMC’s subcontractors.

[17] UIG and UMC have agreed that basic holdback for UIG’s mechanical/plumbing and HVAC subcontracts should be distributed among all of UMC’s subtrades and suppliers with valid liens. In my view, that agreement is consistent with ss. 79-80 of the CLA, which establishes classes of lien claimant and priorities based on the payer of lien claimants rather than by contract or subcontract streams. Those provisions would seem to operate to make UEC and UMC a first tier class, with two second tier classes: one below UEC comprised of Independent Electrical and another below UMC comprised of all remaining subtrade and supplier lien claimants.

[18] As noted above, Mercer has admitted a basic holdback obligation of $2,688,869.84. The calculation of that figure is not before me. It is modestly lower than what is included in the calculations relied upon by Brunco and UIG/UMC, which show a minimum holdback obligation of $2,689,984.70 (a difference of $1,114.86). Mr. Souza submitted that the variance comes from a typographical error in the letter from Mercer’s counsel dated May 15, 2024, which sets out Mercer’s position on holdback.

[19] For the purposes of this motion, all parties rely on the state of holdback funds set out in the letter from Mercer’s lawyers dated May 15, 2024. It confirms Mercer’s position on the holdback amounts attributable to each of the three contracts entered between Mercer and UIG. I have reviewed the letter, together with the supporting documents appended to it. I have also performed a calculation that accounts for Mercer’s subsequent acknowledgement of a further $725,408.29 in authorized plumbing and electrical upgrades (confirmed by Mercer’s counsel at the outset of this motion hearing). Collectively, they support the holdback figure set out in the chart relied upon by Brunco and UIG/UMC.

[20] Based on the record before me, I have calculated Mercer’s minimum holdback obligation as follows:

Electrical

• Admitted contract amount: $6,388,944.00
• Admitted extras/upgrades: $543,642.26
• Revised contract amount: $6,932,586.26 (29.12%)

HVAC

• Admitted contract amount: $2,908,104.00 (12.22%)

Mechanical/Plumbing

• Admitted contract amount: $13,964,483.98
• Admitted extras/upgrades: $98,311.98
• Revised contract amount: $13,964,483.98 (58.66%)

Subtotal: $23,805,174.24
HST: $3,094,672.65
Total: $26,899,846.89
Min. Holdback Obligation (10%): $2,689,984.69

[21] Although there was no clear consensus, in my view, the vetting committee costs that I previously ordered be paid from holdback are properly deducted from the minimum holdback obligation prior to allocation between classes of lien claimants. The minimum holdback available for distribution is accordingly $2,667,305.59, calculated as follows:

• Min. Holdback Obligation (calculated above): $2,689,984.69
• Less: Total Approved Vetting Committee Costs: -$22,679.10
• Min. Holdback Available for Distribution: $2,667,305.59

[22] As a starting point, I find no basis for distribution of holdback to any lien claimant whose lien remains unproven. That includes UEC. At this interim stage, it is appropriate that only those lien claimants with validated liens be paid. Brunco is an exception, as discussed below. A notional allocation of the holdback funds is nevertheless appropriate for all remaining lien claimants, subject to further court order.

[23] UEC is the only lien claimant without a validated lien that has sought to share in distribution of holdback. Specifically, UEC requests a distribution of $887,249.39, representing UEC’s position on earned and unpaid holdback under its subcontract with UIG. Apart from the fact that UEC’s lien is disputed and has not been validated, in whole or in part, UEC’s calculation of holdback owing under its subcontract is unsupported by any evidence before me. The figure is set out in UEC’s factum and is not addressed in the affidavit of Filippo Bartuccio, a director of UEC, who swore UEC’s supporting affidavit on this motion. There is no evidentiary basis before me on this motion to determine the price of services and materials actually supplied by UEC and validate its lien.

[24] UEC’s lien is heavily disputed. Mercer and several lien claimants are opposed to any distribution of holdback to UEC at any point in this reference. A motion to reduce UEC’s lien is pending. Mercer has specifically challenged UEC receiving holdback given the interrelationship of UIG, UMC, UEC, and Standard Fire. In support of that position, Mercer has tendered some evidence of their common ownership and control.

[25] Mercer argues that the corporate veil between UEC and the other related corporations should be lifted such that all four corporate entities are treated as one and the same. Mercer submits that only UMC’s subcontractors should participate in holdback distribution. In support of that argument, Mercer points to the decision in Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort 2002 Inc., 2009 ONCA 256. In that case, although dealing with mortgage priorities under s. 78 of the CLA, the Court of Appeal restored a trial judgment finding that a mortgagee was an “owner” under the CLA and, at paras. 48-51, discussed circumstances under which it may be appropriate to lift the corporate veil. Mercer argues that they apply in this case.

[26] In my view, I cannot decide the issue of whether lifting the corporate veil is properly done without a more fulsome record and more expansive argument. In dealing with UEC’s lien, I will need additional evidence and submissions on the extent of its interrelationship with UIG, UMC, and Standard Fire and whether and how the requirements for piercing the corporate veil discussed in cases such as Parkland are met on the facts.

[27] In addition, given the challenges that have been raised to UEC receiving any holdback distribution, I will also require submissions on how the portion of holdback notionally allocated to UEC’s lien should be properly distributed, particularly if UEC’s lien is not ultimately proven, in whole or in part. That will require submissions on treatment of both basic holdback and notice holdback obligations in the context of the competing priorities between classes of lien claimants, as well as the interplay between s. 23 and ss. 79-80 of the Construction Act and my prior order confirming that there is only a single holdback obligation as between Mercer and UIG.

[28] For the above reasons, UEC shall not receive any distribution at this time, but will be treated the same as other lien claimants for allocating notional holdback for its lien amount.

[29] Only three liens have been declared timely and valid in full: the liens of Independent Mechanical, Next Plumbing, and Noble. Brunco’s lien was declared timely and valid, but only in part. Specifically, the vetting committee confirmed the quantum and timeliness of Brunco’s lien for $471,582.90, but UMC disputed that $214,040.70 of the lien should be validated. Accordingly, since that dispute remained to be resolved, I only validated $257,542.20 of Brunco’s lien when confirming the vetting committee’s report.

[30] Brunco nevertheless seeks holdback distribution based on its full lien amount in accordance with the vetting committee’s view that its lien is valid and timely in the full amount claimed. None of the lien claimants dispute Brunco’s request. The only party that has taken issue with Brunco’s lien is UMC. However, UMC’s challenge is based on contractual defences. UMC has itself conceded that, for the purpose of holdback distribution, the full value of Brunco’s lien is properly used, but with a full reservation of UMC’s rights to advance its contractual defences.

[31] Given my prior finding that the CLA applies, the liens of Independent Electrical, Flocor, and Cantrio all appear to have been preserved beyond the 45-day preservation period set out in s. 31 of the CLA. In its amended notice of motion, Brunco seeks an order that they are not entitled to share in distribution. That relief was not opposed by any of those lien claimants. For its part, Flocor only seeks costs thrown away, which I directed be addressed in a separate hearing to be booked through my Assistant Trial Coordinator (ATC).

[32] Accordingly, I find that all liens other than Independent Electrical, Flocor, and Cantrio should properly have a portion of the available minimum holdback notionally allocated to them, subject to further court order.

[33] Taking the foregoing into account, and applying the percentages noted earlier in these reasons for the three contracts to the remaining holdback available for distribution, that remaining minimum holdback shall be allocated to the remaining lien claimants as below, subject to further court order:

Electrical

• Allocated holdback (29.12%): $776,777.60

Lien Claimant	Lien Amount	Pro rata allocation
UEC	$5,502,462.26	$776,777.60 (100%)
Independent Electrical	$234,136.86	$nil

HVAC & Mechanical/Plumbing

• Allocated holdback (70.88%): $1,890,527.99

Lien Claimant	Lien Amount	Pro rata allocation
Baaron	$51,207.37	$26,362.88 (1.39%)
Brunco	$471,582.90	$242,783.07 (12.84%)
Cantrio	$105,286.62	$nil
Desco	$586,388.18	$301,887.80 (15.97%)
Elgin	$81,954.07	$42,192.07 (2.23%)
Flocor	$106,047.31	$nil
HTS	$653,507.59	$336,442.61 (17.8%)
Independent Mechanical	$501,462.82	$258,166.03 (13.66%)
Next Plumbing	$1,222,270.32	$629,256.37 (33.28%)
Noble	$103,796.60	$53,437.17 (2.83%)

Disposition

[34] Having allocated the remaining basic holdback on the above basis, I am directing that Mercer post that holdback amount into court and am further directing pro rata payment to Brunco, Independent Mechanical, Next Plumbing, and Noble. The remaining holdback will continue to be held in court pending further court order. Reduction or return of separate lien security for the lien claimants receiving payment whose liens were previously vacated may be addressed by consent motion or by way of a further hearing before me.

[35] For the foregoing reasons, I order as follows:

(a) Mercer shall pay into court the sum of $2,667,305.59, representing Mercer’s minimum basic holdback obligation less the vetting committee costs previously ordered payable to Next Plumbing and Independent Electrical, which sum shall be paid into court within thirty (30) days.

(b) Following payment into court, the Accountant of the Superior Court of Justice (the “Accountant”) is directed to and shall pay out the following amounts:

• (i) the sum of $242,783.07 to Brunco;
• (ii) the sum of $258,166.03 to Independent Mechanical;
• (iii) the sum of $629,256.37 to Next Plumbing; and
• (iv) the sum of $53,437.17 to Noble;

(c) Upon payment of the amounts set out above, the liens of those respective lien claimants shall be reduced by the amount paid to them.

(d) Distribution to Brunco in accordance with subparagraph (b) above is without prejudice to UMC’s defences to Brunco’s contract claim against it.

(e) The balance of holdback funds posted into court by Mercer shall be held by the Accountant pending further court order.

(f) This order is effective without further formality.

[36] If any of the parties have concerns with my calculations as set out in this decision, then those concerns may be raised at the next hearing.

[37] A formal order and fiat is likely required for the Accountant to accept Mercer posting the holdback funds and for payment out to those lien claimants receiving pro rata distribution from the minimum basic holdback. A draft order approved as to form and content may be submitted to my ATC. If the parties cannot agree on a form of order, then competing proposed forms of order shall be submitted within two weeks of release of this decision and I will settle the form of order myself.

[38] Since most of the lien claimants reached consensus on how holdback should be distributed, I am inclined to deal with costs of this motion when dealing with costs of the actions. However, if any party seeks costs of this motion prior to final disposition of the action(s) in which they are a party, and costs cannot be agreed, then a process for deciding costs will be fixed at a future hearing for trial directions.

ASSOCIATE JUSTICE TODD ROBINSON
DATE: April 15, 2025