Ontario Wealth Management Corporation v. Sica Masonry and General Contracting Ltd., 2014 ONCA 500

COURT OF APPEAL FOR ONTARIO

DATE: 20140626

DOCKET: C57967/M43450

Strathy J.A. (In Chambers)

In the matter of Section 243(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, C. B-3, as amended; Section 101 of the Courts of Justice Act, R.S.O. 1990 C.C. 43, as amended; and Section 68(1) of the Construction Lien Act, R.S.O. 1990, C.30 as amended

BETWEEN

Ontario Wealth Management Corporation

Responding Party (Respondent)

and

1713515 Ontario Limited

Responding Party (Respondent)

and

Sica Masonry and General Contracting Ltd.

Moving Party (Appellant)

Jason A. Schmidt, for the moving party

David P. Preger and Michael J. Brzezinski for the responding party, SF Partners Inc. (court-appointed receiver for 1713515 Ontario Limited)

Amy Lok for responding party, Ontario Wealth Management Corporation

Heard: April 10, 2014

On motion from the order of Justice Hugh K. O’Connell of the Superior Court of Justice, dated October 18, 2013.

Strathy J.A.:

[1] The threshold question on this motion is whether this court should grant the moving party an extension of time to appeal from the motion judge’s order determining a priorities dispute between a mortgagee and a construction lien claimant. The motion judge held that the mortgage of the respondent, Ontario Wealth Management Corporation (“Ontario Wealth”), had priority over the construction lien of the moving party, Sica Masonry and General Contracting Ltd. (“Sica”). He directed the Receiver of the property owner to disburse the balance of the proceeds of sale of the mortgaged property to Ontario Wealth. Sica wishes to appeal on the basis the motion judge incorrectly interpreted the priority scheme in s. 78 of the Construction Lien Act, R.S.O. 1990, c. C.30 (CLA).

[2] Rule 31(1) of the Bankruptcy and Insolvency General Rules, C.R.C., c. 368, provides that a notice of appeal must be filed within ten days after the day of the order appealed from or within such further time as a judge of this court stipulates.

[3] Sica’s notice of appeal was filed 28 days after the order was made – that is, 18 days late. In the meantime, the Receiver had disbursed the proceeds of sale in accordance with the court’s order.

[4] If an extension is granted, Sica seeks a declaration that it has an appeal as of right to this court. Alternatively, it seeks leave to appeal.

[5] When the motion was heard, there was no signed and entered order before the court. The appeal lies from the order, not from the reasons: see Re Bearcat Exploration Ltd., 2003 ABCA 365, at para. 13. The formal order must be before an appellate court, because it is the correctness of the disposition, and not the reasons, which is in issue: see Re Smoke (1989), 77 C.B.R. (N.S.) 263 (Ont. C.A.).

[6] I agreed to hear the parties’ submissions and reserved judgment on the motion on the understanding that the parties would take out the formal order. That has now occurred.

[7] For the reasons that follow, the motion for an extension of time to appeal is dismissed. Although that disposes of the matter, leave to appeal is required in any event and I would not have granted leave.

A. Background facts

[8] The Walton Hotel in Port Hope, Ontario (“the Property”) has been under renovation for use as a boutique hotel.

[9] On April 11, 2007, 1713515 Ontario Ltd. (“1713”) purchased the Property for $339,623.

[10] On the same date, the Property was mortgaged to Crombee Construction Ltd. for $830,000.

[11] The project was refinanced on November 10, 2008. Ontario Wealth took a first mortgage on the Property for $1.23 million. Between November 2008 and December 2009, Ontario Wealth made advances on the mortgage totalling $1.191 million. The initial advance was for $500,000. The motion judge found that, of that advance, $457,117.75 was applied to re-finance the Crombee mortgage.

[12] Sica is a general contractor that worked on the Property between January 12, 2009 and March 18, 2010. On April 8, 2010, Sica registered a construction lien on the Property. Its priority claim relates to a deficiency of $123,947 in the holdback which it claims 1713 was required to retain.

[13] Sica perfected its lien in June 2010 by registering a certificate of action against the Property and issuing a statement of claim against 1713. The claim asserted that Sica’s lien had priority over Ontario Wealth’s mortgage, because the mortgage was taken with the intention of securing financing of an improvement.

[14] On September 1, 2010, SF Partners was appointed Receiver and Trustee of 1713. On May 16, 2012, the Receiver sold the Property for $600,000.

[15] The Receiver brought a motion seeking directions regarding the distribution of the proceeds of sale, given the competing priority claims of Sica and Ontario Wealth.

[16] The motion judge released his endorsement on October 18, 2013. He held at para. 52 that Ontario Wealth’s mortgage had priority over Sica’s lien and that “The Receiver may remit the balance of the funds under its administration to Ontario Wealth Management Corporation.”

[17] The Receiver remitted the balance of the funds to Ontario Wealth three days later, on October 21, 2013.

[18] Sica served its notice of appeal on November 15, 2013.

B. the construction lien act

[19] The priority of the parties’ respective claims depends upon the terms of s. 78 of the CLA. Under that provision, liens arising from an “improvement” have priority over mortgages, unless one of the exceptions in the section applies. There is an exception in s. 78(3) for mortgages registered prior to the time when the first lien arose in respect of an improvement.

[20] Section 78(2) provides that where a mortgagee takes a mortgage to secure the financing of an “improvement”, liens arising from that improvement have priority over the mortgage, and over any mortgage taken to repay the original mortgage, to the extent of any deficiency in the holdbacks required to be retained by the owner.

[21] The relevant subsections provide:

78(1) Except as provided in this section, the liens arising from an improvement have priority over all conveyances, mortgages or other agreements affecting the owner’s interest in the premises.

(2) 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.

(3) Subject to subsection (2), and without limiting the effect of subsection (4), all conveyances, mortgages or other agreements affecting the owner’s interest in the premises that were registered prior to the time when the first lien arose in respect of an improvement have priority over the liens arising from the improvement to the extent of the lesser of,

(a) the actual value of the premises at the time when the first lien arose; and

(b) the total of all amounts that prior to that time were,

(i) advanced in the case of a mortgage, and

(ii) advanced or secured in the case of a conveyance or other agreement.

(4) Subject to subsection (2), a conveyance, mortgage or other agreement affecting the owner’s interest in the premises that was registered prior to the time when the first lien arose in respect of an improvement, has priority, in addition to the priority to which it is entitled under subsection (3), over the liens arising from the improvement, to the extent of any advance made in respect of that conveyance, mortgage or other agreement after the time when the first lien arose, 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.

(5) Where a mortgage affecting the owner’s interest in the premises is registered after the time when the first lien arose in respect of an improvement, the liens arising from the improvement have priority over the mortgage to the extent of any deficiency in the holdbacks required to be retained by the owner under Part IV.

(6) 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.

[22] The interpretation of s. 78 depends on the meaning of the word “improvement”, as defined in s. 1(1) of the CLA:

“improvement” means, in respect of any land,

(a) any alteration, addition or repair to the land,

(b) any construction, erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the land, building, structure or works, or

(c) the complete or partial demolition or removal of any building, structure or works on the land.

C. the decision below

[23] The motion judge held that Ontario Wealth’s initial advance fell within s. 78(3) of the CLA, and therefore had priority over Sica’s lien. Separate and distinct advances under a single mortgage intended for different purposes should be afforded separate and distinct priority treatment under the CLA: Royal Bank of Canada v. Lawton Developments Inc. (1994), 1994 CanLII 7215 (ON SC), 16 O.R. (3d) 450 (Gen. Div), rev’d on other grounds (1996), 1996 CanLII 10246 (ON CA), 27 O.R. (3d) 417 (C.A.). Ontario Wealth agreed to take a mortgage with the dual intention of financing the repayment of the existing Crombee mortgage and renovating the Property. It advanced $457,117.75 to refinance that mortgage. This was a non-construction advance and therefore a “prior advance” within s. 78(3) of the CLA, rather than s. 78(2). Prior advances that are not taken with the intention of securing the financing of an improvement take priority over subsequent liens under s. 78(3).

[24] The motion judge rejected Sica’s argument that although its own lien arose after registration of Ontario Wealth’s mortgage, its work related to an earlier improvement and the first lien in respect of that improvement arose before the mortgage was registered. The motion judge found that Sica’s improvement did not relate to an earlier contract involving prior lien claimants, although it may well have related to the same project.

[25] The motion judge therefore directed that the Receiver remit the balance of the proceeds to Ontario Wealth and the order so provides.

D. Should an extension of time be granted?

[26] The overarching principle is whether the justice of the case requires that an extension be granted. The relevant factors may include:

(a) whether the applicant had a bona fide intention to appeal before the expiration of the appeal period;

(b) the length of and explanation for the delay in filing;

(c) any prejudice to the responding parties caused by the delay; and

(d) the merits of the proposed appeal.

See Howard v. Martin, 2014 ONCA 309; Enbridge Gas Distribution Inc. v. Froese, 2013 ONCA 131, 114 O.R. (3d) 636. See also Braich (Re), 2007 BCCA 641.

[27] There is no evidence that Sica formed an intention to appeal prior to the expiry of the appeal period. It did not inform the Receiver of its intent to appeal until it served the notice of appeal. The length of the delay was not inordinate, although Sica has not offered any explanation for it.

[28] Sica submits that the delay has not caused any significant prejudice to the Receiver, given that the Receiver did not wait until the expiry of the appeal period before distributing the funds to Ontario Wealth. The Receiver does not point to specific prejudice, but it contends that the appeal is moot.

[29] I am not persuaded that the appeal has any merit. The only evidence before the motion judge was the Receiver’s third report. Sica filed no evidence on the motion. The motion judge made the following critical findings of fact:

I agree with the position of Ontario Wealth. When Ontario Wealth came onto the scene, there were no construction liens on title. They had been vacated or discharged. They were not something for which Ontario Wealth was bound.

I accept therefore that Ontario Wealth advanced the original $500,000 to pay out the Crombee mortgage. That advance was for payout of the land portion of the mortgage and not improvements.

I therefore agree with Ontario Wealth that section 78(3) of the CLA is applicable. The advance of Ontario Wealth takes priority over any lien claim in favour of Sica.

In any event, there is no evidence before me that the improvement undertaken by Sica related to any of the same improvements undertaken prior to Ontario Wealth coming on board in November 2008. In this regard I note that Sica claims for contractual undertakings for the period January 12, 2009 – March 28, 2010, for which it registered its lien in April 2010.

[30] While Sica contends that the motion judge erred in finding that its work did not relate to improvements financed by the Crombee mortgage, the motion judge found that there was no evidence to support that conclusion. The appeal is, at its core, fact-based, and the moving party has identified no palpable or overriding error in the motion judge’s findings of fact.

[31] The Receiver submits that the appeal is moot because it distributed all of the funds in reliance on the order below. It relies on National Life Assurance Co. of Canada v. Brucefield Manor Ltd., [1999] O.J. No. 1175 (C.A.). The brief endorsement in that case indicates that it was an appeal from an order for sale. A motion for a stay was dismissed, the sale closed, a vesting order was made and the proceeds of sale were distributed. This court held that that the order was spent and quashed the appeal.

[32] The Receiver submits it had no obligation to satisfy itself that Sica would not appeal the order before distributing the funds. Where there is no automatic stay of an order, a losing party is well-advised to seek a stay pending appeal: Regal Constellation Hotel Ltd. (Re) (2004), 2004 CanLII 206 (ON CA), 71 O.R. (3d) 355 (C.A.), at para. 49.

[33] The Receiver had no notice, prior to the expiration of the time to appeal, that the moving party intended to appeal the order. Section 195 of the BIA provides for a stay of proceedings pending appeal, but no request was made for a stay of execution pending the filing of a notice of appeal. The funds have been disbursed and the operative parts of the order are spent. Receivers are entitled to act on the advice they receive from the court. It would not be fair to revisit the issue when the funds are out of the Receiver’s hands.

[34] In all the circumstances, the justice of this case does not require an extension of time. The application to extend the time to appeal is dismissed.

E. Leave to appeal

[35] It is unnecessary to consider the application for leave to appeal. However, as the parties made submissions on the issue, I will indicate that, in my view, leave to appeal is required and I would not have granted leave.

[36] The parties agreed that the appeal route is governed by s. 193 of the BIA: see Impact Tool & Mould Inc. (Receiver of) v. Impact Tool & Mould Inc. (Trustee of), 2013 ONCA 697; Dabbs v. Sun Life Assurance Co. of Canada (1998), 1998 CanLII 7165 (ON CA), 41 O.R. (3d) 97 (C.A.), at para. 13, leave to appeal to S.C.C. refused, [1998] S.C.C.A. No. 372;L.W.Houlden, G.B. Morawetz and Janis Sarra, Bankruptcy and Insolvency Law of Canada, loose-leaf (2009-Rel. 5), 4th ed. (Toronto: Carswell, 2013) vol. 3 at p. 7-106; Donald J.M. Brown, Q.C., Civil Appeals, loose-leaf (June 2013) (Toronto: Carswell, 2013) vol. 1 at para. 2:1120. See also Canada (Superintendent of Bankruptcy) v. 407 ETR Concession Company Ltd., 2013 ONCA 769, 118 O.R. (3d) 161 on the paramountcy of the BIA.

[37] Section 193 provides:

193. Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:

(a) if the point at issue involves future rights;

(b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;

(c) if the property involved in the appeal exceeds in value ten thousand dollars;

(d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars; and

(e) in any other case by leave of a judge of the Court of Appeal.

[38] An appeal lies to this court as of right in the circumstances described in s. 193(a) to (d) of the BIA. In all other cases, leave must be sought from a single judge under s. 193(e).

[39] Rule 31(2) of the Bankruptcy and Insolvency General Rules provides that where an appeal is brought under s. 193(e), the notice of appeal must include the application for leave. This rule was not observed in this case

[40] The appeal does not involve future rights, other cases in the bankruptcy proceedings or the granting or refusal of a discharge. The issue therefore is whether there is an appeal as of right under s. 193(c) or whether leave is required under s. 193(e) and, if so, whether leave should be granted.

[41] Based on this court’s decision in Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617, and the decision of the New Brunswick Court of Appeal in Royal Bank of Canada v. Profor Kedgwick Ltd., 2008 NBCA 69, 299 D.L.R. (4th) 727, s. 193(c) is to be narrowly construed and restricted to cases where the appeal directly involves property exceeding $10,000 in value. While the practical effect of the motion judge’s decision is that Ontario Wealth will receive proceeds of sale exceeding $10,000 and Sica will not, this results not from the decision itself but from the reality that there are insufficient funds in the estate to repay both creditors. As in Pine Tree Resorts, there is no dispute as to the value of the claims at issue or the proceeds of sale. Thus, I would follow the reasoning in Pine Tree Resorts and in Profor Kedgwick and hold that the appeal does not directly involve property which exceeds $10,000 in value.

[42] The issue before the motion judge was simply a matter of which claim had priority. This is the daily fare of judges in bankruptcy proceedings. To provide an appeal as of right from such decisions would negate the court’s gatekeeping function under s. 193(e) and would tie up bankruptcy proceedings in interlocutory appeals over routine issues.

[43] The exercise of granting leave to appeal under s. 193(e) is discretionary and must be exercised in a flexible and contextual way: Pine Tree Resorts, at para. 29. The prevailing considerations are whether the proposed appeal:

(a) raises an issue of general importance to the practice in bankruptcy/insolvency matters or the administration of justice as a whole;

(b) is prima facie meritorious;

(c) would unduly hinder the progress of the bankruptcy/insolvency proceedings.

The parties agree that the appeal would not unduly hinder the proceedings, so the analysis turns on the answer to the first two questions.

[44] For the reasons set out above, I am not persuaded that the proposed appeal is meritorious.

[45] I am also not convinced that this appeal raises an issue of general importance to the practice of bankruptcy and insolvency given that it turns on the motion judge’s very specific and central findings of fact that the mortgage funds were advanced prior to Sica’s involvement, all construction liens had been discharged, and Sica’s improvement did not relate to the earlier contract.

[46] I would not therefore have granted leave to appeal even if the notice of appeal had been served in time.

F. DISPOSITION

[47] The application for an extension of time is dismissed. If the parties are unable to resolve costs, they may make written submissions. The respondents’ submissions shall be served and filed with the Registrar within 15 days. The moving party may have 15 days to respond. The submissions shall not exceed 5 pages in length, exclusive of the costs outline.

“G.R. Strathy J.A.”