2012 ONSC 5444

COURT FILE NO.: CV-10-098074-00

DATE: 20121009

ONTARIO

SUPERIOR COURT OF JUSTICE

In the Matter of the Construction Lien Act, R.S.O., 1990 c. C.30

BETWEEN:

WELLINGTON PLUMBING & HEATING LTD.

Plaintiff

– and –

VILLA NICOLINI INCORPORATED, C.C.M.C. CONSTRUCTION COST MANAGEMENT CONSULTANTS INC., CONSTRUCTION COST MANAGEMENT CONSULTANTS INC., CCMC INC., ILDIKO CURRAN, 534 RODD DEVELOPMENT INC., FOREMOST MORTGAGE HOLDING CORPORATION, ELLEN NEWMAN, PAUL NEMAN, ANGELO ZORDAN, ANTONIA ZORDAN, DINAPET HOLDINGS LIMITED, JEFF BUTLER, DENISE BUTLER, L. AND S. INVESTMENTS INC., JOHN RATELLE, 565815 ONTARIO LIMITED, ROBERT SOLDA, CLAIRE SOLDA, SEAGROVE INVESTMENTS LIMITED, GEORGE ISAAC, 697350 ONTARIO LIMITED, ROD KARPEL, CRISSY MIRSKY-CARPEL, LUIGI CAPUTO, MARY CAPUTO, ANTONIO SAVIO, EDDA SAVIO, JERRY FREUD, FRANCES FREUD, VINCENZO MALLOZZI, CARLA MALLOZZI, RALPH EDSON, TINA PARTNOY, JELENA GORSE, NORMAN BENSKY, AUDREY BENSKE, GILDA LEFTON, SABH PHOENIX INC., LEO GERSKUP, EMILIO BAUCO, IDA BAUCO, JOHN SAVIO, THOMAS MANNA, 1701235 ONTARIO INC., ANTONIA CAPUANI, SAM GOLDMAN, NORBERT HARTMANN, GISELE HARTMANN, SARA GRIEDMAN, JOEL NASIMOK, BONNIE NASIMOK, BRIANE NASIMOK, BERNARD GOLDBLATT, CARLO LADISA, MICHAEL LADISA, REMO BACCI, ELDA BACCI, COMMUNITY TRUST COMPANY

Defendants

Donald G. Kidd, for the Plaintiff

(Counsel for additional lien claimants listed on Appendix “A”)

Harvey Mandel, for the Defendant, Foremost Mortgage Holding Corporation

HEARD: May 7, 2012 and September 5, 2012

RULING ON BASIC HOLDBACK

Boswell J.

Overview:

[1] Villa Nicolini Incorporated (“Villa”) set out to construct a retirement home in Vaughan. Things did not go well. Delays and financial difficulties were encountered. The project commenced in 2007 and was originally expected to be finished by the fall of 2008. But by the spring of 2010 construction was only 75% complete. Numerous trades were unpaid. Many of them registered liens against the project.

[2] Project financing came from a number of individual mortgagees whose interests were, and are, represented by the Defendant, Foremost Mortgage Holding Corporation (“Foremost”). Villa defaulted on its financing terms and Foremost exercised the lenders’ rights to sell the project lands. In order to convey clear title to the purchaser, Foremost vacated all registered liens from title by posting a letter of credit in the sum of $1,197,351.08. The letter of credit now stands as security for the lien claims, in place of the project lands.

[3] Collectively the lien claimants are owed almost $800,000. There is a very good chance that their only recovery will come from their right to share proportionately in the statutory holdback Villa was required to maintain in accordance with the provisions of the Construction Lien Act, R.S.O., 1990 c. C.30 (the “Act”). The amount of the holdback is in dispute and its determination is the focus of this ruling.

[4] It is common ground that when Foremost sold the project lands it assumed Villa’s holdback obligations. The dispute regarding the amount of the basic holdback is now between Foremost and the lien claimants, one of whom is the Plaintiff in this action.

[5] The stakes are relatively high. The holdback is either $497,236, as the lien claimants assert, or $285,141 as Foremost argues. The difference between the two figures is easily explained. Villa released holdback funds totalling about $212,000 to sub-contractors as the project went along. Foremost says it is entitled to claim those funds in reduction of its holdback obligation. The lien claimants dispute the validity of the release of any holdback funds. The resolution of the dispute turns on the interpretation and application of ss. 25 and 33 of the Act. Before turning to an examination of those sections, I will provide some brief comment on the nature of the basic holdback provided for in the Act and I will set out the relevant facts, which are generally not contentious.

The Basic Holdback:

[6] In Ontario, parties to construction contracts are subject to the provisions of the Construction Lien Act. Section 22(1) of the Act requires each payer on a construction contract to retain a holdback of 10% of the price of services or materials, as they are supplied, until all liens that may be claimed against the holdback have expired or have been satisfied or discharged. The 10% holdback is commonly referred to as the “basic holdback”. Other holdback obligations are created by the Act, but they are not in issue here. Villa, as owner of the project, was a payer with respect to a construction contract with the general contractor, CCMC Inc. (“CCMC”). Accordingly, Villa was obliged to hold back 10% of the value of the services and materials provided under the contract with CCMC. In this case, it is agreed that the value of the services and materials supplied under Villa’s contract with CCMC was $4,972,362.55. Villa’s gross basic holdback obligation was, therefore, $497,236.26.

[7] A registered lien is a charge against the basic holdback. As such, the holdback provides a modest form of security for lien claimants. Sub-trades, like the lien claimants in this case, have no contractual relationship with the owner. Their claims against the owner, when the contractor defaults on payment to them, are limited to their proportionate share of the basic holdback: s. 23. The outstanding liens in this case total $788,933.54. The amount and validity of the liens were reviewed and settled by a Vetting Committee established by an order of Master Short and they are not in dispute, at least for the purposes of this motion. There is no question that the amount of the outstanding liens significantly exceeds the amount of the basic holdback.

[8] Foremost accepts that the gross basic holdback was $497,236, but submits that the holdback was reduced by about $212,000 in payments made by the owner to sub-contractors whose contracts were certified complete as the project went along. Large construction projects may carry on for a considerable period of time. It may be unfair for a sub-trade, engaged early on in a project, to be required to wait until the end of the project to be paid in full, even though the work of that trade has been completed and any lien rights have expired or otherwise been satisfied. To address such a potential unfairness, s. 25 of the Act provides for the release of holdback funds to sub-trades in the following limited circumstances:

25. Where a sub-contract has been certified complete under section 33, each payer upon the contract and any sub-contract may, without jeopardy, make payment reducing the holdbacks required by this Part to the extent of the amount of holdback the payer has retained in respect of the completed sub-contract, where all liens in respect of the completed sub-contract have expired as provided in Part V, or have been satisfied, discharged or provided for under section 44 (payment into court).

[9] Foremost argues that Villa properly made payments to sub-trades throughout the project pursuant to s. 25 of the Act, reducing the amount of the basic holdback to $285,141. The lien claimants assert, however, that there were irregularities in the manner in which payments were made to sub-trades. They argue that the irregularities mean that Villa – and in turn, Foremost – may not validly claim any reduction in the amount of the basic holdback.

[10] Ultimately, the onus is on the owner, or in this case, Foremost, to establish the amount of the holdback and that it is less than the total of all outstanding liens: Urbacon Building Groups Corp. v. The Corporation of the City of Guelph, 2009 ONSC 72065 (“Urbacon”) at para. 48.

The Non-Contentious Facts:

[11] Most of the relevant facts are not in dispute.

[12] The stipulated contract price between Villa and CCMC was $5,450,000 plus GST of $327,000 for a total of $5,777,000. The contract was not completed before the lands were sold, so the value of work and materials supplied to the project was less than the full contract price.

[13] The architect on the project was Wayne Long. One of his duties was to act as the owner’s payment certifier. The value of work and services supplied to the project, as certified by the architect, over 24 payment certificates, was $4,824,212.55. It is agreed, however, that subsequent to the last payment certificate issued, there was further work performed. The additional work was valued at $148,150.00, bringing the total value of work and materials supplied to the project to $4,972,362.55. There is no dispute that the starting point for the calculation of Villa’s holdback obligation is $497,236.26.

[14] Two payment certificates issued by the architect provided for the release of holdback funds, on the basis that certain sub-trade work had been certified complete under s. 33:

(i) Payment Certificate 7, dated June 23, 2008 provided for a release of $132,658.01; and,

(ii) Payment Certificate 20, dated July 9, 2009 provided for a release of $79,571.62, bringing the total released, at July 9, 2009, to $212,229.63.

[15] Despite agreement about most facts, the parties remain at odds in terms of the application of ss. 25 and 33 of the Act and whether Foremost may claim a reduction in its holdback obligation by virtue of the payments made according to Certificates 7 and 20.

[16] I have set out the content of s. 25 above. Before turning to a review of the arguments advanced by each side, I will set out the content of s. 33 of the Act. Section 33 establishes the method by which sub-contracts may be certified complete. It provides as follows:

Certificate re sub-contract

33. (1) Upon the request of the contractor, the payment certifier on the contract may determine whether a sub-contract has been completed, and, if the payment certifier so determines, shall certify the completion of the sub-contract in the prescribed form; alternatively, the owner and the contractor may jointly make the declaration and certify completion in the prescribed form.

Date sub-contract deemed completed

(2) Where a sub-contract is certified to be completed, the sub-contract shall be deemed to have been completed on the date of certification.

Services or materials supplied after sub-contract certified completed

(3) If services or materials are supplied to the improvement under or in respect of a sub-contract after the date the sub-contract is certified to be completed, those services or materials shall be deemed to have been last supplied on the date of certification.

Copy of certificate

(4) Within seven days of the date the sub-contract is certified to be completed, the payment certifier or the owner and the contractor, as the case may be, shall give a copy of the certificate,

(a) to the sub-contractor whose sub-contract has been certified as complete; and

(b) to the owner and the contractor, where certification is by the payment certifier.

Positions of the Parties:

[17] Foremost submits that on two distinct occasions the architect certified specific sub-contracts as complete and authorized the release of part of the basic holdback funds. The funds authorized to be released totalled $212,129.63.

[18] Foremost filed a short affidavit of the architect in support of its position. Paragraphs 7-10 are particularly relevant to the dispute and I reproduce them here:

7. In preparing Certificates for Payment nos. 7 and 20, I was asked by the parties to release part of the general holdback which was being held for sub-contractors whose work had been completed and whose respective lien period had expired pursuant to section GC 5.6 “Progressive Release of Holdback”.

8. I authorized under this section the release of part of the general holdback which was being held for work performed by the sub contractors whose work was finished and whose respective lien period had expired in Certificates for Payment nos. 7 and 20.

9. In accordance with the Construction Lien Act, I prepared and signed a “Certificate of Completion of Sub-contract under Section 33 (1)” being form 7 under the Construction Lien Act, with respect to each of the requests for a partial release of the holdback for sub-contractors whose work was finished and whose respective lien period had expired dated respectively: July 4, 2008 and August 24, 2009…

10. In compliance with the Construction Lien Act, I gave the copies each time to the owner to distribute to the general contractor and the sub-contractors whose work was finished and whose respective lien period had expired.

[19] The architect attached, as Exhibit C to his affidavit, copies of two Certificates of Completion of Sub-contracts, purportedly following Form 7 under s. 33 of the Act. They were issued July 4, 2008 and August 24, 2009 in relation to Payment Certificates 7 and 20 respectively. The earlier of the two Certificates listed 16 sub-contracts and certified them all complete. The latter listed 7 sub-contracts and certified them complete.

[20] The lien claimants argue that the architect’s Certificates of Completion do not comply with s. 33 of the Act. They submit that the Act must be strictly interpreted and that a failure to comply strictly with the provisions of s. 33 means that holdback funds were not validly released. They allege the following deficiencies:

(i) Neither Certificate of Completion was in the prescribed form (Form 7);

(ii) Neither certificate was delivered in accordance with the provisions of s. 33(4); and,

(iii) Each certificate was prepared after the holdback funds had already been released.

[21] Foremost replies, in response to the assertions of the lien claimants, that:

(i) Section 33 was complied with;

(ii) Even if there were minor breaches of s. 33, those breaches are not fatal, and do not invalidate the owner’s release of holdback funds, in view of the application of s. 6 of the Act; and,

(iii) Section 25 requires only that a sub-contract be certified complete under s. 33. The certification of a sub-contract is set out in s. 33(1) and accordingly, non-compliance with the delivery requirement of s. 33(4) does not invalidate certification for the purposes of s. 25.

Issues to be Determined:

[22] There is a preliminary issue regarding standing. After finding that standing has been established, I will go on address the following issues:

(i) Is the Act to be strictly construed?

(ii) Were Villa’s payments to sub-trades in compliance with the Act?

(iii) What is the effect of any established breaches?

[23] Finally, the parties argued a further issue that I will deal with at the end of these reasons. Specifically, whether the basic holdback obligation of Foremost is subject to an additional amount on account of GST.

Discussion:

Standing

[24] Counsel to Foremost argued that the provisions of s. 33 impacted directly upon the trades identified in the Certificates of Completion dated July 4, 2008 and August 24, 2009, but did not impact upon the lien claimants now before the Court. In this instance, none of the lien claimants were named in the Certificates of Completion. None of them were entitled to notice of the certificates under s. 33(4). None of the trades actually named in either Certificate of Completion has ever raised a complaint about any irregularity in the certification process. A question arose, therefore, as to whether the Plaintiff and the other lien claimants have standing to argue the issues now before the Court. I find that they do.

[25] I accept Mr. Kidd’s argument that the lien claimants are statutory parties under Part IV of the Act (dealing with the calculation of holdbacks) as well as s. 51, which provides as follows:

51. The court, whether the action is being tried by a judge or on a reference by a master, a case management master or a person agreed on by the parties,

(a) shall try the action, including any set-off, crossclaim, counterclaim and, subject to section 56, third party claim, and all questions that arise therein or that are necessary to be tried in order to dispose completely of the action and to adjust the rights and liabilities of the persons appearing before it or upon whom notice of trial has been served; and

(b) shall take all accounts, make all inquiries, give all directions and do all things necessary to dispose finally of the action and all matters, questions and accounts arising therein or at the trial and to adjust the rights and liabilities of, and give all necessary relief to, all parties to the action.

[26] I accept that, as statutory parties, the lien claimants in this case have the right to raise and/or participate in arguments surrounding the calculation of the basic holdback.

[27] I also accept that the lien claimants have standing at common law because of the fact that they are directly affected by the outcome of the decision fixing the current amount of the holdback. Ultimately any reduction in the basic holdback will result in a lower recovery for the outstanding lien claimants. Their private interests are directly at stake.

[28] I will move on to the next issue, which involves the interpretation of the Act.

Is the Act to be strictly construed?

[29] Interpretation of statutory provisions is a regular part of the Court’s work in Ontario. The proper approach to such interpretation was addressed by the Supreme Court in Re Rizzo and Rizzo Shoes Ltd., [1998] 1 S.C.R. 27. The analysis in Rizzo involved the interpretation of certain provisions of the Employment Standards Act, R.S.O. 1980, c. 137. Writing for the Court, Iacobucci J. adopted the approach to statutory interpretation advocated by Elmer Driedger at page 87 of his text, Construction of Statutes (2nd ed. 1983):

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

[30] The approach suggested by Professor Driedger, and adopted by the Supreme Court, is consistent with the language of s. 64(1) of the Legislation Act, S.O. 2006, c. 21, which provides, in part, that all legislation is to be interpreted as remedial and “given such fair, large and liberal interpretation as best ensures the attainment of its objects.”

[31] Counsel for all parties concurred in the submission that the Construction Lien Act is to be strictly construed – a submission that appears to be contrary to the general rule of statutory interpretation mandated by the Supreme Court’s decision in Rizzo Shoes and, indeed, legislated by s. 64(1) of the Legislation Act. That said, I agree with counsel’s submissions, to a point.

[32] There is ample judicial authority supporting a strict interpretation of the provisions of the Act which entitle parties to claim the rights and benefits conferred by it. For instance, in the recent case of Bank of Montreal v. No. 249 Seabright Holdings Ltd., 2012 BCCA 4, a five member panel of the British Columbia Court of Appeal made the following comments regarding the manner in which the equivalent act in British Columbia, the Builders Lien Act, SBC 1997, c. 45, ought to be interpreted:

The jurisprudence is clear that because the Act creates new rights, the threshold question of entitlement is strictly construed; it is only once entitlement is established that the Act is to be construed liberally and with consideration to its remedial purpose, see: Clarkson Co. v. Ace Lumber Ltd., [1963] S.C.R. 110 at 114 and Chaston Construction Corp. v. Henderson Land Holdings (Canada) Ltd., 2002 BCCA 357 at para. 50. This principle is consistent with concern for certainty and fairness to all stakeholders in the construction industry. (para. 62)

[33] Similarly, at the Ontario Court of Appeal, Borins J.A. observed in Gillies Lumber Inc. v. Kubassek Holdings Ltd., [1999] O.J. No. 2692, that “it is well to keep in mind that the Act must be strictly construed in respect to persons entitled to the benefit of a lien under it.”

[34] The justification for a policy of strict construction was alluded to in the passage quoted above from Bank of Montreal v. No. 249 Seabright Holdings Ltd. At common law, sub-contractors would have no claim to payment from the owner with whom they have no contractual relationship. The Act grants them a limited claim against an owner that they did not otherwise enjoy at common law. In addition, the Act grants them a limited priority over other creditors. The principle was expressly addressed by O’Connor J.A. in the following comments he made in Rudco Insulation Ltd. v. Toronto Sanitary Inc. (1998), 42 O.R. (3d) 292, at page 298:

The first principle that I draw from the cases is the following: because the legislation creates a preference and a security for certain creditors that did not otherwise exist at common law, it ought to be given a strict interpretation in determining whether a particular creditor is a person to whom the benefit is given.

[35] It appears to me that the assertion that the entire Act is to be strictly construed is too wide a proposition. There is justification and ample judicial authority for supporting a strict interpretation of issues of entitlement, for the reasons identified above. There does not appear, however, to be justification for otherwise ignoring the general principles of statutory interpretation. In light of these observations, the question remains as to how s. 33, specifically, ought to be construed.

[36] The Plaintiff cited Omega Trim Carpentry Ltd. v. Redesco Inc., [1993] O.J. No. 4371 (Gen. Div.) as support for the proposition that s. 33 is one of the sections of the Act that ought to be strictly construed. Omega, like the case at bar, involved a project to construct a retirement complex. The project went sideways and a number of liens were registered. Like here, there was a dispute in Omega about whether the owner had validly reduced the amount of the basic holdback by making payments to sub-trades whose contracts were certified complete as the project progressed.

[37] In holding that s. 33 of the Act is to be strictly construed, Mr. Justice Dandie cited a decision of Doyle J. in Tri-City Flooring Company v. Quatrosense Environmental Ltd. (1991), 49 C.L.R. 319 where Doyle J. drew an analogy between the Construction Lien Act and the Personal Property Security Act, R.S.O. 1990, c. P.10 (the “PPSA”) and found that the integrity of the systems created by each of those acts is similar and both ought to be strictly construed.

[38] With respect, in my view, the Construction Lien Act is fundamentally different legislation from the PPSA, which creates an electronic registry system for security interests in personal property. The integrity of the registry system is clearly dependent on the accuracy of information entered into it. If its procedures governing the registration of notices of security interests are not strictly followed, then the operational success of the system is undermined. On the other hand, the integrity of the Construction Lien Act is not dependent on the strict construction of all of its provisions. Indeed, in my view, its integrity is enhanced by the fair, liberal, and purposive approach of interpretation that applies generally to all legislation.

[39] Though I disagree with the route that Doyle J. took to conclude that s. 33 is to be strictly construed, I ultimately agree with the conclusion, at least insofar as it relates to s-s. 33(1). A party’s lien rights – and the time in which to preserve them – may be directly affected by the issuance of a Certificate of Completion. As such, s-s. 33(1), in my view, is one of the provisions of the Act dealing with the threshold issue of entitlement and should be construed strictly.

[40] Additional support for a strict construction of s-s. 33(1) is found in the language of the Act itself, as observed by Master Sandler in Williams & Prior Limited v. Taskon Construction Limited, (2003) Kirsh’s C.L.C.F. 34.50. Williams & Prior was a case involving the application of s. 6, which provides as follows:

6. No certificate, declaration or claim for lien is invalidated by reason only of a failure to comply strictly with subsection 32(2) or (5), subsection 33 (1) or subsection 34 (5), unless in the opinion of the court a person has been prejudiced thereby, and then only to the extent of the prejudice suffered. (emphasis added)

[41] Section 6 is sometimes described as the “curative” section. Relying on the reference to “strict compliance” in the wording of s. 6, Master Sandler found that strict compliance was the standard to generally be applied to those provisions referenced therein, namely sub-sections 32(2), 32(5), 33(1) and 34(5). Moreover, it appears settled that s. 6 is available to cure only minor irregularities and not major defects (see Gillies, as above), which lends further support to the conclusion that s-s. 33(1) is generally to be strictly construed.

[42] In the result, I proceed on the basis that the Act, including s-s. 33(1), is to be strictly construed in determining whether a particular individual is a person upon whom the Act confers benefits. Once entitlement is determined, the Act is to be construed in a purposive fashion, liberally and with its general object(s) in mind.

[43] I note that the general purpose, or object, of the Construction Lien Act is well settled: to ensure that lands receiving the benefit of materials and services of trades and sub-trades bear the burden of paying for such benefits: see Hickey v. Stalker (1923), 53 O.L.R. 414 (C.A.) at para. 5. This general purpose was commented upon in Bank of Montreal v. No. 249 Seabright Holdings Ltd., as above, where Garson J.A. writing for the Court, said the following, at paragraphs 59 and 60:

59 The purpose of the Builders Lien Act and its predecessor statutes was discussed by this Court in Northern Thunderbird Air Ltd. v. Royal Oak & Kemess Mines Inc., 2002 BCCA 58. Beginning at para. 24, the Chief Justice, speaking for the Court, said:

[24] The purpose of the predecessor statute to the one presently under consideration, was considered by McLachlin J.A. (as she then was) in Kettle Valley Contractors Ltd. v. Cariboo Paving Ltd. (1986), 1 B.C.L.R. (2d) 236 (C.A.). She cited at 251 Hickey v. Stalker 53 O.L.R. 414, [1924] 1 D.L.R. 440 (C.A.) as correctly stating the purpose of mechanics lien legislation:

Speaking generally, the object of the Mechanics Lien Act is to prevent owners of the land getting the benefit of buildings erected and work done at their instance on their land without paying for them.

[25] I would, as well, look at the matter from the perspective of those who supplied the materials or did the work on the land. The corollary of the principle expressed in Hickey (supra) is that the purpose of the Act is to protect those who contribute to the erection of buildings, or other physical improvements on another's lands, and to ensure their payment by granting them a security interest in the land. The protection and the security in favour of a lien claimant come at the expense of the land owner, and of others having claims against the owner relating to the improvement which may be unsecured.

60 Thus, one important purpose of the statutory scheme is to ensure that contractors and workers are paid for materials provided and for services rendered.

[44] Similarly, Laskin J.A., in dissenting reasons in Gillies Lumber, as above, held that “[a] lien gives suppliers of labour or materials used in improving the land a statutory right to look to that land for payment. A lien therefore prevents an owner from obtaining the benefit of improvements to its lands without payment for them.”

[45] Having considered the proper interpretation of the Act, I turn now to the question of whether Villa complied with it, in particular ss. 25 and 33, when making payments to sub-trades out of the basic holdback.

Were Villa’s payments to sub-trades in compliance with the [Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html)?

[46] The lien claimants argue, correctly, that there is only one mechanism by which a payer on a construction contract can validly release holdback funds to sub-trades while the project is ongoing: by following the procedure set out in s. 25. The first requirement of s. 25 is that the sub-contract in issue be certified complete under s. 33.

[47] Recall that the lien claimants point to three areas where they say the certification process established by s. 33 was not followed:

(i) The architect did not comply with s. 33(1) because he did not certify completion of the sub-contracts in the prescribed form;

(ii) The architect did not deliver the certificates in accordance with s. 33(4); and

(iii) The architect created the certificates after holdback funds had already been released, in an effort to cure payments already made in violation of s. 25.

[48] I will review the substance of the alleged breaches of s. 33 in turn, then assess their significance. I begin with the assertion that the architect failed to utilize the prescribed form in his two Certificates of Completion. The prescribed form is Form 7, as set out in R.R.O. 1990, Regulation 175. The prescribed form is reproduced in Appendix “B” hereto.

[49] The architect, for the most part, followed Form 7 closely when preparing the Certificates of Completion dated July 4, 2008 and August 24, 2009. There was, however, one deviation from the prescribed form. In particular, Form 7 requires the payment certifier to set out the date of the sub-contract(s) being certified as complete. In this case the certificates list the parties to the affected sub-contracts, but fail to set out the dates of each sub-contract. Since s-s. 33(1) is to be construed strictly, I find that the deviation from the prescribed form is a breach of that section.

[50] Regarding the delivery of the certificates, s. 33(4) requires the payment certifier to provide a copy of the Certificates of Completeness, within 7 days, to the owner, contractor and sub-contractor. Mr. Long clearly indicates in his affidavit that he did not do so. He gave copies only to the owner. Delivery to an affected sub-contractor is imperative because the sub-contractor’s lien rights may be affected by the date the sub-contract is declared to be completed. According to his evidence, the architect delegated his delivery obligations to the owner. There is no authority in section 33(4) for such a delegation. Even if delegation were permitted, there is no evidence before the Court that the owner delivered the certificates to the contractor or sub-contractors. In short, service on the contractor and affected sub-contractors has not been established.

[51] Finally, there is the assertion by the lien claimants that the architect produced the certificates in an after-the-fact attempt to cure a violation of s. 25. The theory is that payments had already been made in purported reduction of the holdback before the certificates were prepared. The evidence in support of this assertion is all circumstantial. Mr. Long did not specifically address the timing of the preparation of the certificates in his affidavit. I accept the lien claimants’ assertion in this respect and indeed infer that the certificates were prepared as an after-the-fact attempt to cure violations of s. 25 in relation to two batches of payments to sub-trades. I make this inference on the basis of the following circumstantial evidence:

(i) Payment Certificate 7 references the release of $132,658.01 in basic holdback funds. The certificate is dated June 23, 2008 and purports to reflect the status of the work as at June 20, 2008. The first Certificate of Completion, however, was not dated until July 4, 2008 – almost 2 weeks after Payment Certificate 7 was issued;

(ii) Similarly, Payment Certificate 20 references an additional $79,471.62 in released holdback funds. It is dated July 9, 2009 and purports to reflect a statement of account as at June 30, 2009. But the Certificate of Completion in relation to the holdback funds released in accordance with Payment Certificate 20 is dated August 24, 2009, roughly a month and a half after the funds have been reflected as released according to Payment Certificate 20;

(iii) The batch format of the Certificates of Completion – referencing numerous sub-contracts, without reference to contract dates – is unusual. In particular, it is unusual that so many sub-contracts would be complete at the same time; and,

(iv) The fact that the Certificates of Completion were not sent to the sub-contractors affected is consistent with circumstances in which they had already received their holdback funds. In other words, a reasonable inference is that there was no pressing concern that the sub-trades receive copies because they had already been paid in full.

[52] In summary, I am satisfied that all of the alleged breaches are, in fact, borne out in the evidentiary record before the Court.

The Significance of the Breaches

[53] I will review the significance of each of the three breaches in turn, beginning with the failure to precisely follow the content of Form 7.

[54] As a matter of common sense and experience, the deviation from the prescribed form in this case appears relatively insignificant. In view of the requirement that the Act be strictly construed, however, the significance of the defects in the Certificates of Completion is magnified.

[55] Foremost invokes s. 6 of the Act to ameliorate the effect of any deviation from the prescribed form. The effect of the section is that minor irregularities in terms of compliance with section 33(1) will not invalidate the Certificates of Completion, provided no prejudice resulted from the deviations.

[56] The analysis to be applied to the application of s. 6 appears settled by the decision in Gillies, as above. First, the Court must determine if the irregularity in compliance is of a minor or technical nature. If so, then the Court will go on to consider the issue of prejudice.

[57] Recall that the non-compliance with s-s. 33(1) is the failure of the architect to set out the dates of the sub-contracts certified as complete. Presumably the significance of the dates is to assist in identifying the specific sub-contract(s) affected by the certificate. The identity of the affected sub-contracts would be of particular concern to the contractor and sub-contractors listed on the certificates.

[58] While there may be cases where the failure to identify the date(s) of the sub-contract(s) involved would be a significant concern, there is no evidence in the record before me to support the assertion that it was anything more than a minor irregularity here. No complaints were made or concerns raised by any of the sub-contractors listed in the certificates. There is no evidence that any of the affected sub-contractors had multiple ongoing sub-contracts with the general contractor, or that anyone was confused about what sub-contracts were being certified complete. The nature of the services and materials supplied by each sub-contractor was adequately set out in each certificate.

[59] The lien claimants argued that the drafters of the forms must have considered it important to set out the date(s) of any sub-contracts being certified complete. I agree. But it does not necessarily follow that a failure to include the date in a Certificate of Completion is more than a minor irregularity in every case. I am not prepared to make such a sweeping finding.

[60] In my view, the failure to comply with s-s. 33(1) in this instance was a minor irregularity. I turn, therefore, to a consideration of prejudice. Section 6 requires proof of actual prejudice suffered by a party as a result of non-compliance. There is no evidence of actual prejudice in the record before me. In the result, I find that the failure to strictly comply with the provisions of s-s. 33(1) does not invalidate either Certificate of Completion in this instance.

[61] While I find that s. 6 is capable of curing the defects in the form of the certificates, it is not available to cure non-delivery under s-s 33(4) of the Act. The lien claimants assert, under the circumstances, that non-compliance with s-s. 33(4) is fatal.

[62] Foremost argues, however, that s. 25 does not actually require compliance with s-s. 33(4). Essentially, Foremost’s position is that compliance with s-s. 33(1) is sufficient to satisfy the requirements of s. 25. If Foremost is correct, then non-delivery is not relevant to the procedure mandated by s. 25.

[63] There is much to be said for the opposing positions taken by the parties.

[64] From the point of view of the lien claimants, two features support the finding that s. 25 requires strict compliance with the entirety of s. 33. First, they point to the wording of s. 25 itself. On a plain reading of the section, there is no reason to limit compliance to s. 33(1) only, since the section simply references certification under s. 33. Second, they assert that the holdback is so significant to the operational success of the Act that any provisions affecting it are deserving of strict construction. A strict construction of s. 25 would require strict compliance with all of s. 33.

[65] The purpose of the Act is generally accomplished through three mechanisms: the right to lien, the holdback provisions and the creation of specified trust funds: see Bank of Montreal v. No. 249 Seabright Holdings Ltd., as above, at para. 62. I agree that the holdback provisions are a critical design feature in the overall scheme of the Act. The importance of the holdback to the overall effectiveness of the Act is reflected in the principle that the basic holdback is inviolate: see Urbacon, as above, at para. 31. The holdback cannot, for instance, be reduced by assertions of deficiencies, completion costs, delay claims or by payments made directly from the owner to one or more sub-contractors, save in compliance with s. 25.

[66] Given the significance of the holdback in the overall scheme of the Act, a strong argument can be made that provisions that may result in a reduction of the holdback ought to be carefully followed.

[67] On the other hand, from Foremost’s point of view, the objectives of the Act are entirely achieved by a more liberal and purposive interpretation of both s. 25 and s-s. 33(4).

[68] Foremost accepts, of course, that certification of a sub-contract as complete, under s-s. 33(1) may significantly impact the lien rights of the affected sub-contractor(s). For instance, work done or materials supplied by a sub-contractor on a sub-contract certified as complete, is deemed to have been last supplied on the date of certification: s-s. 33(3). It is imperative, therefore, that affected sub-contractors receive notice of the Certificate of Completion. In the case at bar, we have no evidence that sub-contractors named in the certificates ever received copies of them. But we do know that those sub-contractors were paid in full. And we know that none of them complained about any lack of notice of the certification of their sub-contracts as complete.

[69] The lien claimants now before the Court were never entitled to receive notice of the Certificates of Completion. It makes little sense that they should be able to complain about the non-delivery of a certificate that they were never entitled to receive, when the parties actually entitled to receive them are not complaining.

[70] The purpose of s-s. 33(4) is to ensure that parties directly affected by the Certificates of Completion receive notice of them. There is no evidence that that purpose was not served in this case. Moreover, the overall objective of the Act is to ensure that contractors and suppliers are paid and that improved lands bear the cost of improvement. That objective was achieved insofar as the sub-contracts certified are concerned. Work was performed, materials were supplied and sub-contractors were paid by the owner.

[71] At the end of the day, it is not necessary for the Court to resolve the issue of the proper interpretation of s. 25 and 33(4). On the particular facts of this case, I believe it is best to leave the question unanswered, largely because my findings on the next issue are dispositive.

[72] I have found that the Certificates of Completion in this case were issued by the architect as an after-the-fact attempt to cure payments improperly made to sub-contractors before the certificates were issued. At the time the payments were made, they were made in violation of s. 25 of the Act. There is no mechanism in the Act to cure a violation of s. 25 by a subsequently issued Certificate of Completion. Accordingly, even if Foremost was able to invoke s. 25 of the Act, I find as a fact that Villa violated the section by releasing funds before the Certificates of Completion were issued. Section 25 requires strict compliance with s-s. 33(1). The release of holdback funds without compliance with s-s. 33(1) is fatal.

[73] One might argue that there is an unfairness in forcing an owner (or in this case the mortgagee) to pay twice, or that the lien claimants are receiving a windfall. Three factors weigh against any perceived unfairness: (1) the mortgagee knew that enforcement by way of a sale of the lands would result in it assuming Villa’s holdback obligations in circumstances where it could not be entirely confident of Villa’s compliance with the Act. In other words, the mortgagee willingly assumed some risk in this case; (2) there is nothing unfair in requiring an owner to comply with the provisions of the Act, which are neither complicated nor onerous; and, (3) there is, in reality, no “windfall” for the unpaid sub-contractors. They will, inevitably, suffer significant shortfalls in amounts owing to them.

[74] In the result, the holdback is fixed at $497,236.26.

GST

[75] An additional issue was raised by the lien claimants. They submit that GST should be added to the basic holdback obligation of the owner/Foremost. They say the contract included GST of 6%. They are obliged to remit value added taxes to the Canada Revenue Agency as a percentage of their gross sales. Any amounts they receive by way of holdback funds will be reduced by their obligation to remit those value added taxes.

[76] The parties were unable to provide the Court with any authority containing a reasoned analysis of the point, although there are cases where the basic holdback has been calculated, as a matter of course, including GST: see for instance, Master Sandler’s decision in DCL Management LTd. v. Zenith Fitness Inc., 2010 ONSC 5915, at para. 51 and Master Albert’s decision in C.A.P. Concrete Forming Ltd. v. Cochren Contractors & Engineers Inc., 2007 CarswellOnt 10021, at paras. 11-12.

[77] The Act does not mention GST as a component of the basic holdback. That said, the holdback is 10% of the value of material and services provided. If the holdback does not include a component for value added taxes, then the amount actually available for the party entitled to the holdback will not equal 10% of the value of those services. Value added taxes are trust funds and must be remitted to the appropriate taxing authority. A holdback payment of, for instance, $10,000, will necessarily be reduced in the hands of the sub-trade to account for HST of 13%, under the current taxation regime. The net amount to the sub-trade will be approximately $8,850, which is less than the statutorily mandated 10%.

[78] As a practical matter, I expect the payment of value added taxes will be held back by payers along with the required 10% of the value of services provided, until the hold back is released under the terms of the Act. As an example, assume a sub-trade contracts to provide material and services at a contract price of $100,000 plus 13% HST. At the completion of that trade’s work, a bill is rendered for $113,000.00. The sum of $90,000 plus HST, calculated on $90,000, will be paid by the payer on the contract, with $10,000 plus HST held back. It would strike me as highly unusual for the payer to pay $90,000 plus all of the HST payable on the full $100,000 contract price, holding back just $10,000. I expect, instead, that in all, or virtually all, cases, the payer will hold back 10% of the price, plus HST. Accordingly, value added taxes should be added to the holdback. Otherwise the payer would receive a windfall by avoiding the payment of value added taxes on the last 10% of the contract price.

[79] In the case at bar, the applicable GST rate is 6%, which must be added to the holdback funds.

Conclusion:

[80] The basic holdback is fixed at $497,236.26 plus GST of 29,834.18 for a total of $527,070.44. This amount may be paid out to the lien claimants, in proportionate shares, on consent, or otherwise by further Court Order.

[81] At the request of the parties, and on consent:

(i) the consolidated actions shall be deemed to have been set down for trial in a timely fashion;

(ii) There are two separate actions involving claims by Apaland Landscrape Contracting Inc. and Atlas Dewatering. Separate funds have been paid into court in both those actions in order to vacate liens. If the parties are unable to agree on the appropriate disposition of those funds, then any affected party may move for a further order. A date for a hearing of any further motion, which will be before me, is to be obtained through the trial co-ordinators’ office in Newmarket.

[82] Finally, if the parties are unable to agree on the costs of this motion, they may address the issue in writing, with the lien claimants to serve and file submissions by October 26, 2012 and Foremost to respond by November 9, 2012. Submissions are not to exceed 3 pages in length and are to be filed with the judicial secretaries’ office in Newmarket.

Boswell J.

Released: October 9, 2012

APPENDIX “A”

List of Counsel Appearing for Additional Lien Claimants

Martin Z. Rosenbaum for Argo Drywall Inc.

Todd C. Hein for Apaland Landscape Contracting Inc.

B. Whealen for Intraworx Group Inc.

Donna Wilson for Construction Cost Management Inc.

Salvatore T. Mannella for Atlas Dewatering

APPENDIX “B”

FORM 7 CERTIFICATE OF COMPLETION OF SUB-CONTRACT UNDER SUBSECTION 33 (1) OF THE ACT

Construction Lien Act

This is to certify the completion of a sub-contract for the supply of services or materials between ..................

(name of sub-contractor)

and ……………………….………… dated the …………….…..day of ……………..…………… , 20……..

The sub-contract provided for the supply of the following services or materials ................................................

to the following improvement:

(short description of the improvement)

of premises at

(street address, or if there is none, the location of the premises)

Date of certification …………………………………..............………………………………………………..

(payment certifier where there is one)

(owner and contractor)

Name of owner: ………………………………………………………………………………………………..

Address for service: ……………………………………………………………………………………………

Name of contractor: ……………………………………………………………………………………………

Address for service: ……………………………………………………………………………………………

Name of payment certifier (where applicable): ……………………………………………………………….

Address: ……………………………………………………………………………………………………….

(Use A or B whichever is appropriate)

A.

Identification of premises for preservation of liens:

(where liens attach to premises, reference to lot and plan number or instrument registration number)

B.

Office to which claim for lien must be given to preserve lien:

(where liens do not attach to premises)