COURT FILE NO.: 04-CV-270473

DATE: 20130315

ONTARIO

SUPERIOR COURT OF JUSTICE

In the Matter of the Construction Lien Act,

R.S.O. 1990, Chapter C.30, as amended

BETWEEN:

RSG MECHANICAL INCORPORATED

Antonio Conte, Robert C. Harasan and Anthony O’Brien, for the parties to the consolidated action

Plaintiff

• 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

Michael A. Handler and G. Paolucci , for the defendants Realty Growth & Revenue Fund General Partner Inc. and MCAP Financial Corporation

Defendants

HEARD: September 16, 17, 23, 24, 25, and 26, and October 2, 3, 7, 8, 10, 14, 15 and 16, 2008, and March 4, 2013

Master Polika

[1] The reference in this action involves the determination of the timeliness and quantum of the claims for lien of 11 lien claimants who contracted directly with the owner, 1398796 Ontario Inc. and 1398796 Ontario Inc. o/a Bloorwood Group (“Owner”), the determination of whether the defendant Realty Growth & Revenue Fund General Partner Inc. (“Realty”) a mortgage is an “owner” as defined in the Construction Lien Act[^1], the extent to which the “contractor” lien claimants with proven lien claims can look to security posted by Realty, a mortgagee, pursuant to section 44(1) of the Act to satisfy their proven lien claims, the consequences of Realty as a mortgagee posting security by way of section 44(1) of the Act as opposed to security as provided for in section 78(10) and the determination of the extent of the deficiency in holdbacks required to be retained by the owner under Part IV. The plaintiff and the two remaining defendant’s, Realty and MCAP Financial Corporation (“MCAP”) (collectively the “Defendants”) appeared at the trial of the consolidated action.

[2] The reference arose when the plaintiff, one of the 11 lien claimants, obtained a judgment of reference in this action and an order fixing the commencement of trial by way of first pre-trial for directions on May 15, 2005. By operation of section 57(1) once the plaintiff served the other 10 lien claimants and the other parties to this action with notice of trial they all became parties to this action.

[3] The improvement in question consisted of the construction of the Bloorwood Manor Townhouses consisting of 61 townhouses, composed of 32 three level and 29 four level town houses, and 103 high rise units.

Conduct of this Action and the Reference

[4] On June 9, 2004 the plaintiff issued its statement of claim.

[5] Realty delivered its statement of defence dated August 5, 2004. London Guarentee Insurance Company (“London”), Northern Indemnity Inc. (“Northern”) and Marketpoint Development Corp. (“Marketpoint”) delivered a joint statement of defence dated July 15, 2004. MCAP delivered its statement of defence dated August 13, 2004. The Owner delivered its statement of defence and counterclaim dated July 14, 2004. The plaintiff delivered its defence dated July 20, 2004 to the Owner’s counterclaim.

[6] On December 30, 2004 Realty brought an ex parte motion pursuant to section 44(1) in action number 04-CV-281483 between Realty as mortgagee and the following lien claimants. Herman J. on Realty posting pursuant to section 44(1) two standby letters of credit in the amount of $424,533.00 and $554,055.74 totaling $978,588.74, made an order that the following claims for lien and attendant certificates of action be vacated :

-Aya Kitchens and Baths Limited (“Aya”) $105,166.05 claim for lien registered on April 22, 2004;

• RSG Mechanical Incorporated (“the plaintiff”) $306,779.00 claim for lien registered on May 3, 2004;

• RSG Mechanical Incorporated (“the plaintiff”) $306,779.00 claim for lien registered on May 17, 2004;

• RSG Mechanical Incorporated (“the plaintiff”) $306,779.00 claim for lien registered on May 20, 2004;

• Quality Rugs of Canada Limited (“Quality”) $40,373.63 claim for lien;

• A.F. Drywall Limited (“A.F. Drywall”) $71,220.99 claim for lien;

• The Sherwin Williams Company Inc. (“Sherwin”) $8,094.11 claim for lien;

• 1406235 Ontario Limited (“1406235”) $19,941.62 claim for lien;

• Andrew Paving & Engineering Ltd. (“Andrew”) $124,470.45 claim for lien;

• 690536 Ontario Inc. (“690536”) $4,850.00 claim for lien;

• 2011940 Ontario Inc. (“2011940”) $7,490.00 claim for lien;

• Tagus Electrical Contractors Inc. (“Tagus”) $42,762.55 claim for lien;

• Andrew Paving & Engineering Ltd. (“Andrew”) $20,000.00 claim for lien; and

• Rafat General Contractor Inc. (“Rafat”) $53,078.38 claim for lien.

[7] On May 10, 2005 Master Sandler made an order removing the solicitor of record for the defendants Owner, London, Northern and Marketpoint.

[8] By Notice of Change of Solicitors the defendants London and Northern appointed new solicitors of record.

[9] On July 22, 2005 the plaintiff brought a motion seeking to have the statements of defence of the defendants Owner and Marketpoint struck for failure to comply with Master Sandler’s order dated May 10, 2005. Master Sandler granted the order sought.

[10] On December 30, 2005 Realty, on consent of the parties, brought a motion with the result that Marrocco J. dismissed the action as against the defendants London and Northern.

[11] On February 13, 2006 Perell J. on the basis that 139876 and Marketpoint had been noted in default and that the action had been dismissed as against London and Northern granted a judgment ordering that the Owner and Marketpoint pay the plaintiff $306,779.00 plus interest in the amount of $14,316.40 and then in terms of Form 16 referred the action for trial by way of reference to a master at Toronto.

[12] By order dated February 22, 2006 Master Macleod ordered that the action be tried by way of first pre-trial for directions on May 15, 2006 at 11:00 a.m.

[13] On May 15, 2006 the trial of this action by way of reference commenced before me when I held the first pre-trial for directions and reviewed the state of the action. The parties agreed that the issues given the mortgages on title were priority, holdback, quantum and timeliness of the claims for lien. I was advised that Realty had taken over all the mortgages which were alleged to be building mortgages. The Owner had a counterclaim outstanding which I dismissed as the Owner was noted in default and given the judgment of Perell J against the owner. I by order established a vetting committee to vet the claims for lien for quantum and timeliness and gave directions in that respect. I also ordered the delivery of affidavits of documents in sworn form on the basis that if Realty failed to advise a lien claimant by July 10, 2006 that the affidavit was required the lien claimant need not deliver an affidavit of documents. I also consolidated all lien actions on the basis they would proceed together with this action with the necessary procedural orders to follow. The pre-trial for directions was adjourned to August 21, 2006. Left before me as opposing the Defendants, Realty and MCAP.

[14] The following chart sets out particulars of the 14 claims for lien of the 11 lien claimants joined in the reference before me together with particulars of the claims for lien and the actions brought to enforce them all of which were consolidated with this action.

Lien Claimant

Lien Amount/ Contract Amount

Registration Date & No.

Cert. of Action Reg. Date & No.

Defendants

Period Services Supplied

RSG Mechanical Incorporated

(the plaintiff)

$306,779.00 (3 lien claims in the same amount)/ $927,282.00

AT474483 (V)

2004/05/03

AT487257 (V)

2004/05/17

AT491108 (V)

2004/05/20

AT512197

2004/06/11

04-CV-270473

-the Owner, 1398796 Ontario Inc. and 1398796 Ontario Inc. o/a Bloorwood (main contracting party)

• London Guarantee Insurance Company

• Northern Indemnity Inc.

-Realty Growth & Revenue Fund General partner Inc.

-Marketpoint Development Corp.

• MCAP Financial Corporation

February 21, 2002 to April 23, 2004

Aya Kitchens and Baths Ltd.

(AyA)

$105,166.05/

$227,848.49

AT463381(V)

2004/04/22

AT514472

2004/06/15

04-CV-270750

-the Owner, 1398796 Ontario Inc. (main contracting party)

-Realty Growth & Revenue Fund General partner Inc.

• 1189875 Ontario Inc.

• MCAP Financial Corporation

-St. Paul Guarantee Insurance Company

-Marketpoint Development Corp.

April 23, 2003 to March 20, 2004

A.F. Drywall Limited

(A.F. Drywall)

(1)$71,220.99/

$591,260.60

(2)$156,539.60/

$591,260.60

(1)AT507410 (V)

2004/06/04

(2)AT458946

2004/04/16

Discharged by

AT467132

2004/04/28)

(1)AT550208

2004/07/19

04-CV-272596

-the Owner, 1398796 Ontario Inc. (main contracting party)

(1) April 10,2002 to May 6, 2004

(2) April 10, 2002 to March 25, 2004

Rafat General Contractor Inc.

(“Rafat”)

$53,078.38/ Prevenient agreement

AT691506 (V)

2004/12/21

n/a

-the Owner, 1398796 Ontario Inc. (main contracting party)

August 20, 2004 to November 30, 2004

Tagus Electrical Contractors Inc.

(Tagus)

$42,762.55/ $42,762.55

AT651026 (V)

2004/11/05

AT697951

2004/12/30

04-CV281359

-the Owner, 1398796 Ontario Inc. (main contracting party)

August 7, 2004 to October 13, 2004

Quality Rugs of Canada Limited

(Quality)

$40,373.63/ $103,704.40

AT496976 (V)

2004/05/28

AT534645

2004/07/05

04-CV-271648

-the Owner, 1398796 Ontario Inc. (main contracting party)

• Canning Contracting Limited

• 1189875 Ontario Inc.

-Marketpoint Development Corp.

-Realty Growth & Revenue Fund General partner Inc.

• MCAP Financial Corporation

• London Guarantee Insurance Company

• Northern Indemnity Inc.

May 1, 2003 to May 7, 2004

Andrew Paving & Engineering Ltd.

(Andrew)

(1)$124,470.45/

$336,785.71

(2) $20,000.00/ $336,785.71

(1)AT624695 (V)

2004/10/07

(2) AT669364 (V)

2004/11/29

(1)AT663963

2004/11/23

(2)AT686620

2004/12/16

04-CV-280737

-the Owner, 1398796 Ontario Inc.(main contracting party)

• Toronto Standard Condominium Corporation No. 1592

• 1189875 Ontario Inc.

-Realty Growth & Revenue Fund General partner Inc.

• London Guarentee Insurance Company

• Northern Indemnity Inc.

(1) August 1, 2003 to August 25, 2004

(2) August 26, 2004 October 15, 2004

1406235 Ontario Ltd.

(1406235)

$19,941.62/ $197,954.00

AT526079 (V)

2004/06/25

AT569316

2004/08/06

04-CV-273678

-the Owner, 1398796 Ontario Inc. (main contracting party)

June 23, 2003 to May 14, 2004

The Sherwin Williams Company Inc.

(Sherwin)

$8,094.11/ $8,094.11

AT523911 (V)

2004/06/24

n/a

-the Owner, 1398796 Ontario Inc.(main contracting party)

John Bargis, Katina Bargis, Cindy Rego and John Rego

January 14, 2004 to May 14, 2004

2011940 Ontario Inc.

(2011940)

$7,490.00/ $7,490.00

AT650870 (V)

20004/11/05

AT698002

2004/12/30

04-CV-281363

-the Owner, 1398796 Ontario Inc. (main contracting party)

August 18, 2004 to October 7, 2004

690536 Ontario Inc.

(690536)

$4,850.00/ $4,850.00

AT650910 (V)

2004/11/05

AT697985

2004/12/30

04-CV-281364

-the Owner, 1398796 Ontario Inc. (main contracting party)

August 14, 2004 to October 4, 2004

Total:

$804,226.27/

$2,501,060.46

Claims for lien followed by “(V)” were vacated pursuant to the order of Justice Herman dated November 30, 2004 on posting of security of $978,588.74 by Realty

[15] On August 21, 2006 I held the second pre-trial for directions. The lien claimant Rafat again failed to appear. I ordered that its claim for lien be discharged unless prior to September 29, 2006 Rafat applied to have this order set aside and directed the plaintiff to serve them with a copy of my endorsement and file proof of service thereof. The pre-trial for directions was adjourned to October 30, 2006. Rafat was served with my endorsement by mail on August 24, 2006.

[16] On September 28, 2006 I heard Rafat’s motion seeking to set aside my order discharging its claim for lien and ordered that my order be set aside on terms that Rafat provide to the vetting committee a copy of its material and a copy of the order and directed that the vetting committee report back on its lien at the pre-trial on October 30, 2006.

[17] On October 30, 2006 I held the third pre-trial for directions. I was advised that Realty was taking issue with most of the claims for lien either on the basis of quantum or timeliness or both. After hearing the submissions of the parties I ordered that Realty by December 1, 2006 advise all of the lien claimants of its position on quantum and timeliness and that Realty by December 29, 2006 provide enumerated information relating to holdback.

[18] On January 5, 2007 I held the fourth pre-trial for directions. Realty advised that it accepted the timeliness and quantum of 1406235’s and Quality’s claims for lien and the timeliness of but not the quantum of the plaintiff’s claim for lien. Realty sought examinations for discovery of some of the lien claimants. The plaintiff and the lien claimants sought information from all of the originally named defendants. I ordered that Realty could examine for discovery any lien claimant with a claim over $50,000.00 on May 31, 2007 and gave directions as to how to get the information from the originally named defendants by affidavit of documents where applicable and by examination of any original defendants now non-parties pursuant to Rule 31.10(1) on May 3, 2006.

[19] On June 4, 2007 I held the fifth pre-trial for directions. I was advised that the examinations had taken place and that undertakings were outstanding. I was also advised by counsel for Realty and for Rafat that the Rafat claim for lien was out of time. On agreement the time for completing the examination for discovery of A.F. Drywall was extended to July 31, 2007. I was advised that the documentation regarding holdback was only available from the Owner and I ordered that it and Mr. Rego produce certain itemized documents for inspection by July 31, 2007 and gave directions respecting the production. I also gave carriage of the reference to counsel for RSG. The assertion as to the availability of the documents as made by Realty turned out at trial to be incorrect as MCAP had provided Realty with particulars of advances, the Helyar Reports in support of the advances and particulars of the Owner’s liability for holdbacks as they were calculated by Helyar. I ordered that the lien actions be consolidated with this action with the pleadings exchanged in all the lien actions to be the pleadings in this consolidated action and stayed all the other lien actions.

[20] On August 27, 2007 I held the sixth pre-trial for directions. I was advised that the examinations for discovery took place but that Mr. Rego and the Owner had not provided the information I ordered them to provide. I directed that a formal order be taken out respecting production by Mr. Rego and the Owner on the basis that if they did not comply the lien claimant Quality could apply for an order finding them in contempt with appropriate consequences. I also ordered Realty to deliver its supplementary affidavit of documents. Realty also agreed that the claim for lien of Aya was timely. I then went on to fix the commencement date and the length of the evidentiary trial portion of the reference for 10:00 a.m. September 16, 2008 with 20 days set aside for it.

[21] On March 31, 2008 I held the seventh pre-trial for directions. After reviewing the potential issues at trial with the parties I confirmed the fixed trial date and length of trial. I also ordered the delivery of witness lists by August 15, 2008 and that the order at trial would be small claims for lien first followed by the RSG claim for lien.

[22] On September 11, 2008 counsel for the Defendants wrote advising that there were procedural issues to be dealt with and suggested the first hour or two of trial be devoted to those housekeeping issues.

[23] Prior to the commencement of the evidentiary portion of the reference Realty accepted both the quantum and timeliness of the Quality claim for lien.

The Evidentiary Portion of the Reference

[24] The evidentiary portion of the trial began at 10:00 am on Tuesday September 16, 2008. Counsel for RSG, who had carriage, as well as two other counsel for five of the lien claimants together with counsel for the Defendants appeared.

[25] At the commencement of trial counsel for the Defendants advised that:

(a) Realty had settled with the lien claimant Aya and had taken an assignment of Aya’s claim for lien;

(b) Realty had settled with Andrew and had taken an assignment of Andrew’s claim for lien;

(c) Realty had settled with 1406235 and had taken an assignment of 1406235’s claim for lien; and that

(d) Realty had settled with Sherwin and that the claim for lien would be discharged.

[26] Plaintiff’s counsel filed a trial record and a summary of the lien claims composed of copies of the registered instruments relating to each. The trial record was deficient as it only contained the pleadings in the plaintiff’s action before consolidation and did not contain all of the pleadings in this consolidated action.

[27] Counsel conceded that Realty’s mortgage interest flowing from the assignment of the MCAP mortgage to it was a building mortgage as defined in section 78(2) of the Construction Lien Act. It was also agreed that each of the lien claimants had a separate contract with the Owner such that each is a “contractor” as defined in the Act.

[28] Also at the commencement of trial Quality moved to amend its pleadings. I granted the amendment on the basis that the cost consequences of the motion to amend and amendment were left to be addressed at the end of the trial.

[29] The plaintiff sought an order that the Bloorwood records be produced. This was an on- going objective during the pre-trials for directions leading up to the evidentiary portion of the reference. After hearing argument I made an order for the production of the documents in question on Thursday September 18, 2008 for inspection by Mr. Conte, Mr. Harasan and Mr. O’Brien and for copying if so desired at the office of counsel for the Defendants.

[30] Counsel made their opening addresses and the trial hearing was adjourned at noon to continue on September 17, 2008.

[31] On September 17, 2008 the evidentiary hearing resumed. Exhibit 1 a five volume brief from RSG was marked as an exhibit subject to proof. Counsel for the Defendants asked for and I made the usual order excluding witnesses. Evidence commenced with the first witness, Mr. Zabanah.

[32] Evidence was completed on October 16, 2008 at which time I ordered that the parties make their closing submissions in writing as follows: plaintiff by December 15, 2008, response by the Defendants by February 17, 2009 and reply by plaintiff by March 23, 2009. Written submissions were received from the plaintiff on behalf of the lien claimants, responding submissions from the Defendants and reply submissions on behalf of the lien claimants.

[33] In the Defendant’s written submissions the following admissions were made:

(a) That each lien claimant who registered a timely claim for lien has priority over its mortgage security as assignee of the mortgage security of MCAP (MCAP provided construction financing) for 10 per cent of the value of the improvement supplied to the Project by such lien claimant as described in its claim for lien pursuant to subsection 78(2) of the Construction Lien Act. Given the wording of this admission it was unclear whether the admission applied to its own initial mortgage security and the other mortgage security it took an assignment of.

(b) That each lien claimant who registered a claim for lien had a direct contract with the Owner and that therefore each was a “contractor” as defined in subsection 1(1) of the Act. There was no dispute by any of the parties in relation to this admission.

(c) That the Owner was both the owner and developer of the Project.

(d) That Realty had settled the Sherwin claim for lien on the basis that the Sherwin claim for lien would be discharged.

(e) That Realty had settled the Aya claim for lien and had obtained an assignment of its claim for lien. This admission was consistent with the same admission made at the opening of trial.

(f) That Realty had settled the Andrew claim for lien and had obtained an assignment of its claim for lien.

(g) That Realty had settled the 1406235 claim for lien and had obtained an assignment of its claim for lien.

(h) That Realty accepted the timeliness, quantum and the amounts outstanding of the claims for lien of Aya, RSG, Andrew and 1406235.

(i) That Realty had prior to trial accepted the quantum and timeliness of Quality’s claim for lien but not the increased quantum sought in the amendment granted at the commencement of trial.

[34] In the Defendant’s written submissions they also confirmed that they were disputing “either the timeliness or quantum” of the claims for lien of: A.F. Drywall, 2011940, 690536, Tagus, and Rafat.

[35] Prior to releasing this decision a number of authorities not referred to by the parties came to my attention. I convened a telephone pre-trial for directions and with the agreement of the parties fixed March 4, 2013 for the receipt of additional submissions. On March 4, 2013 Mr. Conte and Mr. Harasan for the plaintiff and Mr. Handler for the Defendants appeared and made additional submissions in respect of the following authorities:

1. Belmar Sheet Metal Co. v. 849539 Ontario Inc. [1995] O.J. No. 2519 (Klowak J.)

2. J. Sousa Contractor Ltd. v. Kinalea Development Corp. [1994] O.J. 1465 (Charron J.), [1994] O.J. No. 3047 (Charron J.), affirmed on appeal [1996] O.J. 1337 (Div. Ct.)

3. Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559

4. James Dick Construction Ltd. v. Durham Board of Education [2000] 4 C.L.R. (3d) 256 (Div. Ct.)

5. Basic Drywall Inc. v. 1539304 Ontario Inc. [2012] O.J. No. 882 (R.A. Lococo J.); [2012] O.J. No. 882 (R.A. Lococo J.); [2012] O.J. No. 6095 (Div. Ct.)

6. Francon v. L.Nicolini Construction (1988), 33 C.L.R. 107

7. Reliance Electric Ltd. v. G.N.S. Contracting Inc. et al. (1989) 1989 4110 (ON SC), 35 C.L.R. 310

8. Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort 2002 Inc. 2009 ONCA 256, [2009] O.J. No. 1195

Documentary Disclosure

[36] Given Realty was standing in the shoes of MCAP, the “building” mortgagee, during the pre-trials for directions the lien claimants sought documentary disclosure and I made at least one order to that effect. Realty failed in its obligations such that at the first day of trial, as noted above, I made a further order for documentary disclosure. Documents central to the matters in issue were finally disclosed including minutes of the December 1, 2004 meeting relating to Realty posting the section 44 security.

[37] The plaintiff also did not make full documentary disclosure in relation to all the claims for lien. For example Exhibits 4, 6 and 7 were not disclosed in Tagus’s affidavit of documents.

[38] I find that the actions of both sides in respect of documentary disclosure amount to a wash and having regard to the equities I find that such documentation is admissible and that no further censure should flow for these breaches to any party.

The Witnesses

[39] The witnesses gave their testimony in the following order.

[40] Rezk Zabanah the president of RSG, which was the HVAC and plumbing contractor on the project, was called by the plaintiff as the first witness. He gave his evidence in a forthright manner. His testimony stopped when on the third day the parties reached agreement on RSG’s claim for lien.

[41] Antonio Jose Cruz the president of Tagus was called by the plaintiff as the second witness in relation to the Tagus claim for lien. He was led through some of his testimony and I have as a consequence reduced the weight to be given to that portion of his testimony. He admitted when cross-examined that he had no knowledge of or documentation to support some of his statements particularly those relating to the last work referred to in Tagus’ claim for lien.

[42] Alvarino Fernandes the owner of A.F. Drywall was called by the plaintiff as the third witness to give evidence in support of A.F. Drywall’s claim for lien. He claimed in testimony before me that additional work was done in respect of A.F. Drywall’s second claim for lien. In cross-examination his testimony at examination for discovery was put to him where he stated that no more work was done in respect of the second lien. When pressed in his testimony before me on key issues he claimed he could not remember. Taking the whole of his testimony into consideration I do not accept it in relation to the timing of A.F. Drywall’s work unless it is fully and expressly corroborated by documentary evidence. When cross examined on his worker’s invoices relating to work in the last five to six months of 2004 he could not state where the work was carried out, that is whether on the subject improvement or on other jobs.

[43] Victor Pereira the president of 2011940 was called as the fourth witness by the plaintiff to give testimony in support of 2011940’s claim for lien. In chief he gave evidence relating to the October 15, 2004 invoice consistent with the claim for lien. In cross examination he admitted he only spoke a little English and that he did not read or write English. He answered the questions put to him in a forthright manner. His answers were consistent and consistent with the documentary evidence save for his affidavit.[^2] He negotiated and interacted directly with Mr. Rego in Portuguese. I find him to be a credible witness and accept his testimony.

[44] Manuel Camilo Da Costa the president of 690536 also known as TC Bricklayers was called as the fifth witness to give testimony in support of 690536’s claim for lien. He gave testimony through an interpreter. He gave his testimony in a generally forthright manner indicating when he could not remember events which took place. His testimony was generally in accord with the documentary evidence created at the time. I accept his testimony particularly where it is corroborated by the documentary evidence and by other testimony.

[45] John Isacco was called as the sixth witness by the Defendants. He was employed at Shaheen & Peaker Limited Consulting Engineers from April 2004. The company conducted site visits and reviews at the request of the Owner’s site superintendent. Mr. Isacco is a 1992 graduate of Ryerson University in the Architectural Services Program. After the end of March, 2004 he was only on site to conduct his inspections before June 24, 2004 and subsequently on July 8, 2004. He authored Milestone Report No. 4 dated June 25, 2004 and the Final Review Declaration Final Report of even date to satisfy the Ontario New Home Warranty Program’s (collectively with Tarion referred to as “ONHWP”) requirements. He also produced a report on July 8, 2004 to Mr. Rego relating to the Inspection of Common Element Deficiencies. He testified that the project was complete at the time of Report No. 4 but in his July 8, 2004 report he stated “A significant amount of work is still required to be completed at the development as detailed in this report.” In that respect his testimony appears contradictory. The other evidence before me demonstrates that the project was not complete and his earlier statement that the project was complete I accept at best as meaning Shaheen & Peaker’s involvement was complete. He appears to have made two visits to the site in the post March 2004 period and on the last visit he only observed landscape trades working. At the time of his July 8, 2004 inspection he was doing a common elements inspection and as such would not have known what work was going on inside the townhouse units.

[46] Alan Walter Stevenson was called as the seventh witness by the Defendants. He was a manager with ONWHP for 20 years. He is a late sixties graduate from a two year technical arts program at George Brown College. Subsequently he did trade work. In 1977 he became a building inspector in Ajax and then moved on to become the Chief Building Inspector for Ajax before joining ONWHP. He outlined how deficiencies were dealt with by ONHWP. He confirmed that once there was a breach respecting a sold unit ONWHP had the responsibility of rectifying the breach or financially settling with the new home purchaser. Exhibit 23 produced by the Defendants contained many documents purporting on their face to be ONWHP documents which Mr. Stevenson could not identify from personal knowledge. Mr. Stevenson in chief was led through portions of his testimony with the result I gave that testimony less weight unless corroborated by other testimony or the documentary evidence.

[47] Pat Varcoe the vice president of licensing and underwriting at ONHWP was called as the eighth witness by the Defendants. He gave his evidence in a straight forward manner. He confirmed that when ONWHP “took control” it did not mean physical control but rather site inspections. He confirmed that he himself had no knowledge of what happened on site. He was also able to confirm the 2005 negotiations and terms worked out with Realty leading to Marmellata Investments Inc. being registered as a “builder” in 2005 so as to be able to sell the remaining six townhouse units.

[48] The Defendants called as the ninth witness Emilio Manzo who was a partner in and head of the construction department of Maystar General Contractors Inc. (“Maystar”). He was a graduate of the construction engineering technology program at George Brown College. He became involved with the development in October 2004 initially to complete seven units which had been sold. Maystar was contracted to do this work by 1189875 which had taken an assignment of the MCAP first mortgage. He admitted he did not know who in particular was involved in providing services and material to the project therefore he was unable to identify anyone he saw on site. Maystar carried out the completion work through subcontractors. In chief there was an attempt to have Mr. Manzo testify about what trades he saw on site. Originally he testified he was not on site until sometime in October when he inspected the 7 units with Mr. Rego. Then later he testified he did not see any trades on site in September or October 2004. His evidence in this respect was murky and I do not accept it. I do accept his testimony to the extent he could recollect respecting the completion of six sold townhouse units (originally seven but a buyer backed out) and then in the fall and winter of 2005-6 completion of the remaining six unsold townhouse units. Significantly he stated that he didn’t use drawings and did not see the sub-trades drawings. On that basis he could not say whether work was or was not completed by prior trades. He could only testify as to what work Maystar contracted to do so that the remaining 12 townhouse units could be sold.

[49] The Defendants called as the tenth witness Gordon Robert McClellan a lawyer with Tanzola & Sorbara LLP. The solicitors for Realty. He had 27 years experience as a corporate and real estate lawyer and acted for Realty throughout. He identified the documentation relating to the two mortgages advanced by Realty to the Owner and their terms, the MCAP building mortgage, the flow of information from MCAP relating to advances and the various events and exchanges to and including the final sale of the last six townhouse units. Where corroborated by the documentary evidence I accept his testimony. However I do not accept his testimony relating to the December 23, 2004 holdback advance by 1189875 to Realty under 1189875’s first mortgage. Mr. McClellan attempted to portray it as a loan but no loan agreement was produced. All the documentation including the cheque paying over the funds from 1189875 to Realty described the payment as the holdback advance under the first mortgage. In cross examination he agreed it could be considered to be an advance under the first mortgage. Mr. McClellan quickly answered any questions put to him in chief. In cross-examination by contrast he would not admit almost anything claiming he had no recollection or that he never before saw what was being presented to him. In cross-examination he only answered when confronted with documentation that patently he had knowledge of. In considering the weight to be given to his testimony I have taken these factors into consideration.

[50] The Defendants called as the eleventh witness Carl Brown a vice-president with MCAP who was involved in the project’s funding by MCAP. He identified the MCAP commitment letters but admitted he had no direct involvement with Mr. Rego at the time of the commitment letters. Counsel for the Defendants led him extensively through his testimony respecting the commitment for the lending facility and what was involved thus diminishing any weight to be given to his testimony in this respect. He in turn just read the documents and had no independent knowledge of them. However by 2003 he was directly involved and supervising the building mortgage. From that point I accept his testimony concerning the advances MCAP made and the basis therefore.

[51] The Defendants called as the twelfth witness John D’Angelo the president of Realty. He stated that Realty was incorporated in 1995 as a limited partnership to invest in real estate projects as a lender or developer. He outlined the transaction with the Owner and the position that Realty eventually found itself in, that is subordinate to the other mortgagees as well as the transaction to purchase the building mortgage and the second mortgage and steps dealing with the remaining units thereafter. He gave his evidence in a straight forward manner admitting he was not sure of dates for events which took place. He also stated he was not involved in the details of the events and transactions which he outlined. I accept his testimony with those limitations.

[52] John Rego was the thirteenth witness. He was subpoenaed by the plaintiff to give evidence. His background was that of a real estate broker who had built a few homes. He testified that he was a shareholder of the Owner and co-ordinated the contracts, trades, the improvement and the development. He confirmed that the Owner gave the information to Helyar for the Helyar reports. He confirmed as far as he knew reports 1 to 12 were accurate. He also confirmed that the purchaser selected upgrades were not reflected in the Helyar reports. When the Helyar Report No. 13 was put to him he just read the numbers and did not have any personal knowledge of the contents although he stated as far as he could recollect the net holdback of $424,537.00 was not paid out by him on behalf of the Owner. At times he could not remember what took place. In particular in terms of the closing of the six units in January 2005 which had originally been sold by the Owner he had no recollection of how it came to be that the Owner executed the transfers at a time when the Owner was prohibited from doing so by the ONHWP legislation. What is clear from the documentary evidence is that he was involved with the improvement at least to the end of December 2004 and during that period dealt with both 1189875’s. and Realty’s representatives and lawyers in relation to the completion of the remaining 12 townhouse units and their sale. I accept his testimony that the Owner’s trades were working from April through to November 2004. I have weighed his testimony depending on its subject matter giving it less weight where his interests were directly in issue.

[53] The plaintiff called as the fourteenth witness David Somerville the author of the Helyar reports and proffered him as an expert on quantity surveying. He did not produce a “report” of his own but was relying on the Heleyar reports he prepared for MCAP. After hearing the evidence and submissions I found that he was not qualified to give opinion evidence as sought. Nonetheless he had a Bachelor of Science degree in quantity surveying from the Glasgow Caledonia University, had a professional quantity surveyor designation from the Canadian Institute of Quantity Surveyors and the Ontario Institute of Quantity Surveyors and in excess of 15 years experience as a quantity surveyor. He prepared and was the author of Helyar report No. 13[^3], the Construction Budget and Cost Report[^4] and the July 30, 2004 letter containing the Helyar Report No. 12 at November 30, 2003[^5] to and for MCAP based on the underlying project documentation and his site visits. He gave his fact evidence in a straight forward manner and when he could not recollect said so. I accept his factual evidence.

[54] The plaintiff called as the fifteenth witness John Edwin Butler to give evidence relating to the claim for lien of Quality. He was employed by Quality since 1973 and for the 10 to 12 years leading up to the trial he was the rug installation manager. He identified and verified Exhibit 40 itemizing the supply by Quality to the improvement for a total of $103,148.00. I accept his evidence which was given without hesitation and in a knowledgeable and forthright manner.

[55] Sam Abdalla was called by the Defendants as the sixteenth witness. He was qualified as a professional engineer in Ontario in 1988 and was the lead representative of ONHWP in respect of warranty issues and field inspections relating to sold units from May to early September 2004. He gave his testimony in a straight forward manner. Generally when he could not recollect an event or document he said so. However his memory was not perfect. He testified that from May to September 2004 he only saw the one Owner’s trade the landscape contractor. He nonetheless identified the E-Mail at Exhibit 23 Tab 19 from Gregory Marko to Patty Lutz advising that the builder’s (Owner’s) trades as well as ONHWP trades and individual unit owner’s trades were on site. On this basis I find I cannot rely on his testimony to categorically state who was or was not on site. I accept his evidence as to who he specifically saw on site.

Background Facts

[56] On the basis of the evidence before me I make the following findings of fact:

1. 1368036 Ontario Inc., John Rego’s company, entered into an agreement for the purchase of the premises in August 1999 for a price of $2,200,000.00 with The Society of Franciscan Fathers of Ontario. They in turn had purchased the premises from The Sisters of St. Joseph For The Diocese of Toronto In Upper Canada on May 28, 1999 for the sum of $1,835,000.00.

2. Mr. Rego and John Bargis struck a “partnership” arrangement for the development of the premises and on January 19, 2000 the agreement of purchase and sale for the premises the subject of the improvement was assigned by 1368036 Ontario Inc. to the Owner (1398796 Ontario Inc.). 1368036 was Mr. Rego’s company and it changed its name to Marketpoint Development Corporation.

3. On February 3, 2000 the architects, Core Architects Inc. started work on the improvement consisting of the construction of 61 town house units on 2.5 acres and 103 high rise units on the remaining 0.5 acres.

4. Sometime late in 2000 or early 2001 Mr. Rego and Mr. D’Angelo of Realty met when Mr. Rego was looking for financing to close the land purchase and fund its development with Mr. Rego as developer. The proposal was to first build townhouses and then use the balance of the land for high rise housing. Mr. Rego needed about $2,300,000.00 to close the land purchase as well as development money.

5. On February 1, 2001 Realty issued its proposal for credit facilities to the Owner attention of John Bargis consisting of two mortgages. The first mortgage was security for the Land Acquisition Facility in the amount of $2,300,000.00 plus the Land Acquisition Stand-by Fee in the amount of $49,220.00 with interest at 15% calculated and compounded monthly not in advance with a one year term. The second mortgage was security for the Development Facility in the amount of $2,000,000.00 plus a Stand-By Fee of $64,200.00 with interest at 15% calculated and compounded monthly not in advance with a two year term. Realty also agreed that its two mortgages would be subordinated to a bank mortgage standing first in priority not to exceed $30,000,000.00 with the initial advance from the bank mortgage used to pay the first mortgage and as well would be subordinated to a mortgage standing second securing a bond to comply with the requirements of the Ontario New Home Warranty Program then intended to be in the amount of $3,250.000.00. In addition John Bargis, Tina Bargis, John Rego, Cindy Rego and Marketpoint Development Corporation were required to guarantee the loan.

6. The effect of Realty’s proposal was that it was putting up the whole purchase price of the premises and providing a development facility over and above the building mortgage on the basis that the purchase price would be paid out of the first advance on the building mortgage.

7. On March 5, 2001 Realty funded $2,349,220.00 for its Land Acquisition Facility and $924,500.96 in respect of the first draw against the Development Facility. The $2,349,220.00 included the price for the premises, the standby fee to Realty a commission to Marketpoint, a payment to Con-Drain Company (1893) Limited in respect of contract #00719 plus an amount of $120,967.58 to the Owner. The development facility included both a stand-by fee and administration fee to Realty with the balance of $887,050.96 to the Owner. In the result Realty had provided funds to the Owner totaling $1,008,018.54 over and above fees payable to Realty and the purchase price and closing costs of the premises. There was no appraisal of the premises in hand at the time of these transactions.

8. On March 8, 2001 the purchase of the premises the subject of the improvement by the Owner closed.

9. On March 8, 2001 the first charge with Realty as mortgagee and the Owner as mortgagor in the amount of $2,349,220.00 was registered as Instrument No. E398105.

10. On March 8, 2001 the second charge with Realty as mortgagee and the Owner as mortgagor in the amount of $2,064,200.00 was registered as Instrument No. E398106.

11. At this point in time Realty, based on its advances under its two mortgages totaling $3,273,72096, had all the equity in the premises.

12. On March 8, 2001 a charge in the face amount of $2,200,000.00 with Marketpoint as mortgagee and 1398786 as mortgagor was registered as Instrument No. E398107. This charge was related to the dealings between Mr. Rego and Mr. Bargis.

13. On June 21, 2001 Independent Electric Supply Inc. registered a claim for lien against the premises in the amount of $102,423.60. This was probably related to site servicing.

14. On December 20, 2001 Marketpoint transferred its charge (Instrument No. E398107) to 1189875 Ontario Inc. (“1189875”) by transfer of charge registered as Instrument No. E490238. This was security for Mr. Maio putting up a letter of credit in the amount of $1,000,000.00 as part of the MCAP building loan requirements. Mr. Maio was also related in some fashion to Maystar. Maystar initially was considered by the Owner to build the project but the Owner then decided to use a construction superintendant and contract directly with the various trades.

15. On January 1, 2002 an appraisal directed to the Owner, Realty and MCAP was obtained of the premises to facilitate the building mortgage from MCAP.

16. On January 11, 2002 MCAP made an offer of facilities composed of a construction loan in the amount of $12,500,215.00 and a letter of credit in the amount of $750,000.00 to the owner care of Mr. Rego.

17. On January 14, 2002 Leone Fence Co. Ltd. registered a claim for lien against the premises for $28,711.40 for fencing.

18. On February 15, 2002 MCAP issued its commitment letter to the Owner on the basis that Realty’s first mortgage would be paid out and Realty’s second mortgage postponed with a further draw on the second mortgage of $980,127.39. The other mortgages on title had to be subordinated to that of MCAP. The commitment was for two loan facilities, the first for $12,590,215 non-revolving construction loan and the second a $750,000 letter of credit.

19. On February 21, 2002 Tagus entered into a contract with the Owner for the inside electrical work to the improvement relating to the 61 townhouse units for the total amount of $201,721.75 including $13,196.75 for 7% sales tax based on a quote sent February 2, 2002. The quote highlighted that any changes, because the ESA code was due to change in March 2002, would amount to an extra. Tagus also supplied an itemized fee schedule for extra work. Separately quoted was $150.00 for each Jacuzzi unit in 59 of the town house units not part of the contract. This was followed by various changes to pricing plus pricing for extras.

20. On April 9, 2002 MCAP amended its commitment to the Owner by adding a third facility in the amount of $552,898 as a non-revolving construction loan. It was an express term of the commitment that MCAP had “to receive satisfactory confirmation that the Borrower has injected $3.1 million of equity ($1.3MM land surplus; $600M Borrower’s Cash, $1.2MM Mezzanine Lender) into the project, which shall remain invested until such time as the Lender has been fully repaid all principal and interest.” Realty was fully aware of this requirement as its solicitors received a copy of the first commitment letter on February 15, 2004.

21. On April 12, 2002 a charge in the face amount of $15,000,000 was registered as Instrument No. E525353 with 1398786 as mortgagor and MCAP as mortgagee, the building mortgage.

22. MCAP in April 2002 gave a written acknowledgement and undertaking to Realty which provided, inter alia, that MCAP shall direct the Payment Certifier to deliver a copy of each Progress Certificate to Realty concurrently with the issuance of such Progress Certificate to MCAP. As a consequence Realty throughout was fully informed of all advances made under the building mortgage.

23. On April 12, 2002 1189875 by postponement agreement registered as Instrument No. E525355 postponed its charge registered as Instrument No. E398107 to the MCAP building mortgage.

24. On April 12, 2002 Realty by postponement agreement registered as Instrument No. E525356 postponed its charge registered as Instrument No. E398106 to the MCAP building mortgage.

25. On April 12, 2002 a charge in the face amount of $10,000,000 was registered as Instrument No. E525357 with 1398786 as mortgagor and London and Northern as mortgagees. The mortgagees in turn provided the necessary Owner’s security for ONHWP to permit the improvement to go ahead.

26. On April 12, 2002 Realty by postponement agreement registered as Instrument No. E525358 postponed its charge registered as Instrument No. E39816 to the London and Northern mortgage.

27. On April 12, 2002 1189875 by postponement agreement registered as Instrument No. E525359 postponed its charge registered as Instrument No. E398107 to the London and Northern mortgage.

28. At that point the priority of mortgagees was in the following order:

(i) MCAP Building Mortgage

(ii) London and Northern

(iii) Realty (its second charge); and

(iv) 1189875 (Mr. Maio’s company)

29. During the summer of 2003 Realty was advised by MCAP that there were considerable cost overruns in the project which required monies to be injected into the project by the Owner or Guarantor, Mr. Rego, as provided for in the Letter of Commitment. The cost overruns by September 9, 2003 totaled $410,000.00.

30. On October 31, 2003 Canning Construction Ltd. who had been acting as the construction manger/superintendant for the Owner gave notice of lien to MCAP.

31. On November 17, 2003 Core Architect Inc. registered claims for lien in the amounts of $40,000.00 and $30,000.00.

32. By December, 2003 the project was in difficulty from the Owner’s side. There was no full time site superintendent on site and no co-ordination between the trades was taking place.

33. On March 10, 2004 AT428474 the Owner registered the Condominium Declaration in relation to the townhouse improvement.

34. By April 2004, 49 of the 61 townhouse units were sold by the Owner.

35. On April 13, 2004 Mr. Rego had a package forwarded to Realty which consisted of MCAP’s discharge statements, listing of 49 sold townhouse units with closing dates and monies due on closing and a pro forma statement for the high rise portion of the improvement.

36. On April 16, 2004 A.F. Drywall registered as Instrument No. AT458946 a claim for lien.

37. MCAP’s final advance under its building mortgage was made on April 20, 2004. Also MCAP received the net proceeds of units which closed. After receipt of these funds MCAP was still owed about $1,100,000.00.

38. On April 22, 2004 Aya registered as Instruments No. AT463381 and AT463383 its claims for lien.

39. On April 28, 2004 registered as Instrument No. AT467132 was a discharge of A.F. Drywall’s claim for lien registered as Instrument No. AT458946.

40. On April 28, 2004 by Instrument No. AT467139 Aya postponed its claim for lien registered as AT463383 to MCAP’s building mortgage registered as Instrument No. E525353.

41. On May 3, 2004 RSG registered as Instrument No. AT474483 its claim for lien.

42. On May 3, 2004 Tarion with responsibility for the Ontario New Home Warranty Program (collectively “ONHWP”) in respect of the project had 16 open files relating to units which had been sold. Two related to common elements. Fourteen related to specific townhouse units with nine in conciliation, one at the claim stage and the remaining four in the complaint stage.

43. On May 4, 2004 ONHWP wrote to the Owner setting out its understanding of the state of the project. In particular it stated that it appeared that the Owner had abandoned the project as the site office was closed, no work appeared to being performed on site and the Owner was not participating in conciliation. Mr. Stevenson one of ONHWP representatives testifying before me had no personal knowledge of the truth of the contents of the letter or of the conclusions asserted in the letter nor was anyone called to prove the contents and conclusions set out in the letter.

44. On May 14, 2004 registered as Instrument No. AT485881 was a discharge of Aya’s claim for lien registered as Instrument No. AT463381.

45. On May 14, 2004 the Owner by fax requested that A.F. Drywall correct outstanding deficiencies identified at conciliation by Tarion under the Ontario New Home Warranty Program (“ONWHP”) in respect of nine townhouses.

46. On May 25, 2004 the Owner made a further request of A.F. Drywall that it do outstanding ONWHP warranty work.

47. On May 28, 2004 Quality registered as Instrument No. AT496976 its claim for lien.

48. On May 28, 2005 Mr. Rego met with ONHWP and advised that the builder was willing to honour its warranty obligations but because of outstanding liens and mismanagement by a previous construction manager numerous issues with trades and consultants had arisen which would lead to lawsuits.

49. On May 30, 2004 the Owner made a further request that it do the ONWHP warranty work set out in its May 14, 2004 request.

50. From May to early September the superintendent’s office at the improvement was not staffed.

51. On June 2, 2004 the Owner’s registration as a builder under ONHWP was up for renewal but the Owner did not seek a renewal such that its license expired and it was no longer a registered builder. The effect pursuant to the Ontario New Home Warranties Plan Act, R.S.O. 1990, Chapter O.31 was that it could no longer build or sell any unsold units. However, the act did not apply to its subcontractors as they had not undertaken the performance of all the work and supply of all the materials necessary to construct a completed home and as such did not fall within the definition of “builder” as set out in section 1. It appears that the lien claimants were free to complete any outstanding work and/or deficiencies in respect of any townhouse units which ONHWP was seized of.

52. On June 4, 2004 A.F. Drywall registered as Instrument No. AT507410 its claim for lien.

53. On June 11, 2004 RSG registered as Instrument No. AT512197 a certificate of action in respect of its claim for lien registered as Instruments Nos. AT474483, AT487257 & AT491108.

54. On June 11, 2004 Aya registered as Instrument No. AT514472 a certificate of action in respect of its claim for lien registered as Instrument No. AT463381.

55. On June 21, 2004 the Owner was put on notice by ONHWP by letter authored by Mr. Varcoe that it was in breach of its warranty obligations and was unable to fulfill its commitments to unit owners and the condominium and that ONHWP was exercising its authority to step in and honour the Owner’s warranty obligations. For that purpose ONHWP advised it would draw on the posted security. At that point ONHWP could deal with the townhouse units which had been sold, occupied and for which there were warranty claims and as well with warranty claims in respect of the common elements,. ONHWP however could not deal with the remaining unsold unoccupied units which the Owner was not entitled to sell as it was no longer registered as a builder.

56. On June 24, 2004 Sherwin registered as Instrument No. AT523911 its claim for lien.

57. On June 25, 2004 1406235 registered as Instrument No. AT526079 its claim for lien.

58. On June 25, 2004 Shaheen & Peaker Limited sent their Milestone Report No. 4 prepared by Mr. Isacco and their final Report of even date to ONHWP with copies to Mr. Rego and to Helyar. Report No. 4 consisted of stating that the prior reports prepared by others required follow-up in respect of EIFS (Stucco) and roofing. The Final report indicated numerous deficiencies. In relation to fire safety systems it did not opine on it but stated that there was no consultant certification at the time final report prepared. In relation to mechanical, electrical and site work it stated the work was “Not Complete” and that “No Consultant Certification at time final report prepared.”

59. On July 5, 2004 Quality registered as Instrument No. AT5534645 its claim for lien.

60. On July 8, 2004 Shaeen & Peaker reported to Mr. Rego after an inspection of the common element deficiencies that “A significant amount of work is still required to be completed at the development as detailed in this report.”

61. By communiqué dated July 9, 2004 ONHWP advised that the Owner’s trades need not be given access to complete warranty work but homeowners could allow them in prior to a ONHWP claims inspection. After an inspection ONHWP advised that the Owner’s trades may not enter to complete deficiencies or unfinished work relating to the these townhouse units. In respect of common elements ONHWP stated it agreed to allow the Owner’s trades to complete common element work under their contracts where they are willing. There was no evidence before me to demonstrate that the communiqué was brought to the lien claimants’ attention by ONHWP or the Owner. ONHWP could not prohibit access to the unsold units as there were no warranty claims relating to those units.

62. On July 19, 2004 A.F. Drywall registered as Instrument No. AT550208 a certificate of action in respect of its claim for lien registered as Instrument No. AT507410.

63. On July 26, 2004 on site were the Owner’s trades, ONHWP trades and individual unit owner’s trades. ONHWP proposed to control access to the site by all trades. ONHWP appeared to be proceeding on the basis that they had control of all 61 townhouse units whereas in reality they only had control of those with warranty claims. The lien claimant contractors were still entitled to deal with the units not yet under the control of ONWHP.

64. On July 28, 2004 ONHWP entered into a contract with Building Sciences Inc. to do a review, prepare repair specifications and provide supervision and contract administration for warranty work.

65. On July 30, 2004 Helyar delivered to MCAP its Report on the Status of Project Number 12 as of November 30, 2003 with copies to the Owner c/o Mr. Rego, St. Paul Guarantee Insurance Company c/o Mr. Freedman and Realty c/o Mr. D’Angelo.

66. On August 6, 2004 1406235 registered as Instrument No.AT569316 a certificate of action in respect of its claim for lien registered as Instrument No. AT526079.

67. On August 11, 2004 MCAP transferred its charge (Instrument No. E525353 the building mortgage) by transfer of charge registered as Instrument No. AT572297 to 1189875, Joe Maio’s company on payment of the balance outstanding to MCAP. At that point Mr. Maio’s company was on the hook to pay out $1,000,000.00 to MCAP pursuant to its letter of credit[^6] for which it had mortgage security in fourth position against the premises.

68. On August 16, 2004 Helyar delivered to MCAP its Report No. 13 of the status of the project as of March 18, 2004 with copies to the Owner c/o Mr. Rego, St. Paul Guarantee Insurance Company c/o Mr. Freedman and Realty c/o Mr. D’Angelo. The report identified net holdback as of March 18, 2004 as $425,537.00. 1189875 and Realty knew work had taken place after that date and as such the holdback would have increased. Also they knew from the Report that in respect of a number of contractors gross holdback and released holdback was not determined which also could increase the Owner’s holdback obligations.

69. On August 23, 2004 an E-Mail on behalf of Mr. Rego was sent to Mr. Maio’s lawyer who forwarded it to Mr. Maio on August 25, 2004. Set out therein was the status of the remaining townhouse units. It also pointed out that the projected proceeds from the four townhouse units closest to closing was over $1,100,000.00. It also outlined steps that had to be taken to close the units both in respect of the then outstanding lien claims and work.

70. By the end of August 2004 Realty found itself in a position subordinate to all the other mortgagees on title with the Owner not in a position to proceed further with the improvement. There were twelve units left of which seven had agreements of purchase and sale with the closings outstanding. All required work so as to be in a condition to be closed or sold as the case might be. The Owner because it lost its ONHWP registration was not in a legal position itself to complete the units or to sell the remaining five units without agreements of purchase and sale. Mr. D’Angelo confirmed that Realty relied on the Helyar reports and had no reason to doubt their accuracy. MCAP had assigned its building mortgage to Mr. Maio’s company, 1189875.

71. Starting roughly in September, 2004 ONHWP took the necessary steps to rectify the portions of the development they had control over or if the deficiency related to a unit to settle the unit owner’s claims as it was required to do. In that respect Mr. Stevenson confirmed that ONHWP was not involved in dealing with the remaining unoccupied 12 townhouse units and would not deal with those units until they were occupied and warranty claims were advanced by the purchasers.

72. As of October 1, 2004 ONHWP knew that there were empty units on site which it was not dealing with.

73. Also as of October 1, 2004, 1189875 was anxious to close the seven sold units. 1189875 stepped into the Owner’s shoes and took steps to rectify deficiencies and complete the seven units which had been sold by the Owner utilizing the services of Maystar. At that point 1189875 could have utilized the provisions of section 68 and applied to have a trustee appointed who as contemplated by the Act could have completed the improvement and sold the remaining townhouse units and the high rise lands.

74. The advances made by 1189875 to rectify and complete the seven sold units up to January 5, 2005 when the order vacating the liens on the posting of section 44(1) security by Realty was registered were made in the face of preserved and perfected liens a charge against the premises and as such ran afoul of subsection 78(6) with the result that the preserved construction liens stood in priority to such advances assuming they were proper advances under the mortgage. The advances for this purpose were not made to the Owner and on their face were not advances in relation to the preservation and/or protection of the property such as a payment for insurance.

75. On October 7, 2004 Andrew registered as Instrument No. AT624695 its claim for lien.

76. During October Mr. Manzo on behalf of Maystar with Mr. Rego walked through the seven sold townhouse to ascertain the amount of interior work required to be done to complete them. Mr. Manzo noted the extent of the interior work required to be completed. He then called his trades and got quotes. On November 1, 2004 Maystar commenced work using its subcontractors.

77. One of the seven townhouse purchasers backed out leaving six if completed available to be closed.

78. On November 5, 2004 2011940 registered as Instrument No. AT650870 its claim for lien.

79. On November 05, 2004 690536 registered as Instrument No. AT650910 its claim for lien.

80. On November 5, 2004 Tagus registered as Instrument No. AT651026 its claim for lien.

81. On November 23, 2004 Andrew registered as Instrument No. AT663963 a certificate of action in respect of its claim for lien registered as Instrument No. AT624695.

82. On November 29, 2004 Andrew registered as Instrument No. AT669364 another claim for lien.

83. On November 29, 2004 in advance of a December 1, 2004 meeting the lawyers for the parties attending the meeting received a draft statement of adjustments for the six townhouse units subject to agreements of purchase and sale with closings scheduled for December 7,2004 and a schedule of amounts owing in respect of registered constructions liens and other amounts owing.

84. On December 1, 2004 Mr. Rego for the owner, Mr. Maio for 1189875 now the first and fourth mortgagee, Mr. Friedman and Mr. Pearce for the St. Paul Guarantee Insurance Company the second mortgagee[^7] and Mr. McClellan for Realty the third mortgagee as well as their lawyers met and decided on a course of action for the completion of the sale of the six units subject to agreements of purchase and sale and a going forward course of action for the six remaining unsold units. The first and fourth mortgagee had contracted for $309,465.00 worth of work to make the six units ready for closing. The work had not yet been billed or paid but I find as liability had been incurred for it and 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)[^8]. The parties agreed the closings would proceed on the basis that ONHWP could inspect for deficiencies prior to closing as arranged by Mr. Rego and Mr. Maio. Mr. McClellan agreed to recommend that Realty post section 44(1) security to permit the closings free from lien claims with the first mortgagee advancing the current holdback of $424,533.00 to Realty to facilitate the posting of subsection 44(1) security on the basis that this holdback amount would be reimbursed to the first mortgagee from the closing of the first six units. Mr. McClelland admitted that a fair characterization of the payment of the $424,533.00 to realty by the first mortgagee was as an advance under the first mortgage. Again this dispersal of monies by both the first mortgagee and the third mortgagee can amount to advances on their respective mortgages as the monies were to be recouped from the sale of the remaining premises and runs afoul of subsection 78(6) such that the lien claimants stand in priority to such advances. Both mortgagees chose not to appoint a trustee for these actions as contemplated by section 68 of the Act. The parties then agreed that the flow of funds after expenses would be paid to the first mortgagee. Of these funds I find that the advances by the first mortgagee of the $309,465.00 for repair and completion work and the holdback funds are subject to priority in favour of the lien claimants if their claims to lien remained a charge on the Owner’s interest in the premises and assuming they were a proper advance under the two mortgages. In particular the advance of $424,533.00 by 1189875 to Realty on its face appears to be a loan to realty not an advance under the mortgage and funds from the sale of the six townhouses should not have been used to repay it.

85. None of the four mortgagees to enable closing of the remaining townhouse units free from the lien claims to priority under subsections 78(2) and (5) considered registering security pursuant to subsection 78(10) but agreed to the posting of security pursuant to section 44(1). Once such security was posted the lien claims no longer were a charge on the Owner’s interest in the premises and on the holdbacks but rather became a charge on the posted security.

86. By letter dated December 23, 2004 from the solicitor for 1189875 to Realty care of Mr. McClellan the agreement struck respecting the mortgagees actions to effect sale of the six units subject to agreements of purchase and sale was set out. The $424,533.00 advance was characterized as holdback to be paid out of the proceeds in priority to all other mortgages, The advance made by the first mortgagee to rectify and complete the six units was also to be paid to the first mortgagee in priority to all other mortgages.

87. On December 16, 2004 Andrew registered as Instrument No. AT686620 a certificate of action in respect of its claim for lien registered as Instrument No. AT669364.

88. On December 21, 2004 Rafat registered as Instrument No. AT691506 its claim for lien.

89. On December 30, 2004 Tagus registered as Instrument No. AT697951 a certificate of action in respect of its claim for lien registered as Instrument No. AT6510926.

90. On December 30, 2004 Realty posted security in the amount of $978,588.74 pursuant to subsection 44(1) for the 14 claims for lien registered on title by 11 lien claimants Herman J. ordered that the 14 claims for lien be vacated. At that point in time Realty was a subsequent mortgagee as contemplated by subsection 78(5). If Realty had registered security as provided for in subsection 78(10) to permit those taking title from it to take title free of the priority of the claim for liens registered on title created by subsections 78(2) and 78(5) such security would have been in the amount of $500,212.10 based on 20 per cent of the contract price set out by the 11 lien claimants in their 14 claims for lien. The security which was posted by Realty consisted of two letters of credit, one in the amount of the holdback which had been advanced, $424,533.00 and the other in the amount of $554,055.74.

91. On December 30, 2004 690536 registered as Instrument No. AT697985 a certificate of action in respect of its claim for lien registered as Instrument No. AT650910.

92. On December 30, 2004 2011940 registered as Instrument No. AT698002 a certificate of action in respect of its claim for lien registered as Instrument No. AT650870.

93. On January 5, 2005 Realty registered as Instrument No. AT699858 as against a portion of the premises the subject of the improvement as an amendment to the register the order of Herman J. providing that the 14 claims from lien be vacated from title. On registration the vacated liens became a charge on the posted security in lieu of a charge upon the interest of the Owner in these premises the subject of the improvement and upon the holdbacks, As a consequence the Owner, Realty, 1189875 and London and Northern could all deal with these premises free of any of the registered claims for lien.

94. January 14, 2005 Maystar advised 1189875’s lawyer that the cost for the work to the townhouse units subject to agreements of purchase and sale was $309,465.00. On the same day the lawyer was ready to close six townhouse units as the seventh purchaser had backed out of his transaction.

95. A discharge statement for the sale of the first mortgage to Realty was prepared as of January 14, 2005. Listed thereon was the sum of $424,533.00 as the holdback advance made on December 23, 2004 from 1189875 to Realty to assist in posting the subsection 44(1) security. Interest was charged thereon at the same rate as set out in the first mortgage. I find that the $424,533.00 was at best an advance under the first mortgage made as of December 23, 2004 (date of the cheque) and at worst a loan as noted above to Realty. Similarly listed as advance and bearing interest at the first mortgage rate was the construction completion advance (payment of Maystar) as of January 2, 2005. Both were represented as advances under the first mortgage and as they are subject to the priority of the lien claims pursuant to application of subsection 78(6) I need not address their true nature. I also note that the advances were made before the subsection 44(1) security was registered on title and in the case of the holdback advance before the subsection 44(1) order was made. The revised discharge statement as of the same date made no changes in respect of the description of the two advances, the date of each and the amount of each.

96. On January 17, 2005 Realty registered as Instrument No. AT709083 as against the remaining premises the subject of the improvement as an amendment to the register the order of Herman J. providing that the 14 claims for lien be vacated from title. On registration the vacated liens became a charge on the posted security in lieu of a charge upon the interest of the Owner in the remaining premises the subject of the improvement and upon the holdbacks. As a consequence the Owner, Realty, 1189875 and London and Northern could deal with the remaining premises free of any of the registered claims for lien.

97. On January 19, 2005 Townhouse Unit 11 was transferred by the Owner to the purchaser.

98. On January 21, 2005 Townhouse Unit 10 was transferred by the Owner to the purchaser.

99. Both of these townhouse units could be transferred by the Owner free of the lien claims as once the subsection 44(1) security was posted the lien claims were no longer a charge on the premises but rather the lien claims instead became a charge on the security posted.

100. The other four townhouse units where there were subsisting agreements of purchase and sale likely were transferred in a similar fashion leaving the remaining six unsold townhouse units to be dealt with.

101. When Mr. Rego was questioned about these transfers he could not say how they happened. I do not accept his testimony. It appears from August 2004 on Mr. Rego was assisting in the disposition of the remaining 12 units by all four mortgagees. 1189875 once it had an assignment of the first mortgage from MCAP stepped into the shoes of the Owner and paid Maystar to complete the six units which the purchasers were willing to close. Realty as well was involved and posted the subsection 44(1) security to enable the closings to take place. Neither 1189875 nor Realty acted pursuant to their mortgages to foreclose and sell the properties nor to have a trustee appointed pursuant to section 68 but rather stepped into the role of owner in such disposition by ensuring the sales could take place by advancing funds to complete the units and to assist in the posting of security in the case of 1189875 and by posting security in the case of Realty. Although the owner purported to transfer the units Mr. Rego could not say where the proceeds went.

102. St. Paul Guarantee Insurance Company and Northern prepared a Notice of Sale Under Mortgage dated January 27, 2005. It was only directed to two lien claimants, Quality and Sherman, the Owner and Realty and the guarantors. As the lien claimants no longer had a charge against the owner’s interest in the premises it did not have to be directed to any of the lien claimants.

103. Realty prepared a Notice of sale Under mortgage dated February 9, 2005. It too was only directed to two of the lien claimants, Quality and Sherman. Mr. McClelland stated it was delivered in order to create a vehicle by which the remaining six units could be conveyed. As the lien claimants no longer had a charge against the owner’s interest in the premises it did not have to be directed to any of the lien claimants.

104. St. Paul Guarantee Insurance Company and Northern issued a discharge statement for their mortgage as of April 15, 2005 in the amount of $1,032,192.09

105. As of May 6, 2005 Mr. Varcoe on behalf of ONHWP was negotiating with Realty’s solicitors to solve the disposition of the remaining six townhouse units on the basis that a company would be registered with ONHWP for the sole purpose of disposing of the six units. Realty’s solicitors responded reviewing the terms on behalf of Realty and confirming that only six units remained to be sold.

106. On June 6, 2005 1189875”s lawyer confirmed that Realty was taking an assignment of the first mortgage from 1189875 with a June 17, 2005 closing and that the last six townhouse units would be completed by Maystar with an estimated cost to complete of $245,700.00.

107. On July 6, 2005 Realty entered into an agreement with 1189875 to purchase the first mortgage which 1189875 had purchased from MCAP with a closing on July, 2005. The agreement provided that Realty agreed to defendant at its expense any existing or future lien actions with regard to the premises which named any of 1189875, Realty or MCAP as defendants. Included as part of the purchase price was “holdback advance” in the amount of $426,533.00 plus interest and a “construction completion advance” of $331,127.55 plus interest. The amount for holdback was that identified as of March 18, 2004 in Helyar Report Number 13 with its qualifications as noted above.

108. On June 29, 2005 Realty entered into an agreement with St. Paul Guarantee Insurance Company to purchase the second mortgage relating to the ONHWP bonding with an updated discharge statement as of July 6, 2005 in the amount of $1,086,001.09.

109. On July 6, 2005 by transfer of charge registered as Instrument No. AT853901 St. Paul Guarantee transferred its charge registered as Instrument E525357, the London and Northern ONHWP security mortgage, to Realty.

110. On August 8, 2005 by transfer of charge registered as Instrument No. AT885816 1189875 transferred its charge registered as Instrument No. E525353 (the first mortgage) to Realty.

111. As of August 8, 2005 Realty was the mortgagee of the following charges: the building mortgage, the London and Northern ONHWP security mortgage and the second charge in its favour. At that point it became clear that Realty’s plan to maximize recovery by it in relation to the improvement was to have the first six units subject to agreements of purchase sale sold to pay down the first mortgage, then to obtain an assignment of it and the second mortgage followed by continuing in the role of owner to have the remaining six units completed and sold together with a sale of the high rise lands.

112. On August 19, 2005 Marmellata Investments Inc. was advised by Pat Varcoe on behalf of ONHWP that if it accepted the conditions set out it would be registered to build, market and sell the six remaining units but that until approval was given it could not build, market or sell. On August 26, 2005 it accepted the terms and conditions. The letter also stated that the completion of the six units would be carried out by Maystar.

113. On September 19, 2005 as evidenced by Instrument No. AT924757 Realty transferred its second charge[^9] Instrument No. E398106 to Marmellata Investments Inc. a company controlled by Realty.

114. On September 20, 2005 written notice was given to the Owner and others that Realty was the owner of the first and second mortgages on title and that Marmellata Investments Inc. was the owner of the third mortgage and that it was proceeding to sell the remaining premises pursuant to the Power of Sale. Notice was only given to Quality and Sherwin lien claimants and not to any of the other lien claimants before me. As the section 44(1) security was posted the lien claimants no longer had a charge against the premises and thus notice to them was not needed.

115. Maystar on October 17, 2005 obtained a quote for additional completion costs related to Mechanical work in the amount of $69,750 plus GST.

116. Maystar’s charges for the completion of the remaining 6 townhouse units totaled $339,671.50 and were paid by Marmellata Investments Inc. through the spring of 2006 by a number of payments.

117. After completion of Maystar’s work the sale of the remaining six units took place in 2006 with the last closing on August 25, 2006.

118. Marmellata Investments Inc. also sold the remaining lands designated for the high rise portion of the improvement for $2,600,000.00. As a consequence it was admitted that Realty received a total of approximately $4,200,000.00 from the sale of the last six townhouses and the high rise premises.

119. No detailed summary was tendered by the Defendants to detail the steps taken by 1189875 and Realty and then Realty alone to realize on their security once the Owner was in default including no particulars of the charges on each of the mortgages and the monies received from the sale of the 12 townhouse units and the high rise premises. On the evidence before me I find that included as advances and as part of the monies allegedly owing on the mortgages were $309,465.00 paid to Maystar for completion of the townhouse units subject to agreements of purchase and sale, $426,533.00 advanced to Realty to assist in posting the subsection 44(1) security,[^10] and $339,671.50 for completion of the remaining six units together with interest thereon.

Timeliness and Quantum of the Claims For Lien and Quantum of Holdback

[57] There is agreement between all parties that each lien claimant dealt directly with the Owner and that each claimant was a “contractor” as defined in subsection 1(1) of the Construction Lien Act. There is also agreement that no certificate or declaration of the substantial performance of each of the lien claimants’ contracts was published. There is also agreement that subsection 31(2)(b) of the Act governs the determination of the timeliness of each of the lien claims such that the lien claims had to be preserved within forty-five days following the occurrence of the earlier of the date the contract was completed and the date the contract was abandoned.

[58] Subsection 2(3) provides that for the purposes of the Act a contract is deemed completed and services or materials are deemed to be last supplied when the price of completion, correction of a known defect or last supply is not more than the lesser of 1 per cent of the contract price and $1,000.00. This provision was not put in issue before me. Realty did not rely on it to challenge the timeliness of any of the liens. I note that in Glaholt & Keeshan annual Annotated Ontario Construction Lien Act their commentary on subsection 2(3) includes the following statement: “The scale of modern construction renders this definition almost meaningless.” which may account for the provision not being put in issue before me given the overall cost of the improvement and the amount of work completed by Maystar in relation to the twelve remaining units.

[59] The determination of whether a claim for lien is timely in the case of each of the claims for lien which Realty does not admit are timely involves a factual determination of the earlier of the date the contract was completed and the date the contract was abandoned. The onus is on a lien claimant to prove timeliness on a balance of probabilities.

[60] The determination of the quantum of each of the claims for lien and amounts outstanding which Realty does not admit involves a factual determination of the work, services and materials supplied by the lien claimant to the improvement and the unpaid amount thereof. The onus is on the lien claimant to prove quantum on a balance of probabilities.

[61] Realty cited a number of decisions relating to the interpretation of the word “abandonment” as used in subsection 31(2)(b). First cited was Dielman Planner Co. v. Elizabeth Townhouses Ltd., [1975] 2 S.C.R. 449 where Judson J. delivering the judgment of the court dismissing the appeal agreed with Seaton J.A. where he held:

… in my view cessation of work and abandonment are not necessarily co-existent. In order to constitute abandonment a cessation of work would have to be permanent in the sense that it was not intended to carry the project to completion.

Next Realty cited Paris Construction Co. v. J A V Residences Ltd. [1985] O.J. No. 1818 where Fanjoy L.J.S.C. relied on Dielman and upon Riddell J. who stated at p. 570 in Anderson v. Fort William Commercial Chambers Ltd. (1915), 34 O.L.R. 567:

An abandonment of the contract contemplated by this section is, not leaving a work under the belief that the contract is completed, but knowing or believing that the contract was not completed, declining to go on and complete it.

Next Realty relied upon D’Andrea Developments Inc. v. Farnham Development Corp. [1992] O.J. No. 2518 wherein Jenkins J. followed Paris. Next cited was Master Sandler in Economark Renovations Ltd. v. Hecht-Kugelmass [1993] O.J. No. 2986 where he stated at paragraph 33:

An “abandonment” by a contractor, within the Construction Lien Act, can come about through the blameworthy acts of “repudiation” or “breach”, or by the non-blameworthy, i.e. innocent acts of acceptance of an owner’s repudiation, and the resulting recision or termination of the contract, or by mutual agreement, or, possibly, even by frustration of the contract.[^11]

Next Realty relies upon Lake of the Woods Electric (Kenora) Ltd. v. Kenora Prospectors and Miners Ltd. [1996] O.J. No. 1349 where Stach J. stated at paragraph 49:

Although optimism as a characteristic ought not to be too readily blighted, there does come a time when reasonable people ought to conclude that a project is at an end, indeed, in the legal sense of having been “abandoned”. In point of fact, some of the plaintiffs appear to have concluded that the project eventually be regarded as abandoned.

Lastly on this issue Realty relies upon the decision of Backhouse J. in San-Mar Services Inc. v. Araneida Ltd. [2000] O.J. No. 3531 as approving of the quote from Economark. However, Backhouse J. after quoting the passage from Economark went on at paragraph 8 to state:

While not every stoppage of work can be equated with abandonment, it is clear from the evidence that neither party intended to carry the project to completion after May 1999.

[62] My review of each of these decisions leads me to conclude that in respect of all of the interpretations of the word “abandonment” cited there has to be a factual determination on the evidence of whether abandonment occurred just as Backhouse J. concluded. In my determination in each instance where Realty alleges that the lien of a contractor was not timely I have considered the interpretations set out above in light of the underlying evidence. As noted in the first instance the onus is on the lien claimant to demonstrate timeliness on a balance of probabilities.

[63] Also at issue before me is the quantum of holdback which the Owner was required to retain. The amount relates to the Defendants’ position that the lien claimants are only entitled pursuant to subsections 78(2) and 78(5) to priority to the extent of any deficiency in the holdbacks required to be retained by the Owner under Part IV.

[64] Realty relied upon the decision of Killeen J. in Boehmers v. 794561 Ontario Inc., [1993] O.J. 1805 wherein the issue of priorities arose between a mortgagee and lien claimants in respect of advances under a building mortgage and wherein he stated in relation to determination of priorities between lien claimants and mortgagees to the Owner’s interest in the premises:

Section 78(1) is the overreaching principle of the new regime of the Act for the determination of priorities. It is, if you will, the central interpretative principle for adjudication of conflicts of the type before the Court in this case. Surely in cases of conflict, as here, the burden must be on the mortgagee to persuade the Court that it somehow falls clearly within a specified exception to the generalized priority of liens.

[65] In Belmar Sheet Metal Co. v. 849539 Ontario Inc. [1995] O.J. No. 2519 Klowak J. was faced with a similar question of whose burden it was, but in relation to establishing the amount of the holdback. She concluded at paragraphs 42 to 44 that it was the responsibility of the person asserting a limitation of liability for holdback.

[66] On the basis of Boehmers relied upon by Realty and on the basis of Belmar I find that the burden is on the Defendants to demonstrate on a balance of probabilities that Realty and/or MCAP “falls clearly within a specified exception to the generalized priority of liens” set out in subsection 78(1) and the amount of their priority, that is the amount of their mortgages and the extent of any deficiency in the holdbacks required to be retained by the Owner under Part IV. In respect of holdback I note that the plaintiff argues that the amount for work done after March 18, 2004 should be taken into account in calculating the holdback amounts and the extent of any deficiency in holdbacks required to be retained by the Owner under Part IV. I agree as the supply to the improvement by some of the lien claimants and other contractors continued after March 18, 2004.

[67] On that basis I propose to deal with timeliness, quantum and deficiency in holdback in respect of each of the lien claims before me. The extent of the deficiency of the holdbacks required to be retained by the Owner under Part IV however are not limited to those attributable to each of the lien claimants before me but as well include holdbacks attributable to other contractors supplying the improvement whose holdback amounts have not been paid out in keeping with the requirements of the Construction Lien Act.

[19] On June 4, 2007 at the fifth pre-trial for directions Rafat admitted that its claim for lien was out of time. At trial no evidence was introduced to refute its admission. On that basis I find that the claim for lien of Rafat was not timely and as such Rafat has not proven a claim for lien in any amount.

[68] The Defendants did not adduce any evidence directly relating to the extent of the deficiency in holdback required to be retained by the Owner under Part IV relating to Rafat. However the Helyar Reports Nos. 12 and 13 were in evidence before me. Report No. 13 set out that the contract amount for Rafat was $21,720.00 and that it was fully incurred. No amount was given for gross, released or net holdback in the Report. Rafat’s claim for lien was in the amount of $53,078.38 for waste disposal services but no evidence was adduced before me to support that claim. The Defendants had the onus of proof to demonstrate that the amount, if any, of the extent of the deficiency in holdback and chose not to address the issue. The Defendants by not addressing this issue by evidence have not fulfilled their onus by evidence. The inference is and I find that they were content to have the issue decided on the evidence otherwise adduced before me on this issue. On the basis of the evidence before me, including Helyar Report No. 13, I find that the extent of the deficiency in holdbacks required to be retained by the Owner under Part IV in relation to Rafat is 10% of $21,720.00, that is $2,172.00.

Aya Kitchens and Baths Limited Claim for Lien

[69] Realty at the opening of trial advised that it had settled the Aya claim for lien and that it had taken an assignment of Aya’s claim for lien. Realty in its written submissions accepted the timeliness and quantum of Aya’s claim for lien. The plaintiff in its written submissions confirmed that the other lien claimants did not contest the timeliness or quantum of Aya’s claim and that it was agreed that the total value of Aya’s supply was $215,400.00, that the quantum of its claim for lien was $36,564.15 and that the deficiency in holdback required to be retained by the Owner was $21,540.00. On that basis I find that Aya’s claim for lien was timely and that the proven quantum of its claim for lien is $35,564.15 and that the deficiency in holdback required to be retained by the Owner for its supply was $21,450.00.

[70] In addition I find that Aya is entitled to personal judgment against the Owner for the proven amount of its claim for lien, $36,564.15.

Andrew Paving & Engineering Ltd. Claim for Lien

[71] Realty at the opening of trial advised that it had settled the Andrew claim for lien and that it had taken an assignment of Andrew’s claim for lien. Realty in its written submissions accepted the timeliness and quantum of Andrew’s claim for lien. The plaintiff in its written submissions confirmed that the other lien claimants did not contest the quantum or timeliness of Andrew’s claim for lien and that it was agreed that the total value of the supply by Andrew was $334,850.00, that the quantum of its claim for lien was $144,470.45 and that the deficiency in holdback required to be retained by the Owner was $33,485.00. On this basis I find that the total value of Andrew’s work was $334,850.00, that Andrew’s claim for lien was timely and that the total proven quantum of Andrew’s claim for lien is $144,470.45 and that the deficiency in holdback required to be retained by the Owner for its supply was $33,485.00.

[72] In addition I find that Andrew is entitled to personal judgment against the Owner for the proven amount of its claim for lien, $144,470.45.

1406235 Ontario Limited (Woodcraft Railings) Claim for Lien

[73] At the 4th pre-trial for directions on January 5, 2007 Realty accepted the timeliness and quantum of 1406235 claim for lien. At the opening of trial Realty advised it had settled with 1406235 and had taken an assignment of 1406235’s claim for lien. The plaintiff in its written submissions stated that it was agreed that the total value of 1406235’s supply was $107,954.00, that the quantum of its claim for lien was $19,941.62 and that the deficiency in holdback required to be retained by the Owner for its supply was $10,795.40 and I so find.

[74] In addition I find that 1406235 is entitled to personal judgment against the Owner for the proven amount of its claim for lien, $19,941.62.

The Sherwin Williams Company Inc. Claim for Lien

[75] Realty at the opening of trial advised that it had settled the Sherwin claim for lien but that Sherwin did not give an assignment of the claim for lien rather it was to be discharged. There was no evidence tendered in respect of timeliness or quantum of this claim for lien. There was no holdback attributed to this claim for lien in the Helyar Report No. 13 as of March 18, 2004 but it was set out that $13,425.00 of costs had been incurred.

[76] Sherwin’s claim for lien was for $8,094.11 for a supply between January 14, 2004 and May 14, 2004. The contract price was not set out in the claim for lien but was in the Helyar Report No. 13 as $15,735.00. Taking into account the evidence before me the inference is and I find that the supply carried on after March 18, 2004 to complete the contract that is a further supply of $2,310.00.

[77] The Defendants did not adduce any evidence relating to the deficiency in holdback required to be retained by the Owner under Part IV in respect of the Sherwin claim. They provided no evidence relating to the basis for the settlement. The Defendants cannot escape their onus to prove the amount of deficiency if any by inaction. On the basis of the evidence before me I find the total supply to be $15,735.00 and that the deficiency in the holdback is 10% of that amount, $1,573.50.

[78] On the basis of the evidence before me I find this claim for lien not to be made out as to either quantum or timeliness but in respect of the deficiency in holdback required to be retained by the Owner for this supply pursuant to part IV I find it to be 10% of $15.735.00, that is $1,573.50.

RSG Mechanical Incorporated Claims for Lien (the Plaintiff)

[79] At the 4th pre-trial for directions on January 5, 2007 Realty accepted the timeliness of the plaintiff’s claim for lien but not the quantum. During the testimony of Mr. Zabanah the president of RSG I was advised that it was agreed by the parties before me that the total value of the plaintiff’s work was $865,000.00, that the total amount owing to the plaintiff was $245,000.00 and that the deficiency in holdback required to be retained by the Owner for the plaintiff’s supply was $86,500.00. In its written submissions Realty stated that in relation to the plaintiff it “has accepted the timeliness and quantum as well as the amounts outstanding…” Given the advice received by me during the 4th pre-trial for directions and at trial and the statements by Realty in its written submissions I find that the plaintiff’s claim is timely and that the proven quantum of the plaintiff’s claim for lien is $245,000.00 and that the deficiency in holdback required to be retained by the Owner is $86,500.00.

[80] I need not address the Owner’s monetary liability to the plaintiff as the plaintiff previously obtained judgment against the Owner.

Quality Rugs of Canada Limited Claim for Lien

[81] At the 4th pre-trial for directions on January 5, 2007 Realty accepted the timeliness of and quantum of Quality’s claim for lien but there was no agreement as to the value of the work done by Quality. During the trial leave was granted to Quality to amend its statement of claim. On October 2, 2008 and again on the last day of trial I was advised that there was agreement by the parties that the total value of the work done by Quality was $103,148.00, the total payments made were $62,774.37 leaving a balance outstanding of $40,373.63. On that basis I find that Quality’s claim for lien was timely, that its proven claim for lien is $40,373.63 and that the deficiency in holdback required to be retained by the Owner for this supply is $10,314.80.

[82] In addition I find that Quality is entitled to personal judgment against the Owner for the proven amount of its claim for lien, $40,373.63.

690536 Ontario Inc. (TC Bricklayers) Claim for Lien

[83] Realty did not agree as to either the timeliness or quantum of 690536’ claim for lien.

[84] 690536’s claim for lien was registered on November 5, 2004 in the amount of $4,850.00 inclusive of GST for “cement parging and installation of blocks behind slabs of verandas” during the period August 14, 2004 to October 4, 2004. Accordingly for the lien to be preserved in time the date the contract was completed or the date the contract was abandoned could be no earlier than August 20, 2004.

[85] 690536 entered into a contract with the Owner on March 19, 2002 for a price of $667,579.42 for the masonry work on the improvement. Mr. Da Costa agreed that pursuant to change orders the contract price by October 2, 2003 was reduced to $618,862.85 plus GST. The evidence before me demonstrates and I find that TC Bricklayers was the masonry contractor for the improvement pursuant to a contract with the Owner dated March 19, 2002[^12] at a tax included price of $667,579.42.

[86] The Helyar Report No. 13 set out that as of March 18, 2004 the contract price was $582,933.00 that the supply amounted to $580,433.00 and that the holdback of $58,043.00 was fully released. On that basis there was about $2,500.00 of the contract left to be completed by 690536.

[87] In contrast to the Helyar Report is 690536’s invoice number 436 dated December 16, 2003 in the amount of $65,185.00 plus GST for the release of holdback as admitted by Mr. da Costa. 690536 did not advance a claim for any outstanding amount either for holdback or on the contract for services performed prior to August 14, 2004.

[88] Both Mr. Rego and Mr. Da Costa testified that 690536 had remaining work to be completed consistent with the Helyar Report. Mr. Da Costa testified that the remaining work consisted of block work in and around verandas and front steps and that it was completed in September, 2004. Time sheets were produced but they encompassed without differentiation all work being done by the company on all projects not just the subject improvement.

[89] The Defendants submitted that Mr. Da Costa lacked credibility because Mr. Da Costa admitted that he did not produce the Certificate of Substantial Performance of the Contract Under Section 32 of the Act dated August 16, 2003 with the same substantial performance date which he signed. The effect of such a certificate is to start the time running within which to preserve a claim for lien for services or materials supplied to an improvement on or before the date certified or declared. The claim for lien advanced before me relates to services and materials supplied almost a year after the date certified or declared. I do not accept that failure to produce the Certificate takes away from Mr. Da Costa’s credibility. On its face it has no bearing on the claim for lien before me. I make the same finding in respect of Exhibit 18.

[90] None of the witnesses before me could categorically say that the work claimed by 690536 was not performed. Similarly Mr. Da Costa testified he was unaware of the deficiencies identified by John Isacco nor was there any evidence tendered that these deficiencies were brought to 690536’s attention.

[91] Taking all the evidence into consideration I find on a balance of probabilities on the evidence before me that the claim for lien was timely and that the quantum set out therein of $4,850.00 was proven. I also find that the extent of the deficiency in the holdbacks required to be retained by the Owner vis-à-vis 690536’s work for the Owner amounts to $485.00.

[92] In addition I find that 690536 is entitled to personal judgment against the Owner for the amount of its claim for lien, $4,850.00.

[93] TC Bricklayers failed to name the mortgagees as defendants however TC Bricklayers can shelter if need be under the other lien claims which named the mortgagees as defendants with respect to the section 78 priority claim.[^13]

Tagus Electrical Contractors Inc. Claim for Lien

[94] The relationship between Tagus and the Owner was one of contractor and Owner. It entered into a written contract with the Owner dated February 21, 2002 for electrical work in the amount of $201,721.75. In addition the Owner requested Jacuzzi Tubs in 59 units which Tagus priced at $150.00 per unit for a total of $9,469.50 inclusive of GST of $619.50. Also in addition was dishwasher hookup at $90.00 per unit for a total of $5,875.30 inclusive of GST of $385.30. There also appeared to be increased charges because of the ESA Code changes. In addition there were extra charges for outdoor receptacles of $50.00 or $60.00 if a GFCI type receptacle was required plus GST.

[95] The Helyar Report No. 13 dated August 16, 2004 as of March 18, 2004 had the contract price at $206,130.00 of which $195,630.00 was stated to be incurred with an unreleased holdback of $19,563.00. Tagus’s request for release of holdback set out rendered accounts from January 21, 2003 to May 5, 2004 with total outstanding holdback in the amount of $23,660.41. Tagus also had a request for release of outstanding invoices from September 15, 2003 to July 30, 2004 of $42,762.55.

[96] The Tagus claim for lien for $42,762.55 was preserved by registration on November 5, 2004 and the certificate of action on December 30, 2004. It was set out in the claim for lien that the last day services or materials were supplied was October 13, 2004. Pursuant to section 31(2)(b) in order for the Tagus claim for lien to be timely the completion of the contract or abandonment of the contract between Tagus and the Owner had to take place on or after September 21, 2004.

[97] The Defendants’ position is that the Tagus claim for lien was not timely as Mr. Cruz’s testimony that the last day of work was October 13, 2004 was not credible as well as for a number of reasons dealing with the evidence provided on behalf of Tagus. The argument was advanced initially in paragraphs 37 to 42 with the submission that “In order to be a timely lien, progressive work must have been performed on September 21, 2004 (45 days before registration).” The statement was incorrect and flies in the face of the requirement of subsection 31(2)(b). The statement would be correct if Tagus was a lien claimant other than a contractor such that subsection 31(3) applied rather than subsection 31(2)(b). However as Tagus is a contractor what has to be determined is whether as of September 21, 2004 Tagus’s contract had neither been completed nor abandoned.

[98] The Defendants go on to argue that Tagus[^14] on the evidence knew or ought to have known that the Owner “had no ability to carry on with the contracts because it had no money and Tarion had assumed its responsibilities…” In addition Realty submits that Tarion did not enter into an agreement with Tagus or consent to the continuation of the work by Tagus. The statement that Tarion had assumed its responsibilities was not borne out by the evidence. Tarion had not assumed responsibility for 13 townhouse units. Similarly Tarion stated that the Owner’s contractors could do work in relation to townhouse units which had closed if no inspection by it had taken place and that it Tarion was only addressing townhouse units which had closed.

[99] There was no evidence before me on which I on a balance of probabilities could conclude that Tagus knew or ought to have known that the Owner had no ability to carry on with the contract because of a lack of money. The evidence does indicate Tagus knew Tarion was dealing with the warranty claims for 49 units and that Tagus approached Tarion in mid-August to do the work because it was its obligation under the contract with the Owner to correct deficiencies but received no response. Tarion had not assumed all of the Owner’s responsibilities. It only assumed the responsibility of the Owner for warranty claims in respect of the 49 units which had been closed and the common elements. In terms of the contract with the Owner there remained for Tagus work to be done relating to the 49 closed units in relation to deficiencies and completion and as well to the remaining 12 units which had to be completed. Although at one point Tagus was under the impression it had to have Tarion’s consent to attend the improvement that was true only in relation to the 49 sold units and not in relation to the 12 remaining units.

[100] Tarion’s actions only related to the 49 units which were sold and in respect of which warranty claims were made for deficiencies by the purchasers. It did not take over the unsold 12 units nor did it have the authority to do so until the units were sold and warranty claims were made. In so far as Tagus was concerned as noted above it wrote asking that Tarion permit it to correct the warranty deficiencies as it was obliged to do under its contract but as noted received no response.

[101] Mr. Cruz also testified that during this period he was in touch with Mr. Rego. The letter and facsimile transmission comprising Exhibit 6 were sent to Mr. Rego on or about September 9, 2004. The contents indicate that Targus was in the process of completing its contract. The Facsimile transmissions set out in Exhibit 4 were copied to Mr. Rego the last two of which are dated September 23 and 24, 2004.

[102] Exhibits 4 and 6 I find to be tangible evidence which support my finding that as of September 21, 2004 Tagus was of the view that the contract was on going and remained to be completed and that it had not been abandoned.

[103] The facsimile transmission of September 23, 2004 supports this finding. The reference to the “Gas-Bond” connection is particularly telling. At issue was the correction of the problem as part of Tagu’s contract in respect of both the 59 units under Tarion’s control and the remaining 12 units yet to be completed. There is no acceptable basis for Tagus undertaking to do the work unless it was of the view the contract was not completed and not abandoned. In addition in support of this finding is the referenced inspection by the “Builder” (Owner) respecting carbon dioxide detectors and the fact that the facsimile was copied to Mr. Rego the principal of the Owner. This finding is corroborated by Mr. Cruz’s statement in his facsimile transmission of September 24, 2004 where he states, “I am quite fed up and definitely underpaid with respect to this site and although I haven’t turned my back on my contractual obligations. It won’t take much more now.” I note the facsimile transmissions were written before Targus decided to register a claim for lien.

[104] I acknowledge that Mr. Cruz’s testimony of the last day of work on October 19, 2004 was not corroborated nor could he testify as to what was done and by whom on that date. However that is of no import as the issue of timeliness revolves around whether as of September 21, 2004 Tagus’s contract had been completed or abandoned. On the basis of all of the evidence before me on a balance of probabilities I find that the Tagus claim for lien was timely.

[105] Mr. Cruz also testified that he was later told by Mr. Rego to register a lien as the Owner could not pay the money. The registration then took place on November 5, 2004.

[106] For the aforesaid reasons I find the Tagus claim for lien to be timely.

[107] In its cross-examination of Mr. Cruz and in its written submissions Realty took no issue with the quantum of Tagus’s claim in the amount of $42,762.55, neither did the other lien claimants. In summary I find that The Tagus claim for lien was timely in the amount of $42,762.55 and that that Tagus is entitled to judgment in that amount against the Owner.

[108] In respect of holdback the plaintiff relies upon the Helyar Reports and based thereon submits that as of March 18, 2008 there was unreleased holdback of $19,563.00 and by deduction claims $10,500.00 of work to complete. There was no attempt before me to reconcile the invoices delivered by Tagus with its two summaries, the request for release of all holdback in the amount of $23,660.41 and the request for release of all outstanding invoices totaling $42, 762.55[^15]. However the invoices listed in one are not listed in the other and vice versa. Similarly there was no attempt to reconcile billings after March 18, 2008 by way of work on the contract, extras and holdback. The onus was on the Defendants to prove the holdback amount on a balance of probabilities. The position taken by the Defendants was not to satisfy their onus by adducing evidence relating to holdback but rather to attack the plaintiff’s position on holdback.

[109] On the evidence before me I conclude that the holdback on the invoices rendered by Tagus for work done listed as listed in the two requests at Exhibit 3 Tab 34 is comprised of $23,660.41 plus $4,276.26 (10% of $42,762.55) for a total of $27,936.67. I noted that $42,762.56 is outstanding which is in excess of the amount I have determined for holdback.

[110] For the aforesaid reasons I find $27,936.67 to be the extent of the deficiency in the holdback required to be retained by the Owner pursuant to Part IV for the work performed by Tagus.

[111] In addition I find that Tagus is entitled to personal judgment against the Owner for the amount of its claim for lien, $42,762.55.

[112] Tagus failed to name the mortgagees as defendants however Tagus can shelter if need be under the other lien claims which named the mortgagees as defendants with respect to the section 78 priority claim.[^16]

2011940 Ontario Inc. (Pereira Plastering) Claim for Lien

[113] 2011940’s claim for lien registered on November 5, 2004 was in the amount of $7,490.00 inclusive of GST for repairs to stucco work and application of caulking from August 18, 2004 to October 7, 2004. Accordingly for the lien to be preserved in time the date the contract was completed or the date the contract was abandoned could be no earlier than September 21, 2004.

[114] 2011940 entered into a contract on October 4, 2002 with the Owner in the amount of $240,750.00 inclusive of GST for the supply and installation of mouldings, insulation and stucco. The contract was billed out on April 1, 2004 in the amount of $24,075.00 with the notation “Final Installment”. Another document in a different form dated April 8, 2004 in the same amount was produced with the notation; “Final installment for material and services rendered at 51 Resurrection Rd.” I find the two to be one and the same.

[115] The Helyar Report No.13 stated that as of March 18, 2004 2011940 had two contracts with the Owner, one for $225,000.00 of which $220,000.00 was incurred and an unpaid holdback of $22,000.00 and the second for $15,400.00 of which $9,500.00 had been incurred with an unpaid holdback of $950.00.

[116] On October 15, 2004 2011940 rendered an invoice for “repairs to stucco work that has been damaged and application of caulking” in the amount of $7,490.00. Included in the documentary material was the affidavit of Mr. Pereira wherein he stated that “All work was finished in relation to the contract in April 2004 except for caulking that was required as an integral part of the job.” His statement in the affidavit is not directly at odds with the description of the work as set out in the claim for lien as the caulking work would not be completed until the damages were repaired. I also note that the affidavit was not properly sworn as Mr. Pereira did not read or write English.

[117] The description of the work in the claim for lien is consistent with that in the October 15, 2004 invoice. In chief his testimony was also consistent with the description of the work in the claim for lien and invoice. He stated the work was done about three or four weeks prior to October 15, 2004.

[118] Mr. Pereira on cross-examination confirmed that the last invoice in April 2004 in the amount of $24,075.00 was for holdback and was unpaid. 2011940 did not lien for this amount, most likely because time had run.

[119] On all the evidence before me I find that 2011940’s claim for lien was timely and the quantum proven in the amount of $7,490.00. It was for work other than work under its main contract, that is an extra. I also find that the amount of holdbacks in relation to the main contract was as billed by 2011940 in the amount of $24,075.00 and in relation to the “extra” contract $749.00. As all amounts are outstanding I find that the extent of the deficiency in the holdbacks required to be retained by the Owner in relation to all supplies by 2011940 to be the sum of the two holdbacks totaling $24,824.00. In addition I find that 2011940 is entitled to judgment against the Owner in the amount claimed in the claim for lien $7,490.00.

[120] 2011940 failed to name the mortgagees as defendants however it can shelter if need be under the other lien claims which named the mortgagees as defendants with respect to the section 78 priority claim.[^17]

A.F. Drywall Limited Claim for Lien

[121] A.F. Drywalls entered into a contract with the Owner dated September 19, 2002 for the supply and installation of insulation and drywall to the improvement at a price of $574,354.60 compose of $536,780.00 plus $37,574.60 for GST .

[122] There was evidence before me that A.F. Drywall’s last drywall delivery to the improvement was on March 26, 2004 in the amount of $2,091.44 nine days before the final invoice was rendered. There were numerous invoices tendered purportedly from the workers that A.F. Drywall used to do its work on all its jobs including invoicing from July to December 2004. None of these invoices indicated where the services were performed. None of the workmen in question were called to corroborate the invoices. Mr. Fernandes could not identify where specifically the work set out in the invoices was carried out.

[123] The last invoice rendered by A.F. Drywall dated April 4, 2004 was for the full amount of the contract price plus $16,906.00 ($15,800.00 plus $1,106.00 for GST) for extras with a balance payable of $156,539.60 after deduction of the credit for the Owner’s cheque in the amount of $85,318.61 which did not clear. As a consequence a claim for lien stating the services were performed to March 25, 2004 was registered in the amount of $156,539.60 on April 16, 2004. On the evidence before me I find this claim for lien both timely and the quantum proven.

[124] Subsequently A.F. Drywall was paid $85,318.61 and in exchange delivered a release of lien discharging the April 16, 2004 claim for lien on April 28, 2004. There was a balance outstanding of $71,220.99 from the amount invoiced on April 4, 2004 after receipt of the payment of $85,318.61 which was included in the April 16, 2004 claim for lien.

[125] On May 14, 2004, May 25, 2004, and May 30, 2004 the Owner requested that A.F. Drywall do ONWHP warranty work, that is correct deficiencies. On June 2, 2004 A.F. Drywall wrote to its solicitors asking for directions as to what to do respecting the ONWHP warranty work as there was a balance due on the job of $71,220.99. Mr. Fernandes testified that the work was done but the inference from the June 2, 2004 letter is and I find that there had not been any re-attendance for this work or any re-attendance after April 4, 2004 to June 2, 2004.

[126] Mr. Fernandez in his testimony claimed that A.F. Drywall had not yet completed its work when it rendered the April 4, 2004 invoice. He also stated that the work done after March 25, 2004 was estimated at $5,000.00. I do not accept Mr. Fernandes’ evidence in this respect as it is not independently corroborated and as it flies in the face of the contemporaneous documentary evidence before me.

[127] On June 4, 2004 A.F. Drywall registered a second claim for lien in the amount of $71,220.99 for work stated to have been done between April 10, 2002 and May 6, 2004. No corroboration was provided for the work stated to have been done in this period in that amount.

[128] I find that there is no evidence to support a supply to the extent of $71,220.99 during the period set out in the second claim for lien. I do find that the amount claimed equals to a penny the amount outstanding from the April 4, 2004 invoice and as such it is a duplicate of a portion of the supply covered by the first claim for lien which was discharged. Section 48 provides that a discharge of a claim for lien is both irrevocable and cannot be revived and the authorities cited to me by both sides are to the same effect.

[129] An argument was put forward on the basis of estoppel, that is Mr. Fernandes’ evidence that Mr. Rego stated that A.F. Drywall’s lien rights would remain protected notwithstanding the release. I find the argument to be without merit. Section 48 is clear that a discharge is irrevocable and has been found to be so in the decisions on point. A promise by an Owner cannot on the basis of estoppel serve to over ride a statutory provision which states a registered discharge of a claim for lien is irrevocable and the claim for lien cannot be revived, that is notice to the whole world that the claim for lien is discharged. In this scenario the Defendants are part of the whole world and whatever Mr. Rego may have said is not binding on them.

[130] I find that A.F. Drywall has failed to satisfy its onus on a balance of probabilities to demonstrate that the second claim for lien was timely. I do find on the evidence before me that A.F. Drywall is entitled to a personal judgment on the contract against the Owner for $71,220.99.

[131] In terms of holdback on the evidence before me I find that the total amount of A.F. Drywall’s supply including extras was $591,260.60 generating a holdback of $59,126.06. I also find as $71,220.99 was unpaid that the whole holdback of $59,126.06 has not been paid by the Owner. The Defendants did not satisfy their onus to prove that the extent of the deficiency in holdback required to be retained by the Owner was other than $59,126.06.

[132] A.F. Drywall failed to name the mortgagees as defendants however it can shelter if need be under the other lien claims which named the mortgagees as defendants with respect to the section 78 priority claim.[^18]

Summary of My Findings on Timeliness, Quantum, Deficiency In Holdback and Personal Judgment relating to the Lien Claimants before me

[133] The following chart is a summary of my findings set out above on timeliness, quantum, deficiency in holdback relating to the named claimants for lien and personal judgment against the Owner:

Lien Claimant	Timeliness	Quantum	Deficiency In Holdback	Personal Judgment Against Owner
RSG Mechanical Incorporated (the plaintiff)	Timely	$245,000.00	$86,500.00	Obtained February 13, 2006
Aya Kitchens and Baths Ltd. (Aya)	Timely	$36,564.15	$21,450.00	$36,564.15
A.F. Drywall Limited (A.F. Drywall)l	Out of Time	Nil as out of time	$59,126.06	$71,220.99
Rafat General Contractor Inc. (Rafat)	Out of Time	Not proven	$2,172.00	Not proven
Tagus Electrical Contractors Inc. (Tagus)	Timely	$42,762.55	$27,936.67	$42,762.55
Quality Rugs of Canada Limited (Quality)	Timely	$40,373.63	$10,314.80	$40,373.63.
Andrew Paving & Engineering Ltd. (Andrew)	Timely	$144,470.45	$33,485.00	$144,470.45.
1406235 Ontario Ltd. (1406235)	Timely	$19,941.62	$10,795.40	$19,941.62
The Sherwin Williams Company Inc. (Sherwin)	Not proven	Not proven	$1,573.50	Not pursued
2011940 Ontario Inc. (2011940)	Timely	$7,490.00	$24,824.00	$7,490.00
690536 Ontario Inc. (690536)	Timely	$4,850.00	$485.00	$4,850.00
Total:		$529,112.40

What Is Available to Satisfy the Valid Proven Claims For Lien

[134] The plaintiff raises in its written submissions as the second issue following the determination of the validity of the claims for lien the determination of what is available to satisfy the claims for lien found or agreed to be valid. On the facts before me the issue can be better stated as to what extent can the security posted by Realty, a mortgagee, pursuant to subsection 44(1) be used to satisfy the valid claims for lien.

[135] Realty had a choice available to it, it could post security pursuant to subsection 44(1) or register security pursuant to subsection 78(10) or it could have had a trustee appointed pursuant to section 68 to complete the townhouse portion of the improvement and sell the same together with the premises set aside for the high rise portion of the improvement. Posting security pursuant to subsection 44(1) and registering security pursuant to subsection 78(1) each have a different purpose and effect.

[136] Realty pursuant to subsection 44(1) on an ex parte basis posted security in the amount of $978,588.74 to vacate the 14 claims for lien registered on title by the 11 lien claimants. At the time Realty posted the security its mortgage was a subsequent mortgage as described in subsection 78(5) and third in priority. As a mortgagee the choice of whether to post security pursuant to subsection 44(1) or register security pursuant to section 78(10) logically depends upon what the objective of Realty was.

[137] Realty chose not to register on title security pursuant to subsection 78(10). Such security would have enabled Realty to deal with the premises free of the subsection 78(5) priorities, that is sell the remaining premises pursuant to its rights as a mortgagee[^19] and give the purchaser of the premises title free of the priorities in favour of the liens registered on title. The security registered on title would then have been available to the lien claimants to the extent of any deficiency in the holdbacks required to be retained by the Owner under Part IV as provided for in subsection 78(5). The proceeds of sale would then be distributed to those having an interest in the premises according to their priorities with any remainder going to the Owner subject to a lien thereon in the amount of the proven claims for lien less any monies received by the lien claimants by way of priority such as that provided by subsections 78(2) and 78(5) to the extent of any deficiency in the holdbacks required to be retained by the Owner pursuant to Part IV. Had that procedure been followed the lien claimants would have been left with a claim against the registered security limited to any deficiency in the holdbacks required to be retained by the Owner under Part IV of the Act and priorities over any advances made by the mortgages pursuant to the provisions of subsection 44(6) as well as a lien against the interest of the Owner in any surplus in the proceeds of sale of the premises after satisfaction of the mortgages registered[^20] against the premises.

[138] If Realty resorted to the subsection 78(10) provision enacted for the benefit of mortgagees to be able to exercise their power of sale rights the amount of security Realty needed to register on title was approximately $500,212.10 as compared to the $978,588.74 it posted pursuant to subsection 44(1). Subsection 78(10) is the statutory provision which was set out in the Act when the present Act was enacted in 1983 with the addition of section 78 to facilitate the exercise of powers of sale by mortgagees.

[139] Other mortgagees have followed this course of action. See J. Sousa Contractor Ltd. v. Kinalea Development Corp. [1994] O.J. 1465 (Charron J.), [1994] O.J. No. 3047 (Charron J.) affirmed on appeal [1996] O.J. 1337 (Div. Ct.) which sets out what occurred as to priorities when security was registered by a mortgagee and the property sold free of the lien claims as set out in subsection 78(10).

[140] Realty however chose as a subsequent mortgagee to post security for all the contractors’ lien claims as provided for in subsection 44(1).

[141] In the usual situation commercial reality dictates who pays into court or posts security pursuant to section 44 when liens are registered to ensure that the liens do not interfere with the flow of funding in a building project. If a contractor liens an owner will post security to ensure funding for the project continues from the mortgagee and to ensure the contractor continues with the supply. If a subcontractor liens then the contractor or the owner, depending on the circumstances, is the one who posts security to ensure funding and thus construction of the project continues. Similarly if a sub-subcontractor liens it is usually the owner, the contractor or the subcontractor, depending on the circumstances, who posts the security. There is no commercial reason for a mortgagee to post the security rather the remedy is to sell under power of sale and register security pursuant to subsection 78(1) or if the mortgagee wishes the improvement or a portion of it to be completed to have a trustee appointed pursuant to section 68. Here Realty posted security so that six townhouses could be completed by the first mortgagee and the sales closed with Realty through a shelf company completing the remaining six townhouses and then selling them and the remaining premises originally slated for the high rise portion of the development by way of power of sale.

[142] At the time Realty posted security pursuant to subsection 44(1) the Owner no longer was registered under ONHWP and was in default not only of its obligations to the lien claimants, to ONHWP in respect of warranty claims for units which had been sold, but also under the outstanding four mortgages registered against the remaining premises comprised of 12 townhouse units and the high rise premises.

[143] Also at the time the security was posted there were four mortgages on title. The first mortgage then owned by 1189875, the second mortgage in favour of St. Paul Guarantee Insurance Company and Northern for the monies paid out to ONHWP, the third mortgage in favour of Realty and the fourth mortgage also owned by 1189875 for security for a $1,000,000.00 letter of credit the first mortgagee could call on. All the mortgagees were faced with a choice of how to maximize the return on their security. The usual response for a mortgagee is to exercise its power of sale rights to satisfy its interests under its mortgage.

[144] The mortgagees or any of them could have chosen to fund the Owner so it could continue with the project. This course of action required the Owner to be registered with ONWHP. It also required further money flowing down the construction pyramid to complete the improvement and resolution of the claims for lien. This course of action was rejected.

[145] One of them could have followed the normal mortgagee course of action and exercised its power of sale rights to sell the remaining lands. If this course had been chosen registering security pursuant to subsection 78(10) would have permitted the sale to proceed free of the claims for lien. At this point this course of action also was rejected.

[146] Instead on December 1, 2003 the mortgagees and the Owner met. At that point 1189875 had already stepped into the shoes of the Owner contracting with Maystar to complete the six units subject to agreements of purchase of sale so they could be closed. 1189875 funded this work by an advance under its first mortgage in an amount over $300,000.00. If it was a proper advance under the first mortgage I find that it was subject to the priority created in favour of the lien claimants by subsection 78(6). The agreement struck also required that Realty post security pursuant to section 44(1) in the amount of $978,588.74[^21] composed of a direct contribution by Realty of $554,055.74 and a $424,533.00 advance from 1189875 under its first mortgage described as an advance of the holdback which was equal to the net holdback set out in Helyar Report No. 13. This amounts to a loan from 1189875 to Realty rather than an advance under the first mortgage given it went to Realty and not to the Owner/mortgagor but if it is an advance I find it to be subject to the priority created in favour of the lien claimants by subsection 78(6). It was agreed that the proceeds of sale of the six townhouses would be paid to 1189875 as first mortgagee to repay the holdback advance and then applied to the first mortgage. I also find on the evidence before me that there was agreement that after the sale of the six units that Realty would buy out the first and second mortgages and proceed to complete the remaining six units and sell them and the high rise premises by power of sale through a shelf company.

[147] As it turned out the sale of the six townhouse closed as the section 44(1) security freed the premises of the statutory charge in favour of the lien claims[^22]. Realty then proceeded to complete and sell the remaining six townhouses and the high rise lands through a shelf company by way of power of sale.

[148] That brings us to the question of to what extent can the security posted by Realty, a mortgagee, pursuant to subsection 44(1) be used to satisfy the valid claims for lien.

[149] The plaintiff on a literal reading of subsection 44(9) Rule 2 submits that all proven lien claims should be paid out of the security posted in court pursuant to subsection 44(1) in accordance with the priorities set out in section 80 on the basis that the security stands in place of the premises as well as the holdbacks required to be retained by the Owner under Part IV and any additional amounts owed in relation to the improvement by the Owner to the contractor.

[150] Realty’s response is to argue that on the basis of the MCAP building mortgage, assigned to Realty over seven months after it posted the subsection 44(1) security, that the lien claimants priority against the subsection 44(1) security is limited to the extent of the deficiency in the holdbacks required to be retained by the Owner under Part IV. In support Realty submits that “A mortgagee is not defined as a “payer” under the Act[^23]. It is submitted that Part XI, and in particular s.78 of the Act is a complete code and governs the relationship between mortgagees and lien claimants.” If it is a complete code between mortgagees and lien claimants it raises the question of why didn’t Realty register subsection 78(10) security on title as other mortgagees have in similar situations? Further, how can Realty purport to address the disposition of the subsection 44(1) security when it is not a payer and when it as a mortgagee is not addressed in the statutory provisions relating to subsection 44(1) security and its disposition. It also raises the fundamental question of whether section 78 has any application when security is posted under subsection 44(1) and pursuant to subsection 44(6) the lien claimants no longer have a charge on the premises.

[151] Section 78 has as its object the regulation of priorities between lien claimants and mortgagees over the owner’s interest in the premises. Once section 44(1) security is posted pursuant to section 44(6) the liens “cease to attach to the premises”. The liens are no longer a charge on the owner’s interest in the premises and therefore pursuant to subsection 78(1) they no longer have the priority provided thereby. It then follows that the balance of section 78 is inapplicable. It also follows that the premises can be sold free of the claims for lien as was done in respect of the six townhouse units whose sale was closed in January 2005.

[152] In order to fully address this difference of position between the lien claimants and Realty I have undertaken an analysis, having regard to the factual situation before me, of the applicable statutory provisions of the Act relating inter alia to the establishment of claims for lien, the extent to which claims for lien each become a lien upon the interest of the Owner in the premises, whether there is a difference if the lien is that of a contractor as opposed to a subcontractor, the statutory prescribed effect of posting section 44 security, the extent to which section 44 security is availability to satisfy the proven claims for lien and in that context is the amount different depending on who posts the security and is the amount different when the lien claimants are contractors as opposed to subcontractors, the nature of a mortgagee’s interest in the premises, the object and purpose of subsection 78(10) security and the consequences of a mortgagee posting subsection 44 security as opposed to subsection 78(10) security together with a review of prior decisions which may bear on the issue.

[153] In conducting the analysis and interpretation of the Act I have applied the modern approach to statutory interpretation adopted by the Supreme Court of Canada in Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559 at para. 26: that the words of the statute are to be read in 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.”

[154] The Act is a remedial statute whose purpose is to provide security to a person who supplies services or materials to an improvement to premises for an owner, contractor, or subcontractor. Absent the Act a person who supplies services or materials to an improvement was limited to contractual remedies as against the person who contracted for the supply of services or materials. If such person was not the owner, the owner had free benefit of the supply. If such person were the owner, the owner could sell the premises and abscond with the proceeds before a judgment was obtained against the owner. A mortgagee regardless of when the mortgage was registered and regardless of the purpose of the mortgage was not bound by the supply, unless the mortgagee directly contracted for the supply, and thus could benefit by the supply without paying for it. Patently, absent the provisions of the Act, a person effecting a supply to the improvement could be subject to many different abuses with the end result being that the person supplying was left without a remedy and others could enjoy the benefit of the supply without any obligation to pay for it.

[155] The starting point for the remedy provided by the Act for lien claimants is subsection 14(1). It provides that a person who supplies services or materials to an improvement for an owner, contractor or subcontractor as defined in the Act has a lien upon the interest of the owner in the premises improved for the price of those services or materials. It is key to note that the lien is “upon the interest of the owner in the premises improved...” The result is that each of the lien claimants with proven lien claims before me initially had a lien upon the interest of the owner in the premises the subject of the improvement before me. As the lien is upon the interest of the owner in the premises it would be subject to any claims to the premises superior to that of the owner subject to any other provisions of the Act. A claim of a mortgagee would amount to a claim to the premises superior to that of the owner given that when the owner mortgages the premises in law title passes to the mortgagee and the owner is left only with the equity of redemption. As will be seen section 78 addresses priorities between lien claimants and mortgagees to the interest of the owner in the improved premises but not in relation to security posted pursuant to section 44.

[156] Thus as here where the Owner mortgaged the premises, absent a statutory provision to a contrary effect, the interest of the Owner diminished to the equity of redemption and similarly pursuant to subsection 14(1) the proven lien claims were a lien only on the remaining interest of the Owner in the premises, the Owner’s equity of redemption. Section 78 steps into the breach and addresses priority between section 14 liens and a mortgage. Subsection 78(1) provides that except as provided in the section the liens arising from an improvement have priority “over all conveyances, mortgages or other agreements affecting the owner’s interest in the premises.”

[157] Subsection 78(3) gives priority to all conveyances, mortgages or other agreements affecting the owner’s interest in the premises registered prior to the time “when the first lien arose in respect of an improvement” over the liens arising from the improvement to the extent of the lesser of the actual value of the premises at the time the first lien arose and the total of all amounts advanced or secured prior to the time the first lien arose. Section 78(4) then deals with advances made in relation to such conveyances, mortgages or other agreements subsequent to when the first lien arose and gives the conveyance, mortgage or other agreement priority for such subsequent advances up to the time there is a preserved or perfected lien against the premises or up to the time the person making the advance receives written notice of a lien. Subsections 78(3) and 78(4) thus specifically deal with priorities between liens and prior mortgages and advances under prior mortgages. Before me there were no such mortgages as all mortgages were registered after the time the first claim for lien in respect of the improvement arose, namely on February 3, 2000 when the architects, Core Architects Inc. started work on the improvement.

[158] Subsections 78(2) and 78(5) specifically deal with priorities between liens and building mortgages and subsequent mortgages respectfully. Both types of mortgages are dealt with in a similar fashion. The sections provide that a lien has priority over a mortgage taken with the intention to secure the financing of the improvement or a mortgage registered after the time when the first lien arose only to the extent of any deficiency in the holdbacks required to be retained by the owner under Part IV of the Act. Subsection 78(6), in respect of building and subsequent mortgages, deals with subsequent advances under the mortgage in the same way as subsequent advances are dealt with for prior mortgages by Subsection 78(4). The result is that the proven lien claims before me while they are a charge on the interest of the Owner in the premises have priority over building and subsequent mortgages, that is the four mortgages, to the extent of the deficiency in the holdbacks required to be retained by the Owner under Part IV of the Act. Also the proven lien claims in respect of the two advances made by 1189875 under its first mortgage pursuant to the application of subsection 78(6) have priority over those advances.

[159] In addition to permit mortgagees to sell the premises free of the priority in favour of liens created by subsections 78(2) and 78(5) subsection 79(10) provides that when a financial guarantee bond or letter of credit or guarantee is registered on title to the premises in the form prescribed a purchaser taking title from the mortgagee will take title free of the priorities in favour of liens created by subsections 78(2) and 78(5). The financial guarantee bond or letter of credit or guarantee takes the place of the priority created by subsections 78(2) and 78(5). The amount of the security to be registered on title has to be equal to 20 per cent of the amount stated in the contract price of the contract to which the improvement relates. Any person who proves a lien is then given a right of action against the surety on the bond or guarantee or issuer of the letter of credit. The result is that the mortgagee can exercise its power of sale with the lands free of either priority and at the same time the interests of the proven lien claimants is secured.

[160] The result of these sections is that the four mortgages were subject to the holdback priority set out in sections 78(2) and 78(5) that is to the extent of any deficiency in the holdbacks required to be retained by the Owner under Part IV of the Act as no subsection 78(10) security was registered.[^24] The corollary is that if the liens are no longer a charge on the Owner’s interest in the premise or a charge on the holdback then the lien claimants cannot rely on subsection 78(1) for a priority and the priorities created by subsections 78(2) and 78(5) do not apply.

[161] The value of the lien created by section 14 is addressed by subsection 17(1), 17(2) and 17(3) and is made subject to Part IV (holdbacks) so that liability for holdback is not affected by any limitation set out in these three sections. As between an owner and contractor the value of the lien is limited to the least amount owed by the owner (the payer) to the contractor after deducting from the amount owing to the contractor, the balance in the owner’s favour of all outstanding debts, claims or damages whether or not related to the improvement. This determination was applicable to each of the lien claims before me to determine the value of each proven lien as each lien claimant was admitted to be a contractor as each directly contracted with the owner. No claim in favour of the Owner was advanced before me for any outstanding debts, claims or damages whether or not related to the improvement. Section 17 ensures that when security is posted pursuant to section 44 the amount recoverable by a lien claimant is limited as set out in section 17. As a consequence of the pyramidal nature of some construction relationships the total value of all lien claims registered against the premises can exceed the total owed by the payer to the contractor or subcontractor such that subsection 17(1) limits the lien claim to the least amount owed by the payer and subsection 17(2) extends the limitation to the whole class of lien claimants down the pyramid.

[162] Section 21 is the equivalent of section 14 but instead of a lien on the owner’s interest in the premises it provides that in addition the lien is a charge upon the holdbacks required to be retained by Part IV and to paraphrase the balance of the section, upon the additional amounts owed in relation to an improvement by a payer to the contractor or to any subcontractor as determined by application of subsections 17(1), 17(2) and 17(3). I note that the section provides that a lien is a charge upon the holdbacks, that is the holdbacks plural, required to be retained by Part IV. This charge on all the holdbacks required by Part IV dovetails with priorities between lien claimants set out in subsection 44(9) Rules 2 and 3 and sections 79 and 80.

[163] In the result each proven lien before me before subsection 44(1) security was posted was a lien on the interest of the Owner in the premises and a charge on the holdbacks required to be retained by the Owner by Part IV and on the additional amount owed by the Owner to each of the contractors.

[164] Subsection 22(1) included in Part IV, provides for basic holdback stating that 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 which can claim against the holdback have expired or have been satisfied, discharged or provided for under section 44.

[165] Subsection 24 deals with what has become known as notice holdback. The section provides that a payer can make payments on a contract or subcontract up to 90 per cent of the supply unless the payer has received written notice of a lien in which case the payer in addition to the basic holdback has to retain an amount sufficient to satisfy the lien. Before me there was no issue of notice holdback.

[166] On the basis of the analysis up to this point and assuming no security had been posted each of the lien claimants who proved their lien claims before me had a lien in the proven amount of their lien claim upon the interest of the Owner in the premises and a charge upon the basic holdback required to be maintained in relation to their claim for lien.

[167] Subsection 44(1) provides that any person on an ex parte basis can obtain an order vacating a claim for lien from title by paying into court or posting security for the full amount of the claim for lien claimed as owing plus the lesser of $50,000.00 or 25 per cent of the full amount of the claim for lien claimed as owing as security for costs. The payment in is for the full amount of the claim for lien and not for the amount of any deficiency in the holdback that the owner is required to retain under Part IV in relation to the claim for lien.

[168] The result of paying into court or posting security for a claim for lien is set out in subsection 44(6), namely that once the money is paid in or security is posted for the lien, (A) the lien becomes a charge on the amount paid into court or security posted, (B) the lien both ceases to attach to the premises and ceases to attach to the holdback and other amounts subject to a charge under section 21[^25] and (C) the owner or payer in respect of sections 21, 23 and 24 shall be in the same position as if the lien had not been preserved or written notice of the lien had not been given. The “(C)” result frees up the flow of money down the construction lien pyramid.

[169] This provision has the effect of ensuring that in the course of construction of an improvement the flow of money can continue once a claim for lien is registered on title and security is posted for it. The usual person utilizing the subsection is a payer up the construction pyramid ladder such as a subcontractor when a sub-subcontractor liens, a contractor when a subcontractor liens and an owner when a contractor liens. The reason for this is because of the effect of the payment into court as set out in subsection 44(6) putting the owner or payer in respect of the operation of sections 21, 23 and 24 in the same position as if the lien had not been preserved or written notice of the lien had not been given. Nowhere is it set out in section 44 that a mortgagee paying in or posting security gets a specified direct benefit of any sort as a consequence of the payment in or posting of security. The mortgagee however does benefit as the premises are now free of the claim for lien for which money has been paid in or security posted so that the mortgagee if there is default under its mortgage can exercise its power of sale free of the claim for lien. In addition the value of the premises, the primary security for the mortgage, has been increased by the supply the subject of the claim for lien.

[170] The language used in respect of the “(A)” and “(B)” is precise. The lien claimant’s lien is converted from a charge on the Owner’s interest in the premises and a charge on the holdback and other amounts subject to a charge under section 21 to a charge on the amount paid into court or posted as security. Thus the lien claimant once it proves its claim for lien and if the person liable to pay fails to pay can no longer look to the premises and holdbacks required to be retained by Part IV and any additional amounts owed in relation to the improvement by a payer as determined by application of subsections 17(1), 17(2) and 17(3) but must look to the amount paid into court or posted as security for satisfaction of a proven claim for lien. It also follows that as a consequence there can be no deficiency in the 10% basic holdback and notice holdback required to be retained by the Owner in respect of the services or materials supplied by the lien claimant as holdback retained by the Owner or payer is no longer available to satisfy the lien claim rather the money paid in or the security posted stands in place of the holdbacks required to be retained by Part IV. A further consequence is that there can be no deficiency in the holdback required to be retained by the owner by Part IV and thus no issue of priority as set out in subsections 78(2) and 78(5).

[171] The payment in or security posted thus has a positive effect on a subsequent or building mortgage as the premises are no longer subject to the claim for lien and the value thereof has been increased. The mortgagee’s interest is no longer subject to the priorities set out in subsections 78(2) and 78(5) in favour of the liens for which money has been paid in or security posted. However a deficiency in holdback required to be retained by an owner under Part IV can arise in respect of lien claims for which payment in was not made nor security posted and in relation to supplies made by suppliers after their liens were vacated by the payment in or posting of security pursuant to subsection 44(1). Once the payment in is made or security posted the lien claimant can no longer look to the premises and thus can no longer benefit from the section 78(2) and 78(5) priorities.

[172] Subsection 44(9) provides that four Rules apply after an order is made to vacate a lien after payment in or posting of security. Pursuant to Rule 1 the lien claimant whose lien was the subject of the order can proceed with an action to enforce his claim against the amount paid into court or security posted. It does not provide that the lien claimant can still seek to enforce its claim against the premises and Part IV holdback. Rule 2 goes on to provide that the amount paid into court or security posted is subject to the claims of all lien claimants to the same extent as if it was realized by the sale of the premises in an action to enforce the lien and shall be distributed among all the lien claimants according to the section 80 priorities. Rule 3 provides where any amount is realized in a lien action by the sale of the premise or otherwise the amount shall be pooled into a common fund with the amount paid into court or security posted and shall be distributed among all the lien claimants in accordance with the section 80 priorities.

[173] Before me each of the proven liens had security posted in the full amount of their claims for lien as claimed and pursuant to the application of subsection 44(6) and 44(9) Rule 2 each is entitled to realize from the posted security their proven lien claims. My finding in this respect is in accord with the reasons of Austin J. on behalf of the court where in P&D Holdings Ltd. v. Alta Surety Co., [1996] O.J. 2737 (C.A.) at paragraph 18 he stated:

The effect of an order under s.44(1) or (2) is to detach the lien from the premises and to attach it to the security in court, in this case the bond. The title to the premises is cleared and any enforcement procedures are directed at the bond instead of the premises. What occurs in the event of such procedures is governed by s. 44(9), rule 2, that is, the bond is subject to the claims of “all persons having a lien”. That language is reasonably clear. It could be rephrased as “all persons having lien claims” and is to be interpreted as meaning “the lien claims of all persons having same”, not “all claims of all persons having lien claims”. The first interpretation is supported by the concluding words of rule 2, namely, that the security is to be “distributed among all lien claimants”.

[174] Realty argues that the lien claimants are only entitled to realize on their lien claims to the extent of the priority created under sections 78(2) and 78(5), that is to the extent of any deficiency in the holdbacks required to be retained by the Owner under Part IV. I disagree on the basis of the analysis set out above and P&D Holdings. Realty’s proposition flies in the face of the language of section 44(6). Once the payment in is made or security posted it stands to satisfy each of the proven claims for lien as set out in subsection 44(9) Rule 2. When Realty posted the subsection 44(1) security the lien claimants could no longer look to the premise and to the Part IV holdbacks but by an express statutory provision, subsection 44(6), had substituted therefore a charge on the security posted by Realty. As the liens were no longer a charge on the premises the lien claimants no longer had the benefit of the priority set out in subsection 78(1) as diluted by the priorities set out in subsections 78(2) and (5).

[175] Section 44(1) allows any person to seek the order. If Realty’s position is given effect to, not only would the proven lien claimants before me, all contractors, lose their charge against the premises, the holdback and other amounts subject to a charge under section 21, but the proven lien claimants would be limited to realizing from the security posted the amount of any deficiency in the holdbacks required to be retained by the Owner under Part IV. By contrast if the Owner or a payer paid the amount in or posted security pursuant to subsection 44(1) they would realize their full proven claims for lien subject to the application of section 17. Section 44 nowhere differentiates or sets out different provisions for the realization of the security on the basis of who paid in or posted the security.

[176] To accede to Realty’s argument is to negate the whole statutory scheme which I have outlined and to render subsections 44(6), 44(9) Rule 2 and 78(10) meaningless. A good example of a mortgagee exercising its rights by registering section 78(10) security in keeping with my analysis of the scheme of the act and the consequences thereof is set out in J. Sousa Contractor Ltd. referred to above.

[177] The plaintiff on a literal reading of section 44(9) Rule 2 and Rule 3 submitted that all valid lien claims should get paid out of the security posted in court pursuant to subsection 44(1) in accordance with the priorities set out in section 80 in accord with my findings to this point. The plaintiff went on to state that the decision of Carruthers J in Gilvesy v. 810941 Ontario Ltd., [1994] O.J. 4206 holds that a mortgagee should not lose priority under section 78 just because it avails itself of the provision of section 44(1) to clear title to facilitate a sale of the premise, presumably by power of sale. The plaintiff did not accept the finding of Carruthers J. but then went on to advance further arguments on the basis that Gilvesy was good law. Given my interpretation of the provisions of the Act in this respect I propose to address Gilvesy and the subsequent authorities as they bear on my conclusions.

[178] Carruthers J. in Gilvesy came to his conclusion based on the rationale of the decision of County Court Judge Mcwilliam in P. Michaud Roofing Ltd. v. National Trust Co. Ltd. et al. [1978] O.J. No. 3674 as affirmed in the Divisional Court and in the Court of Appeal.[^26] I disagree that the rationale of P. Michaud can be used as P. Michaud was based on the provisions of the Mechanic’s Lien Act which were repealed prior to Gilvesy. In 1983 when the Construction Lien Act was proclaimed in force the Mechanic’s Lien Act was repealed and changes were made including substantial changes to the former provisions dealing with mortgagees and any priorities accruing to them such that the conclusions in P. Michaud are no longer applicable. Carruthers J. appears not to have directed to the new provisions which were enacted some ten years before rendering the rationale of P. Michaud inapplicable on the basis of the statutory changes.

[179] Realty cites a passage from Boehmers v. 794561 Ontario Inc. (1993), 14 O.R. (3d) 781 where Kileen J. states:

Section 78(1) is the overarching principle of the new regime of the Act for the determination of priorities. It is if you will, the central interpretative principle for the adjudication of conflicts of the type before the Court in this case. Surely in cases of conflict, as here, the burden must be on the mortgagee to persuade the Court that it somehow falls clearly within a specified exception to the generalized priority of liens.

[180] I agree with Kileen J. and it follows that the burden is on Realty to persuade me “that it somehow falls clearly within a specified exception to the generalized priority of liens.” However to arrive at the section 78 scenario what must be in issue is as stated in subsection 78(1) a “priority over all conveyances, mortgages or other agreements affecting the owner’s interest in the premises.”[^27] Before me what was in issue is not the Owner’s interest in the premises but rather how the section 44 security is to be applied. Once the section 44 security was posted, as before me, the registered liens ceased “to attach to the premises and … to the holdbacks and other amounts subject to a charge under section 21, and becomes instead a charge upon the … security posted…” It follows that at that point the priorities in favour of lien claimants as set out in Section 78 have no application as the lien claimants have had their section 14 lien against the owner’s premises replaced by a charge against the monies paid in or security posted. On that basis alone Realty’s argument on the issue of how the section 44 security is to be applied fails.

[181] In James Dick Construction Ltd. v. Durham Board of Education [2000] 4 C.L.R. (3d) 256 (Div. Ct.) the central issue before the court was whether the security posted pursuant to section 44(1) was available to satisfy the lien claimants without regard to the liability of the payer posting the security as held by Hollinger J. in Francon v. L.Nicolini Construction (1988), 33 C.L.R. 107 or whether the decision of Misener L.J.S.C. rendered in Reliance Electric Ltd. v. G.N.S. Contracting Inc. et al. (1989), 35 C.L.R. 310 that the amount of the security available to satisfy the lien was limited to the liability of the owner who posted the security. At first instance in James Dick Jenkins J. followed Reliance.[^28]

[182] In Francon Hollinger J. dealt with a claim by a sub-sub-contractor against a contractor and sub-contractor. Security for three sub-sub-contractor lien claims was posted by the contractor. The issue before the court as posed by the court was whether the security once posted was available to satisfy the claims of all lien claimants without regard to the liability of the party posting the security. He answered the question in the affirmative. There appeared to be discussion before him of the effect of section 17 as the issue arose in the context of a contractor paying monies in for a sub-sub-contractors lien and section 17 should have been applied which would have resulted in the result advocated by the contractor. Regardless the decision did not involve the question of whether section 78 had any application once section 44(1) security was posted by a mortgagee as analyzed and set out by me above.

[183] In Reliance Misener L.J.S.C. also dealt with a claim by a sub-sub-contractor against a contractor and sub-contractor. The decision rendered was opposite to that in Francon and was based on an analysis of sections of the Act and in particular the application of section 17. Regardless as well the decision did not involve the question of whether section 78 had any application once section 44(1) security was posted by a mortgagee as analyzed and set out by me above.

[184] Jenkins J. in James Dick at first instance was faced with a similar fact situation and was presented with the two differing lines of authority, Francon and Reliance. He opted for Reliance. Again the question of whether section 78 had any application once section 44(1) security was posted by a mortgagee was not before him as analyzed and set out by me above.

[185] The James Dick decision was appealed to the Divisional Court. The decision of the Divisional Court was delivered by Carnwath J. who upheld Jenkins J. opting for the Reliance line of reasoning. Carnwath J. in finding that Francon was no longer good law pointed out that its rationale had its origins in the Mechanic’s Lien Act. At page 261 he stated that:

I find s.44 of the Construction Lien Act to be significantly different from s.29(2) and (4) of the Mechanic’s Lien Act. Section 44(9) is a sophisticated set of rules that apply when liens have been bonded off. One example is sufficient: under s.29(4) of the Mechanics Lien Act, a person whose lien has been vacated by money, bond or other security has a first charge on any monies found to be owing to that person from the money, bond or other security. Section 44(9)2. of the Construction Lien Act says that security posted is to be distributed in accordance with the priorities set out in s.80 of the Act, that is to say pro rata among the members of each class according to their respective rights. Section 80(1)(a) specifically disentitles any person having a lien to priority over another member of the same class. The sections are not identical in substance.

[186] Significantly the underlying fact situation was not that of a mortgagee utilizing section 44(1) for the purpose of facilitating a sale of the property by the mortgagee. Payment in was by an owner or payer. In none of the decisions was there a consideration of what changes were introduced in the Construction Lien Act as compared to the Mechanics Lien Act relating to mortgagees and specifically the provision in section 78(10) allowing a purchaser who takes title from a mortgagee to take title free of the priority of the liens created by sections 78(2) and 78(5) where a bond or letter of credit is posted by the mortgagee as provided in section 78(10). In that respect on a similar basis as Carnwath found in relation to section 44 I find section 78 to be significantly different from those set out in the Mechanics Lien Act particularly those relied on by Carruthers J. in Gilvesy. In short these decisions do not address the issue before me, that is to what extent is the security paid in by a mortgagee pursuant to section 44(1) as opposed to section 78(10) available to satisfy valid lien claims nor did they address the included issue of whether section 78 has any application after subsection 44(1) security is posted.

[187] Sections 8(3), 8(5), 8(6) and 15(1) of the Mechanic’s Lien Act relating to priority of construction lien claims over mortgagees interests in the lands and premises were replaced by section 80 of the Construction lien Act, 1983, S.O. 1983, c 6 now section 78. The changes including the addition of section 78(10) were significant and not a mere carry forward of the old provisions. In particular section 78 specifically recognizes the shortcoming in the old provisions in that they did not address the problems faced by a mortgagee who wished to exercise a power of sale on a mortgage which was in breach when there were construction liens registered on title.

[188] The security provisions in section 44 addressed the practical problems faced by an owner and/or payer who wished to keep a project going in the face of construction liens registered by contractors and subcontractors. Once an owner or payer posted security pursuant to section 44(1) the security stood in place of the lands and premises and the monies could continue to flow down the construction pyramid as in section 44(6) the owner or payer in respect of the operation of sections 21, 23 and 24 (holdback) were put in the same position as if the lien had not been preserved or written notice of the lien had not been given and as the liens ceased to attach to the premises and instead became a charge on the security.

[189] Section 78 was enacted to address priority issues between liens and mortgaes including the practical problems faced by a mortgagee the holder of a building mortgage as defined in section 78(2) or the holder of a subsequent mortgage as defined in section 78(5) when seeking to realize on the mortgage by way of power of sale. A hindrance, to the exercise of the power of sale of such mortgages absent section 78, were construction liens registered on title. The lien claimants’ priority over mortgagees set out in subsection 78(1) is tempered by addressing prior mortgages and by reducing the priority in respect of building and subsequent mortgages by subsections 78(2) and 78(5) to the extent of any deficiency in holdbacks required to be retained by the owner under Part IV. To permit the mortgagee to exercise a power of sale in such situations section 78(10) permits a mortgagee to post security and then the lien claimants have a right of action against the security for their priority. Form 23 specifies the form of the security and provides that it must equal 20% of the contract price of the improvement. Holdback amounts to 10% of the payments made in respect of the improvement. Thus lien claimants will have security for the full amount of the holdback as well as for interest and costs when the mortgagee contests their right to the holdback. Thus the 20% figure is a reasonable one designed to fully protect the priority claim of lien claimants to holdback under sections 78(2) and 78(5).

[190] Form 23 provides:

The oblige of this bond are all persons having liens whose liens are entitled to priority over the interest of the principal [mortgagee] under subsection 78(2) or (5) of the Act.

[191] A mortgagee where there is a default by an owner on the mortgage before the improvement is completed by the Act is provided a remedy whereby the improvement can be completed and sold as set out in section 68, that is to have a trustee appointed. In this way the Act addresses two potential scenarios when an owner defaults. The mortgagee can exercise its power of sale as facilitated by section 78 and in particular subsection 10 or if it wishes the improvement completed can apply to have a trustee appointed pursuant to section 68 where the trustee pursuant to subsection 68(2)(b) is given the power to “complete or partially complete the improvement.” Before me the mortgagees opted instead of either choice to post section 44(1) security and partially complete the improvement and sell it and the remainder of the premises slated for the high rise portion of the improvement.

[192] Section 44(1) permits “any person” to pay in the full amount claimed as owing in a lien claim plus the lesser of $50,000 or twenty-five per cent of the amount claimed as owing in the lien claim as security for costs. As stated subsection 44(6) goes on to provide that once the monies are posted the owner or payer shall in respect of the operation of sections 21, 23 and 24 be in the same position as if the vacated claim for lien had not been preserved and the vacated claim for lien ceases to attach the premises and instead becomes a charge on the posted security. Sections 21, 23 and 24 address the liability for holdback of the owner and a payer but not the holdback liability of a mortgagee set out in sections 78(2) and 78(5). The reason for this is simple, namely the liens no longer attach to the premises so that the mortgagees interest in the premises is free of any priority in favour of the liens.

[193] Subsection 44(9) goes on to set out a number of rules which are applicable once subsection 44(1) security is posted. Rule 1 permits a lien claimant whose lien has been vacated by the posting of subsection 44(1) security to proceed with an action to enforce his claim for lien against the security. Rule 2 goes on to provide that the security posted is subject to all persons having a claim for lien to the same extent as if the security was realized by the sale of the premises in an action to enforce the lien and shall be distributed among all lien claimants in accordance with the priorities provided in section 80. [^29]

[194] The Defendants nonetheless argue that priority subsections 78(2) and (5) apply to the monies posted pursuant to subsection 44(1). The inapplicability of that principle is demonstrated by the following example. If pursuant to section 44(1) security is posted by a mortgagee whose mortgage amounted to a prior mortgage under section 78(3) in that it was registered before the first lien arose in respect of the improvement and the total amount secured by the mortgage was advanced at the time of registration and the total value of the premises at the time the first claim for lien arose in respect of the improvement exceeded the amount of the mortgage then the mortgagee pursuant to section 78(3) has full priority over the liens arising from the improvement. The mortgagee by the application of the Defendants argument would be entitled to return of the full amount of the security posted. The lien claimants would not have any recourse to any portion of the security nor would they have recourse to the premises nor to the holdbacks. The owner and payer are also free of liability as the words in subsection 44(6) state “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.” It is thus obvious how the Defendants’ position if applied as set out above could completely denude lien claimants of all security, the premises, the holdbacks and the monies paid in or security posted pursuant to section 44..

[195] This result and the equivalent result the Defendants seek by limiting the lien claimants to the priority set out in subsections 78(2) and (5) can only come about if section 78 continues to apply to the vacated lien claims after subsection 44(1) security is posted. In order for section 78 to continue to apply the lien established by subsection 14(1) has to continue to attach to the premises as subsection 78(1) is premised on the liens attaching to “the owner’s interest in the premises.”. In turn for the lien to continue to attach to the premises the following words, “the lien ceases to attach to the premises” in subsection 44(6) must be read out. I know of no basis upon which one can strip out this portion of subsection 44(6).

[196] Lococo J. in Basic Drwall Inc. v. 1539304 Ontario Inc. [2012] O.J. No. 882 dealt with a motion by a bank for a declaration that it had priority over lien claimants to fund paid into court from the sale of mortgaged property. The bank provided the building mortgage for an improvement. Subcontractors registered liens for amounts owed by the general contractor to them. At the time the owner owed more to the general contract far more than the owner was required to retain by way of holdback. The bank paid into court security for the subcontractor’s liens. The owner went into receivership and the property was sold. The proceeds were insufficient to satisfy the bank’s building mortgage. The subcontractors position was that the amount for distribution was the minimum amount owed by the owner to the general contractor for unpaid work. Their argument was based on subsection 44(6) and the provision that the amount paid intoi court took the place of the property. The bank’s position was that the amount available to the subcontractors was the statutory holdback applicable to the completed work. The bank’s position was based on the argument that after the lien was vacated by payment in under subsection 44(1) the priority interests of the bank/mortgagee and the lien claimants do not change and continue to be governed by subsection 78(2).

[197] Lococo J. held in favour of the bank relying on James Dick and Reliance decisions which dealt with monies paid in by contractors in relation to subcontractors liens where the question of whether section 78 had any application once section 44(1) security was posted by a mortgagee was not addressed. Nowhere in his analysis did he specifically consider the effect of subsection 44(6) when read together with subsection 14(1) and subsection 78(1), namely that if the Bank after posting security could sell the property free of the claims for lien why was that and why was subsection 78(10) enacted. Subsection 14(1) creates the lien and provides that once the supply takes place the supplier “has a lien upon the interest of the owner in the premises improved…” Subsection 78(1) provides that “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.” Subsection 44(6) provides that when the security is posted “the lien ceases to attach to the premises…” How can liens which cease to attach to the premises continue to have a priority over a mortgage affecting the owner’s interest in the premises? The obvious answer is they cannot. If the bank wanted to limit the mortgagees to the holdback priority set out in subsection 72(2), as it argued, then it should have registered security as provided for in subsection 77(10) specifically enacted to allow a mortgagee to exercise its power of sale rights. The purpose of posting security provided for in section 44 is to allow an improvement to continue by freeing the premises from the liens and freeing the owner and payer from the holdback requirements in respect of the vacated liens. However the quid pro quo is that the liability raised by the liens is transferred to the posted security. Section 44 was not enacted for the purpose of allowing a mortgagee to exercise a power of sale, rather that is the function of registering security pursuant to subsection 78(10). These arguments were not made before Lococo J..

[198] The decision was appealed to the Divisional Court.[^30] The Divisional Court as well did not address the issue on the basis of my 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.

[199] For the aforesaid reasons I find that the lien claimants with proven lien claims are entitled to be paid to the extent of their proven claims for lien out of the security posted in court by Realty.

Was Realty An “Owner” As Defined In The Construction Lien Act

[200] The plaintiff also asserts that Realty should be found to be a statutory owner that is an “owner” within the definition set out in section 1(1). If Realty is found to be an owner then the whole of the subsection 44(1) security is available to satisfy their proven claims for lien.

[201] Given my finding above this issue is moot however nonetheless I will address it in the event I am wrong in my decision above.

[202] In section 1(1) “owner” is defined as any person other than a home buyer who has an interest in the premises the subject of the improvement at whose request the improvement is made. In addition the improvement must have been made on that person’s credit or behalf or with that person’s privity or consent or for that person’s direct benefit.

[203] The plaintiff relies upon the decision of Fogarty L.J.S.C. in Robak Developments Ltd. v. Lehndorff Corp. [1986] O.J. No. 2681 where after reviewing a number of decisions at paragraph 26 he quoted with favour West L.J.S.C