SUPERIOR COURT OF JUSTICE - ONTARIO

RE: RSG Mechanical Incorporated

Plaintiff

AND

1398796 Ontario Inc., Bloorwood Group, London Guarantee Insurance Company, Northern Indemnity Inc., Realty Growth & Revenue Fund General Partner Inc., Marketpoint Development Corp. and MCAP Financial Corporation

Defendants

BEFORE: F.L. Myers J.

COUNSEL: Michael A. Handler, for Realty Growth & Revenue Fund General Partner Inc., Moving Party

Antonio Conte, for the Plaintiff/Respondent

Robert C. Harason, for Quality Rugs of Canada, Cross-Moving Party

HEARD: June 23 & 24, 2014

endorsement

[1] In my Endorsement dated June 27, 2014, RSG Mechanical Incorporated v.1398796 Ontario Inc., 2014 ONSC 3936, I invited counsel to contact me if they had problems drafting the formal order arising from my decision. The form of order is complex. I heard counsel on August 12, 2014 at their request. They asked me to clarify a number of points.

[2] First, the holdback deficiencies related to the claimants A.F. Drywall, Rafat General Contractors Inc., and The Sherwin Williams Company Inc. should not be included in the calculations of the amounts due to the successful lien claimants. These claimants did not establish timely, valid lien claims.

[3] I recognized and dealt with pooling of claims in paras. 41 to 45 of my Endorsement. There is sufficient money in Court to pay the priority claims of each successful lien claimant. The successful lien claimants want to increase their individual priority amounts by allowing them to divide among themselves the amounts that were posted to bond off claims for liens of other unsuccessful claimants. As noted at para. 44 of my Endorsement, in Lansing Building Supply (Ontario) Ltd. v. Kemp (1993), 39 A.C.W.S. (3d) 565, the Divisional Court overruled the decision of the Master to include funds in a pool beyond the amounts due to each successful contractor in the circumstances of that case. The Divisional Court wrote, “The effect of his decision renders Section 31 meaningless”. Section 31 of the Construction Lien Act deals with the invalidity of untimely claims for lien. In other words, the Divisional Court held that to give effect to section 31, amounts held in respect of untimely liens are not included in the holdbacks available for successful contractor lien claimants. The successful lien claimants in this case are contractors only. The claims do not have the complexity of subcontractor or other types of lien claims. Moreover, this is a priority dispute among competing creditors – the successful contractors and the owner’s mortgagees. The lien claimants confuse their rights against the owner with their rights against competing mortgagees. Each contractor has priority against the mortgagees for up to 10% of its claim and no more. Giving them a piece of the holdbacks held for other unsuccessful lien claimants is effectively recognizing a priority for amounts held for untimely liens contrary to Lansing, supra, and would increase the yield of the successful lien claimants to more than the 10% priority to which they are entitled.

[4] The extra $60,000 should not be added to the aggregate of the total of valid priority claims for deficiency holdbacks. The Master added this amount to his totals in dealing with the claimants’ rights against the mortgagees qua owners to reflect claims for upgrades and amounts that arose after the date of Helyar Report No. 13. I rejected the finding that the mortgagees were owners vis-à-vis these claimants. In para. 133 of the Master’s decision, the Master recites that his chart contains his findings on the timeliness and quantums of the liens claimed – some of which reflected settlements. The inputs for the chart were not limited to the time period preceding the Helyar Report as I had thought, so there is no further sum to be added to the amounts set out in the deficiencies column in the chart. The amounts set out in the “Deficiency in Holdback” column in respect of the successful lien claimants are the amounts that will be used for the purposes of the order.

[5] I awarded costs of the motion before me to Realty Growth in the amount of $50,000. Prior to or early in the trial before the Master, Realty Growth took assignments of three valid liens. Those lien claimants were not among the parties represented by Messrs. Conte and Harason who opposed the position of Realty Growth in the motion before me. The $50,000 costs of the hearing before me are to be borne only by the priority holdback amounts of the remaining clients of Messrs. Conte and Harason pari passu.

[6] As to the costs of the reference before the Master, in my Endorsement I held that “I do not think that I should saddle either side with the costs of the other in respect of the reference in light of the outcome. Both sides were prejudiced.” Mr. Handler has asked me to consider his clients’ offers to settle before the Master. Mr. Conte has argued that I did not have jurisdiction to deal with the costs before the Master. Alternatively, as all but three of his clients succeeded in establishing valid, priority claims, costs should follow the event. Finally, Mr. Conte asks me to ensure that his client is able to receive indemnity for its “carriage costs”, if not from the mortgagees, at least pari passu from the other lien claimants.

[7] I have jurisdiction to review the Master’s findings on costs. They are contained in his Report that is before me. The order referring the matter to the Master makes this clear as well. The Master’s award was based upon his view of success and therefore was based on a wrong premise in light of the outcome of the motion to oppose confirmation. Therefore the Master’s order as to costs cannot stand.

[8] Before the Master, the mortgagees were effectively the defendants, opposing the efforts of the plaintiffs to prove valid claims. The Master held that the defense was reasonably conducted. I cannot say that the mortgagees clearly beat their offers because costs factor into that assessment. It is clear in the Master’s decision however, that the quantum and timeliness of many of the successful lien claims were admitted before trial or were settled early in the trial. The bulk of the evidence and contentious issues at the trial went to the questions of whether the mortgagees were liable as owners or for advances made. The evidence of years of chronology was not relevant to the simple issue of quantifying claims for lien. While I am reluctant to deprive a successful plaintiff of its costs, in my discretion I believe this is the most just course. The lien claimants have not succeeded on any of the grounds of real controversy before the Master. Both sides were prejudiced by the manner in which the reference proceeded – not to mention the improper delay in the release of the Reasons. In my view, the fair and just result is not to compound the prejudice to either side by awarding costs of the reference. There will be no costs of the reference apart from “carriage costs” dealt with below.

[9] Carriage costs are costs incurred by counsel to whom carriage of the litigation was assigned that exceed the costs incurred by that counsel just for his or her own client. They relate to aspects of the litigation process that benefit all of the lien claimants for whom counsel has been assigned carriage. The Master accepted the quantification of carriage costs at $107,000. I can see no error in principle in that determination. In my view these costs should be shared by all of the lien claimants including those whose claims were assigned to Realty Growth. Mr. Handler argues that once Realty Growth took the assignments, the assigned lien claims should not bear any further carriage costs relating to the subsequent trial or trial days. It is fair and reasonable in my view for the carriage costs to be borne pari passu by the successful lien claimants who were before the Master including the assigned claims who benefited to at least some degree from the efforts of counsel with carriage both before and after assignment. Nothing in my decision deals with or limits in any way the rights of indemnity that any of the successful lien claimants (including those assigned to Realty Growth) may have against the clients of Mr. O’Brien in respect of carriage costs, if any.

[10] It follows that I accept the format of the chart contained in Mr. Handler’s submission dated July 31, 2014 provided that it is amended to add a column to reflect payment of carriage costs to the counsel entitled from the successful lien claimants pari passu.

[11] Lest Mr. Harason be concerned that I have not dealt with his submissions, I dealt with them already in my Endorsement on full argument at the time.

[12] I encourage counsel to now finalize an order. I may be contacted by email through my assistant if necessary. Any submissions should continue to be made by searchable pdf attachment to an email. There are no costs awarded in relation to the appearance before me on August 12, 2014.

________________________________ F.L. Myers J.

Date: August 13, 2014