ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-14-21560
DATE: 20150807
BETWEEN:
Aztec Electrical Supply Inc.
Plaintiff
– and –
The Corporation of the Township of Sandwich West and MCB Electrical Contractors Ltd.
Defendants
Antonio Conte, for the Plaintiff
Jeff Hewitt for The Corporation of the Township of Sandwich West
Kimberley J. Wolfe for the Defendant, MCB Electrical Contractors Ltd.
Jeffrey W. Nanson, for the Moving Party, Rob Piroli Construction Inc.
HEARD: July 29, 2015
Hebner J.:
[1] This motion was brought by Piroli for:
a) An order discharging the Aztec Claim for Lien dated October 21, 2014 registered as Instrument Number CE632772;
b) An order returning and cancelling the construction lien bond in the sum of $347,790 bearing lien bond number CBLB2027 which was posted as security to vacate the Aztec claim for lien;
c) In the alternative an order substituting a new security in the sum of $59,777.09 or $121,147.60 pursuant to section 44(5) of the Construction Lien Act, R.S.O. 1990 c. C.30;
d) An order discharging the MCB claim for lien dated on June 24, 2015 registered as Instrument No. CE663734.
The Facts
[2] On October 1, 2014, The Corporation of the Township of Sandwich West, now the Town of Lasalle (“Lasalle”) and Rob Piroli Construction Inc. (“Piroli”) entered into a contract whereby Piroli agreed to build a new municipal centre for the sum of $12,212,529.20 (the “project”). Piroli was the general contractor for the project. Piroli entered into a sub-contract with MCB Electrical Contractors Ltd. (“MCB”) for the supply and installation of electrical services to the project. The contract price as between MCB and Piroli was $1,211,475.98 with change orders. MCB entered into a further sub-contract with Aztec Electrical Supply Inc. (“Aztec”) for the supply of electrical materials. The contract price between MCB and Aztec was $597,770.86.
[3] Aztec registered its construction lien against 2 parcels of land owned by Lasalle on October 17 and October 21, 2014. The lien was in the amount of $278,232.11. Aztec perfected its lien by registering a Certificate of Action on November 26, 2014. On November 28, 2014 a certificate of substantial performance of the contract was signed and it was published on December 4, 2014.
[4] The effect of the Aztec lien (and other liens that had been registered) was that Lasalle could not release the holdback amount of 10% of the contract price ($1,221,252.92) to Piroli so long as the liens remained outstanding. In order to remedy that situation, on December 2, 2014 Piroli posted security in the form of a construction lien bond in the sum of $347,790.00 being the full amount of the Aztec lien plus 25%. The security was posted pursuant to s.44(1) of the Construction Lien Act and the Aztec lien was vacated from title. Piroli did the same with the other liens that had been registered.
[5] After the original motion material was served MCB registered a construction lien on June 24, 2015 in the amount of $234,664.50. MCB claims to have sheltered under the Aztec lien but registered its own lien out of a concern that, in the event the motion to reduce the bond were successful, the effect would be to erode the sheltering of MCB’s lien rights under the Aztec lien. MCB claims some technical problems with the certificate of substantial performance, specifically Piroli’s correct corporate name and the absence of “Concession 2” in the property identifier. MCB also claims that it continued to supply services and materials to the project up to and including June 24, 2015. Counsel for MCB acknowledged that the registered claim for lien of MCB is problematic given it was registered more than 45 days following the publication of the certificate of substantial performance (see s. 31(2) of the Construction Lien Act). She advised that if the amount of the bond is not reduced, MCB will consent to an order discharging its registered lien.
The Issues
Should the Aztec lien be discharged because it was not properly perfected in accordance with the provisions of the Construction Lien Act? If so then the bond ought to be returned to Piroli.
If the answer to issue 1 is no, should the amount of the bond posted as security for the Aztec lien be reduced?
Should the MCB lien be discharged?
Analysis
Issue 1
[6] Piroli takes the position that the Aztec lien was not properly perfected because Piroli is not named as a party in the action. Aztec named 2 defendants; Lasalle as the owner of the property and MCB as the party with whom Aztec entered into a contract. Aztec does not have any privity of contract with Piroli and therefor has no cause of action against Piroli grounded in contract. Aztec has a claim for lien against the property owned by Lasalle because of the supply of materials to the project. Lasalle was named as a party in order to comply with the provisions of the Construction Lien Act. In my view, it was not necessary for Aztec to name Piroli as a party defendant to its action. The scheme of the Construction Lien Act simply does not require it.
[7] My conclusion is consistent with the Court of Appeal decision of Turner v. Johnson [1932]O.J.No.205 where it said:
The Mechanics’ Lien Act, R.S.O. 1927, ch. 173, by secs. 5, 29, 35 and 23, contemplates that the rights of lienholders should be established with the least possible expense and in one action. In this case the appellant filed its claim for a lien and was brought before the Assistant Master by a notice of trial served on it by the plaintiff. In these circumstances the appellant is entitled to establish its lien regardless of the success of the claimant bringing the action, and regardless of the fact that the contractor was not joined as a defendant because the claimant bringing the action (the architect) had no claim against the contractor. Reference to Baines v. Curley (1916) 1916 564 (ON CA), 38 O.L.R. 301.
[8] Accordingly, the answer to Issue 1 is “no”.
Issue 2
[9] Piroli says that the bond it has posted is having a negative impact on its ability to finance another construction project it is involved in. Piroli submits that the amount of the bond ought to be reduced to either $59,777.09 plus 25% or $121,147.60 plus 25%. The first amount is 10% of the contract price between MCB and Aztec. The second amount is 10% of the contract price between Piroli and MCB. Piroli says since it is not a party to the Aztec action the proper bond amount is the 10% holdback obligation of MCB, or $59,777.09. Piroli submits that if MCB has a valid lien then the proper bond amount is $121,147.60. I do not accept either of these submissions.
[10] Piroli posted the bond pursuant to s.44(1) of the Construction Lien Act. That section reads as follows:
Vacating lien by payment into court
Without notice
Upon the motion of any person, without notice to any other person, the court shall make an order vacating,
(a) where the lien attaches to the premises, the registration of a claim for lien and any certificate of action in respect of that lien; or
(b) where the lien does not attach to the premises, the claim for lien,
where the person bringing the motion pays into court, or posts security in an amount equal to, the total of,
(c) the full amount claimed as owing in the claim for lien; and
(d) the lesser of $50,000 or 25 per cent of the amount described in clause (c), as security for costs.
[11] The motion brought by Piroli to reduce the amount of the bond is brought under s.44(5) of the Construction Lien Act which reads as follows:
Reduction of amount paid into court
Where an amount has been paid into court or security has been posted with the court under this section, the court, upon notice to such persons as it may require, may order where it is appropriate to do so,
(a) the reduction of the amount paid into court, and the payment of any part of the amount paid into court to the person entitled; or
(b) the reduction of the amount of security posted with the court, and the delivery up of the security posted with the court for cancellation or substitution, as the case may be.
[12] The question for the court is whether it is appropriate to order a reduction in the bond. To consider this question one must consider the holdback scheme set out in Part IV of the Act. The holdback obligation of each tier in a construction pyramid starting with the owner is set out in s.22(1) of the Act as follows:
Holdbacks
Basic holdback
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 that may be claimed against the holdback have expired as provided in Part V, or have been satisfied, discharged or provided for under section 44 (payment into court).
[13] The personal liability of the owner (in this case Lasalle) is set out in s.23(1) as follows:
Personal liability of owner
Subject to subsections (2), (3) and (4), an owner is personally liable for holdbacks that the owner is required to retain under this Part to those lien claimants who have valid liens against the owner’s interest in the premises.
[14] The lien of a lien claimant (in this case Aztec) is a charge upon the holdbacks required to be retained by Part IV of the Act. This is set out in s.21 of the act as follows:
Lien a charge
The lien of a person is a charge upon the holdbacks required to be retained by Part IV, and subject to subsection 17 (3), any additional amount owed in relation to the improvement by a payer to the contractor or to any subcontractor whose contract or subcontract was in the whole or in part performed by the supply of services or materials giving rise to the lien.
[15] A similar question was considered by Gauthier J. in the case of Graham Mining Ltd. v. Rapid-Eau Technologies Inc., 2000 CarswellOnt 3181, [2000] O.J. No. 3311, [2000] O.T.C. 972, 7 C.L.R. (3d) 267. The holdback scheme of the Act is described at paragraphs 17 to 20:
The position of equating the lien liability with the holdback liability is incorrect.
The purpose of the holdback provisions in the Act is to provide some financial protection for those persons who have worked or supplied material to a project, thus enhancing its value, but who would not otherwise be entitled to assert any direct claim against the owner since there is no privity of contract.
The holdback provisions in the Act do not always operate to limit the value of the lien. Rather, they only apply when the “least amount owed” by a payer is less than its holdback obligation. For example: an owner has a contract with a general contractor for $10,000. The subcontractors are owed, by the contractor, the sum of $7,000. If the owner has paid the general contractor in full (i.e. the $10,000), he will still be liable for the 10% holdback he should have retained. Put another way, the owner will not be liable to pay out more than the 10% holdback if he has already paid the contractor in full.
[16] The holdback provisions make the owner (Lasalle) liable to the subcontractors and suppliers (with whom it does not have privity of contract) in an amount up to 10% of the contract between the owner and the general contractor (Piroli). The value of the contract between Lasalle and Piroli is $12,212,529.20. I am told that Piroli has been paid the contract amount. Accordingly it follows that Lasalle’s liability for the Aztec (and other) lien amounts is limited to the holdback required to be maintained by Lasalle, namely $1,221,252.92. Since this amount is higher than Aztec’s claim, it would not be appropriate to order a reduction in the bond amount below the full amount of Aztec’s claim plus 25%. A similar conclusion was reached by Gates J. in 1109140 Ontario Ltd. v. Sunningdale Golf Club Ltd. (2004), 34 C.L.R. (3d) 248. I echo his comments set out in paragraph 11 of that decision as follows:
In reaching this decision I am persuaded by the decision of Gauthier J. of the Ontario Superior Court of Justice in the Graham Mining Case and that to obtain an order under s.44 (2) of the Construction Lien Act the amount to be paid into court in satisfaction of the claim must be reasonable in the circumstances and is therefore not limited to the amount of the statutory holdback. Further, as provided by s.14 (1) of the Act, the person who supplies services or materials has a lien upon the interest of the owner in the premises improved for the price of those services or materials.
Issue 3
[17] MCB has sheltered under the Aztec lien and has consented to the discharge of its lien so long as the bond amount is not reduced. As I have determined that it would not be appropriate to reduce the bond amount the MCB lien can be discharged and this issue becomes moot.
The result
An order shall go discharging the MCB Electrical Contractors Ltd. claim for lien dated on June 24, 2015 registered as instrument number CE663734.
The balance of the motion of Rob Piroli Construction Inc. shall be dismissed.
The parties may make written submissions on costs, to be accompanied by a costs outline and any relevant offers to settle, as follows:
a) Aztec, MCB and Lasalle shall provide submissions within 15 days;
b) Piroli shall provide submissions within 30 days;
c) Any reply submissions shall be provided within 45 days.
Original signed “Hebner J.”
Pamela L. Hebner
Madam Justice
Released: August 7, 2015
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Aztec Electrical Supply Inc.
Plaintiff
– and –
The Corporation of the Township of Sandwich West and MCB Electrical Contractors Ltd.
Defendants
REASONS ON MOTION
Hebner, J.
Released: August 7, 2015