Court File and Parties

Court File No.: CV-22-0462-00 Date: February 21, 2023 Superior Court of Justice – Ontario

Re: Northwest Angle 33 First Nation, Applicant And: Razar Contracting Services Ltd. et al., Respondents

Before: Mr. Justice J.S. Fregeau

Counsel: G. Banfai and D. Hashem, for the Applicant P. Halamandris, for the Respondent, Razar Contracting Services Ltd. N. Wainwright, for Pro-Gen (Thunder Bay) Inc. J. Blackett and F. D’Alessandro, for Canada Revenue Agency R. Lepere, for A.D. Hanslip Ltd. A. Imbessi, for Delco Automation Inc. R. Walichnowski, for Long Beach Construction D. Beynon, for Solid Silver Construction Ltd. K. Schade, for Kako Investments Ltd. A. Heal, for Crane Steel Structures Ltd. S. Daly, for Agassiz Drilling (2000) Ltd. C. Roy, for Mr. Gravel Inc. M. Smiley, for Breaking Ground Drilling and Blasting Inc.

Heard: In Thunder Bay by Zoom January 23, 2023

Endorsement

Introduction

[1] The applicant (“NWA 33” or the “First Nation”) seeks an interpleader order pursuant to r. 43.02(1) of the Rules of Civil Procedure ordering the First Nation to pay the amount of $1,204,516.55 (the “Fund”) into Court.

[2] The First Nation further seeks an order pursuant to r. 43.04(1) establishing a procedure for the orderly distribution of the Fund among the respondents in accordance with their entitlements, as may be found by the Court.

[3] The Fund is held by the First Nation in relation to a construction project that is ongoing on lands reserved to the First Nation. The respondent, Razar Contracting Services Ltd. (“Razar”), was the original general contractor on the construction project. The First Nation seeks to pay the Fund into Court and for a claims process to be established to ensure the orderly and equitable distribution of the Fund.

[4] The request for an interpleader order is opposed by the respondents Pro-Gen (Thunder Bay) Inc. (“Pro-Gen”) and Canada Revenue Agency (“CRA”), two creditors of the Razar. Pro-Gen and CRA have asserted priority claims to the Fund and seek orders directing payment of their claims from the Fund prior to it being paid into Court.

[5] As a result of the positions taken by Pro-Gen and CRA, the First Nation also seeks an order determining its obligation to disburse from the Fund, prior to the Funds being paid into Court, the sums of:

1. $207,637.68 to Pro-Gen in response to the Pro-Gen Notice of Garnishment naming Razar as debtor and the First Nation as garnishee; and
2. $247,180.35, plus penalties and interest to the date of payment, claimed as owing by Razar to CRA in relation to unremitted payroll source deductions, in response to a Requirement to Pay (“RTP”) issued by CRA.

[6] The remaining respondents, comprised of various suppliers and subcontractors of Razar, all of whom claim amounts they submit remain unpaid and owing to them by Razar, oppose the priority claims of Pro-Gen and CRA. These respondents endorse the request for the payment of the Fund into Court and support an order for a reasonable claims process to be established by the Court with respect to the distribution of the Fund.

Background

[7] On February 5, 2020, the First Nation contracted with Razar for the construction of the Angle Inlet Water System (the “Contract”) to provide safe drinking water to the residents of NWA 33 (the “Project”). Pursuant to the Contract, the First Nation was required to retain a 10% “statutory holdback” and a 2% “maintenance holdback” from progress payments owing to Razar.

[8] On May 18, 2022, the First Nation exercised its right under the contract and took the balance of the Contract work out of Razar’s hands due to uncorrected defaults by Razar. Pursuant to the terms of the Contract, if any part of the work is taken out of Razar’s hands, Razar’s right to any further payment under the contract is extinguished.

[9] As of May 18, 2022, the accrued 10% statutory holdback was $1,003,768.80 and the accrued maintenance holdback was $200,752.75. The Fund consists of a total of these two amounts, being $1,204,516.55. The Project is ongoing and has not been deemed substantially complete.

[10] Starting in mid-2021, the Project Engineer, JR Cousins Consultants Ltd., began receiving written notices from various of Razar’s suppliers and subcontractors who had not been paid by Razar. As of the hearing of this application, the amounts claimed in these notices were in the sum of $1,913,038.14.

[11] Pro-Gen was a subcontractor on the Project. Pro-Gen commenced a claim against Razar in relation to amounts owing for work performed on the project and obtained a default judgment on July 26, 2022 (the “Judgment”). On September 8, 2022, Pro-Gen obtained a Notice of Garnishment in the amount of $207,637.68 in relation to the Judgment and served it on the First Nation.

[12] On October 17, 2022, the First Nation was served with the CRA RTP, pursuant to which CRA demands payment of $281,473.77 from any amounts the First Nation would otherwise pay Razar.

[13] The amounts claimed by Pro-Gen and CRA are in addition to the $1,913,038.14 claimed by Razar’s other suppliers and subcontractors.

[14] Razar has not commenced legal proceedings against the First Nation. Razar appeared at the hearing of this application but did not file any material or take any position on the issues, other than commenting on the terms of the draft order submitted by the First Nation.

The Issues

1. Is an Order to interplead the Fund available in the circumstances?
2. Are the trust provisions of the Construction Act, R.S.O. 1990, c. C. 30 applicable to the Project, given that the Project was on a First Nation?
3. If the trust provisions of the Construction Act apply, is the Fund a trust fund pursuant to Part II of the Construction Act?
4. If not, is the Fund otherwise impressed with a trust for the benefit of Razar’s unpaid subcontractors and suppliers?
5. Is Pro-Gen entitled to payment from the fund in priority to the other claimants pursuant to the Notice of Garnishment?
6. Is CRA entitled to payment from the fund in priority to the other claimants pursuant to the RTP?

The Positions of the Parties

Northwest Angle 33 First Nation

[15] The First Nation disclaims any beneficial interest in the Fund. The First Nation takes no position respecting the right of Pro-Gen and/or CRA to receive payment from the Fund in priority to any payment to other claimants.

[16] The First Nation seeks to interplead the Fund to allow for its orderly distribution among the respondents and any other subcontractors and suppliers of Razar who may come forward, in accordance with their entitlements as found by the Court.

[17] The First Nation submits that this fact situation falls squarely within the provisions of r. 43.02(1)(a) and (b) and that the remedy of interpleader, together with an order establishing a process to determine the rights of the claimants in a summary manner, is appropriate in all the circumstances.

Pro-Gen

[18] Pro-Gen submits that the Construction Act does not apply to construction projects on lands reserved for First Nations. Pro-Gen further submits that the trust provisions found in s. 8 of the Construction Act are inconsistent with s. 89(1) of the Indian Act, R.S.C. 1985, c. I-5, as am., and are therefore not applicable to the Fund.

[19] Pro-Gen submits that section 8 of the Construction Act does not apply to First Nations. Where an improvement is on lands reserved for First Nations, the imposition of the trust is the equivalent of seizing “the personal property of an Indian or a band situated on a reserve”, which is inconsistent with and prohibited by s. 89(1) of the Indian Act, according to Pro-Gen.

[20] Pro-Gen contends that the Fund created by the Contract is not a trust fund, but rather a contractual holdback created for the benefit of subcontractors and suppliers. It allows the First Nation, in their discretion, to pay subcontractors and suppliers directly. Unless and until paid out, the contractual holdback remains the property of the First Nation, according to Pro-Gen.

[21] However, given that NWA 33 has disclaimed any beneficial interest in the Fund on this application, Pro-Gen submits that the Fund must be money or a debt payable to Razar pursuant to the contract and therefore subject to Pro-Gen’s Notice of Garnishment in priority to the claims of the other respondents.

Canada Revenue Agency

[22] CRA requests that the Court determine, on this Application and in a summary manner, that CRA has priority to the Fund over any other party and that funds in the amount of $247,180.35, plus interest and penalties to the date of payment, be paid directly to CRA prior to the Fund being interpleaded.

[23] CRA submits that it issued an RTP to the First Nation on October 17, 2022, in the amount of $272,034.64, being the source withholding tax debt owed by Razar to CRA. The RTP directed the First Nation that any money otherwise payable to Razar, up to the amount set out in the RTP, must be paid to CRA. As of the date of the hearing of the application, the debt owed by Razar to CRA has been reduced to the lower figure set out above.

[24] CRA submits that source withholding amounts are deemed to be held in trust for His Majesty pursuant to s. 227(4) of the Income Tax Act (Canada) (“ITA”). CRA further submits that s. 227(4.1) of the ITA provides that where a source withholding amount is not paid to the Crown, property of the taxpayer equal to the source withholding amount payable is subject to the trust under s. 227(4.1), forms no part of the property of the taxpayer and is beneficially owned by and payable to His Majesty in priority to all security interests.

[25] CRA contends that these provisions of the ITA confer a priority to CRA in respect of all property and assets of a tax debtor. CRA suggests that this priority includes the Fund. CRA submits that no creditor or claimant in this application can assert a claim that is equal to or greater than CRA’s claim pursuant to the RTP. CRA submits that when it issued the RTP on October 17, 2022, it retained a priority over all other creditors with a claim against Razar.

[26] CRA submits that there is no authority supporting the submission that a trust created pursuant to s. 8 of the Construction Act, or any other provincial construction lien legislation, prevails over the deemed trust created by the ITA in respect of source withholding amounts.

[27] In any event, the doctrine of paramountcy dictates that the ITA, being federal legislation, prevails in the event of conflict with provincial legislation (the Construction Act) according to CRA.

[28] CRA submits that it is entitled to an order requiring payment of an amount out of the Fund equal to the balance of the unremitted and outstanding source deduction debt owing by Razar to CRA prior to the Fund being interpleaded and in priority to all other creditors and claimants in this application.

A.D. Hanslip Ltd.

[29] A.D. Hanslip (“Hanslip”) is a subcontractor on the project and submits that it is owed $268,523.51 by Razar for work performed pursuant to a subcontract.

[30] Hanslip agrees with the position of the First Nation and submits that it is appropriate for the Fund to be interpleaded and for an orderly claims process to be determined by the Court to regulate the distribution of the Fund amongst claimants.

[31] Hanslip disputes the priority claims of Pro-Gen and CRA. Hanslip submits that the positions of both Pro-Gen and CRA are premised on the Fund being either the property of Razar or a debt payable to Razar. Hanslip submits that for the priority claims of Pro-Gen and CRA to succeed they must establish that this is in fact the case. Hanslip contends that the facts do not support that conclusion.

[32] Hanslip submits that pursuant to the terms of the Contract, the Fund is comprised of “statutory holdbacks” and “maintenance holdbacks” retained from progress payments and to be paid to Razar “not later than 60 days after the date the [P]roject has been deemed substantially complete”.

[33] Hanslip submits that it is not in issue that the Project has not yet been deemed substantially complete. Hanslip contends that no portion of the Fund is therefore, according to the terms of the Contract, payable to Razar.

[34] Hanslip further submits that it is not in issue that the Project has been taken out of Razar’s hands. Hanslip submits that, pursuant to the terms of the Contract, if the work is taken out of Razar’s hands, Razar’s right to any further payment that is due under the contract, including any portion of the Fund, “is extinguished”. As such, the Fund is not property of Razar or a debt payable to Razar by the First Nation and the First Nation therefore has no obligation to remit payment to Pro-Gen pursuant to the Notice of Garnishment, according to Hanslip.

[35] Hanslip submits that for CRA to be entitled to payment from the Fund in priority to the other respondents on the basis of a deemed trust pursuant to the provisions of the ITA, CRA must establish that the Fund is the property of Razar. Hanslip submits that until it has been determined that the Fund, or a portion of it, is the property of Razar or payable to Razar, CRA has no claim to the Fund and the First Nation has no obligation to remit payment to CRA from the Fund pursuant to the RTP.

[36] Hanslip contends that it and the other respondents are not asserting priority over CRA to the property of Razar. Hanslip submits that all claimants are beneficiaries of the Fund and that the total claims exceed the balance of the Fund such that it is highly unlikely that Razar will realize anything from the Fund. Hanslip does not dispute that CRA’s deemed trust attaches to Razar’s property. Hanslip’s position is that it has not been established that the Fund, or any portion of it, is Razar’s property and that until that determination is made, CRA’s claim (and Pro-Gen’s) is premature.

[37] In the alternative, Hanslip submits that the Fund constitutes a trust fund, pursuant to s. 8(1) of the Construction Act, for the benefit of subcontractors and suppliers who are owed money by Razar. As such, the Fund is neither the property of Razar nor a debt payable to Razar and is therefore not subject to the priority claims of Pro-Gen and CRA.

[38] Hanslip submits that the trust remedy in the Construction Act is a separate and distinct remedy applicable to the Project and the Fund independent of a right to lien, which is conceded to be unavailable in this case because the Project is on federal lands reserved for the First Nation. Hanslip submits that Ontario jurisprudence has established that s. 8(1) of the Construction Act applies to construction projects on federal lands held for First Nations.

[39] Hanslip disputes Pro-Gen’s assertion that s. 8(1) of the Construction Act is inconsistent with s. 89(1) of the Indian Act. Hanslip notes that the First Nation has disclaimed any interest in the Fund and that, but for the claims of the Respondents in this application, the Fund is otherwise payable to Razar. Hanslip submits that the Fund is therefore not “the real or personal property of an Indian or a band situate on a reserve” within the meaning of s. 89(1) of the Indian Act.

[40] Hanslip also disputes CRA’s assertion that the doctrine of paramountcy applies, such that CRA’s claim to the fund pursuant to the ITA prevails over the provisions of the Construction Act, which deem the Fund to be a trust fund. Hanslip contends that CRA’s deemed trust applies only to the property of Razar and that the Fund is not the property of Razar, such that there is no conflict between the ITA and Construction Act in these circumstances.

[41] Hanslip submits that the priority claims of Pro-Gen and CRA should be dismissed and that the First Nation’s request to interplead the Fund should be granted and a claims process established.

Delco Automation Inc.

[42] Delco Automation Inc. (“Delco”) supports the First Nation’s request to interplead the Fund. Delco adopts and endorses the position of Hanslip and other respondents in opposing the priority claims of Pro-Gen and CRA.

[43] Delco opposes Pro-Gen’s assertion that the Construction Act has no application to the Project. Delco submits that the Construction Act is a provincial statute of general application which applies to the Project except to the extent that it is inconsistent with the Indian Act. As a result, as acknowledged by all parties, the lien remedy in the Construction Act is not available to unpaid subcontractors and suppliers to the Project given the federal nature of the First Nations lands.

[44] However, Delco joins with Hanslip in submitting that Ontario jurisprudence confirms that the trust provisions of the Construction Act apply to construction projects on First Nations lands. Delco submits that the case law relied upon by Pro-Gen does not support the general proposition advanced by Pro-Gen that the Construction Act does not apply to projects on land reserved for First Nations. These authorities simply confirm that the lien remedy cannot be exercised in respect of reserve lands, according to Delco.

[45] Delco submits that the Fund is comprised of funds the First Nation is required to have retained as a contractual holdback from progress payments owing to Razar. As the First Nation has disclaimed any interest in the Fund, Delco submits that the Fund is comprised of amounts owing to Razar and which constitute a trust fund pursuant to Part II of the Construction Act for the benefit of Razar’s unpaid subcontractors and suppliers.

[46] Granting the First Nation’s request to interplead the Fund and to establish a procedure allowing entitled beneficiaries to share in the Fund would be a fair and expeditious manner of proceeding, according to Delco.

Long Beach Construction

[47] Long Beach Construction (“Long Beach”) is a subcontractor to Razar and submits that it is owed approximately $437,000.00 on the Project. Long Beach takes no position with respect to the First Nation’s interpleader application. Long Beach opposes the positions of Pro-Gen and CRA as to their entitlement to be paid from the Fund in priority to other respondents.

[48] Long Beach endorses the position of Hanslip opposing Pro-Gen’s and CRA’s priority claims to the Fund. Long Beach submits that the positions of Pro-Gen and CRA fail to recognize that the First Nation, pursuant to the express terms of the Contract, retains the Fund for the benefit of parties other than Razar.

[49] If it is ultimately determined that Razar is entitled to a portion of the Fund, it is only that portion of the Fund which is properly subject to Pro-Gen’s Notice of Garnishment and CRA’s RTP, according to Long Beach. Simply put, Long Beach submits that Pro-Gen’s and CRA’s entitlement to the Fund is only as strong as Razar’s and unless and until it is determined that a portion of the Fund is Razar’s property, the claims of Pro-Gen and CRA are premature.

Solid Silver Construction Ltd.

[50] Solid Silver Construction Ltd. (“Solid Silver”) agrees with the First Nation that an order to interplead the Fund is appropriate and would lead to an equitable and effective resolution of this matter.

[51] Solid Silver adopts the position of Hanslip in relation to the priority claims of Pro-Gen and CRA. Solid Silver submits that the First Nation and Razar deliberately chose to use language in the Contract that mirrored the trust provisions of the Construction Act, specifically the requirement of a holdback from monies otherwise payable to Razar for progress payments for the benefit of subcontractors and suppliers.

[52] Solid Silver contends that the Fund is impressed with trust obligations pursuant to the Contract such that the Fund is trust property which cannot be subject to either Pro-Gen’s Notice of Garnishment or CRA’s RTP, unless and until a determination is made as to Razar’s entitlement to the Fund, if any, in light of the claims of unpaid subcontractors and suppliers.

Kako Investments

[53] Kako Investments (“Kako”) submits that it is owed approximately $30,000.00 by Razar for the supply of products to the Project. Kako agrees with the First Nation that the Fund should be interpleaded. Kako also adopts the position of Hanslip in opposition to the priority claims of Pro-Gen and CRA.

Crane Steel Structures Ltd.

[54] Crane Steel Structures Ltd. (“Crane Steel”) agrees that the Fund should be interpleaded as requested by the First Nation. Crane Steel adopts and endorses the positions taken by other respondents in opposing the priority claims of Pro-Gen and CRA.

[55] Crane Steel submits that the Fund consists of unpaid trust funds within the meaning of s. 8 of the Construction Act, held for the benefit of unpaid subcontractors and suppliers to the Project. In the alternative, Crane Steel submits that the terms of the Contract create a contractual holdback from progress payments owing to Razar.

[56] In either case, the Fund is a trust fund and not the property of Razar and therefore not, at this time, subject to Pro-Gen’s Notice of Garnishment or CRA’s RTP, according to Crane Steel.

Discussion

[57] Rule 43.02(1) provides:

Application or Motion under Subrule 43.02 (1)

43.02 (1) A person may seek an interpleader order (Form 43A) in respect of property if,

(a) two or more other persons have made adverse claims in respect of the property; and

(b) the first-named person,

(i) claims no beneficial interest in the property, other than a lien for costs, fees or expenses, and

(ii) is willing to deposit the property with the court or dispose of it as the court directs. O. Reg. 42/05, s. 3.

[58] Rule 43.04(1) provides:

Disposition

Powers of Court

43.04 (1) On the hearing of an application or motion for an interpleader order, the court may,

(a) order that the applicant or moving party deposit the property with an officer of the court, sell it as the court directs or, in the case of money, pay it into court to await the outcome of a specified proceeding;

(b) declare that, on compliance with an order under clause (a), the liability of the applicant or moving party in respect of the property or its proceeds is extinguished; and

(c) order that the costs of the applicant or moving party be paid out of the property or its proceeds. O. Reg. 42/05, s. 3.

[59] Sections 88 and 89(1) of the Indian Act provide:

General provincial laws applicable to Indians

88 Subject to the terms of any treaty and any other Act of Parliament, all laws of general application from time to time in force in any province are applicable to and in respect of Indians in the province, except to the extent that those laws are inconsistent with this Act or the First Nations Fiscal Management Act, or with any order, rule, regulation or law of a band made under those Acts, and except to the extent that those provincial laws make provision for any matter for which provision is made by or under those Acts.

Restriction on mortgage, seizure, etc., of property on reserve

89 (1) Subject to this Act, the real and personal property of an Indian or a band situated on a reserve is not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band.

[60] Sections 8(1) and (2) of the Construction Act provide:

Contractor’s and subcontractor’s trust

Amounts received a trust

8 (1) All amounts,

(a) owing to a contractor or subcontractor, whether or not due or payable; or

(b) received by a contractor or subcontractor,

on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor. R.S.O. 1990, c. C.30, s. 8 (1); 2017, c. 24, s. 66.

Obligations as trustee

(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor. R.S.O. 1990, c. C.30, s. 8 (2); 2017, c. 24, s. 66.

[61] Sections 227(4) and (4.1) of the ITA provide:

Trust for moneys deducted

(4) Every person who deducts or withholds an amount under this Act is deemed, notwithstanding any security interest (as defined in subsection 224(1.3)) in the amount so deducted or withheld, to hold the amount separate and apart from the property of the person and from property held by any secured creditor (as defined in subsection 224(1.3)) of that person that but for the security interest would be property of the person, in trust for Her Majesty and for payment to Her Majesty in the manner and at the time provided under this Act.

Extension of trust

(4.1) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection 227(4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the manner and at the time provided under this Act, property of the person and property held by any secured creditor (as defined in subsection 224(1.3)) of that person that but for a security interest (as defined in subsection 224(1.3)) would be property of the person, equal in value to the amount so deemed to be held in trust is deemed

(a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, and

(b) to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not the property has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject to such a security interest

and is property beneficially owned by Her Majesty notwithstanding any security interest in such property and in the proceeds thereof, and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests.

[62] The relevant terms of the Contract between the First Nation and Razar are as follows:

TP4 TIME OF PAYMENT .4 Subject to TP1 and TP4.5 the Band Council shall, not later than 30 days after the receipt by the Engineer of a progress claim referred to in TP4.2, pay the Contractor .1 an amount that is equal to the value that is indicated in the progress report referred to in TP4.3.2 if a labour and material payment bond has been furnished by the Contractor, minus: .1 an amount that is equal to 10% of the amount referred to in TP4.3.2, which will be retained as a statutory holdback to be paid to the Contractor not later than 60 days after the date that the project has been deemed substantially complete, in described herein; and .2 an amount that is equal to 2% of the amount referred to in TP4.3.2, which will be retained as a maintenance holdback to be paid to the Contractor not later than 30 days after the end of the warranty period described in GC32.1.2.

GC 38 TAKING THE WORK OUT OF THE CONTRACTOR'S HANDS .1 The Band Council may, at its sole discretion, by giving a notice in writing to the Contractor in accordance with GC11, take all or any part of the work out of the Contractor's hands, and may employ such means as it sees fit to have the work completed if the Contractor .1 has not, within six days of the Band Council or the Engineer giving notice to the Contractor in writing in accordance with GC11, remedied any delay in the commencement or any default in the diligent performance of the work to the satisfaction of the Engineer; .2 has defaulted in the completion of any part of the work within the time fixed for its completion by the contract; .3 has become insolvent; .4 has committed an act of bankruptcy; .5 has abandoned the work; .6 has made an assignment of the contract without the consent required by GC3.1; or .7 has otherwise failed to observe or perform any of the provisions of the contract. .2 If the whole or any part of the work is taken out of the Contractor's hands pursuant to GC38.1, .1 the Contractor's right to any further payment that is due or accruing due under the contract is, subject only to GC38.4, extinguished, and .2 the Contractor is liable to pay the Band Council, upon demand, an amount that is equal to the amount of all loss and damage incurred or sustained by the Band Council in respect of the Contractor's failure to complete the work.

GC 42 CLAIMS AGAINST AND OBLIGATIONS OF THE CONTRACTOR OR SUBCONTRACTOR .5 To the extent that the circumstances of the work being performed for the Band Council permit, the Contractor shall comply with all laws in force in the Province or Territory where the work is being performed relating to payment period, mandatory holdbacks, and creation and enforcement of mechanics' liens, builders' liens or similar legislation or in the Province of Quebec, the law relating to privileges.

[63] On May 18, 2022, NWA 33 exercised its right under section GC 38.1 of the Contract and took the balance of the work on the Project out of Razar’s hands. As a result, pursuant to section GC 38.2 of the Contract, Razar’s right to any further payment due or accruing due under the Contract was extinguished. Razar has not demanded any further payment from the First Nation subsequent to the work being taken out of its hands, including any claim to the Fund the First Nation now seeks to interplead.

[64] As of May 18, 2022, the date the work was taken out of Razar’s hands, the total of the “statutory holdback” and the “maintenance holdback” required to be retained by the First Nation pursuant to section TP4.4.1 of the Contract was $1,204,516.55. The Project has not been deemed substantially complete and the First Nation disclaims any beneficial interest in the Fund.

[65] I accept the submissions of the respondents opposing the priority claims of Pro-Gen and CRA that the legal characterization of the Fund is determinative of their right to priority. If the Fund is the property of Razar or a debt payable to Razar, Pro-Gen’s and CRA’s claims to priority prevail. If the Fund is not the property of Razar or a debt payable to Razar, their claims to priority fail at this stage in the proceedings.

[66] In my view, the legal characterization of the Fund must be determined by the intent of the parties to the Contract as evidenced by the plain meaning of the words used in the relevant sections of the Contract, considered in the context of the Contract as a whole.

[67] The First Nation and Razar agreed, as set out in section TP4.4 of the Contract, that the progress payment obligations of the First Nation to Razar would be subject to a 10% “statutory holdback” and a 2% “maintenance holdback”. The First Nation and Razar further agreed, as set out in section TP4.4.1, that a condition precedent to the First Nation’s obligation to pay the Fund to Razar, and to Razar’s right to demand payment from the Fund, was that the Project be deemed substantially complete, which has not yet occurred.

[68] In my view, it is clear from the express terms of the Contract that the First Nation and Razar intended the Fund to be retained by the First Nation and to remain available as a holdback to unpaid subcontractors and suppliers of Razar pending substantial completion of the Project.

[69] The First Nation and Razar also agreed, as set out in section GC 38.2, that if work on the Project is taken out of Razar’s hands, Razar’s right to any further payment from the Fund is extinguished. The First Nation exercised its rights under the Contract and the work was taken out of Razar’s hands on May 18, 2022.

[70] As a result, Razar’s right to any payment from the Fund was extinguished on that date. In my view, the parties clearly intended that Razar would have no claim to the Fund in the event the Project was taken out of Razar’s hands prior to substantial completion.

[71] I find that it is reasonable to infer that the parties intended, should Razar’s right to any payment from the Fund be extinguished pursuant to section GC 38.2, that the Fund, being a holdback from progress payments pending substantial completion, be available for unpaid subcontractors and suppliers of Razar. To suggest that the Fund is, in these circumstances, either the property of Razar or a debt owing to Razar, is contrary to the clear intention of the parties, in my opinion.

[72] I find that pursuant to the terms of the Contract and specifically the First Nation’s exercise of their contractual rights pursuant to section GC 38, the Fund is neither the property of Razar nor a debt payable to Razar.

[73] In the event I am incorrect in my conclusion that the parties intended the Fund to be a contractual holdback and not the property of Razar or a debt payable to Razar pending substantial completion, I also conclude that the Fund is a trust fund for the benefit of the unpaid subcontractors and suppliers of Razar, pursuant to section 8(1) of the Construction Act.

[74] I reject the submission of Pro-Gen that the trust provisions of the Construction Act do not apply to the Fund because the Project is on federal lands reserved for First Nations. Wright J. considered this issue in Skukowski v. James Conci Holdings Inc., 1998 CarswellOnt 4119 (Ont. Gen. Div.). Wright J. held that section 8 of the Construction Act was provincial legislation of general application and therefore applicable on First Nations pursuant to section 88 of the Indian Act. He further held that a trust claim can be advanced in relation to an improvement on federal land, including land reserved for First Nations. In my view, Skukowski remains good law.

[75] I also reject Pro-Gen’s submission that the application of the lien provisions of the Construction Act are inconsistent with section 89(1) of the Indian Act and therefore inapplicable to the Fund. Pro-Gen argues that the imposition of a trust on the Fund pursuant to section 8 of the Construction Act amounts to a seizure of the personal property of an “Indian or band” and is therefore prohibited by section 89(1) of the Indian Act.

[76] However, on this Application the First Nation has expressly disclaimed any interest in the Fund. Further, the intention of the parties to the Contract is that the Fund be held by the First Nation as a holdback for the benefit of the unpaid subcontractors and suppliers of Razar’s, not that ownership of the Fund somehow revert to the First Nation. In any event, in the circumstances of this case, I fail to see how the Fund can be characterized as the personal property of the First Nation within the meaning of section 89(1) of the Indian Act and therefore exempt from the application of section 8 of the Construction Act.

[77] Rule 60.08(1) provides that a creditor under an order for the payment of money may enforce the order by garnishment of debts payable to the debtor by other persons. For Pro-Gen to be entitled to priority pursuant to the Notice of Garnishment, it must establish that the Fund is a debt payable to Razar by the First Nation.

[78] For the reasons stated above, the Fund is neither the property of Razar nor a debt payable to Razar by the First Nation. The First Nation therefore is not required to remit payment to Pro-Gen pursuant to Pro-Gen’s Notice of Garnishment.

[79] It is not in dispute that Razar is indebted to CRA on account of unremitted source deductions. CRA submits that the deemed trust provisions of section 227 of the ITA confer a priority to CRA in respect of all property and assets of Razar as a tax debtor. This submission is consistent with First Vancouver Finance v. M.N.R., 2002 SCC 49 cited by CRA and is not disputed by any of the respondents.

[80] CRA further submits, citing Royal Bank of Canada v. Saskatchewan Power Corp et al, 1990 DTC 6330, that its claim to priority on account of unremitted source deductions takes priority over the secured creditors of Razar. Once again, that submission is not in dispute.

[81] However, CRA’s claim to the Fund in priority to all other claimants is premised, as is Pro-Gen’s, on the Fund being property of Razar or a debt payable to Razar. CRA is only entitled to the Fund if the Fund, or a portion of it, is found to be payable to Razar. Absent a determination of Razar’s entitlement to the Fund, if any, CRA’s (and Pro-Gen’s) entitlement to the Fund cannot be determined.

[82] The British Columbia Supreme Court’s decision in PCL Constructors Westcoast Inc. v. Norex Civil Contractors Inc. 2009 BCSC 95 (“Norex”) dealt with this very issue.

[83] The contract provided that Norex would undertake construction services for PCL. Norex hired subcontractors to carry out the work under the contract. Before the work was completed, Norex defaulted on its obligations and PCL terminated the contract.

[84] Before the contract was terminated, PCL paid Norex about $1,100,000. PCL held back 10% of this amount pursuant to British Columbia’s Builder’s Lien Act, S.B.C. 1997, c. 45. Two of Norex’s subcontractors filed liens seeking payment from this holdback amount.

[85] As in this case, Norex owed CRA for unpaid tax liabilities. CRA’s position was that the holdback is subject to a deemed trust pursuant to the ITA. Since the amount of the deemed trust exceeded the holdback, CRA submitted that it was owed the entire holdback. One of the central issues before the court was how the holdback provisions of British Columbia’s Builder’s Lien Act interact with the deemed trust provisions in ss. 227(4) and (4.1) of the ITA.

[86] The court determined that a holdback does not create an ordinary trust. Instead, the holdback creates a fund to which the contractor, for whom it is held in trust, “may eventually become entitled” (Norex at para 62). The CRA’s deemed trust could not result in CRA having a greater beneficial ownership than the contractor. The deemed trust only gives the CRA a beneficial right to the property of the contractor which the contractor actually holds. If the contractor has no claim to any portion of the holdback, neither does the CRA (Norex at para. 79).

[87] The ratio of Norex has also been adopted in Ontario: see Thompson v. Carleton University, 2019 ONSC 4336 at para 7, 50.

[88] In my view, the legal principles in Norex apply to the present case. Razar owes CRA for tax liabilities. CRA seeks payment from Razar out of the Fund. It has not yet been established that any part of the fund is Razar’s property. Therefore, CRA’s claim cannot succeed at this time.

[89] As set out above, as a result of the First Nation exercising its rights pursuant to section GC 38 of the Contract, Razar’s claim to the Fund has been extinguished. The Fund is therefore not the property of Razar and the First Nation has no obligation to honour the RTP from the Fund in priority to other claimants prior to the Fund being paid into Court pursuant to an interpleader order.

[90] I accept the submission of Long Beach that granting Pro-Gen and CRA priority to the Fund prior to the Fund being paid into Court runs the risk of Pro-Gen and/or CRA potentially receiving funds to which they do not have a legal right. I further accept the submission of Long Beach that accepting Pro-Gen’s and CRA’s priority claims would negate any purpose or function of the holdback provisions of the Contract, which clearly cannot have been the intention of the First Nation and Razar when the Contract was entered into.

[91] For the reasons set out above, the priority claims to the Fund advanced by Pro-Gen and CRA, pursuant to their Notice of Garnishment and RTP respectively, are dismissed.

[92] An interpleader order shall issue permitting and requiring the First Nation to deposit the Fund, being the amount of $1,204,526.55, with the Accountant of this Court.

[93] The First Nation has filed a draft order for the court’s consideration. The respondents, but for Razar, are content with the terms of the draft order filed.

[94] Razar takes issue with para. 14 of the draft order, specifically the right of the First Nation to retain the balance of the Fund, if any, remaining after the determination of the rights of the respondents to the Fund. Razar submits that this is inconsistent with r. 43.02(1) and with the position of the First Nation on this application. I agree. That provision in para. 14 of the draft order shall be deleted.

[95] The First Nation shall file an amended draft order for my consideration, consistent with these reasons and my decision as to the priority claims of Pro-Gen and CRA. For greater certainty:

1. Paragraphs 4 and 5 shall be deleted;
2. Paragraph 9 shall be amended such that the date set out therein is 4 weeks subsequent to the date of release of this decision;
3. Paragraph 14 shall be amended as indicated above; and
4. Providing for the costs of the application as set out below.

[96] The First Nation is entitled to their reasonable costs, on a partial indemnity basis, in respect of this application. Pursuant to r. 43.04(1)(c), I order that the First Nation’s costs, as fixed by this court, shall constitute a first charge upon the Fund.

[97] The First Nation shall file Costs Submissions, not to exceed three pages, exclusive of its Bill of Costs and Costs Outline, within 14 days of the release of this decision. The First Nation’s Costs Submissions shall be served on all respondents who made submissions on this application.

[98] These respondents shall file responding submissions, preferably through a single representative respondent, as to the costs claimed by the First Nation, within 10 days following receipt of the First Nation’s Costs submissions.

[99] The costs of the respondents, if any should be claimed, are reserved to be addressed at the summary hearing.

The Honourable Mr. Justice J.S. Fregeau Released: February 21, 2023