Parr v. Old Carriage Road Developments Ltd. et al.

49 O.R. (2d) 234

 ONTARIO

 HIGH COURT OF JUSTICE

 DIVISIONAL COURT

O'DRISCOLL, GRAY AND SUTHERLAND JJ.

5TH FEBRUARY 1985.

Construction Liens -- Exemptions -- Highways -- Subcontractor installing electrical services on streets under subdivision agreement -- Not entitled to lien -- Mechanics' Lien Act, R.S.O. 1970, c. 267, s. 5(2).

Construction Liens -- Holdback -- Municipality seizing letter of credit guaranteeing subdivider's work -- Not owing money to subdivider -- Moneys not subject to holdback in favour of subcontractor -- Mechanics' Lien Act, R.S.O. 1970, c. 267, s. 11(5a).

Construction Liens -- Trust -- Trust fund -- Municipality seizing letter of credit guaranteeing subdivider's work -- Moneys not impressed with trust -- Mechanics' Lien Act, R.S.O. 1970, c. 267, s. 2.

The respondent, plaintiff, installed electrical services for the appellant O Ltd., the successor to a party to a subdivision agreement between it and the appellant municipality. The services were installed under municipal streets. The performance of the work by O Ltd. was guaranteed by a letter of credit. In 1976 a balance of $12,000 remained owing to the respondent on his contract and he requested payment. In 1977 the supervising engineer informed the municipality of O's default under the agreement, listing the deficiencies, and the letter of credit was seized. The municipality then informed the respondent of certain deficiencies. He corrected them and billed O Ltd. in the amount of approximately $4,700. The respondent complied with the statutory time-limit respecting the service of the notice of lien and the commencement of the action to enforce it. He was successful at trial. On appeal, held, the appeal should be allowed.

The respondent was not entitled to a lien against the municipality, because the work was performed upon public streets owned by the municipality: Mechanics' Lien Act, R.S.O. 1970, c. 267, s. 5(2). Nor did the respondent have a charge on the holdback under s. 11(5a) in lieu of the lien, because there was no money payable by the municipality to O Ltd. The money obtained from the letter of credit did not become a holdback. Furthermore, that money was not impressed with a trust under s. 2 of the Act.

Phoenix Ass'ce Co. of Canada et al. v. Bird Construction Co. Ltd. et al. (1984), 11 D.L.R. (4th) 1, 54 N.R. 109; City of Hamilton v. Cipriani et al., [1977] 1 S.C.R. 169, 67 D.L.R. (3d) 1, 9 N.R. 83, distd

Other cases referred to

Muzzo Bros. Ltd. v. Cadillac Fairview Corp. Ltd. (1981), 34 O.R. (2d) 461, 21 R.P.R. 23

Statutes referred to

Mechanics' Lien Act, R.S.O. 1970, c. 267, ss. 2 (am. 1975, c. 43, s. 3); 5 (am. idem, s. 4); 11(5a) (enacted idem, s. 5(2)) -- later R.S.O. 1980, c. 261, ss. 3, 6, 12(6); since repealed by s. 91 of, and replaced by the Construction Lien Act, 1983 (Ont.), c. 6

APPEAL from a judgment of Clare Co. Ct. J., holding that the appellant municipality was liable to retain a holdback for the benefit of the respondent under a construction contract.

Ronald B. Moldaver, Q.C., for appellant, the Town of Collingwood.

Leon Paroian, Q.C., and Raymond G. Colautti, for respondent.

The judgment of the court was delivered by

GRAY J.:-- The judgment appealed from is the judgment of His Honour Judge Clare dated February 9, 1983, in which the learned county court judge gave judgment against the defendants in the amount of $16,735.66, together with costs of $4,183.75, together with interest on the said sum of $16,735.66 at 12% from August 12, 1976 to August 12, 1980.

At the opening of the trial, the parties filed an agreed statement of facts with the result that the trial was expedited and the amount of viva voce evidence was lessened. We are going to reproduce the abridged statement of facts, notwithstanding the fact that it may be necessary to make brief references to the evidence adduced.

The abridged statement of facts is as follows:

1. The Plaintiff carries on the business of electrical contracting in the Village of Oldcastle, in the County of Essex.

2. The Defendant, Old Carriage Road Developments Limited, (hereinafter referred to as "Old Carriage Road") is a corporation incorporated under the laws of the Province of Ontario, having its head office in the City of Toronto, in the Municipality of Metropolitan Toronto and has not defended this action.

3. The Defendant, the Corporation of the Town of Collingwood, (hereinafter referred to as "Collingwood') is a municipal corporation within the meaning of the Department of Municipal Affairs Act, R.S.O. 1970, Chapter 118, under the laws of the Province of Ontario and is located in the County of Simcoe.

4. Courtice Crescent is one of the streets identified in a plan of subdivision registered in the Registry Office for the County of Simcoe on the 9th day of May, 1972, as Plan number 1628.

5. A subdivision agreement was made on the 9th day of June, 1972, between 4340 Bloor Street West Limited as owner and Collingwood as the party of the second part and The Public Utilities Commission of the Town of Collingwood as the party of the third part.

6. The obligations of 4340 Bloor Street West Limited were ultimately assumed by Old Carriage Road.

7. On April 15, 1975, the Bank of Nova Scotia, Bloor and Spadina Branch, Toronto, Ontario, issued a letter of credit number 3-75-90092 to Collingwood on behalf of Old Carriage Road in the amount of $100,000 for a term of two years against default in the performance of the subdivision agreement above referred to.

8. The said letter of credit was renewed on March 21, 1977. At this time the amount of the letter of credit was reduced from $100,000 to $50,000.

9. On July 17, 1975, a contract was entered into between the Plaintiff and Old Carriage Road wherein the Plaintiff was to supply and install all primary electrical services for Courtice Crescent Subdivision for the price of $62,000.

10. Work was started on the project by the Plaintiff in August of 1975. A Site Inspection Report dated September 30, 1975, signed by the Old Carriage Road's consulting engineer shows that a significant amount of work remained to be done.

11. Progress Payment Certificate dated October 27, 1975 certified that $40,260 of work and materials had been supplied.

12. The Plaintiff invoiced Old Carriage Road for $57,600 by invoice dated June 11, 1976 and $62,000 by invoice dated September 8, 1976.

13. By letter dated August 11, 1976, the solicitors for Old Carriage Road confirmed the liability of $12,000 after payment of $50,000 on account.

14. On October 27, 1976, the Plaintiff wrote to Old Carriage Road, copy to the Town of Collingwood Public Utilities Commission, requesting an inspection and final payment certificate.

15. By letter dated July 4, 1977, the engineer for Collingwood forwarded a deficiency list regarding the subdivision to the Town's solicitors with a request that the letter of credit be seized.

16. The Plaintiff, by letter dated July 26, 1977, addressed to Old Carriage Road's engineers, with a copy to the engineer for the Town of Collingwood Public Utilities Commission, again requested a final inspection and payment certificate.

17. By letter dated August 25, 1977, Old Carriage Road's engineers advised the Plaintiff of the deficiencies outstanding.

18. The Plaintiff completed the work described in the above said letter on September 8, 1977.

19. The Plaintiff supplied materials and performed work having a value of $4,735.66 in carrying out the work above mentioned.

20. The work entailed reinstallation of two transformers.

21. The Plaintiff forwarded an invoice in the amount of $4,735.66 to Old Carriage Road upon completion of the said work, together with a summary of the work schedule and costs.

22. There is no dispute that the time limits contained in the Mechanics' Lien Act have been met with respect to service of the notice of lien and commencement of this action.

We have reproduced this abridged statement of facts out of an abundance of caution but some of the more salient facts will now be mentioned.

The subdivision agreement to which reference has already been made was referred to by counsel for the respondent as a "subdivision construction agreement". This was said to be because when it is reviewed (Tab 8 -- appeal book), it will be seen that the "owner" was the numbered company now referred to as "Old Carriage Road" and that the agreement contained certain provisions which were relied upon by counsel for the respondent in his submission that in this particular case, the Town of Collingwood, hereafter referred to as "the Town", was also an owner as was its public utilities commission, hereafter referred to as "The P.U.C.".

We do not intend to review these provisions at length but some of them should be mentioned. The services were to be constructed and installed at the expense of the owner and under the supervision of a professional engineering firm retained by the town. The owner is to deposit with the town cash or a bond (in this instance a letter of credit) to cover performance with respect to deficits that become apparent within two years. The electrical distribution system will be installed as an underground system at the cost of the owner. The owner is to provide satisfactory insurance and art. 11 -- "Liens" -- reads as follows:

The owner agrees that upon applying for final acceptance of the subdivision, to supply the Town with a Statutory Declaration that all accounts for work and materials have been paid except normal guarantee holdbacks and that there are no claims for liens or otherwise in connection with such work done or materials supplied for or on behalf of the owner in connection with the subdivision.

Tab 17 of the appeal book sets forth a letter dated July 4, 1977, from the Town engineer to the Town's solicitor in which the former asked the solicitor to advise the respondent of a deficiency list which included the following item: "... relocate hydro transformers in front of Lots 35 and 39 or build protective curbing around them."

Tab 19 of the appeal book sets forth a letter dated August 25, 1977, from Nicholas Rusz & Associates Ltd. to the respondent "regarding completion of the electrical systems for the above project". Included was item No. 1 reading thus:

One transformer was located in the center of a driveway and this unit had to be either relocated or a greenbelt established around it, to provide the necessary clearances required by the utility.

There was considerable debate as to the status of the writer of this letter and the nature of the property right immediately under the transformer itself. So far as we could ascertain, this debate, from an evidence point of view, was unresolved. By a letter dated March 21, 1977 (Tab 10 -- appeal book), the letter of credit security was reduced to $50,000. By October, 1976, the respondents' $62,000 electrical contract had been completed and invoiced. We are told that the transformers were moved at the insistence of the P.U.C. and the respondent billed the owner, Old Carriage Road, $4,735,66 for the moving. We do not know what the terms of the contract were between Old Carriage Road and the respondent but, in any event, in the result the respondent invoiced the owner, Old Carriage Road, for the $62,000 and the $4,735.66. The relocating of the transformers was finished September 8, 1977, and on October 7, 1977, the respondent delivered a claim for lien on holdback to the Town in the amount of $16,735.66 pursuant to the provisions of the Mechanics' Lien Act, R.S.O. 1970, c. 267.

The learned trial judge made eight findings of fact. He found that the respondent's work was not defective or incomplete and also found:

(i) that Parr had completed his work pursuant to the original contract; and ...

. . . . . (iv) that the additional work performed by Parr in moving the two transformers was performed pursuant to meeting the obligations under the original contract.

The relocating of the transformers was held to be not a separate contract.

The learned trial judge further found:

(i) that Collingwood was an owner within the definition contained in the Mechanics' Lien Act; (ii) the total work involved in the contract was in excess of $100,000 and that Parr's claim before payment of $50,000 was made to him was for $62,000 plus $4,735.66 for a total of $66,735.66, and (iii) that Collingwood should have retained out of the $50,000 recovered on the letter of credit a holdback of 15% on an amount of at least $100,000.

In addition, the learned trial judge stated in his reasons that if he had not found that Parr was entitled to a lien, he would have found that the $50,000 was impressed with the trust under s. 2 of the Mechanics' Lien Act. Accordingly, the plaintiff would have been entitled to the sum of $12,740 on a pro rata distribution by the Town.

Counsel for the respondent took us through a very careful study of the terms of the subdivision agreement which he referred to as a construction agreement. The purpose of that exercise was to convince us that the town and possibly the P.U.C. were owners within the meaning of the Mechanics' Lien Act as well as Old Carriage Road. The appellant had taken the position that the Town was not an "owner" and that under s. 5 of the Mechanics' Lien Act (later s. 6, R.S.O. 1980, c. 261), there was no sum justly owing by the owner to the contractor so that there was no sum of money which the Town should have held back. While reviewing the subdivision agreement, counsel for the respondent drew our attention to many articles therein which could have been found in construction agreements. Our particular attention was directed to art. 11 -- "Liens", it being said that the Town had this article in the agreement because it was a normal term of a construction agreement and secondly, because it, the Town, recognized that it had an obligation to comply with the Mechanics' Lien Act. In the interval between the two days when this appeal was argued, the Supreme Court of Canada in Phoenix Ass'ce Co. of Canada et al. v. Bird Construction Co. Ltd. et al. [Ownix case] (1984), 11 D.L.R. (4th) 1, 54 N.R. 109, speaking through Estey J. delivered a judgment which would resolve the most important issue in the present appeal, namely, whether the Town and the P.U.C. were "owners" within the meaning of the Mechanics' Lien Act. In the Ownix case, supra, without going into all the facts, it should be noted that Ownix was the developer and it entered into an agreement with Bird Construction to build a building. There was a fairly complicated leasing agreement between Ownix and Phoenix Assurance Company Limited (a United Kingdom company). Profits were to be split between Ownix and Phoenix and after the mortgage was paid off in 35 years' time, Phoenix Canadian, a subsidiary of Phoenix Assurance Company of Canada ended up with the fee in the land.

The issues raised were: (1) Were the Phoenix companies owners within the meaning of s. 1(1)(d) of the Mechanics' Lien Act? (2) Was Bird Construction entitled to a lien against the interests of the Phoenix companies pursuant to the provisions of s. 5(1) of the Mechanics' Lien Act? (3) If so, at what rate and for what periods was Bird Construction entitled to interest for (a) prejudgment interest, and (b) postjudgment interest?

After reviewing the judgment of the Ontario Court of Appeal in City of Hamilton v. Cipriani et al., [1977] 1 S.C.R. 169, 67 D.L.R. (3d) 1, 9 N.R. 83, Estey J. concluded that both Phoenix companies were "owners" within the meaning of s. 1(d) of the Mechanics' Lien Act notwithstanding the fact that the construction agreement was between Ownix and Bird Construction. Estey J. further held that if, under s. 1(d), the Phoenix companies were "owners", as he concluded they were, Bird Construction, by performing work on such land for "any owner" had an entitlement to lien. It was clear that no money was owed by Phoenix to Bird Construction and that moneys were owed by the insolvent Ownix to Bird Construction.

The next point dealt with is important with respect to the present appeal. It is the submission that there was no contract involving either of the Phoenix companies under which a lien could arise, so as to impose an obligation on the Phoenix companies to retain or hold back moneys under s. 11 of the Act and, accordingly, s. 5 (as it then was) should not be interpreted to subject a non-requesting party such as Phoenix to lien liability.

Estey found this submission to be answered by Laskin C.J. in the Cipriani case, supra, at p. 174:

Whether this contention is correct or not on the facts of this case, I do not think that a valid claim of lien against an owner under s. 5 can be defeated by showing that the owner is not a "person primarily liable" under s. 11 and hence not obliged to maintain a hold-back. The right to resort to the owner's interest in the affected land is the principal remedy; s. 11 provides merely an ancillary resort for realizing the lien claim.

We will leave the question of interest to be dealt with later. We have reviewed the Supreme Court of Canada decision in the Ownix case because it is the most recent decision of the highest authority and provides the answer presumably as to whether the Town or the P.U.C. are to be considered "owners". We do not propose to consider the provisions of the present Construction Lien Act, 1983 (Ont.), c. 6, which came into force after these proceedings arose. Counsel for the appellant conceded that the law as stated in the Ownix case was, so far as the Town's control was concerned, authority for the proposition that a lien could be placed on municipally-owned property of the type owned by the City of Hamilton in the Cipriani case. In a forceful submission, however, he urged us to hold that the law in the Ownix decision, the Cipriani decision and the decision in Muzzo Bros. Ltd. v. Cadillac Fairview Corp. Ltd. (1981), 34 O.R. (2d) 461, 21 R.P.R. 23, was not applicable to the present appeal by reason of the provisions of s. 5(2) which reads thus:

5(2) Where the land or premises upon or in respect of which any work is done or materials are placed or furnished is,

(a) a public street or highway owned by a municipality; or

(b) a public work,

the lien given by subsection 1 does not in any event attach to such land or premises but shall instead constitute a charge on amounts directed to be retained by section 11, and the provisions of this Act shall be construed mutatis mutandis, to have effect without requiring the registration or enforcement of a lien or a claim for lien against such land or premises.

There is no doubt but that the roads in question in this appeal are public roads but there is great doubt as to the status of the land on which the transformers stand. The result is that one cannot have a lien against the owner of a public street or highway if the Town is to be included as an owner.

Section 5(2) must be read in conjunction with s. 11(5a) which reads thus:

11(5a) Where the lien does not attach to the land by virtue of subsection 2 of section 5, and a person claiming a lien gives to the owner, or a contractor or subcontractor notice in writing of the lien, the owner, contractor or subcontractor so notified shall retain out of amounts payable to the contractor or subcontractor under whom the lien is derived an amount equal to the amount claimed in the notice.

There is, thus, a right to have a charge against the amount required to be held back by way of holdback. There was no money payable by the Town to Old Carriage Road. The learned county court judge came to the view that the money from the letter of credit, i.e., $50,000, somehow became the holdback. That would have meant that 15% of $50,000 should have been held back ($7,500) with the result that $42,500 could have been spent rather than the $49,948.92 that was spent as expenses to November 15, 1978. When the Town got the notice of the lien, it still had $49,400 available. We are of the opinion that there was no legal obligation on the Town to make a holdback in this case. We are further of the opinion that there were two separate contracts.

Is there a valid claim against the Town on the basis of a trust on the moneys in the hands of the "owner" in circumstances such as these? The learned county court judge held that the money was impressed with a trust since notice was given. We have reviewed the trust provisions set forth in s. 2(3) and (4) of the Mechanics' Lien Act and conclude that the moneys in this appeal are not trust funds within those subsections. The trust remedies are creatures of statute and while this particular statute, the Mechanics' Lien Act, merits a liberal interpretation with respect to the rights it confers upon those to whom it applies, it still requires a strict interpretation when one is determining whether moneys are held in trust. We have not mentioned s. 2(1) for the simple reason that it applies only in the case of money owed by the owner to the contractor which is not our case.

In the result, therefore, we have decided that no valid lien existed, that so far as any possible lien on an easement might be said to exist, there was no registration as required, that the trust argument of the respondent fails and that the learned trial judge was in error.

There is no need to deal with the question of interest. We have reached the conclusion aforesaid, notwithstanding our reluctance to interfere with the learned trial judge's findings of fact or law and notwithstanding our sympathy for the situation in which the respondent is now placed.

The appeal is allowed and the judgment is set aside with costs payable by the respondent to the appellant both at the trial and on this appeal.

Appeal allowed.