



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



Bank of Montreal v. Peri Formwork Systems Inc.,









2012 BCCA 4




Date: 20120106

Docket: CA038150

Between:

Bank of Montreal

Respondent

(Petitioner)

And

Peri Formwork
Systems Inc.

Appellant

(Respondent)

And

No.
249 Seabright Holdings Ltd., Squamish Pointe Limited Partnership, Bel-Tar
Holdings Ltd., Pointe of View Developments (Squamish) Inc., Pointe of View
Limited Partnership, POV (Squamish) Inc., 963341 Alberta Inc., 687866 Alberta
Inc., 1128356 Alberta Inc., 1047013 Alberta Inc., Pointe of View Marketing
& Management Inc., Klapstein Family Trust, Balboa Trust, Pacific Pointe
Trust, Randy Klapstein, Thomas Ivanore, Leading Edge Forming Ltd., All Seasons
Roofing (2001) Ltd., L & A Equipment Ltd., Valley Truss Ltd., Varsteel
Ltd., RJM Investments Corp., Ring Creek Management Ltd., Alpine Pacific
Construction Group Ltd., Friction Fit Insulation Inc., Westwood Mechanical
Ltd., and Garibaldi Electrical Contractors Ltd., B & B Excavating and
Landscaping Corp., West Vancouver Trading Inc. dba Squamish Interiors, and
Canadian Mortgage and Housing Corporation

Respondents
(Respondents)




Before:



The Honourable Chief Justice Finch





The Honourable Madam Justice Prowse





The Honourable Madam Justice Newbury
The Honourable Madam Justice Garson
The Honourable Mr. Justice Hinkson




On appeal from: 
Supreme Court of British Columbia, April 23, 2010,
(
Bank of Montreal v. No. 249 Seabright Holdings Ltd.
, Vancouver No.
H091697)








Counsel for the Appellant:



M.G. Armstrong





Counsel for the Respondent, Bank of Montreal:



H.M.B. Ferris and K.
  Robertson





Counsel for the Respondent, The Bowra Group Inc (Receiver)



A.M. Gunn















Place and Date of Hearing:



Vancouver, British
  Columbia

September 30, 2011





Place and Date of Judgment:



Vancouver, British
  Columbia

January 6, 2012









Written Reasons by:





The Honourable Madam Justice Garson





Concurred in by:





The Honourable Chief Justice Finch

The Honourable Madam Justice Prowse

The Honourable Madam Justice Newbury

The Honourable Mr. Justice Hinkson
















Reasons for Judgment of the Honourable
Madam Justice Garson:

Introduction

[1]

Sometimes a construction lender is faced with a difficult choice when a
debtor defaults before a project is complete, that is, whether to realize on
its security and liquidate the underlying asset or lend further monies in the
hopes that completing the project will increase the likelihood of full
repayment of the debt.  In this case the lender, the Bank of Montreal, chose
the latter course and applied to court for the appointment of a receiver in
order to finish the construction project.  Thus, construction continued.

[2]

The Bank sought, and eventually obtained, an order pursuant to ss. 32(5)
and (6) of the
Builders Lien Act
, S.B.C. 1997, c. 45,

that its
subsequent advances would rank in priority to builders liens filed before the
money was advanced.  It is this priority order that is the subject of this
appeal.  In ordering that the appellants previously filed builders lien would
rank subsequent to the debt incurred after the Bowra Group (the Receiver) was
appointed, the chambers judge construed ss. 32(5) and (6) as permitting
him to make such an order despite the fact that the advances were not made to
the original debtor, but rather to a receiver, and despite the fact that the
loan was a new loan on different terms than the existing mortgage security.

[3]

On appeal, the lien holder, Peri Formwork Systems Inc., argues that the relevant
provisions of the
Builders Lien Act
cannot be interpreted so broadly and
the chambers judge erred in so doing.  The respondents, the Bank of Montreal and
the Receiver, contend that the chambers judge correctly interpreted the
legislation.

[4]

In the alternative, the respondents argue that the chambers judge could
have made the same order under the umbrella of the extant proceeding under the
Companies
Creditors Arrangement Act
, R.S.C., 1985, c. C-36.  The appellant says that
the
CCAA
proceeding had terminated when the Receiver was appointed because
the debtor failed to achieve a reorganization.

[5]

Until now, ss. 32(5) and (6) have not been considered by this Court.

[6]

Before turning to the analysis of the issues raised on this appeal, I
will describe in more detail the background to this dispute.

Facts

[7]

This appeal concerns a builders lien filed on a five-phase residential
land development project in Squamish known as Coastal Village.

[8]

The Bank of Montreal was a lender to the owners and developers of the
project pursuant to a February 2008 lending commitment of up to $37,968,750
plus interest at bank prime plus 1/4 percent.  The loan was payable on demand,
or failing demand, by July 31, 2009.  Payment of the loan was secured in part by
a mortgage registered against title to the property.

[9]

Peri Formwork was subcontracted to supply concrete formwork equipment and
did so for all phases of the development.  It was not paid by the contractor
who, in turn, had not been paid by the owners.

[10]

On June 21, 2009, the Bank of Montreal made demand on the owners for repayment
of its loan.  The balance outstanding on the loan as at June 30, 2009, was
$29,002,860.

[11]

On July 21, 2009, the owners sought and received a stay of proceedings
under the
CCAA
.  In the initial
CCAA
order, Mr. Justice Rice ordered
that:  a) the stay of proceedings did not prevent the filing of builders liens
or the commencement of legal proceedings to enforce those liens; b) the owners
were permitted to borrow up to $2 million by way of debtor-in-possession
financing (DIP financing) from the Bank of Montreal; c) the DIP financing was
given priority over all other security interests including the builders liens.

[12]

On July 28, 2009, Peri Formwork filed a builders lien claim in the
amount of $357,984.52.

[13]

As at November 3, 2009, the amount due to the Bank of Montreal pursuant
to the initial lending commitment in 2008 was $29,509,603.72.  In addition, the
Bank had advanced $2 million in DIP financing pursuant to the
CCAA
stay
order for a total lending commitment of $31,509,603.72.

[14]

On October 13, 2009, in the
CCAA
proceeding, further DIP
financing from the Bank of Montreal was approved in the amount of $21 million. 
That order included a term providing that the DIP financing security interest had
priority over all other creditors including builders lien claims.  Peri
Formwork and other builders lien claimants unsuccessfully opposed the priority
order and then filed an appeal from the order.  However, those appeals became
moot and did not proceed because on December 8, 2009, the
CCAA
stay order
was not renewed, the owners having failed to achieve a restructuring
arrangement.  By December 8, 2009, the Bank of Montreal had not provided any further
DIP financing.

[15]

The Bowra Group, which had been the monitor appointed in the
CCAA
proceedings,

was appointed Receiver by Mr. Justice Rice on December 8, 2009.  One of the
terms of the December 8, 2009, order was that the Receiver was permitted to
borrow up to $21 million to complete the construction of the project and to provide
security through a Receivers Borrowing Charge on the property.

[16]

The Bank of Montreal sought an order giving the Receivers Borrowing
Charge priority over lien claims.  The priority sought by the Bank was opposed
by Peri Formwork and other lien claimants.  The question of priority was not determined
in the December 8 order; instead, that order gave the Bank and the Receiver
liberty to apply at a later date for an order determining priorities. 
Paragraph 19 of the order provided:

THIS COURT
ORDERS that, the Receiver be at liberty and it is hereby empowered to borrow
from Bank of Montreal by way of a revolving credit or otherwise, such monies
from time to time as it may consider necessary or desirable, for the sole
purpose of completing construction, on the Property as described in the
Monitors First Report to Court filed August 6, 2009, provided that the
outstanding principal amount of such borrowing does not exceed the principal
amount of $21,000,000 (or such greater amount as this Court may by further
Order authorize) at any time, and a rate of interest not to exceed 1% above the
Bank of Montreals prime rate of interest, as the Receiver deems advisable for
such period or periods of time as it may arrange, for the purpose of funding
the exercise of the powers and duties conferred upon the Receiver by this
Order, including interim expenditures.  The whole of the Property shall be and
is hereby charged by way of a fixed charge (the Receivers Borrowing Charge)
as security of the payment of the monies borrowed, together with interest and
charges thereon, in priority to all security interests, trusts, liens, charges
and encumbrances, statutory or otherwise, in favour of any person, save and
except the Receivers Charge and save and except claims of builders liens filed
prior to the date of this Order.
This Order shall be without prejudice to
the right of the Receiver or the Bank of Montreal to apply to the Court for
priority of any funds advanced or to be advanced under the Receivers Borrowing
Charge pursuant to paragraph 19 of this Order over any and all builders liens
or claims of builders lien.
[Emphasis added.]

[17]

On December 9, 2009, the Bank of Montreal commenced foreclosure
proceedings and on January 27, 2010, Mr. Justice Pitfield granted an order
nisi
. 
He also ordered that the December 8, 2009 order appointing the Bowra Group as Receiver
be incorporated in the foreclosure order in the same manner and effect as if
the Bowra Group Inc. was appointed in the [foreclosure] proceedings.

[18]

As is explained in more detail below, the loan authorized by the order
made December 8, 2009, has different terms than the original lending
commitment.

[19]

On April 23, 2010, pursuant to clause 19 of the December 8, 2009, order,
the Bank applied for an order giving the $21 million Receivers Borrowing Charge
priority over the lien claims filed prior to December 8, 2009, including Peri
Formworks lien claim.

[20]

At the hearing, Mr. Justice Rice gave the following brief reasons for
judgment:

I really do appreciate the input
on this, all of you.  Its always informative, and I certainly took to heart
what Mr. Armstrong said that I  but I did come really to the conclusion that
the new regime, which has been in for a few years, allows the advances to
climb, climb, climb.  I accept the submissions of Ms. Ferris.  The order will
be according to the first option that  the one that weve used before, Ms.
Ferris.

[21]

The lien claims over which the Bank of Montreal obtained priority totalled
$2,050,672.96.  The Receiver made arrangements with certain claimants to pay
them $1.655 million for past services, which payment was to be made from the
$21 million facility.  The amount of the distributions to the other lien
claimants has not been disclosed to the Court or to Peri Formwork.  The latter
was not included as a payee in the proposed distribution to the lien claimants.

[22]

Before December 8, 2009, it was the assessment of the monitor that the
sale of the development on an as is basis, that is, without continuing
construction, would result in a significant shortfall to the mortgagee.  The monitor
projected that a sale of the project after completion of phases two and three would
likely result in a substantial reduction of the shortfall.

Issues on Appeal

[23]

The appellant says the chambers judge misinterpreted ss. 32(5) and (6)
and that he ought not to have granted priority to the Receivers Borrowing Charge
over its builders lien claim.  It says that the judge erred in the following
ways:

·

The word further advances in s. 32(5) must be a reference to
the original loan and does not include a new loan that is secured by a different
charge on different terms than the original mortgage.

·

The term further advances in s. 32(5) does not include a loan
to a receiver; it can only be a reference to a loan to the same borrower. To
interpret s. 32(5) as including loans to a receiver conflicts with the
priorities established by s. 21.

·

Even if s. 32(5) could be construed as including loans to
receivers and the Bank is correct that s. 32(5) permits the priority it
asserts, the Bank has not complied with s. 32(6) and the chambers judge erred
in failing to consider and apply s. 32(6).

·

The chambers judges reasons are insufficient for meaningful
appellate review.

[24]

The Bank and the Receiver also argue that this Court should dismiss the
appeal on the ground that there are other sources of jurisdiction to grant the impugned
priority order, either under the
CCAA
proceeding or the Courts inherent
jurisdiction.  Subsumed in this issue is the question of whether the
CCAA
proceeding was effectively terminated upon the appointment of the Receiver when
the
CCAA
stay order expired.

Analysis

I.        Statutory provisions

[25]

The statutory provisions that are pertinent to this appeal are ss. 21
and 32 of the
Builders Lien Act
.  I have emphasized the particular words
that require interpretation in this appeal.

[26]

Section 21 of the
Act
reads as follows:

A claim of lien filed under this
Act takes effect from the time work began or the time the first material was
supplied for which the lien is claimed, and it has priority over all judgments,
executions, attachments and
receiving orders
recovered, issued or made
after that date.

[27]

The pertinent parts of s. 32 are:

32 (1) Subject to subsection (2), the amount secured in
good faith by a registered mortgage as either a direct or contingent liability
of the mortgagor has priority over the amount secured by a claim of lien.

(2) Despite subsection (1), an advance by a mortgagee
that results in an increase in the direct or contingent liability of a
mortgagor, or both, under a registered mortgage occurring after the time a
claim of lien is filed ranks in priority after the amount secured by that claim
of lien.

(3) In a proceeding for the enforcement of a claim of
lien,

(a) the court may order the sale of mortgaged land at
an upset price of at least the amount secured by all registered mortgages that
have priority over the claim of lien, court ordered costs and the costs of the
sale, and

(b) the amount secured by any registered mortgages must
be satisfied out of the proceeds of the sale in the order of their priorities
and in priority over the claim of lien to the extent provided under this
section.

(4) A mortgagee who applies mortgage money in payment of
a claim of lien that has been filed is subrogated to the rights and priority of
the lien claimant to the extent of the money applied.

(5) Despite subsections (1) and (2) or any other
enactment, if one or more claims of lien are filed in a land title office in relation
to an improvement,
a mortgagee
may apply to the court for an order that
one or more
further advances
under
the
mortgage are to have
priority over the claims of lien.

(6) On an application by a mortgagee under
subsection (5), the court must make the order if it is satisfied that

(a) the advances will be applied to complete the
improvement, and

(b) the advances will result in an increased value of
the land and the improvement at least equal to the amount of the proposed
advances.

II.       Order could be made under the extant CCAA
proceeding

[28]

I find it convenient to turn initially to the Banks argument that,
although the chambers judge explicitly stated that he was exercising his
jurisdiction under the
Builders Lien Act
, he could have made the same
order under the
CCAA
.

[29]

The order was made in the same proceeding that was commenced under the
CCAA
on July 21, 2009.  The initial
CCAA
order was renewed on seven occasions
but was allowed to expire on December 8, 2009.  The Bank argues that, despite the
expiry of the stay, the
CCAA
proceeding remained extant.  I find it
useful to consider the general purpose and goal of a
CCAA
proceeding in
order to judge whether this proceeding could be said to have continued in
furtherance of that purpose after December 8, 2009.

[30]

The purpose of the
CCAA
was discussed by this Court in
Chef
Ready Foods Ltd. v. Hongkong Bank of Canada
(1990), 51 B.C.L.R. (2d) 84
(C.A.) at 88:

The purpose of the C.C.A.A. is to
facilitate the making of a compromise or arrangement between an insolvent
debtor company and its creditors to the end that the company is able to
continue in business... When a company has recourse to the C.C.A.A. the court
is called upon to play a kind of supervisory role to preserve the status quo
and to move the process along to the point where a compromise or arrangement is
approved or it is evident that the attempt is doomed to failure.

[31]

In
Century Services Inc. v. Canada (Attorney General)
, 2010 SCC
60, Deschamps J., for a majority of the Supreme Court of Canada, discussed
limitations on the exercise of
CCAA
authority.  One of the issues in
Century
Services
was whether the chambers judge had jurisdiction under the
CCAA
to maintain the stay once the debtor, concluding that reorganization was not
possible, made an assignment into bankruptcy.  The Court held that the
CCAA
and
Bankruptcy and Insolvency Act,
R.S.C., 1985, c. B‑3,
share the remedial goal of avoiding social and economic costs upon liquidation of
a debtors assets and that the
CCAA
stay could be used as a bridge to
foster a harmonious transition from the
CCAA
scheme to the
BIA
scheme.  In discussing the limitations of
CCAA
authority, the Court held
that:

[59]      Judicial discretion must of course be exercised in
furtherance of the
CCAA
s purposes.  The remedial purpose I
referred to in the historical overview of the Act is recognized over and over
again in the jurisprudence.  ...

The legislation is remedial in the purest sense in that it
provides a means whereby the devastating social and economic effects of
bankruptcy or creditor initiated termination of ongoing business operations can
be avoided while a court-supervised attempt to reorganize the financial affairs
of the debtor company is made.

(
Elan Corp. v.

Comiskey
(1990), 41 O.A.C. 282,
at para. 57,
per
Doherty J.A., dissenting)

...

[71]      It is well established
that efforts to reorganize under the
CCAA
can be terminated and the stay
of proceedings against the debtor lifted if the reorganization is "doomed
to failure" (see
Chef Ready
, at p. 88;
Philip's Manufacturing
Ltd., Re
(1992), 9 C.B.R. (3d) 25 (B.C.C.A.), at paras. 6-7). However, when
an order is sought that does realistically advance the
CCAA
's purposes,
the ability to make it is within the discretion of a
CCAA
court.

[32]

In the case at bar, the proceedings had reached the point where it had
become obvious that the reorganization was doomed to failure and, for all
intents and purposes, the
CCAA
action had ended.  Unlike the case in
Century
Services
, the stay order expired and there was no assignment into
bankruptcy; instead, the Bank of Montreal moved immediately to appoint the Receiver
and very quickly to foreclose on the asset. This action precluded the goal of
reorganization.

[33]

That the courts jurisdiction under the
CCAA
proceeding was
exhausted and that this was recognized by all parties is demonstrated by the
fact that, although DIP financing was authorized prior to the contentious loan,
the Bank chose not to make use of this mechanism.  I see this as a tacit
acknowledgment by the Bank that the DIP loan was no longer appropriate because
the
CCAA
order had expired.

[34]

Redfern Resources Ltd. (Re)
, 2011 BCCA 333 (Chambers), concerned
an application for directions as to whether or not leave to appeal was required
pursuant to s. 13 of
CCAA
. Tysoe J.A. decided that leave was not
required because the order under appeal was not made under the
CCAA.
Although
the proceedings remained styled as a
CCAA
proceeding, the original stay
order had expired and the debtor was assigned into bankruptcy.  In concluding
that jurisdiction under the
CCAA
proceedings was exhausted, Tysoe J.A.
held at para 8:

In my opinion, the order or
decision of Burnyeat J. was not made under the
CCAA
.  The efforts
to reorganize Redcorp had come to an end, and there was no ongoing attempt to
have Redcorp file a plan of arrangement.  Alvarez & Marsal Canada Inc.
simply filed its application in the
CCAA
proceeding as a matter of
convenience.  The fact that Alvarez & Marsal Canada Inc. was appointed
in the
CCAA
proceeding did not require the application to be filed in
that proceeding.  Alvarez & Marsal Canada Inc. could have, and more
properly should have, commenced a separate proceeding.  Alvarez &
Marsal Canada Inc. was not appointed as interim receiver or receiver pursuant
to the
CCAA
, but rather pursuant to the
BIA
and the
Law and
Equity Act
, R.S.B.C. 1996, c. 253 ...

[35]

In conclusion, when the last order expired on December 8, 2009, the
CCAA
proceeding was effectively terminated.  The object of a
CCAA
proceeding
is to allow the debtor to remain in possession of the secured asset while he
has an opportunity to achieve a reorganization.  Ms. Ferris, counsel for the
Bank, argues that the appointment of a receiver does not necessarily preclude
the goal of reorganization and that, in this case, it may yet happen.  Here, as
in
Redfern
, the efforts to reorganize [the debtor] had come to an
end.  The order appointing the Receiver was made pursuant to the courts
jurisdiction under the
Law and Equity Act
, R.S.B.C. 1996, C. 253, and
the then applicable
Supreme Court Rules
, B.C. Reg. 221/90.  Therefore, I
do not agree that there was any life remaining in the
CCAA
proceeding.  It
ended on December 8, 2009, and as a result, the priority order made by the
chambers judge could not be made under the umbrella of the
CCAA
proceeding.

III.      Order could be made under the courts
inherent jurisdiction

[36]

As to the respondents next alternative argument, that the court had
inherent jurisdiction to grant priority to the Bank in this case based on
Robert
F. Kowal Investments Ltd. v. Deeder Electric Ltd.
(1975), 9 O.R. (2d) 84, I
am of the view that there is no merit to the proposition that the court has an
inherent jurisdiction that could override the specific statutory language found
in the
Builders Lien Act
(see
Baxter Student Housing Ltd. v. College
Housing Co-operative Ltd
., [1976] 2 S.C.R. 475 at 480, citing
Montreal
Trust Co. v. Churchill Forest Industries (Man.)
Ltd., [1971] 4 W.W.R. 542.)
This argument was not pressed on appeal and need not be considered further.

IV.      Insufficient reasons for judgment

[37]

The chambers judges reasons were brief but, taken in the context of the
entire record of the proceedings, it is my view that their brevity does not in
this case pose a barrier to appellate review.  At the chambers hearing, counsel
for the Bank argued that the court had jurisdiction to give priority to its $21
million loan in a number of ways:  making an order granting priority under the
courts equitable jurisdiction; granting priority through application of ss.
32(5) and (6) of the
Builders Lien Act
and amending the receivership
order to state that the Bank will advance the money and that the loan meets the
requirements of s. 32(6); discharging the lien under s. 24 of the
Builders
Lien Act
after the Bank posts nominal security; or making an order in the
CCAA
proceeding granting priority.  After a lively exchange between counsel and
the bench, the chambers judge accepted her argument in favour of a broad
interpretation of the exception created by ss. 32(5) and (6).  I would not
accede to this ground of appeal.

V.       Interpretation
of s. 32(5)

[38]

I now turn to what I conclude is the determinative issue on this appeal,
that is, the question

of what constitutes a further advance under s. 32(5).

[39]

To recapitulate, the Receivers Borrowing Charge was created in the
order of December 8, 2009, which also provided for the appointment of the Receiver. 
Paragraph 19 of the order, quoted above, authorizes the Receiver to borrow up
to $21 million from the Bank of Montreal for the sole purpose of completing
construction.  The order was, in turn, registered on title as a Certificate of
Pending Litigation by the Bank of Montreal pursuant to the court order
authorizing it.

[40]

The appellant argues that the Receivers Borrowing Charge cannot be
given priority pursuant to ss. 32(5) and (6) as it is a new loan, to a
different borrower.  The loan has a far different principal amount and a
different interest rate than the original loan.  It also includes for instance
a success fee of at least $300,000 to be paid from the first advance.

[41]

The appellant notes too that the owners inability to meet their
financial obligations in June 2009 was precipitated by the Banks decision to
curtail advances under its existing mortgage loan.  At the time, the Bank had
advanced only $29 million of the $38 million loan limit.  The appellant argues
that the Bank could have chosen at that time to maintain its existing loan
facility and apply for priority to the lien claims pursuant to s. 32(5) but
chose not to take that course of action.  Rather, it petitioned for foreclosure
on the existing mortgage and obtained an order authorizing the loan of $21
million on the security of the Receivers Borrowing Charge, not the foreclosed
mortgage.

[42]

The appellant also observes that the notice of motion originally brought
by the Bank asked for an order deeming the $21 million loan to be a further
advance under the existing security agreement.  The appellant says that the
reason the Bank sought the deeming order was to shoehorn its way into s.
32(5).  The chambers judge did not make the requested deeming order.

[43]

The Bank and the Receiver note that the remaining loan facility was
insufficient to meet the estimated costs of completion.  The Bank says it was
compelled to obtain an order
nisi
of foreclosure because it needed
vesting orders so as to be in a position to transfer completed condominium
units to purchasers.

[44]

At the hearing before the chambers judge that led to the order under
appeal, the Banks counsel took the position that the $21 million loan was the
same mortgage.  On appeal, the Bank takes a somewhat different position; it
argued that there is nothing in s. 32(5) that requires further advances to be
either from the original mortgagor or pursuant to the original mortgage.  The
Bank says that to construe the section in such a restrictive manner would
defeat the sections purpose because usually when an owner/developer defaults
there will
not
be (as was the case here) sufficient room in the existing
financing arrangement, on the existing terms, to complete construction.  The
Bank argues the section is designed to permit a lender to choose to finance
construction to completion, regardless of the terms of its existing security.  It
says that, in order to achieve the goals of s. 32(5), it is important not
to place too restrictive an interpretation on the section.  The Bank (and to a
somewhat lesser extent, the Receiver) argues that the section should be given a
more expansive interpretation and not the more restrictive approach contended
for by the appellant.

[45]

In its factum and in its oral submission, the Receiver appears to
interpret the $21 million loan in this case as a further advance under the same
mortgage and the section as requiring the further advance to be from the same
lender.

(a)
Rizzo Shoes

[46]

I now proceed to interpret s. 32(5).  In doing so, I draw upon the
approach taken by the Supreme Court of Canada in
Rizzo Shoes Ltd. (Re)
,
[1998] 1 S.C.R. 27.  In that case
,
the Court was required to interpret
the
Employment Standards Act,
R.S.O. 1980, c. 137; specifically, the
provision of that
Act
that provided for payment of severance pay to
employees whose employment has been terminated.  The question for the Court was
whether it could be said that the employees employment was terminated when
that termination came about as a consequence of the employers bankruptcy.

[47]

Speaking for the Court, Iacobucci J. concluded that it was consistent
with the object and purpose of that
Act
to interpret the provision under
consideration as including a termination brought about by bankruptcy.

[48]

The first step in his route to that conclusion was an examination of the
plain meaning of the section under consideration.  At para. 20, he noted that a
plain reading of the section favoured a more restrictive interpretation:

At the heart of this conflict is
an issue of statutory interpretation. Consistent with the findings of the Court
of Appeal, the plain meaning of the words of the provisions here in question
appears to restrict the obligation to pay termination and severance pay to
those employers who have actively terminated the employment of their employees.
At first blush, bankruptcy does not fit comfortably into this interpretation.
However, with respect, I believe this analysis is incomplete.

[49]

At para. 21, Iacobucci J. cited with approval Elmer Driedgers oft-cited
enunciation of the principled approach to the interpretation of statutes:

Although much has been written about the interpretation of
legislation (see, e.g., Ruth Sullivan,
Statutory Interpretation
(1997);
Ruth Sullivan,
Driedger on the Construction of Statutes
(3rd ed. 1994)
(hereinafter 
Construction of Statutes
); Pierre-André Côté,
The
Interpretation of Legislation in Canada
(2nd ed. 1991)), Elmer Driedger in
Construction
of Statutes
(2nd ed. 1983) best encapsulates the approach upon which I
prefer to rely. He recognizes that statutory interpretation cannot be founded
on the wording of the legislation alone. At p. 87 he states:

Today there is only one principle or approach, namely, the
words of an Act are to be read in their entire 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.

[50]

At para. 22, Iacobucci J. noted the remedial directive from the Ontario
Interpretation
Act
, R.S.O. 1980, c. 219:

I also rely upon s. 10 of the
Interpretation
Act
, R.S.O. 1980, c. 219, which provides that every Act shall be deemed to
be remedial and directs that every Act shall receive such fair, large and
liberal construction and interpretation as will best ensure the attainment of
the object of the Act according to its true intent, meaning and spirit.

(It should be noted that s. 8 of British Columbias
Interpretation
Act
, R.S.B.C. 1996, c. 238, mirrors this wording: Every enactment must be
construed as being remedial, and must be given such fair, large, and liberal
construction and interpretation as best ensures the attainment of its objects.)

[51]

Justice Iacobucci then applied those interpretive guides to the issue before
the Court.  He found that the Ontario Court of Appeal had failed to place
sufficient importance on the object and scheme of the
Act
:

[23]      Although the Court of
Appeal looked to the plain meaning of the specific provisions in question in
the present case, with respect, I believe that the court did not pay sufficient
attention to the scheme of the
ESA
, its object or the intention of the
legislature; nor was the context of the words in issue appropriately
recognized. I now turn to a discussion of these issues.

[52]

And finally, at para. 27, he held that a literal interpretation of the
Act
was incompatible with the remedial purpose of the legislation:

In my opinion, the consequences
or effects which result from the Court of Appeals interpretation of ss. 40 and
40
a
of the
ESA
are incompatible with both the object of the Act
and with the object of the termination and severance pay provisions themselves.
It is a well established principle of statutory interpretation that the
legislature does not intend to produce absurd consequences. According to Côté,
supra
,
an interpretation can be considered absurd if it leads to ridiculous or
frivolous consequences, if it is extremely unreasonable or inequitable, if it
is illogical or incoherent, or if it is incompatible with other provisions or
with the object of the legislative enactment (at pp. 378-80). Sullivan echoes
these comments noting that a label of absurdity can be attached to
interpretations which defeat the purpose of a statute or render some aspect of
it pointless or futile (Sullivan,
Construction of Statutes
,
supra
,
at p. 88).

(b)      Application
of
Rizzo Shoes
interpretive principles to s. 32(5)

i.        Plain
meaning interpretation

[53]

Applying the analysis employed in
Rizzo Shoes
to this case, the
first step is to consider the plain meaning of s. 32(5).

[54]

I begin by noting that mortgage is not a defined term in the
Builders
Lien Act

nor in any other relevant statute
.

[55]

Unlike s. 32(1), reference is not made in s. 32(5) to a registered
mortgage but simply to a mortgage, arguably suggesting that the mortgage
referenced in the provision under consideration need not be the same mortgage as
the mortgage originally registered.  However, at odds with this interpretation
is the fact that the plain meaning of the words further advances appears to
require the advance to be made pursuant to a pre-existing mortgage through
which money has already been lent.

[56]

Also, it should be noted that the opening words of s. 32(5), Despite
subsections (1) and (2), appear to relate back to the mortgage security in
place when the lien is filed.  The language further advances must be
interpreted with consideration of s. 32(5)s reference to ss. 32(1) and (2).  This
supports the conclusion that ss. 32(5) and (6) are exceptions to the priority
rules established in ss. 32(1) and (2).  In my view, the fact that s. 32(2)
contemplates an increase in the debtors liability under an existing mortgage
and subordinates the lenders priority, speaks in favour of the view that the
exception under ss. 32(5) and (6) addresses a narrower set of circumstances: where
the lender is willing to make further advances but only if they can be given
priority.

[57]

Thus a plain reading of the section would favour an interpretation that
the further advances relate to the original mortgage.

ii.       Scheme
and Purpose of the
Act

[58]

Following the
Rizzo Shoes
approach, the next issue for consideration
is the overall scheme and purpose of the
Act
and provisions in
question.

[59]

The purpose of the
Builders Lien Act
and its predecessor statutes
was discussed by this Court in
Northern Thunderbird Air Ltd. v. Royal Oak &
Kemess Mines Inc.
, 2002 BCCA 58.  Beginning at para. 24, the Chief Justice,
speaking for the Court, said:

[24]      The purpose of the predecessor statute to the one
presently under consideration, was considered by McLachlin J.A. (as she then
was) in
Kettle Valley Contractors Ltd. v. Cariboo Paving Ltd.
(1986), 1
B.C.L.R. (2d) 236 (C.A.). She cited at 251
Hickey v. Stalker
53 O.L.R.
414, [1924] 1 D.L.R. 440 (C.A.) as correctly stating the purpose of mechanics
lien legislation:

Speaking generally, the object of the
Mechanics Lien Act
is to prevent owners of the land getting the benefit of buildings erected and
work done at their instance on their land without paying for them.

[25]      I would, as well, look
at the matter from the perspective of those who supplied the materials or did
the work on the land. The corollary of the principle expressed in
Hickey
(supra)
is that the purpose of the
Act
is to protect those who
contribute to the erection of buildings, or other physical improvements on
another's lands, and to ensure their payment by granting them a security
interest in the land. The protection and the security in favour of a lien
claimant come at the expense of the land owner, and of others having claims
against the owner relating to the improvement which may be unsecured.

[60]

Thus, one important purpose of the statutory scheme is to ensure that
contractors and workers are paid for materials provided and for services
rendered.

[61]

The current
Builders Lien Act
came into force on February 1,
1998.  One goal in revamping the scheme was to bring commercial certainty to
construction projects affected by the legislation (
Marbella Pacific
Construction Ltd. v. Fast Trac Bobcat & Excavating Services & Coast
Aggregates Ltd.
, 2002 BCSC 803 at para. 36).  The importance of this
objective was noted in
Nita Lake Lodge Corp. v. Conpact Systems (2004) Ltd.
,
2006 BCSC 885 at para.14:

... Certainty in relation to
rights and obligations arising in the construction industry is a worthy
objective.  That certainty is best provided by requiring strict adherence
to a clearly stated legislative scheme that was not intended to create or
negative a contractual right but to create security in relation to the
performance of a contract.

[62]

The purposes of the
Builders Lien Act
are pursued through a
legislative scheme that employs three main mechanisms: the right to a lien,
holdback provisions and the creation of a trust (
Marbella Pacific
Construction Ltd.
at para. 29).  These mechanisms create rights unknown to
common law.  The jurisprudence is clear that because the
Act
creates new
rights, the threshold question of entitlement is strictly construed; it is only
once entitlement is established that the
Act
is to be construed
liberally and with consideration to its remedial purpose, see:
Clarkson Co.
v. Ace Lumber Ltd.
, [1963] S.C.R. 110 at 114 and
Chaston Construction
Corp. v. Henderson Land Holdings (Canada) Ltd.
, 2002 BCCA 357 at para. 50. 
This principle is consistent with concern for certainty and fairness to all
stakeholders in the construction industry.

[63]

The combined effect of ss. 32(1) and (2) is to protect a secured
lenders priority status regarding debt incurred by a borrower pursuant to a
registered mortgage before a lien is filed.  This protects secured lenders by affording
them priority over funds lent or promised before a lien is registered; thereby
permitting lenders to adequately assess the value of their security when
deciding whether or not to make an advance under a loan.  Pursuant to s. 32(2),
where a secured lender provides an advance after a lien has been filed, the
lien holder is given priority.  This protects the lien holder, who has provided
work and/or materials, and ensures that the secured creditor does not lend
money without notice that its claim is subordinate.  Overall, the lien holder
is given priority status but the secured lender is protected by fair notice,
thereby pursuing the goals of protection and certainty.

[64]

Subsections (5) and (6) create an exception to this general scheme
whereby advances made after a lien has been filed may obtain priority through a
court order.  Such an order is mandatory when the requirements of ss. 32(5) and
(6) are met; the provision therefore gives the court no room to contemplate the
fairness or desirability of allowing the application.

[65]

The British Columbia Law Institute and the British Columbia Ministry of
Employment and Investment addressed the purpose of the exception in
Questions
and Answers on the New Builders Lien Act
(Vancouver, British Columbia:
British Columbia Law Institute, 1997) at 17.4:

Where a project encounters difficulties and the market value
of the partially completed improvement is less than the amount of the advances
already made by the lender, everyone loses.  The lender is not fully paid off
and there is no money left for the lien claimants.  The lender, however, might
be prepared in principle to
continue
to advance money
under its
mortgage
if it could be assured that those additional advances would have
priority over the liens.  If this were done, the project could be completed. 
Its value would probably match or exceed the amount of the lenders claim,
raising the possibility that something will be left for the lien claimants. 
This outcome would be in the best interests of all concerned but the basic
priority rule impedes such an arrangement.

For this reason, the Act creates an exception to the basic
priority rule.  Where lien claims have been registered, the lender may apply to
the court for an order that one or more
further advances under its mortgage
are to have priority over the lien claims. The court must make that order if it
is satisfied that:

(a) the advances will be applied to complete the
improvement, and

(b) the advances will result in an increased value of the
land and the improvement at least equal to the amount of the proposed advances.

... An order made under this provision permits work on the
improvement to continue.

[Emphasis added.]

[66]

While this excerpt considered the original wording of s. 32, which was
subsequently re-enacted in 1998, the provisions remain sufficiently similar
that this statement is instructive.  I agree with the description of the
legislative purpose as set out in the above excerpt.

[67]

In its factum, the Bank argues that a remedial reading of the
legislation is necessary to give any effect to the subsections.  The Bank
contends:

The narrow interpretation put
forward by the appellant would mean that an order under subsections (5) and (6)
could only be made in very limited circumstances.  Such an order could only be
made where: 1) there are still advances left to be made under the original
registered mortgage; and 2) the creditors have not sought the appointment of
a receiver or trustee to step into the shoes of the owner/original mortgagor. 
Such an interpretation would defeat the remedial purpose of the 1997 amendments
to the
Builders Lien Act
and is inconsistent with the practical reality
of the construction industry and construction financing.  It would mean that
these subsections would rarely operate to allow an improvement to be
completed.  Where a project runs into difficulty, it is unlikely that there
will be funds left unadvanced under the original financing commitment.  It is
also unlikely that a mortgagee would be prepared to allow the defaulting owner
to remain in control of the projects completion in circumstances where the
project runs into difficulty.  Far more likely is the appointment of a receiver
(by instrument or court order) or trustee to take control of the asset
comprising the project.

[68]

The purpose of ss. 32(5) and (6), interpreted within the overall scheme
of the
Builders Lien Act
, is consistent with the goal of promoting the
interests of multiple stakeholders in the industry by, in specific
circumstances, enabling the completion of projects that encounter financial difficulty. 
The lender must satisfy the court that the advances will increase the value of
the land, that the increase in value will at least match the value of the
advance, and that the loan will be applied to complete an improvement.  These
requirements protect the lien holder by providing assurance that the advance
will not ultimately increase the proportion of the secured debt ranking in
priority to the lien.

[69]

The question that remains however is just how broad the Legislature
intended the exception to be.  In other words, whether the words further
advances are broad enough to include any loan secured by a mortgage or whether
additional advances given by the same mortgagee that are not secured by the
pre-existing registered mortgage excluded.  I agree with the Bank that the
scenario in which ss. 32(5) and (6) come into play will almost always be one of
financial difficulty.  However, I do not think that the plain meaning of s.
32(5) may be stretched so far that, upon application by the creditor, any loan
secured by a mortgage may fit within s. 32(5).  This is an overly broad
construction of the provision in question.  It is both inconsistent with the
plain meaning of the provisions and unnecessary to fulfil the remedial purposes
of the
Act
.  To give the words further advances any meaning, the Legislature
must be presumed to have intended there be a link to the original mortgage.  In
this case there was no link because of the order
nisi
and the existence
of a new loan secured by an entirely new charge.  I cannot read this
legislation as extending so far as is contended for by the respondent Bank.

[70]

My conclusion that the loan to the Receiver does not have priority over
previously filed liens is dispositive of this appeal.  The Court agreed to sit
as a division of five judges because the respondents contended that we should
overrule our previous decision in
Yorkshire Trust Co. v. Canusa Construction
Ltd.
(1984), 10 D.L.R. (4th) 45 (B.C.C.A.)

concerning the question
of whether, pursuant to s. 21, liens take priority over loans to receivers.  Given
my conclusion as to the breadth of s. 32(5), it is not necessary to decide this
alternate but related ground of appeal.

VI.      Section 32(6)

[71]

Given that I have decided the loan to the Receiver is not a further
advance, it is unnecessary to consider the alleged failure of the chambers
judge to consider this subsection.

Summary of Conclusions

[72]

In summary, I conclude that the $21 million loan made to the Receiver in
this case was not a further advance within the meaning of s. 32(5) because it
is a new loan.  The words further advance must refer back to the original
lending commitment.

[73]

While
Rizzo Shoes
is authority that legislation ought to be
interpreted in a manner that is harmonious with the overall scheme of the
Act
under consideration and the intention of the legislature, that does not in my
view enable a court to rewrite legislation in a manner that would stretch the
ordinary meaning of the words to the extent argued here by the Bank.

Disposition

[74]

I would allow the appeal and restore the appellants lien claim to hold
priority over the Receivers Borrowing Charge.

[75]

The Bank sought introduction of new evidence on this appeal.  That fresh
evidence consisted of several affidavits of the Receiver, email exchanges and
receivers certificates.  As I have not found that material of assistance in my
analysis, I would dismiss the application for new evidence.

The Honourable Madam Justice Garson

I agree:

The Honourable Chief Justice
Finch

I agree:

The Honourable Madam Justice
Prowse

I agree:

The Honourable Madam Justice
Newbury

I agree:

The Honourable Mr. Justice
Hinkson


