



COURT OF APPEAL FOR ONTARIO

CITATION: Ontario Wealth Management Corporation v. Sica
    Masonry

and General Contracting Ltd. , 2014 ONCA 500

DATE: 20140626

DOCKET: C57967/M43450

Strathy J.A. (In Chambers)

In the matter of
    Section 243(1) of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, C.
    B-3, as amended; Section 101 of the
Courts of Justice Act
, R.S.O. 1990
    C.C. 43, as amended; and Section 68(1) of the
Construction Lien Act
,
    R.S.O. 1990, C.30 as amended

BETWEEN

Ontario Wealth Management Corporation

Responding Party (Respondent)

and

1713515 Ontario Limited

Responding Party (Respondent)

and

Sica Masonry and General Contracting Ltd.

Moving Party (Appellant)

Jason A. Schmidt, for the moving party

David P. Preger and Michael J. Brzezinski for the responding
    party, SF Partners Inc. (court-appointed receiver for 1713515 Ontario Limited)

Amy Lok for responding party, Ontario Wealth Management
    Corporation

Heard: April 10, 2014

On motion from the order of Justice Hugh K. OConnell of
    the Superior Court of Justice, dated October 18, 2013.

Strathy J.A.:

[1]

The
    threshold question on this motion is whether this court should grant the moving
    party an extension of time to appeal from the motion judges order determining
    a priorities dispute between a mortgagee and a construction lien claimant. The
    motion judge held that the mortgage of the respondent, Ontario Wealth
    Management Corporation (Ontario Wealth), had priority over the construction
    lien of the moving party, Sica Masonry and General Contracting Ltd. (Sica). He
    directed the Receiver of the property owner to disburse the balance of the
    proceeds of sale of the mortgaged property to Ontario Wealth. Sica wishes to
    appeal on the basis the motion judge incorrectly interpreted the priority
    scheme in s. 78 of the
Construction Lien Act
, R.S.O. 1990, c. C.30 (
CLA
).

[2]

Rule
    31(1) of the
Bankruptcy and Insolvency General Rules
, C.R.C., c. 368,
    provides that a notice of appeal must be filed within ten days after the day of
    the order appealed from or within such further time as a judge of this court
    stipulates.

[3]

Sicas
    notice of appeal was filed 28 days after the order was made  that is, 18 days
    late. In the meantime, the Receiver had disbursed the proceeds of sale in
    accordance with the courts order.


[4]

If
    an extension is granted, Sica seeks a declaration that it has an appeal as of
    right to this court. Alternatively, it seeks leave to appeal.

[5]

When
    the motion was heard, there was no signed and entered order before the court. The
    appeal lies from the order, not from the reasons: see
Re Bearcat Exploration
    Ltd.
, 2003 ABCA 365, at para. 13. The formal order must be before an
    appellate court, because it is the correctness of the disposition, and not the reasons,
    which is in issue: see
Re

Smoke
(1989), 77 C.B.R. (N.S.) 263
    (Ont. C.A.).

[6]

I
    agreed to hear the parties submissions and reserved judgment on the motion on
    the understanding that the parties would take out the formal order. That has
    now occurred.

[7]

For
    the reasons that follow, the motion for an extension of time to appeal is dismissed.
    Although that disposes of the matter, leave to appeal is required in any event
    and I would not have granted leave.

A.

Background facts

[8]

The
    Walton Hotel in Port Hope, Ontario (the Property) has been under renovation
    for use as a boutique hotel.

[9]

On
    April 11, 2007, 1713515 Ontario Ltd. (1713) purchased the Property for
    $339,623.

[10]

On the same date,
    the Property was mortgaged to Crombee Construction Ltd. for $830,000.

[11]

The project was
    refinanced on November 10, 2008. Ontario Wealth took a first mortgage on the
    Property for $1.23 million. Between November 2008 and December 2009, Ontario
    Wealth made advances on the mortgage totalling $1.191 million. The initial
    advance was for $500,000. The motion judge found that, of that advance,
    $457,117.75 was applied to re-finance the Crombee mortgage.

[12]

Sica is a general
    contractor that worked on the Property between January 12, 2009 and March 18,
    2010. On April 8, 2010, Sica registered a construction lien on the Property. Its
    priority claim relates to a deficiency of $123,947 in the holdback which it claims
    1713 was required to retain.

[13]

Sica perfected
    its lien in June 2010 by registering a certificate of action against the
    Property and issuing a statement of claim against 1713. The claim asserted that
    Sicas lien had priority over Ontario Wealths mortgage, because the mortgage
    was taken with the intention of securing financing of an improvement.

[14]

On September 1,
    2010, SF Partners was appointed Receiver and Trustee of 1713.

On May
    16, 2012, the Receiver sold the Property for $600,000.

[15]

The Receiver brought
    a motion seeking directions regarding the distribution of the proceeds of sale,
    given the competing priority claims of Sica and Ontario Wealth.

[16]

The motion judge
    released his endorsement on October 18, 2013. He held at para. 52 that Ontario
    Wealths mortgage had priority over Sicas lien and that The Receiver may
    remit the balance of the funds under its administration to Ontario Wealth Management
    Corporation.

[17]

The Receiver
    remitted the balance of the funds to Ontario Wealth three days later, on October
    21, 2013.

[18]

Sica served its
    notice of appeal on November 15, 2013.

B.

the
construction lien act

[19]

The priority of
    the parties respective claims depends upon the terms of s. 78 of the
CLA
.
    Under that provision, liens arising from an improvement have priority over
    mortgages, unless one of the exceptions in the section applies. There is an
    exception in s. 78(3) for mortgages registered prior to the time when the first
    lien arose in respect of an improvement.

[20]

Section 78(2)
    provides that where a mortgagee takes a mortgage to secure the financing of an
    improvement, liens arising from that improvement have priority over the
    mortgage, and over any mortgage taken to repay the original mortgage, to the
    extent of any deficiency in the holdbacks required to be retained by the owner.

[21]

The relevant subsections
    provide:

78(1)  Except as provided in this section, the liens
    arising from an improvement have priority over all conveyances, mortgages or
    other agreements affecting the owners interest in the premises.

(2)  Where a mortgagee takes a mortgage with the
    intention to secure the financing of an improvement, the liens arising from the
    improvement have priority over that mortgage, and any mortgage taken out to
    repay that mortgage, to the extent of any deficiency in the holdbacks required
    to be retained by the owner under Part IV, irrespective of when that mortgage,
    or the mortgage taken out to repay it, is registered.

(3)  Subject to subsection (2), and without limiting
    the effect of subsection (4), all conveyances, mortgages or other agreements
    affecting the owners interest in the premises that were registered prior to
    the time when the first lien arose in respect of an improvement have priority
    over the liens arising from the improvement to the extent of the lesser of,

(a) the actual value of the premises at the time when the
    first lien arose; and

(b) the total of all amounts that prior to that time were,

(i) advanced in the case of a mortgage, and

(ii) advanced or secured in the case of a conveyance or
    other agreement.

(4)  Subject
    to subsection (2), a conveyance, mortgage or other agreement affecting the
    owners interest in the premises that was registered prior to the time when the
    first lien arose in respect of an improvement, has priority, in addition to the
    priority to which it is entitled under subsection (3), over the liens arising
    from the improvement, to the extent of any advance made in respect of that
    conveyance, mortgage or other agreement after the time when the first lien
    arose, unless,

(a) at the time when the advance was made, there was a
    preserved or perfected lien against the premises; or

(b) prior to the time when the advance was made, the person
    making the advance had received written notice of a lien.

(5)  Where a mortgage affecting the owners interest
    in the premises is registered after the time when the first lien arose in
    respect of an improvement, the liens arising from the improvement have priority
    over the mortgage to the extent of any deficiency in the holdbacks required to
    be retained by the owner under Part IV.

(6)  Subject
    to subsections (2) and (5), a conveyance, mortgage or other agreement affecting
    the owners interest in the premises that is registered after the time when the
    first lien arose in respect to the improvement, has priority over the liens
    arising from the improvement to the extent of any advance made in respect of
    that conveyance, mortgage or other agreement, unless,

(a) at the time when the advance was made, there was a
    preserved or perfected lien against the premises; or

(b) prior to the time when the advance was made, the person
    making the advance had received written notice of a lien.

[22]

The
    interpretation of s. 78 depends on the meaning of the word improvement, as
    defined in s. 1(1) of the
CLA:

improvement means, in respect of any land,

(a) any alteration, addition or repair to the land,

(b) any construction, erection or installation on the land,
    including the installation of industrial, mechanical, electrical or other
    equipment on the land or on any building, structure or works on the land that
    is essential to the normal or intended use of the land, building, structure or
    works, or

(c) the complete or partial demolition
    or removal of any building, structure or works on the land.

C.

the decision below

[23]

The motion judge held that Ontario Wealths initial
    advance fell within
s. 78(3) of the
CLA
, and therefore had
    priority over Sicas lien. Separate and distinct advances under a single
    mortgage intended for different purposes should be afforded separate and
    distinct priority treatment under the
CLA
:
Royal Bank of Canada v.
    Lawton Developments Inc.
(1994), 16 O.R. (3d) 450 (Gen. Div), revd on
    other grounds (1996), 27 O.R. (3d) 417 (C.A.). Ontario Wealth agreed to take a
    mortgage with the dual intention of financing the repayment of the existing
    Crombee mortgage and renovating the Property. It advanced $457,117.75 to
    refinance that mortgage. This was a non-construction advance and therefore a
    prior advance within s. 78(3) of the
CLA
, rather than s. 78(2). Prior
    advances that are not taken with the intention of securing the financing of an
    improvement take priority over subsequent liens under s. 78(3).

[24]

The motion judge
    rejected Sicas argument that although its own lien arose after registration of
    Ontario Wealths mortgage, its work related to an earlier improvement and the
    first lien in respect of that improvement arose before the mortgage was
    registered. The motion judge found that Sicas improvement did not relate to an
    earlier contract involving prior lien claimants, although it may well have related
    to the same project.

[25]

The motion judge
    therefore directed that the Receiver remit the balance of the proceeds to
    Ontario Wealth and the order so provides.

D.

Should an extension of time be granted?

[26]

The overarching
    principle is whether the justice of the case requires that an extension be
    granted. The relevant factors may include:

(a) whether the applicant had a
bona fide
intention to appeal
    before the expiration of the appeal period;

(b) the length of and explanation for the delay in filing;

(c) any prejudice to the responding parties caused by the delay; and

(d) the merits of the proposed appeal.

See
Howard v. Martin
, 2014 ONCA 309;
Enbridge
    Gas Distribution Inc. v. Froese
, 2013 ONCA 131, 114 O.R. (3d) 636. See
    also
Braich (Re)
, 2007 BCCA 641.

[27]

There is no
    evidence that Sica formed an intention to appeal prior to the expiry of the
    appeal period. It did not inform the Receiver of its intent to appeal until it
    served the notice of appeal. The length of the delay was not inordinate,
    although Sica has not offered any explanation for it.

[28]

Sica submits
    that the delay has not caused any significant prejudice to the Receiver, given
    that the Receiver did not wait until the expiry of the appeal period before
    distributing the funds to Ontario Wealth. The Receiver does not point to
    specific prejudice, but it contends that the appeal is moot.

[29]

I am not
    persuaded that the appeal has any merit. The only evidence before the motion
    judge was the Receivers third report. Sica filed no evidence on the motion.
    The motion judge made the following critical findings of fact:

I agree with the position of Ontario Wealth. When Ontario
    Wealth came onto the scene, there were no construction liens on title. They had
    been vacated or discharged. They were not something for which Ontario Wealth
    was bound.

I accept therefore that Ontario Wealth advanced the original
    $500,000 to pay out the Crombee mortgage. That advance was for payout of the
    land portion of the mortgage and not improvements.

I therefore agree with Ontario Wealth that section 78(3) of
    the CLA is applicable. The advance of Ontario Wealth takes priority over any
    lien claim in favour of Sica.



In any event, there is no evidence before me that the
    improvement undertaken by Sica related to any of the same improvements
    undertaken prior to Ontario Wealth coming on board in November 2008. In this
    regard I note that Sica claims for contractual undertakings for the period
    January 12, 2009  March 28, 2010, for which it registered its lien in April 2010.

[30]

While Sica
    contends that the motion judge erred in finding that its work did not relate to
    improvements financed by the Crombee mortgage, the motion judge found that
    there was no evidence to support that conclusion. The appeal is, at its core,
    fact-based, and the moving party has identified no palpable or overriding error
    in the motion judges findings of fact.

[31]

The Receiver
    submits that the appeal is moot because it distributed all of the funds in
    reliance on the order below. It relies on
National Life Assurance Co. of
    Canada v. Brucefield Manor Ltd.
, [1999] O.J. No. 1175 (C.A.). The brief
    endorsement in that case indicates that it was an appeal from an order for
    sale. A motion for a stay was dismissed, the sale closed, a vesting order was
    made and the proceeds of sale were distributed. This court held that that the
    order was spent and quashed the appeal.

[32]

The Receiver
    submits it had no obligation to satisfy itself that Sica would not appeal the
    order before distributing the funds. Where there is no automatic stay of an
    order, a losing party is well-advised to seek a stay pending appeal:
Regal
    Constellation Hotel Ltd. (Re)
(2004), 71 O.R. (3d) 355 (C.A.), at para. 49.

[33]

The Receiver had
    no notice, prior to the expiration of the time to appeal, that the moving party
    intended to appeal the order. Section 195 of the
BIA

provides
    for a stay of proceedings pending appeal, but no request was made for a stay of
    execution pending the filing of a notice of appeal. The funds have been
    disbursed and the operative parts of the order are spent. Receivers are
    entitled to act on the advice they receive from the court. It would not be fair
    to revisit the issue when the funds are out of the Receivers hands.

[34]

In all the
    circumstances, the justice of this case does not require an extension of time. The
    application to extend the time to appeal is dismissed.

E.

Leave to appeal

[35]

It is unnecessary
    to consider the application for leave to appeal. However, as the parties made
    submissions on the issue, I will indicate that, in my view, leave to appeal is required
    and I would not have granted leave.

[36]

The parties
    agreed that the appeal route is governed by s. 193 of the
BIA
: see
Impact
    Tool & Mould Inc. (Receiver of) v. Impact Tool & Mould Inc. (Trustee
    of)
, 2013 ONCA 697;
Dabbs v. Sun Life Assurance Co. of Canada
(1998), 41 O.R. (3d) 97 (C.A.), at para. 13, leave to appeal to S.C.C. refused,
    [1998] S.C.C.A. No. 372
;

L.W.

Houlden, G.B. Morawetz and Janis Sarra,
Bankruptcy and Insolvency Law
    of Canada
, loose-leaf (2009-Rel. 5), 4th ed. (Toronto: Carswell, 2013)
    vol. 3 at p. 7-106;
Donald J.M. Brown, Q.C.,
Civil
    Appeals
, loose-leaf (June 2013) (Toronto: Carswell,
    2013) vol. 1 at para. 2:1120. See also
Canada (Superintendent of
    Bankruptcy) v. 407 ETR Concession Company Ltd.
, 2013 ONCA 769, 118 O.R.
    (3d) 161 on the paramountcy of the
BIA.

[37]

Section 193
    provides:

193. Unless otherwise expressly provided, an appeal lies to the
    Court of Appeal from any order or decision of a judge of the court in the
    following cases:

(a) if the point at issue involves future rights;

(b) if the order or decision is likely to affect other cases of
    a similar nature in the bankruptcy proceedings;

(c) if the property involved in the appeal exceeds in value ten
    thousand dollars;

(d) from the grant of or refusal to grant a discharge if the
    aggregate unpaid claims of creditors exceed five hundred dollars; and

(e) in any other case by leave of a judge of the Court of
    Appeal.

[38]

An appeal lies
    to this court as of right in the circumstances described in s. 193(a) to (d) of
    the
BIA
. In all other cases, leave must be sought from a single judge
    under s. 193(e).

[39]

Rule 31(2) of
    the
Bankruptcy and Insolvency General Rules
provides that where an
    appeal is brought under s. 193(e), the notice of appeal must include the
    application for leave. This rule was not observed in this case

[40]

The appeal does
    not involve future rights, other cases in the bankruptcy proceedings or the
    granting or refusal of a discharge. The issue therefore is whether there is an
    appeal as of right under s. 193(c) or whether leave is required under s. 193(e)
    and, if so, whether leave should be granted.

[41]

Based on this
    courts decision in
Business Development Bank of Canada v. Pine Tree
    Resorts Inc.
, 2013 ONCA 282, 115 O.R. (3d) 617, and the decision of the
    New Brunswick Court of Appeal in
Royal Bank of Canada v. Profor Kedgwick
    Ltd.,
2008 NBCA 69, 299 D.L.R. (4th)
    727, s. 193(c) is to be narrowly construed and restricted to cases where the
    appeal directly involves property exceeding $10,000 in value. While the
    practical effect of the motion judges decision is that Ontario Wealth will
    receive proceeds of sale exceeding $10,000 and Sica will not, this results not
    from the decision itself but from the reality that there are insufficient funds
    in the estate to repay both creditors.
As in
Pine Tree Resorts
,
    there is no dispute as to the
value
of the claims at issue or the
    proceeds of sale. Thus, I would follow the reasoning in
Pine Tree Resorts

and in
Profor Kedgwick
and hold that the appeal does not directly
    involve property which exceeds $10,000 in value.

[42]

The issue before
    the motion
judge was simply a matter of
    which claim had priority. This is the daily fare of judges in bankruptcy
    proceedings. To provide an appeal as of right from such decisions would negate
    the courts gatekeeping function under s. 193(e) and would tie up bankruptcy
    proceedings in interlocutory appeals over routine issues.

[43]

The exercise of
    granting leave to appeal under s. 193(e) is discretionary and must be exercised
    in a flexible and contextual way:
Pine Tree Resorts
, at para. 29. The
    prevailing considerations are whether the proposed appeal:

(a) raises an
    issue of general importance to the practice in bankruptcy/insolvency matters or
    the administration of justice as a whole;

(b)   is
prima
    facie
meritorious;

(c) would
    unduly hinder the progress of the bankruptcy/insolvency proceedings.

The parties agree that the appeal would not unduly
    hinder the proceedings, so the analysis turns on the answer to the first two
    questions.

[44]

For
    the reasons set out above, I am not persuaded that the proposed appeal is
    meritorious.

[45]

I am also not
    convinced that this appeal raises an issue of general importance to the practice
    of bankruptcy and insolvency given that it turns on the motion judges very
    specific and central findings of fact that the mortgage funds were advanced
    prior to Sicas involvement, all construction liens had been discharged, and
    Sicas improvement did not relate to the earlier contract.

[46]

I would not
    therefore have granted leave to appeal even if the notice of appeal had been
    served in time.

F.

DISPOSITION

[47]

The application
    for an extension of time is dismissed. If the parties are unable to resolve
    costs, they may make written submissions. The respondents submissions shall be
    served and filed with the Registrar within 15 days. The moving party may have
    15 days to respond. The submissions shall not exceed 5 pages in length,
    exclusive of the costs outline.

G.R. Strathy J.A.


