



COURT OF APPEAL FOR ONTARIO

CITATION:

Bianco v. Deem
    Management Services Limited, 2021 ONCA 859

DATE: 20211202

DOCKET: C68214 (M52219)

Gillese, Trotter and Nordheimer
    JJ.A.

BETWEEN

Donald
    Dal Bianco

Applicant (Appellant)

and

Deem Management
    Services Limited and
The Uptown Inc.

Respondents

David T. Ullmann and Brendan
    Jones, for the appellant

Eric O. Gionet, for the respondent,
    Maxion Management Services Inc.

R. Brendan Bissell and Joël
    Turgeon, for the receiver, Crowe Soberman Inc.

Jeffrey A. Armel, for EXP
    Services Inc.

Harold T. Rosenberg, for Deep
    Foundations Contractors Inc.

Edward L. DAgostino, for Kieswetter
    Excavating Inc.
[1]

Heard: November 17, 2021

On appeal from the order of Justice Cory
    A. Gilmore of the Superior Court of Justice, dated March 10, 2020, with reasons
    reported at 2020 ONSC 1500.

Nordheimer J.A.:

[1]

Donald Dal Bianco appeals from the order of the
    motion judge, who determined that the lien claimants in this matter, including
    the respondent, Maxion Management Services Inc. (Maxion), had priority over
    the appellants registered mortgage. For the following reasons, I would dismiss
    the appeal.

A.

Background

[2]

The motion proceeded on the basis of an agreed
    statement of facts. A summary of those agreed facts is sufficient to set the
    background for the motion.

[3]

On May 31, 2018, pursuant to an order of the
    Superior Court of Justice, Crowe Soberman Inc. was appointed as Receiver of:

1.

the property known municipally as 215 and 219
    Lexington Road, Waterloo, Ontario (the Real Property),

2.

the assets and undertakings of Deem Management
    Services Limited related to the property, and

3.

the property, assets and undertakings of Uptown
    Inc.

[4]

The receivership arose out of a project that
    contemplated the redevelopment of the Real Property as a seniors retirement
    residence called the Uptown Residences (the Uptown Project). The respondent,
    Maxion, was the general contractor on the Uptown Project. At some point in early
    2018, Maxion was advised to cease construction. Shortly after construction
    ceased, various service providers registered construction liens against title
    to the property, commencing on March 7, 2018, that ultimately totalled $7,673,672.48.

[5]

The Uptown Project was sold by the Receiver in
    the summer of 2018. After making certain distributions, including payment of
    the first and second mortgages, the Receiver still holds in trust the sum of
    $5,477,224.57 (inclusive of interest but exclusive of the fees of the Receiver
    and its counsel) from the proceeds of sale.

[6]

As a result of competing priority claims between
    the lien claimants and a third mortgage held by the appellant, the Receiver has
    not been able to distribute these remaining funds.
[2]

[7]

The third mortgage was granted by Deem
    Management to the appellant on February 14, 2018 and registered on February 23,
    2018. The third mortgage was registered after the time when the first lien
    arose. The third mortgage secured the principal amount of $7,978,753.45. The
    amounts secured by the third mortgage were all advanced between 2012 and 2015
    without security having been registered. The first advance was made on April
    22, 2012, and the final advance was made on January 22, 2015.

[8]

All of the funds advanced, that were secured by
    the third mortgage, were intended, and were in fact used, in an improvement
    within the meaning of s. 78 of the
Construction Act
, R.S.O. 1990, c.
    C.30, on the Real Property through the Uptown Project.

[9]

As for the procedure on the motion, the parties
    agreed that Maxion would be the moving party, the appellant would respond, and
    the Receiver would also make submissions. Counsel for some of the other lien
    claimants appeared on the motion but did not make submissions or file material.
    Some of the lien claimants also appeared on this appeal, but again did not make
    submissions or file material.

B.

THE DECISION BELOW

[10]

The motion judge began her analysis with
    reference to various sections of the
Construction Act
but she focussed
    on s. 78.

[11]

The motion judge correctly noted that the
    general intention of s. 78 is to give priority to lien claimants over
    mortgages, subject to certain defined exceptions. Those exceptions are set out
    in s. 78. The motion judge said that the onus is on the mortgagee to prove that
    its mortgage falls within one of those exceptions in order to gain priority
    over the lien claimants. In support of these general principles, the motion
    judge cited
Boehmers v. 794561 Ontario Inc.

(1993), 14 O.R.
    (3d) 781 (Gen. Div.), affd. (1995), 21 O.R. (3d) 771 (C.A.).

[12]

The motion judge referred to both of the
    exceptions that the appellant alternatively sought to bring itself within,
    namely, ss. 78(2) and 78(6). The motion judge decided that neither of those
    exceptions applied to the third mortgage. She therefore concluded that the liens
    had priority over the third mortgage.

[13]

In reaching her conclusion, the motion judge
    also explained that the appellants position, if accepted, would be contrary to
    the proper functioning of the
Construction Act
. She said, at para. 42:

If mortgagees are entitled to lie in the
    weeds while advancing funds for the project and then attempt to gain priority
    later by registering mortgages after liens arise, this would be unfair to lien
    claimants and contrary to the overall protection intended by the Act.

C.

JURISDICTION

[14]

Before turning to my analysis of the issues
    raised, I should explain how this appeal comes before this court instead of the
    Divisional Court as would normally be the case under s. 71(1) of the
Construction
    Act
.

[15]

After this appeal was launched, the Receiver
    brought a motion for directions as to the proper venue for the appeal. A panel
    of this court ruled that the appeal lay to this court because the order in
    question had been granted, at least partly, in reliance on jurisdiction under
    the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3.
[3]
The panel noted that the Receiver
    had authority to seek the courts directions under s. 249 of the
Bankruptcy
    and Insolvency Act
and paragraph 34 of the receivership order.
    Consequently, any appeal of the resulting order lay to this court under s. 193
    of the
Bankruptcy and Insolvency Act
.

[16]

That decision then led to a motion to quash the
    appeal, brought by the respondent Maxion, on the basis that leave was required
    under the
Bankruptcy and Insolvency Act
because the appeal did not fit
    within the subsections of s. 193 relied upon by the appellant, namely ss.
    193(a)-(c). The appellant subsequently brought a motion for leave to appeal,
    which was heard by the panel at the same time as the appeal on the merits.

[17]

I do not consider it necessary to resolve the
    issue raised by the motion to quash for two reasons. First, the issue was not
    pressed by counsel at the hearing. Second, even if the appeal does not fit
    within any of the subsections relied upon (and I do not make any finding in
    that regard), I would grant leave to appeal under s. 193(e). The issues raised
    are of importance to the law relating to construction liens generally and the
    parties have fully argued those issues.

D.

ANALYSIS

[18]

As a starting point, it is useful to set out the
    relevant portions of s. 78, which read:

(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.



(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.

[19]

I will consider the two subsections relied upon
    by the appellant in the same order that the motion judge did, beginning with s.
    78(6).

[20]

With respect to subsection 78(6), I agree with
    the motion judge that, on its plain meaning, the subsection does not apply to
    the third mortgage. In particular, the subsection refers to any advance made
    in respect of the mortgage. In this case, the advances were made well before
    the third mortgage was given and registered. Indeed, the third mortgage was
    given and registered more than three years after the last advance and almost
    six years after the first advance. I do not see how, in those circumstances, it
    could be said that the advances were made in respect of the third mortgage.

[21]

On this point, a great deal of effort was spent
    by the appellant with reference to the legislative history of s. 78 and, in
    particular, the stated intention of the legislature to avoid the effects of the
    decision of the Supreme Court of Canada in
Dorbern Investments Ltd. v.
    Provincial Bank of Canada
, [1981] 1 S.C.R. 459. In
Dorbern
, the
    court had held that a subsequent registered collateral mortgage took priority
    over an unregistered lien even where the work covered by that lien predated the
    mortgage. Based on
The Mechanics Lien Act
, R.S.O. 1970, c. 267, as it
    was then worded, the court found that registration set the relevant priorities,
    absent specific notice of the lien.

[22]

The appellant criticizes the motion judge for
    failing to refer to this legislative history. In my view, that criticism is misplaced.
    While the motion judge may not have referred to the legislative history, her
    decision is consistent with the intent of s. 78, to the degree that that intent
    is revealed by the legislative history. Of more importance is the fact that the
    motion judges conclusion is consistent with the wording of s. 78(6).

[23]

The decision in
Dorbern
, and its
    impetus for changes to the provisions of the
Construction Act
, have
    limited relevance to the issues raised by this case. Here, the mortgage was not
    a collateral mortgage but a direct mortgage. Further, the legislative change
Dorbern
caused, namely the addition of s. 78(5), is of no direct relevance to the
    issues this court is called upon to determine.

[24]

The appellant also faults the motion judge for
    relying on two previous decisions which the appellant submits are
    distinguishable from this case. Those two decisions are
Jade-Kennedy
    Development Corp. (Re)
, 2016 ONSC 7125, 72 C.L.R. (4th) 236, affd 2017
    ONSC 3421, 72 C.L.R. (4th) 256 (Div. Ct.), and
XDG Ltd. v. 1099606 Ontario
    Ltd.
(2014), 186 O.A.C. 33 (Div. Ct.).

[25]

The appellant attempts to distinguish those two
    cases on the basis that they involved collateral mortgages used to secure
    advances unrelated to the property. The appellant points out that the third
    mortgage was a direct mortgage to secure advances that led to the improvements
    on the Real Property.

[26]

However, having attempted to make that
    distinction, the appellant then curiously goes on to submit that, in enacting
    s. 78, the legislature did not intend to distinguish between collateral and
    other mortgages. Having thus eliminated the basis on which it attempts to
    distinguish these two cases, the appellant resorts to submitting that the two
    decisions were wrongly decided because those cases also failed to take into
    account the true intent of the legislature.

[27]

In my view, the appellants effort to avoid the
    effects of these two cases fails. Those two decisions are consistent with what
    both the motion judge and I say is the effect of the plain wording of s. 78(6),
    that is, that a mortgage will only be given priority to the extent that any
    advances are made in respect of the mortgage. That was not the factual
    situation in those two cases, and it is not the factual situation here. Indeed,
    it was not the factual situation in
Dorbern
, where the Supreme Court
    of Canada reached the same conclusion in its interpretation of s. 14(1) of
The
    Mechanics Lien Act
and the proper meaning to be given to advances made
    on account of any conveyance or mortgage.

[28]

The appellants effort to avoid the effect of
Dorbern
,
    on this point, by noting the difference in the wording of the two subsections
    between on account of and in respect of, the former being narrower than the
    latter, is unpersuasive in the context of these cases and these legislative
    provisions.

[29]

I now turn to s. 78(2) where the wording is, I
    accept, less plain. However, notwithstanding that lack of clarity, I reach the
    same conclusion on the facts of this case. I accept that the thrust of s. 78(2),
    and the wording [w]here a mortgagee takes a mortgage with the intention to
    secure the financing of an improvement, is to restrict the priority of the
    lien claims relating to that improvement solely to any deficiency in the
    holdback amount, and not over the mortgage generally.

[30]

In this case, though, the appellant cannot bring
    itself within that exception for the same reason that undercuts the appellants
    reliance on s. 78(6), and that is that the wording of s. 78(2) suggests that
    the intention to secure the financing operates prospectively. In other words, to
    fit within s. 78(2), the mortgagee must take the mortgage with the intention to
    secure financing of an improvement, which financing is then made. It does not
    operate retrospectively, that is, with respect to an intention to secure
    financing of an improvement that has already been made.

[31]

That conclusion with respect to the intention of
    s. 78(2) is consistent with the intention of s. 78 generally, which is to give
    priority to lien claimants. If a secured party wishes to propel its claim past
    the general priority given to lien claimants, then it bears the onus of
    bringing itself clearly within one of the exceptions set out in s. 78. In this
    case, the appellant has failed to discharge that onus, both with respect to s.
    78(6) and s. 78(2).

[32]

Before concluding, I will address two other
    points raised by the appellant. First, the appellant says that the motion judge
    erred in failing to address the submissions of the Receiver. The motion judge
    was not required to specifically address any partys submissions. What the
    motion judge was required to do was address the substance of all of the
    submissions made and reach a conclusion in light of all of those submissions.
    That is what the motion judge did in this case.

[33]

Second, the appellant complains about the
    public policy point that the motion judge made, in paragraph 42 of her
    reasons, where she referred to mortgagees not being entitled to lie in the
    weeds while advancing funds. I do not consider it necessary to comment on the manner
    in which the motion judge expressed the point. The
Construction Act
sets out the general principle of providing lien claimants with priority. The
    basic concern that the motion judge identified regarding any conclusion that
    would undermine that legislative intent remains a valid one.

E.

CONCLUSION

[34]

I would dismiss the appeal with costs to the respondent,
Maxion, in the agreed amount of $30,000
    inclusive of disbursements and HST. The Receiver did not seek costs.

Released: December 2, 2021 E.E.G.

I.V.B. Nordheimer J.A.

I agree. E.E. Gillese J.A.

I agree. Gary Trotter J.A.





[1]

Counsel for the lien claimants EXP Services Inc., Deep
    Foundations Contractors Inc. and Kieswetter Excavating Inc. appeared but did
    not make any written or oral submissions.



[2]
The Receiver identified that the third mortgage may be invalid,
    including under the
Fraudulent Conveyances
    Act
, R.S.O. 1990, c. F.29, and the
Assignments
    and Preferences Act
, R.S.O. 1990, c. A.33. By order of the Superior
    Court of Justice, the determination of that issue awaits the determination of
    the priority issue raised in this case.



[3]

Dal Bianco v. Deem Management
    Services Limited
, 2020 ONCA 585, 82 C.B.R. (6th) 161.


