Canadian Comstock v. Toronto Transit Commission, [1970] SCR 205

Supreme Court of Canada

Canadian Comstock v. Toronto Transit Commission, [1970] S.C.R. 205

Date: 1969-10-21

Canadian Comstock Company Limited (Plaintiff) Appellant;

and

The Toronto Transit Commission, The Municipality of Metropolitan Toronto and the Trustee of the Estate of Anglin-Norcross Ontario Limited, a Bankrupt (Defendants) Respondents.

1969: June 12, 13; 1969: October 21.

Present: Martland, Judson, Ritchie, Hall and Pigeon JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Mechanics’ liens—Contract abandoned—Claims for liens filed by subcontractors—Statutory holdback—Additional fund representing value of work certified as complete but not yet paid for—Right of set-off asserted by owner—Priority as to claims against additional fund—The Mechanics’ Lien Act, R.S.O. 1960, c. 233.

The general contractor for the construction of certain subway stations in Toronto made an assignment in bankruptcy and abandoned the contract. The appellants were subcontractors on the project and after the bankruptcy of the contractor, they filed claims for liens. No notices of lien or claims for lien were received by the Municipality of Metropolitan Toronto or the Toronto Transit Commission before the bankruptcy.

On the date of the bankruptcy, the Commission had on hand (a) the full statutory holdback, and (b) certain additional sums which represented the value of the work certified as complete but not yet paid for. No question arose on the statutory holdback. It was completely available for the lienholders but it was not enough to pay them in full. They claimed also against the additional sums in the hands of the Commission.

The Commission asserted a right of setoff against the amount owing to the defaulting contractor over and above the statutory holdback. This right of set-off was for the admitted extra costs incurred in completing the work over and above the contract price.

[Page 206]

The Master held in favour of the lien claimants. His decision was reversed by the Court of Appeal, from whose judgment the lienholders appealed to this Court.

Held: The appeals should be dismissed.

The owner had made no payment after notice of the lien. It was holding an additional sum and it made its claim for non-completion confined to this additional sum. It was still entitled to the protection of s. 11(6) of The Mechanics’ Lien Act, which provides that all payments—up to 85 per cent in this particular case—made in good faith by the owner to a contractor before notice in writing of the lien is given, operate as a discharge pro tanto of the lien. The owner could not be compelled to bring the additional sum into account to make it available in addition to the holdback to the subcontract lienholder.

S.I. Guttman Ltd. v. James D. Mokry et al., [1969] 1 O.R. 7, approved; Vaillancourt Lumber Co. Ltd. v. Trustees of Separate School Section No. 2, Township of Balfour et al., [1964] 1 O.R. 418, distinguished.

Three APPEALS from judgments of the Court of Appeal for Ontario, allowing appeals from a report of G.C. Saunders, Master, in mechanics’ lien proceedings. Appeals dismissed.

Claude Thomson and R.G. Dow, for the appellant.

M.E. Sullivan, Q.C., for the respondents.

The judgment of the Court was delivered by

JUDSON J.—These are three appeals in mechanics’ lien proceedings arising out of the bankruptcy of Anglin-Norcross Ontario Limited. This company was the general contractor for the construction of certain subway stations on the Bloor-Danforth subway line in Toronto. It made an assignment in bankruptcy on September 22, 1967, and abandoned the contract. The appellants are subcontractors from Anglin-Norcross and after the bankruptcy of this company, they filed claims for liens. No notices of lien or claims for lien were received by the Municipality of Metropolitan Toronto or the Toronto Transit Commission before the bankruptcy.

[Page 207]

On the date of the bankruptcy, the Toronto Transit Commission had on hand

(a) the full statutory holdback under The Mechanics’ Lien Act, and

(b) certain additional sums which represented the value of the work certified as complete but not yet paid for.

No question arises on the statutory holdback. It is completely available for the lienholders but it is not enough to pay them in full. They are claiming also against the additional sums in the hands of the Commission.

The Commission is asserting a right of set-off against the amount owing to the defaulting contractor over and above the statutory holdback. This right of set-off is for the admitted extra costs incurred in completing the work over and above the contract price.

The Master held in favour of the lien claimants. His decision was reversed in the Court of Appeal, whose formal judgment was that the Commission had a right of set-off against the amount owing to the defaulting contractor over and above the statutory holdback for the admitted extra costs incurred in completing. The matter was remitted to the Master to resettle his report in the light of this determination. From this judgment the lienholders appeal to this Court.

The matter was argued before the Master, the Court of Appeal and this Court on an agreed statement of facts. The statement was supplemented in this Court by agreement of counsel on the meaning of two expressions used in the agreed statement of facts. No purpose can be served by setting out the agreement and the two further admissions. The facts are plain. The question is simply this: Who has priority in claiming against this additional fund?

I agree with the majority judgment delivered in the Court of Appeal both in its analysis of The Mechanics’ Lien Act and the prior litigation on this question. The Court of Appeal, in reaching

[Page 208]

its decision on December 11, 1968, followed its own decision of October 15, 1968, in S.I. Guttman Ltd. v. James D. Mokry Ltd. et al.[1], where precisely the same point of law was in issue.

The lien is created by s. 5(1) of the Act in favour of any person who performs any work or service or supplies materials, “limited, however, in amount to the sum justly due to the person entitled to the lien and to the sum justly owing, except as herein provided, by the owner.”

Sections 9 and 10, which are subject to the saving clause “save as herein otherwise provided”, contain the same limitation of liability. They read:

9. Save as herein otherwise provided, the lien does not attach so as to make the owner liable for a greater sum than the sum payable by the owner to the contractor.

10. Save as herein otherwise provided, where the lien is claimed by any person other than the contractor, the amount that may be claimed in respect thereof is limited to the amount owing to the contractor or subcontractor or other persons for whom the work or service has been done or the materials placed or furnished.

Section 11(1) and (2) provides for the holdback. In this case it is 15 per cent. This is available for the lien claims in full.

Section 11(6) provides that all payments—up to 85 per cent in this particular case—made in good faith by the owner to a contractor before notice in writing of the lien is given, operate as a discharge pro tanto of the lien.

Section 11(7) deals with the application of the holdback after the expiration of the holdback period.

Section 11(9) prevents an owner from applying the holdback against damages for non‑completion. It must be applied in satisfaction of the liens.

So far there is nothing in the Act to support the claim of the lienholders against this additional fund.

[Page 209]

The lienholders seek to support their claim under s. 12(2) of the Act, which reads:

12. (2) Every subcontractor is entitled to enforce his lien notwithstanding the non‑completion or abandonment of the contract by any contractor or subcontractor under whom he claims.

It is urged that this rules out any claim by the owner for damages for non-completion or abandonment of the contract against the subcontractor or any priority to the subcontractor’s claims for lien.

This section goes back to 1923. Its effect was under consideration in Freedman v. Guaranty Trust Co. of Canada[2]. This was a case where the contractor abandoned the contract and absconded. Had it not been for the enactment of what now is s. 12(2) above quoted, the subcontractor would have had no claim. The effect of the amendment is stated by Masten J.A. (at p. 203) in these words:

In other words, he is by this clause of the statute placed in the same position with regard to enforcement of his lien as though the work as it stood at the date of abandonment was pro tanto a legal fulfilment of the contract and as if the principal contractor was entitled to recover against the owner on a quantum meruit for the value of the work so far as completed.

 The subcontractor, therefore, had his rights under the Act whatever they were. The owner was allowed to claim against the amount owing to the contractor the cost of completion of the building and damages for delay.

It is pointed out by Schroeder J.A. in the Guttman case that the authority of this decision has never been questioned, nor was it questioned in a recent decision of the Court of Appeal in Vaillancourt Lumber Co. Ltd. v. Trustees of Separate School Section No. 2, Township of Balfour et al.[3] The Vaillancourt case was correctly distinguished in the reasons of the Court of Appeal. In the Vaillancourt case the owner had received notice in writing of a lien claim by a

[Page 210]

subcontractor. After receiving this notice, it made a further payment to the contractor. This lost it the protection given by s. 11(6) of the Act:

11. (6) All payments up to 80 per cent as fixed by subsection 1 or up to 85 per cent as fixed by subsection 2 and payments permitted as a result of the operation of subsections 3 and 4 made in good faith by an owner to a contractor, or by a contractor to a subcontractor, or by one subcontractor to another subcontractor, before notice in writing of the lien given by the person claiming the lien to the owner, contractor or subcontractor, as the case may be, operate as a discharge pro tanto of the lien.

Therefore, there should have been available for the lien claimant not only the holdback but the additional sum paid after notice of the lien.

There is nothing like this in the present case. This owner made no payment after notice of the lien. It was holding an additional sum and it made its claim for non-completion confined to this additional sum. It is still entitled to the protection of s. 11(6) and cannot be compelled to bring this sum into account to make it available in addition to the holdback to the subcontract lienholder. I am content to adopt the majority reasons delivered by the Court of Appeal in the Guttman case.

I would dismiss these appeals with costs.

Appeals dismissed with costs.

Solicitors for the appellant: Campbell, Godfrey & Lewtas, Toronto.

Solicitors for the respondents, The Municipality of Metropolitan Toronto and The Toronto Transit Commission: Bassel, Sullivan, Holland & Lawson, Toronto.

Solicitors for the respondent, the Trustee of the Estate of Anglin-Norcross Ontario Limited, a Bankrupt: Harries, Houser, Brown, Houlden & McCallum, Toronto.