Noranda Exploration Co. Ltd. v. Sigurdson, [1976] 1 SCR 296

Supreme Court of Canada

Noranda Exploration Co. Ltd. v. Sigurdson, [1976] 1 S.C.R. 296

Date: 1975-01-28

Noranda Exploration Co. Ltd. and Noranda Mines Co. (Defendants) Appellants;

and

Harold Sigurdson (Plaintiff) Respondent.

1974: November 28, 29; 1975: January 28.

Present: Laskin C.J. and Martland, Ritchie, Spence and Pigeon JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Mechanic’s liens—Contracts abandoned by bankrupt contractor—Cost to complete exceeding contract prices less amounts paid on account—Owner holding back more than required statutory holdback—Responsibility of owner to lien claimants—Mechanics’ Lien Act, R.S.B.C. 1960, c. 238, ss. 6, 19(2), 21(1) and (6).

A general contractor, B, entered into two contracts for the construction of certain improvements to the mine property of the appellant N. The contracts were abandoned before completion and B went into bankruptcy. In order to complete the improvements, N hired C to take the place of B as general contractor. At the date of abandonment, N had held back from B more than the required statutory holdback of 15 per cent of the value of the work done by B, its subcontractors and materialmen. Claims of lien were assigned by the subcontractors and materialmen to the respondent herein.

The parties asked the Courts below to determine the following question of law: “Is [N] responsible to the lien claimants for more than 15% of the value of the work done by [B], its subcontractors and materialmen, where the cost to [N] to complete as aforesaid exceeded the sum of the contract prices less amounts paid to [B] on account?”

The question was answered by the trial judge in the negative but his decision was reversed on appeal. The decision of the Court of Appeal was that s. 19(2) of the Mechanics’ Lien Act, R.S.B.C. 1960, c. 238, must be considered together with s. 6 and that the resulting effect was to create a fund composed of the unpaid balance owed by the owner to the bankrupt head contractor at the date of the bankruptcy and that to such fund the liens of the subcontractors would attach preventing any deduction from such fund by the owner to

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cover the costs of completion of the contract. From that decision N appealed to this Court.

Held: The appeal should be allowed.

The interpretation of s. 19(2) advanced by the appellant, i.e. that the provision was intended to prevent the owner making deductions for items not arising under the terms of the contract but outside the terms of the contract and did not apply when the owner was obliged to furnish material and labour to complete a contract abandoned by the head contractor, is the only method by which that section can be reconciled with the general principle stated in s. 6: that the owner’s liability is limited to “the sum payable by the owner to the contractor”.

To give s. 19(2) the broader interpretation resulting from the decision of the Court of Appeal is to render s. 21(6) redundant. If a lien covers all amounts unpaid by the owner to the head contractor at the date of abandonment of the contract by the latter then there would be no need to make a special provision preventing the application of the percentage required to be retained by the owner under the provisions of s. 21(1) by that owner or contractor for the completion of the contract or any other prupose.

Accordingly, s. 19(2) does not bar N from deducting from the amounts payable upon the bankruptcy the cost of completion of the contract.

Canadian Comstock Co. Ltd. v. Toronto Transit Commission et al., [1970] S.C.R. 205, followed; S.I. Guttman Ltd. v. James D. Mokry et al., [1969] 1 O.R. 7, approved; Freedman v. Guaranty Trust Co. of Canada (1929), 64 O.L.R. 200; Appleby v. Myers (1867), L.R. 2 C.P. 651; Hazel v. Lund (1915), 9 W.W.R. 749; Smith v. Stubbert, [1942] 1 W.W.R. 601; Hampton v. Christensen (1906), 84 P. 200; Builders Supply Depot v. O’Connor (1907), 88 P. 932, referred to.

APPEAL from a judgment of the Court of Appeal for British Columbia[1], allowing an appeal from a judgment of Harvey Co.Ct.J. Appeal allowed.

R.C. Bray and R.G. Ward, for the defendants, appellants.

D.B. Kirkham, for the plaintiff, respondent.

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THE CHIEF JUSTICE—I agree with my brother Spence that this appeal should be allowed. In my opinion, s. 19(2) of the Mechanics’ Lien Act, R.S.B.C. 1960, c. 238, is far less susceptible of the meaning and application that the respondent would give it on the facts herein than is s. 12(2) of The Mechanics’ Lien Act, R.S.O. 1960, c. 233 (now s. 13 of The Mechanics’ Lien Act, R.S.O. 1970, c. 267), and the failure of the subcontractors in the Comstock case[2] makes their failure here a fortiori.

The judgment of Martland, Ritchie, Spence and Pigeon JJ. was delivered by

SPENCE J.—This is an appeal from the judgment of the Court of Appeal for British Columbia pronounced on April 11, 1974. By that judgment, the said Court of Appeal allowed an appeal from the judgment of His Honour Judge Harvey pronounced on July 30, 1973, dismissing the action of Harold Sigurdson.

The matter came before the learned County Court judge in the form of a special case upon an admitted statement of facts which statement of facts was as follows:

1. The parties have agreed to stating a question of law arising in this case in the form of a Special Case for the opinion of the Court pursuant to Marginal Rule 389 of the Supreme Court Rules.

2. The Plaintiff agrees that if the question of law is decided against him, then such decision will be determinative of the action and the Defendants will be entitled to a dismissal.

3. It is agreed that either party may appeal the decision of the Learned Trial Judge on the Special Case to the Supreme Court of Canada. If the question of law is ultimately determined in favour of the Plaintiff, then the action will be continued before the Learned Trial Judge.

4. The amount or value of the matter in controversy herein exceeds $10,000.00.

5. Basarab Construction Co. Ltd., in bankruptcy, (hereinafter referred to as “Basarab”) was the general contractor on the subject project, however, no relief is claimed by the Plaintiff against Basarab and Basarab has no interest in these proceedings and has not entered

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an Appearance. The Plaintiff is the Trustee in bankruptcy of Basarab.

6. The property against which the Plaintiff seeks to enforce its liens is described in Paragraph 5 of the Statement of Claim. The mining property in question is recorded in the name of the Defendant, Noranda Exploration Company Limited, and is held in trust for the Defendant, Noranda Mines Ltd. (“Noranda”), the beneficial owner thereof.

7. On April 8th, 1971, Noranda entered into a construction agreement whereby Basarab as head contractor was to do certain work on the foundations of several structures which Noranda wished to have constructed at a mine on the above-described property. On July 15th, 1971, Basarab entered into a second construction agreement as head contractor, with Noranda, to do certain other work on the foundations of additional structures on the mine site.

8. The parties admit that at least some of the liens are valid and in order, and that this Honourable Court has jurisdiction to hear the issues herein.

9. Basarab went into bankruptcy during the performance of the above-mentioned contracts, (which will be entered as exhibits on the hearing of this Special Case) and it is agreed that Basarab abandoned the contracts, and never completed them. On October 25th, 1971 Noranda wrote two letters to Basarab (copies of which will be entered in these proceedings).

10. It is further agreed that at the time of Basarab’s aforesaid abandonment, it has done and caused to be done work on the aforesaid improvements, and that Noranda, the owner, had held back from Basarab, more than the required statutory holdback of 15% of the value of the work done by Basarab, it sub-contractors and material men. The aforesaid sub-contractors and material men are the Mechanics’ Lien claimants who assigned their claim to the Plaintiff herein as set out in Paragraph 4 thereof.

11. The cost to Noranda to complete the improvements in question after the aforesaid abandonment, exceeded the sum of the aforesaid contract prices less the amounts paid to Basarab on account.

12. The question of law that the parties ask this Honourable Court to determine is:

(1) Is Noranda responsible to the Lien claimants for more than 15% of the value of the work done by Basarab, its sub-contractors and material men, where

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the cost to Noranda to complete as aforesaid exceeded the sum of the contract prices less amounts paid by Basarab on account.

“D.B. Kirkham”

Counsel for the Plaintiff

“R.C. Bray”

Counsel for the Defendants

1. At all material times, Noranda complied with the provisions of Section 21(1) of the Mechanics’ Lien Act, R.S.B.C. 1960, c. 238.

2. In order to complete the improvements in question after the abandonment of Basarab, Noranda hired Commonwealth Construction Co. Ltd., “Commonwealth”, an independent contractor, to take the place of Basarab as head contractor. There was no contractual relationship between Noranda and Commonwealth relative to the said improvements prior to Basarab’s said abandonment.

“D.B. Kirkham”

Counsel for the Plaintiff

“R.C. Bray”

Counsel for the Defendants

The question put was answered by the learned trial judge in the negative but his decision was reversed in the Court of Appeal for British Columbia.

In Canadian Cornstock Co. Ltd. v. Toronto Transit Commission et al.[3], this Court was faced with the same problem on facts remarkably similar in an appeal from the Court of Appeal for Ontario. The Court of Appeal for Ontario had held that the owner, the Toronto Transit Commission, was entitled to deduct from the amount which had been owing to the head contractor at the date of the latter’s bankruptcy not only the statutory holdback but also such amounts as were necessary to complete the contract, and that only the balance after such completion costs was available to the subcontractor’s lien claims. This Court dismissed the appeal and Mr. Justice Judson, at p. 210, having

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cited S.I. Guttman Ltd. v. James D. Mokry et al.[4], where precisely the same point of law was at issue, expressed himself as content with the majority reasons delivered by the Court of Appeal for Ontario in that case and adopted them. In the Court of Appeal for Ontario in the Guttman case, the Court considered the effect of s. 12(2) of The Mechanics’ Lien Act of Ontario which provided:

(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.

and adopted the interpretation of that section which had been given many years previously by Masten J.A. in Freedman v. Guaranty Trust Co. of Canada[5], that is, that the purpose of the amendment wrought by that section was simply to abrogate the legal obstacle which had been created by the principle enunciated in Appleby v. Myers[6]. There it had been held that where a contractor engaged to do a work or supply materials for a specific sum to be paid on completion of the whole work he was not entitled to recover anything until the whole work was completed.

The Court of Appeal therefore considered that such a provision could not result in the creation of a fund upon which the subcontractors could exercise a lien excluding the right of the owner to deduct from the amount which was payable to the estate of the bankrupt head contractor the costs of completion of the original contract. Masten J.A. had enunciated at p. 205 that “The general purpose of our Mechanics’ Lien Act being to protect the claims of those who supply work and materials so long as the owner is not prejudiced…”. That view of general purpose was adopted by Schroeder J.A. in Guttman and, as I have said, Judson J. in this Court in Comstock approved Guttman.

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Such a statement of the general purpose may be contrasted with the pronouncement of Carrothers J.A. giving the judgment for the Court of Appeal for British Columbia upon the present appeal when the learned justice on appeal said:

In my view, mechanics’ lien statutes were not intended to protect owners but to protect and give remedies to potential lien claimants and that consequently s. 21 was not intended to provide minimum liability on the part of owners but minimum availability of contract moneys to the lien claimants. In reading ss. 6, 19(2) and 21 together, the interpolation in 1956 of s. 21 cannot be construed as limiting the effect of the prohibition contained in s. 19 (2).

It is, I suggest, apparent that Carrothers J.A. has omitted from his statement of purpose the words used by Masten J.A. in Freedman, “so long as the owner is not prejudiced”.

I am of the view that the mechanics’ lien statutes enacted in the various provinces of Canada have always contained this protection of the owner as well as protection of the labourer and materialmen, and that that protection appears in the present British Columbia Mechanics’ Lien Act, being R.S.B.C. 1960, c. 238, s. 6:

6. With the exception of liens in favour of workmen for not more than six weeks’ wages, no lien attaches so as to make the owner liable for a greater sum than the sum payable by the owner to the contractor, but this section shall not be construed to apply to liens under section 15.

Section 19 of the same statute provides:

19. (1) No assignment by the contractor or sub-contractor of any moneys due in respect of the contract is valid as against any lien or trust created by this Act.

(2) As to all liens, except that of the contractor, the whole contract price is payable in money, and shall not be diminished by any prior or subsequent indebtedness,

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set-off, or counterclaim in favour of the owner against the contractor.

It is the contention of the respondent here and it was the decision of the Court of Appeal for British Columbia that subs. (2) of that s. 19 must be considered together with s. 6 of the Mechanics’ Lien Act and that the resulting effect was to create a fund composed of the unpaid balance owed by the owner to the bankrupt head contractor at the date of the bankruptcy and that to such fund the liens of the subcontractors would attach preventing any deduction from such fund by the owner to cover the costs of completion of the contract.

Section 19(2) of the Mechanics’ Lien Act has, in British Columbia, a very long history. It appeared in the statute in 1891 and has been present in varying terms ever since. It also existed in statutes of the other provinces in Western Canada. From time to time, legislatures of those other provinces adopted the holdback provisions which now appear in s. 21 of the British Columbia statute, and at the time of such adoption or shortly thereafter such legislatures dropped from the provisions of the Mechanics’ Lien Acts of the provinces in question the counterpart of British Columbia’s s. 19(2). However, when the Province of British Columbia enacted the holdback provisions, now s. 21 of the Mechanics’ Lien Act, it left in effect s. 19 (2) of its statute.

The question therefore is whether in the light of this legislative history there is in British Columbia not only the specific lien against the 15 per cent holdback fund wrought by the exact terms of s. 21(6) of the British Columbia statute but also a general lien upon any excess of amounts due at the date of the bankruptcy over the amount of the holdback preventing the deduction of the owner’s costs of completion. The counterpart of s. 19(2) of the British Columbia statute did not appear in the Ontario Mechanics’ Lien Act and therefore its effect was not considered by the Court of Appeal for Ontario in Guttman or by this Court in Comstock. The exact point has never been decided in any of the decisions of the Courts of Appeal of the provinces where a provision of the type of s. 19(2)

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of the British Columbia statute has been in effect, although there have been many decisions which might be considered to have touched upon the subject but which I do not find it necessary to analyze here.

In Hazel v. Lund[7], the trial court judge held in favour of the owner on two grounds; firstly, that school properties were not subject to liens and, alternatively, that the balance due on the contract price had been mostly expended in completion of the project after the head contractor abandoned it. In the Court of Appeal, four judges divided equally: two of the judges holding that the school property was not subject to liens and not dealing with the issue as to costs of completion; the Chief Justice confirmed the trial judge on both issues, and the fourth judge concurred with the Chief Justice. Because of the even split, the appeal was dismissed.

In Smith v. Stubbert[8], O’Halloran J.A., giving the judgment for the majority of the Court, said at p. 607:

Hazel v. Lund (1915), 9 W.W.R. 749, 22 B.C.R. 264, 32 W.L.R. 818, dismissed on an equal division of this court, in so far as it may be said to point to any ratio decidendi, is readily distinguishable. The sub-contractors’ liens were there recognized but in the special circumstances mentioned by Macdonald, C.J. A. at p. 753, that, under the agreement between the owner and the contractor, the former became in effect the contractor’s agent to complete the contract. That did not occur in the case now under review.

Neither does it appear in the present case where the actual completion of the contract was carried out under a separate contract with “Commonwealth”, an independent contractor.

A type of statutory provision similar to s. 19(2) of the British Columbia Mechanics’ Lien Act has been considered in two cases in the Supreme Court

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of California: Hampton et al. v. Christensen et al.[9] and Builders Supply Depot et al. v. O’Connor et al.[10] In both of those cases, the learned judges came to the conclusion that the statutory provision was intended to prevent the owner making deductions for items not arising under the terms of the contract but outside the terms of the contract and did not apply when the owner was obliged to furnish material and labour to complete a contract abandoned by the head contractor. It is this interpretation of s. 19(2) which is advanced by the appellant in the present case. I am of the opinion that such an interpretation of s. 19(2) is the only method by which that section can be reconciled with the general principle stated in s. 6 of the British Columbia Act: that the owner’s liability is limited to “the sum payable by the owner to the contractor”.

To give s. 19(2) of the British Columbia Mechanics’ Lien Act the broader interpretation resulting from the decision of the Court of Appeal for British Columbia in the present appeal is to render s. 21(6) of that statute redundant. If a lien covers all amounts unpaid by the owner to the head contractor at the date of the abandonment of the contract by the latter then there would be no need to make a special provision preventing the application of the percentage required to be retained by the owner under the provisions of s. 21(1) by that owner or contractor for the completion of the contract or any other purpose. On the other hand, the narrower interpretation of s. 19(2) of the Mechanics’ Lien Act does leave a field in which that provision may operate efficiently.

There may be other accounts as between the owner and the head contractor which would be affected by such a provision as s. 19(2) of the British Columbia Act: the owner might be entitled to set-off or part of the contract price might have been payable by the owner to the head contractor by means of conveyance of other property to the head contractor. Such a provision would be nulli-

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fied by the words of s. 19(2) requiring “that the whole contract price is payable in money”. The owner might well be in the business of manufacturing material which material, under the contract, he might supply to the head contractor at a stated price. Again, the words of s. 19(2) would prevent such a transaction affecting subcontractors’ liens. Contractors ordinarily enter into many building contracts and frequently enter into more than one building contract with the same owner. There is always the possibility, and, in fact, probability, under those circumstances of counter-accounts and adjustments coming up between such owners and such head contractors. The effect of s. 19(2) is to eliminate all such adjusting items except those concerned with the very contract in question.

Therefore, the narrow construction of s. 19(2) is not such a one as to render the provision useless. It is to be noted that s. 19(2), by its words, creates no new cause of action in favour of lien claimants and that such cause of action was created only by s. 21.

It also is to be noted that in s. 19 there is no express exception to the general provision of s. 6 enunciated, while in s. 21, where an express lien on an exact fund is created, the provision commences with the words “Notwithstanding section 6…”. Had the British Columbia Legislature in 1956, at the time of the enactement of the holdback provision, intended to retain a general lien to the exclusion of completion costs in s. 19, then that section could have been amended to insert therein the same words as those used at the beginning of s. 6. Surely its decision to retain s. 19 in the statute without the insertion of such words justifies the interpretation that the Legislature intended no such general lien to be created by s. 19(2).

I am also influenced by the words of s. 19(2) that the holdback price “shall not be diminished by any prior or subsequent indebtedness, set-off, or counterclaim”. I agree that the words “prior” or

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“subsequent” are words referring to time and I therefore am of the opinion that they might well point to transactions which are extraneous to the contract under consideration, and particularly to the situation of an owner and a subcontractor making a variety of contracts in reference to a variety of purposes of construction in places which may be widely separated. I am also of the opinion that it is difficult to bring the cost of completion within the words “indebtedness, set-off, or counterclaim”. Certainly “set-off” has a definite meaning of an extraneous transaction. I realize that Judson J. in the Comstock case at p. 207 stated, “The Commission is asserting a right of set-off…”, but, in my view, the word “set-off” was there used in a general and not in exact legal sense to describe a claim for a deduction. “Indebtedness” would not have any application because the indebtedness in the present case was from Noranda to Commonwealth. In the present case, the parties, by art. 41 of their contract, provided, in part, “If the unpaid balance of the contract price shall exceed the expense of finishing the work… such excess shall be paid to the contractor. If such expense shall exceed such unpaid balance, the contractor shall pay the difference to the owner”. I agree with the view of the learned trial judge that “counterclaim” does not appropriately describe the right to make a deduction under that provision.

I, therefore, have come to the conclusion that s. 19(2) of the British Columbia statute does not bar the owner from deducting from the amounts payable upon the bankruptcy the cost of completion of the contract and that the section is no more efficient to that end than was s. 12(2) of the Ontario statute considered in the Guttman case which decision was approved, as I have said, by this Court in the Comstock case.

I would, therefore, allow this appeal. The parties before this Court agreed that if the appeal were allowed then the action should be dismissed and I

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would so order. The appellants are entitled to their costs throughout.

Appeal allowed with costs.

Solicitors for the defendants, appellants: Bouck, Edwards, Kenny & Bray, Vancouver.

Solicitors for the plaintiff, respondent: Owen, Bird & Co., Vancouver.