Supreme Court of Canada
Baxter Student Housing Ltd. et al. v. College Housing Co-operative Ltd. et al., [1976] 2 S.C.R. 475
Date: 1975-06-26
Baxter Student Housing Ltd. and R.C. Baxter Ltd. (Defendants) Appellants;
and
College Housing Co-operative Limited and College Housing Holdings Incorporated (Plaintiffs) Respondents.
1975: May 12; 1975: June 26.
Present: Martland, Judson, Spence, Pigeon and Dickson JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA
Mechanics’ liens—Appointment of receiver to draw upon and borrow undrawn balance of proceeds under a mortgage—Whether judge exceeded jurisdiction in ordering that mortgagee, in respect of any moneys advanced by mortgagee to receiver, should have priority over any other registered or unregistered charges or encumbrances—The Mechanics’ Liens Act, R.S.M. 1970, c. M80, s. 11(1)—The Queen’s Bench Act, R.S.M. 1970, c. C280, s. 59.
The respondent housing co-operative and the respondent holding company (both non‑profit corporations, without funds) entered into a contractual relationship with the appellants whereby, inter alia, the first appellant was to construct a student housing project. Title to the project was in the name of the holding company; the housing co-operative was to be the head tenant; the second appellant was to be property manager. In the late summer of 1972 construction was substantially completed, and the first tenants moved into the building. During the winter of 1972/73 a moisture problem developed in the building, which recurred during the winter of 1973/74, resulting in accumulation of ice, water and mould in some of the suites. The owner of the building sought advice of experts who recommended remedial measures, the estimated cost of which amounted to $135,000. The contractor refused to authorize that the work be done at its expense. Proceedings subsequently commenced between the parties but little progress was made.
The construction cost of the building, $2,209,790, was to have been provided from the proceeds of a Central Housing and Mortgage Corporation first mortgage in the principal amount of $1,988,831, all of which had been advanced except for a holdback of $228,897, and from a second mortage in the amount of $220,959, all of which had been advanced. On June 22, 1973, the contractor caused a mechanics’ lien to be filed against the
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property in the amount of $310,440, claimed to be due to it under the contract.
In the summer of 1974, the owner of the property applied to a Queen’s Bench judge in chambers for an order appointing a receiver of the balance of the proceeds of the C.M.H.C. mortgage. The order was granted and contained a provision that any moneys paid by the mortgagee “shall upon payment from time to time to the receiver have priority over any and all other charges or encumbrances registered or unregistered affecting the said lands.” An appeal was dismissed by the Court of Appeal, and the appellants, with leave, then appealed to this Court. The question to be decided was whether the judge exceeded his jurisdiction in making the said order.
Held: The appeal should be allowed and the application for the order dismissed.
The appointment of the receiver was wrong in law because the provision ordering that any moneys paid by C.M.H.C. to the receiver would have priority over any other registered or unregistered charges or encumbrances ran contrary to s. 11(1) of The Mechanics’ Liens Act, R.S.M. 1970, c. M80. Section 11(1) goes a long way in ensuring that once a lien claimant has protected his rights by filing a lien in accordance with the provisions of the Act, the lien is a paramount legal charge not subject to being defeated or eroded in any manner. The inherent jurisdiction of the Court of Queen’s Bench, under s. 59 of The Queen s Bench Act, R.S.M. 1970, c. C280, is not such as to empower a judge of that Court to make an order negating the unambiguous expression of the legislative will. The effect of this order was to alter the statutory priorities which a court simply cannot do.
Boake v. Guild, [1932] O.R. 617, aff’d. [1934] S.C.R. 10, sub nom. Carrel v. Hart; Earl F. Wakefield Co. v. Oil City Petroleums (Leduc) Ltd. et al., [1958] S.C.R. 361; Montreal Trust Co. et al., v. Churchill Forest Industries (Manitoba) Ltd., [1971] 4 W.W.R. 542; Winnipeg Supply & Fuel Co. Ltd. v. Genevieve Mortgage Corp. Ltd., [1972] 1 W.W.R. 651, referred to.
APPEAL from a judgment of the Court of Appeal for Manitoba, dismissing an appeal from an order of Nitikman J. appointing a receiver. Appeal allowed.
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K.B. Foster and C.R. MacArthur, for the defendants, appellants.
K.G. Houston, for the plaintiffs, respondents.
The judgment of the Court was delivered by
DICKSON J.—This is an appeal from a judgment of the Court of Appeal for Manitoba affirming an order of Nitikman J. appointing a receiver to draw upon and borrow the undrawn balance of proceeds under a mortgage. The question to be decided is whether the judge exceeded his jurisdiction in ordering that the mortgagee, in respect of any moneys advanced by the mortgagee to the receiver, should have priority over other charges or encumbrances registered or unregistered affecting the lands.
The facts are unusual. In late 1971 College Housing Co-operative Limited (the Housing Cooperative) and College Housing Holdings Incorporated (the Holding Company) entered into contractual relationship whereby inter alia Baxter Student Housing Ltd. (Baxter Housing) was to construct on a “turnkey” basis a four-storey, 192-suite apartment building, known as “Dalhousie Drive Project”, to provide housing for students at the University of Manitoba. Title to the project was in the name of the Holding Company; the Housing Co-operative, a students’ co-operative, was to be the head tenant; R.C. Baxter Ltd. (R.C. Baxter) was to be property manager. In the late summer of 1972 construction was substantially completed, and the first tenants moved into the building. During the winter of 1972/1973 a moisture problem developed in the building, which recurred during the winter of 1973/1974, resulting in accumulation of ice, water and mould in some of the suites. The owner of the building, the Housing Co-operative, sought advice of experts who recommended certain remedial measures, the estimated cost of which amounted to $135,000. Baxter Housing refused to authorize that the work be done at its expense. Two questions therefore became crucial (i) who would pay for the remedial work and (ii) where would the money come from. On point (i) I should say that in September 1973 the Housing Co-operative and the Holding Com-
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pany issued a statement of claim against Baxter Housing and R.C. Baxter seeking damages and other relief to which the defendants responded with a counterclaim for $310,440 for balance of construction cost and the defence, in brief, that the project had been completed in accordance with the plans and specifications in a good and workmanlike manner. Those proceedings have not yet been litigated and little progress has been made. The facts material on point (ii) I take to be the following. The Housing Co-operative and the Holding Company are non-profit corporations, without funds. The construction cost of the building, $2,209,790, was to have been provided from the proceeds of a Central Housing and Mortgage Corporation (C.M.H.C.) first mortgage in the principal amount of $1,988,831, all of which has been advanced except for a holdback of $228,897, and from a second mortgage in the principal amount of $220,959, all of which has been advanced. On June 22, 1973, Baxter Housing caused a mechanics’ lien to be filed against the property in the amount of $310,440 claimed to be due to it under the contract.
In the summer of 1974, almost a year ago, the plaintiff owner of the property moved before Nitikman J. for an order appointing W.E. Shields or some other fit and proper person as receiver of the balance of the proceeds of the C.M.H.C. mortgage. The notice of motion referred to (i) the dispute between the parties as to the adequacy of the design and construction of the student housing project, (ii) the recommendations of the experts, (iii) the likelihood that if the repairs were not carried out forthwith there was every probability they would not be able to be done before freeze-up, with the result the project would suffer another winter with the moisture problem in the suites with an anticipated loss of goodwill and an increased vacancy rate, (iv) the filing by the defendants of the mechanics’ lien and (v) the refusal by C.M.H.C., by reason of the lien, to advance further moneys under the mortgage. Affidavits were filed in support of the motion and the affiants cross-examined, following which Nitikman J. made the order called into question in these proceedings. That order contained the following provision, inserted no doubt in the hope that C.M.H.C.,
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relying thereon, would advance the holdback moneys notwithstanding the mechanics’ lien filed:
2. AND IT IS FURTHER ORDERED AND DECLARED that any monies paid by the said Central Mortgage & Housing Corporation shall upon payment from time to time to the receiver have priority over any and all other charges or encumbrances registered or unregistered affecting the said lands.
Did the learned chambers judge exceed his jurisdiction in making the order? However politic and expedient the appointment of a receiver may have appeared as a means of tapping the only available source of funds and preventing a stalemate, I am of opinion that the judge had no proper ground in law for making the appointment. The appointment was wrong in law because provision 2 above quoted runs contrary to s. 11(1) of The Mechanics’ Liens Act of Manitoba, R.S.M. 1970, c. M80, reading:
11(1) The lien created by this Act has priority over all judgments, executions, assignments, attachments, garnishments, and receiving orders, recovered, issued or made after the lien arises, and over all payments or advances made on account of any conveyance or mortgage after notice in writing of the lien to the person making those payments or after registration of the lien as hereinafter provided.
Section 11(1) goes a long way in ensuring that once a lien claimant has protected his rights by filing a lien in accordance with the provisions of the Act, the lien is a paramount legal charge not subject to being defeated or eroded in any manner. See Boake v. Guild, and Rand J. in Earl F. Wakefield Co. v. Oil City Petroleums (Leduc) Ltd. et al., at p. 364. Section 59 of The Queen’s Bench Act, R.S.M. 1970, c. C280, it is to be observed, empowers the Court to appoint a receiver “in all cases in which it appears to the Court to be just and convenient so to do” and further provides that “any such order may be made either unconditionally or upon such terms and conditions as the Court thinks fit”; but this cannot afford comfort to the owner because s. 11 of The Mechanics’ Liens
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Act, in terms, gives a lien created by the Act priority over all receiving orders made after the lien arises. The question whether the receiving order here in question is a receiving order of the kind contemplated in s. 11(1) need not detain us because even if this question be resolved in favour of the validity of the appointment, the closing words of the subsection, in clearest language, give a mechanics’ lien priority over all payments or advances made on account of any mortgage. One may escape the first part of the subsection only to be impaled on the second part of the subsection and Mr. Houston, counsel for the owner, concedes as much.
In my opinion the inherent jurisdiction of the Court of Queen’s Bench is not such as to empower a judge of that Court to make an order negating the unambiguous expression of the legislative will. The effect of the order made in this case was to alter the statutory priorities which a court simply cannot do.
In the Court of Appeal Matas J.A. per curiam said:
In any event, I am of the opinion that sec. 11(1), supra, cannot be interpreted, under the circumstances before us, so as to frustrate the jurisdiction of Court of Queen’s Bench to appoint a receiver with effective power to carry out his mandate. (Montreal Trust Company et al. v. Churchill Forest Industries (Manitoba) Limited, [1971] 4 W.W.R. 542 at p. 546 et seq.) In my view, the order appealed from is not in conflict with The Mechanics’ Liens Act, supra, and is in accordance with its intent.
Montreal Trust Company et al. v. Churchill Forest Industries (Manitoba) Limited may well be cited as a paradigm of the exercise of judicial discretion but Chief Justice Freedman, speaking for all his colleagues, was careful to state, p. 547:
Inherent jurisdiction cannot, of course, be exercised so as to conflict with a statute or Rule. Moreover, because it is a special and extraordinary power, it should be exercised only sparingly and in a clear case.
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The case does not stand for the proposition that the Court has a discretion in the application of a statutory imperative, such as that residing in s. 11(1) of The Mechanics’ Liens Act, in circumstances of the nature of those upon which Matas J.A. lays emphasis in the following extracts from his judgment:
In the case at bar the receiver has been given control of the only money available as a means of breaking the stalemate which has been created by filing of the lien. The objective in having a receiver appointed was not to prevent dissipation of the fund, but to utilize the fund as a sensible and practical way of getting the necessary work done.
…
There is ample evidence to support a finding that if plaintiffs are prevented from using the only available funds, and are thus prevented from doing the work, there will be an adverse effect on the building and the financial viability of the project will be in jeopardy. It would be fruitless to require plaintiffs to await the result of mechanics’ lien or other court action, which would take place some time in the future while the property deteriorated and the financial viability of the project was being seriously affected.
These would be compelling reasons for the appointment of a receiver in the absence of s. 11(1) but, given that subsection, it would seem to me they are considerations which the Court is not entitled to bring into account. Parenthetically, events have proven, as so often appears to be the case, that peripheral skirmishing is wasteful of time and money and justice is better served by getting ahead with trial of substantial issue in the proceedings. Reference was made by Matas J.A. to the case of Winnipeg Supply & Fuel Co. Ltd. v. Genevieve Mortgage Corp. Ltd. In that case the Court of Appeal for Manitoba held that, on an appeal from a judgment at trial in a mechanics’ liens action, where a subcontractor’s steel shoring supports for a building were essential to hold the building in place and to avoid serious damage, the cost of continuing supply of the supports and of removal would rank in priority to lien claimants. The priority given to the expenditure for an urgent and necessary purpose for the benefit of others was recognized in that case.
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It is commonplace to appoint a receiver at the instance of a creditor in order to preserve property pending litigation. We have here the novel situation of an owner of property applying for the appointment of a receiver. The res is not the property but a sum of money to which the owner wishes to have recourse for the purpose of effecting improvements to the property. Until the main litigation has been concluded, it will not be known whether the cost of such improvements will fall upon the owner or upon the contractor and in the meantime the effect of the order of Nitikman J. would be to subordinate the lien of the contractor to any advances under the mortgage made by C.M.H.C. to the receiver. The appointment would permit the receiver to borrow and expend moneys which, in the absence of the moisture difficulties and the litigation ensuing by reason thereof, would be payable to the contractor. None of the authorities to which we have been referred touches upon the appointment of a receiver in such circumstances and with such powers.
Mr. Houston advanced an argument based upon s. 4(1) of The Mechanics Liens Act which reads in part:
4.(1) Unless he signs an express agreement to the contrary, any person who performs any work or service upon or in respect of, …a lien for the price of that work, service, …upon the… building, …and the lands occupied thereby or enjoyed therewith, or upon or in respect of which the work or service is performed, …limited, however, in amount to the sum justly due to the person entitled to the lien and to the sum justly owing (excepting as herein provided) by the owner; but no such lien exists under this Act for any claim for less than twenty dollars.
(The italics are mine.)
It was contended that the lien of the contractor cannot go beyond the fair value of the work done, and that although the Manitoba Courts have not made an ultimate finding they have implicitly found that no amount is justly due to the lien claimant. I do not think the record before us bears this out. Explicit in the order of Nitikman J. was a finding of a moisture problem affecting the student housing project but there was no finding,
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express or implicit, in either of the lower Courts as to responsibility for the problem. An order directing payment to a receiver at this time of the holdback fund with C.M.H.C. would be tantamount to a finding in favour of the owner on the major issue not yet litigated. Mr. Houston contends that s. 4(1) limits the right to lien. In my opinion its only effect is to limit the amount which the lienholder can recover. Unless and until the main action has been tried, the amount, if any, justly due to the contractor will not be known. The interlocutory proceeding taken for the appointment of the receiver was not intended to have, and did not have, the effect of making any determination of this outstanding issue.
The appellant contractor submitted that the order of Nitikman J. was by its nature hypothetical and unenforceable in that C.M.H.C. did not appear in the proceedings and was known not to release funds except on assurance of priority and furthermore was not bound or directed by the order to advance funds to the receiver appointed. The effect which I would give to the express statutory provision, namely, s. 11(1) of The Mechanics’ Liens Act makes it unnecessary to consider this additional ground of attack upon the validity of the order.
I would allow the appeal, reverse the decision of the Court of Appeal for Manitoba affirming the order of Nitikman J. and direct that the motion be dismissed with costs in this Court and in the Courts below.
Appeal allowed with costs.
Solicitors for the defendants, appellants: Aikins, MacAulay & Thorvaldson, Winnipeg.
Solicitors for the plaintiffs, respondents: Arpin & Co., Winnipeg.
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