Northern Electric Co. Ltd. v. Manufacturers Life Ins. Co., [1977] 2 SCR 762

Supreme Court of Canada

Northern Electric Co. Ltd. v. Manufacturers Life Ins. Co., [1977] 2 S.C.R. 762

Date: 1976-11-16

Northern Electric Company Limited, et al. Appellants;

and

The Manufacturers Life Insurance Company Respondent.

1976: February 25, 26; 1976: November 16.

Present: Laskin C.J. and Martland, Judson, Spence, Pigeon, Beetz and de Grandpré JJ.

ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA, APPEAL DIVISION

Contracts—Mortgage financing arrangement—Sale and lease back with mortgage—Developer acting “as own contractor”—Mechanics’ liens—Priorities as between lien holder and mortgagee—Whether under the mortgage financing arrangement between developer and Insurance Company the latter became “an owner”—The Mechanics’ Lien Act, R.S.N.S. 1967, c. 178, ss. 1(a), (d), 5, 10, 11, 12.

Mechanics’ liens—Owner—Person on whose behalf work is done—Person with whose privity and consent work is done—Person for whose direct benefit work is done—Hold back—Whether lessee is contractor—The Mechanics’ Lien Act, R.S.N.S. 1967, c. 178, ss. 1(a), (d) 5, 10, 11, 12.

Mechanic’s liens had been filed against land in which Manufacturers had a reversionary interest for a total of $207,387.91 by subcontractors of whom Northern was one. A developer, Metropolitan Projects Limited, had agreed to sell the land to Manufacturers and Manufacturers to lease back the land to Metropolitan for 80 years. Manufacturers was to advance moneys on a first mortgage of the leasehold interest for construction of an apartment building on the land, the title to the building as well as to the land to be in Manufacturers. When the construction was almost completed Metropolitan went into bankruptcy. Actions were taken by the lien holders and the Northern action tried as a test case. The trial judge held that Northern was entitled to a lien on Manufacturer’s reversion in fee simple and that there was a joint venture involved in the construction project but rejected the claim against the mortgaged leasehold interest in the land. The Court of Appeal however reversed, setting aside the trial judgment, rejecting the claim of lien against Manufacturers and holding that Metropolitan and Manufacturers were not joint ventur-

[Page 763]

ers. Manufacturers was held not to be an “owner” under the Act. The Court of Appeal further held that the lien claimant could not assert priority over Manufacturers’ mortgage either under s. 7(3) or under s. 14(1) of the Act.

Held (Martland and Judson JJ. dissenting): The appeal should be allowed.

Per Laskin C.J. and Spence, Pigeon, Beetz and de Grandpré JJ.: Although there was a lender-borrower aspect to the transaction the substance of it, particularly a letter of commitment providing for the sale by Metropolitan to Manufacturers of the land, gave it a different complexion. Nowhere in that letter was it stated that the construction of the building was to be for Metropolitan. If the building was for anyone it was for the respondent as owner of the land on which it was to be built.

The work can properly be said to have been done on behalf of Manufacturers, if not also for its direct benefit, as well as on behalf of Metropolitan and for its direct benefit. Since Manufacturers was an owner within s. 1(d) as being “a person at whose request and on whose behalf work is done or materials are furnished” it was also “any owner” under s. 5. Manufacturers qua its contract with Metropolitan was the person primarily liable so far as that contract was concerned; and as it contemplated construction of a building on land of which Manufacturers became owner pursuant to that contract, the contract was one by virtue of which a lien could arise.

Per Martland and Judson JJ. dissenting: While the work was done at the request of Manufacturers within the meaning of the Act it was not done on the credit of Manufacturers nor on its behalf. It was done by Metropolitan and by sub-contractors on Metropolitan’s credit and on behalf of Metropolitan, but it was done with the privity and consent of Manufacturers which was therefore an owner within s. 1(d). Metropolitan did not however do the work of construction for Manufacturers; it contracted that a building would be constructed but constructed the building not as a contractor for Manufacturers but for itself as owner of the leasehold interest. Metropolitan was not a contractor under s. 1 (a) and therefore the materials supplied by Northern were furnished for Metropolitan as owner, and not as a

[Page 764]

contractor for Manufacturers. Northern did not therefore have a lien as against Manufacturers in the land nor was Manufacturers required under s. 12 to maintain a holdback for the benefit of Northern.

[Northern Electric Company Limited v. F. Warkentin Electric Ltd. (1972), 27 D.L.R. (3d) 519 referred to.]

APPEAL from a judgment of the Supreme Court of Nova Scotia, Appeal Division[1] reversing a judgment of O’Hearn, Co. Ct. J., at trial holding appellant entitled to a lien on respondents’ reversion in fee simple. Appeal allowed, Martland and Judson JJ. dissenting.

Harold F. Jackson, Q.C., and David H. Reardon, for the appellants.

J.S. Alward, Q.C., and G.S. Black, Q.C., for the respondent.

The judgment of Laskin C.J. and Spence, Pigeon, Beetz and de Grandpré JJ. was delivered by

THE CHIEF JUSTICE—This appeal involves a question of first instance in this Court, namely whether, under the particular scheme of construction mortgage financing arranged between a developer landowner and the respondent as “banker”, the latter became an “owner” under The Mechanics’ Lien Act, R.S.N.S. 1967, c. 178, so as to make its interest in the property upon which construction had proceeded the subject of registered lien claims of unpaid subcontractors or, alternatively, whether the lien claimants were entitled as against the respondent to rely on the holdback provisions of the Act or whether the respondent was subject to their lien claims as a joint venturer with the developer landowner.

[Page 765]

The trial judge in a test action brought to enforce the lien claim of the appellant, one of seventeen such claimants, held that the appellant was entitled to a lien upon the respondent’s reversion in fee simple and held also in supplementary reasons that there was a joint venture involved in the construction project, which was an apartment building. However, he rejected the claim of lien against the mortgaged leasehold interest in the land. The Nova Scotia Court of Appeal, founding itself mainly on the decision of the Manitoba Court of Appeal in Northern Electric Company Limited v. F. Warkentin Electric Ltd.[2], set aside the trial judgment and rejected the claim of lien against the respondent, holding that the appellant and respondent were not joint venturers in the construction of the apartment building and that the respondent was not an “owner” under the Act, not being a person at whose request the construction was carried out. It held, further, that in any event the lien claimant could not assert priority over the respondent’s mortgage either under s. 7(3) or under s. 14(1) of the Act.

My brother Martland, whose reasons I have had the benefit of seeing before preparing my own, has set out in detail the facts out of which this lien proceeding arose. I need not repeat them here save to emphasize those features which, in the light of the total arrangement between the developer and the respondent, lead me to a conclusion different from that which my brother Martland would reach. In my opinion, although there is a lender-borrower aspect to the transaction between the developer and the respondent, the substance of it gives it a far different complexion.

The key document is a letter of commitment which, as revised, provided for the sale by the developer Metropolitan to the respondent of certain land for $164,000, an agreement by the respondent to lease the land to Metropolitan for a term of 80 years and to advance $1,236,000 to Metropolitan, on the security of a first mortgage on the leasehold interest, at an interest rate of 9¼

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per cent. As originally drawn on October 29, 1968, the letter recited that “it is understood and agreed that we will construct one four-story apartment building with an aggregate of 82 suites… The construction is to be in accordance with the preliminary plans and specifications in your possession. It is understood and agreed that final plans and specifications are to meet with your approval”. The respondent accepted this proposal on November 8, 1968, and six months later the parties agreed to expand the project to a six-storey apartment building with an aggregate of 125 suites, involving of course a larger advance by the respondent. By that time, as the revised letter of May 14, 1969 stated—and it was a letter from the respondent to Metropolitan—construction had already commenced. The respondent’s control of the financing of the project entitled it to measure any advances against progress towards completion of the apartment building. The letter of commitment also provided that notwithstanding that the respondent would withhold sufficient funds to complete construction, “there will be a holdback of $185,400 until gross annual rents on an unfurnished basis exceed $228,000…”.

In view of some of the submissions to which I will refer later in these reasons, it is worth noting that nowhere in the letter of commitment is it stated that the construction of the apartment building is to be for Metropolitan. The sequence of clauses in the letter is (1) an agreement by Metropolitan to sell its land to the respondent, the latter to lease the land back for an 80-year term; (2) an agreement by the respondent to grant a first mortgage on the leasehold interest; (3) a description of the land, and (4) “it is agreed and understood that we [Metropolitan] will construct a six-storey apartment building with an aggregate of 125 suites …”. If the apartment building was for anyone, it was for the respondent as owner of the land on which it was to be built. Metropolitan was as much a contractor for the construction as a beneficiary thereof.

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Of the total loan commitment, $1,150,000 was advanced before any lien was registered and none of the balance of the loan, namely, $85,400 was advanced thereafter. Hence, in so far as the respondent can be said to be a prior mortgagee only, it was protected as to its actual advances by s. 14(1) of the Act. It was not suggested that the $85,400 had any relation to the $185,400 holdback which was stipulated under the letter of commitment.

The land was conveyed to the respondent as agreed to under the original letter of commitment, and an 80-year lease was given by the respondent to Metropolitan which contained a covenant by the latter to construct the building and provided for certain rent payments to the respondent as follows:

A. In each and every year of the said term (each of which is measured by the commencement date and anniversaries thereof) in which the gross receipts from rentals and other monies received or receivable for the use and occupation of the demised lands and premises exceeds Two Hundred Fifty-five Thousand Dollars ($255,000.00) rental equal to Ten (10%) percent of such excess which shall be paid by the Lessee to the Lessor within Sixty (60) days of the end of each such year or years; and

B. In addition to the rental payable under the next preceding Clause A the following rent:

(i) In advance on the first day of each and every succeeding month during the first three hundred and sixty—(360) months of the term of this Lease, commencing on the 1st day of June, A.D., 1969, the sum of One Thousand One Hundred and Sixty-one Dollars and Sixty-seven Cents ($1,161.67);

(ii) In advance on the first day of each and every succeeding month during the next two hundred and forty (240) months of the said term commencing on the 1st day of June, A.D., 1999, a sum equivalent to one-twelfth of eight and one-half per cent (8½%) of the appraised value of the demised lands, exclusive of any buildings and improvements thereon, as of the 31st day of May, A.D., 1999, or the monthly sum payable under subclause (i) immediately preceding, whichever is the greater;

(iii) In advance on the first day of each and every succeeding month after the expiration of the first six hundred (600) months of the term of this Lease until the expiration of the said term, commencing on the

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1st day of June, A.D., 2019, a sum equivalent to one-twelfth of eight and one-half per cent (8½%) of the appraised value of the demised lands, exclusive of any buildings and improvements thereon, as of the 31st day of May, A.D., 2019, or the monthly sum payable under subclause (ii) immediately preceding, whichever is the greater;

The mortgage of the leasehold interest was by way of a sublease of 80 years less one day and the mortgage advances were to be repaid in thirty years by blended monthly payments of principal and interest. Metropolitan acted as its own contractor on the job, doing the structural work and some carpentry. Other required work was done by subcontractors and the project was about 90 to 95 per cent completed when Metropolitan went bankrupt. Once construction began, an official of the respondent, charged by it to oversee the project, visited the site about every two weeks to see that the plans and specifications approved by the respondent were being followed. Inspections also took place when advances of mortgage money were requested.

The result of the arrangement between Metropolitan and the respondent was to give the latter title to the land and building, full possession on the termination of the 80-year lease, and in the meantime the right to share in the profits from the apartment building as well as to receive monthly rent payments during the leasehold period. This was no mere mortgage investment by the respondent requiring it to reconvey the property on repayment of its loan but, rather, the financing, for its own benefit as owner, of a property development to be carried out for it by another who brought into it the land on which the development was to take place and who would stand to gain (apart from being paid for the land) from the revenues of the development over the period of its leasehold. In the events that happened, Metropolitan lost its leasehold interest when a second mortgagee thereof foreclosed and Metropolitan’s rights were sold.

[Page 769]

It is my brother Martland’s conclusion that on the facts herein the respondent is an “owner” as that term is defined in s. 1(d) of the Act which reads as follows:

In this Act,

…

(d) “owner” extends to any person, body corporate or politic, including a municipal corporation and a railway company, having any estate or interest in the land upon or in respect of which the work or service is done, or materials are placed or furnished, at whose request and

(i) upon whose credit; or

(ii) on whose behalf; or

(iii) with whose privity and consent; or

(iv) for whose direct benefit;

work, or service is performed or materials are placed or furnished, and all persons claiming under him or them whose rights are acquired after the work or service in respect of which the lien is claimed is commenced or the materials furnished have been commenced to be furnished;

That conclusion is based on the view that under the arrangement with Metropolitan, by which the respondent obtained an estate or interest in the land upon which the apartment building was constructed, the work of construction was done at its request and with its privity and consent. I agree with this assessment so far as it goes. In coming to the conclusion that the respondent was an “owner” as aforesaid, Justice Martland examined the Warkentin case and was satisfied that on its facts it differed from the present case. At the same time, he rejected the contention of the appellant that the work was done either upon the respondent’s credit, within s. 1(d)(i), or on its behalf, within s. 1(d)(ii).

Coffin J.A., who spoke for the Nova Scotia Court of Appeal, had also concluded that there was “privity and consent” on the respondent’s part and (to quote him) “that being so, my doubts in view of my [adverse] conclusion as to joint venture, as to whether it can in any way be said that the work was done on behalf of or for the direct benefit of [the respondent] under clause (ii) and (iv) of s. 1(d) are perhaps not important”. Coffin J.A. refused, however, to find that work was done

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at the respondent’s request, either expressly or impliedly, and I agree with my brother Martland that Coffin J.A. was wrong in failing to make that finding.

I would go further than the Nova Scotia Court of Appeal and further than my brother Martland in assessing whether the respondent is an “owner” under s. 1(d). In my opinion, the work herein can properly be said to have been done also on the respondent’s behalf, if not also for its direct benefit. It may be said that it was also done on behalf of Metropolitan and for its direct benefit, but, if so, this does not preclude a similar finding in respect of the respondent, having regard to the arrangement between it and Metropolitan. The outright purchase by the respondent of the land on which the apartment building was to be built, the fact that title to the building would belong to the respondent no less than the title to the land, without any revestment right in Metropolitan, and the fact that, to the knowledge of the respondent, Metropolitan was to act as contractor on the project which was to proceed according to plans and specifications approved by the respondent and under the latter’s financial control, are significant indications to me that the work was being done and the materials furnished more on behalf of the respondent than on behalf of Metropolitan, and more for its direct benefit than for the direct benefit of Metropolitan.

The nub of this case resides in the application to the lien claim of the appellant of ss. 5 and 12 of the Act. For purposes of context, I reproduce ss. 10 and 11 as well; the four sections are as follows:

5. Unless he signs an express agreement to the contrary and in that case subject to Section 3, any person who performs any work or service upon or in respect of, or places or furnishes any material to be used in the making, constructing, erecting, fitting, altering, improving, or repairing of any erection, building, railway, ship, vessel, land, wharf, pier, bulkhead, bridge, trestlework, vault, mine, well, excavation, fence, sidewalk, pavement, fountain, fishpond, drain, sewer, aqueduct, roadbed, way, fruit or ornamental trees, or the appurtenances to any of them, for any owner, contractor, or sub-contractor, shall by virtue thereof have a lien for the price of such work, service or materials upon the erection, build-

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ing, railway, ship, vessel, land, wharf, pier, bulkhead, bridge, trestlework, vault, mine, well, excavation, fence, sidewalk, paving, fountain, fishpond, drain, sewer, aqueduct, roadbed, way, fruit or ornamental trees and appurtenances, and the land occupied thereby or enjoyed therewith or upon or in respect of which such work or service is performed, or upon which such materials are placed or furnished to be used, 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.

…

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

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

12. (1) In all cases the person primarily liable upon any contract under or by virtue of which a lien may arise shall, as the work is done or materials are furnished under the contract, deduct from any payments to be made by him in respect of the contract, and retain for a period of forty-five days after the completion or abandonment of the contract, twenty per cent of the value of the work, service and materials actually done, placed or furnished as mentioned in Section 5, and such value shall be calculated on the basis of the contract price, or if there is no specific contract price, then on the basis of the actual value of the work, service or materials.

(2) Where the contract price or actual value exceeds fifteen thousand dollars, the amount to be retained shall be fifteen per cent instead of twenty per cent.

(3) The lien shall be a charge upon the amount directed to be retained by this Section in favor of sub-contractors whose liens are derived under persons to whom such moneys so required to be retained are respectively payable.

(4) All payments up to eighty per cent or eighty-five per cent where the contract price or actual value exceeds fifteen thousand dollars, of such price or value made in good faith by an owner to a contractor, or by a contractor to sub-contractor, or by one sub‑contractor to

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another sub-contractor, before notice in writing of such lien given by the person claiming the lien to him, shall operate as a discharge pro tanto of the lien.

(5) Payment of the percentage required to be retained under subsections (1) and (2) may be validly made so as to discharge all liens or charges in respect thereof after the expiration of the period of forty-five days mentioned in subsection (1) unless in the meantime proceedings have been commenced to enforce any lien or charge against such percentage as hereinafter provided.

Section 5, so far as relevant, declares that a lien arises when a person performs work upon or furnishes material to be used in the construction of a building “for any owner, contractor or sub-contractor”. It seems plain to me that once it is determined that the respondent is an owner within s. 1(d), as being a person at whose request and on whose behalf work is done or materials are furnished in respect of land in which that person has an estate or interest, it is also “any owner” under s. 5, as a person for whom the work is done or the materials are furnished in respect of the construction project. It is unnecessary, therefore, for me to decide whether the respondent is also within s. 5 as an “owner” by reason of work being done or materials being furnished at its request and with its privity and consent. I incline to the view that it is also within s. 5 on that basis, especially when Metropolitan, the developer, was also the general contractor for the construction project carried out under the letters of commitment between it and the respondent.

Moreover, I am of the opinion that Metropolitan falls within the term “contractor” which is defined in s. 1(a) as follows:

In this Act,

(a) “contractor” means a person contracting with or employed directly by the owner or his agent for the doing of work or service or placing or furnishing materials for any of the purposes mentioned in this Act;

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It is a person who contracted with the owner, that is with the respondent, for the construction of the apartment building. I do not think that the definite article “the” in the definition can be taken here to exclude the respondent since, so far as any contract for the building was concerned, the respondent, as owner of the land on which the building was to be constructed, qualified as “owner” in respect of the contract. There was a direct dealing between Metropolitan, which acted as its own contractor, and the respondent, the former undertaking with the latter to build an apartment building according to plans to be approved by the respondent. I think it would be too narrow a reading of the provisions of the Mechanics’ Lien Act (having regard to its object to offer protection to persons doing work or providing services or furnishing materials in respect of any building or improvement) to draw a distinction between a contract for an entire building and a contract for work, services or materials going to make up that building, so as to exclude the former from the scope of the Act in respect of the definition of “contractor”.

Section 5 of the Act limits the lien as to 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”. The remaining amount of the agreed upon loan which had not been advanced was held by the respondent pending completion of the building, and hence it cannot be said to have been justly owing by the owner. It becomes necessary to see, therefore, whether the appellant can realize on its lien in any other way by way of exception to the provisions of s. 5. Neither s. 10 nor s. 11 is of any avail to the appellant, but both are subject to the overriding clause “save as herein otherwise provided”. This brings me to consider whether the appellant can claim the benefit of the holdback provisions of s. 12.

The question is simply whether the respondent is within the words “the person primarily liable upon any contract under or by virtue of which a lien may arise” so as to oblige it to maintain a 15 per cent holdback for the prescribed period after com-

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pletion or abandonment of the work or the furnishing of materials. There is no issue as to Metropolitan being primarily liable under contracts with its sub-contractors, nor as to those being contracts under or by virtue of which a lien may arise. The respondent, qua its contract with Metropolitan, is, it seems to me, similarly the person primarily liable so far as that contract is concerned; and, as it contemplated construction of a building on land of which the respondent became the owner pursuant to that contract, it follows that the contract is one by virtue of which a lien may arise. This Court is not called on in this case to determine what application should be made of the holdback provision of The Mechanics’ Lien Act if Metropolitan had not acted as the contractor for the project but had engaged someone else for that purpose.

I cannot agree with the submission that Metropolitan was merely borrowing money to enable it to put up a building of its own, and that the respondent was not advancing money for the construction of a building for it by Metropolitan. The title position and the rent payment provisions are against any such submission. Whose building was it if not the respondent’s, subject to possession and use by Metropolitan for a limited period, by way of being able to realize some pecuniary advantage from its original ownership of the land and from its exertions as contractor? The letters of commitment are clear enough on this point since they associate the obligation to construct the building with the transfer to the respondent of the land upon which the building is to be constructed, and they provide that the construction will be paid for by the respondent. This is the substance of the overall arrangement, and the security aspect of the transaction, involving a mortgage of the leasehold, cannot be allowed to mask that substance. I am not at all persuaded that the true character of the transaction between the parties can be founded upon a consideration of only the mortgage of the leasehold, with its commonplace provision that any advances thereon are in the discretion of the mortgagee. This provision has no more reality against the entire arrangement than has that provision of

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the mortgage by which the mortgagor acknowledges receipt of the entire sum of the proposed loan as consideration for the mortgage.

In view of the conclusions at which I have arrived, it is unnecessary to consider, for the purpose of determining the liability of the respondent to the appellant’s lien claim, whether Metropolitan and the respondent were engaged in a joint venture. The question of personal liability of the respondent was not argued in this Court, nor was there any relief on this basis sought here by the appellant. It should be noted also that the issues put before the trial judge, as appears from his reasons, were limited to a claim for lien upon the land or upon the leasehold or in respect of the required holdback, and a claim to priority of the asserted lien over the mortgage. I am satisfied therefore that only the issue of liability to a lien claim was before this Court.

I would allow the appeal, set aside the judgment of the Nova Scotia Court of Appeal and in its place declare that the appellant is entitled to realize its lien claim out of the holdback fund which the respondent was obliged to keep available pursuant to s. 12. The appellants are entitled to their costs throughout.

Since this is a test case involving only one of seventeen lien claimants whose claims total $207,-387.91, and since it does not appear that the amount of the required holdback will be enough to satisfy all claims in full, they will have to be satisfied pro rata, so far as they are valid claims. I would therefore remit the case to the trial judge to have the amount of the holdback determined and the amount of the lien claims ascertained and pro-rated in relation to the holdback.

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The judgment of Martland and Judson JJ. was delivered by

MARTLAND J. (dissenting)—This appeal is from a judgment of the Appeal Division of the Supreme Court of Nova Scotia, which reversed the judgment at trial, which had held, in an action upon a mechanics’ lien by the appellant, hereinafter referred to as “Northern”, against the respondent, hereinafter referred to as “Manufacturers”, inter alia, that Northern held a valid lien against the reversionary interest of Manufacturers in the land which is described in Schedule “A” to the statement of claim, hereinafter referred to as “the land”. Seventeen mechanics’ liens had been filed against the land by various sub-contractors, of which Northern was one, for a total of $207,387.91. The actions taken by the lien holders in respect of these liens were consolidated by a court order and the conduct of the consolidated action was given to Northern, whose action on a lien for $3,810.85 was tried as a test case.

By a letter of commitment written on October 29, 1968, by Metropolitan Projects Limited, hereinafter referred to as “Metropolitan”, to Manufacturers and accepted by the latter on November 8, 1968, Metropolitan agreed to sell the land to Manufacturers for a price of $164,000. Manufacturers agreed to lease the land to Metropolitan for a term of 80 years. Manufacturers agreed to advance moneys to Metropolitan on the security of a first mortgage on Metropolitan’s leasehold interest for an amount of $786,000, at a rate of interest of 9% per annum. Disbursement of the loan moneys was to be in instalments in amounts determined by Manufacturers and its solicitors. The letter contained the following paragraph:

Description of Proposed Improvements

It is understood and agreed that we will construct one four storey apartment building with an aggregate of 82 suites, with one bachelor unit, 57 one bedroom units, and 28 two bedroom units. It is understood that each dwelling unit is to be supplied with an electric range and an electric refrigerator. The construction is to be in accordance with the preliminary plans and specifications in your possession. It is understood and agreed that final plans and specifications are to meet with your approval.

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On May 14, 1969, Manufacturers wrote a letter to Metropolitan, which it accepted on May 20, 1969, revising Manufacturers’ commitment of October 29. This letter contained the following provisions:

Proposed Improvements

The proposed improvements will now consist of a six storey apartment building with an aggregate of 125 suites having 5 bachelor; 86 one bedroom; 33 two bedroom and 1 three bedroom apartment. Construction is to be in accordance with the preliminary plans and specifications in our possession. It is understood and agreed that final plans and specifications are to meet with our approval.

Construction has commenced and is to proceed with due diligence to final completion.

It provided for an increase in the amount of the mortgage to $1,236,000 and for an interest rate of 9 ¼ per cent. Sufficient funds were to be withheld at all times to complete construction.

Pursuant to these agreements, Metropolitan conveyed the land to Manufacturers by deed dated February 7, 1969. A lease had been executed from Manufacturers to Metropolitan in accordance with the first letter of commitment. It was replaced by a lease dated June 1, 1969.

The lessee’s covenants included the following commitment by Metropolitan:

The lessee shall construct and completely equip with all due diligence without cost or expense to the Lessor a Six Storey (6), one hundred and twenty-five (125) suite apartment building on the demised lands… Construction of the said apartment building is to commence on or before the 1st day of June, A.D., 1969, and the said building shall be substantially completed and ready for use and occupancy on or before the 1st day of April, A.D., 1970, subject to delays due to Acts of God, strikes, lockouts, unavailability of materials or labour or other causes beyond the reasonable control of the Lessee.

The lease was for a term of 80 years and Metropolitan covenanted to pay to Manufacturers, as rental:

A. In any year in which gross receipts from rentals and other moneys received or receivable for

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the use and occupation of the demised lands and premises exceeded $255,000, 10% of such excess.

B. In addition of a monthly rent, calculated as follows:

(i) $1,161.67 per month for the first 30 years of the lease;

(ii) the greater of $1,161.67 or one-twelfth of 8½% of the appraised value of the demised lands (excluding buildings or improvements thereon) as of May 31, 1999, to be payable for the next 20 years;

(iii) the greater of the rental determined under sub-clause (ii) or one-twelfth of 8½% of the appraised value of the demised lands, excluding buildings or improvements thereon, as of May 31, 2019, to be payable for the remaining 30 years of the lease.

The lease contained the usual provisions for its termination on default by Metropolitan, including provision for termination by Manufacturers in the event of the bankruptcy of Metropolitan.

To secure Manufacturers’ loan of $1,236,000, Metropolitan mortgaged its leasehold interest in the form of a sub-lease dated as of June 1, 1969, to Manufacturers, for 80 years less one day at a rental of $1 a year, if lawfully demanded. Interest at the rate of 9¼ per cent was to be paid on the mortgage moneys advanced from time to time, and after the “interest adjustment date” (May 1, 1970), principal and interest computed from that date were due and were to be paid in 30 years at $10,013.36 a month (blended principal and interest). The advance of the mortgage moneys was in the sole discretion of Manufacturers. In fact, money was advanced as construction proceeded, with Manufacturers, on making each advance, holding back an amount sufficient to complete the building.

Construction had commenced in the fall of 1968, with Metropolitan itself doing the structural work and rough carpentry and sub-contracting the

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remainder of the work to the various sub-contractors. The branch manager of Manufacturers, in control of this project, visited the site approximately every two weeks to see that construction proceeded according to the plans and specifications submitted to Manufacturers. There was also an inspection of the construction each time an advance of mortgage money was requested.

On December 5, 1969, Metropolitan gave a second mortgage on its leasehold interest to one Samuel Stein to secure a loan of $200,000.

On April 1, 1970, the first of the sub-contractors’ mechanics’ liens was registered against the property. Manufacturers advanced no further money on the mortgage after the filing of this lien. The last advance was made on February 20, 1970, bringing the total amount advanced to $1,150,600 and leaving a balance of $85,400, the amount held back as sufficient to complete construction.

A proposal made by Metropolitan under the Bankruptcy Act, R.S.C. 1970, c. B-3, and accepted by its creditors was approved by the Supreme Court of Nova Scotia on June 2, 1970. An attempt by Metropolitan to sell the property at a proposed fair value of $1,816,000 failed. An assignment by Metropolitan of its leasehold interest to Sterling Realty Limited, a company formed by the lien holders, proved abortive as such an assignment required the consent of the lessor, Manufacturers, and this consent was not obtained.

By January 26, 1971, Metropolitan was in bankruptcy. The building was estimated at the time of the trial to be 90-95 per cent complete.

Following the filing of the liens, the second mortgage was foreclosed and the rights of Metropolitan were sold, on May 31, 1971, for $205,-500 to Turf Development Company Limited which in turn sold this interest to A.W. Garson and Saul Garson. (A.W. Garson was a director of Metropolitan.)

[Page 780]

In its statement of claim Northern asked for payment by Metropolitan and by Manufacturers of the amount of its claim, failing which, it sought the sale of their respective interests in the land. No formal judgment was entered following the trial, but the reasons for judgment disclose that the claim for payment against Metropolitan was dismissed because it was being pursued without the leave of the Bankruptcy Court. As previously pointed out, Metropolitan’s leasehold interest in the land was sold in consequence of the foreclosure of the second mortgage upon that interest. The only parties to the present appeal are Northern and Manufacturers and the issue is as to whether Northern has a valid lien against the interest of Manufacturers in the land.

The right to a lien is defined in s. 5 of The Mechanics’ Lien Act, R.S.N.S. 1967, c. 178, which provides:

5. Unless he signs an express agreement to the contrary and in that case subject to Section 3, any person who performs any work or service upon or in respect of, or places or furnishes any material to be used in the making, constructing, erecting, fitting, altering, improving, or repairing of any erection, building, railway, ship, vessel, land, wharf, pier, bulkhead, bridge, trestlework, vault, mine, well, excavation, fence, sidewalk, pavement, fountain, fishpond, drain, sewer, aqueduct, roadbed, way, fruit or ornamental trees, or the appurtenances to any of them, for any owner, contractor, or sub-contractor, shall by virtue thereof have a lien for the price of such work, service or materials upon the erection, building, railway, ship, vessel, land, wharf, pier, bulkhead, bridge, trestlework, vault, mine, well, excavation, fence, sidewalk, paving, fountain, fishpond, drain, sewer, aqueduct, roadbed, way, fruit or ornamental trees and appurtenances, and the land occupied thereby or enjoyed therewith or upon or in respect of which such work or service is performed, or upon which such materials are placed or furnished to be used, 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.

[The emphasis is my own]

The work, service or materials in respect of which the lien is claimed must be performed for or provided for “any owner, contractor or sub-con-

[Page 781]

tractor”. In the present case the claim is for materials which were supplied by Northern to Metropolitan at Metropolitan’s request.

“Contractor” is defined in s. 1(a) of the Act as follows:

(a) “contractor” means a person contracting with or employed directly by the owner or his agent for the doing of work or service or placing or furnishing materials for any of the purposes mentioned in this Act;

Metropolitan, therefore, to be a “contractor” under s. 5 would have to be a person contracting with “the owner”, and this raises the question as to whether Manufacturers was an “owner”. Similarly, to establish that the materials supplied by Northern were for the owner, it would likewise be necessary to show that Manufacturers was an owner.

The word “owner” is defined by s. 1(d) of the Act as follows:

(d) “owner” extends to any person, body corporate or politic, including a municipal corporation and a railway company, having any estate or interest in the land upon or in respect of which the work or service is done, or materials are placed or furnished, at whose request and

(i) upon whose credit; or

(ii) on whose behalf; or

(iii) with whose privity and consent; or

(iv) for whose direct benefit;

work, or service is performed or materials are placed or furnished, and all persons claiming under him or them whose rights are acquired after the work or service in respect of which the lien is claimed is commenced or the materials furnished have been commenced to be furnished;

Most of the argument before us was directed to the question as to whether, on the facts of this case, Manufacturers fell within that definition. It seems clear that Manufacturers had an “estate or interest in the land” because it was the owner in fee simple of the land. The next question is as to whether the materials were furnished at its “request”. The Appeal Division held that they

[Page 782]

were not so furnished. In so finding, the Appeal Division based its decision upon the judgment of the Court of Appeal for Manitoba in Northern Electric Company Limited v. Frank Warkentin Electric Limited et al.[3] Counsel for Northern points out, however, that the meaning of the word “request” in the definition of the word “owner” was not considered in that case. He relies upon the judgment of Riddell J., speaking for the Court, in Orr v. Robertson[4]. In that case the defendant Tyrrell, the lessee of certain land, sublet it to the defendant Hyland. The latter agreed to build on the land according to plans to be approved by the former. Hyland entered into a contract with the plaintiff to do the building. The plaintiff claimed a lien against Tyrrell’s interest in the land. At p. 148, Riddell J. said:

While, to render the interest of an owner liable, the building etc. must have been at his request, express or implied, there is no need that this request be made or expressed to the contractor—if the owner request another to build etc., and that other proceeds to build, by himself or by an independent contractor or in whatever manner, the building being in pursuance of the request, the statute is satisfied. The taking of a contract from Hyland to build is a request within the meaning of the statute.

Orr v. Robertson was cited with approval by Davies J., in his dissenting reasons in Marshall Brick Company v. York Farmers Colonization Company[5], and appears to have been accepted by Anglin J., as he then was, who was one of the majority judges in that case, although he points out that Riddell J., in his judgment in the Appellate Division in the Marshall case, found that there had been no request made. Riddell J., in the Marshall[6] case, at p. 550, states that it was not intended in the Orr case to lay down any general rule and stresses that each case must depend upon its own facts.

[Page 783]

In the present case the letter of commitment requires that Metropolitan should construct a building of a specified description on the land in accordance with the preliminary plans and specifications in Manufacturers’ possession and that the final plans are to be approved by Manufacturers. The work was inspected by representatives of Manufacturers as it progressed. In my opinion the work was done at the request of Manufacturers within the meaning of s. 1 (d) of the Act.

The next question is as to whether the work falls within any of subparas, (i) (ii), (iii) or (iv) of s. 1 (d). The work was not done by Metropolitan upon the credit of Manufacturers nor on its behalf. Metropolitan did the work and had work done by sub-contractors on its own credit and on its own behalf. Was the work done with the privity and consent of Manufacturers?

The authority on the interpretation of the words “privity and consent” is the judgment of Anglin J. in the Marshall case. In that case the York Company agreed to sell four lots in Toronto to Irving for $2,400. He paid a small cash deposit and agreed to erect four houses according to plans furnished by York. York agreed to advance money for building purposes. When the houses were completed, a conveyance was to be made by York to Irving on payment of the balance of the purchase price. Irving became insolvent. Liens were filed by persons who had supplied labour and materials. The issue was as to whether York was an owner within the meaning of the Mechanics’ Lien Act so as to make its interest in the land subject to the liens. The majority of this Court decided that York was not an owner as defined in the Mechanics’ Lien Act.

The passage, frequently cited, from the judgment of Anglin J. is at p. 581 and reads as follows:

While it is difficult if not impossible to assign to each of the three words “request”, “privity” and “consent” a meaning which will not to some extent overlap that of either of the others, after carefully reading all the authorities cited I accept as settled law the view enunciated in Graham v. Williams, 8 O.R. 478; 9 O.R. 458,

[Page 784]

and approved in Gearing v. Robinson, 27 Ont. App. R. 364, at page 371, that “privity and consent” involves

something in the nature of a direct dealing between the contractor and the persons whose interest is sought to be charged… Mere knowledge of, or mere consent to, the work being done is not sufficient.

There is no evidence here of any direct dealing by the respondent company with the purchaser’s contractor such as is necessary to establish the “privity” requisite to constitute the respondent company an “owner” within the definition of the “Mechanics’ Lien Act”.

I construe this to mean that, in order for a sub-contractor to claim a lien on the basis that the person against whom the lien is claimed was privy to and consented to the work being done, it is necessary to show a direct dealing between that person and the contractor who carries out the work, through whom the sub-contractor claims. If there is such direct dealing, the Act does not contemplate that there must be a direct dealing between that person and the various sub-contractors in order to enable them to file valid liens.

The meaning of “privity or consent” was considered by Dickson, J.A., as he then was, in the Warkentin case on which the Appeal Division relied in the present case. That was a case in which a mortgage company financed the construction of an apartment complex, and, as here, the financing took the form of a conveyance of title to the land to the mortgage company, a leaseback, and a mortgage of the leasehold interest. The lessee-mortgagor arranged with a contractor to construct the building, from whom sub-contractors provided services and materials. Among other matters, the sub-contractors contended their liens applied to the title of the mortgage company. At p. 529, Dickson J.A. dealt with this matter in this way:

The question whether the interest of Canada Life as owner of the fee simple of Parcels B and C might be attached by mechanics’ liens was raised. The answer

[Page 785]

depends on whether Canada Life can be said to be an “owner” within s. 2(d) of the Mechanics’ Liens Act. There is ample authority to support the proposition that in order to make Canada Life an “owner”, because work was done with its “privity or consent”, there must be something in the nature of direct dealing between Canada Life and the lien claimant: Gearing v. Robinson (1900), 27 O.A.R. 364; Marshall Brick Co. v. York Farmers Colonization Co. (1917), 36 D.L.R. 420, 54 S.C.R. 569; Partridge v. Dunham, (1932) 1 D.L.R. 600, (1932) 1 W.W.R. 99, 40 Man. R. 165; and more recently MacDonald-Rowe Woodworking Co. Ltd. v. MacDonald (1963), 39 D.L.R. (2d) 63, 49 M.P.R. 91. There is no evidence in the case before us of any such direct dealing, nothing to suggest that Canada Life exercised control in any respect over any subcontractor, supplier, or workman.

I do think that this passage was intended to state the proposition that, in a case where there had been direct dealing by a person having an interest in land with a general contractor for the performance of work on the land, it would be necessary, in order to establish “privity and consent”, in a lien claim by a sub-contractor, who performs work or provides material at the request of the general contractor, that there should be required to be direct dealing by the person alleged to be the owner with the sub-contractor. The passage has to be read in the context of the facts of the case. It would appear that there had not been direct dealing by the lien claimant with the general contractor. In the Marshall case, which is cited in this passage, Anglin J. discussed the requirement in terms of direct dealing with the “purchaser’s contractor” rather than with the lien claimant.

In the present case Metropolitan did not obtain the services of a contractor, but, instead, undertook the construction of the building itself. In a sense, it was its own contractor. It dealt directly with Manufacturers. It assumed an obligation to construct a building under its contract with that company. Inspections of the work were made from time to time by representatives of Manufacturers. Manufacturers had an interest in the construction of the building, since it was to be constructed on its land, would generate the funds required to pay

[Page 786]

the rentals due under the lease agreement and, it was anticipated, would provide for Manufacturers a share of the rentals derived from the leasing of the apartments by Metropolitan. Manufacturers did deal directly with the person for whom the sub-contractors performed services and provided materials. For these reasons it is my view that the work in question was done with the privity and consent of Manufacturers and, therefore, the work having been done at its request, Manufacturers was an “owner” within the meaning of s. 1(d) of the Act.

Having concluded that, in the circumstances of this case, Manufacturers is an owner within s. 1(d) of the Act, the next issue is as to whether Northern, under the provisions of the statute, has acquired a mechanics’ lien which is enforceable against the interest of Manufacturers in the land. To determine this, it is necessary to consider the effect of s. 5 under which a mechanics’ lien may be created. That section, as previously mentioned, gives a right of lien to any person performing work or service or furnishing material to be used in the various types of construction defined, which includes a building, “for any owner, contractor, or sub‑contractor”. It is clear that in this case the furnishing of material by Northern was for Metropolitan. It was not furnished for Manufacturers. Therefore, in so far as the phrase “for any owner” is concerned, as it was for Metropolitan that the material was furnished, Northern would have a lien as against Metropolitan’s leasehold interest. Metropolitan, as lessee, was a person with an interest in the land, at whose request, on whose credit, and on whose behalf the materials were supplied.

To establish a lien as against Manufacturers, even though it be an owner, the materials not having been furnished for it, it is necessary for Northern to establish that the materials were furnished for Metropolitan as a “contractor” under contract with Manufacturers. This involves a consideration of the definition of “contractor” in s. 1(a), which has already been cited. In my opinion, on the facts of this case, Metropolitan does not fall within that definition. Metropolitan did contract with Manufacturers, under the letters of commit-

[Page 787]

ment and the lease, that it would construct a building, but this was not a contract “for the doing of work or service or placing or furnishing materials”. Those words are apt to describe a building contractor who undertakes to construct a building for another person. In the present case Metropolitan did not undertake to do the work of construction for Manufacturers. It contracted, as a condition of the loan, that a building would be constructed on the land, but it constructed that building, not as a contractor for Manufacturers, but for itself as owner of the leasehold interest. In my opinion, Metropolitan was not a contractor within s. 1(a), and, therefore, the materials supplied by Northern were furnished for Metropolitan as owner, and not as a contractor for Manufacturers. That being so, s. 5 does not give to Northern a lien as against the interest of Manufacturers in the land.

My opinion on this point is reinforced by the words appearing at the end of s. 5, which provide that, even in the case where a lien exists under that section, it is limited 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”. Subject to the effect of the words in the brackets, this means that the owner is not to be made subject to a lien claim under s. 5 beyond the amount which he owes to his contractor in connection with the project. Manufacturers owed nothing to Metropolitan. Its commitment to that company was to advance funds by way of loan, secured by mortgage, and that commitment was performed in accordance with the terms of their agreement. It owed nothing to Northern, with which company it had no direct dealings.

In addition to the words at the end of s. 5, reference should also be made to ss. 10 and 11, which provide:

10. Save as herein otherwise provided, the lien shall not attach so as to make the owner liable for a greater

[Page 788]

sum than the sum payable by the owner to the contractor.

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

The qualifying words contained in ss. 5, 10 and 11 “except as herein provided” and “save as herein otherwise provided” can only relate to the provisions of s. 12, the relevant portions of which are as follows:

12. (1) In all cases the person primarily liable upon any contract under or by virtue of which a lien may arise shall, as the work is done or materials are furnished under the contract, deduct from any payments to be made by him in respect of the contract, and retain for a period of forty-five days after the completion or abandonment of the contract, twenty per cent of the value of the work, service and materials actually done, placed or furnished as mentioned in Section 5, and such value shall be calculated on the basis of the contract price, or if there is no specific contract price, then on the basis of the actual value of the work, service or materials.

(2) Where the contract price or actual value exceeds fifteen thousand dollars, the amount to be retained shall be fifteen per cent instead of twenty per cent.

(3) The lien shall be a charge upon the amount directed to be retained by this Section in favor of sub-contractors whose liens are derived under persons to whom such moneys so required to be retained are respectively payable.

Counsel for Northern contends that Manufacturers was obligated by this section to retain 15 per cent of the value of the work done, for the benefit of the sub-contractors. The question is as to whether s. 12 has any application to manufacturers in the circumstances of this case. The section applies to a person “primarily liable upon any contract under or by virtue of which a lien may arise”. What is contemplated is a construction contract by a contractor to construct something for the owner and I have already expressed the opinion that Metropolitan was not a “contractor”. The section goes on to provide that the person primari-

[Page 789]

ly liable shall “deduct from any payments to be made by him in respect of the contract”. There were no payments which Manufacturers was required to make in respect of a construction contract. Manufacturers did not agree to pay Metropolitan to construct a building. It agreed to lend moneys to Metropolitan to enable it to construct its building. There were never any payments to be made by Manufacturers to Metropolitan to which s. 12 could apply.

In Kosobuski v. Extension Mining Co. Ltd.[7], Orde J.A., in discussing the equivalent section of the Ontario Act, said:

…it seems clear that the whole section contemplates an obligation to pay either presently or at some future date something in money or money’s worth from which the drawback may be “retained” by “the person primarily liable.” If the contract is such that no liability to pay anything was ever incurred by the owner of the lands, there would seem to be nothing to which the lien of any subcontractor could attach.

Reference may also be made to the judgment of Master MacRae in Canadian Cutting & Coring (Toronto) Ltd. v. Howson et al[8].

In my opinion Northern’s submission based upon s. 12 fails.

Northern’s final submission is that Metropolitan and Manufacturers were engaged in a joint venture, so that each became the agent of the other in connection with the venture, and, therefore, the contracts made by Metropolitan with the sub-contractors became binding upon Manufacturers. Presumably the joint venture suggested consists of the construction and the operation of an apartment building.

Counsel for Northern, in his factum, has quoted passages from Williston on Contracts, 3rd ed., Vol. 2, dealing with the subject of joint ventures in s. 318, commencing at p. 544. In my opinion the answer to Northern’s submission is to be found in the passage cited from p. 554:

[Page 790]

It can be said that a joint adventure contemplates an enterprise jointly undertaken, that it is an association of such joint undertakers to carry out a single project for profit; that the profits are to be shared, as well as the losses, though the liability of a joint adventurer for a proportionate part of the losses or expenditures of the joint enterprise may be affected by the terms of the contract. There must be a contribution by the parties to a common undertaking to constitute a joint adventure; and a community of interest as well as some control over the subject matter or property right of the contract.

Whether the parties to a particular contract have thereby created as between themselves, the relation of joint adventurers or some other relation depends upon their actual intention, and such relationship arises only when they intend to associate themselves as such. This intention is to be determined in accordance with the ordinary rules governing the interpretation and construction of contracts.

The contracts made between Metropolitan and Manufacturers manifest no intention by the parties to become joint adventurers in a common enterprise. The relationship between them is that of borrower and lender. The agreements, consisting of the letters of commitment, the conveyance of title, the lease, and the mortgage of the leasehold interest were all made for the purpose of furnishing to Manufacturers the security which it required for its loan of money on a long term mortgage. They do not manifest any intention to participate in a joint enterprise.

For these reasons I would dismiss the appeal with costs.

Appeal allowed with costs, MARTLAND and JUDSON JJ. dissenting.

Solicitor for the appellants: Harold F. Jackson, Halifax.

Solicitor for the respondent: Gordon S. Black, Halifax.