Phoenix Assurance v. Bird Construction, [1984] 2 SCR 199

Supreme Court of Canada

Phoenix Assurance v. Bird Construction, [1984] 2 S.C.R. 199

Date: 1984-09-17

Phoenix Assurance Company of Canada and Phoenix Assurance Company Limited (Defendants) Appellants;

and

Bird Construction Company Limited (Plaintiff) Respondent;

and

Ownix Developments Limited and The Canada Trust Company et al. (Defendants);

and between

Walter Yarwood (Plaintiff);

and

Ownix Developments Limited, Phoenix Assurance Company of Canada, David Owen, Warrick Consultants Ltd., and Phoenix Assurance Company Limited (Defendants).

File No.: 16835.

1983: June 15; 1984: September 17.

Present: Laskin C.J.[1] and Estey, McIntyre, Chouinard and Wilson JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Mechanics’ liens—Liability—Development arrangement—Project under direct control of development company but ultimate control and reversion of ownership lying with assurance company—Liens claimed by construction company on insolvency of development company—Completion work on project requested by development company, and unpaid—Unpaid work on subtenancies requested by subtenants—Whether or not assurance company liable for lien claims—The Mechanics’ Lien Act, R.S.O. 1970, c. 267, ss. 1(1)(d), 5(1), 7, 11—The Judicature Act, R.S.O. 1970, c. 228, s. 38, as am. by The Judicature Amendment Act, 1977 (No. 2), 1977 (Ont.), c. 51, s. 3—Supreme Court Act, R.S.C. 1970, c. S-19, s. 52, as am. by 1974-75-76 (Can.), c. 18, s. 7.

Phoenix (U.K.) (“PUK”) and its wholly-owned subsidiary, Phoenix (Canada) (“PCDA”), set out to establish a head office building and entered into a develop-

[Page 200]

ment arrangement with Ownix Developments. Because Ownix lacked adequate financing to undertake the project itself, Phoenix and Ownix devised and put into effect an elaborate scheme set out in their development agreement. Ownix sold PCDA vacant land in fee simple and received back a ground lease. Ownix then charged its leasehold interest in the lands and premises to Canada Trust and granted PUK a credit lease of the land and building, effective on completion, with the rent being equal to the amount necessary to retire Ownix’ mortgage. This credit lease was then assigned to Canada Trust as further security for the mortgage. PUK granted a sublease back to Ownix, with the rent being equal to the payments made under the credit lease plus a share in the building’s profits. Ownix leased space in part of the building to PCDA and let the remainder to third party tenants. Many of these transactions occurred on the same day. The actual construction was undertaken pursuant to a contract between Bird Construction and Ownix, which in turn received its instructions from PCDA.

Ownix became insolvent, and lien claims were registered by Bird Construction against the interests of Phoenix, Ownix and Canada Trust for money owing for completion expenditures and for improvements for outside space tenants. The Master found a valid lien against the interest of Ownix only but the Divisional Court, on appeal, awarded Bird Construction a lien against the interests of PUK and PCDA with respect to all items claimed. The Court of Appeal in effect struck out the lien claim relating to third party tenant improvements. At issue here was whether the Phoenix companies were owners within s. 1(1)(d) of The Mechanics’ Lien Act and if Bird Construction was entitled under s. 5 to a lien against their interests with respect to the completion and the outside tenant expenses. If the liens were valid, questions arose as to the period of time for which Bird Construction was entitled to pre-judgment and post-judgment interest and the applicable interest rate.

Held: The appeal and cross-appeal should be dismissed.

“Owner”, within the meaning of The Mechanics’ Lien Act, requires that the party (a) have an estate or interest in the land, (b) request the work to be performed on the land, and (c) that work be done on behalf of, with the privity of or for the direct benefit of the party. Owner

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need not necessarily mean the registered or legal owner of the fee. Phoenix can be said to have requested the work done if an overall view is taken of these arrangements, notwithstanding the fact that the request was made by Ownix in a strictly factual sense. Given the factual complexities of the transactions, both PUK and PCDA should be considered, in a factual sense, as having requested the work done. Similarly, Phoenix can be said to have extended credit even though the result would be otherwise were the arrangements dissected into their minute parts.

A lien is valid against all estates or interests in the land whether or not each owner of such interest requested the work. The statutory pattern of the Act is not susceptible to different application and different results, as between the lien claimant and owners, according to whether the owner actually entered into a contract or operated through a development arrangement and intermediaries. The question of privity did not arise here, however, because both Phoenix and Ownix were owners and because Ownix made the request as Phoenix’ agent. The fact that Phoenix was not required to retain a holdback did not preclude enforcement of the lien: the lienholder’s principal remedy is his right to resort to the interest in the land and the holdback is merely an ancilliary remedy.

A lien must be “justly due” by the lien holder and “justly owing” by the owner. The lien validly attached to the completion expenses. The lien for leasehold improvements installed for tenants other than PCDA, however, could not be enforced because something in the nature of direct dealing between landlord or head tenant and the lien claimant was required. No privity of contract existed between Bird and Phoenix, and even though the benefits would ultimately revert to Phoenix, Phoenix could not be liable because of its being an owner as defined by the Act. The Act did not envisage all owners, jointly or severally, being responsible for work authorized by a single owner. The tenants in these circumstances were owners to the extent of their leasehold interest and Phoenix, as it made no request with respect to those interests, could not be considered as an owner. Even if Phoenix were considered an owner of

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these leasehold interests, no sum was “justly owing” by it.

Interest was to be calculated before and after judgment at the judgment rate as ordered by the Court of Appeal, rather than at either the contractual or at the commercial rate. This was not a case for the application of s. 52 of the Supreme Court Act.

Northern Electric Co. v. Manufacturers Life Insurance Co., [1977] 2 S.C.R. 62; Hamilton (City of) v. Cipriani, [1977] 1 S.C.R. 69, considered; Sanderson Pearcy & Co. v. Foster (1923), 53 O.L.R. 519; John A. Marshall Brick Co. v. York Farmers Colonization Co. (1917), 54 S.C.R. 69; Dalgleish v. Prescott Arena Co., [1951] O.R. 121; Hillcrest Contractors Ltd. v. McDonald (No. 2) (1977), 2 Alta. L.R. (2d) 273; Sandon Construction Ltd. v. Cafik (1973), 34 D.L.R. (3d) 609; Canadian Cutting and Coring (Toronto) Ltd. v. Howson, [1968] 2 O.R. 449; S. Morgan Smith Co. v. Sissiboo Pulp and Paper Co. (1904), 35 S.C.R. 3; Kosobuski v. Extension Mining Co. (1929), 64 O.L.R. 8, referred to.

APPEAL AND CROSS-APPEAL from a judgment of the Ontario Court of Appeal (1981), 125 D.L.R. (3d) 680, 33 O.R. (2d) 807, dismissing an appeal, except to reduce the amount of the lien as against the interests of PCDA and PUK together with interest, from a judgment of the Ontario Divisional Court allowing an appeal from the interim report of the Master and awarding a lien against the interests of PCDA and PUK. Appeal and cross-appeal dismissed.

John M. Roland, Q.C., and Brian Morgan, for the appellants.

D.K. Laidlaw, Q.C., and Joseph J. Colangelo, for the respondent.

The judgment of the Court was delivered by

ESTEY J.—In order to establish a head office building in Toronto, the appellants, the Phoenix group, consisting of Phoenix Assurance Company Limited (a United Kingdom Company) and its wholly-owned Canadian subsidiary Phoenix Assurance Company of Canada (both of which are

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hereinafter referred to jointly as “Phoenix”, unless specific reference is made to the United Kingdom company as “PUK” or to the Canadian company as “PCDA”), entered into an arrangement with the respondent, Ownix Developments Limited (hereinafter referred to as “Ownix”). Because Ownix lacked adequate financing to undertake the project on its own, elaborate arrangements were entered into for raising the funds required to build the building, all as set out in a development agreement entered into “as of the first day of November 1972” between Ownix and Phoenix. The actual construction was undertaken under a contract between Ownix and the respondent, Bird Construction Company Limited (hereinafter called “Bird”), dated October 16, 1972. Under the development agreement, PUK shared with Ownix any defined savings effected by Bird under the construction contract.

In this general financing scheme, Ownix first transferred the vacant land for one dollar to PCDA, which then granted a ground lease back to Ownix for an annual rental of one dollar. Ownix then granted a lease of the land and the building, when completed, to PUK, (referred to by the parties as the “credit lease”) the rental payments under which were precisely equal to the principal and interest costs of retiring an intended mortgage of Ownix’ leasehold interest to The Canada Trust Company (hereinafter referred to as “Canada Trust”) as mortgagee. Ownix then assigned the credit lease to Canada Trust as further security for the mortgage granted by Ownix to Canada Trust. Although the record includes only the table of contents of the Canada Trust mortgage, it is clear that Ownix mortgaged its leasehold interests and the building. The appellant, in its factum, describes the mechanics of the transaction:

The benefit of the credit lease was assigned by Ownix to Canada Trust as security for the repayment of the permanent financing.

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PUK subsequently granted a sublease back to Ownix, and the payments by the lessee Ownix under this sublease were equal to the payments by the lessee PUK under the credit lease, plus a participation by PUK in the profit from the building as defined in the sublease. At this point, Ownix granted a $10 million mortgage to Canada Trust, charging the leasehold interests of Ownix in the lands and premises, as already mentioned. All of these agreements, leases and the mortgage were dated as of April 30, 1974 except the transfer to PCDA which was dated “30th of April 1974”. Ownix granted a space lease for part of the building to PCDA, while other leases were granted to outsiders. Both PCDA and outside tenants entered into leasehold improvement contracts with Ownix who contracted with Bird to make these improvements. No issue arises herein with reference to the lien claim by Bird for the cost of the PCDA leasehold improvements.

The overall development agreement for this project between Phoenix and Ownix, in addition to the arrangements already summarized above, provided:

(a) The sublease from PUK to Ownix required Ownix to pay, as rental, the cost of retiring the Canada Trust mortgage, together with an additional amount equal to the greater of twenty per cent of the profits generated by the building or $40,000 per year.

(b) No doubt in order to control the nature of the businesses carried on in the head office building, as well as to maximize the profits in which Phoenix was to share, Phoenix had the right to approve all space leases.

(c) Ownix, to secure its performance under the sublease aforementioned, and to ensure that PUK would have the right to approve all space leases granted in the building, was to deposit two sums totalling $1,250,000 with PUK, which deposits were to be reduced over

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the term of the lease as the share of profits from the building was realized by PUK and as the space leases granted to outside tenants were approved by PUK.

(d) With reference to the construction and the building, Phoenix had the right:

(i) to approve plans and to inspect and supervise construction; and,

(ii) to share through Ownix in the amount by which actual cost of construction was less than the guaranteed contract price.

(e) On the expiry of the term of the lease (thirty-five years) to Ownix, the lands were to be owned by PCDA free of all encumbrances, the mortgage having been retired by the application of the revenue derived by Ownix from the credit lease.

The building was constructed and the parties agreed that it was substantially completed, within the terms of the development agreement, on April 30, 1974, but the building was not completed for the purposes of The Mechanics’ Lien Act, R.S.O. 1970, c. 267, until August 1974. All references are to the Act as it appears in the 1970 Revised Statutes. The 1980 version was not then in effect and we are, of course, not concerned with the present version, now called the Construction Lien Act, 1983 [1983 (Ont.), c. 6] of Ontario. After the agreed completion date, Bird expended $273,278.24 in completing the building under the construction contract, $83,891.16 in leasehold improvements for PCDA, and $106,519.51 on third party leasehold improvements for the outside tenants. These expenditures amount in total to $463,688.91. All this work was performed by Bird on the orders of Ownix, who in turn was responding to orders from PCDA and the other tenants with regard to the leasehold improvement expenditures or to the terms of the construction contract. On September 16, 1974 Bird registered claims for liens for all three items against the interest of Phoenix, Ownix, and Canada Trust respectively in these lands and buildings. Initially, Bird claimed priority over Canada Trust, but this claim was not

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advanced in this Court. No claim was made by Bird against the leasehold interests of the third party tenants, perhaps because the improvements and the unexpired terms of the leases had no market value and also perhaps because demonstrable privity was absent.

The Master found a valid lien against the interest in these lands of Ownix only, in the amount of $463,688.91. No lien rights were recognized against the interests of Phoenix in these lands and buildings. There is, apparently, no contest with respect to the priority of Canada Trust for the moneys advanced under the mortgage. No reference is made as to whether the mortgage was fully advanced or otherwise, and consequently we are not here concerned with such priorities. There is likewise no reference in the record as to any claim by the receiver of Ownix against the third party tenants for the leasehold improvement expenditures, nor is there any reference in the judgments below to the question as to whether any lien rights in Bird arise with reference to the leasehold estate of those space tenants.

The Divisional Court allowed the appeal from the interim report of the Master, and awarded to Bird a lien against the interests of PCDA and PUK in the land in respect of all three items claimed by Bird as above.

The Court of Appeal dismissed the appeal except to reduce the amount of the lien as against the interests of PCDA and PUK to $357,169.40, together with interest for the period from registration of the lien on September 18, 1974 until April 23, 1979, in the amount of $110,617.61, along with interest thereafter at such rate as if the lien judgment were a money judgment. In effect, the Court of Appeal struck out, as against the Phoenix companies, the lien claim relating to third party tenant improvements in the amount of $106,519.51.

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The issues raised on this appeal and cross-appeal are as follows:

(1) Are the Phoenix companies owners within the meaning of s. 1(1)(d) of The Mechanics’ Lien Act, supra?

(2) Is Bird entitled to a lien against the interests of the Phoenix companies in the land and building pursuant to s. 5(1) of The Mechanics’ Lien Act, supra, in respect of all completion expenditures ($273,278.24) and outside tenant leasehold improvements ($106,519.51) (no issue now being raised about the PCDA leasehold improvements ($83,891.16))?

(3) If so, at what rate and for what periods is Bird entitled to interest on these amounts, or any of them, for:

(a) pre-judgment interest;

(b) post-judgment interest?

Several provisions of The Mechanics’ Lien Act, supra, bear on these issues. I start with the definition of ‘owner’ found in s. 1(1)(d):

1.—(1) In this Act,

…

(d) “owner” includes any person and corporation, including a municipal corporation and a railway company, having any estate or interest in the land upon which or in respect of which work 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 or consent, or

(iv) for whose direct benefit,

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

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It it may be, as was argued in this Court, that the definition of “owner” embraces two types of owner, the first type being a person who enters into a contract for the supply of work and materials to a project, such as Ownix did in this transaction. The second situation arises where the person who is alleged to be an owner does not enter into any contract for the improvement of the land in question but who clearly has an estate or interest in that land and who indeed will benefit from the expenditures by the lien claimant. It is said in this submission that here Phoenix could not be an owner within the statutory definition on either basis because no work was done or materials delivered at the “request” of Phoenix and as a result of any of the four circumstances specified in the section. The appellant says that no such work or materials were provided on the credit of or on behalf of, or with the consent of Phoenix; and that none of the work under the construction contract between Bird and Ownix was done for the direct benefit of Phoenix (excepting only the PCDA leasehold improvements).

In order to determine the application of the statutory definition to the parties to the transaction which gave rise to this appeal, it is necessary to consider the arrangements under which the contractor, Bird, proceeded to erect the building on these lands. If the transaction is dissected into the minute parts which compose the whole financing scheme, it might well be concluded that Phoenix indeed did not extend the credit which resulted in this project going ahead. It might also be concluded that technically Phoenix did not request that any such work be done or that materials be delivered, and that Phoenix did not benefit directly from such work. Thus it could well be argued, if each circumstance were taken in isolation, that there was no privity of contract between Phoenix and Bird under which the building was constructed on these lands.

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In my view, a very different result is achieved when the overall arrangements are examined. For reasons best known to the parties, Phoenix did not wish to undertake the design, financing, leasing and construction of the PCDA head office on its own account. Phoenix was agreeable to enter into arrangements whereby Ownix, in the general sense of the term, managed the project, but under the authoritative surveillance and control of Phoenix. Ownix, for its part, lacked the resources to acquire the site, arrange long-term financing, erect the building, and lease part of it to PCDA for its head office and the balance to strangers, all in its own right. Ownix may have had the entrepreneurial instincts and capacities, but not the financial wherewithal, to stage the project. Whatever the reason, Ownix appears to have agreed to contribute the land and to be the project manager for rewards in the amounts and payable in the manner provided in the development agreement and the leases and contracts subtended or evolving therefrom. At the end of the day, however, Ownix would not own the land or the building. PCDA would be the owner of the property in fee simple, free and clear of all encumbrances, except any unexpired space leases. The plan adopted by Ownix and Phoenix drew upon a combination of interests and capacities as between Ownix and Phoenix, which led to the construction of this large building in downtown Toronto, and to the installation in a part of that building of the head office of PCDA. It is against this factual background that, in my view, one must assess the development agreement, the construction contract, the several leases and sublease, the assignment of the credit lease, the mortgage, and the application to the enterprise of the provisions of The Mechanics’ Lien Act, supra.

Because Ownix required the support of the financial strength of Phoenix in order to produce adequate security for a first mortgage of the magnitude required for the construction of this building, the creditworthiness of Phoenix was contributed to this transaction by means of the credit lease and its assignment to the mortgagee. For reasons not disclosed in the record, a direct mortgage

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between PCDA, with or without a PUK guaranty, to Canada Trust was not the route chosen by the parties.

The object of the entire program was, of course, to establish a head office suitable for the purposes of PCDA in about seven of a total of twenty-two floors in the building. Ownix was to lease the balance of the space to third party tenants throughout the term of its sublease from PUK of the entire building. To this end, Phoenix was to approve the building plans and to supervise construction throughout. The approval of Phoenix was also required of any leases to outside tenants to whom Ownix wished to lease any space in the building. Phoenix had the authority to make alterations to the plans of the building as it proceeded. In short, Phoenix and Ownix were the joint entrepreneurs of the project wherein Ownix was the contractor to execute the development, albeit that Ownix entered into an agreement with Bird for the actual erection of the building according to plans as approved by Phoenix. The “guaranteed maximum price” was $6.1 million. The construction contract provided for a sharing of any savings realized below that price as between Bird and Ownix on the basis of 65 per cent to Ownix and 35 per cent to Bird. Under the development contract, 20 per cent of Ownix’ share in these savings would be paid over by Ownix to PUK. At the end of the program thirty-five years hence, Ownix’ connection with the land and building terminated, as did PUK’s lease, and PCDA continued on as the registered owner without encumbrance by lease or mortgage. It was on this basis that Phoenix extended its financial support to Ownix in the manner already outlined. While the Court of Appeal was in disagreement with the Divisional Court when that Court found that the Phoenix companies exercised a significant degree of control over the project beyond that which might be expected from any prime tenant, the Court of Appeal nevertheless concluded, on the evidence, that the building was built for the occupancy by the Phoenix companies as their Canadian head office, to the standards and quality prescribed by

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Phoenix, and was financed on the basis of the financial strength of Phoenix and not of Ownix.

The consequences at law of the bankruptcy of Ownix are significant. Ownix held a ground lease of the lands on which the building was erected. The ground lease was expressly not to be made subject to any mortgage. It further provides that, upon the bankruptcy of the tenant, the lease shall terminate. As we have seen, a series of leases and subleases was built upon the basis of this ground lease by PCDA to Ownix. The assignment of the credit lease by Ownix to Canada Trust with the concurrence of PUK requires the latter to continue to pay the rental due thereunder whether or not the credit lease itself remains in effect. This, of course, means nothing more than that the covenant by PUK to pay rent to Ownix is, in essence, converted by the assignment of the credit lease into a guaranty by PUK of the payments under the mortgage held by Canada Trust. The performance by PUK of the “guaranty” obligation will subrogate PUK to the mortgagee’s rights, which in turn would advance PUK, then standing in the shoes of Canada Trust, to a position ahead of the Bird liens at least as regards funds advanced under the mortgage before registration of the liens. However, as near as can be determined from the record, the charge in the mortgage seizes upon the leasehold interests of the mortgagor Ownix (excluding, of course, the ground lease), that is, in the credit lease and the “sublease” from PUK to Ownix. All of these leases are dependent upon the ground lease which vanished on the bankruptcy of Ownix. The space leases are expressly kept alive notwithstanding the intervening bankruptcy of Ownix by a provision in the ground lease. Thus the leases, in respect of which improvements were made by Bird on orders of Ownix which in turn contracted with the space tenants for their installation, continued in effect upon the reversion of lands and buildings to PCDA. If these improvements then had value, PCDA was the beneficiary who succeeded to it,

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but there is no such evidence in the record. To this aspect I will return later.

The ground lease expressly provides that any mortgage granted by Ownix will “be subject and subordinate to… the rights of… [PCDA]” under the ground lease. This may indicate even more clearly that upon the bankruptcy of Ownix, Canada Trust is left with a guaranty from PUK so that subrogation rights are of no concern to PUK or the lien claimant Bird.

In the result, therefore, PCDA, consequent upon the bankruptcy of Ownix, continued as the owner in fee simple of the lands, but now free and clear of all encumbrances, save the mortgage which PUK was contractually bound to pay, and subject to whatever rights Bird may have under the liens against these lands. The space leases, as well, remain extant. Whether Bird may have a claim in law against the leasehold interests or estate of the tenants in the space leases, or a right in contract directly against the tenants themselves, is left to conjecture as no such claim arose here, nor are all the parties necessary to the complete litigation of such claims before the Court.

On these rather complex factual relationships, what are the rights of the builder Bird to assert lien rights against the interests of Phoenix in these lands for moneys expended on the building which Bird has constructed? In part, that question is answered by determining if PUK or PCDA or both are “owners” for the purposes of the Act. “Owner” is defined, as we have seen, by s. 1(1)(d) of the Act, supra. Later in these reasons I will separately address the lien claims by Bird against the interest of Phoenix for leasehold improvements installed by Bird on the order of Ownix for the third party space tenants.

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In order to qualify Phoenix, or either of them, as an owner, it must be found that (a) Phoenix has an estate or interest in the land, (b) Phoenix requested the work to be performed on the land by Bird, and (c) such work was done on the credit or on behalf, or with the privity or consent, or for the direct benefit, of Phoenix.

In applying these provisions of the Act, it must be remembered that “owner” under the statute is not necessarily the registered or legal owner of the fee. The security afforded by the Act is a claim against the interest of the person requesting the work and whose interest is to be thereby enhanced. Middleton J. examined this aspect of the Act in Sanderson Pearcy & Co. v. Foster (1923), 53 O.L.R. 519, at p. 521:

The intention of the statute clearly is to prevent any one who has an estate or interest in lands upon which a lien may be claimed under secs. 6 and 8 from having liability imposed upon his estate unless there is on his part, first, a request, and, secondly, one or more of the alternative requirements mentioned.

At page 522, His Lordship continued:

This statutory definition is not to be regarded as creating a method of imposing a new kind of liability in favour of the subcontractor without privity of contract.

The matter had earlier been examined in this Court in John A. Marshall Brick Co. v. York Farmers Colonization Co. (1917), 54 S.C.R. 69, per Anglin J. at p. 581:

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, 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

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sought to be charged * * *. Mere knowledge of, or mere consent to, the work being done is not sufficient.

There is no question that both Phoenix companies had an estate in these lands. As to whether Phoenix can be said to have “requested” Bird to perform the construction work on these lands, one may turn to Northern Electric Co. v. Manufacturers Life Insurance Co., [1977] 2 S.C.R. 62, where this Court considered similar circumstances with reference to the Act. In that case, the party providing the mortgage money took title to the land, and the building contractor held a mortgaged leasehold interest. In factual parallel, although the legal procedures differed at least in the mechanics, Phoenix, by exposing itself as guarantor of the mortgage debt and by becoming titleholder of the land from the outset and the residual owner of the building ultimately, played the same role throughout the transaction as did Manufacturers, the ultimate owner in the Northern Electric case. The difference, which may be of some significance, is the interposition of Ownix between Phoenix and Bird, the contractor. Chief Justice Laskin, for the majority of the Court, found that the building was constructed as much for the financer and ultimate owner as for the developer, here Ownix.

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. [At p. 766]

However, Bird was engaged under a contract to which Phoenix was not a party, although Phoenix did have the right to alter plans and inspect and supervise construction. Again, an overall view must be taken of these complex arrangements. In Northern Electric, supra, the trial court found a joint venture between the two parties. The majority in this Court, however, concluded per Laskin C.J., at p. 768:

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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…

Both majority and minority of the Court found the work was done at the “request” of Manufacturers who played the role analogous to the role of Phoenix here.

It should be noted that it is difficult to examine the factual complexities of the transactions with which this appeal is concerned without concluding that both PUK and PCDA, in a factual sense, requested that the work be done. PUK, the parent, owns all the issued and outstanding shares of PCDA. PUK entered into these arrangements for the sole purpose of establishing a suitable head office facility in Toronto for its wholly-owned subsidiary. PUK was the guiding entrepreneur in these operations, and PCDA the immediate occupant and ultimate owner of the building. It would be legalism in its purest form to conclude that either company had not requested the work, in the sense of s. 1 of the Act.

I do not think that the interposition of Ownix and the separation of the guarantor and the mortgagor roles, as compared to Northern Electric where the four roles were played by only two parties, is a difference with legal consequences under the Act. Consequently, I conclude, as did the Divisional Court and the Court of Appeal below, that Phoenix did make “the request” that the work for which the lien claim (other than third party space tenants’ improvements) was made be

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done by Bird. The request was made in a strict factual sense by Ownix who, of course, entered into the construction contract with Bird in the performance of its role under the development contract between Ownix and Phoenix. That agreement stipulated that:

The building shall be constructed by the Developer at its expense in accordance with detailed drawings, elevations and specifications (including materials to be used) which must first be approved by Phoenix Canada and such approval shall not be unreasonably withheld or delayed.

While the construction contract was signed before the development contract, the latter had long negotiation roots as the parties to the project organized finances, plans, specifications, permits and all the paraphernalia of modern urban building projects. The sequence of the execution of these contracts is unimportant to the determination of the position of the parties under The Mechanics’ Lien Act, supra.

In Hamilton (City of) v. Cipriani, [1977] 1 S.C.R. 69, the City, with the provincial agency, The Ontario Water Resources Commission, as its banker, entered into an agreement to cause a works to be built on city land. The Commission was found to have become the general contractor, though actual construction was carried out under a construction contract entered into by the City and not the Commission. Laskin C.J., speaking for a unanimous Court, stated at p. 173:

Schroeder J.A. in the Ontario Court of Appeal, looking to the substance of the transactions between the City, the Commission and McDougall, construed the interrelationship as one where the Commission became the general contractor for the City and, as such, proceeded to carry out its contract through another general contractor. In my opinion, this is a proper analysis, recognizing the fact that the Commission was being the City’s banker. The City was and remained the “owner” within s. 1(d) so as to make its land lienable under s. 5, and it is idle formalism to contend that the work was not done at its request.

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Ownix was in much the same position as the Commission, and Phoenix, like the City, was the legal owner throughout.

The next step is to determine whether the “work”, which I have concluded was done at the request of Phoenix, was done pursuant to any one of the four subparagraphs of subs. 1(d). It would be difficult to conclude that all four did not apply in the circumstances. The appellant argued for a distinction in these statutory tests between a “contracting owner” and a “non‑contracting owner” in the event that Phoenix was found to be an owner. The statute admits of no such interpretation and in neither Northern Electric nor Cipriani, supra, was any such interpretation placed on the Act. It is clear that Ownix could not, on its own resources, finance this project. It is beyond argument that the credit lease was an arrangement whereby the creditworthiness of Phoenix was utilized for the purpose of obtaining the Canada Trust mortgage. The mortgage proceeds financed the construction carried out on these lands. Whether the transaction took this route as against a simple mortgage by PCDA as owner or by means of a simple guaranty by Phoenix of Ownix’ covenants in a mortgage, is of no importance. The form may have been dictated by tax, insurance regulations or other considerations. The substance remained the same. It was the credit of Phoenix that was employed to bring this project into being and to establish the head office for Phoenix Canada.

Phoenix, being the registered owner of the land, had an “interest in the land” within the meaning of s. 1. It was at the “request” of Phoenix that the work was done on the land by Bird. Divided up into each single step or function performed by the parties under the development agreement, it might be argued that Ownix, not Phoenix, “requested” Bird to construct the building. Ownix, through the performance of the development contract, caused the building to be built, which building, by the

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contract, became, in the fullness of time, the sole property of Phoenix. Additionally, Phoenix participated in the profits from the operation of the building until it vested completely in Phoenix in thirty-five years. In short, Ownix and Phoenix instituted this development project wherein a head office for PCDA was brought into being, all pursuant to the development contract between Ownix and Phoenix. As was the case in Northern Electric, supra, Phoenix was the entrepreneur, owner and financier. Ownix was the contractor for Phoenix; and Bird was engaged by Ownix on behalf of and as the agent for Phoenix. This was the substance which the form merely served.

The other subparagraphs of para. (d), that is subparas, (ii), (iii) and (iv), are alternative, not successive features of the definition of “owner”. But even if each of them applied cumulatively, all are met on these facts. For the reasons already stated, the “work” in question was done on these lands “on behalf of, “with privity or consent” of, and for “the benefit of, Phoenix, the residual owner and intermediate beneficiary from the operations of the building.

The bankruptcy of Ownix in the course of the performance of the development agreement brings into focus the purpose and the functioning of the financing arrangements between the parties. PUK set aside the sublease upon its breach by Ownix. Canada Trust continued to rely, but at that point directly, upon the performance by PUK of its obligations under the assigned credit lease, so as to recover the moneys required for the retirement of the mortgage. PUK became the mortgagor and the operator of the building, and PCDA continued as the prime tenant. The management of the building by Ownix simply came to an end, and the events slated to occur at the end of the thirty-five year term took place instead upon the bankruptcy of Ownix, excepting only the outstanding mortgage which was not, by that event, retired. PCDA, of course, continued as the owner of the land. Upon

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the retirement of the mortgage (now by PUK and not by Ownix), PCDA will, as originally provided in the development agreement, be the owner of the land, free and clear of all encumbrances and leases.

I therefore conclude that both Phoenix companies are “owners” within the meaning of s. 1 (d) of the Act (other than with reference to the aforementioned lien claims relating to third party space tenants which will be discussed later).

The second issue is whether Bird is entitled to a lien against these lands under s. 5 of the Act for (a) completion expenditures, and (b) the leasehold improvements installed for space tenants other than PCDA. The lien claims relating to the third party space tenants will be discussed later in these reasons. Caught up in this issue is the question as to whether the lien entitlements of Bird under s. 5, if any, run to the estate or interest of Phoenix in the lands, the space tenants’ interest in the lands, Ownix’ interest in these lands, or any or all of these interests. Section 5(1) of The Mechanics’ Lien Act, c. 267, provides:

5.—(1) Unless he signs an express agreement to the contrary and in that case subject to section 4, any person who does any work upon or in respect of, or places or furnishes any materials to be used in, the making, constructing, erecting, fitting, altering, improving or repairing of any land, building, structure or works or the appurtenances to any of them for any owner, contractor or subcontractor by virtue thereof has a lien for the price of the work or materials upon the estate or interest of the owner in the land, building, structure or works and appurtenances and the land occupied thereby or enjoyed therewith, or upon or in respect of which the work is done, or upon which the 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, and the placing or furnishing of the materials to be used upon the land or such other place in the immediate vicinity of the land designated by the owner or his agent is good and sufficient delivery for the

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purpose of this Act, but delivery on the designated land does not make such land subject to a lien.

This is the section which prescribes the conditions under which any person may acquire a lien against land upon the performance of work or the delivery of materials to or in connection with the improvement of that land. In essence, the section provides that any person who performs such work in improving land or buildings for “any owner” has a lien for the value of such work and materials upon the “estate or interest of the owner in the land” provided that such lien is limited (a) “in amount to the sum justly due to the person entitled to the lien” and (b) “to the sum justly owing… by the owner”.

If, under s. 1(1), the Phoenix companies are included in the defined owners of this land (as I have concluded they are), then it is clear from s. 5(1) that Bird, by performing work on such land for “any owner”, has an entitlement to a lien. There is no differentiation as between those persons coming within the statutory definition of “owner”, nor indeed is the lien, by express terms, limited to the interest of the owner for whom the work in question is done. The narrow question which then arises is whether the term “any owner” includes as one of a group “the owner” in such a way as to permit or require that the lien shall burden only the interest of the “requesting owner” and not all “owners” within the definition. Here, the facts do not require an answer to the question. Phoenix has an interest in the land; Phoenix, in these circumstances, must be considered as a single entity; Phoenix, through Ownix, requested the work; Phoenix falls within the definition of “owner” and hence is in the group contemplated by the expression “any owner”; and the completion expenditures relate to, and certainly enhance the value of the interest of the owner, Phoenix, in the lands. At least as regards the completion expenditures, the application of s. 5 raises no problems.

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The more difficult question is raised by the claim for a lien against the interests of Phoenix for leasehold improvements made by Bird on the premises of the third party space tenants.

On the facts it is clear that no money was owed by Phoenix to Bird. It is equally clear that moneys are owed by the insolvent Ownix to Bird. I have already concluded that Ownix and the Phoenix companies are all owners within the statutory definition. Section 5, expansively construed, would create lien rights in the supplier of materials or services against all estates or interests in the land whether or not each owner of such an interest was a so-called contracting owner. A more restrictive view would interpret “justly owing… by the owner” as meaning the owner who had directly and in commercial reality requested the work to be done. The latter interpretation would produce a different result according to the otherwise inconsequential differences in contractual arrangements between the various participating entrepreneurs in a construction project of this size. The statutory pattern adopted in the Act by the legislature does not appear to be susceptible to different application and different results, as between lien claimant and owners of the project, according to whether the owner actually enters into a contract with a contractor or a series of subcontractors on the one hand, or whether the owner, through a development arrangement, brings about the same result with such intermediaries as development companies, project managers, and financing mechanisms, whether by agency relationship or otherwise.

The question remains, however, whether the plain meaning of the terms in s. 5, when read in conjunction with s. 1(1)(d), requires that once the

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person is embraced by the Act as an owner under s. 1(1)(d) for any purpose, the lien claim runs against the interest of that person and all other owners, limited only by the amounts which are justly recoverable by the lien claimant for the work and services in question against the land and improvements in question. It may be that these sections, when read together, require privity of contract between the claimant and the owner of the interest or estate which it is sought to bind by the lien. It is difficult to conceive how a supplier of work or materials could have a claim for a lien where no unilateral contract has arisen by the supply of the work or the services (aside from holdback considerations). This appears to be so because of the prerequisite “at the request” in s. 1(1)(d) and because s. 5, as was observed by Laskin C.J. in Northern Electric, supra, follows along the terminology of s. 1 and hence applies the same test to “any owner” and to “the owner”. As I have already stated, it is not necessary to determine whether or not contractual privity is a condition precedent to lien entitlement because here Ownix and Phoenix are both owners, and Phoenix, like the mortgagee in Northern Electric, is the directing entrepreneur of the project, and hence Ownix is its instrument of accomplishment; its “agent” in the terminology of the law. Hence, the request of Ownix is the request of Phoenix (per s. 1(1)(d)) and is the agent and alter ego of Phoenix in the expression “the owner” as that term is used in s. 5(1) (again excepting the situation arising out of the leasehold improvements for third party space tenants).

It is said that this will produce great hardship because the non-contracting owner will have no control over the funds flowing from the owner to the contractor, subcontractors, etc. for the purpose of effecting holdbacks as required by the Act, and consequently there would be a difference in exposure to liability as between various owners in the

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same project. This may well be the result, but such result would appear to be inevitable where the workings of commerce produce arrangements as complicated as those surrounding the financing, design, construction and operation of these head office premises. It therefore is not necessary to determine what the result would be if Phoenix were not in the position of the dominant entrepreneur in the enterprise and the principal of Ownix in the operations governed here by the Act; in the same way as was the insurance company in Northern Electric, supra. Any difficulties which may be raised on behalf of Phoenix as regards the obligation to effect holdbacks under s. 11 are fully answered by the observations of Laskin C.J. in Cipriani, supra, at p. 174, which I quote later in these reasons. Furthermore, if Phoenix is, in fact and in law, a non-contracting owner, to use the somewhat inaccurate terminology employed in these proceedings, it could protect itself by proper contractual provisions which more precisely spelled out the interrelationship between the developer Ownix, and the financing participant Phoenix, in this complex building development. For example, Phoenix could have protected itself in this regard by requiring, in the development agreement and in the financing agreements, that the moneys under the mortgage be advanced through Ownix only as required by The Mechanics’ Lien Act, and for a trusteeship of the moneys held back from mortgage advances under these contractual arrangements. There are no doubt other and better contractual procedures for achieving the same result.

Section 5(1), as we have seen, limits the amount of the lien to the “sum justly due” to Bird and to the sum “justly owing” by “the owner”. The amount of the Bird claim is not contested if the lien is valid in law. The question then to be settled is whether such moneys are “justly owing” by Phoenix to Bird. The case of Northern Electric, supra, while relied on by the appellants, does not directly bear upon the problem raised in this appeal with respect to the interworkings of ss. 1

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and 5. The landowner developer in that case, Metropolitan, acted as its own contractor and itself let the contract from which the lien in issue arose. The respondent mortgage company dealt directly with the landowner. After examining the nature of the agreement, Laskin C.J. found that the respondent mortgage company was an owner within s. 1(d) of the Act, and with reference to s. 5 of the Act went on to say at p. 772:

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.

The appellant submits that Northern Electric, supra, implicitly supports the narrow reading of s. 5, because both Manufacturers and Metropolitan were owners, and upon the bankruptcy of Metropolitan, the Court held that Manufacturers was liable for the amount it was obliged to hold back. While this is the actual result, the relationship between the terms “any owner” and “the owner” in s. 5 was not in issue in the case.

There is a remarkable similarity in facts and legal considerations between these proceedings and

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the judgment in this Court in Cipriani, supra. The City of Hamilton wished to enter into a contract with a general contractor for the construction of a secondary sewage plant. Due to financing limitations upon the City, it entered into an agreement with the Ontario Water Resources Commission, under which the latter undertook to have the plant built, to pay the contractor and to accept repayment from the City over a forty-year period. The agreement provided for ultimate ownership by the City, with the provision that, in the meantime, the City would, at the Commission’s request, transfer to it land upon which the plant would be built, to be reconveyed upon receipt of full payment. No land was ever conveyed under this agreement and the City remained the legal and beneficial owner of the land upon which construction took place. The City argued, unsuccessfully as we have seen, that even if the City had an interest or estate in the affected land it did not come within the definition of “owner” in s. 1(d) because, as there has been no direct dealing between it and the contractor, it was not possible to say that the construction was being done at the City’s request. Concerning the relationship between s. 1(1)(d) and s. 5, Laskin C.J., as we have seen, stated that the qualification of an interest as an owner under s. 1(d) carries through to render that interest lien-able under s. 5. This presupposes an identity of parties, but obviously it does not follow where a lien claim is founded on a request for the work in question being made to the lien claimant by an unrelated third party, be it an owner or otherwise.

Cipriani, supra, is helpful in the present case on another aspect of the application of s. 5. The appellant here submits that there was no contract involving either of the Phoenix companies under which a lien could arise, so as to impose an obligation on the Phoenix companies to retain or holdback moneys under s. 11 of the Act, and accordingly, s. 5 should not be interpreted so as to subject a non-requesting party (which appears more accurate than a non‑contracting party), such as Phoe-

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nix, to lien liability. Neither of the Phoenix companies had an obligation to advance moneys to Ownix or anyone in respect of the construction of Phoenix House from which an obligation to hold back funds could arise. This submission is answered by Laskin C.J. in Cipriani at p. 174:

Counsel for the appellant contending, as already noted, that there was no right or duty to maintain a holdback in this case, submitted in effect that this precluded enforcement of the lien. Counsel for the respondent contended that in the present case it was the City that was “the person primarily liable upon a contract. by virtue of which a lien may arise” within s. 11, and that the obligation thereunder to maintain a holdback does not depend on a fund being available out of which the holdback must be reserved. Whether this contention is correct or not on the facts of this case, I do not think that a valid claim of lien against an owner under s. 5 can be defeated by showing that the owner is not a “person primarily liable” under s. 11 and hence not obliged to maintain a holdback. The right to resort to the owner’s interest in the affected land is the principal remedy; s. 11 provides merely an ancillary resort for realizing the lien claim.

I turn now to the question of Bird’s entitlement to a lien, with reference to leasehold improvements installed by Bird for tenants other than PCDA. This work was done by Bird during the time of the performance of its main building contract, under purchase orders issued pursuant to contracts between Ownix and the third party tenants. There is nothing in the record to indicate whether the space tenants had the right to remove installed fixtures and improvements on the termination of their respective leases. As these improvements were built into the building by Bird in the course of completing the building, it is reasonable to assume that either legally or factually or both the improvements will, on the expiry or other termination of the lease, revert to or remain with the owner of the fee, in this case PCDA, on the termination of the ground lease. In any case, the improvements form part of the tenants’ interest or estate so long as that estate exists, and subject to

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the terms of the space leases, either revert to PCDA or remain subject to removal on expiry of the space leased by the tenant in question. There is no privity of contract between Bird and Phoenix in relation to the work done for the tenants. Phoenix may ultimately benefit from this work as the ultimate owner of the building. Phoenix is not, however, liable under the liens simply because it is one of several owners under the definition in The Mechanics’ Lien Act, supra. The scheme of the Act, particularly as revealed in ss. 1(1)(d), 5, 7 and 11, does not envisage all owners, jointly and severally, being responsible for the cost of work authorized by any single owner. Depending upon the complexity of the construction arrangements, the definition of “owner” under s. 1(1)(d) of the Act will include different persons and combinations of persons. Here the third party space tenants would be included in the statutory definition in any proceeding to enforce a lien filed against their respective interests. Where, as here, no “request” was made by the interest holder against which the liens were filed (Phoenix), the definition of “owner” for the purposes of these proceedings could not include Phoenix. On the other side of the coin, no lien claim has been filed against the interest of the third party space tenants who would come within the definition of owner in any enforcement of such liens had they been filed.

The Marshall case, supra, did not deal with a tenant’s interest, but with an entrepreneur standing between the owner and the contractor claiming a lien in circumstances not dissimilar to those present in this appeal. The registered owner and vendor to this entrepreneur was held not to be liable to the contractor for work done on the vendor’s land. To the same effect, with reference to a tenant’s interest, see Dalgleish v. Prescott Arena Co., [1951] O.R. 121 (C.A.), in Ontario and Hillcrest Contractors Ltd. v. McDonald

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(No. 2) (1977), 2 Alta. L.R. (2d) 273, in Alberta. A more recent discussion of the right to file a lien against a lessor’s interest where the work is done at the request of the lessee is to be found in Sandon Construction Ltd. v. Cafik (1973), 34 D.L.R. (3d) 609 (Ont: C.A.), at p. 612. All these authorities are condensed into one short sentence by the learned authors Macklem and Bristow, Mechanics’ Liens in Canada (4th ed.), at p. 31:

…something in the nature of direct dealing between landlord, or head tenant, and the lien claimant is required…

It should be noted that s. 7 of the Act establishes a procedure where the work is being performed for a tenant. Section 5 requires the contractor, in order to subject the fee simple interest or estate to the lien, to give notice to the owner of the fee of the work “to be done”. The owner may, within fifteen days thereafter, deny any responsibility. This section supports the interpretation of s. 5 which limits the right to claim a lien to those interests owned by the owner making the implied request under s. 5. In short, he who supplies work or materials in response to the express request in s. 1(1)(d) and the implied request in s. 5 may claim a lien against the estate or interest of the requesting “owner”.

Section 5 places another impediment in the way of Bird when it attempts to reach past the third party tenants and to lien the interests of Phoenix in respect of improvements installed at the request and on the premises of the third party lessees, even assuming such work can be done without direct privity or privity by agency; namely, the absence of any liability in Phoenix to Bird. Thus there is no sum justly owing by “the owner”. This closes any opening left to Bird even if s. 5 were construed so as to allow a claim against all owners if one of them requested the work in question. Vide Canadian Cutting and Coring (Toronto) Ltd. v. Howson, [1968] 2 O.R. 449; and S. Morgan

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Smith Co. v. Sissiboo Pulp and Paper Co. (1904), 35 S.C.R. 3, at pp. 96-97. Orde J.A., in discussing this requirement of the Act in the context of tiered contractors in Kosobuski v. Extension Mining Co. (1929), 64 O.L.R. 8, at p. 12, stated:

Nothing in the Act gives a subcontractor… the right to recover, as against any person higher up the scale than the person with whom he himself contracted, more than the amount owing to such person by those above him, due regard being had, of course, to the obligation of the owner and each contractor and subcontractor to protect possible lienholders under sec. 11, by retaining, out of the contract price, the percentages specified in subsecs. 1 and 2, or a larger amount if notice in writing is given under subsec. 4.

The respondent has cross-appealed for interest to be calculated before and after judgment on the contract rate of one per cent per month, rather than upon the basis established by the Court of Appeal who varied the report of the Master so as to read as follows:

I FIND AND DECLARE that Bird Construction Company Limited is entitled to a lien under The Mechanics’ Lien Act against the interests of Ownix Developments Limited, Phoenix Assurance Company of Canada and Phoenix Assurance Company Limited in the lands described in Schedule I hereto and such lien as against the interests of Phoenix Assurance Company of Canada and Phoenix Assurance Company Limited to be in the amount of $357,169.40 together with interest thereon from the date of registration of the claim for lien being the 18th day of September, 1974 until April 23, 1979 in the amount of $110,617.61 for a total amount of $467,781.01 and interest thereafter on the sum of $467,781.01 at such rate as if it were a money judgment.

This is not a case, in my view, for the application of s. 52 of the Supreme Court Act, R.S.C. 1970, c. S-19, as amended, 1974-75-76 (Can.), c. 18, s. 7, if it indeed be applicable at all. The contract rate of

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interest is inappropriate once the lien claim has crystallized into money and has been or should have been paid into Court. The Judicature Act R.S.O. 1970, c. 228, s. 38, was amended in November 1977 by The Judicature Amendment Act, 1977 (No. 2), 1977 (Ont.), c. 51, s. 3. Prior to that amendment, the statute did not authorize pre-judgment interest. The relevant portions of s. 38 now provide for interest as follows:

38. …

(3) Subject to subsection 6, a person who is entitled to a judgment for the payment of money is entitled to claim and have included in the judgment an award of interest thereon,

(a) at the prime rate existing for the month preceding the month on which the action was commenced; and

(b) calculated,

(i) where the judgment is given upon a liquidated claim, from the date the cause of action arose to the date of the judgment, or

(ii) where the judgment is given upon an unliquidated claim, from the date the person entitled gave notice in writing of his claim to the person liable therefor to the date of the judgment.

The respondent in its cross-appeal alternatively sought to have interest awarded to Bird at the rate Bird was required to pay in its ordinary business operations. Even if this were an appropriate standard for the determination of interest rates properly applicable, there is no evidence in the record as to what rate of interest Bird paid during these times. I therefore conclude that the interest provision made by the Court of Appeal is appropriate to the circumstances of this appeal.

For these reasons, I would dismiss the appeal and the cross-appeal and I would award costs in this Court to the respective respondents.

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Appeal and cross-appeal dismissed with costs.

Solicitors for the appellants: Osler, Hoskin & Harcourt, Toronto.

Solicitors for the respondent: McCarthy & McCarthy, Toronto.