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Thomas G. Heintzman, O.C., Q.C., L.L.D. (Hon.

), FCIArb
Heintzman ADR
Arbitration Place
Toronto, Ontario
www.arbitrationplace.com
416-848-0203
tgh@heintzmanadr.com
www.constructionlawcanada.com
www.heintzmanadr.com

Thomas Heintzman specializes in alternative dispute resolution. He acts as an arbitrator and mediator in commercial, financial,
construction and franchise disputes.

Prior to 2013, Mr. Heintzman practiced with McCarthy Ttrault LLP for over 40 years with an emphasis in commercial disputes
relating to securities law and shareholders rights, government contracts, insurance, broadcasting and telecommunications,
construction and environmental law. He has acted in trials, appeals and arbitrations in Ontario, Newfoundland, Manitoba,
British Columbia, Nova Scotia and New Brunswick and has made numerous appearances before the Supreme Court of Canada.
He was an elected bencher of the Law Society of Canada for 8 years and is an elected Fellow of the American College of Trial
Lawyers and of the International Academy of Trial Lawyers.

Thomas Heintzman is the author of Heintzman & Goldsmith on Canadian Building Contracts, 5th Edition which provides an
analysis of the law of contracts as it applies to building contracts in Canada.

This article contains Mr. Heintzmans personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

Alberta Court Rejects Assertion That The Mortgagee Was An Owner Under The Builders
Lien Act

In Westpoint Capital Corp. v. Solomon Spruce Ridge Inc., 2017 CarswellAlta 580, 2017 ABQB
254, the Alberta Court of Queens Bench made a number of decision relating to the priorities
between lienholders and mortgagees.
The court found that a mortgagee was not an owner of the land within the Alberta Builders
Lien Act. In any event, by not claiming in its lien and lien action that the mortgagee was an
owner, the lien claimant could not assert a claim that the mortgagee was an owner.

The court also found that under the Alberta Act, the mortgage advances had priority over the
lien claimant even though they exceeded the value of the land at the time that the first lien
arose.

Background

The mortgagee W was controlled by V. V also controlled the prior owner of the lands who had
sold them to the present registered owner S. S was controlled by G.

W advanced monies under its mortgage but $1 million of that advance went into a GIC in Ws
name, as security for the mortgage loan and in particular for the completion of deep services
on the land. In addition, about $600,000 of the mortgage advance went into a GIC in Ws name
as security for a development agreement with the municipality.

S agreed to sell the land to B, and B claimed priority under its agreement of purchase and sale.

Contractor P registered a builders lien and commenced a lien action against S. It joined W to
the action, not as an owner, but as a nominal defendant and encumbrancer.

In the subsequent court proceedings, both mortgagee W and buyer B made tenders to buy the
property and B was the successful bidder.

Both contractor P and buyer B claimed that mortgagee W was an owner under the Alberta
Builders Lien Act.

Decision

The court held that [r]emedies against a mortgagee or landlord such as declaring them to be
an owner under the Builder's Lien Act are unusual and rare. Clear circumstances must exist for
this extraordinary remedy to be imposed. In my view, those circumstances are absent here.

The court relied upon the following factors in finding that the mortgagee W was not an owner:

1. there was no information that W and V were not acting at arms-length to the owner S.;

2. there was nothing sinister or suspicious about the dealings;

3. while W advanced more money than the land was worth at the time the mortgage was
advanced, $1.5 million was "advanced" to invest in GICs in W's name as security for S's
obligations under the mortgage loan;
4. most of the registered owner Ss creditors on the project were paid. Accordingly, there was
no basis for a suggestion that the mortgagee W and the registered owner S colluded to harm
contractors and subcontractors;

5. there was no evidence of direct dealings between the mortgagee W and any of the
contractors or subcontractors. W did not pay the contractors or subcontractors directly and had
no involvement with the construction on the lands, other than to release monies from one of
the GICs to the registered owner S after it was satisfied that certain work had been completed;

6. there was no evidence that, at any time before S defaulted on the mortgage, the mortgagee
W had any intention of having an interest in the lands other than as mortgagee.

7. there is no evidence of any request, express or implied by the mortgagee W that any
contractor do any work on the property.

8. the fact that G, who controlled the registered owner S, worked for or with the mortgagee W
after the mortgage default was not relevant. G undoubtedly had an interest in working with a
major creditor to minimize his risks.

The court also found that the contractor Ps claim that the mortgagee W was an owner of the
land failed due to its failure to file a lien against the estate of W as owner:

Essentially, a builder's lien has no value until it is registered. While registration may
have some retroactive effects, as under s 11(1) referenced above, it does not attach any
interest in the lands until it is registered. A builder's lien claim against an owner who has
not contracted directly with the claimant provides in rem remedies only, and does not
make an owner personally liable to the claimant. It is the owner's interest in the lands
that is at stake, not the owner's other assets.Here, any builder's lien claim against [W]
is well past the filing deadline. Not by a few days or weeks, but rather years. Despite not
claiming a lien against [W] interest in the lands, [P] has made no attempt to amend the
lien it did file to include a claim against [W].

The court held that the mortgagee had priority over the lienholder and purchaser even to the
extent of advances made which exceeded the value of the land when they were made:

No authority is cited for the proposition that advances beyond the value of the
mortgaged lands are not entitled to the same priority as advances up to the value of the
lands and buildings. That may be the case in jurisdictions where lien claimants have
priority over mortgagees to the extent that the lien claimants have increased the value
of the property since the last mortgage advance. That is not the law in Alberta.
The court also held that the contractor Ps claim against the mortgagee W could not be
corrected under the curative section, section 37 in the Alberta statute, because [t]he court has
no discretion to depart from statutory requirements.

Discussion

This decision provides a good check-list for those factors which may be considered in
determining whether a mortgagee or landlord or other person is an owner under the lien
statute. Here, there were circumstances which on the surface might raise suspicions: the prior
owner was controlled by the same person who controlled the mortgagee which sought to be
the buyer in the ultimate court proceedings. Was the man in the middle, S, simply a stooge?
The court went through an eight point check-list and found no evidence to that effect.

The decision is also a warning that, if an ownership claim is to be made against any person, then
the lien must be filed against that persons interest in the land and an action asserting such a
claim must be made against that person. And if such a claim is not made, the curative section
will be of no avail.

The courts finding that the mortgage advances had priority over the lienholder even to the
extent of the advances exceeding the value of the land is noteworthy. Section 11((4) of the
Alberta Builders Lien Act says that a registered mortgage has priority over a lien to the extent
of the mortgage money in good faith secured or advanced in money prior to the registration of
the statement of lien and does not mention the value of the land at the time when the first
lien arose. By contrast, section 78(3) of the Ontario Act says that a prior mortgage has priority
over liens to the extent of the lesser of, (a) the actual value of the premises at the time when
the first lien arose and the amount of the advances.

In this case, a large portion of the advances made by the mortgagee were effectively to itself
and were put into GICs in its name which provided security for the mortgage and for
performance of the builders obligation and obligations under the development agreement with
the municipality. Were these payments truly advances under the mortgage so far as the lien
statute is concerned?

The curative section in the Ontario lien statute is proposed to be widened by the Construction
Lien Amendment Act, 2017, which has now received second reading. Under new subsection
6(2) of what will be known as the Construction Act, the minor irregularities that are not to
invalidate a certificate, declaration or claim for lien are expanded. They will now include minor
errors or irregularity in the name of the owner, or person from whom materials or services are
provided, or the legal description of the premises, or in placing owners name in the wrong
portion of a claim for lien. However, it seems unlikely that this expanded section will cure the
failure in a lien to make a claim against a party as an owner, or to do so in the statement of
claim.
See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 16, section
4(a)(iv), 4(d) and 4(l)(C).

Westpoint Capital Corp. v. Solomon Spruce Ridge Inc., 2017 CarswellAlta 580, 2017 ABQB 254

Building contracts builders and construction liens claim against mortgagee as owner
curative section

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb November 14, 2017
www.heintzmanadr.com
www.constructionlawcanada.com