Arres Capital Inc. v. Graywood Mews Development Corp., 2011 ABQB 411

Court of Queen ’ s Bench of Alberta Citation: Arres Capital Inc. v. Graywood Mews Development Corp., 2011 ABQB 411 Date: Docket: 0903 10332, 0903 10334, 0903 06674, 0903 04630, 0903 08012, 0903 05747, 0903 07649 Registry: Edmonton Between: Action No.0903 10332 Arres Capital Inc. Plaintiff - and - Graywood Mews Development Corp. Defendant Between: Action No.0903 10334 Arres Capital Inc. Plaintiff - and - Graywood Mews Development Corp. Defendant Between:

Action No. 0903 06674 Rainville Carpentry Services Inc. Plaintiff - and - Arres Capital Inc., Garden Valley Construction Ltd., Graywood Mews Development Corp., Graybriar Land Company Ltd. and Richcrooks Enterprises

(2000) Ltd. Defendants Between: Action No. 0903 04630 Garden Valley Construction Ltd. Plaintiff - and - Graywood Mews Development Corp., and Arres Capital Inc., and Graybriar Land Company Ltd. and Richcrooks Enterprises

(2000) Ltd. Defendants Between: Action No.0903 08012 Sitemark Inc. Plaintiff - and - Graywood Mews Development Corp. , Graybriar Land Company Ltd., Richcrooks Enterprises

(2000) Ltd. and Arres Capital Inc. Defendants Between: Action No.0903 05747

Northern Landscaping Ltd. Plaintiff - and - Arres Capital Inc., Graywood Mews Development Corp. , Graybriar Land Company Ltd. and Richcrooks Enterprises

(2000) Ltd. Defendants Between: Action No.0903 07649 Parker Mechanical Inc. Plaintiff - and - Arres Capital Inc., Graywood Mews Development Corp. , Graybriar Land Company Ltd. and Richcrooks Enterprises

(2000) Ltd., Garden Valley Construction Ltd. Defendants _______________________________________________________ Reasons for Decision of L. A. Smart, Master in Chambers _______________________________________________________ Background [ 1 ] The Applicant, Arres Capital Inc. (“Arres”), is a mortgage lender that advanced funds to Graywood Mews Development Corporation (“Graywood Mews”) in relation to a condominium property located near Spruce Grove, Alberta. It held as security a first and second mortgage on:

Condominium Plan 072283 Units 1 to 31 inclusive and ten thousand shares in the common property, Excepting thereout all mines and minerals. All funds were advanced by July 24, 2008 prior to any liens being registered. All units were sold in the foreclosure actions and the liensdischarged.

Arres’ lawyers hold the face amount of the liens in trust as security for the liens until determination of the parties’ rights andentitlements. [2] Arres is applying for a declaration that the Builders’ Lien filed by Northern Landscaping Ltd. (‘Northern”), ParkerMechanical Ltd. (“Parker”), Garden Valley Construction Ltd. (“Garden Valley”), Sitemark Inc. (“Sitemark”), 1303355 Alberta Ltd.(“130") and Rainville (collectively referred to as the “lien claimants”) against the lands described in the various actions are invalid andunenforceable; as against the interest of Arres. [3] Each lien claimant “claims a lien under the Builders’ Lien Act (“BLA”) in the fee simple estate of Graywood MewsDevelopment Corp.”, with the exception of Sitemark whose Statement of Lien was incomplete and did not claim an interest against anyparty whatsoever.

None of the liens make a claim against the estate or interest in land of Arres. The liens claim that the “work ormaterials were or are to be provided for Graywood Mews Development Corp.”, again, except for Sitemark’s lien which claims that the“work or materials were or are to be provided for Durrance Projects, Arres, Graybriar Land Company and Graywood MewsDevelopment Corp.” Applicant’s Argument [4]

Section 34 of the Builder’s Lien Act, R.S.A. 2000, c. B-7 as amended (the “Act”) utilizes mandatory language in prescribingboth the requirements and form of a Statement of Lien: 34(2) The statement of lien shall set out a.. the name and residence of ... (ii) the owner or alleged owner, and (iii) the person for whom the work was or is being done or the materials were or are being furnished. [5] The foundation for a builders’ lien action is the Statement of Lien. The Statement of Lien defines the parameters of the estateor interest to which the lien is to attach.

A lien claimant can obtain no greater or further rights than those claimed in the Statement ofLien. LT Interior & Drywall Ltd. v. Sota Centre Inc., 2003 ABQB 552 , [2003] CarswellAlta 918 at paras 22-28. [6] In the LT Interior’s decision, Madam Justice Greckol stated: However, the Statement of Claim, although arguably by its words encompassing the claim now asserted because of the relationshipevidenced in the terms of the lease, cannot assert a claim that is broader than the Statement of Lien. The claim founded in theStatement of Lien is crystalized in the Statement of Claim which must be filed within 180 days.

The Statement of Lien did not attach theinterests of the Defendant as registered owner as it did not claim that 924745 Alberta requested that the work be done. The Statement ofClaim cannot advance a claim which is broader than the claim protected by the Statement of Lien.

For that reason, the AmendedStatement of Claim in the present case does not disclose a cause of action against 924745 Alberta, or the purchaser of the property 411Capital Corp. [Emphasis added] [7] In this case, the various lien claimants (except Garden Valley and Parker) are alleging in their lien actions that the work wasfurnished at the request of Arres notwithstanding the fact that none of the liens (apart from Sitemark’

s) state that the work was providedfor Arres.

[8] Moreover, none of the lien claimants make any attempt whatsoever to lien Arres’ interest in the lands as a mortgagee or evenas a purported “owner”. [9] The lien claimants are attempting to pursue Arres as an owner in their various pleadings notwithstanding that theirStatements of Lien do not allege that Arres is an owner.

Quite simply, the lien claimants are attempting to prosecute a builder’s lienaction which grossly exceeds the rights conferred by their Statements of Lien. [10] The lien claimants ought not to be able to allege that Arres is an owner under the terms of the Act if they did not file anyStatement of Lien claiming that Arres was an owner under the Act. [11] Arres notes that s. 37 of the Builders’ Lien Act only requires substantial compliance with s. 34.

However, in this case, there isno basis for arguing substantial compliance when none of the liens attempt to lien Arres’ interest in the Lands and only one lien allegeswork was even provided at the request of Arres. [12] In the decision of Canadian Helicopters Ltd. v.

Udo Stephen Building Materials Ltd., 2003 ABQB 322 , [2003]CarswellAlta 500 (MC) at paras 9-17, Master Funduk observed that: When a statute requires that a lien claimant identify whose interest is being charged and what interest is being charged that is a matter of“real importance”. [13] In that case, the lien claimant was alleging that a lien filed against a fee simple interest was substantial compliance for a lienagainst a leasehold interest. Master Funduk observed that s. 34 was conjunctive and required the lien to state a description of the land andthe estate or interest in the land to be charged.

He determined that “the object of the Act cannot overcome a lack of substantialcompliance”, and determined that the liens were invalid against the applicant’s leasehold interests. [14] The principles articulated by Master Funduk are indistinguishable from our present situation. The Act specifically requiresthat the lien claimants identify the interest being liened and the party for whom the work was requested. As none of the liens, met theserequirements, there can be no substantial compliance with the Act.

Lien Claimant’s Argument [15] In seeking to establish that the lien holders must name the mortgagee in the Statement of Lien Arres Capital Inc. relies upon a2003 decision of Madam Justice Greckol in LT Interior & Drywall v. Sota Centre Inc. and a 2003 decision by Master Funduk inCanadian Helicopters Ltd. v.

Udo Stephen Building Materials Ltd. [16] It is important to note however that both of those decisions involved work performed by a contractor for a lessee, who thenattempted to lien the interest of the registered owner of the property. [17] The law is clear that work performed for a tenant will not bind the fee simple interest of a landlord unless the landlord can beshown to have requested that the work be done and the work was done on it’s credit or on behalf of or with whose privity and consent orfor its direct benefit or alternatively, has been given notice under s. 15 of the Builders’ Lien Act. [18] The Builders’ Lien Act expressly recognizes that a lien can attach as leasehold estate.

Section 15 of the Act provides:

Liens on lease or life estate 15(1) When the estate on which a lien attaches is a freehold estate for a life or lives or a leasehold estate then ...

Section 15 then goes on to provide a mechanism by which the contractor may bind the landlord’s freehold estate as well. [ 19 ] The reason is clear. A fee simple estate in land and a leasehold estate in land are separate and distinct estates in land and each may be subject to a lien. A tenant can only bind its own estate and for the landlord’s estate to be bound the landlord must fall within the definition of “owner” under the Act or have received a s. 15 notice. [ 20 ] No such provisions exists in respect of a mortgage. [ 21 ] A mortgagee, which having an interest in land does not have an estate.

The mortgagee’s interest arises as a charge on the owner’s estate. One of the salient features of a mortgage is that while the mortgagee does not acquire a vested estate by receiving the mortgage, it does acquire a contingent claim to acquire or sell the owner’s estate, upon nonpayment under the mortgage. [ 22 ] A mortgagee is, without more, not an owner and its interest is not lienable.

There is no question, however, that mortgagees have been found to have committed the acts of an owner and have lost their priority. [ 23 ] Consequently, decisions of the Courts relating to the identification of the estates being liened, between a tenant and a landlord, are not applicable to a challenge raised against the priority of a mortgagee. [ 24 ] Justice Greckol’s decision in LT Interior & Drywall v. Sota Centre Inc. and Master Funduk’s decision in Canadian Helicopters Ltd. v.

Udo Stephen Building Materials Ltd. are distinguishable on their facts and have no applicability to the facts of this case. [ 25 ] Section 11(4) of the Builders’ Lien Act accords a mortgage registered prior to any builder’s lien a priority over the liens to the extent of the money advanced under the mortgage prior to registration of a lien; 11(4) A registered mortgage or a mortgage registered by way of a caveat 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. [ 26 ] A challenge to a prior mortgage made by lienholders is purely and simply a challenge to the s. 11(4) priority of the mortgage. [ 27 ] It is not a challenge to the interest in the land given by the owner to the mortgagee. [ 28 ] By virtue of the challenge, the lienholders are not attempting to attach the mortgagee’s interest in the land but rather rearrange the priorities as to who gets paid before whom. [ 29 ] The learned authors Bristow, Glaholt, Reynolds & Wise in Construction Builders’ and Mechanic liens in Canada 7 th ed (2005, Thomason Reuters Canada Ltd.) at page 6-20: It was held by the Yukon Territory Court of Appeal in Bradshaw v Saucerman and in the Ontario Court of Appeal in Whaley v.

Linenbank that it is not necessary to name a mortgagee having an estate or interest in the land to be charged in the claim for lien, even if it is intended to claim priority over the interest of such mortgagee. The mortgagee can be brought into the proceedings subsequently

commenced to enforce the lien. [30] Bradshaw v. Saucerman (1913) (BC CA), 3 W.W.R. 761 (BCCA sitting as the Yukon C.A.) and Whaleyv. Linenbank (1915) 36 O.L.R. (2d) 361 (C.A.) each dealt with somewhat similar statutory provisions and circumstances. [31] This analysis is supported by the wording of the Builders’ Lien Act.

Section 34 requires only that the owner be identified inthe Statement of Lien, whereas s. 49 of the Act requires that in the Statement of Claim, the lien holder must name as a Defendant, “theholder of any prior registered encumbrance against whom relief is sought.” Had the legislature intended that prior registeredencumbrancers against whom relief is sought be named in the Statement of Lien as well as the Statement of Claim, it would have said so. [32] The curative provisions in s. 37 of the Builders’ Lien Act have been given a very liberal

interpretation in respect of therequirements of s. 34. In Construction Builders’ and Mechanics liens in Canada (supra), the learned authors state at page 6-19: 63.2 Name and Address of the Owner Generally, the curative

section is available to rectify errors in the claim for lien with respect to the name of the owner. There is authorityfor the proposition that provided no one is prejudiced, the failure to name an owner in a claim for lien will not be fatal, and anamendment of the claim for lien may be permitted at a later stage of the proceedings to cure this omission. [33] That statement was accepted and applied by Master Quinn in Canadian Patent Scaffolding Co. v. Capton Holdings Ltd.,1985 CanLII (ABQB) [34] Master Funduk’s statement in Canadian Helicopters Ltd. v.

Udo Stephen Building Materials Inc. (supra) cited by ArresCapital Inc., at para 17, states that “Registering a lien against a fee simple owner’s fee simple interest is not registering a Statement ofLien against a lessee’s leasehold interest,” is a reflection of the fact that the fee simple and leasehold are very different estates and are notinterchangeable. As a result the curative provisions of s. 37 were not available in that case. [35] It was submitted that Master Funduk’s analysis is limited to the lease situation and is not of general application applying to allbuilders’ liens.

Were it necessary for the lien holders to name the mortgagee in the statement of lien, it was also submited that anyomission to do so can be remedied under s. 37. Discussion [36] Although not admitted, for purposes of this application, I am to assume that Arres Capital Inc. has conducted itself so asbeing capable of being characterized as an owner as defined by the BLA. An owner under the BLA is defined as: 1. In the Act, . . . (j) “owner” means a person having an estate or interest in land at whose request, express or implied, and (

i) on whose credit, (ii) on whose behalf, (iii) with whose privity and consent, or (iv) for whose direct benefit,

work is done on or material is furnished for an improvement to the lands . . . [ 37 ] It is trite law that a builder’s lien is a creation of statute and whatever rights the claimants may have must be derived from the BLA . Entitlement to a lien is described in

Section 6. 6(1) Subject to subsection (2), a person who (

a) does or causes to be done any work on or in respect of an improvement, or (

b) furnishes any material to be used in or in respect of an improvement, for an owner, contractor or subcontractor has, for so much of the price of the work or materials as remains due to the person, a lien on the estate or interest of the owner in the land in respect of which the improvement is being made. (emphasis added). [ 38 ] Master Funduk, in Canadian Helicopters observed that s. 34 of the BLA was conjunctive requiring a description of the land and estate or interest in the land to be charged. In his view the description of the estate or interest in land to be charged is a matter of substantial compliance.

At paragraph 18 he stated: In law there is a substantial difference between a fee simple interest in land and a lessee’s leasehold interest in land. That substantial difference is not done away with, for builders’s lien claimants, by the Act . Claiming a lien against a fee simple interest is not sufficient to encompass a lien claim against a leasehold interest anymore than the reverse is legally feasible. Claiming a lien against a leasehold interest is not a claim against the fee simple interest. The fact that in law a leasehold interest is less than a fee simple interest is irrelevant for builder lien purposes.

I agree. [ 39 ] It is true that s. 15 of the BLA implicitly recognizes that a builder’s lien can attach leasehold estates. The

section directly provides a mechanism for potential lien claimants of leasehold estates to secure lien rights against the fee simple owner by giving notice. Although those holding this type of interest are conferred this special right, it does not say that other estates or interest need not be liened to preserve lien rights. To distinguish Canadian Helicopters and LT Interior and Drywall on the basis that the reasoning must be restricted to lease situations would be erroneous. [ 40 ]

Section 11 of the BLA provides for a priority to mortgagee’s for advances made before liens are filed. Conversely if the mortgagee advances in the face of a lien, the mortgagee will lose priority to the lien claimant for those sums. This entitlement to priority is separate and distinct from a lien on the estate or interest of an owner and to claim this priority no builders lien need be registered vis a vis the mortgagee.

Again conversely, simply because the lien claimant can make this claim without liening does not mean that if a lien is claimed on the estate or interest of the mortgagee, no lien need be registered. [ 41 ] On a careful examination of the authorities presented by the lien claimant’s, it is readily apparent the legislation referred to in those decisions is quite different from our current Alberta statute. In those authorities, lien claimants under the applicable legislation were given a statutory priority over a mortgagee in addition to their right to file liens against an owner.

Those rights against a mortgagee are in that sense analogous to the rights afforded by s. 11 of the BLA and quite correctly the courts held that it was unnecessary to register a lien against the mortgagee’s interest in order to preserve those rights. [ 42 ] To borrow the wording from Master Funduk in Canadian Helicopters , there is a substantial difference between a fee simple

interest in land and a mortgagee’s interest in land. That substantial difference is not done away with, for builder’s lien claimants, by the Act . Claiming a lien against a fee simple interest, is not sufficient to encompass a lien claim against a mortgagee’s interest anymore than the reverse is legally feasible. Claiming a lien against a mortgagee’s interest is not a claim against the fee simple interest. The fact that in law a mortgagee’s interest is less than a fee simple interest is irrelevant for builder lien purposes. [ 43 ] The right to a lien against Arres ceased to exist for failure to register against Arres as owner and state its interest in the land is to be charged.

Section 37 cannot overcome a failure of substantial compliance with the requirements of the BLA. Decision [ 44 ] The lien holders failed to registered liens against the mortgagee and its estate or interest in land. Therefore the lien claims now being advanced against Arres are invalid and unenforceable. Under the circumstances further application is necessary to determine whether or not lien holders have in personam claims against the mortgagee and/or entitled to add Arres as a Defendant to their Statement of Claims as the case may be.

The funds held in trust by counsel as security for the liens may be released to Arres. Arres shall have its costs of the application. Heard on the 14 th day of December, 2010. Dated at the City of Edmonton, Alberta this 29 day of June, 2011. L. A. Smart M.C.C.Q.B.A. Appearances: Edward Feehan Duncan & Craig LLP for the Plaintiff Dennis Groh, Q.C. Heil and Groh for the Lien Claimants Stewart Brownlee

Hansma Bristow & Finlay LLP for Sitemark