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Extension of Time in Leaves to Appeal


Houlden & Morawetz On-Line Newsletter

By: L.W. Houlden and Geoffrey B. Morawetz

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Ontario Wealth Management Corp. v. Sica Masonry and General Contracting Ltd.,  2014 CarswellOnt 8586 (Ont. C.A.)

1713515 Ontario Ltd. (operating as the Walton Hotel) was placed in receivership and S.F. Partners was appointed receiver (the "Receiver").

The Receiver sought direction in relation to the priority over certain funds. The Receiver took the position that Ontario Wealth Management ("OWM"), the mortgagee, had priority. Sica Masonry and General Contracting ("Sica"), a lien claimant, argued it had priority.

The Walton Hotel was under renovation for use as a boutique hotel. The renovations were not completed and the Receiver did not resume the renovations.

The Receiver sold the property for $600,000. The mortgage in favour of OWM secured principal financing of $1.23 million. OWM made advances on the mortgage totaling $1.191 million commencing in November 2008 and ending in December 2009.

The initial advance was for $500,000. Of that amount, $457,117.75 was applied to refinance a prior first mortgage, held by Crombee Construction Ltd. ("Crombee").

On April 8, 2010, Sica registered its construction lien and claimed it was owed $203,655.76. However, its priority claim was restricted to $123,947.04, which represented the deficiencies in the holdbacks required to be retained by the owner, and now administered by the Receiver.

Counsel for the Receiver argued that the initial advance under the mortgage attributable to the repaid mortgage together with interest had priority over Sica's claim. Counsel relied on Yale Development Corp. v. A.L.H. Construction Ltd. (1972), [1973] 2 W.W.R. 477, 32 D.L.R. (3d) 301, 1972 CarswellAlta 131 (Alta. C.A.), where the Alberta Court of Appeal held that a lienholder's right to recover is limited to the holdback on a specific contract. Yale Development was followed in Alta Surety Co. v. Prophetic Non-Profit Homes (Richmond Hill) Inc. (1994), 1994 CarswellOnt 4719 (Ont. Gen. Div.) and Lindsay Brothers Construction Ltd. v. Halton Hills Development Corp. (1992), 11 O.R. (3d) 23, 4 C.L.R. (2d) 168, 1992 CarswellOnt 865 (Ont. Gen. Div.), where the courts held that a lien claimant is entitled to priority only to the extent of a deficiency in the holdback required to be retained by an owner on a specific contract under which they were retained.
In addition, the Receiver submitted that under section 78(2) of the Construction Lien Act ("CLA"), Sica could only obtain priority over the OWM mortgage if the advances fell within this section.

Justice O'Connell noted that this was a non-construction advance and as such was not caught by section 78(2) but was rather a prior advance under a prior mortgage as contemplated by section 78(3). As a consequence, the non-construction advance was entitled to priority to the extent of the lesser of the amount advanced and the value of the property when the lien first arose, pursuant to section 78(3) of the CLA. O'Connell J. rejected the arguments of Sica and concluded that OWM was in a priority position to that of Sica and directed the Receiver to remit the balance of the funds under its administration to OWM.

Subsequently, Sica decided to appeal, but due to a delay required an extension of time. Sica wished to appeal on the basis that O'Connell J. had incorrectly interpreted the priority scheme in section 78 of the CLA.

Justice Strathy (as he then was) referenced Rule 31(1) of the Bankruptcy and Insolvency General Rules (the "Rules"), which provides that a notice of appeal must be filed within ten days after the day of the order appealed from or within such further time as a judge of the court of appeal stipulates.

Sica's notice of appeal was filed 28 days after the order was made — that is, 18 days late. In the meantime, the Receiver had dispersed the proceeds of sale in accordance with the court's order.

If the extension was to be granted, Sica also sought a declaration that it had an appeal as of right. Alternatively, it sought leave to appeal.

Justice Strathy noted that when the motion was heard, there was no signed and entered order before the court. He noted that the appeal lies from the order, not from the reasons: see Bearcat Exploration Ltd., Re (2003), 42 B.L.R. (3d) 222, 339 A.R. 376, 312 W.A.C. 376, 2003 CarswellAlta 1741, 2003 ABCA 365, 46 C.B.R. (4th) 189 (Alta. C.A.). The formal order must be before an appellate court because it is the correctness of the disposition, and not the reasons, which is in issue: see Smoke, Re (1989), 77 C.B.R. (N.S.) 263, 1989 CarswellOnt 197 (Ont. C.A.).

Justice Strathy agreed to hear the parties' submissions and reserved judgment on the motion, on the understanding that the parties would take out the formal order.

Justice Strathy referenced the decision of O'Connell J. and then considered whether an extension of time should be granted. Strathy J.A. noted that the overarching principle is whether the justice of the case requires that an extension be granted. The relevant factors may include:

(a) whether the applicant has a bona fide intention to appeal before the expiration of the appeal period;
(b) the length of and explanation for the delay in filing;
(c) any prejudice to the respondent parties caused by the delay; and
(d) the merits of the proposed appeal.

See Howard v. Martin (2014), 2014 CarswellOnt 4941, 2014 ONCA 309, 42 R.F.L. (7th) 47 (Ont. C.A.); Enbridge Gas Distribution Inc. v. Froese (2013), 114 O.R. (3d) 636, 2013 CarswellOnt 2423, 2013 ONCA 131 (Ont. C.A.); and Braich, Re (2007), (sub nom. Braich (Bankrupt), Re) 250 B.C.A.C. 53, 2007 CarswellBC 3185, 2007 BCCA 641, (sub nom. Braich (Bankrupt), Re) 416 W.A.C. 53 (B.C. C.A. [In Chambers]).

Justice Strathy noted that there was no evidence that Sica formed an intention to appeal prior to the expiry of the appeal period. It did not inform the Receiver of its intent to appeal until it served the notice of appeal. The length of the delay was not inordinate, although Sica had not offered any explanation for it.

Sica asserted that the delay had not caused significant prejudice to the Receiver, given that the Receiver did not wait until the expiry of the appeal period before distributing the funds to OWM. The Receiver did not point to specific prejudice, but it contended that the appeal was moot.

Justice Strathy was not persuaded that the appeal had merit. While Sica contended that O'Connell J. had erred in finding that its work did not relate to improvements financed by the Crombee mortgage, O'Connell J. found that there was no evidence to support that conclusion. Strathy J.A. was of the view that the appeal was, at its core, fact-based, and the moving party had identified no palpable or overriding error in the motion judge's findings of fact.

The Receiver submitted that the appeal was moot because it had distributed all of the funds in reliance on the order below. The Receiver relied on National Life Assurance Co. of Canada v. Brucefield Manor Ltd. (1999), 1999 CarswellOnt 5475 (Ont. C.A.). Strathy J.A. noted that the brief endorsement in that case indicated that it was an appeal from an order for sale. A motion for a stay was dismissed, the sale closed, a vesting order was made and the proceeds of sale were distributed. The Court of Appeal held that the order was spent and quashed the appeal.

The Receiver also submitted it had no obligation to satisfy itself that Sica would not appeal the order before distributing the funds. Where there is no automatic stay of an order, a losing party is well advised to seek a stay pending appeal: see Regal Constellation Hotel Ltd., Re (2004), 23 R.P.R. (4th) 64, 2004 CarswellOnt 2653, 50 C.B.R. (4th) 258, 35 C.L.R. (3d) 31, (sub nom. Regal Constellation Hotel Ltd. (Receivership), Re) 188 O.A.C. 97, 71 O.R. (3d) 355, (sub nom. HSBC Bank of Canada v. Regal Constellation Hotel Ltd. (Receiver of)) 242 D.L.R. (4th) 689 (Ont. C.A.).

Further, the Receiver had no notice, prior to the expiration of the time to appeal, that the moving party intended to appeal the order. Section 195 of the BIA provides for a stay of proceedings pending appeal, but no request was made for a stay of execution pending the filing of a notice of appeal. Strathy J.A. noted that the funds had been disbursed and the operative parts of the order were spent. Receivers are entitled to act on the advice they receive from the court. It would not be fair to revisit the issue when the funds were out of the Receiver's hands.

In all the circumstances, Strathy J.A. concluded that the justice of this case did not require an extension of time. The application to extend the time to appeal was dismissed. Strathy J.A. then stated that it was unnecessary to consider the application for leave to appeal. However, as the parties had made submissions on the issue, Strathy J.A. commented that, in his view, leave to appeal would be required in this case, and he would not have granted leave.

The parties agreed that the appeal route was governed by section 193 of the BIA: see Impact Tool & Mould Inc. (Receiver of) v. Impact Tool & Mould Inc. (Trustee of) (2013), 2013 CarswellOnt 15576, 2013 ONCA 697 (Ont. C.A.); Dabbs v. Sun Life Assurance Co. of Canada (1998), 165 D.L.R. (4th) 482, 113 O.A.C. 307, 7 C.C.L.I. (3d) 38, 27 C.P.C. (4th) 243, 1998 CarswellOnt 3539, [1999] I.L.R. I-3629, 41 O.R. (3d) 97 (Ont. C.A.), leave to appeal to S.C.C. refused (1998), 235 N.R. 390 (note), 118 O.A.C. 399 (note), 41 O.R. (3d) 97n (S.C.C.), and L.W. Houlden, G.B. Morawetz and Janis Sarra, Bankruptcy and Insolvency Law of Canada, looseleaf (2009 Rel. 5), 4th ed. (Toronto: Carswell, 2013), vol. 3 at page 7-106.

Justice Strathy noted that the appeal did not involve future rights, other cases in the bankruptcy proceedings or the granting or refusal of a discharge. The issue, therefore, was whether there was an appeal as of right under section 193(c) or whether leave was required under section 193(e) and, if so, whether leave should be granted.

Based on the Ontario Court of Appeal's decision in Business Development Bank of Canada v. Pine Tree Resorts Inc. (2013), 307 O.A.C. 1, 2013 CarswellOnt 5026, 2013 ONCA 282, 100 C.B.R. (5th) 91, 115 O.R. (3d) 617 (Ont. C.A.), and the decision of the New Brunswick Court of Appeal in Royal Bank v. Profor Kedgwick Ltée/Ltd. (2008), (sub nom. Plancher Héritage ltée/Heritage Flooring Ltd. (Bankrupt), Re) 336 N.B.R. (2d) 332, (sub nom. Royal Bank v. Profor Kedgwick Ltd.) 299 D.L.R. (4th) 727, 2008 NBCA 69, 2008 CarswellNB 463, 2008 CarswellNB 464, 47 C.B.R. (5th) 159, (sub nom. Plancher Héritage ltée/Heritage Flooring Ltd. (Bankrupt), Re) 862 A.P.R. 332 (N.B. C.A.), section 193(c) is to be narrowly construed and restricted to cases where the appeal directly involves property exceeding $10,000 in value. In this case, while the practical effect of the motion judge's decision was that OWM would receive proceeds of sale exceeding $10,000 and Sica would not, this results not from the decision itself, but from the reality that there were insufficient funds in the estate to repay both creditors. As in Pine Tree Resorts, there was no dispute as to the value of the claims at issue or the proceeds of sale. Thus, Strathy J.A. stated that he would follow the reasoning in Pine Tree Resorts and Profor Kedgwick and he held that the appeal did not directly involve property which exceeded $10,000 in value.

The second issue before the motion judge was simply a matter of which claim had priority. Strathy J.A. noted that this is the daily fare of judges in bankruptcy proceedings. To provide an appeal as of right in such decisions would negate the court's gatekeeping function under section 193(e) and would tie up bankruptcy proceedings in interlocutory appeals over routine issues.

The granting of leave to appeal under section 193(e) is discretionary, and must be exercised in a flexible and contextual way: Pine Tree Resorts, at paragraph 29. The prevailing considerations are whether the proposed appeal:

(a) raises an issue of general importance to the practice in bankruptcy/insolvency matters or the administration of justice as a whole;
(b) is prima facie meritorious;
(c) would unduly hinder the progress of the bankruptcy/insolvency proceedings.

The parties agreed that the appeal would not unduly hinder the proceedings. Therefore, Strathy J.A. indicated that the analysis turned on the answer to the first two questions. He was not persuaded that the appeal was meritorious. He was also not convinced that the appeal raised an issue of general importance to the practice of bankruptcy and insolvency, given that it turned on the motion judge's very specific and central findings of fact that the mortgage funds were advanced prior to Sica's involvement, all construction liens had been discharged, and Sica's improvement did not relate to the earlier contract.

Justice Strathy concluded that he would not have granted leave to appeal, even if the notice of appeal had been served in time.

See Houlden & Morawetz, Bankruptcy and Insolvency Law of Canada:

L§30 — Extension of Time
L§57 — Appeals Generally
L§60 — Property Involved Exceeds $10,000
L§62 — Appeals by Leave of a Judge of the Court of Appeal
M§24 — Appeals to the Court of Appeal

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