ONCA rejects contractors' bid for bigger holdback priority

KingSett Mortgage Corporation v. Mapleview Developments Ltd., 2026 ONCA 512
Is a deficient construction holdback calculated using total invoices or only unpaid invoices?

Summary: The Ontario Court of Appeal has confirmed that, where no subcontractor lien claims exist, a contractor’s priority over a building mortgage for a deficient statutory holdback is limited to 10% of unpaid invoices, rather than 10% of all amounts invoiced. The Court rejected claims by Alpa Stairs and Railings and Newmar Window Manufacturing for larger priority payments from a $19.7 million lien reserve established in the Mapleview Developments receivership, finding that including fully paid invoices would give the contractors a double recovery for holdback amounts they had already received. The Court stressed that the result turns on the absence of subcontractor claims and could differ where such claims remain outstanding.

Mapleview Developments Ltd. was developing a residential townhouse project in Barrie, Ontario. Alpa Stairs and Railings Inc. and Newmar Window Manufacturing Inc. contracted directly with Mapleview to supply services and materials. After Mapleview defaulted on its obligations to senior secured lender KingSett Mortgage Corporation, the Court appointed a receiver over the project in March 2024.

The receiver conducted a sales process, and the Court approved the sale of the project to Dunsire Homes Inc. in August 2024. The purchase price was structured to repay KingSett, amounts secured by court-ordered receiver’s charges and “Priority Payables”, including amounts having priority over the mortgage under s. 78(2) of the Construction Act. Dunsire funded a lien claimants’ reserve of approximately $19.7 million pending the determination of those claims.

Alpa had invoiced approximately $1.1 million and remained owed $195,615.55. Newmar had invoiced approximately $2.92 million and remained owed $445,756.09. Both contractors registered and perfected liens, but there were no subcontractor lien claimants in respect of either contractor.

The parties agreed that Alpa and Newmar had priority claims against the reserve but disagreed about the quantum. The contractors argued that their priority should equal 10% of all amounts invoiced for services and materials supplied. Dunsire argued that the priority should be limited to 10% of the unpaid invoices because holdback amounts included in invoices already paid in full had effectively been paid to the contractors.

The motion judge accepted Dunsire’s position, applying the principle from Dufferin Concrete Products v. Waterbrooke Development Ltd. Under that line of authority, a contractor dealing directly with an owner is not entitled to priority for holdbacks attributable to invoices that have already been paid in full, absent claims by subcontractors.

The Court of Appeal held that the appeal route was governed by s. 193 of the Bankruptcy and Insolvency Act because the order arose in a receivership proceeding and determined entitlement to property forming part of the sale proceeds. The appeal lay as of right under s. 193(c), although the Court would also have granted leave under s. 193(e) given the importance of the statutory interpretation issue.

Section 78(2) gives construction liens priority over a building mortgage only to the extent of any deficiency in the holdbacks required to be retained by the owner. Section 22 requires a payer to retain 10% of the price of services or materials until all liens that may be claimed against the holdback have expired, been satisfied or otherwise provided for.

Where an invoice has been paid in full and no subcontractor is asserting a claim, no amount remains owing to the contractor and no other lien claimant can claim against the related holdback. In those circumstances, there is no deficiency in the holdback attributable to the paid invoice.

The contractors’ interpretation would also produce a double recovery. They had already received the holdback component when Mapleview paid invoices in full rather than retaining 10%. Giving them a further priority over the building mortgage for the same amount would require that holdback to be paid twice, once through the original invoice payment and again from the lien reserve.

The Court emphasized that the Construction Act is intended to balance the competing interests of owners, contractors, subcontractors and mortgagees, rather than favour lien claimants in every case. Premature payment of a holdback should not place the contractor in a better position, or the owner and its creditors in a worse position, than if the holdback had been properly retained.

The absence of subcontractor claims was critical. The Court stated that the result might be different if subcontractors were asserting claims at the time of the s. 78(2) priority dispute and declined to extend its conclusion to that situation.

The appeal was dismissed with agreed costs of $40,000, and the motion judge’s costs award was left undisturbed.

Judges: Simmons, Paciocco and Osborne JJ.A.

Professionals involved:

• Alexander Soutter and Adam Wyville of TGF for Dunsire Homes Inc.

• Robert Kennaley of Kennaley Construction Law for Alpa Stairs and Railings Inc. and Newmar Window Manufacturing Inc.