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Lien masters subordinate to judges, court finds

|Written By Shannon Kari

The authority of a master presiding over a reference hearing under the Construction Lien Act is below that of a Superior Court judge, the Ontario Divisional Court has concluded.

‘The construction bar relies on the specialized skills of the construction lien court,’ says Anna Esposito.

The three-judge panel came to that conclusion in RSG Mechanical Inc. v. 1398796 Ontario Inc., a long-running dispute over construction liens related to a residential development project in Toronto’s west end.

The decision means lien masters interpreting the law in this area in Ontario will be bound by the decisions of a single Superior Court judge. It could also have implications for the construction bar in Ontario, especially in Toronto where there are ongoing resource problems with a lack of masters available to preside over litigation in this area.

“The construction bar relies on the specialized skills of the construction lien court,” says Anna Esposito, who heads the construction practice at Pallett Valo LLP.

“I wouldn’t want them to be hamstrung too much in their ability to do the right thing,” she says of the construction lien masters.

Esposito says it hasn’t been uncommon in the past for there to be “seemingly contradictory” decisions on the law in this field between lien masters and Superior Court judges.

The decision of the Divisional Court in RSG Mechanical stemmed from an appeal of a ruling issued last year by Superior Court Justice Fred Myers.

He found now-retired master Julian Polika had “manifestly failed” to interpret the Construction Lien Act in accordance with its purpose and there were errors in principle with the report he issued in 2013.

“That is, the Master interpreted the statute to give a key player a skewed incentive favouring the failure of the developer — or at least limiting efforts to save the project in the best interests of all,” wrote Myers.

Polika also failed to follow a leading judgment on the rights of lien claimants as well as a Divisional Court decision on point, Myers found.

“That is, the Master found that he was not bound by the Divisional Court because he believed that he had done a more detailed analysis of the statute and the Divisional Court had not addressed his analysis,” wrote Myers.

“In so finding, he ignored the fundamental rule of stare decisis or binding precedent on which our legal system is built,” he added.

A better approach, according to Myers, would have been to adopt the “good humored perspective” of a master in Alberta in South Side Woodwork v. R.C. Contracting, a 1989 decision that referenced the “pecking order” of the judiciary.

“The judicial pecking order does not permit little peckers to overrule big peckers,” wrote Myers in quoting from that decision.

The Divisional Court panel upheld Myers’ decision and found he was correct to refuse to confirm the report issued by the master.

Antonio Conte, lawyer for the appellant RSG Mechanical, argued that under the statute, a lien master was effectively a judge of the Superior Court.

The act states that a judge may “refer the whole action or any part of it for trial” to a lien master once the parties have filed all pleadings. As well, once directed, a master has “all the jurisdiction, powers and

authority of the court to try and completely dispose of the action,” according to the statute.

Superior Court Justice Thomas Lederer, writing for the panel, found that the statute outlines the “conduct” of a reference hearing. “It does not change the position of the referee within our judicial structure. The Master continues to have the status and place that comes from being a Master,” wrote Lederer with justices Katherine Swinton and Alison Harvison Young concurring.

“He does not for the purposes of the reference, obtain the standing of or become a judge. On this basis, he would be bound to follow the decision of a single judge of the Superior Court,” wrote Lederer.

Polika, who retired in 2013 and now provides arbitration and mediation services, declined to discuss the specifics of his decision when contacted by Law Times last week. However, he says there’s case law that supports the position that a lien master has concurrent authority with a Superior Court judge under the statute.

“He may disagree. That is his prerogative,” says Polika in reference to the Divisional Court decision written by Lederer.

Michael Handler, who represented the defendants at the Superior Court and the Divisional Court, says the case really ended up being about stare decisis. The master “went against precedent. He attempted to create new law and he did not have authority to do so,” says Handler.

But Conte says he intends to seek leave to appeal at the Ontario Court of Appeal. “The decision erodes what the act was intended to do, which is to give protection to lien claimants,” says Conte of the Divisional Court ruling.

The interpretation that lien masters are subordinate to a ruling of a single Superior Court judge, anywhere in the province, also has significant implications for the construction industry in southern Ontario, he suggests. “Why have a trial in front of a master anymore?” asks Conte.

The Divisional Court ruling means contractors “are going to have to be much more careful and not give credit” to developers, he adds.   

For more, see "Gaps in construction law."

  • Derek Freeman
    Having practiced Construction Law for over 39 years, much of it in Toronto, including when County Court Judges served as local judges of the High Court, I am dismayed that Construction Lien Masters when doing a trial must consider themselves bound by a Judge's ruling, especially when the Judge is not as expert in the law as they.
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