Overview:

• The case concerns a dispute over lien priority between a registered mortgage (held by Peoples Trust Company and Firm Capital Mortgage Fund Inc., "First Mortgagee") and unregistered construction liens filed by contractors (Classic Tile Contractors Ltd. and Urban Mechanical Contracting Ltd., "Lien Claimants").
• The issue was whether the First Mortgage had priority over unregistered construction liens under Ontario's Construction Act.

Key Points:

1. Background:

   • The Borrowers developed a condominium project, selling most units but retaining 21 unsold units ("Unsold Units").
   • First Mortgagee advanced a $12.7M loan in August 2023, secured by a registered mortgage.
   • Contractors registered construction liens after this advance, asserting unpaid claims.

2. Court's Decision:

   • First Mortgage Priority: The court ruled the First Mortgage took precedence over unregistered liens because:
     • The liens were not preserved or perfected when the mortgage was registered.
     • No written notice of the liens was given to the First Mortgagee.
   • Maximum Lien Holdback: Priority of lien claims was limited to the statutory holdback of $1,979,540.34, per the Construction Act.

3. Statutory Framework:

   • Under Construction Act, s. 78, liens have priority over mortgages unless:
     • The lien is not preserved or perfected.
     • The mortgagee lacks notice of the lien before advancing funds.

4. Arguments by Lien Claimants:

   • Alleged fraud in securing the mortgage to evade creditors.
   • Claimed equitable liens and priority under other statutes (e.g., Fraudulent Conveyances Act).
   • The court rejected these arguments due to insufficient evidence of fraud or priority.

5. Outcome:

   • The motion favored the First Mortgagee, allowing distributions of sale proceeds (after holdback) to reduce the mortgage debt.
   • Costs of $75,000 were awarded against the Lien Claimants.