P.E.I. Court of Appeal justices are, from left, Michele Murphy, Chief Justice David Jenkins and John Mitchell.
SUMMERSIDE – The Prince Edward Island Court of Appeal has struck down an application that could have impacted the construction industry on P.E.I.
In a 2 to 1 decision, the court denied an appeal made by the Bank of Montreal (BMO) against 100875 P.E.I. Inc., a now defunct development company over which the bank and several other creditors have been fighting for the remainder of the liquidated assets. The case has dragged out in various P.E.I. courts for the past five years.
BMO’s major competitor in that fight has been Summerside paving and construction company Curran & Briggs (C&B).
A lower court had previously confirmed C&B’s priority over 100875 P.E.I. Inc.’s remaining assets based on the P.E.I. Mechanic’s Lien Act.
BMO was appealing that decision.
According to court documents, Justice Michele Murphy and Chief Justice David H. Jenkins voted to deny the bank’s application, while Justice John K. Mitchell voted to allow the appeal.
C&B owner Rick Kennedy declined an offer to comment on the court’s decision, Wednesday, saying he needed time to process it, however, in a previous interview he raised concerns over what might happen if BMO had won its appeal.
On Prince Edward Island whenever a project fails and a receiver is trying to determine priority of payment amongst the creditors, a mechanic's lien can supersede a bank's mortgage in some circumstances. P.E.I. is the only jurisdiction in the country where that occurs.
Kennedy warned that BMO's appeal could have overturned that status quo, giving banks the upper hand in nearly all circumstances when the projects they fund go bankrupt.
"The mechanic's lien is about the only piece of security any contractor that gets involved in a contract has as security to get paid," he said in an article published in March.
"The bank on the other hand, traditionally they will hold a mortgage, and just like in this case, they will hold personal guarantees of the owners . . . or even assets outside the actual project - and again that was the case here," he added.
"Without the sanctity of the mechanic's lien, the contractor's left with very little (with which to protect themselves.)"
There is about $1.4 million currently being held by 100875 P.E.I. Inc.’s receiver, PricewaterhouseCoopers Inc., and C&B is seeking $820,000 of that. It’s claiming unpaid work on the site of the development in question, the former Royalty Heights Subdivision in Charlottetown, plus the significant legal fees it has accrued fighting for compensation over the last five years.
The company was awarded $5,000 in the court of appeal decision to help cover its legal costs.
BMO now has a set amount of time to consider making an application to the next level of court, the Supreme Court of Canada.