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Note: Wellington Plumbing & Heating Ltd. (Contractor/Beneficiary) supplied CAD 4,972,362.55 in supplies and services to the construction of a retirement home to Villa Nicolini, Inc. (Owner). Pursuant to the Construction Lien Act of Ontario law, Owner retained CAD 497,236.26 as "a holdback of 10% of the price of services or materials [from Contractor], as they are supplied, until all liens that may be claimed against the holdback have expired or have been satisfied or discharged."

Over the course of the project, the holdback was reduced to CAD 285,141. Owner defaulted on its project financing with Foremost Mortgage Holding Corporation (Lender/Applicant) in 2010 with construction at 75% completed and numerous liens attached to the property. Lender/Applicant wanted to exercise its rights to sell the land, but needed clear title in order to convey. Lender/Applicant posted a standby letter of credit in favor of Contractor/Beneficiary for CAD 1,197,351.08 in conjunction with the remaining holdback to vacate all liens on the property.

Contractor/Beneficiary sued Lender/Applicant stating the holdback was improperly reduced and that the LC and holdback balance were not sufficient to cover the liens. The Ontario Superior Court, Boswell, J., ruled that the holdback was improperly reduced during the project and awarded judgment to Contractor/Beneficiary. The law states that after Contractor/Beneficiary's services have been certified as complete, the holdback may be reduced by the proportion of services and the corresponding liens expired. Owner appointed its architect (Certifier) to be responsible for certifying completion of projects for payment. The law stipulates that the Certifier must 1) certify the service completion in the prescribed form; 2) not date completion until certification is completed; and 3) within seven days of certification give the Contractor/Beneficiary and Owner copies of the certification in order for payment to be released. Certifier posted certifications on June 23, 2008 and July 9, 2009. Certifier's testimony and evidence showed that the proper form was not used, certification dates did not match up to completion dates, and copies of forms were only given to the owner and not the contractor or sub-contractor. The Judge held that the Construction Lien Act must be followed specifically and any deviation in the process for certification should make it impossible to validly reduce the holdback balance.

[JEB/cmh]

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