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Court of Appeal Confirms: No “Double Counting” of Holdback

In a priority dispute under s.78(2) of the Construction Act (the “Act”), where there are no subcontractor lien claims at the time of the dispute, the “deficiency in holdbacks” referred to in s.78(2) must account for holdback that has already been paid to a lien claimant.

In KingSett Mortgage Corporation v Mapleview Developments Ltd, 2026 ONCA 512 (“Mapleview”), the Court of Appeal for Ontario confirmed that principle. The Mapleview decision involves a thorough discussion of the policy objectives of s.78(2) of the Act and provides helpful clarity for building mortgagees when confronted with an alleged deficiency in holdback.

Background

The appellants were contractors of Mapleview Developments Ltd. (the “owner”). They supplied services and materials to a real estate development project that the owner was constructing in Barrie, Ontario (the “Project”).

The owner became insolvent and the Project was placed in receivership. The respondent (“Dunsire”) purchased the Project from the receiver. The purchase price included an amount to be calculated as any amount that had priority over the owner’s mortgagees by virtue of s.78(2) of the Act: the deficiency in holdback. Dunsire thus, economically, stepped into the shoes of Mapleview’s mortgagee.

Before the receivership, the appellants had performed work on the Project and invoiced the owner for services and materials supplied to the Project. Their invoices up to spring 2023 were paid in full (the “Fully Paid Invoices”). No amount was retained on account of holdback. The owner only paid 90%, or less, of subsequently issued invoices (the “Subsequent Invoices”).

Critically, there were no applicable subcontractor lien claims at the time of the priority dispute.

The Motion Below

The appellants brought a motion before Steele J for determination of the deficiency in holdback that the owner was required to retain. The dispute between the appellants and Dunsire was whether the deficiency in holdbacks was:

1. 10% of the Subsequent Invoices only (Dunsire’s position); or
2. 10% of both the Fully Paid Invoices and the Subsequent Invoices (the appellants’ position).

Steele J held that the deficiency in holdbacks was limited to 10% of the Subsequent Invoices only. Her Honour followed Dufferin Concrete Products v Waterbrooke Development Ltd, a 1992 decision of McWilliam J that required a determination of the “deficiency in holdbacks” that the owner was required to retain to account for payments of holdback already made.

Decision on Appeal

The Court of Appeal’s decision, released on July 13, 2026, was written by Osborne JA who confirmed that:

1. the Act sets out a comprehensive regime governing construction contracts, liens and payment rights;
2. section 78 of the Act is not intended to favour lien claimants, but rather to strike a balance between the rights of lien claimants and building mortgagees;
3. the premature payment of holdback cannot give a lien claimant a greater right, or put the owner in any worse position, than if the owner had retained the holdback as required; and
4. the appellants’ interpretation would result in a “double counting”, leaving to a commercially absurd and unfair result.

Osborne JA engaged in a detailed review of the holdback provisions of the Act and held that, in the context of a priority dispute under s.78(2) of the Act, an analysis of whether there is “any deficiency in the holdbacks” requires consideration of: (1) whether there are any liens that may be claimed against the holdback at the time of the priority dispute; and (2) whether those liens have been satisfied.

The Court confirmed that “where an invoice has been paid to the contractor in full, no lien can arise, or if it did, any lien has been fully satisfied. This is the inescapable result”. In this case, this meant that the liens arising in connection with the Fully Paid Invoices had been satisfied. The “deficiency in holdbacks” was calculable only on the Subsequent Invoices.

The Court’s decision in Mapleview provides helpful guidance to those dealing with the interpretation of the Act, priority disputes under s.78(2) of the Act, and in particular the calculation of the “deficiency in holdbacks”.