The importance of a corporation’s (active and good) corporate status at the time of preserving and perfecting a construction lien

25 mai 2022 | Riccardo Del Vecchio, Nathan Lean

( Disponible en anglais seulement )

A December 2021 Ontario court decision, 9727868 Canada Inc. (Plug & Play Solutions) v. Deltro Electric Ltd., 2021 ONSC 8182, serves as another chapter in a precautionary tale – there is little, if any, room for fairness or sympathy when it comes to complying with the strict timelines for lien preservation and perfection (and set down).

Due to an oversight and inadvertence, the corporate lien claimant and plaintiff in this case was dissolved at the time it registered and perfected its lien under the Construction Lien Act, R.S.O. 1990, c. C.30 (the « CLA« ). The defendant brought a motion for, among other things, an order discharging the plaintiff’s lien on the basis that the company was not in good standing when it registered its construction lien. After weighing several equitable and discretionary factors, the court granted the defendant’s motion and ordered the lien discharged and the lien action dismissed.

Background

In May, 2018, the plaintiff, 9727868 Canada Inc. c.o.b. as Plug and Play Solutions (« Plug and Play« ), entered into a subcontract with the defendant, Deltro Electric Ltd. (« Deltro« ), to supply solar panels for a construction project.

Plug and Play claimed that it was not fully paid and registered a construction lien on March 13, 2019 within the timelines prescribed by the CLA. The company then proceeded to perfect its lien in accordance with the timelines prescribed by the CLA.

Plug and Play also brought a separate breach of trust action against Deltro and its principals.

Unbeknownst to Plug and Play’s principal, and due to a missed fee payment, the company was dissolved on February 24, 2019, mere weeks before its construction lien was registered.

In December 2019, after the exchange of pleadings and discoveries, Plug and Play was revived upon the general manager filing the appropriate fee and form (Form 15 Articles of Revival) pursuant to s. 209 of the Canada Business Corporations Act, R.S.C., 1985, c. C–44.

Deltro brought a motion for an order declaring the lien expired pursuant to ss. 31(2), 36(2) and 46(2) of the CLA and for an order discharging the lien pursuant to ss. 46-47 and dismissing the lien action.

The decision in Plug and Play

The issue before the court was whether it had discretion to permit the lien to stand and allow the lien action to continue in light of Plug and Play’s dissolution prior to Plug and Play’s preservation of its construction lien.

Plug and Play argued that the company’s dissolution should have no bearing on the status of the lien since the company was later revived. It relied on the language of the Form 15 Articles of Revival which states: « a revived corporation is restored as if it had never been dissolved. » In the alternative, Plug and Play asked the court to consider fairness, equity, and prejudice to the plaintiff. Plug and Play raised a variety of factors for the court to consider, including but not limited to the fact that Plug and Play’s general manager is diagnosed as legally blind.

Meanwhile, Deltro argued that based on the letter of the law, Plug and Play had ceased to exist when it dissolved and was therefore not legally entitled to register or perfect its lien. Deltro argued that Plug and Play’s lien rights had expired by the time the company was revived. With regard to prejudice and equitable factors, Deltro maintained that Plug and Play would not be significantly prejudiced since it would be able to continue with the action for quantum meruit as well as its second trust action against Deltro and its principals.

The court sided with Deltro. Relying on the Ontario Divisional Court decision in Glencoe Insulation Co. Limited v. 3170497 Canada Inc.[1], the court held that it had no discretion in equity to permit the lien action to continue since Plug and Play was formally dissolved when it preserved and perfected its lien.

The court acknowledged that in certain situations discretion can be exercised in statue of limitations cases to ensure that prejudice does not fall upon an aggrieved party. However, even if it did have discretion to allow the lien to survive on equitable grounds, the court found that it would not have done so given the facts of the case. Among other factors, the court confirmed that although the CLA is a remedial act designed in part to protect suppliers, this does not absolve lien claimants from complying with timelines set out in the statute.

Key takeaways

Beyond the lesson of keeping tabs on corporate filings and associated fees, this decision reaffirms that timelines under the CLA (now the Construction Act) must be strictly observed. Proper due diligence is an absolute must, not only for determining when a lien should be preserved and perfected (and set down), but also in terms of investigating a lien claimant’s corporate status.

Our Miller Thomson Construction Law Lawyers are here to assist you with, among other things, the assessment, prosecution and/or defence of construction lien claims.


[1] Glencoe Insulation Co. Limited v. 3170497 Canada Inc., 2003 CarswellOnt 6310, [2003] O.J. No. 5834, 38 C.L.R. (3d) 238

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