Construction lien claimants beware: Corporate status may impact lien registration and perfection timelines

Timelines are immensely important in the construction industry, particularly when it comes to lien registration and perfection. The importance of compliance with the strict timelines and procedures under Ontario's Construction Act (the "Act")[i] has been further highlighted with the Ontario Superior Court's decision in 9727868 Canada Inc. (Plug & Play Solutions) v Deltro Electric Ltd., 2021 ONSC 8182 ("Plug & Play").

In the Plug & Play case, the Court granted the defendant's motion for (1) an order declaring the plaintiff's lien had expired under the Act and (2) an order discharging the lien. The Court held that the plaintiff was not a "legal entity" at the time it registered and perfected its lien and therefore was not entitled to a lien claim. As such, the Court noted it does not have equitable grounds to permit the continuance of a lien that was registered or perfected when a company is not in good corporate standing.

Background

In May 2018, the plaintiff, Plug & Play, entered into a contract with the defendant, Deltro Electric, a subcontractor within a larger construction project. Under this contract, Plug & Play would supply Deltro Electric with solar panels and accompanying accessories.

Plug & Play alleged that it had not been paid in full for its materials supplied to Deltro Electric. As such, Plug & Play registered a construction lien in March 2019, meeting all the prescribed timelines set out under the Act. However, through inadvertence by Plug & Play's president, when the company preserved and perfected its lien, it was no longer a legal entity as it dissolved due to a failure to pay a prescribed fee. The company was revived in December 2019, pursuant to section 209 of the Canada Business Corporations Act, RSC, 1985, c. C–44 (the "CBCA").

In response to the lien, Deltro Electric brought forward a motion arguing it is entitled to rely on the limitation periods pursuant to subsections 31(2), 36(2), 46(2) of the Act as Plug & Plug was not a "legal entity" entitled to register and perfect such a lien — and therefore, its statutory right to the lien had expired.

The Superior Court decision

On December 14, 2021, the Court granted Deltro Electric's motion discharging the lien and dismissing the lien action.

The main issue before the Court was whether it had equitable jurisdiction to permit Plug & Play's lien and thus allow the lien action to continue since the company had revived its corporate status under the CBCA. Plug & Play relied on the language found within Form 15 Articles of Revival, which states that "a revived corporation is restored as if it had never been dissolved."[ii] However, the Court rejected this approach and held in favour of the statutory language found within the Act that a company must be a legal entity to register and perfect a construction lien.[iii] As a result, the dissolved status of Plug & Play therefore caused it to miss the statutory lien timelines. The Court's decision in this respect followed the Ontario Divisional Court's decision in Glencoe Insulation Co. Limited v 3170497 Canada Inc., [2003] OJ No. 5834; 2003 CarswellOnt 6310 in which it held that a cancelled company charter cannot later be revived to validate its lien claim.[iv]

The Court also rejected Plug & Play's argument to allow the continuance of the lien on equitable grounds, with particular emphasis on protecting small businesses regarding the remedial nature of the Act. The Court also rejected this line of reasoning.

The Court did acknowledge, however, that there may be situations in which it could exercise discretionary principles to ensure that an aggrieved party is not prejudiced regarding limitation periods. Still, the Court stated that no such equitable factors arose in this case as Plug & Play could still continue its action for quantum meruit as well as its second breach of trust action against Deltro Electric.[v]

Key takeaways

First, the Plug & Play case illustrates the importance of strict adherence to the timelines and associated requirements set out under the Construction Lien Act, now the Construction Act — as noted above. Second, a party looking to register or perfect its lien must ensure that it is in good corporate standing when doing so. Third, this decision acknowledges that although the statute is remedial in its purpose to protect parties throughout the construction pyramid, this overarching purpose does not excuse lien claimants from strictly adhering to such timelines and procedures required under it.

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