Delview Construction Ltd. v. Meringolo

71 O.R. (3d) 1

[2004] O.J. No. 2317

Docket No. C40726

Court of Appeal for Ontario

Goudge, Simmons and Juriansz JJ.A.

June 3, 2004

Construction liens -- Procedure -- Corporation not permitted to rely on revival provisions of s. 241(5) of Business Corporations Act to proceed with construction lien action where time limits under Construction Lien Act for preserving and perfecting claim for lien expired while corporation was dissolved -- Business Corporations Act, R.S.O. 1990, c. B.16, s. 241(5) -- Construction Lien Act, R.S.O. 1990, c. C.30.

The plaintiff registered a construction lien against the defendant's property in October 1998 and shortly afterwards commenced an action against the defendant claiming payment of the balance owing under a construction contract and enforcement of its claim for lien. The plaintiff was incorporated in February 1999, three months after its lien was registered and its action commenced. The principal of the plaintiff incorporated another company, 826744 Ontario Limited ("826744"), in 1989, and that company was dissolved in 1995. The defendant moved for an order dismissing the action and vacating the claim for lien on the grounds that the plaintiff was not an existing corporation at the time the lien was registered and the action commenced. The plaintiff requested an order permitting it to amend its statement of claim and claim for lien by substituting the name of 826744, and filed evidence that 826744 was revived in January 2002. The motion judge vacated the plaintiff's claim for lien and certificate of action, but permitted the plaintiff's contract claim to continue. The plaintiff appealed and the defendant cross- appealed. The Divisional Court dismissed the plaintiff's appeal, allowed the defendant's cross-appeal and dismissed the action. The plaintiff appealed.

Held, the appeal should be allowed in part.

Assuming, without deciding, that naming the plaintiff as the lien claimant in the claim for lien was a misnomer that could be corrected by s. 6 of the Construction Lien Act ("CLA"), the plaintiff was precluded from relying on the provisions of s. 241(5) of the Business Corporations Act ("OBCA"), which came into force in March 2000, to revive its action because the time periods stipulated in the CLA for registering and perfecting the plaintiff's construction lien expired prior to the revival of the 826744. Section 241(5) provides that "upon revival, the corporation, subject to . . . the rights, if any, acquired by any person during the period of dissolution, shall be deemed for all purposes to have never been dissolved".

A defendant acquires "rights" within the meaning of s. 241(5) of the OBCA by virtue of the passage of a limitation period. Some courts have held that the time limits for completing various steps stipulated in the CLA are not the same as a limitation period. However, in finding a distinction, the courts have noted that, unlike limitation periods which the court has a discretion to extend, the time limits set out in the CLA are prescribed by statute and leave [page2 n]o room for judicial discretion. To the extent to which there is any difference between the expiry of time limits stipulated in the CLA for registering and perfecting lien claims and the passage of a limitation period, the former present an equally compelling case for constituting "rights" within the meaning of s. 241(5) of the OBCA.

The Divisional Court erred in holding that the plaintiff's breach of contract action should be dismissed. Because the limitation period for that action would not expire until later this year, it was not obvious that the claim had no chance of success. Applying rule 26 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the plaintiff should be permitted to substitute the name of the 826744 for the name of the plaintiff in the statement of claim.

APPEAL from a judgment of the Divisional Court (O'Driscoll, Then and Hambley JJ.) dated July 10, 2003, dismissing an appeal and allowing aross-appeal from an order vacating a claim for lien and certificate of action and allowing a contract claim to continue.

Cases referred to 602533 Ontario Inc. v. Shell Canada Ltd. (1998), 1998 1775 (ON CA), 37 O.R. (3d) 504, 155 D.L.R. (4th) 562 (C.A.); Basarsky v. Quinlan, 1971 5 (SCC), [1972] S.C.R. 380, 24 D.L.R. (3d) 720, [1972] 1 W.W.R. 303; Benjamin Schultz & Associates Ltd. v. Samet (1991), 1991 7330 (ON SC), 4 O.R. (3d) 771, 83 D.L.R. (4th) 574 (Div. Ct.) Statutes referred to Business Corporations Act, R.S.O. 1990, c. B.16, s. 241(5) [as am.] Construction Lien Act, R.S.O. 1990, c. C.30, ss. 6, 31, 34, 36 Interpretation Act, R.S.O. 1990, c. I.11, s. 14(1) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.04, 26

A.J. Esterbauer, for appellant. Gary A. Beaulne, for respondent.

The judgment of the court was delivered by

[1] SIMMONS J.A.: -- The issues on this appeal relate to the effect of s. 241(5) of the Business Corporations Act, R.S.O. 1990, c. B.16, as amended by S.O. 1999, c. 12, Sched. F, s. 9 ("OBCA"), which provides a mechanism for the revival of corporations dissolved for failing to comply with certain filing requirements under the OBCA. This version of s. 241(5) of the OBCA came into force March 27, 2000 and will be referred to as the "2000 OBCA revival provision". It provides that: "upon revival, the corporation, subject to . . . the rights . . . acquired by any person during the period of dissolution, shall be deemed . . . to have never been dissolved". [page3 ]

[2] The main issue on appeal is whether a revived corporation can proceed with a construction lien action where the time limits under the Construction Lien Act, R.S.O. 1990, c. C.30 ("CLA") for preserving and perfecting the claim for lien expired while the corporation was dissolved. [See Note 1 at end of the document]

[3] A secondary issue involves whether the property owner can resist the revived company's claim in contract, even though that claim is not statute-barred, because the revived company failed to apply for revival within the five-year time limit specified in a predecessor to the 2000 OBCA revival provision.

I. The Order Under Appeal

[4] The appellant appeals from a judgment of the Divisional Court dated July 10, 2003. The Divisional Court dismissed the appellant's appeal from an order of Snowie J., which vacated the appellant's claim for lien and certificate of action. In addition, the Divisional Court allowed the respondent's cross- appeal from the motion judge's order permitting the appellant's contract claim to continue, and dismissed the appellant's action.

II. Background

[5] The appellant registered a construction lien against the respondent's property on October 26, 1998. On November 4, 1998, the appellant commenced an action against the respondent, claiming payment of the balance owing under a construction contract and enforcement of its claim for lien.

[6] Following completion of examinations for discovery, the respondent moved for an order dismissing the appellant's action and vacating the appellant's claim for lien on the grounds that the appellant was not an existing corporation at the time the lien was registered and the action commenced. The respondent filed evidence on the motion setting out the following chronology:

(i) Delview Construction Limited was incorporated on February 2, 1999, which was approximately three months after the appellant's lien was registered and its action commenced;

(ii) the principal of Delview Construction Limited incorporated another company, 826744 Ontario Limited ("826744"), on March 21, 1989; [page4 ]

(iii) 826744 carried on business under the registered style name Delview Construction from April 13, 1989 until April 12, 1994, when the registration of the style name expired; and

(iv) 826744 was dissolved by the Ministry of Consumer and Commercial Relations on February 18, 1995.

[7] In response to the respondent's motion, the appellant requested an order permitting it to amend its statement of claim and claim for lien by substituting the name "826744 Ontario Limited carrying on business as Delview Construction" for the name "Delview Construction Limited", and filed evidence confirming that 826744 was revived on January 16, 2002.

III. Analysis

[8] I agree with the Divisional Court's conclusion concerning the appellant's lien claim. The orders vacating the claim for lien and certificate of action must stand.

[9] Assuming, without deciding, that naming Delview Construction Limited as the lien claimant in the claim for lien was a misnomer that could be corrected by s. 6 of the CLA, I conclude that the appellant is precluded from relying on the provisions of the 2000 OBCA revival provision to revive its action. I reach this conclusion because the time periods stipulated in the CLA for registering and perfecting the appellant's construction lien expired prior to the revival of 826744.

[10] The 2000 revival provision provides that upon revival, a previously dissolved corporation is subject to the rights acquired by any person during the period of dissolution:

241(5) Where a corporation is dissolved under subsection (4) or any predecessor of it, the Director on the application of any interested person, may, in his or her discretion . . . revive the corporation; upon revival, the corporation, subject to the terms and conditions imposed by the Director and to the rights, if any, acquired by any person during the period of dissolution, shall be deemed for all purposes to have never been dissolved.

(Emphasis added)

[11] In 602533 Ontario Inc. v. Shell Canada Ltd. (1998), 1998 1775 (ON CA), 37 O.R. (3d) 504, 155 D.L.R. (4th) 562 (C.A.), this court confirmed that a defendant acquires "rights" within the meaning of s. 241(5) of the OBCA by virtue of the passage of a limitation period. Some courts have held that the time limits for completing various steps stipulated in the CLA are not the same as a limitation period: see Benjamin Schultz & Associates Ltd. v. Samet (1991), 1991 7330 (ON SC), 4 O.R. (3d) 771, 83 D.L.R. (4th) 574 (Div. Ct.) dealing with the time limit for fixing a trial date. However, in finding a distinction, the courts [page5 h] ave noted that, unlike limitation periods where there is a discretion to extend under the Basarsky v. Quinlan, 1971 5 (SCC), [1972] S.C.R. 380, 24 D.L.R. (3d) 720 line of cases, the time limits set out in the CLA are prescribed by statute and "[leave] no room for judicial discretion". Given the nature of this distinction, I conclude that, to the extent there is any difference between the expiry of the time limits stipulated in the CLA for registering and perfecting lien claims and the passage of a limitation period, the former present an equally compelling case for constituting a "rights" within the meaning of s. 241(5) of the OBCA.

[12] However, I do not agree with the Divisional Court's conclusion that the appellant's breach of contract action should be dismissed at this time. Because the limitation period for that action will not expire until later this year, I conclude that it is not obvious that the appellant's claim has no chance of success, and that applying Rule 26 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 ("Rules"), the amendment should be allowed.

[13] In this court, the respondent advanced three reasons for resisting the appellant's request to substitute the name 826744 for the name Delview Construction Limited in its statement of claim: (i) 826744 Ontario Limited was not a contracting party and the proposed action therefore has no chance of success; (ii) an action commenced in the name of a non-existing corporation is a nullity and cannot be amended; and (iii) the version of s. 241(5) of the OBCA that was in force at the time the action was commenced [see Note 2 at end of the document] ("1990 OBCA revival provision") gave the Director a discretion to revive a corporation only where an application for revival was "made within five years after the date of dissolution".

[14] In relation to the respondent's third reason, the five- year time limit for the appellant to apply for revival under the 1990 OBCA revival provision expired on February 17, 2000. This was one month before the 2000 OBCA revival provision came into force, and almost two years before 826744 applied for revival. The respondent therefore contends that 826744 lost its claim to revive the contract action for at least some period of time during the dissolution period, and that he is entitled to rely on 826744's loss as "a right" within the meaning of the 2000 revival provision. Put another way, the respondent contends that he is entitled to rely on "rights" he acquired under the 1990 revival provision: see s. 14(1) of the Interpretation Act, R.S.O. 1990, c. I.11. [page6 ]

[15] I reject all of the respondent's submissions.

[16] The respondent's first submission is a defence grounded in facts and should be determined on a proper record after amended pleadings have been exchanged. Moreover, because it appears that there may be conflicting evidence on the identities of the contracting parties, this issue may require a trial for a proper resolution.

[17] As for the respondent's second submission, pleadings and discoveries had already been completed at the time these motions were heard. I note that in 602533 Ontario Inc., supra, although the action was commenced at a time when the revived corporation was dissolved, the court dismissed only the statute-barred claims, and not the entire action. In keeping with rule 1.04 requiring that the Rules be liberally construed "to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits", I conclude that it is open to a court to make a retroactive order validating the action, once a dissolved corporation is revived.

[18] In this case, the motion judge did not make a specific order amending the statement of claim and claim for lien in the manner that the appellant had requested nor did she make an order retroactively validating the action. However, unlike the Divisional Court, which viewed Delview Construction Limited as the claimant, the motion judge treated the issue before her as one of misnomer and permitted the contract claim to continue. I take it as being implicit in her order that she considered that this was an appropriate case for making an order substituting the name 826744 for the appellant's name in the statement of claim and validating the action retroactively. Subject to my comments concerning the third issue raised by the respondent, I see no basis for interfering with the motion judge's approach.

[19] As for the respondent's third submission, I conclude that it raises a defence that may be grounded in facts and therefore should be determined on a proper record after amended pleadings have been exchanged. While the respondent may be correct that, once the five-year time limit for revival had passed, there was no means of reviving 826744 until the 2000 OBCA revival provision came into force, the appellant submitted otherwise in oral argument. This issue was not addressed in either set of reasons from the courts below. In my view, the question of what, if any, rights the respondent acquired under the 1990 revival provisions should not be determined without giving the appellant the opportunity to address the issue fully by way of pleadings and, if required, evidence concerning the operation of revival provisions predating the 2000 OBCA revival provision. [page7 ]

IV. Disposition

[20] For the reasons given, I would allow the appeal in part, by setting aside the order of the Divisional Court dismissing the appellant's action and by substituting an order: (i) permitting the appellant to substitute the name 826744 for the name Delview Construction Limited in the statement of claim; (ii) validating the amended statement of claim effective November 4, 1998; and (iii) authorizing 826744 to proceed with the appellant's contract action. In addition, I would stipulate that the substituted order is subject to a term that it is without prejudice to any defences that may be raised with respect to rights acquired during the period in which 826744 was dissolved and which version of s. 241(5) of the OBCA should be applied in determining any such issues.

[21] As success on the appeal was divided, I would make no order as to costs of the appeal. I would also set aside the costs order made by the Divisional Court and order that there be no costs of the appeal and cross-appeal to the Divisional Court and that the order of the motion judge concerning costs of the motion be restored.

Appeal allowed in part.

APPENDIX A

Construction Lien Act, R.S.O. 1990, c. C.30, ss. 31, 34 and 36

Expiry of liens

31(1) Unless preserved under section 34, the liens arising from the supply of services or materials to an improvement expire as provided in this section.

Contractor's liens

(2) Subject to subsection (4), the lien of a contractor,

(a) for services or materials supplied to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the forty-five-day period next following the occurrence of the earlier of,

(i) the date on which a copy of the certificate or declaration of the substantial performance of the contract is published as provided in section 32, and

(ii) the date the contract is completed or abandoned; and

(b) for services or materials supplied to the improvement where there is no certification or declaration of the substantial performance of [page8 t]he contract, or for services or materials supplied to the improvement after the date certified or declared to be the date of substantial performance, expires at the conclusion of the forty-five-day period next following the occurrence of the earlier of,

(i) the date the contract is completed, and

(ii) the date the contract is abandoned.

Liens of other persons

(3) Subject to subsection (4), the lien of any other person,

(a) for services or materials supplied to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the forty-five-day period next following the occurrence of the earliest of,

(i) the date on which a copy of the certificate or declaration of the substantial performance of the contract is published, as provided in section 32, and

(ii) the date on which the person last supplies services or materials to the improvement, and

(iii) the date a subcontract is certified to be completed under section 33, where the services or materials were supplied under or in respect of that subcontract; and

(b) for services or materials supplied to the improvement where there is no certification or declaration of the substantial performance of the contract, or for services or materials supplied to the improvement after the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the forty-five-day period next following the occurrence of the earlier of,

(i) the date on which the person last supplied services or materials to the improvement, and

(ii) the date a subcontract is certified to be completed under section 33, where the services or materials were supplied under or in respect of that subcontract.

Separate liens when ongoing supply

(4) Where a person has supplied services or materials to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract and has also supplied, or is to supply, services or materials after that date, the person's lien in respect of the services or materials supplied on or before the date of substantial performance expires without affecting any lien that the person may have for the supply of services or materials after that date.

Declaration of last supply

(5) Where a person who has supplied services or materials under a contract or subcontract makes a declaration in the prescribed form declaring, [page9 ]

(a) the date on which the person last supplied services or materials under that contract or subcontract; and

(b) that the person will not supply any further services or materials under that contract or subcontract,

then the facts so stated shall be deemed to be true against the . person making the declaration. R.S.O. 1990, c. C.30, s. 31.

How lien preserved

34(1) A lien may be preserved during the supplying of services or materials or at any time before it expires,

(a) where the lien attaches to the premises, by the registration in the proper land registry office of a claim for lien on the title of the premises in accordance with this Part; and

(b) where the lien does not attach to the premises, by giving to the owner a copy of the claim for lien together with the affidavit of verification required by subsection (6).

Public highway

(2) Where a claim for lien is in respect of a public street or highway owned by a municipality, the copy of the claim for lien and affidavit shall be given to the clerk of the municipality.

Premises owned by Crown

(3) Where the owner of the premises is the Crown, the copy of the claim for lien and affidavit shall be given to the office prescribed by regulation, or, where no office has been prescribed, to the ministry or Crown agency for whom the improvement is made.

Railway right-of-way

(4) Where the premises is a railway right-of-way, the copy of the claim for lien and affidavit shall be given to the manager or any person apparently in charge of any office of the railway in Ontario.

Contents of claim for lien

(5) Every claim for lien shall set out,

(a) the name and address for service of the person claiming the lien and the name and address of the owner of the premises and of the person for whom the services or materials were supplied and the time within which those services or materials were supplied;

(b) a short description of the services or materials that were supplied;

(c) the contract price or subcontract price;

(d) the amount claimed in respect of services or materials that have been supplied; and

(e) a description of the premises, [page10 ]

(i) where the lien attaches to the premises, sufficient for registration under the Land Titles Act or the Registry Act, as the case may be, or

(ii) where the lien does not attach to the premises, being the address or other identification of the location of the premises.

Affidavit of verification

(6) A claim for lien shall be verified by an affidavit of the person claiming the lien, including a trustee of the workers' trust fund where subsection 81(2) applies, or of an agent or assignee of the claimant who is informed of the facts set out in the claim, and the affidavit of the agent or assignee shall state that the agent or assignee believes those facts to be true.

Preservation of general lien

(7) Subject to subsection 44(4) (apportionment), a general lien shall be preserved against each of the premises that the person having the lien desires the lien to continue to apply against, and the claim against each premises may be for the price of the services or materials that have been supplied to all the premises.

Who may join in claim

(8) Any number of persons having liens upon the same premises may unite in a claim for lien, but where more than one lien is included in one claim, each person's lien shall be verified by affidavit as required by subsection (6). R.S.O. 1990, c. C.30, s. 34.

What liens may be perfected

36(1) A lien may not be perfected unless it is preserved.

Expiry of preserved lien

(2) A lien that has been preserved expires unless it is perfected prior to the end of the forty-five-day period next following the last day, under section 31, on which the lien could have been preserved.

How lien perfected

(3) A lien claimant perfects the lien claimant's preserved lien,

(a) where the lien attaches to the premises, when the lien claimant commences an action to enforce the lien and, except where an order to vacate the registration of the lien is made, the lien claimant registers a certificate of action in the prescribed form on the title of the premises; or

(b) where the lien does not attach to the premises, when the lien claimant commences an action to enforce the lien.

Rules re sheltering

(4) A preserved lien becomes perfected by sheltering under a lien perfected by another lien claimant in respect of the same improvement in accordance with the following rules: [page11 ]

1. The preserved lien of a lien claimant is perfected by sheltering under the perfected lien of another lien claimant in respect of the same improvement where,

i. the lien of that other lien claimant was a subsisting perfected lien at the time when the lien of the lien claimant was preserved, or

ii. the lien of that other lien claimant is perfected in accordance with clause (3)(a) or (b) between the time when the lien of the lien claimant was preserved and the time that the lien of the lien claimant would have expired under subsection (2).

2. The validity of the perfection of a sheltered lien does not depend upon the validity, proper preservation or perfection of the lien under which it is sheltered.

3. A sheltered claim for lien is perfected only as to the defendants and the nature of the relief claimed in the statement of claim under which it is sheltered.

4. Upon notice given by a defendant named in a statement of claim, any lien claimant whose lien is sheltered under that statement of claim shall provide the defendant with further particulars of the claim for lien or of any fact alleged in the claim for lien.

General lien

(5) Subject to subsection 44(4) (apportionment), a preserved general lien that attaches to the premises shall be perfected against each premises to which the person having the lien desires the lien to continue to apply.

Where period of credit extended

(6) A person who has preserved a lien, but who has extended a period of credit for the payment of the amount to which the lien relates, may commence an action for the purpose of perfecting the lien even though the period of credit has not at the time expired. R.S.O. 1990, c. C.30, s. 36.

Notes

1. See Appendix A attached for the text of the sections of the CLA that provide for preservation and perfection of liens.

2. Business Corporations Act, R.S.O. 1990, c. B.16.