SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 7153/08
DATE: 20140902
RE: Common Ground Architecture Inc., Plaintiff/Defendant by Counterclaim
AND:
Pasquale Louis Naccarato and Linda Mary Martinus-Naccarato, Defendants/Plaintiffs by Counterclaim
AND BETWEEN:
Pasquale Louis Naccarato and Linda Mary Martinus-Naccarato, Plaintiffs by Counterclaim
AND:
Kleo Isaias, also known as Kleaneas Issaias, also known as Kleanthes Isaias, also known as Kleanueau Issaias, and Aban Mchanical Inc., also known as Abaan Mechanical Inc., Defendants by Counterclaim
BEFORE: Trimble J.
COUNSEL: W. Alex Kyle, Counsel for the Plaintiff/Defendant by counterclaim and defendant by counterclaim Kleo Isaias
Manjit Singh, Counsel for the Defendants/Plaintiffs by Counterclaim
HEARD: July 23, 2014
ENDORSEMENT
THE MOTION:
[1] This endorsement addresses relief sought in the Defendants’/Plaintiffs’ by Counterclaim Notice of Motion dated June 2, 2014, paragraphs 7 to 15. In those paragraphs, the Defendants seek to dismiss and discharge Common Ground`s lien on the Naccarato property. The other relief claimed in that Notice of Motion was the subject of my handwritten endorsement dated June 18, 2014, the effect of which was to allow the counterclaim against all other Defendants by Counterclaim to go in default, leaving only the claims by and against Common Ground to proceed.
[2] The issues argued at the continuation of this motion on July 23, 2014 were adjourned from June 18 so counsel could address questions I raised concerning the relief sought against Common Ground. For the reasons discussed below, the Defendants` motion as it pertains to Common Ground’s lien is dismissed.
THE BASIC FACTS:
[3] Common Ground registered a lien on the Naccarato’s home on October 10, 2008 for slightly over $20,000. The Statement of Claim was issued on November 21, 2008. The Defendants brought a counterclaim, which Common Ground defended. The lien was perfected, and the action set down for trial six days short of the two year time limit under s. 37(1)2 of the Construction Lien Act.
[4] While the action had been set down in November, 2010, it was struck off the list by Justice Van Melle on March 17, 2014, having been struck off the list five times earlier, for various reasons, and at the request of various parties along the way, including the Defendants.
[5] Common Ground was ordered dissolved by the Corporate Tax Branch of the Ministry of Consumer and Commercial Relations on April 7, 2014. I was advised by Common Ground’s counsel on June 18 that the tax arrears funds were in his trust account and the application to revive the corporation had been filed, but that the corporation had not yet been revived by the Ministry. Counsel advised on July 23 that the corporation had been revived that day and that the tax arrears were to be paid immediately.
[6] This motion is brought for an order vacating the lien.
THE ISSUES TO BE DECIDED:
[7] The Defendants argue that the lien should be discharged for the following reasons:
While the lien was perfected in November, 2010, it has been idle since then, and struck from the list six times. The Defendant says that this means that the lien was not perfected within the spirit of section 37(1)2 of the Construction Lien Act.
With the dissolution of Common Ground, its lien became a nullity.
During Common Ground’s dissolution, the Defendants acquired rights (e.g. the right to have the lien discharged or vacated) to which Common Ground’s lien is now subject.
[8] The Defendants also argue that should the lien should remain in force Common Ground should be ordered to pay security for costs.
[9] Little, if any, caselaw was put in front of the Court on June 18 regarding the issues of the dissolution of Common Ground and the effect of the dissolution on the lien, necessitating the adjournment to July 23.
ANALYSIS:
a) While the lien was perfected in November, 2010, since it has been idle since then and struck from the list six times, is the lien no longer perfected within the spirit of section 37(1)2 of the Construction Lien Act?
[10] Common Ground’s lien continues to be perfected under the Act.
[11] Section 37(1) of the Construction Lien Act provides that a lien expires after two years unless either “1) an order is made for the trial of an action in which the lien may be enforced” or “2) an action in which the lien may be enforced is set down for trial.”
[12] Section 37(1) is disjunctive. The lien is perfected if either 37(1)1 or 37(1)2 are met.
[13] Since the action was set down for trial, the issue is whether, in the circumstances of this case, the action was properly set down within the spirit of section 37(1)2.
[14] Common Ground argues it set the action down. It complied with s. 37(1)2. Its lien is valid.
[15] The Defendants argue that s. 37(1)2 requires more than strict compliance. It requires that the action be set down, and proceeded with, expeditiously. To read the section in any other way would be to allow liens to be perfected by the slightest of compliance, then languish, as has this action.
[16] Since counsel advised that there was no caselaw on point, the Defendants argued their case by analogy. The Defendants directed me to Ravenda Homes Ltd v. 1372708 Ont. Ltd, 2010 ONSC 881, [2010] O.J. No. 510 (Ont. S.C.) for the proposition that where there has been ‘imperfect’ or ‘defective’ compliance with the statute, the lien should not be allowed to stand. In that case, the trial record was defective as it did not contain pleadings that were filed after the trial record was delivered, presumably because a record had to be filed by the two year time limit.
[17] I disagree with the Defendants’ position for two reasons. First, the statue is clearly written, and requires one of two actions in order to perfect a lien. There is no ambiguity in s. 37(1)2, and no discretion to grant relief from its terms (see Bird Construction v. C.S. Yachts, [1989] O.J. No. 1659; aff’d [1990] O.J. No. 3166 (Div. Ct)). If the Legislature had intended the statute to say more, it would have drafted 37(1)2 differently.
[18] Second, caselaw supports this interpretation. The parties said that they were unable to find case law clearly dealing with this issue, one way or other. Haflidson v. Salandy (2002), 16 C.L.R. 284, 2002 CarswellOnt 1698 (Master) does address the issue. This case dealt with the priority of a lien registered after a mortgage, and whether a lien claim should be dismissed. The lien claimant perfected its lien claim in 1997, then, on the last possible day under s. 37(1)2 issued the trial record and set the action down. The claimant did not obtain a judgment of reference until 2001 and waited a further three months to obtain a trial date. Since the claimant had complied with the strict provisions of the Act, the Court addressed the dismissal for delay and dismissed that motion for want of any evidence of prejudice to the Defendant. Mere passage of time (although with strict compliance with the statute) is not enough to obtain the dismissal. There must be evidence of prejudice.
[19] Ravenda Homes is inapplicable. It stands for the proposition that the Rules of Civil Procedure cannot be used to extend time lines clearly set out in the Construction Lien Act.
b) With the dissolution of Common Ground, its lien became a nullity.
[20] Common Ground’s dissolution does not mean that its lean becomes a nullity. The Defendants did not put forward any caselaw or compelling policy reasons in support of their position. The Business Corporations Act, R.S.O. 1990, C. B. 16 and cased law would suggest that the law is the opposite.
[21] Under section 242, a corporation dissolved under subsection (4), may be revived by the corporation, or any other person, under subsection (5) “… subject to … the rights, if any, acquired by any person during the period of dissolution, [and the corporation] shall be deemed for all purposes to have never been dissolved.”
[22] In Glencoe Insulation Co. v. 3170499 Canada Inc. (2003) O.J. No. 5834, 38 C.L.R. (3d) 238, the Divisional Court instructs us that the cancelling of a corporation’s charter does not render the company and its acts as nullities. Rather, the company is in a state of legal limbo. If it is restored, it is restored nunc pro tunc, subject to the rights acquired by others against the company between cancellation or dissolution, and revival of the charter.
[23] Applying this logic to Common Ground, its real or personal property does not cease to exist effective Common Ground’s dissolution. So too with inchoate property like the chose in action, in support of which the lien is registered.
c) During Common Ground’s dissolution, the Defendants acquired rights to which the lien is subject.
[24] The Defendants say that during the time that Common Ground was dissolved, they acquired ‘rights’ that supersede the lien; namely, the right under Rule 24.01(e) to have the action dismissed since the Plaintiff took no steps to restore the action to the trial list within thirty days of its being struck off.
[25] I give this basis for this motion no credence, for two reasons. First, the relief claimed in argument is not relief claimed in the Notice of Motion. Second, the right to bring a motion under Rule 24.01(e) is not a ‘right’ of the type referred to in section 242(5) of the Business Corporations Act. The rights contemplated by the BCA arising during a period of dissolution, to which the revived corporation is subject, are substantive rights. The expiry of a limitation during the period of dissolution is such a right (see Glencoe, supra), as is the running of the time under the Construction Lien Act for perfecting a lien or setting it down (see Delview Constructions Ltd v. Meringolo (2004), 34 C.L.R. (3d) 48 (C.A.) and TD v. Swan [2008] O.J. No. 681 (S.C.J.)). By extension, if, during dissolution, a general creditor attached assets under a general security agreement, the revival would be subject to these rights too. The right to bring a motion under Rule 24.01, is procedural, not substantive, and not a ‘right’ contemplated by BCA section 242(5).
d) Security for Costs
[26] The Defendant says that it is entitled to security for costs under Rule 56.01(1)(d), since the Plaintiff is a corporation and there is good reason to believe that the corporations has insufficient assets in Ontario to pay costs awarded against it.
[27] In paragraph 23 of the affidavit of Ms Case, filed in support of the motion, Ms Case swears that she was “advise by, and verily believe, the Naccaratos that they have good reason to believe that Common Ground does not have sufficient assets in Ontario to pay a costs award to the Naccaratos if they are successful at Trial.” This is a bald statement. No evidence was submitted from the Naccaratos with respect to when they became aware of the possible insolvency of the lien claimant. The Defendants have failed to establish their entitlement to security for costs.
[28] In addition, the Defendants are disentitled to security because of delay. Generally speaking, a motion for security for costs should be brought quickly after the security claimant has reason to believe that the Plaintiff has insufficient assets in Ontario (see Kawkaban Corp v. Second Cup Ltd. (2005), 2005 35683 (ON SCDC), 260 D.L.R. (4th) 352, 16 C.P.C.)). The only evidence as to when the Defendants knew or ought to have known that Common Ground may have been impecunious is in paragraph 5 of the Affidavit of Mr. Isaias, principal of Common Ground, to the effect that that since September, 2012, it was common knowledge that Common Ground was insolvent. Accepting this as the date on which the Defendants knew or ought to have known of the insolvency, the Defendant has not discharged its onus to explain its 21 month delay in bringing its security motion.
[29] Had I allowed the motion for security for costs, I would have fixed them at $5,000 for two reasons. First, the lien could have been bonded off title had the Defendants paid the lien plus 25% for costs. $5,000 is the amount of the costs that would have been added to the lien amount to have the lien removed. Second, the lien action itself, is for $20,000 is well within the simplified procedure, and $5,000 is a reasonable award for partial indemnity costs, HST and disbursements in an action for that amount.
COSTS
[30] Given its success on this motion, Common Ground is entitled to its costs, presumptively. Counsel have 30 days in which to exchange and file their submissions as to who should pay whom costs, and in what amount. Those submissions shall not exceed two single spaced pages, excluding offers to settle or bills of costs.
Trimble J.
Date: September 2, 2014