Legal Blog

Dead-Really

In our January 2002 newsletter, we reported on Cornerstone Estates Ltd. v. Polaris Restorations Inc., a 2002 Ontario Superior Court of Justice decision. The article was entitled “Dead”. It seems that, six years later, a solicitor did not review that case (or our newsletter) and thus we have the decision in T.D. Swan Construction v. Blanc, a 2008 Ontario Superior Court of Justice case. These cases dealt with the scenario of a corporate plaintiff registering a claim for lien while dissolved. The corporation was then revived and wanted to carry on as if nothing unusual had happened.

Existence

A corporation exists only because of the statute under which it is incorporated. Accordingly, once a corporation is dissolved, it dies. A corporation can be dissolved voluntarily; it can go bankrupt; and the income tax branch of the Province of Ontario can dissolve a corporation for failure to pay corporate income tax or, typically, for failure to file corporate tax returns.

Unlike a human, a corporation may be brought back to life. For example, the corporation’s directors may file the overdue tax returns and pay the taxes owing. The corporation can then obtain articles of revival by which its existence is re-instated.

What happens between the date that the corporation is dissolved and the date it is revived? Under the Business Corporations Act, the revival is retroactive – unless the retroactive effect of the re-instatement would adversely affect the rights of others.

Lien

The courts have held that a person acquires rights if a limitation period passes. That limitation period can be under the Limitations Act, in general, or a specific statute, such as the Construction Lien Act (“CLA”). Under the CLA, an owner and mortgagee have duties imposed on them until a specified time passes (e.g. hold back 10% until 45 days after substantial performance). Once that time passes without registration of a lien, the owner and mortgagees may act (e.g. pay money down the construction chain) without fear of a subsequent lien registration.

Cases 

In each of the cases set out above, the judges held that, when a dead corporation purports to register a lien, a subsequent revival after the lien period expires would prejudice an owner or mortgagee and, accordingly, the revival should not be retroactive. As a result, the judges discharged the liens.

Action 

In neither case, however, had the regular limitation period expired before the revival. Accordingly, each judge allowed the lien claimant to continue its action against the owner. There was no prejudice to the owner in that regard.

In Cornerstone, the judge ordered that the lien clamant pay the costs of the owner’s motion to discharge the lien, but only if the owner were successful in the action. The judge made no order for the contractor to reimburse the owner for its costs of posting security and vacating the claim for lien. Accordingly, a dead corporate contractor registered a claim for lien, forced the owner to move to discharge it and have the security returned, and did not have to immediately pay the costs that the owner incurred. We previously stated, “This, we suggest, is absurd. It allows for the improper registration of liens without sanction. Fortunately, costs are a discretionary matter and we doubt that this aspect of the decision will be followed by any other judge with a modicum of a sense of fair play.”

In T.D. Swan, the judge ordered that the lien claimant pay the owner its costs fixed at $5,000 and the mortgagees their costs fixed at $6,000.00. The decision on the merits was a foregone conclusion and the costs awards were appropriate.