The varying legal deadlines of construction litigation make it one of the most challenging areas of law. For instance, lien claimants in Ontario have two years to set their matter down for trial after commencing a claim under the Construction Act. Failing to meet this two-year deadline can result in the expiry of the lien and a dismissal of the claim.
By contrast, the Rules of Civil Procedure generally permit a five-year period to advance a claim. This illustrates that limitation periods are often stricter for construction lien claimants, which can create problems when construction litigation becomes entangled with other areas of law.
Such fatal consequences were addressed in the recent decision in MCAP Financial Corporation v Vandyk-The Buckingham North – Grand Central Limited (MCAP). Here, the Court applied a lenient approach, allowing the lien claim to survive despite failing to meet the two-year deadline under section 37 of the Construction Act.
This decision addresses what happens when bankruptcy proceedings prevent a lien claimant from meeting statutory deadlines.
Federal Stays vs. Provincial Deadlines
The dilemma faced by the lien claimant in MCAP stemmed from the fact that the owner of the project was under a receivership order. As is standard in a receivership, the Court had ordered a stay of proceedings. This blanket order froze all litigation against the insolvent company and prohibited parties, including lien claimants, from taking steps to advance their case, including the time-sensitive step of setting a trial date.
The stay is intended to allow the Receiver to stabilize and preserve the debtor's business, evaluate the debtor’s assets, and develop a strategy for their disposition. Since the stay can remain in place until the Receiver is able to fully realize on the debtor’s assets, this can be a drawn-out process.
While it is reasonable that the receivership process should not be rushed, crucially, the stay does not suspend or toll the two-year limitation period in section 37 of the Construction Act.
Thus comes the dilemma for lien claimants. If you comply with the court-ordered stay and take no steps to set your lien action down for trial, your lien rights will expire. At the same time, any attempt to set the action down for trial without the Court’s permission, known as “lifting the stay”, risks violating a court order.
A Creative Solution
Justice Myers directly recognized this contradiction. In MCAP, he confirmed that the Court has authority under the Rules of Civil Procedure to recognize “imperfect but bona fide compliance” with section 37 of the Construction Act. Although the stay of proceedings prevented the lien claimant from compliance with the two-year expiry period, they had made bona fide efforts to comply with the deadline. He affirmed that the Court therefore had the authority to deem section 37 satisfied, and conversely, the two-year expiry period would not apply to their action.
How to Proactively Protect Your Lien Rights
Lien claimants facing an approaching limitation period during insolvency proceedings can be said to have three options to preserve their rights:
- Ask the Court to lift the stay. If a stay of proceedings prevents a lien action from being set down for trial, lien claimants can invite the Court to lift the stay on the grounds that failing to do so would render their lien rights worthless. However, the Court may decline to lift the stay if doing so would compromise a liquidation or asset realization already underway.
- Seek a parallel lien claim process. The Court can order the creation of a “parallel lien claim process” within a receivership, similar to a Lien Regularization Order in Companies’ Creditors Arrangement Act (CCAA) proceedings. Although such a process has not actually ever been used to date in a Bankruptcy and Insolvency Act (BIA) receivership, the decision in MCAP suggests the Court may be open to approving this process in the future.
- Rely on the Court’s discretion to recognize bona fide efforts. In MCAP, the Court confirmed that it has authority under the Rules of Civil Procedure to recognize “imperfect but bona fide compliance” with section 37 of the Construction Act and deem the section 37 requirement satisfied. Although the Court allowed the lien claimants to avoid the impending section 37 dismissal deadlines, it also cautioned that lien claimants should first request either (1) to lift the stay, or (2) to implement a court-ordered process before seeking the Court’s approval to waive the technical elements of compliance.
Notwithstanding the above, Justice Myers warned that lien claimants and their counsel should not wait until the last minute to preserve their rights. He noted that in future cases, he will be asking why steps were not taken earlier.
The takeaway is clear. Although the receivership process is intended to take time, and this may naturally conflict with the lien claim process, lien claimants should not assume that the Receiver or the Court will consider limitation periods or grant creative solutions to statutory deadlines. It is up to lien claimants and their counsel to take proactive steps to ensure their lien rights are protected.
HOW WE CAN HELP
RAR Litigation’s team has a proven track record representing clients in complex construction and infrastructure disputes, and handles all forms of insolvency proceedings.
Contact us for strategic advice, risk assessment, and litigation representation.
