Update: Timelines to lien and other limitation periods in Ontario during the COVID-19 measures, in particular, the Order by the Governor in Council under the Emergency Management and Civil Protection Act (“EMCPA”)
By Andrew J. Heal, J.D., LL.M., Heal & Co. LLP[1]
In these novel, and difficult times, a number of legal authors have expressed differing views on whether the Order suspends the running of limitation periods under the Construction Act. On April 9, 2020 the Ontario government clarified it does not suspend limitation periods. [2]
Under the Construction Act there are three important deadlines:
(2) the time within which to perfect a lien under s. 36 (“a lien expires unless it is perfected prior to the end of the… period next following the last day … on which the lien could be preserved”); and
(3) the time within which to set down a lien action for trial under s.37 (“A perfected lien expires immediately after the second anniversary of the commencement of the action that perfected the lien”).
The deadlines are complicated by whether the old Act (shorter lien deadlines of 45 days to lien, 45 days to perfect) or new Act applies (longer lien deadlines of 60 days, and 90 days to perfect)[3]. There is no judicial determination yet of the meaning of the terms of the EMCPA.
The Ontario government issued a clarification a few weeks later on April 9, 2020 that sections 1 and 2 do not apply to provisions of the Construction Act or the regulations if the provisions establish a limitation period.
The prevailing view is that the Order does suspend the regular time periods in which to lien, primarily because the EMCPA is emergency legislation which allows regulations to supersede provisions in statutes for a limited time.[4] One of the unintended consequences was that owners were not releasing holdback in a timely way.
All of these technical details may become important where the decision to lien or not to lien is critical to a particular construction business. As set out in my earlier bulletins, the first move should be to reach out to the counterparties, and if possible, agree to a suspension or standstill order rather than taking a step of liening.
At the time of writing the electronic Registry Offices are still open, but we have been advised that the Registrar of Titles is not certifying title at present because those staff are not working in the office. Similarly, the Ontario Superior Court of Justice has suspended operations, except for urgent matters.
Where the two year set down deadline looms under s.37, it still may be possible “to set a matter down for trial” by service of a trial record and there is existing caselaw that if filing of that served trial record to meet s.37 may be a case of “legal impossibility”, presuming every effort to file electronically was made.[5]
I agree with some commentators that where absolute prudence is required, and while the Registry Offices still accept electronic registrations of construction liens, a lien registration may be possible. However, the lien claimant should think through the practical consequences of that decision since it may make it difficult for the payer and may stop further payments on any project at a proportion to the value of the lien itself, because of the present difficulties with access to the Court to obtain vacating orders. The recommended alternative is reaching a decision with the counterparty without resort to the lien or litigation toolkit, unless absolutely necessary.
The construction industry remains an essential business as defined currently in the Order under the EMCPA.
It is clear that there is no prohibition against liening, and while the Registry Offices remain open, and while municipalities have allowed for electronic means for giving a lien, or a means to give the lien to the clerk of the municipality. Owners, contractors, subcontractors and suppliers are well advised to seek legal advice where they are concerned about rights expiring, but should continue to take comfort in the intent of the EMCPA Order, which is to preserve the ability for persons in Ontario to access their legal rights and to suspend any limitation period while the period of emergency remains.
Finally, each player in the construction industry will have to assess whether a direct cooperative approach is more likely to result in payment in the near term or long term and it cannot be doubted that the Ontario Government’s Order was intended to give most parties some necessary breathing room, particularly for essential businesses, such as construction.
In Ontario, and elsewhere, the guidelines and directives are evolving in real time. For the latest businesses which are being allowed to re-open in Ontario as of May 6, 2020 see: https://www.news.ontario.ca/opo/en/2020/05/certain-businesses-allowed-to-reopen-under-strict-safety-guidelines.html
Unless designated an “essential business” each person responsible for a place of business that is not listed (in Schedule 2 of the EMCPA order) shall ensure that the place of business is closed. The Order is currently in place until May 19, 2020, unless extended.
Those construction sites that are an “essential business” are set out in the March 16, 2020 EMCPA order O.Reg 82/80 as amended, to May 4, 2020, which should be reviewed carefully:
Construction
- Construction projects and services associated with the healthcare sector, including new facilities, expansions, renovations and conversion of spaces that could be repurposed for health care space.
- Construction projects and services required to ensure safe and reliable operations of, or to provide new capacity in, critical provincial infrastructure, including transit, transportation, energy and justice sectors beyond the day-to-day maintenance.
28.1 Construction projects and services that support the operations of, and provide new capacity in, schools, colleges, universities, municipal infrastructure and child care centres within the meaning of the Child Care and Early Years Act, 2014.
- Critical industrial construction activities required for,
- the maintenance and operations of petrochemical plants and refineries,
- significant industrial petrochemical projects where preliminary work has already commenced,
- industrial construction and modifications to existing industrial structures limited solely to work necessary for the production, maintenance, and/or enhancement of Personal Protective Equipment, medical devices (such as ventilators), and other identified products directly related to combatting the Covid-19 pandemic.
29.1 Construction projects that are due to be completed before October 4, 2020 and that would provide additional capacity in the production, processing, manufacturing or distribution of food, beverages or agricultural products.
29.2 Construction projects that were commenced before April 4, 2020, and that would
- provide additional capacity for businesses that provide logistical support, distribution services, warehousing, storage or shipping and delivery services, or
- provide additional capacity in the operation and delivery of Information Technology (IT) services or telecommunications services.
30. Residential construction projects where,
- a footing permit has been granted for single family, semi-detached and townhomes,
- an above grade structural permit has been granted for condominiums, mixed use and other buildings[6], or
- the project involves renovations to residential properties and construction work was started before April 4, 2020.
30.1 Construction to prepare a site for an institutional, commercial, industrial or residential development, including any necessary excavation, grading, roads or utilities infrastructure.
31. Construction and maintenance activities necessary to temporarily close construction sites that have paused or are not active and to ensure ongoing public safety
See: https://www.ontario.ca/laws/regulation/200082 for the full list.
Crisis management is time sensitive and parties may wish to enter into a formal or informal agreement which may suspend administrative obligations and promote cooperation in solving problems rather than fighting about the allocation of risk of unforeseen events. Such an agreement may not be necessary to comply with the duty to act in good faith but may assist in showing that parties made best efforts to act in good faith.
Conclusion
From a legal contract management perspective in the context of this COVID-19 pandemic, best practice continues to be a cautious approach (1) check the contract for wording that deals with delay and the already agreed to consequences of particular delay events, outside the control of one or more of the parties (2) exercise rights and remedies prudently, including lien rights, but only after good faith co-operation has not produced reasonable results. The EMCPA order may no longer suspend lien deadlines so the consequences of not working co-operatively to resolve contract extensions, delay costs and other COVID19 related costs may well be more liens in the foreseeable future.
[2] https://files.ontario.ca/solgen-oic-limitation-periods.pdf
[3] If the contract pre-dates July 1, 2018 or the procurement process was commenced before July 1, 2018 the old shorter timelines apply. If in doubt, seek legal advice.
[4] Other legal authors have expressed the view that the time to preserve a lien is not a suspended “limitation period” under the EMPCA, whereas the s.34 timeline to perfect is a suspended, and the timeline to sue within two years is most definitely a limitation period.
[5] 310 Waste v. Cadsboro 2006 CarswellOnt 5779 (Court of Appeal) which left open “whether there ever could be could be circumstances warranting a judicial relaxation of the mandatory expiration period in section 37”. It would have to be a situation of “impossibility, either legal or practical”, to set a matter down for trial. COVID19 might produce such a situation.
[6] We understand this will be revised slightly to read “an above grade structural permit has been granted for the project is a condominium, mixed use and or other building” as of May 11, 2020.