Prejudice Factor in Extension of Serving Claim: Fox Contracting Ltd. v. 133 King Street East Inc.
Under the Construction Act, a Statement of Claim must be served within 90 days of issuance. This is part and parcel part of the lien claimant’s responsibility to perfect its lien.
Of course, for various reasons, a lien claimant may not be able to serve within 90 days. Consequently, the lien claimant may need to bring a motion to extend the period for service. The Court when presented with such facts generally look at the case of MGI Construction Corp. v 2273865 Ontario Inc and Frank Bosso to determine whether it should grant an extension. In MGI, the Court considered the following factors:
a) The length of delay and whether the limitation period has expired;
b) The explanation for the delay in serving the statement of claim and in bringing the motion to extend time: are the reasons compelling? and
c) Is the defendant prejudiced by the delay in serving the statement of claim?
In the construction lien action context, the presence of the lien colours the analysis. A recent case focused on this.
A trade performed work for a leasehold tenant. The landlord who was not a party to the contract between the trade and tenant, had agreed to contribute towards the improvement. The work was completed, and a sum was owed.
A lien was registered.
At the request of tenant, the trade provided further time to the tenant to pay off the account. On August 24, 2020, the trade commenced an action to perfect the lien but did not serve claim. The trade provides evidence that the tenant acknowledged the debt and asked for an indulgence until the fall of 2021 due to the pandemic. The trade granted the indulgence and did not move the action.
The account was still not paid. The trade retained a new lawyer, and this lawyer was having trouble concluding whether the claim was in fact served as the former did at one point state the claim was served. The new lawyer concluded the claim was not served. The new lawyer understanding that 11 months have passed, served the claim and brought a motion to extend or validate service.
The Court pinpointed the factors that must be considered on a motion to extend the period to serve the Statement of Claim. The Court referred to MGI and referred to the factors I have stipulated above.
The tenant posited the presence of the lien is prejudice in of itself; citing MGI.
The Court referred to the decision of Petrasso v Fuller, where the Court held the required prejudice should be more than just the presumed prejudiced created by the claim for lien. The prejudice should stem from the delay.
The Court acknowledged importance of the delay factor in the analysis but found the explanation for the delay as the most significant factor in this case.
The trade believed its former lawyer served the claim. Additionally, the tenant acknowledged the debt and asked for an indulgence. The trade did not move the action because it indulged the tenant.
The Court related this in a contrapositive sense to MGI where the Court found no compelling reason for the delay. In this case the reasons were quite compelling.
The Court cited section 86(2) of the Act which that prohibits a lien claimant from recovering costs resulting from failing to take the “least expensive course” of action. The Court found in this case this is particularly the case since the lien is affixed to a leasehold interest that may be tenuous, and to a freehold interest that may secure only a fraction of the claim.
My view is the Court found the lien claimant was taking the lease expensive course of action by providing the tenant with time it had asked to pay the account.
The Court also raised the concept of issue estoppel since the tenant effectively informed the trade that the lien action should be suspended until financing was worked out. Now the tenant raises the 90-day service period defence which arose during the indulgence period.
The Court held the explanations was sufficient and ruled the period to extend the service of the Statement of Claim.
It appears the case law thrust on the point of extending time for serving a statement of claim is becoming similar to the analysis performed in civil actions. This is interesting as construction lien actions are unique as the presence of the lien is an encumbrance on the property. In light of many properties having prior encumbrances prohibiting such subsequent encumbrances, which then requires the owner to pay the lien amount into the court plus the security, the prejudice is much more pronounced than a civil action.
The prejudice being monies held up in Court as security for an unadjudicated debt.
 2015 ONSC 4716 (CanLII)