Canada: Coping With COVID-19: Mechanics' Lien Obligations During NB's State Of Emergency

The Minister of Public Safety recently issued a renewed and revised Mandatory Order for the Province of New Brunswick, which suspends limitation periods during the duration of the state of emergency.

On May 8, 2020, the Mandatory Order was updated and as of the date of the publication of this article, paragraphs 24 – 26 state:

24. On the recommendation of the Attorney General, retroactive to March 19, 2020, the operation of the provisions of any act, regulation, rule municipal by-law or ministerial order that establish limitation periods for commencing any proceeding before a court, administrative tribunal or other decision-maker is hereby suspended.

25. On the recommendation of the Attorney General, retroactive to March 19, 2020, the operation of the provisions of any act, regulation, rule, municipal by-law or ministerial order that establish limitation periods for taking steps in any proceedings before a court, administrative tribunal or other decision-maker is hereby suspended.

26. Paragraphs 29 and 30 will cease to have effect no later than 90 days after the state of emergency ends.

This article reviews the effect of paragraphs 24 – 26 of the Mandatory Order on four main timing obligations under the Mechanics' Lien Act, R.S.N.B. 1973, c. M-6 ("MLA"):

1) the general requirement of a lienholder to register a Claim of Lien with the registry office within 30 or 60 days of completion of work, pursuant to sections 20(1) and 24 of the MLA;

2) the requirement of a lienholder to file a Notice of Action and register a Certificate of Pending Litigation within 90 days of registering the Claim for Lien, pursuant to s. 27 of the MLA;

3) the requirement to set a lien action down for trial within one year after the action is commenced, pursuant to s. 52.1 of the MLA; and

4) the requirement of a property owner to retain funds for 60 days from completion of the contract, pursuant to sections 15 & 16 of the MLA.

Generally, the Mandatory Order extends MLA timelines for matters before a court, but does not change the period for filing liens. The Mandatory Order likely extends the MLA requirements to file a Notice of Action and register a Certificate of Pending Litigation. The timeline to set a matter down for trial has also been suspended. Parties involved in construction should continue to proceed as normal with respect to filing and checking for liens during the state of emergency.

While we acknowledge that there are arguments that the Mandatory Order extends all timelines under the MLA, we suggest parties involved in construction continue to abide by the MLA timeline obligations. 

1. 30 or 60 Days to File a Claim of Lien

The time for filing a Claim of Lien is either 30 days or 60 days, depending on the work done in relation to the liened properties, as set out in s. 24 of the MLA.

A Claim of Lien must be filed by a lienholder. If it is not, it will cease to exist. A lien ceases to exist when a Claim of Lien has not been filed within the MLA's required timelines (s. 25). A Claim of Lien is filed with the registry office by the registrar of deeds (MLA, ss. 20(1) & 23(1)).

Registration of a Claim of Lien occurs in a registry office, and not before a court, administrative tribunal or other decision-maker (the registry has no decision-making capacity in this matter), such that paragraphs 24 and 25 do not apply. Therefore, the Mandatory Order should not change the requirement for lienholders to file their Claim of Lien with the registry within either 30 or 60 days.

It is arguable that the registration of the Claim of Lien is a "step" in a proceeding before a court for the purposes of Paragraph 25. However, the stronger argument is that the Mandatory Order does not affect this timeline and there is a real risk that a lien will be lost if not filed within the MLA timeline.

In any event, filing a Notice of Action within the regular MLA timelines is crucial to securing recourse to the funds or property that may be available to lienholders under sections 15 and 16 of the MLA, as discussed in greater detail below.

2. 90 days to file a Notice of Action (MLA, s. 27)

Section 27 of the MLA extinguishes a claim of lien 90 days after the date of the filing of the Claim of Lien (or the period of credit mentioned in the claim of lien), unless an action is commenced and a Certificate of Pending Litigation is registered.

The filing of a Notice of Action and registration of a Certificate of Pending Litigation are required for the lienholder to bring their action to enforce their lien. They can be interpreted as steps required in a proceeding before a court such that the time extensions under the Mandatory Order apply.

A lienholder that normally would have an obligation under s. 27 of the MLA to file a Notice of Action and register a Certificate of Pending Litigation on March 19, 2020 or after, now has until 90 days after the end of the state of emergency to file these documents with the court and registry, respectively.

A lienholder should nonetheless file an action and register the Certificate of Pending Litigation within the regular timelines outlined in the MLA. A lienholder cannot obtain a Certificate of Pending Litigation without first filing an action. The Certificate of Pending Litigation can help protect the transfer of the liened property and thereby help secure the lienholder's recourse under the MLA.

In addition, there remains a viable argument that the Mandatory Order does not apply to the registration of the Certificate of Pending Litigation, since the registration does not occur before a court. If a Certificate of Pending Litigation is required within the MLA timeline, then effectively the Notice of Action will also have to be filed within the original MLA timeline.

3. One Year to Set Down Action for Trial (MLA, s. 52.1)

Section 52.1 discontinues an action to enforce a lien where it has not been set down for trial within one year after the action was commenced, save for where an application has been made for an order continuing the action.

Setting an action down for trial is a step in a proceeding before a court. The Mandatory Order suspends this time requirement. An action that was started after March 19, 2019 does not need to be set down for trial at this time, but it must be set down for trial before the passing of 90 days after the end of the state of emergency, pursuant to paragraph 26 of the Mandatory Order.

4. 60 Days Post Completion to Retain Holdback and Trust Funds (MLA, ss. 15, 16 & 17)

An owner is required to hold back funds in the amount of 15% or 20% of the contract price for 60 days after the completion or abandonment of the contract (s. 15(1) and (3)). If a Claim of Lien has not been filed or an action commenced, then the owner may pay out the section 15 holdback amounts 60 days after the completion or abandonment of the contract (s. 17(a)).

In addition to the section 15 holdback, an owner is required to retain the amount set out in a notice of lien provided to the owner in writing (s. 16). This amount must be held for the benefit of the lienholder who gives the notice (s. 16(1)).

Section 16 is only triggered upon the provision of a notice of lien to the owner, and an owner is not a party listed in paragraphs 24 – 26 of the Mandatory Order. Therefore, a lienholder who wishes to trigger the owner's s. 16 obligations must still issue a notice of lien.

Section 17(b) of the MLA releases owners from their s. 15 and 16 obligations "on the expiration of the ninety days mentioned in section 27 if an action has not been commenced". Under section 27, a lien ceases on the expiration of ninety days from the filing of the claim of lien if an action is not commenced and a certificate of pending litigation registered with the proper registry office.

The Mandatory Order's extended timeline applies to steps before a court, administrative tribunal or other decision-maker. It does not apply to owners for the purpose of section 17(b) of the MLA. If the lienholder does not commence an action and file its Certificate of Pending Litigation within 90 days from registering its Claim of Lien, the mandatory Order does not extend the owner's timeline for releasing funds pursuant to section 17(b). A lienholder ought still to file its Notice of Action within 90 days from the registration of its Claim of Lien in order to  secure the section 15 holdback and the section 16 trust funds in the hands of the owner.

Originally published May 12, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.