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Legal Notes: Cautionary tales of over-zealous lien claims

John Bleasby
Legal Notes: Cautionary tales of over-zealous lien claims

Liens are a serious tool in a dispute claimant’s legal toolbox. If claims for damages are ruled frivolous or vexatious, there’s a chance the lien will be discharged entirely and penalties imposed.

However, discharging a lien doesn’t happen very often. As outlined in last week’s Legal Notes, the court may simply make its own adjustments to the claims or excuse the claimant on the basis of a having made an “honest mistake.”

And mistakes can happen.

“Liens often need to be preserved quickly,” Faren Bogach of Construct Legal told the Daily Commercial News. “Sometimes, upon reflection, the amount is incorrect. While the amount of the lien cannot be changed, there are ways to reduce the amount of the claim or agree that a lesser amount of security could vacate the lien. If not, the lien claimant faces the risk under section 35 of Ontario’s Construction Act of damages related to the exaggerated lien.” 

Similarly, a lien action should not be used as a weapon for some other legal purpose. The court could not only dismiss the lien but even assess costs against the claimant. That appears to be what occurred in a 2021 dispute in British Columbia.

A subcontractor had a payment dispute during a condominium project, stopped work short of completion and walked off the site.

This order of actions taken by the subcontractor is important. Instead of filing a notice of default, they stopped work, left the site, and then filed a lien based on what were later admitted to be bogus and inflated invoices. By doing so the general contractor had no option but to incur extra costs in order to have the work completed by a replacement subcontractor.

As Michael Morgan of Lawson Lundell LLP writes, the subcontractor, “proceeded to pursue its inflated claims through an eight day trial only to concede in closing argument that its inflated invoices were not in fact what had been agreed between the parties as the amount owing at the relevant time.”

The court was not amused by the behaviour and conduct of the subcontractor. Morgan writes the court saw their actions as a tactic to “drive the general contractor from the judgment seat. In other words, by pursuing knowingly inflated claims, it attempted to force the general contractor to drop its claims.”

The strategy completely backfired on the subcontractor. Not only was the lien dismissed but the general contractor was awarded full costs for his extra expenses and for his significant legal costs.  

While extreme, the B.C. case demonstrates how far a dispute can proceed in the absence of more reasonable resolution approaches before the court will take affirmative actions to dismiss.

Referencing an Ontario liens action from 1991 founded on inflated charges and invoices, Andrea Gorys and Kyle Kuczynski, associates with Cassels Brock & Blackwell LLP, made some key observations concerning the credibility and motives of the claimant.

Claimant statements of being unaware of discrepancies outlined in the lien filing “simply did not hold water,” Gorys and Kuczynski told the Daily Commercial News. Furthermore, the lien “was put together with blatant and consummate negligence or deliberate fabrication.”

The court discharged, dismissed and vacated the lien, ruling it “frivolous, vexatious and an abuse of process of the court.”

It also commented on the claimant’s strategy to weaponize the lien, specifically, “to use the contrivance of these proceedings to tie the hands of the secured party from exercising its rights. Such behaviour cannot be countenanced by the court and must be nipped in the bud.”

As Morgan summarizes in the B.C. case, the rare instances of a lien being discharged, dismissed or vacated “provide a cautionary tale for how matters can spiral out of control and result in substantial and significant legal fees and damages being incurred.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

 

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