At what point does a lien action become vexatious or frivolous? And importantly, when do liens become an abuse of process?
These questions were at the centre of a recent Ontario dispute, ruled upon this past January.
North Bay Capital Investments wanted to build a McDonald’s restaurant, in combination with an Esso carwash and Pet Valu retail store, in St. Mary’s, Ont. Verg Construction Corp. was hired as general contractor. Verg, in turn, hired XPL Construction Solutions Inc. as a subcontractor.
Verg used XPL’s estimate for its scope of work of $239,364.72 as the basis of its tender to North Bay. However, XPL invoiced Verg $877,231.69, an amount that included over $530,000 after being terminated from the project and registered a lien against North Bay.
As described by Miller Thomson LLP partner Riccardo Del Vecchio, and associate Nathan Lean, “North Bay cross-examined XPL’s principal pursuant to section 40 of the (Construction) Act. Soon after, North Bay brought a motion to compel XPL to answer its undertakings and refusals arising from the section 40 cross-examination.”
The refusals motion was argued in front of Justice Nicholson in late May 2022. Left outstanding was the requirement for XPL to produce supporting information and “back up” documentation for the $530,973.55 invoice. A four-week deadline was issued, which passed without the production of any documentation or information in support of XPL’s invoice.
Six weeks later, on August 2, North Bay brought a motion to discharge XPL’s lien under s. 47 of the Construction Act.
“North Bay argued that the lien was an abuse of process since XPL had failed to comply with Justice Nicholson’s order,” write Del Vecchio and Lean.
For its part, XPL argued a party’s failure to abide by a court order or other procedures was insufficient grounds for discharging a lien. There must be an abuse of process associated with the lien itself under s. 47.
Justice Nicholson sought guidance from previous court decisions to determine, in his words, “whether there is a triable issue in respect to any of the bases on which discharge of the lien is sought,” and the historical treatment of the terms “frivolous,” “vexatious,” and “abuse of process” in the context of liens.
In reference to the application of the term “abuse of process,” Del Vecchio and Lean write the court determined the term, “refers to circumstances where a party is engaging in conduct that is manifestly unfair to another party or would bring the administration of justice into disrepute.
“’Frivolous’ would describe an action that appears so unlikely to succeed that it is apparently devoid of practical merit,” they continue. “The term ‘vexatious’ can refer to a variety of different conduct including commencing actions for improper purposes such as harassment and oppression.”
Both North Bay and XPL submitted a significant amount of material, including sworn affidavits from Verg’s company principal that allegedly confirmed XPL had failed to substantiate its invoices or explained the difference between its original estimate and the total amount invoiced.
XPL countered, offering correspondence that suggested some form of “side deal” was in place between the principals of Verg and XPL.
It became what Justice Nicholson described “a tangled knot of evidence.”
Worth noting was Justice Nicholson’s ruling regarding an “abuse of process” in a lien action.
“Justice Nicholson reaffirmed that failure to abide by court orders may constitute an abuse of process sufficient to justify the discharge of a lien,” write Del Vecchio and Lean.
However, in this case, Justice Nicholson ruled discharging a lien totalling over $875,000 “would not be a proportional remedy.”
This case will likely promote further discussion regarding the court’s discretion when discharging a lien.
“With respect to whether a lien itself is frivolous, vexatious, or an abuse of process, the evidence being relied on must be clear and equivocal,” write Del Vecchio and Lean. “Failure to produce documents substantiating the underlining lien and non-compliance with court orders may not be sufficient.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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