The liability consequences can spread beyond the party launching a lien, if it is later ruled by the court to be frivolous, vexatious and abusive.
“Liability is also extended to lawyers who were reckless or wilfully blind as to the merit of the lien when they registered and perfected it,” write Edward Lynde, a partner at Fasken Martineau DuMoulin LLP, associate Anna Lu and articling student Lou Pasqualitto.
“Given the drastic and powerful remedy that is the construction lien, and given that liens may be created without immediate judicial oversight, the lawyer who is responsible for a lien has an added duty, in addition to their duty to the client, ‘not to participate in allowing a remedy to be abused.’”
The 2023 case between Viceroy Homes, the contracted builder, and the partnership of Jia Developments and Bridlepath Inc., subject of this column in July 2023, is illustrative of this duty.
Mr. Sun, Viceroy’s principal owner, was angered by Jia’s rejection of his overtures to join as partner in the construction of a series of townhouses in Toronto. He submitted a series of invoices totalling $3.74 million for work allegedly performed, followed very shortly by a lien filing.
Associate Justice Wiebe of the Superior Court of Justice dismissed the liens motions, and awarded costs against Viceroy. In his ruling, he wrote the liens claims were, “for an improper purpose, namely either to force Jia and Bridlepath to agree with Mr. Sun’s joint venture proposal or as a reprisal for not doing so.”
The question whether Viceroy’s legal counsel knowingly participated in a vexatious and frivolous lien later arose when Jia and Bridlepath brought a motion directly against the law firm that represented Viceroy.
They asked the court to force Viceroy’s counsel to pay costs under the Construction Act for participating in the preservation and perfection of a lien that was baseless and without foundation.
“They argued that the lawyers should have investigated the lien further and should have demanded more documents and timely disclosure,” writes Rapti Ratnayake of Construct Legal.
It comes down to the “gatekeeping function” performed by legal counsel that extends beyond the preservation and perfection stages of a lien, write Lynde, Lu and Pasqualitto.
“The gatekeeper function of a lawyer in a lien case must be melded with the lawyer’s first duty to their clients.”
These include due diligence and the timeliness and quantum of supporting documentation.
“Stakeholders should be cautious when reviewing the amounts to include in a lien,” writes Ratnayake. “Amounts being claimed should reflect a legitimate supply of services and/or material.”
“Given the strict timeframes under the act, including those for preservation of liens, lawyers can be faced with the prospect of a request to preserve a lien on the penultimate or last day, failing which, the lien rights will expire,” write Lynde, Lu and Pasqualitto.
“In the circumstances, lawyers must act judiciously and balance several competing interests. The lawyer’s conduct will thereafter be governed by a negligence standard should the lien be found to be, or ought to have been found to be, baseless.”
After reviewing the original 2023 case, Justice Wiebe considered several key points regarding the actions of Viceroy’s counsel to examine any pre-indication they may have had regarding the baseless nature of the lien. He found none.
“I find that (Viceroy’s counsel) was not made aware of a ‘clear probability’ that the Viceroy claim for lien was baseless during the lien preservation and perfection,” Justice Wiebe wrote.
Likewise, “the amount of the Viceroy claim for lien was not a ‘red flag’ warning as to the baselessness of the Viceroy lien.”
Viceroy’s principal owner was, in Wiebe’s words, an “exceedingly uncooperative” client who “chronically failed to produce critical documents, and who eventually conceded under oath he had not been truthful about large parts of the Viceroy claim for lien.”
The Viceroy case caused Lynde, Lu and Pasqualitto to conclude, “Heavy is the weight of such responsibility upon the shoulders of construction lawyers in lien proceedings.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com
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