Ontario Superior Court clarifies what factors a court will consider to discharge a lien on the basis of an "abuse of process"

Since the 2018 amendments to Ontario's Construction Act^[i] (the "Act") there has been little judicial discussion on what factors militate towards a finding of an "abuse of process" under the Act, particularly as it relates to the discharging of a lien pursuant to section 47.

In XPL Construction Solutions Inc. v. North Bay Capital Investments Ltd., 2023 ONSC 238, the Ontario Superior Court recently considered a motion by North Bay Capital Investments Ltd. ("North Bay") seeking the complete discharge of a construction lien registered by XPL Construction Solutions Inc. ("XPL"), on the grounds that XPL had not yet proved its claim for lien with sufficient back-up documentation and that it failed to comply with a court order, alleging that this amounts to an abuse of process.

Background

In April 2021, North Bay contracted with Verg Construction Corp. ("Verg") to construct a McDonald's restaurant, Esso carwash, and a Pet Valu retail store on certain lands in St. Mary's, Ontario. In turn, Verg retained XPL to assist on the project as a subcontractor.

Verg argued that XPL provided to it an estimate for its work on the project to be approximately $239,364.72. This estimate was used by Verg to form its tender for the project. Ultimately, XPL invoiced a total of $877,231.69, which included an invoice for $530,973.55 for work performed and materials that were supplied to the project, after it had been terminated from the project. As of December 31, 2021, XPL had yet to receive any payment on this total amount. In furtherance of collecting on this sum, XPL registered a construction lien against title to the lands on February 1, 2022.

Following XPL's registration of the claim for lien, North Bay arranged to cross-examine XPL's principal pursuant to section 40(3) of the Act. This cross-examination occurred on March 16, 2022. Soon after, North Bay moved for an order to compel XPL to answer certain undertakings/refusals.

When the undertakings/refusals motion was before the court on May 25, 2022, both North Bay and XPL had narrowed the issues down to one: XPL to furnish "back-up" information supporting its invoice in the amount of $530,973.55. The motion judge ordered that XPL answer the specific undertaking by June 20, 2022.

The June 20, 2022 deadline came and passed without XPL answering the specific undertaking regarding its invoice. The motion judge found that no response was forthcoming.

On August 2, 2022, North Bay notified XPL it would be bringing a motion for complete discharge of XPL's claim for lien under section 47 of the Act. North Bay argued that the claim for lien be discharged, whether as an abuse of process or on the basis of ongoing procedural delays or non-compliance with Court Orders, specifically non-compliance with the June 20, 2022 deadline imposed by the motion judge.

The Superior Court decision

On January 10, 2023, the Court dismissed North Bay's motion to discharge XPL's claim for lien. However, the Court did use its discretion under the Act to reduce the amount of XPL's lien from $872,617.26 to $699,535.02, on a without prejudice basis to either party.

The sole issue before the Court was whether North Bay satisfied its evidentiary burden and established that the lien should be discharged on the basis that XPL's claim is frivolous, vexatious or an abuse of process.

The Court first posited that the Act is remedial and therefore intended to protect suppliers of services and materials by allowing for such suppliers to file claims for lien on the premises at which the work is performed, or to which the materials are provided. But despite the Act's remedial nature, there remains two mechanisms for owners subjected to a lien to have it removed, either by way of paying the requisite sum into court or by way of a court order discharging the claim for lien on the basis that it is frivolous, vexatious or an abuse of process, or for any other proper ground.

The Court then examined what is to be considered an "abuse of process" within the context of lien disputes. The Court found that the jurisprudence shows that rule 21.01(3)(d) of the Rules of Civil Procedure^[ii] provides helpful guidance on what constitutes an abuse of process. The terms "frivolous", "vexatious" and "abuse of process" are firmly grounded in judicial lexicon, which can be applied to motions under section 47 of the Act:

• Frivolous: an action which is so unlikely to succeed that it is apparently devoid of practical merit.
• Vexatious: includes a myriad of various actions, notably actions brought for an improper purpose, issues already determined by a court of competent jurisdiction or an action in which no reasonable person can reasonably expect to obtain relief.
• Abuse of process: misuse of court procedure, in a way which would bring the administration of justice into disrepute.

The Court next examined the voluminous evidence adduced by both North Bay and XPL. The Court found there to be substantial issues as to credibility, competing narratives and back-up documents for works performed and services provided.

Given the "tangled knot of evidence" before the Court, it held that it could not discharge the lien on a section 47 motion. The Court found there was compelling evidence that XPL's role went beyond what it originally estimated to Verg and that there was some form of an underlying agreement between XPL and Verg.

The Court emphasized that a party's conduct may constitute an "abuse of process", such as the failure to obey a court order. However, courts are generally reluctant to dismiss a claim for a failure to answer undertakings, even where a court order has compelled a party to do so. There is an overwhelming preference for resolving claims based on their merits and there exist proportional remedies other than dismissing a claim — the Court found that discharging XPL's $872,617.26 claim would not be proportional in the circumstances.

Notably, the Court specified that North Bay had failed to provide any case as authority that failure to provide back-up documentation disentitles a lien claimant to maintain its lien — particularly in light of evidence that Verg and XPL had a history of not papering all transactions.

Key takeaways

1. This decision makes it clear that courts are reluctant to discharge a claim for lien under section 47 unless the impugned conduct is so severe as to put the administration of justice into disrepute.
2. A lien claimant's failure to provide back-up documentation does not disentitle it to maintain its claim for lien.
3. Although it was not found in this decision, the Court clarified that failure to abide by a court order may be sufficient to constitute an abuse of process under section 47 of the Act.
4. If a party wishes to discharge a lien, there must be clear and equivocal evidence that the claim for lien is frivolous, vexatious, or otherwise an abuse of process. If there are issues as to credibility, documentation and the like, a section 47 motion is not appropriate and a trial judge is best equipped to determine the evidentiary and/or factual issues.

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