Construction Liens and an Abuse of Process – What it May Take to Discharge a Lien
One of the main purposes of the Construction Act, R.S.O. 1990, c. C. 30 (the “Act”) is to provide security for services and materials supplied in construction projects. The Act allows anyone who has supplied services and/or materials to a property improvement to register a lien against title to the property. A Lien is a powerful tool and can often take priority over other charges, such as mortgages, that predated the registration of the lien.
Contractors do not have to meet any evidentiary requirements to register a lien. The process to register a lien against title is hardly onerous. That said, the Act does provide a clear, and quick, mechanism to vacate a lien from title. This is not to be confused with discharging a lien. When a lien is vacated, the security for work and materials still exists – however, the security is no longer in the form of a registered charge against title, but rather it is secured by monies paid into Court by the owner of the liened property. The monies can only be released from Court on the consent of the parties or by Order of the Court.
While vacating a lien is a useful mechanism that enables many construction projects to proceed, it is nevertheless a significant cost to the owner as the entire amount claimed in the lien (plus an additional 25% for security for costs ) remains unavailable for an indeterminate amount of time.3 This becomes particularly concerning when the claims are large and without merit.
Therefore, the Act also provides a mechanism in section 47 for discharging liens that are frivolous, vexatious, or an abuse of process (or on any other proper ground the Court considers appropriate).4 This article will provide an overview of what is required to obtain a discharge of a lien on the grounds that it is an abuse of process in light of the Court’s recent decision in XPL Construction Solutions Inc. v. North Bay Capital Investments Ltd., 2023 ONSC (“XPL Construction”). The test is whether there is any triable issue on whether the lien (or the contractor’s conduct) can be fairly described as frivolous, vexatious, or an abuse of process with the onus being on the party bringing the motion (typically the owner).5
The Court’s decision in XPL Construction provides an overview of interpretative principles governing section 47 and more particularly, what constitutes an “abuse of process” for the purposes of discharging a lien. In XPL Construction, North Bay Capital Investments Ltd. (“North Bay”) sought a motion to discharge XPL Construction Solutions Inc.’s (“XPL”) lien on such a ground. North Bay claimed that XPL’s “failure to expeditiously provide back up evidence in support of [an] invoice and then [its] subsequent failure to comply with a Court Order [to produce undertakings]… constitute[d] the requisite abuse of process”.6
The Court disagreed. The judge found that while the Court in no way condones disregarding court orders, the nature of the order (that was not complied with) was not such an affront to the integrity of the court so as to constitute an abuse of process, especially when there was a legitimate excuse. It is unclear whether failure to provide a legitimate excuse in the circumstances would have altered the result.
For instance, in Elegant Design Kitchen Renovations & Contracting Inc. v. Ojero, 2009 ONSC, the defendant was successful in establishing an abuse of process where the plaintiff failed to cooperate with producing documents by way of undertakings and appearing at motions and other important dates, such as cross-examinations. However, it is noteworthy that the plaintiff ultimately discharged the lien themselves on the eve of the statutory expiration period. The Court found that their conduct, which ultimately tied up the defendant’s property for two years, was an abuse of process as they did not show a serious intent to proceed with the action.
In GTA Restoration Group Inc. v. Baillie, 2020 ONSC 5190 (“GTA Restoration”), Master Todd Robinson (now Associate Judge Robinson) found that a lien that is wilfully exaggerated constitutes an abuse of process under section 47.7 This is slightly paradoxical for the purposes of completely discharging a lien, since the exaggeration of a lien still contemplates the existence of a potentially valid lien (albeit for a lower amount). The lien in GTA Restoration was ultimately reduced as opposed to fully discharged.
Lastly, Lazi Ventures Inc. v Paul Carter and Elaine Lam, 2022 ONSC 3111 (“Lazi Ventures”) held that a contractor’s conduct that is found to be oppressive or unfair may be an abuse of process that justifies discharge of a lien (as well as dismissal of the action).8 In Lazi Ventures, the court found that the contractor made various misrepresentations and legal threats with several homeowners in the past. The contractor would misrepresent to the homeowner that (a) they would finish the work (despite constantly leaving the work unfinished), (b) that the cost of the repairs would be covered by an insurance company, and (c) that they are licensed to practice law. As all of these representations were proven false, the Court found that allowing the contractor to use the legal process to further its plans would bring the administration of justice into disrepute.
Overall, the above cases provide examples of the general parameters that are required to establish an abuse of process in order to discharge a lien under section 47 of the Act. As may be inferred, the owner must meet a rather high factual and evidentiary threshold to obtain a discharge. While a complete discharge of a lien may be difficult to obtain absent compelling facts and evidence, the courts have nevertheless shown an increased willingness to reduce the claimed lien amounts for unsubstantiated portions that were significantly above the price and/or value of the underlying contract. While only a partial remedy for a despondent owner, it is a helpful remedy, nonetheless.
2 Boehmers v. 794561 Ontario Inc., (1993), 14 O.R. (3d) 781 (Gen. Div.), aff'd. (1995), 21 O.R. (3d) 771 (C.A.)
3 Note: Different sum may be required to be paid into Court depending on whether the Construction Act, R.S.O. 1990, c. C.30 or the former Construction Lien Act, RSO applies.
4 Construction Act, R.S.O. 1990, c. C.30, section 47(1)(a).
5 Maplequest (Vaughan) Developments. Inc. v. 2603774 Ontario Inc., 2020 ONSC 4308 (Div Ct) at para. 2; XPL Construction Solutions Inc. v. North Bay Capital Investments Ltd., 2023 ONSC 238 [XPL Construction] at para 41.
6 XPL Construction at para 29.
7 GTA Restoration Group Inc. v. Baillie, 2020 ONSC 5190.
8 Lazi Ventures Inc. v. Carter, 2022 ONSC3111, aff’d. (2023) ONSC 578.