Construction lien claims: Takeaways from XPL Construction Solutions Inc. v. North Bay Capital Investments Ltd.

( Disponible en anglais seulement )

2 mars 2023 | Riccardo Del Vecchio, Nathan Lean

A January 2023 court decision from Ontario, XPL Construction Solutions Inc. v. North Bay Capital  Investments Ltd., dealt with a motion by the Defendant, North Bay Capital Investments Ltd. (“North Bay”), seeking an order to, among other things, discharge a construction lien pursuant to s. 47 of the Construction Act SO 1990, c C.30 (the “Act”).

Specifically, North Bay argued that the subject construction lien should be discharged pursuant to s. 47(1)(a) of the Act on the basis that the plaintiff, XPL Construction Solutions Inc. (“XPL”), had engaged in an abuse of process.

The central issue on the motion was what constitutes an “abuse of process” in the context of s.47 of the Act, and whether the amount of XPL’s claim for lien, or its conduct, could be fairly described as frivolous, vexatious or an abuse of process. As Justice Spencer Nicholson noted in his reasons, this is an issue which has received little judicial discussion to date.

Background 

In April, 2021, North Bay retained the co-defendant, Verg Construction Corp. (“Verg”), to construct a McDonald’s restaurant, Esso carwash and Pet Valu retail store on property in St. Mary’s, Ontario.  Verg, as general contractor, retained XPL as a subcontractor on the project.

Although XPL’s estimate for its scope of work was $239,364.72 (which was used by Verg to form the basis of Verg’s tender for the project), XPL ultimately invoiced a total of $877,231.69, including an invoice for $530,973.55, which was issued just after XPL’s termination.

Following registration of XPL’s claim for lien, North Bay cross-examined XPL’s principal, Mr. Lougheed, pursuant to section 40 of the Act. Soon after, North Bay brought a motion to compel XPL to answer its undertakings and refusals arising from the section 40 cross-examination.

By the time the refusals motion was argued on May 25, 2022, the only undertaking at issue was the requirement for XPL to produce the supporting information and “back up” documentation for its $530,973.55 invoice.   Justice Nicholson, who also heard the refusals motion, ordered XPL to answer its outstanding undertakings by June 20, 2022.

The deadline passed without XPL producing any information or documentation to support its post-termination invoice. On August 2, 2022, North Bay brought a motion under s. 47 of the Act to discharge the XPL lien.

North Bay argued that the lien was an abuse of process since XPL had failed to comply with Justice Nicholson’s order. XPL on the other hand, argued that the lien itself must be an abuse of process for the purposes of s. 47, not a party’s failure to abide by a court order or other procedures.

The issues and the Court’s decision

The Court began its analysis by setting out the general legal principles which govern motions under s. 47 of the Act. Justice Nicholson adopted Associate Justice Robinson’s description of the test for s. 47 motions from a 2020 decision, namely, GTA Restoration Group Inc. v. Baillie[1] (“GTA). The key consideration is “whether there is a triable issue in respect to any of the bases on which discharge of the lien is sought.”

Justice Nicholson then turned to how lien actions have historically treated the terms “frivolous”, “vexatious”, and “abuse of process” in the context of lien disputes. Citing GTA and Elegant Design Kitchen Renovations & Contracting Inc. v. Ojero,[2] the court found that existing case law considering rule 21.01(3)(d) [3] under Ontario’s Rules of Civil Procedure could  be used to assess motions brought under s. 47(1)(a) of the Act. In other words, the court could apply the following established definitions and principles:

  • the term “frivolous” is used to describe an action that appears so unlikely to succeed that it is apparently devoid of practical merit;
  • the term “abuse of process” 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; and
  • the term “vexatious” can refer to a variety of different conduct including commencing actions for improper purposes such as harassment and oppression.

Both parties put forward voluminous materials dealing with: a) whether the lien itself was an abuse of process, frivolous and/or vexatious; and b) whether XPL’s conduct constituted an abuse of process. North Bay’s materials included affidavits sworn by Verg’s principal, Mr. Vergalito, alleging that XPL had failed to substantiate its invoices or explain the delta between its estimate and the amount invoiced. However, and perhaps unexpectedly for North Bay, XPL’s materials contained emails (including pre-project emails) between Mr. Vergalito and Mr. Lougheed which suggested a certain side and underlying agreement between Verg and XPL, the particulars of which alleged arrangement were canvassed and considered by Justice Nicholson.

Justice Nicholson held that he could not manage such a “tangled knot of evidence” on a s. 47 motion. The numerous credibility issues and evidentiary discrepancies including with respect to the scope of work agreed to between Verg and XPL (which parties had a history between them and how the history and relationship between the parties influences determinations including, whether Verg effectively waived back-up documentation vis-à-vis XPL), the work actually performed by XPL and the value of those services would require a trial to resolve.  Justice Nicholson found that there was a triable issue as to whether XPL was attempting to secure fair compensation for work that it performed on the project, in furtherance of its agreement with Verg.

With respect to the issue of whether XPL’s conduct constituted an “abuse of process”, Justice Nicholson reaffirmed that failure to abide by court orders may constitute an abuse of process sufficient to justify the discharge of a lien. However, Justice Nicholson further noted that there is an overwhelming preference for claims to be determined on their merits, and discharging a roughly $875,000 lien in this set of circumstances would not be a proportional remedy.

 Key takeaways

This decision clarifies the factors a court will consider on a motion to discharge a construction lien under s. 47(1)(a) of the Act (which should not be made lightly), and adds to the judicial discussion about the discretion for the court to discharge construction liens that are demonstrated to be a misuse of the Act.

If a party alleges a lien claimant’s conduct warrants the discharge of the party’s lien claim, the transgression will need to be severe enough to justify removal of a party’s lien rights. Failure to produce documents substantiating the underlining lien and non-compliance with court orders may not be sufficient (but note, as did Justice Nicholson, that Associate Justice Robinson referenced non-compliance with court orders as conceivably constituting « proper grounds » that could support discharging a lien under s. 47 at para. 44 of GTA Restoration).

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. As with any motion brought under s. 47 of the Act, a trial will likely be required if oral evidence and cross-examination are required in order to make findings of fact and credibility.

Our Miller Thomson Construction Litigation Lawyers are here to assist you with, among other things, the assessment, commencement and prosecution of motions in the context of construction lien, trust and bond claims, or responding to such motions.


[1] 2020 ONSC 5190.

[2] 2009 CanLII 43645

[3] This rule empowers a judge to dismiss or stay an action on the ground that the action is « frivolous or vexatious or is otherwise an abuse of process of the court »

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