Court File and Parties

Court File No.: CV-22-00003282-0000 Date: 20230110 Superior Court of Justice – Ontario

In the matter of the Construction Act, R.S.O. 1990, c. C. 30, as Amended

Re: XPL Construction Solutions Inc., Plaintiff/Defendant by Counterclaim AND North Bay Capital Investments Ltd., Verg Construction Corp. and Anthony Vergalito, Defendants/Plaintiff by Counterclaim (North Bay only)

Before: Justice Spencer Nicholson

Counsel: J. Gallichan and E. Johnston for the Plaintiff/Defendant by Counterclaim, Responding Party R. Gillott and K. Lee for the Defendant/Plaintiff by Counterclaim, North Bay Capital Investments Ltd., Moving Party T. Bimb for the Defendants Verg Construction and Anthony Vergalito

Heard: October 5, 2022

Reasons

NICHOLSON J.:

[1] In this construction lien claim, the defendant, North Bay Capital Investments Ltd. (“North Bay”) seeks an order discharging the lien filed by the plaintiff, XPL Construction Solutions Inc. (“XPL”) against title to certain property located in St. Mary’s, Ontario. North Bay had also sought an order dismissing the action as against it, with costs, and that its counterclaim against XPL be permitted to continue. However, North Bay abandoned its request for an order dismissing the action during oral arguments.

[2] The defendants Verg Construction (“Verg”) and Anthony Vergalito, support North Bay’s motion.

Background

[3] On April 13, 2021, North Bay and Verg agreed to construct a McDonald’s restaurant and Esso carwash, as well as a Pet Valu retail store on certain lands in St. Mary’s, Ontario. Following a competitive tender process, Verg agreed to act as general contractor on the project for a stipulated contract price of $4,988,560.00 plus HST.

[4] In turn, Verg retained XPL to assist on the project as a subcontractor. North Bay alleges that XPL provided to Verg an estimate for its work on the project on March 19, 2021, in the amount of $239,364.72. That estimate was used to form the basis of Verg’s tender for the project. The estimate is from T&C Contracting Group Inc., whose principal was Chris Lougheed. North Bay and Verg assert that T&C became XPL.

[5] XPL began its work on the project on May 21, 2021. XPL provided invoices for the period May 21, 2021 to August 4, 2021 to Verg for the work it completed. According to North Bay, XPL did not provide supporting documents for these invoices, in the nature of timesheets or materials invoices, despite Verg’s requests for such documentation. However, Verg is described by North Bay as having made payments of all of these invoices in full. No further invoices were submitted by XPL after August 4, 2021.

[6] From August 4, 2021 to December 2021, XPL continued to perform work on the project, without submitting invoices. However, Verg continued to make payments to XPL for its work.

[7] Although the basis for its termination is contentious, XPL was terminated from the project in December of 2021. On December 23, 2021, XPL submitted an invoice in the amount of $530,973.55 for work it claims was performed and materials that were supplied, but for which no payment was received.

[8] North Bay and Verg back charged the sum of $275,511.99 inclusive of HST on account of alleged poor workmanship and deficiencies. This sum included, for example, costs associated with XPL improperly cutting down 37 trees without permit. Verg and North Bay allege that as of December 31, 2021, XPL owes them the total amount of $380,764.70.

[9] XPL alleges that the defendants owe it the sum of $877,231.69 for services and materials supplied to the project. In furtherance of collecting this sum, XPL registered a claim for lien against title to the lands in St. Mary’s on February 1, 2022.

[10] The registration of the claim for lien has effectively halted the project. North Bay argues that the lien has negatively impacted many stakeholders in the project, including the defendants, the community, the businesses awaiting completion of the project and the various subtrades that remain unpaid.

[11] Other project subcontractors have also registered claims for lien as well. The total amount of these claims is $632,212.53. These five subcontractors have also registered certificates of action.

[12] Following the registration of the claim for lien on February 1, 2022, North Bay arranged to cross-examine Chris Lougheed, now the director of XPL, pursuant to s. 40(3) of the Construction Act, R.S.O. c. C. 30 (the “Act”). That cross-examination occurred on March 16, 2022.

[13] During the cross-examination, Mr. Lougheed gave eight undertakings and refused to answer or took under advisement whether to answer three questions. Despite requests by North Bay that these undertakings/refusals be answered, no answers were immediately forthcoming. On May 25, 2022, North Bay moved for an order to compel XPL to answer these undertakings/refusals.

[14] That motion was before me on May 25, 2022. By the time that the motion was argued, the parties had focussed the motion on one outstanding undertaking, to furnish “back-up” information supporting XPL’s invoice in the amount of $530,973.55. In my endorsement, I noted that the motion was brought prematurely, before affording XPL a reasonable opportunity to respond to its undertakings. However, XPL’s counsel was prepared to provide the information sought by North Bay and I canvassed with counsel for XPL the deadline of June 20, 2022 by which to furnish the answer to the specific undertaking. An order was thus issued that XPL would furnish the supporting evidence with respect to the $530,973.55 invoice by June 20, 2022.

[15] Unfortunately, the June 20, 2022 deadline came and went without XPL answering the lone question. Counsel for North Bay wrote to counsel for XPL in furtherance of that information on June 22, 2022. No response was forthcoming. No further invoices or back-up documentation was provided by XPL until it filed its material on this motion.

[16] On August 2, 2022, North Bay’s counsel notified counsel for XPL that it would be bringing the within motion to have the claim for lien discharged. The motion was scheduled to be argued on September 20, 2022, a day which happened to find me in Stratford’s motion court. However, insufficient time (one hour) had been set aside for the motion given the volume of responding material furnished by XPL. I made arrangements for the motion to be resumed before me on October 5, 2022 rather than wait several months for the parties to be assigned a new hearing date.

Evidence on the Motion

[17] North Bay’s motion was originally supported by an affidavit of Yao Zhang, sworn August 19, 2022. Mr. Zhang is the director of North Bay and was intimately involved in the project. There is also an affidavit from Anthony Vergalito, the president of Verg, dated August 19, 2022. I note that Mr. Vergalito has over 30 years of experience in the construction industry, primarily as a general contractor. With exhibits, these two affidavits are approximately 465 pages in length.

[18] XPL’s responding material consists of an affidavit sworn by Lithouthay “Thai” Xaysy, dated September 6, 2022. Mr. Xaysy is the Vice-President, CEO and Director of XPL. He co-founded XPL with Mr. Lougheed in April 2021. Mr. Xaysy’s role with XPL was managing the employees, sub-trades and other administrative tasks. Mr. Lougheed had the experience and connections within the construction industry. Mr. Xaysy’s affidavit, including exhibits, is approximately 215 pages in length.

[19] Mr. Lougheed submitted an affidavit on behalf of XPL sworn September 19, 2022. It is approximately 240 pages in length, including its exhibits. He has also filed a further affidavit sworn September 27, 2022.

[20] In response to XPL’s material, North Bay submitted two affidavits from the defendant, Anthony Vergalito sworn September 19, and September 27, 2022.

[21] Finally, the transcript from Mr. Lougheed’s cross-examination, 79 pages in length, was produced.

[22] In reaching my decision, I reviewed all of the material adduced on this motion.

Relevant Legal Principles

[23] The Construction Act is remedial legislation intended to provide security for work and materials in construction projects and a relatively inexpensive and expeditious process to resolve related disputes (see: R & V Construction Management Inc. v. Baradaran, 2020 ONSC 3111 (Div. Ct.) at para. 32). As noted by the Divisional Court, its procedures should be implemented in such a way as to advance the objectives of providing a summary and inexpensive remedy.

[24] Suppliers of services and materials are protected under the Act by the ability to file claims for lien on the premises at which the work was performed, or to which the materials were provided. However, the Act provides a mechanism for owners of the premises subjected to a lien to have the lien removed. This can be done by paying the requisite sum into court, or posting security, under s. 44 of the Act.

[25] Alternatively, discharge of a lien may be ordered under the Act if the basis for the claim for lien is frivolous, vexatious or an abuse of process, or for any other proper ground pursuant to section 47 of the Act. Registration of a claim for lien or certificate of action may also be ordered vacated, or an action dismissed, on any proper ground under s. 47 (1.1) of the Act.

[26] In GTA Restoration Group Inc. v. Baillie, 2020 ONSC 5190, Master Robinson (now Associate Justice Robinson), referred to R & V Construction, supra, and Maplequest (Vaughan) Developments Inc. v. 2603774 Ontario Inc., 2020 ONSC 4308 (Div.Ct.). He described that the test under s. 47 remained “whether there is a triable issue in respect to any of the bases on which discharge of the lien is sought” (at paras. 42-48). In his view, there remained an evidentiary onus on both parties to put their best foot forward on a motion under s. 47, although he recognized that this did not apply in all s. 47 motions.

[27] In Maplequest, the Divisional Court noted the similarities between a motion under s. 47 of the Act and a summary judgment motion. They are analogous, but not the same (at para. 25). The Divisional Court held that the correct test to apply was “whether there is a triable issue in respect to any of the bases on which discharge of the lien is sought”.

[28] In Dominus Construction Corporation v. H & W Development Corp., 2019 ONSC 7235, Casullo J. noted the similarities between motions under s. 47 of the Act and summary judgment motions and commented that if there are genuine issues of fact, the matter should be left to the trial judge. In her view, a motion to discharge a lien should only be granted in the clearest of cases (at para. 29).

[29] What is an “abuse of process” in the context of s. 47 of the Act is a central issue on this motion. North Bay argues that XPL’s failure to expeditiously provide back up evidence in support of the $530,973.55 invoice and then subsequent failure to comply with my order dated May 25, 2022 constitutes the requisite “abuse of process” that would permit the court to discharge the lien. Interestingly, Master 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, supra.

[30] XPL argues that it is the lien itself which must be the abuse of process, not a party’s failure to abide by a court order or other procedures.

[31] I agree that there is little judicial discussion of “abuse of process” in the caselaw in the context of the Construction Act, due to the recent amendments to the Act, which came into force in July 2018. In GTA Restoration, supra, Master Robinson described that s. 47 of the Act had been amended to include as a ground for discharging a lien the fact that the lien was “frivolous, vexatious or an abuse of process”. Importantly, he noted, at para. 58, that the amendments to the Act were intended to and provide greater discretion for the court to discharge liens that are demonstrated to be a misuse of the Construction Act.

[32] In Elegant Design Kitchen Renovations & Contracting Inc. v. Ojero, Ramsay J., at para. 15, held in a construction lien case that the plaintiff’s conduct of the action amounted to an abuse of process. He described that the plaintiff tied up the defendant’s land for two years without intending seriously to proceed and without providing its lawyers instructions to proceed. The plaintiff stalled the cross-examination to which the defendant was entitled under the rules and Act. It then discharged the lien on the eve of its statutory expiration. Ramsay J. relied upon this abuse of process to dismiss the action.

[33] I note that Ramsay J. referred to rule 21.01(3)(d) of the Rules of Civil Procedure for guidance on what constitutes an abuse of process. That 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”. Master Robinson, in GTA Restoration, also noted that there was “a body of existing case law regarding similar frivolous, vexatious, and abuse of process language” in the Rules that may be of assistance in assessing the new language used in s. 47(1)(a) of the Act (at para. 58).

[34] Thus, the terms “frivolous”, “vexatious” and “abuse of process” are firmly grounded in judicial lexicon.

[35] XPL referred me to Canam Enterprises Inc. v. Coles. In that case, the Ontario Court of Appeal applied the abuse of process doctrine in the context of issue estoppel, describing that abuse of process was a discretionary principle used to bar proceedings that are inconsistent with the objectives of public policy (at para. 31). In that context, the general principles of abuse of process acted to protect a party from defending a cause of action previously litigated where issue estopped did not strictly apply.

[36] In dissent, Goudge J.A., described the doctrine of abuse of process as follows, at para. 55:

[55] The doctrine of abuse of process engages the inherent power of the court to prevent the misuse of its procedure, in a way that would be manifestly unfair to a party to the litigation before it or would in some other way bring the administration of justice into disrepute. It is a flexible doctrine unencumbered by the specific requirements of concepts such as issue estoppel. See House of Spring Gardens Ltd. v. Waite, [1990] 3 W.L.R. 347 at p. 358, [1990] 2 All E.R. 990 (C.A.).

[37] The Court of Appeal in Salasel v. Cuthbertson, 2015 ONCA 115, in the context of rule 21.01(3)(d) described the test for determining whether an action was frivolous, vexatious or otherwise an abuse of process. At para. 9, Brown J.A. described that “[a]ny action for which there is clearly no merit may qualify for classification as frivolous, vexatious or an abuse of process, with a common example being the situation where a plaintiff seeks to relitigate a cause which has already been decided by a court of competent jurisdiction”. He further noted that a court could only invoke its authority under rule 21.01(3)(d) or pursuant to its inherent jurisdiction to dismiss or stay an action in the clearest of cases.

[38] The term “vexatious” was reviewed at length in Re Lang Michener and Fabian, a case that continues to be frequently relied upon by the courts. Henry J. described the following as hallmarks of being vexatious:

(a) the bringing of one or more actions to determine an issue which has already been determined by a court of competent jurisdiction constitutes a vexatious proceeding;

(b) where it is obvious that an action cannot succeed, or the action would lead to no possible good, or if no reasonable person can reasonably expect to obtain relief, the action is vexatious;

(c) vexatious actions include those brought for an improper purpose, including the harassment and oppression of other parties by multifarious proceedings brought for purposes other than the assertion of legitimate rights;

(d) it is a general characteristic of vexatious proceedings that grounds and issues raised tend to be rolled forward into subsequent actions and repeated and supplemented, often with actions brought against the lawyers who have acted for or against the litigant in earlier proceedings;

(e) in determining whether proceedings are vexatious, the court must look at the whole history of the matter and not just whether there was originally a good cause of action;

(f) the failure of the person instituting the proceedings to pay the costs of unsuccessful proceedings is one factor to be considered in determining whether proceedings are vexatious;

(g) a party’s conduct in persistently taking unsuccessful appeals from judicial decisions can be considered vexatious conduct of legal proceedings.

[39] The term “frivolous” is used to describe an action that appears so highly unlikely to succeed that it is apparently devoid of practical merit.

[40] I recognize that the construction lien context is not the equivalent of other civil actions governed by the Rules. However, the Construction Act does refer specifically to the Rules in respect of lien claims enforceable by way of actions, in s. 50 of the Act. In my view, it is appropriate to consider how the doctrines of abuse of process, and how the terms “vexatious” and “frivolous” have been interpreted under rule 21.01(3)(d) in applying those terms in the context of a s. 47 motion to discharge a lien.

Review of the Evidence

[41] With those principles in mind, I turn now to some of the specific evidence in this case. In my view, the motion turns on whether there is a triable issue on whether the amount of XPL’s claim for lien, or its conduct, can be fairly described as frivolous, vexatious or an abuse of process. The onus is upon North Bay.

[42] I begin with the estimate provided by XPL to Verg upon which North Bay asserts the parties’ relationship was founded. The estimate is for the erection of a building shell for a McDonalds store and sets out the estimated price of $239,364.72. Other than this estimate, Mr. Vergalito deposes that there were no other formal written subcontracts between Verg and XPL. Mr. Vergalito does state that the scope of XPL’s work did “evolve” from the estimate.

[43] I note that it is clear from the Project Monitor Report dated December 19, 2021, that the interior of the McDonalds restaurant was to be completed by a contractor hired by McDonalds and was not part of the scope of work of XPL. By the date of this report, it would appear that the work contemplated by the estimate had been substantially completed.

[44] According to Mr. Zhang, over the period from May 21, 2021 to August 4, 2021, Verg made payments to XPL on various invoices in the amount of $116,904.47. No further invoices were submitted until XPL submitted the $530,973.55 invoice on December 23, 2021 following its termination.

[45] In his affidavit, Mr. Zhang describes that he was actively involved in the management of the project. For example, he describes denying a request by XPL for a change order in the amount of $4,130.15 on October 8, 2022 (sic) and allowing a claim for an extra to XPL in the amount of $2,825.00 on October 12, 2021.

[46] In his affidavit, Mr. Vergalito complains that despite Verg’s requests, XPL would not provide any back-up documents in support of the invoices that it did submit. He deposes that he kept careful site notes of his observations about the subcontractors’ work on the project. In his affidavit, Mr. Vergalito indicates that XPL performed approximately $72,596.80 plus HST of work that had not been contemplated within the original estimate.

[47] From May 21, 2021 to December 22, 2021, Verg paid the sum of $207,519.51 to XPL for its work on the project. According to Mr. Vergalito, Verg also made direct payments to many of XPL’s suppliers to ensure the continued timely supply of materials to the project. Mr. Vergalito summarizes that Verg paid $104,621.20 inclusive of HST to suppliers on behalf of XPL. In total, Verg paid approximately $312,000 either to XPL or XPL’s material suppliers.

[48] Mr. Vergalito deposes that he was shocked when he received the December 23, 2021 invoice for a further $530,713.55 from XPL. In contrast, the largest subcontractor on the project, Armstrong Paving, had provided a quote for $630,695.49. Thus, he asserts that the amount claimed by XPL far exceeded his expectations.

[49] Verg and North Bay demanded that XPL provide “back-up” documentation in respect of the December invoice. They sought inter alia timesheets, ledgers, accounting statements, invoices from suppliers and receipts for materials.

[50] In early January 2022, Mr. Lougheed was arrested for breaking and entering into the trailers located on the premises upon which the project was situated. Importantly, XPL asserts that Mr. Vergalito has been denying access to the project trailer and thus XPL’s employees cannot retrieve much of the documents pertaining to this case, including the written contract it claims to have entered into with Verg.

[51] Mr. Xaysy, for XPL, deposes to an agreement between Mr. Vergalito, himself and Mr. Lougheed in relation to this project that is outside the scope of the documentation provided. He asserts that Mr. Vergalito proposed that if XPL and Verg did a lot of the work on the project themselves, while also acting as site supervisors, they would be able to submit the most attractive tender and make significant profits. Mr. Xaysy states that Mr. Vergalito represented that they would split the general contractor work on a 50/50 basis, each incur 50% of the expenses and each take 50% of the profits. In essence, Mr. Xaysy deposes that at Mr. Vergalito’s behest, XPL submitted false quotes to secure the project.

[52] This alleged agreement is supported by an email dated February 20, 2021 from Mr. Vergalito to Mr. Lougheed. An excerpt from the email reads as follows:

Plus I have 10% and $250,000.00 in overhead and Profit we really have little overhead; I am not saying we will get all that but we will try to negotiate as best we can and we split 50% each we can make a formal contract between Verg Co. Corp and T & C before we start.

So let’s do a lower price for all the work you can do to try to get this it is a Big opportunity for both of us to join their Team, Simon and Neil are pushing for us because they will make something as well, we all win.

Please send me your quotes no later than Monday morning, I want to be prepared for Friday so I just enter the low sub numbers and review the scope they have in and out.

[53] There are further emails from Mr. Vergalito to both Mr. Lougheed and Mr. Xaysy from the spring of 2021. Those emails refer to the group making “lots of money on this one”. One of Mr. Vergalito’s emails indicate that he wanted Mr. Lougheed and Mr. Xaysy to keep this a secret so the owner (“Yao Z”) does not find out.

[54] Unlike Mr. Vergalito, Mr. Xaysy says that Verg and XPL did make a written contract beyond the estimate. Mr. Lougheed also asserts that there is a written contract. Mr. Xaysy produced a photo of the alleged written contract on his cellphone. However, the photo only shows one and a half pages of the alleged contract and XPL’s name is nowhere on those pages. It is very difficult to put any weight on this document. Mr. Xaysy states that Mr. Vergalito intentionally withheld a copy of this written agreement from XPL.

[55] Mr. Xaysy has included an Excel Spreadsheet of a Draft Budget that he alleges Mr. Vergalito created for he and Mr. Lougheed to review, dated February 13, 2021. This document is markedly higher than the T&C quote that was ultimately proffered.

[56] Although it appears to relate to another project involving Wendy’s, Mr. Xaysy has included an email dated July 6, 2021 from Mr. Vergalito to several individuals, including a representative of Wendy’s and Mr. Xaysy and Mr. Lougheed. Mr. Vergalito makes two important statements in this email, as follows:

• “No I am the Prime GC and T&C Group and XPL Solutions are also GC working under my umbrella self-performing work on site, to help with the costs, coordination, safety and schedule.”
• “This was work self-performed by T&C Group and XPL Solutions for various customers.”

[57] On June 9, 2021, Mr. Vergalito writes “Verg Construction Corp. is working in collaboration with Chris Lougheed from T&C Group and Thai from XPL Solutions. We have been working together on similar projects for many years”.

[58] Mr. Xaysy also deposes that XPL would submit invoices to Verg for labour and materials. Mr. Vergalito would demand a lower amount advising XPL that it would have to wait to be reimbursed for the full amount due to cash flow constraints. XPL would then re-submit a lower invoice. Thus, XPL has included two invoices bearing the date May 21, 2021 with the same invoice number. The first is in the amount of $54,564.02. The second is for $25,000 and includes the line “even out the invoice”. Mr. Xaysy alleges that this inaccurate invoicing practice was done on the instructions of Mr. Vergalito. Mr. Xaysy deposes that XPL relied upon promises by Mr. Vergalito that it would be properly compensated for the balance of its work once funding became available.

[59] In his affidavit, Mr. Xaysy states that following XPL’s termination, both Mr. Zhang and Mr. Vergalito advised him that they would reimburse him for the money that he had personally paid for the project, on condition that the money was not paid to XPL. He asserts that they asked him to prepare an invoice from a new company (not XPL) for payment. According to Mr. Xaysy, he discussed items with Mr. Vergalito to include in the invoice. Then, Mr. Xaysy prepared a handwritten draft invoice which he shared with Mr. Vergalito. Mr. Vergalito sent the invoice to Mr. Zhang. That invoice was for $270,000 plus HST. In his text to Mr. Zhang, Mr. Vergalito wrote “This is what Thai came up with $270k for a total…Can you help to open a new company, or should Thai do this so he can be paid.”

[60] Mr. Xaysy was even concerned that by opening up a new company to submit this invoice that he could be accused of fraud or embezzlement, which he discussed with Mr. Vergalito. On January 8, 2022, Mr. Vergalito wrote to Mr. Zhang “Yao, Can you call us when you have a minute Thai talked to someone about opening another company for payment and he was told it may cause an issue embezzlement”. According to Mr. Xaysy, they assured him it was not an issue and thus he did start a new company, “X Builds”.

[61] Mr. Xaysy deposes that after the motion for undertakings was heard in May of 2022, Mr. Lougheed was incarcerated and was unable to respond to their counsel. Their counsel was not aware that he had been incarcerated. Thus, the deadline imposed in my May 25, 2022 order was not complied with. Mr. Xaysy deposes that he was not aware of the deadline as Mr. Lougheed was instructing counsel on behalf of XPL. I note that Mr. Xaysy indicates that Mr. Lougheed’s incarceration was unrelated to this matter.

[62] In response to Mr. Xaysy’s affidavit, Mr. Vergalito asserts that Verg has paid many of the invoices directly to suppliers that XPL claims have not been paid. For example, Verg has produced cheques made out to Home Building in the amount of $53,675.02. Thus, Verg claims that XPL has improperly included these sums in its claim for lien. These were all paid in 2021, prior to the termination of XPL.

[63] Mr. Vergalito attests to having paid most of the suppliers that XPL claims have not been paid and to which it has liability.

[64] Mr. Lougheed’s affidavit indicates, unsurprisingly, that Mr. Xaysy’s description of the agreement between them and Verg is accurate. He offers various emails as proof that XPL was performing site management, site supervision and site safety roles for the entire project, although such roles are not included in the T&C estimate. The emails include project updates to various individuals. Those updates appear to deal with work beyond that set out in the T & C estimate.

[65] I note a lengthy email from Mr. Lougheed to Mr. Vergalito dated December 10, 2021. By that time, it is clear that their relationship had broken down and they were mutually finger pointing to assign the blame for the manner in which the project was being run. This email suggests that XPL was also at least involved with the Pet Valu work, which is beyond the scope of the T & C estimate. Mr. Lougheed frequently referred to XPL having supervision responsibilities.

[66] In his final affidavit, Mr. Vergalito takes issue with the hourly rates purportedly charged by some labourers, and points to inconsistencies between various pieces of evidence on this issue. He also alleges that XPL improperly retained a subcontractor, Quality Concrete, without prior authorization.

[67] Mr. Lougheed addresses the Quality Concrete argument in his last affidavit, in which he includes an email that certainly suggests that Mr. Vergalito was directly involved in retaining Quality Concrete. Quality Concrete provided quotes to him, and he was in frequent contact with them at the requisite time. Frankly, this undermines Mr. Vergalito’s evidence considerably.

Analysis

[68] From this review of the evidence, it is clear that there is a very tangled knot of evidence involving Mr. Vergalito and Mr. Lougheed. It is very hard for this court on a motion to discharge to determine what precisely has transpired. Whether North Bay was aware of the situation is also unclear.

[69] Particularly troubling to me is that Mr. Vergalito, despite filing three affidavits, does not offer any explanation for the pre-project emails that seem to suggest that Mr. Vergalito, Mr. Lougheed and Mr. Xaysy were operating under an agreement that was undisclosed to North Bay. The emails contained in the responding material demand an explanation and the lack of one is glaring. Mr. Vergalito does not disavow authoring the emails. It is therefore not clear to me that XPL’s scope of work on this project should be defined by the T&C estimate. In particular, the email from Mr. Vergalito to Mr. Lougheed dated February 20, 2021 suggests that the T&C estimate was an intentionally low estimate with the expectation that XPL could do the work and Verg would share the profit.

[70] Furthermore, despite Mr. Vergalito claiming to have sought back-up documents from XPL throughout the project, without response, none of his emails to Mr. Lougheed or Mr. Xaysy suggest that XPL has failed to provide back-up documentation, at least until their relationship sours. This assertion seems to have first arisen after XPL was terminated from the project and asserted its claim for lien. It must be kept in mind that Mr. Vergalito and Mr. Lougheed have done projects together in the past. It is a possibility that no such back-up documentation was typically required by Mr. Vergalito. I need not, and do not, draw that inference on this motion.

[71] There is some evidence that Mr. Vergalito and Mr. Zhang were prepared to entertain Mr. Xaysy’s claims for reimbursement for expenses that he incurred. That can be taken as some evidence that they accepted that XPL had done work or obtained supplies for which it had not been compensated. It appears that animus between Verg/North Bay and Mr. Lougheed is a factor here. However, I make no specific findings one way, or another based on that evidence.

[72] It may be that Mr. Vergalito owes North Bay an explanation for what has transpired, and that the latter was unaware of the true relationship between Verg and XPL. Again, I refrain from making any finding. However, there are two competing narratives that, in my view, should not be resolved on a paper record. XPL has raised sufficient red flags with respect to this project and how it was organized. There are issues of credibility as between Mr. Vergalito and Mr. Lougheed which I cannot resolve on this record.

[73] I conclude that it would be unjust to discharge the lien or dismiss the action in the circumstances. In my view, there is a triable issue with respect to the scope of work agreed to between Verg and XPL, the work actually performed by XPL and the value of those services.

[74] Furthermore, I cannot find that the claim for lien in this case is frivolous, vexatious or an abuse of process, as defined earlier.

[75] I cannot say that the claim for lien is clearly without merit. There is evidence that XPL’s role went beyond what was set out in the T & C estimate. There is evidence that they were undertaking a supervisory role. There is also evidence in the form of Mr. Vergalito’s emails, which he does not dispute sending, in which there was some underlying agreement between Verg and XPL.

[76] The claim does not have the hallmarks typically associated with a finding of “vexatious”. There is certainly a triable issue as to whether this action was brought for an improper purpose, including the harassment and oppression of North Bay and/or Verg. I certainly cannot find that it clearly was on this record. Instead, there is a triable issue as to whether XPL is attempting to secure fair compensation for work that it performed on this project, in furtherance of its agreement with Verg.

[77] I accept that there may be circumstances in which a party’s conduct can be such an affront to the integrity of the court that it constitutes an abuse of process. The failure to obey court orders may be one such example. However, courts are generally reluctant to dismiss a claim for a failure to answer undertakings, even where compelled to do so by court order, particularly where there is a legitimate excuse for the non-compliance. There is an overwhelming preference for claims to be determined on their merits. Here, Mr. Lougheed was incarcerated at the relevant time, a fact which his counsel was apparently unaware of when he agreed to the deadline imposed within my May 25, 2022 order. That is not to say that court orders need not be followed or obeyed, but there are often more proportional remedies than dismissing a claim for $875,000 or vacating a lien securing that claim. Although not cited by either party, I note the Ontario Court of Appeal case, Falcon Lumber Limited v. 2480375 Ontario Inc. (GN Mouldings v. Doors), 2020 ONCA 310 for the principles enunciated in paragraphs 49-57. On its own, Mr. Lougheed’s failure to obey my May 25, 2022 order is insufficient to result in a discharge of the lien or dismissal of his action. I do not consider that failure to constitute an abuse of process in the circumstances here.

[78] Furthermore, North Bay has not provided any case as authority for the proposition that a failure to provide back-up documentation disentitles a lien claimant to maintain its lien. Master Robinson in GTA Restoration was critical of the lien claimant’s failure to produce back-up documentation but nonetheless did not discharge its lien. Here, there is significant evidence in this case that Verg and XPL had a history of not papering all of its transactions. There is evidence supportive of an underlying agreement between them in which they were operating in a less formal fashion. If that were found to be the case, it would not be fair now to vacate the lien when Verg led XPL to believe such formalities did not need to be strictly observed.

[79] A discharge order should not be made lightly as doing so may deprive a subcontractor of a legitimate remedy. I am not satisfied that the provisions of the Construction Act are being abused by XPL such that it is disentitled to its claim for lien.

[80] I have considered whether the amount of the lien is so clearly exaggerated that it should be reduced pursuant to s. 35 or 44(2) of the Act. I am not satisfied that the amount of the claim for lien asserted by XPL is accurate and North Bay/Verg have adduced evidence that suggests that XPL is seeking reimbursement for expenses already paid for by Verg. In GTA Restoration, Master Robinson reduced the amount of the lien rather than discharge it. It is obviously open for me to do the same here.

[81] The amount of the lien claim as filed is $877,231.69. However, Mr. Lougheed admits that he miscalculated, and the proper amount should be $872,617.26. This includes the impugned invoice in the amount of $530,973.55 for which North Bay claims there is scant back-up.

[82] I have reviewed Exhibit “N” to Mr. Lougheed’s affidavit, which is a chart he prepared in response to Mr. Vergalito’s criticisms of each of the charges comprising the $530,973.55 invoice. Mr. Lougheed provides details of the work done, who performed the work and, periodically, documentation to support the charge. While I am not able, on this record, to determine the veracity of Mr. Lougheed’s assertions contained in the chart, it does raise triable issues.

[83] Mr. Vergalito claims that he has never seen many of the invoices presented by XPL until after the fact. However, given the pre-project emails, I am not confident that I can trust Mr. Vergalito’s assertion. There are credibility issues that cannot be resolved one way or another on a motion such as this.

[84] I am also not oblivious to North Bay and Verg’s argument that the responding material still does not contain sufficient back-up and that no change orders were submitted. However, as noted, it is a live issue as to whether Mr. Vergalito effectively waived back-up documentation vis-à-vis XPL. According to Mr. Lougheed, Mr. Vergalito would ask for work to be done on an urgent basis and without change orders. I cannot assess whether that is true or not.

[85] I am satisfied that Verg paid Home Hardware invoices totalling $53,672 and that XPL has improperly included reimbursement for this sum in its claim for lien. Verg also appears to have paid the Watson Building Supplies accounts the sum of $29,172.98. The lien should be reduced by those amounts on a without prejudice basis.

[86] I also agree that there are many issues with the timesheets, including omissions, discrepancies and inconsistencies. However, in my view, the resolution of these issues requires the court to perform a role better left to a trial judge than a motion judge. Master Robinson in GTA Restoration was of a similar view (see paras. 88-99).

[87] It is my view that the invoice for the return of tools and to decommission the site may be improperly included. I would therefore also deduct the sum of $54,800.46.

[88] Finally, XPL has included 1280 hours at $54.60 for a total of $69,760 in relation to Mr. Xaysy providing supervisory services on site. I note that this would be over 100 days at 12 hours per day. Mr. Xaysy does not state in his affidavit that he was on site that much, although it may simply have not been addressed. He describes that his role at XPL was mostly relating to human resources, hiring workers, lining up subtrades and other administrative tasks. Further, in his handwritten invoice post termination, Mr. Xaysy appears to claim only $48,000 in relation to his own time, at the rate of $30 per hour. I note that this would be 1600 hours. There is obviously a substantial discrepancy between the two sets of hours claimed and the rate per hour. Perhaps Mr. Xaysy was offering a compromise position. However, this is a vague claim that strikes me as being exaggerated. I would reduce this amount for the purpose of the lien to $38,400 ($30 x 1280) on a without prejudice basis. This results in a reduction of $31,360 plus HST of $4,076.80.

[89] While I am not making any further deductions, my failure to do so does not constitute acceptance of the remaining items. There are simply live issues that should be addressed in the context of the ongoing claim. Furthermore, by making those deductions, I am not foreclosing XPL from being able to prove those claims at a later date. I am simply reducing the amount of the lien at this juncture, to afford North Bay a better opportunity to post security and move this project forwards, while still preserving XPL’s remedy.

Disposition

[90] For the foregoing reasons, North Bay’s motion to discharge the lien is dismissed. However, I exercise my discretion under the Act to reduce the amount of the lien from $872,617.26 by the following amounts:

• $53,672.00 on account of the Home Hardware accounts;
• $29,172.98 on account of Watsons Building Supplies accounts;
• $54,800.46 on account of tools and decommissioning fees; and
• $35,436.80 on account of exaggerating Mr. Xaysy’s time on site.

[91] The lien is accordingly reduced to $699,535.02 without prejudice to North Bay seeking further reductions in the value of the lien at or prior to trial and without prejudice to XPL pursuing recovery for the full amount of its claim in contract or in tort.

[92] If the parties cannot agree on costs of this motion, North Bay shall deliver written costs submissions no longer than four pages in length by February 3, 2023. XPL shall deliver responding submissions within the same parameters by February 15, 2023.

Justice Spencer Nicholson Date: January 10, 2023