COURT FILE NO.: CV-22-683480
DATE: March 18, 2024
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2708320 Ontario Ltd. cob Viceroy Homes v. Jia Development Inc., CB Bridle Path Inc. and Kingsett Mortgage Corporation;
BEFORE: ASSOCIATE JUSTICE C. WIEBE
COUNSEL: Andrea Gorys for CB Bridle Path Inc. (“Bridle Path”);
Peter B. Cozzi for Jia Development Inc. (“Jia”);
Brendan Bowles for Folger, Rubinoff LLP (“FR”);
HEARD: February 1, 2024.
REASONS FOR DECISION
INTRODUCTION
[1] On April 14, 2023 I released my decision on the defendants’ motions I heard on April 4, 2023. I discharged the claim for lien of the plaintiff, 2708320 Ontario Ltd. cob Viceroy Homes (“Viceroy”) pursuant to old Construction Act, R.S.O. 1990, c. C.30 (“CA”), section 47 and dismissed this action, as I found that the claim for lien was frivolous, vexatious and an abuse of process and that Viceroy had not complied with my removal order of January 16, 2023. I also ordered that the related certificate of action be vacated from title.
[2] On June 2, 2023 I issued my Costs Decision. I awarded Bridle Path $85,000 in costs for the motion and the action, and Jia $45,000 in costs for the motion and the action. I ordered that Viceroy and its principal, Andrew Sun, were jointly and severally liable to pay these costs.
[3] Fogler, Rubinoff LLP (“FR”) was the law firm that represented Viceroy, registered Viceroy’s claim for lien and commenced its lien action. As originally brought, the motions by Bridle Path and Jia included a request for the production of the FR file to lay the foundation for motions by them under CA section 86(1)(b)(i) for orders requiring FR to pay the costs ordered paid by Viceroy and Mr. Sun. On March 11, 2023 I severed that issue from the motions.
[4] At the motion conference on July 11, 2023, I was advised that Viceroy and Mr. Sun had, with the assistance of counsel, agreed to the release of the FR file, thereby obviating the need for the production motion. I set schedules for the disclosure of the FR file and for the Bridle Path and Jia motions under CA section 86(1)(b)(i) for costs from FR. The Bridle Path and Jia motions were argued on February 1, 2024. These reasons concern those motions.
BACKGROUND
[5] FR filed three affidavits, one sworn by Shirley Bai, a real estate partner at FR, another by W. Ross MacDougall, a construction law partner at FR, and one by Marko Petrovic, as associate at FR who worked on this file. Bridle Path filed an affidavit sworn by a lawyer at Ms. Gorys’ firm, Hardeep Dhaliwal. Both Bridle Path and Jia refiled affidavits they had filed on the original motion, namely the two sworn by Serge Moyal, the Chief Executive Officer of Bridle Path, the one by Jonathan Farber and the one sworn by Denis Pei, the principal of Jia. Transcripts of cross-examinations were filed.
[6] The following background facts were evident from the motion material and were not in dispute. I purposely go into some detail, as this detail is important.
[7] In March, 2022 Mr. Sun was referred to Ms. Bai by a real estate agent. Mr. Sun speaks Mandarin Chinese and has very limited facility in English. Ms. Bai could converse with Mr. Sun in his native language. The two met on March 30, 2022. Mr. Sun said that he was the owner of Viceroy, and that Viceroy was a reputable builder in Ontario. He advised that Viceroy was the builder on a project for the construction of high-end townhomes at 2425 Bayview Avenue, Toronto, the subject project. He laid out architectural plans before Ms. Bai. He said that, while Viceroy did not own the land, it was involved in a kind of a joint venture and was already working on the project. Mr. Sun retained FR that day by way of a WeChat message.
[8] In phone calls in early April, 2022 Mr. Sun explained to Ms. Bai that the subject property was owned by Jia and another entity, that one Biao Liu was buying the 50% interest of the other entity, that there was a one-page agreement in Chinese between Messrs. Pei, Liu and Sun dated March 9, 2022, that Messrs. Pei and Liu asked Viceroy to start working before this agreement to satisfy the municipal building inspector as no work had been done for a long time, and that Viceroy did substantial work on the project and was not being paid.
[9] On Friday, April 22, 2022 Ms. Sun sent the March 9, 2022 agreement to Ms. Bai. The agreement stated that Jia and Mr. Liu appointed Viceroy to do the construction work from foundation to completion, that the price of the construction work was $20,000,000 for 66,000 square feet of living space, that the work was to be completed in eight months after the execution of the agreement, that Viceroy was to act as the owners’ agent in getting construction financing, that the parties would enter into another agreement setting out the details of the construction after the sale to Mr. Liu, and that construction costs were not to exceed $500,000 before the sale to Mr. Liu.
[10] On that day, April 22, 2022, Mr. Sun advised Ms. Bai that the sale to Mr. Liu had ended, and that Mr. Pei and he, Mr. Sun, wanted to move forward with a joint venture between Jia, Bridle Path (the co-owner) and Viceroy based on the terms of the March 9, 2022 agreement. He instructed Ms. Bai to prepare a term sheet accordingly. She did so that day.
[11] In his discussions with Ms. Bai on April 22, 2022, Mr. Sun inquired as to the timeline for registering a Viceroy claim for lien, as he said “he wanted to protect himself” if the joint venture agreement did not take place. He sent Ms. Bai by WeChat a summary of what he said Viceroy had done to date, which summary totaled $3,310,000 broken down into 10 items. These items included site clearance and repair, excavation, foundation repair, foundation construction for ten units, roofing and labour for four units, building safety fences and stairs, structure and panels for three units, and smart security gate systems. The costs shown for these items were in round numbers. Ms. Bai said in her affidavit she did not find these amounts to be unreasonable given the overall construction costs and the aggressive schedule as indicated in the March 9, 2022 agreement.
[12] Ms. Bai asked Mr. Sun as to why Viceroy had not respected the $500,000 cap on costs. He responded that Messrs. Pei and Liu instructed him to continue working and indeed wanted to amend the agreement to increase the cap to $2 million, which amending agreement was drafted but not signed because he said the parties “were too drunk.” He said that Messrs. Pei and Liu required that Viceroy work to a level that exceeded even the amended cap.
[13] Ms. Bai’s affidavit contains a copy of this unsigned agreement dated March 24, 2022 with the new cap. Therefore, it appears to have existed. However, Mr. Sun provided this document to FR in no sooner than in August, 2022 in advance of the section 40 cross-examination.
[14] On Monday, April 25, 2022 Mr. Sun called Ms. Bai. He said that Jia and Bridle Path had not signed the term sheet and refused to pay. He instructed her to register a claim for lien for Viceroy in the amount of $3,310,000 with the last day of work being April 8, 2022. She brought in Mr. Petrovic, who practiced in construction law at FR. He sent her a standard list of questions concerning the Viceroy claim for lien. The firm opened up a construction lien file. Ms. Bai filled out the answers based on what she had been told by Mr. Sun and the documents she had seen, and showed the answers to Mr. Sun, who confirmed that the answers were accurate.
[15] On April 26, 2022 Ms. Bai forwarded an Authorization and Direction to Mr. Sun, who signed it and returned it. The amount of the claim for lien was stated to be $3,740,300. FR registered the Viceroy claim for lien in that amount on April 27, 2022. Ms. Bai emailed Mr. Sun that day advising that Viceroy needed to commence an action on or before July 7, 2022 to perfect its lien.
[16] On May 19, June 6 and June 15, 2022, Ms. Bai sent Mr. Sun correspondence seeking input to draft the statement of claim. Mr. Sun finally responded by arranging a meeting for June 17, 2022. On June 16, 2022, Ms. Bai sent Mr. Sun an email with a list of items he needed to provide, such as contracts, correspondence, invoices, pictures and videos. At the meeting on June 17, 2022, Mr. Sun showed Ms. Bai videos and pictures on his phone and WeChat messages between him and Mr. Pie. He said he had voice recordings and other evidence.
[17] Between June 20 and 28, 2022, and without receiving further documentation from Mr. Sun, Ms. Bai, Mr. Petrovic, Mr. MacDougall and a law clerk prepared a draft statement of claim. Because the law clerk was going away in July, the lawyers aimed to have the statement of claim perfected by the end of June, 2022. On June 28, 2022, Ms. Bai sent Mr. Sun a draft statement of claim. She discussed the draft with Mr. Sun that day and asked him for the evidence he said on June 17, 2022 he had. He gave some input which was incorporated into the pleading. The statement of claim was issued on June 30, 2022.
[18] On July 7, 2022 Ms. Bai introduced Mr. MacDougall to Mr. Sun by phone. Mr. Sun instructed FR to serve the statement of claim. It was served.
[19] On July 17, 2022 FR received a letter from Ms. Gorys stating that, except for some fencing, none of the work claimed in the Viceroy claim for lien and statement of claim was in fact done. She described the claim for lien as frivolous, vexatious and abusive, and demanded that it be discharged by July 20, 2022, failing which Bridle Path would initiate a section 40 cross-examination. Ms. Bai forwarded the letter to Mr. Sun. He responded with phone calls denying the truthfulness of Ms. Gorys’ letter. He said he welcomed cross-examination and would provide proof of the claim.
[20] On July 19, 2022 Mr. MacDougall sent Ms. Gorys a letter asserting the validity of the claim for lien and stating that Mr. Sun was willing to be cross-examined.
[21] On July 20, 2022 Ms. Gorys served a notice of examination returnable July 27, 2022. Mr. MacDougall forwarded the notice to Mr. Sun. and required delivery of documentary corroboration for the Viceroy claim for lien in advance of the cross-examination. It did not come.
[22] On July 25, 2022, Mr. Sun advised Ms. Bai by phone that he had Covid-19 and could not attend the July 27, 2022 cross-examination. It was rescheduled to August 9, 2022.
[23] Between August 4 and 7, 2022 Mr. Sun finally began sending Ms. Bai copies of supporting documents, such as invoices, pictures of the site, voice recordings and WeChat messages.
[24] On August 8, 2022 Ms. Bai sent a WeChat message asking for further documents such as subcontractor agreements and invoices. Mr. Sun phoned Ms. Bai that day and asked for an adjournment of the cross-examination as he said he was still suffering from Covid-19. Ms. Gorys agreed to an adjournment to August 25, 2022 on condition Mr. Sun provided a supporting doctor’s note and documentary corroboration for the claim in advance. Mr. Sun provided Ms. Bai with a vaguely worded doctor’s note.
[25] On August 11, 2022 Ms. Bai talked with Mr. Sun by phone. She asked again for the documentary corroboration. He promised to send it but did not.
[26] On August 22 and 23, 2022, at Mr. MacDougall’s request, Ms. Bai sent WeChat messages to Mr. Sun again seeking the documentary corroboration, as the cross-examination was imminent. On August 24, 2022 Mr. Sun sent further documents - material receipts, a surveyor’s letter, a signed contract with a company to do foundation maintenance, excavation, soil removal, shoring, foundation and driveway, photographs of framing materials, WeChat messages with someone who was to be project manager, and an unsigned contract in Chinese.
[27] All of the documents Mr. Sun had disclosed to FR to that point were forwarded to the defendants’ lawyers on August 24, 2022. Mr. MacDougall said that he was of the view that, while these documents showed Viceroy’s involvement in the project, there should be much more.
[28] On August 25, 2022 Mr. Sun was cross-examined by Ms. Gorys. As stated in my reasons on the original motion, Mr. Sun admitted that large parts of the work described in the Viceroy claim for lien were in fact not done. He admitted that the Viceroy claim for lien included materials that were not delivered to the site. He admitted using budget estimates rather than costing information. He gave 40 undertakings to corroborate the Viceroy claim for lien including corroboration for the Viceroy invoices. The cross-examination was adjourned. Mr. MacDougall and Ms. Bai discussed the matter frankly with Mr. Sun immediately. Mr. MacDougall advised that some of the claim for lien was now indefensible. The two emphasized the importance of delivering the corroboration and answering the undertakings as soon as possible.
[29] On August 30, 2022 Ms. Bai sent Mr. Sun the list of his undertakings. He advised her by phone that day that he would get the answers done as soon as he got back to the plant that evening. The next day he reiterated the promise to provide timely answers to Ms. Bai. He did not do so.
[30] On September 12, 2022 Mr. Sun promised Ms. Bai by WeChat messages that he would call her about the answers. He never did. On September 19, 2022, Mr. Sun advised Ms. Bai by phone that he was 80% through the documents he would be providing.
[31] On October 28, 2022 FR received a letter from the owners’ lawyers advising of their intention to bring a motion to have the Viceroy claim for lien discharged. Ms. Bai sent a WeChat message to Mr. Sun advising him of the letter and the motion, and the dire need to provide undertaking answers, failing which the Viceroy claim for lien was at serious risk of being discharged with costs. Ms. Bai advised that FR was becoming uncomfortable acting for Viceroy given Mr. Sun’s lack of cooperation. There was no response.
[32] On October 31, 2022 Mr. Sun called Ms. Bai stating that he had been sick for some time, which he said interfered with his work on the undertakings. When Ms. Bai asked for a doctor’s note to give to the owners, he asked her to draft it. She did not do so.
[33] On November 8, 2022 Mr. Sun and Ms. Bai talked by phone. Mr. Sun was angry. He made several groundless accusations against FR, such as a failure to deliver key documents to him. He complained about making further disclosure. Ms. Bai resent the referenced documents immediately. The next day, November 9, 2022, she sent a WeChat message demanding payment of outstanding accounts and the undertaking answers.
[34] On November 22, 2022 Mr. MacDougall sent Mr. Sun an email reviewing the history of the matter and recommending that Viceroy agree to have its claim for lien discharged. These instructions were not given. There was now a breakdown in the relationship, and FR arranged for a removal motion.
[35] On January 4, 2023 a FR lawyer accompanied Mr. Sun at the continuation of the cross-examination, but did so under protest. In the circumstances, Mr. Sun refused to give substantive answers. FR brought its removal motion on January 16, 2023, which I granted.
ISSUES
[36] Having reviewed the evidence and read and heard the submissions of counsel, I have determined that the issues to be determined are the following:
a) What is the test for liability for costs under old CA section 86(1)(b)(i)?
b) Is FR liable for the costs of the defendants under that subsection?
APPLICABLE TEST
[37] The defendants bring their motions pursuant to old CA section 86(1)(b)(i). The relevant parts of this subsection state that the court may order costs against a “person who represented a party to the action . . . where the person, (i) knowingly participated in the preservation or perfection of a lien, or represented a party at the trial of an action, where it is clear that the claim for lien is without foundation, or is for a grossly excessive amount, or that the lien has expired . . . .”
[38] The defendants do not rely on subsection 86(1)(b)(ii) which pertains to a costs order against a representative of a party who “prejudiced or delayed the conduct of the action.” They do not rely on Rule 57.07(1) which allows a costs order against a lawyer who has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default. The issue is section 86(1)(b)(i). The defendants argue that in this case FR participated in the preservation and perfection of a lien where it was clear that the claim for lien was without foundation.
[39] There was no dispute that a lawyer for a lien claimant has a “gatekeeping” function. Given the powerful remedy of a claim for lien and its ability to be used without immediate judicial oversight, a lawyer for a lien claimant has a duty outside of the lawyer’s duty to the client, a duty to the court and those who may be adversely affected, not to participate in allowing the remedy to be abused; see Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act, April 8, 1982, page 203.
[40] Given this gatekeeping function, the argument was whether the costs sanction of section 86(1)(b)(i) applies only to cases where the representative has subjective actual knowledge of the baselessness of the claim for lien.
[41] The leading case on this subject is the decision of Master Albert in Brian T. Fletcher Construction Co. Ltd. v. 1707583 Ontario Inc., 2009 CanLII 81402 (ONSC). In this case, the lien claimant improperly registered grossly excessive claims for lien using the justification they were general liens. On a motion to discharge the claims for lien, Master Albert ruled that the claims for lien be vacated without security and reduced to what the claims for lien should have been on each lot. The issue to be determined was costs. The moving party wanted in part to have costs ordered against the lien claimant’s lawyer pursuant to CA section 86(1)(b).
[42] Master Albert refused to order costs against the lawyer. She had this to say about the gatekeeping function and section 86 as a whole:
But what, then, does it mean for a solicitor to be a gatekeeper? If a solicitor acts in good faith should the solicitor be exposed to costs personally? Unlike a damages sanction under section 35 of the Construction Lien Act where the test is objective, I find that a costs order against a solicitor, whether under section 86 of the Act or rule 57.07, does require some evidence of bad faith, negligence or improper purpose to justify holding the solicitor.
[43] In Petrelli Construction & Renovation Inc. v Phillips, 2016 ONSC 8159 Justice MacLeod dealt with and rejected a claim for costs against a lawyer in a lien action. He referred to and agreed with Master Albert’s statement but did so without an analysis of section 86.
[44] The defendants put much emphasis on Master Albert’s use of the word, “negligence.” Negligence involves an objective standard. Negligence requires proof that the defendant owed a duty of care to the plaintiff, that the defendant breached the standard of care, that the plaintiff suffered damages, and that the damages were caused by the breach; see McDonald and Dickson v. TD Bank, 2021 ONSC 3872 at paragraph 144. With lawyers, where there is a duty of care, the accompanying standard of care is that of “a reasonable and prudent lawyer;” see Petrelli, op. cit. at paragraph 13.
[45] But Master Albert’s use of the word of the word, “negligence,” must be deciphered with care. In another leading case on section 86, Pineau v. Kretschmar Inc., 2004 CanLII 5925 (ONSC), Master Sandler dealt with a claim of costs against lawyers under section 86(1)(b)(ii). He pointed out in paragraph 55 that liability for costs under section 86(1)(b)(ii) did not require a finding of an intention to prejudice or delay an action, or a finding of bad faith and reprehensible conduct. He said that “simple negligence is enough,” and went on to say that “it is an objective rather than subjective test.” In Fletcher Master Albert referred to the Pineau decision approvingly and made no attempt to overturn it.
[46] As a result, I am driven to the conclusion that Master Albert’s use of the word “negligence” in relation to section 86 did not pertain to section 86(1)(b)(i). It pertained to the other parts of section 86(1). As to the way it pertained to these other parts, namely as to whether the negligence test as it applies to these other parts involves a test higher than the objective test described by Master Sandler in Pineau, I do not have to comment on for these motions and I do not do so.
[47] Therefore, I find that Master Albert found that liability for costs under section 86(1)(b)(i) requires a finding that the representative subjectively knew of the baselessness of the claim for lien when it was registered and perfected. This is clear from paragraph 40 where she found that there was no evidence that the lawyer in question actually knew that the claims for lien were grossly exaggerated when they were preserved and perfected. She said in that paragraph that such actual knowledge was an “essential precondition” to a costs order against a lawyer.
[48] I also find that Master Albert held that evidence of bad faith or improper purpose qualified the lawyer for a costs order under this subsection. In paragraph 44 she found that there was no evidence that the lawyer acted out of a desire to gain a strategic advantage by financially exhausting the defendant. This only makes sense, as bad faith and improper purpose involve, in my view, a significant level of actual knowledge that the claim for lien is baseless.
[49] This interpretation of section 86(1)(b)(i) seems reasonable, and I agree with it. While a lawyer in a lien case has a gatekeeper function, this function must be melded with the lawyer’s first duty to his or her client. Legal costs are a readily foreseeable and an almost unavoidable part of any lien proceeding. Corporate parties indeed must employ lawyers. If the negligence standard is applied to a lawyer’s liability for costs under section 86(1)(b)(i), lawyers will think twice about taking on lien cases given the inevitability of legal costs, as there is often limited corroboration and limited time in which to preserve and perfect liens. Lawyers will wonder whether anything they do will breach the objective standard of care and expose them to costs. There will be a chilling effect on legal representation for lien claimants, which is not, in my view, what the legislature envisioned. However, should be lawyer know that the claim for lien is baseless when it is preserved and perfected, he or she should be liable for costs as his or her actions would be tantamount to fraud.
[50] I note that in JDM Developments Inc. v. J. Stollar Construction Ltd., 2006 CanLII 3966 (ONSC) Justice DiTomaso shared my concern about the use of section 86(1)(b)(i). In this case, the owner had improperly liened his own land to gain the sale proceeds. Despite this egregious conduct, His Honour rejected a claim for substantial indemnity costs against the owner’s lawyer under section 86(1)(b)(i). The argument was that this subsection attracted the negligence standard of liability. His Honour disagreed and stated in paragraph 15 that great caution should be exercised in imposing costs liability on a lawyer. He added the following: “To do so would have a chilling effect on relations between a solicitor and his client in the advance of litigation, particularly in some cases where unpopular causes are advanced.”
[51] There is also a comparison to be made with CA section 35 damages. Section 35 concerns liability for “damages” against “any person” who preserves a lien that is grossly excessive or baseless. Such “damages” are usually other than legal costs. It is interesting that the legislature chose to make it explicit that the negligence standard is to be applied under this section. The section says that liability can be applied to such a “person” where that person “knows or ought to know” that the lien is grossly excessive or baseless. Not only does no such negligence language appear in subsection 86(1)(b)(i), the language in subsection 86(1)(b)(i) is the exact opposite, namely expressly requiring a subjective knowledge of the baselessness of the lien. A statute is to be read as a whole document that fits together. Therefore, this discordance should be given meaning, namely that negligence does not apply to section 86(1)(b)(i).
[52] Now, as Master Albert pointed out in Fletcher, once the preservation and perfection are done, the gatekeeper function continues. In my view, it moves quickly into the one judged by the negligence standard in section 86(1)(b)(ii), section 35 and Rule 57.07(1), with the lawyer having to continue his or her investigation as judged by the standard of a reasonable and prudent lawyer, taking appropriate measures should the lien eventually be found by them, or ought to be found by them, to be baseless.
[53] There was also argument as to whether liability for costs under section 86(1)(b)(i) includes conduct that is “reckless” and “willfully blind.” Recklessness and willful blindness have been defined as having a level of knowledge that is the moral equivalent of actual knowledge; see 1169822 Ontario Limited v. The Toronto-Dominion Bank, 2018 ONSC 1631 at paragraph 133. Such conduct is well beyond mere negligence or a laziness underlying a failure to inquire. It involves knowledge of an actual risk that is at the level of a “clear probability” and then a failure to act to avoid the risk or make inquiries; see 1169822 Ontario Limited, op. cit., paragraph 136.
[54] I find that liability for costs under section 86(1)(b)(i) includes recklessness and willful blindness. Statutory interpretation is one reason for this conclusion. Section 86(1)(b)(i) includes the phrase, highlighted here in bold, “where it is clear that the lien is without foundation, or is for a grossly excessive amount, or that the lien has expired.” That phrase is not necessary to the rest of the sentence. In my view, it was added to capture the situations where the representative does not have actual knowledge of the baselessness of the claim but knowledge of a “clear probability” that it is baseless and fails to act or inquire.
[55] The second reason for this interpretation is the lawyer’s gatekeeper function. Where the lawyer’s knowledge has reached that of a “clear probability” of the claim’s baselessness, the lawyer’s duty to the court, the property owner and others who may be adversely affected should supersede the lawyer’s duty to the client, and the lawyer should investigate or refuse to participate.
FR’S LIBIBILITY FOR COSTS
[56] The question then is whether there is evidence on this motion that FR had actual knowledge of the baselessness of the Viceroy lien when it was preserved and perfected, or that FR was reckless or willfully blind in this regard. Having reviewed the evidence, and read and heard the submissions, I conclude that there is insufficient evidence of such conduct. The following are my reasons.
[57] First, there was simply no evidence that Ms. Bai, Mr. Petrovic and Mr. MacDougall subjectively knew that the Viceroy lien was baseless when it was preserved and perfected. That point was not disputed. The issue is whether they were reckless or willfully blind in that regard.
[58] Second, I have reconsidered a key statement in my reasons of April 14, 2023. In my reasons, I stated that I “found it hard to believe” that the $3,740,300 worth of work described in the Viceroy claim for lien could have been done in the 39 days stated in the Viceroy claim for lien (ie. from March 1, 2022 to April 8, 2022). I did not have the benefit of argument from either Viceroy or FR in that motion. FR now urges me to reconsider that point in light of the March 9, 2022 agreement.
[59] I have so reconsidered. The March 9, 222 agreement was the closest thing to a construction contract that Mr. Sun produced to Ms. Bai. It was signed by Messrs. Pei, Liu and Sun on March 9, 2022. Mr. Sun gave that contract to Ms. Bai on April 22, 2022, five days before the Viceroy claim for lien was registered. The contract specified that the price for Viceroy’s construction work was $20 million, that there was 66,000 square feet of living space to be built, and that the schedule was only eight months from the signing of the agreement, March 9, 2022. That is an exceedingly aggressive schedule. It works out to a price of $2,500,000 per month. While the amount of the Viceroy claim for lien exceeded that amount by $1,240,300, that enhanced amount could be explained by cost front-end loading, a practice of contractors under fixed price contracts whereby they enhance early billings to minimize their risk on the project. I, therefore, have concluded that the amount of the Viceroy claim for lien was not a “red flag” warning as to the baselessness of the Viceroy lien.
[60] Third, the WeChat message Mr. Sun sent Ms. Bai on April 22, 2022, the one that contained 10 items of work with costs shown for each item in round numbers, corroborated what Mr. Sun told Ms. Bai Viceroy was owed by the owners, namely $3,310,000. While the difference between the eventual lien amount, $3,740,300, and this $3,310,000 was not explained, this discrepancy is not of the magnitude that would make one suspicious of the validity of the entire Viceroy claim for lien. I note as well that Ms. Bai received many photographs from Mr. Sun showing the results of work on the site.
[61] Fourth, on April 22, 2022, when Ms. Bai asked Mr. Sun a reasonable question, namely why Viceroy had breached the $500,000 cap in the March 9, 2022 agreement, Mr. Sun gave a not implausible answer, namely that there was an amending agreement that increased the cap to $2 million, that the signatories to the amending agreement got too drunk to sign the amending agreement, and that Messrs. Pei and Liu instructed Mr. Sun to even exceed that amended cap. Such an unsigned amending agreement existed and was in the motion material. Mr. Sun produced it to FR in August, 2022. I find that Mr. Sun’s answer to Ms. Bai’s question on April 22, 2022 was not implausible because of the aggressive schedule in the March 9, 2022 agreement.
[62] Fifth, the timing of the registration of the Viceroy claim for lien came up in the argument. The stated last day of supply on the Viceroy claim for lien was April 8, 2022 and, since the old CA applied, Viceroy had until May 23, 2022 to register the Viceroy claim for lien. This was 26 days after the Viceroy claim for lien was in fact registered. Did the “speedy” registration of the Viceroy claim for lien show a deliberate decision by FR to avoid clearly necessary investigation? No. By April 27, 2022, FR had received clear instructions from Mr. Sun to register the claim for lien forthwith. Furthermore, Ms. Bai was told by Mr. Sun that the attempted joint venture had failed, that the relationship had broken down, that Viceroy was owed much money, and that Viceroy needed to protect itself. There is nothing that signaled a high risk of a baseless lien. Therefore, the timing of the registration of the Viceroy claim for lien was not suspicious.
[63] Sixth, the only suspicious series of events leading to the perfection of the Viceroy lien on June 30, 2022 was Mr. Sun’s chronic non-responsiveness to Ms. Bai’s correspondence and his failure to produce documents he had promised to produce. It is important to note that these issues had not become as serious at the time of perfection as they became later during the preparation for and following the section 40 cross-examination. There was probably one failure by Mr. Sun to produce documents he had promised to produce prior to the issuance of the statement of claim. This is not at all sufficient to create a serious suspicion that the Viceroy lien was baseless.
[64] Seventh, there was an argument that FR should have investigated more in May and June, 2022; but again I do not agree. There was simply nothing that indicated a high risk that the Viceroy lien was groundless. The involved FR lawyers and law clerk set June 30, 2022 as the target date for the perfection. This was understandable given the clerk’s travel plans and the July 7, 2022 perfection deadline. Mr. Sun gave some input into the pleading. I find nothing suspicious about the perfection process.
[65] Therefore, I find that FR was not made aware of a “clear probability” that the Viceroy claim for lien was baseless during the lien preservation and perfection. Therefore, I find that FR was not reckless or willfully blind in failing to investigate further and in facilitating the process.
[66] Much of the argument from Bridle Path and Jia centered on what FR should have done during the lien preservation and perfection. They argued that FR had the time and should have investigated the lien further. They argued that FR had the time and should have gone to the site to inspect the project firsthand. They argued that FR had the time and should have demanded more documents and more timely disclosure. They argued that FR should have “fired” Viceroy when it did not disclose documents. These arguments involve the negligence standard, which I have find does not apply here. I, therefore, do not accept these arguments.
[67] What transpired after the preservation and perfection of the Viceroy claim for lien is, on the other hand, subject to the negligence standard of review, namely what “a reasonable and prudent lawyer” would do. I do not have to review this period for the purpose of these motions and will not do so. Suffice it to say here, though, that in general I found no reason to criticize the conduct of FR during this period. They had an exceedingly uncooperative, new client who could not speak English, 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. In the end, FR counseled Viceroy to consent to a discharge of the claim for lien and moved to get off the record when these instructions were not forthcoming.
CONCLUSION
[68] Therefore, for these reasons, I dismiss both motions in their entirety.
[69] As to costs, I note that FR filed a costs outline that showed $32,228.90 in partial indemnity costs, $48,343.35 in substantial indemnity costs, and $53,714.83 in actual costs. Bridle Path filed a costs outline that showed $50,427.58 in partial indemnity costs, $73,997.53 in substantial indemnity costs and $81,529.18 in actual costs. Jia filed a costs outline that $13,373.60 in partial indemnity costs and $19,057.50 in actual costs.
[70] I strongly encourage the parties to settle the issue of costs. If that cannot be done, FR must serve and upload written submission on costs of no more than three pages on or before March 28, 2024. Bridle Path and Jia must then serve and upload written responding submissions on costs of no more than three pages on or before April 8, 2024. Any reply written submissions must not be longer than two pages must be served and uploaded on or before April 11, 2024.
DATE: March 18, 2024
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ASSOCIATE JUSTICE C. WIEBE