Court File and Parties

COURT FILE NO.: CV-11-438456 MOTION HEARD: 20170620 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Marvello Construction Ltd., Plaintiff, Respondent AND: Antonio Santos and 1239018 Ontario Ltd. o/a Lucky Carpentry, Defendants, Moving Parties

BEFORE: Master Jolley

COUNSEL: Jordan Potasky, Counsel for the Moving Party Defendants Domenic Saverino, Counsel for the Respondent Plaintiff

HEARD: 20 June 2017

REASONS FOR DECISION

Overview

[1] The plaintiff is in the business of framing houses. It has sued the defendants, a framing company and its director, for $1,400,000 it says it is owed for work it did on several building sites in 2005 and 2006.

[2] The defendants bring this motion for security for costs under Rule 56.01(1)(d) and (e) of the Rules of Civil Procedure.

The Test

[3] An order for security for costs is a discretionary remedy.

[4] Rule 56.01(1) of the Rules of Civil Procedure provides that the court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;

(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent.

[5] The initial onus is on the defendant to satisfy the court that it appears there is good reason to believe the matter falls into one of the categories under Rule 56.01(1). The onus is not a heavy one.

[6] If that first part of the test is met, the responding party may avoid the order for security for costs by showing that security is unnecessary because it has sufficient exigible assets in Ontario or that it should be permitted to proceed to trial despite its inability to pay costs. (Montrose Hammond v. CIBC World Markets, 2012 ONSC 4869 at para 33).

[7] Here the plaintiff takes the position that it is impecunious, that its claim is not plainly devoid of merit and that, as a result, it should not be required to post security for costs. The plaintiff did not advance the alternative defence available to it on this motion, namely that, if it was not found to be impecunious, the court should still not order security for costs as it has demonstrated that its case has a good chance of success.

Analysis

Issue 1: Have the defendants demonstrated that the case falls within Rule 56.01(1)?

[8] The defendants have shown, and the plaintiff has admitted, that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendants.

[9] The defendants have met the onus to demonstrate the matter falls within Rule 56.01(1). Accordingly the inquiry is triggered as to whether security for costs ought to be granted.

Issue 2: Should security for costs be awarded?

(a) Has the plaintiff established that it is impecunious?

[10] The cases consistently hold that the evidentiary threshold to establish impecuniosity is high. Bald statements unsupported by detail are not sufficient. The threshold can only be reached by “tendering complete and accurate disclosure of the plaintiff’s income, assets, expenses, liabilities and borrowing ability, with full supporting documentation for each category where available or an explanation where not available.” (Coastline Corp. v. Canaccord Capital Corp., 2009 O.J. No. 1790 at paragraph 7 (viii)).

[11] In this case, the plaintiff deposes that it has not actively performed any work for the last decade. It has not filed tax returns or had financial statements prepared and does not have a bank account or assets.

[12] As noted in Crudo Creative Inc. v. Marin at paragraph 31, where a respondent corporation demonstrates that it is inactive and without assets, it is impecunious only in the narrow and limited sense. Its evidence of financial difficulties does not necessarily equate with inability to be able to post security for costs.

[13] The plaintiff does have as an asset the $1,400,000 receivable that it is pursuing in this litigation. There is no indication that it has attempted to raise financing on the strength of this receivable.

[14] A corporate plaintiff that claims impecuniosity must show not only that does it not have assets but also that it cannot raise security for costs from its shareholders and associates. Evidence as to the personal means of the principals of the corporation is required to meet this onus. A corporate plaintiff must provide “substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security”. Consequently, as I stated in Renuity v. Balsam Lake Green Energy, 2017 ONSC 2033 at paragraph 11, full financial disclosure requires the plaintiff to establish for itself and its shareholders and principals the amount and source of all income, a description of all assets including values, a list of all liabilities and other significant expenses, an indication of the extent of the ability to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose.

[15] Mr. Paulo Cunha was examined for discovery on behalf of the plaintiff. He advised that he was a director and officer of the plaintiff, although the corporate profile did not bear that out. Nonetheless, his position was of sufficient importance that his answers bound the corporation. He was a business partner of Mr. Jose Fernandes, who was and is a director of the plaintiff and Mr. Cunha can be considered a principal or associate.

[16] Mr. Cunha did not file any materials on this motion. Mr. Fernandes deposed that he was “advised by Paolo [sic] Cuhna [sic] and verily [sic] he has no assets or ability to raise funds”.

[17] As for his own means, Mr. Fernandes deposed that he has absolutely no ability to raise or borrow funds. He works odd jobs as a carpenter and just makes enough money to pay his bills. He earns approximately $2,500 per month. He stated that he does not own property or a car and has no assets or investments and has not filed a tax return since 2006. On his expense side, he deposed that he pays monthly rent of $800.00 in addition to expenses for food, clothes and utilities. He owes the federal government $43,000 in back taxes, penalties and child support. His bank account regularly has less than $30.00 and has been garnished by CRA. He lives pay cheque to pay cheque.

[18] The difficulty with this evidence is that it is unsupported, other than the two page excerpt from what appears to be a printout of a bank statement from 2016. Mr. Fernandes had the opportunity to present evidence in support of his financial circumstances. In fact, he gave a number of undertakings on his cross examination on this affidavit to provide such documentation. Among other things, he undertook to:

(a) provide a copy of the support order; (b) produce any proof of income that he had filed with the Family Responsibility Office; (c) confirm whether the sum owing to the government was for taxes or for child support; (d) produce records for his bank account; and (e) provide documents confirming the debts he alleges are owing.

[19] He did not answer any of these undertakings.

[20] Further, he has not indicated why he is not working. He has admitted there is lots of work in his field, given he works as a carpenter in construction, but “not for me”.

[21] As the plaintiff has not established the first part of its defence to this motion, i.e. that it is impecunious, I have not dealt with whether it meets the second part of the test, i.e. whether it can also demonstrate that its claim is not plainly devoid of merit. I have also not addressed the second possible defence of a good chance of success, as it was not argued by the plaintiff.

Issue 3: Have the defendants established that the plaintiff’s claim is frivolous and vexatious?

[22] I would not have found on the materials before me that the plaintiff’s case was frivolous and vexatious. In order to meet this test, the moving party must show that the claim is clearly devoid of merit. It is undisputed that the plaintiff provided framing services on a number of sites with or for the corporate defendant, that the individual defendant’s wife did some of the invoicing for the plaintiff, which the plaintiff now says was faulty and that the relationship gave rise to assignments and re-assignments of business obligations. Whether or not the plaintiff can prove its case in light of its admitted lack of documentary evidence will be a matter for the trial judge, as will the limitation period defence.

Issue 4: Is the plaintiff’s action an oppression remedy case and therefore immune from an order for security for costs?

[23] The statement of claim pleads that “In accordance with section 248 of the Ontario Business Corporations Act, 1990, [the personal defendant] could not conduct himself [in a manner which was] oppressive, unfairly prejudicial or which unduly disregarded the interests of the plaintiffs [sic].” It further pleads that the decisions of the individual defendant “in preferring his interest over those of the plaintiffs [sic] were in breach of the Ontario Business Corporations Act, 1990 and the Court should therefore make any order which the Court deems just under the circumstances”.

[24] Section 249(3) of the OBCA provides that a “complainant is not required to give security for costs in any application made or action brought or intervened in under this Part”. As such, the plaintiff argues that it is immune from a security for costs order under Rule 56.01.

[25] One must look at the substance of the action to determine what is really at issue in a pleading such as this (Abdalla v. Skalin). Here, the issue is, in essence, one of unpaid invoices. The reference to the oppression section appears to be pleaded to assist the plaintiff to trace any payment obligation from the corporate defendant to the individual defendant. While the claim does reference section 248 of the OBCA and does contain a statement that the defendants’ actions were oppressive, at its core it is a claim for payment for services rendered and should not be shielded from a security for costs award.

[26] I find it just and exercise the broad discretion given to the court under Rule 56 to order the plaintiff to provide security for costs incurred to date and for prospective costs.

Issue 4: Quantum of Security for Costs

[27] Security for costs will be paid on a partial indemnity basis. The defendants’ materials indicate it has incurred fees of $22,275.00 to date, $15,592.50 on a partial indemnity rate. It anticipates further costs of $7,000.00 on a partial indemnity rate for mediation, $7,000.00 for the pre-trial, $28,000 for trial preparation, $17,500 for a six day trial and $7,000 for post trial work for a total with HST of $92,764.53.

[28] I order the plaintiff to post security for costs in the following tranches:

(a) $10,000 plus HST for costs and $1,817.46 for disbursements incurred to date. I have no doubt that the costs indicated were incurred. However I agree with plaintiff’s counsel that an hourly rate of $500 (partial at $350) is high for the more routine tasks such as preparing and serving an undertakings and refusals chart and for related follow up correspondence. This amount is to be paid within 60 days of the date of this order; (b) $7,000 plus HST for the costs of the mediation. I find the estimate of 20 hours for preparation and attendance to be reasonable. This is to be paid at least 60 days before the mediation date; (c) $4,000 plus HST for the costs of the pre-trial. I agree with plaintiff’s counsel that the bulk of the pre-trial work will be done through both this motion and the mediation and have reduced somewhat the quantum of the defendants’ request accordingly; (d) $42,000 plus HST for the costs of trial preparation and which I anticipate to take four days, to be paid at least 90 days before the commencement of trial.

Costs

[29] The defendants were successful on their motion. I order the plaintiff to pay the sum of $8,000 plus HST in costs and $899.03 in disbursements, inclusive of HST, within 30 days of this order.

Master Jolley Date: 26 June 2017