COURT FILE NO.: CV-17-580295 DATE: 2020 03 05
SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE MATTER OF the Construction Act, RSO 1990, c. C.30, as amended
RE: 2232117 ONTARIO INC., Plaintiff - and - CHETTIAR PERAMPALAM SOMASUNDARAM and THARSIKA THANGA VELAUTHAPILLAI, Defendants
BEFORE: Master Todd Robinson
COUNSEL: L.J. Levine, Q.C., for the defendants / moving parties B. Sran, for the plaintiff / responding party
HEARD: March 4, 2020
REASONS FOR DECISION
1The defendants, Chettiar Perampalam Somasundaram and Tharsika Thanga Velauthapillai (together, the “Owners”), move for security for costs against the plaintiff pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure, RRO 1990, Reg 194. Although the Owners’ notice of motion cites Rule 56.01(1)(e) as a ground for the motion, counsel for the Owners confirmed during oral submissions that no relief under Rule 56.01(1)(e) is being pursued, and that security for costs is sought only under Rule 56.01(1)(d). The plaintiff opposes the motion.
2For the reasons that follow, I grant the Owners’ motion and order the plaintiff to post security for costs on a partial indemnity basis in the amount of $48,000, inclusive of HST and disbursements, on a staged basis.
Background
3The plaintiff’s claim arises out of the construction of a new home at 22 Bellbrook Road, Toronto. The plaintiff’s evidence on this motion, through the affidavit of its principal, Bahader Singh Bhatti, is that the plaintiff was contracted by the Owners to demolish an old house on the property and build a new house. Mr. Bhatti’s evidence is that the plaintiff invoiced the Owners throughout the project, but payments were not made as agreed. The plaintiff ultimately ceased work for non-payment and preserved and perfected a claim for lien for $104,991.01 pursuant to the now-former Construction Lien Act, RSO 1990, c C.30 (the “CLA”) (the provisions of which remain applicable to this proceeding by operation of section 87.3 of the current Construction Act). The plaintiff further claims $41,810.00 in additional contract damages.
4The Owners have counterclaimed for $450,000 in damages in respect of allegedly incomplete and deficient work. Evidence tendered by the Owners on this motion includes a third-party deficiency report and various invoices and payments appearing to total hundreds of thousands of dollars. Raj Somasundaram, the Owners’ affiant on the motion, states that they are invoices and payments related to completion of the construction and correction of deficiencies in the plaintiff’s work.
Relevant Legal Framework
5The relevant portion of Rule 56.01(1) provides as follows:
56.01 (1) 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;
6The applicable analysis under Rule 56.01(1)(d) is not disputed by the parties. The initial onus is on the Owners to satisfy the court that it “appears” that there is “good reason to believe” that the corporate plaintiff has insufficient assets in Ontario to pay the costs of the Owners. If the Owners satisfy that initial onus, then the onus switches to the plaintiff to demonstrate either that it has sufficient assets in Ontario or that an order for security for costs would be unjust.
7In assessing the justness of an order for security for costs, the Court of Appeal has confirmed that there is no static list of factors to be used. The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made: Yaiguaje v. Chevron Corporation, 2017 ONCA 827, at paras. 22-25.
8Because the Owners’ motion is brought in the context of a lien action under the CLA, there is an additional requirement. Pursuant to subsection 67(2) of the CLA, interlocutory motions not provided for in the CLA, such as a motion for security for costs, require “consent of the court”. A party seeking to bring such an interlocutory motion must establish that the motion is necessary or would expedite the resolution of the issues in dispute.
9When this motion was scheduled at the last hearing for directions, I expressly ordered that the leave requirement under subsection 67(2) of the CLA and the substantive motion would be argued concurrently. Nevertheless, neither side addressed the leave requirement in their facta nor filed any relevant case law. I provided counsel for the parties with the decision in Yuanda Canada Enterprises Ltd. v Pier 27 Toronto Inc., 2017 ONSC 1892 and invited submissions on whether the approach taken in that case reflects an appropriate approach to the leave requirement in the context of a security for costs motion.
10In Yuanda, at para. 14, Master Wiebe held that the necessity threshold in subsection 67(2) of the CLA is similar to the “good reason to believe” threshold requirement in Rule 56.01(1)(d). Master Wiebe reasoned that a parallel between the “necessary” requirement and the threshold onus under Rule 56.01(1)(d) was appropriate in achieving procedural fairness in lien cases where a lien claimant has security in either the lands or in court (by the lien having been vacated), but a defendant has no security for the costs of defending the claim. Master Wiebe accordingly held that satisfying the threshold onus would thereby also satisfy the leave requirement in subsection 67(2) of the CLA.
11Both counsel agree that the decision in Yuanda represents an appropriate approach to address the leave requirement on this motion. Accordingly, if the Owners satisfy their threshold onus of establishing the “good reason to believe” requirement under Rule 56.01(1)(d), they will also have satisfied the requirement for leave pursuant to subsection 67(2) of the CLA.
Analysis
Owners’ Threshold Onus
12During responding oral submissions, plaintiff’s counsel confirmed that the plaintiff concedes the Owners have met their threshold onus. Accordingly, given that concession, the leave requirement under the CLA is also met and I need not assess the Owners’ submissions on satisfying their threshold onus made prior to the concession. Nevertheless, I feel it necessary to address the submissions made by the parties on the extent of a plaintiff’s obligations to make financial disclosure both prior to and in response to a security for costs motion.
13Prior to the plaintiff’s concession, the Owners argued that the plaintiff’s failure to respond to a request for financial statements and the plaintiff’s further failure to tender evidence of its finances or assets in response to this motion were relevant in assessing if the threshold onus had been met. In particular, the Owners rely on a letter sent by their counsel to plaintiff’s counsel dated April 8, 2019. In that letter, a request was made for “financial statements employed for tax purposes for 2015, 2016, 2017 and 2018”. It is undisputed that no response was provided.
14The Owners argue that case law supports a positive obligation on a plaintiff to provide robust particulars of its financial circumstances, including information sufficient to satisfy the court that the plaintiff is “in a position to pay substantial security for costs if unsuccessful in its action.” The Owners support their argument by reliance on three decisions: General Products Inc. v. Actiwin Company Limited, 2015 ONSC 6923 at para. 36, 737071 Ontario Inc. v. Min-A-Mart Ltd., [1996] O.J. No. 1173 (Gen. Div.) at para. 6, and Mastercraft Group Inc. v. Confederation Trust Co., [1997] O.J. No. 3451 (Gen. Div.) at para. 38. The Owners argued that the plaintiff’s failure to address its financial situation leads to an “irresistible” adverse inference that there is good reason to believe the plaintiff is unable to satisfy an adverse costs award, similar to the adverse inference drawn by Justice Lemon in General Products Inc.
15The plaintiff disputes that it was under any duty or obligation to respond to the request for disclosure of financial statements. The plaintiff points out that, in General Products Inc., the court’s adverse inference was drawn expressly on the plaintiff’s “failure to provide the information ordered by the Court” (emphasis added). The plaintiff submits that there is no court order in this case requiring that it produce its financial or tax records.
16I agree with the plaintiff that it was under no obligation to provide the requested financial statements, nor was it obliged to tender financial evidence in response to this motion. Current case law supports that a plaintiff has no evidentiary onus at the first stage of the analysis. In satisfying the threshold onus, it is the moving defendant who must tender evidence supporting a belief of insufficiency of assets that goes beyond mere conjecture, hunch, or speculation. If that were not the case, there would be no meaningful onus on a moving defendant in bringing a motion for security for costs: Yuanda, supra at para. 15, citing City Commercial Realty (Canada) Ltd. v. Bakich, [2005] O.J. No. 6443 (C.A.).
17In my view, the case law relied upon by the Owners does not support the existence of any onus on a plaintiff to provide particulars of its assets, except in circumstances where a plaintiff asserts that it has sufficient assets to satisfy a costs award or asserts that it is impecunious. I would add that evidence of a plaintiff’s assets may also be necessary where proper assessment of arguments advanced by the plaintiff for why security for costs is unjust requires consideration of the plaintiff’s finances or assets. In each of those instances, though, the evidentiary onus on a plaintiff only arises at the second stage of the analysis, after the moving defendant has met its threshold onus.
18I make the following observations regarding the three cases relied upon by the Owners:
(a) In General Products Inc., the plaintiff opposed the motion on the basis that it had sufficient assets to satisfy a costs order. The plaintiff tendered evidence of its assets in support of that position. Justice Lemon specifically observed, at para. 37, that the plaintiff had “staked its defence to this motion on its ability to pay costs.” Also, at para. 31, Justice Lemon notes a specific order for production of bank statements, with which the plaintiff did not comply. That was the basis for the adverse inference drawn by Justice Lemon with respect to available assets. (b) In both 737071 Ontario Inc. and Mastercraft Group Inc., comments made regarding evidence from those plaintiffs were in respect of demonstrating impecuniosity. I was directed to nothing in either decision supporting that the plaintiffs were regarded as having any onus to put forward evidence of their assets other than in the context of proving alleged impecuniosity. In both cases, the extent of evidence filed by the moving defendants regarding assets of the plaintiffs and the extent of evidence filed by the responding plaintiffs is unclear.
19In assessing if the threshold onus has been satisfied, a court may consider all evidence filed on a motion, as was done in General Products Inc. However, that does not equate to an evidentiary onus on the plaintiff at the first stage. Accordingly, in my view, since a plaintiff has no evidentiary onus unless the defendant’s threshold onus has been met, a failure by a plaintiff to provide any evidence of its assets would not generally, in and of itself, support a reasonable inference regarding that plaintiff’s financial circumstances at the first stage of the analysis.
20Since, as noted above, the plaintiff has conceded that the Owners’ threshold onus is met, I now proceed to consider the plaintiff’s arguments on why security for costs should not be ordered.
Justness of Security for Costs
21At the second stage of the analysis, the onus is on a plaintiff to establish that it either has sufficient assets in Ontario to satisfy a costs order or that an order for security for costs would be unjust. Since the plaintiff does not argue that it does, in fact, have sufficient assets in Ontario, the sole remaining issue is whether an order for security for costs would be just. Only two arguments for why security for costs would be unjust have been advanced. First, the plaintiff argues that it has a meritorious claim. Second, the plaintiff argues that the motion is tactical, brought solely to delay the action from proceeding.
22Having considered the parties’ evidence and arguments on merits, I have determined that merits is a neutral factor in this case. Without going through all of the items leading to my determination in detail, I note the following:
(a) I agree with the plaintiff that its claim cannot be said to be frivolous or vexatious, but that was conceded by the Owners during oral submissions and relief under Rule 56.01(1)(e) was not pursued; (b) Mr. Bhatti’s affidavit does provide some evidentiary support for the plaintiff’s position that the Owners breached the contract by failing to abide by payment terms and by failing to make payments to the plaintiff; (c) Mr. Somasundaram’s affidavit similarly provides some evidentiary support for the Owners’ defences that the work was deficient, notably a detailed deficiency report completed by McBel Engineering Ltd., which identifies a list of deficiencies in the construction of the house, and a series of invoices and proof of payment for work purportedly undertaken to remedy deficiencies and complete the construction; (d) The plaintiff incorrectly submits that the Owners’ statement of defence and counterclaim only advances a claim for damages without any allegation of defects in the plaintiff’s work. The statement of defence and counterclaim expressly pleads, at para. 3, that “the Defendants have been obliged to retain the services of another contractor in order to remedy the deficiencies in the Plaintiff’s work and complete the building of the home” and estimates the cost of rectification and completion in the amount of $450,000. The pleading continues at para. 4 to state that the reasons for non-payment by the Owners were “the deficiencies in the Plaintiff’s work and the failure to proceed to completion in a timely manner”; (e) I agree with the plaintiff that there is no evidence that the plaintiff was terminated for defects in its work, but the record before me does not suggest that the Owners have taken the position that they terminated the contract; (f) Mr. Bhatti swears that the counterclaim “is brought only for the purpose to deter the [plaintiff] to settle the matter.” However, a letter dated June 6, 2017 from Chettiar Somasundaram to Mr. Bhatti has been put forward by the Owners in which discovery of “serious deficiencies” is noted and which provided a copy of the McBel Engineering Ltd. deficiency report. The letter pre-dates preservation and perfection of the plaintiff’s lien, which appears to contradict Mr. Bhatti’s sworn assertion; and (g) The Owners concede that the litigation is “bitterly contested” and that they neither argue nor suggest that they will certainly be the successful parties. The Owners acknowledge that, at this stage of the proceeding, it is impossible to predict the outcome of the litigation with any certainty. I agree that, on the evidence before me, whether it was the plaintiff or the Owners who breached the contract is uncertain and is a seriously contested issue to be decided.
23In K. Lee and Associates, supra at para. 51, Master Short observed that it is almost impossible in most cases to come to a conclusion on the merits of a claim at the time of a motion for security for costs. I agree. This case is no different. On the record before me, there is insufficient evidence to make any determination that the plaintiff’s claim is more or less meritorious than the Owners’ defences.
24The plaintiff also submits that this motion has been brought for purely tactical purposes. I find no basis to accept that submission. The Owners point out that they have posted $131,238.75 in security to vacate the plaintiff’s lien in accordance with the CLA and suggest it is a reasonable inference that they accordingly have no basis for delaying the action. The Court of Appeal has cautioned the courts to be vigilant in ensuring that security for costs motions are not used as a litigation tactic to prevent a case from being heard on its merits: Yaiguaje, supra at para. 23. However, nothing in the evidence before me supports a reasonable inference that there was a tactical purpose in bringing this motion.
25The plaintiff further submits that I should have regard to case law indicating that an order for security for costs could mean, in many cases, that the action is at an end: see, for example, Dean v. Mister Transmission (International) Limited, 2009 ONSC 31596 at para. 23. I do not agree that such case law has any bearing on this motion absent an evidentiary basis to find (or at least reasonably infer) that an order for security for costs may bring this lien action to its procedural end. The plaintiff argues that an order for security for costs may force it to choose between posting the security and continuing its business operations. There is no evidentiary support for that argument. No cogent evidence of the plaintiff’s assets or financial wherewithal has been tendered. The only evidence before the court regarding the financial wherewithal of the plaintiff is a self-serving statement by Mr. Bhatti that the corporate plaintiff is “in business to generate regular cash inflow”. There is accordingly no basis upon which to infer that security cannot be posted if ordered.
26In assessing the justness of a security for costs order, I have also given consideration to the procedural unfairness observed by Master Wiebe in Yuanda between, one the one hand, a lien claimant having security for its claim either in the lands or posted in court and, on the other hand, a defendant having no security for costs of defending the claim. Master Wiebe observed, at para. 14, that the “imbalance becomes acute when there is evidence that the plaintiff corporation does not have sufficient assets to pay the defendant’s costs, and where the defendant has posted security (including security for costs) for the plaintiff’s claim.” That is precisely the case here.
27The Owners have posted security into court for the plaintiff’s lien. The plaintiff has conceded that there appears to be good reason believe that it lacks sufficient assets in Ontario to satisfy a costs award, but has elected not to tender evidence supporting that it does, in fact, have sufficient assets. No evidence tendered and no arguments advanced by the plaintiff address the apparent imbalance of the plaintiff having security for a successful claim while the defendants have no security for a successful defence.
28In all the circumstances, and on the totality of the evidence before me, I am not convinced by the plaintiff’s arguments that an order for security for costs would be unjust in this case. In my view, also having regard to the equitable imbalance in the security already posted for the plaintiff’s claim, an order for security for costs is just.
Quantum of Security
29Rule 56.04 provides the court with broad discretion in fixing the amount and form of security, as well as the time for paying the security into court. In determining a fair and appropriate amount of security, I have considered the submissions of counsel, but have also closely reviewed the bill of costs submitted by the Owners.
30The Owners’ bill of costs seeks security for costs on a partial indemnity basis in the amount of $65,613.26, including HST and disbursements. They submit that the bill of costs reflects modest amounts and is likely a light estimate of fees that will actually be incurred. The plaintiff challenges the rate claimed for the Owners’ counsel, suggesting it is too high and should be reduced, and challenges the assertion that trial will be 8 days, suggesting 4 days is a more reasonable estimate. No other submissions were made by the plaintiff with respect to the bill of costs.
31I agree that an 8-day trial in this matter is unlikely, but am not convinced at this stage that trial will reasonably be completed in 4 days. In the absence of evidence regarding the rate being charged by plaintiff’s counsel, I cannot accept the plaintiff’s submission that the rate claimed by the Owners’ counsel itself is too high. However, I agree that a partial indemnity rate claimed at 74% of the actual rate is high for partial indemnity. Neither the number of hours claimed for the remaining tasks identified in the bill of costs nor the disbursements were challenged by the plaintiff. They appear reasonable.
32I am mindful that, where a counterclaim is separate from the defence, the court must be careful not to award the defendant (as plaintiff by counterclaim) security for costs of the counterclaim: Yuanda, supra at para. 34, citing 1652472 Ontario Ltd. v. Black & McDonald Ltd., 2015 ONSC 4560 at para. 18. Here, however, the counterclaim is the same as the Owners’ set-off defence, namely that the plaintiff failed to remedy deficiencies and complete the construction. Nevertheless, as has been done in prior cases, I have considered the reality that the counterclaim adds an element of cost to the overall proceeding and have discounted the bill of costs.
33Having regard to the amounts claimed in the bill of costs, principles of proportionality, and the equities given the security already posted for the plaintiff’s claim, I find that a fair and appropriate amount of security is $48,000, inclusive of HST and disbursements, on a partial indemnity basis. In my view, it is appropriate that the amount be paid in stages as the action progresses to trial.
Disposition
34For the foregoing reasons, the plaintiff shall post security for costs in the amount of $48,000 to the credit of this action on a staged basis in accordance with the following:
(a) $18,000 for costs to completion of examinations for discovery, payable within 45 days; (b) $15,000 for costs from completion of examinations for discovery through trial preparation, payable as follows: (i) if the trial proceeds as an ordinary trial, within 45 days following the hearing for directions at which a timetable for exchange and filing of trial materials is fixed and the trial is scheduled; or (ii) if the trial proceeds as a summary or hybrid trial, by no later than 30 days prior to the deadline fixed for service of the plaintiff’s first affidavit evidence-in-chief; and (c) $15,000 for costs to the completion of trial, payable by no later than 30 days prior to the date fixed for commencement of trial.
35Should the plaintiff fail to post the required security for costs when due, the plaintiff’s action shall be stayed until the funds are posted or pending further order of the court.
Costs
36At the conclusion of argument, neither the plaintiff nor the Owners were prepared with costs outlines. I accordingly ordered that the parties agree as to costs of the motion or exchange and file costs outlines by March 6, 2020. Counsel for the Owners has advised, by letter, that the parties have agreed on costs of the motion being be awarded to the successful party in the amount of $4,000.00, inclusive of HST.
37I accordingly order that the plaintiff shall pay to the Owners their costs of the motion fixed in the amount of $4,000.00, inclusive of HST and disbursements, payable within thirty (30) days.
MASTER TODD ROBINSON DATE: March 5, 2020