TORONTO COURT FILE NO.: 05-CV-287715 PD3

BARRIE COURT FILE NO.: 11-CV-1276-OT

DATE: 20120312

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: JV Mechanical Limited, Plaintiffs

AND:

Solarc Construction Ltd., Defendant, and Aviva Insurance Company of Canada (formerly CGU Insurance Company of Canada), Defendant (Moving Party)

BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY

COUNSEL:
P. Hancock, Counsel for the Plaintiff

R.B. Bissell, Counsel for the Defendant (Moving Party) Aviva Insurance Company of Canada (formerly CGU Insurance Company of Canada)

HEARD: February 22, 2012

ENDORSEMENT

NATURE OF THE MOTION

[ 1 ] This is a motion by Aviva Insurance Company of Canada ("Aviva") for an order requiring the plaintiff ("JV Mechanical") to post security for costs pursuant to Rule 56.01 (d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Aviva has provided a draft bill of costs for the action contemplating a trial five days in length in the amount of $101,902.98. The trial is scheduled to be heard in May 2012.

STANDING

[ 2 ] JV Mechanical is a mechanical contractor who commenced this action in 2005 against a general contractor, Solarc Construction Ltd. (“Solarc") and against Aviva as its bonding company for the outstanding balance of its contract, for work performed on lands owned by Ontario Realty Corporation in Gravenhurst. JV Mechanical also instituted a construction lien action against Solarc and the property owner for work performed. Aviva is not a party to the lien action. An order has been previously made that the two actions will be tried together. That order is an indication that the two actions share common issues and facts, and that common evidence will be adduced at trial. Although JV Mechanical’s counsel argues that there are distinctions in the subject matter of the two actions, no specifics were given and therefore this court concludes that there are no substantial differences between the two actions.

[ 3 ] JV Mechanical argues that Aviva has no standing to bring a motion that would have the effect of requiring security to the paid in both actions given that it is not a party to the lien action.

[ 4 ] Solarc has been adjudged to be bankrupt. The lien bond does not form part of its estate. The result, in a practical sense, is that Aviva is called upon to defend not only the bond action but also the lien action, as there is no longer a viable defendant that would otherwise resist Aviva's claims. The action has been discontinued against the remaining defendants in the lien action. It will be Aviva who is put to the expense of defending the action. In these circumstances, it is just to consider the request of Aviva for security sufficient to satisfy any potential cost order made following the trial of the two actions.

SUMMARY OF FACTS

[ 5 ] JV Mechanical’s claim is for $191,684.48, being the balance of its contract, and extras totalling $141,055.24. The plaintiff asserts that based on the documents provided to date, including answers to undertakings, there is an unpaid balance of approximately $77,000. There is also a counterclaim by Solarc for approximately $242,000.

[ 6 ] Solarc originally brought a motion for security for costs against JV in June 2008 on the basis that JV Mechanical had insufficient assets in Ontario to pay costs, but did not proceed with that motion.

[ 7 ] JV Mechanical's sole officer, director and shareholder is John Vrbanic. It is common ground in this motion that JV Mechanical has insufficient assets to satisfy any potential costs order. It has in excess of $1 million in writs of execution registered against it in the judicial districts of Toronto and Peel Region, comprised of various trade creditors and Canada Revenue Agency.

[ 8 ] Mr. Vrbanic has provided evidence that he personally has debts exceeding $140,000, including a writ. He is currently employed and has disclosed personal income net of tax of $1,620 per week since June 2011. For three months prior to June 2011, his wages were garnished by the Receiver General and he only received payment of approximately $2,975 per month. Mr. Vrbanic is divorced and pays child support for a young child in the amount of $500 per month. He has arrears owing under a child support order of approximately $6,000. He has disclosed monthly expenses totalling approximately $4,700. He also attempts to deposit $100 a week into a bank account for his son's education in order to repay some $8,500 that he earlier withdrew from that account, which had been designated for his son's education, while his wages were being garnished.

[ 9 ] The plaintiff’s lawyers, Wise & Associates, are representing JV Mechanical under a deferred fee arrangement entered into in April 2008. The terms of the arrangement are that Mr. Vrbanic is to pay all disbursements in advance where possible, and an initial retainer was required that was to be “refreshed” on a monthly basis at an amount to be agreed upon until Mr. Vrbanic’s circumstances improved. Fees accrue at an hourly rate, to be billed following trial, together with interest on the deferred fees, as well as a ‘bonus’ to compensate for the deferred fees and risk of non-payment if the plaintiff is unsuccessful. The evidence is that Mr. Vrbanic has been unable to comply with the terms of that arrangement.

TEST FOR ORDERING SECURITY

[ 10 ] The parties are in agreement regarding the test to be met under Rule 56.01 (d) of the Rules of Civil Procedure. The moving party must make out a prima facie case of entitlement to security for costs by showing there is "good reason to believe" that the corporate plaintiff lacks sufficient assets in Ontario to satisfy a cost order, but need not prove on the balance of probabilities that the plaintiff lacks such assets: Warren Industrial Feldspar Co. Ltd. v. Union Carbide Canada Ltd. (1986), 54 O.R. (2d) 213, 8 C.P.C. (2d) 1 (H.C.J.); Clean.Net Inc. v. Integrated Capital Management Group Inc., 2004 CarswellOnt 298 (S.C.J.). The burden then shifts to the plaintiff to establish that an order for security is unnecessary because it has sufficient assets in Ontario to pay the defendant’s costs, or that it should be entitled to proceed, in the interests of justice, despite an inability to post security: Mastercraft Group Inc. v. Confederation Trust Co. (1997), 15 C.P.C. (4th) 48.

MERITS OF THE ACTION

[ 11 ] The moving party concedes that the plaintiff's action is not without some merit, and is not proceeding on that basis. This is as it should be, as the test appears to be that unless a claim is plainly devoid of merit, it should be allowed to proceed: John Wink Ltd. v. Sico Inc. (1987), 57 O.R. (2d) 705 (H.C.J.).

DELAY IN THE BRINGING THE MOTION

[ 12 ] The plaintiff argues that Aviva and its counsel were aware of the plaintiff's financial situation as early as June 2008, at which time Solarc was bringing its motion for security for costs, and should have proceeded with the motion at that time. Aviva did not serve this motion until October 2010, and did so on the basis that rulings had been made in other actions that required JV Mechanical to post security.

[ 13 ] Aviva argues that Solarc, as the primary defendant, brought its motion for security for costs in a timely way but its motion was abandoned when it was adjudged bankrupt in 2008. Thereafter Aviva initiated its own motion for security, and settlement discussions delayed the argument of the motion until now.

[ 14 ] In considering the effect of the defendant's delay in bringing a motion for security for costs, one of the principles to be applied is that the moving party will be disentitled to such an order if the plaintiff can provide evidence that the delay in bringing the motion resulted in prejudice: Pelz v. Anderson (2006), at para. 23. In this case the plaintiff can show no prejudice. Its impecuniosity was the same in 2008 as it is today, such that at either time an order for security for costs would have the effect of halting the action.

[ 15 ] However, even if the plaintiff cannot establish prejudice arising out of the delay in bringing the motion, the failure of the defendant to explain the delay is still fatal to the motion for security: Pelz v. Anderson, supra at para. 23 citing 423322 Ontario Ltd. v. Bank of Montréal (1988), 66 O.R. (2d) 123 (H.C.J.), Susin v. Genstar Development Co., [2001] O.J. No. 3825 (S.C.J.).

[ 16 ] In this case the delay is adequately explained by the intervening bankruptcy of Solarc and the ensuing settlement discussions between counsel.

POSTING OF SECURITY BY THE SOLE SHAREHOLDER

[ 17 ] The evidence bears out that, at his current job and with his current expenses, Mr. Vrbanic has a “cushion” in his budget of approximately $1,800 each month. Aviva argues that this sum, or some portion thereof, should be ordered to be paid. Having read all of the evidence, including the fact that Mr. Vrbanic has been unable to honour even the lenient terms of the deferred fee arrangement, this surplus appears to be more hypothetical than real and Mr. Vrbanic is only now able to meet his most immediate needs. I accordingly decline to order that he personally post security on behalf of the corporation.

POSTING OF SECURITY BY THE CORPORATION’S CREDITORS

[ 18 ] The real issue on this motion is whether the plaintiff’s lawyers should be required, as a creditor, to post security. The authority for ordering that the creditors of a plaintiff be asked to post the security can be found in Smith Bus Lines v. Bank of Montréal (1987), 60 O.R. (2d) 185 (H.C.J.), leave to appeal to Divisional Court refused, 1987 4190 (ON SC), 61 O.R. (2d) 688 (H.C.J.); D.E. & J.C. Hutchinson Contracting Co. v. Windigo Community Development Corp. (1996), 4 C.P.C. (4th) 198; and Design 19 Construction Ltd. v. Marks (2002), 22 C.P.C. (5th) 117.

While that statement is fair enough in the abstract, it is one that is difficult to sustain in these circumstances where the action is being pursued expressly for the benefit of the creditors. Mr. Garbers makes this clear in his affidavit where he says that one of the terms of the proposal was that the "proceeds of this action will be for creditors". If the creditors are prepared to take the benefit of this action, then I fail to see why they should not also have to accept the burden of it.

[ 19 ] The only reported case in which a request was made to have a plaintiff’s lawyers post security is Intellibox Concepts Inc. v. Intermec Technologies Canada Ltd. (2005), 14 C.P.C. (6th) 339.

[ 20 ] Nordheimer J. in Intellibox characterized the arrangement between the plaintiff and its solicitors as a deferred fee arrangement.

Regardless, however, as to whether the arrangement between the plaintiff and its solicitors is a deferred fee arrangement or a contingency fee arrangement, it seems to me that it would be an extraordinary case where that fact would cause a court to order a party to post security for costs where the evidence establishes that the party is otherwise impecunious.

[ 21 ] Counsel for the moving party argues that the plaintiff’s lawyers are positioned even more advantageously than an ordinary creditor, as they are able to assess the strength and weaknesses of the plaintiff's case.

[ 22 ] While this is a compelling argument, I am not convinced that law firms should be asked to post security on the same rationale as a commercial creditor. Like the commercial or shareholder lender or creditor, the law firm acting under a deferred fee arrangement extends credit but also much more – it offers the expert skills and professional knowledge of its lawyers.

This is an issue of access to justice above all. I conclude that it is not good policy to provide disincentives to lawyers who are willing to delay payment until recovery.

[ 23 ] In the result Aviva’s motion is dismissed.

COSTS

[ 24 ] If the parties are unable to come to an agreement on costs of this motion they may make brief written submissions not exceeding 2 pages in length, plus a cost outline and offers if applicable. The plaintiff’s materials are due by March 30, 2012, the moving party’s by April 6, 2012, and any reply, if necessary, by April 11, 2012.

HEALEY J.

Date: March 12, 2012