SUPERIOR COURT OF JUSTICE – ONTARIO
COURT FILE NO.: C-858-06; C-1016-06
DATE: 2012-04-03
IN THE MATTER OF THE CONSTRUCTION LIEN ACT , R.S.O. 1990, C.30 and the amendments thereto
RE: 2016637 Ontario Inc o/a Balkan Construction, Plaintiff Court File: C-858-06
AND:
Catan Canada Inc. and Antonio Duscio, aka Tony Duscio, Defendants
RE: APA Holdings Inc o/a Filmar Custom Homes, Plaintiff Court File: C-1016-06
AND:
Antonio Duscio aka Tony Duscio and Leanne Discio, Defendants
BEFORE: The Honourable Mr. Justice D. A. Broad
COUNSEL:
Stephen T. Brogden, for the Plaintiffs/Responding Parties
Douglas E. Snider, for the Defendants/Moving Parties
HEARD: March 23, 2012
ENDORSEMENT
[ 1 ] These two actions can be described as “companion actions”. They are both lien claims under the Construction Lien Act, R.S.O. 1990, c. C. 30 (the “CLA”). The Plaintiff corporations are related to each other insofar as they share one principal shareholder. The sole shareholder of APA Holdings Inc. (“Apa”) is Miroslav Markovic (“Markovic”). Markovic and Sasa Filopovic (“Filopovic”) are the two shareholders of 2016637 Ontario Inc. (“Balkan”). Leanne Duscio is the sole shareholder of Catan Canada Inc. (“Catan”)
[ 2 ] Balkan was engaged by Catan to undertake a commercial renovation project on its premises. Thereafter, Antonio and Leanne Duscio engaged APA to build a residence. It was alleged by the Plaintiffs that the Defendants terminated their contracts on the respective projects and they were not paid fully for the materials and services provided to the improvements, for which they registered Claims for Lien.
[ 3 ] The Defendants in each proceeding move for an Order that the Plaintiffs post security for costs pursuant to Rule 56.01(d), on the basis that the Plaintiffs are corporations and there is good reason to believe that they have insufficient assets in Ontario to pay the costs of the defendants. The parties are agreed that due to the relationships between the Plaintiffs, on the one hand, and the Defendants, on the other, in respect of the two actions, the motions should be heard together. The Defendants are not proceeding with the portion of the prayer for relief in the Notice of Motion respecting compliance with undertakings, advising in their Factum that that matter will be left “for another day.”
[ 4 ] The motions did not originally request leave to being the motions pursuant to section 67(2) of the CLA , however, on consent, the Defendants were permitted to amend their Notices of Motion orally at the commencement of argument, to add requests for leave.
[ 5 ] The Plaintiffs oppose the motions on three grounds, namely:
Leave to bring the motions ought not to be granted pursuant to section 67(2) of the CLA ;
The delay in the bringing the motions is fatal to their success; and
The defendants have failed to satisfy the onus established by rule 56.01(1)(d).
Discussion
[ 6 ] The Plaintiff relies on the case of Global Design & Building Inc. v. 1289193 Ontario Inc., 2000 CarswellOnt 1216 (S.C.J.) in which Justice McDermid held that an order for security for costs is not available in construction lien cases. He held that the second prong of the two-prong test for leave in section 67(2) of the CLA i.e. that the order would “expedite the resolution of the issues in dispute” is not applicable. With respect to the first prong, he held that an order for security for costs is not “necessary” as being “required or essential to permit an action to proceed to trial or to permit the issues between the parties to be decided.”
[ 7 ] More recently, leave has been granted by the Superior Court of Justice in a construction lien case on the basis that a motion for security for costs is “necessary” in the interest of doing procedural justice to both parties (see Melco Construction Inc. v Jack Frost Sparkling Springs 2011 ONSC 2197 , 100 C.L.R. 189, at para. 17 ).
[ 8 ] In my view, the two prongs of the test in subsection 67(2) of the CLA are distinct, as exemplified by the disjunctive “or” between them. The second prong focuses on the policy in favour of expediting the resolution of the issues on their merits. The first prong can encompass broader issues including the question of procedural fairness. The purpose of subsection 67(2) should be viewed in the context of the entire section, including subsection 67(1) , which reads as follows:
(1) The procedure in an action shall be as far as possible of a summary character, having regard to the amount and nature of the liens in question .[underlining added]
[ 9 ] Subsection (1) recognizes that there may be a broad spectrum of lien actions, involving from the simplest home renovation project to the most complex commercial, industrial or institutional mega-project. The degree to which the procedure is to “summary” will vary with “the amount and nature of the liens in question” and will be summary only “as far as possible.” The requirement for leave for interlocutory steps in subsection (2) is the mechanism by which the Courts acts as gate-keeper to ensure that the process is as “summary” as it should be, in the context of the amount and nature of the liens. The intent of section 67(2) is not, in my view, to eliminate considerations of procedural fairness by the court by means of application of the rules governing security for costs, or other rules of civil procedure. Its purpose is to permit the court to consider the degree to which a particular lien action should be summary in nature, having regard to the amount and nature of the liens in question, and in that context, to determine whether an interlocutory step is “necessary” to achieve procedural fairness, or would “expedite the resolution of the issues in dispute.”
[ 10 ] In the present cases, the evidence establishes that the corporate Plaintiffs are impecunious. However, the case-law indicates that, in the case of a corporate plaintiff, it is not sufficient, in order to resist a motion for security for costs, to establish that the corporate plaintiff itself is impecunious, but the plaintiff must also establish that it and its shareholders cannot sell assets, borrow or otherwise raise the funds to post the security (see Design 19 Construction Ltd. v Marks (2002) 22 C.P.C. (5 th ) 117 (S.C.J.) at para. 6 ).
[ 11 ] The Defendants argue that, on the evidence, there are creditors of the Plaintiffs, which would ultimately benefit should the Plaintiffs be successful in the action, and accordingly, the court should consider whether the creditors of the Plaintiffs can and should be called upon to post the security, as was done in Design 19 Construction Ltd. paras. 10-13 and in D.E. & J.C. Hutchison Contracting Co. v Windigo Development Corp. (1996) 4 C.P.C. (4 th ) 198 (Ont. Ct Gen Div) at para 14 . The creditors include a party which recovered a judgment against both corporate defendants under the trust provisions of the CLA in the sum of $80,000.00, and Canada Revenue Agency, which registered an execution against Balkan in the sum of approximately $45,000.00.
[ 12 ] In my view, cases in which consideration should be given to requiring creditors of a plaintiff to post the security should be confined to situations where the creditors are in control of, or somehow directly connected to, the litigation, or are standing in the shoes of the plaintiff (see United General Contracting Ltd. v Sioux Lookout (Municipality) 2011 ONSC 4691 , at paras. 30-35 ). Otherwise, whether the action is to be stopped in its tracks, by reason of the imposition of an Order for security for costs, would be in the hands of a stranger to the litigation, an outcome which would not be “just” within the meaning of Rule 56.01(1).
[ 13 ] The Defendant argues that the nature of the dealings between the spouses of the shareholders of the corporate Plaintiffs and the Plaintiffs were such that the Plaintiffs should be obliged to disclose their assets and ability to post the security. On the authority of LaCoe v. Che , 1992 CarswellOnt 405 (Ont. Gen Div) it is not necessary for a plaintiff to adduce evidence of the financial means of his/her spouse to establish impecuniosity.
[ 14 ] Where, as here, impecuniosity has been shown, a plaintiff needs only to demonstrate that the claim is not plainly devoid of merit (see Zeitoun v Economical Insurance Group (2008) 2008 20996 (ON SCDC) , 53 C.P.C. (6 th ) 308(Div. Ct.) at para. 49 , appeal dismissed 2009 ONCA 415 ). This is a low threshold and I find that, on the record, neither action is plainly devoid of merit.
[ 15 ] In the context of a motion for security for costs in a construction lien action, the line between what is “necessary” to do procedural fairness, for the purpose of the analysis of whether leave to bring the motion should be granted under section 67(2) of the CLA , and what “is just” under Rule 56.01, can be blurred. On the basis of the foregoing, I would hold that it is not “necessary” to order that the Plaintiffs in these proceedings post security for costs, in order to achieve procedural fairness. To order security for costs would effectively stop these actions, which are not plainly devoid of merit, in their tracks, by reason of the impecuniosity of the Plaintiffs. Leave to bring the motions is therefore denied. In any event, even if leave were to be granted, on the application of Rule 56.01, I find that it would not be “just” to order security for costs. The motions for security for costs are therefore dismissed.
[ 16 ] The Plaintiffs may make written submissions with respect to costs within 21 days of the release of this Endorsement and the Defendants, within 7 days thereafter.
D. A. Broad J.
Date: April 3, 2012