SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 12-53455
DATE HEARD: January 17, 2013
RE: Multicover Solution Inc.
and
Aecon Construction Group Inc.
BEFORE: Master Pierre E. Roger
COUNSEL:
Julie Paquette, for the Plaintiff
Email: jpaquette@heenan.ca
Ph: (613) 236-7291 Fax: (888) 704-7362
Eric M. Appotive, for the Defendant
Email: eappotive@hamiltonappotive.com
Ph: (613) 238-8400 Fax: (613) 238-4085
ENDORSEMENT
This is a motion by the Defendant seeking security for costs.
For reasons that follow, order to go for security for costs to be paid into court by the Plaintiff as follows:
a. $10,000.00 by March 5, 2013;
b. $5,000.00 at the latest 10 days before the day scheduled for the examination for discovery of any party in this action;
c. $5,000.00 at the latest 10 days before the day scheduled for a mediation session of this action;
d. $5,000.00 at the latest 10 days before the day scheduled for the pre-trial conference in this action; and
e. $8,000.00 at the latest 30 days before the day scheduled for the start of the trial of this action.
Further, on consent of the Defendant but subject to paragraph 19 herein, order to go that although the Defendant may move for additional security for costs, the Defendant may not seek any additional amount as security for costs for any motion for summary judgment which amounts are deemed to be included in the above should such a motion be brought.
Costs of this motion to be dealt with, unless the parties reach an agreement on costs, following receipt of brief written submissions by the Defendant by January 29, 2013, and by the Plaintiff by February 12, 2013, each limited, if possible, to no more than two pages.
This action arises out of a construction project. The project relates to the redevelopment of the Perth and Smiths Falls District Hospital. The Defendant entered into a contract with the hospital in August 2008 for this project. In October 2008 the Defendant entered into a subcontract with the Plaintiff to complete the wall painting, wall epoxy, floor epoxy and terrazzo floor for the project. In its materials, the Defendant points to having experienced issues with the work of the Plaintiff from about October 2009 to January 2010. The Defendant retained a contract consultant who prepared two reports relating to concerns with the Plaintiff’s work. By March 2010 the Plaintiff no longer attended on site.
The Plaintiff brings this action on January 25, 2012, seeking damages for breach of contract of $150,056.87. It claims that the Defendant terminated the contract on February 28, 2010, and refused to pay the amount owing to the Plaintiff for work and materials supplied to date. This action was served in March 2012 and defended in April 2012. The Defendant claims that the work of the Plaintiff was defective and that the Plaintiff signed off on four separate back-charges totalling $76,505.42. It claims, as well, significant other back-charges against the Plaintiff following its departure, although these additional back-charges were not signed by the Plaintiff. It admits that it did not pay the amount of $150,056.87 claimed by the Plaintiff and states that this amount is not owing, alleging that the Plaintiff performed its work negligently. The Defendant seeks a set-off for the back-charges in an amount exceeding $400,000.00. It also claims that condition 15 of the general conditions of the subcontract required the Plaintiff to have followed a three step process of mediation, arbitration and court (unless the parties agreed otherwise which they did not).
It is admitted that there is good reason to believe that the Plaintiff corporation has insufficient assets in Ontario to pay the costs of the Defendant in this action should the Defendant be successful, such that rule 56.01 (1) (d) of the Rules of Civil Procedure is triggered.
It is not disputed by the Plaintiff that it does not, itself directly, have sufficient assets in the province of Québec to pay a costs award. In fact, its position is that it is impecunious.
It is also not disputed, as established in the affidavit of Paul Niebergall, that the Defendant could execute against the Plaintiff on a judgment of costs in this matter in the province of Québec.
The more important issues on this motion are whether the Plaintiff is impecunious and whether it is just to make an order for security for costs or whether an injustice would result by not allowing the Plaintiff to proceed with this action, which requires a balancing of interests between affording the Defendant reasonable protection for its costs and potentially negatively impacting the Plaintiff’s access to justice.
To successfully resist a motion for security for costs on the basis of impecuniosity, a plaintiff must establish not only impecuniosity but as well that justice demands that it be permitted to continue the litigation without posting security of costs.[^1]
In this case, I am not satisfied that impecuniosity is made out by the Plaintiff. The evidence advanced in this regard is insufficient.
The Plaintiff’s evidence does not provide sufficient details of the credit opportunities available to the principal of the Plaintiff, Mr. Bob Forbes. Mr. Forbes owns a house with his wife, who is also a director of the Plaintiff. This house is worth about $183,000.00 with a $92,000.00 mortgage. It therefore appears that there is equity in the property of at least $90,000.00, yet this is not addressed in Mr. Forbes’ affidavit. For example, could Mr. Forbes obtain financing on the security of the house or not? Could he grant a mortgage on the house to the Defendant as security for cost or not?
As well, Mr. Forbes does not address whether he could or not give a personal guarantee to the Defendant such that any reciprocal enforcement might actually have some likelihood of accessing some assets. Similarly, should the Plaintiff be successful in this action, this might benefit the Plaintiff’s subcontractors (Décors de la Capitale Inc. – judgment of $157,943.10 against the Plaintiff; Duochem Inc. – judgment of $78,471.45; and The Sherwin Williams Company – judgment of $11,004.41), yet the Plaintiff provided no evidence on whether or not any of these subcontractors were approached to ascertain whether they, or any of them, would agree to assist the Plaintiff in its litigation efforts.
As indicated in 1164966 Ontario Inc. v. Coulter, 2011 ONSC 5817 at para. 26: “In order to prove impecuniosity, the court must be convinced on the basis of cogent evidence that the plaintiff corporation, its shareholders and any other persons who could be the beneficiaries of the action if it succeeded are unable to post security.”
In this case, the three subcontractors might have trust claims over any recovery by the Plaintiff yet there is no evidence addressing this, addressing whether they were approached and whether they are unable to post security.
I have no doubt, from the materials, that the financial circumstances of Mr. Forbes and his family are not easy. However, in addition to the above, in his affidavit Mr. Forbes does not address his current employment, current business venture (if any) and current income. He states that he can`t borrow additional funds from his family but does not address whether he could do so from financial institutions, particularly on the security of the apparent equity in their house. I note again that his wife appears from the documentation to be a director of the Plaintiff.
In assessing whether or not, in the court’s discretion, an order for security for costs would be just considering all the circumstances I am mindful that the Plaintiff has a higher burden than it otherwise would if I had found impecuniosity.
The materials before the court do not in any way overwhelmingly favour the Plaintiff. On the contrary, on the materials before me I find that this appears to be a rather difficult case for the Plaintiff.
The Plaintiff did not proceed expeditiously with its claim to mediation and arbitration, as provided under the agreement but rather waited until January 2012 to start this action. The process provided under the agreement might have facilitated at least the possibility of an expeditious result yet this was not attempted and no explanation was provided by the Plaintiff on this motion why this was not attempted. From an access to justice perspective, this was a missed opportunity by the Plaintiff.
The Plaintiff appears to have signed back-charges totalling over $76,000.00 and his explanation for these is not very convincing. The Defendant claims a significant set off. Even allowing for only a very small portion of the set-off to be successful for remedial work, it appears difficult for the Plaintiff to be successful with this action if the signed back-charges are accepted. Moreover, even if the Plaintiff was successful, it appears quite likely that some of the funds payable to the Plaintiff might be subject to trust claims by three of the Plaintiff’s subcontractors, described above and in the materials, with claims for lien on this project exceeding $246,000.00. Finally, the Plaintiff seems to have access to some equity in the house of its principal that might allow it to access some financing, which has not been sufficiently explained by the Plaintiff for me to accept the statement of Mr. Forbes that if security for costs is ordered, the Plaintiff will not be able to pay it and will be forced to abandon this action. Consequently, considering the evidence presented on this motion and balancing the interests of justice for both parties, I believe that this analysis favours the Defendant that security for costs should be posted in some reasonable amount.
I find the amounts sought by the Defendant in its factum to be reasonable and essentially allow same on a partial indemnity basis with only a small reduction of $3,000.00 to account for some of the arguments raised by the Plaintiff on this point.
When this motion was argued, counsel for the Defendant indicated that his client might bring a motion for summary judgment and would not seek additional security for costs if it decided to do so. I indicated that this made the amounts sought even more reasonable and associated the two with the result of the order made above at paragraph 3 of my endorsement. However, to be fair to the Defendant, it might have indicated the above on an understanding that I might accept as is the amounts sought as security for costs in their factum. Should that in any way be the case, I may be spoken to by appointment made by the Defendant within the next 10 days to revisit paragraph 3 before an order is finalized.
If the parties cannot agree on costs, they are to file written submissions as outlined above.
Finally, this motion was argued in English by the Defendant and in French by the Plaintiff. If the Plaintiff requests this endorsement to be translated into French it shall advise this court within the next 10 days.
Master Pierre E. Roger
DATE: January 18th, 2013
[^1]: Corporate Building Services Inc. v. Cutler, 2009 CarswellOnt 9110 at para. 4