SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 12-0855
DATE: 20140611

RE: PRASHER STEEL LTD., Plaintiff

AND:

D. GRANT & SONS LIMITED and SIMCOE MUSKOKA CATHOLIC DISTRICT SCHOOL BOARD, Defendants

BEFORE: THE HONOURABLE MR. JUSTICE J.R. McCARTHY

COUNSEL:
L. Pick, for the Plaintiff

K. MacLean, for the Defendant

HEARD: June 10, 2014

ENDORSEMENT

[1] The Defendant, D. Grant & Sons Limited seeks leave under section 67(2) of the Construction Lien Act, R.S.O. 1990, c. C.30, as amended (“the Act”) to take an interlocutory step, that being a motion for security for costs under Rule 56.01 of the Rules of Civil Procedure. The Defendant then seeks an order that the Plaintiff post security for costs in the amount of $75,000.00, to be paid in $25,000.00 instalments at three successive stages of the litigation.

[2] The Plaintiff opposes leave being granted, stating that the Defendant has failed to meet the threshold of showing proof that the steps are necessary or would expedite the resolution of the issues in dispute. The Plaintiff then opposes the request for security for costs, stating that the Defendant has failed to show good reason to believe that the Plaintiff has insufficient assets in Ontario to pay the costs of the Defendant.

Preliminary Objection of the Plaintiff

[3] At the outset, the court permitted the Defendant to seek leave even though leave was not specifically sought in the original notice of motion. The court held that the failure to set out leave as a part of the relief sought was an irregularity and that it was inherent in the overall relief claimed that leave would first be required. The court accepted the Defendant’s amended motion record.

Background

[4] The Plaintiff has registered a sub-contractor’s lien and advanced an action for the amount of $122,219.08 against certain project lands owned by the Simcoe Muskoka Catholic District School Board. The Defendant vacated the lien by posting a bond in the amount of $152,774.08 representing the full amount of the Plaintiff’s lien claim plus 25% for costs. The bond was posted in accordance with the Act. The net result of the payment is that more than $30,000 has been posted in respect of prospective costs.

Leave to Bring an Interlocutory Step

[5] Section 67 (2) of the Act reads as follows:

Interlocutory Steps

….Interlocutory steps, other than those provided for in this Act, shall not be taken without the consent of the court obtained upon proof that the steps are necessary or would expedite resolution of the issues in dispute.

[6] Section 67 (2) of the Act speaks of the consent of the court being required. All parties agree that this is equivalent to leave of the court.

[7] The Defendant seeks leave on the first prong of the test, that the motion is necessary. It did not suggest that the step would expedite resolution of the issues in dispute.

[8] The Defendant contends that the necessary branch of the test is very similar to the issue under Rule 56.01(d) of whether there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. Where there is such “good reason”, leave should be granted pursuant to s.67 (2) of the Act.

[9] The Plaintiff contends that the court should give the word “necessary” it’s plain and ordinary meaning and should not, for the purposes of a security for costs motion, be established merely by the suggestion that the Plaintiff is impecunious. The satisfaction of the “necessary” prong of the test must be determined based upon the fact of each case. Indeed, in the case of Global Design & Building Inc. v. 1289193 Ontario Inc., 2000 CarswellOnt 1216, 2 C.L.R. (3d) 271, McDermid J. of this court stated that an order for security for costs in a construction lien action is not “necessary” within the meaning of that word as it appears in s. 67(2) of the Act.

[10] There is now authority at this level of court for the proposition propounded by the Defendant. In Norseman Construction & Development Ltd. v. Evdemon, [2013] O.J. No. 6230 (OSC), Master Wiebe concluded that where there is some evidence that the plaintiff may not have sufficient assets in Ontario to pay the defendant’s costs should the defendant be successful, there is indeed a “necessity” for motion as described in s. 67 (2). Master Wiebe went on to add that this necessity threshold is lowered further if a defendant has posted security for costs.

[11] I prefer the approach taken by the court in Norseman. I also agree with the statement made by my brother Broad J., in the case of 2016637 Ontario Inc. (c.o.b. as Balkan Construction) v. Catan Canada Inc., [2012] O.J. No. 2123 at para.9:

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….

[12] In my view, it makes a good deal of sense to consider the motion being proposed and the purpose for it when considering the first prong of the test. Where, as here, the Defendant has put forth cogent evidence upon which a court may order security for costs and where, as here, the Defendant has itself posted a form of security for costs in the nature of a bond posted in order to vacate a lien, the interlocutory step of a motion for security for costs becomes necessary. The possible availability to one party of substantive relief under the Rules coupled with the goal of promoting an even playing field in order to enhance procedural fairness combine here to make the interlocutory step proposed necessary. Leave to bring the motion for security for costs is therefore granted.

Rule 56.01 and Security for Costs

[13] The Defendant contends that it has put forward sufficient evidence to establish a prima facie case that there is good to reason to believe that corporate Plaintiff has insufficient assets in Ontario to pay the costs of the Defendant. It points to the eighteen month delay in this case between the issuance of the counterclaim and any significant action by the Plaintiff in the litigation. It points to some investigation conducted and information obtained which raise the question of whether the Plaintiff has ceased to operate as a going concern. The Defendant has identified ten outstanding construction lien actions in which the Plaintiff is claiming a total of 2.6 million dollars. Execution searches have revealed that as of March 28, 2014, there are two outstanding writs of seizure and sale against the corporate Plaintiff totalling just shy of $17,000.

[14] The Defendant argues that the above evidence is sufficient to shift the onus onto the Plaintiff to demonstrate that it is not impecunious and has the assets or means to pay the Defendant’s costs should such an entitlement arise. In this regard, the Defendant argues that the Plaintiff has failed to discharge that onus. The Plaintiff has made bald assertions only and has furnished the court with only flimsy documentation to support a finding that it is a viable business with real assets and a corresponding ability to pay costs.

The Plaintiff has not tried to avail itself of the argument that it is impecunious such that the interests of justice require the court to deny the motion and to allow the action to proceed. Rather, it argues that evidence does not establish that there is good reason to believe that the Plaintiff has insufficient assets in Ontario to satisfy the costs of the Defendant. The Plaintiff has provided affidavit evidence together with some supporting documentation which includes estimates on various projects, photographs of inventory and a summary of receivables and outstanding lien actions in which it is a Plaintiff. Counsel suggests that I should accept the affidavit evidence of the Plaintiff in its entirety because it is neither contradicted nor tested by cross-examination.

Analysis

[15] On balance, the claim for security for costs is justified in all of the circumstances of this case. I note with some concern the absence of any details of any current or imminent projects for the Plaintiff. The estimates are helpful but do not serve of evidence of any probable revenue in the immediate future. The court was furnished with no financial statements or bank statements, no tax returns, no evidence of any available credit facility, nothing such as employee or HST remittances which might help to establish an ongoing business concern. I am not able to attach much weight to the bald assertion by the Plaintiff that he has paid off the judgement to which the writ filed in 2009 pertains. The court would expect to receive particulars of such a payment such as a cancelled cheque, a satisfaction piece or something as simple as an acknowledgment letter from the creditor. There was nothing of the sort. I agree with counsel for the Defendant that this hardly constitutes the kind of robust evidence that the Plaintiff must adduce in these situations.

[16] In the circumstances of this case, I find that an order that the Plaintiff post security for costs is warranted. There is sufficient evidence to establish good reason to believe that the Plaintiff corporation has insufficient assets in Ontario to satisfy a prospective award of costs to the Defendant.

Quantum

[17] I am not prepared to accede to the quantum sought by the Defendants. In my view, procedural fairness dictates that an order for security for costs should be proportionate not only to the amount of the lien claim but also to the notionally off setting security posted by the Defendant when it elected to have the lien on the project property vacated. In their infinite wisdom, the drafters of the legislation in question arrived at a formula for calculating the amount of costs that must form part of the bond posted in order to obtain the order vacation the lien. I find this approach helpful to the court in determining the quantum of security to be posted by the Plaintiff. That amount should be $30,000. Given that the matter has been dormant for more than a year and has not proceeded through to examinations, I am prepared to afford the Plaintiff an extended period of time to post the security ordered. That period should be six months from today’s date.

Disposition

[18] For the foregoing reasons, this court orders that the Plaintiff shall post security for costs to credit of this action with the accountant of the Ontario Superior Court of Justice in the sum of $30,000 by December 11, 2014.

J.R. McCARTHY J.

Date: June 11, 2014