CITATION: Unimac – United Management Corp. v. Metrolinx 2015 ONSC 2372

COURT FILE NO.: CV-12-454429

DATE: April 14, 2015

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Unimac-United Management Corp. (plaintiff) v. Canadian National Railway Company and Metrolinx;

BEFORE: MASTER C. WIEBE

COUNSEL: Hersen, G. D., and Goode, J. for Metrolinx (the moving party); Baichoo, J. P., for Unimac-United Management Corp.(the responding parties).

HEARD: February 2, 2015 at Toronto, Ontario.

REASONS FOR DECISION

I. INTRODUCTION

[1] Metrolinx is the owner of certain lands in Toronto and entered into a general contract with Unimac-United Management Corp. (“Unimac”) for the construction of a project on those lands named the “Willowbrook Rail Maintenance Facility Fuel Rehabilitation Project” (hereinafter “the Project”). This contract will be called the “Contract.”

[2] On February 23, 2012 Unimac purported to preserve a lien in relation to the Project in the amount of $5,563,766.96. On May 25, 2012, Unimac commenced this action purporting to perfect that lien and added a claim for damages and restitution in the amount of $1,500,000, making the overall claim $7,063,766.96. This action will be called the “Unimac Lien Action.” On July 23, 2012, Metrolinx defended this action and raised a counterclaim for damages for breach of contract in the amount of $3,900,000.

[3] Metrolinx now brings a motion for an order requiring Unimac to post security for costs for Metrolinx for the entirety of this action in the partial indemnity amount of $407,250.34. The claimed security would cover Metrolinx’s costs incurred to date and future costs. Unimac opposes this motion entirely.

II. BACKGROUND

[4] Several claims for lien were registered on the title to the lands under the Contract in addition to the Unimac claim for lien. There were three claims for lien from subcontractors of Unimac, namely Trenchline Construction Inc. (“Trenchline”), Dalcour Inc. (“Dalcour”) and Cos Shore Inc. (“Cos”). These three claims range from $464,271.58 to $3,882,179. There were six claims for lien from sub-subcontractors, James Dick Construction Limited (“Dick”), Direct Equipment Ltd. (“Direct”), Elimi-Tank Installations (“Elimi”), Stephenson’s Rental Services Inc. (“Stephenson”), Terratechnik Environmental Limited (“Terratechnik”) and Caledon Sand & Gravel Inc. (“Caledon”) in amounts of less than $100,000. All of these claims were purported to be preserved and perfected in the period from September, 2011 to March, 2013.

[5] Several non-lien actions were commenced in relation to the Contract as well. There were five actions that concerned the labour and material payment bond of Unimac’s bonding company, Trisura Guarantee Insurance Company (“Trisura”). Four of these claims were from lien claimants Cos, Dalcour, Terratechnik and Trenchline. One was from non-lien claimant, Total Meter Services Inc. (“Total”), a subcontractor to Unimac, which asserted a claim of $1,060.000 against Unimac and Trisura. Breach of trust actions were also commenced by Cos and Direct.

[6] Unimac commenced its own non-lien actions. On November 23, 2012, Unimac commenced an action in Newmarket against Metrolinx and the consultant on the Project, Hatch Mott MacDonald Ltd. (“Hatch”), claiming $10,000,000 in damages and $2,500,000 in punitive damages. This action will be called the “Unimac Damage Action.” On March 4, 2013, Metrolinx also commenced an action in Newmarket against another subcontractor on the Project named Cobra Power Inc. (“Cobra”) claiming damages of about $300,000. This action will be called the “Cobra Action.” Cobra delivered a Statement of Defence and Counterclaim on September 6, 2013.

[7] In the Toronto lien proceedings, Trenchline obtained a judgment of reference from Justice Himel on March 19, 2013 and an order for trial from Master Albert on April 9, 2013. The first trial management conference in this reference took place before me on June 24, 2013. I gave directions for the completion of pleadings, the exchange of Scott Schedules and the preparation of a discovery plan. I encouraged parties to the non-lien actions to obtain orders referring those actions to me as soon as possible in order to avoid a multiplicity of proceedings.

[8] On November 18, 2013, Cobra brought a motion before me in the Cobra Action to have the venue for that action changed from Newmarket to Toronto for the purpose of having that action referred to me to be tried together with the lien actions. Metrolinx brought the same kind of motion before me in the Unimac Damage Action returnable on the same date. On December 20, 2013 I granted both orders. Unimac appealed both orders on the grounds that I did not have the jurisdiction to make those orders. These appeals are pending.

[9] I moved forward with the reference in the lien proceedings. I held the second trial management conference on December 16, 2013. At that time I issued further directions concerning pleadings, Scott Schedules and the completion of the discovery plan. I also dealt with an unrelated stream of claims. I held the third trial management conference on January 30, 2014. By this time most of the reference orders in the non-lien and trust actions had been obtained. I gave further directions concerning the completion of productions, the discovery plan and the discoveries themselves. I held the fourth trial management conference on June 23, 2014. I dealt with some straggling issues in one action and extended the overall deadline for the completion of discoveries.

[10] In the meantime, Unimac sought a motion to stay my change of venue orders in the Cobra Action and the Unimac Damage Action pending the Unimac appeals of those orders. Cobra in turn sought a motion to refer the Cobra Action to me. Both matters came before Justice Meyers in Civil Practice Court on December 12, 2014. On December 15, 2014 His Honour issued an endorsement and scheduled both motions to take place before a judge on January 12, 2015. Madame Justice Brown heard argument that day and on January 15, 2015 issued an order referring the Cobra Action to me for management and hearing together with the lien proceedings.

[11] In January, 2015, I received correspondence from counsel indicating that the parties were encountering insurmountable difficulties in completing discoveries. As a result, I turned the following trial management conference scheduled for February 2, 2015 into an in-person attendance. At that time I was advised that, while discoveries had started in most actions, they were not complete. In the Unimac Lien Action, Unimac had conducted two days of discovery. I issued a comprehensive series of directions scheduling the completion of discoveries and the exchange of expert reports in all actions. In the Unimac Lien Action, I ordered that Unimac discover Metrolinx for no more than 14 hours by May 7, 2015 and that Metrolinx discover Unimac for no more than 35 hours by June 30, 2015. I also imposed deadlines for expert reports and scheduled the next trial management conference to take place in person before me on September 14, 2015 primarily for the purpose of scheduling the trial(s) in this reference.

[12] Meanwhile, the Unimac Damage Action remains in Newmarket pending the Unimac appeal of my venue order in that action. Should the appeal succeed, that action will remain in Newmarket. To my knowledge, neither party to that action has taken steps to get a venue change order from a judge, who would have undisputed jurisdiction to make such an order. Furthermore, Metrolinx has not followed Cobra’s course of action, namely enforcing my change of venue order in the face of the Unimac appeal. Mr. Hersen explained that Metrolinx is not prepared to do so because, should Unimac succeed on its appeal, such an effort would be wasted.

III. ISSUES

[13] The issues in this motion are the following:

a) Should Metrolinx be granted leave under the Construction Lien Act (“CLA”) to bring this motion?

b) If leave is granted, does Unimac have another proceeding for the same relief sufficient to justify an order for security for costs?

c) If leave is granted, is there “good reason to believe” that Unimac does not have sufficient assets in Ontario to pay the costs of Metrolinx?

d) If leave is granted, are the merits of Unimac’s claim against Metrolinx relevant?

e) If leave is granted, should the Metrolinx claim for security for costs be discounted due to its counterclaim?

f) If leave is granted, is there delay in bringing this motion that is fatal to the motion?

g) If leave is granted, should Metrolinx be denied security for costs because it does not have “clean hands”?

h) If leave is granted and security is ordered, what is the appropriate quantum of the security to be ordered?

IV. ANALYSIS

(a) Should Metrolinx be granted leave under the CLA to bring this motion?

[14] Metrolinx relies on two grounds for its motion for security for costs:

• Unimac has another proceeding, the Unimac Damage Action, for the same relief. This is a ground for security for costs specified by Rule 56.01(1)(b).

• Unimac is a corporation and there is “good reason to believe” that Unimac has insufficient assets in Ontario to pay the costs of Metrolinx. This is a ground for security for costs specified by Rule 56.01(1)(d).

[15] First, however, is the issue of leave under the CLA. Motions by defendants for security for costs are not expressly provided for in the CLA, and, therefore, CLA section 67(2) requires that the moving party, Metrolinx, first obtain the court’s leave to bring the motion. Such leave under section 67(2) can only be given on proof that the motion is “necessary” or “would expedite the resolution of the issues in dispute.” Has this test been met?

[16] The question of leave under CLA section 67(2) concerning motions for security for costs grounded on a multiplicity of proceedings is an interesting one. I was given no authority directly on point. I will therefore reason from what I view to be the basis for the rule. In my view, Rule 56.01(1)(b) exists to redress the unfairness of excessive costs incurred by a defendant due to an unjustified multiplicity of proceedings by the plaintiff. I take inspiration from the decision of Master Sandler in Biotechnik Inc. v. O’Shanter Development Co. [2003] O.J. 1633 (Ont. Master) at paragraph 29 where the Master held, in determining the question of leave concerning a motion for security for costs grounded on the alleged insufficiency of assets to pay costs, that the security for costs rules are designed to achieve procedural fairness and justice between the parties. Where there is an unjustified multiplicity of proceeding by the plaintiff, it is a matter of procedural fairness that the defendant should at minimum have its costs secured by the plaintiff.

[17] The question of leave in such a case turns on the existence of the multiplicity of proceedings, namely whether it appears that there are two or more proceedings for the same relief. If it does so appear, the motion is “necessary” and leave follows. The onus then shifts to the plaintiff to show that the multiplicity of proceedings is justified or not unfair. This process parallels the general process under Rule 56.01. In Shibish v. Scher [2013] O. J. 3008 (Ont. Master), Master Brott held in paragraph 6 that the process in a motion for security for costs on any of the grounds under Rule 56.01 is a two-step process, the first step being by the defendant to establish whether it appears that the matter falls under one of the six enumerated categories in Rule 56.01, and the second step being by the plaintiff to show that an order for security for costs is unjust. I rule that this first step is also the step that the defendant must make to get leave under the CLA to bring a motion for security for costs due to a multiplicity of proceedings.

[18] Mr. Hersen argued that Unimac has commenced two proceedings for the same relief against Metrolinx in the Unimac Lien Action and the Unimac Damages Action. Mr. Baichoo argued that there is no such multiplicity of proceedings. He argued that Unimac Damages Action concerns claims of negligence and intentional interference with economic relations against Metrolinx, while the Unimac Lien Action concerns a claim for lien. Having reviewed the statements of claim in the two actions, I am satisfied that the central claims against Metrolinx in both actions are for damages for breach of contract and negligence and for restitution concerning the Project. As Mr. Hersen pointed out, in the Unimac Lien Action Unimac pleaded, amongst other things, damages arising from a breach in an alleged “duty of care,” which amounts to negligence. The amounts and types of damages claimed differ between the two, but what is relevant are the causes of action, namely the relief; see Cote v. Naumann [2000] O.J. 515 (Ont.S.C.J.) at paragraph 12. What is also relevant is the factual underpinning of the two actions, which I find to be same. The factual underpinning has been found to be relevant on this point as well; see Galustian v. SkyLink Group of Companies Inc. [2010] O.J.4168 (Ont.C.A.) at paragraph 34.

[19] I, therefore, grant leave to Metrolinx to bring its motion for security for costs on the ground of a multiplicity of proceedings in Rule 56.01(1)(b).

[20] The question of leave concerning the other ground relied upon by Metrolinx, the ground of whether there is “good reason to believe” that Unimac has insufficient assets to pay costs, has been more thoroughly canvassed in previous decisions. I have held in Norseman Construction & Development Ltd. v. Evdemon [2013] O.J. 6230 (Ont. Master) in paragraph 13 that the moving party establishes a basis for leave on this ground when it meets its initial onus under Rule 56.01(1)(d) to show that there is “good reason to believe” that the plaintiff corporation has insufficient assets to pay costs. I remain of this view. I will, therefore, explore whether Metrolinx has met its onus in this regard.

[21] Metrolinx relies on the following evidence to show that it has met its onus:

• A Corporation Document List dated January 5, 2015 showing that Unimac has failed to file its Corporations Information Act (“CIA”) annual returns for 6 years prior to the motion, namely from 2008 to 2014.

• An affidavit of one Charles Daley, principal of Dalcour, sworn November 19, 2014, in which the deponent asserts, with supporting documentation (particularly a Unimac spreadsheet and an April 28, 2011 email), that Unimac transferred funds during the Project in 2010 and 2011 from its bank account to related entities and its shareholders in the total amount of almost $2 million, and that Unimac is “undercapitalized.”

• A PPSA registration by Trisura covering all of the assets of Unimac (including accounts) plus a Trisura action against Unimac commenced on September 20, 2012 for $5,652,700 in relation to alleged bonding losses on the Project and several other projects.

• 12 claims by subcontractors of Unimac against Unimac for a total of $7,971,362.43.

• Real estate searches showing that Unimac does not own the land on which its head office is located or any real estate in York Region and Toronto.

• Another PPSA registration by Romspen Investment Corporation (“Romspen”) against Unimac and others, which includes an assignment of Unimac’s assets to Romspen. This registration was discharged on December 2, 2014 while this motion pending.

[22] The first three items of evidence impressed me. In City Commercial Realty Services (Canada) Ltd. v. Bakich [2005] O. J. 6443 (Ont. C.A.), Madame Justice Lang held in paragraph 8 that, while the initial onus of the moving party was a reduced one, the evidence had to at minimum establish “insufficiency [of assets] that goes beyond mere conjecture, hunch or speculation.” She stated that the evidence had to show some corporate instability. Two indicia of instability she identified were a failure to make appropriate corporate filings and the disposal of significant assets. In my view, the first two of the above noted items of evidence fall into those two categories.

[23] The Trisura PPSA registration also impressed me given that Trisura has now commenced litigation presumably to realize on its security. Normally, a PPSA registration would not per se trouble me, as it shows a willingness of a third party financial institution to finance the business of the corporation; see Norseman, paragraph 24. However, here the bonding company, Trisura, is now actively pursuing its remedies against Unimac in light of alleged significant bonding losses. Of significance, the Trisura registration covers Unimac’s accounts. This all indicates that Trisura does not view its position under its indemnity agreement with Unimac as a secure one.

[24] The other items of evidence are much less impressive. Subcontractor claims are an ongoing risk of the general contracting business. The Romspen PPSA registration was removed. The fact that Unimac does not own real estate in Toronto and York Region could just as well be the result of its business model than a sign of insolvency. As I stated in Norseman at paragraph 23, many construction companies choose not to hold property in their names. These factors rise in importance only if there is other evidence of corporate instability.

[25] What then is Unimac’s position on the first two items of evidence? Concerning the failure by Unimac to file the CIA returns, Leon Hui, the principal of Unimac, simply denied in cross-examination that Unimac failed to file these returns. However, I was given no evidence that the government documents were inaccurate. I, therefore, conclude that they are accurate and that Unimac has failed to file its CIA annual returns for 6 years, as required. There was no evidence that this has been made current.

[26] Concerning the Daley affidavit, Mr. Baichoo chose not to cross-examine Mr. Daley. Instead, Mr. Hui asserted in his affidavit, filed in response to the motion, that Mr. Daley was simply not be believed. Mr. Hui asserted that Unimac would not post internal financial documents, such as the Unimac spreadsheet Mr. Daley relied upon in his affidavit, in a public Dropbox Account, which is where Mr. Daley alleges he obtained the document. Mr. Hui also alleged that the document is “not a bank register or statement.” He implied that the document is a fabrication. Mr. Hui further alleged that the April 28, 2011 email Mr. Daley relied upon to show that Unimac used Project money to fund shareholder loans totaling $1.7 million, should be discounted because the person who delivered the email to Mr. Daley, a Keith Ly, is guilty, according to Mr. Hue, of fraudulent conduct. Mr. Hui also accused Mr. Daley of fraudulent conduct and went into some detail about the basis for this allegation.

[27] I discount the evidence of Mr. Hui on this point for the following reasons. Given the important of Mr. Daley’s evidence and the gravity of these allegations against him, I would have thought, out of fairness, that Mr. Daley would have been given the opportunity to address these allegations in cross-examination. He was not. I discount Mr. Hui’s evidence accordingly. Furthermore, Mr. Hui’s assertions are not accurate. The spreadsheet attached to Mr. Daley’s affidavit is stated to be a Unimac document and it is entitled “ICBK Bank register.” There is nothing to substantiate Mr. Hui’s suggestion that it is fabricated. The spreadsheet shows several questionable transfers of funds to related entities. The April 28, 2011 email was clearly written by Mr. Hui, and it does not matter that Mr. Ly forwarded it to Mr. Daley. Nowhere in his evidence does Mr. Hui deal with the substantive assertions of transfers of funds made by Mr. Daley. Therefore, on balance, I give Mr. Daley’s evidence more credence than I do Mr. Hui’s on this point. Metrolinx has, as a result, produced evidence of significant dispositions of assets by Unimac.

[28] As a result, I find that Metrolinx has met its initial onus of showing that there is “good reason to believe” that Unimac has insufficient assets in Ontario to pay the costs of Metrolinx.

[29] I, therefore, grant Metrolinx leave to bring this motion.

(b) Does the existence of the Unimac Damages Action justify an order for security for costs?

[30] Unimac, therefore, has the onus of showing that the existence of the second action against Metrolinx for the same relief, namely the Unimac Damages Act, is justified and not unfair. I have concluded that it has not met that onus.

[31] Mr. Baichoo argued first that the joinder of Metrolinx to the Unimac Damages Action was a necessary by-product of Unimac’s justified separate action against Hatch. He argued that the Unimac Damages Action is in essence a claim against Hatch for damages for negligence, and that such a claim could not have been joined to the Unimac Lien Action by operation of CLA section 55(1). This section allows the joinder of only a breach of contract claim to a lien action. I agree with that point. However, Mr. Baichoo went on to argue that Metrolinx was a necessary party to the separate Unimac Damages Action against Hatch and therefore had to be joined. I was given no authority for that proposition and I do not accept it. The action could have been confined to Hatch in order to avoid the duplication concerning Metrolinx and the Unimac Lien Action.

[32] Mr. Baichoo also argued that any multiplicity of proceedings as between these two actions has been nullified by my order of December 20, 2013 transferring the Unimac Damages Action to Toronto to be referred to me. He relied upon the decision of Master Birnbaum in Ingle v. Co-operators Group Ltd. [2007] O.J.982 (Ont. Master) at paragraph 6 where the Master held that a previous order by her transferring an action to Toronto to be tried together with a duplicate action nullified this ground for security for costs. The problem with this argument is that the implementation of my order has been blocked by the Unimac decision to appeal my order. I understand that this appeal is strictly on the grounds of my jurisdiction to make the order. The fact is, however, that, due to this appeal, the Unimac Damages Action remains in Newmarket, and, if the appeal succeeds, will remain there.

[33] Mr. Baichoo argued interestingly that Metrolinx should be faulted for acting cynically in not pursuing the same course of action that Cobra pursued, namely having the Unimac Damages Action transferred to Toronto and referred to me in the face of the Unimac appeal. The allegation is that Metrolinx is doing so only to enhance its position on this motion. I do not agree. The risk of having Metrolinx’s efforts wasted in the end is real pending the appeal. Furthermore, it is not fair for Unimac to make this argument when it itself has done nothing to move its own action from Newmarket to Toronto for referral to me.

[34] I, therefore, find that this unjustified multiplicity of proceedings forms a basis for ordering security for costs in this case.

(c) Is there good reason to believe that Unimac has insufficient assets to pay Metrolinx’s costs?

[35] Unimac does not take the position that it is impecunious. Its defence is that it has sufficient assets to pay for Metrolinx’s costs. The onus to prove this rests with Unimac. I have concluded that it has not met its onus.

[36] Unimac provided essentially three items of evidence to substantiate its position that it has sufficient assets to pay costs:

• 7 Royal Bank (“RBC”) Business Account monthly statements for a Unimac bank account covering the seven month period from April 25, 2014 to November 26, 2014. The statements are heavily redacted. They show only the opening and closing balances for each statement. The opening and closing balances shown range from $187,012.58 to $252,540.25. The redactions appear to cover the intervening transactions between the opening and closing balances each month and other information.

• 7 Industrial and Commercial Bank of China (“ICBC”) monthly account summaries for a Unimac bank account concerning the months of April to October, 2014. These summaries are also heavily redacted. They show only the opening and closing account balances on each statement. The opening and closing balances shown range from $654,564.66 to $693,443.34. The redactions appear to cover the intervening transactions between the opening and closing balances each month and other information such “deposits,” “loans,” “overdraft limit,” and “available overdraft.”

• A written contract between an owner and Unimac dated October 28, 2014 for the construction of a project called the “Foody Mart Wholesale Superstore” in Mississauga, Ontario. The contract price is shown to be $5,344,900. The names of the owner and the consultant are redacted. The document contains signatures. For the redacted owner there is the signature of one, “Cheng Yi Wei, C.E.O.” Mr. Hui’s signature appears for Unimac. The work on the project is stated to start in April, 2015 and reach substantial performance on September 1, 2016.

[37] Mr. Baichoo argued that this limited evidence was sufficient to meet Unimac’s onus of showing that it has sufficient assets in Ontario to pay Metrolinx’s costs. Mr. Hersen argued that it is not sufficient. He stated that the bank balances per se meant little without full disclosure of the information behind the redactions. He argued that the redactions on the bank statements could be hiding the fact that the balances are overdrafts or loans that are subject to bank security, or that the balances are quite fleeting. He also stated that the redactions on the Unimac contract made it impossible to verify the bona fides of the Unimac contract for the Foody Mart project. He added that he tried to get information about all of these redactions at the cross-examination of Mr. Hui and was refused. Mr. Hersen stated that he tried to also get information about the $1.7 million shareholder loan referred to in the April 28, 2011 Hui email, and against was refused. He tried to get information about the payouts shown on the ICBK Bank register and was refused. He tried to get disclosure of the Romspen PPSA security and was denied.

[38] I agree with Mr. Hersen. The existence of the monthly bank balances per se does not satisfy me that this is an asset that would be readily available to pay costs. The quality of an asset is a valid consideration on a motion for security; see Dion v. CIBC World Markets Inc. 2002 CarswellOnt 5878 (Ont. S.C.J.). The quality of a bank account was expressly called into question in the Dion case as the Master held in that case that $305,000 in a brokerage account was not of the quality that met the test of sufficient assets in Ontario. On appeal Justice Somers agreed with this aspect of the decision as follows in paragraph 3: “In my view, the quality of assets for the purposes of determining whether or not security for costs should be ordered is dependent upon a number of factors, one of which would be the ease with which that asset could be transferred outside the jurisdiction to an area where it could not be executed against.” I have the same concern about the balances shown in the Unimac bank accounts, especially given all the redactions.

[39] As to the Unimac contract, the redactions on that contract make an assessment of the quality of that asset virtually impossible. I give no weight to that contract.

[40] I will add a further comment about the conduct of Mr. Hui in refusing the requested disclosure about the quality of Unimac’s assets and liabilities on his cross-examination. In Marcon Custom Metals Inc. v. Arlat Metals Inc. [2003] O.J. 5028 (Ont. Master) a corporate plaintiff disclosed its financial statements in response to a motion for security for costs based on alleged insufficiency of assets to pay costs. It then refused to disclose a series of documents concerning these statements. Master Dash ordered security for costs. He held that the court could draw a “negative inference” from the refusal to respond to relevant questions. Similarly, I draw a negative inference from the persistent refusal by Mr. Hui to disclose information and documentation that pertain to the existence and sufficiency of the assets and liabilities of Unimac.

[41] I, therefore, find that Unimac has not shown that it has sufficient assets in Ontario to pay for Metrolinx’s costs.

(d) Are the merits of the Unimac claim against Metrolinx relevant to this motion?

[42] Mr. Baichoo argued that the merits of the Unimac claim against Metrolinx are relevant. He then made submissions about the merits of the Unimac claim, namely that Hatch had issued payment certificates in the total amount of $985,944.27 that remained unpaid. This does not include Unimac’s claims for extras and damages due to delay.

[43] Unimac did not take the position on this motion that it is impecunious. Had it done so, the question of the merits of the Unimac claim would have been potentially relevant. In such a case, once impecuniosity is established, the plaintiff must show that it has a meritorious claim in order to satisfy the court that an order for security for costs should not be granted, as to do so would thwart a meritorious claim. That was the situation with the one case that was relied upon by Unimac, John Wink Ltd. v. Sico Inc. (1987) 1987 CanLII 4299 (ON SC), 57 O.R. (2d) 705 (Ont. H.C.). In that case, the plaintiff claimed impecuniosity. The decision is distinguishable on this basis.

[44] The other case that was relied upon by Unimac was Societa Porcellane E Affini v. Silton Ltd. [1989] O.J. 1330 (Ont. Master). In this case, the defendant had a prima facie entitlement to security for costs on the basis that the plaintiff was a foreign company, namely an Italian company. However, the plaintiff was successful in defeating the motion when it showed that the defendant had admitted receipt of the goods in dispute and the agreement to pay the alleged price, and that the focus of the litigation was on the defendant’s claim of set off due to deficiencies. The court held that it would be unjust to require the plaintiff to post security for costs in such circumstances when “the burden of the action falls on the defendant.”

[45] In this case, Metrolinx did not adduce evidence as to the merits of the Unimac case or Metrolinx’s defence. The pleadings, however, are instructive. They are in the motion records and establish the issues between the parties. They indicate the following points. The Unimac claim for unpaid payment certificates is a fraction (about 14%) of the total amount of its claim. Unimac’s claims for extras and delay damages are the focus of its case, and these are in dispute. Metrolinx’s set off defence, therefore, will not carry the “burden” of this action. Furthermore, the Unimac contract was a unit price contract in which the payment certificates were made subject to a final accounting of the price to be paid, an accounting that included adjustments such as set offs for deficiencies. Therefore, Unimac’s contractual entitlement to payment on the payment certificates was not without condition.

[46] I, therefore, find that in this case the merits of Unimac’s claim against Metrolinx are only of marginal significance and do not affect the outcome of the motion.

(e) Should the Metrolinx claim for security for costs be discounted due to its counterclaim?

[47] Mr. Baichoo argued that the motion should be denied because the real “driver” of this action was the Metrolinx counterclaim.

[48] This issue is similar to the one in issue (d) above. Where the “real driver” of the action will be the moving defendant’s counterclaim, there is authority for the proposition that the court may not only discount the award of security for costs by the estimated costs of litigating the counterclaim, but refuse the award altogether. I stated as much in the case of European Flooring Contract Services Ltd. v. Toddglen ILofts Ltd. 2013 ONSC 6445, 2013 CarswellOnt 14289 (Ont. Master) where I quoted from Justice Farley in Better Business Bureau of Metropolitan Toronto Inc. v. Tuz [1999] O.J. 1359 (Ont. Gen. Div.) as follows: “Where there is a counterclaim and the facts on which the counterclaim are based in large part on the same facts and circumstances raised in the plaintiff’s claim, this militates against an order for security for costs . . . .”

[49] The facts of the European Flooring case distinguish it from the one before me. In that case, the plaintiff’s claim was but 16% of the defendant’s counterclaim. There was clear evidence that the issues and quantum of the counterclaim were the focus of the action and the trial. There were also several grounds on which I denied the defendant’s motion for security for costs, such as delay in bringing the motion and non-compliance with directions. On the other hand, in the Unimac Lien Action, the Unimac claim is almost twice the size of the Metrolinx counterclaim. The Metrolinx counterclaim will not be the “driver” of this action. While the Metrolinx counterclaim is based on the same facts and circumstances as the Unimac lien claim, I do not find sufficient justification to deny an award of security for costs on account of this counterclaim.

[50] However, if the amount of security for costs claimed by Metrolinx concerns all of its costs in this action, I will make a discount due to the anticipated costs of the counterclaim, as it would be unfair for Unimac to pay security for costs to defend a counterclaim.

(f) Is there delay in bringing this motion that is fatal to the motion?

[51] Mr. Baichoo argued that the Metrolinx motion should be denied because of what he alleged was unjustified delay in bringing the motion.

[52] There are several decisions which deal with this issue. There is a consensus in these decisions that the following propositions apply: a defendant must move for security for costs promptly after it learns that it has a reasonable basis to bring the motion; if there is a delay in bringing the motion that prejudices the plaintiff, that will be fatal to the motion; and if there is a delay in bringing the motion that is not explained, that is sufficient grounds in itself to deny the motion. All three factors were aptly discussed by Master Graham in Pelz v. Anderson, 2006 CanLII 39571 (ON SC), [2006] O.J. No. 4726 (Ont. Master). The first of these factors was emphasized by Master Haberman in her decision in Shuter v. Toronto Dominion Bank, 2007 CanLII 37475 (ON SC), [2007] O.J. No. 3435 (Ont. Master) at paragraph 106. The second of these factors, prejudice, was emphasized by Master Short in his decision in Livent Inc. (Receiver and Manager of) v. Deloitte & Touche, [2011] O.J. No. 1660 (Ont. Master) are paragraph 80.

[53] Was there a delay in the bringing of this motion? I will focus my attention on the evidence proffered by Metrolinx that I found to be critical in establishing the basis for this motion. This was the Corporation Document List dated January 5, 2015, the Daley affidavit sworn November 19, 2014, the PPSA search dated November 3, 2014 which revealed the Trisura PPSA registration, and the Trisura action against Unimac that was commenced on September 12, 2012. Remarkably, Metrolinx provided no evidence as why this evidence was obtained when it was and not sooner. This absence troubled me. The Corporation Document List, the PPSA search and the Trisura action could all have been obtained at any time after the close of pleadings in the Unimac Lien Action, which happened in September, 2012, namely over two years before this motion was brought. There was no explanation as to why the Daley evidence was not obtained sooner than when it was.

[54] What was particularly troubling was that Metrolinx appears to have reached its conclusion to commence this motion before it obtained this evidence. Mr. Hui’s affidavit contains the letter Mr. Hersen sent to Mr. Baichoo dated September 16, 2014 in which Mr. Hersen advised that he had received instructions to bring this motion. The reasons for this decision were not provided in the letter. There was then an exchange of letters between counsel in which Mr. Baichoo provided Mr. Hersen with some of the bank statements that I have discussed above. Metrolinx then commenced this motion on November 19, 2014.

[55] Despite these concerns, however, I am not prepared to conclude that there was a “delay” in bringing this motion. What amounts to a “reasonable basis” for this motion has to be viewed in the context of the procedural complexities of, not only the Unimac Lien Action, but the entire reference of which it is a part. Motions for security are usually not brought until at least the pleadings and productions are done. This is no doubt because it is difficult to decipher prior to that point what the issues and the costs of the action will be. Some decisions have gone so far as to say that such motions should not be brought before the completion of examinations for discovery; see Park Street Plaza Ltd. v. Standard Optical Inc. [2003] O.J. No. 4487 (Ont. S.C.J.) and Alternate Energy Corp. v. Rothman [2007] O.J. No. 2875 (Ont. Master). I agree with Master Haberman’s comment in Shuter that there should be no hard and fast rule about when such motions should be initiated. But this authority does show that the courts give defendants latitude to move through the initial stages of a proceeding before requiring that they bring motions for security for costs.

[56] In lien proceedings, these initial stages can be cumbersome. Productions and discoveries can be done only with leave of the court. In Toronto, such leave is obtained from the Lien Master after a judgment of reference referring the lien actions on an improvement to the Lien Master. In this case, the judgment of reference was obtained by another lien claimant (not Unimac) no sooner than March 19, 2013. The first trial management conference took place before me no sooner than on June 24, 2013.

[57] The size and complexity of the reference further slowed the initial steps of the lien actions, including the Unimac Lien Action. The Unimac Lien Action is but one of 10 lien actions. Presumably, Metrolinx is a party defendant to most, if not all, of these actions. There are also seven bond and trust actions. It took time to get all of these referred to me for management and trial. I spent the first two trial management conferences dated June 24, 2013 and December 16, 2013 making orders for the completion of pleadings, Scott Schedules (which are in effect pleadings), productions and a discovery plan. I note that it was counsel for Metrolinx, Mr. Hersen, who on December 13, 2013 took the initiative to circulate a draft discovery plan to all of the parties in accordance with my directions. I note that it was no sooner than at the trial management conference of January 24, 2014 that I first gave leave for discoveries. I also note that discoveries took time to get underway. They had not taken place by the time of the next trial management conference on June 23, 2014, at which time I extended the deadline for the holding of discoveries. Based on the evidence in the motion records, it appears that discoveries finally began in all actions, including in the Unimac Lien Action, no sooner than in the fall of 2014.

[58] Given such a complex reference, I do not find fault with the timing of the Metrolinx motion for security for costs. Through no fault of Metrolinx, it has taken time to get through pleadings and productions. Discoveries have just started and will take time to complete. No mediation or trial has been scheduled. A large part of these proceedings is yet to be completed. I am, therefore, not of the view that Metrolinx was in a position in the action itself to move for security for costs much sooner than when it did.

[59] I, therefore, do not find that there has been a delay in the bringing of this motion.

[60] On the other hand, if I am wrong on this point, and there was a delay in bringing the motion, I find that there was no prejudice to Unimac as a result. Mr. Baichoo argued that there was prejudice to Unimac in the alleged delay due to the costs that Unimac has incurred to this point in the Unimac Lien Action. I was given no authority that costs per se amounted to prejudice. Costs combined with evidence that the plaintiff would probably not have incurred those costs had the motion been brought earlier could lead to a finding of prejudice. That was the case with my decision Totalsiteworks Construction Corp. v. Mady Contract Division Ltd. [2014] O.J. No. 85 (Ont. Master), which was relied upon by Mr. Baichoo. In that case, the plaintiff showed that the benefits of the action were going to be enjoyed by a third party creditor, which made the plaintiff’s claim that it would not have incurred the costs of the litigation had the motion been brought sooner quite credible. Here there is no such evidence.

[61] I, therefore, find that, if there has been delay, it has not prejudiced Unimac and that, following Master Short in the Livent decision noted above, there is no basis for dismissing this motion on this ground in that event.

(g) Should Metrolinx be denied security for costs because it does not have “clean hands”?

[62] Mr. Baichoo argued that I should use my discretion in this motion to deny Metrolinx security for costs due to its alleged misconduct or “unclean hands.” I will deal with each of the instances of alleged misconduct in order:

• Mr. Baichoo alleged in his factum that Metrolinx “ambushed” Mr. Hui with documents and irrelevant questions at his cross-examination. This was not brought up in oral argument. Suffice it to say that I was not made aware of what specific documents and questions amounted to this alleged “ambush.” I give no weight to this allegation.

• Mr. Baichoo criticized Metrolinx for relying on the Daley affidavit, which he described as “untrue” and containing “falsehoods.” I have already dealt with the Daley affidavit. Suffice it to say here that I do not find the Daley affidavit without credibility.

• Mr. Baichoo criticized Metrolinx for not enforcing my change of venue order in the Unimac Damage Action in order to enhance its position on this motion. I have already deal with this allegation. Suffice it to say here that I do not agree with that allegation.

[63] As a result, I do not find that Metrolinx should be denied security for costs because of “unclean hands.”

[64] Having reviewed all of the above factors, I have come to the conclusion that Metrolinx is entitled to an order requiring Unimac to post security for Metrolinx’s costs in the Unimac Lien Action.

(h) What is the quantum of security for costs that Unimac should post?

[65] Metrolinx claims that Unimac should post the amount of $407,250.35 (tax included) as security for costs. It submitted a Costs Outline showing what costs Metrolinx had incurred to date in this action and what costs it anticipated. It appended several redacted dockets. I make the following comments on this evidence:

• Metrolinx has incurred and will incur a total of $188,362.75 (tax excluded) in actual costs for legal fees and $3,931.03 for disbursements to the end of examinations for discovery. The partial indemnity costs for the same work are shown to be $125,467.50 (tax excluded). These are shown to be 35% of the total costs. This work includes the preparation and service of pleadings, the preparation, review and service of Scott Schedules, attendances at the several trial management conferences prior to the motion, the preparation of a Discovery Plan, the preparation and delivery of an affidavit of documents, and the preparation for and attendance at the one day of examinations for discoveries conducted prior to November 20, 2014 and all future examinations for discovery. Mr. Baichoo had no criticism of these amounts. Neither do I.

• There are two lawyers shown as being involved with this case: Mr. Hersen, who was called to the bar in 1991, with a partial indemnity rate of $350/hour; and Jonathan Goode, who was called to the bar in 2006, with a partial indemnity rate of $225/hour. The Costs Outline shows the involvement of four law clerks and a student as well. The partial indemnity rate shown for the clerks is $80/hour and for the student $60/hour. Mr. Baichoo had no criticism of this allocation of the workload or these rates. Neither do I.

• The number of anticipated future discovery days appears to be about 6. The future trial preparation is shown to be 60 days at 8 hours per day. The future trial of this action is shown to be 30 days at 6 hours per day. All of this work is shown to be that of Mr. Hersen. Mr. Baichoo had no criticism of this estimation. Neither do I. If anything, it may be somewhat light as I expect Mr. Hersen will need help during the trial. Furthermore, it does not deal with experts’ costs, of which there is a strong likelihood in this case.

[66] Mr. Baichoo made no submissions as to the quantum of the security for costs claimed in his 47 page factum, which I found to be unusual. In oral argument he argued that the overall quantum was too high, as he had received only about $16,000 in security for costs in the successful Unimac motion for security for costs in the Dalcour action, a motion Mr. Baichoo brought in the fall of 2014 and which concerned the same improvement. I pointed out to Mr. Baichoo that the award of costs in the Unimac motion was entirely a function of what Unimac had claimed for security in that motion and what evidence it had adduced as to its costs, and should not therefore necessarily impact what should be awarded here given the evidence Metrolinx has proffered as to its costs.

[67] The one concern I have, though, is that the Costs Outline does not differentiate between the costs for the Unimac claim and the costs for the Metrolinx counterclaim. Mr. Hersen asserted in oral argument that the Costs Outline only included the Metrolinx costs of the Unimac claim. The Costs Outline itself and the affidavit of Elena Chanina to which it is attached, however, do not corroborate that assertion. Ms. Chanina stated in paragraphs 28 and 30 of her affidavit that the “Bill of Costs” concerns “these proceedings” and “this matter.” Therefore, I have no choice but to conclude that the Costs Outline incorporates all of Metrolinx’s costs, counterclaim and claim.

[68] This means that I must reduce the award somewhat. As I stated earlier, I find it unfair to impose an order for security for costs on a plaintiff to defend a counterclaim. I must, therefore, reduce the requirement to post security by some amount that reflects the Metrolinx costs of litigating its counterclaim.

[69] Without evidence to assist me on this point, I have decided to estimate the Metrolinx’s costs of its counterclaim on the basis of the amount of that claim in comparison to the total of both the Unimac claim and the Metrolinx counterclaim, namely the total amount of all claims. This comparison gives some rational basis for the allocation of costs, as the size of a claim does have some bearing on the amount of work that will be required in the litigation.

[70] The Metrolinx counterclaim is about 35% of the total of both the claim and the counterclaim. 35% of the Metrolinx partial indemnity claim of $407,250.35 is $142,537.62. Deducting $142,537.62 from $407,250.35 produces a total of $264,712.73 as an estimate for the Metrolinx partial indemnity costs concerning the Unimac claim.

[71] I, therefore, conclude that Unimac must pay into court security for the Metrolinx costs in this action in the amount of $264,712.73 (tax included).

[72] Neither counsel brought up the issue of segmenting the payment of the security for costs. Upon reflection, I have concluded that such an order would not be appropriate in this case. It appears that there is little prospect that this action will be resolved short of trial. Furthermore, the parties are moving through discoveries at present, and I anticipate that I will be in a position at the next trial management conference on September 14, 2015 to schedule the trial. This is when the security for costs for the trial would usually be ordered in any event. September 14, 2015 is but 5 months into the future. Therefore, I have decided not to segment the security be posted.

V. CONCLUSION

[73] I, therefore, order that Unimac must pay into court security for Metrolinx’s costs in this action in the amount of $264,712.73. Because of the amount I have ordered, I will lengthen the time of payment to 60 days from the date of this order.

[74] Concerning the costs of this motion, neither Unimac nor Metrolinx submitted Costs Outlines in this regard. Those parties seeking costs of this motion must serve and file a written submission of no more than two pages concerning same (plus a Costs Outline) on or before April 24, 2015. Any responding submissions must be in writing, cannot be longer than two pages and must be served and filed on or before May 4, 2015.

MASTER C. WIEBE

DATE: April 14, 2015