CITATION: Kalogon Spar Ltd. v. Papageorge, 2015 ONSC 2721

NEWMARKET COURT FILE NO.: CV-12-109855-00

DATE: 20150424

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF the Construction Lien Act, R.S.O. 1990, Chapter. C.30

BETWEEN:

KALOGON SPAR LTD.

Plaintiff

– and –

STANLEY PAPAGEORGE, ALEXANDRA PAPAGEORGE and BANK OF MONTREAL

Defendants

H. Wolch, for the Plaintiff

N. Wilson, for the Defendants

HEARD: April 15, 2015

RULING ON MOTION

VALLEE, J.

[1] The defendants bring this motion for security for costs alleging that the plaintiff has insufficient assets to meet a costs order in the event that the plaintiff is unsuccessful in the action. The basis of the defendants’ allegations is that the defendant lent money to the plaintiff on several occasions. These loans have never been repaid. The plaintiff elected to not respond to the allegations with respect to insufficient assets nor did the plaintiff take the position that it was impecunious. The plaintiff did not wish to provide any financial documents to the defendants. Accordingly, the only issue is the quantum of security for costs that ought to be paid by the plaintiff. The defendants have filed a Bill of Costs. They request that two installments be made, $20,000 by April 30, 2015 and $20,000 by September, 2015. These amounts do not include security for trial costs. The defendants suggest that the parties re-attend court prior to trial to make submissions on an appropriate amount of security for costs for the trial. During the interim, the action will have progressed and the parties will be able to estimate more accurately the length of the trial and the related costs. Also included in the defendants’ motion is a request for leave to be granted for the defendants to bring this motion.

Issues

1. Should the defendants be granted leave to bring the motion?

2. What is the appropriate amount of security for costs that the plaintiff should pay into court?

Legal Principles to be Applied

[2] The Construction Lien Act, R.S.O. 1990, c.C.30 in section 67(2) states that, “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 the resolution of the issues in dispute.” In Biotechnik Inc. v. O’Shanter Development Co. [23] O.J. No. 1633, the court stated that,

[28] In deciding whether any particular interlocutory step is “necessary” within section 67(2) – (it seems clear that the words “expedite the resolution of the issues in dispute” do not apply) – a court must look at the question not just from the perspective of the plaintiff nor just from that of the defendant but from the perspective of a court trying to do procedural justice to both parties.

[29] The security for costs rule is part of the Rules of Civil Procedure. These rules are designed to achieve procedural fairness and justice to all parties to a lawsuit.

The Plaintiff Position

[3] The plaintiff agrees with the defendant that if any amounts are ordered to be paid as security for costs, they should be paid at different stages in the action. The plaintiff disagrees that the parties ought to attend court again, prior to trial, to determine if further security ought to be paid with respect to the trial costs. The issue should not be left “open ended.”

[4] The plaintiff’s lien has been bonded off. Accordingly, it has $50,000 which has been paid into court, as security for its costs in the lien action.

[5] The defendant requests that the plaintiff pay $40,000 in two equal installments. The plaintiff notes that most of the cases regarding security for costs in construction actions, the court has ordered security for costs in amounts less than $50,000. Motions for security for costs are about leveling the playing field.

[6] The plaintiff argues that the court should take into account proportionality when determining an appropriate amount of security for the defendant to pay.

[7] The plaintiff is not arguing that it is impecunious. In fact, the plaintiff states it has an income of approximately $49,000 per month because is a lessee and this amount of the rent payment.

[8] The plaintiff states are credibility issues with respect to the defendants’ evidence on this motion. The defendants have provided copies of cheques to support their position; however, some of these cheques do not relate the project in issue. Furthermore, the defendants have alleged that the plaintiff is a shell corporation. This is not true.

[9] The plaintiff states this court should assess the merits of the action when considering an amount to be ordered as security for costs. In support of this, the plaintiff refers Zeitoun v. Economical Insurance Group 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131. In this case, the defendant moved for security for costs as the plaintiffs were ordinarily resident in Israel. At para. 50, the court stated,

Where impecuniosity has not been shown however, a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will case an injustice by impeding pursuit of claim that otherwise would have been permitted to be tried.

Analysis

[10] With respect to the defendants’ request for leave to bring this motion, I conclude that the motion is necessary because it requests procedural fairness and justice for both parties to this action. Accordingly, the defendant is granted leave to bring this motion.

[11] With respect to the amount requested by the defendant to be paid as security for costs, as noted above, the plaintiff states that this court should consider the merits of the action. Zeitoun can be distinguished from this action. It was not a lien action. The plaintiff had no assets in Ontario. The court considered that the defendant had a prima facie right to security based on these two factors. The plaintiff opposed the motion and asserted impecuniosity; however, the plaintiff failed to prove it. In the matter at hand, there is no issue with respect to residency outside of Ontario. The plaintiff has not asserted impecuniosity. In fact, there is no evidence of the plaintiff’s financial status.

[12] Counsel advised that there have been no cross-examinations on affidavits in this action. They agreed to forego cross-examinations because this motion was scheduled. The plaintiff notes that there are credibility issues.

[13] In cases where there are credibility issues, assessing the merits of an action at an interlocutory stage of the proceedings is generally not appropriate. In Wall v. Horn Abbott Ltd., 1999 CanLII 7240 (NS CA), [1999] NSJ No. 124 (NSCA) at para. 83, the court noted,

If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious.

[14] At this stage of the proceedings, when there is an incomplete record before me, I am not able to accurately assess the merits of the action. Any assessment would be only superficial and not useful to determine whether the plaintiff ought to pay security for costs.

[15] As noted above, the plaintiff states that it has an income from a lease. This one piece of financial information does not provide any assistance to the court in determining whether the plaintiff has sufficient assets to satisfy a costs order. An income must be compared to expenses because at the end of the day, the net result could be zero. There is no evidence before the court of the plaintiff’s expenses.

[16] Furthermore, there is no evidence that if the plaintiff were ordered to pay security for costs, it would be unable to proceed with the action. In fact, the plaintiff stated that it is not taking this position. Accordingly, there is no issue with respect to access to justice.

[17] With respect to the amount of security that the plaintiff should pay, the defendant provided a Bill of Costs which sets out the actual costs incurred to date, not including the costs of preparation for attendance on this motion. Those costs total $19,108. The defendant then estimates that two days will be required for examinations for discovery. The plaintiff did not contest this. The defendant estimates that 30 hours will be required for preparation and attendance at examinations which is apportioned to two different lawyers. This results in a total including HST of $8,898.75. The defendant also provides an estimate for motions including undertakings and refusals motions. Ten hours is estimated. The total including HST is $2,542.50.

[18] Further, the defendant provides an estimate for preparation for an attendance at a second pretrial. Twelve hours are estimated divided between two lawyers. The total including HST is $3,559.50.

[19] Mr. Jonathan Baker was the defendant’s former counsel. Apparently, he spent 10 ½ hours on legal work and rendered an account including HST which totals $4,152.75. There is no evidence as to the work that Mr. Baker carried out. Aside from this amount, I find that the defendant’s actual fees and estimate of fees is reasonable. I am not prepared to order the plaintiff to pay security for costs with respect to former counsel’s fees at this stage. This may be addressed at a later date if the defendants can provide evidence to the court with respect to the nature of the work that he carried out.

Conclusion

[20] Before considering costs, I conclude that the appropriate amount for security for costs is $36,000 to be paid in two equal installments.

Costs

[21] The defendants have been successful on this motion and are entitled to costs. They provided a costs outline in which they request fees in the amount of $7,537.50 together with HST and disbursements. From that amount, counsel states that $800 should be deducted because the amount includes work carried out for an undertakings motion which was resolved.

[22] Plaintiff’s counsel stated that the plaintiff would expect to pay between $5,000 and $7,000 if unsuccessful on the motion. He also requested that if there was an award of costs, that amount should be added to any security required to be paid.

[23] I conclude that $6,000 is a reasonable amount for fees with respect to this motion. The applicable HST is $780. Disbursements total $318.26. Accordingly, the plaintiff shall pay to the defendants costs in the amount of $7,098.26.

[24] It is appropriate that half of this amount, $3,549, be added to each $18,000 installment. Accordingly, the plaintiff shall pay into court $21,549 as security for costs on May 8, 2015 and the same amount on September 30, 2015. The defendants are granted leave to bring a further motion for security for costs with respect to trial costs after the last pre-trial conference in this matter and prior to trial.

VALLEE J.

Released: April 24, 2015