NEWMARKET
COURT FILE NO.: CV-13-113944
DATE: 20150730
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE
Construction Lien Act, RSO 1990, c C.30, As Amended
BETWEEN:
YONG TAI CONSTRUCTION LIMITED
Plaintiff
– and –
UNIMAC GROUP LTD. and TRUSTEES OF THE MOUNT ALBERT UNITED CHURCH CONGREGATION OF THE UNITED CHURCH OF CANADA, MOUNT ALBERT, ONTARIO
Defendants
Garth Low, for the Plaintiff
Justin P. Baichoo, for the Defendant/Moving Party Unimac Group Ltd.
HEARD: July 23, 2015
HEALEY J.
Nature of the Motion
[1] The defendant Unimac Group Ltd. (“Unimac”) brings this motion seeking security for costs against the plaintiff, Yong Tai Construction Limited “(“Yong Tai”) pursuant to rule 56.01(1)(c) and (d) of the Rules of Civil Procedure.
Issues to be Decided
[2] Yong Tai concedes that the moving party has satisfied subrule 56.01(1)(c). Because Yong Tai admits that it is no longer operating, it submits that the court may draw the reasonable inference that there is good reason to believe that it has no assets in Ontario.
[3] The threshold that the moving party must meet to satisfy the court that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay a costs order is a low one: City Commercial Realty Services (Canada) Ltd. v. Bakich, [2005] O.J. No. 6443 (C.A.). Given the admission that it is no longer operational, I am satisfied that the test has been met, and therefore Unimac is presumptively entitled to an order requiring Yong Tai to post security for costs.
[4] That being the case, the real issues to be decided on this motion are:
Whether this court should exercise its discretion to make such an order in a case such as this where the amount of the counterclaim exceeds that claimed by the plaintiff;
If the court is inclined to order security, whether the personal undertaking of the plaintiff’s principal would be an acceptable alternative; and
If the court does not accept the personal undertaking, a determination of the quantum to be paid into court.
Exercise of Discretion
[5] Yong Tai argues that in a case where the amount of the counterclaim exceeds that of the plaintiff’s claim, that counterclaim is main driver of the litigation and a plaintiff should not be required to post security in order to defend itself. Yong Tai relies upon European Flooring Contract Services Ltd. v. Toddglen ILofts Limited, 2013 ONSC 6445, 2013 CarswellOnt 14289 (Ont. S.C.J.), at para. 33, where Master Wiebe cited the cases of J.I. Case Canada, a Division of Tenneco Canada Inc. v. Gowland’s Recreation and Farm Ltd., [1998] O.J. No. 323 (Gen. Div.) and ICC Intyernational Computer Consulting & Leasing Ltd. v. ICC Internationale Computer & Consulting GmbH, 1989 9525 (FC), [1989] O.J. No. 70 (Ont. S.C.) as support for the proposition that where the real “driver” of the action is the counterclaim, the defendant should be either denied security for costs or have the security for costs award significantly curtailed on the principle that a “defendant” should not have to post security for costs to defend itself. Master Wiebe went on to say that he viewed these cases as perhaps distinguishable “on the grounds that where the moving party is the plaintiff in the main action, it does not perhaps have the same equitable argument for security for costs as does the defendant who did not start the action”. He then went on in para. 33 to cite the decision of Justice Farley in Better Business Bureau of Metropolitan Toronto v. Tuz, [1999] O.J. No. 1359 (Gen. Div.) in which, as is the case here, the motion for security for costs originated from the counterclaiming defendant. In that case, the motion for security for costs was denied, in part because of the defendant’s counterclaim. Master Wiebe quoted Justice Farley’s statement on this topic: “Where there is a counterclaim and the facts on which the counterclaim is based is in large part on the same facts and circumstances raised in the plaintiff’s claim, this militates against an order for security for costs…”.
[6] European Flooring, supra, and the cases referenced above, do not in my view support the plaintiff’s contention that the amount of the counterclaim is the determinative factor. In fact, in European Flooring the motion was denied for reasons other than the fact that the counterclaim was based in large part on the same facts and circumstances raised in the plaintiff’ claim. Additional factors were in play, as noted in paragraph 36 of that decision, which were that the defendants had delayed in bringing the motion, and they had breached a court order by failing to answer undertakings by a date imposed by the court. They were found to not have “clean hands” in coming before the court. Master Wiebe at paragraph 33 of European Flooring quoted from the case of John Wink Ltd. v. Sico Inc., 1987 4299 (ON SC), [1987] O.J. No. 5 (Ont. H.C.), at p. 5 concerning security for costs motions: “It might be worth adding that because a party is seeking an indulgence the usual principle requiring it to be free of misconduct in the pursuit of its claim would apply.”
[7] By the same token, a plaintiff who requests that the court exercise its discretion to deny a remedy to the moving defendant should also come to court with clean hands. But Yong Tai is same position as the defendants in European Flooring, in that it is in breach of this court’s order made on June 9, 2015, by which it was ordered to pay the sum of $42,531.46 for its discontinuance of a separate action commenced against Unimac. Those costs remain unpaid. Yong Tai’s position with respect to this costs order is that it should have no effect on this motion because leave is being sought in respect of it.
[8] However, in its notice of motion for leave to appeal, Yong Tai has not sought a stay of that court order. It argues that it is not able to do so until leave is granted, but cites no authority. To the contrary, rule 63.02 provides:
(1) An interlocutory or final order may be stayed on such terms as are just,
(a) By an order of the court whose decision is to be appealed;
(b) By an order of a judge of the court to which a motion for leave to appeal has been made or to which an appeal has been taken.
[9] This rule does not prohibit moving for a stay either before or at the same time as the motion for leave. Nor has Yong Tai moved for an order permitting it to pay the ordered costs into court pending the disposition of the motion for leave to appeal, or the appeal itself, if the motion is successful. Accordingly, even though deference must be given to the plaintiff’s important appeal rights, this court remains in the position of having to conclude that the order remains in effect and has not been complied with.
[10] However, that in itself would not be sufficient, in my view, for an automatic granting of the order for security for costs. Returning to the issue of whether the claim and counterclaim arise from the same set of facts, in this case they do. Both raise allegations of breach of contract in relation to the construction of a seniors’ housing project. Yong Tai claims the sum of $330,964.02 as due and owing under the contract, or alternatively, on a quantum merit basis. In its counterclaim, Unimac claims $631,505.97, plus further sums, as damages for breach of contract and negligence, as well as a legal and/or equitable set-off against amounts claimed by Yong Tai. While noting that the court has discretion, additional cases which support Yong Tai’s view that security for costs should not be ordered where the counterclaim and the main claim are in substance a reiteration of the same facts are Wilkins v. Velocity Group Inc. (2008), 2008 12500 (ON SCDC), 89 O.R. (3d) 751 (Div. Ct); J.I. Case Canada v. Gowland’s Recreation and Farm Ltd., supra.
[11] In my view, the fact that the claim and the counterclaim arise out of the same transaction and/or are based on same or similar facts should not always be the main concern for the court in exercising its discretion. The rule is meant to guard against the risk to a defending or responding party of having to attempt to collect costs from a litigant unable to pay such costs order. Unimac remains equally at risk of being unable to collect costs from Yong Tai, whether it is successful in defending the main action or success in proving its counterclaim. Further, the amount of the claim is not the determinative factor. If the drafters of the rule wished to circumscribe or disallow the rights of counterclaiming defendants to access this rule, they could have done so, but did not. So while I accept that the conduct of the parties on such a motion is an important consideration in the exercise of discretion, I reject as a general proposition that a counterclaim arising from the same facts should prohibit a moving party from being given the relief it seeks, once it satisfies the court that the facts entitle it to security for costs based on one or more of the six primary grounds set out in rule 56.01(1). This accords with the law set out in Wilkins v. Velocity Group, supra, which is that the counterclaim is not a relevant factor in a motion for security for costs against the initiating plaintiff in the main action.
[12] Yong Tai having not provided evidence of any other grounds for the court to disallow such an order, I find that the order should be granted.
Undertaking by Principal
[13] In its responding motion record, the president of Yong Tai, Mr. Huang, states that he is willing to give a personal undertaking to satisfy any cost obligations that Yong Tai may incur, despite deposing that “Yong Tai has either assets of its own or access to assets to satisfy any costs award”. By such statement, this court concludes that Yong Tai is not impecunious, nor has it claimed or provided evidence that it is. In offering to give a personal undertaking, Yong Tai is attempting to obviate its obligation as plaintiff in this action to post security for costs, as Mr. Huang is not a party to the within action.
[14] Counsel for the defendant relies on the case of G & J International (Canada) Inc. v. Buck & Up Close Outs Inc., 2010 ONSC 3992 (S.C.J.) for the proposition that personal undertakings are only to be considered where impecuniosity is claimed. At paragraph 13 of that case, Justice Ricchetti denied such relief as neither counsel had been able to provide a case where a personal undertaking had been accepted, except where there was an issue of impecuniosity and a corporate director or officer agreed to be personally responsible for any costs in the action. However, authority for such an order, even without impecuniosity, can be found in Printing Circles Inc. v. Compass Group Canada Ltd., 2007 57095 (ON SC), [2007] O.J. No. 5066 (Ont. S.C.J.).
[15] However, Mr. Huang does not provide sufficient evidence that he has personal assets that would enable a costs order to be paid. He gives evidence of two encumbered properties in which he has a jointly held interest, one of which is his matrimonial home. He has not adduced evidence of the current value of those properties, or the amount of encumbrances registered against them, although there is sufficient evidence to conclude that there is likely substantial equity in at least one of them. However, the fact that Mr. Huang cannot sell or refinance those properties without the consent of the joint tenant, from whom no evidence has been provided, means that this court cannot be satisfied that Mr. Huang’s undertaking can serve as a proper form of security. And, as Yong Tai has deposed that it has access to funds, albeit without evidence, the court can conclude that an order requiring it to post security for costs can be satisfied.
Quantum of Security
[16] Unimac has provided an estimated costs outline, which includes responding to an upcoming summary judgment motion being brought by the plaintiff this October, which sets out estimated hours for the case to the end of trial at 384, without breakdown. The court should not be asked to guess at the potential estimated hours allotted to each step in the proceeding. More concerning is the fact that there is no breakdown of the time allotted between defending the claim and proving the counterclaim, although both are clearly intertwined and to ask counsel to do so may not be a practical exercise. Even so, even though I have held that the counterclaim itself should not act as a bar to the relief claimed in this case, the law is clear that a defendant to a counterclaim cannot be required to post security for its defence to the counterclaim: Wilkins v. Velocity Group Inc., supra, and J.I. Case Canada v. Gowland’s, supra.
[17] No further evidence regarding the breakdown of estimated costs was offered in the original or reply affidavit filed by the defendant. That being the case, the court will have to exercise “rough justice” by apportioning the estimated costs equally between the claim and counterclaim.
[18] There is nothing in the plaintiff’s conduct to date which suggests that costs on the higher scale might be awarded in this case. While the cost order earlier discussed has not been paid as ordered, steps have been taken to appeal it, and therefore it is not being simply ignored.
[19] The estimate of costs from Unimac on a partial indemnity scale is $114,632 including disbursements. Dividing this figure in half for the reasons previously discussed leads to the rounded-up sum of $58,000.
[20] Accordingly this court orders:
Leave is granted to bring the within motion seeking security for costs under Section 67(2) of the Construction Lien Act, R.S.O. 1990, c. C.30;
The plaintiff shall post security for costs of this action into court in the amount of $58,000 within the next 30 days;
The plaintiff shall not take any steps in the within action until such security for costs is posted, save for seeking leave to appeal this order;
The plaintiff shall pay the defendant costs of this motion fixed in the amount of $6,000 and payable in 30 days.
[21] With respect to costs, the defendant provided a costs outline seeking the amount of $8,172.16 on a partial indemnity basis, and $11,820.93 on a substantial indemnity basis. Disbursements comprise $1,612.51 of these costs, which consists of $900 in copying costs at a rate per page not indicated. Therefore, the reasonableness of such a permitted cost under Tariff A cannot be assessed.
[22] Yong Tai’s counsel submitted that costs should not exceed $5,000, although had no costs outline available as required by rule 57.01(6). As such, it is difficult to conclude that the plaintiff’s reasonable expectations would not have exceeded $5,000. In any event, the motion was reasonably complex and the moving party filed a comprehensive factum and two motion records. Argument of the motion took over two hours. It was an important step in the proceeding, given the risk to Unimac in having to continue to litigate against a plaintiff who is no longer in operation. While the Unimac’s motion was granted, I also take into account that Yong Tai was successful in reducing the quantum of costs considerably. The award of costs accordingly reduces that sought by the defendant on a partial indemnity basis to reflect that outcome.
HEALEY J.
Released: July 30, 2015