SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-14-00513288-0000
DATE: August 17, 2015

RE: Unimac-United Management Corp. (plaintiff) v. Cobra Power Inc. (defendant), and

Cobra Power Inc. (plaintiff by counterclaim) v. Unimac-United Management Corp., Leon Hui, Charles Daley, Ronald Chan, Keith Ly and Wing Kin Tsui (defendants by counterclaim);

BEFORE: MASTER C. WIEBE

COUNSEL: Laura Brazil for Cobra Power Inc. (the moving party); Baichoo, J. P. for Unimac-United Management Corp. (the responding parties).

HEARD: June 8, 2015 at Toronto, Ontario.

REASONS FOR DECISION

INTRODUCTION

[1] The defendant, Cobra Power Inc. (“Cobra”), brings this motion for an order requiring that the plaintiff, Unimac-United Management Corp. (“Unimac”), post $167,848.77 in partial indemnity costs as security for Cobra’s cost in this action. Cobra relies entirely on the provisions of Rule 56.01(1)(d) of the Rules of Civil Procedure, namely that “there is good reason to believe” that Unimac has insufficient assets in Ontario to pay Cobra’s costs in this action, should such an order eventually be made.

[2] For the reasons that follow, I deny the motion.

[3] By way of summary, the motion argument started with a dispute over the admission by Cobra of a supplementary affidavit of Glenn Grenier that had been served after the completion of cross-examinations. There was no motion before me from Cobra for leave under Rule 39.02(2) to deliver such an affidavit. As a result, I refused to consider that affidavit.

ISSUES

[4] Having reviewed the admitted motion material and heard submissions of counsel, I have concluded that the motion founders on one issue, namely whether Cobra has met its onus of showing that there is good reason to believe that Unimas has insufficient assets to pay Cobra’s costs.

ANALYSIS

[5] It is well accepted law that the initial onus on such a motion rests on the moving party. The onus is that the moving party must show that there is good reason to believe that plaintiff has insufficient assets in Ontario to pay the defendant’s costs. This is a real onus; see Cigar500.com Inc. v. Ashton Distributors Inc., 2009 46451 (ON SC), [2009] OJ No.3680 at paragraphs 20, 21 and 22. In my decision in Totalsiteworks Construction Corp. v. Mady Contract Division Ltd., 2014 ONSC 178 at paragraph 19, I described this initial onus as being one that required proof of asset insufficiency that “goes beyond mere conjecture, hunch or speculation.” I referred to the decision of Justice Lang in City Commercial Realty (Canada) Ltd. v. Bakich, [2005] OJ No. 6443 at paragraphs 11 and 12 as follows: “[Her Honour] went on to state that the moving party needed to show ‘indicia of insolvency’ or ‘instability,’ such as a failure to make corporate filings, unpaid judgments or liabilities, a temporary dissolution, a significant disposition of assets, or the plaintiff as a single purpose entity.” This is the test I applied to the Cobra motion.

[6] When I asked Ms. Brazil what evidence Cobra relied upon to meet this initial onus, she pointed to the following:

a) The affidavit of Charles Daley sworn November 19, 2014 (“the Daley Affidavit”) that had been filed by Metrolinx in its motion for security for costs that was argued before me on February 2, 2015 (“the Metrolinx Motion”), which motion resulted in an order for security for costs in favour of Metrolinx; see Unimac – United Management Corp. v. Metrolinx 2015 ONSC 2372 (Ont. Master). Ms. Brazil argued that this affidavit showed significant dispositions of assets by Unimac at the time of or just before the project in question.

b) The Personal Property Security Act registrations of Trisura Guarantee Insurance Company (“Trisura”), Unimac’s bonding company, and Trisura’s action to realize on that security.

c) Unimac’s untimely filings of its Corporations Information Act (“CIA”) annual returns for the period of 6 years prior to the motion, namely from 2008 to 2014.

d) The evidence that Unimac owns no land in Toronto and York Region, including its head office.

e) The many lien actions that have been commenced against Unimac.

f) My decision in the Metrolinx Motion, namely Unimac – United Management Corp. v. Metrolinx 2015 ONSC 2372 (Ont. Master) (hereafter “the Metrolinx Decision”), in which I relied upon the above noted evidence to conclude that Metrolinx had met its initial onus on its motion.

g) The evidence in Unimac’s current Corporation Profile Report showing the removal of an official from the Unimac company.

h) Unimac’s nonpayment of the security for costs I ordered in my Metrolinx Decision.

i) The unpaid costs award of $7,000 that I granted in my decision in Unimac – United Management Corp. v. Cobra Power Inc., 2013 ONSC 927 against Unimac and in favour of Cobra. This was the costs award in Cobra’s earlier successful motion to move this action from Newmarket, where it had been commenced, to Toronto.

[7] I will deal with each of these pieces of evidence in order.

a) The Daley affidavit:

[8] The Cobra motion record contained an affidavit sworn by Glenn Grenier on February 23, 2015. Mr. Grenier appended the Daley Affidavit to his affidavit and stated that, “while I dispute some of the contentions in the Daley Affidavit concerning the contractual relations between Unimac and Dalcor Inc. (as an alleged subcontractor to Unimac in relation to the Willowbrook Project), I believe the Daley Affidavit to be true at least in the following respects. . . .” He goes on to state that he believed Mr. Daley because Mr. Daley had access to the records of Unimac and Mr. Hui, and that these records raised a genuine concern that Unimac’s cash assets were removed from Ontario as a matter of course and would not be available to satisfy an award of costs in favour of Cobra.

[9] In his affidavit, Mr. Grenier, a partner in Ms. Brazil’s firm, gave no explanation as to why Mr. Daley had not deposed an affidavit in this motion. In argument, Ms. Brazil stated that Mr. Grenier had decided to enter the Daley Affidavit relying on the provisions of the Rules of Civil Procedure that allow evidence on motions based on information and belief, namely hearsay evidence.

[10] This was a critical decision, in my view. In my Metrolinx Decision at paragraph 27, the existence of the Daley Affidavit and Unimac’s decision not to cross-examine Mr. Daley on that affidavit was a critical factor in my finding that Metrolinx had met its initial onus to show that there was good reason to believe in an insufficiency of Unimac assets to pay costs. In this motion, the Cobra motion for security for costs, without an affidavit from Mr. Daley, Unimac can rightfully argue, and Mr. Baichoo did argue, that it has been denied the right to cross-examine Mr. Daley on his evidence, all to the prejudice of Unimac.

[11] Mr. Baichoo in argument referred me to authority for proposition that the inclusion of hearsay evidence on a key point in a motion is improper, that direct evidence should be filed, and that a negative inference could be drawn from the failure to produce the direct evidence; see Beach v. Toronto Real Estate Board, 2010 ONSC 30001 at paragraph 5, and Glasjam v. Freedman, 2014 ONSC 3878 at paragraph 33. I agree with that authority.

[12] I asked Ms. Brazil as to whether there was another explanation for the Cobra failure to proffer an affidavit from Mr. Daley, such as Mr. Daley unavailability to swear an affidavit. She did not give me such an explanation.

[13] In addition to the issue of fairness, this caused me to wonder whether Mr. Daley would have given the same evidence on this motion that he gave in the Metrolinx Motion, particularly in light of Mr. Hui’s subsequent criticism of Mr. Daley in the Metrolinx Motion.

[14] I have, therefore, no choice but to discount the Daley Affidavit as a matter of fairness to Unimac and due to the above noted negative inference.

b) The Trisura action:

[15] In my Metrolinx Decision, I found that the Trisura action against its Unimac indemnitors presumably for potential bonding losses on Unimac projects was evidence of corporate instability. I stated in paragraph 23 the following: “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.”

[16] However, it is an open question whether this evidence standing alone will be enough to enable Cobra to meet its initial onus on this motion. Trisura may as a corporate policy initiate indemnity actions without any necessary concern about the ability of Unimac to reimburse the bonding company for its losses. There was no evidence from Trisura on this motion in this regard. I gave weight to the Trisura evidence in my Metrolinx Decision because of the other evidence in that motion of corporate instability.

c) Unimac’s untimely corporate filings:

[17] In my Metrolinx Decision I gave weight to the fact that Unimac had failed to make its annual filings under the CIA for the years 2008 to 2014. However, in this motion Mr. Hui in his affidavit showed that these filings had now been made current by Unimac, which adds credence to Mr. Hui’s explanation that Unimac’s original failure to make these filings was simply an oversight. I give no weight, therefore, to this evidence in this motion.

d) Absence of real estate:

[18] Mr. Grenier deposed in his affidavit that his firm obtained title searches which indicated that Unimac does not own land in Toronto and York Region, including its head office. As I stated in paragraph 24 of my Metrolinx Decision, this evidence does not impress me. Many construction companies choose not to hold real estate as a matter of business strategy.

e) Numerous lien actions:

[19] The existence of numerous subtrade lien actions against Unimac is a matter of public record. As I stated in paragraph 24 of my Metrolinx Decision, this fact also does not impress me. I was made aware of no unpaid judgments against Unimac. Subtrade claims are an ongoing risk of general contracting. They may be the result of legitimate disputes. They do not necessarily indicate corporate instability on the part of the payer, Unimac.

f) My Metrolinx Decision:

[20] Ms. Brazil argued that it would bring the administration of justice into disrepute if I were to deny the Cobra motion for security for cost after granting Metrolinx’s motion for security for costs on evidence which, she submitted, was the same as in the Cobra motion. She did not argue, and she could not have argued, that my Metrolinx Decision was somehow binding on me by operation of the doctrine of res judicata, because the parties to the two motions were different.

[21] Regardless of the issue of res judicata, however, I do not agree that the motions have the same evidence. Most significantly, there was no affidavit from Mr. Daley in the Cobra motion. I also note that there was an issue of multiplicity of proceedings in the Metrolinx Motion that does not exist here. Therefore, differing results would not, in my view, bring the administration of justice into disrepute.

g) Removal of a Unimac officer:

[22] Shortly after the commencement of the Cobra litigation, Unimac’s then President, Treasurer and Secretary and director, Wing Kin Tsui, was removed as an officer and director of the company, leaving Mr. Hui as the sole director and officer of Unimac. This fact was not disputed by Unimac.

[23] I fail to see how this fact shows any corporate instability. Many companies with sufficient assets to carry on business are run by one person. I do not give weight to this fact.

h) Non-payment of security for costs:

[24] It is undisputed that Unimac has commenced a judicial review of my Metrolinx Decision and has not paid the ordered security for costs in contravention of my decision. Mr. Baichoo advised that he would moving for a stay of that order pending the judicial review, but I was given no evidence of such a stay motion. In the meantime, the Unimac lien action itself is stayed pending the posting the ordered security. I note that Metrolinx is bringing motions returnable September 15, 2015 on account of this non-payment of security for costs.

[25] I fail to see, however, how all of this necessarily indicates Unimac corporate instability. I heard no argument on the merits of the judicial review. It may have merit; it may not. That this conduct of Unimac may be the result of corporate instability or insufficiency of assets to pay costs is speculation. I put no weight on this evidence for the purpose of the Cobra motion for security for costs.

i) Non-payment of costs award:

[26] Ms. Brazil pointed to my unpaid costs order of $7,000 against Unimac and in favour of Cobra in the Cobra motion transferring this action from Newmarket to Toronto. I made that costs order on February 10, 2014. It is undisputed that Unimac has appealed this costs order and indeed my entire transfer ruling, and that the obligation to pay this costs order has been stayed as a result. Hence, there would no grounds for ordering security for costs in favour of Cobra on the basis of this unpaid costs order, namely under Rule 56.01(1)(c). I note that Cobra did not make that submission in argument.

[27] Ms. Brazil did though point out that Unimac has delayed this appeal. In my June 11, 2015 costs decision concerning the decision by Justice Carole J. Brown to refer this action to me, Unimac – United Management Corp. v. Cobra Power Inc. 2013 ONSC 927 (Ont. Master), I indeed found some culpability on the part of Unimac for the delay of the appeal. My transfer order was made back on December 20, 2013, and the appeal has yet to be heard.

[28] This delay and Unimac’s culpability in the delay does not, however, necessarily indicate corporate instability on the part of Unimac. Delaying tactics are often followed by parties who are quite capable of paying costs, but simply unwilling to do so. I do not give weight to this fact.

CONCLUSION

[29] In the end, the only evidence that has merit on the issue of Cobra’s onus is the evidence of the Trisura indemnity action. On its own, this is not sufficient to show me that there is “good reason to believe” that Unimac does not have sufficient assets in Ontario to pay an eventual order for costs in Cobra’s favour. As stated earlier, Trisura’s action may be the result of factors having nothing to do with the insufficiency of Unimac’s assets.

[30] I have, therefore, reached the conclusion that Cobra has not met its onus, and that this motion must be dismissed. I do so dismiss it.

[31] I made an order on June 8, 2015 allowing each side three days to file cost outlines. On June 10, 2015, Ms. Brazil filed the Costs Submissions of Cobra Power Inc. wherein Cobra indicated that it seeks a partial indemnity costs award for the security for costs motion in the amount of $34,209.92 and $3,420 for the preliminary issue concerning the admission of the late Grenier affidavit. On June 10, 2015 Mr. Baichoo delivered the Cost Submission of Unimac-United Management Corp. In this document, Unimac indicates that it seeks a substantial indemnity costs award for the motion for security for costs in the amount of $11,218.93, and a full indemnity costs award of $5,025.39 on the preliminary issue of the late Grenier affidavit.

[32] At the trial management conference of July 13, 2015, I gave Cobra leave to file a reply costs submission. That was done on July 21, 2015.

[33] If the parties cannot agree on costs, I direct that final written submissions on the costs of the motion be delivered as follows: Unimac will have until August 27, 2015 to deliver its final written costs submissions; Cobra will have until September 8, 2015 to deliver its final written costs submissions; and any reply written costs submissions must be delivered by September 11, 2015. These written submissions cannot be longer than two pages.

Date: August 17, 2015 __________________________

MASTER C. WIEBE