2016 ONSC 2083
COURT FILE NO.: CV-11-356-00
DATE: 20160324
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Good Plans Construction Inc.
Plaintiff
– and –
Wasaga Waterfront Resort Inc.
– and –
Sussman Mortgage Funding Inc.
Defendants
Trang Nguyen, for the Plaintiff
Paul J. Daffern, for the Defendants
HEARD: March 8, 2016
RULING ON MOTION
CHARNEY J.:
Introduction
[1] This motion is brought by the defendant, Sussman Mortgage Funding Inc. (Sussman) for an order requiring the plaintiff, Good Plans Construction Ltd. (Good Plans) to pay the sum of $50,000 into court as security for costs pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure.
[2] Sussman alleges that “there is good reason to believe” that Good Plans “has insufficient assets in Ontario to pay the costs” of the litigation if Good Plans is not successful in this action.
Facts
[3] The plaintiff is a building contractor that performed construction work on a project in Wasaga Beach.
[4] The defendant Sussman was a mortgagee in possession. It has since sold the lands under a power of sale. The owner of the property, Wasaga Waterfront Resort Inc. (Wasaga), defaulted on its mortgage and is not a participant in this action.
[5] Good Plans commenced this action on April 8, 2011. It was originally commenced as a construction lien action, but the plaintiff failed to set the action own for trial within the time requirements of the Construction Lien Act and its construction lien was discharged by court order on January 7, 2014.
[6] Good Plans was granted leave to continue the action as a contract action in the Superior Court subject to it complying with a court ordered timetable.
[7] Good Plan’s claim is for $336,933.33 plus $250,000.00 in punitive damages.
[8] On December 16, 2015, the case was restored to the trial list for the May 2016 sittings. The endorsement indicates that the trial is estimated at 8 -10 days. Counsel for Sussman estimates that the total cost of the action will be $75,000.00 plus HST.
Analysis
[9] Rule 56.01(1) (d) provides as follows:
56.01 (1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,
(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent.
[10] The initial onus is on the defendant to demonstrate that it appears “there is good reason to believe” that the plaintiff corporation has insufficient assets in Ontario to pay the defendant’s costs: Coastline Corporation Ltd. v. Canaccord Capital Corporation 2009 21758 (ON SC), [2009] OJ No 1790 at para. 7; Sadat v. Westmore Plaza Inc., 2013 ONSC 469 at paras. 20-21; Sheridan v. Goldstone Resources Inc., 2011 ONSC 1034 at paras. 6 and 7. Cobalt Engineering v. Genivar Inc., 2011 ONSC 4929 at para. 9.
[11] A helpful summary of the applicable principles under Rule 56.01(1) (d) is set out in the case of Health Genetic Center Corp. v. Reed Business Information Ltd., 2014 ONSC 6449 at para. 4:
There is a two-step process under rule 59.06(1)(d). The initial onus is on the defendants to satisfy the court that it “appears” that there is “good reason to believe” that the corporate plaintiff has insufficient assets to satisfy a costs award. They need not go so far as to actually prove that the plaintiff has insufficient assets. If the defendants satisfy the first stage of the enquiry, the onus switches to the plaintiff to either demonstrate that it has sufficient and appropriate assets in Ontario to satisfy any order for costs or alternatively satisfy the court that an order for security for costs would be unjust, for example by demonstrating that the plaintiff is impecunious and the action is not devoid or merit.
[12] In Health Genetic Center Master Dash describes this initial onus as a “low threshold” (para. 16).
[13] With respect to the first stage of the inquiry under Rule 56.01(1)(d) the defendants have not satisfied me that there appears to be good reason to believe that Good Plans has insufficient assets to satisfy a costs award.
[14] The defendant relies on several excerpts from the transcript of the examination for discovery of the plaintiff. These transcripts indicate that Hung Nguyen, who was examined on behalf of Good Plans, is one of two shareholders in Good Plans, which has been in operation for about six years and operates from its head office in Mississauga, Ontario. Good Plans is in the construction business. This evidence indicates that Good Plans has not filed annual directors’ resolutions, annual by-laws or minutes of annual meetings. Good Plans does not have any actual employees, and the work is done by subcontractors.
[15] One of the claims in this case relates to a payment of $110,000 paid by Good Plans in December 2009 to Sussman for mortgage arrears owed by Wasaga. The plaintiff alleges that Sussman made an oral agreement with Good Plans to have it continue the work that Wasaga had contracted them to do. The allegation is that Sussman told Good Plans that it would have to pay the $110,000 in arrears on the mortgage before being allowed to complete any further construction work on the premises. Good Plans alleges that Sussman assured Good Plans that Sussman would honour the payments to Good Plans if Wasaga failed to pay Good Plans. The evidence from the discovery is that this $110,000 payment was advanced by Mr. Nguyen’s partner rather than from Good Plans itself.
[16] Sussman asks that I infer from these facts – that Good Plans has no employees, that it does not file annual directors’ resolutions, annual by-laws or minutes of annual meetings and that the $110,000 paid in 2009 came from Mr. Ngyuen’s partner personally rather than from the corporation – that it “appears” that there is “good reason to believe” that the corporate plaintiff has insufficient assets to satisfy a costs award.
[17] Good Plans’ counsel argues that none of the evidence relied on by Sussman relates directly to Good Plans’ assets. In cases where security for costs is ordered the courts have relied on evidence such as financial statements, outstanding debts or unpaid judgments to infer insufficient assets. For example, in Health Genetic Center Master Dash considered the following evidence:
Prior to launching this motion, the defendant asked HGC for any documentation that could demonstrate that HGC had sufficient assets to satisfy a costs award. The answer given on June 16, 2014 was that based on the financial statements, HGC has “significant income each year” and from the 2013 statement, “HGC has $182,932 cash in banks. HGC has sufficient assets in Ontario.” It did not provide any further information or documentation outside of its financial statements.
The financial statements, without further explanation, indicate that HGC has insufficient assets to satisfy an award of costs. Even if the bank balance is considered without offset for liabilities, it is insufficient to satisfy the costs that could be expected in this action.
That is sufficient to satisfy the low threshold that the defendants have to meet to show that it appears that there is good reason to believe that HGC has insufficient assets to pay an award of costs in this action.
[18] In the present case, Mr. Nguyen, who was examined on behalf of Good Plans, was never asked directly about Good Plans’ assets, and was never asked for documents to demonstrate that Good Plans had sufficient assets to satisfy a costs award. While he was asked about the filing of annual directors’ resolutions, annual by-laws, and minutes of annual meetings, he was never asked specifically about financial statements.
[19] I am unable to infer from the questions that were asked on the examination for discovery that there is good reason to believe that Good Plans has insufficient assets to pay the costs of the defendant. Since the defendants have not satisfied the first step of the inquiry, the onus does not shift to the plaintiff to prove that it has sufficient assets.
[20] In addition, two costs orders have already been made against the Good Plans. The first is the Order of Vallee J. dated, February 25, 2014 (this endorsement was not included in the motion record and I do not know how much it was for). The second is the Order of DiTomaso J. dated, July 9, 2015 for $7,500. There is no suggestion that the plaintiff failed to pay either of these costs orders. If there were, the defendant could have moved under Rule 56.01(1)(c).
Conclusion
[21] For the reasons set out above the motion for security of costs is dismissed with costs. If the parties are unable to agree on costs, the plaintiff may file submission with the court of no more than 3 pages plus cost outlines and any offers to settle, within twenty days of the release of this decision, and the defendant may file responding submissions within 10 days thereafter.
Justice R.E. Charney
Released: March 24, 2016
2016 ONSC 2083
COURT FILE NO.: CV-11-356-00
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Good Plans Construction Inc.
Plaintiff
– and –
Wasaga Waterfront Resort Inc.
– and –
Sussman Mortgage Funding Inc.
Defendants
RULING ON MOTION
Justice R.E. Charney
Released: March 24, 2016