CITATION: North Key v. Miwel Construction, 2016 ONSC 671

COURT FILE NO.: 12-56311R

DATE: January 26, 2016

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1652472 ONTARIO INC o/a NORTH KEY CONSTRUCTION, Plaintiff

AND:

MIWEL CONSTRUCTION LIMITED, et. al., Defendants

BEFORE: MASTER MACLEOD

COUNSEL: Allison A. Russell, for the defendant, moving party

Robert G. Smart, for the plaintiff

HEARD: January 26th, 2016

ENDORSEMENT

[1] I am seized of a reference in connection with numerous liens encompassing five construction projects. The projects were similar in nature, being solar farms under construction for Northland Power entities. The defendant Miwel was the general contractor and North Key was the prime sub-contractor. The North Key lien as well as many of the sub-trade and supplier liens, union liens and a CRA requirement to pay attach to more than one of these projects which were scattered across at least two judicial districts. All of the liens are subject to judgments of reference and are to be determined here in Ottawa.

[2] The plaintiff brings a motion for security for costs. The question is firstly, whether the motion should be allowed under the Construction Lien Act and secondly, if so, whether it is just to order security under the Rules of Civil Procedure. A very similar motion was brought in a related series of proceedings involving North Key but in which Black & McDonald rather than Miwel was the general contractor.[^1]

[3] Mr. Smart argues that the Act provides the justification for an owner or general contractor having to post security to vacate a lien but the Act does not provide for security for costs. That is true and I agree with Mr. Smart that the Act is remedial legislation designed to protect the rights of sub-contractors and suppliers. But there is nothing in the Act which prohibits such a motion and the courts have held on many occasions that a motion for security for costs is the type of interlocutory motion which ought to be entertained. The fact that the plaintiff lien claimant enjoys full security for its lien rights is a factor to be considered when deciding if it is just to permit the defendant to move for much more modest security, that is security for costs.[^2]

[4] There is no doubt that the plaintiff is an insolvent corporation which is no longer operating. This is admitted. Its only significant asset is this lien claim. If the plaintiff is not successful in the litigation and is ordered to pay costs, it is clear that the costs award will be unenforceable. The threshold requirement of Rule 56.01 (1) (d) is therefore easily engaged. Under the rule, the court is thus empowered to make such “order for security for costs as is just.”

[5] Mr. Smart argues strenuously that despite the amount in issue, this is in reality a simple case. The plaintiff was to install approximately twenty four thousand posts to support solar panels. The plaintiff installed eighty-five percent of the posts which had been certified complete by Miwel when Miwel kicked the plaintiff off the job and refused to pay for most of the work that was done or to compensate North Key for the work it was not permitted to complete. This is a gross oversimplification. It is also a narrative that is disputed by the defendant.

[6] There is a live dispute concerning the claims for extras and for deficiencies. Without considering Miwel’s counterclaim for damages, the issues of cost overruns and delays, soil conditions and deficiencies will have to be examined almost on a post by post basis over the five projects. For purposes of this motion I am not considering the complexities arising from the numerous lien claims in which North Key is a defendant but it is relevant that evidence will be required from various former employees and by sub-trades and suppliers who are now in an adversarial relationship or whose evidence may have to be compelled. It is not a case in which the merits of the action are so clearly in the plaintiff’s favour that any order for security would be unjust.

[7] The plaintiff relies on its impecuniosity. While there is a somewhat more detailed affidavit of Mr. Isbister in this instance than there was in the Black & McDonald motion, it still falls short of the full and frank financial disclosure required to meet this test. He does attest that he and his wife are the sole shareholders, states that they have sold their home and are living with his father-in-law. He swears that they now collectively have a net worth of only $450,600.00 consisting largely of vehicles and RRSPs but he does not provide supporting documents. The affidavit is entirely lacking in particularity. There is no evidence concerning the willingness or abilities of the shareholders or any creditors to borrow funds or provide other security. There is no evidence of income.

[8] Although Mr. Isbister was not cross examined on his affidavit, Miwel has a responding affidavit in which it sets out results of its own financial investigation into the means of the two shareholders. Michele Isbester, who did not swear an affidavit, is on title to various parcels of land. While Mr. Smart suggests these are without value or that her interest is nominal, that is not in evidence.

[9] I will not repeat the analysis set out in the North Key v. Black & McDonald matter. The arguments made by Mr. Smart in this case were very much the same as made on that earlier motion. There is marginally more financial detail in this case but it does not meet the test of full and frank disclosure. In any event there is no explanation as to why the shareholders could not post security if they chose to do so. They claim to have a net worth of $450,600 which includes $467,000 in “mutual funds / investments”. Mr. Smart’s argument really amounts to a plea that they should not have to post security and not an argument that it is impossible for them to do so.

[10] To be clear, the shareholders are not obliged to make themselves liable for costs nor to pledge their own assets as security. That is a decision for them to make. The question is whether the corporation should be ordered to post security as a condition of continuing with the litigation. The court considers the ability of shareholders when a corporation asserts that it would be unjust to order security but the order is an order against the corporation and not against the individual owners. There will be such an order in this case.

[11] I have examined the evidence regarding the costs incurred to date and I have examined the estimate for anticipated trial costs. The plaintiff will be ordered to post security for costs in the amount of $150,000.00 within 30 days. The plaintiff is to post a further amount of $50,000 at least 90 days prior to trial.

[12] The defendant is entitled to costs of the motion. Unless there were offers to settle that should be taken into account, in which case I may be spoken to, the costs of the motion are fixed at $5,500.00 on a partial indemnity scale to be paid within 30 days.

Master MacLeod

[^1]: 2015 ONSC 4560

[^2]: Biotechnik Inc. v. O’Shanter Development Co. (2003) 30 C.L.R. (3d) 52 and see cases cited in North Key v. Black & McDonald, supra @ note 1 @ para. 8