CITATION: Goldcrest Drywall & Acoustics Company Ltd. v. Remo General Contracting Ltd., 2017 ONSC 4580

COURT FILE NO.: CV-16-5267

DATE: 20170727

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: GOLDCREST DRYWALL & ACOUSTICS COMPANY LTD., Plaintiff

AND:

REMO GENERAL CONTRACTING LTD., Defendant

BEFORE: Shaw J.

COUNSEL: Emily Evangelista, counsel, for the Plaintiff

Michael Richards, counsel, for the Defendant

HEARD: July 21, 2017

ENDORSEMENT

Overview

[1] By way of a Statement of Claim issued December 2, 2016, the plaintiff, Goldcrest Drywall & Acoustics Company Ltd. (“Goldcrest”) commenced an action against the defendant, Remo General Contracting Ltd. (“Remo”) seeking payment for work performed pursuant to a subcontract it entered into with Remo. As per terms of a Purchase Order dated May 25, 2015, Goldcrest agreed to supply and install gypsum, cement board, acoustic ceiling panels and related products for the construction of the Credit Valley No. 2 Secondary School located at 500 Elbern Markell Drive, Brampton, Ontario (the “Project”). Goldcrest alleges that it provided materials and labour as per the terms of the subcontract but as of September 17, 2016, Remo had failed to pay it the sum of $282,171.67 in breach of the contract.

[2] On October 17, 2016, Goldcrest caused to be registered a Claim for Lien against title to the Project. On November 3, 2016, pursuant to an Order of Master Wiebe, the Claim for Lien was vacated. Remo posted security in the form of a lien bond in the amount of $332,171.37, of which $50,000 was for costs.

[3] Remo filed a Statement of Defence and Counterclaim dated January 31, 2017. The counterclaim seeks damages of $460,851.59 for Goldcrest’s alleged failure to abide by its contractual obligations requiring Remo to incur costs to replace and complete Goldcrest’s scope of work and rectify deficiencies. This matter is still at the preliminary stages. Examinations for Discovery have not been scheduled.

[4] There is a second action commenced by Goldcrest again Remo issued on December 15, 2016. That action seeks damages for breach of contract in the sum of $210,988.98 for work done for Remo as a subcontractor at Mount Pleasant School. In that action Remo has filed a Statement of Defence and Counterclaim dated January 31, 2017 and is seeking damages for breach of contract in the sum of $337,068.58.

Motion for Security for Costs

[5] Firstly, Remo seeks an order pursuant to s.67 (2) of the Construction Lien Act for an order granting it leave to bring this motion. Leave is granted. Secondly, Remo seeks an order requiring Goldcrest to post security for costs pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure which states:

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;

[6] The onus is on the defendant to show that the plaintiff falls within one of the circumstances under rule 56.01. If that onus is met, that will trigger an inquiry into what order for security, if any, would be just. In Stojanovic v. Bulut, [2011] O.J. No. 840, 2011 ONSC 874, 10, C.P.C. (7th) 265 at para. 5, aff’d Stojanovic v. Bulut, [2011] O.J. No. 3543, 2011 ONSC 4632 (S.C.J.) the court noted:

The court must then take into account a number of factors and make such order as is just. Factors include the merits of the claim, the financial circumstances of the plaintiff and the possible effect of an order for security preventing a bona fide claim from proceeding. There is a broad discretion in the court in making such order as is just.

Of course, this is not an exhaustive list of factors that the court may take into account in determining such order as is just. As is noted, the court has a broad discretion.

[7] A plaintiff may resist a motion for security for costs if it can establish that it is impecunious and its claim is not plainly devoid of merit.

Impecuniosity

[8] Goldcrest has claimed that it is impecunious. The parties agree on the legal principles to be applied in situations where impecuniosity is claimed. It is Remo’s position, however, that the evidence presented by Goldcrest is insufficient to discharge its burden to satisfy the court of its impecuniosity. If the plaintiff does not satisfy the court that it is impecunious, the court will take a closer look at the merits of the case in deciding whether to grant security. (Zeitoun v. The Economical Insurance Group, (2008), 2008 CanLII 20996 (ON SCDC), 292 D.L.R (4th) 313 (Ont. S.C.J.(Div Ct.)), aff’d Zeitoun v. The Economical Insurance Group, 2009 ONCA 415, 307 D.L.R. (4th) 218 (Ont. C.A.)

[9] In Hamayoon, et al. v. Bordbar, et al., 2010 ONSC 1968, Quinlan J. held at paragraph 20:

[20] The onus rests on the plaintiff to satisfy the court that he is impecunious. There is a high evidentiary threshold that must be met. The plaintiffs must tender complete and accurate disclosure of their income, assets, expenses, liabilities and borrowing ability. In addition, there should be information before the court that will allow the court to determine whether they can or cannot borrow money from an institutional lender or close friends or relatives.

[10] In discussing the evidence that should be before the court, Master Dash in DiFilippo v. DiFilippo, 2013 ONSC 5460 noted the following at paragraphs 29 and 30:

[29] The onus of establishing impecuniosity is on the plaintiff since his financial capabilities are solely within his knowledge. The plaintiff should provide evidence with supporting documentation as to his income, expenses, assets and liabilities. Assets should be described with particularity as well as their value and any encumbrances thereon. At least one case has suggested that full disclosure should include at least the plaintiff’s most recent tax return, banking records and other records attesting to his income and assets. In my view, providing these records should be the norm; however each case is decided on its own facts and a court could still determine on a balance of probabilities that the plaintiff is impecunious without such documents if there has otherwise been full and frank disclosure of income and assets that is credible and there is no evidence to the contrary.

[30] Allowing impecuniosity as a defence to a motion for security for costs is grounded on fundamental fairness such that justice demands that a plaintiff should not be deprived of his ability to pursue a meritorious claim because of his poverty. An injustice would be even more manifest if the plaintiff’s impoverishment were caused by the very acts of the defendant of which the plaintiff complains in the action

[11] In his decision of 1309395 Ontario Limited v. Pronesti Investments Inc., 2013 CarswellOnt 16919, 2013 ONSC 7451, 235 A.C.W.S. (3d) 903, Master Muir commented at para. 8:

Impecuniosity means something more than simply demonstrating that the plaintiff corporation is without assets. A plaintiff who intends to rely on impecuniosity must also provide evidence that the shareholders of the plaintiff corporation have insufficient assets or are unable to otherwise raise funds to post security for costs. Such evidence must be set out with robust particularity.

[12] Goldcrest’s position is it should not be required to post security for costs as it is impecunious and the claim has merit. Secondly, its position is that the amount sought for security for costs is excessive given the value of this claim. It also points out that its impecuniosity is a result of the failure of Remo to pay it on two projects which are the subject of two separate court actions.

Evidence Regarding Impecuniosity

[13] Mr. Frank Monastero, the President and sole shareholder of Goldcrest swore an affidavit dated July 14, 2017 in response to this motion. In that affidavit he swore the following:

• Goldcrest has no liquid assets for ongoing subcontract work
• It has liabilities resulting from Ontario Labour Relations Board judgments against it in connection with the work it did for Remo and in connection with the amounts owing to one of its supplier, Watson Building Supply
• Goldcrest’s largest assets are the contingent receivables from the two actions it has commenced against Remo;
• Goldcrest’s financial difficulties have arisen directly as a result of Remo’s failure to make payments to Goldcrest which are now subject to litigation;
• Screenshots from Goldcrest’s bank account as of September 12, 2016, September 16, 2016 and October 14, 2016 show the last deposit was made on September 7, 2006 and was a partial payment from Remo. As of October 12, 2016 there was a negative balance in the account of $1,330.90
• Goldcrest has not filed income tax returns with Revenue Canada
• Goldcrest has not been operating since it registered its Claims for Lien against Remo in connection with both projects
• It has not performed any jobs and has no income
• It is unable to employ any union members and as a union contractor, it is unable to take on any jobs
• There is an outstanding order from the Ontario Labour Relations Board identified as case number 1697-16-G, a copy of which decision was filed by Remo. Pursuant to that decision, Goldcrest has been ordered to pay $31,152,01 to the Carpenters Union due to its inability to pay its members for the work done on this project
• In December 2016, an action was commenced against Goldcrest and the Peel District School Board by Watson Building Supplies in the amount of $125,565.28

[14] With respect to its borrowing ability, there is no evidence that Goldcrest has made any attempts to secure financing. Goldcrest, however, relies upon the Affidavit of Raymondo Mollica, president of Remo, sworn May 8, 2017. At paragraph 4 of that Affidavit, Mr. Mollica deposes that he contacted several of Goldcrest’s suppliers and was told that due to Goldcrest’s history of non-payment they would no longer be able to provide credit to Goldcrest. Based on that, Goldcrest’s position is that it would be unable to borrow funds to post security.

[15] Mr. Monastero’s evidence is that he has been in the dry walling business for 24 years and has made his living as principal of Goldcrest. His evidence is that he has no other source of income and has been unable to work since Goldcrest stopped working on the Project and at the construction project at Mount Pleasant School.

[16] As evidence of his financial situation he deposes the following:

• He is relying on savings and credit to pay his family’s living expenses and to contribute to his children’s post-secondary education
• He attached pages from his TD Canada Trust bank statement which indicate a balance of -$631 as of July 1, 2017
• He filed a copy of this RBC Royal Bank Visa bank statement which indicates a balance owing of $6,581.91 as at May 15, 2017;
• There is a letter from RBC addressed to Mr. Monastero with respect to the said credit card dated March 8, 2017 indicating that the account was placed with the collections department as a result of being past due in monthly payments
• Mr. Monastero deposes that he does not have any substantial assets, does not own the family home and his personal credit is such that he cannot leverage assets to raise any funds to make a substantial lump sum payment that Remo is requesting.

Analysis

[17] The issue to be determined is whether or not Goldcrest has provided “robust particularity” in its financial disclosure. In my view Goldcrest has failed to do so. While Mr. Monastero claims Goldcrest has not filed income tax returns, he has not produced any financial statements or other documentation setting out a listing of all of Goldcrest’s assets and liabilities. At paragraph 20 of his affidavit, Mr. Monastero deposes that Goldcrest’s largest assets are its contingent receivables in the two action it has commenced against Remo. In paragraph 18, Mr. Monastero deposes that Goldcrest has no liquid assets. He does not state that Goldcrest has no assets. There is no other information provided regarding those other assets, if any. While he swears that Goldcrest has not been operational since it registered two Claims for Liens in connection with the two claims against Remo that does not mean that the company may not have other assets.

[18] The only documentation provided for Goldcrest was three pages from the bank account for a period of September 9, 2016 to October 12, 2016 for account number 0006-036361-0155022. There is no sworn evidence with respect to whether or not that is Goldcrest’s only bank account.

[19] Furthermore, there is no evidence that Goldcrest has attempted to secure financing for security for costs. I am left with questions, therefore, regarding Goldcrest’s impecuniosity.

[20] Mr. Monastero, as sole shareholder of Goldcrest, ought to have filed his own personal income tax returns if he is claiming impecuniosity. As sole shareholder of Goldcrest and as he is claiming that he has insufficient assets or ability to secure financing, I would have expected him to have filed his personal income tax returns. Information in those returns may have supported his claim that he is unable to raise funds to post security for costs. He provides evidence of only one credit card debt owing of $6,423. He then provides two pages from his TD Canada Trust bank statement which shows a negative balance. There is no sworn evidence, however, if he has any other savings accounts or any other investments. In fact, in paragraph 30 he states that he is relying upon his savings and credit to support his family but gives no details of those savings. He also provides no details of his expenses. In paragraph 31, he states that he does not have “substantial assets” which implies that he has some assets. Again, he does not provide any particulars of those assets other than to say he does not own the family home.

[21] There is no evidence that Mr. Monastero made any attempt to secure financing. As stated in the Hamayoon decision, there should be information before the court that would allow the court to determine whether the plaintiff can or cannot borrow money from an institutional lender or close friends or relatives.

[22] When a party is claiming impecuniosity, it ought to “put its best foot forward”. It is not sufficient to rely on mere statements that it cannot borrow money. Documentation should have been filed to show that attempts had been made to secure financing and that those attempts were not successful. That is not before the court. What is before the court does not constitute robust particularity. At this stage, based on the material filed, there is insufficient evidence to support Goldcrest’s claim that it is impecunious.

[23] That does not mean, however, that the plaintiff ought to post security for costs. The court is required to consider the merits of the claim to determine if security for costs are warranted.

Merit of the Claim

[24] I am satisfied that there is merit to Goldcrest’s claim. This issue really was not argued by Remo other than to state that it denied Goldcrest’s claim that it did not pay Goldcrest for its work. Goldcrest’s claim is not uncommon in construction projects where a subcontractor seeks payment for its services and the response is that the work was either deficient or was not completed in accordance with the contract. There is, in my opinion, no issue that the claim has merit.

Quantum of Security for Costs Sought

[25] While there is merit to the claim, I am satisfied that security for costs should be ordered but not in the amount claimed by Remo. In deciding to grant an order for security for costs, I am mindful of the comments of Master MacLeod in 1652472 Ontario Inc. v. Black & McDonald Ltd., 2015 CarswellOnt 11013, 2015 ONSC 4560, 257 A.C.W.S. (3d) 67, 51 C.L.R. (4th) 328, where he stated that “the financial risk to the defendant of being unable to make full recovery of a potential costs award must be balanced against the prejudice to the plaintiff if the order is too extreme”.

[26] Remo filed a Bill of Costs providing for costs estimates through to the completion of the end of trial. It is seeking, inclusive of disbursements, $116,571.12 for security for costs. Goldcrest’s position is the following:

• The quantum of security for costs requested is not reasonable and is disproportionate given the amount of the claim
• There does not appear to be a separate breakdown for costs incurred in pursuing the counterclaim
• The Bill of Costs includes amounts for motions for undertakings and refusals which are merely speculative at this time
• The hourly rate of $225 for a first year lawyer is excessive

[27] In General Products Inc. v Actiwin Company Limited, 2015 ONSC 6923, Lemon J. at para. 39 stated:

Actiwin seeks costs through to the end of trial. Orders for security for costs are generally on a step-by-step basis; I see no reason to change that practice here particularly in view of the counter-claim. Any distinction between the defence and counter-claim will become clearer with further investigation.

[28] I am not prepared to award security for costs for a period up to the end of the conclusion of trial. I also agree with the above comments made by Goldcrest regarding the Bill of Costs submitted by Remo. Security for costs ought to be awarded on a step-by-step basis. Based on the material before me, I order that Goldcrest post security for costs of $15,000 within 60 days. Any further order for security for costs can be reassessed after examinations for discovery are completed. I have considered the following factors in making this decision:

• There is evidence that Goldcrest is experiencing financial challenges;
• Goldcrest’s evidence is that these challenges are a result of Remo’s action in failing to pay it for work done on two separate projects;
• There is merit to Goldcrest’s claim;
• Goldcrest, and its sole shareholder, Mr. Monastero, have not put their best foot forward and have not provided complete disclosure of all of their assets, liabilities, expenses or their attempts to secure financing;
• Remo has posted security in order to vacate the lien; and
• The risk to the defendant to being unable to recover a potential cost order must be balanced against the prejudice to the plaintiff if it cannot post security for costs and proceed with a valid claim.

[29] I therefore order as follows:

(a) The plaintiff shall post security for the defendant’s costs in the amount of $15,000 within sixty (60) days of the date of this order.

(b) Upon completion of examinations for discovery, a request for further security for costs can be made at that time if the defendant is not satisfied that the plaintiff is impecunious

[30] The parties did not address costs. Remo was successful on this motion and ought to be awarded its costs. Unless there are offers to settle that I should consider, I fix Remo’s costs at $1,500 to be paid by Goldcrest forthwith.

[31] I must comment on counsel who appeared at this motion. Both presented excellent submissions that were succinct and very helpful to the court. They are both to be commended for their professionalism, civility and preparation which resulted in a very thorough hearing.

Shaw J.

Date: July 27, 2017

CITATION: Goldcrest Drywall & Acoustics Company Ltd. v. Remo General Contracting Ltd., 2017 ONSC 4580

COURT FILE NO.: CV-16-5267

DATE: 20170727

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

GOLDCREST DRYWALL & ACOUSTICS COMPANY LTD., Plaintiff

AND:

REMO GENERAL CONTRACTING LTD., Defendant

ENDORSEMENT

Shaw J.

Released: July 27, 2017