Court File and Parties

COURT FILE NO.: CV-18-733-00 DATE: 2018 09 28 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Precision Tree Care Ltd., Plaintiff AND: Peel Condominium Corporation No. 507 and Larlyn Property Management, Defendants

BEFORE: Lemon J.

COUNSEL: C. Bowman, Counsel for Plaintiff Precision Tree Care Ltd. P. Di Monte, Counsel for Defendant Peel Condominium Corporation No. 507 K. Cura, Counsel for the Defendant Larlyn Property Management Ltd.

HEARD: August 28, 2018

Endorsement

The Issue

[1] The defendant, Peel Condominium Corporation No. 507, moves for security for costs to be paid by the plaintiff, Precision Tree Care Ltd.

Background

[2] This is a construction lien action against PCC 507 and its property management firm, Larlyn Property Management. Precision claims for tree trimming services provided to PCC 507 in the amount of $163,369.75. Precision had previously estimated that the work would cost $11,780.25. Precision claims that the difference between the estimate and the invoice was authorized by Larlyn and its agent. However, Larlyn denies giving any such authorization.

[3] Precision is an Ontario corporation. At all material times, Peter Neville was, and is, the sole officer, shareholder and director of Precision.

[4] PCC 507 is a non-profit condominium corporation, consisting of 60 residential units.

[5] Larlyn is an Ontario corporation which provides property management services. At all material times, Larlyn was the property management company for PCC 507.

[6] In September 2017, PCC 507 hired Precision to remove trees and perform certain other services at an agreed upon cost of $11,780.25 pursuant to an estimate dated September 15, 2017.

[7] However, on December 12, 2017, Precision invoiced PCC 507 in the amount of $163,369.75. PCC 507 takes the position that the work, as billed, was never completed; not part of the original estimate; not authorized by Larlyn; and that payments had already been made to Precision for some of its work.

[8] Precision alleges that the additional work was authorized on October 30, 2017, by the property manager who was employed by Larlyn and assigned to PCC 507 at the material time.

[9] On January 18, 2018, an independent arborist was retained by and attended at PCC 507 to review the extent of the work allegedly completed by Precision and to advise of the cost of that work according to standard industry pricing. That expert valued the work already completed by Precision at $2,000.00, and the work remaining to be completed at $4,650.00, plus tax.

[10] PCC 507 is waiting for Precision to produce key documents, in accordance with the undertakings given at a cross-examination on the lien held on April 19, 2018. PCC 507 says that those documents are fundamental to the viability of Precision’s case.

[11] During cross-examinations in preparation for this motion, Mr. Neville admitted that Precision does not own any assets in Ontario. He agreed that Precision does not own any equipment.

Positions of the Parties

Position of the Defendants

[12] Pursuant to r. 56.01(1)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”), PCC 507 submits that it has established that Precision has insufficient assets in Ontario to pay the costs of the defendants if the defendants are successful at trial. PCC 507 says that the onus then shifts to Precision to establish that an order for security for costs would be unjust by leading evidence to demonstrate that it is impecunious and that justice demands that Precision be permitted to continue with the action.

[13] PCC 507 submits that an impecunious plaintiff will generally avoid paying security for costs only if the plaintiff can establish that the claim is not "plainly devoid of merit." Alternatively, if Precision cannot establish that it is impecunious, it must meet a high threshold to satisfy the court of its chances of success.

[14] PCC 507 submits that this second step of the test requires the court to first determine whether or not the plaintiff has established that it is impecunious, because the legal test to be applied to assess the strength of the plaintiff’s case will vary depending upon whether or not impecuniosity has been established.

[15] Evidence of financial difficulties does not necessarily equate with impecuniosity. Further, Precision should not be found to be impecunious if it has means to borrow money from an institutional lender or from friends or relatives in order to pay for security for costs.

[16] The evidentiary threshold for impecuniosity is high, and bald statements unsupported by detail are insufficient. The threshold can only be reached by tendering complete and accurate disclosure of the plaintiff's income, assets, expenses, liabilities and borrowing ability, with full supporting documentation for each category where available or an explanation where not available.

[17] In Morton v. Canada (Attorney General) (2005), 75 O.R. (3d) 63 (S.C.), at para. 32, Quinn J. determined that a plaintiff claiming impecuniosity must fully and accurately disclose their financial situation with "robust particularity." He stated the following:

There should be no unanswered material questions, as is the case here. It is worth remembering that the financial status of the plaintiffs is known only to them … Full financial disclosure is required and should include the following: the amount and source of all income; a description of all assets (including values); a list of all liabilities and other significant expenses; an indication of the extent of the ability of the plaintiffs to borrow funds; and, details of any assets disposed of or encumbered since the cause of action arose.

[18] To meet the onus to establish impecuniosity, at the very least, this would require an individual plaintiff to submit his or her most recent tax return, complete banking records and records attesting to income and expenses.

[19] PCC 507 points out that at the cross-examination of April 19, 2018, Mr. Neville refused to produce bank statements from May 2017 to date. It is submitted that an adverse inference should be drawn that Precision is not impecunious based on Mr. Neville’s refusal to produce financial documents without justification.

[20] If Precision claims impecuniosity, it must demonstrate that it cannot raise security for costs from its shareholders and associates, and that its principals do not have sufficient assets. Evidence as to the personal means of the principals of the corporation is required to meet this onus. A corporate plaintiff must provide substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security. A bare assertion that no funds are available will not suffice.

[21] The second step also requires the court to make such order for security for costs “as is just,” while bearing in mind that the purpose and intent behind r. 56.01 is partly to protect a defendant from the possibility that they may be unable to recover the costs expended in successfully defending an action.

[22] To arrive at the appropriate order of what the court considers to be “just,” the court must consider a multitude of factors, including the merits of the case.

[23] Where impecuniosity has not been established, the onus is on the plaintiff to establish that the merits of the claim are such that there is a real possibility of success.

[24] PCC 507 points out that there is no evidence that any additional work over and above the estimate was authorized by PCC 507 and/or by Larlyn. It also argues that the documents already produced by Precision are demonstrably inaccurate on their face. It submits that, on the evidence to date, Precision will be unsuccessful.

Position of the Precision

[25] The principal of the plaintiff, Mr. Neville, has been a licensed arborist since approximately 1999. He is the sole officer, director and shareholder of Precision.

[26] Precision agrees that it provided an estimate for approximately $11,780.00; however, it says that Larlyn constantly changed and added to the scope of work.

[27] PCC 507 had not maintained its trees. In conducting the work on the property, Precision encountered various difficulties which increased the cost of the work. As an example, the removal of some trees ultimately required that an articulated boom be used because the trees were so badly decayed that Neville could not safely climb them to cut them down. This equipment is a significant expense. Neville has testified that when told of such costs, PCC 507’s property manager usually said something along the lines of, “That’s fine, just put it in the bill.”

[28] On or about October 30, 2017, Larlyn’s agent visited the site in part to deliver cheques to Neville. At the same time, Neville and the agent walked the property and reviewed the work done and what Larlyn wished to have done. Larlyn’s agent verbally authorized the work at that time. Based on that work, Precision issued an invoice for $163,369.75.

[29] As a result of the non-payment for the work completed, Precision continues to owe all of the vendors and service providers that supplied goods or services to Precision in order for it to do the work on the property. Precision does not yet have the resources to own equipment and therefore everything it needs to operate is rented. Precision incurred almost $80,000.00 in costs to do the work as authorized.

[30] As a result of Precision not having been paid, Precision and Neville are both in very difficult financial circumstances. Friends and family have already informally extended assistance and credit to Neville and the business. Neville says that there are no family or friends or business associates whom he could ask to assist further with financing the costs of this lawsuit.

[31] Neither Neville nor Precision has access to any line of credit or other ability to raise funds. In May of this year, Neville applied on behalf of Precision for a line of credit from Precision’s banker, RBC, and was denied because his personal credit rating is too low. Neville personally applied to Easy Financial for a loan, but was denied again because his credit score is too low.

[32] Precision says that if it is required to pay any security for costs, it will not be able to continue to pursue its claim.

[33] Precision’s counsel submits that a motion for security for costs should not be conducted on the standard of a motion for summary judgment. Only where the claim is frivolous or clearly devoid of merit should the court exercise its discretion to order security for costs. Provided that the plaintiff’s claim is not plainly devoid of merit or frivolous, the court should not exercise its discretion to order security for costs.

[34] Precision raises no argument that leave should not be granted to bring this motion pursuant to s. 67(2) of the Construction Lien Act, R.S.O. 1990, c. C.30.

Authorities

[35] Rule 56.01(1)(d) of the Rules provides that a court, on a motion by the defendant in a proceeding, may make such order for security for costs as is just where it appears that the plaintiff is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.

[36] There is a two-step process under rule 56.01(1)(d). The initial onus is on the defendant 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. It need not go so far as to actually prove that the plaintiff has insufficient assets.

[37] If the defendant satisfies the first stage of the enquiry, the onus switches to the plaintiff to demonstrate that it has sufficient assets in Ontario or a reciprocating jurisdiction to satisfy any order for costs. Alternatively, the plaintiff must 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 plainly devoid of merit. See Health Genetic Center Corp. v. Reed Business Information Ltd., 2014 ONSC 6449, 247 A.C.W.S. (3d) 54, at paras. 4-5.

[38] Master Pope in Al Masri v. Baberakubona, 2010 ONSC 562, 194 A.C.W.S. (3d) 68, at para. 19, citing Morton v. Canada (Attorney General) (2005), 75 O.R. (3d) 63, at para. 32, described the plaintiff’s financial disclosure obligations as requiring “robust particularity.” This disclosure should include the amount and source of all income; a description of all assets (including values); a list of all liabilities and other significant expenses; an indication of the extent of the ability of the plaintiffs to borrow funds; and details of any assets disposed of or encumbered since the cause of action arose.

[39] On a motion for security for costs, the court has a broad discretion in deciding whether security for costs is just in the circumstances. The merits of the plaintiff’s case is a relevant factor in the exercise of the court’s discretion to make an order for security for costs. If the plaintiff shows a real possibility of success, then the court may conclude that in the circumstances of the case, justice demands that he or she not be required to post security: see Yazdani v. Ezzati, 2015 ONSC 8159, at para. 20.

[40] One factor that has repeatedly been held to be relevant to this broad second-stage of the analysis is whether the defendant’s conduct that is the subject of the litigation has caused the plaintiff’s assets to become insufficient. As Reid J. observed in John Wink Ltd. v. Sico Inc. (1987), 57 O.R. (2d) 705 (Ont. H.C.), at para. 8:

There can be no question that an injustice would result if a meritorious claim were prevented from reaching trial because of the poverty of a plaintiff. If the consequence of an order for costs would be to destroy such a claim, no order should be made. Injustice would be even more manifest if the impoverishment of plaintiff were caused by the very acts of which plaintiff complains in the action.

[41] If the plaintiff cannot establish that it is impecunious, but it does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success at trial: see 1731431 Ontario Ltd. v. Crestwood Apartments (Thunder Bay) Ltd., 2011 ONSC 6227, 209 A.C.W.S. (3d) 257, at para. 28.

[42] If the plaintiff can establish that it is impecunious, the test to assess its case is different. In the case of John Wink Ltd., Reid J. states, at para. 11:

In my respectful opinion, unless a claim is plainly devoid of merit, it should be allowed to proceed. That is the only "special circumstance" that I would require. While the adoption of this standard might allow some cases to go to trial that the trial will prove should not have proceeded, nevertheless the danger of injustice resulting from wrongly destroying claims that should have been permitted to go to trial is to my mind a greater injustice. In my experience, there are very few claims that are entirely without merit that go to and through a trial. The onus on plaintiff is therefore not to show that the claim is likely to succeed. It is merely to show that it is not almost certain to fail.

[43] Rule 56.04 of the Rules sets out that the court shall determine the amount and form of security and the time for paying into court or otherwise giving the required security. Further, r. 56.07 allows that the amount of security required by an order for security for costs may be increased or decreased at any time.

Analysis

[44] It must be remembered that this is not a motion to strike the claim for failure to provide undertakings. It is not a motion for summary judgment to dismiss the action. I cannot make credibility findings on this record of affidavits that have not been subjected to cross-examination. But this is a very close case with respect to security for costs.

[45] There is no dispute that Precision does not have assets to pay costs if it is unsuccessful.

[46] On this record, I am satisfied that Precision has provided sufficient particularity to show that it is impecunious. While Precision has not provided complete bank records or income tax returns for either the company or Mr. Neville, it has, along with other financial records, produced ample records of enforcement by creditors for his residential utilities. That is the end result of no income and credit facilities; I do not need more material details of the plaintiff’s lack of income to make this determination.

[47] Mr. Neville is a one man company and, based on what he has produced, it is clear that he has little income. If he is hiding money, it is of limited amounts; certainly nothing that would suggest other than he and the corporation are impecunious.

[48] Precision has refused to produce its bank statements since May of 2017; however, that was during the cross-examination on the lien itself. While I have not been provided with the transcript of that cross-examination, I cannot think of a reason that the plaintiff’s finances would be relevant to those issues. It may be relevant to these issues, but Mr. Neville was not cross-examined on this affidavit. In any event, he has produced bank records for 2018 as part of his response to this motion.

[49] On its face, the difference between the estimate and the bill is stark and difficult to accept. Precision’s case seems weak in the face of the expert evidence of the defendants and Precision’s failure to produce important undertakings. However, if those important documents are produced, based on PCC 507’s submission, Precision’s case will be strengthened.

[50] Larlyn’s agent’s evidence will certainly be important, but at this stage I only have an email, which the plaintiff alleges that agent wrote. I note that she is now the former employee of Larlyn. Mr. Neville says that she was fired over the matter in dispute; Larlyn denies that allegation. I do not know what she will say at trial or how her testimony will be seen after cross-examination. I do not know if she will be available for any party at trial.

[51] Precision has not moved the matter forward but that may be because of the failure of PCC 507 to pay a proper account.

[52] I agree with Precision that the test here is not the same as at a motion for summary judgment. There, a motions judge has more tools to deal with these issues and the result may be different.

[53] From my review of the materials, Precision is impecunious and its case is not plainly devoid of merit.

[54] Accordingly, I am not persuaded to order security for costs and the motion is dismissed.

Costs

[55] If costs cannot be agreed upon, Precision shall provide its costs submissions within the next 15 days. The defendants shall provide their response within 15 days thereafter. No reply submissions shall be filed unless I request them.

[56] Each submission shall be no more than three pages, not including any Bills of Costs or Offers to Settle.

[57] Written submissions shall be forwarded to me at my office at the Superior Court Office, 74 Woolwich Street, Guelph, Ontario, N1H 3T9.

Lemon J.

Date: September 28, 2018