Court File and Parties

COURT FILE NO.: CV-17-585219 DATE: November 19, 2018

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Platinum Infrastructure Inc. v. Powerline Plus Ltd. and the City of Toronto;

BEFORE: MASTER C. WIEBE;

COUNSEL: Robyn Blumberg for Powerline Plus Ltd.; Dara Khoeum and Renee Satterswaite for Platinum Infrastructure Inc.;

HEARD: September 10, 2018.

REASONS FOR DECISION

I. INTRODUCTION

[1] Powerline Plus Ltd. (“Powerline”) brings a motion for an order requiring that the plaintiff, Platinum Infrastructure Inc. (“Platinum”), post security for Powerline’s costs in this action in the amount of $202,000. Platinum opposes the motion or, in the alternative, seeks an order that the required posted security be much less than what is requested.

[2] For the reasons stated herein, I grant some of the motion.

II. BACKGROUND

[3] Based on the motion material and submissions, I find the following relevant facts.

[4] Powerline, an electrical and civil constructor, wanted to expand into City of Toronto sewer and watermain projects. The subject project was the construction of watermains on five Toronto streets. To qualify, Powerline worked with Platinum, an experienced sewer and watermain contractor, to prepare the bid. The Powerline bid ended up being the lowest by over $1 million. Toronto accepted the bid nevertheless and contracted with Powerline. Powerline subcontracted with Platinum for the watermain installation.

[5] Work began in October, 2016. There were delays. At the end of July, 2017 Platinum sent certain invoices. It concluded that it had not been paid as required. Mr. Sgrignuoli, the principal of Platinum, sent correspondence alleging that there was a shortfall of $58,409.36. Roger Pozzobon, an officer at Powerline, texted Mr. Sgrignuoli on July 27, 2017 that he “came up with a number of 51K.” The text went on to say that Mr. Pozzobon explained his case to the Powerline “VP,” who wanted to review it thoroughly before paying.

[6] On August 1, 2017, Platinum sent written notice that it was owed $287,376.80 and threatened a “stop notice” if not paid by August 4, 2017. On August 2, 2017 it sent a further letter demanding payment of a lesser amount that it said was urgently needed, $81,496.77, and threatening again a “stop notice” if payment was not made by August 4, 2017.

[7] On August 2, 2017 Powerline sent a letter denying that any amount was owed. On August 3, 2017 counsel for Platinum sent a letter repeating the payment demand of $81,496.77 and threatening again a “stop notice” if payment was not received, this time by August 14, 2017.

[8] On August 4, 2017 Powerline faxed a letter cancelling a site meeting scheduled for August 7, 2017, and, pursuant to section 7(b) of the subcontract, terminating the subcontract effective August 2, 2017. The letter demanded that Platinum remove its equipment. Section 7(b) of the subcontract states that the agreement could be terminated “by Powerline” at any time “for any reason (or no reason) upon ten (10) days written notice.”

[9] In early September 15, 2017 Plantinum purported to preserve a claim for lien in the amount of $415,281.47. On November 10, 2017 Powerline posted a lien bond for the amount of the claim for lien and $50,000 as security for costs, as required by the Construction Act, section 44, and obtained an order vacating the Plantinum claim for lien.

[10] On October 25, 2017, Plantinum commenced an action to perfect its lien. On January 26, 2018 Powerline delivered a Statement of Defence. It alleged that Plantinum overbilled and that it was fully paid what was owed. A major part of the Powerline defence was a claim that Platinum’s bid was defective, and that its work was deficient and delayed, and that Powerline’s resulting losses should be set off against any amount otherwise found owing to Platinum.

[11] On February 15, 2018 a principal of Platinum, Tom Sgrignuoli, was examined and stated that Platinum was not operating. In answer to undertakings, Mr. Sgrignuoli advised that the last day Platinum worked before ceasing operation was in August, 2017.

[12] On August 27, 2018, Powerline brought this motion. The motion record contained the affidavit of the Vice President of Operations for Powerline, Shahrir Ghiasi. On August 31, 2018, Platinum delivered a Responding Motion Record containing the affidavit of Mr. Sgrignuoli. On September 5, 2018, Powerline delivered a Reply Motion Record containing the second affidavit of Mr. Ghiasi.

[13] At the argument of the motion, Mr. Khoeum attempted to file a motion record from a previous motion in this action that he said contained the full body of the affidavit of which the filed Sgrignuoli affidavit was a part. I denied this filing as this earlier motion record material had not been served as a part of the motion records in this motion, and caught Powerline by surprise as a result. I found that the attempted filing was unfair to Powerline.

III. ISSUES

[14] Having reviewed the facta, authorities and heard the arguments, I believe that the following are the issues to be determined:

a) Should leave under Construction Act (“CA”) s. 67(2) be granted for this motion? b) If so, has Platinum shown that it is impecunious with a meritorious claim? c) If not, what is just as to the security for costs to be ordered?

IV. ANALYSIS

(a) Should leave under CA s. 67(2) be granted for this motion?

[15] Interlocutory motions not expressly provided for by the CA, such as motions for security for costs, must obtain “consent” of the court in order to proceed. This is by virtue of CA section 67(2). Under that subsection, such “consent” should only be granted “upon proof that the steps are necessary or would expedite the resolution of the issues in dispute.”

[16] Powerline relies on Rule 56.01(1)(d) of the Rules of Civil Procedure for its motion, namely the ground that allows security for costs to be ordered where 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.” I have held in Yuanda Canada Enterprises Ltd. v. Pier 27 Toronto Inc., 2017 ONSC 1892 at paragraph 14 that the threshold for the determination of what is “necessary” for the purpose of CA section 67(2) in such motions is similar to the threshold for the determination of whether “there is good reason to believe” that the plaintiff corporation does not have sufficient assets in Ontario to pay the defendant’s costs. I found that this parallel is a function of the need to achieve procedural fairness in lien cases where, as here, the plaintiff enjoys posted security for its claim for lien and in addition posted security for costs, while the defendant has no security for its costs of defending the claim, an imbalance that is particularly acute when the plaintiff is without assets.

[17] As to the test for establishing whether the defendant has established “good reason to believe that the plaintiff . . . has insufficient assets in Ontario to the costs of the defendant,” I held in the same Yuanda decision at paragraphs 15 and 16 that the defendant must prove an insufficiency of assets that goes beyond mere conjecture, hunch and speculation. The defendant must show “indicia of insolvency” or “instability” such as the failure to make corporate filings, unpaid judgments or liabilities, a temporary dissolution, a significant disposition of assets, or a single purpose entity. Has the defendant succeeded in this regard?

[18] Powerline provided evidence in the motion that meets this threshold. First, there is the evidence from Mr. Sgrignuoli that Platinum ceased operation over a year ago. Second, there are the two requirements to pay dated March 21, 2018 from the Canada Revenue Agency addressed to Powerline showing a total unpaid tax liability for Plantinum of $101,908.59. Third, there are the two garnishments, one from the Labourer’ International Union of North America dated February 22, 2018 concerning an unpaid judgment against Platinum in the amount of $137,482.32, and the other from the International Union of Operating Engineers, Local 793, dated August 23, 2017 concerning an unpaid judgment in the amount of $18,523.34. Fourth, there were the three notices of sale dated November 30, 2017 from John Deere Financial Inc. concerning equipment that was owned and operated by Platinum. Fifth, there is the credit report from Equifax dated March 28, 2018 which rates Platinum as having an extreme likelihood of severe delinquency in payment of debts and ceasing business. It also showed that the TD Bank in Newmarket sued Platinum on January 11, 2018 for a debt of $51,299.

[19] I find that Powerline has established that there “is good reason to believe” that Platinum has insufficient assets in Ontario to pay Powerline’s costs in this action. Therefore, I grant Powerline leave to bring this motion, and move to the next part of the test.

(b) If leave is granted, has Platinum shown that it is impecunious?

[20] It is well established that in motions such as this, where the defendant has met its initial onus of showing a good reason to believe that the plaintiff has insufficient assets to pay costs, there is a shift in the onus to the plaintiff to demonstrate, on the one hand, that it is impecunious with a claim not devoid of merit or, on the other hand, that it has sufficient assets in Ontario to pay costs; see Monk Development Corporation v. CVC Ardellini Investments Inc., 2016 ONSC 1778, paragraphs 7 and 8, and Health Generic Centre Corp. v. Reek Business Information Ltd, 2014 ONSC 6449 at paragraph 16.

[21] Platinum made no attempt to establish that it has sufficient assets in Ontario to pay the Powerline costs. Indeed, at one point in the argument, Mr. Khoeum conceded that Powerline had established the necessary insufficiency of assets.

[22] As to the issue of impecuniosity, there was some confusion. In his factum, Mr. Khoeum stated that Platinum was not relying on this ground, but then in argument he stated that he was. There was, however, no evidence from Platinum that would meet the test of impecuniosity in a motion for security for cost. Mr. Khoeum argued that Powerline was Platinum’s only client, but provided no evidence to support this proposition. Indeed, in his affidavit Mr. Sgrignuoli stated that he “will look to posting security for Platinum pending determination of the quantum and time permitted to come up with the security.” In his factum, Mr. Khoeum stated that the ordered security would come by way of a loan to Platinum. These statements undermine any argument from Platinum as to impecuniosity as they clearly show that Platinum’s principals have the wherewithal and intention of posting security for costs.

[23] I, therefore, find that Platinum has not established either that it has sufficient assets to pay Powerline’s costs or that it is impecunious.

(c) What is just as to the security for costs to be ordered?

[24] This leaves me with the question of what is just in the circumstances to order as security for costs, if anything. Under Rule 56.01(1) of the Rules of Civil Procedure the court is required to make an order that is “just.”

[25] Platinum’s primary position on the motion is that its claim has such merit that the court should discount, if not deny the claimed security for costs of $202,000. The merits is a factor to be considered on the issue of what is just, but where no impecuniosity has been established, as is the case here, the plaintiff must show that its claim “has a good chance of success” in order to avoid a security for costs order; see Monk Development Corp. v. CVC Ardellini Investments Inc., 2016 ONSC 1778 at paragraph 9. In Nemoto v. Sekiguchi, 2015 ONSC 4669, Justice Garson defined that test as follows: “a good chance of success is higher than the requirement of establishing a genuine issue for trial but not at the level of proof on a balance of probabilities.” I will apply that test.

[26] Mr. Kheoum made two arguments concerning the merits of the Platinum claim. His first argument was that there was clear evidence that Powerline did not respect the procedure in the subcontract concerning termination and, therefore, breached the subcontract. The subcontract specifies in section 7(b) that Powerline may terminate the subcontract at any time for any reason or for no reason “upon ten (10) days written notice.” This was a serious right given exclusively to Powerline, and should, therefore, be read strictly against it. The Powerline termination letter dated August 4, 2018 was written by Powerline’s in-house counsel and expressly referred to section 7(b) of the subcontract. Yet it purported to make the termination described in section 7(b) effective two days earlier on August 2, 2017, and demanded that Platinum remove its equipment immediately. There was an earlier letter written by Powerline to Platinum on August 2, 2017. It was written by the same in-house lawyer. It did not purport to terminate the subcontract. It demanded that Platinum cease its written demands for payment. Therefore, it appears that there was no Powerline ten day written notice of termination.

[27] I, therefore, find that there is a good chance that Platinum will succeed in establishing that Powerline breached the subcontract as a result. The absence of this written notice was not seriously challenged by Ms. Blumberg.

[28] Mr. Kheoum’s second argument was that Platinum has a good chance of succeeding on the issue of what it alleges it is owed. This appears to be a more difficult argument for Platinum. First, what it claims it is owed is a moving target. Its claim for lien is for $415,281.47. Yet in correspondence it sent to Powerline in early August, 2017 at the time of the purported subcontract termination, it claimed it was owed much lower amounts, namely either $81,496.77 or $287,376.80. Despite these confusing figures, Platinum demanded payment and threatened “stop notices.”

[29] Second, Platinum relies upon the text message from Roger Pozzobone dated July 27, 2017 wherein he, Mr. Pozzodone, stated that he “came up with a number of 51K” that was owing to Platinum. But this text indicates that Mr. Pozzobone’s assessment was preliminary and would be reviewed by Powerline management.

[30] Third, there is evidence in support of the Powerline set-off defence. For instance, in his reply affidavit sworn on September 5, 2018, Mr. Ghiasi attached the payment certificate for the period of the subcontract termination. It showed that a number of watermain replacements and water services remained outstanding. All of these were in Platinum’s scope of work. Powerline made several claims to the City for schedule extensions, but was only successful in getting some of these extensions. That leaves open the question of which party was responsible for the other delays and what the cost consequence of same was. There was also evidence that Platinum may have caused or contributed to an underbidding by Powerline, as Powerline alleges, as it is undisputed that the Powerline bid was $1 million below that of the next bidder.

[31] Mr. Khoeum argued that the list of Powerline payments that are attached to Mr. Ghiasi’s reply affidavit confirm that Platinum was last paid on June 28, 2017 and was not paid for its July and August, 2017 work. But that does not undermine the validity of Powerline’s set-off defence concerning Platinum’s alleged delay and Powerline’s deficiency correction and underbidding costs.

[32] But, I note that Powerline has provided no evidence of its actual underbidding, delay and deficiency correction costs. This evidence is within the sole control of Powerline, and it did not disclose it. Powerline relies heavily on its set-off defence. I will take this absence of cost evidence into consideration in making my decision.

[33] I, therefore, find that Platinum has not established that it has a good chance of success as to entirety of the quantum of its claim. However, the absence of damages evidence from Powerline leads me to conclude that Platinum has a chance of getting something. This will be taken into account in my decision on what a “just” award should be.

[34] Ms. Blumberg raised the issue of Platinum’s conduct in this litigation. Two events are of concern. First, in November, 2017 Platinum without notice to Powerline noted Powerline in default. This was done in the face of a letter from Powerline’s counsel notifying Platinum counsel of the vacating order Powerline had obtained and requesting an indulgence in delivering a defence. Platinum went further and proceeded to move for default judgment, at which time Platinum counsel finally notified Powerline counsel of the default, which was eventually set aside grudgingly on consent. This event shows that Platinum was prepared to engage in unnecessary and unfair practices to achieve its goals, conduct which must be deterred.

[35] The second event was of a similar nature. On April 13, 2018, Powerline counsel sent a letter to Platinum counsel seeking information as to Platinum’s wherewithal to pay costs. There was no response. On May 8, 2018, Powerline counsel wrote a letter to Platinum counsel confirming that it was moving for security for costs, and provided three dates for the motion. The date of this motion was confirmed in an email exchange on May 10, 2018. Subsequently, again without notice to Powerline counsel, Platinum counsel obtained and attended at an appointment with Justice Firestone in Civil Practice Court on August 3, 2018 with a view to obtaining a schedule for a quick motion for summary judgment by Platinum. His Honour was informed of the pending motion for security for costs, and put the matter over to a chambers appointment yet to be scheduled in order to determine further steps. Mr. Khoeum waited two weeks to notify Powerline counsel of these events on August 16, 2018. This event shows the same propensity of Platinum to conduct events without fair and proper notice. It also has the earmarks of a party engaging in unnecessary activity to avoid the consequences of this motion for security for costs. My eventual order must give Platinum deterrence against such unnecessary and unfair conduct.

[36] The quantum of the security for costs shown in the filed Powerline Draft Bill of Costs was not seriously contested. Powerline claims the partial indemnity amount of $202,000. I am satisfied that this standard of costs, namely partial indemnity, is appropriate for security for costs. As to the quantum, the amount shown for costs already incurred is $26,371.50, which seems somewhat high as it does not include this motion and there have been no discoveries. The estimated prospective costs are, on the other hand, reasonable, given the size of the Platinum claim. The allocation of time between senior and junior counsel and law clerks is appropriate given the size of this claim. There appears, however, to be a duplication of “pre-trials” and “pre-trial conference.” If there is a reference as contemplated by the Draft Bill of Costs there will be no separate “pre-trial conference” leading to the trial hearing. The trial time shown is, according to Ms. Blumberg, based on an expected length of the trial hearing of three days, which is quite reasonable given the size this claim. With the noted exceptions, I accept the quantum of the Powerline’s claim for security for costs as reasonable.

[37] Weighing all of these factors, I have concluded that a “just” security for costs order is that Platinum should post $100,000 as security for the Powerline costs, and that this should be posted in two instalments, one in the amount of $75,000 to be paid in 45 days from the date of this order, and the other in the amount of $25,000 to paid in 30 days from the date the trial hearing is ordered.

[38] This seems just because the first instalment is equivalent to what Powerline has posted as security for Platinum’s costs, enhanced to account for deterrence. Furthermore, the action is in its early stages, and the installment order gives Platinum time to obtain the funds to secure Powerline’s trial costs.

V. CONCLUSION

[39] For the reasons stated above, I grant the defendant’s motion, but in part. I order that Platinum post security for Powerline’s costs in this action in the total amount of $100,000, with $75,000 of same to be posted within 45 days from the date of this order and $25,000 within 30 days after the date the trial hearing is ordered.

[40] Concerning the costs of this motion, I allowed counsel three days to file costs outlines. They did so. There appears to be a huge discrepancy between the two. Powerline’s Costs Outline shows figures of $40,000 in substantial indemnity costs and $31,000 in partial indemnity costs. Platinum’s Costs Outline appears to show an “actual cost” total of $3,025.01, which is based on a “block fee” arrangement for this motion of $2,500.

[41] Costs usually follow the event, and in this motion Powerline appears to be the successful party in part. If the parties cannot agree on costs, Powerline has up to and including November 29, 2018 to serve and file written submissions on costs. The defendants have up to and including December 11, 2018 to serve and file responding written submissions on costs. Each of these submissions must not be longer than two pages. Powerline has until December 14, 2018 to serve and file reply written submissions on costs of no more than one page.

DATE: November 19, 2018

MASTER C. WIEBE