COURT FILE NO.: CV-17-0457
DATE: 2018-01-30
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
AgriRecycle, Inc.
C. Hacio, for the Plaintiff
Plaintiff
-and-
RTK WP CANADA, ULC and RENTECH, INC.
D. Stoddard, for the Defendant RTK WP CANADA, ULC and RENTECH, INC.
Defendants
Heard: December 4, 2017,
at Thunder Bay, Ontario
Mr. Justice W.D. Newton
Decision On Motion
[1] The Defendant, RTK WP Canada, ULC (“RTK”) seeks leave under s. 67(2) of the Construction Lien Act to bring this motion for security for costs and, if leave is granted, RTK seeks security for costs from the plaintiff, AgriRecycle (“AR”) in the amount of $400,000 payable forthwith failing which AR’s action would be stayed.
Overview
[2] The RTK companies are the Canadian subsidiaries of Rentech Inc., a U.S. corporation. RTK owns two pellet plants in Wawa and Atikokan, Ontario. Evidence on this application was in the form of an affidavit from Dennis Corn, the vice president of Rentech from Tennessee, and an affidavit from Michael Ferguson, the president of AR from Missouri.
[3] According to RTK, AR, a US-based construction manager and engineering firm in Missouri, contracted with RTK to design, engineer, construct and install equipment at RTK’s operations. It is alleged that the project costs exceeded $100 million and that RTK paid AR in excess of $7.9 million USD.
[4] There were significant difficulties in operating both facilities. The Wawa plant is not operational. The problems appear to be with the conveyors supplied by AR. AR relies on preliminary engineering reports that state that it was the failure of RTK to, among other things, use proper raw materials that led to the failure. RTK states that the conveyors specified and supplied by AR were inadequate for the plant requirements.
[5] AR states that all purchase orders for this project came from the Rentech office in Los Angeles and that there are no purchase orders from RTK. All payments from RTK were made to AR in Missouri.
[6] Mr. Corn, the vice president of Rentech, deposed that it appears that AR has insufficient assets in Ontario and Missouri and that “this is not a level playing field. Allowing AR to continue litigating with impunity is not just.”
[7] Mr. Ferguson, the president of AR, deposed that AR has assets in both Ontario and Missouri sufficient to respond to any claim for costs and filed exhibits questioning the financial viability of both RTK and Rentech.
[8] It was suggested that the parties may choose to litigate these claims in the U.S. courts.
Should Leave Be Granted?
[9] The Construction Lien Act, R.S.O 1990, c. C-30 (“CLA”), does not expressly provide for a security for costs motion. Subsection 67(1) of the CLA provides that the procedure should be “as far as possible of a summary character, having regard to the amount and nature of the liens in question”. Subsection (2) provides:
(2) Interlocutory steps, other than those provided for in this Act, shall not be taken without the consent of the court obtained upon proof that the steps are necessary or would expedite the resolution of the issues in dispute. R.S.O. 1990, c. C.30, s. 67 (2). [Emphasis added.]
[10] Rule 56.01 provides:
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.
[11] In 2311888 Ontario Inc. v. Ross, 2017 ONSC 1295, Henderson J. summarized the proper way to analyze a motion for security for costs at para. 17 as follows:
(i) The initial onus is on the defendant to satisfy the court that it appears there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56.01. See Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 at p. 123;
(ii) Once the first part of the test is satisfied, the onus is on the plaintiff to establish that an order for security for costs would be unjust. See Chachula at para. 10, and Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 at para. 4;
(iii) The plaintiff can meet the onus by demonstrating that:
(a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation;
(b) the plaintiff is impecunious and the plaintiff’s claim is not plainly devoid of merit (See Pitkeathly v. 1059288 Ontario Inc., [2004] O.J. No. 4125 at para. 10); or
(c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must satisfy the court that the plaintiff’s claim has a good chance of success on the merits. See Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2012] O.J. No. 3620 at paras. 41-46.
[12] I am guided by the very helpful decision of Master Wiebe in Yvanda Canada Enterprises Ltd. v. Pier 27 Toronto Inc., 2017 ONSC 1892. As to the initial question or hurdle of “good reason to believe”, Master Wiebe concluded that the test should be more narrowly construed in construction lien actions:
[15] Therefore, the initial question is whether the Defendants have established proof for such a “good reason to believe” that Yulanda has insufficient assets in Ontario to pay their costs. As to the test for this hurdle of “good reason to believe,” there is the important decision of Justice Lang of the Court of Appeal in City Commercial Realty (Canada) Ltd. v. Bakich, [2005] O. J. No. 6443 (Ont. C.A.). Her Honour held that, while the defendant did not have to establish that the plaintiff corporation in fact had insufficient assets to pay costs, the defendant did have to establish a “belief of insufficiency that goes beyond mere conjecture, hunch, or speculation.” She went on to state that the moving party had to show “indicia of insolvency” or “instability,” such as a failure to make corporate filings, unpaid judgments or liabilities, a temporary dissolution, a significant disposition of assets, or the plaintiff as a single purpose entity, namely a shell company. Her concern was that, with a lesser test, there would be no meaningful hurdle and the courts would become inundated with motions for security for costs against plaintiff corporations. I share that concern, and I will apply the test she articulated.
[16] The Defendants argued that I should consider lower court decisions that did not apply an “instability and insolvency” test at this stage, such as the decision in Cigar500.com Inc. v. Ashton Distributors Inc., 2009 CarswellOnt 5241, where Justice Code found that the test was met by evidence that the plaintiff corporation had suspended business, was not generating significant cash flow and had liabilities that exceeded its assets. I do not agree. Not only is the decision of Justice Lang of higher authority and more binding on me, it is also persuasive. Defendants should have to cross a real hurdle at this stage in order to avoid overburdening the courts with such motions. Furthermore, while not determinative, I note that business in the construction sector is notoriously uneven. There should, therefore, be such a narrower test in construction lien actions in light of the requirement to establish “necessity” under CLA section 67(2). [Emphasis added.]
Application to the Facts of this Case
[13] AR does not have any bank accounts or real estate in Ontario or in Canada. AR does not own any real estate in Missouri or any other state.
[14] AR argues that it has over $1 million of unpaid parts and equipment at the Wawa and Atikokan sites and claims that these are assets in Ontario. It also claims it has a liability insurance policy with limits of $1 million that will respond to some of RTK’s claims for consequential damage arising from its negligence. Its assets in Missouri consist of an inventory of wood pellets apparently owned by a related company and accounts receivable.
[15] I accept RTK’s arguments that it is difficult to value the parts and equipment that are the very subject of the lien claim. There is insufficient evidence before me to determine what value, if any, might be attached to those items. The fact that there may be some coverage for consequential damage suffered by ATK through AR’s negligence does not bear on the security for costs issue. AR’s accounts receivables are the very claims in dispute in this action and therefore are not assets that can be turned readily in the cash. Similarly, the inventory of wood pellets can fluctuate over time and, no doubt, cannot be readily turned into cash.
[16] Nevertheless I do not conclude that leave should be granted. To grant leave I require proof that the steps are necessary or would expedite the resolution of the issues in dispute. The argument was advanced that it was necessary to “level the playing field.” Rentech and RTK are not unsophisticated players. By design, purchase orders, invoices and money flowed between California and Missouri. Going into the contract RTK knew of AR’s status as a nonresident corporation, with no assets in Ontario, and choose to proceed. I conclude that security for costs is not necessary to “level the playing field” and I fail to see how ordering security for costs would expedite the resolution of the issues in dispute.
[17] Therefore, the motion for leave to bring a motion for security for costs is denied.
[18] At the conclusion of the argument on this motion I made the following additional endorsement:
Motion by RTK to amend its pleadings adjourned to trial management conference before me (teleconference) to be arranged by the trial coordinator at request of counsel. Issue of EAD amendments to be dealt with at same time. Another issue relates to the approval/consent orders dismissing claims between RTK and EAD. If not resolved in this issue to be resolved that next case conference.
[19] If the parties cannot agree on costs then AR shall file its costs submissions, limited to three pages, plus costs outline, plus authorities, within 30 days. Thereafter, RTK may file its submissions subject to the same restrictions within 15 days.
“Original signed by”____
The Hon. Mr. Justice W.D. Newton
Released: January 30, 2018
COURT FILE NO.: CV-17-0457
DATE: 2018-01-30
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
AgriRecycle, Inc.
Plaintiff
-and-
RTK WP CANADA, ULC and RENTECH, INC.
Defendants
DECISION ON MOTION
Newton J.
Released: January 30, 2018
/lvp