Court File and Parties

Court File No.: CV-14-504109 Date: 2020-05-07 Superior Court of Justice - Ontario

Re: 9357-1578 Quebec Inc., Plaintiff And: E.S. Fox Constructors Ltd. et al., Defendants

Before: Master P. Tamara Sugunasiri

Counsel: Eccleston, K., Counsel for E.S. Fox Constructors Ltd., Defendants/Moving Party (keccleston@millerthomson.com) Drudi, M., Counsel for the Plaintiff/Responding Party (mdrudi@dakllp.com)

Heard: February 10, 2020

Reasons for Decision

Overview:

[1] Mometal Structures Inc. entered into a subcontractor agreement with E.S. Fox Constructors Ltd. to supply all labour, materials, tools, equipment, and supervision necessary to detail, fabricate, clean, paint and ship all steelwork for the Credit River Bridge Rehabilitation Project. In 2014 Mometal sued ES Fox for the cost of abrasive blast cleaning on certain steel components and drilling holes on steel anchor plates ("Claim"). According to Mometal, this was extra work not covered by the subcontract.

[2] Mometal served its trial record in February of 2019. In May, Mometal went into receivership; its related company, 9357-1578 Inc. ("Quebec Co."), was named a secured creditor. By an order to continue made August 9, 2019, Quebec Co. became the plaintiff in this action pursuant to an agreement that assigned Mometal's interest in the Claim to Quebec Co.

[3] With a new plaintiff whose sole business appears to be collecting Mometal's assigned accounts receivables, ES Fox seeks security for costs pursuant to Rule 56.01(1)(d) on the basis that there is good reason to believe that Quebec Co. lacks assets in Ontario and it is just to protect ES Fox's ability to collect costs.

[4] For the reasons that follow, I order Quebec Co. to post security for costs in the amount of $30,000 to the end of trial. Despite Quebec Co's existing cash assets and Quebec law that allows ES Fox to pursue its judgment and costs in Quebec, it is fair and just to require Quebec Co. to post some security. There is no prejudice to Quebec Co., and it offers some measure of protection for ES Fox should a court order Quebec Co to pay costs.

Law and Analysis:

[5] To obtain an order for security for costs, ES Fox must demonstrate that there is good reason to believe that Quebec Co. has insufficient assets in Ontario to pay ES Fox's costs, should it be successful at trial. If ES Fox meets its burden, the onus shifts to Quebec Co. to show that it has sufficient assets in Ontario or a reciprocating jurisdiction, or that the order is unjust.[^1] The court is to consider all the circumstances of the case and look at the overall justness of the order.[^2]

[6] The four issues in this motion are:

a. Has ES Fox demonstrated that there is good reason to believe that Quebec Co. lacks sufficient assets in Ontario to pay an adverse costs award? Yes, ES Fox has met this threshold by the very fact that Quebec Co is a Quebec corporation with no assets in Ontario.

b. If ES Fox has so demonstrated, has Quebec Co. shown that it has sufficient assets in Ontario or a reciprocating jurisdiction? Yes, ES Fox appears to have sufficient assets in Quebec at the time of this motion. Quebec is a reciprocating province.

c. Does the overall justice of the case warrant a security for costs order? Even if Quebec Co. has demonstrated that it can pay, the overall justice of the case favours a security for costs order.

d. What is the appropriate quantum of security for costs? This is an action for $231,691.81 with a counterclaim of $23,400.00. In the absence of a detailed Bill of Costs, a specific quantum request, and evidence to explain the basis for the appropriate amount, I adopt Quebec Co's suggested amount of $30,000 to the end of trial.

A. Has ES Fox demonstrated that there is good reason to believe that Quebec Co. lacks sufficient assets in Ontario to pay an adverse costs award?

[7] There is good reason to believe that Quebec Co has insufficient assets in Ontario. Contrary to Quebec Co's submissions, the issue in Rule 56.01(1)(d) is not whether Quebec Co has assets. It is whether it has assets, in Ontario. Quebec Co. is a holding company clearly incorporated under the laws of Quebec with its head office is in the Province of Quebec. On this basis alone, there is good reason to believe that Quebec Co has no assets in Ontario let alone sufficient assets to satisfy an adverse costs award.

B. If ES Fox has so demonstrated, has Quebec Co. shown that it has sufficient assets in Ontario or a reciprocating jurisdiction to satisfy and adverse costs award?

[8] Quebec Co. has persuaded me that it currently has sufficient assets in a reciprocating jurisdiction to satisfy an adverse costs order. Its evidence is that it had $1,183,104.37 in its bank account as of September 27, 2019. Its principal and owner, Mr. Ciccarelli, states there is no plan to spend the money other than on legal fees and costs of pursuing the other outstanding claims that are subject to the assignment agreement:

a. 1448/TTC Sheppard West/Aecon

b. 1456/TTC Finch West Station/Bondfield

c. 1446/TTC York University Station/Ellis Don

d. 1501/Ventilation Towers Rehab./Atwill Morin

e. 1539/515 W. 29th Street/A&V Steel

f. 1550/Pont Champlain, PJCCI 61895/Pomerleau

g. 1551/Pont Champlain 62414/Pomerleau

[9] While Quebec Co should have provided more details about these claims including their value and what stage the litigation is at, I am satisfied on balance that it currently has sufficient cash to pay an adverse costs award. It apparently settled two of the TTC claims and hopes to recover funds from Bondfield (who is in receivership) as a result of its secured lien and lien bond.

[10] I am also satisfied that for the purpose of Rule 56.01(1)(d), Quebec is a reciprocating jurisdiction. I base this on Mr. Simard's evidence and the jurisprudence.[^3]

[11] ES Fox argues that the risk of cash dissipation is relevant. In contrast, Quebec Co suggest that the court should only look at the sufficiency of the plaintiff's assets at the time of the motion. In my view, both vantage points are relevant. Our Court of Appeal confirmed this in 671122 Ontario Ltd. v Canadian Tire Corp., when it unequivocally stated the following:

We think that the language in Brain-Hulst is overly literal in confining the examination [of assets] to the particular situation existing "at the moment" of the motion for security for costs. In this regard, it is reasonable to consider that "the costs of the defendant" mentioned in the rule are not payable at the time of the motion but, rather, if the defendant is awarded costs, at some time in the future. Accordingly, to quote from the Divisional Court's reasons, it is proper "to consider critically the quality as well as the sufficiency of assets presently held..."[^4]

[12] In other words, the quality of an asset, understood as its exigibility, its longevity, whether it is easily dissipated and its value at the time of the motion are all relevant to the court's calculus. What the court must be careful not to do is make extensive and speculative inquiries as to what the future availability of assets might be.[^5]

[13] In this case while Quebec Co has persuaded me that it currently as enough cash to pay an adverse costs award, I do have concern of its availability after trial. In my view, this is relevant in considering the justness of the order. I explain below.

C. Does the overall justice of the case warrant a security for costs order?

[14] As noted by the Ontario Court of Appeal in Yaiguaje, supra note 2, the court should move away from applying rigid tests to determine security for costs. Instead, it should consider the rules, all the circumstances of the case, and the overall justice of an order. Despite my conclusion that Quebec Co has shown sufficient assets at the time of the motion, I find that it is just in the circumstances of this case to order it to pay security for costs. I discuss the relevant circumstances.

Cash is not always king

[15] Quebec Co's only asset is cash derived from pursuing the claims assigned to it by Mometal. At the time of the motion, Quebec Co. had approximately $1.2 million in its bank account. This is a $270,000 action at best. It should cost less than $270,000 for ES Fox to defend the action. If costs are calculated on a partial indemnity scale, Quebec Co has more than enough money to pay ES Fox's costs.

[16] However, I have some concern over Quebec Co's future ability to pay. In the normal circumstances, these parties might obtain a trial date for the action by 2021. However, this may be further delayed due to Covid-19. Mr. Ciccarelli attests that as of November 2019, there were no plans to spend the cash. It is also clear that Mr. Ciccarelli is the sole shareholder of Quebec Co and to some extent considers him and the company as one entity. His evidence was as follows:

Q. Well, where did the cash in the bank come from? Did it come from the operations of Mometal?

A. No, the cash in the bank comes from claims that have been settled.

Q. Sorry, claims on behalf of Mometal... sorry, claims made by Mometal?

A. Claims that were existing when I sold Mometal and that were excluded from the sale, and those... that was still my property, and they were eventually assigned to 9357, and I am continuing to pursue those claims in view of settling them. [my emphasis]

[17] I have no evidence that Mr. Ciccarelli will withdraw money from the company; it was on that basis that I concluded that Quebec Co met its burden of showing sufficient assets in a reciprocating jurisdiction. However, it gives me pause that the money held by Quebec Co. is in reality available for Mr. Ciccarelli's personal use and considered to be his property. Coupled with this notion that Quebec Co's money may really be held for Mr. Ciccarelli is the absence of evidence of Quebec Co's long game. What will its business be once all claims have come to an end? Will Mr. Ciccarelli withdraw the funds paid for the claims, claims which he described as his property? In my view, the onus was on Quebec Co to provide this basic information. This is not the type of extensive and speculative inquiry the Court of Appeal discouraged in Canadian Tire Corp. supra. Absent this information, the court is left with a concern that factors into assessing the overall justness of the order.

[18] I also note the contingent nature of Quebec Co's cash. It will only recover funds if it succeeds in the litigation. Without information on the nature of the claims, the stage of litigation and their value, the contingent nature of Quebec Co's financial viability plays a role in assessing the justness of a security for costs order.

No claim of impecuniosity

[19] By its own statements Quebec Co presents itself as a holder of accounts receivable with good prospects of collection. It has no problem posting security.

ES Fox's counterclaim does not disqualify it from a security for costs order

[20] There is a well-established principle that a defendant by counterclaim acts as a plaintiff and should not be secured for the cost of prosecuting its own claim. In this case, the main action is clearly the primary driver and Quebec Co does not argue otherwise. If anything, the counterclaim would reduce the amount of security for costs rather than preclude its entitlement.

The merits of the action are neutral

[21] ES Fox urges me to find that Quebec Co's action is meritless, thereby warranting costs protection. I decline to so find. Whether the sandblasting and drilling were extras under the subcontract agreement is squarely a triable issue. It is not plain and obvious on the face of the subcontract agreement that those jobs were included or excluded from the scope of work. It would not be appropriate for a motions court to delve further.

Delay does not foreclose ES Fox from obtaining security for costs

[22] Quebec Co argues that ES Fox has delayed this motion with no explanation. This forecloses an order for security for costs.

[23] I agree that delay can foreclose an order for security for costs because of concerns for procedural fairness. In 423322 Ontario Ltd. v Bank of Montreal, 1988 CanLII 4719 (ONSC), Master Peppiatt explains the rationale for denying late security for costs requests. In that case, the plaintiff commenced the action in 1980. The defendant sought security for costs in 1987 after the action had been set down for trial. In those circumstances, he noted that the plaintiff was lulled into believing that she could proceed without having to post security. As such, she did not factor this into her financial decisions to proceed or take various steps in the proceeding (at page 3).

[24] Quebec Co is not similarly situated. It is a new plaintiff who was almost immediately faced with a security for costs motion upon entering the litigation. The Registrar made the order to continue on August 9, 2019. On September 10, 2019 counsel for ES Fox inquired about Quebec Co's assets and counsel discussed a security for costs motion. ES Fox moved quickly to advise Quebec Co of its intentions. In any event, there is no evidence to suggest that Quebec Co has suffered any prejudice from the delay.[^6]

[25] Quebec Co also notes that it was surprised that ES Fox even brought a motion because it appeared perfectly content to proceed without security for costs against Mometal who is also a Quebec company. This does not come as a surprise to me. Until the receivership, Mometal was an active company in the business of fabricating and installing non-conventional steel structures and architecturally exposed structures in the non-residential construction industry. In contrast, Quebec Co is a holding company whose sole business is to collect Mometal's accounts receivables. The difference would certainly cause a defendant to consider a security for costs motion against Quebec Co. While I have no evidence as to ES Fox's rationale, I can infer from the record that the change in plaintiff triggered the motion for security for costs. I have no reason, as Quebec Co urges, to characterize ES Fox's motives as more sinister.

There is no prejudice to Quebec Co

[26] There is no evidence that Quebec Co would be prejudiced by an order for security for costs. By its own evidence it is flushed with cash. A security for cost order would not stop the litigation in its tracks or cause Quebec Co any hardship.

[27] On the other hand, there is some risk to ES Fox if no order is made. Quebec Co's stability is based on the strength of its claims against accounts payable. Litigation success is never guaranteed. Second, ES Fox must spend money to collect on any unpaid costs award because Quebec Co's only asset is in Quebec. This is not overwhelming prejudice, but it tips the balance in favour of ES Fox.

[28] In sum, I heed the words of A.C.J.O. Morden when he noted that the purpose of security for costs is to afford defendants a reasonable measure of protection for their costs but also with regard to their potential impact on plaintiffs. He went on to state that Rule 56.01(1)(d) is clearly intended to place corporate plaintiffs in a more vulnerable position than plaintiffs who are individuals.[^7] In this case, I find it just to provide ES Fox with a reasonable measure of protection. Such protection has no known impact on Quebec Co.

D. What is the appropriate quantum of security for costs?

[29] ES Fox does not specify how much it seeks in security for costs. Instead, its affiant attests that the company has paid $103,461.53 in legal fees and disbursements including applicable taxes. I agree with Quebec Co that proportionality is a guiding principle when fixing the quantum for security for costs. A security for costs award should also consider the factors in r. 57.01 like the complexity of the case, the quantum at issue, the importance of the issues and the anticipated length of the hearing.[^8]

[30] The onus is on ES Fox to persuade me as to quantum and the relevance of any of the factors. ES Fox has not tendered any evidence on these factors, nor has it provided a break down of what work was done to give rise to a legal bill thus far of $103, 461.53. Instead it has provided me with a client ledger that it expects me to comb through to decipher what work was done in defending the main action as opposed to prosecuting the counterclaim and cross-claim. Or, it invites me to guess. Neither is particularly attractive. Second, ES Fox has spent a staggering amount relative to the quantum of the claim. That choice should not be borne by Quebec Co.

[31] My only guidance on quantum is Quebec Co's suggestion in its factum that $30,000 is a reasonable amount to post to the end of trial. Based on the record before me, I so order.

Housekeeping:

[32] Quebec Co has passed its trial record. If this was done with consent from ES Fox, ES Fox requires leave to bring this motion (Rule 48.04). The parties did not make this an issue in the motion. For completeness however, I grant ES Fox leave to bring the motion.

Disposition:

[33] For the foregoing reasons, I allow ES Fox's motion and order as follows:

a. I grant leave to ES Fox to bring its motion pursuant to Rule 48.04 of the Rules of Civil Procedure; and

b. I order 9357-1578 Quebec Inc. to pay $30,000 into court as security for costs up to the end of trial.

[34] As per the Covid19 protocol, this order is effective as of today's date and need not be formally issued and entered until normal court operations resume. If ES Fox would like a signed order, it may send a draft to Christine.Meditskos@ontario.ca.

Costs:

[35] The Superior Court of Justice is currently closed due to the COVID19 pandemic and only urgent matters are being heard. I have the parties' costs outlines but require the offers to settle to make a final determination. I strongly urge the parties to agree on costs of the motion. If they cannot, I adjourn the issue of costs to me in writing. I will advise the parties of timing and delivery method once those processes are firmly in place.

Original signed

Master Sugunasiri

Date: May 7, 2020

[^1]: Rule 56.01(1)(d), Rules of Civil Procedure; 2311888 Ontario Inc. v Ross, 2017 ONSC 1295 at para 17. [^2]: Novak v St. Demetrius (Ukrainian Catholic Development Corporation, 2018 ONCA 219, Yaiguaje v Chevron Corporation, 2017 ONCA 827; Canadian Metal Buildings Inc. v 1467344 Ontario Limited, 2019 ONSC 566 at paras. 9-12. [^3]: See for example Parent v Campbell, 2014 ONSC 879 at para. 42. [^4]: 671122 Ontario Ltd. v Canadian Tire Corp., 1993 CarswellOnt 466 at para. 9 (CA). [^5]: Ibid. at para. 10. [^6]: Livent Inc. (Receiver of) v Deloitte & Touche, 2011 ONSC 648 at para. 80. [^7]: Canadian Tire Corp., supra note 4 at para.8. [^8]: Morton v Canada, 2005 CanLII 6052 (ON SC), [2005] OJ No 948 at para 42 (SCJ) and The Arc Group v Vitale, 2003 CarswellOnt 840 at para 3 (SCJ).