COURT FILE NO.: 17-74969R

DATE: 2020 03 31

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Bolton Mechanical Inc.

Plaintiff,

Defendant by Counterclaim

-and-

EBC Inc.

Defendant,

Plaintiff by Counterclaim

BEFORE: Master Fortier

COUNSEL: Geoffrey Cullwick, for EBC Inc., moving party

Ian McBride, for Bolton Mechanical Inc., responding party

HEARD: November 5, 2019

REASONS FOR DECISION

1- This is a motion by the defendant EBC Inc. (“EBC”) for an order requiring the plaintiff Bolton Mechanical Inc. (“Bolton”) to post security for costs of this action. EBC also seeks leave to bring this motion under section 67 (2) of the Construction Lien Act RSO 1990 c. 30. (“CLA”). Bolton opposes both motions.

BACKGROUND

2- This action arises from a construction project known as the Ottawa Art Gallery and Arts Court Redevelopment project in Ottawa, Ontario (“the Project”).

3- EBC, the general contractor, and Bolton, a subcontractor, are parties to a contract under which Bolton provided mechanical and ventilation work for the Project.

4- In November 2017 Bolton purportedly terminated its subcontract with EBC as a result of various disputes between the parties. Bolton then registered a Construction Lien in the amount of $1,295,005.54 on title to various properties in Ottawa on November 16, 2017 and issued a Statement of Claim against EBC on December 20, 2017 seeking the same amount (the “Lien” action).

5- EBC vacated Bolton’s Construction Lien on December 13, 2017 by posting security in the form of a Financial Guarantee Bond in the amount of $1,345,005.54. This amount included $1,295,005.54 for the amount sought by Bolton and another $50,000.00 for security for Bolton’s costs.

6- Bolton commenced a separate action against EBC and The Guarantee Company of North America on July 25, 2018 (the “Bond” action) under a Labour and Material Payment Bond (the “Bond” action).

7- EBC defended the Lien action and issued a counterclaim against Bolton in the sum of $500,000.00 which was defended by Bolton.

8- On March 22, 2019, S&S Bolton Electric Inc., a company purportedly related to Bolton, issued a plaintiff’s claim in the Ontario Small Claims Court against EBC. EBC asserts that much of this claim appears to be a duplication of claims advanced by Bolton in the Lien action.

9- EBC brings this motion for security for costs arguing that Bolton has two or more proceedings against EBC for the same relief and there is reason to believe that Bolton will not have sufficient assets in Ontario to pay EBC’s costs should EBC be successful.

ISSUES

a) Should leave be granted to EBC to bring this motion for security for costs pursuant to section 67(2) of the Construction Lien Act RSO 1990 c C30 (the “CLA”)?

b) If leave is granted, should Bolton be ordered to post security for costs under Rule 56 of the Rules of Civil Procedure (the “Rules”)?

c) If leave is granted and security is ordered, what is the appropriate quantum of the security to be ordered?

DISPOSITION

10- For the reasons that follow, EBC’s motions are granted.

ANALYSIS

A – Should EBC be granted leave under the [CLA](https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html) to bring this motion?

11- As noted previously, EBC relies on two grounds for its motion for security for costs under Rule 56:

a) Bolton has two or more proceedings against EBC for the same relief. This is a ground for security for costs under Rule 56.01(1)(b) and

b) Bolton is a corporation and there is “good reason to believe” that Bolton has insufficient assets in Ontario to pay EBC’s costs. This is a ground for security for costs under Rule 56.01(1)(d).

12- Motions by defendants for security for costs are not provided for in the CLA, and therefore, s.67(2) of the CLA requires the moving party to first obtain the court’s leave to bring the motion. Section 67 (2) of the CLA states that:

(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.

13- Leave, pursuant to s. 67(2) can only be given on proof that the motion is “necessary” or “would expedite the resolution of the issues in dispute”. EBC seeks leave arguing that the motion is “necessary” within s. 67(2).

14- In deciding whether an interlocutory step is “necessary” within s. 67(2) of the CLA, the court must ensure procedural fairness and justice to both parties.[^1]

15- The evidentiary threshold for establishing what is “necessary” for the purposes of s. 67(2) for motions for security for costs is similar to the threshold for establishing whether “there is good reason to believe” that the plaintiff does not have sufficient assets in Ontario to pay the defendant’s costs or the plaintiff has another proceeding for the same relief pending in Ontario. The threshold is lower, however, if the defendant has posted security for the lien and costs.[^2] In that situation, in determining whether there has been procedural fairness to both parties, the court ought to consider whether there is a “level playing field” between the parties where the lien has been “bonded off” by the defendant by posting security for the lien and costs.[^3] As held by Master Macleod (as he then was) in 1652472 Ontario Inc. v. Black and McDonald Ltd., at para 8:[^4]

…Several decisions of this court have held that a motion for security for costs is appropriate in a lien proceeding particularly given the scheme under the Act which requires the defendant to post security for both the lien and for costs in order to vacate the lien from the owner's land. While this does not mean that leave will automatically be granted in every instance, a motion for security for costs may generally be justified as a necessary step to doing justice between the parties and because it may shorten the proceeding by ensuring the plaintiff cannot proceed with risk free litigation.”

15- Where “there is good reason to believe” that the plaintiff does not have sufficient assets in Ontario to pay the defendant’s costs and/ or the plaintiff has another proceeding for the same relief pending in Ontario, there is a “necessity” for the motion under s. 67(2) of the CLA and leave should follow. In that event, the onus shifts to the plaintiff to show that ordering security for costs would be unjust.

16- In my view, a motion for security for costs is “necessary” within the meaning s. 67(2) of the CLA because:

a) it is justified to achieve procedural fairness; and

b) EBC has satisfied the threshold in establishing that Bolton is a corporation and there is “good reason to believe” that Bolton has insufficient assets in Ontario to pay EBC’s costs (rule 56.01(1)(d)).

17- As held in Black and McDonald, a motion for security for costs may be appropriate in a lien proceeding particularly where the defendant has posted security for the lien and for costs in order to vacate the lien and “may be justified as a necessary step to doing justice between the parties.” In this proceeding, EBC has posted security for the lien and Bolton’s costs, and in my view, a motion for security for costs is justified as a necessary step to achieve procedural fairness and justice to both parties and to ensure a level playing field.

18- The test under Rule 56.01(1)(d) as to whether there is “good reason to believe” that a corporation has insufficient assets in Ontario to pay costs has been set out in City Commercial Realty (Canada) Ltd v. Bakich,[^5] As held by Lang JA:

7 Under rule 56.01(1)(d), the moving party is not required to establish that a corporation has insufficient assets to pay costs, but only to establish that there is good reason to believe that the corporation has insufficient assets to pay the costs. As Philp J. noted in 737071 Ontario Inc. v. Min-A-Mart Ltd., [1996] O.J. No. 1173 (Ont. Gen. Div.) at para. 5: "This lighter onus is based on the belief that it would be unfair to insist that the defendant prove something that is within the knowledge of the plaintiff."

8 Even though the onus is a reduced one, the moving party must still provide enough information about the corporation to raise a belief of insufficiency that goes beyond mere conjecture, hunch, or speculation.

19- EBC relies on the following evidence to show that it satisfied the threshold in establishing that there is “good reason to believe” that Bolton has insufficient assets in Ontario to pay EBC’s costs:

(1) The admission by Bolton’s representative, Mr. Phil Harris Jr., made during his December 12, 2018, Examination for Discovery indicating that Bolton would not be doing any more mechanical work. The relevant passages of the transcript are as follows:

Q: How did you leave Bolton Mechanical?

A: I did not want to do the General Manager role any longer. I was given some time to find somebody to assume that role, and at that point it was told to me that there wasn’t anybody to assume that, that Bolton would not be doing any more mechanical work, and that’s when I moved on.[^6]

(2) The removal of any and all references to Bolton on S&S Bolton Group’s website as of August 15, 2019. S&S Bolton Group is allegedly Bolton’s parent and/or related company. Bolton had been listed on the website on March 9, 2019.

(3) A title search showing that Bolton does not own real property in the Ottawa-Carleton area.

(4) Bolton’s inability and/or refusal to provide any evidence that Bolton owned any assets, including real property or other property when advised of EBC’s intention to bring a motion for security for costs.

20- I give little weight to the title search, as it is undated and is limited to the Ottawa-Carleton Land Registry Office. There is no evidence that a province wide property search has been conducted. The fact that Bolton does not own real property in the Ottawa area is not necessarily an indication of insolvency but could be the result of its business model; it is not unusual for companies to lease their premises.[^7]

21- I decline to draw a negative inference at this juncture with respect to Bolton’s refusal to provide evidence of its assets. It is the moving party’s initial onus for leave and under rule 56.01(1)(d) to show there is “good reason to believe” that a corporation has insufficient assets in Ontario.[^8]

22- More compelling in my view, is the combined evidence of the testimony of Mr. Harris and the website for S & S Bolton Group, removing all references to Bolton Mechanical Inc.

23- Although Mr. Harris did not say in so many words that “Bolton is no longer operating”, he did say that Bolton Mechanical would no longer be doing any more mechanical work. I find an admission on the record that a company in the business of performing mechanical work will no longer be operating as such to be persuasive. I draw an inference from that admission, along with the website for S & S Bolton Group, removing all references to Bolton Mechanical Inc. that Bolton may either no longer be operating or doing so through another company. In my view, this evidence provides enough information about Bolton to raise a belief of insufficiency and “goes beyond mere conjecture, hunch, or speculation” and is in keeping with the lighter onus that it would be unfair to insist that EBC prove something that is within Bolton’s knowledge.[^9]

24- In my view, EBC has not established that Bolton has another proceeding against EBC for the same relief pending in Ontario (Rule 56.01(b)). In particular:

a) The Small Claims Action: Bolton Mechanical is not a party to the Small Claims Action. Although the claim is related to the Project, the action has been brought by S&S Bolton Electric and there is no evidence before me that S&S Electric is the same legal entity as Bolton Mechanical.

b) The Bond action. The Bond action is brought against EBC Inc. and The Guarantee Company of North America as defendants and is a claim under a Labour and Material Payment Bond under which EBC is the obligee. The separate Bond action is not duplicative of the Lien Action, but rather is necessary because of the provisions of the CLA. In particular, s. 55(1) of the CLA provides that a plaintiff is entitled to join a lien claim with a claim for breach of contract, but the CLA does not permit the joining of a bond claim or a trust claim to a lien claim (s. 50 (2) CLA). In my opinion, the purpose of Rule 56.01(b) is to prevent an abuse of process and not to limit separate actions that must be brought as a by-product of legislation.

25- For the reasons outlined above, I find that EBC has satisfied the initial onus of showing that there is “good reason to believe” that Bolton has insufficient assets in Ontario to pay EBC’s costs and grant EBC leave to bring the motion.

B - Should Bolton be ordered to post security for costs under Rule 56 and if so in what amount?

26- Rule 56.01(1) provides that the court:

”...may make such order for security for costs as is just where it appears that ...

(d) 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 ...”

27- Once the defendant has shown good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant, it is then, prima facie entitled to an order for security for costs. The onus then shifts to the plaintiff to show either that it has sufficient assets available to respond to any costs order, to demonstrate impecuniosity or to ask the court to make such order as is just in the circumstances.[^10]

28- Bolton does not take the position that it is impecunious. Rather, it contends that it has sufficient assets to pay EBC’s costs.

29- An order for security for costs is discretionary. In exercising that discretion, the court can take into account several factors to make an order that is just in all the circumstances.[^11] The factors applicable to this motion include:

a. Whether Bolton has sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy an order of costs;

b. EBC’s posting of security for Bolton’s claim;

c. EBC’s Counterclaim; and

d. Whether EBC has delayed bringing this motion

Sufficient Assets

30- The only evidence provided by Bolton on this motion was an affidavit sworn by Ms. Wendy Heney, a law clerk with MBC Law Professional Corporation, Bolton’s counsel’s law firm. Several documents were attached to Ms. Heney’s affidavit, including pleadings in the action, correspondence sent by Bolton and its legal counsel and Bolton’s corporate profile. There is no mention of Bolton’s assets in Ms. Heney’s affidavit.

31- Bolton states that it has an asset in its holdback entitlement of $184,260.20, and unpaid invoices of $67,024.00 being held by EBC. EBC denies owing these monies to the plaintiff and denies that Bolton is entitled to any compensation. In my view, the argument with respect to the holdback and unpaid invoices does not provide any assistance to the court in determining whether Bolton has sufficient assets to satisfy a costs order. Accordingly, I conclude that Bolton has not met its onus to show that it has sufficient assets in Ontario to pay for EBC’s costs.

32- Since Bolton has not met its onus concerning the sufficiency of its assets, it must satisfy the court that its claim has a good chance of success on the merits.[^12] The applicable principles, are set out in 2179548 Ontario Inc. v 2467925 Ontario Inc.,[^13] as follows:

(v) Merits have a role in any application under Rule 56.01, but in a continuum with Rule 56.01(1)(a) at the low end.

(vi) The court on a security for costs motion is not required to embark on an analysis such as in a motion for summary judgment. The analysis is primarily on the pleadings with recourse to evidence filed on the motion, and in appropriate cases, to selective references to excerpts of the examination for discovery where it is available.

(vii) If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of the merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious.

33- In my opinion, Bolton cannot establish on this motion that its action has a “good chance of success” for the following reasons:

a) I am not able to accurately assess the merits of the action based on the materials filed on this motion, being the pleadings, the affidavit evidence and transcripts from the cross-examinations of the affiants.

b) Bolton’s evidence going to the merits of the action was sworn by Bolton’s counsel’s law clerk, Ms. Heney. In paragraphs 6, 7, 9 and 16 of the affidavit, she makes statements that refer to material issues that are in dispute between the parties. Notwithstanding Ms. Heney’s acknowledgment that she reviewed the file and spoke to Yves Frechette the CFO of Bolton, in my view, the material statements in those paragraphs are unreliable hearsay and I give them little weight, if any. The information provided does not come from an appropriate affiant and I draw a negative inference with respect to its credibility. As stated by Master MacLeod (as he then was) in Mapletoft v. Service[^14]:

Generally speaking the decision concerning who should swear an affidavit is a legitimate tactical decision because the deponent may be subject to cross examination. I pause to observe however that both the right of cross examination and the choice of a deponent are open to abuse. It would be improper to have an affidavit sworn second hand just to protect the person with important knowledge from cross examination on a contentious issue. ….By virtue of Rule 39.01 (4) evidence based on information or belief is admissible on a motion but that does not mean it will be given undue weight nor that adverse inferences may not be made. On contentious matters the best evidence from the person with most direct knowledge will be the strongest and most persuasive evidence.

c) It is clear from a reading of the pleadings, that Bolton and EBC have very different positions on a number of issues in the proceeding, which will involve questions of credibility. Assessing the merits of an action at an interlocutory stage of a proceeding is generally not appropriate in cases where there are credibility issues.

Posting of Security by EBC

34- I find, based on the record before me, that the posting of security for the lien and for Bolton’s costs, is a factor to be considered in favour of an order for security for costs to achieve procedural fairness and justice to both parties.[^15]

Counterclaim

35- EBC is counterclaiming against Bolton for damages in the sum of $500,000.00 for breach of contract and negligence.

36- In Black & McDonald Master MacLeod summarizes the jurisprudence surrounding counterclaims in motions for security for costs as follows:

17 It has never been the case that a defendant who counterclaims is disentitled from seeking security for costs against the plaintiff. Rather it is the law that when a counterclaim is the defence this is not a basis for using the security for costs rule to seek security against the defendant (as plaintiff by counterclaim.)

18 Where a counterclaim is separate from the defence the situation is different and of course in that situation if the court is granting security for costs to the defendant it must be cautious not to also grant the defendant (as plaintiff by counterclaim) security for costs of the separate counterclaim.

37- Bolton argues that, given the magnitude of EBC’s counterclaim, EBC should be precluded from seeking an order for security for costs. The “burden of the action” should fall on the defendant for its counterclaim. Bolton submits that the Court should exercise caution in awarding security for costs against a defendant by counterclaim so as not to give the plaintiff by counterclaim an inappropriate advantage.

38- EBC argues that its counterclaim is separate from its defence and should not prevent Bolton from being required to post security for costs. EBC maintains that it is not seeking security for its costs arising from the counterclaim, only those arising from defending Bolton’s Statement of Claim.

39- In my view, the existence of the defendant’s counterclaim does not preclude the court from making an order for security for costs. Based on the record before me, EBC’s counterclaim is separate from its defence. The existence of the counterclaim may however factor in the quantum of security for costs.

Delay

40- Bolton argues that EBC delayed bringing this motion. EBC discovered what it considered to be a reasonable basis to bring the motion in December 2018, during the examination for discovery of Mr. Harris. In addition, EBC was contemplating bringing the motion as early as June 7, 2019.

41- According to Bolton, it was prejudiced by the delay because EBC would not give its position on answers to undertakings and Bolton could not advance the litigation. Bolton argues the prejudice caused by the delay is fatal to the motion for security for costs.

42- EBC admits that it advised Bolton of its intention to bring the motion for security for costs in June 2019 and subsequently, filed its motion record on August 27, 2019.

43- In my view, the time between June 2019 and August 2019 does not amount to a significant delay. Moreover, the proceeding is still at an early stage. Discoveries have not yet been completed. Even had there been a delay, I do not find that Bolton has been prejudiced. Accordingly, there is no basis for dismissing the motion on this ground.

44- For the foregoing reasons, I conclude that an order that Bolton post security for costs is appropriate. I must now consider the quantum of that security.

C- Quantum

45- EBC submits that Bolton should post the amount of $121,747.22 as security for costs pursuant to the estimated Bill of Costs filed. According the EBC’s evidence, its costs incurred to date in this proceeding total approximately $17,408.21, although there is no indication whether that amount differentiates between Bolton’s claim and EBC’s counterclaim.

46- Bolton argues that if an Order for security for costs is granted, the Order should be made on a pay as you go basis and the quantum should be reduced because of:

a. The procedural infancy of this Action;

b. EBC’s failure to differentiate between the costs of the Lien Action claim, Lien Action counterclaim, Bond Action, and Small Claims Court Action; and,

c. EBC’s counterclaim adds a significant element of cost through additional issues to be adjudicated.

47- Rule 56.04 provides the court with a wide and flexible discretion as to the amount and form of security as well as the time for payment into court.

48- I am not prepared to order the quantum sought by EBC. In my view, procedural fairness in the circumstance of this proceeding would require that an order for security for costs be proportionate to the security posted by the Defendant when it elected to have the lien on the project properties vacated. Moreover, I must ensure that the financial risk to the defendant of being unable to make full recovery of a potential costs award is balanced against the prejudice to the plaintiff if the order is too onerous.[^16]

49- Given the factors outlined above, in my view, Bolton should be required to post security for EBC’s costs in the proceeding which I fix in the amount of $50,000.00.

50- The courts have held that when an action is in its early stages, an installment order for security for costs is often the most appropriate.[^17] As this proceeding is in its early stages, in my view such an order would be appropriate.

CONCLUSION

51- For the foregoing reasons, I order that Bolton must pay into court security for EBC’s costs in this action in the amount of $50,000.00, in the following installments:

a) $18,000.00 shall be posted within 60 days of the release of this Order;

b) $12,000.00 shall be posted within 45 days following the completion of mediation;

c) $20,000 shall be posted within 45 days prior to the date fixed for the commencement of trial.

52- The security may be in cash, in the form of a bond or letter of credit or other acceptable security.

53- As EBC has been successful on this motion, it is entitled to costs. I have reviewed the cost outlines of both parties and conclude that it is fair and reasonable for the plaintiff to pay the defendant’s costs of this motion fixed in the amount of $4,440.00 inclusive of HST and disbursements, payable within 30 days of the release of this decision.

Master Marie Fortier

DATE: March 31, 2020

[^1]: Umiac-United Management Corp. v Metrolinx 2015 ONSC 2372 at para 16; Biotechnik Incorporated v O’Shanter Development Company Ltd. [2003] OJ 1633 at paras 28 & 29.

[^2]: Norseman Construction & Development Ltd. v Evdemon 2013 CarswellOnt 19065, 50 CLR (4th) 165 at paras 11,13.

[^3]: Biotechnik at para 52.

[^4]: 2015 ONSC 4560.

[^5]: [2005] O.J. No.6443 (Ont.C.A).

[^6]: Transcript of Examination for Discovery of Philip Harris questions 31- 33 pages 12-13, questions 31-33

[^7]: Norseman para 23; Unimac para 24.

[^8]: Norseman para 28.

[^9]: City Commercial Realty at paras 7 & 8.

[^10]: 737071 Ontario Inc. v Min-A-Mart Ltd. 1996 CarswellOnt 1252, (1996) 47 CPC (3d) 68 at para. 6.

[^11]: Chachula v. Baillie, 2004 CanLII 27934 (ON SC), (2004), 69 O.R. (3d) 175 (S.C.J.) at para. 12; 2179548 Ontario Inc. v 2467925 Ontario Inc. 2017 ONSC 469 at para 9.

[^12]: 2311888 Ontario Inc. v Ross 2017 ONSC 1295 at para.17.

[^13]: 2017 ONSC 459 at para 8.

[^14]: 2008 CarswellOnt 897 at para 11.

[^15]: Black and McDonald at para 8.

[^16]: Black and McDonald at para 26.

[^17]: 2179548 Ontario Inc. at para 8 (xiii); Morton v. Canada (Attorney General) 2005 CarswellOnt 939 at para 42.