COURT FILE NO.: CV-12-80581-0000
DATE: 20200225
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Prasher Steel Ltd., Plaintiff(s)
AND:
Gateman-Milloy Inc., Defendant(s)
BEFORE: C.M. Smith J
COUNSEL: Angela Assuras, Counsel for the Plaintiff
Ciara Pittam, Counsel for the Defendant
HEARD: February 6, 2020
ENDORSEMENT
[1] This is a motion for an order for security for costs pursuant to the provisions of Rule 56 of the Rules of Civil Procedure. The defendant, Gateman-Milloy Inc. is the moving party. The defendant first seeks leave under section 67(2) of the Construction Lien Act, RSO 1990 c. C.30, (“the Act”), to take the interlocutory step of bringing this motion. The defendant then seeks an order for security for costs in the amount of $87,500.00.
[2] The plaintiff, Prasher Steel Ltd., concedes the leave issue based on the order Salmers J made in this matter in 2013. The plaintiff opposes the motion for security for costs claiming the plaintiff is impecunious, that there is merit to the plaintiff’s claim, and that a security for costs order would effectively preclude the plaintiff from pursuing its remedy.
Background
[3] This matter arose in 2012 when the plaintiff, at the time a subcontractor on a construction project, registered a lien on the property as a result of non-payment of its invoices to the contractor the defendant. Pleadings were exchanged, including a counterclaim advanced by the defendant. The trial record was filed in 2013. The defendant filed a bond in order to have the lien lifted from title to the subject property. Thereafter the matter languished for some years. Each party changed counsel. The matter appears to have been put back on the rails in 2018. Examinations for discovery were held in 2019. A judicial pre-trial conference was held before Sutherland J in November 2019. The parties anticipate the trial of this action will take place during the spring sittings of 2020.
Preliminary matters
[4] At the outset of the hearing of this motion, the defendant made an objection to the admission of the affidavit of Richard Ngu, sworn February 5, 2020, on the basis of short service, the document having been served on the defendant by the plaintiff on the evening of February 5, 2020. The plaintiff submitted that the material in the affidavit in question was in response to certain allegations made by the defendant in its factum and related materials dated January 30, 2020. Given the very tight timelines herein, I allowed the plaintiff to file those portions of the affidavit that were responding to those particular allegations. Admission of the affidavit was made, subject to redaction of paragraph six and exhibit C thereof, both of which contained material that was not properly categorized as responding to the earlier materials.
Rule 56.01 - Security for Costs
[5] Rule 56.01(1) reads as follows;
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,
(a) the plaintiff or applicant is ordinarily resident outside Ontario;
(b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;
(c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part;
(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;
(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or
(f) a statute entitles the defendant or respondent to security for costs. R.R.O. 1990, Reg. 194, r. 56.01 (1).
(2) Subrule (1) applies with necessary modifications to a party to a garnishment, interpleader or other issue who is an active claimant and would, if a plaintiff, be liable to give security for costs. R.R.O. 1990, Reg. 194, r. 56.01 (2).
[6] The defendant has established a prima facie case under Rule 56.01(1)(d) that the plaintiff corporation is without assets of any kind and would therefore be unable to satisfy a costs order in the event the defendant is successful at trial. The only assets of the company are three other causes of action all arising from construction lien claims. The company has effectively ceased operations. It has not filed an income tax return since 2015. The only two officers of the company are Manoj and Indra Prasher, who are also the companies only shareholders. Mr. Manoj Prasher has found regular employment which generates an annual salary of $75,000 USD. Mrs. Indra Prasher’s only income is in the form of OAS/CPP benefits. Mr. and Mrs. Prasher are also joint owners of a home just north of Toronto, with approximately $1 million in equity. They also own some RRSPs of unknown value. The Prasher’s application to their bank to access the equity in their home by increasing the mortgage was denied. The fact that there are substantial property tax arrears associated with the property may have been a factor in the bank’s decision. A second corporate entity owned by the Prashers ceased operations in May 2018 due to lack of cash flow. That company’s only assets also consist of outstanding causes of action against general contractors to recover payment for work done, none of which have yet born fruit.
[7] Given that the defendant has established a prima facie case under Rule 56.01(d), the onus now shifts to the plaintiff to establish that an order for security for costs would be unjust. In the case of Focal Elements v. TVM, 2018 ONSC 4273, this court held that a plaintiff in such circumstances can meet the onus by demonstrating one of the following:
- The plaintiff has sufficient assets to satisfy any potential order of costs and litigation, or
- The plaintiff is impecunious, but it is in the interests of justice that the plaintiff be permitted to continue the action, or
- The plaintiff fails to establish that it is impecunious but establishes it does not have sufficient assets to meet a costs order whereupon the plaintiff must meet a high threshold in order to satisfy the court of its chances of success in the litigation.
[8] It is the plaintiff’s position that it is impecunious. The plaintiff recognizes that its two shareholders have significant equity in their house, however the plaintiff argues the shareholders have expended good faith efforts to access that equity without success. The plaintiff further argues that it would be inappropriate to compel the plaintiffs to sell their property in these circumstances. In support of that position, the plaintiff has supplied the case of Das v. Coles, (1989) 1989 CanLII 4212 (ON SC), O.J. No. 2061, wherein the High Court of Justice considered a similar issue involving a property valued at approximately $10,000 which was located in Calcutta, India. In that case, the court held that a plaintiff with an otherwise meritorious case was not required to sell or encumber assets which could be described as necessary for life. I do not find that case particularly persuasive in the circumstances of this case, given the amount of equity in the home in question. That said, the plaintiff submits that there is no case law extant requiring a plaintiff in such circumstances to sell their home or access secondary lenders in order to raise security for costs. I have not been supplied with case law supporting or countering that position by either party.
[9] The plaintiff has filed extensive affidavit material setting out the details of the financial situation of Mr. and Mrs. Prasher, including details of their monthly income and expenses, their tax returns and notices of assessment for 2016 through 2018, their property tax bill and the documents associated with their application to their bank for increased credit. The fact that Mr. and Mrs. Prasher have approximately $1 million equity in their home precludes a finding of impecuniosity on their part. However, I am prepared to find that Mr. and Mrs. Prasher, and through them the plaintiff itself, are what might best be described as asset rich and cash poor. They are unable to access and utilize the equity in their only significant asset and as such are suffering financial hardship, which in turn would prevent them from assisting the plaintiff to satisfy a security for costs order. In my view, the plaintiff’s financial situation fits within the parameters of item 3 of the test in the Focal Elements case.
[10] The plaintiff submits that it is in the interests of justice that it be permitted to pursue its claim against the defendant as it is meritorious. The claim arises as a result of alleged non- payment by the defendant of invoices supplied by the plaintiff pursuant to a contract between the parties for the supply and installation of structural steel and steel joist framing for buildings in Durham Region. The contract was for $690,000 plus HST. The documentary evidence filed by the plaintiff suggests that at the time the relationship between the parties ultimately broke down completely the plaintiff had completed 100 per cent of the supply and installation of the joist framing work and 97 per cent of the supply and installation of the structural steel. That work had been certified as complete by the supervising architect on the project. Some of the plaintiff’s invoices had actually been approved by the defendant but for unknown reasons the defendant placed a hold on payment. It would also appear that the defendant received payment from the owner for the plaintiff’s work on the job as certified by the architect, but to date has not released those funds to the plaintiff. This is presumably because the defendant has decided to counterclaim against the plaintiff for alleged deficiencies in the plaintiff’s work on the project, and the defendant claims a right to set off its alleged damages for the deficiencies against any amounts otherwise owing to the plaintiff.
[11] In order to fully understand and appreciate the merits of the plaintiff’s claim, I have reviewed the pleadings in this matter, as well as the claims set out therein. I have also reviewed the evidence filed in support of this motion by both parties. I have also reviewed the Reasons for Decision of this court in the Focal Elements case and in the case of Uribe v. Sanchez, [2006] OJ No. 2370 wherein Master Dash observed as follows at paragraph 6:
Even if he is not impecunious the plaintiff may establish that an order for security would create such financial hardship that it would impose a substantial impediment to pursuing the action and prevent a meritorious claim from proceeding. In that case the plaintiff must establish that he has a “good chance of success” or a “real possibility of success.” An analysis of the merits includes a review of the pleadings and any affidavit filed. Although merits must be considered in this situation, the court should not embark upon such extensive analysis as would be required on a summary judgment motion. Although merits are a consideration on any motion under rule 56.01(1) they are on a continuum with rule 56.01(1)(a) at the low-end and 56.01(1)(e) on the high-end.
[12] In the light of those authorities and having considered the materials filed regarding the law governing the plaintiff’s claim, as well as the claim’s factual underpinnings, I am of the view that the plaintiff’s claim against the defendant has a “real possibility of success”. The plaintiff has met its onus and has established financial hardship. The plaintiff has also sworn that as a result of that financial hardship a security for costs order would effectively put an end to its ability to conduct this litigation. In my opinion, to preclude the plaintiff from pursuing what appears to be a meritorious claim by imposing a security for costs order would be an injustice.
[13] I do not wish to leave this matter without first commenting on the delay issue raised by the plaintiff. The defendant submits that it did not become aware of the plaintiff’s financial status until Mr. Prasher was cross-examined on his affidavit October 11, 2019. The plaintiff alleges that the defendant had the means available to access information regarding the question of whether to bring a motion for security for costs at a much earlier date. I am satisfied that if the defendant had in fact learned of the plaintiff’s financial situation at an earlier date, then this issue would have been raised much earlier. In hindsight, that would most certainly have saved both parties a great deal of time and trouble. Be that as it may, there is no evidence before this court to support a conclusion that the defendant was dilatory in pursuing this matter.
Conclusion
[14] The defendant has established that the plaintiff corporation is without assets of any kind and is virtually defunct. The plaintiff corporation has shown that it engaged in an appropriate and thorough consideration of the financial situation of its two shareholders/officers and has established that they are suffering from financial hardship and are unable to provide financial assistance to the plaintiff. The plaintiff has also established that its claim against the defendant under the Construction Lien Act has merit. The fact that the defendant posted a bond to secure the lien in order that it might be lifted from title to the owner’s property would appear to be normal, expected commercial practice. It provides support for the conclusion that the defendant was paid by the owner for the amounts claimed by the plaintiff and has decided to retain those amounts in contemplation of its counterclaim. In the circumstances, I find that an order for security for costs is neither appropriate or necessary. The defendant’s motion is dismissed.
Costs
[15] If the parties cannot agree on the costs issue themselves, then I invite them each to make written submissions, no more than two pages double spaced, with the plaintiff to serve and file their submissions on or before two weeks from this date and the defendant to serve and file their submissions on or before two weeks after that date.
C. M Smith, J
Date: February 25, 2020
COURT FILE NO.: CV-12-80581-0000
DATE: 20200225
ONTARIO
SUPERIOR COURT OF JUSTICE
(Action commenced at Oshawa)
BETWEEN:
PRASHER STEEL LTD.
Plaintiff
– and –
GATEMAN-MILLOY INC.
Defendants
ENDORSEMENT
C.M. Smith, J.
Released: February 25, 2020