COURT FILE NO.: CV-18-600077
DATE: 2021 03 29
SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE MATTER OF the Construction Act, RSO 1990, c. C.30, as amended
RE: EAGLE CONSTRUCTION SERVICES, INC., Plaintiff
- and -
ROYAL ONE 2225 MARKHAM ROAD MED CENTRE LTD. and MORRISON FINANCIAL MORTGAGE CORPORATION, Defendants
BEFORE: Master Todd Robinson
COUNSEL: F. Soccol, for the defendant, Royal One 2225 Markham Road Med Centre Ltd. (moving party)
C. Kellowan and L. Finegold, for the plaintiff, Eagle Construction Services, Inc.
HEARD: December 15, 2020
REASONS FOR DECISION
[1] Royal One 2225 Markham Road Med Centre Ltd. (“Royal One”) moves for an order staying this lien action and the related lien action in Court File No. CV-18-610596, discharging the liens of Eagle Construction Services, Inc. (“Eagle”), and paying out the security previously posted by Royal One to vacate both liens. Royal One argues that Eagle’s actions should be stayed since neither of Eagle’s principal, Kevin Reptke, nor its creditor, McCowan and Associates Ltd. (“McCowan”), have legal authority to direct Eagle’s conduct of the lien litigation. In the alternative, if Royal One’s primary relief is not granted, it seeks an order for security for costs pursuant to Rule 56 of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”).
[2] Until the hearing, Eagle opposed leave for Royal One’s motion and all relief sought by Royal One. Before argument commenced, the parties were able to resolve the security for costs portion of the motion, subject to the timing of posting the agreed quantum of security. Argument proceeded only on the issues of leave, stay of the actions, discharge of the liens, return of security, and the timing of paying security for costs.
[3] Following argument of the motion, on January 28, 2021, a hearing for directions was convened at which Eagle sought to reopen the motion on the basis of a material change in circumstances, namely McCowan having commenced an application for bankruptcy against Eagle. Royal One opposed, and a motion to reopen was scheduled to be heard on February 17, 2021. However, an order for Eagle’s bankruptcy was made on February 1, 2021. Following from a discussion at the scheduled hearing on February 17, 2021, all of Royal One, Eagle’s trustee in bankruptcy, and McCowan have confirmed their agreement that release of my reasons for decision is not captured by the automatic stay of proceedings pursuant to the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (the “BIA”).
[4] For the reasons that follow, I have determined that leave should be granted for Royal One to bring its motion, that neither Mr. Reptke nor McCowan have requisite legal authority to direct continuation of Eagle’s lien actions, and that a stay of both lien actions should be granted. In my view, though, it would be unjust to grant Royal One’s requested relief discharging Eagle’s liens and returning the security posted for the liens without first allowing an opportunity to address what amounts to a technical issue of statutory compliance.
[5] Since I am not granting discharge of the liens or release of lien security, Royal One’s alternative security for costs relief ought to be granted. I have determined that it is appropriate for security for costs in the agreed amount of $150,000 to be posted by Eagle prior to and as a precondition to lifting the ordered stay of proceedings. My orders have been modified to reflect the reality of Eagle’s post-motion bankruptcy.
Background
[6] The dispute between Eagle and Royal One arises out of the construction of a four storey, 34 unit medical and mixed-use building located at 2225 Markham Road, Scarborough. Although there appears to have been a prior contractor, Eagle was ultimately contracted by Royal One to perform the construction.
[7] It is undisputed that two CCDC 2 – 2008 stipulated price contracts were executed by the parties, signed by Ravi Thirun as president of Royal One and Kevin Reptke as president of Eagle. The first contract dated May 17, 2017 is stated to be for the construction of the building, with a contract price of $6,952,100, excluding HST, correlating to a project proposal appended to the contract. The second contract dated July 6, 2017 is stated to be for management of the construction of the building, with a contract price of $1,322,900, excluding HST, correlating to a further project proposal appended to that contract. The role of the two contracts and the extent of work actually performed by Eagle are in dispute.
[8] Royal One’s position is that the signed stipulated price contracts were solely to facilitate construction financing and that the parties actual agreement was for Eagle’s compensation to be based on actual costs of construction, argued to be consistent with the terms included in the project proposals. Mr. Thirun’s evidence is also that Eagle performed only “limited and relatively minor works” completed by the end of 2017 that did not advance the project much beyond the point when Eagle started work.
[9] It is also undisputed that five payment certificates were issued by McCallum Sather Architects Inc. (“McCallum”), the architect and payment certifier retained by Royal One. McCallum certified a total of $2,364,504.54 of work as being completed, which is the same amount invoiced by Eagle in its progress draws. A key source of dispute is Eagle’s reliance on the issued payment certificates. Subsequent to issuing the payment certificates, McCallum withdrew them with various challenges to Eagle’s billing. Following a legal demand letter from Eagle’s lawyers, McCallum then issued a revised payment certificate no. 5R, reducing the total value of certified work to $1,648,504.54. Through its counsel, Royal One objected to the revised payment certificate and requested that McCallum withdraw it, which McCallum did not do. Royal One disputes the validity of all payment certificates, including the revised certificate. A separate action has been commenced against McCallum alleging breaches of contract and over-certification, seeking both damages and contribution and indemnity for Eagle’s lien actions.
[10] Following a breakdown in the relationship between Royal One and Eagle, Eagle preserved two liens against the premises: a first lien for $2,2213.933.95 on May 11, 2018 and a second lien for $432.247.22 on November 30, 2018. The first lien is for unpaid contract amounts and the second lien is for extras.
[11] Mr. Reptke’s evidence is that Eagle ceased all active business operations during the summer of 2018. Eagle’s bank account was closed in August 2018 and its only assets are said to be a pickup truck and an excavator, both financed with sizeable outstanding loans, and the account receivable from Royal One being pursued in this litigation.
[12] In January 2019, on consent, both liens were vacated upon Royal One posting a lien bond into court in the reduced amount of $1,722,070.81, including security for costs.
[13] On January 14, 2019, a cross-examination on Eagle’s lien took place. Unsatisfied with the refusals and lack of documentation regarding Eagle’s work, Royal One adjourned the cross-examination and moved to compel answers to refusals and production of documents. Eagle brought a cross-motion to strike portions of Royal One’s statement of defence and counterclaim. Both motions were heard by Master Wiebe on July 31, 2019, who dismissed Eagle’s cross-motion and ordered Eagle to provide answers to 15 outstanding refusals and produce various documents that had been listed in Royal One’s notice of examination. Eagle was further ordered to pay costs of $10,500.
[14] On May 6, 2019, Kevin Reptke signed a promissory note in favour of McCowan on behalf of Eagle and in his personal capacity for the sum of $444,002.98 for the purpose of repaying certain invoices identified in the note. Mr. Reptke concurrently executed a general security agreement on behalf of Eagle in favour of McCowan (the “GSA”) and a share pledge agreement in his personal capacity, by which Mr. Reptke pledged his common shares in Eagle to McCowan (the “SPA”). Both the GSA and the SPA state that they were given as collateral security for the promissory note.
[15] On September 5, 2019, between the motions before Master Wiebe and this motion being brought, Kevin Reptke made an assignment into personal bankruptcy. Royal One also sold the property in September 2019 for $6,550,000. Construction work had been completed using another contractor or contractors.
[16] On September 11, 2019, following Mr. Reptke’s bankruptcy, updated versions of the GSA and SPA were executed. Mr. Reptke also signed an irrevocable direction re funds both on behalf of Eagle and in his personal capacity, directing Eagle’s lawyers to pay McCowan in priority to Eagle from any settlement, judgment or arbitral award in respect of Eagle’s two lien actions. The promissory note was subsequently amended on September 16, 2019 and again on January 13, 2020 regarding updated amounts of indebtedness. McCowan registered its security interest in Eagle pursuant to the Personal Property Security Act, RSO 1990, c P.10 on October 7, 2019.
[17] This motion was bought in late 2019 after expiry of the deadlines ordered by Master Wiebe for answers, document production, and payment of costs, at which point Eagle had failed to comply with Master Wiebe’s orders despite indications by its counsel that at least partial compliance was expected in mid-October 2019. Eagle ultimately complied with Master Wiebe’s order before responding materials were served. The motion first came before me on December 6, 2019, at which time I granted an adjournment for supplementary evidence and to allow for cross-examinations, including continuation of the adjourned cross-examination on Eagle’s claim for lien.
[18] Subsequent to that motion adjournment, Eagle served supplementary affidavit evidence and Royal One thereafter served its reply evidence. Eagle then sought to serve further supplementary materials and a dispute arose between the parties on further affidavit evidence and scheduling cross-examinations. A case conference was convened before me on February 5, 2020. I ultimately ordered a final round of evidence, a new deadline for cross-examinations, and fixed a new long motion date in June 2020.
[19] Cross-examinations on affidavits took place on March 6, 2020. During Kevin Reptke’s cross-examination, his evidence was that he was the sole shareholder of Eagle. He gave no evidence regarding the existence of the GSA or the SPA and questions regarding McCowan were refused. The continued cross-examination on Eagle’s lien was completed on March 13, 2020.
[20] As a result of the COVID-19 pandemic, the long motion date was adjourned sine die. Judgments of reference were obtained by Eagle in both lien actions, with orders for trial subsequently obtained. The references came before me for a first hearing for trial directions on July 15, 2020, at which time refusals and undertakings from the cross-examinations remained outstanding. A further hearing was fixed to allow the parties time to discuss refusals and determine if any interlocutory motions would be sought in advance of rescheduling the long motion hearing.
[21] Several further hearings occurred to address disputes and issues in respect of this long motion, including an interlocutory motion for leave for Eagle to bring a refusals motion and providing directions in light of McCowan’s intention to appoint a receiver to take control of Eagle.
[22] By letter dated October 15, 2020, Kevin Reptke’s trustee in bankruptcy confirmed the existence of the SPA. That letter was sent in response to a request by Royal One’s counsel for the trustee’s position on this motion, given Royal One’s view that Mr. Reptke’s shares in Eagle had vested in the trustee. The trustee also confirmed that, since the SPA pre-dated the personal bankruptcy, it was the trustee’s view that it did not have control of the shares. This appears to be the first notice to Royal One regarding the existence of the SPA, which was subsequently relied upon by Eagle in updated answers to refusals from Mr. Reptke’s cross-examination and in opposition to Royal One’s amended relief on this motion.
Preliminary Matters
Requested bifurcation of argument
[23] At the outset of the motion hearing, Eagle’s counsel requested bifurcation of the argument, with the legal authority issues argued separately from the balance of Royal One’s motion. Concern was expressed that the court’s determination could call into question the validity of instructions given to Eagle’s counsel and the firm’s continued authority to represent Eagle in the two lien actions.
[24] The firm’s authority to act is not at issue on this motion. At issue is whether either of Kevin Reptke or McCowan has legal authority to direct Eagle in the conduct of this litigation. Both Mr. Finegold and Ms. Kellowan confirmed that their firm satisfied itself regarding its authority to act. McCowan has its own counsel, who attended prior reference hearings before me. There is nothing before me to support that the firm is not properly retained or has not been properly instructed by individuals with ostensible authority. Royal One is not arguing that.
[25] I appreciate the concerns of Mr. Finegold and Ms. Kellowan regarding the potential impact of a determination that Eagle’s current “controlling mind” may not have actual legal authority to direct Eagle’s actions. However, in my view, the validity of their firm’s retainer and instructions is distinct from a determination on the actual legal authority of Mr. Reptke or McCowan to control or direct Eagle. Success by Royal One in its argument that Mr. Reptke and McCowan lack authority to direct Eagle in advancing the lien actions does not necessarily equate to a lack of authority for the firm to act. The latter would be an issue for separate argument, involving assessment of matters such as the circumstances of the firm’s retainer and actual and ostensible authority of the individual(s) retaining the firm.
[26] For these reasons, I declined the request to argue and decide Eagle’s ability to continue the actions before hearing argument and deciding the security for costs issue. The latter dispute was, in any event, resolved between the parties before any argument on the substantive motion.
Admissibility of affidavit
[27] Royal One opposed admission of an affidavit sworn by Ron McCowan, the principal of McCowan, and served on December 4, 2020. Rule 39.02(2) of the Rules prohibits a party from delivering further affidavit evidence for use at a hearing after that party has cross-examined on an affidavit delivered by an adverse party, absent consent or leave of the court. After hearing the submissions of the parties, I granted leave for Eagle to deliver and rely upon Mr. McCowan’s affidavit for reasons to follow. Before turning to the substantive motion, I provide those reasons.
[28] Relevant factors in deciding whether to grant leave to admit further affidavit evidence after cross-examinations were discussed by Goodman J. in Sure Track v. Kaisersingh, 2011 ONSC 7388 at paras. 28-30, as follows:
[28] The factors that a court considers in deciding whether to grant leave to admit further affidavit evidence subsequent to cross-examinations was recently canvassed by the Divisional Court in First Capital Realty v. Centrecorp Managements Services Ltd. [2009] O.J. No. 4492 (Div. Ct) The court held that a moving party must satisfy the court on each of the following criteria:
Is the evidence relevant?
Does the evidence respond to a matter raised on the cross-examination, not necessarily raised for the first time?
Would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs, terms, or an adjournment?
Does the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?
[29] In Skrobacky v. Frymer, 2011 ONSC 3295, [2011] O.J. No. 2468, (Sup Ct) Corrick J. held that Rule 39.02 was “designed to prevent, in part, an endless exchange of affidavits and cross-examinations”, and that given this purpose, “leave should be granted sparingly”, adding that the party seeking to deliver further affidavit evidence after cross-examinations bears a “very high threshold” before leave should be granted.
[30] In the earlier case of Brock Home Improvement Products Inc. v. Corcoran, 2002 CanLII 49425 (ON SC), [2002] O.J. No. 931 which was followed in both First Capital Realty and Skrobacky, Stinson J. discussed both the policy rationale regarding Rule 39.02 and the importance of adducing evidence to explain why the further affidavit evidence was not presented prior to cross-examinations. In addressing the policy rationale behind rule 39.02, Stinson J. stated:
Three rules in the Rules of Civil Procedure direct the court to grant leave in specific circumstances, being rules 26.02 (amendment of pleadings), 39.02 (delivery of post-cross-examination affidavits) and 53.08(1) (trial evidence admissible only with leave). All three rules contemplate granting leave “on such terms as are just”. Only rules 26.01 and 53.08(1), however, refer to “prejudice” to the opposite party, something that is expressly omitted from rule 39.02(2). Instead, rule 39.02(2) imposes the requirements that the court be “satisfied that the party ought to be permitted to respond”.
Logically, where the proposed additional evidence for which leave is sought would cause non-compensable prejudice to the opposite party, the court would not be satisfied that the requesting party be permitted to tender it....In my respectful view, however, this is not the end of the enquiry under rule 39.02(2), in light of the very different language contained in the rule.
Rule 39.02(1) and (2) are an important and integral part of the procedural code governing the conduct of motions and applications. These rules are designed to place finite limits on the evidentiary element of those proceedings, an element that is all too frequently time-consuming, expensive and drawn-out. These rules oblige the parties to consider the issues and to put all relevant evidence forward before embarking upon cross-examination of the opposite party’s witnesses. This is the approach mandated by the rules to achieve the “just, most expeditious and least expensive determination” of motions and applications. Consistent with that approach, it is only in exceptional cases that resort should be had to rule 39.02(2).
I believe that the words “ought to be permitted to respond” found in rule 39.02(2) impose a burden on a party who seeks leave to show more than an absence of non-compensable prejudice to the opposite party. In my view, those words import a requirement for the party who seeks leave under rule 39.02(2) to provide, by way of evidence on the motion for leave, a satisfactory explanation for its failure to include the proposed additional evidence as part of its pre-cross-examination case. The court should scrutinize carefully the reasons for the omission and the evidence offered in support of that explanation. To approach the issue otherwise undermines the integrity of the evidentiary framework for motions and applications that is mandated by the rules. Absent some reasonable explanation for the original omission, leave should be refused.
[29] Royal One argues that Eagle took the position it was impecunious in response to Royal One’s security for costs motion, and that the same evidence regarding the GSA, SPA and McCowan’s role tendered in Mr. McCowan’s affidavit ought to have been tendered in support of the argued impecuniosity. However, Eagle had no notice prior to cross-examinations that there was any challenge to Eagle’s ability to maintain or continue these lien actions or that Royal One would be seeking a stay of the lien actions on that basis. That position, and the amendment to the notice of motion, arose after cross-examinations, albeit argued by Royal One to arise from the same factual matrix relied upon by Eagle as supporting impecuniosity.
[30] I accept Eagle’s submission that questions asked about McCowan during cross-examination were at least arguably irrelevant to security for costs, regardless of what determination I may have made if a refusals motion been brought. I also accept that Eagle may not have taken the same position on the questions if Mr. Reptke’s and McCowan’s authority to direct this litigation was an issue at that time. Evidence on the GSA, SPA, and McCowan’s role is very much needed to support Eagle’s argument that McCowan has authority to direct conduct of this litigation. I also note that issuance of McCowan’s notice of intention to enforce security and correspondence asserting exercise of rights under the SPA occurred well after cross-examinations.
[31] For these reasons, I was satisfied that the additional evidence was necessary to respond to Royal One’s amended position on the motion, that the explanation for refusing questions effectively answered by the affidavit and not tendering that evidence sooner was sufficiently acceptable, and that there was no non-compensable prejudice from admitting the affidavit. While I agree that leave for further affidavit evidence after cross-examinations should be granted sparingly, in the particular circumstances of this motion, it would be unfair to refuse the evidence.
Analysis
[32] Pursuant to s. 87.3 of the Construction Act, RSO 1990, c C.30, the provisions of the act as they read on June 29, 2018 continue to apply to the improvement and, thereby, the liens and lien actions arising from the improvement. References in these reasons are accordingly to the former Construction Lien Act (the “CLA”).
Leave for the motion
[33] Interlocutory steps not contemplated by the CLA require leave of the court: CLA, s. 67(2). Leave for Royal One’s motion for security for costs was not opposed by Eagle. I am satisfied in any event that the evidence on Eagle’s financial situation satisfies Royal One’s threshold onus. Prior cases have held that satisfying the threshold onus on a security for costs motion also satisfies necessity for the purpose of seeking leave: Prasher v. D. Grant, 2014 ONSC 3576 at para. 12; Platinum Infrastructure Inc. v. Powerline Plus Ltd., 2018 ONSC 6891 (Master) at para. 16; Bolton Mechanical v. EBC Inc., 2020 ONSC 3407 (Master) at para. 15.
[34] Eagle opposes leave for Royal One’s relief staying the action. Royal One argues that determination of Eagle’s ability to continue the actions is necessary and will expedite issues in dispute should Eagle be found to have no controlling mind with actual authority to direct it. I am skeptical that the motion will expedite the resolution of any issues in dispute, but agree the challenge to Eagle’s legal capacity to continue the lien actions, which is reasonably arguable from the evidence and legal arguments advanced, makes the motion necessary. Allowing a corporation without a proper controlling mind to continue an action and pursue its claims would, in my view, be contrary to the interests of justice. It is appropriate to address both the actual legal capacity to direct Eagle in this litigation and ramifications of any lack of capacity by way of interlocutory motion. I accordingly grant leave for Royal One’s motion.
Legal capacity of Eagle’s management
[35] Kevin Reptke ceased to be Eagle’s director upon his bankruptcy. A bankrupt cannot be a director of an Ontario corporation, such as Eagle, and a director is automatically discharged from that role upon bankruptcy: Business Corporations Act, RSO 1990, c B.16 (the “OBCA”), ss. 118(1)(4) and 121(1)(c). While I was directed to no provision of the OBCA or case law prohibiting a bankrupt from acting as an officer, I accept Royal One’s argument that the structure of the OBCA is such that a corporate officer cannot function without a director (or directors) from whom to obtain directions.
[36] Whether Kevin Reptke’s shares in Eagle vested in the trustee in bankruptcy by operation of the BIA or McCowan has legal entitlement to control Mr. Reptke’s shares through the SPA, it is clear that Mr. Reptke has no authority to exercise shareholder rights in respect of Eagle. Since Eagle’s position is that McCowan has authority to direct the litigation, detailed argument was advanced on the validity and enforceability of both the GSA and the SPA, including valid perfection of McCowan’s security. I need not decide those issues on this motion. Assuming the SPA is an enforceable agreement and that McCowan is legally entitled to exercise its SPA rights, I do not accept Eagle’s argument that, by virtue of McCowan’s control of Mr. Reptke’s shareholder rights, McCowan had any legal authority to direct Eagle’s conduct of this litigation. Since Eagle acknowledges both that there was no transmission of Eagle’s interest in this litigation to McCowan by operation of the GSA and that McCowan has not appointed a director to replace Mr. Reptke, I am satisfied that there is no guiding mind in control of Eagle.
[37] Section 4.01(b) of the SPA provides McCowan with the right to “vote any or all of the Pledged Shares (whether or not transferred into the name of the Pledgee) and exercise all other rights and powers and perform all acts of ownership in respect thereof as the Pledgor might do.” I agree that this clause is intended to entitle McCowan to assume control of Mr. Reptke’s shareholder rights in their entirety.
[38] Shareholder rights, obligations and liabilities are outlined in Part VII of the OBCA. Shareholders have authority to appoint directors and even circumscribe a director’s authority. Subject to a unanimous shareholder agreement, only directors are entitled to instruct counsel with respect to the affairs of the corporation: OBCA, s. 115(1); Bechai v. Hanna, 2019 ONSC 4163 at para. 31. Where there is a unanimous shareholder agreement, a shareholder has all the rights, powers, duties and liabilities of a director to which the agreement relates to the extent that the agreement restricts the discretion or powers of the directors to manage or supervise the business or affairs of the corporation: OBCA, s. 108(5). For a corporation with only one shareholder, such as Eagle, establishing a unanimous shareholder agreement requires the shareholder to make a written declaration that restricts the powers of the directors to manage or supervise the business and affairs of a corporation: OBCA, s. 108(3).
[39] It is significant that s. 108(5) expressly contemplates that a shareholder’s authority to exercise the powers of directors is solely “to the extent that the agreement restricts the discretion or powers of the directors.” For the purposes of this motion, assuming the SPA is enforceable and McCowan is entitled to exercise its rights thereunder, there must be a written declaration by McCowan expressly restricting any director from instructing counsel regarding conduct of this litigation before McCowan, exercising the rights of the sole shareholder, may do so itself. There is no evidence of any such written declaration by McCowan. While there is a letter in evidence sent by McCowan’s lawyers to Eagle’s lawyers notifying them that McCowan is asserting its rights under the SPA, in my view, that letter does not constitute a written declaration as contemplated by the OBCA.
[40] Without a written declaration in accordance with s. 108(3), there is no basis upon which to determine the extent of any authority of McCowan to exercise the powers of a director pursuant to s. 108(5) in directing this litigation. A determination on whether McCowan was entitled to exercise its rights under the SPA is accordingly moot.
[41] For these reasons, I am satisfied that neither Kevin Reptke nor McCowan had any legal authority to direct Eagle in continuing its lien actions. Royal One aptly characterized Eagle as “a boat without a rudder and no sail.”
Stay of proceedings
[42] The court has broad authority to stay any proceeding on such terms as are considered just, including the power to stay a proceeding where there is a question as to the authority for it to be continued: Courts of Justice Act, RSO 1990, c C.43, s. 106; Monteith Mineralized Solutions Inc. v. Nu-Gro Ltd., 2016 ONSC 2911 at para. 31. In my view, a stay of both actions is appropriate in these circumstances. Absent an authorized controlling mind in compliance with the OBCA, Eagle has no ability to continue its lien actions.
Cure period
[43] Eagle submitted that, if Royal One’s arguments regarding authority were accepted, then Eagle should be afforded a “cure period” to address the issue. I agree with Eagle that an opportunity should be afforded to cure what amounts to a technical corporate governance issue. Doing so is appropriate, fair and just in the circumstances. The lack of an authorized controlling mind arises from technical operation of provisions of the OBCA, failing to appreciate or inaction in addressing the effect of the OBCA upon Kevin Reptke’s bankruptcy, and a dispute regarding the current holder of Eagles’ shares. The authority issue is curable.
[44] Eagle requested a 30-day cure period. Based on the merits of the motion as argued, I grant Eagle the requested 30 days to rectify the issue and book and serve a motion to lift my stay order, failing which Royal One shall be at liberty to move for an order discharging Eagle’s liens and returning security. I would have permitted Royal One to bring that motion in writing and without notice, but given the legal implications of Eagle’s bankruptcy any such motion by Royal One must be brought on notice with evidence that the stay of proceedings regarding Eagle pursuant to the BIA has been lifted or argument for why it does not prevent such a motion.
[45] Royal One submitted that, if a cure period was granted, I should order that Eagle reimburse Royal One for one year of its bonding costs as costs thrown away, since Eagle was not forthright regarding its impecuniosity defence and a proper assignment to McCowan was not pursued, resulting in delays in the motion being heard. Eagle argues I should make no such order, since both sides contributed to delays. In my view, liability for bonding costs is a matter more properly addressed at trial.
Security for costs
[46] Royal One sought security for costs as an alternative to its primary relief of staying the action, discharging the liens, and returning security. Since I am not granting discharges of the two liens or return of security at this time, it is appropriate that security for costs be addressed in the event Eagle does address the controlling mind issue and obtains an order lifting my stay of proceedings.
[47] Security for costs in the amount of $150,000 was agreed by the parties. The only dispute was regarding timing of payment. Royal One submits that security should be paid in a lump sum in short order, particularly since the agreed security would practically be funded by McCowan since Eagle has no bank account and insufficient assets. Requiring a lump sum would also require McCowan to show its investment in the lawsuit and its willingness to take the risk of advancing the claim. In its factum, Royal One also argued that McCowan continuing to fund the litigation is contrary to principles of maintenance and champerty.
[48] I agree with Royal One that this is a case where the staged approach to paying security for costs should not be applied, although not for the reasons argued by Royal One. Eagle has advanced substantial claims and has the benefit of substantial lien security in court. Eagle’s evidence on this motion is that it ceased business operations before preserving its second lien, that its director is bankrupt, and that it has substantial indebtedness to McCowan. The extent and nature of indebtedness to McCowan was not initially disclosed in support of Eagle’s position on impecuniosity and questions about McCowan’s role were refused during cross-examination. Those refusals were maintained until after the existence of the SPA was confirmed by Kevin Reptke’s trustee in bankruptcy in October 2020, at which point the extent of indebtedness to McCowan was also disclosed. Had Eagle maintained opposition to security for costs, these facts may have been relevant to assessing if the requirements for impecuniosity were met. I nevertheless find them relevant in assessing the just order to be made for security for costs.
[49] Having weighed the evidence, arguments, and circumstances, I have determined that it is fair and just to “level the playing field” by requiring the full $150,000 in security for costs to be posted by Eagle prior to and as a precondition to moving to lift my stay of proceedings.
Sealing Order
[50] An electronic copy of the supplementary affidavit of Amy Banko sworn April 18, 2019, previously filed for the motion before Master Wiebe, was submitted for use on this motion. That affidavit was sealed by order of Master Wiebe dated August 1, 2019. The parties agree that the electronic copy filed for this motion should also be sealed. Master Wiebe was satisfied that the affidavit should be sealed at the prior motion. I see no reason not to make the same order for the duplicate electronic version filed for this motion.
Disposition
[51] For the foregoing reasons, I order as follows:
(a) Eagle’s actions in Court File Nos. CV-18-600077 and CV-18-610596 are hereby stayed pending further order of the court, such stay to be lifted only upon the court being satisfied that Eagle has a proper controlling mind with legal ability to direct continuation of both actions.
(b) Prior to and as a precondition to moving to lift the stay of proceedings, Eagle shall post security for costs of both lien actions in the amount of $150,000 to the credit of this action.
(c) If security has not been posted and the stay of proceedings has not been lifted within thirty (30) days, Royal One shall be at liberty to move on notice for an order discharging Eagle’s liens, returning security, and such other related relief as Royal One may wish to pursue.
(d) On consent, the electronic copy of the supplementary affidavit of Amy Banko sworn April 18, 2019, filed by email to my Assistant Trial Coordinator on December 15, 2020, is hereby sealed, subject to further court order.
(e) This order is effective without further formality.
Costs
[52] Costs outlines have been exchanged and filed. Further steps are currently stayed by operation of the BIA. If the bankruptcy stay is lifted, the actions are continued, and costs are still sought by any party, a hearing to make costs submissions may be booked through my Assistant Trial Coordinator or costs may be spoken to at the next hearing for directions.
MASTER TODD ROBINSON
DATE: March 29, 2021