OVERVIEW:

[1] The defendant, Broccolini Construction (Toronto) Inc. (“Broccolini”), seeks an Order under section 44(5) of the Construction Lien Act to reduce the amount it had posted for security in order to vacate a lien. Broccolini also seeks an Order requiring the plaintiff, Elegant Façade Inc. (“Elegant”) to post security for costs pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] Broccolini was the general contractor or project manager on the construction of the Toronto Premium Outlets Mall in Milton (the “Project”). Elegant was a subcontractor on the Project. Pursuant to a Subcontract dated March 6, 2018, Elegant was to complete the exterior of the buildings that make up the shopping mall. This included the aluminum composite wall panel systems, the perforated aluminum panel systems, the fibre cement panel system, and the masonry veneer system.

[3] Elegant was to start work in April or May of 2018 and complete it by the time the mall was scheduled to open to the public on November 15, 2019. There were delays in the construction schedule and significant time pressures. The work was not completed in time and continued into the winter months. In February or March, 2019, the relationship between the parties broke down and could not be restored. Broccolini claimed that the Elegant’s work was untimely, deficient, and that the deficiencies caused safety concerns from flying pieces of metal siding and trim. Elegant left the construction site on February 19, 2019 and did not return.

[4] On March 18, 2019, Elegant registered its claim for a lien for $1,505,902 plus HST (for a total of $1,701,669). Elegant commenced this action to perfect the lien on May 2, 2019. Broccolini defended and counterclaimed for $1,500,000. On July 10, 2019, Broccolini obtained an Order vacating the lien by posting a bond of $1,751,669 (i.e. the lien amount plus $50,000 as security for costs).

[5] On this motion, Broccolini takes the position that the amount of the lien should be reduced to $797,636 because Elegant improperly claimed a lien for:

(a) alleged extra work for which it is not entitled to claim compensation due to its failure to abide by the relevant contractual provisions (the “Alleged Forced Scopes”);

(b) items that are not properly subject to a lien including lost opportunity costs, overhead, and profit; and,

[6] Broccolini asks that the amount of posted security be further reduced by $564,346.37. This amount was paid into trust by Broccolini and remains in trust with its lawyers for Elegant’s benefit. Lastly, Broccolini asks for an Order requiring Elegant to post $120,000 for costs.

[7] Elegant resists the motion in its entirety.

[8] The determination of this motion turns on whether Elegant was entitled to a lien for “Alleged Forced Scopes”, that is: additional costs of labour, material, and equipment supplied and paid for by Elegant to complete extra work that became necessary as a result of Broccolini’s conduct. Having reviewed and carefully considered the extensive evidentiary record, consisting of more than 5,000 pages of documents filed on this motion, and the arguments of the parties, I have concluded that the amount of the lien is clearly inflated.

[9] The lien amount shall be reduced to $797, 636.23 I am also satisfied that the money, $564,346.37 as of May, 2021, held in trust by Broccolini’s lawyers ought to be paid into court to the credit of this action. It may then be used to further reduce the amount of security posted by Broccolini. Lastly, I am satisfied that there is good reason to believe that Elegant does not have sufficient assets to pay a costs award if unsuccessful in this litigation. It ought to post $120,000 as security for costs of the trial of this action.

BACKGROUND:

The Pleadings and Demands for Particulars:

[10] The Subcontract dated March 8, 2018, sets out that the total contracted price for Elegant’s work with respect to the Project was $1,713,755.75 plus HST. In its Statement of Claim dated May 2, 2019, Elegant claimed that the “price or sum agreed upon” under the contract was $2,989,885.58 plus HST. It claimed that “despite numerous requests,” $1,505,902.05 remained due and owing. In the alternative, Elegant claimed this amount due and owing on a quantum meruit basis or, in the further alternative, unjust enrichment. On November 25, 2020, Elegant amended its claim: it now claims that the agreed price for the supply of materials and services was $2,968,885.58 and that the amount due and owing was $1,838,719.93 plus HST.

[11] On this motion, Broccolini asserts that $1,653,171.39 was paid to Elegant for work done under the contract and approved extras. Elegant must be taken to admit that Broccolini paid at least $1,483,983.53 plus HST under the contract. This is the difference between the claimed amount and the alleged amount owing.

[12] Neither Elegant’s Statement of Claim nor its Amended Statement of Claim include a break down or explanation for the amount allegedly due and owing (the lien amount). A number of steps in this litigation were driven by Broccolini’s efforts to obtain the particulars for this amount. In its pleadings, Elegant claimed that invoices and requests for payment for the services and materials supplied were forwarded to Broccolini and were within its knowledge. On this motion, Elegant has failed to produce any evidence of invoices or requests for payment for any of the Alleged Forced Scopes.

[13] Multiple calculations of the Alleged Forced Scopes have been provided by Elegant, but none were provided until December 2019, ten months after the lien was registered. Elegant’s calculation of the Alleged Forced Scopes were supported by time sheets, which Broccolini alleges were either fabrications or in any event were not created contemporaneously and are therefore unreliable.

[14] In its Statement of Defence, Broccolini claimed that Elegant was paid all it was due under the contract and that the lien amount is excessive. Broccolini alleged that Elegant breached the terms of the Subcontract by failing to meet the project or its own schedule of work, performed the work incompetently resulting in a host of deficiencies, did not clean up after performing the work, neglected or refused to rectify deficiencies, and failed to pay its own subcontractors and suppliers. Broccolini claimed that ultimately, Elegant did not complete the work and abandoned the project. Broccolini claimed that it spent more than $628,583.99 (excluding HST) to repair and complete Elegant’s work. Broccolini counter claimed against Elegant for $1,500,000.

[15] On this motion, Elegant did not deny that Broccolini paid its subcontractors and suppliers. In her affidavit dated October 23, 2020, Doris Hazboun, Elegant’s representative, states that Elegant did not agree to this arrangement but was forced into it by Broccolini. Elegant challenges the quantum claimed by Broccolini to rectify or complete any deficiencies.

Terms of the Contract:

[16] The terms of the Subcontract between the Broccolini and Elegant incorporated the terms of the primary contract between Broccolini and the owner of the Project. The terms that governed the performance of extra work and Elegant’s right to claim for an increase to the Subcontract prices were as follows:

S. 9.02 (Subcontract): "[Elegant] shall perform no additional work … and shall make no changes to the Work without (i) a written order from [Broccolini] and (ii) complying with conditions for changes as set out in the Prime Contract."

S 6.1.2 (Prime Contract as added by SC 15.1): "… [I]t is the express intention of the parties that any claims by [Elegant] for a change in Contract Price and/or the Contract Time shall be barred unless there has been strict compliance with the requirements of Part 6 …. No course of conduct or dealing between the parties, no express or implied acceptance of alterations or additions to the Work shall be the basis of a claim for additional payment under this Contract …"

6.2.6 (Prime Contract as added by SC 15.1A): "When a change in the Work is proposed or required, [Elegant] shall present to [Broccolini] for approval, [its] claim for a change in the Contract Price … with a detailed breakdown of the estimated costs of the proposed or required change to allow for a proper evaluation of the cost of the change in the Work … within Fifteen (15) Working Days. …"

6.6.1 (Prime Contract as replaced by clause 29 of Appendix): "If [Elegant] intends to make a claim for an increase to the Contract Price, …, [Elegant] … shall give timely Notice in Writing of intent to claim to [Broccolini] …"

POSITIONS OF THE PARTIES:

[17] On this motion, Broccolini submits that the lien amount should be reduced to $797,636 because Elegant improperly claimed a lien for (a) alleged extra work for which it is not entitled to claim a lien due to its failure to abide by the relevant contractual provisions, (b) items that are not the proper subject of a lien including overhead and profit, and (c) contract work, which Elegant admits it did not perform.

[18] Broccolini argues that its security should be reduced to $797,636.23, calculated as follows:

Amended claim amount: $1,838,719.93

Less Alleged Forced Scopes $1,166,891.47

Less work that Elegant admits it did not perform $10,203.48

Subtotal: $661,624.98

HST $86,011.25

Security for costs $50,000.00

TOTAL: $797,636.23

[19] With respect to security for costs, Broccolini argues that there is good reason to believe that Elegant, a family owned corporation owned and operated by Doris and George Hazboun (“Doris” or “George”), has insufficient assets in Ontario to pay Broccolini’s costs in the event it is unsuccessful at trial. Broccolini alleges that Elegant has negative equity, has been operating at a loss for years, and has no active projects. Although this action is only in its infancy, the legal costs are already substantial. To defend the claims at trial could cost Broccolini in the range of $325,000. Broccolini submits that security for costs in the amount of $120,000 payable in three installments, is justified.

[20] Elegant takes the position that its claim for the lien included the cost for the Alleged Forced Scopes totalling $1,166,891.47. It argues that the issues between the parties are too complex to be determined in a summary fashion. Elegant also argues that this case is one that, per Elegant, turns on the credibility of the witnesses which necessitates viva voce evidence. It argues that Broccolini did not follow the terms and conditions outlines in the Subcontract, and that it waived compliance with the notice provisions.

[21] Elegant alleges that this extra work became necessary because:

a. the construction schedule set by Broccolini was unrealistic and outdated;

b. there was a lack of coordination on the project with other subcontractors, such that Elegant had to perform extra work in order to install the ACM panels;

c. Broccolini refused to prioritize Elegant’s work;

d. there was poor workmanship and errors made by other subcontractors;

e. there was missing information on the architectural drawings; and,

f. Broccolini refused to issue change orders for work approved and rejected application for payment.

[22] Elegant alleges that Broccolini bullied and threatened it, was disorganized, lacked competent site managers, demanded that Elegant perform work that was not within its contractual scope of work or correct deficiencies of other sub-trades. Elegant submits that change orders ought to have been issued for each and every one of the Forced Scopes of work and that it is entitled to payment in full as particularized in an Excel spreadsheet found as Schedule F to the affidavit sworn by Doris Hazboun on October 23, 2020.

[23] With respect to security for costs, Elegant argues that Broccolini has failed to meet the test under the Rules for posting security for costs and that it has not accounted for the unrealized holdback held by its counsel in trust of $564,346.37. In the alternative, Elegant argues that if it is required to post security for costs, that security ought to come from these funds held in trust.

ANALYSIS:

[24] Section s. 44(5) of the Construction Act, R.S.O 1990, c. C.30 permits the court to reduce the amount of security that a defendant has posted to vacate a lien. It provides that:

(5) Where an amount has been paid into court or security has been posted with the court under this section, the court, upon notice to such persons as it may require, may order where it is appropriate to do so,

(a) the reduction of the amount paid into court, and the payment of any part of the amount paid into court to the person entitled; or

(b) the reduction of the amount of security posted with the court, and the delivery up of the security posted with the court for cancellation or substitution, as the case may be.

[25] There are two reasons for which security can be reduced: (1) “[i]f a portion of the lien claim is attributable to damages that are not properly the subject of a lien then the security should be reduced to that into account”, or (2) “if there are elements of the claim which are properly lienable but are clearly inflated:” Structform v. Ashcroft, 2013 ONSC 4544 at paras. 14 and15.

[26] A motion under s. 44(5) of the Construction Act is conventionally approached in much the same way as a motion for summary judgment. Where there are significant genuinely contested issues of fact, it is generally preferable that they be resolved by way of a trial: Pentad Construction Inc. v. 2022988 Ontario Inc., 2021 ONSC 824, at para. 5. As Justice Boswell observed in Pentad, “[t]ime consuming interlocutory motions, particularly ones requiring a deep dive into the merits of the claim, are antithetical to the summary character of the procedures established by the legislation:” at para. 72.

[27] The court is entitled to reduce the amount of the security posted to vacate a lien “if evidence supporting the calculation of the claim for lien fails to establish a reasonable basis for the amount claimed:” Pentad, at para. 80. Assessment of the evidence on a motion in respect of the amount claimed is to be approached much in the same way as the evidentiary record is approached on a motion for summary judgment: Pentad, para. 81.

[28] At the same time, a motion under s. 44 of the Construction Act is not a “full-fledged summary judgment motion under Rule 20. […] The question […] is narrower than on most summary judgment motions because there may be claims that are legitimate claims in contract or tort that are not legitimately the subject of a lien. So a critical question even if the claim itself may be legitimate is to determine what amount may legally attract the security afforded by a construction lien:” Structform, at paras.12 and 13. Varying a lien under s.44 does not extinguish the underlying claim, only the security represented by amount subject to the lien.

[29] The principles articulated in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87 apply to a motion to reduce the amount of a construction lien in a modified way: Pentad, at para. 82. Those principles hold that judgment may be rendered in a summary way provided that the motions judge is able to reach a fair and just determination on the merits on the basis of the record filed. A fair and just determination will be possible where “the process (1) allows the judge to make the necessary findings of fact; (2) allows the judge to apply the law to the facts; and (3) is a proportionate, more expeditions and less expensive means to achieve a just result”: Hryniak, para. 49.

[30] The moving party bears the legal and persuasive burden to establish that there is no reasonable basis for the amount claimed. However, on a motion for summary judgment, the responding party is required to bring forward evidence showing that there is a genuine issue for trial. It must put its ‘best foot forward’ in respect of material issues to be tried: Elite Construction Inc. v. Canada, 2021 ONSC 562, at para. 122.

[31] It is not an answer on this motion that a trial is required because better or more evidence will be presented later. As the Court of Appeal for Ontario reiterated in Da Silva v. Gomes, 2018 ONCA 610, “[i]n a motion for summary judgment, the court can reasonably assume that ‘the parties have placed before it, in some form, all of the evidence that will be available for trial:’” at para. 18. The motions judge is to assume that the evidence before the court is the best evidence the parties have to offer.

Application:

[32] The quantum of the lien is directly tied to Elegant’s claim for damages arising out of the Alleged Forced Scopes. The key issue is, therefore, whether there is a proper evidentiary basis for Elegant’s claim that it was authorized or forced or actually completed the extra work. While Broccolini casts this issue as singular in nature, Elegant breaks it down into the following sub-issues:

a. A finding in relation to the specific the terms of the contract between the parties;

b. A finding or whether or not there was any breach of such contract;

c. A finding with respect to the scope of the contract;

[33] Elegant argues that the court will then have to make a further set of findings in relation to:

a. What work was completed by Elegant under the contract;

b. What work was not completed by Elegant under the contract;

c. How any breaches of the contract by Broccolini impact the equities;

d. The value of the work completed;

e. The value of the uncompleted work; and,

f. Whether or not the forced scopes are in fact valid extras;

g. Whether or not Broccolini waived any rights under the contract.

[34] The record on this motion exceeds 5,000 pages. Broccolini filed a four volume motion record. Elegant filed, amongst other things, a Supplemental Record on a USB key containing 5,000 pages of documents including multiple Excel spreadsheets and charts of answers to undertakings. The Supplemental Record aims to demonstrate that the issues in this case cannot be decided summarily.

[35] I do not think it is necessary to resolve all of the issues as articulated by Elegant in order to determine whether the lien is proper. Once the amount of the lien is particularized, it is readily apparent on this record that the amount claimed is exaggerated or includes amounts that are not properly subject to a lien. The evidence pointed to by Elegant supporting the calculation of the lien falls short of establishing a reasonable basis for the amount claimed.

[36] Despite repeated requests to produce the details of the Alleged Forced Scopes performed between April and November 2018, Elegant produced nothing until December 2019, well after starting this action. In its Answers to Undertakings, Elegant provided the following breakdown of the Alleged Forced Scopes:

Materials and equipment costs: $207,354

Labour: $559,317

Lost opportunity costs: $294,138

Profit (5%) and overhead (5%): $106,081

Total: $1,166,891

[37] In its factum, Elegant does not refer to a single invoice in support of its claim for costs of materials or equipment as part of the Alleged Forced Scopes.

[38] Elegant produced time sheets in support of the labour costs it claimed. I find that those time sheets are highly suspect. The time sheets were produced well after the litigation was commenced. The vast majority do not name the labourer who allegedly performed the work. They contain little if any meaningful detail. Some of the labour costs ($19,343) is work that Broccolini says was performed by subcontractors. Despite requests to do so, Elegant failed to provide proof of payment of that amount. Elegant did not obtain Broccolini’s signature on the time sheets even though the form calls for a signature of a site supervisor.

[39] Elegant did not provide any of the time sheets to Broccolini during the course of its work on the Project. No explanation for this is offered by Elegant. Elegant was ordered to produce the native version of the time sheets by Justice Gibson in his Order dated December 22, 2020, but failed to do so. Instead, it produced the native version of the uncompleted form.

[40] Presumably that is a good at it gets for Elegant and I therefore proceed on the basis that these time sheets are the best evidence of the labour costs incurred by Elegant. No other evidence with respect to labour costs has been produced by Elegant. I find that these time sheets are not sufficient evidence to justify over $500,000 of extra labour costs claimed by Elegant. Given the absence of any other evidence, I am satisfied that the amount claimed for extra labour is clearly exaggerated.

[41] Elegant claims $294,138 for salary and profit or “lost opportunity costs.” According to Elegant, this amount represents 800 additional hours spent by Doris and George at $180 per hour. Elegant also claims 5% in overhead and 5% in profit. When asked to explain this, Doris Hazboun testified that the biggest part of the claim for overhead “is the countless hours” she and George spent working on this project. I find that the extra time Doris and George spent on this project is improperly claimed by Elegant twice - once as “lost opportunity costs” and again as “overhead and profit.”

[42] There is no evidence that Elegant ever charged these rates on any other project. No time sheets or other contemporaneous record is produced in support of the 800 hours claimed. When were these 800 hours incurred and why? The only explanation is a “report” prepared by Elegant to justify or explain these hours. It was, as Doris acknowledged, created well after the action started, sometime in the fall of 2020.

[43] Given the absence of any other evidence, I am satisfied that Elegant has failed to point to credible evidence in support of the claim for extra hours as “lost opportunity costs,” “overhead,” and “profit.” I am of the view that this claim is also clearly exaggerated. It is also not properly subject to a lien: Structform, para. 14; Selectra Inc. v The Corporation of the Town of Penetanguishene, 2016 ONSC 2293, para. 14

[44] Elegant filed, on a USB key, a Supplemental Record containing some 5000 pages of documents in support of its claim for the Alleged Forced Scopes. In my endorsement dated October 13, 2020, when I permitted Elegant to file this material, I stated:

I am advised that the Supplemental Record will be approximately 4600-5000 pages of invoices, third party invoices, time sheets, banking records, receipts and photos. The [Plaintiff] insists that this entire record is necessary for it to respond to the motion by the [Defendant] to […] reduce the lien amount. It is with some hesitation that I allow the [Plaintiff] to file these materials. The Parties are to ensure that these documents are not duplicated elsewhere in the motion record and that if an accounting is required, it should be obtained in advance of the long motion. The Supplemental Record shall be indexed and tabbed electronically. [Emphasis added]

[45] If Elegant incurred $1.16 million for labour, material and equipment, it ought to be a simple matter to produce the proof. However, no such proof was provided. As I stated earlier, this Supplemental Record aims to demonstrate that the issues in this case cannot be decided summarily. However, it only demonstrates an unwillingness or inability to organize materials and provide this Court with a navigable evidentiary record: The Supplemental Record is not tabbed or indexed electronically in any useful way. No accounting was done. The record contains multiple spreadsheets and charts, but little if any underlying contemporaneous documentation that supports the costs incurred. I echo Justice Dunphy’s displeasure in Basaraba v Bridal Image Inc., 2021 ONSC 8038 that:

[8] […] We have been working with virtual hearings for almost two years at this point. The potential benefits [of electronic court filing and documents] in terms of cost, efficiency and access to justice are huge and will certainly outlive the pandemic. However, the system will grind to a halt if the parties do not shoulder their part of the burden seriously. […] The result was to drop a task in my lap akin to asking me to sort through an overturned bowl of spaghetti.

Needless to say, that this “document dump” was of little assistance. The Alleged Forced Scopes are not substantiated on this record.

Failure to Abide by the Contractual Notice Provisions

[46] In order to claim for costs associated with the extra work, the provisions in the Subcontract required Elegant to submit a “detailed breakdown of the estimates costs” of the extra work 15 days in advance of when the extra work was required or proposed. This would allow for a proper evaluation. Elegant was also required to give “timely notice in writing of an intent to claim” for an increase to the Subcontract price. It is not seriously disputed that Elegant did not comply with these notice provisions.

[47] Despite the volume of material filed, Elegant has not pointed to any document detailing a breakdown of the estimated costs associated with respect to any of the Alleged Forced Scope items, let alone that evidence that this breakdown was done within 15 days of the work being required. There is also no evidence that Elegant ever gave Broccolini any notice in writing of an intention to claim for any of the Alleged Forced Scopes. In all of the materials, there is only one cost estimate but there is no evidence it was ever provided to Broccolini. No explanation is offered by Elegant for these significant shortcomings.

[48] By failing to abide by the notice provisions in the contract, Elegant deprived Broccolini of its ability to evaluate the estimated costs before the work was performed, consider its position, obtain other quotes if necessary, monitor Elegant’s costs, or seek additional payment from the owner of the Project. More importantly, on this motion, Elegant’s failure to produce any evidence that there was any effort to comply with the notice requirements of the Subcontract or an explanation for its failure to do so, leaves the quantum of the Alleged Forced Scopes suspect.

[49] I accept that Elegant was one of the last trades on the site. Its job was to install the exterior metal and veneer brick siding. I accept that certain preparatory work had to be done in order for Elegant to perform its part. The project was behind schedule and there were significant time pressures to get the mall ready for opening on November 15, 2018. Elegant argues, and submits some evidence in support of its arguments, that the construction site was not ready for it to do its work effectively and efficiently and as a result it was forced to do the work or correct deficiencies of other trades.

[50] Even if I accept this to be the case, this evidence presented (which I assume is the best case to be made on the point) does not explain why Elegant never gave notice or offered any breakdown of the extra work to Broccolini during the Project. This evidence does not persuade me that by its conduct Broccolini waived the notice provisions or deprived Elegant of its ability for Elegant to comply with those notice requirements. The “grumblings of a contractor are not sufficient to constitute notice:” Elite, at para. 122; Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597, at para. 28-29.

[51] The test for a waiver of notice was considered by the Court of Appeal for Ontario in Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597, at para. 63.

Waiver occurs when one party to a contract (or proceeding) takes steps that amount to foregoing reliance on some known right or defect in the performance of the other party. It will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of the deficiency that might be relied on and (2) an unequivocal and conscious intention to abandon the right to rely on it. The intention to relinquish the right must be communicated. Communication can be formal or informal and it may be inferred from conduct. The overriding consideration in each case is whether one party communicated a clear intention to waive a right to the other party.

[52] I have considered the evidence and allegations that there were delays on site, which Elegant says were the result of Broccolini’s mismanagement. I have considered and carefully reviewed Doris Hazboun’s Answers to Undertakings #3, 14 and 30-35 delivered on August 26, 2020, as well as all of Doris Hazboun’s other evidence. Even if I accept that there were delays and that at various points the buildings were not ready for the installation of the ACM and other exterior cladding, this evidence does not explain or satisfy me that the Alleged Forced Scopes were incurred in the amounts claimed. It offers no explanation as to why Elegant could not provide a timely breakdown of the extra costs or why it never claimed for any of the extra work during the time it was working on the Project.

[53] Having reviewed the extensive record filed in this case, I am satisfied a portion of the lien claim is attributable to damages that are not properly the subject of a lien (such as the claim for lost opportunity costs) and that there are elements of the claim which are properly lienable but Broccolini has satisfied me on this record that they are clearly inflated.

[54] Elegant relies on several cases that indicate that a court should take a holistic approach to determine whether the general contractor acquiesced to the forced scopes of the subcontractor. See: 2016637 Ontario Inc. v. Catan Canada Inc, 2013 ONSC 4727; Clearway Construction Inc. v. The City of Toronto, 2018 ONSC 1736; and, Limen Structures Ltd. v. Brookfield Multiplex Construction Canada Limited, 2017 ONSC 5071. I accept that such an approach is appropriate. However, the fact that Elegant never demanded payment of the monies that it now claims a lien to, failed to provide Broccolini with timely notice of its intention to claim for any of the Alleged Forced Scopes, and that its own record keeping does not adequately detail the expenses for extra labour, overhead or “opportunity costs”, leads me to conclude that whether Broccolini acquiesced to the forced scopes is not a genuine issue requiring a trial.

[55] The mere fact that there are significant issues in a case does not preclude the Court from adjudicating the matter without a trial. This is a straightforward claim for monies. It will be determined on the documents and any relevant professional accounting based on those records. Elegant is alleging a particular quantum. It has produced multiple charts in support of that quantum, but little by way of underlying documentation. Put simply, there is no credibility contest to be resolved. An accounting is required but none has been offered by the party who should be able to readily fill this evidentiary void.

[56] Elegant has not produced the receipts or proof of payment for any labour or materials that is part of the Alleged Forced Scopes. Certainly, if Elegant ordered additional raw materials or incurred costs for the labour, there would be correspondence, invoices, bank records, payments or receipts. I am genuinely struggling to understand how Elegant can propose that there ought to be a trial on the quantum when the only evidence it has tendered in respect to the quantum are the spreadsheets it had to produce following questions Broccolini’s questions on discovery. The spreadsheets and charts are merely aids. The underlying foundation for them is not established.

[57] Even if I accept that Broccolini’s mismanagement of the Project forced Elegant to incur additional costs, the documentary record here, despite its volume, falls short in establishing the quantum of the lien. In the circumstances, I find that the lien amount is clearly inflated and includes amounts improperly included in the lien. The lien shall be reduced to $797,636.

Money Held In Trust:

[58] As of May 5, 2021, Broccolini’s lawyers held $564,346.37 in trust for Elegant’s benefit. On this motion, Broccolini asks that the amount of the security be further reduced by this amount. It submits that Elegant had agreed to this relief. Elegant denies knowing that Broccolini had paid these amounts into trust.

[59] Broccolini asks for leave to file an affidavit dated May 10, 2021 sworn by Claudia Lapa and attached exhibits setting out the amount held in trust and the agreement between the parties to reduce the amount of security posted by this amount. Broccolini argues that this evidence was not included in its original motion record because it had no idea Elegant would take the position that it did not know about the money.

[60] I am satisfied that the affidavit of Claudia Lapa and the attached exhibits ought to be admitted under Rule 39.02 of the Rules of Civil Procedure. Given the correspondence between the parties, Broccolini could not have known that Elegant would take the position that it was not aware of the money in trust until Broccolini received Elegant’s factum.

[61] In the circumstances, I am satisfied that the evidence is relevant and responds to an issue raised for the first time after the materials were filed. Granting leave to file the evidence does not prejudice Elegant and there is a reasonable explanation for why the evidence was not included at the outset: 1944949 Ontario Inc. (OMG ON THE PARK) v. 2513000 Ontario Ltd., 2019 ONCA 628, at para. 33.

[62] Based on this evidence, I am satisfied that on March 3, 2019, and September 25, 2020, Broccolini paid into trust with its lawyers $296,615.25 and $228,135.40 respectively. This was confirmed at the time to counsel for Elegant by email. The email correspondence is before me in evidence. I also note that the Statement of Defence states that Broccolini deposited money into a trust account for all payments that would be due to Elegant but for the breaches of the contract. Thus, Elegant had plenty of notice that these funds were there and cannot have been surprised to learn of it on this motion.

[63] As of May 5, 2021, the amount in trust had grown to $564,346.37. I am satisfied that it is fair and reasonable that the amount of the security be further reduced by this amount. While Elegant opposed the admission of the evidence, it did not take exception to this relief. The money held in trust must be paid into court to the credit of the action pursuant to s.44 of the Construction Act.

Security for Costs:

[64] Rule 56.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 dictates the instances where a Court may require a party to post security for cost. The provision reads:

56.01 (1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;

[65] The analysis under rule 56.01 is essentially a balancing exercise in which the court follows a two step process: First, the defendant must demonstrate that the plaintiff, or applicant as the case may be, is a corporation and that there is a good reason to believe that they lack assets in Ontario to pay costs to the defendants should they be required to do so by the Court. Second, where the defendant has established that security for costs are appropriate, the plaintiff can defeat a claim for security of for cost by demonstrating to the court that granting the defendant’s rule 56.01 motion would be unjust: JoBro Film Finance Ltd. v. National Bank of Canada, 2020 ONSC 975, at para. 5; The Gatti Group Corp. v. Zuccarini, 2019 ONSC 7050, at paras. 5-7.

[66] It has been repeatedly noted in the jurisprudence that the defendant need not prove on a balance of probabilities that the plaintiff would be unable to pay a cost order. Rather, all that is required is for the defendant to adduce evidence to demonstrate that it’s claim in respect to the plaintiff’s lack of finances is more than “conjecture, hunch or speculation.” City Commercial v. Bakichi, [2005] O.J. No. 6443 (C.A.), at para. 8; Lancaster Group Inc. v. Kenaidan Contracting Ltd., 2020 ONSC 1653, at para. 2; The Gatti Group Corp, at para. 5. While the evidentiary threshold for a Rule 56.01 motion is low, it is not nil; the defendant must produce some evidence to support its position.

[67] Recently, in Air Palace v. Abdel, 2021 ONSC 7882, Justice Trimble set out the principles and factors applicable under Rule 56.04. At para. 25, Justice Trimble observed that Rule 56.01(1) does not create a prima facie right to security for costs. Rather, the “rule triggers an inquiry in which the court, using its broad discretion, may make such order as is just in the circumstances.”

[68] Security for costs is designed to be protective, and not used as a litigation tactic to prevent a meritorious case from being heard. In determining the justness of security for costs, courts have considered various factors including the merits of the claim, delays in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns, and the public importance of the litigation. Ultimately, each case must be considered on its own facts: Yaiguaje v. Chevron Corp., 2017 ONCA 827, at paras. 23-25; Air Palace, at para. 26-27.

[69] Having thoroughly canvased the authorities and various factors set out in the case law, Justice Trimble observed that the onus is on the defendant to show that the plaintiff “appears to” fall within one of the four enumerated categories in Rule 56.01. If the defendant meets this onus, the onus shifts to the plaintiff to avoid an order for security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order, the order is unjust or unnecessary, or the plaintiff should be permitted to continue with action despite their impecuniosity.

[70] Justice Trimble observed that a plaintiff’s financial disclosure obligation requires “robust particularity”, including the amount and source of all income, a description of all assets, including values, a list of all liabilities and other significant expenses, an indication of the extent of the ability of the Plaintiff to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose: Air Palace, at para. 27.

[71] Where the key issue on a motion for security for costs is the sufficiency of the plaintiff's assets, “the party being cross-examined on the plaintiff’s affidavit must answer relevant questions and produce relevant documents to enable the moving party to test the value and ownership of asserted assets and liabilities”: John Bianchi Grading Ltd. v. Belrock Design Build Inc., [2005] O.J. No. 2972 (S.C) at para. 27. At the same time, the failure to produce relevant financial documents does not necessarily militate against their efforts to resist security for cost: 2254887 Ontario Inc. v. Ziedenberg, 2016 ONSC 6452, at para. 23. There needs to be a fair balance.

[72] In my view, Broccolini has established under the first part of the test that concerns about Elegant’s lack of finances is more than “conjecture, hunch or speculation.” Based on the evidence before me, I find that there is good reason to believe that Elegant lacks assets in Ontario to pay costs in a case such as this.

[73] Elegant is a corporation. It is a family run business, owned, controlled and operated by Doris Hazboun and her husband George Hazboun. As a corporation, it owns no property and holds no assets. It is run out of George and Doris’ home. It has no permanent employees. Doris, George or the other persons who work at Elegant do not draw a salary. Rather, at the end of the year, they decide how much money each is paid. In 2018, when it took on the Project from May to November, it had no other work. In prior years, it had one or two projects. All of its work is subcontracted out and so it has none of the hard assets that might normally be attributed to a going concern in the construction business.

[74] I accept the evidence that Elegant has operated at a loss for several years. Elegant presented no evidence to the contrary. The financial records cited by Broccolini establish that:

a. Elegant has negative equity:

i. In 2017 – equity was $103,976;

ii. In 2018 - equity was $8,134;

iii. In 2019 - equity was -$53,568.75;

iv. As of July, 2020 - equity was -$107,954.72.

b. As of July 2020, Elegant had no revenue, no profits, and no active contracts;

c. Elegant’s net income has been negative for many years:

i. Net income for 2017 was -$313,327;

ii. Net income for 2018 was -$95,843;

iii. Net income for 2019 was -$53,096.33;

iv. Net income as of July 2020 was -$54,385.97.

d. Bank records revealed that as of December 31, 2020, Elegant had only $1,710 in its account.

[75] Elegant has not disputed any of these facts.

[76] In September 2020, the Royal Bank of Canada obtained a civil judgement for $29,676 against Doris and George Hazboun personally. This was in relation to their son’s failed business, for which Doris and George guaranteed a loan. Rather than pay the judgement, Doris and George entered into a monthly payment plan. When cross-examined, Doris acknowledged that at one point they fell into default on the monthly payments. She refused to answer why. Doris and George have $378,000 in equity in personal property. But, of course, they are not parties to this proceeding.

[77] This evidence satisfies me that there is good reason to be concerned about Elegant’s ability to pay a costs award. Costs in this case will likely be significant. Given the volume of material, the complexity of the issues, the quantum at stake and the anticipated length of the trial, I accept Broccolini’s estimate that to defend this action at a trial would cost in the range of $325,000. Based on the approach taken to date, it is reasonable to think that a trial of this matter will be drawn out, complicated with voluminous materials and possibly expert evidence. This litigation is in its infancy and has already costs Broccolini more than $70,000. Broccolini estimates that on a partial indemnity basis, if it is not successful at trial, Elegant could be ordered to pay costs in the range of $240,000. That is not an unrealistic estimate. Elegant is not in a position to pay costs.

[78] With respect to quantum of the security, Elegant argues that a reasonable amount cannot be established because Broccolini has not filed a bill of costs or accounting records reflecting the anticipated expenses yet to be incurred. The accounting records and bills of costs permit the court to assess with particularity the work done and to be done: Air Palace at para. 68-77.

[79] While a bill of costs or an accounting is preferable, I am satisfied that $240,000 is a reasonable cost estimate. Elegant is not in a position to pay such a costs award if ordered to do so. Under the second part of the test, Elegant has not adduced any evidence of impecuniosity. It does not argue that an order for security for costs would result in any injustice. Broccolini has posted security for costs. It has skin in the game. Elegant has none. It is fair in the circumstances, that Elegant be required to have a stake in this litigation. I am satisfied that an order for security for costs is just.

[80] With respect to the quantum and form of the security, I am satisfied that Broccolini’s unchallenged projection of the costs of a trial of $325,000 is reasonably accurate. I make this determination having regard to the complexity of the case, the quantum at issue, the importance of the issues, the nature of the evidence adduced thus far and the anticipated length of the proceedings,

[81] On a partial indemnity basis this translates to approximately $243,000 (i.e. ($70,000 + $335,000) x 60%). This amount should be reduced by 50% to account for Broccolini's counterclaim. Based on these estimates at this early stage of the proceeding, I am of the view that this is a reasonable, fair, and proportionate amount an unsuccessful litigant could expect to pay. Security for costs in the amount of $120,000 is appropriate in the circumstances of this case.

[82] It is not appropriate that Elegant’s security for costs come out of the funds held in trust by Broccolini. Those funds are to the credit of the action. Security for costs and security of the action by way of a lien are two different things aimed at different purposes. Elegant must put up security for costs.

ORDER:

[83] The motion is allowed. The amount of the lien is reduced to $797, 636.23 The $564,346.37 held in trust for the benefit of Elegant is to be paid into court. This amount may then be credited towards the security for the action (lien amount).

[84] Elegant shall pay security for costs totalling $120,000 as follows: (i) $50,000 within 30 days of this decision, (ii) $10,000 at the time Expert reports to be filed under the rules; (iii) $60,000 30 days after the matter is set down for trial.

COSTS:

[85] The parties are encouraged to agree upon appropriate costs for this motion, and previous steps in the litigation reserved to this motion. If the parties are not able to agree on costs, they may make brief written submissions to me (maximum three pages double-spaced, plus a bill of costs) within 14 days of the release of this decision. I shall not consider any submission that does not accord with this direction. There shall not be any right of reply.

[86] If no submissions are received within this timeframe from either party, the parties will be deemed to have settled the issue of costs as between themselves.

[87] If I receive submissions from one party but not the other within the specified timelines, I will decide the issue of costs based on the material that I received.

[88] Rule 59.01 of the Rules of Civil Procedure provide that this Order is effective from the date it is made, that date being the date such order is made by the judge, whether such Order is contained in a signed endorsement, order, or judgment.

”E. Chozik”

Electronic signature of Justice Erika Chozik

Date: December 17, 2021

Elegant Façade Inc. v. Broccolini Construction (Toronto) Inc., 2021 ONSC 8336

Case Summary

OVERVIEW:

BACKGROUND:

The Pleadings and Demands for Particulars:

Terms of the Contract:

POSITIONS OF THE PARTIES:

ANALYSIS:

Application:

Failure to Abide by the Contractual Notice Provisions

Money Held In Trust:

Security for Costs:

ORDER:

COSTS:

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 2

Legal Tests 2

Legislation 2