Court File and Parties

Court File No.: CV-20-637222 Date: 2022-04-08

Superior Court of Justice - Ontario

In the Matter of: the Construction Act, RSO 1990, c C.30, as amended

Re: GOWING CONTRACTORS LTD., Plaintiff - and - WALSH CONSTRUCTION COMPANY CANADA, WCC CONSTRUCTION CANADA, ULC o/a WALSH CANADA, and THE CITY OF TORONTO, Defendants

Before: Associate Justice Todd Robinson

Counsel: F. Bogach and P. Conrod, for the defendants, Walsh Construction Company Canada and WCC Construction Canada, ULC o/a Walsh Canada (moving parties) R. Hammond, for the plaintiff (responding party)

Heard: December 7, 2021 (by videoconference)

Reasons for Decision (Security for Costs)

[1] Walsh Construction Company Canada and WCC Construction Canada, ULC o/a Walsh Canada (together, “Walsh”) seek security for costs against Gowing Contractors Ltd. (“Gowing”). Gowing was a mechanical subcontractor on a project involving the construction of two new biofilters at the City of Toronto’s Humber Wastewater Treatment Plant. WCC Construction Canada, ULC was the general contractor.

[2] While working on the Humber Wastewater Treatment Plant project, Gowing was concurrently working on another Walsh project at the City of Toronto’s Ashbridges Bay Treatment Plant. Walsh Construction Company Canada was the general contractor for that project and subcontracted certain mechanical work to Gowing. Gowing alleges that, despite formally subcontracting separately with WCC Construction Canada, ULC and Walsh Construction Company Canada on the two projects, there was no delineation between the two entitles and Gowing had only one working relationship with Walsh.

[3] Walsh ultimately replaced Gowing as a subcontractor on both projects. Walsh alleges that Gowing breached the subcontracts, which Gowing denies.

[4] Gowing has preserved liens in respect of both projects and commenced two lien actions. Walsh Construction Company Canada has posted security to vacate Gowing’s liens. In this action, Gowing claims $3,696,102.19. Gowing’s position is that its subcontracts were terminated without justification, alleging various misconduct by Walsh’s representatives, including harassment, bullying, and discrimination of Gowing’s principal, Jane Gowing, which is alleged to have been common conduct on both projects. Gowing alleges that termination by Walsh was personal, not based on legitimate breaches of the subcontract, and that Gowing is being scapegoated for project delays caused by Walsh and others.

[5] Walsh denies Gowing’s allegations, including any misconduct by their employees and representatives. Walsh’s position is that Gowing breached its subcontract by failing to deliver submittals, failing to procure, fabricate and install necessary components, failing to follow project performance requirements and specifications, understaffing the job, and delaying the overall project.

[6] Walsh has not advanced a counterclaim in this action. Rather, WCC Construction Canada, ULC has advanced a separate $4.6 million claim against Gowing in Court File No. CV-20-637506 alleging defects and deficiencies in Gowing’s work as well as delay and impact losses and damages. I understand that the parties have agreed that the two actions will proceed together.

[7] Gowing has admittedly ceased business operations, although alleges that Walsh is directly responsible for it. Gowing’s primary opposition to the motion is that Walsh continues to retain holdback from payments to Gowing, representing earned and unpaid subcontract funds that Walsh has refused to pay. Those funds are argued by Gowing to be its asset, and more than sufficient to satisfy any adverse costs award. Walsh’s disagrees, taking the position that the holdback funds are subject to WCC Construction Canada, ULC’s contractual and legal set-offs and are thereby not assets available to satisfy a costs award.

[8] I am dismissing Walsh’s motion. Walsh has not met their threshold onus of demonstrating good reason to believe that Gowing lacks sufficient assets in Ontario to satisfy Walsh’s costs. Although Gowing is admittedly out of business, Walsh has not put forward sufficient evidence for me to disregard the significant unpaid holdback amounts from Gowing’s completed subcontract work, which exceed the total set-off claims quantified in the record before me. In my view, the holdback funds are properly considered on this motion to be an asset of Gowing. Even deducting Walsh’s quantified set-offs, the excess holdback amounts are sufficient to satisfy Walsh’s costs.

Analysis

Legal framework

[9] Walsh moves under Rule 56.01(1)(d) of the Rules of Civil Procedure, RRO 1990, Reg 194, seeking security for costs on the basis that there is good reason to believe that Gowing lacks sufficient assets in Ontario to satisfy an adverse costs award.

[10] There is no dispute as to the applicable test on this motion. Walsh bears the initial evidentiary burden of satisfying me that it “appears” that there is “good reason to believe” that Gowing has insufficient assets in Ontario to pay Walsh’s costs. If Walsh satisfies that initial onus, then the onus shifts to Gowing to demonstrate that an order for security for costs would be unjust.

[11] Determining the justness of a security for costs order requires a holistic approach, in which all the circumstances of the case are examined. My assessment is to be guided by the overriding interests of justice. Although various factors have been outlined by courts to be considered, such as merits of the claim, delay in bringing the motion, the impact of a defendant’s conduct on the available assets of the plaintiff, access to justice concerns, and the public importance of the litigation, those factors are not static. Each case must be considered and decided on its own facts: Yaiguaje v. Chevron Corporation, 2017 ONCA 827 at paras. 22-25.

[12] This is a lien action, so “consent” of the court is required for this motion under s. 67(2) of the now-former Construction Lien Act, RSO 1990, c C.30 (the provisions of which remain applicable by operation of s. 87.3 of the current Construction Act) (the “CLA”). Walsh must demonstrate that the motion is necessary or would expedite the resolution of matters in dispute. My colleague has held that necessity is demonstrated in a security for costs motion when the moving party meets its threshold onus: Yuanda Canada Enterprises Ltd. v. Pier 27 Toronto Inc., 2017 ONSC 1892 (Master) at para. 14. I agree with that approach.

[13] In this case, if Walsh establishes good reason to believe that Gowing lacks sufficient assets in Ontario to pay Walsh’s costs, they will have met their threshold onus. By doing so, they will have established necessity and are entitled to leave for this motion.

Is there good reason to believe that Gowing lacks sufficient assets?

[14] Walsh submits that the evidence before the court demonstrates good reason to believe that Gowing lacks sufficient assets in Ontario to satisfy a costs award. Walsh points to various evidence in support of that position, namely:

(a) Gowing admits that it is no longer conducting ongoing business operations and is “out of business”, and has failed to tender any evidence on what happened to its assets, equipment, and money from projects;

(b) Gowing previously carried on business from a property in St. George, Ontario owned by a company in which Jane Gowing’s spouse is the principal. Since this action was commenced, that property has been transferred to a numbered company with no apparent connection to Gowing;

(c) Gowing’s registered address has been changed from its plant and headquarters in St. George, Ontario to a private residence in Brant, Ontario, where Jane Gowing and her spouse reside;

(d) in late 2018, a new entity, Gowing Contractors (2018) Ltd., was incorporated by Gowing’s principal, Jane Gowing, in which she is the sole officer and director;

(e) as of June 2020, Gowing was no longer named on its website, which instead listed only Gowing Contractors (2018) Ltd., and the website is now no longer functioning at all;

(f) as of February 3, 2021, Gowing held no real property in Brant, Ontario;

(g) there are a total of eight registrations under the Personal Property Security Act, RSO 1990, c P.10 against assets owned by Gowing, including one by a numbered company in which Jane Gowing is the sole officer and director; and

(h) Gowing is named as a defendant in several other actions in Toronto, Brantford, and Milton.

[15] Gowing does not dispute many of these items, although has explanations for some and argument for why others are irrelevant. Its primary opposition to this motion is an argument that the court cannot simply ignore the $1,384,978.40 in admittedly earned and unpaid subcontract amounts owing by Walsh, retained as holdback, which Walsh has refused to pay. There is no evidence of any other liens or competing claims to the holdback except those of Gowing and Walsh. Gowing thereby argues that the holdback itself represents a sufficient asset. Walsh disagrees, arguing that the holdback is not properly considered an “asset” of Gowing, since Walsh has asserted contractual and legal set-off rights against the funds.

[16] The status of the holdback as an “asset” of Gowing was the primary dispute between the parties on this motion. Since there is no dispute that the holdback funds continue to be held by Walsh, and that they represent amounts owing to Gowing on account of completed work that was retained to comply with the statutory holdback requirements of the CLA, I agree with Gowing that the status of those funds is properly considered in the threshold analysis.

[17] Gowing relies on my colleague’s decision in Yuanda Canada Enterprises Ltd. v. Pier 27 Toronto Inc., 2017 ONSC 1892 (Master). In that case, Master Wiebe (as he was then titled) denied leave for a security for costs motion and dismissed it on the basis that the moving owners had failed to meet the threshold onus on them. In reaching that determination, my colleague held at paras. 26-27 that retained holdback funds owing to the lien claimant in excess of claimed security for costs was one reason supporting that the threshold onus had not been met. Gowing argues that, like in Yuanda, the holdback exceeds Walsh’s set-off claims supported by evidence on this motion, leaving an amount owing that greatly exceeds the amount sought as security for costs.

[18] I agree with Walsh that this case is not on all fours with Yuanda. The factual circumstances, contractual clauses, and legal arguments before me are distinct from what appears to have been before my colleague in Yuanda. Notably, in Yuanda, there does not appear to have been any evidence supporting particulars or quantification of set-off claims. Walsh has tendered some evidence and advanced specific argument on its contractual and legal rights of set-off against the holdback funds.

[19] Walsh advances two main arguments for why the holdback funds should not be considered Gowing’s “asset” on this motion. I reject both of them.

[20] First, Walsh argues that Walsh Construction Company Canada and WCC Construction Canada, ULC are separate legal entities. Jane Gowing’s allegation that there was no delineation between the two entitles is argued to be nothing more than a bare and unsubstantiated assertion. Walsh Construction Company Canada was not a party to the subcontract and there is no evidence that it was a payor on the project, so it has no holdback or trust obligations to Gowing. As I understand the argument, since the holdback funds are in the hands of WCC Construction Canada, ULC, not Walsh Construction Company Canada, and are subject to set-off claims by WCC Construction Canada, ULC, those funds cannot be an asset available to satisfy a costs award in favour of Walsh Construction Company Canada.

[21] I have difficulty with this argument. Whether Walsh Construction Company Canada does or does not have holdback and trust obligations to Gowing does not change my assessment. Either the holdback is an asset of Gowing that could satisfy a costs award for the purposes of this motion, or it is not.

[22] Walsh Construction Company Canada and WCC Construction Canada, ULC are being jointly defended. There is no distinction drawn between their costs in the bill of costs submitted on this motion. No evidence has been tendered on how legal fees are being paid and if they are being shared between the two entities. If the holdback is properly viewed as Gowing’s asset on this motion, then the fact that those funds are currently in the hands of a related entity and jointly defended co-defendant would seem to be to Walsh Construction Company Canada’s benefit, rather than its detriment.

[23] Second, Walsh argues that WCC Construction Canada, ULC has claimed set-off against amounts owing to Gowing in an amount greater than the retained holdback. Walsh’s position is that, although the holdback funds are earned and unpaid monies under Gowing’s subcontract, they are not monies owing to Gowing because of the set-off claims and should thereby not be considered an available asset to satisfy a costs award.

[24] I have several difficulties with this argument.

[25] In Walsh’s statements of defence in this action and in the amended statement of claim in the related action, Walsh alleges that Gowing performed work poorly, deficiently, and not in accordance with Gowing’s subcontract obligations, did not complete work, and caused project delays that resulted in delay and impact losses, liquidated damages liability, and withholdings by the City. There is no set-off quantification in Walsh’s statements of defence in this action. As already noted, Walsh Construction Canada, ULC claims $4.6 million in damages in the related action.

[26] Because of the statutory holdback obligations imposed by the CLA, payment of holdback was reasonably withheld from Gowing prior to substantial performance of the project. Substantial performance of the project was achieved, though, with certificate of substantial performance signed and published in 2020. Non-payment to Gowing after expiry of the holdback period has been justified by Walsh’s assertion of contractual and legal set-off rights. Since holdback obligations under the CLA have long-since ceased, Walsh’s argument that the holdback funds are irrelevant to this motion hinges on establishing the viability of their position on set-off.

[27] Walsh seeks to distinguish Yuanda by pointing to express contractual withholding and set-off rights, as well as legal set-off rights, which collectively permit withholding from Gowing for potential or actual claims. Walsh further argues that they have demonstrated actual exercise of those contractual and legal set-off rights, which was not the case in Yuanda.

[28] In response to my questions on Walsh’s authority for withholding and setting-off against the holdback funds, I was directed to three sources:

(a) SCC 5.2.3 in the supplementary conditions to the subcontract, which provides Walsh with authority to withhold and deduct from funds due to Gowing amounts to cover Walsh’s reasonable estimate of any costs or liability that either Walsh or the City has incurred or may incur;

(b) s. 111 of the Courts of Justice Act, RSO 1990, c C.43, which provides Walsh with a legal right of set-off against Gowing’s claim for any debt owed by Gowing to Walsh; and

(c) s. 12 of the CLA, which permits a trustee to retain from trust funds an amount equal to “all outstanding debts, claims or damages, whether or not related to the improvement.”

[29] I agree with Walsh that existing case law supports that the court on a security for costs motion is not required to embark on an analysis such as in a motion for summary judgment. The analysis is primarily on the pleadings with recourse to evidence filed on the motion: Coastline Corp. v. Canaccord Capital Corp., [2009] OJ No 1790 (Master) at para. 7 (vi). This motion is not the forum to determine whether Walsh is, in fact, entitled to withhold and set-off against the funds. That is an issue more properly determined at trial.

[30] However, that does not mean that Walsh has no evidentiary burden to at least particularize and provide some quantification of its alleged set-offs. Unsubstantiated allegations of sufficient assets or impecuniosity by a plaintiff would be insufficient to defeat a security for costs motion. I see no reason for a distinction in the required evidence from a moving defendant.

[31] Walsh bears the threshold onus of satisfying me that there is good reason to believe that Gowing has insufficient assets in Ontario. I agree with Gowing that Walsh’s reliance on s. 12 of the CLA as justifying retention for set-off is effectively an acknowledgment of liability for those funds, but Walsh acknowledges that the holdback funds are earned and unpaid amounts under the subcontract in any event.

[32] Since there is no genuine dispute that Gowing would be owed the holdback but for the claims asserted by WCC Construction Canada, ULC, by asking me to disregard the holdback as an asset of Gowing, Walsh is in effect asking me, for the purposes of this motion, to displace Gowing’s legitimate claim to payment of holdback in favour of Walsh’s contingent claims. In my view, doing so would be unjust without some evidence from Walsh supporting that the holdback funds are not actually owing to Gowing, or at least supporting that there is some merit to Walsh’s position.

[33] Requiring some evidence particularizing and quantifying alleged set-offs is, in my view, consistent with the fact-based approach encouraged by the Court of Appeal in Yaiguaje v. Chevron Corporation, supra. It is also consistent with SCC 5.2.3 of the subcontract between the parties, which (as already discussed) does authorize Walsh to deduct reasonable estimates for costs or liability for which Gowing may be responsible, but also requires that Walsh’s estimate “shall be fully detailed and provided to [Gowing] prior to any withholding or deduction.”

[34] Walsh’s pleadings in this and the related action do generally allege deficiencies, incomplete work, and delay resulting in overtime, premium time, acceleration costs, and liquidated damages. However, I do not accept that bare allegations advanced in pleadings are sufficient. Pleadings are allegations, not evidence. In any event, there is nothing in any of Walsh’s pleadings quantifying how the $4.6 million claim is broken down.

[35] In deciding this motion, I must deal with the factual evidence in the record before me. Walsh has put forward only limited evidence on WCC Construction Canada, ULC’s claims. Walsh’s supporting affidavit specifically identifies an aggregate of only $292,621 in damages allegedly suffered from Gowing’s breaches of the subcontract. That figure is comprised of $105,598 paid to complete outstanding electrical work, $37,023 paid for certain deficiency remediation, and a further $150,000 retained by the City of Toronto to correct other deficiencies in Gowing’s work. The affiant does state that those additional costs and City withholding were “among other things”. Nevertheless, despite claiming $4.6 million in damages, that is the totality of evidence on Walsh’s damages before me. There is nothing in the record particularizing or quantifying any other costs or damages.

[36] In these circumstances, I do not accept Walsh’s argument that the holdback should not be viewed as an asset of Gowing. Although Walsh may ultimately prove set-off claims in greater amounts, it has not provided any evidence of an arguable quantification for set-offs above $292,621 in damages. Accordingly, the record before me does not support costs actually or arguably incurred by Walsh exceeding the holdback. I thereby see no just reason why at least the excess holdback funds should not be considered an asset of Gowing.

[37] Walsh is seeking security for costs in the amount of $173,000 to completion of discoveries and mediation. In its bill of costs, Walsh estimates their fees and disbursements in the amount of $347,261.56 on a partial indemnity basis and $434,203.19 on a substantial indemnity basis. However, after bringing this motion, Walsh acknowledged overlap with its related action against Gowing and reduced the requested security for costs by half. Deducting Walsh’s quantified set-offs from the retained holdback, the remainder greatly exceed the requested security for costs.

[38] Gowing may admittedly have ceased carrying on business, but in the particular circumstances of this case that is not dispositive. In the absence of some evidence particularizing and quantifying arguable claims greater than $292,621, Walsh appears to be holding amounts owing to Gowing that more than exceed the security for costs that Walsh seeks. I thereby find that Walsh has not met its onus of demonstrating good reason to believe that Gowing lacks sufficient assets in Ontario to satisfy Walsh’s costs. An order for security for costs is not just.

[39] In light of my determination, I need not address Gowing’s arguments that Walsh has failed to provide sufficient particulars of the quantum of security sought for this action as required by the case law, that discriminatory acts and other misconduct by Walsh’s representatives renders security for costs unjust, that Walsh has not explained the extent of project delay after Gowing’s termination, or other factors relevant to deciding justness of an order for security for costs.

Disposition

[40] For the foregoing reasons, leave for Walsh’s motion under the CLA is denied and the motion is dismissed.

Costs

[41] Costs outlines have been exchanged and submitted. I encourage the parties to agree on costs of this motion and the prior related refusals motion, for which costs were reserved to be determined concurrently with costs of this motion. If they cannot agree, then then written costs submissions shall be exchanged. Gowing shall serve any costs submissions by April 29, 2022. Walsh shall serve its responding costs submissions by May 13, 2022. There shall be no reply submissions absent leave of the court. Costs submissions shall not exceed four (4) pages, excluding any offers to settle and case law, and shall be submitted by email directly to my Assistant Trial Coordinator, with proof of service.

[42] Unless costs submissions are exchanged and filed in accordance with the above, the parties shall be deemed to have agreed on costs.

ASSOCIATE JUSTICE TODD ROBINSON DATE: April 8, 2022