ONTARIO SUPERIOR COURT OF JUSTICE
RE: Kirpak Services Inc., Plaintiff (Respondent)
-and-
Romas Kulvelis, carrying on business as Romo Versalas, also known as Romo Versalas, Defendant (Appellant)
BEFORE: Robert Centa J.
COUNSEL: Douglas Christie, for the Respondent
Walter Kravchuk, for the Appellant
HEARD: June 20, 2022
ENDORSEMENT
1Romas Kulvelis appeals from the order of Associate Justice C. Wiebe, which dismissed Mr. Kulvelis’s motion to require Kirpak Services Inc. to post security for costs of its action. For the reasons that follow, I dismiss the appeal.
A. Background
2Mr. Kulvelis installs balcony railings in the Ontario construction industry. Kirpak Services Inc., is a corporation incorporated under the Canada Business Corporations Act, R.S.C., 1985, c. C-44. Kirill Pak is the sole director and officer of Kirpak Services Inc. Since approximately 2008, Mr. Kulvelis and Mr. Pak have worked together from time to time in the construction sector.
3In 2017, Toro Aluminum Railings Inc. hired Mr. Kulvelis to install balcony railings in two high-rise residential construction projects. Mr. Kulvelis subcontracted some of the work to Kirpak Services Inc.
4On January 11, 2019, Kirpak Services Inc. issued a statement of claim alleging that Mr. Kulvelis breached an oral contract with Kirpak Services Inc by refusing to pay to the company 50% of the profits he earned on the project. Kirpak Services Inc. claimed $250,000 in general damages.
5On February 7, 2019, Mr. Kulvelis served his statement of defence. He pleaded that Kirpak Services Inc. was a “corporation carrying on business in the Province of Ontario in the construction industry” and denied the existence of the oral contract.
6To their credit, the parties promptly exchanged affidavits of documents and on October 23, 2019, former counsel for Mr. Kulvelis conducted an examination for discovery of Mr. Pak on behalf of Kirpak Services Inc.
7On November 3, 2020, Mr. Kulvelis served a notice of change of lawyer appointing his current counsel. On November 18, 2021, Kirpak Services Inc. set the action down for trial.
8On October 28, November 11, and December 16, 2021, counsel for Mr. Kulvelis wrote to counsel for Kirpak Services Inc. and requested information to demonstrate that the company had sufficient assets in Ontario to satisfy a costs order. In the letter dated October 28, 2021, counsel noted that “Kirpak Services Inc. is a federally incorporated company. For the purposes of Rule 56.02 of the Rules of Civil Procedure, please provide the current registered office address in Ontario for Kirpak Services Inc.” Counsel for Kirpak Services Inc. did not respond to this request.
9Unsatisfied, Mr. Kulvelis served a notice of motion returnable on January 25, 2022, requesting an order that Kirpak Services Inc. “deposit security for costs with the accountant of the court” and its costs of the motion. The notice of motion did not specify on which portions of Rule 56 he relied and did not mention rule 56.02. In support of his motion, Mr. Kulvelis swore an affidavit that exhibited, among other things, the corporate profile of the plaintiff, the parcel register for the municipal address listed as the plaintiff’s registered office, property searches in the names of the plaintiff and Mr. Pak for certain regions in and around Toronto, PPSA search results for the name of the plaintiff, and the transcript of the examination for discovery of Mr. Pak.
10Kirpak Services Inc. did not file any responding evidence on the motion and did not cross-examine Mr. Kulvelis on his affidavit.
B. Decision below
11Associate Justice Wiebe dismissed the motion for security for costs and held that none of the three grounds advanced by Mr. Kulvelis justified such an order.
12First, Associate Justice Wiebe held that Mr. Kulvelis did not establish that there appeared to be good reason to believe that Kirpak Services Inc. had insufficient assets in Ontario to pay a costs order, so an order under rule 56.01(d) was not justified.
13Second, Associate Justice Wiebe also held that Mr. Kulvelis did not establish that it appeared that Kirpak Services Inc. was ordinarily resident outside Ontario, so an order under rule 56.01(a) was not justified. In reaching this conclusion, Associate Justice Wiebe declined to draw an adverse inference from the failure of counsel for Kirpak Services Inc. to respond to counsel for Mr. Kuvelis’s request to provide the plaintiff’s current registered office address in Ontario.
14Third, Associate Justice Wiebe held that the action did not appear to be frivolous and vexatious and that the evidence tendered on the motion did not indicate that the plaintiff was bound to fail. For this reason, Associate Justice Wiebe declined to order security for costs under rule 56.01(e).
15Associate Justice Wiebe considered the costs outlines filed by the parties and awarded Kirpak Services Inc. its costs on a partial indemnity basis. Although the costs outline filed by Kirpak Services Inc. claimed costs of $16,760, Associate Justice Wiebe exercised his discretion and awarded only $8,000 in partial indemnity costs because Kirpak Services Inc. had complicated the motion by not providing a response to the Mr. Kulvelis’s rule 56.02 request.
C. Standard of Review and issues on appeal
16Rule 56.01 does not create a prima facie right to security for costs. It creates a process through which the court may exercise its discretion to consider a broad range of factors and to award security for costs if the court considers it just to do so: Zeitoun v. Economical Insurance Group, (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.), affirmed (2009), 2009 ONCA 415, 96 O.R. (3d) 639.
17The parties agree on the appropriate standard of review. I may only interfere with the order if I am satisfied that Associate Justice Wiebe made an error of law, exercised his discretion on the wrong principles, or misapprehended the evidence such that there is a palpable and overriding error: Zeitoun (Div. Ct.) at paras. 40-41. I must show deference to the decision of the Associate Justice and I may not interfere with it simply because I might have exercised my discretion differently.
18Mr. Kulvelis raises several challenges to the order of Associate Justice Wiebe. I have organized them as follows:
a. Did Associate Justice Wiebe err in his approach to Mr. Kulvelis’s rule 56.02 demand?
b. Did Associate Justice Wiebe misapprehend the evidence on the motion and commit a palpable and overriding error err by finding that Mr. Kulvelis did not lead evidence about Kirpak Services Inc. sufficient to demonstrate that it appears to be good reason to believe that the matter comes within one of the circumstances enumerated in rule 56.01?
c. Did Associate Justice Wiebe err in making a costs award in favour of Kirpak Services Inc.?
D. No error with respect to the rule 56.02 demand
19Mr. Kulvelis raises several issues with respect to how Associate Justice Wiebe treated the failure of Kirpak Services Inc. to respond to the rule 56.02 demand. I do not accept that any of these submissions justify setting aside the order below.
20Rule 56.02 states as follows:
56.02 The lawyer for the plaintiff or applicant shall, forthwith on receipt of a demand in writing from any person who has been served with the originating process, declare in writing whether the plaintiff or applicant is ordinarily resident in Ontario and, where the lawyer fails to respond to the demand, the court may order that the action or application be stayed or dismissed.
21First, Mr. Kulvelis cannot complain that Associate Justice Wiebe did not order Kirpak Services Inc. to answer the rule 56.02 demand because he did not seek that relief in his notice of motion.
22Second, I do not accept Mr. Kulvelis’s submission that, because of the failure to answer the rule 56.02 request, Justice Wiebe was required to draw an adverse inference against Kirpak Services Inc. when considering whether or not to grant the motion for security for costs. The text of rule 56.02 does not suggest that an adverse inference is mandatory.
23Third, Associate Justice Wiebe considered drawing an adverse inference against Kirpak Services Inc. He declined to do so and the other evidence filed on the motion amply supported this decision. In his letter dated October 28, 2021, counsel for Mr. Kulvelis asked the following question: “For the purposes of Rule 56.02 of the Rules of Civil Procedure, please provide the current registered office address in Ontario for Kirpak Services Inc.” This question did not track the language used in rule 56.02, which instead asks if the plaintiff is ordinarily resident in Ontario.
24Moreover, Mr. Kulvelis subsequently answered his own question. As an exhibit to his affidavit, Mr. Kulvelis attached a corporate profile for Kirpak Services Inc. dated December 21, 2021. That corporate profile listed the corporation’s registered office address, which was in Ontario. Mr. Kulvelis obtained exactly the information requested in the October 28 letter. That information was publicly available. In these circumstances, Associate Justice Wiebe did not commit a reviewable error by declining to draw an adverse inference.
25Third, there is no merit to Mr. Kulvelis’s submission that Associate Justice Wiebe failed to consider the significance of the unanswered rule 56.02 demand or the nexus between the unanswered rule 56.02 demand and Mr. Kulvelis’s onus under Rule 56. As noted above, Mr. Kulvelis had the information he requested in his counsel’s October 28 letter from the corporate profile and placed it before Associate Justice Wiebe. The evidence before the court was that the corporation had its registered office in Ontario. Moreover, Mr. Kulvelis had pleaded in his statement of defence that Kirpak Services Inc. was a “corporation carrying on business in the Province of Ontario in the construction industry.” Given that pleading, Associate Justice Wiebe did not err in his approach to the significance of the unanswered rule 56.02 request in the motion for security for costs.
26I agree with Associate Justice Wiebe that counsel for Kirpak Services Inc. should have answered the correspondence from counsel for Mr. Kulvelis with respect to the registered address of the company. The requests were reasonable and the requirements of rule 56.02 are clear. If this request remains outstanding, it should be answered forthwith.
E. No error in assessing the evidence or assessing the elements of rule 56.01
27Mr. Kulvelis asserts that Associate Justice Wiebe committed an “overarching error” in concluding that Mr. Kulvelis had not met the initial burden to under rule 56.01. I disagree.
28The approach to be followed on a rule 56.01 motion was well summarized in Coastline Corp. v. Canaccord Capital Corp. 2009 21758 (ON SC). The initial onus is on the defendant to satisfy the court that it appears there is good reason to believe that the matter comes within one of the circumstances enumerated in rule 56.01. The onus on the defendant at this first stage is not onerous: AAD Investments Inc. v. Casboro Industries Limited, 2017 ONSC 3041 at para. 11. The defendant does not need to prove conclusively that the circumstances described in rule 56.01 exist, but the defendant must make out the necessary appearance: Warren Industrial Feldspar Co. Ltd. v. Union Carbide Canada Ltd. et al. (1986), 1986 2683 (ON SC), 54 O.R. (2d) 213 (H.C.J.). Once the first part of the test is satisfied, the onus is on the plaintiff to establish that an order for security would be unjust.
29The portions of rule 56.01 at issue on this appeal are as follows:
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,
(a) the plaintiff or applicant is ordinarily resident outside Ontario;
(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;
(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; ….
30Mr. Kulvelis accepts that he had the burden to lead evidence sufficient to persuade Associate Justice Wiebe that it appeared that:
a. Kirpak Services Inc. was ordinarily resident outside Ontario (rule 56.01(a)); or
b. there is good reason to believe that Kirpak Services Inc. has insufficient assets in Ontario to pay the costs of Mr. Kulvelis (rule 56.01(d)); or
c. there is good reason to believe that the action was frivolous and vexatious and that Kirpak Services Inc. has insufficient assets in Ontario to pay the costs of Mr. Kulvelis (rule 56.01(e)).
31Although the hurdle on the defendant at the first stage is low, the defendant must lead evidence to meet its burden. In this case, I agree with Associate Justice Wiebe that the evidence filed by Mr. Kulvelis did not meet even the low standard expected at the first step of a Rule 56 motion.
32Mr. Kulvelis criticizes the conclusions that Associate Justice Wiebe drew about the individual pieces of evidence he tendered. None of the errors alleged by Mr. Kulvelis are palpable or overriding whether considered separately or together.
33Some of Mr. Kulvelis’s evidence related only to Mr. Pak and not to the plaintiff, Kirpak Services Inc. This evidence was largely irrelevant to the motion and Associate Justice Wiebe did not commit a palpable or overriding error by giving it little or no weight. For example, even if Mr. Pak worked in Newfoundland from May 2018 to February 2019, that evidence is irrelevant to the question of whether or not Kirpak Services Inc., a corporation with a registered office in Ontario that was carrying on business in Ontario, was ordinarily resident in Ontario. In addition, even if it was relevant to Kirpak Services Inc., the information is extremely dated and a 10-month absence in 2018-2019 would not make it appear that in 2022 the plaintiff corporation was ordinarily resident outside of Ontario. Finally, during the examination for discovery, Mr. Pak stated that he was not planning on returning to Newfoundland and had come back permanently. Associate Justice Wiebe did not commit a palpable and overriding error in determining that it did not appear that Kirpak Services Inc. was ordinarily resident outside of Ontario.
34Similarly, even if there was a mortgage on property owned by Mr. Pak personally when he sold it for $930,000, that is irrelevant to whether or not the plaintiff, Kirpak Services Inc., had sufficient assets in Ontario to pay a costs award to Mr. Kulvelis. Associate Justice Wiebe did not err by observing that this transaction suggested that Mr. Pak may have had cash on hand to invest in the business as required. Associate Justice Wiebe did not commit a palpable or overriding error in finding that this evidence did not create good reason to believe that Kirpak Services Inc. had insufficient assets to meet a costs order.
35Associate Justice Wiebe declined to draw certain inferences from the evidence tendered by Mr. Kulvelis. For example, Mr. Kulvelis filed a PPSA registration showing that TD Auto Finance (Canada) Inc. had registered a security instrument in connection with a 2017 Ram truck owned by Kirpak Services Inc. This document is of little assistance to Mr. Kulvelis. A PPSA searches would not reveal any assets owned free-and-clear by Kirpak Services Inc. The fact that a security interest was registered against one of the company’s assets does not mean the company lacked assets in Ontario sufficient to satisfy a costs order. It merely proves that Kirpak Services Inc. had one asset that was subject to a registered security interest. Associate Justice Wiebe did not err by observing that this search also suggested that Kirpak Services Inc. continued to operate with this vehicle.
36Associate Justice Wiebe correctly identified deficiencies in the evidence tendered by Mr. Kulvelis. I do not accept Mr. Kulvelis’s argument that Associate Justice Wiebe made factual findings without evidence. In each case, Associate Justice Wiebe was simply pointing out the obvious limitations in the evidence tendered by Mr. Kulvelis. For example, Mr. Kulvelis tendered property searches that appeared to demonstrate that Kirpak Services Inc. did not own real estate in the Greater Toronto area. Associate Justice Wiebe correctly pointed out the limits of that evidence: it did not prove that Kirpak Services Inc. did not own real estate in Ontario outside the areas searched. The searches did not create an appearance that Kirpak Services Inc. did not hold other assets sufficient to satisfy a costs order.
37It is important to note that Mr. Kulvelis brought his motion for security for costs almost three years after Kirpak Services Inc. issued the statement of claim and over two years after the examination for discovery of the plaintiff’s representative. Leaving aside the issue of delay (which may itself be fatal to a motion for security for costs: 423322 Ontario Ltd. v.; Bank of Montreal (1988), 1988 4719 (ON SC), 65 O.R. (2d) 136, aff’d 1988 4678 (ON SC), 66 O.R. (2d) 123 (H.C.J.), the stage at which this motion was brought is relevant when considering the strength of the evidence tendered by Mr. Kulvelis. A motion for security for costs at this stage is unusual as they normally heard at a very preliminary stage after pleadings have been closed and before any form of discovery has taken place: Aviaco International Leasing Inc. v. Boeing Canada Inc (2000), 48 C.P.C. (4th) 366 at 374. If Mr. Kulvelis was concerned about the plaintiff’s ordinary residence or assets, these matters could have been canvassed during the examination for discovery (which were conducted by the defendant’s former counsel).
38In conclusion, Associate Justice Wiebe did not commit any errors that would justify interfering with his order. His reasons for decision are thorough and carefully explain his conclusions. There is no reason to interfere with his order.
F. No error with respect to costs of the motion for security for costs
39Mr. Kulvelis challenges Associate Justice Wiebe’s costs order, which awarded Kirpak Services Inc. partial indemnity costs fixed at $8,000. I may only interfere with that costs award if it was clearly wrong or Associate Justice Wiebe made an error in principle: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303 at para. 27.
40Mr. Kulvelis submits that Associate Justice Wiebe should have declined to make a costs award in favour of Kirpak Services Inc. because it failed to respond to the rule 52.06 demand. The Rules of Civil Procedure, however, do not require that outcome. Associate Justice Wiebe, nevertheless, took this factor into account and reduced the amount of the costs award to sanction this conduct:
[31] Concerning costs, the defendant filed a costs outline that shows $10,956.22 in partial indemnity costs for the costs of this motion. The plaintiff filed a costs outline that shows $16,760 in partial indemnity costs.
[32] Given the nature of this motion, it is unlikely there are offers to settle that are relevant. I have decided, therefore, to award costs now. Clearly the plaintiff succeeded on this motion and deserves costs. However, the fact that it did not abide by its mandatory obligation under Rule 56.02 to respond to a written demand concerning the residence of the plaintiff did not impress me. Mr. Christie conceded that he overlooked this point entirely. This unnecessarily complicated the motion.
[33] I have decided as a result to award the plaintiff $8,000 in partial indemnity costs payable in thirty days. This is half of what the plaintiff claims and falls within the range of what the defendant would reasonably have expected to pay in the event of a loss given the defendant’s costs outline. Also, the motion, although important, was not complex. The award is proportional.
41I see no error in Associate Justice’s exercise of discretion.
G. Disposition and costs
42For the reasons set out above, I dismiss the appeal from the order of Associate Justice Wiebe dated February 4, 2022.
43At the hearing of the appeal, counsel for the parties indicated that there were without prejudice communications that might be relevant to the matter of costs. I urge the parties to attempt to resolve the matter of costs between them and to advise my judicial assistant if they are able to do so.
44If they are not able to resolve costs, the plaintiff may make costs submissions of no more than three double-spaced pages to be sent to my assistant within five days of the release of this endorsement. The defendant may file responding submissions of no more than three double-spaced pages within a further five days. There will be no reply submissions permitted without leave.
Robert Centa J.
Date: June 21, 2022