SRK Woodworking Inc. v. Devlan Construction Ltd. et al.
COURT FILE NO.: CV-20-71802
DATE: 2022/11/02
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SRK WOODWORKING INC., Plaintiff
AND:
DEVLAN CONSTRUCTION LTD., THOMAS SPENCE ANDERSON and HAMILTON WENTWORTH DISTRICT SCHOOL BOARD, Defendants
BEFORE: Justice L. Sheard
COUNSEL: Jarvis K. Postnikoff, for the Plaintiff/Responding Party Robert J. Kennaley, for the Defendant, Devlan Construction Ltd./Moving Party
No one else appearing
HEARD: August 25, 2022
AMENDED ENDORSEMENT
Overview
[1] The plaintiff, SRK Woodworking Inc. (“SRK”), brings this lien action with respect to the payment for the supply and installation of millwork to a local public school. SRK claims $100,993.69. The action is defended and the defendant contractor, Devlan Construction Ltd. ("Devlan”), counterclaims against SRK for breach of contract and damages in the total amount of $160,000.
[2] SRK registered a lien on the property in the amount of $100,993.69, which was vacated upon Devlin posting security for the amount of the lien together with an additional $25,248.42 in respect of costs for a total of $126,242.11.
[3] Devlan moves for an order requiring SRK to post security for Devlan’s costs. The motion is brought pursuant to Rule 56.01 (d) of the Rules of Civil Procedure, R.R.O. 1990 O. Reg. 1994, which provides that an order for security for costs may be made where it appears that the plaintiff is a corporation and there is good reason to believe the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.
[4] SRK admits that it does not have the ability to pay a costs award in favour of Devlan, were one to be granted against it, but opposes the order sought on the basis that SRK’s impecuniosity was caused, in part, by Devlan.
Preliminary issue: Should Devlan be granted leave to bring this motion?
[5] Pursuant to s. 67. (2) of the Construction Lien Act, R.S.O. 1990. c. C.30 (now s. 13, O. Reg 302/18: Procedures for Actions Under Part VIII made under the Construction Act), Devlan requires leave to bring this motion for security for costs.
[6] The wording under s. 67. (2) and s. 13 is virtually identical. S. 67. (2) reads as follows:
Interlocutory steps, other than those provided for in this Act, shall not be taken without the consent of the court obtained upon proof that the steps are necessary or would expedite the resolution of the issues in dispute.
[7] I agree with and adopt the analysis of MacNeil J. in Compass Mechanical Contracting Inc. v. AIM Recycling Hamilton et al, 2022 ONSC 4656, paras. 14 – 24, concerning the test of “necessity” that must be met by Devlan on this motion.
[8] As referenced at para. 19 of Compass, in Proxima Ltd. v. Birock Investments Inc., 2016 ONSC 5686, at para 15., the court explained that “[t]he purpose of security for costs is to even the playing field by ensuring that an ‘insolvent plaintiff should not be given risk-free opportunities to pursue litigation’. In addition, as set out in European Flooring Contract Services Ltd. v. Toddglen ILofts et al., 2013 ONSC 6445, “where it is shown there is good reason to believe that a corporate plaintiff does not have sufficient assets in Ontario to pay the defendant’s costs, the defendant has met the test for necessity for leave under s.67 (2) of the Construction Lien Act”: Compass, at para 19.
[9] On this motion, SRK acknowledges that it does not have the ability to pay a costs award. In addition, on cross-examination, the evidence given by SRK’s representative, Mohammad Younas Choudhry, supports a conclusion that SRK does not have sufficient assets in Ontario to pay Devlan’s costs.
[10] In reference to the purpose of an order for security of costs to “even the playing field”, Devlan asks the court to consider that, in order to vacate the lien registered by SRK, Devlan was required to post security for the full amount of SRK’s claim together with an additional 25% of that amount for costs.
[11] Based on the evidence before me on this motion, I am satisfied that Devlan has met its onus under s.67(2) and grant Devlan consent to bring this motion.
Security for Costs
[12] In Know Your City Inc. v. The Corporation of the City of Brantford, 2020 ONSC 7364 (Div. Ct.), the Court held that when deciding whether it is just to make an order for security for costs, the court is to look at all of the circumstances, including the merits of the case. The court repeated the framework for deciding whether an order for security costs is appropriate, as found in Coastline Corp. v. Canaccord Capital Corp. 2009 CanLII 21758, at para. 7.
[13] That framework is summarized at para. 3 of Devlan’s factum on the motion, reproduced below:
(a) 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;
(b) the onus then shifts to the plaintiff to establish that an order for security would be unjust by demonstrating that:
i. it has appropriate or sufficient assets to satisfy a costs order;
ii. that it is impecunious and that justice demands that the plaintiff be permitted to continue with the action because it has a claim that is not "plainly devoid of merit”; or,
iii. if impecuniosity is not established, by meeting the high-hurdle high threshold of satisfying the court that it has a reasonable chance
of success in the action.
[14] On this motion, SRK has the onus to establish direct and indirect impoverishment: see, Melco Construction Inc. v. Frost Sparkling Springs Co. Ltd., 2011 ONSC 2197.
[15] SRK has admitted that it cannot pay a costs award. However, the evidence put forth by SRK falls short of establishing that SRK is impecunious. In fact, the only evidence concerning SRK’s financial wherewithal relates to the financial circumstances of its managing director, Mohammad Younus Choudhry (“Choudhry”), and Choudhry’s daughter, Nosheem Nadeem, a director of SRK according to SRK’s registered corporate profile.
[16] Choudhry’s evidence is that he is receiving welfare. He states also that Nadeem and her two children live with him, and that she is similarly unable to financially pay any costs awarded against SRK.
[17] Evidence concerning the finances of SRK’s managing director and director is not evidence of SRK’s assets; SRK has not submitted any evidence as to its assets, nor evidence as to the identity and/or wherewithal of SRK’s shareholders.
[18] SRK has not met its obligation to make full financial disclosure which would include disclosure of the amount and source of all income; a description of its assets (including values); a list of 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: see Melco Construction, at para. 25.
[19] That information is relevant in that if SRK has insufficient assets, the onus to be met by SRK is show that there is no money available from SRK’s shareholders to fund the action and post security for costs: see Compass, at para. 27, citing Melco Construction, at para. 28. SRK has led no evidence to satisfy that onus.
[20] Returning to the framework set out in Coastline Corp., if, as here, the plaintiff has not established that it is impecunious but has shown that it does not have sufficient assets to meet a costs order, the onus is then on the plaintiff to satisfy the court that it has a good chance of success in the action: Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 OR (3d) 131 (Ont. Div. Ct.), aff’d 2009 ONCA 415 (Ont. C.A).
[21] Devlan submits, and I accept, that SRK has failed to lead any evidence that its claim against Devlan is meritorious or to meet its onus to establish that its claim has a good chance of success.
[22] In addition to asserting that it is impecunious – without any evidentiary support – SRK also asserts that its impecuniosity was caused, in part, by Devlan and, for those reasons, SRK submits that an order for security for Devlan’s costs ought not to be granted.
[23] In fact, the evidence given by Choudhry on cross-examination is that SRK had cash-flow problems prior to invoicing Devlan. For example, SRK’s landlord had locked SRK out of its shop for non-payment of rent; and, prior to invoicing Devlan, SRK asked Devlan to advance payment to it to pay invoices unrelated to the subject project.
[24] Based on the evidence before me and my findings respecting SRK’s failure to meet its onus, I conclude that Devlan is entitled to an order for security for costs under r. 56.01(1)(d).
Amount of security
[25] Devlan seeks an order that, on or before the trial of this lien action, SRK pay into court the sum of $78,000 as security for Devlan’s costs. The trial of this action is set to take place in the trial sittings commencing May 8, 2023. A pretrial is scheduled to take place on March 8, 2023.
[26] Based on Devlan’s Costs Outline, its fees and disbursements, calculated on a partial indemnity basis, to the date of this motion, total $22,617.80, inclusive of taxes.
[27] Devlan estimates its (future) partial indemnity fees and disbursements to the end of trial will be $46,474.77 and $9,250.00, respectively.
[28] Devlan submits that it would be appropriate for an order for security for costs to be made to be made on a “pay-as-you-go” or instalment basis.
[29] I am of the view that the “pay-as-you-go basis is fair and appropriate in this case given that the trial is not set to proceed until May of next year.
Disposition
[30] For the reasons outlined above, I order that SRK either pay into court or post security for Devlan’s costs of this action on the following schedule:
(a) Within 30 days of the release of this Endorsement, the sum of $22,500;
(b) Not later than 30 days prior to the pre-trial conference on this action, the further sum of $10,000; and
(c) Not later than 30 days prior to the date on which the trial of this action is set to begin, the further sum of $45,000.
[31] As the successful party on this motion, Devlan is presumptively entitled to its costs. I would urge the parties to attempt to reach an agreement on costs. If they are unable to do so, then costs submissions shall be made to me via email to the Trial Coordinator as follows:
Within 21 days of the date of the release of this decision, Devlan shall serve and file its written costs submissions, not to exceed three pages, double-spaced, together with its draft bill of costs, dockets, and copies of any relevant offers to settle.
Within 14 days of the service upon it of Devlan’s costs submissions, SRK shall serve and file its responding submissions of no more than three pages, double-spaced, together with its draft bill of costs, dockets, and copies of any relevant offers to settle.
Within 7 days of service upon it of SRK’s costs submissions, Devlan may deliver its reply submissions, if any.
[32] If no submissions are received within 35 days of the date of the release of this Endorsement, the parties shall be deemed to have resolved the issue of the costs and costs will not be determined by the court.
Justice L. Sheard
Date: November 2, 2022
APPENDIX
Page 2, at para. 6: In the first line of the quoted citation, the word “interrogatory” was removed and replaced with the word “interlocutory”.
Page 4-5, at para. 30: In subsection (c) line 2, the amount of $145,000 was changed to $45,000.
COURT FILE NO.: CV-20-71802
DATE: 2022/11/02
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SRK Woodworking
-and-
Devlan Construction Ltd. et. al.
AMENDED endorsement
L. Sheard J.
Released: November 2, 2022