Court File and Parties
COURT FILE NO.: CV-21-1587
DATE: 2022-12-29
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Tricott Developments Inc. Plaintiff (Defendant by Counterclaim), Responding Party
– and –
Sunvest Development Corp. and Defendant, Moving Party
Countrystone Homes Ltd. Defendant (Plaintiff by Counterclaim), Moving Party
COUNSEL:
E. Durst, for the Plaintiff (Defendant by Counterclaim), Responding Party
S. Shoor, for the Defendants (Plaintiff by Counterclaim), Moving Parties
HEARD: September 15, 2022, by video conference
BEFORE: The Honourable Justice I.R. Smith
REASONS ON MOTION
Introduction
[1] The moving parties, Sunvest Development Corp. (“Sunvest”) and Countrystone Homes Ltd. (“Countrystone”) seek leave pursuant to s. 13 of O. Reg 302/18: Procedures for Actions Under Part VIII under Construction Act, R.S.O. 1990 c. C.30 (the “Regulation”) to bring this motion and, if leave is granted, move for security for costs. I have concluded that leave should be granted and that the order requested by the moving parties should be made.
Background
[2] Sunvest owns a parcel of land in Kitchener upon which Countrystone hoped to construct a residential development comprised of six buildings (the “project”). Countrystone entered into discussions with Corey Cotter, a representative of Tricott Developments Inc. (“Tricott”), with a view to considering Tricott as the general contractor for the project. Mr. Cotter’s wife, Tiffany Theberge, is the president and sole director and shareholder of Tricott.
[3] After securing financing for the project from the Toronto-Dominion Bank (“TD”), in September 2021, Tricott and Countrystone entered into a contract for the building of the project pursuant to which Tricott would be paid over $17 million dollars (the “contract”). TD’s financing had been secured only after Tricott had supplied to TD information respecting Tricott’s qualifications to undertake the project.
[4] Beginning in October 2021, TD began to question the veracity of the information which Tricott had supplied respecting its experience as a contractor. The moving parties were eventually advised by TD that it had conducted an investigation and that the information supplied by Tricott to TD was false. TD advised that it would no longer fund the project unless Tricott supplied further information to TD. Tricott failed to provide that information and, on November 3, 2021, TD withdrew its financing of the project. The following day, Countrystone terminated the contact.
[5] The contract was terminated after Tricott had begun work on the project. For that work, Tricott issued four invoices, two of which were paid by Countrystone and two of which, dated September 30 and November 1, 2021, and totalling $807,062.12, have not been paid. Tricott registered a lien in that amount, which lien was vacated when Sunvest paid the same amount into court along with $201,765.54 as security for costs.
[6] The moving parties take the position that Tricott has failed to supply supporting documentation for its last two invoices and has failed to follow the proper procedure for the certification of its invoices.
[7] Tricott has sued the moving parties for the $897,062.14 for services and materials it says it provided to the project and a further $3.7 million in for profits it says have been lost because of the termination of the contract[^1].
[8] As I have said, the moving parties seek an order for security for costs. They say that they now know that Tricott it is a very small operation with just two employees, Mr. Cotter and Ms. Theberge, and that it appears, based on the failure of Tricott to supply satisfactory information to TD, that Tricott may not have previously undertaken any construction project of significance. In this regard, the moving parties point out that Mr. Cotter has acknowledged that Tricott did not carry out any business prior to July of 2021. Under cross-examination, Mr. Cotter refused to answer questions about Tricott’s assets or about his own experience in the construction industry. The moving parties also note that Tricott has no “online presence,” that it does not appear to be doing anything to attract business, and that it had vacated its offices in Kitchener by November of 2021. It seems that Tricott has no income or assets of significance.
[9] From this collection of facts, the moving parties argue that Tricott has insufficient assets to pay Countrystone’s costs in defending the claim. It is therefore unfair to require the moving parties to proceed without security for costs, especially given that they have had to post security for Tricott’s costs.
[10] Countrystone (but not Sunvest) has counterclaimed against Tricott, alleging breach of contract, and negligent or fraudulent misrepresentation. Tricott denies any breach of contract or having made any misrepresentation. The moving parties emphasize that the request for security for costs has nothing to do with the counterclaim.
[11] As for the moving parties’ claims about Tricott, Mr. Cotter agrees that he and his wife are its only employees but says that that is not uncommon for general contractors, whose very business is the hiring of sub-contractors to complete the construction. He says that in these circumstances the fact that the company named Tricott was new and had not carried on business is of no significance. It was simply a new company that would be used for the project. It does not reflect any lack of experience. Tricott says that Mr. Cotter refused questions respecting his experience and Tricott’s assets because the examination was an examination where the issues were the quantum and validity of Tricott’s lien. Tricott’s assets and Mr. Cotter’s experience were not relevant to those issues. Moreover, the lack of online presence reflects nothing more than the fact that Tricott has never needed a website, and the fact that Tricott gave up its office space reflects nothing more than that Tricott did not need the space once Countrystone terminated the contract for the project.
[12] Mr. Cotter further deposes that Tricott has embarked on a new project. In March 2022, Ms. Theberge purchased a property in Kitchener where Tricott will act as general contractor for the construction of a new home on that property.
The Law
[13] The Regulation requires that parties proposing to take interlocutory steps in construction lien matters obtain leave of the Court “on proof that the steps are necessary or would expedite the resolution of the issues in dispute.” A step will be necessary where it is required to do procedural justice. In appropriate cases, orders for security for costs are intended to do just that – ensure procedural fairness – and leave should be granted in those cases (Biotechnik Inc. v. O’Shanter Development Co. (2003), 30 C.L.R. (3d) 52 (Ont. S.C.J.), at paras. 28 – 29; Bolton Mechanical Inc. v. EBC Inc., 2020 ONSC 3407, at para. 16; Norseman Construction & Development Ltd. v. Evdemon (2013), 50 C.L.R. (4th) 165 (Ont. S.C.J.), at paras. 12 – 13). Cases where leave has been granted to move for security for costs have met the threshold set out in Rule 56.01(1)(d): that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the defendants costs (Bolton Mechanical, supra, at paras. 15 – 18; Gowing Contractors Ltd. v Walsh Construction Company Canada, 2021 ONSC 7683, at para. 7).
[14] The “good reason to believe” test is a “reduced,” “lighter” or “modest” onus given that it rests on the shoulders of the party which has imperfect knowledge of the financial affairs of the party from whom security is sought. Nevertheless, the onus is a real one which requires the moving party to show reason for “concern” that is more than “mere conjecture, hunch or speculation” (City Commercial Realty (Canada) Ltd. v. Bakich, [2005] O.J. No. 6443 (C.A.), at paras. 7 – 8; Chill Media Inc. v. Brewers Retail Inc., 2021 ONSC 1296, at paras. 9 – 10; JoBro Film Finance Ltd. v. National Bank of Canada, 2020 ONSC 975, at para.5 – 7, 20).[^2]
[15] The test for leave under the Regulation where security for costs is sought is effectively the same as – and also satisfies – the threshold test under the Rules for an order for security for costs (Eagle Construction Services Inc. v. Royal One 2225 Markham Road Med Centre Ltd., 2021 ONSC 2347, at para. 33; Norseman, supra, at para. 13)). Pursuant to the latter, the moving party must make out a prima facie case of one of the justifications for an order for security for costs set out in Rule 56 (in this case, that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant). Again, the burden on the moving party is not onerous, and is a “lighter onus than proof on a balance of probabilities” (7868073 Canada Ltd. et al. v. 1841978 Ontario Inc. et al., 2019 ONSC 1708, at para. 5). Once that threshold has been met, the onus then shifts to the plaintiff to show either that it does have sufficient assets to satisfy a costs award or that an order for security for costs would be unjust (2311888 Ontario Inc. v. Ross, 2017 ONSC 1295, at para. 17; Chill Media, supra, at paras. 9 – 10, 30; Bolton Mechanical, supra, at para. 27; Norseman, supra, at para. 13; Hagshama Canada 9 Gold Ltd. v. Decade Urban Communities Corp., 2021 ONSC 5150, at para. 15).
[16] While it is open to the plaintiff to respond to a motion for security for costs by declining to lead evidence of its own assets, and by taking the position that the defendant has failed to make out a prima facie case that the plaintiff has insufficient assets, where it is does so it runs the risk that the defendant will make out a prima facie case and that the plaintiff will be unable to meet its onus to rebut that prima facie case (Norseman, supra, at para. 28; Gowing, supra, at paras. 26 – 27). Such a plaintiff may be limited to arguing that an order for security for costs would be unjust for other reasons.
Analysis
[17] In this case there is good reason to believe that Tricott has insufficient assets to pay the costs of the moving parties. In this respect I note that in City Commercial, supra, at para. 12, Lang J.A. provided examples of indicia of insolvency or instability which would satisfy the test – of which there was no evidence in that case. She then wrote the following (at para. 13):
Nor have the moving parties led any evidence as to other relevant particulars about the company that would suggest an inadequacy of assets. There is no suggestion that City Commercial was incorporated for the sole purpose of the transaction at issue. There is no evidence it has any unsatisfied judgments or liabilities. There is no corporate credit search evidencing instability, financial or otherwise. There are no indicia that the company disposed of significant assets or ceased operating, even for a brief time, as a viable business [emphasis added].
[18] Here, as noted above, there is evidence from Mr. Cotter himself that the company which became Tricott was incorporated as a numbered company in 2008, that it sat dormant for roughly 13 years, and that prior to entering into the contract and taking on the project Tricott had never conducted any business. In his affidavit, Mr. Cotter deposes as follows:
After our bid for the Project was accepted, [Ms. Theberge] and I planned to establish a new company under the business name Tricott Developments. […]
Rather than incorporating a new entity, [Ms. Theberge] and I decided to use [the numbered company]. The company’s name was formally changed to Tricott Developments Inc. [in May 2021].
[19] After the contract was cancelled in November 2021, Tricott vacated its offices. Its only project is the construction of a single home on a piece of property owned by Ms. Theberge, which property was purchased by her in March, 2020.
[20] In other words, it appears (1) that Tricott was formerly a dormant shell corporation that was used for the sole purpose of taking on the project, (2) that when the project came to an end, Tricott had no other work, closed its offices, and now has just two employees, and (3) that it now pursues only a small project on a property that is not an asset of Tricott. Indeed, there is no evidence at all that Tricott has any assets, nor that it has earned any income since the demise of the project. In all these circumstances, the moving parties have demonstrated that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the defendants’ costs.
[21] The moving parties have met their onus, and the onus now shifts to Tricott to show that the order sought by the moving parties should not be made because it is unjust. Tricott’s onus may be satisfied (1) if it can show that it has sufficient assets in Ontario to pay any order of casts against it; or (2) it can show that it is impecunious and that its claims is not plainly devoid of merit; or (3) failing a showing of impecuniosity, it can show that it does not have sufficient assets to meet a costs order, and that its claim has a good chance of success (2311888, supra, at para. 17).
[22] Tricott led no evidence of its assets, having taken the position that the moving parties had not met the threshold burden. It has also not claimed impecuniosity. Tricott argues instead that to order security for costs would be unjust since its claim against the defendant moving parties is meritorious and has a good chance of success. A “good chance of success” is a standard higher than a claim that is not frivolous or “not plainly devoid of merit” and lesser than a “probability” of success. It has also been described as a “real possibility of success” (Morton, et al. v. Canada (2005), 2005 CanLII 6052 (ON SC), 75 O.R. (3d) 63 (S.C.J.), at paras. 20 – 21; Willets v. Colalillo, [2007] O.J. No. 4623 (S.C.J.), at para. 55).
[23] On the record before me it is not possible for me to conclude that Tricott’s claim has a good chance or a real possibility of success (see Bolton Mechanical, supra, at paras. 33 – 33). The dispute between the parties relates to the non-payment of two Tricott invoices totalling over $800,000, and an alleged loss of profits. With respect to the former, while Mr. Cotter testified that the invoices would have been paid if Tricott had followed the proper procedures mandated by the contract, those procedures include proper support for the amounts claimed, and certification by a consultant who agrees that the invoice reflects work actually performed and supported by relevant documentation. The record before me does not allow me to conclude that the plaintiff has a good chance of establishing that the proper procedure was followed, or that there is proper support for the amounts claimed that have been or will be certified by a consultant.
[24] In addition, the parties are sharply divided on whether Tricott could ever establish that any profit was lost when the contract was terminated. While Tricott claims that its projected profit was $3.75 million, the moving parties deny that Tricott would have made any profit from the project given that they now understand – having sought new contractors to take over the project – that Tricott’s estimate for the cost of the project was unrealistically low. Indeed, the moving parties point to this underestimate as evidence of Tricott’s lack of competence and relevant experience to qualify it to undertake the project. I cannot find on the record available to me that the plaintiff has a good chance of establishing that it would have made any profit, let alone the lost profit it claims.
[25] As noted above, the moving parties have posted over $200,000 as security for the plaintiff’s costs. I am satisfied that an order for security for costs against Tricott will have the effect of “levelling the playing field” between the parties (see, Biotechnik, supra, at paras. 52 – 53; Bolton Mechanical, supra, at para. 34; 1917196 Ontario Ltd. v. Kazmi, 2022 ONSC 2289, at paras. 14 – 16).
[26] Tricott argues, however, that the Countrystone’s counterclaim should disentitle the moving parties from security for costs on Tricott’s claim. Generally, while the existence of a counterclaim may be relevant on a motion for security for costs, it does not preclude the granting of the relief sought (Bolton Mechanical, supra, at paras. 36 – 39). In cases where the counterclaim is “the real driver” of the litigation, this factor may weigh against granting security for costs against the plaintiff (European Flooring Contract Services Ltd. v. Toddglen ILofts Limited et al., 2013 ONSC 6445, at para. 33).
[27] In this case, I do not agree that the counterclaim poses an impediment to the moving parties’ request for relief. While the factual underpinnings of the competing claims overlap, I note that Tricott’s claim is focused on payment for work it claims was completed and on profits lost, while the counterclaim is focused on the costs of the delay caused by TD’s decision to withhold financing when Tricott failed to supply the required information. Moreover, the parties to the claim and counterclaim are not identical: Sunvest is not a party to the counterclaim, which is brought by Countrystone alone.
[28] For all these reasons, I am of the view that the motion should succeed and that an order for security for costs against Tricott is just in all the circumstances. I am further of the view that the defendants’ request for security in the same amount as they posted for the benefit of the plaintiff is also just.
Orders
[29] Accordingly, I order as follows:
a) Leave to bring the motion is granted.
b) Tricott will pay into Court the amount of $201,765.54 as security for the costs of the defendants on the action and the breach of trust action.
c) Pursuant to Rule 56.05, the action and the breach of trust action are stayed until Tricott has paid into Court the amount of $201,765.54 as security for the costs of the defendants.
Costs
[30] If the parties are unable to agree on costs, which I encourage them to do, the defendants may serve and file brief written submissions and a bill of costs within 7 days of the release of these reasons. The plaintiff may serve and file brief responding submissions respecting costs within 7 days of the service of the defendants’ costs submissions. The defendants’ reply submissions, if any, may be served and filed within 4 days of the service of the plaintiff’s submissions.
I.R. Smith J.
Released: December 29, 2022
COURT FILE NO.: CV-21-1587
DATE: 2022-12-29
ONTARIO
SUPERIOR COURT OF JUSTICE
Tricott Developments Inc. Plaintiff (Defendant by Counterclaim), Responding Party
– and –
Sunvest Development Corp. Defendant, Moving Party
Countrystone Homes Ltd. Defendant (Plaintiff by Counterclaim), Moving Party
REASONS on motion
I.R. Smith J.
Released: December 29, 2022
[^1]: There are, in fact, two actions initiated by Tricott: the original claim (the “claim” or the “action”) and a second claim (the “breach of trust action”), which seeks the same relief but also alleges breach of trust by the defendants.
[^2]: Relying on Yuanda Canada Enterprises Ltd. v. Pier 27 Toronto Inc., 2017 ONSC 1892, Tricott argues that a higher burden rests on the moving parties, one that requires them to show indicia of instability and insolvency. I am satisfied that the weight of authority requires me to apply the test as it is described in City Commercial, supra, and the other cases I have cited. Moreover, as interpreted by Master Sugunasiri, as she then was, the analysis in Yuanda, properly understood, (1) requires proof of instability or insolvency that leads to a reasonable belief that the plaintiff lacks the assets to pay a costs award, and (2) that the application of the test must be sensitive to the fact that the defendant does not have access to the plaintiffs books and records and must rely on information that is publicly available (see Lancaster Group Inc. v. Kenaidan Contracting Ltd., et al., 2020 ONSC 1653, at paras. 8 – 11). In other words, the Yuanda formulation of the onus is not very different from the expressions of the onus set out in the cases cited above.