COURT FILE NO.: CV-19-612436

DATE: February 4, 2022

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kirpak Services Ltd. v. Romas Kulvelis, carrying on business as Romo Versalas, also known as Verslas;

BEFORE: ASSOCIATE JUSTICE C. WIEBE

COUNSEL: Walter Kravchuk for Romas Kulvelis, carrying on business as Romo Versalas, also known as Verslas (“Mr. Kulvelis”);

Douglas Christie for Kirpak Services Ltd. (“Kirpak”);

HEARD: January 25, 2022.

REASONS FOR DECISION

[1] This is a motion by the defendant Mr. Kulvelis for an order requiring that the plaintiff Kirpak post security for the defendant’s costs in this action. In the written material Mr. Kulvelis asked for security between $40,000 and $60,000. In oral argument, Mr. Kravchuk stated that his client would be satisfied with between $20,000 and $30,000. Kirpak opposes the motion.

[2] In this action Kirpak seeks damages for breach of contract from Mr. Kulvelis in the amount of $250,000. In 2017 Mr. Kulvelis was hired by Toro Aluminum Railings Inc. to install balcony railings on two high-rise towers in Toronto. Mr. Kulvelis subcontracted railing installation work to Kirpak as Mr. Kulvelis knew Kirpak’s principal, Kirill Pak. It is undisputed that Kirpak was paid on a unit rate basis. Kirpak alleges that it also had an oral agreement with Mr. Kulvelis whereby Kirpak and Mr. Kulvelis would split the profits on the railing contract every three months with Kirpak calculating the profit. The action is for the alleged unpaid damages on the two towers. Mr. Kulvelis denies this claim.

[3] The rule that governs motions for security for costs is Rule 56. Rule 56.01(1) outlines the grounds for granting the order. The overarching test is that the order be “just.” Within that overarching test the rule outlines six specific grounds all of which are prefaced by the words, “it appears that.” Mr. Kulvelis relies upon three of these grounds. Importantly, should the order be granted, the plaintiff cannot take further steps until it posts the security; see Rule 56.05.

Insufficiency of assets

[4] Mr. Kulvelis relies primarily on Rule 56.01(1)(d). This rules states that where the plaintiff is a corporation, such as in this case, and “there is good reason to believe” that plaintiff does not have sufficient assets in Ontario to pay the defendant’s costs, the order can be given.

[5] It is well established that this rule involves generally a two-step process. First, the defendant has the onus of proving that “it appears that . . . there is good reason to believe” that the plaintiff corporation has insufficient assets in Ontario to pay the defendant’s costs. Second, if the defendant meets that initial onus, the onus shifts to the plaintiff to prove either that it has such sufficient assets or that it would be unjust to grant the order due to the plaintiff’s impecuniosity and meritorious claim; see 2179548 Ontario Inc.. v. 2467925 Ontario INC., 2017 ONSC 469 at paragraph 8.

[6] Kirpak has filed no evidence in this motion. It has not responded to letters from Mr. Kravchuk Kirpack asking as for evidence as to the sufficiency of Kirpak’s assets to pay the defendant’s costs. In short, it relies entirely on the issue of the initial onus on the defendant in this motion.

[7] Mr. Christie argued that Mr. Kulvelis has not met that onus and that the motion should be dismissed as a result. This is a valid position to take if the defendant cannot meet that onus. On the other hand, if the defendant has met that onus, the order will follow. Has Mr. Kulvelis met his initial onus in this motion?

[8] There are various decisions as to the meaning of the initial onus. It is clear that the defendant does not have to prove that the plaintiff has insufficient assets to pay costs; it only has to prove that it appears that “there is good reason to believe” the plaintiff has insufficient assets to pay costs; see 737071 Ontario Inc. v. Min-A-Mart Ltd., 1996 CarswellOnt 1252 (ONSC) at paragraph 5. This is a recognition of the usual fact that the defendant does not have intimate knowledge of the plaintiff’s assets. In AAD Investments Inc. v Casboro Industries Limited, 2017 ONSC 3041, Associate Justice Mills as she then was stated in paragraph 4 that the “onus is not a heavy one.”

[9] But it is nonetheless a real onus. An important decision on this motion is the decision of the Court of Appeal in City Commercial Realty Services (Canada) Ltd. v. Bakich, 2005 CarswellOnt 10512. This case involved a motion for security for costs on an appeal. The plaintiff was a realtor company. As in this motion, the appellant did not file evidence and did not respond to letters demanding information about assets, relying on the initial onus. The respondent filed an affidavit which showed that the appellant did not own land in Toronto, and which contained uncorroborated statements about the nature of the appellant’s business.

[10] Justice Lang stated in paragraph 8 that the moving party must “provide enough information about the corporation to raise a belief of insufficiency that goes beyond mere conjecture, hunch, or speculation.” In paragraphs 12 and 13 Her Honour placed emphasis on the need to show “indicia” of instability and insolvency, such as an inability to meet liabilities, unsatisfied judgments, single purpose entity, temporary dissolution and temporary cessation of business. Of interest, she considered “a failure to make appropriate corporate filings” one of these indicia. The Court dismissed the motion on account of a failure to meet the initial onus.

[11] Has the defendant provided information about Kirpak’s asset insufficiency to pay costs that rises above conjecture, hunch and speculation? I find that he has not done so.

[12] The motion record contains an affidavit sworn by Mr. Kulvelis. On the issue of the plaintiff’s assets, Mr. Kulvelis’ affidavit has four pieces of evidence:

• There is a title abstract dated May 19, 2021 concerning the address of the registered head office of Kirpak as shown in its federal corporate filings, 41 Aidan Drive, Woodbridge, Ontario. This document shows that the property was acquired in July, 2014 by Mr. Pak, that it was held in his name, that the mortgage placed on the property at the time of acquisition was discharged two months later, and that the property was sold over five years later on August 29, 2019 for $930,000.

• There is a Corporations Canada Corporate Profile dated December 21, 2021 showing the status of the company and its filings as of that date. The company is stated to be “active.” The status of annual filings states that in 2019 and 2020 the filings were “overdue.” However, in 2021 it says that they were “filed.” The stated registered head office remains the 41 Aidan Drive, Woodbridge address, namely the property that was sold by Mr. Pak over two years earlier.

• There is a December 17, 2021 Terraview search in Toronto, Peel, York, Duham and Halton for the names Kirpak and Mr. Pak which shows that no real estate was held in those regions by Kirpak and Mr. Pak on that date.

• There is an October 29, 2021 Personal Property Security Act search which shows that Kirpak either leases or finances a 2017 Ram 2500 that has a lien registered by TD Auto Finance (Canada) Inc.

[13] This evidence does not, in my view, create the “appearance” of a “good reason to believe” that Kirpak is without assets sufficient to pay the defendant’s costs. Here are my observations:

• The title search of the registered Kirpak head office shows that that property was never owned by Kirpak. Kirpak could therefore have leased the premises which is not unheard of in any industry much less the construction industry.

• The title search is in fact detrimental to the motion. It shows that Mr. Pak, the principal of the company, obtained cash on the August 29, 2019 sale in the amount of $930,000 as the mortgage on the property was discharged five years earlier. If anything, this shows that the company may have a cash infusion from its principal sufficient to conduct business and pay costs.

• The fact that the head office may have been leased would also explain why the Terraview search did not show real estate owned by Kirpak. Terraview searches generally do not pick up leasehold interests.

• The Terraview search is also limited in scope to the Greater Toronto Area. Kirpak may own real estate beyond those limits.

• The PPSA search is in fact detrimental to the motion as it shows that Kirpak remains active and uses a truck. Indeed, Mr. Kulvelis himself confirms in his affidavit seeing this vehicle during the project.

• The corporate filings were delayed for two years but are now filed. The change in head office address remains delayed, but like the other filings may be brought current soon. Indeed, the corporate profile in the motion material shows that Kirpak remains an “active” company.

[14] What is missing is as important as what is presented. There is no execution search, no court file search and no bankruptcy search. The reasonable inference to be drawn from this absence is that Kirpak has no unpaid judgments, is involved in no lawsuits and is not bankrupt.

[15] Taken as a whole, this evidence shows that Kirpak remains active and is not unstable. It simply does not meet the requirements of the defendant’s initial onus. I, therefore, find that the motion fails on this ground.

Ordinarily resident outside Ontario

[16] Mr. Kulvelis also relies upon the grounds specified in Rule 56.01(1)(a). This rule states that security for costs may be ordered “where it appears” that “the plaintiff . . . is ordinarily resident outside Ontario.” This ground was not prominently put forward in the defendant’s motion or factum, but it was raised at some length in oral argument.

[17] Mr. Kravchuk pointed to two pieces of evidence that he said meets this test. First, there is the transcript of Mr. Pak’s discovery. At his discovery Mr. Pak admitted that in 2018, during the project in question, he travelled to Newfoundland to work on a project for Memorial University.

[18] Second, Mr. Kravchuk sent Mr. Christie three letters dated October 28, 2021, November 11, 2021 and December 16, 2021. In each of them he demanded disclosure of information about the sufficiency of Kirpak’s assets to pay costs. In addition, in the October 28, 2021 letter Mr. Kravchuk asked for the current registered head office of Kirpak. He referred to Rule 56.02. This is the rule that specifies that when a lawyer receives a written demand as to whether the plaintiff is “ordinarily resident in Ontario” and fails to respond forthwith, the court may order that the action be dismissed or stayed. None of these letters were responded to.

[19] Mr. Kravchuk did not ask that I dismiss or stay the action. He just wanted me to draw an adverse inference that the plaintiff is ordinarily resident outside of Ontario, particularly when this evidence is combined with the above discovery evidence.

[20] I am not prepared to do so. Other parts of the discovery evidence do not give the appearance that Kirpak resides outside of Ontario. It shows that Mr. Pak left the province for a short time on account of work. Indeed, at the beginning of the same discovery, Mr. Pak made it clear that he emigrated from Kazakhstan to Ontario in 2008, lived in Vaughan, Ontario until 2019 and now lives in Bradford, Ontario. Concerning the Newfoundland trip, Mr. Pak stated that “I come back this February this year,” 2019.

[21] As for Rule 56.02, Mr. Kravchuk relied upon two cases where Rule 56.02 was used to order security for costs. There was the decision of Justice Broad in Fitzgerald v. Southmedic Inc., 2012 ONSC 2466. Here there was motion for security for costs that relied only on Rule 56.01(1)(a). There were many written demands under Rule 56.02 that were unclearly answered. Finally, plaintiff’s counsel wrote a letter advising that the plaintiff resided in both the foreign jurisdiction and Ontario with the amount to time in each place varying from year to year. Then at a trial adjournment plaintiff’s counsel acknowledged that the plaintiff resided in the foreign jurisdiction. The court ordered security for costs. In short, there was collateral evidence in addition to the Rule 56.02 responses that supported the inference that the plaintiff resided abroad. I distinguish that case from this one as here the collateral evidence, the discovery evidence, creates the “appearance” that the plaintiff in fact resides in Ontario.

[22] There is also the decision of Associate Justice Pope in Yuen v. Pan, 2018 ONSC 2600. In this case there was a motion under Rule 56.01(1)(d) for security for costs, not a motion for security for costs under Rule 56.01(1)(a). Rule 56.02 demand letters had been sent without a response. Her Honour used that absence of a response to corroborate other evidence that the plaintiff corporation had been wound down and its assets sold thereby assisting the defendant in meeting the initial onus under Rule 56.01(1)(d).

[23] Therefore, this case is not authority for the proposition that a failure to respond to a Rule 56.02 demand leads necessarily to an inference that the plaintiff resides outside of Ontario. One must place the non-response to the Rule 56.02 demand in the context of all the evidence about the residence of the plaintiff. I have done so, and I find that the discovery evidence discussed above does not create an appearance that the plaintiff resides outside Ontario.

[24] For these reasons, I find that the motion fails on this ground as well.

Frivolous and vexatious

[25] Mr. Kulvelis also relies upon Rule 56.01(1)(e) for the motion. This rule states that security for costs may be ordered where it appears that there is good reason to believe that the action is frivolous and vexatious and the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. Again, this position was not prominently presented in the written submissions but was raised in oral argument.

[26] Is there an appearance of a good reason to believe that the underlying action is frivolous and vexatious? As stated earlier, the action concerns the plaintiff’s assertion that there was an oral agreement between the parties to split the profit on the railing contracts equally between them. The existence of this oral agreement and its terms will to be determined by the trial judge and no doubt the credibility of the witnesses will be a significant factor. As stated by Associate Justice Mills in AAD Investments, op. cit., at paragraph 19, “where an action turns on credibility, it is not appropriate to make an assessment of the merits at an interlocutory proceeding unless success or failure of the action appears obvious.”

[27] The evidence does not indicate that the plaintiff will obviously fail. Mr. Kulvelis attached to his affidavit an email from Mr. Pak to Mr. Kulvelis dated August 24, 2018 to which Mr. Pak attached invoice 48 dated May 16, 2018. Attached to this invoice is a schedule Mr. Pak prepared containing his calculation of the profits and the splitting of the profits between the parties. Mr. Kulvelis admitted paying this invoice. This is corroboration of the plaintiff’s position. This evidence alone leads me to conclude that the action is not frivolous and vexatious.

[28] I make one added point here. This rule requires a second step, namely that the defendant show that there is good reason to believe that the plaintiff does not have sufficient assets in Ontario to pay costs. I have already found that the defendant has failed this test.

[29] I, therefore, find that the motion fails on this ground as well.

Conclusion

[30] I, therefore, dismiss this motion.

[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.

DATE: February 4, 2022

ASSOCIATE JUSTICE C. WIEBE