COURT FILE NOS.: CV-21-654279, CV-21-655345 & CV-21-656969
DATE: 2023 02 03
SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE MATTER OF the Construction Act, RSO 1990, c C.30, as amended
RE: 10760919 CANADA INC. d.b.a. HARBELS CONSTRUCTION ONTARIO, Plaintiff
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CROSSLINX TRANSIT SOLUTIONS GENERAL PARTNERSHIP, METROLINX, HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO AS REPRESENTED BY THE MINISTER OF ECONOMIC DEVELOPMENT, EMPLOYMENT AND INFRASTRUCTURE AS REPRESENTED BY ONTARIO INFRASTRUCTURE AND LANDS CORPORATION, HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO AS REPRESENTED BY THE MINISTER OF ECONOMIC DEVELOPMENT, JOB CREATION AND TRADE (FORMERLY THE MINISTER OF ECONOMIC DEVELOPMENT, EMPLOYMENT AND INFRASTRUCTURE), HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO AS REPRESENTED BY ONTARIO INFRASTRUCTURE AND LANDS CORPORATION, INFRASTRUCTURE ONTARIO, HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO AS REPRESENTED BY THE MINISTER OF TRANSPORTATION OF ONTARIO, CITY OF TORONTO, 352-356 EGLINTON AVENUE WEST HOLDINGS LTD. and 346-350 EGLINTON AVENUE WEST HOLDINGS LTD., Defendants
AND RE: 10760919 CANADA INC. d.b.a. HARBELS CONSTRUCTION ONTARIO, Plaintiff
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CROSSLINX TRANSIT SOLUTIONS CONSTRUCTORS, Defendant
AND RE: 10760919 CANADA INC. d.b.a. HARBELS CONSTRUCTION ONTARIO, Plaintiff
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CROSSLINX TRANSIT SOLUTIONS CONSTRUCTORS and CROSSLINX TRANSIT SOLUTIONS GENERAL PARTNERSHIP, Defendants
BEFORE: Associate Justice Todd Robinson
COUNSEL: A. Grossman and B. Westland, for the defendants, Crosslinx Transit Solutions Constructors and Crosslinx Transit Solutions General Partnership
F. Poliquin-Boutin, for the plaintiff
HEARD: September 14, 2022 (by videoconference)
REASONS FOR DECISION (Security for costs)
[1] Crosslinx Transit Solutions Constructors (“Crosslinx”) moves for security for costs against 10760919 Canada Inc. d.b.a. Harbels Construction Ontario (“Harbels”) in each of Harbels’ three actions concerning the Eglinton Crosstown LRT project: two lien and one non-lien. The lien actions are subject to a reference before me. The non-lien action is not. Crosslinx seeks to have Harbels post global security for costs for all three proceedings in the amount of $500,000 to the end of trial.
[2] The three actions concern Harbels’ subcontract work on various transit stations in the Eglinton Crosstown LRT project. Harbels was subcontracted to perform formwork and concrete placement work at Avenue Station and Leaside Station and was separately subcontracted to perform masonry work at Avenue Station and Chaplin Station. Harbels alleges a further subcontract for masonry work at Mount Pleasant Station, but Crosslinx denies that discussions for that work progressed beyond the negotiation stage.
[3] Crosslinx ultimately terminated Harbels’ subcontracts, following which Harbels preserved liens and commenced these lien and non-lien actions. The formwork and concrete placement work performed at Avenue Station and Leaside Station is the subject matter of the two lien references before me. The non-lien action deals with Harbels’ claims for masonry-related work performed in respect of Avenue Station, Chaplin Station, and Mount Pleasant Station, as well as a claim for lost profits.
[4] I am granting Crosslinx’s motions and ordering Harbels to post security for costs on a partial indemnity basis in the aggregate amount of $215,000, including HST and disbursements, on a staged basis.
Analysis
(a) Relevant legal framework
[5] Crosslinx moves under subrule 56.01(1)(d) of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”). It provides that the court may make such order for security for costs as is just where it appears that the plaintiff is a corporation or a nominal plaintiff, and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.
[6] The applicable test is not disputed. Crosslinx bears the initial evidentiary burden of satisfying me that it “appears” that there is “good reason to believe” that Harbels has insufficient assets in Ontario to pay Crosslinx’s costs. If Crosslinx satisfies that initial onus, then the onus shifts to Harbels to demonstrate that an order for security for costs would be unjust.
[7] As the Court of Appeal has set out, 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. 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. However, 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.
[8] Because two of the proceedings are lien actions, there is an additional requirement prescribed by the Construction Act, RSO 1990, c C.30. In particular, “consent” of the court is required under s. 67(2) of the former Construction Lien Act (the “CLA”) (the provisions of which remain applicable by operation of s. 87.3 of the current Construction Act). In the two lien actions, Crosslinx must therefore also demonstrate that the motion is necessary or would expedite the resolution of matters in dispute. However, as I have previously discussed, case law supports that necessity is demonstrated in a security for costs motion when the moving party meets its threshold onus: Gowing Contractors Ltd. v. Walsh Construction Company Canada, 2022 ONSC 2192 at para. 12. Accordingly, for the purposes of these motions, there is no real distinction in my analysis between the lien and non-lien actions.
(b) Threshold onus
[9] To satisfy the threshold onus, Crosslinx is only required to show “good reason to believe” that Harbels has insufficient assets in Ontario. That threshold may be met by showing indicia of insolvency or instability, such as a failure to make corporate filings, unpaid judgments or liabilities, a temporary dissolution, a significant disposition of assets, or that the plaintiff is a single purpose entity or shell company: Yuanda Canada Enterprises Ltd. v Pier 27 Toronto Inc, 2017 ONSC 1892 at para. 15.
[10] Crosslinx has met its threshold onus. The following evidence is before me:
(a) Harbels has ceased business operations, no longer leases office space, and no longer has any employees;
(b) Harbels appears to have significant unpaid debts to the Canada Revenue Agency, the Workplace Safety Safety and Insurance Board, and its subcontractors and suppliers;
(c) Harbels does not own any real property in Ottawa or the greater Toronto area;
(d) Harbels (a federally incorporated company) has failed to make mandatory annual corporate filings in 2020 and 2021 and has not held an annual general meeting since October 31, 2019. These are requirements under the Canada Business Corporations Act, RSC, 1985, c C-44. I agree with Crosslinx that ongoing non-compliance does create a risk of Harbels being administratively dissolved for default;
(e) Harbels’ primary supporting affidavit admits that Harbels is “without resources”; and
(f) Harbels’ admits that its only assets are its claims for accounts receivable on the Eglington Crosstown LRT Project and a further claim of $1,973,276.02 against the Link 427 Construction Joint Venture for work performed by Harbels on the Highway 427 Expansion.
[11] Harbels argues that I should take into account its significant claim against Crosslinx and its earned and unpaid holdback amounts. It points to the approach that I took in my decision in Gowing Contractors Ltd. v. Walsh Construction Company Canada, supra, arguing that I should take a similar approach here. In Gowing, at paras. 36-38, I held that significant holdback funds retained by the contractor, which represent earned and unpaid contract funds, were an asset of the subcontractor. In the absence of other liens or competing claims to that holdback, and since the contractor’s set-offs as quantified on the motion did not exceed it, I held that the contractor had not met its threshold onus.
[12] This case is factually distinct from Gowing. In the course of the references before me, Crosslinx, Harbels, and Harbels’ subcontractors have agreed on the minimum statutory holdback that Crosslinx was required to retain under the CLA on each of Avenue Station and Leaside Station. They have also agreed on amounts owing to the subcontractor lien claimants. The admitted minimum statutory holdback has been paid out, with revised security posted for the unpaid balance of the subcontractors’ liens. Although Harbels argues that the statutory holdback is higher than the amounts paid out, that is a disputed issue in the litigation. The fact that there is no dispute over the amounts owing to Harbels’ subcontractors is not the same as Crosslinx admitting liability to Harbels for those amounts. The only agreement appears to be that the amounts are owing by Harbels’ to its subcontractors.
[13] In any event, I agree with Crosslinx that, unlike the facts of Gowing, there are subcontractor lien claimants in this case. They have first priority claims to any additional holdbacks that Crosslinx was required to retain. I am not satisfied that the evidence before me supports a strong claim for proving an additional holdback obligation that exceeds the admittedly unpaid amounts owing to Harbels’ subcontractors. It follows that, even if Harbels can prove an additional holdback obligation, those holdback funds are still not properly considered Harbels’ “asset” for security for costs purposes. They will not be funds available to satisfy an adverse costs award. In the context of this lien proceeding, any additional holdback funds will go first to the subcontractor lien claimants.
[14] With respect to the non-lien action, there is no evidence of any undisputed amounts owing to Harbels for its alleged masonry work. There is accordingly no basis on which to find an “asset” of Harbels in the form of earned and unpaid contract funds held by Crosslinx for Harbels’ alleged masonry work.
[15] Harbels’ also points to the agreement entered in its separate proceeding concerning the Highway 427 Expansion. In that agreement, Harbels and the Link 427 Construction Joint Venture have agreed to toll their claims and for the joint venture to carry Harbels’ delay claim in its own claim against the Ontario government. The agreement includes terms for payments to Harbels for its assistance in advancing that claim and a dispute resolution process for deciding Harbels’ claim in the future. However, the Link 427 Construction Joint Venture has not admitted liability to Harbels for its claim and there is no certainty on when or if Harbels will be entitled to any of the payments contemplated by the agreement. There is accordingly no readily identifiable or exigible “asset” available from that arrangement to satisfy a costs award.
[16] For these reasons, I am satisfied that there is good reason to believe that Harbels lacks sufficient assets in Ontario to satisfy the costs of Crosslinx.
(c) Justness of security for costs
[17] In determining what is “just”, I must balance the purpose of the rule, namely to afford defendants a reasonable measure of protection for their costs, and the potential impact on the plaintiff’s access to justice: Compass Mechanical Contracting Inc. v. AIM Recycling Hamilton, 2022 ONSC 4656 at para. 38. In balancing those interests, I am satisfied that an order for security for costs is just in the circumstances of this case.
[18] Harbels has tendered no evidence that it has exigible assets. As discussed above, it admits that it is “without resources” and that its only assets are its claims in these three actions and the claim against the Link 427 Construction Joint Venture arising from the Highway 427 Expansion project. These are contingent claims.
[19] Harbels argues that, if the holdback is not a sufficient asset (as I have found it is not), then it is impecunious. However, Harbels has not provided the requisite extent of financial disclosure necessary to demonstrate impecuniosity.
[20] It is well-established that a corporate plaintiff relying on impecuniosity bears the onus of proving it. It must make full and frank disclosure of its financial circumstances. That means not only showing that it does not have sufficient assets itself, but also that it cannot raise the funds for security for costs from its shareholders and associates: Montrose Hammond & Co. v. CIBC World Markets Inc., 2012 ONSC 4869 at paras. 34-35.
[21] Most of Harbels’ evidence on its financial circumstances is largely comprised of unsubstantiated statements made by its remaining director, Gilles Poliquin. It is notable that the subcontracts with Crosslinx impose a specific requirement on Harbels to provide evidence of its financial position if requested by Crosslinx. That information was requested by Crosslinx in 2020, but was not provided by Harbels.
[22] Harbels argues that it has made all reasonable efforts in the circumstances to raise money for the company and has been unsuccessful. I reject that argument. To the contrary, Harbels has not tendered convincing evidence on its alleged inability to raise money.
[23] During cross-examination, the shareholders of Harbels were confirmed to be Manuel Gaspar Ruiz and Jose Antonio Sanchez Gonzalez. Mr. Ruiz is a principal of Harbels and acknowledged to be the majority shareholder. He is described by Harbels’ other affiant, Pedro Lopez, as the “owner” of Harbels. Mr. Gonzalez’s shareholdings are unknown, although cross-examination of Gilles Poliquin confirmed his understanding that Mr. Gonzalez was removed as a director of Harbels, his shares were diluted, and he left the country several years ago. Mr. Poliquin also confirmed that no efforts have been made to contact him to advise about the current state of Harbels.
[24] It is somewhat unclear whether Mr. Ruiz is or is not deceased. There is no death certificate or evidence from a person with direct knowledge. The sole evidence supporting his death is unverifiable hearsay evidence from Pedro Lopez and Gilles Poliquin.
[25] During his cross-examination, Gilles Poliquin confirmed that, after leaning of Mr. Ruiz’s death, Mr. Poliquin and Mr. Lopez had a video meeting with Mr. Ruiz’s daughters and an individual named “Navascues”, who is said to be a friend of Mr. Ruiz. Mr. Poliquin gave evidence that multiple requests for a death certificate have been made to Mr. Ruiz’s daughters, but it has not been provided. He further gave evidence that that Mr. Ruiz’s daughters have not further communicated with him. Mr. Poliquin confirmed that he has “doubts” about whether Mr. Ruiz is, in fact, deceased.
[26] Put simply, Harbels has not made any substantive efforts to seek litigation funding from its shareholders. The evidence supports nothing more than fairly passive inquiries of Mr. Ruiz’s daughters, with no substantive follow ups or searches into whether Mr. Ruiz is deceased and, if so, whether his estate (in which his majority shareholdings would presumably vest) is prepared to assist. There is no evidence of any real efforts to identify who now controls Mr. Ruiz’s shares and whether they would support this litigation. I thereby reject Harbels’ argument that its evidence supports taking “all reasonable steps” to secure financial assistance from Mr. Ruiz’s estate.
[27] Mr. Poliquin also confirmed during cross-examination that he has a personal financial interest in the outcome of this litigation. As a director, he has potential personal liability for Harbels’ failure to remit statutory payment withholdings. Nevertheless, there is no evidence on his assets or his ability or willingness to post security.
[28] Harbels’ own subcontractors also stand to benefit directly from success in Harbels’ claim. Harbels concedes that it did not approach them (or other creditors) about posting security to support pursuit of its claim. While the subcontractors would be under no obligation to do so, the failure to even inquire is a factor to be considered in assessing the alleged impecuniosity.
[29] The record before me supports that, through Manuel Gaspar Ruiz, Harbels is associated with a broader international group of construction companies also owned by Mr. Ruiz. Harbels’ website includes projects that were performed by its international affiliates and refers to decades of global experience, despite Harbels being incorporated in 2018. There has been no disclosure on what relationship or financial dealings, if any, exists between the companies within the group or why Harbels’ international affiliates cannot be a source of funding.
[30] Harbels has also been confirmed to have two affiliates within Canada: Harlam Inc. and Harbels Quebec S.E.N.C. During cross-examination, one was confirmed to be used to bid a job that Harbels would otherwise have bid but for the dispute with Crosslinx. There is no evidence about their assets or their ability or willingness to post security.
[31] Narrow disclosure of Harbels’ own corporate financial situation is not enough to establish impecuniosity. There are too many gaps on its ability (or inability) to raise funds. I am thereby not satisfied that Harbels has met the requirement of robust particularity necessary to establish that it is truly impecunious.
[32] Harbels also asserts that I should consider that Crosslinx’s non-payment was a serious cause of its currently financial instability. I have two main difficulties with that submission.
[33] First, making that determination seems dependent on a finding that Crosslinx’s management of the project caused Harbels’ financial distress. For example, during his cross-examination, Pedro Lopez asserted that Harbels had mobilized workers to site, but Crosslinx was not providing clear direction to Harbels, which resulted in unproductive work and increased salary costs. Such allegations may well be proven at trial, but there is insufficient evidence before me on this motion to make a genuine assessment on the merits of that position.
[34] Crosslinx points to the decision in Hagshama Canada 9 Gold Ltd. v. Decade Urban Communities Corp. In that case, the action was at a similar pre-discovery phase. Master McGraw (as he was then titled) rejected the plaintiffs’ allegations that that their lack of assets was caused by the defendants, since he could not conclude that the insufficiency of assets was a direct result of the defendants’ mismanagement of the subject project. He found numerous disputed issues of fact and credibility and was of the view that there was no direct nexus between the plaintiffs’ lack of funds and the defendants’ conduct: 2021 ONSC 5150 at para. 28. I take a similar view of this case based on the record before me.
[35] I have previously commented that, in most cases, it is almost impossible to come to a conclusion on the merits of a claim at the time of a motion for security for costs: 2232117 Ontario Inc. v. Somasundaram, 2020 ONSC 1434 at para. 23. Where a case is complex or turns on credibility, it is generally not appropriate to assess merits at an interlocutory stage. That assessment should be decisive only where (a) merits may be properly assessed on an interlocutory motion; and (b) success or failure appears obvious: Coastline Corporation Ltd. v. Canaccord Capital Corporation, 2009 CanLII 21758, [2009] OJ No 1790 at para. 7(vii).
[36] In my view, the record before me is insufficient to support a fair assessment of the merits at this stage. Harbels’ claim is comprised of unpaid holdback, disputed progress draws that were not certified for payment, and disputed delay and impact claims, including a claimed entitlement to compensation for impacts from the COVID-19 pandemic. Crosslinx’s defence is, essentially, that Harbels was the author of its own misfortune, was the cause of project delays, and forced Crosslinx to incur significant losses. This is not a straightforward case. I do not agree with Crosslinx’s submission that Harbels has no reasonable prospect of success at trial, but the record does not support that Harbels’ claim is any more or less meritorious than Crosslinx’s defences.
[37] Second, the record before me tends to support that Harbels’ financial difficulties pre-dated any alleged non-payment of invoices by Crosslinx and that Harbels was experiencing financial distress as early as June 2020. Pedro Lopez confirmed during his cross-examination that the first unpaid invoices claimed by Harbels (as outlined in an exhibit to his affidavit) are dated September 1, 2020, and were not payable per the terms of the subcontracts until 45 days after being rendered.
[38] Crosslinx has also tendered evidence supporting that Harbels had ongoing issues making payments to its subcontractors and suppliers during its work on the project. Crosslinx’s evidence is that Harbels’ performance issues began during the summer of 2020, leading to an interim settlement between Crosslinx and Harbels on Leaside Station and Crosslinx making direct payments to Harbels’ unpaid subcontractors.
[39] Also, during cross-examination, Pedro Lopez acknowledged that Harbels stopped remitting source deductions from its workers to the Canada Revenue Agency. He explained, “it was due to the lack of income, so we didn’t receive the payment of the Crosslinx last invoices, and this is what caused the impossibility of paying that amount.” However, he then confirmed that Harbels stopped paying the source deductions in June 2020. Mr. Lopez gave separate evidence on cross-examination that Harbels had tried to secure a bank loan or line of credit during summer of 2020, but was unable to do so.
[40] As already noted, the record supports that Harbels’ first claimed unpaid invoices were dated September 1, 2020. It further supports that Crosslinx paid certified draws, other than amounts payable after Harbels’ subcontractors had given written notices of lien. Non-payment in the face of a lien is expressly contemplated by the CLA. Receipt of a written notice of lien triggers the notice holdback obligation under s. 24(2) of the CLA, which provides that a payer who has received a written notice of a lien may only make payment on a contract, without jeopardy, if the payer retains, in addition to basic statutory holdback, an amount sufficient to satisfy the lien.
[41] There are other examples in the record. However, the above serve to make the point. In my view, the totality of the record before me does not support a clear finding that Crosslinx caused or likely caused Harbels’ financial situation.
[42] Harbels further argues that this motion is nothing more than a litigation tactic by Crosslinx intended to prevent Harbels’ claims from being decided on their merits. The Court of Appeal has expressly directed that courts must be vigilant to ensure security for costs orders, which are designed to be protective in nature, are not used as a litigation tactic to prevent a case from being heard on its merits: Yaiguaje, supra at para. 23. However, since that caution was issued, plaintiffs now commonly assert that security for costs motions are mere litigation tactics in an effort to oppose them. In this case, other than Harbels’ assertion of Crosslinx’s true intent, I have been directed to nothing that convincingly supports a genuine foundation for Harbels’ view.
[43] Courts have repeatedly held that one purpose of security for costs is to “even the playing field” by ensuring that an insolvent plaintiff is not given risk-free opportunities to pursue litigation: Proxema Ltd., v Birock Investments Inc., 2016 ONSC 5686 at para. 15. In construction lien cases, legitimate concerns of procedural fairness arise when a defendant has posted security for a plaintiff’s lien claim, plus security for costs: Biotechnik Inc. v. O’Shanter Development Co. (2003), 30 CLR (3d) 52 at para. 52; Yuanda Canada Enterprises Ltd. v. Pier 27 Toronto Inc., 2017 ONSC 1892 at para. 29.
[44] This is such a case. Crosslinx has posted lien bonds as security for Harbels’ two fully disputed lien claims, namely $3,467,663.05 for Avenue Station ($3,417,663.05 for the lien and $50,000 as security for costs) and $3,368,620.14 for Leaside Station ($3,318,620.14 for the lien and $50,000 as security for costs). Crosslinx has also posted separate security for the unpaid balances of the lien claims asserted by Harbels’ subcontractors on both projects. To the extent that those claims are subsumed in Harbels’ liens, the amounts may be double-secured.
[45] Harbels submits that I should consider the financial wherewithal of Crosslinx, which is admittedly a partnership of multiple large construction companies. The fact that Crosslinx has access to a credit facility sufficient to post the extent of security necessary to vacate the liens and appears to have funding to pursue this litigation is, in my view, immaterial to whether Harbels should be permitted to pursue its partially secured claim without any real downside risk in the event it is unsuccessful. No case authority has been put before me supporting that a defendant’s financial circumstances or whether it genuinely needs security for costs are legitimate factors. To find that they are properly considered would, in my view, run contrary to the long-standing principle that justice is blind.
[46] In any event, I am not convinced by Harbels’ argument that a security for costs award would effectively end the litigation. Harbels has not made sufficient financial disclosure of its ability to secure funds from its directors, officers, shareholders, and affiliates for me to accept that a security for costs order will prevent it from pursuing this litigation to trial. There is similarly no evidence of any efforts to obtain third party litigation financing, whether from lenders or Harbels’ own subcontractors having a direct interest the success of Harbels’ claim.
[47] I find no injustice in requiring security for costs in the circumstances of this case. Harbels admittedly has no exigible assets. It has opted not to tender robust particulars of its financial situation, including the alleged inability to secure funds to post security. It has failed to establish impecuniosity or that Crosslinx is the cause of its insolvency. Harbels seeks to advance contingent claims, for which the lien aspect is fully secured, with no corresponding prospect of costs recovery for Crosslinx if it is successful in its defences.
(d) Quantum of security
[48] In fixing the amount of security, I must not to impose a security requirement that is excessive and disproportionate having regard to the scope of the litigation as a whole, including any counterclaim: Carleton Condominium Corporation No. 396 v. Burdet, 2020 ONSC 5223 at para. 55.
[49] Crosslinx’s bill of costs estimates partial indemnity costs for all three actions of $558,502.83, including HST, to the conclusion of trial. Crosslinx submits that $500,000 is a reasonable estimate of its likely partial indemnity costs entitlement if successful in the actions, which it also argues is an amount in line with prior security for costs orders of the court.
[50] Crosslinx cites two cases in support of its position that courts have made similar orders for security for costs: Trec Total Roadway v. Jegel, 2004 CanLII 18298 and Capital Sports Management Inc. and Trinity Development Group Inc., 2020 ONSC 7309. Both cases are distinguishable. Neither is a construction lien case and, based on the decisions, the moving defendants had not advanced counterclaims. No counterclaim is mentioned at all in Trec Total Roadway. In Capital Sports, a significant counterclaim was advanced of some $1 billion, but by a non-moving defendant. The moving defendants are described as being “peripherally involved in the litigation”.
[51] In this case, Harbels’ aggregated claims are significant, totalling approx. $14 million for the three actions (which includes both liened amounts and additional claims for which no lien was registered). However, that aggregate claim is eclipsed by Crosslinx’s own substantial counterclaim. Across the three actions, Crosslinx’s pleaded counterclaim is an aggregate of $61 million in damages for breach of contract and negligence.
[52] I agree with Harbels’ submission that Crosslinx’s counterclaim is a factor I must consider. Case law supports that a party should not have to pay security for costs as a condition of defending itself and that the court may decline to award security for costs in cases involving a “substantial coincidence” between the alleged facts that constitute the defence and those that support the counterclaim: Paramount Franchise Group et al. v. Mian, 2022 ONSC 4533 at para. 11. In applying that principle, my colleague has held that a defendant should be either denied security for costs or have the security for costs award significantly curtailed where the real driver of an action is the counterclaim: European Flooring Contract Services Ltd. v. Toddglen ILofts, 2013 ONSC 6445 at para. 33.
[53] Crosslinx argues that its counterclaims simply mirror its set-off defences in the three actions and thereby raise no additional issues. Crosslinx submits that, regardless of the fact of counterclaims, the same costs will be incurred for extensive documentary production, examinations for discovery, expert evidence, trial preparation, and trial attendance.
[54] Crosslinx’s submission begs the question: is there a material distinction between a set-off defence and a counterclaim for the purposes of assessing security for costs? In my view, characterizing Crosslinx’s claims as a “set-off defence” or a “counterclaim” is immaterial. What matters is the nature of the set-off and counterclaim in the overall context of the litigation and the impact those claims have on how the litigation will proceed.
[55] Both set-off defences and counterclaims may result in a judgment. As provided in s. 111(3) of the Courts of Justice Act, RSO 1990, c C.43, where a larger sum is found due from a plaintiff to a defendant in a set-off defence than is found to be due from the defendant for the plaintiff’s claim, the defendant is entitled to judgment for the balance. It follows that considering the nature and impact of the claims advanced by a defendant, whether by set-off or counterclaim, is necessary to assess whether they should be a factor in deciding security for costs.
[56] To my mind, that approach is consistent with the inherent discretionary nature of security for costs. More importantly, it allows the assessment to remain focused on the justness of the order, rather than an overly technical approach to whether a position is more properly viewed as a defence or counterclaim.
[57] In 2232117 Ontario Inc. v. Somasundaram, supra, at para. 32, I observed that where a counterclaim is separate from the defence, the court must be careful not to award the defendant (as plaintiff by counterclaim) security for costs of the counterclaim. In that case, I held that the counterclaim was the same as the defendants’ set-off defence that work was incomplete and deficient. It is common in lien actions for a defendant to allege that a plaintiff is not owed the amounts claimed because its work was incomplete and deficient. In the circumstances of that case, I found that security for costs was still just, but I discounted the bill of costs on the basis that a counterclaim added an element of cost to the overall proceeding.
[58] This case is not the same. I agree with Crosslinx that its pleaded set-off defences and counterclaims are co-extensive. However, the nature of Crosslinx’s asserted claims are complex. Crosslinx alleges that Harbels caused significant delay to construction of the stations. Those delays are alleged to have caused various heads of damages, including costs for acceleration and trade stacking to mitigate delay, damages from delayed substantial performance, and project wide prolongation costs. In my view, Crosslinx’s position will be a significant driver of costs in this litigation. That said, Harbels’ claim is also not straightforward, so I do not accept its submission that Crosslinx’s claims will be the main driver of costs. They will, though, add time and expense in the litigation, which supports a reduction in the requested security for costs.
[59] With respect to the bill of costs, I agree with Harbels that the actual costs incurred to vacate the subcontractor liens are disproportionate to the nature of the motions. I am unconvinced by Crosslinx’s submissions seeking to justify them. Even on a partial indemnity basis, they exceed reasonable expectations. Otherwise, the balance of proposed hours set out in the bill of costs are not unreasonable. There is little doubt that leave for documentary and oral discoveries will be granted in the lien actions and the estimated hours and amounts claimed for discovery-related steps are, in my view, proportionate. The proposed 15-day trial for all three actions is also reasonable, although the estimate of 12 hours per trial day for each of the three lawyers noted seems high. I am also not convinced that three lawyers will be required for trial or that all three lawyers will genuinely spend equivalent time during both trial preparation and trial attendance.
[60] Having regard to the amounts claimed in the bill of costs, principles of proportionality, the equities given the security already posted for Harbels’ lien claims, and the nature of Crosslinx’s own claims, I find that a fair and appropriate amount of security is $215,000, inclusive of HST and disbursements, on a partial indemnity basis. In my view, it is appropriate that the amount be paid in stages as these actions progress to trial.
[61] I am satisfied that the three actions are sufficiently interrelated and, as the parties have indicated, will be prosecuted together through until at least the end of discoveries. A single security for costs order to that point is appropriate. I will be trying the two lien actions, but the non-lien action has not been referred to me. As it stands, I thereby cannot assume a common trial, so have apportioned security for costs of trial between the lien and non-lien actions.
Disposition
[62] For the above reasons, Harbels shall post security for costs in the amount of $215,000, including HST and disbursements, on a staged basis in accordance with the following:
(a) $50,000 for costs to completion of documentary discovery, payable within sixty (60) days;
(b) $60,000 for costs to completion of examinations for discovery, payable at least sixty (60) days prior to commencement of the examinations;
(c) $50,000 for costs from completion of examinations for discovery through trial preparation, payable as follows:
(i) if the trial(s) proceed as a summary or hybrid trial, by no later than thirty (30) days prior to the deadline fixed for service of the first affidavit evidence-in-chief; or
(ii) if the trial(s) proceeds as an ordinary trial, by no later than ninety (90) days prior to the date fixed for commencement of trial; and
(d) $55,000 for costs to the completion of trial, payable by no later than thirty (30) days prior to the date fixed for commencement of the trial(s) as follows:
(i) $35,000 for the two lien actions; and
(ii) $20,000 for the non-lien action.
[63] Should Harbels fail to post the required security for costs when due, these actions shall be stayed until the funds are posted or pending further order of the court.
Costs
[64] Costs outlines have been exchanged. I encourage the parties to settle costs, but if they cannot, then costs submissions shall be made orally by thirty (30) minute hearing booked on one of my construction lien motions lists. Each of Crosslinx and Harbels shall be entitled to ten (10) minutes of submissions, with Crosslinx entitled to five (5) minutes of reply. Any case law or offers to settle relied upon by either side shall be exchanged, submitted to my Assistant Trial Coordinator (ATC), and uploaded to CaseLines at least five (5) days prior to the hearing.
[65] The hearing for costs submissions shall be booked directly through my ATC within thirty (30) days of this decision being released, failing which the parties shall be deemed to have agreed on costs.
ASSOCIATE JUSTICE TODD ROBINSON
DATE: February 3, 2023