2024 ONSC 5344

COBOURG COURT FILE NO.: CV-20-34 DATE: 20240926

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

GREYFIELD CONSTRUCTION CO. LTD. Plaintiff – and – TVM CONSTRUCTION MANAGEMENT INC. and TVM COBOURG INC. Defendants

Counsel: Christopher James Sparling, for the Plaintiff Jamie Spotswood and Camille Beaudoin, for the Defendants

HEARD: June 21, 2024

REASONS FOR DECISION

DE SA J.:

Overview

[1] The Defendants, TVM Construction Management Inc. (“TVM Construction”) and TVM Cobourg Inc. (“TVM Cobourg”) (collectively, “TVM”), seek leave to and move for an order compelling the Plaintiff, Greyfield Construction Co. Ltd. (“Greyfield”), to post security for costs pursuant to Rule 56.01(d) of the Rules of Civil Procedure.

[2] Greyfield has admitted that: (a) it does not have money to pay TVM’s security for costs; but (b) that it is not impecunious. Greyfield has other active claims against it. Greyfield has refused to produce any financial information. Greyfield has also admitted that it has not been paying its own lawyer.

[3] TVM takes the position that security for costs is warranted to prevent Greyfield from pursing its claims risk free, whereas TVM is at risk of being unable to enforce a judgment for costs.

[4] I have considered TVM’s motion. Having reviewed the materials filed and having considered the submissions of the parties, I will not order Greyfield to post security for costs.

[5] The reasons for my decision are outlined below.

Summary of Facts

A. Background – The Project and Subcontracts

[6] TVM Construction and Greyfield entered into two CCA1- Stipulated Price Subcontracts (the “Subcontracts”) for the development of a mixed-use five-story condominium complex (the “Project”): one dated December 22, 2017 that related to shoring work (the “Shoring Subcontract”); and the other dated April 17, 2018 that related to the superstructure work (the “Superstructure Subcontract”).

[7] The Shoring Subcontract was fulfilled, and it is not at issue. The Superstructure Subcontract is for a fixed price of $5,492,219.23 inclusive of HST.

[8] Pursuant to the Superstructure Subcontract and the appended “Scope of Work”, Greyfield agreed to, among other things, complete the construction of the superstructure and achieve substantial completion by June 17, 2019.

B. Payment Process and Obligations

[9] To get paid, Greyfield was required to, amongst other things, provide statutory declarations confirming that all sub-subcontractors had been paid on receipt of the last Progress Payment.

[10] As part of the Superstructure Subcontract, Greyfield was required to promptly settle and pay for all accounts, claims and liens of Greyfields’ subcontractors and material suppliers.

[11] On August 6, 2019, September 9, 2019, October 10, 2019 and November 6, 2019, Peter Hillar signed four separate statutory declarations. TVM, in reliance on the declarations, paid Greyfield $905,006.45.

[12] TVM alleges Greyfield submitted false statutory declarations in support of its payment applications. According to TVM, Greyfield did not pay its sub-subcontractors and suppliers at the time of signing the declarations in breach of its contractual obligations.

[13] Greyfield disputes this assertion and maintains that any non-payments were in accordance with deferred payment agreements and/or legitimate disputes with their subcontractors.

[14] The statutory declarations allowed for non-payment in cases of: 1) holdback monies properly retained; 2) payments deferred by agreement, or 3) amounts withheld by reason of a legitimate dispute which have been identified to the party or parties from whom payment has been withheld.

C. The State of Account Letter from November 18, 2019

[15] On November 18, 2019, at TVM’s request, Greyfield delivered a letter to TVM (the “State of Account Letter”) in which Greyfield represented that “As at October 25, 2019, there are no unbilled, undiscovered or unreconciled amounts owing on the project save and except for our invoice for engineering services rendered.”

[16] On December 19, 2019, Greyfield submitted a Statement of Account in the amount of $1,050,216 (the “Statement of Account”) with new invoices not previously submitted to TVM (the “New Invoices”).

[17] TVM maintains that it has not paid the amounts claimed in the New Invoices because Greyfield did not do the work charged for, the charges are excessive, the New Invoices do not include statutory declarations, and the New Invoices were disclosed after the State of Account letter in which Greyfield confirmed that “there are no unbilled, undiscovered or unreconciled amounts owing on the project”, among other reasons.

[18] Greyfield maintains that the invoices relate to work that was done after October 25, 2019, and remain unpaid together with $564,496 in holdbacks.

[19] Since October 25, 2019, Greyfield issued invoices 5370 ($91,645 for suspended slab), 5372 ($47,234 for extra poured floor Legion), 5373 ($8,771 for Crane), 5374 ($84,614 steel surcharge – withdrawn), 5375 ($67,429 for suspended slab), 5380 ($4,105 – excavate ramp), 5381 ($12,331 for engineering), 5282 ($23,363 for retaining wall ramp), 5383 ($564,496 for holdbacks).

[20] Greyfield maintains all of the invoices remain payable except for invoice 5374, which is the steel surcharge. While there are triable issues on invoices 5362, 5381, 5372 and 5373, all remaining invoices have no tenable dispute and accordingly should be paid.

[21] Greyfield performed its last work and supplied its last material for the Project on or after about January 5, 2020. According to Greyfield, approximately $118,000 of work on the Superstructure Subcontract was left to be done and remained not invoiced. All other work had been completed.

D. Greyfield Abandons the Project and Registers a Lien

[22] On December 13, 2019, Greyfield registered a lien as Instrument No. ND191822 against the Project property in the amount of $1,100,216.58 (the “Lien”).

[23] After December 24, 2019, Greyfield ceased work on the Project.

[24] On December 27, 2019, TVM notified Greyfield that it was in default of its contractual obligations and directed Greyfield to correct the default no later than January 9, 2020. Greyfield did not comply and, on January 4 and 5, 2020, removed its tools and equipment from the site.

[25] As a result of Greyfield’s abandonment of the Project, TVM engaged new subcontractors and redirected TVM’s workforce to complete the work that was remaining under the Superstructure Subcontract. TVM’s full claim for costs to complete the Project was $388,515.

[26] According to Greyfield the amounts paid to the new subcontractors, which are now claimed against Greyfield by TVM, include work outside the scope of the original Superstructure Subcontract. The amounts charged for the work are also excessive. Greyfield maintains that the cost to complete (unbilled invoices) was $118,000 (a difference of $270,515).

E. Greyfield’s Lien and Liens Registered by Suppliers

[27] By Order dated January 21, 2020, Associate Justice C. Wiebe permitted TVM to pay into Court the sum of $1,100,216.58 in the form of a Bond as security to vacate the Greyfield Lien (the “First Security”).

[28] On September 1, 2021, Associate Justice T. Robinson ordered on consent of the parties, amongst other things, that the First Security be reduced by $412,881.52.

[29] In December 2021, Greyfield confirmed that its Claim for Lien was overstated by an additional $84,614.40. On February 16, 2023, Justice H.K. O’Connell ordered that the amount of security required for the Lien be reduced by $84,614.40 to $602,720.66.

[30] In December 2019 and January 2020, several of Greyfield’s suppliers, namely Haggart Crane Rentals Ltd. (“Haggart”), Lafarge Canada Inc. (“Lafarge”), and 962332 Ontario Inc. (“Kelly’s Excavating”) registered liens against the Project (the “Supplier Liens”) because their invoices to Greyfield remained outstanding. To vacate the Supplier Liens, TVM posted security in the amount of the registered liens and costs as follows:

(a) $221,822.61 (including $44,364.52 for costs) to vacate the Haggart lien in the form of a Bond, dated January 15, 2020, and by Order of Associate Justice C. Wiebe, dated January 16, 2020, the Haggart lien was vacated; (b) $10,480.50 (including $2,096.10 for costs) to vacate the Kelly’s Excavating lien in the form of a Bond, dated January 15, 2020, and by Order of Associate Justice C. Wiebe, dated January 16, 2020, Kelly’s Excavating lien was vacated; and (c) $99,989.49 (including $19,997.90 for costs) to vacate the Lafarge lien in the form of a Bond, dated January 15, 2020, and by Order of Associate Justice C. Wiebe, dated January 16, 2020, the Lafarge lien was vacated.

F. The TVM Action and the Lien Action

[31] Greyfield commenced this Action on March 11, 2020 to perfect its Claim for Lien pursuant to section 36(3) of the Construction Lien Act, RSO 1990, c. C. 30 (the “CLA”) (the “Lien Action”) claiming $875,326.65 (including HST).

[32] To date, TVM has paid Greyfield approximately $4,800,000 pursuant to the Superstructure Subcontract and for “Extras”.

[33] The damages Greyfield seek relate to the difference between the amount paid, and the fixed contract price, together with any unpaid “Extras” that were not included as part of the Superstructure Subcontract.

[34] TVM commenced a counterclaim against Greyfield for breach of contract and related damages for the cost of rectifying deficiencies, costs to complete incomplete work, and related contract and administrative costs.

[35] On March 10, 2020, TVM commenced an action in Toronto bearing Court File No. CV-20-00637802-0000 against Greyfield and Greyfield’s principal, Peter Hillar (Mr. Hillar), for damages arising out of fraudulent and negligent misrepresentation, breach of contract, and defamation in relation to the Project (the “TVM Action”). Greyfield defended the TVM Action and commenced a counterclaim against TVM. Greyfield’s counterclaim incorporates all the allegations it makes in the Lien Action.

[36] By Order of the Honourable Justice McCarthy dated July 11, 2023, the TVM Action and Lien Action are to be tried together, one after the other or as the Trial Judge directs and the discovery evidence in the TVM Action stands as the discovery evidence in the Lien Action.

G. Greyfield has Insufficient Assets to Satisfy a Costs Award

[37] Greyfield admits that it cannot pay the costs requested ($250,000). Greyfield is not impecunious. Greyfield has operated as a construction company without interruption since 1998.

[38] When asked in cross-examination why Greyfield cannot pay the costs requested, Mr. Hillar testified that, “One, we have no desire to and secondly, we don’t have the cash flow loose.” When asked how much in security for costs Greyfield could pay, Mr. Hillar did not provide an answer.

H. Greyfield’s Refusal to Disclose its Financial Information

[39] By letters dated October 3, 2022, December 5, 2022, and January 5, 2023, TVM’s lawyers requested that Greyfield produce its financial statements, tax returns, and other relevant financial information to address TVM’s concerns that Greyfield had insufficient assets to pay a costs award. Greyfield did not answer these letters or produce the requested information.

I. Other Claims Against Greyfield

[40] Greyfield is a defendant in at least 3 active proceedings in Ontario that Greyfield’s suppliers have commenced relating to the Project. Collectively, the unresolved claims against Greyfield amount to $636,240.68:

(a) Liberty Metal Fabricators Inc. (“Liberty”) commenced an action against Greyfield on September 14, 2020, claiming $232,250.02 in damages; (b) Doka Canada Ltd. (“Doka”) commenced an action against Greyfield on September 29, 2021, claiming $171,175.85 in damages; and, (c) Coreslab Structures (Ont) Inc. (“Coreslab”) commenced an action against Greyfield on January 20, 2023, claiming $232,814.41 in damages.

[41] Although Greyfield disputes the quantum of Liberty’s claim, it nevertheless admitted that Liberty is owed some monies and that Liberty will get paid, when and if, TVM pays Greyfield.

[42] The last payment made to Liberty was by TVM in the amount of $44,247.79.

[43] Greyfield admits that it has not paid Doka since approximately May 31, 2019, that the amount claimed remains outstanding, and that the Doka lawsuit is unresolved.

[44] During his examination for discovery on September 13, 2021, Mr. Hillar testified that the amounts Coreslab invoiced are not in dispute and that Greyfield and Coreslab had a payment deferral agreement.

[45] Greyfield admits that the amount Coreslab claims has not been paid and the Coreslab Action is outstanding and unresolved. Again, Greyfield maintains that it will pay Coreslab if, and when, TVM pays Greyfield.

J. Greyfield is Not Paying its Lawyer

[46] Greyfield has only paid its lawyer $40,971 of the $158,000 in fees incurred in the Action as of November 3, 2023.

[47] Mr. Hillar testified that Greyfield manages its cash flow as it sees fit and does not allocate funds to its lawyers account by choice but, if Greyfield collects against TVM, its lawyer “would be at the front of the line.” Greyfield’s lawyer stated that he had “little expectation of getting paid in full”.

[48] Mr. Hillar and Greyfield’s lawyer also explained that Greyfield has not paid its lawyer for services rendered in the actions involving Liberty, Doka, and Coreslab.

K. Other Relevant Evidence

[49] Greyfield has an ongoing dispute for unpaid invoices with one of its suppliers, Rentall Construction, in an amount of approximately $40,000 to $50,000.

[50] At his cross-examination, Mr. Hillar did not know whether any amounts remained owing to Rentall and refused to confirm. He also refused to answer why the amounts owing had not been paid.

[51] Since abandoning the Project, Greyfield has completed 2 projects, and currently has 2 ongoing projects. Despite Mr. Hillar asserting that these projects were profitable (and could sustain a workforce of 15 full-time employees), he refuses to produce any financial information about the profitability of these projects.

[52] Greyfield previously admitted that it owed at least $297,353 to its subtrades from the Project. Greyfield subsequently paid Haggart, Lafarge, Wuis Bros, and Motor City Cranes to resolve a number of the claims, further straining Greyfield’s finances.

L. Greyfield’s Position

[53] Greyfield takes the position that TVM clearly owes Greyfield funds related to the Superstructure Contract. TVM owes Greyfield holdbacks of $564,496, subject to deduction for holdbacks charged on any improper invoices.

[54] Even accounting for the invoices that TVM disputes (which Greyfield maintains are still owing), Greyfield submits that TVM owes a minimum of $168,083 based on the Superstructure Contract price, even after deducting TVM’s full cost to complete the project ($388,515) and the payments made by TVM to discharge the supplier liens.

[55] Greyfield takes the position that TVM actually owes substantially more than the $168,083.

[56] To require Greyfield to post security for costs will unnecessarily impede and likely prevent Greyfield’s ability to pursue an action where it is bound to succeed.

Issue to be Decided

[57] The issue to be decided on this motion is:

(a) Should the Court grant an Order compelling Greyfield to post security for costs pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure?

Analysis

The Test for Security for Costs

[58] On a motion under Rule 56.01 of the Rules, the court may make an order for security for costs where it appears that any of the criteria of Rule 56.01 are met. [1] While Rule 56.01 “does not create a prima facie right to security for costs, the rule triggers an inquiry in which the court, using its broad discretion, may make such order as is just in the circumstances.” [2]

[59] The general purpose of security for costs is to afford defendants a reasonable measure of protection for their costs. Security for costs balances the principles that “everyone should be able to have their day in court” and that “defendants must have reasonable protection from claims that have no merit”: Cigar500.Com Inc. v. Ashton Distributors Inc., 2009 ONSC 46451, at para. 2, citing Wall v. Horn Abbot Ltd. (1999) 7240 (NSCA); (Ascent Inc. v. Fox 40 International Inc., [2007] O.J. No.1800, at para. 3; Rosin v. Dubuc, 2016 ONSC 6441, at para. 39; Lipson v. Lipson, 2020 ONSC 1324, at paras. 47-48).

[60] In some cases, security is required to correct the imbalance of a plaintiff having security for a successful claim while a defendant has no security for a successful defence: (2232117 Ontario Inc. v. Somasundaram, 2020 ONSC 1434, at para. 27; DK Manufacturing Group Ltd. v. Co-Operators General Insurance, 2021 ONSC 661, at para. 26; 3 Dogs Daycare Inc. v. Dogtopia Enterprises Canada Inc., 2024 ONSC 3182).

[61] The test and associated principles to meet the threshold for security for costs under Rule 56.01(1) may be summarized as follows: (Coastline Corp. v. Canaccord Capital Corp., 2009 ONSC 21758, at para. 7):

(i) 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; (ii) 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”; (iii) The second stage of the test “is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors.” The court exercises a broad discretion in making an order that is just; (iv) The plaintiff can rebut the onus by demonstrating that: (a) The plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation, (b) The plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff can establish that the claim is not “plainly devoid of merit”, or (c) If the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success. [Emphasis added.]

[62] In the context of a motion for security for costs, courts use different language to explain this threshold such as the claim has a “good chance of success”, a “real possibility of success”, or an “overwhelming” case. However, the principle governing all of the cases is that there is a high threshold to meet for the plaintiff to satisfy the court of its chances of success; Ottele v. Racine, 2023 ONSC 3053.

Application to the Facts of the Case

[63] In this case, TVM maintains that there is good reason to believe that Greyfield does not have sufficient assets to satisfy a cost award because, among other things:

(a) Greyfield has admitted it does not have the “cashflow loose” to pay into court the amount TVM requested; (b) Greyfield refused to answer questions relating to Greyfield’s finances and to produce its financial records and has not filed any related material; (c) Greyfield is a defendant in 3 other Superior Court actions in which the damages claimed against Greyfield exceed $636,240.68; (d) Greyfield’s lawyer has admitted that he has no expectation that Greyfield will pay him in full; and (e) Greyfield has provided no evidence relating to its assets.

[64] TVM also points out that where a plaintiff fails to respond to a defendant’s inquiry as to the availability of assets, the court may draw an adverse inference: See Chemical Vapour Metal Refinishing v. Terekhov, 2016 ONSC 7080.

[65] While I am satisfied that Greyfield may not have the cashflow to post security, I am not satisfied on the materials before me that Greyfield will not have the requisite assets to satisfy a costs award if it is required to pay one.

[66] Moreover, having reviewed the materials filed, I am satisfied that Greyfield’s claim has a good chance of success.

[67] There are clearly outstanding invoices that have not been paid by TVM. The letter of November 18, 2019 relates to work billed up to October 25, 2019. After this date, there was clearly work carried out and invoiced by Greyfield that TVM never paid. There are also substantial holdbacks that were invoiced by Greyfield that remain unpaid.

[68] Even allowing for some disputes relating to the invoices and deducting the amounts TVM has paid to subcontractors/suppliers, I am satisfied that TVM still owes Greyfield funds under the Superstructure Subcontract.

[69] TVM is still proceeding with a related proceeding which engages many of the same issues. To preclude Greyfield from advancing its claim/counterclaim where ongoing litigation engages many of the same issues is also a relevant consideration.

[70] Finally, an order for security for costs will likely inhibit Greyfield from proceeding with the matter given its evident cashflow problems.

[71] In Yaiguaje v. Chevron Corp., 2017 ONCA 827, the Court of Appeal held as follows:

The Rules explicitly provide that an order for security for costs should only be made where the justness of the case demands it. Courts must be vigilant to ensure an order that is designed to be protective in nature is not used as a litigation tactic to prevent a case from being heard on its merits, even in circumstances where the other provisions of rr. 56 or 61 have been met.

Courts in Ontario have attempted to articulate the factors to be considered in determining the justness of security for costs orders. They have identified such factors as the merits of the claim, delay in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns, and the public importance of the litigation. See: Hallum v. Canadian Memorial Chiropractic College, 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc., 2009 ONSC 46451, 99 O.R. (3d) 55 (S.C.); Wang v. Li, 2011 ONSC 4477 (S.C.); and Brown v. Hudson's Bay Co., 2014 ONSC 1065, 318 O.A.C. 12 (Div. Ct.).

… The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made. [Emphasis added.]

[72] In the circumstances here, having considered the merits of the claim, the financial circumstances of the plaintiff and the possibility of an order for security for costs preventing a bona fide claim from proceeding, I am satisfied that granting the order would be unjust.

[73] The motion is dismissed.

[74] I will receive costs submissions from Greyfield within 3 weeks of the release of this decision. TVM will have 2 weeks thereafter to respond. Submissions on costs should be no more than 1 page and include the outline of costs.

Date: September 26, 2024

Justice C.F. de Sa

2024 ONSC 5344 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: GREYFIELD CONSTRUCTION CO. LTD. Plaintiff – and – TVM CONSTRUCTION MANAGEMENT INC. and TVM COBOURG INC. Defendants REASONS FOR DECISION Justice C.F. de Sa

Released: September 26, 2024

[1] Rules of Civil Procedure, R.R.O. 1990, Reg 194, at R 56.01.

[2] Air Palace v. Abdel, 2021 ONSC 7882, at para. 25.