In 10760919 Canada Inc. dba Harbels Construction Ontario v. Crosslinx Transit Solutions Constructors, 2023 ONSC 887, the court found that Crosslinx had met the evidentiary burden of showing “good reason to believe” Harbels Construction Ontario had insufficient assets in Ontario to pay Crosslinx’s costs related to stations on the Eglinton Crosstown LRT project on which Harbels had performed formwork and concrete placement work, and that Harbels had not demonstrated that an order for security for costs would be unjust.
Crosslinx ultimately terminated Harbels’ subcontracts, following which Harbels preserved liens and commenced lien and non-lien actions, including a claim for lost profits.
“[C]ase law supports that necessity is demonstrated in a security for costs motion when the moving party meets its threshold onus,” Associate Justice Todd Robinson noted in his reasons, released Feb. 3.
The case had at least one unusual element — uncertainty about whether one of the two shareholders of Harbels was living or dead — and the plaintiff failed to make fulsome financial disclosure, the court found.
Harbels’ shareholders were confirmed to be Manuel Gaspar Ruiz and Jose Antonio Sanchez Gonzalez, the former being a principal of Harbels and acknowledged as the majority shareholder. However, “It is somewhat unclear whether Mr. Ruiz is or is not deceased,” the judge wrote, as Ruiz’s two daughters claimed he was dead yet failed to provide a death certificate.
Harbels was found to be “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.”
Harbels “tendered no evidence that it has exigible assets” — meaning assets that are available to be legally seized or garnished under a writ of seizure and sale — and said it was “without resources.” The company also argued it had “made all reasonable efforts in the circumstances to raise money for the company and [was] unsuccessful”: a claim the judge rejected.
The court found that Crosslinx had met its threshold onus of “good reason to believe” that Harbels has insufficient assets in Ontario to pay Crosslinx’s costs, based on the evidence before Associate Justice Robinson that:
“(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 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.”
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,” Associate Justice Robinson noted. “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. … This is such a case.”
Crosslinx had posted lien bonds as security for Harbels’ two fully disputed lien claims: $3,467,663 for Avenue Station and $3,368,620 for Leaside Station. The company had also posted separate security for the unpaid balances of the lien claims asserted by Harbels’ subcontractors on both projects.
The judge rejected Harbels’ argument that he should consider the financial wherewithal of Crosslinx, a partnership of several large construction companies, in determining Crosslinx’s motion for security of costs, and was likewise “not convinced by Harbels’ argument that a security for costs award would effectively end the litigation” since Harbels had not made sufficient financial disclosure to suggest that it would not pursue further litigation.
Crosslinx’s motions were therefore granted, and Harbels was ordered to post security for costs on a partial indemnity basis in the amount of $215,000, including HST and disbursements, on a staged basis.
The plaintiff was represented by Félix Poliquin-Boutin of MBC Law. He declined to comment while the matter is before the courts.
The defendant Crosslinx Transit Solutions was represented by Aaron Grossman and Brianne Westland of Lenczner Slaght LLP.
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