Matter: Security for costs motion in a construction lien action

Key Points:

1. Background:

   • Backyard XP Inc. ("Backyard") filed a construction lien against the defendants, Mirella Cesario-Valela and Vito Valela ("the Owners"), for $106,739.97.
   • The Owners counterclaimed for $500,000 alleging overpayment and deficiencies.
   • They requested an order requiring Backyard to post $76,670.35 as security for costs.

2. Legal Standards:

   • Rule 56.01(1)(d) of the Rules of Civil Procedure: Security for costs can be ordered if the plaintiff is a corporation with insufficient assets to cover the defendant’s costs.
   • Section 13 of Ontario Regulation 302/18 under the Construction Act: Requires court leave for certain interlocutory motions.

3. Court’s Analysis:

   • Evidence suggested Backyard was a "shell company," essentially a liability shield for its affiliate, Garrison Creek Construction Inc.
   • The court found "good reason to believe" Backyard lacked sufficient assets to cover costs, meeting the threshold for security.
   • The Owners demonstrated a valid need for procedural fairness given the lien claim's potential impact on their property.

4. Decision on Security for Costs:

   • While the Owners’ counterclaim was larger, the court determined this did not eliminate the need for security for the lien claim.
   • The court ordered Backyard to post $25,000 as security, discounted from the initial request to account for overlap with the counterclaim.

5. Payment Staggering:

   • $12,500 to be paid by March 30, 2025.
   • Remaining $12,500 due 30 days after the trial management conference scheduling the trial.

6. Costs of the Motion:

   • The Owners succeeded but only partially. The court awarded them $2,500 in partial indemnity costs.