J. 2004 SKQB 105 Q.B.G. A.D. 1999 No. 1431 J.C. S. IN THE QUEEN’S BENCH JUDICIAL CENTRE OF SASKATOON BETWEEN: BANISTER PIPELINES INC. PLAINTIFF (DEFENDANT BY COUNTERCLAIM) and THE CROSSING COMPANY DEFENDANT (PLAINTIFF BY COUNTERCLAIM) W.J. Kenny for the plaintiff (respondent) C.L. Carlson for the defendant (applicant) FIAT GEREIN C.J.Q.B. March 17, 2004 [1] This is an application wherein the defendant, The Crossing Company Inc., seeks an order requiring the plaintiff, Banister Pipelines Inc., to provide security for costs in the amount of $50,000.00. I have decided that an order should be made, but in the lesser amount of $18,000.00. THE BACKGROUND FACTS [2] Both parties are Alberta corporations and are extra-provincially registered to carry on business in Saskatchewan. As it happens, neither is presently active in this province. [3] In April, 1998, the plaintiff contracted to build pipeline for Interprovincial Pipelines Inc. In carrying out that contract the plaintiff engaged the defendant, as sub-contractor, to construct directionally drilled crossing under the South Saskatchewan River. The defendant embarked upon the project, but after time ceased the work. [4] The plaintiff claims that the defendant abandoned the project. On the other hand, the defendant claims that the plaintiff failed to rectify certain sub-soil conditions which were frustrating the work and eventually directed the defendant to vacate the site. Subsequently, the plaintiff engaged different sub-contractor to complete the work. THE COURT PROCEEDINGS [5] Two actions have been brought in Saskatchewan. The first (Q.B. 1431/99), which is this one, was commenced by the plaintiff against the defendant on June 15, 1999. This is claim for damages in the amount of $3,476,610.00 and alleges failure by the defendant to fulfill the contact. Within this action, on March 15, 2000, the defendant filed defence and counterclaim. The latter asserts claim for $2,150,495.65 as compensation for services and materials provided to the plaintiff pursuant to the contract. [6] The second action (Q.B. 1438/99) is builders’ lien claim brought by the defendant against the plaintiff. That action was commenced on June 16, 1999, and is claim for $2,150,495.65 for the supplying of services and materials. The amount is identical to that claimed in the counterclaim within the action commenced one day earlier. [7] There is an understanding between the parties that the two actions will be tried together. This makes good sense and will save considerable cost. [8] There has been third proceeding, although not an action. On January 26, 1999, the defendant caused builders’ lien to be registered against certain lands respecting work done. In consequence, the plaintiff obtained an ex parte order vacating the lien upon the filing of bond in this court in the amount of $2,200,495.65 and included in that amount is security for costs of $50,000.00. By subsequent order that amount was reduced to $1,460,246.10. That bond is still in place. [9] To complete the picture, there is third action. It was commenced by the defendant against the plaintiff in Edmonton, Alberta. The claim was for the supply of services and materials respecting failed attempt to construct crossing under the North Saskatchewan River. The amount claimed was $2,734,660.27. The plaintiff counterclaimed for $2,547,038.10. Judgment was granted in the amount of the defendant’s claim and the counterclaim was dismissed. Costs were awarded to the defendant in the amount of $468,728.79. The judgment has been paid pursuant to bond posted in the action and the costs have also been paid. The judgment is presently under appeal. [10] Finally, it is noted that by order dated December 12, 1999, Pricewaterhouse Coopers Inc. was appointed as Receiver for the plaintiff. They have since been appointed as Trustee in Bankruptcy. THE SUBMISSIONS [11] On behalf of the defendant, it is submitted that this is proper case to order security for costs. Counsel points to the fact that the plaintiff is not resident in Saskatchewan; has insufficient assets in Canada to pay costs if so ordered; and the plaintiff’s claim lacks merit. At the same time it is submitted that the application should not be denied on the basis of delay or the plaintiff’s impecuniousity. [12] Counsel for the plaintiff submits that the requested order should be refused for three reasons. (1) That the presence of the counterclaim prohibits an order for security for costs. (2) That security has already been provided pursuant to The Builders’ Lien Act, S.S., c. B-7.1 and this court lacks jurisdiction to order more security. (3) That the plaintiff has meritorious claim. PRACTICE RULES AND LEGISLATION [13] The authority to order security for costs is contained in Queen’s Bench Rule 537. Criteria which may be considered are set out in Rules 538 and 539. The former speaks to ordering security for costs while the latter speaks to denying such an order. 537(1) Subject to the express provisions of any statute or regulation, and notwithstanding any other rule, the court (a) has discretion respecting security for costs; and (b) may order security for costs against any party to proceeding, including party who is ordinarily resident in Saskatchewan. (2) The court has discretion to determine the amount and form of security for costs. 538(1) In exercising its discretion under rule 537, the court may consider any relevant matter, including the following factors that may support the granting of an order for security for costs; (a) the party is ordinarily resident outside Saskatchewan; (b) the party is involved in another pending proceeding for essentially the same cause; (c) the party has failed to pay costs as ordered in the same or another proceeding; (d) the party is: (i) corporation, an unincorporated entity or nominal party; and (ii) there is good reason to believe that the party would have insufficient assets in Canada to pay the costs of other parties to the proceeding if ordered to do so; and (e) there is good reason to believe that: (i) the pleadings or position of the party in the proceedings are without merit, and (ii) the party would have insufficient assets in Canada to pay the costs of other parties to the proceedings if ordered to do so. (2) In this rule and in rule 539, “party” means the party against whom an order for security for costs is sought. 539 In exercising its discretion under rule 537, the court may consider any relevant matter, including the following factors that may support the denial of an order for security for costs: (a) the party has disclosed sufficient assets in Canada that would be available to pay the costs of other parties to the proceeding if ordered to do so; (b) the party has demonstrated impecuniousness; (c) there is good reason to believe that the pleadings or position of the party in the proceeding have merit; and (d) the delay in bringing the application for security for costs has prejudiced the party. [14] The discretion of the court is very broad, but not unfettered. It may be constrained by express statutory provisions. It is submitted on behalf of the plaintiff that The Builders’ Lien Act, S.S., c. B-7.1 is what governs and reliance is placed upon s. 56(1) of the Act. It is said that this section takes precedence over Queen’s Bench Rule 537. 56(1) Any person may apply ex parte to the court for an order vacating any registered claim of lien or written notice of lien, and where the person making the application pays into court, or posts security in an amount equal to, the total of: (a) the full amount claimed as owing in any registered claim of lien or written notice of lien to be vacated; and (b) The lesser of $50,000 or 25% of the amount described in clause (a), as security for costs; the court shall order that the registration of the claim of lien or written notice of lien be vacated and give directions for service of the order on the person whose registered claim of lien or written notice of lien is ordered to be vacated. (2) Any person may apply to the court, on notice to such persons as the court may direct, for an order vacating registered claim of lien or written notice of lien, and where an application is made, the court may order that the registration of the claim of lien or written notice of lien be vacated, on payment into court or posting of security in an amount that the court considers reasonable in the circumstances. will return to this subject later. ENTITLEMENT TO SECURITY [15] The defendant has proven facts which demonstrate the existence of several of the criteria listed in Rule 538. On the other hand, the plaintiff has failed to establish any of the situations listed in Rule 539. It follows that the requested order should be granted, unless there is some valid juridical reason to do otherwise. THE COUNTERCLAIM [16] The primary submission on behalf of the plaintiff is that the defendant’s counterclaim precludes it from obtaining an order for security for costs. Support for this submission is to be found in these remarks of Madam Justice Fraser (now Chief Justice) in Specialty Steels v. Suncor Inc. (1997), A.J. No. 276 at p. 5. 12. The Athabasca Realty case dealt with the application of defendant by counterclaim for costs in respect of counterclaim by non-resident plaintiff by counterclaim (defendant). Nevertheless as was evidenced by the decision in Neck, the principle involved in respect of an application by defendant who had advanced counterclaim for security for costs in respect of the plaintiff’s claim is the same. Assuming that the counterclaim arises out of the transaction which gives rise to the plaintiff’s claim, requirement that the plaintiff give security for the costs of the defendant in defending the plaintiff’s claim would be to indirectly require the plaintiff to give security for the costs of the plaintiff by counterclaim (defendant) of prosecuting its counterclaim. As stated by Master Funduk, it would require the plaintiff to give security for costs as condition of it being allowed to defend the action by the plaintiff by counterclaim (defendant) and of having all the issues between those parties arising from the same transaction dealt with together. have also been referred to these remarks of Mr. Justice Baynton in Zip Transfer Ltd. v. Saskatchewan Power Corp. et al., 2000 SKQB 132 (CanLII), [2001] 193 S.R. 318 at p. 320. [6] In the case before me, had the respondent raised its claim by way of counterclaims to the other two actions, it is unlikely that an application for security for costs by either of the plaintiffs in those actions would have been successful. The matter raised by the respondent is certainly not wholly distinct from the claims of the plaintiffs. All matters raised in each of the three actions arise out of the same motor vehicle accident and include all the parties involved in that accident. At least insofar as Saskatchewan Power Corporation is concerned, the matter is raised by the respondent in many respects as defence. As well, if the respondent is successful in full or in part in its claim against the applicant as defendant, it would be entitled to set this off against anything the applicant recovered from it in his claim as plaintiff. [17] In my opinion, the remarks must be read in the context of their factual situations and within the context of existing jurisprudence considered as whole. When this is done, do not believe that either the jurisprudence or the remarks should be taken as enunciating an absolute prohibition. [18] go back to what see as the seminal case; namely, Neck v. Taylor, [1893] Q.B. 560 (C.A.). In that case, the Divisional Court had refused to order security for costs and in upholding that ruling Lord Esher, M.R. said this at p. 562. The rule laid down by the cases seems to be as follows. Where the counter-claim is put forward in respect of matter wholly distinct from the claim, and the person putting it forward is foreigner resident out of the jurisdiction, the case may be treated as if that person were plaintiff, and only plaintiff, and an order for security for costs may be made accordingly, in the absence of anything to the contrary. Where, however, the counter-claim is not in respect of wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the Court will not, merely because the party counter-claiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counter-claim is not in substance put forward as defence to the claim, whatever form in point of strict law and of pleading it may take, and if so, what under all the circumstances will be just and fair as between the parties; and will act accordingly. Therefore, the Court in that case will have discretion. It is clear to me in the present case that the counter-claim is not in respect of matter wholly distinct from and independent of that upon which the claim is based; on the contrary; it arises out of the very same transaction in respect of which the action is brought. It is, in reality, the defendant’s defence to the action, though, as matter of pleading, it is, and necessarily is, put forward by way of counter-claim. Under these circumstances, think that the Divisional Court had discretion in the matter, and see no reason for thinking that they exercised such discretion otherwise than rightly. It should be remembered that while there was counterclaim, it was the plaintiff in the main action who was seeking security for costs from the defendant in the main action. This is opposite to the situation in this case. [19] In my opinion, this can be extracted from the remarks of Lord Esher. If the subject matter of the counterclaim is wholly distinct from the claim, then security for costs may be ordered. If the subject matter of the counterclaim is not wholly distinct, the court will decide the true nature of the counterclaim and then exercise its discretion to do what is just and fair. In short, security for costs may be appropriate despite counterclaim. [20] read the decision in this way. Security for costs should not be ordered if it will deprive defendant of the opportunity to defend against claim. However, if that defendant, who is foreign resident, chooses to bring an unrelated claim as counterclaim, then he runs the risk of an order being made. This is because the order is made against him as plaintiff and as such does not bear upon his ability to defend the main action. Had the claim been brought in separate action an order would have been appropriate. Because the claim is asserted as counterclaim, that fact should not alter the result. If the counterclaim is essentially defence, the court has discretion. However, it will normally decline to order security for costs as it may impede the ability to defend against the claim. [21] In the case of Speciality Steels, (supra), reference was made to the decisions in Athabasca Realty Co. Ltd. v. Lafontaine et al. (1981), 1981 CanLII 1066 (AB QB), 30 A.R. 581 (M) and Junction Engineering Ltd. v. Gunner Industries Ltd. (1993), 143 A.R. 316 (M). In the first there is an extensive review of decisions which discuss the issue of ordering security for costs where there is counterclaim. It is important to recognize that in all of the cases the order was being sought against defendant (plaintiff by counterclaim). That is not the situation before me. In the second decision, Master Funduk made this statement at p. 319. [32] When there is claim and cross-claim arising from the same subject matter it might not be appropriate to require one party to post security; Athabasca Realty v. LaFontaine (1981), 1981 CanLII 1066 (AB QB), 30 A.R. 581 (M), at para. 6. He appears to accept that there is no absolute rule. This statement was quoted with approval in the Speciality Steels case at p. 3. [22] now refer to three Ontario decisions. The first is Ponderwood Realty Inc. v. Piller Investments Ltd. (1999), A.J. No. 275. In that case, plaintiff (defendant by counterclaim) was ordered to post security for the costs of the defendant (plaintiff by counterclaim). Mr. Justice Campbell considered the Alberta decisions and recited the remarks of Madam Justice Fraser and Master Funduk as quoted above. He then went on to say this at p. 4. In my view, there does not appear to be any difference between the law in Ontario and the law of Alberta on this issue and that in general terms the statement of Madam Justice Fraser is just as applicable to an Ontario case as an Alberta one. However, as with all such statements, they must be read in the context of specific facts to which they are applied such as the Speciality Steels situation. In that case, there could be no doubt concerning the interrelationship between the two different causes of action, one for non-payment, the other for damages from alleged defects in the materials supplied rendering payment unenforceable and the need for trial on all these issues. Both the Alberta cases relied on by Madam Justice Fraser and the commentary to the Alberta Rules of Court recognize that the general rule that "no security will be awarded where the claim and counterclaim are related is not an absolute bar". See Stevenson and Cote Civil Procedure Guide (1996), vol. 2, p. 1909. note that in Ontario the references to the section for security for costs where there is counterclaim, involves situations in which it is sought to obtain security for costs from defendant who is plaintiff by counterclaim not plaintiff who is defendant by counterclaim. See Holmsted and Watson (1996), vol. 4, p. 56-16. Indeed, security from defendant who is plaintiff by counterclaim forms the basis for much of the Alberta jurisprudence and is based on the English case of Neck v. Taylor, [1983] Q.B. 560 on which both Ontario and Alberta cases are based. [23] Likewise, the presence of counterclaim did not preclude an order that plaintiff (defendant by counterclaim) post security for costs in the cases of Canadian Accelerating Trade Inc. v. Goldline Telemanagement Inc. (2002), O.J. No. 1781 and Lansink, Best McIver Ltd. v. Marlock (2003), O.J. No. 1245. [24] The only instance when the subject was discussed in Saskatchewan was in Zip Transfer Ltd., (supra). have earlier quoted the remarks which counsel for the plaintiff suggests provide some support for his position. concede there is some merit to the position if the remarks are read in isolation. However, it should be noted that while the application for security for costs was dismissed, it was not done so for the reason that there was counterclaim. Furthermore, the remarks quoted earlier were preceded by these comments which suggest discretion rather than an absolute rule. Likewise if the counterclaim is wholly distinct from the claim, the defendant may be treated as plaintiff and required to give security for costs. But if the counterclaim arises in respect of the same matter, the court will do what is just and fair in the circumstances. Griffin v. Ruller (1906), W.L.R. 12; Terr. L.R. 119 (S.C.). [25] In the end, Specialty Steels, (supra), pretty much stands alone in its position of an absolute prohibition. Yet even within that decision there appears to be some flexibility. Consideration was given to ordering security which would be confined to the defence of the main claim, although this was rejected as unworkable. [26] From my reading of the law, it is my opinion that the presence of counterclaim doe not necessarily or automatically prohibit the granting of an order for security for costs. Rather, it is factor to be considered, albeit compelling one. However, the over-riding principle is that court must do that which is fair and just. [27] In this instance, the counterclaim is not wholly distinct claim. It arises in respect of the same matter and transaction as the claim proper. That being so, must look to the overall situation in order to decide what is just and fair. [28] In this instance, the defendant has commenced another separate and distinct action (Q.B. 1438/99) wherein $50,000.00 is posted as security for costs. That was the result of statutory regime, but it is unlikely anything more would be ordered as it may adversely effect the plaintiff’s opportunity to defend the action. That likely result cannot be defeated by simply re-creating the claim within this action. [29] Yet it must be recognized that the defendant is called upon to defend the within action brought by the plaintiff. This is case where the plaintiff not only is non-resident party, but there is real likelihood that it will be unable to pay costs if it is unsuccessful. The defendant should not have to bear the whole of that risk. [30] As see it, an order requiring security for costs will not have an adverse effect on the plaintiff’s ability to defend against the counterclaim if the security is restricted to the costs for the defence of the claim proper. This approach does not result in the plaintiff funding the defendant’s counterclaim, although it can be said that this is being done through the posting of security in the other action. In any event, it is my conclusion that the presence of the counterclaim, in the circumstances of this case, does not preclude an order for security for costs. [31] There is further consideration. The defendant commenced the builders’ lien action, which is the other action, long before filing defence and counterclaim within this action. Had the counterclaim not been filed, an order for security for costs as requested would have been appropriate. It is somewhat artificial to now deny that relief because of the counterclaim which has the effect of facilitating disposition of all matters within one proceeding. THE BUILDERS’ LIEN ACT [32] The plaintiff applied ex parte under s. 56(1) of The Builders’ Lien Act, (supra), to have the defendant’s lien vacated. The application was granted, but the plaintiff was required to post security for costs in the amount of $50,000.00. It is now argued that this court has no jurisdiction to do anything more. [33] Section 56(1) creates discrete process to vacate liens. To facilitate that process, it provides an arbitrary method to substitute trust fund in this court in place of the lien. The amount in that trust fund is based on the amount of the lien plus sum for costs which is calculated as percentage of the lien to maximum of $50,000.00. [34] The section governs only an application to vacate lien and only if the application is made ex parte. This is made very clear when one reads s. 56(2) which provides for vacating lien on notice. In that instance the court fixes the amount of the security. Accordingly, I conclude that the Act does not impede the jurisdiction of this court to deal with the application of the defendant. MERITORIOUS CLAIM [35] It is submitted that the order should be denied because the plaintiff fits within Queens’ Bench Rule 539(a) which provides: 539 In exercising its discretion under rule 537, the court may consider any relevant matter, including the following factors that may support the denial of an order for security for costs: (c) there is good reason to believe that the pleadings or position of the party in the proceeding have merit; Quite frankly, cannot assess with any confidence the merit of the plaintiff’s claim. This is so despite my reading of the pleadings and the material filed. [36] On the other hand, the result in the Alberta action raises concerns about the plaintiff’s claim. This is so despite the fact the judgment is under appeal and recognizing that the facts and evidence in this case may differ. However, on balance, am not persuaded Rule 539(c) should be invoked. LIABILITY OF PRICEWATERHOUSECOOPERS INC. [37] In the alternative, the defendant has asked for declaration that PricewaterhouseCoopers Inc. is liable for any award of costs that may be made against the plaintiff. Having decided as have respecting security for costs, there is no need to address this matter other than to say that no such declaration will be made. QUANTUM OF SECURITY [38] The defendant asks for an order requiring security in the amount of $50,000.00. The filed material contains pro forma bill of costs showing total costs of $139,900.00 made up of fees of $39,900.00 and disbursements of $100,000.00. [39] make two observations. The disbursements include $80,000.00 for expert costs There is no description of the expertise or purpose the experts will serve. It is simply number moved over from the Alberta action. am not prepared to allow anything for that. As well, the remaining disbursements of $20,000.00 are simply described as reporting services, conduct money, copying etc. accept that there will be such disbursements, but am not prepared to accept the amount, absent greater particulars. Rather, arbitrarily fix the amount at $12,000.00. [40] The second observation is that many of the costs will be related to the counterclaim. can’t be certain of the exact amount, but choose to err on the side of the plaintiff. Taking that approach, estimate 35% of the costs should be attributed to the plaintiff’s claim. Accordingly, I conclude that the security which should be posted is $18,000.00 for fees and disbursements. CONCLUSION [41] In the result, it is ordered as follows:(1) that the plaintiff, Banister Pipelines Inc., on or before April 30, 2004, shall deposit with this court to the credit of this action as security for costs the sum of $18,000.00; (2) that the security may take the form of cash monies, bond or letter of credit provided by recognized financial institution acceptable to counsel for the defendant; (3) that pending the posting of the security the claim of the plaintiff, Banister Pipelines Inc., shall be stayed; (4) that in the event the security is not posted within the specified time, application may be brought to have the claim of the plaintiff, Banister Pipelines Inc., dismissed with costs; (5) that the application to have PricewaterhouseCoopers Inc. declared liable for any award of costs is dismissed; and (6) that costs of this application will be in the cause.
FIAT: The defendant applied for security for costs in the amount of $50,000. HELD: The plaintiff was required to supply security for costs in the amount of $18,000. 1) The defendant proved facts, which demonstrated the existence of several of the criteria listed in Rule 538 of the Queen's Bench Rules of Court. The plaintiff failed to establish any of the situations listed in Rule 539.  2) The presence of a counterclaim does not necessarily or automatically prohibit the granting of an order for security for costs. Rather, it is a factor to be considered. In this case, the counterclaim was not a wholly distinct claim. It arises in respect of the same matter and transaction as the claim proper. 3) The defendant commenced the builders' lien action, long before filing a defence and counterclaim within this action. Had the counterclaim not been filed, an order for security for costs as requested would have been appropriate. It is somewhat artificial to now deny that relief because of the counterclaim, which has the effect of facilitating a disposition of all matters within one proceeding. 4) The plaintiff applied ex parte under s. 56(1) of The Builders' Lien Act to have the defendant's lien vacated. The application was granted, but the plaintiff was required to post security for costs in the amount of $50,000. The Builders' Lien Act does not impede the jurisdiction of this Court to deal with the application of the defendant.