Executive Summary: Key Legal and Evidentiary Issues

• Dispute centres on a subcontractor’s construction lien for unpaid highway resurfacing work and whether prolonged inactivity justified dismissing the action for delay.
• The court assessed if RSR’s inaction and breach of an order to promptly appoint new counsel amounted to abandonment of the claim or a proper ground to discharge the lien and return BEI’s posted security.
• Financial evidence of RSR’s judgments, enforcement proceedings and late payment of cost awards was weighed against its unsubstantiated claim of $10 million in equipment to decide security for costs.
• The judge examined whether BEI met the “good reason to believe” threshold that RSR lacked sufficient Ontario assets to satisfy a potential adverse costs award under Rule 56.01(1)(d).
• Misuse of artificial intelligence in RSR’s factum, including inaccurate case quotations and failure to comply with the new factum certification requirements, raised concerns about counsel’s duties to the court.
• The court ultimately balanced procedural fairness with litigation discipline by refusing to dismiss the claim or discharge the lien, while ordering RSR to post $190,000 as security for BEI’s costs and imposing a strict litigation timetable.

Factual background and the project dispute
RSR Road Surface Recycling Limited was a subcontractor to Bonnechere Excavating Inc. (BEI) on a Ministry of Transportation (MTO) highway resurfacing project on King’s Highway 41. BEI held the prime contract with MTO and retained RSR to perform hot in-place recycling work as part of that larger public infrastructure project. The project deteriorated into a dispute. BEI alleged that RSR delayed the work, performed it with poor quality control, and ultimately abandoned the project. In May 2023, BEI terminated RSR’s subcontract on the basis of alleged breach and abandonment. Later, in September 2023, MTO terminated its main contract with BEI, and BEI in turn blamed that termination on RSR’s performance and delay. In response to its termination, RSR registered a construction lien against the project in the amount of $1,646,628.19, claiming this sum remained owing for work performed under the subcontract. BEI moved to vacate the lien and, in June 2023, obtained an order discharging the lien from title on posting security of $250,000 with the court.

Procedural history and delay in the action
After the lien was vacated, RSR commenced an action on July 24, 2023 to perfect its lien claim and continue its dispute with BEI (and MTO) in the Superior Court. BEI defended and filed its own counterclaim. Pleadings closed on October 10, 2023, when RSR delivered its Reply and Defence to Counterclaim. From that point onward, RSR took no procedural steps to advance the litigation. That period of procedural inactivity coincided with changes in RSR’s representation. In September 2024, RSR’s then-counsel obtained an order removing themselves as lawyers of record, and RSR was given 30 days to appoint new counsel. Although RSR’s current lawyer informally indicated in November 2024 that he was acting, no formal Notice of Change of Lawyer was filed until just days before the motion, and the outstanding cost awards previously ordered against RSR were also only arranged to be paid shortly before the hearing. In his affidavit, RSR’s vice president, Frank Crupi, attributed the delay to the company’s difficulties retainer new counsel while also managing other litigation—specifically, a separate dispute with the City of Greater Sudbury involving another hot in-place recycling project—and focusing limited resources on ongoing operations and smaller paving contracts. He also asserted that all relevant project documents and witnesses remained available and that RSR intended to move the case forward promptly with a timetable for discoveries and trial.

Motion to dismiss for delay and to discharge the lien
BEI brought a multi-faceted motion seeking: (1) dismissal of RSR’s action for delay under Rule 24.01(1)(c) of the Rules of Civil Procedure; (2) discharge of RSR’s lien under s. 47(1) of the Construction Lien Act; and (3) return of the $250,000 security it had posted to vacate the lien. On the dismissal branch, BEI argued that RSR had failed to set the action down for trial within six months of the close of pleadings and had taken no meaningful steps in over two years, with no adequate explanation. Under Rule 24.01 jurisprudence, any delay requires explanation, and in the absence of a credible explanation the delay is presumed intentional, with prejudice to the defendant presumed as well. BEI relied on the Aqua Mechanical v. Grascan Construction case to support its argument that the claim had effectively been abandoned. RSR countered that while there had undoubtedly been delay, it had not abandoned its claim. It pointed to Crupi’s evidence that the company was engaged in other litigation, dealing with financial pressures, and working to appoint new counsel. RSR emphasized that it had now retained counsel, paid prior cost awards, and was ready to move ahead expeditiously with affidavits of documents, discoveries, and a trial timetable. The court accepted that there was meaningful delay, but ultimately found that the evidence did not support a conclusion that RSR had abandoned its claim. Unlike the case relied on by BEI, there was a sufficient explanation for the delay and a clear commitment to proceed. As a result, the judge refused to dismiss the action for delay, instead imposing a firm timetable to ensure progress. On the lien and security issue, BEI sought an order returning the $250,000 security, which would have the practical effect of discharging the lien under s. 47(1)(b) of the Construction Lien Act. The judge noted that s. 47 gives the court broad discretion to discharge a lien “on any proper ground,” but observed that BEI was not alleging the claim was frivolous, vexatious, or an abuse of process—only that delay and breach of orders about counsel appointment justified releasing the security. Having already decided that dismissal for delay was not warranted, the judge concluded there was no proper ground, on this record, to discharge the lien or return the security. The lien therefore remained supported by the previously posted $250,000 security.

Security for costs and the financial evidence
The more successful aspect of BEI’s motion concerned security for costs. BEI invoked Rule 56.01(1)(d), which allows the court to order a corporate plaintiff to post security where there is good reason to believe it has insufficient assets in Ontario to pay a potential costs award. The court first examined BEI’s threshold evidence. BEI showed that during the project it had provided RSR with extensive financial assistance, including materials, fuel, maintenance of RSR’s own equipment, and advance payments to shore up RSR’s cash flow. It also led evidence that RSR had not made its required corporate filings since its 2020 amalgamation, had several outstanding civil judgments totalling over $150,000 (exclusive of interest), and faced multiple writs of seizure and sale against it and its principals. Finally, RSR’s failure to pay previous cost awards until just before the motion supported the conclusion that it had difficulty meeting its obligations. This was enough to meet the “good reason to believe” threshold. The burden then shifted to RSR to show that ordering security would be unjust. RSR attempted to do so primarily through Crupi’s affidavit, which asserted that the company owned approximately $10 million worth of recycling equipment, continued operating as a going concern, had secured financing for equipment maintenance in June 2025, and remained active on other projects in Ontario. However, RSR did not attach any financial documents to substantiate these claims. The judge expressed skepticism that the equipment was owned outright, suggesting it was likely heavily financed or leased. Moreover, the affidavit did not address the outstanding judgments and enforcement activity against the company and its principals. On this record, the court found RSR’s evidence insufficient to rebut the case for security. At a broader fairness level, the judge considered whether an order for security would be “just,” as required by the Rule and the guidance in Yaiguaje v. Chevron. The evidence showed RSR was in financial difficulty, yet Crupi claimed it had sufficient assets to access funds for security, and RSR’s counsel admitted his client could post security and still continue the litigation. The court also noted that BEI had already posted $250,000 to remove the lien, after which RSR allowed the matter to stagnate. In those circumstances, ordering security would level the playing field, protect BEI against the risk of non-payment of costs, and encourage RSR to advance the action diligently. After hearing submissions on quantum, the judge fixed security for costs at $190,000, with RSR’s counsel confirming this amount was feasible for his client. RSR was ordered to post that security by March 31, 2026.

Use of artificial intelligence in RSR’s factum
An unusual feature of the decision is the court’s treatment of counsel’s misuse of artificial intelligence in preparing RSR’s factum. BEI’s counsel raised a concern that certain quotations in RSR’s factum, ostensibly from Court of Appeal and Superior Court decisions, did not appear in the reported reasons despite the cases themselves being real. During a brief recess, the judge reviewed one of the cited decisions, Louis Jones Construction Ltd. v. Rocque, and found that the principles described in the factum did not match the actual findings of the court in that case. When court resumed, RSR’s counsel candidly admitted he had used AI software to assist with the factum. While he had confirmed that the authorities existed, he had not verified their contents by reading them to ensure the quotations and summaries were accurate. This admission triggered scrutiny under newly amended Rule 4.06.1 of the Rules of Civil Procedure, which now requires facta to include precise citations to relevant paragraphs or pages and a signed statement certifying the authenticity of every cited authority. RSR’s factum lacked the required authenticity certificate and did not provide hyperlinks to specific passages in the cited case law. The judge inferred that this non-compliance was deliberate, as counsel could not certify or locate specific passages where he had not read the decisions. The court referred to the Superior Court’s new province-wide practice direction on the responsible use of AI in civil proceedings, which emphasizes preserving the integrity of the justice system and lists potential sanctions for misuse, including public reprimand, cost consequences, adjournments, dismissal, contempt, and referrals to the Law Society. In the circumstances, the judge declined to rely on RSR’s factum at all, accepting only oral submissions, and indicated that the misuse of AI would be taken into account when costs are later determined. At this stage, however, no specific monetary sanction or cost premium tied to the AI issue was fixed; that question was deferred to the upcoming written costs submissions.

Timetable, costs submissions and overall outcome
To ensure the case now moves ahead promptly, the court imposed a detailed timetable: affidavits of documents must be exchanged by March 31, 2026; examinations for discovery must be completed by September 30, 2026; undertakings are to be answered by November 15, 2026; and a case conference is to be held soon after that date to confirm completion of these steps, address expert reports and, if appropriate, set pre-trial and trial dates. The timetable can be adjusted by consent without further court order, but it clearly signals judicial expectation that there will be no repeat of the earlier period of inactivity. On the discrete motions, the court denied BEI’s request to dismiss the claim for delay and refused to discharge RSR’s lien or return BEI’s $250,000 lien security, allowing RSR’s substantive construction lien and contractual claims to proceed. BEI, however, succeeded on its security-for-costs motion: RSR must post $190,000 in security by March 31, 2026 if it wishes to continue the action. The court reserved the issue of costs of the motion, setting a schedule for written costs submissions but not yet fixing any dollar amount for costs in favour of any party. Overall, the outcome is mixed. RSR preserved its action and its lien security, but it must now provide significant security for BEI’s potential costs and comply with a strict procedural timetable. BEI achieved meaningful protection through the $190,000 security-for-costs order but obtained no immediate costs award or damages. Because costs have been reserved to a later determination and no damages were adjudicated in this procedural decision, the total monetary award or costs actually granted in favour of the successful party cannot yet be determined beyond the requirement that RSR post $190,000 as security for BEI’s potential costs, with any future costs or damages awards still to be quantified in subsequent rulings.