COURT FILE NO.: 93-CU-069165CM

DIVISIONAL COURT FILE NO.: 327/03

DATE: 20030616

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

TREATS INC.

Plaintiff/Applicant

• and -

RICHTER, USHER AND VINEBERG, CHARTERED ACCOUNTANTS, and LESLIE RUPF, ELIZABETH VOLGYESI, ROBERT M. KERR, FRANK ZAID, SUSAN OKUN and ROBERT CROSBIE

Defendants

M.B. Miller, for the Applicant/Plaintiff

B.A. Thomas, Q.C., for the Respondent/Defendant Frank Zaid

HEARD: May 30, 2003

O’DRISCOLL J.:

I. Nature of Proceedings

1The Applicant/Plaintiff seeks leave to appeal to the Divisional Court under the provisions of s. 19(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C. 43 and Rules 62.02(1) and (4)(b) of the Rules of Civil Procedure.

62.02(4) Leave to appeal shall not be granted unless,

(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

2The application fails.

3On January 14, 2003, the Defendant, Frank Zaid, brought a motion before Master Haberman under Rule 56.01(d) seeking security for costs.

56.01(1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that, . . .

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent . . . .

Mr. Zaid claimed that the quantum of the security should reflect the fact that he was sued as the plaintiff’s franchise counsel, as the only paid director and as a member of the audit committee at the relevant time and was, therefore, entitled to be paid any costs incurred on a substantial indemnity basis because, he alleges, the company’s by-laws and the relative corporation legislation entitled him to be indemnified for costs incurred in defence of the action.

4Counsel for the Plaintiff advises that although the Third Amended Statement of Claim claims against Frank Zaid and the other Defendants for damages for negligence or fraudulent misrepresentation in the amount of $12,750,000 together with $2 million punitive damages plus pre-judgment interest and solicitor/client costs, the claim is for the amount set out in the expert’s report, namely the sum of $2,200,000.

5The Master reserved judgment. On February 6, 2003, Master Haberman released nineteen (19) pages of decision and granted F. Zaid an order for security for costs on a substantial indemnity approach in the sum of $680,000 to be paid into court within 45 days of February 6, 2003, failing which F. Zaid was entitled to bring a motion to dismiss the action against him.

6The Plaintiff appealed the decision of Master Haberman. On March 14, 2003, the appeal came on before Pepall J. who heard the appeal and reserved her decision.

7On March 27, 2003, Pepall J. released six (6) pages of reasons dismissing the appeal. She said, in part:

. . .I agree with the analysis of Master Haberman with respect to this issue and in my view she did not err in finding that Mr. Zaid was entitled to an order for security for costs that reflected a substantial indemnity scale. In this regard, I also note the claims of fraud and conspiracy contained in the amended statement of claim.

4. Quantum

[15] Having reviewed her reasons and the evidence, in my view the Master did not err in determining the appropriate quantum of security to be posted to secure Mr. Zaid’s possible award of costs as being $680,000. I should add that the security may be posted by way of a bond or letter of credit in terms acceptable to Mr. Zaid.

Summary

[16] In Summary, I am satisfied that Master Haberman was not clearly wrong in the exercise of her discretion. In my view, she was correct in the disposition of this matter. Accordingly, the appeal is dismissed. If the parties are unable to agree, they are to make short written submissions on costs.

8In her reasons, Pepall J. discussed, inter alia:

(a) what the action was about

(b) the standard of review applicable to the appeal

(c) the grounds of appeal

(d) the assets and the liabilities of the plaintiff

(e) the merits of the case against Mr. Zaid

(f) the substantial indemnity scale and

(g) the quantum of the security order.

9After reading the reasons of Pepall J., the other materials filed, and after hearing the submissions of counsel, I cannot say that I have “good reason to doubt the correctness of the order” of Pepall J., dated March 27, 2003. With respect, I agree with the order. Having reached this conclusion, the application must fail.

10As the cases point out, Rule 62.02(4)(b) is conjunctive not disjunctive. However, even if I had found that I had good reason to doubt the correctness of the order of Pepall J., it is my decision that the proposed appeal does not involve matters of such importance that leave to appeal should be granted.

11Counsel for the Applicant/Plaintiff submitted that the impugned order amounts to a death knell to all small companies because the relative magnitude of the order has the effect of turning an otherwise solvent corporation into one that would become insolvent.

12As Catzman J. said in Rankin v. McLeod, Young & Weir Ltd. et al. (1986), 57 O.R. (2d) 569:

p. 573:

“Matters of such importance that . . . leave to appeal should be granted”

The second condition is that the proposed appeal involves matters of such importance that, in the opinion of the judge hearing the motion, leave to appeal should be granted. Counsel for the plaintiff argued the motion on the footing that this condition was satisfied because the matters in issue are of vital importance to his client. . . .

Again, for the purpose of disposition of this motion, I am prepared to assume that the matters in issue are of considerable importance to both the plaintiff and the defendant. I am, however, of the view that they are not issues of broader importance extending beyond the interests of the parties. In my assessment, no question of principle arose for determination on the hearing. . . He [the motions judge] neither was called upon nor purported to establish or extend any new proposition of law or practice or to modify or overturn any established one. Rather, he applied existing propositions of law to the circumstances, as he analyzed them, of the appeal and cross-appeal which were before him.

p. 575:

. . . in my view, the “importance” comprehended by the rule transcends the interests of the immediate parties to the litigation and contemplates issues of broad significance or general application that are felt to warrant resolution by a higher level of judicial authority.

13In summary, counsel for the Applicant/Plaintiff has not satisfied the burden of persuading me on either branch of Rule 62.02(4)(b); to succeed, he must satisfy me on both branches of Rule 62.02(4)(b). The application for leave to appeal is dismissed.

14If counsel cannot agree as to costs within a period of ten (10) days from the date of release of these reasons, counsel may file brief written submissions as to costs.

O’Driscoll J.