COURT FILE NO.: 309/04

DATE: 20050930

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

O’DRISCOLL, CAMERON AND SWINTON JJ.

B E T W E E N:

KAWKABAN CORPORATION

Appellant/Plaintiff

• and -

THE SECOND CUP LTD. and JOHN DELUTIS

Respondents/Defendants

Anil Varma, for the Appellant/Plaintiff

Paul J. Bates, for the Respondents/Defendants

HEARD at Toronto: June 2, 2005

O’DRISCOLL J.:

I. NATURE OF PROCEEDINGS

1The appellant/plaintiff appeals to this court from the order of Sutherland J., dated May 28, 2004, requiring the appellant, under rule 56.01(d), to pay into court $175,000.00 as security for costs of the respondents/defendants. Leave to appeal under s. 19(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C. 43 and rule 62.02(4) was granted by Kozak J. on October 28, 2004.

II. CHRONOLOGY AND BACKGROUND

2The appellant was incorporated as an Ontario corporation in November 1995 for the sole purpose of owning and operating a Second Cup Ltd. (2nd Cup) franchise outlet at 1070 Eglinton Avenue West, Toronto. The appellant’s sole shareholder is Paul H. Dahlin. In January 1996, with the consent of the 2nd Cup, the appellant took over the outlet from the former franchisee and, for the balance of the term, assumed the responsibilities under the franchise agreement and as the subtenant of the 2nd Cup, the tenant.

3The franchise agreement and the lease were due to expire in mid-August, 1999.

4In his affidavit, sworn May 25, 2004, filed on the motion before Sutherland J., and on which there was no cross-examination, Mr. Dahlin deposed that he was eager to renew the franchise agreement and eager to have 2nd Cup renew its lease at 1070 Eglinton Avenue West, Toronto for another ten (10) year period. Mr. Dahlin deposed that in November 1998 he was advised by 2nd Cup management that in order to have the franchise agreement renewed, the appellant would have to satisfy certain conditions imposed by 2nd Cup. By March 1999, the 2nd Cup’s conditions had been fulfilled by the appellant and P.H. Dahlin to 2nd Cup’s satisfaction. Also in November 1998, 2nd Cup’s management told P.H. Dahlin that it was going to start negotiating with the landlord, Mr. Rotstein, to renew the lease at 1070 Eglinton Avenue West.

5As he deposes in paragraph 8 of his affidavit, in April 1999, 2nd Cup management told P.H. Dahlin:

(i) it would waive a standard provision of the franchise agreement which prohibited a franchisee from selling the franchise for two (2) years after a renewal. The appellant had received offers to purchase and had advised 2nd Cup. The franchisor indicated that the appellant would have to sign a confidentiality agreement regarding that clause and the waiver.

(ii) 2nd Cup also told Mr. Dahlin that it had an agreement with the landlord to meet any price on the rent on a renewal of the lease. Mr. Dahlin deposed that there never was such an agreement. Mr. Dahlin deposed that 2nd Cup personnel promised that if things “did not work out” with regard to the application to renew the lease, 2nd Cup would find the appellant a substitute location in the immediate vicinity of 1070 Eglinton Avenue West, Toronto.

6As Mr. Dahlin deposed in paragraphs 19 and 20 of his affidavit, 2nd Cup did not actively pursue renewal of the lease. It was not until June 21, 1999 that 2nd Cup made an offer to renew to the landlord. The landlord made a counter proposal which was open until June 24, 1999. 2nd Cup did not reply to the landlord’s counter proposal. On June 25, 1999, the landlord wrote to 2nd Cup and advised that he, the landlord, expected vacant possession of 1070 Eglinton Avenue West on August 14, 1999. It was not until three (3) weeks after June 25, 1999, namely on July 15, 1999, that 2nd Cup advised Mr. Dahlin of the landlord’s decision.

7On July 26, 1999, in an attempt to obtain help, Mr. Paul Dahlin wrote a letter to Mr. Michael Bregman, then Chairman and CEO of the Second Cup Coffee Company. The letter said, in part:

“I need your help. The franchise and lease for this location expires on August 14th, 1999… in less than three weeks. Terry McGovern stated in a letter dated July 15th that I need to vacate the premises by August 13th. John Delutis, in a telephone conversation, advised me that I will be offered a new location in the area at some point in the future but that the cost would likely be in the $240,000 to $280,000 range plus a $25,000 franchise fee. The timing would be a number of months away.

Frankly, this scenario will end up placing my family in extreme financial difficulty and our customer base would evaporate. We would have to start over again with even higher debts.

I took over the existing franchise on this location in the winter of 1996 and since that time I have personally lost almost $200,000 in the venture. Until today…I have never complained. I was confidant [sic] that your organization would work with me to try and recoup at least part of that loss. That does not appear to be the case.

The cost of refurbishing the existing location and bringing it up to your new standards would be substantially less than starting from “scratch” at a new site. My proposal, as agreed to by Ron Baugh and subsequently by Chris Sonnen, was to allow me to renew at this location with Tonia Neve as a 20% owner. It was agreed that the two-year waiting period to sell would be waived provided that both Tonia and I sign a confidentiality clause. While this would hardly cover my financial loss, at least it would mitigate the situation somewhat.

Early this year I contacted Roy Benin and John Delutis to start working on the lease renewal. When Terry McGovern appeared in his new role as Vice-President Leasing I advised him of the situation and requested that he start negotiations.

Terry indicated that he was only prepared to pay market value for a new lease. The current rent is $60,000 per annum and he felt that $40,000 to $45,000 was more in line. I could hardly argue with the potential savings but I was concerned that he did not “have a good feel” for what the 1070 Eglinton location would command, or that he had the negotiating skills to work out an arrangement with the landlord’s difficult son, Jodie Rotstein. Terry advised me that I should not worry, he had an understanding with Jodie Rotstein that should another potential lessee offer more… he would consider matching their price as it would demonstrate a higher market value.

It is my understanding, forgive the use of the vernacular, that in June Terry McGovern and Jodie Rotstein got into what can only be described as “a pissing match”. My family and I ended up as the losers.

Terry left for holidays at the end of June without even the courtesy of advising me of the outcome of his discussions. To date, other than Terry’s letter instructing me to vacate the premises, I have heard nothing. I have not been advised of any options. I do not know if the premises have been leased. Apparently other locations have looked at…but no one has said anything to me.

The Eglinton Avenue subway construction bankrupted my predecessor. When the decision was made to undo all subway construction and redo the Eglinton street surface I found myself in a similar situation. First, I kept the business afloat by cashing in my RRSP’s. When that proved to be insufficient, I borrowed $35,000 from our parents.

Throughout my entire relationship with your organization, we continued to grow the business and we have been current with all of our suppliers. Despite severe financial constraints, Second Cup never had to worry about its royalty fees.

After 30 months we have finally turned the store profitable. Despite Starbucks, we have continued to increase sales for each of the past three years. You have benefited by having a location that has provided your organization with almost $150,000 in revenue from royalty fees.

I am not asking to make a profit, nor am I asking to have my losses covered. I am asking for your help to derive a workable plan that would help mitigate my family’s losses.”

8By letter, dated July 28, 1999, Mr. Bregman wrote to Mr. Dahlin and agreed that the situation was “unfortunate” but he was “not able to identify any single solution for Second Cup to consider”.

9In paragraph 36 of his affidavit, Mr. Dahlin deposes that his counsel was advised on May 15, 2002 that Michael Bregman was no longer an officer, director or employee of the 2nd Cup.

10In his affidavit (supra), Mr. Dahlin further deposed:

22. “I was advised that the landlord lease [sic] the premises to Timothy’s World Coffee for a 10 year term with rent being $40.00 per square foot for the first five years, increasing to $45.00 per square foot for the last five years. I was told by the landlord that Michael Bregman personally approached him in the fall of 1999, and asked that they break the lease with Timothy’s.

23. It is my understanding from the landlord that Second Cup made no other attempts to renew the lease at 1070 Eglinton Avenue West other than one offer of June 21, 1999.

24. In a press release of Second Cup for Venture Television dated February 9, 2000, Shawn MacLeod indicates,

“Unfortunately in the case of 1070 Eglinton Avenue, we negotiated for many months prior to the impending lease expiry and despite our best efforts, discussions broke down in July. Our analysis found the landlord’s proposed drastic increase in rent would result in a poor return for any franchisee who operated in that location. As the new proposed leasing terms were not financially viable, we were unable to justify renewing the lease.”

Attached hereto and marked as Exhibit “O” is a true copy of the press release for Venture television dated February 9, 2000.

28. The position of Second Cup is obviously false, in that their own Pro Forma documents show that sales of $520,000 per year (which I had) would have permitted yearly rent of up to $60,000.00 per year. The landlord was only seeking $45,000 per year ($45.00 per square foot x 1000 square foot store).

29. In February of 2000, Second Cup sold an [sic] franchise to another franchisee in the middle of the block a few stores east, from my corner location. I was informed that Second Cup employees used sales figures from my franchise (at 1070 Eglinton Avenue West) in their franchise selling material. I have been advised that the franchise was purchased for $357,000.00, it was 1000 square feet and he was paying $16.00 [sic] rent per square foot to the landlord Mr. Rotstein. This was obviously a greater financial obligation to the franchisee than having negotiated with my landlord. This franchisee walked away from the business a few months after purchasing it.

30. To quantify the value of my franchise, my counsel retained an expert who the Defendant uses to value and sell Second Cup franchises, Justina Lyn. Ms. Lyn compared the sales figures of Kawkaban, as well as other Second Cup locations either sold or listed having similar sales figures, lease terms and rental rates. Ms. Lyn’s evaluation of my loss is $339,000.”

11As stated earlier, Mr. Dahlin was not cross-examined on his affidavit, sworn May 25, 2004. It was before Sutherland J. The responding affidavit of Geoffrey B. Shaw, a partner in the firm which is counsel for the respondents, in my view, does not dispute the facts recited by Mr. Dahlin as set out above.

12In summary, the president and sole shareholder of the appellant, Mr. Dahlin, deposed that Mr. Terry McGovern, Vice-President, Leasing for the 2nd Cup, “dropped the ball”, for whatever reason, in his renewal negotiations with Jodie Rotstein. As a result, the appellant, without any fault on its part, found itself without premises. The record does not have any response from Mr. McGovern on this topic.

THE HISTORY OF THIS LITIGATION

13On March 1, 2000, the appellant commenced this action by a statement of claim against the 2nd Cup and five (5) of its officers and employees.

14On June 26, 2000, the individual defendants, who had brought a motion to strike out the statement of claim against them, had their motion heard by Gans J. He ordered that the statement of claim be struck out against all personal defendants save and except John Delutis. On July 28, 2000, the defendants filed a statement of defence.

15On February 15, 2001, the appellant’s appeal to the Court of Appeal for Ontario from the order of Gans J. was dismissed.

16On June 1, 2001, counsel for the appellants contacted counsel for the respondents to arrange the examination for discovery of the respondents. The respondents’ counsel were not available until January 21, 2002. On that date, the individual defendant, respondent John Delutis, was examined for discovery.

17At the January 21, 2002 examination for discovery of John Delutis, sixteen (16) undertakings were given. They were not fulfilled until August 20, 2002, some seven (7) months later.

18On April 11, 2003, counsel for the appellant served and filed the trial record.

19On April 29, 2003, counsel for the respondent served a notice for the examination for discovery of P.H. Dahlin, scheduled for July 14 and 15, 2003. The examination for discovery of P.H. Dahlin took place on those dates. Excerpts from the examination for discovery disclose:

183. “Q. And you end up operating until the middle of August 1999?

A. Three and a half years.

1134. Q. So, Mr. Dahlin, how is it that you personally lose almost $200,000, when you explained in a Statement of Claim and in a quotation to the CBC that it was “very profitable” and “extremely profitable”?

1135. A. I think the point that – how do I lose $200,000 on a venture? Because to turn it around and make it profitable, I had to go through a two year period where I lost a considerable amount of money. Now when I finally was in a position to recoup that, I needed additional time, there was no additional time, and that is because I did not have the lease.

1136. Q. Now, in the next paragraph on the July 26th, 1999 letter, the fourth paragraph, do you see that, you are talking with Mr. - - you are talking to Mr. Bregman in your letter about the arrangement that you had that you would be allowed to sign – or, I am sorry, sell the franchise within the first your first two years of extending it, provided that there was a confidentiality clause, and then you make the statement, “This would hardly cover my financial loss, at least it would mitigate the situation somewhat”, and are you referring when you make that statement to the fact that this won’t cover the $200,000 loss, it will simply reduce it?

A. Well, if you were looking – well, correct.

20At the July 14-15, 2003 examination for discovery of Mr. Dahlin, the deponent undertook to provide the appellant’s financial statements for the years 1996-2000 period. They were provided on January 14, 2004, and showed that the appellant’s liabilities far exceeded its assets.

21At the September 3, 2003 Trial Scheduling Court, counsel for the respondents advised that because the respondent intended to bring a motion to strike out the jury notice and because of the outstanding undertakings of Mr. Dahlin, an adjournment was requested. Sanderson J. refused a request for adjournment and set:

(1) June 15, 2004 as the date for a two (2) hour pretrial, and

(2) September 27, 2004 as the trial date for a jury trial estimated to take ten (10) days.

22On December 15, 2003, counsel for the respondents brought a motion before G. Speigel J. for an order that the undertakings of Mr. Dahlin be fulfilled and for an order striking out the jury notice. Counsel for the appellant consented to an order to fulfill the undertakings given at the examination for discovery. The motions judge, on consent, made an order that the undertakings be fulfilled by January 6, 2004. In her endorsement of December 15, 2003, G. Speigel J. dismissed the application of the respondents to strike out the jury notice.

23In his affidavit of May 25, 2004, Mr. Dahlin further deposed:

“46. On February 11, 2004, I received a call from Mr. Alton McEwan, CEO of Second Cup, at home to discuss my law suit with Second Cup. We arranged to meet.

47. On February 16, 2004, I met Mr. McEwan at Second Cup at Royal York and Bloor Street at 8:00 a.m. We discussed the resolution of the case. We agreed to continue discussions.

48. I sent a letter to Mr. Alton McEwan on March 9, 2004 regarding settlement. Mr. McEwan called me at my office from his home in Carmel, California, to advise that he would get back to me upon his return to Toronto.”

24On March 15, 2004, counsel for the respondents wrote to counsel for the appellant and said, in part:

“Based on my review of your client’s financial statements provided on January 14, 2004, there is good reason to believe that Kawkaban Corporation has insufficient assets to pay the defendants’ costs. Accordingly, the defendants intend to bring a motion for security for costs.”

Mr. Dahlin’s affidavit concludes:

“49. On April 16, 2004 I received a telephone call from Mr. Alton McEwan, President of the Second Cup Coffee Co. He advised that he would like to work with me directly to try and settle this lawsuit without involving our lawyers. He asked me if I had a “number” that we could discuss. In response to Mr. McEwan’s inquiry I drafted a letter to him outlining what I believed to be the merits of the case and settlement figures. In response to my letter, I received a telephone call from Mr. McEwan indicating that he had heard from counsel that at one point we were close to settlement and that there was a pending motion and he wanted to see how that went before continuing settlement discussions.

50. My counsel was served with the Motion for Security for Costs on May 18, 2004.

51. I believe that the motion for security for costs is purely tactical and is being used to pressure me into an unjust settlement.

52. In September 2003, I discussed with my counsel, David Zuber, the fact that these defendants were bringing an undertakings and refusals motion and a motion to strike the Jury Notice. There was never a mention of security for costs motion from the defendants. After trial was set in September 2003, I gave instructions to my counsel to hire an expert to value the business and instructed my counsel to prepare for trial. Since September 2003, numerous witnesses have been interviewed and the matter has been prepared for pre-trial and trial.

53. If Kawkaban is required to post security for costs as requested, it will be unable to do so, and this action will not be able to proceed. I have made other long term financial commitments over the last year which prelude posting security for costs in this action at this late stage of the proceeding.

III. RULE 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;”

IV. THE ISSUE OF DELAY

A. Sutherland J.’s reasons regarding delay:

“The motion of the defendant although brought at a late stage, was brought reasonably promptly after the long delayed delivery of financial statements of the plaintiff. The last financial statements are for 2000, later financial statements were not delivered. Those that were delivered came as the result of a motion to enforce undertakings.

Given the above there is on the authorities an onus on the plaintiff to show that the plaintiff is impecunious as that “term” is defined or described in Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 4190 (ON SC), 61 O.R. (2d) 688 at pp. 704 and 705 and in the decisions there referred to. The plaintiff has not met that onus. Its assertions of inability to proceed and of inability of plaintiff’s principal to provide the security is a bald assertion giving no indication of the principal’s assets or liabilities or ability to borrow.”

B. Decided cases on the issue of delay in applying for an order security for costs:

In Charron v. MacDonald, 1938 352 (ON SC), [1938] O.W.N. 410, Master Barlow (later Barlow J.) was considering s. 14 of The Public Authorities Protection Act, R.S.O. 1937, ch. 135, which provided, in part:

“the defendant may at any time after the service of the writ apply for security for costs if it be shown that the plaintiff is not possessed of property sufficient to answer the costs of the action in case a judgment should be given in favour of the defendant, and that the defendant has a good defence upon the merits, or that the grounds of action are trivial or frivolous.

The Master said:

“there is, however, a much more serious objection to this motion: namely, the delay in bringing the application. Where a defendant believes that he is entitled to an order for security for costs, he should move at the earliest possible moment in order that the plaintiff may know whether or not he will be required to give security and to prevent him from proceeding at very considerable expense down to trial and then find himself faced with an order for security with which he is unable to comply.

By reason of the delay of the defendant MacDonald in making his application for security, the plaintiff has gone to the expense of bringing the action down to the eve of trial when she is faced with this application for security for costs. She should not be prevented at this late date from going to trial even if the material should be sufficient to warrant an order for security.”

25The 1985 rules revision, O. Reg. 560/84, enacted rule 56.01(d). In Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 4138 (ON SC), 61 O.R. (2d) 680, 705, Sutherland J., in commenting on the reason for the rule and the initial onus and the shifting onus said:

“… the courts do not want a successful defendant to be effectively deprived of costs where, for example, wealthy shareholders have decided to carry on business and litigation through a shell corporation. To go the impecuniosity route the plaintiff must establish by evidence that it cannot raise security for costs because, if a private company, its shareholders have not sufficient assets. As expressed by Reid J. in John Wink Ltd. v. Sico Inc. (1987), 1987 4299 (ON SC), 57 O.R. (2d) 705 at p. 709, 15 C.P.C. (2d) 187: “If an order for security stops a plaintiff in its tracks it has disposed of the suit.” To raise impecuniosity there must be evidence that if security is required the suit will be stopped – because the amount of the security is not only not possessed by the plaintiff but it is not available to it.”

In Warren Industrial Feldspar Co. Ltd. v. Union Carbide Canada Ltd. et al (1986), 1986 2683 (ON SC), 54 O.R. (2d) 213, 219 (H.C.J.), Trainor J. said:

“Rule 56.01(d) differs from its predecessor, Rule 373, in that (among other things) it provides for the posting of security for costs by a corporation shown to have insufficient assets in Ontario and allows the court to make such order for security for costs “as is just”. I am of the view that these changes do not remove the court’s discretion to relieve an impecunious plaintiff from posting security for costs where it would deprive the plaintiff of a valid cause of action. The inclusion of the words “as is just” preserve the court’s discretion to grant such equitable relief, upon proof of special circumstances which would make an order for security for costs unjust.”

26In Re 423322 Ontario Ltd. et al. and Bank of Montreal (1988), 1988 4678 (ON SC), 66 O.R. (2d) 123, 128, Granger J., in dismissing an appeal from Master Peppiatt (1988 4719 (ON SC), 65 O.R. (2d) 136), said:

“In his reasons the learned master found that the defendants had failed to satisfy him as to their reason for delaying in bringing their application for security for costs, and this finding would appear to be fatal to the defendants’ motion. It is also important to note that the learned master did not find the litigation to be frivolous or vexatious.

Accepting that the action is not frivolous or vexatious and the defendants cannot explain their delay, I am not prepared to order the plaintiffs to provide security for costs as I am convinced on the material that such an order will result in the plaintiffs being unable to continue with these proceedings. I am advised that this action is fixed for trial commencing in December, 1988.

In John Wink Ltd. v. Sico Inc. (1987), 1987 4299 (ON SC), 57 O.R. (2d) 705 at pp. 708-9, 15 C.P.C. (2d) 187 (H.C.J.), Reid J. stated:

There can be no question that an injustice would result if a meritorious claim were prevented from reaching trial because of the poverty of the plaintiff. If the consequence of an order for costs would be to destroy such a claim no order shall be made. Injustice would be even more manifest if the impoverishment of the plaintiff were caused by the very acts of which the plaintiff complains in the action.

In my respectful opinion, unless a claim is plainly devoid of merit, it should be allowed to proceed. That is the only “special circumstance” that I would require. While the adoption of this standard might allow some cases to go to trial that the trial will prove should not have proceeded, nevertheless, the danger of injustice resulting from wrongly destroying claims that should have been permitted to go to trial is to my mind a greater injustice. In my experience, there are very few claims that are entirely without merit that go to and through a trial. The onus on plaintiff is therefore not to show that the claim is likely to succeed. It is merely to show that it is not almost certain to fail.

In my opinion, having regard to the delay in bringing the motion and the fact that the plaintiffs’ action is not frivolous or vexatious and is founded upon the actions of the defendants which the plaintiffs alleged caused its insolvency, I am not prepared to exercise my discretion and order the plaintiffs to submit to an order for security for costs at this stage. If I was to make such an order it would cause an injustice.”

27In Aviaco International Leasing Inc. v. Boeing Canada Inc (2000), 48 C.P.C. (4th) 366, 374, Nordheimer J. said:

“It should also be kept in mind in this regard that motions for security for costs are normally heard after pleadings have been closed and before any form of discovery has taken place. They are therefore heard at a very preliminary stage where, as a number of the above cases have pointed out, it becomes very risky to try and establish any likelihood of outcome.”

V. CONCLUSIONS

(1) The words of rule 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 …” show that the principle “as is just” informs and governs each of the six (6) subsections which follow.

(2) In my view, when deciding the issue of delay, it is incumbent upon the master or the motions judge to inquire into all factors, the whole record, and ask the question: “When did the respondents have good reason to believe the appellant had insufficient assets in Ontario to pay the costs of the respondents?” The question is not: “when were the respondents able to prove their allegation?”

(3) In 1996, the respondents were aware that the appellant was incorporated for the sole purpose of operating the franchise at 1070 Eglinton Avenue West. The respondents were aware that when the franchise closed in mid-August 1999, the appellant stopped all business activity.

(4) The respondents knew of the appellant’s and Paul Dahlin’s dire financial circumstances from the contents of Mr. Dahlin’s letter to Michael Bregman, dated July 15, 1999. The respondents examined Mr. Dahlin for discovery on July 14 – 15, 2003 and asked many questions about the appellant’s finances. On January 14, 2004, the appellant delivered the financial statements as per Mr. Dahlin’s undertaking.

(5) The record shows that in July 1999 and in July 2003, the respondents were told that the appellant had lost $200,000, had stopped operations in mid-August 1999 and had no other source of money.

(6) The record shows that because the respondents’ counsel was “unavailable” for a period of seven (7) months, discoveries were delayed. The respondents did not fulfill undertakings on examination for discovery for seven (7) months after Mr. Delutis was examined and did not seek discovery of the appellant for a further eight (8) months.

(7) The respondents brought a motion to strike out the statement of claim against the named individuals, a motion to adjourn the trial and a motion to strike out the jury notice.

(8) On February 11, 2004, A. McEwan, the CEO and President of 2nd Cup, without going through the appellant’s counsel, telephoned Mr. Dahlin. They met at a 2nd Cup franchise in Toronto. On March 9, 2004, Mr. Dahlin wrote to Mr. McEwan about a settlement. On March 15, 2004, counsel for the respondents wrote to counsel for the appellants about his proposed motion under rule 56.01(d) “based on my review of your client’s financial statements”.

(9) There is no suggestion by the respondents nor does the record indicate in any way that this lawsuit is frivolous or vexatious. There was no cross-examination of Mr. Dahlin on his affidavit nor was there any evidence contra to his affidavit when he deposed:

“53. If Kawkaban is required to post security for costs as required, it will be unable to do so, and this action will not be able to proceed. I have made other long term financial commitments over the last year which prelude [sic] posting security for costs in this action at this late stage in the proceeding.”

(10) In my view, on this record, the respondent had “good reason” to believe that the plaintiff had insufficient assets in Ontario to pay the costs of the defendants, as described in rule 56.01(d), as far back as July 25, 1999 when Mr. Dahlin wrote to Mr. Bregman.

(11) The factum of the appellants contains the following paragraph:

“32. The appellant respectfully submits that on the above facts, a finding that the respondents did not have good reason to believe that the appellant had insufficient assets in Ontario until they received the financial statements in January 20, 2004 is not reasonably supported by the evidence. Rather, the appellant submits the respondents have unreasonably delayed in bringing the motion and are using it as a tactical ploy to stifle a valid claim.”

28The record persuades me that this submission of appellant’s counsel is valid. The respondents have not supplied any satisfactory explanation for the delay in bringing their motion under rule 56.01(1).

VI. REMEDY, IF ANY

29In Re Equity Waste Management of Canada et al. and Corporation of the Town of Halton Hills (1997), 1997 2742 (ON CA), 35 O.R. (3d) 321, 336 (Ont. C.A.), Laskin J.A., for the court, said:

“Therefore, although the entire record before a trial judge or a motion judge consists of documentary or written evidence, as it does in this case, the judge’s factual findings are entitled to deference on appeal. What standard of deference applies in such a case? It is not easy to articulate a standard less deferential than “manifest error” but falling short of “correctness”. I suggest that it may simply be a matter of weight or emphasis, or that, plausibly, a uniform standard of appellate review should be applied to a trial judge’s findings of fact, whether the evidence is entirely oral, entirely documentary or, more typically, a combination of the two.

What is important for this appeal is the kind of error that justifies intervention by an appellate court. An error of law obviously justifies intervention. An appellate court may interfere with a finding of fact if the trial judge or motion judge disregarded, misapprehended, or failed to appreciate relevant evidence, made a finding not reasonably supported by the evidence, or drew an unreasonable inference from the evidence.

30With respect, in my view, the motions court judge’s finding that “the motion of the defendant, although brought at a late stage, was brought reasonably promptly” is a finding that “failed to appreciate relevant evidence” and was “a finding not reasonably supported by the evidence.” In my view, the motions court judge failed to address and consider the panorama of events that should have been addressed regarding the question of delay vis a vis the governing principle of “as is just” in rule 56.01(1).

31The closing words of Granger J. in Re 423322 (supra) at p. 128 are appropriate.

“In my opinion, having regard to the delay in bringing the motion and the fact that the plaintiffs’ action is not frivolous or vexatious and is founded upon the actions of the defendants which the plaintiffs alleged caused its insolvency, I am not prepared to exercise my discretion and order the plaintiffs to submit to an order for security for costs at this stage. If I was to make such an order it would cause an injustice.

VII. CONCLUSION

32The appeal is allowed and the order of Sutherland J., dated May 28, 2004, is set aside and the respondents’ motion under rule 56.01(d) is dismissed.

VIII. COSTS

33If counsel cannot agree within fifteen (15) days of the release of these reasons on the costs before Sutherland J. On the motion for leave to appeal before Kozak J. and on this appeal, counsel for the appellant shall file a draft bill of costs together with brief written submissions. Counsel for the respondents, if so advised, may submit a response within ten (10) days. Counsel for the appellant may, if so advised, within five (5) days thereafter, file a reply. Thereafter, costs to be fixed.