ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KRUZICK, SANDERSON AND SPROAT JJ.
B E T W E E N:
ESTATES ASSOCIATES INC. and MUSHARRAF IQBAL
Appellant
- and -
1645112 ONTARIO LTD., 1793411 ONTARIO LTD., MR. RONALD McCOWAN, MR. BRYON C. COHEN, REMAX (ALL STARS REALTY INC., BROKERAGE) AND REINE SCHICKEDANZ
Respondent
Paul Robson, for the Appellant
Aaron Postelnik and Joseph Juda, for the Respondents
HEARD at Toronto: November 13, 2015
ENDORSEMENT
Sproat, J.
INTRODUCTION
1This is an appeal from the decision of the Motion Judge ordering that the Plaintiff Estates Associates Inc. (“Estates”) post security for the costs of the defendants Remax (All Stars Realty Inc., Brokerage) and Reine Schickedanz (“collectively Remax”) in the amount of $30,000. As did the Motion Judge I will refer to the first three named defendants collectively as “the McCowan defendants”.
2The claim of the plaintiff Iqbal was dismissed, on consent, so that Estates is the only plaintiff.
OVERVIEW OF CASE
3While the Respondent’s Factum made reference to an affidavit, sworn by Mr. Iqbal on behalf of Estates in 2012, it was conceded that this affidavit should be disregarded. For the purpose of this appeal I refer to Mr. Iqbal’s affidavit sworn May 31, 2010, which was the affidavit before the Motion Judge.
4The facts essential to this appeal are as follows:
(a) Estates agreed to sell its sole asset, a residential property in Stouffville (“the Property”), to the Defendant McCowan for $1,400,000;
(b) McCowan could not come up with the cash to close and it was agreed that he satisfy $650,000 of the purchase price by assigning mortgages on houses in Midland and Kitchener, in the amounts of $350,000 and $300,000 respectively, to Estates;
(c) Remax was the realtor retained by Estates. The defendant Cohen was the real estate lawyer retained by Estates;
(d) Estates alleges, and its chief executive and sole director Mr. Iqbal deposed, that “all of the defendants” assured him that the two properties, against which the mortgages were registered, “were in very good condition and are well worth more than the balance of $650,000 . . .”. Further “all defendants” provided him with copies of agreements of purchase and sale indicating the two properties were in the process of being sold for amounts in excess of the mortgages which further convinced him of the value of the mortgages;
(e) Estates assigned the $300,000 mortgage on the Kitchener property to Remax to secure its commission entitlement of approximately $70,000;
(f) the two properties were never sold. Subsequent appraisals indicated they were in poor condition, worth in total $360,000 and subject to encumbrances such as tax arrears; and
(g) Estates alleges that these assurances as to the condition and value of the mortgaged properties constituted fraudulent misrepresentations.
5The Motion Judge:
(a) granted summary judgment dismissing the action against the McCowan defendants on the basis that Estates could not prove any of the four essential elements of the tort of fraudulent misrepresentation; and
(b) awarded Remax $30,000, as security for costs.
6The Court of Appeal (reported at 2012 ONCA 75) concluded that the Motion Judge erred in granting summary judgment. Juriansz J.A. stated:
9The theory of the plaintiff's case, succinctly set out in paras. 30 and 31 of the statement of claim, is that McCowan made available to Estates the agreements of purchase and sale between 179 and Barnabic for the two mortgaged properties to convince Iqbal that the two properties were more valuable than they turned out to be. The plaintiff pleads "that these agreements are phony and fraudulent and it was intended to deceive the Plaintiff into agreeing to close the transactions if he has doubts regarding the value of the properties".
10There is evidence in the record that McCowan arranged and attended the meeting between Iqbal and Barnabic; that at that meeting, Barnabic told Iqbal what he was agreeing to pay for the properties; that McCowan claimed he had renovated the properties and described to Iqbal in detail the renovations he claimed to have made; that those renovations, for example putting in a new kitchen and flooring, were not in fact made; that McCowan told Iqbal that the properties had "very good potential" and "that there is big chances for this and that this property will be a million dollar", that he had sold the property "for the amount and over the mortgage price", and that he had given the value of "maybe $500,000 for [one of the properties] and $300,000 [for the other property]"; that subsequent appraisals suggest that these figures are well above the properties' market value; that Barnabic and McCowan had known each other for many years; that the transactions between Barnabic and McCowan did not close before the institution of Iqbal's lawsuit; and that Barnabic and McCowan offered contradictory versions of why the closings were delayed.
11In my view, the foregoing evidence makes it a genuine issue for trial whether the transactions between McCowan and Barnabic were phony and intended to mislead Estates as to the value of the mortgages. A trial judge could infer from all the circumstances that McCowan, by words and/or conduct, made a representation that he knew was false; namely, that the mortgaged properties were of the values indicated in the agreements of purchase and sale with Barnabic.
12The other factors considered by the motion judge, i.e. that Iqbal did not heed the advice of his solicitor, and that Iqbal was not concerned about the value of the mortgaged properties, did not provide the motion judge with a basis to conclude that it was appropriate to grant summary judgment.
7Estates admitted that it had insufficient assets to pay a costs order against it. As such, under Rule 56.01(d) the Motions Judge had a discretion to order security for costs.
8The Motion Judge found that Estates failed to establish impecuniosity but did not provide any reasons for reaching that conclusion. It is, therefore, necessary and appropriate that we reach our own conclusion on the record before us. The Motions Judge also did not make a finding as to the strength of Estates’ claim against Remax although it would follow from his summary dismissal of the claim against the McCowan defendants that he regarded it as having no merit. We must, of course, proceed on the basis of the Court of Appeal decision that it was an error to dismiss Estates’ claim on a motion for summary judgment.
THE LAW
9In Sterling Electrical Contractors v. 20887585 Ontario Inc., 2010 ONSC 5346, Mulligan J. provided a helpful summary of the applicable law. He addressed the meaning of impecuniosity, and the appropriate test for ordering security for costs depending on whether or not impecuniosity was established, as follows:
10Motions for security of costs require a balancing of the interests of the plaintiff and the defendant with respect to access to justice. As D. Ferguson J. stated in Nieh v. Sea Land Holding Corp., 2006 38362 (ON SC) ONSC at p.2:
The court must balance the interests of the parties. The defendant has an interest in being protected from the risk of not being able to collect an order for costs if one is made. … The plaintiff has an interest in not having her access to justice unfairly impaired by having to put up security.
11Master Sandler dealt with a similar application for security of costs in a construction lien dispute. In Biotechnik Incorporated v. O’Shanter Development Company Ltd. [2003] O.J. 1633, he stated at paras. 28-29:
A court must look at the question not just from the perspective of the plaintiff, nor just from that of the defendant, but from the perspective of a court trying to do procedural fairness to both parties. … The security for costs rule is part of the Rules of Civil Procedure. These rules are designed to achieve procedural fairness and justice to all parties in a law suit. The Rules Committee decided in 1985 that a defendant, being sued by a corporate plaintiff who, as in this case, has insufficient assets in Ontario to pay the defendant’s costs if it were successful and rewarded such costs, could suffer an injustice and therefore provide that a security for costs order “may” be made “as is just”. In my view, such a motion is “necessary” in the interest of doing procedural justice to both parties.
12A detailed consideration of the merits of the plaintiff’s claim should only be undertaken at this step of the proceeding if the plaintiff is able to demonstrate its impecuniosity, and that an injustice would result if it were not allowed to proceed with the appeal: see Free Trade Medical Networking v. RBC Travel Insurance Co., 2005 Carswell Ont. 6388 at para. 4. In order to establish impecuniosity, the well established tests have been referred to in a number of decisions. In Morton v. Canada (2005) 2005 6052 (ON SC), 75 O.R. (3d) 63 S.C.J., Quinn J. set out the following criteria to establish impecuniosity at paragraph 32:
In motions of this nature, the financial evidence of plaintiffs must be set out with robust particularity. There should be no unanswered material questions, as is the case here. It is worth remembering that the financial status of the plaintiffs is known only to them. As I mentioned earlier, they bear the burden of proving the effect upon them of an order for security for costs. They failed to discharge that burden. Full financial disclosure is required and should include the following: the amount and source of all income; a description of all assets (including values); a list of all liabilities and other significant expenses; and indication of the extent of the ability of the plaintiffs to borrow funds; and, details of any assets disposed of or encumbered since the cause of action arose.
13In Wall v. Horn Abbott Ltd., 1999 Carswell N.S. 120 (C.A.) Cromwell J.A. stated at para. 83:
If a plaintiff resists security that would otherwise be ordered on the basis that the order will stifle the action, the plaintiff must establish this by detailed evidence of its financial position including not only its income, assets and liability, but also its capacity to raise the security.
14In Coastline Corporations Ltd. v. Canaccord Capital Corporation, 2009 21758 (ON SC), Master Glustein gave guidance as to the appropriate level of disclosure required by a corporation to establish impecuniosity. Master Glustein acknowledged that the court has broad discretion with respect to such orders, and provided at para. 7(xi):
Consequently, full disclosure requires the plaintiff to establish the amount and source of all income, a description of all assets including values, a list of all liabilities and other significant expenses, an indication of the extent of the ability of the plaintiffs to borrow funds, and details of any assets disposed of encumbered since the cause of action arose. [Citations omitted]
(xii) Because the plaintiff has the onus to establish impecuniosity, a defendant “can choose not to cross-examine if the plaintiff fails to leave sufficient evidence”. The decision not to cross-examine does not convert insufficient evidence into sufficient evidence. [Citation omitted]
(xii) When an action is in its early stages, an instalment (also known as pay as you go) order for security for costs is usually the most appropriate. [Citations omitted]
10In Kingston Developments Ltd. v. Kingston (City), 2009 33035 (ON SC) Pitt J. stated that to demonstrate impecuniosity, “The plaintiff must satisfy the court that it has no ability to muster funding to continue its case.” (para. 12). In Bruno Appliance and Furniture Inc. v. Cassels Brock and Blackwell LLP, 2007 44824(ON SC) the court considered the ability of a plaintiff to raise funds from grown children as relevant to establishing impecuniosity.
11In Zeitoun v. Economical Insurance Group the Divisional Court, stated:
48The motions judge held that the master had erred in imposing too high an onus on the plaintiff in relation to the merits of the action. I am, with respect, unable to concur. There is a difference in the quality of the evidence required depending on whether or not the plaintiff is able to show impecuniosity.
49Where impecuniosity is shown, the plaintiff needs only to demonstrate that the claim is not plainly devoid of merit. (See John Wink Ltd. v. Sico Inc. (1987), 1987 4299 (ON SC), 57 O.R. (2d) 705, [1987] O.J. No. 5 (H.C.J.).) That is a very low evidentiary threshold.
50Where impecuniosity has not been shown however, a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. Where impecuniosity has not been shown, a legitimate factor in deciding whether or not it would be just to require security for costs is whether the claim has a good chance of success.
IS ESTATES IMPECUNIOUS?
12The onus was on Estates to establish impecuniosity. Mr. Iqbal put forward compelling evidence of impecuniosity in his May 31, 2010, affidavit. Estates clearly has no assets. Mr. Iqbal is 64 years old and the Property represented his life savings. Mr. Iqbal refers to relying on all his adult children for food and to survive. Mr. Iqbal’s 2008 Notice of Assessment shows his total income was $1,909. Mr. Iqbal tried and failed to secure financing for the litigation from Bridgepoint Financial Services Inc. which specializes in providing litigation funding. Mr. Iqbal and his wife live with their son, Fahad, who has contributed $5,000, to the litigation and takes the position he cannot contribute more. Mr. Iqbal refers to having had to “beg” his son for an additional $600 for disbursements.
13The position of Remax is that Estates has failed to disclose its financial position with “robust particularity” and leaving “no unanswered material questions” as referred to in Sterling. In particular, Remax cites the fact that when cross-examined in 2010 Mr. Iqbal undertook, but has failed to produce, Estates’ last tax return, its 2009 Notice of Assessment and 2009 tax returns for Mr. Iqbal, his children and Estates.
14It goes without saying that the undertakings given by Mr. Iqbal should have been answered. Having said that there is nothing in the record to suggest that the undertakings were pursued. Estates was represented by a different lawyer in 2010.
15In the unusual circumstances of this case, in which there is compelling evidence of impecuniosity, we do not find that Estates’ failure to answer the undertakings amounts to non-disclosure precluding a finding of impecuniosity.
16On all the evidence we conclude that Estates was impecunious.
DOES ESTATES HAVE A GOOD CHANCE OF SUCCESS AGAINST REMAX?
17Given my conclusion that Estates is impecunious it need only establish that its claim is not devoid of merit. Should that conclusion be in error, however, I will address whether Estates has a “good chance of success” such that a security for cost order was not appropriate even if Estates failed to establish impecuniosity.
18As set out above Juriansz J.A. identified why Estates’ evidence, if accepted, could establish that the McCowan defendants had made fraudulent misrepresentations causing damages to Estates. Mr. Iqbal’s affidavit, para 8, states that “all the defendants” represented and assured him that the two properties were worth much more than $650,000.
19Remax did not file any affidavit evidence addressing the merits of Estates’ claim. Remax relied solely on a lawyer’s affidavit appending a draft Bill of Costs.
20Remax has obvious expertise and experience in relation to real estate transactions and valuations. The uncontradicted evidence, therefore, is that:
(a) Remax represented that the two properties were in very good condition and worth far more than $650,000; and
(b) the two properties in fact were in very poor condition; had a value on the order of $360,000, and were encumbered by tax arrears.
21Counsel for Remax submitted that the fact it took an assignment of one of the mortgages, as security for payment of its commission, was itself compelling evidence that Remax believed that the mortgage had full value. I do not agree.
22If the deal failed to close Remax would get nothing. The Remax commission was on the order of $70,000 so even if the mortgage had partial value it would be protected. In simple terms it does not logically follow that because Remax took the mortgage assignment it believed that the mortgage had full value. From the perspective of Remax something, in the form of the mortgage assignment, was obviously better than nothing.
23Counsel for Remax noted that an essential element of a successful claim for fraudulent misrepresentation is that the plaintiff acted reasonably in relying on the representation. Counsel argued that any reliance by Estates was not reasonable given that Mr. Cohen, Estates’ real estate lawyer, testified that he advised Mr. Iqbal it would be prudent to inspect the Midland and Kitchener properties and have them appraised. Further, Estates had a number of opportunities to back out of the sale given that McCowan was forced to ask for several extensions of the closing date.
24I do not agree. Remax was acting on behalf of Estates. Estates alleges that Remax represented that the Midland and Kitchener properties were in good condition and had a value far in excess of $650,000. Given that Remax had been retained by Estates, and had real estate expertise, it was reasonable for Estates to rely on this representation by Remax. This is not negated by the obvious fact that Estates could have been more diligent. This argument by Remax is similar to the argument advanced by McCowan in the Court of Appeal. As Juriansz J. A. stated, in rejecting this argument:
13First, whether Iqbal’s solicitor gave him wise advice cautioning him to be more careful in assuring himself about the value of the mortgaged properties has no logical bearing on whether McCowan made a false representation to Iqbal. In fact, Iqbal’s decision to proceed without following his solicitor’s advice could strengthen the inference that he relied on the representations of McCowan. In any event, Iqbal’s action against the solicitor is proceeding to trial. It will be for the trial judge to decide whether to believe the solicitor’s assertions that he gave such advice to Iqbal or Iqbal’s assertion that he did not.
25On the uncontradicted evidence of Iqbal we conclude that Estates’ has a good chance of success in its claim against Remax. As such it was not appropriate to award security for costs.
CONCLUSION
26The appeal is allowed and the order for security for costs is set aside.
27The parties agreed that the successful party should receive $10,000 for the costs of the application for leave to appeal and the appeal. As such Remax shall pay costs of $10,000 (inclusive of HST) to Estates.
Sproat, J.
Kruzick, J.
Sanderson, J.
Released: January 8, 2016
CITATION: Estates v. Remax, 2016 ONSC 150
COURT FILE NO.: 7/12
DATE: 20160108
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KRUZICK, SANDERSON AND SPROAT JJ.
B E T W E E N:
ESTATES ASSOCIATES INC. and MUSHARRAF IQBAL
Appellant
- and –
1645112 ONTARIO LTD., 1793411 ONTARIO LTD., MR. RONALD McCOWAN, MR. BRYON C. COHEN, REMAX (ALL STARS REALTY INC., BROKERAGE) AND REINE SCHICKEDANZ
Respondents
ENDORSEMENT
Sproat, J.
Released: January 8, 2016