Court File and Parties

Court File No.: CV-17-133377 Date: 2019-01-07 Ontario Superior Court of Justice

Between: 2018218 ONTARIO LIMITED c.o.b. ENGEL & VÖLKERS YORK, Plaintiff

– and –

REALTY SPECIALISTS INC. c.o.b. ENGEL & VÖLKERS TORONTO UPTOWN, RENALDO AMENDOLA, STEFANI-ANN KONIDIS, KIMBERLY ANNE NICHOLS, ALLISON HOPE PARENT, KHALEN MEREDITH, MELISSA ANNE MACKENZIE and MIRA LAUREN (RYSIOSKA), Defendants

Counsel: James Prosser, for the Plaintiff Renée Zatzman, for the Defendants Realty Specialists Inc. c.o.b. Engel & Völkers Toronto Uptown and Renaldo Amendola Claudio Aiello, for the Defendants Kimberly Anne Nichols, Allison Hope Parent, Khalen Meredith, Melissa Anne MacKenzie and Mira Lauren (Rysioska)

Heard: September 26, 2018

Reasons for Decision

EDWARDS J. :

Overview

[1] The Defendants seek an order requiring the Plaintiff to post security for costs until the completion of the examinations for discovery. It is admitted by the Plaintiff that it has insufficient assets in Ontario to pay for any costs award made in favour of the Defendants, and it is further admitted that it is not impecunious because it has access to funds via its shareholders. While the Plaintiff does not deny its precarious financial state, it disputes that it would be just in the circumstances to make an order for security for costs.

The Facts

[2] The Plaintiff is a real estate brokerage business and was a franchisee pursuant to a sub-licence agreement granted by Engel and Völkers Canada Inc. (E&V Canada).

[3] The Defendant Realty Specialists Inc. is also a real estate brokerage and carries on business under the name Engel & Völkers Toronto Uptown (E&V Uptown).

[4] The non-corporate Defendants were all at one time employed by the Plaintiff.

[5] The non-corporate Defendants had all signed independent contractor agreements which contained various restrictive covenants and an obligation to provide notice of termination.

[6] On various dates in September and October 2017, the named Defendants resigned their positions of employment with the Plaintiff and began working with E&V Uptown.

[7] The reasons why the named Defendants terminated their various positions of employment with the Plaintiff and assumed positions with E&V Uptown are very much disputed. The Plaintiff alleges that each of the named Defendants are in breach of their employment agreements with the Plaintiff, and that the Defendant E&V Toronto Uptown induced each of the named Defendants to breach their contracts with the Plaintiff. The Plaintiff further alleges that as a result of each of the named Defendants having assumed positions with the Defendant E&V Uptown, that the Plaintiff’s real estate business has been irreparably damaged as a result of all of the clients of the named Defendants having moved their business to E&V Uptown.

[8] The Defendants deny the allegations made by the Plaintiff and assert that they left their positions of employment for reasons related to the conduct of the Plaintiff’s directing mind and controlling shareholder, Jorg Hermanns.

[9] The facts relating to the reasons why the named Defendants left their positions of employment with the Plaintiff to assume positions of employment with E&V Uptown are not admitted, and ultimately will be the subject matter of credibility findings that will have to be made by the trial judge.

Position of the Plaintiff

[10] The Plaintiff does not dispute that it does not have sufficient assets in Ontario to satisfy a costs award. The Plaintiff also does not take the position that it is impecunious “in the strict legal sense because its shareholders are not impecunious”. To the contrary, it is accepted that Mr. Hermanns - who is the controlling shareholder of the Plaintiff, has sufficient resources to respond to the quantum of the security for costs that is sought by the Defendants. The Plaintiff opposes the motion for security for costs exclusively on the basis that it would be unjust to order security for costs in the circumstances.

Position of the Defendants

[11] The Defendants argue that this is not a case where it would be unjust on the merits of the claim to make an award for security for costs. The defence argues that the Plaintiff has not filed any motion materials to establish that E&V Uptown was unjustly enriched to the detriment of the Plaintiff, nor is there any evidence that E&V Uptown or the Defendant Amendola induced the named Defendants to breach their alleged contracts with the Plaintiff.

Analysis

[12] Because this matter is only at the pleading stage and there was no cross-examination on any of the affidavit evidence filed with this court, it would be impossible to reach a conclusion that one side or the other had the more compelling case. At its highest, in the absence of a more complete evidentiary record this court can only determine that the Plaintiff has an arguable case on its merits. The converse of this, of course, is that the Defendants equally have an arguable case from a defence perspective that could result in a dismissal of the Plaintiff’s action. This is not a motion under Rule 20 where the court is asked to determine whether or not the Defendants, having placed their best foot forward, could respond to a motion for summary judgment in favour of the Plaintiff. The court simply cannot make that determination at this stage.

[13] In making a determination of whether or not a court should make an award for security for costs, the overriding consideration can be found in the opening words of Rule 56.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 which provides as follows:

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… [Emphasis added.]

[14] In this case, where the Plaintiff is a corporation and it has admitted that it has insufficient assets in Ontario to pay the costs of the Defendants, this court must arrive at a determination with respect to the motion as to whether it is more just to make the award in favour of the Defendants, or whether it is more just to dismiss the motion in favour of the Plaintiff.

[15] The Court of Appeal recently provided motion judges determining motions for security for costs with guidance with respect to the correct approach. In Yaiguaje v. Chevron Corporation, 2017 ONCA 827, the court stated at para. 25:

While this case law is of some assistance, each case must be considered on its own facts. It is neither helpful nor just to compose a static list of factors to be used in all cases in determining the justness of a security for costs order. There is no utility in imposing rigid criteria on top of the criteria already provided for in the Rules. The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interest of justice to determine whether it is just that the order be made.

[16] A number of principles have developed over time as it relates to motions for security for costs that provide further guidance in terms of how the court should approach a motion for security for costs. Ultimately, however, as the Court of Appeal makes clear in Chevron, the correct approach is to examine all of the circumstances of the case and arrive at a determination that is just. The various circumstances that this court should look to can be guided by the principles from previously determined cases, such as is there good reason to believe:

1. that the Plaintiff has insufficient assets in Ontario to pay the costs of the Defendants;
2. has the Plaintiff demonstrated that it has sufficient exigible assets in Ontario;
3. has the Plaintiff demonstrated that it is impecunious;
4. has the Plaintiff demonstrated that its claim has a good chance of success on the merits; and
5. is it just that an order for security for costs be made.

[17] Looking at the aforesaid principles, it is admitted that the Plaintiff has insufficient assets in Ontario; it is admitted that the Plaintiff does not have exigible assets in Ontario; it is admitted that while the Plaintiff itself may be impecunious, its directing mind and shareholder Mr. Hermann is not impecunious; the Plaintiff has demonstrated that its claim is an arguable case, but at this stage the court cannot on the evidence before it determine that it has a “good chance of success on the merits”. There remains then the question of whether or not, weighing all of the circumstances, it is just that an order for security for costs be made.

[18] In determining whether or not it is just that an order for security for costs be made, the court must look at that issue from the perspective of not just the Plaintiff but also from the perspective of the Defendants. Ultimately, if the Plaintiff is successful at trial, the Plaintiff will receive an award of damages and will further obtain an order for costs.

[19] If the Defendants ultimately obtain an order at trial that dismisses the Plaintiff’s action, while there is always the possibility that the trial judge could make no award of costs prima facie, the successful party – i.e. the successful Defendants, would be entitled to an award of costs against the Plaintiff. In my view, it would be unfair and unjust to have a situation arise where the successful Defendants would have a costs award against the Plaintiff that could not be realized upon. For these reasons, the Defendants motion for security for costs is granted.

[20] There remains the determination of what the appropriate amount for security for costs should be, recognizing that an award for security for costs will only cover at this stage the cost of pleadings and the attendance at and preparation for examinations for discovery. Mr. Aiello, on behalf of the individual named Defendants, has filed a bill of costs seeking approximately $57,000 in costs plus HST and disbursements, the total of which comes to approximately $79,000. Mr. Aiello is a 1987 call to the Bar, with a partial indemnity rate that I calculate based on the number of hours claimed in the bill of costs to be approximately $420 per hour.

[21] Counsel on behalf of the Defendants E&V Uptown and Amendola claim costs on a partial indemnity basis of approximately $41,000, together with disbursements and HST for a total of approximately $58,000. The bill of costs submitted on behalf of the Defendants E&V Uptown and Amendola reflect the involvement of two lawyers, one of whom is senior counsel and one more junior counsel. The hourly rates reflected in the bill of costs are significantly higher than the hourly rates claimed by Mr. Aiello.

[22] Counsel for the Plaintiff submitted a bill of costs that would cover the same time period sought by the Defendants. The bill of costs would seek estimated fees of approximately $27,000, which together with HST and disbursements totalling approximately $42,000.

[23] Ultimately, in determining what is a reasonable amount that a Plaintiff should post as security for costs the court must be guided by what is reasonable and fair, adopting the same types of principles as might otherwise be applied if an award of costs was being made against the losing party (see Boucher et al. v. Public Accountants Council for the Province of Ontario et al.).

[24] On the basis of the Plaintiff’s own bill of costs, it can reasonably asserted that the Plaintiff would have anticipated as a potential losing party in these proceedings being exposed to a costs award that covers the pleading stage and discovery stage of these proceedings, which costs would at least approximate what was submitted in the Plaintiff’s bill of costs submitted to me of approximately $42,000.

[25] Having reviewed the bills of costs submitted by both sets of Defendants, I am of the view that the Plaintiff must post security for costs in favour of the Defendants represented by Mr. Aiello in the total amount of $60,000, and post security for costs in favour of the Defendants represented by Ms. Zatzman in the amount of $45,000.

[26] As for the costs of this motion, I have received bills of costs from all parties and the Defendants as the successful party are entitled to their costs. I am fixing those costs in the amount of $7,500 in favour of Ms. Zatzman’s clients, and a similar figure of $7,500 in favour of Mr. Aiello’s clients. The costs award of this motion are payable within 30 days.

[27] As for the award of security for costs counsel did not address the application of Rule 56.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which gives the court discretion with respect to the form of security and the time for paying into court, or otherwise giving the required security. If counsel wish to make submissions with respect to the application of Rule 56.04 they may do so in writing, limited to five pages in length, to be received no later than 15 days of receipt of these Reasons. If no further submissions are made, the Plaintiff is to comply with this Order within 30 days.

Justice M.L. Edwards Released: January 7, 2019