Reasons for Endorsement

Court File No.: CV-21-671441
Motion Heard: 2024-10-29
Reasons Released: 2025-01-31
Superior Court of Justice – Ontario

Parties

Between:
688103 Ontario Inc., Plaintiff

• and -
  5000917 Ontario Inc. and Century 21 Harvest Realty Ltd., Defendants

And Between:
5000917 Ontario Inc., Plaintiff by Counterclaim

• and -
  688103 Ontario Inc., Century 21 Harvest Realty Ltd. and Samuel Kin Yip Chang also known as Samuel Chang, Defendants by Counterclaim

Before: Associate Justice McGraw

Counsel:
A. Postelnik
E-mail: aaron@ksalaw.com
for the Defendant by Crossclaim Century 21 Harvest Realty Ltd. and the Defendant by Counterclaim Samuel Kim Yip Chang also known as Samuel Chang

E. Bisceglia
E-mail: ebisceglia@lawtoronto.com
for the Defendant/Plaintiff by Counterclaim 5000917 Ontario Inc.

M. Thomson
E-mail: mthomson@tcwalkerlawyers.com
for the Plaintiff/Defendant by Counterclaim 688103 Ontario Inc.

Reasons Released: January 31, 2025

I. Background

[1] This is a motion by the Defendant by Crossclaim Century 21 Harvest Realty Ltd. (“Century 21”) and the Defendant by Counterclaim Samuel Kin Yip Chang also known as Samuel Chang (“Chang”, collectively, the “Chang Parties”) seeking security for costs from the Defendant/Plaintiff by Counterclaim 5000917 Ontario Inc (“500”).

[2] This action arises from 500’s uncompleted purchase of the property at 3200 Danforth Avenue, Toronto (the “Property”) from the Plaintiff 688103 Ontario Inc. (“688”) pursuant to an Agreement of Purchase and Sale dated January 22, 2020 (the “APS”). Chang is a director of 688 and Century 21. He was also the listing agent for the Property and the Broker of Record for Century 21. The Chang Parties were also the property managers for the Property and were authorized by 688 to deal with the Property on its behalf. The sale of the Property (the “Sale”) was scheduled to close on June 1, 2020. The parties agreed to extend the closing date to June 15, 2020; however, the Sale did not close. The Property was re-listed in the interim on June 4, 2020 and sold to a tenant in a transaction which closed on August 14, 2020.

[3] 688 commenced the main action by Statement of Claim issued on November 3, 2021 claiming a minimum of $150,000 in damages for 500’s breach of the APS and release of the deposit of $100,000 from Century 21 (the “Deposit”). 500 commenced a Crossclaim against Century 21 for contribution and indemnity and a Counterclaim against 688 and Chang claiming $200,000 in damages, relief from forfeiture and return of the Deposit. Among other things, 500 alleges that 688 and Chang made material misrepresentations regarding rent rolls for the Property, mould issues and billboard revenue. 500 also alleges that the Chang Parties breached numerous duties including those under the Real Estate Brokers Act (Ontario) (the “Act”). 688 set this action down for trial on September 22, 2023.

II. The Law and Analysis

[4] For the reasons that follow, I conclude that it is just in the circumstances for 500 to post security for costs on the terms set out below.

[5] Rule 56.01(1) states:

“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;”

[6] Rule 56.01(1) does not create a prima facie right to security for costs. It triggers an enquiry whereby the court, using its broad discretion, considers multiple factors to make such order as is just in the circumstances including the merits of the claim, the financial circumstances of the plaintiff and the possibility of an order for security for costs preventing a bona fide claim from proceeding (Stojanovic v. Bulut, 2011 ONSC 874 at paras. 4-5). The court has broad latitude to make any order that is just in the circumstances (Yuen v. Pan, 2018 ONSC 2600 at para. 14).

[7] In Yaiguaje v. Chevron Corp., 2017 ONCA 827, the Court of Appeal held as follows:

“23 The Rules explicitly provide that an order for security for costs should only be made where the justness of the case demands it. Courts must be vigilant to ensure an order that is designed to be protective in nature is not used as a litigation tactic to prevent a case from being heard on its merits, even in circumstances where the other provisions of rr. 56 or 61 have been met.

24 Courts in Ontario have attempted to articulate the factors to be considered in determining the justness of security for costs orders. They have identified such factors as the merits of the claim, delay in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns, and the public importance of the litigation. See: Hallum v. Canadian Memorial Chiropractic College (1989); Morton v. Canada (Attorney General) (2005); Cigar500.com Inc. v. Ashton Distributors Inc. (2009); Wang v. Li, 2011 ONSC 4477; and Brown v. Hudson's Bay Co., 2014 ONSC 1065.

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 interests of justice to determine whether it is just that the order be made.”

[8] Determining the order which is just in the circumstances requires a balancing between ensuring that meritorious claims are allowed to go forward with the consequences of being left with an unenforceable costs award where a party pursues an unsuccessful claim (Ascent Inc. v. Fox 40 International Inc., para. 3; Rosin v. Dubic, 2016 ONSC 6441 at para. 39; Lipson v. Lipson, 2020 ONSC 1324 at paras. 47-48). Security may be required to correct the imbalance of a plaintiff having security for a successful claim while a defendant has no security for a successful defence and to prevent a plaintiff from going to trial without posting security, be unsuccessful then avoid paying costs (2232117 Ontario Inc. v. Somasundaram, 2020 ONSC 1434 at para. 27; DK Manufacturing Group Ltd. v. Co-Operators Insurance, 2021 ONSC 661 at para. 26).

[9] The initial onus is on the defendant to show that the plaintiff falls within one of the enumerated categories in Rule 56.01(1). The plaintiff can rebut the onus and avoid security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order; the order is unjust or unnecessary; or the plaintiff should be permitted to proceed to trial despite its impecuniosity should it fail (Travel Guild Inc. v. Smith, 2014 ONSC 19157 at para. 16; Coastline Corp. v. Canaccord Capital Corp., para. 7; Cobalt Engineering v. Genivar Inc., 2011 ONSC 4929 at para. 16). This was summarized by Master Glustein (as he then was) in Coastline:

“7…

(i) The initial onus is on the defendant to satisfy the court that it "appears" there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56;

(ii) Once the first part of the test is satisfied"the onus is on the plaintiff to establish that an order for security would be unjust";

(iii) The second stage of the test "is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors". The court exercises a broad discretion in making an order that is just;

(iv) The plaintiff can rebut the onus by either demonstrating that:

(a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,

(b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not "plainly devoid of merit", or

(c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success”

[10] The light initial onus under Rule 56.01(d) requires the Chang Parties to demonstrate that it appears there is good reason to believe that 500 does not have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs award (Georgian Windpower Corp. v. Stelco Inc., 2012 ONSC 158 at para. 7; Coastline at para. 7). This is not a heavy onus and only requires them to establish that there is more than conjecture, hunch or speculation (Mazzika Arbika Ltd. v. Aviva Insurance Company of Canada, 2017 ONSC 6801 at paras. 21-27; Amelin Resources Inc., LLC v. Victory Energy Operations, LLC, 2022 ONSC 4514 at paras. 17-18).

[11] I am satisfied that the Chang Parties have satisfied their onus that there is good reason to believe that 500 does not have sufficient assets to satisfy a costs award. At his examination for discovery on October 28, 2022, Agazi Gebremeskel, a director of 500, testified that 500 does not have any assets in Ontario. There is nothing on the record to rebut this and no information has been provided to contradict his testimony. 500 submits that it carries on business for general real estate purposes and had sufficient assets “at the material time”, that is, at the time of the Sale and that it does not have any liabilities, creditors or executions. The relevant time period is now, not almost 5 years ago at the time of the Sale. This is not sufficient to rebut the onus, particularly in the face of Mr. Gebremeskel’s admission on behalf of 500 and in the absence of any supporting documentation which demonstrates that 500 has any assets.

[12] 500 does not assert that it is impecunious. Therefore, 500 must demonstrate that its Counterclaim and Crossclaim have a good chance of success or a real possibility of success on the merits (Coastline at paras. 3 and 7; Chalhal v. Abdullah et al, 2022 ONSC 1727 at paras. 47-50; Chill Media Inc. v. Brewers Retail Inc., 2021 ONSC 1296 at para. 14). In considering the merits, the court is not required to embark on an analysis such as on a summary judgment motion (Coastline at para. 7; Horizon Entertainment Cargo Ltd. v. Marshall, 2019 ONSC 2081 at para. 3). The court’s consideration of the merits is based primarily on the pleadings with recourse to evidence filed on the motion and if the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage (Coastline at para. 7; Horizon at para. 3). An assessment of the merits should only be decisive where the merits may be properly assessed on an interlocutory application and success or failure appears obvious (Coastline at para. 7; Horizon at para. 3).

[13] Notwithstanding the limits on this Court’s ability to assess the merits at this stage of the proceedings, the parties spent an inordinate amount of time arguing about them. This is common on these motions. However, it is not often that the court can properly assess the merits at this stage of the proceedings. That is the case here. In order to conclude that 500’s claims have a good chance of success, the court would have to make findings on multiple disputed issues of fact and credibility which can only be determined at trial on a complete record. This includes whether there were misrepresentations about the rent rolls and mould, whether the APS was breached, whether the APS was terminated because the Chang Parties re-listed the Property during the extension period and whether the Chang Parties breached their duties including under the Act. Accordingly, I am unable to conclude on the limited record before me that 500’s claims have a good chance or real possibility of success. 500 relies on its unchallenged expert report which opines that the Chang Parties acted dishonestly and fell below the standard of reasonable real estate broker and brokerage. While I have considered the expert report, I decline to give it the weight which 500 attaches to it. The conclusions in the expert report are in dispute and the proceedings have not reached the stage where the Chang Parties have delivered their own expert reports. Put simply, the expert report is one part of the record on this interlocutory motion which is insufficient to support the conclusion that 500’s claims have a good chance of success.

[14] 500 also argues that security should not be ordered because the Chang Parties delayed in bringing this motion and that the motion is tactical. A motion for security for costs must be brought promptly upon the Defendant discovering that it has a reasonable basis for bringing the motion as a plaintiff should not have to post security after it has incurred significant expense in advancing the litigation (Chalhal at paras. 33, 51-55; Wilson Young & Associates v. Carleton University et al, 2020 ONSC 4542 at para. 59). The moving party should not be entitled to security for costs if its delay causes prejudice to the plaintiff and failure to explain the delay is fatal to the motion even in the absence of prejudice (Wilson Young at para. 59).

[15] Mr. Gebremeskel’s examination for discovery was completed on October 28, 2022. On October 31 and November 7, 2022, counsel for the Chang Parties wrote to 500’s counsel to inquire if, in light of Mr. Gebremeskel’s admission that 500 had no assets, 500 would be willing to negotiate security for costs. On November 22, 2022, counsel for the Chang Parties canvassed dates for a security for costs motion. The Notice of Motion is dated December 6, 2022 and the Motion Record was served on May 11, 2023. In my view, given the timing of Mr. Gebremeskel’s admission that 500 has no assets, this timeline does not demonstrate any material delay and I am satisfied that the motion was brought promptly and reasonably after learning 500 had no assets. I cannot conclude that the motion is strategic or tactical or that 500 would suffer any material prejudice (Wilson at para. 59; Yaiguaje at para. 23). Notably, 500 has not asserted, nor is there any evidence, that an order to post any amount of security would prevent 500 from advancing this action to trial such that it would be prejudiced by the motion having been brought after 500 expended funds to advance the litigation to this stage. Any issues regarding the timing of the motion can be addressed in the terms of security, which the Chang Parties have agreed to limit to future steps in the action, and the quantum.

[16] I also do not accept 500’s position that security should not be granted because it would offend the established principle that a party should not have to post security for costs as a condition of defending itself (Paramount Franchise Group et al v. Mian et al, 2022 ONSC 4533 at para. 11). Whether a plaintiff by counterclaim should be ordered to post security is a relevant factor for the court to consider in exercising its discretion and where the facts on which a counterclaim is based are largely the same facts and circumstances raised in the plaintiff’s claim, this militates against an order for security (Wilkings v. The Velocity Group Inc., 2008 ONCA 273, paras. 23 and 29; Paramount at para. 11). The court should consider whether or not the counterclaim is in substance a reiteration of the plaintiff by counterclaim's defence to the main action and if it is, the court may exercise its discretion to deny the motion by the defendant by counterclaim, that the plaintiff by counterclaim post security for costs or qualify the amount of security to otherwise be posted (Wilkings at para. 29; Acasta v. Acasta, 2023 ONSC 34 at paras. 25-26).

[17] There is material overlap between 500’s claims and defences. However, the overlap is not complete and 500’s Crossclaim and Counterclaim raise independent issues both substantively and in quantum. Based on the parties’ submissions at the motion, 688’s claim is now limited to the release of the Deposit. 500 is also seeking return of the Deposit but is claiming damages of $200,000 which it has reduced from $500,000. The particulars of the amendment were not provided. While there is overlap with the underlying facts and circumstances of the litigation including the claims for the Deposit, I am satisfied that 500’s claims raise independent factual and legal issues which the Chang Parties must defend including the alleged misrepresentations regarding the rent rolls and mould, breach of the APS and the Chang Parties’ alleged breaches of their duties including under the Act. As with other factors, the appropriate approach is not to deny security but to reduce the amount awarded accordingly, which I address below.

[18] I also do not accept 500’s submissions that Chang’s multiple roles and/or interests in numerous parties to these proceedings should preclude an order for security. 500 argues that given Chang’s numerous roles, including director of 688 and Century 21 and property manager, it would be unjust to order security because it would be akin to ordering security in favour of 688 for the main claim and would not allow 500 to defend the main claim and prove its Counterclaim. However, although Chang is a director of 688, there is no evidence that he has an ownership interest in 688. Further, the only claim which 688 is making is for release of the Deposit by Century 21 in which Century 21 claims no interest. Meanwhile, the Chang Parties must defend a separate damages claim with separate allegations. As noted above, there is no evidence that an award of security would prevent 500 from defending the main claim and bringing its Crossclaim and Counterclaim to trial.

[19] Applying a holistic approach, I conclude that it is just in the circumstances to exercise the court’s discretion to order some security for costs. I am satisfied that an amount can be ordered on reasonable terms which strikes the appropriate balance between the parties’ interests, namely, one that is not so onerous as to prevent 500 from advancing its claims to trial but provides the Chang Parties with some protection from an unenforceable costs award given that 500 has no assets (Chill Media at para. 14). The justness of the order and the balance between seeing claims through to trial against the risk of unenforceable costs awards can and should be reflected in the quantum of security ordered, not simply whether security is ordered at all (Rosin at paras. 38-39; Lipson at para. 48). This is private, commercial litigation with no public interest considerations and 500’s principals stand to benefit if it is successful, therefore, in the absence of impecuniosity, they should accept some of the risk of pursuing their claims (Design 19 Construction Ltd. v. Marks, 2002 ONSC 1091 at paras. 10-15; Crudo Creative Inc. v. Marin).

[20] The court has broad discretion to determine a fair and reasonable amount of security which is substantially similar to the exercise of its discretion in fixing costs of a proceeding pursuant to Rule 57.01 (Canadian Metal Buildings Inc. v. 1467344 Ontario Limited, 2019 ONSC 566 at para. 27). The quantum should reflect an amount that falls within the reasonable contemplation of the parties, what the successful defendant would likely recover and the factors set out in Rule 57.01 (720441 Ontario Inc. v. The Boiler et al, 2015 ONSC 4841 at para. 56; Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada, 2003 ONSC 1906 at paras. 13-20). In most cases, security for costs will be ordered on a partial indemnity scale by stage in the litigation on a "pay as you go" basis (Marketsure at paras. 13-18).

[21] Given the timing of the motion and limiting of 688’s claim to the Deposit, the Chang Parties are seeking security for costs in the amount of $75,000 on a partial indemnity scale which is only for the remaining steps in the action including the pre-trial conference, trial preparation and attendance at trial. This is a reasonable approach, however, the amount of security should be reduced to account for the overlap between 500’s claims and their defences to 688’s claim such that security is only granted for amounts related to the Chang Parties’ defence of the independent damage claim and related allegations. The amount should be further reduced to more accurately reflect the reasonable expectations of the parties and the reduced scope and amounts at issue.

[22] Based on the Chang Parties’ Bill of Costs and the factors and circumstances considered above, I am satisfied that it is fair and reasonable, within the parties’ reasonable expectations and just in the circumstances for 500 to post security of $30,000 on the following terms: $15,000 no later than 60 days after the pre-trial conference; and $15,000 no later than 90 days before trial.

IV. Order and Costs

[23] Order to go on the terms set out above.

[24] The parties agreed prior to the motion to reserve costs to the trial Judge.

Released: January 31, 2025

Associate Justice McGraw