2012 ONSC 542
DIVISIONAL COURT FILE NO.: DC-11-0015
DATE: 2012-02-13
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
HENNESSY, TUCKER, AND SHAW JJ.
B E T W E E N:
United General Contracting Ltd.
Morris J. Holervich, for the Respondent (Plaintiff)
Respondent (Plaintiff)
- and -
The Corporation of the Municipality of Sioux Lookout, Stantec Consulting Ltd. and Keewatin-Aski Ltd.
Peter J. Mitchell, for the Appellants (Defendants)
Appellants (Defendants)
HEARD at Thunder Bay, Ontario: December 6, 2011
TUCKER J.
The Appeal
[1] The defendants, Corporation of the Municipality of Sioux Lookout (“Sioux Lookout”) and Keewatin-Aski Ltd. (“Keewatin”), appeal the August 9, 2011, decision of Greer J. dismissing their application for security for costs and awarding costs against them on a substantial indemnity basis in the amount of $15,673.10. The third defendant, Stantec Consulting Ltd., did not participate in the appeal, although it had joined in the original motion and was held to be jointly and severally liable with the other defendants for costs.
The Issues
[2] The issues are:
(1) What is the applicable standard of review?
(2) Did the motion’s judge apply the correct legal principles in her ruling that the respondent had provided sufficient evidence that it was impecunious?
(3) Did the motion’s judge apply the correct principles of law in determining that the respondent had provided sufficient evidence to show why justice demands that it be allowed to proceed without posting security?
(4) Did the motion’s judge err in ordering the appellants to pay full indemnity costs of the motion?
ANALYSIS
Issue (1)
[3] The appellants argue that the motion’s judge erred in law by not applying the correct legal principles. Accordingly, the standard of review is that of correctness.
Issue (2)
[4] It is the position of the appellants that the court must find on the evidence that not only is the respondent impecunious and that the sole shareholder is also impecunious, but also that there are no other sources of funding available to the respondent, specifically funding from its creditors.
[5] The respondent submits that the law does not require the plaintiff to show that all possible sources of funding have declined to contribute to funding the litigation. Counsel argues that the plaintiff is only required to approach the creditors in cases where the creditors are directing the litigation and will receive the entire benefit of such litigation.
[6] The appellants ask that the court require the plaintiff to demonstrate that it has approached all of its creditors to fund the litigation and that the creditors have declined to contribute to the funding of the litigation. Accordingly, it is their position that the motion’s judge erred in law when she found the plaintiff to be impecunious without such evidence. The appellants relied on three cases to support this argument.
[7] The first case was Shadows v. Travelers Canada Corp., 1990 CarswellOnt 346, decided by Farley J. of the Ontario Supreme Court, High Court of Justice. Farley J. refused to find the plaintiff impecunious as there had been “no evidence that the shareholders of the appellant could not raise funds to post the security” (at para. 24). He expands the requirement by stating that the creditors, as well as the shareholders, would benefit from any award at trial. Shadows was followed by Wright J. in D.E. & J.C. Hutchison Contracting Co. v. Windigo Community Development Corp., 1996 CarswellOnt 4798 (Ont. C.J, Gen. Div.). Wright J. refused to find the plaintiff impecunious as there was no evidence that “the corporation and its shareholders could not obtain security for costs either by way of cash, bond, or letter of credit, from the remaining creditors of the plaintiff” (at para. 14). Most recently, in Design 19 Construction Ltd. v. Marks, 2002 CarswellOnt 1414 (S.C.J.), the court referred to Shadows and Hutchison Contracting Co., and refused to find that the plaintiff was impecunious. In Design 19, the plaintiff had filed for bankruptcy and had stated in affidavit that the proceeds of the action would be for the benefit of the creditors. As the plaintiff had failed to show that the creditors were not in a position to fund the payment of security, the judge refused to find that the plaintiff was impecunious.
[8] While the matter of a requirement to seek funding from creditors has been discussed in these cases, none stand for the proposition that in every case a plaintiff must provide evidence that creditors have rejected a request for funding by the “impecunious” party in order for the court to find “impecuniosity”. There is no requirement that in every case the plaintiff must show that the creditors have declined to fund the litigation. Therefore, it was open for the motion’s judge to find that the plaintiff was impecunious in the absence of evidence of the unwillingness of the creditors to support the litigation.
[9] The motion’s judge noted that there are many factors to be considered on a motion for security for costs. In determining impecuniosity, the motion’s judge considered the “infancy” of the litigation, the substantial costs suggested by the appellants, the financial condition of the plaintiff including a consideration of its relationship with its creditors, and the failure of the defendants to provide an Affidavit of Documents.
[10] On judicial review, this court need only consider the correctness of the motion’s judge’s decision based upon the existing law. She reviewed the evidence that showed that the major creditor of the plaintiff had made demands upon its loans and together with the Business Development Bank had taken possession of the plaintiff’s assets. The indebtedness to the bank is approximately $1,000,000. She found that the principal and sole shareholder owed over $1,000,000, his home was encumbered, and that he had minimal savings and an income of $73,000 in 2010. She found the plaintiff and its shareholder impecunious and, based upon the number of creditors, she found that it was “likely, though not certain, that what the Plaintiff may recover in this litigation, will ultimately go to its creditors.” She found that none of the creditors were in control of the litigation, a fact which distinguishes this case from Design 19. Finally, the motion’s judge found that very little had been accomplished in the litigation after three years, which would suggest that the Plaintiff did not have access to funding. It was noted that the appellants had not filed Affidavits of Documents nor had discoveries been held.
[11] In the circumstances of this case, the motion’s judge was satisfied that the respondent had met the test of impecuniosity without providing evidence that it had approached all creditors for funding of the litigation. We find she was correct in so doing.
Issue (3)
[12] The appellants claim that the motion’s judge erred when she found that the claim had merit and that the action would end if an order for security for costs was made.
The appellants’ position is that pleadings alone are insufficient to show the merits of the case and that additional affidavit evidence is required to demonstrate sufficient merits to continue the action in the absence of posting security for costs. The defendants estimated their costs would be in excess of $700,000 and argued that it would be unjust if the plaintiffs were permitted to continue the action without posting security for these costs.
[13] It is clear that the motion’s judge was aware of the case of Smith Bus Lines v. Bank of Montreal, 1987 CarswellOnt 457, which held that it is not sufficient to simply rely upon the pleadings without some affidavit evidence to show a genuine chance of success or a genuine issue for trial. However, the court in Smith Bus Lines went on to say, at para. 37, that the court has a wide discretion to take into account a multitude of factors when exercising its discretion under rule 56.01(1)(d) as to what is just in the circumstances of the case.
[14] The respondent cites the motion’s judge’s decision as to the early stages of litigation, the failure of the appellants to comply with the Rules by not providing an Affidavit of Documents, and the small costs incurred to date in support of their submission that the motions judge had sufficient information to assess the merits of the claim. We adopt the respondent’s submissions on this issue. There was no error in law in the decision that the claim had sufficient merit that justice demanded that the plaintiffs be allowed to proceed without posting security.
Issue (4)
[15] Costs are always in the discretion of the court. There are factors which a court may consider, but ultimately the weighing and valuing of the entitlement to costs is left to be determined by the motions judge. It is clear that the motion’s judge had concerns with the actions of the defendants in bringing the motion, the amount estimated for their “costs” in the action, as well as their failure to provide an Affidavit of Documents. There is nothing “plainly wrong” about her decision on costs, and it was a proper exercise of her discretion. The decision made by the motion’s judge was based upon the evidence before her on that date, including the early stages of litigation. It is always open to the appellants at another stage in the proceedings to renew their request for security for costs in the event of a change in circumstances.
[16] The appeal is dismissed.
Costs
[17] If the parties cannot agree on costs, they may make brief written submissions, no more than two pages, to the court to be filed with the trial coordinator in Thunder Bay as follows: respondent - within 10 days of receipt of this decision, appellant - within 15 days of receipt of this decision.
“Original signed by”
Hennessy J.
“Original signed by”
Tucker J.
“Original signed by”
Shaw J.
Released: 2012-02-13
2012 ONSC 542
DIVISIONAL COURT FILE NO.: DC-11-0015
DATE: 2012-02-13
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
HENNESSY, TUCKER, AND SHAW JJ.
B E T W E E N:
United General Contracting Ltd.
Respondent (Plaintiff)
- and –
The Corporation of the Municipality of Sioux Lookout, Stantec Consulting Ltd. and Keewatin-Aski Ltd.
Appellants (Defendants)
REASONS FOR JUDGMENT
Released: 2012-02-13