SUPERIOR COURT OF JUSTICE - ONTARIO
COMMERCIAL LIST
COURT FILE NO.: CV-10-8606-00CL
DATE: 20120116
RE: GEORGIAN WINDPOWER CORPORATION and NANTICOKE 80WP INC.
Plaintiffs
- and -
stelco inc.
Defendant
BEFORE: Justice Newbould
COUNSEL: Marie-Andrée Vermette, for the defendant
Jacqueline A. Horvat, for the plaintiffs
DATE HEARD: January 10, 2012
E N D O R S E M E N T
[ 1 ] The defendant Stelco Inc. (“Stelco”) moves for an order that the plaintiffs Georgian Windpower Corporation (“GWC”) and Nanticoke 80WP Inc. (“N80”) pay into court the sum of $710,000 as security for costs of this proceeding. There has already been an previous order for security for costs for work up to the completion of examinations for discovery.
[ 2 ] This action was commenced on June 28, 2005. The plaintiffs claim damages of several hundred millions of dollars plus compound interest. At the centre of the claim are a memorandum of understanding dated June 25, 2004 made between Stelco and GWC and an agreement to establish a land lease easement agreement dated October 20, 2004. These relate to a proposed development of a multi-part wind energy project including an 80 MW wind turbine facility on Stelco's lands in Haldiman County. On April 14, 2005 Stelco notified GWC that it was terminating these agreements.
[ 3 ] In November 2006 Stelco brought a motion for security for costs. In response, the plaintiffs filed an affidavit of Michael Monette sworn January 8, 2007 in which he took the position that the plaintiffs were impecunious, and stated that GWC and N80 only had a few hundred dollars in their bank accounts. On December 20, 2007, Master Pope ordered that security for costs be paid into court by the plaintiffs as follows: (a) $190,000 within 45 days of the date of the order; and (b) a further $30,000 within 60 days of completion of examinations for discovery of the plaintiffs. The order now sought by Stelco is for costs incurred and to be incurred since the discoveries.
[ 4 ] Master Pope held that the plaintiffs had not discharged their evidentiary burden to show that they were impecunious, and in doing so stated:
I concur wholeheartedly with Stelco’s submission that GWC has not discharged their evidentiary burden to show that they are impecunious. The allegation by Mr. Monette that “[n]either GWC nor any of its shareholders, including myself, is able to pay the amount of security for costs being sought by Stelco” is insufficient evidence to satisfy its onus to establish impecuniosity. Additionally, there is no evidence that GWC made any effort to raise funds to post security for costs and that they were unable to do so. Interestingly, there is evidence to the contrary that GWC raised $86,549.00 by selling flow-through shares after Stelco terminated its relationship with GWC in April 2005. There are no supporting documents (ie. income tax returns) to establish the incomes of the three primary shareholders, nor is there any evidence of those shareholders’ assets (ie. houses and other properties, savings, interests in other companies or businesses, etc.). Furthermore, there is no evidence regarding the shareholders ability to sell assets, borrow or otherwise raise the necessary funds to post security for costs. Nor is there any evidence of the financial resources of the shareholders who purchased the flow-through shares. There is no evidence of the resources of the three main creditors of GWC; namely, Rinion Consulting Inc., Terryton Corp. and Werner Wink, who would directly benefit if GWC’s claim succeeds.
[ 5 ] The amounts ordered to be paid by the plaintiffs for security for costs were eventually paid. In April 2010, following the completion of the examinations for discovery, Stelco brought a motion for summary judgment which was heard and dismissed by Conway J. on June 17, 2011. On October 25, 2011 Morawetz J. scheduled the trial of this matter for four weeks starting on March 19, 2012. At that time Stelco stated that it would be bringing a further motion for security for costs, which motion was eventually served on November 9, 2011.
Legal principles
[ 6 ] Rule 56.01(d) provides that where it appears that the plaintiff is a corporation and that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant, the Court may make such order for security for costs as is just. The principles to be applied are well known and need not be stated here in any detail. They are summarized in an admiral fashion by Master Glustein in Coastline Corp. v Canaccord Capital Corp., 2009, [2009] O.J. No. 1790 at para. 7 and discussed in thorough detail by Code J. in Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 99 O.R. (3d) 55.
[ 7 ] Under Rule 56.01(d), the obligation on the defendant is not to prove on a balance of probabilities that the plaintiff has insufficient assets because this is uniquely within the plaintiff's knowledge. Rather, the onus on the defendant is the relatively light one to show that there is good reason to believe that the plaintiff corporation has insufficient assets in Ontario to pay the defendant's costs if the plaintiff is unsuccessful in the litigation. In this case it is admitted that the plaintiff corporations have no material assets. Thus there is good reason to believe that the plaintiff corporation has insufficient assets in Ontario to pay the defendant's costs if the plaintiff is unsuccessful in the litigation.
[ 8 ] In these circumstances, the plaintiffs have the onus to establish that an order for security would be unjust. This requires the exercise of discretion which can take into account a multitude of factors, including the merits of the case, a balancing of the interests of the parties, the financial circumstances of the plaintiff and the effect of an order. The court exercises a broad discretion in making an order that is just. The plaintiffs can rebut the onus by, among other things:
(a) Showing that they in fact have appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation. The plaintiffs do not assert this.
(b) Demonstrating that they are impecunious and that the claim is not “plainly devoid of merit”. The plaintiffs contend they have demonstrated this.
(c) Where impecuniosity has not been established, a closer scrutiny of the merits of the case is warranted A legitimate factor in deciding whether it would be just to require security for costs is whether the claim has a good chance of success. The plaintiffs also contend that this test has been met.
[ 9 ] Although Master Pope’s order for security for costs was upheld on appeal, Stelco does not raise any issue of res judicata or issue estoppel. It moves for increased costs on the basis that the tests for such an order can be established anew.
Impecuniosity
[ 10 ] In Smith Bus Lines Ltd. v Bank of Montreal, Sutherland J. explained how the concept of "impecuniosity" applies to a corporate plaintiff:
The term "impecuniosity" does not appear in the rule; it is a term introduced as part of the judicial gloss upon the rule in response to the words "as is just" in the part of the rule stating that (upon satisfaction of the stated conditions precedent) "the court . . . may make such order as is just". The corporate plaintiff wishing to be allowed to proceed with its action, without either showing sufficient assets or putting up security, must first show "impecuniosity" meaning not only that it does not have sufficient assets itself but also that it cannot raise the security for costs from its shareholders and associates, …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 is not available to it. (underlining added)
[ 11 ] To establish impecuniosity, complete financial disclosure is required. See Coastline Corp. v Canaccord Capital Corp., supra, at para. 7 (viii) and (ix). In Unique Labeling Inc. (c.o.b. International Private Beverage) v GCAN Insurance Co. (2009), 252 OAC 228 (CA), Weiler J.A. stated:
Inasmuch as Unique asserts that it will be without funds to prosecute its appeal if it is required to post security for costs, it bears the burden of establishing this impecuniosity. Unique is required to show that its principal shareholders, Lance and Jeffrey McLelland, who stand to benefit from any award in Unique's favour, cannot post security for costs and have no internal or external access to funds. Complete financial disclosure is required with supporting documentation.
[ 12 ] In 1056470 Ontario Inc. v. Goh (1997), 34 O.R. (3d) 92, Borins J., as he then was, stated:
"Impecuniosity" would appear to require more than "insufficient assets in Ontario to pay the costs of the defendant" as required by rule 56.01(1)(d), and in the case of a corporate plaintiff requires, as the master found in this case, that it establish the moneys are not available from its shareholders or other sources by way of security: Smith Bus Lines Ltd. v. Bank of Montreal (1987), 61 O.R. (2d) 688, 25 C.P.C. (2d) 255 (H.C.J.); leave to appeal to Divisional Court refused: 61 O.R (2d) 688n; see also Smallwood v. Sparling (1983), 42 O.R. (2d) 53, 34 C.P.C. 25 (H.C.J.), and Rackley v. Rice (1992), 8 O.R. (3d) 105, 89 D.L.R. (4th) 62 (Div. Ct.).
[ 13 ] These and other authorities make clear that in order to find impecuniosity, the court must be convinced on the basis of cogent evidence that the plaintiff corporation, its shareholders, and any other persons who would be the beneficiaries of the action if it succeeded, such as its creditors, are unable to sell assets, borrow or otherwise raise the necessary funds to post security for costs.
[ 14 ] Regarding creditors of the company, case law supports the notion that if they stand to benefit from the litigation, it must be established that they are unable to fund an order for security for costs. See, for e.g. J.T. Stewart & Associates Inc. v Cash, Lehman & Associates, [2005] O.J. No. 4234 and Design 19 Construction Ltd. v Marks (2002), 22 CPC (5th) 117, in the latter of which Nordheimer J. stated:
If the creditors are prepared to take the benefit of this action, then I fail to see why they should not also have to accept the burden of it. We are, of course, only speaking of a requirement that security for costs be posted. If the plaintiff is ultimately successful, then those funds will be returned to the creditors. If the plaintiff is not, I fail to see why the creditors should be able to avoid the consequences of standing behind an unsuccessful action. I find, therefore, that the Master's conclusion that the plaintiff was impecunious in the absence of any evidence as to whether the creditors of the plaintiff were in a position to fund the payment of security for costs reflects an error in principle.
[ 15 ] In my view, for a number of reasons the plaintiffs have failed to discharge their evidentiary burden to establish that they are impecunious.
[ 16 ] Mr. Monette is the CEO of GWC and its subsidiary N80. Through his holding company, he owns one-third of the common shares of GWC. Werner Wink is the secretary of these companies and through his holding company owns two-thirds of the shares of GWC.
[ 17 ] Mr. Monette prepared a statement of his net worth as of November 21, 2011 which states that his net worth is $775,470. He has investment assets, which he refers to as retirement funds, of $403,569. He lists his matrimonial residence as having an assessed value of $578,750 less a mortgage of $230,657, indicating an equity of at least $348,093. In his affidavit, Mr. Monette said that all of its assets are owned jointly with his wife, but on cross-examination he acknowledged that apart from his chequing and savings account which are joint accounts, his other assets are in his name. It may be fair to infer that his wife would have an interest in the matrimonial home. He is employed as an executive at Xerox and his income in 2010 was $253,581.
[ 18 ] Mr. Monette states in his affidavit that he is not financially capable of paying any amount greater than $50,000 for security for costs. No explanation for that figure is provided. He has not provided evidence of an inability to access his assets, or to borrow against them, for the purposes of providing funds to the plaintiff corporations for security for costs. This lack of evidence in itself is reason to conclude that he has not established impecuniosity of the plaintiff corporations, particularly when he acknowledges a net worth of approximately three quarters of $1 million. Moreover, his wife owns a rental property that is mortgage free and has a market value of approximately $350,000 to $400,000. There is no evidence that he has tried to borrow from his wife.
[ 19 ] The evidence of Mr. Wink is that his income has been approximately $5,000 per year or less since 2005 when Stelco terminated its relationship with the plaintiffs. This evidence is clearly incorrect and I am satisfied that full disclosure of Mr. Wink's income and assets has not been provided. During part of the time, Mr. Wink was earning $25,000 per annum from a teaching position and he received at least $100,000 in each of 2007 and 2008 from a company he was involved with named 401 Energy Limited. None of this was disclosed in his affidavit which raises serious concerns about the credibility and reliability of his evidence.
[ 20 ] Stelco submits that the evidence regarding Mr. Wink's income and assets has no air of reality and provides several grounds to support that. These include, fully supported by the evidence, the following:
(a) Mr. Wink’s wife is not employed, she has been unemployed for about 20 years, and she has no source of income;
(b) Mr. Wink has two dependents, a 22-year-old son and a 18-year-old daughter;
(c) Mr. Wink has monthly expenses that exceed $4,200. Therefore, the total of his expenses annually exceed $50,400;
(d) Starting in January 2012, Mr. Wink’s son will be attending medical school at St. George’s University in Grenada, and Mr. Wink is paying at least US$60,000.00 for his son’s tuition fees and other expenses;
(e) Prior to attending medical school, Mr. Wink’s son went to Purdue University in Indianapolis in the United States for three or four years, and Mr. Wink paid at least between $10,000 to $12,000 per year for tuition fees and other expenses;
(f) Mr. Wink’s daughter will be attending university out of the province starting in September 2012, and Mr. Wink estimates that he will be paying tuition fees in the amount of $20,000 per year, as well as his daughter's living expenses;
(g) From approximately 2000 until December 2011, Mr. Wink rented a condominium and paid rent in the amount of $1,100 a month. In December 2011, he moved into a bigger unit in the same building with a higher rent in the amount of $1,500 a month;
(h) Mr. Wink pays for the expenses related to the maintenance of two properties owned by his wife, including taxes;
(i) In 2007 or 2008, i.e. at a time where Mr. Wink allegedly only had an annual income of $5,000, TD Canada Trust gave to Mr. Wink an unsecured line of credit in the amount of $30,000;
(j) The balance sheet of one of Mr. Wink’s companies shows as a liability a shareholder’s advance of more than $30,000 that was made to the company in 2010. Mr. Wink is the only shareholder of that company. Among other things, a bank indebtedness of more than $15,000 and accounts payable of more than $15,000 were repaid in 2010. Mr. Wink’s evidence is that he borrowed these funds from friends and family as he has to keep things paid, and he always has to put money in every month;
(k) Since April 2009, Mr. Wink has advanced approximately $30,000 to another of his companies, 7114664 Canada Limited;
(l) An ex-business partner of Mr. Wink and former shareholder and principal of GWC, Paul Boreham, lent $80,000 to Mr. Wink, interest-free, without any security and with no term, the loan been made sometime after December 2008;
(m) Mr. Wink was able to lend $33,000 to GWC on July 12, 2011 for the purpose of paying the fees of experts retained in this action by GWC. He also advanced $5,000 to GWC through one of his companies on June 4, 2007, and he contributed $6,000 of his personal funds towards satisfaction of the security for costs order on August 11, 2008.
[ 21 ] Mr. Wink's wife owns two properties which are mortgage free, which she apparently purchased with her own money. Mr. Wink pays for the taxes and ongoing maintenance of the properties and he estimates their equity to be between $330,000 and $350,000. There is no evidence that he has attempted to borrow from his wife in order to fund the plaintiff corporations to pay for security for costs.
[ 22 ] The only balance sheet of GWC that has been filed is for the year as at July 31, 2004. It showed liabilities of $1,175,386.37 which included $1,179,533.45 in deferred consulting fees to Michael Monette, Terryton Corp. and Werner Wink. In his Affidavit sworn January 8, 2007, Michael Monette stated that as at July 31, 2005, the total deferred fees had increased to $2,444,600.16. GWC has not produced tax information or a balance sheet for the period post July 31, 2004 and therefore it is somewhat speculative who all of the creditors are.
[ 23 ] As of July 31, 2005, GWC owed $791,054.53 to Terryton Corp. in consulting fees. These fees have not been paid and are still owed. Paul Boreham, who was a shareholder of GWC until December 2008, is the principal of Terryton Corp. There is no evidence as to the financial resources of Terryton Corp. or Mr. Boreham, but there is evidence that Mr. Boreham was prepared to lend $80,000 to Mr. Wink personally interest-free, without any security and without term. According to Mr. Monette, Mr. Boreham had advised that he had arranged financing to cover the first security for costs order but that never occurred. It is quite apparent that Mr. Boreham will benefit from the litigation and there is no evidence that he is unable, or not prepared, to now provide funding to the plaintiff corporations for the purposes of security for costs. If he stands to benefit from the litigation, which is apparent, there is no reason on the basis of the evidence on the record why he should not be contributing to its costs.
[ 24 ] It was argued on behalf of the plaintiffs that when Mr. Boreham sold his share interest in the plaintiffs, he released his right to be paid the amount owing to him. However, the documentation does not support that. The money is owed to Terryton Corp., which was not a party to the release. Moreover, the release did not purport in its language to release the amount owing, even if it could be said to be owing to Mr. Boreham. The release covered any claims relating to the transfer of Mr. Boreham's shares of GWC held by his holding company to Mr. Wink's holding company and any claims arising from his capacity as a director, officer and employee of GWC. None of this involved any debt owed by GWC to Terryton Corp. or to Mr. Boreham.
[ 25 ] The plaintiff N80 has four shareholders who hold Class A shares (GWC, Dan Blais, Luc P. Filion and Cullen D.E. Simpson), and nineteen shareholders who hold Class A flow-through shares. Among the nineteen shareholders who hold Class A flow-through shares, thirteen purchased shares after April 14, 2005, i.e. after Stelco terminated its relationship with GWC, for a total sum of $136,549.00. GWC owns approximately 93.6% of all the shares in N80. The Class A flow-through shares represent approximately 6% of the shareholdings in N80.
[ 26 ] Mr. Wink sent requests to all of the flow-through shareholders for their income information. A few responded and indicated income of somewhere between $21,000 and $140,000. They were not asked for evidence of their assets and there is little evidence of attempts to determine if any of them were able to, or prepared to, lend money to N80 for security for costs. Mr. Monette stated that two of them were contacted. One is a potential source of investment funds in the amount of $200,000 but cannot make any commitment “until the sale of some property" and he also wants a percentage of any final court award if he invests any funds. The other was contacted by Mr. Wink who advised Mr. Wink "that he was interested in providing potential funding of a small amount" but that to date that commitment had not been realized. Thus it is by no means clear that the shareholders of N80 are unable or unwilling to provide funding for security for costs. Even though these shareholders own a very small percentage of N80’s shares (GWC owns 93.6% of the shares of N80), they could derive a substantial benefit from the litigation should the plaintiffs be successful in the action given that the plaintiffs’ claim is for $495 million.
[ 27 ] Mr. Monette states in his affidavit that he and Mr. Wink have had discussions with potential investors to raise funding for the action and that while they have received indications of potential financial support, it has not been provided to date. While obtaining new investors who are essentially being asked to buy into a lawsuit might be one way of raising money, the fact that that has not occurred is not a complete answer to the motion for security for costs. Raising money from shareholders and creditors interested in the lawsuit is a clear option and the plaintiffs have not established with any cogent evidence that that is not available to them either from assets available to them or from loans that could be obtained.
[ 28 ] On December 15, 2008, the solicitors for the plaintiffs lent to the plaintiffs approximately $80,000 to be used to fund a portion of the first order for security for costs, and on July 9, 2010 lend a further $30,000 for this purpose. Whether these amounts are outstanding is not on the record. I do not see that evidence, however, as establishing impecuniosity on the part of the plaintiffs in light of all of the other evidence that I have reviewed.
[ 29 ] In all the circumstances, I am unable to conclude that plaintiffs are impecunious within the meaning of the relevant case law.
Exercise of discretion
[ 30 ] In considering whether an order as to security for costs is just, an inquiry into all factors is required. See Hallum v Canadian Memorial Chiropractic College (1989), 70 OR (2d) 119 at p.123 per Doherty J., as he then was.
[ 31 ] If impecuniosity has been established, a plaintiff needs only to demonstrate that the action is not plainly devoid of merit. If it has not been established, however, a closer scrutiny of the merits of the case is required. See Zeitoun v Economical Insurance Group (2008), 91 OR (3d) 131 (Div Ct); aff’d 2009 ONCA 415, 96 OR (3d) 639 (CA). In Zeitoun, the Divisional Court stated:
Where 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.
[ 32 ] In Chachula v. Baillie (2004), 69 O.R. (3d) 175, Himel J. put it this way:
[16] In a case where the plaintiff does not demonstrate impecuniosity but asserts that an order for security for costs would have the effect of depriving it of its bona fide cause of action, the court may consider the merits and exercise its discretion to permit a meritorious claim to proceed: see Padnos v. Luminart Inc. (1996), 32 O.R. (3d) 120 (Gen. Div.); Paul v. General Magnaplate Corp. (1995), 27 O.R. (3d) 314 (Gen. Div.); Guirmag Investments Inc. v. Milan, [1999] O.J. No. 3262 (QL), 43 C.P.C. (4th) 113 (S.C.J.). In Padnos, supra, Kitely J. held, [at p. 122 C.P.C.] ". . . Merits have a role in any application under rule 56.01, albeit in a continuum; for example, rule 56.01(1)(a) would be at the low end and rule 56.01(1)(e) would be at the high end." Where a review of the merits involves a weighing of credibility which is not possible on a motion, the merits may be a neutral factor: see Shemberg Marketing Corp. v. Tan, [1999] O.J. No. 752 (QL) (Gen. Div.).
[ 33 ] Stelco contends that the merits of the case involve the credibility of witnesses and that therefore the merits should be considered a neutral factor, as discussed by Himel J. in Chachula v. Baillie. The reason for this arises from the unsuccessful motion for summary judgment brought by Stelco on the basis that the two agreements in question were no more than unenforceable agreements to agree. In her decision dismissing the motion, Conway J. stated:
[ 34 ] In my view, these issues must be resolved at a trial, in the presence of the trier of fact who can listen to the witnesses and observe their evidence tested on cross-examination. I note that while discoveries have been conducted, on consent of counsel, there has been no cross-examination on the affidavits tendered on these motions.
[37] Again, evidence of the factual matrix in which the AELLEA was negotiated and signed will be relevant in interpreting the interplay between GWC’s rights under the AELLEA and Stelco’s termination rights in the MOU. The paper record is simply inadequate to decide whether, in signing the AELLEA (which had no termination right), Stelco retained the right to terminate the 80 MW project under the MOU if it decided not to proceed with the overall Strategy.
[39] I have taken a hard look at the evidence of the parties on this motion and have concluded that there are genuine issues requiring a trial. I wish to make it abundantly clear that in highlighting some of these issues, I have not come to any conclusions as to the enforceability of the documents or Stelco’s termination rights. Those determinations are left to the trial judge.
[34] In light of this conclusion, I think it fair to state that for the purposes of this motion for security for costs, there are genuine issues requiring a trial but whether one can go further and say, as the plaintiffs assert, that they have a good cause of action is problematic. It appears to me that the merits of the action must be either neutral or close to it for the purposes of this motion.
[ 35 ] A factor to be taken into account on a motion for security for costs is whether the defendants caused the impoverishment of the plaintiffs. An often cited authority for this proposition is Reid J. in John Wink Ltd. v. Sico Inc. (1987), 57 O.R. (2d) 705 at p. 708:
There can be no question that an injustice would result if a meritorious claim were prevented from reaching trial because of the poverty of a plaintiff. If the consequence of an order for costs would be to destroy such a claim no order should be made. Injustice would be even more manifest if the impoverishment of plaintiff were caused by the very acts of which plaintiff complains in the action.
[ 36 ] The plaintiffs assert that their impecuniosity was caused by Stelco in terminating the memorandum of understanding and land lease easement agreement. It is admitted on behalf of the plaintiffs that it is their onus to establish this allegation. The plaintiffs never had any substantial assets and the allegation is that had Stelco not taken the steps that it did, the plaintiffs would have been able to successfully finance and develop the wind farm project.
[ 37 ] I agree with the statement of Code J. in Cigar500.com Inc. v. Ashton Distributors Inc that consideration of a defendant's conduct as the cause of any deficiency in the plaintiff’s assets inevitably becomes tied up with considerations of the merits, which in this case is difficult to assess because of the need for viva voce evidence.
[ 38 ] In his affidavit sworn in January 2007 for use on the first motion for security for costs, Mr. Monette referred to financing agreements said to have been arranged by GWC with Algonquin Power Income Fund and Vertex Energy Limited. In my view Mr. Monette has overstated the effect of these documents. GWC, Algonquin Power Income Fund and Vertex Energy Limited signed a non-binding term sheet on March 29, 2005 under which Algonquin and Vertex would on certain terms provide financing for the project. It was conditional on certain matters, including the obtaining of a power purchase agreement under an RFP process, which never occurred. It contained a provision that there would be an exclusive period until April 6, 2005 to negotiate a definitive agreement. The term sheet was subject to the approval of the boards of directors of the corporations, which was never obtained, and expired on April 30, 2005.
[ 39 ] On April 5, 2005, one day before the expiry of the exclusivity period, GWC had a conference call with representatives of the potential investors. Mr. Monette’s notes from the call show that there were issues with the wind data collected by GWC, that “confidence is not very high” and that the “partners [i.e. the potential investors] have not been able to confirm that we have a project”. On April 6, 2005, Michael Monette sent a new proposed term sheet to the potential investors. The proposed term sheet was dated April 6, 2005, was still expressly non-binding, and extended the period of exclusivity of negotiations to April 22, 2005. This proposed term sheet was never signed or returned to Stelco, and GWC did not receive any written comments from the potential investors regarding the proposed term sheet before Stelco terminated its relationship with GWC more than one week later.
[ 40 ] In the circumstances, I am not satisfied on the record before me that the plaintiffs have established that it was the actions of Stelco that caused the project not to proceed. I hesitate to say a great deal about this as it is likely that causation of damage will be an issue at the trial and what all of the evidence on this issue that will be adduced is unknown.
[ 41 ] Taking into account the factors that arise from the evidence before me, in my view it is just to order that further security for costs be paid by the plaintiffs.
Quantum of security for costs
[ 42 ] Stelco has filed a draft bill of costs totaling approximately $710,000, made up of fees, inclusive of HST, of approximately $511,000 and disbursements, inclusive of HST, of approximately $199,000. The disbursements relate for the most part to experts’ fees. In reviewing this draft bill, it is, of course, difficult to gauge whether it is realistic. Much appears reasonable. The estimated time for preparation between now and the opening of trial however appears quite excessive, being 350 hours for Mr. Finlay, on top of 72.5 hours already spent on trial preparation, 400 hours for Ms. Vermette, on top of 73.4 hours already spent for trial preparation, and 150 hours for a junior associate. It must also be recognized that a great deal of work was done on the motion for summary judgment, as witness the order for costs against Stelco of $100,000, and that was relatively recently.
[ 43 ] I realize that this is a large complicated case involving much expert evidence that is scheduled to last for four weeks, and no doubt the costs that have been incurred since discoveries and will be incurred between now and the end of the trial will be enormous. $220,000 was ordered for security for costs up to the completion of the examinations for discovery, which indicates the scope of the action. As well, the plaintiffs were awarded costs of $100,000 by Conway J. for successfully defending the motion by Stelco for summary judgment, a motion that lasted 3 1/2 days.
[ 44 ] Stelco relies upon a statement of Quinn J. in Morton v Canada (Attorney General) (2005), 75 OR (3d) 63 that "where the need for security for costs is made out, the court, absent exceptional circumstances, should order security in the amount of the actual anticipated costs and not become weak-kneed at that prospect". Whether that is the right test is debatable and the statement was made in the context of a personal injury action arising from a basketball game to which security for costs up to the time of discoveries were ordered in the amount of $15,000.
[ 45 ] One of the difficulties is that while I am satisfied that the plaintiffs have not established impecuniosity, is not entirely clear what amount can be raised by them, particularly at this late stage when the trial is now scheduled to commence in two months. While the plaintiffs have themselves to blame for this lack of evidence, I have to be mindful that a cost order should not be made that will deprive the plaintiffs of the ability to proceed with the action. Stelco contends that it is not possible on the state of the record to conclude that the action will not proceed if an order is made for the amount claimed by it, and there is some force to that contention.
[ 46 ] Mr. Monette asserts without any cogent support that he can afford to pay only $50,000. Mr. Wink asserts he cannot pay anything. On the basis of these assertions, the plaintiffs contend that if an order is to be made, it should not exceed $50,000. I do not accept these assertions, for the reasons already given.
[ 47 ] The fact that the trial is only two months away may be an impediment to the plaintiffs raising funds. That has not been stated in evidence but common sense says that it may be the case, although it is also possible that it may not be the case. I do not blame Stelco for the lateness of the motion. It brought a motion for summary judgment following the conclusion of the discoveries and that process, including appeals, took considerable time. Once that was over, the plaintiffs were put on notice on October 25, 2011 when the trial was scheduled that a motion for further security for costs would be brought. It is also the case that the plaintiffs should have anticipated such a motion because the prior order for security for costs was only for the period up to the conclusion of the discoveries, and there would have been no reason for them to think that Stelco would not pursue a further order.
[ 48 ] On the basis of the cost outline submitted, it appears to me that a reasonable estimate of costs would be in the order of $400,000 for fees and $195,000 for disbursements including disbursements for experts. I am hesitant, however, at this late stage to make such an order. Doing the best I can on the basis of the evidence before me, an appropriate amount to be further paid as security for costs would be $350,000, and I so order, to be paid within 30 days or such further time as may be ordered on proper evidence.
[ 49 ] Stelco is entitled to its costs. If these cannot be agreed, brief written submissions along with a cost outline may be made within 10 days and brief reply submissions maybe made within a further 10 days.
Newbould J.
DATE: January 16, 2012