ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-01-0937 & CV-01-0937A
DATE: 2012-08-28
B E T W E E N:
NORTH AMERICAN PALLADIUM LTD.,
John Margie, for the Plaintiffs
Plaintiff
- and -
B.R. DAVIDSON MINING AND DEVELOPMENT LTD., ATIKOKAN READY MIX LTD., BLAINE R. DAVIDSON, MARLENE DAVIDSON AND MARLENE DAVIDSON, as Estate Trustee of the Estate of Bruce R. Davidson, deceased,
Jonathan L. Rosenstein, for the Defendants
Defendants
- and -
LAC DES ILES MINES LTD., SITKA CORP. AND AON REED STENHOUSE INC., Third Parties
John Margie, for the Third Party Lac Des Iles Mines Ltd.
Jennifer Varcoe, for the Third Party Sitka Corp.
HEARD: August 17, 2012, in Thunder Bay, Ontario
McCartney J.
Reasons On Motions
[ 1 ] There are two motions before me today, being heard together, and arising out of the Third Party proceedings in this action, one by the Third Party Lac Des Iles Mines Ltd. (“ LDI ”), and the other by the Third Party Sitka Corp. (“ Sitka ”). They each claim security for costs under Rule 56.01 of the Rules of Civil Procedure against the Defendant B.R. Davidson Mining And Development Ltd. (“ BRD ”).
[ 2 ] Rule 56.01 reads as follows:
“ 56.01 (1) 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,
(a) the plaintiff or applicant is ordinarily resident outside Ontario;
(b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;
(c) the defendant or respondent has an order against the plaintiff or application for costs in the same or another proceeding that remain unpaid in whole or in part;
(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;
(e) there is a good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or application has insufficient assets in Ontario to pay the costs of the defendant or responding; or
(f) a statute entitles the defendant or respondent to security for costs.
(2) Subrule (1) applies with necessary modifications to a party to a garnishment, interpleader or other issue who is an active claimant and would, if a plaintiff, be liable to give security for costs.”
[ 3 ] LDL relies on section 56.01(c) of the rule in its’ motion, while Sitka relies on section 56.01(d) of the rule.
The Facts
[ 4 ] A summary of the relevant facts for the purpose of these motions are as follows:
• The Plaintiff, North American Palladium Ltd. (“ NAP ”) is the parent company of LDI.
• LDI and BRD entered into a contract to construct a tailings pond (known as a tailings management faculty (“ TMF ”)) at LDI’s mine site. When BDR failed to complete the TMF, the performance bond holder AXA Insurance (“ AXA ”) paid out the bond and claimed against BRD under its indemnity agreement.
• NAP took an assignment of the AXA claim against BRD and thus became the Plaintiff in the present action.
[ 5 ] At the present time it is alleged, and not contested, that BDR owes LDI $111,571.62 for costs incurred in these proceedings, with a further estimate of $481,608.00 to take the matter to trial. BDR also owes LDI outstanding judgments in other related proceedings of over $2.5 million dollars.
[ 6 ] Regarding the Sitka motion, it is alleged that costs incurred to date amount to $49,566.50, with an additional estimate of $157,221.41 necessary to take the matter to trial.
The Lac Des Iles Mines Ltd. motion
[ 7 ] Since there are clearly costs owing to LDI in these proceedings, this brings section 56.01(1)(c) into play and it now behooves BDR to establish either it has sufficient assets available to cover a possible costs award so that the security sought is not required, or that it does not have sufficient assets i.e. it is impecunious but that justice requires that no security for costs order be made.
[ 8 ] BDR presents itself as a impecunious corporation, but its impecuniosity is a result of the activities of LDI, so justice requires that it be allowed to continue to defend itself against NAP, which it could not properly do if it is required to post security for costs herein. To support its position it points out the following:
(1) the aborted contract with LDI resulted in the insolvency of the company;
(2) Income Tax returns prepared retroactively (i.e. after the company became insolvent) confirms BDR has no revenues and no assets;
(3) the remaining assets of BDR were either seized or disposed of around 2001 and any proceeds were paid to creditors;
(4) Blaine R. Davidson, the sole shareholder of BDR, in his affidavit indicates that BDR has several creditors, many of which already have judgments against BDR. Canada Revenue Agency is one of these creditors. Blaine has not asked any of these creditors to fund the litigation because he feels there is not reasonable prospect of that happening;
(5) Blaine R. Davidson has no personal or real assets. He does not have a bank account;
(6) Blaine R. Davidson still works in the mining industry – his gross annual salary being about $36,000.00;
(7) Blaine R. Davidson pays $925.00 per month spousal and child support.
[ 9 ] LDI, for its part, rather than cross-examining Blaine R. Davidson on his affidavits, undertook its own investigation, and as a result alleges that BRD is not impecunious within the meaning of section 56.01 for some of the following reasons:
(1) Blaine R. Davidson’s affidavit is not sufficient to show the impecuniosity of the company;
(2) there are creditors who have not been asked to contribute towards the payment of costs, i.e. Canada Revenue Agency;
(3) Blaine R. Davidson as sole shareholder of BDR has failed to provide tax summaries and assessments to support his statements on income;
(4) a letter to Blaine R. Davidson’s wife in the affidavit of C.S. Powell of August 14, 2012, indicates that he owns machinery;
(5) there are no financial records to back up BDR’s tax returns;
(6) adverse inferences should be drawn from the fact that the Davidson family had at one time or another eight operating companies, three of which Eva Lake Mining, Atikokan Ready Mix and 491537 Ontario Inc. still exist. Furthermore, Eva Lake Mining is an active company and it is solely owned by Blaine R. Davidson’s mother.
[ 10 ] In my opinion BRD has passed the test here since it appears that it is impecunious. While LDI has attempted to show that BRD, which went out of business some 10 years ago, did so in such a way that it left assets, or could find willing creditors which should now be available to fund the requested security for costs is highly improbable. The allegations made by LDI in this regard are, I think, satisfactorily answered in the responding affidavits of Blaine R. Davidson.
Discussion
[ 11 ] Once impecuniosity is determined in matters of this nature, the court must decide what type of order would seem just under the circumstances. The main issue that arises in this case is as follows: are the main action and the third party action intertwined, and if so, what is the result of this intertwining. LDI argues that the claims are not intermingled since that is the case only if it can be shown that LDI was the cause of BRD’s downfall, and that is not the case here. Further, the issues in each are different.
[ 12 ] At the present time we do not know what the outcome of the case will be. All we know at this point is if BRD is successful in its argument against LDI in the Third Party action, then it will also win against NAP, LDI’s parent in the main action based on the same argument. The actions are clearly intertwined. Furthermore in this regard, I have the support of my brother Judge Shaw who dealt with this same issue in an earlier motion to dismiss for delay. At paragraph 48 of that decision Justice Shaw had the following to say:
“In a similar vein, there is no evidence that the parent company of LDI, NAP, which is the plaintiff in the main action, was moving the main action along. NAP’s claim and LDI’s counterclaim are both claims that stem from the failure of BRD to complete the TMF. The third party claims rebut these two claims and state that the reason for the failure of BRD to complete the TMF is a direct consequence of breaches of contract by LDI. The claims are intertwined. Although there has been considerable delay in pursuing the third party claim, it would be wrong to examine that delay without reference to the main action which has not been pursued with diligence. See Blenkarn, Roche v. Beckstead , [1995] O.J. No. 2777 (Gen Div), at para. 28 .”
[ 13 ] In the case of Cigar500.com Inc. v. Ashton Distributors Inc. , 2009 ON SC , [2009] O.J. No. 3680, Code J. dealt with a similar situation where the plaintiffs were seeking security for costs against the defendant/counterclaimant. Here, what was referred to as the John Wink line of cases was referred to. In that case Reid J had the following to say:
“There can be no question that an injustice would result if a meritorious claims 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.”
[ 14 ] Following up on this reasoning, Farley J. in Better Business Bureau of Metropolitan Toronto Inc. v. Tuz (1999) 28 C.P.C. (4 th ) at page 334 had the following to say: “that Rule 56.01 orders are generally no granted where the Defendant is a Plaintiff by counterclaim in the same action”.
[ 15 ] For all of the above reasons, therefore, I find it would be unjust to make an order for security for costs in this matter which could have the effect of prejudicing BRD from properly defending itself, and the motion is dismissed.
The Sitka Corp. motion
[ 16 ] Since I have determined in the related LDI motion that BDR is impecunious within the meaning of section 56.01 (and this, of course, applies to the Sitka motion as well) and that the motion for security for costs has failed, the final question is what is a just decision with respect to the relief asked for by Sitka? It is agreed by all parties that the Sitka claim is not intertwined with the claim in the main action.
[ 17 ] I am reluctant to grant the relief requested by Sitka for two reasons. The first is that in a situation where several plaintiffs are involved, security for costs are not usually awarded against only some. Here I have already refused this against LDI. In Musicrypt Com. Onc. v. Stark, [2001] O.J. No. 1810 (SCJ) ), it is stated at paragraph 13 as follows:
“… It has long been established that an order for security of costs should not normally be made against one of multiple plaintiffs suing jointly on the same cause of action when it would not be ordered against the others. …”
[ 18 ] The second reason is delay. The Third Party action was commenced on February 11, 2002 – over ten years ago. Now that the Defendants/Third Party Claimants are about to set this matter down for trial, the Third Party Sitka asks for security for costs. Admittedly it does explain that it did not know that BDR was without funds to pay costs until Shaw J.’s decision in 2011. However, as counsel for BDR points out, the Third Party claim alleged that it had to cease operations back in 2002 because of the actions of Sitka as well as LDI. So if it did not know costs were in jeopardy at that point, it should have known as the years passed that it would be.
[ 19 ] So for all of the above reasons, the request for security for costs herein on behalf of the Third Party Sitka Corp. is dismissed.
Costs
[ 20 ] Considering the seriousness of these motions to the Defendant BRD and keeping in mind the suggested costs of the other parties involved, I am assessing costs to the Defendant BRD in the amount of $9,000.00, all inclusive – with each of the Third Parties LDI and Sitka being responsible for one-half of that amount.
____________ ”original signed by”_ ___
The Hon. Mr. Justice J. F. McCartney
Released: August 28, 2012
COURT FILE NO.: CV-01-0937 & CV-01-0937A
DATE: 2012-08-__
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N: NORTH AMERICAN PALLADIUM LTD., Plaintiff
- and –
B.R. DAVIDSON MINING AND DEVELOPMENT LTD., ATIKOKAN READY MIX LTD., BLAINE R. DAVIDSON, MARLENE DAVIDSON AND MARLENE DAVIDSON, as Estate Trustee of the Estate of Bruce R. Davidson, deceased, Defendants - and –
LAC DES ILES MINES LTD., SITKA CORP. AND AON REED STENHOUSE INC., Third Parties
REASONS FOR JUDGMENT
McCartney J.
Released: August 28, 2012
/mls