ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 11-50566
DATE: 20120209
BETWEEN:
AXENTRA CORPORATION Plaintiff/ Defendant by Counterclaim – and – INXTRON, INC., INXTRON, INC. c.o.b. as AKITIO,WORKS SYSTEMS, INC., and TOMMY CHEN Defendants
Todd D Storms, for the Plaintiff/ Defendants by Counterclaim
Jonathan Roch, for the Defendants/Plaintiffs by Counterclaim
and- INXTRON, INC., INXTRON, INC. c.o.b. as AKITlTIO, and TOMMY CHEN Plaintiffs by Counterclaim
and- ERIC LEFEBVRE and MARC-ANTOINE BENGLLA
Defendants by Counterclaim
HEARD: February 9, 2012
REASONS – SECURITY FOR COSTS
T.D. RAY, J.
[ 1 ] The defendants by counterclaim, (Axentra Corporation, Eric Lefebvre and Marc-Antoine Benglia), “Axentra”, move for an order for security for costs as against the plaintiffs by counterclaim, (Inxtron, Inc, Inxtron, Inc cob Akatitio, and Tommy Chen) “Inxtron”; and “Inxtron” cross motions for an order for security for costs as against “Axentra”. Each party is wearing a defendant’s hat (defendant or defendant by counterclaim) as it pursues an order for costs against the other party. It should be noted however that Inxtron’s counterclaim is only on behalf of the corporate party, and adds two individuals as defendants by counterclaim.
[ 2 ] A motion for an order for security for costs is governed by R. 56 of the Rules of Civil Procedure. The (relevant) provisions permit an order to be made in favour of a defendant where:
-the plaintiff is ordinarily resident outside Ontario,
-the plaintiff is a nominal plaintiff or corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant or respondent, or
-there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.
[ 3 ] If a party can bring itself within the rule, then the judge hearing the motion must decide whether to exercise his or her discretion, in the interests of justice . It is a relevant factor to the exercise of discretion if a counterclaim advances or reiterates the same factual matrices contained in the party’s statement of defence. This is so because it would be contrary to the interests of justice for a defendant to be required to post security as a condition of defending the action, merely because the matters relied upon by way of defence were the basis of the counterclaim.
Motion for Security for Costs - Axentra
[ 4 ] Axentra commenced its action February 4, 2011 for damages in the amount 21.5 million dollars, an accounting and injunctive relief for various breaches arising out of a February 24, 2009 Letter of Intent. Inxtron responded March 9, 2009 with a statement of defence and counterclaim – including two named individuals with Axentra- claiming various relief including damages of almost 200 million dollars, also arising out of the February 24, 2009 agreement. Just before the hearing of this motion, Inxtron amended the relief claimed in its counterclaim and reduced the amount claimed to 3.5 million dollars. The two individuals added as defendants by counterclaim are principals of Axentra.
[ 5 ] Inxtron is a Taiwanese corporation, Tommy Chen resides in Taiwan, Neither Inxtron nor Tommy Chen has any assets in Canada. They do not carry on business in Ontario. I am satisfied that Axentra has met the onus of showing that the provisions of R. 56 have prima facie been met.
[ 6 ] Inxtron takes the position that notwithstanding that there are grounds to make the order, that because Axentra owes it $500,000 and because the counterclaim closely resembles its defence that I should not exercise my discretion to make an order. Inxtron in its counterclaim has repeated much of the same positions as contained in its statement of defence, however the scope of the counterclaim has been expanded by claiming damages for unjust enrichment. It also added two individuals. The claim by Inxtron which was almost ten times that of Axentra is now a fraction of the claim by Axentra. While Inxtron’s counterclaim is not a mere recitation of its defence, ( 1482874 Ontario Inc. v. Hotel Connections Ltd. (2007), 161 A.C.W.S. (3d) 387(Ont. Master) , the factual matrix is the same, even though unjust enrichment is claimed. As for the contention that Axentra owes it $500,000, that is an allegation in its pleading and is disputed by Axentra in its defence to the counterclaim. Were the debt as clear as Inxtron suggests, then it would undoubtedly succeed on a motion for partial summary judgement. The rules concerning summary judgement have been significantly relaxed and now permit a party to have easier access where it claims, as here, that a debt has been established. It is not for me on this motion to find that the claim for $500,000 has been made out.
[ 7 ] The purpose of a security for costs order is to secure the anticipated costs of defending the action or counterclaim – not to assist in the prosecution of its claim. I am not satisfied that Axentra has established that it would be just to make an order for security for costs since Inxtron’s counterclaim is founded on the same factual matrix as its defence. I am not persuaded that the addition of two of Axentra’s principals as defendants by counterclaim is sufficient for me to make an order in their favour. Their interests are the interests of Axentra; they will be involved as witnesses for Axentra, and are represented by the same counsel.
[ 8 ] Axentra’s motion for security for costs is dismissed.
Cross Motion for Security for Costs- Inxtron
[ 9 ] Inxtron seeks an order for security for costs as against Axentra. It contends that there is good reason to believe that Axentra has insufficient assets in Ontario to pay the costs of Inxtron, if ordered to do so; and that Axentra has failed to demonstrate that it has sufficient assets in Ontario or that it is impecunious and an order for security as against it would be unjust. (R 56.01(d)). Inxtron acknowledges that Axentra has not taken the position that it is impecunious, and its evidence of having sufficient assets is not adequate.
[ 10 ] In order to find that Inxtron has brought itself within the provisions of r. 56, I must find that Axentra has insufficient assets in Ontario to pay the costs of Inxtron if so ordered.
[ 11 ] Axentra’s financial statements to the end of September, 2011 show that it has over $900,000 in net assets. Its executive vice-president asserts in his affidavit of November 23, 2011 that Axentra has been incorporated since 2003, has been in continuous operation since 2003 and currently has 18 employees, has over 750,000 users of its software worldwide, registers approximately 1,000 users every day, and converts approximately five percent of its users to a yearly premium revenue, has large active shareholders and has raised over $10 million in capital over the last eight years. Further Axentra receives approximately $1 million in yearly Income from research and development tax credits, and federal research and development programs, Mr Lefebvre was cross-examined on his affidavit. It was established that in fact Axentra is far from profitable. It is in a deficit position and its revenues have declined. It is not clear that Axentra has sufficient assets to meet any costs orders.
[ 12 ] In considering whether I should exercise my discretion, it is highly relevant that the Axentra’s claim and its defence to Inxtron’s counterclaim are based on the same factual matrix evolving from the Letter of Intent. To make an order for security for costs in favour of Inxtron would essentially be to fund the counterclaim of a party with no assets in Ontario and who is not resident in Ontario. I am not prepared under these circumstances to exercise my discretion in favour of an order. It would not be in the interests of justice to do so.
[ 13 ] Inxtron’s cross motion for security for costs is dismissed.
Costs
[ 14 ] Both parties filed costs outlines. However neither party addressed the factors that are listed in the form. Neither party having been successful, there is no order as to costs.
Honourable Justice Timothy Ray
Released: February 9, 2012
COURT FILE NO.: 11-50566
DATE: 20120209
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: AXENTRA CORPORATION Plaintiff/ Defendant by Counterclaim – and – INXTRON, INC., INXTRON, INC. c.o.b. as AKITIO,WORKS SYSTEMS, INC., and TOMMY CHEN Defendants - and- INXTRON, INC., INXTRON, INC. c.o.b. as AKITlTIO, and TOMMY CHEJN Plaintiffs by Counterclaim - and- ERIC LEFEBVRE and MARC-ANTOINE BENGLLA Defendants by Counterclaim REASONS – SECURITY FOR COSTS Honourable Justice Timothy Ray
Released: February 9, 2012