SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 12-37578

DATE: 2013-04-12

RE: Old Willoughby Realty Limited, Plaintiff

AND:

Tuckernuck Mortgage Administration Inc.,
Tuckernuck Mortgage Administration Inc. In Trust,
and Jeffrey Kerbel Defendants

BEFORE: The Honourable Mr. Justice Robert Nightingale

COUNSEL: W. Deley, Counsel, for the Plaintiff

J. Lo, Counsel, for the Defendants

HEARD: April 3, 2013

ENDORSEMENT

[1] The Defendants have brought a motion requiring the Plaintiff to provide security for costs.

[2] The grounds quoted in their notice of motion were Rule 56.01 (1)(c) which allows for an order when a Defendant has an order against the Plaintiff for costs in the same or another proceeding that remain unpaid in whole or in part. Their factum appeared to be restricted to those grounds but during submissions, the Defendants attempted to expand their grounds under sub rules (d) and (e) of Rule 56.01.

[3] Rule 56.01(d) allows for an order for security of costs when the Plaintiff is a corporation and there is good reason to believe that the Plaintiff has insufficient assets in Ontario to pay the costs to the Defendant.

[4] Rule 56.01(e) allows for an order for security for costs where there is good reason to believe that the action is frivolous and vexatious and that the Plaintiff has insufficient assets in Ontario to pay the costs of the Defendant.

Background Facts

[5] This action was commenced by the Plaintiff on October 15, 2012 claiming damages of approximately $1 million, an order declaring that the Plaintiff is a complainant under the Business Corporations Act and for remedies under section 248 of that Act.

[6] The allegation is that the Defendants provided mortgage funds to the Plaintiff in the amount of $2 million with security on the Plaintiff’s property as well as other properties associated with the Plaintiff. The Plaintiff states that it suffered damages because of the Defendants improvident sale of the Plaintiff’s mortgaged lands in a purported exercise of a power of sale contained in the mortgage.

[7] The Defendant was a second mortgagee, took an assignment of the first mortgages on title and then took steps to enforce the mortgage when the Plaintiff defaulted under it. A portion of the mortgaged property was sold initially under a judicially supervised sale and a second portion of the property was sold under power of sale proceedings.

[8] The Defendants’ affidavit confirmed that after the sale of these two properties, the Defendants’ Deponent believed that the Plaintiff had no other assets.

[9] The Defendants’ representative further deposed a previous court action File # 08 – 01535, commenced by the Plaintiff against the same Defendants claimed damages, inter alia, by reason of participating in a court ordered sale of the property that was not fair, open or proper. That action was dismissed against the Defendants by way of summary judgment and costs were awarded payable by the Plaintiff to the Defendants in the amount of $25,000 by Justice Flynn on November 26, 2009.

[10] The Plaintiff appealed to the Court of Appeal which dismissed the Plaintiff’s appeal on June 1, 2010 awarding costs to the Defendants in the amount of $3000.

[11] The Plaintiff admits in this action that it owes the Defendants $38,484.77 with respect to the costs of that action.

[12] The Defendants’ affidavit further confirmed that as a result of a recent execution search on the Plaintiff in Hamilton and Welland, writs of execution against the Plaintiff were outstanding in favour of its judgment creditors totalling over $30,000 from December 6, 2010 to July 30, 2012 which were not disputed by the Plaintiff.

Analysis

[13] The Plaintiff in this action attempts to suggest that because the Defendants in this action owe significant costs to other related companies of its shareholder, Mr. Zawadski, in a previous 2007 action, it is entitled to offset those costs owed against the costs order payable by the Plaintiff to the Defendant.

[14] In my view, this attempt by the Plaintiff to lump together these related companies of Frenchman’s Creek Estates Inc., 550075 Ontario Inc. and Old Willoughby Realty Limited is not appropriate as they are all separate companies albeit with a common shareholder ownership.

[15] Accordingly, the Plaintiff’s suggestion that the “Tuckernuck Group” in fact owes the “Zawadski Group” approximately $4000 because of the offsetting costs awards in the other actions is irrelevant. Rather, after giving credit for some costs paid to the Plaintiff by the Defendants and offsetting the amount owed by the Defendants to the Plaintiffs, the Defendants affidavit suggests that the amount currently owed by the Plaintiff to them in the other actions by court order is approximately $24,375 for costs which I accept.

[16] The Defendants have accordingly provided the required evidence for the basis of their entitlement to an order for security for costs under Rule 56.01(1)(c) so as to require an inquiry into the second aspect of the relevant factors as to whether it would be just to make the order.

[17] The Defendants’ affidavit material confirmed that two parcels of the Plaintiff’s mortgaged lands had been sold under judicially supervised or power sale proceedings under the mortgage and that the Deponent believed that the Plaintiff has no other assets. The defendants suggested that this satisfied the provisions of Rule 56.01(1)(d). They also submitted that the Plaintiff having approximately $30,000 worth of unpaid judgment creditors as well as the other unpaid costs owing to the Defendants confirmed that.

[18] The Plaintiff did not provide any significant evidence in its affidavit material dealing with the issue as to what property if any it still owned. This is understandable as the Defendant’s motion and factum appeared to be restricted to a claim for security for costs only based on Rule 56.01(1)(c) i.e. there being outstanding costs awards in other proceedings and not under subparagraphs (d) or (e).

[19] During submissions, the Plaintiff referred to its affidavit material filed in defence of a motion for security for costs in Court File# 08 –7158 suggesting that the Plaintiff Old Willoughby still owned property that was being sold at a price of approximately $330,000 under the Defendants’ mortgage. Unfortunately, there was no affidavit evidence to confirm that nor was there evidence to suggest that the value of the land would exceed the amount outstanding on the mortgage and be available to pay something towards the Defendants costs.

[20] I am not satisfied that the Defendants have established what is required of them by way of evidence to establish their initial entitlement to costs under Rule 56.01(1)(d). In any event, it would not be fair for them to proceed on that basis without any prior notice to the Plaintiff.

Merits of Plaintiff’s Action

[21] I note as well that the Plaintiff in its affidavit material and factum did not suggest that it was impecunious. Plaintiff’s Counsel during submissions conceded that the Plaintiff was not impecunious with regards to the issue of an order for security for costs.

[22] As indicated in my reasons in a similar proceeding for security for costs in Court File# 08 – 7158, the court is required to make the appropriate inquiry regarding all of the relevant factors to determine whether it would be unjust to require to Plaintiff to post security for costs.

[23] As the Plaintiff has conceded that it is not impecunious, the Plaintiff is required to establish that it has a good chance of success in the action. Zeitoun v. The Economical Insurance Group 2008 20996(Div. Ct).

[24] The Plaintiff’s Statement of Claim claims damages of approximately $1 million including a declaration that the Defendant corporations have treated the Plaintiff in an oppressive or unfairly prejudicial manner within the meaning of section 248 of the Business Corporations Act.

[25] The Statement of Claim alleges that the Defendants sold the Plaintiff’s lands at a grossly deliberate undervalue improvidently depriving the Plaintiff of a sale of the lands that would have generated almost $1 million.

[26] The claim goes on to make reference to an Option to Purchase agreement by a separate company known as MSW Dallas Limited which the Plaintiff alleges was responsible to pay for the prior first mortgages against the property.

[27] The Plaintiff does not dispute that in another previous action commenced by it against the Defendants Court File 08 – 01535 in March 2008, they claimed $25 million in damages against the Defendants for breaching their fiduciary obligations in participating in a court approved sale of some of the plaintiffs mortgaged property.

[28] The only other evidence led by the Plaintiff in the responding affidavit material in this motion is that there are serious deficiencies in the accounting provided by the Defendants which was required by the Order of the Honourable Justice Carpenter -Gunn of July 31, 2008. The allegation is that there are deficiencies in the accounting of at least four separate amounts totalling approximately $150,000 between 2001 and 2004.

[29] The Plaintiff submitted that because of these amounts being owing by the Defendants, the Plaintiff did not believe any amounts are owing by the Plaintiff to the Defendants.

[30] There are two problems with that position. Firstly, the Statement of Claim does not claim any set off for these amounts or even an accounting with respect to the monies owing under the Defendants’ mortgage regarding these amounts.

[31] Secondly, although the Plaintiff refers to another related court action still ongoing being Court File # 07 – 29117, and suggests in this motion that there are serious deficiencies in the accounting required by the Defendants in accordance with the previous order of the Honourable Justice Carpenter -Gunn pronounced in July 31, 2008, the Plaintiff failed to mention that it had in fact made a previous attempt to allege that the defendants failed to comply with that court order for an accounting which proceeded before Justice Lococo of this court in that action. Justice Lococo made it clear in his reasons and order of January 14, 2010 that the material before him at that time suggested that an accounting had in fact been provided by the Defendants showing an amount outstanding of approximately $6.8 million. Justice Lococo went on to consider the allegations of Mr Zawadski and his two other companies regarding the Tuckernuck Mortgages and found that there was no basis for a finding that there had not been a proper accounting by the Defendants nor any basis for ordering a further accounting at that time.

[32] The Plaintiff essentially put forward no evidence on this motion in support of the bare allegations contained in its Statement of Claim to confirm that it had a good chance of success on the merits of this claim if it proceeded to trial. It made very serious allegations against the Defendants in the Statement of Claim which included that they sold the Plaintiff’s lands under power of sale at a gross and deliberate undervalue improvidently and had taken active and deliberate improper steps to render itself judgment proof. No evidence was provided to support that allegation.

[33] The Statement of Claim alleged the Defendants had demonstrated a long-standing malicious intent to prejudice the Plaintiffs with respect to their landholdings and to deprive them of their equity of redemption with recourse to fraud, false and misleading affidavits filed with the Court and refused to obey Court Orders. No evidence was led with respect to those allegations on this motion.

[34] It made serious allegations of grossly improvident sales of the property at a gross undervalue but led no evidence of that on this motion. It alleged that the Defendants never provided the accounting required by Justice Carpenter- Gunn whereas in fact that matter had already been addressed as indicated above before Justice Lococo.

[35] It alleged that the defendants attempted fraud on the Court and were at all times motivated by malice and an intention to harm the Plaintiff unlawfully for the benefit of persons against whom the Plaintiff has no cause of action but again provided no evidence of that on this motion. Lastly, there was no evidence provided establishing the claims of the Plaintiff under the Business Corporation Act.

Conclusion

[36] Given that the Plaintiff is not impecunious and accordingly can proceed to trial with its action if it so chooses, the lack of evidence that the Plaintiff’s action has a good chance of success at trial and the failure of the Plaintiff to pay an outstanding costs award to the Defendants in another proceeding of approximately $24,375, I find it would be just to make an order for the Plaintiff to provide security for costs subject to the terms noted below.

[37] The Defendants did not file as part of their affidavit material any evidence as to what the appropriate costs that would be incurred for those examinations for discovery and the remainder of the action to trial. They did file a draft bill of costs suggesting the requirement for their lawyer Mr. Klaiman to spend approximately 5 days of time to review all of the voluminous documents in the parties affidavit of documents, prepare for the examinations for discovery and attendance on the examinations for discovery. The suggestion was he would spend approximately 40 hours at a partial indemnity rate of $375 per hour for a total of $15,000 for the examinations for discovery. It also suggests the work of a law clerk for those examinations of approximately $1700 and disbursements for the official examiner’s fees and transcripts of approximately $2500.

[38] The Defendants did not show up for their scheduled examination for discovery of the Plaintiff in early February 2013 despite being served with a notice of examination and being provided with a discovery plan. The reason given was that their lawyer was not prepared to produce his client for examinations for discovery until the security for costs motion was heard and because the examination was scheduled without consultation with him or his client’s availability.

[39] Accordingly, as I ordered in my other endorsement in Court File# 08 – 7158, because of the Defendant’s failure to attend an examinations for discovery, this is an appropriate case for the Plaintiff at this time to provide security for costs of the proceedings from now up to the conclusion of the examinations for discovery, the completion of the undertakings and any motion to compel answers to undertakings.

[40] In the circumstances, the appropriate amount of costs of the Defendants for which the Plaintiff should provide security is the same amount as I ordered in the other action of $25,000 inclusive of fees disbursements and HST.

[41] Those costs or security for those costs of $25,000 are to be paid by the Plaintiff within 30 days from the date of this Order failing which this action is stayed. After completion of the examinations for discovery, the Defendants, if they wish, can renew their motion for further security for costs incurred between that date up to and including the trial.

[42] The Defendants would normally be entitled to their costs of this motion payable by the plaintiff. If the parties are unable to agree on the issue of costs they will have 10 days from the date of this Order to provide written submissions not exceeding four pages in length including their bill of costs.

The Honourable Mr. Justice R.J. Nightingale

Date: April 12, 2013