SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-09-392083
MOTIONS HEARD: JANUARY 10, 2013

RE: Sayed Farid Sadat and Food Source Ltd. v. Westmore Plaza Inc., Zev Schmerler, Highway 27 & Albion Flea Market Inc., Highway 27 & Albion Flea Market Corp. and Allen Koffman

BEFORE: MASTER R.A. MUIR

COUNSEL:
Aaron A. Blumenfeld for the defendants Westmore Plaza Inc. and Zev Schmerler

Glenn E. Cohen for the defendants Highway 27 & Albion Flea Market Inc., Highway 27 & Albion Flea Market Corp. and Allen Koffman

Julian Heller and Zabi Yaqeen for the plaintiffs

REASONS FOR DECISION

[1] The defendants bring motions for an order requiring the plaintiffs to post security for costs pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). The defendants take the position that the plaintiff Sayed Farid Sadat (“Sadat”) is a nominal plaintiff and there is good reason to believe that he has insufficient assets in Ontario to pay any costs award that may ultimately be made in favour of the defendants. The defendants take a similar position with respect to the plaintiff Food Source Ltd. (“FSL”). They argue that FSL is a corporation with insufficient assets in Ontario to pay costs.

[2] The plaintiffs are opposed to the relief sought by the defendants.

BACKGROUND

[3] For many years Sadat and FSL carried on business as fruit and vegetable vendors at a flea market operation located at 28 Westmore Drive in the City of Toronto (the “Property”). Sadat is the sole officer, director and shareholder of FSL.

[4] The Property is owned by the defendant Westmore Plaza Inc. (“Westmore”). The defendant Zev Schmerler (“Schmerler”) is an officer of Westmore.[^1] It appears that at all times relevant to the issues in this action, Westmore leased space on the Property to the defendants Highway 27 & Albion Flea Market Inc. and Highway 27 & Albion Flea Market Corp. (“Dr. Flea’s”). The defendant Allen Koffman (“Koffman”) is the principal of Dr. Flea’s.

[5] Dr. Flea’s, in turn, leased a significant amount of space on the Property to Sadat and FSL from which Sadat and FSL carried on their fruit and vegetable business. The flea market apparently consists of indoor and outdoor vending areas containing numerous stalls from which various retail businesses are conducted. Up until 2009, all of the leases entered into between Sadat and FSL and Dr. Flea’s were in the nature of month to month written agreements with respect to outdoor space.

[6] In the spring of 2009, Westmore decided to build a new structure in a parking lot located on the Property. The structure came to be known as the “Greenhouse”. The Greenhouse would accommodate a food vendor on a year round basis. During this time period, Westmore began negotiating the terms of a lease of the Greenhouse with Dr. Flea’s. It appears that at the same time, Dr. Flea’s was in discussions with Sadat and FSL to sub-lease the Greenhouse space for the operation of their fruit and vegetable business. At least some of the proposed terms of a sub-lease of the Greenhouse were agreed to in April 2009. On April 26, 2009, a handwritten document was signed by Sadat, both in his personal capacity and on behalf of FSL, and by Koffman on behalf of Dr. Flea’s (the “April 26 Agreement”). The April 26 Agreement set out a number of financial terms that would be applicable to the plaintiffs’ occupancy of the Greenhouse once it was constructed and once Dr. Flea’s had secured a lease of the space from Westmore. It appears that at least one written draft sub-lease agreement was prepared subsequent to April 2009, but that document was not entirely acceptable to Sadat and FSL and was never signed.

[7] In the summer of 2009 an argument took place between Schmerler and Sadat. Following that argument, Westmore advised Dr. Flea’s that Sadat and FSL would not be acceptable vendors to sub-lease the Greenhouse space (although Sadat and FSL were not stopped from carrying on their existing outdoor market operations). Westmore took this position with respect to the Greenhouse pursuant to certain terms contained in its outdoor lease agreement with Dr. Flea’s, which granted Westmore the sole discretion to determine who may be a vendor on the Property.

[8] As a result of this dispute, Sadat and FSL were excluded from any opportunity to carry on their business out of the Greenhouse area of the Property. The plaintiffs then commenced this action on November 26, 2009 (while they were still operating their outdoor market). The statement of claim asserts several causes of action including breach of contract, negligent misrepresentation, damages for inducing breach of contract and interference with economic interests. All of these claims relate to the plaintiffs’ exclusion from the Greenhouse. The plaintiffs allege that as a result of this exclusion they have lost the business they worked to create and develop over the previous 12 years.

[9] On November 30, 2009, Westmore advised Dr. Flea’s that all outdoor vendors, including the plaintiffs, had to cease operations as of December 31, 2009. It appears that due to a City of Toronto committee of adjustment decision, the flea market was not permitted to operate outdoors between the months of January and March. Dr. Flea’s then offered Sadat and FSL the opportunity to lease four indoor stalls from January to March 2010. It appears, however, that this arrangement was not acceptable to Sadat and FSL and they left the Property on or about December 27, 2009. The plaintiffs take issue with this characterization and allege that they were in fact evicted from the Property, although this allegation only appears in their reply and does not form part of their statement of claim.

PRELIMINARY ISSUES

[10] A number of preliminary issues were raised by the parties at the beginning of argument.

[11] First, the plaintiffs brought a cross-motion for an order striking out the affidavits of Ewa Krajewska affirmed August 9, 2012 and October 12, 2012. Ewa Krajewska is a lawyer in the firm representing the Westmore Defendants. The plaintiffs objected to her evidence on the basis that she has no personal knowledge of the events she deposes to in her affidavits. The plaintiffs argued that much of her evidence is contentious and in dispute. Finally, the plaintiffs argued that Mr. Blumenfeld should not appear as counsel on these motions because certain evidence given by Ms. Krajewska is on information and belief from Mr. Blumenfeld.

[12] It was agreed by the parties that to the extent that Ms. Krajewska’s evidence is on information and belief from Mr. Blumenfeld, it would not be relied upon by the defendants and it would not be considered by the court. It was agreed, however, that documents attached to Ms. Krajewska’s affidavit could be referred to by the parties and considered by the court. On that basis, the plaintiffs did not object to Mr. Blumenfeld appearing as counsel on these motions.

[13] I see nothing improper with respect to the balance of Ms. Krajewska’s evidence. Rule 39.01(4) allows hearsay evidence on motions so long as the source of the information and the fact of the deponent’s belief are specified in the affidavit. Ms. Krajewska has done this. Of course, it was open to the plaintiffs to argue that the court should take into account the hearsay nature of her evidence when assigning weight to the evidence of the Westmore Defendants.

[14] Second, the defendants objected to the court admitting into evidence the plaintiffs’ First Supplementary Motion Record, the plaintiffs’ Second Supplementary Motion Record and the plaintiffs’ so-called Exhibit Brief. The First Supplementary Motion Record appears to have been served on November 5, 2012 just prior to the plaintiffs conducting their cross-examinations. The Second Supplementary Motion Record was served after the plaintiffs conducted cross-examinations, in possible contravention of Rule 39.02.

[15] I see nothing improper about the plaintiffs’ First Supplementary Motion Record. It was served prior to cross-examinations. The Second Supplementary Motion Record was improperly served. However, it simply contained an affidavit from the plaintiffs’ equipment appraiser clarifying an issue about whether the appraisal report he had prepared could be used in connection with legal proceedings and other minor clarifications. Nothing turns on this evidence, however, given my conclusions regarding the appraisal evidence, as set out below.

[16] The defendants also took issue with one of the documents included in the plaintiffs’ Exhibit Brief. It turns out that the document in question was not an exhibit from the cross-examinations at all. The document in the Exhibit Brief filed with the court was a copy of the dockets kept by the plaintiffs’ lawyers. The version of the Exhibit Brief served on the defendants did not contain a copy of this document. It was not provided to the defendants for reasons of lawyer/client privilege and confidentiality. The defendants only learned what this “exhibit” was at the outset of the argument of these motions.

[17] The purpose of including this document was to demonstrate the extent of the prejudice to the plaintiffs in connection with the defendants’ alleged delay in bringing these motions. It sets out the total legal expenses incurred by the plaintiffs in pursuing this action. In my view, it was improper to include this document in the Exhibit Brief. It was not a document marked as an exhibit at the cross-examinations. It was not marked as an exhibit to an affidavit. It was not provided to the defendants in advance of the hearing. It was only delivered after the plaintiffs had conducted their cross-examinations. As a result, I ruled that the document could not be entered into evidence and I have placed no reliance on its contents.[^2]

[18] Finally, the Westmore Defendants requested that I make an order that the plaintiffs not proceed with their motion for leave to appeal a costs order of Justice Whitaker made April 16, 2012. Justice Whitaker’s costs order arises from the Westmore Defendants’ abandoned motion for summary judgment. The plaintiffs had requested costs in the approximate amount of $115,000.00. Justice Whitaker ordered that the Westmore Defendants pay the plaintiffs $30,000.00 in costs. A motion for leave to appeal Justice Whitaker’s costs order was scheduled to be heard shortly after these motions were argued and the Westmore Defendants did not want to incur any further costs until their security for costs motion was decided. I declined to make such an order. I was not prepared to make any order that would affect a matter that was pending before the Divisional Court. As an alternative, I suggested that the Westmore Defendants address the issue directly with the Divisional Court.

ANALYSIS

SECURITY FOR COSTS

A. APPLICABLE LAW

[19] The defendants seek orders requiring the plaintiffs to post security for costs pursuant to Rule 56.01(1)(d), which provides 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, . . .

(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.

[20] The analysis the court is to engage in when determining a motion for security for costs is summarized in Websports Technologies Inc. v. Cryptologic Inc., [2003] O.J. No. 5455 (S.C.J. – Master). At paragraphs 6 and 7 of that decision Master Haberman makes the following observations which I find to be applicable to the motions before me:

6 The law in this area is fairly clear. Both counsel agree that the court is required to follow a 2-step process when dealing with a Rule 56.01 motion. The initial onus is on the moving party, to demonstrate that the responding party appears to fit within one of the subrules of 56.01(1) (see Hallum v. Canadian Memorial Chiropractic College (1978), 1989 4354 (ON SC), 70 O.R. (2d) 119). The moving party is not required to go so far as to prove that the situation, in fact, meets the criteria of the subsection. They need only demonstrate that there is good reason to believe that that is the case (see Warren Industrial Feldspar C. Ltd. V. Union Carbide Canada Ltd. et al., 1986 2683 (ON SC), [1986] O.J. No. 2364).

7 If that is accomplished, the onus shifts to the responding party. They can either demonstrate that they are impecunious and then ask the court to make such order as is just in the circumstances or prove that they do have sufficient assets to respond to a cost order. It is agreed that that onus only arises after the moving party has satisfied the first part of the test.

[21] The applicable principles are set out in full detail in Master Glustein’s decision in Coastline Corp. v. Canaccord Capital Corp., 2009 21758 (ON SC), [2009] O.J. No. 1790 (S.C.J. – Master). At paragraph 7 of that decision Master Glustein states as follows:

7 I apply the following legal principles:

(i) The initial onus is on the defendant to satisfy the court that it “appears” there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56.01 (Hallum v. Canadian Memorial Chiropractic College, (1989), 1989 4354 (ON SC), 70 O.R. (2d) 119 (H.C.J.) at 123);

(ii) Once the first part of the test is satisfied, “the onus is on the plaintiff to establish that an order for security would be unjust” (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. – Mast) (“Uribe”) at para. 4);

(iii) The second stage of the test “is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors”. The court exercises a broad discretion in making an order that is just (Chachula v. Baillie 2004 27934 (ON SC), (2004), 69 O.R. (3d) 175 (S.C.J.) at para. 12; Uribe, at para. 4);

(iv) The plaintiff can rebut the onus by either demonstrating that:

(a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,

(b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not “plainly devoid of merit”, or

(c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success;

(See Willets v. Colalillo, [2007] O.J. No. 4623 (S.C.J. – Mast.) at paras. 46, 47, and 55; Uribe, at para. 5; Zeitoun v. Economical Insurance Group 2008 20996 (ON SCDC), (2008), 91 O.R. (3d) 131 (Div. Ct.) at para. 50; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J. – Mast.) (“Bruno”) at para. 35);

(v) Merits have a role in any application under Rule 56.01, but in a continuum with Rule 56.01(1)(a) at the low end (Padnos v. Luminart Inc., 1996 11781 (ON SC), [1996] O.J. No. 4549 (Gen. Div.) (“Padnos”), at para. 4; Bruno, at para. 36);

(vi) The court on a security for costs motion is not required to embark on an analysis such as in a motion for summary judgment. The analysis is primarily on the pleadings with recourse to evidence filed on the motion, and in appropriate cases, to selective references to excerpts of the examination for discovery where it is available (Padnos, at para. 7; Bruno, at para. 37);

(vii) “If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of the merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious” (Wall v. Horn Abbott Ltd., 1999 7240 (NS CA), [1999] N.S.J. No. 124 (C.A.) at para. 83);

(viii) The evidentiary threshold for impecuniosity is high, and “bald statements unsupported by detail” are not sufficient. The threshold can only be reached by “tendering complete and accurate disclosure of the plaintiff’s income, assets, expenses, liabilities and borrowing ability, with full supporting documentation for each category where available or an explanation where not available” (Uribe, at para. 12; Shuter v. Toronto Dominion Bank, 2007 37475 (ON SC), [2007] O.J. No. 3435 (S.C.J. – Mast.) (“Shuter”) at para. 76);

(ix) To meet the onus to establish impecuniosity, “at the very least, this would require an individual plaintiff to submit his most recent tax return, complete banking records and records attesting to income and expenses” (Shuter, at para. 76);

(x) A corporate plaintiff who claims impecuniosity must demonstrate that it cannot raise security for costs from its shareholders and associates, i.e. it must demonstrate that its principals do not have sufficient assets (Smith Bus Lines Ltd. v. Bank of Montreal, (1987), 1987 4190 (ON SC), 61 O.R. (2d) 688 (H.C.J.) at 705). Evidence as to the “personal means” of the principals of the corporation is required to meet this onus (Treasure Traders International Co. v. Canadian Diamond Traders Inc., [2006] O.J. No. 1866 (S.C.J.) (“Treasure Traders”), at paras. 8-11). A corporate plaintiff must provide “substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security”. “A bare assertion that no funds are available” will not suffice. (1493677 Ontario Ltd. v. Crain, [2008] O.J. No. 3236 (S.C.J. – Mast.) at para. 19);

(xi) Consequently, full financial disclosure requires the plaintiff to establish the amount and source of all income, a description of all assets including values, a list of all liabilities and other significant expenses, an indication of the extent of the ability of the plaintiffs to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose (Morton v. Canada 2005 6052 (ON SC), (2005), 75 O.R. (3d) 63 (S.C.J.) at para. 32);

(xii) Because the plaintiff has the onus to establish impecuniosity, a defendant “can choose not to cross-examine if the plaintiff fails to lead sufficient evidence”. The decision not to cross-examine does not convert insufficient evidence into sufficient evidence (Bruno, at pars. 27-28; Shuter, at paras. 59 and 71); and

(xiii) When an action is in its early stages, an installment (also known as “pay-as-you-go”) order for security for costs is usually the most appropriate (Bruno, at para. 65; Hawaiian Airlines, Inc. v. Chartermasters Inc., et al., (1985), 1985 2155 (ON SC), 50 O.R. (2d) 575 (S.C.O. – Mast.).

[22] These are the factors and principles I have applied in determining the issues on these motions. Overall, I am guided by the central principle that an order for security for costs is discretionary. The role of the court on motions such as these is to make the order that is just in all of the circumstances. See Hallum at paragraph 10.

ORDER

[52] I therefore order as follows:

(a) FSL shall post security for costs in the amount of $40,000.00 for each set of defendants 30 days after setting this action down for trial; a further $40,000.00 for each set of defendants 30 days after the pre-trial conference has taken place; and a further $40,000.00 for each set of defendants 30 days before the scheduled trial date;

(b) these amounts shall be payable in cash or by way of an irrevocable stand-by letter of credit from a Canadian chartered bank, in a form approved by the defendants or the court;

(c) the relief sought by the defendants against Sadat is dismissed; and,

(d) if the parties are unable to agree on the issue of the costs of these motions, they may make brief submissions in writing with the defendants’ submissions to be received by February 11, 2013 and the plaintiffs’ submissions to be received by February 20, 2013.

Master R.A. Muir

DATE: January 24, 2013

[^1]: I will refer to the defendants Westmore and Schmerler as the Westmore Defendants.
[^2]: The document would not have assisted the plaintiffs in any event in view of my findings on the delay issue set out below.
[^3]: FSL does not take the position that it is impecunious.
[^4]: As noted above, the Westmore Defendants eventually abandoned their motion for summary judgment.