2013 ONSC 4971

EBA Advertising Inc. v. Amir Kahn, carrying on business as Taxi Taxi Co., et al.

Court File No.: CV-08-357893

Motion Heard by Master Abrams: June 14/13

In attendance: M. Zemel, for Saleem Irshad and Diamond Taxicab Dispatch Services Ltd.

D. Rose, for the plaintiff

G.E. Shortliffe, for Mohammed Arshad and A-One Links Corporation

By the Court:

The defendants, Saleem Irshad and Diamond Taxicab Dispatch Services Ltd. (the “Diamond defendants”), move to have the plaintiff post security for costs (pursuant to 56.01(1)(d)). By the plaintiff’s own admission, “there is good reason to believe” that EBA Advertising Inc. has “insufficient assets in Ontario to pay…costs”. The plaintiff states that it has no bank accounts and no cash or other assets.

The plaintiff makes the claim that it is impecunious. I agree with counsel for the Diamond defendants that the plaintiff has failed to meet its burden of establishing that it is indeed impecunious or that an Order that it post security would not be just in all of the circumstances.

The evidentiary threshold for establishing impecuniosity is high. The threshold can be met by fulsome disclosure of the plaintiff’s income, assets, expenses, liabilities and borrowing ability—substantiated by supporting documentation or an explanation when documentation is not available. Documents such as income tax returns, banking records and financial statements are of the nature of the documents that might be produced to establish impecuniosity.

Further, a corporate plaintiff claiming 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 (see: Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 4190 (ON SC), 61 O.R. (2d) 688 (Ont. H.C.)). To quote Master Glustein in Coastline Corp. v. Canaccord Capital Corp., 2009 CarswellOnt 2312 (S.C.J.), at para. 7(x): “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”.

The plaintiff has adduced no evidence nor provided any particulars as to the current financial viability of the plaintiff other than by way of bald, unsubstantiated statements by the company’s principals that the company “has no bank accounts, no cash and no assets” and “has not filed tax returns since 2007 as there has been no income”. Counsel for the plaintiff says that a negative cannot be proven. I agree; but, documents can be filed that tend to substantiate the negative (i.e. tend to show that it is more likely than not). Correspondence from CRA, the plaintiff’s accountant, and the financial institution at which the plaintiff did its banking, by way of example, could have been produced but were not. Statements from the bank account that was allegedly closed could have been produced showing the balance in the account as at the time the account was closed (and any disposition of funds); and, the final tax return filed by the plaintiff also could have been produced.

What funds did the plaintiff have at the time it ceased doing business? What earnings? What liabilities? Where did those funds go? When did it cease doing business having regard to the fact that it is alleged to having “…endeavoured to continue to move the business forward” (see: para. 32 of Emanuel Daniel’s May 20/13 affidavit)? How has the plaintiff been able to make those efforts if it has no source of funds, as it alleges? What happened to the plaintiff’s inventory (i.e. the signs that it alleges were constructed but not installed)? Were they sold and, if so, at what price? All of these questions remain unanswered.

As for the ability of the plaintiff’s shareholders and those with an interest in the plaintiff to post security, I am left with more questions than answers. While the shareholders and directors of the plaintiff, the Daniel brothers, say in mirror-image affidavits that they “do not personally have sufficient income or investments to provide funding to the plaintiff”, there is no substantiation by them of these statements. No tax returns, bank statements, credit line or credit card information have been filed by the Daniel brothers. Emanuel Daniel says that he is an employee and shareholder in a start-up company and earns a modest income. From where did he get the money to fund the company? What is his income? He says that he lives at home with his parents so, presumably, his expenses are minimal. Does he pay rent? If so, in what amount? What are his expenses? As for his brother, Binyamin, he says that he is “a manager at a take-out restaurant”. What is his income? Does he have an interest in the take-out restaurant? Binyamin is said to lease an apartment and a car. What are his lease payments? He may not own any real estate but does he have any savings? Surely, he has a bank account from which his lease payments issue. Does he also have a line of credit?

Can the plaintiff raise funds? The Daniels brothers say that they “…have no relatives who are willing to provide funding for the plaintiff company”. Have they made the inquiry? The Diamond defendants point out that, for a time, the plaintiff carried on business at the address at which one of its directors resided--being a home owned by persons with the same surname as the Daniel brothers. The home recently sold for a substantial amount. The Diamond defendants pose the question, reasonably, that if the home could be used as the base for the plaintiff corporation, why could some of the proceeds of sale not be used to fund the litigation? Has Emanuel asked his parents, with whom he says he lives, whether they might be prepared to lend the plaintiff money? Have inquiries been made of anyone other than a family member?

And while I recognize that the Diamond defendants have not cross-examined the Daniel brothers in respect of their skeletal assertions of impecuniosity, I also recognize that “the decision not to cross-examine does not convert insufficient evidence into sufficient evidence” (Coastline Corp. v. Canaccord Capital Corp., supra, at para. 7 (xiii)).

The plaintiff, having failed to satisfy me of its impecuniosity, must persuade me that it has a “good chance of success” on the merits (see, in this regard, Zeitoun v. The Economical Insurance Group, 2008 Can LII 20996 (Ont. Div.Ct.), at para. 50). In the circumstances of this case, I cannot say that it does. At best, the merits are neutral, in my view. Why do I say this? The plaintiff’s success at trial will depend largely, if not entirely, on an assessment of credibility. The assessment to be made, according to the Diamond defendants (and with this I agree), is “…whether the trial judge believes the [p]laintiffs’ witnesses’ viva voce evidence or the Diamond [d]efendants’ witnesses’ viva voce evidence on the issue of [an] [a]lleged [k] ick-[b]ack [d]emand” (the plaintiff making that allegation in, inter alia, paras. 22, 23 and 29 of the statement of claim).

And while affidavits and a “transcript” have been filed, in support of the plaintiff’s position, their reliability and strength are not forgone conclusions. Mr. Arshad swore two affidavits, the second of which contradicts his first and denies that there was a “kick-back” demand: “There was no discussion of any demand…[or of] a cut…”. Mr. Kahn’s affidavit in support of the plaintiff’s position is virtually identical to that of Mr. Arshad’s first affidavit (the affidavit now disavowed by Mr. Arshad as being false). Then too, and in any event, given his pattern of involvement in the litigation to date (including a failure to attend to be examined for discovery), Mr. Kahn’s testimony in support of the plaintiff’s position is not a certainty. As for the transcript of the discussion between Mr. Khan and the plaintiff’s representatives, the Diamond defendants say that it cannot be authenticated. There is nothing before to suggest otherwise.

For all of these reasons, with the plaintiff indicating that it has insufficient assets in Ontario to defray the costs of the Diamond defendants and with my not being satisfied as to the plaintiff’s claim of impecuniosity and with the merits of the plaintiff’s claim being, at this stage, neutral (at best), I am ordering security for costs posted.

As for the quantum or timing of payment, the plaintiff took no position in respect of the Diamond defendants’ request for $89,044.00 posted within 30 days. It may be that it thought that the threshold issue as to entitlement might first be determined. That being so, I am permitting the plaintiff until August 31/13 to make comment, in writing, as to the issues of quantum and timing. Thereafter, the Diamond defendants shall have until September 17/13 to deliver a reply, in writing. I will then rule on the two issues.

For now, and pending my further ruling, the plaintiff may take no further step in this proceeding (save as permitted by R. 56.05).

July 26/13 __________________________________