COURT FILE NO.: 11-50541
DATE HEARD: June 04, 2013
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SeeWind Design Corp. and Accenture Business Services for Utilities Inc., Sapient Canada Inc. and Enbridge Gas Distribution Inc.
BEFORE: Master Pierre E. Roger
COUNSEL: Michael Crichton, for the Plaintiff/Responding Party Tel: 613-233-1781 Fax: 613-563-9869
Colin S. Baxter, for the Defendant/Moving Party, Accenture Business Services for Utilities Inc. Tel: 613-569-8558 Fax: 613-569-8668
R. Aaron Rubinoff, for the Defendant/Moving Party, Sapient Canada Inc. Tel: 613-238-2022 Fax: 613-238-8775
Peter J. Cavanagh, for the Defendant/Moving Party, Enbridge Gas Distribution Inc. Tel: 416-863-4459 Fax: 416-863-4592
ENDORSEMENT
The Defendants, Accenture Business Services for Utilities Inc. (“ABSU”), Sapient Canada Inc. (“Sapient”) and Enbridge Gas Distribution Inc. (“Enbridge”), bring this motion for an Order requiring the Plaintiff, SeeWind Design Corp. (“SeeWind”), to post security for the costs of the Defendants, on a partial indemnity basis, in the amounts of $1,107,348.66 for ABSU, $810,413.72 for Sapient, and $914,147.09 for Enbridge.
The motion is brought under Rule 56.01(1) (d) of the Rules of Civil Procedure. It alleges good reason to believe that SeeWind has insufficient assets in Ontario to pay the costs of the Defendants should the Defendants be successful.
Background
SeeWind is an Ottawa-based privately held Ontario corporation founded in 1994. David Coyle is the sole shareholder. It is a customer care and billings management software developer and service provider.
ABSU is a Canadian corporation which provides business process outsourcing for utilities, including Enbridge. Sapient is an Ontario Corporation and a division of Sapient Corporation, a global, publicly traded company. Sapient provides business, market, technology and regulatory consulting and support services. Enbridge is a corporation engaged in the business of distributing natural gas.
About 2000, SeeWind began working with utilities and telecommunications companies, assisting with their processes and accounts receivable. This led to SeeWind’s utility customer risk management platform, known as FORCE.
SeeWind claims that their FORCE software approached collection activities in a “behavioural” way. SeeWind alleges that FORCE tracks customer behaviour, assigns treatments based on such behaviour, and triggers collections activity across a company’s collections life-cycle. SeeWind alleges that customers that use FORCE enjoy greater accounts receivable recovery.
About August 8, 2005, ABSU and SeeWind entered into a License and Reseller Agreement and a Hosting Agreement, which provided for the licensing, resale and hosting of FORCE Phase I. The License Agreement and the Hosting Agreement were amended on March 1, 2006 to provide for the licensing and hosting of additional FORCE modules, FORCE Phase II.
Under these agreements, Accenture was granted a non-exclusive license to use FORCE.
Accenture requested that SeeWind prepare a “Solution Specification” for the purpose of explaining to Accenture how FORCE worked. How and by whom this was prepared as well as its content and purpose is a live issue.
SeeWind alleges that neither Accenture nor Enbridge played any role in contributing to, or authoring any of the content of the Solution Specification and that it contains SeeWind’s confidential collections business processes.
It alleges that beginning in 2007, and with the Solution Specification in hand, the Defendants produced and ultimately deployed a collections system that is essentially identical and functionally equivalent to FORCE. It alleges that through a series of meetings, e-mails and other communications, the Defendants, without authorization, directly copied and misused SeeWind’s confidential information from the Solution Specification for the purpose of deploying collections processes for Enbridge which is, they allege, identical to SeeWind’s proprietary and confidential behaviour-based processes.
SeeWind also alleges that the timeline set out in the Solution Specification, in which the first collections activity, a phone call to the Enbridge customer, takes place after the date the first bill was issued, and the scripts set out in the Solution Specification, are propriety to SeeWind. Specifically, in its Response to Demand for Particulars of Sapient and Enbridge, SeeWind asserts its confidential information comprises the event timeline, event logic and event content, as well as information related to the performance thereof.
SeeWind’s support services to Enbridge under the License and Reseller Agreement and Hosting Agreement were terminated about December 31, 2009 and March 31, 2010.
It appears that SeeWind’s allegations in this action are focused on allegations that the Defendants assembled an essentially identical and functionally equivalent substitute to the FORCE software application through their misuse, or use without license, of confidential information belonging to SeeWind relating to FORCE. An important part of this allegation is the claim that the Defendants reproduced portions of a document described as the “Solution Specification”. SeeWind has pleaded that the Solution Specification formed part of its confidential information and that it holds a copyright in the Solution Specification.
In his affidavit sworn in response to this motion, Mr. Coyle indicates that, beginning in 2007, and with the Solution Specification in hand, the Defendants produced and ultimately deployed a collections system that is essentially identical and functionally equivalent to FORCE. Mr. Coyle refers to “various whiteboard sessions” at which the Defendants’ allegedly used and copied the Solution Specification and SeeWind’s confidential information from the Solution Specification into business process documents.
The Defendants have denied that they assembled an essentially identical and functionally equivalent substitute to FORCE. Enbridge has pleaded that, contrary to the allegations in the claim, it implemented a new customer information system supplied by SAP Canada Inc. (“SAP”), with Sapient acting as the system integrator, which included standard functionality and processes concerning customer billing, collections and contact management. They allege that no part of this system involved the use, or misuse, of the FORCE software and that the information and documentation at issue, which SeeWind alleges have been misused, are information and documentation which contractually belong to ABSU and not SeeWind.
The Defendants allege that the SAP customer information system, implemented at Enbridge in or around September 2009, does not contain behavioural functionality as described by Mr. Coyle in respect of FORCE. They allege that SAP does not initiate collection actions based on individual customer behaviours and does not otherwise treat residential heating customers of Enbridge differently depending on the past payment behavior of such customers.
Rather, the Defendants allege that the processes used in the SAP system follow a single timeline for all residential heating customers and the traditional approach of generating action points and activities from within the billing system.
The Defendants allege that the Solution Specification was developed by a collaborative approach and that it is owned by ABSU and not SeeWind. They allege that the Solution Specification was a deliverable insisted upon by ABSU in association with the implementation of FORCE Phase II.
The Defendants point to the front page of the Solution Specification which provides that the document is a “Deliverable Review & Acceptance Sheet” for the FORCE Phase II Implementation project and represented work done as part of the FORCE Phase II Implementation. They indicate that it describes the objective of the document as being to document the Solution Specification for the implementation of FORCE Phase II for Enbridge Gas Distribution with all treatment procedures, business requirements and operational parameters to deploy and operate FORCE’s Analytical and Contact Management capability. They also point out that the Solution Specification bears the names and logos of ABSU, Enbridge and SeeWind, and includes the following notation: “©2006; Accenture Inc. / Enbridge Gas Distribution Inc. / SeeWind Design Corp All rights reserved. Proprietary and confidential.”
The Defendants refer to the contract and allege that “Software Products” is explicitly, and more narrowly defined under the License and Reseller Agreement, as:
“Software Products” means the FORCE software programs, in object code form, and accompanying documentation as defined in Schedule A, as enhanced and modified from time to time, to be licensed to ABSU hereunder.
The Defendants allege that the definition of “Software Products” in the License and Reseller Agreement focuses on the FORCE software program itself, in object code form and that SeeWind’s use of the term, in its claim, suggests that any documentation relating to FORCE is captured by the term “Software Products.”
“Software Products” are owned by SeeWind under the terms of the License and Reseller Agreement:
6.1 Ownership. SeeWind owns and retain (sic) all right, title and interest in the Software Products, all associated technical data and all worldwide Intellectual Property Rights therein, including but not limited to, all present and future worldwide Intellectual Property Rights. ABSU will use the Intellectual Property Rights only in connection with its marketing, distribution and support of the Software Products in accordance with this Agreement. ABSU will notify SeeWind of, and reasonably assist SeeWind, at SeeWind’s expense, in prohibiting any misappropriation of or infringement of the Intellectual Property Rights by third parties. Neither ABSU nor any End Users, may obtain any ownership rights to the Software Products except the license rights described hereunder.
- Section 6.2 of the License and Reseller Agreement appears to contemplate the creation of original material during the course of the agreement and appears to address ownership issues:
6.2 Rights in Data. All original material including programs, procedures, disks, listings and other documentation originated and prepared exclusively for ABSU, or any End User, in the course of this Agreement, including without limitation, during the performance of the Implementation Services shall belong, as between SeeWind and ABSU, exclusively to ABSU.
- The term “Implementation Services” is a defined term in the License and Reseller Agreement:
8.1 “Implementation Services” are defined as the services related to the installation, configuration and tailoring of the Software Products by SeeWind in ABSU’s, or its End User’s, as appropriate, unique environment. Implementation Services for a specific End User will be agreed to by the parties in writing. SeeWind agrees to provide the Implementation Services set forth in Schedule A in respect of the Software Products to be licensed to the initial End User, Enbridge.
- Schedule A to the License and Reseller Agreement under the heading “Deliverables” provides:
Implementation Services to be provided by SeeWind include the customization of the Software Products and implementation of the Software Products for Enbridge, including the following functions for three Campaigns and three Events per Campaign:
• Design Review
• Testing
• Call Flow Tailoring
• User Acceptance
• File Download processes
• Participation in Proof of Concept
• File Upload processes
• Project Management
The Defendants argue that a review of the Solution Specification should demonstrate that it is a documentary reflection of the implementation of FORCE Phase II at Enbridge, and not of the software itself. They allege that there is no code contained in the Solution Specification and nothing that would reflect the inner workings of the FORCE software, which in fact was always hosted by SeeWind on its own servers and apparently never revealed to ABSU or Enbridge.
The Defendants point out that at paragraph 15 of David Coyle’s affidavit, sworn on March 22, 2013, Mr. Coyle swears that:
• “In connection with the implementation of FORCE for Enbridge, Accenture requested, in October 2006, that SeeWind prepare a “Solution Specification” for the purpose of explaining to Accenture how FORCE worked…”; and
• “Prior to Accenture’s request, SeeWind neither expressed, nor had any need to express, FORCE functionality in a document analogous to the Solution Specification.”
Consequently, the Defendants allege that the Solution Specification constitutes “original material,” which was “prepared exclusively for ABSU, or any End User, in the course of this Agreement,” as contemplated in section 6.2 of the License and Reseller Agreement and, as a result, that the Solution Specification must belong to ABSU.
They argue that section 6.2 contemplates the preparation of material and documentation “during the performance of Implementation Services,” and that given the purpose and objective stated on the face of the Solution Specification, along with Mr. Coyle’s statement that ABSU requested that SeeWind prepare the Solution Specification “in connection with the implementation of FORCE for Enbridge”, it is difficult for SeeWind to deny that the Solution Specification arose through the implementation of FORCE at Enbridge.
The Defendants, in ABSU’s factum, point out that “Developments” is a defined term in Schedule C to the License and Reseller Agreement, which has proprietary implications as between SeeWind and ABSU (it is disputed by SeeWind whether this schedule is applicable):
“Developments” means all inventions, improvements, discoveries, formulae, processes, ideas, algorithms, deliverables, computer software and any other direct or indirect results of the Services or other work performed by SeeWind for ABSU or an End User (including, where applicable, all scripts, models, specifications, source code, design documents, creations, artwork, text, graphics, photos, pictures and music), including without limitation, all modifications, enhancements and derivative works of the Software Products created by SeeWind as part of the Services;
- They point out that Schedule C also convincingly addresses the ownership of Developments:
5.1 Ownership of Developments - ABSU shall be the exclusive owner of the Developments and of all Intellectual Property Rights in and to such Developments. SeeWind hereby assigns to ABSU all right, title, and interest throughout the world and universe, including without limitation, all copyright, trade-marks, trade secrets, patent rights, and any other Intellectual Property Right in and to each Development, effective at the time each is created. SeeWind covenants that it shall not, directly or indirectly, contest or assist any third party to contest ABSU’s ownership of the Developments or of any Intellectual Property Rights related thereto.
SeeWind has not alleged that the Defendants have misused the actual FORCE software, in its object code form. FORCE was a hosted solution, meaning that neither ABSU nor Enbridge had access to FORCE in its source code form. Mr. Coyle describes the purpose of the Solution Specification as “explaining to Accenture how FORCE worked.” As well it appears that the Solution Specification also describes the implementation of FORCE Phase II at Enbridge and the role it would play within Enbridge’s collections practices and procedures.
The Defendants argue that if, as SeeWind suggests, “Software Products” includes all information and documentation relating to or describing the implementation of FORCE at Enbridge, then what information or documentation would be covered by section 6.2 of the License and Reseller Agreement. Further, that SeeWind appears to be arguing that it owns everything incorporated into the Solution Specification, including Enbridge’s own chosen business processes and collections practices. If accepted, they argue that this argument would prevent Enbridge from carrying on a collections practice unless it maintained a FORCE license indefinitely.
The Defendants’ position is that a more logical reading of the License and Reseller Agreement is one where, in accordance with the plain meaning of the words used by the parties, and in accordance with section 6.1, SeeWind is the owner of the FORCE software program, in its object code form, along with any accompanying documentation which might describe that object code form, as well as all associated technical data. By contrast, and in accordance with section 6.2 of the License and Reseller Agreement, ABSU owns all original material originated and prepared for ABSU and Enbridge during the course of the agreement, including during the performance of Implementation Services.
Further, the Defendants argue that in this litigation, SeeWind has alleged that, while SAP, in its “off-the-shelf” form, does not include behavioural functionality, ABSU, Enbridge and Sapient programmed SAP to contain behavioural functionality based on the FORCE software. However, they point out that when Mr. Coyle was asked to explain how the SAP collections processes in place at Enbridge demonstrated behavioural functionality, he could not. In addition, the Defendants point to some evidence that the event timeline in the Solution Specification might not be the result of an independent recommendation by SeeWind.
The Defendants allege that the Plaintiff’s claim is weak and that the information at issue in this action was not misused by the defendants. The Defendants allege that the information at issue in this action is not owned by the Plaintiff, that SeeWind’s claim has a very low likelihood of success and that it would be extremely prejudicial to the Defendants for this action to be allowed to continue without requiring that the Plaintiff post significant security for costs.
From a procedural perspective, the Statement of Claim was issued on February 1, 2011 and was served on the Defendants shortly thereafter. The Defendants delivered Demands for Particulars in or around early March 2011, and SeeWind delivered an Amended Statement of Claim and its Responses to Demands for Particulars on or about March 14, 2011.
Each of the Defendants delivered its Statement of Defence on or about April 15, 2011. SeeWind subsequently delivered Demands for Particulars and Requests to Inspect Documents on or about April 21, 2011. Each of the Defendants delivered a Response to the Demand for Particulars and responded to the Requests to Inspect on or about May 13, 2011. SeeWind delivered its Reply pleading to each Statement of Defence of the Defendants on or about May 30, 2011.
Following the close of pleadings, in or around June 2011, SeeWind circulated a draft discovery plan. Following case conferences on September 30, 2011 and January 30, 2012, the discovery plan underwent a number of revisions.
SeeWind sought the Defendants’ consent to a Protective Order which was issued on November 25, 2011.
The parties exchanged affidavits of documents, as well as their Schedule “A” productions, in or around early January 2012. Collectively, the parties produced more than 9,500 documents.
On May 8, 2012, the parties attended a full day, facilitated mediation.
During the weeks of September 17 and 24, 2012, the parties attended two weeks of examinations for discovery. SeeWind also delivered additional written interrogatories to ABSU and Sapient, following these examinations. The parties delivered their answers to undertakings on or about December 7, 2012. Sapient and ABSU answered the written interrogatories on or about December 21, 2012 and January 4, 2013, respectively. ABSU and SeeWind delivered further answers to undertakings on or about January 18, 2013.
On November 9, 2012, SeeWind caused to be issued an Amended Amended Statement of Claim, which was served shortly thereafter. The claim was amended to include additional allegations against Enbridge, including claims for copyright infringement, unjust enrichment and damages. The allegations of conspiracy against ABSU and Sapient and the allegation of fraudulent misrepresentation against ABSU were maintained. Enbridge delivered an Amended Statement of Defence on or about December 3, 2012. SeeWind delivered an Amended Reply on or about December 14, 2012.
The parties attended an additional five days of examinations for discovery during the week of January 21, 2013. These examinations included Enbridge’s examination on new pleadings in the Amended Amended Statement of Claim and ABSU’s completion of its September 2012 examination. The parties also each examined on the answers to undertakings given.
At a case conference held on January 31, 2013, a refusals motion was scheduled to be heard May 9, 2013, if necessary, and this motion for security for costs was scheduled for June 4.
On February 14, 2013, SeeWind circulated a proposed Fresh as Amended Statement of Claim. In the Fresh Claim, SeeWind proposes to abandon its conspiracy allegations against ABSU and Sapient, as well as its allegation of fraudulent misrepresentation against ABSU.
ABSU has estimated its partial indemnity costs to date at $648,067.55 and its additional partial indemnity costs for the action through to conclusion of trial at $459,281.11.
Sapient has estimated its partial indemnity costs to date at $402,396.03 and its additional partial indemnity costs for the action through to conclusion of trial at $408,017.69.
Enbridge has estimated its partial indemnity costs to date at $435,394.54 and its additional partial indemnity costs through to the end of trial at $478,452.55.
Consequently, the Defendants’ draft Bills of Costs indicate that, if successful at trial and awarded their partial indemnity costs in the amounts estimated, the Defendants would, collectively, be awarded costs in the aggregate amount of $2,831,909.47.
Following examinations for discovery, the Defendants sought more information concerning SeeWind’s assets in Ontario. By letter dated November 1, 2012, ABSU’s counsel wrote to SeeWind’s counsel to inquire whether SeeWind had sufficient assets in Ontario to pay the costs of the Defendants, should it ultimately be ordered to do so, and requested particulars of SeeWind’s assets in Ontario, including: (a) all real property; (b) all personal property; (c) all corporate investments; (d) all cash on hand; (e) all accounts receivable; and (f) any other tangible assets. By e-mail dated November 20, 2012, SeeWind’s counsel replied that SeeWind would be producing its financial information as part of its answers to undertakings.
On or about December 7, 2012, SeeWind produced, as part of its answers to undertakings, its unaudited financial statements for the years ended December 31, 2005 through December 31, 2011.
The 2011 financial statements disclose that SeeWind’s cash on hand decreased and total assets decreased. SeeWind has produced additional financial documentation none of which is favorable to SeeWind. SeeWind has not yet produced its financial statements for the year ending December 31, 2012.
SeeWind tendered no evidence that it does not have the ability to raise the amount sought by the Defendants or other reasonable amount for security for costs through its sole shareholder, Mr. Coyle, its creditors, or the person or persons who received dividends from SeeWind, who stand to benefit if the action succeeds. In addition, SeeWind has not identified the creditors of SeeWind who would stand to benefit from a successful result in this action.
Mr. Coyle, the sole shareholder of SeeWind, indicated that if SeeWind is required to post security in the amount of $2.8 million or a similar amount, SeeWind “will have little or no choice but to seek to terminate the litigation in as cost effective a manner as possible”.
SeeWind alleges that the Defendants delayed in bringing this motion to SeeWind’s prejudice. SeeWind points to a relationship with ABSU up until less than one year prior to commencement of this action through which they say SeeWind was open with ABSU about its financial situation and lack of any new customers since ABSU’s termination of SeeWind’s hosting of FORCE for Enbridge. SeeWind indicates that it made Accenture aware that Hydro One was its only other customer and that SeeWind had not secured any new FORCE customers since their joint business development efforts began. In addition, SeeWind shared its 2007 and 2008 financial statements with ABSU in March 2010 and therefore alleges that ABSU could conduct due diligence with respect to the joint business development activities. The income disclosed in those financial statements is largely attributable to the now terminated agreements with ABSU.
SeeWind argues that despite this knowledge, the Defendants did not raise the issue of security for costs until late in 2012 and that in failing to raise the issue of security for costs, SeeWind was lulled into believing that the state of its assets was of no concern to the Defendants, and, accordingly, vigorously pursued its claims under this belief.
The Defendants argue that SeeWind’s financial statements for 2007 and 2008 disclosed significant assets and that SeeWind’s total assets and income for those year ends are significantly higher than the corresponding amounts in the 2011 financial statements. Enbridge and Sapient argue that they were not privy to whatever information might have been communicated to ABSU. They argue that the information which showed that there is good reason to believe that SeeWind lacked sufficient evidence to satisfy an award for costs was obtained by the Defendants only in December 2012. They argue that SeeWind confuses income with assets and ABSU points to some evidence that ABSU believed that SeeWind had signed a significant new deal and that it was continuing to do business.
On or about December 7, 2012, SeeWind produced its unaudited financial statements for the years ended December 31, 2005 through December 31, 2011, as part of its answers to undertakings. Arrangements were made for the schedule for this motion soon after that, at a case conference held on January 31, 2013.
Law and Analysis
On a motion by a defendant seeking security for costs, the court may make such order for security for costs as is just where it appears that the plaintiff is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.[^1]
Rule 56.01(d) establishes a two-step inquiry. First, the defendant must show that it appears that the plaintiff is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.[^2]
Where a defendant has done so, under the second step of the inquiry, the burden shifts to the plaintiff to show that it has sufficient assets to satisfy an award for costs in favour of the moving defendant. Where the plaintiff fails to discharge this burden, the Court must still exercise its discretion, on a principled basis, and decide whether an order for security for costs would in the circumstances be “just.” [^3]
On the first step of the inquiry, the moving party is not required to establish with certainty that the plaintiff has insufficient assets – only that it appears so.[^4] To require more would not be fair, because the defendant would then have to prove something that is uniquely within the plaintiff’s knowledge.
Provided that the plaintiff is able to show that the claim is not clearly devoid of merit, impecuniosity, as this term is understood in the context of a motion for security for costs, may be a factor that could lead a court to conclude that it would not be just to make an order for security for costs.[^5]
The term “impecuniosity” does not appear in the rule; it is part of the judicial interpretation of Rule 56.01 in respect of the phrase, “the court ... may make such order as is just.” A corporate plaintiff showing “impecuniosity” usually includes showing not only that it does not have sufficient assets itself, but also that it cannot raise the security for costs from its shareholders and associates or through others that stand to benefit from the action. [^6]
It has been held that where a plaintiff seeks to rely on impecuniosity, the onus falls on the plaintiff to satisfy the court of impecuniosity because the plaintiff’s financial capabilities are within its knowledge and are not known to the opposing party, and because impecuniosity is being asserted as a shield against an order seeking security for costs. [^7]
Further, it has also been held that a litigant who relies on impecuniosity to avoid an order requiring the posting of security must do more than adduce some evidence of impecuniosity. There must be evidence that, if security is required, the action will be stopped because the amount of the security is not only not possessed by the plaintiff, but is not available to it. The court must be convinced, on the basis of cogent evidence, that the plaintiff corporation, its shareholders and any other person who could be the beneficiary of the action if it succeeded, such as a creditor, are unable to post security.[^8]
The financial evidence of the plaintiff and others who may benefit from a successful action, should be set out with “robust particularity.” Bald allegations of impecuniosity are usually not sufficient.
The evidence that a plaintiff must usually tender in order to establish impecuniosity to avoid a security for costs order was addressed in Shuter:[^9]
(a) Demonstrating impecuniosity involves considerably more than a simple declaration to the effect that one is impecunious. There is a positive obligation on a party claiming to be impecunious to substantiate his claim by way of evidence.
(b) Full and frank financial disclosure is required to persuade the court that an order for security for costs will necessarily bring the action to a halt. It is not sufficient to rely on bald assertions.
(c) There is a high evidentiary threshold that must be met before a court can find that a plaintiff is impecunious, and this 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.
(d) As the onus to establish an impecunious state rests with the plaintiff, a failure to adduce adequate evidence to that effect will be fatal to his position.
(e) A defendant's failure to cross-examine on the plaintiff’s evidence does not “convert insufficient evidence into sufficient evidence,” where the plaintiff has not met the evidentiary onus. Failure to cross-examine does not, in such instance, amount to acceptance of what was asserted.
Where impecuniosity is shown, the plaintiff needs only to demonstrate that the claim is not plainly devoid of merit, as a factor for the court to consider when assessing whether it would be just to order security for costs. However, where impecuniosity has not been shown, the plaintiff should show that its claim has a good chance of success. The latter is a higher burden as there is no argument (or a much weaker argument as impecuniosity is not made out) that there is a danger that the plaintiff’s poverty will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. [^10] As indicated, these are factors for the court to consider when assessing whether making a security for costs order would or not be a just result.
Although Rule 56.03(1) does not specifically provide a deadline by which a motion for security for costs should be brought, it is recognized that the motion should be made promptly after the defendant learns that it has a reasonable basis for bringing the motion.[^11] However, where evidence explaining an allegation of delay has been tendered, the court will review it and the explanation will factor into the court’s determination.[^12]
The court has broad discretion in determining whether security for costs would be just in the circumstances. Many factors are relevant. These include: whether there was any delay in bringing the motion; whether the delay can be explained; whether the plaintiff has been prejudiced by the delay; whether the wrongful conduct of the defendant that is the subject of the litigation caused the plaintiff to have insufficient assets; and, as indicated above, whether there is merit to the plaintiff’s claim.[^13]
As indicated, a factor on a motion for security for costs is whether the defendant’s wrongful conduct caused the plaintiff’s inability to pay:[^14]
There can be no question that an injustice would result if a meritorious claim 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.
The amount and form of security and the time for payment into court is to be determined by the Court.[^15]
The Ontario Court of Appeal explained some of the fundamental principles with respect to fixing costs as follows:[^16]
[T]he fixing of costs does not begin and end with a calculation of hours times rates. [T]he objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.
In exercising their discretion, our courts are mindful as well that it is fundamental to our justice system that, when appropriate, depending on the circumstances of each case, “everyone should be able to have their day in court.” To this end, “defendants should not be able to tactically prevent a prosecution of a valid claim by obtaining a prohibitive security for costs order.”[^17] As well, that we are looking at “reasonable protection” when appropriate.[^18]
As these motions involve an exercise of the court’s discretion, relevant factors are to be assessed to arrive at a just result. Consequently, even when impecuniosity is not made out, the court may limit the amount ordered as security for costs to what it considers reasonable in an effort to balance or to limit the risk of the award nonetheless stopping the action. In Ascent Incorporated v. Fox 40 International Inc., at para. 14, Master Dash indicated:[^19]
In all of the circumstances I am of the view that it would be just for the plaintiff to pay security for costs in an amount that would not render it unable to fund this litigation. It would not be just to award security for costs against an impecunious corporate plaintiff if it would prevent a meritorious action from proceeding to trial. I have found however that the corporate plaintiff is not impecunious and there is not such financial hardship that an award of security for costs would force the action to a halt, provided that the award was moderate and within the means of the plaintiff and its sole shareholder.
Delay is another factor that can be relevant as well to the amount ordered as security for costs, assuming that the delay is sufficiently explained. In Malamas v. National Bank of Greece, the defendant was able to explain the delay in bringing the motion for security for costs and it was held that the delay was not prejudicial to the plaintiffs. Nevertheless, it was held relevant to fixing the quantum of security.[^20]
In this case, I find on the evidence that it appears that there is good reason to believe that the Plaintiff, a corporation, has insufficient assets in Ontario to pay the costs of the Defendants. Further, I find that the Plaintiff has not shown that it has sufficient assets to satisfy an award for costs in favor of the moving Defendants.
I also find that the Plaintiff has not met its onus of establishing impecuniosity. Demonstrating impecuniosity involves more than what has been presented to the court by the Plaintiff on this motion. The evidence does not address the Plaintiff’s borrowing abilities, nor that of its shareholders or creditors. Bald assertions are not sufficient.
Contrary to what is argued by the Defendants, the Plaintiff’s action is not plainly devoid of merit. However, the Plaintiff faces a number of serious obstacles including the contractual provisions described above. It appears to this court, from the evidence presented, more likely that ABSU owns all original material originated and prepared for ABSU and Enbridge during the course of the agreement, including during the performance of Implementation Services and it appears more likely that the SAP collections processes in place at Enbridge do not use behavioural functionality. On the latter, Mr. Coyle was unable to point out sufficient demonstration of behavioural functionality when examined.
To be successful at trial, SeeWind will have to establish that the SAP customer information system implemented at Enbridge contains behavioural functionality. It will have to establish that the timeline set out in the Solution Specification constitutes SeeWind proprietary information. As indicated above, the evidence presented on either issue on this motion appears to this court to favour the Defendants.
The standard for a plaintiff demonstrating a “good chance of success” is: higher than ‘not devoid of merit’.[^21]
Having reviewed the evidence, I find that the Plaintiff has not met its onus of demonstrating a good chance of success. The evidence presented falls too low on the spectrum. Indeed, the evidence indicates that FORCE was a behavioural application while the SAP system does not appear to contain behavioural functionality. The contractual dispositions, as indicated above, as they relate to issues of ownership of the Solution Specification also favor the Defendants in that such information appears to be owned by ABSU. However, that being said, this court recognizes that the evidence presented on issues relevant to liability is, by its technical nature, extremely complicated and difficult to precisely analyze in the context of such a motion and evidentiary record. Consequently, considering the complexity of the evidence on this point and the fact that this is one of many factors that may be considered in the court’s exercise of its discretion, I will nonetheless consider the Plaintiff’s merit if and when addressing the issue of quantum, at least in the sense of attempting to fix an amount that will hopefully minimize the risk of preventing the action from proceeding for financial reasons alone (recognizing that impecuniosity has not been made out).
Although the Defendants delayed in bringing this motion, I find that they have sufficiently explained the delay. I accept as sufficient the Defendants’ explanation that: they first contemplated moving for security for costs after learning at the examinations for discovery that FORCE had been archived; that they subsequently wrote to the Plaintiff’s counsel in November 2012 requesting financial information which they received in December 2012; following which the Defendants had good reasons to believe that the Plaintiff had insufficient assets.
I do not, on the evidence, accept that prior to the commencement of this litigation at least ABSU had good reasons to believe that SeeWind had insufficient assets to pay costs. As of the commencement of this action ABSU was aware of SeeWind’s financial statements as of December 31, 2008 and was aware that its gross income in 2007 and 2008 was largely derived from the agreements with ABSU. However, ABSU could reasonably expect that other sources of income would likely materialize. Indeed, during his examination for discovery of September 27, 2012 (Q. 2599), Mr. Coyle admitted that about September 2008 he might have indicated to an employee of ABSU that SeeWind was working on deals that were two to three times the size of Enbridge. Moreover, SeeWind’s financial position is drastically worse in the more recent financial statements received by the Defendants in December 2012.
The above being established, it is still a discretionary matter whether a security for costs order should be made and, if so, in what form and amount.
Considering the evidence presented on this motion, the arguments raised by the parties and my findings as outlined above, I find that it would be just in the circumstances of this case for the Plaintiff to post a reasonable amount of security for costs on a reasonable payment schedule.
An order for security for costs should attempt to fix an amount that is fair and reasonable for the unsuccessful party to pay that will allow reasonable protection to the defendants. We have to remember that its purpose is to protect against costs that might not be paid.[^22]
I am concerned by the amounts sought by the Defendants when assessing what SeeWind could reasonably be expected to pay if unsuccessful. By comparison to other cases with more discovery and trial time, the amounts sought appear somewhat out of proportion.
I am also mindful that in the circumstances of this case, considering the complexity of the evidence presented on issues relevant to liability, an amount ordered as security for costs should at least attempt to allow the Plaintiff to proceed to trial. As indicated above, the Plaintiff’s action is not without merit but is somewhat short of a good chance of success. Although impecuniosity has not been made out and although the Plaintiff has not established a good chance of success, in the circumstances of this case, considering the complexity of the evidence on liability, the amounts ordered for security for costs should as well be in a range that at least attempt to limit the risk of the award nonetheless stopping the action. [^23]
Similarly, even if as in this case the Defendants were able to explain the delay in bringing the motion and even if the delay was not prejudicial to the Plaintiff, delay in bringing such a motion can nevertheless be a factor relevant to the quantum of security ordered by the court. [^24]
This is a complicated action. Pleadings were complex and voluminous with demands for particulars and a number of amendments. Significant time was required for pleadings. This case was well managed by all parties who cooperated as much as possible on disclosure and other issues. This benefited all parties but time was required to conduct such discussions, correspondence and case conferences. A day-long mediation was conducted which required significant preparation. Documentary discovery was extremely complex. It involved thousands of documents in a relatively short timeframe. In this regard, I congratulate all parties and counsel for moving this case at a fairly quick pace.
All parties spent a considerable amount of time on documentary discovery. Technical analyst/expert assistance was required to deal with electronic documentary discovery. The parties were extremely efficient at limiting discovery to three weeks but these were complex and required significant preparation by all to be conducted on such an efficient basis. Undertakings were many and again were answered quickly by all, with some issues that required service of a motion but which appear to have been resolved. The pre-trial conference should require at least one day with significant preparation to be productive. Trial preparation will be significant and the trial will most likely require at least four weeks. This is no doubt a complex, significant and important commercial action to the parties.
Having considered the above and the evidence presented on this motion, a reasonable amount to be paid into court as security for costs in this matter for all three Defendants for actual fees incurred to date, estimated fees up to and including a four week trial calculated on a partial indemnity basis and for disbursements, all as sought in each party’s bill of costs submitted on this motion, together with taxes, is $1,110,000.00. That amount is made up of $435,000.00 for ABSU, $315,000.00 for Sapient and $360,000.00 for Enbridge. These amounts are to be paid into court by the Plaintiff on the following schedule:
a) $400,000.00 within 90 days from the date of this order;
b) $385,000.00 at least 60 days prior to the date of the scheduled pre-trial conference; and
c) $325,000.00 within 90 days from the date of the pre-trial conference.
- If the parties cannot, within the next 30 days, agree on the costs payable for this motion then the Defendants shall each within the next 45 days (from the date of this order) email to my registrar brief written submissions on costs of no more than three pages with responding submissions of no more than five pages by the Plaintiff within 55 days (from the date of this order). The parties are reminded that the court is already in possession of their respective costs outline.
Master Pierre E. Roger
DATE: August 22, 2013
[^1]: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 56.01(d).
[^2]: Hallum v. Canadian Memorial Chiropractic College (1989), 1989 4354 (ON SC), 70 O.R. (2d) 119 (H.C.) at para. 10 [Hallum] and Shuter v. Toronto Dominion Bank, 2007 37475 (ON SC), 2007 O.J. No. 3435 (S.C.) at para. 60 [Shuter].
[^3]: Hallum, at para. 10 and Cigar500.com Inc. v. Ashton Distributors Inc., 2009 46451(Ont. S.C.) at para. 33 [Cigar500.com Inc.].
[^4]: Cigar500.com Inc., at para. 22.
[^5]: Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 45 [Zeitoun], aff’d 2009 ONCA 415, 96 O.R. (3d) 639.
[^6]: Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 4190 (ON SC), 61 O.R. (2d) 688 at para. 43.
[^7]: Zeitoun, at para. 45.
[^8]: Zeitoun, at para. 45.
[^9]: Shuter, at paras. 69-76.
[^10]: Zeitoun, at paras. 45-50, Cigar500.com Inc, at para. 69 and Stojanovic v. Bulut, 2011 ONSC 874 at para. 62..
[^11]: Shuter, at paras. 106-107.
[^12]: Shuter, at para. 104.
[^13]: Cigar500.Com Inc. at paras. 33-38.
[^14]: John Wink Ltd v Sico Inc (1987), 1987 4299 (ON SC), 57 O.R. (2d) 705 (H.C.) at para. 8 and Cigar500.Com Inc. at paras. 33-40 and 74.
[^15]: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 56.04.
[^16]: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.) at para. 26.
[^17]: Cigar500.com Inc., at para. 3.
[^18]: Cigar500.com Inc., at paras. 2-3.
[^19]: 2007 15805 (Ont. S.C.) [Ascent].
[^20]: 2009 56745 at paras. 112-113 [Malamas].
[^21]: Bruno Appliance and Furniture v. Cassels Brock & Blackwell LLP, 2012 ONSC 4038 at paras. 47 and 51.
[^22]: Malamas, at para. 123.
[^23]: Ascent, at para. 14.
[^24]: Malamas, at paras. 112-114.