SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 10-49055
DATE: November 1st, 2013

RE: The Estate of Deborah Breatross by its Executor, Joseph Breatross, Plaintiff

AND:
EARL SIDNEY WOOLFSON, et. al., Defendants

BEFORE: MASTER MACLEOD

COUNSEL:
Heather J. Williams, for the defendant Woolfson, moving party
Martin Diegel, for the plaintiff, responding party
Philip Augustine, for the defendant Curphey
Julian Nawrocki for the defendant Flatt

HEARD: September 3rd, 2013

ENDORSEMENT

[1] This is a motion for security for costs. Similar motions are brought by two of the defendants. For the reasons that follow this is an appropriate case to order such security.

Background

[2] The facts are these. The late Deborah Breatross owed over $650,000.00 to mortgagees and other creditors. Included in those debts were three mortgages on her property in Ottawa, unpaid municipal taxes, an income tax debt and a number of judgment debts.

[3] The defendant Woolfson is a lawyer practicing in Toronto. He was the lawyer for the first mortgagee, the late Toby Wintraub and he was also the executor for the Wintraub estate. In November of 2004 he issued a Notice of Sale as the mortgage was in default. The mortgage remained in default thereafter and in 2006 Mr. Woolfson commenced an action which resulted in default judgment for the mortgage debt and for possession of the property. In 2009 he obtained a writ of possession for the property and evicted Deborah Breatross. Finally on January 14, 2010 the property was sold to the defendant Curphey for $535,000.00. This is an amount which is said to have been in excess of the appraised value at the time.

[4] The defendant Curphey is a real estate agent. He had briefly represented Mrs. Breatross in 2005 when she had listed the property for sale but the property did not sell and he states that he had no further dealings with Mrs. Breatross thereafter. He purchased the property for development purposes and shortly after closing he had it demolished.

[5] The defendant Flatt is the late Deborah Breatross’s brother and allegedly was involved in negotiations between Mrs. Breatross and Mr. Woolfson. He held a second mortgage on the property. He is said to have made certain assurances and representations to his sister which led her to believe she could redeem the mortgage up until January 15th, 2010.

[6] Belle Frishman is the sister of the late Mrs. Breatross. She is not a party to the action. She is not the executor or estate trustee but she is directing the prosecution of the action. Apparently she had arranged to lend her sister $300,000.00 and had forwarded her those funds for the purpose of redeeming the mortgage. While that amount would not have been sufficient to pay her other debts it might have been sufficient to pay the first mortgage. The mortgage statement sent by Mr. Woolfson on April 6, 2009 had shown a total amount to redeem the mortgage as $245,760.48. Of course the failure to pay the municipal taxes, registration of executions and default under other mortgages would also have been acts of default under the terms of the first mortgage but in any event the main complaint is that Deborah Breatross was led to believe that if she paid the mortgage by January 15th, 2010 she could save her house.

[7] This claim was launched by Deborah Breatross during her lifetime but she passed away on June 2, 2012. The action has been continued by her estate. There are various allegations about the propriety of the procedures used to sell the property although it is not denied that the plaintiff had debts that exceeded the value. The major complaint is that the plaintiff was misled, was not given time to redeem the property, that the sale may have been improvident and that mental anguish and distress was inflicted upon the plaintiff.

[8] It is admitted in cross examination that the estate has no assets, that the executor is not directing the litigation but rather it is being directed by Ms. Frishman and her daughter, and that Ms. Frishman and her daughter reside in the United States. It is clear that the litigation proceeds in the absence of accurate information. For example, Ms. Frishman did not know that the mortgage had been in default since 2004, believed that Mrs. Breatross had not been provided with mortgage statements, was not aware that the defendant had judgment on the debt and for possession of the land, and was unaware of the other debts and executions.

Analysis

[9] The rule concerning security for costs provides that in certain enumerated circumstances the court may order a plaintiff to post security for costs. This is not intended to make it hard for plaintiffs to sue but is designed to protect defendants from the possibility that they will be unable to recover their costs if they are successful in defending the action. The Rule reads 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,

(a) the plaintiff or applicant is ordinarily resident outside Ontario;

(b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;

(c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part;

(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;

(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or

(f) a statute entitles the defendant or respondent to security for costs.

[10] There is a great deal of jurisprudence under the rule concerning the calculus that goes into determining whether or not an order for security is just and if so in what amount. In particular many of the cases concern themselves with the extent to which the court should investigate the apparent merits or lack of merits of the action. A motion for security for costs is not the venue for a summary judgment analysis but apparent strength of the case is a proper consideration even if subrule e) is not engaged. See for example Padnos v. Luminart (1996) 1996 11781 (ON SC), 32 O.R. (3d) 120 (Gen.Div.) As emphasized by the court in Schaer v. Barrie Yacht Club 2003 44518 (S.C.J.) the threshold test in the rule is not whether the moving party can prove that the plaintiff is resident elsewhere or has insufficient assets in Ontario or that the case is in fact frivolous. The rule requires only that “it appears that” and “there is good reason to believe” that. When the concerns raised by the rule are properly put in issue, the rule is engaged and the court must then determine what is just based on all of the evidence tendered on the motion.

[11] In simplest terms, the rule provides for a form of risk analysis. The more likely it is that the defendant will be entitled to costs and unable to recover them the stronger the case for security. A non-resident plaintiff with an objectively difficult case is more appropriately ordered to post security than a plaintiff with a strong case who lives in a reciprocating jurisdiction where an Ontario judgment may readily be enforced.

[12] In this action there are three defendants. The likelihood of the plaintiff owing costs to at least one of those defendants is reasonably high for a number of reasons. Each defendant stands in a different position.

[13] With respect to the mortgagee, even if there were procedural defects in the process used to sell the home, there appears to be no doubt that the plaintiff’s debts exceeded the value of the home and no doubt that the mortgage was in default. In fact the plaintiff had been given years to try and redeem the mortgage but had failed to do so. Moreover the mortgagee had signed a binding agreement of purchase and sale well before the date on which the plaintiff pleads she believed she would have had funds to redeem the mortgage. As held by the Court of Appeal in Hornstein v. Gardena Properties Inc.,2006 23142 in those circumstances the right to redeem will be lost unless the mortgagee is acting in bad faith. There appears to be no basis for the plaintiff believing Mr. Woolfson had any obligation to protect her interests. His duty was to the estate. She could have been under no illusions that he was proceeding to sell the property once she was evicted pursuant to the writ of possession.

[14] With regard to her brother, even if he did tell her she could redeem the mortgage, the plaintiff had already been evicted by a court process well before January 15th, 2010. Even on that date, had she been able to pay the full amount of the first mortgage, she would still have been in arrears of municipal taxes, subject to an income tax lien, subject to other registered judgments and would have remained in default under the other mortgages.

[15] The claim against the purchaser of the property, Mr. Curphey, depends upon there being a residual duty to her from her listing the property with him 5 years previously, that he was in breach of that duty by purchasing the property and that he purchased it for less than fair value. In fact he paid more than the upper range of either of the two appraisals available at the time of the purchase.

[16] Even if all of these defendants assumed obligations to the plaintiff and were in breach of those obligations by, for example, lulling her into a false sense of security, making false representations and accelerating the sale to avoid a last minute attempt to redeem, there is significant doubt that the plaintiff can prove damages. Firstly, as discussed, the total of her debts appears to have exceeded any value that might reasonably have been put on the property. Secondly, there is no evidence that the sale was actually improvident. The evidence is to the contrary. Thirdly, she had been in default under the mortgage for over 4 years, she had failed to defend the court action and there was judgment against her. It will be challenging for the estate to prove any monetary loss under these circumstances.

[17] With respect to the claim for damages for mental distress and anguish, such a claim is actionable in a very narrow set of circumstances. More importantly there has been no medical evidence produced to demonstrate that the plaintiff suffered the kind of consequences necessary to establish the right to compensation for these kinds of damages.

[18] Accordingly even the most cursory examination of the merits establishes that the plaintiff has an uphill battle. Objectively she is unlikely to succeed against all three defendants.

[19] The estate is resident in Ontario but the estate itself is now a nominal plaintiff without assets. Although the action was commenced by the plaintiff before her death and has been continued by the estate in the name of her husband as executor, Joseph Breatross is not directing the litigation. It is Ms. Frishman and her daughter who are instructing Mr. Diegel. They reside in Washington, D.C.

[20] I am aware that it is not impossible to enforce an Ontario judgment in the District of Columbia. Though there is no reciprocal enforcement treaty for civil judgments, the courts of the United States will in general give full faith and credit to foreign judgments. This however would require a separate legal process in a U.S. court. It is also in evidence that Ms. Frishman owns a condominium unit in Ottawa although I was not told the value of that unit. As it stands, however, Ms. Frishman is not a party to the action and therefore she is not automatically liable for costs. Whether the court could award costs against a non party and whether such an award of costs could be satisfied against property in Ontario or be enforced in D.C. is speculative at best.

Conclusion

[21] This is an appropriate case to order security for costs. The estate is a nominal plaintiff with no assets in Ontario. The litigation is directed and funded by a foreign resident non party. Though the case is not impossible of some success if the alleged misrepresentations or defects in procedure can be proven, there is little evidence of any significant legally compensable damages. There is significant risk that one or more of the defendants will become entitled to costs and in the absence of security there is a high degree of probability they will be unable to recover those costs without further legal proceedings.

[22] Each defendant brought a separate motion seeking security but in my view it is not necessary to post separate security with respect to each of the parties. An appropriate order will require the plaintiff to post security in the amount of $50,000.00 by cash, bond or letter of credit to stand to the credit of this action as security for the costs of the moving defendants.

[23] Subject to the rights of any party to move to increase or decrease the security under Rule 56.07 should it subsequently appear that the costs are over secured or under secured, the plaintiff shall also post a further $30,000.00 when and if the action is set down for trial and another $30,000.00 at least 90 days prior to trial.

Costs of the motion

[24] The moving parties should have costs of the motion. I have not heard specific submissions and I have not been told of any offers to settle which would have to be taken into account. Nor have I been told how the work of the moving parties was shared amongst counsel. I will hear submissions on all of these points if necessary and if any party wishes to make submissions on costs they are to notify my office within the next 15 days. In the absence of any such submissions and subject to any other agreement that may be made between the parties, the costs will be fixed at $6,000.00 on a partial indemnity scale payable to the defendants jointly.

Master MacLeod

November 1st, 2013