ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-029
DATE: 2014-09-11

B E T W E E N:

Richard Stern and Raymond Roy

Bonnie Oldham, for the Plaintiffs

Plaintiffs

• and -

Vincent James Bondi, Helen Ann Bondi and Christopher David O’Gram

D. Andrew Thompson, for the Defendant Christopher David O’Gram

Defendants

HEARD: August 6, 2014

MOTION FOR SECURITY FOR COSTS

WILCOX, J.

INTRODUCTION

[1] The Plaintiffs moved for an order for security for costs requiring the Defendant O’Gram to deposit into court the amount of $40,000 being the Plaintiffs’ estimate of the costs of defending O’Gram’s counterclaim in this action.

BACKGROUND

[2] O’Gram and his common law partner, Jenny Berube, purchased the property at 113 James Street in Parry Sound in 2008. Included in the purchase were various chattels used in the auto repair business. The vendor carried on an auto repair and retail gasoline sales business there. O’Gram intended to carry on a similar business. Howard Oldham of Oldham Law Firm acted on the purchase for O’Gram and Berube. O’Gram’s business was incorporated later as Unique Auto Centre Inc., of which he claims to be the sole shareholder. Berube was the bookkeeper for the business.

[3] O’Gram and Berube subsequently separated. Berube retained Bonnie Oldham of Oldham Law Firm to assist her in resolving issues which had arisen in the separation, including the disposition of her interest in the property at 113 James Street and the business. O’Gram was represented in the separation by his present counsel, D. Andrew Thompson. A separation agreement was entered into.

[4] As part of the arrangements for the matrimonial settlement, O’Gram entered into private first and second mortgages. Oldham Law Firm acted for the Plaintiff mortgagees. David Ryan of Ryan and Lewis Barristers acted for him.

[5] O’Gram also entered into a general security agreement (GSA) at the offices of Oldham Law Firm. He allegedly did not have legal advice from Mr. Ryan nor any lawyer outside of Oldham’s offices regarding it, but dealt with a staff member at Oldham’s.

[6] The Statement of Claim of the Plaintiffs Stern and Roy, issued on May 3, 2013 and amended on June 17, 2013, alleges that O’Gram had defaulted under the mortgages and GSA by

• allowing his insurance to be cancelled on April 25, 2013
• failing to make mortgage payments on and after May 1, 2013
• failing to pay property taxes of $10,653.89
• abandoning the business, vacating the real property and removing secured assets

They therefore claimed:

• a declaration that the Plaintiffs are entitled to possession of various chattels secured by the GSA, and related relief;
• possession of the real property at 113 James Street, Parry Sound under the first and second mortgages, and related relief;
• damages for loss of monies owing under the mortgages;
• costs; and,
• interest.

[7] O’Gram delivered a Statement of Defence and Counter-Claim. They raise issues as to whether he defaulted on the mortgages such as to justify the Plaintiffs’ enforcement proceedings, whether the GSA is enforceable given the circumstances in which it was signed in Oldham Law Firm’s offices, and what assets, if any, may be seized pursuant to it. The Counter-Claim largely relies on the allegations in the Statement of Defence and seeks to recover the seized chattels and damages.

[8] Affidavits of documents have been exchanged.

[9] The Defendants Helen Ann Bondi and Vincent James Bondi were removed as Defendants by Order dated July 5, 2013.

[10] There has been a series of motions, starting May 6, 2013, all but one brought by the Plaintiffs, and resulting orders, dealing with the possession, preservation, tracing and disposition of various chattels, and with costs.

[11] The first of these was the Plaintiffs’ motion without notice which resulted in Koke J.’s order of May 6, 2013 granting the Plaintiffs interim possession of the “secured assets” listed therein, and related relief.

[12] A further motion of the Plaintiffs resulted in O’Neill J.’s order of May 31, 2013 permitting the sheriff to use cutters to gain access to locked structures and storage bins where items in Koke J.’s order were located.

[13] The Defendant O’Gram obtained the order of O’Neill J. dated June 6, 2013 restraining the Plaintiffs from disposing of or selling, and requiring the preservation of, items seized pursuant to Koke J.’s order of May 6, 2013 until further order.

[14] The Plaintiffs brought this motion for security for costs and other relief on July 5, 2013. By order of O’Neill J. made that day, O’Gram was to:

• deliver possession of specified fixtures and items of personal property;
• secure and preserve specified items referred to as “secured assets”;
• secure, store, and maintain a specified motor vehicle until further order or final disposition of this matter;
• provide specified information regarding a list of vehicles that he transferred but denied owning;
• sign a direction and authorization to Snap-On Tools to provide information regarding values, dates, and methods of payment for tools leased or purchased by him or Unique Auto Centre Inc.

Also, the Plaintiffs were found to be entitled to ownership of specified vehicles. The issues of security for costs and of costs of the motion were adjourned to August 2, 2013.

[15] The Plaintiffs brought another motion on August 2, 2013 seeking an order noting the Defendant O’Gram in contempt of court for failure to comply with O’Neill J.’s order of July 5, 2014, for security for assets that O’Gram had allegedly failed to deal with as ordered, and for other relief. O’Neill J.’s order of that day allowed the sale of various assets, and other relief. The Plaintiffs’ motions for contempt and for security for costs were adjourned to dates to be set. Costs of the motions of July 5 and August 2, 2013 were reserved, with written submissions to be filed. A further order of October 22, 2013 amended it to allow the Plaintiffs to sell two motor vehicles.

[16] O’Neill J.’s order of October 2, 2013 required O’Gram to pay the Plaintiffs’ costs of $6,615 by November 30, 2013.

[17] The matter returned to court on April 3, 2014. There were five outstanding motions:

1. the Plaintiffs’ motion for security for costs, adjourned from August 2, 2013;
2. the Plaintiffs’ motion for contempt, adjourned from August 2, 2013;
3. the Defendant O’Gram’s motion adjourned from March 14, 2014, to remove Howard Oldham and Oldham Law Firm as Plaintiffs’ counsel of record, and other relief;
4. the Defendant O’Gram’s motion for leave to amend the Statement of Defence and other relief;
5. the Plaintiffs’ motion for Summary Judgment.

[18] The motion to remove Oldham’s was heard and dismissed. The subsequent costs order of June 5, 2014 required O’Gram to pay $6,000 to the Plaintiffs within 30 days. The other motions were adjourned sine die.

[19] The Plaintiffs’ motion for security for costs returned to court on June 10, 2014, on which date O’Neill J. adjourned it to August 5, 2014 with stipulations as to what the parties were to do in preparation for it.

[20] The Plaintiffs’ motions for contempt and for summary judgment remain outstanding, as does O’Gram’s motion to amend his Statement of Defence and Counter-Claim.

[21] In the latter, the Defendant seeks to amend the Counter-Claim to add the claims for:

• damages in an amount equal to the difference between the debt secured by the mortgage and the market value of the lands and premises sold by the Plaintiffs pursuant to the Power of Sale provisions in the mortgage, and
• damages in the amount of $106,000 being the market value of chattels wrongfully and illegally seized by the Plaintiffs.

The additional grounds alleged are:

• the Plaintiffs failed to take reasonable care to obtain a proper price on the sale of the real property, and
• the Plaintiffs failed in their duty to the Defendant O’Gram to obtain the true market value by:
  a) failing to advertise the sale to a broad enough market;
  b) failing to advertise and market the property for a reasonable period of time;
  c) failing to accept the offer of the Defendant and or Donald T. Richie to pay the outstanding balance of the debt prior to taking enforcement proceedings.

THE MOTION FOR SECURITY FOR COSTS

[22] On the return of the motion for security for costs on August 6, 2014, there was some initial debate over whether O’Neill, J.’s order of June 10, 2014 had been followed in preparation for the hearing of the motion, and over whether any outstanding materials were relevant. However, neither side sought an adjournment, nor to deal with these issues further.

[23] The motion, as previously noted, was first returnable July 5, 2013. The grounds were that the Defendant, O’Gram, has made a frivolous and vexatious claim against the Plaintiffs and has insufficient assets in Ontario to pay for the costs of the Defendants by way of counter-claim. That would be under Rule 56.01(1)(e). However, there have been two costs orders in the interim which remain unpaid. Defence counsel conceded that. Therefore, the Plaintiffs’ counsel principally relied on Rule 56.01(1)(c) for the purposes of the motion.

[24] The Plaintiffs sought security for costs in the amount of $40,000. Their counsel submitted that the Plaintiffs’ claim was a straightforward one for a shortfall of about $50,000 on the mortgages that would take little trial time, and that it would be the subject of a motion for summary judgment anyway. However, the counter-claim, which is still subject to the outstanding motion to amend, had resulted in a “snowball of litigation”, particularly the motions and examinations to date, and would continue to be heavily litigated. Five days of trial was her estimate of what would be required for the counter-claim, to which she attributed $30,000 of costs. This was in addition to the outstanding motions for contempt, summary judgment and to amend pleadings, and the over $12,000 in outstanding costs orders to date. The motion for summary judgment was, she admitted, the Plaintiffs’, but the defence wanted to cross-examine on the affidavits made in support. Also, there was said to be some lack of clarity around the proposed amendment to the counter-claim, as there had been a subsequent proposal for a further or different amendment from that in the outstanding motion to amend. She also noted the unreliability of and contradictions in the Defendant’s information and the consequent effort needed on the part of the Plaintiffs to establish various facts. Consequently, the quantum of costs was a moving target, she said.

[25] Defence counsel submitted that the Statement of Defence and the Defendant’s affidavit of July 3, 2013 indicate that there are reasons to invalidate the GSA, and that there are no affidavits from lawyers or staff in Oldham Law Firm to contradict the Defendant’s foundation for his argument that the GSA is invalid. Also, the Plaintiffs have seized assets under court orders based on the GSA, some of which assets were not the Defendant’s. They seized everything, leaving the Defendant unable to carry on business even at another location. Furthermore, there is the Defendant’s allegation of improvident sale for which the Plaintiffs would be liable to the Defendant. Therefore, he argued that there are legitimate issues for trial and that the Statement of Defence and the Counter-Claim are intertwined as they are both based on the GSA and the actions of the Plaintiffs. Where the Plaintiffs have taken the Defendant’s assets and prevented him from carrying on business, it would not be fair or just to order him to pay security for costs, he submitted.

[26] In addition, defence counsel argued that the Defendant is impecunious and so has no ability to pay security for costs. The affidavit evidence revealed over $150,000 in judgments and costs awards against the Defendant. The Plaintiffs had taken his assets which he could have used to pay his debts. The garnishment documents indicated that he had been earning $37,000 per year at Canadian Tire, where he is no longer working, with which he had to support himself, his spouse and his child as well as pay the debts. He could not borrow to pay the outstanding costs orders, let alone security for costs.

[27] Next, with respect to the nature of litigation, defence counsel argued that, contrary to the Plaintiff counsel’s allegations, the Defendant’s actions in the case such as responding to the Plaintiffs’ notices of motion, cross-examinations on affidavits in support of the motion to find him in contempt, moving to remove Plaintiffs’ counsel and moving to amend the counter-claim were appropriate in the circumstances. So, they should not be seen as ways the Defendant has improperly run up the costs so as to justify ordering security for costs as the Plaintiffs’ counsel had suggested.

[28] Finally, defence counsel said the counter-claim would be tried together with the main action. The argument would be over the GSA’s validity and there would be an examination of what was seized and whether it was sold appropriately. It is tricky to separate the time needed for the counter-claim. The issue of the Defendant’s damages for lost income would take a day and not cost a lot of money, he submitted.

LAW

[29] Security for costs may be awarded under Rule 56 of the Rules of Civil Procedure, parts of which are set out here for convenience of reference:

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,

(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;
(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;

[30] The court’s authority to deal with security for costs in this case arises from the Plaintiffs’ status as Defendants to the Counter-Claim. (Wilkings v. Velocity Group Inc. [2008] O.J. No. 1101). For simplicity, I have continued to refer to Stern and Roy as the Plaintiffs and to O’Gram as the Defendant throughout.

[31] There is a substantial body of case law on the topic of security for costs. A convenient summary of that was set out by Master B. T. Glustein in T.S. Publishing Group Inc. v. Shokar [2013] O.J. No. 1506 at paragraph 35:

The parties agree that the following legal principles apply:

(i) The moving party on a motion for security for costs has the initial onus “to show that it appears that the factor it relies on as the basis for the motion (one of the 6 subheadings under the Rule) exists. The moving party is not required to establish with certainty that this is the case – only that it appears to be.” (Shuter v. Toronto Dominion Bank, [2007] O.J. No. 3435, 2007 CarswellOnt 5732 (Mast.) (“Shuter”) at para. 60);
(ii) Once the moving party meets the initial onus, “the moving party has a prima facie right to an order for security for costs. This right, however, can be displaced during the second stage of the inquiry”. At this second stage, “the onus shifts to the responding party” (Shuter, at paras. 60 and 63);
(iii) a plaintiff who seeks to establish impecuniosity as part of the “second stage of the inquiry” must lead evidence of “robust particularity”, with full and frank disclosure of the financial circumstances of the corporate plaintiff and its principals. The plaintiff must provide supporting documentation as to its income, expenses and liabilities (Printing Circles Inc. v. Compass Group Canada Ltd., 2007 57095 (ON SC), [2007] O.J. No. 5066, 2007 CarswellOnt 8356 (S.C.J.) at para. 7; Shuter, at para. 74)
(iv) The high evidentiary threshold to establish impecuniosity 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. “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, and a corporation to submit its last financial statement and current financial projections” (Shuter, at paras. 75-76; Uribe v. Sanchez, [2006] O.J. No. 2370, 2006 CarswellOnt 3553 (Mast.) at para. 7);
(v) Where impecuniosity is shown, the plaintiff needs only to demonstrate that the claim is not plainly devoid of merit (Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 Div.Ct.) (“Zeitoun”) at para. 49, cited at Bruno Appliance & Furniture Inc. v. Cassels Brock & Blackwell LLP, [2012] O.J. No. 1667, 2012 CarswellOnt 4351 (S.C.J.) (“Bruno”) at para. 16);
(vi) Where impecuniosity has not been shown, a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. Where impecuniosity has not been shown, a legitimate factor in deciding whether or not it would be just to require security for costs is whether the claim has a good chance of success (Zeitoun at para. 50, cited at Bruno at para. 16); and
(vii) A “good chance of success” requires more than establishing a genuine issue requiring trial but is not as high as proving the claim on a balance of probabilities. The court in each case must review the pleadings, evidence, transcript and any other relevant fact before the court on the motion to determine if there is a good change the plaintiff will succeed at trial. Plaintiff’s “evidence” that relies solely on allegations in a statement of claim which are denied by the defendants without further evidence from the plaintiff does not support a good cause of action (Bruno Appliance & Furniture Inc. v. Cassels Brock & Blackwell LLP, [2012] O.J. No. 3620, 2012 CarswellOnt 9492 (Mast.), at paras. 47-51, and para. 61; affirmed, 2013 ONSC 686, [2013] O.J. No. 687, 2013 CarswellOnt 1630 (S.C.J.)).

[32] A more thorough review of the rule, case law and applicable principles can be found in Holmested and Watson, Ontario Civil Procedure, Volume 5.

ANALYSIS

[33] The Plaintiffs have met their initial onus in that they have orders for costs against the Defendant that remain unpaid.

[34] The onus then shifts to the Defendant to establish his impecuniosity. In the case of Printing Circles Inc. and Compass Route Canada Ltd., 2007 57095 (ON SC), [2007] O.J. No. 5066, Corbett J. explained at paragraph seven:

“Impecuniosity” relates to the totality of the financial circumstances of the responding party. Where, as here, the responding party is a closely held private company, the court will require cogent evidence that both the corporation and its shareholders cannot sell assets, borrow or otherwise raise the necessary funds to post the security. Evidence of impecuniosity must be set out with “robust particularity”, with “full and frank” disclosure of the financial circumstances of the responding party and its principals.

The Plaintiffs’ counsel argued that the Defendant’s evidence on point falls short of “robust particularity”. Indeed, it is limited to the following list of debts, totaling $150,195.79:

1- Parry Sound Auto Parts $77,306.98
2 - CIBC Mortgage $60,273.81
3 - Costs awards of October 2, 2013 $6,615.00
4 - Costs awards of June 5, 2014 $6,000.00

The affidavit of his former spouse, Jenny Berube, filed by the Plaintiffs, is dated July 4, 2013 and is therefore somewhat dated, but indicates that the Defendant was in arrears for municipal taxes and utilities in unspecified amounts.

[35] The affidavit of Janet Borneman dated July 24, 2014, also filed by the Plaintiffs, indicates that the debt to Parry Sound Auto Parts had increased to over $81,500 and that there had been a garnishment in place while the Defendant worked for Canadian Tire, but that he had terminated his employment there as of June 7, 2014. There was also an allegation that the Plaintiffs had been advised by the Defendant that he owed Revenue Canada $180,000, but defence counsel demurred on this point.

[36] Also, as previously noted, the Defendant had been earning only an estimated $37,000 per year at Canadian Tire. His income other than that is unknown.

[37] Although, based on the available evidence, I have reason to suspect that the Defendant is impecunious, I decline to make that finding. The evidence falls short of “robust particularity” or “full and frank disclosure”. It was open to him to present more and better evidence than he did. For example, if the alleged debt to Revenue Canada existed, he could have shown evidence of it. If it had existed and no longer did, that would suggest an ability to pay which might undermine his argument that he is impecunious. The Defendant cannot use his alleged but unproven impecuniosity to shield him from a security for costs order.

[38] Impecuniosity having failed to be shown, I move on to other considerations affecting the decision on whether or not it would be just to make a security for costs order.

[39] Faced with this situation in the case of North Chinese Community of Canada v. 1673520 Ontario Inc., [2010] O.J. No. 578, Master M. Sproat stated at paragraphs 36 and 37:

36. Although I have concluded that the Plaintiff is not impecunious, I consider whether “injustice” would operate to allow the Plaintiff to avoid a security for costs order, in the event I am in error in concluding that the Plaintiff is not impecunious. The court in the exercise of its discretion must examine whether there are factors that can be found that would allow the court to fashion a result that is “just”. This to my mind involves a consideration of a number of relevant factors including the merits of the action.

37. Ultimately, the discretionary nature of the relief sought by the Defendants requires the court to consider relevant factors to arrive at a just result. Such factors are not, in my view, restricted to injustice to plaintiff but would also allow a consideration of injustice to the defendant, and equities generally.

He then went to consider the merits of the Plaintiff’s claim. Finding it to be frivolous, he ordered security for costs.

[40] Previously, in Shuter v. Toronto Dominion Bank, 2007 37475 (ON SC), [2007] O.J. No. 3435, Master J. Haberman stated at paragraphs 79, 80 and 81:

79. In more recent years, the court has stated that the merits of a case is a relevant factor even where impecuniosity has not been raised, or by extension, where it has been raised but not established. Though neither party provided it, the decision of Kitely J. in Padnos v. Luminart (1996), 1996 11781 (ON SC), 32 O.R. (3d) 120 has repeatedly been accepted as a correct statement in this regard. As the learned judge stated, the merits must be considered whether or not impecuniosity has been raised and established as a response to the motion, their significance increasing as one moves through the six factors from the top to the bottom of the Rule.

80. Padnos was followed by Himel J. in Chacula v. Baillie 2004 27934 (ON SC), 69 O.R. (3d) 175. There, the learned judge stated there that where a plaintiff has not established impecuniosity but maintains that having to post security would deprive it of its cause of action, the court may still consider the merits when exercising its discretion under the rule.

81. Where impecuniosity has not been established, however, the onus of proof on a plaintiff regarding the merits is generally more onerous. This is because the court need not be concerned that the litigation will definitely be derailed if the plaintiff is ordered to post security. Thus, in Morton v. HMQ Canada, supra, Quinn J. held that some flexibility was required when reviewing the merits in such instances, adding that “a real possibility of success may be enough in some circumstances.”

[41] “Insofar as the merits of the Plaintiff’s claim factor into the exercise of the court’s discretion whether or not to order security for costs, the proper consideration is whether the claim is frivolous or devoid of merit”. (Intellibox Concepts Inc. v. Intermac Technologies Canada Ltd. [2005] O.J. No. 1087 paragraph 7.)

[42] Security for costs has been denied where, as here, there is a “substantial coincidence” between the allegations that constitute the defence and those that support the counter-claim, or, to put it another way, the counter-claim is a reiteration of the defence in the main action. Underlying this is the principle that a party should not have to post security for costs as a condition of defending itself. (J. I. Case Canada, a division of Tenneco Canada Inc. and Gowland’s Recreation and Farm Ltd. [1998] O.J. No. 323 and Wilkings v. Velocity Group Inc., [2008] O.J. No. 1101.)

[43] Turning to the merits of the case, despite the strenuous arguments of the Plaintiffs’ counsel to the contrary, I find that the Defendant’s case is not obviously without merit. It is not, of course, appropriate or even possible to decide the case finally on the merits at this point. However, the Defendant has sworn without contradiction on behalf of the Plaintiffs to a set of circumstances surrounding the execution of the GSA which, if proven, could support both a defence to the Plaintiffs’ claim and his counter-claim against them. He stands a good chance at success. The Plaintiffs’ counsel argued that the validity of the GSA was inconsequential because various creditors would have taken the Defendant’s assets anyway. With respect, I disagree. Debts can be enforced by means other than seizing or selling a debtor’s assets. The very act of doing so can compromise the ability a debtor would otherwise have had to service his debt load. Indeed, this appears to have happened here, to some extent. The orders obtained by the Plaintiffs with respect to the Defendant’s assets were reviewed above. Whether or not the Defendant has been rendered impecunious by the Plaintiffs’ actions, their actions will have had a negative impact on his ability to both defend himself and prosecute his counter-claim.

CONCLUSION

[44] Given that the defence and counter-claim are as intertwined as they are, requiring O’Gram to post security for costs for the counter-claim would amount to requiring him to post security as a condition of defending himself. Although his evidence fell short of the type and extent required by the case law to prove that he is impecunious, the Plaintiffs’ enforcement actions to date will have hurt him financially, quite conceivably to the point where he would have difficulty continuing with this litigation. His position is not obviously without merit. Indeed, to the extent that such can be determined at this stage, it appears that he has a good chance of success in his defence and counter-claim. The matter should be decided on its merits. Therefore, I find that it would not be just in the circumstances to order O’Gram to pay security for costs, and I decline to do so. The motion is dismissed.

COSTS

[45] If the parties cannot agree as to the costs of this motion, O’Gram may serve and file costs submissions within 20 days. The Plaintiffs will have 10 days after those 20 days in which to respond. Submissions shall be limited to three double-spaced paragraphs, and supporting materials.

Justice James A. S. Wilcox

Released: September 11, 2014