SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

COURT FILE NO.: CV-09-385853
DATE: 2014-10-06

RE: GRANITE INSURANCE COMPANY

Applicant

- and -

PEMBRIDGE INSURANCE COMPANY PEMBRIDGE et al.

Respondents

BEFORE: Newbould J.

COUNSEL:
Sean N. Zeitz and Ian Klaiman, for the Applicant, Granite

Calie Adamson, for the Respondent, Pembridge

HEARD: October 2, 2014

ENDORSEMENT

[1] Granite appeals from the order of Master Jean requiring Granite to post security for costs of $175,000. The order was made on the basis of rules 56.01(a) and (d).

[2] Rule 56.01(a) provides for an order for security for costs, if just, where it appears that the applicant is ordinarily a resident outside of Ontario. The Master held that Granite is ordinarily a resident outside of Ontario. In my view, the Master erred in law in so concluding and she misapprehended the evidence and overlooked other evidence that was central to the issues before her.

[3] Granite stopped writing new insurance in 1990. Since then, its business was only to deal with its run-off i.e. administering and paying claims to insureds and obtaining proceeds for those claims from its reinsurers. By 2005, the run-off of its business was complete.

[4] The Master stated that the test as to where a company resides is “where one keeps home and does business,” taking that test from another case. However, that cannot be the test when no business is being conducted. The test of residency of a company is normally where the directors and management of the company reside.

[5] In this case, the Master concluded that the central management and control of Granite “resides elsewhere.” She based this conclusion on erroneous statements of the evidence. She referred to the fact that the affiants on affidavits resided in one case in Indiana, and in the other in Indiana and Florida. However, neither affiant is an officer or director of Granite. The Master held that Douglas Symons, who resides in Indiana, was the CEO of Granite based on his statement in a 2009 affidavit. She overlooked, however, that on October 30, 2013, Granite’s directors and officers were elected and that Douglas Symons is not one of them.

[6] The Master stated that she considered where Granite does its business and that it does not do any business in Ontario. That does not mean it is doing business elsewhere. It is doing no business, having completed its run-off business by 2005. The Master erred in holding that the test in this case was where it does its business or keeps a home. That is not ordinarily where a company resides, and certainly not in this case.

[7] The Master stated that the only evidence put forth as to Granite’s connection to Ontario was to two addresses of Granite in Ontario, which she did not accept as places of business of Granite. She erred in this and overlooked or ignored the uncontradicted evidence that the directors and officers of Granite resided in Ontario, three in Toronto and one in Caledon.

[8] Granite has a capital account at RBC Dexia in Ontario opened many years ago that holds approximately $1.2 million in trust under the supervision of OFSI to pay any outstanding liabilities of Granite to policyholders, of which there are now none.

[9] Having made findings that were clearly wrong and were palpable and overriding, the conclusion of the Master cannot stand and it is left for the court on appeal to make a determination.

[10] In my view, where the officers and directors all reside in Ontario and the only or main asset of Granite is its capital account at RBC Dexia in Ontario, it cannot be said that it appears that Granite is ordinarily resident outside Ontario.

[11] Rule 56.01(1)(d) provides for an order for security for costs, if just, where it appears that the applicant is a corporation and there is good reason to believe that the applicant has insufficient assets in Ontario to pay the costs of the respondent.

[12] The Master held that there is good reason to believe that Granite has insufficient assets and that Granite did not show that it did have sufficient assets. Again, in my view, she erred in this conclusion.

[13] The issue is as to the state of the $1.2 million capital account at RBC Dexia. It is a trust account under a trust agreement among the predecessors of Granite and RBC Dexia and the Minister of Finance (for OFSI).

[14] RBC Dexia by the terms of the trust is to hold the funds deposited “solely for the protection of policyholders in Canada”. It is clear and not contested that there are no such policyholders any more. They were all paid by 2005. Thus, the purposes of the trust have been spent.

[15] The Master held that the funds in the account could not be available to pay a cost order because OFSI must authorize any payment. In his affidavit, Robert Symons deposed at para. 29 that OFSI was prepared to release the funds subject to Granite providing updated financials and that the money in the account belongs to Granite.

[16] The Master referred to a statement by Robert Symons in his affidavit at para. 33 in which he stated that one of the requirements of OFSI is for Granite to deliver audited statements, for which arrangements have been made to obtain them. The Master held that based on that statement there were other requirements of OFSI and, as they had not been disclosed, she drew an adverse inference against Granite and found that the other requirements of OFSI were onerous or prejudicial to Granite’s position on the motion.

[17] This conclusion of the Master was speculative, and overlooked the statement of Douglas Symons at para. 29 of his affidavit that OFSI was prepared to release the funds subject to providing updated financials. There was no cross-examination on this statement and the implication drawn by the Master of onerous or prejudicial requirements was unfair and unwarranted. As early as February 28, 2009, OFSI had advised the auditors of Granite that it had no remaining liabilities.

[18] The Master stated that it is clear that the trust was established for a purpose that has not been conclusively exhausted as of yet. This statement was in error. The purpose of the trust, to protect policy holders of Granite in Canada, has been spent. There are no longer any such policy holders to be protected.

[19] What exactly gives OFSI the right to an audited financial statement is not clear. It certainly is not contained in the trust agreement. Paragraph 24 of the trust agreement requires the parties to do all acts necessary to give full effect to the agreement. In light of the fact that it is admitted that there are no liabilities to any policyholders, I do not see how OFSI could refuse to release the funds. It may be a matter of administrative convenience for it to want an audited financial statement, but that cannot detract from the fact that the funds belong to Granite.

[20] The Master also referred to paragraph 12 of the trust agreement that permits OFSI to direct that the funds be vested in the Receiver General. That provision is irrelevant. If the direction were made, paragraph 12 states that the funds would be held in trust for Granite. There could be no suggestion that the funds could not remain the property of Granite. As well, in light of the fact that there have been no liabilities since 2005 that need protection of the fund, there would appear to be no basis for OFSI to direct the funds to be vested in the Receiver General, and there was no evidence that OFSI was considering doing that.

[21] The Master made palpable and overriding errors in her factual conclusions on this issue. She also overlooked the fact that the funds in the trust account were exigible. See National Trust Co. v. Lorenzetti (1983), 1983 1626 (ON SC), 41 O.R. (2d) 772.

[22] It was argued that there may be other claimants to the money such as Mr. Ken Symons who at one point said he was owed $1 million for back salary and pensions. There has been no action started and this assertion is speculative. Moreover, the mere possibility without more that the money will be used for something else is not a ground for security for costs. See 671122 Ontario Ltd. v. Canadian Tire Corp. (1993), 1993 8606 (ON CA), 15 O.R. (3d) 65 at paras. 7 and 8.

[23] Again, in light of the serious errors made by the Master, it is up to the court on appeal to make the required order. In my view, it cannot be said that there is good reason to believe that the plaintiff has insufficient funds in Ontario to pay the costs of the respondent.

[24] The applicant filed an undertaking on the motion that it will not transfer in any way from the capital account up to $175,000 as may be required to secure the respondent Pembridge’s costs in this matter. In my view, this undertaking should remain until further court order.

[25] Had I held that there were grounds to order security for costs, I would not have changed the quantum of $175,000 ordered by the Master or the decision that they be paid by way of a lump sum rather than by periodic payments. It was within the discretion of the Master to make that order and there was no error in principle in her doing so.

[26] The appeal is allowed and the order of the Master is set aside. Granite is entitled to its costs below, which the parties agreed should be $15,000 (the reference to $30,000 in the reasons of the Master is agreed to have been made in error). Granite is also entitled to the costs of the appeal which I set at $17,500. Costs to be paid to Granite within 30 days.

Newbould J.

Date: October 6, 2014