SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-12-468349
DATE: 2014/10/03
RE: HANSON MANUFACTURING INC., Plaintiff
AND:
SF PARTNERS INC. AND DANBURY SALES LIMITED, Defendants
BEFORE: MASTER RONNA M. BROTT
COUNSEL:
Donna N. Wilson, Counsel, for the Plaintiff/Responding Party
Megan Marrie, Counsel, for the Defendant SF Partners Inc. /Moving Party
HEARD: May 12, 2014
ENDORSEMENT
[1] The plaintiff Hanson Manufacturing Inc. (“HMI”) conducts business in the design and manufacturing of specialty beverage containers. HMI and it affiliated companies, Hanson Marketing Inc. and Hanson International Inc. designed and built an assortment of moulds used in the production of its line of products. In or about June 2007 HMI entered into an arrangement with 20928737 Ontario Inc. c.o.b. as Mia Foods (“Mia”) to store the HMI moulds on Mia’s premises. It was agreed that Mia would keep the HMI moulds separate from other Mia assets. In or about April 2009 and without notice to HMI, Mia made an assignment in bankruptcy. The defendant SF Partners Inc. (“SF”) was appointed the Trustee in bankruptcy of Mia.
[2] SF took control of the HMI moulds and, without notice to HMI, SF instructed the defendant Danbury Sales Limited (“Danbury”) to dispose of the HMI moulds The moulds were sold and delivered to an unknown buyer for scrap and they were subsequently destroyed. HMI has allegedly not conducted business since the moulds were destroyed. This action arises from the wrongful sale and destruction of the moulds.
[3] SF brings this motion for security for costs. Rule 56.01(d) permits the court to exercise its discretion to “make an order for security for costs in circumstances where 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”.
[4] This is a two-stage process:
The defendant must show “good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant”. Once shown,
The onus is on the plaintiff to lead evidence to show it has sufficient assets in Ontario or to demonstrate impecuniosity and justice demands that it be allowed to proceed without posting security for costs, notwithstanding its impecuniosity.
[5] The defendant SF obtained a corporation profile report for the plaintiff corporation which evidences that HMI was cancelled on February 5, 2011 for failure to comply with the Corporations Tax Act. HMI filed articles of revival on September 14, 2012. After the defendant’s requests for financial information and disclosure with respect to the plaintiff’s sufficiency of assets, plaintiff’s counsel advised on April 26, 2013 that HMI “has assets of approximately $300,000.00”. No details of HMI’s assets were delivered. The Corpa Report found that HMI is operated out of a residential address against which there is a mortgage, that HMI does not own property or vehicles in Ontario, that the plaintiff has no bank accounts in Ontario (with the “big 6”) and there is a lien registered under the Personal Property Security Registration System.
[6] In my view the defendant SF has satisfactorily demonstrated that there is good reason to believe that HMI has insufficient assets to pay the defendant SF’s costs.
[7] John Fraser Hanson, age 77, is the sole shareholder of HMI. His evidence is that the plaintiff’s only assets are the undestroyed moulds. HMI cannot borrow money and his personal situation is “tight”. He lives in a condominium valued at $540,000.00 with a mortgage of $350,000.00. His wife suffers from dementia so to sell the condo and move would be extremely disorienting. Furthermore, he states that if forced to sell the condo, he could not continue the action. Their line of credit of $95,000.00 is “maxed out’”. He lives off Old Age Security and CPP in the amount of $2555.00/month. Their condo expenses approximate $1500.00/month. All of his RRSPs were cashed in when the moulds were destroyed and his income from HMI ceased. His son occasionally lends him money to cover personal expenses.
[8] There is evidence that the cost of the undestroyed moulds is $263,369.00 but if HMI is forced to sell those moulds, the plaintiff would “lose the only source of potential new income going forward”. He confirmed that none of the affiliated companies have any assets.
[9] The defendant SF’s estimated partial indemnity costs are $134,430.97. I am satisfied that the plaintiff has satisfactorily demonstrated that it/he has sufficient assets in Ontario to satisfy a costs award of the defendant SF. The plaintiff’s equity in his condominium and the moulds which continue to be in the plaintiff’s possession satisfy me that his assets are sufficient. Although he is averse to parting with either, I find that those assets would be sufficient to satisfy a costs award of the moving defendant.
[10] In the alternative, if HMI were to be found impecunious, I would exercise my discretion to find that to order the plaintiff to pay security would not be just. The intention of rule 56.01(1) clearly states that the court “may make such order for security for costs as is just”. Further rule 1.04(1) states that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.
[11] In the further alternative, even if not impecunious but with few assets, I would exercise my discretion because in my view the financial circumstance of the plaintiff arises from the alleged wrongful act of the defendant. To order security for costs requested will cause an injustice by preventing the plaintiff from pursing this action.
[12] For these reasons, the motion is dismissed.
Costs
[13] In the ordinary course, costs follow the event and are therefore payable by the moving party SF to the plaintiff. SF submits that because the plaintiff initially adjourned the motion, requesting additional time to file responding materials, and because the delivery of the plaintiff’s materials was late, the plaintiff should not be entitled to its costs.
[14] Rule 57 sets out a number of factors to be considered including inter alia, the amount claimed in the proceeding, the complexity of the proceeding, the importance of the issues, the conduct of any party that tended to delay the proceeding or whether any step in the proceedings was improper or unnecessary. Further, the quantum of costs should be deemed to be reasonable to the unsuccessful party.
[15] The plaintiff is seeking almost $1.5 million for his lost moulds and lost income. This motion was not complex but was extremely important to the plaintiff whose evidence was that if unsuccessful on the motion, it/he would lose its ability to continue with the action. Although the plaintiff was late in the delivery of the materials, SF has taken a tough stance throughout – specifically by opposing the plaintiff’s initial request for an adjournment when SF knew of the plaintiff’s precarious financial situation.
[16] The plaintiff seeks costs in the amount of $5237.50. Clearly the unsuccessful party would find the plaintiff’s costs reasonable in light of its own costs outline in the amount of $7356.28. Costs are accordingly ordered payable forthwith in the amount of $5237.50 by the defendant SF Partners to the plaintiff.
MASTER RONNA M. BROTT
Date: October 3, 2014