SUPERIOR COURT OF JUSTICE - ONTARIO

CITATION: BLUE SIMCOE DEVELOPMENTS INC. v. 714222 ONTARIO INC., 2015 ONSC 1258

COURT FILE NO.: CV-12-454637

MOTION HEARD: FEBRUARY 25, 2015

RE: Blue Simcoe Developments Inc., Perfect Northern Developments Corporation, 1662893 Ontario Inc., and 1662894 Ontario Inc.

v.

714222 Ontario Inc. o/a Terraprobe Limited and Terraprobe Inc.

BEFORE: MASTER R.A. MUIR

COUNSEL: John S. McNeil Q.C. for the defendant Terraprobe Limited Solomon Ross Fischhoff for the plaintiffs

ENDORSEMENT

[1] The defendant Terraprobe Limited (“Terraprobe”) brings this motion for an order requiring the plaintiffs to post security for costs pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). Terraprobe takes the position that the plaintiffs are corporations with insufficient assets in Ontario to pay any costs award that may ultimately be made in favour of Terraprobe.

[2] The plaintiffs are opposed to the relief sought by Terraprobe.

[3] Rule 56.01(1)(d) provides 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, . . .

(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.

[4] The test on a motion of this nature is summarized in the decision of Justice Lauwers in 855191 Ontario Ltd. v. Turner, 2011 ONSC 918 at paragraph 3. The moving defendant has the initial onus of demonstrating that the plaintiffs fall into one of the categories set out in Rule 56.01(1). This onus is not a heavy one. The defendant need only show that the plaintiffs are corporations and that there is good reason to believe that the plaintiffs have insufficient assets in Ontario to pay the costs of the defendant. The onus then shifts to the plaintiffs to tender evidence that they have assets available to respond to any costs order or to demonstrate impecuniosity and ask the court to make such order as is just in the circumstances.

[5] In my view, the evidence tendered by Terraprobe does not meet this onus. The evidence consists of an affidavit from a legal assistant and simply sets out vague and general allegations regarding the nature of the business carried on by the plaintiff corporations, the lack of partnership records and filings and the fact that corporate records were kept in the home of the principal of the corporations. There are also references to the fact that the plaintiffs failed to keep their corporate filings up to date. None of this establishes a good reason to believe that the plaintiffs have insufficient assets in Ontario to respond to an order for the payment of costs.

[6] In any event, I am satisfied that the plaintiffs have met their onus of establishing that they have an income producing asset available to respond to any costs order. The evidence shows that the plaintiffs have a beneficial interest in a mortgage having a net value of approximately $1,700,000.00. It is true that the mortgage was assigned as security for a loan in the amount of $3,000,000.00. However, the face value of the mortgage is $4,750,000.00. The loan documents make it clear that the loan was made on the security of the assignment of the mortgage and that the residual value in the mortgage belongs to the plaintiffs. The mortgage is to be re-assigned to the plaintiffs when the loan is re-paid.

[7] Counsel for Terraprobe argued that the plaintiffs’ evidence was insufficient because there is no reference in the loan commitment to the persons who appear as transferees on the transfer of charge by which the assignment of the mortgage was made. First, I would note that it would make no sense to transfer a mortgage as security for a loan to persons other than those who made the loan. Second, the names of the transferees are clearly referenced in the January 2014 agreement to amend the transfer of the mortgage as is the $3,000,000.00 loan.

[8] Finally, it is true that the plaintiffs’ balance sheet filed with CRA shows liabilities in excess of assets in the approximate amount of $770,000.00. However, only a small amount of the plaintiffs’ liabilities are current liabilities in the form of amounts payable. The other debts are in the form of amounts due to corporate shareholders and the $3,000,000.00 loan.

[9] For these reasons, Terraprobe’s motion is dismissed.

[10] The plaintiff has been successful and is entitled to costs in accordance with the court’s usual practice. Terraprobe does not take issue with the quantum of the partial indemnity costs requested, as the amount is very similar to the costs set out in Terraprobe’s costs outline. However, the plaintiffs seek substantial indemnity costs relying on an offer to settle dated May 13, 2014. The offer provided that the motion would be discontinued without costs if accepted within three days or upon payment of $3,500.00 to the plaintiffs thereafter. The offer was served long before any responding materials were prepared and in my view does not contain an element of compromise. I am not prepared to order substantial indemnity costs in these circumstances. In my view, it is fair and reasonable for Terraprobe to pay the plaintiffs’ costs of this motion on a partial indemnity basis, fixed in the amount of $11,992.10, inclusive of taxes and disbursements. These costs shall be paid within 30 days.

Master R.A. Muir

DATE: February 25, 2015