SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 03-CV-254717
Heard (on the issue of alleged impecuniosity): November 7, 2014
RE: 720441 Ontario Inc. v. The Boiler et al
BEFORE: Master Joan Haberman
COUNSEL: Dobson, C. for Dominion of Canada General Insurance Company
Davis J. for the Boiler Inspection and Insurance Company of Canada et al
Salsberg, B. for the plaintiffs
Forrest, B. for Dynes Insurance Brokers Limited et al.
Van Zandvoort, M. for Carpenter Co. et al.
REASONS – Impecuniosity
Master Haberman:
[1] On December 19, 2014, I released my reasons regarding the preliminary issue of the plaintiffs’ late-filed evidence. After hearing submissions of counsel and giving the matter careful consideration, I refused to grant leave to file the evidence, which was served months beyond the timetable ordered deadline; after the plaintiff had already been cross-examined and in direct breach of a court order that the law be researched before the affidavit was drafted.
[2] In order to avoid repetition, the facts outlined in the above Reasons are incorporated into these.
[3] It was agreed on the first day of hearing to use that day to deal only with that preliminary evidentiary issue, along with impecuniosity, an issue common to all 4 motions. It was agreed that we would defer the hearing of the individual motions pending release of my decision regarding impecuniosity.
[4] As I refused to grant leave to file new evidence, my consideration of evidence regarding impecuniosity is largely focused on the plaintiffs’ supporting affidavit, properly filed by May 2, 2014, as well as various excerpts of the transcript of Conen’s cross-examination that counsel brought to my attention. Based on these materials, as well as the submission of counsel, I am of the view that the plaintiffs have failed to make out a case for impecuniosity.
[5] In dealing with the preliminary evidentiary issue, I have also reviewed the excluded evidence, and received submissions regarding its admission. For completeness, I note that there is nothing in those materials that would have changed the outcome of this motion had that evidence been admitted. As that evidence has been excluded I will not review here in any detail but will, instead, point to the deficiencies in a general way.
THE LAW
[6] Perell J. articulated the basic principles that apply here in Montrose Hammond & Co. v. CIBC World Markets Inc. 2012 ONSC 4869, where he stated:
A party may rely on its impecuniosity as grounds to resist a motion for security for costs, particularly when the other party causes the impecuniosity. A litigant who relies on impecuniosity bears the onus of proof on this point and must do more than adduce some evidence of impecuniosity and must satisfy the court that it is genuinely impecunious with full and frank disclosure of its financial circumstances.
[7] When the plaintiff is a corporation, it must go a step further and show not only that it does not have assets, itself, but also that it cannot raise the funds ….from its shareholders and associates.
[8] In Shuter v. Toronto Dominion Bank 2007 37475 (ON SC), 2007 CarswellOnt 5732, I considered the nature and extent of proof that a plaintiff must tender in order to satisfy his onus in establishing impecuniosity. I agreed with Master Hawkins’s decision in Tallarico-Roberton v. Communique Group Inc. [2004] OJ No. 1648 where he made it clear that simply expressing a conclusion about one’s financial status without making financial disclosure to support it is fatal to demonstrating impecuniosity. I also reviewed other cases dealing with the subject and concluded as follows:
It appears from these passages that there is a high evidentiary threshold that must be met before a court can find that a plaintiff is impecunious, and that this threshold 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 returns, complete banking records and records attesting to income and expenses, and a corporation to submit its last financial statement and current financial projections.
[9] These comments have been repeatedly cited with approval in subsequent decisions of this court.
[10] As noted, when corporate plaintiffs are involved, they are held to a more stringent standard. Thus, in Crudo Creative Inc. v. Marin, et al. 60834, the Divisional Court focused its inquiry on whether the responding corporation had access to assets or funds, noting that a corporate plaintiff carries a significant burden of establishing direct and indirect impoverishment.
[11] The Court noted that there was no compelling evidence in that case that the plaintiff had made unsuccessful attempts to borrow or raise funds.
THE EVIDENCE, ANALYSIS, CONCLUSION
[12] An order for security for costs is specific to the party from whom it is sought. As a result, each party must demonstrate that they are impecunious – the evidence tendered regarding one does not necessarily apply to the other.
[13] In this case there are two plaintiffs: Comatec Inc. and Ella Conen, as estate trustee for the estate of her late husband, Joseph Broner. Each of the two is therefore required to demonstrate their impecuniosity.
Comatec
[14] Conen swore her affidavit in support of this motion on behalf of Comatec and as trustee for the Broner Estate on May 2, 2014, the actual due date for this completion of step, according to the March 2014 timetable order.
[15] At that time, she was still living in Toronto and still describing herself as the sole officer, director and shareholder of Comatec. In that capacity, Conen ought to have had full access to all relevant books and records of Comatec to make a case for impecuniosity if such a case was there to be made. She should also have had a good handle on Comatec’s financial situation. Her husband, Broner, had passed away in 2009, so she appears to have been solely responsible for the operation thereafter.
[16] When one reads her evidence and the transcript of her cross-examination, however, this does not come across. One is left with the sense that either Conen’s familiarity with Comatec is superficial or that she is intentionally not revealing as much as she knows. In either case, the results are problematic.
[17] Conen’s evidence regarding Comatec is as follows:
The company is for all intents and purposes insolvent;
Its operations are being closed in May 2014 (within the month that the affidavit as sworn);
Its assets consist of a large and a small Amada machine;
The large machine is being sold for $85,000, the small machine is wholly inoperable and I believe worthless (no particulars for that belief are included);
Comatec’s liabilities include about $ 15,000 severance pay owing to former employees and $15,000 owing for various expenses included source deductions;
About $34,000 is also owed to VISA for various corporate expenses charged to the card; and
Comatec owes Conen about $375,000 for repayment of her shareholder loan to the company.
[18] The only exhibit appended to the affidavit is Comatec’s unaudited financial statement for the year end December 31, 2010. The Notice to Reader shows that it was completed on August 15, 2011, so that by May 2014, one would have expected similar statements for the years ending 2012 and 2013. None were produced at this time, and there is no explanation in Conen’s evidence to explain why they were missing or why Conen chose to put forward this financial statement, only.
[19] This level of factual disclosure can hardly be described as complete and accurate, and the level of documentary disclosure is far from “full”. Instead, the evidence tendered is vague in the extreme. Although Conen is the sole officer and director of this company, to which she claims to have loaned in excess of $300,000, as at May 2, 2014, when on the brink of winding the company up, she was unable or unwilling to be more precise than the above.
[20] Conen does not say to whom the large Amada machine was being sold, when the sale was closing or how the price was arrived at. No documents about that are appended to the affidavit.
[21] Conen also says little about the small Amada machine. She does not explain why she believes it is inoperable and worthless, whether she looked into having it repaired and what the repair cost would have been relative to what she could have earned by selling it. When asked about this on cross-examination, she advised her view was based on what she was told by the company storing the small machine and she admitted that she had not attempted to sell it for scrap or otherwise.
[22] Conen fails to say who the employees are to whom severance pay is owed and how long it has been outstanding. We are not told when she started to wind up the company, and when employment of these individuals was terminated so there is no way to assess whether these people are still waiting and expecting to be paid. Similarly, what are these “various expenses” and source deductions not yet paid that Conen refers to?
[23] Conen has not produced Comatec’s VISA statements to show what the expenses were and to confirm that the outstanding balance is as stated, nor has she provided any information about her shareholder’s loan to the company. When did Conen lend money to Comatec? What was the amount of the original loan? How much has been paid back and when? How did Comatec manage that?
[24] Conen states that she expects to get $85,000 from the sale of the large Amada machine, from which she can pay off $15,000 for outstanding severance pay; $15,000 for “various expenses including source deductions: and the $34,000 VISA bill. These amounts together total $64,000. She claims she also expects to incur disbursements of $5,000 to $10,000 to defend these motions. She does not explain how she plans to run up $10,000 in disbursements.
[25] Taking Conen at her word, which the court is not required to do without corroborative documentary proof in a motion of this kind, at worse, there would be $11,000 remaining after the sale of the large Amada machine. In that regard, Conen claims that, as a secured creditor of Comatec, (no proof of this has been provided) she would get that, in preference to her current or former counsel.
[26] That is the sum total of Conen’s evidence regarding Comatec.
[27] Defence counsel were not required to cross-examine Conen on this evidence to allow her to flesh it out. In fact, strategically, it is something they ought to have avoided – the onus is on the plaintiff to present this evidence with robust particularity so if she fails to do so, the problem is hers.
[28] Here, however, efforts were made to get further particulars of Comatec’s financial situation and, though given an opportunity to shore up her deficient evidence, it appears Conen failed to take that opportunity. One of the issues counsel tried to explore was the shareholder loan she claims she made to the corporation. This was not an easy task as no documents that deal with it were contained in her original affidavit and it was only at cross examination that most counsel appear to have received access to Comatec’s and its predecessor’s financial statements from May 31, 1999 to Dec. 31, 2012.
[29] On page 65-66 of the transcript, Conen was asked about the initial source for the loan to Comatec. All Conen was able to say was that it probably came from her, more or less. Mr. Salsberg then interjected and told her not to answer any further questions about this, going back 14 years, when she was younger and operating an active business. In his view, how Conen came up with the money at that time was not relevant.
[30] Although I have excluded the second Conen affidavit, the financial statements filed by her just before or at her cross-examination are part of the record and a review of these make it clear why the questions were relevant.
[31] As a starting point, none of these financial statements are audited and Conen has provided no documentary evidence to support her assertion that her loan to the company makes her a secured creditor. She has also not established whether the advances came from her or from Broner, who did not pass away until 2009. It is not clear if the money she has been and plans to take out of Comatec has been going directly to her or to the estate. To the extent that monies are owed to the estate, there is no evidence to the effect that she is the sole beneficiary – we know from the evidence that there is a daughter in Israel. If the money went to the estate, there is no evidence that the estate is a secured creditor.
[32] Conen was also asked to whom loan repayments were made – to her or to her husband. Her response was that she did not recall. Though she confirmed that the records exist to clarify that, they were not produced with these materials or in the new affidavit which has been excluded.
[33] As counsel continued to ask about repayments of the loan in more recent years, Conen’s evidence became sketchier, and she indicated that she would have to ask her accountant.
[34] The actual numbers are also important and, again, confusing. We are provided with financial statements for the numbered company, 720441 Ontario Inc. from year end December 31, 1999 until year end December 21, 2006, as well as financial statements for Comatec from year ending December 31, 2004 until year ending December 31, 2012. No corporate registrations have been produced to explain this transition or whether the shareholder loans were transferred by the numbered company to Comatec. We simply have Conen’s evidence to that effect.
[35] The following shows the amount of the shareholder loan outstanding in any particular year, alongside the net income for that year. What they demonstrate is that the company operated largely in the red for most of its existence and that its failure does not appear to be related to Broner’s death or to the flood that gave rise to this litigation.
[36] The first group of financial statements relate to the numbered company. The company appears to have had significant problems from 2001 to 2002 inclusive. Despite large monetary injections from shareholders, the company kept losing ground, and year end losses increased. After years of meager earnings and some significant losses, the company suddenly made a profit of $1.2 million in 2003. This is not explained, nor is it clear how this followed after and during a year of very large cash injections from shareholders. That relatively large profit position seems to have evaporated within a year.
Year ending May 31, 1998
Advances from shareholder: 102,064 Net income (loss): (13,919)
Year ending May 31, 1999
Advances from shareholders: 9,141 Net income (loss): 10,534
Note makes it clear that the advances are unsecured, non-interest bearing and due on demand, unlikely to be repaid within the current year.
Year ending May 31, 2000
Advances from shareholder: 71,222 Net income (loss):9,486
The same note appears regarding the loan being unsecured and unlikely to be repaid in the current year.
Year ending May 31, 2001
Advances from shareholder: 441,816 Net income (loss): (500,753)
From this point in, there are no notes regarding the shareholder loan.
Year ending May 31, 2002
Advances from shareholder: 1,286,616 Net income (loss): (802,608)
Year ending May 31, 2003
Advances from shareholder: 1,351,757 Net income (loss): 1,225,936
Year ending May 31, 2004
Due to shareholder: 539,563 Net income (loss):180,435
Year ending May 31, 2005
Due to shareholder: 513, 051 Net income (loss): 12,917
Year ending May 31, 2006
Due to shareholder: 496,015 Net income (loss): 29,333
[37] Questions asked at cross-examination about where the money came from for cash advances during this time frame were, therefore, critical as they may have allowed a reader of these statements to understand what was going on here and why this fluctuation of cash infusions began and continued.
[38] There is no pattern of steady growth or of gradual decline. The company appears to have been struggling for a long time, then hit a one-off income spike, which immediately subsided. Throughout, the company was being shored up by shareholder loans and no explanation for this is provided.
[39] It is significant that a very large cash infusion (in excess of $1.2 million) was made before the flood loss that gave rise to this action so that event cannot be viewed as the catalyst. One can only wonder how the plaintiffs will ultimately prove their damage claim in the face of these numbers.
[40] Understanding this background may have assisted in getting a clearer picture of more recent times, as this lack of pattern has continued. The numbers, difficult to understand from the beginning, remain a mystery.
[41] Looking at Comatec’s numbers:
Year ending December 31, 2004 (Comatec)
Due to shareholder: 184,001 Net income (loss): (6,011)
Year ending December 31, 2005 (Comatec)
Due to shareholder: 110,784 Net income (loss): (589,074)
Year ending December 31, 2006 (Comatec)
Due to shareholder: 67,755 Net income (loss): (299)
Year ending December 31, 2007 (Comatec)
Due to shareholder: 337,010 Net income: 236,534
Year ending December 31, 2008 (Comatec)
Due to shareholder: 359,087 Net income (loss): (65,666)
Year ending December 31, 2009 (Comatec)
Due to shareholder: 560,715 Net Income (loss): (89,725)
Year ending December 31, 2010 (Comatec)
Due to shareholder: 662, 698 Net income (loss): (154,728)
Year ending December 31, 2011 (Comatec)
Due to shareholder: 611,980 Net income (loss): (76,819)
Year ending December 31, 2012 (Comatec)
Due to shareholder: 541,474 Net income (loss): 130,149
[42] For the 9 years for which evidence has been presented for Comatec, the business operated at a loss for all but two of them. In 2005, the loss exceeded $500,000. From the 2004 to 2006, the shareholder loan was reduced and it was down to 67,755 in 2006, but it was back up to being in excess of 300,000 by 2007. Where did Conen and Broner get these funds? Certainly not from Comatec, which had operated at a loss the previous year.
[43] Conen was again interrupted by her counsel when asked about the source of these sums. Initial questions were refused on the basis that the questions went too far back in time, though there was an ongoing series of loans to the company that were never paid down in full, so a complete history would have been very helpful.
[44] When asked about more recent loans, the response was that the money advanced to Comatec four years ago came from Conen’s inheritance from her parents. It simply does not ring true when Conen, who claims that both she and Comatec have serious money problems, advised that she does not remember how much she inherited from them when asked about this on cross-examination. People with serious money issues tend to recall when money came in and what is going out over such a short time.
[45] None of these issues were dealt with by Conen in her first affidavit, and questions about them were deferred when posed at cross-examination. There is also no indication anywhere as to why the shareholders kept sinking money into this venture when it only made a profit twice in all of these years. It is also unclear if efforts were made to involve others in the process of shoring up this company.
[46] These questions do not amount to fishing – it was the plaintiffs who bore the onus of demonstrating their impecuniosity. The lack of candour detracts from their ability to now claim that they have done so.
[47] I am not satisfied that Comatec has met its high evidentiary threshold. They have failed to provide full documentary support for their financial status or to explain many of the issues that arise on the face of the documents they have produced. Although these documents were only provided in the summer of 2014, the 2013 financial statement was not provided, nor were any tax returns provided for any year that the numbered company or Comatec was in operation.
[48] Only four further documents were produced in the excluded evidence that pertain clearly and directly to Comatec – copies of their financial statements for 2013; print outs of pages for 2 Comatec bank accounts, showing two years of history ending in October 2014; and a document entitled “Comatec’s Listing of incoming and outgoing funds”.
[49] The 2013 financial statement is unsigned and not accompanied by either a tax return or Notices of Assessment to establish that they are accurate. The pages from the bank statements do not identify them as being associated with Comatec, and many of the debits listed are questionable. It appears the business made regular purchases at grocery stores and also made purchases from a pharmacy and Canadian Tire.
[50] Nowhere does Conen state that these are the only bank accounts Comatec has world-wide. In any event, bank statements are only a snapshot, telling the story as of the date the record bears – monies can be withdrawn or deposited immediately after the pages are copied.
[51] On the basis of the above, I find that Comatec has not satisfied their onus. While they may appear to have little in the way of assets or income on this evidence, they have failed to establish that they are legally impecunious. The business still owned at least one machine at the time of the cross-examination, which may or may not be operable, and it had yet to be dissolved. In fact, it appears that was still performing contracts in 2014 as there are credits in the bank accounts beyond transfers from Ella Conen. Noen of this is explained. Comatec had to do far better in terms of disclosure to make its case.
Conen as Estate Trustee for Broner Estate
[52] Conen produced no documents as exhibits to her first affidavit that pertain to her personal or the estate’s financial situation. As the estate rather than Conen is the plaintiff, that is the party that should be disclosing income and expenses, assets and liabilities. There is no evidence about the estate at all in Conen’s affidavit. The plaintiffs seem to treat Conen and the estate as interchangeable. I will say more about that later.
[53] There is no evidence before the court as to whether the estate has been wound up and if so, how. Does the estate own stocks, bonds, real property? Who are the beneficiaries?
[54] Instead of providing any of this information, Conen speaks only of her personal worth, which, according to her, is meagre. This woman, who, with her late husband, appears to have had access to and to have injected over $1.3 million into this company over time now claims that at age 64, she is unemployed and unemployable with no marketable skills and that her clothing, furniture and personal items totalling around $15,000 constitute her sole assets, aside from a shareholder loan from Comatec which she says is wholly uncollectable. Despite its minimal value she apparently spent almost $4000 shipping her furniture to Israel.
[55] Conen does not deny that she receives any form of income. While she explains that she is not entitled to a pension as she never contributed to one and that she has no ability to borrow funds personally, she does not deny owning stocks or bonds or real estate. It is not enough, on a motion of this kind, for her to state that this is implicit when she says what her assets do consist of.
[56] Conen claims she owes about 80,000 Euros to her brother, who lives in Germany, and that he would like to be repaid. She does not explain when or why she took this loan and whether it all went to her or if any of it went into Comatec.
[57] Conen explained when cross-examined that she was moving to Israel to be near her married daughter and grandchildren as she has no business or relatives in Canada. Despite her sworn evidence about having no marketable skills, she says that she plans to start a small consulting business there, aimed at serving the Orthodox Jewish community. She was unable to provide any indication of what she anticipated her income and expense would be, though she was about to embark on this venture which she held it out as the source of her future stream of income.
[58] No copies of the estate’s tax returns are provided, let alone notices of assessment. To the extent that Conen has provided copies of her own tax returns, she has done so only in the excluded materials and they are unsigned. Both the 2012 and 2013 returns are dated October 27, 2014 so no notices of assessment would have been received yet. The delay in filing is not explained.
[59] No documents at all about Conen’s or the estate’s financial situation appeared until the excluded evidence, which only emerged on the eve of the return of this motion. Even then, what was included pertains to Conen personally, not to the estate, and involves bank statements, which by their nature are not static, and unsinged tax returns.
[60] At no point does Conen claim that these pages from bank statements represent all of the bank accounts she has worldwide. As she was about to move to Israel when cross-examined, it is not unreasonable to assume she had already set up bank accounts in that country. This is something Conen, who bears the onus on the motion, ought to have addressed. Instead, she claims her daughter is holding $19,000 in cash for her in her home.
[61] In terms of the estate, Conen advised when cross-examined that Broner had a will but that it was never probated. Nonetheless, she apparently inherited his estate under it. None of this is explained. Again, it seems Conen is treating herself and the estate as interchangeable.
[62] There are other gaps in Conen’s evidence. When she swore her first affidavit, she had not yet moved to Israel, so had ongoing living expenses here. Those ought to have been but were not been disclosed.
[63] What became of the proceeds of life insurance Conen received when Broner passed away in 2009? Where are the records to support the fact that Benbeth held a second mortgage on her condominium, and was therefore entitled to scoop the proceeds of sale on disposition? Where are the records that reflect how much Conen/Broner were repaid by Comatec? Is Conen’s evidence credible when she claims that she took $19,000 from the sale of the large Amada machine and gave it to her daughter, who is holding it for her in her home in Israel in cash, or is this simply a way to avoid disclosing the fact that she does, in fact, have a bank account in Israel?
[64] There are far too many questions left unanswered to be able to conclude that the estate, through Conen, has made full and fair disclosure of its financial status. On the basis of the foregoing, I am not satisfied that this plaintiff has met the onus to permit reliance on impecuniosity, regardless of the exclusion of the recent Conen affidavit.
[65] Accordingly, I find that neither plaintiff has made out a defence of impecuniosity to this motion.
NEXT STEPS – telephone case conference for further scheduling and costs
[66] If the parties are unable to agree as to the costs associated with this issue, I can be spoken to within 30 days of the release of these Reasons. This issue is discrete and can be dealt with before the motions are heard in their entirety.
[67] The parties now have my findings on the issue of impecuniosity insofar as it applies to all 4 motions. We can now proceed to schedule the remainder of this motion.
[68] There will therefore be a telephone case conference at 3:00 pm on January 27, 2015, to be arranged by Mr. Salsberg to arrange further hearing date(s). I can be reached at 416-326-3216 for that purpose.
Master Joan M. Haberman
Released: January 9, 2015