720441 Ontario Inc. v. The Boiler et al, 2015 ONSC 3550

COURT FILE NO.: 03-CV-254717

Heard (motion brought by Boiler): March 11, 2015

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 720441 Ontario Inc. v. The Boiler et al

BEFORE: Master Joan Haberman

COUNSEL: Davis, J.L. for the moving party, Boiler

Salsberg, B. for the responding parties

REASONS (Boiler’s motion)

Master Haberman:

[1] This is the third in a series of decisions dealing with four motions for security for costs brought by the defendants in this action. On December 19, 2014, I released Reasons, refusing to allow the plaintiffs to file new materials late in the day and well beyond timetabled deadlines. On January 9, 2015, I released Reasons with respect to the common issue of the plaintiffs’ alleged impecuniosity, as it applies to all four of the motions, concluding that the evidence was insufficient to allow me to find that either plaintiff had established impecuniosity. At that time, I noted that the excluded materials would not have altered that conclusion had I granted leave to file them.

[2] On March 11, 2015, I heard full submissions with respect to the merits of Boiler’s motion, as well as submissions of the remaining moving parties with respect to the merits of their motions. What remains has been adjourned to be heard on June 23, 2015.

[3] In the context of my two earlier sets of Reasons, I have already reviewed a significant portion of the evidence. I will not repeat what has already been said but will endeavour here to restrict my reference to evidence only as it relates to the additional issues raised by the merits of this motion.

[4] This decision deals with the motion brought by the defendants, Boiler, only with respect to entitlement to security for costs, as more information is needed before I can fix quantum and terms.

THE LAW

Legal Test That Applies When Impecuniosity Has Not Been Proven

[5] The plaintiffs’ allegation of impecuniosity was addressed as a joint issue, common to all 4 motions. It was dealt with in advance of the remainder of each motion on counsels’ suggestion, which I agreed with, as resolution of that issue would determine the plaintiffs’ burden of proof regarding the merits with respect to each of these motions.

[6] Case law directs that we treat plaintiffs who have established impecuniosity differently from those who have not when determining the order that is just on a security for costs motion. When impecuniosity has not been alleged, or has been alleged but not established, the plaintiff has a higher burden as regards the merits of their claim when trying to avoid having to post security.

[7] This is a sensible approach. As Ontario is a cost jurisdiction, the purpose of Rule 56.01 is to ensure that those who turn to our courts for assistance are generally able to fulfill the court’s expectations, which include paying costs if and when ordered to do so.

[8] As the Rule directs the court to make the “order that is just”, the cases have carved out an exception for plaintiffs found to be “impecunious”, a term that has been defined by case law. This exception is based on the premise that it could be unjust to deprive a plaintiff of the ability to achieve a just result due to his inability to pay costs. In those situations, a plaintiff need only show that his claim is not devoid of merit.

[9] Where impecuniosity has not been established, however, there is no legally recognized impediment, so the burden placed on a plaintiff for proceeding without posting costs is necessarily higher – something more is needed for the green light. This properly reflects the fact that Ontario is a cost jurisdiction.

[10] As a result, where impecuniosity is not alleged or not proven, it is not enough for a plaintiff to show that their claim is not devoid of merit. In these instances, the onus is on the plaintiff to show that their action has a good chance of success in order to avoid the imposition of the order sought (see Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP 2013 ONSC 686, 2013 CarswellOnt 1630, and on appeal, 2013 CarswellOnt 9210; Stojanovic v. Bulut, 2011 ONSC 874; Cigar500.com Inc. v. Ashton Distributors Inc., 2009 46451 (ON SC), [2009] OJ No. 3680; Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 OR (3d) 131). Where the plaintiff is able to demonstrate this, the order that is just could include that no security at all need be posted.

[11] In assessing whether the plaintiff has met this onus the court reviews all relevant facts that emerge from the evidentiary record. The courts have discussed what it means to have a good chance of success, concluding that the onus is not as high as establishing that, on a balance of probabilities, the claim will succeed, as would be required at trial. It also does not require that the evidence identifies no triable issue, as would be the case for success on a summary judgment motion.

[12] Though the onus does falls short of what the plaintiff must accomplish in those two proceedings, it is, nonetheless, a high one. It is not enough to show that the plaintiff has a chance of success – he must have a good chance.

[13] It is with that test in mind that I turn to the facts as they apply to the defendant, Boiler.

The Two-part test

[14] The seminal case that governs the court`s approach to these motions remains Hallum v. Canadian Memorial Chiropractic College (1989), 1989 4354 (ON SC), 70 OR (2d) 119, where he stated:

Rule 56.01 which empowers a court to order security for costs established a two-step inquiry. First, the defendant must show that it “appears” that one of the six factors set out in paragraphs (a) though (f) of Rule 56.01 exits. Secondly, if the defendant can clear the first hurdle, the court may make an order as to security for costs “as is just.” I take this second stage to require an inquiry into all factors which may assist in determining the justice of the case. I also take the discretion created by this second stage as permitting orders which range from an order requiring full security for costs in a lump sum payment to an order which provides that no security for costs need be posted.

[15] As a result, the moving defendant need not prove unequivocally that the circumstances of these subsections are, in fact, true. They need only demonstrate that they appear to be so. Once they do so, the onus shifts to the plaintiff to refute appearances by reliance on evidence if their position is that the order that is just is anything less than payment of full security.

BOILER’S MOTION

[16] Although their notice of motion is not specific as regard which subsections of Rule 56.01 they invoke, Boiler`s intention is clear from their factum. Boiler moves under:

1. Rule 56.01(1)(a): the estate trustee, Ella Conan, has relocated to Israel, so the plaintiff, Comatec no longer has a Canadian resident on its board of directors. Ella is also the trustee of the Broner estate. As Ella no longer resides in Ontario, neither does the estate or the company;

2. Rule 56.01(1)(d): the plaintiffs are a corporation and an estate trustee, represented by Ella, effectively a nominal plaintiff. On her evidence, there is good reason to believe that neither plaintiff nor Ella has sufficient assets in Ontario to pay a cost order if so ordered;

3. Rule 56.01(1)(e): the action is frivolous and vexatious as against Boiler and there are grounds to believe the plaintiffs have insufficient assets to pay a cost order if required.

[17] Items one and two are general assertions. They concern the state of the plaintiffs’ evidence, generally. As a result, my findings with respect to these issues apply to all four defendants, subject to the plaintiffs addressing the merits of the claim vis a vis each defendant (stage two of the inquiry).

[18] Item three deals with Boiler, specifically, so the outcome of that issue pertains to Boiler, only. It will also determine the outcome of this motion as regards stage 2, with respect to both items 1 and 2 above, so if the action against Boiler is found to be frivolous and vexatious, it necessarily means that the plaintiffs do not have a good chance of success against this defendant.

[19] Boiler need only succeed on one of the three grounds to prevail on this motion. If I find that the order that is just on any of these grounds is an order for security for costs, the defendants need not succeed on either of the other two ground.

FIRST STAGE of INQUIRY: has Boiler established that it appears that the circumstances referred to subsections (a), (d) and (e) exist and, if so, have the plaintiffs refuted that conclusion?

[20] Item 1: 56.01(1)(a): There is no dispute regarding where Ella Conen now resides. On her own evidence, it is clear that she moved to Israel to be near her daughter and grandchildren, having sold her Toronto condominium and shipped what was left of her home furnishings and personal effects to Israel, at a cost of $4,000. Ella’s stated intention was to open some form of matchmaking business in Israel for the religious community. Her evidence and her actions demonstrate that she planned to make her home in Israel as there was nothing for her in Ontario any longer.

[21] Ella also made it clear that she has meagre resources, and she was unsure how she would return to Toronto for the trial of this action. It therefore appears that Ella, the trustee of the Broner estate, is ordinarily resident outside Ontario.

[22] To the extent that anything remains of the estate of the late Joseph Broner, Ella’s husband, it is now in Ella’s hands. There was no evidence to the contrary presented by the plaintiffs. The only other relations referred to in the evidence are their daughter and grandchildren in Israel, and Ella’s brother in Germany. Accordingly, it also appears that to the extent that there remains any trace of the Broner estate that, too, is now beyond reach and certainly not in Ontario.

[23] The corporation, Comatec, was a closely held one, involving only Ella and the late Broner. Ella’s evidence was also clear to the effect that the company is no longer operating and that it now has no assets to speak of. As she is its only officer and is no longer in the country, the corporation is now in breach of s. 118(3) of the Business Corporations Act, RSO 1990, as it has fewer than 4 directors, and none is a resident Canadian.

[24] As the corporation has a non-functioning board of directors, it is questionable how Comatec can instruct counsel. What is not open to debate it that Comatec, too, appears to be ordinarily resident outside Ontario, to the extent that it exists at all.

[25] Accordingly, I find that, in accordance with the first stage of the inquiry as per Hallum, Boiler has established that the circumstances necessary to invoke this subsection appear to exist with respect to both plaintiffs. The onus now shifts to the plaintiffs to negate what appears to be the case.

[26] As I have stated throughout my two previous sets of Reasons, the plaintiffs have filed an evidentiary record that is wanting in many respects. Even if they had been permitted to file the additional materials which I excluded, these materials did not embellish the record in a manner that was helpful to them. Little information has been provided to establish factual context and what has been put forward is vague in the extreme.

[27] In their factum, the only factual context that has any bearing on this issue are as follows:

• because Ella no longer has any relatives or business in Canada, she has relocated to the State of Israel where she has a married daughter and grandchildren;

• Ella operated Comatec alone…since her husband Joseph Broner became incapacitated;

• Ella stopped the bleeding by selling off Comatec’s assets to retire its debts that she had personally guaranteed

[28] If anything, these assertions serve to bolster rather than hinder Boiler’s position on this motion.

[29] I therefore find that Boiler has made out a prima facie case for an order for security for costs as against the plaintiffs, subject to the second stage of the inquiry, which follows. This finding applies to the remaining three defendants, as well.

[30] Item 2: Rule 56.01(1)(d): In the context of putting forward their assertion that the plaintiffs were impecunious, both plaintiffs made Boiler’s case, in that by virtue of their own evidence, they claim that they have no assets in the jurisdiction.

[31] Insofar as Comatec, Ella’s evidence is to the effect that all that is left is the small Amada machine, worth little if anything. The company no longer operates and Ella, its sole remaining officer, now resides outside Canada, so Comatec’s board of directors is no longer legally constituted.

[32] As for the estate, I agree with Boiler’s assertion that Ella is a nominal plaintiff for the purpose of this subsection (see Shaher et al v. Rasheed et al, 2011 ONSC 3679), as she represents the estate of her last husband, and that estate appears to have already been fully distributed – to her. The estate has never sought probate, such that a cost order cannot be enforced against it, and Ella appears to have been its only beneficiary. Broner passed away more than 6 years ago and if Ella is to be believed regarding her financial status, there is nothing left of his estate that could be made available to creditors if a cost order were made.

[33] Again, there is no evidence from the plaintiffs to refute that it appears that neither of them, nor the nominal plaintiff, Ella, has assets within Ontario to pay a cost order. While it may seem somewhat incongruous that I am able to find insufficient assets in Ontario without finding impecuniosity, that is the result of case law that sets a stringent test for a finding of the latter.

[34] I therefore find that Boiler has also made out a prima facie case for an order for security for costs, subject to the second stage of the inquiry, pursuant to this subsection of the applicable Rule. This finding, too, to the remaining three defendants.

[35] Item 3: Rule 56.01(1)(e): Boiler approaches this subsection from two directions, first in the context of its own position in the action, secondly, from one that is common to the defendants, generally.

[36] In terms of its own position, Boiler is in a rather unique position in this action. They have been sued on the basis of being the plaintiffs’ insurer, yet the plaintiffs have been unable to tender an insurance policy that binds them to this loss.

[37] Despite that, the plaintiffs plead on pages 41-42 of the Fresh as Amended Statement of Claim that Boiler provided a policy of insurance, pursuant to which they were required to pay for the loss of objects and for the loss of other insured property directly damaged by the accident. They claim this policy also provided coverage for loss of business income and they quote liberally from the definition section of this alleged policy that has not been shown to exist.

[38] Similarly, in paragraph 114 onwards, the plaintiffs make allegations against both Dominion and Boiler as if they were interchangeable, oblivious to the fact that the plaintiffs cannot demonstrate contact with or a direct nexus to Boiler. In paragraph 140, they claim that Boiler, along with Dominion, arbitrarily cancelled the plaintiffs’ insurance policy. The plaintiffs then speak generally about the handling of the loss by the insurers. Though they claim that the loss was reported to the Defendant insurers, there is no evidence to the effect that it was reported to Boiler at any time. Rather, the plaintiffs appear to have reported the loss to Dominion, only.

[39] In effect, the plaintiff’s case against Boiler rests on what they erroneously refer to as an “admission” by Dominion in its statement of defence regarding Boiler’s role in these events. They have produced no law to explain how one party can be viewed as having made an “admission” which implicates another, but take the position that they were compelled to sue Boiler, and presumably to keep them in this suit all these years later, on the basis of what Dominion has pleaded. In their factum, the plaintiffs assert that Boiler’s position that there is no privity of contact between them has been disputed by Dominion. In any event, the plaintiffs issued this claim against Boiler before Dominion took this position in a pleading.

[40] Dominion’s alleged admission takes the form of an assertion by Dominion in its pleading to the effect that Boiler issued boiler and machinery coverage to Comatec. The plaintiffs also rely on the response by Dominion’s representative when he was examined for discover. He was asked if he was aware that it’s been pleaded on behalf of BI & I (Boiler) that the only insurance they provided was reinsurance and not a direct policy and asked what Dominion’s position was on that. His response was:

I’ll let you know. I think it’s whatever we pleaded.

[41] The plaintiffs rely on the fact that Dominion has never changed its position, yet they ignore the fact that Dominion has advanced no crossclaim against Boiler. In fact, Dominion did crossclaim against all defendants, except Boiler, having worded their allegation in precisely that way.

[42] The line in the Dominion pleading and their representative`s response to a question asked at discovery represent the sum total of the plaintiffs’ evidence on this motion in response to Boiler’s assertion under this subsection of Rule 56.01(1). When read as a whole, in the context of very elaborate and detailed allegations against all of the other defendants, it appears that Boiler was added as an afterthought, the allegations made against them more properly advanced against Dominion, only.

[43] The law is clear that where one party makes a statement about another party in their own pleading, it does not constitute an admission – admissions are only binding against those who make them. Whatever another party says about others in their pleading is simply an assertion against the other, and does not constitute an admission – this is trite law (see Chote v. Rowan 1943 CarswellOnt 294).

[44] Both Boiler and the brokers plead that Boiler was a reinsurer only, and has no direct contract or lis with the plaintiffs. Dominion, on the other hand, admits in its pleading that they have a policy with Comatec and a review of that policy indicates that boiler and machinery coverage was provided to Comatec pursuant to it. Comatec paid a premium of $516 for this coverage, while Boiler charged Dominion $245 for the reinsurance policy it issued to Dominion.

[45] A reinsurance policy exists between a primary insurer and its reinsurer – only the primary insurer pays the premium for this coverage and only the primary insurer has access to it, as the purpose of reinsurance is to spread the loss, so that the primary insurer is not required to bear the entire loss on its own. It is customary for insurers to acquire reinsurance, which inures to their benefit, only. Again, we are dealing with trite principles of insurance law (see Treverton et al. v. Superintendent of Insurance for Canada 1987 CarswellOnt 205).

[46] The fact that Boiler, the broker and Comatec have been unable to produce a policy between Boiler and Comatec is seriously problematic for Comatec, 12 years into this litigation. Even now, the plaintiffs refuse to admit that there is no policy, but state, instead, that they have been unable to produce one in favour of either plaintiff. They say this though they admit that Boiler was the reinsurer of this loss. The fact that they have no independent evidence of their own to support the existence of such a policy, in this context, is fatal to their position.

[47] On these facts and the state of the law, I find that there is good reason to believe that the action as constituted against Boiler is frivolous and vexatious. I have already found that the plaintiffs have insufficient assets within Ontario to pay a cost order if required to do so.

[48] While these reasons address the situation as regards Boiler, only, there are other points that have been raised by the remaining defendants that go to the merits of the action in a more general way or which pertain to other defendants, particularly. These include:

• Whether there is any evidence to connect Comatec’s failure to the incident that gave rise to this litigation;

• Whether there is even coverage for this loss under the Dominion policy;

• Whether he plaintiffs have demonstrated that they have a claim for damages in excess of the advance payment already made by the insurer;

• Whether any claim has been made out to connect Boner’s illness and eventual demise to these events.

[49] In view of my findings above, there is no need for me to consider these further grounds in these Reasons. However, when I do deal with the motions brought by the remaining defendants, I will note of these points which also apply to Boiler’s situation.

[50] On the evidence before me and the case law submitted by counsel, I find that Boiler has made its case with respect to the first stage of the inquiry regarding all three subsections of Rule 56.01(1) pursuant to which it moves.

SECOND STAGE OF THE INQUIRY: In all of the circumstances of the case, what is the order that is just, vis a vis Boiler?

[51] Having already determined that the plaintiffs have failed to make out a case of impecuniosity, they have a higher burden of proof at this stage of the motion, and must show that the action, as against Boiler, has a good chance of success.

[52] As I have already concluded that there is good reason to believe that the action against Boiler is frivolous and vexatious, it is also clear that there is also no basis for a finding that the action stands a good chance of success against this party. No evidence at all has been tendered to suggest that the plaintiffs have a legitimate basis for their position against Boiler, yet they have not let them out of the action, even in the face of this motion.

[53] The plaintiffs have simply piggy-backed on an assertion by Dominion, Boiler’s co-defendant, to try to make their case, an assertion that Dominion has not even used as a springboard for a crossclaim. At this stage of the inquiry, Dominion’s pleading and response at discoveries do not suffice to establish that the plaintiffs have a good chance of success.

[54] As noted above, other grounds have been raised regarding this issue, which I will address those when dealing with the remaining defendants.

[55] In the context of all of the foregoing, I am of the view that the order that is just is so far as Boiler is concerned is that they receive security for costs already incurred and those that they anticipate will be incurred.

QUANTUM

[56] Boiler seeks security for costs in excess of $900,000. They acknowledge that the figure is high but point out that the claim currently stands at $7 million, down from $30 million. They also note that the plaintiffs have not addressed quantum in their evidence.

[57] In view of the amount in issue and the fact that more than $500,000 of those costs have already been incurred, counsel were advised that I would have to see dockets before fixing quantum.

[58] We have ½ a day scheduled for this motion to continue vis a vis the other defendants on June 23, 2015. I would like to see the additional material before that time, along with a one page cover sheet indicated what steps have already been completed in the action and what remains to be done. Anticipated future costs should be incorporated in an affidavit, making it clear how much time and at what rates counsel anticipate will be needed.

[59] These materials shall be served on plaintiff’s counsel at the same time as they are filed with me directly, and on receipt, I will provide a deadline within which the plaintiffs shall respond, and Boiler shall reply. Oral submission on this issue can hopefully be avoided, unless counsel believe otherwise.

Master Joan M. Haberman

Released: June 3, 2015