COURT FILE NO.: 10-CV-414334

Heard: March 4, 2016

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Siddiqsons Tin Plate Ltd. v. Adler Steel Limited

BEFORE: Master Joan Haberman

COUNSEL: Belmont, B.D. for the moving party W. Chalmers for the responding party

REASONS

Master Haberman:

[1] On December 13, 2011, the master ordered the plaintiff to post security for costs in this action in the amount of $27,000. This was intended to include both costs incurred to date and those to be incurred up to and including examinations for discovery.

[2] This form of order is one that falls within what is commonly referred to as a “pay as you go” order. In most cases, the court orders that security be posted for one or a series of litigation steps at a time, in recognition of the fact that, because the action might settle at any stage, a plaintiff should normally not be required to post security for the entire action at once, unless all that remains to be completed is the pre-trial and trial.

[3] In view of this approach, Rule 56.07 expressly provides a party with the ability to return to court to seek further security, an option often exercised where the action continues beyond the last step anticipated by the first order. At that stage, the court examines what has occurred in the action since the first order and what steps remain. The court usually orders the plaintiff to post security for any further costs incurred since the last order and then finds another appropriate cut-off point, so as to calculate the quantum of costs to be posted on the return visit to court. These “return motions” are generally resolved on consent, as all that remains to do is to select the new cut-off point and quantify the amount to be posted.

ENTITLEMENT

[4] The defendant in this action has now returned, seeking to “top up” the amount of security that has been posted, as permitted by Rule 56.07. Oral discoveries were completed in July 2012 and it appears that neither the plaintiff’s financial picture nor their asset situation in Ontario has changed since the last order for security for costs was made.

[5] In the interim, there was what appears to have been a year of inactivity in the action after discoveries, followed by considerable activity in the matter after the court’s issuance of the Status Notice in June 2013.

[6] Accordingly, this ought to have been a very straightforward motion. In view of the responding position, however, it was not.

[7] Although the plaintiff conceded that:

o it still has no assets in the jurisdiction;

o it still does not qualify as legally impecunious; and that,

o as a result, it must show the court that is has a good chance of success on the merits in order to avoid having to pay security for costs, as that is the order that is just in the circumstances,

the plaintiff responded to the motion with a 29-page affidavit and some 54 exhibits. All of this is contained in a thick record with an index that simply states that the affidavit of Brian Chung, sworn October 7, 2015, can be found at tab 1. None of the 54 exhibits is described in the index, so locating any particular exhibit during the hearing added time to the event, an issue I will return to that if required to deal with costs of this motion.

[8] The Chung affidavit goes on at some length about the history of the action, all issues to be addressed as and when this matter reaches a show cause hearing. However, though examinations for discovery were concluded more than three and a half years ago, there was really no evidence put before the court, or at least that was brought to the court’s attention, addressing the merits of the action.

[9] No factum or brief of authorities was delivered to provide moving counsel, or the court for that matter, with any insight into what the plaintiff planned to argue or why his record was so copious. Two cases were handed up in mid-hearing by the plaintiff, but they provided no clues, either. All of this was puzzling, as it was the merits that the plaintiff sought to rely on.

[10] The merits of the action have long been a factor for consideration by the court in the context of any motion under Rule 56.01(1). In Padnos v. Luminart Inc., (1996), 1996 CanLII 11781 (ON SC), 32 OR (3d) 120, Kitely J. spoke about how the merits have a role to play in any application under rule 56.01, albeit in a continuum. She concluded that a motion brought under rule 56.01(1)(a) would be at the low end, in other words, the role played by the merits is far less significant than if the motion is brought under subrule (e).

[11] The policy reason for such an approach is self-evident if one considers that Ontario is a cost jurisdiction. Because of this attribute, all parties to litigation commenced in Ontario have the security of knowing that the party who prevails at trial is likely to recover a good portion of their costs in getting to that point.

[12] A problem arises when it is anticipated that one of the parties will be unable to pay costs at the end of the day because of any of the circumstances set out in Rule 56.01(1). If those circumstances exist, the victor could be left without recourse for costs ordered in his favour at the end of the day. It is because of this very real possibility that our Rules provide for security for costs to be posted.

[13] A defendant has little say about whether they will be sued so they are not required to post security for costs incurred by the plaintiff in order to defend themselves. On the other hand, a plaintiff decides who to sue and where to do so. As a result, the Rule 56.01(1) regime was structured to protect defendants against plaintiffs who fall into one or more of the enumerated categories under this Rule.

[14] That protection is afforded, inter alia, when a foreign plaintiff comes into this jurisdiction to do business and then commences suit against an Ontario resident. If the plaintiff has no assets here, they run little risk of having to pay costs if their action fails, even if ordered to do so. They can litigate with abandon, running up costs, aware that they will never actually have to reimburse a defendant for them. A defendant, on the other hand, may succeed at trial, but then be left having to bear all of his own costs in such a case.

[15] This scenario is particularly problematic when a plaintiff has no assets. It is also a problem when the plaintiff has assets, but they are all located in another jurisdiction, out of harm’s way. Where the defendant succeeds at trial and a cost order is made against the plaintiff that leaves the defendant in the position of having to execute the order against assets located beyond Ontario.

[16] Execution of a cost order ex juris is often a labour-intensive and costly exercise, all the more so if there is no reciprocal enforcement legislation. I am not aware if such legislation exists between Canada and Pakistan as the plaintiff’s counsel has not approached the matter on the basis that his client does have assets but that they are in that country.

[17] In view of these issues, the legal test for requiring that security be posted has been drafted and then amplified by case law in manner which essentially favours that it be granted as protection for defendants, except in certain exceptional circumstances.

[18] The first aspect of the regime that favours the defendant is that he needn’t prove that the basis for granting an order under rule 56.01(1) actually exists. Instead, he need only show that that it appears to be that the factual scenario envisaged by each subrule exists. This is a far lower burden that absolute proof of those facts. Once a defendant has done that, he is prima facie entitled to the order sought, subject to how the plaintiff responds. In this case, the plaintiff has conceded that they have no assets here, such that the defendant is now prima facie entitled to further security.

[19] The second aspect that favours the defendant is that once he has established prima facie entitlement, the onus shifts to the plaintiff to show why he should be exempted from having to post security. Exemption will only be permitted where the defendant establishes that the order that is just in the context of the evidence before the court is that no order be made.

[20] A plaintiff can avoid having to post security by demonstrating that he, in fact, has sufficient assets in the jurisdiction to pay costs if ordered to do so. Again, the defendant is favoured in this analysis as it is not enough for a plaintiff to simply make a bald statement as to his financial worth. He must demonstrate it by robust disclosure and supporting documents. The court must be satisfied that it has received the full picture, and that there is, indeed, sufficient value in the plaintiff’s eligible assets located in the foreign jurisdiction if he is to avoid having to post security.

[21] This brings us to the fourth aspect of the regime that favours defendants. How the court approaches what is just will vary, based on whether or not the plaintiff can establish that he is impecunious and that his case is not without merit. Proving impecuniosity, in the legal sense, however, is difficult as, again, the court expects a very thorough and detailed level of disclosure regarding a party’s assets and liabilities, income and expenses. Though the court is reluctant to prevent a plaintiff from going forward with a genuine claim simply because they are impecunious, the manner in which the court approaches its analysis when impecuniosity is relied on is also a factor that favours the defence position.

[22] In this case, the plaintiff has not asserted that it has sufficient assets in the jurisdiction or that it is impecunious, so they were not required to make any financial disclosure. As a result, however, they face a higher burden when relying on the merits of the case. In this instance, they must show that they have a good chance of success on the merits. As I stated recently (see Hossain v. City of Toronto, OCJ 2016 ONSC 1045, 2016 ONSC1045)

On the other hand, where a party is not actually impecunious, but trying to avoid having to post security, the court imposes a higher burden on them regarding the merits. In such a case, they have to show that they have a good chance of success before the court will accept that the just order in their case is no order for security at all (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 CanLII 46451 (ON SC), [2009] OJ No. 3680, Zeitoun v. Economical Insurance Group2008), 2008 CanLII 20996 (ON SCDC), 91 OR (3d) 131).

[23] Again, the onus is on the plaintiff to establish his position regarding the merits.

[24] As a result, in that the motion was opposed not simply on the basis of the quantum sought, the court expected to see a detailed discussion of the merits of the case. The entire focus of the plaintiff’s submissions was that the just order in this case would be that no further security need be posted, in view of the merits. Alternatively, if an order for further security is made, the plaintiff says that it should be far less than what the defendant seeks.

[25] What is distinct about the plaintiff’s approach in this case is that their counsel has addressed the merits in the context of the anticipated outcome of the status hearing, rather than the outcome of the action after trial. No case law was provided to support that position and no legal principle was applied by analogy to suggest that there was any basis for carving out the status hearing from the action. This is a novel argument, as far as I am aware, yet it was simply presented as an established principle without any discussion or explanation for why the plaintiff approached the matter in this way.

[26] If this approach is accepted, then any time a motion for security for costs is brought where there are motions that are preliminary to a significant motion or event, as was the case here, this purported principle would apply. Thus, if security for costs is sought when there has been or will be a motion to strike an affidavit tendered for any other motion, than the merits of the main motion, rather than of the action would have to be considered. Similarly, if a motion is brought for answers to undertakings and refusals from cross-examination on an affidavit tendered in support of a main motion, this approach suggests the court should consider the merits in the context of that main motion.

[27] While the court often defers the issue of costs of the preliminary motion until after the main motion has been decided, I know of no principle regarding context for merits when the next event is a show cause hearing.

[28] As matters stand, I have not yet formed a view regarding the likely outcome of the status hearing, as that issue has not yet come before me on its merits. Instead, we have been occupied with a series of preliminary issues that have added significantly to the time involved in moving this matter forward and, undoubtedly, to the costs incurred by both sides. That, it appears, is what has prompted the current motion for further security to be posted.

[29] Further, though the plaintiff has filed about 24 pages worth of evidence on the subject of the defendant’s alleged delay in moving the action forward, only a small portion of it actually deals with the merits of the status hearing, in so far as delay that has accrued before the status notice was issued. Most of the evidence actually deals with the aftermath of the issuance of the Status Notice.

[30] Finally, the fact that this evidence was included in the plaintiff’s record was not enough to tip their hand to the fact that they would be approaching the issue of “the merits” in reference to the status hearing, rather than the action, as would generally be the case.

[31] The plaintiff’s failure to file a factum was initially not surprising, in that it appeared the only issue was going to be quantum. Rule 37.10(6) provides that filing a factum is optional. However, as the response to this motion was not simply about quantum but extended to the context within which the merits are to be assessed, a factum should have been filed to give the defendant some warning that this was the plaintiff’s working thesis. While the plaintiff has focused, at the oral hearing, on the status hearing, the defendant has left the issues of alleged delay where they belong – to be dealt with as and when we get to the show cause hearing.

[32] Trials, and by analogy, motions, by ambush have not permitted in this jurisdiction for many years. When a party seeks to deviate from the norm, some notice of that position is required in advance of the hearing. The way to provide that notice is by way of a factum.

[33] Having considered the approach taken by the plaintiff, I am the view that it is not a correct path. Notwithstanding the fact that security for costs is sought for costs incurred and to be incurred with respect to the upcoming status hearing, the merits are still to be considered, to the extent that they can be, in the context of the action. As I have no evidence from the plaintiff addressing the merits of the action, though discoveries were completed more than three years ago, I can only find that, in this instance, the merits are neutral.

[34] I hasten to add that, even if I had accepted the plaintiff’s argument that whether they stand a good chance of success on the merits applies in the context of the status hearing, rather than the motion, I am unable to make that determination at this time as the plaintiff’s evidence has noticeable gaps.

[35] The Chung affidavit contains a 3+ page list of what the plaintiff refers to as Overview of Timeline of Key Events. On page 3 of the affidavit, he states that examinations for discovery were completed in July 2012. There is no evidence that picks up from that point to explain what took place between the completion of discoveries in July 2012 and the court-issued Status Notice, received by the plaintiff on June 3, 2013, almost a full year later.

[36] The only reference to any work done on the file in that entire 11-month period involves the list of undertakings, et al., which was apparently sent to the defendant, but not until March 2, 2013, so eight months after discoveries. Further, according to Chung, this was the wrong list, sent in error. No further detail is provided about that issue so it is unclear how or why it held up the action.

[37] There is no evidence to explain why the action was not set down for trial between discoveries and the issuance of the status notice and why no motion was brought to force the defendant’s hand regarding outstanding discovery issues if this was the impediment.

[38] All of Chung’s evidence that comes after the chart pertains to what transpired after the status notice was issued. Though this later time period will also feature in my considerations as and when we got to the show cause hearing, it is the alleged earlier delay that led to the status notice being issued and gave rise to the need for the plaintiff to show cause. It is therefore a critical issue for me to examine. However, this earlier period is only touched on in the Chung affidavit, leaving several unanswered questions.

[39] What the plaintiff appears to be intent on having the court do is make findings regarding the issue of delay that has arisen since the first status hearing in appearance in December 2013, something which will certainly have to be dealt with at the show cause. I am not prepared to do that in any detailed way at this stage. As the delay issue that led to the status notice being issued has not been well fleshed out, there is no need for me to go farther for the purposes of this motion.

[40] In view of that evidence, I find that, even if I had accepted the plaintiff’s approach to assessing merits in the context of the status hearing, I am not in a position at this stage to say that the plaintiff has a good chance of success. I am unable to conclude much of anything about the merits from the scant evidence filed regarding the pre-status notice period. I therefore conclude that the merits, even on the plaintiff’s suggested approach, are therefore neutral.

[41] As a result, the order that is just requires that further security be posted.

QUANTUM

[42] The moving party seeks security for costs following the events that have transpired since the end of the period covered by the previous master’s order, going up to and including the show cause (status hearing) hearing that remains to be scheduled.

[43] This covers costs of the two attendances before me related to the status hearing, on January 21, 2015 and April 14, 2015.

[44] The January attendance was a long time in coming. The matter first came before me at a Status Hearing court in December 2013. At that time, the responding party refused to simply consent to a timetable, and, instead, gave notice that they would be seeking to have the plaintiff show cause.

[45] At that point, the plaintiff was alerted to the fact that the onus was now on them to satisfy the court that the matter should be permitted to proceed. There is a plethora of case law that discusses the circumstances in which that will be permitted, from which a plaintiff can extract the guiding principles. Those principles then provide a template for the type of evidence the court expects to see on these motions.

[46] Finding a date for the show cause hearing was not a straightforward matter. Eventually, on September 30, 2014, it was agreed that event would take place on January 21, 2015, almost 4 months away. I then learned from the plaintiff’s counsel, on January 15, 2015, that he wanted the matter adjourned as he had only received the defendant’s materials that day. What he neglected to mention is that he only served his client’s materials - three volumes worth – the day before.

[47] The adjournment was granted and the matter put over to April 14, 2015. I have already found in earlier reasons that this adjournment was triggered by the very late delivery of the plaintiff’s materials, compounded by the manner in which they presented their concerns to me. The omission of when they had served their own materials led to considerable confusion.

[48] The April date was also adjourned, as the plaintiff appealed my decision regarding his filing of further materials and had not yet received the Reasons.

[49] After the release of those Reasons, we reconvened on June 21, 2015. In my Reasons of June 26, 2015, which followed that hearing, and as more fully set out therein, I agreed to allow the plaintiff to file further evidence, restricted to the issue of prejudice. Though I indicated that I accepted plaintiff’s counsel’s submission that his client could be penalized by costs for their dilatory approach to filing evidence, and though the moving party seemed to be seeking directions regarding these costs in his notice of motion, at the hearing he restricted his request to an order for security for costs.

[50] Accordingly, the defendant seeks to have the plaintiff post further security for costs as follows:

1. For costs incurred:

a. January 21, 2015 hearing;

b. April 14, 2015 hearing; and

2. Anticipated costs up to and including show cause hearing: a total of $35,400, on a partial indemnity scale.

[51] The plaintiff takes the position that the amount sought is excessive and should not exceed $7500, the amount they offered before the hearing to settle the motion.

[52] I have reviewed my Reasons regarding the two earlier hearings and I have a sense of the amount of materials already filed for the upcoming show cause. As cross-examinations have not yet taken place, these materials will likely be supplemented.

[53] On the basis of costs incurred and thrown away, and those anticipated, I have no difficulty with the amount of security sought by the moving party.

THE ORDER

[54] The plaintiff shall post further security to the credit of this action in the amount of $35,400, within 45 days from the release of these reasons;

[55] This amount covers costs incurred since the last security order and those to be incurred up to and including the status hearing, such that further security can be sought after that step has been completed in the event that the plaintiff’s position prevails;

[56] This action is stayed pending posting of those costs, save and except for any rights of appeal either party may wish to exercise;

[57] In the interim, I will not release my Reasons regarding the plaintiff’s motion unless and until I am advised by plaintiff’s counsel in a fax, copied to defence counsel, that those costs have been posted as ordered;

[58] If the parties are unable to agree as to the costs of this motion, I can be spoken to within 30 days.

(original signed)__

Master Joan M. Haberman

Released: March 11, 2016