CITATION: Monk Development Corporation v. CVC Ardellini Investments Inc., 2016 ONSC 1778

COURT FILE NO.: CV-16-11267-00CL

DATE: 20160314

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: MONK DEVELOPMENT CORPORATION, et al., Applicants

AND:

CVC ARDELLINI INVESTMENTS INC., et al., Respondents

BEFORE: HAINEY J.

COUNSEL: Jeffrey J. Simpson, for the Applicants

Bruce R. Jaeger and Liliana Ferreira, for the Respondent, CVC Ardellini Investments Inc.

HEARD: March 10, 2016

ENDORSEMENT

Background

[1] This is a motion by the Respondent, CVC Ardellini Investments Inc. (“CVC”), for an Order:

(a) Requiring the Applicants to post security for costs of $50,000 pursuant to Rule 56.01 of the Rules of Civil Procedure; and

(b) Requiring the Applicant, Del Hugh Terrelonge, to pay outstanding costs orders against him in the amount of $21,534.35 plus interest to CVC.

[2] There have been extensive proceedings in respect of this dispute involving the Templar Hotel located in the City of Toronto. Mr. Terrelonge developed this hotel. The dispute arises out of mortgage loans, made in connection with the construction of the hotel, that are in default.

[3] The Applicants have commenced an application against the Respondents in which they allege as follows:

(a) That the detrimental mismanagement of the hotel by CVC and its principal, Donato Ardellini (“Ardellini”), has significantly decreased its value;

(b) That CVC and Ardellini have failed to make reasonable efforts to sell the hotel; and

(c) That CVC has failed to compensate the Applicants for goods and services rendered in connection with the construction, operation and sale of the hotel.

[4] It is conceded that the Applicants do not have sufficient funds to pay the outstanding costs orders against Mr. Terrelonge or to pay the Respondents’ costs with respect to this Application. In particular, it is conceded that:

(a) Mr. Terrelonge has personal judgments against him in excess of $9.96 million, and costs awards in excess of $150,000, which remain unpaid;

(b) The Applicant corporations, Monk Development Corporation and 1586091 Ontario Limited c.o.b. as Rhed, do not have any independent business other than their involvement with the bankrupt Templar Hotel. Mr. Terrelonge is the sole shareholder of these corporations; and

(c) Mr. Terrelonge intends to pay the costs orders against him from the existing equity in the three properties against which CVC holds security, the Templar Hotel and two properties in Boulton and Picton.

[5] According to the Respondent, there is no equity in the Templar Hotel or the properties in Boulton or Picton.

[6] Mr. Simpson, on behalf of the Applicants, submits that his clients recognize that they must honour outstanding costs orders if they are to be permitted to continue with further litigation with respect to this dispute. However, Mr. Simpson asks for “an indulgence” in the interests of justice to allow his clients’ claims to be determined without having to pay the outstanding costs awards or having to post security for costs.

Applicable Test

[7] On a motion for security for costs, the court must apply a two-step process to determine whether a plaintiff will be required to pay security for costs. First, the court will determine whether the defendant has demonstrated that the plaintiff is within one of the enumerated grounds in Rule 56.01(1). The defendant is not required to prove that the plaintiff falls within the category, only that there is good reason to believe so.

[8] Second, if the defendant has succeeded at the first stage, the onus then shifts to the plaintiff to demonstrate that an order for security for costs would be unjust, by either demonstrating that it is impecunious and justice demands that it should be permitted to continue with the action, or by demonstrating that the plaintiff has sufficient assets to respond to a costs order. See Sadat v. Westmore Plaza Inc., [2013] O.J. No. 309, para. 20.

[9] The Moving Party relies upon the following grounds enumerated under Rule 56.01(1) of the Rules of Civil Procedure:

(c) Whether the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part.

(d) Whether 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.

(e) Whether there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent.

A security for costs order is discretionary. The court must examine the circumstances to ensure that any order made is just. At the second stage of the inquiry, all factors must be taken into account, including the merits of the case, a balancing of the parties’ interests, a review of the financial circumstances of the plaintiff and the effect of an order. If the plaintiff is impecunious, it must establish that the claim is not devoid of merit. If however, the plaintiff is not impecunious, it has a high burden to establish that its claim has a good chance of success in order to avoid a security for costs order. See 1164966 Ontario Inc. (c.o.b. Freeway to Success Marketing Group) v. Coulter, [2011] O.J. No. 4530, para. 27.

[10] Although this test applies to the Moving Party’s request for security for costs, these general principles also apply to CVC’s request for an order requiring Mr. Terrelonge to pay the outstanding costs awards against it.

Outstanding Costs Awards

[11] I must balance the parties’ interests, Mr. Terrelonge’s financial circumstances and the effect of an order requiring Mr. Terrelonge to pay the outstanding costs awards against him to determine whether an order requiring him to pay these costs would be just.

[12] Having considered all of these factors, I am not persuaded that it is in the best interests of justice to allow Mr. Terrelonge to continue litigating what are essentially the same issues that have already been determined with respect to the Templar Hotel in the face of unpaid costs orders made in connection with the same dispute. Such an approach renders the previous costs orders made against him meaningless. This would be unfair to CVC and it would be contrary to the interests of justice that requires parties involved in litigation to comply with court orders.

[13] Further, I am not satisfied on Mr. Terrelonge’s evidence that requiring him to pay the outstanding costs awards would prevent the Applicants from pursuing the Application. Mr. Terrelonge has not provided any independent evidence confirming his inability to satisfy the costs awards against him. It is also significant that the costs awards this Court has made against him relate to the same disputes he wishes to re-litigate in this Application. I find that it would be contrary to the interests of justice to allow him to do so.

[14] Mr. Terrelonge is, therefore, ordered to pay the outstanding costs awards against him owing to CVC before he and his Co-Applicants are permitted to take any further steps in the Application.

Security for Costs

[15] The tests that must be applied in considering a motion for security for costs under Rule 56.01 of the Rules of Civil Procedure were set out by Master Dash in Stojanovic v. Bulut, 2011 ONSC 874, [2011] O.J. No. 840 at paras. 5-8 as follows:

5. Once the enquiry is triggered,

The court must then take into account a number of factors and make such order as is just. Factors include the merits of the claim, the financial circumstances of the plaintiff and the possible effect of an order for security preventing a bona fide claim from proceeding. There is a broad discretion in the court in making such order as is just. [footnote and citations omitted]

Of course this is not an exhaustive list of factors that the court may take into account in determining such order as is just. As noted, the court has a broad discretion.

6. The court in Zeitoun deals with an impecunious plaintiff facing a motion for security for costs:

Provided that the plaintiff is able to show that the claim is not clearly devoid of merit, impecuniosity may be a persuasive factor in tipping the scales in favour of no order for security. Where a plaintiff seeks to rely on impecuniosity, however, the onus falls on him to show it. [footnote omitted]

Where impecuniosity is shown, the plaintiff needs only to demonstrate that the claim is not plainly devoid of merit … That is a very low evidentiary threshold. [footnote omitted]

7. What evidence must the plaintiff provide to establish impecuniosity or financial hardship?

The onus of establishing impecuniosity or adducing evidence of financial hardship is on the plaintiff, whose financial capabilities are solely within his knowledge. The plaintiff should provide evidence with supporting documentation as to his income, expenses, assets and liabilities. Assets should be described with particularity as well as their value and any encumbrances thereon. Some cases suggest that foreign plaintiffs should also indicate the extent of their ability to borrow funds or sell assets. There is some suggestion that the plaintiff set out his financial situation with “robust” particularity. [footnote and citations omitted]

8. In Uribe I considered the situation of a plaintiff who, while not impecunious, would still have hardship in paying security:

Even if he is not impecunious the plaintiff may establish that an order for security would create such financial hardship that it would impose a substantial impediment to pursuing the action and prevent a meritorious claim from proceeding. In that case the plaintiff must establish that he has a “good chance of success” or a “real possibility of success.” An analysis of the merits includes a review of the pleadings and any affidavit filed. Although merits must be considered in this situation, the court should not embark upon such extensive analysis as would be required on a summary judgment motion. Although merits are a consideration on any motion under rule 56.01(1) they are on a continuum with rule 56.01(1)(a) at the low end and 56.01(1)(e) on the high end. [footnote and citations omitted]

[16] Applying these tests to the evidentiary record before me I find as follows:

a) The Moving Party is prima facie entitled to an order for security for costs because Rule 56.01(1) (c), (d) and (e) apply;

b) The Applicants have not satisfied the relatively high evidentiary threshold of establishing their impecuniosity. I am not satisfied on the evidence before me that the Application cannot proceed if an order for security for costs is made; and

c) I am not satisfied that the Application has a “real possibility of success” because the issues raised appear to have been previously decided against the Applicants. The Applicants have also failed to satisfy this onus.

[17] For these reasons I order the Applicants to post security for costs. The Applicants did not take issue with the amount of security sought by the Respondent, CVC. The Respondent’s bill of costs appears reasonable to me. It totals $69,732.90. I, therefore, order security for costs in the amount of $50,000.

Conclusion

[18] The Respondent, CVC’s, motion is granted. The Applicants are ordered to pay the outstanding costs payable to CVC in the amount of $22,748.74 and to post security for costs in the amount of $50,000 within 30 days of the date of this Order. The Applicants are prohibited from taking any further steps in the Application until this Order has been complied with.

Costs

[19] The Respondent is entitled to its costs of this motion. I urge counsel to settle this issue. If they are unable to do so, they may file brief written costs submissions of not more than three pages with costs outlines.

HAINEY J.

Date: March 14, 2016