MOTION HEARD: July 15 and October 6, 2015
SUPERIOR COURT OF JUSTICE - ONTARIO
Re: John Turner and 1648710 Ontario Ltd.
Plaintiffs
v.
UAP Inc. o/a/ Napa Auto Parts
Defendant
BEFORE: Master Thomas Hawkins
APPEARANCES: Marc Kestenberg for moving defendant
Fax: (416) 342-1128
Brian Rumble for responding plaintiffs
Fax: (647) 723-7565
REASONS FOR DECISION
Nature of Motion
1This is a motion by the defendant UAP Inc. operating as Napa Auto Parts (“UAP”) for an order that the plaintiff 1648710 Ontario Ltd. (“164”) post security for the costs of UAP in defending this action.
2This motion is brought under subrule 56.01(1)(d). This subrule 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;
3164 resists this motion on the ground that it is impecunious and its claim against UAP is not plainly devoid of merit. UAP disputes this, and says that 164 has not shown that it is impecunious with the result that 164 must establish that its claim against UAP has a good chance of success.
4I have found the factum which Mr. Kestenberg has delivered in support of this motion by UAP to be very helpful. I have made extensive use of that factum in drafting these reasons for decision.
Background Facts
5UAP is the registered Canadian licensee of “NAPA Auto Parts” trademarks, and operates under that name in Canada. UAP has the right to grant sublicenses of the NAPA Auto Parts trademarks.
6As part of its business, UAP supplies automotive replacement parts, equipment, tools and accessories. UAP has approximately 600 retail stores across Canada, of which approximately 200 are owned and operated by UAP. The remainder are operated independently by associates who have entered into associate agreements with UAP. These agreements are essentially franchise agreements.
7164 was incorporated by the plaintiff John Turner on February 14, 2005. Mr. Turner is the sole director and shareholder of 164.
8In or about 2009, 164 approached UAP and expressed an interest in acquiring UAP’s corporately owned Newmarket store (the “Newmarket Store”). On or about September 30, 2009, UAP sold the assets of the Newmarket Store to 164. As part of the transaction, 164 entered into a NAPA associate agreement.
9164 approached UAP in late 2010, seeking to open up a new NAPA location in the Richmond Hill area (the “Richmond Hill Store”). On or about February 2011, 164 purchased the Richmond Hill Store.
10On or about September 6, 2012, by executed offer of purchase and sale of that date, UAP agreed to buy back the Richmond Hill Store’s assets, including all of the inventory that 164 had purchased.
11The final purchase price for the Richmond Hill Store was $544,031, which was comprised of the value of the accounts receivable, the inventory as of the closing date, and other fixed assets.
12Schedule C of the September 6, 2012 agreement indicated that, at the time of the sale, 164 owed its secured creditors a total of $1,133,363 and its unsecured creditor (Mr. Turner) a total of $482,000. As such, 164’s liabilities after the Richmond Hill Store sale exceeded the purchase price paid by UAP.
13The proceeds of the sale were held by UAP and paid directly to the Bank of Montreal, a secured creditor of 164. The proceeds of the Richmond Hill Store sale were used exclusively to pay down 164’s existing debts. 164 did not profit from the sale.
14On or about December 6, 2012, UAP agreed to buy back all the assets of the Newmarket Store. The final purchase price for the Newmarket Store was $1,079,853.72, which was comprised of the value of the accounts receivable, inventory as of the closing date, and other fixed assets.
15At the time of the sale, 164 owed its secured creditors a total of $1,103,260.90 and its unsecured creditors (including Mr. Turner) a total of $465,180. As such, 164’s liabilities with respect to the Newmarket Store exceeded the purchase price paid by UAP.
16The proceeds of the sale were held by UAP and paid directly to the creditors of 164. The proceeds of the Newmarket Store sale were used exclusively to pay down 164’s existing debts. 164 did not profit from this sale either.
17Subsequent to the sale of the Newmarket Store, the associate agreement between UAP and 164 was terminated. Mr. Turner then commenced working for UAP as an employee. Mr. Turner’s employment with UAP was terminated by UAP 6 months later, on June 17, 2013.
18UAP is seeking security for costs from 164 only. UAP is not seeking security for costs from Mr. Turner.
19On cross-examination Mr. Turner conceded that his personal claim in this action is separate and distinct from the claim of 164. Mr. Turner’s claim is one for wrongful dismissal based on UAP’s termination of his six months’ employment there. The claim of 164 has reference to alleged wrongful UAP conduct affecting the operation of the Newmarket Store by competing with that store and buying the Richmond Hill Store at a price below its fair market value.
20In Vogel v. Trinity Capital Corp., [2005] O.J. No. 815 Master Haberman expressed herself as follows:
Security for costs will not be ordered where there are multiple plaintiffs pursuing a joint claim as long as one of them ordinarily resides in Ontario. Conversely, where the claims are several, and plaintiff who is non-resident may be ordered to post security for costs (see Willowtree Invst v. Brown (1985), 48 C.P.C. 150; Bondarenko v. Kotov, [2004] O.J. No. 3752), 2004 Carswell Ont 3767). The rationale for this approach is straightforward – where a claim is joint, any one of the plaintiffs can be called upon to satisfy a cost order in its entirety. Where it is several, however, each plaintiff is only responsible for his share.
21In Malamas v. National Bank of Greece (Canada), [2009] O.J. No. 4368, Master Sproat (now Master Jean) took the same approach in a motion for security for costs based on subrule 56.01(1)(d) and (at paragraph 115 of her decision), quoted the above paragraph from Master Haberman’s decision in Vogel.
22164 can avoid posting security for costs if it can establish that it would not be just to order that security for costs be posted in the circumstances. The opening words of subrule 56.01(1) direct me on a motion like the present one to “make such order for security for costs as is just”.
23In Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 the Divisional Court held (at paragraph 45) that if 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 making no order for security for costs.
24On the other hand, if the plaintiff has not established that it is impecunious, it can avoid an order for security for costs of it can establish on a balance of probabilities that its claim has a good chance of success. See Zeitoun, supra, at paragraphs 46 and 50.
25In Coastline Corp. v. Canaccord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790 Master Glustein (as he then was) laid down a comprehensive set of principles governing motions for security for costs. He said the following (at paragraph 7):
I apply the following legal principles:
i. The initial onus is on the defendant to satisfy the court that it “appears” there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56.01 (Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 (H.C.J.) at 123);
ii. Once the first part of the test is satisfied, “the onus is on the plaintiff to establish that an order for security would be unjust” (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. – Mast.) (“Uribe”) at para. 4);
iii. The second stage of the test “is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors”. The court exercises a broad discretion in making an order that is just (Chachula v. Baillie (2004), 2004 CanLII 27934 (ON SC), 69 O.R. (3d) 175 (S.C.J.) at para. 12; Uribe, at para. 4);
iv. The plaintiff can rebut the onus by either demonstrating that:
a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,
b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not “plainly devoid of merit”, or
c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success2
(See Willets v. Colalillo, [2007] O.J. No. 4623 (S.C.J. – Mast.) at paras. 46, 47, and 55; Uribe, at para. 5; Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 50; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J. – Mast.) (“Bruno”) at para. 35);
v. Merits have a role in any application under Rule 56.01, but in a continuum with Rule 56.01(1)(a) at the low end (Padnos v. Luminart Inc., 1996 CanLII 11781 (ON SC), [1996] O.J. No. 4549 (Gen. Div.) (“Padnos”), at para. 4, Bruno, at para. 36);
vi. The court on a security for costs motion is not required to embark on an analysis such as in a motion for summary judgment. The analysis is primarily on the pleadings with recourse to evidence filed on the motion, and in appropriate cases, to selective references to excerpts of the examination for discovery where it is available (Padnos, at para. 7; Bruno, at para. 37);
vii. “If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of the merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious” (Wall v. Horn Abbott Ltd., 1999 CanLII 7240 (NS CA), [1999] N.S.J. No. 124 (C.A.) at para. 83);
viii. The evidentiary threshold for impecuniosity is high and “bald statements unsupported by detail” are not sufficient. The 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” (Uribe, at para. 12; Shuter v. Toronto Dominion Bank, 2007 CanLII 37475 (ON SC), [2007] O.J. No. 3435 (S.C.J. – Mast.) (“Shuter”) at para. 76);
ix. To meet the onus to establish impecuniosity, “at the very least, this would require an individual plaintiff to submit his most recent tax return, complete banking records and records attesting to income and expenses” (Shuter, at para. 76);
x. A corporate plaintiff who claims impecuniosity must demonstrate that it cannot raise security for costs from its shareholders and associates, i.e. it must demonstrate that its principals do not have sufficient assets (Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 CanLII 4190 (ON SC), 61 O.R. (2d) 688 (H.C.J.) at 705). Evidence as to the “personal means” of the principals of the corporation is required to meet this onus (Treasure Traders International Co. v. Canadian Diamond Traders Inc., [2006] O.J. No. 1866 (S.C.J.) (“Treasure Traders”), at paras. 8-11). A corporate plaintiff must provide “substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security”. “A bare assertion that no funds are available” will not suffice. (1493677 Ontario Ltd. v. Crain, [2008] O.J. No. 3236 (S.C.J. – Mast.) at para. 19);
xi. Consequently, full financial disclosure requires the plaintiff to establish the amount and source of all income, a description of all assets including values, a list of all liabilities and other significant expenses, an indication of the extent of the ability of the plaintiffs to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose (Morton v. Canada (2005), 2005 CanLII 6052 (ON SC), 75 O.R. (3d) 63 (S.C.J.) at para. 32);3
xii. Because the plaintiff has the onus to establish impecuniosity, a defendant “can choose not to cross-examine if the plaintiff fails to lead sufficient evidence”. The decision not to cross-examine does not covert insufficient evidence into sufficient evidence (Bruno, at paras. 27-28; Shuter, at paras. 59 and 71); and
xiii. When an action is in its early stages, an installment (also known as “pay-as-you-go”) order for security for costs is usually the most appropriate (Bruno, at para. 65; Hawaiian Airlines Inc. v. Chartermasters Inc. et al. (1985), 1985 CanLII 2155 (ON SC), 50 O.R. (2d) 575 (S.C.O. – Mast.)).
26I will now apply these principles to the evidence before me.
27164 is obviously a corporation. The issue then becomes that of whether there is good reason to believe that 164 has insufficient assets in Ontario to pay the costs of UAP.
28There is good reason to believe just that. 164 does not claim to have sufficient assets in Ontario to pay the costs of UAP. On the contrary, 164 claims to be impecunious.
29The evidentiary threshold for impecuniosity is high, and 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. See Coastline, supra, at paragraph 7 (viii).
30A corporation like 164 must also demonstrate that it cannot raise security for costs from its shareholder and associates. That is to say, it must show that its principals do not have sufficient assets to post security. Evidence as to the personal means of the principals of the corporation is required to meet this onus, and a corporate plaintiff must provide “substantial evidence about the ability of its shareholder or others with an interest in the litigation to post security”. A bare assertion that no funds are available with not suffice. See Coastline, supra, at paragraph 7 (x).
31In my view, 164 has not met the high evidentiary burden required to establish that it is impecunious.
32The records which 164 has tendered in support of its claim of impecuniosity are far from complete.
33On his cross-examination, Mr. Turner acknowledged that 164 has financial statements that were prepared by a professional accountant on a monthly and annual basis. The last annual financial statement for 164 was prepared as at July 31, 2014. Mr. Turner admitted having copies of all of 164’s financial statements, but none of those financial statements has been produced on this motion.
34In addition, 164 has produced bank statements for a three month period only, that is from January 2014 to March 2014. Despite swearing his affidavit on May 28, 2014, Mr. Turner has offered no explanation for why, at a minimum, bank statements have not been produced for the period beginning when this action was commenced (November 2013) until the date Mr. Turner’s affidavit was sworn. While certain tax documents have been produced, the complete tax returns of 164 have not been produced.
35Finally, Mr. Turner admitted on cross-examination that neither he nor 164 has made any effort to borrow money to fund this litigation.
36Despite the failure of 164 to make the necessary production of documents to establish its impecuniosity on this motion, and Mr. Turner’s affidavit evidence that 164 does not “own any property, investments or assets in Ontario”, or elsewhere, the record is clear that 164 does have some assets and is not impecunious. Mr. Turner has not been frank with this court.
37Among the exhibits to Mr. Turner’s affidavit are bank statements showing that on January 1, 2014, 164 had approximately $20,000 in cash. Since that time, the funds in that account were used in part to purchase a silver 2002 BMW X5. The funds in 164’s account were also used to pay various insurance premiums for assets not owned by the corporation – including insurance for a boat owned by Mr. Turner personally (which was not disclosed in his affidavit).
38Mr. Turner stated on cross-examination that there was approximately $2,000 left in 164’s bank account.
39In addition, on cross-examination Mr. Turner admitted that 164 owns a 2012 Jeep. Again, this asset was not disclosed in Mr. Turner’s affidavit, though he admitted that it was purchased approximately two years ago, and was an asset of 164 at the time his affidavit was sworn. Mr. Turner testified that, based on his significant knowledge of the automotive industry, the Jeep is currently worth approximately $22,000.
40Since Mr. Turner is the sole shareholder and director of 164, he must lead evidence regarding his purported inability to post security for the costs of UAP. See Coastline, supra, at paragraph 7 (x).
41In Talisman Resort GP Inc. v. Kyser, [2013] ONSC 6612 J.M. Fragomeni J. said (at paragraph 58) that shareholders of corporations claiming to be impecunious must:
demonstrate to the court through complete and accurate disclosure, as it relates to their companies and themselves personally as principals of these companies, their income, assets, expenses, liabilities and borrowing ability.
42Coastline, supra, at paragraph 7 (x) is to a similar effect.
43Mr. Turner has fallen far short of this standard of disclosure.
44In his affidavit, Mr. Turner said that he had produced his 2013 income tax return. He did not. Instead, Mr. Turner produced some T4 slips from various employers in 2013. Nowhere in his affidavit did Mr. Turner state that those T4 slips comprised his total income from employment for 2013. Nowhere did he produce his personal tax return showing his total income for 2013.
45Furthermore, there is no information in Mr. Turner’s affidavit about his 2014 income. Mr. Turner has not provided sufficient evidence regarding his assets, expenses, liabilities and borrowing ability. Specifically, Mr. Turner has failed to provide:
a) a mortgage charge or mortgage statements for the property he claims he owns (160 Wellington Street East, Unit 403, Aurora), or
b) documents evidencing his living expenses and how he is paying for those expenses, including but not limited to:
i. any credit card statements;
ii. personal bank statements; or
iii. investment account statements.
Turner Has Some Assets
46Despite stating in his affidavit that he “has no other assets [that he] can easily dispose of and [that he is] unable to provide any monies as security…” during cross-examination, Mr. Turner admitted to owning personal assets that were not disclosed in his affidavit. In particular, Mr. Turner admitted to owning a boat which he purchased two years ago, and owning RRSP and other investments with an estimated value of $50,000.
47He also claims to own a half interest in a condominium that has approximately $30,000 in equity. However, Mr. Turner has produced no documents corroborating either the value of the property or the size of the mortgage encumbering it.
48Mr. Turner also admitted that he has made no attempts to borrow money from anyone to fund this litigation.
49In these circumstances, 164 has not met its evidentiary burden. I therefore conclude that 164 has not demonstrated that it is impecunious. Accordingly, 164 must meet the higher threshold test and demonstrate that it has a good chance of success in this action to avoid being required to post security for costs.
164 Does Not Have a Good Chance of Success
50In my view, 164 does not have a good chance of success in this action.
51In Stojanovic v. Bulut, 2014 ONSC 672 Master Albert said (at paragraph 38) that a party who seeks to be relieved from the obligation to post security for costs
on the basis of having a good chance of success on the merits of his case, that party has an obligation to present his best evidence.
52Master Albert also said (in the same paragraph) that she found that the failure of the party claiming to have a good chance of success to produce corroborating documents to be "very telling".
53A plaintiff seeking to prove that he or she has a good chance of success on the merits of her or his action cannot simply rely upon the pleadings. Pleadings are certainly relevant because they define the issues. Pleadings of fact, however, are simply allegations. Proving the truth of allegations of fact requires evidence.
54In Mauldin v. Cassels, Brock and Blackwell LLP, 2013 ONSC 686, C.J. Brown J. heard an appeal from an order of Master Glustein (as he then was) which required the plaintiffs to post security for costs because he (Master Glustein) found that the plaintiffs had failed to establish that their claim had a good chance of success. At paragraph 26 of her decision C.J. Brown J. quoted the following from Master Glustein’s discussion of what constitutes a good chance of success in this context.
I am not determining who will be successful at trial on a full evidentiary record. It is only necessary to determine on the basis of the evidence before me whether the plaintiff has a good chance of success. This is a higher standard than “not devoid of merit” but is not as high as proving the claim on a balance of probabilities at trial or establishing that there is no triable issue on a summary judgment motion.
The test must be higher than the plaintiff establishing a genuine issue requiring a trial. A plaintiff may well be able to establish factual, legal and credibility issues which are genuine for trial, but that cannot satisfy the court that there is a good chance of success.
Following the approach taken by Master Dash in Stojanovic, the court in each case must determine whether the plaintiff has met the “good chance of success” standard. The court must review the pleadings, evidence, transcripts, and any other relevant fact before the court on the motion to determine if there is a good chance the plaintiff will succeed at trial. I do not purport to craft an all-encompassing definition of the test.
55C.J. Brown J. found that Master Glustein had committed no error and dismissed the appeal.
56In his affidavit, Mr. Turner provides evidence on two issues in dispute in this action.
a) First, Mr. Turner says that several times during 2012, he approached an unidentified person (or persons) at UAP and requested that UAP amend its prices to be “more competitive and in line with industry standards”, but that UAP refused to do so. Mr. Turner has not identified the person or persons he spoke to.
b) Secondly, Mr. Turner says that he received threats from an unidentified person (or persons) at UAP that if he refused to sell the Newmarket Store back to UAP that UAP would (i) “withdraw the guarantee on the loan” with the Bank of Montreal and (ii) UAP would open “a store in close proximity and in direct competition” with 164.
57Both these statements are advanced in support of Mr. Turner’s conclusion that:
As a result of the actions of the Defendant, 164 lost the benefit of the associate agreement and revenue that it would have otherwise received. 164 also was not paid fair market value for the store given its location and revenue.
58Marc Bellefleur is the director- financial analysis at UAP. He has affirmed two affidavits in connection with this motion, the first being an affidavit in support of UAP’s motion and the second being an affidavit in response to Mr. Turner’s affidavit.
59Mr. Bellefleur gave evidence on the subject of UAP’s pricing and on whether that pricing was competitive. In his responding affidavit Mr. Bellefleur said the following:
At all times, UAP believed it’s pricing to be competitive. At no time was UAP required to amend its prices so that 164 could increase its margins at the Newmarket Store, or otherwise. At all material times, UAP sold product to 164 in accordance with the terms of the NAPA associate agreement.
60When cross-examined on that statement, Mr. Bellefleur testified as follows:
Q. Let’s go through your affidavit. Let’s start at the June 26 affidavit. Paragraph 3, the first sentence says: At all times UAP believed its pricing to be competitive. What are you basing that statement upon?
A. I could answer on fact, because out success in Canadian market is part of our pricing – part of it is based on our pricing strategy, and the auto parts aftermarket sector is really competitive. So we have 600 stores; I think 400 are associate stores. If our pricing is not competitive, we will not be – we will be out of the map since many years. So I have also the opportunity to buy competitor in my job, as you understand.
Q. Sorry
A. I have also the opportunity to be involved in the purchasing of competitors. I saw their price structure, and we are competitive.
61Mr. Turner has not produced any documents in support of his claim that UAP’s pricing was not competitive.
62Mr. Turner was also cross-examined on the subject of whether UAP was under an obligation to 164 to adjust its pricing. He testified as follows:
Q. So when I asked you before if this was the agreement between the parties, you will agree with me that this [the associate agreement] was the agreement between the parties?
A. This was the agreement, yes.
Q. Thank you. And you will agree with me that nowhere in this agreement does it provide that UAP was under an obligation to adjust its pricing, if you asked?
A. Not in this agreement.
Q. And you will agree that UAP was under no obligation to reduce its pricing to 164?
A. That is correct.
63In Pointts Advisory Ltd. v. 754974 Ontario Inc., [2006] O.J. No. 3504, S.N. Lederman J. held (at paragraph 55) that the duty of good faith and fair dealing found in the Arthur Wishart Act (Franchise Disclosure) 2000 did not have the effect of changing the terms of a franchise agreement.
64I have therefore come to the conclusion that the claim of 164 that UAP was obliged to change its pricing to 164 to make that pricing competitive but failed to do so is not a claim with a good chance of success.
The UAP Threats (Buy Back Agreement and Store Opening)
65As previously mentioned, Mr. Turner says that he received threats from an unidentified person (or persons) at UAP that if 164 refused to sell its Newmarket Store back to UAP that UAP would (i) withdraw its “guarantee” on the loan with the Bank of Montreal and (ii) UAP would open a store in close proximity to and in direct competition with 164.
The Buy Back Agreement
66On cross-examination, Mr. Turner acknowledged that the “bank guarantee” referred to in his affidavit was in fact a buy back agreement between UAP, the Bank of Montreal and 164. The buy back agreement specifically provided that it was revocable by UAP on 45 days’ notice. On cross-examination Mr. Bellefleur testified as follows:
Q. Since we’re here, second part of paragraph 10: To my knowledge, UAP never threatened to withdraw any bank guarantee to buy-back agreement.
A. Yes, this is really from my knowledge and my knowledge in fact –
Q. Sorry, from your knowledge, you never threatened to –
A. Threat to – no.
Q. – to eliminate the guarantee?
A. No. And if somebody want to do that in the company it will pass on my desk. It’s me who has the contact with the Bank of Montreal and –
Q. If someone had threatened it without actually going about carrying it out, you wouldn’t necessarily know about it, would you?
A. In fact, I don’t know if somebody – you know, we are 5,000 employees in UAP. I don’t know if somebody make these kind of threat. What I said, first, if these kind of scenarios was in discussion to UAP, I would be aware, if it was a serious threat, okay. Second, John Turner knows that each time that he has looking for a new inventory buy-back – because I have to look at it but I’m sure that we have one at a certain point in time but we have a renewal – I would not be surprised – he knows that I am the one who is involved. So here I speculate a little bit, but in my mind if somebody make these kinds of threats, John knows that he should contact me.
Q. And your evidence is that he did not contact you about this?
A. Never. And I have asked the people in the operation: From your knowledge, Robert Duncan, do anybody ever make these kinds of threats? He laughed, he said no.
67Again, Mr. Turner had an opportunity to disclose the source of these alleged threats but chose not to. In contrast, UAP investigated the allegations and found no evidence of any threats having been made.
68The allegation that UAP threatened to revoke the buy back agreement does not make commercial sense. The evidence of Mr. Bellefleur in his affidavit, and then of Mr. Turner on cross-examination was that it would have been less expensive for UAP to allow 164 to default on its loan to the Bank of Montreal and then for UAP to repurchase 164’s inventory from the Bank of Montreal pursuant to the buy back agreement, than it was to purchase 164’s assets directly from 164 in December 2012.
69Accordingly, 164 has failed to demonstrate that it has a good chance of success in establishing that UAP threatened to withdraw the buy back agreement. Even Mr. Turner does not claim that UAP acted on this threat.
The Threat to Open A Competitive Store in Close Proximity
70Mr. Turner says an unidentified representative of UAP threatened to set up a store in close proximity to and in direct competition with 164.
71Mr. Bellefleur’s evidence on cross-examination on this point was as follows:
Q. Paragraph 9, we talked about a portion of paragraph 9. Furthermore, to my knowledge UAP never threatened to open another corporate store in close proximity in direct competition with the Newmarket Store. Again, this is to your own personal knowledge?
A. Once again, two things. The first, yes, I have asked the question to Robert Duncan who is, as I told you, the person responsible; and second, I don’t have any reason to think that Mr. Robert Duncan can lie to me, first of all, and second, if this project was discussed, this will be, once again, on my desk. I never received any demand from anybody in the company to look at what it look like if we want to open a store in competition to John Turner in NewMarket [sic] area.
72Furthermore, even though the establishment of a competitive store was not contemplated by UAP, the associate agreement placed no territorial restrictions on UAP’s ability to open additional stores – even in close proximity to the Newmarket Store. Section 1.4 of the associate agreement provides as follows:
The rights granted to the NAPA Associate pursuant to this Agreement are not exclusive and UAP may at any time and from time to time open other NAPA stores or grant similar rights to any other person, as franchisees or NAPA associates or in any other capacity, without territorial, temporal or other limitation.
73This is another situation where Mr. Turner could have identified the person he claims made this threat but he did not do so. I can give no weight to such evidence. In my view, the claim of Mr. Turner and 164 that UAP threatened to open a competitive store in close proximity to the Newmarket Store is not a claim with a good chance of success.
The Claim That 164 Did Not Receive Fair Market Value on the Resale of Newmarket Store Assets
74164 also claims that when it resold the assets of the Newmarket Store to UAP it should have received but did not receive fair market value for these assets.
75First of all, 164 has presented no evidence that the price at which it resold its assets to UAP was lower than the fair market value of those assets.
76On cross-examination, Mr. Turner admitted that if 164 elected to sell the assets of the Newmarket Store, the associate agreement gave UAP the option of buying back those assets on the same terms as UAP had sold those assets to 164 in the first place.
77When Mr. Bellefleur was cross-examined he testified that the price which UAP paid when it repurchased those assets was higher than what the associate agreement called for.
78164 sold the Newmarket Store assets to UAP on terms similar to the terms on which it sold the Richmond Hill Store assets to UAP. On cross-examination Mr. Turner admitted that he was comfortable with the terms on which 164 sold the Richmond Hill Store assets on UAP at the time those assets were sold.
79UAP did not force 164 to sell its assets back to UAP. 164 was suffering financially because it was then losing money every month. Mr. Turner chose to stop the bleeding. First, 164 sold the assets of the Richmond Hill Store back to UAP in September 2012. Management then focused its attention on the Newmarket Store. Unfortunately, the losses of 164 continued. Mr. Turner then decided to sell the assets of the Newmarket Store back to UAP.
80On cross-examination Mr. Bellefleur was asked about whether 164 was threatened or forced to sell its assets back to UAP. He testified as follows:
The way that I have understood the decision of John Turner was definitely in reaction to his financial stress. It was not at all mentioned in any discussion with John Turner – and we have frank discussions together – that: Marc, they forced me to sell my store. … He talked to me, he was disappointed about the fact that is where he is, but it’s the thing that has to be done. It was not in reaction to any threat.
81164 and Mr. Turner did not complain about the sale of the Newmarket Store until after he was dismissed by UAP some six months after the sale.
Other Claims
82In the statement of claim the plaintiffs advance a number of other claims for breach of contract, breach of fiduciary duty, lack of good faith and negligent misrepresentation. These other claims are not supported by any evidence and therefore are not claims which 164 has shown have a good chance of success.
83During oral argument, considerable time was spent on the plaintiffs’ claim that the defendant opened a UAP owned store in Etobicoke, which competed with 164’s Newmarket Store. While this is one of the claims alleged in the statement of claim, it is not mentioned in Mr. Turner’s affidavit evidence. As I have previously mentioned, the UAP associate agreement respecting the Newmarket Store did not give 164 any territorial exclusivity protection. UAP was acting within its rights in opening the Etobicoke store. For this reason, and because this claim is not supported by Mr. Turner’s evidence, it is not a claim with a good chance of success.
84Finally, the plaintiffs have not provided any evidence as to the quantum of damages which 164 alleges it suffered at the hands of UAP.
85For all these reasons, I have come to the conclusion that the various claims which 164 advances are not claims with a good chance of success. As a result, UAP is entitled to an order that 164 post security for costs.
Amount of Security
86In his affidavit Mr. Bellefleur estimates that UAP’s costs of defending the claims made by 164 on a partial indemnity basis through to the end of examinations for discovery to be $50,000. Since this action has not proceeded past the pleadings stage, most of the components of this $50,000 in costs are estimates for future steps in this action. The overall estimate of $50,000 is that of defence counsel Mr. Kestenberg and not that of Mr. Bellefleur personally. One of the exhibits to Mr. Bellefleur’s affidavit is a draft bill of costs providing a detailed calculation of how the $50,000 security for costs claim is arrived at.
87Plaintiff’s counsel submitted that some of the time estimates in the draft bill of costs are excessively high. I agree.
Result
88An order will therefore issue that within 60 days 164 is to post security for costs in the sum of $40,000 covering the costs of UAP defending the claims of 164 through to the end of examinations for discovery, not including any discovery-related motions.
Costs of Motion
89UAP has been successful on this motion and should receive the costs of it. I fix those costs at $7,500 and order 164 to pay such costs to UAP within 30 days.
(original signed)
Master Thomas Hawkins
Release Date: February 3, 2016