Renuity, LLC v. Balsam Lake Green Energy

CITATION: Renuity, LLC v. Balsam Lake Green Energy, 2017 ONSC 3022

COURT FILE NO.: CV-15-524683

MOTION HEARD: 2017-04-28

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Renuity, LLC, Plaintiff, Responding Party

AND:

Balsam Lake Green Energy, Defendant, Moving Party

BEFORE: Master Jolley

COUNSEL: A. Wong, Counsel for the Moving Party Defendant

M. Mounir, Counsel for the Responding Party Plaintiff

HEARD: 28 April 2017

REASONS FOR DECISION

Overview

[1] The plaintiff is a limited liability company under the laws of the State of Delaware. It has two principals and shareholders, James Akerson and Scott McMahon. The plaintiff has sued the defendant in Ontario seeking damages in the amount of $422,500 for breach of contract, unjust enrichment and bad faith and punitive damages in the amount of $50,000.

[2] The defendant brings this motion for security for costs under Rule 56.01(1)(a) on the basis that the plaintiff is ordinarily resident outside Ontario and under 56.01(1)(d) on the basis that the plaintiff is a corporation and there is good reason to believe that it has insufficient assets in Ontario to pay the defendant’s costs.

[3] The plaintiff takes the position that it is impecunious and that it should not be required, in the interests of justice, to post security for costs.

The Test

[4] The initial onus is on the defendant to satisfy the court that it appears there is good reason to believe the matter falls into one of the categories under Rule 56.01(1). The onus is not a heavy one.

[5] If that first part of the test is met, the inquiry is then triggered as to whether security for costs is appropriate (Zeitoun v. Economical Insurance Group 2008 CanLII 20996 (ON SCDC), [2008] O.J. No. 1771 (Div. Ct.), affirmed 2009 ONCA 415, [2009] OJ No. 2003 (C.A.). Whether to order security for costs is an exercise of discretion.

[6] To avoid an order for security for costs, the plaintiff can demonstrate at this second stage that:

(a) it has sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any costs order;

(b) it is impecunious and its claim is not “plainly devoid of merit”; or

(c) if the plaintiff cannot establish that it is impecunious and seeks to avoid a security for costs order, “a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. Where impecuniosity has not been shown, a legitimate factor in deciding whether or not it would be just to require security for costs is whether the claim has a good chance of success.” (Zeitoun, above at paragraph 50).

Analysis

Issue 1: Has the defendant demonstrated that the case falls within Rule 56.01(1)?

[7] The defendant has shown, and the plaintiff has admitted, that the plaintiff is resident outside Ontario, in the state of Delaware.

[8] The defendant has also shown, and the plaintiff has admitted, that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.

[9] The defendant has met the onus to demonstrate the matter falls within Rule 56.01(1). Accordingly the inquiry is triggered as to whether security for costs ought to be granted.

Issue 2: Should security for costs be awarded?

(a) Has the plaintiff established that it is impecunious?

[10] The cases consistently hold that the evidentiary threshold to establish impecuniosity is high. 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.” (Coastline Corp. v. Canaccord Capital Corp. 2009 CanLII 21758 (ON SC), 2009 O.J. No. 1790 at paragraph 7, quoting both Uribe v. Sanchez (2006) 33 C.P.C. (6th) 94 at paragraph 12 and Shuter v. Toronto Dominion Bank 2007 CanLII 37475 (ON SC), [2007] O.J. No. 3435 at paragraph 76).

[11] Quoting Coastline Corp., a corporate plaintiff that 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. Evidence as to the personal means of the principals of the corporation is required to meet this onus. 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. Consequently, full financial disclosure requires the plaintiff to establish for itself and its shareholders 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 plaintiff to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose. 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 convert insufficient evidence into sufficient evidence.

[12] In this case, the plaintiff was a shell before this action started and is a shell now. This contract in issue was to be its first consulting project. It has filed a bank statement showing that it has $748.36 in its account, assets of less than $2,097 USD and no funds to post as security.

[13] Mr. Akerson has listed his expenses and his income in his affidavit. Mr. McMahon does not provide any information about his income, taking the position that “the nature of [his] employment is irrelevant to the within motion.”

[14] Neither individual has listed any of their assets other than a bald statement that he has no personal funds or assets that he could post. There are no particulars.

[15] Mr. McMahon deposes that, as part of his expenses, he has monthly mortgage payments for his home so he evidently owns a home. Mr. Akerson may also own real property, given his list of expenses includes a monthly mortgage payment (although his affidavit describes his home as leased). Neither has given any indication of his ability to raise financing or the equity available in his home. There is no independent or documentary evidence in support of the expenses list provided by Mr. Akerson such as his tax returns, banking records, a description of assets and their values and an indication of his ability to borrow funds. There is no such expenses listing provided by Mr. McMahon. As noted in Shuter v. Toronto Dominion Bank, above, at paragraph 76, 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.”

[16] I find the plaintiff has not led sufficient evidence of impecuniosity to meet the evidentiary threshold set out in Coastline Corp.

(b) If the plaintiff is not impecunious, does its case have a good chance of success?

[17] While the plaintiff in its materials relied on impecuniosity to avoid an order for security for costs, its counsel argued on the motion that, in the event impecuniosity was not established, security for costs should still not be ordered.

[18] Where impecuniosity has not been shown, as here, the onus on the plaintiff is more onerous than establishing that its case is not devoid of merit. The merits of the case are reviewed to determine whether the plaintiff can demonstrate that its claim has a good chance of success (see Padnos v. Luminart Inc. 1996 CanLII 11781 (ON SC), [1996] O.J. No. 4549).

[19] In considering the merits at this stage of the proceeding, there is before the court a statement of claim, a statement of defence and an affidavit by the plaintiff. The affidavit filed by the defendant on this motion did not address the merits of the plaintiff’s claim.

[20] The plaintiff sues for services rendered to the defendant under a consulting agreement. The plaintiff alleges that it prepared and maintained a data room where potential financiers of the defendant could conduct due diligence. Further, it alleges that the defendant ultimately entered into a sale of its project to a third party introduced to it by the plaintiff. The plaintiff pleads that the defendant has breached the consulting agreement by failing to pay the plaintiff for the work done. The defendant takes the position that the consulting agreement covered debt financing but not a sale of the project. Further, it pleads that the consulting agreement had expired and that the defendant did not enter into any financial agreement in the 12 month runoff period.

[21] Similar to the conclusion of Justice Kiteley in Padnos v. Luminart, above, my review of the merits is neutral to the outcome of the motion.

Conclusion

[22] If this claim were brought by an Ontario plaintiff and the defendant were successful at trial, the defendant would have the available remedies in Ontario to recover costs. There is no reason why the defendant should not have recourse to the equivalent remedies which a security for costs order provides, if it successfully defends this action (Padnos, above).

[23] I find it just and exercise the broad discretion given to the court under Rule 56 to order the plaintiff to provide security for costs incurred to date and for prospective costs.

Issue 3: Quantum of Security for Costs

[24] Security for costs will be paid on a partial indemnity basis. The defendant’s materials indicate it has incurred fees of $15,000 to date. However, that includes the time for this motion, which will be dealt with separately. I order the plaintiff to post security for costs in the following tranches:

(a) $4,873.13, plus HST for costs spent to date, exclusive of this motion (comprised of $4,125, being 16.5 hours (20.8 hours less 4.3 hours spent on this motion) for Mr. Hine at a partial rate of $250 per hour, reasonable for a 1997 call plus $187.50 being 1.5 hours (25.6 hours less 24.1 hours spent on this motion) for Ms. Wong at a partial rate of $125 per hour, reasonable for a 2014 call, by 16 June 2017;

(b) $10,000, plus HST through to the conclusion of examinations for discovery payable by 15 December 2017; and

(c) $39,300, plus HST through mediation to the conclusion of trial payable by 14 September 2018.

Costs

[25] The defendants was successful on its motion. I order the plaintiff to pay the sum of $5,000 inclusive of HST and disbursements on or before 16 June 2017.

Master Jolley

Date: 16 May 2017