Court File and Parties
COURT FILE NO.: 06-CV-303534PD3 MOTION HEARD: 20170511 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: AAD Investments Inc., Plaintiff AND: Casboro Industries Limited et al., Defendants
BEFORE: Master Mills
COUNSEL: M. Law, Counsel for the Moving Party Defendant D. Ketelaars, Counsel for the Responding Party Plaintiff
HEARD: May 11, 2017
Reasons for Decision
[1] The defendant Casboro Industries Limited (“Casboro”) seeks a security for costs order pursuant to Rule 56.01(01)(d). For the reasons that follow, the order is hereby granted.
[2] Where the plaintiff is a corporation and there is good reason to believe the plaintiff has insufficient assets in Ontario to pay an adverse cost order in favour of the defendant, the court may make such order for security for costs as is just in the circumstances. Rule 56.01(1)(d), Rules of Civil Procedure.
[3] The parties agree the case law is well settled with respect to the test to be satisfied before a security for costs order may issue. Coastline Corporation Ltd. v. Canaccord Capital Corp., 2009 ONSC 21758; 2179548 Ontario Inc. v. 2467925 Ontario Inc., 2017 ONSC 469. The test to be applied and the considerations to be made by the court have been fully outlined in the recent decision of Master Muir in 2179548 Ontario Inc. v. 2467925 Ontario Inc., 2017 ONSC 469, at para. 8.
[4] There is a two-step process whereby the defendant bears the initial onus of satisfying the court that it “appears” there is good reason to believe the matter comes within one of the circumstances enumerated in Rule 56.01. The onus is not a heavy one. In this case, the defendant need only establish the plaintiff is a corporation and that there is good reason to believe the plaintiff has insufficient assets in Ontario to satisfy any costs order.
[5] If that onus is met, the burden then shifts to the plaintiff to establish that it is impecunious or that an order for security would be unjust in the circumstances. The court has broad discretion in determining what is just and may consider a multitude of factors in reaching that determination.
[6] To rebut the onus placed upon the plaintiff, it must be shown that:
a. The plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs;
b. The plaintiff is impecunious and that justice demands the plaintiff be permitted to continue with the action in which case the plaintiff must establish the case is not “plainly devoid of merit”; or
c. If the plaintiff cannot establish 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 success.
[7] While merits are to be considered in a Rule 56.01 motion, the court is not to embark upon an analysis as would be appropriate in a summary judgment motion. If the case is complex or turns on credibility, it is generally not appropriate to make a decisive assessment of the merits on an interlocutory motion except where a proper assessment of the merits reveals that success or failure of the action appears obvious.
[8] These are the factors and principles I have considered in exercising my discretion to make the order for security for costs, which I believe to be the most just order in the circumstances.
[9] The defendants have met their onus of establishing the plaintiff is a corporation and that there is good reason to believe it has insufficient assets to pay a costs order.
[10] Roberto Sansone provided an affidavit on behalf of the plaintiff wherein he stated the plaintiff is a family run investment company in the business of snow removal and construction which has operated as a going concern since 2008 under the business name “Clear the Way Plowing”. Mr. Sansone stated the plaintiff has 12-15 clients with revenue of approximately $80,000 for the year 2016. A trial balance for the plaintiff corporation was attached as an exhibit to the affidavit showing total assets in excess of $450,000, including three motor vehicles worth $190,000 and accounts receivable of $120,000.
[11] Under cross-examination, it became apparent that the affidavit was materially misleading in many respects and outright false in other respects. Under cross-examination, Mr. Sansone admitted the plaintiff has no clients, no contracts and ceased snow removal operations in the spring of 2016. There are no employees or contractors associated with the business. The Clear the Way Plowing website references a telephone number that does not belong to the company and the email address is disabled. The plaintiff is, for all intents and purposes, a shell corporation with only the immediate family members of Mr. Sansone as interested parties. According to Mr. Sansone’s evidence on cross-examination, any cash deposits of the plaintiff are available to fund the personal financial needs of the family, as and when requested.
[12] Of the $450,000 in assets shown on the trial balance sheet, $180,000 is in respect of an asset which was sold three months prior to swearing the affidavit and the $120,000 accounts receivable is in respect of a consulting contract that has not been paid in over three years and for which there does not appear to be any active steps of enforcement being taken. The motor vehicles are valued at $150,000 by Mr. Sansone but he has failed to satisfy his undertaking to provide evidence of ownership of the vehicles and the basis upon which the valuation was determined. Having regard to the issues of credibility in Mr. Sansone’s evidence, I am not inclined to accept his personal assessment of the value of these motor vehicles. Moreover, the assets are inherently of a depreciating nature and thus will be worth significantly less by the time a trial is concluded in this matter.
[13] Mr. Sansone failed to answer every single undertaking given at his cross-examination on the affidavit he swore in response to this motion. There were 21 undertakings, 21 questions taken under advisement and three refusals. Not one question was answered or re-considered following the cross-examination. The questions were all in respect of the assets and financial affairs of the plaintiff. I take an adverse inference from this failure to answer the questions and to produce the documents required to substantiate the statements made in Mr. Sansone’s affidavit and the evidence given at his cross-examination. There is no credible evidence before me to support the contention the plaintiff is an operating enterprise or that it has any assets in this jurisdiction (or any other reciprocating jurisdiction) to satisfy an adverse cost order.
[14] The defendant has met its burden on this motion.
[15] The plaintiff must then establish that an order for security would be unjust in the circumstances. The plaintiff has failed to do so.
[16] The plaintiff filed no evidence and made no submissions on the issue of impecuniosity. Therefore, I have not considered impecuniosity as being a relevant factor for this motion. On that basis, the plaintiff must demonstrate it has a high chance of success in the action.
[17] The action was commenced in 2003 as a construction lien matter. In January 2006, the lien was declared expired and this claim was issued immediately thereafter. An intervening receivership filing stayed the action until the chose in action was assigned to the plaintiff in March 2012, at which time an Order to Continue was granted. After some period of inactivity, both parties retained new counsel and the action has progressed through an unsuccessful motion to dismiss the action for delay and the partial settlement of a summary judgment motion in August of 2016. The uncontentious aspects of this action have been settled.
[18] The remaining claims in the action are in respect of certain invoices and waybills which are alleged to have been fraudulently created and/or forged. A trial will certainly be required to determine the legitimacy of the claims being asserted. Credibility will be a central issue to be considered and assessed.
[19] Where an action turns on credibility, it is not appropriate to make an assessment of the merits at an interlocutory proceeding unless success or failure of the action appears obvious. Wall v. Horn Abbott Ltd., 1999 NSCA 7240, at para. 83. It does not appear at all obvious to me that the plaintiff will be successful in this action.
[20] Counsel submitted that if only one of the hundreds of invoices in question is proven to be valid, the plaintiff will have been wholly successful in the action, suggesting the actual threshold to be met is exceedingly low. I do not agree.
[21] The allegations of fraud and forgery will be determined based on the evidence and credibility of Mr. Sansone, who describes himself as the controlling mind of the plaintiff and its predecessor 310 Waste Ltd., the company that issued the subject invoices. I have been provided no evidence in this motion to suggest the plaintiff’s case has a significant prospect for success. The voluminous materials filed in the summary judgment motion raise as many questions as answers.
[22] The only issue of prejudice raised by the plaintiff is with respect to the delay by the defendant in bringing this motion. Although the action was commenced in 2006, any analysis of delay can only considered from 2012, when the plaintiff acquired the action through assignment.
[23] I am satisfied by the defendant’s evidence that the motion was brought as soon as the defendant became aware, as a result of a private investigator’s report, that the plaintiff had no real or exigible assets. The motion was brought promptly upon the circumstances being known to the defendant to justify a request for security for costs.
[24] Based on the plaintiff’s own evidence, it was a viable operating snow removal business until the spring of 2016, generating significant income from a broad client base. A security for costs motion would not have been appropriate in those circumstances.
[25] The real issue of delay for the plaintiff appears to be that the motion was brought shortly after settlement of the summary judgment motion. It was the submission of counsel that the plaintiff would not have settled the summary judgment motion on the terms agreed upon if it had known there would be a security for costs motion on the horizon. There was no evidence from the plaintiff to support this submission. Moreover, this does not constitute prejudice. There is no ethical obligation of counsel to inform an opposing party of the procedural steps being contemplated in any litigation. Being taken by surprise does not amount to prejudice which would warrant relief from a security for costs order.
[26] Having considered the evidence and the relevant case law, I exercise my discretion to award the defendant security for its costs in this action, on a partial indemnity basis. The defendant seeks security for its costs in the amount of $150,000 inclusive of disbursements. Having reviewed the Bill of Costs, I accept the amount as being reasonable in the circumstances.
[27] As there remains significant steps to be taken in this action, it would be appropriate matter to order the payment of costs on an instalment basis. I note the action is subject to a timetable which requires the matter to be set down for trial by August 11, 2017. I therefore order the plaintiff to post security for the costs of the defendants through the discovery phase of the proceeding in the amount of $30,000 within 30 days of this order. The amount of $60,000 shall be posted within 30 days of the action being set down for trial. A final amount of $60,000 shall be posted within 30 days following the pre-trial conference of this action. The security shall be posted in the form of cash or an irrevocable letter of credit from a Canadian chartered bank.
[28] Upon conclusion of argument, counsel agreed upon the quantum of costs in the event of success on the motion. As the defendant was successful, costs are ordered in the amount of $23,000 inclusive of disbursements and HST, payable by the plaintiff forthwith.
Master Mills Date: May 16, 2017