2179548 ONTARIO INC. v. 2467925 ONTARIO INC., 2017 ONSC 469

CITATION: 2179548 ONTARIO INC. v. 2467925 ONTARIO INC., 2017 ONSC 469

COURT FILE NO.: CV-16-127869

MOTION HEARD: JANUARY 19, 2017

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2179548 Ontario Inc.

v.

2467925 Ontario Inc. and 2153823 Ontario Inc.

BEFORE: MASTER R.A. MUIR

COUNSEL: J Chan for the defendants, moving parties I. Merrow for the plaintiff, responding party

REASONS FOR DECISION

[1] The defendants bring this motion for an order requiring the plaintiff to post security for costs pursuant to Rule 56.01(1)(c) and (d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the "Rules"). The defendants take the position that the plaintiff is a corporation with insufficient assets in Ontario to pay any costs award that may ultimately be made in favour of the defendants. The defendants also point to unpaid costs orders in their favour.

[2] The plaintiff is opposed to the relief sought by the defendants.

[3] This is an action for damages for breach of an agreement of purchase and sale dated June 4, 2015 (the "APS"). Alternatively, the plaintiff seeks specific performance of the APS.

[4] The APS is in relation to the development of a five phase condominium project in the Town of Richmond Hill known as Four Seasons Gardens (the "Project"). The plaintiff is the vendor pursuant to the APS. The defendant 2467925 Ontario Inc. ("246") is the purchaser. The defendant 2153823 Ontario Inc. ("215"), a corporation controlled by the same parties as 246, is an assignee of a mortgage registered on title to the project lands (the "Mortgage").

[5] The plaintiff alleges that the Mortgage has been paid in full. However, 215 refuses to provide a discharge of the Mortgage. The plaintiff alleges damages as a result. It claims the Mortgage is preventing it from developing this valuable property.

[6] Rule 56.01 provides, in part, 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, . . .

(c) 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) 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 . . .

[7] The test on a motion of this nature is summarized in the decision of Master Glustein in Coastline Corp. v. Canaccord Capital Corp., 2009 21758 (ON SC), [2009] O.J. No. 1790 (S.C.J. – Master). In general terms, the moving defendant has the initial onus of demonstrating that the plaintiff falls into one of the categories set out in Rule 56.01(1). This onus is not a heavy one. The defendant need only show that the plaintiff is a corporation and that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. The onus then shifts to the plaintiff to tender evidence that it has assets available to respond to any costs order, to demonstrate impecuniosity or to ask the court to make such order as is just in the circumstances.

[8] The applicable principles are set out in full detail at paragraph 7 of Coastline which reads as follows:

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 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 27934 (ON SC), (2004), 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 success;

(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 20996 (ON SCDC), (2008), 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 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 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 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 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 6052 (ON SC), (2005), 75 O.R. (3d) 63 (S.C.J.) at para. 32);

(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 convert insufficient evidence into sufficient evidence (Bruno, at pars. 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 2155 (ON SC), 50 O.R. (2d) 575 (S.C.O. – Mast.).

[9] These are the factors and principles I have applied in determining the issues on this motion. Overall, I am guided by the central principle that an order for security for costs is discretionary. The role of the court on a motion such as this is to make the order that is just in all of the circumstances. See Hallum at paragraph 10.

[10] In my view, the defendants have met their initial onus. The plaintiff is obviously a corporation. The plaintiff has failed to pay a $19,000.00 costs order in favour of the defendants. The plaintiff has several unpaid and outstanding executions against it totaling more than $4,000,000.00. As set out above, the onus at this stage is not a heavy one. The defendants need only show "good reason" to believe the plaintiff has insufficient assets to pay a costs order. The fact of the unpaid costs order is not disputed. The defendants have met their onus.

[11] The onus now shifts to the plaintiff to establish that an order for security for costs would not be just in the circumstances of this action. In my view, the plaintiff has failed to do so. The financial disclosure by the plaintiff is simply not sufficient. It consists of documents summarizing the plaintiff's assets but does not include source documents or back-up material. It does not address the issue of any liabilities the plaintiff may have other than the encumbrances on title to the Project property. As stated in Coastline Corp. the threshold for financial disclosure is high. Full, specific and particularized disclosure is required and the plaintiff has simply not done this.

[12] The plaintiff argues that its financial circumstances are the result of the actions of the defendants. The difficulty I have with this argument is that the plaintiff has failed to meet its burden in terms of financial disclosure. I am unable to conclude that it is in difficult financial circumstances. In my view, this is a prerequisite to accepting the argument that the defendants are to blame.

[13] Given the lack of financial disclosure and the lack of any evidence as to the ability of the principals of the plaintiff to provide security, the plaintiff cannot establish impecuniosity. Under such circumstances the plaintiff must demonstrate that its claim has a good chance of success. I am not satisfied the plaintiff has done this. The plaintiff has already tried to make such a claim on these facts with its application that was heard by Justice Charney. It was not successful and that decision is under appeal. I do not see how the court on this motion can find a good chance of success given the lack of success before Justice Charney.

[14] For these reasons, I have concluded that it is just in the circumstances of this action for an order to be made requiring the plaintiff to post security for the costs of the defendants.

[15] I am aware that Justice Mullins has made an order for security for costs in the appeal that simply allows the defendants to add any costs order to the Mortgage indebtedness. However, I do not view that approach as being applicable to this motion. I note that the amount in issue is considerably less than is being requested on this motion and the costs issues on the appeal will be determined much sooner than in this action. I simply do not have sufficient evidence to be comfortable in adding the potential costs of this action to the Mortgage in terms of the sufficiency of that form of security.

[16] I have reviewed the defendants' costs outline. It appears reasonable for an action of this nature and given the pending CPL motion. I am ordering the plaintiff to post security for the costs of the defendants through the discovery stage in the total amount of $50,000.00. The costs shall be posted in stages. The amount of $15,000.00 shall be posted prior to the return date of the CPL motion. A further $35,000.00 shall be posted prior to the plaintiff initiating its oral discovery of the defendants. The security shall be in the form of cash or an irrevocable letter of credit from a Canadian chartered bank.

[17] The defendants have been successful and are entitled to costs. However, I view the amount requested as excessive in the circumstances of this motion, especially given that much of the evidence and argument was assembled for the motion before Mullins J. It is therefore fair and reasonable for the plaintiff to pay the defendants' costs of this motion fixed in the amount of $3,000.00, inclusive of HST and disbursements. These costs shall be paid by February 20, 2017.

Master R.A. Muir

DATE: January 19, 2017