Superior Court of Justice – Ontario

CITATION: Neutrade Ltd. v. Hantsis, 2017 ONSC 5546

COURT FILE NO.: CV-15-543204

MOTION HEARD: 2017-08-30 and 2017-09-01

REASONS RELEASED: 2017-09-19

BETWEEN:

NEUTRADE LTD., IMPEXONE LTD. and MANSFIELD GLOBAL LTD. Plaintiffs

• and-

ELIE HANTSIS, BORIS SHTEIMAN, SPRINGLANE BRAMA TELECOM INC., JOHN DOE, JANE DOE and DOE CORPORATIONS 1 TO 10 Defendants

BEFORE: MASTER M.P. McGRAW

COUNSEL: P. Danson Email: pdanson@drlitigators.com -for the Defendants, Elie Hantsis, Boris Shteiman and Springlane Brama Telecom Inc. (collectively, the “Defendants”)

N. Groot and A. Ferguson Email: ngroot@investigationcounsel.com -for the Plaintiffs

REASONS RELEASED: September 19, 2017

Reasons For Endorsement

I. Background

[1] This is a motion by the Defendant Elie Hantsis (“Hantsis”) for security for costs pursuant to Rule 56.01(1). The Plaintiffs have conceded that Hantsis is entitled to security for costs on a partial indemnity scale and the parties have agreed that security should be posted with respect to all steps taken to date and up to and including mediation within 90 days. The only remaining issue in dispute is the quantum of security for costs and in this regard, the parties are only $13,000.00 apart.

[2] The Plaintiffs are in the logistics business. Neutrade Ltd. (“Neutrade”) is registered in Ontario, Impexone Ltd. (“Impexone”) in Hong Kong and Mansfield Global Ltd. (“Mansfield”) in Belize. The 2 operating minds of the Plaintiffs are residents of Russia.

[3] This action arises from the advance of US$400,000 by Impexone and US$65,000 by Mansfield to the Defendant Springlane Communications LLP (“Springlane”) as financing for the purchase of mobile phone accessories for re-sale in Russia. The Plaintiffs commenced this action by Statement of Claim dated December 21, 2015, in which they seek to recover these funds from the Defendants, including Hantsis personally, on the basis of alleged breach of contract and fiduciary duty, fraud, conspiracy and unjust enrichment. Hantsis is an Ontario resident who is the President of Brama Telecom Inc. (“Brama”) and managed the affairs of Springlane.

[4] In their Amended Statement of Defence dated February 9, 2016, the Defendants admit that Springlane owes and intends to repay these funds but deny that Hantsis is personally liable. After the delivery of their Defence, the Defendants disclosed that the corporate registration of Springlane, a United Kingdom company, had lapsed. As Brama is no longer operational, the Plaintiffs submit that Hantsis is the only source of potential repayment.

[5] On January 4, 2017, Hantsis brought this motion on the basis that the Plaintiffs have insufficient assets in Ontario to satisfy a costs award. On January 24, 2017, the Plaintiffs brought a motion to compel Hantsis to attend on his continued examination for discovery prior to the hearing of this security for costs motion and to dispense with mediation. In their supporting affidavit, the Plaintiffs stated that Neutrade had sufficient assets in Ontario.

[6] By Endorsement dated March 30, 2017, Master Sugunasiri denied the Plaintiffs’ motion concluding that there was no reason to compel Hantsis to incur the costs of further discovery without the benefit of a security for costs decision. At that time, this motion was scheduled to proceed on April 26, 2017 (after being adjourned to permit the ordering of transcripts from examinations for discovery of the Plaintiffs for use on this motion). Master Sugunasiri also noted that the Plaintiffs had contributed to delays in both parties’ discoveries and had received indulgences from the Plaintiffs.

[7] On April 26, 2017, this motion was adjourned by Master Pope to July 13, 2017. Master Pope rejected the attempted filing by the Plaintiffs of an affidavit sworn by their counsel stating, among other things, that Neutrade had sufficient assets in Ontario and that they required time to provide an affidavit from its principals. Pursuant to the timetable established by Master Pope, the Plaintiffs were required to deliver responding materials including an affidavit from a principal of the Plaintiffs by May 19, 2017.

[8] The Plaintiffs did not serve responding materials until July 10, 2017 which included an affidavit of their lawyer Ashley Ferguson sworn July 7, 2017 (the “Ferguson Affidavit”), not their principals. After 6 months of disputing that Hantsis was entitled to security for costs, the Ferguson Affidavit conceded that Neutrade did not have assets currently in Canada to pay a costs award therefore, Hantsis is entitled to security for costs and the Plaintiffs only dispute the amount.

[9] On July 13, 2017, Master Jolley adjourned this motion to August 30, 2017 as a result of a conflict. The parties first appeared before me on August 30, 2017 and after significant discussion and case management I adjourned this motion to September 1, 2017 to permit counsel to obtain further instructions with a view to resolving the difference of $13,000 in their positions. However, the parties were unable to reach an agreement or even narrow the gap and the motion proceeded on this lone issue.

II. The Law and Analysis

[10] Rule 56.01 provides as follows:

(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,

(a) the plaintiff or applicant is ordinarily resident outside Ontario;

(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;

[11] The only issue before me is the amount of security for costs to be posted by the Plaintiffs. Hantsis submits that $38,000 is a reasonable amount in all the circumstances while the Plaintiffs submit that the appropriate amount is $25,000.

[12] Rule 56.01 triggers an enquiry whereby the court, using its broad discretion, must take into account a number of factors and make such order as is just. These factors include the merits of the claim, the financial circumstances of the plaintiff and the possible effect of an order for security for costs preventing a bona fide claim from proceeding (Stojanovic v. Bulut, 2011 ONSC 874). In Stojanovic, the quantum of security for costs was not at issue.

[13] When dealing with the quantum of costs to be posted as security, in the context of dealing with costs already incurred, the quantum should reflect a number that falls within the reasonable contemplation of the parties (720441 Ontario Inc. v. The Boiler et al, 2015 ONSC 4841 at para. 56). The quantum should reflect what the successful defendant would likely recover and the factors set out in Rule 57.01 are to be used in determining the quantum including what amount “up to” the tariff rate for counsel is appropriate (Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada, 2003 CarswellOnt 1906 at paras. 17-20). In most cases, security for costs will be ordered on a partial indemnity scale (The Boiler at para. 58; Marketsure at paras. 17-18).

[14] I have also considered and applied Rule 1.04(1) which provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits and Rule 1.04(1.1) which requires the court to make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[15] Hantsis has provided detailed submissions and breakdowns with respect to the $38,000 which he submits is the appropriate amount. The Plaintiffs submit that $38,000 is unreasonable based on the conduct of the Defendants in these proceedings including the filing of excessive affidavits; the merits of the Plaintiffs’ claim; and proportionality, including the amount involved in this litigation.

[16] The exercise of the court’s broad discretion in determining a reasonable and appropriate quantum of security for costs is substantially similar to the exercise of its discretion in fixing costs pursuant to Rule 57.01. Having reviewed the record and considered the submissions of counsel, generally speaking and subject to the qualifications set out below, I am satisfied that the amount sought by Hantsis is reasonable, appropriate and proportionate.

[17] The Plaintiffs complain of a litany of alleged conduct by the Defendants and their counsel which the Plaintiffs claim has caused both parties to unnecessarily incur additional costs. This position ignores the Plaintiffs’ own conduct including the findings of delay on the part of the Plaintiffs and the Defendants’ indulgences by Master Sugunasiri.

[18] However, I agree with the Plaintiffs that the Defendants’ disclosure of the dissolution of the Defendant and borrower Springlane after the filing of the Defence is conduct which unnecessarily contributed to the costs incurred by the parties. Similarly, the transfer by Hantsis of his interest in the property located at 338 Flamingo Road in Vaughan, Ontario to his wife for $2.00 after the commencement of this action, a prima facie fraudulent transfer, is, notwithstanding its subsequent reversal, also conduct which unnecessarily increased costs. Otherwise, in my view, there is no conduct of the Defendants which would affect the quantum of security for costs.

[19] The Plaintiffs urge me to place strong reliance on the merits of their claim given that they seek to recover funds which Springlane has admitted is owing. However, the cases upon which the Plaintiffs rely, including Stojanovic, were decided in the context of impecuniosity and/or where quantum was not at issue. More importantly, the merits of the Plaintiffs’ claims against the corporate Defendants are fundamentally different from their claim against Hantsis personally, the claim which is material to this motion.

[20] The Plaintiffs did not make substantial submissions about the specific amounts and rates claimed by Hantsis. In arriving at their figure of $25,000, the Plaintiffs largely rely on a calculation of their own costs. While there are some apparent miscalculations in the Plaintiffs’ amount, the applicable tariff rate for 20-year counsel claimable by Hantsis is “up to” $428 on the basis of the decision in Arvanitis v. Levers, 2017 ONSC 3758. That is, the current tariff rate can be more than the $300 suggested by the Plaintiffs but less than the $400 suggested by Hantsis. In my view, given that this action is a relatively straightforward collection matter, a reasonable applicable tariff rate is likely lower than $400.

[21] In my view, as a result of the lapsing of Springlane’s U.K. registration, the transfer of Hantsis’ property and the fact Hantsis’ counsel may not be entitled to a tariff amount of $400, it is reasonable and appropriate to apply a $5,000 deduction to the amount of $38,000 sought by Hantsis.

[22] Therefore, having considered all of the circumstances and factors set out above, I conclude that it is reasonable, appropriate, proportionate and in the reasonable contemplation of the parties that the Plaintiffs post security for costs in the amount of $33,000.

III. Disposition

[23] Order to go as follows:

i) the Plaintiffs shall post security for costs with the Accountant of the Superior Court of Justice (Ontario) to the credit of this action and in favour of Hantsis in the amount of $33,000.00 with respect to Hantsis’ costs and disbursements incurred to date and to be incurred up to and including the completion of mediation within 90 days;

ii) the Plaintiffs shall not take any further steps in this action until the security for costs is posted and proof of same is provided to counsel for Hantsis;

iii) this order is made without prejudice to Hantsis’ right to bring a motion for additional security for costs for steps to be taken after mediation.

[24] If the parties are unable to agree on the costs of this motion, they may file written costs submissions not to exceed 2 pages (excluding costs outlines) with me through the Masters Administration Office on or before November 30, 2017.

Released: September 19, 2017

Master M.P. McGraw