Can-Stor Management Inc. v. Storage Advantage Corp., 2017 ONSC 6388
Court File and Parties
CITATION: Can-Stor Management Inc. v. Storage Advantage Corp., 2017 ONSC 6388
COURT FILE NO.: CV-16-00544399
MOTION HEARD: 20171023
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Can-Stor Management Inc., James Bennett and Reade DeCurtins, Plaintiffs, Defendants to the Counterclaim
AND:
Storage Advantage Corp., EDEV Realty Advisors Inc., John Levitt, Mark Cairns and Clifton Dyke, Defendants, and Storage Advantage Corp. and EDEV Realty Advisors Inc., Plaintiffs by Counterclaim
BEFORE: Master B. McAfee
COUNSEL: B. Chung, Counsel for the Plaintiffs, Defendants to the Counterclaim
James P. McReynolds, Counsel for the Defendants, Plaintiffs by Counterclaim
HEARD: October 23, 2017
REASONS FOR DECISION
[1] This is a motion brought by the plaintiffs, defendants to the counterclaim (the moving parties) for an order pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure requiring the defendant, plaintiff by counterclaim Storage Advantage Corp. (SAC) to pay into court security for costs in the amount of $80,000.00.
[2] The application of Rule 56.01(d) involves a two-step analysis. The first step of the analysis requires the moving parties to establish that it appears that SAC is a corporation and that there is good reason to believe that SAC has insufficient assets in Ontario to pay the costs of the moving parties.
[3] If the moving parties discharge their onus and establish that it appears that SAC falls under Rule 56.01(d), the second step of the analysis requires SAC to establish the basis for a broad flexible exercise of discretion that an order for security for costs would be unjust (see Cigar500.com Inc. v. Ashton Distributors Inc., 2009 CarswellOnt 5241 (S.C.J.) at paras. 20-29, 33-35).
[4] There is no issue that SAC is a corporation. The moving parties rely on paragraph 19 of the fresh as amended statement of defence and counterclaim wherein it is pleaded that SAC was left without clients and is essentially worthless. On the motion, SAC agreed that the first step of the analysis has been satisfied.
[5] The onus now shifts to SAC to establish that an order for security for costs would be unjust. In the second step of the analysis the court examines all factors it considers relevant or important in determining whether it would be unjust to make the order, including the financial circumstances of SAC, the merits of the claim and whether the proposed order will prevent a bona fide claim from proceeding
[6] SAC did not put evidence before the court concerning the merits, or evidence with particularity concerning impecuniosity, or evidence that an order for security for costs would prevent a bona fide counterclaim from proceeding.
[7] SAC argues that it would be unjust to require it to post security for costs because the counterclaim arises out of the same circumstances as the claim, the conduct of the moving parties has caused SAC to become impecunious, the claims of the co-defendants, plaintiffs by counterclaim are joint and the co-defendants, plaintiffs by counterclaim have undertaken to pay any award of costs made against SAC.
[8] The moving parties argue that the counterclaim and claim overlap only in small part, that the evidence concerning the conduct of the moving parties causing SAC to become impecunious is insufficient, that the claims are not joint and that the undertaking provided is insufficient.
[9] Where the subject matter of the counterclaim is closely related to the plaintiff’s cause of action or where the counterclaim is based on the same disputed facts as the claim, this militates against an order for security for costs (ICC International Computer Consulting & Leasing Ltd. v. ICC Internationale Computer & Consulting GmbH, 1989 CarswellOnt 347 (H.C.J.) at para. 7, American Axle & Manufacturing, Inc. v. Durable Release Coaters Ltd., [2006] O.J. No. 5283 (Ont. S.C.J.-Master) at para. 3, Better Business Bureau of Metropolitan Toronto Inc. v. Tuz, 1999 CarswellOnt 1069 (Gen. Div.) at para. 12).
[10] The action and counterclaim concern alleged breaches of a share purchase agreement. The defence also pleads that there is no money payable pursuant to the share purchase agreement as a result of the plaintiffs’ breaches of duties resulting in the termination by Storage Spot Operations Inc. of a management services agreement. No new facts are pleaded in the counterclaim.
[11] I am satisfied that the counterclaim is closely related to the plaintiffs’ cause of action.
[12] Where the conduct of the moving parties may have caused SAC to become impecunious, this may be a basis not to order security for costs (423322 Ontario Ltd. v. Bank of Montreal, 1988 CarswellOnt 543 (H.C.J.) at para. 18, Better Business Bureau at para. 14).
[13] At paragraph 13 of the affidavit of the defendant John Levitt, the following is stated:
- The defendants agree that SAC is effectively dormant and has no assets at this time. However, the reasons why SAC is not active and has no assets at this time are as set out in our Fresh as Amended Statement of Defence and Counterclaim, and entirely as a result of the conduct of the plaintiffs. But for the actions of the plaintiffs SAC would be active and prosperous today.
[14] At paragraph 19 of the fresh as amended statement of defence and counterclaim the following is pleaded:
- As a result of the Plaintiff’s breaches of duty aforesaid, SSOI terminated its Management Services Agreement, leaving Storage Advantage without clients and essentially worthless.
[15] There was no cross-examination on the Levitt affidavit. There is accordingly evidence before me that the cause of SAC’s current financial situation is a result of the actions of the moving parties.
[16] In opposing the motion, SAC also relies on an undertaking set forth in the Levitt affidavit at paragraphs 14 and 16:
The co-defendants/co-plaintiffs by counterclaim acknowledge that we are jointly and severally liable for costs in this proceeding, if awarded by the Court.
We do not believe that it is possible, given the nature of this action, that SAC, of all of the defendants/plaintiffs by counterclaim, would be called upon, as one of five defendants/plaintiffs by counterclaim, to be solely responsible to pay costs. However, the co-defendants/co-plaintiffs by counterclaim undertake to pay any award of costs made by the Court against SAC.
[17] As stated in the Levitt affidavit at paragraph 15, when the defendants were obligated to pay costs in this proceeding, they quickly did so.
[18] For the reasons that the counterclaim is closely related to the plaintiffs’ cause of action and that SAC’s financial circumstances may be a result of the actions of the moving parties, I am satisfied that it would be unjust to order security for costs. The undertaking relied on by SAC during argument is an additional reason for declining to exercise my discretion to order security for costs.
[19] Had I granted an order for security for costs, I would not have been satisfied of the reasonableness of the quantum sought in the amount of $80,000.00. In my view, the amount of $20,000.00 would have been a fair and reasonable amount for security for costs, to be posted in stages. The bill of costs submitted by the moving parties is for the costs of the entire action and counterclaim. The moving parties submit that one half of their total bill of costs should be attributed to SAC’s counterclaim. The bill of costs includes amounts for steps that have already been the subject matter of a costs order and have already been paid. The evidence before me does not satisfy me of the costs that have actually been incurred to date with respect to SAC’s counterclaim.
[20] With respect to costs of the motion, the parties agreed that the successful party would be entitled to costs of the motion in the all-inclusive sum of $4,500.00.
[21] Order to go as follows:
The motion of the plaintiffs, defendants to the counterclaim for an order that SAC post security for costs is dismissed; and,
Costs of the motion are fixed in the all-inclusive sum of $4,500.00, payable by the plaintiffs, defendants to the counterclaim within 30 days.
Master B. McAfee
Date: November 23, 2017