Court File and Parties
COURT FILE NO.: 14-CV-508347 MOTION HEARD: 20160927 REASONS RELEASED: 20170127
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
SANMAYHIA INC. Plaintiff/Defendant by Counterclaim
- and -
KENNISON PROPERTIES INC. and YORK REGION STANDARD CONDOMINIUM CORPORATION NO. 1224 Defendants/Plaintiffs by Counterclaim
BEFORE: MASTER D. E. SHORT
COUNSEL: Paul H. Starkman Fax: (905) 477-3210 -for the moving Defendants
Ross Macdonald Fax: (416) 364-1453 -for the responding Plaintiff
REASONS RELEASED: January 27, 2017
Reasons for Decision
I. Overview
[1] This is a motion seeking security for costs against the plaintiff, an Ontario Corporation.
[2] Rule 56.01(1) has many significant components which I have emphasized in the following extract:
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:
(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.
[3] For the reasons that follow and applying proportionality, I am satisfied that it does not appear to me that there is good reason for me to believe there is a present justification for the posting of any further security in this case.
[4] The plaintiff Corporation acquired two condominium units intending to use them for offices in the defendants’ condominium project. Subsequently, while the condominium was under construction, it was determined that additional space would be required for the plaintiffs operation. However, only a portion of the planned adjacent unit was required. As a consequence, the parties agreed to change the dimensions of the adjacent units so that the unit already been purchased would be increased in size by the addition of a portion of the adjacent unit.
[5] This would require an amendment of the condominium constating documents, but because the vendor still maintained control of the entire condominium prior to registration, such a change was possible and appropriately documented.
[6] All went well until it was discovered that the new wall, which would demarcate the boundary of the new unit had been constructed in the wrong place. There are factual issues between the parties as to who was responsible for this alleged mistake. These were not resolved, prior to the scheduled closing date.
[7] Ultimately, the purchaser refused to close and subsequently sold his original two units. The plaintiff sued for specific performance or damages in the amount of $600,000.
[8] The defendants counterclaim for substantial sums relating to the plaintiff’s filing of a Caution on title, and for damages flowing from the plaintiff’s failure to close the transaction of purchase and sale with respect to the altered unit.
Examinations for discovery have been held and the defendants have brought this motion seeking substantial security for costs.
II. Background
[9] The principal of the Plaintiff corporation, Dr. Rudra Singh, is a chiropractor and operates a health care facility under the name "Vitality Physical Medicine". Dr. Singh’s affidavit filed in opposition to the motion notes that Vitality has been carrying on business at a Highway 7 East location in Unionville for more than 20 years . The business consists of Dr. Singh's chiropractic practice and other independent health care professionals.
[10] It is asserted that Vitality required better space and decided to purchase units in a commercial condominium being built by the Defendant Kennison. Dr. Singh had his company, the plaintiff Sanmayhia Inc., purchase two adjacent units (301 and 302) totaling about 2,600 sq. ft. in that building, while still under construction, which were be combined into one suite. The Plaintiff, Sanmayhia, as owner of the condominium unit was to be landlord for Vitality Physical Medicine by way of leases with each of the individual health care practitioners referenced above.
[11] Before taking possession of the two units, the Plaintiff expressed an interest in increasing its suite by about 500 sq. ft. and this led to a further agreement to expand the Plaintiff's space (the "Additional Space Agreement"). The Additional Space Agreement required the Plaintiff to pay Kennison deposits totaling $18,500, which the Plaintiff paid. The defendants retained that sum.
[12] The Plaintiff's purchase of the original two units 301 and 302 (in its original size) closed on January 29, 2014. The Plaintiff took title and paid the purchase price. However it could not start to build out its space until the Additional Space Agreement was completed and it had title to the entire area that was to be its suite.
[13] Suffice it to say that there were complex issues arising out of the disputes with respect to the alterations. On the date fixed for closing of the Additional Space Agreement, the Plaintiff tendered but the transaction was not completed.
[14] The plaintiffs factum summarizes the parties’ claims. In particular, the Plaintiff sought specific performance of the Additional Space Agreement, or in the alternative damages for the wasted carrying costs of units 30l and 302, loss of profit and similar damages. The Defendants have counterclaimed for a total of $550,000.00. Since the matter continued to be unresolved the Plaintiff negotiated an extension of its lease at its existing premises and located alternate new premises, of which it was to take possession of in November, 2016.
III. The Plaintiff's Finances
[15] When it became apparent that, “the relationship between the parties had soured beyond redemption”, the Plaintiff listed for sale and eventually sold units 301 and 302. The Plaintiff received sale proceeds, net of mortgage financing, of $203,356.
[16] The plaintiff produced bank documentation indicating that it maintained a bank balance in its chequing account of between $208,715 and $350,000 since its sale of units 301 and 302, up until the hearing of this motion.
[17] The Plaintiff located new space nearby and has signed a lease with the head landlord for a five year term running from November 2016 until October 2021. The Plaintiff has signed subleases with Dr. Singh and other professionals which would generate annual gross rental income for the Plaintiff in excess of $150,000.
[18] The defendants’ factum points out that the new landlord AKS Properties Inc., is owned by Mr. Singh's father-in-law. As well, it is noted that all of the subleases signed by different subtenants were signed on the same day (April 29, 2016) at Singh's office. All of the subleases were prepared by Singh's father-in-law.
[19] The defendants also note that the subleases do not provide for the payment of any deposits and do not have a plan attached indicating what space the subtenant will be exercising.
[20] Sanmayhia is paying $120,000.00 in rent to AKS Properties lnc.. The anticipated net income is therefore $38,820.00.
[21] The defendants’ factum asserts:
- In 2015, according to Sanmayhia's financial statement,
(a) Sanmayhia had expenses of $107,573.00 and a Net Loss of ($84,573.00); and
(b) Sanmayhia had liabilities of $914,809. “
[22] In support of that sum of $914,809. Plaintiff’s factum refers Dr. Singh’s affidavit, which was filed on behalf of the plaintiff companyand in particular the plaintiff’s financial statements, dated August 31, 2015. While that document reflects liabilities in the amount of $914,809, it conversely reflects assets totaling $953,271 for net retained earnings in excess of $38,000.
[23] I do not regard this financial picture as providing a good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant if it loses this trial.
[24] Moreover where to corporations have a legitimate dispute and each asserts a roughly equally valued claim against the other, the goal of equality of arms dictated by the proportionality goal does not favour only one side being exposed to a security for costs liability where the plaintiff has carried on business in Ontario for over twenty years.
[25] If such a corporation is required to post security I fear that every corporate plaintiff will be facing similar motions. I turn therefore to an analysis of the cases relied upon by the Defendants in support of their submission that in the present fact situation an order still ought to be made.
IV. Defendants’ Position
[26] Justice P. Lauwers of the Trial division as he then was addressed this area in 855191 Ontario Ltd. v. Turner, [2011] O.J. No. 668; 2011 ONSC 918; 2011 CarswellOnt 862; 198 A.C.W.S. (3d) 242. There the court allowed a reduced amount for security where the plaintiff's registered office was a vacant lot and there was no real property registered in the plaintiff's name. The plaintiff did not carry on any active business and had no assets.such circumstances constitue what I would regard as good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant and thus it was appropriate to order security for costs.
[27] Justice Lauwers observed:
3 Under the rule a defendant is required only to establish that it has good reason to believe that the plaintiff does not have sufficient assets in Ontario to pay the costs of the defendant. A defendant is not required to prove that such is the case: Warren Industrial Feldspar Co. Ltd. v. Union Carbide Canada Ltd, et al., (1986), 1986 CanLII 2683 (ON SC), 54 O.R. (2d) 213 (H.C.J.) at para. 23. Once a defendant has shown that there is good reason to so believe, an order for security for costs should prima facie be granted: Warren Industrial Feldspar Co. Ltd., supra, at para. 24; RCVM Enterprises Ltd. v. International Harvester Canada Ltd., et al. (1985), 1985 CanLII 2098 (ON SC), 50 O.R. (2d) 508 (S.C. Master). The onus then shifts to the plaintiff to establish either that it has sufficient assets in Ontario to pay the costs, or that it is impecunious and justice demands that it be allowed to proceed with the action nonetheless: Warren Industrial Feldspar Co. Ltd., supra, at para. 25.
5 Based on this evidence, I find for the purposes of this motion that the plaintiff does not carry on any active business and has no assets. In the absence of countervailing arguments, I would not hesitate to make an order for security for costs in this case.
[28] Here I find we are at the other end of the spectrum. The plaintiff corporation is a continuing business with a real presence. In my view, the Rules are not intended to require every plaintiff corporation to expose its finances.
[29] The Defendants also rely upon 737071 Ontario Inc. v Min-A-Mart Ltd., [1996] O.J. No. 1173. .There a motion was brought in 1990, at which time the plaintiff was found to have sufficient assets and the motion was abandoned. However in 1994, the plaintiff numbered Corporation was dissolved for failing to file a special notice under section 6 of the Corporations’ Information Act. The Corporation was revived two months later in September 1994.
[30] There the case had been dormant for roughly 5 years and the court felt in such circumstances that there was a duty to disclose assets:
“13. In view of the lapse of time the plaintiff has an obligation to respond to the defendants’ valid request for some proof of assets to satisfy costs at this time. Its failure to do so, leads me to the conclusion that it may not have sufficient assets, but falls short of showing that it is impecunious.”
[31] This again is a very different case.
[32] The defendant concedes that the initial onus is on the defendant to show that the plaintiff falls within one of the enumerated categories under rule 56.01 (1). Relying upon Hallum v Canadian Memorial Chiropractic College,(1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119, the factum in my view correctly asserts that the if the onus is met, the court has a discretion to grant or refuse an order for security and the court makes an order it has discretion as to the quantum and means of payment of the order.
[33] In the present case, I see no indication of impecuniosity of the plaintiff corporation. In fact, just the contrary, they have money in the bank and they have an income flow available to the Corporation.
[34] Therefore, I am not satisfied on the evidence before me that I ought to exercise the available discretion.
V. “Money in the Bank”
[35] I turned to an analysis of the impact of banking information provided and the extent of the obligation of if any of an Ontario Corporation to expose its financial dealings to a defendant when they are not otherwise relevant to the matters in issue in the action. It is not my belief that an affidavit of documents of every corporation is required to produce their financial records.
[36] In this case by letter dated March 22, 2016, the lawyer for the Defendants wrote to counsel opposite:
“Subsequent to the sale of the condominium on March 4, 2016, it appears that the Plaintiff, Sanmayhia Inc. has no or insufficient assets to satisfy a cost order as set out in the Rules of Civil Procedure.
Please confirm that your client will consent to an order for security for costs. If not, we will have to deal with this issue on motion.
[37] Sanmayhia's lawyer advised that he did not "anticipate receiving instruction to consent to a motion for security for costs".
[38] By letter dated March 31, 2016, Mr. Starkman advised:
“You have not provided any evidence that the Plaintiff has sufficient assets as requested, and, therefore we are proceeding with our motion in accordance with Rule 56.01(1)(d) of the Rules of Civil Procedure ....”
[39] The moving party filed the affidavit of a law clerk in the office of counsel for the defendants indicating that it was necessary to bring a motion for production of the agreement of purchase and sale with respect to the sold units. The affidavit opens with an assertion, “I am a Law Clerk.…. and, as such, have knowledge of the matters contained in this affidavit. Information I have obtained from others I verily believe to be true.” In the affidavit the following statement appears:
“11. As a result of the sale of the condominium units and the Plaintiff’s admission that it is a holding company for real estate, it appears that the Plaintiff does not have any assets sufficient to satisfy a court order.”
[40] In my view such an assertion is inadequate to establish that there is good reason to believe the plaintiff Corporation would not be in a position to satisfy a costs order.
[41] However, it is necessary for me to consider the position of counsel with respect to the relevance of liquid funds available in a bank account.
[42] My colleague Master Wiebe had occasion to consider these issues in a construction lien case, Unimac-United Management Corp. v. Canadian National Railway Co.,[2015] O.J. No. 1927; 2015 ONSC 2372; 2015 CarswellOnt 5349;253 A.C.W.S. (3d) 525; 48 C.L.R. (4th) 76.
[43] There the plaintiff's central claims against the defendant in two actions were for damages for breach of contract and negligence and for restitution. The factual underpinning of the actions was the same. There was "good reason to believe" that the plaintiff had insufficient assets in Ontario to pay costs. He found that plaintiff failed to make appropriate corporate filings for the past six years, transferred almost $2,000,000 from its bank accounts to related entities and was being pursued by a bonding company in relation to alleged bonding losses..
[44] In particular, he held that evidence of monthly bank balances meant little without information behind the redactions and the money could be transferred to an area where it could not be executed against. In particular he observed:
37 Mr. Baichoo argued that this limited evidence was sufficient to meet Unimac's onus of showing that it has sufficient assets in Ontario to pay Metrolinx's costs. Mr. Hersen argued that it is not sufficient. He stated that the bank balances per se meant little without full disclosure of the information behind the redactions. He argued that the redactions on the bank statements could be hiding the fact that the balances are overdrafts or loans that are subject to bank security, or that the balances are quite fleeting. He also stated that the redactions on the Unimac contract made it impossible to verify the bona fides of the Unimac contract for the Foody Mart project. …
38 I agree with Mr. Hersen. The existence of the monthly bank balances per se does not satisfy me that this is an asset that would be readily available to pay costs. The quality of an asset is a valid consideration on a motion for security; see Dion v. CIBC World Markets Inc. 2002 CarswellOnt 5878 (Ont. S.C.J.). The quality of a bank account was expressly called into question in the Dion case as the Master held in that case that $305,000 in a brokerage account was not of the quality that met the test of sufficient assets in Ontario. On appeal Justice Somers agreed with this aspect of the decision as follows in paragraph 3: "In my view, the quality of assets for the purposes of determining whether or not security for costs should be ordered is dependent upon a number of factors, one of which would be the ease with which that asset could be transferred outside the jurisdiction to an area where it could not be executed against." I have the same concern about the balances shown in the Unimac bank accounts, especially given all the redactions.
[45] Here the entire bank accounts have been produced, and there is no suggestion of movement offshore or redacted documents.
[46] More recently, my colleague Master Pope considered similar issues in Queenscorp (Atwater) Ltd. v. Windcatcher (Atwater) Ltd., [2016] O.J. No. 594; 2016 ONSC 871.
39 The decision to order security for costs is discretionary and the court considering the motion is afforded broad latitude to make an order that is just in the circumstances. (Morton v. Canada (Attorney General) (2005), 2005 CanLII 6052 (ON SC), 75 O.R. (3d) 63 at para. 38 (S.C.J.))
40 The courts have established a two-step inquiry when considering whether to order security for costs.
41 Initially, the onus is on the defendant to demonstrate that the plaintiff falls into one of the subrules of 56.01(1). The onus is not a heavy one. For example, the defendant need only demonstrate that "it appears" that the plaintiff is a corporation and there is "good reason to believe" that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. Only if the defendant succeeds with the first stage does the inquiry move to the second stage.
42 At the first stage, the defendant in satisfying its onus that there is a good reason to believe the corporate plaintiff has insufficient assets to satisfy a cost award must provide enough information about the corporation that goes beyond mere conjecture, hunch or speculation. There must be some evidence placed before the court from which the court can accept that the concern is genuine and that it is based on proven facts regarding the corporation's current financial circumstances. (Cigar500.com Inc. v. Ashton Distributors Inc. et al., 2009 CanLII 46451 (ON SC), paras. 23-24)
[47] In my view it would only be on the basis of “mere conjecture, hunch or speculation” that I could potentially find that there appeared to be “good reason to believe” that it was likely that the plaintiff corporation would be unable to satisfy a costs award made against it in this action.
VI. Disposition
[48] In the result, the defendants’ motion for security for costs is dismissed.
[49] In the circumstances, I see no reason not to award the plaintiff its costs of this motion on a partial indemnity basis. If the parties are unable to agree, I may be contacted with respect to establishing a process for submission of materials with respect to that matter
Released: January 27, 2017
Master D. E. Short
DS/ R.173