Court File and Parties

CITATION: Tabrizi v. Kaushal et. al., 2017 ONSC 7660

COURT FILE NO.: CV-12-462706

MOTION HEARD: 20171220

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ani Tabrizi and Haroutioun Tabrizi, Plaintiffs

AND:

Rajan Kaushal, Tribecca Development Corporation, Tribecca Investment Corp., Tribecca Finance Corporation and The Money Source, Defendants

BEFORE: Master P.T.Sugunasiri

COUNSEL: Wilson, N., Counsel, for the Defendant/Moving Party, Tribecca Finance Corporation McGrath, S. and Theeuwen, K., Counsel for the Plaintiffs/Responding Parties

HEARD: December 20, 2017

REASONS FOR DECISION

Overview and Brief Conclusion:

[1] This is a motion brought by Tribecca Finance Corporation (“TFC”) for security for costs due to an unpaid costs award against the Plaintiffs in a related action. The only issues raised by the Plaintiffs in resisting the motion are delay, the fact that they have a good chance of success, and quantum of security. For the reasons that follow, I allow the motion with costs.

[2] On balance, I find an order for security for costs just in the circumstances of this case. TFC has met its burden of falling within Rule 56.01(1)(c) and the merits of the case are a neutral factor. Further, I reject the argument that TFC has delayed in bringing this motion and that any such delay is fatal to obtaining an order for security for costs.

Facts and Chronology of Litigation:

[3] This action arises out of a commercial dispute between sophisticated parties relating to the purchase and building of a luxury home in Markham located at 3 Cachet Parkway (“Chachet”). The Plaintiff Mr. Tabrizi is an engineer with 20 years of experience in building homes. The Defendant Kaushal is a mortgage broker and principal of TFC and the other corporate defendants. The home in question was for the personal use of the Tabrizis. TFC provided the construction financing for the project and further residential refinancing.

[4] On June 12, 2012, TFC and two other plaintiffs commenced an action in Brampton against Mr. and Mrs. Tabrizi for payment due under a mortgage, and possession of Cachet.

[5] On September 4, 2012, the Tabrizis brought this claim in Toronto against TFC and other related defendants for “contribution and indemnity or other relief over in the sum of $7,000,000…” or in the alternative damages for breach of contract or damages for negligence. The claim alleges, among other things, use of force and duress, verbal threats, a refusal to present a construction budget, the refusal to deliver construction quotations and sub-contractor invoices, and expenditures made above the set budget and breach of fiduciary duty. It is unclear which defendant these allegations relate to but it appears that they are directed at the defendant Kaushal. In addition, the Tabrizis made allegations with respect to the “construction mortgage” and “residential mortgage” alleging conspiracy, fraud, and duress. TFC was involved in the financing of the Tabrizis’ mortgages.

[6] On December 28, 2012 the Tabrizis delivered their Statement of Defence and Counterclaim to TFC’s Mortgage action. In their defence, they “repeat and rely on the allegations contained in their Statement of Claim”. This refers to the Toronto action. More particularly, the Tabrizis allege duress by TFC at the time of arranging for the Mortgage, conspiracy and breach of fiduciary duty.

[7] On November 19, 2014, TFC brought a summary judgment motion in Brampton and the Tabrizis brought a cross-motion to consolidate the Brampton and Toronto actions. Justice Donohue granted summary judgment and denied the consolidation motion. Justice Donohue also awarded costs in the amount of $98,789.09. No timeline for payment was ordered. These costs are outstanding. The summary judgment amount is being paid in installments by way of garnishment proceedings.

[8] The Tabrizis appealed the Donohue, J. decision which was heard by the Court of Appeal on October 15, 2015. The Court of Appeal dismissed the appeal and awarded costs to TFC in the amount of $13,700.

[9] On December 3, 2015, the Tabrizis served a Fresh as Amended Statement of Claim in the Toronto action, having been unsuccessful in the related Brampton one. The claim better particularizes the various allegations against the various defendants. In essence, however, it captures the same complaints about the construction and financing for the building of Cachet adopted by the Tabrizis in their defence of the Brampton action, and adds some additional causes of action.

[10] On January 25, 2016, the Tabrizis attended a judgment debtor examination with respect to collection of the summary judgment amount and costs. At the examinations, they refused to answer some financial questions that would allow TFC to determine what sources of collection were available to it.

[11] On April 16, 2016, TFC and the other defendants deliver their Statement of Defence. It is only at this point that TFC could entertain a security for costs motion as the Rule requires a defence as a pre-requisite. After consulting with counsel for the Tabrizis, TFC booked the security for costs motion for August 18, 2016.

[12] On May 27, 2016, TFC serves its motion for security for costs. TFC was also advised by Tabrizis counsel at the time that the defence would be impecuniosity. As such, Counsel for TFC requested to hold July 11, 2016 for cross-examinations on the anticipated affidavits from one or both of the Tabrizis.

[13] On July 6, 2016 counsel for TFC asked about the status of responding materials to the motion since the cross-examination date was fast approaching. In response, Tabrizis’ counsel advised that he could not have responding materials that week because he was busy gathering the answers from the JD exams. On July 26, 2016 TFC counsel wrote again with respect to responding materials to the security for costs motion and canvassed availability to address refusals given at the JD exams.

[14] The Tabrizis finally served a four-volume responding record on August 8, 2016. Tabrizis’ counsel indicated that his first available date for cross-examinations was August 10, 2016 and as such, he indicated that “we may have to briefly adjourn the motion.” With respect to the Brampton refusals motion, Tabrizis’ counsel stated that November 7, 2016 was his only available date.

[15] Ultimately the August 18, 2016 security costs motion was adjourned and Justice Baltman heard the Brampton refusals motion on January 26, 2017. Justice Baltman ordered all refused questions to be answered.

[16] By February 22, 2017, the Tabrizis had changed counsel and had instructed new counsel to seek leave to appeal the Baltman, J. decision. On May 9, 2017, Justice Bloom denied leave.

[17] On May 26, 2017 TFC counsel wrote to Tabrizis’ new counsel and addressed further issues arising from the JD examinations and reminded counsel that there was still an outstanding security for costs motion to address. By this time Tabrizis’ counsel had canvassed a timetable for next steps with the impending five-year anniversary of the commencement of the Toronto action. TFC’s counsel also stated in his correspondence that TFC will not agree to a timetable while the Tabrizis were in breach of a court order (namely the summary judgment and costs order).

[18] As such, Tabrizis’ new counsel scheduled a motion to be convened as a status hearing to show cause why the action should not be dismissed. The motion was heard by Master Graham who concluded that the action should proceed. Ultimately, the parties agreed to a consent timetable in which the security for costs motion was to be brought on for hearing before December 31, 2017.

[19] That brings us to the current motion in which TFC seeks security for costs for the remaining steps of the action. TFC relies on sub rule 56.01(1)(c) of the Rules of Civil Procedure.

Position of the Parties:

[20] While originally, the Tabrizis were relying on impecuniosity as a shield against a security for costs order, they now rely four arguments:

a. TFC’s delay in bringing the motion is fatal;

b. Consideration of the merits of the case is an important factor;

c. In so considering, the Tabrizis have a good chance of success in the action; and

d. It is unjust to make an order for security for costs.

[21] In contrast, TFC contends that:

a. There was no delay or if there was, it was minor and reasonable and not fatal;

b. Consideration of the merits is a minor factor;

c. In so considering, the Tabrizis do not have a good chance of success based on the Justice Donohue’s summary judgment decision in the Brampton action; and

d. It is just to make an order for security for costs.

[22] In resolving these issues, I conclude that:

a. There was no unreasonable delay;

b. Consideration of the merits of the action is a factor who relevance is in the middle of the spectrum of importance in 56.01(1)(a) to (e);

c. Merit of the action is a neutral factor given the combination of an unchallenged evidentiary record, Justice Donohue’s rulings on the Brampton action that somewhat overlaps with the Toronto action, and the Tabrizis’ potential credibility issues; and

d. Security for costs is just in this case.

Reasons and Analysis:

Law on Security for Costs

[23] Rule 56.01 gives the Court discretion to make an order for security for costs as is just when it appears that one of the conditions set out in (a) to (f) are is met. In exercising its discretion, the Court is to take a two-step inquiry. First, the defendant must show that it appears that one of the six factors applies. Second, the Court must inquire into all factors which may assist in determining the justice of the case. In the present case, the parties have urged that delay in bringing the motion, and the merits of the action are factors to consider.

There is no unreasonable delay

[24] In my view, the mere fact of a delay is not fatal to a motion for security for costs. Like other motions in which delay is a factor, delay must be unreasonable and unexplained. The Tabrizis urge that in this case, there has been an unexplained delay in bringing this motion and as such, there should be no order as to security for costs. I disagree with this submission. Based on the detailed timeline that I have set out above, I find that TFC brought its security for costs motion immediately after it delivered its defence. The fact that the defence was not delivered until three years after the action was commenced is not a bar to security for costs. I can infer from the record before me that the defence to this action was not filed because of a focus on the related Brampton action. Second, the fact that the motion was not heard until a year and half since materials were served cannot be borne on TFC. It made efforts to move the motion along. There may have been small gaps of time when TFC could have sought examinations or an earlier date once the motion was first adjourned, but these gaps are not fatal. They are also understandable given the issues that had arisen from the JD examinations. On balance, this case can be readily distinguished from those cited by the Tabrizis where security for costs motions were brought late in the day and after most steps in the litigation had occurred.[^1]

[25] The Tabrizis also argue that the affidavits filed in support of TFC’s motion does not explain the delay. On the contrary, I find that I can infer the explanation from the correspondence between counsel which was neither contested not contradicted. This evidence came late in the day but I accepted it as it was relevant to the arguments being made. Further, I can understand why TFC would focus on obtaining financial disclosure through the JD examination rather than cross-examining the Tabrizis on their affidavits in response to the security for costs motion. By the time, only pleadings had been exchanged. As such, TFC had no information to challenge any assertions made by the Tabrizis in terms of their financial resources. A cross-examination is different than an examination for discovery.

[26] I also adopt the views of my colleagues Masters Graham and Short who have held that a plaintiff must show actual irreparable prejudice arising from delay if this argument is to succeed.[^2] The Tabrizis did not argue prejudice other than the legal costs spent on the status hearing motion and a deprivation of an ability to decide whether or not to continue with the action.

[27] I do not see that such costs were incurred as a result of any delay in the security for costs motion. The onus is on a plaintiff to show cause on a status hearing. If there has been delay on the part of a defendant, such delay can be a reason why the action should continue and the defendant would be subject to costs on the status hearing motion. The fact that TFC delivered its security for costs motion materials a month after its defence but could not have it heard until a year and a half later did not cause the Tabrizis to incur the cost of the status hearing motion. As noted above, even if it did, those costs could have been addressed before Master Graham.

[28] Second, I respectfully disagree with the Tabrizis that the delay in having the security for costs motion heard has robbed them of the ability to decide what to do about their action. The Tabrizis have known about the security for costs motion since May of 2016. At no point in time did TFC indicate that it was abandoning its motion and it is as a result of Tabrizis’ counsel’s delay that bumped this motion from its original return date. In fact, the Tabrizis had an entire year and a half to determine if they wished to proceed with the action and clearly decided that they did despite the motion for security for costs. Tabrizis’ counsel was advised BEFORE the status hearing motion that there was still an outstanding security for costs motion that needed to be dealt with in any timetable going forward.

[29] For the above reasons, I do not find delay to be fatal to TFC’s motion.

Merits of the Action is a neutral factor

[30] The merits of the action is a factor to consider in every security for costs motion, no matter which of the six factors a defendant is relying upon. The weight to be given to the merits will be different, depending on which factor the defendant proceeds under. As Madam Justice Kitely succinctly put it in Padnos v. Luminart Inc., 1996 11781 (ON SC), [1996] OJ No 4549 (GenDiv): “Merits have a role in any application under Rule 56.01, albeit in a continuum; for example, rule 56.01(1)(a) would be at the low end and rule 56.01(1)(e) would be at the high end.” The question in this case is, what weight should be given in a situation where the Tabrizis are not claiming impecuniosity and in fact seem to have an ability to pay?

[31] TFC argues that the merits should bear little weight. The Tabrizis argue that the merits should weigh heavily in determining what is just.

[32] This question was expressly addressed by Master Glustein (as he then was) in Pickering v. Asquith, 2012 ONSC 1239, and I adopt his reasoning. In that case, Master Glustein examined the role that merit plays in a motion in which impecuniosity is not being argued. After a close examination of the rule and related jurisprudence, Master Glustein concluded that the merits of a claim falls within the continuum between Rule 56.01(a) and (e) and slightly closer to (a) given that some concerns about collection of costs arise from a failure to pay a costs order.[^3] He goes on to state that when a “if the plaintiff on a Rule 56.01(1)(c) motion can establish a good likelihood of success on its claim based on the evidence, the court can consider the merits in determining whether it is just to order security for costs.”[^4]

[33] In assessing the merits, both Justice Kitely and Master Glustein have cautioned that the inquiry is not to be the same as in a motion for summary judgment.[^5] In the present case, I was provided a four volume record largely setting out the documents that speak to the merits of the Tabrizis’ claim. TFC’s affidavits did not substantially speak to the merits but rather attached the reasons of Donohue, J., Baltman, J. and Bloom, J. on the summary judgment motions and motions related to the JD examinations.

[34] TFC argues that the summary judgment decision speaks for itself and calls into question the veracity of the within action. For example, Justice Donohue rejected the claim of duress, made a finding that the relevant financing documents were signed with the benefit of independent legal advice, and that there was no fraud or bad faith. Further, the Court of Appeal noted with interest that the Toronto action was commenced after the Tabrizis were sued in Brampton. The little direct evidence TFC did tender on the merit reveals correspondence from Mr. Tabrizi signing off as an engineer on a certificate of completion and indicating that everything was great.

[35] TFC further calls into question the Tabrizis’ credibility. In that regard, TFC points to a statement in Mr. Tabrizis’ affidavit when he was relying on impecuniosity as a defence to the motion that there were times when he could not provide nourishment for his children. Evidence on the record shows, however, that the Tabrizis lived quite comfortably with personal expenses being paid by one of their companies, including “loans” to their daughters for tuition and board at the University of Toronto. TFC’s couples this inconsistency with Justice Baltman’s comment that there was reliable evidence that the Tabrizis were attempting to evade the recovery of monies owed. Justice Bloom made a similar comment. In other words, the Tabrizis’ evidence was unreliable and there integrity was called into question.

[36] The Tabrizis counter with the argument that the summary judgment motion related to the TFC mortgages and nothing else, and that the affidavit evidence and relevant documents attached are uncontroverted. While counsel did not take me through the entire four-volume record, he pointed to a number of documents that appeared to support the Tabrizis’ allegations in the Fresh as Amended Statement of Claim. For example, the Tabrizis’ allege that Tribecca Development breached its contract by not getting three quotations from each subcontractor. In support of this claim, Mr. Tabrizi attached the Project Management Contract which on its face does appear to have that stipulation. Whether that was done, whether the provision was waived is something that I am unable to conclude and need not conclude on this motion. What this and the other examples do allow me to conclude however, is that the Tabrizis’ evidentiary record is uncontroverted, that all of the issues in the Toronto action were not before Justice Donohue, and therefore it is possible that the Tabrizis’ may succeed.

[37] However, I cannot assess whether or not the action has a good chance of success such that it is just to order or not order security for costs because of:

a. The comments of Justice Baltman and Justice Bloom which call into question the Tabrizis credibility; and

b. The discrepancy between Mr. Tabrizi’s sworn statement about his finances and financial documents that were ordered to be produced after the affidavits were sworn.

[38] This is not the appropriate forum to resolve credibility issues. In my view, given that the record before me reveals significant credibility issues that can only be resolved at trial or on summary judgment, the merits of the case is a neutral factor.

Other Relevant Factors

[39] As noted previously, each security for costs motion turns on the particular circumstances of the case and the Court’s decision as to what is just is highly discretionary. In addition to the factors already discussed, I note that this is an instance when the Tabrizis appear to have an ability to pay, and are simply not paying because they do not want to. This is evident from the transcript provided in the record in which Mr. Tabrizi is specifically asked about his position on paying the outstanding cost award from the Brampton summary judgment motion. His response was that he will pay it when the Toronto action is done.

[40] On the one hand, this position highlights the risk that TFC faces in being able to collect its costs should it be successful in this action. If the Tabrizis sole reason for not paying is that they do not want to pay, what would stop them from taking the same position after completion of the Toronto action? This is of particular concern for TFC given Justice Baltman and Justice Bloom’s comments that there is compelling evidence that the Tabrizis are deliberately attempting to shield their assets and frustrate payment. Further, given the credibility issues, can TFC rely on Mr. Tabrizi’s admission that he will pay if required to do so after the completion of the Toronto action?

[41] On the other hand, if I accept that Mr. Tabrizi will indeed pay at a future date as he swears he will, and is able to pay, the risk to TFC is not as grave. I also observe that there was no timeline placed on payment of costs or the judgment.

[42] Given the comments by Justices Baltman and Bloom, I cannot be certain that I cannot rely on Mr. Tabrizi’s agreement to pay if so required at the completion of the Toronto action such that it would be unjust to order the posting of security for costs. On balance, after weighing all of the factors discussed, I conclude that it is just to make an order for security for costs in this case.

Quantum of Security

[43] TFC seeks $20,000 payable immediately to cover the cost of pleadings and discovery, and $20,000 payable by June 20, 2018 to cover the costs of pre-trial, mediation and motions. TFC also seeks an order granting security for costs for trial preparation and the trial, with the quantum to be determined at a later date.

[44] According to the draft bill of costs, TFC anticipates approximately $22,000 in fees plus disbursements for all steps thus far up to mediation. Disbursements are nominal with estimated future disbursements at $10,000.

[45] I see no reason to deviate from the draft bill of costs provided. As such, I order the Tabrizis to pay TFC security for costs in the amount of $17,000 inclusive of disbursements payable within 60 days of the date of these reasons, and an additional $15,000 inclusive of disbursements payable by June 30, 2018, for a total of $32,000. I am not prepared to order security for costs for trial preparation and the trial. Given that the action is only at the pleadings stage, it is premature to make such an order. If TFC seeks further security, it must bring another motion based on the circumstances of the case and the parties at that time. All costs shall be paid in trust to TFC’s counsel of record, to be released only on agreement of the parties or Court Order.

Costs

[46] In the normal course, costs follow the event. In this case, TFC would be entitled to its partial indemnity costs based on the factors set out in Rule 57.01. However on November 29, 2017, the Tabrizis made a formal offer to settle this motion. The offer was to pay the sum of $40,000 with a payment schedule. The last payment of $10,000 was to be paid on or before August 31, 2018.

[47] Rule 49 applies to motions (see Rule 49.02(2)) with necessary modifications. In making those modification, I substitute moving party for “plaintiff” and responding party for “defendant”. This makes TFC the “plaintiff” for the purposes of Rule 49 and the Tabrizis, the “defendant”. I am satisfied that the Tabrizis have met the condition in Rule 49 to benefit from the cost consequences in Rule 49.10. The offer was made in writing, more than seven days prior to the hearing. TFC’s result is less favourable than what was offered. As such, according to Rule 49.10(2), TFC is entitled to its partial indemnity costs to November 29, 2017 and the Tabrizis are entitled to their partial indemnity costs from November 29, 2017. Given that the costs outline do not break cost down by date, I leave it to the parties to agree to quantum of net costs payable. If they cannot agree by January 30, 2018, they can file their Bills of Costs with the Masters’ Administration Office and arrange to have a telephone conference call with me to resolve the issue.

Original signed

“Master P.T.Sugunasiri”

Date: December 21, 2017

[^1]: See for example European Flooring Contract Services Inc. v. Toddglen ILofts Limited et al., 2013 ONSC 6445, Totalsiteworks Construction Corporation v. Mady Contract Division Ltd., 2014 ONSC 178. I also note that I do not find Pelz v. Anderson, 2006 39571 (ON SC), 2006 CarswellOnt 7482 upon which those cases rely, to be the current state of the law on delay in the context of a security for costs motion. Further, even under Pelz, Master Graham notes that a motion for security for costs should be made promptly after the defendant learns that it has a reasonable basis for bringing the motion. One of the reasons for the rule against delay is that the plaintiff should not be placed in the position of having to post security for costs after incurring considerable expense in advancing the lawsuit (at para. 23). In the present case, TFC did bring its motion promptly and the policy behind the rule against delay has not been violated. The action is still in its infancy and the costs of showing cause is a cost largely unrelated to TFC’s conduct on the security for costs motion.

[^2]: Livent Inc. (Receiver and Manager of) v. Deloitte & Touche, 2011 ONSC 648; Stojcic v. City of Toronto, 2017 ONSC 4861.

[^3]: Pickering v. Asquith, 2012 ONSC 1239 at para. 15.

[^4]: Pickering, supra at para. 16.

[^5]: Ibid. at para. 28; Padnos, supra at para. 7.