Court File and Parties
COURT FILE NO.: CV-17-580348 MOTION HEARD: 2 October 2018 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Tiberian Investment Ltd., Plaintiff AND: 297518 Ontario Limited, Natalie Dykie and Natalie Dykie as the Estate Trustee for the Estate of William Dykie, Deceased, Defendants
BEFORE: Master Jolley
COUNSEL: Stephen Gaudreau, Counsel for the Moving Party Defendants Jordan Nussbaum, Counsel for the Responding Party Plaintiff
HEARD: 2 October 2018
Reasons for Decision
[1] The defendants bring this motion for an order requiring the plaintiff to post for security for costs. They argue under Rule 56.01(1)(d) of the Rules of Civil Procedure that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendants should they be successful at trial. The basis for that position is that the plaintiff is a sole purpose corporation whose purpose is now spent. The defendants argue that the onus then shifts to the plaintiff to demonstrate that it has sufficient exigible assets in Ontario to satisfy a costs award at trial and that it has not met that onus.
The Law
[2] Rule 56.01(1) of the Rules of Civil Procedure provides 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,
(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] 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 Rule 56.01(1)(d).
[4] If that hurdle is met, then the onus shifts to the plaintiff to establish that an order for security for costs would be unjust. To address that onus, the plaintiff can demonstrate:
(a) that it has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation;
(b) that it is impecunious and its claim is not plainly devoid of merit; or
(c) if it has not established that it has appropriate assets and has also not established that it is impecunious, that its claim has a good chance of success on the merits. (2311888 Ontario Inc. v. Ross, 2017 ONSC 1295 at para 17).
[5] The court does not simply mechanically apply these factors. The Court of Appeal recently affirmed the test for an order for security for costs, including its discretionary nature, in Yaiguaje v. Chevron Corporation, 2017 ONCA 827 and the overriding principle that the order is to be just in all the circumstances:
The Rules explicitly provide that an order for security for costs should only be made where the justice of the case demands it. Courts must be vigilant to ensure an order that is designed to be protective in nature is not used as a litigation tactic to prevent a case from being heard on its merits, even in circumstances where the other provisions of rr. 56 or 61 have been met.
Courts in Ontario have attempted to articulate the factors to be considered in determining the justness of security for costs orders. They have identified such factors as the merits of the claim, delay in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns, and the public importance of the litigation….
While the case law is of some assistance, each case must be considered on its own facts. It is neither helpful nor just to compose a static list of factors to be used in all cases in determining the justness of a security for costs order. There is no utility in imposing rigid criteria on top of the criteria provided for in the Rules. The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made. (emphasis added)
[6] I have been guided by these principles in exercising my discretion in this matter.
Issue 1: Is there good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendants?
[7] Under Rule 56.01(d), the onus on the defendants to show that there is good reason to believe that the plaintiff has insufficient assets in Ontario to satisfy a costs award is a light one (Chemical Vapour Metal Refinishing v. Terekhov, 2016 ONSC 7080; Bluefoot Ventures Inc. v. Ticketmaster, [2008] O.J. No. 5690). In Bluefoot Ventures, the test was described as doing “little more than raise the concern” of insufficiency to meet the low threshold.
[8] There is evidence in the record that the plaintiff purchased 130 lots from the defendants to develop into a residential subdivision. The purchase price for those lots was $8,300,000. That price was abated by the sum of $1,500,000 in exchange for the plaintiff assuming responsibility for all of the off-site development costs related to the property, leaving a net purchase price of $6,800,000.
[9] It is not contested that the sole purpose of the plaintiff corporation was to develop and sell those residential lots and that the purpose has been fulfilled. The land has been developed and sold to a third party.
[10] It was accepted in City Commercial Realty (Canada) Ltd. v. Bakich, [2005] O.J. No. 6443 (C.A. in Chambers) at paragraph 13 and followed in Totalsiteworks Construction Corp. v. Mady Contract Division Ltd., 2014 ONSC 178 that evidence that a plaintiff was incorporated for the sole purpose of the transaction at issue could suggest an inadequacy of assets for the purpose of the first part of the test.
[11] Given this uncontested evidence along with no evidence that there will be other business revenue available to the plaintiff, I am satisfied that the defendants have shown that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay any costs of the defendants that might be awarded at the conclusion of trial. The defendants have met the low threshold to demonstrate that the case falls within Rule 56.01(1). Accordingly the inquiry is triggered as to whether an order for security for costs ought to be granted and the onus shifts to the plaintiff.
Issue 2: Has the plaintiff demonstrated that it has sufficient exigible assets in Ontario?
[12] “Appropriate assets” means assets that are both sufficient to answer for the costs and are of a kind that can be conveniently realized (Phelps v. Niagara Regional Police Service, 2014 ONSC 7064 at para 11). The assets must be readily exigible and marketable so that they can be easily transformed to cash to generate the funds needed to meet a costs order. A party should be able to recover those costs without having to resort to extraordinary measures to do so (Chemical Vapour, supra at para 25).
[13] The plaintiff attached to its affidavit “a true copy of a redacted, up-to-date bank account statement which shows the amount of $3,484,864.16 on deposit” as of 2 May 2018. There are two concerns with this evidence. First, the exhibit does not indicate the name of the account holder. Nor does the affidavit state specifically that the bank account belongs to the plaintiff. Second, as this is a single purpose corporation, those funds could easily and appropriately be disbursed between this early stage of the action and trial. The evidence is that it is the usual course for single purpose corporations to disburse all profit and assets to its shareholders once its purpose has been completed. The plaintiff has not stated that it will preserve some or all of the funds in its bank account, only that it has “no interest in dissipating its assets in order to avoid paying costs to the Defendants”.
[14] The remainder of the assets listed by the plaintiff are not easily exigible. For instance, the plaintiff deposes that Simcoe Muskoka Catholic District School Board owes it $574,238.88. There is no indication that the School Board acknowledges that it owes the plaintiff that or any sum, or whether the School Board intends to challenge the demand for payment or intends to pay but at some point in the distant future. The only evidence is that the plaintiff sent the School Board a letter of request for payment in April 2018 and as of the date of the motion, the Board had not paid the plaintiff. Absent an acknowledgement of the debt owing by the School Board, this asset amounts to only a cause of action. Certainly it would be challenging for the defendants to step into the shoes of the plaintiff and pursue this payment in satisfaction of any costs award they received.
[15] The plaintiff’s letters of credit are being held by the Town of Bradford West Gwillimbury pending the Town’s assumption of the subdivision. The plaintiff states that it has assets of $4,728,827 in support of those letters of credit which will be held for three years and that there is less than $300,000 work to be done on the subdivision. Again, it would be challenging for the defendants to pursue letters of credit held by the Town and potentially await a dispute between the Town and the plaintiff over responsibility for work to be done on the subdivision.
[16] There is no evidence of the exigibility, marketability or transferability of the water units owned by the plaintiff.
[17] I find the plaintiff has not demonstrated that it has assets that are exigible and available and that will be available at the conclusion of trial to satisfy any costs award obtained by the defendants.
Issue 3: Quantum of Security for Costs
[18] On a motion such as this, the court is to determine the amount and form of security and the time for paying it into court or otherwise giving the required security (Rule 56.04 of the Rules of Civil Procedure). The defendants have requested an order requiring the plaintiff to post security for costs in the amount of $116,594.40 to cover costs to the conclusion of trial.
[19] Pleadings have been completed but the parties have not yet exchanged affidavits of documents. There is too much uncertainty at this stage to permit the court to predict the length of examinations for discovery or trial with any degree of accuracy. As a result, exercising my discretion and considering holistically all of the circumstances of the case, as presently known, I order the plaintiffs to post security for costs in the following tranches:
(a) $6,000 for steps taken to date, payable within 30 days. This is less than the partial amount sought which included the defendants’ preparation of their counterclaim;
(b) $18,000 for preparation of the affidavit of documents and the conduct of examinations for discovery payable 30 days prior to the commencement of those examinations.
[20] This is without prejudice to the defendants right to return to court to seek further security once there can be a better estimate of the length of examinations for discovery, whether experts will be required, whether there will be motions and with an estimate of the length of the trial.
Issue 4: Costs of the Motion
[21] Each party submitted a bill of costs. The defendants’ bill for the motion amounted to $20,642.50 on a partial indemnity scale and included time from three lawyers and multiple law clerks. The plaintiff’s bill of costs totalled $4,338.60 on a partial indemnity basis.
[22] The overall objective in determining costs is to fix an amount that is fair and reasonable for the unsuccessful party who generally must pay the costs of the successful party. In considering this factor and the bills submitted, I find it fair and reasonable in the circumstances of this motion that the plaintiff pay the defendants the amount of $8,000 in costs on a partial indemnity basis, HST on those costs in the amount of $1,040 and disbursements of $1,024.78 for a total award of $10,064.78 within 45 days of this order.
Master Jolley Date: 19 October 2018