Court File and Parties

COURT FILE NO.: CV-15-11147-00CL DATE: 20181127 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: TREZ CAPITAL LIMITED PARTNERSHIP, TREZ CAPITAL (2011) CORPORATION, and COMPUTERSHARE TRUST COMPANY OF CANADA, Plaintiffs AND: DR. STANLEY BERNSTEIN, NORMA WALTON, RONAULD WALTON, DBDC WEST MALL HOLDINGS INC., 2272551 ONTARIO LIMITED, DBDC GLOBAL MILLS LTD., GLOBAL MILLS INC., DEVRY SMITH FRANK LLP, and JOHN TODD HOLMES, Defendants

BEFORE: McEwen J.

COUNSEL: Dominique Michaud, for the Plaintiffs, Trez Capital Danielle Glatt and Graham Henry, for the Defendants, Dr. Bernstein, DBDC West Mall Holdings Inc., 2272551 Ontario Limited, and DBDC Global Mills Ltd., Michael Kohl, for the Defendant, Ronauld Walton Howard Cohen and Jessica Parise, for the Defendant, Norma Walton

HEARD: October 18, 2018

Endorsement

[1] This motion is brought by the defendants, Dr. Stanley Bernstein, DBDC West Mall Holdings Inc., 2272551 Ontario Limited, and DBDC Global Mills Ltd. (the “Bernstein Defendants”) for an order dismissing the crossclaim of Norma Walton and Ronauld Walton (the “Waltons”) on the basis that the Waltons have failed to pay a $32,000 costs award. Alternatively, the Bernstein Defendants are seeking to stay the crossclaim until the costs are paid and the Waltons post security for costs in respect to their crossclaim against the Bernstein Defendants in the amount of $200,000.

[2] It bears noting at the outset that Ronauld Walton submits, and Norma Walton concedes, that it is reasonable to allow them 60 days to pay the $32,000 costs award failing which their crossclaim for damages can be dismissed.

[3] They submit, however, that they should not be subject to an order to post security for costs.

[4] In my view, for the reasons below, it is reasonable to order as follows:

i) the Waltons shall pay the outstanding costs award of $32,000 plus $12,000 inclusive with respect to this motion within 60 days otherwise their crossclaim for damages set out in paragraphs 44(a), (b), and (e) of their crossclaim shall be dismissed,

ii) if the aforementioned costs are paid the Waltons shall thereafter, within 60 days, post security for costs with respect to their crossclaim for damages, referred to above, in the amount of $200,000, failing which that crossclaim is dismissed, and

iii) the within order only relates to the Waltons’ claim for damages. Notwithstanding whether the costs awards are paid or security for costs posted, they ought to be able to carry on with their claims for contribution and indemnity contained in paragraphs 44(c) and (d) of their crossclaim.

[5] First, with respect to the payment of the costs award, Rule 57.03(2) of the Rules of Civil Procedure provides the court with the authority to dismiss or stay a proceeding, or make any just order when a party fails to pay costs.

[6] Justice Pattillo was very critical of the Waltons’ abandoned motion when he awarded the $32,000 in costs against them. He observed, amongst other criticisms, that the motion included “serious and unsubstantiated allegations”.

[7] As noted, the Waltons do not dispute that the $32,000 costs awards should be paid within 60 days. Employing the same logic, the costs award for this motion ought to be paid as well within 60 days.

[8] For the first time, at the hearing of this motion, counsel for the Waltons conceded that costs should reasonably be paid or the crossclaim with respect to the damages ought to be dismissed.

[9] In my view, it is reasonable to allow the Waltons 60 days as a last chance to pay, given their solicitors’ above concession. The matter is not close to trial and I see no real prejudice to the Bernstein Defendants in allowing 60 days to pay.

[10] Second, with respect to security for costs, Rule 56.01(1)(c) and (e) of the Rules of Civil Procedure provide:

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,

(c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part;

(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent…

[11] In determining whether security for costs ought to be posted a two-step inquiry is required as follows:

(a) the burden is initially on the moving party to satisfy the Court that it appears there is good reason to believe that one of the factors listed in the subrules to 56.01(1) exists; and

(b) if the moving party satisfied this initial burden, the onus shifts to the resisting party to establish that an Order for security would be unjust. [^1]

[12] The Bernstein Defendants have satisfied the first step of the inquiry for the following reasons:

i) The Waltons currently owe the Bernstein Defendants approximately $1.1 million dollars in costs, plus approximately $66 million dollars in unpaid judgments.

ii) The Waltons have insufficient assets in Ontario to pay the outstanding costs and damages awards.

iii) There is good reason to believe the Waltons’ crossclaim for damages is frivolous and vexatious.

[13] With respect to reason (iii), I accept the Bernstein Defendants’ submission that the crossclaim is, in essence, a collateral attack on the court-approved sales process in the DBDC Application.

[14] The crossclaim is an attempt to relitigate not only a number of previous court orders that the Walton Defendants did not oppose, but also claims raised in their former counterapplication which was struck by Justice Newbould without leave to amend on the basis that it was frivolous, vexatious, and an abuse of process. Justice Newbould largely based his decision on the fact that the claims in this counterapplication were nearly identical to claims made by the Waltons that were rejected by Justice D. Brown (as he then was) in an earlier application.

[15] To illustrate this point, the Bernstein Defendants, in their factum, have provided the court with a Schedule C which is a comparison of the Walton Defendants crossclaim with the previous counterapplication and the findings of the court. A review of Schedule C discloses that the damages claimed in the crossclaim are similar to, or exactly the same, as the allegations previously made and dismissed.

[16] Ms. Walton, in her affidavit, claims that she now relies on “new evidence”. A review of the record, however, indicates that the evidence that she now purports to rely upon was, generally, in her possession before Justices D. Brown and Newbould in the DBDC Application. There does not appear to be new evidence of any significance whatsoever. The remaining evidence concerning Dr. Bernstein’s financial affairs does not seem to be of any particular relevance to the issues raised in the Waltons’ crossclaim.

[17] Having determined that the Waltons have outstanding, significant monetary orders against them and there is good reason to believe that the crossclaim for damages is frivolous and vexatious, the onus shifts to the Waltons to establish that an order for security would be unjust.

[18] In addition to the claim of “new evidence”, which I have rejected, the Waltons also raised two additional arguments in an attempt to establish that an order for security for costs would be unjust.

[19] First, the Waltons rely upon a comment made by Justice Newbould in his May 18, 2017, Amended Endorsement wherein he indicated, at paragraph 44, that he would not have made a specific finding had a February 25, 2013, email from Ms. Walton to Dr. Bernstein been included in evidence at trial. Paragraph 44 of the Amended Endorsement reads as follows:

Unfortunately, the evidence at that time did not include the February 25, 2013 email from Ms. Walton to Dr. Bernstein, nor did Dr. Bernstein admit that he was aware that Ms. Walton was telling the lenders that the Waltons were the only shareholders and that he was participating in the deception by temporarily resigning as a director to permit the lending to take place and then reinserting himself as a director. Based on the evidence before me now, I would not make the finding I made on November 5, 2013 when appointing a manager of the properties. [^2]

[20] The Waltons interpret this paragraph to mean that Justice Newbould would not have appointed a manager had he been aware of the email.

[21] I do not read paragraph 44 in this fashion. In my view, Justice Newbould’s comments are made with only respect to a specific credibility finding. In any event, it is likely that Justice Newbould made an error since the finding that he is referring to does not appear to have been made by him but rather by Justice D. Brown who also dealt with the previously-noted earlier application between the parties.

[22] Accordingly, I do not believe that Justice Newbould’s comments are of any assistance to the Waltons on this motion.

[23] Second, the Waltons claim that it would be unjust to order security for costs since they are impecunious.

[24] Mr. Walton, however, has not put forward any evidence to establish that he is impecunious. Ms. Walton’s affidavit falls well-short of the necessary requirement to demonstrate impecuniosity. Her affidavit contains bald statements without supporting documentation. Two days before the motion she filed CRA Notices of Assessment unattached to any affidavit. Even if I was to consider this evidence, it is insufficient and is not even up to the standard of that filed by the plaintiff in the case of Goldman v. Powers, 2017 ONSC 1634, wherein Master Brott, after reviewing a number of financial records filed by the plaintiff, determined that they were insufficient to satisfy the high threshold required to establish impecuniosity.

[25] Further, when one considers the facts of this case, and considers the issue of security for costs in a just and holistic fashion, even if the Waltons are impecunious I am of the view that, since there is good reason to believe that the claim for damages is frivolous and vexatious and given the fact that the Waltons currently owe the Bernstein Defendants in excess of $67 million dollars, they have failed to meet the burden to prove that security for costs would be unjust in this circumstances.

[26] The Bernstein Defendants seek partial indemnity security for costs for the amount of $200,000. Given the complexity of this matter and the resources that will have to be put into discovery before trial, I am of the view that the amount sought is reasonable.

Disposition

[27] An order shall go as per paragraph 4 above. As noted, I am awarding $12,000 inclusive for costs of this motion against the Walton Defendants payable to the Bernstein Defendants. In my view, the Bernstein Defendants enjoyed greater success on the motion and are entitled to approximately 60% of the costs they sought. As noted, these costs are to be paid within 60 days or the crossclaim for damages is to be dismissed.

[28] As also noted in paragraph 4, I am not dismissing the Walton Defendants claim for contribution and indemnity. This is separate and distinct from any claim of damages, and would not much, if at all, prolong any trial. It would only expose Dr. Bernstein to limited examinations for discovery. Furthermore, I see no basis to dismiss a claim for contribution and indemnity because that is a statutory right completely unrelated to the previous litigation between the Bernstein Defendants and the Waltons.

McEwen J. Date: November 27, 2018

[^1]: Sirron Systems Inc. v. Scott, Pichelli & Easter Limited, 2018 ONSC 1930 at paras. 8-9. [^2]: The February 25, 2013 email from Ms. Walton to Dr. Bernstein that disclosed the deception being made to Trez was only produced after I refused to hear this motion until documentary production requested by Trez was answered and a computer search for documents was made by Dr. Bernstein's lawyers. It had not earlier been produced by Dr. Bernstein in any of the litigation, including the motions for the appointment of the inspector and later for the appointment of the manager. In saying this, I do not suggest that the lawyers for Dr. Bernstein acted in any way improperly.