Court File and Parties
COURT FILE NO.: CV-18-595089 MOTION HEARD: 14 December 2018
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2456787 Ontario Inc., Plaintiff AND: 1521476 Ontario Inc., Defendant
BEFORE: Master Jolley
COUNSEL: Michael Crampton, Counsel for the Moving Party Defendant Paul Starkman, Counsel for the Responding Party Plaintiff
HEARD: 14 December 2018
REASONS FOR DECISION
Background facts
[1] The plaintiff tenant operated a restaurant called MicroTime Café at 25 Wellesley Street East, Toronto, property owned by the defendant landlord. The business ran from September 2015 until September 2016 pursuant to a five year lease dated 22 May 2015. The plaintiff was planning to change the business to run a different restaurant called Toss Thai Restaurant. It deposes that it spent in excess of $240,000 to purchase various assets and chattels for the business and spent further funds to renovate the interior of the premises.
[2] The plaintiff alleges that it was agreed between it and the defendant landlord that the defendant would renovate the property for the new business. In anticipation of that work, the plaintiff shut down the MicroTime Café in September 2016. It sent its employees for training with the new franchisor and anticipated signing a franchise agreement. The parties then signed a Lease Amending Agreement on 7 December 2016 pursuant to which the landlord agreed to undertake the renovation work.
[3] The Lease Amending Agreement extended the lease and set a rent increase commencing 1 January 2017, the date the plaintiff says the parties anticipated it would open for business as Toss Thai. The Lease Amending Agreement described the landlord’s renovation work as “an inducement to the Tenant for the amendments contemplated in the Lease Amending Agreement which renovations and replacements are described in greater detail in Schedule A attached hereto (the “Landlord’s Work”). The tenant posted an $80,000 letter of credit to cover the Landlord’s Work. The Lease Amending Agreement did not contain a completion date for the work but the plaintiff argues that it was implied that the work would be done by 1 January 2017 as that is the date the rent increase took effect.
[4] The plaintiff further alleges that the defendant told it that it would obtain the building permit in December 2016 so that the work could be done by 1 January 2017. According to the plaintiff, the defendant subsequently advised, without explanation, that the permit would not arrive until April 2017. It did not arrive in April either, although the plaintiff continued to pay its increased rent under the lease from 1 January 2017.
[5] By April 2017, the plaintiff had been out of business for at least seven months and, at that point, could no longer pay the rent. The defendant did not obtain the permit until August 2017 by which time the plaintiff’s employees had left and the defendant had re-entered and taken back the property for arrears of rent. The plaintiff alleges that it was refused re-entry to the property to remove its goods. It further alleges that the defendant illegally distrained its chattels, as it could not legally have both re-entered the property and also distrained.
[6] The plaintiff argues that the defendant breached the Amending Agreement that provided for its work to be done in time for the plaintiff’s business to reopen by January 2017. The plaintiff has commenced this action for damages for conversion of its chattels, for return of its deposit, for loss of income and for punitive damages.
[7] The defendant argues that any losses the plaintiff may have suffered were not as a result of anything the defendant did or did not do but was caused by the plaintiff’s poor business choices. There was no reason for the plaintiff to cease operations until the building permit had been received. It could have continued to operate as MicroTime Café until the permit arrived and the defendant was able to commence the work.
ISSUE
[8] The defendant brings this motion for security for costs under Rule 56.01(1) of the Rules of Civil Procedure which provides that 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;
(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.
DISCUSSION
[9] The defendant bears the onus of demonstrating that there is good reason to believe the plaintiff has insufficient assets in Ontario to pay the defendant’s costs. The plaintiff has no obligation to assist the defendant in meeting this hurdle by providing information. The plaintiff is only obliged to respond if and when the defendant has satisfied the good reason test. Only then does the onus shift to the plaintiff to lead evidence to avoid the order sought.
[10] The defendant argues that there is no physical or online presence for the plaintiff’s business. It further relies on the admissions in the statement of claim that as of April 2017 the plaintiff could not pay its rent and that as of August 2017 it had no employees.
[11] The onus on the moving party is not a heavy one (737071 Ontario Inc. v. Min-A-Mart Ltd. (1996) 47 C.P.C. (3d) 68 at paragraph 5).
[12] In this case I find that the defendant has met this low threshold. The plaintiff has admitted that it does not have access to its chattels, that it could not pay its rent by April 2017, that its employees had left, that it ceased operating the Café in December 2016 and had not re-opened at least by August 2017 when the defendant re-entered the premises. I accept there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the defendant’s costs.
[13] Once the first part of the test 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 paragraph 17). (Sirron Systems Inc. v. Insyght Systems Inc. 2018 ONSC 1928 at paragraphs 11 and 12, affirmed 2018 ONSC 3913).
[14] However, 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:
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.
[15] In determining what is just, the court may consider whether it was the defendant’s conduct that is the subject matter of the litigation that has caused the plaintiff’s assets to become insufficient. As noted in Cigar500.com Inc. v. Ashton Distributors Inc. 2009 46451 (ON SC), [2009] O.J. No. 3680, quoting John Wink Ltd. v. Sico Inc. (1987) 1987 4299 (ON SC), 57 O.R. (2d) 705 (H.C.):
There can be no question that an injustice would result if a meritorious claim were prevented from reaching trial because of the poverty of a plaintiff. If the consequence of an order for costs would be to destroy such a claim no order should be made. Injustice would be even more manifest if the impoverishment of plaintiff were caused by the very acts of which plaintiff complains in the action.
[16] While the plaintiff has not led any evidence to establish that it has sufficient assets in Ontario, on the record, what we do know is that it was a valid business concern before closing down in anticipation of the renovations. It remains to be seen whether the defendant’s argument that the plaintiff made a poor business decision to close before the building permit was obtained will succeed. However, since the plaintiff’s non-payment of rent, it has been evicted and its chattels distrained.
[17] The case of 423322 Ontario Ltd. v. Bank of Montreal (1988) 1988 4678 (ON SC), 66 O.R. (2d) 123 (H.C.), considered in Cigar500.com Inc., is instructive. There the plaintiff sued the bank for improperly calling its loans and appointing a receiver, rendering the plaintiff insolvent. The defendant easily met its burden at the first stage of Rule 56.01(d) analysis, but at the second stage, Granger J. declined to make an order for security for costs and held:
In my opinion, having regard … to the fact that the plaintiff’s action is not frivolous or vexatious and is founded upon the actions of the defendants which the plaintiff alleged caused its insolvency, I am not prepared to exercise my discretion and order the plaintiff to submit to an order for security for costs at this stage. If I was to make such an order it would cause an injustice.
[18] As noted in Cigar500.com Inc. supra at paragraph 40:
… the plaintiff was entitled to take the position that any deficiency in its assets was due to the wrongful conduct of the defendants, which was the very subject matter of the litigation. The suspension of its business and resulting lack of cash flow, as well as its debts to its lawyers, were direct results of the various causes of action that it alleged against the defendants.
[19] The defendant did not file evidence concerning the merits of the plaintiff’s claim but did advance the position on the motion that the plaintiff was the author of its own misfortune for closing prematurely. The plaintiff chose to take the position that the defendant did not meet the onus on the first part of the test and therefore it did not lead any evidence concerning its present assets. Consequently it has not proven impecuniosity. As such, it must demonstrate that its case has a good chance of success. (Zeitoun v. Economical Insurance Group (2008) 2008 20996 (ON SCDC), 91 O.R. (3d) 131 at paragraphs 48-50 (Div. Ct.), affirmed 2009 ONCA 415, [2009] O.J. No. 2003 (C.A.) The materials filed by the plaintiff, absent any challenge, suggest that it has a good chance of success at trial on its claim for damages for simultaneous distress and forfeiture and conversion of $240,000 worth of assets. I do not find that the claim is frivolous or vexatious.
[20] Exercising my discretion, I decline to order security for costs, particularly in light of the allegation that the plaintiff is in the financial situation it is because of the defendant’s improper conduct in failing to obtain the building permit on a timely basis and then re-entering the premises and distraining against what appears to be the plaintiff’s significant chattels. The case falls squarely within the fact situation and legal analysis of Cigar500.com, supra and I find that such an order would not be just in the circumstances.
COSTS
[21] Each party submitted a bill of costs. The defendant’s costs outline totaled $6,438.20 on a partial indemnity basis. The plaintiff’s bill of costs totaled $9,048.32. The overall objective for the court is to fix an amount that is fair and reasonable for the unsuccessful party to pay. Considering the time spent by both parties, I find that it is fair and reasonable in the circumstances for the defendant to pay the plaintiff’s costs in the amount of $6,500 inclusive of HST and disbursements within 30 days of this decision.