Court File and Parties
COURT FILE NO.: CV-18-591227 MOTION HEARD: 2019 07 09
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Jobro Film Finance Ltd. v. National Bank of Canada
BEFORE: MASTER R. A. MUIR
COUNSEL: Junior Sirivar and Erin S. Chesney for the defendant Matthew Diskin and Meredith Bacal for the plaintiff
REASONS FOR DECISION
[1] The defendant brings this motion for an order requiring the plaintiff to post security for costs pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure, RRO 1990, Reg. 194 (the “Rules”). The defendant takes the position that the plaintiff is a corporation with insufficient assets in Ontario to pay any costs award that may ultimately be made in favour of the defendant.
[2] The plaintiff is opposed to the relief sought by the defendant.
[3] This is an action for damages in the amount of $3,500,000.00. The plaintiff alleges that the defendant induced the plaintiff to loan money to a film project. The film was not successful. The plaintiff lost most of its investment. It now seeks to recover that loss from the defendant. The defendant denies the plaintiff’s allegations.
[4] Rule 56.01 provides, in part, 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 . . .
[5] The test on a motion of this nature is not in dispute. Both sides reference the decision of Justice Henderson in 2311888 Ontario Inc. v. Ross, 2017 ONSC 1295. In general terms, the moving defendant has the initial onus of demonstrating that the plaintiff falls into one of the categories set out in Rule 56.01(1). This onus is not a heavy one generally or in the circumstances of this motion. The defendant need only show that the plaintiff is a corporation and that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. A defendant need only show a good reason to believe the plaintiff’s assets are insufficient. It does not have to prove a corporate plaintiff lacks such assets. The onus then shifts to the plaintiff to tender evidence that it has assets available to respond to any costs order, to demonstrate impecuniosity or to ask the court to make such order as is just in the circumstances.
[6] The applicable principles are set out in full detail at paragraphs 17 to 19 of 2311888 Ontario Inc. which read as follows:
In summary, the proper way to analyze a motion for security for costs is as follows: (i) 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 one of the circumstances enumerated in Rule 56.01. See Hallum v. Canadian Memorial Chiropractic College (1989), 70 O.R. (2d) 119 at p. 123; (ii) Once the first part of the test is satisfied, the onus is on the plaintiff to establish that an order for security for costs would be unjust. See Chachula at para. 10, and Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 at para. 4; (iii) The plaintiff can meet the onus by demonstrating that: (a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation; (b) the plaintiff is impecunious, and the plaintiff's claim is not plainly devoid of merit (See Pitkeathly v. 1059288 Ontario Inc., [2004] O.J. No. 4125 at para. 10); or (c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must satisfy the court that the plaintiff's claim has a good chance of success on the merits. See Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2012] O.J. No. 3620 at paras. 41-46.
Regarding impecuniosity, if the plaintiffs wish to rely upon their own impecuniosity, the plaintiffs must provide evidence of their financial circumstances with "robust particularity". There must be no unanswered material questions. See the case of Morton v. Canada (Attorney General), 75 O.R. (3d) 63 at para. 32.
Furthermore, the evidentiary threshold for impecuniosity is high, and bald statements unsupported by detail are not sufficient. The threshold can only be reached by tendering complete and accurate disclosure of the plaintiff's income, assets, expenses, liabilities, and borrowing ability, with supporting documentation for each category. See the Uribe case at para. 12.
[7] These are the factors and principles I have applied in determining the issues on this motion.
[8] In my view, the defendant has failed to meet its initial onus. The defendant’s evidence on this motion was provided through an affidavit sworn by a litigation law clerk employed by the lawyers for the defendant. The defendant’s evidence consists of correspondence exchanged between counsel with respect to the plaintiff’s financial status, along with speculative observations about the risky nature of the film business. The defendant’s witness does not have any specific expertise about the film business. The defendant states in its factum that it brought this motion because the plaintiff “failed to produce . . . evidence of realizable assets in Ontario”.
[9] I accept that the initial onus on this motion is not a heavy one. The moving party need only show that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. However, it is a real onus and the defendant’s evidence must go beyond “mere conjecture, hunch or speculation”. See City Commercial Realty Services (Canada) Ltd. v. Bakich, [2005] OJ No. 6443 (CA) at paragraph 8.
[10] It is important to note that the plaintiff is an operating business. It is not a single purpose corporation. It has been in business since 2012 and has been involved in the production of approximately 25 feature films. Its corporate filings are up to date. It has several ongoing investments. There is no suggestion that it is in financial difficulty or unable to meet its obligations as they become due. It has not defaulted on any of its obligations. Its operating loans appear to be in good standing. There are no pending claims against it. There are no unsatisfied judgments or other evidence of financial instability. This is the kind of evidence that a moving party would commonly advance to meet its onus. See City Commercial Realty at paragraphs 12 and 13.
[11] The plaintiff’s assets include ongoing investments in various film projects, cash on hand and accounts receivable. It also owns a 50% interest in a special effects company with significant revenue. The plaintiff’s evidence is that it has made a profit on all its film investments other than the film which is the subject of this action.
[12] I do agree with the defendant that the plaintiff’s balance sheet shows that its liabilities exceed its assets. However, it is important to note that the plaintiff’s largest liability is subject to an agreement subordinating that debt to any costs order made in this proceeding. When that is considered, the plaintiff’s assets appear to exceed its other liabilities, leaving funds remaining to pay any costs orders in priority to the subordinated debt.
[13] I am also satisfied that the plaintiff has provided sufficient evidence of any other secured indebtedness. The plaintiff has identified its material encumbrances and the plaintiff’s witness explained that many of the security registrations the defendant points to are not reflected in the plaintiff’s financial statements and should have been discharged. In any event, a mere security registration is not evidence of the underlying indebtedness.
[14] The defendant argued quite forcefully that the plaintiff’s financial evidence generally lacked detail and was not sufficiently robust. However, it is important to emphasize that there is no burden on the plaintiff at this stage of the analysis. The onus is on the defendant. There is certainly no obligation on the plaintiff at this stage to provide financial disclosure with “robust particularity” as is required when a plaintiff relies on impecuniosity. I do not view Rule 56.01 as requiring a full-scale examination in aid of execution of a corporate plaintiff simply because a defendant alleges a lack of assets based on speculation and conjecture.
[15] In my view, the observations of the Court of Appeal in City Commercial are applicable to the facts before the court on this motion. At paragraph 16 of City Commercial the Court of Appeal stated as follows:
- If all corporations, with or without tangible assets, and without any indicia of financial difficulty, were subject to motions for security for costs, corporate litigants and the courts would be overburdened with the need to respond to requests for disclosure, cross-examinations on assets and liabilities, and the additional expense and delay of arguing the resulting motions. While the rules render nominal plaintiffs and corporations more vulnerable to orders for security for costs than others, more evidence to support such an order is required than is present in this case.
[16] The facts before the Court of Appeal in City Commercial are similar to the facts on this motion. Justice Lang noted at paragraphs 14 and 15:
Indeed, the trial reasons indicate that City Commercial has been in business for some time, that it deals in high-end real estate, and that it has premises in the Hazleton Lanes area of Toronto. There is no evidence that City Commercial has failed to meet its obligations to pay rent or to meet its payroll.
In many instances some indicia of financial difficulty provide "good reason to believe" that a corporation may not be able to meet a costs award. Evidence that a corporation carries on a business more dependent on goodwill than tangible assets, with nothing more, is not sufficient to raise the requisite level of concern. Indeed, even corporations with significant tangible assets may be so burdened with debt that they would have insufficient assets to meet an order for costs.
[17] The Court of Appeal dismissed the respondent’s motion for security for costs in City Commercial for failing to meet its initial onus. In my view, the result should be the same on this motion. For the reasons set out above, the defendant has failed to meet its initial onus. The motion is dismissed.
[18] If the parties are unable to agree on the issue of the costs of this motion, they shall provide the court with brief submissions in writing by August 16, 2019. These submissions may be sent directly to me by email.
Master R. A. Muir DATE: 2019 07 17