Court File and Parties

COURT FILE NO.: CV-17-587752 DATE: 2019/08/29

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ACTIVE SECURITY AND CABLE INC., Plaintiff/Defendant by Counterclaim AND: ROGERS COMMUNICATIONS CANADA INC., Defendant/Plaintiff by Counterclaim

BEFORE: MASTER RONNA M. BROTT

COUNSEL: Tony N. Nguyen for the Plaintiff/Defendants by Counterclaim Fax: 416-221-5106

Michael L. Byers, for the Defendant/Plaintiff by Counterclaim Fax: 416-365-0220

ENDORSEMENT

THE FACTS

[1] The within action was commenced in December 2017 by Active Security and Cable Inc. (“Active Security”) to recover monies for unpaid invoices in relation to network infrastructure work they performed for Rogers Communications Canada Inc. (“Rogers”). Rogers admits some money may be owing to Active Security but alleges that it was a victim of billing fraud committed by Active Security wherein Active Security overcharged Rogers by amounts far greater than the amount of the claim. Rogers seeks a set-off from Active Security and its principal, Naresh Mohabir. As well, Rogers counterclaims for damages for fraud, conversion and unjust enrichment.

THE MOTION

[2] Rogers brings this motion for security for costs pursuant to Rule 56.01 which states:

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] On these motions, the initial onus is on the moving party to satisfy the court that it appears there is good reason to believe that the matter comes within one of the enumerated areas in Rule 56.01. In the case at bar, it is clear that the matter comes within Rule 56.01(d).

[4] Once the first step is satisfied, the onus shifts to the responding party to establish that an order for security for costs would be unjust. Active Security can meet that onus by demonstrating one of the following:

1. It has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation;
2. It is impecunious and that its claim “is not plainly devoid of merit” or
3. If Active Security cannot establish that it is impecunious, but it does not have sufficient assets to meet a costs order, that its claim has a “good chance of success” on the merits. (2311888 Ontario Inc. v Ross, 2017 ONSC 1295, Coastline Corp. v Canaccord Capital Corp. 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790).

[5] When this motion first came up for hearing on September 21, 2018, Active Security was resisting the motion on the basis that it had sufficient assets in Ontario to pay Rogers’ costs. Shortly before the hearing date, Rogers discovered that Active Security owed approximately $1.1 million in unpaid taxes. Active Security sought to have the income tax documentation excluded as evidence at the initial hearing.

[6] The motion was adjourned, Rogers’ motion to introduce the tax evidence was allowed and Active Security was ordered to produce “all relevant financial documentation in their power, possession and control, including income tax documentation by October 31, 2018.” By the return date, Active Security had failed to comply with the Order. It had not provided any financial or tax documentation post 2015. Given the tax evidence, Active Security’s initial position on the motion changed and it opposed the motion asserting that it was now impecunious and therefore unable to post security for costs.

[7] Master Glustein, as he then was, addressed the issue of impecuniosity in Coastline Corp. v Canaccord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790 where he stated:

(viii) 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 full supporting documentation for each category where available or an explanation where not available”

(ix) To meet the onus to establish impecuniosity, “at the very least, this would require an individual plaintiff to submit his most recent tax return, complete banking records and records attesting to income and expenses”

(x) A corporate plaintiff who claims impecuniosity must demonstrate that it cannot raise security for costs from it shareholders and associates, i.e. it must demonstrate that its principals do not have sufficient assets. Evidence as to the “personal means” of the principals of the corporation is required to meet this onus. A corporate plaintiff must provide “substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security”. “A bare assertion that no funds are available” will not suffice.

(xi) Consequently, full financial disclosure requires the plaintiff to establish the amount and source of all income, a description of all asserts including values, a list of all liabilities and other significant expenses, an indication of the extent of the ability of the plaintiffs to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose

(xii) Because the plaintiff has the onus to establish impecuniosity, a defendant “can choose not to cross-examine if the plaintiff fails to lead sufficient evidence”. The decision not to cross-examine does not convert insufficient evidence into sufficient evidence”

[8] In his Supplementary Affidavit sworn December 10, 2018, Mr. Mohabir, the sole director, officer and shareholder of Active Security, deposes that Active Security is insolvent, has sold many of its assets and that it is no longer operational.

[9] Rogers submits that the plaintiff’s bald statements that he is unable to pay the defendant’s costs do not meet the required standard of ‘robust disclosure’ (2311888 Ontario v Ross, 2017 ONSC 1295) Further, Rogers notes that the plaintiff failed to state clearly what efforts Active has made to post security.

[10] An order for security for costs is highly discretionary. In my view, the plaintiff’s evidence satisfies the court that there is good reason to believe that Active Security lacks adequate assets to pay Rogers’ costs. It appears quite clear that Active Sccurity’s impecuniosity is a direct result of CRA’s actions. As well as to CRA, Active Security has other debts including court proceedings commenced against it. Although the plaintiff’s evidence when this matter first came on for hearing was that his assets consisted of property including machines and accounts receivable estimated to be valued at $839,213 and $1,107,297 respectively, CRA has a writ registered against Active for $1,125,758. If CRA enforces on the entire alleged debt, then Active Security will not have sufficient assets to pay the defendant’s costs. Although there are on-going discussions between the plaintiff and CRA, the plaintiff does not know what if any, of its property will be seized. Because of the indebtedness to CRA, Active Security and Mr. Mohabir’s hands are tied and therefore unable to raise funds.

[11] Once Active Security is able to prove impecuniosity, it must establish that its case is not “plainly devoid of merit”. While this is a low threshold, the plaintiff must adduce evidence in support of the allegations contained in the Statement of Claim.

[12] The moving party submits that Active Security has not provided any explanation or evidence to rebut Roger’s allegations of fraud. In fact, Rogers has admitted in its pleadings and affidavit filed in support of its motion that it engaged Active Security over a four-year period to perform work at agreed prices as evidenced by the detailed NIKA system. Even after Rogers ordered the audit from the period of June to September 2016, after receiving a tip about alleged overcharging, Rogers continued to retain Active Security to perform significant work totaling $342,721. This claim seeks payment of that amount and additional amounts allegedly owing.

[13] In my view, Active Security has a strong prima facie case for payment for work performed from June to September 2016. Rogers pleads a justification for its non-payment alleging that Active Security charged an agreed price which was higher than industry standards. Roger has accordingly advanced a counterclaim pleading unjust enrichment for approximately $1.8 million. The counterclaim is for an amount significantly greater than the amount claimed by the plaintiff. As well, Rogers seeks re-payment for work completed and paid for by Rogers based on agreed upon prices from 2013 – 2015.

[14] In JV Mechanical Limited v Steelcase Construction Inc. [2008] O.J. No. 5777 the court considered that the counterclaim by the moving party exceeded the plaintiff’s claim. In that case, Master Albert held that “if a corporate plaintiff is impecunious such that an order for security for costs would stop it in its tracks, then so long as the claim has some chance of success (that is, it is not certain to fail) justice requires that the plaintiff be allowed to proceed without posting security for costs.”

[15] In Wilkings v Velocity Group Inc. (2008), 2008 CanLII 12500 (ON SCDC), 89 O.R. (3d) 751 the Divisional Court held “the fact of a counterclaim should not be a relevant factor for consideration by the court in exercising discretion in respect of a motion for security for costs against an initiating plaintiff in the main action”.

[16] While the cases are divided on the issue of whether or not consideration should be given to a counterclaim when deciding the issue of security for costs, in the circumstances of this action, it is, in my view, significant that the counterclaim far exceeds the amount in dispute. Although Rogers submits that it is not seeking security for its counterclaim the fact that it has admitted that it owes Active Security funds for work done at prices agreed to between the parties, at least for the period from June to September 2016, it is almost as if Rogers is already holding security in the form of non-payment to the plaintiff and this factor has been considered in the exercise of the court’s discretion.

[17] As this court has found that the plaintiff is impecunious, Active Security need only prove some chance of success. Because it has been found that the plaintiff in fact has a good chance of success, the motion is dismissed.

[18] Even if it could be found that Active Security’s disclosure of financial disclosure falls short of proving impecuniosity, because this court found the merits of the plaintiff’s case to be “a good chance of success” the motion is dismissed. Having balanced the defendant’s interest in being protected from the risk of not being able to collect an order for costs if one is made, and the plaintiff’s interest in not unfairly preventing its action from proceeding, I find that the plaintiff has satisfactorily demonstrated that an order for security for costs would be unjust.

[19] Costs outlines were exchanged following oral arguments. Counsel agreed to attempt to resolve the issue of costs within thirty (30) days following release of the Endorsement. If unable to come to an agreement on costs, the responding party shall serve and file brief submissions (1-2 pages) within 15 days, and within 15 days thereafter, the moving party shall serve and file its submissions. There shall be no reply submissions on the issue of costs without leave of the court.

MASTER RONNA M. BROTT

Date: August 29, 2019