Court File and Parties

COURT FILE NO.: CV-17-583675

MOTION HEARD: 20190124

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ali Zenaid Trading Company LLC, Plaintiff

AND:

Heys International Limited, Defendant

BEFORE: Master Jolley

COUNSEL: Dom Michaud and Joseph Jamil, Counsel for the Moving Party Defendant

Richard Macklin and Lucinda Bendu, Counsel for the Responding Party Plaintiff

HEARD: 24 January 2019

REASONS FOR DECISION

[1] The defendant brings this motion for an order requiring the plaintiff to post security for costs.

[2] The plaintiff accepts that the defendant has met its onus under Rule. 56.01(1) of the Rules of Civil Procedure. The plaintiff defends the motion on the basis that it has a good chance of success at trial. The parties agree on the applicable test to meet this threshold, as set out in Coastline Corp. v. Canaccord Capital Corp. 1989 4354 (ON SC), 1989 CarswellOnt 896 at paragraph 7, footnote 2 and Stojanovic v. Bulut 2011 ONSC 874, at paragraph 62, affirmed 2011 ONSC 4632. In order to meet the threshold good chance of success test, the plaintiff need not prove its claim on a balance of probabilities as at trial or establish that there is no triable issue as at a motion for summary judgment). Instead, it must show a good chance of success, a real possibility of success, or an overwhelming case. Regardless of the language used, the threshold for the plaintiff is high.

[3] For the reasons set out below, I find that the plaintiff has met the onus of establishing that it has a good chance of success. As a result, the defendant’s motion is dismissed.

[4] I accept that a motion for security for costs should not be turned into a motion for summary judgment. If an action is complex or turns on issues of credibility, an assessment of the merits is not appropriate. In such cases where it is not possible for the court to determine on the motion record before it whether the plaintiff’s case has a good chance of success, the merits would be a neutral factor (Jones v. Jones 2013 ONSC 1377, paragraph 32). This does not mean that scrutiny of the merits is not warranted. Indeed, the test to respond to such a motion demands such a consideration.

[5] At this same time, this is not a summary judgment motion and it is not the role of the court to embark on that kind of analysis. The analysis is primarily on the pleadings with recourse to the evidence filed on the motion (Padnos v. Luminart Inc. 1998 CarswellOnt 4860, paragraph 7).

[6] In this case, the plaintiff claims damages for the defendant’s wrongful termination of its distributorship agreement. There is no provision in the agreement as to whether and how it could be terminated. The only similar provision in the agreement relates to non-renewal. If the defendant did not wish to continue the agreement beyond its 30 April 2019 end date, it was required to give the plaintiff notice of its decision not to renew at least six months before 30 April 2019.

[7] In, or by, August 2017, the defendant concluded that it and the plaintiff were “not of the same mind nor thinking and were heading in different directions”. It wrote the plaintiff on 4 August 2017 and advised that “we will be moving our distribution in the GCC [the plaintiff’s territory] to another company, and will be terminating our distribution agreement with Ali Zenaid.” The termination was effective immediately.

[8] In its statement of defence, the defendant pleads it terminated the agreement for two reasons. First, it pleads that the plaintiff failed to comply with the net 30 day payment term and failed to bring its accounts current despite repeated requests to do so. Second, it alleges that the plaintiff indicated that if the defendant would not lower its pricing, the plaintiff intended to explore other business options in contravention of a verbal mutual exclusivity agreement that the defendant pleads it had with the plaintiff. The defendant pleads that the plaintiff advised it in June 2017 that it would no longer abide by the mutual exclusivity provision, which the defendant took as an act of repudiation and breach of a fundamental term of the agreement.

[9] On the issue of the failure to pay its invoices within 30 days, the plaintiff argues that the parties agreed that the invoices would be paid within 90 days and then later, within 120 days, and note that this payment term is reflected on the invoices sent by the defendant to the plaintiff. Further, the plaintiff argues that non-payment is not a grounds for termination. The defendant’s option was to sue on the outstanding invoices. Alternatively, the plaintiff argues that it had no notice that the defendant intended to revert to the 30 day payment requirement set out in the agreement or that it intended to terminate the agreement if the payments were not brought current. The defendant argues that it never agreed to a payment term other than net 30 days and its reluctant acceptance of plaintiff’s payments over longer periods of time cannot be considered an amendment to the agreement.

[10] Without delving into any issue of credibility, I find the plaintiff has a good chance of success on this issue. The plaintiff tendered evidence from the defendant itself in which the defendant references Payment Terms as “Net 120”.

[11] As to the mutual exclusivity defence, the plaintiff deposes and it is agreed that there is no such term in the written agreement or either of its two addenda. Further, it argues that, even if the exclusivity provision formed part of the agreement, it did not breach that term. The plaintiff deposes that it attended a trade show in China in April 2017 to do market research. The defendant was suspicious that the plaintiff was there scout alternative products. There is no evidence from the defendant that the plaintiff carried any competing products.

[12] The plaintiff argues that, even if it had breached the term by indicating that it would not abide by the exclusivity arrangement, as the defendant will argue, that does not amount to a fundamental breach or a repudiation of the agreement.

[13] The defendant may succeed at trial in proving both that the exclusivity term was included in the agreement and that the plaintiff’s indication that it would not agree to the exclusivity term or agree to it being memorialized in a new written agreement was a repudiation of the existing agreement and that it was entitled to terminate the agreement as a result. However, the trial judge may consider that the agreement did not contain an event of default clause that would permit early termination and further consider the proportionality of any breach in its assessment as to whether a breach was fundamental. (Drew v. Huskinson 2019 ONCA 38 at paragraphs 12 and 13). On the record before me I find that the plaintiff has a good chance of success on this issue.

[14] As a final matter, before making an order for security for costs, the court is to step back and consider the justness of the order sought holistically. Security for costs should only be made where the justice of the case demands it. (Yaiguaje v. Chevron Corporation 2017 ONCA 827). Considering all the circumstances of the case, I find that the justice of this case does not require the plaintiff to post security for costs. The motion is dismissed.

[15] The parties submitted similar costs outlines. The defendant shall pay the plaintiff its costs on a partial indemnity basis in the amount of $15,000 within 30 days of today’s date.

Master Jolley

Date: 25 January 2019