Court File and Parties

COURT FILE NO.: CV-18-605887 MOTION HEARD: 20190121 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CTT Pharmaceutical Holdings Inc., Plaintiff AND: Rapid Dose Therapeutics Inc., Defendant

BEFORE: Master Abrams

COUNSEL: G. Daniel, for the Plaintiff D. Knoke, for the Defendant

HEARD: January 21, 2019

Reasons for Decision

[1] The defendant asks that the plaintiff post security for costs, in the amount of $50,000.00, to the credit of this action. The plaintiff takes no issue with the quantum sought or with the notion of a lump sum payment into court, if security is ordered posted; but, it says, security ought not to be ordered posted.

[2] In considering whether it is here appropriate that an Order for security be made pursuant to R. 56.01(1)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, on which subrule the defendant relies, I need to be satisfied that “it appears” that there is good reason to believe that the plaintiff has insufficient asset, in Ontario, to defray a costs award. Then, if I am so satisfied, I must consider the justice of ordering security for costs posted, with the onus shifting to the plaintiff to persuade me that an order for security would be unjust.

[3] The defendant posits that there is here good reason to believe that that the plaintiff has insufficient assets notwithstanding that, as at November 29/18, its wholly-owned subsidiary, CTT Pharma Inc., had $105,269.94 in its Royal Bank of Canada business account and, as at December 18/18, held a $750,000.00 USD term deposit with a January 4/19 maturity date [1] and a $50,000.00 USD term deposit with a maturity date of August 23, 2019. The defendant submits that the plaintiff evinces instability (with the indicia of instability [2] here warranting an Order for security for costs: City Commercial Realty (Canada) Ltd. v. Bakich, at para. 12). I agree.

[4] Why do I say that I agree?

Inter alia:

1. In the plaintiff’s Amended Quarterly Report for the period ending June 30/18 (at Part D, s. 15(a)), the plaintiff itself acknowledges that it “has never generated cash flow from operations and is unlikely to generate cash flows from operations in the immediate or foreseeable future”; “[f]or the six month period ended June 30, 2018, [it]…incurred a net loss of $1,185,299.00 [and] negative cash flow from operations of $135,740.00…”; there is “…substantial doubt regarding [its] ability…to continue as a going concern”; “[its]…ability to continue as a going concern is dependent upon its ability to raise additional capital to pay expenses and…achieving profitability”; and “[it]…will require significant financing to continue its operations and fund any further activities”.
2. The plaintiff has not filed third or fourth quarter reports for 2018, as yet.
3. The plaintiff ascribes no value to its patents and has admitted that its 2010 and 2014 patents have never been commercialized. The plaintiff has not obtained Health Canada approval, is making no products, has no suppliers, has no distribution chains, has no operations, has no customers and has no cash flow (June 2018 Quarterly Report, at ss. 11(d), 9(b), 9(e), 9(f) and 15). Further, the plaintiff has no employees (see: November 22/18 affidavit of William Campbell Birge).
4. A 2009 judgment, rendered against the plaintiff for some $24,908.00 (CDN)--net of post-judgment interest--has not been paid some 10 years later.
5. There is a 2017 breach of contract claim against the plaintiff in respect of which $20 million in damages are being sought.

[5] The plaintiff does not say that it is impecunious and has adduced no evidence as to the merits of its claims. It simply relies on the fact that it has cash and cash equivalents that, at least in December/18, exceeded, and exceeded by a substantial amount, the $50,000.00 that the defendant asks be posted.

[6] To this the defendant says that ‘[i]n the absence of third and fourth quarter reports, [the reasonable assumption is] that the[se] [monies] will be required to pay the [plaintiff’s] net outstanding loss”. And if the cash expenses of the plaintiff for the six month period ending June 30/18 were $355,182.00, the defendant opines that the plaintiff’s cash stores will be eroded significantly, if not depleted, within the next few months. [3] The defendant’s argument is persuasive.

[7] While it is true, as the plaintiff submits, that R. 56.01 “does not countenance extensive and speculative inquiries as to the future value and availability of the [plaintiff’s] asset[s] [and that a] mere possibility that the assets may be removed at some future time is not, without more, grounds for security” (General Products Inc. v. Actiwin Company Limited, 2015 ONSC 6923, at para. 19), I do think that “there is “more” here, such as: admitted significant liabilities, more than one lawsuit pending, an outstanding judgment from some 10 years ago, no commercial activity and a stated (and admitted) need on the part of the plaintiff for an infusion of capital.

[8] Further, I do not accept that, with the plaintiff’s cash stores being what they are, the request on the part of the defendant for some $50,000.00 to be posted as security for costs is “a litigation tactic to prevent [this] case from being heard on the merits” (Yaiguaje v. Chevron Corporation, 2017 ONCA 827 (C.A.)). Instead, it is a function of the defendant critically considering the sufficiency of the plaintiff’s assets and liabilities and asking the court to do the same (General Products Inc. v. Actiwin Company Limited, supra, at para. 19).

[9] And the email sent by the CEO of CTT Pharma Inc. to the President of its parent company, the plaintiff, confirming that it will responsible for any costs, does not provide the defendant or the court with sufficient comfort.

[10] For all of these reasons, security for costs is to be posted in such form and manner as the parties may agree and the Accountant of the Superior Court may permit in the amount of $50,000.00—this by February 28/19.

[11] The parties have settled on the quantum of costs to be awarded to the successful party on this motion: $5,000.00. That being so, the plaintiff is to pay the defendant costs in the amount of $5,000.00, also by February 28/19.

January 29, 2019

[1] This investment matured some 2 weeks before the motion was heard, with no updated financial documentation filed for the court’s reivew. [2] Including “a failure to make appropriate corporate filings” (City Commercial Realty (Canada) Ltd. v. Bakich, supra, at para. 12), about which more will be said below. [3] Though the plaintiff suggests that these numbers will be “adjusted” down and/or aren’t owing, the plaintiff has failed to respond to the defendant’s reasonable request for substantiation that this is so. Without substantiation, I must rely on the financial documents filed on this motion.