Court File and Parties

COURT FILE NO.: CV-18-00599543

MOTION HEARD: 2019-12-17

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Mara Tech Aviation Fuels Ltd., Mara Tech Aviation Services Ltd., and Mara Tech Aviation Fuels (Sudbury) Ltd., Plaintiffs

AND:

Mark Joseph Palombi, Defendant

BEFORE: Master B. McAfee

COUNSEL: S.N. Zeitz, Counsel for the Moving Party, the Defendant A.S. Halpert, Counsel for the Responding Parties, the Plaintiffs

HEARD: December 17, 2019

Reasons for Decision

[1] This is a motion brought by the defendant for an order that the plaintiffs post security for costs of the action up to and including examinations for discovery on a partial indemnity basis in the all-inclusive amount of $47,776.55, without prejudice to moving for further security as the litigation progresses.

[2] The plaintiffs oppose the motion.

[3] In support of his request for security for costs the defendant relies on Rule 56.01(1)(d) of the Rules of Civil Procedure:

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.

[4] The application of Rule 56.01(1)(d) involves a two-step analysis. The first step of the analysis requires the moving defendant to establish that it appears the plaintiffs are corporations or nominal plaintiffs and there is good reason to believe that the plaintiffs have insufficient assets in Ontario to pay the costs of the defendant. If the defendant discharges his initial onus and establishes that it appears the plaintiffs fall under Rule 56.01(1)(d), the second step of the analysis requires the plaintiffs to establish the basis for a broad flexible exercise of discretion that an order for security for costs would be unjust (Horizon Entertainment Cargo Ltd. v. Marshall, 2019 ONSC 2081 (Ont. S.C.J. - Master) at para. 3 citing Coastline Corp. v. Cannacord Capital Corp., [2009] O.J. No. 1790 (Ont. S.C.J. - Master) at para. 7).

[5] The plaintiffs agree that the defendant has satisfied his initial onus.

[6] The onus now shifts to the plaintiffs to satisfy the court that an order for security for costs would be unjust.

[7] In Yaiguaje v. Chevron Corporation, 2017 ONCA 827 at paragraphs 23-25, the Court of Appeal states as follows with respect to consideration of the justness of the order:

[23] The Rules explicitly provide that an order for security for costs should only be made where the justness 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.

[24] 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. See: Hallum v. Canadian Memorial Chiropractic College (1989), 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General) (2005), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 99 O.R. (3d) 55 (S.C.); Wang v. Li, 2011 ONSC 4477 (S.C.); and Brown v. Hudson’s Bay Co., 2014 ONSC 1065, 318 O.A.C. 12 (Div. Ct.).

[25] While this 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 already provided for in the Rules. The correct approach is for the court to consider the justness of the order holistically, examining all of the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.

[8] In my view, the interests of justice require that no order for security for costs be made in the circumstances of this case.

[9] I am satisfied that the plaintiffs are impecunious.

[10] The subject matter of the within action is alleged solicitor’s negligence including the failure of the defendant to attend an application brought by the Royal Bank of Canada (RBC) against the plaintiffs for the appointment of a Receiver. The plaintiffs were placed into receivership. The plaintiffs’ assets were liquidated by January 19, 2017, and the plaintiffs are no longer in business.

[11] As summarized in Coastline at para.7(x):

(x) A corporate plaintiff who claims impecuniosity must demonstrate that it cannot raise security for costs from its shareholders and associates, i.e. it must demonstrate that its principals do not have sufficient assets (Smith Bus Lines Ltd. v. Bank of Montreal (1987), 61 O.R. (2d) 688 (Ont. H.C.) at 705). Evidence as to the “personal means” of the principals of the corporation is required to meet this onus (Treasure Traders International Co. v. Canadian Diamond Traders Inc., [2006] O.J. No. 1866 (Ont. S.C.J.) (“Treasure Traders”), at paras. 8-11). 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. (1493677 Ontario Ltd. v. Crain, [2008] O.J. No. 3236 (Ont. Master) at para. 19);

[12] I am satisfied that the plaintiffs have put their best foot forward and have demonstrated that they cannot raise security from their shareholders.

[13] The evidence before me is that the shareholders do not have the ability to borrow any more money. In support of their position in this regard there is evidence before me of real estate ownership and the limited equity remaining, ownership of motor vehicles and their limited value, the value of life insurance policies, mortgage payments, rental payments, automobile, home, and life insurance premiums, and household expenses. The annual expenses far outweigh any income sources. One of the shareholder’s declared income in 2018 was $750.00 from working as a housekeeper. The evidence before me is that the other shareholder’s declared income in 2018 was NIL. I am satisfied that the shareholders do not have the ability to borrow any more money.

[14] Unlike the circumstances in Goldcrest Drywall & Acoustics Company Ltd. v. Remo General Contracting Ltd., 2017 ONSC 4580 (Ont. S.C.J.) relied on by the plaintiffs, there is evidence before me that the plaintiffs have no assets and the shareholders have filed their own personal income tax returns for 2018. The information in those returns support the plaintiffs’ position that the shareholders are unable to raise funds to post security for costs.

[15] With respect to the merits, as summarized in Coastline at para. 7(vi):

(vi) The court on a security for costs motion is not required to embark on an analysis such as in a motion for summary judgment. The analysis is primarily on the pleadings with recourse to evidence filed on the motion, and in appropriate cases, to selective references to excerpts of the examination for discovery where it is available (Padnos, at para. 7; Bruno, at para. 37);

[16] I am satisfied that, for the limited purposes of this motion, the plaintiffs have demonstrated that the claim is not plainly devoid of merit (Coastline at para. 7(iv)(b)).

[17] In this action the plaintiffs claim against their former lawyer for alleged negligence with respect to the application for the appointment of a Receiver. The defendant did not attend at the return of the application. The plaintiffs themselves had not been advised of the return date. The circumstances that lead to the defendant requesting an adjournment of the application the day before the application are set out in the material before me. The defendant did not attend the application notwithstanding that he had not received a response from RBC with respect to the request for an adjournment. RBC had not agreed to an adjournment and confirmed same in an email prior to the return of the application. The defendant did not become aware of the email until after the return of the application. It is unclear if RBC’s lawyer advised the presiding Judge that the defendant requested an adjournment. The application proceeded without anyone in attendance on behalf of the plaintiffs. The application was granted.

[18] The evidence before me from the plaintiffs is that they had a good defence to the application and that financing had been arranged as set out in the affidavit of J. Marandola at paragraph 20.

[19] Shortly after the plaintiffs became aware that the receivership order had been granted, the plaintiffs retained a new lawyer. In the defendant’s affidavit at paragraph 24, the defendant states in part that had the plaintiffs instructed their new lawyer to set aside the receivership order, they may have been successful and avoided a receivership in its entirety.

[20] For the limited purpose of this motion, it cannot be said at this stage that the claim is plainly devoid of merit.

[21] I am also satisfied that, as stated in the Marandola affidavit at paragraph 40, the plaintiffs will not be able to afford to carry on with this litigation if an order for security for costs is granted.

[22] Having regard to all of the circumstances of this case and considering the justness of the order holistically, I decline to exercise my discretion to order that the plaintiffs post security for costs.

[23] With respect to the issue of quantum, had security for costs been ordered, I agree with the plaintiffs that the quantum sought is high.

[24] Although the notice of motion seeks security for costs up to and including examinations for discovery, the bill of costs lists mediation as a step after examinations for discovery. No specific objection was made to the posting of costs of mediation on the basis that it is listed as a step following discovery.

[25] Moving counsel advises that the fees for pleadings listed in the bill of costs have been incurred and the balance of the bill of costs are estimated amounts. Although the hours incurred and estimated are not specifically listed, dividing the total amount sought for fees by the hourly rate, it appears that the defendant is seeking fees under the pleadings heading for approximately 42 hours of time, which is high. The estimated hours for discovery of documents are approximately 26 hours, for examinations for discovery are approximately 57 hours, and for mediation are approximately 26 hours. These estimated amounts are also high in all of the circumstances.

[26] Had security for costs been ordered, in my view a fair and reasonable amount to be posted for security for costs would be $35,000.00, to be posted in tranches as follows:

(i) $7,500.00 to be posted within 60 days;

(ii) the further amount of $7,500.00 to be posted within 90 days;

(iii) the further amount of $15,000.00 to be posted at least 30 days prior to examinations for discovery; and

(iv) the further amount of $5,000.00 to be posted at least 30 days prior to mandatory mediation.

[27] The motion is dismissed.

[28] The parties agreed that the successful party on this motion would be entitled to costs of the motion in the all-inclusive sum of $5,500.00.

[29] Order to go as follows:

1. The motion is dismissed.

2. Costs of the motion are fixed in the all-inclusive sum of $5,500.00 payable by the defendant to the plaintiffs within 30 days.

Master B. McAfee

Date: December 20, 2019