COURT FILE NO.: CV-12-00451701
MOTION HEARD: 20190118
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1417217 Ontario Inc. and Musa Suleman, Plaintiffs
AND:
River Trail Estates Inc., 1639395 Ontario Inc., RegalCraft Homes Inc., Estate of Madan Sharma, Rekha Sharma and Meena Sharma, Defendants
BEFORE: Master B. McAfee
COUNSEL: K. Prehogan, Counsel for the Moving Parties, the Defendants River Trail Estates Inc., RegalCraft Homes Inc., Estate of Madan Sharma, Rekha Sharma and Meena Sharma
A. Jiwa, Counsel for the Responding Parties, the Plaintiffs 1417217 Ontario Inc. and Musa Suleman
HEARD: January 18, 2019
REASONS FOR DECISION
[1] This is a motion brought by the defendants River Trail Estates Inc., RegalCraft Homes Inc., the Estate of Madan Sharma (Madan), Rekha Sharma (Rekha) and Meena Sharma (Meena) (collectively the moving defendants) for an order that the plaintiffs 1417217 Ontario Inc. (141) and Musa Suleman (Suleman) (collectively the plaintiffs) pay into court security for costs up to and including trial on a full indemnity basis in the amount of $434,789.68 or on a partial indemnity basis in the amount of $217,802.56, within 30 days.
[2] The plaintiffs oppose the motion.
[3] As a preliminary issue, the plaintiffs argue that the moving defendants require leave to bring the motion. I disagree. The moving defendants did not set the action down for trial nor did the moving defendants consent to abridge the sixty day time period for placing the action on the trial list pursuant to Rule 48.06(1). Leave is not required in the circumstances of this case.
[4] In support of their request for security for costs the moving defendants rely 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.
[5] The application of Rule 56.01(1)(d) involves a two-step analysis. The first step of the analysis requires the moving defendants to establish that it appears the plaintiffs are a corporation or a nominal plaintiff and there is good reason to believe that the plaintiffs have insufficient assets in Ontario to pay the costs of the moving defendants. If the moving defendants discharge their initial onus and establish 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 (Coastline Corp. v. Cannacord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790 (Ont. Master) at para. 7).
[6] The moving defendants have not satisfied their initial onus with respect to Suleman. I was not referred to any material, evidence or case law in support of the position of the moving defendants that Suleman is a nominal plaintiff nor is there any argument in that regard in the factum or supplementary factum of the moving defendants. The initial onus is a real onus that must be satisfied before moving to the second step of the analysis. There shall be no order for security for costs as against Suleman.
[7] The moving defendants have satisfied their initial onus with respect to 141. 141 is a corporation. On March 28, 2017, Suleman was cross-examined on his affidavit filed in support of a motion for leave to restore the action to the trial list. On cross-examination, Suleman testified that 141 does not have any assets. There is also evidence before me that 141 owes large sums of money to the Canada Revenue Agency (see Suleman affidavit sworn October 31, 2012, at para. 37 and Rekha affidavit sworn February 8, 2018, at paras. 12-16). Based on this evidence, it appears that there is good reason to believe 141 has insufficient assets in Ontario to pay the costs of the moving defendants.
[8] The onus now shifts to 141 to satisfy the court that an order for security for costs as against 141 would be unjust.
[9] 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), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 (Ont. H.C.); Morton v. Canada (Attorney General) (2005), 2005 CanLII 6052 (ON SC), 75 O.R. (3d) 63 (Ont. S.C.J.); Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 2009 CanLII 46451 (ON SC), 99 O.R. (3d) 55 (Ont. S.C.J.); Wang v. Li, 2011 ONSC 4477 (Ont. S.C.J.); and Brown v. Hudson’s Bay Co., 2014 ONSC 1065, 318 O.A.C. 12 (Ont. 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.
[10] In my view, the interests of justice require that no order for security for costs be made as against 141 in the circumstances of this case.
[11] With respect to the issue of the impecuniosity of 141, there is a lack of evidence concerning the ability of the sole shareholder, Suleman, to raise funds. 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), 1987 CanLII 4190 (ON SC), 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] Given the lack of evidence in this regard, 141 has not established impecuniosity.
[13] 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);
[14] With respect to the merits of 141’s claim, I am satisfied that, for the purposes of this motion, 141 has a good chance of success of obtaining relief.
[15] In this action 141 and Suleman seek the sum of $5,358,210.69, a tracing order, an accounting of profits or any benefits derived by the defendants and other relief. The relief is sought with respect to a joint venture and two properties in particular, the Black Creek Property and the River Trails Property.
[16] The evidence of Suleman is that 141 paid the sum of $5,358,210.69 for the purchase price, including land transfer taxes, legal costs, payment of all mortgages and other expenses for the two properties. The two properties were ultimately not developed. After Madan passed away, Madan’s wife Meena and daughter Rekha sold the properties with the consent of the plaintiffs but kept the entirety of the proceeds of sale. According to the evidence of Suleman, the proceeds of sale were to be paid to 141 after which calculations would be made to determine profit or loss, if any.
[17] Rekha filed an affidavit in support of the motion but did not address the merits in any detail. I was not referred to any evidence that Madan, Meena and/or Rekha paid any amounts with respect to the two properties. In her affidavit Rekha does not address the issue of any agreement with respect to payment of the proceeds of sale to 141.
[18] To the extent that the moving defendants make various allegations against Suleman including breach of fiduciary duty and claim set off and an accounting for all projects of the joint venture, on the motion I was not referred to evidence from any of the moving defendants in support of these allegations.
[19] The moving defendants rely on the report of K. Roadway of Froese Forensic Partners Inc. dated November 17, 2017. The report states as follows at para. 1.8:
In our opinion the documents and information we reviewed are not adequate to justify the profits and losses of each real estate project set out in the Tab 70 Schedule. We identified additional documents required to do so, attached as Schedule 1 hereto. Guidelines for determining materiality include ½ to 1% of sales, or approximately $0.8 to $1.6 million. Even if all required documents were provided, to audit the Tab 70 Schedule, this materiality would be costly and time-consuming. The parties also are unlikely to consider an intentional or unintentional error of $0.8 to $1.6 million to be acceptable, considering the amounts in dispute.
[20] The report indicates that further documentation is required. It is the evidence of Suleman that it was Madan who controlled the financing, wrote and signed all of the cheques and had his own accounting software package to record the transactions. There is evidence before me that the moving defendants have indicated that they lost their accounting package due to a computer crash.
[21] In my view 141 has a good chance of success in obtaining relief, having paid the purchase price for the two properties, the land transfer taxes, legal costs, mortgages and other expenses according to the evidence before me. This is a relevant consideration that weighs against an order of security for costs.
[22] There is evidence before me that the current financial situation of 141 is a result of the causes of action that it alleges against the moving defendants (Cigar500.com Inc. at paras. 37-44). 141 alleges that the basis for its lack of assets is directly the result of the moving defendants’ improperly diverting the proceeds of sale of the properties from 141. As indicated, there is evidence before me that 141 is the party who advanced paid all monies for the purchase price, mortgage payments and other costs. There is evidence before me that the proceeds of the sale were to be paid to 141. This is a relevant consideration that weighs against the granting of security for costs in the circumstances of this case.
[23] This motion for security for costs is brought after the majority of the steps in the action have taken place. Pleadings closed in 2012. In 2012 the plaintiffs served a notice of motion seeking summary judgment. There were attendances at civil practice court. Ultimately the motion for summary judgment was not scheduled and the matter was ordered to trial (see endorsement of Justice Low dated November 27, 2012). Documentary discovery took place in 2013. Examinations for discovery took place in 2013. A status hearing took place on consent in 2014. By order dated April 19, 2017, Master Sugunasiri granted leave to restore the action to the trial list and timetabled the remaining steps in the action. There is no mention of a motion for security for costs in the timetable.
[24] While there is no evidence of prejudice as a result of the timing of this motion, in my view the timing of this motion is a relevant consideration that weighs against the granting of security for costs in the circumstances of this case.
[25] 141 relies on Malamas v. National Bank of Greece, 2009 CanLII 56745 (Ont. Master) and argues that the plaintiffs’ claims are joint and 141 should not be required to post security as a result. As stated in Vogel v. Trinity Capital Corp., 2005 CarswellOnt 845 (Ont. Master) at para. 17, “…to qualify as joint, it must be clear on the face of the pleading that all plaintiffs must succeed or must fail – their claims must necessarily stand or fall together.” There may be elements of this claim that belong to 141 but not to Suleman based on the pleading at para. 14 of the statement of claim that 141 advanced the sum of $5,358,210.69. I am not satisfied that it is clear on the face of the pleading that the claims are joint.
[26] Having regard to all of the circumstances of this case including the merits, the impact of the conduct of the moving defendants on the available assets of 141 and the delay in bringing this motion and considering the justness of the order holistically, I decline to exercise my discretion to order that 141 post security for costs.
[27] If security for costs had been ordered, the record before me does not satisfy me that full indemnity costs are appropriate and that the quantum sought is reasonable. It is also unclear which part of the amount sought, if any, relates to the counterclaim of the moving defendants. In addition, as this motion is brought at a time when the remaining steps are mediation, pre-trial and trial, I would have awarded security for future costs only. Having regard to the bill of costs and the circumstances of this matter, a fair and reasonable amount that would have been ordered to be posted on a partial indemnity basis for future costs would be the amount of $65,000.00. The security would have been ordered to be posted in three installments: $5,000.00, payable 60 days before mediation; $5,000.00 payable 60 days prior to pre-trial; and, $55,000.00 payable 90 days prior to trial.
[28] The motion is dismissed.
[29] With respect to costs of the motion, the plaintiffs successfully opposed the motion. The moving defendants did not take issue with the plaintiffs’ request for costs of the motion in the amount of $11,375.75, if successful in opposing the motion. Costs of the motion are fixed in the all-inclusive sum of $11,375.75, payable by the moving defendants to the plaintiffs within 30 days.
Master B. McAfee
Date: February 13, 2019