Court File and Parties

COURT FILE NO.: CV-13-492548 RELEASED: 2020/04/09 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Forvest Financial Services Corporation v. Link Resource Partners Inc., Bridge Capital Corporation, Roy Murad et al.

BEFORE: Master Graham HEARD: March 11, 2020

COUNSEL: Judy Hamilton for the plaintiff Gwendolyn Adrian for the defendants Link Resource Partners Inc., Bridge Capital Corporation and Roy Murad (moving parties)

REASONS FOR DECISION

(Defendants’ motion for security for costs)

[1] This action was started by Univalor Trust SA (“Univalor”), a Swiss corporation, for damages arising from a failed investment in a $2.2 million debenture issued by a company called Parkland Energy Services Inc. (“Parkland”), and sold to it by the moving defendants. The debenture turned out to be worthless and the loan was never repaid. The plaintiff Forvest Financial Services Corporation (“Forvest”), an Ontario corporation, is the assignee of Univalor’s claim in this action and became the named plaintiff by way of an order to continue dated January 20, 2020.

[2] The defendants originally moved for security for costs from Univalor on the grounds both that Univalor was not resident in Ontario and there was good reason to believe that it had insufficient assets to pay the defendants’ costs. In response to the original motion, Robert Wollach, a director and manager of Forvest, deposed in an affidavit sworn June 25, 2019 that Univalor’s board of directors decided to conduct a voluntary dissolution of Univalor in accordance with Swiss law, and it transferred the debenture and its litigation rights to Forvest on January 3, 2019. In the same affidavit, Mr. Wollach also provided information regarding the assets of Forvest, which is reviewed in greater detail below.

[3] The defendants now seek security for costs from Forvest on the basis that there is good reason to believe that it has insufficient assets in Ontario to pay their costs. They 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.

[4] In Hallum v. Canadian Memorial Chiropractic College (1989), 70 O.R. (2d) 119 (H.C.), Doherty J. (as he then was) explained the initial onus on the moving defendant under rule 56.01(1) and the steps to be taken by the court if the defendant meets that onus:

“Rule 56.01 which empowers a court to order security for costs establishes a two step inquiry. First, the defendant must show that it “appears” that one of the six factors set out in cls. (a) through (f) of rule 56.01 exists. Secondly, if the defendant can clear the first hurdle, the court may make any order as to security for costs “as is just”. I take this second stage to require an inquiry into all factors which may assist in determining the justice of the case.”

[5] In Yaiguaje v. Chevron Corporation, 2017 ONCA 827, the Court of Appeal identified the factors to be considered at the second stage of the enquiry (at paras. 24 and 25):

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. [citations omitted]

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 the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.

Issues on the motion

[6] Based on rule 56.01(1)(d) and the statement of the law in Hallam and Yaiguaje, the issues on this motion are:

1. Have the defendants met their onus to show that it appears that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendants?
2. If the defendants meet their initial onus, on a holistic consideration of all of the circumstances of the case, including the assets at the plaintiff’s disposal and the factors identified in paragraph 24 of Yaiguaje, would an order for security for costs be in the interests of justice?
3. If security for costs is to be ordered, what quantum of security is appropriate?

1. Have the defendants met their onus to show that it appears that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendants?

[7] The plaintiff submits that the defendants are not entitled to the order sought because they failed to meet their initial onus to demonstrate that it appears that there is good reason to believe that the plaintiff, an Ontario corporation, has insufficient assets in Ontario to pay the defendants’ costs.

[8] The defendants have filed two affidavits from their counsel Mr. Simaan, affirmed April 25, 2019 and February 25, 2020. The April 25, 2019 affidavit, affirmed for the original motion seeking security from Univalor, relates solely to the status of Univalor, and contains no evidence with respect to the assets of Forvest. The February 25, 2020 affidavit simply refers to the plaintiff’s evidence regarding the assignment of Univalor’s cause of action to Forvest and the fact that security is now sought from Forvest, and includes a revised costs outline that takes into account a longer estimate of the length of trial. The defendants themselves have therefore provided no evidence that Forvest has insufficient assets in Ontario to pay the defendants’ costs.

[9] In support of their submission as to the insufficiency of Forvest’s assets to pay costs, the defendants rely solely on the affidavit of Mr. Wollach sworn June 25, 2019 in response to the original motion against the former plaintiff Univalor (see para. [2] above), and their counsel’s cross-examination of Mr. Wollach conducted August 21, 2019. Mr. Wollach’s evidence with respect to the assets of Forvest is:

• Forvest has been an active Ontario corporation since 1988 and has sufficient assets in Ontario to satisfy an order for costs (This bald statement of “sufficient assets” does not constitute evidence);
• Forvest’s financial statements for 2015-2018 show retained earnings of: 2015 - $246,787; 2016 - $96,724; 2017 - $23,178; 2018 – ($1,255- loss) (Wollach affidavit, paragraph 31, exhibit I and Wollach cross-examination exhibit 4);
• Forvest’s financial statements show revenue of: 2014 - $402,853; 2015 - $32,468; 2016 - $539; 2017 - $417; 2018 - $0;
• Forvest’s financial statement for 2018 shows total assets of $672,126 including $1,414 in cash, $211 in cash in trust, $929 in accounts receivable, $10,000 as an investment in a subsidiary and $659,572 for “advances to related parties”;
• In 2018, Forvest paid $452 in salaries and benefits;
• Wollach conceded that based on the 2018 financial statement, Forvest was operating at a net loss as of December 31, 2018) (Wollach cross-examination Q. 71);
• Wollach conceded that, based on the financial statement, it was hard to see business activity on the part of Forvest in 2018, but maintained that “there is definitely activity that reflects asset management happening” (Wollach cross-examination Q. 63);
• As of August 21, 2019, Wollach was Forvest’s sole full-time employee, having been employed as manager since May, 2019 (Wollach cross-examination Qs. 57-60 and Qs. 65-67).

[10] The defendants submit that they may rely on the totality of the evidence on the motion, including the plaintiff’s own evidence regarding its assets, to meet their initial onus to demonstrate circumstances that fall within rule 56.01(1)(d). The plaintiff submits that the defendants’ onus requires them to provide their own evidence to meet the threshold in the rule. Both parties rely on Cigar500.com Inc. v. Ashton Distributors Inc., [2009] O.J. No. 3680 (S.C.J.) (“Cigar500”). It is therefore necessary to review and interpret Cigar500 to determine which of the parties’ positions is correct.

[11] In Cigar500, Code J. heard an appeal from a Master’s decision ordering security for costs. In reviewing the Master’s reasons, Code J. stated (at paras. 10 and 11):

10 Master Egan began her reasons by correctly placing the initial onus on the Defendants on a rule 56.01(1)(d) motion “to show that there is good reason to believe that the Plaintiff has insufficient assets in Ontario to pay their [the Defendants’] costs.” She went on to hold that she was entitled to consider all of the evidence filed on the motion, whether tendered by the Defendants or by the Plaintiff, in determining whether the initial onus had been met. In this regard, Master Egan rejected a submission made by the Plaintiff to the effect that only the Defendants’ evidence could be considered at this initial stage. [emphasis added]

11 Master Egan then stated the following:

Having chosen to file evidence, should the Plaintiff fail to prove that it has sufficient assets in Ontario to pay the costs of the Defendants, it is apparent that the Defendants’ initial onus was met.

Master Egan proceeded to analyse all of the evidence in relation to the issue of sufficiency of the Plaintiff’s assets and concluded:

The Plaintiff has not discharged its burden of showing that it has sufficient assets in Ontario to pay the Defendants’ costs. Having so found, it is implicit that the Defendants met their initial onus to show that there is good reason to believe that the Plaintiff has insufficient assets in Ontario to pay their costs.

This process of reasoning is said to reverse the initial onus on the Defendant and thus forms the basis for the first ground of appeal.

[12] Code J. framed the issue on this ground of appeal as “allocating the burden of proof as to sufficiency of the Plaintiff’s assets.” He quoted the same paragraph from Hallum, supra as quoted at para. [4] above, and further stated (Cigar500, para. 22):

22 Although the first step under Rule 56.01 does not require the Defendant to prove to a certainty that the Plaintiff falls within one of the enumerated categories, it is nevertheless a real onus that must be satisfied before moving to the second step of the analysis.

[13] Code J. also considered the policy reasons for requiring a defendant seeking security for costs to meet the initial onus under rule 56.01(1)(d) (at para. 24):

24 The decision of Master Haberman in Websports Technologies Inc. v. Cryptologic Inc., [2003] O.J. No. 5455 (Ont. Master) at para. 8 helpfully explains the policy reasons for insisting that the Defendants satisfy their initial onus under Rule 56.01 on the basis of “proven facts” rather than “mere conjecture, hunch or speculation”:

This motion is brought pursuant to subrule 56.01(1)(d), such that Cryptologic must demonstrate that there is “good reason to believe” that Websports has insufficient assets in Ontario to pay their costs at the end of the day. While all agree that this subrule places a higher onus on corporate plaintiffs, the phrase “good reason to believe” must have some meaning. In my view, it involves something more than a hunch or a concern. There must be some evidence placed before the court from which the court can accept that the concern is genuine and that it is based on proven facts regarding the corporation’s current financial circumstances. A bald assertion that a party has insufficient assets, on its own, cannot satisfy the first part of the test. If that was all that was required, motions of this kind would be brought to “test the waters”, in all cases where a plaintiff corporation alleges that the defendant’s action has caused it to sustain a significant loss, with no information as to the state of a company’s financial affairs and no legitimate basis for concern. The 2-part test, with the initial onus on the moving party, is intended to discourage parties from bringing these costly motions without actual grounds. While the moving party need not go so far as to prove that there are insufficient assets, they must, at least, prove facts from which a court can conclude that there is good reason to believe that that is the case. [emphasis added]

[14] In para. 25 of Cigar500, Code J., again quoting Websports, (which in turn cites Hallum, supra), accepts that “the motion only proceeds to the second stage if the moving party has fulfilled the stage 1 requirement.”

[15] Code J. then concludes (at para. 26):

26 I have come to the conclusion that Master Egan erred in law in that she never applied the initial onus to the Defendants. Instead, the learned Master proceeded immediately to the second stage onus on the Plaintiff. She then concluded that the Defendants had satisfied the initial onus only because the Plaintiff had failed to discharge its secondary onus. This is clear from two passages in Master Egan’s reasons, set out more fully above, where she stated:

. . . should the Plaintiff fail to prove that it has sufficient assets in Ontario to pay the costs of the Defendants, it is apparent that the Defendants’ initial onus was met . . . .

The Plaintiff has not discharged its burden of showing that it has sufficient assets in Ontario to pay the Defendant’s costs. Having so found, it is implicit that the Defendants met their initial onus . . . [emphasis in original reasons]

[16] Code J. identified the errors in Master Egan’s reasoning as follows (at paras. 27-29):

27 . . . First, the issues are different at the first and second stages of the Rule 56.01 test. At the first stage, the Defendant must prove a discrete negative fact, namely, apparently “insufficient assets.” At the second stage, the Plaintiff must establish the basis for a broad flexible exercise of discretion (“such order . . . as is just”). . . .

28 Second, and more importantly, failure by the Plaintiff to prove the actual existence of a positive fact at the second stage (“sufficient assets”) does not necessarily mean that the Defendant has succeeded in proving the negative of that same fact at the first stage, even to a lesser standard of proof. In this regard, it must be acknowledged that there is some overlap between the first and second stages of the Rule 56.01 analysis, as both stages involve consideration of the sufficiency of the Plaintiff’s assets. However, the Plaintiff’s failure to prove to the higher second stage standard that it in fact does have sufficient assets will include cases where the Plaintiff’s proof falls just short. In such a case, it could never be said that the Defendant had implicitly proved the negative fact of insufficient assets, even to the lower first stage standard.

29 This is why the case law under Rule 56.01 is clear that the Defendant moving party must first meet its initial onus before the Court even turns to the second stage onus on the Plaintiff. The issues are different at the two stages, the degrees of proof are different and failure by the Plaintiff at the second stage does not necessarily imply success by the Defendant at the first stage.

[17] In reviewing the Master’s misapplication of the parties’ respective onuses on the motion under appeal before him, Code J. also commented (at paras. 30 and 31):

30 It should be noted parenthetically that the learned Master appears to have been led into this error by the Plaintiff’s preliminary submission that only the Defendant’s evidence could be considered at the initial stage. Having ruled correctly that all the evidence could be considered at both stages of the Rule 56.01 analysis, the learned Master then proceeded to confuse and conflate the two distinct tests and onuses.

31 The Plaintiff continued to press its preliminary point on appeal, albeit faintly, about keeping the two bodies of Defendants’ evidence and Plaintiff’s evidence separate. There is no authority to support this proposition . . . . [emphasis added]

[18] Code J.’s decision in Cigar500 does not change the two stage analysis required by Hallum, supra for a motion under rule 56.01(1)(d). However, Cigar500 does clarify and emphasize where the onus lies at each of the two stages of that analysis. The defendants must meet their onus to establish that it appears that the corporate plaintiff has insufficient assets to pay their costs before the court considers whether the plaintiff has demonstrated that it has sufficient assets, and what order as to security for costs, if any, would be just.

[19] As stated above, both the plaintiff Forvest and the defendants rely on Cigar500 in support of contradictory submissions, Forvest arguing that, at the first stage of the rule 56.01(1)(d) analysis, the defendants could rely only on their own evidence, and the defendants arguing that they could rely on all evidence filed by both sides. Code J.’s statement at paras. 30 and 31 of his decision is essentially that, contrary to Forvest’s submission and consistent with the defendants’ submission, the court may consider the defendants’ and plaintiff’s evidence as a whole, both when determining whether the defendants have met their initial onus, and at the second stage of the enquiry.

[20] Although in Cigar500, Code J. found that Master Egan erred in misplacing the onus applicable to the first part of the rule 56.01(1) analysis, he ultimately found that the defendants did meet their initial onus to establish that there was good reason to believe that the plaintiff’s assets were insufficient, on the basis of evidence that “the Plaintiff corporation has suspended its business and is not generating any significant cash flow and that its liabilities probably exceed its assets” (Cigar500 at para. 73). Code J. did not indicate which of the parties provided this evidence, which is consistent with his view that the plaintiff’s and defendants’ evidence should be considered together.

[21] An issue that arises on this motion is whether, acknowledging Code J.’s statement in Cigar500 that the court on a motion under rule 56.01(1)(d) may consider the totality of the defendants’ and plaintiff’s evidence when determining whether the defendants have met their initial onus, the court may conclude that the defendants have met their onus where they have provided no evidence of their own and rely solely on Forvest’s evidence.

[22] The concern in this regard arises from the above passage from Websports Technologies Inc. v. Cryptologic Inc. (para. [13] above), quoted with approval both by Code J. in Cigar500 and by Lang J.A. in City Commercial Realty (Canada) Ltd. v. Bakich, [2005] O.J. No. 6443 (C.A.) at para. 8. For ease of reference, the highlighted portion of the passage is:

“A bald assertion that a party has insufficient assets, on its own, cannot satisfy the first part of the test. If that was all that was required, motions of this kind would be brought to “test the waters”, in all cases where a plaintiff corporation alleges that the defendant’s action has caused it to sustain a significant loss, with no information as to the state of a company’s financial affairs and no legitimate basis for concern. The 2-part test, with the initial onus on the moving party, is intended to discourage parties from bringing these costly motions without actual grounds.”

[23] The moving defendants rely solely on the evidence that the plaintiff Forvest put forward to respond to the motion for security for costs against the original plaintiff Univalor. On that motion, the defendants provided evidence that Univalor was in some form of liquidation under Swiss law, which may well have met their initial onus under rule 56.01(1). It was that evidence to which the plaintiff responded with evidence that Univalor’s liquidation was voluntary and that it transferred its litigation rights to Forvest on January 3, 2019, and with evidence as to the current financial position of Forvest.

[24] The original motion seeking security for costs from Univalor appears to have been brought in good faith, based on the defendants’ information that Univalor had been dissolved and was in liquidation. In response, the plaintiff chose to rely on evidence beyond the voluntary dissolution of Univalor and include information about Forvest’s financial state. Where the plaintiff Univalor chose to file evidence regarding Forvest’s financial state to resist the original motion for an order that Univalor post security, the defendants cannot be said to have brought this motion against Forvest to (using the language from Websports) “test the waters . . . with no information as to the state of [Forvest’s] financial affairs”. Accordingly, I accept that the defendants may rely on the financial information provided by Forvest on this motion seeking security from Forvest.

[25] In addressing the issue of whether the defendants have met their initial onus, it is necessary to consider the evidence of Mr. Wollach on behalf of Forvest, summarized at para. [9] above.

[26] The evidence from Forvest’s financial statements indicates that in 2014 and 2015, Forvest was operating a profitable business, with revenue of $402,853 and $32,468 in those years respectively, and retained earnings of $246,787 in 2015. By 2018, however, Forvest’s financial circumstances had changed considerably, with $0 in revenue and negative retained earnings. Further, in 2018, Forvest’s assets of $672,126 consisted almost exclusively of “advances to related parties”, and Forvest has provided no evidence as to the identity of the parties to which those advances were made, how those funds may have been disposed of by those parties, or the capacity of those parties to repay the advances.

[27] Contrary to Mr. Wollach’s evidence on cross-examination, there is nothing in Forvest’s 2018 financial statement to suggest that it was carrying on business in any meaningful way. Similarly, although Mr. Wollach swore his affidavit on June 25, 2019, essentially half way through the year, he provided no evidence as to income earned or assets held by Forvest in 2019. Based on Forvest’s lack of both income and exigible assets as reflected in its 2018 financial statement, I accept that the defendants have met their initial onus to establish that it appears that there is good reason to believe that Forvest has insufficient assets to pay their costs. It is therefore necessary to move to the second stage of the enquiry.

2. If the defendants meet their initial onus, on a holistic consideration of all of the circumstances of the case, including the assets at the plaintiff’s disposal and the factors identified in paragraph 24 of Yaiguaje, would an order for security for costs be in the interests of justice?

[28] The defendants having met their onus on the first issue, it is open to Forvest to demonstrate that it does, in fact, have sufficient assets to satisfy an award of costs in the event that the action is dismissed. Code J. acknowledges in Cigar500 (at para. 28) “that there is some overlap between the first and second stages of the Rule 56.01 analysis, as both stages involve consideration of the sufficiency of the Plaintiff’s assets”. The evidence to be considered in this regard is the same as with respect to the first issue, being that set out in Mr. Wollach’s affidavit and his cross-examination.

[29] Almost all of Forvest’s assets as identified on its 2018 financial statement consist of “advances to related parties”, and, to repeat my comments on this evidence above, Forvest has provided no evidence as to the identity of the parties to which those advances were made, how those funds may have been disposed of by those parties, or the capacity of those parties to repay the advances. In this regard, the defendants rely on the comment of Lang J.A. in City Commercial Realty (Canada) Ltd. v. Bakich, supra (at para. 9):

9 . . . [I]t is proper to “consider critically the quality as well as the sufficiency of the assets presently held and whether or not they are bona fide assets of the company”. To be sufficient, the corporation’s assets may be tangible or intangible but must be of such a nature that their realizable net value is sufficient to meet the amount of costs to be secured.

[30] I accept the defendants’ submission that the only significant asset proffered by Forvest in opposition to the motion, being the “advances to related parties”, is sheltered from execution. This means that Forvest’s provable exigible assets are at most the $1,414 in cash reflected on the 2018 financial statement. Forvest has therefore failed to meet its onus to demonstrate that its assets are “of such a nature that their realizable net value is sufficient to meet the amount of costs to be secured.”

[31] In support of its submission that a security for costs order is not warranted, Forvest relies in part on the fact that Univalor paid $10,000 in costs awarded against it by Morgan J. on the withdrawal of the defendants’ summary judgment motion on May 8, 2018. The fact that these costs were paid when Univalor was plaintiff does not help Forvest on this motion. First, those costs were awarded against and paid by Univalor, which is both no longer a party and has been dissolved. Second, it is entirely plausible that a plaintiff would pay the costs awarded on an interlocutory matter to ensure that it could continue to prosecute its action, but then refuse to pay costs awarded on the dismissal of its action, when it has no further stake to protect in the proceeding.

[32] The factors to be considered in determining the justness of an order for security for costs, identified by the Court of Appeal in Yaiguaje, supra, include 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. These specific factors are to be considered along with the circumstances of the case as a whole in determining what order, if any, would be in the interests of justice.

[33] Of the factors identified in Yaiguaje, Forvest does not suggest that the defendants’ conduct giving rise to the litigation has compromised its assets, nor could it reasonably do so, given that it only recently became the assignee of the claim of Univalor, the party that actually suffered the alleged loss. Further, Forvest does not allege impecuniosity that would prevent it from proceeding with the action in the event that security is ordered, so there are no access to justice concerns. Finally, the adjudication of the dispute between the parties will have no repercussions affecting any public interest.

[34] The specific factors to be addressed are therefore limited to the merits of the claim and the impact of any delay in bringing the motion.

[35] In assessing the merits of Forvest’s claim, it should be reiterated that Forvest does not allege that it is impecunious. The standard to be met by the plaintiff in these circumstances was established in Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131 (Div. Ct.) (at para. 50):

50 Where impecuniosity has not been shown however, a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. Where impecuniosity has not been shown, a legitimate factor in deciding whether or not it would be just to require security for costs is whether the claim has a good chance of success. [emphasis added]

[36] As Forvest relies on its position on the merits to defeat the defendants’ motion for security, it bears the onus to demonstrate that its claim “has a good chance of success.” Counsel for Forvest acknowledges that the issues with respect to the interest payable on the debenture have been resolved, and the remaining claim in the action is for repayment of the principal invested. In this regard, the evidence in Mr. Wollach’s affidavit including the exhibits is:

• The debenture issued by Parkland was brokered by the moving defendants. The defendant Link Resource Partners Inc. (“Link”) was the trustee of the debenture.
• Forvest SA, a Swiss asset management company of which the plaintiff Forvest is the Canadian subsidiary, offered its investors participation in the Parkland debenture based on based on the recommendation and representations of the defendant Roy Murad.
• The Parkland debenture was first issued to the plaintiff Forvest on September 16, 2010 and then transferred to Univalor on March 7, 2011.
• Parkland defaulted on the first two interest payments payable under the Parkland debenture.
• Univalor received conflicting information from Link as to why Parkland was not making the interest payments and “was stonewalled both by the trustee, Murad, and the law firm of Garfinkle Biderman.” (The action has been settled and dismissed on consent as against Garfinkle Biderman and Barry Polisuk of that firm.)
• On May 24, 2012, Univalor obtained an ex parte Mareva injunction from Newbould J. after it learned that Link had been receiving interest payments from Parkland but failed to forward the funds to Univalor. The applicant in that proceeding was Univalor Trust SA and the respondents were Link Resource Partners Inc. and Roy Murad.
• On October 23, 2012, the moving defendants’ motion to set aside the Mareva injunction was dismissed, also by Newbould J.. In his endorsement Newbould J. found that Link, of which Roy Murad is the principal, was the trustee for the subscribers to the debenture, including Univalor, with no beneficial rights of ownership. Further, any distributions from the debenture would belong to the subscribers, and not to Link, but nonetheless, Link kept interest payments that it was obliged to pay to Univalor in breach of its obligations as trustee.
• A trust statement for the Parkland debenture, obtained by Univalor on June 20, 2013 from a former associate of the defendant Murad, reflects total receipts of $993,926.52 of which a total of $400,000.00 was paid to Parkland, and $409,800.00 was paid to Link Resource Partners Inc.. This trust statement demonstrated that the debenture was not fully funded and therefore the debenture certificates should never have been issued to the debenture holders, nor should funds have ever been released to Parkland.
• A redacted trust ledger from the former defendant Garfinkle Biderman, the lawyers for Link and Murad, produced to plaintiff’s counsel on January 20, 2016, showed some of the payments made in respect of the debenture. Murad’s evidence at his examination for discovery, given before the lawyers’ trust ledger was produced, was that the subscribers to the debenture paid in funds of “somewhere around a million dollars” to those lawyers but he could not recall how those funds were disbursed or how much money Parkland ultimately received. Murad’s estimate of “somewhere around a million dollars” in subscribers’ contributions is consistent with the $993,926.52 on the first trust statement referred to above.
• The lawyers’ trust ledger reflects the same payments out on the same dates totalling $400,000.00 to Parkland. The trust ledger also reflects $194,300.00 paid to Link Resource Partners Inc., which is the total of payments on June 16, 2010 and December 17, 21 and 22, 2010, also reflected on the first trust statement produced. The unredacted portion of the trust ledger begins on June 8, 2010, which may explain why it does not include the $57,500.00 payment to Link on May 25, 2010 shown on the first trust statement.
• Notably, the $158,000.00 payment to Link reflected in the June 10, 2010 entry on the first statement produced is not shown on the lawyers’ ledger, but the one entry on that ledger between June 8, 2010 and June 11, 2010 is redacted. The lawyers’ ledger shows two trust receipts totalling $158,000.00 on June 8, 2010, and the June 11, 2010 balance, calculated after a receipt of $17,000.00, would reflect a disbursement of $158,000.00 between June 8 and 11, 2010.

[37] As stated above, the affidavits filed by the defendants on this motion are affirmed by one of their lawyers, and there was no evidence from any of the defendants themselves. The defendants’ evidence with respect to the merits is:

• Their deponent Mr. Simaan makes the bald statement that he believes “that the Moving Defendants will succeed if this matter proceeds to trial.”
• Mr. Simaan affirms that “at his examination for discovery, [David] Wollach made a number of admissions harmful to Univalor’s case”, without providing any particulars of any such admissions.
• Based on David Wollach’s admissions, the defendants Barry Polisuk and Garfinkle Biderman moved for summary judgment, following which the action was dismissed as against them. (I note that the disposition of the plaintiff’s claim against these former defendants has nothing to do with the merits of the plaintiff’s claim against the moving defendants.)
• The moving defendants brought a motion for summary judgment based on the same admissions. (I once again note that the defendants have not identified any such admissions.) To defend against that motion, David Wollach swore an affidavit that directly contradicted his discovery evidence.
• The moving defendants withdrew their motion for summary judgment but were awarded costs by Morgan J.. In his endorsement of May 8, 2018, Morgan J. noted that the defendants’ summary judgment motion was based on a limitation period having passed. The defendants’ position was premised on answers that David Wollach, on behalf of the plaintiff, gave at his examination for discovery to the effect that his lawyer knew about certain accounting issues at an earlier time than initially thought. However, in his responding affidavit, Wollach changed his evidence and stated that his lawyer did not have the accounting information.
• Morgan J. accepted the submission of counsel for the moving defendants that David Wollach’s responding affidavit looked like a new position crafted by a lawyer rather than the testimony of a party. On cross-examination on this affidavit, David Wollach confirmed his new position and stated that he must have been mistaken when he gave his original discovery answers.
• The submission of the moving parties’ counsel before Morgan J. was that the change in David Wollach’s evidence had created a credibility issue that “might not pass the Rule 20 hurdle”. Further, the plaintiff had never given the defendants notice that they were correcting discovery evidence under Rule 31.09. Plaintiff’s counsel’s submission was that owing to “accounting issues”, the defendants would not have succeeded on the summary judgment motion, regardless of the change in the plaintiff’s evidence.
• Morgan J. commented that he could not assess the strength of the plaintiff’s position without adjudicating on a motion that had been withdrawn, but expressed the view that “the Plaintiff is now minimizing the fact that Mr. Wollach gave diametrically opposed answers from one examination to another.” Morgan J. accepted that the defendants were entitled to bring the summary judgment motion based on the plaintiff’s discovery evidence, and concluded that the plaintiff should be subject to costs consequences arising from the change in their evidence after the defendants’ motion was initiated. He awarded the plaintiff the $10,000.00 in costs thrown away referred to in paragraph [31] above.

[38] In summary, Forvest’s submission on the merits is that, based on the Parkland debenture trust statement, of the $993,926.52 contributed to the debenture, the amount of $409,800.00 paid out to Link actually exceeded the $400,000.00 paid to Parkland. This evidence substantiates that Link and by extension Murad misappropriated or at the very least mismanaged the funds invested in the debenture. Further, there is no evidence from the defendants to contradict any of Forvest’s evidence on the merits, and none of the evidence in the Wollach affidavit relating to the merits was challenged when Wollach was cross-examined.

[39] The defendants’ position on the merits is that the plaintiff’s responding evidence to the withdrawn summary judgment motion creates a credibility issue that prevents the court on this motion from being able to conclude that the plaintiff’s claim has a good chance of success.

[40] I accept that the plaintiff has demonstrated a good case on the merits with respect to the recovery of Univalor’s investment in the Parkland debenture, based on evidence of mismanagement or misappropriation of funds by Link and Murad. However, the defendants assert a limitation period argument, which, if successful, will result in a dismissal of the action, irrespective of the trial court’s findings on the merits. Based on the comments of Morgan J. in his May 8, 2018 endorsement, the outcome of the limitation period issue will turn on findings of credibility which I cannot determine. Owing to the uncertainty of the outcome of the limitation period issue, I cannot conclude on this motion that the plaintiff’s claim has a good chance of success.

[41] On the issue of delay, the evidence in the first Simaan affidavit is that Univalor went into liquidation as of December 20, 2018 and this change in status was published in the Swiss Official Gazette of Commerce on December 28, 2018. The defendants first learned of this liquidation no later than March 28, 2019, being the date of correspondence from Simaan to plaintiff’s counsel seeking confirmation of Univalor’s status. Based on the defendants’ original notice of motion dated April 29, 2019, first returnable July 3, 2019, I accept that the defendants moved promptly against Univalor after their counsel learned that Univalor had dissolved itself.

[42] Even if there were some delay in the defendants moving for security from Univalor, the named plaintiff now exposed to costs in the event of the dismissal of the action, and from which the defendants now seek security, is Forvest. The defendants did not learn of the January 3, 2019 assignment of Univalor’s litigation rights to Forvest until service of Mr. Wollach’s affidavit dated June 25, 2019, and they could not realistically proceed with this motion against Forvest until after cross-examining Mr. Wollach on his affidavit on August 21, 2019. When the motion came before the court on December 18, 2019, it was adjourned to March 11, 2020 because the parties had not booked sufficient time for the hearing. The four months between August 21, 2019 and December 18, 2019 cannot be characterized as a period of unreasonable delay.

[43] With respect to the justice of an order for security for costs, the court is mindful of the following competing considerations: “The first, that everyone should be able to have their day in court; the second that defendants must have reasonable protection from claims that have no merit.” (Per Cromwell J.A. (as he then was) in Wall v. Horn Abbott Ltd. (1999), 29 C.P.C. (4th) 204 (N.S.C.A.), quoted at Cigar500, paragraph 2).

[44] Having concluded that the plaintiff has not demonstrated that it has sufficient assets to pay the defendants’ costs, the court must balance the competing considerations identified in Wall v. Horn Abbott Ltd. and, as mandated in Yaiguaje, examine all of the circumstances of the case, to make such order for security for costs as is just. As Forvest has not alleged that impecuniosity would prevent it from posting security, it could have avoided such an order by demonstrating that its claim has a good chance of success, but based on the credibility issue identified by Morgan J. with respect to the limitation period issue, Forvest has failed to do so. Given Forvest’s relatively recent involvement in the matter, there has been no delay by the defendants that should deprive them of an order for security. The fact that Forvest has not alleged impecuniosity also means that there is no risk that an order for security would deprive it of its day in court. I therefore conclude based on all of the circumstances of the case that an order that Forvest post security is warranted.

3. If security for costs is to be ordered, what quantum of security is appropriate?

[45] The defendants seek an order that the plaintiff post security for the entire action in the amount of $109,864.77, including HST and disbursements. The plaintiff acknowledges that generally, the quantum of security sought is not excessive, but should be reduced first, because part of the defendants’ proposed costs of the action must inevitably relate to their counterclaim, and second, because of the approach taken by the defendants to the mandatory mediation.

[46] I will first address the submission with respect to security for the costs of the mediation. The evidence in the Wollach affidavit, which was not contradicted in any responding affidavit or challenged on cross-examination, is that the defendants delivered a brief statement of issues, the defendants’ representative refused to appear at the mediation because the plaintiff’s representative was appearing by Skype from Geneva, and the mediation lasted less than an hour.

[47] The fact that the plaintiff’s representative chose to participate in the mediation by Skype did not justify the failure of a representative of the defendants to attend. A party attending by Skype can still participate fully. The failure of the defendants to participate combined with their counsel’s cavalier approach to what is an essential step in an action suggests that the defendants did not approach the mediation in good faith. Although the defendants, if successful in the action, may argue that they should recover costs in respect of the mediation, an order for security in respect of those costs would not be in the interests of justice.

[48] Based on the items in the defendants’ bill of costs, excluding the amounts for this motion and mediation, defendants’ counsel’s fees total $87,180.00. Adding $11,333.40 for HST and $2,957.70 for disbursements results in total costs of $101,471.10.

[49] I accept that any costs associated with the defendants’ counterclaim should not be protected by an order for security, because rule 56.01(1) allows security to be sought only from a plaintiff or applicant and not from a defendant by counterclaim. It is difficult to determine precisely what percentage of the defendants’ total costs would relate to their defence of the main action and what percentage to prosecuting the counterclaim. There will inevitably be some significant overlap with respect to documentary and oral discovery and in the evidence called at trial. A just order for security that excludes the costs of the defendants’ counterclaim would be to reduce the total of $101,471.10 by approximately 20% for net security of $80,000.00.

[50] The plaintiff submits that the court should take into account the defendants’ delay in bringing the motion to limit the security payable to the costs of future steps in the action, in this case, the pre-trial conference and the trial. As concluded above, the defendants’ motion against the current plaintiff Forvest was brought reasonably promptly following the assignment of the plaintiff’s claims to Forvest, so the defendants had no reason to seek security from Forvest at any earlier time. There is therefore no reason to refuse to order security with respect to earlier stages in the action, other than mediation as discussed above.

[51] As is the case with most security for costs orders, the security should be posted in installments. The plaintiff shall post security of $25,000.00 no later than 60 days before the date scheduled for the pre-trial conference, and security of $55,000.00 no later than 60 days before the date scheduled for trial.

[52] Costs: At the conclusion of the hearing, counsel agreed that costs of this motion, fixed at $5,000.00 inclusive of fees, HST and disbursements should be awarded to the successful party. Accordingly, the plaintiff shall pay the moving defendants the costs of this motion fixed at $5,000.00 payable within 60 days.

“A. Graham” April 9, 2020 MASTER GRAHAM