Superior Court of Justice – Ontario

COURT FILE NO: CV-18-611330

MOTION HEARD: 20191122

REASONS RELEASED: 20200130

BETWEEN:

RAYMAN TIGER INC.

Applicant

• and-

UNGER TIGER INC., GRIESBAUM TIGER INC., BOAKE TIGER INC., HALL TIGER INC., MONETA TIGER INC., and LINDY TIGER INC.

Respondents

BEFORE: MASTER M.P. McGRAW

COUNSEL: A. Lewis Email: andrew@andrewlewislaw.ca -Counsel for the Respondents Unger Tiger Inc., Griesbaum Tiger Inc., Boake Tiger Inc., Moneta Tiger Inc. and Lindy Tiger Inc.

B. Illion Email: brian.illion@illion.ca -Counsel for the Applicant, Rayman Tiger Inc.

REASONS RELEASED: January 30, 2020

Reasons for Endorsement

I. Introduction

[1] The Respondents, Unger Tiger Inc. (“Unger”), Griesbaum Tiger Inc., Boake Tiger Inc., Moneta Tiger Inc. and Lindy Tiger Inc. (collectively, the “Unger Respondents”) seek security for costs of this Application. The only relief sought on the Application by Rayman Tiger Inc. (“Rayman”) is the appointment of an arbitrator pursuant to a co-ownership agreement for the purpose of obtaining books and records.

II. Background

[2] Rayman and the Unger Respondents are parties to a Co-Ownership Agreement dated May 5, 2006 (the “Agreement”) governing their interests in lands (the “Lands”) and other assets related to the Tiger Lofts project (the “Project”) in Cambridge, Ontario. Rayman, the Unger Respondents and the other Co-Owners are beneficial owners of proportionate undivided interests in the Lands and other assets related to the Project as tenants-in-common. Rayman and the Unger Respondents were incorporated solely for purpose of holding their interests in the Co-Ownership.

[3] The underlying dispute is whether Rayman continues to hold a 15% undivided interest in the Co-Ownership and if it is entitled to exercise rights under the Agreement including the appointment of an arbitrator and to obtain the Co-Ownership’s books and records. The facts and the legal basis for the Application are strenuously disputed by Rayman and Unger (on behalf of the Unger Respondents).

[4] The Unger Respondents assert that Rayman was dissolved pursuant to the Corporations Tax Act (Ontario) which constituted a default under the Agreement. The Unger Respondents claim that Rayman was given proper notice of the default in 2013 and on January 27, 2014 it was divested of its shares in the Co-Ownership when they were transferred to Unger in compliance with the Agreement. They also allege that Rayman misappropriated funds of $1,700,000 related to the Project and did not pay its proportionate share of cash contributions.

[5] Rayman submits that the divestiture and transfer of its shares was improper and that it continues to hold a 15% Co-Ownership interest. Rayman alleges that the Unger Respondents did not comply with the relevant provisions of the Agreement to effect a transfer of the shares, have not produced documentation to demonstrate that they did and the board resolution purporting to transfer Rayman’s shares was not signed by all directors. Rayman further claims that it remains a guarantor for the mortgages registered against the Lands. Rayman also takes issue with the accuracy and sufficiency of the Co-Ownership’s financial reporting and disclosure and denies any misappropriation.

[6] In 2018, Rayman requested access to the books and records of the Co-Ownership. On July 28, 2018, Rayman served a Notice of Arbitration pursuant to the Agreement seeking production of all of the books and records of the Co-Ownership including all receipts and disbursements and financial records since 2009. These requests for financial information and arbitration were denied by Unger on the basis that Rayman is no longer a Co-Owner and has no rights under the Agreement. As a result, Rayman brought the Application on December 20, 2018 seeking the appointment of Ronald G. Slaght of Lenczner Slaght Royce Smith Griffin LLP as arbitrator pursuant to the Agreement for the purpose of obtaining the books and records.

[7] The parties first appeared before me on September 10, 2019. Insufficient time was scheduled, Rayman did not file a Factum and the Unger Respondents’ Factum did not address recent case law. Accordingly, case management was provided and the motion was adjourned.

III. The Law and Analysis

[8] Rule 56.01(1) states:

“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;

(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;”

[9] Rule 56.01(1) does not create a prima facie right to security for costs but rather triggers an enquiry whereby the court, using its broad discretion, considers multiple factors to make such order as is just in the circumstances including: the merits of the claim, the financial circumstances of the plaintiff and the possibility of an order for security for costs preventing a bona fide claim from proceeding (Stojanovic v. Bulut, 2011 ONSC 874 at paras. 4-5).

[10] In Yaiguaje v. Chevron Corp., 2017 ONCA 827, the Court of Appeal re-focused the law on 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 4354 (ON SC), 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General) (2005), 2005 6052 (ON SC), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 2009 46451 (ON SC), 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 the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.”

[11] The Court of Appeal provided additional guidance in Novak v. St. Demetrius (Ukrainian Catholic) Development Corporation, 2018 ONCA 219:

“7 Justice Epstein's order was made prior to the release of this court's decision in Chevron Corp. v. Yaiguaje, 138 O.R. (3d) 1, 2017 ONCA 827, which was included in the appellant's materials. We do not read that decision as altering the established test for ordering security for costs. The established test requires a judge, after analysing the specific factors spelled out in the rules, to consider the overall justness of the order sought. In Yaiguaje v. Chevron Corp. the court found that the motion judge had erred in principle in her consideration of the justness of the order.

8 In this case, we are satisfied the Epstein J.A. did not err in considering the ordering of security for costs to be just. Unlike in Yaiguaje v. Chevron Corp, the appellant in this case has a direct economic interest in the appeal. The respondent is not a global enterprise but a not-for-profit senior citizens care centre operated by a church. Unrecoverable costs will reduce the respondent's resources it can dedicate to the care of its clients. There is no indication the respondent sought security for costs as a litigation tactic to end the appeal. The appeal raises no overarching, important, or novel issue. There is no apparent overriding public interest in allowing the appeal to proceed without the posting of ordered security for costs.”

[12] The initial onus is on the defendant to show that the plaintiff falls within one of the four enumerated categories in Rule 56.01. If the defendant meets the initial onus, the plaintiff can rebut the onus and avoid security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order; the order is unjust or unnecessary; or the plaintiff should be permitted to proceed to trial despite its impecuniosity should it fail (see Travel Guild Inc. v. Smith, 2014 CarswellOnt 19157 (S.C.J.) at para.16; Coastline Corp. v. Canaccord Capital Corp., 2009 21758 (ON SC), [2009] O.J. No. 1790 (ONSC) at para. 7; Cobalt Engineering v. Genivar Inc., 2011 ONSC 4929 at para. 16).

[13] Master Glustein (as he then was) summarized the relevant principles at paragraph 7 of Coastline:

(i) The initial onus is on the defendant to satisfy the court that it "appears" there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56;

(ii) Once the first part of the test is satisfied, "the onus is on the plaintiff to establish that an order for security would be unjust";

(iii) The second stage of the test "is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors". The court exercises a broad discretion in making an order that is just;

(iv) The plaintiff can rebut the onus by either demonstrating that:

(a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,

(b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not "plainly devoid of merit", or

(c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success;

(v) Merits have a role in any application under Rule 56.01, but in a continuum with Rule 56.01(1)(a) at the low end;

(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;

(vii) "If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of the merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious;” [citations omitted]

[14] The defendant’s onus under Rule 56.01(d) is a light one to show that there is good reason to believe that the plaintiff has insufficient assets in Ontario to satisfy a costs award (Georgian Windpower Corp. v. Stelco Inc., [2012] O.J. No. 158 (ONSC) at para. 7).

[15] The plaintiff’s financial disclosure requires “robust particularity” which includes the amount and source of all income; a description of all assets (including values); a list of all liabilities and other significant expenses; an indication of the extent of the ability of the plaintiffs to borrow funds; and details of any assets disposed of or encumbered since the cause of action arose (General Products Inc. v. Actiwin Company Limited, 2015 ONSC 6923; Al Masri v. Baberakubona, 2010 ONSC 562 at para. 19). The rule on security for costs does not countenance extensive and speculative inquiries as to the further value and availability of the asset (General Products at para. 19).

[16] The Unger Respondents submit that Rayman is a nominal corporation which was divested of its only asset, therefore, there is good reason to believe that it has insufficient assets in Ontario to satisfy a costs award. They argue that it is just to order security for costs in the amount of $37,714.01 on a substantial indemnity scale or alternatively, $29,888.39 on a partial indemnity scale.

[17] Rayman acknowledges that its only asset is its purported 15% interest in the Co-Ownership and the Lands pursuant to the Agreement. Rayman does not claim that it is impecunious or that it would be unable to proceed with the Application if security for costs is ordered. However, Rayman submits that since the Unger Respondents unilaterally and improperly deprived Rayman of its only asset, they cannot benefit from their wrongdoing by asserting that Rayman has no assets. Rayman also argues that Unger is improperly withholding financial information which would allow Rayman to demonstrate that it has sufficient assets or to establish that it is impecunious. Rayman submits that if it is ordered to pay costs of the Application, then the Unger Respondents can seize Rayman’s interest in the Co-Ownership.

[18] Rayman further submits that the value of its Co-Ownership interest is approximately $447,274, many times the security requested by the Unger Respondents. This amount represents 15% of the value of the Land as reported in the Tiger Lofts Co-Ownership Financial Statements as of December 31, 2016. The Unger Respondents submit that even if Rayman has a 15% interest in the Lands, it has no value. They refer to proposals filed under the Bankruptcy and Insolvency Act (Canada)(“BIA”) by the principals of Rayman, Irving and Toby Rayman, in which they assigned a value of “nil” to their shares in the Co-Ownership. The Unger Respondents agree that a “nil” value is accurate given that the income of the Co-Ownership was insufficient to meet expenses such that the other Co-Owners were required to make additional contributions to avoid insolvency.

[19] Property or funds sought in litigation may be considered assets for the purpose of security for costs. Quinn J. held as follows in Ensign v. Saine, 2005 24747 (ON SC) at para. 11:

“I should think that it is possible for the anticipated fruits of litigation to serve as the assets contemplated by clause 56.01(1)(d). However, that those fruits will be available for harvesting must be proved with rule-20 (summary judgment) certainty. In other words, the plaintiffs must show that there is no genuine issue for trial surrounding the fruits-of-the-litigation issue.”

[20] In arguing that it has sufficient assets to satisfy a costs award, Rayman relies entirely on its purported 15% interest in the Co-Ownership. However, Rayman’s 15% interest is not the anticipated fruits of this Application. If Rayman is successful on the Application, an arbitrator will be appointed under the Agreement to determine if Rayman is entitled to the books and records of the Co-Ownership. The court has not been asked to determine Rayman’s alleged entitlement to a 15% interest in the Co-Ownership or the Lands or the value of any such interest. There is currently no proceeding or forum where this dispute will be adjudicated, including in the proposed arbitration.

[21] Even if Rayman’s 15% interest was at issue on the Application, given the numerous disputed issues of law, fact and credibility, I would be unable to conclude that Rayman can establish that there is no genuine issue for trial with respect to its 15% interest. This is consistent with my conclusions below regarding the merits of the Application. Any conclusions regarding Rayman’s 15% interest or its value would be speculation. Therefore, I cannot conclude that Rayman’s interest in the Co-Ownership or the Lands will be available as an asset to satisfy a costs award.

[22] There is also no evidence of other assets available to Rayman or its ability to borrow to pay a costs award. I place no weight on the fact that the principals of Rayman filed BIA proposals given that my inquiry is properly focused on the assets of Rayman, not those of its principals. The proposals were accepted by their creditors in any event. However, I have considered the assignment of a “nil” value to their shares in the Co-Ownership in their BIA proposals as a factor in determining that I can draw no conclusions as to the value of Rayman’s interest.

[23] Based on my conclusions above, I am satisfied that the Unger Respondents have met the light threshold of establishing that it appears that there is good reason to believe that Rayman has insufficient assets in Ontario to satisfy a costs award. Rayman has failed to rebut this onus.

[24] The merits must also be considered on every security for costs motion. Rayman argues that the Application has a good chance of success. The Unger Respondents contend that it has no merit. However, given the multiple, and in some cases complex, issues of fact, credibility and law, I am unable to make any determinations with respect to the merits. Therefore, I conclude that the merits are a neutral factor which should not affect the outcome of this motion (Sadat v. Westmore Plaza Inc., [2013] O.J. No. 309 (S.C.J.) at paras. 40-43; Coastline at para. 7).

[25] To be successful on the Application, Rayman must establish that it is entitled to have an arbitrator appointed under the Agreement. Rayman submits that there is a good chance that the court will appoint an arbitrator because jurisdiction to determine Rayman’s entitlement under the Agreement is not clearly outside the terms of the arbitration provisions and the arbitrator has the power to rule on its own jurisdiction (Ontario Medical Assn. v. Willis Canada Inc., 2013 ONCA 745). Rayman also asserts that the court will defer to an arbitrator given that its entitlement under the Agreement is a question of fact or mixed fact and law over which the arbitrator has jurisdiction.

[26] The Unger Respondents submit that Rayman seeks a corporate remedy on the Application which is barred by operation of the 2-year limitation period in the Limitations Act 2002 (Ontario) given that it had notice of the default 5 years prior in 2013. However, Rayman submits that because it is ultimately asserting or attempting to recover an interest in the Lands, the Application is governed by the 10-year limitation period set out at section 4 of the Real Property Limitations Act (Ontario)(Pirani v. Karmali, 2012 ONSC 1647; McConnell v. Huxtable, 2014 ONCA 86).

[27] Given the multiple disputed issues of fact, credibility and law, I am unable to draw any conclusions on the merits including whether the Application has a good chance of success or if it is without merit. These issues include the share divestiture, the arbitrator’s jurisdiction, the applicable limitation period and the alleged misappropriation. Any conclusions would require a level of analysis more like a summary judgment motion. This is not appropriate on an interlocutory motion of this nature and would amount to mere speculation in light of the evidence and submissions before me. For the same reasons, I decline to conclude that any improper conduct of the Unger Respondents is the cause of Rayman not having sufficient assets or financial documentation.

[28] In determining what order is just in the circumstances, a balancing is required between ensuring meritorious claims are allowed to go forward and the consequences of being unable to collect costs where a party pursues an unsuccessful claim (Ascent Inc. v. Fox 40 International Inc., [2007] O.J. No. 1800 at para. 3). This balancing was considered by H.M. Pierce J. in Rosin v. Dubic, 2016 ONSC 6441, where, although the plaintiff was impecunious, he was ordered to pay security for costs:

“38 Citizens are entitled to access to the courts for the purpose of determining disputes. Society's interest is in having disputes determined on their merits. The purpose of security for costs is to protect a defendant from the prospect of an unenforceable judgment for costs; that is a risk in this case if the plaintiff is unsuccessful. However, the amount of security to be posted should not be so onerous as to effectively block access to the courts.

39 While I am persuaded that security for costs is warranted in this case, I am concerned that the amounts claimed by the defendants, both individually and collectively, may have the effect of blocking the plaintiff's access to the court. I am mindful that the plaintiff's family and friends are paying for the litigation on the plaintiff's behalf. In my view, security for costs in a lesser amount is appropriate in this case.” (Rosin at paras. 37-39)

[29] Applying a holistic approach and having considered all of the relevant factors and balanced the interests of Rayman to have the Application decided on the merits and the Unger Respondents to be protected against an unenforceable costs award, I conclude that it is just in the circumstances that security for costs be ordered. Rayman will not be prohibited from proceeding with the Application which relates to private, commercial interests with no public interest considerations, and the Unger Respondents will be afforded some protection from an unenforceable costs award. There is also no evidence that the Unger Respondents are using this motion as a litigation tactic to prevent the Application from proceeding.

[30] In striking the appropriate balance, it is necessary to determine an amount of security which is just in the circumstances and not so onerous as to block Rayman’s acess to the courts (Kerlow v. Corrigan, 2019 ONSC 5181 at para. 56; Dubic at para. 39). In doing so, the court has broad discretion to determine a fair and reasonable amount which is substantially similar to the exercise of its discretion in fixing costs pursuant to Rule 57.01 (Canadian Metal Buildings Inc. v. 1467344 Ontario Limited, 2019 ONSC 566 at para. 27). The amount should reflect a number that falls within the reasonable contemplation of the parties reflecting what the successful defendant would likely recover and the factors set out in Rule 57.01 (720441 Ontario Inc. v. The Boiler et al, 2015 ONSC 4841 at para. 56; Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada, 2003 CarswellOnt 1906 at paras. 17-20). In most cases, security for costs will be ordered on a partial indemnity scale (Marketsure at paras. 13-18).

[31] I reject the Unger Respondents’ submissions that security for costs should be awarded on a substantial indemnity scale because Rayman indemnified them under the Agreement and the Application is an abuse of process (Treats Inc. v. Richter et al., 2003 46843 at para. 3; Close Up International Ltd. v. 1444943 Ontario Ltd. et al., 1996 35615 at paras. 12-14). As set out above, there are too many disputed issues with respect to the merits to consider the applicability of the indemnification provisions in the Agreement or to conclude that the Application is an abuse of process.

[32] In my view, the amount sought by the Unger Respondents on a partial indemnity scale is not fair and reasonable in the circumstances. While there are numerous, disputed issues of fact and law, the issue on the Application is still a narrow one relating only to the appointment of an arbitrator. The amount must also not function to potentially block Rayman’s access to the courts.

[33] Having considered the relevant factors, reviewed the Unger Respondents’ Bill of Costs and balanced the parties’ rights, I am satisfied that it is fair, reasonable, within the reasonable contemplation of the parties and just in all of the circumstances for Rayman to post security for costs of $15,000. In my view, this amount also reflects the nature and complexity of the Application, is proportionate, and is consistent with the principles set out in Rule 1.04(1).

IV. Disposition and Costs

[34] Order to go directing Rayman to post security for costs of $15,000 within 30 days. Rayman shall not take any further steps in the Application until the amount is posted and proof of same is provided to counsel for the Unger Respondents.

[35] If the parties cannot agree on the costs of this motion, they may file written costs submissions not to exceed 3 pages (excluding costs outlines) with me through the Masters’ Administration Office on a timetable to be agreed upon by counsel. If counsel cannot agree on a timetable, they may schedule a telephone case conference.

Released: January 30, 2020

Master M.P. McGraw