Court File and Parties

COURT FILE NO.: CV-09-7937-00CL

DATE: 20201229

SUPERIOR COURT OF JUSTICE - ONTARIO

BETWEEN: BLOSSOM RABINOWITZ, SAUL RABINOWITZ and MOISHE BERGMAN, Applicants

AND:

RONALD RUTMAN, ZEIFMANS LLP and ARTCRAFT LTD., Respondents

BEFORE: Mr. Justice Cavanagh

COUNSEL: Fred Tayar, for the Moving Parties (Respondents) Ronald Rutman and Artcraft Limited

Eli Karp, for the Responding Parties (Applicants) Saul Rabinowitz and Moishe Bergman

HEARD: November 24, 2020

ENDORSEMENT

Introduction

[1] The applicants Saul Rabinowitz (“Rabinowitz”) and Moishe Bergman (“Bergman”) were involved with the respondent Ronald Rutman (“Rutman”) in the business of the respondent Artcraft Ltd. (“Artcraft”). They had a falling out which led to this and other litigation.

[2] This application was commenced in 2009. One of the original applicants was Laptide Industries Ltd. (“Laptide”), a trade supplier to Artcraft. The applicants sought relief in respect of an amount claimed to be owing to Laptide by Artcraft.

[3] Laptide’s claim was for payment of the sum of $120,545.26 US based on the statutory oppression remedy on the ground that Rutman and Artcraft had acted in a manner that disregarded its interests as a creditor of Artcraft.

[4] Rabinowitz and Bergman made separate claims for (i) an order requiring Artcraft to pay Laptide the amount of $120,545.26 US pursuant to a written undertaking Artcraft gave to them to do so, and (ii) in the alternative, an order requiring Rutman and Artcraft to pay them $60,272 US on the ground that Rutman and Artcraft acted in a manner that has unfairly disregarded their interests as creditors of Artcraft. In respect of their alternative claim, Rabinowitz and Bergman rely on the terms of an agreement they made with Rutman and Artcraft whereby Artcraft agreed to pay to each of them 25% of any funds remaining in Artcraft after trade creditors were paid.

[5] Soon after the application was commenced, the respondents moved to dismiss the application on the ground that Laptide commenced it without authority. They also moved for security for costs. This motion was adjourned to permit delivery of responding materials and for cross-examinations. Responding materials were served and the affiant, Rabinowitz, was cross-examined. The motion was not brought back for a hearing.

[6] The application, and the motion brought in the application, did not proceed for many years. In 2009, Rutman, commenced a defamation action against Rabinowitz and Bergman. This action was defended and proceeded to trial in 2016 following which a judgment for damages was made. There was a settlement of this judgment which excluded this application.

[7] In 2018, Laptide executed an assignment agreement whereby it assigned to Rabinowitz for $10 all of its right and interest in the amount of $120,545.26 US owed to it by Artcraft including its right to enforce (as a third party beneficiary) the agreement under which Rutman and Artcraft agreed to pay the Artcraft payable to Laptide. On November 15, 2019, Rabinowitz obtained, without notice, an order to continue on requisition to the Registrar.

[8] The respondents Rutman and Artcraft now move before me for (a) an order dismissing the application for delay, (b) alternatively, an order dismissing the application because Laptide, when it commenced the application for relief under the statutory oppression remedy, lacked corporate authority to do so, and (c) in the further alternative, an order for security for costs against Rabinowitz.

[9] For the following reasons, (a) the motion to dismiss the application for delay is dismissed, (b) the motion to dismiss the claims made in the application which were assigned by Laptide to Rabinowitz is granted, but the motion to dismiss the entire application is denied, and (c) the motion for security for costs is dismissed.

Procedural Background

[10] Rutman owned and operated the respondent Artcraft. Rabinowitz and Bergman worked for Artcraft and had interests in its success. Disputes relating to Artcraft arose between Rutman on the one hand and Rabinowitz and Bergman on the other hand in 2007, and litigation ensued. On August 3, 2007, the parties entered into a settlement agreement to resolve issues relating to the Artcraft business. On October 3, 2007, Rutman signed an undertaking on behalf of Artcraft given to, among others, Rabinowitz and Bergman, to pay outstanding accounts payable relating to the Artcraft business.

[11] The applicant Laptide Industries Ltd. (“Laptide”) was a trade supplier to Artcraft and issued invoices to Artcraft which were unpaid.

The Application

[12] On January 9, 2009, the Notice of Application in the within application was issued. In the Notice of Application:

a. Laptide seeks a declaration that Rutman and Artcraft acted in a manner that unfairly disregarded its interests as a creditor of Artcraft and an order requiring Rutman and Artcraft to pay Laptop the sum of $120,545.26 US. The grounds stated in the Notice of Application for Laptide’s application are that Artcraft refused to pay money owing to Laptide, a trade creditor, in respect of goods supplied to Artcraft and that Artcraft, under Rutman’s control, paid other suppliers in preference to Laptide’s claims, which was an unlawful and improper exercise of Rutman’s authority as a director of Artcraft.

b. Rabinowitz and Bergman seek an order requiring Artcraft to pay Laptop the aforementioned sum of $120,545.26 US pursuant to an undertaking Artcraft provided to Rabinowitz and Bergman to do so. In the alternative, Rabinowitz and Bergman seek a declaration that Rutman and Artcraft acted in a manner that unfairly disregarded their interests as creditors of Artcraft and requiring them to pay Rabinowitz and Bergman the sum of $60,272 US.

[13] The grounds stated in the Notice of Application for the relief sought by Rabinowitz and Bergman against Rutman and Laptide are:

a. For several years, Rabinowitz and Bergman worked with Rutman in the Artcraft business. In 2007, Rabinowitz and Bergman left Artcraft to start their own crafts company. Subsequent to their leaving Artcraft, Rabinowitz and Bergman agreed to advance funds to Artcraft to ensure that its trade creditors were paid including Laptide. Rutman, on behalf of Artcraft, gave an undertaking to Rabinowitz and Bergman to pay Artcraft’s trade creditors. However, Artcraft failed to comply with this undertaking and failed to pay Laptide’s accounts.

b. Under the agreement between Rutman/Artcraft and Rabinowitz/Bergman, Artcraft is required to pay 50% of any remaining funds in Artcraft, after trade creditors have been paid, to Rabinowitz and Bergman. In the event that Artcraft has a valid defence to Laptide’s claim for payment, which they deny, Rabinowitz and Bergman claim payment from Artcraft in the amount of $60,272 US which represents 50% of the funds advanced by Rabinowitz and Bergman to Artcraft to pay Laptide’s claim.

Respondents’ 2009 Motion

[14] By Notice of Motion dated February 4, 2009, the respondents moved to dismiss or, alternatively, stay the application by Laptide. In the alternative, the respondents moved for an order requiring Laptide to pay into court security for the respondents’ costs of the application in the amount of $100,000. The grounds for the motion to dismiss as stated in the Notice of Motion were that Laptide did not authorize the commencement of the application. The grounds for the security for costs relief as stated in the Notice of Motion are that Laptide is a corporation and there is good reason to believe that it has insufficient assets in Ontario to pay the costs of the respondents. The motion was supported by the affidavit of Mindy Tayar, a solicitor with the firm representing the respondents, affirmed February 4, 2009.

[15] In February 2009, this motion was adjourned by a judge of the Commercial List to allow Rabinowitz to deliver responding evidence and for cross-examinations. The applicants delivered a short affidavit sworn by Rabinowitz in response to the motion in 2009. Rabinowitz was cross-examined on this affidavit but he did not answer questions relating to its merits.

[16] The respondent also sought an order for interpleader in relation to relief claimed in the application by Blossom Rabinowitz against Zeifmans LLP. This component of the application was settled in the spring of 2009 following the initiation of the interpleader motion.

Rutman’s defamation action

[17] In 2009, Rutman commenced an action against Rabinowitz and Bergman for defamation. This action was defended and proceeded to trial before Penny J. in 2016.

[18] In his decision granting judgment in favour of Rutman for damages, Penny J. found that Rabinowitz committed perjury in affirming his affidavit on April 3, 2009 in the “Laptide litigation”. Justice Penny found that in this affidavit, Rabinowitz asserted that he was not the one “blogging” Rutman and that Rabinowitz admitted in cross-examination that he committed perjury in affirming this affidavit. Justice Penny found that counsel to Rabinowitz and Laptide “threatened to contact CRA with allegations against Rutman if there was no settlement [of the Laptide litigation] and that the email campaign against Rutman would stop if he accepted the settlement proposal”.

[19] Following the judgment of Penny J., the defamation action was settled in June 2019 pursuant to Minutes of Settlement between Rutman and Rabinowitz. This application and the relief sought were excluded from the Minutes of Settlement.

Laptide’s assignment of rights to payment of invoices issued to Artcraft and Order to Continue

[20] In 2019, Laptide assigned to Rabinowitz its rights and interest in the account receivable owing to Laptide by Artcraft in the amount of $120,545.26, including Laptide’s rights to enforce the August 3, 2007 agreement among Artcraft, Rutman and Rabinowitz “under which [Artcraft] and Ronald Rutman agreed with [Rabinowitz] that Rutman and [Artcraft] would pay the [Artcraft] receivable to Rabinowitz”. A recital to the assignment states that Laptide was an intended third party beneficiary of such agreement.

[21] Rabinowitz obtained an order to continue on requisition dated November 15, 2019, made without notice, in which the Registrar ordered that the proceeding continue and that the title of proceedings after the date of the order be amended to remove Laptide as an applicant. The requisition was supported by affidavits of Rabinowitz and Bergman.

Analysis

[22] I address each issue raised on this motion in turn.

Should the application be dismissed for delay?

[23] The respondents move to dismiss the application for delay. In their Factum, the respondents rely on rule 24.01 of the Rules of Civil Procedure as a ground for the motion. In Gilmour v. Estate of Charles Wayne West, 2018 ONSC 2130, the Court held that rule 24.01 which allows a defendant who is not in default to move to dismiss an action for delay applies only to actions and not to applications.

[24] The respondents also rely the inherent jurisdiction of the court to control its own process as a ground for their motion. In Gilmour, a motion was brought to dismiss an application for delay and Peterson J., at paras. 48-49, held that the court had jurisdiction to grant such a motion:

I may nevertheless consider the Respondent’s motion based on the Court’s inherent jurisdiction to control its own process, which includes the discretionary power to dismiss an application for delay. See Marché d’Alimentation Denis Thériault Ltée v. Giant Tiger Stores Ltd. (2007), 2007 ONCA 695, 87 O.R. (3d) 660 9Ont. C.A.), at para. 24.

In order to succeed on a motion to dismiss an application for delay, the moving party must establish (1) that the delay has been unreasonable in the sense that it is inordinate and inexcusable and (2) that there is a likelihood of prejudice to the moving party, giving rise to a substantial risk that a fair hearing will not be possible if the application proceeds. See Belanger v. Southwestern Installation Contractor’s Ltd. (1993), 1993 5503 (ON SC), 16 O.R. (3d) 457 (Ont. Gen. Div.). The Court must consider all relevant factors to determine what is just in the circumstances of each particular case. See Michie v. Turalinski, supra, at para. 44.

[25] The respondents also rely on the decision of Dietrich J. in Deutsche Postbank AG v. Kosmeyer, 2019 ONSC 6997, a case where the defendants moved to dismiss the plaintiff’s action for delay. In Deutsche Postbank, at paras. 16-21, Dietrich J. cited Langenecker v. Sauvé, 2011 ONCA 803 (Ont. C.A.) in which the Ontario Court of Appeal identified two situations in which a court should dismiss an action for delay: (i) the delay is caused by the intentional conduct of the plaintiff or its counsel that demonstrates a disdain or disrespect for the court process; or (ii) the delay is inordinate and inexcusable such that it gives rise to a substantial risk that a fair trial of the issues in the litigation will not be possible because of the delay.

[26] I accept that I have jurisdiction to grant the relief sought based on the Court’s inherent jurisdiction to control its own process.

[27] The respondents submit that Laptide never intended to proceed with the application and this is shown by the fact that after nine years of doing nothing, it assigned its $120,000 receivable for a mere $10. The respondents rely on evidence from Rabinowitz that he and Bergman did not pursue the application because their plan was to settle the application together with the defamation action. The respondents rely upon the findings made by Justice Penny in his reasons for judgment in the defamation action to support their submission that Rabinowitz and Bergman allowed the application to languish so they could devote their time to the defamation of Rutman and defending the action which grew out of that defamation. The respondents submit that the delay in proceeding with the application was caused by the intentional conduct of the applicants which demonstrated a disdain or disrespect for the court process and that to allow the application to proceed would constitute an abuse of the court’s process.

[28] The respondents also submit that the applicants are responsible for delay which was inexcusable and prejudicial. The respondents, citing Deutsche Postbank, at para. 18, submit that an inordinate delay after the cause of action arose or after the passage of a limitation period gives rise to a presumption of prejudice in which case the defendant need not lead actual evidence of prejudice and the action will be dismissed for delay unless the plaintiff rebuts the presumption. The respondents submit that the applicants have offered no evidence to discharge the presumption of prejudice. They rely on the fact that in 2009, when Rabinowitz was cross-examined on his affidavit filed in response to the respondents’ motion to dismiss the application, Rabinowitz refused to answer questions relating to the merits of the application.

[29] The respondents also submit that employees and principals of Laptide are critical witnesses and their existence and availability to testify in Ontario, and the ability of the parties to compel their attendance at trial, has not been addressed by Rabinowitz in his affidavit. The respondents also contend that witnesses employed by offshore banks apparently used by Laptide and Rabinowitz and/or Bergman are necessary witnesses and that Rabinowitz is silent about their availability to testify and their willingness to come to Canada for that purpose.

[30] The first question to be addressed is whether the applicants are responsible for the inordinate delay that has ensued since this application was commenced. In this regard, in Deutsche Postbank, at para. 18, Dietrich J. cited authorities for the proposition that the plaintiff is responsible for moving the action along, not the defendants. In my view, this proposition also applies to applications - the applicant is responsible for moving the application along. Issues of delay arise less frequently in applications than actions because an application is intended to be a more expeditious proceeding than an action and the rules and practice directions applicable to applications usually lead to hearings before undue delay has ensued.

[31] If the applicants had simply issued and served their application materials and then taken no steps to proceed, the respondents may be right that the applicants engaged in inordinate and inexcusable delay. However, that is not what happened. After the applicants’ application materials were served, the respondents promptly brought a motion to dismiss the application on the ground that it was not properly authorized and, as part of the same motion, they sought an order for security for costs which, if successful, would prevent the applicants from taking any step in the proceeding except an appeal from the order until the security had been given.

[32] The respondents’ motion was brought before a judge of the Commercial List soon after it was served. The judge adjourned it to permit responding motion material to be delivered and cross examinations to be held. It appears that no return date for this motion was scheduled when adjournment order was made. The applicants, responding parties on the motion, delivered responding motion materials and Rabinowitz was cross-examined on his affidavit with respect to matters relevant to the motion.

[33] The respondents did not take steps to arrange for the hearing of their motion. They also never abandoned their motion. Indeed, in the Notice of Motion for the motion before me, the respondents seek, in the alternative, an order for security for costs. In their Factum, the respondents seek an order dismissing the application on the ground that it was not properly authorized. This is the same relief that is included in the respondents’ 2009 Notice of Motion. Although it is framed as a separate motion, the respondents are effectively bringing on for a hearing before me their motion brought in 2009.

[34] In the spring of 2009, after the respondents brought their motion, the next step to be taken in the application was scheduling a hearing of the respondents’ motion. The application was effectively stopped until the relief sought on the motion was adjudicated because if the motion succeeded, the application would be dismissed. In my view, in these circumstances, the applicants acted properly by delivering responding motion material and waiting for the relief sought on the respondents’ motion to be adjudicated before proceeding with the application.

[35] Certainly, it was open to the applicants, themselves, to take steps to have the respondents’ motion brought on for a hearing by, for example, serving a Notice of Return of Motion. Then, the relief sought by the respondents on the motion could have been adjudicated and, if the motion for an order dismissing the application was dismissed, the applicants would have been responsible for moving the application forward to a hearing. However, the applicants were not the parties who had the principal responsibility to arrange a hearing of the respondents’ motion. The respondents were responsible for moving their motion along and they are principally responsible for the fact that their motion was not brought to a hearing until now, more than eleven years after the motion materials were served.

[36] In these circumstances, I do not accept the respondents’ submission that the applicants are principally responsible for the inordinate and inexcusable delay that is evident in relation to this application. When I consider all the relevant circumstances, I am not satisfied that it would be just to dismiss the application for delay.

Should the application be dismissed on the ground that Laptide did not have authority to sue?

[37] The respondents also seek an order dismissing the application on the ground that when Laptide commenced the application, it lacked authority to sue. They rely on evidence (sworn in support of the 2009 motion) that counsel for the respondents asked counsel for Laptide to provide a certified copy of the corporate resolution of Laptide authorizing the institution of the oppression application and the response from counsel for Laptide was that no such resolution existed, and that a resolution is not required.

[38] The applicants submit that commencement of an oppression application by a company in Laptide’s business is not a simple collection action where the indoor management rule would apply, and that commencement of such a legal proceeding requires a directors’ resolution. Laptide did not have a directors’ resolution authorizing the commencement of the application. The applicants submit that Laptide assigned its rights to the receivable upon which it sued, and it cannot now retroactively authorize the commencement of its application. In support of these submissions, the respondents rely upon Roselee Holdings v. Marlton Holdings, 2000 CarswellOnt 2800, at paras. 39, 42, and 44.

[39] Rabinowitz and Bergman respond that they, separately and in their individual capacities, sued Rutman and Artcraft for payment of the sum of $120,545.26 based on the undertaken given by Artcraft when Rutman, Bergman and Rabinowitz agreed to dissolve their relationship in Artcraft. As part of that transaction, Artcraft undertook to pay the outstanding accounts payable relating to its business. In the alternative, Rabinowitz and Bergman claim 50% of this amount on the basis that under the agreement made when the parties dissolved their relationship, the failure to pay the Laptide account payable resulted in an increase of available cash in the hands of Artcraft which resulted in a net increase of the amount payable to Bergman and Rabinowitz of 50% of the amount of the Laptide account payable, or approximately $60,000 collectively.

[40] Laptide chose to seek relief against the respondents based only on the statutory oppression remedy. I accept that the claim as framed is not an ordinary collection action to which the indoor management rule would apply. Laptop was required to obtain approval from its board of directors, or officers acting for them, to institute the oppression remedy claim against the respondents and it did not do so. It is now too late for Laptide to obtain this approval, which was required before it assigned to Rabinowitz the claims in relation to the account receivable owing by Artcraft.

[41] Rabinowitz’s claim in the application in the capacity as assignee from Laptide should be dismissed: Roselee, at paras. 42-44.

[42] The claims in the Notice of Application made by Rabinowitz and Bergman in their personal capacities are separate and independent from Laptide’s claims. These claims are not affected by Laptide’s failure to commence the application under proper corporate authority, and may continue.

Should an order for security for costs be made in favour of the respondents?

[43] The respondents seek an order for security for cost against Rabinowitz. They submit that where an applicant subject to a pending motion for security for costs assigns a cause of action to an assignee, then obtains an order to continue without notice, the assignment is an abuse of process and an attempt to defeat an application for security for costs. The respondents submit that, in the circumstances, Rabinowitz should be required to post security for costs. In support of this submission, the respondents rely upon Love v. Mixing Equipment Co., (No. 3), 1987 CarswellOnt 423 (Div. Ct.).

[44] In Love, a corporation subject to a pending motion for security for costs assigned its cause of action to an individual who obtained an ex parte order to continue the action. The Divisional Court accepted the finding that the assignment was made for the express purpose of defeating the pending motion for security for costs. In the decision at first instance, the Senior Master exercised his discretion to decline to set aside the order to continue and directed that it continue in force subject to the term that the assignee give security for costs under rule 56.09 of the Rules of Civil Procedure. The Divisional Court held that the Senior Master exercised his discretion correctly in the circumstances of that case. The Divisional Court expressly stated, at para. 4, that it was not laying down general principles about when an order to continue obtained in these circumstances would be an abuse of process.

[45] Here, Rabinowitz and Bergman are suing in their personal capacities on grounds that do not depend on the assignment by Laptide or the order to continue. There are no grounds for an order for security for costs to be made against them in relation to their personal claims.

Request for leave to amend Notice of Application

[46] The applicants included in their materials a proposed Amended Notice of Application and they ask for leave to amend the Notice of Application in this form. No formal motion was brought for this relief.

[47] The proper amendments to the Notice of Application should be made having regard to my decision on the respondents’ motion. If the Notice of Application is not amended on consent, the parties should arrange for a short appearance before me to schedule the date for a motion to amend the Notice of Application.

Disposition

[48] For these reasons:

a. The respondents’ motion to dismiss the application for delay is dismissed.

b. The respondents’ motion to dismiss Rabinowitz’s application in the capacity as assignee of Laptide’s rights and interest (because Laptide commenced the application without authority) is granted, but the motion to dismiss the entire application is dismissed.

c. The respondents’ motion for security for costs is dismissed.

[49] The parties are urged to settle the costs of this motion. If they are unable to do so, they may each make brief written submissions (not exceeding two pages, excluding Costs Outlines) within 20 days.

Cavanagh J.

Date: December 29, 2020