COURT FILE NO.: CV-18-591227
DATE: 20200213
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JoBro Film Finance Ltd. Plaintiff (Respondent)
– and –
National Bank of Canada Defendant (Appellant)
Andrew Moeser and Thomas Dumigan, for the Plaintiff (Respondent)
Junior Sirivar and Erin Chesney, for the Defendant (Appellant)
HEARD: February 3, 2020
BEFORE: B. A. Allen J.
REASONS FOR DECISION
(In respect of an Appeal of a Master’s Order on Security for Costs)
NATURE OF PROCEEDING
[1] The National Bank of Canada (“the Bank”) brings a motion to appeal a master’s decision denying the Bank’s motion seeking security for costs against JoBro Film Finance Ltd. (“JoBro”).
[2] Under Rule 56.01(1) of the Rules of Civil Procedure, a plaintiff or defendant on motion may seek an order for security for costs where it appears the opposing party is ordinarily resident in Ontario and there is good reason to believe the opposing party has insufficient assets in Ontario to pay the costs of the party seeking security.
BACKGROUND
[3] JoBro is a privately-owned company carrying on business as a Canadian film and television production company. Jonathon Bronfman is the president, CEO and sole shareholder of the company. This case involves an approximate $3 million investment JoBro made in a feature film production called “Race” about Olympic athlete Jesse Owens and his participation in the 1936 Olympics in Berlin. The Bank was a primary lender in the production.
[4] JoBro claims a representative of the Bank approached it and made a number of misrepresentations that induced JoBro to make the investment which JoBro alleges caused it to lose a substantial part of its investment. JoBro commenced an action against the Bank on January 31, 2018.
THE LAW
On Security for Costs
[5] Guidance for decisions on security for costs is set down in a decision of this court as follows. In a motion under Rule 56.01(1)(d), the court must consider two tests:
(a) The defendant must demonstrate that the plaintiff is a corporation and there is a good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant (“the first step”);
(b) If the defendant can clear this hurdle, the plaintiff must rebut the presumption by either tendering evidence of the sufficiency of the assets and/or by demonstrating that an order for security for costs would be unjust (“the second step”).
[2311888 Ontario Inc. v. Ross, 2017 ONSC 1295, at para. 17, (Ont. S.C.J.)]
[6] The defendant, the moving party in the case before me, need not establish that the corporation has insufficient assets to pay costs. They need only prove there is “good reason to believe” the corporation has insufficient assets and then the burden shifts to the plaintiff. The “good reason to believe” criterion is a light onus because it is recognized that unfairness would result were the defendant required to prove something that is within the knowledge of the plaintiff: [City Commercial Realty Services (Canada) v. Bakich, 2005 CarswellOnt 10512, at para. 7, (Ont. C.A.)].
[7] Other courts have described the onus on the defendant as being required “to do little more that raise a concern” and if successful the burden shifts to the plaintiff: [Bluefoot Ventures Inc. v. Ticketmaster, 2008 CarswellOnt 8788, at para. 2, (Ont. S.C.J.)]
[8] Although the onus is a light one, the defendant must still tender sufficient information about the corporation to support a belief of insufficiency that goes beyond mere conjecture, hunch or speculation: [City Commercial, at paras. 7 and 8].
[9] The burden on the plaintiff in response to the defendant’s position is to establish their assets are sufficient and readily exigible: [Bluefoot Ventures, at para. 3]. Rule 56.01 allows a judge the discretion to consider many factors including the plaintiff’s circumstances such as the impecuniosity of the plaintiff, the merits of their claim and any injustice that might ensue if a plaintiff is denied the chance to have the merits of their claim adjudicated.
[10] Impecuniosity of the plaintiff is a factor that can be considered. The 2311888 Ontario case held that if the plaintiff seeks to rely on their own impecuniosity, they must provide evidence of their financial circumstances with “robust particularity”. No unanswered question must remain: [2311888 Ontario, at para. 18]. The cases go both ways on whether the test of “robust particularity” is required to be met at the second stage in deciding the sufficiency of assets where impecuniosity is not claimed.
[11] JoBro argues based on an earlier master’s decision that the “robust particularity” standard applies only to claims of impecuniosity not to cases where the plaintiff argues its assets are sufficient to satisfy a cost award: [Al Masri v. Baberakubona, 2010 ONSC 562, at para. 19, Ont. S.C.J.)].
[12] Some cases hold that the high standard of robust particularity is applicable to assessing the sufficiency of assets such as is decided in the more recent cases, Canadian Metal and 2311888 Ontario. The Bank relies on those cases to submit that the robust particularity standard also applies at the second stage where the plaintiff claims sufficient assets: [Canadian Metal Buildings Inc. v. 1467344 Ontario Limited, 2019 ONSC 566, at para. 16, Ont. S.C.J.)].
[13] The plaintiff does not claim impecuniosity and submits therefore that the rigorous test is not applicable. The plaintiff contends their assets are sufficient to pay the costs of litigation if they should not be successful, and claims alternatively, that an order for security for costs would be unfair.
On the Standard of Review of a Master’s Motion
[14] The standard of review of a master’s motion is settled law. The Ontario Court of Appeal, citing the Supreme Court of Canada in Housen v. Nikolaisen, set the standard for review, that being: to overturn on a question of fact or mixed fact and law the appellate court must find that the lower court’s reasoning contains a palpable and overriding error; to overturn on a question of law the appellate court must find that the lower court was incorrect: [Zeitoun v. The Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 292 D.L.R. (4th) 313, 236 O.A.C. 76 (Div. Ct.); aff’d. 2009 ONCA 415]. The palpable and overriding error standard has been explained:
The palpable and overriding error standard of review addresses both the nature of the error, and its impact on the result. “Palpable” refers to errors that are obvious to see. “Overriding” refers to the effect on the outcome of the decision. To be overriding, an error must be sufficiently significant to vitiate the challenged finding of fact.
[Baca v. Tatarinov, 2018 CarswellOnt 17153, at para. 3, (Ont. S.C.J.), citing Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 (S.C.C.) and Zeitoun v. Economical].
[15] The Bank submits that the Master fell into error in the following ways:
a) The Master erred by requiring the Bank to adduce evidence in its original motion record as opposed to considering all of the evidence before the court;
b) The Master erred by finding that the clear evidence of JoBro’s insolvency was insufficient to establish “a good reason to believe” that JoBro has insufficient assets in Ontario particularly in light of the uncontested fact that all of JoBro’s assets are encumbered by secured creditors.
c) The Master improperly faulted the Bank for not demonstrating other indicia of financial instability that have been cited in other security for costs decisions.
[16] The Bank further contends that the Master made two erroneous findings of fact with no underlying evidence in support which in the Bank’s view are palpable and overriding errors. The Bank submits those errors ought to be overturned. The Bank submits that the Master erred in finding:
a) that an agreement with Comweb Corporation[^1] (“the Comweb Agreement”) meant JoBro’s assets exceed its liabilities; and
b) that all other secured indebtedness was discharged.
AGREEMENT ON THE LAW ON SECURITY FOR COSTS
[17] The Bank and JoBro agree on the appropriate tests to be applied in determining security for costs as set out above in 2311888 Ontario. The parties also agree on the standard of review of a master’s order. As noted above, the parties do not agree on the application of the “robust particularity standard”.
FACTS JOBRO FAILED TO SUCCESSFULLY DISPUTE
[18] I find the record reveals the following unsuccessfully contested facts:
a) that JoBro has no property or other tangible assets in Ontario;
b) that the greatest portion of JoBro’s assets are accounts receivables and investments in film projects neither of which are liquid or readily realizable;
c) that the unaudited financial statement discloses that JoBro is insolvent in that its liabilities exceed its assets by approximately $500,000.00;
d) that JoBro’s actual indebtedness is greater than revealed on the unaudited financial statements in that a PPSA search (Personal Property Securities Act) reveals a debt to Film Finances Canada Ltd. of $1,745,109.00 which is a registered security against all of JoBro’s assets;
e) that the PPSA search reveals that all of JoBros’ assets are pledged as security for loans granted by several financial institutions and third party lenders;
f) that JoBro did not provide evidence of the discharge of any of the registered interests;
g) that JoBro entered into an agreement with Comweb Corporation in which Comweb purports to subordinate its debt to any cost award in favour of the Bank;
h) that JoBro did not produce any underlying loan or security agreements in relation to the encumbrances revealed on the PPSA search;
i) that the chequing account JoBro uses for daily operations for the period May 7, 2019 to May 29, 2019 shows a balance of $112,538.10. JoBro disclosed no evidence of its cash flow in the financial statement.
REASONS FOR DECISION
The First Step
Did the Master Hold the Bank to an Incorrect Onus?
The Onus
[19] It is agreed that the Master stated the correct test for the first step that sets out the Bank’s onus. However, the Bank takes the position that in spite of recognizing the correct test the Master put the Bank to an incorrectly high onus.
[20] The Bank has only to establish “some reason to believe” or “some concern” that JoBro could satisfy a cost award. They do not have to prove insufficient assets. The party responding to the motion need not proffer any evidence of its financial status at the first step. The onus is on the moving party.
Insolvency
[21] In spite of not being obligated at the first step JoBro provided an unaudited financial statement for 2018 which reveals that JoBro’s main assets are comprised of accounts receivables and investments in film projects. The face of the financial statement discloses that liabilities exceed assets. Further, as the Bank points out, JoBro did not provide a statement of JoBro’s cash flow. The unaudited financial statement was before the Master.
[22] JoBro also provided the bank statement noted above covering the 14- day period from May 7, 2019 and May 29, 2019 which shows the account contained $112,538.10 at that time. The Master had that evidence before her to consider. Those funds are used for the day-to-day operation of the business.
[23] The Master also had the PPSA search conducted by the Bank which revealed 11 registered security interests secured against all of JoBro’s assets. The assets which include accounts receivables, film investments, bank accounts and equipment are all encumbered to creditors such as the Bank of Montreal, the Bank of Nova Scotia, Film Finances Canada Ltd., ACTRA Performers’ Rights Society and Comweb Corporation.
[24] The PPSA search also reveals one substantial loan of $1,745,109.00 payable to Film Finances Canada Ltd. There is no evidence of the amounts of the secured interests of other creditors. The Film Finances Canada Ltd. loan is not reported on the unaudited financial statement. This points to JoBro’s liabilities being even greater than $500,000.00, in fact, just over $2.2 million. The liabilities could of course exceed that amount if information about the other secured interests were known.
[25] Earlier master’s decisions found the sole fact that a company is operating in a deficit position with sizable accumulated liabilities constitutes evidence the court could rely on to find an insufficiency of assets. [For example, Re: Avenza Global Technologies v. Cue Network, 2000 CarswellOnt 1376, at para. 100, (Ont. S.C.J.) and American Axel &Manufacturing v. Durable Release Coaters, 2006 CarswellOnt 8489, at para. 33, (Ont. S.C.J.)].
[26] I agree that the Master erred in not finding that insolvency was sufficient to meet the light onus of a “good reason to believe” or a “genuine concern” that JoBro does not have sufficient assets.
Did the Master Err by Requiring the Bank to Prove JoBro’s Insufficient Assets?
[27] The defendant is not required to prove that the plaintiff has insufficient assets in Ontario. What is required is only that there is good reason to believe that is the case: [Re: Avenza Global, at para. 96].
[28] At paragraph 10 of her decision, the Master cites in support some of the findings in City Commercial.
It is important to note that the plaintiff is an operating business. It is not a single purpose corporation. It has been in business since 2012 and has been involved in the production of approximately 25 feature films. Its corporate filings are up to date. It has several ongoing investments. There is no suggestion that it is in financial difficulty or unable to meet its obligations as they become due. It has not defaulted on any of its obligations. Its operating loans appear to be in good standing. There are no pending claims against it. There are no unsatisfied judgments or other evidence of financial instability. This is the kind of evidence that a moving party would commonly advance to meet its onus. See City Commercial Realty at paragraphs 12 and 13.
[JoBro Film Finance Ltd. v. National Bank of Canada, 2019 ONSC 4283, at para. 10, (Ont. S.C.J.)] (“Master’s decision”).
[29] The Master holds the Bank to the type of evidence the moving party adduced in City Commercial. The facts of that decision are distinguishable from the case before me. The nature of the plaintiff’s business and financial status in that case are different than that of JoBro. For instance, the plaintiff is a realty firm in the business of charging commissions for facilitating real estate. The Master observes that the plaintiff is the type of business that by its nature may not have tangible assets. And further, there are no allegations of insolvency or that the plaintiff displayed any other evidence of instability: [City Commercial, paras. 11 and 12]. That is not the case with JoBro.
[30] The Master concluded the Bank failed at the first step. In essence, what this says in my view is that the Master erred by putting the Bank to the incorrect burden of proving the insufficiency of JoBro’s assets and used the kind of financial evidence adduced in City Commercial as a measure of that proof rather than looking to whether the Bank met the light onus.
Conclusion
[31] The Court of Appeal held that there must be some evidence placed before the court from which the court can accept that the concern is genuine and based on proven facts regarding the corporation’s current financial circumstances: [City Commercial, at para. 8].
[32] Courts have placed equal weight on both the plaintiff and defendant at the first step and have found that the onus is satisfied after considering evidence adduced by the plaintiff: [Crossover Health Care Fund, LLC v. Pivotal Therapeutics Inc., 2018 ONSC 5961, at para. 20, (Ont. S.C.J.) and Charose Holdings, LLC v. Edible Arrangements International Inc., 2014 ONSC 4185, at para. 39, (Ont. S.C.J.)].
[33] At paragraph 8, the Master cited the evidence the Bank adduced and found the Bank failed to satisfy its onus. JoBro, though not required to, also placed evidence before the Court. This evidence must be equally weighed with other evidence in assessing whether the Bank established “good reason to believe” that JoBro has insufficient assets to satisfy a cost award. Paragraph 8 of the Master’s decision states:
In my view, the defendant has failed to meet its initial onus. The defendant’s evidence on this motion was provided through an affidavit sworn by a litigation law clerk employed by the lawyers for the defendant. The defendant’s evidence consists of correspondence exchanged between counsel with respect to the plaintiff’s financial status, along with speculative observations about the risky nature of the film business. The defendant’s witness does not have any specific expertise about the film business. The defendant states in its factum that it brought this motion because the plaintiff “failed to produce . . . evidence of realizable assets in Ontario”.
I accept that the initial onus on this motion is not a heavy one. The moving party need only show that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. However, it is a real onus and the defendant’s evidence must go beyond mere conjecture, hunch or speculation. City Commercial Realty Services (Canada) Ltd. v. Bakich [2005] OJ No. 6443 (CA) at paragraph 8, emphasis added].
[Master’s decision, at paragraph 8]
[34] The Bank argues that the Master placed an incorrect onus on the Bank in holding that the defendant’s evidence must go beyond mere conjecture, hunch or speculation. The Bank submits that the Master, in focusing solely on the record the defendant put before the court and concluding only that the defendant’s evidence must go beyond conjecture, hunch or speculation, the Master fell into error. The Bank posits that the correct approach is to consider all the evidence before the court, both the defendant’s and the plaintiff’s, and determine if all the evidence goes beyond conjecture, hunch or speculation. That error, according to the Bank, led the Master to disregard other evidence before the court that demonstrates the Bank had a basis to claim a genuine concern which goes beyond conjecture, hunch or speculation.
[35] JoBro rejects the Bank’s submission and argues that the Master does not restrict its consideration to the evidence the Bank adduced. JoBro points to ensuing paragraphs where the Master addresses evidence of JoBro’s profitability, and its assets comprised of accounts receivables, cash on hand and its 50% interest in a special effects company.
[36] It is the case that the Master speaks of the plaintiff’s evidence in the following paragraphs. However, I find the Master’s earlier conclusion that the Bank failed to meet its onus, made on what I found to be an erroneous standard, resulted in the Master not allotting equal weight to the defendant’s and plaintiff’s evidence. As I conclude below, the Master did not sufficiently examine the exigibility of JoBro’s assets and its liabilities as is evidenced in the records of both JoBro and the Bank.
[37] In the result, I find the Master placed an incorrect weighty burden on the Bank. On the totality of the evidence before the Court, both the Bank’s and JoBro’s, I find the Bank has met its onus at the first step.
Did the Master Make Palpable and Overriding Errors?
The Comweb Agreement
[38] The Master found that the Comweb Agreement reduced JoBros’ liabilities. I find this is a palpable and overriding error that substantially impacts the outcome of the motion because, as Avenza observed, insolvency is a key factor in deciding the sufficiency of assets.
[39] As noted earlier, the Comweb Agreement purports that Comweb subordinates its interest to any cost award in favour of the Bank. The CEO of Comweb is Jonathon Bronfman’s father, Paul Bronfman. JoBro signed the Comweb Agreement just three weeks before Jonathon Bronfman was to undergo cross-examination on JoBro’s assets.
[40] As the Bank points out, and I agree, there is no evidence before the Court that Comweb forgave its loan to JoBro. This means for the purposes of the record before the Court that the debt remains in play and the status of JoBro’s liabilities is not affected by the Comweb Agreement. There is another consideration. The agreement directly affects the Bank’s interests and they are not a party to it. There is therefore the further issue the Bank raises that the Bank has no privity to enforce the agreement in the event that Comweb breaches. This goes to the basic validity of the Comweb Agreement.
[41] The finding of fact that the Comweb Agreement reduced JoBro’s liabilities is an error and must be overturned.
The Secured Interests
[42] The Master also makes a palpable and overriding error in finding JoBro had sufficiently accounted for all of its indebtedness. Again, this error directly impacts the central issue of the sufficiency of JoBro’s assets.
[43] Mr. Bronfman swore an affidavit in which he did not challenge the validity of the secured interests. On the record is a letter from Mr. Bronfman’s counsel where he makes the rather obscure statement that “certain of the PPSA registrations ... should have been discharged.” There is no evidence of discharges of any of the secured interests. Further, JoBro did not produce any of the underlying loan or security agreements requested by the Bank. Thus, I find there was no basis on which the Master could reasonably conclude that JoBro had sufficiently accounted for all of its secured indebtedness.
[44] The finding that JoBro had sufficiently accounted for all of its secured indebtedness is a palpable and overriding error and must be overturned.
The Second Step
Did JoBro Establish Sufficient Assets in Ontario?
[45] The Bank has satisfied its light onus and now the burden shifts to JoBro to demonstrate at the second step that it has sufficient assets and an order for security for costs would be unjust. The Master did not proceed to decide the second step which addresses JoBro’s onus and as such the Master is owed no deference on the second step. The Court can arrive at its own evaluation of the evidence: [Kerlow v. Corrigan, 2019 ONSC 5181, at para. 29, (Ont. S.C.J.)].
[46] Leaving aside the question of the applicability of the “robust particularity” standard, the onus on the plaintiff at the second step is still higher than the burden on the defendant at the first step. The plaintiff must meet the high threshold to satisfy the court of its chances of success: [Kerlow v. Corrigan, at para. 29].
[47] JoBro’s first position is that it has sufficient tangible assets to satisfy a cost award and no order for costs should be made. The burden is on JoBro in response to the Bank’s position to establish its assets are sufficient and readily exigible to satisfy a cost award: [Bluefoot Ventures, at para. 3].
[48] JoBro claims it is an operational and profitable company which has been involved in 25 feature films. As the Bank points out “the test is not whether the company is profitable but whether it has sufficient assets to meet a judgment for costs”: [Oz Optics Ltd. v. Sanftenberg, 2005 CarswellOnt 6761, at para. 2, (Ont. S.C.J.)]. What is required is a close look at the sufficiency and quality of the assets set out in the financial statement as well as any security encumbering those assets and any liabilities: [Marcon Custom Metals Inc. v. Arlat Environmental Inc., 2003 CanLII 24496 (Ont. S.C.J.)].
[49] The Bank also submits that Mr. Bronfman was evasive and refused to answer many basic questions about the operation and financial status of JoBro, knowledge he should have as the president and CEO. My review of the transcript reveals this to be the case.
[50] I agree with the problematic areas in the questioning as stipulated the Bank. Mr. Bronfman was evasive or did not answer questions in the following critical areas:
• whether JoBro has employees;
• whether there are material omissions in the unaudited financial statements;
• who is the “management” in JoBro that provided financial information as referenced by the accountants who prepared the financial statement;
• whether JoBro’s balance sheets allows the Bank to assess JoBro’s financial status for any period after April 30, 2018;
• whether JoBro Productions Inc. assumed all the assets of JoBro Film Finance Ltd. with the amalgamation that occurred on May 1, 2018;
• whether JoBro has produced any documentation that demonstrates what revenue JoBro had generated for any period; and
• whether there is any information or documentation outlining the expenses incurred by JoBro in relation to its projects.
[51] The Bank cites Marcon Custom Metals for the proposition that the plaintiff must expect rigorous cross-examination on a financial statement particularly when the statement is unaudited. The court held:
Knowledge as to the current assets and liabilities of the company lies within the knowledge of the company’s witness. If a witness is taken by surprise by documents put to him, questions could be answered by undertaking. It bears repeating that the onus is on the plaintiff resisting an order for security for costs to prove the sufficiency of its assets by convincing evidence. It is incumbent on the corporation to provide information and supporting documentation as to the current status of its assets and liabilities, particularly liabilities secured against those assets put forward as available to pay a judgment for costs. While there may be limits as to the extent of the cross-examination on details of every individual transaction, every item of property or each receivable, in my view the questions posed on this cross-examination did not cross the line. The questions refused were directed to documentary proof of key items put forward as sufficient assets.
[Marcon Custom Metals, at para. 24]
[52] I agree with the Bank’s position that the areas of questioning about JoBro’s personnel, its revenue, assets, liabilities and expenses are relevant queries Mr. Bronfman ought to have expected to be asked and should have answered.
[53] JoBro asserts that the following establish the sufficiency of its assets:
· $350,000.00 available on its line of credit;
· Short-term accounts receivables of $245,000.00, incoming by July 2019 and December 2019;
· a 50% interest in MARZ, a profitable special effects company;
· cash in its bank account of $112,538.00 as of May 29, 2018; and
· profit participation in several films.
[54] Regarding the line of credit, JoBro has not furnished any underlying documentation setting out the terms of the credit, for instance, regarding the purpose for taking out the line of credit, the payment terms and payment history. It is a reasonable inference and not speculation to believe there is the possibility that the line of credit monies could be disbursed before trial. There is no agreement by Mr. Bronfman that any amount would be preserved in the event of an order for security for costs: [Tiberian Investments Ltd. v. 297518 Ontario Limited, 2018 CarswellOnt. 17507, at para. 13, (Ont. S.C.J.)]
[55] JoBro relies largely on its accounts receivable as an asset that will contribute to satisfying a cost award. JoBro has refused to answer questions that might establish if the account receivables are readily realizable. The financial statement containing reference to the account receivables is not only not up-to-date, it is unaudited such that the reliability of information about the accounts receivables and other assets is not certain. Then there is the added issue that whatever value the account receivables may have is subject to the interests of secured creditors. Again, the receivables are not subject to an undertaking by JoBro to preserve payments in the event of a cost award. Thus, a reasonable inference could be drawn that payments could be dissipated before trial: [Tiberian Investments, at para. 13].
[56] As addressed above, JoBro has not presented a sufficient picture of its liabilities. Disclosed are liabilities of $500,000.00 on the unaudited 2018 financial statement ending April 30, 2018. There are security interests that are not reported. The PPSA search reveals 11 secured interests and discloses only the $1,745,109.00 debt to Film Finances Canada Ltd.
[57] JoBro has not provided critical information. To meet its onus JoBro is obligated to present underlying documentation for the secured debts which would reveal loan agreements terms, corporate filings and tax notices of assessment. JoBro has disclosed no evidence that any of the security interests has been discharged. It appears on the evidence that has been disclosed that JoBro’s liabilities exceed its assets by at least $2.2 million.
[58] Another asset JoBro relies on is investments in various film projects and a 50% interest in a special effects company. Simply asserting the investments and the interest in the company exist does not amount to proof of sufficient assets. Mr. Bronfman has not provided underlying financial documentation or oral evidence attesting to the value and exigibilty of those interests.
[59] Regarding the cash in JoBro’s chequing account, I agree with the Bank that it is not possible to determine how long the cash will remain in that type of business account since it is used for day-to-day business affairs. Again, JoBro has not undertaken to preserve any amount of the funds in the account in the event of an order for security for costs. It is a reasonable inference and not speculation that the funds could potentially be disbursed before trial: [Tiberian Investments, at para. 13].
[60] Further, the unaudited financial statement and Mr. Bronfman’s affidavit do not disclose evidence of the company’s operating expenses. The uncertainty about the flow of cash in the bank account is ever more accentuated by the existence of the creditors that have security interests over all JoBro’s assets including bank accounts.
[61] I accept the Bank’s submission that an adverse inference may be drawn against JoBro for Mr. Bronfman’s refusal to answer relevant questions and provide critical documentation clearly necessary to determining the central issue in this motion. Failure to produce this evidence leaves the Court to question the exigibility and sufficiency of JoBro’s assets: [Macron Custom Metals, at para. 23]. This is information it can be reasonably inferred would be within the possession or knowledge of Mr. Bronfman as the president and CEO of JoBro.
[62] In conclusion, I find on all the evidence that JoBro has not demonstrated that it has exigible, readily realizable assets sufficient to satisfy an order for security of costs.
Would an Order for Security for Cost be Unjust?
[63] If the Court decides in favour of the Bank on the first step, JoBro takes the alternative position that it would be unjust to be subject to an order for security for costs. The plaintiff may establish that an order for security is unjust by demonstrating, among other things, that the plaintiff has sufficient assets in Ontario to satisfy an order for costs, the plaintiff is impecunious or that the plaintiff’s claim has a good chance of success on the merits: [2311888 Ontario, at para. 17].
[64] I find that JoBro has not satisfied the Court that a security of costs order would be unjust. I have found on the evidence that JoBro has not demonstrated it has sufficient exigible assets to satisfy a cost award to the Bank. JoBro does not claim impecuniosity. Unfairness would not result on the basis of those factors.
[65] JoBro also points to the Bank’s conduct as a source of unfairness. JoBro cites cases where the court decided not to order security for costs due to the wrongful conduct of the defendants: [Sirron Systems v. Insyght Systems Inc., 2018 ONSC 1928, at paras. 32 and 33, (Ont. S.C.J.) and Cigar500.comInc. v. Ashton Distributors Inc, 2009 CarswellOnt 5241, at para. 40, (Ont. S.C.J.)].
[66] I find the facts of those cases are distinguishable from the case before this Court. The case at hand turns primarily on the credibility of JoBro’s allegation that a senior representative of the Bank made misrepresentations to JoBro from which the Bank benefited that induced JoBro to invest in the feature film. JoBro faults the Bank for its loss of $3 million on the investment.
[67] On the merits of the case, I find it is not evident at this early stage in the litigation whether there is any basis to forecast the strength of either party’s position in the action. This is a credibility case. This is a case where there is no evidence available at this stage that tends to favour the success of either party. The credibility of the witnesses must be tested at trial.
[68] Without having to consider the applicability of the robust particularity standard, I find JoBro has not met the other high threshold recognized by the courts, its obligation to adduce evidence to satisfy the court of its chances of success at trial: Kerlow v. Corrigan, at para. [29].
ESTIMATED COSTS OF THE BANK
[69] Counsel for the Bank has filed a draft Bill of Costs of the Defendant which provides its partial indemnity costs to May 23, 2019 and estimates its partial indemnity costs of the litigation going forward. In terms of the nature of the litigation, the Bank points out that this action does not stand alone. This is one of several actions JoBro has brought against numerous other parties in relation to financing the same film. The Bank submits that this action is a complicated matter such that it has been ordered to be case managed.
[70] The Bank explained that four of the actions were consolidated with the case at hand and that one of the other three actions has settled. The three remaining actions will either be heard together or one after another. In whatever case, the Bank will incur extra costs in relation to the other actions in addition to the costs of the action at hand.
[71] To May 23, 2019, the file has been billed at lower rates for the services of three lawyers recently called to the bar, two lawyers called in 2018 and the other in 2019. The total legal fees billed to May 23, 2019 is $199,050.00. The total estimated bill for legal fees going forward is $437,488.48. The total estimated bill, inclusive of disbursements, taxes and interest, is $532,324.98.
[72] I find the Bank’s projected amount of costs of the action to be reasonable.
ORDER
[73] The appeal is allowed. The National Bank of Canada has succeeded in establishing a good reason to believe JoBro Film Finance Ltd. has insufficient assets to satisfy a cost award.
[74] Accordingly, the Court Orders JoBro Film Finance Ltd. to post security for costs pursuant to s. 56.01(1)(d) of the Rules of Civil Procedure.
COSTS
[75] Costs are awarded to the National Bank of Canada.
[76] The parties have agreed on costs fixed as follows: costs of the motion at first instance before Master Muir on July 9, 2019 at $16,921.19 and costs on this appeal heard on February 3, 2020 at $10,000.00, inclusive of taxes and disbursements.
[77] Costs are payable within 30 days of this Order.
B.A. Allen J.
Released: February 13, 2020
COURT FILE NO.: CV-18-591227
DATE: 20200213
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JoBro Film Finance Ltd. Plaintiff (Respondent)
– and –
National Bank of Canada Defendant (Appellant)
REASONS FOR Decision (in respect of an Appeal of a Master’s Order on Security for Costs)
B.A. Allen J.
Released: February 13, 2020
[^1]: As will be discussed further below, JoBro entered into an agreement with Comweb Corporation days before cross-examination of Jonathon Bronfman in which Comweb agreed to subordinate its debt to any costs awarded to the Bank.