COURT FILE NO.: CV-13-489748 DATE: 20210219
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
CHILL MEDIA INC. Plaintiff
- and - BREWERS RETAIL INC. O/A THE BEER STORE, MOLSON-COORS CANADA INC., LABATT BREWING COMPANY LTD. and SLEEMAN BREWERIES LTD. Defendants
Counsel: Joan Kasozi for the Plaintiff Samantha Green for the Defendants Brewers Retail Inc. o/a The Beer Store, Molson-Coors Canada Inc., Labatt Brewing Company Ltd., and Sleeman Breweries Ltd.
HEARD: February 9, 2021
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] In this action, Chill Media Inc. sues Brewers Retail Inc, which operates as the Beer Store. Chill Media’s claims against the other defendants have been discontinued. Brewers Retail has a counterclaim against Chill Media.
[2] Now before the court, there is a motion by Brewers Retail and a cross-motion by Chill Media. In its motion, Brewers Retail seeks an Order pursuant to rule 56.01 of the Rules of Civil Procedure [1] that Chill Media post security for costs. Brewers Retail seeks security for costs of $352,000 payable within 30 days. In its cross-motion, Chill Media seeks an Order varying the Order of Justice Myers. More precisely, Chill Media seeks permission to late file four experts’ reports, two of which have been served on Brewers Retail and two of which that are almost ready to be served.
[3] For the reasons that follow, I grant both motions subject to terms. Chill Media shall have 60 days to post security for costs of $100,000. The action shall not be stayed in the interim.
B. Overview of the Security for Costs Motion
[4] This action commenced in October 2012 at a time when Chill Media and Brewers Retail had a contractual relationship. The contractual relationship ended in May 2014, and the litigation continued through examinations for discovery and to the preemptory scheduling for a ten-day trial for later this year. In December 2020, Brewers Retail brought a motion for security for costs in the amount of $352,000 for the costs incurred to date and for the budgeted costs of the ten-day trial.
[5] On the motion for security for costs, it was uncontested that Chill Media was a corporation with insufficient assets in Ontario to pay the costs of Brewers Retail. Chill Media submitted, however, that the motion for security for costs should be dismissed because: (a) Brewers Retail had delayed in bringing the motion and Chill Media would be prejudiced by an Order for security for costs at this time and it would be denied access to justice for a meritorious claim; or (b) Chill Media was impecunious and unable to pay security for costs and the justice of the case required that Brewers Retail’s motion be dismissed.
[6] As explained below, on the motion for security for costs, Chill Media did not establish impecuniosity. And Brewers Retail’s alleged delay in bringing the motion is not a bar to its motion for security for costs because there was no delay.
[7] Thus, Brewers Retail has satisfied the test for an order for security for costs. In the circumstance of this case, it was appropriate to order security for costs prospectively for the trial. In the circumstances of this case, the appropriate quantum for the security for costs is $100,000 payable within 60 days.
C. Law: Security for Costs
[8] Rule 56.01(1) provides that:
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;
(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; or
[9] On a motion for an order for security for costs, the initial onus is on the party moving for security to show that the other party falls within one of the circumstances for which an order may be made; then the responding party may avoid the order by showing that security is unnecessary because it has sufficient exigible assets in Ontario or that it should be permitted to proceed to trial despite its inability to pay costs. [2]
[10] Where the defendant relies on the plaintiff or applicant having insufficient assets in Ontario to pay costs, the onus of proof on the defendant is modest and he or she must just show that there is a basis for concern about the sufficiency of assets. [3]
[11] A party may rely on his or her impecuniosity as a ground to resist a motion for security for costs, particularly when the other party’s alleged wrongdoing caused the impecuniosity. [4]
[12] A litigant who relies on impecuniosity bears the onus of proof on this point and must do more than adduce some evidence of impecuniosity and must satisfy the court that he or she is genuinely impecunious with full and frank disclosure of his or her financial circumstances and his or her incapacity to raise the security. [5] There is a high evidentiary burden to demonstrate impecuniosity, and if full disclosure is not made, impecuniosity will not be a factor in the exercise of the court’s discretion. [6]
[13] A corporate plaintiff or applicant relying on impecuniosity must show not only that it does not have sufficient assets itself but also that it cannot raise the funds for security for costs from its shareholders and associates. [7] A corporate plaintiff or applicant must provide substantial evidence about the ability of its shareholders or others to finance the litigation and a bare assertion of inability will not suffice. [8] Since the onus is on the plaintiff to establish impecuniosity, the defendant’s decision not to cross-examine does not entail that impecuniosity has been conceded or established. [9]
[14] Where impecuniosity is shown, to avoid having to post security for costs, the plaintiff needs to demonstrate only that his or her claim is not plainly devoid of merit. [10] Conversely, where the plaintiff fails to show that he or she is impecunious, then to avoid posting security, he or she will have to demonstrate a stronger case on the merits or some other reason to justify the court not ordering that security be posted. [11] If the plaintiff shows a real possibility of success, then the court may conclude in the circumstances of the case, justice demands that he or she not be required to post security. [12] Other relevant factors include the nature and complexity of the plaintiff’s action and the likelihood that an order to post security will impede the plaintiff from pursuing his or her claim. [13]
[15] On a motion for security for costs, the court has a broad discretion in deciding whether ordering security for costs is just in the circumstances. [14] In determining whether to order security for costs, the overarching principle is whether in all the circumstances the order is in the interests of justice and even where the requirements of the rule have been met, the court has discretion to refuse to make the order. [15] The security for costs rule is not to be used as a litigation tactic to prevent a case from being heard on its merits. [16]
[16] The merits of the plaintiff’s case are a relevant factor in the exercise of the court’s discretion to make an order for security for costs. [17] However, a security for costs motion is not a decision on the merits akin to a summary judgment motion and the analysis of the merits is primarily based on the pleading with recourse to the evidence filed on the motion, and in appropriate cases, the excerpts from the transcripts from the examinations for discovery. [18]
[17] The defendant’s unexplained delay in moving for security for costs when aware of the plaintiff’s impecuniosity is a factor that may be considered in exercising the court’s discretion. [19] The defendant’s delay and evidence that the plaintiff has been prejudiced by the delay may be sufficient to defeat the motion for security for costs. [20]
[18] Although the court has the discretion to make any order for security for costs that is just in the circumstances, the general rule is that a defendant can obtain security for costs for the costs incurred up to the hearing of the motion and prospective costs. [21] The court may consider all the factors including the financial circumstances of the plaintiff or applicant, the nature of its claim, and the timing of the motion for security for costs, to order less than the amount requested by the defendant. [22] In exercising its discretion, the court may because of the timing of the motion specify that the quantum should reflect the costs of the proceeding prospectively. [23]
D. Background to the Motion for Security for Costs
1. Facts
[19] Chill Media is an Ontario corporation with its registered office in Oakville, Ontario. It carries on business as a magazine publisher. Scott Stevenson is the director and principal shareholder of Chill Media. David McClean is a minority shareholder.
[20] Brewers Retail operates more than 440 “The Beer Store” retail outlets in Ontario selling beer.
[21] In March 2003, Chill Media and Brewers Retail entered into a Publishing & Distribution Agreement under which Chill Media was given the exclusive right to distribute Chill Magazine as a free publication to The Beer Store’s customers.
[22] In 2008, pursuant to another Publishing & Distribution Agreement, the exclusive distribution right was continued to May 31, 2014, when the agreement was scheduled to expire.
[23] Under the Publishing & Distribution Agreement, Brewers Retail promised to promote Chill Magazine with in-store radio announcements (ambient radio), and in-market and online posting. Under the agreement, Brewers Retail was obliged to create a distribution list and to display Chill Magazine at its outlet stores. The distribution list was the basis for determining the number of issues that would be made available at each outlet. It was Brewers Retail’s obligation to take delivery of the magazines at each outlet and refill the magazine racks at each store.
[24] Chill Media did not earn revenues from selling Chill Magazine, which it distributed for free. The cost of producing Chill Magazine was 95 cents per issue. Chill earned revenue by selling advertising. It charged advertisers a fee based on the number of magazines it printed for delivery to The Beer Store outlets.
[25] On February 14, 2012, Chill Media discovered that Brewers Retail did not distribute to its outlets and destroyed approximately 39,900 copies per issue of Chill Magazine, approximately 262,000 issues per annum which was about 19.4% of the print run. Brewers Retail also discontinued its ambient radio broadcasts in its stores. It is alleged that Brewers Retail failed to update and maintain distribution lists with the result that over 1.6 million magazines were wasted. Chill Media claims $1.5 million for the wasted magazines.
[26] On October 1, 2012, before the expiry of the agreement, Chill Media sued Brewers Retail for breach of the 2008 Publishing & Distribution Agreement.
[27] On May 31, 2014, the 2008 Publishing & Distribution Agreement came to an end. The end of the contract was devasting to Chill Media’s business. It gradually went out of business. Its efforts to attract investors from retailers, publishers and printers failed. It was unable to distribute Chill Magazine at food and beverage stores but because of the magazine’s close association with Brewers Retail, there was no take up of the publication.
[28] Chill Media became insolvent. Mr. Stevenson and Mr. McClean depose that Chill Media is impecunious. They admit that Chill Media does not have assets in Ontario to pay costs to Brewers Retail. Chill Media submits that it cannot raise the funds for security for costs. The Plaintiff’s financial statements show that the Plaintiff is impoverished. Mr. Stevenson deposed that he does not own property and his wife owns one property. He deposed that he is recently separated from his wife. Mr. Stevenson owns several start-up companies, but he says that he is unable to raise funds to pay security for costs and that an order for security for costs will bring this litigation to an end.
2. Procedural Background
[29] A chronology of the procedural background to the action and the two motions now before the court is as follows:
a. On October 1, 2012, Chill Media commenced the action by Statement of Claim. It claims damages of approximately $9 million for breach of contract.
b. On November 4, 2013, Brewers Retail made a Demand for Particulars.
c. On January 10, 2014, Chill Media delivered its responses to the demand for particulars.
d. Brewers Retail delivered its Statement of Defence and Counterclaim and on March 10, 2014, Chill Media delivered a Reply and Defence to Counterclaim.
e. On October 5th and 6th, 2015. Brewers Retail’s representative was examined for discovery.
f. On October 7, 2015 and November 12, 2015, Mr. Stevenson of Chill Media was examined for discovery. Chill Media’s affidavit of documents contained some information about Chill Media’s past and current financial circumstances. On his examination, Mr. Stevenson testified that Chill Media was losing money and had not been able to find a substitute distributor for its magazine.
g. On November 23, 2015, there was an unsuccessful mediation. The Honourable Coulter Osborne was the mediator.
h. On January 31, 2017, the parties consented to an order dismissing the action as against the Defendants Molson-Coors Canada Inc., Labatt Brewing Company Ltd. and Sleeman Breweries Ltd. The counterclaim was also dismissed as against Mr. Stevenson.
i. Around this time, Chill Media changed its lawyer to Cambridge LLP, but its former lawyer refused to transfer the litigation file to Cambridge LLP.
j. On June 21, 2018, Brewers Retail delivered an Amended Statement of Defence and Counterclaim.
k. On September 28, 2018, Chill Media served a trial record and a notice of motion for a status hearing.
l. On November 20, 2018, Cambridge LLP attempted to set the action down for trial but was unable to do so because the Demand for Particulars, the Reply to the Demand for Particulars, and the Reply had not been filed.
m. On November 23, 2018, at the status hearing, Master Graham granted Chill Media leave to file its trial record and ordered that Chill Media shall: (a) answer all undertakings outstanding by March 31, 2019; (b) attend a further examination for discovery on or before May 31, 2019; and (c) answer any additional undertakings by July 15, 2019.
n. On October 15, 2019, Chill Media served some of its answers to undertakings from Mr. Stevenson's examination for discovery. Chill Media was unable to provide complete answers because its former lawyer was still refusing to deliver the litigation file, which contained the documents necessary to answer the undertakings. Amongst the material provided by Chill Media was a statement of income and retained earnings for the fiscal years 2004 to 2018. The statements indicated that Chill Media had retained earnings of close $300,000 as of July 31, 2018. Chill Media’s productions included an adjusted summary of Chill Media's revenues and expenses for fiscal years 2004 to 2013. The summary revealed that Chill Media had earned revenues of almost $20 million between 2004 and 2013. The financial statements produced, however, did not include a statement of assets and liabilities.
o. On November 28, 2019, Master Brott issued an Order that: (a) Brewers Retail serve its written interrogatories arising from Chill Media's answers to undertakings by December 31, 2019, (b) Chill Media answer the written interrogatories by February 14, 2020 and (c) Brewers Retail bring any refusals motion by April 30, 2020.
p. On December 30, 2019, Brewers Retail served its written interrogatories on Chill Media.
q. On February 10, 2020, at To Be Spoken to Court, Justice Myers set a timetable for the trial. The trial was scheduled for 10 days to commence on February 1, 2021. Chill Media was required to serve its expert’s reports by July 4, 2020. The deadline for Brewers Retail’s reports was set for October 4, 2020. Chill Media’s reply reports were due by November 4, 2020. Justice Meyers directed that the "schedule for delivery of experts' reports […] may not be amended except with leave of a judge."
r. In March 2020 because of the Covid-19 pandemic, the Government of Ontario declared a state of emergency.
s. On April 27, 2020, Brewers Retail served a motion to strike out the Statement of Claim for failure to comply with Master Brott's Order or alternatively to compel Chill Media to answer outstanding undertakings and refusals and the written interrogatories.
t. On June 25, 2020, Chill Media delivered some more answers to the written interrogatories. These documents were the first disclosure of Chill Media’s assets. The answers to undertakings included financial statements including asset and liability and income statements.
i. Chill Media's unaudited statement of income and retained earnings for the fiscal year ended July 31, 2015 recorded revenues of $960,806 and retained earnings of $618,464.
ii. The 2019 financial statement showed that from 2018 to 2019, Chill's retained earnings went from a positive position in 2018 to a deficit in 2019 of $11,354.
u. Because of the Covid-19 pandemic interrupting work schedules and associated personal issues, Chill Media’s counsel was unable to retain an expert and Chill Media did not deliver its expert’s reports by the July 4, 2020 deadline.
v. Although Chill Media had not delivered its expert’s reports, on October 5, 2020 Brewers Retail delivered its expert’s reports.
w. On October 13, 2020, Brewers Retail served a motion to strike or compel answers to still outstanding answers from the examinations for discovery.
x. On November 27, 2020, Chill Media served Brewers Retail with the reports of two experts. Sharon Dawe provided an opinion on the cost of magazine production and Ed Weiss opined about the damage allegedly caused by Brewers Retail’s failure to deliver Ambient Radio service.
y. There was a pre-trial conference on December 4, 2020. At the conference, Justice Stinson vacated the trial date of February 1, 2021 to allow Chill Media time to bring a motion for leave to file its experts' reports and for Brewers Retail to bring a motion for security for costs.
z. Having announced its intention to bring a motion for security for costs, following the December 2020 pre-trial, Brewers Retail retained a licensed private investigator, Thomas Klatt of Klatt Investigations, to investigate the financial circumstances of Chill Media. Mr. Klatt reported that his investigation revealed that Chill Media was not operational. He reported that Chill Media was no longer a tenant of the premises reported to be its registered office at its reported mailing address. A real property and personal property search revealed no registrations involving Chill Media. There was no evidence of it having any property, even a bank account.
aa. On January 21, 2021, former Plaintiff’s counsel released the litigation file to Cambridge LLP.
bb. On January 25, 2021, Justice Wilson scheduled a second pre-trial to occur on August 24, 2021, and she scheduled the trial to start the week of October 18, 2021 for 10 days on a peremptory basis.
cc. To date, Brewers Retail has incurred legal costs on a lawyer and client basis of approximately $295,000 plus disbursements of $30,989. Its partial indemnity costs to date are $172,166.08. Its anticipated partial indemnity costs for the ten-day trial including preparation are $179,670.00.
dd. Brewers Retail is requesting that Chill Media be required to post security for costs of $352,000.
E. The Motion for Security for Costs
[30] In the immediate case, it was not disputed that Chill Media is a corporation with insufficient assets in Ontario to pay Brewers Retail’s costs. In accordance with the case law described above, the onus shifted to Chill Media to avoid the order for security for costs by showing that security is unnecessary because: (a) it has sufficient exigible assets in Ontario; or (b) that it should be permitted to proceed to trial despite its inability to pay costs.
[31] In the immediate case, Chill Media conceded that it was not in the position to show that it had sufficient assets to pay costs, so it bore the onus of showing that it should be permitted to proceed to trial despite its inability to pay costs.
[32] Chill Media’s first line of defence to the motion for security for costs was that the motion should be dismissed because of Brewers Retail’s unexplained and prejudicial delay in bringing the motion for security for costs after it knew that Chill Media had insufficient assets in Ontario to pay Brewers Retail’s costs. Chill Media submits that Brewers Retail would have known of Chill Media’s financial plight no later than the time of the examinations for discovery in 2015 but it delayed for five years to bring a motion for security for costs.
[33] This line of defence, however, fails in the immediate case. There is no delay for Brewers Retail to explain. In 2015, Brewers Retail would not have known that Chill Media did not have sufficient assets in Ontario to pay security for costs. Based on the information it had available to it Brewers Retail, if it thought about it at all, would have thought that a motion for security for costs would fail. As noted above, in 2015, the financial statements revealed that up until then Chill Media had been a quite successful publishing company. In 2015, Chill Media was still in business and it was publishing a golf magazine.
[34] The reason that Brewers Retail only learned of Chill Media’s financial plight recently is that it appears that from 2015 until past 2020, Chill Media’s difficulties with its former lawyers delayed it in answering undertakings and delayed it in setting the action down for trial. As the more fulsome information became available to Brewers Retail, it perceived that the circumstances fell within the criteria of rule 56.01.
[35] When a well heeled litigant like Brewers Retail moves for security for costs, there is almost unavoidably the optics of a litigation tactic to avoid going to court. In the immediate case, I do not see Brewers Retail as moving for security for costs as a litigation tactic. Brewers Retail does not appear to be avoiding putting its substantive defence to a test. My assessment of the circumstances is that it is only recently that Brewers Retail learned that its opponent had become a shell corporation.
[36] Thus, Chill Media cannot rely on delay as a basis to avoid a security for costs Order. With this line of resistance failing, Chill Media submitted that it was impecunious but with a meritorious case and that it would be unjust if it denied access to justice.
[37] As the above discussion of the case law about security for costs motions reveals, a finding of impecuniosity is significant. It is significant because a party may rely on his or her impecuniosity as a ground to resist a motion for security for costs, particularly when the other party’s alleged wrongdoing caused the impecuniosity. Moreover, where impecuniosity is established, the party need only to demonstrate that his or her claim is not plainly devoid of merit to avoid having to post security for costs.
[38] In the immediate case, Chill Media’s breach of contract is not plainly devoid of merit. Indeed, it would appear that Chill Media has a reasonably strong case that there was a breach of contract, but it has a very challenging case on damages. On this motion for security for costs, however, the problem for Chill Media is not about the potential merits of its claim, the problem is that it has not remotely come close to establishing impecuniosity.
[39] As the discussion of the case law above reveals, a corporation that relies on impecuniosity bears the onus of proof on this point and must do more than adduce some evidence of impecuniosity and, rather, must satisfy the court that it is genuinely impecunious with full and frank disclosure of its financial circumstances and its incapacity to raise the security. In the immediate case, I am not satisfied that Chill Media is impecunious in the requisite legal sense.
[40] Thus, in the immediate case Chill Media has not met the onus of showing that it should be permitted to proceed to trial despite its inability to pay costs. In my opinion, in the circumstances of the immediate case it is appropriate to order security for costs.
[41] However, in the exercise of the court’s discretion, in my opinion, an award of $352,000 is inappropriate in the immediate case.
[42] The court has the discretion to make any order for security for costs that is just in the circumstances. In exercising its discretion, the court may consider all the factors including the financial circumstances of the plaintiff or applicant, the nature of its claim, and the timing of the motion for security for costs, to order less than the amount requested by the defendant. In exercising its discretion, the court may because of the timing of the motion specify that the quantum should reflect the costs of the proceeding prospectively.
[43] In the immediate case, in my opinion, Chill Media should have the opportunity to advance its breach of contract claim against Brewers Retail provided that it posts security for costs of $100,000.
F. The Motion for Late Delivery of the Expert Reports
[44] Rule 53.03 is the principal rule that governs the delivery of expert reports. Rule 53.03 states:
EXPERT WITNESSES Experts’ Reports 53.03 (1) A party who intends to call an expert witness at trial shall, not less than 90 days before the pre-trial conference scheduled under subrule 50.02 (1) or (2), serve on every other party to the action a report, signed by the expert, containing the information listed in subrule (2.1). (2) A party who intends to call an expert witness at trial to respond to the expert witness of another party shall, not less than 60 days before the pre-trial conference, serve on every other party to the action a report, signed by the expert, containing the information listed in subrule (2.1). Schedule for Service of Reports (2.2) Within 60 days after an action is set down for trial, the parties shall agree to a schedule setting out dates for the service of experts’ reports in order to meet the requirements of subrules (1), (2) and (3), unless the court orders otherwise. O. Reg. 438/08, s. 48; O. Reg. 537/18, s. 8 (1). Extension or Abridgment of Time (4) The time provided for service of a report or supplementary report under this rule may be extended or abridged, (a) by the judge or case management master at the pre-trial conference or at any conference under Rule 77; or (b) by the court, on motion.
[45] In the immediate case, in the circumstances of the pandemic and in the circumstances of its long running difficulties in obtaining the litigation file from its former lawyers, Chill Media has provided a reasonable explanation for its failure to meet the deadlines in Justice Myers’ Order.
[46] More to the point, Brewers Retail is not prejudiced or even discomforted by the late delivery of the reports. In this last regard, it should be noted that having regard to the centrality of Brewers Retail’s defence on damages, it will have the last say on the subject because I shall grant leave to Chill Media to deliver the two already delivered reports and the two pending reports within twenty days of the release of these Reasons for Decision on terms that Brewers Retail shall have sixty days from the service of Chill Media’s experts’ reports to deliver reply expert reports.
[47] In this way, all the expert reports will be available for the second pre-trial conference scheduled for August 24, 2021.
G. Conclusion
[48] Orders in accordance with these Reasons for Decision.
[49] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Brewers Retail’s submissions within twenty days of the release of these Reasons for Decision followed by Chill Media’s submissions within a further twenty days. I alert the parties that I am at present inclined to order the costs payable to Brewers Retail in any event of the cause but not forthwith.
Perell, J. Released: February 19, 2021