Premium Host Inc. v. Paramount Franchise Group et al., 2021 ONSC 1832

Court File and Parties

COURT FILE NO.: CV-18-591679 MOTION HEARD: 20210309 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Premium Host Inc., Plaintiff AND: Paramount Franchise Group, Paramount Franchise Inc., 2302733 Ontario Inc., Mohamed Fakih, Holly Graham and Michel Gagnon, Defendants

BEFORE: Master P. Tamara Sugunasiri

COUNSEL: D. Altshuller, L. DiGenova, Counsel, for the Defendants/Moving Parties A. Boudreau, Counsel, for the Plaintiff

DATE: March 10, 2021

REASONS FOR DECISION

Overview and Brief Conclusion:

1In 2015 Versatile Holdings, Everest Group Inc. and Premium Host Inc. each purchased a Paramount Restaurant franchise (collectively the “Franchisees”). In 2017 they delivered notices of rescission under the Arthur Wishart Act (Franchise Disclosure), 2000 and ceased operating. In November of that year RBC commenced actions against Versatile, Everest and its principals for repayment of loans. In February of 2018, Premium Host commenced the within action against Paramount as the franchisor, and others (“Franchisor Group”), seeking to validate its notice of rescission and recover damages. In March, Versatile and Everest followed suit and commenced third party claims against the franchisor for the same relief. In April of 2018, Paramount and others counterclaimed in all three actions for breach of contract and the recovery of other funds said to be owing by the franchisees.

2This action is schedule for trial commencing March 15, 2021. It will be heard together with the two third party actions or one after the other as the trial judge directs. The Franchisor Group seeks a late date order for security for costs on the basis that they have reason to believe that the corporate plaintiffs have insufficient assets in Ontario to satisfy a costs award. They seek costs collectively from the Plaintiffs to the global benefit of the three actions.

I dismiss the motion with costs to the plaintiffs because the Franchisor Group has not persuaded me that the relief sought is available and the moving parties cannot rely on the basket clause to obtain alternative relief.

Law and Analysis:

3The Franchisor Group’s original Notice of Motion dated October 23, 2020 and Amended Notice of Motion seeks the following relief:

An Order that the Plaintiff/Defendant by Counterclaim in the within action (Premium Host Inc), together with the Defendant in the second related action… (Versatile Holdings Inc.), and together with the Defendant in the third related action… (Everest Group Inc.) collectively pay into court to the credit of the three Claims… $597, 427.32… within 10 days from the issuance of the within order;

An order granting costs of the motion on a partial indemnity basis, payable forthwith; and

Such further and other Relief as to this Honourable Court may seem [sic] just.

4In their factum dated February 23, 2021, the Franchisees argue that:

a. The three subject actions have not been consolidated and therefore remain separate and distinct though marching along together (Paterson v Stewart Title Guaranty Company, 2020 ONSC 4609 at para. 20);

b. There is no basis in law to order a plaintiff in one action to post security for costs for the benefit of a separate action in which it is not a party;

c. The Franchisor Group failed to provide any authority for a collective payment order in three actions that have not been consolidated into one; and

d. The Franchisor Group has not sought alternative relief.

5I agree with the Franchisees’ position. Rule 56.01 makes it clear that a defendant in a proceeding may seek an order for security for costs from “the plaintiff”. This presumes that the plaintiff in question is the plaintiff who commenced the subject action; not a plaintiff in a companion action. The Franchisor Group has not persuaded me why and how I can deviate from this principle; in fact, they have not attempted to persuade me at all. Despite the Franchisees raising this issue, the Franchisor Group did not address the issue in a Reply factum (which if not contemplated in the timetable of steps, could have been discussed with opposing counsel or raised with the court prior to the hearing to obtain leave to file a reply factum), nor in oral submissions. At the hearing, I was not directed to any law, legal argument, precedents, applicable first principles or other authority that could support a collective security for costs order. The Franchise Group simply indicated that it was a practical order given the interrelatedness of the actions, principles and shareholders, and that the trial judge could apportion the security, after the trial. This may be; however, the court is only left to speculate. the Franchisor Group provided no legal basis or other rationale for me to disrupt the principle that a plaintiff is not responsible for securing the costs of a defendant in another action in which it is not a party. It was open to and incumbent on the Franchisor Group to make any and all arguments to persuade me to consider this novel order, especially knowing that the Franchisees were challenging its legality.

6When pressed at the hearing on this issue, counsel suggested that I could order separate security for costs payments by splitting the global costs amount into three unequal parts of two-fifths, two-fifths and one-fifth based on counsel’s estimate of how much relative time was spent on each action. He relied on the basket clause in his clients’ Notice of Motion to support such an order. After the morning break counsel presented the Supreme Court of Canada’s decision in Native Women’s Assn. of Canada v Canada, [1994] 3 SCR 627 to support the proposition that I may rely on the basket clause to grant three separate security for costs orders instead of one collective order to the benefit of three separate actions.

7Unfortunately, the case does not advance the Franchisor Group’s position. It simply stands for the principle that a court can rely on the basket clause to grant relief (like declaratory relief) that is ancillary or necessarily incidental to the relief requested. This interpretation of Native Women’s Assn. is supported by the FCA in Spirits International BV v SC Prodal 94 SRL, 2009 FCA 88 at para. 11. The Native Women’s Assn. of Canada was seeking an order of prohibition to stop the federal government from funding certain organizations. The Federal Court dismissed the request. They appealed to the Federal Court of Appeal. The FCA allowed the appeal but offered a declaration that the appellant’s Charter rights were violated. One of the questions the SCC had to consider was whether declaratory relief was available to the FCA even though it had not been specifically requested. The SCC concluded that the FCA was able to grant declaratory relief under the basket clause. The declaratory relief was clearly incidental to the order of prohibition because the order of prohibition would have required the finding of the very Charter breach that the FCA confirmed in its declaration. In other words, the prohibition order required two steps – first the finding of the Charter breach, and second, a remedy for that breach. The FCA declined to grant the remedy requested but instead declared the Charter breach.

8I decline to use the basket clause in the Notice of Motion to consider relief that the Franchisor Group could have and should have sought in the alternative, with proper notice to the Franchisees. As more recently noted by the Ontario Court of Appeal in Douglas v Stan Fergusson Fuels Ltd., 2018 ONCA 192, the inclusion of a basket clause in a notice of motion is not a basis for a motions judge to grant relief that was not sought by the moving party, on a basis not argued by it. As in Native Women’s Assn, supra, basket clauses are generally used to provide relief that is ancillary to or necessarily incidental to the relief sought (see for example Danada Enterprises Ltd v Canada (Attorney General), 2012 FC 403). The proposed alternative relief here is not merely ancillary or necessarily incidental to the main relief sought.

9One of the reasons that the court limits the use of a basket clause is to ensure procedural fairness. Parties should generally know the case they have to meet before the hearing. In this case, the late request for alternative relief denies procedural fairness to the Franchisees. Having challenged the availability of the main relief sought, the Franchisees arrived at the hearing with no idea that the Franchisor Group’s response was to seek separate orders as an alternative remedy under the basket clause. In contrast, the Franchisor Group knew before the hearing that the Franchisees were going to challenge the legality of the order sought. Their choice to ignore it is a risk that should be entirely born by them.

10The Franchisor Group submits that there is no prejudice to the Franchisees because the test for security for costs remains the same, regardless of whether it is a collective order or separate orders. Even if true, the Franchisees were entitled to know the case they had to meet and they may have made different arguments or taken a different approach to the security for costs motion if they had known the Franchisor Group’s position before the hearing. They might, for example, have presented three Bills of Costs to provide a comparison of what reasonable costs might be. At the moment, they have provided a global Bill of Costs to allow the court to compare “apples to apples”. They may have suggested different factors at play based on the existence of different shareholders and principals of the Franchisees or other information particular to each franchisee. At the very least the Franchisees might have been prepared to respond to the arguments we are now all addressing “on the fly”. It is unfair to force the Franchisees to pivot at the hearing on a material issue when the Franchisor Group could have given fair and proper notice of the proposed alternative relief.

11Considering separate orders under the basket clause is also unfair to each franchisee because it will lead to an arbitrary quantum of security and therefore an unjust order. The basket clause only contemplates alternative relief that the court may “deem just”. The current record does not assist the court in quantifying the security to be posted for each action. It does not break down the Franchisor Group’s costs by action. It is incumbent on the party seeking security for costs to provide a detailed Bill of Costs to assist the Court in determining the fair amount that a plaintiff must post. The present record contains a global Bill of Costs where the cost of the work for all three cases is lumped together as one amount. Counsel suggested a method of dividing this global amount based on his estimate of time spent should I conclude under the basket clause that separate orders are more appropriate. His suggestion is not grounded in any evidence in the record. While lawyers are officers of the court and can provide uncontroversial information to the court without the need for formal evidence, more is needed when the information goes to the core of the relief requested. The current evidentiary record does not assist me in quantifying the amount of security to be posted in each action nor does it give the Franchisees any notice or ability to provide an alternate figure or methodology. There is no more a basis to split the cost evenly amongst the three plaintiffs than there is to split it two-fifths, two-fifths and one fifth as counsel suggested at the hearing. Based on the current record, quantification would be arbitrary and not “other relief” that the Court would deem just.

12There was no need for this uncertainty and speculation. It would have been easy for the Franchisor Group to either respond to the issue raised by the Franchisees prior to the hearing or put alternative relief in the Notice of Motion given its novelty (it is clearly novel because the Franchise Group could not direct me to any other case where a collective security for costs order was made). It could then have been fully argued by both sides, with proper notice to the parties and the court. Instead, notwithstanding the Franchisees’ argument, the Franchisor Group arrived at the motion with no case law or precedent, no real argument why I should set a new precedent and with no intention to address the problem but for my question to counsel. To be clear, I am not concluding that a collective security for costs order is never be possible or might not have been possible in this case. I am stating that its rationale and legal underpinning was for the moving Franchisor to present, on notice, and is not something for the court to cook up in chambers thereby depriving the Franchisees of a fair opportunity to respond.

13In the circumstances, I dismiss the motion on this basis alone. The relief requested is contrary to Rule 56.01 and is unsupported, the moving Franchisor Group did not put the Franchisees on notice of the alternative relief, the moving Franchisor Group cannot now rely on the basket clause to seek the alternative relief of separate orders, and separate orders in any event would not be just because the quantification of security would be arbitrary and unsupported by the current record.

Costs:

14The parties have provided me with their cost outlines. The Franchisor Group seeks approximately $60,000 inclusive of HST and disbursements as partial indemnity costs. The Franchisees seek $70,000. There is no reason to deviate from the principle that costs follow the event. The moving parties seeking relief in the Notice of Motion are listed as Paramount Franchise Group Inc., Paramount Franchise Inc., Fakih Group Inc., Mohamad Fakih and 2302733 Ontario Inc. (paragraph (a)). I order them to pay $70,000 in costs to Premium Host Inc., Versatile Holdings Inc., and Everest Group Inc., forthwith given the impending trial. The above-named moving parties are jointly and severally liable for the costs order.