Court File and Parties
COURT FILE NO.: CV-19-616360
RELEASED: 2021/05/07
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1921628 Ontario Inc. v. Maria Liu and Rosemary Liu
BEFORE: Master Graham
HEARD: January 6, 2021
COUNSEL: Hutchison Lee for the plaintiff Bryan Fromstein for the defendants
REASONS FOR DECISION
(Re: Plaintiff’s motion to amend the statement of claim and defendants’ motion for security for costs)
[1] The plaintiff operated a Smoke’s Poutinerie franchise at premises leased from the defendants at 772 College Street, Toronto and claims damages arising from the defendants’ termination of the lease. The defendants submit that the plaintiff did not properly exercise its option to renew the lease when it expired on May 14, 2017, and then became an overholding tenant while the parties negotiated a new lease. The plaintiff ultimately vacated the property on November 15, 2017.
[2] The current claim is for “Return of security deposit held by the Defendant in the amount of $50,000.00 as well as about $8,000.00 in property”, plus interests and costs. The action was originally commenced in Small Claims Court against Maria Liu only. In January, 2019, Lederer J. granted orders increasing the claim and transferring the action to Superior Court. On April 16, 2019, Master Abrams granted an order for leave to issue a fresh as amended statement of claim and adding Rosemary Liu as a defendant.
[3] There are two motions before the court. The plaintiff brings a motion for leave to file a further fresh as amended statement of claim and the defendants bring a motion for security for costs.
Plaintiff’s motion to amend the statement of claim
[4] The plaintiff now moves to add to its claim the following heads of damages:
$180,000.00 for equipment loss;
$201,144.00 for business loss and general damages;
In the alternative, damages for breach of contract and/or breach of fiduciary duty in the [sic] amount to be determined.
[5] The substance of the plaintiff’s motion is to add two heads of damages to its claim, and two claims in the alternative, which the plaintiff submits arise from the claim as currently pleaded. The defendants oppose the motion on the basis that the proposed amendments include new claims that are barred by the two year limitation period in the Limitations Act, 2002, S.O. 2002 c. 24.
[6] The proposed draft pleading, titled Amended Claim of the “Fresh as Amended Statement of Claim”, also contains additional allegations not contained in the current version of the statement of claim. Generally, there are numerous passages in both the proposed amended pleading and the existing pleading that constitute extensive pleadings of evidence, contrary to rule 25.06(1), as well as argument. As I stated to counsel at the hearing, I will rule on the issue of whether the proposed additional claims may be added and, if I allow any of these additional claims, plaintiff’s counsel shall redraft a version of the statement of claim that complies with the rules of pleading.
[7] In support of its amendment motion, the plaintiff relies on the mandatory language of rule 26.01:
26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. [emphasis added]
[8] The plaintiff also relies on Sweda Farms Ltd. (c.o.b. Best Choice Eggs) v. Ontario Egg Producers, 2011 ONSC 6146, [2011] O.J. No. 4886 (S.C.J.), in which the plaintiff sought to amend the statement of claim to advance a conspiracy claim, along with other amendments. The defendant objected on the basis that any such claim was barred by the expiry of the limitation period. In allowing the amendments, Lauwers J. (as he then was) addressed the meaning of a cause of action (at para. 25):
25 I find that the broader, factually-oriented approach to the meaning of “cause of action” in interpreting and applying rule 26.01 is the correct approach. It is consistent with the trend of the cases and is also consistent with a purposive approach to the interpretation of limitations legislation. This means that the defendant’s basic entitlement is to have notice of the factual matrix out of which the claim for relief arises. In my view the existing set of pleadings raises the factual matrix of concern to the plaintiffs and within which the defendants’ possible liability is to be located. The proposed Fresh Statement of Claim simply reframes those allegations of fact. [emphasis added]
[9] The issue of whether an amendment constitutes a new claim was also addressed in Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6356 (Div. Ct.), in which Nordheimer J. (as he then was) stated, at para. 14:
14 As I have said, the central issue between the parties is whether the proposed amendments give greater clarity or particularity to the existing claim, or whether they advance new claims. On that point, the appellant relies heavily on the decision in 1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505 (S.C.J.) where Lauwers J. addressed this same issue. In that decision, Lauwers J. referred to the two different approaches to determining whether a claim is a new cause of action. On the one hand, one can see a cause of action as a factual matrix. On the other hand, one can see a cause of action simply as the legal basis upon which the claim for relief is based. Lauwers J. concluded that the trend of the case law was to favour the broader factually oriented approach to the meaning of a cause of action. Under that broader approach, if the defendant has notice of the factual matrix underlying the claim being advanced, then amendments that arise out of, or do not depart from, that factual matrix do not constitute “new” causes of action that would not be allowed by way of amendment. On that point, Lauwers J. said, at para. 27:
A plaintiff is not required to name or specify the technical cause of action as an essential part of pleading; in saying this, I do not resile from the requirement noted in Morden and Perell, supra, that ordinarily the facts as originally pleaded, or as better particularized in the proposed new pleading, must be able to sustain the technical cause of action. [emphasis added by Nordheimer J.]
[10] The defendants rely on Klassen v. Beausoleil, 2019 ONCA 407, in which the court addressed the issue of how to approach a pleadings amendment motion in the face of a potential limitation defence (at paras. 25-32):
[25] The rule [26.01] is framed in mandatory terms: the court must allow the amendment, unless the responding party would suffer non-compensable prejudice, the proposed pleading is scandalous, frivolous or vexatious, or the proposed pleading fails to disclose a reasonable cause of action: 158844 Ontario Ltd v. State Farm Fire and Casualty Co., 2017 ONCA 42, 135 O.R. (3d) 681, at para. 25; Iroquois Falls Power Corp. v. Jacobs Canada Inc., 2009 ONCA 517, 264 O.A.C. 220, at paras. 15-16.
[26] The expiry of a limitation period is one form of non-compensable prejudice. A party cannot circumvent the operation of a limitation period by amending their pleadings to add additional claims after the expiry of the relevant limitation period: Frohlick v. Pinkerton Canada Ltd, 2008 ONCA 3, 88 O.R. (3d) 401, at para. 24; 1100997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848, 409 D.L.R. (4th) 382, at paras. 21-23; United Food and Commercial Workers Canada, Local 175 Region 6 v. Quality Meat Packers Holdings Limited, 2018 ONCA 671, at paras. 64; Davis v. East Side Mario’s Barrie, 2018 ONCA 410, at paras. 31-32. In this regard, the “addition of new statute-barred claims by way of an amendment is conceptually no different than issuing a new and separate Statement of Claim that advances a statute-barred claim” (emphasis added): Quality Meat Packers, at para. 64; citing Frohlick, at para. 24.
[27] An amendment will be statute-barred if it seeks to assert a “new cause of action” after the expiry of the applicable limitation period: North Elgin, at paras. 19-23, 33; Quality Meat Packers, at para. 65. In this regard, the case law discloses a “factually oriented” approach to the concept of a “cause of action” – namely, “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”: North Elgin, at para. 19; Quality Meat Packers, at para. 65.
[28] An amendment does not assert a new cause of action – and therefore is not impermissibly statute-barred – if the “original pleading … contains all the facts necessary to support the amendments … [such that] the amendments simply claim additional forms of relief, or clarify the relief sought, based on the same facts as originally pleaded”: Dee Ferraro, at paras. 4, 13-14;North Elgin Centre Inc., at paras. 20-21; East Side Mario’s Barrie, at paras. 31-32; Quality Meat Packers, at para. 65. Put somewhat differently, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a "fundamentally different claim" based on facts not originally pleaded: North Elgin, at para. 23.
[29] The relevant principle is summarized in Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3rd ed. (Toronto: LexisNexis, 2017), at p. 186:
A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon [which] the original right of action is based.
[30] In the course of this exercise, it is important to bear in mind the general principle that, on this type of pleadings motion, it is necessary to read the original Statement of Claim generously and with some allowance for drafting deficiencies: Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources), 2016 ONSC 6359, 134 O.R. (3d) 390 (Div. Ct.), at para. 23.
[31] Finally, the court may refuse an amendment where it would cause non-compensable prejudice. The prejudice must flow from the amendment and not some other source: Iroquois Falls, at para. 20. At some point the delay in seeking an amendment will be so lengthy, and the justification so inadequate, that prejudice to the responding party is presumed. In this event, the onus to rebut the presumed prejudice lies with the moving party: State Farm, at para. 25.
[32] Alternatively, the responding party may resist the amendment by proving actual prejudice – i.e. by leading evidence that the responding party has lost an opportunity in the litigation that cannot be compensated by an adjournment or an award of costs as a consequence of the amendment. It is incumbent on the responding party to provide specific details of the alleged prejudice: State Farm, at para. 25. [emphasis added throughout]
[11] The issues on the motion are:
Whether any of the proposed amendments are new claims that arise other than from the factual matrix pleaded in the existing claim.
If any of the proposed amendments are new claims, whether they are statute barred based on the expiry of the two year limitation period.
Regardless of whether the proposed amendments arise from the existing factual matrix, will the defendants suffer prejudice as a result of the amendments?
1. Whether any of the proposed amendments are new claims that arise other than from the factual matrix pleaded in the existing claim.
[12] In the existing Fresh as Amended Statement of Claim, the plaintiff claims damages for “Return of security deposit held by the Defendant in the amount of $50,000.00 as well as about $8,000.00 in property” (para. 1.a.). The substance of the pleading is:
On April 8, 2016, the plaintiff purchased the subject business from a Smoke’s Poutinerie franchisee and signed the lease agreement with the defendants as the landlords of the property at 772 College Street. The remaining term of the lease expired on May 14, 2017, with two further options to renew of 5 years each, and the plaintiff was to pay an increased security deposit of $40,000.00. (para. 3)
On January 27, 2017, the defendants’ lawyer sent a letter stating that the landlords were prepared to renew the lease for a further term of five years provided that the plaintiff pay a further additional security deposit of $40,000.00. The plaintiff took issue with the further increase in the security deposit, negotiation of the renewal failed, and the lease expired as of May 15, 2017. Shortly thereafter, the parties did reach terms for a renewed lease agreement and the plaintiff reopened the store on May 17, 2017. Subsequently, a further dispute arose, “the lease was mutually terminated on November 15”, and the plaintiff vacated the premises on November 14, 2017. (para. 4)
The plaintiff pleads that the total purchase price for the business ($215,000) included equipment, itemized in the pleading, with a value of $180,000, which the defendants claimed should belong to them. However, “based on the duty of good faith and law of equity in contractual performance”, the Plaintiff questioned the validity of the term of the lease requiring that “the tenant agree to convey all restaurant fixtures and chattels and improvements . . . to the landlord on termination of the Lease”. (para. 6)
The defendants listed all equipment for sale with the business on November 21 (of 2017), six days following the termination of the Lease, and it was sold for $49,500 on March 19 (of 2018); the plaintiff alleges that “the Defendants has [sic] never disclosed this information as of today”. The plaintiff pleads that it “is seriously questioning hereby, the credibility and ethic of the Defendants, who was using the store’s equipment with $180,000 purchased value paid by the Plaintiff . . .”. (para. 6)
In the context of a pleading relating to a lien on the equipment, the plaintiff pleads that it believed that the $180,000.00 equipment value, out of the $215,000 that was paid by the Plaintiff to purchase the business, “shall not convey to, or be deemed as belonging to the Landlord”. (para. 7)
The plaintiff also pleads that it leased some electronic media player equipment, which it requested be returned to the leasing company after the lease was terminated. However, the defendants did not permit the return of this equipment, so the plaintiff had to pay $7,362.87 to buy it. (para. 8) This appears to be the basis of the claim for “about $8,000 in property.”
The plaintiff’s franchise head office had been negotiating with the defendants to assume the lease after the termination date of November 15 but could not negotiate reasonable terms. However, the plaintiff alleges that the defendants were already planning to sell the business instead of re-leasing it. Further, the plaintiff and defendants failed to reach an agreement upon the amount of the deposit to be returned to the plaintiff. The plaintiff sought judgment for $58,000. (paras. 9 and 10)
[13] As stated above, the proposed amended pleading includes a claim for $180,000.00 for equipment loss. The factual matrix in the existing pleading includes the termination of the lease on November 15, 2017 and three references to the plaintiff’s business equipment with a value of $180,000.00. The plaintiff further pleads that it questioned the validity of the term of the lease that “the tenant agree to convey all restaurant fixtures and chattels and improvements . . .”.
[14] The existing pleading, read “generously and with some allowance for drafting deficiencies” (Farmers Oil and Gas Inc., para. 23, supra) includes allegations to the effect that the defendants misappropriated the equipment of the business, with a value of $180,000. As stated in paragraph 14 of Farmers Oil and Gas, supra, “if the defendant has notice of the factual matrix underlying the claim being advanced, then amendments that arise out of, or do not depart from, that factual matrix do not constitute “new” causes of action that would not be allowed by way of amendment.” The claim in the proposed amended pleading for damages for “$180,000 for equipment loss” flows directly from the existing pleadings relating to the defendants’ conduct in relation to that equipment, and thus arises from the existing factual matrix. This claim shall therefore be permitted.
[15] The other proposed added claims are for “$201,144 for business loss and general damages” and “in the alternative, damages for breach of contract and/or breach of fiduciary duty in the amount [sic] to be determined”. There is no reference to any such amount or heads of damages in the existing claim and a determination of whether these are new claims also requires a review of the draft amended pleading.
[16] As stated above, the proposed amended pleading is titled Amended Claim of the “Fresh as Amended Statement of Claim”. Although it repeats some of the allegations in the existing pleading, it is a new freshly drafted statement of claim. The substance of this pleading is:
The plaintiff again reviews the parties’ commercial relationship starting with its purchase of the Smoke’s Poutinerie franchise on April 8, 2016, and the assignment of the lease for the business premises at 772 College Street, Toronto. The amended claim reviews the initial expiry of the lease on May 15, 2017, although in considerably more detail than in the current pleading, and also reviews the events leading to the subsequent renewal of the lease. The pleading includes a statement that “Landlords (i.e. the defendants) had been acting maliciously with bad faith” in relation to the repeated requests for increased security deposits. (paras. 3-8)
The plaintiff also recounts the renewal of the lease subsequent to May 15, 2017, which ultimately was “terminated mutually” on November 15, 2017. The defendants then claimed four months rent from the plaintiff, which led to the plaintiff’s Small Claims Court action to recover the 4 monthly installments of the initial deposit. The plaintiff also refers to the dispute between the parties regarding the $50,000 security deposit (which is the subject of the existing claim), the ownership of the equipment, and a lien placed on the equipment by RBC. (paras. 8 and 9)
The plaintiff pleads its ownership of all the business assets and equipment by virtue of its purchase agreement with the previous franchisee, and that the landlords (defendants) claimed that the equipment should belong to them. In this regard, the defendants relied on the term of their original lease with the plaintiff that the plaintiff would convey “all restaurant fixtures and chattels and improvement” to the landlords on termination of the lease. The plaintiff alleges that the “lease renewal was frustrated by Landlords in bad faith and dishonesty”, and goes on to plead that the landlords listed the equipment for sale on November 21, 2017 and sold it on March 19, 2018, without disclosing those events to the plaintiff. The plaintiff then questions the defendant landlords’ motives in their conduct in relation to the lease and claims $180,000 for loss of the equipment and $201,144 for “total business loss . . . which includes $37,057 of RBC loan (paid off), $68,087 business investment loss and $96,000 of 5 years salary income loss and damages.” (paras. 11 and 12)
The plaintiff pleads that it performed regular maintenance of the store and that the Landlords’ deductions from the security deposit are unreasonable. The plaintiff also pleads the same facts with respect to the electronic media player equipment, in support of the claim of $8,000 as contained in paragraph 8 of the current pleading. (paras. 13 and 14)
The plaintiff also pleads the same facts as in paragraph 9 of the current pleading with respect to the attempts of the Smoke’s Poutinerie franchisor to assume the lease subsequent to the termination of the lease on November 15, 2017. The plaintiff alleges that “Should Landlords and their representative not act in bad faith and dishonesty, Plaintiff or Plaintiff’s franchiser [sic] would have opportunity to mitigate loss by selling the business themselves or taking over other franchisees.” (para. 15)
The plaintiff alleges that the defendant Landlords and their representative “acted in bad faith and dishonesty in breach of the Duty of Good Faith and Honest Performance of Contract.” (para. 16)
The plaintiff reiterates its claims for $180,000 for equipment loss, $201,144 for business loss and general damages, and in the alternative, damages for breach of contract and/or breach of fiduciary duty.
[17] The cause of action pleaded in the current statement of claim is essentially the defendants’ alleged bad faith conduct leading to the termination of the plaintiff’s lease. The proposed additional claim for “$201,144 for business loss and general damages” is simply a claim for additional and more particularized damages arising from the same allegations of bad faith in the termination of that lease. Accordingly, “the existing set of pleadings raises the factual matrix of concern to the plaintiffs and within which the defendants’ possible liability is to be located” (Sweda Farms, supra). To use the Court of Appeal’s language in Klassen v. Beausoleil, supra, “the original pleading contains all the facts necessary to support the amendments such that the amendments simply claim additional forms of relief, or clarify the relief sought, based on the same facts as originally pleaded” (para. 28 of Klassen; emphasis added). This additional claim for $201,144 for business loss and general damages arises from the existing factual matrix and is therefore permitted.
[18] The plaintiff also moves to claim, in the alternative, damages for breach of contract and/or breach of fiduciary duty.
[19] Although the plaintiff claims damages arising from the defendants’ alleged bad faith leading to the termination of the lease, there is no pleading of any breach of any terms of the lease itself. Even on a generous reading of both versions of the pleading, the plaintiff does not claim any breach of the contractual terms of the lease, as opposed to bad faith in the termination of the lease. There is therefore no component of the factual matrix in either the original or the amended pleading that supports a claim for “breach of contract”. The amendment to plead breach of contract is therefore not permitted.
[20] The second alternative claim is for “breach of fiduciary duty”. Nowhere in the original or the proposed amended pleading does the plaintiff allege a fiduciary relationship between the defendant landlords and the plaintiff and in any event, the relationship between landlord and tenant is not a fiduciary relationship. The proposed amendment to claim damages for breach of fiduciary duty is therefore not part of the original factual matrix nor is it a tenable claim in any event. The motion to add the claim for breach of fiduciary duty is therefore dismissed.
2. If any of the proposed amendments are new claims, whether they are statute barred based on the expiry of the two year limitation period.
[21] As I have determined that, with the exception of the alternative claims for breach of contract and breach of fiduciary duty, the proposed added claims arise from the factual matrix in the current pleading, it is not necessary to address any limitation period issues.
3. Regardless of whether the proposed amendments arise from the existing factual matrix, will the defendants suffer prejudice as a result of the amendments?
[22] In addition to the two issues set out above, the defendants also submit that the plaintiff’s proposed amendment to increase the claims for relief would result in actual prejudice to them arising out of their tactical decision not to oppose the transfer of the action from Small Claims Court to Superior Court ordered by Justice Lederer on January 17, 2019. The defendants submit that they did not oppose the motion to transfer the action because the increase in the quantum of damages claimed was only $25,000.00, but that if the plaintiff had sought the same increase then as it is seeking now, they would have opposed it and they have now lost that opportunity.
[23] This argument fails because, in January 2019, 14 months after the plaintiff vacated the leased premises, and within what the defendants acknowledge was the limitation period, the plaintiff could have issued a new action in Superior Court. The defendants’ purported tactical decision not to oppose the motion was therefore meaningless and does not support their contention that the proposed amendment is in itself a source of prejudice. The decision in Segura Mosquera v. Rogers Communications Inc., 2020 ONSC 6024, relied on by the defendants, is distinguishable because the plaintiff’s cause of action in that case arose in September, 2016, she started her Small Claims Court action in January, 2017 and did not move to transfer it until September 30, 2020, well after the expiry of any limitation period.
[24] For these reasons, the plaintiff is hereby granted leave to amend the statement of claim to add the proposed claims for $180,000.00 for equipment loss and $201,144.00 for business loss and general damages. The motion to add the claims, in the alternative, for damages for breach of contract and/or breach of fiduciary duty is dismissed. The plaintiff shall re-draft the Amended Fresh as Amended Statement of Claim to comply with rule 25.06(1). Both defendants are hereby granted leave to deliver an amended statement of defence to the amended fresh as amended statement of claim, once the plaintiff’s pleading is delivered in a satisfactory form. The defendants are also granted leave to include a counterclaim with their amended statement of defence.
[25] As a result of the amendments granted, the defendants will incur additional costs to prepare an amended statement of defence, so the costs of preparing their original statement of defence are now costs thrown away. The plaintiff shall pay the defendants $900.00 in respect of these costs thrown away, payable within 60 days.
Defendants’ motion for security for costs
[26] The defendants move for an order for security for costs under rule 56.01(1)(d):
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;
[27] The principles to be applied under rule 56.01(1) were set out in Coastline Corporation Ltd. v. Canaccord Capital Corporation, 2009 21758 (Sup. Ct.), at para. 7, cited more recently with approval in Know Your City Inc. v. The Corporation of the City of Brantford, 2020 ONSC 7364 (Div. Ct.), at para. 16:
(i) The initial onus is on the defendant to satisfy the court that it “appears” there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56.01 (Hallum v. Canadian Memorial Chiropractic College (1989), 1989 4354 (ON SC), 70 O.R. (2d) 119 (H.C.J.) at 123);
(ii) Once the first part of the test is satisfied, “the onus is on the plaintiff to establish that an order for security would be unjust” (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. – Mast) (“Uribe”) at para. 4);
(iii) The second stage of the test “is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors”. The court exercises a broad discretion in making an order that is just (Chachula v. Baillie (2004), 2004 27934 (ON SC), 69 O.R. (3d) 175 (S.C.J.) at para. 12; Uribe, at para. 4);
(iv) The plaintiff can rebut the onus by either demonstrating that:
(a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,
(b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not “plainly devoid of merit”, or
(c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success
(See Willets v. Colalillo, [2007] O.J. No. 4623 (S.C.J. – Mast.) at paras. 46, 47, and 55; Uribe, at para. 5; Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 50; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J. – Mast.) (“Bruno”) at para. 35). [Emphasis added]
[28] The obligation on a corporate plaintiff alleging impecuniosity under paragraph 7(iv)(b) of Coastline Corporation is set out in paragraph 7(x) of the same decision:
7(x) A corporate plaintiff who claims impecuniosity must demonstrate that it cannot raise security for costs from its shareholders and associates, i.e. it must demonstrate that its principals do not have sufficient assets (Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 4190 (ON SC), 61 O.R. (2d) 688 (H.C.J.) at 705). Evidence as to the “personal means” of the principals of the corporation is required to meet this onus (Treasure Traders International Co. v. Canadian Diamond Traders Inc., [2006] O.J. No. 1866 (S.C.J.) (“Treasure Traders”), at paras. 8-11). A corporate plaintiff must provide “substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security”. “A bare assertion that no funds are available” will not suffice. (1493677 Ontario Ltd. v. Crain, [2008] O.J. No. 3236 (S.C.J. – Mast.) at para. 19);
[29] The high threshold to be met by a plaintiff falling into the category in paragraph 7(iv)(c) of Coastline Corporation had been more clearly defined in Zeitoun v. Economical Insurance Group, 2008 20996 (ON SCDC), 91 OR (3d) 131 (Div. Ct.), aff’d 2009 ONCA 415, in which the court stated, at para. 50:
50 Where impecuniosity has not been shown however, a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. Where impecuniosity has not been shown, a legitimate factor in deciding whether or not it would be just to require security for costs is whether the claim has a good chance of success. [emphasis added]
[30] Conducting the analysis mandated in Coastline Corporation and applied more recently in Know Your City, the first issue is whether the defendants have met their initial onus to satisfy the court that “it appears there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56.01”, in this case, whether there is good reason to believe that the plaintiff corporation has insufficient assets in Ontario to pay their costs.
[31] The defendants rely on the plaintiff corporation’s Corporation Profile Report printed October 13, 2020, which indicates that the plaintiff’s last annual return under the Corporations Information Act was filed for 2017 on January 14, 2018. This Report names Yong Yi Xu as the only director of the corporation. The defendants also rely on Ms. Xu’s affidavit sworn on October 26, 2018 in support of her motion in this action to increase the amount of the plaintiff’s claim, to transfer the claim from Small Claims Court to Superior Court, and for leave to represent the corporation in the Superior Court. Specifically, the defendants rely on Ms. Xu’s statement in paragraph 15 of this affidavit that “the plaintiff corporation cannot afford to retain a lawyer to go on record for a $58,000.00 claim, especially after having lost its lease and franchise business.”
[32] Based on the passage of almost three years since the plaintiff corporation filed a return under the Corporations Information Act and Ms. Xu’s affirmed statement that the corporation could not afford to retain a lawyer, the defendants have met their onus to demonstrate that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay their costs. The plaintiff does not contest either of these assertions and has provided no evidence that it has any assets in Ontario or elsewhere.
[33] The defendants having met their onus under the first part of the test, the onus then shifts to the plaintiff to establish that an order for security would be unjust. As indicated, the corporate plaintiff does not argue that it has assets in Ontario or elsewhere that it could use to pay a judgment for costs.
[34] The second possible means for the plaintiff to avoid a security for costs order is by demonstrating that it is impecunious and that justice demands that it be permitted to continue with the action. As stated in Coastline Corporation, the corporate plaintiff “must demonstrate that it cannot raise security for costs from its shareholders and associates, i.e. it must demonstrate that its principals do not have sufficient assets.”
[35] The evidence of Yongyi Xu in her responding affidavit on the security for costs motion, in which she describes the corporate plaintiff as her company, is that “I have sufficient assets in Ontario”. Ms. Xu attaches as exhibits to her affidavit documents indicating that she and her husband purchased their home in Richmond Hill for $950,500.00 and that she had assets totalling $138,643.00 (U.S.) in an account with TD Bank. As set out below, the defendants seek security for costs in the total amount of $52,247.63, payable in installments. On Ms. Xu’s own evidence, she has the means to post security for the corporation. There is therefore no impecuniosity on the part of the corporate plaintiff’s principal that would defeat this motion.
[36] In the absence of impecuniosity on the part of the corporate plaintiff or its principal, the remaining part of the analysis, based on the passage from Zeitoun, supra quoted above, is “whether the claim has a good chance of success.” As stated in Cigar500.Com v. Ashton Distributors Inc., 2009 46451 (ON SC), [2009] O.J. No. 3680 at paragraph 69, “it is to be remembered that the burden in Zeitoun for a plaintiff who is not “impecunious” is a high one.”
[37] With respect to the merits of the action, the plaintiff first submits that the defendants are holding a security deposit of $50,000.00 provided by the plaintiff in respect of the subject lease. However, this $50,000.00 is part of what is in dispute between the parties. If the defendants succeed in the action, they will simply be able to keep this amount, separate from any entitlement to costs. The fact that the defendants currently hold this deposit does not assist the plaintiff in establishing that it has a good chance of success in the action.
[38] The plaintiff also relies on its motion to amend the statement of claim to include claims for damages for loss of equipment and business losses. In her responding affidavit, Ms. Xu makes the bald statement that “plaintiff’s motion to amend claim has a good chance of success”, and then argues the same issues as on the amendment motion. The possibility that the amendment motion would succeed is separate from the issue of whether the claims themselves would succeed and does not establish a good chance of success in the action.
[39] The defendants submit that the plaintiff failed to comply with the renewal clause in the lease, which the plaintiff does not dispute. Further, the plaintiff has not provided any evidence of damages, which, while not necessary for the plaintiff’s amendment motion, is necessary to demonstrate a good chance of success for the purpose of defeating the defendants’ security for costs motion.
[40] Based on my review of the evidence relating to the merits of the action, I conclude that the plaintiff has not demonstrated a sufficiently good chance of success in the action to defeat the security for costs motion.
[41] The plaintiff also submitted that the defendants should be precluded from moving for security on the basis that the defendant Maria Liu has not delivered a statement of defence to the Fresh as Amended Statement of Claim filed May 7, 2019. The plaintiff relies on rule 56.03(1):
56.03(1) In an action, a motion for security for costs may be made only after the defendant has delivered a defence and shall be made on notice to the plaintiff and every other defendant who has delivered a defence or notice of intent to defend.
[42] This action was commenced in the Small Claims Court with Maria Liu as the only defendant. Maria Liu delivered a Defence on June 8, 2018. On January 17, 2019, Justice Lederer ordered that the action be transferred to Superior Court. On April 16, 2019, Master Abrams ordered that Rosemary Liu be added as a defendant. The defendants jointly attempted to deliver a statement of defence and counterclaim but the court would not accept it because Master Abrams’ order did not specifically grant leave to Maria Liu to amend her Defence or for the defendants to deliver a counterclaim. Rosemary Liu delivered her statement of defence on October 31, 2019.
[43] Both defendants have defended the action, Maria Liu by defending the original Small Claims Court action and Rosemary Liu with her statement of defence to the fresh as amended statement of claim filed pursuant to Master Abrams’ order of April 16, 2019. The fact that Maria Liu has not filed an amended statement of defence to the existing fresh as amended statement of claim does not preclude her from bringing this motion, particularly where the plaintiff is seeking a further amendment. Even if I were to accept the plaintiff’s submission, Rosemary Liu, who is identical in interest in the action to Maria Liu, would be entitled to move for security for costs and the amount of security that she would be entitled to individually would be the same as the amount for both defendants.
[44] At the case conference of September 23, 2020, I ordered that these two motions proceed together and the plaintiff did not object. Even accepting that the plaintiff was self-represented at that time and may not have been aware of rule 56.03(1), judicial economy would dictate that two motions involving the same parties in the same action proceed on the same date, one after the other. In any event, as stated above, both defendants have defended the action and are entitled to move for security for costs.
[45] To summarize, the plaintiff is a corporation with no assets to pay the defendants’ costs, the corporation’s principal has the financial means to post security for costs, and the plaintiff has not demonstrated a good chance of success in the action. Accordingly, the defendants are entitled to an order that the plaintiff post security for costs.
[46] The plaintiff did not take issue with the quantum of security sought, either in its factum or at the hearing. The draft bill of costs submitted by the defendants is based on a partial indemnity rate of $270.00 for Mr. Fromstein, which is a reasonable rate for counsel practicing for 15 years. The estimates of 2 days for examinations for discovery and 5 days for trial are also reasonable. Based on the figures in the draft bill of costs, the plaintiff shall post security with the Accountant of the Superior Court as follows:
For pleadings, discovery plan and documentary production and examinations for discovery: $19,004.09 within 60 days;
For mediation and pre-trial conference: $6,613.84 within 90 days after examinations for discovery;
For preparation and attendance at trial: $26,679.00 no less than 90 days before the commencement of trial.
[47] Costs. The parties have submitted costs outlines for both motions. If the parties cannot agree to costs, they may make written submissions, not exceeding a total of four pages for both motions, the plaintiff within 20 days and the defendants within 40 days. The costs of the motion are separate from the defendants’ costs thrown away arising from the requirement to prepare an amended statement of defence, which I assessed at $900.00 at the conclusion of my reasons on the plaintiff’s pleadings amendment motion.
MASTER GRAHAM
May 7, 2021