Court File and Parties

COURT FILE NO.: 2559-18

DATE: 20210118

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: 2539902 ONTARIO INC.

AND

WINDSOR PRIVATE CAPITAL LIMITED PARTNERSHIP, WINDSOR PRIVATE CAPITAL INC., and 490824 ONTARIO INC.

BEFORE: Justice S. Nicholson

COUNSEL: A. Frauts, for Moving Party Defendants

O. Sabo, for Responding Party Plaintiff

HEARD: January 13, 2021

REASONS ON MOTION FOR SECURITY FOR COSTS

NICHOLSON J.:

[1] The defendants move for an order for security for costs pursuant to Rule 56.01 of the Rules of Civil Procedure.

[2] The underlying action arises out of a mortgage on a property in London, Ontario. The plaintiff defaulted on the terms of its mortgage with the defendants and a judgment was issued dated August 22, 2018. The property was sold by the defendants under power of sale for a purchase price of $2,200,000.00 on November 5, 2018. The plaintiff has commenced this action claiming that the defendants’ sale of the property was improvident.

[3] The plaintiff is an Ontario corporation, incorporated for the sole purpose of acquiring and managing the subject property. It has no other assets. Its sole shareholder, Edward Friesen, is a resident of the Province of Alberta. Accordingly, the defendants move under subrule 56.01 (1)(d) for an order for security for costs in the amount of $68,400, their estimate of their costs through to the completion of trial.

[4] Subrule 56.01 (1)(d) reads as follows:

WHERE AVAILABLE

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;

Facts:

[5] The subject property is a 1.01 acre commercial site which includes a 60 suite hotel, a restaurant and an adult entertainment club in London. The previous owner had purchased the property in February of 2015 under Power of Sale for $1,825,000.

[6] The plaintiff corporation was incorporated in October 2016 by its principal, Edward Friesen, for the purpose of acquiring and managing this property. The defendants are in the business of making loans. In March of 2017, the parties entered a lending arrangement wherein the defendants would advance to the plaintiff $1,836,000 in order for the plaintiff to purchase the property. As the plaintiff’s principal Mr. Friesen personally guaranteed the loan.

[7] Two appraisals of the property, done by two different appraisers, were provided to the defendants by the plaintiff for the purpose of forming the lending agreement. The first, dated October 18, 2014, valued the property as at that date, at $3,350,000.00 (“Conte Appraisal”). The second appraisal, dated February 25, 2016, appraised the property on the basis that some renovations were to be done to the hotel rooms and valued the property on the completion of that work at $3,600,000.00 (“Collier Appraisal”). The plaintiff takes the position on this motion that the defendants’ decision to make the loan to the plaintiff was based on these two appraisals. The defendants argue that the appraisals played no role in their decision to loan the funds, as they view appraisals obtained by potential borrowers as “self-serving”.

[8] The admissibility of the appraisals on this motion is contested, as I will address below.

[9] Almost immediately following the plaintiff taking over the property, the tenants became delinquent in paying their rent. According to the defendants, the plaintiff was in default of the terms of the mortgage within six months of the initial loan. In August of 2017, the plaintiff was approached by one of its tenants hoping to remedy its delinquency, with an offer to purchase the property for $2,900,000, with a non-refundable deposit of $85,000 included as a forbearance for rent owing. However, that transaction did not complete, due to “financing problems” according to the plaintiff.

[10] With mortgage payments in arrears, the defendants filed a statement of claim on January 5, 2018. The plaintiff maintains that over the next several months it continued to pay down some of the interest arrears in order to find and negotiate with other potential buyers. The defendants refute that any payments were made after September 2017. According to the defendants approximately seven cheques were returned NSF.

[11] In mid January 2018, the plaintiff was introduced by Mr. Nikopolous to Manjit Bhullar, who expressed interest in the property. Mr. Bhullar is described as having performed some renovations on the property in the spring of 2018. According to Mr. Friesen, in April of 2018 the plaintiff and Mr. Bhullar were very close to completing a sale of the property through a Share Purchase Agreement with a total purchase price of $2,550,000. That deal did not complete due to “timing issues” according to the plaintiff.

[12] On April 30, 2018, Mr. Friesen emailed the defendants’ managing director, John Cundari, identifying that Mr. Bhullar and he had executed a Share Purchase Agreement and that Mr. Bhullar had paid $200,000 in trust with his law firm to pay down the arrears of interest. Mr. Friesen proposed a 36 months extension/renewal of the mortgage. Mr. Cundari responded by email dated April 30, 2018 “Sorry Ed. Given the history of this loan, we’re not interested in an extension. We’re only interested in being paid out.”

[13] On June 6, 2018, after approximately $300,000 was spent on renovations, the Collier appraisal was finalized at a value of $3,600,000.00.

[14] The plaintiff listed the property with Re/Max Realty and MLS on July 23, 2018 for a sale price of $3,795,000.00.

[15] On August 22, 2018, the plaintiff consented to a judgment in favour of the defendants for the sum of $2,054,834.30 plus $22,500 in costs. The judgment also included a provision that the plaintiff deliver up possession of the property and granted a writ of possession in favour of the defendants.

[16] Mr. Friesen deposes that in August and September of 2018, the plaintiff continued to market the property to potential purchasers. He swears that he had an informal offer of $2,750,000 and continued to negotiate with Mr. Bhullar. According to Mr. Friesen, Mr. Bhullar was prepared to purchase shares for $2,550,000 plus certain conditions and later offered $2,525,000. Mr. Bhullar’s counsel had even prepared a draft Share Purchase Agreement targeting October 2018 as a closing date. Mr. Friesen has appended to his affidavit an email from him to Mr. Bhullar dated September 17, 2018 which speaks to ongoing discussions and Mr. Friesen offering to sell the property for $2,550,000 plus the City of London Property Taxes adjustment. I cannot discern from this that Mr. Bhuller was interested at that price. Similarly, the unsigned and undated October 2018 Share Purchase Agreement appended to Mr. Friesen’s affidavit and the two unsigned Agreements of Purchase and Sale ostensibly between Mr. Bhuller and the plaintiff are not, without more, sufficient to draw the conclusion that a deal was imminent.

[17] At approximately the same time, the defendants had obtained an appraisal (“Metrix Appraisal”) indicating that the value of the property, as at September 18, 2018, was $1,050,000.00.

[18] The plaintiff accepted a conditional offer from a Mr. Alexander Francis dated October 5, 2018, through a listing agent, for $2,850,000, including a $250,000 deposit. This sale did not complete, however, and on October 18, 2018, a Mutual Release was executed between the parties and the deposit returned.

[19] Unbeknownst to the plaintiff, on October 17, 2018, the defendants, under Power of Sale, entered into an Agreement of Purchase and Sale for the price of $2,200,000.00. Mr. Cundari points out that this transaction was an “all cash” purchase without financing. This sale was made to a company operated by George Nikopolous who then assigned the agreement to a company whose principal was Mr. Bhuller on October 23, 2018.

[20] Corporate counsel for the defendants emailed plaintiff’s corporate counsel on October 22, 2018 indicating that they had entered into an agreement of purchase and sale for the property which they considered firm. The plaintiff’s corporate legal counsel responded via email dated October 25, 2018 and inquired as to whether the power of sale transaction was going to proceed as his client continued to have other potential suitors on the property. He indicates that a deal for $2,900,000.00 fell through the prior Friday, but that the plaintiff had been making good faith efforts to obtain fair market value. He notes that a prospective purchaser had been “sniffing around” for just over $2.5 million for quite some time but they could not get him up to fair market value. However, the defendants’ lawyer communicated that the defendants felt committed to the firm Agreement of Purchase and sale.

[21] It should be noted that in Mr. Cundari’s affidavit filed in support of the defendants’ motion, he describes that a number of the offers made to the plaintiff on the property provided that the loan would remain in place. According to Mr. Cundari, the defendant was not prepared to keep the loan in place. This seems confirmed by the email dated April 30, 2018.

[22] By statement of claim issued on December 17, 2018, the plaintiff commenced this lawsuit claiming that the defendants’ sale of the property was improvident and claiming damages in the amount of $2 million and punitive and/or aggravated damages in the sum of $500,000.

[23] The defendants claim that there is an outstanding debt of at least $38,947.85 owed on the mortgage, personally guaranteed by Mr. Friesen.

[24] Both parties agree that the corporate plaintiff’s only asset in Ontario was the property. Mr. Friesen is its only shareholder. The plaintiff’s registered office address is its Ontario legal counsel’s address. It’s mailing address is Lethbridge, Alberta, the same address as Mr. Friesen. Mr. Friesen is also a principal of a company called “Friesen Livestock Nutrition Ltd.” in Alberta.

[25] The defendants have also appended a statement of Mr. Friesen’s net worth that they relied upon when they made the initial loan to the plaintiff. It is dated March 6, 2017 and suggests considerable wealth. Both parties agree that Mr. Friesen is not impecunious.

Preliminary Objections:

[26] The defendants raised objections concerning the plaintiff’s evidence on this motion. In particular, the defendants argue that the appraisal reports and the evidence with respect to the offers to purchase the property is inadmissible hearsay evidence. In the defendants’ submission, the appraisal reports cannot simply be appended to Mr. Friesen’s affidavit. The evidence of the appraiser ought to have been provided by way of affidavit sworn by the actual appraiser. They rely upon the Supreme Court of Canada decision, White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, as well as the Ontario Court of Appeal decision, R. v. Abbey, 2009 ONCA 624.

[27] Similarly, the defendants object to this court receiving any evidence with respect to the state of mind of the potential purchasers. In their view if such evidence was to be relied upon it ought to have been presented by way of affidavit sworn by those individuals. In their submission, the evidence as to what deals fell through and why, and the state of mind of an out of court declarant, Mr. Bhullar in particular, is hearsay and ought not to be admitted or given any weight on the motion.

[28] I do not read White Burgess or R. v. Abbey as prohibiting the evidence tendered by the plaintiff on this motion. Both cases refer to the four threshold requirements of admissibility for expert opinion as set out in R. v. Mohan, 1994 CanLII 80 (SCC), [1994] 2 S.C.R. 9, being relevance, necessity, absence of an exclusionary rule and a properly qualified expert. The Court in White Burgess also addresses the issue of an expert’s impartiality. White Burgess was an appeal from a summary judgment motion, under the Nova Scotia rules of civil procedure. R. v. Abbey was obviously an appeal from a trial decision.

[29] The plaintiff argues that the threshold for admissibility on a motion of this nature is considerably lower than at trial, or even on a motion for summary judgment. If each piece of evidence had to be tendered through separate affidavits the procedure on a motion such as this would be as arduous as at trial. The purpose of the appraisal evidence is simply to provide this court with an appreciation of the evidence that will be adduced at trial.

[30] Rule 39.01(4) permits evidence on motion to be presented by affidavits which may contain statements of the deponent’s information and belief, if the source of the information and the fact of the belief are specified in the affidavit. This necessarily permits some hearsay evidence. Subrule (7) sets out the requirement that opinion evidence provided by an expert for the purposes of a motion include the information listed in subrule 53.03 (2.1). The appraisal reports do not strictly comply with all the requirements. For example, there are no expert acknowledgement forms signed by the appraisers.

[31] Courts have taken a strict view of the manner of presentation of expert evidence on motions for summary judgment (see Sanzone v. Schechter, 2016 ONCA 566 and Marshall v. Heatherington, 2018 ONSC 7581). In summary judgment motions, like trials, the judge is required to evaluate and weigh expert evidence to assist in reaching a final determination of the issues before him or her. The ability to cross-examine an expert at that stage is an important part of the exercise and accordingly, the expert’s evidence should be tendered in a fashion that exposes the opinion to being tested. Experts are not to be shielded from cross-examination on their opinions.

[32] In my view, the presentation of the appraisal evidence in the fashion done by the plaintiff is proportionate to the nature of a motion for security for costs. It must be remembered that these motions usually occur at the outset of litigation. The defendants did include the value of the Metrix appraisal in its affidavit in support of the motion. It is necessary for a judge hearing a motion for security for costs to evaluate the merits of the claim, although that analysis is not as in depth as at trial or on a motion for summary judgment. In order to do so, a preview of the evidence that may be called at trial is necessary. But I am not required to determine on this motion which of the appraisals is more accurate or reliable. In my view, it is sufficient to take into account that the plaintiff has two appraisals that support a finding that the value of the property significantly exceeded the price at which the property was sold and that the defendants have an appraisal justifying the price at which it sold the property. The weight that those appraisals ought to be given is for the trier of fact that ultimately determines the issue.

[33] In terms of the evidence concerning potential transactions that were never completed, I agree with counsel for the defendants that I cannot make any determination on the evidence before me as to why those potential purchasers did not complete those deals at those prices. I do think that the plaintiff is entitled to demonstrate that there were other offers made, ostensibly for more than the ultimate sale price. However, the seriousness of those offers is clearly an issue that this court is not in position to determine. For whatever reason, none of those other transactions in fact closed. Perhaps none of those purchasers were serious at those prices. Frankly, inferences can be drawn that do not assist the plaintiff. Again, that is an issue that is best left to trial.

The Law:

[34] Rule 56.01 recognizes a balance between two fundamental values in our system of litigation. The first is that impecuniosity ought not to deprive a party from having their day in court. Secondly, a defendant should have reasonable protection from claims that have no merit. (see Cigar500.Com Inc. v. Ashton Distributors Inc., 2009 CanLII 46451 (ON SC) at paras. 2 and 3).

[35] The initial onus is on the defendants to satisfy the court that it “appears” there is good reason to believe that one of the circumstances enumerated in Rule 56.01 applies. Satisfying that onus does not, however, give rise to a prima facie right under the rule to an order for security for costs. Once the defendants have met that onus, the onus shifts to the plaintiff to establish that an order for security for costs would be “unjust”, as set out in the preamble of the rule (see Coastline Corporation Ltd. v. Canaccord Capital Corporation, 2009 CanLII 21758 (ON SC) and Cigar500.Com, supra).

[36] In determining whether granting an order for security for costs is “just”, the merits of the claim always have some role in the motion, but in a “continuum”. Accordingly, where a plaintiff is impecunious, the plaintiff must show that the claim is not “plainly devoid of merit”. If the plaintiff is not impecunious, the plaintiff must meet a higher threshold to satisfy the court of its chances of success. However, the court is not required on a motion for security for costs to embark on an analysis of the merits such as in a motion for summary judgment (see Coastline Corporation, supra, at paras. 7 (v) to (vii)).

[37] Where the plaintiff is not impecunious, the rationale for evaluating the merits of a claim was explained by the Ontario Divisional Court in Zeitoun v. Economical Insurance Group, 2008 CanLII 20996 (ON SCDC), at para. 50 (aff’d on appeal at 2009 ONCA 415):

[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.

[38] In Cigar500.com, supra, Code J., in finding that the merits of a claim must always be examined by the motions judge, described the idea of a “continuum” as follows at para.56:

[56] As a beginning premise, it would seem to be common sense that the merits of a case are relevant to whether or not a particular order for security for costs is “just”. These orders, made against Plaintiffs and in favour of Defendants, involve some degree of pre-judgment without trial. The court is trying to assess the risk that the Defendant will succeed at trial but be unable to recover its costs. Assuming the merits can be assessed on the materials filed on the motion, a very strong Plaintiff’s case would tend to argue against the need for a Rule 56.01 order whereas a very weak case combined with “insufficient assets” would tend to argue in favour of an order. Although this preliminary assessment of the merits will rarely be determinative or exhaustive of the Rule 56.01 inquiry, it is hard to argue with its relevance. Not surprisingly, the case law has developed in this common sense direction.

[39] In determining whether a corporate plaintiff is impecunious, not only should a judge ascertain if the corporation has sufficient assets itself, but also whether it can raise the security for costs from its shareholders and associates (see Smith Bus Lines Ltd. v. Bank of Montreal, 1987 CanLII 4190 (ONSC)).

[40] In determining whether an order for security for costs is “just”, the court can also take into consideration that the reason for the plaintiff’s deficiency in assets is due to the actions of the defendant that are the subject of the lawsuit (see Cigar500.Com, supra).

Application of the Law:

[41] The parties on this motion agree that the plaintiff corporation has insufficient assets in Ontario to pay any potential costs awarded to the defendants. Accordingly, the defendants have met the low threshold of showing that rule 56.01(1)(d) applies.

[42] The onus thus shifts to the plaintiff to show that it would be “just” to decline to order security for costs. The plaintiff concedes that since Mr. Friesen is not impecunious, the plaintiff corporation is not impecunious for the purpose of this motion. Accordingly, the plaintiff must demonstrate that it has a good case on the merits.

[43] As noted above, in determining the strength of the plaintiff’s case on its merits, the court is not engaged in the same depth of analysis that it would on a motion for summary judgment, for example. For reasons that are not apparent, neither party on this motion provided any authority with respect to the legal test for what constitutes an improvident sale. It would have been of assistance to see how courts have dealt with such cases in evaluating the merits of this case.

[44] The test for an improvident sale is whether the seller acted negligently. A mortgagee is under a duty to act in good faith and to take reasonable precautions to attempt to obtain the market value of the property as of the date of sale. A plaintiff must also prove that a higher price would have been obtained but for the breach. Justice Saunders, in Oak Orchard Developments Ltd. v. Iseman, [1987] O.J. No. 361 (H.C.), aff’d [1989] O.J. No. 2394 (C.A.) summarized the mortgagee’s duties as follows:

1. A mortgagee selling under a power of sale is under a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it. This does not mean that the mortgagee must, in fact, obtain the true value.

2. The duty of the mortgagee is only to take reasonable precautions. Perfection is not required. Some latitude is allowed to a mortgagee.

3. In deciding whether a mortgagee has fallen short of his duty, the facts must be looked at broadly and he will not be adjudged to be in default of his duties unless he is plainly on the wrong side of the line.

4. The mortgagee is entitled to exercise an accrued power of sale for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting, a higher price could be obtained.

5. The mortgagee can accept the best price he can obtain in an adverse market provided that’s none of the adverse factors are due to fault on his part.

6. Even if the duty to take reasonable precautions is breached, the mortgagor must show that a higher price would have been obtained but for the breach in order to be compensated in damages.

[45] Plaintiff’s counsel argues that the issue boils down to a simple question: “what is the property worth?” In his submission, the appraisals that the plaintiff provided to the defendant and the figures contemplated in the numerous aborted sales of the property make it clear that the property should have been sold by the defendants for more than $2,200,000.00 and, accordingly, the plaintiff has a good case on the merits. However, the Conte appraisal was undertaken four years prior to the sale. The alleged offers are difficult to evaluate on their face and the fact is that no deal was ever consummated anywhere in the range of those offers. The explanations offered by the plaintiff as to why those offers did not close are, in my view, vague. I must be mindful that the plaintiff was unsuccessful in its efforts to sell the property for over one year.

[46] On the other hand, the defendants have simply stated that the Metrix appraisal was for far less than the property sold. That appraisal does seem to be inconsistent with the amount for which the property eventually sold, which may ultimately undermine the Metrix appraisal’s validity. While the onus at this stage of the motion is upon the plaintiff, in an action for improvident sale the mortgagee is tactically required to explain the attempts that were made to secure a fair market value of the property, as set out in Armanasco v. Linderwood Holdings Inc., 2016 ONSC 1605 at para. 46, appeal dismissed, 2017 ONCA 156, at para. 47, per Perell J.:

[47] The determination of whether the duty of care of a mortgagee exercising a power of sale has been breached is highly contextual and will depend upon the facts of the particular case, and the questions to consider may include: (a) did the mortgagee exercise the power of sale in good faith?; (b) did the mortgagee attempt to realize the fair market value for the property? (c) did the mortgagee consider the interests of the mortgagor?; (d) was the property marketed widely?; (e) did the mortgagee obtain appraisals?; (f) did and how did the mortgagee advertise?; (g) did the mortgagee use a multiple listing service? and (h) how long was the property on the market?

[47] I am not able to place more credence on the appraisals put forth by the plaintiff than the appraisal put forth by the defendants, on this motion. The validity of those appraisals is an issue for the ultimate trier of fact who will be in a better position to weigh that evidence upon having that evidence tested by cross-examination. All that can be said at this juncture is that both parties appear to have at least one appraisal that supports their position in this action.

[48] I also agree with counsel for the defendants that I cannot put too much stock in the deals that ultimately fell through. For whatever reason, those deals did not come to fruition and it may be that the proposed purchaser ultimately decided that the price was too high. On this motion, I am not prepared to equate the figures discussed in those aborted transactions with the fair market value of the property.

[49] I feel confident in declaring that the plaintiff’s action for improvident sale is not “plainly devoid of merit”. There is sufficient evidence before me to conclude that the plaintiff might be successful at trial. But is “might” sufficient in the circumstances to decline to order for security for costs?

[50] In Padnos v. Luminart Inc. (1996), 1996 CanLII 11781 (ON SC), 32 O.R. (3d) 120, [1996] O.J. No. 4549 (Ont.Gen. Div.), Kiteley J. was of the view that the merits were “neutral” to the outcome of the motion for security for costs before her. The result of the underlying action was not a foregone conclusion either for the plaintiff or for the defendants. Justice Kiteley determined that the merits did not compel her to find that it was “just” that the motion for security for costs be granted or dismissed. Ultimately, Kiteley J. did order security for costs.

[51] As noted above, in Zeitoun, Low J. considered whether the claim had a “good chance of success”. In Cigars500.Com, supra, Code J. referred to the burden for a Plaintiff who is not impecunious as being a “high one” and that it must be established that its claim “has a good chance of success” (at para. 69). Some cases have used “overwhelming case” (Demessey Limited v. Cassels Brock & Blackwell LLP, 2011 ONSC 4122), which I take to be a higher bar than “good case”. In Coastline, supra, security for costs was ordered because the plaintiff had not met the “high threshold to establish that it will be successful at trial” (at para. 68).

[52] While I agree with plaintiff’s counsel that the standard ought not to be so high as to be unachievable on an interlocutory motion dealt with prior to examinations for discovery, I am satisfied that the plaintiff must demonstrate a stronger case on the merits than has been shown here. It appears to me that plaintiffs that allege improvident sales are faced with a difficult task at trial, as the mortgagee must be found to be “plainly on the wrong side of the line”. I am not persuaded that the plaintiff has a “good chance of success” although clearly it might ultimately win this lawsuit. In that case, any security ordered would be returned to the plaintiff.

[53] I have also considered the argument by the plaintiff that it has no assets as a result of the actions of the defendants in improvidently selling its property. While that is a factor that I may consider, in this case it seems to me to be putting the cart before the horse and concluding that this was an improvident sale. I am not prepared to do so on this motion. I also cannot ignore that the plaintiff defaulted on its mortgage obligations within months of the loan and that its tenants had not been paying rent. I can infer that the plaintiff faced impecuniosity in advance of any alleged failure of the defendants.

[54] Ultimately the onus at this stage of a motion for security for costs is on the plaintiff and in my view it has not met that onus. In my view, there is no injustice in requiring the plaintiff to post security for costs.

Alternative to Security for Costs:

[55] As an alternative to the plaintiff’s position that no security for costs should be ordered, Mr. Friesen has offered to “guarantee” any future award of costs made against the plaintiff. He would, obviously, rather make better use of his funds than tying them up in court while this matter proceeds. The plaintiff relies upon Printing Circles Inc. v. Compass Group Canada Ltd., 2007 CanLII 57095 (ON SC), [2007] O.J. No. 5066, 288 D.L.R. (4th) 314 (Ont, Sup. Ct.). In that case Corbett J. permitted the principal of the plaintiff corporation, who was an Ontario resident, to provide an undertaking to pay costs ordered against the plaintiff in the event it was unsuccessful at trial. Importantly, Printing Circles Inc. was an active business with equipment and employees, such that there was a concern that a small company might not have ready access to reliable financing to post security for costs.

[56] The defendants in this case object to this proposal. In their view, despite the reciprocal enforcement legislation between Ontario and Alberta, they ought not to have to take extra steps to collect costs in the event they are successful. Furthermore, the defendants argue that there is no evidence before me with respect to Mr. Friesen’s current assets.

[57] In contrast to Printing Circles Inc., an active business, the plaintiff in this case was incorporated solely for the purpose of the property in London. I am not disparaging the use of “shell corporations” to conduct business, but the concerns raised in Printing Circles Inc. that the order for security for costs not be too burdensome on the company’s continued operation are not present in this case.

[58] There is evidence of Mr. Friesen’s financial situation as of March 2017. The defendants also adduced evidence that he is involved in another business, Friesen Livestock Nutrition Ltd. Counsel for the plaintiff suggests that this ought to be satisfactory evidence to this court of his current financial situation.

[59] Given that it was Mr. Friesen’s alternative submission that he be permitted to “guarantee” any costs award against the plaintiff in the event it was unsuccessful he ought to have provided a current picture of his personal finances. He has simply stated in his affidavit that he is prepared to make a personal guarantee. He does not provide any evidence whatsoever of his current financial situation. A lot can happen financially in the four years since Mr. Friesen’s 2017 financial statement was provided. I also cannot draw any inferences about Mr. Friesen’s assets simply from the fact that he is the principal of another corporation. There is no evidence before me about that corporation’s finances.

[60] Those concerns are not inconsistent with the finding earlier that the plaintiff is not impecunious because its principal has assets. The difference is that by requiring the plaintiff to post security for costs, Mr. Friesen can decide whether to voluntarily liquidate his assets to do so. In contrast, if he is simply permitted to act as guarantor, any assets that he might own may have to be “pursued” by the defendants. I note that the 2017 financial statement does not appear to include assets that would be readily liquidated. For example, the statement only discloses $8,600 in cash.

[61] Moreover, Mr. Friesen’s history as a guarantor does not give this court much confidence that he will readily fulfill those obligations in the event the plaintiff is unsuccessful in this action. Mr. Friesen argues that he has not made good on his personal guarantee in relation to the default on this mortgage because he immediately believed that the sale of the property was improvident. Nonetheless, this is evidence that he is an unreliable guarantor. The plaintiff in this case was very quickly in default of the mortgage payments and yet Mr. Friesen did not remedy that situation by personally paying any amount to the defendants. Instead, there is some evidence that he, as its sole officer, allowed the plaintiff to continue to write NSF cheques. In short, Mr. Friesen’s personal guarantee, although legally enforceable, has not been of any comfort to date.

[62] While there may be cases in which the undertaking allowed by Justice Corbett in Printing Circles would be appropriate, I decline to exercise my discretion to do so here.

Quantity of Security:

[63] Rule 56.04 gives the presiding judge significant discretion with respect to the amount of the security to be posted.

[64] In this case the defendants seek an order that the amount of $68,400 be posted as security, calculated on a partial indemnity basis. They have provided an estimate of the costs of the action through to the completion of trial, which includes HST. The estimate includes the costs of a motion to strike the plaintiff’s jury notice. I am not offended by the hourly rates set out within the estimate nor of the estimated time for the discovery stage of the litigation.

[65] The trial preparation time is budgeted at 70 hours of counsel time and the trial time is then estimated at a further 70 hours. Assuming the court will sit for 6 hours per day, I believe that the amount of time estimated for both trial preparation and the actual trial is too high, even assuming that time is spent by counsel outside the courtroom on trial days. However, I do not wish to trim too much off the estimate given that, ironically, the defendants may have less chance of recovering their costs if they exceed the projections than if Mr. Friesen was a personal guarantor. While a refund of any excess amount paid into court is possible, the defendants may have difficulty recovering any shortfall from the plaintiff.

[66] There is authority for the proposition that “pay-as-you-go” orders for security for costs are appropriate where an action is in its early stages (see Coastline, supra). This will relieve some of the concerns that Mr. Friesen has about tying up his money. I agree with defendants’ counsel that requiring return trips to court for further orders for security for costs is undesirable, installment payments do not mean revisiting the issue on a further motion. I find that installment payments are a reasonable approach in this case.

[67] I order that the plaintiff post the sum of $60,000 as security for the defendants’ costs of this action, in installments. The sum of $20,000 shall be paid into court no later than February 26, 2021, at 4:00 pm. The balance of $40,000 shall be paid into court within 30 days following the first pre-trial conference in this matter.

[68] If the parties are unable to agree on costs of the motion the defendants shall serve and file written submissions, no longer than 3 pages double-spaced, to my attention, by February 8, 2021 at 4:00 pm. The plaintiff shall have until February 15, 2021 at 4:00 pm to serve and file written submissions on the same basis. The defendants should include a draft bill of costs. Both parties should provide any written offers.

Justice Spencer Nicholson

Date: January 18, 2021