COURT FILE NO.: CV-20-00000050-0000
DATE: 20210730
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MANSTEEL NEW LISKEARD INC.
Plaintiff
– and –
MORTEZA KATEBIAN A.K.A. BENHAM KATEBIAN A.K.A BEN KATABIAN, PAYAM KATEBIAN. PANTEA SAHEBDIVANI, HOSSEINALI SAHEBDIVANI A.K.A. HOSSEIN SAHEBDIVANI, SIMIN SAHEBDIVANI, 2450531 ONTARIO LIMTED INC., MONEY GATE MORTGAGE INVESTMENT CORPORATION, JOHN DOE and JANE DOE
Defendants
Shahryar Mazaheri, for the Plaintiff
Justin H. Nasseri and Gordon W. Vance, for Defendants (Pantea Sahebdivani, Hosseinali Sahebdivani a.k.a. Hossein Sahebdivani and Simin Sahebdivani)
HEARD: June 3, 2021
DECISION ON MOTION
WILCOX J.
INTRODUCTION
[1] The issue is whether the plaintiff should post security for costs in this action.
[2] The plaintiff (“Mansteel”) is a company incorporated under the laws of Ontario. Its sole officer and director is Arash Missaghi. His wife is Laila Alizadeh. The plaintiff company is the registered owner since June 19, 2012 of an industrial property in the New Liskeard part of Temiskaming Shores, Ontario.
[3] The plaintiff issued at Haileybury, in Temiskaming Shores, Ontario, a Statement of Claim on November 5, 2020. It contains lengthy allegations of misconduct by the defendants to the detriment of the plaintiff and seeks over $10,000,000.00 in damages and other items of relief.
[4] It appears that there are related actions elsewhere in the province. The plaintiff filed a draft Notice of Motion to be returnable in Toronto for an Order for consolidation of this and other actions.
[5] The defendants Pantea Sahebdivani, Hosseinali Sahebdivani a.k.a. Hossein Sahebdivani and their daughter Simin Sahebdivani, collectively referred to as the “Sahebdivani defendants”, served a Statement of Defence on December 18, 2020.
[6] Even before that, on December 4th, 2020, the Sahebdivani defendants’ counsel had emailed the plaintiff’s counsel indicating that he had instructions to promptly move for security for costs in this proceeding unless the plaintiff agreed to post security for costs in the amount of $50,000.00 or prove it had sufficient assets to pay a costs award. The request was not satisfied. The matter was conferenced on February 25th, 2021 in anticipation of the defendants’ motion for security for costs. The plaintiff was in the process of retaining new counsel and was given a deadline of March 12, 2021 to do so. A further conference was to follow.
[7] The motion was served on March 29, 2021. A second conference was held on March 31, 2021. The plaintiff had yet to file a Notice of Change in Representation although his new counsel, Shahryar Mazaheri, participated. The following schedule was ordered on consent for the motion:
The plaintiff had until April 28, 2021 to respond;
Cross-examinations were to be on May 20 and 21, 2021;
Counsel were to arrange with the trial coordinator a motion date in late May, 2021.
[8] The motion was in fact scheduled for June 3rd, 2021 and proceeded that day, although the plaintiff’s counsel had previously informally sought a further adjournment, which the defendants opposed.
[9] The plaintiff served its responding materials on April 28, 2021. These contained the affidavit of Arash Missaghi dated April 27, 2021 and the affidavit of Troy Wilson dated April 28, 2021. The plaintiff also filed a supplementary affidavit of Troy Wilson dated May 31, 2021.
LAW
[10] Rule 56.01(1)(d) provides:
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;
[11] The law on point is summarized in various cases, including General Products Inc. v. Actiwin Co.[^1], in which Lemon J. stated:
[15] Rule 56.01(1)(d) of the Rules of Civil Procedure provides that a court, on motion by the defendant in a proceeding, may make such order for security for costs as is just where it appears that the plaintiff is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.
[16] There is a two-step process under rule 56.01(1)(d). The initial onus is on the defendant to satisfy the court that it “appears” that there is “good reason to believe” that the corporate plaintiff has insufficient assets to satisfy a costs award. It need not go so far as to actually prove that the plaintiff has insufficient assets.
[17] If the defendant satisfies the first stage of the enquiry, the onus switches to the plaintiff to demonstrate that it has sufficient assets in Ontario or a reciprocating jurisdiction to satisfy any order for costs or, alternatively, to satisfy the court that an order for security for costs would be unjust, for example by demonstrating that the plaintiff is impecunious and the action is not plainly devoid of merit: See Health Genetic Center Corp. v. Reed Business Information Ltd., 2014 ONSC 6449.
[18] The plaintiff corporation has a higher onus to demonstrate a sufficiency of assets "by convincing evidence." This includes information and supporting documentation as to the current status of its assets and liabilities, particularly liabilities secured against those assets put forward as available to pay a judgment for costs: See 1731431 Ontario Limited v. Crestwood Apartments et al, 2011 ONSC 6227, at para 29.
[19] Where the plaintiff asserts that it has sufficient assets in Ontario to pay an award of costs, the following factors apply in examining the evidence as to sufficiency of assets:
(a) The court must critically consider the quality as well as the sufficiency of the assets presently held and whether they are bona fide assets of the company;
(b) There must be demonstrated exigible assets. It is insufficient for the plaintiff to show that it is profitable since the focus of the rule is not on income, but rather on the nature and sufficiency of assets;
(c) The court must consider the liabilities of the company as well as its assets and in particular whether the assets to which the defendant is expected to look are secured to another creditor;
(d) The rule does not countenance extensive and speculative inquiries as to the future value and availability of the asset. A mere possibility that the assets may be removed at some future time is not, without more, grounds for security;
(e) The failure of a plaintiff to respond to a defendant’s enquiry as to the availability of assets may raise a doubt as to the existence of assets: see Health Genetic.
[20] Master Pope in Al Masri v. Baberakubona, 2010 ONSC 562, at para. 19, quoting Morton v. Canada, 2005 CanLII 6052 (ON SC), [2005] O.J. No. 948, at para. 32, described the plaintiff’s financial disclosure as requiring “robust particularity.” It should include the amount and source of all income; a description of all assets (including values); a list of all liabilities and other significant expenses; an indication of the extent of the ability of the plaintiffs to borrow funds; and, details of any assets disposed of or encumbered since the cause of action arose.
[21] On a motion for security for costs, the court has a broad discretion in deciding whether security for costs is just in the circumstances. The merits of the plaintiff’s case is a relevant factor in the exercise of the court’s discretion to make an order for security for costs. If the plaintiff shows a real possibility of success, then the court may conclude that in the circumstances of the case, justice demands that he or she not be required to post security: see Yazdani v. Ezzati (August 5, 2015), Brampton, CV-14-3239 (Ont. S.C.).
DEFENDANTS’ SUBMISSIONS
[12] The defendants submitted that there are reasons for concern about the plaintiff’s financial situation.
[13] Firstly, the plaintiff is a corporation. It’s corporate profile report as of March 19, 2021 shows that it has one officer and director, Arash Missaghi, who is listed as the director, president, secretary and treasurer of the company.
[14] In an affidavit sworn in September, 2019 in another proceeding, Mr. Missaghi’s spouse, Laila Alizadeh, deposed that:
She owned several companies, including Mansteel, and that Mansteel’s bank account was closed in 2015;
She currently had no income and no assets that are not involved in receivership proceedings;
She did not have a personal bank account;
She has to borrow money for her rental and day to day expenses from her mother and brother, both of whom are pensioners;
She was unable to borrow money from a bank;
Arash Missaghi is an undischarged bankrupt with no income or assets.
[15] In that same proceeding, she gave answers to undertakings in which she described Mansteel as an inoperative company.
[16] Indeed, bankruptcy and insolvency records as of March 19, 2021 show that Arash Missaghi is an undischarged bankrupt. This would disqualify him from being a director of a corporation under the Ontario Business Corporations Act.
[17] Because of this evidence, on December 4, 2020, as noted above, counsel for the Sahebdivani defendants wrote to Mansteel’s counsel signalling the intention to move for security for costs and asking Mansteel to provide evidence of assets in Ontario, including bank statements, financial statements, tax returns, and documents related to ownership of or interest in real property in Ontario. Mansteel never provided a substantive response to this letter.
[18] The defendants’ materials also contain a Director’s Order dated March 22, 2018 under the Environmental Protection Act regarding the plaintiff’s New Liskeard property. It is directed to the plaintiff company, to Arash Missaghi as director of the plaintiff company, and to Laila Alizadeh and another individual as previous directors.
[19] The history section of the Order indicates that there have been environmental concerns with the property since even before the plaintiff bought it, that previous Orders have been issued against it, that the plaintiff has been prosecuted for non-compliance with a provincial officer’s Order resulting in a court Order which also has not been complied with, that it is in violation of the Environmental Protection Act, and that its response to the Ministry of Environment was unacceptable. The Director’s Order then set out a series of extensive remediative steps to be taken from the Orders’ date into 2019.
[20] The defendants also filed court records showing that the plaintiff had pleaded guilty in the Ontario Court of Justice to two counts of fraud over $5,000.00, dating from 2013. Furthermore, the defendants filed a Default Judgment from a civil case in the United States District Court, Western District of New York, dated January 27, 2000 against Arash Missaghi and others for fraud, conspiracy to commit fraud and other matters resulting in a damages award of $1,000,000.00 against them, jointly or severally.
[21] Finally, the defendants filed a copy of an indictment against Arash Missaghi and others (including Grant Erlick who is named in the above-mentioned Ministry of Environment Director’s Order as a former director and officer of the plaintiff company). It alleges four counts of fraud over $5,000.00 and other offences including obstruction of justice. Trial is set for September, 2021.
[22] I am satisfied that the defendants have met the onus of showing that there is good reason to believe that the plaintiff company has insufficient assets to pay the defendants costs in this matter. This is on the basis that:
- The evidence of Laila Alizadeh, the self-described owner of the plaintiff and a former director of it (according to the Minister of Environment records) and wife of the current sole director, Arash Missaghi, including that, as of September, 2019:
(a) Mansteel was inoperative and its bank account had been closed;
(b) She and Arash Missaghi had no income;
(c) She had no assets that were not involved in receivership proceedings;
(d) Arash Missaghi is bankrupt;
The plaintiff has a continuing history of environmental problems and is under an Order to carry out substantial, and no doubt expensive, remedial work, and
The plaintiff had months to try to satisfy the defendants regarding the issue of security for costs, but failed to do so.[^2]
[23] Consequently, I need not address the defendants’ submissions about the past judgments against the plaintiff and Arash Missaghi and the current charges against the latter which have not yet been proven.
PLAINTIFF’S SUBMISSIONS
[24] The financial disclosure provided by the plaintiff consisted of the affidavits of Arash Missaghi of April 27, 2021 and of Troy Wilson of April 28, 2021. In them, they depose that the plaintiff owns real estate and has assets that are attachable to satisfy any judgment which the defendants might obtain. In support, they attach copies of the land transfer documents for the sale of the New Liskeard property from the previous owner, Uniboard Canada Inc., to the plaintiff. I note that the consideration was $2.00. There is no explanation of this nor of the implication for the value of the property.
[25] They also depose that the plaintiff has deposited $2,200,000.00 with the Ministry of Environment pending the completion of remedial work being carried out by the plaintiff on the New Liskeard property. Wilson “believes” that these funds will be released to the plaintiff upon completion of the remedial work. In support, they attach an email of April 26, 2021 from Willms and Shier Environmental Lawyers LLP indicating that Willms and Shier retained RJ Burnside and Associates Ltd. to do the remediation work and that an unspecified amount of funds have been deposited into trust with Burnside to fund that work. Missaghi and Wilson say that the estimated cost of the remedial work is $700,000.00 to $800,000.00 and that the funds have been deposited with Burnside.
[26] Other than the Willms and Shier email there is nothing to confirm or explain these arrangements such as contracts or agreements, transaction records, the source of the funds, why $2,200,000.00 would need to be deposited to secure $700,000.00 to $800,000.00 of work that other funds had been provided for, and whether or when the funds will indeed become available to the plaintiff.
[27] The further affidavit of Wilson dated May 31, 2021 was filed late and was not accepted for use in this matter.
CONCLUSION
[28] I find that the plaintiff has not met its onus to show that it has sufficient exigible assets to pay the defendant’s costs. Its financial disclosure lacks the required “robust particularity”. There is no evidence of the plaintiff’s income, little of its assets or their values, none of its liabilities or expenses other than those in connection with the remediation work previously commented on, nor any with respect to other examples listed by Lemon J.
[29] The plaintiff faulted the defence for not cross-examining on the affidavits filed by the plaintiff. The defence countered that there was nothing of substance in them to cross-examine on. The lack of such cross-examination does not weigh in the plaintiff’s favour in my opinion. “Because the plaintiff has the onus …, a defendant “can chose not to cross-examine if the plaintiff fails to lead sufficient evidence”. The decision not to cross-examine does not convert insufficient evidence into sufficient evidence”.[^3]
[30] The merits of the case were touched on. In Wall v. Horn Abbot Ltd.[^4] Cromwell J. A., as he then was, reviewed the case law including that from Ontario on the relevance of the merits of a case in deciding whether to grant security for costs. He stated at para. 71:
These cases recognize that the merits of the plaintiff’s case is relevant to the exercise of discretion to grant or deny security for costs. There is some authority for the view that, apart from situations such as Rule 42.01(1)(f), the merits should not be considered until the defendant has made out a prima facie entitlement for security. There is also consistent recognition that the scope and nature of the review of the merits must respect the limits of what is possible and desirable on an interlocutory application. This, generally, should not be the occasion for a hearing on the merits if the case is complex or depends on findings of credibility. If the assessment of the merits is to be relied on, there should be little room for doubt or possibility of error and it must be the sort of determination which it is possible and appropriate to make on an interlocutory application.
[31] He concluded at para. 83:
From this review of the authorities, I reach the following conclusions. The merit of the plaintiff’s case is a relevant consideration to the exercise of discretion to grant or refuse security for costs. The extent to which the merits may properly be considered varies depending on the nature of the case. If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of the merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious. …
This paragraph was in turn quoted in the Ontario case of Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP[^5].
[32] The present case involves numerous allegations in a lengthy Statement of Claim against a list of defendants. The Sahebdivani defendants deny the allegations completely. There are several related actions. All of these take place against a background of other litigation involving these or related parties, a web of family relationships, and Ontario Security Commission proceedings. This does not permit a preliminary assessment of the merits for the purpose of this motion.
[33] The Sahebdivani defendants sought an installment or “pay as you go” Order totaling $75,000.00. Such orders have been found to be appropriate when an action is in its early stages, as this case is.[^6] The plaintiff did not object to the amount. Indeed, it implied that it is relatively trifling compared to the money it has paid with respect to remediation.
[34] The plaintiff shall pay into court security for the costs of the Sahebdivani defendants as follows:
$35,000.00 to cover the costs of the proceedings to date and to the end of examinations for discovery within 60 days of this Order;
$10,000.00 to be paid 30 days before the matter is scheduled for a pre-trial; and
$30,000.00 to be paid before the start of trial, failing which its claim is stayed until the funds are paid.
[35] If costs of this motion cannot be agreed upon, the defendant may serve and file its submissions within 15 days of this Order. The plaintiff shall respond within 15 days thereafter. Each side’s submissions shall be no more than three pages in length, not including bills of costs or offers to settle.
The Honourable Justice James A. S. Wilcox
Released: July 30, 2021
COURT FILE NO.: CV-20-00000050-0000
DATE: 20210730
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MANSTEEL NEW LISKEARD INC.
Plaintiff
– and –
MORTEZA KATEBIAN A.K.A. BENHAM KATEBIAN A.K.A BEN KATABIAN, PAYAM KATEBIAN. PANTEA SAHEBDIVANI, HOSSEINALI SAHEBDIVANI A.K.A. HOSSEIN SAHEBDIVANI, SIMIN SAHEBDIVANI, 2450531 ONTARIO LIMTED INC., MONEY GATE MORTGAGE INVESTMENT CORPORATION, JOHN DOE and JANE DOE
Defendants
DECISION ON MOTION
WILCOX J.
Released: July 30, 2021
[^1]: 2015 ONSC 6923; see also for example 2179548 Ontario Inc. v. 2467925 Ontario Inc., 2017 ONSC 469 and Chill Media Inc. v. Brewers Retail Inc., 2021 ONSC 1296
[^2]: Rasaiah, J. in Focal Elements v. TVM, 2018 ONSC 4273, at para. 32 stated “where a plaintiff failed to respond to a defendants inquiry as to the availability of assets, the court may order security for costs: 737071 Ontario Inc. v. Min-A-Mart Ltd. (1996), 47 CPC (3d) 68 (Ont.Gen.Div.)
[^3]: 2179548 Ontario Inc. v. 2467925 Ontario Inc., 2017 ONSC 469, para. 8
[^4]: 1999 CanLII 7240 (NS CA), [1999] NSJ No. 124
[^5]: [2007] O.J. No. 496, para. 41
[^6]: See Focal Elements v. TVM 2018 ONSC 4273, para. 29 and 2179548 Ontario Inc. v. 2467925 Ontario Inc., [2017] O.J. No. 246, both of which quote from Coastline Corp. v. Canaccord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790