COURT FILE NO. 76324/11
DATE: 20210929
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Todd Family Holdings Inc. and Future Image Holdings Corporation
Plaintiffs
– and –
Roy John William Gardiner, Barefoot Science Technologies Inc., Dayl Marie Armstrong, Barefoot Science Holdings Inc., Barefoot Science Direct Inc., Barefoot Science Group Marketing Inc. and Advanced Barefoot Technologies Inc.
Defendants
– and –
Lance Todd, Barefoot Science Products and Services Inc., and 2215535 Ontario Inc.
Third Parties
Gary Sugar, for the plaintiffs
Bryan McLeese and Alexandra Allison, for the defendants Roy John William Gardiner and Advanced Barefoot Technologies Inc.
Heard: March 31 and April 1, 2021
S.T. Bale J.:
REASONS FOR DECISION
Introduction
[1] Pursuant to an order of the Court of Appeal dated April 25, 2017, an assessment of damages is pending in this court.
[2] An order giving directions for the conduct of the assessment was made in February 2019.
[3] The defendants Roy John William Gardiner and Advanced Barefoot Technologies Inc. now move for the following orders:
- that the plaintiffs give security for the defendants’ costs;
- that the defendants be permitted to give security for the plaintiffs’ claim by way of a letter of credit, such security to be in substitution for the plaintiffs’ right, under the trial judgment, to continue exploiting certain intellectual property collateral;
- that certain outstanding interlocutory costs awards in favour of both parties be set off and that the plaintiffs be required to pay the resulting balance to the defendants;
- that certain writs of execution filed by the plaintiffs against the defendants be withdrawn; and
- that the plaintiffs disclose to the defendants the names of all individuals to whom the plaintiffs sent certain email which the defendants allege was defamatory.
[4] By way of cross-motion, the plaintiffs move:
- for a Mareva injunction, but only in the event that the court discharges the writs of execution as requested by the defendants;
- for an order that the assessment judge consider whether the collateral should be vested in the plaintiffs and that the parties may introduce expert evidence of the fair market value of the collateral; and
- for an order finding Roy John William Gardiner in contempt of certain provisions of the trial judgment and an order that a certain web domain be transferred to Future Image Holdings Corporation.
Factual and procedural background
[5] This action was tried over 23 days between May and December of 2014. Written argument was submitted in January 2015, and reasons for judgment[^1] were released in July 2015. Future Image Holdings Corporation was awarded judgment for deceit in the amount of US$2,217,602.28, and costs on a substantial indemnity basis in the amount of $960,432,26. In addition, Future was given the right to exploit certain intellectual property pledged as security for amounts invested by it in the defendants’ business, until such time as the monetary judgment is satisfied.[^2]
[6] In April 2017, on appeal by the defendants, the Court of Appeal set aside the judgment for US$2,217,602.28 and ordered that an assessment of damages be remitted to this court.[^3] The order on appeal provides that damages are to be assessed on the basis that Future is owed US$1,250,640.34, plus prejudgment interest of US$340,910.85 (total US$1,591,551.19), less the profits generated by Future through the exploitation of the collateral since July 14, 2009 (the date upon which, by interim order, Future was given the right to do so). In addition, the Court of Appeal ordered that if the profits generated by Future exceeded US$1,591,551.19, the excess would be payable by Future to the defendant Gardiner.
[7] As a result of the delay since the decision of the Court of Appeal, the ordered assessment has been complicated by the fact that there are now an additional four years, and counting, for which the plaintiffs are required to account for their exploitation of the collateral. Had the parties proceeded to the assessment as soon as possible following the appeal, the assessment could easily have taken place prior to the pandemic.
Defendants’ motion for security for costs
[8] The defendants move for security for costs in the amount of $565,494.08. For the following reasons, the motion will be dismissed.
[9] Rule 56.01 of the Rules of Civil Procedure provides that the court “may make such order for security for costs as is just” where, as it relates to the present case,
(c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid; [or]
(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.
[10] In determining whether to order security for costs, the overarching principle is whether in all the circumstances of the case, the order would be just: Yaiguaje v. Chevron Corp., 2017 ONCA 827, at para. 19. The security for costs rule is not to be used as a litigation tactic to prevent a case from being heard on its merits: Chill Media Inc. v. Brewers Retail Inc., 2021 ONSC 1296, at para. 15.
[11] In Yaiguaje, at paras. 23-25, the court went on to say the following:
The Rules explicitly provide that an order for security for costs should only be made where the justness of the case demands it. Courts must be vigilant to ensure an order that is designed to be protective in nature is not used as a litigation tactic to prevent a case from being heard on its merits, even in circumstances where the other provisions of Rules 56 or 61 have been met.
Courts in Ontario have attempted to articulate the factors to be considered in determining the justness of security for costs orders. They have identified such factors as the merits of the claim, delay in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns and the public importance of the litigation. [Citations omitted.]
While this case law is of some assistance, each case must be considered on its own facts. It is neither helpful nor just to compose a static list of factors to be used in all cases in determining the justness of a security for costs order. There is no utility in imposing rigid criteria on top of the criteria already provided for in the Rules. The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.
[12] Rules 56.01(1)(c) and 56.01(1)(d) apply in the present case. About that, there is no dispute. Rather, the dispute is whether, in all the circumstances, the justness of the case demands that an order for security for costs be made.
[13] Having undertaken the required holistic analysis, I have concluded that the interests of justice require that no order for security for costs be made.
[14] A motion for security for costs may be dismissed where there is unexplained delay in bringing the motion and the delay has caused at least some prejudice to the plaintiff: 423322 Ontario Ltd. v. Bank of Montreal (1988), 1988 CanLII 4678 (ON SC), 66 O.R. (2d) 123 (H.C.J.); Trillium Motor World Ltd. v. General Motors of Canada Ltd., 2016 ONCA 702.
[15] In the present case, the defendants argue that they were not aware of the plaintiffs’ impecuniosity until about October 2019 when they learned that Future Image Holding Corporation had been dissolved in 2016 for failure to comply with the Corporation Tax Act (it has since been revived). However, I do not accept that explanation for their delay in bringing the motion.
[16] This action was commenced in 2011. From the outset, the plaintiffs’ position has been that they were impoverished by the defendants’ fraud.
[17] In his 2015 reasons for judgment, the trial judge came to the following conclusion:
They robbed him [Mr. Todd] of his life's earnings and I am satisfied he is destitute and a virtual pauper. He has mortgaged his properties to the hilt in his search for justice and he came within a hair's breadth of losing counsel for the second phase of this complex trial. His lawyers were forced to continue their representation under protest despite his proved inability to pay outstanding and anticipated legal fees.
[18] The plaintiffs maintained this position at the Court of Appeal. Although that court held that this evidence provided no basis upon which to come to any conclusion concerning the profits generated by the plaintiffs’ exploitation of the collateral, the trial judge’s findings with respect to impecuniosity were not overturned.
[19] Since the decision of the Court of Appeal, the plaintiffs have maintained their position that the defendants’ fraudulent conduct rendered them impecunious. While the defendants do not accept that the plaintiffs’ financial condition meets the test for impecuniosity required to avoid an order for security for costs, they could have brought the motion years earlier based upon the plaintiffs’ position with respect to impecuniosity, just as they rely upon it, in part, today.
[20] In addition, an order for security for costs could well result in further delay. Under rule 56.05, the proceeding is stayed until the security is paid, unless the court orders otherwise. A stay of the proceeding would be of no benefit to either plaintiffs or defendants.
[21] Under rule 56.06, where a plaintiff defaults in giving the security required by an order, the court may dismiss the proceeding. In considering whether to exercise its discretion to do so, the court will enquire into the efforts made by the plaintiff to satisfy the obligations imposed by the order and the onus is on the plaintiff to bring forward persuasive evidence to move the court to relieve against a breach of the order: see Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 4th ed. (Toronto: LexisNexis, 2020), at ¶10.224. Based upon the conduct of the parties to date, one can easily imagine the further delay likely to occur in such circumstances.
[22] As a result of the defendants’ delay in bringing the motion, the plaintiffs’ have continued to invest time and money exploiting the collateral. By doing so, they have, on the evidence of Mr. Todd, significantly increased its value.
[23] In these circumstances and given that the trial judge’s finding of fraudulent misrepresentation was upheld on appeal, it would be unjust to allow an order for security for costs, at this late date, to derail the assessment ordered by the Court of Appeal.
[24] In the result, the motion for security for costs will be dismissed.
[25] The parties spent considerable time at the hearing on the issue of whether the plaintiffs had adequately proved impecuniosity as a defence to the motion. Given the basis upon which I have decided the motion, it is not necessary for me to deal with those arguments.
Motion to allow defendants to give substitute security for the plaintiffs’ judgment
[26] The defendants move for an order that they be permitted to give security for the plaintiffs’ potential judgment, in the form of a letter of credit, such security to be in substitution for the plaintiffs’ right to continue exploiting the collateral pending the assessment. For the following reasons, the motion will be dismissed.
[27] With respect to the court’s jurisdiction to order the substitute security, the defendants rely upon 80 Wellesley St. East Ltd. v. Fundy Bay Builders Ltd., 1972 CanLII 535 (ON CA), [1972] 2 O.R. 280 (Ont. C.A.), International Chemalloy Corp. v. Kawecki Berylco Industries Inc., [1977] O.J. No. 1413, and C & G Custom Builders Co. v. Applewood Air Conditioning Ltd. (1975), 1975 CanLII 742 (ON SC), 8 O.R. (2d) 62 (H.C.J.). Having reviewed those authorities, I agree that the court does have jurisdiction to order the substitution of one form of security for another, provided that the substituted security is at least as good as the security for which it is substituted.
[28] In the present case, I find that the proposed letter of credit is better security than the continuing right to exploit the collateral. According to the plaintiffs, their profits from exploiting the collateral to date are nil. If the substitution is made and the result of the assessment is that the plaintiffs are owed money, they will be entitled to walk into the bank with their judgment, and walk out with payment in full, including prejudgment interest and costs. If the substitution is not made and the result of the assessment is that they are owed money, they will be left with a continuing right to exploit the collateral, a continuing obligation to account to the defendants for profits made, and in the event of ongoing disputes with respect to those profits, the prospect of continuing judicial assessments, with the attendant risks and costs.
[29] There would be other benefits to the substitution of security. The period over which the plaintiffs are required to account for their exploitation of the security would be fixed. This would simplify the assessment and avoid a continuation of what has been an ongoing battle over the sufficiency of the plaintiffs’ disclosure of relevant financial information.
[30] In addition, it is possible that the accounting will result in money being owed by the plaintiffs to the defendants. If the plaintiffs are as impecunious as they say they are, recovery of any judgment in favour of the defendants would be unlikely. A substitution of a letter of credit for the right to exploit the collateral would, at least, prevent any further over-recovery by the plaintiffs.
[31] However, notwithstanding the arguments in favour of ordering the substitution, I have decided not to exercise my discretion to make the order, again, primarily because of the defendants’ delay in making the motion.
[32] The plaintiffs have been exploiting the collateral since 2009 when the defendants defaulted on repayment of the plaintiffs’ loan, and by an order dated July 14, 2009, Mullins J. enjoined the defendants from interfering with the plaintiffs use of the collateral.
[33] On August 18, 2017, the defendants successfully moved before Boswell J. for an order substituting a letter of credit for the collateral, in substantially the same terms as proposed on this motion. No one appeared for the plaintiffs on the hearing of the motion.
[34] In January 2018, the plaintiffs moved under rule 37.14(1) for an order setting aside the order of Boswell J., on the ground that they had failed to appear on the motion through accident, mistake or insufficient notice. Lavine J. granted the order on April 11, 2018. The motion was then not renewed until November 2019 when the defendants brought this motion.
[35] The plaintiffs argue that the time and money they have invested in exploiting the collateral over the years has increased its value, and that as a result, they are entitled to an order, by way of constructive trust, vesting title to the collateral in them. That claim is the subject of a separate action, the merits of which are not before me on these motions. They also claim entitlement to a vesting order pursuant to s. 130 of the Bankruptcy and Insolvency Act. Although an order for the substitution of security would not preclude the continuation of the claims for a vesting order, the continuation of those claims would likely become impracticable.
[36] The plaintiffs argue that they depend upon revenue from the exploitation of the collateral to enable them to pursue this litigation. While I agree with the defendants that the right to exploit the collateral given to the plaintiffs by the trial judgment (and continued by the Court of Appeal) is restricted to recovering the amount of their post-assessment judgment debt and costs, and does not guarantee them cash flow to pursue the litigation, it would be unfair to interfere with their ability to pursue the litigation by ordering the substitution, at this late date.
[37] Another potential problem with the substitution of security is that the parties do not agree on what the collateral consists of and based upon the history of the case to date, that is likely to be another battle. While it is an issue that will have to be resolved at some point, raising it now would have the potential of further delaying the assessment.
[38] In the result, the motion for substitution of security will be dismissed.
Defendants’ motion for a set-off of interlocutory costs awards
[39] The defendants move for an order that certain outstanding interlocutory costs awards in favour of both parties be set off and that the plaintiffs be required to pay the resulting balance to the defendants, in the amount of $10,300.07, plus interest to the date of the motion.
[40] However, the defendants not having paid the interlocutory costs awarded to the plaintiffs are in no position to argue for an order that their interlocutory costs be paid. The fact that as of the date of this motion the costs awarded to the defendants exceed those awarded to the plaintiffs is transitory - following the hearing of the present motions, the set-off may well point the other way.
[41] In addition, as there are already orders that these costs be paid, the defendants’ goal in making the motion can only be to obtain an order under rule 60.12 to stay or dismiss the plaintiffs’ claim, neither of which results would be just in the circumstances of this case.
Defendants’ motion for order that writs of seizure and sale filed by the plaintiffs be withdrawn
[42] The plaintiffs have filed two writs of seizure and sale with the sheriff: one in the amount of $13,500, based upon a costs order made in May 2014 by Mullins J. finding the defendants to be in contempt of court; and the other, based upon the trial judgment. The defendants’ motion for an order that the writs be withdrawn will be dismissed for the following reasons.
[43] With respect to the first writ of seizure and sale, the defendants’ position is dependent upon the order for a set-off of the interlocutory costs order being made. As I have not ordered the set-off, I see no basis upon which to order that the first of the two writs be withdrawn.
[44] With respect to the second, the defendants rely upon paragraph 1(a) of the order of the Court of Appeal pursuant to which the plaintiffs’ monetary judgment was “set aside and, as of the date of this order, [is] of no force and effect.”
[45] However, writs of seizure and sale have a separate existence and in making orders setting aside default judgments, the court may permit writs of seizure and sale to remain filed with the sheriff: Canadian Imperial Bank of Commerce v. Sheahen (1978), 1978 CanLII 2169 (ON SCDC), 22 O.R. (2d) 686 (Div. Ct.), at p. 691. I see no reason why the court should not be able to do likewise in the circumstances of this case. When a default judgment is set aside, the parties are back at the starting block. In this case, the plaintiffs have a judgment for fraudulent misrepresentation in an amount to be assessed on the basis that they are owed US$1,250,640.34, plus prejudgment interest and less the profits, if any, generated since they realized on their security and began exploiting the collateral. While it is true that a potential result of the assessment may be that they owe money to the defendants, they are closer to judgment than a plaintiff whose default judgment has been set aside.
[46] The defendants rely upon Holmes v. Stockton Estate, 2018 ONCA 273. In that case, the Court of Appeal set aside provisions of a summary judgment relating to payment of a mortgage debt and to a statute-barred claim for proceeds of sale of farm equipment, but upheld provisions of the judgment relating to child support. The court ordered that writs of seizure and sale based upon the mortgage debt be withdrawn. The defendants argue that Stockton Estate is authority for the proposition that where a judgment is overturned in part, writs based upon the original judgment should be withdrawn. However, the case is easily distinguished from the present one. In Stockton Estate, the writs were ordered to be withdrawn based upon a finding that the mortgage had been extinguished by power of sale proceedings and that the underlying mortgage debt was extinguished by the bankruptcy of the deceased. In contrast, in the present case, only the trial judge’s finding with respect to quantum was set aside, leaving the finding of deceit in place.
[47] The defendants say that the reason for wanting the writs to be withdrawn is that Mr. Gardiner would like to refinance his home at a lower interest rate. However, based upon evidence that Gardiner has, in the past, considered moving his assets offshore, Mr. Todd has a legitimate concern that if the writs are withdrawn, he will do so. In any event, if Gardiner is able to refinance his home in a way that does not reduce the equity available to judgment creditors, it may be that arrangements can be made for a temporary withdrawal of the writs to allow him to do so.
[48] In reducing the plaintiffs’ judgment from US$2,217,602.28 to US$1,250,640.34, less profits earned by exploiting the collateral, the Court of Appeal has reduced the maximum judgment to which the plaintiffs are entitled. If it would make a difference to the defendants to do so, I would be prepared to order that the writ be amended to reflect the reduction. In addition, the writ may be amended to remove the name of Gardiner’s wife, Dayl Marie Armstrong, the Court of Appeal having dismissed the claims of deceit and fraudulent misrepresentation as against her.
Defendants’ motion that the plaintiffs disclose the names of all individuals to whom the plaintiffs sent certain email which the defendants allege was defamatory
[49] The defendants did not proceed with this motion at the hearing.
Plaintiffs motion for a Mareva injunction
[50] As I have dismissed the defendants’ motion for an order withdrawing the writs of seizure and sale, it is not necessary for me to deal with this motion.
Plaintiffs’ motion for an order finding the defendant Gardiner to be in contempt
[51] The plaintiffs did not proceed with this motion at the hearing. They did request the court’s assistance with respect to a temporary transfer to them of a trademark and web site but I directed that resolution of those issues be deferred to a later date to allow the defendants to respond to the request and for notice to be given to Ms. Armstrong who is not represented by counsel on these motions.
Plaintiffs’ motion for an order that the assessment judge consider whether the collateral should be vested in the plaintiffs
[52] The plaintiffs move for an order that the assessment judge consider whether the collateral should be vested in the plaintiffs and that the parties may introduce expert evidence of the fair market value of the collateral. Their position is that the collateral vested in them, effective June 2, 2013, pursuant to s. 130 of the Bankruptcy and Insolvency Act. The motion to add this issue to the assessment hearing will be dismissed, for the following reasons.
[53] The order of the Court of Appeal provides that “an assessment of damages as against Gardiner and Barefoot Science and Technologies Inc. for deceit/fraudulent misrepresentation shall be heard by a judge of the Superior Court of Justice at Oshawa.” A consideration of whether the collateral should be vested in the plaintiffs is beyond the scope of the assessment ordered by the Court of Appeal.
[54] In support of their position, the plaintiffs rely upon paragraph 6 of the order of the Court of Appeal which provides that “in assessing what, if any, damages are owing to the Respondent … the court may, to the extent necessary, vary any of the extant terms of the Trial Judgment.” The plaintiffs argue that this paragraph permits the assessment judge to consider whether the collateral should vest in the plaintiffs. However, the plaintiffs have not pointed to any extant paragraph of the trial judgment that requires variation or to any paragraph that could be varied so as to provide for a consideration of the vesting issue. This issue was not raised at trial and neither the reasons of the trial judge nor the trial judgment makes any mention of it.
Timetable
[55] Following the hearing of the motions, counsel provided me with proposed timetables for the steps required to ready this case for the assessment. Given the time that has passed since those timetables were submitted, the proposed dates will need to be revisited. Counsel are required to come to an agreement with respect to a timetable, within 15 days of the date of these reasons. If they are unable to do so, a case conference will be required.
Disposition
[56] For the reasons given, the motions are dismissed.
[57] If the parties are unable to agree on costs, I will consider brief written argument, provided that it is delivered to my assistant, at monica.mayer@ontario.ca, no later than October 20, 2021.
“S.T. Bale J.”
Released: September 29, 2021
COURT FILE NO. 76324/11
DATE: 20210929
ONTARIO
SUPERIOR COURT OF JUSTICE
Between:
Todd Family Holdings Inc. and Future Image Holdings Corporation
Plaintiffs
– and –
Roy John William Gardiner, Barefoot Science Technologies Inc., Dayl Marie Armstrong, Barefoot Science Holdings Inc., Barefoot Science Direct Inc., Barefoot Science Group Marketing Inc. and Advanced Barefoot Technologies Inc.
Defendants
– and –
Lance Todd, Barefoot Science Products and Services Inc., and 2215535 Ontario Inc.
Third Parties
REASONS FOR DECISION
Bale J.
Released: September 29, 2021
[^1]: Reported at 2015 ONSC 4432. [^2]: The trial judgment, as varied by the Court of Appeal, is against the defendants Roy Gardiner and Advanced Barefoot Technologies Inc., only. For the sake of simplicity, they are referred to in these reasons as the “defendants”. Similarly, while the judgment is in favour of Future Image Holdings Corporation, only, I refer to it as the “plaintiffs”. [^3]: With reasons reported at 2017 ONCA 326.