Court File and Parties
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: DK MANUFACTURING GROUP LTD et al., Plaintiffs
AND:
CO-OPERATORS GENERAL INSURANCE et al., Defendants
BEFORE: MASTER RONNA M. BROTT
COUNSEL: Yadvinder S. Toor, for the Plaintiffs DK Manufacturing Group Ltd. o/a D.K.M.G aand S.G Investments Group Ltd. Email – info@toorlaw.com
Robert W. Dowhan, for the Defendant, Co-Operators General Insurance Email – rdowhan@svlaw.ca
Frank Caruso, for the Defendant National Fire Adjustment Co. Inc. Email – fcaruso@orplawyers.com
HEARD: October 26, 2020
ENDORSEMENT
1The defendants Co-Operators General Insurance Company (“Co-operators”) and National Fire Adjustment Co. Inc. (“National Fire”) (“the defendants”) bring this motion for an Order to compel the plaintiffs DK Manufacturing Group Ltd. o/a D.K.M.G. (“DKMG”) and S.G. Investments Group Ltd. (“SG”) to post security for costs.
2The plaintiff DKMG carries on business as a furniture wholesaler. The plaintiff SG was the owner and landlord of a warehouse (“the premises”) located in Woodbridge which, in the years prior to 2013 was leased to DKMG. DKMG and SG are related companies. Kulbushan Narang (“Narang”) is the sole director and shareholder of DKMG and his wife, Rani Pardal (“Pardal”) is the sole director and shareholder of SG.
3On or about December 17, 2012 a small fire occurred at the plaintiffs’ premises. As a result of the fire, the sprinkler system was activated which resulted in damage to the plaintiffs’ property, contents, building, inventory and equipment.
4The plaintiffs put their insurer, The Co-operators, on notice of the loss and the plaintiffs retained National Fire to assist them in the adjustment of the loss. During the weeks and months following the incident, the insurers assessed the value of the various losses. As the parties were unable to reach agreement, they submitted the claims to a binding appraisal hearing which proceeded on August 26, 2013. DKMG was awarded $150,000 for business interruption and SG was awarded building losses of $261,720 and gross rent losses of $260,000. Over the course of the adjustment of the entire loss, the plaintiffs received insurance proceeds totalling $2,563,586.85 which included a payment of the policy limits of $2 million for loss of inventory.
5The plaintiffs initially commenced two actions – the first against Co-Operators and the second against Co-operators, National Fire and The Alarm Factory. The claim against The Alarm Factory was subsequently discontinued. In the second action the plaintiff had also claimed for greater policy entitlement and alleged bad faith and negligent misrepresentation. In 2016 Co-operators brought a motion for summary judgment on the basis that it had paid all amounts due and owing under the policy. Justice Stinson confirmed that DKMG and SG had no further entitlements under their policies. The allegations of bad faith were not struck.
6On or about March 31, 2017 the two actions were consolidated. The plaintiffs delivered an Amended Statement of Claim increasing the damages sought and adding new allegations and claims for punitive, exemplary and aggravated damages. There has been documentary production but oral examinations have not yet been conducted.
7In February 2019 the defendants advised the plaintiffs that they were considering bringing a motion for security for costs. The plaintiffs took the position that DKMG had sufficient assets to satisfy a costs award.
8In their responding materials on this motion delivered in August 2019, the plaintiffs altered their position asserting that they are impecunious and have no assets. The plaintiffs delivered a further affidavit on September 3 and they were both cross-examined on September 4. The moving parties were examined on September 6 and later that same day, counsel for the plaintiffs delivered additional documentation purporting to change or complete answers already given by the plaintiffs on their cross-examinations.
9The moving parties sought to keep out of evidence any documentation and information delivered by the plaintiffs post cross-examination. On February 27, 2020 Master Muir granted the plaintiff’s preliminary motion to deliver post cross-examination affidavits.
MOTION FOR SECURITY FOR COSTS
10Rule 56.01 of the Rules of Civil Procedure 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,
a) the plaintiff or applicant is ordinarily resident outside Ontario;
b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;
c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part;
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;
e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or
f) a statute entitles the defendant or respondent to security for costs. R.R.O.
11On these motions the initial onus is on the defendants to satisfy the court that there is good reason to believe that the matter comes within one of the enumerated provisions in Rule 56.01(1). This is not a heavy onus.
12The focus of this motion is Rule 56.01(1)(d). “The defendant need only show that the plaintiff is a corporation and that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. The onus then shifts to the plaintiff to tender evidence that it has assets available to respond to any costs order, to demonstrate impecuniosity or to ask the court to make such order as is just in the circumstances.” (Chemicheck Inc. v Tera Canada Ltd. 2015 ONSC 2061)
13Here, the plaintiffs do not dispute that they are corporations with insufficient assets in Ontario to pay the costs of the defendants. Therefore it is uncontested that the defendants have satisfied their initial onus and the burden shifts to the respondents.
14In order to avoid an order for security for costs, the plaintiffs must establish:
a. That they are impecunious, and that the action is not plainly devoid of merit; or
b. If they are not impecunious, that the action has a good chance of success on the merits.
15The plaintiffs allege that they are impecunious and their claim is not plainly devoid of merit. Alternatively, they submit that if found not to be impecunious, but without sufficient assets to satisfy a costs order, their claims have a good chance of success on the merits.
16To prove impecuniosity, plaintiffs must provide evidence of their financial circumstances with ‘robust particularity’. There must be no unanswered questions. The evidentiary threshold for impecuniosity is high and can only be reached by tendering complete and accurate disclosure of the plaintiff’s income, assets, expenses, liabilities and borrowing ability, with supporting documentation for each category. (2311888 Ontario Inc. v Ross, 2017 ONSC 1295, para 18)
17A corporate plaintiff must also demonstrate that it cannot raise funds from its shareholders, directors, officers, associates and family members through the sale of assets or borrowing to post security for costs.
Impecuniosity
18On the evidence I find that the plaintiffs have failed to meet the evidentiary burden to demonstrate impecuniosity for the following reasons:
They have failed to produce complete financial statements and of those produced, many of them have been redacted;
SG’s only asset was its warehouse which it sold in 2013 for …….of which SG recovered $1,500,000. Those funds remain unaccounted for. Narang was unable to give evidence of where the funds were directed other than to say ‘expenses’;
In 2014 and 2015, after the warehouse sale and long after the loss giving rise to this action, Narang and Pardal purchased three properties in Florida, none of which were disclosed to the defendants until after the defendants’ independent investigations brought them to light;
Even once identified, the plaintiffs failed to provide details with respect to the source of the funds used to purchase the properties, the purchase price or their current value;
Two of the three properties were purchased mortgage-free; and their children live in two of them;
The plaintiffs allege that the properties are held in trust for their two children but the fact that the children are on title with Pardal is inconsistent with the plaintiffs’ allegations;
If the properties are in fact held in trust by the parents for the children, then it would appear that the plaintiffs could raise the funds for the costs of this action from family members;
Narang and Pardal were shareholders in corporations that were not initially disclosed;
Narang and Pardal drive luxury automobiles;
Narang and Pardal have failed to provide evidence about whether they could raise the funds.
19The plaintiffs submit that the defendants failed to cross-examine the plaintiffs on their financial circumstances and disclosure. At the second stage on these motions, it is the plaintiffs who have the onus to prove their financial situation. I find that the plaintiffs have failed to do so.
Merits of the Claim
20As the plaintiffs have not been found to be impecunious, the onus is on them to demonstrate a good chance of success. It is a high threshold.
21The defendant Co-Operators paid its policy limits of $2,200,000 with one half million dollars having been paid even before the proof of loss was filed. At the appraisal hearing, the defendants were told what further amounts were to be paid and they too were paid. The policy claims against the insurers were dismissed on a summary judgment motion. All that remains in issue in this action are allegations of negligence and bad faith.
21The plaintiff’s affidavit contains references to incidents that purport to be evidence of bad faith but there is no expert evidence put forth by the plaintiffs of liability/breach of standard of care by the insurer. The duty of good faith of an insurer is not triggered by imperfection or error on the part of an insurance adjuster. The Supreme Court of Canada in Fidler v Sun Life Assurance Co. of Canada, 2006 SCC 30 at para. 71 states that a finding of bad faith of an insurer requires “overwhelmingly inadequate handling of the claim.”
22If the plaintiffs are attempting to assert that there was a delay in payment which caused losses over and above what they have been compensated in full, they must produce expert evidence on the issue of what is/is not an unusual amount of time spent to adjust such losses. There is no such evidence before this court. The business interruption loss claims were valued and paid as determined by the umpire. There is no evidence to establish that any party fell below the applicable standard of care.
23Further there is no evidence about what happened to the insurance proceeds after the plaintiffs received the money from the insurer. There is a footnote in the Rogers report that makes note of the fact that the plaintiffs had a line of credit with RBC for $1.2 million which was fully extended and it was secured against the plaintiffs’ inventory. Once the plaintiffs deposited the cheque for $1.7 million, RBC took $1.2 million for payment on the loan. There is no evidence that RBC would have done anything differently if the plaintiffs had received their insurance proceeds earlier.
24The plaintiffs allege that they were compelled to sell the warehouse at a discount but they have provided no evidence to support this allegation.
25For these reasons, I find that the plaintiffs have failed to meet their high burden to demonstrate a good chance of success.
26Courts must exercise discretion on these motions to make orders that are just. The order should be made where justice of the case demands it. Such an order is not meant to be punitive but rather it serves as an assurance for the defendants that their costs will be paid. Given the finding that the plaintiffs are not impecunious, this is not a situation where the action would not be heard if the plaintiffs are ordered to post security. It would however be unjust if the plaintiffs were permitted to go to trial without posting security, be unsuccessful at trial and then simply avoid paying the defendants’ costs. For these reasons, security for costs is ordered payable by the plaintiffs to each of the defendants.
Quantum
27Thus far this action has involved numerous case conferences and a motion for summary judgment. In light of the allegations of bad faith, the documentary and oral examinations will require a detailed examination of the entire adjusting process of the insurance claims. This will be voluminous and lengthy.
28There is no reason to depart from the general practice of installment payments. Costs are ordered payable in stages to each of the two defendants as follows:
$10,000.00 to be posted within thirty (30) days of this Order;
$15,000.00 to be posted at a minimum of thirty days (30) days prior to examinations for discovery;
$15,000 to be posted a minimum of thirty days (30) prior to the first pre-trial conference;
$25,000.00 to be posted at a minimum of thirty (30) days prior to the first day of trial.
29On costs of this motion, it was agreed at the conclusion of the hearing that the parties would attempt to agree on the issue of costs within thirty (30) days following the release of reasons. If unable to agree on costs, they shall exchange costs outlines and deliver them to the court together with a 1-2 page costs submissions within 20 days thereafter.
MASTER RONNA M. BROTT
Date: January 26, 2021