ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
AIR PALACE COMPANY LIMITED
S.J. Bae for Plaintiff sangjoonbae5@gmail.com
Plaintiff
- and -
FATTAH ABDEL, FADL KANNAN, MOHAMAD BALLOUT, KHALED ELRIDI, 7311141 CANADA INCORPORATED, AIRGLOBE TAXI & LIMOUSINE SERVIES INC., 6988598 CANADA LIMITED, AMBK HOLDINGS LIMITED o/a MISSISSAUGA TAXI, HUSAM ALDIN, MARWA RAMADAN, HUSSAMALDIN ALHUDHAIRY, 2313258 ONTAIRO INC. o/a MISSISSAUGA TAXI, HASSAN KANAAN, MEDI MOHAMMAD FAHMI, EKERAM SWAIDAN, MUHAMAD KRAYAN, HEBA ABDELGHANYE, TAGHRID JRADI, GITA MASOUDI, MAHMOUD KHAMESTAN, SHAHDOKT SHAHIN, SOUDABEH MAHINFAR, BATOULA MAHMOUD HAMMOUD, ABC CORPORATION, JOHN DOE, and JANE DOE
S. Majic for Defendants ELRIDI, Khaled and 7311141 CANADA INCORPORATED sandra@fayhassaan.com
K. Stewart for Defendant KANAAN, Hassan kstewart@barnessammon.ca
J. Kayani for Defendants FAHMI, Medi and SWAIDAN, Ekeram junaid@kayanilaw.com
Defendants
HEARD: 7 September 2021
REASONS FOR JUDGMENT
Trimble J.
THE MOTION
1Three groups of Defendants (“the moving Defendants) move for an order that the Plaintiff’s post security for costs of approximately $500,000. Those groups of moving Defendants are: a) Khaled Elridi and 7311141 Canada Incorporated, b) Hassan Kanaan, and c) Medi Fahmi, and Ekeram Swaidan.
FACTS
1. The Phishing Scam
2The Plaintiff, Air Palace, for some time, had been a business relationship with Rotor Maxx Support Ltd, a supplier of helicopter components, repairs, and maintenance, located in Parksville, British Columbia. Air Palace paid Rotor by wiring funds to Rotor.
3On or about 1 December 2014, Daniel Koh, President of Air Palace, advised the president and COO of Rotor by email that he will wire funds in the amount of $309,578.63 USD the following day.
4On 2 December, Koh received an email from someone claiming to be the representative of Rotor’s president, giving the email and account number to which the funds were to be sent. Later that day Mark Kelly, the Rotor’s CFO, advised that they were having trouble with their accounts and provided new information for the wire transfer. Air Palace transferred the funds as instructed.
5Unfortunately for Air Palace it was the victim of a phishing scam perpetrated by Mr. Abdel and Mr. Koh.
6There is no dispute as to the facts so far.
7What follows, however, is taken from Air Palace’s Affidavits on this motion. Aside from Air Palace’s factual allegations that are based on its own documents, the balance of its factual allegations appear to have been take from the Crown Brief from the prosecution of Mr. Abdel and obtained from the Ministry of the Attorney General, or an investigation report that Air Palace commissioned.
8The account to which Air Palace deposited the money was held, in fact, by 7311141 Canada Inc.
9On 15 December 2014, Air Palace became suspicious about the transfer and asked its bank to track the funds and, if possible, stop on the transfer. On 18 December, the bank told Air Palace that the funds could not be returned as they had been withdrawn from the recipient bank on 4 December 2014.
10After the funds were deposited into 731’s account, the funds began to move around in a complicated series of transactions.
11On 4 December 2014, a draft was made out to Air Globe Taxi and Limousine Inc. There is no such company. The draft was deposited into an account of a similarly named company that same day. Air Globe then made a draft of $235,000 payable to 2313258 Ontario Inc. and another draft for $100,000 payable to Mohamed Ballout.
12On 4 December, the money payable to Bollout was deposited into his account. On 9 December, Ballout transferred $100,000 to 3213258 Ontario Inc. and on 8 December 231 Ontario transferred $25,000, and then another $17,600 to Ballout, and on 10 December transferred $8,879 to Ballout.
13With respect to the $235,000 deposited on 4 December directly to 231’s account, 231 transferred $40,000 on 4 December to Mohamed Krayem, and on 9 December $115,050 to China. On 23 December the money sent to China was returned to 231 having been paid to the wrong account.
14On 2 January 2015, 231 purchased a draft order of $99,158.59 USD payable to AMBK holdings which were deposited that day. On 26 January AMBK transferred 88,600 USD from its American account to its Canadian dollar account and on 30 January made a draft of $100,000 payable to Fahmi which, on 2 February 2015 Fahmi deposited to an account held by Fahmi and Swaidan. On 2 February, $85,000 of that money was transferred out to four individuals.
2. Report to the Police
15Air Palace reported the incident to Korean police and to Peel Regional Police after it discovered it had been defrauded.
16Originally, the police arrested and charged Fattah Abdel and Fadl Kanaan. Only Mr. Abdel was convicted of fraud (see: R. v. Abdel, 2018 CarswellOnt 17477, and R. v. Abdel, 2019 ONSC 690, 2019ONSC 690). On 8 February 2019 Fragomeni J., issued a restitution order.
17The charges against Fadl Kanaan were not proceeded with.
3. The Action
18Air Palace commenced this action by Notice of Action on 14 December 2016. The Statement of Claim was issued on 13 January 2017. That Statement of Claim has been amended from time to time to add various parties, bringing the total to 22 Defendants, not including the ABC Corporation and John and Jane Doe unknown parties.
19Air Palace claimed against each and all of the Defendants $500,000 for damages in fraud, misrepresentation, theft, conversion and detinue, unlawful interference with economic interest, unjust enrichment, deceit, money had and received, breach of trust, and conspiracy. It also claimed punitive damages of $300,000, plus interest and costs.
20Air Palace commenced a third party action against Koh, who did not defend. Judgement was granted in the sum of $395,726.31 CDN plus $5,688.57 for costs. Koh has never been located nor has the judgment been paid.
21Fadl Kanaan Kahled Elridi, and 731 Canada Inc. have been noted in default. On 26 January 2021, Air Palace obtained default judgment of $445,726.31 against the Defendants 6988598 Canada Ltd., AMBK Holdings Limited, 2313258 Ontario Inc., Airglove Taxi & Limousine Services Inc., Fadl Kanaan, Heba Abdelghany, Fattah Abdel, and Mohamad Ballout.
22It does not appear that there have been any enforcement proceedings against these Defendants.
SECURITY FOR COSTS MOTION
1. The Law
23Rule 56.01(1) provides that the court, on motion by the Defendant at any time after it defends, may make such order for security for costs as is just where it appears that any of the criteria in that Rule are met. It 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.
24Under R. 56.04, “the amount and form of security and the time for paying into court or otherwise giving the required security shall be determined by the court.”
25Rule 56.01(1) does not create a prima facie right to security for costs. The rule triggers an inquiry in which the court, using its broad discretion, may make such order as is just in the circumstances (see: Stojanovic v. Bulut, 2011 ONSC 874, at paras. 4-5; and Lipson v. Lipson, 2020 ONSC 1324, at para. 26).
26The Courts have put forth a number of factors and principles to consider. However, the analysis remains holistic, focussed on the justness of the order in all the circumstances. The Court of Appeal, in Yaiguaje v. Chevron Corp., 2017 ONCA 827, at paras. 23-25, said:
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 rr. 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…
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 of the circumstances of the case and guided by the overriding interest of justice to determine whether it is just that the order be made.
27I list below the list of principles of law and factors for the Court to consider when looking at the justness of the case, as set out by then Master Glustein in Coastline Corporation Ltd. et al v. Cannacord Capital Corporation et al, 2009 CanLII 21758 (S.C.J.), which I have updated and expanded:
a) The onus is on the Defendant to show that the Plaintiff “appears to” fall within one of the four enumerated categories in Rule 56.01. The bar for the moving party is not a high one. If the Defendant meets his onus, the onus shifts to the Plaintiff to avoid an order for security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order, the order is unjust or unnecessary, or the Plaintiff should be permitted to continue with action despite their impecuniosity (see: Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 (H.C.J.) at 123); and Lipson v. Lipson, 2020 ONSC 1324 supra, at para. 28, and Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. – Master) at para. 4);
b) The second stage of the test is permissive and requires the exercise of discretion which can take into account a multitude of factors. The court exercises a broad discretion in making an order that is “just” (see: Chachula v. Baillie (2004), 2004 CanLII 27934 (ON SC), 69 O.R. (3d) 175 (S.C.J.) at para. 12, and Uribe, at para. 4);
c) The plaintiff can meet its onus by either demonstrating that:
a. the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,
b. the plaintiff is impecunious, and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not “plainly devoid of merit”, or
c. if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success.
(see: Willets v. Colalillo, [2007] O.J. No. 4623 (S.C.J. – Mast.) at paras. 46, 47, and 55; Uribe, at para. 5; Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 50; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J. – Mast.) at para. 35).
d) The court on a security for costs motion is not required to embark on the same sort of analysis as on a motion for summary judgment. The analysis is done primarily on the pleadings, with recourse to evidence filed on the motion, and in appropriate cases, to selective references to excerpts of the examination for discovery where it is available (Padnos, at para. 7, and Bruno, at para. 37);
e) 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 the merits may be properly assessed on an interlocutory application (see: Wall v. Horn Abbott Ltd., 1999 CanLII 7240 (NS CA), [1999] N.S.J. No. 124 (C.A.) at para. 83);
f) A corporate plaintiff who claims impecuniosity must demonstrate that it is genuinely impecunious (see: Montrose Hammond & Co. v. CIBC World Markets Inc., 2012 ONSC 4869, at para. 34) and cannot raise security for costs from its shareholders and associates; that is, it must demonstrate that its principals do not have sufficient assets (see: Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 CanLII 4190 (ON SC), 61 O.R. (2d) 688 (H.C.J.) at para. 705). Evidence as to the “personal means” of the principals of the corporation is required to meet this onus (see: Treasure Traders International Co. v. Canadian Diamond Traders Inc., [2006] O.J. No. 1866 (S.C.J.) at paras. 8-11). A corporate plaintiff must provide substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security. A bare assertion that no funds are available will not suffice (see: 1493677 Ontario Ltd. v. Crain, [2008] O.J. No. 3236 (S.C.J. – Master) at para. 19). A security for costs motion requires a “rigorous standard” of financial disclosure (see: Lipsson, at para. 33); The Plaintiff’s financial disclosure obligation requires “robust particularity”, including 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 Plaintiff to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose (see: Al Masri v. Baberakubona, 2010 ONSC 562, at para. 19, citing Morton v. Canada, 2005 CanLII 6052 (ONSC), at para. 32); The evidentiary threshold is high. The Plaintiff must tender "complete and accurate disclosure of the Plaintiff's income, assets, expenses, liabilities and borrowing ability, with full supporting documentation for each category where available or an explanation where not available" (see: Shuter v. Toronto Dominion Bank, 2007 CanLII 37475 (ON SC) at para. 76).
g) The merits of the case have a role in any application under Rule 56.01, but on a continuum. Where the motion based on R. 56.01(1)(a), the merits of the case are at the low end. Where the motion is based on R. 56.01(e), the merits of the case are at the high end (Padnos at para. 4 and Bruno at para. 36);
h) If a Plaintiff demonstrates impecuniosity, he can resist the motion for security for costs by showing that the claim is not plainly devoid of merit. If the Plaintiff does not establish impecuniosity, the Plaintiff must meet a higher standard, namely that the case has a good chance of success (see: Michailidis v. Vertes, 2019 ONSC 6440, at para. 6, and Zeitoun at paras. 49-50).
2. Analysis
28It is common ground that Air Palace is a corporation that is resident outside of Ontario and that it has no assets in Ontario or any other reciprocating jurisdiction. The moving Defendants rely on R. 56.01(1)(d), (e) and (f).
29The moving Defendants have met their onus on the first stage of the analysis. Air Palace is a Korean company which has no assets in Canada or the US other than the cause of action itself.
30Air Palacef responds by arguing that the justness of the situation does not call for an order for security for costs because it is impecunious and has a meritorious case.
31In reply the moving Defendants argue that Air Palace is not impecunious, its case has no merit, and Air Palace’s and its lawyer’s approach to the litigation is vexatious and an abuse of process.
32I now turn to the various factors relative to explain why the justice of this case requires that an order should be made for security for costs.
Impecuniosity
33In support of its claim of impecuniosity the plaintiff relies on the evidence of Mr. Lee who testified:
a) Air Palace has not made any profit since 2014, when it was defrauded.
b) Since the breakout of the Covid 19 pandemic, none of Air Palace’s shareholders have been able to continue providing financial support for Air Palace since they have had to inject funds into 17 other bus companies which were also having financial difficulties.
c) Air Palace is impoverished because the Defendants defrauded Air Palace and laundered the funds.
d) Air Palace had operating losses over 280 million Korean Won ($304,000 CSD) in financial 2020 and operating losses of 214 million Korean Won ($232,000 CSD) in fiscal 2019.
e) Air Palace’s total liabilities in fiscal 2020 were over 6,800,000,000 Korean Won ($7,400,000 CSD).
f) Air Palace is insolvent and saddled with huge debt.
g) Air Palace is unable to borrow any money from any of its shareholders or from any bank or lending institution.
34I find that the plaintiff has not met its onus to prove by robust evidence that it is unable to obtain funding by borrowing, or from its shareholders or associated companies.
35The evidence referred to in paragraph a), c), f), and g), above are bald statements.
36The evidence of Air Palace’s attempts to obtain funds are in adequate. Mr. Lee says that there are two shareholders who own the plaintiff and could no longer afford to support Air Palace. The shareholders are not identified nor are any of their financial circumstances described. There is no explanation as to why these two shareholders could no longer support Air Palace.
37Mr. Lee says that the two shareholders could no longer ask the Board of Directors or any of the 17 bus companies to help Air Palace financially. He says that the two shareholders and 17 bus company’s financial positions are now worse than that of Air Palace. There is no evidence as to what attempts the shareholders made to obtain funding from the boards or the other bus companies, or the financial positions of those bus companies.
38In his affidavit, Mr. Lee says that as the CFO of Air Palace he has tried to “… secure some loans from various banks in the Republic of Korea. With the deficits being accumulated and ongoing litigation in Canada, there is no bank which is willing to lend Air Palace any money. I was offered some loans by second lenders who would charge over 20% interest at minimum, but Air Palace does not have the financial ability to repay this type of high interest loans”.
39This statement, too, is a bald statement. No specifics of any attempts by the Company to borrow money are provided.
40The disclosure of financial information with respect to the plaintiff was limited to financial statements for the fiscal years of 2018 and 2019, and partial statements for fiscal 2020 up to 31 July 2020. Given Mr. Lee’s statement that Air Palace has been impecunious since it was defrauded in December 2014, there are no financial details provided for Air Palace for fiscal years 2014 to 2017.
41This evidence does not come close to meeting the robust level of financial disclosure required by the jurisprudence.
42Further, it is not a mere slip or omission with respect to providing financial details. Air Palace refused to answer questions about the plaintiff’s finances. Some refusals were for modestly important information (for example: whether the company followed generally accepted accounting principles in preparing its reporting on which the financials were provided; whether Mr. Lee (as CFO) was an accountant or had an accounting degree,) while other requests for information were more important (for example: questions with respect to bank deposits and what cash was on hand at any given time).
Assets in the Jurisdiction – Judgments Against Others
43Air Palace argues that if it is not found to be impecunious, it has assets within the jurisdiction sufficient to cover any order for security for costs, namely its default judgements against other Defendants an Mr. Hoh.
44On 26 January 2021 Air Palace obtained judgement of $445,726.31 against several of the Defendants. It argues that this is a substantial asset in Ontario, noting that the moving Defendants Elridi, Ramadan, and Hassan are directors and or shareholders and/or individuals with signing authorities on the bank accounts of at least three of the judgement debtor corporations.
45There is no doubt that a judgement in Ontario for money is an asset of the judgement creditor. The existence of an asset in Ontario only answers one question. Under Rule 56.01(1)(d) the sufficiency of the asset is also an issue. The asset must be sufficient to pay the moving party’s costs.
46I reject this argument on the facts of this case.
47The value of the judgment as security for costs is not found in the amount of the judgment but in the amount which may be collected from the judgment debtors.
48In this case, there is no evidence of what might be realized from the judgement debtors under the judgment.
49An inference may be drawn as to the value of the default judgment from Air Palace’s actions in respect to it. I infer that the judgment has no value for the following reasons:
a) Air Palace does not appear to have tried to enforce its judgement against any of the judgement debtors. If it thought that its default judgment had any value it would have enforced it, and, depending on the recovery, this action would have been moot, or the Defendants would have faced a reduced claim for damages.
b) The onus is on Air Palace to establish its position on the motion, namely that it is impecunious. In doing so, it was required to provide robust evidence on the point. It ignored its judgment in its evidence on impecuniosity.
Merits of the Action
50In this case, most of the submissions concerned the merits of the case.
51The moving Defendants’ position is that the claim has no merit. The Defendant Abdel was convicted of fraud, incarcerated, and a restitution order was issued for the full amount of the defrauded money. Default judgement was obtained against Air Palace’s president, Koh, in a separate proceeding. Further, default judgements and restitution orders were made against eight of the Defendants in the current action, none of whom are the moving Defendants. Air Palace has not pursued collection from the judgment debtors, with the exception of Koh, who moved from his last known address.
52The moving Defendants also say that the fact that they were not the subject of charges or prosecutions indicates that they were not involved in the fraud and will not be found liable in the civil action.
53I attach little weight to this argument. That none of the moving Defendants were not charged is some evidence admissible to suggest that they are not liable to Air Palace in the civil action. The moving Defendants argue, however, as though the decision by the police not to pursue charges against them means that they would not be found liable in this case. This is a false equation given the different standards of proof in a criminal and civil case.
54Air Palace went great pains to show the movement of money in and out of accounts of corporations controlled by individual Defendants, or of the individual moving Defendants, in order to show that they were involved in the fraud and the movement of money through various accounts in order to launder it. In response to Air Palace’s affidavits, the moving Defendants filed Affidavits in which the deny that they were involved in the fraud or the movement of money.
55In addition to the general propositions listed above with respect to the law concerning the with the merits of case in determining the justness of making an order for security for cost, some cases that have dealt with the issue in greater specificity that merit review here.
56In Bruno, then Master Gluestein reviewed the law with respect to the merits of the case and pronounced the additional following principles:
a) The plaintiff may meet its onus to show merit in its case (the standard being dependent on whether it has also shown impecuniosity), where, for example, the pleadings indicate that damages or liability are not an issue, or if there was an admission in discovery to the same effect (see: Padnos, at para. 8 – 10, and Bruno, at para. 37-8);
b) Security for costs ought not to be ordered where determining the merits of the case is closely tied to credibility (see: Bruno, at para.. 40; and Hallum).
c) 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 assess the merits at the interlocutory stage. Indeed, the assessment of the merits should not be decisive except where the merits may be properly assessed (see: Wall, at para. 83).
57In this case, contrary to the submissions of the parties, the merits of the case play little role in determining whether this is a just case for awarding security for costs. I say this for the following reasons:
a) This case is incredibly complex factually. Air Palace, for example, filed a Responding Record of 2,580 pages, including three Affidavits from Air Palace attaching as exhibits large portions of the Crown’s Disclosure in the case relating to Mr. Abdel, its own investigator’s report, a 29 page factum, and transcripts from the cross-examinations.
b) While Air Palace’s case turns on documents, the moving Defendant’s cases turn on the credibility of their explanations for movement of money through their or their companies’ accounts. The trier of fact will either believe these explanations or not.
c) Air Palace’s position is based on evidence not properly admissible on the motion before this Court. The Crown Brief and expert report Air Palace relied upon were not proved properly. While Air Palace’s summaries and charts are useful for understanding the complex factual web in this case, they depend, to a large extent, on the Crown Brief and expert’s report.
58Therefore, the merits are, at best, neutral in my assessment.
Vexatious Litigant or Vexatious and Frivolous Action
59The moving Defendants argue, in the same breath, that Air Palace and its lawyer are vexatious litigants, and vexatious in their approach to this litigation.
60I do not deal with the question of a vexatious litigant here. It is a specific form of relief which was dismissed by Harris J. on May 13, 2021 and the appeal to Divisional Court was dismissed (2021 ONSC 6514).
61The moving Defendants rely on R. 56.01(1)(e) and argue that this action is frivolous and vexatious and therefore security should flow.
62I reject this argument. The moving Defendants’ argument that Air Palace’s action is frivolous and vexatious is based on their misconception that because criminal charges were never pursued against them, they will not be found liable. I have pointed out the error in this submission already.
63Further, whether a matter is, or may be frivolous or vexatious requires an assessment of the merits and a finding that the claim is clearly devoid of merit (see: Intellibox Concepts Inc. v. Intermec Technologies Canada Ltd., 2005 CanLII 13787 (ON SC) at para. 7, John Wink Ltd. v. Sico Inc. (1987), 1987 CanLII 4299 (ON SC), 57 O.R. (2d) 705 (H.C.) at p. 708,). I have already held that I cannot determine the merits of the case on this motion. In any event, in seeking this finding, the moving Defendants wish, in effect, to turn this motion into a substitute for a motion for summary judgment, which is improper (see: Intellibox, at para. 6).
64The conduct of a party or counsel in pursuing a matter aggressively, or in a vexatious manner, is relevant to the quantum of any order for security.
3. Summary
65When looking at this case holistically, it is just to require Air Palace to post security for costs. It is a foreign company. It led no evidence that it had any assets in the jurisdiction, save for its default judgment. Air Palace led no evidence as to the enforceability of that judgment. It failed to meet its onus of establishing impecuniosity. While the merits of the action are relevant, for the reasons explained, the merits are neutral to the decision of imposing an order for security for costs. This is a complex action involving an enormous number of documents concerning a large number of transactions moving money from account to account in order to hide its origin and launder it. The value at its maximum is $350,000 in general damages plus any award for aggravated or punitive damages, plus interest and costs.
66Air Palace is pursuing this litigation an aggressive manner, and its counsel is being particularly aggressive on behalf of his client. Air Palace and its counsel have every right to be aggressive. This affects, however, the quantum of the security.
67On the facts of this case in its entirety, and balancing the competing interests of affording the moving Defendants a reasonable measure of protection for their costs and the potential impact of an order for security on Air Palace, the order for security is just. In this case, the moving Defendants risk incurring significant costs. Air Palace, on its own evidence, is not and will not be able to pay any amount for costs, on any nature.
QUANTUM OF SECURITY TO BE POSTED
68When an action is in its early stages, an installment (or “pay-as-you-go”) order for security for costs is usually the most appropriate (Bruno, at para. 65; Hawaiian Airlines, Inc. v. Chartermasters Inc., et al. (1985), 1985 CanLII 2155 (ON SC), 50 O.R. (2d) 575 (S.C.O. – Mast.). That is the preferrable approach in this case.
69The quantum of security is more problematic.
70Normally, a moving Defendant would file a bill of costs or accounting records (suitably edited for privilege) indicating to the Court the time that party has spent to date on the matter, and a bill of costs reflecting the anticipated expenses yet to be incurred. The accounting records and bills of cost permit the Court to assess with particularity the work done, and to be done.
71In this case, the total evidence in the motion material as to the quantum of security comes from para. 63 of the Affidavit of Angela Valencia sworn 6 May 2021, which says:
I have consulted with Mr. Kayani who represents Mr. Mohammad Fahmi and Ms. Edram Swaidan, Mr. Rogic who formally represented Mr. Muhamad Kraye, and Ms. Stewart who represents Mr. Hassan Kanaan. Having done so, I can confirm that, like Mr. Elridi, Ms. Ramadan and 731141 Canada Inc., they have each incurred between fifty thousand dollars ($50,000 CAD) and seventy thousand dollars ($70,000 CAD) to date, in trying to defend themselves against the plaintiff’s relentless and unfounded civil claim. As such, it would seem only reasonable that the security for costs amount ordered include this sum per Defendant, as well as another one hundred thousand dollars ($100,000 CAD) for each of the Moving Defendants as a conservative estimate cost of the required security for costs sum per Moving Defendant.
72This evidence is hearsay – that which Ms. Valencia was told by the lawyers who argued the case. This is weak tea. Each group of Defendants ought to have filed records of time incurred to date along with an analysis of time incurred to date that pertained to the action (as opposed to motions), and Bills of Costs with respect to anticipated future work on the file.
73The of this detailed information makes it difficult, but not impossible to estimate security that must be posted.
74Looking at the action itself (and not including any effort expended on this motion or the motion before Harris J.) little progress has been made. The pleadings are complete, although it appears that this was a protracted process. There has been no exchange of documents. The parties are embroiled in a motion over a discovery plan, which I am to hear, in writing on a timetable I set in my endorsement of 15 November 2021.
75There are three groups of moving Defendants: 1) Elridi and 731 Canada Inc., 2) Kanaan, and 3) Fahmi and Swaidan. The amount to be posted should be assessed per group and not per individual moving Defendant
76Based on the pleadings themselves, it is reasonable that Air Palace be required to post security for costs for costs incurred to date of $5,000.00 for each of the three Defendant groups.
77As for security for costs for work to be incurred in the future, notwithstanding the absence of Bills of Costs from the moving Defendants, based on the work the parties did for this motion and based on my experience as case management judge, I have no hesitation in concluding that the costs incurred by any party in this action will be significant. For example, as set out in my 15 November 2021 case conference endorsement, the parties agreed that:
a) Oral Examinations for Discovery will take a minimum of 10 days given the need for interpreters for many of the parties and because Air Palace’s representatives are not in Canada.
b) Using the cross-examinations for the security for costs motion is an example, the parties estimate that at least two days will be required for a hearing on the undertakings and refusals likely to be made at the examination for discovery.
c) Each of the moving Defendants in this motion have been instructed to bring a motion before oral or written examinations, for summary judgement. Each of the Defendants says that it’s motion is a standalone motion from the other Defendants’ motion and that each will take one day in oral argument.
78These time estimates, in my view, are inadequate.
79The foregoing does not include any motions with respect to the Affidavits of Documents that are eventually produced, motions with respect to experts, and any appeals from the motions already mentioned.
ORDER
80I order that Air Palace post security for costs with the Accountant of the Superior Court of Ontario, to the credit of the action, in the following amounts on the dates or events stated:
Security for work to Date: per the above, $15,000.00 payable by 4 pm 15 December 2021 representing $5,000.00 per Defendant group for preparing pleadings.
Security for Future Work:
a) Phase I: $22,500.00, payable by 4 pm 15 December 2021, representing $7,500.00 per Defendant group, for finalizing of the Discovery Plan by agreement or order, including the motion to be heard in writing;
b) Phase II: $22,500.00, payable by the earlier of the finalization of the Discovery Plan by agreement or order, including the motion to be heard in writing, or 4 pm 28 February 2022, representing $7,500.00 per Defendant group, for preparing and serving Affidavits of Documents including any motions with respect to the adequacy of the Affidavits under the Discover Plans;
c) Phase III: $150,000.00, payable by the earlier of 9 am on the 1st day scheduled by agreement or order for the 1st Examination for Discovery, or 4 pm, 31 August 2022, representing $50,000.00 for each Defendant group for completion of Examinations for Discovery including motions for undertakings and refusals, receipt of answers, and possible re-attendances.
81Security for costs for work after the completion of the Examinations for Discovery may be requested by motion to be brought after completion ofo the Examinations for Discovery as contemplated by Phase III, above.
COSTS
82The costs of this motion are outside of the order for security above.
83Unless the parties agree as to who pays whom costs and in what amount, I will decide the matter based on written submissions not to exceed three double-spaced, typewritten pages (excluding Bills of Costs, offers, or cases). The moving Defendants were successful and are prima facie entitled to their costs. They shall serve and file their submissions by 4 pm, 17 December 2021, and Air Palace shall serve and file its submissions 4pm, 31 December 2021. There will be no right of reply.
Trimble J.
Released: 30 November 2021