Court File and Parties
MOTION HEARD: 20211101
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Hotbelly Inc. O/A The Chef, Plaintiff
AND:
Buttar & Sons Inc. O/A Comfort Inn St. Catharines, Defendant
BEFORE: Associate Justice B. McAfee
COUNSEL: D. Waldman, Counsel, for the Moving Party, the Defendant A. Thomas, Counsel, for the Responding Party, the Plaintiff
HEARD: November 1, 2021
REASONS FOR DECISION
Introduction
1The defendant Buttar & Sons Inc. o/a Comfort Inn St. Catharines (the defendant) moves for an order requiring the plaintiff Hotbelly Inc. o/a The Chef (the plaintiff) to post security for costs.
Background
2On or about October 31, 2016, the plaintiff and defendant entered into a commercial lease agreement (the Lease) whereby the defendant agreed to lease to the plaintiff a restaurant space (the Premises) located adjacent to the Comfort Inn in St. Catharines. The term of the Lease was five years, commencing December 1, 2016. The plaintiff did not pay rent for the months of February to May 2017. It is the plaintiff’s position that the defendant representative orally advised the plaintiff representative that rent did not need to be paid for these months, a position denied by the defendant. In May 2017 the defendant re-entered the premises and took possession.
3On or about April 27, 2019, the plaintiff commenced the within action pursuant to the simplified procedure seeking special damages in the amount of $85,000.00 for misrepresentation, breach of contract and bad faith and seeking general, aggravated, punitive and exemplary damages in the amount of $15,000.00.
4On May 15, 2019, the defendant delivered a statement of defence and counterclaim. The defendant counterclaimed for the amount of $141,480.50 for, inter alia, rental arrears and rent owing for the remainder of the Lease.
5On or about May 31, 2019, the reply and defence to counterclaim was delivered.
6On or about December 2, 2019, the counterclaim was dismissed on consent with costs payable by the defendant to the plaintiff in the all-inclusive amount of $750.00.
7The parties agree that this action is proceeding pursuant to the simplified procedure.
Legal Framework
8In support of the request for security for costs the defendant relies on Rule 56.01(1)(d) of the Rules of Civil Procedure:
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.
Analysis
9The application of Rule 56.01(1)(d) involves a two-step analysis. The first step of the analysis requires the defendant to establish that it appears the plaintiff is a corporation or nominal plaintiff and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. If the defendant discharges its initial onus and establishes that it appears the plaintiff falls under Rule 56.01(1)(d), the second step of the analysis requires the plaintiff to establish the basis for a broad flexible exercise of discretion that an order for security for costs would be unjust (Coastline Corp. v. Cannacord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790 (S.C.J.) at para. 7).
Impecuniosity
10With respect to the defendant’s initial onus, the plaintiff concedes that it has insufficient assets. The initial onus has been satisfied.
11The onus now shifts to the plaintiff to satisfy the court that an order for security for costs would be unjust.
12In Yaiguaje v. Chevron Corporation, 2017 ONCA 827 at paragraphs 23-25, the Court of Appeal states as follows with respect to consideration of the justness of the order:
23The 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.
24Courts 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. See: Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General) (2005), 2005 CanLII 6052 (ON SC), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 2009 CanLII 46451 (ON SC), 99 O.R. (3d) 55 (S.C.); Wang v. Li, 2011 ONSC 4477 (S.C.); and Brown v. Hudson’s Bay Co., 2014 ONSC 1065, 318 O.A.C. 12 (Div. Ct.).
25While 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 interests of justice to determine whether it is just that the order be made.
13It is the plaintiff’s position that it is impecunious.
14The defendant confirmed that it would not be arguing that there may have been a change in the plaintiff’s financial circumstances due to the passage of time since the swearing of the original affidavit of Ms. Saeedi, the plaintiff’s sole shareholder, on September 15, 2019 (see my endorsement dated May 14, 2021). In any event, Ms. Saeedi swore a further affidavit on June 4, 2021 confirming that there have not been any significant changes in the financial status of the plaintiff, herself, or her family since swearing the original affidavit. It is the defendant’s position that the financial disclosure is deficient, and the plaintiff has not established impecuniosity.
15As summarized in Coastline at para.7(viii) - (x):
(viii) The evidentiary threshold for impecuniosity is high, and “bald statements unsupported by detail” are not sufficient. The threshold can only be reached by “tendering 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” (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. – Mast.) at para. 12; Shuter v. Toronto Dominion Bank, 2007 CanLII 37475 (ON SC), [2007] O.J. No. 3435 (S.C.J. – Mast.) (“Shuter”) at para. 76;
(ix) To meet the onus to establish impecuniosity, “at the very least, this would require an individual plaintiff to submit his most recent tax return, complete banking records and records attesting to income and expenses” (Shuter, at para. 76);
(x) A corporate plaintiff who claims impecuniosity must demonstrate that it cannot raise security for costs from its shareholders and associates, i.e. it must demonstrate that its principals do not have sufficient assets (Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 CanLII 4190 (ON SC), 61 O.R. (2d) 688 (H.C.J.) at 705). Evidence as to the “personal means” of the principals of the corporation is required to meet this onus (Treasure Traders International Co. v. Canadian Diamond Traders Inc., [2006] O.J. No. 1866 (S.C.J.) (“Treasure Traders”), 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. (1493677 Ontario Ltd. v. Crain, [2008] O.J. No. 3236 (S.C.J.-Mast.) at para. 19);
16It is the evidence of Ms. Saeedi that approximately $90,000.00 was injected into the plaintiff, including $60,000.00 paid to the defendant for equipment. The monetary injection was comprised of funds from the sale of a previous restaurant in Niagara Falls and partially borrowed funds via a second mortgage on the house jointly owned by Ms. Saeedi and her husband. During the few months that the plaintiff operated at the Premises, it made modest income but was not making a profit. The plaintiff currently has no assets or income. Ms. Saeedi deposes that she is in receipt of Ontario Disability Support Program payments. The ODSP statement shows a monthly payment of $88.91. Ms. Saeedi deposes that her husband is retired and currently receives a pension. They have a daughter who attends university and they try to support her if they can. Ms. Saeedi’s notice of assessment for 2018 shows no income. Her spouse’s notice of assessment for 2018 shows income of $19,689.00. Ms. Saeedi’s evidence is that their combined income from ODSP and pension payments is not sufficient to meet all of their expenses, which has forced them to obtain a line of credit on their house to use towards some of their ongoing expenses. The joint line of credit is in the amount of $135,000.00 with available funds in the amount of approximately $125,000.00. The house has a $610,000.00 mortgage with monthly payments in the amount of $2,732.42.
17There is no evidence of any attempt by Ms. Saeedi to otherwise borrow funds or obtain a letter of credit. While it would have been helpful to have evidence before the court confirming Ms. Saeedi’s inability to borrow funds, the lack of evidence in that regard is not determinative in the circumstances of this case. According to the evidence before me, Ms. Saeedi’s only source of income is ODSP in the amount of $88.91 per month. It is unclear how Ms. Saeedi would be able to repay another loan, assuming a loan was approved. To the extent that there are available funds in a joint line of credit, it is also unclear how Ms.Saeedi would be able to make payments on any additional amounts borrowed.
18On the basis of the evidence before me, the plaintiff has satisfied the high threshold to demonstrate impecuniosity.
Merits of the Claim
19Having satisfied the court of impecuniosity, the plaintiff may avoid an order for security for costs by demonstrating that the claim is not plainly devoid of merit. In this regard the evidentiary threshold is very low (DiFilippo v. DiFilippo, 2013 ONSC 5460 (S.C.J.) at para. 28).
20It is the plaintiff’s position that it has demonstrated that the claim is not plainly devoid of merit. It is the defendant’s position that the claim is devoid of merit.
21As summarized in Coastline at para. 7(vi) and (vii):
(vi) The court on a security for costs motion is not required to embark on an analysis such as in a motion for summary judgment. The analysis is 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 v. Luminart Inc., 1996 CanLII 11781 (ON SC), [1996] O.J. No. 4549 (Gen.Div.) at para. 7; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J.- Mast.) at para. 37);
(vii) “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” (Wall v. Horn Abbott Ltd., 1999 CanLII 7240 (NS CA), [1999] N.S.J. No. 124 (C.A.) at para. 83);
22In oral submissions plaintiff’s counsel submitted that the pre-contractual representations are not the basis of the plaintiff’s claim and that the claim is grounded on what happened after the Lease was entered into.
23The plaintiff alleges various breaches of the Lease on the part of the defendant, which the defendant denies. There is evidence before me in support of the plaintiff’s allegations.
24It is Ms. Saeedi’s evidence that certain equipment was not in good working order contrary to sections 3.2B and 5.8 of the Lease. In support of this assertion there is evidence of an email sent by Ms. Saeedi to Mr. Buttar on December 15, 2016 informing him of these issues. There is also evidence before me of invoices paid for by the plaintiff to replace certain equipment.
25It is Ms. Saeedi’s evidence that the premises were not in a condition that would comply with the City of St. Catharines Fire Department contrary to section 3.2B of the Lease. An order dated December 20, 2016 sets out certain fire violations. There is evidence of an invoice indicating the correction of certain violations paid for by the plaintiff. It is Ms. Saeedi’s evidence that the plaintiff was only able to obtain the required permits approximately two months after the commencement of the Lease resulting in a two-month delay in commencing operations.
26It is the plaintiff’s position that the defendant did not apply for a transfer of the liquor licence contrary to section 3.2B of the Lease. The defendant does not deny that a liquor licence was not transferred. It is Mr. Buttar’s evidence is that an application was made, but due to a lapse in time, there was no licence that could be transferred.
27The plaintiff pleads that contrary to section 12.5 of the Lease, no notice of default was delivered in person or sent by registered mail. I was not referred to evidence of any notice of default delivered in person or sent by registered mail.
28It is Ms. Saeedi’s evidence that due to alleged breaches of the Lease an oral agreement was reached between Ms. Saeedi and Mr. Buttar in January 2017. The oral agreement, according to Ms. Saeedi, provided that the plaintiff would not have to pay rent until the summer months. Mr. Buttar denies any such agreement. In March 2017, Mr. Buttar sent emails to Ms. Saeedi requesting payment of rent. There is no evidence of any written response by the plaintiff to the emails. It is Ms. Saeedi’s evidence that she questioned Mr. Buttar orally about the emails and was told by Mr. Buttar that they were sent only for the purpose of placating a business partner, and that the oral agreement still stood.
29With respect to this alleged agreement not to pay rent, there are issues of credibility in this regard. If an oral agreement is found, there is an issue of whether the Waiver Clause in the Lease may operate to bar enforcement of any such agreement because the agreement was not in writing (Fung v. Decca Homes Limited, 2019 ONCA 848 (C.A.)). However, there is evidence of certain breaches of the Lease on the part of the defendant. If any breaches are proven, it cannot be said that the plaintiff’s claim is devoid of merit.
30For the limited purpose of this motion, the plaintiff has satisfied the very low threshold that the claim is not devoid of merit. Whether the plaintiff will ultimately succeed at trial is not the issue before me.
31According to the evidence of Ms. Saeedi, the granting of this motion will prevent this claim from proceeding.
32For the purposes of determining this motion, I have not relied on Ms. Saeedi’s evidence that she has been suffering from depression and other related illnesses as a result of losing her business. Even if relevant, there is a lack of medical evidence before of the court regarding the cause of her current disability.
33The defendant submits that unlike the circumstances stated in Yaiguaje at para. 26, in this case both the plaintiff and defendant are small family businesses. I am not satisfied that the fact that both parties are small family businesses weighs in favour of the relief sought.
34Considering the justness of the order sought holistically, I decline to exercise my discretion to order that the plaintiff post security for costs.
Quantum of Security
35Although security for costs was not ordered, I will briefly address the issue of quantum. On the motion defendant’s counsel confirmed that the amount of security sought is $40,000.00 of which $20,000.00 is for fees and disbursements up to trial and $20,000.00 is for trial. Defendant’s counsel also indicated that a letter of credit would be acceptable.
36I have reviewed the bill of costs and considered the submissions of counsel. Had security for costs been ordered, I would have reduced the amount of security to be posted. In my view the hours sought, which include a lawyer and a student, are high for this simplified procedure action. In particular, 32 hours for preparation and attendance at examinations for discovery is too high. Pursuant to Rule 76.04(2) each party is limited to three hours of examination. The time for preparation and attendance at mediation of 43 hours, the time for preparation and attendance at pre-trial of 38 hours, and the time for a four day trial of 95 hours are also too high. In my view the all-inclusive sum of $25,000.00 on a partial indemnity basis is a fair and reasonable amount to be posted as security for costs, had security for costs been ordered. Had security for costs been ordered, I would have ordered security in the following tranches:
(i) The sum of $2,500.00 within 90 days;
(ii) The further sum of $5,000.00 no less than 30 days prior to examinations for discovery;
(iii) The further sum of $2,500.00 no less than 30 days prior of the mandatory mediation;
(iv) The further sum of $2,500.00 no less than 30 days prior the pre-trial conference;
(v) The further sum of $12,500.00 no less than 90 days prior to the commencement of trial.
Costs of the Motion
37With respect to the costs of this motion, if successful, the defendant sought costs on a partial indemnity basis in the all-inclusive sum of $11,740.00. If successful, the plaintiff sought costs of the motion on a partial indemnity basis in the all-inclusive sum of $11,898.83. Neither party took issue with the quantum sought by the other party. The plaintiff was successful and is entitled to costs of the motion.
38However, I am satisfied that payment of costs other than within 30 days is more just (Rule 57.03(1)). I do not agree with the plaintiff’s characterization of the defendant’s tactics in this litigation as set out in the plaintiff’s material and in particular at paragraph 44 of the plaintiff’s factum. The defendant was entitled to bring this motion. While the defendant was not successful on the motion, the defendant did not act unreasonably in pursuing the relief sought. In addition, I have considered the current financial circumstances of the defendant having regard to the effect that COVID-19 has had on the defendant as set out in the Supplementary Affidavit of Mr. Buttar sworn February 1, 2021. In my view costs of the motion ought to be payable to the plaintiff in the cause. Costs of the motion are fixed in the all-inclusive sum of $11,898.83, payable by the defendant to the plaintiff in the cause.
Disposition
39Order to go as follows:
The motion is dismissed.
Costs of the motion are fixed in the all-inclusive sum of $11,898.83 payable by the defendant to the plaintiff in the cause.
Associate Justice B. McAfee
Date: December 21, 2021