SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)
RE: PARAMOUNT FRANCHISE GROUP INC. and PARAMOUNT FOODS IP INC., Plaintiffs
AND:
LIAQUAT MIAN, SHAHERYAR MIAN, HADI HANIF and SLS HOSPITALITY GROUP, LLC, Defendants
AND BETWEEN:
SHAHERYAR MIAN, SLS HOSPITALITY GROUP, LLC and LIAQUAT MIAN, Plaintiffs by Counterclaim
AND:
MOHAMAD FAKIH, PARAMOUNT FRANCHISE GROUP INC., PARAMOUNT FOODS IP INC., PARAMOUNT FOODS HOLDING INC., and PARAMOUNT HOLDING GROUP INC., Defendants by Counterclaim
BEFORE: Penny J.
COUNSEL: Robert W. Trifts for the Defendants/Plaintiffs by Counterclaim
Sam A. Presvelos for the Plaintiffs/Defendants by Counterclaim
HEARD: July 6, 2022
ENDORSEMENT
Overview
1The Paramount Group of companies is involved in the franchising of restaurants featuring middle eastern cuisine in Canada and the U.S. The Group is controlled by Mr. Fakih. This action involves the breakdown of a business relationship in which the Defendants were going to establish several Paramount franchises in the United States. The parties executed what is styled a “Proposed Master Franchise Agreement and Non-Binding Letter of Intent” in 2016. The Defendants decided in 2018 that they were no longer going to pursue this business relationship. The Plaintiffs commenced this action for damages against the Defendants in 2019. The Defendants counterclaimed for damages as well. Discovery is essentially complete. In December 2021, the parties consented to a timetable that included a pre-trial scheduled for January 10, 2023, as well as a 9-day trial scheduled from February 21, 2023 to March 1, 2023.
2The Defendants claim that they recently became aware that certain corporations within the Paramount Group are embroiled in other litigation and are facing financial difficulties. The Defendants accordingly moved for security for costs.
The Law
3Rule 56.01 provides that the court, on motion by the defendant, may make an order for security for costs where it appears that, among other things, the plaintiff is a corporation and “there is good reason to believe” that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant.
4Thus, the initial onus is on the Defendants to satisfy the court that it appears there is good reason to believe that the Plaintiffs have insufficient assets in Ontario to pay the costs of the Defendants. Once the first part of the test is satisfied, the onus shifts to the Plaintiffs to establish that an order for security would be unjust. The second stage of the test is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors. Each case must be considered on its own facts. Additional rigid criteria should not be imposed on top of the criteria already provided 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: Yaiguaje v. Chevron Corp., 2017 ONCA 827, [2017] O.J. No. 5614, (2017) 138 O.R. (3d) 1 (C.A.).
The Threshold Requirement
5In order to meet its initial burden, the Defendants rely on allegations in pleadings and sworn evidence of Mr. Fakih filed in an oppression action involving different complainants and different corporations within the Paramount Group. The Defendants submit, based on this material, that the Plaintiffs, which are subsidiary corporations of the two Paramount holding companies which were the parties to the oppression proceedings, do not have sufficient assets in Ontario to pay costs. Among other things, they say this material shows that the Paramount holding companies: are struggling to make monthly payroll; have asked for suppliers to extend time for payment; may have to relocate their head office; are unable to pay for audited financial statements and to pay their lawyers; are experiencing declining revenues; and, that unspecified Paramount entities have defaulted on various leases during the course of the pandemic.
6The Defendants complain that the Plaintiffs’ response to these allegations and admissions of financial difficulty is vague and unfocussed and lacking in solid evidentiary support.
7In my view, however, the same criticism may be levied against the Defendants’ threshold argument. The fact that the parent corporations of 27 subsidiaries in the Paramount Group are in financial difficulty does not translate into evidence that the Plaintiffs in this action (two of the 27 subsidiaries) are likely to be unable to make good on an award of costs if their position is ultimately rejected by the court. While that conclusion might be correct, the evidence provided by the Defendants is insufficient to enable that inference to be drawn based on reason and logic.
8However, even if I were to agree with the Defendants that the initial threshold under Rule 56.01 had been met, there are even greater problems with the Defendants’ motion.
The Exercise of Discretion
9The Plaintiffs’ claim is for damages for breach of contract, negligent misrepresentation and misuse of confidential information. These claims are based on alleged events, interactions, negotiations and agreements reached during the period 2016 to 2018. The alleged agreements include, among others, a letter of intent, a first master franchise agreement, a second master franchise agreement and a “side agreement”. The Plaintiffs seek damages of $650,000 for an unpaid franchise fee, and lost profits and damages relating to misuse of confidential information of over $5 million.
10The Defendants’ have made a counterclaim. Their counterclaim is for reimbursement of a $650,000 franchise fee wrongfully taken and retained by the Plaintiffs. The counterclaim also seeks declaratory relief nullifying various agreements alleged by the Plaintiffs and damages of over $2 million for negligent and fraudulent misrepresentation. The basis for these counterclaims arises out of the same time period and the same events, interactions, negotiations and alleged agreements as those relied on by the Plaintiffs.
11It is well established that “no party should have to give security for costs as a condition of defending itself”. Our court has declined to award security for costs in cases involving a “substantial coincidence” between the alleged facts that constitute the defence and those that support the counterclaim: ICC International Computer Consulting & Leasing Ltd. v. ICC Internationale Computer and Consulting GmbH, 1989 CanLII 9525 (FC), [1989] OJ No. 70 at p. 3. Where the facts on which a counterclaim is based are in large part the same facts and circumstances raised in the plaintiff’s claim, this militates against an order for security for costs. European Flooring Contract Services Ltd. v. Toddglen ILofts et al., 2013 ONSC 6445 at para. 33.
12Here, the Defendants’ counterclaim is inextricably connected to both the claim and their defence to the claim. The Defendants’ counterclaim does not really raise any independent factual issues. Adjudication of the counterclaim will necessarily involve and require factual findings on exactly the same events, circumstances and interactions as those giving rise to the Plaintiffs’ claim and the Plaintiffs’ defence to the counterclaim. The Plaintiffs’ action put the entirety of the relationship of the parties between 2016 and 2018 in issue. The counterclaim presents the Defendants’ version of that relationship and the events that took place between 2016 and 2018. This close connection between the counterclaim and the original claim, therefore, militates against an exercise of this court’s discretion to award security for costs against the Plaintiffs.
13In addition, this matter has been set down for trial. There is an agreed timetable, and trial dates have been scheduled by the court. Delay in bringing a security for costs motion is an important factor for the court’s consideration. Here, I am not satisfied that the motion was brought without undue delay. Rather, the motion strikes me as tactical in nature, seeking to create an obstacle to the commencement of the trial which the Defendants agreed would begin on February 21, 2023. This factor too militates against the exercise of the court’s discretion to make an order.
Conclusion
14For these reasons, the Defendants’ motion for an order for security for costs is dismissed.
Costs
15The moving parties would have sought partial indemnity costs of $26,000. The Plaintiffs’ claimed partial indemnity costs of $16,000 are reasonable and proportionate. Costs are awarded to the Plaintiffs, payable by the Defendants, in the amount of $16,000 inclusive of fees, disbursements and taxes.
Penny J.
Date: 2022-08-05