COURT FILE NO.: CV-19-1390 (London)
DATE: 20220913
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Ebb Investments Inc.
Plaintiff
– and –
Bradley Douglas Bain, Lerners LLP, Tarik Shousher, Nuage Homes Inc., Nolstev Consulting Inc., Todd Bryant, 1830532 Ontario Inc., Gary Weisz, William Dempsey, Hong Vu, 2514759 Ontario Limited, Greg Herriman, Patrizio Design International Inc., Gillian Anne Bailey, Ray Rogolino, and Jim McConell
Defendants
Stuart R. Mackay, for the Plaintiff
Rachel B. Runge, for the Defendants, Bradley Douglas Bain and Lerners LLP
Philip Morrissey, for the Defendants, Tarik Shousher and Nuage Homes Inc.
Paula Downs, for the Mortgagee Defendants, Nolstev Consulting Inc., Todd Bryant, 1830532 Ontario Inc, Gary Weisz, William Dempsey, Hong Vu, 2514759 Ontario Limited, Greg Herriman, Patrizio Design International Inc., Gillian Anne Bailey, Ray Rogolino, and Jim McConell
HEARD: August 31, 2022
RULING ON MOTION
hebner j.
[1] This motion was brought by the mortgagee defendants seeking an order that the plaintiff pay security for costs. The mortgagee defendants seek security in the sum of $250,000.
[2] The mortgagee defendants rely on rule 56.01(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. That rule provides that a court may make such order for security for costs as is just where it appears that “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”.
[3] The plaintiff opposes the motion. The plaintiff further asserts that the amount requested by the mortgagee defendants is excessive. If it is required to post security, the plaintiff proposes that $20,000 be posted as security for costs at this time and an additional $20,000, 30 days prior to the trial.
Background
[4] The mortgagee defendants brought a motion for summary judgment dismissing the claim as against them. The motion was dismissed. A comprehensive background including a description of this action is contained in the ruling of Tranquilli J. dated January 14, 2022. I defer to Tranquilli J.’s description of the action and set out only a brief summary here for the purpose of this motion.
[5] This case is about losses from a failed real estate development in Mount Brydges, Ontario. The corporate plaintiff is owned by Robert and Elizabeth Bilbija. The corporate plaintiff entered into a joint venture agreement with the defendant, Nuage Homes Inc. (“Nuage”) and its principal, the defendant, Tarik Shousher (“Shousher”). The plaintiff agreed it would advance money to Nuage for the construction of new homes built on lots purchased by Nuage in Mount Brydges in exchange for a share of the net proceeds from the sale of each home. The Mount Brydges project failed.
[6] Nuage and Shousher also embarked on a real estate development project in London, Ontario. The defendant mortgagees provided loans to Nuage and Shousher and secured their investments with mortgages on the London lots. The London project also failed.
[7] Nuage is no longer operating and Shousher is out of the country with no expected return date. The lots in the Mount Brydges project were sold on power of sale and approximately $653,000 is held in trust. The lots in the London project were also sold on power of sale and the net proceeds of approximately $714,000 are also held in trust. Other smaller sums of money are held in trust from the sale of individual lots.
[8] The joint venture agreement between the plaintiff on the one hand and Nuage and Shousher on the other, dealt only with the Mount Brydges project. The plaintiff had no direct interest in the London project. The defendant mortgagees held mortgages on the lots in the London project. The defendant mortgagees had no interest in the Mount Brydges project.
[9] The plaintiff’s cause of action is based on the tort of civil conspiracy and knowing receipt of trust property. The plaintiff alleges that the net proceeds from the sale of the Mount Brydges lots were paid into a single Nuage bank account from which Nuage managed both the Mount Brydges and London projects, among other endeavors. The plaintiff alleges that monies raised for the Mount Brydges project by way of the joint venture agreement were used improperly for the London project as well as a crypto currency venture by Shousher. The plaintiff claims that Mr. Bain, who apparently acted for the mortgagees, knew or ought to have known that the net proceeds of any sale of the Mount Brydges lots were to be held in trust for the benefit of the plaintiff. The plaintiff alleges that Mr. Bain’s knowledge is imputed to the defendant mortgagees. The plaintiff claims the improper use of the trust proceeds from the Mount Brydges project on the London project give it an interest in the proceeds of sale of the London lots in priority to the secured defendant mortgagees.
[10] The mortgagee defendants have cross-claimed against the defendants, Bain, Lerners LLP, Shousher and Nuage. Moreover, this action is one of four actions arising out of the dealings described above.
The Summary Judgment Motion
[11] Tranquilli J. declined to use the enhanced fact-finding powers under rule 20.04(2.1) and dismissed the motion. Her reasons for doing so included the following:
The plaintiff is making equitable claims based upon the mortgagee’s direct or imputed knowledge of the joint venture agreement or alleged misuse of proceeds from the Mount Brydges project.
Tranquilli J. concluded that the issues of some, one or any of the defendants’ knowledge and the plaintiff’s entitlement to an equitable remedy required comprehensive and tested evidence.
She concluded that there are a host of credibility issues pertaining to numerous transactions and a trial judge will be in a better position to address the credibility issues on an assessment of all of the evidence.
This is a complex factual case where the trial judge will develop a fuller appreciation of the relationships among the parties and the context of the transactions in issue. (2022 ONSC 273, para. 6)
[12] On February 11, 2022, Tranquilli J. conducted a case management conference in an attempt to move all four of the actions forward towards a resolution. In her endorsement, she said:
Parties advise there is agreement that cross-examinations from the summary judgment motions can be treated as examinations for discovery, with follow up questions in supplement to what was not covered in the cross-examinations.
[13] The plaintiff sought costs of the summary judgment motion in the amount of $79,000, which it said it was less than its partial indemnity costs of approximately $120,000. In her endorsement on costs dated May 13, 2022, Tranquilli J. declined to order costs and, instead, reserved the issue of costs to the trial judge. At paragraph 13 of her endorsement, she said:
The claim is complex by nature of the allegations and involves different claims as against the parties. The mortgagee and solicitor defendants may yet be successful in defending the action. The work that has been done to date will reduce the costs of the trial. How much of the costs, if any, were thrown away on the motion will only be ascertainable after the trial is complete.
Legal Principles
[14] The framework for deciding whether to order security for costs is set out in 2311888 Ontario Inc. v. Ross, 2017 ONSC 1295 at para 15 and 17:
Rule 56.01 is clearly discretionary. It provides that a judge may make an order "as is just". This discretion requires the judge to take into account a multitude of factors, including the circumstances of the plaintiff, the impecuniosity of the plaintiff, the merits of the claim, and the possible injustice of denying a plaintiff the opportunity of having his case adjudicated. See the case of Chachula v. Baillie(2004), 2004 CanLII 27934 (ON SC), 69 O.R. (3d) 175 (Ont. S.C.J.) at paras. 12-14.
[15] In summary, the proper way to analyze a motion for security for costs is as follows:
(i) The initial onus is on the defendant to satisfy the court that it appears there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56.01. See Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 at p. 123;
(ii) Once the first part of the test is satisfied, the onus is on the plaintiff to establish that an order for security for costs would be unjust. See Chachula at para. 10, and Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 at para. 4;
(iii) The plaintiff can meet the onus by 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 the plaintiff’s claim is not plainly devoid of merit (See Pitkeathly v. 1059288 Ontario Inc., [2004] O.J. No. 4125 at para. 10); 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 satisfy the court that the plaintiff’s claim has a good chance of success on the merits. See Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2012] O.J. No. 3620 at paras. 41-46.
Analysis
[16] The only plaintiff in this action is a corporate plaintiff. There is no evidence that the corporate plaintiff is carrying on business. There is no evidence that the corporate plaintiff has assets sufficient to satisfy any order of costs made in this litigation, or indeed any assets at all. All of that information is in the possession of the owners of the corporate plaintiff, Robert and Elizabeth Bilbija. They have provided no evidence that the corporate plaintiff has assets. Accordingly, in my view, there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the mortgagee defendants.
[17] The onus then shifts to the plaintiff to establish that an order for security for costs would be unjust.
[18] There is no evidence that the corporate plaintiff has sufficient assets to satisfy any order of costs. The evidence of one of the owners of the corporate plaintiff, Elizabeth Bilbija, is that she has a personal residence located in Mount Brydges appraised at $1,430,000 on March 30, 2020. The residence was listed for sale on July 22, 2022 for $2,199,000 and then reduced on August 15, 2022 to $1,999,999. As of June 27, 2022, Ms. Bilbija had a mortgage on the property with a balance of $625,970.
[19] This evidence tells me that one of the owners of the corporate plaintiff currently has sufficient assets to pay a claim for costs. However, there is no evidence that she is prepared to guarantee any liability for costs. There is no evidence as to what she plans to do with the proceeds of the sale of her home. The evidence is that Ms. Bilbija is in the process of disposing of her main asset that she says could be used to satisfy a costs order but without evidence as to her plans for the proceeds, there remains good reason to believe there will be insufficient assets to pay a costs award at the end of the case.
[20] There is no evidence that the plaintiff is impecunious. There is simply no evidence as to the plaintiff’s financial means.
[21] I turn then to the third possibility, namely, whether the corporate plaintiff can satisfy the court that it has a good chance of success in the action. The plaintiff seeks an order in the action granting it priority over the registered mortgagees in the proceeds of sale of the properties in the London development. The plaintiff has no legal interest in the London development. It seeks equitable claims. Tranquilli J. found that these equitable claims must proceed to trial.
[22] To find that the plaintiff has a good chance of success, I must find that the plaintiff can show that his claim has a real possibility of success (see Willets v. Colalillo, 2007 CarswellOnt 7616 at para 55). To put the matter another way, the plaintiff must meet a high threshold to satisfy the court of its chances of success. That threshold has not been met in this case. I turn, once again, to the decision of Tranquilli J. on the summary judgment motion. She described this case as “a complex factual case”. She said, “the issues of some, one or any of the defendants’ knowledge and the plaintiff’s entitlement to an equitable remedy require comprehensive and tested evidence”. She found that she could not, on the record before her, make the findings of fact necessary to resolve the action. She found that she could not grant the defendant's motion for summary judgment and that the matter required a trial. At the same time, she did not say that the plaintiff has a real possibility of success on its claim. On the record before me, I am unable to find that the plaintiff has a real possibility of success on its claim. The plaintiff has a chance of success, but I am unable to conclude whether the chance is a good one or not.
[23] I conclude that this is a case where it appears just to make an order for security for costs. The question is quantum.
[24] The moving defendants claim that they have incurred fees and disbursements to date in the total sum of $154,118. They estimate additional fees and disbursements will be incurred in the sum of $128,715. The total is $282,833. This amount is a full indemnity amount. The moving defendants ask for security for costs in the sum of $250,000.
[25] The plaintiff asserts that the amount requested by the moving defendants is excessive. I do not come to the same conclusion. On my reading of the Tranquilli J. decision, this will be a lengthy trial. The allegations of civil conspiracy and knowing receipt of trust property are complex. The moving defendants estimate that the trial time will be 10 to 14 days. The trial will also include the plaintiff’s causes of action against other defendants, namely for solicitors’ negligence, cross claims and third-party claims. I have no doubt that this will be a lengthy trial.
[26] The plaintiff asserts that it ought to be entitled to its costs on the summary judgment motion, and accordingly all costs incurred by the defendants on the summary judgment motion ought not to be included. Tranquilli J. did not make a finding that the plaintiff is entitled to its costs. Rather, she left the costs of the summary judgment motion in the hands of the trial judge. Given that much of the work on the summary judgment motion will be useful at trial, it cannot be said that the defendants will not obtain a costs award in an amount that includes the work on the summary judgment motion. That, frankly, will be up to the trial judge.
[27] The moving defendants claim incurred disbursements and estimated disbursements totaling approximately $11,000. In addition, they claim total incurred fees and estimated fees of approximately $271,000. I am not in a position to question these figures and I do not accept the plaintiff’s assertions that the amounts are excessive.
[28] The plaintiff asserts that the costs ought to be discounted such that any order for security is based on partial indemnity costs and not substantial indemnity costs. On that point I agree. I take 65% of the incurred fees and estimated future fees and round the amount to $175,000. To that, I add incurred and estimated disbursements of approximately $11,000. The total is $186,000. This amount, in my view, is the appropriate amount of security that ought to be provided.
Disposition
[29] For these reasons, I order that the plaintiff post security for costs in the sum of $186,000 according to the following timeline:
$60,000 to be posted within 30 days of this order;
$60,000 to be posted a minimum of 30 days prior to the first pre-trial conference;
$66,000 to be posted a minimum of 30 days prior to the first day of trial.
[30] If counsel cannot agree on the form of security, they may contact trial co-ordination to schedule time before me to speak to the matter.
[31] If the parties are unable to agree on the issue of costs of the motion, they shall exchange costs outlines and deliver them to the court together with any relevant offers to settle and submissions of no more than two pages in length. The moving defendants shall provide their submissions within 10 days with the plaintiff to have 10 days thereafter to file its submissions.
Original Signed by “Justice P.L. Hebner”
Pamela L. Hebner
Justice
Released: September 13, 2022
COURT FILE NO.: CV-19-1390 (London)
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Ebb Investments Inc.
– and –
Bradley Douglas Bain, Lerners LLP, Tarik Shousher, Nuage Homes Inc., Nolstev Consulting Inc., Todd Bryant, 1830532 Ontario Inc., Gary Weisz, William Dempsey, Hong Vu, 2514759 Ontario Limited, Greg Herriman, Patrizio Design International Inc., Gillian Anne Bailey, Ray Rogolino, and Jim McConell
RULING ON MOTION
Hebner J.
Released: September 13, 2022