COURT FILE NO.: CV-15-00541642-0000
DATE: 2022-09-24
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
UAP INC.
R. Winterstein, for the Moving Party/Defendant/Plaintiff by Counterclaim
Moving Party/Defendant/Plaintiff by Counterclaim
- and -
BURTON JONES and PATRICK MCGOWAN
I. Erez, for the Responding Parties/Plaintiffs/Defendants by Counterclaim
Responding Parties/Plaintiffs/Defendants by Counterclaim
MOUNTAINWIDE AUTO PARTS LTD.
Responding Party/Plaintiff
HEARD: April 4, 2022
ASSOCIATE JUSTICE: D. MICHAEL BROWN
REASONS FOR DECISION
Background
[1] The defendant and plaintiff by counterclaim, UAP Inc. (“UAP”), brings this motion seeking security for costs from the corporate plaintiff, Mountainwide Auto Parts Ltd. (“Mountainwide”). UAP is not seeking security for costs from the individual plaintiffs, Burton Jones and Patrick McGowan, the principals of Mountainwide.
[2] Mountainwide operated a retail auto parts business in Hamilton, Ontario from 2000 to 2014 pursuant to an “Associate Agreement” with its distributor, UAP. The plaintiffs describe this business relationship as a franchise arrangement. Mountainwide ceased carrying on business in October 2014 in accordance with a discontinuance agreement with UAP. The plaintiffs’ claim against UAP relates to the circumstances leading up to the discontinuance agreement and the associated wind up of Mountainwide’s business.
[3] In October 2015, UAP commenced an action against Jones and McGowan seeking damages of approximately $40,000 in relation to their personal guarantees of outstanding amounts owing by Mountainwide to UAP pursuant to the discontinuance agreement. In December 2015, the plaintiffs commenced this action against UAP seeking damages of $1,500,000.
[4] In April 2016, the two actions were consolidated by order of Master Dash, on consent of all parties. Pursuant to the order of Master Dash, UAP’s claim against Jones and McGowan was brought as a counterclaim in this action. Mountainwide is not a defendant to the counterclaim.
[5] This action is now ready to be set down for trial. Examinations for discovery took place in October 2018, March 2019, and July 2019. The parties have exchanged expert reports and an unsuccessful mediation was conducted in March 2022. The plaintiffs’ evidence is that Jones and McGowan have personally spent in excess of $115,000.00 on legal fees and disbursements on the litigation to date, not including unbilled fees associated with the mediation and the response to this motion.
[6] UAP first advised the plaintiffs that it was considering bringing a motion for security for costs in April 2021. It served a notice of motion on July 30, 2021. That notice of motion sought security for costs against all three plaintiffs. UAP did not serve its motion record until January 31, 2022, at which time it narrowed its request to a claim for security for costs against Mountainwide only.
Security for Costs
[7] Rule 56.01(1) provides that the court may make an 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. 1990, Reg. 194, r. 56.01 (1).
[8] Under the first part of the test on a motion for security for costs, the moving party must demonstrate that the party against whom security is sought falls into one of the enumerated categories under Rule 56.01. UAP brings this motion under Rule 56.01(1)(d), on the grounds that Mountainwide is a corporation and there is good reason to believe it has insufficient assets in Ontario to pay UAP’s costs. The plaintiffs do not dispute that Mountainwide has insufficient assets in Ontario. Accordingly, the analysis turns to the second part of the test, whether an order for security for costs would be “just”. The onus at this stage shifts to the plaintiffs to demonstrate that the order for security for costs would not be just in all the circumstances.[^1]
[9] In Yaiguaje v. Chevron, the Court of Appeal directed that the court should take a holistic approach in determining the justness of the security for costs order:
[25] 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 the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.[^2]
[10] The Court of Appeal emphasized that courts should be particularly wary of orders for security for costs sought primarily for tactical reasons:
[23] 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 Rules 56 or 61 have been met.[^3]
[11] The plaintiffs take the position that UAP’s motion is tactical. They say it is a motion intended not to protect UAP from an unmeritorious claim by an indigent plaintiff, but rather to prevent a meritorious action from being tried. The plaintiffs point specifically to UAP’s delay in bringing this motion.
[12] The courts have long held that the delay in bringing a motion for security for costs is a significant factor in considering the justness of the order sought. In many cases, delay has been found to be fatal to the motion.[^4]
[13] In Pelz v. Anderson, Master Graham (as he was then titled) summarized the principles behind the denial of an order for security for costs on the basis of delay as follows:
Although Rule 56.03(1) states that a motion for security for costs may be made only after the defendant has delivered a statement of defence, and imposes no deadline by which the motion should be brought, the motion should be made promptly after the defendant learns that it has a reasonable basis for bringing the motion. One of the reasons for the rule against delay is that the plaintiff should not be placed in the position of having to post security for costs after having incurred considerable expense in advancing the lawsuit.
If the plaintiff can provide evidence that the delay in bringing the motion has resulted in prejudice, the moving party should not be entitled to an order for security for costs.
Even if the plaintiff cannot establish prejudice arising out of the delay in bringing the motion, the failure of the moving defendant to explain the delay is still fatal to the motion for security.[^5]
[14] In this case, UAP has known that Mountainwide has no assets to pay a costs award since October 2014, before the litigation began. It was a term of the discontinuance agreement signed in 2014 that Mountainwide cease its operations. Yet, UAP waited more than five years after the statement of claim was served and two years after the completion of examinations for discovery to serve a notice of motion for security for costs. UAP has provided no explanation for this delay.
[15] The plaintiffs point to two other factors they say are relevant to the justness of the order sought: 1) the fact that security for costs is not being pursued against Jones and McGowan and 2) UAP’s “considerable wealth”.
[16] UAP’s decision not to seek security for costs against Jones and McGowan is relevant to the justness of the order sought as it goes to the prejudice to UAP if the order is not granted. There is no evidence before me that Jones and McGowan have insufficient assets to pay UAP’s costs. In a case such as this, where the plaintiffs’ interests are aligned and they are all asserting essentially the same claims, any costs awarded to the defendant would normally be payable by the plaintiffs on a joint and several basis. In the event that UAP is successful at trial, it should be able to look McGowan and Jones for its costs, including the costs of defending the claims by Mountainwide (to the extent that those costs are even distinguishable).
[17] In Chevron, the moving party’s wealth was a significant factor in the Court of Appeal’s decision to set aside an order for security for costs:
In contrast to the position of the appellants, Chevron Corporation and Chevron Canada have annual gross revenues in the billions of dollars. It is difficult to believe that either of these two corporations, which form part of a global conglomerate with approximately 1,500 subsidiaries, require protection for cost awards that amount or could amount to a miniscule fraction of their annual revenue.
[18] The evidence on this motion is that UAP has over 600 retail stores across Canada. It is a wholly owned subsidiary of Genuine Parts Company, which reported $16.5 billion in sales in 2020.
Disposition
[19] In my view, UAP’s unexplained delay of more than five years in bringing this motion is, on its own, fatal to the motion. I find that to require Mountainwide to post security for costs at this late stage in the litigation would be unfair and unjust. I also find that UAP has not brought this motion out of any genuine concern over its ability to collect costs, but rather as a tactical motion seeking to prevent or obstruct the litigation of the claims against it. While I find that the unexplained delay is sufficient evidence of the tactical nature of this motion (if UAP was truly concerned about its costs it would have brought the motion years earlier), I also find the lack of a motion for security for costs against McGowan and Jones and the significant financial resources of UAP provide further support for this conclusion.
[20] Accordingly, I find that the plaintiffs have met their burden on the second part of the test and that an order for security for costs would not be just in the circumstances. UAP’s motion for security for costs is dismissed.
Costs
[21] The respondents may deliver costs submissions through the Assistant Trial Coordinator within 3 weeks of the release of this decision, and the moving parties may deliver costs submissions within one week thereafter. The parties’ costs submissions shall each be no more than three pages in length, exclusive of any costs outline.
D. Michael Brown, Associate Judge
Released: September 26, 2022
COURT FILE NO.: CV-15-00541642-0000
DATE: 2022-09-24
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
UAP INC.
Moving Party/Defendant/Plaintiff by Counterclaim
- and -
BURTON JONES and PATRICK MCGOWAN
Responding Parties/Plaintiffs/Defendants by Counterclaim
MOUNTAINWIDE AUTO PARTS LTD.
Responding Party/Plaintiff
REASONS
ASSOCIATE JUSTICE D. MICHAEL BROWN
Released: September 26, 2022
[^1]: McArthur v. Neumann, 2020 ONSC 66 at para 6, citing Coastline Corp. v. Canacord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790 (Ont. S.C.J.) at para 7
[^2]: Yaiguaje v. Chevron Corporation, 2017 ONCA 827, at para 25
[^3]: Chevron, supra at para 23
[^4]: Pelz v. Anderson, 2006 CanLII 39571 (ON SC), [2006] O.J. No. 4726 (Master); 1632097 Ontario Ltd. v. 1338025 Ontario Inc., 2011 ONSC 5909 (Master); Susin v. Genstar Development Co., [2001] O.J. No. 3825 (S.C.J); Kawkaban Corp. v. Second Cup Ltd., [2005] O.J. No. 4197 (Div. Ct.)
[^5]: Pelz, supra at par 23