REASONS FOR DECISION ON MOTION FOR SECURITY OF COSTS

SOMJI J

Overview

[1] The defendants move for security of costs in the amount of $45,000 against the plaintiff pursuant to r. 56.01(1)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”), on the grounds that the plaintiff is a corporation with insufficient assets to pay a costs award.

[2] The defendant 2037208 Ontario Inc (“203”) is the owner of a commercial property located at 818 Cedarview in Ottawa (the “property”). The defendant Sonia Perna is an officer/director of 203 (collectively the “defendants”). The plaintiff Chantrs Blinds is a corporation that leased a portion of the defendant’s property to operate a business manufacturing wood shutters and blinds and reselling already produced blinds (the “shop”). According to the defendants, Chantrs Blinds was a one-man show operated by its principal owner Sergio Chantrs.

[3] In December 2018, the defendants locked the plaintiff out of the shop because Mr. Chantrs had failed to pay rent for two months. The defendants placed an eviction notice on the shop door and contacted the plaintiff regarding his equipment, but according to the defendants, no attempt was made by the plaintiff to collect his inventory.

[4] In February 2019, an accidental fire destroyed the property including the shop. The plaintiff claims they lost equipment and inventory as well business information such as client lists. The plaintiff did not have any fire insurance for the shop. The plaintiff filed a statement of claim in August 2019 seeking damages for loss of equipment and damages related to the inability to operate the shop. The plaintiff argues the defendants failed to provide adequate notice before eviction as per the lease terms, and consequently, they were not entitled to limit the plaintiff’s access to the property or to sell its assets.

[5] Following receipt of financial disclosure from the plaintiff in January 2022, the defendants brought a motion for security of costs. They argue it is fundamentally unfair for the defendants, particularly Ms. Perna, to incur large costs to defend the claim and, if successful, to be unable to collect a costs award against the plaintiff. In contrast, they note that Mr. Chantrs faces no risk in proceeding with his claim because he is personally shielded by the corporate veil of a company that has insufficient assets to pay a costs award.

[6] The plaintiff disagrees. They argue that security of costs should not be relied on as a litigation strategy to prevent cases of impoverished plaintiffs from being heard on their merits. If such were the case, impoverished clients could never bring forward a lawsuit. The injustice is further exacerbated if the impoverishment is caused, as suggested in this case, by the defendants’ actions in denying the plaintiff access to the shop to protect its assets. The plaintiff argues security for costs should only be awarded where the justness of the case demands it, and upon close examination of the relevant factors governing such applications, the facts of this case militate against such an order.

[7] The issues to be decided in this case are: one, have the defendants established that the plaintiff has insufficient assets in Ontario to pay a costs award; two, if so, has the plaintiff established that it has sufficient assets or alternatively that it is impecunious? If the plaintiff is impecunious or fails to establish its impecuniosity, would it nonetheless be just to order security of costs in the circumstances of this case?

[8] For the following reasons, I find that it is just in the circumstances that the plaintiff posts $45,000 for security of costs within 60 days.

Issue 1: Have the defendants established that the plaintiff has insufficient assets in Ontario to pay a costs award?

[9] In the seminal decision of Yaiguaje v Chevron Corporation, 2017 ONCA 827, 138 O.R. (3d) 1, the Ontario Court of Appeal stated that in deciding motions for security for costs, judges are obliged to first consider the specific provisions of the Rules governing those motions. Next, judges are instructed to take a step back and consider the justness of the order sought in all the circumstances of the case, with the interests of justice at the forefront: Yaiguaje at paras 22 and 25. The overarching objective to be applied in all the circumstances is the justness of the order sought: Yaiguaje at para 19. Even where the requirements of the rule have been met, the court has discretion to refuse to make the order. Ravenda Homes Ltd. v 1372708 Ontario Inc., 2017 ONCA 556 at para 5.

[10] In this case, the governing rule is r. 56.01(1)(d) which states:

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.

[11] A party seeking security of costs under this provision has the onus of establishing there is good reason to believe that the plaintiff has insufficient assets in Ontario. The onus on proof on the defendant is modest, and they must just establish there is a basis for concern about the sufficiency of assets: Chill Media Inc. v Brewers Retail Inc., 2021 ONSC 1296 at para 10; Tiberian Investment Ltd. v 297518 Ontario Limited, 2018 ONSC 6253 (Master) at para 11

[12] Once the defendants have demonstrated a concern about sufficiency of the plaintiff’s assets, the onus shifts to the plaintiff to establish that they either have sufficient assets or are impecunious, and if the latter, that it would be unjust to order an award for security of costs. Chill Media at para 30; Fulop v Corrigan, 2020 ONSC 1648 at para 90. Tiberian Investment at para 11.

[13] The defendants argue that there are sufficient grounds to reasonably believe that Chantrs Blinds has insufficient assets because the evidence produced to date suggests that the shop was earning negligible revenues prior to the fire in February 2019 and has earned minimal revenue in the years following.

[14] During discovery, Mr. Chantrs explained that prior to the fire, the shop was making blinds 50% of the time and was acting as a dealer the other 50% of the time by selling blinds made by another manufacturer. He also testified that he was the only employee of the corporation. Following the fire, he started a construction job in October 2019. He is no longer making blinds but is acting as a seller. Mr. Chantrs stated at discovery that both he and the company owe a lot of money.

[15] The plaintiff was required to produce documentation confirming its revenues from December 2017 up to the period of discoveries in July 2020 pursuant to its undertakings. The defendants argue that the following documentation suggests that the plaintiff had minimal revenues both prior to and after the fire:

a. All invoices were to be produced, but the plaintiff did not produce any invoices of revenues earned from December 2017 or 2018. With respect to 2019, the invoices that were provided were for expenses and not sales which would indicate revenue.

b. There are no invoices of earnings from 2020, 2021, or 2022.

c. Only some bank statements were provided from 2017 to 2019 and they show minimal funds in the plaintiff’s account. For example, the statement from December 31, 2018, to January 31, 2019, shows a balance forward of $128.27.

d. GST/HST Notices of Assessment indicate that the plaintiff earned revenue of $6,219.95 for the period from October 1 to December 31, 2017, and $14,041.42 for the period from April 1 to June 30, 2018. These are indicative that the shop had some earnings prior to the fire, but not significant amounts. No other GST/HST Notices of Assessment have been filed for this period.

e. The last bank statement provided covers the period from October 31, 2019, to November 29, 2019, and indicates a balance forward of $1,774.93 in the plaintiff’s bank account.

f. No bank statements were provided for 2020, 2021, or 2022, indicating what, if any, earnings were made by the plaintiff.

g. No GST/HST Notices of Assessment have been filed to show any revenue earned by the plaintiff between 2019 and 2022.

[16] I find that the above-noted evidence establishes there is good reason to believe that the plaintiff does have sufficient assets in Ontario. Consequently, the onus shifts to the plaintiff to establish that it either has sufficient assets in Ontario to cover a future costs award or alternatively, that it is impecunious and should be able to proceed to trial despite its inability to pay costs as that would constitute a just order in the circumstances: Chill Media at para 30.

Issue 2: Has the plaintiff demonstrated it has sufficient assets or alternatively, if impecunious, it would be unjust to order security of costs in these circumstances?

i. Plaintiff’s failure to address impecuniosity

[17] The plaintiff has not filed any materials in response to the motion to demonstrate that it has sufficient funds or alternatively, that it is impecunious. In fact, the plaintiff did not file any materials other than a factum even though it had agreed to file a motion record by May 31, 2022.

[18] A litigant may rely on his or her impecuniosity as a ground to deny a security of costs order, particularly where it is alleged, as is the case here, that the defendant’s misconduct caused the impecuniosity: Chill Media at para 11. However, a litigant who relies on impecuniosity has the onus of establishing impecuniosity and must adduce some evidence to satisfy the court that they are genuinely impecunious with full and frank disclosure of their financial circumstances: Chill Media at para 12.

[19] Furthermore, where the plaintiff is a corporation, such as Chantrs Blinds, it must show that not only does it not have assets, but that it cannot raise the funds from shareholders or others.: Montrose Hammond & Co. v CIBC World Markets Inc., 2012 ONSC 4869 at para 35; Smith Bus Lines Ltd. v Bank of Montreal, (1987) 1987 CanLII 4190 (ON SC), 61 O.R. (2d) 688 at p. 705 (H.C.J.).

[20] While it might be argued that it is self-evident from the plaintiff’s statement of claim that the plaintiff is impecunious, pleadings do not constitute evidence. Impecuniosity has to be established by evidence: Smith Bus Lines Ltd. at pp. 704-705. A bare assertion of inability to raise funds will not suffice: Chill Media at paras 13 and 39. As stated recently in Surefire Dividend Capture, LP v National Liability & Fire Insurance Company, 2022 ONSC 5516, at para 16:

A plaintiff’s financial disclosure requires “robust particularity” which includes 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 plaintiffs to borrow funds; and details of any assets disposed of or encumbered since the cause of action arose (General Products Inc. v. Actiwin Company Limited, 2015 ONSC 6923; Al Masri v. Baberakubona, 2010 ONSC 562 at para. 19). The rule on security for costs does not countenance extensive and speculative inquiries as to the further value and availability of assets (General Products at para. 19).

[21] The plaintiff has not provided robust financial disclosure to establish impecuniosity. Rather, in response to the motion, counsel for the plaintiff pleads in its factum solely that that it would be unjust in these circumstances to order security of costs because one, the defendants have not explained the delay in bringing this motion; two, the defendants should not be entitled to shelter behind their own actions which brought about the lawsuit and the plaintiff’s financial distress as evidence in support of an order for security; and three, there is a high probability that the plaintiff will succeed in its claim. In this regard, the plaintiff cites passages from 423322 Ontario Ltd. v Bank of Montreal (1988), 1988 CanLII 4678 (ON SC), 66 O.R. (2d) 123 (Sup. Ct.) and John Wink Ltd. v Sico Inc. (1987), 1987 CanLII 4299 (ON SC), 57 O.R. (2d) 705. While these two cases do establish the degree of merit that must be considered in determining whether or not to order security, in both cases the issue of merit was considered after the plaintiff had established impecuniosity.

[22] I find the plaintiff has failed to provide full and frank disclosure of its financial circumstances demonstrating it is impecunious in the requisite legal sense, i.e.. that it has neither the funds nor the ability to access any funds to post security of costs. While this still requires the court to consider the merit of the case in determining of the justness of a security of costs order, I do not agree, as suggested by the plaintiff, that they should be entitled to proceed to trial simply because the case is not devoid of any merit.

[23] In Smith Bus Lines, the plaintiff had failed to provide evidence of its impecuniosity but argued that the merits of the claim were sufficiently strong that it would be unjust to grant an order for security. The motions judge disagreed and granted the order for security. On appeal, Sutherland J. found that the motions judge had not erred. The court found that the issue of the merit of the claim should only be considered once it has been established that the plaintiff is impecunious. Where a plaintiff fails to introduce evidence that it is impecunious, there is nothing to displace the prima facie entitlement of the defendant for an order or security: Smith Bus Lines, at pp. 704-705.

[24] In Yaiguaje, the Ontario Court of Appeal revisited the rigid approach taken in Smith Bus Lines and suggested that the failure to satisfy the court of impecuniosity is not necessarily determinative of whether a security order should be issued. In Yaiguaje, the motions judge ruled that having failed to provide evidence of impecuniosity, the plaintiff (appellant) had to demonstrate that their claim had a good chance of success. The motions judge found on a review of the merits that the plaintiff had not met that onus and ordered security to be posted: Yaiguaje at paras 14-15. The Ontario Court of Appeal overruled the decision and found that the motions judge had failed to adequately consider the justness of the order.

[25] In arriving at its decision, the court considered several factors. First, they noted that while the plaintiff had not provided direct evidence of impecuniosity to the motions judge, there was a valid explanation for their position. This plaintiff was representing 30,000 people in Ecuador whose lands had been environmentally devastated by the alleged actions of Chevron Corporation, and therefore it would be highly impractical to obtain this evidence from the plaintiff. Second, the case involved public interest litigation, and it was the plaintiff’s intent to place any funds collected from a judgment toward the benefit of environmental rehabilitation and health care of individuals impacted. Third, while the Ecuadorian plaintiff had not answered the question of whether third party funding was available, there could be no bright line rule that a litigant must establish that funding is unavailable to successfully resist a motion in an appeal for security of costs. The plaintiff appellant had advised the court that they were operating under a contingency arrangement and that some third-party funders withdrew their financial support when Chevron Corporation sued them. Fourth, the court noted that the corporate defendants Chevron had annual gross revenues in the billions of dollars. Hence, it was difficult to believe that such global corporate entities needed protection of a security of costs award. Finally, the court found that it could not be said that the case was wholly devoid of merit.

[26] The decision in Yaiguaje suggests that the plaintiff’s inability to establish impecuniosity may not necessarily result in an automatic award for security and consideration has to be given to all the circumstances of the case. The distinction here is that, unlike the plaintiff in Yaiguaje, the Chantrs Blinds has not provided any explanation for its inability to establish impecuniosity or why third-party funding is not available. It has simply ignored this component of r. 56.01(1)(d).

[27] Furthermore, unlike in Yaiguaje, this is not public interest litigation. The plaintiff is a corporation. The rationale for requiring corporations to establish impecuniosity before proceeding to address the merits is that it ensures that shell corporations do not start actions without the corresponding obligations or responsibility in the area of costs: 408466 Ont. Ltd. v Fidelity Trust Co. (1986), 10 C.P.C. (2d) 278 (Ont. Master), at p. 278, aff’d (1986), 10 C.P.C. 282 (Ont. H.C.). As note by the defendant, that factor is very much at play here.

[28] In Chill Media, a decision rendered post-Yaiguije, Perell J addressed how merit should be in considered in the context of a motion for security under r. 56.01(d). Perrell J differentiated at para 14 between two situations: where the plaintiff establishes impecuniosity and where the plaintiff does not establish impecuniosity. If impecuniosity is shown, the plaintiff need only demonstrate their claim is not plainly devoid of merit to avoid having an order for security for costs: If impecuniosity is not shown, then the plaintiff must demonstrate a stronger case on the merits or some other reason to justify the court from not ordering security be posted: Chill Media at para 14.

[29] Perell J reasoned in a similar vein in Fulop v Corrigan. A plaintiff who does not have sufficient assets to meet a costs order but fails to establish that they are impecunious must satisfy the court that their claim has a “good” or “high” chance of success to avoid posting security for costs: see Fulop, at para 91. Similarly, in Glycobiosciences v Amosey, Doi J found that Glycobiosciences had to establish a high chance of success upon its failure to lead evidence that it was impecunious: 2020 ONSC 2566 at paras 88 and 89.

[30] For these reasons, I find the plaintiff’s failure to establish impecuniosity does not automatically disentitle the defendant to consideration of the merits as suggested in Smith Bus Lines and similar cases before the Court of Appeal’s ruling in Yaiguaje. Rather, it is a factor that must be considered along with other issues such as merit and delay in determining the justness of a security order: Chill Media at para 15; Fulop at para 107. The difference, however, is that where the plaintiff fails to establish impecuniosity, it must now establish the claim has a good or high chance of success when addressing the issue of merit: Chill Media at paras 14, 37 to 39; Fulop at para 91; Glycobiosciences at para 89.

ii. Merits of the claim

[31] With respect to the merits of the claim, the plaintiff devotes two paragraphs in its factum on this issue, one of which is the mere recitation of jurisprudence. The plaintiff states that the merits of the action are fully described in the statement of claim and in Mr. Chantrs’ examination for discovery transcript but provides no analysis of that evidence.

[32] The plaintiff argues that because the defendants have not offered any explanation or denial of the facts set out in the statement of claim or discovery evidence, the court can reasonably infer the claim will be successful, and the defendants will be required to indemnify the plaintiff for damages after being locked out and after a fire damaged the shop equipment.

[33] The plaintiff provides no explanation for why the admission of facts guarantees the plaintiff’s success. Just because certain facts have been admitted by the defendant does not, in and of itself, establish that the plaintiff is likely to succeed. It is clear from a review of the statement of claim, statement of defence, and the transcript of Mr. Chantrs’ testimony that the determination of the case will turn on the interpretation of the commercial lease and the credibility of the parties with respect to communications around notice.

[34] Furthermore, the defendants’ motion record suggests that based on the plaintiff’s own documents, it is questionable that a viable business was being run out of the shop prior to the fire, and as indicated in the correspondence to plaintiff’s counsel dated January 31, 2022, the plaintiff’s disclosure neither particularizes nor supports the value of damages they claim.

[35] Although the merits are considered on a security of costs motion, a motions judge is not required to embark on an analysis such as in a motion for summary judgment. Furthermore, if the case is complex or turns on credibility, it is generally not appropriate to make an assessment at the interlocutory stage: Surefire at para 22; Chill Media at para 16; Fulop at para 92. In this case, I find that there are triable issues that will turn on the credibility of the witnesses and the sufficiency of evidence to support the damages claimed. I find the plaintiff has not established that there is good chance of success.

iii. Delay

[36] The defendants filed their Notice of Motion for security on February 16, 2022, approximately one month after receiving financial disclosure from the plaintiff.

[37] The plaintiff argues that the statement of claim was issued 3 years ago and the facts relied on by the defendants in support of its motion have been known to the parties since then because they played a key role in bringing about these events. The plaintiff further argues that the defendants have not provided an explanation for the delay in bringing the motion.

[38] Failure to bring a motion for security of costs as soon as one becomes aware of the grounds for doing so in the absence of a justifiable explanation for the delay can weigh heavily against granting the order requested: 1632097 Ontario Limited v 1338025 Ontario Inc., 2011 ONSC 5909 at para 16.

[39] While I would agree that security orders should be brought as soon as possible to prevent impecunious plaintiffs from unnecessarily incurring litigation costs with no prospect of the matter being tried on their merits, one must keep in mind that r. 56.01(1)(d) puts the initial onus on the defendant to establish reasonable grounds to believe the corporation does not have sufficient assets. Gathering the evidence to meet this burden of proof may be challenging given the defendant does not have access to a corporate plaintiff’s financial records that would show the company’s financial status. Much of that information might only come from the discovery process and plaintiff’s compliance with undertakings. The delay caused in awaiting this information from the plaintiff can be considered reasonable: Surefire at para 20.

[40] In this case, the statement of claim was issued in August 2019, but discoveries were not held until July 2020. More importantly, the plaintiff did not comply with undertakings until January 2022, 18 months after discoveries, and even then, has only partially complied. A review of the correspondence between counsel indicates that the defendants were diligent and have been asking throughout these litigation proceedings for compliance with undertakings. On February 11, 2022, counsel for the plaintiff confirmed that additional answers/documents were still owing pursuant to the undertakings granted by the plaintiff at discoveries two years ago. As of the date of the motion hearing, the plaintiff had still not fully complied with its undertakings.

[41] As already noted, the financial disclosure provided to date has been piecemeal, and the plaintiff has not provided full and fair disclosure of its financial status. While the plaintiff may have lost business records from the fire, there is no reason why it could not have produced the corporation’s bank statements from the bank itself to establish the present health of the company.

[42] Given that the initial evidentiary burden on a security motion pursuant to r. 56.01(1)(d) is on the defendants to establish they have reasonable grounds to believe the plaintiff does not have assets in Ontario, that the defendants were awaiting the plaintiff’s compliance with the undertakings to obtain financial disclosure, and that the defendants brought the security motion approximately one month after obtaining financial disclosure in January 2022, I do not find the defendant’s delay in bringing the motion is a factor to be weighed against them.

iv. Defendants should not profit from their own misdeeds

[43] The plaintiff argues that the defendants played a principal role in bringing about the company’s financial ruin. The plaintiff alleges that the defendants do not deny they locked Mr. Chantrs out of the shop, a fire destroyed shop property, and critical records were lost because of the fire. It would be unjust not to allow this case to proceed on its merits where the defendants’ actions caused the company’s financial distress.

[44] The problem with this argument is that the plaintiff has not established by way of evidence that an order for security will prohibit the plaintiff from proceeding to trial. On the contrary, it has failed to address its financial status altogether. Furthermore, in the absence of robust financial disclosure, both before and after the fire, the court is not in a position to assess the extent to which the defendant’s actions contributed to the plaintiff’s financial distress or if it was not already a failing venture.

[45] Upon applying a holistic approach, considering all the relevant factors including the plaintiff’s arguments on merit and delay, and upon balancing the parties’ interests, I find that it is just in the circumstances that security of costs be ordered. An order of security will provide the defendants, particularly Ms. Perna who has been sued individually, with some reasonable protection from an unenforceable costs award.

Amount for costs

[46] A defendant may seek security of costs for expenses incurred up to the motion hearing or prospective costs: Chill Media at para 18. In exercising its discretion to determine the quantum of the order, the motions judge may consider all factors including the financial circumstances of plaintiff, the nature of the claim, and the timing of the motion. The timing of the motion may be a factor in determining if the security of costs should be limited to only prospective expenses: Chill Media at para 18.

[47] The plaintiff argues that the defendants have not filed any evidence to support the security amount requested. I do not find that such evidence is required in this case.

[48] The court has broad discretion to determine a fair and reasonable amount of security which is substantially similar to the exercise of its discretion in fixing costs: Surefire at para 24; Canadian Metal Buildings Inc. v 1467344 Ontario Limited, 2019 ONSC 566, at para 27.

[49] The parties have already paid legal fees with respect to the lawsuit including discoveries, mediation, productions, and three trial management conferences. Plaintiff’s counsel informed defendants’ counsel that they estimate the trial will take one week. The defendants indicate leave the amount to be posted at the court’s discretion given the work to date and estimated trial time. I find that security of costs in the amount of $45,000 is a fair and reasonable amount of security to be posted in these circumstances to address expenses to date and the costs of a one week trial.

Costs

[50] The defendants are the successful party on the motion and are presumptively entitled to costs. If the parties are not able to settle the issue of costs, submissions can be filed in writing. They shall not exceed two pages, exclusive of the Bills of Costs and Offers to Settle. The defendants shall file his submissions by December 19, 2022, the plaintiff by January 2, 2023, and the defendant will have until January 9, 2023 to reply. Please email the submissions to scj.assistants@ontario.ca and to my attention.

Order

[51] There will be an order that:

Leave is granted for the defendant’s motion for security of costs pursuant to Rule 48.04.
The plaintiff will post security in the amount of $45,000 within 60 days.

Somji J.

Released: December 5, 2022

COURT FILE NO.: CV-19-81160

DATE: 2022/12/05

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Chantrs Blinds and Shutters Inc.

Plaintiff

– and –

2037208 Ontario Inc.

Defendant (Moving Party)

REASONS FOR DECISION

Somji J.

Released: December 5, 2022

Chantrs Blinds and Shutters Inc. v. 2037208 Ontario Inc., 2022 ONSC 6852

Case Summary

REASONS FOR DECISION ON MOTION FOR SECURITY OF COSTS

SOMJI J

Overview

Issue 1: Have the defendants established that the plaintiff has insufficient assets in Ontario to pay a costs award?

Issue 2: Has the plaintiff demonstrated it has sufficient assets or alternatively, if impecunious, it would be unjust to order security of costs in these circumstances?

i. Plaintiff’s failure to address impecuniosity

ii. Merits of the claim

iii. Delay

iv. Defendants should not profit from their own misdeeds

Amount for costs

Costs

Order

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Statutory Provisions 2

Legal Tests 1

Legislation 1