Development Inc., 2022 ONSC 6960
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
George Armstrong Investments Inc. and 1239122 Ontario Inc. and William George Armstrong, Estate Trustee for the Estate of George Armstrong, deceased
Plaintiffs
– and –
Transport Development Inc.
Defendant
– and –
Vale Canada Limited
Garnishee
William Armstrong, for the Plaintiffs
No one appearing for the Defendant
D. Munch, for the Garnishee
J. Duplessis, for the Intervener Party, 1447311 Ontario Ltd.
HEARD: November 29, 2022
RULING ON MOTION FOR SECURITY FOR COSTS
BOUCHER J.
1Vale moved the court for an order for security for costs against the plaintiffs, which they oppose.
2Rule 56.01 of the Rules of Civil Procedure allows the court, in certain circumstances, to order that a party post security for the other party’s costs. Until such security is paid, the party against whom the order is made is not, without court order, allowed to take any further steps in the proceeding, other than an appeal of the decision.
3The issue for me to determine is whether Vale has satisfied me that the circumstances exist justifying the making of such an order. If I am so satisfied, I must then consider the amount and form of any security ordered.
Background
4This motion is brought within garnishment proceedings started by the plaintiffs against Vale.
5Vale and the defendant, Transport Development Inc. (hereinafter “TDI”) were parties to a transportation contract dated January 25, 2001. TDI transferred its interests in the contract to 1447311 Ontario Ltd. (hereinafter “144”) less than a week after the contract was signed. In this proceeding 144 was granted intervener and party status pursuant to Kurke J.’s order dated November 16, 2018. Counsel for 144 attended the motion but took no position on behalf of his client.
6Vale was subsequently directed by TDI to make to 144 the payments due under the contract, rather than to TDI.
7The late George Armstrong was the sole director of the corporate plaintiffs in this proceeding. William Armstrong was and continues to be a shareholder in TDI. He is also Estate Trustee for the late George Armstrong’s estate.
8The plaintiffs sued TDI for payment of monies due under the contract with Vale. TDI consented to judgment against it in November 2001. The plaintiffs thereafter served a notice of garnishment on Vale. Vale advised the plaintiffs that TDI was no longer in their vendor file and that they did not have any active transactions with TDI.
9Nothing happened with respect to the notice of garnishment for approximately 11 years. In 2012 a receiver for TDI advised Vale that if it owed money to TDI, the funds needed to be directed to the receiver.
10In 2014 the plaintiffs obtained an order without notice to Vale, requiring Vale to attend for examinations. Vale successfully set aside this order on the basis it had been obtained because the plaintiffs had misled the court.
11Vale attended for examinations on several occasions since that time and produced over 20,000 documents, as ordered by the court. Vale has spent approximately $65,000 to date with respect to this garnishment proceeding. It estimates a further $20,000 will be required to complete the garnishment proceedings.
12A date for the garnishment hearing has not been set. Cullin J. is case managing the matter. Pursuant to her endorsement dated November 25, 2022, she ordered the plaintiffs to deliver by December 30, 2022 a document brief, an affidavit brief, and any new affidavits intended to be relied upon at the garnishment hearing. She directed the trial coordinator to set a further case management conference in January 2023.
The Law
13Rule 56 sets out the circumstances when a court may order security for costs, which apply equally to garnishment proceedings. Vale argues two of these circumstances exist in the present matter:
a. The plaintiff is a corporation or a nominal plaintiff, and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the moving party’s costs (rule 56.01(d)); and
b. There is good reason to believe that the proceeding is frivolous and vexatious, and the plaintiff has insufficient assets in Ontario to pay the moving party’s costs (rule 56.01(1)(e))
14Upon showing there is good reason to believe the plaintiff has insufficient assets in Ontario to pay the costs of the moving party, the moving party has a prima facie entitlement to an order for security for costs. The plaintiff is then required to demonstrate that either:
a. They have sufficient assets in Ontario to make an order for security for costs unnecessary; or
b. They, and the ultimate beneficiaries of any recovery in the action, are impecunious and that justice demands that they be allowed to proceed with the action notwithstanding their impecuniosity (see Warren Industrial Feldspar Co. v. Union Carbide Can. Ltd., 1986 CanLII 2683 (ON SC), [1986] 54 O.R. (2d) 213 (HCJ) at paras. 19 and 25).
Positions of the parties
15Vale submits the estate of George Armstrong is a nominal plaintiff. In 2011 the application for a certificate of appointment of estate trustee without a will in the estate was filed with the court. In the application, William Armstrong swore/affirmed the estate had only $15,000 in assets, consisting of personal property. Vale argues that with the passage of 11 years, it is safe to infer the estate has been distributed and/or the assets have been depleted. An estate that appears to have been distributed is considered a nominal plaintiff for the purposes of a motion for security for costs (see 720441 Ontario Inc. v. Boiler 248 A.C.W.S. (3d) 288 (SCJ) at para. 32).
16With respect to the corporate plaintiffs, Vale suggests there is ample evidence demonstrating they do not have sufficient assets in Ontario to make an order unnecessary. They submit the corporate plaintiffs’ previous counsel was removed from the record for non-payment of his account. Other evidence includes:
a. With respect to George Armstrong Investments:
i. It has been inactive since 2006;
ii. George Armstrong is listed as the sole director and officer; and
iii. It does not own any real property in the City of Greater Sudbury.
b. With respect to 1239122 Ontario Inc.:
i. George Armstrong is the sole director and there are no active officers;
ii. No Business Corporations Act returns have been filed since 1997; and
iii. It does not own any real property in the City of Greater Sudbury.
17In oral argument, Vale further submits the garnishment proceedings are frivolous and vexatious. Vale points to the circumstances of the consent judgment against TDI, the absence of a vendor file with TDI and the absence of any contract or invoices outstanding with TDI. In these circumstances, it is argued, there is no chance of success for the plaintiffs in the garnishment proceedings.
18Vale argues they have made out their prima facie case. They further argue the plaintiffs have not delivered any evidence to demonstrate they either have sufficient assets in Ontario or they are impecunious, but that justice demands they be permitted to proceed with the hearing.
19Vale delivered a bill of costs which sets out approximately $65,000 in fees and disbursements, on a full recovery basis, that it has incurred in these proceedings since 2014. They ask this amount to be paid into court by the plaintiffs together with an additional $20,000 representing their estimate of the costs required to complete the proceedings.
20The plaintiffs dispute the relief sought by the moving party. They ask me to follow the 2009 decision on security for costs in a different matter involving George Armstrong, William Armstrong, TDI and 1239122 Ontario Inc, as plaintiffs, and Randall Russell, Glen Fuller, 1417338 Ontario Limited, 144 and Leighton Roslyn, as defendants. In that unreported decision, released to the parties on October 27, 2009, Tranmer J. refused to order security for costs against the plaintiffs. Leave to appeal that decision to the Divisional Court was denied by Gordon J. in 123122 Ontario Inc. et al v. Russel et al 2010 ONSC 1249.
Analysis
Prima facie case
21I am satisfied Vale has made its prima facie case.
22First, I find the estate is a nominal plaintiff. When William Armstrong applied to be appointed estate trustee without a will, he swore/affirmed the estate only had $15,000 in personal property and no real property. That was 11 years ago. Since that time, the estate has been engaged in this active litigation, which since 2014 has cost Vale $65,000 in legal fees. Counsel for the plaintiffs was removed for non-payment of their account. In these circumstances, I find the small value of the estate has very likely been exhausted, making it a nominal plaintiff.
23Second, I find there is good reason to believe the plaintiffs do not have sufficient assets in Ontario to pay the costs of Vale if the latter is successful in the garnishment proceedings. George Armstrong Investments has been inactive for 16 years. A return has not been filed in 1239122 Ontario Inc. since 1997. George Armstrong, who is deceased, continues to be listed as the sole director and officer of George Armstrong Investments and as the only director of 1239122 Ontario Inc. (which has no officers listed). Neither of the corporate plaintiffs own real property in Greater Sudbury. Counsel for the plaintiffs in this litigation was removed for non-payment of their account. William Armstrong in his motion for permission to act on behalf of the corporate plaintiffs, led evidence that they were unable to pay legal fees.
24In addition, I also find there is good reason to believe the garnishment proceeding is frivolous and vexatious. I am mindful that r. 56.01(e) is not meant to be and should not be treated as a summary judgment motion. Vale need only demonstrate there is good reason to believe the proceeding is frivolous and vexatious and then the onus shifts to the plaintiffs.
25The defendant TDI and Vale were parties to a transportation agreement. Within days of signing the agreement, TDI, which William Armstrong owned, assigned the transportation agreement to 144, in which William Armstrong is a shareholder, and directed Vale to make payments to 144. The plaintiffs thereafter obtained judgment against TDI, with William Armstrong consenting to the judgment on behalf of TDI, even though he is both a plaintiff and a shareholder of the defendant in the proceedings.
26The plaintiffs, armed with the consent judgment, tried to garnish Vale. In November 2001 Vale advised a garnishment was not possible because they neither had a vendor file nor had any contracts with TDI. The garnishment issue then lay dormant for approximately 11 years, only to be revived again. Twenty-one years later, the plaintiffs have still not provided the documents necessary for the garnishment hearing to properly take place. On these facts, Vale has satisfied me there is good reason to believe the garnishment proceedings are frivolous and vexatious.
Sufficiency of assets or impecuniosity
27Vale has established a prima facie case for security for costs. The plaintiffs must therefore establish that they either have sufficient assets in Ontario to satisfy a costs order or that they are impecunious, and justice demands they be allowed to proceed with the garnishment hearing.
28The plaintiffs failed to lead any evidence regarding assets they own, if any, in Ontario as well as on the issue of impecuniosity. Full financial disclosure is required to discharge their burden at this stage of the test (see 720441 Ontario Inc. at para. 6). Instead, William Armstrong delivered an affidavit setting out what the plaintiffs believe is owed to them under the judgment. He also attached as exhibits endorsements and orders from a different action involving the plaintiffs, and TDI, against 144 and others (123 Ontario Inc).
29The plaintiffs urge me to follow Tranmer J.’s decision in 123 Ontario Inc and dismiss Vale’s motion. They suggest Gordon J.’s decision denying leave to appeal Tranmer J.’s decision to the Divisional Court reinforces their position.
30In that case, the plaintiffs failed to deliver evidence regarding their assets and instead relied on the evidence of their impecuniosity delivered by the defendants at the prima facie stage of the test.
31The facts in this motion are easily distinguished from the facts in 123 Ontario Inc. First, that case involved a motion for security for costs brought by the defendants to the action, whereas this is a garnishment hearing and Vale is not a party to the action that resulted in the consent judgment. Second, the defendants were in possession of virtually all the assets of the plaintiffs. They accordingly had sufficient assets of the plaintiffs to satisfy any costs award. Tranmer J. followed the decision in Paul et al v. General Magnaplate Corporation et al (1995), 1995 CanLII 7259 (ON SC), 27 O.R. (3d) 314 as one of the reasons for dismissing the motion for security for costs.
32In Paul et al the moving parties met their prima facie case, but the responding parties failed to establish impecuniosity. Laforme J. (as he then was) held that the court maintained a residual discretion to look at all the circumstances of the case and determine if the interests of justice required that security be posted. I agree with Gordon J. that it was this residual discretion that Tranmer J. exercised in dismissing the motion for security for costs because the defendants were in possession of the plaintiff’s assets.
33It is important to note that Gordon J. held that Tranmer J.’s use of the defendant’s evidence alone to support the plaintiff’s impecuniosity was improper. Had that been the only reason why Tranmer J. dismissed the motion, Gordon J. would have granted leave to appeal.
34I cannot rely on Vale’s evidence of the plaintiffs’ impecuniosity alone, in the absence of any evidence from the plaintiffs, to make a finding of impecuniosity that would then take me to the “justice demands” test. In addition, I am unwilling, on the facts of this case, to exercise my residual discretion to deny the motion. I am exercising my discretion to order security for costs against the plaintiffs. I must now consider the amount and form of that security
The amount and form of security
35Modern costs awards address several important principles. They partially indemnify successful litigants for the cost of litigation, they encourage settlement, and they discourage and sanction inappropriate behaviour. Awards should reflect what the court views is a fair and reasonable amount that should be paid by the unsuccessful party, rather than an exact measure of the actual costs of the successful party. Part of this assessment includes considering what the unsuccessful party could expect to pay in the circumstances.
36Costs awards are entirely within the discretion of the court. Rule 57.01provides some guidelines that may be considered, in addition to the result in the proceeding and any offers to settle, when exercising that discretion.
37Vale provided a bill of costs setting out their full indemnity costs since 2014 at $65,000. There have been at least six motions served since that time. Vale’s current counsel was required to bring a motion in 2014 to set aside Justice Del Frate’s order regarding examinations. Vale was also required to respond to five motions brought by the plaintiffs. Of these, it appears Vale only argued one of them, being the motion for disclosure and to discover a representative of Vale, which was argued in December 2015. The most recent motions (2019 for answers to undertakings and 2022 for appointment of a forensic auditor) have not been argued. On the motion for disclosure of contracts with 144, Vale took no position. Vale was also required to address 144’s motion for leave to intervene, though they took no position. Two representatives from Vale attended at examinations for a total of two days and disclosed over 20,000 documents relating to invoicing of 144.
38In January 2014, prior to Vale’s current counsel’s involvement, a costs order was made against the plaintiffs in the amount of $1,000. My review of the file suggests costs were not argued for Vale’s 2014 motion to set aside the notice of examination. The court reserved costs in 2016 with respect to the plaintiffs’ motion for disclosure of documents from Vale and 144. Two costs awards were made against William Armstrong personally, in August 2019 ($500 “thrown away”) and September 2019 ($1,000). These orders relate to William Armstrong’s motion that was dismissed by Poupore J. on September 06, 2019, because William Armstrong lacked the standing to bring them in the proceeding.
39Vale estimates $20,000 in legal fees and disbursements will be incurred to reach and to complete the garnishment hearing, though they did not provide a break-down of that estimate. Despite active case management by the court, at least one further case management conference is required, and likely more based on the history of the file, before a date can be set for the garnishment hearing. A time estimate for that hearing has not yet been determined, likely because the plaintiffs had not completed the necessary documents at the last case management hearing. Although garnishment hearings may proceed in a summary fashion, given the volume of disclosure in this case and the amount of time this matter has been outstanding, I do not see that as a realistic option. I suspect at least several days will be required for the garnishment hearing, and possibly more, though I leave that determination to Cullen J. I raise the length simply because it is one of the factors, I must consider in determining the appropriate amount of costs.
40I find a fair and reasonable amount of security for costs to be ordered is $85,000. I understand a large portion of this security represents full indemnity recovery for Vale. In the unique circumstances of this case, including the length of time it has been before the court, the number of motions and the volume of disclosure sought and disclosed, this amount accords with what the losing party could reasonably expect to pay.
41Although the plaintiffs did not make submissions on this issue, I find the nature of this case requires that the security be paid into court. The only individual listed as being involved with the corporate plaintiffs died in 2011. There are no officers or directors that could come forward with a personal undertaking that could be considered. The estate is also a nominal plaintiff. There is no evidence before me in any event to consider alternatives to payment into court.
Conclusion
42Vale’s motion is accordingly granted, and I order as follows:
a. The plaintiffs, George Armstrong Investments Ltd., 1239122 Ontario Inc. and the Estate of George Armstrong, shall pay into court the sum of $85,000 as security for costs in this proceeding; and
b. Until the security in paragraph 42(a) is paid into court, the plaintiffs may not take, without leave of the court, any steps in the proceeding, except an appeal from this order.
43If the parties cannot agree on costs, Vale may within 15 days of the date of this order deliver submissions on costs of no more than 2 pages, not including any offers to settle or bill of costs. The plaintiffs will have 15 days thereafter to deliver their submissions on costs of no more than 2 pages, not including any offers to settle or bill of costs. There will be no reply.
The Honourable Mr. Justice P.J. Boucher
Released: December 9, 2022
COURT FILE NO.: C-6337/01
DATE: 2022-12-09
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
George Armstrong Investments Inc. and 1239122 Ontario Inc. and William George Armstrong, Estate Trustee for the Estate of George Armstrong, deceased
Plaintiffs
– and –
Transport Development Inc.
Defendant
– and –
Vale Canada Limited
Garnishee
RULING ON MOTION FOR SECURITY FOR COSTS
Boucher J.
Released: December 9, 2022