Court File and Parties

Court File No.: CV-19-00081578-0000 Date: 2023-06-21 Superior Court of Justice - Ontario

Re: Ian McLean in his Capacity as Trustee of the JSL TRUST, Plaintiff And: REPVISOR PORTFOLIO SYSTEMS INC., 1150061 ONTARIO INC., ADAM WISEBERG in his capacity as Trustee of THE SAMACHAN TRUST, MARIE MITILINELLIS, MEHMET BALTACIOGLU, ADAM WISEBERG, and WINSOFT TECHNOLOGY SOLUTIONS INC., Defendants

Before: Associate Justice A. Kaufman

Counsel: Conner Harris, for the Plaintiff Jordan Goldblatt, for the Defendants, RepVisor Portfolio Systems Inc., 1150061 Ontario Inc., Marie Mitilinellis, Mehmet Baltacioglu, and Winsoft Technology Solutions Inc. Jonathan Collings, for the Defendants Adam Wiseberg in his capacity as Trustee of The Samachan Trust and Adam Wiseberg.

Heard: April 6, 2023

Endorsement

[1] RepVisor Portfolio Systems Inc., 1150061 Ontario Inc., Marie Mitilinellis, Mehmet Baltacioglu, and Winsoft Technology Solutions Inc. (the “moving parties”) are seeking an order to compel the plaintiff to post $100,000 as security for costs. They assert that the plaintiff is a nominal plaintiff and that there are reasonable grounds to believe that he lacks sufficient assets in Ontario to cover a potential costs award. In response, the plaintiff argues against an order for security, claiming that he is not a nominal plaintiff, possesses sufficient assets to cover costs, and cites s. 249(3) of Ontario’s Business Corporations Act (" OBCA ") as a statutory impediment to ordering security for costs.

[2] This motion raises the following issues:

1. Is the plaintiff a nominal plaintiff?
2. Are there good reasons to believe that the plaintiff lacks sufficient assets in Ontario to cover costs?
3. Does s. 249(3) of the OBCA grant immunity from posting security for costs?

Background

[3] This action has a complex history. Initially, on October 2, 2019, the plaintiff filed an application naming JSL Trust as the applicant, with Razor Logic Systems (“Razor”) and Nest Wealth Asset Management (“Nest”) as respondents. JSL Trust is one of RepVisor’s founding shareholders. JSL Trust alleged that the respondents diverted RepVisor’s funds for their own commercial purposes, constituting oppressive conduct.

[4] The respondents moved to strike the application on various grounds, including that JSL Trust lacked standing as a legal entity. Justice Labrosse granted their motion, striking the application with leave to amend. Labrosse J. held that a trust does not possess the legal capacity to initiate legal proceedings.

[5] In November 2020, the plaintiff commenced a separate action based on similar allegations as the initial application. In August 2021, the plaintiff proposed discontinuing the November 2020 action and converting the October 2019 application into an action. The defendants agreed to the plaintiff’s proposal, subject to compensation for their costs thrown away. The costs issue became the subject of a motion before Bergeron J., who ordered the plaintiff to pay the defendants’ costs, fixed at $13,000.

[6] In compliance with Bergeron J.’s order, the October 2019 application was converted into this action, with the plaintiff filing a Statement of Claim. The action was brought in the name of “Ian McLean in his Capacity as Trustee of the JSL TRUST”.

Applicable Principles

[7] On a motion for security for costs, the moving party bears the burden of satisfying the Court that there appear to be good reasons to believe that the matter comes within one of the circumstances enumerated in r. 56.01 of the Rules of Civil Procedure (“ Rules ”). Once this burden is met, the onus shifts to the responding party to demonstrate that an order for security for costs would be unjust by showing sufficient assets in Ontario, or a reciprocating jurisdiction, to cover any potential costs. In this case, the plaintiff does not assert impecuniosity.

[8] The moving parties rely on r. 56.01(1)(d) of the Rules, which states:

56.01(1) 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.

Issue 1 – Is the plaintiff a nominal plaintiff?

[9] The JSL Trust is a discretionary trust, and Mr. Ian McLean serves as its sole trustee. The beneficiaries of the trust include Mr. Scott DeVries, his mother, and his son.

[10] Mr. DeVries claims that he collaborated with Mr. Baltacioglu to establish RepVisor, a corporation focused on developing and marketing software for financial advisors. According to a shareholder's agreement executed on July 15, 2016, the shares in RepVisor were allocated among the JSL Trust and the defendants, namely 1150061 Ontario Inc. and The Samachan Trust.

[11] The moving parties contend that Mr. McLean lacks any connection to the parties involved in the litigation and is neither a registered nor a beneficial owner of RepVisor’s shares. They rely on the precedent set in Bedi Estate v. Bajwa, which states that a plaintiff who does not have a beneficial interest in the litigation's outcome should be required to provide security for costs. In Bedi Estate, the Court defined a "nominal plaintiff" as someone who has no genuine personal interest in the case’s outcome.

[12] Mr. McLean disputes being labeled as a nominal plaintiff. He argues that he is a necessary plaintiff because the JSL Trust is not a justiciable entity. He further asserts that he owes fiduciary duties to the JSL Trust and is obligated to act in the best interests of the trust. Consequently, he is duty-bound to advance this litigation on behalf of the JSL Trust. Moreover, Mr. McLean has fulfilled his responsibilities to the JSL Trust by actively participating in shareholder meetings and requesting information from RepVisor. He contends that his active involvement in trust administration demonstrates his genuine interest in the litigation and refutes the claim that he is a mere ‘straw man’ without any stake in the case. Furthermore, Mr. McLean acknowledges that he would be personally liable for an adverse costs order and acknowledges that acting as a plaintiff in his capacity as trustee does not absolve him of personal liability.

[13] Although Mr. McLean does not possess a personal financial interest in the outcome of this proceeding, it cannot be concluded that he is merely a nominal plaintiff. He has willingly accepted the responsibility to hold and administer property on behalf of the JSL Trust’s beneficiaries and to act in their best interests. In Bedi Estate, the Court recognized that an estate executor, who has a duty and obligation to handle an action, possesses a real and subsisting interest in the litigation’s outcome.

[14] In the event that I am mistaken on this issue, I will now address whether there are good reasons to believe that Mr. McLean lacks sufficient assets in Ontario to cover the defendants’ costs.

Issue 2 – Are there good reasons to believe that Mr. McLean has insufficient assets in Ontario to pay the defendants’ costs?

[15] In their Notice of Motion, the moving parties request an order for the plaintiff to post $100,000 as security for costs. However, in their factum, the amount requested is reduced to $81,000, representing the moving parties’ costs on a partial indemnity scale. The moving parties anticipate that their costs for litigating this matter until the end of trial are likely to exceed $100,000. The plaintiff argues that this amount is excessive, but in my view, the moving parties’ estimate is reasonable.

[16] The moving parties contend that they have fulfilled their burden of establishing good reasons to believe that Mr. McLean lacks sufficient assets to satisfy a costs order. They base their argument on the plaintiff’s refusal to pay the defendants’ costs thrown away and the nearly four-month delay in paying a previous $13,000 costs award. Additionally, they highlight that despite the application being issued in 2019, the claim has not progressed beyond the pleadings stage, suggesting an inability to fund counsel.

[17] The plaintiff counters that he did not outright decline to pay the defendants’ costs for the motion to convert the application into an action. Instead, he merely suggested that costs be awarded in the cause. While the plaintiff concedes that the costs awarded by Bergeron J. were paid late, he underscores the fact that they were eventually settled. The plaintiff cites Density Group Limited v. HK Hotels LLC, where Mesbur J. held that the late payment of a costs award undermines, rather than supports, the notion that security for costs should be required. Finally, the plaintiff submits that the sluggish progress of this proceeding can be attributed to the defendants’ motions to strike and for costs thrown away, rather than his own financial limitations.

[18] Upon careful consideration, I remain unconvinced that the delayed payment of a costs award provides sufficient grounds to believe that Mr. McLean lacks the necessary assets in Ontario to fulfill a costs order. While it may indicate that the plaintiff had insufficient liquid assets to promptly satisfy these costs, it does not, by itself, establish that there appear to be good reasons to believe that the plaintiff lacks adequate assets to meet a costs award. When evaluating motions for security for costs, the Court examines exigible assets, which are assets that may be demanded or executed against. In this context, a mere four-month delay in payment does not, in isolation, warrant the conclusion that the plaintiff is devoid of the necessary assets to fulfill a costs order.

[19] I concur with the plaintiff’s submission that advocating for the moving parties’ costs to be awarded “in the cause” does not imply an inability to cover such costs. Furthermore, I am satisfied that the protracted progression of this litigation is primarily attributable to the interlocutory motions initiated by the defendants, and there is no evidence connecting the pace of this litigation to any financial limitations experienced by the plaintiff.

[20] The moving parties have not discharged their burden of establishing good reasons to believe that the plaintiff lacks sufficient assets to satisfy a costs order.

[21] Additionally, the plaintiff has presented evidence demonstrating that he and his wife own a home in Merrickville, Ontario. The home was acquired for $660,000 in July of 2020 and carried, at that time, $411,000 in registered charges. I acknowledge the moving parties’ contention that the property may be encumbered by Mr. McLean’s spouse, particularly if it is considered a matrimonial home. Nevertheless, I consider that the equity accessible to Mr. McLean provides a reasonable level of protection for the moving parties’ costs, should they succeed at trial.

Issue 3 - Does s. 249(3) of the OBCA confer an immunity from posting security for costs?

[22] Although it is not essential for me to provide a definitive response, the presence of s. 249(3) of the OBCA does weigh against granting an order for security for costs. This provision stipulates that “a complainant” seeking an oppression remedy is not obligated to furnish security for costs.

[23] The moving parties are correct in asserting that Mr. McLean does not strictly fall under the definition of a “complainant” as defined in this subsection. The term “complainant” encompasses:

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part. (See OBCA, s. 245).

[24] Mr. McLean does not qualify as a registered holder or a beneficial owner of RepVisor's securities, and there has been no order issued under s. 245(c) designating him as an appropriate person. However, it is important to note that the plaintiff initially commenced an application regarding the same allegations in the name of the registered holder, JSL Trust. Since trusts lack the capacity to initiate legal proceedings, the application was converted into this action and filed in the name of the trustee, Mr. McLean. If the JSL Trust had been able to commence this action in its own name, I am of the view that this action would have fallen within the scope of the prohibition against orders for security for costs outlined in s. 249(3).

[25] The moving parties contend that s. 249(3) does not apply because the action is grounded in a breach of a shareholder’s agreement, constituting a contractual claim. I find this submission unconvincing.

[26] According to the OBCA, an oppression remedy is available when a corporation conducts its affairs in a manner that oppresses or unfairly prejudices a security holder, creditor, director, or officer of the corporation, or unjustifiably disregards their interests. In my assessment, the plaintiff’s allegations, when examined in substance, satisfy this definition.

[27] The plaintiff alleges that despite assurances to the contrary, RepVisor failed to remit any dividends to the JSL Trust. It further asserts that RepVisor refused to acknowledge a $600,000 debt owed to the JSL Trust while repaying debts to other shareholders. The plaintiff also contends that Mr. Baltacioglu increased salaries for himself, his spouse, and his daughter, contravening the provisions of the shareholder agreement, and thereby depleting RepVisor's resources and distributing them to himself and his family. Moreover, the plaintiff maintains that RepVisor disbursed $752,000 to Winsoft Technology Solutions Inc. (“Winsoft”), a non-arm’s length corporation controlled by Mr. Baltacioglu.

[28] By enacting s. 249(3) of the OBCA, the legislature intended to enable complainants to pursue their rights unhindered by motions for security for costs. This provision recognizes that a corporation’s actions can detrimentally impact the financial interests of minority security holders and that it would constitute a dual injustice to impede the continuation of an oppression remedy action due to the corporation’s own oppressive conduct.

[29] Had the action been initiated in the name of the JSL Trust, I am convinced that it would have been shielded from an order for security for costs. Because orders for security for costs are discretionary, I believe that this discretion should be exercised in light of the legislative policy to exempt oppression-related actions from the requirement to post security for costs.

Costs

[30] The parties have mutually agreed that the appropriate amount for costs is $5,000. However, the moving parties argue that the plaintiff should not be entitled to costs due to their late payment of the costs ordered by Bergeron J., as well as the late filing of their materials.

[31] I decline to reduce the costs for the plaintiff’s failure to pay costs on time. The plaintiff paid these costs once he was able to do so. Although the plaintiff initially indicated a delivery date of February 28, 2023, his materials were not submitted until March 30, 2023. I concur with the moving parties’ assertion that the plaintiff should have submitted his materials much earlier. Nevertheless, I choose not to exercise my jurisdiction in this specific case. Even though the materials were served after the promised date, they were still provided at least four days prior to the hearing, in accordance with Rule 37.10(3) of the Rules.

[32] Costs are hereby set at $5,000, all-inclusive, and are to be paid by the moving parties to the plaintiff without delay.

Disposition

[33] This Court orders that:

1. The moving parties’ motion for security for costs is dismissed;
2. The plaintiff is entitled to costs, fixed in the amount of $5,000, payable forthwith.

Alexandre Kaufman ASSOCIATE JUSTICE KAUFMAN Date: June 21, 2023