COURT FILE NO.: CV-16-00566077-0000
DATE: 2023-07-30
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2159936 ONTARIO INC. et al v. DIGESO et al
BEFORE: ASSOCIATE JUSTICE D. MICHAEL BROWN
HEARD: 2023-03-30 (by videoconference)
COUNSEL: H. Wolch, for the moving parties/defendants R. Hine, for the responding parties/plaintiffs
E N D O R S E M E N T
[1] This is a motion by the defendants for security for costs against the plaintiffs, both of which are Ontario corporations. For the reasons that follow, the motion is dismissed.
[2] The defendants bring this motion under subrules 56.01(1)(d) and (e):
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;
[or]
(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;
[3] In Coastline v. Canaccord,[^1] Master Glustein (as he then was) outlined the test to be applied on a motion for security for costs:[^2]
(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 (Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R.(2d) 119 (H.C.J.) at 123);
(ii) Once the first part of the test is satisfied, “the onus is on the plaintiff to establish that an order for security would be unjust” (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. – Mast) (“Uribe”) at para. 4);
(iii) The second stage of the test “is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors”. The court exercises a broad discretion in making an order that is just (Chachula v. Baillie (2004), 2004 CanLII 27934 (ON SC), 69 O.R.(3d) 175 (S.C.J.) at para. 12; Uribe, at para. 4) …
[4] On this motion, the onus is on the defendants under the first part of the test to demonstrate that the conditions in subrule 56.01(1)(d) or (e) have been met. Under either subrule, the defendants must demonstrate that it appears there is good reason to believe that the plaintiffs have insufficient assets in Ontario to pay the defendants’ costs. If the defendants meet this onus, the onus then shifts to the plaintiffs to tender evidence that they have assets available to respond to any costs order or to demonstrate that security for costs would be unjust.[^3]
[5] The onus on the moving party under the first part of the test is not a heavy one. The defendants need only show that it “appears” that there “is good reason to believe” that the plaintiffs have insufficient assets in Ontario to pay the costs of the defendants.[^4]
[6] In my view, the defendants have failed to meet their onus under the first part of the test. The evidence tendered by the defendants on this motion consists of two affidavits sworn by an articling student with the defendants’ law firm. The first affidavit contains a series of vague, unsubstantiated assertions about the conduct of the parties leading up to the 2016 sale transaction that is the subject of the plaintiffs’ action. The only assertions that are even tangentially related to the sufficiency of the plaintiffs’ assets in Ontario are bald statements that the plaintiffs “lacked the financial capacity” to complete a sale transaction in 2016 and that the plaintiffs had earlier (i.e. before the 2016 transaction) failed to make unspecified rental payments to the defendants. These assertions of fact are clearly outside the knowledge of the articling student affiant and yet the affidavit fails to identify any source for this information and fails to attach any documents in support of these statements. The defendants’ evidence in this regard inadmissible as it fails to comply with the requirements of Rule 39.01(4).
[7] In an apparent attempt to cooper up the first affidavit, the defendants served a 3-paragraph supplementary affidavit from the same articling student, two days before the hearing of this motion. In that supplementary affidavit, the articling student deposes that the source of the information in his first affidavit regarding the failed rental payments and the plaintiffs’ financial capacity to complete a sale transaction was Gino Digeso. The supplemental affidavit does not identify who Gino Digeso is or why they would be a reliable source for this information[^5]. Regardless of whether this late-served supplementary affidavit cures the first affidavit’s non-compliance with Rule 39.01(4), it does little to bolster the defendants’ evidence regarding the plaintiffs’ assets. This evidence is still unsubstantiated by any contemporaneous records or documentation and relates to events that occurred over six years ago that would appear to have no bearing on the plaintiffs’ current or future ability to pay a costs award.
[8] The only other evidence relied on by the defendants regarding the plaintiffs’ assets is the plaintiffs’ failure to respond to the defendants’ demand for evidence of their assets. On June 16, 2022, after booking the date for this motion for security for costs, defendants’ counsel emailed counsel for the plaintiffs stating “… unless your clients can provide evidence of assets, I can pretty much assure you now that we need to proceed with this motion.” The defendants now rely on the plaintiffs’ failure to provide evidence of assets in response to this email as evidence that the plaintiffs lack sufficient assets in Ontario to pay the defendants’ costs.
[9] In his oral submissions on the motion, counsel for the plaintiffs argued that it cannot be the case that an unanswered demand for evidence of assets is sufficient to meet the defendant’s onus under the first part of the test for security for costs. I agree. If a plaintiff’s failure to provide evidence of assets was sufficient to meet the first part of the test it would effectively reverse the onus on the first part of the test onto the plaintiff. This court has consistently held that the onus on a plaintiff to provide evidence of assets does not arise until after the defendant has met its onus under the first part of the test.
[10] Based on the record before me, I find that it does not appear that there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendants. The defendants have therefore failed to meet their onus under subrules 56.01(1)(d) and (e)[^6].
Disposition
[11] Having failed to meet their onus under subrules 56.01(1)(d) and (e), the defendants have failed to satisfy the first stage of the test on a motion for security for costs as described in Coastline v. Canaccord. Accordingly, I need not consider the second stage of the test and whether the requested order for security for costs would be unjust. The defendants’ motion for security for costs is dismissed.
Costs
[12] As the plaintiffs were successful on the motion they are entitled to their costs. The partial indemnity costs sought in the respective Bills of Costs filed by the parties on the motion were within $1,500.00 of each other ($9,876.20 sought by the plaintiffs vs. $8,393.81 sought by the defendants). Counsel for the defendants submitted that costs of the motion should be fixed at $9,000 regardless of the winner. Counsel for the plaintiffs agreed that the plaintiffs should receive $9,000.00 if successful. Accordingly, the defendants shall pay to the plaintiffs their partial indemnity costs of the motion fixed at $9,000, inclusive of HST, and payable within 30 days.
D. Michael Brown, Associate Judge
DATE: July 30, 2023
[^1]: Coastline Corporation Ltd. et al. v. Canaccord Capital Corporation et al., 2009 canlii 21758 [^2]: Ibid at para 7 [^3]: 1960529 Ontario Inc. v. 2077570 Ontario Inc., 2017 ONSC 5254 at para 78; Blue Simcoe Developments Inc. v. 714222 Ontario Inc., 2015 ONSC 1258 at para 4 [^4]: Ibid.at para 4 [^5]: Gino Digeso is not a party to this litigation although there are defendants who appear share that surname. [^6]: The onus on the defendant under subrule 56.01(1)(e) is conjunctive – the defendant must demonstrate that there is good reason to believe that that the action is frivolous and vexatious and that that the plaintiff has insufficient assets in Ontario. Having determined that there is not good reason to believe the plaintiffs have insufficient assets in Ontario I need not consider whether the action is frivolous and vexatious.