Court File and Parties

COURT FILE NO: CV-16-56299 MOTION HEARD: 20221213; 20230119 WRITTEN SUBMISSIONS RECEIVED: 20230413 REASONS RELEASED: 20230925

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

1059233 ONTARIO LTD. Plaintiff

• and-

CASEY VANDEPUTTE Defendant

BEFORE: ASSOCIATE JUSTICE McGRAW

COUNSEL: J. Zibarras - for the Plaintiff Email: jzibarras@millerthomson.com

J. Diacur - for the Defendant Email: jdiacur@gowlingwlg.com

REASONS RELEASED: September 25, 2023

Reasons for Endorsement

I. Introduction

[1] This is a motion by the Defendant for an order requiring the Plaintiff 1059233 Ontario Inc. (“105”) to post security for costs of $69,073.97 on a partial indemnity scale.

II. Background

[2] 105 was incorporated for the sole purpose of holding the property at 231 York Road, Dundas (the “Property”). 105 sold the Property to Recchia Developments Inc. (“Recchia”) in 2012 for $1,100,000. Pursuant to an Agreement of Purchase and Sale (the “APS”) the $1,100,000 purchase price included a $400,000 deposit and a $700,000 Vendor Take Back Mortgage (“VTB”).

[3] At the time of the sale, David Stevens, 105’s principal, had initiated a development application with the Town of Dundas for the construction of 18 townhouses on the Property (the “Development Application”). Given that the Development Application was pending, the APS provided that the value of the VTB would be reduced by $61,111.11 for each townhouse less than 18 which was approved (the “Claw Back Clause”). The Development Application was rejected and no townhouses were built.

[4] In 2014, Recchia brought an Application to determine the amount owing pursuant to the VTB, in particular, the enforceability of the Claw Back Clause (the “Application”). The Defendant acted as counsel for 105 on the Application. By Reasons dated April 13, 2015, Whitten J. held that the Claw Back Clause was enforceable. 105’s appeal was denied by the Court of Appeal on February 6, 2017.

[5] 105 alleges that it would have succeeded on the Application if, as Mr. Stevens requested, the Defendant had obtained the evidence of Russ Powers, a Dundas town councillor. 105 submits that Mr. Powers’ evidence would have been that the Development Application was rejected because Recchia made multiple changes to the Development Application. Without Mr. Powers’ evidence, the court had no evidence that Recchia’s changes caused the Development Application to be rejected. 105 commenced this action by Statement of Claim issued on February 6, 2016 claiming damages of $800,000 for negligence, breach of contract and breach of fiduciary duty. 105 has agreed that the only remaining allegation of negligence is the Defendant’s failure to obtain Mr. Powers’ evidence.

[6] The trial of this matter is scheduled for February 2024.

III. The Law and Analysis

[7] For the reasons that follow, I conclude that it is just in the circumstances that 105 post security for costs on the terms set out below.

[8] I reject 105’s argument that the Defendant requires leave to bring this motion. Rule 48.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides that a party who has set an action down for trial shall not initiate or continue any motion or form of discovery without leave of the court. This Rule was amended effective July 1, 2021 to remove the previous requirement that any party who consents to an action being placed on a trial list also requires leave.

[9] On November 20, 2020, the Defendant brought a motion to dismiss this action for 105’s failure to comply with the Order of Milanetti J. dated October 17, 2019 to answer undertakings and pay $1,500 in costs. These issues were resolved in December 2020. However, after further delays, on October 7, 2021, the Defendant served a Motion Record in support of his motion to dismiss this action for delay. That same day, 105 served its Trial Record. On December 8, 2021, the parties consented to a pre-trial date and to have this action placed on the trial list for the week of September 19, 2022.

[10] The amended Rule 48.04(1) does not impose any consequences on parties like the Defendant who did not set an action down but consented to it being placed on a trial list. In my view, the plain wording is clear and the removal of the requirement for such parties to seek leave is determinative. Both 105 and the Defendant cited pre-amendment cases regarding the effect of consenting to placement of an action on a trial list and the practices in different Ontario courts. These cases are not helpful in light of the amendment and the parties have not referred me to any post-amendment cases.

[11] Rule 56.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 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;”

[12] Rule 56.01(1) does not create a prima facie right to security for costs but rather triggers an enquiry whereby the court, using its broad discretion, considers multiple factors to make such order as is just in the circumstances including the merits of the claim, the financial circumstances of the plaintiff and the possibility of an order for security for costs preventing a bona fide claim from proceeding (Stojanovic v. Bulut, 2011 ONSC 874 at paras. 4-5). The court has broad latitude to make any order that is just in the circumstances (Yuen v. Pan, 2018 ONSC 2600 at para. 14).

[13] In Yaiguaje v. Chevron Corp., 2017 ONCA 827, the Court of Appeal held as follows:

“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 rr. 56 or 61 have been met.

24 Courts in Ontario have attempted to articulate the factors to be considered in determining the justness of security for costs orders. They have identified such factors as the merits of the claim, delay in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns, and the public importance of the litigation. See: Hallum v. Canadian Memorial Chiropractic College (1989), 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General) (2005), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc., 2009 ONSC 46451; Wang v. Li, 2011 ONSC 4477; and Brown v. Hudson's Bay Co., 2014 ONSC 1065.

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.”

[14] Determining the order which is just in the circumstances requires a balancing between ensuring that meritorious claims are allowed to go forward with the consequences of being left with an unenforceable costs award where a party pursues an unsuccessful claim (Ascent Inc. v. Fox 40 International Inc. at para. 3; Rosin v. Dubic, 2016 ONSC 6441 at para. 39; Lipson v. Lipson, 2020 ONSC 1324 at paras. 47-48). In some cases, security is required to correct the imbalance of a plaintiff having security for a successful claim while a defendant has no security for a successful defence and to prevent a plaintiff from going to trial without posting security, be unsuccessful at trial then avoid paying costs (2232117 Ontario Inc. v. Somasundaram, 2020 ONSC 1434 at para. 27; DK Manufacturing Group Ltd. v. Co-Operators Insurance, 2021 ONSC 661 at para. 26).

[15] The initial onus is on the defendant to show that the plaintiff falls within one of the enumerated categories in Rule 56.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The plaintiff can rebut the onus and avoid security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order; the order is unjust or unnecessary; or the plaintiff should be permitted to proceed to trial despite its impecuniosity should it fail (Travel Guild Inc. v. Smith, 2014 ONSC 6990 at para.16; Coastline Corp. v. Canaccord Capital Corp., 2009 ONSC 21758 at para. 7; Cobalt Engineering v. Genivar Inc., 2011 ONSC 4929 at para. 16). This was summarized by Master Glustein (as he then was) in Coastline:

“7… (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; (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"; (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; (iv) The plaintiff can rebut the onus by either demonstrating that: (a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation, (b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not "plainly devoid of merit", or (c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success;”

[16] 105 concedes that it has no assets or income. Therefore, there is no dispute that the Defendant has met the initial onus under Rule 56.01(d) that it appears there is good reason to believe that the Plaintiff does not have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs award (Georgian Windpower Corp. v. Stelco Inc., 2012 ONSC 158 at para. 7; Coastline at para. 7).

[17] 105 submits that it would be unjust to order security for costs because it is impecunious and its claim is not plainly devoid of merit. A plaintiff bears a heavy onus to show that it is impecunious, a finding which goes beyond assets and income and means that the plaintiff cannot raise the necessary funds to post security (Paulus v. Murray, 2007 ONSC 6904 at para. 5). A corporate plaintiff must not only establish that the corporation itself is impecunious, but that it cannot raise funds from its shareholders to do so (2311888 Ontario Inc. v. Ross, 2017 ONSC 1295 at para. 20). A plaintiff who claims impecuniosity must provide evidence of its financial circumstances with “robust particularity” including complete and accurate disclosure of income, assets, expenses, liabilities and borrowing ability with supporting documentation for each category (Ross at paras. 18-19). In EBA Advertising Inc. v. Kahn (c.o.b. Taxi Taxi Co.), 2013 ONSC 4971, Master Abrams (as she then was) provided some guidance on the level of disclosure required of corporate plaintiffs:

“5 The plaintiff has adduced no evidence nor provided any particulars as to the current financial viability of the plaintiff other than by way of bald, unsubstantiated statements by the company's principals that the company "has no bank accounts, no cash and no assets" and "has not filed tax returns since 2007 as there has been no income". Counsel for the plaintiff says that a negative cannot be proven. I agree; but, documents can be filed that tend to substantiate the negative (i.e. tend to show that it is more likely than not). Correspondence from CRA, the plaintiff's accountant, and the financial institution at which the plaintiff did its banking, by way of example, could have been produced but were not. Statements from the bank account that was allegedly closed could have been produced showing the balance in the account as at the time the account was closed (and any disposition of funds); and, the final tax return filed by the plaintiff also could have been produced.

6 What funds did the plaintiff have at the time it ceased doing business? What earnings? What liabilities? Where did those funds go? When did it cease doing business having regard to the fact that it is alleged to having "... endeavoured to continue to move the business forward" (see: para. 32 of Emanuel Daniel's May 20/13 affidavit)? How has the plaintiff been able to make those efforts if it has no source of funds, as it alleges? What happened to the plaintiff's inventory (i.e. the signs that it alleges were constructed but not installed)? Were they sold and, if so, at what price? All of these questions remain unanswered.”

[18] I am not satisfied that 105 has made sufficient disclosure in order to establish that it is impecunious. The only evidence with respect to 105 itself is Mr. Stevens’ statement that 105 has no asserts or income and that its only asset was the Property. No documentation has been produced in support of this assertion. While I accept that given the purpose of 105’s incorporation and its inactivity it will not have recent income tax returns, some tax documents from the last year filed or correspondence from CRA or its accountant could have been obtained. Further, there is no evidence of any efforts by 105 to borrow to post security.

[19] More problematic for 105, even assuming it has no assets, are the significant issues with the identity of 105’s shareholders and their ability to borrow funds to post security. On his examination for discovery, Mr. Stevens deposed that his wife Karen Elaine Stevens (“Karen”) was 105’s sole shareholder. However, Mr. Stevens states that he is 105’s sole shareholder, that Karen has never been a shareholder and that his earlier testimony was mistaken. Given the importance of 105’s shareholders to its claim of impecuniosity, I asked counsel if they would provide me with a copy 105’s shareholder registry. 105 did not object, however, the Defendant submitted that I should render a decision based on the current record and submissions. I directed counsel to first determine if a copy of the shareholder registry was available. If so, then the parties could discuss a potential resolution and/or the possibility of additional submissions.

[20] At a telephone case conference on January 19, 2023, 105’s counsel advised that no-one was able to locate a copy of the shareholder registry but that 105 would be bringing a motion for leave to file additional evidence. The motion, opposed by the Defendant, was scheduled for April 18, 2023. However, by letter dated April 12, 2023, 105’s counsel advised that Mr. Stevens had suffered a serious health setback and was therefore withdrawing the motion.

[21] To establish impecuniosity, 105 must demonstrate that it cannot borrow funds from its shareholders to post security. This in turn requires a consideration of its shareholders’ assets and ability to borrow. Given 105’s inability to confirm the identify of its shareholder(s), I must consider the possibility that Mr. Stevens or Karen is the sole shareholder.

[22] With respect to Mr. Stevens, he was a practising lawyer until 2014. However, he has not worked in approximately 10 years due to multiple serious health issues. He has not had any assets in his name for approximately 10 years and he has unpaid credit card debt of approximately $12,000. He receives monthly amounts of $648.67 from his Old Age Security pension (“OAS”) and $966.59 from the Canada Pension Plan (“CPP”). Mr. Stevens has filed documentation from BMO confirming that he has two overdrawn bank accounts and another with a minimal balance. He also has three credit cards with outstanding balances (with what appear to be some recent payments) and total available credit of approximately $12,000. He also has an investment of approximately $1,800. Mr. Stevens resides with Karen at a home which she owns in Fenwick, Ontario. He states that he relies on her for monthly living expenses. He states that he is unable to borrow funds, however, there is no evidence that he has attempted to do so or made any inquiries to obtain credit in addition to what may be available on his credit cards. He also states that he has a line of credit of $280,000 which he obtained to pay legal fees related to litigation with the Defendant over the sale of Mr. Stevens’ legal practice which cannot be extended. He also states that he owes $49,000 in legal fees related to this litigation. No documentation has been filed with respect to these amounts.

[23] Karen receives $1,200 per month from CPP/OAS and earns $2,500 monthly working at a winery. Mr. Stevens deposed that he has no ability to borrow funds from Karen. However, particularly if Karen is a shareholder, then the Fenwick home is an asset which must be considered available for her to use to borrow funds to post security. No information or documentation has been produced with respect to the value of this property, how much equity Karen has in it, how much could be borrowed against it and if she has made any efforts to borrow funds at all including against the home. Given the insufficient disclosure with respect to Mr. Stevens, Karen, and to a lesser degree, 105, and the possibility of available credit, I conclude that 105 has not met its onus to demonstrate that it is impecunious.

[24] As I have concluded that 105 is not impecunious and does not have sufficient assets to satisfy a costs award, 105 must demonstrate that its claim has a good chance of success or a real possibility of success (Coastline Corp. v. Canaccord Capital Corp., 2009 ONSC 21758 at paras. 3 and 7; Chalhal v. Abdullah, 2022 ONSC 1727 at paras. 47-50; Chill Media Inc. v. Brewers Retail Inc., 2021 ONSC 1296 at para. 14). In considering the merits, the court is not required to embark on an analysis such as on a summary judgment motion (Coastline Corp. v. Canaccord Capital Corp., 2009 ONSC 21758 at para. 7; Horizon Entertainment Cargo Ltd. v. Marshall, 2019 ONSC 2081 at para. 3). The analysis is primarily on the pleadings with recourse to evidence filed on the motion and if the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage (Coastline Corp. v. Canaccord Capital Corp., 2009 ONSC 21758 at para. 7; Horizon Entertainment Cargo Ltd. v. Marshall, 2019 ONSC 2081 at para. 3). An assessment of the merits should be decisive only where the merits may be properly assessed on an interlocutory application and success or failure appears obvious (Coastline Corp. v. Canaccord Capital Corp., 2009 ONSC 21758 at para. 7; Horizon Entertainment Cargo Ltd. v. Marshall, 2019 ONSC 2081 at para. 3).

[25] I cannot conclude that 105’s negligence claim has a good chance of success. 105 argues that it was unsuccessful on the Application because Whitten J. had no evidence that Recchia’s own actions caused municipal officials to reject the Development Application. As a result, Recchia received the full benefit of the Claw Back Clause, which reduced the purchase price for the Property. The Defendant admits that Mr. Stevens expressed his desire to secure Mr. Powers’ evidence and the Defendant did not make any inquiries. However, the Defendant submits that Mr. Powers’ evidence was likely not admissible and not relevant to the Application which was based on a legal interpretation of the APS.

[26] The Plaintiff is asking the court to draw multiple conclusions based on the pleadings and the record on this motion regarding the purported effect of Mr. Powers’ evidence on the outcome of the Application and in turn on 105’s negligence claim against the Defendant. Even if Mr. Powers’ direct evidence were before me, it is not possible to draw these conclusions. This would require a level of inquiry which is not possible or appropriate at the interlocutory stage and, in my view, would require a high degree of speculation and conjecture.

[27] 105 also submits that it would be unjust to order security because the Defendant contributed to 105’s impecuniosity by his alleged negligence which is the subject of this action. 105 concedes that its own and Mr. Stevens’ financial situations were caused largely by Mr. Stevens’ health issues and in part by the Defendant’s negligence. Given the multiple causes, even accepting 105’s allegations as true, it does not meet the threshold that the insufficiency of 105’s assets and inability to post security be a direct result of the Defendant’s conduct as alleged in this action or the sole or very cause of its impoverishment (Cigar500.com Inc. v. Ashton Distributors Inc., 2009 ONSC 46451 at para. 40; Mazzika Arbika Ltd. v. Aviva Insurance Company of Canada, 2017 ONSC 6801 at paras. 21-27; John Wink Ltd. v. Sico Inc. (1987)). 105 also argues that the Defendant contributed to Mr. Stevens’ impecuniosity by failing to pay the purchase price on the sale of his legal practice which is the subject of separate litigation. In my view, this bears less relevance as it relates exclusively to Mr. Stevens, not 105, is not the subject of this action and in any event it is insufficient to establish the required nexus.

[28] 105 asserts that the Defendant’s unreasonable delay in bringing this motion is fatal to its request for security for costs (Chalhal v. Abdullah, 2022 ONSC 1727 at paras. 33, 51-55; Wilson Young & Associates v. Carleton University, 2020 ONSC 4542 at para. 59). 105 claims that the Defendant knew about 105’s dire financial circumstances as early as 2014 and after examinations for discovery in 2017 at the latest and has not provided any explanation for why he waited until this action was ready for trial (Wilson Young & Associates v. Carleton University, 2020 ONSC 4542 at para. 59).

[29] The affidavit filed by the Defendant sets out the procedural history which details the Plaintiff’s delays in advancing the litigation and the Defendant’s two motions to dismiss this action. This affidavit does not explain the delay in bringing this motion. During oral submissions, the Defendant submitted that he did not bring the motion sooner because the Plaintiff did not serve its Trial Record for 4 years after discoveries and only did so in the face of a dismissal motion. This made it unclear whether the litigation was proceeding. I agree with 105 that the timing of this motion raises concerns given the need to weed out strategic security for costs motions meant to prevent actions from proceeding to trial. While 105’s significant delays are relevant given the extended periods of radio silence which suggested that it was not pursuing the litigation, the motion could have been brought sooner. Further, the Defendant’s actual explanation and not just the litigation timeline should have been in evidence. However, the timing of the motion must be considered in the context of its impact on 105 to carry this action through to trial.

[30] 105 claims that it cannot post any amount of security for costs, even a minimal amount, and that any order for security would prohibit it from proceeding to trial (Chill Media Inc. v. Brewers Retail Inc., 2021 ONSC 1296 at para. 14). However, this submission is made without taking the Fenwick property into consideration and the insufficient disclosure set out above. Accordingly, I do not accept, taking all of the circumstances into account, that any amount of security would prevent this action from proceeding to trial. Balancing the Plaintiff’s delay in advancing the overall litigation with the Defendant’s delay with this motion, I conclude that the Defendant’s delay should not disentitle it to an order for security. In my view, the Defendant’s delay can be reasonably and appropriately taken into consideration in the quantum of security ordered. It is also a relevant that this is commercial litigation involving private economic interests which has no public interest considerations.

[31] Applying a holistic approach, considering all of the relevant factors and balancing the parties’ competing interests, I conclude that it is just in the circumstances to exercise the court’s discretion to order security for costs. Ordering some security will provide the Defendant with some protection from an unenforceable costs award while not preventing 105 from advancing its claim to trial.

[32] The justness of the order in the circumstances must also be considered in determining the quantum of security which should not be so onerous as to block a party’s access to the courts (Rosin v. Dubic, 2016 ONSC 6441 at paras. 38-39; Lipson v. Lipson, 2020 ONSC 1324 at para. 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 of a proceeding pursuant to Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (Canadian Metal Buildings Inc. v. 1467344 Ontario Limited, 2019 ONSC 566 at para. 27). The quantum should reflect an amount that falls within the reasonable contemplation of the parties, what the successful defendant would likely recover and the factors set out in Rule 57.01 (720441 Ontario Inc. v. The Boiler, 2015 ONSC 4841 at para. 56; Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada at paras. 17-20). In most cases, security for costs will be ordered on a partial indemnity scale (Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada at paras. 13-18).

[33] The amount of security must reasonably reflect the relative complexity of the litigation and the amounts claimed by 105. Having reviewed the Defendant’s Bills of Costs, I conclude that the amounts sought by the Defendant should be reduced to more reasonably reflect the expected costs of defending a claim of this nature generally, the narrowed negligence claim which 105 is now pursuing and the timing of this motion. Having considered the relevant factors, I am satisfied that it is fair and reasonable, within the parties’ reasonable expectations, proportionate and just in all of the circumstances for 105 to post security for costs of $25,000 on a partial indemnity scale within 90 days. 105 shall take no further steps in this action until the security is paid.

IV. Disposition and Costs

[34] Order to go on the terms set out above. If the parties cannot agree on the costs of this motion, they may file written costs submissions not to exceed 3 pages (excluding Costs Outlines) on a timetable to be agreed upon by counsel.

Released: September 25, 2023

Associate Justice McGraw