COURT FILE NO: CV-16-565013
MOTION HEARD: 20231110
REASONS RELEASED: 20240218
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
ALEXANDER INVESTMENT AND MANAGEMENT CO. LTD.
Plaintiff
- and-
HOMELIFE/BAYVIEW REALTY INC., EHSAN VAFAI, FARAHNAZ ABDULLAHI also known as FATEMEH ABDULLAHI, BEHNAZ MAKARMI and 1773098 ONTARIO INC.
Defendants
BEFORE: ASSOCIATE JUSTICE McGRAW
COUNSEL: A. Postelnik
-for the Defendants Ehsan Vafai and Farahnaz Abdullahi also known as Fatemeh Abdullahi
Email: aaron@ksalaw.com
H. Perlis
-for the Defendant Homelife/Bayview Realty Inc.
Email: harry.perlis@mbzlaw.com
R. Mann
- for the Defendant Behnaz Makarmi
Email: ranbir@manncriminallaw.ca
R. Gandotra
- for the Plaintiff
Email: rgandrota@kramersimaan.com
REASONS RELEASED: February 18, 2024
NOTE: This is a revised version of the Reasons For Endorsement released to counsel on February 18. 2024. Numerous typographical errors have been corrected.
Reasons for Endorsement
I. Introduction
[1] This is a motion by the Defendants for an order requiring the Plaintiff to post security for costs.
II. Background
[2] This is the second action arising from the Plaintiff’s purchase of a radiology clinic located at 491 Lawrence Ave. West, #20 in Toronto (the “Clinic”) in 2014. The first action was against the vendor Carmit Mayaan Levy Imaging Limited (“CML”) and its principal Rajiv Kumra. This action is against the Plaintiff’s real estate brokerage the Defendant Homelife/Bayview Realty Inc. (“HBR”) and the Defendant real estate agents Ehsan Vafai, and Farahnaz Abdullahi also known as Fatemeh Abdullahi (the “Agents” together with HBR, the “Defendants”). The actions are being tried together or one after the other at the discretion of the trial Judge. Zhenxu (William) Jin (“Jin”) and his mother-in-law Huizhen Li (“Li”) are the officers, directors and shareholders of the Plaintiff.
[3] In this action, the Plaintiff claims damages of $2,150,000 representing the purchase price and $48,590 in commissions alleging breach of fiduciary duty, good faith and conspiracy. The Plaintiff alleges that the Agents advised him that the purchase had to be negotiated through the Defendant 1773098 Ontario Ltd. (“177”) which they represented was an independent party with an existing purchase agreement with CML Accordingly, the Plaintiff was incorporated in October 2014 and entered into an Assignment Agreement with 177 for a purchase price of $2,350,000. However, Jin alleges that just prior to closing in December 2014 he was advised that 177 was controlled by the Agents and the Defendant Behnaz Makarmi (“Makarmi”), Abdullahi’s sister. The Plaintiff alleges that the Agents and Markarmi used 177 in an attempt to receive a $200,000 payment due to 177 under the Assignment Agreement. The transaction ultimately closed directly between the Plaintiff and CML and the $200,000 payment was not made.
[4] The Plaintiff also alleges that it relied on misrepresentations by Vafai that 40 per cent of the Clinic referrals were from the building in which the Clinic was located, 30 per cent from walk-ins and 30 per cent from physicians. However, the Plaintiff alleges that after it opened the Clinic, it was unable to access the information provided regarding referrals to contact physicians who had made referrals, and that most of the referrals had been made by Kumra himself or by associates of Kumra. The Plaintiff sold the Clinic in April 2016 for approximately $1,919,000.
[5] The Defendants brought this motion on December 1, 2022 after examinations for discovery. The actions have been set down for trial but trial dates have not been scheduled. The Agents seek security of $171,072.18 on a substantial indemnity scale or alternatively, $115,642.78 on a partial indemnity scale. HBR requests $79,513.73 on a partial indemnity scale.
III. The Law and Analysis
[6] For the reasons that follow, I conclude that it is just in the circumstances that the Plaintiff post security for costs on the terms set out below.
[7] Rule 56.01(1) 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;”
[8] 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).
[9] 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), 1989 4354 (ON SC), 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General) (2005), 2005 6052 (ON SC), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 2009 46451 (ON SC), 99 O.R. (3d) 55 (S.C.); Wang v. Li, 2011 ONSC 4477 (S.C.); and Brown v. Hudson's Bay Co., 2014 ONSC 1065, 318 O.A.C. 12 (Div. Ct.).
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.”
[10] 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., [2007] O.J. No. 1800 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).
[11] The initial onus is on the defendant to show that the plaintiff falls within one of the enumerated categories in Rule 56.01(1). 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 CarswellOnt 19157 (S.C.J.) at para.16; Coastline Corp. v. Canaccord Capital Corp., 2009 21758 (ON SC), [2009] O.J. No. 1790 (ONSC) 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;”
[12] The Plaintiff concedes that it has no assets or income. Therefore, it is not disputed that the Defendants have 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] O.J. No. 158 (ONSC) at para. 7; Coastline at para. 7).
[13] The Plaintiff 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 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). There must be more than some evidence of impecuniosity and the plaintiff must satisfy the court that it is genuinely impecunious with full and frank disclosure of financial circumstances (Montrose Hammond & Co. v. CIBC World Markets Inc., 2012 ONSC 4869 at paras. 34-35). 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)….
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.”
[14] In my view, the Plaintiff has not made disclosure of its financial circumstances with the required particularity to establish that it is impecunious. While the Plaintiff’s business failed, this alone is insufficient. The Plaintiff has filed no evidence of any efforts to borrow from any source to post security, largely relying on unsupported assertions that it cannot (Chantrs Blinds and Shutters Inc. v. 2037208 Ontario Inc., 2022 ONSC 6832 at para. 20). This includes from Li, Jin’s mother-in-law and fellow director, officer and equal shareholder. The Plaintiff submits that due to his contentious separation, he has not interacted or had regular communications with Li and has not been in contact with her since 2018. This does not mean that the Plaintiff is not required, at a minimum, to ask his fellow director, officer and shareholder for a contribution to litigation from which she would benefit if the Plaintiff were successful. Even if Jin had asked her recently, and she refused, I would have difficulty exempting the Plaintiff from security for costs without sufficient financial disclosure from her since she stands to benefit from this action. There is also no evidence of any efforts to borrow funds from third party lenders.
[15] With respect to Jin’s finances, he is a single father who has been separated since February 2018. He is currently unemployed, lives with his aunt and his parents support his living expenses. He claims to have no income and only limited income since the commencement of the litigation and has child support arrears of $550,000. However, similar to the Plaintiff, he has not provided copies of his income tax returns or related evidence since the start of the litigation or evidence of the significant child support arrears.
[16] As I cannot conclude that the Plaintiff is impecunious, the Plaintiff must demonstrate that its claim has a good chance of success or a real possibility of success (Coastline at paras. 3 and 7; Chalhal v. Abdullah et al, 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 at para. 7; Horizon Entertainment Cargo Ltd. v. Marshall, 2019 25904 at para. 3). The court’s analysis is based 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 at para. 7; Horizon 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 at para. 7; Horizon at para. 3).
[17] I cannot conclude on the record before me that the Plaintiff’s claim has a good chance or a real possibility of success. The Plaintiff’s lengthy submissions on the merits reflect why this is not possible. The Plaintiff alleges misrepresentations, conspiracy and other improper conduct. To conclude that its claim has a good chance of success would require me to decide numerous disputed facts, make findings of credibility and reconcile many complex issues. This is not possible based on the pleadings and the documents and correspondence which comprise the record on this motion. Even with a more complete record, it would not be appropriate at this stage of the proceedings.
[18] For similar reasons, I also reject the Plaintiff’s argument that it would be unjust to order security because the Defendants are at least part of the cause of why the Plaintiff has insufficient assets. This too is a merits based argument requiring the court to make conclusions regarding the merits which are not possible or appropriate. Even if I were to conclude that the Defendants were in part to blame, it would 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 Distributions Inc., 2009 46451 (ON SC), [2009] O.J. No. 3680 (S.C.J.) 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 4299 (ON SC).
[19] The Plaintiff argues that the Defendants’ delay in pursuing this motion should preclude it from obtaining security for costs (Chalhal at paras. 33, 51-55; Wilson Young & Associates v. Carleton University et al, 2020 ONSC 4542 at para. 59). I agree with the Plaintiff that waiting until after the action was ready for trial raises concerns about timing (Wilson at para. 59). The Defendants submit that they did not understand the extent of the Plaintiff’s financial difficulties until after examinations for discovery. Given what was disclosed on discovery, I accept this in part, however, I am not convinced that the Defendants had to wait as long as they did to seek security. I conclude that the Defendants’ delay should not disentitle it to an order for security but rather, the willingness of the Defendants to defend this litigation for as long as they did without seeking security should be reflected in the quantum ordered.
[20] The Plaintiff asserted in oral submissions that it cannot pay 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 at para. 14). However, on the record the Plaintiff stated that if it is ordered to post security in the amount of $200,000 “or any amount in that range” it would not be able to proceed to trial. Given this evidence and the record and submissions before me including the insufficient disclosure set out above, I do not accept that any amount of security would prevent this action from proceeding to trial. The justness of the order and the balancing of the parties’ interests in seeing claims through to trial as against unenforceable costs awards is also reflected in the quantum of security ordered, not simply whether security is ordered in the first place (Rosin at paras. 38-39; Lipson at para. 48).
[21] Applying a holistic approach, considering all of the relevant factors and balancing the parties’ interests, I am satisfied that it is just in the circumstances to exercise the court’s discretion to order some security for costs. I am satisfied in the present case that an amount can be ordered which is not so onerous as to prevent the Plaintiff from advancing its claim to trial while providing the Defendants with some protection from an unenforceable costs award.
[22] 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 (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 et al, 2015 ONSC 4841 at para. 56; Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada, 2003 CarswellOnt 1906 at paras. 17-20). In most cases, security for costs will be ordered on a partial indemnity scale (Marketsure at paras. 13-18).
[23] I conclude that the amounts sought by the Defendants should be reduced based on a number of factors. There is also no reason to depart from the general rule that security for costs should be ordered on a partial indemnity scale. Having reviewed the Defendants’ Bills of Costs further reductions are necessary to more reasonably reflect the expected costs of defending a claim of this nature but with consideration of the serious allegations made by the Plaintiff and the potential for a higher costs award. The amount should also reflect the timing of this motion, namely, the Defendants’ knowledge of the failure of the Plaintiff’s business much sooner and more importantly, the Defendants’ willingness to proceed without security for costs until this late stage of the litigation. 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 the Plaintiff to post security for costs of $50,000 with respect to the Individual Defendants and $30,000 with respect to HBR on a partial indemnity scale within 90 days. The Plaintiff shall take no further steps in this action until the security is paid.
IV. Disposition and Costs
[24] 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: February 18, 2024
Associate Justice McGraw