Protea Consultax Inc. v. Air Canada, 2018 BCSC 995

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Protea Consultax Inc. v. Air Canada, 2018 BCSC 995 Date: 20180606 Docket: S157290 Registry: Vancouver Between: Protea Consultax Inc. Plaintiff And Air Canada Defendant Before: The Honourable Madam Justice Murray Oral Reasons for Judgment Counsel for the Plaintiff: G. BuchananCounsel for the Defendant: M. DeryN. PimentelPlace and Date of Hearing: Vancouver, B.C. June 5, 2018Place and Date of Judgment: Vancouver, B.C.

June 6, 2018 Introduction [1] The defendant seeks an order that within seven days the plaintiff post security for costs in the amount of $43,529.35 and thatthis action be stayed if such payment is not made. [2] The trial is scheduled to commence June 18, 2018. The Law [3] The court has jurisdiction to require the plaintiff to post security for costs pursuant to s. 236 of the Business Corporations Act,S.B.C. 2002, c. 57 [BCA] which provides: 236.

If a corporation is the plaintiff in a legal proceeding brought before the Court, and if it appears that the corporation will be unable topay the costs of the defendant, if the defendant is successful in the defence, the court may require security to be given by the corporationfor those costs, and may stay all legal proceedings until the security is given. [4] The purpose of an order for security for costs is to protect a defendant from the likelihood that, in the event of its success, itwill be unable to recover its costs from the plaintiff: Fat Mel’s Restaurant Ltd. v.

Canadian Northern Shield Insurance Co. (1993), (BC CA), 76 B.C.L.R. (2d) 231, B.C.J. No. 507. [5] The legal test to be applied on an application for security for costs has been set out by our courts in this way:

a) the defendant must make out a prima facie case that the plaintiff would be unable to pay the defendant’s costs if the plaintiff’sclaim fails;

b) the plaintiff may resist an order for security by showing that it has sufficient assets to satisfy an award for costs, or that thedefendant has no arguable defence to its claim;

c) if a security is warranted, the amount is discretionary; and

d) the court can consider whether an order for security would visit undue hardship on a plaintiff such that it would prevent theplaintiff’s case from being heard. This has also been described as the security order “stifling” the plaintiff’s claim.

[6] There is a lower threshold to be met by a defendant seeking security for costs from a corporate plaintiff than from an individualplaintiff: Radha Holdings Ltd. v. Quantum Properties Brooklyn Inc., 2016 BCSC 1364 at para. 27. [7] In Kropp v. Swaneset Bay Golf Course (1997), (BC CA), 29 B.C.L.R. (3d) 252, B.C.J. No. 593 (C.A.), atpara. 17, our Court of Appeal set out a number of principles that may guide the application of s. 236 as follows: 1. The court has a complete discretion whether to order security, and will act in light of all the relevant circumstances; 2.

The possibility or probability that the plaintiff company will be deterred from pursuing its claim is not, without more, sufficient reasonfor not ordering security; 3. The court must attempt to balance injustices arising from use of security as an instrument of oppression to stifle a legitimate claim onthe one hand, and use of impecuniosity as a means of putting unfair pressure on a defendant on the other; 4. The court may have regard to the merits of the action, but should avoid going into detail on the merits unless success or failureappears obvious; 5.

The court can order any amount of security up to the full amount claimed, as long as the amount is more than nominal; 6. Before the court refuses to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that, in allthe circumstances, it is probable that the claim would be stifled; and 7.

The lateness of the application for security is a circumstance which can properly be taken into account. [8] To succeed in showing that an order would stifle the action the plaintiff must do more than show that it has no assets: Kropp atpara. 22. [9] In order to prove impecuniosity the plaintiff must show some evidence that it will be unable to raise money to pay security forcosts and prosecute its claim: Honda Canada Inc. v. Tonka Motorcycle Sales Ltd., [1986] B.C.J.

No. 842 (C.A.). [10] A party may avoid an order for security for costs where the financial hardship that gives rise to their inability to post securityfor costs is due to the actions of the applicants seeking that security. Alternatively, this is a factor which may be considered in setting thequantum of the security: Tour-Mate Technologies Corp. v. Syntronix Systems Ltd., [1993] B.C.J.

No. 599 (S.C.), at para. 21. [11] The issue of delay really comes into relief if there is evidence that an order for security would stifle the action: Kropp atpara. 25. [12] Expanding on the third principle of balancing interests, in Apex Mountain Resort Ltd. v. British Columbia, [1998] B.C.J.No. 1918 (S.C.), Bauman, J. as he then was, accepted this practice: [30] The court must carry out a balancing exercise. On the one hand it must weigh the injustice to the plaintiff if prevented frompursuing a proper claim by an order for security.

Against that, it must weigh the injustice to the defendant if no security is ordered and atthe trial the plaintiff's claim fails and the defendant finds himself unable to recover from the plaintiff the costs which have been incurredby him in his defence of the claim.

The court will properly be concerned not to allow the power to order security to be used as aninstrument of oppression, such as by stifling a genuine claim by an indigent company against a more prosperous company, particularlywhen the failure to meet that claim might in itself have been a material cause of the plaintiff's impecuniosity (see Farrer v Lacy, Hartland& Co (1885) 28 Ch D 482 at 485 per Bowen LJ).

But it will also be concerned not to be so reluctant to order security that it becomes aweapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on the moreprosperous company (see Pearson v Naydler [1977] 3 All ER 531 at 537, [1977] 1 WLR 899 at 906). (emphasis added) [13] With that law in mind I turn to consider the facts of this application. Analysis [14] The plaintiff concedes that it would be unable to pay costs if it is unsuccessful at trial. It further does not dispute that thedefendant may have an arguable defence to the claim.

Notwithstanding that it argues that an order for security for costs should not bemade for several reasons: 1) The lateness in bringing this application. If the order is granted the plaintiff has only seven days to raise the funds. The plaintiffstresses that although they filed their notice of civil claim on September 3, 2015 and the notice of trial April 21, 2017, the defendantwaited until March 8, 2018, just over three months before the trial date, to contact plaintiff’s counsel to set an examination for discoveryof Mr. Murdoch, one of the principals of Protea.

On the first day of discoveries, March 28, 2018, the defendant asked 82-year oldMurdoch 1300 questions over four and a half hours.

In that time they received answers that should have alerted them to the fact that theplaintiff company may be impecunious, but they chose to not ask more specific questions until the second day of discoveries on May 10.Even then, it was not until May 23, 2018, 17 business days before trial, that the defendant advised the plaintiff that they were going tobring this application; 2) Although not specifically stated in the affidavits of the principals of Protea, if the order for costs is made the plaintiff’s abilityto pursue its legitimate claim will be stifled; 3) The defendant’s failure to pay the plaintiff caused or contributed materially to the plaintiff’s impecuniosity as the defendantwas the plaintiff’s biggest client and they owed the plaintiff a significant amount of money;

4) the defendant is in breach of a court order regarding disclosure. In October 2017 during their examination for discovery of the defendant’s representative, plaintiff’s counsel requested disclosure. No disclosure was forthcoming. On May 14, 2018, on application by the plaintiff, Master Scarth ordered that the disclosure be made by May 25, 2018. The plaintiff agreed to an extension until May 28. Disclosure has still not been made. The plaintiff raises concern that this application is being brought for an ulterior motive, that is that the defendant is not prepared for trial.

In support of this proposition they point to the fact that the defendant was late in filing a list of documents and has never amended it although it is deficient; 5) While this is a corporate plaintiff, the company is just being kept alive for the purpose of this lawsuit. Little business has been conducted in the past few years, in fact total income for the last three years was approximately $30,000. It would fall on the two principals, both elderly and in ill health, to come up with the money.

It is clear from the evidence before me that neither have assets from which to draw for security for costs; and 6) the plaintiff is prepared for trial including having two witnesses lined up to testify via video-link. [ 15 ] The defendant applicant takes the position that there is no evidence before this Court that the plaintiff’s claim would be stifled if security for costs was ordered. [ 16 ] Both principals of Protea deposed to the following: I am not aware of any way which Protea would raise substantial funds within seven days of this application or ahead of trial.

However I would make every effort possible on behalf of Protea if the Court orders Protea to post security for a potential costs award. [ 17 ] That is not enough argues the defendant; it must be specifically stated that the action would be frustrated by such an order. [ 18 ] Further, they argue that there is no evidence to prove that Air Canada caused the plaintiff’s financial woes. While Air Canada was their biggest and most lucrative contract there were several factors that went into their business decline including the changes to the excise law. [ 19 ] I disagree with these arguments.

I conclude from the evidence before me that the plaintiff’s action will likely be frustrated if the order sought is made. It is clear from all of the evidence that the company does not have the resources to pay security and nor do the principals. Under the order sought, if the security is not paid the action would be stayed. [ 20 ] It is contrary to the interests of justice to demand that a robotic recitation of a phrase is required to succeed in an application. That the plaintiff’s claim would be stifled is a conclusion readily drawn from the evidence.

The fact that the two principals say that they would try to raise the money should an order be made in my view merely shows their commitment to the action. It is clear from the evidence that they would have little chance, if any of doing so – particularly in a matter of days. [ 21 ] I am also satisfied that the defendant might have been a cause of the plaintiff’s impecuniosity. As stated previously the defendant was the plaintiff’s biggest and most lucrative contract.

The plaintiff seeks over $700,000 in income owing to them in this claim. [ 22 ] There are two other factors that weigh heavily in my consideration of this matter. [ 23 ] The first is the lateness of this application. Waiting until eight working days before the trial date, which has been scheduled for almost a year, places undue hardship on the plaintiff and makes it virtually impossible for it to satisfy an order should one be made.

I agree with the plaintiff that the delay was caused solely by the defendant in not conducting their examination for discovery in a timely manner and not following up on evidence obtained on the first day of the discovery of Mr. Murdoch. [ 24 ] The other factor is the conduct of the defendant. Disclosure requests were made on October 27, 2017 during the examination for discovery. That is over seven months ago. Those requests have still not been complied with.

The defendant is in breach of a court order to make such disclosure and also in breach of an agreement to extend the court ordered deadline made with counsel. The explanation provided to me that Air Canada is still working on getting the disclosure and should have it shortly is unsatisfactory and somewhat alarming. Moreover, the defendant has dragged its feet with respect to providing a list of documents, again necessitating the plaintiff to make application for same.

To date the defendant’s list of documents lists 19 documents and has never been amended while the plaintiff’s has been amended 8 times and lists 167 documents. [ 25 ] The purpose of s. 236 is to prevent injustices and unfair pressure on a party.

As stated by Bauman J. in Apex , the court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, such as by stifling a genuine claim by an indigent company against a more prosperous company. [ 26 ] Having considered all of the circumstances I am satisfied that the defendant, the more prosperous company, through its conduct during the course of this litigation, including this eleventh hour application, is attempting to put unfair pressure on the plaintiff. [ 27 ] In these circumstances it would be unjust to order the plaintiff to pay security for costs.

Conclusion [ 28 ] The defendant’s application is dismissed. [ 29 ] Costs of this application against the defendant in any event of the cause, payable forthwith. “The Honourable Madam Justice Murray”