Article

Note: Due to an alleged software platform failure, Montrose Hammond (Plaintiff), a corporation investment fund manager, incurred stock trading losses of over CAD 1 million and lost its ability to conduct trade for six days. It sued its technology services providers, CIBC World and Belzberg Technologies Inc. (Defendants) for the losses.

Fearing that Plaintiff had insufficient assets in Ontario to pay Defendants' legal costs Defendants moved to have Plaintiff secure the estimated costs of litigation with standby LCs totaling CAD 371,992. Plaintiff claimed it was unable to post security in the form of an LC as a result of the trading losses.

The Master dismissed Defendants' motion because it would be prohibitively expensive and "require [Plaintiff's principals] to cash in their registered retirement savings plans with heavy adverse tax consequences for them, or which would require [one of Plaintiff's principals] to sell or encumber the home in which she lived. He felt that it would not be just to require them to use their other assets to post security because those assets were required and would be depleted in paying the Plaintiffs' lawyers to prosecute the action, to pay living expenses and, in the case of [one of Plaintiff's principals], to pay down her line of credit and perhaps her liability to the Canada Revenue Agency." (¶21) The Master concluded that since Plaintiff, acting through its principals, was impecunious and that its case was not devoid of merit, it would be in the interest of justice to relieve Plaintiff from having to post security for costs.

On appeal, the Ontario Superior Court of Justice, Perell, J., affirmed, finding that the Plaintiff was impecunious and that its case was not devoid of merit. The Judge concluded that it would be just to relieve Plaintiff from having to post security for costs.

The Judge stated that Rule 56.01 (1)(d) of the Ontario Rules of Civil Procedure provides that "the court may order such security for costs as is just where it appears the plaintiff is a corporation or nominal plaintiff and there is good reason to believe that it has insufficient assets in Ontario to pay the defendant's costs." (¶ 32) The Judge ruled that although it was conceded that rule 56.01 (1)(d) applies to the circumstances of this case, if the non-moving party shows a real possibility of success, or that they do not have the means to provide the security, then the court may conclude that justice demands the non-moving party not be required to post security, so that the case may move forward.

[JEB/sb]

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