Executive Summary: Key Legal and Evidentiary Issues

• Plaintiff church alleged fraud, breach of duty, and oppression in connection with a property acquisition agreement.

• Defendants sought security for costs under Rule 56.01(d) based on plaintiff’s corporate status and financial instability.

• Court considered whether the plaintiff met the high evidentiary threshold to prove impecuniosity.

• Financial disclosure via charitable tax returns and affidavit evidence was accepted as sufficient.

• The plaintiff’s claims were found to surpass the low threshold of not being plainly devoid of merit.

• Motion for security for costs was dismissed to preserve access to justice and avoid unfairness.

Facts of the case

River City Christian Reformed Church is a not-for-profit religious organization incorporated under the Canada Not-for-Profit Corporations Act (CNCA). Seeking a permanent home for its congregation, it explored purchasing a church property in Cambridge, Ontario. After failed direct offers to purchase, the plaintiff engaged with Graham Singh of Trinity Centres Foundation (TCF), who proposed a joint structure. This structure resulted in the formation of a new entity, Trinity Centres Cambridge (TCC), which would purchase the property, lease it to the plaintiff, and offer an option to buy.

The plaintiff accepted this arrangement and raised $506,200 from its congregation to fund the option payment. These funds were provided to TCC. The final purchase, made in 2020, was primarily financed through a mortgage from Coldpoint Holdings Ltd., supplemented by a portion of the plaintiff’s funds. However, a large part of the plaintiff’s contribution was redirected to pay legal fees to Miller Thomson LLP and management fees to TCF. The plaintiff later learned it would not be acquiring the property and filed suit alleging misrepresentation, breach of duty, conflict of interest, oppression, and unjust enrichment.

The plaintiff’s claim included a request to annul the Option Agreement, a declaration of oppression under the CNCA, leave to bring a derivative action on behalf of TCC, and damages for the misused funds. After the church’s unsuccessful attempt to appoint a receiver, a court-ordered receivership led to the sale of the property. The plaintiff did not recover any of the donated funds.

Court’s legal analysis and outcome

The defendants, excluding Coldpoint Holdings, brought a motion for security for costs under Rule 56.01(d) of the Rules of Civil Procedure. They argued that the plaintiff, as a not-for-profit corporation, lacked sufficient assets in Ontario to pay any potential cost award and had failed to demonstrate impecuniosity or that its claims had merit.

The court first acknowledged that the plaintiff’s corporate status and limited resources triggered Rule 56.01. The question then became whether the plaintiff could establish impecuniosity and that its claim was not plainly devoid of merit.

The plaintiff relied on its Registered Charities Information Returns (T3010s) filed with the CRA and the affidavit of its board chair, James Carroll. These showed a four-year trend of declining revenues and dwindling surplus, with the church operating at a deficit. Carroll also testified to the church’s diminished congregation, donor fatigue, and reputational damage following the loss of its fundraising for a permanent home. The court accepted this evidence and concluded that the plaintiff was genuinely impecunious.

The court also examined whether the plaintiff’s claim met the low bar of not being plainly devoid of merit. It found that the church had pleaded material facts, including the possibility that Miller Thomson had owed it a duty of care despite formal denials of representation, and that Singh and other defendants had made representations—some in writing—that induced reliance. The court also noted credible claims of conflict of interest, including the approval of management fees at a meeting where the plaintiff’s representative was absent.

Justice Valente emphasized that credibility and factual disputes could not be resolved at this stage, especially given that discovery had not yet taken place. Importantly, the court found it would be unjust to potentially bar the plaintiff’s claims while still leaving it exposed to liability under the Option Agreement in parallel receivership proceedings.

Disposition

The court dismissed the defendants’ motion for security for costs, finding that the plaintiff had established both its impecuniosity and that its claims were not plainly without merit. The court reserved the issue of costs pending written submissions, urging the parties to resolve it independently.