Executive Summary: Key Legal and Evidentiary Issues

• Corporate plaintiff RCTA was ordered to post $12,000 as security for costs due to lack of evidence showing its inability to raise funds.

• Appellants claimed their impecuniosity was caused by the alleged misconduct of the respondent, forming the basis of their lawsuit.

• The chambers judge accepted that the corporate plaintiff lacked assets but found insufficient evidence regarding its shareholders or funding options.

• Appellants alleged misrepresentation by a leasing agent about a business opportunity involving the premises.

• Lease and lease surrender agreements contained clauses that posed contractual defences for the respondent.

• The Court of Appeal dismissed the application for leave to appeal, finding no error in the chambers judge’s exercise of discretion.

Facts and outcome of the case

Red Carpet Tailoring and Alterations Inc. (RCTA), a tailoring business, entered into a commercial lease with Appia Development (Rosser) Limited for retail premises. RCTA was represented by its director, Jafar Alizada, who personally guaranteed the lease. Shortly after occupancy, RCTA fell behind on rent and eventually entered into a lease surrender agreement with Appia in February 2024. This agreement released both parties from liability, with Appia forgiving rent arrears and retaining a deposit.

Later, in December 2024, RCTA and Mr. Alizada filed a civil claim against Appia and a commercial real estate brokerage (ABC Company Inc., doing business as Colliers) and its leasing agent. They alleged that prior to signing the lease, the agent made misrepresentations about the retirement of the previous tenant, falsely suggesting that RCTA would inherit an established customer base. In reality, the former tailor had moved her business nearby and retained her clients, causing RCTA’s venture to fail. As a result, the plaintiffs claimed the business was never profitable and held the defendants liable under theories of misrepresentation, agency, and vicarious liability.

Appia responded with an application for security for costs, seeking $20,000 from each plaintiff. The chambers judge found that while the individual plaintiff Mr. Alizada could not pay and such an order would stifle his claim, no special circumstances justified an order against him. However, for RCTA, although it was conceded that the company had no assets or operations, the judge ordered a reduced amount of $12,000 in security for costs. The rationale was the absence of evidence about whether shareholders or backers could provide funding, which left open the possibility of abuse behind the corporate veil.

RCTA appealed this decision, requesting leave to appeal and a stay of the security order. The Court of Appeal for British Columbia dismissed both applications. The court held that the chambers judge correctly applied the legal principles governing security for costs against corporations, citing leading precedents including Kropp v. Swaneset Bay Golf Course Ltd. and Ocean Pastures Corporation v. Old Masset Economic Development Corporation. The court emphasized that mere lack of assets is insufficient; there must be clear evidence that a corporation has no access to funding from shareholders or investors.

Justice Griffin, writing for the Court of Appeal, noted that RCTA failed to provide any such evidence. The affidavit from Mr. Alizada only stated that the company had ceased operations and owned some equipment and inventory but did not explain the corporate structure or funding potential. Consequently, the court found no reasonable prospect that an appeal would succeed, and ruled that the order for security for costs would stand.

Appia Development (Rosser) Limited was the successful party in the appeal, and while no explicit costs were awarded in the Court of Appeal ruling, the underlying Supreme Court order mandated RCTA to post $12,000 as a condition for proceeding with its claim against Appia.