Executive Summary: Key Legal and Evidentiary Issues

• Defendants sought to increase security for costs from $20,000 to $60,000 based on alleged material changes since the original order.

• Material changes were found in increased trial duration (from 3 days to potentially 3.3–5 days) and the anticipated requirement for expert evidence.

• Consolidation of multiple related proceedings did not materially increase complexity of the Fiduciary Breach Action itself.

• The Consumer Proposal filed by the Romaniuk defendants was not accepted as an admission of liability in the instant proceedings.

• Plaintiff's financial records continued to support a finding of impecuniosity, with no material change from the original assessment.

• Court balanced the risk of stifling a legitimate claim against protecting defendants from an impecunious plaintiff's inability to pay costs.

Background of the dispute

Smartt Inc., an extra-provincially registered company governed by the Canada Business Corporations Act, filed the Fiduciary Breach Action on July 10, 2023, against Michael Romaniuk, Katherine Romaniuk (both former directors of Smartt), and Siphon Enterprises Corp. Smartt alleged that the defendants shared confidential information and competed with Smartt through another company, Solution Effect Inc., in breach of a non-disclosure agreement and fiduciary duties owed to Smartt.

The original security for costs order

On November 14, 2023, Justice Milman granted an order requiring Smartt to post $20,000 as security for costs, finding that Smartt was impecunious and may not be able to pay costs if its claim failed. Justice Milman relied on a three-day trial estimate and assumed no expert evidence would be required. The defendants later applied to increase this security to $60,000, citing material changes in circumstances.

Consolidation of related proceedings

Justice Leblanc issued the Consolidation Decision on September 25, 2025, consolidating Smartt's separate action against Solution Effect Inc. with the Fiduciary Breach Action. Additionally, two proceedings brought by the defendants against Smartt—the Oppression Action filed by Siphon and the Wrongful Dismissal Action filed by Michael Romaniuk—were ordered to be tried simultaneously with the Fiduciary Breach Action. The court found this consolidation would streamline proceedings and reduce overall trial time rather than add material complexity to the Fiduciary Breach Action.

The consumer proposal and alleged admissions

Smartt argued that a Consumer Proposal filed by the Romaniuk defendants in November 2024 under the Bankruptcy and Insolvency Act contained an admission of liability to Smartt of at least $11,000, which would demonstrate the defence had no arguable case. Justice Lachance declined to accept the Consumer Proposal documentation as an admission of liability, noting that neither party provided statutory or judicial authority explaining the implications of the document. The court found the notations could simply identify potential liabilities rather than constitute actual admissions.

Assessment of material changes

Justice Lachance found that the consolidation did not materially change the complexity of the Fiduciary Breach Action, as Solution Effect Inc. was already implicated in the original pleadings. However, two material changes were established: the increase in estimated trial duration from three days to potentially 3.3–5 days when apportioned among the consolidated actions, and the likelihood that expert evidence would be required given the complexity and financial nature of the claims. The plaintiff's own bill of costs included $50,000 for experts, supporting this finding.

Plaintiff's financial position

The court found no material change in Smartt's financial situation. Both parties presented the same types of financial records that were before Justice Milman, with the plaintiff arguing these demonstrated its ability to pay costs while the defendants contended they showed continuing impecuniosity. Justice Lachance noted that the plaintiff could not argue both that its financial situation justified removing the security requirement and that there had been no material change from the original assessment. The court deferred to Justice Milman's original finding that Smartt was unlikely to satisfy any costs award.

The ruling and outcome

Justice Lachance granted the defendants' application in part, ordering Smartt to post an additional $10,000 as security for costs, bringing the total to $30,000 rather than the $60,000 sought by the defendants. The court rejected the defendants' draft bill of costs as inflated due to its reliance on a 15-day trial estimate and considered mitigating factors including the link between Smartt's impecuniosity and the alleged misconduct, the existence of the defendants' counter-proceedings, and the risk of stifling a legitimate claim. The additional security must be paid within 30 days to Smartt's counsel to be held in trust. The defendants succeeded only partially, obtaining significantly less than requested, and the court allowed both parties 30 days to request a hearing on costs; otherwise, each party bears its own costs of the application.