Executive Summary: Key Legal and Evidentiary Issues

• Rule 56.01(1)(d) governed whether the plaintiff corporations had to post security for the defendants’ trial preparation and trial costs.
   
• Evidence of asset transfers, frozen accounts and the loss of all egg quota gave good reason to believe the plaintiffs could not pay the defendants’ costs.
   
• Delay of almost three years in bringing the motion did not defeat it, because the plaintiffs showed no prejudice, but the only marginally passable explanation reduced the amount ordered.
   
• LH Gray’s efforts to make itself judgment-proof were irrelevant, since a defendant’s means play no role on a security for costs motion.
   
• Private insurance covering some defence costs did not reduce the security, as the court applied the private insurance exception to the rule against double recovery.
   
• Quantum was set at $950,000 after the court trimmed the defendants’ bill of costs and discounted the result for delay.
   

Facts of the case

Sweda Farms Ltd. (Sweda), Best Choice Eggs Ltd. (Best Choice) and Tilia Transport Inc. (Tilia) sued Egg Farmers of Ontario (EFO), its former general manager Harry Pelissero, L.H. Gray & Son Limited (LH Gray), William Harding Gray, John Klei and the Estate of Johannes Klei, among others. Sweda, LH Gray and Burnbrae Farms Limited (Burnbrae) were competitors in producing, grading and marketing eggs within Canada’s supply management system. Only Burnbrae remains in business.

Two earlier actions, one started by Best Choice in 2005 against EFO’s predecessor and Mr. Pelissero, and another started by Sweda and related parties in July 2008 against Burnbrae entities and the Kleis, were consolidated in 2010 and transferred to Toronto. That consolidated action included LH Gray and Mr. Gray as defendants. The claim alleges a years-long conspiracy to undermine the plaintiffs’ business, and the damages sought now exceed $45 million. A plaintiffs’ expert report puts the business loss at $10 million.

In October 2013, the Burnbrae defendants obtained summary judgment dismissing the action against them, with substantial indemnity costs. Appeals failed, and after a separate action and a Mareva injunction, the Burnbrae defendants were paid about $520,000 in 2016.

On October 10, 2017, a consent order required the plaintiffs to post $225,000 as security for the defendants’ costs up to and including production, discovery and related motions. Discoveries took place between 2017 and 2019. In a January 26, 2021 email, defence counsel told the plaintiffs’ lawyer that once the action was set down for trial, the defendants would renew their motion for security for trial costs.

The plaintiffs retained new counsel on February 17, 2023, and attempted to file a trial record on July 27, 2023. Technical problems delayed successful filing until August 2025. The plaintiffs’ damages expert report was served on March 5, 2025. Defence counsel sought a consent order for further security on September 10, 2025, which the plaintiffs refused on November 21, 2025. A case management conference was requested on March 11, 2026, and an appointment with Long Trial Scheduling Court was set for December 9, 2026.

The defendants moved for security of $1,246,159, reduced from the $1,365,148 in their bill of costs after counsel conceded a rate miscalculation. At the hearing, the court refused to admit a late supplementary affidavit from Sweda’s president, Svante Lind, served seven days past the deadline and dealing only with the Gray defendants’ ability to pay a damages judgment. The court called the explanation for the late filing quite unsatisfactory and found it prejudicial to the defendants’ ability to reply.

Policy and legislative provisions at issue

Rule 56.01(1)(d) allows the court, on a defendant’s motion, to order security for costs “as is just” where the plaintiff is a corporation and “there is good reason to believe” it has insufficient assets in Ontario to pay the defendant’s costs. Under the two-step test, the defendant must first show good reason to believe the plaintiff lacks sufficient assets. Once that is shown, the plaintiff must prove with robust particularity that it has sufficient assets, or that an order would be unjust, for example because it is impecunious and its claim is not devoid of merit.

EFO’s directors’ and officers’ insurance policy, obtained before the litigation, covers EFO’s loss from its obligation to indemnify its directors and officers for claims arising from “Wrongful Acts” as defined in the policy. The insurer confirmed coverage for the defence costs of Mr. Pelissero and a former defendant, but not EFO itself. This coverage represents about 62% of the total defence costs for these defendants.

Reasoning and analysis

The plaintiffs did not contest the first step. In a 2016 cross-examination, Mr. Lind admitted that Sweda no longer operated and that its only income was encumbered rental income, that Best Choice was simply a payroll company with no income or assets, and that Tilia had no operations or income. He also admitted that Sweda sold its quota by 2010, paid him a large dividend that he assigned to the Marhaban Trust, and that the trust lent the money back to Sweda under a promissory note secured by a general security agreement. Remaining assets of the three plaintiffs were sold in 2011, with proceeds going to the trust.

According to Mr. Pelissero’s affidavit, EFO refused Sweda’s 2021 attempt to restart egg grading. The Agriculture, Food and Rural Affairs Appeal Tribunal dismissed Sweda’s appeal on March 1, 2022, and the Divisional Court dismissed its application for judicial review on March 29, 2023. Sweda sold its last remaining quota in 2022 and 2023 for $274,350, subject to about $68,000 in deductions. The court concluded that the plaintiffs’ finances had, if anything, worsened since 2017, and found good reason to believe they lacked sufficient assets in Ontario to pay the defendants’ trial costs.

With the onus shifted, the plaintiffs did not claim they had sufficient assets or that they were impecunious with a meritorious claim. Instead, they argued the order would be unjust because of delay and because LH Gray had made itself judgment-proof.

On delay, the court treated the motion as a natural continuation of the 2017 motion, which was brought in time. However, the hiring of new counsel in February 2023 and the July 2023 effort to set the action down for trial signalled that the plaintiffs had not abandoned the case and should have triggered the motion. Waiting until March 2026, almost three years later, amounted to delay. Neither the trial record problems nor the attempt to obtain consent justified it.

The main explanation, that the defendants were waiting for the plaintiffs’ expert report, was found only “marginally passable.” Given the serious, quasi-criminal nature of the allegations and the Burnbrae defendants’ success on summary judgment, the defendants had some reason to wait, though Mr. Walsh, LH Gray’s president, conceded in cross-examination that he knew all along the plaintiffs intended to go to trial. Prejudice was the greatest factor. The plaintiffs offered no evidence they would have acted differently had the motion come in 2023 or 2024, and the court inferred they had known since 2017 that a second motion was virtually inevitable if they carried on to trial after discovery.

Relying on Yaiguaje v. Chevron Corporation, 2017 ONCA 827, the plaintiffs said the delay revealed a tactic to stop the case from being heard on its merits. The court disagreed. Correspondence showed a consistent intention to bring the motion since 2017, and Mr. Lind’s statement that security posed a “substantial risk” of preventing adjudication was unsupported. No evidence showed that the plaintiffs’ shareholders, directors, officers, controlling persons or major creditors were impecunious and could not pay the security.

The same reasoning disposed of the argument about LH Gray. It was undisputed that LH Gray transferred its egg grading assets to a non-party, Gray Ridge Eggs Inc., on November 29, 2010. Mr. Gray announced in April 2025 that ownership of Gray Ridge Eggs and other Gray companies was being transferred to a third party in May 2025, and LH Gray sold its last farm in May 2026. A defendant’s ability to pay costs or damages, however, is irrelevant on a security for costs motion.

Chevron was distinguished on several grounds:

• This case concerns private economic interests rather than public interest litigation.
• The plaintiffs did not assert impecuniosity, and they had paid the Burnbrae defendants about $520,000.
• The merits were not seriously argued.
• The Gray defendants had taken reasonable interlocutory steps since their unsuccessful 2013 summary judgment motion.

Following 10760919 Canada Inc. dba Harbels Construction Ontario v. Crosslinx Transit Solutions Constructors, 2023 ONSC 887, the court required convincing proof of a tactical motive and found none.

Turning to insurance, the plaintiffs argued that securing costs already covered by EFO’s insurer would amount to double recovery. After raising the private insurance exception itself and receiving written submissions on September 4, 2026, the court applied that exception, citing JDC Ltd. v. CAW Ltd., 2022 ONSC 1611, and Cunningham v. Wheeler. Security for costs protects defendants from the damage of unrecoverable costs, and a discount would unfairly reward the plaintiffs, as the potential defaulting party, for EFO’s foresight in buying insurance. Cases on a plaintiff’s adverse costs insurance were not relevant, and the argument again improperly turned on the defendants’ means.

On quantum, the court found the case significantly complex. It cited the conspiracy allegations, a 75-day trial, a witness list of 42 people including experts, and the need to explore the egg supply management system after the parties failed to agree on a statement of facts about it.

Trial attendance time was reduced to 500 hours for Mr. Williams, 600 for Ms. Webster, 550 for Mr. Spurr, 50 for counsel for the Klei defendants and 40 for clerks. With adjusted rates for Mr. Spurr and the Klei defendants’ counsel, this produced $575,000 plus HST instead of the $698,100 plus HST claimed. Joint and several liability, as pleaded by the plaintiffs, justified counsel attending throughout, while the Klei defendants’ failure to file evidence significantly reduced their entitlement.

Pretrial and trial preparation was set at $260,000 plus HST, down from $396,750 plus HST. The court arrived at this figure by applying the defendants’ own formula of half the trial time to the reduced trial costs and halving the Klei defendants’ share. Post-trial work of $21,550 plus HST was uncontested.

Disbursements of $100,000 including HST were accepted in full. These comprised $90,000 for an expert report and expert attendance fee, with the court expecting two defence experts, and $10,000 for transportation and accommodation for an in-person Toronto trial. Together these components produced a baseline of $1,067,845, which the court reduced to $950,000 to reflect the only marginally passable explanation for delay.

A request to stage the payments, half before the pretrial and half before trial, was rejected. Staging had already happened through the 2017 order, and since trial preparation and trial form a continuum, halting partway because a second instalment went unpaid would be wasteful.

Ruling and overall outcome

The defendants succeeded on the motion. The plaintiffs were ordered to post $950,000 as security for the defendants’ trial preparation and trial costs within 90 days of September 21, 2026, a deadline the court considered reasonable in light of the December 9, 2026 Long Trial Scheduling Court appointment. The court indicated that the defendants deserve the costs of the motion but did not fix an amount. It encouraged the parties to settle the issue and otherwise set a schedule for written submissions of no more than four pages, due October 1 and October 14, 2026.