Court of Appeal for Ontario
Date: 2019-07-05
Docket: M50445 (C66385)
Motions Judge: Brown J.A.
Between
Health Genetic Center Corp. o/a Health Genetic Center and Yuri Melekhovets
Plaintiffs (Appellants/Responding Parties)
and
New Scientist Magazine, Peter Aldhous and Reed Business Information Ltd.
Defendants (Respondents/Moving Parties)
Counsel
Sandra Barton, for the moving parties/respondents
Karen Zvulony, for the responding parties/appellants
Heard: June 25, 2019
Reasons for Decision
I. Overview
[1] The appellants, Health Genetic Center Corp. o/a Health Genetic Center and Yuri Melekhovets, brought a defamation action against the respondents, Peter Aldhous and Reed Business Information Ltd. The appellants alleged that an article in the New Scientist Magazine that questioned the reliability of a blood paternity test they marketed defamed them. After a 13-day hybrid trial, the trial judge dismissed their action: 2018 ONSC 7224. The trial judge awarded the respondents costs of the action in the amount of $1,478,766.64: 2019 ONSC 575.
[2] The appellants appeal the dismissal of their action and the award of costs. The appellants have perfected their appeal.
[3] Prior to trial, the appellants paid into court $300,000 as security for costs. The respondents now move for an order requiring the appellants to pay more: (i) $85,000 as security for the costs of the appeal; and (ii) $1,178,766.64 as security for the costs awarded at trial. Alternatively, the respondents seek an order lifting the automatic stay of the cost award pursuant to r. 63.01(5) of the Rules of Civil Procedure.
[4] The appellants oppose the motion.
[5] The respondents contend security for costs should be ordered for two main reasons: (i) the appeal is frivolous and vexatious; and (ii) the appellants have insufficient assets to pay the costs of the appeal. The respondents rely upon a combination of rr. 61.06(1)(a), (b) and (c), r. 56.01, including rr. 56.01(1)(d) and (f), and s. 12 of the Libel and Slander Act, R.S.O. 1990, c. L.12. Under the latter provision, the respondents contend that it is not necessary to demonstrate that the appeal is vexatious.
[6] I will start my analysis by considering the respondents' claim under r. 61.06(1)(a), which provides that: "In an appeal where it appears that, (a) there is good reason to believe that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeal … a judge of the appellate court, on motion by the respondent, may make such order for security for costs of the proceeding and of the appeal as is just."
[7] I will then consider the respondents' claim under r. 61.06(1)(b), which deals with the situation where "an order for security for costs could be made against the appellant under rule 56.01". The respondents rely on r. 56.01(1)(f) – namely, where "statute entitles the defendant or respondent to security for costs." The statute the respondents rely on is s. 12 of the Libel and Slander Act. Next, I will deal with the respondents' claim under r. 61.06(1)(c). Finally, I will consider their alternative request to lift the automatic stay of the trial costs award.
II. Claim for Security of Costs Under R. 61.06(1)(a)
Governing Principles
[8] An order for security of costs on appeal under r. 61.06(1) is not a routine order: Schmidt v. Toronto Dominion Bank (1995), 24 O.R. (3d) 1 (C.A.), at p. 5. The principles governing a motion for security for costs on appeal are summarized in Yaiguaje v. Chevron Corporation, 2017 ONCA 827, 138 O.R. (3d) 1, at paras. 18, 19, 22, 24 and 25:
Rule 61.06 is permissive, not mandatory. In an appeal, there is no entitlement as of right to an order for security for costs. Even where the requirements of the rule have been met, a motion judge has discretion to refuse to make the order: Pickard v. London Police Services Board, 2010 ONCA 643, 268 O.A.C. 153, at para. 17.
In determining whether an order should be made for security for costs, the "overarching principle to be applied to all the circumstances is the justness of the order sought": Pickard, at para. 17 and Ravenda Homes Ltd. v. 1372708 Ontario Inc., 2017 ONCA 556, at para. 4.
In deciding motions for security for costs judges are obliged to first consider the specific provisions of the Rules governing those motions and then effectively to take a step back and consider the justness of the order sought in all the circumstances of the case, with the interests of justice at the forefront. While the motion judge concluded that an order for security for costs would be just, with respect, she failed to undertake the second part of that analysis. The failure to consider all the circumstances of the case and conduct a holistic analysis of the critical overarching principle on the motion before her constitutes an error in principle. It therefore falls to this panel to conduct the necessary analysis of the justness of the order sought.
Courts in Ontario have attempted to articulate the factors to be considered in determining the justness of security for costs orders. They have identified such factors as the merits of the claim, delay in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns, and the public importance of the litigation. See: Hallum v. Canadian Memorial Chiropractic College (1989), 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General) (2005), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 99 O.R. (3d) 55 (S.C.); Wang v. Li, 2011 ONSC 4477 (S.C.); and Brown v. Hudson's Bay Co., 2014 ONSC 1065, 318 O.A.C. 12 (Div. Ct.).
While this case law is of some assistance, each case must be considered on its own facts. It is neither helpful nor just to compose a static list of factors to be used in all cases in determining the justness of a security for costs order. There is no utility in imposing rigid criteria on top of the criteria already provided for in the Rules. The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.
Good Reason to Believe the Appeal is Frivolous and Vexatious
[9] In ascertaining whether "there is good reason to believe that the appeal is frivolous and vexatious", the court need not reach a definitive conclusion. Rather, the language "suggests a tentative conclusion of absence of merit": York University v. Markicevic, 2017 ONCA 651, at para. 24.
[10] The case law indicates that in order to satisfy the "frivolous and vexatious" element of r. 61.06(1)(a), the moving party must demonstrate two matters. First, the moving party must show that there is "good reason" to believe that the appeal appears to be devoid of merit: Schmidt, at p. 5. In this regard, the cases emphasize that the moving party need not go so far as demonstrating that the appeal is, in fact, devoid of merit, only that there is good reason to believe that it appears to be devoid of merit. A fine distinction, perhaps, but one repeated in the jurisprudence.
[11] Second, the moving party must demonstrate that there is something that supports the conclusion that the appeal is "vexatious" in the sense that it is taken to annoy or embarrass the respondent or has been conducted in a vexatious manner: Chinese Publications for Canadian Libraries Ltd. v. Markham (City), 2017 ONCA 968, at para. 9. The Schmidt case talks in terms of the presence or absence of an oblique motive for the launching of the appeal: at p. 6.
Application of the Principles
[12] On the record before me, I have no hesitation in concluding that the appeal is not vexatious. The appellants engaged the process of the court to seek a remedy for what they considered to be untruthful and damaging statements about their reputation. They lost at trial. Nevertheless, they enjoy a statutory right of appeal. They are availing themselves of it. Mr. Melekhovets deposed that the driving factor for bringing the appeal is "to vindicate my reputation and the reputation of HGC." That is not an improper purpose or oblique purpose. The appellants have pursued their appeal in an appropriate litigation manner and have perfected it. I see nothing that suggests the appellants have appealed in order to annoy or embarrass the respondents or that their appeal had been conducted in a vexatious manner.
[13] As to the merits of the appeal, in their initial notices of appeal the appellants advanced numerous grounds of appeal alleging errors of fact and law by the trial judge in giving effect to the respondents' defences of justification, qualified privilege, fair comment, and responsible communication and in his treatment of the expert evidence. The appellants have replaced those notices of appeal with a second supplementary notice that advances one basic ground of appeal: they did not receive a fair trial. They contend that the trial judge's conduct gave rise to a reasonable apprehension of bias, on the basis of which a new trial should be ordered.
[14] Their appeal factum identifies roughly twenty instances of conduct by the trial judge that, they contend, exhibit biased conduct. The appellants group those instances into five categories: (i) disruptions to the fair presentation of evidence; (ii) the judge was not open to hearing plaintiff's counsel at times; (iii) the judge appeared to favour defence counsel; (iv) helping defence counsel; and (v) the trial judge accepted candies from defence counsel. The appellants submit that taken together, these instances of conduct by the trial judge give rise to a reasonable apprehension of bias.
[15] The respondents argue that each alleged instance of bias is demonstrably false or wrenched from its context. However, my task on this interlocutory motion is not to inquire into and determine the merits of each alleged instance of bias. My task is to ascertain whether there is good reason to believe that the appeal is devoid of merit so as to support, in part, a conclusion that the appeal is frivolous and vexatious.
[16] Judges benefit from a presumption of integrity, which acknowledges that they are bound by their judicial oaths and will carry out their duties in accordance with their legal responsibilities. The presumption can be rebutted by a judge's comments or conduct, but the strong presumption of judicial impartiality is not easily displaced. A reasonable apprehension of bias requires a real likelihood or probability of bias. The test is an objective one, viewed from the perspective of an informed and reasonable observer. It is a high burden. In assessing whether a judge's presumption of impartiality has been displaced, his or her individual comments or conduct during the hearing of a matter should not be considered in isolation but within the context of the entire proceedings: Stuart Budd & Sons Limited v. IFS Vehicle Distributors ULC, 2016 ONCA 60, 129 O.R. (3d) 37, at paras. 45-50; Chippewas of Mnjikaning First Nation v. Chiefs of Ontario, 2010 ONCA 47, 265 O.A.C. 247, leave to appeal refused [2010] S.C.C.A. No. 91, at paras. 230-243.
[17] I am not persuaded that there is good reason to believe that the appeal is devoid of merit.
[18] One group of allegations of bias advanced on appeal involves the degree to which the trial judge questioned various witnesses during their examinations-in-chief and cross-examinations. There was a context in which that questioning occurred. This was a hybrid trial that required the trial judge to read large volumes of written evidence in advance of trial which, no doubt, raised questions in the trial judge's mind about the meaning or significance of pieces of evidence. As well, the parties had entered into a pre-trial agreement about the ability of the trial judge to ask questions on the written evidence. Whether the trial judge's questioning crossed any line in this hybrid trial will require an inquiry by the panel into the record. At this stage, on the materials before me, I cannot conclude that there is good reason to believe that that ground of appeal is frivolous within the meaning of the test for security for costs.
[19] Accordingly, for these reasons, I conclude that the respondents have not demonstrated that there is good reason to believe that the appeal is frivolous and vexatious.
Good Reason to Believe the Appellants Have Insufficient Assets
[20] Given the conjunctive nature of the elements of r. 61.06(1)(a), that finding is sufficient to dispose of the respondents' claim for relief under that rule. However, I will go on to consider whether there is good reason to believe that the appellants have insufficient assets in Ontario to pay the costs of the appeal.
[21] The first question to ask is: what is a reasonable estimate of the respondents' costs of this appeal?
[22] The respondents submit a bill of costs that estimates anticipated fees for the appeal at about $130,000 on a substantial indemnity basis or $86,100 on a partial indemnity basis. I am not persuaded that those estimates of costs are either fair or reasonable for purposes of this motion.
[23] First, the bill contemplates three lawyers working on this file. The respondents can ask their lawyers to assign as many timekeepers or billers to this file as they wish. However, when assessing the reasonableness of costs for the purposes of security for costs, an objective review of the estimate is made. I regard this as a two lawyer file - one senior and one junior – and not a three-lawyer file.
[24] Second, the bill of costs includes approximately $18,000 for post-hearing costs. That is over-reach. In my view, given the narrowness of the issues now at play on this appeal and the familiarity of respondents' appeal counsel with the record – after all, they were counsel at trial – a fair and reasonable amount of partial indemnity appeal costs for purposes of this motion would be $30,000. My analysis will proceed on that basis.
[25] The second question to ask is whether there is good reason to believe that the appellants have insufficient assets in Ontario to pay the estimated costs of the appeal. My review of the record reveals that the appellants clearly have sufficient assets in Ontario to pay costs of the appeal in the amount of $30,000.
[26] Mr. Melekhovets, the individual appellant and a principal of the corporate appellant, filed an affidavit on this motion detailing his personal assets and the financial circumstances of the corporate appellant. The respondents contend that Mr. Melekhovets should have provided further details about aspects of his personal finances, as well as transfers between the corporate appellant and a related company, HealthGene Corp. Yet, the respondents did not cross-examine Mr. Melekhovets on the adequacy of the financial disclosure in his affidavit. In those circumstances, I give no effect to their argument about inadequate financial disclosure.
[27] Mr. Melekhovets has lived and worked in Ontario since 1991. His evidence discloses that he has net equity in real property assets located in Ontario of slightly more than $500,000.
[28] The corporate appellant operates out of premises in Ontario. Unaudited financial statements for the corporate appellant were filed covering the financial years 2015 through 2018, the last period for which statements have been prepared. The statements show that over the period the company's annual revenue rose from $670,000 to just over $1 million and retained earnings increased from $18,274 to $136,386. During that period, net earnings were modest but rising, save for the year ended January 31, 2018 when the company experienced a small net loss.
[29] Given that evidence, I am satisfied that there is good reason to believe that the appellants have sufficient assets in Ontario to pay the estimated costs of appeal of $30,000.
Conclusion
[30] For these reasons, I conclude that the respondents have not established the elements set out in r. 61.06(1)(a). Accordingly, I need not "take a step back and consider the justness of the order sought in all the circumstances of the case, with the interests of justice at the forefront," at least with respect to the claim under r. 61.06(1)(a).
III. Claim for Security of Costs Under R. 61.06(1)(b)
[31] The respondents also base their claim on r. 61.06(1)(b), which gives this court the power to order security for costs where it appears that an order for security for costs could be made against the appellant under r. 56.01. The respondents rely on two aspects of r. 56.01.
[32] First, the respondents, relying on r. 56.01(1)(d), argue that it appears the corporate appellant has insufficient assets in Ontario to pay the costs of the appeal. I have found to the contrary above.
[33] Second, the respondents point out that r. 56.01(1)(f) grants the discretion to order security for costs where it appears that "a statute entitles the defendant or respondent to security for costs." The respondents contend that s. 12(1) of the Libel and Slander Act entitles them to security for costs. That section provides:
12 (1) In an action for a libel in a newspaper or in a broadcast, the defendant may, at any time after the delivery of the statement of claim or the expiry of the time within which it should have been delivered, apply to the court for security for costs, upon notice and an affidavit by the defendant or the defendant's agent showing the nature of the action and of the defence, that the plaintiff is not possessed of property sufficient to answer the costs of the action in case judgment is given in favour of the defendant, that the defendant has a good defence on the merits and that the statements complained of were made in good faith, or that the grounds of action are trivial or frivolous, and the court may make an order for the plaintiff to give security for costs, which shall be given in accordance with the practice in cases where a plaintiff resides out of Ontario, and the order is a stay of proceedings until the security is given. [Emphasis added.]
[34] On its face, s. 12(1) deals with security for costs in an action, not on an appeal. Whether the language of r. 61.06(1)(b) is sufficient to make s. 12(1) applicable to an appeal is not a matter on which I need make any definitive pronouncement for the simple reason that I regard that statutory language as functionally equivalent to r. 61.06(1)(a)'s use of the terms "frivolous" and "insufficient assets". I have found that the respondents have not met those requirements of r. 61.06(1)(a). That finding applies equally to their claim based on s. 12 of the Libel and Slander Act through r. 61.06(1)(b).
IV. Claim for Security of Costs Under R. 61.06(1)(c)
[35] Finally, the respondents submit that security for costs should be ordered "for other good reason" pursuant to r. 61.06(1)(c). Pointing to the decision of this court in Henderson v. Wright, 2016 ONCA 89, 345 O.A.C. 231, at para. 27, the respondents submit that in the present case security should be ordered because the appeal has a low prospect of success and it would be nearly impossible to collect costs from the appellants.
[36] I see no resemblance between this case and the facts in Henderson. Here, the individual appellant has disclosed the location and value of his residential realty in Ontario. He has filed copies of notices of assessment for his personal tax returns – a far cry from the "all cash" appellant in Henderson. The financial statements of the corporate appellant have been filed. It is a going concern in Ontario and has been for many years. The appellants have paid all costs ordered in this proceeding, save for the award of trial costs in respect of which they seek leave to appeal. And the appellants already have posted $300,000 by way of security for costs. In those circumstances, I see no "other good reason" to order security for the costs of the appeal.
V. Conclusion on Rule 61.06 Motion
[37] For those reasons, I am not satisfied that the respondents have established the elements required to order security for costs under any of rr. 61.06(1)(a), (b), or (c). As a result, I need not consider whether under those rules any order for security for costs should also include security for the costs awarded at trial.
VI. Lifting the Automatic Stay
[38] I will consider the respondents' request regarding trial costs under their alternative request to lift the automatic stay under r. 63.01(5) in respect of the trial costs award. Although the respondents advanced this relief in their notice of motion, the argument was not developed in their factum.
[39] In SFC Litigation Trust v. Chan, 2018 ONCA 710, I summarized the principles governing a request to lift the automatic stay of enforcement pursuant to r. 63.01(5), at paras. 9 through 12:
Rule 63.01(5) authorizes the lifting of the stay pending appeal "on such terms as are just." Accordingly, a court should consider the general circumstances of the case: Hall-Chem Inc., at para. 6; Antunes, at para. 13. The court must be flexible and treat each case on its facts: Stein v. Sandwich West (Township) (1994), 16 O.R. (3d) 321 (C.A.), at p. 323. A court must be satisfied that, taking all circumstances into account, it would be in the interests of justice to lift the stay.
Recent jurisprudence indicates that a court should have regard to three principal factors: (i) the financial hardship to the respondent if the stay is not lifted; (ii) the ability of the respondent to repay or provide security for the amount paid; and (iii) the merits of the appeal: SA Horeca Financial Services v. Light, 2014 ONCA 811, 123 O.R. (3d) 542 at para. 13; Antunes at para. 14.
While the first factor goes to the respondent's need, the latter two reduce the risk that a successful appellant will be forced to bear the loss, rendering the appeal moot. The court may impose this risk on an appellant in an appropriate case, but there is no reason to do so absent evidence of significant prejudice to the respondent from the stay: Stein at p. 323; Ryan at pp. 711-712. Whether the hardship faced by the respondent outweighs any risk to the appellant must be determined within the context of the case, including: the grounds of appeal, the parties' positions at trial, the trial judge's reasons and the probable delay before the appeal can be heard: Antunes at para. 13; SA Horeca Financial Services at para. 17.
The stay has been lifted where a plaintiff is suffering financial hardship, particularly in personal injury and family law cases, or has a well-founded fear that the appellant is dissipating or divesting assets to avoid payment: Stein; Antunes; Peper v. Peper (1990), 1 O.R. (3d) 145 (C.A.); Babbitt v. Paladin Inc. (1993), 20 C.P.C. (3d) 399 (Ont. C.A.). However, even where such factors are present, the plaintiff must satisfy the court that the prejudice of maintaining the stay outweighs the risk of subjecting the appellant to the uncertainties of recovery if the appeal is successful: Antunes, at para. 11; Ryan, at pp. 711-712; Stein, at p. 323.
[40] I am not prepared to lift the automatic stay in respect of the trial judge's award of $1,478,766.64 in costs.
[41] First, the respondents have not provided evidence that they would suffer financial hardship in the event the automatic stay is not granted. The respondents filed three affidavits from two of their lawyers; none contained evidence of any financial hardship to the respondents in the event the stay is not lifted.
[42] Second, I have found that the respondents have not established the conditions set out in rr. 61.06(a), (b) or (c) for entitlement to an order for security of costs. Had they met those conditions and further demonstrated that the justice of the case supported ordering security for costs, the respondents could then submit that security for costs should cover not only the costs of the appeal, but also the "costs of the proceeding": r. 61.06(1). Since they have not met those conditions under r. 61.06(1), I strongly question whether it remains open to them to seek security for "the costs of the proceeding" by asking the court to allow them to execute on the costs judgment that is the subject of an appeal. In other words, I am not prepared to grant them relief via an indirect route when they did not satisfy the conditions of the direct route.
VII. Disposition
[43] For the reasons set out above, I dismiss the respondents' motion.
[44] The appellants are entitled to their costs of the motion on a partial indemnity scale, fixed in the amount of $20,000, inclusive of disbursements and applicable taxes, payable within 15 days of the date of this order.
"David Brown J.A."