Court File and Parties

Citation: Jung v. Talon International Inc., 2016 ONSC 2714 Divisional Court File No.: 381/15 Date: 2016-05-03

Ontario Superior Court of Justice Divisional Court

Between:

Henry Jung and Long Ocean Holding Ltd. Plaintiffs (Appellants)

– and –

Talon International Inc. Defendant (Respondent)

Counsel: Terry Corsianos, for the Plaintiffs (Appellants) Nancy J. Tourgis, for the Defendant (Respondent)

Heard at Toronto: April 20, 2016

Before: M. Linhares de Sousa J.

Reasons on Appeal

Introduction

[1] This is an appeal from the Order of Master Abrams, dated June 25, 2015, wherein the Appellants were ordered to pay into court the sum $49,767.47 as security for costs. The Master’s order was made pursuant to Rule 56.01(1) (c). It was not disputed that the amount of $49,767.47 represents the total outstanding costs that were awarded, and still owing, to the Respondent/Defendant by the Appellants/Plaintiffs, from a previous court proceeding involving these same parties and involving the same properties as the subject matter of the underlying litigation.

Factual Background

[2] The factual background of these proceedings was succinctly summed up in paragraph 2 of the Master’s Reasons for the security award as follows:

[2] This litigation arises out of real estate (condominium purchase) transactions. After receiving an updated disclosure statement, the plaintiffs purported to rescind agreements of purchase and sale (with the defendant) for two units in the Trump International Hotel in Toronto. They alleged material changes to the disclosure statement. The defendant brought an application in the Superior Court of Justice seeking a declaration that there were no material changes. At the court of first instance and on appeal, the defendant was successful. Leave to appeal to the Supreme Court of Canada was sought by the plaintiffs, which leave was denied on July 24, 2014. The total of all costs awards made as against the plaintiffs was $49,767.47.

[3] Subsequent to leave being denied by the Supreme Court of Canada, there was an exchange of communication between the lawyers for the parties. On July 24, 2014 counsel for the Appellants/Plaintiffs indicated that his client was prepared to finalize the purchase transactions, having exhausted all rescission efforts in the court system. In that same communication counsel for the Appellants/Plaintiffs named August 29, 2014 as the closing date and requested that the outstanding costs order be paid by his client by including them as a credit to the Respondent/Defendant as a credit on the statement of adjustments, to be paid on closing. This arrangement was agreed to by counsel for the Respondent/Defendant by letter dated August 12, 2014.

[4] After this agreement relating to how and when the cost award would be paid, a statement of adjustments for the purchase transactions was sent to the Appellants/Plaintiffs. There was a dispute between the parties over a number of items included in the statement of adjustments. As a result, the Appellants/Plaintiffs refused to close the purchase transaction in August.

[5] As a result, the second round of litigation, which is the underlying action to the motion before the Master, between the parties was commenced. The Appellants/Plaintiffs commenced a claim against the Respondent/Defendant relying on alleged material changes to the property in question and disputing certain interest charges and occupancy fees included in the statement of adjustments.

[6] In response, the Respondent/Defendant defended this main action and counterclaimed, alleging that the Appellants/Plaintiffs have defaulted on the agreements of purchase and sale and seeking a forfeiture of the Appellants/Plaintiffs’ deposits on the real estate transactions, pursuant to paragraph 25(a) of the agreement of purchase and sale. This amount was over $300,000.00 in cash which the Respondent/Defendant had in its possession.

[7] After the close of pleadings, the Respondent/Defendant brought the motion for security of costs before Master Abrams.

[8] After Master Abrams granted the order for security of costs, the Appellants/Plaintiffs appealed the decision to a single judge of the Divisional Court at which time the question of whether Master Abrams security of costs order was a final or interlocutory order arose. Justice Wilton-Siegel found that it was clearly interlocutory, for the reasons stated by him. He traversed the Appellants/Plaintiffs’ appeal to this Court, with costs reserved to this Court.

Decision of Master Abrams

[9] In coming to her decision to grant the security of costs order, Master Abrams found, which is not disputed by the parties, that the Respondent/Defendant had cost orders owed by the Appellants/Plaintiffs arising out the previous, but related, proceedings and that the cost orders had not been satisfied.

[10] Having determined that the first part of the test of Rule 56.01(1)(1) was met, she then stated the second part of the test enunciated in the Rule, namely, “Security can thus be ordered posted, if and as may be just.” (paragraph 1 of Master’s Reasons)

[11] In coming to her conclusion as to what may be “just” in the circumstances of the case before her, Master Abrams examined the history of the litigation between the parties, both the previous litigation and the underlying matter of the motion before her. She concluded that with respect to the underlying litigation, it raised “the same facts and underlying issues (i.e. alleged material changes to the condominium units and buildings, and whether and to what extent they impact on the plaintiff’s obligations under the agreements of purchase and sale).” (paragraph 6 of Master’s Reasons) .

[12] With respect to the merits of the parties’ positions in the underlying litigation, acknowledging the limited record before her and having regard to the parties’ course of dealings, she was not able to say that the merits of the case “strongly favour either the plaintiff or the defendant” and concluded that it had to be “neutral” to her consideration.

[13] The issue of impecuniosity of the Appellants/Plaintiffs was not raised nor argued and hence was not considered by the Master.

[14] The Master recognized that the parties had reached an agreement that the costs owing were to be paid upon closing when both parties had expected, as shown in their correspondence, that the closing date would be within less than one month of the agreement, namely, on August 29, 2014. She made reference to the affidavit of counsel for the Respondent/Defendant which stated that he entered into that agreement on the premise that the closing date would be August 29, 2014, a date identified by both parties, and without anticipating that the Appellants/Plaintiffs would refuse to close the transaction on that date and embark on new litigation and thereby delay the closing date indefinitely. The previous litigation took almost two years to conclude.

[15] In light of the above circumstances, the Master agreed, at paragraph 9, “To require of the defendant that it abide by the terms of an agreement made by counsel in a different context and in different circumstances would not be fair or right.”

[16] With respect to the argument that the Respondent/Defendant had possession of the Appellants/Plaintiffs’ deposit monies and accrued interest, exceeding $300,000, after considering the arguments of counsel relating to the merits and legal parametres of the forfeiture counterclaim, the Master concluded at paragraph 10, “it is not certain that the deposit monies will be available to the plaintiffs to pay costs.”

[17] She then concluded that, in all, it was appropriate to order security of costs in the amount of the outstanding costs awards (net of interest) in the total amount of $49,767.47.

Position of the Parties

[18] The Appellants/Plaintiffs bases their appeals on the following grounds:

1. That the Master erred in law in exceeding her jurisdictional capacity, in ordering the security of costs by, rescinding the agreement made between the parties to have the outstanding costs paid only upon the closing of the real estate transactions. No such rescission of the agreement was sought by the Respondent/Defendant. Even assuming such issue was before the Court, the power to grant it lies with judges and not masters.

2. In view of the acceptance that the parties entered into an agreement to have the outstanding costs paid upon closing of the real estate transactions, the Master should not have accepted the subjective intentions or expectations if a contracting party as a basis for rescinding the contract as she did. This was also an error in law.

3. Finally, the Master erred in law by failing to recognize that over $300,000.00 being held by the Respondent/Defendant was more than sufficient to pay any costs awards that would eventually be rendered in the proceedings. This was because, as stated at paragraph 28 of the Appellants/Plaintiffs’ Factum:

“Accordingly, relief from forfeiture does not even arise in this case unless and until the court agrees with Talon that (1) Mr. Jung should have closed the deals during the pendency of the prior litigation, and (2) Talon’s subsequent agreement to close is somehow invalid.” And that the only real issue in the lawsuit is the quantum of adjustments to be made in the Statement of Adjustments.

[19] The Respondent/Defendant contests the appeal and takes the position that the Master made no error in law in coming to her decision. Nor was there any palpable or overriding error in the exercise of her discretion in deciding to award security for costs in this case.

[20] The Respondent/Defendant argues that the Master correctly applied the test as established in Rule 56.01(1)(c). It is not disputed that there is an outstanding costs order. The Master then went on to determine what was “just” in all of the circumstances, which gave the Master a broad discretion in deciding whether security of costs is “just”.

[21] The Respondent/Defendant submits that the Master examined all of the circumstances of the case, which circumstances have been recognized by case law to be relevant and appropriate to consider in determining the question of security for costs. More specifically, she considered, the litigation history and behaviour of the parties, the issues of the underlying litigation and how they compared to previous litigation between the same parties, the merits of the underlying actions which she found to be neutral. The impecuniosity of the Appellants/Plaintiffs was not argued.

[22] With respect to the position taken by the Appellant/Plaintiff that the Master erroneously in law rescinded the parties’ agreement that the outstanding costs would be paid upon closing, the Respondent/Defendant takes the position that in examining the correspondence of the parties leading up to this agreement the closing date of August 29, 2014 was as much part of the agreement as the fact that the costs would be paid upon closing of the real estate transactions, which of course did not happen. The Respondent/Defendant submits that this was an important factor to consider in determining what was just.

[23] The Respondent/Defendant further submits that the argument that the Master rescinded the parties’ agreement to have the costs payable upon closing confuses two separate transactions, namely the posting of security for a costs in a new proceeding and the payment of a costs award from a previous proceeding under the alleged agreement followed by litigation which indefinitely delays the alleged agreement and where it is possible that the alleged agreement will never be completed. They have been found by the Court, it was argued, to be separate and distinct sums and does not impact on the actual payment of the costs to the Respondent/Defendant in accordance with the alleged agreement.

[24] With respect to the last ground of appeal of the Appellants/Plaintiffs, the Respondent/Defendant argues that to accept the argument of the Appellants/Plaintiffs on this point would require the Master to essentially determine the merits of the underlying claim and counterclaim. This is not required nor did the Master err in law in concluding on the record before her and on the arguments made that the merits as between the parties remained neutral. As a result, it is argued, it was not an error in law for the Master to allow for the possibility of the Vendor’s success in seeking forfeiture. Nor was it a palpable and overriding error for the Master to conclude, as a result, that the deposit monies were insufficient security for the costs.

Standard of Review

[25] The standard of review was not contested by the parties. In the case of Zietoun v. Economical Insurance Group 2008 20996 (ON SCDC), [2008] O.J. No.1771 it was stated at paragraph 40 and 41:

[40] The appellant argues that the appropriate standard of review of a Master’s order, whether it be final or interlocutory, should be in accordance with that expressed by the Supreme Court of Canada in Housen v. Nikolaisen, supra, and by the court of Appeal in Equity Waste Management such that the decision will be interfered with only if the Master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error.

[41] I agree with that submission.

Disposition

[26] I can find no error in law in the decision of Master Abrams. Nor can I find any palpable and overriding error in her findings of fact nor how she exercised her decision in granting security of costs.

[27] The first two grounds of the appeal are clearly premised on the conclusion that an order for the posting of security for costs pursuant to Rule 56.01(1)(c) is the same as the actual payment of a costs order owing to a party in whose favour such an order has been made and who is entitled to such costs as soon as the costs order is made.

[28] I accept the Respondent/Defendant’s position on this point as the correct one. They are not the same nor synonymous. Clearly, the actual payment of a costs order would immediately benefit the party who is owed the costs and satisfy the outstanding payment due to that party. An order to secure costs is exactly that, a payment to a third entity, in this case the Court, as security, or in other words as a way of securing the ultimate satisfaction of the outstanding order of costs.

[29] Furthermore, the latter is a power given to the Master to exercise in a judicious manner “as is just” in the circumstances, pursuant to Rule 56.01.

[30] In view of the significant and obvious distinction between the two, in coming to her decision, the Master did not have to make a decision on when the outstanding costs were payable in the context of the dispute between the parties regarding the alleged agreement. Indeed, she did not make any such determination. The ultimate issues as to when the Respondent/Defendant should be paid the outstanding costs owing to it from the previous action and whether there was an alleged agreement, in view of the subsequent litigation, remain issues to be decided either between the parties or, failing such agreement, ultimately by the Court at another time or upon the final disposition of the underlying action.

[31] For the purpose of her decision pursuant to Rule 56.01, the relevant fact was that the costs award were outstanding, which is not disputed. In my view she correctly applied the first part of the legal test found in Rule 56.01(1)(c).

[32] The second part of the legal test entailed the exercise of her discretion in determining what was just in the circumstances of the case. The factors she considered and her findings with respect to this point arise from the evidence and arguments before her, namely the merits of the underlying litigation, found to be neutral, the past litigation and its issues, found to be the same facts and underlying issues, the litigation behaviour of the parties, the length of the previous litigation, the alleged agreement and the circumstances of the alleged agreement and the correspondence leading up to the alleged agreement. The impecuniosity of the Appellants/Plaintiffs was not raised before her.

[33] With respect to the Master’s consideration of the alleged agreement in the context of exercising her discretion found at paragraph 9 of her decision, she clearly made no final determination on the ultimate issue between the parties. Nonetheless, she considered the information found in the correspondence that took place between counsel, leading up to the alleged agreement whereby both parties discussed a planned closing date for August 29, 2014, the dispute that arose over the Statement of Adjustments, the new litigation that was commenced and the arguments of both counsel on the issues and concluded that it would not be “fair” to deny the order for security for costs. This factor in addition to all of the others mentioned by her rendered the justice of the situation so as to favour the granting of the security for costs order pursuant to Rule 56.01. In the context of the motion for security for costs and as one of the many factors to be considered, it does not in any way determine in substance the merits of the dispute between the parties relating to when the outstanding costs ought to be paid and the intentions and understandings of the alleged agreement. Consequently, the Master did not exceed her jurisdiction by rescinding an alleged agreement, but merely took into account all of the circumstances surrounding the alleged agreement as one of the factors to consider in determining what was “just”.

[34] I cannot find in this analysis and exercise of discretion any palpable or overriding error.

[35] The last ground for appeal is that the Master erred in not finding that the deposit monies of approximately $300,000 provided sufficient security for the outstanding costs award in view of the fact that the outcome of the forfeiture claim and the enforceability of such a forfeiture provision was, according to the submissions of counsel for the Appellants/Plaintiffs, obvious.

[36] After hearing submissions on this point, including a consideration of the case law cited by counsel, the Master found that “it is not certain that the deposit monies will be available to the plaintiffs to pay costs.” I can find no palpable and overriding error in the Master’s finding on the merits of this part of the parties’ litigation. To accept the argument of the Appellants/Plaintiffs’ counsel on this ground would have required the Master to engage in a detailed minutiae examination of the merits of the forfeiture claim and practically come to a conclusion about it likely success or failure at trial. The Master is not required to do this kind of virtual adjudication on the claims of the underlying action on the nature of the motion before her. Nor does the case law require it. In this, too, I cannot find a palpable and overriding error in the circumstances of the case before her.

[37] For these reasons the Appeal is dismissed.

Costs

[38] Counsel have agreed that the costs of this appeal as well as the costs of the proceedings before Justice Wilton-Siegel, who traversed the matter and the appropriate disposition of costs of his hearing to this Court, should be granted to the successful party on the appeal, at the agreed upon amount of $7,500.00. Based on this agreement there will be an order of costs to the Respondent/Defendant in the amount of $7,500.00 inclusive of disbursements and HST.

___________________________ M. LINHARES DE SOUSA J.

Date of Release: May 3, 2016