Jian v. Xu, 2024 ONSC 7242

Court File and Parties

COURT FILE NO: CV-19-633659 MOTION HEARD: 20231212 REASONS RELEASED: 20240313 SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

CHUNFENG JIAN Plaintiff

- and-

WEI JUN XU, SUN, CPA, PROFESSIONAL CORPORATION and CANADIAN SUNPLORE INTERNATIONAL INC. Defendants

BEFORE: ASSOCIATE JUSTICE McGraw

COUNSEL: A. Rouben -for the Defendants Email: arouben@bellnet.ca Dr. Ran He -for the Plaintiff Email: rhe@thcllp.com

REASONS RELEASED: March 13, 2024

Reasons for Endorsement

I. Background

1This is a security for costs motion by the Defendants.

2In this action, the Plaintiff alleges that the Defendant Wei Jun Steven Xu (“Xu”), a Chartered Professional Accountant, made misrepresentations which induced her into investing in a series of syndicated mortgage-based investments issued by Building & Development Mortgages Canada Inc. (“BDMC”). The Plaintiff does not speak or read English. She alleges that in 2016-2017 Xu advised her that the investments were safe, low risk with good quarterly returns, that she would not lose any of her principal and that he had invested his own money. She further claims that he did not advise her of the true nature of the investments and related risks and that he was not qualified to provide financial advice.

3The Plaintiff started to receive quarterly payments in 2017 but they stopped in 2018. She claims that Xu advised her at the time that the projects related to the BDMC investments were being sold and that she would recover her investment. However, with the assistance of friends who translated documents for her, she discovered that BDMC had incurred significant losses and by Order of Hainey J. dated April 18, 2018 FAAN Mortgage Administrators Inc. had been appointed trustee over the assets and property of BDMC. The Plaintiff claims that she recovered $885,483.71 resulting in a loss of $1,154,516.29 not including missed interest payments.

4The Plaintiff also claims that Xu misappropriated $150,000 from Jiacheng International Group Ltd. (“JIG”), a corporation which she and Xu established as an investment vehicle to make share-based investments. The Plaintiff alleges that on June 8, 2017, she advanced $151,000 to JIG, $150,000 of which was invested in BDMC. However, the funds were returned to BDMC on December 1, 2017 then transferred by Xu to the Defendant Canada Sunplore International Inc. (“CSI”) on December 15, 2017.

5The Plaintiff commenced this action by Notice of Action issued on December 31, 2019 with the Statement of Claim issued on January 28, 2020 and amended on February 5, 2020 to add CSI. Among other things, the Plaintiff seeks declarations that the breaches occurred, damages of $2,050,000; the return of the allegedly misappropriated $150,000; and punitive damages of $300,000.

6The parties first appeared before me at a telephone case conference on June 27, 2023 to speak to a timetable for the action. The Defendants advised that they intended to seek security for costs. As it appeared that the parties may be able to resolve the timetable and security, the case conference was adjourned to August 1, 2023 to provide further time for discussions. At the August 1 case conference, it appeared as if the parties might still be able to resolve security for costs and the case conference was adjourned again to provide additional time. However, at a case conference on August 29, 2023, counsel advised that the parties were unable to agree on security and the motion was scheduled for today.

II. The Law and Analysis

7For the following reasons, I conclude that it is just in the circumstances that the Plaintiff post security for costs on the terms set out below.

8Rule 56.01(1) states:

“The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that

(a) the plaintiff or applicant is ordinarily resident outside Ontario ;

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;”

9Rule 56.01(1) does not create a prima facie right to security for costs but rather triggers an enquiry whereby the court, using its broad discretion, considers multiple factors to make such order as is just in the circumstances including the merits of the claim, the financial circumstances of the plaintiff and the possibility of an order for security for costs preventing a bona fide claim from proceeding (Stojanovic v. Bulut, 2011 ONSC 874 at paras. 4-5). The court has broad latitude to make any order that is just in the circumstances (Yuen v. Pan, 2018 ONSC 2600 at para. 14).

10In Yaiguaje v. Chevron Corp., 2017 ONCA 827, the Court of Appeal held as follows:

“23 The Rules explicitly provide that an order for security for costs should only be made where the justness of the case demands it. Courts must be vigilant to ensure an order that is designed to be protective in nature is not used as a litigation tactic to prevent a case from being heard on its merits, even in circumstances where the other provisions of rr. 56 or 61 have been met.

24 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.).

25 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.”

11Determining the order which is just in the circumstances requires a balancing between ensuring that meritorious claims are allowed to go forward with the consequences of being left with an unenforceable costs award where a party pursues an unsuccessful claim (Ascent Inc. v. Fox 40 International Inc., [2007] O.J. No. 1800 at para. 3; Rosin v. Dubic, 2016 ONSC 6441 at para. 39; Lipson v. Lipson, 2020 ONSC 1324 at paras. 47-48). In some cases, security is required to correct the imbalance of a plaintiff having security for a successful claim while a defendant has no security for a successful defence and to prevent a plaintiff from going to trial without posting security, be unsuccessful at trial then avoid paying costs (2232117 Ontario Inc. v. Somasundaram, 2020 ONSC 1434 at para. 27; DK Manufacturing Group Ltd. v. Co-Operators Insurance, 2021 ONSC 661 at para. 26).

12The initial onus is on the defendant to show that the plaintiff falls within one of the enumerated categories in Rule 56.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The plaintiff can rebut the onus and avoid security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order; the order is unjust or unnecessary; or the plaintiff should be permitted to proceed to trial despite its impecuniosity should it fail (Travel Guild Inc. v. Smith, 2014 CarswellOnt 19157 (S.C.J.) at para.16; Coastline Corp. v. Canaccord Capital Corp., [2009] O.J. No. 1790 (ONSC) at para. 7; Cobalt Engineering v. Genivar Inc., 2011 ONSC 4929 at para. 16). This was summarized by Master Glustein (as he then was) in Coastline:

“7… (i) The initial onus is on the defendant to satisfy the court that it "appears" there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56; (ii) Once the first part of the test is satisfied"the onus is on the plaintiff to establish that an order for security would be unjust"; (iii) The second stage of the test "is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors". The court exercises a broad discretion in making an order that is just; (iv) The plaintiff can rebut the onus by either demonstrating that: (a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation, (b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not "plainly devoid of merit", or (c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success;”

13The Plaintiff is not a Canadian Citizen or a Permanent Resident. At the time this action was commenced, she resided with her daughter in Thornhill, Ontario. She continued to live with her daughter until 2022 when she moved to China, where she currently resides. The Plaintiff submits that it is reasonable to conclude that she has established a close tie to Ontario during this extended stay which diminishes the risk that she would not pay a costs order. She further submits that the Rules do not define the meaning of “ordinarily resident” nor do they restrict the meaning of “ordinarily resident” to a Canadian Citizen or Permanent Resident. The Plaintiff has provided no authority for this interpretation or her submission that if this Court accepts that she is “ordinarily resident” in Ontario then the Defendants’ motion must fail.

14I do not accept the Plaintiff’s submissions based on her interpretation of “ordinarily resident”. She currently resides in China, there is no evidence that she intends to return to Canada and the fact that she lived in Ontario with her daughter for an extended period of time does not in my view establish “ordinary residence” in these circumstances. However, the more important consideration is that she has not provided any evidence that she has sufficient, or any assets in Ontario or a reciprocating jurisdiction to satisfy a costs award. The fact that she lived in Ontario for approximately 3 years after the action was commenced does not establish a connection or link to Ontario which negates the requirement that she demonstrate that she has available assets to satisfy a costs award nor does it reduce the risk that she will not satisfy a costs award. Accordingly, I conclude that the Defendants have met their onus under Rule 56.01(d) that it appears there is good reason to believe that the Plaintiff does not have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs award (Georgian Windpower Corp. v. Stelco Inc., [2012] O.J. No. 158 (ONSC) at para. 7; Coastline at para. 7). Above all, I have concluded in all of the circumstances that it is just that an order for security should issue.

15The Plaintiff concedes that there is no evidence that she is impecunious. Therefore, subject to my consideration of other factors, to avoid an order for security, she must demonstrate that her claim has a good chance of success or a real possibility of success (Coastline at paras. 3 and 7; Chalhal v. Abdullah et al, 2022 ONSC 1727 at paras. 47-50; Chill Media Inc. v. Brewers Retail Inc., 2021 ONSC 1296 at para. 14). In considering the merits, the court is not required to embark on an analysis such as on a summary judgment motion (Coastline at para. 7; Horizon Entertainment Cargo Ltd. v. Marshall, 2019 ONSC 2081 at para. 3). The analysis is based primarily on the pleadings with recourse to evidence filed on the motion and if the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage (Coastline at para. 7; Horizon at para. 3). An assessment of the merits should be decisive only where the merits may be properly assessed on an interlocutory application and success or failure appears obvious (Coastline at para. 7; Horizon at para. 3).

16I cannot conclude that the Plaintiff’s claim has a good chance or real possibility of success. To arrive at this conclusion, I would have to make numerous findings of credibility and resolve multiple disputed facts none of which is possible based on the pleadings, the record before me and the parties’ submissions. In particular, much of the Plaintiff’s claim is based on alleged misrepresentations which will require witness testimony and a complete record. There are disputed issues with the Certificate of Independent Legal Advice which the Defendants allege the Plaintiff executed and genuine issues with respect to reliance and the Plaintiff’s level of sophistication and understanding as an investor all of which must be canvassed fully at trial, not on an interlocutory motion of this nature. Even if I were to accept that the Plaintiff’s claim for the return of the $150,000 which she alleges was misappropriated has a good chance of success, this is a small portion of her claim, over $2,000,000 of which arises from her claim related to the BDMC investment.

17I also reject the Plaintiff’s assertion that the Defendants’ motion should fail because they delayed in seeking security (Chalhal at paras. 33, 51-55; Wilson Young & Associates v. Carleton University et al, 2020 ONSC 4542 at para. 59). The Defendants brought this motion early in the litigation, after the exchange of Affidavits of Documents and before examinations for discovery. While there have been some delays in the proceedings, both parties must bear responsibility. After the Defendants delivered their Statement of Defence in August 2020, the Plaintiff did not contact Defendants’ counsel until December 21, 2021, approximately 16 months later, to discuss a timetable for documentary and oral discoveries. On December 23, 2021, the parties agreed to exchange documents by the end of April 2022 and complete examinations for discovery by the end of June 2022. The Defendants advised that their documents would be delivered in mid to late June 2022 but were not delivered until September 9, 2022. The Defendants then advised the Plaintiff on January 11, 2023 that they intended to bring a security for costs motion. Overall, I am satisfied that this motion is being brought early enough in the litigation that there is no concern that security is being sought for strategic reasons to impede the Plaintiff’s ability to move the action to trial or after the Plaintiff has expended significant costs.

18Ordering security is further supported by the fact that the Plaintiff has not provided any evidence and does not take the position that an order for security would prohibit her from advancing the action to trial (Chill Media at para. 14). Further, this is private, commercial litigation with no public interest considerations. Applying a holistic approach, considering all of the relevant factors and balancing the parties’ interests, I am satisfied that it is just in the circumstances to exercise the court’s discretion to order security for costs.

19Turning to quantum, the Defendants seek $73,450 on a partial indemnity scale up to and including examinations for discovery. The Plaintiff submits that $30,000 is fair and reasonable. The court has broad discretion to determine a fair and reasonable amount of security which is substantially similar to the exercise of its discretion in fixing costs of a proceeding pursuant to Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (Canadian Metal Buildings Inc. v. 1467344 Ontario Limited, 2019 ONSC 566 at para. 27). The quantum should reflect an amount that falls within the reasonable contemplation of the parties, what the successful defendant would likely recover and the factors set out in Rule 57.01 (720441 Ontario Inc. v. The Boiler et al, 2015 ONSC 4841 at para. 56; Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada, 2003 CarswellOnt 1906 at paras. 17-20). In most cases, security for costs will be ordered on a partial indemnity scale (Marketsure at paras. 13-18). It is also common for the court to order security in tranches based on steps in the litigation, starting with examinations for discovery (Hawaiian Airlines Inc. v. Chartermasters Inc., (1985), 50 O.R. (2d) 575). The justness of the order and the balance between seeing claims through to trial against the risk of unenforceable costs awards should be reflected in the quantum of security ordered, not simply whether security is ordered in the first place (Rosin at paras. 38-39; Lipson at para. 48).

20In my view, there is no reason to depart from the general rule that security for costs be ordered on a partial indemnity scale in tranches, starting with an amount up to and including examinations for discovery. Having reviewed the Defendants’ Costs Outline, I am satisfied that a lower amount would more reasonably reflect the expectations of the parties and the expected costs of defending a claim of this nature. The Defendants’ request is based on 125 hours at $500 per hour which I conclude should be reduced to more reasonably reflect both the hours required and the rate of more junior lawyers who could do at least some of the work. While parties may choose to have the bulk of the work completed by more senior counsel at higher rates, it does not automatically follow that they will be indemnified at the same rate.

21Having considered the relevant factors, including the amount sought by the Plaintiff in this action, I am satisfied that it is fair and reasonable, within the parties’ reasonable expectations, proportionate and just in all of the circumstances for the Plaintiff to post security for costs of $55,000 on a partial indemnity scale up to and including examinations for discovery within 90 days. The Plaintiff shall take no further steps in this action until the security is paid. The Defendants may seek additional security after examinations for discovery and all steps, including motions related to discoveries, have been completed.

III. Disposition and Costs

22Order to go on the terms set out above.

23If the parties cannot agree on the costs of this motion, they may file written costs submissions not to exceed 3 pages (excluding Costs Outlines) on a timetable to be agreed upon by counsel.