DATE: 20040107

DOCKET: M30636 (C40887)

COURT OF APPEAL FOR ONTARIO

LABROSSE, SHARPE and ARMSTRONG JJ.A.

B E T W E E N:

DIVERSITEL COMMUNICATIONS INC.

Respondent (Plaintiff)

• and -

GLACIER BAY INC.

Appellant (Defendant)

Richard Marks for the appellant/defendant

Paul Lepsoe and Laurie Livingstone for the respondent/plaintiff

Heard: December 11, 2003

ARMSTRONG J.A.:

[1] This is a motion by the respondent in the appeal for:

(a) an order quashing that part of the appeal which relates to a refusal to order the production of documents; and

(b) an order requiring the appellant to post security for costs of the proceedings in the Superior Court and of the appeal.

Background

[2] The appellant, Glacier Bay Inc., is a California company which entered into a contract with the respondent, Diversitel Communications Inc., an Ontario company. The contract was to supply panels for electronic equipment to be used in a broadcasting system in the far north of Canada.

[3] Diversitel paid U.S.$40,000 in advance to Glacier Bay. A schedule called for Glacier Bay to begin delivery in October 2002 and to be completed in February 2003. There is an issue as to whether time was of the essence in the contract.

[4] The appellant was not able to meet the delivery schedule due to problems with its principal supplier. As a result, the respondent terminated the contract on November 1, 2002 and subsequently commenced this action for the return of its U.S.$40,000.

[5] The appellant brought a motion for production of documents related to the contract which the respondent entered with its replacement supplier. The respondent brought a cross-motion for summary judgment under Rule 76 of the Simplified Rules. The motions judge gave judgment for the respondent and at the same time dismissed the appellant’s request for the production of documents and dismissed the counter-claim. According to the motions judge, the appellant defended the action on the basis that the respondent was not justified in terminating the contract. Before us, the appellant submitted that it could have made up the initial delay and completed delivery by February 2003. We are told that the appellant also asserted a counter-claim against the respondent. However, in the record before us, we were not supplied with copies of the pleadings. The appellant has appealed the judgment against it, the dismissal of the counter-claim and the refusal to order the production of documents.

The Production of Documents

[6] The decision of the motions judge refusing to order the production of documents is clearly interlocutory and leave to appeal must be obtained from a judge of the Divisional Court pursuant to s. 19(1)(b) of the Courts of Justice Act R.S.O. 1990, c. C.43 even though the appellant has a right of appeal to this court on the judgment and the dismissal of the counter-claim. If the Divisional Court grants leave then the appellant may bring a motion pursuant to s. 6(2) of the Courts of Justice Act for an order directing that the productions issue be heard with the appeal related to the judgment in the action and the dismissal of the counter-claim. See Cole v. Hamilton (City) (2002), 60 O.R. (3d) 284 at 289 (C.A.). I would therefore quash that part of the appeal which relates to the productions issue.

Security for Costs

[7] The respondent relies upon rules 61.06(1)(b) and 56.01(1)(d) of the Rules of Civil Procedure in support of its motion for security for costs. The aforesaid rules provide:

61.06 (1) In an appeal where it appears that,

(b) an order for security for costs could be made against the appellant under rule 56.01;

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.

56.01 (1) The court, on motion by the defendant or res-pondent in a proceeding, may make such order for security for costs as is just where it appears that,

(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;

[8] The first issue concerns whether the respondent in the appeal, who is the plaintiff in the action is entitled to security of costs of the action and the appeal from the judgment in the action. This court per Laskin J.A. has held in GEAC Canada Ltd. v. Craig Erickson Systems Inc. (1994), 26 C.P.C. (3d) 355 (C.A.) that rule 61.06(1)(b) is confined to the making of an order against a plaintiff/appellant: see also Toronto Dominion Bank v. Szilagyi Farms Ltd. (1988), 65 O.R. (2d) 433. Grange J.A. also held in Toys “R” Us (Canada) Ltd. v. Rotisseries St-Hubert Ltee. (1994), 20 O.R. (3d) 814 (C.A.) that a plaintiff/respondent, who moved for security for costs against a defendant/appellant, pursuant to rule 61.06(1)(b) could not succeed since as the original defendant at trial, it could not have been the object for security of costs at trial and therefore cannot be the subject of such in an order on appeal. The policy rationale is not to impose security for costs upon foreign or impecunious defendants who are forced into court by others.

[9] There is a second issue. The appellant is a plaintiff by counter-claim and arguably could have been subject to security for costs in regard to its counter-claim. However, it is not every counter-claim which will impose upon the defendant/plaintiff by counter-claim the obligation to post security for costs. For example, security for costs will not be ordered where the counter-claim arises out of the same transaction or circumstances as the claim and is in substance a defence to the claim: see Macpherson v. Masini (1879), 5 Q.B.D. 144 and Wilkins v. Towner, [1936] OWN 137.

[10] I conclude from the above analysis that the respondent is not entitled to move for security for costs of the action and for the appeal from the judgment in the action. The respondent, however, may be entitled to move for security for costs in regard to the dismissal of the counter-claim and the appeal in respect of the counter-claim. However, as indicated above, we have not been provided with the pleadings in the record before us. There is nothing in the record to suggest that the counterclaim does not arise out of the same transaction as the claim advanced by the respondent/plaintiff.

[11] In the result, I would dismiss the motion for security for costs.

[12] While success has been divided, most of the time before us was taken up by the motion for security for costs. I would therefore award the costs of the motion before us to the appellant on a partial indemnity basis fixed in the amount of $3,500 including Goods and Services Tax and disbursements.

RELEASED:

“RPA” “Robert P. Armstrong J.A.”

“JAN -7 2004” “I agree J. Labrosse J.A.”

“I agree Robert J. Sharpe J.A.”