Khan et al. v. Metroland Printing, Publishing & Distributing Ltd. et al.

[Indexed as: Khan v. Metroland Printing, Publishing & Distributing Ltd.]

75 O.R. (3d) 165

[2005] O.J. No. 1787

Docket: C41533

Court of Appeal for Ontario,

Simmons, Gillese and LaForme JJ.A.

May 6, 2005

Civil procedure -- Costs -- Security for costs -- Libel and Slander Act not ousting jurisdiction to order security for costs under Rules of Civil Procedure in defamation actions -- Court having power to order for security for costs under Rule 56 of Rules in cases to which Act applies, so long as particular sub-rule under which order is made does not directly conflict with s. 12(1) of Act -- Libel and Slander Act, R.S.O. 1990, c. L.12, s. 12(1) -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 56.

The defendants in a libel action sought a stay of proceedings or, alternatively, security for costs after one of the plaintiffs disappeared, leaving a series of costs orders against him unpaid. The motion judge determined that a stay was not appropriate, but ordered the remaining plaintiffs to post security for costs under rule 56.09 of the Rules of Civil Procedure as a condition of continuing the prosecution of their claim. The Divisional Court set aside that order, holding that in cases governed by the Libel and Slander Act, an order for security for costs cannot be made under the Rules. The defendants appealed.

Held, the appeal should be dismissed.

An order for security for costs may be made under Rule 56 in cases to which the Act applies, so long as the particular sub- rule under which the order is made does not directly conflict with s. 12(1) of the Act. Rule 56.09, the rule under which the motion judge proceeded, does not directly conflict with s. 12(1) of the Act. The motion judge had jurisdiction to issue the order under rule 56.09. However, he erred in doing so. In order for the motion judge to rely on rule 56.09, he first had to conclude that the order was a reasonable term as a condition of granting relief. The motion judge appreciated this requirement; however, he erred in concluding that in the circumstances of the case before him, relief was being granted to the remaining plaintiffs. It was not. Rather, relief in the form of a stay of proceedings sought by the defendants was being denied. The defendants would only have been entitled to security for costs under rule 56.09 if the motion judge had found grounds to stay the plaintiffs' action, but had exercised his discretion not to do so.

APPEAL from a judgment of the Divisional Court (Linhares de Sousa, Lane and Meehan JJ.), reported at (2003), 2003 49412 (ON SCDC), 68 O.R. (3d) 135, [2003] O.J. No. 4261 (S.C.J.), allowing an appeal from an order for security for costs.

Sorokin v. Trail Times Ltd., 1960 597 (BC CA), [1960] B.C.J. No. 28, 33 W.W.R. 414 (C.A.); Sydlo Inc. v. Mixing Equipment Co., [1986] O.J. No. 2326, 18 C.P.C. (2d) 73 (H.C.J.), revg in part [1986] O.J. No. 2542, 8 C.P.C. (2d) 179 (S.C.) (sub nom. Love v. Mixing Equipment Co. Inc., General Signal Ltd. v. Sydlo Inc. (No.1)) (S.C.); Van Riessen v. Canada (Attorney General), [1994] O.J. No. 2580, 35 C.P.C. (3d) 165 (Gen. Div.), consd Other cases referred to Kennedy v. Kennedy, 1985 4991 (ON CA), [1985] O.J. No. 1152, 45 R.F.L. (2d) 109 (C.A.); Khan v. Metroland Printing, Publishing & Distributing Ltd. [2001] O.J. No. 2764 (S.C.J.); Khan v. Metroland Printing, Publishing & Distributing Ltd. [2001] O.J. No. 4272 (Div. Ct.); Toronto-Dominion Bank v. Szilagyi Farms Ltd. (1988), 1988 4745 (ON CA), 65 O.R. (2d) 433, [1988] O.J. No. 1223, 29 O.A.C. 357, 28 C.P.C. (2d) 231 (C.A.) [page166] Statutes referred to Commercial Tenancies Act, R.S.O. 1990, c. L.7 Courts of Justice Act, R.S.O. 1990, c. C.43, s. 66(3) Landlord and Tenant Act, R.S.O. 1980, c. 232 [repealed] Libel and Slander Act, R.S.B.C. 1948, c. 184 Libel and Slander Act, R.S.O. 1990, c. L.12, s. 12(1) Public Authorities Protection Act, R.S.O. 1990, c. P.38, s. 10 Tenant Protection Act, 1997, S.O. 1997, c. 24 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.02 [as am.], 1.05, 37.15 [as am.], 56 [as am.]

Philip P. Healey, for respondents Colleen Khan, Ray Khan, James Khan and Sonny Khan. Alison B. Woodbury and Ryder Gilliland, for appellants Metroland Printing, Publishing & Distributing Ltd., Ian Proudfoot, Brenda Larson, Debora Kelly, David Teetzel and Christopher Douris. C.M. Loopstra, Q.C., for appellant William Bell.

The judgement of the court was delivered by

[1] LAFORME J.A.: -- Section 12(1) of Libel and Slander Act, R.S.O. 1990, c. L.12 ("LSA") provides for security for costs, but only in limited circumstances and under fairly onerous conditions. By contrast, Rule 56 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 ("Rules") also provides access to security for costs, but in a broader range of circumstances and under less stringent conditions.

[2] The appellants are the defendants in a libel action. They sought either a stay of proceedings or security for costs because one of the respondents (the "missing respondent") had disappeared leaving a series of costs orders against him unpaid. The four remaining respondents (the "remaining respondents"), who were immediate family members of the missing respondent, submitted that his failure to pay should not require them to post security for costs. The motion judge was sympathetic to the appellants' fears about continuing the case without security from the remaining respondents.

[3] Pursuant to rule 56.09, the motion judge required the remaining respondents to post security for costs as a condition of [page167] continuing the prosecution of their claim. The Divisional Court set aside the order of the motion judge. While commenting in obiter that the motion judge exercised his discretion appropriately under rule 56.09, the Divisional Court held that in cases governed by the LSA, an order for security for costs cannot be made under the Rules.

Background

[4] The respondents commenced a libel action relating to a 1997 article in The Liberal, a newspaper serving the community of Richmond Hill. The article quoted statements by the defendant, William Bell -- one of the appellants, and a mayoral candidate at the time -- about the respondent Colleen Khan's candidacy for mayor.

[5] At the commencement of their proceeding, the respondents had a common solicitor. In December 1999, the respondent Shelly Khan served a notice of his intention to act in person. He also notified the appellants that they should direct all correspondence, communication and service of documents in connection with the Khan family to him. In light of this step, the appellants sought the appointment of a case management judge pursuant to rule 37.15, resulting in the motion judge's appointment in February 2000.

[6] Within days of the motion judge's appointment, the remaining respondents served their own notices of intent to act in person. However, prior to the initial case conference, the remaining respondents and Shelly Khan advised the motion judge that Shelly Khan was authorized to represent the remaining respondents in certain instances. Although he permitted Shelly Khan to represent all of the respondents at the initial case conference, the motion judge ordered that, unless otherwise specifically directed, thereafter each of the respondents would be required to represent himself or herself.

[7] Subsequently, the motion judge dismissed a series of motions brought by Shelly Khan and ordered costs against him. However, Shelly Khan did not pay them even after his motion for leave to appeal the costs orders was dismissed. Apparently he has since left the country; his whereabouts are said to be unknown and there is apparently no way of communicating with him.

[8] The remaining respondents retained a new lawyer and tried to proceed with the case, arguing that the costs awards were not made against them. The appellants brought a motion for a stay of proceedings due to the outstanding costs orders. In the alternative, the appellants requested security for costs for the ongoing litigation. [page168]

[9] The motion judge gave Shelly Khan 90 days to cure his default, failing which his claim would be stayed automatically. The motion judge also ordered security for costs against the remaining respondents. In doing so he expressed "serious problems" with the respondents' "effort to disassociate themselves from the conduct of Shelly Khan", as there had been no indication previously of "disagreement among the plaintiffs as to the conduct of this litigation". [^1]

[10] The motion judge found that it was appropriate to "impose some degree of shared responsibility on the remaining respondents for the conduct of the proceeding", given that they were Shelly Khan's relatives and their individual damages claims depended on their relationships to each other [^2]. Moreover, in light of Shelly Khan's non-payment and disappearance, the order for security for costs was necessary to avoid an abuse of process. On the other hand, the motion judge determined that the costs issue did not justify staying the remaining respondents' claim.

[11] The issue of whether the LSA excluded the application of rule 56.09 was first raised by the judge hearing the application for leave to appeal to the Divisional Court [^3]. As noted above, the Divisional Court commented that the motion judge exercised his jurisdiction appropriately under rule 56.09; it concluded that an order for security for costs cannot be made under the Rules in cases governed by the LSA.

Positions of the Parties

[12] The appellants submit that the Divisional Court erred in holding that the LSA precludes orders for security for costs orders under the Rules. Indeed, the appellants contend that because their provisions are not in direct conflict, the LSA and the Rules complement each other and can co-exist. Further, they argue that the motion judge properly exercised his jurisdiction in ordering security for costs under rule 56.09.

[13] The remaining respondents submit that the Divisional Court correctly determined that the LSA ousts the jurisdiction under the Rules to order security for costs under rule 56.09. Further, the remaining respondents contend that the motion judge did not consider the LSA test for ordering security for costs and that the test would not have been met, had he applied it. [page169]

Analysis

[14] I turn first to the issue of whether the Divisional Court erred in holding that the LSA precludes security for costs orders under the Rules. I conclude that an order for security for costs may be made under Rule 56 in cases to which the LSA applies, so long as the particular sub-rule under which the order is made does not directly conflict with s. 12(1) of the LSA. In addition, I conclude that rule 56.09, which is the rule the motion judge proceeded under in this case, does not directly conflict with s. 12(1) of the LSA.

[15] In holding that the LSA ousts the jurisdiction under the Rules to order security for costs, the Divisional Court relied on four main points. First, the Divisional Court determined that rule 1.02(1)3 requires that the court "defer to specific statutes where such legislation provides for the granting of security for costs" [^4].

[16] Second, the Divisional Court held that, although perhaps not "an 'extensive self-governed code' for libel and slander actions in the same way [as] the Landlord and Tenant Act" [^5], the LSA has considerable "legislative breadth" and addresses many specific issues that will arise in a libel and slander action. Significantly, at para. 70 the Divisional Court stated:

The broad scope of the LSA supports the view that the Legislature intended the question of security for costs in libel and slander actions involving newspapers, such as the case at bar, to be governed entirely by section 12 of the LSA.

[17] Third, the Divisional Court noted at para. 73 that "[I]t is a well-recognized principle of statutory interpretation that, where a statutory provision in specific legislation appears to conflict with a provision in a general statutory scheme, the specific legislation prevails". The Divisional Court concluded that, although there is no direct conflict between the procedures set out in the LSA [paras. 75 and 76]:

... there is an unequivocal difference in the procedural requirements found under the LSA.

... given the substantial difference in procedure and onus between the Rules as general legislation and the LSA as specific legislation, a strong argument can be made for having the LSA prevail in this matter. [page170]

[18] Fourth, relying primarily on Van Riessen v. Canada (Attorney General), [1994] O.J. No. 2580, 35 C.P.C. (3d) 165 (Gen. Div.), the Divisional Court rejected the argument that the two sets of provisions should be read as complimenting one another. In Van Riessen, the motion judge determined that s. 56.01(a) of the Rules cannot be read as supplementing s. 10 of the Public Authorities Protection Act, R.S.O. 1990, c. P.38 ("PAPA"), which provides for security for costs based on a test that is closely analogous to the test under s. 12(1) of the LSA (insufficient assets on the part of the plaintiff and good defence on the merits, or grounds indicating that the action is frivolous).

[19] The Van Riessen motion judge referred to s. 66(3) of the Courts of Justice Act, R.S.O. 1990, c. C.43, which authorizes rules supplementing an act in respect of practice and procedure but expressly stipulates that it "does not authorize the making of rules that conflict with an Act". He concluded, "[t]o interpret rule 56.01(1)(a) as supplementing [s. 10 of the PAPA] is, I believe, to introduce a significant change to the scheme of s. 10".

[20] Respectfully, I disagree with the Divisional Court's conclusion that an order for security for costs cannot be made under the Rules in cases governed by the LSA.

[21] Section 12(1) of the LSA reads as follows:

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)

[22] Ontario first enacted defamation legislation in 1887. This legislation included the security for costs provision, which is continued -- with minor unrelated changes -- as s. 12(1) of the current LSA. At the time s. 12(1) was first enacted, the precursor to Rule 56 applied only to plaintiffs not ordinarily resident in Ontario. Since 1887 the Rules have evolved from being specific to plaintiffs not ordinarily resident in Ontario to the current enumerated criteria set out in rule 56.01.

[23] The significance of the reference within the LSA to the non-statutory practice concerning security for costs -- which I [page171] emphasized in s. 12 set out above -- was specifically recognized, and relied on, by the British Columbia Court of Appeal in Sorokin v. Trail Times Ltd., 1960 597 (BC CA), [1960] B.C.J. No. 28, 33 W.W.R. 414 (C.A.). Sorokin dealt with corresponding British Columbia legislation and expressly considered whether the statutory provision for security for costs under the British Columbia Libel and Slander Act [^6] and the British Columbia rules of practice concerning security were mutually exclusive. Sorokin is therefore directly on point.

[24] The Court of Appeal in Sorokin concluded that the Libel and Slander Act and the rules of procedure in British Columbia were not mutually exclusive [^7]. I agree with that court's decision and its analysis. In doing so I make the following conclusions.

[25] Rather than demonstrating an intention to create an extensive self-contained code of procedure for libel and slander cases or to signal conflict with the Rules, s. 12 of the LSA demonstrates an intention that the LSA and the Rules should operate in conjunction with one another. This conclusion follows from the words in s. 12(1): "and the security shall be given in accordance with the practice in cases where a plaintiff resides out of Ontario" (emphasis added).

[26] The emphasized words refer to, but do not exclude, the availability of an order for security for costs under the Rules where a plaintiff resides outside of Ontario; in addition, they expressly adopt the practice under the Rules for giving security. As such, they signal an intention to co-exist with the Rules.

[27] The Divisional Court did not analyze this s. 12(1) phrase. Indeed, while the court found that the wording of s. 12 is "almost identical" to s. 10 of the PAPA, that provision has no corresponding reference to the existing practice for ordering security for costs under the Rules.

[28] As already noted, at the time s. 12(1) of the LSA was first enacted, the precursor to Rule 56 applied only to plaintiffs not ordinarily resident in Ontario. However, the range of circumstances in which an order for security for costs is available under Rule 56 has since expanded. Since s. 12(1) demonstrates an intention to co-exist with the Rules, I conclude that an order for security for costs may be made under Rule 56 in cases to which the LSA applies, so long as the particular sub-rule under which the order is made does not directly conflict with s. 12(1) of the LSA.

[29] Section 12(1) of the LSA provides for security for costs in libel and slander cases in the limited circumstances where: [page172]

(1) 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;

(2) the defendant has a good defence on the merits and that the statements complained of were made in good faith; or

(3) the grounds of action are trivial or frivolous.

[30] On the other hand, the Rules provide for security for costs in a variety of circumstances enumerated in rules 56.01(1)(a) through (f) and 56.09.

[31] I see no apparent conflict between s. 12(1) of the LSA and rule 56.09; being the specific sub-rule that the motion judge proceeded under in this case. In particular, rule 56.09 does not address the criteria for awarding security for costs under s. 12(1) of the LSA.

[32] Although it is not strictly necessary that I decide this point, on my reading of rule 56.01, it is only sub-rule 56.01(e) that might create a direct conflict between the Rules and the LSA. The criteria for awarding security for costs under sub-rules 56.01 (e) and s. 12(1) of the LSA are similar. However, none of sub-rules 56.01(a), (b), (c), (d) or (f) address the criteria for ordering security for costs under s. 12(1) of the LSA. Accordingly, it does not appear that those sub-rules create any potential for direct conflict.

[33] For these reasons, I conclude that the Divisional Court erred in holding that security for costs in libel and slander actions is governed exclusively by s. 12 of the LSA.

[34] Having concluded that the motion judge had the necessary jurisdiction to decide the issue of security for costs under the Rules, I turn to the order made by him and his reliance on rule 56.09.

[35] The motion judge concluded that only the missing respondent was in default of any costs orders and that the remaining respondents' conduct did not amount to an abuse of process sufficient to order a stay of proceedings. He went on to consider the issue of security for costs through the combined application of rules 56.09 and 1.05. These rules provide:

56.09 Despite rules 56.01 and 56.02, any party to a proceeding may be ordered to give security for costs where, under rule 1.05 or otherwise, the court has a discretion to impose terms as a condition of granting relief and, where such an order is made, rules 56.04 to 56.08 apply, with necessary modifications.

1.05 When making an order under these rules the court may impose such terms and give such directions as are just.

(Emphasis added) [page173]

[36] The motion judge defined the issue as whether there was relief being granted to the remaining respondents to which a term requiring the posting of security could attach. After a brief analysis, the motion judge held that in refusing the appellants' motion for a stay of proceedings, he was granting relief to the respondents [^8].

[37] He also held, alternatively, that "at the very least" the respondents were being granted an "indulgence". Both, he concluded, provided jurisdiction "beyond the situations laid out in rule 56.01 where the court may order security for costs" [^9].

[38] As noted, the Divisional Court did not decide this issue, given its conclusion in respect of the corresponding application of the LSA and the Rules. However, the court did offer the following comment:

Based on the evidence relating to the conduct of the [remaining respondents] and the [missing respondent] throughout the course of this litigation, the motions judge correctly concluded that there may have been and could be in the future an abuse of the court's process. We cannot find that he exercised his discretion in an unfair nor unreasonable manner. [^10]

[39] I respectfully disagree with both courts' conclusions on this issue.

[40] The court has no inherent jurisdiction to award security for costs; the specific circumstances for doing so are set out in rule 56.01. However, rule 56.09 makes it clear that despite the enumeration in rule 56.01, of particular circumstances that may justify an order for security for costs, in certain circumstances, security may be ordered as a term of a court order: Toronto-Dominion Bank v. Szilagyi Farms Ltd. (1988), 1988 4745 (ON CA), 65 O.R. (2d) 433, [1988] O.J. No. 1223 (C.A.), at pp. 437-38 and 440 O.R.

[41] In this case the motion judge relied on Sydlo Inc. v. Mixing Equipment Co. (No. 3), [1986] O.J. No. 2542, 8 C.P.C. (2d) 179 (S.C.) in support of his conclusion that he had jurisdiction under rule 56.09 to order security for costs. In Sydlo, the action had been assigned from a corporate plaintiff to a personal plaintiff. The personal plaintiff obtained an order to continue and the defendants moved to set this order aside. The Master denied the motion and the plaintiff was allowed to continue the action. However, in doing so the Master ordered security for costs against the plaintiff, relying on rule 56.09. In addition, the Master found that the corporate plaintiff conducted itself in a fashion that the court considered to be an abuse of process: Sydlo Inc. v. Mixing Equipment Co., [1986] O.J. No. 2326, 18 C.P.C. (2d) 73 (H.C.J.). [page174]

[42] On appeal, the Divisional Court concluded that this was a proper exercise of the discretion of the court and the use of rule 56.09. In Sydlo at p. 82 C.P.C., Galligan J. held that:

In our opinion, when the Master declined to set aside the order to continue he granted relief to the [plaintiff], and thus, had jurisdiction under r. 1.05 and r. 56.09 to impose terms as a condition of that relief. [^11]

[43] I conclude for several reasons that the motion judge erred in relying on Sydlo as authority to order security for costs against the respondents.

[44] First, the foundation of the orders in Sydlo was conduct on the part of the plaintiff that was found to be an abuse of process. Here, the motion judge specifically found that the conduct of the remaining respondents did not amount to an abuse of process.

[45] Second, in this case the remaining respondents were not seeking any relief; there was no issue as to their entitlement to continue their action as named respondents. They were responding to a motion by the appellants to have the action stayed or alternatively for security for costs. In my view, the essence of the Divisional Court's holding in Sydlo is found at p. 82 C.P.C., where Galligan J. notes:

The [court] was not hearing a motion for security for costs, but was deciding what terms [to] impose as a condition of granting relief to the [plaintiff].

[46] In other words, the Divisional Court held that the security for costs order by the Master was really made in respect of the plaintiff's prior request for relief -- or an indulgence -- to continue the action with another named plaintiff. In this case, the motion judge was hearing a motion specifically for security for costs brought by the appellants. The respondents were not seeking any relief at that time or in a related prior proceeding.

[47] The concept of relief encompasses favourable orders to which a party is legally entitled. In my view, an indulgence is merely a sub-category of relief; it is not a separate concept. An indulgence refers to some form of favourable order to which a party, ordinarily, is not legally entitled, but which a court has the discretion to grant. Examples, in my view, would include extensions of time and the refusal to dismiss or stay an action where such dismissal or stay is otherwise warranted.

[48] In order for the motion judge to rely on rule 56.09 to make the order for security for costs [that] he did, the motion judge first had to conclude that the order was a reasonable term [page175] as a condition of granting relief. The motion judge appreciated this requirement; however, he erred in concluding that in the circumstances of the case before him, relief was being granted to the remaining respondents. It was not. Rather, relief in the form of a stay of proceedings sought by the appellants was being denied. The appellants in this case would have been only entitled to security for costs under rule 56.09 if the motion judge had found grounds to stay the respondents' action, but had exercised his discretion not to do so: see Kennedy v. Kennedy, 1985 4991 (ON CA), [1985] O.J. No. 1152, 45 R.F.L. (2d) 109 (C.A.).

[49] I conclude that while the Divisional Court was correct in setting aside the order of the motion judge, it was not for the reasons given.

Disposition

[50] Accordingly, I would dismiss the appeal with costs to the remaining respondents fixed at $7,500 plus GST and disbursements.

Appeal dismissed.

Notes

[^1]: Khan v. Metroland Printing, [2001] O.J. No. 2764 (S.C.J.), at para. 13.

[^2]: Supra, at para. 25.

[^3]: Khan v. Metroland Printing, Publishing & Distributing Ltd., [2001] O.J. No. 4272 (Div. Ct.).

[^4]: Rule 1.02(1)3 provides, "[The Rules] do not apply if a statute provides for a different procedure".

[^5]: R.S.O. 1980, c. 232. Now repealed and replaced by the Commercial Tenancies Act, R.S.O. 1990, c. L.7 and the Tenant Protection Act, 1997, S.O. 1997, c. 24.

[^6]: R.S.B.C. 1948, c. 184.

[^7]: The rule in issue in Sorokin is analogous to Ontario rule 56.01(a).

[^8]: Supra, note 1, at para. 18.

[^9]: Supra, note 1, at para. 22.

[^10]: Supra, note 4, at para. 86.

[^11]: Sydlo, supra (Div. Ct.).