Di Paola (Re)
84 O.R. (3d) 554
Court of Appeal for Ontario,
Doherty J.A. (in Chambers)
November 1, 2006
Bankruptcy and insolvency -- Practice and procedure -- Security for costs -- Applicant bringing motion in bankruptcy proceedings claiming that its pre-bankruptcy judgment against respondent survived his discharge -- Motion dismissed -- Applicant appealing -- Respondent moving for security for costs -- Motion granted -- Rules of Civil Procedure applying to security for costs on appeal in bankruptcy proceedings -- Applicant's motion sufficiently analogous to action to warrant treating it as discrete proceeding for purposes of rule 56.01 of Rules of Civil Procedure -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 56.01, 61.06(1). [page555]
Civil procedure -- Costs -- Security for costs -- Rule 56.01 applying to proceedings without qualification and not excluding motion brought in course of proceeding -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 56.01, 61.06(1).
Following the respondent's discharge from bankruptcy, the applicant brought a motion claiming that its pre-bankruptcy judgment against the respondent for breach of fiduciary duty survived the discharge. The motion, which was brought in the bankruptcy proceedings, was dismissed. The applicant appealed. The respondent brought a motion for security for costs pursuant to rule 61.06(1) of the Rules of Civil Procedure.
Held, the motion should be granted.
Since neither the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 nor the relevant bankruptcy rules (Bankruptcy and Insolvency General Rules, C.R.C., c. 368) address the question of security for costs on appeal, the Rules of Civil Procedure apply. Rule 61.06(1)(b) provides that a judge of the Court of Appeal may make an order for security for costs where that order could be made against the appellant under rule 56.01. Rule 56.01 applies to "proceedings" without qualification, and does not exclude motions brought in the course of a proceeding. The respondent's motion was sufficiently analogous to an action to warrant treating that motion brought in the bankruptcy proceedings as a discrete proceeding for the purposes of rule 56.01. The applicant conceded that it had no assets. The respondent was entitled to security for costs.
MOTION for security for costs. [page556]
Cases referred to Fabricut Ltd. (Re), [1985] O.J. No. 1729, 54 C.B.R. (N.S.) 84 (S.C.), apld Société Sepic S.A. v. Aga Stone Ltd. (1995), 1995 1891 (ON CA), 21 O.R. (3d) 542, [1995] O.J. No. 54, 34 C.P.C. (3d) 206 (C.A.); Canada v. MKM Manufacturing Ltd., [2003] B.C.J. No. 2672, 48 C.B.R. (4th) 222, 2003 BCCA 652 (C.A. chambers), consd Mutual Life Insurance Co. of Canada v. Buffer Investments Ltd. (1986), 1986 2794 (ON SC), 56 O.R. (2d) 480, [1986] O.J. No. 2955 (S.C.), not folld Other cases referred to Hughes v. Graves, 2001 NSSC 68, [2001] N.S.J. No. 179, 194 N.S.R. (2d) 51, 606 A.P.R. 51, 25 C.B.R. (4th) 255 (S.C.); 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.) Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 178 [as am.], 183 [as am.], 193 [as am.] Rules and regulations referred to Bankruptcy and Insolvency General Rules, C.R.C., c. 368, s. 3 [as am.] Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.04(2), 45.01(1), 56.01, 61.06(1) [as am.] Authorities referred to Houlden, L.W., et al., The 2006 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2006)
Richard D. Howell, for moving party. A. Melvin Sokolsky, for responding party.
[1] DOHERTY J.A. (in chambers): -- The respondent, Mr. Di Paola, moves for security for costs pursuant to rule 61.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[2] The appeal is brought by Participative Dynamics Inc. ("Participative") from an order of Ground J. dismissing Participative's motion for an order allowing it to continue certain proceedings against Mr. Di Paola.
[3] Participative obtained a substantial money judgment against Mr. Di Paola in 1994. The trial judge found that Mr. Di Paola had breached his fiduciary duty to Participative. The trial judgment was affirmed by this court in 1997. The judgment had not been satisfied when Mr. Di Paola went bankrupt in 2001. He was discharged from bankruptcy in 2002. In 2006, Participative brought a motion claiming that its judgment survived Mr. Di Paola's discharge by virtue of s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA"). Ground J. dismissed the motion holding that the breach of fiduciary duty underlying the 1994 judgment was not the kind of breach that would cause the debt to survive Mr. Di Paola's discharge from bankruptcy.
[4] Earlier in these appeal proceedings, Participative brought a motion for an order extending the time within which to bring its appeal. Sharpe J.A. granted the motion and in the course of doing so, found that Participative had "an arguable appeal". I see no reason to depart from my colleague's holding. The material before me does not permit any better assessment of the merits of this appeal. I proceed with this motion on the basis that the appeal is arguable.
[5] A review of the material filed before Ground J. indicates that the motion giving rise to the judgment under appeal was brought in the bankruptcy proceedings. Neither party argues that the bankruptcy court did not have jurisdiction to entertain the motion. It should be noted, however, that there is authority holding that post-discharge claims to recover debts on the basis that the debts were not released by the bankrupt's discharge should be brought by way of an action in ordinary civil courts; L.W. Houlden et al., The 2006 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2006), p. 791; Hughes v. Graves, 2001 NSSC 68, [2001] N.S.J. No. 179, 25 C.B.R. (4th) 255 (S.C.) at pp. 258-61 C.B.R.
[6] As the motion was brought in the bankruptcy proceedings, this appeal is governed by s. 193 of the BIA. Neither the BIA nor [page557] the relevant bankruptcy rules address the question of security for costs on appeal. Consequently, the Rules of Civil Procedure apply: BIA, s. 183(2) (Bankruptcy and Insolvency General Rules, C.R.C., c. 368, s. 3).
[7] Counsel for Mr. Di Paola relies primarily on rule 61.06(1)(b). It provides that a judge of the Court of Appeal may make an order for security for costs where that order "could be made against the appellant under rule 56.01". Broadly speaking, rule 56.01 governs the making of security for costs orders in the trial court. Counsel for Mr. Di Paola relies on 56.01(1)(d) which states:
56.01(1) 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,
(d) the plaintiff or applicant is a corporation ... 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.
(Emphasis added)
[8] By incorporating rule 56.01, rule 61.06 provides that a respondent in an appeal, who was a defendant/respondent in the proceedings in which the appeal is taken may, if the criteria set out in rule 56.01 are met, obtain an order of costs against an appellant who was a plaintiff/applicant in the proceedings in which the appeal is taken: see Toronto-Dominion Bank v. Szilagyi Farms Ltd. (1988), 1988 4745 (ON CA), 65 O.R. (2d) 433, [1988] O.J. No. 1223 (C.A.).
[9] Counsel for Participative submits that rule 56.01 only applies to orders made "in a proceeding" and not to orders made on a motion brought in a proceeding. Counsel submits that the order of Ground J. was made on a motion and was not an order made in a proceeding.
[10] Counsel relies on Mutual Life Insurance Co. of Canada v. Buffer Investments Ltd. (1986), 1986 2794 (ON SC), 56 O.R. (2d) 480, [1986] O.J. No. 2955 (S.C.) and Société Sepic S.A. v. Aga Stone Ltd. (1995), 1995 1891 (ON CA), 21 O.R. (3d) 542, [1995] O.J. No. 54 (C.A.) (Osborne J.A. in chambers). Société Sepic S.A. does not assist Participative. Osborne J.A. held that rule 61.06(1), by its terms, applied to "appeals" and not to applications for leave to appeal. He held that the distinction between an appeal and an application for leave to appeal was well understood and could not be ignored when interpreting the language of rule 61.06. His analysis is not germane to the issue raised on this motion.
[11] Buffer Investments Ltd. does support Participative's position. If I understand that judgment correctly, it draws a [page558] distinction between motions that commence a proceeding and are, therefore by definition, applications, and motions brought in the course of proceedings that have been commenced by action or application. Buffer Investments Ltd. holds that a motion brought in a proceeding cannot be the basis for a security for costs order made under rule 56.01.
[12] I cannot agree with the distinction drawn in Buffer Investments Ltd. I think rule 56.01 speaks to proceedings without qualification. A motion brought in the course of a proceeding is as much a part of that proceeding as any other step in the process. A party who is a defendant or a respondent in a proceeding does not lose that status because a motion is brought in the proceeding. Similarly, the plaintiff or applicant in the proceeding remains a plaintiff or applicant even when a motion is brought. Rule 56.01 looks to the status of the parties in the proceeding. In my view, it permits defendants/respondents in the underlying proceeding to move for security for costs. Rule 56.01 does not exclude a defendant/ respondent in a proceeding from seeking security for costs in a motion brought in the course of the proceedings. In so holding, I do not suggest that rule 56.01 is the only avenue by which a defendant/respondent on a motion may obtain security for costs. Motion judges have a broad discretion to impose appropriate terms when granting relief on motions. In some situations, an order for security for costs will be an appropriate term on which the relief sought by the moving party on the motion is granted.
[13] My rejection of the distinction drawn in Buffer Investments Ltd. does not, of course, compel the conclusion that rule 56.01 is available to Mr. Di Paola in these circumstances. Counsel for Mr. Di Paola referred me to Canada v. MKM Manufacturing Ltd., 2003 BCCA 652, [2003] B.C.J. No. 2672, 48 C.B.R. (4th) 222 (C.A. Chambers). That case did not involve a motion for security for costs pending appeal. Levine J.A. made an order for security for costs in an appeal taken in a bankruptcy matter. However, she made that order as a term of granting an extension of time within which to bring an appeal. Appeal courts have a broad discretion to impose terms when granting an extension of time. R. v. MKM Manufacturing Ltd. does not assist me in interpreting the security for costs provisions in the Ontario Rules of Civil Procedure.
[14] Clearly, the language of rule 56.01 is not tailor-made for the circumstances of this case. The proceeding for the purpose of rule 56.01 is the bankruptcy proceeding. Mr. Di Paola, who seeks the order, is not a defendant/respondent in those proceedings. Similarly, Participative, against whom the security for [page559] costs order is sought, is not a plaintiff/applicant in the bankruptcy proceeding.
[15] A similar problem arose in Re Fabricut Ltd., [1985] O.J. No. 1729, 54 C.B.R. (N.S.) 84 (S.C.). A trustee in bankruptcy moved for an order for the interim preservation of property in an ongoing bankruptcy. The trustee relied on rule 45.01(1) that applied to property that was relevant to an issue in "a proceeding". It was argued that the motion brought by the trustee in the bankruptcy proceedings for a preservation order was not "a proceeding".
[16] McKinlay J. referred to rule 1.04(2), the so called analogy rule:
1.04(2) Where matters are not provided for in these rules, the practice shall be determined by analogy to them.
[17] She held that the motion brought by the trustee was sufficiently akin to an action as defined in the rules to justify analogizing the trustee's motion to an action, thereby bringing it within the definition of proceeding.
[18] I think Participative's motion is sufficiently analogous to an action to warrant treating that motion brought in the bankruptcy proceedings as a discrete proceeding for the purposes of rule 56.01. Participative, like a plaintiff, has initiated a proceeding in which it seeks an order permitting it to enforce a money judgment against Mr. Di Paola. Like a defendant in an action, Mr. Di Paola has been brought into court by Participative and is required to defend himself against the claim. Rule 56.01(d) is designed to afford some protection against the costs of defending against claims initiated by corporations who are immune to any costs consequences of the lawsuit because they have no assets in the province. That policy is at much in play on this motion as it would have been had Participative brought an action on the judgment.
[19] The analogy is made all the more compelling if as indicated in Houlden et al., supra, at p. 791:
The proper procedure to recover a debt which is not released by an order of discharge is for the creditor to bring an action in the ordinary civil courts.
[20] Had Participative brought an action, or even a motion in the action in which it got judgment in 1994, Mr. Di Paola would have been a defendant and Participative would have been a plaintiff.
[21] I would follow the lead of McKinlay J. and analogize the motion brought by Participative to an action and hold that for the purposes of rule 56.01 it is a proceeding. Once the analogy is [page560] made, the application of rule 56.01 becomes straightforward. Mr. Di Paola is a respondent and Participative is an applicant.
[22] Participative concedes that it has no assets. Given that concession, it falls to Participative to show why it should be permitted to proceed without providing security for costs. If I understand Participative's position correctly, it asserts it is impecunious and that any order for security for costs will effectively end its appeal. Implicit in this submission is the claim that Mr. Di Paola is at least partially responsible for Participative's impecuniosity.
[23] I accept that Participative has no assets. I have no information before me, however, of what assets Participative may have available to it to fund its appeal. Presumably, its appeal is being funded by some source outside of the company. I am not prepared to assume that Participative could not gain access to sufficient assets to comply with a security for costs order that I might make. The availability of those assets may turn on a careful assessment on the merits of the appeal by the putative funder of the appeal. As indicated earlier, I am not in a position to assess those merits.
[24] Rule 56.01 applies and by its terms Mr. Di Paola is entitled to security for costs. The figures provided by counsel for Mr. Di Paola were not challenged. Based on those figures, I would order security for costs in the amount of $10,000 to be posted within 30 days of the release of these reasons. I assume counsel can agree upon the nature of the security. Failing agreement, counsel may arrange a conference call with me.
[25] Mr. Di Paola has been successful on the motion and is entitled to his costs fixed at $1,500, inclusive of disbursements and GST.
Motion granted.