Court of Appeal for Ontario

Date: 2017-08-10

Docket: M47518 (C62351)

Epstein J.A. (In Chambers)

Between

York University Plaintiff (Respondent) (Moving Party)

and

Michael Markicevic, Janet Fleming, Mima Veronica Markicevic, Aleeyah Apparel Inc., operating as A-Tech Construction and Design Inc., Aleeyah Inc., AFC Inc. operating as Arsenal Facility Consulting Inc., Toronto Engineering Company, Guga's International, Canadian & American Concrete Renovation & Drain-Layer Ltd., Roman Ritacca, Luigi Lato, Phil Brown, Riaz Jadavji, Helen Saoulli Georgiou, Vasos Georgiou, George Saoulli, Georgia Saoulli, Guram Sekhniashvili, Gia Sekhniashvili, John Doe #1, John Doe #2, John Doe #3, Jane Doe #1, Jane Doe #2 and Jane Doe #3 Defendants (Appellant) (Responding Party)

Counsel:

• William C. McDowell and Brian Kolenda, for the moving party
• Daniel Zacks and Jamie Spotswood, for the responding party

Heard: May 5, 2017

Reasons for Decision

Overview

[1] The respondent in appeal, York University, seeks security for costs of the appeal against the appellant, Michael Markicevic.

[2] After a lengthy trial, Mr. Markicevic was found to have defrauded York and was ordered to pay over $1.8 million in damages plus $1.37 million in costs. He was also found to have made fraudulent conveyances to his partner and daughter of certain property he owned. At the material time, Mr. Markicevic was the Assistant Vice-President of York's Campus Services and Building Operations.

[3] Although, in his evidence on the motion, Mr. Markicevic appears to maintain his innocence, he has not appealed either finding - that he defrauded York or that he conveyed property in order to defeat the interests of his creditors. Instead, in his appeal, Mr. Markicevic focuses on two grounds; one concerning the implications of a mutual release (the "Release") signed by all parties, and the other concerning whether York's claims against him were statute barred.

[4] For the reasons that follow, I have determined to exercise my discretion and order security for costs.

Facts

[5] On December 17, 2009, the President of York, Dr. Mamdouh Shoukir, met with other senior York officials to discuss allegations of fraud concerning Mr. Markicevic. The meeting was arranged when Noel Badiou, an ombudsman-type employee at York, advised Dr. Shoukir that a number of undisclosed York employees had brought to his attention certain allegations that Mr. Markicevic had defrauded York. However, at this point, no witnesses were willing to come forward on the record. Mr. Badiou met again with Dr. Shoukir on January 17 and 19, 2010. Mr. Badiou's notes of these meetings, which were agreed by the parties to be admissible at trial, indicate that at this time there were three separate sources of allegations of Mr. Markicevic's "financial inappropriateness".

[6] On January 28, Mr. Markicevic sent a letter to Dr. Shoukir, Gary Brewer, York's Vice-President Finance and Administration, and Harriett Lewis, York's General Counsel, denying the rumours that he was involved in fraud. Mr. Markicevic steadfastly maintained that he "managed the University's resources with the utmost of integrity".

[7] Ultimately, on January 29, a whistleblower came forward and met with Dr. Shoukir, Ms. Lewis and Mr. Badiou. At this meeting the whistleblower provided a package of documents. These documents added additional credibility to the allegations of fraud against Mr. Markicevic.

[8] Later that day, Mr. Markicevic was confronted by Ms. Lewis and Mr. Brewer with this documentary evidence and, once again, with the allegations themselves. Mr. Markicevic repeated his denial of any inappropriate activity.

[9] On February 1, Dr. Shoukir met with Ms. Lewis, Mr. Brewer and Bruno Bellissimo, the head of York's internal audit team, to determine a course of action in dealing with Mr. Markicevic. Mr. Brewer recommended that Mr. Markicevic's employment be terminated without cause. Dr. Shoukir approved this recommendation. York's President also instructed Mr. Bellissimo to investigate the fraud allegations.

[10] Over the course of that day (February 1) Mr. Brewer and Mr. Markicevic negotiated the terms of a severance agreement that included the Release. The Release was executed on February 2nd. Under the terms of the severance agreement Mr. Markicevic's employment was terminated without cause and York agreed to pay him 36 months gross salary ($696,166).

[11] The relevant sections of the Release stated the following:

2.a) In consideration of this Release and Undertaking, YORK UNIVERSITY (the Releasee) hereby remises, releases and forever discharges the Releasor, of and from all manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, complaints, human rights applications, claims and demands for money, damages, loss, or injury of any nature or kind whatsoever, that the Releasee ever had or now has against the Releasor, that York University and its present and former directors, officers, employees, Board of Governors, agents, servants and insurers as the case may be ever had or now has against the Releasor, for or by reason of, or in any way arising out of the Releasor's employment with York University.

b) York University (the Releasee) confirms that it shall not take any steps or initiate any proceedings against the Releasor … in respect of, or arising out of the Releasor's employment with York University. The Releasee acknowledges that the Releasor does not, by the consideration aforesaid or otherwise, admit any liabilities or obligations of any kind whatsoever.

c) The Releasee confirms that this Release is a complete bar to any proceeding of any kind involving any claim, complaint or demand against the Releasor for any cause, matter or thing, except for breaches referred to in paragraph 3 hereof.

[12] York received legal advice during these negotiations. In the first draft of the Release, York included a clause that released Mr. Markicevic from all claims "but for claims heretofore unknown to the Releasor arising out of any illegal acts". York ultimately agreed to remove this carve-out for unknown claims from the Release.

[13] York commenced an action against Mr. Markicevic on January 26, 2012, claiming substantial damages and related relief for deceit, conversion, breach of fiduciary duty, knowing receipt and conspiracy. Mr. Markicevic, in addition to denying that he committed any fraud, took the position that the Release precluded York from bringing the action, and that the action was statute barred, on the basis that York had discovered the claim by mid-December 2009.

[14] The trial judge summarily dealt with both of these issues – the impact of the Release and whether York's action was brought outside of the limitation period.

[15] In terms of the Release, the trial judge reasoned that as a fiduciary, Mr. Markicevic had a positive obligation to disclose to York the full extent of his fraudulent activity. Instead, Mr. Markicevic had done the opposite and had actively denied that he had done anything improper. The trial judge reasoned that as a result of this intentional and material non-disclosure, the severance agreement, including the Release, should be set aside. Additionally, Mr. Markicevic's denial of any wrongdoing amounted to a material misrepresentation, entitling York to rescission of the severance agreement, including the Release. (I note here that, at trial, the parties agreed to lead evidence of the Release negotiations and drafts on the basis that the trial judge would rule on the admissibility of this evidence at the end of the trial. However, the trial judge did not provide the ruling.)

[16] In terms of the limitation period issue, the trial judge stated that although employees had approached Mr. Badiou with complaints about Mr. Markicevic's financial impropriety in December 2009, none had been willing to go on the record at that time. It was not until January 29, 2010 that the whistleblower went on the record, and provided documents to Ms. Lewis. The trial judge held that this was the earliest date that York could be said to have discovered its potential claim against Mr. Markicevic. Accordingly, the claim was not statute barred, as it was brought within two years of this date.

Analysis

A. The Test for Security of Costs

[17] The test for security for costs for an appeal is set out in Rule 61.06(1)(a) and (c) of the Rules of Civil Procedure. These provide that, in an appeal where it appears that:

(a) there is good reason to believe that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeal;

(c) for other good reason, security for costs should be ordered,

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.

[18] The language of r. 61.06 is permissive, not mandatory. As noted by Watt J.A. in Pickard v. London Police Services Board, 2010 ONCA 643, a respondent is not entitled as of right to an order for security for costs, even where the requirements of the applicable paragraph of r. 61.06(1) are met. The permissive "may" reserves to the motion judge a vestige of discretion to refuse the order. The overarching principle to be applied to all the circumstances is the justness of the order sought: Pickard at para. 17, Galustian v. SkyLink Group of Companies Inc., 2010 ONCA 645, at para. 26.

[19] In my view, r. 61.06 calls for a two-part analysis. Initially, the moving party bears the onus of demonstrating that the appellant falls within the rule. Under r. 61.06(1)(a), York must demonstrate that it appears that there is good reason to believe that Mr. Markicevic's appeal is frivolous and vexatious, and that he lacks sufficient assets in Ontario to pay the costs of the appeal. Alternatively, under r. 61.06(1)(c), York must demonstrate that it appears for other good reason that security for costs should be granted (Miller v. Taylor, 2010 ONCA 17, at para. 3; 635967 Ontario Ltd. v. Thompson, 211 O.A.C. 187 (Div. Ct), at para. 13). However, as noted in Pickard, satisfying either onus does not necessarily mean that York has a right to security for costs. In my view, as is the case under r. 56.01, that deals with security for costs at trial, satisfying the initial onus triggers an inquiry into the justness of the order sought.

[20] More recent jurisprudence under the closely related r. 56.01, that deals with security for costs at trial, indicates that once the moving party demonstrates that the responding party falls within one of the categories contained in r. 56.01, an inquiry is triggered. (Zeitoun v. Economical Insurance Group, 91 O.R. (3d) 131 (Div. Ct.), at para. 44, aff'd 2009 ONCA 415, 96 O.R. (3d) 639). Once the inquiry is triggered "the court must then take into account a number of factors and make a just order. Such factors include the merits of the claim, the financial circumstances of the plaintiff and the possibility that an order for security may prevent a bona fide claim from proceeding. There is a broad discretion in the court in making such order as is just": Stojanovic v. Bulut, 2011 ONSC 874, 10 C.P.C. (7th) 265 (Master), at para. 5.

[21] The language of "triggers the inquiry" has never been explicitly applied under r. 61.06(1). However, given the connection between the two rules, I am of the view that, under r. 61.06(1), as under r. 56.01, a finding that the appellant fits with the relevant provision of the rule, requires the court to go on to consider whether the order sought would be "just" in the circumstances of the case.

[22] Accordingly, even if I conclude that York satisfies the requirements of r. 61.06(1)(a) or (c), I must go on to determine whether an order for security for costs would be just. Such a determination requires balancing the responding party's right to access to justice against the moving party's right to protection from having to defend unmeritorious positions in circumstances in which it is unlikely to recover its costs.

B. Security for Costs under Rule 61.06(1)(a)

I. Legal Principles

[23] As noted by the Court of Appeal in Grenier v. Southam Inc., 19 O.R. (3d) 799 (In Chambers), r. 61.06(1)(a) is conjunctive. Accordingly, York bears the burden of demonstrating that there appears to be good reason to believe the appeal is frivolous and vexatious and that Mr. Markicevic has insufficient assets in Ontario to pay for the costs of the appeal.

[24] As noted in Pickard, at para. 18, the standard imposed by "good reason to believe" does not demand that the motion judge reach a definitive conclusion. Rather, it suggests a tentative conclusion of absence of merit and insufficiency of assets. After all, the order for security for costs is neither dispositive of the appeal nor fully informed. The standard reflects an appropriate balance of competing interests, not demanding too much of the responding party or settling for too little for the moving party.

II. Insufficiency of Assets to Pay the Costs of the Appeal

[25] In his affidavit evidence, Mr. Markicevic outlines, with supporting documentation, the poor state of his finances. He states that his income is limited to a Canadian Pension Plan Disability Benefit. He has few assets, having dissipated his RRSPs to pay legal expenses, and his bank account has a current balance of $2,960. He owes his trial lawyers roughly $1.1 million dollars after already having paid them $220,000. He also has not paid the outstanding cost award from trial. His partner (Janet Fleming) works as a teacher. Mr. Markicevic admits that in March 2017 he received a transfer of nearly $40,000 from her father in order to pay outstanding and overdue fees of his appeal counsel. However, he submits that he can no longer borrow from commercial lenders or from family or friends.

[26] The major assets in issue are two real estate properties – 124 Woodville Drive, and 211 Osprey Road. Mr. Markicevic purchased the Woodville property in 2007, for $547,990, and at closing put title in the name of his daughter, Mimi Markicevic. The trial judge found that this transfer was a fraudulent conveyance, and ordered that York could pursue its remedies as judgment creditor as if Mr. Markicevic were still the legal and beneficial owner of the property. Mr. Markicevic and Ms. Fleming currently reside in the basement of this property. Mr. Markicevic's trial lawyers have two charges against the Woodville property in the amount of $1,707,000, subject to a first charge in favour of York in the amount of $143,000.

[27] The Osprey Road property was purchased by Mr. Markicevic in 1987. In 2010 he transferred it to Ms. Fleming. The trial judge found this transfer also to be a fraudulent conveyance, and ordered that York could pursue its remedies as judgment creditor as if Mr. Markicevic were still the legal and beneficial owner of the property. The mortgage balance on the property is currently $359,163, and the regular payments are maintained by Ms. Fleming.

[28] In his affidavit, Mr. Markicevic states that he cannot encumber or access equity that may remain in either property. In January of 2013, Brown J. restrained the Markicevic defendants (including Mima Markicevic and Ms. Fleming) from selling or encumbering the two properties, and granted York leave to place certificates of pending litigation on title to them. By order dated June 25, 2013, Brown J. removed the certificate of pending litigation against the Woodville property and authorized its sale or mortgage. However, this order was on the condition that the proceeds from any sale or financing be used only to pay for the future legal costs of the Markicevic defendants, and that $143,000 be paid into court to secure York's claims. The balance of proceeds from any sale or financing was to be put into the trust account of Mima Markicevic's counsel. This order was upheld by a three-judge panel of the Divisional Court, with reasons reported at 2014 ONSC 3227. By agreement of the parties, this order of Brown J. was implemented by means of the charges referenced above.

[29] On March 21, 2017, following the conclusion of trial, Mr. Markicevic agreed to an order setting aside the June 2013 order of Brown J. The trial judge ordered that the Markicevic defendants be restrained from selling or further encumbering either the Woodville or Osprey property without the prior consent of York or further order of the Court, and that "none of the Markicevic defendants or any of their lawyers shall have resort to any of the equity in 124 Woodville or 211 Osprey, or any of the proceeds thereof, to pay any fees, disbursements or taxes related to steps taken in respect of any pending or future appeals in this action". Mr. Markicevic states in his affidavit that "I disagree with York's ability to take these enforcement steps before the appeal is determined. However, I do not have the resources to oppose York, and on that basis alone, I have had to consent to York's order".

[30] The evidence establishes that whatever equity there may be in either property is frozen and cannot be accessed by Mr. Markicevic. And York, in the affidavit it has filed sworn by a law clerk at the law firm representing the university, agrees that there is no evidence of any other assets.

[31] This record supports a finding that there is good reason to believe that Mr. Markicevic has insufficient assets in Ontario to pay the costs of the appeal.

III. Is There Good Reason to Believe This Appeal is Frivolous and Vexatious?

[32] Having determined that there appears to be good reason to believe Mr. Markicevic lacks assets in Ontario to pay the costs of his appeal, I will now consider whether there is good reason to believe that the appeal appears frivolous and vexatious. The meaning of "frivolous and vexatious" was explored in Pickard, at para. 19:

A frivolous appeal is one readily recognizable as devoid of merit, as one having little prospect of success. The reasons may vary. A vexatious appeal is one taken to annoy or embarrass the opposite party, sometimes fuelled by the hope of financial recovery to relieve the respondent's aggravation.

[33] Rule 61.06(1)(a) requires that the appeal appear to be frivolous and vexatious. Given the way the rule is worded, the mere fact that an appeal appears to be devoid of merit, i.e. appears to be frivolous, is insufficient. Pickard suggested distinct requirements for "frivolous" and "vexatious". Likewise, Sharpe J.A. in Perron v. Perron, 2011 ONCA 776, 286 O.A.C. 178 (In Chambers), found that the appeal had "a very low prospect of success", and that it was "very unlikely" the panel hearing the appeal would intervene. However, he declined to label the appeal as appearing "frivolous and vexatious", finding that the appellant sincerely believed in the importance and merits of the appeal. Perron was relied upon by the Divisional Court in Baker v. Rego, 2013 ONSC 3309, 31 R.F.L. (7th) 323, when it considered the distinct requirements of "frivolous" and "vexatious". Justice McDermott cited Perron to hold that the fact that an appeal has very little chance of success is insufficient, on its own, to allow a finding that the appeal appears frivolous and vexatious within the meaning of r. 61.06(1)(a). Justice McDermott stated the following, at para. 22:

[T]here must be something more than a low prospect of success. The words "frivolous and vexatious" imply that the appeal must not only have a minimal chance of success; there must be good reason, on the facts surrounding the litigation, or from the conduct of the appellant, which could lead to a finding that the appeal is without merit and is brought for some other purpose than as is on its face, such as to harm a party or delay the proceedings or a given result…The expectation of minimal success on the appeal will not alone suffice; the appeal must either be "devoid of merit" or there must be some other factor allowing a finding that the appeal is frivolous and vexatious.

[34] York argues that the Court need "only find that there are good reasons to believe that the appeal is so devoid of merit to be frivolous and vexatious". For this principle it quotes Schmidt v. Toronto Dominion Bank, 24 O.R. (3d) 1 (C.A.): "a judge hearing a motion for security for costs may reach the tentative conclusion that an appeal appears to be so devoid of merit as to give "good reason to believe that the appeal is frivolous and vexatious" without being satisfied that the appeal is actually totally devoid of merit". However, in my view focusing only on this paragraph is an error. Later in the same judgment, the court held the following:

"the apparent merits of the appeal, the presence or absence of an oblique motive for the launching of the appeal, and the appellant's conduct in the prosecution of the appeal will be relevant to a determination of whether there appears to be good reason to believe that the appeal is frivolous and vexatious. No doubt, in specific cases, other factors will also be relevant".

[35] An appeal that appears to rise even to the level of "low prospect of success" or "unlikely to succeed" is not "frivolous and vexatious". To find that an appeal is "frivolous and vexatious" there must be something that supports the conclusion that the appeal is "vexatious" in order for security for costs to be available under r. 61.06(1)(a).

[36] There is no evidence that Mr. Markicevic, in his conduct during this litigation, has done anything that would support a finding that this appeal is "vexatious". Unlike in Pickard, Mr. Markicevic did not file a claim out of time and disclosing no reasonable cause of action. Unlike in Henderson v. Wright, 2016 ONCA 89, 345 O.A.C. 231, it cannot be said that he has been less than diligent in his pursuit of the litigation. Unlike in Szpakowsky, he does not have a lengthy history of non-compliance with cost awards and court orders. Unlike in Schmidt, Mr. Markicevic has not failed to comply with the rules, and did not only move to perfect the appeal when forced to do so. There is no evidence that Mr. Markicevic is pursuing his appeal for reasons other than he believes it has merit.

[37] My conclusion that the record does not support a finding that the appeal is vexatious means that York is not able to satisfy the test under r. 61.06(1)(a).

[38] This does not mean that an analysis of whether the appeal has any merit becomes unnecessary. The merits of the appeal remain relevant to the determination of what is just in the circumstances of the case. I now turn, therefore, to my assessment of this issue.

a) Limitation Period

[39] On the limitations issue, Mr. Markicevic is essentially claiming that the trial judge erred in finding that the earliest that York's claim was discoverable was January 29, 2010 and hence that York had commenced its action in time. I agree with York's submission that the question of discoverability is one of mixed fact and law, as it requires the application of s. 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, to the facts of this case. York cites the following from Longo v. MacLaren Art Centre Inc., 2014 ONCA 526, 323 O.A.C. 246, at para. 38: "The question of whether a limitation period expired prior to the issuance of a statement of claim is a question of mixed fact and law. Thus, the issue for determination on this appeal is whether the motion judge made a palpable and overriding error in concluding that the claim was statute barred".

[40] Accordingly, it will be difficult for Mr. Markicevic to show that the trial judge erred in holding that, applying the test found in the Limitations Act, 2002, the claim was discoverable, at the earliest, on January 29, 2010. However, I do agree that several of the points Mr. Markicevic raises are at least arguable. By way of example, in her four paragraph analysis on this issue, arguably the trial judge did not make certain important findings of fact. It is also arguable that the trial judge raised the standard required for a claim to be discoverable from one of prima facie knowledge (that Mr. Markicevic alleges York had in December, 2009 when some allegations of financial impropriety were first brought to the attention of Mr. Badiou) to one of knowledge that the allegations were reliable, achieved only when the whistleblower went on the record. Such an error, if demonstrated, would be one of law, reviewed on the standard of correctness. I do not view these arguments as appearing to be frivolous.

[41] Finally, York advances the position in its factum that where a fiduciary conceals essential aspects of his involvement in wrongdoing, the beneficiary will not be taken to have discovered a claim. Although not cited, I take York to be invoking equitable fraud, stated by the Supreme Court in R. v. Guerin, [1984] 2 S.C.R. 335, thusly:

It is well established that where there has been a fraudulent concealment of the existence of a cause of action, the limitation period will not start to run until the plaintiff discovers the fraud, or until the time when, with reasonable diligence, he ought to have discovered it.

[42] This argument may prove difficult for York to advance. Mr. Markicevic's position, as I understand it, is that with reasonable diligence, York could have discovered the fraud in December 2009 and that any concealment by him after that point in time no longer mattered. Again, it may be that the principles of equitable fraud would apply, but I do not see York's invocation of them as rendering this ground of appeal no longer arguable.

b) The Release

[43] Mr. Markicevic submits that there is no impediment to granting a release in fraud, provided that the fraud claim is in the contemplation of the Releasor at the time the release is entered into. Mr. Markicevic alleges that the trial judge erred in finding he had a positive duty to disclose, given that at the time of execution of the Release, York: a) was aware of allegations of fraud against him and the existence of documentary evidence from the whistleblower b) had directed its internal audit team to conduct an investigation, and c) was in possession of an email from Stephen Jacobson, York's Director of Financial Services for the Campus Services and Business Operations that he (Mr. Jacobson) had seen documents evidencing criminal activity on the part of Mr. Markicevic. Mr. Markicevic also relies on evidence of the negotiations of the Release (the admissibility of which, as previously indicated, was never ruled upon), showing that York, with the advice of counsel, agreed to exclude the carve-out of "claims heretofore unknown to the Releasor arising out of any illegal acts".

[44] Mr. Markicevic relies on Isailovic v. Gertner, 2008 ONCA 895, for these propositions. In that case, the trial judge made the following comments, at paras. 64, 72 (reported at 2008 CarswellOnt 244):

Nondisclosure, fraud or misrepresentation can vitiate a release. However, the nondisclosure, fraud or misrepresentation must be material to the person entering into the agreement. Furthermore, an agreement cannot be set aside for failure to disclose what one suspected, even if the party had a duty to disclose.

The parties entered into a release settling the matters between them. The reasons that Mr. Isailovic has put forward are not a basis for setting aside the agreement between the parties. In particular, his concerns with respect to the lack of disclosure, lack of reporting and diversion of funds were concerns that he had prior to entering into the settlement negotiations. He made a choice to proceed with the settlement, even though his concerns may not have been satisfied. The settlement precludes him from instituting an action against Mr. Gertner.

[45] The trial decision was upheld by the Court of Appeal, which held, at paras. 2-3, that:

The appellant knew that the respondent was a fiduciary. He knew that the respondent had not fully disclosed the financial dealings on the property… he knew that there was "$95,410 in play". Yet, with all this knowledge, the appellant nonetheless decided to compromise his non-disclosure claim and signed the release. He did so with the benefit of legal advice… In these circumstances, he can no longer complain about the respondent's conduct.

[46] Mr. Markicevic also relies upon Radhakrishnan v. University of Calgary Faculty Assn., 2002 ABCA 182, 215 D.L.R. (4th) 624. In this case, at paras. 67-68, 71, the Alberta Court of Appeal noted that:

In negotiating even a contract of the utmost good faith, one need not disclose a fact which the other party already knows… The same is true of a contract with a fiduciary where the beneficiary already knows the fact not disclosed… Here the appellant did not know a fact, but suspected it, and decided to compromise instead of compelling disclosure of fact. Such a contract of compromise cannot be set aside on the ground that the fact suspected was not disclosed… Any suggestion that one party could upset a contract freely entered into, because of prior failure to disclose to him a fact which he suspected and believed before the contract, is startling. The whole idea of misrepresentation as a ground to upset a contract is that one entered into the contract under a false belief induced by the other party to the contract. Relief from a contract for breach of a duty to disclose proceeds on similar reasoning.

[47] The trial judge held that non-disclosure by a fiduciary, such as Mr. Markicevic, in itself, entitled York to set aside the Release. She further held that Mr. Markicevic made a material misrepresentation in denying wrongdoing.

[48] In my view, considering that the evidence would seem to indicate that York had some knowledge or suspicions of the fraud when it executed the Release, the correctness of the trial judge's holdings on this issue is at least called into question by Isailovic and Radhakrishnan.

[49] There is also the issue of the trial judge's failing to explicitly rule on the admissibility of the negotiations over the Release. Mr. Markicevic relies on this alone as an error of law. Again, it is not necessary to opine on the likely success of this ground of appeal. It is sufficient that this ground is neither plainly devoid of merit, nor frivolous. While perhaps not likely to succeed, I am of the view that it is arguable.

[50] York raises an alternative argument in its factum (one that it says it argued below, but the trial judge did not find necessary to decide). York states that the Release did not actually release York's claims against Mr. Markicevic as the Release does not expressly include unknown or future claims.

[51] However, the Release does cover any claims York "now has" against Mr. Markicevic. Simply because the claim was (according to York) not yet discovered at the time the Release was signed does not mean it did not then exist. On the trial judge's own findings, it was arguably already discoverable by this point given the information and documentation York had been provided by the whistleblower. The fact that the carve-out of "unknown claims arising from illegal acts" was removed from the Release during the negotiations may also be relevant to Mr. Markicevic's position on this issue.

[52] Although I am of the view that Mr. Markicevic's appeal will be an uphill battle, it cannot be described as being devoid of merit.

C. Security for Costs under Rule 61.06(1)(c)

[53] This takes me to whether security for costs should be granted pursuant to r. 61.06(1)(c). In considering the proper interpretation of r. 61.06(1)(c), the comments of Laskin J.A. in Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633, 286 O.A.C. 172 (In Chambers), at para. 8, are helpful:

What constitutes "other good reason"? The court does not have a closed list of cases in which security for costs has been ordered under the residual category. The list of reasons justifying security under the residual category is open ended. However, the "other good reason" must be related to the purpose for ordering security: that a respondent is entitled to a measure of protection for costs incurred and to be incurred in the proceeding, which is now on appeal. And, the "other good reason" should be a fairly compelling reason, as the respondent cannot meet the requirements of either of the first two categories. Security for costs awards under the residual category are not to be made routinely.

[54] York submits that this court's decisions under r. 61.06(1)(c) establish that a finding of fraud at trial amounts to another "good reason" to order security for costs in an appeal. York points to the following cases: Hall-Chem Inc. v. Vulcan Packaging Inc., 72 O.A.C. 303 (In Chambers) (C.A.); Royal Bank of Canada v. Hi-Tech Tool and Die Inc., 2013 CarswellOnt 5678 (In Chambers) (C.A.); Gardiner Miller Arnold LLP v. Kymbo International Inc., 2006 CarswellOnt 9436 (In Chambers) (C.A.); and 798839 Ontario Ltd. v. Platt, 2014 O.J. No. 6077 (In Chambers) (C.A.). In each case, the motion judge took into account the fact that the trial judge had made a finding of fraud against the appellant. And, in each case the motion judge referred to the danger of dissipation of assets.

[55] Mr. Markicevic's position is that, in appropriate circumstances, a finding of fraud may be "other good reason" to order security for costs. However, he submits that a finding of fraud alone does not justify ordering security for costs. What is required is evidence that supports an inference that an appellant found liable for fraud will dispose of assets in order to prevent the respondent from satisfying cost awards. Mr. Markicevic submits that as there are no assets remaining to dispose of in this case, no such inference is available, and therefore there is no reason to order security for costs.

[56] Each of the cases relied upon by York identified a finding of fraud against the appellant as being of some relevance to whether an order for security for costs should be granted under r. 61.06(1)(c). In relation to Hall-Chem, Weiler J.A., in her conclusion on security for costs, stated "While [the appellant's] counsel argued that this case is not one which comes within the definition of "special circumstances," I am of the view that a finding of fraud is a special circumstance". In Hi-Tech Tools, MacFarland J.A., in considering whether to order security for costs, observed that "there is authority that where a trial judge has made strong factual findings of fraud against on [sic] appellant an order for security for costs can be made". In Kymbo, Gillese J.A. stated that "the special circumstances of a finding of collusion and secret dealings to deprive [the respondent] of its costs bring of [sic] the motion within Rule 61.06 (1)(c)".

[57] Finally, in Platt, at para. 53, Simmons J.A. concluded that the appellant's fraudulent conduct required that an order for security for costs be made under r. 61.06(1)(c):

I conclude that it is likely that [the appellant] will make every effort to obstruct collection of the costs of the trial and the appeal, should he be unsuccessful on appeal. While I am not satisfied that the moving parties have demonstrated at this point that there is good reason to believe that his appeal is frivolous, I have no hesitation in characterizing it as weak. In these circumstances, I consider it appropriate that the moving parties be provided with some measure of protection against the costs of what is likely to be an unsuccessful appeal, as well as of the trial.

[58] In my view, a finding that the appellant has committed fraud, particularly if such a finding is in conjunction with a finding that the appellant has taken steps to put his assets out of the reach of his creditors, provide "other good reason" to justify an order for security for costs under r. 61.06(1)(c). However, neither of these findings – independently or collectively - mean that an order for security for costs should necessarily issue.

[59] Again I say, the objective is to reach a result that is just. This takes me to the issue of impecuniosity.

[60] Mr. Markicevic provided an affidavit with documentation that supports a finding that he is impecunious and that an order for security would deny him his ability to pursue his appeal.

[61] Beyond a sentence in its factum, York has not challenged Mr. Markicevic's contention to this effect. He was not cross-examined on his affidavit. There is no dispute that the two properties reviewed above are frozen pursuant to court order. Rather, York points out that Mr. Markicevic admits in his affidavit that he has been able, with the assistance of "family and friends", to pay his appeal lawyers at least to the date of the motion (although they were said to be acting without fees on the motion). Moreover, while stating that his "family and friends" were unable to assist further, Mr. Markicevic had not explained what other steps he had taken to find resources for the appeal or suggested that counsel would not act on the appeal despite Mr. Markicevic's apparent impecuniosity.

[62] With respect, the argument that an order for security for costs will not necessarily interfere with Mr. Markicevic's ability to pursue his appeal as he will be able to continue to rely on the generosity of friends and family, is speculative.

[63] On this record, I find that Mr. Markicevic is impecunious.

[64] This finding raises the concern that if an order for security is granted, Mr. Markicevic may not be able to continue with his appeal. This is particularly important given I have found that Mr. Markicevic's proposed appeal is not frivolous or vexatious. On access to justice grounds these two findings strongly favour dismissing the motion. See Larabie v. Montfils, 181 O.A.C. 239 (In Chambers) and Szpakowsky v. Kramar, 2012 ONCA 77, 19 C.P.C. (7th) 274.

[65] But, the inclusion of a rule as broadly worded as r. 61.06(1)(c) demonstrates that the legislators clearly contemplated circumstances, rare though they may be, in which it may be just to order security for costs even though such an order might have the effect of depriving a party of his right to pursue a potentially meritorious appeal.

[66] Here, the determination of what is just involves taking into account all circumstances relevant to the equities of the order being requested. In this regard, the following factors are also relevant:

a) the findings of fraud – serious fraudulent conduct committed by a senior officer of a public institution who was in a fiduciary capacity.

b) the finding that Mr. Markicevic took steps to protect his assets from being available to the claims of his creditors.

c) the fact that neither of these two findings have been challenged on appeal.

d) the impact of Mr. Markicevic's fraudulent conduct on the other relevant considerations under r. 61.01(6). It has left him in the position in which he has insufficient assets to pay the costs of the appeal. It has left him in the position in which he is impecunious.

[67] As I have said, there will be the rare case where it is just to order security under r. 61.05(1)(c) even if the order may deprive an appellant from pursuing an appeal that arguably has merit. As Laskin J.A. said in Combined Air, the "other good reason" must be compelling and must relate to the purpose for ordering security: that a respondent is entitled to a measure of protection for costs incurred in the appeal.

[68] I am of the view that the impact of the unchallenged fraud and related findings favour ordering security for costs. The fraud relates to the purpose for ordering security. Mr. Markicevic's fraudulent conduct permeates the entire analysis under r. 61.06(1) as it is this fraud that has largely contributed to his being in the financial position he finds himself in. In the unique circumstances of this case there is a compelling reason to make an order for security for costs.

D. Quantum of Security

[69] York seeks $150,000 in security for the costs of the appeal.

[70] York argues that in his Notice of Appeal Mr. Markicevic raises at least nine grounds of appeal. York submits that although he now has taken the position that he will only advance two grounds – the Release and the limitation period – York cannot be assured that he will not pursue the other grounds. York goes on to say that if such were the case, it would need to refer to 22 days of evidence and over 3,000 pages of transcript.

[71] I would not give effect to the argument that such a large amount should be ordered on the basis that Mr. Markicevic may change his position with respect to the issues he intends to pursue on appeal. If circumstances materially change either party can return to this court.

[72] In all of the circumstances, I order Mr. Markicevic to provide $75,000 in security for the costs of the appeal.

[73] The security ordered shall be provided within 45 days of the date of the release of these reasons in a form satisfactory to counsel for York. Mr. Markicevic shall not perfect his appeal until he has provided the security I have ordered.

Disposition

[74] For these reasons, I order Mr. Markicevic to post security for costs of the appeal in the amount of $75,000.

[75] At the conclusion of argument, counsel indicated that they would notify the court office if they were able to resolve the issue of costs. Not having heard from counsel, the following schedule is imposed for submissions as to costs. York may make brief written submissions on the costs of this motion within 15 days of the release of these reasons. Mr. Markicevic may respond within 15 days after receipt of York's submissions. York will have another 10 days to reply.

Gloria Epstein J.A.

Footnotes

[1] York does not rely on r. 61.01(1)(b), which I discuss below.

[2] In fact, security for costs were not ordered in either Hall-Chem or Hi-Tech Tools, in the former because of lack of evidence supporting the quantum of security sought and in the latter because of money paid into court.