Court of Appeal for Ontario

Citation: Markham (City), 2017 ONCA 968

Date: 2017-12-07

Docket: M48350, M48375 (C64066)

Judge: van Rensburg J.A. (In Chambers)

Parties

Between

Chinese Publications for Canadian Libraries Ltd. Plaintiff (Appellant)

and

City of Markham and Markham Public Library Defendants (Respondents)

Counsel

For the Appellant: Qiang Li Cao, in person

For the Respondents: David Boghosian and Maggie Fish

Heard: November 15, 2017

Endorsement

Background

[1] There were two motions before the court – a motion by the appellant ("CPCL") for an order setting aside the Registrar's order dismissing its appeal for delay, and a motion by the respondents (the "City") for security for costs. At the hearing of the motions, the City consented to the order setting aside the Registrar's dismissal, which was irregular, but sought an order requiring the appellant to provide security for costs as a term of the order setting aside the dismissal.

[2] The appellant's action arose from the termination of a contract for the supply of Chinese-language materials to the Markham Public Library. The appellant was the successful bidder and entered into a contract with the City. It commenced an action alleging that the City improperly terminated the contract and sought specific performance of the contract and damages. The City defended and asserted a counterclaim.

[3] The action was dismissed by Kristjanson J. on a summary judgment motion. She awarded costs of $50,000 to the City for the motion and action. The counterclaim was withdrawn during the course of the hearing of the summary judgment motion. CPCL appeals the dismissal of its action and the costs award.

Legal Framework for Security for Costs

[4] Rule 61.06(1) provides for a judge of this court to order security for costs 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; (b) an order for security for costs could be made against the appellant under rule 56.01; or (c) for other good reason, security for costs should be ordered. The court may make such order for security for costs of the proceeding and of the appeal as is just.

[5] Here, the City seeks security for costs in the amount of costs already awarded in its favour ($50,000) as well as $20,000 in security for costs of the appeal. The City argues that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeal. The City also relies on r. 56.01(d), that the appellant is a corporation without sufficient assets in Ontario to pay costs.

[6] The appellant contends that it has no money and no ability to post security for costs, and that any such order will effectively mean the end of its appeal because it is impecunious. It asserts that the appeal is not frivolous and vexatious, has merit, and should be permitted to continue.

Appellant's Financial Position

[7] As the point of departure, there is no question that the appellant has insufficient assets in Ontario to pay the costs of the appeal. Its sole source of income was the terminated contract. The financial statements of the corporation for the past three years were produced, and no issue is taken that they reflect the fact that CPCL has significant liabilities and no assets, and is accordingly judgment-proof.

Whether the Appeal is Frivolous and Vexatious

[8] The first question is whether the appeal is frivolous and vexatious. Here, in addition to its arguments about the weakness of the appeal (going to whether the appeal is frivolous), the City points to communications between the principal of CPCL, Mr. Cao, and the mayor and others at the City, to say the appeal is vexatious. The City says that Mr. Cao is attempting to use methods other than litigation to achieve his goal of reinstating the contract, and that his emails contain unfounded allegations of misconduct by City employees.

[9] To find that an appeal is "frivolous and vexatious" there must be something that supports the conclusion that the appeal is "vexatious" in the sense that it is taken to annoy or embarrass the respondent or has been conducted in a vexatious manner: York University v. Markicevic, 2017 ONCA 651 (in chambers), at paras. 19, 32 and 36; Pickard v. London Police Services Board, 2010 ONCA 643 (in chambers), at para. 19; and Henderson v. Wright, 2016 ONCA 89 (in chambers), at para. 20. Having heard Mr. Cao's arguments, and considered his notice of appeal and factum, I am satisfied that he has been pursuing the appeal with diligence and in the sincere belief that there was no justification for the termination of the contract. While he may be adopting other methods that are harassing to the City to achieve his overall objective, this conduct alone does not make his appeal vexatious. The City does not meet the test for security for costs under r. 61.06(1)(a).

Impecuniosity of the Appellant

[10] The next question is whether security for costs of the appeal should be ordered on the basis that the appellant is a corporation without assets in Ontario sufficient to pay costs.

[11] The City contends that security for costs should be ordered unless the appellant establishes that it is truly "impecunious" (without access to assets or funds), and that its appeal has some merit. If the appellant is not impecunious, security for costs should be ordered unless the appeal has a good chance of success, see: Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131 (Div. Ct.), at para. 50, aff'd on other grounds at 2009 ONCA 415, 96 O.R. (3d) 639.

[12] The City argues that Mr. Cao has failed to demonstrate that he is personally incapable of funding the appeal, or borrowing money. The City relies on Crudo Creative Inc. v. Marin et al. (2007), 90 O.R. (3d) 213 (Div. Ct.) at paras. 31-33, as authority that, where a corporate plaintiff (or appellant as in this case) has no assets and claims impecuniosity, the corporation must show that it cannot raise money through its shareholders or affiliates. The City says that there is a high onus on a party claiming impecuniosity to make full financial disclosure: Marvello Construction v. Santos et al., 2017 ONSC 3913 (Master), at para. 10.

[13] The City also refers to Yaiguage v. Chevron Corp., 2017 ONCA 741 (in chambers), where these principles were accepted and applied by a judge of this court: at paras. 25 and 26. The City acknowledges that a panel of this court reversed the decision (reported at 2017 ONCA 827), but contends that the basic principles that apply here were unaffected.

The Holistic Approach to Security for Costs

[14] In my view, the City underemphasizes the impact of the panel's decision in Chevron. It clearly signals that, while factors such as impecuniosity and merit continue to be relevant in determining whether security for the costs of an appeal should be granted, each case turns on its own facts, guided by the overriding interests of justice. The court stated at para. 25:

[E]ach 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.

Analysis of Impecuniosity

[15] First, I consider the City's arguments about the appellant's impecuniosity. The City contends that Mr. Cao's financial disclosure is insufficient to conclude that, as CPCL's shareholder, he is unable to personally fund or to raise money to fund the appeal. I disagree. The evidence indicates that Mr. Cao's sole source of income was the contract that was terminated, and that he has ongoing financial problems. Although he is the registered co-owner of a house with his son, his interest is 30% and the house is heavily mortgaged.

[16] The City also contends that CPCL has not established impecuniosity unless it proves that it or Mr. Cao is unable to borrow money from a CPCL affiliate or from family and friends. It points to CPCL's reference in its materials to an entity called Beijing Publications and Distributions Group ("BPDG") as a source for that funding as well as Mr. Cao's friends and family. I disagree. There is no evidence that BPDG is a related company, or that it could be expected to fund the appeal. Mr. Cao provided evidence of CPCL's impecuniosity as well as his own. CPCL (with the City's consent) has been represented by Mr. Cao, and not by legal counsel, so there is no necessary inference that someone is funding the litigation. The City did not cross-examine Mr. Cao on his finances or the ability of CPCL to raise money. And it is unreasonable to suggest, as the City does here, that Mr. Cao was obliged to provide evidence that no friend or family member could lend him money to fund an order for security for costs in CPCL's appeal.

[17] I am satisfied on a balance of probabilities that the appellant is impecunious. I turn now to consider the merits of the appeal.

Merits of the Appeal

[18] In granting summary judgment, the motion judge concluded that the City was entitled to terminate the contract on 30 days' notice without cause (or, as described in the contract "for convenience"), and that this was the basis on which the City gave notice of termination. The motion judge also found that there had been a number of breaches of the contract which would have justified termination for cause, such that the City was acting in good faith when it terminated the contract.

[19] The appeal challenges the motion judge's factual findings and interpretation of a contract, both of which attract a deferential standard of review. The appellant points to evidence that he says reveals an improper motive for the City's termination of the contract, and he takes issue with the alleged breaches. The appellant also asserts that he was denied procedural fairness because his first language is Mandarin and there were parts of the proceeding before the motion judge that he did not understand. As in this court Mr. Cao had the assistance of an interpreter at the summary judgment motion, and he filed a lengthy factum which the motion judge had clearly read and considered. The appeal appears to have little chance of success.

Overreach in Seeking Security for Costs

[20] I turn to other considerations. In my view, the City is overreaching in this case when it seeks to include in an order for security for costs in this court, the costs it was awarded in the Superior Court. The City contends that the appellant is in default of the $50,000 costs order, however the automatic stay under r. 63.01(1) means that CPCL is not in default of the costs order while its appeal is pending. Moreover, the City did not obtain an order for security for costs in the court below, and absent an order for security for costs in this court, would not be able to look beyond CPCL for satisfaction of that costs award.

[21] I am also satisfied that the order for security for costs sought by the City, even if its costs in the Superior Court were not included, would effectively bring an end to the appeal and that this, as well as the attempt to recover the costs already awarded in its favour, is the City's motivation in seeking the order. The panel noted in Chevron that "[c]ourts 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" (at para. 23).

Decision

[22] In these circumstances, I am not satisfied that it would be just to make an order for security for costs against CPCL. Accordingly, the City's motion is dismissed. The order of the Registrar is set aside. The appellant shall have until December 22, 2017 to perfect its appeal.

[23] There will be no costs of these motions.