Court of Appeal for Ontario

Citation: 2019 ONCA 968

Date: December 6, 2019

Docket: M50748 (C66385)

Judges: van Rensburg, Paciocco and Thorburn JJ.A.

Between

Health Genetic Center Corp. o/a Health Genetic Center and Yuri Melekhovets Plaintiffs (Appellants/Respondents to the Motion)

and

New Scientist Magazine, Peter Aldhous, and Reed Business Information Ltd. Defendants (Respondents/Moving Parties)

Counsel

Sandra Barton, for the respondents/moving parties

Karen Zvulony, for the appellants/respondents to the motion

Heard

November 20, 2019

Motion

On motion to set aside or vary the order of the motion judge, dated July 5, 2019, with reasons reported at 2019 ONCA 576.

Reasons for Decision

van Rensburg J.A.:

[1] Introduction

[1] The moving parties, respondents to a pending appeal, moved under s. 7(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43, to set aside or vary the order of Brown J.A. dismissing their motion, under r. 61.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for security for costs. At the conclusion of oral argument, we dismissed the motion, with reasons to follow. These are the court's reasons.

[2] In sum, there is no error in the decision of the motion judge. Whether to grant or refuse security for costs is a discretionary decision entitled to deference absent an error of law or principle: Yaiguaje v. Chevron Corporation, 2017 ONCA 827, 138 O.R. (3d) 1, at para. 20.

[3] In denying the moving parties' request for $85,000 as security for costs of the appeal and $1,178,766.64 as security for the costs awarded at trial (the full amount of the costs that were awarded less the security ordered in the action), the motion judge made no error of law or principle.

[4] The moving parties contend that the motion judge erred in not ordering security for costs under the combination of rr. 61.06(1)(b) and 56.01(1)(d). Their principal concern is with the motion judge's approach to and assessment of the sufficiency of the appellants' assets. On behalf of the moving parties, counsel argued forcefully that the motion judge erred because he limited his consideration to whether the appellants would have sufficient assets to pay the costs of the appeal, rather than the costs of the appeal and the action. She also argued that the motion judge made a number of other errors in assessing the sufficiency of the appellants' assets.

[5] The moving parties also contend that the motion judge erred in not awarding security for costs under the combination of rr. 61.06(1)(b), 56.01(1)(f) and s. 12 of the Libel and Slander Act, R.S.O. 1990, c. L.12, and in refusing security for costs under r. 61.06(1)(c) on the basis that there was no "other good reason" to award security.

[6] After briefly summarizing the motion judge's reasons for dismissing the motion, I will consider each of the moving parties' arguments in turn.

A. The Motion Judge's Reasons

[7] The motion judge acknowledged that the moving parties were seeking security for costs of both the appeal and the action: at para. 3. He considered the motion under the three subrules referred to by the moving parties: r. 61.06(1)(a), (b) and (c), as well as s. 12 of the Libel and Slander Act. He noted that the principal arguments were that there is good reason to believe the appeal is frivolous and vexatious and that the appellants have insufficient assets to pay the costs of the appeal and the trial: at para. 5.

[8] The motion judge concluded that the appeal is neither frivolous nor vexatious under r. 61.06(1)(a) of the Rules (a finding that was not challenged in this panel review). While this would be determinative of the motion under r. 61.06(1)(a), because the requirements are conjunctive, the motion judge went on to consider the second requirement of the subrule, whether there was good reason to believe that the appellants had insufficient assets to pay the costs of the appeal. The determination of whether there was good reason to believe that the corporate appellant had insufficient assets was in any event relevant to r. 61.06(1)(b), in conjunction with r. 56.01(1).

[9] In considering whether there was good reason to believe that the appellants had insufficient assets, the motion judge first determined that a reasonable estimate of the partial indemnity costs of the appeal would be $30,000. He then considered the evidence consisting of an affidavit of Mr. Melekhovets, who is the individual appellant and a principal of the corporate appellant, detailing his personal income, assets and liabilities, and those of the corporate appellant. The affidavit attached copies of various documents, including mortgage statements, notices of assessment, bank records, and unaudited financial statements.

[10] The motion judge accepted that Mr. Melekhovets has net equity in real property and assets in Ontario of slightly more than $500,000. For the corporate appellant, the motion judge considered unaudited financial statements covering the financial years 2015 through 2018, and he noted the increase in the company's annual revenue from $670,000 to just over $1 million and in its retained earnings from $18,274 to $136,386. He also noted that the net earnings during that period were modest but rising, except for the year ended January 31, 2018 when the company experienced a small net loss. The motion judge concluded that there was good reason to believe that the appellants had sufficient assets in Ontario to pay the estimated costs of appeal of $30,000: at para. 29.

[11] The motion judge then relied on his conclusions (that there was no good reason to believe the appeal was frivolous and vexatious nor that the appellants would have insufficient assets to pay costs of the appeal) to dismiss the motion for security for costs under rr. 61.06(1)(b) and (c).

[12] Finally, the motion judge considered the moving parties' alternative request to lift the stay of execution on their costs award pursuant to r. 63.01(5). He observed that the moving parties had not established that they would suffer financial hardship if the stay were not lifted, which is a necessary precondition to lifting the stay. The motion judge also concluded that, while security for costs of the proceeding can be ordered under r. 61.06, the moving party must first have met the conditions set out in r. 61.06 and demonstrated that the justice of the case supported ordering security for costs. In this case, since the test was not met, to lift the stay would permit the moving parties to do indirectly what they could not do directly: at para. 42.

B. Determining the Sufficiency of Assets

[13] On this review motion, the moving parties assert that the motion judge erred by not considering whether the appellants would have sufficient assets to pay trial costs as well as appeal costs, if unsuccessful in the appeal. They point to the wording of r. 61.06(1), which permits the court to award security for costs of the appeal and of the proceedings, as well as the decision in Aegis Biomedical Technologies Ltd. v. Jackowski, 28 O.R. (3d) 558 (C.A.), in which this court awarded security for costs that included the costs awarded in the court below.

[14] The moving parties also point to r. 61.06(1)(b), which provides for the appeal court to order security for costs where it appears that an order for security for costs could be made against the appellant under r. 56.01. Rule 56.01 lists six circumstances in which an order for security for costs may be made in an action or application, including 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". The moving parties observe that this provision requires the court, in considering a motion for security for costs of an appeal under r. 61.06(1)(b), to consider whether the corporate appellant has insufficient assets in Ontario to pay "the costs of the defendant". The moving parties say that "the costs of the defendant" can only be a reference to the costs they were awarded at trial, and that therefore the court in determining security for costs of an appeal must consider the corporate appellant's ability to pay the costs ordered in the court below.

[15] I disagree. While the reference in r. 61.06(1)(b) to r. 56.01 authorizes the appeal court to consider the same factors that would be considered to warrant security for costs of an action or application, in doing so, the factors set out in r. 56.01 must be read and applied in the context of the pending appeal. To give effect to r. 56.01 in the context of an appeal, the reference to the "plaintiff" or "applicant" can only mean the "appellant". So, for example, under r. 56.01(1)(a), the question is whether at the time of the appeal, the appellant is ordinarily resident outside Ontario. Similarly, the reference in r. 56.01(1)(d) to "the costs of the defendant or respondent" must be read as "the costs of the respondent in the appeal". What this means is that, in the case of a corporate appellant that was a plaintiff or applicant at first instance, a judge of this court may consider ordering security for costs where there is good reason to believe that the corporate appellant has insufficient assets in Ontario to pay the costs of the appeal, even where the appeal is not frivolous and vexatious.

[16] I say this despite the fact that the court, under r. 61.06(1), is entitled to award security for costs of an appeal and of the proceeding below. Indeed, under r. 61.06(1)(a), the test in respect of sufficiency of assets is tied only to the appellant's ability to pay costs of the appeal. The decision in Aegis Biomedical did not involve an assessment of the sufficiency of the corporate appellant's ability to pay costs in the court below. Indeed, in that case the sole appellant was a corporation that admitted it had no assets, and had been incorporated for the purpose of pursuing the litigation: at p. 560.

[17] This interpretation of the relationship between rr. 61.06(1)(b) and 56.01(1)(d) mirrors the logic of r. 61.06(1)(a), where a motion judge only considers the appellant's ability to pay costs of the appeal, and yet may order the costs of both the appeal and the proceeding below.

[18] Even if the moving parties' interpretation of r. 61.06(1)(b) and r. 56.01(1)(d) were accepted, or if there were some other reason to consider the sufficiency of the corporate appellant's assets to satisfy the costs order in the court below, the overriding consideration is whether an order for security for costs would be just, a question that needs to be considered holistically, taking into consideration the circumstances of the particular case: Yaiguaje, at para. 25. See also Foodinvest Inc. v. Royal Bank of Canada, 2019 ONCA 728, at para. 8.

[19] In this regard, the appeal is not frivolous and vexatious. The appellants appeal the judgment in the court below, and seek leave to appeal the costs order. As the motion judge observed in refusing security for costs under r. 61.06(1)(c), the corporate appellant is a going concern in Ontario, and has been for many years. The individual appellant has disclosed the location and value of his residential realty in Ontario, and he has provided copies of notices of assessment for his personal tax returns. The appellants have paid all costs in the proceedings, save for the costs order in relation to the judgment under appeal. They have already posted $300,000 security for costs in the court below. An order for security for costs based on the insufficiency of the corporate appellant's assets in relation to the costs already ordered, and that would include security for costs of the appeal and such costs, runs the risk of undermining the appellants' right to appeal. In my view, in all of these circumstances, the order would not be just.

[20] Next, the moving parties assert that the motion judge shifted the burden of proof by rejecting their submissions about the obvious and glaring deficiencies in the evidence respecting the sufficiency and quality of the appellants' assets because they failed to cross-examine on that evidence. They say that the motion judge, at para. 26, refused to consider the deficiencies in the appellants' evidence about their assets, which were already apparent on the face of the evidence, simply because the respondents did not cross-examine. I do not read the motion judge's reasons that way.

[21] The motion judge considered the record and concluded that the information that was provided demonstrated that the appellants had sufficient assets in Ontario to pay the costs of the appeal. He did not accept the moving parties' submissions that the appellants obviously had insufficient assets or that their evidence was deficient. Many of the same arguments were made to this panel. The motion judge conducted his own assessment of the evidence, which is entitled to deference. He was entitled, as he did, to consider the failure to cross-examine in rejecting the moving parties' assertion that the absence of certain additional information made the financial information that was provided incomplete or unreliable. Moreover, the financial information provided in this case was detailed, and contrary to the moving parties' submissions, did not reveal "obvious and glaring deficiencies". The motion judge reasonably concluded that the moving parties had not met their burden of showing that the appellants had insufficient assets in the jurisdiction to pay the appeal costs.

[22] Third, in my view there was no error in the motion judge's characterization of an order for security for costs as not "routine": para. 8. While the court characterized orders for security for costs under r. 61.06(1)(a) as not "routine" in Schmidt v. Toronto Dominion Bank, 24 O.R. (3d) 1 (C.A.) at p. 5, I do not agree with the moving parties that an order for security for costs of an appeal would be "routine" under the other parts of r. 61.06(1). There is no entitlement as of right to an order for security for costs, and even where the requirements of the rule have been met, security may be refused in the motion judge's discretion: Yaiguaje, at paras. 18 and 23.

[23] Finally, on the question of sufficiency of assets, I do not accept that the motion judge relied on irrelevant facts or ignored relevant facts. The moving parties say that the motion judge accepted dated financial information (unaudited financial statements for the years 2015 to 2018), rather than considering whether, at the time of the motion, the appellants had sufficient assets to pay costs. The moving parties assert that there was no evidence that the appellants' financial circumstances remained the same. This argument simply invites this court to conduct a de novo assessment of the evidence, and to arrive at a different conclusion. The motion judge noted that the financial statements that were provided were all of the available financial statements (as the appellants explained, financial statements for the period ending January 30, 2019 had not yet been prepared). Again, in the absence of cross-examination, the motion judge was entitled to accept the reasonable inference that these documents provided a fair representation of the corporate appellant's financial circumstances at the time of the motion.

C. Section 12 of the Libel and Slander Act

[24] The moving parties assert that the motion judge, under r. 61.06(1)(b), with reference to r. 56.01(1)(f), ought to have awarded security for costs under s. 12 of the Libel and Slander Act. Rule 56.01(1)(f) provides that the court may make "such order for security for costs as is just where it appears that a statute entitles the defendant or respondent to security for costs". Section 12(1) of the Libel and Slander Act provides for security for costs in an action for a libel in a newspaper or in a broadcast where certain criteria are met.

[25] Without determining whether security for costs of an appeal (and not just an action) can be awarded under this provision, I agree with the motion judge that the factors to be considered for security for costs in this court would nonetheless be applicable. Section 12 does not provide an automatic right to obtain in this court security for costs of a trial which has already taken place, where such security would not otherwise be awarded.

D. "Other Good Reason"

[26] Finally, I agree with the motion judge that there was no "other good reason" to order security for costs of the appeal in this case. His reasons for refusing security under r. 61.06(1)(c) are summarized above at para. 19. While the list of reasons justifying security under r. 61.06(1)(c) is open-ended, the "other good reason" must be related to the purpose for ordering security: that the respondent is entitled to a measure of protection for costs. The "other good reason" should be fairly compelling, as resort is to this provision when the respondent has been unable to obtain security under the other two categories, and security for costs under r. 61.06(1)(c) should not be made routinely: Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633 (In chambers), 268 O.A.C. 172, at para. 8. Examples include a finding of fraud, and steps taken by an appellant to put their assets out of reach of creditors: York University v. Markicevic, 2017 ONCA 651, at para. 58.

E. Disposition

[27] Accordingly, the motion was dismissed, and costs were awarded to the appellants in the agreed and inclusive amount of $7,500.

Released: December 6, 2019

K. van Rensburg J.A.

"I agree. David M. Paciocco J.A."

"I agree. Thorburn J.A."