COURT OF APPEAL FOR ONTARIO

CITATION: Foodinvest Limited v. Royal Bank of Canada, 2020 ONCA 387

DATE: 20200617

DOCKET: M51433 (C66522)

Rouleau, van Rensburg and Roberts JJ.A.

BETWEEN

Foodinvest Limited

Plaintiff (Appellant/Moving Party)

and

Royal Bank of Canada

Defendant (Respondent/Responding Party)

Glenroy K. Bastien, for the moving party

Catherine Francis, for the responding party

Heard: In writing

van Rensburg J.A.:

A. INTRODUCTION

[1] This is a motion by Foodinvest Limited (“Foodinvest”) under s. 7(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43, seeking to set aside an order of a single judge of this court for security for costs of its appeal. The appeal is of the summary judgment of Morgan J., dated December 27, 2018, dismissing Foodinvest’s action against the responding party, Royal Bank of Canada (“RBC”). In the action, Foodinvest alleged that it was a victim of fraud and claimed damages against its banker, RBC, for negligence, breach of contract, breach of trust, and breach of fiduciary duty. Foodinvest alleged that RBC had received notice that an account to which Foodinvest was forwarding funds was suspected to be fraudulent, and had failed to investigate and to notify its customer of the notice of possible fraudulent activity.

B. HISTORY OF PROCEEDINGS

[2] RBC brought its first motion for security for costs in March 2019. Foodinvest was ordered to pay $75,067.89 as security for costs (costs of $50,067.89 awarded against Foodinvest in the court below plus $25,000 for the estimated partial indemnity costs of the appeal). That order was set aside by a panel of this court, without prejudice to RBC renewing its motion for security for costs after Foodinvest had perfected its appeal: 2019 ONCA 728. While not interfering with the motion judge’s conclusion that Foodinvest had insufficient assets in Ontario to pay RBC’s costs, the panel concluded that the motion judge did not consider the justness of the order sought in all the circumstances of the case, with the interest of justice at the forefront, as directed by Yaiguaje v. Chevron Corporation, 2017 ONCA 827, 189 O.R. (3d) 1. The panel determined that it would not be just in the circumstances to order security for costs before the appeal was perfected.

[3] The appeal was perfected on or about October 21, 2019 and scheduled to be heard on March 26, 2020. The hearing was adjourned.

[4] RBC brought its second motion for security for costs returnable March 10, 2020. The grounds for the motion were that there was good reason to believe that Foodinvest had no assets in Ontario and was without means to satisfy the costs awarded at first instance or the costs of the appeal. RBC suggested that Foodinvest’s principal, Svetlana Zolotova, who had assets in Ontario, could either post security for costs or undertake responsibility for costs. RBC referred to Ms. Zolotova’s admission in her cross-examination in the summary judgment proceedings that she is the sole shareholder of Foodinvest. It noted that Ms. Zolotova had refused to produce the financial records of Foodinvest in those proceedings and had provided no financial disclosure in response to the motion for security for costs. RBC provided evidence that Ms. Zolotova is the registered owner of a home in Vaughan valued at approximately $1.3 million, against which the only registered encumbrance is a mortgage in its favour.

[5] In her materials, Ms. Zolotova admitted that Foodinvest had no assets in Ontario. She asserted that Foodinvest is still operating but is impecunious and unable to raise money to post security for costs. She claimed that the appeal could not proceed if Foodinvest were required to post security for costs. She referred to the fact that €42,307.25 is being held to the credit of Foodinvest as physical evidence by the Public Prosecutor’s office in Warsaw, Poland and that this sum could be made available to pay costs if Foodinvest were not successful on the appeal. Her factum on the motion resisted an order for security for costs, and proposed in the alternative that, if security for costs were ordered, these funds could be made available.

[6] The motion judge granted an order requiring Ms. Zolotova, in her capacity as sole director, officer and shareholder of Foodinvest, to post security for costs in the amount of the costs of $50,067.89 awarded by Morgan J. and $25,000 for the estimated partial indemnity costs of the appeal, by way of a personal undertaking to be responsible for these costs. She reserved the costs of the motion to the panel hearing the appeal.

C. ISSUES ON REVIEW OF ORDER

[7] An order refusing or granting security for costs is a discretionary order which is entitled to deference, absent an error of law or principle: Yaiguaje, at paras. 20-21.

[8] Foodinvest submits that the motion judge erred in principle in ordering Ms. Zolotova to undertake to pay RBC’s costs in the court below and its estimated costs of the appeal, and that no order for security for costs ought to have been made in the circumstances.

[9] RBC contends that the motion judge’s order reflected a proper exercise of her discretion. It argues that an order for security for costs was warranted because Foodinvest does not have sufficient assets in the jurisdiction to satisfy a costs award, and that there is nothing unjust in requiring Foodinvest’s principal to assume responsibility for RBC’s costs if it is unsuccessful on the appeal.

[10] I agree with Foodinvest that the order for security for costs must be set aside. The motion judge erred in misapprehending that there was an agreement by Ms. Zolotova to provide a personal undertaking to pay the costs of the action and appeal brought by Foodinvest. As a result, she failed to apply the correct test and to carry out the required analysis to determine whether security for costs should be ordered against the appellant, Foodinvest. This required the consideration of whether RBC brought itself within the terms of the rule under which it was claiming security for costs, and whether it would be just to make an order for security for costs in the circumstances. In view of the errors of the motion judge, it falls to this panel to consider RBC’s motion for security for costs de novo.

D. DISCUSSION

(1) Relevant legal principles

[11] In Yaiguaje, this court directed that “[i]n deciding motions for security for costs judges are obliged to first consider the specific provisions of the Rules governing those motions and then effectively to take a step back and consider the justness of the order sought in all the circumstances of the case, with the interests of justice at the forefront”: at para. 22.

[12] An order for security for costs can be made under r. 61.06(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, where it appears that 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. In its second motion for security for costs, RBC did not rely on this rule. Rather, RBC relied on the combination of r. 61.06(1)(b) (where it appears that an order for security for costs could be made against the appellant under r. 56.01) and r. 56.01(1)(d) (where it appears that there is good reason to believe that a corporate plaintiff has insufficient assets in Ontario to pay the costs of the defendant). It asserted that Foodinvest lacked sufficient assets in Ontario to pay the costs awarded at first instance and the costs of the appeal.

[13] This court discussed the interplay of rr. 61.06(1)(b) and 56.01(1)(d) in Health Genetic Center Corp. v. New Scientist Magazine, 2019 ONCA 968. In the context of a motion for security for costs of an appeal, the question under r. 56.01(1)(d) is whether there is good reason to believe that the corporate appellant (who was a plaintiff or applicant at first instance) has insufficient assets in Ontario to pay the costs of the appeal. Even where that threshold is met, the overriding consideration is whether an order for security for costs would be just, which must be considered holistically, taking into consideration the circumstances of the particular case: Health Genetic, at paras. 15-18; Yaiguaje, at para. 25. In Health Genetic, there was evidence that the corporate appellant had sufficient assets to pay costs of the appeal, but not to pay costs in the court below. The panel upheld the order of the motion judge refusing security for costs.

(2) Application to this case

[14] In the present case, although Foodinvest provided no financial disclosure, there is no dispute that it is a corporation with insufficient assets in Ontario to pay the costs of the appeal. The money being held by the Public Prosecutor in Poland to Foodinvest’s credit appears to be the only source of funds available to Foodinvest to pay a costs award in the event that it is unsuccessful on the appeal. I also accept that Foodinvest has not established that it is impecunious “in the extended sense that the shareholders and principals of the corporation are unable to fund security for costs”: Rhonmont Properties Ltd. v. Yeadon Manufacturing Ltd., [2003] O.J. No. 1883 (C.A.), at para. 5. Although Ms. Zolotova’s affidavit asserted impecuniosity and stated that Foodinvest was unable to raise security from its shareholders, the evidence is that she is a shareholder, and that she has equity in a home located in Vaughan.

[15] While RBC is able to bring itself within the scope of rr. 61.06(1)(b) and 56.01(1)(d), this is not sufficient to warrant an order for security for costs. Rule 61.06 is permissive, not mandatory. In every case where security for costs is sought, the court must “take a step back” and consider whether an order for security for costs would be just in all the circumstances of the case. The overarching principle to be applied is the “justness of the order sought”: Ravenda Homes Ltd. v. 1372708 Ontario Inc., 2017 ONCA 556, at para. 4. Some relevant factors are the merits of the claim (in this case the appeal), any delay in bringing the motion for security for costs, the impact of actionable conduct by the defendants (or respondents) on the available assets of the plaintiffs (or appellants), access to justice concerns, and the public importance of the litigation: Yaiguaje, at para. 24. I would add that the court should give careful consideration to the amount and form of security sought by the moving party. And, “[c]ourts must be vigilant to ensure that 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, even in circumstances where the other provisions of rr. 56 or 61 have been met”: Yaiguaje, at para. 23. Each case must be considered on its own facts: “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”: Yaiguaje, at para. 25.

[16] In my view, the interests of justice do not favour an award of security for costs in this case or the specific order that RBC sought and that was granted by the motion judge.

[17] First, RBC delayed in bringing its motion. The setting aside of the first order for security for costs was without prejudice to RBC bringing another motion after the appeal was perfected. The appeal was perfected in October 2019, however RBC’s motion was heard only two weeks before the scheduled date of the appeal and after it had filed its materials responding to the appeal. Such a delay weighs against an order for security for costs: see Hilson v. 1336365 Alberta Ltd., 2019 ONCA 727, at para. 11. Moreover, the fact that RBC brought its motion for security for costs after it had incurred all of its costs in connection with the appeal, except for the costs related to the hearing, calls into question the purpose of the motion. Motions for security for costs are meant to provide “a measure of protection” to the respondent for the costs that will be incurred on the appeal: Health Genetic,at para. 26, citing Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633, 268 O.A.C. 172, at para. 8.

[18] Second, the appeal is not obviously or plainly devoid of merit. In its appeal, Foodinvest points to a number of specific errors that it submits the motion judge made in granting summary judgment. This is a relevant factor irrespective of whether a respondent moves for security for costs of an appeal under r. 61.06(1)(a) or under some other part of r. 61.06: Yaiguaje, at para. 24; Chinese Publications for Canadian Libraries Ltd. v. Markham (City), 2017 ONCA 968.

[19] Third, the particular order sought by RBC, requiring Foodinvest’s principal to give a personal undertaking to pay the estimated partial indemnity costs of the appeal as well as the costs awarded against Foodinvest in the court below, would provide it with something it did not have in the proceedings below – a judgment for costs that is enforceable against Ms. Zolotova personally. This is inappropriate, overreaching, and not a valid reason to seek security for costs. Contrary to RBC’s submission that there is nothing unfair about such an order, it would be unjust in the circumstances to require such an undertaking as the price for Foodinvest to proceed with an appeal that is not devoid of merit and that it has a right to pursue.

[20] The motion in this case was for security for costs in Foodinvest’s appeal. Ms. Zolotova is not a party to the appeal. As already observed, the motion judge misapprehended the undertaking proposed by Foodinvest’s counsel. Specifically, what was offered was that, if the court concluded that security for costs was warranted, Ms. Zolotova was prepared to undertake to make available the monies to Foodinvest’s credit that were being held in Poland. It was not a concession that an order for security for costs was warranted, or that such an order could or should be made against Ms. Zolotova personally without her consent, and for the full amount of the costs RBC was seeking.

[21] I disagree with RBC’s submission that, even without Ms. Zolotova’s consent, there was a basis for making an order requiring her to pay the costs of the appeal and of the proceedings below as security for the costs of Foodinvest’s appeal. RBC refers to one case, Printing Circles Inc. v. Compass Group Canada Ltd. (2007), 2007 CanLII 57095 (ON SC), 88 O.R. (3d) 685 (S.C.), a decision of Corbett J. in the Superior Court, which it cites as authority for such an order. Its reliance on that decision, however, is misplaced. In Printing Circles, the corporate plaintiff had insufficient assets in Ontario to pay the costs of an action, but was not impecunious, because it could raise funds from its principal. The corporate plaintiff opposed an order for security for costs, and in the alternative proposed that an order for security for costs could be satisfied by way of a personal undertaking by its principal to pay costs. The defendant argued that the court could not accept such an undertaking in lieu of or as a form of security for costs. After considering various authorities, Corbett J. ordered security for costs against the corporate plaintiff, with the proviso that it could be satisfied by an undertaking provided by its principal. As such, the issue in that case was not whether an order for security for costs should be made against the corporate plaintiff’s principal, but whether, once the defendant made out a case for security for costs, the corporate plaintiff could satisfy the order by giving a personal undertaking from its principal to pay costs in the event that the corporate defendant did not pay them. See also 1056470 Ontario Inc. v. Goh, [2007] O.J. No. 2545 (Gen. Div.), at para. 15.

[22] At its highest, the reasoning in Printing Circles would have permitted this court to accept an undertaking from Ms. Zolotova if the court concluded that Foodinvest must provide security for costs, and she had offered such an undertaking. While the court can order a corporate appellant to post security which, as a practical matter, the appellant may only be able to satisfy by funding from its shareholders, an order for security for costs under the combination of rr. 61.06(1)(b) and 56.01(1)(d) is against the corporate appellant itself, and not against its principal.

[23] As a final point, I would emphasize that, when considering a motion under r. 61.06, the court must have regard to the interests of justice at all stages of its analysis: in determining whether an order for security for costs is warranted, and in determining the type and amount of security to be ordered. While r. 61.06 authorizes the court to order security for costs of the appeal and of the proceedings below, it does not follow that such an order will be made routinely. It is beyond the scope of this review motion to address this issue, except to observe that some justification must be offered by the moving party when the amount of security sought under r. 61.06 includes security for the costs awarded in the court below.

E. DISPOSITION

[24] For these reasons, I would set aside the order for security for costs and order costs to Foodinvest of this motion and the motion before the motion judge. If the parties are unable to agree on the amount of such costs, the court will receive written submissions limited to three pages each (in addition to Foodinvest’s costs outline), as follows: from Foodinvest within 20 days and from RBC within 15 days thereafter. Submissions are to be submitted electronically at the following email address: COA.E-File@ontario.ca.

Released: June 17, 2020 (“P.R.”)

“K. van Rensburg J.A.”

“I agree. Paul Rouleau J.A.”

“I agree. L.B. Roberts J.A.”