Heidari v. Naghshbandi

Ontario Reports

Court of Appeal of Ontario

Jamal J.A.

November 26, 2020

153 O.R. (3d) 756 | 2020 ONCA 757

Case Summary

Civil procedure — Security for costs — Security for costs of appeal — Defendant having judgment against him in two actions turning on credibility findings — Defendant appealing and respondents bringing motion for security for costs of appeal — Motion dismissed — Thrust of appeal was that trial judge erred by mischaracterizing claims — Argument was weak but also a potential error of law rather than an issue of credibility — No good reason to believe that appeals were frivolous or vexatious or that defendant had insufficient assets in Ontario to pay costs of appeals — Respondents establishing no "other good reason" to justify security for costs — Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 61.06(1).

N and H were friends and business associates in an engineering business. Over ten years they incorporated companies, bought properties and loaned money back and forth to fund their ventures. They kept few records of their transactions. When their friendship soured, two lawsuits ensued against N: one by H and one by a company in which H and N had been shareholders. The trial judge ruled against N in both actions, noting that the parties agreed that the litigation ultimately turned on findings of credibility. N was found not to be a credible witness and his testimony was uncorroborated and described as "a complete fantasy". N was ordered to pay damages of almost $280,000 and costs of more than half a million dollars. When N appealed, the respondents brought a motion for security for costs for the appeals.

Held, the motion should be dismissed.

There was no good reason to believe that the appeals were frivolous and vexatious or that N had insufficient assets in Ontario to pay the costs of the appeals. The trial judge's observation about the litigation turning on credibility findings went a long way toward meeting the "frivolous" criterion. However, according to N, the thrust of the appeals was going to be that the trial judge erred in law by substituting "loan" claims with "joint investment" claims. The legal characterization of payments was a discretionary determination generally attracting substantial appellate deference, but it was not an issue of credibility and, if accepted by the court, could be a reviewable error of law, even if only weakly arguable. The appeals were not vexatious because they appeared to have been brought in good faith to challenge what N was found to owe rather than to annoy or embarrass the respondents or for any other oblique motive. N had provided late disclosure of his 2018 and 2019 gross income, so there was at least some evidence that he had sufficient assets in Ontario to pay the costs of the appeals.

The respondents failed to establish any "other good reason" to justify security for costs of the appeals. There was no finding that N committed fraud or that he tried to put assets out of the reach of his creditors. Although the appeal had a low prospect of success, there was no evidence that it would be nearly impossible for the respondents to collect costs from N.

Chinese Publications for Canadian Libraries Ltd. v. Markham (City), [2017] O.J. No. 6419, 2017 ONCA 968; Combined Air Mechanical Services Inc. v. Flesch, [2010] O.J. No. 4130, 2010 ONCA 633, 268 O.A.C. 172, 193 A.C.W.S. (3d) 398; Foodinvest Ltd. v. Royal Bank of Canada, [2020] O.J. No. 2704, 2020 ONCA 387; Groia & Co. Professional Corp. v. Cardillo, [2019] O.J. No. 1306, 2019 ONCA 165, 50 C.P.C. (8th) 55; Health Genetic Center Corp. v. New Scientist Magazine, [2019] O.J. No. 6188, 2019 ONCA 968; Henderson v. Wright, [2016] O.J. No. 533, 2016 ONCA 89, 262 A.C.W.S. (3d) 875, 345 O.A.C. 231; Perron v. Perron, [2011] O.J. No. 5580, 2011 ONCA 776, 286 O.A.C. 178, 345 D.L.R. (4th) 513, 210 A.C.W.S. (3d) 417, 11 R.F.L. (7th) 31; Pickard v. London (City) Police Services Board, [2010] O.J. No. 4169, 2010 ONCA 643, 268 O.A.C. 153, 193 A.C.W.S. (3d) 396; Schmidt v. Toronto-Dominion Bank (1995), 24 O.R. (3d) 1, [1995] O.J. No. 1604, 82 O.A.C. 233, 37 C.P.C. (3d) 383, 55 A.C.W.S. (3d) 715 (C.A.); Yaiguaje v. Chevron Corp. (2017), 138 O.R. (3d) 1, [2017] O.J. No. 5614, 2017 ONCA 827, 284 A.C.W.S. (3d) 712, 75 B.L.R. (5th) 173, 418 D.L.R. (4th) 679; York University v. Markicevic, [2017] O.J. No. 4147, 2017 ONCA 651

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 61.06(1), (a), (c), 63.01

MOTION for security for costs for appeals.

Sean N. Zeitz, for moving parties.

Antony Niksich, for responding party.

[1] JAMAL J.A.: — The respondents (the moving parties on this motion) seek security for costs of $33,104.63 for two appeals pending before the court. The appeals are from orders of Bawden J. ("trial judge"), dated October 17, 2019 and May 8, 2020, after a 23-day trial, ruling in the respondents' favour in two actions, and from his order, dated July 23, 2020, ordering the appellant to pay the respondents costs of $513,186.67. The respondents do not seek security for the costs awarded at trial.

[2] For the reasons that follow, the motion for security for costs is dismissed.

Background

[3] The appellant Bijan Naghshbandi and the respondent Shahram Heidari were friends and former business associates in an engineering business. Between 1998 and 2008, they incorporated companies, bought properties and loaned money back and forth to fund their ventures. But they kept few records of their transactions. When their friendship soured, two lawsuits ensued:

-- In 2009, Heidari sued Naghshbandi for repayment of $187,092 in claimed loans. Naghshbandi denied owing anything and counterclaimed against Heidari, alleging that Heidari owed him $291,333.

-- The same year, the respondent Tarra Engineering Inc. (in which Heidari and Naghshbandi had been shareholders and directors), sued Naghshbandi for repayment of $450,146 in claimed loans. Naghshbandi denied the claim and counterclaimed against Heidari, Tarra Engineering Inc. and the respondent Tarra Engineering and Structural Consultants Inc. (a new company Heidari formed after the litigation began), alleging wrongful dismissal, corporate oppression and fraud, and seeking over $3 million in damages and half the value of Tarra Engineering Inc. A decade later, Naghshbandi abandoned his counterclaim on the eve of trial.

[4] The trial judge ruled against Naghshbandi in both actions. He noted that "both parties agree that the litigation ultimately turns on findings of credibility". He found Naghshbandi "simply did not present as a credible witness", his testimony "w[as] not corroborated by any other witness" and appeared to have been "a complete fantasy", and it was "impossible to place any serious weight on his evidence apart from a few claims". He ordered Naghshbandi to pay damages to Heidari of $173,544 and to Tarra Engineering Inc. of $105,810. He also ordered Naghshbandi to pay costs to Heidari and Tarra Engineering Inc. of $444,002.73 and to Tarra Engineering and Structural Consultants Inc. of $69,183.94.

Security for Costs of an Appeal Under Rule 61.06(1)

[5] The respondents seek security for costs for the appeals under rules 61.06(1)(a) or (c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Rule 61.06(1) provides:

61.06(1) 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,

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.

[6] The general principles governing an order for security for costs on appeal under rule 61.06(1) are well known:

(1) Rule 61.06(1) is permissive, not mandatory. A motion judge has discretion to refuse an order for security for costs, even if the respondent (moving party) otherwise meets the terms of rule 61.06(1): Yaiguaje v. Chevron Corp. (2017), 138 O.R. (3d) 1, [2017] O.J. No. 5614, 2017 ONCA 827, at para. 18; Foodinvest Ltd. v. Royal Bank of Canada, [2020] O.J. No. 2704, 2020 ONCA 387, at para. 15. An order for security for costs under rule 61.06(1) should not be made routinely: Health Genetic Center Corp. v. New Scientist Magazine, [2019] O.J. No. 6188, 2019 ONCA 968, at paras. 22, 26.

(2) Rule 61.06(1) requires a two-stage analysis: first, the respondent must show that they meet the terms of the rule; second, the motion judge must "take a step back" and consider the justness of the order sought in all the circumstances, with the interests of justice at the forefront: Yaiguaje, at para. 22; Foodinvest, at para. 15.

(3) In considering the justness of the order sought, relevant factors include, but are not limited to, the merits of the appeal, any delay in moving for security for costs, the impact of actionable conduct by the respondent on the available assets of the appellant, access to justice concerns, the public importance of the litigation and the amount and form of security sought by the respondent: Yaiguaje, at para. 24; Foodinvest, at para. 15.

(4) An order for security for costs is intended to provide "a measure of protection" to the respondent for the costs to be incurred on the appeal, without denying the appellant a chance to pursue an appeal: Foodinvest, at para. 17; Health Genetic, at para. 26; and Schmidt v. Toronto-Dominion Bank (1995), 24 O.R. (3d) 1, [1995] O.J. No. 1604 (C.A.), at p. 6 O.R. The court must ensure that an order for security for costs is not used as a litigation tactic to prevent a case from being heard on its merits: Yaiguaje, at para. 23; Foodinvest, at para. 15.

[7] With these general principles in mind, I turn to consider the respondents' motion under rules 61.06(1)(a) and (c) in turn.

(1) Is there good reason to believe that the appeals are frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeals: rule 61.06(1)(a)?

(a) The governing principles under rule 61.06(1)(a)

[8] Under rule 61.06(1)(a), the respondent must prove that there is good reason to believe: (1) the appeal is frivolous and vexatious; and (2) the appellant has insufficient assets in Ontario to pay the costs of the appeal: York University v. Markicevic, [2017] O.J. No. 4147, 2017 ONCA 651, at para. 23; Pickard v. London (City) Police Services Board, [2010] O.J. No. 4169, 2010 ONCA 643, 268 O.A.C. 153, at para. 18; and Schmidt, at p. 5 O.R.

[9] The "good reason to believe" standard requires the motion judge to reach only a tentative and not a definitive conclusion on the absence of merit or assets: York University, at para. 24; Pickard, at para. 18; and Schmidt, at p. 5 O.R.

[10] The "frivolous and vexatious" element of rule 61.06(1) (a) requires the respondent to show that there is good reason to believe the appeal is: (1) "frivolous", that is, devoid of merit or with little prospect of success: Pickard, at para. 19; Schmidt, at p. 5 O.R.; and (2) "vexatious", that is, taken to annoy or embarrass the respondent or conducted in a vexatious manner, including an oblique motive for launching the appeal: Pickard, at para. 19; York University, at paras. 32, 36; and Chinese Publications for Canadian Libraries Ltd. v. Markham (City), [2017] O.J. No. 6419, 2017 ONCA 968, at para. 9.

(b) Application to these appeals

[11] The respondents claim there is good reason to believe these appeals are frivolous because the appeals challenge only findings of fact and credibility and raise no arguable error in law. They say this court has accepted that such appeals appear to have no merit, citing Henderson v. Wright, [2016] O.J. No. 533, 2016 ONCA 89, 345 O.A.C. 231, at para. 16; Groia & Co. Professional Corp. v. Cardillo, [2019] O.J. No. 1306, 2019 ONCA 165, 50 C.P.C. (8th) 55, at para. 31.

[12] I agree with the respondents that the trial judge's observation that "both parties agree that the litigation ultimately turns on findings of credibility" goes a long way towards meeting the "frivolous" criterion in rule 61.06(1)(a). The trial was largely about credibility, and the trial judge sided with the respondents. There is little prospect that a panel of this court would overturn such findings.

[13] The appellant, however, disputes that the appeals will mainly be about credibility. He says the thrust of the appeals will be that the trial judge erred in law by substituting "loan" claims with "joint investment" claims. According to the appellant, rather than decide whether Heidari loaned money to Naghshbandi, the trial judge held that some payments were a "joint investment", and not loans, and then ruled that Naghshbandi had to repay Heidari only half of what was advanced. The appellant says that the parties neither argued nor pleaded this "joint investment" characterization and that they did not seek this remedy.

[14] This argument will face strong headwinds on appeal. A trial judge may form their own conclusion about the appropriate legal characterization of payments in issue, and has remedial discretion to order repayment of all, none, or only some of those amounts. Such discretionary determinations generally attract substantial appellate deference. Still, I agree with the appellant that this is not an issue of credibility and, if accepted by the court, could be a reviewable error of law. Even if only weakly arguable, this ground does raise a potential issue of law. On balance, then, I cannot conclude that there is good reason to believe the appeals are frivolous.

[15] I also do not have good reason to believe that the appeals are vexatious.

[16] The respondents assert that aspects of the appellant's litigation conduct can be described as vexatious. They note that the appellant abandoned the counterclaim against Heidari only on the eve of trial, after about a decade of litigation. They add that the appellant has defaulted on the costs awarded for the abandoned counterclaim. Here, however, the trial judge did not allocate a specific dollar amount to the abandoned counterclaim. The entire costs order -- including the portion pertaining to the abandoned counterclaim -- was automatically stayed by the appeal to this court: rule 63.01. It thus does not appear that the appellant has defaulted on his obligation to pay those costs.

[17] In the final analysis, however, I accept the appellant's argument that I do not have good reason to believe the appeals have been brought to annoy or embarrass the respondents or with any other oblique motive. Rather, the appellant appears to have brought the appeals in good faith to challenge what he has been found to owe the respondents and to impugn the significant adverse findings of credibility made against him. As counsel for the appellant stated in oral argument, which I accept, the appellant has appealed largely to "clear his name".

[18] Thus, although the appeals appear to be only weakly arguable, I do not have good reason to believe that they are frivolous and vexatious.

[19] While this suffices to conclude that the respondents have not met their burden under rule 61.06(1)(a), I will briefly address whether there is good reason to believe the appellant has insufficient assets in Ontario to pay the costs of the appeals. The respondents estimate those costs as being $33,104.63 on a partial indemnity basis.

[20] The respondents submit that there is no evidence that the appellant has sufficient assets in Ontario, and the court should draw a negative inference from the appellant's failure to tender such evidence. Shortly before the return of this motion, however, the appellant filed his responding motion record containing copies of his Canada Revenue Agency Notices of Assessment for the 2018 and 2019 taxation years. Counsel for the respondents had requested this information in early July 2020, in order to decide whether to bring this motion, but had been rebuffed by counsel for the appellant. This information was only provided four months later. The Notices of Assessment revealed that the appellant's annual income in 2018 and 2019 was about $100,000 before tax. The respondents contend that this income information is not especially meaningful because no information has been provided about the appellant's living expenses or other liabilities.

[21] Although it would have been preferable for the appellant to have provided this income information sooner, as it might have avoided this motion, because of this evidence I cannot conclude that there is good reason to believe the appellant has insufficient assets in Ontario to pay the costs of the appeals. There is at least some evidence that the appellant has sufficient assets to do so. It was the respondents' burden to provide the court with evidence to form a tentative conclusion about the absence of the appellant's assets. The respondents have not done so.

[22] I therefore decline to award security for costs under rule 61.06(1)(a).

(2) Is there "other good reason" for ordering security for costs of the appeals: rule 61.06(1)(c)?

(a) The governing principles under rule 61.06(1)(c)

[23] A motion judge may also order security for costs of an appeal under rule 61.06(1)(c) for "other good reason". Although the list of reasons justifying security under this residual category is not closed, the "other good reason" must be: (1) consistent with the purpose for ordering security -- namely, that the respondent is entitled to a measure of protection for costs; and (2) fairly compelling, because the residual category is only engaged where the respondent cannot meet the requirements of rules 61.06(1)(a) or (b): Combined Air Mechanical Services Inc. v. Flesch, [2010] O.J. No. 4130, 2010 ONCA 633, 268 O.A.C. 172, at para. 8; Health Genetic, at para. 26.

[24] Examples of circumstances recognized as providing "other good reason" to justify security for costs under rule 61.06(1) (c) include:

-- a finding that the appellant committed fraud, particularly if coupled with a finding that the appellant has taken steps to put his assets out of reach of his creditors: York University, at para. 58; Health Genetic, at para. 26;

-- when an appeal has a low prospect of success and the appellant has the ability to pay costs, but it would be nearly impossible to collect such costs: Henderson, at para. 27; Perron v. Perron, [2011] O.J. No. 5580, 2011 ONCA 776, 345 D.L.R. (4th) 513, at paras. 22-23; and Groia, at para. 35.

(b) Application to these appeals

[25] When I apply these principles to this motion, I conclude that the respondents have established no "other good reason" to justify security for costs of the appeals under rule. 61.06(1) (c). There was no finding that the appellant committed fraud, despite this being alleged. Nor is there any evidence that the appellant has tried to put his assets out of reach of his creditors. And although the appeal has a low prospect of success, there is no evidence that it would be nearly impossible for the respondents to collect costs from the appellant.

[26] I therefore decline to award security for costs under rule 61.06(1)(c).

Disposition

[27] The motion for security for costs is dismissed.

[28] I decline to award costs to the appellant because of the late disclosure of his income information. Had this information been disclosed earlier, when it was requested by respondents' counsel, the motion might have been avoided. Each party will therefore bear its own costs of this motion.

Motion dismissed.