Court of Appeal for Ontario
Date: 2021-03-17 Docket: M52234 (C68741)
Before: van Rensburg J.A. (Motions Judge)
Between: Wen-Chi Tsai, Applicant (Appellant/Responding Party)
And: Lucien Dugal by his Estate Trustees, Johanne Dugal Roussee and Luc Dugal, Respondent (Respondent in Appeal/Moving Party)
Counsel: Alexandra Carr, for the moving party Michael S. Deverett, for the responding party
Heard: March 9, 2021 by video conference
Reasons for Decision
[1] The appellant is appealing a judgment after trial dismissing her claim for a constructive trust in a property that was owned by her common law spouse, Lucien Dugal. The two had lived together at the property for approximately nine years. The appellant commenced proceedings against Mr. Dugal following their separation in 2014. Mr. Dugal died in 2017 and the proceedings were continued against the estate.
[2] The appellant had registered a certificate of pending litigation (“CPL”) against the property. Before the action was tried, the CPL was discharged to permit the sale of the property in exchange for $500,000 of the net proceeds of sale being retained in the real estate lawyer’s trust account. There is a court order providing for the retention of the funds “until further order of the court or signed written agreement of the parties”.
[3] The respondent estate moves for an order for security for costs of the appeal and in the court below in the sum of $110,000 and for an order permitting the release of the funds from the lawyer’s trust account.
The motion for security for costs
[4] The motion for security for costs is brought under r. 61.06(1)(a) and (c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The test under (a) is conjunctive. The moving party must establish that the appeal is frivolous and vexatious, and that the appellant has insufficient assets in Ontario to pay the costs of the appeal. Rule 61.06(1)(c) provides that an order for security for costs may be ordered “for other good reason”. An order for security for costs is discretionary. The court must first consider the specific provisions of the Rules governing such motions and then consider the justness of the order sought in all the circumstances of the case: Yaiguaje v. Chevron Corporation, 2017 ONCA 827, 138 O.R. (3d) 1, at para. 22.
[5] Dealing first with r. 61.06(1)(a), the estate contends that the appeal is frivolous based on the notice of appeal which lists 36 grounds of appeal, the vast majority of which are alleged errors of fact, and vexatious based on the appellant’s pattern of conduct throughout the litigation. The estate also submits that there is no evidence that the appellant has sufficient equity in any property in Ontario such that she would be able to pay the costs of the appeal (estimated at $25,000) and the costs awarded in the court below ($85,000).
[6] The appellant contends that her appeal is meritorious: the trial judge failed to consider certain evidence that supported her claim, and erred in focusing on whether there were direct contributions to the property rather than on the overall view of the parties’ relationship and whether there was a joint family venture.
[7] On the second branch of the test under r. 61.06(1)(a), the appellant has provided evidence of her equity in a condominium unit (the “York St. Property”) to demonstrate that she has sufficient assets to pay costs of the appeal. The York St. Property had an assessed value of $646,000 as of January 1, 2016 (prior to its purchase). The appellant deposes that a similar condominium sold for $890,000 on July 8, 2020. As of February 24, 2021, the balance outstanding on a first mortgage to a commercial lender is $339,323.98 with additional credit available of $27,926.02. There is a second mortgage in favour of the appellant’s lawyer in the amount of $226,000, which was registered on August 24, 2020. The appellant states that, if this court were to award security for costs, she proposes to sign a direction to her lawyer to use the second mortgage as security for costs, and that she would be prejudiced if she were forced to sell the York St. Property in order to pay funds into court as security for costs. There was no cross-examination on the appellant’s affidavit.
[8] Based on this record, the estate does not meet the test for security for costs under r. 61.06(1)(a).
[9] The trial judge provided comprehensive reasons for judgment that appear to have addressed the appellant’s arguments and evidence. That said, I am unable to conclude that the appeal is frivolous, that is, that it is obviously devoid of merit, or that it is vexatious in the sense that it is brought only to annoy or harass the estate. I would however say that the prospects of success in the appeal are slim, which is a factor that I will return to when I consider whether security for costs should be granted under r. 61.06(1)(c).
[10] As for the second requirement of r. 61.06(1)(a), I am satisfied that the appellant has equity of at least $50,000 in the York St. Property, and probably more. The estate estimates the costs of the appeal to be $25,000. On the evidence before the court the appellant has sufficient assets in Ontario to pay the costs of the appeal.
[11] Accordingly, the estate is not entitled to security for costs under r. 61.06(1)(a).
[12] I turn to r. 61.06(1)(c), whether there is “other good reason” to award security for costs. Here I am guided by the words of Laskin J.A. in Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633, 268 O.A.C. 172, at para. 8, that, while the list of reasons justifying security under this rule is open-ended, the “other good reason” should be compelling. It must also be related to the purpose of ordering security: that a respondent is entitled to a measure of protection for costs in the proceeding under appeal. Security for costs has been awarded under this provision where an appeal has a low prospect of success and although the appellant has the ability to pay, it would be nearly impossible to collect costs: see Perron v. Perron, 2011 ONCA 776, 286 O.A.C. 178, at para. 23; Henderson v. Wright, 2016 ONCA 89, 345 O.A.C. 231, at para. 27.
[13] Apart from again relying on the contention that the appeal is without merit, the estate points to the fact that the appellant did not respond to repeated requests before the motion was brought that she provide evidence of her ability to pay costs, as well as the paucity of financial information that she provided in response to the motion. Although the estate provided evidence that the appellant sold a second condominium unit in September 2020, the appellant did not disclose what happened to the net proceeds. While the appellant was not obliged to provide disclosure of all of her assets and income in response to the motion, the fact that she provided information about only one asset – the York St. Property – and her assertion that she would have to sell that asset if she were required to post security, suggests that the estate may have considerable difficulty recovering costs if the appellant loses the appeal. The estate also points to the appellant’s pattern of conduct over six years of litigation, including unpaid costs awards and her pursuit of various unmeritorious claims.
[14] I am satisfied that in all the circumstances this is an appropriate case to award security for costs under r. 61.06(1)(c). In view of the low prospect of success in the appeal, the appellant’s pattern of conduct in the litigation, the very limited information she has provided about her ability to pay costs, the fact that she has recently encumbered the York St. Property as security for her own legal costs, and the assertion that she would need to sell the York St. Property to pay security for costs, there is a very real risk that the estate would be prevented from collecting its costs of the appeal from the appellant in the event of an unsuccessful appeal.
[15] As for the amount of security for costs, the estate seeks security for the costs awarded by the trial judge, in addition to security for costs of the appeal. Such orders are not granted routinely: 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: Foodinvest Limited v. Royal Bank of Canada, 2020 ONCA 387. The estate did not provide any reasonable basis for requiring the appellant to post security for costs of the proceedings below. Accordingly, the estate is entitled to security for costs of the appeal, but not of the trial.
[16] In the circumstances, I order that the appellant provide on or before March 31, 2021, security for costs in the sum of $25,000. At the appellant’s option she may pay that amount into court, or alternatively provide to the estate trustees a mortgage of her interest in the York St. Property, with priority over her lawyer’s mortgage to be provided by way of a postponement of that mortgage. The required documents shall be prepared and registered at the appellant’s expense. In the event of the appellant’s non-compliance with this order, the appeal shall be dismissed.
The motion for the release of funds
[17] The estate seeks an order for the release of the sum of $500,000, which has been held in trust since April 2019 from the net proceeds of sale of the property in which the appellant claims a constructive trust.
[18] The funds were put in trust as a condition of the discharge of the appellant’s CPL as a result of a motion brought by the estate. Akbarali J. determined that $500,000 was sufficient to cover the value of the interest in the property the appellant was then seeking and her costs. Akbarali J.’s order of April 4, 2019, states: “the respondent’s estate trustees shall execute an irrevocable direction to the estate’s real estate lawyer directing him or her to hold $500,000 in trust in order to satisfy the applicant’s potential claim against the estate and potential costs awarded to the applicant, until further order of the court or signed written agreement of the parties”.
[19] The estate contends that, although there was no request specifically for an order dealing with the funds in trust, the trial judge’s conclusion at para. 69 of her reasons for judgment that the estate trustees are “at liberty to distribute the assets of the Estate in accordance with the provisions of [the deceased’s] will” would permit the distribution of the funds held in trust. After filing her notice of appeal however, the appellant wrote to the real estate lawyer to ensure that the funds would not be released pending court order or agreement between the parties until after she had completed her appeals, including any appeal to the Supreme Court of Canada.
[20] According to the affidavit of Luc Dugal, filed in support of this motion, the concern is that the funds in trust are earning a very low rate of interest, while the appellant is pursuing a meritless appeal with impunity. Mr. Dugal deposes that the estate trustees wish to distribute the estate, including the $500,000 which remains in trust, to the beneficiaries. He proposes that the estate trustees keep $110,000 in a joint investment account to be available in the event that the appellant is successful in her appeal.
[21] At the hearing of this motion, however, the estate’s lawyer indicated that the estate trustees intend only to invest the funds, and not to distribute them.
[22] I am not prepared to make the order requested. The order sought in the estate’s notice of motion is inconsistent with the intention of the order of Akbarali J. that the funds in trust stand in place of the CPL which was registered against the property to which the appellant asserted a claim. The appellant has an appeal as of right. The fact that the appeal appears at this stage to be weak is not sufficient reason to permit the funds to be released to the estate trustees for distribution at this time. Nor am I persuaded that the alternative form of order, raised in argument – that the estate trustees be permitted to hold and invest the funds at a higher rate of return – is necessary or advisable on this record.
Disposition
[23] For these reasons the estate is entitled to an order for security for costs of the appeal in the terms indicated. The balance of the motion is dismissed. Costs of this motion are reserved to the panel hearing the appeal.
“K. van Rensburg J.A.”