Court of Appeal for Ontario
Date: 2021-06-28 Docket: M52469 & M52474 (C69156)
Before: Zarnett J.A. (Motions Judge)
DOCKET: M52469
BETWEEN
Thrive Capital Management Ltd., Thrive Uplands Ltd., 2699010 Ontario Inc. and 2699011 Ontario Inc. Plaintiffs (Respondents/Moving Parties)
and
Noble 1324 Queen Inc., Michael Hyman, Giuseppe Anastasio, David Bowen, Noble Developments Corporation, Hampshire and Associates Incorporated, Lisa Susan Anastasio, Rajeree Etwaroo and Con-Strada Construction Group Inc. Defendants (Appellants/Responding Parties)
DOCKET: M52474
AND BETWEEN
Thrive Capital Management Ltd., Thrive Uplands Ltd., 2699010 Ontario Inc. and 2699011 Ontario Inc. Plaintiffs (Respondents/Responding Parties)
and
Noble 1324 Queen Inc., Michael Hyman, Giuseppe Anastasio, David Bowen, Noble Developments Corporation, Hampshire and Associates Incorporated, Lisa Susan Anastasio, Rajeree Etwaroo and Con-Strada Construction Group Inc. Defendants (Appellants/Moving Parties)
Counsel: Brian Radnoff and Joshua Suttner, for the respondents, moving parties in M52469 and responding parties in M52474 Justin Necpal and Justin Nasseri, for the appellants, responding parties in M52469 and moving parties in M52474
Heard: June 1, 2021 by videoconference
Endorsement
Introduction
[1] As a penalty for their disobedience of a Mareva injunction, the appellants were ordered to pay the respondents the amount of their claim – approximately $9 million. The appellants were also ordered to pay around $195,000 in costs to the respondents, and to attend a judgment debtor examination (the “examination order”). The appellants do not contest that they were properly found in contempt but will argue on appeal that the penalty was wholly disproportionate and the product of an unfair process.
[2] The respondents move for security for costs of the appeal and the proceeding. The appellants resist that request and bring their own motion that the examination order be determined to have been automatically stayed, or, if there is no automatic stay, that a stay be granted.
[3] For the reasons that follow, I grant in part the motion for security for costs. The appellants’ contempt of an order designed to preserve their assets for the protection of the respondents constitutes a good reason for ordering security, as it is both compelling and related to the reason security is granted – to provide a measure of protection for costs. I dismiss the motion relating to the examination order. I find that the examination order is not automatically stayed and, since the appellants are already under court imposed obligations to disclose their assets and can be examined on that disclosure, compliance with the examination order while the appeal is pending would not give rise to irreparable harm; it would not be in the interests of justice to grant a stay.
Background
[4] On April 20, 2020, the respondents commenced an action against the appellants, amongst others, seeking substantial damages. Various causes of action were asserted, including fraudulent misrepresentation, breach of fiduciary duty, and breach of contract.
[5] The action arose out of the advance, by the respondents, of approximately $9 million for the purchase of certain properties. The respondents allege that their investment was not used for the purpose for which it was advanced, and that the appellants misappropriated large sums of it.
[6] On April 23, 2020, Koehnen J. (the “motion judge”) granted a Mareva injunction and related orders against the appellants, restraining them (subject to limited exceptions) from selling, transferring, or dissipating any of their assets, requiring them to provide an accounting and disclosure of information, and directing them to complete the acquisition of one of the properties that the respondents’ funds had been advanced to purchase.
[7] On May 19, 2020, the motion judge declared that the appellants had materially breached his April 23 orders and gave them a further opportunity to comply. On June 1, 2020, the motion judge suspended the exceptions to the Mareva injunction due to the appellants’ continuing non-compliance.
[8] On June 19, 2020, the motion judge conducted a contempt hearing. He found the appellants in contempt for having breached the Mareva injunction and related orders. In his reasons dated August 21, 2020, the motion judge described the breaches as including failure to provide an accounting and other disclosure, failure to close the purchase of property, failure to provide contact information for individuals or entities who received funds from certain bank accounts or from the appellants and, in the case of the appellant Hyman and Noble Developments Corporation (a company Hyman controlled), transferring funds when prohibited from doing so.
[9] On November 5, 2020, the motion judge held a sentencing hearing. On January 21, 2021, he released reasons finding that the appellants had not purged their contempt and remained in breach of his orders. He gave judgment (the “judgment”) with a number of provisions.
[10] One provision was that, as the sanction for the contempt, the appellants were to pay the respondents the amount of their investment, less amounts recovered, in the sum of $8,794,606.09.
[11] A further provision was the examination order that directed the appellants to attend for a judgment debtor examination, even if they appealed the judgment.
[12] The judgment also included provisions containing awards of costs to the respondents as follows: $36,011.97 for the contempt hearing; $48,816.31 for the sentencing hearing; and 109,142.80 for the action.
[13] The appellants have appealed the judgment contending that the motion judge erred in imposing, as a sanction for their contempt, a judgment for the amount of the respondents’ claim, in an action they never had a chance to defend. In their appeal factum, the appellants confirm that they “are not appealing the contempt finding against them”. They acknowledge that they did not “sufficiently comply with court orders and they know there are consequences for that. It might be a large fine. It might be jail time. But it is not final judgment for $9M...”
[14] The appellants have refused to attend the judgment debtor examination.
The Motion for Security for Costs
[15] Rule 61.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides:
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.
[16] The respondents seek security for costs as follows: $25,000 for the appeal and $193,971.08 for the proceeding. The latter sum is the total of the three costs awards included in the judgment.
[17] The ordering of security for costs is discretionary; a two-step reasoning process is involved. The first question is whether the requirements of r. 61.06(1)(a), (b), or (c) are met. If so, the second question is whether it would be just to order security, considering the circumstances and the interests of justice: Yaiguaje v. Chevron Corporation, 2017 ONCA 827, 138 O.R. (3d) 1, at paras. 18-19.
[18] The respondents rely on r. 61.06(1)(c) which provides that security may be ordered for “other good reason”. This phrase must be understood in the context of the rest of r. 61.06(1). Subrule (a) contemplates security being ordered where the appeal appears to be frivolous and the appellant has insufficient assets in Ontario to pay the costs of the appeal. Subrule (b) contemplates security where an order could be made against the appellant under r. 56.01, the rule that governs when security may be ordered against a plaintiff at the trial level. Resort to subrule (c) is made where the other subrules do not apply. Invoking it should not be routine: Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633, 268 O.A.C. 172, at para. 8.
[19] The list of what might qualify as an “other good reason” is not closed. But the reason must be (i) compelling, and (ii) related to the purpose of ordering security, which is to provide a respondent with a measure of protection for costs: Combined Air, at para. 8; Heidari v. Naghshbandi, 2020 ONCA 757, 153 O.R. (3d) 756, at para. 6.
[20] I am satisfied that, in this case, the “other good reason” requirement in r. 61.06(1)(c) has been met.
[21] The Mareva injunction and related orders granted by the motion judge required the appellants, among other things, to make disclosure and to preserve assets. Orders of this nature are designed to ensure that a plaintiff’s recovery will not be defeated by the defendant dissipating its assets before judgment. The propriety of those orders is not at issue in the appellants’ appeal; they concede that they breached those orders and do not contest the findings of the motion judge that held them in contempt.
[22] The violation of these orders constitutes a reason to grant security that is compelling, given the serious nature of the orders and their violation, and directly relates to the purpose for which security for costs may be ordered.
[23] An “other good reason” to order security has been found in cases where misconduct is such as to present an unacceptable risk that any costs order made on the appeal will not be obeyed. For example, in York University v. Markicevic, 2017 ONCA 651, at para. 58, Epstein J.A. considered that, “a finding that the appellant has committed fraud…in conjunction with a finding that the appellant has taken steps to put his assets out of the reach of his creditors, provide ‘other good reason’ to justify an order for security for costs under r. 61.06(1)(c).”
[24] Here, the appellants have been found in contempt of orders that were designed to ensure they would honour their obligations if found liable. This also presents an unacceptable risk about whether they would comply with a costs award if unsuccessful on their appeal.
[25] Having concluded that the respondents have met the requirements of r. 61.06(1)(c):
I must go on to determine whether an order for security for costs would be just. Such a determination requires balancing the [appellants’] right to access to justice against the [respondents’] right to protection from having to defend unmeritorious positions in circumstances in which it is unlikely to recover its costs: Markevic, at para. 22.
[26] The appellants argue that a requirement to post security in the amount sought by the respondents would create a barrier to the pursuit of their appeal and deny them access to justice. The onus of showing that a party should not be ordered to post security due to its impecuniosity is on the party making that allegation: Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131 (Div. Ct.), at paras. 45-46, aff'd 2009 ONCA 415, 96 O.R. (3d) 639.
[27] The appellants do not expressly allege impecuniosity. In affidavits that they were required to file under the motion judge’s April 23, 2020 order, the appellants depose to having negligible assets. However, the motion judge, in making his contempt finding, pointed to significant discrepancies between what was disclosed in those affidavits and other evidence or indications that their assets were far more substantial: 2020 ONSC 4921, at paras. 21-30. The appellants filed no evidence on this motion, and have to date resisted being examined as to the full extent of their assets under the examination order.
[28] Moreover, the appellants make certain submissions that are inconsistent with impecuniosity. They suggest that it is speculative to assume they would not honour a reasonable costs award on the appeal and point out that they have paid some costs orders in the past.
[29] Given the above, I am not satisfied that a reasonable order for security for costs would result in the appellants being unable to pursue their appeal.
[30] As to the quantum of security, the amount of $25,000 for costs of the appeal was not seriously contested. In addition, the respondents argue that the security should also include costs of the proceeding, particularly two elements of those costs. They submit that the costs of the contempt hearing should be posted as security since that award is highly unlikely to be disturbed regardless of the result of the appeal, as the appellants are not contesting the contempt finding. They make a similar argument about the costs of the sentencing hearing. They argue that, given that the appellants are not challenging the contempt finding, some sanction would have been warranted. Therefore, even if the sanction is varied on appeal, the costs order would likely stand. The appellants do not concede these points.
[31] In the end, a security for costs order, including its quantum, is discretionary and must be just. It bears repeating that its purpose is to provide a measure of protection, not perfect protection, for costs. The need for protection is strongest with respect to costs of the appeal, as the respondents should not have to continue incurring expenses to respond to the appeal without the prospect of some recovery if costs are awarded in their favour. The need for protection exists, but is more attenuated, with respect to the costs of the proceeding. The appeal is not causing those costs to be incurred – they already have been. On the respondents’ hypothesis that the costs orders for the contempt and sentencing hearings will not be disturbed on appeal, the appeal is merely delaying their collection.
[32] Balancing all factors, I direct that the appellants post security for costs of the appeal in the sum of $25,000, and of the proceeding in the total sum of $45,000, within 30 days of the release of these reasons.
The Motion for a Stay
[33] As noted above, the judgment provided that the appellants attend a judgment debtor examination even if they appealed the judgment. The precise wording of the examination order provisions of the judgment are as follows:
THIS COURT ORDERS that, notwithstanding any appeals of this order which may be pending, the plaintiffs may immediately take steps to enforce the Judgment by conducting judgment debtor examinations and pursuing tracing remedies.
THIS COURT FURTHER ORDERS that the Developer Defendants shall attend a judgment debtor examination on a date to be determined by the plaintiffs. The Developer Defendants shall each produce all documents listed in their Notices of Examination at least 14 days prior to their respective examinations and the Developer Defendants shall answer all questions arising on any examinations to enforce the Judgment, shall not refuse to answer any questions and these examinations may be conducted before Justice Koehnen.
[34] The motion judge gave the following explanation for making the examination order:
In addition, I direct that the plaintiffs may begin enforcing that judgment by conducting judgment debtor examinations and pursuing tracing remedies even if the Defendants appeal this judgment. This is appropriate because the net effect of a judgment debtor examination or a tracing remedy arising out of it would be the same as having the Defendants comply with the Mareva injunction. Among the relief ordered under the Mareva injunction was a requirement that Messrs. Hyman and Anastasio provide affidavits of assets. I have commented on the complete inadequacy of those affidavits in earlier reasons. If the Defendants succeed on an appeal of this judgment, the appeal would allow them to defend, as a result of which the plaintiffs would continue to have whatever rights they have now, including the right to pursue further remedies under the court orders already issued which would include the right to cross-examine the Defendants on their statements of assets, the accounting and whatever disclosure they have produced.
[35] The parties subsequently attended before the motion judge who refused to give effect to the appellants’ submission that he had no jurisdiction to order examinations with an appeal pending.
[36] Examinations were scheduled for May 19 and 20, but the appellants refused to attend, taking the position that the motion judge did not have jurisdiction to order them to attend a judgment debtor examination when the judgment was under appeal. They then brought this motion.
[37] The appellants’ primary position is that the appeal automatically stayed any provision of the judgment for the payment of money until the appeal is determined: r. 63.01(1). A judgment debtor examination is a step under or for the enforcement of the money provisions of the judgment, and the effect of the stay is that no such step may be taken until the appeal is determined: r. 63.03(3). The provision that the judgment debtor examination may take place notwithstanding any appeals is ineffective, as only a judge of this court can lift the automatic stay: r. 63.01(5). If a stay is required, they ask that I grant one under r. 63.02(1).
[38] The respondents argue that the examination order was made as part of the sanction for the appellants’ contempt; it is not in and of itself an order for the payment of money and is not automatically stayed. It should not be equated with an ordinary judgment debtor examination, which the holder of a money judgment that is not stayed can compel under r. 60.18. While the motion judge called the examination a judgment debtor examination, he could as easily have directed the appellants to be cross examined on the affidavits they were required to file under the Mareva injunction. The respondents also argue that since the appellants moved before this court only after they failed to comply with the examination order, they should not be given an audience. They submit that a stay of the examination order is not warranted; and if it is automatically stayed, the stay should be lifted.
[39] I agree with the appellants that the fact that the motion judge stated that the examination order applied even if there were an appeal does not make it so, as only a judge of this court can remove an automatic stay. But in my view, the examination order is not automatically stayed under r. 63.01(1). It is not an order for the payment of money, nor is the examination a prohibited step under r. 63.03, given the existence of a court order requiring that examination. While, under r. 63.03, the effect of a stay of a provision for the payment of money is that no step under that provision or for its enforcement can be taken, the examination sought by the respondents is not being pursued under the provision for the payment of money, but under the examination order, a separate provision of the judgment which is not automatically stayed.
[40] Nor, in the unusual circumstances of this case, would I grant a stay of the examination order. The overarching consideration in whether to grant a stay pending appeal is whether doing so is in the interests of justice. Three factors are considered: (1) whether, on a preliminary assessment, the appeal raises a serious question, recognizing that this is a “low threshold”; (2) whether the applicant would suffer irreparable harm if the application were refused; and, (3) the balance of convenience, namely which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits. The factors are not watertight; the strength of one may compensate for the weakness of another: Zafar v. Saiyid, 2017 ONCA 919, at paras. 17-19.
[41] The appellants identify no prejudice, let alone irreparable harm, that they would suffer if they had to be examined. They are not in an analogous position to a defendant appealing a money judgment who, if they win their appeal, will never have to make disclosure or be subjected to intrusive probing of their financial affairs and who can therefore credibly claim that they would suffer irreparable prejudice if they had to undergo the examination before the appeal is heard. The appellants were required under the Mareva injunction to file affidavits disclosing their assets and are subject to cross-examination on those affidavits. They are not entitled, under existing court orders that are not being appealed, to keep their financial affairs secret from the respondents.
[42] It is not in the interests of justice to grant the stay requested. In light of that conclusion, it is unnecessary to address the respondents’ other arguments.
Conclusion
[43] The motion for security for costs is granted to the extent described in para. 32 above. The motion for a stay is dismissed.
[44] The respondents are entitled to the costs of these motions in the total sum of $6,000, inclusive of disbursements and applicable taxes.
“B. Zarnett J.A.”
