Court and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20220117 DOCKET: M53077 (C70090)

BEFORE: Lauwers J.A. (Motion Judge)

BETWEEN: NDrive, Navigation Systems S.A. Plaintiff (Respondent/Moving Party)

AND: Si Zhou (a.k.a. Si (Silas) Zhou, a.k.a. Silas Zhou), Aguazion, Inc., Hakemi & Ridgedale LLP and Tom A. Hakemi Defendants (Appellants/Responding Parties)

AND BETWEEN: Si Zhou (a.k.a. Si (Silas) Zhou, a.k.a. Silas Zhou), Aguazion, Inc. and Aqua Latitude International Limited Plaintiffs by Counterclaim (Appellants/Responding Parties)

AND: NDrive, Navigation Systems S.A., Joao Filipe Dos Santos Teixera Neto, Andreia Susana Dias, and Eduardo Augusto De Sousa Carqueja Defendants by Counterclaim (Respondents/Moving Parties)

COUNSEL: Ryder Gilliland and Corey Groper, for the moving parties Meredith Bacal, for the responding parties Silas Zhou, Aqua Latitude International Limited, Aguazion, Inc.

HEARD: January 13, 2022 by video conference

Reasons for Decision

[1] The moving parties, NDrive, Navigation Systems S.A. and its directors, move for security for costs under r. 61.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. NDrive is a global navigation software company based in Portugal.

[2] The responding party, Mr. Zhou, owns and controls Aqua Latitude International Ltd., a Hong Kong corporation, and is the sole registered director of Aguazion, Inc., a Canadian corporation.

[3] Mr. Zhou was instrumental in setting up a business relationship between NDrive and LG Electronics Inc., a South Korean multinational electronics conglomerate.

[4] In 2013, NDrive discovered that LG had underreported the number of mobile phones on which it had installed the NDrive software, and NDrive started an arbitration in December 2015. Mr. Zhou was given day-to-day supervision over the arbitration on NDrive’s behalf. As a result of the arbitration, NDrive received an arbitral award of $1,068,085.43 USD. After disbursing approximately $200,000 to others, Mr. Zhou collected the balance of the arbitral award and paid it into an account held in the name of Aguazion Inc. NDrive demanded payment of the funds and later moved for a Mareva injunction in May 2020. In his endorsement granting the world-wide Mareva injunction against the Zhou parties, McCarthy J. stated that “the materials disclose a strong prima facie case of civil fraud.”

[5] Eventually pleadings were exchanged and a partial summary judgment motion by NDrive against the Zhou parties was heard. The motion judge granted partial summary judgment against the Zhou parties and dismissed their counterclaim: NDrive, Navigation Systems v. Zhou et al., 2021 ONSC 7366. She awarded $881,170.84 USD in Canadian dollars, together with pre- and post-judgment interest and punitive damages in the amount of $200,000. In her costs endorsement, she awarded full indemnity costs in the amount of $230,000: NDrive, Navigation Systems v. Zhou, 2021 ONSC 7772.

[6] The motion judge summarized her merits findings in her costs decision, at paras. 24-25:

Zhou breached and abused his fiduciary position for his own self interest and personal gain. He committed a substantial, calculated and sustained fraud and then used this litigation to attempt to justify and obfuscate his behaviour. Only when he was caught did he attempt to put NDrive’s money back into an account, and thereafter began his baseless attempt to justify keeping it. This was NDrive’s money and should have been returned to them in full immediately upon demand. Had he returned it immediately in response to the demand letter, this action would have been avoided. Zhou’s refusal to return it unless he was permitted to retain a large amount of it, after committing fraud, necessitated the action.

I found that there was a concerted effort on the part of the moving parties to deal with the litigation expeditiously and in a cost-effective manner in the face of delay tactics and “strategic nonsense.” The Zhou parties showed an intention to undertake a long and drawn out process, raising issues that were clearly statute barred and/or irrelevant. They wasted scarce court resources. They made serious and unsubstantiated allegations against opposing counsel, even in a pleading. Their litigation conduct was shocking and reprehensible. This conduct was detailed in my reasons for judgment, but the worst of it was an intention to hide relevant evidence and to mislead the court. The Zhou defendants were litigants who displayed not just one type of behavior that should be sanctioned by costs, but a wide array of the worst types of such conduct. Full indemnity costs are warranted in such circumstances.

[7] The Zhou parties appealed, and NDrive brought this motion for security for costs. More specifically, NDrive seek:

a. an order that the appellants post security for the respondents’ costs of the proceeding as ordered by Healey J. in the amount of $230,000.00 within 30 days of the date of this Order failing which the Respondents shall be at liberty to move without notice to dismiss the appeal with costs on a substantial indemnity basis;

b. an order that the appellants post security for the respondents’ incurred and anticipated appeal costs in the amount of $70,000.00 within 30 days of the date of this order failing which the respondents shall be at liberty to move without notice to dismiss the appeal with costs on a substantial indemnity basis;

c. alternatively, an order that the appellants post security for costs with the Ontario Court of Appeal of the proceeding and the appeal in an amount and at such time that this Honourable Court may deem just failing which the respondents shall be at liberty to move without notice to dismiss the appeal with costs on a substantial indemnity basis;

d. an order that the appellants may not take any further steps in this proceeding, except an appeal from the order requested in the within motion, until the security required by the order has been given;

e. an order that the respondents shall have 30 days from the date that the security required by the order has been paid to serve and file a responding factum; and

f. costs of this motion on a substantial indemnity basis.

[8] A motion judge has discretion under r. 61.06(1) to make an order for security for costs of the proceeding below and the 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 r. 56.01; or

(c) for other good reason, security for costs should be ordered.

[9] I will focus on the “other good reason” ground for making an order for security for costs. I note in passing that the appellants do not appear to have sufficient assets in Ontario to pay the costs of the appeal.

[10] Zarnett J.A. summarized the governing principles in Thrive Capital Management Ltd. v. Noble 1324 Queen Inc., 2021 ONCA 474, 156 O.R. (3d) 551, at para. 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 Corp., 2017 ONCA 827, 138 O.R. (3d) 1, at paras. 18-19.

[11] He noted, at para. 18: “Resort to subrule (c) [‘other good reason’] 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.” He added, at para 19, that “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”.

[12] In Thrive, the responding party met the “other good reason” requirement because a Mareva injunction had been issued against the appellants. At para. 23, Zarnett J.A. noted that the presence of fraud was also relevant, citing York University v. Markicevic, 2017 ONCA 651, at para. 58, where Epstein J.A. stated 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).” Her conclusion was well supported by the authorities she listed at para. 54, including Hall-Chem Inc. v. Vulcan Packaging Inc. (1994), 72 O.A.C. 303 (C.A.); Royal Bank of Canada v. Hi-Tech Tool and Die Inc., 2013 CarswellOnt 5678 (C.A.); and 798839 Ontario Ltd. v. Platt, [2014] O.J. No. 6077 (C.A.).

[13] In oral argument, counsel for the appellants advised that she had served on counsel for NDrive a “with prejudice” offer to post $265,000 as security for costs, and to pay the costs of the motion in the amount of $12,500. The principal amount is $35,000 less than what NDrive seeks. She made three arguments supporting the reasonableness of the proposed $265,000 security for costs. First, she implicitly agreed with counsel for NDrive that her $265,000 figure effectively values the prospective appeal costs at $35,000. She took the position that NDrive’s figure of $70,000 for the prospective appeal was too high and pointed out that it was not justified by a draft bill of costs. Second, she stated that the appellants were narrowing the issues on appeal from the plenary grounds set out in the Notice of Appeal, leaving the tacit inference to be drawn that preparation would be less costly. Third, she argued that there should be no security for the judgment itself, citing Wiseau Studio, LLC v. Harper, 2021 ONCA 396, 66 C.P.C. (8th) 106, leave to appeal to S.C.C. requested, 39765, leaving the tacit inference to be drawn that the amount paid into court could be accessed to pay the appeal costs in priority to the judgment.

[14] Counsel for NDrive stated that the $70,000 figure for prospective appeal costs is warranted in view of the size and complexity of the record and the broad scope of the appeal, which involved challenges to factual findings according to the Notice of Appeal. He noted that the motion for security did not seek security for the judgment. Finally, he submitted that in the face of the finding of instances of fraud and the appellants’ litigation misconduct throughout, his clients “should not be out a penny”.

[15] The appellants’ factum on the appeal was filed with the court after the argument on the motion. I have reviewed the factum. In it, the appellants focus on four issues:

1. Did the motion judge err in hearing the motion for partial summary judgment in light of Malik v. Attia, 2020 ONCA 787, 29 R.P.R. (6th) 215?
2. Was the motion judge correct in law in granting partial summary judgment to NDrive and dismissing the counterclaim?
3. Did the motion judge err in awarding three sets of compensation to NDrive arising out of the same underlying facts and condemnation of the Zhou parties’ conduct?
4. Did the motion judge err in appreciating the law of fraudulent concealment and its effect on any applicable limitation periods?

[16] This set of issues appears to narrow the broad grounds of appeal stated in the Notice of Appeal, which included: “(e) The Motion Judge made findings of fact that were not supported by the evidence”; “(f) The Motion Judge made findings of fact that were contradicted by the evidence”; and “(g) The Motion Judge ignored or disregarded relevant evidence”. That said, the scope of the appeal remains quite broad.

[17] The findings of fraud carry weight. The appeal remains broad and complex and will require costly preparation. While best practice would be to provide a draft bill of costs to justify the amount claimed, I am able to make the assessment and find the figure of $70,000 to be reasonable. I therefore grant the order for security for costs in the terms requested, for a total amount of $300,000.

[18] Costs of this motion are fixed as agreed at $12,500, all inclusive, payable by the appellants to NDrive.

“P. Lauwers J.A.”