CITATION: Melia et al v. Evashkow et al, 2024 ONSC 4391

DIVISIONAL COURT FILE NO.: 161-24

DATE: 20240808

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: DAVID MELIA, RALPH GOLDSILVER, ROBERT MACBEAN and MICHAEL SMITH

Respondents/Moving Parties

AND:

DOUGLAS EVASHKOW and BLUEROVER INC.

Appellants/Responding Parties

BEFORE: Justice O’Brien

COUNSEL: J. Katz, Counsel for the Respondents/Moving Parties

J. Polyzogopoulos and C. McClelland, Counsel for the Appellant/Responding Party Douglas Evashkow

HEARD: August 6, 2024

ENDORSEMENT

Overview

[1] The moving parties bring this motion seeking security for costs of the appeal initiated by Mr. Evashkow. Mr. Evashkow appeals a decision of the application judge, Osborne J., which found Mr. Evashkow to have acted in an oppressive manner. The application judge ordered remedies including the removal of Mr. Evashkow as a director and CEO of the company at the centre of this dispute.

[2] The moving parties, described in the application judge’s decision as the “Smith parties” are officers, directors, and shareholders of this closely-held technology company, BlueRover Inc. (BRI). The application judge dismissed a counter-application brought by an opposing group of shareholders, with whom Mr. Evashkow was closely associated. Mr. Evashkow was nominated by one of these to be a director and the CEO of BRI. He has no equity stake in the company.

[3] The Smith parties submit security for costs should be ordered because: (1) The appeal is frivolous and vexatious. In their submission, the appeal is almost entirely focused on the application judge’s factual findings, which are entitled to significant deference; (2) The Smith parties have provided sufficient evidence to allow this court to reach a tentative conclusion that Mr. Evashkow has insufficient assets in Ontario to pay the costs of the appeal; and (3) For other good reason, security for costs should be ordered. On this branch of the test, the Smith parties submit that, looking to a constellation of factors including Mr. Evashkow’s conduct, there is a real risk they would be unable to collect costs from him.

[4] For the reasons that follow, the motion is dismissed.

Analysis

[5] Rule 61.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 authorizes the court to order security for costs where it appears that,

(a) There is good reason to believe 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 under r. 56.01; or

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

[6] Rule 61.06(1) requires a two-stage analysis as described in Heidari v. Naghshbandi, 2020 ONCA 757, at para. 6: “[F]irst, 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.”

[7] Turning to the first part of the test, the moving party must show there is good reason to believe that (1) the appeal is frivolous and vexatious; and (2) the appellant has insufficient assets in Ontario to pay the costs of the appeal. The “good reason to believe” standard requires the motion judge to reach a tentative rather than a definitive conclusion on the absence of merit or assets: Heidari, at para. 9.

[8] The Smith parties have a strong argument that there is little merit to the appeal. Mr. Evashkow’s notice of appeal and supplementary notice of appeal focus on numerous alleged factual errors. Mr. Evashkow has also identified two alleged errors in principle: The first relates to his allegation that the application judge failed to address a specific argument regarding the Smith parties seeking equitable relief with unclean hands. The second was his failure to address the principles and case law presented to him when he granted the remedy of removing Mr. Evashkow as director and officer of BRI.

[9] While framed as errors of principle, both allegations could also be characterized as matters the application judge addressed implicitly in the context of all his findings. Further, significant deference would be owed to the application judge’s factual findings and to the exercise of his discretion on remedy.

[10] However, as Mr. Evashkow submits, the appeal must be not just frivolous, but also vexatious, to meet this branch of the test: Gill v. MacIver, 2023 ONCA 776, at para. 4. A “vexatious” appeal includes one taken to “annoy or embarrass” the opposing party, one that is conducted in a vexatious manner, such as by failing to comply with court orders or having an oblique motive for launching the appeal: Gill, at para. 3; Heidari, at para. 10.

[11] Although the application judge’s factual findings against Mr. Evashkow impugn his conduct, I do not have good reason to believe the appeal is vexatious. Mr. Evashkow acted as the CEO and a director of BRI for some months. He lost his position because of the application judge’s decision. Although he does not have an equity stake in the company, he states he is bringing the appeal to repair his reputation and to return to his role in the company. While he may have other motives as well, including to benefit the opposing shareholders, I accept he has a sufficiently legitimate personal stake in the appeal to avoid the conclusion that the appeal is vexatious on this preliminary assessment.

[12] Even if I were to conclude otherwise, the Smith parties have not met their onus of showing good reason to believe Mr. Evashkow has insufficient assets to pay the costs of the appeal. The Smith parties rely on: (1) the fact that Mr. Evashkow did not seek or receive compensation for his role as CEO; and (2) the fact that he is not covered by BRI’s directors’ and officers’ insurance policy with respect to costs of the appeal.

[13] I agree with Mr. Evashkow that the failure to seek or receive compensation as a CEO does not show good reason to believe he has insufficient assets in Ontario. It could equally lead to the opposite inference, which is that he could afford not to be paid. The lack of insurance coverage also does not demonstrate he has insufficient assets in Ontario.

[14] Nor does Mr. Evashkow’s failure to provide any evidence of his assets assist. The Smith parties had the initial evidentiary onus to demonstrate good reason to believe Mr. Evashkow had insufficient assets. They did not meet that onus. Thhe evidentiary burden therefore did not shift to Mr. Evaskow and he was not required to respond: Gill, at para. 6. The Smith parties have not met this part of the test.

[15] Finally, under r. 61.06(1)(c), I must determine whether security for costs should be ordered “for other good reason.” The Court of Appeal has provided guidance on this aspect of the test. Although the list of reasons for justifying security under this 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)”: Heidari, at para. 23; Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633, at para. 8. As stated in Combined Air Mechanical, security orders under the residual category “are not to be made routinely.”

[16] An example of where there is “other good reason” to justify an order under r. 61.06(1)(c) is where 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: Heidari, at para. 24; Gill, at para. 7.

[17] Here, the Smith parties submit Mr. Evashkow has no financial stake in the outcome of the appeal and is an “avatar” for the opposing shareholders. They underscore that the application judge found his conduct to be oppressive including in that he insulted them and interfered with the work of the court-appointed monitor. They also point to his submission before the application judge that costs of the application should not be awarded against him.

[18] They rely on Groia & Company Professional Corporation v. Cardillo, 2019 ONCA 165, where, in the discussion of r. 61.06(1)(c), the Court of Appeal referenced the conduct of the responding party. They submit Mr. Evashkow’s poor conduct can be relied on a part of a matrix of factors to conclude it would be impossible to collect costs from him.

[19] I am not persuaded the Smith parties have shown other good reason to order security for costs. Groia was different because there, the moving party had fully established that the responding party’s assets were not readily exigible and that he had taken steps to render himself judgment proof. Here, Mr. Evashkow’s poor conduct is not tied to fraud nor to efforts to make it difficult to collect costs from him. The Smith parties have not provided a sufficient basis for concern about their ability to collect costs to justify protection under the rule.

[20] Overall, although the appeal has a low prospect of success, I do not find the circumstances of this case sufficiently compelling to order costs under r. 61.06(1)(c).

Disposition and Costs

[21] The motion is dismissed.

[22] The parties agreed the successful party on the motion would be entitled to costs of $7,500. They disagreed whether that amount should be paid forthwith or in the cause. The appeal materials have already been prepared and the responding materials are due soon. In my view, it is appropriate in the circumstances of this case to order costs of $7,500 payable to Mr. Evashkow in the cause.

O’Brien J

Date: August 8, 2024