SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 06-CV-35606 and 10-48359
MOTION HEARD: 20150428 and 20150521
RE: Geographic Resources Integrated Data Solutions Ltd. and The State of Oregon, acting by and through its State Board of Higher Education, on behalf of Southern Oregon University, Plaintiffs/Responding Parties
AND:
Perry Peterson, Nelligan O’Brien Payne, Nelligan O’Brien Payne LLP, and Wing T. Yan, Defendants/Moving parties in the 06-CV-35606 action
AND:
The PYXIS Innnovation Inc., Defendant/Moving Party in the 10-48359 action
BEFORE: Master Pierre E. Roger
COUNSEL:
Patrick Snelling, counsel for the Plaintiffs/Responding Parties in both actions
Heather J. Williams, counsel for the Defendants/Moving Parties in the 06-CV-35606 action, with the exception of Perry Peterson
John A. Ryder-Burbridge, counsel for the Defendant/Moving Party Perry Peterson in the 06-CV-35606 action and for the Defendant/Moving Party in the 10-48359 action
HEARD: April 28, 2015 and May 21, 2015, with additional written submissions provided by all parties by August 14, 2015
REASONS FOR DECISION
The Defendants, in both actions, bring this motion for an order requiring the Plaintiffs to post further security for costs by way of cash, certified funds or irrevocable letter of credit in a form approved by the parties or the Court in the amount of $500,000.00 for the Defendants Nelligan O’Brien Payne, Nelligan O’Brien Payne LLP and Wing T. Yan in the 06-CV-35606 action (hereinafter collectively referred to as the Defendants NOP) and in the amount of $419,424.10 for the Defendant Perry Peterson in the 06-CV-35606 action and the Defendant PYXIS Innnovation Inc. in the 10-48359 action (hereinafter collectively referred to as the Defendants Peterson). The Ontario corporate Plaintiff will be referred to as the Plaintiff GRIDS or GRIDS and the Oregon Plaintiff will be referred to as the Plaintiff SOU or SOU.
On a motion for security for costs, in the circumstances of this motion, the court may make such order for security for costs as is just where it appears that the plaintiff is ordinarily resident outside Ontario, or is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant (Rules of Civil Procedure, r. 56.01(a) and (d)). Further, the form and the amount of security required by an order for security for costs are within the discretion of the Court and may be increased or decreased (Rules 56.04 and 56.07).
In this case, an order for security for costs was made by Justice Kershman on June 29, 2007. He found that GRIDS, a corporation, did not have sufficient assets in Ontario, as per the applicable test. He also found that SOU, a Plaintiff ordinarily resident outside of Ontario had to pay security for costs. Ultimately, he ordered security for costs of $104,500 to be posted with the Court, for costs up to the completion of the examinations for discovery and the answering of undertakings (the amount ordered seems to have been in the amount of approximately $61,566 to Peterson and $42,933 to NOP).
On this motion, there is no suggestion of a change in circumstances for GRIDS. It is admitted that GRIDS has insufficient assets in Ontario to pay the costs of the Defendants. The Plaintiffs argue that because GRIDS assigned its rights in this action to the Plaintiff SOU, there has been a change in circumstances as the Plaintiff SOU is now responsible for any costs awards, resides in a reciprocating jurisdiction and has assets to satisfy a costs award. I disagree with that argument.
It is clear from the materials provided that reciprocal enforcement legislation materially similar to that which currently exists has existed in Oregon since at least 1977 (through the 1962 Uniform Foreign Money-Judgments Recognition Act of Oregon, which apparently came into force in 1977. Consequently, despite this assignment by GRIDS to SOU, there has been no material change in circumstances since this matter was decided by Justice Kershman.
I therefore find that the issue of entitlement to the order for security for costs has already been decided and that the only issues to be decided are the form of the security and whether any increase to the amount of security is required.
Inquiries over the form of security have delayed this motion. I allowed the Plaintiffs three opportunities to provide, to the parties and to the Court, a form of undertaking that might act as security. This suggested undertaking, from the Plaintiff and from a bank, might have provided a sufficient form of security, as an alternative to a more standard form of order for security for costs (under rule 56.04, the Court has discretion over both the amount and form of security).
SOU’s lender, U.S. Bank, we are told is unable to provide an undertaking to pay an adverse costs award in this litigation as part of its commercial lending business. We have not been told why. I have carefully reviewed the most recent form of undertaking suggested by the Plaintiff, as well as the submissions of all parties on this point, and find that the suggested undertaking is not a satisfactory or sufficient form of security for the costs of this action.
A serious risk exists, when one carefully reviews the opinion letters on the law in Oregon (despite the fact that these should have been filed in affidavits), that an Oregon court may not enforce an Ontario costs award on the basis of sovereign immunity enjoyed by the Plaintiff SOU. This risk has not been adequately addressed by the Plaintiffs.
Enforcement in Oregon would involve the Defendants commencing an action in Oregon to enforce the Ontario costs award. Even if the Oregon enforcement action, contemplated under the applicable reciprocal legislation, proceeded on an uncontested basis (as provided by the suggested undertaking), the onus would still rest on the Defendants. Considering the applicable concept of sovereign immunity, I have been provided no convincing authority that the Defendants could meet their onus or successfully obtain a judgment in Oregon.
This is a serious risk for the Defendants, in the event that SOU did not honour its undertaking, as it could prevent any recovery in Oregon despite SOU’s undertaking. The potential effect of sovereign immunity could have been avoided by the undertaking of a private bank but, as indicated above, we are told that this is not possible. Consequently, and for the reasons indicated above, I do not accept the suggested undertaking as an acceptable alternative form of security for costs.
Considering the submissions of the parties, I will order security payable within 30 days by way of an irrevocable letter of credit, in a form acceptable to the Court. Alternatively, I will order security payable by the posting of funds into court within 15 days thereafter.
In determining the amount and terms of payment, an order for security for costs should attempt to fix an amount that is both fair and reasonable for the unsuccessful party on the motion to pay and that will reasonably protect the defendants.
In this case, the next step is the trial. A date was set and adjourned and a new date has not yet been set. I will assume that this trial will most likely proceed at a convenient time early next year. Consequently, this is not an appropriate case for an order with staged payments into court.
The parties agree that the trial will require six weeks. It will raise complicated factual and legal issues, involving the ownership of certain inventions and resulting damages.
I will firstly address what should constitute a reasonable amount for security for costs for NOP. NOP’s actual fees from June 2007, the date of the previous order for security for costs, to December 31, 2014, total $309,118, while their actual fees from the last day of discovery of the Plaintiffs’ representative total $127,110 thereof. They anticipate that their actual fees for trial preparation before trial will be of $98,700, that their actual fees for trial preparation during trial and for attendance at trial will be of $234,360 (plus HST/GST as applicable) and that their all-inclusive costs through the completion of trial will total $788,704. No breakdown has been provided. Total disbursements for the entire action are expected at $42,718, with no particulars or breakdown provided as to what or when these were or will be incurred. I accept that the actual fees outlined above are calculated at a discounted hourly rate, comparable to applicable hourly rates for partial indemnity costs.
Based on what has been provided, I assess for NOP: (1) a reasonable amount of increased security for the fees and disbursements, together with applicable taxes, incurred to date at $85,000, and (2) a reasonable amount for security for costs for the fees and disbursements, together with applicable taxes, for the preparation and attendance through completion of trial at $275,000, for a total of $360,000. Combining this new amount with their share of the amount previously paid into court is a fair and reasonable amount of security for the unsuccessful party on the motion to pay that will reasonably protect the defendants for their costs of this action.
Next, I consider what should constitute a reasonable amount for security for costs for the Defendants Peterson and PYXIS. Their bill of costs seeks an additional $419,424 on a substantial indemnity basis and $303,088 on a partial indemnity basis, as security for fees, disbursements and HST incurred post discovery. I note that about $20,000 thereof relates to the costs of this motion, which will be dealt with separately. I note as well that although about $61,566 of the previous order for security for costs was for the Defendant Peterson, he thereafter proceeded unrepresented from about December 2007 through the examination for discovery stage (or through the items listed on his budgeted bill of costs). The amount sought on a partial indemnity basis for the preparation and attendance at a 30 day trial is estimated at $180,000 for fees plus $59,603 for disbursements plus $28,011 for HST on fees. I note that a portion of the disbursements relate to examinations for discovery items.
Based on what has been provided, I assess for Peterson and PYXIS a reasonable amount of security for costs through to the completion of trial to be at $225,000. I backed out of the partial indemnity bill of costs the amount of $19,473 for this motion and an amount of $50,000 to account for what was previously paid yet proceeded on an unrepresented basis. I find that this amount would represent a fair and reasonable amount of security for the unsuccessful party on the motion to pay that will reasonably protect the defendants for their costs of this action.
Consequently, the Plaintiffs shall post with the Court as additional security for costs, through to the completion of trial, the amount of $585,000 by either an irrevocable letter of credit in a form acceptable to the Court to be posted within the next 30 days or, alternatively, by the posting funds totalling $585,000 into court within 15 days thereafter.
If the parties cannot agree on the costs payable for this motion, then the Defendants shall, within the next 5 days, email or deliver to my assistant brief written submissions on costs with brief responding submissions by the Plaintiffs within 7 days from the date of this order. These timelines are short, as time for dealing with this matter is limited by section 123 of the Courts of Justice Act, R.S.O. 1990, c. C.43, under which this endorsement is made.
Date: September 3, 2015 Master Pierre E. Roger