Court File and Parties
COURT FILE NO.: 04-CV-269165 CM3 DATE: 20160617 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Bayerische Landesbank Girozentrale, Plaintiff – AND – Grant Thornton Limited, Trustee of the Estate of Helmut Sieber, a bankrupt, Helga Sieber and H.J. Sieber Farms Ltd. and Rosen Ridge Farms Ltd., Defendants
BEFORE: Justice E.M. Morgan
COUNSEL: Benjamin Bathgate and Anna Tombs, for the Plaintiff Allen Wilford, for the Defendant, Rosen Ridge Farms Ltd.
HEARD: June 14, 2016
Endorsement
[1] On January 5, 2015, I released reasons for judgment in the trial of this matter. After a 9 day trial, I held that Helmut Sieber had fraudulently conveyed a property he owned in Huron County in order to avoid payment of a judgment debt in the amount of $7,500,000 obtained against him by the Plaintiff on March 14, 2001. The Defendant, Rosen Ridge Farms Ltd. (“Rosen Ridge”), has scheduled a motion to be heard several weeks from now to set aside that judgment on the basis of what it says is newfound evidence that should have previously been disclosed to it by the Plaintiff, and which would have changed the result at trial.
[2] The property in issue – Part Lot 5, Concession 9, Township of Morris, Municipality of Morris-Turnberry, County of Huron, bearing PIN 41326-0366 (the “Property”) – was, without the knowledge or consent of the Plaintiff, conveyed by Mr. Sieber first to H.J. Sieber Farms Ltd. (“Sieber Farms”), a company controlled by Mr. Sieber and/or his former spouse, Helga (Sieber) Hasenberger, and then to Rosen Ridge. Rosen Ridge is owned by Grona-Stiftung, a Liechtenstein-based foundation established by the Sieber family and of which Mr. Sieber is a beneficiary.
[3] Rosen Ridge issued a Notice of Appeal on January 22, 2015. On December 16, 2015, the Plaintiff commenced a cross-appeal based on language it wanted included in the formal judgment but which I excluded when I signed the judgment.
[4] It was clear from the trial of this matter that Rosen Ridge was formed as a single purpose holding company for the Property, and that the only asset that it owned was the Property. This asset, of course, was the subject of my judgment and was therefore to be transferred from Rosen Ridge to the Plaintiff. Rosen Ridge would be left without any assets and, accordingly, the Plaintiff sought security for costs from Rosen Ridge for the appeal.
[5] After some negotiation, Rosen Ridge and the Plaintiff agreed on $40,000 in security for costs, which was to be posted into court by Rosen Ridge. However, Rosen Ridge refused to adhere to the security for costs agreement, and on February 19, 2016, the Plaintiff brought a motion before the Court of Appeal to enforce the settlement. Hourigan JA ordered Rosen Ridge to pay into court as security the sum of $40,000 by February 26, 2016. He also ordered Rosen Ridge to pay the Plaintiff’s costs of the motion in the amount of $10,000 by the same date.
[6] Neither of the court’s orders were obeyed by Rosen Ridge. It failed to post the security for costs and failed to pay the costs of the motion.
[7] Furthermore, Rosen Ridge remained in possession of the Property pending the appeal. During this time it refused to provide proof of insurance coverage for the Property. Rosen Ridge likewise refused to hold in trust any rents it collected (or ought to have collected) from existing tenants of the Property, and, moreover, it refused to pay tax arrears for the Property and to provide written confirmation of those payments to the Plaintiff. Therefore, the Plaintiff brought a motion returnable on February 22, 2016 seeking relief with respect to those interim issues.
[8] The same day, February 22, 2016, Rosen Ridge served a Notice of Abandonment of the appeal. That made the Plaintiff’s motion for interim relief unnecessary. Rosen Ridge was ordered by the Court of Appeal to pay the Plaintiff’s costs thrown away in the amount of $5,000. Then, on March 2, 2016, Rosen Ridge moved for an adjournment of the Plaintiff’s cross-appeal. The Court of Appeal ordered Rosen Ridge to pay the Plaintiff a further $2,000 in costs thrown away.
[9] On May 24, 2016, the Plaintiff’s cross-appeal was heard and the Plaintiff was partially successful. The Court of Appeal ordered Rosen Ridge to pay the Plaintiff its costs of the appeal and cross-appeal in the amounts of $25,000 and $5,000, respectively. These costs were (are) to be paid within 30 days of the judgment.
[10] There is therefore a total of $17,000 in costs payable by Rosen Ridge to the Plaintiff, and a further $30,000 in costs that will become payable by Rosen Ridge to the Plaintiff in approximately a week. Counsel for the Plaintiff submits that given the history of Rosen Ridge’s participation in a fraudulent conveyance, and its failure to pay the interim costs awarded by the Court of Appeal or to post the security for costs which it had agreed to post, there is a great likelihood that Rosen Ridge will fail to pay any costs awarded if it is unsuccessful on the upcoming motion to set aside the trial judgment.
[11] The Plaintiff seeks an order prohibiting Rosen Ridge from pursuing the upcoming motion unless and until the outstanding costs orders are satisfied. The Plaintiff also seeks security for costs for the motion. As indicated above, it is uncontroversial that Rosen Ridge has no assets in Ontario with which to satisfy any costs award in the upcoming motion or otherwise.
[12] Counsel for Rosen Ridge makes a twofold response. In the first place, he submits that the merits of the upcoming motion to set aside the trial judgment are so strong that Rosen Ridge should not have to post security, otherwise the motion will be thwarted and justice will not prevail. Secondly, he contends that Rosen Ridge is impecunious and cannot afford to post any security for costs. In any case, Rosen Ridge’s counsel points out that the outstanding costs all result from interim motions at the Court of Appeal which flow directly from the trial judgment, and if Rosen Ridge is successful on the motion the trial judgment will have to be set aside and the interim costs awards will become moot.
[13] Turning first to the upcoming motion and its supposed strength, Rosen Ridge’s position is that it has recently discovered a Release which the Plaintiff gave not to Rosen Ridge but to Sieber Farms, in which the Plaintiff effectively waived any and all rights it might have had to sue for recovery of the Property. Mr. Sieber contends that had he only known about this Release, Rosen Ridge would have approached the matter far differently and the trial would have gone in an altogether different direction.
[14] It is not the role of the court here to opine on the merits of Rosen Ridge’s position in the motion that it intends to bring to set aside the trial judgment. I have not set my mind to the question of whether the Release signed by the Plaintiff in favour of Sieber Farms effects the rights of Rosen Ridge in respect of the Property. That is for another day.
[15] However, I do note that in order to succeed in the motion to come, Mr. Sieber would need to establish to the satisfaction of the court that he did not know about the Release given by the Plaintiff when it settled its case against Sieber Farms. I specifically found in my judgment of January 5, 2015 that Sieber Farms was, in effect, directed by Mr. Sieber himself along with his former wife, Helga Hasenberger. At paragraph 96 of my reasons for judgment, I summarized this finding as follows:
As outlined in Part VI above, Mr. Sieber has in effect engineered the transfer of the Property from himself to Sieber Farms – which is nothing more than Mr. Sieber himself and Helga – and then to Rosen Ridge – which is nothing more than Mr. Sieber himself and the Foundation of which he is a beneficiary. Rosen Ridge has provided no adequate explanation as to why the Property went from Mr. Sieber to Mr. Sieber in a different guise, and why Mr. Sieber, who has been adjudged bankrupt, can continue to enjoy the revenue and other benefits produced by the Property.
[16] Just as the Property was transferred from Mr. Sieber to Mr. Seiber disguised as Sieber Farms, so the Release is likely to have been given to Mr. Sieber disguised as Sieber Farms. Contrary to the position staked out by counsel for Rosen Ridge in the motion before me now, the prospect of successfully establishing that Mr. Sieber was previously unaware of an aspect of Sieber Farm’s business as crucially important as the terms of a settlement and Release with the Plaintiff is, at least on the face of the record at trial, slender at best.
[17] That is not to say, of course, that Rosen Ridge should be deprived its day in court. As indicated above, I make no determination as to the merits of Rosen Ridge’s claim that previously undisclosed and highly significant evidence has come to its attention in the form of the Release given by the Plaintiff to Sieber Farms. However, the contentious nature of that claim leaves no reason to circumvent the otherwise relevant analysis of Rosen Ridge’s outstanding cost awards and the likelihood of its paying any future cost award. Rosen Ridge’s day in court will come, but like everyone else it must be prepared to pay costs if that day turns out to be less than successful.
[18] Rule 60.12 of the Rules of Civil Procedure, RRO 1990, Reg 194, provides that where a party fails to comply with an interlocutory order, this court is authorized to dismiss the party’s proceeding or to make any order that is just. Along similar lines, Rule 57.03(2) provides that a party’s proceeding may be dismissed where that party fails to pay the costs of a motion.
[19] This court and others have stated on numerous occasions that the rulings of the courts are to be taken seriously and complied with: Bottan v Vroom, 2001 CarswellOnt 2382, at para 26, citing R v Briggs (2001) 53 OR (3d) 124. Moreover, as counsel for the Plaintiff points out, proceeding to a new motion in the face of non-payment of outstanding costs orders shifts the economic burden of the proceeding onto precisely the party for whom cost orders are designed to protect: Schaer v Barrie Yacht Club, 2003 CarswellOnt 4009, at para 12.
[20] In Baksh v Sun Media (Toronto) Corp, 2003 CarswellOnt 24, the action was dismissed pursuant to Rules 57.03 and 60.12 after the plaintiff had been given several consecutive indulgences but had failed to pay outstanding costs. Under the circumstances, Rosen Ridge has exhibited a similar type of unacceptable conduct. The Court of Appeal was sufficiently concerned with Rosen Ridge’s repeated breach of costs orders that it refused to allow Rosen Ridge to file responding materials in the Plaintiff’s cross-appeal unless it paid the outstanding costs awards – which Rosen Ridge has to date failed to do.
[21] In Gravenhurst (Town) v Stephenson, 2012 CarswellOnt 11760, 2012 ONSC 11760, the court concluded that a stay of proceedings until all outstanding costs were paid in full was an appropriate remedy for the respondent’s multiple breaches of costs orders. Likewise, in Schaer, supra, at para 13, the court observed that costs orders include not just a compensatory element but an element of sanction, and that both ingredients are lost if a party in breach of costs orders is permitted to continue without compliance.
[22] In fashioning the stay of proceedings in Schaer, the court determined that a stay until such time as the plaintiff chose to pay the outstanding costs was too open-ended to be an effective remedy. Rather the party in breach was given two weeks to pay the costs as ordered, failing which the action would be automatically dismissed. A similar order here would give Rosen Ridge one last chance to comply with the orders that it until now disregarded. While an open-ended stay of proceedings would unduly prejudice the Plaintiff by keeping it under continued exposure to the litigation while Rosen Ridge gets to keep the costs until it is good and ready, a stay for a fixed period of time gives Rosen Ridge a chance to consider its position and raise the necessary funds without allowing it to manipulate the Plaintiff to its own timetable.
[23] Rosen Ridge owes $17,000 in outstanding costs orders which are already overdue. It owes another $30,000 in costs which will come due on June 24 2016 – i.e. 30 days from the May 24, 2016 date of the order awarding them). These amounts must be paid by Rosen Ridge before the last working day of this month – i.e. by the end of the day on Thursday, June 30, 2016. Pending payment of the $47,000 in costs owed by Rosen Ridge to the Plaintiff, Rosen Ridge’s motion to set aside the trial judgment is stayed. If Rosen Ridge does not pay the Plaintiff the full $47,000 by June 30th, the motion to set aside will be automatically dismissed.
[24] Further, the Plaintiff has moved for security for costs. As set out in Rule 56.01(1)(d), the Plaintiff submits that there is good reason to believe that Rosen Ridge has insufficient assets in Ontario to satisfy any eventual costs award. Further, as set out in Rule 56.01(1)(c), the Plaintiff has outstanding costs awards against Rosen Ridge which remain unpaid. Both of these make the Plaintiff liable for security for costs. The Plaintiff is not required to prove that Rosen Ridge has insufficient assets, only that there is good reason to believe that it has insufficient assets in the province: Monk Development Corp. v CVC Ardellini Investments Inc., 2016 ONSC 1778, at paras 7-8.
[25] This is not particularly controversial since Rosen Ridge does not deny that its only asset is the Property, which has been awarded to the Plaintiff in the trial judgment. Indeed, Rosen Ridge has already conceded that it is a proper subject for security for costs, having agreed to post $40,000 as security for its appeal. Plaintiff’s counsel submits that the importance of this security for costs was made apparent when Rosen Ridge refused to honour its commitment to post security for costs and abandoned its appeal instead. Rosen Ridge’s unpaid judgments and liabilities, including the unpaid costs described above, suggest an inadequacy of assets under Rule 56.01(1)(d), and are a reason in and of themselves that the Plaintiff is entitled to security for costs in advance of any further motion by Rosen Ridge.
[26] In response, Rosen Ridge argues that it is impecunious and therefore any requirement of security for costs ought to be waived. Counsel for Rosen Ridge submits that it is apparent from the evidence at trial that Rosen Ridge is a single purpose corporation with a foreign foundation as its sole shareholder, and that its sole asset (i.e. the Property) is no longer at its disposal, thus discharging the burden of establishing its impecuniosity: Conestoga Materials Handling Ltd v Corey Cotter and Warehouse Solutions Inc., 2011 ONSC 2806.
[27] Counsel for the Plaintiff counters that it is not so much that Rosen Ridge’s shareholder in Liechtenstein cannot post the required security, but that it chooses not to do so. Indeed, in a letter dated May 23, 2016, Grona-Stiftung has said as much, referring to payment of costs and security for costs as ordered by the Court of Appeal as “investment decisions” which it has chosen not to pursue in order to conserve its funds for all of its beneficiaries.
[28] The position taken by Rosen Ridge’s shareholder puts the costs awards against Rosen Ridge on the same footing as any other discretionary distribution made to the foundation’s beneficiaries. Grona-Stiftung evidently prefers to put its money into motions brought by Rosen Ridge, but not into costs awarded against Rosen Ridge. This position is directly contrary to the court’s important statement in Gravenhurst (Town) v Stephenson, 2012 CarswellOnt 11760, 2012 ONSC 11760, at para 17, that, “Court orders are not suggestions. They are orders that must be obeyed.”
[29] The courts have been clear that a shareholder refusing to post security (or deciding not to) is not a proper basis to argue impecuniosity: Canasia Sales Corp v. Colson, 2013 ONSC 1505. In Trec Total Broadway v Jegel, 2004 CarswellOnt 833, at par 11, the court specifically held that, “The plaintiff is not impecunious, as it can look to its shareholders to raise the money to pay costs.”
[30] Rosen Ridge agreed to post $40,000 for its appeal, and the Court of Appeal endorsed that amount in its security for costs order. If anything, a motion to set aside the trial judgment has the potential to be more cost-intensive than an appeal. The proposed motion will entail the compilation of an evidentiary record by Rosen Ridge and a responding record by the Plaintiff. This, in turn, will entail searches through the voluminous documentation that has accompanied this litigation and the litigation against Sieber Farms, as well as the settlement documentation and negotiations with Sieber Farms and Helga Hasenberger. It is at least as large and costly an undertaking as the compilation of an appeal record and a review of the points of law raised by the trial judgment.
[31] Under the circumstances, it is appropriate to require Rosen Ridge to post the same amount, $40,000, in security for costs that it was supposed to, but never did, post in advance of its appeal. The motion to set aside the trial judgment will not proceed until this amount is paid into court by Rosen Ridge. Given the timing of this matter, it also seems appropriate that the security of costs be paid into court by the same date as the outstanding costs awards are paid.
[32] In total, Rosen Ridge shall pay the Plaintiff $47,000 in outstanding costs, and shall pay into court $40,000 as security for costs, all by June 30, 2016. Failing that, the motion to set aside the trial judgment shall be dismissed without the need for any further court appearance.
[33] When counsel last appeared in civil practice court, the motion to set aside was tentatively scheduled for June 28, 2016. That date is no longer realistic, since Rosen Ridge has until June 30th to pay the outstanding costs and to post the security for costs. It would be unfair and burdensome on the Plaintiff to require it to begin compiling materials and preparing for an upcoming motion until it knows for certain that the costs have been paid and the security has been paid into court.
[34] Assuming that Rosen Ridge pays the outstanding costs to the Plaintiff and pays the security for costs into court by June 30, 2016, counsel for the parties may then proceed to schedule the motion to set aside. As I am seized of the matter, they may contact my assistant after June 30th to arrange for the motion to be heard on a date when I will be available to hear it.
[35] My assistant has been in contact with both counsels’ offices, and I understand that they will be submitting their Cost Outlines in writing early this coming week. I will therefore reserve the question of the costs of this motion.
Morgan J.