Court File and Parties

COURT FILE NO.: CV-11-9210-CL DATE: 20170324 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Caja Paraguay de Jubilaciones y Pensiones del Personal de Itaipu Binacional, Plaintiff AND: Eduardo Garcia Obregon a.k.a. Eduardo Garcia a.k.a. Eddie Obregon, Claudia Patricia Garcia a.k.a. Patricia Garcia a.k.a. Claudia Patricia de Garcia a.k.a. Claudia Santisteban, Ligia Ponciano, Managed (Portfolio), Corp., Genesis (LA), Corp. (Ontario Corporation Number 1653094), Genesis (LA), Corp., (Alberta Corporate Access Number 2013145921), FC Int, Corp., First Canadian Int, Corp., Union Securities Limited, Scott Colwell, Marty Hibbs, Hibbs Enterprises Ltd., Columbus Capital Corporation, Antonio Duscio, Leanne Duscio, Leanne Duscio carrying on business as The Queen St. Conservatory, Catan Canada Inc., Vijay Paul, Greg Baker, Bradley F. Breen, Lou Maraj, 2138003 Ontario Inc., Mackie Research Capital Corporation, First Canadian Capital Markets Ltd., First Canadian Capital Corp., FC Financial Private Wealth Group Inc., Jason C. Monaco, Daniel Boase, Paolo Abate, Nikolaos Stylianos Tsimidis, Genesis Land Development Corporation, Limited Partnership Land Pool (2007), and GP LPLP 2007 Inc., Defendants

AND RE: Eduardo Garcia, FC Int, Corp., Genesis (LA), Corp. (Ontario Corporation Number 1653094), and Patricia Garcia, Plaintiffs by Counterclaim AND: Upper Canada Explorations Limited, Parkside Resources Corporation, Global Sport Technologies Corp., and Caja Paraguay de Jubilaciones y Pensiones del Personal de Itaipu Binacional, Defendants by Counterclaim

BEFORE: Mr. Justice H.J. Wilton-Siegel

COUNSEL: David Milosevic and Caroline Garrod, for the Moving Parties/Defendants, Eduardo Garcia, Patricia Garcia, Managed (Portfolio), Corp., Genesis (LA), Corp. (Ontario Corporation Number 1653094), Genesis (LA), Corp. (Alberta Corporate Access Number 2013145921), FC Int, Corp., and First Canadian Int, Corp. Jacqueline L. King and John De Vellis, for the Responding Party/Plaintiff

HEARD: February 3, 2017

Endorsement

[1] The defendants Eduardo Garcia, Patricia Garcia, Managed (Portfolio), Corp., Genesis (LA), Corp. (Ontario Corporation Number 1653094), Genesis (LA), Corp. (Alberta Corporate Access Number 2013145921), FC Int, Corp., and First Canadian Int, Corp. (collectively, the “Garcia Defendants”) seek an order under Rule 56.01(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, requiring that the plaintiff post security for costs.

Applicable Law

[2] The plaintiff is a large pension fund located in Paraguay. It does not dispute that it is ordinarily resident outside Ontario. The Garcia Defendants argue that, given this finding, the onus shifts to the plaintiff to show that it would appear to be unjust to order security for costs in all the circumstances. However, the correct principle, as set out in Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131, 292 D.L.R. (4th) 313 (Div. Ct.) aff’d 2009 ONCA 415, 307 D.L.R. (4th) 218, is that Rule 56.01 does not create a prima facie right to security for costs but rather triggers the inquiry.

Analysis and Conclusions

[3] The plaintiff makes four principal arguments in response to the motion.

[4] First, it says that it has sufficient assets in Ontario to satisfy any adverse costs award. It refers to the amount of US$1,321,540.43 held in trust for the plaintiff by the plaintiff’s lawyers pursuant to an order of Penny J. dated October 24, 2016 made in proceedings under court file number 08-CL-7878 styled as Universal Settlements International Inc. (Re). This is a separate action under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 involving the insolvency of Universal Settlements International Inc. (“USI”).

[5] These funds are being held by the plaintiff’s lawyers in trust for some future undefined use or purpose in that proceeding. In particular, other creditors of USI may have a claim to these funds. Accordingly, the plaintiff does not have unrestricted ownership of these funds and such funds therefore cannot be considered to be available to satisfy a costs award against the plaintiff.

[6] Second, the plaintiff says that it would be unjust to require it to pay a costs award due to the Garcia Defendants’ delay in bringing this motion for security for costs. The plaintiff commenced the instant action on May 10, 2011. The Garcia Defendants received a list of the plaintiff’s assets in Ontario on February 5, 2013, which was delivered pursuant to the order of Mesbur J. dated January 23, 2013. The Garcia Defendants did not mention their intention to bring this motion until November or December 5, 2016 and did not serve their notice of motion until January 13, 2017. The plaintiff says this delay is fatal to the motion. In response, the Garcia Defendants make two submissions.

[7] The Garcia Defendants say that they have a credible explanation for the delay. They say that they believed or hoped that they would be let out of the action after the plaintiff had an opportunity to reflect on their examinations for discovery, as were a number of other defendants after their respective examinations for discovery were completed. The Garcia Defendants say that they did not realize until after the plaintiff served its expert report in September 2016 that they were not going to be let out of the action.

[8] The plaintiff says that there was no reasonable basis for such a belief or hope and that, therefore, there is no credible explanation for the delay. In particular, it says that the last defendants to be released from the action were released in September 2014. Further, the plaintiff points out that the Garcia Defendants were aware of the fact that these defendants were only released from the action on payment of a substantial amount of money. The plaintiff also says that it was unreasonable for the Garcia Defendants to hold a hope or belief that they would be released from the action as the plaintiff had initiated criminal proceedings against them in Paraguay with respect to the same matters at issue in this action and as there had been no settlement discussions between the parties.

[9] I agree with the plaintiff that the alleged belief or hope of the Garcia Defendants was unreasonable for the reasons cited above. I would add that the defence of the Garcia Defendants, as discussed below, turns to a significant extent upon their position that they were not wilfully blind to the actions of the board members of the plaintiff who authorized the misappropriation of funds for which such board members were subsequently convicted. Given the extent of the involvement of the Garcia Defendants in the misrepresentations made to the plaintiff regarding the nature and status of its investments in Canada, it was unreasonable for the Garcia Defendants to have considered that the plaintiff would accept their word on this matter in the absence of a full trial addressing all the evidence.

[10] The Garcia Defendants also say that delay is not fatal, apparently even in the absence of a credible explanation, unless the plaintiff can demonstrate prejudice resulting from the delay. They rely on the decision in Livent Inc. (Special Receiver) v. Deloitte & Touche, 2011 ONSC 648, 76 C.B.R. (5th) 172, at para. 80, where Master Short stated that the case law on this issue had evolved to the point where a corporate plaintiff seeking to avoid posting of any security for costs by virtue of delay must demonstrate at least some prejudice.

[11] While I do not agree that a corporate plaintiff must demonstrate at least some prejudice if it relies on the argument of delay, I agree that delay by itself does not automatically disentitle a defendant to an award of security for costs. Any such award will depend upon a consideration of all relevant circumstances, including but not limited to any delay and the explanation thereof.

[12] The third argument advanced by the plaintiff on this motion is an allegation that the conduct of the Garcia Defendants has contributed to increased costs and delay in moving the action to trial. The plaintiff says that the failure of the Garcia Defendants to comply with court orders regarding production has been the principal reason for the delay in moving this action to trial. The plaintiff also says that the actions of the Garcia Defendants have increased its costs as a result of the need to bring unnecessary motions, including motions to force the Garcia Defendants to provide the ordered productions.

[13] The failure of the Garcia Defendants to comply with court orders regarding production of banking records is well established in the record. On February 12, 2014, the Garcia Defendants were ordered to produce unredacted copies of their banking records, which they had claimed to be assembling on a voluntary basis for some time. The documents were not finally delivered until October and November 2014. In addition, the record includes a number of endorsements of judges of this court who concluded that the Garcia Defendants intentionally failed to appear for attendances and delayed until the final moment before settling motions or appointing new counsel in the face of motions to do so.

[14] As a related matter, the plaintiff also relies on the well-documented vexatious behaviour of the Garcia Defendants. They have made numerous allegations regarding the plaintiff and its legal counsel to, among others, the Law Society of Upper Canada, the Paraguay Public Prosecutor’s Office, the Canada Revenue Agency, the US Internal Revenue Service, the RCMP, and the United Nations Corruption and Economic Crime Branch Division for Treaty Affairs and Global Programme Against Money-Laundering, Proceeds of Crime and the Financing of Terrorism.

[15] None of these allegations have apparently been pursued by the recipients. They have however, increased the costs to the plaintiff. More importantly, the foregoing behaviour amply demonstrates a continuing effort on the part of the Garcia Defendants to discourage the plaintiff from pursuing this litigation by placing as many obstacles in its path as possible. I will return to this consideration later.

[16] The fourth argument relied on by the plaintiff is, in its opinion, overwhelming evidence of a meritorious case against the Garcia Defendants. The evidence in the responding motion record of the plaintiff is more than sufficient to establish a reasonable case on the merits. In my view, on the evidence before the Court, the plaintiff has established, on a balance of probabilities, that it has a good chance of success, thereby satisfying the standard in Zeitoun v. Economical Insurance Group at para. 50. As mentioned, the participation of the Garcia Defendants in the misappropriation of funds sent by the plaintiff to Canada, and under the control or management of the Garcia Defendants, appears to be well documented. For example, the Garcia Defendants created and forwarded to the plaintiff false account statements regarding the plaintiff’s investment account at Union Securities Ltd. (“Union”) when account statements directly from that corporation, which must have been available, would have revealed a very different picture.

[17] The Garcia Defendants suggest that the fact that the monies that remained with Union were placed in risky investments and that such risk was made known to the plaintiff provides a defence. However, whatever the relationship of the Garcia Defendants to the investment decisions regarding these monies, there remains the claim regarding the misappropriation of monies from the Union account. The defence of the Garcia Defendants to the allegation of participation in such misappropriation appears to be an absence of knowledge or reasonable notice of facts putting them on notice of the fraud in which they were participating. They also say that the plaintiff approved or authorized the actions that resulted in the misappropriation of these monies.

[18] I acknowledge that this defence cannot be entirely discounted. However, for present purposes, to the extent that the merits of the defence of the Garcia Defendants is a relevant consideration, I conclude that this factor does not weigh in their favour given the evidence in the record that supports the plaintiff’s position.

[19] The Garcia Defendants submit, however, that the strength of the claims against them should be irrelevant in the absence of any evidence of financial hardship on the part of the plaintiff that would prevent the action from proceeding if security for costs were ordered. For this proposition, they rely on the decision of Master Dash in Uribe v. Sanchez, 33 C.P.C. (6th) 94, [2006] O.T.C. 539 (Master), at paras. 11-13. In that decision, Master Dash held that, despite the merits of the plaintiff’s claim, as he was not satisfied that the plaintiff would be unable to post security or that the plaintiff would be prevented from pursuing a meritorious claim if he were required to do so, the plaintiff should pay security for costs.

[20] The Garcia Defendants submit that this principle should govern in the present case. They say that, in the absence of any evidence that the plaintiff would be unable to post security or that the plaintiff would be prevented from pursuing its claim if it were required to do so, the Court should order that security for costs be posted.

[21] I do not accept that the issue of security for costs in this case is as simple as the Garcia Defendants suggest. There is certainly no prima facie right to an order for security for costs even in circumstances in which there are no assets in Ontario and there is no evidence of any likely prejudice to a plaintiff if security for costs were ordered, as the Garcia Defendants effectively suggest. The Court is required to determine whether such an award would be just given all the circumstances of any particular action. In this case, there are five considerations that are determinative.

[22] First, there is no suggestion that the plaintiff would be unable to satisfy any costs award in favour of the Garcia Defendants. There is no dispute that the plaintiff continues to have substantial assets in Paraguay. The concern of the Garcia Defendants is the need to enforce any such judgment in Paraguay. This is addressed below.

[23] Second, the fact that there is no statute providing for reciprocal enforcement of a Canadian judgment in Paraguay does not mean that the Garcia Defendants could not enforce a costs award in their favour in Paraguay. There is nothing in the record suggesting that the Garcia Defendants would be unable to sue in Paraguay on the obligation constituted by a judgment of the courts of Ontario.

[24] Third, the plaintiff’s claim is asserted against the background of a contractual relationship between Eduardo Garcia (“Eduardo”) and the plaintiff pursuant to which Eduardo was appointed the plaintiff’s “agent” in respect of monies to be invested in Canada. In such relationship, which at least according to the Garcia Defendants contemplated the payment of substantial commissions or fees to them, Eduardo was prepared to assume the risk that enforcement of his contractual arrangements against the plaintiff would require an action commenced in Paraguay or an action in the courts of Paraguay for enforcement of an Ontario judgment in his favour.

[25] Fourth, Eduardo has counterclaimed for damages of $650,000 as well as punitive damages of $200,000. If the Garcia Defendants are successful in their defence to the plaintiff’s action, Eduardo would appear to have a reasonable case on his counterclaim. However, if he is successful in obtaining a judgment on the counterclaim in his favour, Eduardo would also have to pursue enforcement of such judgment in the courts of Paraguay. In such circumstances, there would be no significant disadvantage or prejudice to adding a claim for costs to his claim to enforce a judgment for damages.

[26] Fifth, as discussed above, the Garcia Defendants’ explanation for the delay in bringing this motion is not reasonable. This raises the question of why it has been brought at this time. There is no reason for requiring the plaintiff to post security for costs other than the desire to avoid enforcing any such award in Paraguay, which has been inherent in the relationship between the parties since commencement of the action. In these circumstances, I conclude that the only reasonable explanation for the decision of the Garcia Defendants to bring the motion at this late stage in the action is to seek once again to frustrate the plaintiff in one last attempt to make this action settle or go away entirely.

[27] Based on the foregoing, the motion of the Garcia Defendants for security for costs is dismissed. Costs in the agreed amount of $20,000 are payable by the Garcia Defendants to the plaintiff forthwith.

Wilton-Siegel J. Date: March 24, 2017