Court File and Parties

Court File No.: CV-16-566472 Motion Heard: 2017-06-01 Reasons Released: 2017-06-14 Superior Court of Justice – Ontario

Between: TYPHOON OFFSHORE B.V. and TYPHOON CAPITAL B.V. Plaintiffs

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SASHA JACOB, JACOB SECURITIES INC., JACOB CAPITAL MANAGEMENT INC., JACOB SECURITIES HOLDINGS INC., JACOB TRADING CORP. and JACOB & COMPANY SECURITIES INC. Defendants

Before: Master M.P. McGraw

Counsel: R. Sahih, for the Defendants H. Cunliffe, for the Plaintiffs

Reasons For Endorsement

I. Background

[1] In this action, the plaintiffs, Typhoon Offshore B.V. and Typhoon Capital B.V. (collectively, the “Plaintiffs” or “Typhoon”) seek to enforce 2 unpaid judgments of this court against all 6 of the defendants (collectively, the “Defendants”). The 2 judgments total $482,252.34 and were granted against the defendant Jacob Securities Inc. (“JSI”) in separate proceedings.

[2] Typhoon is located in Amsterdam, Netherlands and carries on business in the renewable energy sector including the development of offshore wind projects.

[3] The Defendants provide investment banking advisory and related services. The defendant Sasha Jacob is the sole officer and director of all 5 corporate co-defendants, including JSI. On this motion, all of the Defendants other than JSI seek security for costs in this action pursuant to Rule 56.01 of the Rules of Civil Procedure. The Defendants originally sought security for costs of $145,000. However, as set out below, during submissions, Defendants’ counsel advised that based on their acknowledgement that 20% of the Plaintiffs’ claims are related to the oppression remedy, the Defendants now seek $111,000 in security for costs on a full indemnity basis.

[4] The unpaid judgments arise from an international arbitration commenced by JSI against Typhoon. On October 20, 2014, an arbitrator dismissed JSI’s damage claim against Typhoon and confirmed the parties’ agreement regarding costs requiring JSI to pay $425,000 to Typhoon (the “Award”).

[5] On January 20, 2015, JSI commenced an application to set aside the Award which was denied by Justice Mew pursuant to Reasons dated December 17, 2015 (see Jacob Securities Inc. v. Typhoon Capital B.V., 2016 ONSC 604). Pursuant to his Costs Endorsement dated March 2, 2016 (see Jacob Securities Inc. v. Typhoon Capital B.V., 2016 ONSC 1478), Mew J. awarded $55,000 to Typhoon in costs of the application (the “First Judgment”).

[6] On December 17, 2015, the same day as the application was heard by Justice Mew, the Investment Industry Regulatory Organization of Canada (“IIROC”) suspended JSI’s membership and ordered JSI to immediately cease dealing with the public. Mr. Jacobs subsequently admitted on an examination in aid of execution held on June 9, 2016 that JSI had experienced financial difficulties as far back as 2012.

[7] One day later, on December 18, 2015, JSI issued a press release announcing that it was transitioning to become the defendant Jacob Capital Management Inc. (“JCM”) in order to “continue its investment banking and advisory services..”.

[8] Typhoon commenced an application to recognize and enforce the Award which was granted by Judgment of Justice Akbarali dated February 1, 2017 plus costs of the application of $2,352.34 (the “Second Judgment”, together with the First Judgment, the “Judgments”).

[9] By Statement of Claim dated December 16, 2016, Typhoon commenced this action against the Defendants. Typhoon seeks, among other things, declarations that the Plaintiffs are a “complainant” for the purposes of oppression remedies and related declarations; payment of the Judgments; an accounting of all funds between JSI and the other Defendants and any third parties since March 29, 2012; and certain relief with respect to Mr. Jacobs’ home including a declaration that it is impressed with a constructive trust, a declaration that the purchase of the house was fraudulent and void, and a Certificate of Pending Litigation. Typhoon alleges that the Defendants have engaged in conduct prior to and after the Judgments were granted which is oppressive, unfairly prejudicial to or unfairly disregards the interests of Typhoon by, among other things, using JSI as a shell company, siphoning funds out of JSI, the payment of management fees and the acquisition of his home.

II. The Law and Analysis

[10] Rule 56.01 provides as follows:

(1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,

(a) the plaintiff or applicant is ordinarily resident outside Ontario;

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;

[11] As set out by Master Dash in Stojanovic v. Bulut, 2011 ONSC 874, Rule 56.01 does not create a prima facie right to security for costs but rather triggers an enquiry whereby the court, using its broad discretion, must take into account a number of factors and make such order as is just. These factors include the merits of the claim, the financial circumstances of the plaintiff and the possible effect of an order for security for costs preventing a bona fide claim from proceeding.

[12] The initial onus is on the defendants to show that the plaintiff falls within one of the four enumerated categories in Rule 56.01. If the defendant meets the initial onus, the plaintiff may avoid the order by showing that the order is unnecessary or should be permitted to proceed to trial despite its impecuniosity should it fail (see Travel Guild Inc. v. Smith, 2014 ONSC 7000 at para.16).

[13] Pursuant to section 249(3) of the Business Corporations Act (Ontario) (the “OBCA”), a complainant under the oppression provisions of the OBCA is not required to post security for costs in any application made or action brought. It is largely on this basis that Typhoon submits that they should not be required to post security.

[14] In Konzig v. Hobza, 2012 ONSC 2976, Master Muir summarized the law with respect security for costs in the context of oppression claims. At paragraph 26 of Konzig, he stated:

“A determination of whether a particular action is at its core an oppression action cannot be made on the basis of the mechanical exercise of adding up how many references to oppression can be found in the pleadings or in the evidence or whether such a claim is made as a primary claim as opposed to an alternative claim. It must be determined on the basis of a consideration of the claim as a whole.”

[15] At paragraph 19 of Konzig, Master Muir set out the principles which are applicable to the prohibition in the OBCA against security for costs:

• the prohibition does not apply if the oppression claim is merely appended to other claims or if the oppression claim is no longer in issue;
• the prohibition will not apply where the core nature of the claim involves issues that are separate, discrete and distinctive from the oppression claims;
• the question to be asked is "what is the real, true nature of the plaintiff's claim?";
• security may be ordered for the non-oppression portions of the plaintiff's claim where the court can reasonably determine what percentage of the action involves the oppression claim;
• the section does not provide the court with any discretion, even in exceptional circumstances and even involving a wealthy offshore plaintiff with no assets in Canada. (references omitted)

[16] Where a claim is not in pith and substance an oppression claim, but rather a hybrid claim which includes oppression and other types of relief, the court may review the total of the bills of cost, deduct the portion attributable to oppression and then deal with the security for costs issue on the non-oppressive portions of the claims only (see Travel Guild, para. 15).

[17] It is undisputed that Typhoon is not ordinarily resident in Ontario. Further, there is good reason to conclude that Typhoon does not have sufficient assets in Ontario to satisfy a costs award. Therefore, the Defendants have satisfied the first step under Rule 56.01 and triggered an enquiry into what order would be just in the circumstances. This includes an enquiry into whether s. 249(3) of the OBCA prohibits an order of security for costs and whether it would be just to order security for costs in the circumstances.

[18] Using the approach for hybrid claims from Travel Guild, the Defendants acknowledged during submissions that 20% of the Plaintiffs’ claims are with respect to the oppression remedy. Specifically, the Defendants submit that only paragraphs 1(a)-1(c) of the Statement of Claim relate to oppression claims and therefore Typhoon’s claim is a hybrid claim. The Defendants submit that the Plaintiffs should post security for costs in the amount of $111,000, representing a 20% reduction from the Defendants’ initial request for $145,000 in security for costs, based on an estimate of full indemnity costs set out at paragraph 12 of the affidavit of Jorge Pineda sworn March 10, 2017 filed by the Defendants (the “Pineda Affidavit”).

[19] The Plaintiffs submit that their claim is fundamentally and entirely an oppression claim. They submit that as a judgment creditor of JSI, Typhoon is a proper “complainant” under s. 248 of the OBCA who have been unable to collect on the Judgments as a result of the alleged oppressive conduct of the Defendants, including Mr. Jacob, the directing mind of each of the corporate defendants, including the alleged transferring of funds out of JSI to avoid the Award.

[20] Having reviewed the Statement of Claim, I am unable to conclude that the Plaintiffs’ claim is fundamentally or entirely an oppression claim. However, while I agree with the Defendants that the Plaintiffs’ claim is a hybrid claim, I disagree that only 20% of Typhoon’s claim relates to the oppression remedy.

[21] Based on my review of the Statement of Claim and consideration of the Plaintiffs’ claims as a whole, in my view, the Plaintiffs’ claim is primarily related to oppression remedies. The oppression claims are not simply appended to other claims, however, there are additional heads of relief including claims for a constructive trust, claims under the Fraudulent Conveyances Act (Ontario) and the Assignments and Preferences Act (Ontario) and the issuance of a Certificate of Pending Litigation. Based on my review, I conclude that 70% of Typhoon’s claims are oppression remedy claims.

[22] Given my conclusions below on the next step of the enquiry, it is unnecessary to complete the entire exercise of determining a reasonable amount of security for costs in the circumstances. However, I offer the following observations.

[23] Having reviewed the Defendants’ costs estimate set out in the Pineda Affidavit, I conclude that, in the circumstances, the original estimate of $145,000 is excessive. The fact that the Judgments are final and binding on the defendant JSI and the defendant Mr. Jacob is the sole director and officer of all 5 corporate defendants and the legal issues in dispute all indicate that the time and cost required to see this action through to trial would be far less. In this regard, the Defendants’ estimate that examinations for discovery would cost $30,000 or that there would be a 10-day trial at a cost of $100,000 is disproportional to the evidence and law that are at issue in the action.

[24] After reducing the Defendants’ estimate to reflect a more reasonable and realistic procession of this action then reducing it further to reflect costs on a partial indemnity basis, in my view, the appropriate amount of security costs would be more in line with the estimate of $37,800 set out in the affidavit of Michael Beeforth sworn May 26, 2017 filed by the Plaintiffs. This amount would then be reduced further to reflect that only 30% of the Plaintiffs’ claims are related to non-oppression remedy claims which amount may be payable in instalments related to the estimated costs of various steps in the action.

[25] Notwithstanding my conclusions that s. 249(3) of the OBCA does not prohibit an order of security costs and that Typhoon’s claim is a hybrid claim, this court has broad discretion to, based on a consideration of a number of factors, determine whether it would be just in the circumstances to order security for costs and what order would be just in the circumstances. One of those factors is the merits of the Plaintiffs’ claim.

[26] In turning to this enquiry, I refer to Master Dash’s comments at paragraph 62 of Stojanovic v. Bulut, 2011 ONSC 874 with respect to the court’s consideration of the merits of a plaintiff’s claim:

“I am not determining who will be successful at trial on a full evidentiary record. It is only necessary to determine on the basis of the evidence before me whether the plaintiff has a good chance of success. This is a higher standard than “not devoid of merit” but is not as high as proving the claim on a balance of probabilities at trial or establishing that there is no triable issue on a summary judgment motion.”

[27] In the Statement of Claim, the Plaintiffs, as judgment creditors and “complainants” under the oppression provisions of the OBCA, seek payment of the Judgments from the Defendants on the basis that the Defendants’ conduct was oppressive and unfairly prejudiced and disregarded their interests. The Judgments, both granted by this court, are against JSI, a corporation controlled by the defendant Mr. Jacob who is the sole officer and director of all 5 corporate defendants, including JCM which took over the ongoing business of JSI one day after IIROC suspended JSI. The Judgments were not appealed and are final. Mr. Jacob and his spouse also purchased a home 3 days prior to the IIROC hearing and the hearing of the application before Justice Mew and in the face of the Award. In my view, it is reasonable to conclude on the evidence before me and all of these circumstances that the Plaintiffs’ claims, including under the oppression remedy and the relief related to Mr. Jacob’s home, have “a good chance of success”.

[28] Further, in my view, even though counsel advises that JSI is not itself seeking security for costs, it would not be just in the circumstances to permit the other Defendants, including Mr. Jacob and JCM, where there are two unpaid judgments of this court against JSI in the amount of $482,252.34 in favour of the Plaintiffs, to have the same court order security for costs against these same Plaintiffs in an action where the Plaintiffs seek remedies which would result in payment of the unpaid judgments of this court.

[29] Having considered all of the circumstances and factors set out above, I conclude that it is just in the circumstances to dismiss the Defendants’ motion and that and no order for security for costs should be made.

III. Disposition

[30] Order to go dismissing the Defendants’ motion.

[31] Counsel have exchanged costs outlines. If the parties are unable to agree on the costs of this motion, they may file costs outlines and written costs submissions not to exceed 2 pages (excluding costs outlines) with me through the Masters Administration Office on or before July 31, 2017.

Released: June 14, 2017 Master M.P. McGraw