COURT FILE NO.: CV-14-510784

DATE: 2018-08-30

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: QUEEN OF BEAUTY CO., Plaintiff/Appellant

AND:

APEX BRANDED SOLUTIONS INC. and CARLO LIVOLSI, Defendants/Respondents

AND BETWEEN:

APEX BRANDED SOLUTIONS INC. and CARLO LIVOLSI, Plaintiffs by Counterclaim

AND:

MARIANO VIRGINIO and QUEEN OF BEAUTY CO., Defendants by Counterclaim

BEFORE: Dietrich J.

COUNSEL: Constantine Tsantis, for the Plaintiff/Appellant Jeffrey Spiegelman, for the Defendants/Respondents

HEARD: August 14, 2018

ENDORSEMENT

[1] This is an appeal from the Order of Master Abrams, dated February 28, 2018, wherein the appellant was ordered to pay security for costs in an amount less than the amount sought by the respondents and payable in installments. The Master’s order was made pursuant to Rule 56.01(1)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] Having come to the conclusion that the appellant had insufficient assets in Ontario to pay the costs of the respondents, the first part of the test under Rule 56.01(1)(d) was met. The Master then considered the second part of the test set out in the Rule, namely, whether the order for security for costs was “just”. The appellant’s appeal is focused on this finding.

[3] In considering what may be just in the circumstances, Master Abrams examined the ability of the appellant to post security for costs and determined that the appellant did not, on a balance of probabilities, demonstrate impecuniosity.

The Standard of Review

[4] The standard of review on questions of law is correctness. The standard of review on issues of fact, including appreciation of evidence, is that an appellant court should not intervene unless there is a palpable and overriding error. For questions of mixed fact and law, the standard of review is palpable and overriding error unless there is an extricable question of law, to which the correctness standard would apply. The palpable and overriding error standard of review addresses both the nature of the error and its impact on the result.

[5] “Palpable” refers to errors that are obvious or plain to see. “Overriding” refers to the effect on the outcome of the decision. To be overriding, an error must be sufficiently significant to vitiate the challenged finding of the fact: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; and Zeitoun v. Economical Insurance Group 2008 CanLII 20996 (ON SCDC), [2008] O.J. No. 1771 (“Zeitoun”).

[6] An appeal of a master’s decision is not a rehearing. A master is entitled to deference on questions of fact and mixed fact and law. The role of the reviewing court is limited. The appellate court cannot substitute its interpretation of the facts or re-weigh the evidence simply because it takes a different view of the evidence from that of the master: Wellwood v. Ontario Provincial Police et al., 2010 ONCA 386.

Positions of the Parties

[7] The appellant submits that the Master made errors of both law and fact in her decision. Specifically, the appellant submits that Master Abrams made errors of law or mixed fact and law: i) with respect to the extent of the financial disclosure required from the appellant; ii) the relevant timeframe during which the appellant could be expected to raise funds to pay security for costs; and iii) by failing to consider the circumstantial evidence that the plaintiff went out of business in 2012 and had no income; and that its principal, Mariano Virginio, referred to in the Master’s reasons and, therefore, in these reasons, as “Mr. Mariano”, also had no income. The appellant further submits that these errors are either pure errors of law or extricable from any related errors of fact.

[8] The respondent contests the appeal and argues that Master Abrams stated and applied the correct legal analysis for ordering security for costs and did not make any errors in law or palpable and overriding errors.

Did Master Abrams apply the correct legal test?

[9] Rule 56.01 provides that the court, on a motion in a proceeding, may make such order for security for costs as is just where it appears that 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. The Master found that the plaintiff self-identified as an American company, incorporated in the United States with its registered head office in the United States. She also found that it did not conduct business in Canada or maintain bank accounts in Canada. The plaintiff admitted that for all intents and purposes it was a nominal corporation. The sole shareholder and principal of the plaintiff, Mr. Mariano, testified that the plaintiff had no assets at all and that it was impecunious.

[10] Over the course of the motion argued over four days (not all of which were full days) Master Abrams set out to determine whether the plaintiff was indeed impecunious. To show impecuniosity, the appellant must make full and frank disclosure: Coastline Corporation Ltd. v. Canaccord Corporation, 2009 CanLII 21758 (S.C.J.). In addition, impecuniosity must be “demonstrated on a balance of probabilities”: Zeitoun, at para. 46.

[11] The appellant submits that Master Abrams erred in assessing whether the appellant had made full and frank disclosure because the Master:

• misapprehended the evidence which showed that the appellant had ceased operating in 2012, had no assets and faced tax liability in the United States;

• misapprehended the evidence which showed that at the time the motion for security was brought Mr. Mariano was unemployed, did not have any assets and had substantial debt and therefore did not have the ability to borrow funds to pay security for costs;

• found that the manner, timing and extent of the disclosure by the applicant and its principal Mr. Mariano had been less than optimal;

• relied on evidence that had been expunged from the record and misapprehended the evidence that was properly before her to question Mr. Mariano’s credibility.

[12] On reviewing Master Abrams’ reasons, I find that she correctly stated the legal analysis to be applied in deciding whether security for costs should be ordered and, in the main, she applied the correct legal test.

[13] From her reasons, it is clear that she considered the question of impecuniosity in the context of the full record before her. It is acknowledged that the Master took into account two items of evidence that had been expunged from the record, which was an error. However, these items, relating to an alleged purchase of a car by Mr. Mariano and Mr. Mariano having received money from certain sources, were piecemeal and, in and of themselves, not material. There was ample other evidence to lead the Master to conclude that Mr. Mariano, as principal of the plaintiff, had not made full and frank disclosure with regard to his financial wherewithal.

[14] The jurisprudence relating to Rule 56.01 is clear that the ultimate issue is whether it is just to make an order for security for costs. The types of factors that are to be considered are not exhaustive and will depend on the record and the circumstances in a particular case: Cigar500.com Inc. v. Ashton Distributors Inc., 2009 CanLII 46451 (ONSC); Hamid (estate) v. Abakar (estate), 2011 ONSC 1638, 2011 ONSC 1638 (Master); Simmons v. Mallika, 2015 ONSC 5964, 2015 ONSC 5964 (Master).

[15] Among the factors that Master Abrams considered in finding that the plaintiff was not impecunious was the credibility of Mr. Mariano. It is evident that the Master did not find Mr. Mariano credible. In ordering security for costs, the Master states, at para. 32, that “impecuniosity has not been made out (either because of dissembling or circumstance).” At para. 22, the Master finds that the “line is blurred between what information may have been withheld by the plaintiff and what information may not be disclosed.” The Master was persuaded by the defendant’s significant evidence as to Mr. Mariano’s credibility that led her to conclude that the plaintiff had not made full and frank disclosure. At para. 19 of her reasons, the Master states that:

… the manner, timing and breadth of disclosure on the part of the plaintiff and its principal have been less than optimal. The production of documents has largely been responsive to lacunae in the plaintiff’s evidence. The story that Mr. Mariano tells of his (and the plaintiff’s) financial dealings raises as many questions as it answers. Those financial dealings have not been straightforward, largely cannot be verified and according to the Italian authorities, are (in some respects) improper.

Misapprehension of Evidence

[16] The appellant submits that Master Abrams misapprehended the evidence by refusing to accept the appellant’s explanations, failing to find certain facts in favour of the appellant and failing to consider some of his testimony. I disagree. I find that the appellant simply does not agree with the Master’s assessment of the evidence as a whole. The Master found that the financial disclosure was not comprehensive and was not adequate. A review of the appellant’s statements about its financial position left many questions unanswered. The Master did not accept Mr. Mariano’s explanation for his failure to provide adequate disclosure of his financial dealings and states at para. 19 that he “acted in haste; forgot some information; has a paucity of records as a result of the failure of his businesses and the seizure of documents by the Italian tax authorities; has ongoing support obligations; and supports himself with cash earnings from odd jobs and the kindness of others.”

[17] Master Abrams found, from the record available to her, sufficient evidence to draw the inference that Mr. Mariano may not be impecunious. At para. 11 of her reasons she states: “How Mr. Mariano supports himself is not known. While he admitted, on cross-examination, to waiting tables and performing odd jobs, he advised that his income is not verifiable as he is paid in cash.” Master Abrams also notes that Mr. Mariano was involved in the manufacture and distribution of gluten-free pasta through his corporation (the plaintiff) but he did not disclose this information in the first instance. This failure to disclose led Master Abrams to doubt the veracity of other statements made by Mr. Mariano regarding his business dealings, which included an investment in a laundromat in Italy, which was sold by Mr. Mariano and the funds distributed. Mr. Mariano was not, however, able to provide any backup documentation with respect to the application of the sale proceeds towards his expenses. The Master’s assessment of Mr. Mariano’s credibility is entitled to deference.

[18] Weighing all of the evidence, Master Abrams concludes that it falls short of satisfying her that the appellant is impecunious.

[19] The appellant may disagree with Master Abrams’ conclusion based on the evidence but absent palpable and overriding error, her findings were within her discretion.

Conclusion

[20] With the exception of taking into account certain evidence that had been expunged from the record, I find that Master Abrams applied the tests set out in Rule 56.01 correctly. I find that the expunged evidence was not critical to her decision and that there was ample other evidence to support her findings. Ultimately, I find that Master Abrams’ assessment of the evidence before her (without taking into account evidence that had been expunged from the record) supported her conclusion that the appellant did not, on a balance of probabilities, demonstrate impecuniosity. On the record before me, I do not find any palpable and overriding error in the Master’s apprehension of the relevant evidence. I find that her factual conclusions based on such evidence before her were reasonable.

[21] The appeal is dismissed.

Costs

[22] Each of the appellant and the respondents provided a cost outline or bill of costs, which I have reviewed. The respondents have succeeded in contesting this appeal. Based on the factors set out in Rule 57, the respondents shall be entitled to costs in the amount of $15,000.

Dietrich J.

Date: August 30, 2018