COURT FILE NO.: CV-16-551774
MOTION HEARD: 20190115
REASONS RELEASED: 20190501
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
LIMITED LIABILITY COMPANY "NORIUS COMPANY"
Plaintiff
- and -
IGOR YURIYOVYCH FILIPENKO
Defendant
BEFORE: MASTER D. E. SHORT
COUNSEL: Maureen Ward wardm@bennettjones.com
-counsel for the moving Defendant Fax: 416-863-1716
Kate Byers kbyers@casselsbrock.com
-counsel for the Plaintiff, responding party Fax: 416-640-3193
REASONS RELEASED: May 1, 2019,
Reasons on Motion for Security for Costs
I. Background
[1] This a motion for security for costs in a matter having multinational components and existing related judgments rendered in other nations, which are likely to impact the ultimate determination of this Ontario Action.
[2] A motion for Summary Judgment has been commenced against the defendant and was adjourned to permit the present issue to be addressed.
[3] The defendant, Igor Yuriyovych Filipenko ("Filipenko"), now seeks security for costs from an entity, perhaps aptly, named: Limited Liability Company "Norius Company" ("Norius"). Security in the total amount of $100,000 is sought. Of that amount, approximately $25,000 relates to costs and disbursements already incurred. Filipenko also seeks $5,000 in costs thrown away for an "abandoned" motion for a certificate of pending litigation in another Ontario action (which motion apparently was never formally abandoned).
[4] The responding plaintiff’s factum on this motion acknowledges:
“2. Norius is not resident in Ontario. Rather, it is ordinarily resident in the Ukraine, as Filipenko knows from his business and legal dealings with Norius in the Ukraine and as Norius has acknowledged in its pleadings in the within action. Accordingly, Norius acknowledges that security for costs is prima facie available to Filipenko in accordance with Rule 56.01 (1)(a) of the Rules of Civil Procedure.”
- However, the ultimate question on this motion is whether such an order is "just in the circumstances". Norius strongly disagrees that an order for $100,000 in security for costs is just in the circumstances.”
[5] Accordingly, Norius submits that the Court ought to exercise its discretion to significantly reduce the amount of security for costs sought by Filipenko, as follows:
(a) by not granting security for costs already incurred;
(b) by not granting security for costs for the CPL motion that did not proceed in 2016;
(c) “by significantly reducing that amount of security claimed for the pending summary judgment motion, having regard to the limited and linear test for enforcement of foreign judgments, and to the fact that the defendant has admitted the key elements in that test already and has not adduced any available defences.”
II. Parties and Background
[6] Norius is a company operating in Ukraine that engages in a variety of business activities. Filipenko is an individual who is a resident in Ontario and a dual citizen of Canada and Ukraine.
[7] Filipenko provided a personal guarantee for several loan agreements, which related to three separate loan agreements with Public Joint Stock Company "Bank Cambio" a Ukrainian banking company (the "Loan Agreements").
[8] Pursuant to certain guarantees of the obligations of the borrowers to Bank Cambio under the Loan Agreements, Filipenko is alleged to have been liable jointly and severally liable for the performance of the Borrowers' obligations under the Loan Agreements.
[9] It is asserted that Ukrainian law expressly governs both the Pledge Agreement and the Loan Agreements, pursuant to the choice of law provision in those agreements.
[10] Filipenko’s pleading in this action would seem to acknowledge that Filipenko does not contest the validity of the Loan Agreements or his personal guarantee, or that the loans are outstanding and he is liable to pay them pursuant to the terms of his guarantee. However he denies that this plaintiff is entitled to any payment from him under those guarantees, in the circumstances of this case.
[11] Filipenko asserts that this is a clear case in which the plaintiff, Norius, should be required to post security for costs:
“2. Norius is a Ukrainian corporation that is not ordinarily resident in Ontario. In fact, Norius has no known connections to Ontario at all, including no known assets in Ontario to pay any costs that may be awarded to the defendant, Igor Filipenko.:
The Ukrainian judgments that Norius seeks to have recognized and enforced by the Ontario court are not even final. Rather, the underlying Ukrainian proceedings have recently been reopened on the basis of new evidence advanced by a Ukrainian court-appointed liquidator that the assignments of debts giving rise to the Ukrainian judgments are invalid. Norius has not disclosed the reopened Ukrainian proceedings to the Ontario court.
Instead, Norius has sought to urgently schedule a summary judgment motion to obtain recognition and enforcement of the Ukrainian judgments while the reopened Ukrainian proceedings are ongoing. This is obviously improper, including because the Ukrainian judgments may soon be overturned or otherwise nullified, thereby undermining the entire basis for Norius' action.
[12] A further significant element of my analysis of the appropriate approach is the assertion that:
“6. In addition, the evidence to be advanced by Mr. Filipenko in response to Norius' action will include that Norius is ultimately controlled, operated or beneficially owned by his former business partner, Andrey Adamovsky.
Mr. Adamovsky has refused to pay damages of nearly USD $36 million and costs awarded to Mr. Filipenko by a British Virgin Islands (BVI) court, and his appeal of the damages and costs award was dismissed due to his failure to post the required security for costs. The award arose from the BVI court's finding that Mr. Adamovsky perpetrated a fraud on Mr. Filipenko that involved Mr. Adamovsky changing bank account signatories and absconding with tens of millions of dollars.
Taken individually or collectively, these considerations clearly reveal that Mr. Filipenko is entitled to security for costs, and strongly undermine any suggestion that requiring Norius to post such security would somehow be unjust.” [my emphasis]
III. Assignments to Norius; Proceedings Resulting in Ukrainian Judgments
[13] Apparently the original Borrowers defaulted in their obligations under the Loan Agreements, and Bank Cambio commenced proceedings against Filipenko, based upon the guarantees given by him.
[14] On November 17, 2014, the Holosiivskyi District Court of the City of Kyiv, issued Judgment in favour of Bank Cambio against Mr. Filipenko and others (the "Ukrainian Judgment-1 "). In particular, the court issued an order awarding Bank Cambio personal judgment against Mr. Filipenko, jointly and severally, in the sum of UAH 14,303,497.92 and USD 1,905,839.59 (the "Debt"), plus court fees. [my emphasis]
[15] Filipenko attorned to the jurisdiction of the Holosiivskyi District Court of the City of Kyiv and was duly notified of the Ukrainian Judgment-1 pursuant to the requirements for notice at Ukrainian law. The Ukrainian Judgment-1 was upheld on multiple appeals (one of which was filed by Filipenko's legal representative).
[16] Bank Cambio assigned its interests in, inter alia, the Loan Agreements to Norius (the "Assignment"). .On March 31, 2016, Norius notified Filipenko of the Assignment and requested payment of the Debt. Filipenko has not satisfied the alleged Debt. Accordingly, Norius commenced the within action in Ontario to seek the recognition and enforcement of the Ukrainian Judgment-1 and the Ukrainian Judgment-2 (defined below) (collectively, the "Ukrainian Judgments").
[17] Subsequently, Bank Cambio was declared insolvent and a liquidator was appointed. The defendant asserts that liquidator purported to unilaterally revoke the Assignment by way of an invalidation order (the "Purported Invalidation Order"), and brought an invalidation claim by which it sought the court's confirmation of the First Invalidation Order (the "First Invalidation Claim").
[18] “Norius successfully applied to invalidate Bank Cambio's Purported Invalidation Order, which application was allowed and upheld, with no further right of appeal.”
[19] The Plaintiff’s factum asserts:
“On December 23, 2016, and in parallel with Bank Cambio's unsuccessful efforts to undermine its Assignment, the Holosiivskyi District Court of the City of Kyiv issued a court order substituting Norius for Bank Cambio as creditor in the enforcement proceedings in collection of the Debt (the "Ukrainian Judgment-2"). The Ukrainian Judgment-2 has been upheld on appeal and is final, binding, and cannot be appealed.”
[20] Norius now asserts that once the unsuccessful efforts to undermine the validity of the Assignment were resolved and dismissed, Norius amended its Statement of Claim in the within action and served a summary judgment motion (the "Summary Judgment Motion").
[21] At the Civil Practice Court attendance, Justice Firestone agreed that the matter ought to speedily progress, directed the Master's office to "assign the earliest possible date for the motion", and further directed that once that date was fixed, Norius "may return to CPC court on an expedited basis."
[22] For that hearing to proceed, it will be necessary for the plaintiff to comply with any order for security for costs made at this time.
[23] However, in order to come to that determination it is necessary to examine a variety of steps in foreign courts which are part of the continuance of the saga of disputes between these parties.
IV. New Liquidator for Bank Cambio; Attempts to Re-Litigate Ukrainian Proceedings
[24] The plaintiff’s factum ( with footnote references removed throughout) continues:
- Despite the fact that Bank Cambio’s previous efforts to invalidate its Assignment failed, Bank Cambio's new liquidator has since resuscitated these efforts in what appears to be a 'Hail Mary' attempt to undermine the validity of an agreement which has already been exhaustively upheld by Ukrainian courts, presumably with the assistance of Filipenko. These efforts ultimately amount to an attempt to re-litigate those previous efforts, and are therefore an abuse of process in Ukraine.
[25] I am clearly not in a position to weigh the strength of these assertions: but I note that the factum continues:
Specifically, on July 25, 2018, the new liquidator purported to issue another unilateral revocation order nullifying the Assignment (the “Second Purported Invalidation Order”), despite the fact that the previous liquidator had already attempted to invalidate the Assignment in this manner and failed. The validity of the Second Purported Invalidation Order has not been recognized by any Ukrainian court.
On December 10, 2018, Norius commenced an application to the Kyiv commercial court to invalidate the Second Purported Invalidation Order (which application Filipenko did not disclose to this Court), on the basis that the Second Purported Invalidation Order is an abuse of process (among other bases). Proceedings were opened on December 20, 2018, and a hearing is scheduled for January 23, 2019.
[26] At the time this motion was argued before me, the result of that application was not available. The submissions continue:
- Despite the fact that the question of the validity of the Second Purported Invalidation Order is being questioned, and despite Ukrainian courts' recognition of the validity of the Assignment, Bank Cambio has purported to assign Bank Cambio’s interest in the Loan Agreements to a third party, LLC Business Kapital LLC, by way of a claim assignment agreement (the "Claim Assignment Agreement") (which improper assignment Filipenko did not disclose to this Court). Norius commenced an application to invalidate the Claim Assignment Agreement (which application Filipenko did not disclose to this Court). On August 29, 2018, the Kyiv commercial court opened proceedings to consider this application, which remain pending. Norius has also commenced an application alleging the commission of certain criminal offences relating to the completion of the Claim Assignment Agreement.
[27] Suffice it to say that for present purposes I find this fact situation does not readily fall within the plaintiff’s assertion that “Norius’ claim is not complex.”
V. Developments in the Ontario Litigation
[28] On April 6, 2018, Norius commenced a separate action against Filipenko and his wife, , for a declaration that the transfer of the property located in Woodbridge, Ontario (the "Property") was a fraudulent conveyance. This Fraudulent Conveyance Action was commenced after Norius learned that Filipenko had transferred his half-interest in the Property to his wife for $2 in April, 2017, despite the pending within action. In the Fraudulent Conveyance Action, Norius alleges that such transfer was effected in order to defeat, hinder, or delay Norius as a future judgment creditor.
[29] Norius has commenced a motion for a Certificate of Pending Litigation in the Fraudulent Conveyance Action, but counsel to Filipenko is alleged to have refused to accept service of the motion, and it is asserted that Filipenko and his wife “have evaded service of both that motion record and the Statement of Claim in the Fraudulent Conveyance Action.” Somewhat surprisingly it was asserted before me that, more than six months after the action was commenced, “Norius is in preparing to bring a motion for substituted service in respect of those materials.”
[30] It would seem probable that in such circumstances an order for substituted service should have been sought much more expeditiously.
VI. Issues on Motion
[31] The plaintiff Norius asserts that the only issues on this motion are:
(a) whether an order for security for costs against Norius would be just in all of the circumstances; and
(b) if so, what the appropriate quantum for security for costs would be in those circumstances.
[32] Norius argues that
“An order for security for costs on the terms sought by Filipenko would not be just in the circumstances. Norius has a good chance of success on the merits of its claim, and was only required to bring its claim in Ontario in the first place as a result of Filipenko's conduct (namely, Filipenko's liability to Norius in respect of Ukrainian Judgments, refusal to pay the Debt owing to Norius, lack of assets in Ukraine against which Norius can enforce its Ukrainian Judgments, and ownership, and subsequent fraudulent conveyance of, assets in Ontario against which Norius can enforce those judgments). In addition, Filipenko has delayed in bringing this motion, and has made serious unsubstantiated allegations in its motion materials. In these circumstances, a reduced award would be just.
In any event, the amount sought by Filipenko is plainly excessive and ought to be significantly reduced. More specifically, Filipenko ought not to be granted security for costs already incurred, and ought not to be granted the full amount of security for future costs sought, which are excessive in light of analogous case law.”
[33] An order for security for costs is discretionary. The Court will engage in the following two-stage inquiry to determine whether it should exercise its discretion:
(a) first, the defendant must show that one of six factors set out in rule 56.01 (1) applies in the circumstances; and
(b) then, the Court may make any order "as is just" after inquiring into all factors which may assist in determining the justice of the case.
[34] As set out above, Norius has acknowledged that Filipenko has met the first stage of the test: Norius is not ordinarily resident in Ontario.
[35] The second stage of the test requires the plaintiff to satisfy the Court that it would not be just to order security for costs. It can meet its onus by demonstrating that it has sufficient assets in Ontario or a reciprocating jurisdiction to satisfy any costs award, that it is impecunious and its claim is not plainly devoid of merit if not impecunious, its claim has a good chance of success on the merits.
[36] In the words of my colleague Master McGraw in 2176693 Ontario Ltd. v. The Cora Franchise Group Inc., 2017 ONSC 6600 at para. 80,:
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 to make such order as is just in the circumstances. 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.
[37] The Court is to balance the interests of the parties, including the possible effect of an order for security for costs in preventing a bona fide claim from proceeding. In addition to factors going to the merit of the claim, such factors may include a delay in bringing the security for costs motion.
[38] The plaintiff argues that in this case, the factors to be considered favour a significantly reduced quantum for security for costs, both by eliminating amounts for costs already incurred and by generally reducing the amount sought. It is submitted that relevant factors include, but are not limited to, “Norius' good chance of success on the merits, Filipenko's delay in bringing the motion, and the excessive amount sought by Filipenko as compared to the amounts generally awarded by this Honourable Court in similar cases.”
VII. Applicable Rule
[39] Under subrule 56.01(1), the court may order a plaintiff to post security for costs where it appears that any of the following factors are satisfied:
(a) the plaintiff or application is ordinarily resident outside Ontario;
(b) the plaintiff 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;
(c) there is good reason to believe that the action is frivolous and vexatious and that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant; or
(d) the defendant has an order against the plaintiff for costs in another proceeding that remains unpaid in whole or in part.
[40] The application of subrule 56.01 (1) involves a two-step inquiry. First, the defendant must show that it appears that at least one of the foregoing factors is satisfied. If the defendant does so, the onus shifts to the plaintiff to demonstrate that it would be unjust to require the posting of security for costs.
[41] I am satisfied that there is no doubt that the tests have been met. With respect to factor (d) concerning outstanding costs awards, I believe Rule 1.04 directs me to strive to obtain a proportional result that takes into account all the circumstances of the overall dispute:
General Principle
1.04 (1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits
Proportionality
(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.
Matters Not Provided For
(2) Where matters are not provided for in these rules, the practice shall be determined by analogy to them.
[42] The issue as to whether or not the Ukrainian judgments are enforceable is not before me. Given the complexity that I am examining with respect to the nature of this dispute I am not prepared to accept or rely this assertion made on the plaintiff’s behalf:
“Norius' claim is not complex. While the Ukrainian proceedings have a lengthy procedural history, made lengthier by Filipenko's recent spurious efforts to re-litigate previously dismissed efforts to undermine the Assignment, in substance, Norius simply seeks to enforce the binding and enforceable Ukrainian Judgments”
[43] The Supreme Court of Canada ("SCC") recognized in Chevron Corp. v. Yaiguaje, 2015 SCC 42, at para. 27 that Canadian courts are to adopt:
... a generous and liberal approach to the recognition and enforcement of foreign judgments ... to recognize and enforce [a foreign] judgment, the only prerequisite is that the foreign court had a real and substantial connection with the litigants or with the subject matter of the dispute, or that the traditional bases of jurisdiction were satisfied"
[44] Once the real and substantial connection test is satisfied, as it is here, the defendant has an opportunity to prove that a defence to recognition and enforcement applies. In Ontario, the applicable defences are natural justice, public policy, and fraud.
VIII. Defendant’s Arguments
[45] Consistent with Mr. Filipenko's statement of defence, the evidence to be advanced by Mr. Filipenko in response to Norius' action will include that Norius is ultimately controlled, operated or beneficially owned by Mr. Filipenko' s former business partner, Mr. Adamovsky. It is submitted that:
The business partnership between Mr. Filipenko and Mr. Adamovsky ended in approximately January 2010 when Mr. Adamovsky perpetrated a significant fraud against Mr. Filipenko. Mr. Adamovsky's fraud against Mr. Filipenko has been previously proven in court.
In October 2014, the Commercial Division of the Eastern Caribbean Supreme Court in the BVI confirmed that Mr. Adamovsky had perpetrated a significant fraud against Mr. Filipenko. As a result, the BVI court ordered Mr. Adamovsky to pay nearly USD $36 million plus pre-judgment interest and costs.
Mr. Adamovsky appealed from the BVI court's judgment but the Court of Appeal of the Eastern Caribbean Supreme Court dismissed the appeal. Notably, it did so due to Mr. Adamovsky' s failure to post the security for costs required for his appeal to proceed. This was the case despite Mr. Adamovsky having been found to have fraudulently absconded with tens of millions of dollars.
22 . To date, Mr. Adamovsky has not paid the damages or costs awarded to Mr. Filipenko by the BVI Court.14 Rather, through Norius, Mr. Adamovsky has continued to litigate against Mr. Filipenko around the world, including in this action before the Ontario court. [my emphasis]
[46] In these circumstances, Justice Firestone agreed with the position advanced by Mr. Filipenko and refused to schedule Norius' summary judgment motion. His Honour instead directed the parties to proceed to resolve Mr. Filipenko's request for security for costs and costs thrown away for the abandoned CPL Motion.
IX. Appropriate Components and Amounts
[47] The plaintiff argues that an order for security for costs in the amount of $100,000, as sought by Filipenko, is excessive, “particularly in light of Filipenko's delay in bringing this motion, he ought not to be granted security for costs already incurred in the action.”
[48] In my view, given the elements of this dispute it still seems reasonable that a foreign litigant, in such circumstances, should be prepared to “pay to play” in this jurisdiction.
[49] The Plaintiff’s factum asserts that plaintiffs are generally to pay security for costs for costs already incurred when the majority of litigation steps have already been completed. It is argued that such is not the case here - rather, only pleadings have been exchanged - and accordingly, such costs should not be ordered. This particular
[50] While a "customary" approach is to make "pay as you go" orders, premised on the expectation that, at every stage of a proceeding, the parties will assess the strengths and weaknesses of their respective positions and that settlement will ensue when appropriate."
[51] The preparation for a motion that may well bring the action to a conclusion, supports requiring a significant amount of security in this particular factual situation.
[52] I do not accept the plaintiff’s view that :
In the within case, given that the matter is a simple enforcement of a foreign judgment, to be decided by way of a half day Summary Judgment Motion which has already been brought, and without any contemplated discovery, $100,000 is plainly excessive and is simply not within the reasonable contemplation of the parties.Of the authorities referred to, Demessey is the most analogous, in that it awarded $32,500 in security for costs already incurred in relation to drafting a defence and for costs to be incurred in relation to a summary judgment motion. Filipenko's motion seeks costs in respect of on those same steps, but seeks just over three times that amount.
[53] However I note that in Demessey Limited v. Cassels Brock & Blackwell LLP et al.)2011 CarswellOnt 5863, 2011 ONSC 4122, [2011] O.J. No. 3018, 204 A.C.W.S. (3d) 500) then Master Benjamin Glustein was dealing in 2011 with a case involving a lesser amount in issue. He awarded security amounts to three defendants which taken together totaled a sum close to that sought from the plaintiff in the present action. Moreover the growth of accepted hourly rates since 2011 also merits consideration in cases such as this.
[54] Considering all the foregoing elements of the overall dispute, I am satisfied that $70,000 ought to be posted with respect to the security for costs for the contemplated summary judgment motion.
X. Costs of CPL Motion?
[55] Filipenko claims that he is entitled to full indemnity costs in respect of costs thrown away for Norius' Original CPL Motion. The Original CPL Motion was never formally abandoned (and Filipenko has adduced no evidence indicating that it was). Effectively, the Original CPL Motion has been subsumed into the motion for a certificate of pending litigation now being pursued against Filipenko and his wife. The plaintiff asserts that any effort and costs expended in respect of the Original CPL Motion can be allocated to that motion.
[56] I agree and accept that position with respect to costs incurred to date with respect to matters concerning the real property in Ontario.
[57] As a consequence no amount is required to be paid at this point in time by the plaintiff with regard to the CPL. I regard it as more appropriate to defer that calculation until any resolution of the CPL issues is reached.
XI. Disposition
[58] In coming to my conclusion with respect to security for costs I was persuaded by these (admittedly in many cases unproven)assertions contained in the factum filed on behalf of Mr. Filipenko:
• First, Norius is a Ukrainian company that it is not ordinarily resident in Ontario.'? On this basis alone, Mr. Filipenko can plainly discharge his burden under subrule 56.01 (1 ).
• Second, Norius is a corporation and there is no known reason to believe that it has any assets in Ontario that could be used to pay any costs awarded to Mr. Filipenko. In fact, Norius has no known connection to Ontario at all.
• Third, there is good reason to believe that Norius' action is frivolous and vexatious. This is the case because Norius is advancing its action, including by attempting to urgently obtain summary judgment recognizing and enforcing the Ukrainian judgments, despite the fact that the Ukrainian judgments are clearly not final. Norius has not disclosed to the Ontario court that the underlying Ukrainian proceedings have been reopened despite the obvious relevance of those reopened proceedings, which is further evidence of the abusive nature of Norius' action.
• Fourth, Mr. Adamovsky, who will be shown to ultimately control, operate or beneficially own Norius, has failed to pay the damages and costs awarded to Mr. Filipenko by the BVI court. It is also relevant that Mr. Adamovsky's appeal of the BVI court's decision was dismissed due to Mr. Adamovsky's failure to post the required security for costs, particularly since Mr. Adamovsky :fraudulently absconded with tens of millions of dollars.
[59] The failure to post security elsewhere in related cases by those connected with the plaintiff entity in my view is an appropriate application of proportionality to this fact situation.
[60] Given the environment elsewhere involving these parties, I am concerned that the Defendant will have no ready access to any other source of funds to reimburse his costs incurred in part or in full, if the Plaintiff is unsuccessful in establishing its claims in this Ontario action.
[61] In the result an Order will go:
(a) requiring Norius to post $70,000 as security for costs in respect of costs (i) incurred to date by Mr. Filipenko and
(ii) to be incurred by Mr. Filipenko in connection with Norius' summary judgment motion;
(b) requiring Norius to post that security within 30 days of the date of the order, failing which the defendant may move to have this action dismissed;
(c) providing that the posting of security for costs is a condition precedent to (i) Norius taking any further steps in the action and (ii) Mr. Filipenko being required to take any such steps;
(d) that Mr. Filipenko may seek further security for costs in respect of any steps required in the action beyond Norius' summary judgment motion.
XII. Costs of Motion
[62] As success was partially divided I am satisfied that an all-inclusive award of $10,000 in favour of the Defendant for the net fees relating to issues on this motion is appropriate.
[63] Those Costs to be paid within 45 days of the date of release of these reasons.
[64] I am obliged to counsel for their helpful and comprehensive submissions.
Released: May 1, 2019
Master D. E. Short
R. 267/DS