Court File and Parties

COURT FILE NO.: CV-19-615083

MOTION HEARD: 20190827

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Eugene Bokserman and Michael Shtaif, Plaintiffs

AND:

MacDonald Associates PC, Kevin L. MacDonald and Jamie M. Sanderson, Defendants

BEFORE: Master Jolley

COUNSEL: Carlo Di Carlo, Counsel for the Moving Party Defendants

Michael Shtaif, in person for the Responding Party Plaintiffs

HEARD: 27 August 2019

REASONS FOR DECISION

Overview

[1] The defendants bring this motion for security for costs under Rule 56.01(1). As against the plaintiff Michael Shtaif (“Shtaif”), the defendants rely on Rule 56.01(1)(a), arguing that Shaikh is ordinarily resident outside Ontario, which he does not dispute. As against both Shtaif and Eugene Bokserman (“Bokserman”) the defendants rely on subparagraphs 56.01(1)(b), (c) (e) and argue respectively that the plaintiffs have another proceeding pending for the same relief, that they have costs orders against them in another proceeding that remain unpaid and that there is good reason to believe that the action is frivolous and vexatious and that the plaintiffs have insufficient assets in Ontario to pay the costs of the defendants.

[2] The plaintiffs argue that defendants have not demonstrated that the action is frivolous or that it appears that plaintiffs have insufficient assets in Ontario. If I find the defendants have met the initial hurdle under Rule 56.01(1), the plaintiffs argue before me that they should not be required to post security for costs as they are impecunious and their action is not devoid of merit.

Background

[3] The defendants were appellate counsel to the plaintiffs in an action bought against them by Midland Resources Holding Limited (“Midland”) for fraudulent misrepresentation, among other things. Midland alleged that Shtaif and Bokserman used sham public companies to deceitfully induce it to invest in a fraudulent scheme relating to the acquisition and development of Russian oil and gas properties. Midland claimed that it invested and lost USD $50,000,000.

[4] In her decision released in February 2014, the trial judge found Bokserman and Shtaif liable for fraudulent misrepresentation. She also found Shtaif engaged in a conspiracy and breached his fiduciary duties. Shtaif was ordered to pay USD $59.6 million and Bokserman USD $1.5 million. They were also ordered to pay costs jointly and severally in the amount of Cdn $4.5 million.

[5] Bokserman and Shtaif sued their trial counsel for negligence and retained these defendants to argue the appeal. The appeal was argued in October 2016 and a decision released in April 2017. The damages award against Shtaif was significantly reduced on appeal from USD $59.6 million to USD $8.3 million and the finding that he breached his fiduciary duty was overturned. Otherwise the trial decision stood. The plaintiffs brought two motions in the Court of Appeal for reconsideration, each of which was denied and the second of which resulted in an order prohibiting the plaintiffs from bringing any further motions unless they paid Midland the outstanding costs of the appeal and of the first motion to reconsider and obtained leave of the panel to bring the proceeding. Leave to appeal to the Supreme Court of Canada was denied.

[6] The plaintiffs then commenced this action, alleging these defendants were negligent in the preparation and argument of the appeal and seeking damages of $15 million.

Legal Framework

[7] The Court of Appeal affirmed the test for an order for security for costs, including its discretionary nature, in Yaiguaje v. Chevron Corporation 2017 ONCA 827, noting:

“23. The Rules explicitly provide that an order for security for costs should only be made where the justice of the case demands it. Courts must be vigilant to ensure an order that is designed to be protective in nature is not used as a litigation tactic to prevent a case from being heard on its merits, even in circumstances where the other provisions of rr. 56 or 61 have been met.

24. Courts in Ontario have attempted to articulate the factors to be considered in determining the justness of security for costs orders. They have identified such factors as the merits of the claim, delay in bringing the motion, the impact of actionable conduct by the defendants on the available assets of the plaintiffs, access to justice concerns, and the public importance of the litigation….

25. While the case law is of some assistance, each case must be considered on its own facts. It is neither helpful nor just to compose a static list of factors to be used in all cases in determining the justness of a security for costs order. There is no utility in imposing rigid criteria on top of the criteria provided for in the Rules. The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.”

Initial Onus on the Moving Party Defendants

[8] At the first stage of the motion, the initial onus is on the defendants to satisfy the court that it appears there is good reason to believe that the matter comes within one of the circumstances enumerated in Rule 56.01 (Coastline Corp. v. Canaccord Capital Corp., 2009 21758 (ON SC), [2009] O.J. No. 1790 (Ont. S.C.J.) (“Coastline”).

[9] On the first ground, the defendants argue that Shtaif is resident outside Ontario which he concedes. Therefore, there is good reason to believe the matter falls within Rule 56.01(1)(a) with respect to him.

[10] On the second ground, it is apparent that the plaintiffs did have a proceeding pending in Ontario for the same or similar relief at the time this motion was brought, namely their action against their trial counsel in which they sought damages. However, trial counsel successfully brought a motion for summary judgment dismissing the plaintiffs’ negligence claims against them and the action was dismissed on 22 July 2019. In light of that dismissal, there is no similar action pending and Rule 56.01(1)(b) is no longer met.

[11] On the third ground, the plaintiffs concede that the joint and several $4.5 million costs order against them remains wholly unpaid. There is good reason to believe that the matter falls within Rule 56.01(1)(c) as a result.

[12] On the last ground, the defendants argue that there is good reason to believe this action is frivolous and vexatious and that the plaintiffs have insufficient assets in Ontario to pay the defendants’ costs. Good reason to believe does not require the defendants to prove that the basis for granting the order exists or require the motions judge or master to conduct a summary judgment trial into the merits of the action. The analysis is primarily on the pleadings with recourse to evidence filed on the motion, and in appropriate cases, to selective references to excerpts of the examinations for discovery where available (Padnos v. Luminart Inc. 1996 11781 (ON SC), [1996] O.J. No. 4549 (Gen. Div.) at para. 7; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J. - Mast.) (“Bruno”) at para. 37). The defendants are required to show only that it appears to be that the scenarios contemplated in each subrule of Rule 56.01(1) exist. (Siddiqsons Tin Plate Ltd. v. Adler Steel Limited 2016 ONSC 1755 at paragraph 18).

[13] As noted in Lang Michener and Fabian et al (1987) 1987 172 (ON SC), 59 O.R. (2d) 353 the following principles assist in determining if an action is frivolous or vexatious:

(a) the bringing of one or more actions to determine an issue which has already been determined by a court of competent jurisdiction constitutes a vexatious proceeding;

(b) where it is obvious that an action cannot succeed, or if the action would lead to no possible good, or if no reasonable person can reasonably expect to obtain relief, the action is vexatious;

(c) vexatious actions include those brought for an improper purpose, including the harassment and oppression of other parties by multifarious proceedings brought for purposes other than the assertion of legitimate rights;

(d) it is a general characteristic of vexatious proceedings that grounds and issues raised tend to be rolled forward into subsequent actions and repeated and supplemented, often with actions brought against the lawyers who have acted for or against the litigant in earlier proceedings;

(e) in determining whether proceedings are vexatious, the court must look at the whole history of the matter and not just whether there was originally a good cause of action;

(f) the failure of the person instituting the proceedings to pay the costs of unsuccessful proceedings is one factor to be considered in determining whether proceedings are vexatious;

(g) the respondent’s conduct in persistently taking unsuccessful appeals from judicial decisions can be considered vexatious conduct of legal proceedings.

[14] The main, even if not exclusive, ground of negligence alleged by the plaintiffs against the defendants is that they failed to argue on the appeal that the rule in Foss v. Harbottle precluded Midland from recovering damages. There are various iterations of the theme pleaded in the statement of claim but they amount primarily to an argument that Midland, as a shareholder in a company, had no independent right of action for a wrong done to the company and no standing to sue for damages. In dismissing Bokserman’s appeal entirely and Shtaif’s appeal on liability for the pre-June 2006 representations, it is clear from the reasons of the Court of Appeal that, not only was Foss v. Harbottle specifically raised, it was considered and rejected on the facts of the case as a result of the finding that the claims Midland advanced were personal in nature.

[15] The plaintiffs argued before me that their claim against the defendants is not based on their failure to advance Foss v. Harbottle at all, but on their advancement of Foss v. Harbottle to the exclusion of the other grounds of appeal which the plaintiffs had instructed them to advance. In the plaintiffs’ factum, they go so far as to state that the defendants relied on Foss v. Harbottle at the appeal, despite the plaintiffs’ numerous objections and position that the argument was destined to fail.

[16] This new spin is unsupported by the evidence. For instance, paragraphs 18, 19 and elsewhere in the statement of claim allege negligence against the defendants specifically because of their failure to argue Foss v. Harbottle. The “cause of action analysis” that the plaintiffs prepared and provided to the defendants, which the defendants allegedly did not follow, squarely indicates that Foss v. Harbottle is to be raised on appeal and argues throughout that Midland did not have standing to sue on that basis. The exchange of emails between the defendants and the plaintiffs concerning the factum do not state that the defendants are not to pursue the Foss v. Harbottle argument. Finally, the complaint about the defendants’ failure to argue Foss v. Harbottle is also set out in subparagraphs 6(a), (e), (r), (s), (t), (u) and (v) of the affidavit Bokserman swore in response to this motion.

[17] This alleged failure to argue Foss v. Harbottle, which was rejected by the Court of Appeal when it was argued, was raised both in the plaintiffs’ action against their trial counsel (now dismissed) and then raised and supplemented in this action against their appellate counsel. The evidence before me is supportive of at least factors (a), (d), (e) and (g) as set out in Lang Michener, referenced in paragraph 13, above. It is conceded that none of the costs of the trial, or appeal or motion for reconsideration have been paid, as noted in factor (f), above. Based on a review of the pleadings and considering the factors enumerated above, I find there is good reason to believe the action is frivolous and vexatious.

[18] I am also satisfied on the branch of this last ground that there is good reason to believe that the plaintiffs have insufficient assets in Ontario to pay the defendants’ costs. Shtaif does not reside in Ontario or have assets in Ontario. Bokserman does not have real property, at least in Toronto. In 2007 he and his wife jointly purchased a home for $1,765,000. They owned that home jointly until March 2014 when, two weeks after the release of the trial decision in which Bokserman was ordered to pay Midland USD $1.5 million, he transferred his interest to his wife. His wife sold the home a year or so later for $3,298,000 and purchased a second property in her name alone. There is good reason to believe that the matter falls within Rule 56.01(1)(e) as a result.

[19] The defendants have met their onus of establishing that there appears to be good reason that the matter comes within each of Rule 56.02(1)(a), (c) and (e).

Onus Shifts to the Responding Party Plaintiffs

[20] As the defendants have satisfied the first part of the test, the onus now shifts to the plaintiffs to establish that an order for security would be unjust. (see Coastline, citing Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. - Mast) (“Uribe”). The second stage of the test "is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors". The court exercises a broad discretion in making an order that is just (Chachula v. Baillie (2004), 2004 27934 (ON SC), 69 O.R. (3d) 175 (S.C.J.) at para. 12; Uribe, at para. 4).

[21] The plaintiffs can rebut the onus by demonstrating that:

(a) they have appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation;

(b) they are impecunious and that justice demands that they be permitted to continue with the action. Impecunious plaintiffs will generally avoid paying security for costs if they can establish that their claim is not "plainly devoid of merit"; or

(c) if the plaintiffs cannot establish that they are impecunious, but they do not have sufficient assets to meet a costs order, they must meet a higher threshold to satisfy the court of their chances of success (Uribe at para. 5; Bruno, supra; and Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 50.

[22] In Bokserman’s affidavit, the plaintiffs took the position that they had an asset in their claim against their trial counsel where Shtaif sued for $100 million and Bokserman for $10 million. Subsequent to the swearing of that affidavit, as noted above, that action was dismissed.

[23] The plaintiffs then purported to rely on the evidence led by the defendants concerning the plaintiffs’ assets to support an argument that they were impecunious. They led no details of impecuniosity themselves.

[24] To the contrary, at the same time as purporting to adopt the defendants’ evidence as to their financial state of affairs, they also deposed that that evidence was incorrect and misleading. For instance, Bokserman relied on an affidavit that his wife filed in the fraudulent conveyance action that Midland commenced against Bokserman and his wife where she stated that in 2014 she purchased Bokserman’s half interest in the home for $391,625, which she paid to him in instalments between March 2014 and July 2016. There are four problems with that evidence. First, it is nothing more than a bald statement. Second, it is contrary to the land transfer tax statement that indicates that the transfer was from “husband to wife for natural love and affection” and a total consideration of $2.00. Third, if there was in fact consideration of $391,625 paid, presumably there would be land transfer tax payment implications. Fourth, if there was significant consideration paid, it suggests that Bokserman is not impecunious. It was incumbent on him to provide evidence as to where those funds have gone and he did not do so.

[25] Similarly, Bokserman deposed that Shtaif transferred his interest in his matrimonial home, not nefariously, but pursuant to an order of the Alberta Court. Bokserman deposed that in 2016 Shtaif ’s wife paid Shtaif $300,000 for his interest in the home. It is conceded that Shtaif still lives in the home, now owned by his wife. The court order was not put before me. If Shtaif’s wife paid Shtaif that sum, it does not support his claim of impecuniosity. Shtaif also did not file evidence as to where those funds have gone.

[26] The plaintiffs also took the position that Midland was now precluded from collecting on the amounts owing as it was ordered into compulsory liquidation by court order made in Guernsey on 14 February 2017. There is nothing in the record to support that the judgment is not collectible, if not by Midland, then by the appointed liquidators. If the debt were in fact uncollectible, it would further demonstrate that the plaintiffs were not impecunious as they would be relieved of a significant debt obligation.

[27] The plaintiffs took the position in their factum that their failure to pay the outstanding costs awards demonstrated their impecuniosity. This is not a case of res ipsa loquitur. As there is no evidence of the plaintiffs’ means or their inability to pay, I cannot make that unsupported conclusion. It is also inconsistent with their position that Midland can no longer collect on the debt. The plaintiffs also stated in their factum that Shtaif cannot pay any security for costs before he satisfies a matrimonial judgment. Again, there is no evidence before me of any matrimonial judgment.

[28] Lastly, the plaintiffs argued that the defendants’ refusal to attend examinations for discovery before bringing this motion precluded the plaintiffs from putting forward evidence of their own impecuniosity. This argument is illogical. The plaintiffs themselves were in possession of the information about their financial means. They did not require an examination for discovery of the defendants on the merits of the action to lead that evidence.

[29] The plaintiffs included the Coastline case in their book of authorities and highlighted the following passages, among others:

(viii) The evidentiary threshold for impecuniosity is high, and "bald statements unsupported by detail" are not sufficient. The threshold can only be reached by "tendering complete and accurate disclosure of the plaintiff's income, assets, expenses, liabilities and borrowing ability, with full supporting documentation for each category where available or an explanation where not available" (Uribe, at para. 12; Shuter v. Toronto Dominion Bank, 2007 37475 (ON SC), [2007] O.J. No. 3435(S.C.J. - Mast.) ("Shuter") at para. 76);

(ix) To meet the onus to establish impecuniosity, "at the very least, this would require an individual plaintiff to submit his most recent tax return, complete banking records and records attesting to income and expenses" (Shuter, at para. 76);

(xi) Consequently, full financial disclosure requires the plaintiff to establish the amount and source of all income, a description of all assets including values, a list of all liabilities and other significant expenses, an indication of the extent of the ability of the plaintiffs to borrow funds, and details of any assets disposed of or encumbered since the cause of action arose (Morton v. Canada (2005), 2005 6052 (ON SC), 75 O.R. (3d) 63 (S.C.J.) at para. 32);

(xii) Because the plaintiff has the onus to establish impecuniosity, a defendant "can choose not to cross-examine if the plaintiff fails to lead sufficient evidence". The decision not to cross-examine does not convert insufficient evidence into sufficient evidence (Bruno, at paras. 27-28; Shuter, at paras. 59 and 71).

[30] The plaintiffs were aware, then, that if they intended to advance a defence of impecuniosity, they were required to include in their own responding materials evidence of their means, including disclosure of the amount and source of their current income, a description of their assets and their value, a list of their expenses, all with full supporting documentation, their most recent income tax returns and complete banking records. None of this material was in the record.

[31] The plaintiffs defended this motion on the basis that they were impecunious. In light of the complete absence of evidence required to support that defence, I find that the plaintiffs have not demonstrated that they are impecunious. Therefore, I need not go on to consider whether their action is not devoid of merit.

[32] The defendants do not seek security for costs of the entire action, but request an order that each plaintiff pay the sum of $20,000 into court to cover costs from present to the end of examinations for discovery. While it would have been helpful to have a costs estimate from the defendants, in light of the volume of material involved in the file, which underlying litigation generated three attendances to the Court of Appeal and a leave application to the Supreme Court of Canada, I am satisfied that the amount sought is reasonable in the circumstances.

[33] In making this order, I have considered all the circumstances of the case and the justness of the order holistically and conclude that it is just that the order be made.

[34] The defendants seek their costs of the motion on a partial indemnity basis in the amount of $10,474.54 inclusive of HST and disbursements. The costs outline which was provided to me in support of the costs sought for this motion included the costs of all steps taken to date, including, for instance, preparation of the statement of defence. Based on my review of the material filed, I find the amount of $6,500 all inclusive to be a fair and reasonable amount for the plaintiffs jointly and severally to pay to the defendants in respect of the motion.

[35] The plaintiffs shall pay the costs of the motion and post the security for costs within 60 days of today’s date. The plaintiffs shall take no further step in this action until this order for security for costs and costs is satisfied.

Master Jolley

Date: 30 August 2019