MOTIONS HEARD: 20190808
REASONS RELEASED: 20190906
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
JOSEPH KERLOW
Plaintiff
- and-
KATHLEEN ANN CORRIGAN and HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO
Defendants
[Related Action: Brian Fulop v. Kathleen Ann Corrigan, Michael Sills and Her Majesty the Queen in Right of Ontario, Court File No. CV-11-423910]
BEFORE: MASTER M.P. McGRAW
COUNSEL: J. Glick and R. Mann
Email: Jeremy.Glick@Ontario.ca
-Counsel for the Defendants, Kathleen Ann Corrigan and Her Majesty the Queen in Right of Ontario
H. Epstein
Email: hepstein@bainspartner.com
-Counsel for the Plaintiffs, Joseph Kerlow and Brian Fulop
REASONS RELEASED: September 6, 2019
Reasons for Endorsement
I. Introduction
1The Defendants Kathleen Ann Corrigan and Her Majesty the Queen in right of Ontario (collectively, the “Defendants”) bring motions in these actions seeking security for costs from the Plaintiffs Joseph Kerlow and Brian Fulop pursuant to section 10 of the Public Authorities Protection Act (Ontario)(the “Act”) and Rule 56.01(1) of the Rules of Civil Procedure. These motions were brought after these actions were set down for trial raising an issue of whether the Defendants require leave under Rule 48.04(1) and if so, if leave should be granted.
II. The Criminal Investigation and Proceedings, the Actions and the Motions
The Criminal Investigation and Proceedings
2These actions arise from criminal investigations of the Plaintiffs led by the Defendant Detective Constable Kathleen Ann Corrigan (“Detective Corrigan”) of the Quinte West Detachment of the Ontario Provincial Police (the “OPP”). The Plaintiffs were charged and ultimately acquitted on multiple charges related to alleged sexual assaults involving 4 female complainants related to 4 incidents from April 2007-July 2008.
3On May 23, 2008, the first complainant (“N.D.”) filed a complaint of sexual assault against Mr. Kerlow and another man. N.D. alleged that Mr. Kerlow and the other man put a date rape drug in her drink, sexually assaulted her and recorded the sexual assault on video without her consent. Mr. Kerlow provided a voluntary statement admitting to engaging in sexual activity with N.D. but alleged that she consented to the sexual activity and recording.
4In executing search warrants at the residences of Mr. Kerlow and the other man, the Defendants seized computer equipment, cell phones and other storage equipment containing numerous pornographic videos of females who appeared to be in various stages of consciousness. Through further investigation, Detective Corrigan identified the Plaintiffs, the other man and some of the women in the videos. Detective Corrigan also received information identifying the Plaintiffs as 2 of 3 men in a video with another woman (“B.T.”).
5During Detective Corrigan’s investigation of the women identified in the photos and videos, a second complainant (“S.M.”) and B.T., the third complainant, both advised that they had no recollection of participating in any sexual activity with the Plaintiffs, had not consented to the sexual activity or recordings and that they wished to pursue charges. A fourth complainant (“E.M.”) who had been in a relationship with Mr. Kerlow also alleged that Mr. Kerlow sexually assaulted her.
6On September 14, 2008, Mr. Kerlow was arrested and charged with sexual assault with respect to N.D. contrary to s. 271 of the Criminal Code (Canada); surreptitiously observing and recording by visual recording contrary to s. 162(1) of the Criminal Code; and intent to enable the commission of the offence of a stupefying substance contrary to s. 246(b) of the Criminal Code. Mr. Kerlow was also charged with possession of child pornography contrary to s. 163.1 of the Criminal Code unrelated to the alleged assaults. On April 16, 2009, Mr. Kerlow was arrested and charged under ss. 271 and 246(b) of the Criminal Code with respect to S.M. and ss. 271, 162(1) and 246(b) with respect to B.T. On July 21, 2009, Mr. Kerlow was arrested and charged under s. 271 of the Criminal Code related to E.M. On April 10, 2009, Mr. Fulop was arrested and charged with 3 counts pursuant to ss. 271, 162 (1) and 246(b) of Criminal Code with respect to B.T.
7On September 16, 2009, after a preliminary inquiry, the Plaintiffs and the third man were committed to trial on all charges, Mr. Kerlow with respect to N.D., S.M. and B.T. and Mr. Fulop with respect to B.T. The child pornography charge against Mr. Kerlow was withdrawn prior to trial. The Plaintiffs elected to be tried by Judge alone.
8On June 18, 2010, after an 8-day trial, the Plaintiffs were acquitted of all charges. On November 2, 2011, after a two-day trial, Mr. Kerlow was acquitted of all charges with respect to E.M.
The Actions
9Mr. Fulop commenced his action by Statement of Claim issued on April 7, 2011 seeking general damages of $1,000,000 for wrongful arrest, wrongful detention, negligent investigation, breach of his Charter rights and malicious prosecution; $500,000 in special damages; and $1,000,000 in punitive damages. Mr. Kerlow commenced his action by Statement of Claim issued on May 14, 2012 claiming general damages of $1,000,000 for negligent investigation, malicious prosecution and/or mental and/or emotional distress, together with claims for $1,000,000 in special damages and $1,000,000 in punitive damages. Mr. Fulop and Mr. Kerlow claim their legal fees of for the criminal proceedings of $100,000 and $260,000, respectively. Pursuant to the Order of Master McAfee dated April 20, 2016, these actions will be tried together or one after the other.
10The parties attended trial scheduling court in September 2017 and consented to a 20-day trial of these actions which is currently scheduled for November 20, 2019. The parties’ expert reports were due in December 2018. On December 18, 2018, the Defendants served the Expert Report dated September 1, 2018 of Pamela Bruce, an expert in police sexual assault investigations (the “Defence Report”). The Plaintiffs did not deliver an expert report by the deadline but advised that they intended to do so (the “Plaintiffs’ Report”).
11The Plaintiffs subsequently requested access to the audio-visual materials relied on by the OPP in laying charges. The Defendants brought a motion for their production under Rule 30.10 which was granted by Order of Justice Nakatsuru dated May 23, 2019.
12The Plaintiffs were then required to deliver the Plaintiffs’ Report by June 20, 2019 but have still not done so. Plaintiffs’ counsel advised the Court that the Plaintiffs have retained an expert and still intend to deliver the Plaintiffs’ Report, however, cannot provide an estimated date for its delivery. The Defendants submit that, given the limited time before trial and the need to respond to the Plaintiffs’ Report, an adjournment of the current trial date will likely be necessary.
The Motions
13The Plaintiffs filed affidavits in response to these motions and were cross-examined on June 4, 2019.
14Mr. Kerlow has resided in Winnipeg, Manitoba since 2016. He is a Corporal with the Royal Canadian Air Force employed as an Aircraft Structures Technician. He purchased a condominium in Winnipeg in 2016 for $269,000 and his estimated gross income for 2019 is $72,000. Mr. Kerlow’s vehicle is worth approximately $15,000, he has $35,000 in RRSPs and has $83,000 available on a $100,000 line of credit secured against his condominium which he obtained to pay his legal fees of the criminal proceedings. Mr. Kerlow did not file any bank records, a summary of his expenses or evidence of any further borrowing ability. Mr. Kerlow does not have a contingency fee arrangement with counsel.
15Mr. Fulop resides in Calgary, Alberta where he is employed as a countertop installer by FloForm Industries. He earned $51,565 in 2018. Contrary to his affidavit, Mr. Fulop admitted on cross-examination that he did not move to Alberta because of the criminal proceedings, but because his common law partner (who he referred to as his girlfriend in his affidavit) obtained a teaching job in Calgary. He further admits that the criminal charges were not the reason he did not attend college and that his current job pays him $10,000 more annually than a similar job in Ontario. Mr. Fulop borrowed approximately $100,000 to pay for his criminal defence, $15,000 under a bank loan and $85,000 from his parents, who sold their home in 2010.
16While Mr. Fulop has provided evidence of his bank loan of $15,000, he has not provided any bank statements for himself or his partner or any information with respect to his partner’s income. He has also not filed any evidence of the debt owed to his parents (though he says that he cannot borrow further from his parents, who are now separated), a statement of expenses and failed to disclose in his affidavit that his common law partner owns her vehicle and that both he and his partner own motorcycles. Mr. Fulop has a contingency fee arrangement with his counsel and only pays for disbursements.
17The Defendants initially sought security for costs of $150,000 from each of the Plaintiffs. However, Defendants’ counsel advised the Court that they now seek an order requiring each of the Plaintiffs to post an amount in the range of $50,000-$55,000 which may be paid in instalments before trial.
III. The Law and Analysis
Generally
18These motions require an analysis of the interaction between s. 10 of the Act and Rules 48.04(1) and 56.01(1). This includes whether or not the Defendants require leave to bring their security for costs motions and the test for security for costs.
19Rule 48.04(1) provides that any party who has set an action down for trial or who has consented to the action being placed on a trial list shall not initiate or continue any motion or form of discovery without leave of the court.
20Two divergent approaches have emerged with respect to the exercise of the court’s discretion under Rule 48.04(1) to grant leave: i.) a more established test which requires the moving party to demonstrate that there has been a substantial or unexpected change in circumstances; and ii.) a broader more liberal and flexible approach which does not require the finding of a substantial or unexpected change but that the court may grant leave and make the order that is just in the circumstances where the interlocutory step is necessary in the interests of justice considering all of the circumstances of each case and Rule 1.04(1)(BNL Entertainment Inc. v. Ricketts, 2015 ONSC 1737 at para. 12).
21Section 10 of the Act states:
“Where an action is brought against a justice of the peace or against any person for any act done in pursuance or execution or intended execution of any public duty, statutory or otherwise, or authority, or in respect of any alleged neglect or default in the execution of any such statute, duty or authority, the defendant may, at any time after the service of the writ, make a motion for security for costs if it is shown that the plaintiff is not possessed of property sufficient to answer the costs of the action in case a judgment is given in favour of the defendant, and that the defendant has a good defence upon the merits, or that the grounds of action are trivial or frivolous.”
22In Rackley v. Rice (1992), 1992 CanLII 7717 (ON SC), 8 O.R. (3d) 105, the Divisional Court held that a “good defence on the merits” means that the defence is likely to succeed which in turn means that the grounds of the action are trivial and frivolous (Rackley at para. 15). Master Dash adopted this definition of “likely to succeed” in considering the meaning of “good defence on the merits” under similar security for costs provisions at s. 12(1) of the Libel and Slander Act (Ontario)(Browne v. Toronto Star Newspapers Limited, 2015 ONSC 2376 at para. 119).
23Rule 56.01(1) states:
“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;
(b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;
(c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part;
(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;
(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or
(f) a statute entitles the defendant or respondent to security for costs.
24Rule 56.01(1) does not create a prima facie right to security for costs but rather triggers an enquiry whereby the court, using its broad discretion, considers multiple 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 possibility of an order for security for costs preventing a bona fide claim from proceeding (Stojanovic v. Bulut, 2011 ONSC 874 at paras. 4-5).
25More recently, the Court of Appeal provided the following guidance in Yaiguaje v. Chevron Corp., 2017 ONCA 827:
“23 The Rules explicitly provide that an order for security for costs should only be made where the justness 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. See: Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 (H.C.); Morton v. Canada (Attorney General) (2005), 2005 CanLII 6052 (ON SC), 75 O.R. (3d) 63 (S.C.); Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 2009 CanLII 46451 (ON SC), 99 O.R. (3d) 55 (S.C.); Wang v. Li, 2011 ONSC 4477 (S.C.); and Brown v. Hudson's Bay Co., 2014 ONSC 1065, 318 O.A.C. 12 (Div. Ct.).
25 While this 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 already 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.”
26The Court of Appeal subsequently provided additional guidance in Novak v. St. Demetrius (Ukrainian Catholic) Development Corporation, 2018 ONCA 219:
“7 Justice Epstein's order was made prior to the release of this court's decision in Chevron Corp. v. Yaiguaje, 138 O.R. (3d) 1, 2017 ONCA 827, which was included in the appellant's materials. We do not read that decision as altering the established test for ordering security for costs. The established test requires a judge, after analysing the specific factors spelled out in the rules, to consider the overall justness of the order sought. In Yaiguaje v. Chevron Corp. the court found that the motion judge had erred in principle in her consideration of the justness of the order.
8 In this case, we are satisfied the Epstein J.A. did not err in considering the ordering of security for costs to be just. Unlike in Yaiguaje v. Chevron Corp, the appellant in this case has a direct economic interest in the appeal. The respondent is not a global enterprise but a not-for-profit senior citizens care centre operated by a church. Unrecoverable costs will reduce the respondent's resources it can dedicate to the care of its clients. There is no indication the respondent sought security for costs as a litigation tactic to end the appeal. The appeal raises no overarching, important, or novel issue. There is no apparent overriding public interest in allowing the appeal to proceed without the posting of ordered security for costs.”
27I recently summarized the law on security for costs in Canadian Metal Buildings Inc. v. 1467344 Ontario Limited, 2019 ONSC 566. The law on security for costs was also summarized by J.R. Henderson J. in 2311888 Ontario Inc. v. Ross, 2017 ONSC 1295 at para. 17 and Master Muir in 2179548 Ontario Inc. v. 2467925 Ontario Inc. [2017] O.J. No. 246 at para. 8.
28The 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 can rebut the onus and avoid security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order; the order is unjust or unnecessary; or the plaintiff should be permitted to proceed to trial despite its impecuniosity should it fail (see Travel Guild Inc. v. Smith, 2014 CarswellOnt 19157 (S.C.J.) at para.16; Coastline Corp. v. Canaccord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790 (ONSC) at para. 7; Cobalt Engineering v. Genivar Inc., 2011 ONSC 4929 at para. 16).
29Master Glustein (as he then was) summarized the applicable principles at paragraph 7 of Coastline:
“7 I apply the following legal principles:
(i) The initial onus is on the defendant 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 (Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 (H.C.J.) at 123);
(ii) Once the first part of the test is satisfied, "the onus is on the plaintiff to establish that an order for security would be unjust" (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. - Mast) ("Uribe") at para. 4);
(iii) 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 CanLII 27934 (ON SC), 69 O.R. (3d) 175 (S.C.J.) at para. 12; Uribe, at para. 4);
(iv) The plaintiff can rebut the onus by either demonstrating that:
(a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,
(b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not "plainly devoid of merit", or
(c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success (See Willets v. Colalillo, [2007] O.J. No. 4623 (S.C.J. - Mast.) at paras. 46, 47, and 55; Uribe, at para. 5; Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 50; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J. - Mast.) ("Bruno") at para. 35);
(v) Merits have a role in any application under Rule 56.01, but in a continuum with Rule 56.01(1)(a) at the low end (Padnos v. Luminart Inc., 1996 CanLII 11781 (ON SC), [1996] O.J. No. 4549 (Gen. Div.) ("Padnos"), at para. 4; Bruno, at para. 36);
(vi) The court on a security for costs motion is not required to embark on an analysis such as in a motion for summary judgment. 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 examination for discovery where it is available (Padnos, at para. 7; Bruno, at para. 37);
(vii) "If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of the merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious" (Wall v. Horn Abbott Ltd., 1999 CanLII 7240 (NS CA), [1999] N.S.J. No. 124 (C.A.) at para. 83);
(xiii) When an action is in its early stages, an installment (also known as "pay-as-you-go") order for security for costs is usually the most appropriate (Bruno, at para. 65; Hawaiian Airlines, Inc. v. Chartermasters Inc., et al. (1985), 1985 CanLII 2155 (ON SC), 50 O.R. (2d) 575 (S.C.O. - Mast.).”
30The defendant’s onus under Rule 56.01(d) is a light one to show that there is good reason to believe that the plaintiff has insufficient assets in Ontario to satisfy a costs award (Georgian Windpower Corp. v. Stelco Inc., [2012] O.J. No. 158 (ONSC) at para. 7).
31The plaintiff’s financial disclosure requires “robust particularity” including: 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 (General Products Inc. v. Actiwin Company Limited, 2015 ONSC 6923; Al Masri v. Baberakubona, 2010 ONSC 562 at para. 19).
32In General Products, Lemon J. identified the relevant factors when considering the sufficiency of evidence put forward by a plaintiff attempting to demonstrate that it has sufficient assets in Ontario to satisfy a costs award:
i.) the court must critically consider the quality as well as the sufficiency of the assets presently held and whether they are bona fide assets of the company;
ii.) there must be demonstrated exigible assets. It is insufficient for the plaintiff to show that it is profitable since the focus of the rule is not on income, but rather on the nature and sufficiency of assets;
iii.) the court must consider the liabilities of the company as well as its assets and in particular whether the assets to which the defendant is expected to look are secured to another creditor;
iv.) the rule does not countenance extensive and speculative inquiries as to the further value and availability of the asset. A mere possibility that the assets may be removed at some future time is not, without more, grounds for security;
v.) the failure of a plaintiff to respond to a defendant’s enquiry as to the availability of assets may raise a doubt as to the existence of assets.” (General Products at para. 19)
Do The Defendants Require Leave and If So, Should Leave Be Granted?
33The Defendants submit that since s. 10 of the Act provides that a security for costs motion may be brought “at any time after the service of the writ”, leave is not required. The Defendants also rely on case law which provides that a security for costs motion under Rule 56.01(1) can be brought at any time (855191 Ontario Ltd. v. Turner, 2011 ONSC 918 at paras. 14-16). Alternatively, the Defendants submit that they have met the relevant test and leave should be granted.
34I reject the Defendants’ argument that leave is not required. The Defendants submit that imposing this requirement would put Rule 48.04(1), a regulation, in conflict with s. 10 of the Act, a statutory provision. Rule 48.04(1) does not prohibit the bringing of a security for costs motion, rather, it imposes an additional requirement in specific circumstances, namely, after an action has been set down for trial. In my view, this does not conflict with or fetter s. 10 of the Act because a security for costs motion can still be brought at any time. Put simply, it does not stop the motion from being brought, it only adds an additional step for the moving party. Further, in Turner, the Court’s conclusion that a security for costs motion can be brought any time was the basis for granting leave. The Court did not conclude that leave was not required.
35In determining whether the Defendants should be granted leave, I adopt the liberal, flexible approach which takes all of the relevant circumstances of each particular case into consideration. Applying this approach, I am satisfied, having considered all of the relevant factors and circumstances, that it is reasonable, appropriate and just to grant leave.
36In granting leave I adopt the reasoning in Turner. However, I am also satisfied that the Defendants have sufficiently explained the timing of these motions including any delay and that the motions are necessary in the interests of justice. In my view, since the timing of the Defendants’ motions will be more fully considered under the test for security for costs, it does not require a comprehensive analysis here. For the purposes of granting leave, it is sufficient that I conclude that it was reasonable for the Defendants to bring this motion after receiving the Defence Report and that granting leave at this time will cause no prejudice to the Plaintiffs. In considering the timing of the Defendants’ motion and any prejudice, it is also relevant that the Defendants accommodated the Plaintiffs’ late request for production of the audio-visual evidence and brought the motion to facilitate its production. Further, the Plaintiffs have missed numerous deadlines for the delivery of the Plaintiffs’ Report and still cannot estimate when it may be delivered which may result in an adjournment of the trial date. In addition, as set out below, I am satisfied that there is merit to the Defendants’ security for costs motions.
Should the Plaintiffs Be Required to Pay Security For Costs?
37The Defendants submit that the Plaintiffs have insufficient assets to satisfy a costs award, they have a good defence on the merits and it is just that security for costs be ordered. The Defendants submit that if security for costs is not ordered, they will be left with unenforceable costs awards. The Defendants take no issue with the fact that the Plaintiffs reside in Manitoba and Alberta given that both are reciprocating jurisdictions.
38Mr. Kerlow submits that he has sufficient assets to satisfy a costs award but at the same time claims that it would be unjust to order security for costs as he would be unable to proceed to trial if ordered to do so. Mr. Fulop concedes that he does not have sufficient assets to satisfy a costs award (he does not assert that he is impecunious) and also submits that it would be unjust to order him to post security for costs because he would be unable to continue to trial. The Plaintiffs both argue that the Defendants do not have a good defence on the merits.
39Under both s. 10 of the Act and Rule 56.01(1), I must first consider whether the Plaintiffs have insufficient assets to satisfy a costs award. While Mr. Fulop concedes this point, I turn to a consideration of whether it appears there is good reason to believe that Mr. Kerlow has insufficient assets to satisfy a costs award.
40In support of their position that Mr. Kerlow will be unable to satisfy a costs order, the Defendants refer to their Bill Of Costs estimating that the costs of trial preparation and a 20-day trial are $267,300 on a partial indemnity scale and $400,950 on a substantial indemnity scale. In support of their position that these amounts are fair and reasonable, the Defendants cite the costs awarded against unsuccessful plaintiffs in recent police negligence decisions. These include $480,000 on a partial indemnity scale for a 13-day trial in Payne v. Mak, 2017 ONSC 3660 and $518,000 on a substantial indemnity scale for a 2-week trial in Kreiser v. Gerber, 2019 ONSC 3241.
41On its face, it would seem that with his annual salary, condominium, line of credit and vehicle, Mr. Kerlow has sufficient assets to satisfy a costs order. However, his contradictory position that he has sufficient assets to pay a costs award but would be unable to proceed to trial if ordered to pay security for costs suggests otherwise. If, as Mr. Kerlow submits, he has sufficient assets to pay a costs award, it would not seem to follow that ordering him to pay security for costs at this stage of the proceedings would deplete his assets to the extent that he would be unable to proceed to trial. The Defendants assert that Mr. Kerlow’s position demonstrates that since he must pay legal fees through trial, his assets will be depleted by the end of trial and he will have insufficient assets to pay a costs award if he is unsuccessful. Unfortunately, Mr. Kerlow has not provided enough information, including an estimate of his legal fees, to reconcile these two positions nor was his counsel able to provide much explanation.
42I further conclude that Mr. Kerlow has not provided satisfactory evidence of the sufficiency and availability his assets with the requisite robust particularity. Specifically, Mr. Kerlow has not filed any bank statements or any evidence of his liabilities and significant expenses (including his estimated legal fees through trial).
43Having considered all of the relevant factors and circumstances, I am satisfied that the Defendants have met the light threshold and onus of establishing that there is good reason to believe that Mr. Kerlow has insufficient assets in Ontario to satisfy a costs award. Mr. Kerlow has not rebutted this onus.
44I now turn to a consideration of the merits. Typically, the merits will always be a factor on a security for costs motion and the issue is where on the continuum they fall in each particular case including whether or not the merits cannot be determined due to issues of complexity and credibility and therefore are a neutral factor which should not affect the outcome of the motion (Sadat at paras. 40-43). Given that s. 10 of the Act requires the Defendants to demonstrate that they have a good defence on the merits, the merits are a prominent factor on these motions.
45Notwithstanding that s. 10 of the Act elevates the importance of the merits, it is not this Court’s role nor is it necessary to undertake a deeper analysis such as one akin to a summary judgment motion. In determining if the Defendants have a defence that is likely to succeed such that it is a good defence on the merits, I have relied primarily on the facts of the criminal proceedings, the case law on police negligence and the admissions of the Plaintiffs.
46The conduct of a police officer during an investigation should be measured against the standard of how a reasonable officer in like circumstances would have acted, a flexible standard based upon an analysis of the circumstances apparent to the officer at the time of the arrest and not based upon what the officer or anyone else learned later (Hill v. Hamilton Wentworth Regional Police Services Board, 2007 SCC 41 at para. 3; Wong v. Toronto Police Services Board, 2009 CanLII 66385 (ON SC), [2009] O.J. No. 5067 at para. 61). The Supreme Court has held that in considering the tort of negligent investigation, the standard of care related to an investigating officer is informed by the legal requirement of reasonable and probable grounds to believe that the suspect is guilty (Hill at para. 68).
47I.F. Leach J. provided a comprehensive summary of the law related to negligent investigation in J.H. v. Windsor Police Services Board et al., 2017 ONSC 6507. In setting out the relevant principles, Leach J. stated the following:
“ The particular conduct required by the applicable standard of care is informed by the stage of the investigation and applicable legal considerations. In relation to arrests and laying of charges by the police, the standard of care applicable to negligent investigation claims is informed by the requirement of "reasonable and probable grounds", and does not rise higher than that criminal law standard. Where reasonable and probable grounds exist for an arrest and/or laying of charges, the applicable duty of care is met and there will be no police negligence in that regard. In cases based on alleged police negligence in making an arrest or laying charges, the plaintiff accordingly must establish an absence of reasonable and probable grounds as an essential element of the tort, and the existence of reasonable and probable grounds will be fatal to the claim. In that regard, principles relating to "reasonable and probable grounds" include the following:
The determination as to whether there were reasonable and probable grounds is based upon an analysis of the circumstances apparent to the officer at the time of the officer's decision to make an arrest or lay charges, and not upon what the officer or anyone else may have learned later. In particular, if reasonable and probable grounds existed at the relevant time, they still exist in the sense required even where the information relied upon changes at a later date, or otherwise turns out to be deficient or inaccurate.
A preliminary inquiry is not a trial, but another pre-trial screening procedure aimed at filtering out weak cases that do not merit trial; its paramount purpose is to protect an accused from a needless and improper exposure to public trial where the enforcement agency is not in possession of evidence to warrant continuation of the proceeding. The presiding justice is required to commit an accused person for trial in any case in which there is admissible evidence which could, if it were believed, result in a conviction. A committal for trial after a preliminary inquiry therefore also provides strong evidence supporting the existence of reasonable and probable grounds, and failure to place weight on a committal for trial is an error in law.” [citations omitted](J.H. at para. 6)
48In order to prove negligence, the Plaintiffs must establish the absence of reasonable and probable grounds, which underlies all of their claims. Therefore, determining if the Defendants’ have a good defence on the merits turns largely on whether they are likely to succeed in refuting the Plaintiffs’ allegations that the Defendants did not have reasonable and probable grounds to charge the Plaintiffs. Consistent with J.H., the fact that the Plaintiffs were committed to trial on all charges after a preliminary inquiry is strong evidence of reasonable and probable grounds. Placing significant weight on this factor, I conclude that the Defendants will likely be able to establish that there were reasonable and probable grounds such that their defence is likely to succeed and is a good defence on its merits. This conclusion is supported by the Plaintiffs’ admissions that all of the complainants told Detective Corrigan that they did not consent to the sexual activity or videotaping which were the subject and basis of the charges. I place some, but less emphasis on Ms. Bruce’s opinion in the Defence Report that Detective Corrigan had reasonable and probable grounds to charge the Plaintiffs and that there was overwhelming evidence to support the charges.
49While both parties, particularly the Plaintiffs, urge me to delve further into the merits, the evidence and the criminal case law, in my view it is unnecessary and inappropriate to do so. My conclusions above are sufficient to establish that the Defendants have satisfied the test that they have a good defence on the merits and any further consideration of the merits is more properly left to the trial Judge.
50I now turn to whether it is just that security for costs be ordered. As set out in Yaiguage, one of the primary factors with respect to the overriding interests of justice is whether the motions are being used by the Defendants as a litigation tactic to prevent the actions from proceeding to trial to be heard on the merits. In this regard, the timing of the Defendants’ motions is important.
51In determining the justness of ordering security for costs, the decision of H.M. Pierce J. in Rosin v. Dubic, 2016 ONSC 6441, also a security for costs motion under s. 10 of the Act, is helpful and relevant. In that case, the plaintiff was living on disability benefits and his action against, among others, the Thunder Bay Police Service Board and the Attorney General of Canada was being funded by family and friends. The defendants each sought security for costs of $30,000. Although the Court found that the plaintiff was impecunious, he was ordered to pay security for costs of $15,000 in two instalments of $7,500:
“37 If the plaintiff is unsuccessful in the litigation, each defendant runs the risk of obtaining an empty judgment for costs. The defendants each request security for costs in the sum of $30,000. Neither defendant has filed a bill of costs supporting that request.
38 Citizens are entitled to access to the courts for the purpose of determining disputes. Society's interest is in having disputes determined on their merits. The purpose of security for costs is to protect a defendant from the prospect of an unenforceable judgment for costs; that is a risk in this case if the plaintiff is unsuccessful. However, the amount of security to be posted should not be so onerous as to effectively block access to the courts.
39 While I am persuaded that security for costs is warranted in this case, I am concerned that the amounts claimed by the defendants, both individually and collectively, may have the effect of blocking the plaintiff's access to the court. I am mindful that the plaintiff's family and friends are paying for the litigation on the plaintiff's behalf. In my view, security for costs in a lesser amount is appropriate in this case.” (Rosin at paras. 37-39)
52I also adopt the reasoning of Master Dash in Ascent Inc. v. Fox 40 International Inc., [2007] O.J. No. 1800. In that case, Master Dash held that a balancing is required between ensuring meritorious claims are allowed to go forward and the consequences of being unable to collect costs where the plaintiff pursues an unsuccessful claim, adding: “if a plaintiff has money then it is fair that he be prepared to risk some in the event he loses.” (Ascent at para. 3)
53The Defendants brought these motions after substantially all steps in these proceedings were completed. The Defendants explain that it was necessary for them to await delivery of the Defence Report given the general rule in 495793 Ontario Ltd. v. Barclay, 2016 ONCA 656 (cited in J.H.) that the standard of care of a professional such as a police officer requires expert evidence and that it is generally not possible to determine police negligence without the benefit of expert evidence (J.H. at para. 6). Therefore, the Defendants submit that they required the Defence Report in order to establish that they have a good defence on the merits as required under s. 10 of the Act.
54The Plaintiffs acknowledge that the Defence Report is necessary to defend the Plaintiffs’ claims of negligent investigation, however, submit that the Defence Report is unnecessary for the other causes of action. On this point, I agree with the Defendants that since the Defence Report provides an expert opinion on reasonable and probable grounds, which underlies all of the Plaintiffs’ claims, it is necessary to defend all of the Plaintiffs’ claims.
55While the Defendants’ explanation regarding the Defence Report is not dispositive of the timing issue on its own, I am satisfied that when considered together with other relevant timing issues, it is reasonable in the circumstances. Most prominently, the Plaintiffs have missed 2 deadlines for the delivery of the Plaintiffs’ Report and cannot provide an estimated date for its delivery leading to the strong possibility that the trial date will be adjourned. The Plaintiffs’ request for production of the audio-visual materials was also made late in the proceedings and resulted in another motion. While the Defendants accommodated this request and brought the motion, it has contributed to the delay in these proceedings. Finally, I reject the Defendants’ explanation that it was reasonable to wait to bring their motion given that trial preparation and trial are the costliest steps in these proceedings. In my view, these costs are generally known and can be estimated earlier in the proceedings and should not delay parties in moving for security for costs.
56Although the Plaintiffs were not cross-examined on their assertions that they would be unable to proceed to trial if ordered to pay security for costs, these claims require closer examination. Consistent with Rosin and Ascent, in striking the appropriate balance between the Plaintiffs’ rights to have their actions heard on the merits with the Defendants’ rights to be protected from unenforceable costs awards, it is necessary to determine if there are fair and reasonable amounts which the Plaintiffs’ could and should pay which are just in the circumstances and not so onerous as to block their access to the courts.
57Mr. Kerlow’s counsel advised the Court that his position that he has sufficient assets to pay a costs award but would be unable to proceed to trial if ordered to pay security for costs is based on the Defendants’ initial request for $150,000 in costs, not the $50,000-$55,000 they now seek. Counsel advised that she had no new evidence or instructions and confirmed that Mr. Kerlow maintains this position even if ordered to pay security for costs in the lower amount sought by the Defendants. Notwithstanding my previous finding that Mr. Kerlow has insufficient assets to pay a costs award, given his available assets and all of the circumstances, I am also not satisfied that if he is ordered to pay security for costs in the range of or below the amount now sought by the Defendants, that he would be unable to proceed to trial.
58With respect to Mr. Fulop, while he concedes that he does not have sufficient assets to pay a costs award, similarly, I am not convinced that an order for security for costs in an amount in the range of or lower than that now sought by the Defendants would prevent him from proceeding to trial. In drawing this conclusion, I rely on his available assets, the fact that he did not provide sufficient disclosure of his assets including the assets of his partner, was not forthcoming in his affidavit until cross-examined and the fact that he has a contingency fee arrangement and will only have to pay disbursements through trial. Mr. Fulop’s submission that the reason he has insufficient assets is a result of the criminal proceedings is contradicted by his own admissions.
59My conclusions with respect to both Plaintiffs are premised on the fact that any amounts ordered at or below the range now sought by the Defendants would necessarily take into account the assets which they have available to pay security for costs to arrive at a fair, reasonable and just amount to strike the appropriate balancing of the parties’ rights. Given that the Plaintiffs have some available assets, it is fair and just in the circumstances to require them to risk some assets in the event that they are unsuccessful. This is even more pronounced in the present case where I have concluded that the Defendants have a good defence on the merits (and the corresponding conclusion from Rackley that the grounds of the actions are trivial and frivolous). Further, both Plaintiffs are in a better position that the plaintiff in Rosin who was ordered to post security even though he was impecunious, receiving disability payments, living with his parents and his action was being funded by family.
60Having considered all of the relevant factors and balanced the interests of the Plaintiffs to have their claims decided on the merits and the Defendants to have some protection against an unenforceable costs award, applying a holistic approach, I conclude that it is just in the circumstances that security for costs be ordered. In arriving at this conclusion, I am satisfied that these motions are not a litigation tactic and that the Plaintiffs would not be prevented from proceeding to trial if security for costs is awarded. This conclusion is supported by my previous finding that the Defendants have a good defence on the merits, the amounts sought by the Plaintiffs in their actions, and the fact that this is private litigation with no public interest considerations.
61With respect to the quantum of security for costs, the court has broad discretion to determine a fair and reasonable amount which is substantially similar to the exercise of its discretion in fixing costs pursuant to Rule 57.01 (Canadian Metal Buildings at para. 27). The amount should reflect a number that falls within the reasonable contemplation of the parties reflecting what the successful defendant would likely recover and the factors set out in Rule 57.01 (720441 Ontario Inc. v. The Boiler et al, 2015 ONSC 4841 at para. 56; Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada, 2003 CarswellOnt 1906 at paras. 17-20). In most cases, security for costs will be ordered on a partial indemnity scale (The Boiler at para. 58; Marketsure at paras. 17-18). It is appropriate in certain circumstances to order that security for costs be paid in tranches by stage(s) in the litigation on a “pay as you go” basis (Marketsure at paras. 13-15).
62Having considered the relevant factors and the Defendants’ Bill of Costs, I am satisfied that it is fair, reasonable, within the reasonable contemplation of the parties and just in all of the circumstances for Mr. Kerlow to post security for costs in the amount of $40,000 and Mr. Fulop in the amount of $30,000, payable in 2 equal instalments within 30 days and 60 days of this Order. If the current trial date is adjourned, then the second instalment shall be paid 90 days before the new trial date.
63In my view, these amounts also reflect the nature and complexity of this action, are consistent with the principles set out in Rule 1.04(1) and proportionality and reflect a proper balancing of the parties’ rights and the Plaintiffs’ available assets. Perhaps most importantly, I am satisfied that these amounts are not so onerous as to prevent the Plaintiffs from proceeding to trial.
IV. Disposition and Costs
64Order to go as follows:
i.) Mr. Kerlow shall post security for costs with the Accountant of the Superior Court of Justice to the credit of this action in favour of the Defendants in the amount of $40,000 in two instalments: $20,000 within 30 days of this Order and $20,000 within 60 days of this Order;
ii.) Mr. Fulop shall post security for costs with the Accountant of the Superior Court of Justice to the credit of this action in favour of the Defendants in the amount of $30,000 in two instalments: $15,000 within 30 days of this Order and $15,000 within 60 days of this Order;
iii.) if the current trial date of November 20, 2019 is adjourned, then the second instalments for both Plaintiffs set out in paragraphs (i) and (ii) above shall be paid 90 days before the new trial date;
iv.) the Plaintiffs shall not take any further steps in this action until the first instalment set out in paragraphs (i) and (ii) above is posted and proof of same is provided to counsel for the Defendants.
65If the parties cannot agree on the costs of these motions, they may file written costs submissions not to exceed 3 pages (excluding costs outlines) with me through the Masters’ Administration Office on or before October 31, 2019 on a timetable to be agreed upon by counsel.
Released: September 6, 2019
Master M.P. McGraw