Court File and Parties
COURT FILE NO.: CV-18-595443-0000 DATE: 20200218 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
MARK WATERS Appellant/Plaintiff – and – RICHARD FURLONG and FURLONG COLLINS Respondents/Defendants
Counsel: Jeffrey Radnoff, for the Appellant John D. Campbell, for the Respondents
HEARD: January 27, 2020
Davies J.
REASONS ON APPEAL
A. Overview
[1] Mark Waters was the Chief Financial Officer of Gemstar Canada Inc. until his termination on January 7, 2016. In lieu of severance payment, Gemstar offered to forgive a $125,000 loan it had given Mr. Waters in 2002. Gemstar asked Mr. Waters to sign a Release and Indemnity agreement as part of the settlement offered.
[2] Mr. Waters was concerned about the tax consequences of Gemstar’s offer. He sought legal advice from the respondent, Richard Furlong. He wanted to ensure that Gemstar would be responsible for the taxes he would owe on the $125,000. Mr. Waters says that Mr. Furlong told him that the agreement was clear that Gemstar was responsible for the taxes. Mr. Furlong denies this. Mr. Furlong says he told Mr. Waters that the documents did not say that Gemstar would pay the tax on the loan forgiveness and he offered to contact Gemstar to clarify the issue.
[3] Mr. Waters signed the agreement and was later assessed with a $70,000 tax liability. Mr. Waters commenced an action against Mr. Furlong and his firm claiming that Mr. Furlong provided negligent advice about the tax consequences of entering the settlement agreement with Gemstar.
[4] Mr. Waters moved to Nova Scotia after he commenced the action. The respondents brought a motion for security for costs under R. 56.01(1)(a) because Mr. Waters was no longer resident in Ontario. On September 24, 2019, Master Josefo ordered Mr. Waters to pay $25,000 into court as security for costs. The Master was not satisfied that Mr. Waters has easily realizable assets in a Nova Scotia to satisfy a costs award after trial.
[5] Mr. Waters now appeals that decision. The issue is whether the Master erred in his exercise of discretion to grant the order for security for costs. Mr. Waters argues that the Master erred in his assessment of his assets and incorrectly assessed the merits of action on the motion.
[6] For the reasons that follow, I find that the Master made no error in ordering Mr. Waters to pay security for costs and the appeal is dismissed.
B. Legal Framework
[7] The Master correctly set the legal framework applicable on the application for security for costs in this case:
Rule 56.01 is, in essence, one of balancing discretion. The Court, after all, may make such order for security for costs as is just. It is initially triggered by the requirement that the party from whom security is sought is “ordinarily resident outside of Ontario”. That means that, after the moving defendant herein establishes residency of the plaintiff out of Ontario, [the] plaintiff must lead evidence which shows that the imposition of such security would be unjust. In other words, the case-law holds that once residency out of Ontario of the respondent is established by the moving party, the onus shifts to the respondent. To that end, the respondent must demonstrate why security would not be just.
[8] There was no dispute that the appellant moved to Nova Scotia, so the threshold requirement in R. 56.01(1)(a) was met. The onus was, therefore, on Mr. Waters to establish that the order for security for costs would be unjust. [1] Mr. Waters was required to lead convincing evidence and articulate a compelling reason why security for costs should not be ordered. [2]
[9] Whether it would be unjust to order security for costs is a matter of broad discretion which requires the court to consider several factors. [3] Absent an error of law or principle, a decision granting or refusing security for costs is entitled to deference on appeal. [4]
[10] The Master considered a number of factors in deciding whether it would be unjust to require Mr. Waters to pay security for costs, including (a) the delay in bringing the security for costs motion; (b) the merits of the case; (c) whether Mr. Waters had established he had sufficient assets in a reciprocating jurisdiction to satisfy a costs order against him at trial; and (d) whether an order for security for costs would effectively prevent Mr. Waters from continuing his action.
[11] Mr. Waters only takes issue with the conclusions reached by the Master in relation to the sufficiency of Mr. Waters’ assets and the merits of the case.
a. Did the Master err in his assessment of Mr. Waters’ assets?
[12] The Master accurately set out the law in relation to assessing assets in a reciprocating jurisdiction. He noted that if a non-resident appellant has sufficient assets to answer a judgment for costs in a reciprocating jurisdiction, “the court will not generally require security for costs”. [5] He also noted that the appellant must provide the court with robust, convincing evidence in relation to his assets. Mr. Waters does not take issue with this statement of the law. Rather, he takes issue with the conclusion reached by the Master that the evidence tendered by Mr. Waters was not adequate to meet his onus.
[13] Mr. Waters swore an affidavit in April 2019 in response to the motion for security for costs. Mr. Waters said that he owned a house in Nova Scotia valued at $380,000 with a mortgage of $288,000. He also said that he owned a cottage in Nova Scotia valued at $275,000 with a mortgage of $169,000. And he said that his annual income is $130,000 plus bonuses.
[14] Rather than cross-examine Mr. Waters on his affidavit, counsel for the respondents submitted questions in writing for Mr. Waters through his counsel. In response to those questions, counsel for Mr. Waters advised that the cottage was in PEI, not Nova Scotia, as Mr. Waters said in his affidavit. Also, Mr. Waters co-owned the cottage with his wife. Counsel also advised that the cottage was purchased for $128,000. Counsel said that the cottage had been appraised for $250,000, not $275,000 as Mr. Waters stated in his affidavit, but the appraisal was not available.
[15] In relation to the house, counsel advised that it was purchased for $370,000 and had been appraised at $375,000 but again the appraisal was not available. Counsel also provided mortgage documents that show the mortgage owing on the house was over $290,000.
[16] The Master referred to the assets described in Mr. Waters’ affidavit and the additional information provided by counsel. The Master found several deficiencies in Mr. Waters’ evidence. First, he noted that Mr. Waters did not provide information about his expenses or other debts, such as credit card debt or a line of credit, that would reduce the value of his assets. Second, he noted that Mr. Waters had not disclosed a third-party action that had been brought against him by Gemstar, which the Master described as a “contingent future liability that may or may not materialize”. Finally, the Master made note of the errors in Mr. Waters’ affidavit as compared to the information provided by counsel.
[17] Because of the omissions and errors in the evidence, the Master found that Mr. Waters had not adduced “the type of robust evidence which the appellant is obliged to present to displace the onus that security for costs should be awarded”.
[18] Mr. Waters now submits that the Master was wrong to conclude he did not have sufficient assets. Mr. Waters argues that he is not required to provide evidence of expenses or other debt beyond the mortgage related to his properties to satisfy the court that he had assets in a reciprocating jurisdiction.
[19] The Master did not find, as a matter of law, that Mr. Waters was required to provide a full accounting of all his assets, income, expenses and debt. That sort of analysis is required when an appellant claims he is impecunious. [6] Here, the Master simply noted that he was unable to conclude that Mr. Waters had conveniently realizable assets to satisfy a costs award, in part, because of the lack of information about other liabilities Mr. Waters might have. It was open to the Master to consider this omission in his overall assessment of Mr. Waters’ evidence.
[20] If Mr. Waters had other significant personal debt, that would undermine his claim that he had assets to satisfy a costs order. Similarly, if Mr. Waters had testified that he had no debt of any significance other than the mortgages on his properties, that would have strengthened his claim that a security for costs award is unjust. The existence of other significant personal debt is relevant on a motion for security for costs. The Master was not wrong to consider it in his overall assessment of whether Mr. Waters had satisfied the onus of proving he has assets to pay a costs order if he is unsuccessful at trial. The Master was also not wrong to conclude that the absence of information in this regard weakens Mr. Waters’ argument that it would be unjust to order him to pay security for costs.
[21] Mr. Waters also argues that he provided independent and objective documentation about the value of his home and that this corroborating evidence should have satisfied the Master that he had assets to pay a costs award. The question on appeal is not whether the Master should have been satisfied by the evidence adduced.
[22] The question is whether the Master misapprehended the evidence or considered irrelevant factors when assessing the evidence. In my view he did not. It was open to the Master to assess the evidence presented by Mr. Waters. Considering the credibility problems identified and the gaps in the evidence adduced by Mr. Waters about his assets, it was open to the Master to conclude that Mr. Waters had not met his onus. His findings are not tainted by palpable and overriding error and are entitled to deference on appeal.
b. Did the Master err in his assessment of the merits?
[23] The Master considered the merits of the case when deciding whether it would be unjust to make an order for security for costs. This is consistent with several cases which hold that the merits have a role to play in any motion for security for costs, albeit a less prominent role when a motion is brought because the plaintiff is no longer resident in Ontario. [7]
[24] The Master was cautious in his assessment of the merits and recognized that things can change at trial. Nonetheless, he found that Mr. Waters will likely have “quite an uphill battle” at trial, although it was not a hopeless case. The Master ultimately found that the merits of the case favoured the respondents’ request for security for costs.
[25] Mr. Waters is not arguing that the merits of the case are irrelevant. Rather, he takes issue with how the Master assessed the merits and the weight he placed on the merits. He argues that the Master conducted an extensive investigation of the merits and mischaracterized the case as a wrongful dismissal case. I do not agree.
[26] The Master briefly reviewed the apparent strengths and weaknesses of Mr. Waters’ claim. On the one hand, he noted that Mr. Furlong did not document the legal advice he gave to Mr. Waters either with notes or a reporting letter, which he had a professional obligation to do. As a result, Mr. Furlong has no contemporaneous record to confirm the advice he gave to Mr. Waters about Gemstar’s offer. On the other hand, the Master noted that Mr. Waters asked Gemstar to clarify the agreement in relation to the tax liability after speaking to Mr. Furlong. According to the Master, this suggests that Mr. Waters was still concerned, after speaking to counsel, that the agreement was not sufficiently clear about who would incur the tax liabilities of the forgiven loan, which tends to contradict Mr. Waters’ claim that Mr. Furlong told him he did not need to worry.
[27] The Master understood the issues that are likely to arise at trial and made a preliminary assessment of the merits, which he was entitled to do. He then balanced his assessment of the merits with the other issues on the motion.
C. Conclusion and Costs
[28] The Master made no error in requiring Mr. Waters to pay security for costs and the appeal is dismissed.
[29] Counsel each provided me with a costs outline. The costs sought by the appellant, if successful, were slightly higher than the costs sought by the respondent. [8] Given the issues on the appeal, the materials filed, and the costs incurred by the appellant in advancing the appeal, I am satisfied that costs in the amount of $3,732.19 as requested by the respondent are reasonable. The appellant is, therefore, ordered to pay the respondent $3,732.19 in costs inclusive of HST and disbursements forthwith.
Davies J.
Released: February 18, 2020
Footnotes
[1] Coastline Corp. v. Canaccord Capital Corp. , [2009] O.J. No. 1790 (S.C.) at para. 7 (ii) [2] Andersson v. Kamran , 2018 ONSC 5191 at para. 13 [3] Coastline Corp. at para. 7 (iii) [4] Health Genetic Center Corp. v. New Scientist Magazine , 2019 ONCA 968 at para. 2 [5] Chachula v. Baillie , [2004] O.J. No. 1 at para. 17 [6] Coastline Corp. at para. 7 (xi) [7] Padnos v. Luminart Inc. , [1996] O.J. No. 4549 (Gen. Div.) at para. 4 ; Coastline Corp. at para. 7 (vi) [8] The appellant sought $4,152.65 if he was successful on the appeal, which does not appear to include the applicable HST. The respondent sought $3,732.19.