Court File and Parties

COURT FILE NO.: CV-18-590295 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kyoung Hwa Lee and Young Sea Guak, Plaintiffs AND: Myoung Ja Chang a.k.a. Myoungja Chang a.k.a. Myoung-Ja Chang a.k.a. Myoung Ja Yoon a.k.a. Myoungja Yoon a.k.a. Myoung-Ja Yoon and Kwang Eui Chang a.k.a. Kwangeui Chang a.k.a. Kwang-Eui Chang and Ji Young Chang a.k.a. Jenny Chang a.k.a. Jenny Ji Young Chang a.k.a. Ji-Young Chang and Bo Young Chang a.k.a. Bonnie Chang a.k.a. Bonnie Bo Young Chang a.k.a. Bo-Young Chang, Defendants

BEFORE: Master Jolley

COUNSEL: Eric Hoffstein and Rachel Fielding, Counsel for the Moving Party Defendants Sang Joon Bae, Counsel for the Responding Party Plaintiffs

HEARD: 16 January 2020

REASONS FOR DECISION

[1] The plaintiffs commenced this action in January 2018 seeking an interest in a home ("Cummer House") at one point owned by the defendants Myoung Ja Chang ("Myoung") and her husband Kwangeui Chang ("Kwangeui"). The defendants Ji Young Chang ("JiYoung") and Bo Young Chang ("BoYoung") are the daughters of Myoung and Kwangeui. Cummer House was sold before the action was commenced and the plaintiffs seek to trace the proceeds of sale to a business now owned by BoYoung in Calgary, Alberta.

[2] As the plaintiffs are resident in South Korea, the defendants bring this motion for security for costs.

Background Facts

[3] The plaintiff Kyoung Hwa Lee ("Kyoung") and her daughter Yoo Jin Guak ("Yoojin") met Kwangeui at his art painting class in Korea. In due course, the families became friends. The plaintiffs allege that, after some time, Myoung asked the plaintiffs to loan her the equivalent of Cdn $10,000. The plaintiffs accepted Kwangeui's suggestion that he give Yoojin and Kyoung art lessons without charge in lieu of paying interest on the loan. The defendants do not dispute that they received $10,000 from the plaintiffs but plead that this money was simply to pay for the art classes and was not a loan.

[4] In March 2000, Kwangeui and Myoung told the plaintiffs that they were immigrating to Canada and suggested taking Yoojin with them so that she could learn English and continue her art classes. The plaintiffs agreed and Yoojin lived with the defendants from May 2000 to July 2011. According to the plaintiffs, it was agreed that they would pay the defendants $500 per month for Yoojin's room and board starting in June 2000.

[5] The plaintiffs allege that in early 2001 the defendants advised them that they wanted to buy Cummer House but needed cash for a down payment. The plaintiffs agreed to lend the defendants $100,000 for the purchase. Once Cummer House was sold, the plaintiffs would recoup their $100,000 and also share proportionately in the increase in equity. In lieu of interest payments on the $100,000 loan, Yoojin would receive free room and board until the house was sold. On 13 February 2001 the plaintiffs wired $100,000 to the defendants and, a few months later in April 2001, Myoung and Kwangeui purchased Cummer House for $550,000. They sold it in October 2016 for $2,340,000, 4.25 times the purchase price. According to the plaintiffs' version of the agreement, Myoung and Kwangeui owe them $425,000 in repayment of the $100,000 loan as their share of the equity.

[6] The defendants dispute this version of events and note that they had already borrowed money to buy Cummer House and did not need a loan from the plaintiffs. They plead that it was agreed that the plaintiffs would pay $1,200 per month for Yoojin's room and board and calculate those costs over the span of those 11 years at $162,000. Further, she owed $35,500 for full time art lessons, $12,000 for part time art lessons and $7,200 for transportation costs for a total of $216,700. They say that all payments they received from the plaintiffs were simply to pay for those expenses.

[7] After this original $100,000 transfer, there were numerous other transfers from the plaintiffs to the defendants, the purpose of which is in dispute. Young Sea Guak ("Youngsea") swore an affidavit deposing that, in addition to a $32,000 credit card loan in October 2010, discussed below, he and his wife paid the defendants a total of $378,037.38. $194,037 of that amount was for Yoojin's tuition, allowances and other living expenses, other than room and board, which was accounted for by the interest free loan. The balance of roughly $183,000 were loans to the defendants. There are no documents referencing any of the loans/payments. However, Youngsea did attach to his affidavit his bank statements and wire receipts for those funds.

[8] Of the funds in issue, the defendants admit only that they owe the plaintiffs $6,741, which is the outstanding balance on the $32,000 loan they received from the plaintiffs that Kyoung financed at 19.99% through her credit card.

[9] The plaintiffs have brought a number of motions since the action was commenced. They first brought a motion for a Mareva injunction. There was then a two day motion to continue the Mareva, which was continued against Myoung and Kwangeui on an uncontested basis and dismissed against JiYoung and BoYoung. The plaintiffs then brought a motion for leave to appeal, which was denied. Thereafter they brought a motion to strike the defendants' statement of defence, which was dismissed in favour of a timetable. The plaintiffs brought a further motion to compel production of the defendants' affidavit of documents before those productions were due. Lastly, in January, before the examinations for discovery had even been conducted, the plaintiffs reinstated their motion to strike the statement of defence and also sought an order that the plaintiffs re-attend discoveries and answer undertakings. That motion is returnable February 19.

[10] The defendants seek an order under Rule 56.01(1)(a) requiring the plaintiffs to post security for costs of this action. The defendants' motion is driven, in part, by the number of motions to date and anticipated and by the fact that the plaintiffs reside in Korea.

Legal Framework

[11] 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 ("Yaiguaje"), 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

[12] 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 CanLII 21758 (ON SC), [2009] O.J. No. 1790 (Ont. S.C.J.) ("Coastline").

[13] The plaintiffs concede that they are resident outside Ontario and that the defendants have met their initial onus.

Onus Shifts to the Responding Party Plaintiffs

[14] 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 for costs 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" to make 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).

[15] 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 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 50.

[16] The plaintiffs argue that they are impecunious and that their claim is not plainly devoid of merit. They put forward, in the alternative, that if the court finds they have not established impecuniosity, their claim has a good chance of success.

[17] The Coastline case highlights the following passages concerning impecuniosity:

(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 CanLII 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 CanLII 6052 (ON SC), 75 O.R. (3d) 63 (S.C.J.) at para. 32);

[18] Plaintiffs who advance a defence of impecuniosity are required to provide evidence of their means, including disclosure of the amount and source of their current income, their ability to borrow funds, 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.

The plaintiffs are impecunious

[19] Both plaintiffs swore affidavits in support of their assertion of impecuniosity addressing their financial situation. In her affidavit sworn 23 April 2019 Kyoung discloses her income and expenses, her assets and liabilities. She deposes that she receives a monthly pension from her elementary school teaching career, equivalent to $4,390 Cdn. She has attached her government pension receipt and her bank statements demonstrating the deposit.

[20] She has also set out her monthly expenses, which total $5,415.12. She has a line of credit, from which she has already drawn approximately $16,000 leaving her with $7,700 of available credit. She has attached to her affidavit copies of her line of credit information.

[21] Kyoung and Youngsea own the apartment in South Korea in which they live. It is worth $518,777 and is subject to a mortgage of $327,591. Kyoung attached a valuation of the home along with their current mortgage statements.

[22] In addition to their home, Kyoung has two other assets. The first is approximately $29,283 from a lump sum payment she received when she retired. The second asset is a 1/6th interest in land in Korea valued at $863,311 that is subject to a mortgage. Kyoung's siblings own the other shares of the property. Her net interest is $85,031. She argues that her interest is not exigible, as she would have to persuade one of her siblings to purchase her interest or bring an action for partition and sale.

[23] Kyoung deposed that she and her husband have borrowed over $200,000 from their son. She cannot borrow further from anyone else or from a bank. While she could perhaps obtain money on her credit card, she could not afford the 25% interest rate.

[24] She deposed that an order for security for costs would bring the plaintiffs' litigation to an end.

[25] Youngsea retired from the civil service in Korea in 2013 and receives a monthly pension of approximately $3,551. He attached his pension receipt to his affidavit. He gave a breakdown of his monthly expenses which total $4,666.15, well in excess of his pension income. He also attached his bank statements from January 2019 to 31 March 2019. Other than the modest first entry, his account ran a negative balance throughout, even after accounting for the receipt of money from his son.

[26] As for any other assets, at the time he swore his affidavit in April 2019, Youngsea had stocks worth roughly $103,000. He has since liquidated those holdings entirely to pay for the costs orders against him and his wife and to prepare to respond to this motion.

[27] Both plaintiffs allege that their financial situation was caused by the wrongful conduct of the defendants in refusing firstly to repay their loan and secondly selling Cummer House without paying them their equity. As noted in Cigar500.com Inc. v. Ashton Distributors Inc. 2009 CanLII 46451 (ON SC), [2009] O.J. No. 3680 at paragraph 40:

"... the plaintiff was entitled to take the position that any deficiency in its assets was due to the wrongful conduct of the defendants, which was the very subject matter of the litigation. The suspension of its business and resulting lack of cash flow, as well as its debts to its lawyers, were direct results of the various causes of action that it alleged against the defendants."

[28] I find the plaintiffs have made full financial disclosure of their assets and liabilities, as required, with supporting documentation. They have also disclosed their inability to borrow any further funds. While there is some equity in their family home, the evidence discloses that they would not have the means to make any further mortgage payments even if they succeeded in obtaining a mortgage to finance a security for costs order. I find the plaintiffs have demonstrate that they are impecunious.

The plaintiffs' claim is not devoid of merit

[29] In order to avoid a security for costs order, the plaintiffs must also demonstrate that their action is not devoid of merit.

[30] The court in Padnos v. Luminart Inc., 1996 CanLII 11781 (ON SC), [1996] O.J. No. 4549 (Gen. Div.) at paragraph 7 warned against embarking on a "summary judgment-like" analysis on a security for costs motion. 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.

[31] The plaintiffs allege that they loaned the defendants in excess of $200,000. Some of the loans were to be repaid within 30 days and some on the sale of Cummer House, along with a proportionate share of the Cummer House investment increase. In their claim they seek $425,454.54 in respect of the $100,000 investment and a further $108,000 or so for various other unpaid loans.

[32] The defendants have not set out the amount they received from the plaintiffs but they argue that all the money they received was solely to pay for Yoojin's expenses. The defendants argue that Yoojin's expenses totalled $216,700 (see paragraph 6, above). The plaintiffs' evidence is that they have given the defendants over $400,000. The defendants may tender an accounting and provide sworn evidence supporting their position at trial, but there was no supporting evidence led on this motion. Certainly an explanation will be required at trial as to why the plaintiffs would transfer $100,000 to the defendants in 2001, in effect, pre-paying what amounts to years of Yoojin's expenses, even accepting the defendants' expense figures. Based on the material before me, the plaintiffs' assertion that $208,000 of their payments to the defendants were over and above any expenses owed for Yoojin is not devoid of merit.

[33] In considering whether the plaintiffs' action is devoid of merit, I also note the evidence tendered concerning the sale of Cummer House. The defendants sold Cummer House and received the sale proceeds in October 2016. However, all throughout 2016 Myoung denied to the plaintiffs that it had been sold. Then in December 2016, when she finally did admit that it had been sold, she told the plaintiffs that she would not receive the sale proceeds until August 2017, later changed to October 2017. When she made these representations, she had already received the sale proceeds and she knew that her statements to the plaintiffs were untrue. Myoung will need to explain why she was not honest with the plaintiffs when asked if Cummer House was sold and why she was not honest about having received the sale proceeds. She will need to explain why she would not have disclosed the sale if she truly did not owe the plaintiffs any funds on closing or why, if what she did owe was as insubstantial as she says, she would not just have repaid that amount from the $2,340,000 sale proceeds.

[34] I make no findings of credibility on this motion but note that there are further issues that Myoung will need to address at trial. In addition to the misrepresentations about Cummer House, she will have to explain why the debt owing to the plaintiffs, even to the extent acknowledged by her, was not included in the consumer proposals she and Kwangeui made in September 2013. Her explanation that she was told to include only those creditors whom she didn't intend to pay may be believed at trial but at this stage, it does raise an issue concerning her credibility on the issue of the plaintiffs' advances.

[35] Further, the plaintiffs presented the portions of a January 2017 text conversation in which Kyoung put it to Myoung that Myoung owed the plaintiffs $250,000. Myoung did not disagree or challenge the figure in the text exchange but instead agreed that she was indebted to Kyoung. Perhaps her explanation that she didn't want to create waves will be accepted at trial, but her failure to challenge such a large quantum raises an issue for trial that is not devoid of merit.

[36] I also note that Dow, J. reviewed the plaintiffs' application materials on an ex parte basis and on 18 January 2018 granted them a Mareva injunction over the assets of the defendants. In order to succeed on a Mareva application, an applicant must demonstrate that it has a strong prima facie case and Dow, J. was so satisfied. While the order was partially set aside by Favreau, J. on 2 February 2018, it was not challenged by Myoung and Kwangeui and remains in place as against them.

[37] The plaintiffs do not have to satisfy me that they will succeed at trial. Certainly they have hurdles to overcome in that there is no documentary evidence to support their assertion about the purpose of the transfers. However, there are facts upon which a court could infer the purpose, such as the amount of the transfer in relation to even what the defendants say were Yoojin's expenses and the timing of the $100,000 transfer and the purchase of Cummer House, as noted above.

[38] Further, it has been admitted that Myoung transferred her share of the proceeds of sale of Cummer House to BoYoung and then declared bankruptcy, which is being challenged. Kwangeui transferred his share of those proceeds to BoYoung and returned to Korea. BoYoung then used those proceeds to purchase the convenience store. The issue remains for trial whether Myoung and Kwangeui were at liberty to transfer those funds to BoYoung or whether they were impressed with a trust to the extent of the plaintiffs' claim. On a review of the record, I find the plaintiffs' claim is not devoid of merit.

[39] Before making an order for security for costs, the court is to step back and consider the justness of the order sought holistically. Security for costs should only be made where the justice of the case demands it (Yaiguaje, supra). Considering all the circumstances of the case, I find that the justice of this case does not require the plaintiffs to post security for costs. The motion is dismissed.

[40] The parties shall make good faith efforts to resolve the issue of costs. If they are unable to do so, they may each serve and file costs submissions and a costs outline by 21 February 2020 by delivering a copy to my assistant trial coordinator, Ms. Meditskos at christine.meditskos@ontario.ca.

Master Jolley

Date: 30 January 2020