COURT FILE NO.: CV-15-531384

DATE: August 2, 2022

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Amelin Resources, Inc. v. Victory Energy Operations, L.L.C., Takado Industrial, A.G. and OOO ГРУППА "НЕФТЕХИММАШ" (c.o.b. as Neftehimmash);

BEFORE: ASSOCIATE JUSTICE C. WIEBE

COUNSEL: Meghan Bridges for Victory Energy Operations, L.L.C.;

Thomas Dumigan for Amelin Resources, Inc.;

HEARD: July 28, 2022.

REASONS FOR DECISION

[1] The defendant, Victory Energy Operations, L.L.C. (“Victory”), brings this motion seeking an order requiring that the plaintiff, Amelin Resources, Inc. (“Amelin”), post security for costs in the amount of $700,000.

[2] Victory relies on Rule 56.01(1)(d), namely the ground that an order for security for costs “as is just” can be made where the plaintiff is a corporation, and it appears that there is “good reason to believe” that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. Amelin resists the motion arguing that Victory has failed to meet its onus under Rule 56.01(1)(d) of showing such “good reason to believe,” and that the delay in bringing the motion is unexplained and prejudicial to the plaintiff.

BACKGROUND

[3] The following background facts are derived from the evidence on this motion and are not disputed. Amelin is an Ontario company in the business of inter alia promoting, selling and installing energy sector facilities. Victory is an American boiler manufacturer based in Oklahoma. It makes boilers for industrial use.

[4] On December 3, 2013 Amelin entered into an independent sales representative agreement with Victory whereby Amelin would be Victory’s sole sales representative for Victory product in the Former Soviet Union.

[5] On April 15, 2014 Victory purported to terminate that agreement. Amelin alleges that Victory acted for some time prior to this termination in breach of contract by making direct arrangements with buyers. After the termination, Victory make numerous sales which Amelin alleges should have been made through Amelin.

[6] On June 29, 2015 Amelin commenced this action seeking damages of $90 million for breach of the sales representative contract and conspiracy. Victory defended on March 2, 2016. The action was subsequently discontinued against Takado Industrial A.G. and OOO ГРУППА "НЕФТЕХИММАШ" (c.o.b. as Neftehimmash).

[7] In 2017 Victory commenced an arbitration in Oklahoma on an unpaid sale of one of its boilers by Amelin. The arbitrator confined the issues to that one contract. On July 30, 2018 the parties agreed to stay “enforcement” of this award in Canada for 25 weeks pending the determination of this Ontario action.

[8] On August 10, 2018 the arbitrator awarded Victory $1,288,534 US. The arbitrator’s award was confirmed in an order by Justice Frizzell of the District Court for the North District of Oklahoma on February 12, 2019. The total amount of the order is about $1.67 million US. The appeal period on that order expired on March 12, 2019.

[9] In the meantime, in this action, Amelin brought a motion for summary judgment in an amount over $25 million. That motion was heard by Justice Perell on November 19 and 20, 2018. On November 27, 2018 he dismissed the motion.

[10] On January 11, 2019 Justice Perell awarded Victory $255,000 in costs of the motion for summary judgment, $100,000 of which was to be paid “forthwith,” $77,500 in any event of the cause, and $77,500 in the cause. Amelin sought leave to appeal Justice Perell ruling. On March 21, 2019 leave was denied.

[11] There were no productions and discoveries. On June 26, 2020 Amelin set this action down for trial by passing the trial record. At the same time, it paid the $105,000 first instalment of Justice Perell’s costs award.

[12] Because of the pandemic, the trial record did not get filed until September, 2020. The certification form was delivered, but the parties could not agree on the form. In October, 2021 Amelin scheduled an attendance at To Be Spoken To Court. In that court, on November 8, 2021 Justice D. Wilson scheduled a 15 day trial commencing January 9, 2023 and a pre-trial conference for May 3, 2022.

[13] On November 1, 2021 Victory issued an application in Commercial Court seeking an order recognizing and enforcing the Frizzell order in Ontario. Amelin delivered a Notice of Appearance on November 26, 2021. It intends to oppose the application. This application has not been scheduled for an appearance.

[14] On December 2, 2021 Victory commenced this motion seeking security for costs. It scheduled the motion to be heard on April 7, 2022 and served its motion on December 2, 2021. Amelin served its responding motion record on February 8, 2022.

[15] The motion did not proceed on April 7, 2022. There were issues with the court, and the motion was adjourned to be heard on July 28, 2022. Both sides served and filed supplementary materials.

[16] The pretrial took place with Justice Black on May 10, 2022 and concerned the organization of the scheduled trial. Each side will have three witnesses and there will be no experts. I was advised that Victory discovered Amelin on July 21, 2022.

INSUFFICIENCY OF ASSETS

[17] It is well settled law that on a motion for security for costs based on Rule 56.01(1)(d) the initial onus rests on the defendant to prove that there is “good reason to believe” that the plaintiff corporation has insufficient assets in Ontario to pay the defendant’s costs. If the defendant satisfies that initial onus, the onus shifts to the plaintiff, who must then prove that it indeed has sufficient assets to pay costs or that an award of security for costs would be unjust. For a summary of this test see JoBro Film Finance Ltd. v. National Bank of Canada, 2020 ONSC 975 at paragraph 5.

[18] The initial onus does not require that the defendant prove that the plaintiff has insufficient assets to pay costs. However, the proof needs to be more than mere conjecture, hunch or speculation. Referring to the decision of Justice Lang in City Commercial Realty (Canada) Inc. v. Bakich, [2005] O. J. No. 6443 (C.A.), Justice Faieta stated the following in Hazelton Homes Corporation v. Katebian, 2020 ONSC 3321 at paragraph 17: “. . . the moving party must still provide enough information about the corporation to raise a belief of insufficiency that goes beyond mere conjecture, hunch or speculation. In other words, the moving party must raise a reasonable belief that the corporation is without real, substantial and exigible assets who[se] realizable net value is sufficient to meet the amount of costs to be secured . . .” In City Commerical Realty Justice Lang identified unsatisfied judgments as being an indicia of corporate insolvency and instability that would be relevant to the test on the initial onus.

[19] Victory relies on essentially two pieces of evidence to try and meet its initial onus: the unsatisfied Frizzell order and the delay by Amelin in paying the Perell costs award.

[20] Amelin has put forward no evidence concerning the second part of the test under Rule 56.01(1)(d). Its entire case rests on its position that Victory has not met its initial onus. Amelin is entitled to take this position and no adverse inference should be drawn against it for doing so; see Bolton Mechanical v. EBC Inc., 2020 ONSC 3407 at paragraph 21. That means, of course, that if Victory succeeds on its initial onus, it will have a high chance of success on the motion.

[21] Does the unsatisfied Frizzell order help Victory satisfy the initial onus? I find that it does not. The Frizzel order is not an enforceable and unsatisfied judgment in Ontario. It is a foreign judgment. Until a foreign judgment is accepted and enforced by an Ontario court, it is nothing but a contract debt; see Lax v. Lax, 2004 15466 (ONCA) at paragraph 36. This point was not contested.

[22] As a contract debt, the basic two year limitation period in section 4 of the Ontario Limitations Act, 2002, S.O. 2002, c. 24, sch. B (“LA”) applies, not the exemption from limitation periods for proceedings to enforce court orders in LA section 16(1)(b); see Independence Plaza 1 Associates, L.L.C. v. Figliolini, 2017 ONCA 44 at paragraph 62. This point was also not contested.

[23] It appears that the basic two year limitation period has expired in this case. Pursuant to LA section 4 the basic two year limitation period starts running from the date the claim is discovered. Discovery is defined by LA section 5. Section 5(1), the subjective test, defines when a claim is actually discovered, and section 5(2) inserts an objective test by specifying that a claim is discovered when a reasonable person with the abilities and in the circumstances of the person in question ought to have discovered the claim.

[24] It has been held that a foreign judgment is “discovered” for the purpose of the basic limitation period when the foreign judgment becomes final in the jurisdiction that produced it, namely all appeals rights on the judgment in the originating jurisdiction are exhausted; see Figliolini, at paragraph 77. That only makes sense as, until appeal rights are exhausted, courts in the originating jurisdiction may overturn the judgment. When those appeal rights are exhausted, the creditor should take steps in the subject jurisdiction to enforce the foreign judgment.

[25] In this case, there was no appeal of the Frizzell order and appeal rights expired on March 12, 2019. One must then add the six-month extension given to statutory limitation periods during the COVID-19 pandemic. This extended the limitation period on the Frizzell order to September 13, 2021. By this date, Victory had done nothing in Ontario to enforce the Frizzell order. None of these facts were disputed.

[26] The only reasonable inference to be drawn from these facts is that there is a likelihood that the Frizzell order will be found to be statute-barred in Ontario. On November 1, 2021 Victory finally commenced an application in Commercial Court to recognize and enforce the Frizzell order. Amelin has delivered a notice of appearance, and will no doubt vigorously contest the application. Mr. Dumigan said that the limitation argument will be Amelin’s main position. This application remains outstanding, and no hearing date has been set.

[27] Therefore, as it exists today, the Frizzell order is nothing but a contract debt that appears to be unenforceable in Ontario, the jurisdiction where Amelin’s assets exist. How can the court draw the inference from these facts that the Frizzell order is an indication of Amelin’s insolvency and instability or of Amelin’s inability to pay costs?

[28] The parties did agree on July 30, 2018 to stay any enforcement of the arbitrators’ decision in Canada for a period of 25 weeks. As indicated in the letter sent by Mr. Diskin for Amelin on July 30, 2018 (a letter which appears in the affidavit of Grace Tsakas sworn April 5. 2-22), this agreement occurred because there was an adjournment of the motion for summary judgment in the within action in Ontario.

[29] An issue arose in argument as to whether this was a tolling agreement that further extended the limitation period on the Frizzell order. Such a tolling agreement would potentially spare the Frizzell order from being statute-barred. I indicated that I did not accept that position. The Diskin letter clearly indicates that the agreement was for a stay of enforcement of the order in Canada for 25 weeks whenever that enforcement took effect. It was not an agreement to “suspend” or “extend” the limitation period, to use the words in LA section 22(3).

[30] Ms. Bridges argued that I should draw an inference against Amelin on this issue of the initial onus from the fact that Amelin fully participated in the U.S. arbitration and then failed to honour its award for the last four years. I do not do so for the following reasons:

• First, there was the stay of enforcement agreement between the parties in July, 2018. This agreement occurred just before the arbitration award. Mr. Dumigan advised that Amelin’s position from the beginning was that the limited issue in the U.S. arbitration should be determined within the context of all of all the issues raised by Amelin in the within action, which Amelin maintains would produce a result that would significantly offset any award on the single issue dealt with by the U.S. arbitrator. The stay of enforcement agreement in July, 2018 corroborates this position. The parties at that time agreed to defer the enforcement of the arbitrator’s award pending the outcome of the within action.

• Second, there is also the glaring fact that Victory failed to take steps in Ontario to enforce the Frizzell order for 31 months. This was done even after the Amelin motion for summary judgment failed in November, 2018. There was no explanation for this delay. I draw an adverse inference against Victory due this failure to explain.

[31] I draw the inference from this conduct that both parties accepted the need to focus on the Ontario action rather than on the U.S. judgment. I, therefore, accept Amelin’s position. It explains why Amelin has not honoured the arbitrator’s award. I do not draw a negative inference against Amelin from its failure to honour the arbitrator’s award for the last four years.

[32] The second piece of evidence that Victory relies upon is the delay by Amelin in paying the Perell costs order. His Honour ordered on January 11, 2019 that Amelin pay $100,000 “forthwith.” It did not pay that installment until June 26, 2020, over 17 months later.

[33] I do not draw a negative inference against Amelin from this fact. The fact that Amelin paid a significant costs award is the important point here, not the delay in the payment. That payment shows an ability by Amilin to pay significant costs orders, not an inability.

[34] In Density Group Limited v. HK Hotels LLC, 2015 ONSC 7717 Justice Mesbur denied a motion for security for costs brought in part under Rule 56.01(1)(d). One of the reasons for the denial was the fact that the plaintiff corporation had paid $85,000 in costs orders, albeit late. The judge stated that, “the fact that the plaintiff paid a significant costs award (albeit late) negates, rather than supports, the notion that the plaintiff should post security for costs.” I draw the same conclusion in this motion.

[35] Ms. Bridges tried to distinguish the Density decision by pointing out that there had been evidence in Density that the plaintiff paid the costs from its own bank account, while there was no evidence on this motion as to how Amelin paid the costs. She argued that Amelin could have paid through further debt, which would undermine its position on the motion. I do not agree. The judge in Density did not put importance on the fact raised by Ms. Bridges. Furthermore, the fact that the payment came from a bank account does not mean that it was not through further debt.

[36] I, therefore, find that Victory has not met its initial onus of showing a “good reason to believe” that Amelin has insufficient assets in Ontario to pay Victory its costs of this action.

DELAY

[37] This disposes of the motion. However, there was discussion about the Victory delay in bringing the motion for security for costs. Had I found that Victory met its initial onus on this motion, I would have nevertheless had difficulty ordering security for costs because of this delay.

[38] Amelin set this action down for trial by passing the trial record on June 26, 2020, namely over two years ago. Victory brought this motion in December, 2021, 16 months later. This was after the trial in this action was scheduled on November 8, 2021 to take place starting January 9, 2023, and after the pretrial conference on May 10, 2022. While the motion should have been heard on April 7, 2022, it did get heard on July 28, 2022, just over 5 months before trial.

[39] There was no explanation in the evidence for this delay. Ms. Bridges tried to explain the delay by pointing to the absence of interlocutory steps taken by Amelin. That was Amelin’s choice. That is also not an explanation.

[40] A defendant should bring a motion for security for costs as soon as it is aware of the grounds on which it relies; see Pelz v. Anderson, 2006 39571 (ONSC) at paragraphs 23 and 24. A failure to do so can itself be fatal to a motion for security for costs regardless of the issue of prejudice to the plaintiff. That awareness happened in this case in the spring of 2019 after the Perell costs order was not paid and leave to appeal was denied, and after the appeal rights on Frizzell order were exhausted and the order was not paid. That is 28 months ago. This failure to explain the delay would have been, in my view, fatal to this motion.

CONCLUSION

[41] I, therefore, dismiss this motion.

[42] As to costs, counsel advised that the parties had agreed that the successful party should be awarded $10,000 in costs. I, therefore, award Amelin $10,000 in costs to be paid in thirty days.

DATE: August 2, 2022

_____________________________

ASSOCIATE JUSTICE C. WIEBE