Active Security and Cable Inc. v. Rogers Communications Canada Inc.
COURT FILE NO.: CV-17-587752 DATE: 2022-10-14
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
ACTIVE SECURITY AND CABLE INC. Plaintiff/Responding Party
– and –
ROGERS COMMUNICATIONS CANADA INC. Defendant/Moving Party
AND BETWEEN:
ROGERS COMMUNICATIONS CANADA INC. Plaintiff by Counterclaim/Moving Party
– and –
ACTIVE SECURITY AND CABLE INC. and NARESH MOHABIR Defendants to the Counterclaim/Responding Parties
COUNSEL: Tony N. Nguyen and Aaron H. Boghossian, for the Plaintiff/Responding Party Alistair Crawley, Michael L. Byers and Joshua M. Shneer for the Defendant/Moving Party
Alistair Crawley, Michael L. Byers and Joshua M. Shneer for the Plaintiff by Counterclaim/Moving Party Tony N. Nguyen and Aaron H. Boghossian, for the Defendants to Counterclaim/Responding Parties
HEARD: JULY 5, 2022
REASONS FOR DECISION
VELLA J.
[1] Rogers Communications Canada Inc. (“Rogers”) seeks to have the Orders of Master Brott (as she then was) and the appeal Order of Pollak J. set aside under r. 59.06(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, on the basis of fraud or, alternatively, on the basis of facts that were discovered since these orders were made.
[2] The Orders in question arise from Rogers’ failed motion for security for costs against Active Security and Cable Inc. (“Active Security”).
The Chronology of Proceedings
[3] Of particular importance to this analysis:
(a) In December 2017, Active Security commenced this action seeking, inter alia, payment for services performed. Rogers commenced a counterclaim against Active Security and Naresh Mohabir for, inter alia, recovery of funds paid as a result of overbilling and fraudulent billing;
(b) Rogers brought a motion for security for costs against Active Security in June 2018;
(c) On August 29, 2019, Brott A.J. dismissed Rogers' motion on the basis that Active Security was impecunious and its action was not plainly devoid of merit and, alternatively, it did not have sufficient assets to pay costs and had a good chance of success on the merits (“Brott Reasons”);
(d) On November 29, 2019, Brott A.J. issued a costs award against Rogers;
(e) Rogers’ appeal of the Brott Order was heard on November 25, 2020 by Pollak J.;
(f) On May 20, 2021, Pollak J. dismissed the appeal (“Pollak Reasons”);
(g) On June 15, 2021, Rogers brought this motion to set aside both orders.
[4] The newly discovered facts and/or allegedly fraudulently concealed facts are:
(a) Mr. Mohabir and/or Active Security holds an account at the Bank of Montreal which, as of December 17, 2020, was being used for payroll and payments going out the next day according to an email sent by BMO to Rogers' lawyer, and discovered on December 17, 2020;
(b) Active Security was using a drill and Hydrovac leased from two different equipment lenders since late 2016 "in the ordinary course of business", discovered on December 21, 2020;
(c) Mr. Mohabir was operating another company, Active Telecommunications Inc., incorporated on August 21, 2017, discovered on December 23, 2020.
(d) Active Security is still active as a telecommunication business, based on the testimony of Active Security’s principal, Mr. Mohabir, given on March 18, 2021, at his cross examination;
(e) Mr. Mohabir was operating another company incorporated on January 1, 2015, (2449920 Ontario Inc.), and Mr. Mohabir declined to provide information about this business also revealed at his cross examination;
(f) An apparently erroneous payment in the sum of $876,095.00 was made by Rogers to Active Security on November 5, 2020, relating to payment of some of the disputed invoices which are the subject of this action discovered in early December 2020. The amount paid was nearly $876,095 and was disbursed by Active Security as follows:
(i) On November 9, 2020, $100,000 to Mr. Mohabir's wife and $50,000 to each of his two children;
(ii) On the same day, Mr. Mohabir transferred $200,000 to his lawyers, in trust;
(iii) On November 10, 2020, $144,736.45 was paid to BMO to pay down a line of credit held by Mr. Mohabir, his wife, and Active Security;
(iv) On December 17, 2020, $75,430 was paid to CWB National Leasing on behalf of Active Security for a Hydrovac;
(v) On the same day, $83,520 was paid to Meridian OneCap for a drill; and
(vi) On December 22, 2020, $153,892 was paid to the Canada Revenue Agency on account of arrears of taxes.
[5] Upon discovering the erroneous payment of funds, Rogers commenced a separate application. Rogers brought a motion for an injunction against Active Security and Mr. Mohabir with respect to the erroneous payment, and it was granted by Chalmers J. on December 11, 2020.
[6] On March 28, 2022, Chalmers J. found that the funds disbursed to the CWB, Meridian OneCap and Canada Revenue Agency were in breach of his December 11, 2020 order.
[7] The funds transferred to Mr. Mohabir's wife and children, some of the funds transferred to Active Security’s law firm and other funds were paid into court totalling $445,873, pending determination of Rogers' application.
Issues
(a) Would the newly discovered facts have likely altered Brott’s A.J. Order?
(b) If so, could Rogers have discovered the new evidence through the exercise of due diligence before either of the hearings before Brott A.J. or Pollak J.?
(c) Has Rogers proven that facts were fraudulently concealed?
(d) If so:
(i) do the fraudulently concealed facts go to the foundation of the case?
(ii) was the fraud known, or could it have been discovered with due diligence, as at the time of the hearing?
(iii) was the motion brought without delay?
(iv) does the fraud provide a reason to set aside the order?
Analysis
[8] The court has jurisdiction under r. 59.06(2)(a) to set aside or vary an order on the basis of fraud or newly discovered facts:
r. 59.06(2) A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;
may make a motion in the proceeding for the relief claimed.
[9] The two-part test to set aside an order on the ground of newly discovered facts is:
(a) whether the evidence probably would have changed the result had it been presented to the court at first instance; and
(b) whether the evidence could have been obtained, by the exercise of due diligence, before the original hearing and disposition of the motion: Tsaoussis (Litigation Guardian of) v. Baetz (1998), 41 O.R. (3d) 257 (C.A.), at paras. 41 and 44; Huron-Perth Children’s Aid Society v. R.C.K. et al., 2015 ONSC 5023, [2015] W.D.F.L. 5535, at para. 56.
[10] In order to set aside an order based of fraud the moving party must prove:
(a) the civil fraud on a balance of probabilities;
(b) the fraud is material and goes to the very foundation of the order;
(c) it could not have reasonably discovered the fraud at the time of the hearing by exercise of due diligence; and
(d) the allegedly fraudulently concealed facts provide a reason to set aside the order: Lam v. Chen, 2019 ONSC 2510, at paras. 22 and 55; Gregory v. Jolley (2001), 54 O.R. (3d) 481 (C.A.).
[11] Fraud as it is used in r. 59.06 means:
…that fraud is a false representation made either knowingly, or without belief in its truth or else recklessly, careless as to whether it is true of false. (Lam, at para. 24)
[12] The moving party‘s conduct is a relevant consideration in the exercise of the court’s discretion under r. 59.06.
[13] The motion to set aside must be brought without delay.
[14] Rule 59.06 generally deals with orders or judgments and not the underlying reasons.
[15] The discretion to set aside an order under this subrule may be exercised to prevent a miscarriage of justice, where the integrity of the process is at risk or a principle of justice is at stake that requires reconsideration of the matter. (Huron-Perth, at para. 56)
[16] The court will generally only exercise its discretion under this rule in “exceptional circumstances”, “sparingly” and “with the greatest of care”: Huron-Perth, at para. 56. This is because of the important public policy goal of finality in litigation: Tsaoussis, at para. 44.
[17] As stated in Lam, at para. 56: “[t]he mere possibility of fraud does not necessarily outweigh the need for finality.”
[18] Where the order being attacked arises from a motion as opposed to a trial, the test will generally be applied more stringently against the moving party: 1307347 Ontario Inc. v. 1243058 Ontario Inc. (2001), 4 C.P.C. (5th) 153 (Ont. S.C.), at para. 3. This is because motions do not generally determine the outcome of the litigation.
[19] Certainly, this last principle is particularly apt to this motion. The dismissal of the security for costs motion does not determine any of the issues in this proceeding on their merits.
[20] Also of note is the highly discretionary nature of motions for security for costs which may make it more difficult for the moving party to show that any one factor would likely have changed the outcome: Michailidis v. Vertes, 2019 ONSC 6440, at para. 6.
[21] In its factum’s overview, Rogers places a particular emphasis on two areas of newly discovered or alternatively fraudulently concealed facts. The first is what was described by Rogers as the erroneous payment of certain of the disputed invoices to Active Security due to a Rogers “accounting system error” that it states would likely have changed the result and, in the case of the alleged fraud, goes to the foundation of the motion.
[22] Second, Rogers says it subsequently obtained new evidence it says shows that Active Security is both active and that Mr. Mohabir has sources of income aside from Active Security that was not disclosed at the motion that again would have altered Brott’s A.J. Decision and/or goes to the foundation of the motion.
[23] The trial of this action is scheduled to proceed in March 2023.
Issue #1: Would the newly discovered evidence likely have altered the outcome of the motion for security for costs, or the subsequent appeal?
[24] Brott A.J. found, based on the evidence before her, that Active Security was impecunious and its action was not plainly devoid of the merits. In the alternative, Brott A.J. found that the action had a good chance of success. Under the latter test, Active Security need only show that it could not pay costs due to its financial circumstances, reflecting a lower financial threshold than impecuniosity requires.
[25] It is clear that Brott’s A.J. decision focused on the debt reflected by the Canada Revenue Agency Writ in the amount of $1,125,758. This writ remains registered against Active Security's assets and bank accounts, though the debt has been slightly reduced by the payment by Active Security from the funds Rogers states were erroneously paid, as will be discussed. See para. 10 of the Brott Reasons.
[26] Rogers also relies on what it describes as the erroneous payment of over one million dollars to Active Security due to an accounting system error as changing Active Security’s financial capacity. Some of those funds were applied to pay some of the creditors (including approximately 10% of the CRA debt), and the balance was paid into court, as previously discussed.
[27] Turning to Pollak's J. appellate decision: Pollak J.’s Order is challenged by Rogers under r. 59.06(2)(a) as well. My function is to determine whether Rogers has established the elements of r. 59.06(2) be it under the newly discovered facts branch or, alternatively, the fraudulently concealed facts branch of this subrule.
[28] Pollak J. observed that Brott A.J. made a finding not only of impecuniosity but also that Active Security’s claim had a good chance of success and was satisfied that Active Security “clearly” met the lower financial threshold (Pollak Reasons, para. 27).
[29] Pollak J. also found that the main focus of Brott’s A.J. analysis in support of her finding that Active Security met the lower financial threshold under the “good chance of success” branch was the existence of the CRA Writ meaning that “Active and Mr. Mohabir’s hands are tied and is therefore unable to raise funds”.
[30] Pollak J. wrote at para. 15,
Of significance with respect to the allegation of impecuniosity was the evidence that the CRA had registered a writ against Active for $1,125,458 and that all of the funds in Active’s bank account had been seized.
[31] At para. 17, Pollak J. observed:
As well, the Master concluded that “the Plaintiff’s evidence satisfied the Court that there is good reason to believe that Active lacks adequate assets to pay Rogers’ costs and that it appears quite clear that Active’s impecuniosity is a direct result of CRA’s actions.” The Master did consider the assets of Active, but noted that, “[i]f CRA enforces on the entire alleged debt, then Active will not have sufficient assets to pay the defendant’s costs” and that Mr. Mohabir could also be personally liable for these tax arrears.
[32] Most importantly, at para. 18, Pollak J. confirmed that Brott A.J. relied primarily on the indebtedness of Active Security to the CRA in reaching the conclusion that Active Security was both impecunious and unable to pay costs.
[33] In addition, Pollak J. confirmed that Brott A.J. had evidence upon which to find that Active Security has a “strong prima facie case” for payment for the work performed from June to September 2016. This is particularly noteworthy since the erroneous payment claimed by Rogers is for payment of some of the disputed invoices that fall within this same timeframe.
[34] Finally, Pollak J. found that the Associate Justice properly balanced the competing interest of Rogers and Active Security and found that an order for security for costs would be unjust.
[35] Looking at both of these areas of new evidence, I am not persuaded that had those facts been before Brott A.J. it would have likely altered the decision. This is because the CRA debt, which was the most significant factor relied upon by Brott A.J., still remains and prevents Active Security from raising funds for this litigation (Brott Reasons, para. 18), and the allocation of the erroneous payment has only slightly reduced that CRA debt. Rogers has not shown that the remaining new evidence demonstrates a likelihood that Active Security has the means to pay the CRA debt or is hiding money.
[36] Also, in support of Brott’s A.J. alternative finding, at para. 18 of the Brott Reasons, Active Security proved that it had a very good chance of success. Brott A.J. relied primarily on the admissions by Rogers that “it owes Active Security funds for work done at prices agreed to between the parties, at least for the period from June to September, it is almost as if Rogers is already holding security in the form of non-payment to the plaintiff and this factor has been considered in the exercise of the court’s discretion” (Brott Reasons at para. 16).
[37] I am not persuaded that the balance of Rogers’ newly discovered facts demonstrates that Active Security has the financial capacity to pay costs under the “good chance of success” analysis and therefore would likely have changed the Brott Order. Rogers does not assert that the newly discovered evidence would have likely altered the latter merits-based analysis in any event.
Issue #2: could Rogers have discovered the new evidence with the exercise of due diligence to the motion or appeal?
[38] As indicated, the erroneous payment made by Rogers on November 5, 2020 was a significant piece of evidence relied upon by Rogers. On November 4, 2020, Rogers sent an email to Active Security advising that it would be paying for 58 outstanding invoices with respect to work performed between June 18, 2016 and August 27, 2016. This time frame is particularly relevant as it relates to the same time frame as found by Brott A.J. to be the subject of a “strong prima facie case” for payment (para. 13, Brott Reasons). Rogers acknowledged it had not paid these invoices but had plead a justification for its non-payment alleging that Active Security charged an agreed price which was higher than industry standards (para. 13, Brott Reasons).
[39] It is evident on the record that the erroneous payment was made after the release of the Brott Order and after Roger’s commenced its appeal.
[40] However, Rogers was aware of this erroneous payment as well as the other new evidence before Pollak J. released her reasons dismissing its appeal.
[41] Rogers states that it was unaware that its own accounting department had released a hold on the erroneously paid funds until Active Security’s lawyer asked Rogers' lawyers about it at the conclusion of the examination for discovery of Rogers' representative on December 2, 2020, nearly one month after the payment was disbursed to Active Security. On December 8, 2020, Rogers then commenced the aforementioned separate application claiming that the funds were erroneously paid and had been intentionally misappropriated by Active Security.
[42] The appeal was heard by Pollak J. on November 25, 2020. By this time the payment was already made. It is arguable that Rogers should have discovered this error before November 20, 2020 given that it was its own system that caused the payment. In any event, on its own admission, Rogers knew of the erroneous payment by early December 2020.
[43] Rogers submitted that the obligation to disclose the new evidence on appeal to Pollak J. was on Mr. Mohabir and Active Security.
[44] Rogers states that had the information been drawn to Pollak’s J. attention, Her Honour would have had several options, including entertaining a motion to admit fresh evidence on appeal, while the decision was under reserve (see para. 53 of Rogers’ factum).
[45] Rogers relies on Handscomb v. TD Home and Auto Insurance Co., 2015 ONSC 2938, 54 C.C.L.I. (5th) 296, in support of its proposition that counsel has an obligation to disclose information necessary for the fair adjudication of a matter. Handscomb was a costs decision. In that case, Myers J. cited the Rules of Professional Conduct in support of this proposition.
[46] In my view, this proposition applies equally to Rogers. If it believed that the new information (be it newly discovered or fraudulently concealed) was relevant to the fair adjudication of the appeal, then it ought to have drawn this information to Pollak’s J. attention before she released her decision. Rogers had approximately five months within which to do so.
[47] Section 134(4)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides jurisdiction to a judge of the Superior Court to “receive further evidence by affidavit, transcript of oral examination, oral examination before the court or in such other manner as the court directs”. The issue of whether the new evidence would have satisfied the test for admission of fresh evidence on appeal was not argued before me, however, Pollak J. had the jurisdiction to entertain such a motion: R. v. Palmer, [1980] 1 S.C.R. 759.
[48] Rogers decided not to seek to introduce this "new" or "fraudulently concealed" evidence to Pollak's J. attention. Instead, it waited for Her Honour's decision to be released, approved the order as to form and content, and then brought this motion.
[49] It appears that Rogers made a tactical decision to frame its challenge by way of a r. 59.06 motion after it lost the appeal before Pollak J.
[50] Therefore, while the new evidence could not have reasonably been discovered by Rogers before the original hearing and release of the Brott Decision, it did have that information before the appeal was decided and determined not to draw the information to Pollak J.’s attention.
Issue #3: Has Rogers proven fraudulent concealment of facts that undermine the foundation of the underlying security for costs order?
[51] I will review the four-part analysis required under the test for setting aside an order on the basis of fraud.
[52] The bar to prove civil fraud is on a balance of probabilities. That said, the court will scrutinize the evidence carefully when fraud allegations are made.
[53] Rogers has fallen well short of proving that Active Security fraudulently concealed the erroneous payment. First, the payment was made after the release of Brott’s A.J. decision. Second, it was Active Security’s lawyers who disclosed the payment under the apparent belief that the payment was not made in error. Given the fact that the erroneous payment was for disputed invoices over the period Brott A.J. found that Rogers admitted it had not paid, it is plausible that Active Security believed that Rogers intended to make that partial payment. Third, it was Rogers’ own accounting system that made the erroneous payment. Nothing was done by Active Security to induce the erroneous payment. Rogers has not proven fraudulent intent.
[54] I am also not satisfied that Rogers has demonstrated that Active Security fraudulently concealed the other newly discovered facts. The questions posed under cross examination were answered and there is no evidence of an attempt to have fraudulently concealed the newly discovered facts. Inconsistencies in the evidence do not necessarily lead to a finding of fraud. There is evidence that Mr. Mohabir operates a separate company that operates in the same field of business as did Active Security. However, Active Security was financially compromised when its only client, Rogers, pulled its business and declined to pay invoices rendered. Rogers has not demonstrated, beyond speculation, that Mr. Mohabir and/or Active Security must have the financial resources to pay costs because of the existence of another business operated by Mr. Mohabir.
[55] Similarly, for the reasons explained under Issue #1, I find that Rogers did not establish that the remaining newly discovered facts concerning Active Security’s financial ability undermine the foundation of the security for costs order. In so doing I recognize that the concept of the “foundation” of the motion is a lower threshold than in establishing that the newly discovered facts would likely have altered the decision, a topic to which I will return.
[56] As stated, Rogers chose not to seek to re-open the appeal prior to Pollak J’s release of Her Honour’s decision.
[57] The allegedly fraudulent concealment of facts regarding the erroneous payment and the other new facts could not have been known by Rogers at the time of the hearing before Brott A.J. or at the time of the appellate hearing. However, as stated, they were known prior to the release of Pollak’s J. decision.
[58] Again, in my view, it was a tactical decision by Rogers to wait until the outcome of Pollak’s J. decision and then, when it lost, it brought this motion. Again, in my view, Rogers ought to have applied to introduce the new evidence before Pollak J. released Her Honour’s decision. It is not an appropriate use of this Rule to essentially raise an argument that could and should have been made before the release of the appellate ruling.
[59] Accordingly, Rogers did not bring this motion without delay. It awaited the outcome of Pollack’s J. decision and then brought this motion.
[60] The last element of proving that fraud is a basis to set aside the impugned order is whether, given the fraud, there is a reason to set aside Brott’s A.J. decision.
[61] Given the highly discretionary nature of a motion for security for costs, Brott’s A.J. finding that an order for security for costs was not warranted in all of the circumstances (as upheld by Pollak J.), I find that Rogers has not demonstrated that, even if it satisfied the first four elements of the test for setting aside an order on the basis of fraud (and it did not), the orders of Brott A.J. and Pollak J. should be set aside. The court retains a broad discretion to deny ordering security for costs, even where the moving party makes out a good case for attracting such an order.
[62] In short, Rogers had not persuaded me that there was a miscarriage of justice, or that the integrity of the process is at risk, or that there is a principle of justice at stake that requires a reconsideration of the motion for security for costs: Tiny (Township) v. Robitaille, 2022 ONSC 2523, 29 M.P.L.R. (6th) 345, at para. 22. This is not one of those exceptional cases in which the court ought to exercise its discretion to set as the impugned Orders.
Disposition and Costs
[63] For the reasons stated above, the motion to set aside the respective Orders of Brott A.J. and Pollak J. is dismissed.
[64] If the parties are unable to agree as to the appropriate costs award, Active Security has ten days within which to deliver its cost outline and written submissions. Rogers will then have ten days from the receipt of Active Security’s materials to deliver its own cost outline and written responding submissions. The respective written submissions may not exceed three pages double spaced. I would also like to know whether cost outlines were exchanged prior to the release of my decision. These materials should be delivered by email to my judicial assistant.
Justice S. Vella
Released: October 14, 2022
COURT FILE NO.: CV-17-587752 DATE: 2022-10-14
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
ACTIVE SECURITY AND CABLE INC. Plaintiff/Responding Party
– and –
ROGERS COMMUNICATIONS CANADA INC. Defendant/Moving Party
AND BETWEEN:
ROGERS COMMUNICATIONS CANADA INC. Plaintiff by Counterclaim/Moving Party
– and –
ACTIVE SECURITY AND CABLE INC. and NARESH MOHABIR Defendants to the Counterclaim/Responding Parties
REASONS FOR JUDGMENT
Vella, J.
Released: October 14, 2022