Court File and Parties

Court File No.: CV-19-00621803-0000 Date: 2023-11-19 Superior Court of Justice - Ontario

Re: Nevada Tours v. Worldwide Charter Group

Before: Associate Justice D. Michael Brown

Heard: June 7, 2023 [by videoconference]

Counsel: H. Dhadda, for the moving party/defendant, Scott Allen Smith R. Hosseini and M. Morant for the responding party/plaintiff

Endorsement

[1] The defendant, Scott Allen Smith, brings this motion seeking security for costs from the plaintiff. The plaintiff opposes the motion. For the reasons below, the motion is dismissed.

[2] The plaintiff is a Mexican corporation that carries on business as a travel agency in Mexico. The plaintiff commenced this action based on an alleged fraudulent preference engaged in by the defendant, Worldwide Charter Group Inc. (“WCG”), to the detriment of the plaintiff as creditor. WCG declared bankruptcy less than a month after the alleged preference. The plaintiff pleads that Smith was the sole or principal directing mind of WCG. The plaintiff brings its claim against WCG (with leave of the court under s. 38 of the Bankruptcy and Insolvency Act, R. S. C. 1985, c. B-3) seeking to reverse the alleged preference. It brings its claim against Smith under the oppression remedy in Part XVII, s. 248 of the Business Corporations Act, R.S.O. 1990, c B.16 (OBCA).

[3] Smith is the only moving party. WCG did not participate in the motion. The remaining defendant has been noted in default. Smith seeks security for costs under Rule 56.01(1)(a) of the Rules of Civil Procedure on the grounds that the plaintiff is ordinarily resident outside Ontario. The plaintiff opposes the motion on the basis that it is barred by s. 249(3) of the OBCA.

[4] Subsection 249(3) of the OBCA (also in Part XVII) provides:

No security for costs (3) A complainant is not required to give security for costs in any application made or action brought or intervened in under this Part.

[5] Master Muir of this court summarized the principles applicable to the prohibition against security for costs under s. 249(3) of the OBCA: [1]

(a) the prohibition does not apply if the oppression claim is merely appended to other claims or if the oppression claim is no longer in issue; [2]

(b) the prohibition will not apply where the core nature of the claim involves issues that are separate, discrete and distinctive from the oppression claims; [3]

(c) the question to be asked is “what is the real, true nature of the plaintiff’s claim?”; [4]

(d) security may be ordered for the non-oppression portions of the plaintiff’s claim where the court can reasonably determine what percentage of the action involves the oppression claim; [5] and

(e) the section does not provide the court with any discretion, even in exceptional circumstances and even involving a wealthy offshore plaintiff with no assets in Canada. [6]

[6] Smith submits that the core nature of the plaintiff’s claim is for recovery for an alleged fraudulent transfer and fraudulent conveyance. He argues that oppression is merely appended to its claims for fraudulent transfer and fraudulent conveyance. I disagree. Although the claim against WCG is based on the fraudulent conveyance, the claim as against Smith is framed in the Statement of Claim as a claim primarily, if not exclusively, in oppression. The plaintiff claims that Smith acted oppressively in directing WCG to engage in the fraudulent preference. The fact that the oppression claim might be an ancillary claim as against WCG is not relevant to the analysis because WCG is not the defendant that is seeking security for costs.

[7] Smith also submits that the plaintiff’s oppression claim cannot succeed because the plaintiff, as a potential creditor, does not have standing as a “complainant” under s. 248 of the OBCA. While Smith concedes that creditors can qualify as complainants under s. 248, he argues that the plaintiff cannot meet the test under the case law. Section 245 of the OBCA defines complainant to include “any other person who, in the discretion of the court, is a proper person to make an application under this Part.” It is well settled that a creditor can be a “proper person” to bring an oppression application. [7] Ultimately, whether a creditor qualifies as a complainant is in the discretion of the court based on the court’s assessment of the particular circumstances of the creditor. The Court of Appeal has described the considerations that go into this assessment:

“ … the oppression remedy is not intended to give a creditor after-the-fact protection against risks that the creditor assumed when he entered into an agreement with a corporation. The position of a creditor who can, but does not, protect itself against an eventuality from which he later seeks relief under the oppression remedy, is much different than the position of a creditor who finds his interest as a creditor compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself. In the latter case, there is much more room for relief under the oppression provisions than in the former case.” [8]

[8] In this action, the plaintiff has pleaded facts that, if proven, would bring it within the “latter case” as described by the Court of Appeal. The pleaded fraudulent preference is an unlawful and internal corporate manoeuvre against which plaintiff could not have effectively protected itself. That is not to say that the court at trial will necessarily exercise its discretion in favour of the plaintiff and grant it complainant status. However, this is a motion for security for costs, not a motion for summary judgment. I am satisfied for the purpose of this motion that the plaintiff has sufficiently made out a claim in oppression. Accordingly, I find that s. 249(3) of the OBCA applies and that Smith is prohibited from seeking security for costs in respect of the oppression claim.

[9] I am also satisfied that the plaintiff’s claim against Smith is in pith and substance a claim based in oppression. In my view, there are no non-oppression portions of the claim that can reasonably be separated out for the purpose of ordering partial security for costs. The defendant’s motion for security for costs is therefore dismissed in its entirety.

[10] As the plaintiff was successful on the motion it should have its costs. In oral submissions on costs the plaintiff sought costs on the partial indemnity scale if successful in the amount of $6,000. The defendant sought partial indemnity costs if successful in the amount of $5,500 to $6,000 based on a costs outline calculating the defendant’s partial indemnity costs at $7,179. The plaintiff’s costs request is clearly within the parties’ reasonable expectations. The defendant, Scott Allen Smith, shall pay the plaintiff costs of the motion fixed at $6,000, inclusive of HST, payable within 30 days.

D. Michael Brown, Associate Judge DATE: 2023-11-19