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Security for Costs

. Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc.

In Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc. (Ont CA, 2021) the Court of Appeal considered an issue of security for costs (here for lack of merit) in an appeal [under R61.06(c) "other good reason"]:
[35] An order for security for costs may be made under r. 61.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, where (a) there is good reason to believe that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeal; (b) an order for security for costs could be made against the appellant under r. 56.01; or (c) for other good reason. Rule 61.06(1) is permissive, not mandatory. In determining whether an order should be made for security for costs, the “overarching principle to be applied to all the circumstances is the justness of the order sought”: Yaiguaje v. Chevron Corporation, 2017 ONCA 827, 138 O.R. (3d) 1, at para. 19.

....

[38] To grant security for costs under r. 61.06(1)(c), the “other good reason” must be compelling. Resort is to this provision when the respondent has been unable to obtain security under the other two categories, and security for costs under r. 61.06(1)(c) should not be made routinely: Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633, 268 O.A.C. 172 (In Chambers), at para. 8. Security for costs has been awarded under this provision where an appeal has a low prospect of success and the appellant has the ability to pay costs, but it would be nearly impossible to collect such costs: Perron v. Perron, 2011 ONCA 776, 286 O.A.C. 178 (In Chambers), at para. 23; Henderson v. Wright, 2016 ONCA 89, 345 O.A.C. 231 (In Chambers), at para. 27. Other examples include circumstances where there has been a finding that the appellant committed fraud, particularly if coupled with a finding that the appellant took steps to put his assets out of the reach of his creditors: York University v. Markicevic, 2017 ONCA 651 (In Chambers), at para. 58.
. Tsai v. Dugal

In Tsai v. Dugal (Ont CA, 2021) the Court of Appeal considered tests for ordering security of costs:
[4] The motion for security for costs is brought under r. 61.06(1)(a) and (c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The test under (a) is conjunctive. The moving party must establish that the appeal is frivolous and vexatious, and that the appellant has insufficient assets in Ontario to pay the costs of the appeal. Rule 61.06(1)(c) provides that an order for security for costs may be ordered “for other good reason”. An order for security for costs is discretionary. The court must first consider the specific provisions of the Rules governing such motions and then consider the justness of the order sought in all the circumstances of the case: Yaiguaje v. Chevron Corporation, 2017 ONCA 827, 138 O.R. (3d) 1, at para. 22.

....

[12] I turn to r. 61.06(1)(c), whether there is “other good reason” to award security for costs. Here I am guided by the words of Laskin J.A. in Combined Air Mechanical Services Inc. v. Flesch, 2010 ONCA 633, 268 O.A.C. 172, at para. 8, that, while the list of reasons justifying security under this rule is open-ended, the “other good reason” should be compelling. It must also be related to the purpose of ordering security: that a respondent is entitled to a measure of protection for costs in the proceeding under appeal. Security for costs has been awarded under this provision where an appeal has a low prospect of success and although the appellant has the ability to pay, it would be nearly impossible to collect costs: see Perron v. Perron, 2011 ONCA 776, 286 O.A.C. 178, at para. 23; Henderson v. Wright, 2016 ONCA 89, 345 O.A.C. 231, at para. 27.

....

[15] As for the amount of security for costs, the estate seeks security for the costs awarded by the trial judge, in addition to security for costs of the appeal. Such orders are not granted routinely: some justification must be offered by the moving party when the amount of security sought under r. 61.06 includes security for the costs awarded in the court below: Foodinvest Limited v. Royal Bank of Canada, 2020 ONCA 387. The estate did not provide any reasonable basis for requiring the appellant to post security for costs of the proceedings below. Accordingly, the estate is entitled to security for costs of the appeal, but not of the trial.
. Know Your City Inc. v. The Corporation of the City of Brantford

In Know Your City Inc. v. The Corporation of the City of Brantford (Div Ct, 2020) the Divisional Court considered expanding the test for security for costs, here in a judicial review application:
Test to be applied

[11] Rule 56 of the Rules of Civil Procedure gives the Court the power to make an order for security for costs in specified circumstances. In this case, the City relies on Rule 56.01(d):
56.01 (1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that



(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent…
[12] There is no dispute between the parties that the City has met its onus of proving that there is good reason to believe that Know Your City has insufficient assets in Ontario to pay costs to the City. However, the parties disagree on the next step in the analysis.

[13] The City argues that it has the initial onus of proving that there is good reason to believe that Know Your City has insufficient assets. Once it has met this onus, the burden shifts to Know Your City to prove either that it has the assets necessary to pay costs or that it is impecunious and that there is some merit to the application.

[14] Know Your City argues that the court should take a more holistic approach. Even if it cannot prove impecuniosity, it can avoid an order for security for costs if it can demonstrate that it has a good chance of success on the application.

[15] I agree with Know Your City that the test the City urges me to apply is outdated. More recent cases dealing with security for costs have established that, once the moving party has met the relatively low burden of proving that there is reason to believe that a corporation cannot pay a costs order, the court is not limited to looking at whether the applicant can prove that it has assets to pay costs or that it is impecunious. Rather, the court is to look at a multiplicity of factors to determine whether it is just to order security for costs in the circumstances of the case. At this stage, the merits of the case are always relevant. However, I do not agree with Know Your City that only the merits are relevant if it cannot prove that it has assets or that it is impecunious. Rather, the proper approach is to look at all the circumstance, including the merits and including evidence of the applicant’s financial circumstances.

[16] In Coastline Corporation Ltd. v. Canaccord Capital Corporation, 2009 CanLII 21758 (Sup. Ct.), at para. 7, Master Glustein, as he then was, set out a framework for deciding whether an order for security for costs is appropriate. The framework includes a category of cases in which a plaintiff cannot establish impecuniosity but can meet a high threshold on the merits of the litigation:
(i) The initial onus is on the defendant 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 (Hallum v. Canadian Memorial Chiropractic College (1989), 1989 CanLII 4354 (ON SC), 70 O.R. (2d) 119 (H.C.J.) at 123);

(ii) Once the first part of the test is satisfied, “the onus is on the plaintiff to establish that an order for security would be unjust” (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J. – Mast) (“Uribe”) at para. 4);

(iii) The second stage of the test “is clearly permissive and requires the exercise of discretion which can take into account a multitude of factors”. The court exercises a broad discretion in making 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);

(iv) The plaintiff can rebut the onus by either demonstrating that:
(a) the plaintiff has appropriate or sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation,

(b) the plaintiff is impecunious and that justice demands that the plaintiff be permitted to continue with the action, i.e. an impecunious plaintiff will generally avoid paying security for costs if the plaintiff can establish that the claim is not “plainly devoid of merit”, or

(c) if the plaintiff cannot establish that it is impecunious, but the plaintiff does not have sufficient assets to meet a costs order, the plaintiff must meet a high threshold to satisfy the court of its chances of success

(See Willets v. Colalillo, [2007] O.J. No. 4623 (S.C.J. – Mast.) at paras. 46, 47, and 55; Uribe, at para. 5; Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 50; Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, [2007] O.J. No. 4096 (S.C.J. – Mast.) (“Bruno”) at para. 35). [Emphasis added]

[17] In Zeitoun v. Economical Insurance Group, 2008 CanLII 20996 (ON SCDC), 91 OR (3d) 131 (Div. Ct.), aff’d 2009 ONCA 415, at para. 50, this Court recognized this third category of cases and explained the rationale for applying a higher merits threshold:
Where impecuniosity has not been shown however, a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. Where impecuniosity has not been shown, a legitimate factor in deciding whether or not it would be just to require security for costs is whether the claim has a good chance of success.
[18] More recent cases have stated that the merits are always relevant to the analysis, but that ultimately the second stage of the analysis requires the court to look at all the circumstances to determine whether it is just to order security for costs. For example, in Cigar500.Com Inc. v. Ashton Distributors Inc., 2009 CanLII 46451 (ON SC), 99 OR (3d) 55 (Sup. Ct.), in the context of an appeal from a Master’s decision ordering security for costs, Code J. held that the Court should look at all the circumstances, including the merits and the financial circumstances of the corporation’s shareholders:
[68] In any event, the Court’s decision in Zeitoun is simply the culmination of a clear trend or evolution in the modern Rule 56.01 case law towards flexible consideration of the merits at the second stage of analysis. A number of the pre-Zeitoun decisions, cited above to this effect, involved corporate Plaintiffs on Rule 56.01(1)(d) motions. See, for example: Bruno Appliance and Furniture Inc., supra; Treats Inc., supra; Aviaco, supra; and Crudo Creative Inc., supra.

[69] For all these reasons, I am satisfied that Zeitoun is a binding decision to the effect that the merits of a Plaintiff’s claim remain a relevant factor at the second stage of Rule 56.01 analysis, even when the Plaintiff is not “impecunious.” Furthermore, this principle applies generally to Rule 56.01 motions, including to corporate Plaintiffs under Rule 56.01(1)(d). This is not to say that the Courts will not take a stricter approach to corporate Plaintiffs who lack assets in Ontario but who have wealthy shareholders. Indeed the courts are likely to give considerable weight to this factor for the policy reasons set out by Nordheimer J. in Aviaco, supra. In this regard, it is to be remembered that the burden in Zeitoun for a Plaintiff who is not “impecunious” is a high one. It must establish that its claim “has a good chance of success.” Furthermore, this remains only one factor to be balanced with other relevant factors, such as the existence of “wealthy shareholders [who] have decided to carry on business and litigation through a shell corporation”, as Sutherland J. put it in Smith Bus Lines Ltd., supra at 705. All of these factors should be considered at the second stage inquiry under Rule 56.01. [emphasis added]
[19] Similarly, in K. Lee & Associates Ltd. v. Lee, 2019 ONSC 10, at paras. 50-51, Master Short stated that, in deciding a motion for security for costs, a court “may consider all matters which will be of assistance in making a ‘just’ Order, which may include the merits of the case” and that “the merits of the case are only one consideration in making an Order for Security for Costs as is just and are by no means determinative”.

[20] Accordingly, while I agree with Know Your City that it does not have to prove impecuniosity to avoid an order for security for costs and that the merits of the case are relevant, I do not agree that only the merits are relevant. Rather, in deciding what is just, I must look at all the circumstances.

...

[53] Courts have held that the timing of a motion for security for costs can affect whether security for costs should be ordered or the quantum of costs: see, for example, Charose Holdings v. Edible Arrangements International, 2014 ONSC 4185 (Master), at paras. 58-73.



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