



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



Ocean Pastures Corporation v. Old Masset Economic 
  Development Corporation,









2016 BCCA 12




Date: 20160113

Docket:
CA42267; CA42272

Docket: CA42267

Between:

Ocean Pastures
Corporation and Russ George

Respondents

(Plaintiffs)

And

Old Masset
Economic Development Corporation

Appellant

(Defendant)

And

Haida
Salmon Restoration Corporation, Jason McNamee, Cecil Brown,
John Disney, Blue Carbon Solutions, Inc., John (BC) Doe, John Doe #2

Respondents

(Defendants)

-
and -

Docket: CA42272

Between:

Ocean Pastures
Corporation and Russ George

Respondents

(Plaintiffs)

And

Haida Salmon
Restoration Corporation

Appellant

(Defendant)

And

Old
Masset Economic Development Corporation, Jason McNamee,
Cecil Brown, John Disney, Blue Carbon Solutions, Inc.,
John (BC) Doe, John Doe #2

Respondents

(Defendants)




Before:



The Honourable Mr. Justice Donald

The Honourable Madam Justice Newbury

The Honourable Mr. Justice Goepel




On appeal from:  An
order of the Supreme Court of British Columbia, dated September 24, 2014 (
Ocean
Pastures Corporation v. Haida Salmon Restoration Corporation
, 2014 BCSC
1788, Vancouver Registry Docket S140052).




Counsel for the Appellant,
Old Masset Economic Development Corporation:



A. Paczkowski





Counsel for the Appellant,
Haida Salmon Restoration Corporation:



R. Spigelman





Counsel for the Respondents:



No one appearing





Place and Date of Hearing:



Vancouver, British
  Columbia

December 10, 2015





Place and Date of Judgment:



Vancouver, British
  Columbia

January 13, 2016









Written Reasons by:





The Honourable Mr. Justice Goepel





Concurred in by:





The Honourable Mr. Justice Donald





The Honourable Madam Justice Newbury








Summary:

Appeal from orders dismissing
the appellants applications for security for costs against an impecunious
corporate plaintiff. The chambers judge found that the applicants satisfied the
test for security for costs against the corporate plaintiff but declined to
award security because an individual plaintiff was a shareholder of the
corporate plaintiff. Held: appeal allowed. The chambers judge erred in applying
the special circumstances test to the corporate plaintiff. The presence of an
individual plaintiff does not alter the established test for security against a
corporate plaintiff.

Reasons for Judgment of the Honourable
Mr. Justice Goepel:

INTRODUCTION

[1]

This appeal concerns security for costs. The issue for determination is whether
the existence of an individual plaintiff modifies the test to be applied on an
application for security for costs against an impecunious corporate plaintiff.

BACKGROUND

[2]

Russ George and Ocean Pastures Corporation (OPC) commenced the underlying
action in January 2014. Mr. George is the sole shareholder of OPC.

[3]

OPC owns 48% of the shares in the appellant Haida Salmon Restoration
Corporation (HSRC). HSRC was formed to finance and operate an iron
fertilization project aimed at stimulating plankton growth in the oceans off
Haida Gwaii. The majority shareholder of HSRC is the appellant Old Masset
Economic Development Corporation (OMEDC). Mr. McNamee, Mr. Brown and Mr.
Disney are each directors or former directors of HSRC. Mr. Disney is also a
director of OMEDC.

[4]

The causes of action pleaded by the plaintiffs include breach of
contract, oppression, interference with economic relations, and breach of
fiduciary duty.

THE CHAMBERS
APPLICATION

[5]

In February 2014, the corporate defendants, OMEDC and HSRC, each sought
security for costs against OPC and Mr. George in the amount of $40,132.10. The
individual defendants, Mr. McNamee, Mr. Brown and Mr. Disney, also sought
security for costs in the amount of $35,000. The defendants argued that the
plaintiffs would be unable to pay costs if their action was dismissed because
neither plaintiff appeared to have any assets. Mr. George argued that both he
and OPC had limited resources and would be unable to prosecute their claim if
security was ordered.

[6]

In reasons indexed at 2014 BCSC 1788, the chambers judge first set out
the principles governing an order of security for costs against a corporate
plaintiff, citing the leading authorities of
Kropp v. Swaneset Bay Golf
Course Ltd.
(1997), 29 B.C.L.R. (3d) 252 (C.A.) and
Fat Mels Restaurant
Ltd. v. Canadian Northern Shield Insurance Co.
(1993), 76 B.C.L.R. (2d) 231
(C.A.) [
Fat Mels
].

[7]

He noted that a defendant faces a more stringent test in seeking
security for costs from an individual plaintiff, compared to a corporate
plaintiff, citing
Bronson v. Hewitt
, 2007 BCSC 1751 and
Han v. Cho
,
2008 BCSC 1229.

[8]

He then considered the situation in which an individual plaintiff is
also a shareholder in a corporate plaintiff. Citing
Hawksview Enterprises
Ltd. v. BC Hydro and Power Authority
, 2014 BCSC 226 [
Hawksview
], he
held that the usual test for security for costs against a corporate plaintiff
may not apply when an individual plaintiff is also a shareholder in that
corporation. On this basis, he dismissed HSRC and OMEDCs applications for
security for costs against OPC, reasoning as follows:

[18]      I find that a similar approach [to that in
Hawksview
]
is appropriate on the facts of this case. The applicants have met the test in
relation to the corporate plaintiff, OPC, but only if OPC is viewed in
isolation from the individual plaintiff Mr. George.

[19]      On the evidence before me, any order for security
for costs against OPC would, for all practical purposes, be an order against
the individual plaintiff. Mr. George is the sole shareholder of the company,
which has no current business income and no assets against which it could raise
funds. Realistically, any security posted by the company could only be supplied
by Mr. George.

[20]      On the application by
the defendants HSRC and OMEDC, there are no special circumstances sufficient to
an [
sic
] order that Mr. George post security for costs. His apparent
inability to pay costs is not, on the authorities, a reason for the order and I
am satisfied that an order would stifle the litigation.

[9]

The chambers judge reached a different conclusion regarding the
individual defendants application for security for costs. He found that the
plaintiffs claim against the individual defendants was weak and ordered security
for costs in their favour in the total amount of $8,000. He stayed the action
against the individual defendants until security was posted and ordered that
the action against them would be dismissed if security was not posted within 60
days of the date of his order.

[10]

The plaintiffs did not post the security ordered in favour of the
individual defendants. The action against them has now been dismissed.

[11]

HSRC and OMEDC sought leave to appeal the orders dismissing their
applications for security for costs against OPC. On January 22, 2015, a judge
of this Court granted leave to appeal.

ISSUES ON APPEAL

[12]

On the appeal, the appellants submit that the chambers judge erred in
law in failing to identify and apply the proper legal test governing the
exercise of his discretion to order security for costs against the corporate
plaintiff. In particular, the appellants submit that the chambers judge erred
in:

(a)

applying to the corporate plaintiff the special circumstances test usually
applicable to individual plaintiffs; and

(b)

failing to properly distinguish between the corporate and individual
plaintiffs in this proceeding.

[13]

I would note that, although served, OPC took no role in the appeal.

DISCUSSION

[14]

There is a distinction between the circumstances in which security for
costs will be ordered against corporations as opposed to natural persons.

[15]

The foundation for an order for security for costs against a corporate
plaintiff is s. 236 of the
Business Corporations Act
, [SBC 2002], c. 57,
which provides:

236      If a corporation is the
plaintiff in a legal proceeding brought before the court, and if it appears
that the corporation will be unable to pay the costs of the defendant if the
defendant is successful in the defence, the court may require security to be
given by the corporation for those costs, and may stay all legal proceedings
until the security is given.

[16]

That section traces its origin to at least the
English Companies Act
,
1862, s. 69.

[17]

The legal principles governing an application for security for costs
against an impecunious corporate plaintiff were summarized in
Kropp
at
para. 17:

1.

The court has a complete discretion whether to order security, and will
act in light of all the relevant circumstances;

2.

The possibility or probability that the plaintiff company will be
deterred from pursuing its claim is not without more sufficient reason for not
ordering security;

3.

The court must attempt to balance injustices arising from use of
security as an instrument of oppression to stifle a legitimate claim on the one
hand, and use of impecuniosity as a means of putting unfair pressure on a
defendant on the other;

4.

The court may have regard to the merits of the action, but should avoid
going into detail on the merits unless success or failure appears obvious;

5.

The court can order any amount of security up to the full amount
claimed, as long as the amount is more than nominal;

6.

Before the court refuses to order security on the ground that it would
unfairly stifle a valid claim, the court must be satisfied that, in all the
circumstances, it is probable that the claim would be stifled; and

7.

The lateness of the application for security is a circumstance which can
properly be taken into account.

[18]

Once an applicant for security for costs has shown that a corporate
plaintiff will not be able to pay costs should its claim fail, security is
generally ordered unless the court is satisfied that there is no arguable
defence:
Fat Mels
at 235.

[19]

The principles relating to corporate plaintiffs stand in contrast to the
general rule that poverty should not be a bar to an individual litigant. The
historical evolution of the difference between security for costs as against
corporations and individuals is traced in
Bronson
at paras. 21-34 and
Han
at paras. 12-27.

[20]

Han
summarized the law concerning individual plaintiffs:

[27]      The onus is on the
applicant to establish that he or she will be unable to recover costs [citation
omitted]. The fact that the plaintiff resides outside the jurisdiction, has no
assets within the jurisdiction, or is impecunious, is not sufficient in itself.
The power to order security for costs against an individual is to be exercised
cautiously, sparingly, and only under special circumstances, sometimes
described as egregious circumstances. Such special circumstances could
arise if an impecunious plaintiff also has a weak claim, or has failed to pay
costs before, or refused to follow a court order for payment of maintenance.

[21]

The reason for the distinction between corporate and individual
plaintiffs was set out in
Bronson
:

[41]       For good reason, individual and corporate
plaintiffs have always been treated differently.  Absent special
circumstances, corporate shareholders are entitled to avail themselves of the
protection of a limited liability company to avoid personal exposure for costs:
[citation omitted]. An order for security for costs prevents the principals of
a corporate plaintiff from hiding behind the corporate veil and, as noted by Megarry
V.C. in
Pearson
, protects the community against litigious abuses by
artificial persons manipulated by natural persons.

[42]      With individuals, the
fundamental concern has always been access to the courts. Access to
justice is as important today as it was in 1885 when Lord Bowen declared in
Cowell
that the general rule is that poverty is no bar to a
litigant. Individuals, no matter how poor, have always been granted
access to our courts regardless of their ability to pay a successful
defendants costs. Only in egregious circumstances have individuals been
ordered to post security for costs.

[22]

In the case at bar, the chambers judge recognized that the applicants
had met the usual test for security for costs against the corporate plaintiff
but refused to order security, purporting to follow the decision in
Hawksview
.

[23]

In
Hawksview
, two individual plaintiffs and one corporate
plaintiff claimed damages in relation to a fire that destroyed a lakefront home
and its contents. The corporate plaintiff owned the home as its sole asset. The
individual plaintiffs had lived in the home for several years. One of the
individual plaintiffs was an officer and co-owner of the corporate plaintiff. The
chambers judge acknowledged that the defendants would have been entitled to
security for costs against the corporate plaintiff if the

corporate
plaintiff

was viewed in isolation from the individual plaintiffs. She
held, however, that the usual test for security for costs against a corporate
plaintiff did not apply because of the presence of the individual plaintiffs.
She concluded that, in those circumstances, the defendants applications for
security for costs should be determined together according to the special
circumstances test which generally applies to individual plaintiffs.

[24]

In
Pearson v. Naydler
, [1977] 3 All E.R. 531 (Ch. D.), a decision
referred to with approval in both
Fat Mels
and
Kropp
, Megarry
V.C. specifically rejected the submission that the existence of an individual
plaintiff should shield a corporate plaintiff from an order for security for
costs. At 535, he said:

In the case of a limited company, there is no basic rule conferring
immunity from any liability to give security for costs.
The basic rule is
the opposite; s 447 [of
The Companies
Act, 1948] applies to all limited
companies, and subjects them all to the liability to give security for costs
.
The whole concept of the section is contrary to the rule developed by the cases
that poverty is not to be made a bar to bringing an action. There is nothing in
the statutory language (the substance of which goes back at least as far as the
Companies Act
1862, s 69) to indicate that there are any exceptions to
what is laid down as a broad and general rule for all limited companies. Nor is
it surprising that there should be such a rule. A man may bring into being as
many limited companies as he wishes, with the privilege of limited liability;
and s 447 provides some protection for the community against litigious abuses
by artificial persons manipulated by natural persons.
One should be as slow
to whittle away this protection as one should be to whittle away a natural
persons right to litigate despite poverty. Yet if counsel for the plaintiffs
is right, there is an implied exception or qualification to s 447 which makes
it operate as if there were inserted in some suitable place some words such as
unless the company sues with one or more natural persons as co-plaintiffs or
co-pursuers. I can see no grounds for making any such implication
.

[Emphasis added.]

[25]

I agree with and would adopt those comments. The existence of an
individual plaintiff does not alter the well-established test to be applied on
an application for security for costs against a corporate plaintiff. The same test
applies to all limited liability companies. This test provides a degree of
protection and comfort to a party sued by an impecunious corporation.

[26]

I also note that
Kropp
involved an individual plaintiff who was
the principal shareholder of the corporate plaintiff. That individuals presence
as a litigant did not shield the corporate plaintiff from an order for security
for costs against it.

[27]

Hawksview
was, with respect, wrongly decided and should not be
followed. The chambers judge in this case and the chambers judge in
Hawksview
both fell into error by conflating the claims of the individual and
corporate plaintiff. They failed to recognize

that the claims of the
individual were separate and apart from those of the corporation and would
continue regardless of whether the corporation posted security. The fact that Mr.
George may be the only person who can post security for the corporation does
not impact the principles governing the circumstances in which a corporation may
be obliged to post security.

[28]

The chambers judge was satisfied that, subject to
Hawksview
, security
for costs should be ordered against OPC in the appellants favour. The
appellants each sought security in the amount of $40,132.10. Their draft bill
of costs contemplated a ten-day trial and several interlocutory applications. This
draft bill was prepared early on in the litigation, at a time when the
individual defendants remained involved.

[29]

As noted in
Kropp
, the court can order any amount of security up
to the full amount claimed, as long as the amount is more than nominal. The
draft bill is a guideline. The court has the discretion to order security in
the amount that it considers appropriate.

[30]

I would allow the appeal and order that OPC post security for costs in
the sum of $25,000 for each appellant. I would stay OPCs action against each
appellant until the security in their favour has been posted.

[31]

If security in favour of an appellant is not posted within 45 days of
the date of these reasons, that appellant will be at liberty to bring an application
in the Supreme Court to have OPCs action against it dismissed.

The
Honourable Mr. Justice Goepel

I AGREE:

The Honourable Mr. Justice Donald

I AGREE:

The Honourable Madam Justice Newbury


