



COURT 
    OF APPEAL FOR BRITISH COLUMBIA




Citation:


Dong 
          v. Au,







2007 
          BCCA 37



Date: 200701212





Docket: CA033629

Between:

Sheng 
    Yun Dong also known as Dong, Sheng Yun

Respondent

(
Plaintiff
)

And

Brandon 
    Au and S.A.H. Consultant Ltd.

Appellants

(
Defendants
)








Before:


The 
          Honourable Chief Justice Finch




The 
          Honourable Mr. Justice Donald




The 
          Honourable Mr. Justice Chiasson



Oral Reasons for Judgment




G.A. 
          Cuttler


Counsel for the Appellant




J.A. 
          Henshall


Counsel for the Respondent




Place 
          and Date:


Vancouver
,
British Columbia




12 January 2007



[1]

CHIASSON, J.A.
: This is an appeal from the dismissal of 
    an application by two defendants for an order for security for costs on the 
    basis that the Chambers Judge was not able to conclude that the defence 
    is
bona fide
.

[2]

Leave to appeal was granted by Mr. Justice Donald on 29 March 2006.

[3]

The respondent, who lives in China, alleges that he was induced to 
    pay $300,000 to the appellant company in order to qualify for a Provincial 
    fast-track immigration policy.  He asserts that it was understood that the 
    money would be refunded to him if he were to fail to qualify.  He paid the 
    money, signed a distributorship agree with the appellant company, was rejected 
    under the policy and sought unsuccessfully to obtain the return of his money, 
    for which he now sues.

[4]

The action was brought against,
inter alia
, the appellants, 
    Ms. Gu and Golion International Investments Ltd. (Golion).  The latter two 
    defendants, who did not bring an application for security for costs, were 
    engaged by the respondent to arrange for his dealing in British Columbia with 
    the immigration officials and with the appellants.

[5]

The respondent asserts that Ms. Gu and Golion misrepresented his ability 
    to qualify under the policy and that it was a fundamental term of the distribution 
    agreement that if the respondent were not to qualify under the policy, his 
    $300,000 investment would be returned. The statement of claim alleges forged 
    documentation, fraud, breach of fiduciary duty and negligence.  It is the 
    respondents position that the appellants acted in consort with the defendants 
    Ms. Gu and Golion.

[6]

The appellants deny the respondents claim generally and specifically 
    deny fraud.  They rely on the wording of the distribution agreement, which 
    states that the $300,000 payment was non-refundable.

[7]

Affidavits were filed by the respondents wife and others, including 
    the appellant Mr. Au.  In many respects they were contradictory either directly 
    or inferentially.

[8]

The learned Chambers judge began her analysis by referring to comments 
    of Lambert J.A. in
Shiell v. Coach House Hotel Ltd.
,

[1982] 
    B.C.J. No. 666, 37 B.C.L.R. 254.  That case confirmed that security for costs 
    will not be ordered against an individual simply because he or she does not 
    reside or have assets in the jurisdiction.  In reasons concurring with Seaton 
    and Taggart JJA., Mr. Justice Lambert emphasized the discretionary nature 
    of the jurisdiction to order security for costs in paras. 39 and 42 of the 
    reasons:

¶39 
     the inherent jurisdiction to order security for costs survives the making 
    of the new Rules.  That inherent jurisdiction is a discretionary jurisdiction.  
    As such, the law requires that it be exercised judicially.  But the law does 
    not require any particular outcome.  Previous decisions in which the discretion 
    was exercised in particular ways, and the reasons for those decisions, constitute 
    guidelines which should be considered by a judge in the interests of uniformity 
    and in response to perceptions of public policy.  But they do not constitute 
    binding principles of law.  Otherwise the discretion would be at an end.

¶42 The discretion must be exercised judicially.  It must be based on 
    a fair assessment of the interests of all parties.  In my opinion the discretion 
    is, in all other respects, unfettered.  I would not propose to put forward 
    any more detailed guidelines unless a need for such guidelines was demonstrated, 
    perhaps by conflicting decisions on indistinguishable facts.

[9]

The Chambers judge also referred to
Kropp v. Swaneset Bay Golf 
    Course Ltd.
(1997), 29 B.C.L.R. (3d) 252, a decision of this Court. 
     Although the case dealt specifically with the ability of a corporate plaintiff 
    to continue with litigation if security for costs were ordered and the principles 
    that apply to the exercise of the discretionary power to order security for 
    costs under the then s. 229 of the
Company Act
, the approach 
    overall is instructive and applicable generally to a consideration of an application 
    for security for costs.

[10]

Of particular significance in the case at bar is the fourth consideration 
    stated by the Court in the
Kropp
case:

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.

[11]

Leggatt J. in
de Bonth v. Rampart Capital Corp
Nederland
B.V. (Trustee 
    of)
, [1997] B.C.J. 
    No. 2292 addressed the matter further as quoted by the Chambers judge in para. 
    9 of her reasons:

In
de Bonth v. Rampart Capital Corp
Nederland
B.V. (Trustee 
    of)
, [1997] B.C.J. 
    No. 2292 (S.C.) Leggatt J. discussed the evidentiary burden applicable 
    to an application for security for costs.  At ¶ 4 he stated:

At this stage, of course, the Court cannot make any detailed assessment 
    of the merits of the case.  To quote Mr. Justice Spencer in Ruko of Canada 
    Ltd. v. C.I.B.C (1991), 49 C.P.C. (2d) 105 (B.C.S.C.):

All 
    that is required now is that I should be satisfied that the defence is bona 
    fide and has an arguable case to present, not that it should win in any event.  
    The strength or weakness of the defendant's case is a factor to be considered 
    in ordering security, to be balanced with the factors of financial strength, 
    delay, prejudice to the plaintiff and whether the plaintiff may be prevented 
    by the financial burden of posting security from presenting its case at all.

[12]

The decision of Mr. Justice Spencer was endorsed specifically by Mr. 
    Justice Lambert sitting in Chambers in this Court in
Daiwood Construction 
    Co. v. Wright Schuchart Construction Ltd.
, [1993] B.C.J. No. 290.

[13]

The Chambers judge held in para. 10 of her Reasons for Judgment that 
    favouring granting an order for security for costs, in this case, are the 
    facts that the respondent resides out of the jurisdiction, China is not a 
    reciprocating state with British Columbia and the respondent owns no exigible 
    assets in the Province.  The only issue for resolution was consideration of 
    the merits of the case.

[14]

At the hearing of this appeal, the respondent asserted that, in fact, 
    he does have exigible assets in the province.  Counsel pointed to the $300,000 
    paid by the respondent to the appellants and to his right to sell product 
    from a location in Delta, British Columbia.

[15]

If the respondent were to lose his case the appellants would be entitled 
    to keep the $300,000.  The right to sell product would have value only if 
    he were to do so.

[16]

In any event, the respondent took no issue in his factum to the conclusions 
    of the Chambers judge in para. 10 of her Reasons for Judgment that the respondent 
    does not have exigible assets in the jurisdiction.

[17]

The Chambers judge set-out the framework of her task in para. 11:

Althoughit is not appropriate to scrutinize the merits in great detail, 
    it is necessary to examine the evidence in order to determine if the evidence 
    meets the low threshold of an arguable claim or
bona fide
defence.

She then referred generally to the evidence in para. 
    12.

The affidavit evidence contains many directly conflicting accounts of 
    events and conversations.  There are allegations that the defendants and others 
    have fraudulently prepared some documents and fraudulently altered other documents.  
    The defendant, Mr. Au, disputes the authenticity of some documents.  
    Most of the allegations of fraud are directed at the defendants Ms. Gu 
    and Golion International. But in a careful analysis of the documents and evidence 
    produced so far, Ms. MacDonald argued that Mr. Au is implicated 
    in the alleged fraudulent dealings of Ms. Gu and her company Golion International.

[18]

The Chambers judge reviewed the affidavit evidence in some detail noting 
    particularly factual allegations that appeared not to be answered by Mr. Au.  
    She stated, I have highlighted only a few portions of the evidence. I have 
    considered all of the evidence and in particular the evidence of Mr. Au.

[19]

The conclusions of the learned Chambers judge were stated in para. 
    21 of her Reasons for Judgment:

On the present state of the evidence  I am not able to conclude that 
    the defence is
bona fide
.  I emphasize that all the evidence is probably 
    not before the court and in the final analysis a court may reach the conclusion 
    that the plaintiffs claim ought not to succeed. But as the evidence now stands, 
    I do not think it would be a fair exercise of my discretion to compel the 
    plaintiff to pay security for costs.

[20]

It is with reluctance that I disagree with this conclusion because 
    I am mindful of the considerable deference that should be shown to the courts 
    exercise of discretion in this matter.

[21]

The allegations in this case are serious and hotly contested, involving 
    as they do fraud and assertions of forged documents.  Paragraph 12 of the 
    Chambers judges reasons quoted above is illustrative of that fact.

[22]

It is not possible to resolve the conflicts in the evidence on an application 
    such as this and no attempt should be made to do so.

[23]

I agree with the submissions of the appellant that on an application 
    for security for costs parties are not obliged to meet all the allegations 
    of fact of each other.  The parties are obliged to show that they have an 
    arguable case and that it is
bona fide
.
Bona fide
must be considered 
    objectively, not on the basis that a trial court might or even would be likely 
    to reject the defence on the merits.  In my opinion, where there is an arguable 
    case, to conclude on conflicting evidence that it is not
bona fide
would require clear and compelling evidence.

[24]

The appellants note that they rely on the terms of the written agreement 
    with the respondent.  It provides
inter alia
that there are no external 
    representations and warranties and that the $300,000 payment was non-refundable.

[25]

Affidavits were delivered by each side which contained contradictory 
    factual assertions.

[26]

The respondents wife exhibited documents to support the respondents 
    case that the appellants were implicated in a fraudulent scheme, the authenticity 
    of some of which were denied directly by Mr. Au and on the face of which appear 
    not to be authentic.

[27]

These include:

Exhibit C  an invoice on the letterhead 
    of the corporate appellant, but using the address of the defendant Golion; 
    Mr. Au stated that no one in the corporate appellants organization authorized 
    the document and that he did not recognize the signature on it; he said he 
    was not aware of the document before he saw the respondents wifes affidavit;

Exhibit J  a letter that purports to acknowledge 
    receipt by the corporate appellant of the respondents $300,000; the address 
    on the letter is not that of the corporate appellant; Mr. Au denied that the 
    letter was authorized by the appellants; he also stated that he did not know 
    the person who purported to sign the letter as the corporate appellants manager 
    and that no such person had ever worked for the corporate appellant; he said 
    that he was unaware of the letter before it was produced in the litigation 
    by the respondent;

Exhibit K  a letter that purported to confirm 
    that the respondents $300,000 would be returned in he were to be rejected 
    for immigration under the policy; Mr. Au denied the authority of the author 
    of the letter to write the letter and stated that he was not aware of it until 
    it was produced in the litigation by the respondent.

Exhibit G  a letter from a Mr. Chan confirming submittal and approval 
    of the respondents application; Mr. Chan denies signing the letter and states 
    he does not know who created the document.

[28]

Although the Chambers judge made a point of the existence of two iterations 
    of the distribution agreement, Mr. Au deposed that he was aware of only one 
    authentic document.

[29]

I stress that as the litigation progresses, the authenticity of these 
    documents may be established, but they illustrate that on the present state 
    of the evidence it is not possible to tip the scales to the extent of concluding 
    that the appellants do not have an arguable or
bona fide
defence.

[30]

In my view, the learned Chambers judge embarked on an inappropriate 
    examination of the merits of the defence and preferred the contested position 
    of one side over the other.  Objectively, each side advanced positions that 
    depended on credibility and the consideration of documents in the context 
    of evidence.  It will be for another proceeding to determine which of these 
    positions should prevail. It cannot be said at this stage of the case that 
    either position is not arguable or not
bona fide
.

[31]

I would allow this appeal.

[32]

The appellant sought the following order:

(a)        This appeal be allowed;

(b)        
    The Order of the Honourable Madam Justice Garson pronounced November 24, 2005 
    be set aside;

(c)        
    The Plaintiff be ordered to deposit within 30 days from the date of this Honourable 
    Courts Reasons for Judgment, or alternatively, within such other period as 
    this Court may decide, the sum of $56,337.74, or alternatively, such amount 
    as this Court may decide, in the Supreme Court of British Columbia, such money 
    to be held for the benefit of these Appellants (Defendants) as security for 
    costs in this action;

(d)        
    The Plaintiff be stayed from taking any steps in this action that would cause 
    these Defendants to incur costs until such security has been deposited;

(e)        
    Where the Plaintiff has posted security for costs in accordance with the Order 
    of this Court, that these Defendants be at liberty to apply for an order requiring 
    the Plaintiff to deposit further security for costs if the cost of this action 
    appear likely to exceed the amount of security already posted by the Plaintiff;

(f)         
    Where the Plaintiff has posted security for costs pursuant to this Order, 
    that such security cannot be paid out without the consent of all parties or 
    a further court order; and

(g)        The Appellants be awarded costs of this appeal.

[33]

The quantum of the requested security is not contested.

[34]

I would make the requested order modifying paragraph (c) as follows:

The plaintiff be ordered to deposit within 30 days security to the satisfaction 
    of the Registrar for the sum of $56,337.74 to be held for the benefit of the 
    appellants as security for costs in this action.

[35]

FINCH, C.J.B.C.
: I agree.

[36]

DONALD, J.A.
: I agree.

[37]

FINCH, C.J.B.C.: There will be an order in the terms described by Mr. 
    Justice Chiasson.  The appeal is allowed.

The Honourable Mr. Justice Chiasson:


