



COURT OF APPEAL FOR
    ONTARIO

CITATION: Foodinvest Limited v. Royal Bank
    of Canada, 2020 ONCA 387

DATE: 20200617

DOCKET: M51433 (C66522)

Rouleau, van Rensburg and
    Roberts JJ.A.

BETWEEN

Foodinvest Limited

Plaintiff (Appellant/Moving Party)

and

Royal Bank of Canada

Defendant (Respondent/Responding Party)

Glenroy K. Bastien, for the moving
    party

Catherine Francis, for the
    responding party

Heard: In writing

van Rensburg J.A.:

A.

INTRODUCTION

[1]

This is a motion by Foodinvest Limited (Foodinvest) under s. 7(5) of
    the
Courts of Justice Act
, R.S.O. 1990, c.
    C.43, seeking to set aside an order of a single judge of this court for
    security for costs of its appeal. The appeal is of the summary judgment of
    Morgan J., dated December 27, 2018, dismissing Foodinvests action against the
    responding party, Royal Bank of Canada (RBC). In the action, Foodinvest
    alleged that it was a victim of fraud and claimed damages against its banker, RBC,
    for negligence, breach of contract, breach of trust, and breach of fiduciary
    duty. Foodinvest alleged that RBC had received notice that an account to which
    Foodinvest was forwarding funds was suspected to be fraudulent, and had failed
    to investigate and to notify its customer of the notice of possible fraudulent
    activity.

B.

HISTORY OF PROCEEDINGS

[2]

RBC brought its first motion for security for costs in March 2019.
    Foodinvest was ordered to pay $75,067.89 as security for costs (costs of $50,067.89
    awarded against Foodinvest in the court below plus $25,000 for the estimated
    partial indemnity costs of the appeal). That order was set aside by a panel of
    this court, without prejudice to RBC renewing its motion for security for costs
    after Foodinvest had perfected its appeal: 2019 ONCA 728. While not interfering
    with the motion judges conclusion that Foodinvest had insufficient assets in
    Ontario to pay RBCs costs, the panel concluded that the motion judge did not
    consider the justness of the order sought in all the circumstances of the case,
    with the interest of justice at the forefront, as directed by
Yaiguaje v. Chevron Corporation
, 2017 ONCA 827, 189 O.R.
    (3d) 1. The panel determined that it would not be just in the circumstances to
    order security for costs before the appeal was perfected.

[3]

The appeal was perfected on or about October 21, 2019 and scheduled to
    be heard on March 26, 2020. The hearing was adjourned.

[4]

RBC brought its second motion for security for costs returnable March
    10, 2020. The grounds for the motion were that there was good reason to believe
    that Foodinvest had no assets in Ontario and was without means to satisfy the
    costs awarded at first instance or the costs of the appeal. RBC suggested that
    Foodinvests principal, Svetlana Zolotova, who had assets in Ontario, could
    either post security for costs or undertake responsibility for costs. RBC
    referred to Ms. Zolotovas admission in her cross-examination in the
    summary judgment proceedings that she is the sole shareholder of Foodinvest. It
    noted that Ms. Zolotova had refused to produce the financial records of
    Foodinvest in those proceedings and had provided no financial disclosure in
    response to the motion for security for costs. RBC provided evidence that Ms.
    Zolotova is the registered owner of a home in Vaughan valued at approximately
    $1.3 million, against which the only registered encumbrance is a mortgage in
    its favour.

[5]

In her materials, Ms. Zolotova admitted that Foodinvest had no assets in
    Ontario. She asserted that Foodinvest is still operating but is impecunious and
    unable to raise money to post security for costs. She claimed that the appeal
    could not proceed if Foodinvest were required to post security for costs. She
    referred to the fact that 42,307.25 is being held to the credit of Foodinvest
    as physical evidence by the Public Prosecutors office in Warsaw, Poland and that
    this sum could be made available to pay costs if Foodinvest were not successful
    on the appeal. Her factum on the motion resisted an order for security for
    costs, and proposed in the alternative that, if security for costs were
    ordered, these funds could be made available.

[6]

The motion judge granted an order requiring Ms. Zolotova, in her
    capacity as sole director, officer and shareholder of Foodinvest, to post
    security for costs in the amount of the costs of $50,067.89 awarded by Morgan
    J. and $25,000 for the estimated partial indemnity costs of the appeal, by way
    of a personal undertaking to be responsible for these costs. She reserved the
    costs of the motion to the panel hearing the appeal.

C.

ISSUES ON REVIEW OF ORDER

[7]

An order refusing or granting security for costs is a discretionary
    order which is entitled to deference, absent an error of law or principle:
Yaiguaje
, at paras. 20-21.

[8]

Foodinvest submits that the motion judge erred in principle in ordering Ms. Zolotova
    to undertake to pay RBCs costs in the court below and its estimated costs of
    the appeal, and that no order for security for costs ought to have been made in
    the circumstances.

[9]

RBC contends that the motion judges order reflected a proper exercise
    of her discretion. It argues that an order for security for costs was warranted
    because Foodinvest does not have sufficient assets in the jurisdiction to
    satisfy a costs award, and that there is nothing unjust in requiring Foodinvests
    principal to assume responsibility for RBCs costs if it is unsuccessful on the
    appeal.

[10]

I agree with Foodinvest that the order for security for
    costs must be set aside. The motion judge erred in misapprehending that there
    was an agreement by Ms. Zolotova to provide a personal undertaking to pay
    the costs of the action and appeal brought by Foodinvest. As a result, she
    failed to apply the correct test and to carry out the required analysis to
    determine whether security for costs should be ordered
against the appellant, Foodinvest
. This required the
    consideration of whether RBC brought itself within the terms of the rule under
    which it was claiming security for costs, and whether it would be just to make
    an order for security for costs in the circumstances. In view of the errors of
    the motion judge, it falls to this panel to consider RBCs motion for security
    for costs
de novo.

D.

DISCUSSION

(1)

Relevant legal principles

[11]

In
Yaiguaje
, this court directed that [i]n
    deciding motions for security for costs judges are obliged to first consider
    the specific provisions of the Rules governing those motions and then effectively
    to take a step back and consider the justness of the order sought in all the
    circumstances of the case, with the interests of justice at the forefront: at
    para. 22.

[12]

An
    order for security for costs can be made under r. 61.06(1)(a) of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194, where it
    appears that 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. In its second motion for security for costs, RBC did not
    rely on this rule. Rather, RBC relied on the combination of r. 61.06(1)(b) (where
    it appears that an order for security for costs could be made against the
    appellant under r. 56.01) and r. 56.01(1)(d) (where it appears that there is
    good reason to believe that a corporate plaintiff has insufficient assets in
    Ontario to pay the costs of the defendant). It asserted that Foodinvest lacked
    sufficient assets in Ontario to pay the costs awarded at first instance and the
    costs of the appeal.

[13]

This
    court discussed the interplay of rr. 61.06(1)(b) and 56.01(1)(d) in
Health Genetic Center Corp. v. New Scientist Magazine
,
    2019 ONCA 968. In the context of a motion for security for costs of an appeal,
    the question under r. 56.01(1)(d) is whether there is good reason to believe
    that the corporate appellant (who was a plaintiff or applicant at first
    instance) has insufficient assets in Ontario to pay the costs
of the appeal
. Even where that
    threshold is met, the overriding consideration is whether an order for security
    for costs would be just, which must be considered holistically, taking into
    consideration the circumstances of the particular case:
Health Genetic
, at paras. 15-18;
Yaiguaje
,
    at para. 25. In
Health Genetic
, there was
    evidence that the corporate appellant had sufficient assets to pay costs of the
    appeal, but not to pay costs in the court below. The panel upheld the order of
    the motion judge refusing security for costs.

(2)

Application to this case

[14]

In
    the present case, although Foodinvest provided no financial disclosure, there
    is no dispute that it is a corporation with insufficient assets in Ontario to
    pay the costs of the appeal. The money being held by the Public Prosecutor in
    Poland to Foodinvests credit appears to be the only source of funds available
    to Foodinvest to pay a costs award in the event that it is unsuccessful on the
    appeal. I also accept that Foodinvest has not established that it is
    impecunious in the extended sense that the shareholders and principals of the
    corporation are unable to fund security for costs:
Rhonmont
    Properties Ltd. v. Yeadon Manufacturing Ltd.
, [2003] O.J. No. 1883
    (C.A.), at para. 5. Although Ms. Zolotovas affidavit asserted impecuniosity
    and stated that Foodinvest was unable to raise security from its shareholders, the
    evidence is that she is a shareholder, and that she has equity in a home located
    in Vaughan.

[15]

While
    RBC is able to bring itself within the scope of rr. 61.06(1)(b) and 56.01(1)(d),
    this is not sufficient to warrant an order for security for costs. Rule 61.06
    is permissive, not mandatory. In every case where security for costs is sought,
    the court must take a step back and consider whether an order for security
    for costs would be just in all the circumstances of the case. The overarching
    principle to be applied is the justness of the order sought:
Ravenda Homes Ltd. v. 1372708 Ontario Inc.
, 2017 ONCA
    556, at para. 4. Some relevant factors are the merits of the claim (in this
    case the appeal), any delay in bringing the motion for security for costs, the
    impact of actionable conduct by the defendants (or respondents) on the
    available assets of the plaintiffs (or appellants), access to justice concerns,
    and the public importance of the litigation:
Yaiguaje
,
    at para. 24. I would add that the court should give careful consideration to
    the amount and form of security sought by the moving party. And, [c]ourts must
    be vigilant to ensure that an order that is designed to be protective in nature
    is not used as a litigation tactic to prevent a case from being heard on its
    merits, even in circumstances where the other provisions of rr. 56 or 61 have
    been met:
Yaiguaje
, at para. 23. Each case
    must be considered on its own facts: The correct approach is for the court to
    consider the justness of the order holistically, examining all the
    circumstances of the case and guided by the overriding interests of justice to
    determine whether it is just that the order be made:
Yaiguaje
,
    at para. 25.

[16]

In
    my view, the interests of justice do not favour an award of security for costs
    in this case or the specific order that RBC sought and that was granted by the
    motion judge.

[17]

First,
    RBC delayed in bringing its motion. The setting aside of the first order for
    security for costs was without prejudice to RBC bringing another motion after
    the appeal was perfected. The appeal was perfected in October 2019, however RBCs
    motion was heard only two weeks before the scheduled date of the appeal and
    after it had filed its materials responding to the appeal. Such a delay weighs
    against an order for security for costs: see
Hilson v.
    1336365 Alberta Ltd.
, 2019 ONCA 727, at para. 11. Moreover, the
    fact that RBC brought its motion for security for costs after it had incurred
    all of its costs in connection with the appeal, except for the costs related to
    the hearing, calls into question the purpose of the motion. Motions for
    security for costs are meant to provide a measure of protection to the
    respondent for the costs that will be incurred on the appeal:
Health Genetic
,

at para. 26, citing
Combined Air Mechanical Services Inc. v. Flesch
, 2010
    ONCA 633, 268 O.A.C. 172, at para. 8.

[18]

Second,
    the appeal is not obviously or plainly devoid of merit. In its appeal,
    Foodinvest points to a number of specific errors that it submits the motion
    judge made in granting summary judgment. This is a relevant factor irrespective
    of whether a respondent moves for security for costs of an appeal under r.
    61.06(1)(a) or under some other part of r. 61.06:
Yaiguaje
,
    at para. 24;
Chinese Publications for Canadian Libraries
    Ltd. v. Markham (City)
, 2017 ONCA 968.

[19]

Third,
    the particular order sought by RBC, requiring Foodinvests principal to give a
    personal undertaking to pay the estimated partial indemnity costs of the appeal
    as well as the costs awarded against Foodinvest in the court below, would
    provide it with something it did not have in the proceedings below  a judgment
    for costs that is enforceable against Ms. Zolotova personally. This is
    inappropriate, overreaching, and not a valid reason to seek security for costs.
    Contrary to RBCs submission that there is nothing unfair about such an order, it
    would be unjust in the circumstances to require such an undertaking as the price
    for Foodinvest to proceed with an appeal that is not devoid of merit and that
    it has a right to pursue.

[20]

The
    motion in this case was for security for costs in
Foodinvests
appeal. Ms.
    Zolotova is not a party to the appeal. As already observed, the motion judge
    misapprehended the undertaking proposed by Foodinvests counsel. Specifically,
    what was offered was that, if the court concluded that security for costs was
    warranted, Ms. Zolotova was prepared to undertake to make available the monies
    to Foodinvests credit that were being held in Poland. It was not a concession
    that an order for security for costs was warranted, or that such an order could
    or should be made against Ms. Zolotova personally without her consent, and for
    the full amount of the costs RBC was seeking.

[21]

I
    disagree with RBCs submission that, even without Ms. Zolotovas consent, there
    was a basis for making an order requiring her to pay the costs of the appeal
    and of the proceedings below as security for the costs of Foodinvests appeal. RBC
    refers to one case,
Printing Circles Inc. v. Compass Group
    Canada Ltd. (2007)
, 88 O.R. (3d) 685 (S.C.), a decision of Corbett
    J. in the Superior Court, which it cites as authority for such an order. Its
    reliance on that decision, however, is misplaced. In
Printing
    Circles
, the corporate plaintiff had insufficient assets in Ontario
    to pay the costs of an action, but was not impecunious, because it could raise
    funds from its principal. The corporate plaintiff opposed an order for security
    for costs, and in the alternative proposed that an order for security for costs
    could be satisfied by way of a personal undertaking by its principal to pay
    costs. The defendant argued that the court could not accept such an undertaking
    in lieu of or as a form of security for costs. After considering various
    authorities, Corbett J. ordered security for costs against the corporate
    plaintiff, with the proviso that it could be satisfied by an undertaking
    provided by its principal. As such, the issue in that case was not whether an
    order for security for costs should be made against the corporate plaintiffs
    principal, but whether, once the defendant made out a case for security for
    costs, the corporate plaintiff could satisfy the order by giving a personal
    undertaking from its principal to pay costs in the event that the corporate
    defendant did not pay them. See also
1056470 Ontario Inc.
    v. Goh
, [2007] O.J. No. 2545 (Gen. Div.), at para. 15.

[22]

At
    its highest, the reasoning in
Printing Circles
would have permitted this court to accept an undertaking from Ms. Zolotova if the
    court concluded that Foodinvest must provide security for costs, and she had
    offered such an undertaking. While the court can order a corporate appellant to
    post security which, as a practical matter, the appellant may only be able to
    satisfy by funding from its shareholders, an order for security for costs under
    the combination of rr. 61.06(1)(b) and 56.01(1)(d) is against the corporate
    appellant itself, and not against its principal.

[23]

As
    a final point, I would emphasize that, when considering a motion under r. 61.06,
    the court must have regard to the interests of justice at all stages of its
    analysis: in determining whether an order for security for costs is warranted,
    and in determining the type and amount of security to be ordered. While r.
    61.06 authorizes the court to order security for costs of the appeal
and
of the proceedings below, it
    does not follow that such an order will be made routinely. It is beyond the
    scope of this review motion to address this issue, except to observe that 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.

E.

DISPOSITION

[24]

For
    these reasons, I would set aside the order for security for costs and order
    costs to Foodinvest of this motion and the motion before the motion judge. If
    the parties are unable to agree on the amount of such costs, the court will
    receive written submissions limited to three pages each (in addition to
    Foodinvests costs outline), as follows: from Foodinvest within 20 days and from
    RBC within 15 days thereafter. Submissions are to be submitted electronically
    at the following email address: COA.E-File@ontario.ca.

Released: June 17, 2020 (P.R.)

K.
    van Rensburg J.A.

I
    agree. Paul Rouleau J.A.

I
    agree. L.B. Roberts J.A.


