



COURT OF APPEAL FOR ONTARIO

CITATION: Trillium Motor World Ltd. v. General Motors of
    Canada Limited, 2016 ONCA 702

DATE: 20160923

DOCKET: M46726 (C60838)

Huscroft J.A. (In Chambers)

BETWEEN

Trillium Motor World Ltd.

Plaintiff (Appellant/Respondent by Cross-Appeal/Responding
    Party)

and

General Motors of Canada Limited
and
    Cassels Brock & Blackwell LLP

Defendants (Respondents/
Appellant by Cross-Appeal/Moving
    Party
)

David S. Morritt and Evan Thomas, for the
    respondent/moving party

David Sterns and Andy Seretis for the
    appellant/responding party

Heard: September 9, 2016

ENDORSEMENT

[1]

General Motors of Canada Limited (GM) seeks an order requiring
    Trillium Motor World Ltd. (Trillium) to pay security for costs prior to
    continuing its appeal.

[2]

GM seeks $5,353,133.77, which includes $5,478,005.32 in costs awarded to
    GM following its successful defence at trial, less $500,000 (security for costs
    already paid by Trillium), plus $375,128.45, which GM estimates to be the costs
    of responding to Trilliums appeal on a partial indemnity basis.

[3]

During the course of the hearing, GM indicated that an order for $1.8
    million in respect of the appeal costs plus some percentage of the trial costs
    would not be unfair. Ultimately, GM encouraged the court to exercise its
    discretion to make an order for any quantum it considered just.

[4]

For the reasons that follow, I have concluded that it is too late in the
    day to order security for costs, both as to the trial costs and the appeal
    costs. I am not satisfied that it would be appropriate to award security for
    costs in any event.

[5]

Accordingly, the motion is dismissed.

Background

[6]

This case arises out of a number of wind down agreements (WDAs")
    GM entered with 202 GM dealers, including Trillium, when GMs business was
    restructured in 2009. Pursuant to the WDAs, GM dealerships were closed and
    payments were made to the dealers in exchange for a full and final release of
    all claims against GM. Trillium received a wind down payment of $642,000. Over
    $123 million was paid to the other dealers.

[7]

In 2010, Trillium brought a class action against GM seeking over $800
    million in damages on behalf of all dealers who had signed WDAs with GM,
    claiming that GM had breached its common law obligations as well as its statutory
    obligations under the
Arthur Wishart Act (Franchise Disclosure), 2000
,
S.O. 2000, c. 3, and similar franchise
    legislation in other provinces. Trillium also claimed that Cassels Brock &
    Blackwell LLP, which was retained by some of the dealers, breached contractual
    and fiduciary duties to the dealers and was negligent in its provision of legal
    services.

[8]

GM counterclaimed against the class members for breaching the WDAs by
    bringing a class action and sought costs of the action against all class
    members and their respective principals personally.

[9]

The claim was certified as a class proceeding on March 1, 2011 and the
    counterclaim was certified on January 18, 2012. Following opt-outs, there are
    181 members of the class certified in Trilliums action against GM.

[10]

GM
    brought a motion for security for costs in 2012. The motion was settled by a
    consent order pursuant to which Trillium posted $500,000 in security for costs.
    The settlement was made without prejudice to GMs right to bring another motion
    for security for costs following the first round of examination for discovery,
    but no additional motion was brought.

[11]

Trilliums
    action against GM was dismissed following a 41-day trial before McEwen J., in a
    decision dated July 8, 2015. GMs counterclaim was also dismissed.

[12]

Trilliums
    action against Cassels Brock & Blackwell was successful and Trillium was
    awarded $45,000,000 in damages plus costs. That judgment, which is under
    appeal, is not relevant for purposes of this motion.

Trillium and its principal

[13]

Trillium
    operated a car dealership in Scarborough, Ontario from 1991 until 2009, when
    the business was wound up pursuant to the WDA it signed with GM.

[14]

It
    is common ground that Trillium is insolvent. Trillium owes: (1) approximately $3.5
    million to the Business Development Bank of Canada (BDC), which is its
    first-ranking secured creditor; (2) approximately $200,000 to Canada Revenue
    Agency; and (3) $135,000 to the Government of Ontario. BDC has given notice to
    GM that it claims any monies payable to Trillium arising out of the litigation.

[15]

The
    sole director, officer, and shareholder of Trillium is Thomas Hurdman. Mr.
    Hurdman is resident in the United States and it is common ground that he is
    insolvent. He owes approximately $1 million to BDC and approximately $625,000
    to a friend.

The authority to order security for costs

[16]

The
    courts jurisdiction to order security for costs flows from r. 61.06 of the
Rules
    of Civil Procedure
, R.R.O. 1990, Reg. 194, which provides:

(1) In an appeal where it appears that,

(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 rule 56.01; or

(c)     for other good reason, security for costs should be
    ordered,

a judge of the appellate court, on motion by the respondent,
    may make such order for security for costs of the proceeding and of the appeal
    as is just.

Rule 56.01, which is incorporated into r. 61.06(b),
    provides:

(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,

(a) the plaintiff or applicant is ordinarily resident outside
    Ontario;

(b) the plaintiff or applicant has another proceeding for the
    same relief pending in Ontario or elsewhere;

(c) the defendant or respondent has an order against the
    plaintiff or applicant for costs in the same or another proceeding that remain
    unpaid in whole or in part;

(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;

(e) there is good reason to believe that the action or
    application is frivolous and vexatious and that the plaintiff or applicant has
    insufficient assets in Ontario to pay the costs of the defendant or respondent;
    or

(f) a statute entitles the defendant or respondent to security
    for costs.

[17]

In
    short, provided the relevant criteria are satisfied, this court has the
    discretion to award security for costs, for the trial as well as the pending
    appeal, as it considers just.

The positions of the parties

GM

[18]

GM
    submits that it is entitled to an order for security for costs under r.
    61.06(1)(b), which provides that an order for security for costs may be made if
    it appears that such an order could be made under r. 56.01. GM submits that r.
    56.01(d) is the relevant provision: there is good reason to believe that
    Trillium has insufficient assets in Ontario to pay its costs. But, says GM,
    Trillium is not impecunious and it would not be unjust to require it to post
    security for costs.

[19]

GM
    contends that Trillium has failed to establish that it cannot borrow or
    otherwise raise the funds required to post security for costs from creditors,
    class members, or Mr. Hurdmans spouse. GM says that Trilliums creditors and
    class members stand to reap the rewards of the class action litigation, which
    is fronted by an insolvent company, and that they should bear the burden of adverse
    cost consequences by contributing security for costs. There is no evidence that
    they lack assets to so contribute, and no evidence that they were asked to
    contribute.

[20]

According
    to GM, if Trillium is not impecunious it must demonstrate that its appeal has a
    good chance of success, but it has not done so. GM submits that an appeal with
    a low prospect of success, coupled with an appellant from whom it would be
    nearly impossible to collect costs, constitutes a good reason to order security
    for costs under r. 61.06(c):
Henderson v. Wright
,
2016 ONCA 89, [2016] O.J. No. 533.

Trillium

[21]

Trillium
    submits that this court should exercise its discretion to dismiss the motion
    because of GMs delay in bringing it and the resulting prejudice. Trillium
    argues, further, that GM does not meet the requirements to be granted security
    for costs in any event.

[22]

Trillium
    submits that a motion seeking security for costs should be brought promptly,
    once the defendant learns of the plaintiffs inability to satisfy a costs
    award, and that in the absence of a reasonable explanation for delay it is
    unfair to award security for costs.

[23]

Trillium
    submits, further, that GMs delay in bringing this motion results in prejudice:
    (1) it lost the option of applying to the Class Proceedings Fund in advance of
    the trial; (2) its potential fundraising efforts have been hampered now that it
    has a judgment against it; and (3) it has incurred substantial costs in
    advancing the action and the appeal.

[24]

As
    to the merits of the motion, Trillium submits that an order for security for
    costs would be unjust because: (1) it is impecunious and its shareholder is
    unable to post security; (2) its appeal has a good chance of success; (3) GM
    caused it to lose its business; and (4) GMs counterclaim is for the same costs
    for which it seeks security on the motion.

Analysis

[25]

I
    deal first with the timeliness of GMs motion, which is determinative of the
    outcome. It is convenient to address the trial and appeal costs separately.

Trial costs

[26]

I
    decline to award security for costs for the trial because of GMs delay and the
    prejudice it has caused Trillium.

[27]

From
    the outset, it was understood by all involved that this was complex litigation
    that would be both time consuming and expensive. Trilliums ability to pay
    costs was an issue early in the proceedings. On September 8, 2011, GM requested
    particulars as to Trilliums assets. It queried whether Trillium was a shell
    corporation and asserted that it was not a suitable representative plaintiff if
    it was. GM asked for: (1) confirmation that no insolvency proceedings had been
    commenced by or against Trillium; (2) particulars of its assets in Ontario;
    and/or (3) confirmation that Trillium would move to add new or additional
    representative plaintiffs that could satisfy an adverse costs award. GM stated
    that it if it did not receive satisfactory assurances it would bring an appropriate
    motion.

[28]

Trillium
    replied on September 19, 2011 that it was out of business, but that no
    insolvency proceedings had been commenced by or against it. Trillium noted that
    GM had not challenged Trilliums suitability as a class representative on this
    or any other basis, and asked for confirmation of GMs instructions concerning
    the bringing of a motion prior to a case conference scheduled for September 28,
    2011.

[29]

At
    the case conference, GM advised that it would be seeking security for costs
    from Trillium if the action proceeded.

[30]

Following
    dismissal of GMs appeal from the decision certifying the class proceedings
    against it on March 26, 2012, GM requested information from Trillium concerning
    any indemnification agreement it had concerning costs, and was informed that there
    was no such agreement.

[31]

Although
    GM brought a motion for security for costs in 2012, that motion resulted in a
    consent order dated July 19, 2012 requiring Trillium to pay only $500,000 in
    security for costs up to the conclusion of the first round of examinations for
    discovery. GM had the right to bring a further motion seeking security for
    costs following the first round of discovery, and contemplated doing so; it
    raised the matter in an email to Trillium dated June 13, 2014. However, on June
    16, 2014 Trillium refused to pay further security for costs voluntarily and
    said that it would oppose any motion for security for costs. GM did not bring a
    motion for security costs until now  over two years later, well after the
    trial was completed.

[32]

GM
    has known that it was defending a complicated class action against an insolvent
    representative plaintiff since at least 2012. This is clear from the notice of
    motion it brought for security for costs in 2012, in which GM made the
    following statements: (1) Trillium no longer carries on business in Ontario, or
    at all; (2) its controlling shareholder and directing mind, Mr. Hurdman resides
    in the United States; (3) no one has agreed to indemnify Trillium against any
    costs awards; (4) Trillium has not applied to the Class Proceedings Fund; (5) none
    of the members of the class were willing to be added or substituted as
    representative plaintiffs; and (6) Trillium has insufficient assets to pay GMs
    costs. GM stated specifically:

If security for costs is not granted, GMCL will be required to
    defend this very large commercial case with effectively no potential to recover
    costs awarded in its favour if it is successful.

[33]

Yet,
    GM took no action. It neither moved to have Trillium replaced as representative
    plaintiff nor to have Trillium post security for costs. Instead, it defended
    the action aggressively and ran up enormous costs in doing so, costs that are
    only partly offset by the approximately $5.5 million costs award the trial
    judge made in its favour.

[34]

GMs
    decision not to bring a motion for security for costs was made for tactical
    reasons. At the hearing of the motion, GM stated candidly that it did not bring
    a motion earlier because it was not willing to expose its people to
    cross-examination. That was GMs choice, and GM must bear the burden of that
    choice. It would be inappropriate for this court to relieve GM of the
    consequences of its tactical decisions.

[35]

GMs
    decision not to seek security for costs prior to the end of the trial results
    in prejudice to Trillium in at least two ways. First, it is too late for
    Trillium to seek funding from the Class Proceedings Fund, now that its claim
    has been dismissed. At the hearing of the motion, GM argued that Trillium had
    no intention of applying for funding, not least because it would have had to
    give up 10% of any damages it received in exchange for funding. But Trillium
    need not establish that it would have applied for funding in order to establish
    prejudice. It is enough that Trillium lost the option of applying for funding
    as a result of GMs decision. Second, Trilliums ability to fundraise from
    class members to contribute to its costs has been compromised; it is obviously
    more difficult to fundraise in light of the dismissal of the action than it
    would have been before the action was heard.

[36]

For
    these reasons, I decline to award security for costs for the trial.

Appeal costs

[37]

I
    decline to award security for costs for the appeal, again because of GMs delay
    and the prejudice it has caused.

[38]

Trilliums
    claim and GMs counterclaim were dismissed by the trial judge on July 8, 2015.
    Trillium filed a notice of appeal on
August 7,
    2015
and GM filed notice of its cross-appeal on
August 20, 2015.

[39]

At
    the parties request, this court has provided case management from the outset.
    Security for costs was discussed by the parties but nothing was agreed and, for
    whatever reason, GM chose not to bring a motion for security for costs.
    Trillium proceeded to perfect its appeal in accordance with the time limits set
    by the case management judge on consent of the parties  that is, some ten
    months following service of its notice of appeal.

[40]

It
    is important to note that nothing had changed during this period. GM knew that
    Trillium was insolvent prior to the trial. Once Trillium gave notice that it
    was appealing, GM knew that it would incur substantial additional costs that it
    would not be able to recoup if it were successful on the appeal.

[41]

GM
    says that it could not bring a motion for security for costs until it received
    the trial judges costs order on March 22, 2016. I do not accept this. It was
    open to GM to bring a motion before it received the costs order, just as it was
    open to GM to bring a motion after March 22, 2016 and prior to perfection of Trilliums
    appeal in June. GM offers no explanation for its delay in this period, other
    than suggesting that it was acting out of courtesy to counsel, and that it did
    not want to pile on.

[42]

GM
    has, by its actions, allowed Trillium to perfect its appeal at great expense.
    This is no small matter. The complicated nature of the appeal is evidenced by
    the length of the factum filed by Trillium, which runs over 90 pages, and the
    supporting materials that have been prepared and filed. It would not be just to
    make an order for security for costs at this late stage.

[43]

It
    is possible, of course, to order security for costs from perfection onward, as
    Trillium submitted, but GM has already served and filed its responding
    materials. In the circumstances, the only costs still to be incurred by GM
    would be for preparation of the argument and for the appearance of counsel on
    the appeal. This is such a small amount as to be insignificant in the context
    of this litigation. GM did not seek security for these costs and I do not order
    them.

Is security for costs appropriate in any event?

[44]

Given
    the way in which this motion was argued, it is appropriate to note that even if
    I concluded that GMs application had been made in a timely fashion, I am not
    satisfied that this would have been an appropriate case for security for costs
    in any event.

[45]

GM
    argued that Trillium is not impecunious because its creditors as well as the members
    of the class have significant assets, and there is no evidence that either have
    been asked to provide security.

[46]

Although
    there is authority to support the argument that creditors who stand to benefit
    from litigation may be required to fund it, there is no indication that any of
    Trilliums creditors motivated or directed the litigation such that their
    assets should be taken into account in determining whether Trillium is
    impecunious: see e.g.
Intellibox Concepts Inc. v. Intermec Technologies
    Canada Ltd.
[2002] O.J. No 3876(S.C.);
United General Contracting Ltd.
    v. Sioux Lookout (Municipality)
, 2012 ONSC 542.

[47]

As
    for the class members, GM provided no authority for the proposition that the
    ability of class members to contribute to security for costs is a relevant
    consideration in making such an order against a representative plaintiff. GM
    submitted that that this was an unusual case that would not set a precedent
    because the members of the class are well known and have financed the
    litigation from the outset. In these circumstances, GM says, they are active
    participants in the litigation and their assets can properly be taken into
    account in making an order for security for costs against Trillium.

[48]

It
    is enough to note my concern that such an order might undermine the concept of
    a class proceeding, one of the premises of which is that class members have no
    liability for costs, except with respect to the determination of their own
    individual claims: s. 31(2) of the
Class Proceedings Act
, 1992
,
    S.O. 1992, c. 6. Whether it is a corollary of this statutory protection that
    the assets of class members are not relevant in determining the ability of a
    representative plaintiff to provide security for costs can be left for another
    day.

Disposition

[49]

The
    motion is dismissed. By agreement of the parties there is no order as to costs.

Grant Huscroft J.A.


