



COURT OF APPEAL FOR ONTARIO

CITATION: Heidari v. Naghshbandi, 2020 ONCA
    757

DATE: 20201126

DOCKET: M51922 (C67674 & C67676)

Jamal
    J.A. (Motions Judge)

BETWEEN

Shahram
    Heidari

Plaintiff (Respondent/Moving Party)

and

Bijan Naghshbandi

Defendant (Appellant/Responding Party)

AND BETWEEN

Tarra
    Engineering Inc.

Plaintiff (Respondent/Moving Party)

and

Bijan
    Naghshbandi

Defendant (Appellant/Responding Party)

AND BETWEEN

Bijan
    Naghshbandi

Plaintiff by Counterclaim
    (Appellant/Responding Party)

and

Tarra
    Engineering Inc. and Shahram Heidari and Tarra Engineering and Structural
    Consultants Inc.

Defendants by Counterclaim (Respondents/Moving
    Parties)

Sean N. Zeitz, for the moving parties

Antony Niksich, for the responding
    party

Heard: November 13, 2020 by video conference

REASONS
    FOR DECISION

[1]

The respondents (the moving parties on this motion)
    seek security for costs of $33,104.63 for two appeals pending before the court.
    The appeals are from orders of Bawden J. (trial judge), dated October 17,
    2019 and May 8, 2020, after a 23-day trial, ruling in the respondents favour
    in two actions, and from his order, dated July 23, 2020, ordering the appellant
    to pay the respondents costs of $513,186.67. The respondents do not seek security
    for the costs
awarded at trial
.

[2]

For the reasons that
follow, the motion for security for costs is dismissed.

Background

[3]

The appellant Bijan Naghshbandi and the respondent
    Shahram Heidari were friends and former business associates in an engineering
    business. Between 1998 and 2008, they incorporated companies, bought properties,
    and loaned money back and forth to fund their ventures. But they kept few records
    of their transactions. When their friendship soured, two lawsuits ensued:

·

In 2009, Heidari sued Naghshbandi for repayment
    of $187,092 in claimed loans. Naghshbandi denied owing anything and
    counterclaimed against Heidari, alleging that Heidari owed him $291,333.

·

The same year, the respondent Tarra Engineering
    Inc. (in which Heidari and Naghshbandi had been shareholders and directors), sued
    Naghshbandi for repayment of $450,146 in claimed loans. Naghshbandi denied the
    claim and counterclaimed against Heidari, Tarra Engineering Inc., and the
    respondent Tarra Engineering and Structural Consultants Inc. (a new company
    Heidari formed after the litigation began), alleging wrongful dismissal,
    corporate oppression, and fraud, and seeking over $3 million in damages and
    half the value of Tarra Engineering Inc. A decade later, Naghshbandi abandoned his
    counterclaim
on the eve of
trial.

[4]

The trial judge ruled against Naghshbandi in
    both actions. He noted that both parties agree that the litigation ultimately
    turns on findings of credibility. He found Naghshbandi simply did not present
    as a credible witness, his testimony w[as] not corroborated by any other
    witness and appeared to have been a complete fantasy, and it was impossible
    to place any serious weight on his evidence apart from a few claims. He ordered
    Naghshbandi to pay damages to Heidari of $173,544 and to Tarra Engineering Inc.
    of $105,810. He also ordered Naghshbandi to pay costs to Heidari and Tarra
    Engineering Inc. of $444,002.73 and to Tarra Engineering and Structural
    Consultants Inc. of $69,183.94.

Security for Costs of an Appeal Under r.
    61.06(1)

[5]

The respondents seek security for costs for the
    appeals under rr. 61.06(1)(a) or (c) of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194. Rule 61.06(1) provides:

61.06(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.

[6]

The general principles governing an order
    for security for costs on appeal under r. 61.06(1) are well known:

1.

Rule 61.06(1) is permissive, not mandatory. A motion judge
has discretion to
refuse an order for security for
    costs, even if the respondent (moving party) otherwise meets the terms of r.
    61.06(1):
Yaiguaje v. Chevron Corporation
, 2017 ONCA 827, 138 O.R.
    (3d) 1, at para. 18;
Foodinvest Limited v. Royal Bank of Canada
, 2020
    ONCA 387, at para. 15. An order for security for costs under r. 61.06(1) should
    not be made routinely:
Health Genetic Center Corp. v. New Scientist
    Magazine
, 2019 ONCA 968, at paras. 22, 26.

2.

Rule 61.06(1) requires a two-stage analysis: first, the respondent must
    show that they meet the terms of the rule; second, the motion judge must take
    a step back and consider the justness of the order sought in all the circumstances,
    with the interests of justice at the forefront:
Yaiguaje
,
    at para. 22
;
Foodinvest
, at para. 15.

3.

In considering the justness of the order sought,
    relevant factors include, but are not limited to, the merits of the appeal, any
    delay in moving for security for costs, the impact of actionable conduct by the
    respondent on the available assets of the appellant, access to justice
    concerns, the public
importance of the litigation
,
    and the amount and form of security sought by the respondent:
Yaiguaje
,
    at para. 24;
Foodinvest
, at para. 15.

4.

An order for security for costs
is intended to provide
a measure of protection to
    the respondent for the costs to be incurred on the appeal, without denying the
    appellant a chance to pursue an appeal:
Foodinvest
, at para. 17;
Health
    Genetic
, at para. 26; and
Schmidt v. Toronto-Dominion Bank
(1995), 24 O.R. (3d) 1 (C.A.), at p. 6. The court must ensure that an order for
    security for costs is not used as a litigation tactic to prevent a case from
    being heard on its merits:
Yaiguaje
, at para. 23;
Foodinvest
,
    at para. 15.

[7]

With these general principles in mind, I turn to
    consider the respondents motion under rr. 61.06(1)(a) and (c) in turn.

(1)

Is there good reason to believe that the appeals
    are frivolous and vexatious and that the appellant has insufficient assets in
    Ontario to pay the costs of the appeals
: r.
    61.06(1)(a)?

(a)

The governing principles under r. 61.06(1)(a)

[8]

Under r. 61.06(1)(a), the respondent must prove that
    there is good reason to believe: (1) the appeal is frivolous and vexatious; and
    (2) the appellant has insufficient assets in Ontario to pay the costs of the
    appeal:
York University v. Markicevic
, 2017 ONCA 651, at para. 23;
Pickard
    v. London Police Services Board
, 2010 ONCA 643, 268 O.A.C. 153, at para.
    18; and
Schmidt
, at p. 5.

[9]

The good reason to believe standard requires
    the motion judge to reach only a tentative and not a definitive conclusion on
    the absence of merit or assets:
York University
, at para. 24;
Pickard
,
    at para. 18; and
Schmidt
, at p. 5.

[10]

The frivolous and vexatious element of r.
    61.06(1)(a) requires the respondent to show that there is good reason to believe
    the appeal is: (1) frivolous, that is, devoid of merit or with little
    prospect of success:
Pickard
, at para. 19;
Schmidt
, at p. 5; and
    (2)
vexatious, that is, taken to annoy or embarrass
    the respondent or conducted in a vexatious manner, including an oblique motive
    for launching the appea
l:
Pickard
, at para. 19;
York
    University
, at paras. 32, 36; and
Chinese Publications for Canadian Libraries
    Ltd. v. Markham (City)
, 2017 ONCA 968, at para. 9.

(b)

Application to these appeals

[11]

The respondents claim there is good reason to believe
    these appeals are frivolous because the appeals challenge only findings of fact
    and credibility and raise no arguable error in law. They say this court has accepted
    that such appeals appear to have no merit, citing
Henderson v. Wright
,
    2016 ONCA 89, 345 O.A.C. 231, at para. 16;
Groia & Company Professional
    Corporation v. Cardillo
, 2019 ONCA 165, 50 C.P.C. (8th) 55, at para. 31.

[12]

I agree with the respondents that the trial
    judges observation that both parties agree that the litigation ultimately
    turns on findings of credibility goes a long way towards meeting the
    frivolous criterion in r. 61.06(1)(a). The trial was largely about
    credibility, and the trial judge sided with the respondents. There is little
    prospect that a panel of this court would overturn such findings.

[13]

The appellant, however, disputes that the appeals
    will mainly be about credibility. He says the thrust of the appeals will be
    that the trial judge erred in law by substituting loan claims with joint
    investment claims. According to the appellant, rather than decide whether
    Heidari loaned money to Naghshbandi, the trial judge held that some payments
    were a joint investment, and not loans, and then ruled that Naghshbandi had to
    repay Heidari only half of what was advanced. The appellant says that the
    parties neither argued nor pleaded this joint investment characterization and
    that they did not seek this remedy.

[14]

This argument will face strong headwinds on
    appeal. A trial judge may form their own conclusion about the appropriate legal
    characterization of payments in issue, and has remedial discretion to order
    repayment of all, none, or only some of those amounts. Such discretionary
    determinations generally attract substantial appellate deference. Still, I
    agree with the appellant
that
this is not an
    issue of credibility and, if accepted by the court, could be a reviewable error
    of law. Even if only weakly arguable, this ground does raise a potential issue
    of law. On balance, then, I cannot conclude that there is good reason to
    believe the appeals are frivolous.

[15]

I also do not have good reason to believe that the
    appeals are vexatious.

[16]

The respondents assert that aspects of the
    appellants litigation conduct can be described as vexatious. They note that
    the appellant abandoned the counterclaim against Heidari only
on the eve of
trial, after about a decade of
    litigation. They add that the appellant has defaulted on the costs awarded for
    the abandoned counterclaim. Here, however, the trial judge did not allocate a
    specific dollar amount to the abandoned counterclaim. The entire costs order 
    including the portion pertaining to the abandoned counterclaim  was
    automatically stayed by the appeal to this court: r. 63.01. It thus does not
    appear that the appellant has defaulted on his obligation to pay those costs.

[17]

In the final analysis,
    however,
I accept the appellants argument
that
I do not have good reason to believe the appeals
    have been brought to annoy or embarrass the respondents or with any other
    oblique motive. Rather, the appellant appears to have brought the appeals in
    good faith to challenge what he has been found to owe the respondents and to
    impugn the significant adverse findings of credibility made against him. As
    counsel for the appellant stated in oral argument, which I accept, the appellant
    has appealed largely to clear his name.

[18]

Thus, although the appeals appear to be only
    weakly arguable, I do not have good reason to believe that they are frivolous
    and vexatious.

[19]

While this suffices to conclude that the
    respondents have not met their burden under r. 61.06(1)(a), I will briefly address
    whether there is good reason to believe the appellant has insufficient assets
    in Ontario to pay the costs of the appeals. The respondents estimate those costs
    as being $33,104.63 on a partial indemnity basis.

[20]

The respondents submit that there is no evidence
    that the appellant has sufficient assets in Ontario, and the court should draw
    a negative inference from the appellants failure to tender such evidence. Shortly
    before the
return of this motion
, however, the
    appellant filed his responding motion record containing copies of his Canada
    Revenue Agency Notices of Assessment for the 2018 and 2019 taxation years.
    Counsel for the respondents had requested this information in early July 2020,
    in order to decide whether to bring this motion, but had been rebuffed by
    counsel for the appellant. This information was only provided four months
    later. The Notices of Assessment revealed that the appellants annual income in
    2018 and 2019 was about $100,000 before tax. The respondents contend that this
    income information is not especially meaningful because no information has been
    provided about the appellants living expenses or other liabilities.

[21]

Although it would have been preferable for the
    appellant to have provided this income information sooner, as it might have
    avoided this motion, because of this evidence I cannot conclude that there is
    good reason to believe the appellant has insufficient assets in Ontario to pay
    the costs of the appeals. There is at least
some
evidence
    that the appellant has sufficient assets to do so. It was the respondents
    burden to provide the court with evidence to form a tentative conclusion about
    the absence of the appellants assets. The respondents have not done so.

[22]

I therefore decline to award security for costs
    under r. 61.06(1)(a).

(2)

Is there other good reason for ordering
    security for costs of the appeals: r. 61.06(1)(c)?

(a)

The governing principles under r. 61.06(1)(c)

[23]

A motion judge may also order security for costs
    of an appeal under r. 61.06(1)(c) for other good reason. Although the list of
    reasons justifying security under this residual category is not closed, the other
    good reason must be: (1) consistent with the purpose for ordering security 
    namely, that the respondent
is entitled to a measure
of
    protection for costs; and (2) fairly compelling, because the residual category
    is only engaged where the respondent cannot meet the requirements of rr. 61.06(1)(a)
    or (b):
Combined Air Mechanical Services Inc. v. Flesch
, 2010 ONCA
    633, 268 O.A.C. 172, at para. 8;
Health Genetic
, at para. 26.

[24]

Examples of circumstances recognized as providing
    other good reason to justify security for costs under r. 61.06(1)(c) include:

·

a finding that the appellant committed fraud,
    particularly if coupled with a finding that the appellant has
taken steps to
put his assets out of reach of his
    creditors:
York University
, at para. 58;
Health Genetic
, at
    para. 26;

·

when 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:
Henderson
, at
    para. 27;
Perron v. Perron
, 2011 ONCA 776, 345 D.L.R. (4th) 513, at
    paras. 22-23; and
Groia
, at para. 35.

(b)

Application to these appeals

[25]

When I apply these principles to this motion, I
    conclude that the respondents have established no other good reason to
    justify security for costs of the appeals under r. 61.06(1)(c). There was no
    finding that the appellant committed fraud, despite this being alleged. Nor is
    there any evidence that the appellant has tried to put his assets out of reach
    of his creditors. And although the appeal has a low prospect of success, there
    is no evidence that it would be nearly impossible for the respondents to
    collect costs from the appellant.

[26]

I therefore decline to award security for costs
    under r. 61.06(1)(c).

Disposition

[27]

The motion for security for costs is dismissed.

[28]

I decline to award costs to the appellant
    because of the late disclosure of his income information. Had this information
    been disclosed earlier, when it was requested by respondents counsel, the
    motion might have been avoided. Each party will therefore bear its own costs of
    this motion.

M.
    Jamal J.A.


