



COURT OF APPEAL FOR ONTARIO

CITATION: Health Genetic Center Corp. v. New Scientist
    Magazine, 2019 ONCA 968

DATE: 20191206

DOCKET: M50748 (C66385)

van Rensburg, Paciocco and Thorburn JJ.A.

BETWEEN

Health Genetic Center Corp. o/a Health Genetic
    Center
and Yuri Melekhovets

Plaintiffs
(Appellants/Respondents to the Motion)

and

New Scientist Magazine,
Peter Aldhous, and
    Reed Business
Information Ltd.

Defendants
(Respondents/Moving Parties)

Sandra Barton, for the respondents/moving parties

Karen Zvulony, for the appellants/respondents to the
    motion

Heard: November 20, 2019

On
    motion to set aside or vary the order of the motion judge, dated July 5, 2019,
    with reasons reported at 2019 ONCA 576.

van Rensburg J.A.
:

[1]

The moving parties, respondents to a pending
    appeal, moved under s. 7(5) of the
Courts of Justice Act
, R.S.O. 1990,
    c. C.43, to set aside or vary the order of Brown J.A. dismissing their motion,
    under r. 61.06 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194,
    for security for costs. At the conclusion of oral argument, we dismissed the
    motion, with reasons to follow. These are the courts reasons.

[2]

In sum, there is no error in the decision of the
    motion judge. Whether to grant or refuse security for costs is a discretionary
    decision entitled to deference absent an error of law or principle:
Yaiguaje v. Chevron Corporation
, 2017
    ONCA 827, 138 O.R. (3d) 1, at para. 20.

[3]

In denying the moving parties request for
    $85,000 as security for costs of the appeal and $1,178,766.64 as security for
    the costs awarded at trial (the full amount of the costs that were awarded less
    the security ordered in the action), the motion judge made no error of law or
    principle.

[4]

The moving parties contend that the motion judge
    erred in not ordering security for costs under the combination of rr.
    61.06(1)(b) and 56.01(1)(d). Their principal concern is with the motion judges
    approach to and assessment of the sufficiency of the appellants assets. On
    behalf of the moving parties, counsel argued forcefully that the motion judge
    erred because he limited his consideration to whether the appellants would have
    sufficient assets to pay the costs of the appeal, rather than the costs of the
    appeal
and the action
. She also argued that the motion judge made a
    number of other errors in assessing the sufficiency of the appellants assets.

[5]

The moving parties also contend that the motion
    judge erred in not awarding security for costs under the combination of rr.
    61.06(1)(b), 56.01(1)(f) and s. 12 of the
Libel and
    Slander Act
, R.S.O. 1990, c. L.12, and in refusing
    security for costs under r. 61.06(1)(c) on the basis that there was no other
    good reason to award security.

[6]

After briefly summarizing the motion judges
    reasons for dismissing the motion, I will consider each of the moving parties arguments
    in turn.

A.

THE MOTION JUDGES REASONS

[7]

The motion judge acknowledged that the moving
    parties were seeking security for costs of both the appeal and the action: at
    para. 3. He considered the motion under the three subrules referred to by the
    moving parties: r. 61.06(1)(a), (b) and (c), as well as s. 12 of the
Libel
    and Slander Act
. He noted that the principal arguments were that there is
    good reason to believe the appeal is frivolous and vexatious and that the
    appellants have insufficient assets to pay the costs of the appeal and the
    trial: at para. 5.

[8]

The motion judge concluded that the appeal is
    neither frivolous nor vexatious under r. 61.06(1)(a) of the
Rules
(a
    finding that was not challenged in this panel review). While this would be
    determinative of the motion under r. 61.06(1)(a), because the requirements
    are conjunctive, the motion judge went on to consider the second requirement of
    the subrule, whether there was good reason to believe that the appellants had
    insufficient assets to pay the costs of the appeal. The determination of
    whether there was good reason to believe that the corporate appellant had
    insufficient assets was in any event relevant to r. 61.06(1)(b), in
    conjunction with r. 56.01(1).

[9]

In considering whether there was good reason to
    believe that the appellants had insufficient assets, the motion judge first
    determined that a reasonable estimate of the partial indemnity costs of the
    appeal would be $30,000. He then considered the evidence consisting of an
    affidavit of Mr. Melekhovets, who is the individual appellant and a principal
    of the corporate appellant, detailing his personal income, assets and
    liabilities, and those of the corporate appellant. The affidavit attached
    copies of various documents, including mortgage statements, notices of
    assessment, bank records, and unaudited financial statements.

[10]

The motion judge accepted that Mr. Melekhovets
    has net equity in real property and assets in Ontario of slightly more than
    $500,000. For the corporate appellant, the motion judge considered unaudited
    financial statements covering the financial years 2015 through 2018, and he noted
    the increase in the companys annual revenue from $670,000 to just over $1
    million and in its retained earnings from $18,274 to $136,386. He also noted
    that the net earnings during that period were modest but rising, except for the
    year ended January 31, 2018 when the company experienced a small net loss. The
    motion judge concluded that there was good reason to believe that the
    appellants had sufficient assets in Ontario to pay the estimated costs of
    appeal of $30,000: at para. 29.

[11]

The motion judge then relied on his conclusions (that
    there was no good reason to believe the appeal was frivolous and vexatious nor
    that the appellants would have insufficient assets to pay costs of the appeal)
    to dismiss the motion for security for costs under rr. 61.06(1)(b) and (c).

[12]

Finally, the motion judge considered the moving
    parties alternative request to lift the stay of execution on their costs award
    pursuant to r. 63.01(5). He observed that the moving parties had not
    established that they would suffer financial hardship if the stay were not lifted,
    which is a necessary precondition to lifting the stay. The motion judge also concluded
    that, while security for costs of the proceeding can be ordered under r. 61.06,
    the moving party must first have met the conditions set out in r. 61.06 and
    demonstrated that the justice of the case supported ordering security for
    costs. In this case, since the test was not met, to lift the stay would permit
    the moving parties to do indirectly what they could not do directly: at para.
    42.

B.

determining the sufficiency of assets

[13]

On this review motion, the moving parties assert
    that the motion judge erred by not considering whether the appellants would
    have sufficient assets to pay trial costs as well as appeal costs, if
    unsuccessful in the appeal. They point to the wording of r. 61.06(1), which
    permits the court to award security for costs of the appeal and of the
    proceedings, as well as the decision in
Aegis Biomedical Technologies Ltd.
    v. Jackowski
(1996), 28 O.R. (3d) 558 (C.A.), in which this court awarded
    security for costs that included the costs awarded in the court below.

[14]

The moving parties also point to r. 61.06(1)(b),
    which provides for the appeal court to order security for costs where it
    appears that an order for security for costs could be made against the appellant
    under r. 56.01. Rule 56.01 lists six circumstances in which an order for
    security for costs may be made in an action or application, including that (d)
    the plaintiff or applicant is a corporation 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. The moving parties observe that this
    provision requires the court, in considering a motion for security for costs of
    an appeal under r. 61.06(1)(b), to consider whether the corporate appellant has
    insufficient assets in Ontario to pay the costs of the defendant. The moving
    parties say that the costs of the defendant can only be a reference to the
    costs they were awarded at trial, and that therefore the court in determining
    security for costs of an appeal
must
consider the corporate appellants
    ability to pay the costs ordered in the court below.

[15]

I disagree. While the reference in r.
    61.06(1)(b) to r. 56.01 authorizes the appeal court to consider the same
    factors that would be considered to warrant security for costs of an action or
    application, in doing so, the factors set out in r. 56.01 must be read and
    applied in the context of the pending appeal. To give effect to r. 56.01 in the
    context of an appeal, the reference to the plaintiff or applicant can only
    mean the appellant. So, for example, under r. 56.01(1)(a), the question is
    whether at the time of the appeal, the
appellant
is ordinarily resident
    outside Ontario. Similarly, the reference in r. 56.01(1)(d) to the costs of
    the defendant or respondent must be read as the costs of the respondent in
    the appeal. What this means is that, in the case of a corporate appellant that
    was a plaintiff or applicant at first instance, a judge of this court may
    consider ordering security for costs where there is good reason to believe that
    the corporate appellant has insufficient assets in Ontario to pay the costs of
    the appeal, even where the appeal is not frivolous and vexatious.

[16]

I say this despite the fact that the court,
    under r. 61.06(1), is entitled to award security for costs of an appeal
and
    of the proceeding below
. Indeed, under r. 61.06(1)(a), the test in
    respect of sufficiency of assets is tied only to the appellants ability to pay
    costs of the appeal. The decision in
Aegis Biomedical
did not

involve
    an assessment of the sufficiency of the corporate appellants ability to pay
    costs in the court below. Indeed, in that case the sole appellant was a
    corporation that admitted it had no assets, and had been incorporated for the
    purpose of pursuing the litigation: at p. 560.

[17]

This interpretation of the relationship between rr.
    61.06(1)(b) and 56.01(1)(d) mirrors the logic of r. 61.06(1)(a), where a motion
    judge only considers the appellants ability to pay costs of the appeal, and
    yet may order the costs of both the appeal and the proceeding below.

[18]

Even if the moving parties interpretation of r. 61.06(1)(b)
    and r. 56.01(1)(d) were accepted, or if there were some other reason to consider
    the sufficiency of the corporate appellants assets to satisfy the costs order
    in the court below, the overriding consideration is whether an order for
    security for costs would be just, a question that needs to be considered
    holistically, taking into consideration the circumstances of the particular
    case:
Yaiguaje
, at para. 25. See also
Foodinvest Inc. v. Royal
    Bank of Canada
, 2019 ONCA 728, at para. 8.

[19]

In this regard, the appeal is not frivolous and
    vexatious. The appellants appeal the judgment in the court below, and seek
    leave to appeal the costs order. As the motion judge observed in refusing
    security for costs under r. 61.06(1)(c), the corporate appellant is a going
    concern in Ontario, and has been for many years. The individual appellant has
    disclosed the location and value of his residential realty in Ontario, and he
    has provided copies of notices of assessment for his personal tax returns. The appellants
    have paid all costs in the proceedings, save for the costs order in relation to
    the judgment under appeal. They have already posted $300,000 security for costs
    in the court below. An order for security for costs based on the insufficiency
    of the corporate appellants assets in relation to the costs already ordered,
    and that would include security for costs of the appeal and such costs, runs
    the risk of undermining the appellants right to appeal. In my view, in all of
    these circumstances, the order would not be just.

[20]

Next, the moving parties assert that the motion
    judge
shifted the burden of proof
by rejecting their submissions about
    the obvious and glaring deficiencies in the evidence respecting the sufficiency
    and quality of the appellants assets because they failed to cross-examine on
    that evidence. They say that the motion judge, at para. 26, refused to consider
    the deficiencies in the appellants evidence about their assets, which were
    already apparent on the face of the evidence, simply because the respondents
    did not cross-examine. I do not read the motion judges reasons that way.

[21]

The motion judge considered the record and
    concluded that the information that was provided demonstrated that the
    appellants had sufficient assets in Ontario to pay the costs of the appeal. He
    did not accept the moving parties submissions that the appellants obviously
    had insufficient assets or that their evidence was deficient. Many of the same
    arguments were made to this panel. The motion judge conducted his own
    assessment of the evidence, which is entitled to deference. He was entitled, as
    he did, to consider the failure to cross-examine in rejecting the moving
    parties assertion that the absence of certain additional information made the
    financial information that was provided incomplete or unreliable. Moreover, the
    financial information provided in this case was detailed, and contrary to the
    moving parties submissions, did not reveal obvious and glaring deficiencies.
    The motion judge reasonably concluded that the moving parties had not met their
    burden of showing that the appellants had insufficient assets in the
    jurisdiction to pay the appeal costs.

[22]

Third, in my view there was no error in the motion
    judges characterization of an order for security for costs as not routine:
    para. 8. While the court characterized orders for security for costs under r.
    61.06(1)(a) as not routine in
Schmidt v. Toronto Dominion Bank
(1995), 24 O.R. (3d) 1 (C.A.) at p. 5, I do not agree with the moving parties
    that an order for security for costs of an appeal would be routine under the
    other parts of r. 61.06(1). There is no entitlement as of right to an order for
    security for costs, and even where the requirements of the rule have been met,
    security may be refused in the motion judges discretion:
Yaiguaje
, at
    paras. 18 and 23.

[23]

Finally, on the question of sufficiency of
    assets, I do not accept that the motion judge relied on irrelevant facts or
    ignored relevant facts. The moving parties say that the motion judge accepted
    dated financial information (unaudited financial statements for the years 2015
    to 2018), rather than considering whether, at the time of the motion, the
    appellants had sufficient assets to pay costs. The moving parties assert that
    there was no evidence that the appellants financial circumstances remained the
    same. This argument simply invites this court to conduct a
de novo
assessment of the evidence, and to arrive at a different conclusion. The motion
    judge noted that the financial statements that were provided were all of the
    available financial statements (as the appellants explained, financial
    statements for the period ending January 30, 2019 had not yet been prepared).
    Again, in the absence of cross-examination, the motion judge was entitled to
    accept the reasonable inference that these documents provided a fair
    representation of the corporate appellants financial circumstances at the time
    of the motion.

C.

Section
12 of the
Libel and Slander
    Act

[24]

The moving parties assert that the motion
    judge, under r. 61.06(1)(b), with reference to r. 56.01(1)(f), ought to have
    awarded security for costs under s. 12 of the
Libel
    and Slander Act.
Rule
    56.01(1)(f) provides that the court may make such order for security for costs
    as is just where it appears that a statute entitles the defendant or respondent
    to security for costs. Section 12(1) of the
Libel
    and Slander Act
provides
    for security for costs in an action for a libel in a newspaper or in a
    broadcast where certain criteria are met.

[25]

Without determining whether security for costs
    of an appeal (and not just an action) can be awarded under this provision, I
    agree with the motion judge that the factors to be considered for security for
    costs in this court would nonetheless be applicable. Section 12 does not
    provide an automatic right to obtain in this court security for costs of a
    trial which has already taken place, where such security would not otherwise be
    awarded.

D.

Other Good Reason

[26]

Finally, I agree with the motion judge that
    there was no other good reason to order security for costs of the appeal in
    this case. His reasons for refusing security under r. 61.06(1)(c) are
    summarized above at para. 19. While the list of reasons justifying security
    under r. 61.06(1)(c) is open-ended, the other good reason must be related to
    the purpose for ordering security: that the respondent is entitled to a measure
    of protection for costs. The other good reason should be fairly compelling,
    as resort is to this provision when the respondent has been unable to obtain
    security under the other two categories, and security for costs under r.
    61.06(1)(c) should not be made routinely:
Combined Air Mechanical Services
    Inc. v. Flesch
, 2010 ONCA 633 (In chambers), 268 O.A.C. 172, at para. 8.
    Examples include a finding of fraud, and steps taken by an appellant to put
    their assets out of reach of creditors:
York University v. Markicevic
,
    2017 ONCA 651, at para. 58.

E.

Disposition

[27]

Accordingly, the motion was dismissed, and costs
    were awarded to the appellants in the agreed and inclusive amount of $7,500.

Released: DMP

DEC 06 2019

K. van Rensburg J.A.

I agree. David M. Paciocco J.A.

I agree. Thorburn J.A.


