



COURT OF APPEAL FOR ONTARIO

CITATION:
NDrive, Navigation Systems S.A. v. Zhou, 2022 ONCA 39

DATE: 20220117

DOCKET: M53077
(C70090)

Lauwers
J.A. (Motion Judge)

BETWEEN

NDrive,
Navigation Systems S.A.

Plaintiff

(Respondent/Moving Party)

and

Si Zhou (a.k.a. Si (Silas) Zhou, a.k.a. Silas
Zhou), Aguazion, Inc.
,

Hakemi & Ridgedale LLP and Tom A. Hakemi

Defendants

(Appellants/
Responding Parties
)

AND BETWEEN

Si Zhou (a.k.a. Si (Silas) Zhou, a.k.a.
Silas Zhou), Aguazion, Inc.

and Aqua Latitude
International Limited

Plaintiffs by Counterclaim

(Appellants/
Responding Parties
)

and

NDrive, Navigation Systems S.A., Joao Filipe Dos Santos Teixera

Neto, Andreia Susana Dias, and Eduardo Augusto De Sousa Carqueja

Defendants by Counterclaim

(Respondents/
Moving Parties
)

Ryder Gilliland and Corey Groper, for
the moving parties

Meredith Bacal, for the responding
parties Silas Zhou, Aqua Latitude International Limited, Aguazion, Inc.

Heard: January 13, 2022 by video conference

REASONS
FOR DECISION

[1]

The moving parties, NDrive, Navigation Systems
S.A. and its directors, move for security for costs under r. 61.06(1) of the
Rules
of Civil Procedure
, R.R.O. 1990, Reg. 194. NDrive is a global
navigation software company based in Portugal.

[2]

The responding party, Mr. Zhou, owns and
controls Aqua Latitude International Ltd., a Hong Kong corporation, and is the
sole registered director of Aguazion, Inc., a Canadian corporation.

[3]

Mr. Zhou was instrumental in setting up a
business relationship between NDrive and LG Electronics Inc., a South Korean
multinational electronics conglomerate.

[4]

In 2013, NDrive discovered that LG had
underreported the number of mobile phones on which it had installed the NDrive
software, and NDrive started an arbitration in December 2015. Mr. Zhou was
given day-to-day supervision over the arbitration on NDrives behalf. As a
result of the arbitration, NDrive received an arbitral award of $1,068,085.43
USD. After disbursing approximately $200,000 to others, Mr. Zhou collected the balance
of the arbitral award and paid it into an account held in the name of Aguazion
Inc. NDrive demanded payment of the funds and later moved for a
Mareva
injunction in May 2020. In his endorsement granting the world-wide
Mareva
injunction against the Zhou parties, McCarthy J. stated that the materials
disclose a strong
prima facie
case of civil fraud.

[5]

Eventually pleadings were exchanged and a partial
summary judgment motion by NDrive against the Zhou parties was heard. The
motion judge granted partial summary judgment against the Zhou parties and
dismissed their counterclaim:
NDrive, Navigation Systems v. Zhou et al.
,
2021 ONSC 7366. She awarded $881,170.84 USD in Canadian dollars, together with
pre- and post-judgment interest and punitive damages in the amount of $200,000.
In her costs endorsement, she awarded full indemnity costs in the amount of
$230,000:
NDrive, Navigation Systems v. Zhou
, 2021 ONSC 7772.

[6]

The motion judge summarized her merits findings in
her costs decision, at paras. 24-25:

Zhou breached and abused his fiduciary
position for his own self interest and personal gain. He committed a
substantial, calculated and sustained fraud and then used this litigation to
attempt to justify and obfuscate his behaviour. Only when he was caught did he
attempt to put NDrives money back into an account, and thereafter began his
baseless attempt to justify keeping it. This was NDrives money and should have
been returned to them in full immediately upon demand. Had he returned it
immediately in response to the demand letter, this action would have been
avoided. Zhous refusal to return it unless he was permitted to retain a large
amount of it, after committing fraud, necessitated the action.

I found that there was a concerted effort on
the part of the moving parties to deal with the litigation expeditiously and in
a cost-effective manner in the face of delay tactics and strategic nonsense.
The Zhou parties showed an intention to undertake a long and drawn out process,
raising issues that were clearly statute barred and/or irrelevant. They wasted scarce
court resources. They made serious and unsubstantiated allegations against opposing
counsel, even in a pleading. Their litigation conduct was shocking and reprehensible.
This conduct was detailed in my reasons for judgment, but the worst of it was
an intention to hide relevant evidence and to mislead the court. The Zhou
defendants were litigants who displayed not just one type of behavior that
should be sanctioned by costs, but a wide array of the worst types of such
conduct. Full indemnity costs are warranted in such circumstances.

[7]

The Zhou parties appealed, and NDrive brought
this motion for security for costs. More specifically, NDrive seek:

a.

an order that the appellants post security for
the respondents costs of the proceeding as ordered by Healey J. in the amount
of $230,000.00 within 30 days of the date of this Order failing which the
Respondents shall be at liberty to move without notice to dismiss the appeal
with costs on a substantial indemnity basis;

b.

an order that the appellants post security for
the respondents incurred and anticipated appeal costs in the amount of
$70,000.00 within 30 days of the date of this order failing which the respondents
shall be at liberty to move without notice to dismiss the appeal with costs on
a substantial indemnity basis;

c.

alternatively, an order that the appellants post
security for costs with the Ontario Court of Appeal of the proceeding and the
appeal in an amount and at such time that this Honourable Court may deem just
failing which the respondents shall be at liberty to move without notice to
dismiss the appeal with costs on a substantial indemnity basis;

d.

an order that the appellants may not take any
further steps in this proceeding, except an appeal from the order requested in
the within motion, until the security required by the order has been given;

e.

an order that the respondents shall have 30 days
from the date that the security required by the order has been paid to serve
and file a responding factum; and

f.

costs of this motion on a substantial indemnity
basis.

[8]

A motion judge has discretion under r. 61.06(1)
to make an order for security for costs of the proceeding below and the 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 r. 56.01; or


(c)

for other good reason, security for costs should
be ordered.

[9]

I will focus on the other good reason ground for
making an order for security for costs. I note in passing that the appellants do
not appear to have sufficient assets in Ontario to pay the costs of the appeal.

[10]

Zarnett J.A. summarized the governing principles
in
Thrive Capital Management Ltd. v. Noble 1324 Queen Inc.
, 2021 ONCA
474, 156 O.R. (3d) 551, at para. 17:

The ordering of security for costs is discretionary;
a two-step reasoning process is involved. The first question is whether the
requirements of r. 61.06(1)(a), (b), or (c) are met. If so, the second question
is whether it would be just to order security, considering the circumstances
and the interests of justice:
Yaiguaje v. Chevron Corp.
, 2017 ONCA
827, 138 O.R. (3d) 1, at paras. 18-19.

[11]

He noted, at para. 18: Resort to subrule (c) [other
good reason] is made where the other subrules do not apply. Invoking it should
not be routine:
Combined Air Mechanical Services
Inc. v. Flesch
, 2010 ONCA 633, 268 O.A.C. 172, at
para. 8. He added, at para 19, that the reason must be (i) compelling,
and (ii) related to the purpose of ordering security, which is to provide a
respondent with a measure of protection for costs.

[12]

In
Thrive
,

the responding
party met the other good reason requirement because a
Mareva
injunction had been issued against the appellants. At para. 23, Zarnett J.A. noted
that the presence of fraud was also relevant, citing
York University v. Markicevic
,
2017 ONCA 651,
at para. 58, where Epstein
J.A. stated that, a finding that the appellant has committed fraud in
conjunction with a finding that the appellant has taken steps to put his assets
out of the reach of his creditors, provide other good reason to justify an
order for security for costs under r. 61.06(1)(c). Her conclusion was well
supported by the authorities she listed at para. 54, including
Hall-Chem Inc. v. Vulcan Packaging Inc.
(1994), 72 O.A.C. 303 (C.A.);
Royal Bank of Canada
v. Hi-Tech Tool and Die Inc.
, 2013 CarswellOnt
5678 (C.A.); and
798839 Ontario Ltd. v. Platt
, [2014] O.J. No. 6077 (C.A.).

[13]

In oral argument, counsel for the appellants
advised that she had served on counsel for NDrive a with prejudice offer to
post $265,000 as security for costs, and to pay the costs of the motion in the
amount of $12,500. The principal amount is $35,000 less than what NDrive seeks.
She made three arguments supporting the reasonableness of the proposed $265,000
security for costs. First, she implicitly agreed with counsel for NDrive that her
$265,000 figure effectively values the prospective appeal costs at $35,000. She
took the position that NDrives figure of $70,000 for the prospective appeal was
too high and pointed out that it was not justified by a draft bill of costs. Second,
she stated that the appellants were narrowing the issues on appeal from the plenary
grounds set out in the Notice of Appeal, leaving the tacit inference to be
drawn that preparation would be less costly. Third, she argued that there
should be no security for the judgment itself, citing
Wiseau Studio, LLC v.
Harper
, 2021 ONCA 396, 66 C.P.C. (8th) 106, leave to appeal to S.C.C.
requested, 39765, leaving the tacit inference to be drawn that the amount paid
into court could be accessed to pay the appeal costs in priority to the
judgment.

[14]

Counsel for NDrive stated that the $70,000 figure
for prospective appeal costs is warranted in view of the size and complexity of
the record and the broad scope of the appeal, which involved challenges to
factual findings according to the Notice of Appeal. He noted that the motion for
security did not seek security for the judgment. Finally, he submitted that in
the face of the finding of instances of fraud and the appellants litigation
misconduct throughout, his clients should not be out a penny.

[15]

The appellants factum on the appeal was filed
with the court after the argument on the motion. I have reviewed the factum.
In it, the appellants focus on four issues:

1.

Did the motion judge err in hearing the motion
for partial summary judgment in light of
Malik v. Attia
, 2020 ONCA 787,
29 R.P.R. (6th) 215?

2.

Was the motion judge correct in law in granting
partial summary judgment to NDrive and dismissing the counterclaim?

3.

Did the motion judge err in awarding three sets
of compensation to NDrive arising out of the same underlying facts and
condemnation of the Zhou parties conduct?

4.

Did the motion judge err in appreciating the law
of fraudulent concealment and its effect on any applicable limitation periods?

[16]

This set of issues appears to narrow the broad grounds
of appeal stated in the Notice of Appeal, which included: (e) The Motion Judge
made findings of fact that were not supported by the evidence; (f) The Motion
Judge made findings of fact that were contradicted by the evidence; and (g)
The Motion Judge ignored or disregarded relevant evidence. That said, the
scope of the appeal remains quite broad.

[17]

The findings of fraud carry weight. The appeal
remains broad and complex and will require costly preparation. While best
practice would be to provide a draft bill of costs to justify the amount
claimed, I am able to make the assessment and find the figure of $70,000 to be
reasonable. I therefore grant the order for security for costs in the terms
requested, for a total amount of $300,000.

[18]

Costs of this motion are fixed as agreed at
$12,500, all inclusive, payable by the appellants to NDrive.

P.
Lauwers J.A.


