Date: 20050908
Docket: T-745-04
Citation: 2005 FC 1226
Toronto, Ontario, September 8th, 2005
Present: Roger R. Lafrenière, Esquire
Prothonotary
BETWEEN:
PEMBINA COUNTY WATER RESOURCE DISTRICT,
CITY OF PEMBINA, NORTH DAKOTA,
TOWNSHIP OF PEMBINA, NORTH DAKOTA
CITY OF WALHALLA, NORTH DAKOTA,
TOWNSHIP OF WALHALLA, NORTH DAKOTA,
CITY OF NECHE, NORTH DAKOTA,
TOWNSHIP OF NECHE, NORTH DAKOTA,
TOWNSHIP OF FELSON, NORTH DAKOTA,
TOWNSHIP OF JOLIETTE, NORTH DAKOTA,
TOWNSHIP OF LINCOLN, NORTH DAKOTA,
CITY OF DRAYTON, NORTH DAKOTA, and
TOWNSHIP OF DRAYTON, NORTH DAKOTA
Plaintiffs
and
GOVERNMENT OF MANITOBA,
RURAL MUNICIPALITY OF RHINELAND,
RURAL MUNICIPALITY OF MONTCALM,
RURAL MUNICIPALITY OF STANLEY, and
TOWN OF EMERSON, MANITOBA
Defendants
REASONS FOR ORDER AND ORDER
[1] Both the Government of Manitoba and the municipal defendants have moved separately under Rule 416 of the Federal Courts Rules (the "Rules") for an order for security for costs to be paid by various towns and cities in North Dakota who have joined together as plaintiffs in this action. The plaintiffs claim in the main proceeding that the defendants are liable for flooding damage caused by the construction, maintenance, and operation of a dike near the international border, and that they are required to remove the dike, and re-establish the land upon which the dike has been constructed to prairie grade.
[2] The parties agree that an order for security for costs under Rule 416 is discretionary. The issue to be determined is whether the discretion should be exercised in favour of the defendants.
Background
[3] Affidavit evidence was filed by the plaintiffs and both defendants in this motion, however no cross-examinations were conducted. At the commencement of the hearing, the defendants raised a preliminary objection regarding the propriety of four paragraphs in the affidavit of Neil Fleming sworn May 20, 2005, filed in opposition to the motion. Counsel for the defendants submitted that paragraphs 18 to 21 of Mr. Fleming's affidavit contain improper opinion evidence and/or hearsay and requested that the paragraphs in question be either struck out or ignored.
[4] The defendants' request was dismissed at the hearing on the basis that Mr. Fleming's evidence, although disputed in the main action, was admissible for the limited purpose of background information in the context of the interlocutory proceeding. The facts and the opinions expressed by Mr. Fleming simply set out the plaintiffs' legal position and appear to be within his knowledge and expertise as an lawyer for the Pembina County Water Resource District. In any event, the facts that are relevant to the issues raised in the defendants' motions are largely uncontested.
[5] The plaintiff, the Pembina County Resource District, is a public entity that has responsibility for control over water and water works located within the County of Pembina, in the State of North Dakota. The co-plaintiffs are political sub-divisions of the State of North Dakota, being townships or cities established by the Constitution of the State of North Dakota. The plaintiffs concede that they are all ordinarily resident outside Canada and have no assets in Canada.
[6] Townships and cities in the North Dakota have the power under state law to sue and to be sued, and to raise sums necessary to prosecute and defend legal actions. State legislation specifically directs townships to pay a judgment levied against it if funds are available to the township, and requires township supervisors to make a levy if there insufficient funds in the township's treasury to satisfy the judgment. Cities also have the authority to raise money through taxation by levy against real property located within their boundaries, and to raise money through taxation on sales of goods. The plaintiffs are responsible for the administration of public works and undertakings withing their boundaries and control assets, such as roads, sewers, and schools, that total in the millions of dollars.
[7] The State of North Dakota shares a common border along the 49th parallel with the Province of Manitoba. There is a dike immediately inside the Canadian side of the border that extends for approximately 30 miles west from a point just west of where the Red River crosses the border between North Dakota and Manitoba.
[8] Historical records indicate that the construction of part of the present day dike took place in the early 1940's and, since that time, the dike has been improved and lengthened to its present state. According to the plaintiffs, the dike blocks water flowing in natural watercourses in the State of North Dakota from flowing into the Province of Manitoba, in violation of the International Boundary Waters Treaty Act, R.S., 1985, c. I-17 (the "IBWA Act"), They allege that flooding and consequential damage is caused by the operation of the dike, causing damage to works and undertakings operated or controlled by the plaintiffs.
[9] The defendants deny both liability and damages. As part of their defence, they raise the role played by certain drainage, diking and other activities undertaken in North Dakota on flooding and drainage patterns generally.
[10] Both the Government of Manitoba and the municipal defendants stand to incur substantial fees and disbursements in the defending the action. The draft bill of costs submitted by the Government of Manitoba estimates its legal fees through to the completion of trial at $176,335.20, and disbursements of $80,000. A similar amount is claimed by the municipal defendants.
Analysis
[11] A defendant is entitled to seek an order compelling a plaintiff to post security for potential award of costs in the circumstances listed in Rule 416(1) of the Rules. Paragraphs (a) and (b) of Rule 416(1) provide that the Court may order a plaintiff to give security if the plaintiff is ordinarily resident outside Canada, or the plaintiff is corporation and there is reason to believe that the plaintiff would have insufficient assets to pay a costs award.
[12] The defendants submit that they are entitled to security costs once the requirements set out in Rule 416(1)(a) or (b) are satisfied, unless the plaintiff can establish impecuniosity under Rule 417. They also maintain that in the absence of any evidence of financial hardship on the part of the plaintiffs, the Court has limited, if any, discretion, to refuse security for costs.
[13] The plaintiffs deny that they are corporations within the meaning of Rule 416(1)(b) since they are created by enabling legislation. They admit, however, that they are ordinarily resident outside of Canada and that they do not have assets in Canada available to pay the costs of the defendants in the event that costs were awarded in their favour. Notwithstanding that a prima facie case for an order for security for costs has been made out against them, the plaintiffs submit that it would not be appropriate, given the nature of the proceeding and their particular circumstances, to order security for costs.
[14] Security for costs is available and will generally be required in the circumstances listed in Rule 416(1). It is not, however, an automatic entitlement. This Court retains a discretion to deny a request for the posting of security in circumstances where the defendant is in no real jeopardy of recovering its costs once judgment has issued in its favour, or if requiring security would have the effect of preventing the prosecution of a meritorious claim.
[15] This discretion must be exercised judicially and must be based on a fair assessment of the interests of the parties. For the reasons that follow, I am satisfied that security for costs need not be posted by the plaintiffs.
[16] To begin with, the plaintiffs have a special status in this Court since they are bringing their action pursuant to the provisions of the IBWA Act. The object and purpose of the Treaty is to provide a foreign resident with the same rights as they relate to international boundary waters, as though that person was resident in Canada. Section 4(1) of the IBWA Act provides:
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4. (1) Any interference with or diversion from their natural channel of any waters in Canada, which in their natural channels would flow across the boundary between Canada and the United States or into boundary waters, as defined in the treaty, resulting in any injury on the United States side of the boundary, gives the same rights and entitles the injured parties to the same legal remedies as if the injury took place in that part of Canada where the interference or diversion occurs.
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4. (1) Toute altération, notamment par détournement, des voies navigables du Canada, don't le cours naturel coupe la frontière entre le Canada et les États-Unis ou se jette dans des eaux limitrophes, au sens du traité, qui cause un préjudice du côté de la frontière des États-Unis, confère les mêmes droits et accorde les mêmes recours judiciaires aux parties lésées que si le préjudice avait été causé dans la partie du Canada où est survenue l'altération.
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[17] The wording of section 4(1) is clear and must be given practical effect. The plaintiffs have the same rights and remedies as if the property and undertakings which have been damaged by the actions of the defendants were located in Canada. Treaty claimants should therefore be accorded equal treatment with respect to access to the courts of justice within the territory of the other party, in all degrees of jurisdiction, both in pursuing and in defense of their rights. The provisions of Rule 416 ought therefore not work to the plaintiffs' disadvantage or be interpreted to their prejudice.
[18] Second, the existence of reciprocal enforcement legislation is a significant factor that militates in favour of the plaintiffs. In Greensteel Industries Ltd. v. Binks Manufacturing Co. of Canada Ltd. (1982), 35 O.R. (2d) 45 at para . 49, Justice Lacourcière of the Ontario Court of Appeal commented as follows regarding the rule governing security for costs applicable at the time in the Ontario Rules of Practice:
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Having regard to the wording of our Rule 373(1)(a) the order for security where the plaintiff resides out of Ontario is purely discretionary involving a determination of what is just in all the circumstances. The discretion is usually exercised in favour of a local defendant who is in danger of not being able to enforce an order for costs if the defence is successful. The presence or absence of reciprocal enforcement legislation is obviously an important factor in the determination of what is just.
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[19] Justice Lacourciere went on to find that because reciprocal enforcement legislation provided the defendant with a direct remedy to enforce any order for costs in the jurisdiction where the plaintiff resided, no order for security for costs would be made. In the present case, the legislation in North Dakota provides the defendants with access to its courts to enforce any judgment recovered by the defendants in the same manner that would exist under reciprocal enforcement legislation in Canada. Although the enforcement legislation is foreign in this present case, the long and well-respected principle of judicial comity between the courts in Canada and the United States of America should ensure prompt and effective recourse, if necessary.
[20] Moreover, the uncontested evidence before me establishes that the plaintiffs have sufficient assets to pay to pay the defendants' costs and that, in any event, they have the ability to raise the necessary funds through levies or by taxation.
[21] Third, in lieu of security for costs, the plaintiffs have offered to undertake to pay any judgment for costs awarded to the defendants in this action, without the necessity of the defendants having to commence proceedings in the State of North Dakota, and to file a formal undertaking satisfactory to this Court. The proposal is a reasonable one, since it contractually binds the plaintiffs to pay any judgment ordered to be paid, and prevents governmental immunity to be raised as a bar to recovery.
[22] For the above reasons, I am satisfied that the plaintiffs should be exempted from the requirement to post security for costs, conditional upon to their filing a satisfactory undertaking.
ORDER
THIS COURT ORDERS that
1. The motion of the defendants, Rural Municipality of Rhineland, Rural Municipality of Montcalm, Rural Municipality of Stanley and Town of Emerson, Manitoba, for an order requiring that the plaintiffs give security for their costs be and is hereby dismissed.
2. The motion of the defendant, Government of Manitoba, for an order requiring that the plaintiffs give security for its costs be and is hereby dismissed.
3. The plaintiffs shall provide to the defendants, within 45 days of this order, and file with the Court a letter undertaking to pay any costs awarded to the defendants in the within action without the necessity of the defendants having to commence proceedings in the State of North Dakota or elsewhere. Such letter shall in a form satisfactory to the defendants. In the event of disagreement, either party may requisition a case management conference to settle to terms of the letter of undertaking.
4. The plaintiffs shall have a single set of costs in respect of the above motions calculated in accordance with the middle of column III of Tariff B of the Federal Courts Rules.
"Roger R. Lafrenière"
_____________________________
Prothonotary
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-745-04
STYLE OF CAUSE: PEMBINA COUNTY WATER RESOURCE DISTRICT, CITY OF PEMBINA, NORTH DAKOTA,
TOWNSHIP OF PEMBINA, NORTH DAKOTA
CITY OF WALHALLA, NORTH DAKOTA,
TOWNSHIP OF WALHALLA, NORTH DAKOTA,
CITY OF NECHE, NORTH DAKOTA,
TOWNSHIP OF NECHE, NORTH DAKOTA,
TOWNSHIP OF FELSON, NORTH DAKOTA,
TOWNSHIP OF JOLIETTE, NORTH DAKOTA,
TOWNSHIP OF LINCOLN, NORTH DAKOTA,
CITY OF DRAYTON, NORTH DAKOTA, and
TOWNSHIP OF DRAYTON, NORTH DAKOTA
Plaintiffs
and
GOVERNMENT OF MANITOBA,
RURAL MUNICIPALITY OF RHINELAND,
RURAL MUNICIPALITY OF MONTCALM,
RURAL MUNICIPALITY OF STANLEY, and
TOWN OF EMERSON, MANITOBA
Defendants
PLACE OF HEARING: WINNIPEG, MANITOBA
DATE OF HEARING: MAY 25, 2005
REASONS FOR ORDER: LAFRENIÈRE P.
DATED: SEPTEMBER 8, 2005
APPEARANCES:
Mr. Colin R. MacArthur FOR PLAINTIFFS
Ms. T.J. Bjornson FOR DEFENDANT (Government of Manitoba)
Mr. R.D. McDonald FOR DEFENDANTS (Municipalities)
SOLICITORS OF RECORD:
Aikins, MacAulay & Thorvaldson LLP
Winnipeg, Manitoba FOR PLAINTIFFS
John H. Sims, Q.C.
Deputy Attorney General of Canada FOR DEFENDANT (Government of Manitoba)
Fillmore Riley LLP
Winnipeg, Manitoba FOR DEFENDANTS
(Municipalities)
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