Date: 20091113
Docket: T-949-05
Citation: 2009
FC 1160
Vancouver, British Columbia, November 13, 2009
PRESENT: The Honourable Mr. Justice Mosley
BETWEEN:
FREDERICK
L. NICHOLAS
Plaintiff
and
ENVIRONMENTAL SYSTEMS (INTERNATIONAL)
LIMITED
BRIAN
G. COOK
REIF
WINERY INC. (c.o.b. as “REIF ESTATE WINERY”)
KLAUS
REIF
AND
RE/DEFINING WATER INC.
Defendants
REASONS FOR ORDER AND ORDER
[1]
By motion
dated July 27, 2009, and amended October 1, 2009, the plaintiff appeals the
order of Prothonotary Aalto dated July 17, 2009 requiring that the plaintiff
post additional security for costs in this action.
[2]
The claim,
filed in June 2005, alleges infringement of copyright and moral rights in a
report, dated June 3, 2003, which the plaintiff prepared for a third party. The
plaintiff is representing himself in the pre-trial proceedings. The trial is
currently scheduled to begin on April 10, 2010.
[3]
The
plaintiff is ordinarily resident outside Canada. Thus, under Rule 416 of the Federal
Courts Rules, the defendants are prima facie entitled to security
for costs unless the Court exercises the discretion authorized by Rule 417 to
refuse such an order. Rule 417 requires that the plaintiff demonstrate
impecuniosity and the Court must be of the opinion that the case has merit.
[4]
In their
initial motion for security brought before Prothonotary Tabib in December 2006,
the defendants conceded that the action had merit but declared their intent
to vigorously defend the claim. The issue was, therefore, whether the
plaintiff was impecunious. In her order dated December 22, 2006, Prothonotary
Tabib declined to find that the plaintiff was impecunious as, among other
reasons, he had not explained why he was not employed and why he could not rely
on his spouse’s financial support to raise the necessary security.
[5]
Prothonotary
Tabib required the plaintiff to post security of $20,000 for the defendants’
costs incurred or to be incurred through the discoveries stage of the
proceedings. The order provided that the amount of the security could be paid
in monthly instalments and varied on application for changes in circumstances,
additional costs incurred, or to provide security for the further stages of
this litigation.
[6]
In a
motion in writing dated May 20, 2009, the defendants sought additional security
on the grounds that they had incurred costs in excess of $400,000 to
defend the action to that date and estimated that they would incur an
additional $100,000 in further costs to defend the action. They asserted that
the claim should have been brought under simplified procedure, if at all, and alleged
that the manner in which the plaintiff had pursued his case had been
unnecessarily cumbersome and had put them to great expense. The defendants
requested that security be calculated at the high end of Column V of the table
to Tariff B.
[7]
The
plaintiff filed a voluminous responding motion record requesting, among other
things, that the motion be denied on the grounds that his claim had merit and
that he had demonstrated impecuniosity. On the question of merit, the plaintiff
filed a great deal of material including his Pre-trial Conference Memorandum
(PTCM). With respect to impecuniosity, the plaintiff’s affidavit refers at
length to his continuing unemployment, indebtedness, and inability to raise
funds from other sources as grounds to refuse the order.
DECISION UNDER APPEAL:
[8]
In the
July 17, 2009 decision, Prothonotary Aalto found that the defendants had
provided affidavit evidence to support the claim for additional security for costs.
He noted that the burden of proving impecuniosity is on the plaintiff and held
that there was no reason to review the findings already made by Prothonotary
Tabib. In his view, the evidence did not disclose that the plaintiff is
impecunious as that concept is defined in the jurisprudence.
[9]
The prothonotary
concluded that the plaintiff’s burden had not been discharged on the motion and
that “…the plaintiff has to date been able to raise funds as needed to assist
in the litigation. An increased security for costs order is required.”
[10]
A draft
bill of costs had been provided as part of the defendants’ motion setting out
an estimate at the high end of Column V of $47,000. Prothonotary Aalto found
that while there was little to criticize in the draft bill some expenses were
not justified. He ordered that the plaintiff post the amount of $36,000 as additional
security for costs incurred and to be incurred up to the end of trial
together with costs of the motion to be paid in any event of the cause. The
order provided that the amount may be posted in stages of a minimum of at least
$1,500 per month beginning August 17, 2009 provided the balance is paid
into court at least 30 days prior to the date set for trial of the action.
[11]
The trial
is currently scheduled to begin on April 12, 2010 for a duration of three days.
The plaintiff has, as yet, made no payments into court in satisfaction of
the July 17, 2009 order. In a motion dated October 16, 2009, the
plaintiff sought a stay of the July 17, 2009 order, “nunc pro tunc” under
Rule 398(1)(b) of the Federal Courts Rules. At the hearing of the appeal
on November 2, 2009, the plaintiff did not appear. A lawyer attended on
the plaintiff’s behalf. The lawyer advised the Court that he was appearing
on an ex gratia basis and was not retained to act as counsel of record.
He was permitted to make submissions as the plaintiff’s representative in the
course of which he acknowledged that the stay motion is now moot as the appeal
was being heard and that there was no reason for the Court to consider it. I agree.
ISSUE:
[12]
The issue
on this appeal is whether Prothonotary Aalto was clearly wrong in deciding to
exercise his discretion to require further security for costs.
STANDARD OF REVIEW:
[13]
The
standard of review applicable
to a prothonotary’s discretionary decisions was established by the Federal
Court of Appeal in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425
(C.A.), [1993] F.C.J. No. 103, and endorsed with approval by the Supreme Court
of Canada in Z.I. Pompey Industrie v. ECU-LINE N.V., [2003] 1 S.C.R. 450,
[2003] S.C.J. No. 23, at paragraph 18:
Discretionary
orders of prothonotaries ought to be disturbed by a motions judge only
where (a) they are clearly wrong, in the sense that the exercise of discretion
was based upon a wrong principle or a misapprehension of the facts,
or (b) in making them, the prothonotary improperly exercised his or her
discretion on a question vital to the final issue of the case.
[14]
The Aqua-Gem
test was reformulated in Merck & Co. v. Apotex Inc., (2003), 315
N.R. 175, [2003] F.C.J. No. 1925, as follows:
Discretionary orders of Prothonotaries
ought not to be disturbed on appeal to a judge unless:
a) the questions in the
motion are vital to the final issue of the case, or
b) the orders are clearly
wrong, in the sense that the exercise of discretion by the prothonotary was
based upon a wrong principle or upon a misapprehension of facts.
ANALYSIS:
[15]
The
plaintiff has not argued that the question of security for costs is “vital to
the final issue of the case”. It appears, in any event, to be settled in the
jurisprudence of this Court that the stringent test for “vitality” would not be
met by the question of security for costs: Contour Optik Inc. v. Hakim
Optical Laboratory Ltd (F.C.T.D.), (2000), 10 C.P.R. (4th) 357, [2000]
F.C.J. No. 2060, at para. 9; Heli Tech Services (Canada) Ltd. v. Weyerhaeuser Co. (F.C.T.D.), (2006), 56 C.P.R.
(4th) 432, [2006] F.C.J. No. 1494, at para 18; Coombs v. The Queen, 2008
FC 894, [2008] F.C.J. No. 1128, at para. 12; Merck & Co. v. Apotex Inc.
(F.C.A.), (2003), 30 C.P.R. (4th) 40, [2003] F.C.J. No. 1925, at para. 22.
[16]
The Court
should, therefore, only interfere with the order of Prothonotary Aalto if
satisfied that he was “clearly wrong” in that he based his decision upon an incorrect
principle of law or upon a misapprehension of the facts and then, only if upon
conducting a de novo review of the evidence, the Court reaches a
different conclusion on the facts and the law. A de novo review may only
consider the evidence that was before the prothonotary. The defendants have
properly objected to the inclusion of additional evidence in the plaintiff’s
affidavit in his appeal record. I have given that fresh evidence no
consideration in arriving at a decision.
[17]
While the
plaintiff raised some collateral issues regarding the decision to require
additional security, the central question was whether the prothonotary had
erred in principle or misapprehended the facts in finding that the plaintiff
had failed to demonstrate that he is impecunious within the meaning of Rule 417
of the Federal Courts Rules.
[18]
The
definition of “impecunious” which Justice Max Teitelbaum derived from the
dictionaries in Ferguson v. Arctic Transportation Ltd., (1996), 118
F.T.R. 154, [1996] F.C.J. No.1074, at paragraph 17, has been consistently
applied in the subsequent cases. A person who is “impecunious” is someone who
is “in need of money, poor, penniless, impoverished or needy”.
[19]
A
plaintiff who asserts that he is impecunious in an effort to avoid having to
post security for costs bears a heavy onus of proof. Full and frank disclosure
is required so that there be no unanswered material questions: Morton v. Canada (Attorney General), (2005), 75 O.R. (3d) 63, [2005]
O.J. No. 948, at paragraph 32.
[20]
The
rationale behind the adoption of the test for impecuniosity under Rule 417 was
set out by Justice Douglas Campbell in Heli Tech Services, above at
paragraph 4. The Courts have been anxious to ensure access to justice where a
litigant is required to pay security for costs but is unable to do so. This was
expressed in the following terms by Reid J. in John Wink Ltd. v. Sico Inc.,
(1987), 57 O.R. (3d) 705, 15 C.P.C. (2d) 187, [1987] O.J. No. 5, at paragraph 8:
There can be no question that an
injustice would result if a meritorious claim were prevented from reaching
trial because of the poverty of the plaintiff. If the consequence of an
order for costs would be to destroy such a claim no order should be made.
[21]
The reason
for this is, as Justice Reid put it more colourfully, is that if such an order
“stops a plaintiff in its tracks it has disposed of the suit”. This can be a
powerful incentive to a defendant to seek such an order.
[22]
The Courts
have also been concerned that successful defendants, if successful, should not
be effectively deprived of costs by a failure to require security. This concern
has arisen often in the context of plaintiffs carrying on business and
litigation through a corporation consisting of a shell without assets: Fortyn
v. Canada (T.D.), [2000] 4 F.C. 184, [2000] F.C.J. No. 686, at paras. 19-20
citing Smith Bus Lines Ltd. v. Bank of Montreal, (1987), 61 O.R. (2d) 688 at pages
704-705, [1987] O.J. No. 1197.
[23]
Accordingly,
as Mr. Justice Reid observed (at page 709 of the O.R. report):
To raise impecuniosity there must be
evidence that if security is required the suit will be stopped – because the
amount of the security is not only not possessed by the plaintiff but is not
available to it.
[24]
In the
case of a shell corporation without discoverable assets, the courts can reasonably
look to the shareholders to provide the indemnification. In the case of a
non-corporate plaintiff, it is appropriate to look at other sources of funds
that may be available to the litigant including those held by close family
members. In Ferguson, above, for example, Justice Teitelbaum
rejected an argument that the plaintiff was impecunious on evidence that he had
cash savings of $13,000, received an annual pension of about $60,000 and owned
several mortgage-free properties in joint tenancy with his wife.
[25]
In this
case, in response to the defendants’ motion for additional security, the
plaintiff provided evidence about his financial situation and that of his wife at
paragraphs 148 to 180 of his affidavit, with supporting documentary exhibits. Prothonotary
Aalto dealt with the plaintiff’s evidence with the following comments at page 4
of his order:
The evidence falls short of the “robust
particularity” that is required to meet the burden of demonstrating
impecuniosity. The plaintiff has filed a lengthy affidavit as part of his
motion record which exceeds 600 pages. Much of it appears to repeat evidence
that was before Prothonotary Tabib although some of the information has been
updated. The plaintiff refers to the fact he is not currently employed; that he
and his wife own a home although he is no longer on the deed of trust; that he
has incurred substantial costs of about $21,000 U.S. to prepare motions
including copying and binding; that his credit card was suspended; that
unforeseen expenses were incurred as a result of floods and hurricanes; that he
has some cash value in a life insurance policy; that he devotes all of his time
to this litigation and only occasionally works in designing software which he
says he was doing until the need to bring this litigation; that his company has
no income; that he has cashed in an RRSP valued at $3220.08 which he
established when he lived in Canada; that he supports a son from his former
marriage; that he has obtained funds from a colleague to assist in paying the
prior order for security for costs; that his father has advanced funds for this
litigation; and, that he has no other sources of funds or assets.
[26]
With the
greatest respect to the learned prothonotary, I have considerable difficulty in
understanding how the plaintiff’s evidence did not demonstrate that he was
impecunious. As I read that evidence, he responded to the concerns raised by
Prothonotary Tabib in the December 2006 order. The plaintiff explained that he
is self-employed but has no income; he is heavily indebted and subject to
a child support order which is in arrears; he is without credit and relies on
his wife’s income as a nurse to meet the family’s living expenses. The family
home is heavily mortgaged and the minimal amount of equity remaining falls
far short of the amount of the security required. His RRSP was now
exhausted. The wife’s credit card had been suspended. The plaintiff had
borrowed funds from his father and a former colleague to meet litigation costs
including the initial order for security but, he averred, those sources of
funds were no longer available to him. No other sources of funds were
identified. An unrelated action to recover the unpaid balance on a promissory
note issued by one of the defendants in this action remained pending before the
Ontario Superior Court but there was no indication that it would be resolved in
the short term.
[27]
At
paragraph 180 of his affidavit, the plaintiff averred that an order for
additional security for costs would prevent him from continuing his action
against the defendants. He was not cross-examined on his affidavit.
Prothonotary Aalto acknowledged this but relied on the fact that the plaintiff
had to date been able to raise funds as needed to assist in the litigation.
That is a relevant consideration but cannot be determinative when the plaintiff
has otherwise demonstrated through unchallenged evidence that he is
impecunious.
[28]
In my
view, it is an error in principle to assume that because a plaintiff has been
able to satisfy a modest order for security for costs in the past that he would
be able to raise funds as needed again when the only evidence before the court
relating to the financial circumstances of the plaintiff is to the contrary.
Reluctantly, I must conclude that the prothonotary erred in principle and
misapprehended the facts. Conducting a review of the evidence that was before
the prothonotary, de novo, I find that the plaintiff
demonstrated impecuniosity and that the order for security for costs should not
have been issued.
[29]
I arrive
at this conclusion reluctantly because it is clear from the court record that
it may have served as a kindness to this plaintiff to “stop this action in its
tracks”. The defendants may well be correct that the claim should have been
dealt with under the simplified procedure and that the plaintiff can only hope
to achieve statutory damages if he is successful in the cause. That is not for
me to decide on this appeal but it is apparent from his affidavit and written
representations that the plaintiff does not have an objective or, one might
say, realistic, view of the degree of success that he can expect to achieve on
the possible outcome of his claim.
[30]
I am also
satisfied that the manner in which the plaintiff has pursued his claim has
added to the costs incurred thus far. The defendants are entitled to vigorously
defend the action in the manner they consider necessary. I am also mindful that
should the defendants succeed and be awarded costs against the plaintiff, they
may be unable to recover them if security is not required. The Court has no
reason to believe that the defendants have “deep pockets” capable of easily
bearing these costs. Nonetheless, if the principle of access to justice means
anything, it has to allow a litigant such as Mr. Nicholas his day in court.
[31]
I am not
influenced in my view of this matter by the extraordinary effort undertaken by
the plaintiff to demonstrate that his action has merit. Rule 417 provides that
the Court may refuse to order that security for costs be given if a plaintiff
demonstrates impecuniosity and the Court is of the opinion that the case
has merit. This is a conjunctive assessment. The factors do not outweigh each
other. The plaintiff must demonstrate merit and impecuniosity. The
defendants conceded that the action had some merit on the initial motion for
security while denying much of the claim. Neither Prothonotary Tabib nor
Prothonotary Aalto thought it necessary to consider the matter beyond that
concession. Nor do I. Nothing in these reasons should be construed by the
plaintiff as an endorsement of his view of the strength of his case.
[32]
The plaintiff
submitted in his written representations that Prothonotary Aalto should have recused
himself from hearing the motion after having been made aware of confidential information
disclosed at the pre-trial conference. This argument is entirely without merit
and was not pressed by plaintiff’s representative at the hearing. The test for
disqualification is very strict and requires evidence of bias or a reasonable apprehension
of bias: Committee
for Justice and Liberty v. National Energy Board, [1978] 1 S.C.R. 369; R. v. S(R.D.),
[1997] 3 S.C.R. 484. That
the prothonotary may have become apprised of such information is not, in
itself, sufficient. There would have to be, in addition, some objective basis on
which a reasonable person could infer that the prothonotary would have been
influenced consciously or unconsciously by the information. The plaintiff has
failed to provide any grounds for such a finding.
ORDER
THIS COURT ORDERS that the appeal is allowed and the
order of Prothonotary Aalto dated July 17, 2009 to require security for costs
is set aside. Costs to be in the cause.
“Richard
G. Mosley”
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