[2000] 4 F.C. 184
T-1534-97
Karel Fortyn and Seaway Serpentarium (Plaintiffs)
v.
Her Majesty the Queen and Alistair Ker (Defendants)
Indexed as: Fortyn v. Canada (T.D.)
Trial Division, Lemieux J.—Toronto, November 29, 1999; Ottawa, May 24, 2000.
Practice — Costs — Security for costs — Interpretation of Federal Court Rules, 1998, rr. 416, 417 — “Other proceedings” in r. 416(1)(f) not limited to proceedings in Federal Court — R. 417 burden of establishing impecuniosity as shield against security for costs order not met by plaintiff.
In an action for damages, the defendant Ker moved, pursuant to paragraphs 416(1)(f) and (g) of the Federal Court Rules, 1998, for an order to have the plaintiff Fortyn give security for costs. He alleged that an Ontario court had granted him an order against the plaintiff for costs in another proceeding that remained unpaid (416(1)(f)) and that the action was frivolous and vexatious (416(1)(g)). The plaintiff answered that the circumstances in this case were not covered by those paragraphs; that the defendant has not met the required onus, and, in any event, that rule 417, the impecuniosity provision, provided a shield to the requested order.
Held, the motion should be granted.
This was the first time that the Court has had to consider paragraphs 416(1)(f) and (g) of the new Rules regarding payment of security for costs.
A security for costs motion under rule 416 is not granted automatically and, under rule 417, can be refused if access to the Court is thwarted where a case has merit and the plaintiff is impecunious.
With respect to paragraph 416(1)(f), there was evidence that the defendant had an order for costs against the plaintiff in another proceeding. The question was whether “in another proceeding” extended to costs obtained in proceedings other than those in the Federal Court, as in this case, a proceeding in the Ontario courts. Upon a contextual or purposive approach to rule 416, the words should be taken as not limited to proceedings in this Court. A significant factor was the fact that the Federal Court, having Canada-wide, and often concurrent, jurisdiction, often interfaces with parties who have been involved in litigation in provincial courts.
In so far as paragraph 416(1)(g) is concerned, the defendant has not established that the plaintiff’s case is plainly and obviously devoid of merit.
As to rule 417, the issue of impecuniosity has been considered by the Federal Court in Ferguson v. Arctic Transportation Ltd. et al. (1996), 118 F.T.R. 154 (F.C.T.D.) and by the High Court of Ontario in Smith Bus Lines Ltd. v. Bank of Montreal (1987), 61 O.R. (2d) 688. Plaintiff’s bald statement in his affidavit that he was impecunious did not satisfy the rule. He had to establish prima facie that he was impecunious, and if this was contested by the other side, he had to establish this on the balance of probabilities. By his affidavit herein, the plaintiff had not passed through the prima facie gate.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Federal Court Act, R.S.C., 1985, c. F-7, s. 50.
Federal Court Rules, C.R.C., c. 663.
Federal Court Rules, 1998, SOR/98-106, rr. 2, 416(1)(f),(g), 417.
CASES JUDICIALLY CONSIDERED
APPLIED:
Rizzo & Rizzo Shoes Ltd. (Re), [1997] 1 S.C.R. 27; (1998), 36 O.R. (3d) 418; 154 D.L.R. (4th) 193; 50 C.B.R. (3d) 163; 33 C.C.E.L. (2d) 173; 221 N.R. 241; 106 O.A.C. 1; Miraj S.A. v. Gerovital, Inc. (1998), 79 C.P.R. (3d) 313 (F.C.T.D.); Richter Gedeon Vegyészeti Gyar RT v. Merck & Co. (1996), 66 C.P.R. (3d) 36; 109 F.T.R. 37 (F.C.T.D.); Mark v. Canada (Minister of Fisheries and Oceans) (1991), 50 F.T.R. 157 (F.C.T.D.); New Brunswick Electric Power Commission v. Maritime Electric Company Limited, [1985] 2 F.C. 13 (1985), 60 N.R. 203 (C.A.); Ferguson v. Arctic Transportation Ltd. et al. (1996), 118 F.T.R. 154 (F.C.T.D.); Smith Bus Lines Ltd. v. Bank of Montreal (1987), 61 O.R. (2d) 688; 20 C.P.R. (2d) 38 (H.C.).
AUTHORS CITED
Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
MOTION for security for costs. Motion granted.
APPEARANCES:
Margaret A. Hoy for plaintiff Karel Fortyn.
Jennifer L. Jones for defendant Alistair Ker.
SOLICITORS OF RECORD:
Margaret A. Hoy, Niagara Falls, Ontario, for plaintiff Karel Fortyn.
Martin, Sheppard, Fraser, Niagara Falls, Ontario, for defendant Alistair Ker.
The following are the reasons for order rendered in English by
Lemieux J.:
INTRODUCTION
[1] The defendant, Alistair Ker (the defendant), moves, pursuant to paragraphs 416(1)(f) and (g) of the Federal Court Rules, 1998 [SOR/98-106] (the Rules) for an order to have the plaintiff Karel Fortyn pay security for costs in this action. These particular paragraphs are new and have not been interpreted. The plaintiff argues the circumstances in this case are not covered by the cited paragraphs; the defendant has not met the required onus and, in any event, rule 417, the impecuniosity provision, provides a shield to the requested order.
[2] Paragraphs 416(1)(f) and (g) and section 417 of the Rules read:
416. (1) Where, on the motion of a defendant, it appears to the Court that
(a) the plaintiff is ordinarily resident outside Canada,
(b) the plaintiff is a corporation, an unincorporated association or a nominal plaintiff and there is reason to believe that the plaintiff would have insufficient assets in Canada available to pay the costs of the defendant if ordered to do so,
(c) the plaintiff has not provided an address in the statement of claim, or has provided an incorrect address therein, and has not satisfied the Court that the omission or misstatement was made innocently and without intention to deceive,
(d) the plaintiff has changed address during the course of the proceeding with a view to evading the consequences of the litigation,
(e) the plaintiff has another proceeding for the same relief pending elsewhere,
(f) the defendant has an order against the plaintiff for costs in the same or another proceeding that remain unpaid in whole or in part,
(g) there is reason to believe that the action is frivolous and vexatious and the plaintiff would have insufficient assets in Canada available to pay the costs of the defendant, if ordered to do so, or
(h) an Act of Parliament entitles the defendant to security for costs,
the Court may order the plaintiff to give security for the defendant’s costs.
(2) The Court may order that security for the costs of a defendant be given in stages, as costs are incurred.
…
417. The Court may refuse to order that security for costs be given under any of paragraphs 416(1)(a) to (g) if a plaintiff demonstrates impecuniosity and the Court is of the opinion that the case has merit. [Emphasis mine.]
BACKGROUND
[3] The plaintiff Fortyn and the defendant Ker in 1993 formed a partnership known as Seaway Serpentarium (the partnership), the other plaintiff; it operated a reptile zoo in a shopping mall in Welland, Ontario. The enterprise failed and became the subject-matter of much litigation in the Ontario courts. First, the defendant commenced an action against the plaintiff in 1994; this proceeding was stayed pending arbitration; the plaintiff was awarded costs which have yet to be assessed. Second, the partnership was dissolved by the arbitrator on March 25, 1995 and the reptile collection ordered to be sold by private sale, which I gather did not happen; costs were reserved and the issue is outstanding. Third, the landlord sued the plaintiff and the defendant and obtained default judgment on July 5, 1996, against the plaintiff Fortyn in the amount of $24,561.05 and $482.90 in costs. This judgment was assigned to the defendant Ker in May of 1997 after payment of the default judgment by the defendant Ker to the landlord.
[4] The plaintiffs then commenced an action in this Court on July 17, 1997. The claim is for general damages of US$1,500 and special damages of US$100,000. The action concerns 10 Albino Monocle Cobra juvenile snakes and their destruction by the Canadian Wildlife Service which is how the other defendant, Her Majesty the Queen, (who did not appear on this motion) came into the picture. The plaintiffs allege illegal seizure and destruction. The allegation against the defendant Ker is that he unlawfully authorized their destruction by the Canadian Wildlife Service representing he was their owner or had authority over their disposition.
[5] In a responding affidavit to the defendant Ker’s motion for security for costs, the plaintiff Fortyn adds he is “impecunious and has no monies with which to pay security for costs and I will be unable to pursue this matter in the event this Honourable Court orders that I pay security for costs”. The plaintiff was not cross-examined on his affidavit.
DISCUSSION
(a) Interpretive principles
[6] Paragraphs (f) and (g) of subsection 416(1) were incorporated into the Rules. I have found no decisions which interpret the scope of these paragraphs although a version of the security for costs rule appeared in the former Rules.
[7] For the interpretation of the paragraphs of these Rules, I take as a point of departure what Iacobucci J. said in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27 quoting at page 41 from Driedger in Construction of Statutes, (2nd ed. 1983), at page 87:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
(b) General principles of security for costs
[8] Rule 416 says this Court may order the plaintiff to give security for the defendant’s costs if it appears to the Court that one of the circumstances described in paragraphs 416(1)(a) to (h) is shown.
[9] Rothstein J., as a member of the Federal Court Trial Division, said in Miraj S.A. v. Gerovital, Inc. (1998), 79 C.P.R. (3d) 313, at page 317, in a case under the former Rules [Federal Court Rules, C.R.C., c. 663]: “Placing the onus on the defendants recognizes that plaintiffs under the jurisdiction of the Court do not normally have to provide security for costs”. This comment, in my view, clearly demonstrates that a security for costs motion under rule 416 is not granted automatically and under rule 417 can be refused if access to the Court is thwarted where a case has merit and the plaintiff is impecunious.
[10] Under the former Rules, a number of decisions touched upon the issue of granting security for costs. I cite Richter Gedeon Vegyészeti Gyar RT v. Merck & Co. (1996), 66 C.P.R. (3d) 36 (F.C.T.D.), where Denault J., dealing with both when and at what level security for costs should be granted, stated at pages 38-39:
There are some preliminary observations which, at the outset, should be noted. First, pursuant to rule 446, this court has complete discretion in granting security for costs. In the exercise of this discretion I find it useful to quote Prothonotary Hargrave who aptly stated the following in Tough Traveler Inc. v. Taymor Industries, Ltd. (1995), 59 C.P.R. (3d) 186 at p. 190, 90 F.T.R. 70, 52 A.C.W.S. (3d) 969 (T.D.):
In deciding on appropriate security for costs there are also other points that I have kept in mind including that “an allowance will have to be made for the unquenchable fire of human optimism and the likelihood that the figure of taxed costs put forward would not emerge unscathed after taxation” (Procon Ltd., supra, at p. 571) [Procon (Great Britain) Ltd. v. Provincial Building Co. Ltd., [1984] 1 W.L.R. 557]; that every case, this included, will not necessarily be fought through to a finish and therefore security for costs might be somewhat less; that security for costs ought not be illusory, but at the same time ought not be oppressive so as to hamper the plaintiff in bringing a legitimate lawsuit; and that if the security proves inadequate, the defendant can always reapply for additional security at a later date.
…
That is, this court cannot verify receipts, hotel bills, number of photocopies and so on. It is to be remembered that, in an application for security for costs, it is not this Court’s role to examine every cost incurred to determine whether to grant the application.
Finally, even though a trial date has been set, there is no certainty that the parties will actually proceed to trial. I cannot exclude the possibility of a settlement or that the duration of the trial will not be as lengthy as anticipated.
(c) Application of paragraph 416(1)(f)
[11] The defendant first invokes paragraph 416(1)(f) of the Rules. I am satisfied the evidence establishes the defendant, Alistair Ker, has an order for costs in another proceeding within the meaning of those words in this paragraph of the Rules, against the plaintiff, Karel Fortyn. This order was obtained by way of assignment of judgment.
[12] The question is, however, whether the words “in another proceeding” in this paragraph extend to costs obtained in proceedings other than those engaged in this Court, i.e. as in this case a proceeding in the Ontario courts.
[13] The word “proceeding” is not defined in Rule 2 of the Rules and its ordinary meaning is wide enough to encompass any legal action wherever taken as noted by Cullen J. in Mark v. Canada (Minister of Fisheries and Oceans) (1991), 50 F.T.R. 157 (F.C.T.D.), at pages 158-159. In addition, the scope of this word in section 50 of the Federal Court Act [R.S.C., 1985, c. F-7] has been determined by the Federal Court of Appeal not to be limited to proceedings taken in this Court (see, New Brunswick Electric Power Commission v. Maritime Electric Company Limited, [1985] 2 F.C. 13.
[14] However, these cases were decided in a different context related to section 50 of the Federal Court Act. Rule 416 does not contain the words “in another court or jurisdiction” as does section 50 of the Federal Court Act perhaps suggesting an intention not to extend its scope to other than Federal Court proceedings.
[15] Such a conclusion does not satisfy an analysis of the question on a proper contextual or purposive approach to rule 416. This Rule, when read as a whole, indicates its true purpose. The main objective of this Rule is to ensure that, in special circumstances, not normal ones, in the event a defendant is successful in proceedings before this Court, that defendant will be able to look to the security for payment of awarded costs. Taking into account the prescribed circumstances, this is not a minor objective given the reality check of tariff increases reflected in the Rules as compared to the former Rules.
[16] For these reasons, I conclude the scope of the words “other proceedings” is not limited to proceedings in this Court. I add another factor. This Court has Canada-wide jurisdiction which is exclusive in some matters and concurrent in others but more than any other Court, except the Supreme Court of Canada, interfaces with parties who, in other contexts, may have had proceedings, whether arising out of federal law or not, in provincial courts. This special context requires these Rules be interpreted to include costs awarded by those courts.
(d) Application of paragraph 416(1)(g)
[17] In so far as paragraph 416(1)(g) is concerned, the defendant has not established this case falls within the frivolous or vexatious test well recognized in the jurisprudence of this Court. The plaintiff’s case is not plainly and obviously devoid of merits.
(e) Does the rule 417 shield apply?
[18] Rule 417 is also a new rule which has not been interpreted by this Court but, as noted below, it codifies some common law principles developed in this Court and in other jurisdictions. The first branch to be met is whether the plaintiff is impecunious and the second branch is whether the case has merit. The second branch of this rule has been met, in this case, by the linkage to paragraph 416(1)(g), frivolous and vexatious test raised unsuccessfully by the defendant.
[19] As to impecuniosity, Teitelbaum J. in Ferguson v. Arctic Transportation Ltd. et al. (1996), 118 F.T.R. 154 (F.C.T.D.), stated at paragraphs 17-18 [page 158]:
After verifying the facts as to the plaintiff’s financial situation, I am satisfied there is no merit to the allegation that the plaintiff is impecunious. The New Shorter Oxford English Dictionary On Historical Principles (Oxford: Clarendon Press, 1993) defines the word “impecunious” as “in need of money, poor, penniless”. The American Heritage Dictionary defines the word “impecunious” as “lacking money—penniless”. The word “impecunious” is an adjective to denote someone who is “poor” or “impoverished” or “needy”.
As I have stated, it is difficult to find the plaintiff to be poor or impoverished or needy. From his affidavit evidence, and from the evidence obtained in an examination for discovery of plaintiff, it is, in my opinion, difficult to consider the plaintiff as one in need of money or poor or penniless.
[20] In Ontario, this concept was explained by the High Court in Smith Bus Lines Ltd. v. Bank of Montreal (1987), 61 O.R. (2d) 688 in the following terms at pages 704-705:
When the defendant has shown that there is good reason to believe that the plaintiff has insufficient assets in Ontario the defendant has met its onus and is prima facie entitled to an order for security for costs, and the onus shifts to the plaintiff to introduce evidence to show either:
(a) that it has sufficient assets in Ontario, or
(b) that (i) it is impecunious and (ii) an injustice would result if it were not allowed to proceed with its action.
Here the plaintiff did not introduce evidence to show that it had sufficient assets in Ontario, nor did it introduce evidence to show that it was “impecunious”. There was simply no evidence on the question from the plaintiff. Accordingly, on that basis alone, there is nothing to displace the prima facie entitlement of the defendant for an order for security. Pleadings which are contradictory are not evidence. Impecuniosity has to be established by evidence.
The term “impecuniosity” does not appear in the rule; it is a term introduced as part of the judicial gloss upon the rule in response to the words “as is just” in the part of the rule stating that (upon satisfaction of the stated conditions precedent) “the court … may make such order as is just”. The corporate plaintiff wishing to be allowed to proceed with its action, without either showing sufficient assets or putting up security, must first show “impecuniosity” meaning not only that it does not have sufficient assets itself but also that it cannot raise the security for costs from its shareholders and associates, partly because the courts do not want a successful defendant to be effectively deprived of costs where, for example, wealthy shareholders have decided to carry on business and litigation through a shell corporation. To go the impecuniosity route the plaintiff must establish by evidence that it cannot raise security for costs because, if a private company, its shareholders have not sufficient assets. As expressed by Reid J. in John Wink Ltd. v. Sico Inc. (1987), 57 O.R. (2d) 705 at p. 709, 15 C.P.C. (2d) 187: “If an order for security stops a plaintiff in its tracks it has disposed of the suit.” 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. Here there is simply no evidence to that effect. [Emphasis mine.]
[21] The problem I see for the plaintiff is that he, in his affidavit, has simply made a bald statement he is impecunious. He does not spell out in any detail his impecuniosity. Such a statement, even in an affidavit, without backup, does not satisfy the rule. The plaintiff has to do more; he has to establish prima facie the facts which would enable this Court to determine that, in fact, he is impecunious. If the matter is controverted by the defendant, the plaintiff’s burden is to establish his impecuniosity on the balance of probabilities. In this case, it is my view the plaintiff, in his affidavit, did not pass the prima facie gate.
[22] The defendant provided me with a draft bill of costs totalling $18,000 as costs, actual and anticipated in this case.
[23] I am not satisfied the defendant’s projected bill of costs is realistic and would muster past an assessment officer.
[24] Taking into account all of the circumstances of this case, the plaintiff is ordered to deposit the amount of $5,000 as security for costs in this matter.
[25] For all of these reasons, the defendant’s motion is granted. This is not an appropriate proceeding in which costs should be awarded.