Security for costs on appeal

Rule 61.06(1) states:

In an 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 rule 56.01; or

(c) for other good reason, security for costs should be ordered,

a judge of the appellate court, on motion by the respondent, may make such order for security for costs of the proceeding and of the appeal as is just.

Can subRule (c) be used where grounds (a) or (b) are not met but are close to being met – in other words, must the “good reason” in subRule (c) be different from (a) and (b)? 

Today’s decision in Donaldson International Livestock Ltd. v. Znamensky Selekcionno-Gibridny Center LLC, 2010 ONCA 137 says to apply “good reason” must “mean good reason other than those already encompassed in rule 61.06(1)(a) or (1)(b)”.  The Court writes:

[11]         In its written materials filed in support of the motion, Znamensky founded its argument on subsection (1)(b) above, i.e., that an order for security for costs could be made against the appellant pursuant to rule 56.01(1)(c) or (d).  Those provisions state that:

The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,

(c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remains unpaid in whole or in part;

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, 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.

[12]         In this regard, Znamensky’s argument was that Donaldson has not paid the outstanding costs orders totalling $115,000 and, in addition – based on information obtained on an examination of Donaldson in aid of execution respecting those unpaid orders –there is good reason to believe that Donaldson has insufficient assets in Ontario to pay the costs of Znamensky if the latter is successful on the appeal.  The evidence suggests, at least, that Donaldson’s net assets are worth about $125,000 as against the outstanding costs orders of $115,000 in connection with the first Ontario proceedings plus the outstanding costs order of $30,000 from below.

[13]         However, based on the line of authority in this Court establishing that a respondent on appeal may not rely on rule 61.06(1)(b) to obtain an order for security for costs of an appeal as against a defendant/appellant, Mr. Bredt fairly concedes that he cannot resort to subsection (1)(b) and rule 56.01 in the circumstances.  The policy rationale behind this line of jurisprudence is not to impose security for costs upon foreign or impecunious defendants who are forced into court by others to defend themselves.  See Diversitel Communications Inc. v. Glacier Bay Inc., [2004] O.J. No. 10, 181 O.A.C. 6 (C.A.), at para 8; GEAC Canada Ltd. v. Craig Erickson Systems Inc., [1994] O.J. No. 1061, 26 C.P.C. (3d) 355 (C.A.); Toronto Dominion Bank. v. Szilagyi Farms Ltd., (1988), 65 O.R. (2d) 433 (C.A.).  In Szilagyi Farms, Morden J.A. expressed the rationale in these terms, at p. 440:

… it has for a long time been the accepted position that no party should have to give security for costs as a condition of simply defending itself (see Re Percy and Kelly Cobalt & Chrome Iron Mining Co. (1876), 2 Ch. D. 531, 24 W.R. 1057) and, in this regard, it can be said that an appeal is simply a step in the proceeding in which the defendant appealing is continuing to defend itself.

[14]         Here, the position is that Donaldson is the impecunious defendant – or at least arguably so – who was simply defending itself against Znamensky’s enforcement proceedings and now simply seeks to take another step in the proceeding by continuing to defend itself through the appeal.

[15]         Mr. Bredt also candidly concedes that he is not seeking refuge under rule 61.06(1)(a).  He does not argue the appeal is frivolous or vexatious, although he does submit (with an eye on subrule (1)(c), to which I will turn in a moment, no doubt) that “it is not the strongest appeal.”  Mr. Waldin, on the other hand, submits that the appeal is “very strong” (no doubt with an eye on the same subrule).

[16]         The motion therefore turns on the application of rule 61.06(1)(c).  In my view, Znamensky is not entitled to succeed on that basis.

[17]         First, the wording of rule 61.06(1)(c) is clear: where it appears that “for other good reason” security for costs should be ordered, the judge may make such an order.  This must mean good reason other than those already encompassed in rule 61.06(1)(a) or (1)(b) – and, through (1)(b), those encompassed in rule 56.01.  In other words, a party seeking an order for security for costs under rule 61.06(1)(c) may not resort to what are in effect the same grounds that would support a rule 56.01 order when it is barred by the line of jurisprudence cited above from relying on subrule (1)(b), the gate through which it must travel to have access to rule 56.01.  Here, Mr. Waldin submits, that is precisely what Znamensky is attempting to do – “back door” itself into rule 56.01(c) and (d) through rule 61.06(1)(c)  when it is forbidden from accessing it through rule 61.06(1)(b).  Stripped to its essentials, Znamensky’s motion is founded on the still-unpaid costs orders and Donaldson’s impecuniosity.  I agree.