Security for Judgment Awarded in Ontario

Civil litigation can be an expensive ordeal. In many circumstances, it’s not entirely clear that either side has the resources to go the full distance for an entire trial, and with competent counsel and reasonable parties, it’s frequently not necessary to do so.

For every step along the way though, there are still expenses to be incurred. Rule 56.01 of the Rules of Civil Procedure in Ontario allows a party to see security for costs, typically where another party is ordinarily a resident outside of Ontario, there is a duplicity of proceedings elsewhere, other costs remain unpaid, there is good reason to believe a party has insufficient assets in Ontario to pay the costs, or there is good reason to believe the action to be frivolous and vexatious.

The Divisional Court in Zeitoun v. Economical Insurance Group (upheld by the Court of Appeal) clarified that Rule 56.01 does not create a right to security for costs, but triggers an inquiry by the court.

Rule 56.01 does not itself speak of the need of a moving party to demonstrate impecuniosity. This has instead been introduced by the case law as a factor, when the court is exercising discretion. The Court of Appeal in Donaldson International Livestock Ltd. v. Znamensky Selekcionno-Gibridny Center LLC confirmed that a party should not have to give security for costs as a condition of simply defending themselves. Otherwise, the more powerful or wealthy party in a proceeding would protract and complicate a matter unnecessarily, simply for the purposes of evading judgment, or as an improper leverage in settlement.

The purposes of costs are not limited to indemnification, and are intended to encourage settlement, prevent frivolous or vexatious litigation, and to discourage unnecessary steps in a proceeding. The Court of Appeal in 1465778 Ontario Inc. v. 1122077 Ontario Ltd. even confirmed that pro bono counsel may be entitled to costs, stating,

[47] Where a case is brought to assert a Charter claim or other matter of general public importance, different considerations may apply when deciding whether to award costs in favour of the pro bono party. In those cases, for example, it may be appropriate for the court to consider potentially insulating the pro bono party from exposure to costs, or limiting the party’s exposure, in order to facilitate the resolution of an important public interest issue by the court. The principles that will be applied in this type of litigation will also develop as the cases arise.

[48] The legal profession in Ontario has a history of commitment to ensuring access to justice and providing pro bono services through its members. That history is reflected in today’s litigation environment where it is both appropriate and necessary that costs awards be available to successful pro bono litigants in ordinary private law cases both at the end of the case and on interlocutory motions. The principles that will guide the exercise of the court’s discretion in deciding when such costs will be awarded should be developed over time on a case-by-case basis.
[emphasis added]

The Victims’ Bill of Rights states in s. 4(2) that a judge shall not require a victim to provide security for costs, reflecting this important notion of fairness and access to justice. However, the court in Phelps v. Niagara Regional Police Service demonstrated that this exemption may not apply where the plaintiff cannot demonstrate that they were a victim.

Far more rare is security for costs of trial judgment. In Ontario this has never happened, until the Ontario Court of Appeal’s recent decision in Wiseau Studio, LLC v. Harper.

The action is itself a rather unusual one, involving a movie called by the BBC “the worst film ever made.” A documentary about the movie fell out of by the movie producers, who were alleged to engage in copyright infringement.

The plaintiffs were briefly successful in obtaining an ex parte injunction restraining the release of the documentary while the matter was under litigation, until a motions judge concluded the plaintiffs failed to make full and frank disclosure, and engaged in litigation misconduct. Substantial indemnity costs of $97,034.68 were awarded that that time, but were not paid for 11 months. They were only paid when the court advised the the plaintiffs their action would be dismissed if it was not paid promptly.

The misconduct did not end there, but the claim was dismissed following an eight-day trial. The defendant was awarded $200,000 in punitive damages, $550,000 USD in damages from the ex parte injunction, $25,488.36 USD in pre-judgment interest, and $481,521.80 CDN in costs.

The trial decision relies on the fair dealings protections provided in Copyright Act, with the trial judge describing the allowable purposes under the Act,

[170] The attribution requirements of s. 29 are clearly met in this case. It is clear throughout, and at the end, of Room Full of Spoons, what aspects of the documentary are drawn from The Room. To the extent that still photos are used, these are either clear to the viewer as Wiseau’s work or, further to Koehnen J.’s decision at paras. 95-99 can be adequately attributed in the end credits. The plaintiffs did not make an issue of this at trial.

[171] Aside from those attribution obligations, the test for fair dealing requires the defendant to prove that (a) the dealing was for one of the allowable purposes listed in Copyright Act, and (b) the dealing was fair: CCH, at para. 50. In considering the purposes, the court must give them “a large and liberal interpretation in order to ensure that users’ rights are not unduly constrained,” and even “research is not limited to non-commercial or private contexts:” CCH, at para. 51. Whether the dealing is “fair” is a fact-specific inquiry which may be considered having regard to the following factors, although they may or may not all apply to a specific case: (1) the purpose of the dealing; (2) the character of the dealing; (3) the amount of the dealing; (4) alternatives to the dealing; (5) the nature of the work; and (6) the effect of the dealing on the work: CCH,at para. 53. See also: Society of Composers, Authors and Music Publishers of Canada v. Bell Canada, 2012 SCC 36, [2012] 2 S.C.R. 326 (“SOCAN 2012”), at paras. 14, 15 and 27.

…

[198] My discussion of the requirements for fair dealing, and of the factors to consider in determining whether specific use can be considered “fair,” leads me to conclude the fair dealing exception to copyright infringement applies in this case.

The plaintiffs unsuccessfully sought to vary the judgment, by seeking “to reopen the trial to call additional evidence that, in hindsight, they wished they had called at trial. All of the “new” evidence was available to the plaintiffs in advance of trial and could have been obtained with relatively modest effort.”

An additional $20,000 in costs were awarded at that time, with the judge concluding that the motion was yet another attempt to delay the release of the documentary.

As you can probably expect by now, the plaintiffs sought to delay the release of the film further, bringing a Notice of Appeal of the trial judgment. Even counsel for the plaintiffs conceded at this juncture that the grounds of the appeal were frivolous.

It is under these unusual circumstances that the defendants brought a motion for an order for security for judgment, which would require the plaintiffs to post security for judgement before continuing with the appeal. Although Section 134(2) of the Courts of Justice Act provides broad powers to make interim orders to prevent prejudice, and Rule 1.05 indicates that the court may impose terms and give directions as are just, this power is not explicitly provided in Ontario.

The Court of Appeal stated,

[26] Security for judgment has been granted in other jurisdictions in the following circumstances:

1. Where there are no assets in the jurisdiction against which to enforce a judgment and the appeal has little merit (Vaccaro at para. 11; Creative Salmon Company Ltd. v. Staniford, 2007 BCCA 285, at paras. 12 and 14; Richland Construction Inc. v. Manningwa Developments Inc., 1996 CanLII 3188 (B.C. C.A.) at paras. 12-13);

2. To preserve assets that would otherwise be destroyed, disposed of, or dissipated prior to the resolution of the dispute: Aetna Financial at p. 12); and

3. To encourage respect for the judicial process and avoid abuse of process (C.H., at para. 23, citing Mooney v. Orr (1994), 1994 CanLII 1779 (BC SC), 100 BCLR (2d) 335 at p. 348 (B.C. S.C.); Vaccaro at paras. 12-14; and in respect of Mareva injunctions, Aetna Financial at pp. 13-14).

The court found that this is one of the rare an exceptional circumstances where this type of order was warranted. The plaintiffs were out of jurisdiction without significant assets in Ontario, and had demonstrated no intention to pay an award by the court. The tactical attempts to delay and obstruct the release of the documentary meant there years of litigation that was repeatedly for improper purposes,

[37] I am therefore satisfied that although this is a remedy that should be invoked sparingly, the interests of justice weigh in favour of granting the order for security for judgment.

Essential to the decision was the history of the plaintiffs in this case, who had complained in previous appearances about the unfairness of the Ontario courts. As Americans, they had chosen to initiate their litigation in Ontario, but were not content to abide by the rules of litigation in this jurisdiction.

Courts have been reluctant to grant security for judgment, as it could preclude appellants from pursuing their appeals if they lack financial resources. Unless there is a concern that assets are being dissipated or situated outside the reach of the other party, the courts have preferred recovery of judgment through enforcement proceedings, especially where there is no stay pending an appeal.

While this type of order will remain rare in Ontario, it will be an important tool to ensure respect for the judicial process in this province.