Ontario – Failure to pay award does not justify security for costs – #653

In Amelin Resources, Inc. v. Victory Energy Operations LLC, 2022 ONSC 4514, Associate Justice C. Wiebe dismissed a motion for security for costs under Rule 56.01(1)(d) of the Ontario Rules of Civil Procedure, finding that Victory, the Defendant/Moving Party,  did not meet its onus of showing that there was “good reason to believe” that Amelin, the Plaintiff/Responding Party, had insufficient assets to pay the Victory’s costs in Ontario. Amelin’s failure to pay amounts granted to Victory under an arbitration award and U.S. Court order did not suffice.

This case concerned a contractual relationship whereby Amelin, an Ontario company, agreed to act as an exclusive sales representative in the former Soviet Union for Victory, an American boiler manufacturer based in Oklahoma. Victory purported to terminate the agreement. Amelin alleged that, before and after termination, Victory made direct sales with buyers that should have been made through Amelin. The following is the procedural history:

  • In June 2015, Amelin commenced this action in Ontario for breach of contract and conspiracy, claiming $90 million in damages. Victory defended.
  • Separately, in 2017, Victory commenced an arbitration in Oklahoma against Amelin for non-payment of one of its boilers. It obtained an arbitral award (the “Award”), which was confirmed by Judge Frizzell of the District Court for the North District of Oklahoma in February 2019. The order was for $1.67 million U.S. (the “Frizzell Order”). Amelin did not appeal.
  • In the meantime, in this Ontario action, Amelin brought and lost a motion for summary judgment, and was ordered by Justice Perell in January, 2019, to pay to Victory $255,000 in costs, $100,000 of which was to be paid “forthwith” (the “Perell Order”). Amelin’s motion for leave to appeal was denied. Thereafter, in June, 2020, Amelin set the action down for trial and paid the $105,000 first installment of costs provided for in the Perell Order. The trial was ultimately ordered to proceed in 2023.
  • In November 2021, Victory applied to the Ontario Court to recognize and enforce the Frizzell Order in Ontario. That application had not yet been heard at the time of the motion for security for costs.

Then, in December 2021, Victory, as Defendant in the Ontario action, brought a security for costs motion under Rule 56.01(1)(d) of the Ontario Rules of Civil Procedure. Associate Justice Wiebe affirmed that it is well settled law that on such a motion, the defendant has the onus of proving that there is “good reason to believe” that the plaintiff corporation has insufficient assets in Ontario to pay the defendant’s costs. If the defendant satisfies this initial onus, then it shifts to the plaintiff to prove it has sufficient assets to pay, or that ordering security for costs would be unjust.

Notably, the initial onus does not require the defendant to prove that the plaintiff actually has insufficient assets to pay costs. It is proof that there is “good reason to believe”, which must be based on more than mere conjecture or speculation. In other words, the defendant must raise a reasonable belief that the corporation is without “real, substantial and eligible assets” to pay any costs award.

Victory raised two pieces of evidence to try to meet its burden that it had good reason to believe Amelin had insufficient assets to satisfy any costs award in the Ontario action.

First, Victory said that the Award, confirmed in the Frizzell Order, remained outstanding. Associate Justice Wiebe rejected this argument, finding that it was not an enforceable and unsatisfied judgement in Ontario. Instead, it was a foreign judgment and, until it was accepted and enforced by a court in Ontario, it was nothing but a contractual debt. In that case, the basic 2-year limitation period applies. Associate Justice Wiebe found that there was a reasonable likelihood that the claim would be found to be statute-barred in this case. Based on this reasoning, he refused to draw an adverse inference from Amelin’s failure to pay the Frizzell Order.

Second, Victory relied on Amelin’s delay in paying the Perell Order. Specifically, even though Amelin was ordered to pay $100,000 forthwith, it did not pay until 17 months later and the rest of the amount owing remained unpaid. However, Associate Justice Wiebe refused to draw a negative inference from this delay, giving more weight to the fact that Amelin had paid a significant amount of the total costs award. He stated that such a payment showed an ability to pay, not an inability to pay.

Therefore, Associate Justice Wiebe held that Victory failed to discharge its initial burden to show a “good reason to believe” that Amelin had insufficient assets in Ontario to pay Victory and dismissed its security for costs motion.

Contributor’s Note:

Interestingly, Associate Justice Wiebe noted that even if Victory had met its initial burden on this motion, it still likely would have failed because of its delay in bringing the motion. Victory brought this motion some 16 months after setting the action down for trial, or, just over five months before the start of trial. This was also 28 months after the Award/Frizzell Order was not paid and appeal rights had expired. There was no explanation for this delay. Associate Justice Wiebe stated that a defendant should bring a security for costs motion as soon as it is aware of the grounds on which it relies, warning that a “failure to do so can itself be fatal to a motion for security for costs regardless of the issue of prejudice to the plaintiff” (para 40).