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By Ben Hanuka
This decision of the Court of Appeal from September 2016, dealt with a motion by General Motors of Canada Ltd. (“GM”) for security for costs against Trillium Motor World Ltd. (“Trillium”) before Trillium’s appeal of the trial dismissal of its action against GM.
GM sought total security for costs of over five million dollars, based on an its unpaid costs award at trial (which was itself over five million dollars) and estimated costs of responding to Trillium’s appeal of about $375,000.
The court dismissed the motion, holding that it was too late to order security for costs since the parties had perfected their appeal and filed their all appeal materials. There were also other important factors against the awarding of the security for costs.
Trillium was the representative of former GM dealers in a class action against GM. GM and the class entered into “wind down” agreements during GM’s restructuring in 2009. The terms of the agreements allowed GM to close the dealerships and pay the dealers for a full and final release of all claims. Trillium claimed that because of these “wind down” agreements, GM breached the rights of the class under the common law and Ontario’s franchise legislation, the Arthur Wishart (Franchise Disclosure) Act, 2000. Trillium also sued Cassels Brock & Blackwell LLP (“Cassels Brock”) for breaching contractual and fiduciary duties and providing negligent legal services.
Under a 2012 consent order regarding security for costs, which was well before trial, Trillium agreed to pay to GM security for costs in the amount of $500,000, without prejudice to GM seeking further security for costs.
Trillium and its sole officer, director, and shareholder, were insolvent. In the following years, before trial, GM chose not to bring a motion for security for tactical reasons to avoid a cross-examination of its representative.
At the trial, Justice McEwan dismissed Trillium’s action against GM, and awarded it judgment against Cassels Brock. All unsuccessful parties appealed the trial judgment to the Court of Appeal.
Before the appeal was heard, but after the appeal was perfected and all appeal materials were filed, GM brought a motion for security for costs for (i) payment of the costs award from the trial, and (ii) the anticipated costs of the appeal.
No Order for Security for Costs
GM claimed that Trillium failed to establish that it was unable to borrow or otherwise raise the funds required to post security for costs from creditors, class members, or its principal’s wife. It claimed that Trillium’s creditors and class members would benefit from the class action litigation, while it was fronted by the insolvent Trillium.
The Court noted that there was no evidence that these parties lacked assets to so contribute, and that there was no evidence that they were asked to contribute.
Further, GM took the position that Trillium failed to demonstrate that its appeal has a good chance of success (a requirement for an impecunious party to show in a security for costs analysis).
The Court of Appeal refused to order security for costs in respect of the trial cost award because delayed bringing the motion, which prejudiced Trillium.
The Court stated that GM had a right to strategically choose not to expose its representatives to cross-examination, but that it should be responsible for the consequences of its strategic gamble.
The Court noted the prejudice to Trillium: since its action against GM was dismissed at trial, Trillium could not receive funding from the Class Proceedings Fund and could not raise funds from other dealers. With respect to applying for funding, the Court held that it was enough to show that Trillium lost the option to apply for funding – there was no need to show that it would have applied.
Similarly, the Court dismissed GM’s motion for security for costs in respect of the appeal because of the delay and prejudice to Trillium. GM’s delay allowed Trillium to perfect its appeal, which was very costly.
Further, because GM had already served and filed its responding materials, it would only be entitled to a small amount of security for costs from the time of perfecting the appeal.
Security for Costs Not Otherwise Appropriate
The Court also noted that even had GM had not delayed its motion, Trillium was impecunious and thus was not required to pay costs.
The Court recognized legal authority for the position that creditors who stand to benefit from appeal may be required to fund it, but ruled that there was no indication that any of Trillium’s creditors motivated or directed the litigation such that their assets should be considered to decide whether Trillium was impecunious
Further, the Court held that the ability of the class to contribute to security for costs should not be a factor in the security for costs analysis. It was concerned about undermining the rule that class members have no liability for costs, except for the determination of their own individual claims.
For more information about Law Works’ expertise and how we may be able to help you, please contact Ben Hanuka at firstname.lastname@example.org or by phone at (855) 978-5293.
***Tags : Class Action, Winding-down