Findings Of Fraud Constitute 'Other Good Reason' To Order Security For Costs

Hung v Ontario Securities Commission, 2018 ONSC 6729 (Div Ct)

The Divisional Court has released yet another chapter in the saga of one of the largest frauds in Canadian history. In 2017, after a 188-day merits hearing, the Ontario Securities Commission (the Commission) released its decision concerning allegations of fraud against Sino-Forest Corporation (Sino-Forest) and its senior officers. In that decision, the Appellants, as senior officers of Sino-Forest, were found to have authorized, permitted, or acquiesced in the company making misleading statements in its disclosure documents and to have misled Staff of the Commission during their investigation. The hearing panel also found that the Appellant, Mr. Chan, committed fraud in the sale of his undisclosed interest in Greenheart Resources Holdings Limited to Sino-Forest. Almost a year later, the Commission released its sanctions and costs decision.

The Appellants, Messrs. Hung, Ip, Ho, and Chan, appealed both the decision on the merits and the decision on sanctions and costs. The Commission subsequently sought an order for security for costs. The Divisional Court released its decision on the motion for security for costs on November 26, 2018.

The Legal Framework

Rule 61.06(1) of the Rules of Civil Procedure, RRO 1990, Reg 194, states when security for costs may be ordered. The Commission relied on rules 61.06(1)(a), (b), and (c):

61.06(1) In an appeal where it appears that,

there is good reason to believe that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay for the costs of the appeal; an order for security for costs could be made against the appellant under rule 56.01; or 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.

With respect to rule 61.06(1)(b), Horkins, J. noted that the Court of Appeal has determined that a respondent on an appeal may not rely on rule 61.06(1)(b) to obtain an order for security for costs of an appeal as against an appellant. The policy rationale is not to impose security for costs upon foreign or impecunious defendants who are forced by others to defend themselves in a legal proceeding. Because the appellants were compelled to attend the hearing before the Commission to defend themselves, the Commission was only entitled to rely on rules 61.06(a)...