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Good afternoon.
Please find below our summaries of the civil decisions of the Court of Appeal for Ontario for the week of January 11. There were only three substantive civil decisions released this past week.
In Wiseau Studios LLC, Justice Thorburn granted security for judgment, an apparent first in Ontario. In this case, Wiseau Studios, the producers of the cult-classic movie The Room, had engaged in improper litigation conduct, such as refusing to pay costs awards and improperly obtaining an injunction that was later set aside. The moving parties, who had produced a documentary about the cult-like following of The Room, but could not release their film because of the litigation, successfully brought a motion for security not only for the costs of the trial and appeal, but for the amount of the trial judgment itself. In making the order, Her Honour relied on s. 134(2) of the Courts of Justice Act and mostly BC appellate decisions, as well as the Supreme Court’s well-known Mareva injunction decision in Aetna Financial v Feigelman.
Stonehouse Group Inc. is an appeal from a rare tax decision of the Superior Court. In interpreting the Corporations Tax Act (an Ontario statute), the Court concluded that the taxpayer who had been compelled to overpay tax pending a reassessment was entitled to “enhanced interest” on the overpayment after they succeeded in the reassessment, rather than normal interest, which is currently set at 0%.
In Heliotrope Investment Corporation, the Court granted leave to file a supplementary notice of appeal but denied leave to file fresh evidence.
John Polyzogopoulos
Blaney McMurtry LLP
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Table of Contents
Civil Decisions
Stonehouse Group Inc. v Ontario (Finance), 2021 ONCA 10
Keywords: Tax Law, Statutory Interpretation, Standard of Review, Interest on Overpayment of Tax, Enhanced Interest, Corporations Tax Act, R.S.O. 1990, c. C.40, s. 79(7), s. 82(5), Housen v. Nikolaisen, 2002 SCC 33, Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, The Ontario Committee on Taxation, The Provincial Revenue System, vol. III (Toronto: Queen’s Printer, 1967)
Heliotrope Investment Corporation v 1324789 Ontario Inc., 2021
ONCA 23
Keywords: Contracts, Real Property, Mortgages, Civil Procedure, Appeals, Extension of Time, Fresh Evidence, Rules of Civil Procedure, Rule 3.02(1), Rizzi v. Mavros, 2007 ONCA 350, Bratti v. Wabco Standard Trane Inc., 1994 CanLII 1261 (Ont. C.A.), Chandra v. Canadian Broadcasting Corporation, 2016 ONCA 448, Enbridge Gas Distribution Inc. v. Froese, 2013 ONCA 131
Wiseau Studio, LLC v Harper, 2021 ONCA 31
Keywords: Copyright, Injunctions, Civil Procedure, Appeals, Security for Costs ,Security for Trial Judgment, Courts of Justice Act, RSO 1990, c C43, s. 134(2), Rules of Civil Procedure, Rule 56.01, Vaillancourt v Cater, 2017 ABCA 282, Aetna Financial Services Ltd. v Feigelman, [1985] 1 SCR 2, C.H. v. M.H., 1997 ABCA 263, Vaccarov Twin Cities Power-Canada U.L.C., 2013, ABCA 252, Creative Salmon Company Ltd. v. Staniford, 2007 BCCA 285, Richland Construction Inc. v. Manningwa Developments Inc., 1996 CanLII 3188 (B.C. C.A.), First Majestic Silver Corp. et al. v Davila, 2013 BCCA 312, Paz v. Hardouin, 1995 CanLII 1808 (B.C. C.A.), Cadinha v. Chemar Corp. Inc., 1995 CanLII 1017 (B.C. C.A.), Kedia v. Shandro Dixon Edgson, 2007 BCCA 316, Chan v. Vancouver Trade Mart Ltd., 1997 CanLII 4108 (B.C. C.A.)
CIVIL DECISIONS
Stonehouse Group Inc. v Ontario (Finance), 2021 ONCA 10
[Lauwers, Miller and Nordheimer JJ.A.]
Counsel:
Kutyan and T. Trieu, for the appellant
A.H. Bornstein and J. Epp-Fransen, for the respondent
Keywords: Tax Law, Statutory Interpretation, Standard of Review, Interest on Overpayment of Tax, Enhanced Interest, Corporations Tax Act, R.S.O. 1990, c. C.40, s. 79(7), s. 82(5), Housen v. Nikolaisen, 2002 SCC 33, Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, The Ontario Committee on Taxation, The Provincial Revenue System, vol. III (Toronto: Queen’s Printer, 1967)
facts:
The appellant was reassessed with respect to its 2008 taxation year to disallow a deduction for a loss carried back under the Corporations Tax Act, R.S.O. 1990, c. C.40 (the “CTA”). As a result, the appellant was required to pay $560,000 in taxes, plus interest. Although the appellant filed an objection, the full amount owed was paid pending the determination of the objection, as statutorily required.
The reassessment was eventually reversed to allow the full amount of the loss carry back. Accordingly, the respondent made a refund payment to the appellant, without any refund of the interest. The appellant objected to the failure of the respondent to refund the interest, and argued that the respondent ought to have paid interest calculated at the “enhanced rate” under the CTA.
The motion judge disagreed with the appellant’s arguments, and found that the appellant was not entitled to the enhanced interest rate under the CTA, but was instead only entitled the “normal” interest rate. Due to the current state of low interest rates, the “normal rate” under the CTA is currently set at zero percent, which in turn meant that although the appellant was technically entitled to “normal interest”, in practice there was no interest actually refunded to the appellant.
issues:
- Was the appellant entitled to “normal interest” or “enhanced interest” under the CTA?
holding:
Appeal allowed.
reasoning:
- Was the appellant entitled to “normal interest” or “enhanced interest” under the CTA?
The appellant was entitled to “enhanced interest”. The appellant’s position was that it was entitled to interest calculated at the enhanced rate in accordance with s. 82(5) because, after the reversal of the reassessment, it had a surplus in its tax account, namely, the amount of tax that it had been required to pay because of the initial reassessment.
The respondent, on the other hand, contended that s. 79(7) of the CTA is a special provision relating to loss carry backs, which takes this particular situation outside the scope of s. 82(5). Specifically, the respondent submitted that the effect of s. 79(7) is that the tax payable is deemed to be the same as it was before the deduction of the loss.
The Court began by noting that since the appeal involved a question of law, the proper standard of review was correctness (Housen v. Nikolaisen, 2002 SCC 33). Further, the Court went on to add that there is no longer a special rule of interpretation that applies to taxation statutes. In other words, taxation statutes are not to be interpreted strictly against the taxing authority, as once was the case. Instead, taxation statutes are to be interpreted as any other statute would be, that is, “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament” (Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20).
After outlining the broad principles of statutory interpretation, the Court considered the positions of the parties, and concluded that the respondent’s interpretation did not seem to give effect to the object and scheme of the CTA. Specifically, the Court found that the problem with the respondent’s interpretation is that it would in fact operate to deny a corporation any refund interest, not just refund interest at the enhanced rate. The effect of this interpretation stood in contrast to the respondent’s position as pleaded, namely, that the appellant was entitled to normal interest under s. 82(4), but not to the enhanced interest under s. 82(5).
Due to the Court’s acknowledgement that the wording of s. 79(7) was anything but clear, alternative tools of statutory interpretation were necessary. As mentioned in Placer Dome, “where the words of a statute give rise to more than one reasonable interpretation, the ordinary meaning of the words will play a lesser role, and greater recourse to the context and purpose of the Act may be necessary.” On that note, the Court looked to the report of The Ontario Committee on Taxation, The Provincial Revenue System, vol. III (Toronto: Queen’s Printer, 1967), which was the report that gave rise to the adoption of the legislation providing taxpayers with the right to receive interest on overpayments of tax. The report of the Committee concluded that it would be fundamentally unfair for taxpayers to not receive interest on overpayments of tax, and that where the overpayment was the result of a compelled payment arising from a dispute between the taxpayer and the government, the taxpayer should receive interest at an enhanced rate if ultimately successful in disputing the tax.
The conclusion of the report of the Committee gave support to the Court’s conclusion that s. 82(5) does in fact contemplate taking into account a deduction from a loss carried back when calculating tax payable. The respondent’s interpretation was not only inconsistent with its own pleadings, but was also refuted by the background evidence. The Court concluded by noting that the language of s. 79(7) is not ambiguous when read in its entire context, and although not necessary to resort to it in this case, there remains a “residual presumption in favour of the taxpayer” in interpreting such legislative provisions, according to Placer Dome.
Heliotrope Investment Corporation v 1324789 Ontario Inc., 2021 ONCA 23
[Thorburn J.A. (Motions Judge)]
Counsel:
D. Marks for the moving parties, 1324789 Ontario Inc., 1073650 Ontario Inc., M. L. B. and J. G. B.
L. Merovitz and E. Lay for the responding parties, Heliotrope Investment Corporation and Canadian Western Trust Company
Keywords: Contracts, Real Property, Mortgages, Civil Procedure, Appeals, Extension of Time, Fresh Evidence, Rules of Civil Procedure, Rule 3.02(1), Rizzi v. Mavros, 2007 ONCA 350, Bratti v. Wabco Standard Trane Inc., 1994 CanLII 1261 (Ont. C.A.), Chandra v. Canadian Broadcasting Corporation, 2016 ONCA 448, Enbridge Gas Distribution Inc. v. Froese, 2013 ONCA 131
facts:
The parties’ principals were involved in residential land development projects since 2013, where the respondent would provide the financing and the appellant (the moving party) was the project manager. Through negotiations, the parties decided that the respondents would lend money to 1324780 Ontario Inc. (“132”) through a Registered Retirement Savings Plans held with Canadian Western, secured by mortgages on several properties under development, pursuant to Joint Venture Agreements. The appellants would then provide management services to the Joint Ventures. However, the mortgages went into default due to cost overruns and delays.
Summary Judgment
The respondents brought motions for summary judgment for payment of monies owing in respect of three mortgages with the appellants. The parties agreed that the respondents had advanced monies secured by mortgages, and that the appellants had been in default for some time.
The respondents took the position that these were two experienced commercial parties, where the respondents lent the appellants money secured by mortgages, and the mortgages are in default. Absent redemption of the mortgages, the respondents are entitled to enforce their rights, which include possession of the mortgaged lands and judgment for the amount due and owing on the loans (affirmed by Joint Venture Agreements signed in 2014).
The appellants disputed the enforceability of the mortgages, and raised two issues on the summary judgment motion: (1) the appellants claimed that the respondents made representations that the loans would not have to be repaid before development of the properties was completed; and (2) in any event, judgment should be stayed pending appeal as there was related litigation that, if successful, would reduce the amounts owing by the appellants. Both arguments were rejected by the motion judge.
The motion judge held that the debt instruments and Joint Venture Agreements were negotiated at arms-length with the benefit of independent legal counsel. As well, the appellant’s did not adduce any evidence otherwise and there was no evidence of a fraudulent scheme by the respondents. The motion judge granted summary judgment in favor of the respondents and ordered that there should be no stay on the enforcement of the judgments, because lifting the stay would not prevent the appellants from proceeding with their other litigation between the parties.
Notices of Appeal
In the Notice of Appeal, the appellants sought an order that the judgment be stayed pending the determination of other related claims, as the motion for summary judgment comprises only three of the six enforcement actions on mortgages.
The appellants also sought to file a Supplementary Notice of Appeal because they claimed the Notice of Appeal filed by their lawyers focused on the order denying a stay, however, the appellants claimed they thought the merits of the underlying judgment were being appealed. The appellants also sought to file fresh evidence to support their argument that they did not have independent legal advice when they signed the Joint Venture Agreement, and that they signed the Agreement under duress.
The respondents claimed that the request to file a Supplementary Notice of Appeal was just another delay tactic to prevent them from recovering the funds owing pursuant to simple mortgage collection action. Regarding the fresh evidence, the respondents claimed that the appellants could have adduced this evidence earlier and, in any event, there was no evidence that the appellants were without legal counsel when they signed the Joint Venture Agreement.
issues:
- Should the Court extend the time for the appellants to file a Supplementary Notice of Appeal?
- Should the Court permit the appellants to file fresh evidence?
holding:
Motion granted, in part.
reasoning:
(1) Yes. The Court allowed the request by the appellants to file a Supplementary Notice of Appeal that clarified that both issues (denial of stay of enforcement and underlying merits) were being raised by way of appeal from the motion for summary judgment. When looking at the evidence as a whole, and bearing in mind that it was the appellants’ intention and the interest of justice that matters, the Court accepted that the appellants intended to raise both issues.
The Court did not accept the respondent’s concern that the Supplementary Notice of Appeal would allow the appellants to appeal the monetary amounts. Rather, the Court stated that the motion judge noted that there was no dispute regarding the calculation of principal and accrued interest pursuant to the mortgages that were in default. The Court also rejected the respondents’ claim that even if the appellants intended to appeal both issues, the interests of justice favoured dismissal of this motion to include the second issue, as this case has no precedential value, and is of interest only to the parties.
Regarding the court’s discretion to extend the time for service of a Notice of Appeal, the court, citing Rule 3.02(1) of the Rules of Civil Procedure, commented that it is well-settled law that while appellate courts have to consider a number of different factors in determining whether to grant leave to extend the time to appeal, the governing principle is simply whether the “justice of the case” requires that an extension be given (Bratti v. Wabco Standard Trane Inc., 1994 CanLII 1261 (Ont. C.A.), at p. 3).
(2) No. The Court dismissed the appellants’ request to adduce fresh evidence stating that there was no basis for allowing the fresh evidence. The appellants claimed they signed the Joint Venture Agreements under duress and without the benefit of legal advice. As a result of this, the appellants purchased a share in the property of the joint ventures and were unable to meet the payments due.
The Court held that the appellants knew whether they did or did not have legal representation at the time they signed the agreement and that the communications they sought to adduce were all available at the time of the hearing before the motion judge. Further, the court held that there was no issue that the appellants were represented by the same counsel and there was no evidence that the retainer had been terminated. Thus, there was nothing “fresh” about the evidence the appellants sought to adduce.
Wiseau Studio, LLC v Harper, 2021 ONCA 31
[Thorburn JA (Motions Judge)]
Counsel:
Diskin and M. Bacal, for the moving parties
Brinza, for the responding parties
Keywords: Copyright, Injunctions, Civil Procedure, Appeals, Security for Costs ,Security for Trial Judgment, Courts of Justice Act, RSO 1990, c C43, s. 134(2), Rules of Civil Procedure, Rule 56.01, Vaillancourt v Cater, 2017 ABCA 282, Aetna Financial Services Ltd. v Feigelman, [1985] 1 SCR 2, C.H. v. M.H., 1997 ABCA 263, Vaccaro v Twin Cities Power-Canada U.L.C., 2013, ABCA 252, Creative Salmon Company Ltd. v. Staniford, 2007 BCCA 285, Richland Construction Inc. v. Manningwa Developments Inc., 1996 CanLII 3188 (B.C. C.A.), First Majestic Silver Corp. et al. v Davila, 2013 BCCA 312, Paz v. Hardouin, 1995 CanLII 1808 (B.C. C.A.), Cadinha v. Chemar Corp. Inc., 1995 CanLII 1017 (B.C. C.A.), Kedia v. Shandro Dixon Edgson, 2007 BCCA 316, Chan v. Vancouver Trade Mart Ltd., 1997 CanLII 4108 (B.C. C.A.)
facts:
The moving parties, who were collectively referred to as Room Full of Spoons, brought a motion for security for the trial judgment, security for costs of the trial and appeal, and in the alternative, an order to lift the stay of the trial judgment pending appeal.
The appeal arose in the context of the cult classic movie The Room, created by the responding party. In 2016, Room Full of Spoons completed a documentary called Room Full of Spoons about the cult phenomenon surrounding The Room. The responding party brought a claim against them in 2017 and since then, Room Full of Spoons has not been able to exploit their work. In June of 2017, the responding party obtained an ex parte injunction restraining the release of the documentary. A few months later, the injunction was dissolved when it came to light that the responding party (the applicant in that case) had not been forthright with the court and failed to disclose that they were in negotiations with Room Full of Spoons about releasing the movie. The court found this was litigation misconduct and awarded nearly $100,000 in substantial indemnity costs, which costs award was not paid for eleven months.
As the action proceeded, the responding party was uncooperative and stalled scheduling at every possible opportunity among several other improper acts. In January of 2020, the moving parties were ultimately successful at trial and was awarded $200,000 in punitive damages (because of the responding party’s conduct throughout), $550,000 USD in damages for the improper injunction and nearly $500,000 CAD in costs. The responding party sought to vary the order but was unsuccessful, resulting in a further $20,000 in costs being awarded.
The responding party continued their questionable conduct post-judgment by failing to attend examinations in aid of execution and failing to comply with court orders requiring disclosure of information about assets.
The responding party appealed the trial judgment and this motion was brought in the context of that appeal.
issues:
- Should security be granted for the trial judgment, a novel order in Ontario?
- Should security for costs be granted?
holding:
Motion granted.
reasoning:
(1) Yes.
Under s.134(2) of the CJA, an appeal court can make any interim order that is considered just. The Court noted that security for judgment is an extraordinary measure and should only be granted in exceptional circumstances, and requires the appellant to post sufficient assets to secure the disputed judgment before moving forward with the appeal. The order has been granted in other jurisdictions, such as BC and Alberta, relying on provisions substantially similar to s. 134(2) of the CJA.
Security for judgment is an extraordinary remedy that should only be granted in exceptional circumstances: Vaillancourt v. Cater, 2017 ABCA 282, at para. 20; Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2 at p. 10; C.H. v. M.H., 1997 ABCA 263.
Such an order requires an appellant to post security for judgment before continuing with the appeal. In this way, security for judgment functions much like a Mareva injunction and restrains the appellant from disposing of or dissipating assets in order that they be available to satisfy the judgment should it be upheld and if security for judgment is ordered and not posted, the appeal is dismissed: Vaillancourt, at. para. 20; Vaccaro v. Twin Cities Power-Canada U.L.C., 2013 ABCA 252, at para. 14.
Security for judgment has been granted in other jurisdictions in the following circumstances:
- 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);
- 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
- To encourage respect for the judicial process and avoid abuse of process (C.H., at para. 23, citing Mooney v. Orr (1994), 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).
In First Majestic, the British Columbia Court of Appeal set out the following principles to govern the discussion around such an order:
- The onus is on the applicant to show that it is in the interest of justice to order posting for security of a trial judgment and/or of trial costs.
- The applicant must show prejudice if the order is not made.
- In determining the interests of justice the chambers judge should consider the merits of the appeal and the effect of such an order on the ability of the appellant to continue the appeal.
The interests of justice may include a consideration of the ex juris residence of an appellant and therefore the effective immunity of an appellant from enforcement of the judgment. They may also include a consideration of the ability to enforce the judgment in the appellant’s ex juris jurisdiction and/or the absence of assets in the jurisdiction in which the judgment was rendered. The interests of justice may not be relied upon by a successful plaintiff where the effect of requiring the posting of security for a trial judgment would be to preclude a party from pursuing the appeal: Kedia v Shandro Dixon Edgson, 2007 BCCA 316.
Adverse financial circumstances will generally not defeat an application for security where an appeal is virtually without any merit. A successful plaintiff should not be required to respond to an unmeritorious appeal when there is no real prospect of recovery. A finding that an appeal has no reasonable prospect of success may be a factor.
In the present appeal, the responding party were residents of the United States, and there was some suggestion that the action was commenced in Ontario for the specific purpose of shielding themselves from enforcement.
The Court determined that the exceptional circumstances required were present in this case. The responding party was resident in a different country and has repeatedly failed to provide any information on its assets. They have sufficient assets to post security without jeopardizing their ability to pursue the appeal and accordingly, the interest of justice requirement was met.
There was also ample evidence of prejudice that the moving parties might suffer if the award was not granted. They have been restrained from airing their movie for over four years now and the Court was satisfied that in the absence of this order, they may never actually recover on the judgment after appeal. The fact that responding party had shown a settled intention to disregard the rules of Ontario courts and not pay costs awards supported this.
Finally, the Court also found that the notice of appeal filed by the responding party was frivolous and articulated no errors that the trial judge made in their extensive reasons. The Court ordered that security for the trial judgment in the amount of $200,000 CDN and Canadian currency sufficient to purchase $575,488.36 USD.
(2) Yes.
Under rule 56.01 of the Rules of Civil Procedure, the Court of Appeal may order security for costs in one of the enumerated circumstances. Germaine to this appeal were the following circumstances:
(a) the plaintiff is ordinarily resident outside Ontario;
(c) the party has an order against them for costs which remains unpaid;
(d) the party is a corporation and there is good reason to believe there are insufficient assets in Ontario to pay the award; or
(e) there is good reason to believe the action is frivolous and vexatious and the party has insufficient assets in Ontario to satisfy the award.
The Motion Judge found that the record amply supported each of the above grounds and ordered security for costs.
The information contained in our summaries of the decisions is not intended to provide legal advice and does not necessarily cover every matter raised in a decision. For complete information or for specific advice, please read the decision or contact us.