[2017] 2 F.C.R. D-8
Practice
Costs
Security
Appeal from Federal Court order (in docket T-1069-14 ) requiring appellant Crude Solutions Ltd (CSL) to post security for costs for $195 785.70 before allowed to take further steps in Federal Court proceeding — After appellants commencing action against respondent in Federal Court for patent infringement, respondent bringing motion for order requiring CSL to post security for costs — Respondent not seeking security for costs from main shareholder Jason Swist — Main shareholder owning 90 percent of shares of CSL while spouse owning 10 percent of remaining shares — Federal Court considering Federal Courts Rules, SOR/98-106, rr. 416, 417 in examining financial standing of CSL — Determining that neither CSL nor main shareholder having any assets that CSL could use to post security for costs — However, determining that spouse having some assets; therefore, ordering CSL to post security for costs — Whether Federal Court erring by determining that CSL not establishing being impecunious for purposes of Rules, r. 417 because minority shareholder existing who may have ability to provide funds to CSL to allow corporation to post amount as security for costs — In present case, undisputed that CSL satisfying condition in r. 416 since not having sufficient assets available in Canada to pay for respondent’s costs if Court ordering so — Rules, r. 417 discretionary in that Court may refuse to order security if two conditions satisfied — Here, Federal Court determining first condition not satisfied; therefore, not determining whether discretion granted by r. 417 should have been exercised — Under r. 417, plaintiff having to demonstrate impecuniosity — Undisputed that CSL alone impecunious, that main shareholder not able to assist CSL financially — Federal Court stating that where corporate party having no assets, shareholder’s ability to post security can be considered — However, statement too broad since assuming that all shareholders of company should be treated equally when determining whether company can look to shareholders for financial assistance — In deciding whether corporation impecunious, appropriate to distinguish shareholders who are manipulating corporation from those who are not — If corporation controlled by one person or group of persons, then appropriate to consider financial resources of person either controlling corporation or belonging to group of persons controlling corporation in determining whether corporation impecunious — However, if person minority shareholder, not part of group of shareholders controlling corporation, then circumstances relating to shareholder should be examined to determine if appropriate to consider financial resources of that person when determining if corporation impecunious — Percentage of shares held by minority shareholder important factor to consider — The smaller percentage of shares minority shareholder holding, the less likely it is that financial resources of such person should be considered in determining whether corporation impecunious — In present case, spouse owning only 10 percent of shares of CSL — Evidence showing spouse not paying for shares, not involved in business, not willing to provide necessary funds to allow CSL to post security for costs — In determining whether CSL impecunious, Federal Court erring in law in considering whether spouse in present circumstances could be sole source of amount CSL would be required to post as security for costs — CSL demonstrating being impecunious for purposes of Rules, r. 417 — Since Federal Court finding that CSL not impecunious, not considering second part of r. 417 dealing with merits of case — Matter therefore referred back to Federal Court to determine whether case having merit for purposes of r. 417, and if so, whether discretion provided in r. 417 should be exercised — Appeal allowed.
Swist v. Meg Energy Corp. (A-453-15, 2016 FCA 283, Webb J.A., judgment dated November 15, 2016, 11 pp.)