) ) CHARLES JAMES HEVEY Appellant – v. –, 2023 ONSC 4864

CITATION : Hevey v. Hevey , 2023 ONSC 4864 COURT FILE NO.: 542/22; 690/22 DATE: 20230825 ONTARIO SUPERIOR COURT OF JUSTICE Divisional Court BETWEEN: ) ) CHARLES JAMES HEVEY Appellant – and – LYNNE MARIE HEVEY Respondent ) ) ) ) ) ) ) ) Robert Haas for Appellant Aaron Drury for Respondent ) ) HEARD: August 16, 2023 Schabas J. SECURITY FOR COSTS DECISION Overview [ 1 ] This is the latest round in a lengthy matrimonial dispute between the parties.

Although the couple separated in 2006 and were divorced in 2008 following a lengthy marriage, the respondent, Lynne Marie Hevey (“Lynne”), commenced an application for equalization in 2019 claiming that she had recently discovered that her ex-husband, Charles James Hevey (“James”) had misrepresented material facts and failed to make disclosure of significant financial assets worth approximately $22 million at the time of the divorce application in 2008.

Much litigation has ensued over the subsequent four years. [ 2 ] Lynne has also brought a commercial action on behalf of herself, her mother and associated companies against James and his companies for breach of trust, breach of contract and misrepresentation. James has brought a motion for judgment in this action based on correspondence purporting to settle the case which is under reserve. [ 3 ] James brought an application for leave to commence a derivative action on behalf of a Wonderland Commercial Centre Inc. (“WCC”), which owned an asset which is in issue in the disputes.

James named Lynne, one of her companies, their two sons and a company controlled by Lynne’s mother as respondents. He sought leave to have WCC sue his sons for, among other things, oppressive conduct and breach of fiduciary duties. James’ application was dismissed by Nicholson J. on January 21, 2021. He concluded that James’ application was not brought in good faith, finding that the application was “commenced in order to gain a tactical advantage in the matrimonial proceedings and the dispute over the alleged loans.” Nicholson J. subsequently made costs awards of $38,631.32 and $21,208.77: Hevey v.

Wonderland Commercial, et al ., 2021 ONSC 540 , 154 OR (3d) 86, at para. 48 . [ 4 ] The application for equalization was dismissed on a

summary judgment motion by George J., as he then was, on May 27, 2020. However, this was overturned by Court of Appeal on October 21, 2021, on the basis that the Family Law Rules did not permit a motion for

summary judgment to be brought before the delivery of James’ responding materials and financial disclosure. James owes $7,500 in costs arising from the

summary judgment motion and appeal: Hevey v. Hevey , 2021 ONCA 740 . [ 5 ] More recently, on June 23, 2023, a panel of this court granted leave to appeal certain paragraphs of orders of Desotti J. dated June 27, 2022, and November 29, 2022, made in the equalization proceedings: Hevey v. Hevey 2023 ONSC 3613 . The June 27, 2022, order requires, among other things, that James provide disclosure of certain records, and that a forensic audit be conducted of James’ assets from 2004 to the present.

The November 29, 2022, order, among other things, requires that James pay the costs of the audit, and that he pay into court proceeds of the disposition of assets since an earlier order made in December 2021. [ 6 ] The November 29, 2022, order also included findings that James had breached earlier court orders of Justice Desotti issued in December 2021 and May 2022 involving the preservation of James’ assets (the “preservation orders”). He ordered that James pay costs of $7,500 for each of the June and November motions.

Subsequently, Desotti J. imposed a fine of $12,000, plus $1,000 in costs, to be paid to Lynne regarding the contempt finding.

[ 7 ] James has appealed the contempt findings, which are final, to the Court of Appeal, and this Court has granted leave to appeal on the issues of the audit and the payment into court of the proceeds of the disposition of assets since December 2021 arising form the orders of November 29, 2022, and June 27, 2022. [ 8 ] Lynne now seeks security for costs of the appeals in this Court in the amount of $152,840.09, which includes payment of prior costs awards in the equalization application which have not been paid by James, the fine, unpaid costs in the commercial proceedings, plus $50,000 for the appeal. [ 9 ] For the reasons that follow, I order that James, within 30 days of the release of these Reasons, pay to Lynne unpaid costs of $68,631.32, and post security for costs in this Court in the amount of $25,000.

If James fails to do so, the appeals shall be dismissed. Applicable law [ 10 ] A preliminary issue is whether the Family Law Rules or the Rules of Civil Procedure apply to this motion. [ 11 ] Rule 38(1) of the Family Law Rules , O Reg 114/99 , dealing with appeals to the Divisional Court and Court of Appeal, provides that Rules 61, 62 and 63 of the Rules of Civil Procedure , RRO 1990, Reg 194 , apply to appeals to the Divisional Court. This includes Rule 61.06(1) governing security for costs, which states:

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

a) there is good reason to believe that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeal; (

b) an order for security for costs could be made against the appellant under rule 56.01; or (

c) 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. [ 12 ] Rule 56.01(1) of the Rules of Civil Procedure provides:

(1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that, (

a) the plaintiff or applicant is ordinarily resident outside Ontario; (

b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere; (

c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part; (

d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; (

e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or (

f) a statute entitles the defendant or respondent to security for costs. [ 13 ] However, Rule 38(26) of the Family Law Rules provides for security for costs as well, stating:

(26) On a motion by the respondent for security for costs, the court may make an order for security for costs that is just, if it is satisfied that, (

a) there is good reason to believe that the appeal is a waste of time, a nuisance, or an abuse of the court process and that the appellant has insufficient assets in Ontario to pay the costs of the appeal; (

b) an order for security for costs could be made against the appellant under subrule 24 (13); or (

c) for other good reason, security for costs should be ordered. [ 14 ] Rule 24(13) of the Family Law Rules provides:

(13) A judge may, on motion, make an order for security for costs that is just, based on one or more of the following factors: 1. A party habitually resides outside Ontario. 2. A party has an order against the other party for costs that remains unpaid, in the same case or another case. 3. A party is a corporation and there is good reason to believe it does not have enough assets in Ontario to pay costs. 4. There is good reason to believe that the case is a waste of time or a nuisance and that the party does not have enough assets in Ontario

to pay costs. 5. A statute entitles the party to security for costs. [ 15 ] Counsel in this case both submitted that I should follow the Family Law Rules , despite the general direction in Rule 38(1) of the Family Law Rules to use the Rules of Civil Procedure , as Rule 38(26) specifically deals with security for costs. I am not convinced. Rule 38(4) provides that subrules (5) to (45) “apply to an appeal from an order of the Ontario Court of Justice to the Superior Court of Justice” under certain statutory provisions listed.

This proceeding is not an appeal from the Ontario Court of Justice, and those subrules appear to deal with different procedures than are before this Court. [ 16 ] Although, at the end of the day, both schemes set out similar tests, and provide the Court with discretion to make an order that is just in the circumstances, in my view the appropriate rules to follow in this case are those found in the Rules of Civil Procedure .

Application of the test [ 17 ] Lynne’s counsel properly conceded that in light of the fact that leave to appeal has been granted, the appeal cannot be considered to be “frivolous or vexatious” under Rule 61.06(1)(a).

However, he submitted that other factors strongly favour an order for security for costs which is available pursuant to Rule 61.06(1)(b), which incorporates Rule 56.01, and Rule 61.06(1)(c), which provides for an order “for other good reason.” [ 18 ] Several of the factors in Rule 56.01 are applicable here. [ 19 ] James resides in Florida and therefore is “ordinarily resident outside Ontario.” James also has outstanding orders for costs made against him in this and another proceeding which remain unpaid. These unpaid costs total $102,840.09, consisting of the following: • $7,500 arising from James’ motion for

summary judgement, granted by the Superior Court but reversed by the Court of Appeal; • $7,500 from the order of Desotti J. dated May 10, 2022; • $15,000 from the order of Desotti J. dated November 29, 2022; • $13,000 from the order of Desotti J. dated January 25, 2023, of which $1,000 is for costs and $12,000 is a fine for contempt; and • $38,631.32 and $21,208.77 , totalling $59,840.09, from the orders of Nicholson J. in the commercial proceedings. [ 20 ] I am also satisfied that “there is good reason to believe” that James has “insufficient assets in Ontario to pay the costs.” He owns no property in Ontario.

Although James argues that over $2 million, which are net proceeds of the sale of the WCC property in London in 2019 being held in trust by a law firm in London, constitute assets in Ontario, those funds are being held in trust to the credit of that dispute. The funds are not his assets. Further, based on the proposed settlement of the commercial proceeding, it is not clear to me whether any of those funds can be characterized as belonging to James. [ 21 ] Rule 61.06(1)(

c) permits ordering security for costs for "other good reason." As Jamal J.A., as he then was, stated in Heidari v. Naghshbandi , 2020 ONCA 757 , 153 OR (3d) 756, at para. 23 , any "other good reason" must be: (1) consistent with the purpose for ordering security -- namely, that the respondent is entitled to a measure of protection for costs; and (2) fairly compelling, because the residual category is only engaged where the respondent cannot meet the requirements of rules 61.06(1)(

a) or (b).” Examples include where the appellant has committed fraud, or taken steps to put assets out of reach such that it may be very difficult to collect costs. [ 22 ] I recognize that security for costs orders are not to be made routinely.

As Jamal J.A. noted in Heidari at para. 6 : Rule 61.06(1) requires a two-stage analysis: first, the respondent must show that they meet the terms of the rule; second, the motion judge must "take a step back" and consider the justness of the order sought in all the circumstances, with the interests of justice at the forefront….In considering the justness of the order sought, relevant factors include, but are not limited to, the merits of the appeal, any delay in moving for security for costs, the impact of actionable conduct by the respondent on the available assets of the appellant, access to justice concerns, the public importance of the litigation and the amount and form of security sought by the respondent….An order for security for costs is intended to provide ‘a measure of protection’ to the respondent for the costs to be incurred on the appeal, without denying the appellant a chance to pursue an appeal. ….

The court must ensure that an order for security for costs is not used as a litigation tactic to prevent a case from being heard on its merits. [citations omitted] [ 23 ] As I have noted, three of the criteria listed in Rule 56.01(1) apply here and support an order for security. I am also influenced by the findings respecting James’ conduct in the litigation. He has been found to be in contempt of preservation orders. The audit of James’ assets appears to stem from his own lack of disclosure of assets in the proceedings. As put by Harvison Young J.A. in overturning the

summary judgment initially obtained by James prior to providing financial disclosure, “[i]t is up to the party with the assets to make the disclosure and the valuation of assets”: Hevey v. Hevey , 2021 ONCA 740 , at para. 34 . The current appeals to this Court are about James’ financial disclosure. [ 24 ] James’ conduct in the application to bring a derivative action was found to be tactical and not in good faith. Nicholson J. also expressed concerns with James’ conduct, including the improper withdrawal of funds from him.

Desotti J. also expressed concern about delays caused by James in the equalization proceeding. [ 25 ] Although James asserts that he has limited access to funds, he has not provided details of his financial situation to support this claim. Indeed, recent financial disclosure by James showed combined household income of him and his current wife of over US$500 , 000. I do not accept James’ vague assertions that he does not have funds, or assets, that would prevent him from pursuing the appeals if he is ordered to post security for costs.

[ 26 ] Leave to appeal has been granted, which gets James over the “frivolous and vexatious” threshold, but that does not mean the appeal has a strong likelihood of success. Further, the appeal is on interlocutory issues, and will not resolve the proceeding or resolve outstanding costs orders that have not been paid. [ 27 ] Accordingly, taking a step back, it is my view that in the circumstances of this case security for costs in order to provide a measure of protection for Lynne is appropriate and just.

Quantum [ 28 ] This brings me to the appropriate amount to require for security for costs. [ 29 ] In my view it is appropriate for James to be required to pay the amount of the unpaid costs awards in the equalization proceedings, totalling $30,000 ($7,500 from the

summary judgment and Desotti J.’s two orders in May and November 2022), as a precondition to pursuing his appeals to this Court. [ 30 ] I am not satisfied that James should post security for the contempt matter. It is the subject of a separate appeal to the Court of Appeal and most of that amount is in the nature of a fine, the amount of which is also under appeal. [ 31 ] In my view it is also just to require costs be paid arising from James’ unsuccessful application to bring a derivative action on behalf of WCC.

As I have previously stated, Nicholson J. found that application was “commenced in order to gain a tactical advantage in the matrimonial proceedings.” However, I have not been provided with details of those costs awards. The proposed settlement of the commercial action suggests that the $21,208.77 figure is to the benefit of Lynne and James’ son, Jeremy Hevey, who was represented separately from Lynne, while the larger sum is included in the payments to be made to Lynne. Accordingly, I will only require James to pay Lynne the amount of $38,631.32.

In the event the settlement is approved and funds are paid out, an adjustment can be made to reflect the payment, if it is made. [ 32 ] Lastly, there is the request for $50,000 as security for costs for the appeals to this Court. This amount is unsupported and excessive. A more appropriate partial indemnity sum would be $25,000, which I order James must pay into Court as security for costs.

Conclusion [ 33 ] An order shall issue requiring James to pay Lynne outstanding costs orders totalling $68,631.32, and to post $25,000 as security for costs, both to be completed within 30 days of the release of these Reasons, failing which the appeals to this Court shall be dismissed. [ 34 ] James is also ordered to pay Lynne her costs of this motion in the agreed upon amount of $7,000. [ 35 ] Finally, on a procedural point, these appeal proceedings were brought in the Divisional Court in the South West Region. Going forward, any motions or other steps in the appeals should be taken in that Region. Paul B.

Schabas J. Released: August 25, 2023 CITATION : Hevey v. Hevey , 2023 ONSC 4864 COURT FILE NO.: 542/22; 690/22 DATE: 20230825

ONTARIO SUPERIOR COURT OF JUSTICE Divisional Court CHARLES JAMES HEVEY – and – LYNNE MARIE HEVEY SECURITY FOR COSTS DECISION Schabas J. Released: August 25, 2023