Citation: Armoyan v. Armoyan, 2014 NSSC 117
Date: 20140402
Docket: Hfx No. 409425
Registry: Halifax
Between:
Lisa Armoyan
Plaintiff
v.
Hripsime Armoyan and Geovex Investments Limited
Defendants
Judge: The Honourable Justice Michael J. Wood
Heard: March 25, 2014, in Halifax, Nova Scotia
Written Decision: April 2, 2014
Counsel: Mary Jane McGinty, for the plaintiff
George W. MacDonald, Q.C. and Michael Blades, for the defendants
By the Court:
[1] The plaintiff, Lisa Armoyan, is the former spouse of Mr. Vrege Armoyan. Their matrimonial litigation has been complex and acrimonious. It has been described by the Nova Scotia Court of Appeal as a “legal mesh that stretches between the courts of Florida and Nova Scotia” (Armoyan v. Armoyan, 2013 NSCA 99).
[2] In this proceeding, Ms. Armoyan challenges the transfer of shares by her ex-husband in Geovex Investments Limited to his sister-in-law, Hripsime Armoyan. Both parties have agreed that the value of the shares transferred exceeds Twenty Million Dollars.
[3] Ms. Armoyan alleges that the share transfer took place shortly after she commenced divorce proceedings in Florida against Mr. Armoyan. She says that this was part of a pattern by Mr. Armoyan to move his assets to ensure they would not be available to satisfy any judgment which she might recover against him. In this litigation she relies on the Statute of Elizabeth which deals with fraudulent conveyances.
[4] This is a motion by the defendants, Geovex Investments Limited and Hripsime Armoyan, for an order requiring Ms. Armoyan to post security for costs in the amount of $150,000.00 before she is permitted to continue with this proceeding.
[5] The evidence in support of the motion is the affidavit of Michael Blades, who is a lawyer associated with counsel for the defendants. It attaches copies of correspondence between counsel, submissions to court, and letters exchanged by the lawyers involved in the share transfer.
[6] In opposition to the motion, Ms. Armoyan filed the affidavit of her lawyer, Mary Jane McGinty. It attached similar correspondence to that found in Mr. Blades’ affidavit.
POSITION OF THE PARTIES
Hripsime Armoyan and Geovex Investments Limited
[7] The statement of claim says that Ms. Armoyan resides in Florida which satisfies the threshold requirement for consideration of an order for security for costs. Although Ms. Armoyan argues that she is impecunious and requiring security would prevent her from continuing with the litigation, the defendants say that there is no evidence filed on this motion which would support that position. In the absence of such evidence, they say that the motion should be granted.
[8] With respect to the amount of the security to be posted, the defendants argue that, in light of the value of the shares in question and the possibility that solicitor and client costs would be awarded as a result of the allegation of fraud, the potential cost award is very high. Even though they expect that the hearing will only take four days, they submit that security in the amount of $150,000.00 should be required.
Lisa Armoyan
[9] Ms. Armoyan says that her financial circumstances are well documented in the decision issued by the Nova Scotia Court of Appeal in her matrimonial dispute on September 10, 2013 (2013 NSCA 99) and the subsequent cost decision issued on November 29, 2013 (2013 NSCA 136).
[10] Ms. Armoyan argues that requiring security in the amount of $150,000.00 will effectively prevent her from continuing with this claim. She says that this transaction is part of the behaviour of her ex-husband which was strongly criticized by the Court of Appeal and that, when all of the circumstances are considered, the Court should not require her to post any security.
ANALYSIS
[11] Civil Procedure Rule 45 deals with motions for security for costs. The relevant provisions of that rule are as follows:
Rule 45 - Security for Costs
Scope of Rule 45
45.01 (1) This Rule provides a remedy for a party who defends or contests a claim and will experience undue difficulty realizing on a judgment for costs if the defence or contest is successful.
(2) A party against whom a claim is made may make a motion for security for costs, in accordance with this Rule.
Grounds for ordering security
45.02 (1) A judge may order a party who makes a claim to put up security for the potential award of costs in favour of the party against whom the claim is made, if all of the following are established:
(a) the party who makes a motion for the order has filed a notice by which the claim is defended or contested;
(b) the party will have undue difficulty realizing on a judgment for costs, if the claim is dismissed and costs are awarded to that party;
(c) the undue difficulty does not arise only from the lack of means of the party making the claim;
(d) in all the circumstances, it is unfair for the claim to continue without an order for security for costs.
(2) The judge who determines whether the difficulty of realization would be undue must consider whether the amount of the potential costs would justify the expense of realizing on the judgment for costs, such as the expense of reciprocal enforcement in a jurisdiction where the party making the claim as assets.
(3) Proof of one of the following facts gives rise to a rebuttable presumption that the party against whom the claim is made will have undue difficulty realizing on a judgment for costs and that the difficulty does not arise only from the claiming party’s lack of means:
(a) the party making the claim is ordinarily resident outside Nova Scotia;
(b) the party claimed against has an unsatisfied judgment for costs in a proceeding in Nova Scotia or elsewhere;
(c) the party making the claim is a nominal party, or a corporation, not appearing to have sufficient assets to satisfy a judgment for costs if the defence or contest is successful;
(d) the party making the claim fails to designate an address for delivery or fails to maintain the address as required by rule 31 - Notice.
(4) A judge may also order security for costs in either of the following circumstances:
(a) the security is authorized by legislation;
(b) the same claim is made by the same party in another proceeding, and it is defended or contested by the party seeking security for costs on the same basis as in the proceeding in which security for costs is sought.
Terms of order
45.03 (1) An order for security for costs must require the party making the claim to give security of a kind described in the order, in an amount equal to or lower than that estimated for the potential award of costs, by a date stated in the order.
(2) The judge may require any kind of security, including payment of money into court.
(3) A judge who requires payment into court may fix a deadline for paying the entire amount, or permit the paying party to make the payment in installments.
[12] There is no dispute that Ms. Armoyan resides in Florida and, therefore, the rebuttable presumption in Rule 45.02(3) arises. Ms. Armoyan has not provided evidence to show that there will not be undue difficulty realizing on a judgment for costs against her. In other words, she has not rebutted the presumption. Ms. Armoyan argues that the unsatisfied judgment which she has against her ex-husband represents assets in Nova Scotia that would be available to execute against. The difficulty is that it remains unpaid and if Ms. Armoyan were to be successful in recovering any funds, I expect they would be paid to her in Florida or applied to her lawyer’s accounts and would not be available to satisfy a cost order in this proceeding.
[13] Civil Procedure Rule 45.02(1) provides that if all of the criteria listed in that rule have been established, a judge may order that security be provided. Criteria (a) has been met, as has criteria (b), by virtue of the presumption raised by ss. 3(a). In my view, criteria (c) has also been met because the undue difficulty does not arise simply from Ms. Armoyan’s financial situation, but also because of her residing outside of Nova Scotia.
[14] The fourth criteria in Rule 45.02(1) is broadly stated and suggests that the court must consider all of the circumstances and determine whether it would be unfair to allow the litigation to continue without requiring the posting of security. It was this criteria that was the focus of submissions by both parties. This was also the central issue in the Nova Scotia Court of Appeal decision in Aliant Inc. v. Ellph.com Solutions Inc., 2012 NSCA 89.
[15] In the Aliant case, the plaintiff was an insolvent company seeking damages for breach of contract. The defendant sought security for costs in the form of personal guarantees from the principals of the plaintiff company for any costs that might be awarded. The Court described the nature of the discretion to be exercised by a judge in those circumstances, as follows:
[58] Sometimes the judge is said to have a broad discretion, virtually left to his or her own devices, to arrive at a fair and just result having regard to all of the circumstances. Other times the discretion may be curtailed by words intended to specify and limit the types of factors the judge will need to address in exercising the discretion. Occasionally we will see what I would describe as a hybrid scheme which seems to pair features common to the grant of a wide discretion with other criteria that tend to restrict, or at least focus, the application of that discretion.
[59] Civil Procedure Rule 45.02 is an example of what I would characterize as the hybrid approach. It directs that while the judge retains the discretion (“may order”) to oblige a party to put up security, such an order will only be granted if certain thresholds are all met (“if all of the following are established”). The grant of discretion is paired with a list of factors meant to guide the judge in its application. Among the listed criteria is included a final basket clause which obliges the judge to ultimately consider fairness in all of the circumstances.
[16] I interpret this passage to mean that even if an applicant is successful in establishing all four of the criteria found in rule 45.02(1), including the existence of unfairness in continuing without requiring security, there is an overall discretion to be exercised.
[17] In Aliant, the plaintiff conceded that the first three criteria in Rule 45.02(1) were met, leaving only the assessment of fairness for the court to consider. There are a number of comments in that decision which are instructive. The first is that the evidentiary onus is on the moving party to show that continuation without requiring security would be unfair (para. 64). In addition, the comparative financial positions of the parties is an legitimate circumstance to be considered (para. 93). Each case is different and the analysis and outcome of a motion for security for costs will be very fact specific (para. 101).
[18] In the Aliant case, the principals of the plaintiff company provided affidavit evidence setting out their financial circumstances. Based upon this evidence, the trial judge came to the following conclusions with respect to the impact of requiring security:
[88] That is precisely the conclusion reached by Justice Moir here. He found, on the evidence, that to force Messrs. Kelly and Barnes to put up the security demanded by Aliant would be to “destroy” their claim to damages and that such a grave injustice “would be even more manifest” if their impoverishment were later found to have been caused by the very acts of which the respondents complain.
[19] The Court of Appeal upheld the trial judge’s decision refusing to order the posting of security. The Court’s rationale is summarized in the following passage:
[102] Here, Aliant did not seek security for costs in the ordinary sense. All parties acknowledged Ellph.com’s impecuniosity. Aliant sought an unlimited undertaking from Messrs. Kelly and Barnes to provide a complete indemnity for trial costs, in the face of evidence that they too are impecunious. Such an order would be unprecedented in Nova Scotia.
[103] On this record it was open to the judge to conclude, as he did, that the respondents would be forced to abandon their claim and walk away from the litigation if he were to grant the motion. That finding necessarily provoked the pressing question of access to justice. Having heard the evidence, Moir, J. was well placed to decide if he should grant Aliant its motion, or whether fairness dictated otherwise.
[20] Where a party seeks to avoid the requirement to post security because of their impecuniosity, the courts have consistently required detailed evidence in support of that assertion. In addition, the party must satisfy the court that requiring security would effectively prevent them from continuing with the claim. An illustration is found in the following extract from the Nova Scotia Court of Appeal decision in 679927 Ontario Ltd. v. Wall, 1999 NSCA 97:
[83] From this review of the authorities, I reach the following conclusions. The merit of the plaintiff’s case is a relevant consideration to the exercise of discretion to grant or refuse security for costs. The extent to which the merits may properly be considered varies depending on the nature of the case. If the case is complex or turns on credibility, it is generally not appropriate to make an assessment of the merits at the interlocutory stage. The assessment of the merits should be decisive only where (a) the merits may be properly assessed on an interlocutory application; and (b) success or failure appears obvious. If the plaintiff resists security that would otherwise be ordered on the basis that the order will stifle the action, the plaintiff must establish this by detailed evidence of its financial position including not only its income, assets and liability, but also its capacity to raise the security. Where the order for security will prevent the plaintiff from proceeding with the claim, the order should be made only where the claim obviously has no merit, bearing in mind the difficulties of making that assessment at the interlocutory stage. Where the choices are, on one hand, allowing an unmeritorious claim to go to trial and, on the other, stifling a possibly meritorious claim before trial, the policy of our law is clear. While there is a risk of injustice on either account, stifling a possibly meritorious claim is the greater injustice. [emphasis added]
[21] On this motion, Ms. Armoyan has not filed any affidavit of her own and has provided no financial information. Ms. McGinty argues that the decisions of the Court of Appeal in her matrimonial litigation provide all of the necessary information. She refers to passages in the decision where the court says that Ms. Armoyan was left in “financial tatters” as a result of her ex-husband’s “litigious shananaghans”. It describes him taking advantage of the financial disparity between them and effectively trying to run her into the ground. There is reference in the Court of Appeal decisions to Ms. Armoyan having incurred legal costs well in excess of a million dollars as a result of the matrimonial litigation.
[22] Mr. MacDonald, counsel to the defendants in this proceeding, says that I cannot use the comments of the Court of Appeal as evidence in this case. In particular, he submits that the defendants are entitled to have affidavit evidence from Ms. Armoyan on which they could cross-examine her. He notes that his clients were not party to that litigation.
[23] I think that there is merit to the position advanced by Mr. MacDonald that Ms. Armoyan must file an affidavit in this proceeding setting out her financial circumstances and providing sufficient evidence for the Court to assess whether an order requiring security for costs will, indeed, stifle this litigation. Even if I were to accept the Court of Appeal’s comments as facts, the information is outdated. On the substantive appeal, Ms. Armoyan filed fresh evidence in the form of an affidavit dated March 15, 2013. Extracts from that affidavit are quoted in the decision and these provide some information concerning her financial situation at that time. That is more than a year ago and I have no current information concerning Ms. Armoyan’s circumstances. More importantly, I have nothing to satisfy me that requiring some amount of security would mean that Ms. Armoyan could not continue this action. Ms. McGinty essentially conceded this point during oral submissions.
[24] I do not accept the argument of Mr. MacDonald that the Court of Appeal decisions are irrelevant. In my view, they provide information about the general circumstances of Ms. Armoyan which is relevant to my assessment of the fairness of requiring security. It is clear that Ms. Armoyan has been involved in complex multi-jurisdictional legal proceedings which have created a huge financial burden for her. The subject matter of this action is related to her matrimonial litigation, in the sense that she is pursuing an asset which she says was transferred by her ex-husband in order to avoid his lawful obligations to her.
[25] I would note, as an aside, that Mr. MacDonald relied on the trial decision in Ms. Armoyan’s matrimonial litigation in the defendants’ earlier motion to have this proceeding dismissed as an abuse of process. If that decision was relevant to the earlier motion, then surely the appeal decision is part of the overall circumstances I should consider when deciding whether to require posting of security.
[26] Despite Ms. McGinty’s able submissions, I believe that the defendants have shown that it would be unfair to permit the claim to proceed without requiring security. The plaintiff is a Florida resident, who is seeking to set aside a Nova Scotia share transaction so that she can enforce a Florida judgment that has or will be registered in Nova Scotia. In this situation, I believe the defendants should have some protection in the event that they are awarded costs. The failure of Ms. Armoyan to provide evidence of her current financial circumstances and demonstrate that security would prevent her from continuing with the claim is critical. Without this, the remaining circumstances demonstrate a classic situation where security should be required. The information in the appeal decisions concerning Ms. Armoyan’s difficult divorce proceedings and the financial impact is not sufficient to satisfy the specific evidentiary requirements for persons who oppose security for cost motions on the basis of impecuniosity.
[27] Having determined that security should be provided, I must now consider the amount and when it is to be paid. In my view, the fixing of the quantum is discretionary and must be appropriate in all the circumstances. Part of the consideration in this case is the financial hit taken by Ms. Armoyan in her divorce proceedings. In addition, I am mindful of the fact that the shares acquired by Hripsime Armoyan from Mr. Armoyan are valued in excess of Twenty Million Dollars. This acknowledged fact suggests that the defendants are of substantial financial means.
[28] Part of the exercise in assessing the amount of security is to estimate the potential award of costs following trial. This is difficult to do at an early stage. Costs following trial are discretionary and intended to take account of the complexity of the issues, the conduct of the parties and offers to settle. In this case, Mr. MacDonald suggests that costs might well exceed a million dollars if one uses the value of the shares as the “amount involved” under Tariff A of Civil Procedure Rule 77. The value of the shares in question is simply one consideration for the Court in assessing costs.
[29] Mr. MacDonald estimates that the trial will not take any more than four days. In addition, the written submissions filed by the defendants suggests that the litigation is simply a “fishing expedition” and has “questionable merit”. It is inconceivable that a four day hearing would attract an award in the range suggested by the defendants. If they are correct in their assessment of the merits of the plaintiff’s action, the trial should be short and uncomplicated.
[30] The defendants also argue that an award of solicitor/client costs is likely, due to the allegation of a fraudulent conveyance. They are correct that unproven allegations of fraud may attract an award of solicitor/client costs. A transaction that is set aside under the Statute of Elizabeth does not necessarily require a dishonest intent on the part of the recipient in the same way as other allegations of fraudulent conduct. At this early stage, the likelihood of a solicitor/client award of costs following trial is hard to predict.
[31] All litigants are exposed to the risk of non-recovery of damages or costs. An order requiring posting of security for costs is intended to ameliorate that possibility if the appropriate criteria have been met. It is not intended to eliminate the risk and, therefore, a party should rarely have security posted equivalent to the full amount of the anticipated costs.
[32] In this case, the defendants are entitled to have some security for the amount they might be awarded if they are successful. Ms. Armoyan has to understand that she has financial exposure should she ultimately lose. Such a risk generally ensures that parties conduct the litigation in a reasonable fashion. Although I do not have current information concerning Ms. Armoyan’s finances, the Court of Appeal decisions make it clear that she has suffered significant expenses as a result of her ex-husband’s litigation tactics. I think that this is relevant in deciding how much security she should post and by what date. The fact that this is a proper consideration finds support in the decision of Smith, A.C.J. in Ocean v. Economical Mutual Insurance Company, 2011 NSSC 408, where she says at para. 52:
[52] Pursuant to Civil Procedure Rule 45.03(1) an order for security for costs must require the party making the claim to give security of a kind described in the order, in an amount estimated for the potential award of costs. As indicated previously, Economical has asked for security in the amount of $100,000.00. This is a staggering amount to ask an individual to post for a debt that has not yet been determined to exist. If I was satisfied that $100,000.00 was an appropriate estimate for the potential award of costs, I would have great difficulty finding it appropriate to order security in this amount in “all of the circumstances”. As will be seen, however, based on the facts presently before me, I am not satisfied that $100,000.00 is an appropriate estimate for a potential costs award.
[33] Smith, A.C.J. went on to order security in the amount of $10,000.00.
[34] In this case, taking into account the financial positions of the parties, the anticipated length of trial and the potential complexity of the proceeding, I believe it is appropriate for the plaintiff to post security for costs in the amount of $10,000.00. In my view, this represents an appropriate balance between the defendants’ right to have some protection in the event that they are awarded costs, with the principle that there should be some residual litigation risk for all parties.
[35] With respect to the date for providing the security, it must be paid into court on or before September 1, 2014. I have selected that date as I believe it gives Ms. Armoyan a reasonable period of time to obtain the funds given what I know about her circumstances.
[36] With respect to the costs of the motion, the defendants have been successful and, therefore, are entitled to costs. The matter was completed in more than an hour, but less than a half day, which under Tariff C results in a range of $750.00 to $1,000.00. I would fix the amount of costs at $750.00 payable by Ms. Armoyan to the defendants in any event of the cause. I would not order that they be payable forthwith.
SUMMARY
[37] After considering the evidence and the circumstances of the parties, I am satisfied that the defendants have shown that the plaintiff should be required to post security for costs. I have exercised my discretion and fixed the amount at $10,000.00, to be paid into court by September 1, 2014. Since they were successful on their motion, the defendants are entitled to their costs in the amount of $750.00, payable in any event of the cause, but not forthwith.
_________________________________
Wood, J.