Swist v. Meg Energy Corp., 2016 FCA 283

In the underlying proceeding, Jason Swist and CSL had commenced an action for patent infringement. The Federal Court had granted MEG Energy's motion for an Order requiring CSL post security for costs. In that motion, the Federal Court Judge found that CSL did not have any assets that could be used, directly or indirectly, to post security for costs; nor did Jason Swist, the majority shareholder of CSL. The Federal Court Judge then looked to the minority shareholder to determine if she had the financial means to provide funds to CSL. The minority shareholder in this case only owned 10% of the shares of CSL and had never been involved in the business of CSL. The Federal Court Judge was not satisfied that the minority shareholder was unable to provide security for costs and ordered CSL to post security for costs in the amount of $195,785.70.

On appeal, the Court of Appeal held that it was an error in law, in determining whether CSL was impecunious, to consider whether the minority shareholder, in the circumstances of this case, could be the sole source of the amount that CSL would be required to post as security for costs. The Court of Appeal found that CSL had demonstrated that it was impecunious for the purposes of Rule 417 of the Federal Courts Rules. The appeal was granted and the matter was referred back to the Federal Court to determine whether the case has merit for the purposes of Rule 417, and if so, whether the discretion provided in Rule 417 should be exercised.