Court of Appeal for Ontario

Date: June 27, 2019

Docket: M49150 (C65477)

Judges: Sharpe, Pepall and Roberts JJ.A.

Parties

Between

Kim Kevin Hunt c/o Bradley James Hunt and Justin Abraham Hunt Applicant (Respondent/Responding Party)

and

Kathleen A. Worrod Respondent (Respondent/Responding Party)

and

D. Andrew Thomson Non-Party (Respondent/Responding Party)

and

Legal Aid Ontario Non-Party (Appellant/Moving Party)

Counsel

• Gideon Forrest and Mitch Stephenson, for the appellant/moving party Legal Aid Ontario
• Michael E. Barrack, Andrea McEwen and Kimberly A. Whaley, for the respondent/responding party Kim Kevin Hunt c/o Bradley James Hunt and Justin Abraham Hunt
• Rose Muscolino, for the respondent/responding party D. Andrew Thomson
• No one appearing for the respondent Kathleen A. Worrod
• Jodi Martin and Elizabeth Rathbone, for the Intervener Ontario Association of Child Protection Lawyers
• John Phillips and W. Cory Wanless, for the Intervener Family Law Association

Heard: May 16, 2019

On appeal from: The order of Justice Edward J. Koke of the Superior Court of Justice dated April 17, 2018, with reasons reported at 2018 ONSC 2133, 9 R.F.L. (8th) 199, and the order dated May 24, 2018, with reasons reported at 2018 ONSC 3093, 9 R.F.L. (8th) 212.

Judgment

Pepall J.A.:

Introduction

[1] This appeal concerns an award of costs of $192,639.77 ordered to be paid by a non-party, Legal Aid Ontario ("LAO"), due to its role in funding a party in a family law dispute. The application judge concluded that by failing to adequately monitor and assess the merits of the defence it was funding, LAO engaged in an abuse of process. For the reasons that follow, I would set aside that award of costs.

Background

[2] In June 2011, Kim Hunt suffered a catastrophic brain injury as a result of an ATV accident. He remained in hospital care until October 21, 2011. His sons, Justin Abraham Hunt and Bradley James Hunt, were appointed as Kim's guardians of property and personal care (collectively, the "Hunt respondents").

[3] Kim had an on-and-off relationship with Kathleen Worrod for several years prior to his accident. They had jointly purchased a home in Novar, Ontario in June 2010. In December 2010, they had entered into a signed "Property Settlement Agreement" pursuant to which Kim paid Kathleen for her share of the down payment on the home. However, title to the property was never transferred into Kim's name alone. Three days after Kim's release from hospital in October 2011, he married Kathleen.

[4] In their capacity as Kim's litigation guardians, Justin and Bradley commenced an application against Kathleen seeking a declaration that the marriage was void ab initio, and that Kim was the sole owner of the Novar property. They also requested an order prohibiting contact between Kim and Kathleen. They took the position that Kim did not have capacity to marry, that Kathleen had no interest in the property, and that further contact with Kathleen would be detrimental to Kim's health.

[5] LAO granted Kathleen a legal aid certificate and funded her legal fees throughout the proceedings. Kathleen hired the respondent, Andrew Thomson, to be her counsel in the litigation.

[6] Thomson requested and received authorization from LAO to obtain a report from a clinical neuropsychologist to opine on whether Kim had "the cognitive competence to provide direction regarding the issue of his guardianship". The report is dated January 12, 2015 and is based on assessments conducted in September and November 2014. The report's authors concluded that based on his emotional desire to have a relationship, Kim wanted to live with Kathleen. However, he lacked the understanding of his need for guardianship, and ultimately did not have the cognitive competency to make a decision regarding his guardianship. The report did not support the position on Kim's capacity that Kathleen had taken in the application. She did not call the authors of the report at trial nor did she adduce any medical evidence to support her allegation that Kim had capacity to marry in October 2011.

[7] The trial lasted over 10 days. LAO was not a party to the application and did not participate in the trial.

[8] The Hunt respondents succeeded on all claims: see Hunt v. Worrod, 2017 ONSC 7397, 32 E.T.R. (4th) 232. The application judge found that Kim lacked capacity to marry and that the marriage was void ab initio. He concluded that the "Property Settlement Agreement" was enforceable, and that Kim held the sole equitable title to the Novar property. The application judge also granted an order permanently prohibiting all contact between Kim and Kathleen. In his subsequent reasons for decision on the issue of costs, the application judge characterized Kathleen's claims as "meritless": Hunt v. Worrod, 2018 ONSC 2133, 9 R.F.L. (8th) 199, at para. 49 ("costs reasons").

(1) April 17, 2018 Costs Order

[9] The application judge held a hearing to consider the issue of the costs of the proceedings.

[10] Prior to the costs hearing, counsel for the Hunt respondents had written to Thomson and LAO advising that their clients intended to seek costs from both Kathleen and Thomson personally, and from LAO.

[11] In his costs reasons, the application judge observed, at para. 12, that Kathleen had moved to British Columbia in 2015 where she was now working at a Tim Hortons and that it did not appear that she had any assets. He ordered Kathleen to pay the Hunt respondents' costs of $385,279.54 on a full recovery basis. He stated that the evidence strongly suggested that Kathleen would never be in a financial position to pay any of Kim's legal costs: at para. 30.

[12] The application judge turned next to the Hunt respondents' request for costs against Thomson personally. Their request was based on Thomson's alleged failure to meet his reporting requirements to LAO. They submitted that had Thomson properly reported to LAO, LAO would not have continued to fund Kathleen's defence. The application judge was not prepared to make an order of costs against Thomson stating, at para. 35:

I am not privy to Mr. Thomson's discussions with Legal Aid or with his client, which were privileged, and therefore I have no basis for finding that he acted improperly in his reporting requirements to Legal Aid. He presented himself as organized, efficient and courteous throughout the trial.

[13] The application judge then focused his attention on the Hunt respondents' request for costs against LAO.

[14] He commented that he had not been directed to any cases where a court in Ontario had ordered LAO to pay the costs of a successful party: at para. 43. He acknowledged that in ordering costs against a non-party, a court should exercise caution and that the circumstances meriting such an award must be "exceptional and clearly constitute an abuse of the court's process": at para. 45.

[15] The application judge then considered the circumstances of this case. He found that LAO knew that Kim was a vulnerable individual. He explained that when LAO registered its lien against Kim's property (i.e. the Novar property), it would have had notice of the Public Guardian and Trustee's ("PGT") Certificate of Incapacity to Manage Property that was registered on title. In addition, he reasoned that LAO "presumably" would have received a copy of the neuropsychological report because LAO had paid for the assessment and report: at para. 47. He concluded that LAO had failed to properly carry out its mandate to monitor the proceedings, contributed significantly to the hardships and challenges faced by Kim and his family, and needlessly wasted judicial resources: at para. 50. The application judge held that LAO's "actions (or failure to act) constitute[d] an abuse of process, in that they undermined 'the public interest in a fair and just trial process and the proper administration of justice'": at para. 52. Relying on the court's inherent jurisdiction, he ordered LAO to pay $192,639.77 to the Hunt respondents. This represented 50 percent of the full indemnity costs of $385,279.54 that the application judge had ordered Kathleen to pay. He also ordered LAO to pay the costs of the costs hearing to the Hunt respondents fixed in the amount of $21,281.47.

(2) Subsequent Proceedings before the Application Judge

[16] On receipt of the application judge's reasons for costs, LAO brought a motion to reopen the evidence relating to costs and to vary the application judge's April 17, 2018 costs decision. LAO sought to tender two affidavits that maintained that LAO had not received the neuropsychological report until shortly before the commencement of the trial and that it was unaware of the PGT's restriction on title to the Novar property until about six months prior to the trial. Days before the hearing of LAO's motion, Kathleen waived her right to privilege.

[17] The application judge dismissed LAO's motion on May 24, 2018: see Hunt v. Worrod, 2018 ONSC 3093, 9 R.F.L. (8th) 212. He sought cost submissions from counsel but these were never filed.

(3) Appeal Proceedings

[18] On appeal, LAO challenges the application judge's April 17, 2018 costs order against LAO, and his May 24, 2018 order refusing to reopen the evidence and to vary his costs award.

[19] Prior to the hearing of this appeal, LAO brought a motion for directions before a single judge of this court. In accordance with Paciocco J.A.'s procedural endorsement on the motion for directions, dated September 12, 2018, LAO also seeks leave to admit fresh evidence consisting of the same two affidavits the application judge had refused to consider on the motion to vary the costs order. In addition, if necessary, it seeks leave to appeal the April 17, 2018 costs order.

Analysis

(1) Leave to Appeal is not Required

[20] The first issue to address is whether LAO is required to obtain leave to appeal the costs order pursuant to s. 133(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43 ("CJA").

[21] LAO argued that, with the exception of the "person of straw" category of awards under s. 131(1) of the CJA, non-party cost awards are made pursuant to the inherent jurisdiction of the court and as such, leave to appeal is not required. The respondents took no position on this issue.

[22] Section 131(1) of the CJA provides:

Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[23] Section 133(b) provides:

No appeal lies without leave of the court to which the appeal is to be taken, …

(b) where the appeal is only as to costs that are in the discretion of the court that made the order for costs.

[24] In 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184, 134 O.R. (3d) 641, Strathy C.J.O. confirmed that s. 131(1) authorizes cost awards against parties only. He explained that the "person of straw" exception permits a court to look behind a named party (i.e. the person of straw) to order costs against the true instigator or promoter of the litigation: at para. 46. As such, there are occasions when the real litigant is not named as a party to the proceeding but may be exposed to an adverse costs award under s. 131(1). Strathy C.J.O. held that apart from this statutory jurisdiction, the court has inherent jurisdiction to order costs against a non-party. Leave to appeal is required for costs awards made pursuant to statutory jurisdiction under s. 131(1) by virtue of the language of s. 133(b). There is no such requirement for an award of costs that relies on inherent jurisdiction.

[25] Before the application judge, the parties agreed that the "person of straw" category was inapplicable. The application judge in making the costs award against LAO as a non-party expressly did not rely on statutory authority under s. 131(1) but on the court's inherent jurisdiction. In light of the jurisdictional basis for the award, the panel was satisfied that LAO was not required to obtain leave to appeal under s. 133(b) of the CJA. At the hearing of the appeal, counsel were so advised.

(2) Appeal of the Costs Order Against LAO

[26] This brings me to the appeal from the April 17, 2018 costs order against LAO. LAO anchors its appeal on two grounds. First, it submits that the application judge denied LAO procedural fairness. Second, LAO challenges both the legal and evidentiary basis for the costs award against it. The Hunt respondents resist LAO's costs appeal. Thomson takes no position.

[27] The Family Lawyers Association and the Ontario Association of Child Protection Lawyers intervened on the appeal. They both provided submissions on the principle of cost awards against LAO in its capacity as a government sponsored funder of legal aid.

[28] The interveners submit that the effect of the application judge's decision will be to require LAO to independently and continuously scrutinize the factual and legal basis for opinion letters provided by private bar lawyers representing legal aid funded clients. They submit that this would require a diversion of LAO's limited resources away from providing funding, toward administrative costs of monitoring. They further submit that the decision will require LAO to seek or require waivers of privilege from legal aid clients in order to defend against potential claims for non-party costs. In sum, this precedent will cause a chill in the availability of legal aid funding, a reduction in the number of lawyers willing to accept legal aid certificates, a chill on advocacy by lawyers on LAO funded files, and an erosion of solicitor-client privilege.

[29] As mentioned, LAO also seeks to set aside the application judge's refusal to reopen the evidence and to vary his costs order, and brings a fresh evidence motion in support. In light of my conclusion on LAO's argument regarding the legal and evidentiary basis for the costs award, there is no need to address the procedural fairness ground of appeal, LAO's appeal from the refusal to reopen the evidence and vary the costs order, or its motion to admit fresh evidence.

Basis for the Costs Award against LAO

[30] In my view, the costs order against LAO cannot stand. Fundamentally, the application judge misconstrued the role of LAO and there was no evidentiary support for his conclusion that there was an abuse of process by LAO due to its alleged failure to monitor the litigation that it was funding. Moreover, the application judge's findings were inconsistent with his conclusions relating to the claim for costs against Thomson personally.

LAO's Role in the Litigation

[31] LAO's role in the proceedings was limited to the provision of funding pursuant to a legal aid certificate issued to Kathleen, who then retained Thomson as counsel. In their costs submissions before the application judge, the Hunt respondents confirmed that they were not alleging bad faith by LAO. Their focus was on LAO's alleged failure to consider Kim's vulnerability, and LAO's alleged failure to monitor the proceeding including its failure to consider the neuropsychological report that undermined Kathleen's position and supported that of the Hunt respondents on the issue of capacity. They argue that LAO's liability for costs flowed from the inadequacy of LAO's ongoing assessment of the merits of the case it was funding, which involved a vulnerable party.

[32] LAO is an independent and publicly accountable non-profit corporation: Legal Aid Services Act, 1998, S.O. 1998, c. 26, s. 3(4) ("LASA"). The Government of Ontario created LAO "to establish and administer a cost-effective and efficient system for providing high quality legal aid services to low-income individuals in Ontario": LASA, s. 4. As stated in s. 14(2) of the LASA, LAO "shall provide legal aid services in the areas of criminal and family law having regard to the fact that the private bar is the foundation for the provision of legal aid services in those areas." LAO does not represent the client nor does it direct the litigation. Rather, it provides the funding to the client to retain counsel from the private bar. The legal aid system in Ontario permits LAO to rely on the opinions of the private bar lawyers who have carriage of their clients' files subject to a legal aid certificate. The system is not established on the basis that LAO is required to engage in a detailed factual and legal analysis independent of and disconnected from counsel's legal opinion. The costs award against LAO based on its failure to adequately monitor the litigation is inconsistent with and would frustrate that statutory scheme.

[33] An award of costs against LAO based on abuse of process must be viewed within this context.

[34] As Strathy C.J.O. explained in Laval Tool, the court's inherent jurisdiction to order non-party costs is grounded in the court's inherent jurisdiction to deter abuse of process and when exercising inherent jurisdiction to award costs against a non-party, courts must do so "sparingly and with caution": at paras. 68 and 72.

[35] Abuse of process is a flexible doctrine: Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 37; Behn v. Moulton Contracting Ltd., 2013 SCC 26, [2013] 2 S.C.R. 227, at paras. 40-41. The concept has been described as involving proceedings that are "unfair to the point that they are contrary to the interest of justice", oppressive or vexatious, and "violate the fundamental principles of justice underlying the community's sense of fair play and decency": C.U.P.E., at para 35.

[36] In examining costs against LAO for an alleged abuse of process, a distinction must be made between LAO as a party to litigation and LAO as a non-party statutory funder of litigation. When LAO is a party to litigation, as with any other party, it may be exposed to a costs award. By way of example, in an employment or civil action in which LAO is an unsuccessful party, it would be open to a judge to grant an adverse costs award: see e.g. Legal Aid Ontario v. Gertler, 2010 ONSC 6556.

[37] In contrast, as a non-party, LAO's conduct must be viewed in the context of its statutory mandate and the regime of legal aid services in Ontario as it is set up by the LASA. Without evidence of something more, such as bad faith or a collateral or improper purpose in granting funding to a litigant, LAO's conduct in funding litigation pursuant to its statutory purpose, and any conduct incidental thereto, including its monitoring of the litigation it funds, cannot support a finding of abuse of process and a resulting adverse costs award.

[38] Contrary to the submissions of the Hunt respondents, the LASA scheme is wholly unlike the framework that supports third-party funders in class proceedings. The legal framework governing third-party litigation funding is concerned with the potential harm to the administration of justice that may arise from a non-party profiting unduly from or unreasonably controlling another's litigation: see Houle v. St. Jude Medical Inc., 2018 ONSC 6352, 429 D.L.R. (4th) 739 (Div. Ct.), at para. 51. LAO's mandate is to administer government funding for low-income litigants, without any financial or other interest in the outcome of the proceedings. While it is true that pursuant to s. 46(4) of the LASA, any cost awards payable to the legal aid funded litigant are deemed the property of LAO, the decision to fund a litigant is driven by LAO's statutory mandate and associated funding criteria, not by the prospect of economic return to LAO.

Invasion of Solicitor-Client Privilege

[39] Furthermore, even if a failure by LAO to monitor could anchor a finding of abuse of process, any conclusion of improper or inadequate conduct by LAO in its funding role would require the impermissible review of the reporting and opinion letters of the lawyer holding the legal aid certificate. The LASA sets up a tripartite relationship of solicitor-client privilege between the client, the lawyer, and LAO. Section 93 provides that the relationship between the lawyer providing legal aid services and the client is governed by solicitor-client privilege. Section 89 provides that communication between LAO and the client, and the lawyer and LAO is privileged to the same extent as solicitor-client communication. Thus, s. 89 allows for the legal aid funded lawyer to report to LAO on the progress of the case and on the client's continued eligibility for legal aid funding, and to provide opinion letters, without such reporting amounting to a waiver of solicitor-client privilege: s. 89(3). The privilege over the reporting and opinion letters belongs to the client being funded, not to LAO. Put differently, the privilege over the letters is not LAO's to waive. The impermissible scrutiny of privileged territory which would be required to support a finding of failure to monitor runs counter to the scheme and regime of Legal Aid as it is constituted in Ontario. As LAO and the interveners submit, allowing this scrutiny would risk putting LAO in a position where it must seek a waiver of privilege from clients in order to mount a defence to claims against it for non-party costs.

Lack of Evidentiary Support

[40] Quite apart from misconstruing LAO's role in litigation, there was also no evidentiary basis for such an award in this case. As mentioned, the gravamen of LAO's alleged conduct in this case was its continued funding in the face of knowledge of the vulnerability of the opposing party coupled with its failure to monitor. The application judge determined that this conduct amounted to an abuse of process. It was conceded by the Hunt respondents that they were not alleging bad faith on the part of LAO or that LAO had acted vexatiously.

[41] Regardless of its knowledge of the PGT certificate registered on title, there is no question that LAO would have known about Kim's vulnerable state based on an appreciation of the nature of the dispute, and the role of Kim's sons as his litigation guardians. However, this fact standing alone could not serve as a foundation for a finding of abuse of process. Many an action involves a vulnerable party. One must then determine whether that fact coupled with knowledge of the neuropsychological report could anchor a finding of abuse of process. The application judge determined that upon receiving the report, LAO should have terminated its funding: costs reasons, at para. 52. The problem here is that while the report was arguably fatal to the issue of the validity of the marriage, it did not speak to the other two issues in play in the litigation: ownership of the Novar property and the merits of a no contact order. Further, as mentioned, the impact of the neuropsychological report on LAO's appreciation of the merits of the case would be subject to the opinion of counsel with conduct of the defence on behalf of Kathleen, an opinion that was privileged and not before the application judge when he made the costs award. The finding of abuse of process made by the application judge was not available on the evidence.

Inconsistent Findings

[42] There is also the issue of the application to the costs award against LAO of the judge's finding relating to the request for costs as against Thomson personally. The application judge considered the costs allegations asserted against Thomson to be serious in that they impugned Thomson's professional reputation and integrity. The Hunt respondents argued that Kathleen's claim was without merit, and Thomson failed to meet his obligation to fully and properly report to LAO. They argued that had Thomson properly reported to LAO, LAO would not have continued to fund Kathleen's defence. The application judge concluded that there was an absence of a factual foundation on which to base the allegations against Thomson.

[43] The crux of the allegations against Thomson were substantially the same as those asserted against LAO. The application judge implicitly concluded that Thomson did not cause costs to be incurred without reasonable cause. He also recognized that Thomson's communications with Kathleen were privileged and therefore he had no basis for finding that Thomson acted improperly in his reporting requirements to LAO. He then proceeded to find LAO at fault.

[44] His findings against LAO were inconsistent with his findings in favour of Thomson. There was nothing in the record that would permit the application judge to exonerate Thomson on the one hand and penalize LAO on the other. Moreover, as mentioned, he failed to consider that LAO had no ability to waive privilege over the opinions received from Thomson.

Disposition

[45] For these reasons I would allow the appeal and set aside the costs order against LAO. I would dismiss the motions for leave to appeal and to admit the public importance affidavits to the extent they were filed in support of the leave motion, as being unnecessary. I would similarly dismiss the motion to set aside the application judge's refusal to reopen the evidence and vary his costs order, and dismiss the motion to admit the two LAO affidavits as fresh evidence.

[46] Counsel for the respondents ably argue that this is a unique case involving a vulnerable individual. Kim's circumstances are most unfortunate. However, his misfortune does not render the award against LAO sustainable either in law or in fact.

[47] That said, in light of the novel nature of the issues in dispute, I would temper the costs awards in favour of LAO. I would order the Hunt respondents to pay LAO $15,000 in costs on a partial indemnity scale inclusive of disbursements and applicable tax on account of the main appeal; I would reverse the award below for the costs of the costs hearing and order the Hunt respondents to pay LAO $4,621 for that hearing on a partial indemnity scale inclusive of disbursements and applicable tax. I would make no order for costs of the appeal of the refusal to reopen the evidence and vary the costs order. The interveners do not seek costs nor are they liable for any costs.

Released: June 27, 2019

"S.E. Pepall J.A."

"I agree. Robert J. Sharpe J.A."

"I agree. L.B. Roberts J.A."