DATE: 20010705 DOCKET: C32504 C32501
COURT OF APPEAL FOR ONTARIO
LABROSSE, ABELLA and MacPHERSON JJ.A.
IN THE MATTER OF a Petition in Bankruptcy
against DALLAS/NORTH GROUP INC.
IN THE MATTER OF a Petition in Bankruptcy
against TED PANGIA
William V. Sasso,
for the appellant Nigel Axton
Howard W. Reininger,
for the appellant Paul Mazza
Douglas Langley,
for the respondents
Dallas/NorthGroup Inc.
and Ted Pangia
Heard: July 3, 2001
On appeal from the judgment of Justice John D. Ground dated July 9, 1999
LABROSSE J.A.:
[1] The appellants, Paul Mazza and Nigel Stephen Axton, non-parties in these bankruptcy proceedings, appeal the judgment of Ground J. awarding costs against them.
[2] The parties are in agreement that this appeal can be brought under s. 193(c) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("the Act") as of right. The property involved in this appeal exceeds in value ten thousand dollars.
[3] Ted Pangia and Dallas/North Group Inc. ("D/NG") were petitioned into bankruptcy on the basis of a promissory note made by them. It was alleged that Pangia and D/NG had ceased to meet their liabilities generally as they became due.
[4] After reviewing a complicated factual situation, based on a long and tortuous history, the trial judge concluded that the petitioning creditors had failed to establish by sound and convincing evidence either the debt alleged to be owing or the alleged acts of bankruptcy.
[5] The trial judge also concluded that there was overwhelming evidence that the petitions had been brought for a collateral purpose, namely to remove Pangia as an officer and director of a third-party company, Ecology Pure Air International Inc. ("EPAI") and reduce his shareholdings, and not for the purpose of obtaining a distribution of the property among creditors.
[6] The trial judge further concluded that it was apparent that there had been a concentrated effort orchestrated by Paul Mazza and Nigel Stephen Axton of bullying, harassment and intimidation against Pangia and that it was difficult to think of a clearer example of petitions in bankruptcy having been brought for an improper collateral purpose. The barrage of proceedings brought against Pangia and D/NG constituted an abuse of process and was orchestrated by Mazza and Axton. The trial judge found it most disturbing that the misconduct of Mazza and Axton was carried out using the court system as a vehicle and that a lawyer participated in the scheme.
[7] The petitions were accordingly dismissed. There is no appeal from this decision. The conclusions reached by the trial judge about the improprieties underlying the bankruptcy proceedings, therefore, remain unchallenged.
[8] Having ordered costs against certain parties to the bankruptcy which were without assets, the trial judge asked for written submissions from counsel as to other persons against whom the costs order should be made.
[9] Pangia made written submissions for costs in a fixed amount against Mazza and Axton. Counsel for Mazza and Axton responded with written submissions. After reviewing the bill of costs submitted by Pangia's counsel, the trial judge made certain deductions and fixed the bill of costs at $60,000 inclusive of fees, disbursements and GST. He ordered the costs to be paid by EPAI, Mazza and Axton. As stated earlier, neither Mazza nor Axton was a party in the proceedings. Mazza was a witness.
[10] It is our view that the costs conclusions of the trial judge are proper, given the evidence. We have not been shown any error in principle which affected the exercise of his discretion, particularly given his conclusions that the petitions were in fact brought for a collateral purpose and constituted an abuse of process.
[11] Costs in bankruptcy proceedings are in the discretion of the court pursuant to s. 197(1) of the Act. There are no words limiting this section which, on its face, gives the court the widest discretion. The Act is a federal statute which must be interpreted within its own parameters. A court must be careful to avoid interpreting a federal statute using local rules of practice not necessarily found in other provinces.
[12] In Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., 1972 CanLII 531 (ON CA), [1972] 3 O.R. 199 (C.A.), the court was interpreting s. 131 of the Courts of Justice Act (Ontario) which has different wording than s. 197(1) of the Act. See also Oasis Hotel Ltd. v. Zurich Insurance Co. (1981), 1981 CanLII 433 (BC CA), 124 D.L.R. (3d) 455 (B.C.C.A.).
[13] In Re Sturmer & Town of Beaverton (1912), 1912 CanLII 588 (ON SCDC), 25 O.L.R. 566 (Div. Ct.) was properly applied by the trial judge. He recognized that the criteria of the "man of straw" exception could not be met and that it was not technically a case of maintenance. Unlike certain authorities referred to by the appellants (Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., supra; Television Real Estate Limited v. Rogers Cable T.V. Limited (1997), 1997 CanLII 999 (ON CA), 34 O.R. (3d) 291 (C.A.); XLO Investments v. Hurontario Management Services (1999), 1999 CanLII 1058 (ON CA), 118 O.A.C. 258 (C.A.) the principles that are applicable in the present case are principles about costs involving duplicity and abuse of the court.
[14] There are special policy considerations to take into account when dealing with abuse of process in bankruptcy court because bankruptcy proceedings are quasi-criminal in nature and a petition in bankruptcy can destroy a person's financial standing and reputation. A harsher consequence in costs against a person who misuses the bankruptcy court for an improper collateral purpose is therefore justified.
[15] In the present case, extensive evidence was led concerning all of the vexatious steps taken against Pangia and D/NG. The trial judge was fully informed in that regard. The trial judge invited and received written submissions on both the law and the bill of costs, as submitted. Although we recognize that the power to assess costs against non-parties must be used sparingly, we are of the view that the special circumstances of this case warranted the costs order against Mazza and Axton.
[16] The appeal is dismissed with costs.
RELEASED: July 5, 2001 "JML"
(signed) "J. M. Labrosse J.A."
(signed) "I agree R. S. Abella J.A."
(signed) "I agree J. C. MacPherson J.A."