HOJ National Leasing Corp. (Re), 2008 ONCA 390

CITATION: HOJ National Leasing Corp. (Re) , 2008 ONCA 390

DATE: 20080516

DOCKET: C46762

COURT OF APPEAL FOR ONTARIO

BORINS, FELDMAN and ARMSTRONG JJ.A.

IN THE MATTER OF THE BANKRUPTCY OF HOJ NATIONAL LEASING CORP. OF THE CITY OF TORONTO IN THE PROVINCE OF ONTARIO

AND IN THE MATTER OF THE BANKRUPTCY OF HOJ NATIONAL LEASING CORP. OF THE CITY OF TORONTO IN THE PROVINCE OF ONTARIO

BETWEEN:

THE REGISTRAR, ONTARIO MOTOR VEHICLE DEALERS ACT AND MOTOR VEHICLE DEALERS COMPENSATION FUND AND JOHN DOE AND ALL OTHER CONSUMERS OF THE BANKRUPTS

Appellants

and

A. FARBER & PARTNERS INC., TRUSTEE IN BANKRUPTCY, LEASE-WIN LIMITED, LANDMARK VEHICLE LEASING CORPORATION, NORTH YORK CHEVROLET OLDSMOBILE LIMITED, AND CFI TRUST, CORPFINANCE INTERNATIONAL LIMITED AND CFI LEASING LIMITED

Respondents

Frank Bennett for the appellants

Stuart Brotman and R. Graham Phoenix for the respondents A. Farber & Partners Inc., Trustee in Bankruptcy

Clifton P. Prophet and Christine Marchetti for the respondents Lease-Win Limited, Landmark Vehicle Leasing Corporation and North York Chevrolet Oldsmobile Limited

Deborah E. Palter for the respondents CFI Trust, CFI Leasing Limited and Corpfinance International Limited

Heard: December 13, 2007

On appeal from the order of Justice Joan L. Lax of the Superior Court of Justice dated February 21, 2007.

BORINS J.A.:

I

[1] This is an appeal by the Registrar, Ontario Motor Vehicle Dealers Act (the “Registrar”), the Motor Vehicle Dealers Compensation Fund (the “Fund”), John Doe and all other consumers or customers of the bankrupt HOJ National Leasing Corp. and HOJ National Leasing Inc. (collectively “HOJ”) from the order of Lax J. dated February 21, 2007, dismissing the appellants’ motion to vary the order of Colin Campbell J. dated January 26, 2005, and for an order granting the appellants leave to sue A. Farber & Partners Inc. (the “trustee”) the trustee of the HOJ bankruptcy. The appeal concerns the proper test for varying a bankruptcy order under s. 187(5) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3 (“BIA”). For the reasons that follow, I would dismiss the appeal.

II

[2] To fully understand the issues raised by the appeal, it is necessary to consider the background leading up to Campbell J.’s order, which is described in these proceedings as the “vesting order”.

[3] HOJ carried on business as two motor vehicle leasing companies. Lessees of the motor vehicles, on entering into a lease, paid HOJ a deposit as security for damage to the vehicle, excess kilometres at the end of the lease term, or arrears of payments. At the conclusion of the lease, HOJ was required to return the deposit less appropriate deductions, if any.

[4] On September 27, 2004 HOJ filed voluntary assignments in bankruptcy naming A. Farber & Partners Inc. as trustee in bankruptcy. At that date, HOJ owned a lease portfolio in excess of 4,000 leases and conditional sales contracts, and customer security deposits exceeded $1.2 million. On the date of bankruptcy, none of the customers were creditors of HOJ as none of the leases had matured entitling the customer to a return of all or part of his or her security deposit. However, by December 13, 2006, the total amount of claims approved by the Registrar in respect of unpaid deposits owed by HOJ to its customers was $55,600.02.

[5] HOJ financed its business through CFI Trust (“CFI”), to which HOJ’s lease portfolio had been assigned under an asset securitization agreement before the bankruptcy. The agreement resulted in HOJ transferring the beneficial interest in the portfolio and associated vehicles to CFI in exchange for a payment by CFI of an amount equal to the present value of the cash flows that would be generated over time by the portfolio. Under the agreement HOJ continued to administer the leases and conditional sales agreements, acting as collection agent for CFI. Registration of the associated motor vehicles remained in the name of HOJ.

[6] Immediately following HOJ’s assignment into bankruptcy, CFI advised the trustee that any substantial delay in accessing the cash flow stream could cause it substantial financial harm since HOJ’s failure to pay CFI amounts owed under the terms of the agreements caused CFI to come under increased scrutiny by its credit rating agency.

[7] Upon bankruptcy, all of HOJ’s interest in the lease portfolio, being property of the bankrupt, devolved to the trustee. In order to have the lease payments continue to be effectively collected after HOJ’s bankruptcy, CFI assigned the role of collection agent of the lease payments to Lease-Win Limited, Landmark Vehicle Leasing Corporation and North York Chevrolet Oldsmobile Limited (collectively “the assignees”). It was a condition precedent of this assignment that a court order be obtained declaring that HOJ’s interest in the Portfolio was being assigned free and clear of any other claim, including any claim by a customer for the return of a security deposit. In other words, the assignees required the vesting order as a condition to their assumption of the Portfolio since the Portfolio would otherwise create a net potential liability for the assignees.

[8] Because of the timing and urgency of the request by CFI, the trustee moved for directions seeking, among other things, an order authorizing and directing the trustee to enter into an assignment agreement whereby HOJ’s interest in the assets in the Portfolio and the rights of HOJ in the Master Lease would be transferred to and vested in the assignees, free and clear of any claims, including claims for unpaid security deposits. Although the motion for directions was returnable on October 18, 2004, it was not heard until January 26, 2005, when Campbell J. made the following order:

THIS COURT ORDERS THAT, forthwith upon the execution of the Assignment by the Trustee, the Trustee shall file a copy of the executed Assignment with this court and, upon such filing:

(a) all the right, title and interest of the Bankrupt in and to the portfolio of leases, conditional sale contracts and underlying motor vehicles described in the Assignment, together with any and all related chattel paper, documents of title, goods, instruments, money and securities (the “Portfolio”) … shall vest in the assignee …, free and clear of any and all of the estates, titles, rights, benefits, interests, claims, liens, hypothecs, security interests, trusts or deemed trusts (whether statutory or otherwise), assignments, executions, judgments, options, agreements, rights of distress, legal, equitable or contractual set-offs, options, adverse claims, levies, agreements, taxes, disputes, debts, charges, mortgages, encumbrances, claims provable, including, without limitation, any claim to a customer deposit under an assigned lease, or any other rights or claims however arising …;

(b) all Claims in or to the Bankrupt’s interest in the Portfolio and the Program Agreements shall vest in place and in stead thereof in and to the cash proceeds actually received by the Trustee from the assignment thereof.

[9] The Registrar and HOJ’s more than 4,000 lessees claimed that they did not receive notice of the trustee’s motion.

[10] I will now explain how the Registrar became involved in these proceedings. Under s. 12(1), found within the Schedule of R.R.O. 1990, Reg. 801, pursuant to s. 24(o) of the Motor Vehicle Dealers Act, R.S.O. 1990, c. M.42, a fund was established to compensate customers of dealers in the circumstances stipulated by s. 12(3). The fund is administered by the Registrar. The relevant portion of s. 12(3) provides:

(3) A customer may make a claim against the Fund where the customer gives written notice of the claim to the Registrar within two years of the participant’s refusal or failure to pay, even if the motor vehicle dealer with respect to whom the claim is being made ceased to be a participant after the refusal or failure to pay, and where the claim meets one of the following requirements:

3. The participant has become a bankrupt or a winding-up order has been made or a receiver appointed in respect of the business of the participant under the Bankruptcy Act (Canada) and the claim is for a liquidated amount and the customer makes an application that is supported by evidence of the allowance of the claim by the Trustee in bankruptcy, liquidator or receiver, less any amount that may have been paid on account of the claim by the Trustee, liquidator or receiver.

[11] HOJ is a “participant” within the meaning of s. 12(3).

[12] Thus, pursuant to the statutory scheme, the fund has a potential exposure of $1.2 million for the return of the lessees’ security deposits. The vesting order expressly provided that the assignment by CFI of HOJ’s lease portfolio did not impose HOJ’s contractual obligation to return the security deposits on the assignees. As such, the Registrar, no doubt correctly, assumed that the fund would have to compensate the customers for the return of their deposits, the reality being that they would recover little or nothing from HOJ’s estate. It was the Registrar’s view that the vesting order was wrong in exempting the assignees from any liability to the customers to return their deposits. Thus, the Registrar decided to challenge the vesting order by means of a motion “to vary” the order, it being too late to appeal from the order. The Registrar was purportedly joined in his motion by the over 4,000 customers of HOJ, although very little was said on their behalf by counsel for the appellants, who essentially presented his argument on the Registrar’s behalf.

[13] The Registrar claims to have become aware of the vesting order in early February, 2005. However, it waited until August, 2005, before issuing its notice of motion to vary. Lax J. did not hear the motion until February 20, 2007. The Registrar’s motion is brought as subrogee of the customers of HOJ pursuant to s. 14(3) of the Schedule to the Regulation. The Registrar brought the motion pursuant to Rule 37.14 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and s. 187(5) of the BIA. As I will be referring to these provisions later, it is convenient to set them out. Rules 37.14(1) and 37.14(2) provide in part:

37.14 (1) A party or other person who,

(a) is affected by an order obtained on motion without notice;

may move to set aside or vary the order, by a notice of motion that is served forthwith after the order comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion.

[Emphasis added.]

(2) On a motion under subrule (1), the court may set aside or vary the order on such terms as are just.

Section 187(5) of the BIA states:

187 (5) Every court may review, rescind or vary any order made by it under its bankruptcy jurisdiction.

[14] Paragraph 3(a) of Campbell J.’s order expressly provided that the assignment “shall vest in the assignee … free and clear of … any claims to a customer deposit under an assigned lease”. The Registrar’s motion to vary requested the deletion of this portion of paragraph 3(a), to be replaced by:

Subject nonetheless to the claims of customers regarding the return of customers’ deposits on the expiry of their leases and pursuant to the terms of the leases.

In my view, the Registrar’s motion sought a substantive change to the order of Campbell J.

[15] The Registrar also requested a declaration that HOJ’s customers had possessory liens against their vehicles as security deposits and that they are entitled to the return of their deposits in accordance with the terms of the leases. The Registrar also requested a further declaration that the assignees are bound by the terms of the lease agreements made between HOJ and their customers for security deposits paid to HOJ. Finally, the Registrar sought an order pursuant to s. 215 of the BIA granting him and the customers leave to commence an action against the trustee for damages arising out of the assign-ment of the leases. As I have indicated, the motion judge dismissed the Registrar’s motion in its entirety.

[16] I would note that Campbell J. also ordered that service of the notice of motion and motion record were validated and any further service of the motion record on the creditors of HOJ and “any other parties in interest” be dispensed with. As well, he ordered that the trustee was authorized and directed to execute the assignment, which was appended to the order.

III

[17] In her reasons for judgment, Lax J. noted that in advance of the trustee’s motion the Registrar had received notice of the First Meeting of Creditors at which the trustee was to present its Preliminary Report. Although the Registrar failed to attend the meeting, it received the Report which disclosed that the trustee was bringing a motion for directions to permit it to assign HOJ’s interest in its portfolio of leases and conditional sales agreement to the assignees “free and clear of any and all claims”. This resulted in the motion judge finding that “the Registrar had actual notice of the motion and did not seek to assert or protect its position in the face of this.” She went on to find that “the Registrar clearly had notice of the purpose and effect of the assignment and the administrator of the Compensation Fund was informed and aware that the assignees were not taking responsibility for the security deposits.”

[18] The motion judge noted that the leases between the customers and HOJ provide that the obligation of the customers to make payments under the leases exists without regard to any claims for set-off that may be asserted against HOJ. Consequently, the contractual obligation to refund security deposits under the leases remains a debt of the bankrupt HOJ. Thus, the motion judge concluded that Campbell J.’s order “merely recognized the fact that under the leases, any assignee of HOJ would take an assignment of HOJ’s rights under the leases, but liability for [the return of] the deposits at all times remained with HOJ.”

[19] Central to the motion was whether either the customers or the Registrar had standing to move to vary Campbell J.’s order and whether the trustee acted properly in seeking the direction of the court as to whether it should execute the assignment agreements. The motion judge considered this issue from the perspective of Rule 37.14(1)(a), without any reference to s. 187(5) of the BIA. Following Ivandaeva Total Image Salon Inc. v. Hlembizky (2003), 2003 CanLII 43168 (ON CA), 63 O.R. (3d) 769 (C.A.), she held that on a Rule 37.14(1)(a) motion the moving party must establish that the order sought to be varied directly affects the rights of the moving party in respect of the proprietary or economic interests of the party. She concluded that, while the bankruptcy changed the customers’ ability to recover the deposits from HOJ thereby affecting their economic or propriety interest, the order did not affect these interests, nor did it deprive the customers of any rights. As the motion judge wrote: “The customers never had any rights to recover the deposits from the Assignees. There is nothing improper in an Order that holds the lessees to their contracts.”

[20] The motion judge discussed at some length whether the trustee acted properly in seeking the court’s direction in respect to whether it should execute the assignment agreements. In doing so, she pointed out that at the time of the bankruptcy, legal title to the vehicles was with HOJ, while the beneficial interest in the portfolio of leases had been assigned to CFI under an asset securitization agreement.

[21] In resolving this issue, the motion judge held:

I find nothing improper in the conduct of the Trustee in seeking direction from the court as to whether to execute the assignment agreements. The Order it obtained, albeit at the behest of CFI, did nothing more than reflect the existing legal position of the lessees under their leases. Nonetheless, the Trustee reserved its right under the Order to assert an interest in the proceeds realized form the portfolio by the Assignees and/or CFI.

[22] In concluding that the Registrar was not affected by the vesting order, the motion judge wrote:

There is no indication that the Legislature intended the customers to have any recourse other than their subrogated unsecured claims against the bankrupt dealer. There is no indication the Legislature intended the Registrar to be able to assert subrogated claims against the Assignees. There is no evidence that any customer, much less the Registrar, had any legitimate expectation of looking to the Assignees for payment of their deposits. The Regulation structuring the Fund provides no statutory right of set-off for unpaid security deposits. The thrust of the submissions of the moving party are to recognize such a right, disregarding the contractual terms of the leases and the Fund to which customers of a bankrupt dealer have recourse.

I conclude that the moving party has not established that it is affected by the order. There is no basis for finding that the Order should not have been made.

[23] The motion judge also dismissed the Registrar’s request under s. 215 of the BIA for leave to commence an action against the trustee, concluding:

The claims that the moving party seeks leave to assert (negligence, abuse of process and unjust enrichment) depend upon the allegation that the customers suffered harm as a result of the actions of the Trustee in seeking the Order providing for the transfer of the portfolio to the Assignees. Having concluded that the customers had no rights to set off claims for deposits against the Assignees and that the Order did not affect their rights or any subrogated rights of the Registrar, the record discloses no damages that may be asserted against the Trustee for allegedly depriving the customers of their deposits.

Having found that the conduct of the Trustee in seeking court approval was a proper discharge of his duties, the claims for negligence and abuse of process cannot possibly succeed. There can be no unjust enrichment in circumstances where the customers and Registrar suffered no deprivation. It was submitted in argument that if the customers had received notice that resulted in the Order on January 26, 2005, they might have decided to withhold the return of the vehicles or their final lease payments pending return of their deposits. To the extent it is argued that this is a deprivation, the Order does not prevent them from doing this, although it would appear that the terms of their leases may.

[24] I would add that since the hearing of this appeal, this court considered virtually the identical issue in Re the Bankruptcy of Impact Tool & Mould Inc., 2008 ONCA 187, [2008] O.J. No. 962. In this case the trustee in bankruptcy moved pursuant to s. 187(5) of the BIA to vary an order approving the sale of the bankrupt’s assets and a vesting order made on April 23, 2003 by Brockenshire J. The motion to vary was heard more than four years after the original order. It was dismissed on the basis of delay and because the trustee failed to establish any error or omission in the order. In dismissing the trustee’s appeal, this court stated at para. 8 of its endorsement:

We see no error in the motion judge’s conclusions. Under s. 187(5) of the BIA, a party may move to vary an order. However, that section cannot be used purely for the purpose of bringing an appeal out of time: Re Catalina Exploration & Development Ltd. (1981), 1981 ABCA 31, 121 D.L.R. (3d) 95 at 102-103 (Alta. C.A.). That is essentially what the trustee was attempting to do in this case. No appeal was taken from the sale approval and vesting order issued on April 23, 2003, although the trustee was appointed within a month of that date. In an earlier matter on this bankruptcy that came before this court in 2006, the court noted that no appeal had been taken from the sale approval and vesting order: (2006), 2006 CanLII 7498 (ON CA), 79 O.R. 241 at para. 19. The trustee is now seeking to appeal the order under the guise of a variation. Eliminating a critical paragraph of a vesting order four or five years after the transaction took place is not a variation, and cannot be accomplished under s. 187(5) of the BIA or the Rules of Civil Procedure.

IV

[25] In my view, the motion judge was correct in concluding that, given that their proprietary or economic rights were not directly affected by Campbell J.’s order, the Registrar and customers had no standing to move for a variation of that order under Rule 37.14(1)(a). As well, I agree with the legal analysis on which she based her finding. For the reasons given by the motion judge, I am also of the view that she was correct in rejecting the Registrar’s motion for leave to bring an action against the trustee. Moreover, there are no palpable or overriding errors in her findings of fact. In my view, the motion judge was also correct in rejecting the further relief sought by the Registrar which is outlined in paragraph 13 of my reasons. I would, therefore, dismiss the appeal. However, arising from this appeal I find that there are three matters that require comment that were not considered in the reasons of the motion judge, likely because they were not raised by counsel:

(1) Resolution of the motion to vary under s. 187(5) of the BIA;

(2) The motion to vary as an effort to avoid responsibility to repay deposits; and

(3) The Registrar’s motion is far removed from a proper motion to vary.

V

[26] As for the first matter, the Registrar’s motion to vary the order of Campbell J. was brought pursuant to both rule 37.14(1)(a) of the Rules of Civil Procedure and s. 187(5) of the BIA, which I have set out in paragraph 11 of my reasons. It would seem that the motion was argued and resolved on the application of rule 37.14(1)(a) whereas, properly, it was a s. 187(5) motion. This is because the provisions of the BIA prevail. As Rule 3 of the Bankruptcy & Insolvency General Rules, C.R.C., c. 368, stipulates, resort may be had to the ordinary procedure of the relevant province only where the BIA or the Rules fail to provide the necessary procedure. In this case, as s. 187(5) of the Act provided the necessary procedure, resort should not have been had to rule 37.14(1)(a). This was pointed out during argument to counsel for the appellants, Mr. Bennett, who suggested that it made no difference whether the motion was argued under rule 37.14(1)(a) or s. 187(5) as the test for varying an order is the same under each provision. I do not agree. It is clear from the authorities that s. 187(5) of the BIA, and its predecessors, has its own jurisprudence, quite different from, and, in my view, more restrictive than the jurisprudence of rule 37.14(1)(a).

[27] It has been said that s. 187(5) is unique to insolvency in that it allows the court to review and rescind or vary an order made by a court of co-ordinate jurisdiction, and applies to any order made in the exercise of bankruptcy jurisdiction: Fitch v. Official Receiver, [1996] 1 W.L.R. 242 (C.A.), discussing s. 375(1) of the English Insolvency Act 1986, which is virtually identical to s. 187(5) of the BIA. However, unlike rule 37.14(1), no conditions apply before resort can be had to s. 187(5). As I will explain, a motion under s. 187(5) cannot be brought as a substitute for an appeal, such as when the time to appeal has expired. An appeal is brought when it is believed that there is reversible error in the court below. A motion under s. 187(5) is essentially different. As the English Court of Appeal states in Fitch at p. 246, for the provision to apply, there must be a fundamental change in circumstances, between the original hearing and the time of the motion to vary, or evidence must have been discovered that was not known at the time of the original hearing and which could have led to a different result. Or, as the leading Canadian case has put it, the court should not hear a motion under s. 187(5) if its only purpose it to obtain an opportunity to appeal where the time to appeal has elapsed: Re Catalina Exploration and Development Ltd. (1981), 1981 ABCA 31, 121 D.L.R. (3d) 95 (Alta. C.A.), rev’g (1980), 1980 CanLII 1014 (AB KB), 35 C.B.R. (N.S.) 30 (Alta. Q.B.). By this motion and the appeal, the Registrar asks that the court rehear the trustee’s motion for directions and make another order in the place of the one already made, drawn up, entered and acted upon. This, of course, the court cannot do.

[28] A thorough and instructive review of the jurisprudence of s. 187(5) is to be found in L.W. Houlden, G.B. Morawetz & J. Sarra, Bankruptcy and Insolvency Law of Canada, 3rd ed., looseleaf, (Scarborough, Ont.: Carswell, 1993) pp. 7-20.2 to 7-24.1; 7-31 to 7-32. Among the principles governing the court’s application of s. 187(5), is that the jurisdiction given by s. 187(5) should be sparingly exercised. Although s. 187(5) contains no time limit, because bankruptcy proceedings often take place in real time, a motion to vary should be made promptly: 1064521 Ontario Ltd. (1998), 1998 CanLII 14641 (ON SC), 38 O.R. (3d) 407 (Gen. Div.). Moreover, as the court should not consider a motion to vary an earlier order on the record, the moving party should bring forward new evidence of a substantial nature that was not available at the original hearing: Re Strachan (1980), 34 C.B.R. (N.S.) 136 (Ont. S.C.). See, also, Frank Bennett, Bennett on Bankruptcy, 10th ed. (Toronto CCH Canadian, 2008) pp. 461-62. As McGillivray C.J.A. stated at p. 102 of Re Catalina in reference to the former s. 157(5) of the BIA, which is identical in wording to the existing s. 187(5):

While the language of this section is broad, it seems to me that it is designed to permit of a Judge to deal with continuing matters in the bankruptcy so as not to be bound by an earlier decision if faced by changing circumstances. Thus, while a Judge might approve the appointment of a trustee, he at a future date might alter that order by appointing more than one trustee or removing a trustee. He might refuse a discharge to a bankrupt but later, having regard to circumstances then existing, vary that order so as to permit of a discharge on terms and he might again at a future date vary that order. Similarly, the manner of remuneration might from time to time be subject to variation and review. Against this, however, there is that type of case where a final adjudication has to be made. The claim of one class of creditors over another has to have priority. The question whether a particular piece of property forms part of the bankrupt’s estate, the validity of the claim or the amount of the claim, are all matters which should be the subject of a final adjudication in respect of which an appeal with leave would lie, but surely, adjudication of claims of that sort cannot be the subject of repeated applications. There have been cases where an order disallowing a creditor’s claim has been reviewed, but new evidence was available and it was apparently very cogent evidence, but I am of the view that by and large claims capable of final determination should not be the subject of repeated applications.

[29] Even though the motion was dealt with pursuant to rule 37.14(1)(a) rather than under s. 187(5) of the BIA, in my view, had it been resolved pursuant to s. 187(5) applying the principles discussed above, the result would have been the same. The same analysis that the motion judge applied in determining that neither the Registrar nor HOJ’s customers were affected by Justice Campbell’s vesting order would apply. Applying s. 187(5) jurisprudence, the motion to vary was not made expeditiously. It was made long after the ten days in which to appeal had elapsed, giving rise to the inference that it was made because it was too late to bring an appeal. Moreover, it was not supported by new evidence of a substantial nature that was unavailable at the original hearing. Counsel for the appellants wanted the motion judge to rehear the motion heard by Campbell J.

[30] Notwithstanding liberal opportunities to appeal, our judicial system operates on the principle that final judgments are intended to be just that – final. If judgments did not, in general, have finality, the consequences would be at least as serious as the fact that an injustice may have been done. These consequences include the disturbance of the parties’ reliance on judgments and the erosion of the moral authority of the judicial system as final arbiter of legal disputes. Related to this is how promptly the objection is raised, for the parties’ reliance on a judgment and the strength of the judgment’s moral authority are to an important degree a function of the length of time during which a judgment’s finality remains in limbo. In this case, it was on September 27, 2004 that HOJ filed voluntary assignments in bankruptcy and named its trustee. The trustee’s motion for directions of October 18, 2004 was heard by Campbell J. on January 26, 2005, when he made the vesting order. The Registrar was aware of this order in early February, 2005. However, he did not issue his notice of motion to vary until many months later, and a further year and a half elapsed before the motion was heard. Thus, it has been two years since the assignees, the trustee and HOJ’s customers have acted in reliance on the reasonable view that Campbell J’s order was final and binding on all parties. Yet the Registrar asks the court, at this late date, to dismantle everything that has taken place in reliance on that order. This, in itself, would be reason enough to dismiss the appeal.

VI

[31] I will now discuss the second matter that is of concern. This appeal is about who is liable to repay the security deposits paid by individual lessees to HOJ under the terms of their leases, and spent by HOJ before its bankruptcy. It is clear that in the circumstances of this case, the primary responsibility to repay the deposits is that of HOJ, through its trustee in bankruptcy, from any surplus available after the administration of HOJ’s estate. In reality, however, it will be the fund administered by the Registrar that will pay the lion’s share of the deposits pursuant to the regulatory scheme in the Motor Vehicle Dealers Act. As the motion judge held, as a result of Campbell J.’s vesting order, the assignees are not legally liable to repay the deposits. In my view, it is clear that by its motion to vary, and by this appeal, what the Registrar has attempted to do is avoid its statutory obligation to respond to the customers’ claims for the return of the security deposits and to pass this on to the assignees by a substantive change to the vesting order of Campbell J. that it sought to obtain first under the guise of a motion to vary, and now on this appeal. Not only was the Registrar unable to accomplish this by its motion to vary for the reasons given by the motion judge, but it could not have done so because, in effect, it was asking the court to rewrite the statute.

VII

[32] I come now to the final matter of concern. Both rule 37.14(1) and s. 187(5) of the BIA use the word “vary” in relation to varying or amending an order of the court. In my view, counsel for the Registrar was misguided in believing that he could accomplish what he intended by persuading the court to vary Justice Campbell’s order. As I have pointed out in paragraph 12, the Registrar sought to replace that portion of the order that provided that the assignee had no obligation to return the customers’ security deposits with a provision requiring them to do so. The Registrar attempted to persuade the motion court and this court to reopen the motion before Campbell J. and have the court consider issues that were neither actually nor constructively involved in the order that Campbell J. gave. To do so and to substitute the change to Campbell J.’s order proposed by the trustee, would have made a substantive change to the original order. This is not within the meaning or purpose of “vary”, whether in the context of the Rules of Civil Procedure or the BIA, where the term should have the same meaning. As the few cases that have considered the meaning of “vary” indicate, the purpose of a rule empowering the court to vary or amend an order or judgment is to permit the court to rectify an order or judgment that fails to correctly state what the court actually decided or intended. The use of a motion to vary is, therefore, strictly limited to such matters of clear oversight. However, for the sake of completeness I should add that motions to vary are frequently properly used to correct clerical errors. I am concerned only with the meaning of “vary” in the context of rule 37.14(1) and s. 187(5) of the BIA, not with the circumstances that might prompt a motion to vary, such as an order or judgment granted on a motion without notice.

[33] In Mitchell v. Sparling (1909), 15 O.W.R. 37 (High Ct.), a motion was made to amend the formal judgment of the court by deleting a declaration that the parties were partners on the ground that this was not decided at trial. In allowing the motion, Riddell J. stated at p. 38:

Ainsworth v. Wilding, [1896] 1 Ch. 673, discusses the prior cases and lays down the rule (inter alia) that “when the Court itself finds that the judgment, as drawn up, does not correctly state what the Court actually decided and intended,” the Court can, upon motion, interfere after the passing and entering of the judgment: see p. 677. That is the present case; and the judgment will be amended by omitting all reference to the subject-matter of the partnership.

[34] Riddell J. expressed a similar view in Broom v. Pepall (1911), 23 O.L.R. 630 (Div. Ct.), where he held that where an order correctly set out what the court actually decided and intended to decide, there is no power in the court to vary the order upon motion after the order has been formally issued. In Prevost v. Bedard (1915), 1915 CanLII 54 (SCC), 51 S.C.R. 629, the Supreme Court of Canada was of a similar view. It held that the power of the court to amend a judgment after it has become a record of the court is limited to making the record conform to the judgment pronounced or intended to be pronounced. It does not authorize the recalling of the judgment in order to deal with a collateral matter not actually or constructively involved in the court’s decision. See also, Paper Machinery Ltd. v. J.O. Ross Engineering Corp., 1934 CanLII 1 (SCC), [1934] S.C.R. 186.

[35] In Lukow v. Trebek, 1949 CanLII 99 (ON SC), [1949] O.R. 861 (High Ct.), McRuer C.J.H.C. expressed the same opinion. In doing so, he made extensive reference to the authorities. I will refer to two passages from his reasons for judgment that set out the principles. At p. 865 he referred to what he described as the leading case with reference to the court’s jurisdiction to control its own orders: In re Swire: Mellor v. Swire (1885), 30 Ch. D. 239. He reproduced the following passage from the judgment of Cotton L.J.:

But although that is the regular course, and it is only in special circumstances that the Court will interfere with an order which has been passed and entered, except in cases of a mere slip or verbal inaccuracy, yet in my opinion the Court has jurisdiction over its own records, and if it finds that the order as passed and entered contains an adjudication upon that which the Court in fact has never adjudicated upon, then, in my opinion, it has jurisdiction, which it will in a proper case exercise, to correct its record, that it may be in accordance with the order really pronounced.

[36] Subsequently, at p. 868 McRuer C.J.H.C. added:

In Kidd v. National Railway Association (1916), 1916 CanLII 572 (ON CA), 37 O.L.R. 381 at 387, 31 D.L.R. 354, Masten J. in precise language distinguishes between altering the substance and the form of the judgment: “To alter the substance of the judgment as pronounced by the Court, whether on account of mistake in content or otherwise, is one thing. To alter the form of the judgment so as to make it conform to the decision of the Court is another. The first is to relieve one party from consent given under a misapprehension. The second is to effectuate the intention of the Court.”

[37] In this case, as there is no suggestion that Campbell J. made an order other than the one that the trustee requested and that he intended to pronounce, and in fact pronounced, the Registrar’s motion was far removed from being the proper subject matter of a motion to vary. There is no power in rule 37.14(1) or s. 187(5) of the BIA to grant the “variation” sought by the Registrar.

[38] Dictionary definitions of language contained in a statutory instrument are sometimes helpful. In consulting eight on-line dictionaries, I found that “vary” was consistently defined as “to alter, or be altered, in any manner” or “to modify or alter”. The Oxford English Dictionary, 2d ed. defines “vary” as to “make different; modify, diversify”. In Godfrey v. Ontario Police Commission (1992), 1991 CanLII 7115 (ON SC), 5 O.R. (3d) 163 at 175 (Div. Ct.), in the context of a regulation authorizing the Ontario Police Commission to “vary the punishment imposed as it considers just”, Watt J. stated: “In common parlance and usage, to ‘vary’ means to cause to change or alter, to introduce changes or alterations into something.”

[39] It is also helpful to make a brief reference to the American counterpart to rule 37.14(1), Rule 59(e) of the Federal Rules of Civil Procedure to illustrate the similarity in the two provisions and to show that modern rules of civil procedure have a mechanism to vary previous orders in appropriate circumstances. This rule provides for a motion to “alter or amend a judgment”. It is noteworthy that the American rule uses the term “alter” rather than “vary”. As I have noted, “alter” is the common dictionary meaning of “vary”. As in Ontario, the American rule contains no list of grounds for altering or amending a judgment, and case law has been left to fill that void. The American case law acknowledges four grounds that justify altering or amending a judgment: to incorporate an intervening change in the law, to reflect new evidence not available at the time of the original hearing, to correct a clear legal error, and to prevent a manifest injustice. Cases coming within these grounds include where the original judgment failed to provide for the relief that the court found a party entitled to receive. See Steven Baicker-McKee, William M. Janssen and John B. Corr, Federal Civil Rules Handbook 2008, (Minnesota: Thomson West, 2008) pp. 1026-27. I believe that what the case law in Ontario and the United States illustrates is that the terms “alter” and “vary” are largely defined by the facts of the cases in which orders or judgments have been varied.

[40] In summary, on a motion to vary, the jurisprudence clearly establishes that the court can rectify an order or a judgment that fails to correctly state what the court actually decided or ordered. On a motion to vary, the court cannot, as the Registrar sought to do in its motion, substantively change the impugned order. In this regard, the Registrar’s motion was doomed to fail from the outset. Although the motion judge decided the motion on other grounds, she could have decided it on this ground. As a matter of principle, in my view the term “vary” should be similarly interpreted under both rule 37.14 and s. 187(5) of the BIA. Moreover, considering the time requirement in rule 37.14(1) and the s. 187(5) jurisprudence, it is clear that a motion to rescind or vary an order or a judgment must be made expeditiously and, if possible, before the order or judgment has been acted on. In this case, the Registrar’s motion to vary Campbell J.’s vesting order was heard more than two years after the order, which in the interim had been acted on by the assignees and by HOJ’s customers.

VIII

[41] For the foregoing reasons, in my opinion Lax J. properly dismissed the Registrar’s motion to vary the order of Campbell J. and properly exercised her discretion in refusing the Registrar leave to commence an action against the trustee. The Registrar raised other grounds of appeal, none of which has any merit, which are outlined in paragraph 13 of my reasons. I would, therefore, dismiss the appeal.

IX

[42] The issue of costs troubles me. In my view, this is one of the rare cases in which the unsuccessful appellant should be required to pay substantial indemnity costs. I will explain what has brought me to this conclusion.

[43] It is trite to say that all costs are in the discretion of the court which has the full power in all cases to determine by whom and to what extent costs are to be paid. The discretion is exercised according to the circumstances of each particular case. Because costs orders are discretionary, they are not considered to be precedential.

[44] As I have explained in my reasons for judgment, the Registrar, under no circumstances, could have succeeded in his motion to vary Campbell J.’s order. To put it bluntly, the motion was doomed to fail, as was the appeal to this court. The respondents were obliged to defend both a hopeless motion and a hopeless appeal. The court is entitled to take this into consideration in the exercise of its discretion. In my view, the following passage from M.M. Orkin, The Law of Costs, 2nd ed., looseleaf (Aurora, Ont.: Canada Law Book, 2007), Vol. 1, p. 2-211 applies to this case:

There is, as well, a factor frequently underlying such an award, although not necessarily expressed, namely, that the circumstances of the case may be such that the successful party ought not to be put to any expense for costs.

As well, an award of costs on the solicitor-and-client scale is an important device that the courts may use to discourage harassment of another party by the pursuit of fruitless litigation.

[45] As the respondents have been put to needless expense, they are entitled to substantial indemnity costs. I would fix costs as follows: CFI - $25,000; the trustee - $22,000; the assignees - $25,000. All costs awards are inclusive of disbursements and G.S.T.

“S. Borins J.A.”

ARMSTRONG J.A. (Dissenting in part):

[46] I agree that the appeal should be dismissed for the reasons delivered by the motion judge. However, my colleague, Borins J.A., in his reasons, has addressed three matters that were not considered by the motion judge. I take issue in respect of one of the three matters. I am unable to agree with the limited scope that my colleague attaches to the word “vary”, found in rule 37.14(1) of the Rules of Civil Procedure – the rule that is in issue in this case and which was relied upon by the Registrar in seeking to vary the order of Campbell J.

[47] My colleague notes that he is “concerned only with the meaning of the word ‘vary’ in the context of rule 37.14(1) and s. 187(5) of the BIA, not with the circumstances that might prompt a motion to vary, such as an order or judgment granted on motion without notice.” My problem with this statement is that for the most part rule 37.14(1) is concerned with orders obtained on motions without notice or in respect of orders against persons who failed “to appear on the motion through accident, mistake or insufficient notice.” This is the rule that is commonly and regularly used to attack ex parte orders. In my view, it is not possible to examine the word “vary” in the rule by excluding reference to its ex parte character. I find it difficult, therefore, to ascribe a narrow definition to the word “vary” which, for the great majority of cases, if not all cases, has no application to the purpose of the rule at all.

[48] Sub-paragraph 2 of rule 37.14(1) supports this view:

(2) On a motion under subrule (1), the court may set aside or vary the order on such terms as are just. [Emphasis added.]

The phrase “on such terms as are just” is an express indication that a judge may make whatever order is appropriate to ensure that a just result is achieved. In my view, the language of subparagraph 2 does not confine the scope of the word “vary” in subparagraph 1 in the manner suggested by my colleague.

[49] While I am in agreement with my colleague that the appellant, in the circum-stances of this case, is not entitled to succeed on a motion to vary under rule 37.14(1), my colleague does not limit his analysis to this case. For that reason, I cannot agree with his conclusion concerning the limited scope of the rule.

Costs

[50] I agree with my colleague that costs are in the discretion of the court. However, I disagree that costs orders are not considered to be precedential. I further disagree that this is a case for an award of substantial indemnity costs.

[51] In my view, the observations from Orkin do not apply to this case. In particular, I do not agree that this is a case of “harassment of another party by the pursuit of fruitless litigation.”

[52] I am aware that Lax J. awarded substantial indemnity costs against the appellants because of the allegations of improper conduct levelled at the Trustee which she characterized as an “unfounded attack on the integrity and reputation of the Trustee.” While the appellants continued in this court to seek an order for leave to commence an action against the Trustee for negligence and abuse of process, this was not the central issue in the appeal. I do not believe that a second order of substantial indemnity costs in this court is appropriate in the circumstances.

[53] I would fix the costs of the respondents on a partial indemnity scale inclusive of disbursements and GST as follows:

CFI Trust, Corpfinance International Limited and CFI Leasing Limited

$14,771.11

A. Farber & Partners Inc., Trustee in Bankruptcy

$12,113.82

Lease-Win Limited, Landmark Vehicle Leasing Corporation and North York Chevrolet Oldsmobile Limited

$14,831.94

TOTAL

$41,716.87

“Robert P. Armstrong J.A.”

FELDMAN J.A. (Dissenting in Part):

[54] I have had the benefit of reading the reasons of Borins J.A. and of Armstrong J.A. on the issue of the meaning of the word “vary” in the context of Rule 37.14(1) of the Rules of Civil Procedure.

[55] I agree with Armstrong J.A. that because this is an issue that does not arise on this appeal, it is one that should not be addressed by the court, as different considerations may come into play where the original order was obtained without notice, which was not the case here.

[56] The Registrar’s motion was brought before Lax J. under Rule 37.14(1) because the Registrar was not served with the original notice of motion that resulted in the Order of Campbell J. However, Lax J. concluded that the Registrar had actual notice and elected not to appear. As a result, Rule 37.14(1) no longer applied because the original motion was not without notice.

[57] As Borins J.A. has stated, because this is a bankruptcy matter, the jurisdiction of the court to consider the motion and the appeal comes from s. 187(5) of the BIA.

[58] I would therefore dismiss the appeal for the reasons given by Borins J.A., except those found in Part VII as they relate to Rule 37.14(1). I would award costs on the partial indemnity scale.

RELEASED: May 16, 2008 (“S.B.”)

“K. Feldman J.A.”