1730960 Ontario Ltd. (Re), 2009 ONCA 720

CITATION: 1730960 Ontario Ltd. (Re) , 2009 ONCA 720

DATE: 2009-10-14

DOCKET: M37857 (C50800)

COURT OF APPEAL FOR ONTARIO

Juriansz J.A. (In Chambers)

In the Matter of the Notice of Intention to Make A Proposal of 1730960 Ontario Ltd.

Brett D. Moldaver, for 2205305 Ont. Inc.

Howard F. Manis, for Ira Smith Trustee & Receiver Inc.

Doug Bourassa, for Portuguese Canadian Credit Union

David Jackson, for Pocrnic Realty Advisors Inc. in Trust

C. Peddle, for Gary Neumann

Ahmed Shafey, for some secured creditors

Heard: July 31, 2009

COSTS ENDORSEMENT

[1] 2205305 Ontario Inc. ("220") was unsuccessful on its urgent motion brought on short notice to stay the order of Cumming J. dated July 10, 2009 approving the sale of certain properties to Pocrnic Realty Advisors Inc. in Trust by a receiver appointed pursuant to the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. The respondents are entitled to their costs of the motion.

[2] The respondents seek an order that Romspen Investment Corporation ("Romspen") be made liable for the costs fixed against 220. They submit that Romspen was "at all times the real moving party". They allege that Romspen incorporated 220 for the single purpose of attempting to purchase the property from the receiver. Romspen had been a participant throughout the process and was to provide 75% of the purchase monies in the transaction. The respondents point out that Romspen's Managing General Partner, the affiant for all of 220's affidavits, referred to Romspen and 220 interchangeably. They submit that it was Romspen and not 220, that had the largest economic stake in the outcome. They submit that costs assessed against 220 would be an "empty order" as 220 has no assets. The receiver advised Romspen, prior to the motion being brought, that he would seek costs against both 220 and Romspen.

[3] Counsel for 220 concedes that Romspen owns 100% of the shares of 220 but argues that there is no basis for making a costs order against Romspen.

[4] The respondents rely on the decision of Cumming J. in Party City Ltd., Re, 2002 49581 (ON SC), 32 C.B.R. (4th) 286, in which he awarded costs against a non-party. In Party City, a creditor brought a motion to set aside an order of the court approving the receiver's sale of the property of the bankrupt. The respondents rely on Cumming J.'s comment that the creditor brought the motion "as a nominee and surrogate" for an unsuccessful bidder who was "the real moving party to the motion at hand", and that the moving party may have been "simply a shell corporation and not financially able to pay an adverse costs award".

[5] It seems to me the respondents read Cumming J.'s decision in Party City too broadly. The moving party in that case, a creditor, had attacked the personal integrity of the receiver as well as the integrity of the bidding process. The moving party had acted as the "nominee" and "surrogate" of the "real moving party", an unsuccessful purchaser, in putting forward what Cumming J. found was in substance a meritless allegation of actual fraud on the part of the receiver. Cumming J.'s passing remark that the moving party may have been "simply a shell corporation and not financially able to pay an adverse costs award" was not part of the basis for his decision.

[6] The standard for awarding costs against a non-party is set out in Dallas/North Group Inc., Re, 2001 3636 (ON CA), [2001] O.J. No. 2743 (Ont. C.A.), which Cumming J. relied upon in Party City. In Dallas this court upheld the order of the bankruptcy judge awarding costs against non-parties. The bankruptcy judge had concluded that the bankruptcy proceeding had been brought for an improper collateral purpose. The true purpose of the proceeding was not to attain the distribution of assets but to remove an officer and director of a third-party company and reduces shareholdings. Labrosse J. A. noted at para. 6:

The trial judge further concluded that it was apparent that there had been a concentrated effort orchestrated by [the non-parties] of bullying, harassment and intimidation against [one of the litigation parties] 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 [one of the litigation parties] and [Dallas/North Group Inc.] constituted an abuse of process and was orchestrated by [the non-parties]. The trial judge found it most disturbing that the misconduct of [the non-parties] was carried out using the court system as a vehicle and that a lawyer participated in the scheme.

[7] Labrosse J. A. made clear that the abuse of the bankruptcy process was key to the decision:

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.

[8] The case before me is quite different. Accepting that 220 was incorporated for the specific purpose of purchasing the property of the bankrupt, its bringing of the motion is consistent with attempting to achieve its corporate purpose. The contention that 220 was acting as a nominee or surrogate of sole shareholder, Romspen, is simply an attempt to lift the corporate veil. Cost awards against non-parties always involve the exceptional exercise of judicial discretion. Absent fraud, abuse of the court's process in general and the bankruptcy process in particular to serve a collateral purpose or similar wrongdoing, there is no basis for looking behind a moving party's corporate legal personality to award costs against its parent.

Conclusion

[9] The circumstances of this case do not fall into that exceptional class of cases where a costs order may be made against a non-party. In this case the moving party, a corporation, brought a motion that it should have recognized was doomed to fail. If the respondents believed it would be unable to pay the cost awards that were inevitable, they could have sought security costs before the motion proceeded.

[10] Costs are fixed on a partial indemnity scale as follows:

$2500.00 in favour of the Receiver

$1500.00 in favour of Portuguese Canadian Credit Union

$1500.00 in favour of Pocrnic Realty Advisors Inc. in Trust

$1000 in favour of the other responding parties who attended on the motion.

[11] All amounts include disbursements and G.S.T.

"R.G. Juriansz J.A."