1318847 Ontario Limited v. Laval Tool & Mould Ltd.
[Indexed as: 1318847 Ontario Ltd. v. Laval Tool & Mould Ltd.]
Ontario Reports Court of Appeal for Ontario Strathy C.J.O., LaForme and van Rensburg JJ.A. March 3, 2017
134 O.R. (3d) 641 | 2017 ONCA 184
Case Summary
Civil procedure — Costs — Costs against non-party
Court having inherent jurisdiction to order costs against non-party who commits abuse of process. That jurisdiction not limited to cases where non-party puts forward "person of straw" to avoid liability for costs. Award of costs against non-party appropriate where that person used his company as plaintiff because of misguided impression that he was entitled to assert personal claim through any corporate entity with which he was associated.
Two separate actions were commenced for damages for breach of contract and unjust enrichment arising out of tax consulting services allegedly performed by A for the defendant. The first action was commenced by 131, a company of which A was a principal and shareholder, as the sole plaintiff. The second action was commenced by A in his own name and 131's name. The two actions were tried together. The trial judge found that there was no evidence that the defendant had contracted with either 131 or A, or that 131 had ever performed any services for the defendant. Rather, A had decided to invoice the defendant through 131 for his own personal tax purposes, and had used 131 as a plaintiff because of his misguided view that he could advance a personal claim through any corporate entity with which he was associated. Both actions were dismissed. The trial judge refused to award costs against A in the 131 action, as the court's jurisdiction to award costs under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 is restricted to orders against parties to the proceeding, and the court's inherent jurisdiction to award costs against a non-party is restricted to cases where the non-party puts forward a "person of straw" in order to insulate the non-party from costs. A's motive in using 131 as a plaintiff was not to protect himself from a potential costs award. The defendant appealed the costs order.
Held, the appeal should be allowed.
The court's inherent jurisdiction to control its own process permits an order of costs against a non-party who commits an abuse of process. That jurisdiction is not restricted to "persons of straw" situations. The language of s. 131 of the Courts of Justice Act does not exclude inherent jurisdiction to order costs against a non-party who commits an abuse of process. In this case, the trial judge erred by failing to consider whether he had inherent jurisdiction to order costs against A because A had committed an abuse of process. It was an abuse of process for A to bring the action with 131 as the nominal plaintiff. The proceeding was fictitious, as there was no evidence that A or 131 ever performed services for the defendant. The effect was that the defendant had to defend two equally fruitless proceedings and incur the costs of each by retaining separate counsel. The matter should be remitted to the trial judge for the purpose of fixing the costs as against A personally.
Statutes and Regulations Referred To
- Constitution Act, 1867 (UK), 30 & 31 Vict., c. 3, s. 96
- Court of Queen's Bench Act, C.C.S.M., c. C280, s. 96(1)
- Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 105, 131
- Judicature Act, R.S.O. 1897, c. 51, s. 119
- Judicature Act, R.S.O. 1914, c. 56, s. 74
- Judicature Act, R.S.O. 1970, c. 228, ss. 27, 82
- Supreme Court Act, R.S.B.C. 1996, c. 443, s. 3
- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 57.01(1), 57.07
APPEAL, with leave, from the costs order of Verbeem J. of the Superior Court of Justice dated November 5, 2015.
James K. Ball, for appellant.
Matthew Todd, for respondent 1318847 Ontario Limited and for Emmanuel Azzopardi.
The judgment of the court was delivered by
STRATHY C.J.O.:
A. The Issue on the Appeal
[1] What is the scope of the court's jurisdiction to order costs against a non-party? Is it confined to cases where a non-party puts forward a "person of straw" to avoid liability for costs, or does the court have broader jurisdiction?
[2] For the reasons that follow, I conclude that the court's inherent jurisdiction to control its own process permits it to order that costs be paid by a non-party. That jurisdiction is not limited to the "person of straw" scenario or by s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 ("CJA"). I discuss the scope of the court's jurisdiction below.
B. The Litigation at Issue
[3] 1318847 Ontario Limited ("131"), and its principal and shareholder, Emmanuel Azzopardi, commenced two separate actions against Laval Tool & Mould Ltd. ("LTM"), claiming damages for breach of contract and unjust enrichment arising out of tax consulting services allegedly performed by Azzopardi for LTM. LTM was a family business, founded by Azzopardi's late father and operated by some of his siblings.
[4] The first action was commenced by 131 as the sole plaintiff. In its defence, LTM denied that it had contracted with either 131 or Azzopardi and denied that either had performed tax services for it.
[5] Azzopardi commenced a second action, in both his own name and 131's name, alleging the same causes of action and claiming he was entitled to compensation if 131 was not successful in the first action.
[6] The two actions were tried together. The defendants retained separate counsel in the two actions.
[7] The trial judge found no evidence to support the allegations that LTM had contracted with either 131 or Azzopardi, or that 131 had ever performed any services for LTM. The only connection between 131 and LTM was Azzopardi's decision to invoice LTM through 131 for his own personal income tax purposes.
[8] The use of 131 as a plaintiff was based on Azzopardi's mistaken view that he could advance a claim for tax services performed in his personal capacity through any corporate entity with which he was associated.
[9] Nor was either plaintiff entitled to assert a claim based on the principles of quantum meruit and unjust enrichment. The majority of the claims in both proceedings were, in any event, time-barred.
[10] The trial judge therefore dismissed both actions. He invited written submissions on costs and asked counsel to address LTM's request that the costs of the first action, in which 131 was the sole plaintiff, be awarded against Azzopardi personally. He also asked for submissions on whether, and to what extent, LTM's choice to retain separate counsel in the two proceedings should be taken into account in the quantum of costs.
C. The Trial Judge's Reasons on Costs
[11] The trial judge ultimately refused to order costs against Azzopardi. He noted that the court's jurisdiction to make costs orders under s. 131 of the CJA is restricted to orders against parties to the proceeding: Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., [1972] 3 O.R. 199, at p. 207 O.R. He acknowledged, however, at para. 34 of his reasons, that costs may be awarded against a non-party where "the non-party is the real litigant who, in order to avoid liability for costs, puts forth a 'man of straw' to prosecute the litigation" (emphasis in original). He referred to Rockwell, at p. 211 O.R.; Television Real Estate Ltd. v. Rogers Cable T.V. Ltd., 34 O.R. (3d) 291, at pp. 295-96 O.R.; and Middlesex Condominium Corp. No. 232 v. Bodkin, 2014 ONSC 106, at para. 27.
[12] However, the trial judge held that 131 was not a person of straw put forward by Azzopardi to protect himself from costs. Rather, it was a plaintiff as a result of Azzopardi's "misguided view" that he could assert a personal claim against LTM through his corporation. Based on that "misguided view", Azzopardi caused 131 to issue an invoice to LTM for compensation for tax services he allegedly performed in his personal capacity. The invoice was issued at a time when litigation and potential costs consequences were not in contemplation, and it was issued through 131 "in order to secure a tax advantage", not to insulate Azzopardi from a potential costs award.
[13] The trial judge concluded that Azzopardi's motive in causing 131 to commence the action was not to avoid liability for costs. It was, therefore, inappropriate to make a non-party costs order against him in the 131 action.
D. The Parties' Submissions
(1) Appellant's Submissions
[14] The appellant submits that the standard of review of the trial judge's costs judgment is correctness because he failed to consider or misapplied the legal criteria defining his discretion to order costs against a non-party: see British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, at para. 43; and Housen v. Nikolaisen, 2002 SCC 33, at para. 31.
[15] The appellant submits that the court's jurisdiction to order costs against a non-party is not limited to the "person of straw" scenario. It relies on Curry v. Davison, [1922] O.J. No. 66, 23 O.W.N. 3 as support for the proposition that a court has jurisdiction to order non-party costs without having to apply the "person of straw" test.
[16] Thus, the appellant submits that the trial judge erred in confining his analysis to the purpose underlying Azzopardi's use of 131 to litigate his claim. Instead of focusing on whether Azzopardi's purpose was to avoid liability for costs, he should have considered the fact that Azzopardi orchestrated a fictitious claim that he advanced through 131 for his own financial benefit.
[17] Furthermore, according to the appellant, policy reasons favour making costs awards against a non-party in broader circumstances than those captured by the "person of straw" test. The court can "disregard the separate legal personality of a corporate entity" where it is "being used as a shield for fraudulent or improper conduct": Transamerica Life Assurance Co. of Canada v. Canada Life Assurance Co., 28 O.R. (3d) 423, at pp. 433-34 O.R., affd [1997] O.J. No. 3754, 74 A.C.W.S. (3d) 207 (C.A.). Holding Azzopardi liable for costs is appropriate because he used 131 to advance a fictitious claim.
(2) Respondent's Submissions
[18] The respondent submits that the trial judge committed no legal error in refusing to order non-party costs and that his costs decision should be afforded deference, citing Housen, at para. 3; Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, at para. 27; McNaughton Automotive Ltd. v. Co-Operators General Insurance Co., 2008 ONCA 597, at para. 27; and Feinstein v. Freedman, 2014 ONCA 205, at para. 52.
[19] The respondent submits that the "person of straw" test exhausts the considerations that a court can take into account to order non-party costs. The test in this form has been applied numerous times by lower courts: see Middlesex Condominium, at para. 27. No decision following either Rockwell or Television Real Estate has expanded the scope of the court's jurisdiction in this regard.
[20] According to the respondents, Curry does not assist the appellant because in Rockwell and Television Real Estate, the court would have been aware of Curry in formulating the test for non-party costs. Curry is also distinguishable from the present case because in Curry the non-party admitted to being the active promoter of the proceeding, whereas no such admission was made by Azzopardi in the case at hand.
[21] The respondents maintain that the trial judge did not err by applying the "person of straw" test because at trial LTM had submitted that he should apply it. It is only now, on appeal, that LTM submits that the trial judge should have considered the purportedly fictitious and improper claim. The trial judge cannot be faulted for applying the law that he was initially asked to apply.
E. Analysis
(1) Discussion
(i) The Decisions in Sturmer
[22] Section 131(1) of the CJA provides:
131(1) 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] As I will explain, this provision has been interpreted as conferring statutory jurisdiction on courts to order costs against a non-party in specified circumstances, but there has been considerable ambiguity in the case law as to whether the court also possesses inherent jurisdiction to order non-party costs.
[24] I will first discuss the case law and, in the process, expose the ambiguity. I will then disambiguate the two sources of the court's jurisdiction to order non-party costs and explain how they interact and should be respectively exercised.
[25] The seminal decisions on non-party costs arose out of Sturmer and Beaverton (Town) (Re) (1911), 25 O.L.R. 190. They have been followed by courts across the country, including the Supreme Court of Canada: see Young v. Young, [1993] 4 S.C.R. 3, at p. 138 S.C.R.; 269335 Alberta Ltd. v. Starlite Investments Ltd., [1987] A.J. No. 434, at p. 144 Alta. L.R.; Anchorage Management Services Ltd. v. 465404 B.C. Inc., 1999 BCCA 771, at paras. 20-22; Eastern Canada Coal Gas Venture Ltd. v. Cape Breton Development Corp., [2002] N.S.J. No. 465, at para. 47; and Conversions by Vantasy Ltd. v. General Motors of Canada Ltd., 2003 MBQB 263, at para. 22.
[26] Henry Sturmer had brought an application to quash a local bylaw on the grounds that several individuals who voted in its favour were not qualified to vote. The Town of Beaverton brought a motion for security for costs.
[27] In allowing the motion, Middleton J., sitting in Weekly Court, found that Sturmer's application was instigated by two hotel keepers named Overend and Hamilton, who, to avoid liability for costs, put Sturmer forward as the applicant and became responsible to the lawyer who acted for Sturmer. Middleton J. stated, at p. 190 O.L.R., that "[t]he court has inherent jurisdiction to prevent abuse of its process, and, as part of this jurisdiction, will stay proceedings, as being taken against good faith, when a man of straw is put forward by those really litigating".
[28] Overend and Hamilton paid security for costs into court. Sturmer's application was heard and dismissed, as was an appeal to the Divisional Court: see [1911] O.J. No. 557, 19 O.W.R. 255 (H.C.J.); and (1911), 24 O.L.R. 65 (Div. Ct.). The costs payable to Beaverton exceeded the amount paid into court. Beaverton brought a motion to have the excess costs paid by the non-party Hamilton.
[29] Chancellor Boyd made the non-party costs order: (1911), 25 O.L.R. 190 (H.C.), supra. He wrote, at p. 192 O.L.R., that under s. 119 of the Judicature Act, R.S.O. 1897, c. 51, there was "ample jurisdiction to deal with costs: full power is given to determine by whom and to what extent costs are to be paid". He added, however, that "[t]here is inherent power in the Court to make a person who has set the Court in motion pay the costs of his unsuccessful application, and this though the person be not formally a party, but one who is the instigator and supporter of the movement". He continued, at pp. 192-93 O.L.R., that "every court has inherent jurisdiction, independently of any statute, to order costs to be paid by anyone who puts it in motion wrongly in a fruitless and unjustifiable application" (emphasis added).
[30] The Divisional Court dismissed an appeal from Chancellor Boyd's decision: (1912), 25 O.L.R. 566 (Div. Ct.). Clute J. said, at p. 571 O.L.R:
I agree with the Chancellor that, under the Judicature Act, there is now ample jurisdiction to deal with costs, full power being given to determine by whom and to what extent costs are to be paid: sec. 119; and in a case of this kind I am of the opinion that, where the real party litigant puts forward another person in whose name proceedings where taken, the Court has jurisdiction to impose costs against the real litigant.
[31] Middleton J., now sitting on appeal, said, at p. 572 O.L.R.:
It is quite true that the jurisdiction of the Common Law Courts to award costs must, in general, be found in some statute; but it is equally a recognized exception to this general statement that the Common Law Courts always had the power to award costs against one unsuccessfully invoking the aid of its process . . . And the Court always had the power to award costs against the real applicant when the motion was made by him in the name of a man of straw for the purpose of avoiding liability.
(Citations omitted)
He continued, at p. 576 O.L.R.:
But, quite apart from any consideration of the law and practice before the Judicature Act as now amended, I think that Act makes our jurisdiction clear. In addition to the power originally conferred, which made all costs "in the discretion of the Court," the Court now has "full power to determine by whom and to what extent such costs are to be paid."
(Citations omitted)
[32] Hamilton brought a motion for leave to appeal to the Court of Appeal, which was dismissed: (1912), 25 O.L.R. 577 (C.A.). He submitted that, even if he instigated the proceedings for his own benefit, the courts had neither statutory nor inherent jurisdiction to order costs against him. Moss C.J.O. stated, at p. 578 O.L.R.:
It is not necessary to express or form an opinion at present as to the effect, if any, of the provisions of the Judicature Act . . . in the matter of enlarging the powers and jurisdiction of the Court as regards directing payment of costs by persons not parties to the original proceeding, though it may well be that such is the case.
He held that "objections founded on technical reasons are no longer permitted to prevent the Court from dealing, so far as costs are concerned, with one who has so intervened as to make himself the substantial though not the ostensible party".
[33] The decisions in Sturmer were followed in Curry. The defendant brought a motion for an order requiring John Curry, the brother of the plaintiff, Joseph Curry, to pay the defendant's costs in the action. John Curry admitted on cross-examination that he was directing the action for his brother and other family members. Kelly J. held, at p. 4 O.W.N., that John Curry was the "active promoter of the litigation, and in some way personally interested therein, though not on the record as a party". He concluded that s. 74 of the Judicature Act, R.S.O. 1914, c. 56 "gave a very wide discretion to the Court to declare by whom and to what extent costs should be paid". The Sturmer decisions, "especially the remarks of Moss, C.J.O.", were also "ample authority" for ordering non-party costs.
(ii) Commentary on the Sturmer Decisions
[34] As I read the Sturmer decisions, none of the judges who addressed the issue came to a definitive conclusion as to whether the court's jurisdiction to award non-party costs derived solely from statute or from its inherent jurisdiction to prevent "abuse of process" proceedings taken "against good faith" or "fruitless and unjustifiable" litigation. Chancellor Boyd and Middleton J. held that jurisdiction was imparted by both these sources. Moss C.J.O. stated that it was unnecessary to decide the point. In Curry, Kelly J. perpetuated the ambiguity by relying on the Judicature Act to order non-party costs and on Moss C.J.O.'s reasons in Sturmer, which did not resolve the ambiguity.
[35] What does emerge from the Sturmer decisions is a test for awarding non-party costs, even though the source of jurisdiction exercised in applying this test is unclear. The judges saw the test as applying where a named party of record is merely a "man of straw", or the "formal" or "ostensible" litigant, while the non-party is the "real" or "substantial" litigant who "set in motion", "supported", "instigated" or "actively promoted" the litigation, "putting forward" the named party in its own place "for the purpose of avoiding liability".
[36] It is preferable to refer to the test as the "person of straw" test, as Sharpe J. (as he then was) did in Scintilore Explorations Ltd. v. Larche, [2001] O.J. No. 2234, at para. 17.
(iii) The Decisions in Rockwell and Television Real Estate
[37] Rockwell is the first contemporary decision of this court dealing with non-party costs. The trial judge awarded costs against Kelner, the principal of the plaintiff corporation, after dismissing the plaintiff's action arising out of a disputed transaction for the purchase and sale of land. Kelner appealed, and the defendant moved to quash the appeal on the ground that Kelner had no right of appeal and did not obtain leave from this court.
[38] The defendant submitted that the trial judge exercised discretion in ordering non-party costs under s. 82 of the Judicature Act, R.S.O. 1970, c. 228, which had virtually identical language to s. 131(1) of the current CJA. Section 27 provided that no costs order "left to the discretion of the court" was appealable without leave.
[39] Arnup J.A. held that the trial judge did not have such discretion. He stated, at p. 207 O.R., that in s. 82 the term "by whom" in the phrase "the court or judge has full power to determine by whom and to what extent the costs shall be paid" should be interpreted to mean "by which of the parties to the proceeding before the court or judge'" (emphasis added). An unrestricted interpretation would lead to "obvious absurdities", authorizing a court to order costs against a "stranger' to the proceedings" who has "no connection whatever" with them, such as "someone who happened to be sitting in the Court-room": pp. 204, 206 O.R.
[40] Arnup J.A. noted that an appeal lay to the Court of Appeal without leave from a costs order that a judge had no jurisdiction to make. From this premise, he concluded that Kelner had a right to appeal on the ground that the trial judge lacked jurisdiction under s. 82 to order costs against him.
[41] He held that the Sturmer decisions were consistent with this conclusion because, "throughout all the proceedings in [Sturmer], the view was taken by all of the Judges who heard it that the applicant in the proceedings to quash a by-law was not the true applicant but was put forward by two others, who themselves had status to bring the proceedings, but who put forward a 'man of straw'": pp. 209-10 O.R. Sturmer was "express authority for the proposition that under s. 82, the Court has jurisdiction to award costs against 'the real litigant', who had put forward a 'man of straw' in his desire to avoid becoming liable for costs": p. 211 O.R.
[42] Television Real Estate is the second significant post-Sturmer decision of this court. The plaintiff corporation sued the defendant after the parties' joint venture failed. The trial judge dismissed the action and ordered costs against Young and Molls, two directors of the plaintiff. The non-parties appealed, claiming that the trial judge had no jurisdiction under s. 131(1) of the CJA to order costs against them.
[43] Finlayson J.A. noted, at pp. 295-96 O.R., that, because this court in Rockwell interpreted the predecessor to s. 131(1) as limiting the court's jurisdiction to order costs to orders against parties, the trial judge had no statutory jurisdiction to order costs against Young and Molls. However, he recognized, at p. 296 O.R., that the "person of straw" test from Sturmer was "an exception to the salutary rule in Rockwell". He stated, at pp. 296-97 O.R.:
Accordingly, in order to bring the appellants within the exception of Sturmer as applied in Rockwell, it was incumbent upon the respondent to show (1) that the appellants had status to bring the action against Rogers Cable themselves; (2) that TVR was not the true plaintiff and (3) that TVR was a "man of straw" put forward to protect the appellants and presumably Burry from liability for costs.
[44] In both Rockwell, at p. 213 O.R., and Television Real Estate, at p. 300 O.R., this court held that the trial judges acted without statutory jurisdiction by ordering non-party costs because the "person of straw" test was not satisfied.
(iv) Commentary on Rockwell and Television Real Estate
[45] Rockwell and Television Real Estate establish that s. 131(1) of the CJA confers jurisdiction to order non-party costs only if the "person of straw" test is met. If a court makes such an order when the test is not met, it exceeds its statutory jurisdiction: see, also, Elliott v. Toronto (City), 43 O.R. (3d) 392, at p. 414 O.R.; and Rooney (Litigation guardian of) v. Graham, 53 O.R. (3d) 685, at para. 15.
[46] Section 131(1) authorizes costs awards against parties only. The "person of straw" test recognizes that the court can look behind a named party to order costs against the real party who instigated the litigation. In this circumstance, it is as if the real promoter is, in fact, the "party" captured within the jurisdictional ambit of s. 131(1), and the court can trace responsibility for the costs created by the litigation to that party.
[47] But Rockwell and Television Real Estate do not dispel the ambiguity as to whether the court also has inherent jurisdiction to order non-party costs. The discussion of the "person of straw" test in these decisions only takes place within the context of explaining the court's statutory jurisdiction under s. 131(1) of the CJA. Arnup J.A. and Finlayson J.A. each held that the "person of straw" scenario constitutes an exception to the rule that s. 131(1) only captures parties. I note that, in each case, the judges also adopted statements from Sturmer that the court has inherent jurisdiction to order costs against non-parties who commit an abuse of process or who advance fruitless and unjustifiable litigation: see Rockwell, at pp. 210-11 O.R.; and Television Real Estate, at p. 296 O.R.
(v) Other Decisions Following Sturmer
[48] Other decisions of this court have not resolved the ambiguity. They suggest that the power to order non-party costs is founded on the court's inherent jurisdiction to protect against abuse of process or the improper conduct of litigants.
[49] In Alexanian v. Dolinski, 2 O.R. (2d) 609, this court overturned a trial judge's decision to order non-party costs. McGillivray J.A. stated, at p. 625 O.R., that the order would have been warranted if "some gross misconduct" on the non-party's part was shown, but concluded it was not. He went on, at p. 626 O.R., to consider the "person of straw" test as a separate inquiry into whether non-party costs were appropriate.
[50] In Dallas/North Group Inc. (Bankrupt) (Re), [2001] O.J. No. 2743, this court affirmed the decision of a bankruptcy judge to order non-party costs. A company called Ecology petitioned Ted Pangia into bankruptcy after a barrage of proceedings against him based on alleged outstanding debts. There was no evidence of the alleged debts and there was evidence that two individuals, Mazza and Axton, initiated the petition for the purpose of removing Pangia as the officer and director of Ecology and to reduce his shareholdings. Labrosse J.A. stated, at para. 13, that the non-parties did not put Ecology forward as a "person of straw", and that, instead, "the principles that are applicable in the present case are principles about costs involving duplicity and abuse of the Court". He held that the severe financial and reputational consequences to a person petitioned into bankruptcy justified costs against those who misuse a bankruptcy court in this fashion.
[51] In St. James' Preservation Society v. Toronto (City), 2007 ONCA 601, [2007] O.J. No. 3293, this court overturned a trial judge's decision to order non-party costs against Grange and Currie, directors of the St. James' Preservation Society. The society brought an unsuccessful application to quash Toronto bylaws as violating the terms of a trust with respect to property on which St. James Cathedral was located. Although Weiler J.A. held that Grange and Currie did not engage in misconduct, she stated, at para. 52, that "[t]he court clearly has authority, derived from its inherent jurisdiction to prevent an abuse of process, to award costs against a non-party who has proved to be the real person controlling the litigation but has put forward a 'man of straw' to avoid liability for costs or other reasons".
(vi) Other Provinces
[52] The ambiguity in the Ontario cases as to whether jurisdiction to order non-party costs is statutory, inherent, or both, has not developed in British Columbia.
[53] Section 3 of the Supreme Court Act, R.S.B.C. 1996, c. 443, provides:
3(1) The Chief Justice, Associate Chief Justice and judges have all the powers, rights, incidents, privileges and immunities of a judge of a superior court of record, and all other powers, rights, incidents, privileges and immunities that on March 29, 1870, were vested in the Chief Justice and the other justices of the court.
This provision preserves the historical inherent jurisdiction of the British Columbia Supreme Court. British Columbia courts have interpreted this provision as permitting them to invoke inherent jurisdiction to make costs awards. In Oasis Hotel Ltd. v. Zurich Insurance Co., [1981] B.C.J. No. 690, Lambert J.A. wrote, at p. 233 B.C.L.R.:
In England and in Ontario the powers of the superior courts of England and Ontario to award costs have been set out in statutory form. It may be that the statutory powers of those courts have replaced their ancient powers. However that may be, it is not the case in British Columbia. The full powers of the High Court of Chancery and the ancient courts of common law have descended to us, unimpaired.
(Citations omitted)
[54] Amendments made in 1990 to the Supreme Court Rules suggest that in British Columbia the court may now have statutory jurisdiction to order costs: see Gichuru v. Smith (c.o.b. Howard Smith & Co.), 2014 BCCA 414, 65 B.C.L.R. (5th) 72, at paras. 97-98. However, inherent jurisdiction has continued to be invoked in respect of non-party costs: Le Soleil Hospitality Inc. v. Louie, 2011 BCCA 305, 308 B.C.A.C. 122, at para. 125; and Windsor Gold Mining and Exploration Inc. v. Laprise, 2015 BCSC 1843, [2015] B.C.J. No. 2191, at para. 28. British Columbia courts have ordered such costs where necessary to denounce a non-party's fraudulent conduct, abuse of process, or gross misconduct in the commencement or conduct of litigation, in addition to situations where the "person of straw" test from Sturmer is met: Anchorage, at paras. 25, 27; Perez v. Galambos (c.o.b. Galambos & Co.), 2008 BCCA 382, 83 B.C.L.R. (4th) 201, at para. 17; and Animal Welfare International Media Inc. v. W3 International Media Ltd., 2016 BCCA 372, 90 B.C.L.R. (5th) 96, at paras. 54-58.
[55] The leading case is Oasis Hotel. The plaintiff hotel company was denied indemnification from the defendant insurers under an insurance contract between the parties after the plaintiff's hotel burned down. It was controlled by one Surowiec, who set fire to the hotel to access the insurance funds. The plaintiff was insolvent, and the defendants sought non-party costs against Surowiec. The British Columbia Court of Appeal accepted that Surowiec attempted to defraud the defendants and initiated the court's processes as an instrument of his fraud. Lambert J.A. stated, at p. 237 B.C.L.R.:
I conclude that there is no authority in Canada that either binds me or persuades me to the conclusion that in a case where the court is made the instrument to perpetrate a fraud the court can not award the costs of the proceedings that are instigated as part of the fraud to be paid by the active mind that put the fraud into effect and directed the institution of the court proceedings.
Lambert J.A. concluded that there was inherent jurisdiction to order non-party costs in light of Surowiec's fraudulent conduct, writing, at p. 238 B.C.L.R., that "[t]he principles that are applicable are principles about costs in a case involving duplicity and abuse of the court".
[56] Alberta courts have also relied on inherent jurisdiction to order non-party costs to deter abuse of process, fraud or gross misconduct, as well as in the "person of straw" scenario: Starlite Investments, at p. 144 Alta. L.R.; 20th Century Television & Appliances Ltd. v. Midnapore Property Investments Ltd., 1991 ABCA 328, at p. 114 A.R.; 358427 Alberta Inc. v. Monenco Advisory Services Ltd., 1998 ABQB 16, at para. 24; Harris Scientific Products Ltd. v. Araujo, 2005 ABQB 850, at paras. 20-24; Chapman Management & Consulting Services Ltd. v. Kernic Equipment Sales Ltd., 2006 ABQB 227, at para. 25; and Ernst & Young Inc. v. Central Guaranty Trust Co., 2010 ABQB 26, at paras. 101-10.
[57] In Manitoba, s. 96(1) of The Court of Queen's Bench Act, C.C.S.M., c. C280 provides:
96(1) Subject to the provisions of an Act or the rules, the costs of or incidental to, a proceeding, or a step in a proceeding, are in the discretion of the court and the court shall determine liability for costs and the amount of the costs or the manner in which the costs shall be assessed.
Manitoba courts have interpreted s. 96(1) as conferring jurisdiction to order costs against parties only and regard the jurisdiction to order non-party costs as inherent. They have read Rockwell and Television Real Estate as establishing the "person of straw" scenario, not as an exception to the statutory rule, but as one factor to consider when exercising inherent jurisdiction, in addition to abuse of process or other misconduct: see Kowalchuk v. Adduri, 2000 MBQB 9, at paras. 9-22; and Conversions by Vantasy, at paras. 20-31.
(vii) Conclusion on Past Jurisprudence
[58] Upon review of the case law, I conclude that since Sturmer it has always been acknowledged that the court has inherent as well as statutory jurisdiction to order non-party costs. In my view, however, it would bring clarity to the law on non-party costs in Ontario to disambiguate the two sources of the court's jurisdiction to order such costs. I turn next to this task.
(2) The Test for Non-Party Costs
(i) Statutory Jurisdiction
[59] Any assessment of whether it is appropriate to order non-party costs must begin by considering the court's statutory jurisdiction under s. 131(1) of the CJA. This provision limits the court's discretion to order costs against the named parties unless the "person of straw" test is satisfied.
[60] The "person of straw" test is satisfied if
(1) the non-party has status to bring the action;
(2) the named party is not the true litigant; and
(3) the named party is a person of straw put forward to protect the true litigant from liability for costs.
[61] The proper inquiry under the test is whether the intention, purpose or motive of the non-party in putting the named party forward was to avoid liability for costs. The named party must have been "injected into the situation for the purpose of providing a costs screen" or "for the purpose of insulating a non-party from potential cost liability": see Double Hitch Enterprises Ltd. (Receiver of) v. National Hockey League, [1994] O.J. No. 1189, at para. 2; and Truksa v. Dziemianczuk, [2009] O.J. No. 1859, at para. 22, cited in Hazelwood v. Hazelwood, 2013 ONSC 25, at para. 12.
[62] I agree with the comment of Smith J. in Monenco, that "[o]ne can envision many reasons for litigating with a so called man of straw as the party, which do not include avoiding an award of costs and which include the enforcement of legitimate legal rights": para. 22. For example, Smith J. refers to church-backed proceedings -- where "the church's principles are the real issue and motivating force behind the litigation" as potentially justifying an award of costs against a non-party, while "[m]ere financial aid by the church . . . does not amount to the authority required to comply with the real promoter test".
[63] In the same vein, the "person of straw" test for statutory jurisdiction to order non-party costs does not allow the court to award costs against a corporate officer, director, shareholder or principal of a corporation merely because that person caused the corporation to commence litigation as the named party or because the corporation is without assets: see Rockwell, at p. 212 O.R.; Television Real Estate, at p. 299 O.R.; Atlantic Financial Corp. v. Henderson, 86 O.R. (3d) 121, at para. 14; and Anchorage, at para. 27. As put by Veit J. in Kerr & Richard Sports Inc. v. Fulton, [1992] A.J. No. 869, at para. 14:
[O]rders for costs may not be made against the principals of corporations if the only evidence is that those principals directed the operations of the corporation. Our system recognizes the legitimacy of corporations as legal entities; one legitimate purpose of such vehicles is to shield its principals from personal liability. In order to fix principals with liability, a court is required to find much more than the usual and necessary pattern of principals who direct the affairs of the corporation.
[64] The inquiry under the "person of straw" test is not an evaluative one -- it does not ask whether the non-party engaged in misconduct serious enough to amount to abuse of the court's processes. Rather, it is a factual inquiry that asks whether the party of record is only the "formal" or "ostensible" litigant and whether the non-party is the "real" or "substantial" litigant, controlling the proceedings and advancing the named party for the purpose of deflecting liability for costs. The aim is to determine whether the non-party, as a matter of fact, functions as if it were a "party" in relation to which the court has statutory jurisdiction to order costs under s. 131(1) of the CJA, but put someone else forward to avoid costs consequences.
(ii) Inherent Jurisdiction
[65] Superior courts of record have inherent jurisdiction to control their own processes and protect them from abuse. This was recently described by the Supreme Court in Endean v. British Columbia, 2016 SCC 42, [2016] 2 S.C.R. 162, at para. 23:
Inherent jurisdiction derives from the very nature of the court as a superior court of law and may be defined as a "reserve or fund of powers" or a "residual source of powers", which a superior court "may draw upon as necessary whenever it is just or equitable to do so, and in particular to ensure the observance of the due process of law, to prevent improper vexation or oppression, to do justice between the parties and to secure a fair trial between them."
[66] In particular, apart from statutory jurisdiction, superior courts have inherent jurisdiction to order non-party costs, on a discretionary basis, in situations where the non-party has initiated or conducted litigation in such a manner as to amount to an abuse of process.
[67] That said, courts or tribunals lacking inherent jurisdiction may only order non-party costs if they have statutory jurisdiction to do so: see Graff v. 1960 Queen Street East Ltd., 2016 ONSC 4358, 89 M.P.L.R. (5th) 258, at para. 29.
[68] Inherent jurisdiction must not be exercised in a manner contrary to statute, or where the legislature has used "clear and precise statutory language" to exclude it: Baxter Student Housing Ltd. v. College Housing Co-operative Ltd., [1976] 2 S.C.R. 475, at p. 480 S.C.R.; and R. v. Rose, [1998] 3 S.C.R. 262, at para. 64. When it is exercised, courts must do so "sparingly and with caution": R. v. Caron, 2011 SCC 5, [2011] 1 S.C.R. 78, at para. 30.
[69] The language of s. 131(1) of the CJA does not exclude inherent jurisdiction to order costs against a non-party who commits an abuse of process. It is "permissive", in that it confers broad discretion to make costs orders. Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which prescribes factors that the court may take into account when exercising discretion under s. 131(1) of the CJA, reinforces the breadth of s. 131(1) by stating that a court may consider "any other matter relevant to the question of costs".
[70] This court has held that the similarly permissive wording of s. 105 of the CJA, which empowers a court to order a party to undergo a physical or mental examination by a health practitioner, does not contain the express language needed to exclude inherent jurisdiction to order a party to undergo an examination by someone other than a health practitioner: Ziebenhaus (Litigation guardian of) v. Bahlieda, 2015 ONCA 471, 126 O.R. (3d) 541.
[71] Although s. 131(1) confers statutory jurisdiction to order costs against parties only, this does not undermine the provision's permissiveness, as the provision does not explicitly prohibit the court from ordering non-party costs.
[72] It would be arguably unconstitutional for s. 131(1) to exclude the court's inherent jurisdiction to order non-party costs, insofar as this power is grounded in the court's ability to control its own processes. This ability is likely part of the core jurisdiction of superior courts protected from legislative encroachment by s. 96 of the Constitution Act, 1867 (UK), 30 & 31 Vict., c. 3: see MacMillan Bloedel Ltd. v. Simpson, [1995] 4 S.C.R. 725, at paras. 27-42. It is not necessary to decide these points. But they support using the presumption of constitutionality to interpret s. 131(1) as not excluding the court's inherent jurisdiction to deter abuse of process by ordering non-party costs: see Ontario v. Canadian Pacific Ltd., [1995] 2 S.C.R. 1031, at paras. 12-15.
[73] The Supreme Court has characterized abuse of process as "the bringing of proceedings that are 'unfair to the point that they are contrary to the interest of justice'", or "oppressive" or "vexatious" treatment that undermines "the public interest in a fair and just trial process and the proper administration of justice": Behn v. Moulton Contracting Ltd., 2013 SCC 26, [2013] 2 S.C.R. 227, at para. 39.
[74] A non-party may engage in abuse of process and attract a costs order by, as was the case in Dallas/North, initiating proceedings through a nominal plaintiff in order to oppress the defendant. Another example is provided by the British Columbia case of Oasis Hotel, in which a non-party put forward a nominal plaintiff to employ the court's processes as an instrument to defraud the defendant.
[75] Some courts have held that costs against a non-party are appropriate if the non-party has engaged in conduct that amounts to the tort of maintenance: Young, at pp. 136-37 S.C.R.; and Smith v. Canadian Tire Acceptance Ltd., 22 O.R. (3d) 433, at pp. 448-49 O.R., affd (1995), 26 O.R. (3d) 94 (C.A.). O'Connor A.C.J.O. discussed this tort in McIntyre Estate v. Ontario (Attorney General), 61 O.R. (3d) 257, writing, at para. 32, that the "fundamental aim of the law of champerty and maintenance has always been to protect the administration of justice from abuse". I agree that, insofar as a non-party resembles a maintainer, thereby committing an abuse of process, a costs award against it may be warranted.
[76] Situations of gross misconduct, vexatious conduct or conduct by a non-party that undermines the fair administration of justice other than those discussed above can be envisioned.
[77] Costs against non-parties who are directors, shareholders or principals of corporations may be ordered in exceptional circumstances if the non-party commits an abuse of process: see Harris Scientific Products Ltd. v. Araujo, supra, at para. 24; and Chapman Management & Consulting Services Ltd. v. Kernic Equipment Sales Ltd., supra, at para. 40. Such circumstances may include fraud or gross misconduct in the instigation or conduct of the litigation. But the injunction and authorities referred to in para. 63 of these reasons must be followed -- costs should not be awarded against corporate officers, directors or shareholders simply because they directed the operations of the company: see Kerr, at para. 14.
[78] The court's inherent jurisdiction to order non-party costs to prevent misconduct amounting to an abuse of process is separate from and in addition to the court's jurisdiction to order costs against a solicitor of record under rule 57.07 of the Rules of Civil Procedure: see Galganov v. Russell (Township), 2012 ONCA 410, at paras. 12-22.
[79] Before returning to the facts of the case at hand, I acknowledge that, as a matter of procedural fairness, non-parties must be given notice of a litigant's intention to seek a costs award against them: St. James' Preservation Society, at paras. 48-55. The inquiry into whether there has been adequate notice is a contextual one driven by the circumstances of each case, but, in most cases, unequivocal notice of a litigant's intention to seek costs from a non-party should be given as soon as reasonably possible prior to the hearing: see Middlesex Condominium, at para. 44.
(3) Application to the Facts of This Case
[80] I shall address the appropriate standard of review before applying the test for non-party costs outlined above to the facts of this case.
[81] Employing his fact-finding powers, the trial judge exercised his discretion under s. 131(1) of the CJA in refusing to invoke his statutory jurisdiction to order costs against Azzopardi in 131's action against LTM. His decision is entitled to deference and may be overturned only if it is plainly wrong or exhibits a palpable and overriding error, but it is subject to a correctness review if he misdirected himself as to the applicable law or made an error in principle: Okanagan, at para. 43; and Open Window Bakery, at para. 27.
[82] The trial judge properly directed himself as to the applicable test for non-party costs set out in Middlesex Condominium. His key finding of fact was that Azzopardi put 131 forward as a plaintiff based on a mistaken view that he could assert his personal claim against LTM through his corporation. Azzopardi caused 131 to issue an invoice for tax services allegedly performed for LTM for the purpose of securing a tax advantage. His motive in putting 131 forward was not to shield himself from costs.
[83] There is no error of principle in this reasoning. The "person of straw" test asks whether the non-party intentionally put forward the nominal plaintiff for the purpose of putting up a costs screen. The non-party's motive is relevant. The trial judge was correct to note this in refusing to order costs against Azzopardi.
[84] Where the trial judge did commit an error in principle, however, was in not conducting a broader analysis of whether he had inherent jurisdiction to order costs against Azzopardi because Azzopardi committed an abuse of process. The case law since Sturmer establishes that the Superior Court does have this wider jurisdiction.
[85] Had the trial judge considered his inherent jurisdiction and decided to order costs against Azzopardi, his decision would have been entitled to deference, as long as it was not so clearly wrong as to amount to an injustice and gave sufficient weight to relevant considerations: Penner v. Niagara (Regional Police Services Board), 2013 SCC 19, [2013] 2 S.C.R. 125, at para. 27. But given that he made an error in principle in not considering his inherent jurisdiction, this court may review whether costs should be ordered against Azzopardi for having abused the court's processes.
[86] In my view, it was an abuse of process for Azzopardi to bring an action against LTM with 131 as the nominal plaintiff. I agree with the respondent that the proceeding was fictitious, as there was no evidence that Azzopardi or 131 ever performed tax services for LTM. There was simply no good reason for Azzopardi to bring an action in 131's name rather than in his own name, and the reasons that Azzopardi thought he had were illusory. The effect was that LTM had to defend two equally fruitless proceedings and incur the costs of each by retaining separate counsel. LTM's resources, public resources and judicial resources were wasted.
[87] Safeguarding public confidence in the fair administration of justice depends on preserving the availability of court facilities for justifiable proceedings and not permitting the costs of proceedings to be needlessly inflated, particularly at a time when delays and costs of litigation are so concerning from the perspective of access to justice: see Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 23-33. A costs sanction against Azzopardi would achieve these objectives.
[88] In closing, I should note that I reject the respondent's submission that the appeal should be dismissed because, at trial, the appellant advanced a claim based on the "person of straw" line of cases. While the appellant's costs submissions used the expression "straw man" to refer to 131 as a nominal litigant, it was clear that it claimed costs on the basis that Azzopardi "purposefully orchestrated a false claim".
F. Order
[89] For these reasons, I would allow the appeal and remit the matter to the trial judge for the purpose of fixing the costs of the proceeding in the Superior Court as against the non-party Azzopardi personally. I would fix the costs of the appeal at $7,500, inclusive of disbursements and all applicable taxes, payable by Azzopardi.
Appeal allowed.
End of Document
