CITATION: 2156384 Ontario Inc. v. C & K Property Management Inc., 2012 ONSC 6759
DIVISIONAL COURT FILE NO.: 427/12
DATE: 20121127
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
2156384 ONTARIO INC. o/a MOOL AND GRILL Applicant (Responding Party/Respondent)
– and –
C & K PROPERTY MANAGEMENT INC., and VITO VALELA Respondents (Moving Parties/Appellants)
Julian Heller and Zabi Yaqeen, for the Applicant (Responding Party/Respondent)
Sarit E. Batner and Kosta Kalogiros, for the Respondents (Moving Parties/Appellants)
HEARD at Toronto: November 27, 2012
DUCHARME J. (orally)
[1] The Respondents, C & K Property Management Inc. (“C & K”) and Vito Valela, bring this motion for leave to appeal from the endorsement of the Honourable Madam Justice D. A. Wilson, dated August 30, 2012 (the “Endorsement”). The Endorsement requires the respondents (including Mr. Valela, personally) to pay the applicant $50,000 in costs on a substantial indemnity basis.
[2] The underlying application was for relief from forfeiture in a commercial tenancy. The Endorsement was made after the applicant tenant and the respondent landlord had come to a consent resolution without adjudication by the Court on the main issue in the application: return of the applicant into the premises. A trial over which party, landlord or tenant, is entitled to damages resulting from the alleged tenant default and resulting landlord lock-out is pending and set for two days.
A. Granting Leave to Appeal
[3] The test for granting leave to appeal an interlocutory Order of a Judge is set out in Rule 62.02(4). Leave shall be granted when:
(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or
(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.[^1]
[4] If either one of (a) or (b) is met, leave to appeal shall be granted. The landlord submits that both tests are met in this case.
B. Preliminary Issue
[5] The tenant raises a preliminary jurisdictional point. They submit that the Endorsement is a “final” order as it was made further to a “final order on an Application which granted the Applicant relief from forfeiture and costs”, which was an Order for no payment of money and thus it is appealable to the Ontario Court of Appeal.
[6] The nature of a costs order depends upon the nature of the order with which it is associated. Appealing only the costs portion of an interlocutory order is itself interlocutory for the purposes of appeal.
[7] The distinction between an interlocutory order and a final order was explained as follows in Hendrickson v. Kallio[^2]
The interlocutory order from which there is no appeal [to the Court of Appeal] is an order which does not determine the real matter in dispute between the parties – the very subject matter of the litigation, but only some matter collateral. It may be final in the sense that it determines the very question raised by the applications, but it is interlocutory if the merits of the case remain to be determined.[^3]
[T]he real test for determining this question ought to be this. Does the judgment or order as made finally dispose of the rights of the parties? If it does, then … it ought to be treated as a final order, but if it does not it is then … an interlocutory order.[^4]
[8] The tenant submits that this motion for leave to appeal is from the costs of the Consent Order of Brown J. which, according to the tenant, is final in that it “granted the Applicant relief from forfeiture.”[^5] The landlord submits that this motion for leave to appeal is from the costs portion of the Endorsement, which awards the payment of $50,000 and also directs a trial of the remaining issues mentioned in the consent order.
[9] The consent order is clearly not a final order. As the consent order provided that other matters have been set down for trial, did not finally dispose of the rights of the parties. This became even clearer in the course of oral submissions when Mr. Heller, while arguing that the consent order was a final order, made the submission that the personal liability of Mr. Valela would be determined at the trial of the remaining issues.
[10] Thus, there is no jurisdictional impediment to my hearing this motion.
Test Under Rule 62.02(4)(a)
A. Is there a Conflicting Decision by Another Judge or Court in Ontario or Elsewhere on the Matter Involved in the Proposed Appeal?
[11] Over the objection of counsel for the landlord, the motions judge considered the contents of the affidavits filed by the Tenant on the application proper. The Landlord’s position was that these were not properly tested and that the issue of costs should be reserved to the conclusion of the trial of the remaining issues.
[12] In considering these materials and basing findings of misconduct upon them, the Motions Judge may have taken an approach that is inconsistent with that explained in Dhillon v. Dhillon Estate 2009 58607 (ON SC), [2009] O.J. No. 4459. In that case, MacKenzie J. was asked to award costs after a settlement that resolved everything but costs. At paras. 9 to 12 he cautioned as follows:
Both parties refer to the factors set out in Rule 57.01(1) of the Rules of Civil Procedure and argue strenuously in support of the reasonableness of their respective positions throughout both proceedings and the resultant unreasonableness of the position of the other of them. A great many of these assertions and arguments, as set out in their written costs submissions, presuppose that the court is not in a position to make factual findings that either support or detract from their respective submissions.
The discretion of the court under s.131 of the Courts of Justice Act and the factors in Rule 57.01(1) of the Rules of Civil Procedure that form the parameters for the exercise of discretion under s. 131 require factual findings relating to the reasonableness or lack of reasonableness in the conduct of each of these litigants. In the absence of such findings, it is problematic in the extreme for the court to exercise its discretion on a rational basis in making any costs award.
In the present situation, the provisions of the minutes of settlement respecting the claims and defences of the claims of each parties are, on their face, insufficient to enable the court to be in a position to determine what was the motivation in the settlement of each of the litigants in either being successful in asserting a claim or resiling from a claim. An example of this difficulty can be found in the assertion of facts which have never been the subject of any judicial finding on issues of reasonableness or unreasonableness or even misconduct. One particular submission made on behalf of the father aptly demonstrates the problem. In dealing with the issue of the alleged forgery of the designation of beneficiary in the deceased’s life insurance policy, counsel refers to reports of the father’s forensic examiner whose report concluded that the change of beneficiary submitted by Manjit to the insurer was not signed by the mother. Counsel states (at p. 6 of his written submissions) that:
“Manjit has never produced an expert opinion contradicting the attached [father’s experts] report, nor has she produced any evidence to contradict the expert’s opinion contained in the said report.”
- Although the foregoing statement is undoubtedly true, to give weight to it in the context of determining the reasonableness or unreasonableness of Manjit’s position requires the court to assume the correctness of that opinion in the forensic examiner’s report. The correctness of that opinion was never the subject of a judicial finding nor was the report itself the subject of a request to admit made by the father. The absence of a judicial finding on this point prevents the court from relying on the assumed forgery inherent in the submission as being the basis for a finding of unreasonableness or misconduct by Manjit on the issue in question.
[Emphasis added]
[13] In this case the motions judge, in basing her findings on untested affidavit evidence from the Application proper may have erred and proceeded in a manner inconsistent with that in Dhillon.
B. Is it Desirable that Leave to Appeal be Granted?
[14] In my view, it is desirable that leave to appeal be granted to clarify what types of evidence can properly be considered on a costs application in determining the factual findings that must underlie the court’s discretion under Rule 131 of the Courts of Justice Act and Rule 57.01(1) of the Rules of Civil Procedure.
Rule 62.02(4)(b)
A. Does There Appear to be Good Reason to Doubt the Correctness of the Order in Question?
[15] In para. 5 of their factum, the landlord advances numerous arguments as to why there is good reason to doubt the correctness of the costs order. I have considered all of these and reject many of them. However, I believe that the correctness of the costs order may be open to serious debate in the following respects.
[16] In my view, there is reason to believe the motions judge may have erred in making an order on a substantial indemnity basis based on her finding of misconduct on the part of the landlord. This decision is questionable in three respects:
First, it can be questioned given the motions judge’s reliance on the untested affidavits from the application proper. This is essentially the same error, as I outlined above under Rule 62.02(4)(a).
Second, the motions judge may have erred in treating the tenant as the successful party in the litigation given that the matter was resolved on consent. In the two day trial of the remaining issues, it might be determined, for example, that the landlord was within his rights in locking out the tenant. Should that occur, the tenant will not prove to be the successful party in the litigation. Thus, the motions judge may have erred in proceeding as she did while at the same time acknowledging that, “I need not determine the propriety of the lockout, nor would it be appropriate for me to do so because I do not have all of the evidence before me.”
Third, much of the behaviour that the motions judge identified as supporting the awarding of substantial indemnity costs might be characterized as aggressive, but acceptable litigation tactics. As noted in cases such as Mortimer, McBride, Gerula, Foulis and Hunt, the landlord was under no obligation to settle but was perfectly entitled to require the tenant to prove its claims. Thus, it may be that the motions judge erred in finding that such factors as forcing the applicant “to bring the application to be permitted to return to the premises that they had been locked out of” is suggestive of behaviour that deserves to be sanctioned by substantial indemnity costs. It is also open to question whether any of this behaviour constituted the sort of reprehensible, scandalous or outrageous conduct that would justify the awarding of substantial indemnity costs.
[17] The motions judge may also have erred in awarding costs against Mr. Vito Valela personally. It was clear in the materials before the motions judge that Mr. Valela is an indirect shareholder of C & K, through a company 2294438 Ontario Ltd., of which he is the principal. He is one of multiple officers of C & K. The application was for relief from forfeiture of a lease between Mool and Grill and C & K, not Mr. Valela. A legal entity is distinct from its shareholders and directors.[^6] While a court may occasionally pierce the corporate veil to do away with this distinction and import personal liability, such an approach is limited to exceptional cases where the result would otherwise be unjust, when the company is incorporated for an illegal, fraudulent or improper purpose, or when those in control expressly direct a wrongful thing to be done.[^7] The motions judge did not deal with this issue in her reasons and, in deciding to pierce the corporate veil in these circumstances, she may have erred. This conclusion seems even clearer given Mr. Heller’s submission that Mr. Valela’s liability for costs has yet to be properly determined.
B. Does the Proposed Appeal Involve Matters of Such Importance that Leave to Appeal Should be Granted?
[18] A matter is of general importance when it relates to “matters of public importance and matters relevant to the development of the law and the administration of justice.” This may include “the interpretation [or] clarification of [a] general rule or principle of law” which is of potential significance in Ontario.[^8]
[19] In my view, the foregoing issues are all potentially important to clarifying the law relating to the awarding of costs when the parties have reached a settlement. In my view, it is important the following issues be clarified:
(i) The proper approach to awarding costs where the court has not addressed the merits of a case;
(ii) The question of what types of evidence can properly be considered on a costs application in determining the factual findings that must underlie the court’s discretion under Rule 131 of the Courts of Justice Act and Rule 57.01(1) of the Rules of Civil Procedure; and
(iii) The circumstances in which costs can be awarded against a party on a personal basis when no allegations are made against him personally and no submissions are advanced against him personally.
[20] Section 133(b) of the Courts of Justice Act, R.S.O. 1990 c. C-43 provides that appeals in which the sole issue is costs lie only with leave of the Court. I am acutely aware that where leave to appeal from a costs award is granted, it is granted sparingly, only in the most obvious case, and only where there are strong grounds that the motion judge erred in his exercise of discretion.[^9] The threshold is high.[^10] As Armstrong J.A. stated in McNaughton Automotive Ltd. v. Co-operators General Insurance Co. stated at para. 26 an appellate court should only set aside a costs order “only if the trial judge has made an error in principle or if the cost award is plainly wrong.”[^11] Leave to appeal from a cost award is rarely granted by this Court because there is a high degree of deference accorded to the judge of first instance. If a decision is detailed and well-reasoned, deference must be accorded even if this Court does not adopt all of the reasoning of the motion judge.[^12] In McNaughton Automotive Ltd. v. Co-operators General Insurance Co., the Court of Appeal explained at para. 27.
I am also mindful that a costs award is a discretionary order and that the judge of first instance is in the best position to determine the entitlement, scale, and quantum of any such award.
[21] Despite the foregoing, for the reasons outlined above, I have no choice but to grant leave to appeal this issue to the Divisional Court.
COSTS
[22] The costs of this motion shall be determined by the panel hearing the appeal.
DUCHARME J.
Date of Reasons for Judgment: November 27, 2012
Date of Release: December 21, 2012
CITATION: 2156384 Ontario Inc. v. C & K Property Management Inc., 2012 ONSC 6759
DIVISIONAL COURT FILE NO.: 427/12
DATE: 20121127
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
DUCHARME J.
BETWEEN:
2156384 ONTARIO INC. o/a MOOL AND GRILL Applicant (Responding Party/Respondent)
– and –
C & K PROPERTY MANAGEMENT INC., and VITO VALELA Respondents (Moving Parties/Appellants)
ORAL REASONS FOR JUDGMENT
DUCHARME J.
Date of Reasons for Judgment: November 27, 2012
Date of Release: December 21, 2012
[^1]: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, s. 62.02(4).
[^2]: Hendrickson v. Kallio, 1932 123 (ON CA), [1932] O.R. 675 (C.A.)
[^3]: Hendrickson, supra, at pp. 3-4 [emphasis added].
[^4]: Hendrickson, supra note 2, at p. 5
[^5]: Responding Factum, at para. 45.
[^6]: Clarkson Co. Ltd. v. Zhelka et al., 1967 189 (ON SC), [1967] 2 O.R. 565-579 (H.C.J.)
[^7]: 642947 Ontario Limited v. Fleischer, et al., 2001 8623 (ON CA), [2001] O.J. No. 4771 (C.A.), at para. 68-69
[^8]: Greslik v. Ontario Legal Aid Plan, 1988 4842 (ON SCDC), [1988] O.J. No. 525 (Div. Ct.) at para. 7
[^9]: McNaughton Automotive Ltd. v. Co-operators General Insurance Co., 2008 ONCA 597, [2008] O.J. No. 5040 (C.A.) at paras. 24-25
[^10]: Mustang v. Ironside, [2009] O.J. No. 5657 (S.C.J. Div. Ct.)) per Karakatsanis J. granting leave to appeal at para. 2; appeal allowed 2010 ONSC 3444, [2010] O.J. No. 3184 (S.C.J. (Div. Ct.)) (“appeal”)
[^11]: See also Duong v. NN Life Insurance Co. of Canada (2001), 2001 24151 (ON CA), 141 O.A.C. 307, at para. 14
[^12]: Healey v. Lakeridge Health Corp., 2011 ONCA 55, [2011] O.J. No. 231 (C.A.) at para. 80