Court File and Parties
CITATION: Marcos v. Lad, 2021 ONSC 4900
DIVISIONAL COURT FILE NO.: DC-21-003-00
DATE: 20210714
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
M.L. Edwards R.S.J, S.T. Bale and Favreau JJ.
BETWEEN:
MARCOS BUILDING DESIGN CONSULTANTS Plaintiff
– and –
ISHVER LAD, SUMITRA LAD, CONCENTRA FINANCIAL SERVICES ASSOCIATION and CANADIAN IMPERIAL BANK OF COMMERCE Defendants (Respondents)
– and –
MANNY MARCOS Third Party (Appellant)
Jonathan Spiegel and Susanne Balpataky, for the Respondents
Gregory Hemsworth, for the Appellant
HEARD at Brampton by video conference: June 16, 2021
REASONS FOR DECISION
[1] This appeal deals with the jurisdiction of the court to award costs against a non-party. Leave to appeal was granted limited to the question of whether the trial judge erred in ordering costs payable by Manny Marcos (whom we will refer to as “Manny” throughout these Reasons for ease of reference). Manny was not a party to the action. The trial judge awarded costs in this construction lien action against the plaintiff and the non-party appellant, which she fixed on a full indemnity basis in the amount of approximately $579,000, payable jointly and severally. These reasons explain why, in our view, the trial judge quite appropriately exercised her inherent jurisdiction to make the award that she did.
The Facts
[2] The dispute between the parties arose out of the construction of a custom-designed home. The plaintiff, Marcos Building Design Consultants (“Marcos”), designed and built the house for the defendants Ishver Lad and Sumitra Lad (“the Lads”). When the Lads moved into the house in August 2010, they believed that they had fully paid for the construction costs. They discovered a number of deficiencies and to their surprise they were met with an invoice from Marcos in the amount of approximately $523,000. Following delivery of the invoice, Marcos registered a lien on the property, culminating in a trial before Seppi J. which commenced in May 2017 and was completed in January 2018, over the course of approximately 31 days.
[3] The claim by Marcos was dismissed. The counterclaim brought by the Lads was allowed in the amount of approximately $65,000. As a result of factual findings made by Seppi J., costs were awarded against Marcos and Manny jointly and severally in the amount of approximately $579,000. The findings of fact warranting the award against Manny can be summarized as follows:
a) inconsistencies and blatant lies in numerous aspects of Manny’s testimony;
b) material inconsistencies and contradictory evidence provided by Manny on discovery and at trial;
c) the creation of false documents, including a purported agreement in which Manny substituted altered pages suggesting the Lads signed and agreed to a construction cost of $718,000, as opposed to $440,000, and
d) the creation of additional false documents, including altered documents such as invoices with false dates and backdated invoices.
[4] The factual findings as they relate to Manny can best be described by reference to para. 34 of the Costs Endorsement of Seppi J., where she states:
The fraud and gross misconduct on the part of the non-party must relate to conduct during litigation for the costs to be awarded against the non-party. Findings of this Court are replete with acts relating to Mr. Marcos gross misconduct during the litigation for the purposes of advancing the claim. Mr. Marcos conduct amounted to an abuse of the process being the purported subject matter in the litigation. The action was of a construction company claiming for its work. The misconduct of Mr. Marcos, as this Court has found, was deliberate in an attempt to justify and falsely support an inflated claim outside the scope of the agreement between the parties.
[5] No appeal was filed by Marcos from the Judgment of Seppi J. As such, the findings of Seppi J. as they relate to the conduct of Manny are unchallenged. The only appeal is the appeal of Manny with respect to the award of costs.
Standard of Review
[6] There is no dispute that the standard of review with respect to a costs decision is high. A costs award should only be set aside in situations where the trial judge has made an error in principle or if the costs award is plainly wrong: see Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, at para. 27, and McDowell v. Barker, 2012 ONCA 827, at para. 17.
Position of the Appellant
[7] Counsel for Manny argues that the decision of the trial judge is clearly wrong as it relates to the award of costs against him as a non-party in the following four ways:
It is argued that the court’s discretion under s. 131(1) of the Courts of Justice Act to award costs against a non-party is limited to cases where the non-party is the real litigator who, in order to avoid liability for costs, puts forward a “man of straw” to prosecute the litigation. Having found that there was no evidence that Marcos was named plaintiff solely for the purpose of insulating Manny from liability for costs, and no evidence that Marcos was a shell company without exigible assets, it is argued that the trial judge erred in finding Manny liable. He was the true and only proper litigant and not a man of straw.
It is also argued that the trial judge erred in relying on the court’s inherent jurisdiction to pierce the corporate veil. In that regard, it is argued that there was no evidence that Marcos was being used as a shield for fraudulent or improper conduct and, as such, no basis on which to pierce the corporate veil.
The third basis upon which it is argued the trial judge was clearly wrong was her finding that s. 86 of the Construction Act applied to render Manny personally liable for costs.
Finally, it is argued that the trial judge erred in finding that Manny was given adequate notice of the Lads’ intention to seek a costs award against him. Specifically, it is argued that in fact the Lads gave no notice of such intention until their written submissions on costs.
Position of the Respondents
[8] The respondents take the contrary position to all the submissions made on behalf of Manny. Counsel for the Lads urge this Court to find that the exercise of her discretion was an appropriate exercise of the court’s inherent jurisdiction to make an award of costs against a non-party, and that the notice requirement was more than satisfied given that the Lads could not have given any earlier notice of their intention to seek costs against Manny until the release of the trial judge’s Reasons for Decision.
Analysis
[9] We are of the view that this appeal can be disposed of by reference to whether or not the trial judge properly exercised her inherent jurisdiction to award of costs against a non-party. The trial judge was in the best position to determine the conduct of the parties, and in particular the conduct of Manny, which is amply summarized in the extract from her costs decision referenced in para. 3 above.
[10] While Marcos and Manny both urged the trial judge not to make an award of costs against the non-party unless that non-party was a “person of straw”, in this case the trial judge, having concluded that Manny was not a person of straw, nonetheless, in our view, quite properly interpreted and applied her inherent jurisdiction to order costs against a non-party who had committed an abuse of process. Specifically, the trial judge referenced the decision of the Court of Appeal in 1318847 Ontario Limited v. Laval Tool & Mold Ltd., 2017 ONCA 184, where the court confirmed that Superior Courts of record have inherent jurisdiction to control their own processes and to protect them from abuse. The Court of Appeal makes clear that the Superior Court of Justice has an inherent jurisdiction which must be exercised “sparingly and with caution”. Of particular concern as it relates to the facts of this case and the egregious conduct of Manny, the Court of Appeal in Laval Tool makes clear at para. 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.
[11] The findings of fact as they relate to Manny were unchallenged before this Court given that no appeal was taken with respect to the trial judgment of Seppi J. In our view, applying the Laval principles to the facts before her, the award of costs against Manny was entirely justified. But for his deceitful and fraudulent conduct, it is more than likely, and in fact entirely probable, that the trial of this action would never have been required.
[12] As it relates to the issue of notice, counsel for Manny argues that it was entirely unfair to make an award of costs against Manny given that he never had any notice during the course of these proceedings. In our view, this argument has no merit in the context of this case. The Lads appear to have had doubts about their potential liability during the course of the litigation (which doubts are suggested by the fact that at one point they had offered Marcos $400,000 to settle the claim), and it was not until the reasons of Seppi J. were released that they could know the extent of the fraud accepted by the court. As it relates to the issue of notice, Seppi J. stated at para. 35 of her Costs Decision:
On the submission regarding lack of notice for the claim of costs personally against the non-parties, the full extent of the deceitful conduct of Manny Marcos, and abuse of the court’s process, could not be fully assessed by the defendants until the decision of the court following trial was rendered. Clearly, proper notice of a costs claim against a non-party must be given. In the context of this case, the written submissions on costs from the defendants provided notice following the decision. Both Manny and Joe Marcos were given the opportunity to respond on the defendants’ costs submissions in writing. Having regard to all the circumstances sufficient notice was provided and the non-party litigants were given a fair opportunity to respond to the claim.
[13] We entirely agree with the aforesaid comments of Seppi J. On the facts of this case, Manny had notice of the Lads’ intention to seek costs against him when he received the Lads’ submissions on costs. Manny responded to those submissions with his own written submissions culminating in the cost decision of Seppi J. When pressed on this point, Mr. Hemsworth suggested that if Manny had received earlier notice during the course of these proceedings, i.e. prior to trial, he might have modified his conduct. It was argued that Mr Manny may not have lied to the court nor presented fraudulent documents in support of the claim being advanced by Marcos. In our view, this argument is without merit. To suggest that a person intent on deceiving the court in support of a claim in excess of $500,000 might modify their conduct if they knew they might be exposed to an award of costs lacks common sense.
Conclusion
[14] The costs decision of Seppi J. is not clearly wrong. To the contrary, she properly exercised her discretion as it relates to the award of costs against Marcos and Manny on a joint and several basis in the amount of approximately $579,000. The appeal by Manny is therefore dismissed with costs which we fix on a partial indemnity basis in the amount of $12,756.91. The Lads are also entitled to recover the costs of the leave to appeal motion which were fixed by the leave panel in the amount of $5,000. These costs are all payable within 30 days.
M.L. Edwards, R.S.J.
S.T. Bale J.
L. Favreau J.
Released: July 14, 2021
CITATION: Marcos v. Lad, 2021 ONSC 4900
DIVISIONAL COURT FILE NO.: DC-21-003-00
DATE: 20210714
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
M.L. Edwards R.S.J, S.T. Bale and Favreau JJ.
BETWEEN:
MARCOS BUILDING DESIGN CONSULTANTS Plaintiff
– and –
ISHVER LAD, SUMITRA LAD, CONCENTRA FINANCIAL SERVICES ASSOCIATION and CANADIAN IMPERIAL BANK OF COMMERCE Defendants (Respondents)
– and –
MANNY MARCOS Third Party (Appellant)
REASONS FOR DECISION
Released: July 14, 2021