COURT FILE NO.: 17-73750 DATE: 2020/02/27 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

SALVATORE FALSETTO Plaintiff – and – SALVATORE FILLIPO FALSETTO a.k.a. SAM FALSETTO and FALSETTO HOMES INC., 99 CARTIER ST. APARTMENTS INC., CLARENCE STREET APARTMENTS INC., and BRONSON RIDGE APARTMENTS INC. and CANADIAN IMPERIAL BANK OF COMMERCE Defendants

Counsel: Carol J. Craig and Raymond A. Murray, for the Plaintiff Thomas G. Conway and Benjamin Grant, for the Defendants, Salvatore Fillipo Falsetto a.k.a. Sam Falsetto, Falsetto Homes Inc., 99 Cartier St. Apartments Inc., Clarence Street Apartments Inc., and Bronson Ridge Apartments Inc. Kelly Charlebois, for the Defendant, Canadian Imperial Bank of Commerce

HEARD: In writing

COSTS ENDORSEMENT

Corthorn J.

Introduction

[1] Salvatore Falsetto and his son, Sam Falsetto, together with a number of companies in which Sam has an interest, are embroiled in litigation with respect to Sam’s management of Salvatore’s assets. The assets total in the millions of dollars. A number of Salvatore’s accounts were at the Canadian Imperial Bank of Commerce (“CIBC”). The bank is, in that context, a defendant in this action.

[2] In October 2017, Salvatore obtained leave to issue a certificate of pending litigation and register it on title to three residential apartment buildings (“the Original Motion”, “the Certificate” and “the Properties”, respectively). Salvatore obtained that relief on a motion made without notice.

[3] In 2019, the defendants other than the CIBC (“the Defendants”) brought a motion for one of two forms of alternative relief related to the Certificate (“the Motion”). The Defendants requested an order setting aside the order pursuant to which leave to issue and register the Certificate was granted. In the alternative, they requested an order discharging the Certificate.

[4] The Defendants were unsuccessful on the Motion: Falsetto v. Falsetto, 2019 ONSC 6405 (“the Ruling”). In summary, the court concluded that

• on the Original Motion, Salvatore failed to make full and frank disclosure to the court; and
• had full and frank disclosure been made on the Original Motion, the Certificate would have been granted in any event.

[5] The Motion was dismissed, and the Certificate remains registered on title to the Properties. Following the release of the ruling on the Motion, the parties were given an opportunity to resolve the issue of costs. They were unable to do so. Salvatore and the Defendants each delivered written costs submissions. CIBC is not seeking its costs on the Motion.

Positions of the Parties

[6] Salvatore seeks costs, on the partial indemnity scale, totalling $65,555 (round figure). That amount is broken down as follows:

Fees $ 55,642.05 HST on fees $ 7,233.47 Disbursements (incl. HST) $ 2,677.91

[7] Salvatore submits that he is entitled to costs payable in the ordinary course because of his success in opposing the Motion. He submits that his failure to make full and frank disclosure on the Original Motion does not disentitle him to costs. He argues that, had he made full and frank disclosure, the parties would, in any event, have been involved in a contested motion at the first stage; they would have incurred the same costs as were ultimately incurred for the Motion.

[8] In response, the Defendants submit that Salvatore’s failure to make full and frank disclosure cannot be overlooked; to overlook such failure would ignore the harm to the administration of justice that results from conduct of that kind. The Defendants submit that Salvatore and the Defendants should bear their own costs of the Motion. In the alternative, they submit that costs of the Motion should either follow the cause or be reserved to the trial judge.

[9] The Defendants do not dispute the scale or the quantum claimed by Salvatore for costs.

Analysis

a) The Law

[10] The Defendants’ central submission is that Salvatore’s failure to disclose material facts on the Original Motion was a serious omission, particularly because the motion was brought without notice.

[11] The “law imposes an exceptional duty on [a] party who seeks ex parte relief”: United States v. Friedland, 1996 CarswellOnt 5566, [1996] (Gen. Div.), at para. 27. It is incumbent upon the moving party to present the facts in a balanced manner, including any fact that might favour an opposing party: ibid. Latitude is given for mere imperfections or the failure to disclose inconsequential facts: ibid, at para. 31. The failure to make full and frank disclosure is consequential, however, if “the defects complained of [are] relevant and material to the discretion to be exercised by the Court” (citations omitted): ibid, at para. 31.

[12] The obligation to make full and frank disclosure on a motion brought without notice “[places] a very heavy onus on [the moving party] to ensure that the court has the full picture before it adjudicates”: Allen v. Process Matters, at para. 2. The moving party is required to ensure that the court is made aware of what would be said, if present, by the party not before the court: ibid.

[13] The failure to make full and frank disclosure interferes with the very essence of the integrity of the ex parte process: United Sates of America v. Yemec, 85 O.R. (3d) 751 (Div. Ct.), at para. 9.

b) Salvatore’s Conduct on both the Original Motion and the Motion

[14] The court found that Salvatore failed to disclose material facts on the Original Motion: Falsetto, supra, at paras. 30-37. The facts he failed to disclose (“the Material Facts”) include the following:

• Sam had retained counsel who had been in written communication (via emails and letters) with Salvatore’s former lawyer; and
• The communication from Sam’s lawyer included a statement that Sam was prepared to “sit and talk”.

[15] On the Original Motion in 2017, the court was left with the impression that a letter sent by Salvatore’s former lawyer to Sam went unanswered. Salvatore misled the court: ibid, at para. 31.

[16] On the return of the Motion, two explanations were provided by Salvatore for his failure to disclose the Material Facts. The first explanation was that nothing about the emails between Sam’s lawyer and Salvatore’s former lawyer could have been disclosed because those emails were sent on a “without prejudice” basis. The court found that explanation to be disingenuous: ibid, at para. 34. Not all of the emails exchanged were sent on that basis. Salvatore could have included the relevant emails in the record and redacted the ones sent “without prejudice”.

[17] Salvatore’s first explanation is also disingenuous because it completely overlooks Salvatore’s failure to inform the court of the most basic of facts – that Sam had retained a lawyer.

[18] The second explanation offered by Salvatore is that, by the October 2017 return date for the Original Motion, the Material Facts were dated and no longer relevant. As noted in the Ruling, the court is generally reluctant to hear a motion without notice where at least one of the responding parties has counsel: ibid, at para. 38. It is not uncommon for the court to adjourn a motion brought without notice, provide the moving party the opportunity to serve the opposing party, and set a return date for the motion.

[19] In the Ruling, the court concluded that leave to issue and register the Certificate would have been granted had full and frank disclosure been made. Salvatore submits that he and the Defendants ended up where they otherwise would have been regardless of the failure to make full and frank disclosure. I disagree.

[20] The finding that the Certificate would have been granted had the Material Facts been disclosed to the court is relevant only to the substantive merits of Salvatore’s request for leave to issue and register the Certificate. There were a number of other possible outcomes had the Material Facts been disclosed.

[21] For example, Salvatore’s failure to disclose the Material Facts deprived the court of an opportunity to assist the parties to resolve the matter of the Certificate without a contested motion. In addition, the parties were deprived of the opportunity to attempt to resolve the request for the Certificate in some other way.

[22] While I make no finding on this point, it is possible that proceeding with the Original Motion without notice resulted in an increase in the level of acrimony between father and son, a fanning of the flames of the overall family discord, and the parties becoming more entrenched than they already were in their respective positions in the litigation.

[23] In his pleading, Salvatore alleges that he first learned in June 2016 that he is not an owner of the Properties. On the return of the Motion, the Defendants alleged a lack of diligence on Salvatore’s part because he waited until October 2017 to bring the Original Motion. Salvatore explained that delay by relying on the amount of work he and his attorney for property (his daughter, Luisa) had to undertake to collect and review all of the documents relevant to Sam’s historical management of Salvatore’s assets.

[24] In the Ruling, Salvatore was neither faulted nor criticized by the court for the degree of diligence exercised in collecting information and documents to permit him to advance a comprehensive claim: ibid, at para. 87. That diligence, however, supports an inference that Salvatore’s failure to disclose the Material Facts was not inadvertent. It is troubling that, despite exercising care and diligence in commencing the action, Salvatore failed to take the care required to make full and frank disclosure to the court on the Original Motion: Delphi Solutions Corp. v. Sendrea (2004), 238 D.L.R. (4th) 677 (Ont. S.C.), at para. 4.

[25] At no time was it suggested by Salvatore that either he or Luisa were unaware that Sam had retained a lawyer. Nor was it suggested that either of them was not aware of the communication between Sam’s lawyer and Salvatore’s former lawyer. I draw an inference and find that both Salvatore and Luisa were aware of the Material Facts when the records for the Original Motion and Motion were prepared and on the return of both motions.

[26] Salvatore is well into his eighties. He has an attorney for property. He does not, however, have a litigation guardian. As a competent adult, Salvatore is responsible for the manner in which litigation on his behalf is conducted. I agree with the Defendants that his failure to disclose the Material Facts is relevant to the issue of costs on the Motion.

c) The Conduct of Salvatore’s Counsel

[27] The Defendants rely on the Rules of Professional Conduct to highlight that the obligation to make full and frank disclosure applies to both parties and counsel. Specifically, the Defendants rely on r. 5.1-1: “When acting as an advocate, a lawyer shall represent the client resolutely and honourably within the limits of the law while treating the tribunal with candour, fairness, courtesy and respect.”

[28] Item 6 in the commentary to r. 5.1-1 addresses a lawyer’s obligation when opposing interests are not represented. It provides that, on without notice or uncontested matters or in other situations in which the full proof and argument inherent in the adversarial system cannot be achieved, a lawyer must take particular care to be accurate, candid, and comprehensive in presenting their client’s case so as to ensure that the tribunal is not misled.

[29] In response, Salvatore submits that the Defendants have impugned the reputation of Salvatore’s counsel. He also submits that they did so “carelessly and without any evidentiary basis.” Salvatore’s position is that there is no evidence before the court as to the submissions made on his behalf on the Original Motion. He also points to the Ruling and the lack of any finding therein of professional misconduct on the part of his counsel.

[30] Salvatore is critical of the Defendants for making submissions with respect to his counsel’s conduct. Salvatore submits that the importance of a lawyer’s professional reputation cannot be overstated because “a reputation for integrity is a lawyer’s most important professional asset”: Groia v. Law Society of Upper Canada, 2018 SCC 27, [2018] 1 S.C.R. 772, at para 85. That statement is absolutely correct. For that reason, lawyers must be vigilant, including on motions made without notice, in seeing that full and frank disclosure is made to the court.

[31] I agree with Salvatore that there is no evidence before the court as to the submissions made on his behalf on the Original Motion. Isn’t that the very point? As the proceeding progressed, the Defendants and the court were left in the dark as to what transpired on the return of the Original Motion. Absent an affidavit from Salvatore’s counsel attesting first-hand as to the submissions made at that time, it is impossible to determine what submissions were made and how those submissions might have affected the outcome.

[32] In Salvatore’s reply submission, the failure to disclose the Material Facts on the return of the Original Motion is characterized by Salvatore as “one mistaken error in judgment”. I agree that, at a minimum, the failure of Salvatore’s counsel to “ensure that the court ha[d] the full picture before it adjudicate[d]” (Allen, at para. 2), amounts to an error in judgment. I note, however, that on the return of the Motion, Salvatore’s counsel did not acknowledge any error. Rather, two explanations were provided as to why proceeding as Salvatore did on the Original Motion was reasonable in the circumstances.

[33] The better course professionally would have been, on the return of the motion, to acknowledge the error in judgment; the failure to do so only served to perpetuate the fallout from that error.

d) The Court’s Discretion with Respect to Costs

[34] Subrule 57.03(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 mandates that on the hearing of a contested motion, the court shall “fix the costs of the motion and order them to be paid within 30 days”. The court is, however, given the discretion to make a different order if it is satisfied that such an order would be more just.

[35] For the reasons set out above and those listed below, I find that it would be more just for costs of the Motion to be reserved to the trial judge:

• Success on the Motion was divided. The Defendants were successful in obtaining a finding that Salvatore misled the court. Salvatore was successful on the major substantive issue;
• It was reasonable for the Defendants to bring the Motion;
• The action is in its infancy. This action may well proceed to trial. If the Defendants are successful – even only with respect to ownership of the Properties – the Certificate may be relevant to the preservation of assets available to Sam to pay damages, if any, that he is found liable to pay Salvatore; and
• Given the level of acrimony between Salvatore and Sam, it is possible that litigation conduct will be a factor in an award of costs following a trial. Salvatore’s conduct in failing to disclose the Material Facts should be considered as part of the conduct of the parties throughout the entire proceeding.

[36] Costs of the Motion are reserved to the trial judge.

Madam Justice Sylvia Corthorn

Released: February 26, 2020