COURT FILE NO.: CV-19-153
DATE: 20210923
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1890077 Ontario Inc., Plaintiff
AND:
2076748 Ontario Inc. and Edith Kroner, Defendants
BEFORE: Justice D.A. Broad
COUNSEL: Matthew Lambert, for the Plaintiff
Derek Sinko, for the Defendants
HEARD: July 27, 2021
costs ENDORSEMENT
Introduction
[1] Counsel for the parties attended via Zoom to make oral submissions on the issue of costs following the release of my Endorsement dated February 10, 2021 granting summary judgment to the defendants dismissing the plaintiff’s action against them for damages.
[2] The defendants seek full indemnity costs of the action and the motion, jointly and severally against the plaintiff 1890077 Ontario Inc. and its principal Rudrasingham Viplanaratanan personally. They claim the total amount of $58,384.32 comprised of fees in the sum of $45,977.50, inclusive of counsel fee on the hearing of the motion, disbursements in the sum of $5,812.11 and HST in the sum of $6,594.71.
[3] The defendants submit that the conduct of the plaintiff and its principal in producing a fabricated agreement of purchase and sale with the proposed purchaser of the plaintiff’s business in order to underpin the plaintiff’s claim constituted an abuse of the court process. The defendants say that the abusive conduct was magnified when, after the first fabrication of an agreement of purchase and sale was exposed and the admitted to, the plaintiff and its principal produced a second agreement of purchase and sale which was also fictitious. The defendants submit that the plaintiff’s conduct was such that it calls for an award of elevated costs, to the extent of full indemnity.
[4] Moreover, the defendants submit that the court has inherent jurisdiction to impose personal liability for costs on Mr. Viplanaratanan, who they say perpetrated the fraud, on a joint and several basis with the plaintiff corporation, and that the circumstances warrant the exercise of that jurisdiction.
[5] The plaintiff and Mr. Viplanaratanan argue that their conduct in producing a “re-creation” of the agreement of purchase and sale, when the original was could not be found, did not reach a level of egregious behaviour which would justify an award of elevated costs, and certainly not the imposition of personal liability for costs on Mr. Viplanaratanan as a non-party, a remedy which is available only in rare and exceptional cases. Moreover, Mr. Viplanaratanan readily acknowledged his mistake in “re-creating” the agreement of purchase and sale and accepted responsibility for it. The plaintiff and Mr. Viplanaratanan say that it has not been demonstrated that the second agreement of purchase and sale produced by the plaintiff was fictitious and that the defendants’ reliance on the circumstances of the production of the second agreement of purchase and sale to support a claim for elevated costs on a joint and several basis is not supported.
[6] Mr. Viplanaratanan also argues that he was not given timely notice of the defendants’ intention to claim costs against him personally.
[7] The plaintiff acknowledges that, as the unsuccessful party, it is responsible to pay costs, however it submits that there is nothing in the circumstances which would justify more than partial indemnity costs which the plaintiff submits should be in the range of $20,000 for fees, plus disbursements and HST.
Guiding Principles on Costs
[8] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, provides that "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.”
[9] The factors to be considered by the court, in the exercise of its discretion on costs, are set forth in sub rule 57.01(1), including, in particular:
(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged, and the hours spent by that lawyer;
(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed.
[10] The Court of Appeal has observed that modern costs rules are designed to foster three fundamental purposes: (1) to indemnify successful litigants for the cost of litigation; (2) to encourage settlements; and (3) to discourage and sanction inappropriate behavior by litigants (see Fong v. Chan, 1999 CanLII 2052 (ON CA), [1999] O.J. No. 4600 (Ont. C.A.) at para. 24).
[11] Justice Perrell in the case of 394 Lakeshore Oakville Holdings Inc. v. Misek, 2010 ONSC 7238, [2010] O.J. No. 5692 (Ont. S.C.J.) reformulated the purposes of the modern costs rules, at para. 10, as follows:
(1) to indemnify successful litigants for the costs of litigation, although not necessarily completely; (2) to facilitate access to justice, including access for impecunious litigants; (3) to discourage frivolous claims and defences; (4) to discourage the sanctioning of inappropriate behaviour by litigants in their conduct of the proceedings; and (5) to encourage settlements.
[12] Sub rule 57.01(4) provides that the court has the discretion to award all or part of the costs on a substantial indemnity basis or award costs in an amount that represents full indemnity. While full indemnity and substantial indemnity costs are an exception to the general rule and awarded only under special circumstances, allegations made or conduct by a party that is "reprehensible, scandalous, or outrageous" falls within the ambit of an award of full indemnity costs (see Baryluk v Campbell, [2009] O.J. No. 2772 (S.C.J.) at paras. 8-10).
[13] It has been held that a court is entitled to award full indemnity costs and is justified in so doing in rare instances where a party to litigation adds delay and costs to the proceedings, is less than forthright with documentary disclosure, repeatedly lies under oath, fraudulently creates documents and/or attempts to perpetrate a fraud on the plaintiff and the court (see Net Connect Installations Inc. v. Mobile Zone Inc. 2017 ONSC 1097 (S.C.J.) citing Pirbhai v. Singh (2011), 2011 ONSC 1366 (S.C.J.))
[14] The usual rule in civil litigation is that costs follow the event and that rule should not be departed from except for very good reasons (see Gonawati v. Teitsson 2002 CanLII 41469 (ON CA), [2002] CarswellOnt 1007 (Ont. C.A.) and Macfie v. Cater, 1920 CanLII 401 (ON SC), [1920] O.J. No. 71 (Ont. H.C.) at para 28).
[15] It is well known that the overall objective in dealing with costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case, rather than an amount fixed by the actual costs incurred by the successful party. The expectation of the parties concerning the quantum of costs is a relevant factor to consider. The court is required to consider what is "fair and reasonable" having regard to what the losing party could have expected the costs to be (see Boucher v. Public Accountants Council (Ontario), 2004 CanLII 14579, [2004] O.J. No. 2634 (Ont. C.A.) at para. 26 and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC, 2005 CanLII 1042, [2005] O.J. No. 160 (Ont. C.A.)).
Principles governing an award of costs against the non-party
[16] Prior to the Court of Appeal’s decision in 1318847 Ontario Ltd. v Laval Tool & Mould Ltd. 2017 ONCA 184 there was ambiguity between the two sources of the court’s jurisdiction to order costs against a non-party, inherent jurisdiction and statutory jurisdiction. It was well-established that s. 131(1) of the Courts of Justice Act limits the court’s discretion to order costs against the named parties unless the “person of straw” test is satisfied. The “person of straw” test is satisfied if:
the non-party has status to bring the action;
the named party is not the true litigant; and
the named party is a person of straw put forward to protect the true litigant from liability for costs.
(see 1318847 Ontario Ltd. v Laval Tool & Mould Ltd.at paras. 59-60)
[17] The “person of straw” test for statutory jurisdiction to order non-party costs does not permit 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 1318847 Ontario Ltd. at para. 63).
[18] Strathy, C.J.O. in 1318847 Ontario Ltd. clarified at para. 66 that, 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.
[19] At paragraph 73, Strathy, C.J.O. noted that the Supreme Court in Moulton Contracting Ltd. v. British Columbia, 2013 SCC 26 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.”
[20] In addition, costs against non-parties who are directors, shareholders or principals of corporations may be ordered to pay costs in exceptional circumstances if the non-party commits an abuse of process. Such circumstances may include fraud or gross misconduct in the instigation or conduct of the litigation (see 1318847 Ontario Ltd. at para. 77).
[21] At para. 79 Strathy, C.J.O. acknowledged that, as a matter of procedural fairness, non-parties must be given notice of the litigant’s intention to seek a costs award against them. The inquiry into whether there has been adequate notice is a contextual one driven by the circumstances in 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.
Discussion
[22] The background to the issues raised by the defendants is somewhat complicated but may be briefly summarized as follows.
[23] The plaintiff is a former commercial tenant of the corporate defendant, operating a restaurant in the premises. The plaintiff alleged that it entered into an agreement to sell its restaurant and that the defendants unreasonably withheld consent to transfer or assign the lease to the proposed purchaser. It claimed damages for breach of contract or in the alternative, damages for intentional interference with contractual relations in the amount of $140,000 and aggravated and punitive damages in the amount of $50,000.
[24] The defendants challenged the foundation of the plaintiff’s claim, namely the very existence of an agreement of purchase and sale with the proposed purchaser. They maintained that the agreements of purchase and sale produced by the plaintiff and its principal in the course of the litigation are fraudulent, and that the entire action is frivolous, vexatious and an abuse of process.
[25] There is no dispute that the first agreement of purchase and sale produced by the plaintiff in response to a Request to Inspect served by the defendants was prepared and backdated by the plaintiff as it was demonstrated to have been put on an OREA (Ontario Real Estate Association) standard form template that was not in existence at the time that the plaintiff says that it entered into the agreement.
[26] Moreover, production of the first agreement of purchase and sale in response to the defendants’ motion for production, was supported by an affidavit of Mr. Viplanaratanan sworn/affirmed October 11, 2019 in which he deposed:
“I was able to locate in my records, the “Offer to Purchase from Ranj Lawrence reference to paragraph 13 of the Statement of Claim. Attached to this affidavit as Exhibit “D” is a copy of that Offer to Purchase, which is actually an Agreement of Purchase and Sale that Mr. Lawrence and I signed up to sell my restaurant to him for $100,000.”
[27] On cross-examination on May 12, 2020 Mr. Viplanaratanan admitted that the foregoing statement in his affidavit of October 11, 2019 was false and that he knew it was false when the affidavit was sworn/affirmed. He confirmed that he did not inform his own lawyer that he had re-created the document and now understands that counsel for the defendants as well as the court would be misled by his evidence. He acknowledged that he produced the alleged “re-created” and backdated document and lied in his affidavit because he feared that otherwise he would lose the case.
[28] After the defendants brought their motion for summary judgment supported by evidence that the first agreement of purchase and sale was not authentic, Mr. Viplanaratanan, on behalf of the plaintiff, changed his position, claiming to have subsequently found the original agreement of purchase and sale as result of asking the realtor who purportedly represented him on the proposed transaction to search his records again for the true original. The realtor Mr. Paramsothy claims to have found a hard copy of the original in a “miscellaneous” file folder in his home office. However, the defendants point out that neither Mr. Viplanaratanan nor Mr. Paramsothy were able to produce any evidence to authenticate the second agreement of purchase and sale. In particular, they have not produced any emails regarding the second agreement of purchase and sale, an electronic copy of it so that its meta-data can be reviewed to confirm its creation date, nor any record of an appointment or meeting between Mr. Mr. Paramsothy and the purported purchaser Mr. Lawrence. The defendants point to other inconsistencies with Mr. Viplanaratanan’s revised story that defy common sense.
[29] The defendants submitted on the motion for summary judgment, and submit for the purposes of a determination on costs, that the court can and should draw the inference on the evidence and the lack of evidence that the second agreement of purchase and sale produced by the plaintiff was also a fabrication.
[30] During submissions on the defendants’ motion for summary judgment, counsel for the plaintiff abandoned the plaintiff’s claims based upon breach of contract and intentional interference with contractual relations and restricted the legal bases for the plaintiff’s claims against the defendants to promissory estoppel and/or fraudulent misrepresentation. I determined that there were no genuine issues requiring a trial with respect to the plaintiff’s claims based upon promissory estoppel or fraudulent misrepresentation and granted the defendants’ motion for summary judgment dismissing the plaintiff’s action. It was therefore not necessary to make factual findings on the defendants’ allegations against the plaintiff based on fraud, fabrication of evidence and abuse of process. The defendants request that I now revisit those issues for the purpose of determining the issue of costs.
[31] I am satisfied based upon the evidence led by the defendants and the admission of Mr. Viplanaratanan on cross-examination that the first agreement of purchase and sale produced by the plaintiff was fraudulently created. However, I am not satisfied to the requisite degree of confidence for the purposes of the costs determination that the inference sought by the defendants that production of the second agreement of purchase and sale by the plaintiff was similarly fraudulent should be drawn.
[32] As indicated previously one of the purposes of the modern costs rules is to discourage the sanctioning of inappropriate behaviour by litigants in their conduct of the proceedings. Fabrication of evidence, and in particular documentary evidence, is a very serious matter which is worthy of reprimand by an award of elevated costs. It undermines the truth-seeking function of the court proceeding and ultimately public confidence in the reliability of judicial determinations. If left unchecked it impacts the rule of law. Fabrication of evidence represents an abuse of the court process.
[33] The blameworthiness of inappropriate behaviour of litigants in the conduct of proceedings exists on a spectrum. I find that the conduct of the defendant, through its principal Mr. Viplanaratanan, was misguided, self-serving, disrespectful of the opposing parties and their counsel and disrespectful of the court process. The conduct also added significantly to the duration and costs of the proceeding. I therefore find that the conduct in fabricating the first agreement of purchase and sale justifies an award of substantial indemnity costs. In my view the fact that the falsification of the evidence was not ultimately determinative of the motion for summary judgment, as it was granted on other grounds, is immaterial. The behavior had the potential of undermining the court process and leading to an unjust result. However, I am not satisfied that the conduct was sufficiently persistent, reprehensible, scandalous, or outrageous as to fall within the rare and unusual range of cases where full indemnity costs are justified.
[34] I find the hours spent by the defendants’ counsel and staff and the hourly rates utilized as set forth in the defendants’ Costs Outline to be reasonable and should have been within the reasonable expectation of the plaintiff. I fix the substantial indemnity costs of the defendants at $47,996.40 comprised of $36,782 in respect of fees on a substantial indemnity basis, HST on fees in the sum of $4781.66, disbursements in the sum of $5812.11, and HST on taxable disbursements in the sum of $620.63.
[35] I find that the conduct of Mr. Viplanaratanan in fabricating the first agreement of purchase and sale in an attempt to mislead the defendants, their counsel and the court in order to gain an unfair advantage for the plaintiff in the litigation represents the type of exceptional circumstances that would justify the imposition of personal liability for costs on him on a joint and several basis with the plaintiff corporation, on the authority of the Court of Appeal’s decision in 1318847 Ontario Ltd.
[36] I am satisfied that in the circumstances of the case Mr. Viplanaratanan received adequate notice that the defendant intended to seek costs against him personally. Counsel for the defendants, in the course of submissions on the motion for summary judgment, requested an oral hearing on costs, instead of the usual written submissions, on the basis that the defendants intended to seek costs against Mr. Viplanaratanan personally. The request for an oral hearing was also made in the defendants’ Factum on the motion. The defendants delivered a Factum for the costs hearing over one month in advance of the hearing in which the personal claim for costs was fully canvassed and Mr. Viplanaratanan responded with his own Factum on the issue (see Marcos v. Lad, 2021 ONSC 4900 (Div. Ct.)at paras. 12-13).
Disposition
[37] On the basis of the foregoing, it is ordered that the plaintiff 1890077 Ontario Inc. and the non-party Rudrasingham Viplanaratanan jointly and severally pay costs to the defendants fixed on a substantial indemnity basis in the sum of $47,996.40. This amount is to be paid within 30 days hereof
D.A. Broad, J.
Date: September 23, 2021