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Costs - Against Non-Parties

1318847 Ontario Limited v. Laval Tool & Mould Ltd. (Ont CA, 2017)

In this case, after an extensive review of the case law respecting the court's jurisdiction (both statutory and inherent) to order costs against non-parties, it concludes that it does and usefully sets out the circumstances where it may:
(4) 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 (Gen. Div.), at para. 2; and Truska v. Dziemianczuk, [2009] O.J. No. 1859 (S.C.), at para. 22, cited in Hazelwood v. Hazelwood, 2013 ONSC 25 (CanLII), 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; Television Real Estate, at p. 299; Atlantic Financial Corp. v. Henderson (2007), 2007 CanLII 19791 (ON SC), 86 O.R. (3d) 121 (S.C.), at para. 14; and Anchorage, at para. 27. As put by Veit J. in Kerr & Richard Sports Inc. v. Fulton and Pulak (1992), 133 A.R. 382 (Q.B.), 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 (CanLII), 401 D.L.R. (4th) 577, 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 4348, 89 M.P.L.R. (5th) 258 (Div. Ct.), 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., 1975 CanLII 164 (SCC), [1976] 2 S.C.R. 475, at p. 480; and R. v. Rose, 1998 CanLII 768 (SCC), [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 (CanLII), [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 (CanLII), 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: see MacMillan Bloedel v. Simpson, 1995 CanLII 57 (SCC), [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 CanLII 112 (SCC), [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 (CanLII), [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. 136-137; and Smith v. Canadian Tire Acceptance Ltd. (1995) 1995 CanLII 7163 (ON SC), 22 O.R. (3d) 433 (Gen. Div.), at pp. 448-449, aff’d (1995), 26 O.R. (3d) 94 (C.A.), leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 12. O’Connor A.C.J.O. discussed this tort in McIntyre Estate v. Ontario (Attorney General) (2003), 2002 CanLII 45046 (ON CA), 61 O.R. (3d) 257 (C.A.), 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, 2005 ABQB 850 (CanLII), 382 A.R. 377, at para. 24; and Chapman Management & Consulting Services Ltd. v. Kernic Equipment Sales Ltd., 2006 ABQB 227 (CanLII), 400 A.R. 1, 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 r. 57.07 of the Rules of Civil Procedure: see Galganov v. Russell (Township), 2012 ONCA 410 (CanLII), 294 O.A.C. 13, at paras. 12-22, leave to appeal to S.C.C. discontinued, [2012] S.C.C.A. No. 382.

[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.

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