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Torts - Champerty and Maintenance

. Costa v. Seneca College of Applied Arts and Technology

In Costa v. Seneca College of Applied Arts and Technology (Ont CA, 2023) the Court of Appeal considered an interesting costs case where counsel for a public interest party had allegedly rode "the twin horses of advocate and interested party" by (in part) using the case to raise funds, and consequently had been personally assessed a large non-party costs award.

The case mentions maintenance briefly [at para 18], but the issues seem so pertinent to that tort that I include it here:
[7] ... JCCF says that the motion judge did not apply the proper tests for deciding whether a non‑party should pay costs and that those tests, properly applied, would not justify an award in this case.

[8] In response, Seneca says that in communications between it and JCCF prior to the costs submissions, it made it clear to JCCF that it would be seeking costs against JCCF. Seneca also says that it is appropriate to award costs against JCCF because it was the “motivating force” behind the litigation. It also points to the fact that JCCF persistently refused to advise Seneca whether it was indemnifying the students against any costs award.

[9] Three organizations, Canadian Civil Liberties Association, Canadian Constitution Foundation and Democracy Watch, were granted leave to intervene in this appeal. The interveners collectively express alarm that the motion judge’s award of costs, among other things, is rooted, at least in part, in the fact that JCCF raised funds for the litigation. They are concerned that the award, if upheld, could deter public interest organizations from raising funds for such litigation to assist with the costs of retaining counsel or, for that matter, from acting as counsel themselves in such litigation. The interveners say that the mere fact of fund raising should not expose a public interest organization to a costs award nor should it be so exposed if it provides, or assists in providing, counsel.

....

[11] ... in my view, the costs award here is fundamentally flawed and cannot stand. First, the motion judge failed to make any finding whether the litigation constituted public interest litigation. This was a necessary initial step in considering the proper disposition of costs. If the litigation was public interest litigation, then the principles applicable to awards of costs in such litigation had to be considered: see e.g., Friends of Toronto Public Cemeteries Inc. v. Ontario (Public Guardian and Trustee), 2020 ONCA 509, at para. 23. None of that took place. ...

[12] Second, there are established bases for determining when it is appropriate for an award of costs to be made against a non-party. As set out in 1318847 Ontario Ltd v. Laval Tool & Mould Ltd., 2017 ONCA 184, 134 O.R. (3d) 641, there is both statutory jurisdiction to award costs and inherent jurisdiction to do so. These jurisdictions have different tests to be satisfied. For the statutory jurisdiction, the court must be satisfied that the “person of straw” test is met. That test is set out in Laval Tool, at para. 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.
[13] This test could not be made out in this case and Seneca does not suggest otherwise. JCCF would not have had status to bring the injunction motion nor was there any evidence that the students were put forward to protect JCCF from liability for costs.

[14] The inherent jurisdiction to award costs against a non-party invokes a different test. As set out in Laval Tool, 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.
....

[17] It is not clear what the motion judge was intending to mean by his reference to JCCF not being a “dispassionate advocate”. In any event, it is difficult to see how the actions taken by JCCF, and referred to by the motion judge, could amount to an abuse of process. Fund raising would not satisfy that requirement nor would promoting the case on a website. JCCF was entitled to let the public know about the case and it was also entitled to raise funds to defray the costs of the case. As the interveners correctly point out, to hold otherwise would have a very chilling effect on the work of public interest organizations.

[18] If there was evidence that JCCF had instigated the motion for an improper purpose, that would satisfy the abuse of process requirement. Similarly, if there was evidence that JCCF was in the position of a “maintainer”, within the meaning of the tort of maintenance, that would also satisfy the abuse of process requirement: Laval Tool, at para. 75. However, there is insufficient evidence of either.

[19] If JCCF had agreed to indemnify the students against any costs award, that could be a proper factor for the motion judge to consider in deciding to make an award of costs against the students as parties, such as occurred, for example, in Servatius v. Alberni School District No. 70, 2022 BCCA 421. However, that fact would still not have justified an award of costs directly against JCCF.

[20] This raises a final issue. JCCF persistently refused to advise whether it was indemnifying the students against any costs award. In my view, JCCF was obliged to reveal that information and the motion judge ought to have required it to do so before making his costs award. I do note, on that point, that Seneca did not ask the motion judge to require JCCF to reveal that information, but the motion judge ought to have done it on his own. It was a relevant consideration in the proper disposition of costs in this type of proceeding. On that point, I agree with the general proposition set out in Servatius, at para. 276:
Therefore, where as here, a party is seeking to avoid the ordinary costs rule on the basis that the litigation is public interest litigation and on the basis that the named party cannot afford costs, it is necessary for the courts to know who is truly financing that party's lawsuit and who is truly at risk for the potential costs award.
. Davies v. Clarington (Municipality)

In Davies v. Clarington (Municipality) (Ont CA, 2023) the Court of Appeal considered costs awarded against non-parties, here in a class action context - and where the behaviour resembled the tort of maintenance [para 60: "The tort of champerty is a more egregious form of maintenance as the maintainer shares in the profits of the litigation: McIntyre Estate, at para. 26."]:
(3) The Tests for Non-Party Costs Liability

[50] In Laval Tool, this court set out the two bases on which the Superior Court may order costs against a non-party.

[51] The first is the statutory jurisdiction under s. 131(1) of the CJA. That section provides that: “Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or 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”.

[52] The court confirmed in Laval Tool, at paras. 59-60, that the discretion to order costs payable by a non-party under the statutory jurisdiction is limited to situations in which the “person of straw” test is met. That test requires three things to be established:
(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
[53] The trial judge held the person of straw test did not apply on the facts. The appellants do not challenge that finding in this court.

[54] The second basis discussed in Laval Tool for ordering costs against a non-party is the one that is germane to this appeal. That basis arises from a superior court’s inherent jurisdiction to prevent abuses of its process.

[55] Abuse of process is a flexible doctrine that is concerned with proceedings that are unfair to the point that they are contrary to the interest of justice. An abuse of process involves 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, [2013] 2 S.C.R. 227, at paras. 39-40.

[56] Laval Tool confirmed that “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”: at para. 66. The discretion is to be exercised “sparingly and with caution”: at para. 68.

[57] The following examples were offered in Laval Tool, at paras. 74-75, to illustrate non-party conduct that may attract a costs sanction: (a) a non-party initiating proceedings through a nominal plaintiff in order to oppress the defendant; (b) a non-party putting forward a nominal plaintiff to employ the court's processes as an instrument to defraud the defendant; and (c) a non-party engaging in conduct that amounts to the tort of maintenance or that “resembles a maintainer”. This court also stated that other “[s]ituations of gross misconduct, vexatious conduct or conduct by a non-party that undermines the fair administration of justice … can be envisioned”: at para. 76. This court then referenced how an order for costs against a director, shareholder or principal of a corporation who committed fraud or gross misconduct in the instigation or conduct of the litigation involving the corporation may be warranted in exceptional circumstances: at para. 77.

[58] Relying on inherent jurisdiction, the Laval Tool court made a non-party costs order against an individual who had caused his corporation to bring an action for payment for services against a person with whom the corporation had no contract and for whom it had performed no services. The action was fictitious, there was no good reason for it to have been brought in the company name, and the non-party’s conduct resulted in a waste of the defendant’s and the public’s resources: at paras. 86-87.

[59] Two points from Laval Tool are fundamental. First, the court’s inherent power to order costs against non-parties is discretionary. Second, because it derives from the court’s power to prevent its process from being abused, it focusses on conduct of the non-party in instigating or controlling the litigation in a manner that results in such abuse. The examples of non-party conduct that were referenced in Laval Tool as potentially deserving of a costs sanction against a non-party, and the actual disposition made by the court on the facts before it, reinforce this. They are all cases where the non-party was actively involved in the instigation or conduct of the litigation or actively asserted a significant degree of control over it, and thus brought about the abuse of process.

[60] The reference to conduct resembling that of a maintainer is consistent with this theme, since the tort of maintenance is committed by a person who “for an improper motive, often described as wanton or officious intermeddling, become involved with disputes (litigation) of others in which [they have] no interest whatsoever and where the assistance [they render] to one or the other parties is without justification or excuse”: McIntyre Estate v. Ontario (Attorney General) (2002), 2002 CanLII 45046 (ON CA), 61 O.R. (3d) 257 (C.A.), at paras. 26-27. The tort of champerty is a more egregious form of maintenance as the maintainer shares in the profits of the litigation: McIntyre Estate, at para. 26.

....

[74] Even though the loans preceded the enactment of s. 33.1 of the CPA which now governs court approval of third-party funding agreements for class proceedings, the trial judge was of the view that Mr. Zuber, or his counsel, was required to obtain approval under the common law. At common law, a number of factors were considered before a funding agreement for a class proceeding was approved: Houle v. St. Jude Medical Inc., 2017 ONSC 5129, 9 C.P.C. (8th) 321, at paras. 63-65, aff’d 2018 ONSC 6352 (Div. Ct.), 29 C.P.C. (8th) 409. One factor was that the agreement could not interfere with the right of the representative plaintiff to control the litigation: Houle, at para. 64.[9]

....

[76] I agree with the trial judge that the question of whether the loans should receive court approval and the question of whether the lenders engaged in an abuse of process are discrete questions. A failure to receive court approval of a third-party funding agreement does not necessarily mean the lenders engaged in conduct amounting to an abuse of process. Nothing in the case law preceding s. 33.1 of the CPA suggests that outcome. As the trial judge noted it was Mr. Zuber and his counsel who were required to seek approval, not the lenders.[10] Moreover, at common law, the result of failing to obtain court approval where required is that the funding agreement does not come into force: Fehr v. Sun Life Assurance Company of Canada, 2012 ONSC 2715, 25 C.P.C. (7th) 68, at paras. 89-90.[11] That would affect the enforcement of the loans as between Mr. Zuber and the lenders. It would not in and of itself justify imposing costs liability on the lenders in favour of the appellants.

[77] In conclusion, I am not persuaded by any of the appellants’ arguments that the trial judge erred in his approach to Laval Tool. It was open to the trial judge to find that the lenders, although they advanced loans at onerous rates of interest which accumulated to amounts in excess of what was available as a reasonable settlement, did not instigate or conduct Mr. Zuber’s litigation in a manner that constituted an abuse of process so as to attract costs liability as non-parties.
. Frank v. Legate

In Frank v. Legate, 2015 ONCA 631 (CanLII) (Ont CA, 2015) the Court of Appeal stated as follows on tort of champerty and maintenance:
[64] In McIntyre Estate v. Ontario (Attorney General) (2002), 2002 CanLII 45046 (ON CA), 61 O.R. (3d) 257 (C.A.), O’Connor A.C.J.O. noted, at para. 25, that the torts of champerty and maintenance continue to be actionable upon proof of special damage. Associate Chief Justice O’Connor undertook a thorough review of the development of these torts in Canada and England. He discerned four general principles from this review of the common law, at para. 34:
− Champerty is a subspecies of maintenance. Without maintenance, there can be no champerty.

− For there to be maintenance, the person allegedly maintaining an action or proceeding must have an improper motive, which motive may include, but is not limited to, officious intermeddling or stirring up strife. There can be no maintenance if the alleged maintainer has a justifying motive or excuse.

− The type of conduct that has been found to constitute champerty and maintenance has evolved over time so as to keep in step with the fundamental aim of protecting the administration of justice from abuse.

− When the courts have had regard to statutes such as the Champerty Act and the Statute Concerning Conspirators, they have not interpreted those statutes as cutting down or restricting the elements that were otherwise considered necessary to establish champerty and maintenance at common law.
.....

[68] First, it is not possible to make a claim for champerty, which requires the maintainer to share in the profits of the litigation, with respect to complaints made to the College. Damages cannot be awarded in those proceedings. Consequently, there are no profits to share. I am also aware of no case law, and the appellant has not provided the court with any, where a maintenance claim has been made regarding complaints to a regulatory body.

[69] Second, I also agree with the submission of the respondents that the claim was premature, since none of the underlying actions or complaints had been concluded at the time the claim was issued.

[70] Other than a passing reference in Lorch v. McHale (2008), 2008 CanLII 35685 (ON SC), 92 O.R. (3d) 305 (S.C.), at para. 34, aff’d 2009 ONCA 161 (CanLII), there is no Ontario case law that addresses the issue of whether a claim for champerty and maintenance can be asserted prior to the conclusion of the underlying action.

[71] In Oldford v. Canadian Broadcasting Corp., 2004 NSSC 105 (CanLII), 223 N.S.R. (2d) 380, Coughlan J. dealt with the issue squarely. He concluded that a claim for maintenance is not actionable without proof of actual loss. Actual loss will not be incurred if the maintainer is successful in the underlying action. On that basis, he struck a claim for champerty and maintenance regarding an underlying claim that had not been concluded.

[72] Justice Coughlan thoroughly reviewed the English authorities that address this point. He placed considerable reliance on the reasoning of Lord Shaw and Lord Phillimore in Neville v. London Newspapers Ltd., [1919] A.C. 368 (H.L.). While Coughlan J. recognized that the two majority decisions in Neville were divided on the issue of whether unsuccessful litigants can later make a claim for champerty and maintenance, he ultimately concluded that they could not.

[73] I agree with Coughlan J.’s analysis on this issue. There can be no champerty or maintenance if the maintainer has a justifying motive or excuse. As stated by Lord Phillimore in Neville, at p. 433, “the justification or excuse is to be found in the righteousness of the suit and the proof of its righteousness is its success.” It follows that the lawfulness of a defendant’s position in maintaining litigation can only be determined once the litigation has concluded.

[74] As noted in McIntyre at para. 47, the public policy animating the law of champerty and maintenance has always been to protect the administration of justice from abuse. In those instances where our judicial system is being abused, it is only fair that the aggrieved party is entitled to compensation. But where the underlying action or defence is a valid and legitimate use of the court system, there can be no damages based on these causes of action.

[75] An action for champerty and maintenance that precedes the conclusion of the underlying action puts the cart squarely before the horse. Moreover, the premature use of these torts is abusive to the administration of justice because it serves to obstruct the prosecution of legitimate claims and defeat the assertion of valid defences. This, of course, is contrary to the public policy rationale for these torts.

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Last modified: 23-10-23
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