Case reference: 1318847 Ontario Ltd. v. Laval Tool & Mould Ltd. 2017 ONCA 184
This historical case summary discusses the decision identified above. Later decisions and legislative changes may affect how it applies today. Obtain legal advice about your circumstances.
Two separate actions were commenced for damages for breach of contract and unjust enrichment arising out of tax consulting services allegedly performed by A for the defendant. The first action was commenced by 131, a company of which A was a principal and shareholder, as the sole plaintiff. The second action was commenced by A in his own name and 131’s name. The two actions were tried together. The trial judge found that there was no evidence that the defendant had contracted with either 131 or A, or that 131 had ever performed any services for the defendant. Rather, A had decided to invoice the defendant through 131 for his own personal tax purposes and had used 131 as a plaintiff because of his misguided view that he could advance a personal claim through any corporate entity with which he was associated. Both actions were dismissed. The trial judge refused to award costs against A in the 131 action, as the court’s jurisdiction to award costs under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 is restricted to orders against parties to the proceeding, and the court’s inherent jurisdiction to award costs against a non-party is restricted to cases where the non-party puts forward a “person of straw” in order to insulate the non-party from costs. A’s motive in using 131 as a plaintiff was not to protect himself from a potential costs award. The defendant appealed the costs order.
Held, the appeal should be allowed.
The court’s inherent jurisdiction to control its own process permits an order of costs against a non-party who commits an abuse of process. That jurisdiction is not restricted to “persons of straw” situations. The language of s. 131 of the Courts of Justice Act does not exclude inherent jurisdiction to order costs against a non-party who commits an abuse of process. In this case, the trial judge erred by failing to consider whether he had inherent jurisdiction to order costs against A because A had committed an abuse of process. It was an abuse of process for A to bring the action with 131 as the nominal plaintiff. The proceeding was fictitious, as there was no evidence that A or 131 ever performed services for the defendant. The effect was that the defendant had to defend two equally fruitless proceedings and incur the costs of each by retaining separate counsel. The matter should be remitted to the trial judge for the purpose of fixing the costs as against A personally.
Section 131(1) of the CJA provides:
131(1) 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.
(2) The test for non-party costs (i) Statutory jurisdiction
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.
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.J.), at para. 22, cited in Hazelwood v. Hazel- wood, [2013] O.J. No. 122, 2013 ONSC 25 (S.C.J.), at para. 12.
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 O.R.; Television Real Estate, at p. 299 O.R.; Atlantic Financial Corp. v. Henderson (2007), 86 O.R. (3d) 121, [2007] O.J. No. 2126 (S.C.J.), at para. 14; and Anchorage, at para. 27. As put by Veit J. in Kerr & Richard Sports Inc. v. Fulton, [1992] A.J. No. 869, 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.
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
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] 2 S.C.R. 162, [2016] S.C.J. No. 42, 2016 SCC 42, 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 when- ever 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.”
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.
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] O.J. No. 3793, 2016 ONSC 4358, 89 M.P.L.R. (5th) 258 (Div. Ct.), at para. 29.
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., [1976] 2 S.C.R. 475, [1975] S.C.J. No. 84, at p. 480 S.C.R.; and R. v. Rose (1998), 40 O.R. (3d) 576, [1998] 3 S.C.R. 262, [1998] S.C.J. No. 81, at para. 64. When it is exercised, courts must do so “sparingly and with caution”: R. v. Caron, [2011] 1 S.C.R. 78, [2011] S.C.J. No. 5, 2011 SCC 5, at para. 30.
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”.
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), 126 O.R. (3d) 541, [2015] O.J. No. 3318, 2015 ONCA 471.
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.
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] 2 S.C.R. 227, [2013] S.C.J. No. 26, 2013 SCC 26, at para. 39.
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.
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. 136-37 S.C.R.; and Smith v. Canadian Tire Acceptance Ltd. (1995), 22 O.R. (3d) 433, [1995] O.J. No. 327 (Gen. Div.), at pp. 448-49 O.R., affd (1995), 26 O.R. (3d) 94, [1995] O.J. No. 3380 (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) (2002), 61 O.R. (3d) 257, [2002] O.J. No. 3417 (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.
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.
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, supra, at para. 24; and Chapman Management & Consulting Services Ltd. v. Kernic Equipment Sales Ltd., supra, 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.
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 rule 57.07 of the Rules of Civil Procedure: see Galganov v. Russell (Township), [2012] O.J. No. 2679, 2012 ONCA 410, 294 O.A.C. 13, at paras. 12-22, leave to appeal to S.C.C. discontinued [2012] S.C.C.A. No. 382.
*source: Ontario Reports
