Canada: Court Of Appeal For Ontario Clarifies The Authority To Order Non-Party Costs

Last Updated: March 13 2017
Article by Rob B. Macdonald

Overview

On March 3, 2017, the Court of Appeal for Ontario released its decision in 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184.

The decision is important to civil litigators across Canada as the court:

  1. confirmed that the court has always had the power under statute and its inherent jurisdiction to order costs against a non-party;
  2. clarified the two sources of the court's jurisdiction to order non-party costs;
  3. restated and clarified the "person of straw" test, which stems from section 131 of Courts of Justice Act; and,
  4. clarified the circumstances under which the court can invoke its inherent jurisdiction and order non-party costs.

Whereas past decisions have demonstrated ambiguity over when and how the court can order non-party costs, this decision offers a clear statement on the court's authority and the circumstances in which non-party costs may be ordered.

The Trial Decision

1318847 Ontario Limited ("131"), and its principal and shareholder, Emmanuel Azzopardi, commenced two separate actions against Laval Tool & Mould Ltd. ("LTM"). LTM was a family business, founded by Azzopardi's late father and operated by some of his siblings.1 131 claimed damages for breach of contract and unjust enrichment arising out of tax consulting services that Azzorpardi allegedly performed for LTM. Both action were tried together.

The trial judge found no evidence to support allegations that LTM had contracted with either 131 or Azzopardi, or that 131 had ever performed any services for LTM. The only connection between 131 and LTM was Azzopardi's decision to invoice LTM through 131 for his own personal income tax purposes2.

The use of 131 as a plaintiff was based on Azzopardi's mistaken view that he could advance a claim for tax services performed in his personal capacity through any corporate entity with which he was associated3. According to the court, neither Azzorpardi or 131 were entitled to assert a claim based on the principles of quantum meruit and unjust enrichment4. As a result, the trial judge dismissed both actions.

LTM asked that costs be awarded against Azzopardi personally in the first action, in which only 131 was the plaintiff.

The trial judge declined to order costs against Azzopardi personally. He cited section 131 of the Courts of Justice Act, which states:

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.

The trial judge held that, in light of the language of section 131, the court's authority to order non-party costs was restricted to the parties to a proceeding5.

However, referring to the case law that followed the High Court's 1911 decision in Re Sturmer and Town of Beaverton6, he also acknowledged that costs may be awarded against non-parties where the non-party is "the real litigant" and, in an attempt to avoid liability for costs, puts forth a "man of straw" to prosecute the litigation7. Citing the evidence before him, the trial judge held that Azzopardi was not a "man of straw", as his motive for using 131 to sue LTM was to avoid tax consequences, not to avoid a cost award in the litigation8.

The Court of Appeal's Conclusion on Past Case Law

The Court of Appeal highlighted that, since Sturmer, there has been considerable ambiguity in the case law as to whether the court possesses the inherent jurisdiction to order non-party costs.

As a result, the Court of Appeal proposed to use its decision in 1318847 Ontario Limited v. Laval Tool & Mould Ltd. to untangle the two sources of the court's jurisdiction to order non-party costs, explain how the distinct powers interact, and give guidance on how each may be exercised.

The Court's Statutory Jurisdiction to Order Non-Party Costs

The Court of Appeal held that any assessment of the appropriateness of ordering non-party costs must begin by considering the court's statutory jurisdiction under section 131 of the Courts of Justice Act.

The court confirmed that section 131 limits the court's discretion to order costs against named parties unless the following elements of the "person of straw" test are each satisfied:

  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 Court of Appeal stated that "man of straw" test had to be analyzed by deciding whether the "intention, purpose or motive of the non-party in putting the named party forward was to avoid liability for costs"9 . Further, the court said that the "man of straw" test 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"10 .

The Court's Inherent Jurisdiction to Order Non-Party Costs

The Court of Appeal confirmed that superior courts have inherent discretionary jurisdiction to order non-party costs in situations where the non-party has initiated or conducted litigation in a way that amounts to an abuse of process11.

Courts or tribunals lacking inherent jurisdiction may only order non-party costs if they have statutory jurisdiction12.

The court was also careful to note the limits on the court's inherent jurisdiction. It cannot be exercised in a manner contrary to statute, or where the legislature has used "clear and precise statutory language" to exclude it13. The court held that the power to order non-party costs does not conflict with the statutory authority granted under section 131 of the Courts of Justice Act because the language in section 131 is "permissive".14

The Court of Appeal set out some established situations where the court can order non-party costs:

  1. where non-parties engage in an abuse of process;15
  2. where non-parties have engaged in conduct that amounts to the tort of maintenance16; and,
  3. exceptional circumstances where non-party directors, shareholders or principals of corporations commit an abuse of process17.

The court also left the door open for additional situations where orders for non-party costs may be appropriate:

Situations of gross misconduct, vexatious conduct, or conduct by a non-party that undermine the fair administration of justice other than those discussed above can be envisioned18.

Parties are cautioned that if they intend to seek costs against a non-party, the non-party should be put on notice:

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. 4419.

The Result

The Court of Appeal allowed the appeal, and remitted the matter back to the trial judge to fix costs against Azzopardi personally.

This decision will be helpful to parties (and their counsel) who find themselves defending an action that is being driven by someone other than the named plaintiff. Non-parties cannot shelter themselves from the court's authority, and may be subject to a cost award based on their conduct.

Footnotes

1. 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184, para. 3.

2. ibid, para. 7.

3. ibid, para. 8.

4. ibid, para. 9.

5. ibid, para. 11.

6. (1911), 25 O.L.R. 190 (H.C.) ("Sturmer")

7. ibid.

8. ibid, paras. 12 and 13.

9. 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184, para. 61.

10. ibid, para. 64.

11. ibid, para. 65 - 66.

12. ibid, para. 67.

13. ibid, para. 68.

14. ibid, para. 69 - 71.

15. ibid, paras. 72 – 74.

16. ibid, para. 75.

17. ibid, para. 77.

18. ibid, para. 76.

19. ibid, para. 79.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.