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

Last Updated: March 13 2017
Article by Robert 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
Robert Macdonald
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions