Sunday, March 1, 2015

Hearing Clinic - Win the battle but LOSE the war; Substantial costs awarded against NON-PARTIES

The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al., 2015 ONSC 1177 (CanLII)

Justice  J.W. Quinn J. in the costs decision resulting from a 72 day trial conducted over 3 years made the following aphoristic opening comments:

"[1] We have a marvellous legal system in Ontario. Anybody is permitted to walk into a courthouse and commence a civil law suit about anything. The court will patiently provide all of the time and services reasonably (and, sometimes, unreasonably) necessary. The matter may go on interminably (and, usually, does) but our accommodating nature does not abate; our patience persists; we listen, we sit and we listen some more. However, when the law suit ends, the idioms arrive: the chickens come home to roost;1 the jig is up;2 the second shoe is about to drop;3the cat is out of the bag;4 the fat lady sings;5 one sows what one reaps;6 and, here, so aptly, the cacophonous wail in the background is that of a piper, warming up and waiting to be paid7 the sum of $1,316,535.16, to be precise."

In the Hearing Clinic case the action was based on allegations of alleging "breach of contract, breach of fiduciary duty, fraudulent misrepresentation and negligence".   After 72 days of trial over three years, the Hearing Clinic proved only five minor breaches of contract, producing damages which were determined to be a nominal $423.20 (the trial reasons are at The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al., 2014 ONSC 5831 (CanLII).  Among other concerns the Justice took issue with the failure of the Plaintiffs to admit any facts:

"[75] Counsel for the defendants, in their written costs submissions, outline 45 facts that the plaintiff should have admitted but, instead, chose to vigorously and tirelessly litigate. I agree ..." [76] Instead of admitting these and other facts, Fridriksson squandered days and days of trial time and forced counsel for the defendants to devote days and days of preparation time."

Justice Quinn took what some may consider to be a bold step in finding that "non-parties" should be liable for costs.

"[107] I will set out again s. 131(1) of the Courts of Justice Act which is key to this particular issue: [Underlining added]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.  [108] Do the underlined words “by whom” include non-parties? Or should they be interpreted to mean “by which of the parties”? I would not restrict my interpretation to the latter but, instead, give to the underlined words in s. 131(1) their plain and ordinary meaning. Section 131(1) has its origins in the Ontario Judicature Act, 1881, c. 5 which means that 134 years have passed without that plain and ordinary meaning having been amended. It is my view that “by whom” includes non-parties."

Justice Quinn distinguished this as a situation where the. Orporation veil was being pierced in concluding that costs should be awarded against non-parties based on perpetuating a "fraud upon the Court".

[112] A case that is more factually relevant than any provided on behalf of the plaintiff, is Oasis Hotel Ltd. v. Zurich Insurance Co., [1981] B.C.J. No. 690, 124 D.L.R. (3d) 455 (B.C.C.A.), relied upon by the defendants. There, a corporation owned a hotel that burned down under suspicious circumstances and the insurer denied the claim. An individual named Surowiec, along with his wife, were the sole directors, officers and shareholders of the corporation. The trial judge found the testimony of Surowiec to be patently untrue. In affirming the personal costs ordered by the trial judge, Lambert J.A., writing for the Court, held, at para. 23:

              I conclude that there is no authority in Canada that either binds me or persuades me to the conclusion that in a case where the court is made the instrument to perpetrate a fraud, the court cannot award the costs of the proceedings that are instigated as part of the fraud to be paid by the active mind that put the fraud into effect and directed the institution of the court proceedings.

and at para. 29:

               . . . I do not regard this case as a case about the piercing of the corporate veil . . . I am satisfied that the [personal costs] order made by [the trial judge] does not violate the sanctity of the corporate personality. This was a case of fraud. In such cases the individual who conceives and carries out the fraud cannot shield behind a corporation that he controls."

"[121] Fridriksson and Klassen should be jointly and severally responsible, along with the plaintiff, for the costs that I have awarded in connection with the 11 failed allegations of fraudulent misrepresentation in which my findings at trial were that evidence had been deliberately fabricated and the truth deliberately withheld. Although I did not say so in my Trial Reasons, I say now, that it was all in an effort, effectively, to perpetrate a fraud upon the court."

I practice as a lawyer in Alberta.  A brief search of Alberta law using CanLii revealed only older case law supportive of Alberta Courts granting costs against non-parties.  I have not done an assessment of this possibility under the new Rules of Court, but the Niagra Hearing case may inspire some lawyers to make the argument.