



COURT OF APPEAL FOR ONTARIO

CITATION: Quest Management Services Inc. v. Quest Management
    Systems, 2017 ONCA 999

DATE: 20171219

DOCKET: C63643

Strathy C.J.O., Juriansz and Huscroft JJ.A.

BETWEEN

Quest Management Services Inc.
and Quest Management Systems Inc.

Plaintiffs

and

Quest Management Systems, a
    division of 1281068 Ontario Inc.
and Eileen Shewen

Defendants (
Respondents
)

and

Peter Merrill

Third Party (
Appellant
)

David A. Schatzker, for the appellant

Bayo Odutola, for respondents

Heard: December 6, 2017

On appeal from the order of Justice Kofi N. Barnes of the
    Superior Court of Justice, dated March 24, 2017, with reasons reported at 2017
    ONSC 2537.

REASONS FOR DECISION

[1]

The motion judge
    awarded costs against Peter Merrill (Merrill), a non-party, the sole
    shareholder, president and director of Quest Management Systems Inc. (Quest),
    a plaintiff in this action. He did so because he found that the plaintiffs
    action was an abuse of process and that Quest had provided a fraudulent
    undertaking to the court on its application for an interlocutory injunction.

[2]

In relation to the
    abuse of process ground, he relied on his conclusion, in an earlier motion,
    that the application for an injunction was a fishing expedition, in order to
    cross-examine the defendants to see whether there were grounds for injunctive
    relief.

[3]

He also relied on an
    order of another judge, on a motion under Rule 2.1.01, dismissing the action as
    frivolous, vexatious and an abuse of process. That motion was not opposed by
    the plaintiffs, no evidence was adduced, and no order was sought for costs
    against Merrill at the time.

[4]

In relation to the
    fraudulent ground, the motion judge relied on an affidavit sworn by Merrill
    on behalf of Quest, on the application for an interlocutory injunction, giving
    the usual undertaking to damages on behalf of Quest. On the motion giving rise
    to this appeal, the respondents had filed evidence, consisting of Quests tax
    returns for the years ending December 31, 2013 and 2014. They argued that the
    tax returns demonstrated that Quest did not have sufficient assets to honour
    the undertaking. There was no other pertinent material filed on the motion.

[5]

The motion judge found
    that the evidence established that Merrill was the sole shareholder and
    president of Quest, that Quest had suffered losses of approximately $36,000 in
    2013 and $25,000 in 2012, had negative shareholder equity for the three years
    2012-2014 and had assets of less than $800.

[6]

He found that the
    undertaking given by Merrill on behalf of Quest was a fraudulent
    misrepresentation as to Quests means to satisfy a damage award and justified
    an award of costs against Merrill personally in order to prevent the
    administration of justice from being brought into disrepute.

[7]

The motion was argued on October 20, 2016, prior
    to the release of this courts decision in
1318847 Ontario Limited
    v. Laval Tool & Mould Ltd.
, 2017 ONCA 184,
134 O.R. (3d) 641,
on March 3, 2017. It does not appear that
Laval Tool

came to the attention of the motion judge before he released his
    reasons in this matter.

[8]

There was no evidence
    before the motion judge to establish that
Merrill
engaged in an abuse of process in
    commencing the action. There was no basis to award costs against Merrill simply
    because he was the president and sole shareholder of Quest.

[9]

Nor did the evidence in
    relation to the undertaking rise to the very high level of establishing that
    the undertaking itself was fraudulent. The motion for an injunction was
    dismissed. The undertaking was never called upon. It was never demonstrated
    that the plaintiffs could not honour the undertaking if called upon to do so.

[10]

This courts
    observations at para. 77 of
Laval Tool

are apposite. Costs may be ordered against a non-party principal
    of a corporation in exceptional circumstances (including fraud or gross
    misconduct in the instigation or conduct of litigation) if the principal commits
    an abuse of process. But costs should not be awarded simply because the principal
    directed the operations of the corporation. There was no evidence in this case
    of the requisite exceptional circumstances, and the motion judge erred in
    principle in awarding costs against the appellant.

[11]

For these reasons, the
    appeal is allowed and the order of the motion judge is set aside, as is the
    order with respect to costs of the motion. The costs of this appeal are fixed
    at $5,000, inclusive of disbursements and all applicable taxes, payable by the
    respondents.

G.R.
    Strathy C.J.O.

R.G.
    Juriansz J.A.

Grant
    Huscroft J.A.


