



COURT OF APPEAL FOR ONTARIO

CITATION: 1318847 Ontario Limited v. Laval Tool & Mould
    Ltd., 2017 ONCA 184

DATE: 20170303

DOCKET: C61886

Strathy C.J.O., LaForme and van Rensburg JJ.A.

BETWEEN

1318847 Ontario Limited

Plaintiff (Respondent)

and

Laval Tool & Mould Ltd.

Defendant (Appellant)

James K. Ball, for the appellant

Matthew Todd, for the respondent 1318847 Ontario Limited
    and for Emmanuel Azzopardi

Heard: October 13, 2016

On appeal, with leave, from the costs order of Justice
    Gregory J. Verbeem of the Superior Court of Justice, dated November 5, 2015.

Strathy C.J.O.:

A.

tHE ISSUE ON THE APPEAL

[1]

What
    is the scope of the courts jurisdiction to order costs against a non-party? Is
    it confined to cases where a non-party puts forward a person of straw to
    avoid liability for costs, or does the court have broader jurisdiction?

[2]

For
    the reasons that follow, I conclude that the courts inherent jurisdiction to
    control its own process permits it to order that costs be paid by a non-party.
    That jurisdiction is not limited to the person of straw scenario or by s.
    131(1) of the
Courts of Justice Act
, R.S.O. 1990, c. C.43 (
CJA
).
    I discuss the scope of the courts jurisdiction below.

B.

The Litigation AT ISSUE

[3]

1318847
    Ontario Limited (131), and its principal and shareholder, Emmanuel Azzopardi,
    commenced two separate actions against Laval Tool & Mould Ltd. (LTM),
    claiming damages for breach of contract and unjust enrichment arising out of
    tax consulting services allegedly performed by Azzopardi for LTM. LTM was a
    family business, founded by Azzopardis late father and operated by some of his
    siblings.

[4]

The
    first action was commenced by 131 as the sole plaintiff. In its defence, LTM
    denied that it had contracted with either 131 or Azzopardi and denied that
    either had performed tax services for it.

[5]

Azzopardi
    commenced a second action, in both his own name and 131s name, alleging the
    same causes of action and claiming he was entitled to compensation if 131 was
    not successful in the first action.

[6]

The
    two actions were tried together. The defendants retained separate counsel in
    the two actions.

[7]

The
    trial judge found no evidence to support the 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 Azzopardis
    decision to invoice LTM through 131 for his own personal income tax purposes.

[8]

The
    use of 131 as a plaintiff was based on Azzopardis mistaken view that he could
    advance a claim for tax services performed in his personal capacity through any
    corporate entity with which he was associated.

[9]

Nor
    was either plaintiff entitled to assert a claim based on the principles of
quantum
    meruit
and unjust enrichment. The majority of the claims in both
    proceedings were, in any event, time-barred.

[10]

The trial judge
    therefore dismissed both actions. He invited written submissions on costs and
    asked counsel to address LTMs request that the costs of the first action, in
    which 131 was the sole plaintiff, be awarded against Azzopardi personally. He
    also asked for submissions on whether, and to what extent, LTMs choice to
    retain separate counsel in the two proceedings should be taken into account in
    the quantum of costs.

C.

THE TRIAL JUDGEs reasons on costs

[11]

The trial judge
    ultimately refused to order costs against Azzopardi. He noted that the courts
    jurisdiction to make costs orders under s. 131 of the
CJA
is
    restricted to orders against parties to the proceeding:
Rockwell
    Developments Ltd. v. Newtonbrook Plaza Ltd.
(1972), 3 O.R. 199 (C.A.), at
    p. 207. He acknowledged, however, at para. 34 of his reasons, that costs may be
    awarded against a non-party where the non-party is the real litigant who,
in order to avoid liability for costs
, puts forth a man
    of straw to prosecute the litigation (emphasis in original). He referred to:
Rockwell
,
    at p. 211;
Television Real Estate Ltd. v. Rogers Cable T.V. Ltd
.
    (1997), 34 O.R. (3d) 291 (C.A.), at pp. 295-296; and
Middlesex Condominium
    Corp. No. 232 v. Bodkin
, 2014 ONSC 106 (Div. Ct.), at para. 27.

[12]

However, the trial
    judge held that 131 was not a person of straw put forward by Azzopardi to
    protect himself from costs. Rather, it was a plaintiff as a result of
    Azzopardis misguided view that he could assert a personal claim against LTM
    through his corporation. Based on that misguided view, Azzopardi caused 131
    to issue an invoice to LTM for compensation for tax services he allegedly
    performed in his personal capacity. The invoice was issued at a time when
    litigation and potential costs consequences were not in contemplation, and it
    was issued through 131 in order to secure a tax advantage, not to insulate
    Azzopardi from a potential costs award.

[13]

The trial judge
    concluded that Azzopardis motive in causing 131 to commence the action was not
    to avoid liability for costs. It was, therefore, inappropriate to make a
    non-party costs order against him in the 131 action.

D.

The parties submissions

(1)

Appellants submissions

[14]

The appellant submits
    that the standard of review of the trial judges costs judgment is correctness
    because he failed to consider or misapplied the legal criteria defining his
    discretion to order costs against a non-party: see
British Columbia
    (Minister of Forests) v. Okanagan Indian Band
, 2003 SCC 71, [2003] 3
    S.C.R. 71, at para. 43; and
Housen v. Nikolaisen
, 2002 SCC 33, [2002]
    2 S.C.R. 235, at para. 31.

[15]

The appellant submits
    that the courts jurisdiction to order costs against a non-party is not limited
    to the person of straw scenario. It relies on
Curry v. Davidson
,
    (1922), 23 O.W.N. 3 (H.C.), as support for the proposition that a court has
    jurisdiction to order non-party costs without having to apply the person of
    straw test
.

[16]

Thus, the appellant
    submits that the trial judge erred in confining his analysis to the
purpose
underlying Azzopardis use of 131 to litigate
    his claim. Instead of focusing on whether Azzopardis purpose was to avoid
    liability for costs, he should have considered the fact that Azzopardi orchestrated
    a fictitious claim that he advanced through 131 for his own financial benefit.

[17]

Furthermore, according
    to the appellant, policy reasons favour making costs awards against a non-party
    in broader circumstances than those captured by the person of straw test. The
    court can disregard the separate legal personality of a corporate entity
    where it is being used as a shield for fraudulent or improper conduct:
Transamerica
    Life Assurance Co. of Canada v. Canada Life Assurance Co
. (1996) 28 O.R.
    (3d) 423 (Gen. Div.), at pp. 433-434, affd, [1997] O.J. No. 3754 (C.A.).
    Holding Azzopardi liable for costs is appropriate because he used 131 to
    advance a fictitious claim.

(2)

Respondents submissions

[18]

The respondent submits
    that the trial judge committed no legal error in refusing to order non-party
    costs and that his costs decision should be afforded deference, citing
Housen
,
    at para. 3;
Hamilton v. Open Window Bakery Ltd
., 2004 SCC 9, [2004] 1
    S.C.R. 303, at para. 27;
McNaughton Automotive Ltd. v. Co-Operators General
    Insurance Co
., 2008 ONCA 597, 95 O.R. (3d) 265, at para. 27; and
Feinstein
    v. Freedman
, 2014 ONCA 205, 119 O.R. (3d) 65, at para. 52.

[19]

The respondent submits
    that the person of straw test exhausts the considerations that a court can
    take into account to order non-party costs. The test in this form has been
    applied numerous times by lower courts: see
Middlesex Condominium
, at
    para. 27. No decision following either
Rockwell
or
Television Real
    Estate
has expanded the scope of the courts jurisdiction in this regard.

[20]

According to the
    respondents,
Curry
does not assist the appellant because in
Rockwell
and
Television Real Estate
, the court would have been aware of
Curry
in formulating the test for non-party costs.
Curry
is also
    distinguishable from the present case because in
Curry
the non-party
    admitted to being the active promoter of the proceeding, whereas no such
    admission was made by Azzopardi in the case at hand.

[21]

The respondents
    maintain that the trial judge did not err by applying the person of straw
    test because at trial LTM had submitted that he should apply it. It is only
    now, on appeal, that LTM submits that the trial judge should have considered
    the purportedly fictitious and improper claim. The trial judge cannot be
    faulted for applying the law that he was initially asked to apply.

E.

ANALYSIS

[22]

Section 131(1) of the
CJA
provides:

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.

[23]

As I will explain, this provision has
    been interpreted as conferring
statutory
    jurisdiction
on courts to order costs against
    a non-party in specified circumstances, but there has been considerable
    ambiguity in the case law as to whether the court also possesses
inherent jurisdiction
to order
    non-party costs.

[24]

I will first discuss the case law and,
    in the process, expose the ambiguity. I will then disambiguate the two sources
    of the courts jurisdiction to order non-party costs and explain how they
    interact and should be respectively exercised.

(3)

Discussion

(i)

The decisions in
Sturmer

[25]

The seminal decisions on non-party
    costs arose out of
Re Sturmer and Town of Beaverton
(1911), 25 O.L.R. 190 (H.C.). They have been followed by
    courts across the country, including the Supreme Court of Canada: see
Young
    v. Young
, [1993] 4 S.C.R. 3, at p. 138;
269335
    Alta. Ltd. v. Starlite Invts. Ltd.
(1987), 53
    Alta. L.R. (2d) 142 (Q.B.), at p. 144;
Anchorage v. 465404 B.C. Inc.
, 1999 BCCA 771, 72 B.C.L.R. (3d) 389, at paras. 20-22;
Eastern
    Canada Coal Gas Venture Ltd. v. Cape Breton Development Corp
., [2002] N.S.J. No. 465 (S.C.), at para. 47; and
Conversions
    by Vantasy Ltd. v. General Motors of Canada Ltd.
,
    2003 MBQB 263, 179 Man. R. (3d) 173, at para. 22.

[26]

Henry Sturmer had brought an
    application to quash a local bylaw on the grounds that several individuals who
    voted in its favour were not qualified to vote. The Town of Beaverton brought a
    motion for security for costs.

[27]

In allowing the motion, Middleton J., sitting in Weekly
    Court, found that Sturmers application was instigated by two hotel keepers
    named Overend and Hamilton, who, to avoid liability for costs, put Sturmer
    forward as the applicant and became responsible to the lawyer who acted for
    Sturmer. Middleton J. stated, at p. 190, that [t]
he court has inherent
    jurisdiction to prevent abuse of its process, and, as part of this
    jurisdiction, will stay proceedings, as being taken against good faith, when a
    man of straw is put forward by those really litigating.

[28]

Overend and Hamilton paid security for
    costs into court. Sturmers application was heard and dismissed, as was an
    appeal to the Divisional Court: see (1911), 19 O.W.R. 255 (H.C.); and (1911),
    24 O.L.R. 65 (Div. Ct.). The costs payable to Beaverton exceeded the amount
    paid into court. Beaverton brought a motion to have the excess costs paid by
    the non-party Hamilton.

[29]

Chancellor Boyd made the non-party
    costs order: (1911), 25 O.L.R. 190 (H.C.). He wrote, at p. 192, that under s.
    119 of the
Judicature Act
, R.S.O.
    1897, c. 51, there was ample jurisdiction to deal with costs: full power is
    given to determine by whom and to what extent costs are to be paid. He added,
    however, that [t]here is inherent power in the Court to make a person who has
    set the Court in motion pay the costs of his unsuccessful application, and this
    though the person be not formally a party, but one who is the instigator and
    supporter of the movement. He continued, at pp. 192-193, that every court has
inherent jurisdiction, independently of any
    statute
, to order costs to be paid by anyone
    who puts it in motion wrongly in a fruitless and unjustifiable application
    (emphasis added).

[30]

The Divisional Court dismissed an
    appeal from Chancellor Boyds decision: (1912), 25 O.L.R. 566 (Div. Ct.). Clute
    J. said, at p. 571:

I agree with the Chancellor that, under the Judicature Act,
    there is now ample jurisdiction to deal with costs, full power being given to
    determine by whom and to what extent costs are to be paid: sec. 119; and in a
    case of this kind I am of the opinion that, where the real party litigant puts
    forward another person in whose name proceedings where taken, the Court has
    jurisdiction to impose costs against the real litigant.

[31]

Middleton J., now sitting on appeal,
    said, at p. 572:

It is quite true that the
    jurisdiction of the Common Law Courts to award costs must, in general, be found
    in some statute; but it is equally a recognized exception to this general
    statement that the Common Law Courts always had the power to award costs
    against one unsuccessfully invoking the aid of its process  And the Court always
    had the power to award costs against the real applicant when the motion was
    made by him in the name of a man of straw for the purpose of avoiding
    liability. [Citations omitted.]

He continued, at p. 576:

But, quite apart from any consideration of the law and practice
    before the Judicature Act as now amended, I think that Act makes our
    jurisdiction clear. In addition to the power originally conferred, which made
    all costs in the discretion of the Court, the Court now has full power to
    determine by whom and to what extent such costs are to be paid. [Citations
    omitted.]

[32]

Hamilton brought a
    motion for leave to appeal to the Court of Appeal, which was dismissed: (1912),
    25 O.L.R. 577 (C.A.). He submitted that, even if he instigated the proceedings
    for his own benefit, the courts had neither statutory nor inherent jurisdiction
    to order costs against him. Moss C.J.O. stated, at p. 578:

It is not necessary to express or form an opinion at present as
    to the effect, if any, of the provisions of the Judicature Act  in the matter
    of enlarging the powers and jurisdiction of the Court as regards directing
    payment of costs by persons not parties to the original proceeding, though it
    may well be that such is the case.

He held that objections founded on technical reasons
    are no longer permitted to prevent the Court from dealing, so far as costs are
    concerned, with one who has so intervened as to make himself the substantial
    though not the ostensible party.

[33]

The decisions in
Sturmer
were followed in
Curry
.
    The defendant brought a motion for an order requiring John Curry, the brother
    of the plaintiff, Joseph Curry, to pay the defendants costs in the action.
    John Curry admitted on cross-examination that he was directing the action for
    his brother and other family members. Kelly J. held, at p. 4, that John Curry
    was the active promoter of the litigation, and in some way personally
    interested therein, though not on the record as a party. He concluded that s.
    74 of the
Judicature Act
, R.S.O. 1914, c. 56, gave a very wide discretion
    to the Court to declare by whom and to what extent costs should be paid. The
Sturmer
decisions, especially the remarks of Moss, C.J.O., were also ample
    authority for ordering non-party costs.

(ii)

Commentary on the
Sturmer
decisions

[34]

As I read the
Sturmer
decisions, none of the judges
    who addressed the issue came to a definitive conclusion as to whether the
    courts jurisdiction to award non-party costs derived solely from statute or
    from its inherent jurisdiction to prevent abuse of process, proceedings taken
    against good faith or 
fruitless and unjustifiable
    litigation.
Chancellor Boyd and Middleton J. held that jurisdiction was
    imparted by
both
these sources. Moss C.J.O. stated
    that it was unnecessary to decide the point. In
Curry
, Kelly J. perpetuated
    the ambiguity by relying on the
Judicature Act
to order non-party
    costs and on Moss C.J.O.s reasons in
Sturmer
, which did not resolve
    the ambiguity.

[35]

What does emerge from the
Sturmer
decisions is a
    test for awarding non-party costs, even though the source of jurisdiction
    exercised in applying this test is unclear. The judges saw the test as applying
    where a named party of record is merely a man of straw, or the formal or
    ostensible litigant, while the non-party is the real or substantial
    litigant who set in motion, supported, instigated or actively promoted
    the litigation, putting forward the named party in its own place for the
    purpose of avoiding liability.

[36]

It is preferable to refer to the test as the person of
    straw test, as Sharpe J. (as he then was) did in
Scintilore Explorations
    Ltd. v. Larche
, [2000] O.J. No. 1612 (S.C.), at para. 17, affd, (2001),
    249 O.A.C. 280 (C.A.), leave to appeal to S.C.C. refused, [2001] S.C.C.A. No.
    454.

(iii)

The
    decisions in
Rockwell
and
Television Real Estate

[37]

Rockwell
is the first contemporary decision of this
    court dealing with non-party costs. The trial judge awarded costs against
    Kelner, the principal of the plaintiff corporation, after dismissing the
    plaintiffs action arising out of a disputed transaction for the purchase and
    sale of land.

Kelner appealed, and the defendant moved to quash the
    appeal on the ground that Kelner had no right of appeal and did not obtain
    leave from this court.

[38]

The defendant submitted that the trial judge exercised
    discretion in ordering non-party costs under s. 82 of the
Judicature Act
,
    R.S.O. 1970, c. 228, which had virtually identical language to s. 131(1) of the
    current
CJA
. Section 27 provided that no costs order left to the
    discretion of the court was appealable without leave.

[39]

Arnup J.A. held that the trial judge did not have such
    discretion. He stated, at p. 207, that in s. 82 the term by whom in the
    phrase the court or judge has full power to determine by whom and to what
    extent the costs shall be paid should be interpreted to mean by which of the
parties
to the proceeding before the court or
    judge (emphasis added). An unrestricted interpretation would lead to obvious
    absurdities, authorizing a court to order costs against a stranger to the
    proceedings who has no connection whatever with them, such as someone who
    happened to be sitting in the Court-room: pp. 204, 206.

[40]

Arnup J.A. noted that an appeal lay to the Court of Appeal without
    leave from a costs order that a judge had no jurisdiction to make. From this
    premise, he concluded that Kelner had a right to appeal on the ground that the
    trial judge lacked jurisdiction under s. 82 to order costs against him.

[41]

He held that the
Sturmer
decisions were consistent
    with this conclusion because, throughout all the proceedings in [
Sturmer
],
    the view was taken by all of the Judges who heard it that the applicant in the
    proceedings to quash a by-law was not the true applicant but was put forward by
    two others, who themselves had status to bring the proceedings, but who put
    forward a man of straw: p. 209.
Sturmer
was express authority for
    the proposition that under s. 82, the Court has jurisdiction to award costs
    against the real litigant, who had put forward a man of straw in his desire
    to avoid becoming liable for costs: p. 211.

[42]

Television Real Estate
is the second significant
    post-
Sturmer
decision of this court. The plaintiff corporation sued
    the defendant after the parties joint venture failed. The trial judge
    dismissed the action and ordered costs against Young and Molls, two directors
    of the plaintiff. The non-parties appealed, claiming that the trial judge had
    no jurisdiction under s. 131(1) of the
CJA
to order costs against them.

[43]

Finlayson J.A. noted, at pp. 295-296 that, because this
    court in
Rockwell
interpreted the predecessor to s. 131(1) as limiting
    the courts jurisdiction to order costs to orders against parties, the trial
    judge had no statutory jurisdiction to order costs against Young and Molls.
    However, he recognized at p. 296 that the person of straw test from
Sturmer
was an exception to the salutary rule in
Rockwell
. He stated, at pp.
    296-297:

Accordingly, in order to bring the appellants within the
    exception of
Sturmer
as applied in
Rockwell
, it was incumbent
    upon the respondent to show (1) that the appellants had status to bring the
    action against Rogers Cable themselves; (2) that TVR was not the true plaintiff
    and (3) that TVR was a man of straw put forward to protect the appellants and
    presumably Burry from liability for costs.

[44]

In both
Rockwell
,
    at p. 213, and
Television Real Estate
, at p. 300, this court held that
    the trial judges acted without statutory jurisdiction by ordering non-party
    costs because the person of straw test was not satisfied.

(iv)

Commentary on
Rockwell
and
Television Real Estate

[45]

Rockwell
and
Television
    Real Estate
establish that s. 131(1) of the
CJA
confers
    jurisdiction to order non-party costs only if the person of straw test is
    met. If a court makes such an order when the test is not met, it exceeds its
    statutory jurisdiction: see also
Elliott v. Toronto (City)
(1999), 43
    O.R. (3d) 392 (C.A.), at p. 414; and
Rooney (Litigation Guardian of) v.
    Graham
(2001), 53 O.R. (3d) 685 (C.A.), at para. 15.

[46]

Section 131(1)
    authorizes costs awards against parties only. The person of straw test
    recognizes that the court can look behind a named party to order costs against
    the real party who instigated the litigation. In this circumstance, it is as if
    the real promoter is, in fact, the party captured within the jurisdictional
    ambit of s. 131(1), and the court can trace responsibility for the costs
    created by the litigation to that party.

[47]

But
Rockwell
and
Television Real Estate
do not dispel the ambiguity as to whether the
    court also has inherent jurisdiction to order non-party costs. The discussion
    of the person of straw test in these decisions only takes place within the
    context of explaining the courts statutory jurisdiction under s. 131(1) of the
CJA.
Arnup J.A. and Finlayson J.A. each held that the person of
    straw scenario constitutes an exception to the rule that s. 131(1) only
    captures parties. I note that, in each case, the judges also adopted statements
    from
Sturmer
that the court has inherent jurisdiction to order costs
    against non-parties who commit an abuse of process or who advance fruitless and
    unjustifiable litigation: see
Rockwell
, at pp. 210-211; and
Television
    Real Estate
, at p. 296.

(v)

Other decisions following
Sturmer

[48]

Other decisions of
    this court have not resolved the ambiguity. They suggest that the power to
    order non-party costs is founded on the courts inherent jurisdiction to
    protect against abuse of process or the improper conduct of litigants.

[49]

In
Alexanian v.
    Dolinski
(1973), 2 O.R. (2d) 609 (C.A.), this court overturned a trial
    judges decision to order non-party costs. McGillivray J.A. stated, at p. 625,
    that the order would have been warranted if some gross misconduct on the
    non-partys part was shown, but concluded it was not. He went on, at p. 626, to
    consider the person of straw test as a separate inquiry into whether
    non-party costs were appropriate.

[50]

In
Dallas/North
    Group Inc. (Bankrupt), Re
, (2001), 148 O.A.C. 288 (C.A.), this court
    affirmed the decision of a bankruptcy judge to order non-party costs. A company
    called Ecology petitioned Ted Pangia into bankruptcy after a barrage of
    proceedings against him based on alleged outstanding debts. There was no
    evidence of the alleged debts and there was evidence that two individuals,
    Mazza and Axton, initiated the petition for the purpose of removing Pangia as
    the officer and director of Ecology and to reduce his shareholdings. Labrosse
    J.A. stated, at para. 13, that the non-parties did not put Ecology forward as a
    person of straw, and that, instead, the principles that are applicable in
    the present case are principles about costs involving duplicity and abuse of
    the Court. He held that the severe financial and reputational consequences to
    a person petitioned into bankruptcy justified costs against those who misuse a
    bankruptcy court in this fashion.

[51]

In
St. James
    Preservation Society v. Toronto (City)
, 2007 ONCA 601, 227 O.A.C. 149,
    this court overturned a trial judges decision to order non-party costs against
    Grange and Currie, directors of the St. James Preservation Society. The
    Society brought an unsuccessful application to quash Toronto bylaws as
    violating the terms of a trust with respect to property on which St. James
    Cathedral was located. Although Weiler J.A. held that Grange and Currie did not
    engage in misconduct, she stated, at para. 52, that [t]he court clearly has
    authority, derived from its inherent jurisdiction to prevent an abuse of
    process, to award costs against a non-party who has proved to be the real
    person controlling the litigation but has put forward a man of straw to avoid
    liability for costs or other reasons.

(vi)

Other provinces

[52]

The
    ambiguity in the Ontario cases as to whether jurisdiction to order non-party
    costs is statutory, inherent, or both, has not developed in British Columbia.

[53]

Section 3 of the
Supreme Court Act
,
    R.S.B.C. 1996, c. 443, provides:

The Chief Justice, Associate Chief Justice and
    judges have all the powers, rights, incidents, privileges and immunities of a
    judge of a superior court of record, and all other powers, rights, incidents,
    privileges and immunities that on March 29, 1870, were vested in the Chief
    Justice and the other justices of the court.

This provision preserves the
    historical inherent jurisdiction of the British Columbia Supreme Court. British
    Columbia courts have interpreted this provision as permitting them to invoke
    inherent jurisdiction to make costs awards. In
Oasis Hotel Ltd. v.
    Zurich Insurance Co.
(1981), 28 B.C.L.R. 230 (C.A.), Lambert J.A. wrote,
    at p. 233:

In England and in Ontario the powers of the superior courts of
    England and Ontario to award costs have been set out in statutory form. It may
    be that the statutory powers of those courts have replaced their ancient
    powers. However that may be, it is not the case in British Columbia. The full
    powers of the High Court of Chancery and the ancient courts of common law have
    descended to us, unimpaired. [Citations omitted.]

[54]

Amendments made in 1990 to the
Supreme Court Rules
, B.C. Reg. 221/90,
    suggest that in British Columbia the court may now have statutory jurisdiction
    to order costs: see
Gichuru v. Smith (c.o.b. Howard Smith & Co.)
,
    2014 BCCA 414, 65 B.C.L.R. (5th) 72, at paras. 97-98, leave to appeal to S.C.C.
    refused, [2014] S.C.C.A. No. 547. However, inherent jurisdiction has continued
    to be invoked in respect of non-party costs:
Le Soleil Hospitality Inc. v.
    Louie
, 2011 BCCA 305, 308 B.C.A.C. 122, at para. 125, leave to appeal to
    S.C.C. refused, [2011] S.C.C.A. No. 442; and
Windsor Gold Mining and
    Exploration Inc. v. Laprise
, 2015 BCSC 1843, at para. 28.  British
    Columbia courts have ordered such costs where necessary to denounce a
    non-partys fraudulent conduct, abuse of process, or gross misconduct in the
    commencement or conduct or litigation, in addition to situations where the
    person of straw test from
Sturmer
is met:
Anchorage
, at
    paras. 25, 27;
Perez v. Galambos (c.o.b. Galambos & Co.)
, 2008
    BCCA 382, 83 B.C.L.R. (4th), at para. 17; and
Animal Welfare International
    Media Inc. v. WE International Media Ltd
., 2016 BCCA 372, 90 B.C.L.R.
    (5th) 96, at paras. 54-58.

[55]

The leading case is
Oasis
    Hotel
. The plaintiff hotel company was denied indemnification from the
    defendant insurers under an insurance contract between the parties after the
    plaintiffs hotel burned down. It was controlled by one Surowiec, who set fire
    to the hotel to access the insurance funds. The plaintiff was insolvent, and
    the defendants sought non-party costs against Surowiec. The British Columbia
    Court of Appeal accepted that Surowiec attempted to defraud the defendants and
    initiated the courts processes as an instrument of his fraud. Lambert J.A.
    stated, at p. 237:

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 can not 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.

Lambert J.A. concluded that there was inherent
    jurisdiction to order non-party costs in light of Suriowiecs fraudulent
    conduct, writing, at p. 238, that [t]he principles that are applicable are
    principles about costs in a case involving duplicity and abuse of the court.

[56]

Alberta courts have
    also relied on inherent jurisdiction to order non-party costs to deter abuse of
    process, fraud, or gross misconduct, as well as in the person of straw
    scenario:
Starlite Investments
, at p. 144;
20th Century Television
    & Appliances v. Midnapore Property Investments Ltd.
(1991), 120 A.R.
    114 (C.A.), at p. 114;
358427 Alberta Inc. v. Monenco Advisory Services
    Ltd.
, 1998 ABQB 16, 211 A.R. 386, at para. 24;
Harris Scientific
    Products Ltd. v. Araujo
, 2005 ABQB 850, 382 A.R. 377, at paras. 20-24;
Chapman
    Management & Consulting Services Ltd. v. Kernic Equipment Sales Ltd
.,
    2006 ABQB 227, 400 A.R. 1, at para. 25; and
Ernst & Young Inc. v.
    Central Guaranty Trust Company
, 2010 ABQB 26, 479 A.R. 202, at paras.
    101-110.

[57]

In Manitoba, s. 96(1)
    of the
Court of Queens Bench Act
, C.C.S.M., c. C280, provides:

Subject to the provisions of an Act or the rules, the costs of
    or incidental to, a proceeding, or a step in a proceeding, are in the
    discretion of the court and the court shall determine liability for costs and
    the amount of the costs or the manner in which the costs shall be assessed.

Manitoba courts have interpreted s. 96(1) as
    conferring jurisdiction to order costs against parties only and regard the
    jurisdiction to order non-party costs as inherent. They have read
Rockwell
and
Television Real Estate
as establishing the person of straw
    scenario, not as an exception to the statutory rule, but as one factor to
    consider when exercising inherent jurisdiction, in addition to abuse of process
    or other misconduct: see
Kowalchuk v. Adduri
, 2000 MBQB 9, 146 Man. R.
    (2d) 180, at paras. 9-22; and
Conversions by Vantasy
, at paras. 20-31.

(vii)

Conclusion
    on past jurisprudence

[58]

Upon review of the
    case law, I conclude that since
Sturmer
it has always been acknowledged
    that the court has inherent as well as statutory jurisdiction to order
    non-party costs. In my view, however, it would bring clarity to the law on
    non-party costs in Ontario to disambiguate the two sources of the courts
    jurisdiction to order such costs. I turn next to this task.

(4)

The Test for Non-Party Costs

(i)

Statutory jurisdiction

[59]

Any assessment of
    whether it is appropriate to order non-party costs must begin by considering
    the courts statutory jurisdiction under s. 131(1) of the
CJA
. This
    provision limits the courts 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.

[61]

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.), at para. 22, cited in
Hazelwood v. Hazelwood
,
    2013 ONSC 25, at para. 12.

[62]

I agree with the
    comment of Smith J. in
Monenco
, that [o]ne can envision many reasons
    for litigating with a so called man of straw as the party, which do not include
    avoiding an award of costs and which include the enforcement of legitimate
    legal rights: para. 22. For example, Smith J. refers to church-backed
    proceedings  where the churchs principles are the real issue and motivating
    force behind the litigation as potentially justifying an award of costs
    against a non-party, while [m]ere financial aid by the church  does not
    amount to the authority required to comply with the real promoter test.

[63]

In the same vein, 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;
Television
    Real Estate
, at p. 299;
Atlantic Financial Corp. v. Henderson
(2007), 86 O.R. (3d) 121 (S.C.), at para. 14; and
Anchorage
, at para.
    27. As put by Veit J. in
Kerr & Richard Sports Inc. v. Fulton and Pulak
(1992), 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.

[64]

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
    courts 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

[65]

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 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 whenever 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.

[66]

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.

[67]

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 ONSC 4348, 89 M.P.L.R. (5th) 258 (Div. Ct.), at para. 29.

[68]

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, at p. 480; and
R. v. Rose
, [1998] 3 S.C.R. 262, at para. 64. When
    it is exercised, courts must do so sparingly and with caution:
R. v.
    Caron
, 2011 SCC 5, [2011] 1 S.C.R. 78, at para. 30.

[69]

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.

[70]

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 ONCA 471, 126 O.R. (3d) 541.

[71]

Although s. 131(1)
    confers statutory jurisdiction to order costs against parties only, this does
    not undermine the provisions permissiveness, as the provision
does not explicitly prohibit
the court from ordering
    non-party costs.

[72]

It would be arguably
    unconstitutional for s. 131(1) to exclude the courts inherent jurisdiction to
    order non-party costs, insofar as this power is grounded in the courts ability
    to control its own processes. This ability is likely part of the core
    jurisdiction of superior courts protected from legislative encroachment by s.
    96 of the
Constitution Act, 1867
: see
MacMillan Bloedel v. Simpson
,
    [1995] 4 S.C.R. 725, at paras. 27-42. It is not necessary to decide these
    points. But they support using the presumption of constitutionality to
    interpret s. 131(1) as not excluding the courts inherent jurisdiction to deter
    abuse of process by ordering non-party costs: see
Ontario v. Canadian
    Pacific Ltd
., [1995] 2 S.C.R. 1031, at paras. 12-15.

[73]

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 SCC 26, [2013] 2. S.C.R. 227, at para.
    39.

[74]

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
    courts processes as an instrument to defraud the defendant.

[75]

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.
    136-137; and
Smith v. Canadian Tire Acceptance Ltd.
(1995) 22 O.R.
    (3d) 433 (Gen. Div.), at pp. 448-449, affd (1995), 26 O.R. (3d) 94 (C.A.),
    leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 12. OConnor A.C.J.O.
    discussed this tort in
McIntyre Estate v. Ontario (Attorney General)
(2003), 61 O.R. (3d) 257 (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.

[76]

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.

[77]

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
, 2005 ABQB 850,
    382 A.R. 377, at para. 24; and
Chapman Management & Consulting Services
    Ltd. v. Kernic Equipment Sales Ltd
., 2006 ABQB 227, 400 A.R. 1, 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.

[78]

The courts inherent
    jurisdiction to order non-party costs to prevent misconduct amounting to an
    abuse of process is separate from and in addition to the courts jurisdiction
    to order costs against a solicitor of record under r. 57.07 of the
Rules of
    Civil Procedure
: see
Galganov v. Russell (Township)
, 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.

[79]

Before returning to
    the facts of the case at hand, I acknowledge that, as a matter of procedural
    fairness, non-parties must be given notice of a litigants 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 litigants 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. 44.

(5)

Application to the Facts of this Case

[80]

I shall address the
    appropriate standard of review before applying the test for non-party costs
    outlined above to the facts of this case.

[81]

Employing his
    fact-finding powers, the trial judge exercised his discretion under s. 131(1)
    of the
CJA
in refusing to invoke his statutory jurisdiction to order
    costs against Azzopardi in 131s action against LTM. His decision is entitled
    to deference and may be overturned only if it is plainly wrong or exhibits a
    palpable and overriding error, but it is subject to a correctness review if he
    misdirected himself as to the applicable law or made an error in principle:
Okanagan
,
    at para. 43; and
Open Window Bakery
, at para. 27.

[82]

The trial judge
    properly directed himself as to the applicable test for non-party costs set out
    in
Middlesex Condominium
. His key finding of fact was that Azzopardi
    put 131 forward as a plaintiff based on a mistaken view that he could assert
    his personal claim against LTM through his corporation. Azzopardi caused 131 to
    issue an invoice for tax services allegedly performed for LTM for the purpose
    of securing a tax advantage. His motive in putting 131 forward was not to
    shield himself from costs.

[83]

There is no error of
    principle in this reasoning. The person of straw test asks whether the
    non-party intentionally put forward the nominal plaintiff for the purpose of
    putting up a costs screen. The non-partys motive is relevant. The trial judge
    was correct to note this in refusing to order costs against Azzopardi.

[84]

Where the trial judge
    did commit an error in principle, however, was in not conducting a broader
    analysis of whether he had inherent jurisdiction to order costs against
    Azzopardi because Azzopardi committed an abuse of process. The case law since
Sturmer
establishes that the Superior Court does have this wider jurisdiction.

[85]

Had the trial judge
    considered his inherent jurisdiction and decided to order costs against
    Azzopardi, his decision would have been entitled to deference, as long as it
    was not so clearly wrong as to amount to an injustice and gave sufficient
    weight to relevant considerations:
Penner v. Niagara (Regional Police
    Services Board)
, 2013 SCC 19, [2013] 2 S.C.R. 125, at para. 27. But given
    that he made an error in principle in not considering his inherent
    jurisdiction, this court may review whether costs should be ordered against
    Azzopardi for having abused the courts processes.

[86]

In my view, it was an
    abuse of process for Azzopardi to bring an action against LTM with 131 as the
    nominal plaintiff. I agree with the respondent that the proceeding was
    fictitious, as there was no evidence that Azzopardi or 131 ever performed tax
    services for LTM. There was simply no good reason for Azzopardi to bring an
    action in 131s name rather than in his own name, and the reasons that
    Azzopardi thought he had were illusory. The effect was that LTM had to defend
    two equally fruitless proceedings and incur the costs of each by retaining
    separate counsel. LTMs resources, public resources and judicial resources were
    wasted.

[87]

Safeguarding public
    confidence in the fair administration of justice depends on preserving the
    availability of court facilities for justifiable proceedings and not permitting
    the costs of proceedings to be needlessly inflated, particularly at a time when
    delays and costs of litigation are so concerning from the perspective of access
    to justice: see
Hryniak v. Mauldin
, 2014 SCC 7, [2014] S.C.R. 87, at
    paras. 23-33. A costs sanction against Azzopardi would achieve these
    objectives.

[88]

In closing, I should
    note that I reject the respondents submission that the appeal should be
    dismissed because, at trial, the appellant advanced a claim based on the
    person of straw line of cases. While the appellants costs submissions used
    the expression straw man to refer to 131 as a nominal litigant, it was clear
    that it claimed costs on the basis that Azzopardi purposefully orchestrated a
    false claim.

F.

ORder

[89]

For these reasons, I
    would allow the appeal and remit the matter to the trial judge for the purpose
    of fixing the costs of the proceeding in the Superior Court as against the non-party
    Azzopardi personally. I would fix the costs of the appeal at $7,500, inclusive
    of disbursements and all applicable taxes, payable by Azzopardi.

Released: G.R.S. March 3, 2017

George R. Strathy
    C.J.O.

I agree. H.S.
    LaForme J.A.

I agree. K. van
    Rensburg J.A.


