COURT OF APPEAL FOR ONTARIO

CITATION: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158

DATE: 20170223

DOCKET: C62132

Laskin, Feldman and Hourigan JJ.A.

BETWEEN

Julia Wood

Plaintiff (Appellant)

and

Fred Deeley Imports Ltd.

Defendant (Respondent)

Eugene Meehan, Q.C., Daniel A. Lublin and Marc W. Kitay,
    for the appellant

Abdul-Basit Khan and S. Priya Morley, for the respondent

Heard: September 6, 2016

On appeal from the order of Justice Grant R. Dow of the Superior
    Court of Justice, dated April 19, 2016, with reasons reported at 2016 ONSC
    1412, [2016] O.J. No. 2111.

Laskin
    J.A.:

A.

Overview

[1]

The main issue on this appeal is whether a termination clause in an
    employment agreement between the parties is unenforceable because it
    contravenes Ontarios
Employment Standards Act
,
2000
[1]
(ESA).

[2]

The respondent, Fred Deeley Imports, was the exclusive Canadian
    distributor for Harley-Davidson motorcycles, parts, apparel and accessories. In
    April 2007, Deeley hired the appellant, Julia Wood, as a Sales & Event
    Planner. Eight years later, at the end of April 2015, Harley-Davidson Canada entered
    into an agreement with Deeley to buy all of its assets. As a result of the
    buyout, Deeley immediately told all of its employees, including Wood, that
    their employment would terminate on August 4, 2015. By the date of termination,
    Wood had worked for Deeley for eight years and four months. Her last annual
    compensation, including benefits, was approximately $100,000. When her
    employment ended, she was 48 years old.

[3]

Wood signed an employment agreement the day after she started working
    for Deeley in 2007. The agreement contained the termination clause at issue in
    this appeal. In its material parts, the clause provided:

[The Company] is entitled to terminate your employment at any
    time without cause by providing you with 2 weeks notice of termination or pay
    in lieu thereof for each completed or partial year of employment with the
    Company. If the Company terminates your employment without cause, the Company
    shall not be obliged to make any payments to you other than those provided for
    in this paragraph. The payments and notice provided for in this paragraph are
    inclusive of your entitlements to notice, pay in lieu of notice and severance
    pay pursuant to the
Employment Standards Act, 2000
.

[4]

Deeley paid Wood her salary and benefits for her 13 weeks of working
    notice (May 1 to August 4, 2015). Deeley also paid her additional compensation,
    including a lump sum equivalent to eight weeks pay.

[5]

Nonetheless, Wood started an action against Deeley and brought a motion
    for summary judgment. She contended that the entire employment agreement was
    unenforceable, and, in the alternative, that the termination clause was
    unenforceable. She asked for damages equivalent to 12 months notice of
    termination.

[6]

The motion judge dismissed Woods motion and held that both the employment
    agreement and the termination clause were enforceable. But he also held that if
    he was wrong, Wood would be entitled to damages equal to her salary and
    benefits for a reasonable period of notice. In his view, reasonable notice was
    39 weeks (nine months).

[7]

On appeal, Wood renews the arguments she made on her motion. She raises
    the following three issues:

1.

Is Woods employment agreement unenforceable because she signed it after
    she started working and was not provided with fresh consideration?

2.

Does the termination clause contravene the ESA because it excludes
    Deeleys statutory obligation to make benefit contributions during the notice
    period and it does not satisfy Deeleys statutory obligation to pay severance
    pay?

3.

Did the motion judge err by fixing the period of reasonable notice at
    nine months?

[8]

I would give effect to Woods argument on the second issue. I would
    therefore allow her appeal, and declare that she is entitled to damages equal
    to her salary and benefits for nine months.

B.

Issues

(1)

Is Woods employment agreement unenforceable?

[9]

Wood was offered a job with Deeley during a phone call on April 17,
    2007. She accepted the offer over the phone. A representative of Deeley then sent
    her an email outlining the terms of her employment. She cannot recall when she
    received the email, and neither side was able to produce a copy. The motion
    judge, however, found that the employment agreement was received by the
    plaintiff before she started working.

[10]

Wood
    started working for Deeley on April 23, 2007. The next day, April 24, she met
    with a human resources representative and signed various documents, including her
    employment agreement. The employment agreement itself is dated April 17, which
    was the day Wood accepted Deeleys offer of employment over the phone.

[11]

Wood
    submits that her employment agreement is unenforceable. She argues that because
    she signed it after she started working, it would be enforceable only if Deeley
    provided fresh consideration for her willingness to sign it, and Deeley did not
    do so.

[12]

Woods
    submission has no merit. A written employment agreement is not unenforceable
    merely because the employee signs it after starting to work. A written
    employment agreement might well be unenforceable if an employer includes in it
    a material term that was not part of the original employment relationship: see
Holland
    v. Hostopia.com Inc.
, 2015 ONCA 762, 342 O.A.C. 99. But Deeley did not do
    so.

[13]

The
    motion judge inferred that the terms of Woods employment with Deeley were
    contained in the email and that she received the email before she started
    working on April 23, 2007. The motion judges inferences were reasonable. In
    her evidence, Wood never claimed that on April 24, 2007, she was seeing her
    employment agreement for the first time. Nor did she claim that the agreement
    she signed contained any additional material term. The signing the day after
    she started working was no doubt a matter of administrative convenience. Deeley
    did not unilaterally impose a new term of her employment. Fresh consideration was
    therefore not required.

[14]

I
    would not give effect to this ground of appeal.

(2)

Does the termination clause contravene the ESA because it excludes
    Deeleys statutory obligation to make benefit contributions during the notice
    period and it does not satisfy Deeleys statutory obligation to pay severance
    pay?

[15]

At
    common law, an employee hired for an indefinite period can be dismissed without
    cause, but only if the employer gives the employee reasonable notice. In
Machtinger
    v. HOJ Industries Ltd.
, [1992] 1 S.C.R. 986, at p. 998, the Supreme Court
    characterized the common law principle of termination of employment on reasonable
    notice as a presumption, rebuttable if the contract of employment clearly
    specifies some other period of notice.

[16]

Ontario
    employers and employees can rebut the presumption of reasonable notice by
    agreeing to a different notice period. But their agreement will be enforceable
    only if it complies with the minimum employment standards in the ESA. If it
    does not do so, then the presumption is not rebutted, and the employee is
    entitled to reasonable notice of termination.

[17]

Deeley
    and Wood did agree to a different notice period. Thus, the main question on
    this appeal is whether the termination clause they agreed to contravenes the
    ESA. Wood submits that the clause does contravene the ESA because it excludes Deeleys
    statutory obligation to contribute to Woods benefit plans during the notice
    period and does not clearly satisfy Deeleys statutory obligation to pay
    severance pay on termination.

[18]

Before
    dealing specifically with the benefits and severance questions, I will set out
    the full termination clause and the relevant employment standards under the ESA,
    and then review the motion judges decision and the jurisprudence on
    interpreting employment agreements.

(a)

The termination clause and the relevant provisions of the ESA

[19]

The
    termination clause provides:

[The Company] is entitled to terminate your employment at any
    time without cause by providing you with 2 weeks notice of termination or pay
    in lieu thereof for each completed or partial year of employment with the
    Company. If the Company terminates your employment without cause, the
Company shall not be obliged to make any payments to you other
    than those provided for in this paragraph
, except for any amounts which
    may be due and remaining unpaid at the time of termination of your employment.
The payments and notice provided for in this paragraph are
    inclusive of your entitlements to notice, pay in lieu of notice and severance
    pay pursuant to the
Employment
    Standards Act, 2000
. [Emphasis added.]

[20]

An
    employment standard is a requirement or prohibition under the ESA that applies
    to an employer for the benefit of an employee. The following employment
    standards in the ESA are relevant to the interpretation of the termination
    clause
[2]
:

·

As Wood was employed for over eight years, Deeley was required to
    give her at least eight weeks notice of termination (s. 57(h)) (working
    notice);

·

Deeley could give Wood less than eight weeks notice, but only if
    it paid her a lump sum equal to the amount she would have received during the
    eight-week notice period (s. 61(1)(a)) (pay in lieu of notice);

·

Deeley was required to continue to contribute to Woods benefit
    plans during the eight-week period (ss. 60(1)(c) and 60(1)(b));

·

Because Deeley had a payroll of at least $2.5 million, and Wood
    was employed for over five years, Deeley was required to pay Wood severance pay
    on termination (s. 64(1));

·

Deeley was required to pay Wood severance pay equal to one weeks
    salary for every year or part of a year she was employed. Therefore, Deeley was
    required to pay Wood severance pay equal to eight and one-third weeks salary
    (s. 65(1));

·

Deeley could not contract out of these employment standards, and
    any termination clause that did so would be void (s. 5(1));

·

Deeley could provide Wood with a greater benefit than any of the
    employment standards, and if it did so, that employment standard would not
    apply (s. 5(2)). Deeley, in fact, did provide Wood with greater notice than the
    employment standard of one weeks notice for every year of employment.

[21]

In
    summary, Deeleys statutory obligations to give Wood at least eight weeks
    notice of termination of her employment, to continue its contributions to her
    benefit plans during the notice period, and to pay her severance pay of eight
    and one-third weeks salary were employment standards.  Deeley was precluded
    from contracting out of any of these employment standards, unless it
    substituted a greater benefit for Wood. Contracting out of even one of the employment
    standards and not substituting a greater benefit would render the termination
    clause void and thus unenforceable, in which case Wood would be entitled to
    reasonable notice of termination of her employment at common law.

(b)

The motion judges decision

[22]

Wood
    was dismissed without cause. Deeley terminated her employment and the
    employment of all of its other employees because it sold all of its assets.
    Thus, the enforceability of the termination clause became the main issue on the
    summary judgment motion.

[23]

The
    motion judge held that the termination clause was enforceable. He pointed out
    that the clause itself provided Wood with greater notice  18 weeks  than the
    employment standard in the ESA of eight weeks. He also pointed out that Deeley
    had given Wood working notice of 13 weeks, during which time it continued to
    contribute to her benefit plans, and had then given Wood a lump sum payment
    equivalent to eight weeks notice, for a total of 21 weeks of combined notice
    and pay in lieu of notice.

[24]

Finally,
    the motion judge noted that in
Roden v. Toronto Humane Society
(2005)
, 202 O.A.C. 351, this court
    upheld a termination clause, even though the clause did not refer to the
    employers obligation to continue its contributions to the employees benefit
    plans during the notice period.

(c)

The jurisprudence on interpreting employment agreements

[25]

The
    question of the enforceability of the termination clause turns on the wording
    of the clause, the purpose and language of the ESA, and the jurisprudence on
    interpreting employment agreements. That jurisprudence is now well-established.
    I will summarize it briefly.

[26]

In
    general, courts interpret employment agreements differently from other
    commercial agreements. They do so mainly because of the importance of
    employment in a persons life. As Dickson C.J.C. said in an oft-quoted passage
    from his judgment in
Reference re Public Service Employee Relations Act
    (Alberta)
, [1987] 1 S.C.R. 313, at p. 368:

Work is one of the most fundamental aspects in a persons life,
    providing the individual with a means of financial support and, as importantly,
    a contributory role in society. A persons employment is an essential component
    of his or her sense of identity, self-worth and emotional well-being.

[27]

As
    important as employment itself is the way a persons employment is terminated.
    It is on termination of employment that a person is most vulnerable and thus is
    most in need of protection: see
Wallace v. United Grain Growers Ltd.
,
    [1997] 3 S.C.R. 701.

[28]

The
    importance of employment and the vulnerability of employees when their
    employment is terminated give rise to a number of considerations relevant to
    the interpretation and enforceability of a termination clause:

·

When employment agreements are made, usually employees have less
    bargaining power than employers. Employees rarely have enough information or
    leverage to bargain with employers on an equal footing:
Machtinger
, p.
    1003

·

Many employees are likely unfamiliar with the employment
    standards in the ESA and the obligations the statute imposes on employers.
    These employees may not seek to challenge unlawful termination clauses:
Machtinger
,
    p. 1003

·

The ESA is remedial legislation, intended to protect the
    interests of employees. Courts should thus favour an interpretation of the ESA
    that encourages employers to comply with the minimum requirements of the Act
    and extends its protections to as many employees as possible, over an
    interpretation that does not do so:
Machtinger
, p. 1003.

·

Termination clauses should be interpreted in a way that
    encourages employers to draft agreements that comply with the ESA. If the only
    consequence employers suffer for drafting a termination clause that fails to
    comply with the ESA is an order that they comply, then they will have little or
    no incentive to draft a lawful termination clause at the beginning of the
    employment relationship:
Machtinger
, p. 1004.

·

A termination clause will rebut the presumption of reasonable
    notice only if its wording is clear. Employees should know at the beginning of
    their employment what their entitlement will be at the end of their employment:
Machtinger
, p. 998.

·

Faced with a termination clause that could reasonably be interpreted
    in more than one way, courts should prefer the interpretation that gives the
    greater benefit to the employee:
Ceccol v. Ontario Gymnastics Federation
(2001), 149 O.A.C. 315,
Family Counselling Centre of Sault Ste. Marie and
    District
(2001), 151 O.A.C. 35.

(d)

Does the termination clause contravene the ESA because it excludes
    Deeleys statutory obligation to contribute to Woods benefit plans during the
    notice period?

[29]

Woods
    compensation included a base salary, an incentive bonus, and contributions by
    Deeley to two benefit plans: a health and dental plan and a registered
    retirement savings plan (RRSP).

[30]

In
    her last year of employment, Woods annual base salary was $81,041.48. She was
    entitled to an annual incentive bonus of up to 14 percent of her base salary.
    Deeleys contributions to Woods health and dental plan were valued at $538.55
    monthly, and Deeley contributed an amount equal to nine percent of Woods
    salary to her RRSP ($7,196 in 2014). Wood also received a clothing allowance
    and was entitled to 18 days vacation. In her last full year of employment,
    Woods total taxable income was $101,020.24.

[31]

When
    Woods employment was terminated, she was given 13 weeks working notice (May 1
    to August 4, 2015). During that 13-week period, Deeley paid her base salary and
    made its required contributions to her health and dental plan. At the end of
    the 13-week period, Deeley paid Wood the following additional amounts:

·

$13,778, which was equal to eight weeks salary, and which Deeley
    claimed was compensation for Woods entitlement to severance pay under the ESA
    and any remaining entitlement under the termination clause;

·

$7,131, which was a pro-rated amount (for January to July) for
    her 2015 annual incentive bonus;

·

A payment for accrued and unused vacation pay; and

·

A payment for outplacement services.

[32]

Deeley
    also offered to pay Wood an additional $12,470, if she signed a release. That
    figure consisted of an RRSP contribution of $7,376 and a further pro-rated
    incentive bonus of $5,094 (for August to December 2015). But Wood refused to
    sign a release and therefore did not receive that payment.

[33]

If
    one looks at the termination clause itself, together with the actual payments
    Deeley made (or offered to make), Wood received more compensation than she
    would have received under the ESA. The termination clause provided for more
    than twice as much notice as the employment standard under the ESA  18 weeks,
    instead of 8 weeks. Wood received a total of 21 weeks salary (13 weeks
    working notice plus a lump sum payment for eight weeks), which was more than
    the 16.3 weeks salary she was entitled to under the ESA for notice (8 weeks)
    and severance pay (8.3 weeks). Deeley made contributions to Woods health and
    dental plan throughout the 13 weeks of working notice and offered to make its
    annual contribution to her RRSP (in exchange for signing a release).

[34]

Nonetheless,
    Wood contends that the termination clause is unenforceable because the clause expressly
    excludes Deeleys statutory obligation to contribute to Woods benefit plans
    during the notice period. Deeleys contributions to Woods health and dental
    plan and her RRSP formed part of her compensation package. Thus, Wood argues,
    the termination clause contravenes ss. 60 and 61 of the ESA and, under s. 5(1),
    is void.

[35]

In
    support of her argument, Wood makes two specific submissions. First, Deeleys voluntary
    contributions or offer to contribute to Woods benefit plans after giving her
    notice her employment was being terminated cannot remedy an otherwise
    unenforceable termination clause. The enforceability of the clause stands or
    falls on its own wording, not on what Deeley may have done during the notice
    period or after Woods employment was terminated. Second, this courts decision
    in
Roden
should be distinguished because of the different wording of
    the termination clause in that case.

[36]

In
    response, and to support the enforceability of the termination clause, Deeley
    makes the following three submissions. First, the phrase two weeks notice of
    termination or pay in lieu thereof in the termination clause is broad enough
    to include both base salary and Deeleys benefit contributions for the notice
    period. Second, contrary to Woods position, Deeley says that what it paid Wood
    on termination is relevant to the enforceability of the termination clause
    because Deeley paid Wood more than she would have been entitled to under the
    ESA. Third, and also contrary to Woods position, Deeley says the motion
    judges interpretation of the termination clause is consistent with this
    courts decision in
Roden
.

[37]

I
    agree with Woods submissions and for that reason find the termination clause
    unenforceable. I would summarize my conclusion as follows. Woods compensation
    included Deeleys contributions to her two benefit plans. Under ss. 60 and 61
    of the ESA, Deeley was required to continue to make those contributions during
    the notice period. Its obligation to do so was an employment standard under the
    ESA. Yet the termination clauses wording excludes and therefore contracts out
    of that obligation.

[38]

The
    termination clause gives Wood two weeks notice of termination or pay in lieu
    thereof for every year or partial year of employment. It says nothing about
    benefit contributions. The clause then goes on to state that on termination,
    the Company shall not be obliged to make any payments to you other than those
    provided for in this paragraph, and the payments and notice provided for in
    this paragraph are inclusive of your entitlement to notice, pay in lieu of
    notice and severance pay pursuant to the [ESA]. On its plain wording, the
    clause excludes Deeleys obligation to contribute to Woods benefit plans
    during the notice period. I will now address the parties specific submissions.

(i)

Does the termination clause implicitly provide that Deeley will
    contribute to Woods benefit plans during the notice period?

[39]

Deeley
    submits that though the termination clause does not expressly require it to
    continue to contribute to Woods benefit plans during the notice period, we can
    read this obligation into the wording of the clause. Deeley argues that the
    word pay  in the phrase two weeks notice of termination or pay in lieu
    thereof  is broad enough to include both base salary and benefits.

[40]

This
    argument cannot succeed. An employer and an employee can contract out of common
    law reasonable notice, but they must do so in clear and unambiguous language.
    The word pay does not clearly include both salary and benefits. At best for
    Deeley the word is ambiguous. I would therefore interpret pay as referring
    only to salary or wages, not to benefits. That interpretation is consistent
    with the consideration I referred to earlier: where the language of a
    termination clause is unclear or can be interpreted in more than one way, the
    court should adopt the interpretation most favourable to the employee:
Ceccol
.

(ii)

Do Deeleys contributions or its offer to contribute to Woods benefit
    plans after giving Wood notice of termination affect the enforceability of the
    termination clause?

[41]

Deeley
    did contribute to Woods health and dental plan for 13 weeks after giving her
    notice of termination, and it offered to make its annual contribution to her
    RRSP (though conditional on a release). The motion judge relied on Deeleys
    payments made during the notice period to uphold the enforceability of the
    termination clause. At para. 15 of his reasons, he wrote:

There is no evidence that the defendant did not continue to
    make the requisite premium payments on behalf of the plaintiff. For example,
    there is no evidence that the plaintiff submitted a claim during her working
    notice which was rejected on the basis she no longer had coverage.

[42]

Deeley
    argues that the motion judges analysis and interpretation are reasonable and
    we should defer to his holding. I do not accept this argument.

[43]

The
    motion judges interpretation of a contractual provision  other than a
    provision in a standard form contract  is now entitled to deference from an
    appellate court: see
Sattva Capital Corp. v. Creston Moly Corp.
, 2014
    SCC 53, [2014] 2 S.C.R. 633. But no deference is owed if the motion judge made
    an error of law that can be extricated from the judges interpretation of the
    contractual clause in question. And that is the case here. The motion judge
    made an extricable error of law in holding that Deeleys actual contributions
    to Woods benefit plans were material to the interpretation of the termination
    clause. Its contributions on termination should have no bearing on whether the
    termination clause itself contravenes the ESA. The wording of the clause alone
    must be looked at to decide whether it contravenes or complies with the ESA.

[44]

That
    the enforceability of the termination clause depends only on the wording of the
    clause itself, and not on what the employer may have done on termination, is
    implicit in the judgment of Iacobucci J. in
Machtinger
, explicit in
    the ESA, consistent with the considerations governing the interpretation of
    employment agreements, and supported by at least two decisions of the Ontario Superior
    Court of Justice. I will elaborate on these four points.

[45]

First,
    nothing in
Machtinger
suggests that an employers conduct on
    termination, or during the notice period, can remedy an otherwise illegal and
    unenforceable termination clause. Instead, Iacobucci J. states, at p. 1004, [I]f
    an employment contract fails to comply with the minimum statutory notice
    provisions of the Act, then the presumption of reasonable notice will not have
    been rebutted.

[46]

Second,
    the ESA itself is perhaps more explicit. An employers obligation to continue
    its contributions to an employees benefit plans during the notice period is an
    employment standard (ss. 60-61), and s. 5(1) of the ESA states expressly that
    an employer cannot contract out of, or waive, an employment standard. In other
    words, an employers later compliance with an employment standard  here,
    Deeleys contributions to Woods benefit plans  cannot cure the termination
    clauses exclusion of the employers obligation to contribute to those benefit
    plans during the notice period.

[47]

Third,
    allowing employers to rely on their conduct at the time of termination of
    employment would also be inconsistent with one of the important considerations
    governing the interpretation of termination clauses: these clauses should be
    interpreted in a way that encourages employers to draft agreements to comply
    with the ESA. If employers can always remedy illegal termination clauses by
    making payments to employees on termination of employment, then employers will
    have little incentive to draft legal and enforceable termination clauses at the
    beginning of the employment relationship: see
Machtinger
, p. 1004.

[48]

Finally,
    two well-reasoned Superior Court decisions reject the argument that an
    employers later compliance with its statutory obligations can affect the
    interpretation of a termination clause in an employment agreement: the decision
    of Low J. in
Wright v. Young and Rubicam Group of Cos. (Wunderman)
,
    2011 ONSC 4720, [2012] C.L.L.C. 210-018; and the decision of Leach J. in
Stevens
    v. Sifton Properties Ltd.
, 2012 ONSC 5508, 5 C.C.E.L. (4th) 27.

[49]

In
Wright
, Low J. held that the termination clause was void because it
    precluded the continuation of benefit contributions during the notice period. The
    employer had actually complied entirely with its obligations under the ESA to
    make contributions to the employees benefit plans. Low J. held, however, that
    its compliance was irrelevant. In a passage I agree with, she wrote, at para.
    16:

The fact that the defendant continued benefits for the
    statutory notice period under the Act does not change the meaning of the
    language used in the agreement stipulating that the payments under the
    termination provision are to be inclusive of all  entitlements to
    compensation.

[50]

Similarly,
    in
Stevens
, Leach J. held that even though the employer had provided
    the employee with all of his statutory entitlements, the termination clause was
    still unenforceable because it precluded the continuation of benefit
    contributions during the notice period. In Leach J.s opinion, the employers
    later voluntary compliance with its statutory obligations did not remedy the
    illegality of the termination clause. In a passage with which I also agree,
    Leach J. wrote, at para. 65:

Employers should be provided with incentive to ensure that their
    employment contracts comply with
all
aspects of the employment
    standards legislation, including provision of adequate notice (or pay in lieu
    thereof)
and
mandated benefit continuation.
As
    emphasized by Justice Low in
Wright
,
supra
, an employer's voluntary provision of additional benefits
    after the fact does not alter the reality that the employment contract drafted
    by the employer is contrary to law.
[Italics in original; underlining
    added.]

[51]

For
    these reasons, Deeleys actual contributions to Woods benefit plans during the
    notice period cannot affect the enforceability of the termination clause. Its
    enforceability or unenforceability depends on whether the termination clause itself
    included or excluded Deeleys obligation to make those contributions.

(iii)

Does this courts decision in
Roden support
    the enforceability of the termination clause?

[52]

The
    last basis on which Deeley seeks to uphold the motion judge is this courts
    decision in
Roden
. Wood, however, says that the case is
    distinguishable because of the different wording of the termination clause in
Roden
.
    I agree.

[53]

In
Roden
, the termination clause in issue stated that the employer, The
    Toronto Humane Society, could terminate the employment of the plaintiff Roden
    upon providing the Employee with the minimum amount of advance notice or
    payment in lieu thereof as required by the applicable employment standards
    legislation: see para. 55. Roden made the same argument as Wood: the
    termination clause contravened the ESA and was void because it failed to
    include The Toronto Humane Societys obligation to continue its contributions
    to Rodens benefit plans during the notice period.

[54]

Gillese
    J.A., writing for the panel, rejected this argument. In her view, the termination
    clause was simply silent about The Toronto Humane Societys obligation to
    continue to contribute to Rodens benefit plans. The clause did not contract
    out of an employment standard and thus was not void. She wrote, at para. 62:

The without cause provisions in question are of precisely the
    type that Iacobucci J. says are valid:  they referentially incorporate the
    minimum notice period set out in the
Act
. The without cause provisions
    do not attempt to provide something less than the legislated minimum standards;
    rather, they expressly require the Society to comply with those standards. As I
    have said, in my view, the provisions do not purport to limit the Societys
    obligations to payment of such amounts. That is, they do not attempt to
    contract out of the requirement to make benefit plan contributions. Because the
    contracts are silent about the Societys obligations in respect of benefit plan
    contributions, the Society was obliged to  and did  comply with the
    requirements of the Act in that regard.

[55]

The
    difference between
Roden
and this case lies in the wording of each
    termination clause. In
Roden
, the clause dealt only with The Toronto
    Humane Societys obligation to give the notice of termination, as required by
    the ESA, or to pay Roden a lump sum for the notice period. It did not exclude
    The Toronto Humane Societys additional obligation to continue to contribute to
    Rodens benefit plans during the notice period. It said nothing about that
    obligation.

[56]

In
    this case, by contrast, the termination clause is not merely silent about
    Deeleys obligation to contribute to Woods benefit plans during the notice
    period. It uses language that excludes that obligation: the payments Deeley
    agreed to make are the
only payments
Wood is
    entitled to; they are inclusive of her entitlements under the ESA.

[57]

The
    all inclusive language in Woods termination clause, and its absence in
    Rodens termination clause, is what distinguishes the two cases. Deeley limited
    its obligations on the termination of Woods employment to the payments
    specified in the termination clause. And those payments did not include its
    required contributions to Woods two benefit plans during the notice period.
    The termination clause is therefore void and unenforceable.

[58]

And,
    because the clause is void, it cannot be used as evidence of the parties
    intention. It would therefore be wrong to infer that the parties would have
    intended to substitute for the void termination clause, a clause that complied
    with the ESA:
Machtinger
, at pp. 1001-2.

[59]

Holding
    that the termination clause contravenes the ESA because it excludes Deeleys
    obligation to contribute to Woods benefit plans is sufficient to decide this
    appeal. Nonetheless, I will consider the more difficult question whether the
    clause also contravenes the ESA because it does not satisfy Deeleys statutory
    obligation to pay severance pay.

(e)

Does the termination clause contravene the ESA because it does not satisfy
    Deeleys statutory obligation to pay severance pay?

[60]

As
    Wood worked for Deeley for eight years and four months, under s. 65(1) of the
    ESA, Deeley was required to pay Wood severance pay equivalent to her salary for
    8.3 weeks. On termination, Deeley paid Wood a lump sum equivalent to eight
    weeks salary, which it characterized as her severance pay. Deeley now concedes
    that it paid her less than she was entitled to under the ESA. But as I said in
    discussing Deeleys benefit contributions, what Deeley may have voluntarily paid
    Wood on termination has no bearing on whether the termination clause itself is
    enforceable. Its enforceability depends on what it required Deeley to pay Wood.

[61]

However,
    the severance pay issue differs from the benefit contributions issue. The
    termination clause does not refer to Deeleys obligation to contribute to
    Woods benefit plans during the notice period, and indeed excludes that
    obligation. In contrast, the termination clause refers to and includes Deeleys
    obligation to pay severance pay. The question on this appeal is whether it does
    so in a way that complies with the ESA.

[62]

The
    termination clause required Deeley to give Wood two weeks notice of
    termination or pay in lieu thereof for each year or partial year of employment.
    These payments and notice were inclusive of [Woods] entitlements to notice,
    pay in lieu of notice and severance pay. In my view, drafted in this way, the
    clause does not satisfy Deeleys statutory obligation to pay severance pay.
    Deeley could fulfil its obligations under the clause in ways that would deprive
    Wood of her statutory severance pay. The termination clause is thus
    unenforceable, and Wood is entitled to common law reasonable notice.

[63]

Under
    the ESA, an employers obligation to give an employee notice, or pay instead of
    notice, and its obligation to pay an employee severance pay are separate
    obligations. So, under the ESA, Wood was entitled to eight weeks notice of
    termination (or pay instead), and severance pay of 8.3 weeks salary. If Deeley
    had drafted the termination clause to reflect these separate obligations, the
    clause would be enforceable. For example, the clause would be enforceable if it
    provided: Deeley is entitled to terminate your employment  by providing you
    with one weeks notice of termination or pay in lieu thereof for each completed
    or partial year of employment, and severance pay equal to one weeks salary for
    each completed or partial year of employment.

[64]

But
    in the termination clause, Deeley combined its separate obligations. Doing so raises
    problems with the clauses enforceability. The problems arise because there are
    three ways in which Deeley could meet its obligations under the clause, and
    only one of those three ways would clearly satisfy its obligation under the ESA
    to pay severance pay.

[65]

First,
    Deeley could have given Wood a lump sum payment equal to 18 weeks salary (pay equal
    to 2 weeks notice for every completed or partial year of employment  9 x 2
    weeks salary). Under this scenario, Wood would have received pay instead of
    notice
and
the severance pay she was entitled to
    under the ESA. In fact, Wood would have received slightly more than the ESA
    minimums  18 weeks salary, instead of 16.3 weeks.

[66]

Second,
    Deeley could have given Wood working notice of 18 weeks. Under this scenario,
    Wood would receive more notice than she was entitled to under the ESA, but she
    would not receive any severance pay.

[67]

Third,
    Deeley could do what it actually did and give Wood a combination of working
    notice and a lump sum payment. Depending on how much working notice it gave, Wood
    may or may not receive the severance pay she was entitled to under the ESA. In
    this case, Deeley gave Wood 13 weeks notice. Under the termination clause, it
    was required to give her a further lump sum payment of five weeks salary (18
    minus 13). But a lump sum payment of five weeks is less than the severance pay
    of 8.3 weeks she was entitled to under the ESA. Thus under this scenario, Wood
    would not receive enough severance pay. If, however, Deeley had given Wood nine
    weeks notice of termination and a lump sum payment equal to nine weeks
    salary, then Wood would receive the severance pay, to which she was entitled.

[68]

In
    summary, Deeley could fulfil its obligations under the termination clause it
    drafted in one of three ways. One of those ways would give Wood the severance
    pay she was entitled to under the ESA. One would not. And the other may or may
    not, depending on how much working notice Deeley gave Wood.

[69]

Thus,
    the clause allowed Deeley not to pay Wood her statutory severance pay, or to
    pay her less severance pay than she was entitled to under the ESA. And from
    Woods perspective, when she signed her employment agreement she would not know
    whether she would receive her statutory severance pay if her employment ended.
    As the termination clause did not clearly satisfy Deeleys obligation to pay
    Wood her statutory severance pay, the clause is unenforceable, and Wood is
    entitled to reasonable notice of the termination of her employment at common
    law.

(3)

Did the motion judge err by fixing the period of reasonable notice at
    nine months?

[70]

The
    motion judge correctly recognized that if either the employment agreement as a
    whole, or the termination clause, was unenforceable, then Wood would be
    entitled to damages equal to a period of reasonable notice at common law. He
    fixed the notice period at 39 weeks (nine months). Wood submits that he erred
    in doing so. She contends that the appropriate period of notice is 12 months
    and that we should substitute 12 months for the motion judges determination of
    nine months.

[71]

I
    would not give effect to Woods submission. The motion judges figure of nine
    months took account of the relevant factors and was within a reasonable range.
    And even though he found the agreement enforceable and thus did not need to
    determine reasonable notice, his determination is still entitled to deference
    on appeal.

[72]

In
    finding that the period of reasonable notice was nine months, the motion judge
    took into account the well-established
Bardal
[3]
factors: the character of Woods employment, her length of her service, her age,
    and the availability of similar employment in the light of her experience,
    training, and qualifications. The motion judge also noted Woods submission that
    though her position was clerical  she had no managerial duties  her high
    income together with her age would make it more difficult for her to find a
    new, but comparable job. Indeed, Woods evidence was that over a nine-month
    period, she had applied for 65 positions and received only six interviews, none
    of which resulted in employment.

[73]

The
    motion judge considered the case law presented by both parties on comparative
    dismissals, relied on the case law submitted by Wood, and concluded that a
    reasonable range of notice was 8.5 to 11 months. Within that range, he chose
    nine months.

[74]

Is
    his determination of nine months entitled to deference from this court, or are
    we free to substitute our own figure? Our court has recognized two kinds of
    cases: cases where a trial or motion judge concludes that a plaintiff is
    entitled to reasonable notice, but errs in principle in calculating the notice
    period; and cases such as this one, where a trial or motion judge concludes
    wrongly that a termination clause excluding reasonable notice is enforceable,
    but still goes on to fix a reasonable notice period.

[75]

This
    courts decision in
Minott v. OShanter Development Co.

Ltd.
(1999),
    42 O.R. (3d) 321 (C.A.) is an example of the first kind of case. There, the
    trial judge found that the plaintiff was entitled to reasonable notice of his
    dismissal, but she made two errors in principle in determining the notice
    period. Still, this court did not interfere with the trial judges
    determination. Instead, at pp. 343-4, we held that we should ordinarily defer to
    the trial judges determination, as long as it was within a reasonable range:

If the trial judge erred in principle, an appellate court may
    substitute its own figure. But it should do so sparingly if the trial judges
    award is within an acceptable range despite the error in principle.

[76]

This
    courts recent decision in
Holland
,
    referenced above,
is an example of the second kind of case. There,
    the trial judge had dismissed the plaintiffs wrongful dismissal action on the
    ground that his employment contract  which limited notice to the minimum
    statutory standard  was enforceable. Nonetheless, the trial judge addressed
    the issue of reasonable notice, for completeness, and concluded that were it
    not for the termination provision in the employment agreement, the plaintiff
    would have been entitled to eight months notice at common law.

[77]

On
    appeal, this court overturned the trial judge on the enforceability of the
    termination provision and held that it was unenforceable. And though the trial
    judges determination of reasonable notice was not necessary to his decision,
    Strathy C.J.O., writing for the panel, applied
Minott
and upheld eight
    months notice because it was within a reasonable range.

[78]

In
    the present case, as in
Holland
, the motion judge determined the period
    of reasonable notice for completeness. Doing so was not necessary to his
    decision because he found the employment agreement enforceable. Following
Holland
,
    the motion judges determination is still entitled to deference. As I cannot
    say that nine months was outside a reasonable range, I would defer to the
    motion judges determination. I would therefore not give effect to this ground
    of appeal.

C.

Conclusion

[79]

The
    termination clause in Woods employment agreement contravenes the
Employment
    Standards Act, 2000
for two reasons. First, it excludes Deeleys statutory
    obligation to contribute to Woods benefit plans during the notice period.
    Second, it does not satisfy Deeleys statutory obligation to pay severance pay.
    On either ground the clause is unenforceable. Wood is entitled to reasonable
    notice of termination or the equivalent in damages. The motion judges award of
    nine months notice was within a reasonable range, and I would defer to it.

[80]

I
    would allow Woods appeal, set aside the order of the motion judge, and in its
    place declare that the termination clause in Woods employment agreement is
    unenforceable. Wood is entitled to reasonable notice of nine months or pay
    instead of reasonable notice.

[81]

Wood
    is also entitled to her costs of the motion and of the appeal. I would fix the
    costs of the motion at $14,000, and the costs of the appeal at $25,000, each
    amount inclusive of disbursements and applicable taxes.

Released: February 23, 2017 (J.L.)

John Laskin J.A.

I agree. K. Feldman J.A.

I agree. C.W. Hourigan J.A.

APPENDIX A

Employment Standards
    Act, 2000
, S.O.
    2000, c. 41

5.
(1)
Subject to subsection (2), no employer or agent of
    an employer and no employee or agent of an employee shall contract out of or
    waive an employment standard and any such contracting out or waiver is
    void.

(2)
If one or more
    provisions in an employment contract or in another Act that directly relate to
    the same subject matter as an employment standard provide a greater benefit to
    an employee than the employment standard, the provision or provisions in the
    contract or Act apply and the employment standard does not apply.

57.

The notice of
    termination under section 54 shall be given,

(h) at least eight weeks before the termination, if the
    employees period of employment is eight years or more.

60.
(1)

During
    a notice period under section 57 or 58, the employer,

(a) shall not reduce the employees wage rate or alter
    any other term or condition of employment;

(b) shall in each week pay the employee the wages the
    employee is entitled to receive, which in no case shall be less than his or her
    regular wages for a regular work week; and

(c) shall continue to make whatever benefit plan
    contributions would be required to be made in order to maintain the employees
    benefits under the plan until the end of the notice period.

(3)

If an employer fails to contribute to a benefit plan contrary
    to clause (1) (c), an amount equal to the amount the employer should have
    contributed shall be deemed to be unpaid wages for the purpose of section
    103.

61.
(1)

An
    employer may terminate the employment of an employee without notice or with
    less notice than is required under section 57 or 58 if the employer,

(a) pays to the employee termination
    pay in a lump sum equal to the amount the employee would have been entitled to
    receive under section 60 had notice been given in accordance with that section;
    and

(b) continues to make
    whatever benefit plan contributions would be required to be made in order to
    maintain the benefits to which the employee would have been entitled had he or
    she continued to be employed during the period of notice that he or she would
    otherwise have been entitled to receive.

64.
(1)

An
    employer who severs an employment relationship with an employee shall pay
    severance pay to the employee if the employee was employed by the employer for
    five years or more and,

(a) the severance occurred because of a permanent
    discontinuance of all or part of the employers business at an establishment
    and the employee is one of 50 or more employees who have their employment
    relationship severed within a six-month period as a result; or

(b) the employer has a payroll of $2.5 million or
    more.

65.
(1)

Severance
    pay under this section shall be calculated by multiplying the employees
    regular wages for a regular work week by the sum of,

(a) the number of years of employment
    the employee has completed; and

(b) the number of months of employment not included in
    clause (a) that the employee has completed, divided by 12.

[1]
S.O. 2000 c. 41.

[2]

See Appendix A for the full text of the relevant provisions of
    the ESA.

[3]

Bardal v. Globe and Mail Ltd.
(1960), 24 D.L.R. (2d) 140, at para. 21 (Ont. H.C.J.).


COURT OF APPEAL FOR ONTARIO

CITATION:  Zazai (Re), 2017 ONCA 135

DATE: 20170215

DOCKET: C62345

Doherty, Laskin and Roberts JJ.A.

IN THE MATTER OF FAROOQ
    ZAZAI

AN APPEAL UNDER PART
    XX.1 OF THE
CODE

Meaghan McMahon, for the appellant

Michelle OBonsawin, for the Royal Ottawa Health Care
    Group

Kathleen Farrell, for the respondent

Heard:  February 13, 2017

On appeal against the disposition of the Ontario Review
    Board, dated May 20, 2016.

APPEAL BOOK ENDORSEMENT

[1]

The hospital recommended a conditional discharge, but the Board imposed
    a detention order with conditions.

[2]

We do not agree that the Boards failure to order a conditional
    discharge constitutes an error.  The appellant would not consent to the drug
    treatment essential to maintain his ability to live safely in the community.
    In the face of that non-compliance and the potential consequences of
    non-compliance, we cannot say the Board erred in declining to grant a
    conditional discharge.

[3]

Second, the appellant could live safely in the community only if he
    lived at a residence approved by the hospital.  This court has repeatedly said
    that a conditional discharge order cannot include a requirement that the
    accused live in a residence approved by the hospital.  That order is a
de
    facto
detention order.  The accused would not consent.  In that
    circumstance, the Boards finding that a conditional discharge was not
    appropriate cannot be criticized.

[4]

The appellant also argues that the Board should have found that there
    was a treatment impasse and ordered a second opinion or an independent
    assessment.

[5]

The Board was alive to the potential treatment impasse.  The hospital
    acknowledged a lack of progress, particularly as it related to the appellants
    compliance with his medication regime.

[6]

The Board agreed that it may be time for a second opinion, but
    declined to make an order to that effect.

[7]

The Board made a reasonable judgment in declining to make a specific
    order.  No doubt, the hospital will give very serious consideration to the
    Boards comment before the next hearing is held.

[8]

The appeal is dismissed.


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.