In our December 2011 issue we wrote on the decision of the Ontario Superior Court in VON Canada v. Greater Hamilton Wellness Foundation. The Court found that the Foundation, which had been established under the name of the Victorian Order of Nurses Hamilton Wentworth Foundation to support the Hamilton branch of the VON, had breached its fiduciary duty. As a result of a dispute between VON Canada and the Foundation over centralisation of VON Canada, the Foundation decided that it wished to fund non-VON charitable activities. The Court concluded that the refusal of the Foundation to support VON Canada was a breach of fiduciary duty by the Foundation and its directors.
We ended our December article with the observation that "It will be interesting to see what the cost consequences of this litigation are." We now know and the costs awarded against the Foundation in the Court's subsequent costs decision are significant. As a result of "the Respondent's [the Foundation] reckless and sustained allegations of dishonest and deceitful behaviour against the Applicant [VON Canada], the Respondent's serious misrepresentations of fact and the early Offer to Settle", the Court awarded substantial indemnity costs to VON Canada in the amount of $454,686.19.
The Court stated that:
"I find that the Respondent's continued attempts to justify its behavior by making reckless allegations against the Applicants to be deserving of condemnation. Respondent's counsel... suggests a distinction must be made with regard to litigation that simply turns out to be misguided. This was more than misguided litigation. This was litigation that was prompted by a stubborn refusal to consider a voluminous 20-year evidentiary record and the relevant law. This was "malicious and counter-productive" litigation that attacked the integrity of a national non-profit, registered charity that has existed since 1899. ... . In the light of my findings of multiple breaches of fiduciary duties on its part and the part of its Directors, the Foundation cannot seek immunity from costs as a public interest litigant."
Furthermore, in addition to the awarding of costs against the Foundation, the Court concluded its costs decision by confirming that its "Order is without prejudice to the Applicants and the PGT to claim the unpaid amounts of such costs awards against the insurer for the Respondent Foundation, the Directors for the Respondent Foundation and/or their insurer."
What are the lessons from the costs decision? First, sustained litigation is very expensive. We know that VON Canada's costs were in excess of $454,686.19. We expect that the Foundation's costs would have been similar. Second, charities and their lawyers must always keep in mind that courts will award successful litigants some portion of their legal costs (and where the Court wishes, as it did here, to condemn misbehaviour, the portion may be high). It is also possible for costs to be awarded against the directors of a charity personally. Litigation should therefore not be entered into lightly and without thought of the consequences.