In Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766 , a decision released on September 29, 2017, the Court of Appeal articulates the standard of conduct that will merit an award of full indemnity costs against a party. The circumstances in which this case arose are familiar to commercial litigators and the courts, and involve parties dissipating assets in anticipation or in the course of court proceedings.
The moving parties claimed recovery of moneys loaned, damages for breach of contract, and unlawful misappropriation of funds owing to them.They claimed that the funds were diverted to Pakistan from bank accounts controlled by the responding parties. The responding parties took these steps even after they were on notice of a pending application for a Mareva injunction brought to prevent this very depletion of assets. The responding parties' actions are more fully set out in the motion judge's Reasons for Decision on Costs .
The moving parties were entirely successful on a motion for summary judgment. The court awarded costs of the entire proceeding on a full indemnity basis, stating that this was one of those rare cases where the conduct of the responding parties warranted such an award. The motion judge found that the responding parties' unlawful conduct and fabrication was solely to blame for the unnecessary length and significant costs of the proceedings. Regarding the responding parties' reasonable expectations, he stated:
Identifying the costs expectations of unsuccessful parties is a sensible objective where litigation of honest differences of opinion or difficult areas of law have occurred. However, in my view, the court should not concern itself with the expectations of demonstrated deceivers and liars, such as the Responding Parties in this case. […]
The motion judge held that the responding parties gained a full appreciation and expectation of the moving parties' costs during the course of nearly three years of complex and expensive litigation caused by their own misconduct.
The Court of Appeal declined to grant leave to appeal the costs award. It agreed with the motion judge that one of the responding parties impermissibly dissipated her assets, with the evidence establishing that she sold and encumbered properties during the course of the proceedings. However, the Court sounded a note of caution. It stated:
While we would not interfere with the costs award made by the motion judge, we would express a cautionary note on this issue. In this case, the motion judge awarded costs on a full indemnity basis. There is a significant and important distinction between full indemnity costs and substantial indemnity costs. An award of costs on an elevated scale is justified in only very narrow circumstances – where an offer to settle is engaged or where the losing party has engaged in behaviour worthy of sanction: Davies v. Clarington (Municipality) (2009), 100 O.R. (3d) 66 (C.A.) at para. 28. Substantial indemnity costs is the elevated scale of costs normally resorted to when the court wishes to express its disapproval of the conduct of a party to the litigation. It follows that conduct worthy of sanction would have to be especially egregious to justify the highest scale of full indemnity costs.
In this case, full indemnity costs were warranted given the factual findings that the motion judge made regarding the conduct of the appellants, especially the movement of funds out of the country in an effort to place them out of reach of the respondents and the instances of fabricated evidence. We would reiterate, however, that it is only in rare and exceptional cases where such a costs award is justified.
While it is only in rare and exceptional circumstances that a party will dissipate property knowing of outstanding proceedings to prevent such dissipation, when it does occur, counsel should be alive to this precedent and not hesitate to claim full indemnity costs.
An interesting side note is that there is no indication in the Court of Appeal's Reasons for Decision that proportionality was raised or argued as a ground of appeal, although this issue was raised in the lower court. The amount awarded for costs in first instance was $145,000. The appeal panel, in declining to grant leave to appeal the cost award, awarded the respondents an additional $20,000 for the costs of the appeal, bringing the total costs awarded to $165,000, not far off the $177,000 judgment.