Decision Date: March 7, 2012
Link: Case Summary Document
Citation: [2012] ONSC 1527 (Ontario Superior Court of Justice, Beaudoin J.)

Summary:

This Canadian case was an application for costs following successful litigation by the applicants, the Victoria Order of Nurses for Canada (VON), in 2011. The amount sought was $454,686.19. The applicants asserted that they were entitled to an award of costs based on Ontario’s substantial indemnity scale of costs for three reasons.

  • First, they asserted that the Greater Hamilton Wellness Foundation (GHWF) conducted itself throughout the proceeding by alleging that the applicants had engaged in deceitful or dishonest behaviour, which was an attack on the applicants’ honesty and integrity.
  • Second, the applicants served two Offers to Settle in this proceeding (which were rejected), but obtained a better judgement against the respondent at the end of the case.
  • Third, given the conduct of the respondent and the Offers to Settle, the applicants argued that an award of costs on a substantial indemnity scale was within the judge’s discretion.

During and after the proceeding, the VON claimed that the GHWF made unsubstantiated and unsuccessful allegations against them to the effect that the VON had engaged in conduct which was dishonest or deceitful. The GHWF claimed that the VON had seized or diverted money which was used in a way which was inconsistent with the VON’s charitable purposes. In particular, the GHWF alleged that the VON had diverted $6,500,000.00 from the Hamilton community and had misapplied that money to pay its own restructuring and reorganizations costs.

The GHWF claimed that hundreds of thousands of dollars were transferred to the VON from 2003 to 2007 in order to satisfy its disbursement quota. The GHWF alleged that this money was accumulated and in effect deliberately diverted away from charitable programs in Hamilton or from the ‘expansion’ of charitable programs in Hamilton. The VON pointed out that the GHWF incorrectly claimed that it was never aware that there was an accumulation of money in the VON’s deferred revenue account. In fact, the evidence demonstrated that the GHWF was aware that all deferred revenue was to be used to support the activities of VON Hamilton.

In the main litigation, all the allegations of dishonesty were determined to be unfounded. Moreover, His Honour held that there were numerous and serious breaches of fiduciary duty by the GHWF. In this case, His Honour held that making allegations of dishonesty was a ground for awarding substantial indemnity costs. He said (at [19], [92] and [99]):

The cost sanction should be imposed sharply and firmly by the Courts, in my opinion, at any stage in the proceedings when unsupported and unproven allegations of fraud and dishonesty are put forward… I am satisfied that that the Applicants are entitled to their costs on a substantial indemnity basis throughout these proceedings. I do so primarily because of the Respondent’s reckless and sustained allegations of dishonest and deceitful behaviour against the Applicants; the Respondent’s serious misrepresentations of fact and the early Offer to Settle…

I find that the Respondent’s continued attempts to justify its behaviour by making reckless allegations against the Applicants to be deserving of condemnation…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. The Respondent was so focused in its animosity towards the Applicants that it…only hurt the very community whose interests it was claiming to protect. 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.

The VON’s position was supported by the Public Guardian and Trustee of Ontario (PGT), which also sought its costs. These were granted. In granting both sets of costs, His Honour took into account the complexity of the matter, the volume of evidence, the length of time involved, and the fact that the solicitors for the applicants had already discounted their costs. He saw ‘no reason to discount them any further’ (at [106]). In addressing these issues, His Honour said that (at [103]):

The matter was factually complex as noted by both the Applicants and the PGT. There was a lengthy history that needed to be examined and there were numerous volumes of documents to be reviewed. There were no new issues of law that were decided but the Application did provide an opportunity to summarize the legal principles that were in play. The PGT had an interest in clarifying the law as it relates to a Foundation’s authority to amend its objects and has adjusted its claim for costs accordingly.

The fact that the GHWF had to pay the costs ordered prompted His Honour to remark (at [106]):

It is regrettable that funds raised to support community initiatives may now have to be directed to the payment of legal fees. The Applicants did what they could to preserve those assets and they should not have to bear the high costs of these proceedings. The Respondent has its own reckless and stubborn behaviour to blame. I note that the PGT supports the Applicants’ claim for costs as well as their request that these amounts be paid out of the funds orders transferred from the Foundation, if necessary.

Thus, His Honour condemned the behaviour of the GHWF in strong terms, and awarded costs against them.

This case may be viewed at: http://www.canlii.org/en/on/onsc/doc/2012/2012onsc1527/2012onsc1527.html

The original litigation from 2011 may be viewed at: http://www.canlii.org/en/on/onsc/doc/2011/2011onsc5684/2011onsc5684.html

http://www.canlii.org/en/on/onsc/doc/2011/2011onsc6801/2011onsc6801.html

Implications of this case

This is another example of nonprofits becoming involved in complex litigation which resulted in a negative outcome for one of them. The respondent nonprofit refused two offers to settle during the course of the proceedings, and fought the case to the bitter end. There was animosity, malice and bitterness noted by the court in the dealings of GHWF with the VON. His Honour used unusually strong language to condemn their actions in this regard, noting that money raised for doing good in the Hamilton (a city in Ontario) community would now have to be directed to pay properly incurred legal fees.