Stonehocker et al. Trustees of the Canadian Trust of the Church of Jesus Christ of Latter Day Saints et al. v. King et al.*
[Indexed as: Church of Jesus Christ of Latter Day Saints v. King]
41 O.R. (3d) 389
 O.J. No. 3924
Docket No. C24769
Court of Appeal for Ontario
Finlayson, Goudge and Feldman JJ.A.
October 2, 1998
*Vous trouverez traduction franaise de la dcision ci-dessous 41 O.R. (3d) 402.
Injunctions — Undertaking as to damages — Costs — Solicitor and client costs — Plaintiffs obtaining Mareva injunction and other relief restraining defendants from removing or destroying certain documents in their offices — In moving for injunction plaintiffs giving undertaking pursuant to rule 40.03 of Rules of Civil Procedure that they would abide by any order concerning damages that might be made if it ultimately appeared that granting of injunction had caused damage to defendants for which plaintiffs ought to compensate them — Motions judge subsequently dissolving injunction and dismissing action as against defendants with costs on party and party scale — Motions judge erring in not granting costs to defendants on solicitor and client basis in view of undertaking as to damages given by plaintiffs at time they sought injunction — In appropriate case such as this one costs may be awarded under rubric of damages — Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 40.03. In an action against the appellant lawyer and law firm and other defendants, the respondents obtained an order comprising a Mareva injunction and an Anton Piller order restraining and enjoining the appellants from removing or destroying certain documents in their offices and authorizing the plaintiffs’ representatives to enter upon the appellants’ premises to search for and remove documents and records relating to the land negotiations and transactions which formed the basis of the action. In moving for this relief, the respondents made the usual undertaking pursuant to rule 40.03 of the Rules of Civil Procedure that they would abide by any order concerning damages that the court might make if it ultimately appeared that the granting of the order had caused damage to the appellants for which the respondents ought to compensate them. The respondents subsequently moved for leave to discontinue the action against the appellants and the appellants moved for an order dissolving the Marev a injunction and Anton Piller order. Both orders were granted, with costs on a party and party scale. The appellants appealed, arguing that the motions judge erred in not granting costs to the appellants on a solicitor and client basis in view of the undertaking as to damages given by the respondents at the time they sought the injunction and other relief.
Held, the appeal should be allowed.
The result arrived at by the motions judge was not consonant with the critical role played by undertakings made in pursuit of interlocutory relief. The importance of an undertaking is all the more critical when the interlocutory relief sought and granted consists of Mareva injunctions and Anton Piller orders, as was the case here. In the appropriate case, costs may be awarded under the rubric of damages. This was such a case. The appellants endured, for more than five years, the damage to their professional reputation that flowed from the serious allegations made here. In addition, they had borne the expense of defending the action and the attendant motions. Simply because they had no stake in the substantive issues that were the basis of the action was no reason to conclude that the interlocutory injunction caused them no damage.
The motions judge failed to recognize the significance of the undertaking as to damages given by the respondents in order to obtain this most intrusive relief against the appellants. Instead of asking himself if it was reasonable for the respondents to assert fraud, he should have addressed the issue of whether the solicitor-client costs incurred by the appellants in order to successfully defend themselves against the serious allegations relating to their practice constituted damages within the meaning of the undertaking. Properly considered, this case warranted an award of solicitor and client costs. Since the respondents maintained to the end that the allegations were true, such an award was the only public rehabilitation of the appellants’ reputation.
Deisler v. U.S. Fidelity Co. (1917), 24 B.C.R. 278, 36 D.L.R. 29,  3 W.W.R. 214 (C.A.), affd (1917), 59 S.C.R. 676, 49 D.L.R. 688,  3 W.W.R. 1051; Digital Equipment Corp. v. Darkrest Ltd.,  Ch. 512; Israel Discount Bank of Canada v. Genova (1992), 13 C.P.C. (3d) 112 (Ont. Gen. Div.); Mele v. Thorne Riddell (1997), 32 O.R. (3d) 674 (Gen. Div.); Young v. Young,  4 S.C.R. 3, 84 B.C.L.R. (2d) 1, 108 D.L.R. (4th) 193, 160 N.R. 1,  8 W.W.R. 513, 18 C.R.R. (2d) 41, 49 R.F.L. (3d) 117, affg in part (1990), 50 B.C.L.R. (2d) 1, 75 D.L.R. (4th) 46, 29 R.F.L. (3d) 113 (C.A.), revg in part (1989), 24 R.F.L. (3d) 193 (B.C.S.C.), consd
Other cases referred to
Apotex Inc. v. Egis Pharmaceuticals (1990), 2 O.R. (3d) 126, 32 C.P.R. (3d) 559 (Gen. Div.) [supp. reasons 4 O.R. (3d) 321, 37 C.P.R. (3d) 335 (Gen. Div.); leave to appeal to Div. Ct. refused (1990), 2 O.R. (3d) 126n]; Coran v. Doyle,  O.J. No. 991 (Gen. Div.); Glanford Aviation Services Ltd. v. Marsh (1993), 42 A.C.W.S. (3d) 794 (Ont. Gen. Div.); John F. Renshaw (Canada) Inc. v. Captiva Investments Ltd. (1989), 70 O.R. (2d) 458 (H.C.J.); Lawson v. Toronto Hospital Corp. (1991), 52 O.A.C. 186 (Div. Ct.); Nelson Burns & Co. v. Gratham Industries Ltd. (1987), 25 O.A.C. 89, 18 C.I.P.R. 153, 19 C.P.R. (3d) 71, 23 C.P.C. (2d) 279 (C.A.); Singdeer Investments Ltd. v. Holiday Inns Inc.,  O.J. No. 836, 47 A.C.W.S. (3d) 27 (Ont. Gen. Div.); Vieweger Construction Co. v. Rush & Tompkins Construction Ltd.,  S.C.R. 195, 48 D.L.R. (2d) 509; Wasaga Beach (District) v. Fielding,  O.R. 321 (H.C.J.), affd  O.R. 1012 (C.A.); Yang v. Mao (1995), 23 O.R. (3d) 466, 39 C.P.C. (3d) 10 (Gen. Div.)
Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 40.03 Authorities referred to
Spry, Equitable Remedies, 5th ed. (Toronto: Carswell, 1997), p. 487
APPEAL from an order relating to costs.
V. Ross Morrison, for appellants. Russell D. Laishley, for respondents.
The judgment of the court was delivered by
FINLAYSON J.A.: — This is an appeal by the defendants Kenneth James and James and Associates from the order of Trafford J. of the Ontario Court (General Division), sitting as a motions judge, wherein he dissolved an order of Hollingworth J. as against the appellants. Trafford J. also dismissed the action framed in conspiracy to defraud as against the appellants and awarded costs of the action on a party and party scale fixed in the amount of $9,950.
The appellant Kenneth James is a barrister and solicitor and carries on the practice of law in the cities of Toronto and Brampton under the firm style of James and Associates. The individual respondents are trustees of the Church of Jesus Christ of Latter Day Saints (hereinafter the “Church”) and the President of the Lethbridge Stake is the landholding corporation and agent of the Church in Canada.
On October 23, 1990, the respondents commenced proceedings against the defendants by way of action. The action claimed that from at least January 1989 until September 1990, the defendants, including the appellants, wrongfully and maliciously conspired and combined among themselves to defraud and to injure the respondents to this appeal. The fraud alleged related to the acquisition by the appellants and other defendants of certain lands for the Church using Church funds, which lands were subsequently and secretly conveyed to nominees of the defendants and then partially reconveyed to the Church at grossly inflated prices. The defendants were said to have retained some of the lands for themselves in addition to having realised a secret profit on the so-called “flip” of the properties reconveyed. In addition, the defendants were alleged to have misrepresented themselves as acting on behalf of the plaintiff Church in the initial acquisitions.
The relief claimed included, inter alia:
(a)an interim and interlocutory order restraining the appellants from dealing with deposit monies of $21,000 and restraining the appellants from removing records and documents located in the offices of the appellants;
(b)an interim and interlocutory order authorizing the respondents to enter forthwith the premises of the appellants for the purpose of removing documents and records into the custody of the respondents’ solicitor;
(c) an accounting, judgment for the deposits in the amount of $21,000, damages of $2 million, punitive damages and solicitor and client costs.
On motion made by the respondents without notice before Hollingworth J. on October 23, 1990, the respondents obtained an interim and interlocutory order within the framework of the above claims. The order is referred to variously by the parties as a Mareva injunction and an Anton Piller order. Indeed, the order comprised both of these extraordinary interlocutory remedies. Specifically, as regards these appellants, the order restrained and enjoined them from transferring, removing, disposing of, destroying or otherwise dealing with records and documents of all land negotiations contained in their offices, and authorized the respondents’ duly authorized representatives to enter upon the premises of the appellants for the purpose of searching for and removing into the custody of the respondents’ solicitors documents and records relating to the said land negotiations and transactions. The order also directed the sheriff to accompany the respondents’ agents to assist and keep the peace duri ng the execution of the said order.
In moving for this interlocutory relief, the respondents made the usual undertaking pursuant to rule 40.03 of the Rules of Civil Procedure that they would abide by any order concerning damages that the court might make if it ultimately appeared that the granting of the order has caused damage to the responding party for which the moving partly ought to compensate the responding party.
Pursuant to the order of Hollingworth J., the respondents’ authorized representatives entered upon the premises of the appellants without notice on October 24, 1990 and searched for and removed into the custody of the respondents’ solicitors documents and records relating to the said land negotiations and transactions. The respondents also notified the Law Society of Upper Canada of the allegations against the appellants and the Society commenced an investigation of the matter.
In their statement of defence, delivered on December 17, 1990, the appellants denied all the allegations made against them. They have done so consistently throughout these proceedings.
In spite of the seriousness of the allegations, and the length of time that the action was outstanding, this matter never proceeded to trial. We are advised that the respondents settled the action with respect to the defendants other than the appellants. In February 1991, the Church reached a settlement with the co-defendant King, the terms of which are confidential. In February of 1992, the Church reached a settlement with the remaining co-defendants, except the appellants. The terms of this settlement were also confidential, but we were advised that they did include, inter alia, that the action be dismissed as against those co- defendants.
However, the action against the appellants was not dismissed. Nor has the action been pursued by the respondents. There has been no examination for discovery with respect to the main action. Nor have affidavits of documents been exchanged or interlocutory motions made in connection with the main action.
By notice of motion returnable on November 3, 1992 before the Master in Toronto, the respondents sought leave to discontinue the action as against the appellants, on a without costs basis. An affidavit of Gerald Hyde was filed in support of the motion. An affidavit sworn by the appellant James was filed by the appellants. Although the appellants did in April 1993 cross- examine Hyde on his affidavit, the respondents never cross- examined the appellant James on his affidavit.
On October 30, 1995, the plaintiff’s motion for leave to discontinue the action as against the appellants was adjourned by Master Peterson sine die to be brought back in weekly court before a judge on a date to be fixed by the Registrar. It was subsequently made returnable on December 5, 1995. At the same time the appellants brought a motion before a judge in weekly court, for an order, inter alia:
(a)dissolving as against the appellants the order of Hollingworth J.;
(b)dismissing this action as against the appellants with costs on a solicitor and client basis;
(c)directing a reference or trial of the issue as to the damages suffered by the appellants by reason of the granting of the order of Hollingworth J. as continued.
Trafford J. heard the motions on December 5, 1995. He dissolved the order of Hollingworth J., as continued, as against the appellant, and dismissed the action as against the appellants with costs of this action on a party and party scale fixed in the amount of $9,950. Issue Did the motions judge err in not granting costs to the appellants on a solicitor and client basis in view of the undertaking as to damages given by the plaintiffs at the time they sought the injunction and other relief?
The motions judge proceeded on the basis that he was satisfied that when the statement of claim was issued, the plaintiffs had a reasonable basis to believe that the defendants (the appellants in this hearing) were parties to a dishonest scheme to defraud the Church through a series of land “flips”. He acknowledged that the appellants continued to assert their integrity but that a full trial would be necessary to determine this issue between the parties. He found that there were no damages caused by the issue of the interim injunction and therefore no basis to enforce the undertaking as to damages given on the motion to obtain the injunction. He awarded the appellant’s party and party costs fixed at $9,950. He awarded to the respondent Church the costs of the motion before him, fixed at $750.
It seems to me, with respect to the motions judge, that he treated the issue of costs solely as an exercise of his discretion in an abandoned action. In this situation, costs follow the event and in the ordinary case they would be restricted to party and party costs. Since the action was justified, in the opinion of the motions judge, there was no basis for imposing an additional sanction on the plaintiffs simply because they had alleged fraud.
This position is supported on appeal by counsel for the Church who relies upon the recent decision of the Supreme Court of Canada in Young v. Young,  4 S.C.R. 3. The Young case involved the award of solicitor and client costs by a trial judge in a custody action because in his opinion the custody claim had “little merit”, the respondent attempted to mislead
the court, was recalcitrant with respect to complying with interim orders and unnecessary proceedings had resulted: (1989), 24 R.F.L. (3d) 193 (B.C.S.C.). The British Columbia Court of Appeal upheld this award with respect to a total of four days of the trial and four days of interlocutory proceedings: (1990), 75 D.L.R. (4th) 46. On further appeal to the Supreme Court of Canada, the appeal on this issue was dismissed. McLachlin J. stated at pp. 134-35:
The Court of Appeal’s order was based on the following principles, with which I agree. Solicitor-client costs are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties. Accordingly, the fact that an application has little merit is no basis for awarding solicitor-client costs; nor is the fact that part of the costs of the litigation may have been paid by others. The Court of Appeal meticulously considered all the proceedings in the light of these principles to arrive at its conclusion that only partial solicitor-client costs were justified.
However, I am not convinced that Young is determinative on the facts before us, as it involves instances of trial misconduct. It does not address the entitlement of a successful party to claim his expenses in retaining a solicitor as his damages within the meaning of an undertaking as to damages. In my opinion, the approach of the motions judge to the motion in appeal was in error. He found that there were no damages in the action because the result of the settlement was that the lands allegedly withheld from the Church and the secret profit said to have been made were remitted to the Church. The respondents’ counsel supports this finding and argues that since the appellant solicitors had never maintained they had an interest in the land and denied that they had benefited from a secret profit, they had suffered no damage in the action. This may be so, but what of the appellants’ legitimate expenses in hiring a lawyer to defend themselves against the unproven allegations of professional misconduct and conspiracy to defraud? Are these not damages in the circumstances of this case?
The result arrived at by the motions judge is not consonant with the critical role played by undertakings made in pursuit of interlocutory relief. They find their origins in equity. It is trite law, but bears repeating here, that a plaintiff’s undertaking as to damages reflects the recognition by the court of the risk that a defendant may be wrongfully damaged by an injunction granted on a summary hearing. Courts exercising equitable jurisdiction have long required undertakings before exercising their powers in this regard; rule 40.03 is but the codification of this equitable principle.
The importance of an undertaking is all the more critical when the interlocutory relief sought and granted consists of Mareva injunctions and Anton Pillar orders, as was the case here. In addition, the increasing ease with which plaintiffs may obtain interlocutory relief necessarily requires correspondingly enforced undertakings. In this regard, I adopt the language of Zuber J.A., writing in Nelson Burns & Co. v. Gratham Industries Ltd. (1987), 23 C.P.C. (2d) 279 at p. 288, 25 O.A.C. 89:
As a result of a decision of the House of Lords in American Cyanamid Co. v. Ethicon Ltd,  A.C. 396,  1 All E.R. 504, the balance of convenience test has largely displaced an earlier view that an applicant could obtain an interlocutory injunction only if he could show a strong prima facie case. Whatever the differences may be between the two standards, it is now plain that in Ontario interlocutory injunctions are easier to obtain than was the case prior to the American Cyanamid case.
Because of this change, and because of the number of such injunctions that are sought, it is appropriate to emphasize the serious nature of the undertaking to pay damages which is a condition of the issuance of the interlocutory injunction. In the ordinary course the unsuccessful plaintiff must understand that he is obliged to pay damages in accordance with his undertaking without quibble, and Courts generally will be unsympathetic towards [t]hose who seek to resile from such an obligation.
Although there is discretion, both in equity and in rule 40.03, to excuse a plaintiff of its obligations under an undertaking, there is no reason in this case to excuse the respondents. There is no “special circumstance”, to use the language of Vieweger Construction Co. v. Rush & Tompkins Construction Ltd.,  S.C.R. 195, 48 D.L.R. (2d) 509, that would lead this court to excuse this plaintiff. Although it is open to a plaintiff to argue that it sought the interlocutory relief in good faith, that is seldom a determinative factor in deciding whether an undertaking will be enforced; see Wasaga Beach (District) v. Fielding,  O.R. 321 (H.C.J.), affirmed  O.R. 1012 (C.A.)
There is at least one Ontario case that suggests that damages following the granting of interlocutory relief cannot include a defendant’s costs. In Israel Discount Bank of Canada v. Genova (1992), 13 C.P.C. (3d) 104 (Ont. Gen. Div.), the plaintiff commenced proceedings against a number of defendants which it claimed had attempted to defeat its interest in a mortgage and to defraud the plaintiff of the proceeds of the sale of the property at fair market value. It obtained a Mareva injunction and an Anton Pillar order pending trial, and made the corresponding rule 40.03 undertaking. The defendants brought a motion before the court requesting that the interlocutory relief be lifted and that their costs be awarded, on a solicitor and client basis, under the rubric of damages flowing from the undertaking.
Dunnet J. lifted the interlocutory order (reasons reported at p. 114) but found that an award of damages could not include a party’s costs, on any scale. Dunnet J. canvassed the cases cited by counsel, and found at p. 115 that none could be taken as directly holding that an award of costs could not be made under the rubric of damages; however, she found that they could be taken as “indirect” authority for that proposition.
Central to Dunnet J.’s analysis was her interpretation of Deisler v. United States Fidelity Co.,  3 W.W.R. 214 (B.C.C.A.), affirmed (sub nom. United States Fidelity & Guarantee Co. v. Deisler) (1917), 59 S.C.R. 676, which she took as authority for the proposition that an award made upon an undertaking may not include the costs of the action. There, an action had been brought upon a bond entered into to secure the damages that might be recovered in an action. The plaintiff sought interlocutory relief prohibiting the defendant from further trespasses upon the plaintiff’s mineral claim. The defendant, seeking to prevent the granting of such relief, entered into a bond in which it guaranteed it would “pay all such damages as may be awarded to the . . . plaintiff”. To give effect to this bond, the defendant provided a security of $25,000: Deisler, supra, reasons of Martin J.A., at p. 216. The plaintiff having succeeded at trial, it sued on the bond, claimin g that the award ought to comprise damages, interest thereupon, and its costs in the action. The trial court awarded all three. The defendant appealed on the award of costs.
For a two to one majority, MacDonald C.J.A. held at p. 216 that costs ought not have been awarded:
The defendant agreed to pay the damages recovered in that action and nothing more. At the time the bond was executed the action was pending, and if it had been intended to secure the payment of costs also, one would expect that such a term would have been included in the bond.
The Supreme Court upheld this decision without reasons.
I do not believe that Deisler may be taken as dispositive of the question in Israel Discount Bank of Canada and before this court in the instant case. I say so for three reasons. First, it is critical to note that in Deisler, it was the defendant who had made an “undertaking” in the form of a bond. This runs completely contrary to our current practice, in which it is the party seeking interlocutory relief who must bear the risk of paying damages should it be unsuccessful in the main action.
Second, the B.C. Court of Appeal clearly determined the availability of costs on its reading of the bond as a contract between the two parties. Had the parties wished to include costs in the bond, they were free to do so. Such an approach of strict construction may have been correct on those facts, but it is not an appropriate way of interpreting undertakings. It has been repeatedly held that undertakings do not create a relationship between two parties and are not contractual in nature: see Digital Equipment Corp. v. Darkrest Ltd.,  Ch. 512; John F. Renshaw (Canada) Inc. v. Captiva Investments Ltd. (1989), 70 O.R. (2d) 458 (H.C.J.). In our case, what is required is an interpretation of the word “damages” that gives effect to rule 40.03, rather than an approach based in the law of contract.
Third, the approach that Dunnet J. takes as being suggested by Deisler is incompatible with the equitable origin of undertakings, and unduly limits the discretion that is found both in equity as well as in rule 40.03. In my opinion, this discretion is wide enough, in the appropriate circumstances, to include an award of costs. As Spry writes in Equitable Remedies, 5th ed. (Toronto: Carswell, 1997), at p. 487:
… the power of the court … to require an undertaking of any kind from the plaintiff or to impose any condition before granting an interlocutory injunction is very wide, and it is not limited to particular classes of undertakings or conditions … it may be exercised, not only wherever the balance of justice at that time would otherwise be found to incline against the grant of relief, but also if the giving of an undertaking or the imposing of a condition of the kind in question is desirable in order to enable the court more easily to achieve justice between the parties
… hence what are the precise conditions or undertakings that are appropriate in any particular case depends on the circumstances in question and, especially, on prospective hardship or prejudice to the parties and such other discretionary considerations as arise.
I am of the opinion that as rule 40.03 is but the codification of equitable practice, it is to be exercised within the bounds of discretion dictated by equitable principles. Accordingly, in the appropriate case, costs may indeed be awarded under the rubric of damages. This is such a case. The appellants endured, for more than five years, the damage to their professional reputation that flows from the serious allegations made here. In addition, they have borne the expense of defending against the action and the attendant motions. Simply because they had no stake in the substantive issues that were the basis of the action is no reason to conclude that the interlocutory injunction caused them no damage. The only issue that remains is the scale on which the costs should be ordered.
This court has not previously decided the question before us. However, there have been instances where a motions judge, in an exercise of discretion in awarding costs on an abandoned or discontinued action, has decided to elevate the usual scale of costs to solicitor and client based upon the nature of the allegations made in the action. Had this been done in the case in appeal, the cost issue would be academic. While the case law on this question is divided, it is instructive as to the factors that motions judges have looked to in making such an award. Most have found that an award on this scale is appropriate where allegations of fraud and other serious malfeasance are either baselessly made or are never proven at trial; where the effect of the allegations made or of the granting of the interlocutory relief is to seriously affect a defendant’s professional reputation; and where a plaintiff fails to retract unmeritorious allegations in a timely fashion.
The appellants rightly identify Apotex Inc. v. Egis Pharmaceuticals (1990), 2 O.R. (3d) 126, 32 C.P.R. (3d) 559 (Gen. Div.), leave to appeal to Divisional Court refused (1990), 2 O.R. (3d) 126n, as a leading case on this question. It established the proposition that the moving party for an interlocutory injunction ought to pay the costs of the respondent on a solicitor and client basis when the motion lacks merit and includes allegations of fraud, deceit, and conspiracy. In that case, the plaintiff sought an interlocutory injunction to restrain the defendant from entering prematurely the Canadian market for a drug.
When the motion was heard, the plaintiff had already entered the market for the drug in advance of the defendant. Because Henry J. concluded, at p. 129, that the “allegations . . . were made without any acceptable evidentiary basis but were speculation only”, he held that it was “a classic case for the award of solicitor-and-client costs” against the plaintiff for making groundless accusations in support of an extraordinary remedy.
Lawson v. Toronto Hospital Corp. (1991), 52 O.A.C. 186 (Div. Ct.) is another case that stands for the proposition that, where a motion for interim relief is found to be baseless and is an attack on the defendant’s professional reputation, solicitor client costs may be awarded. There, Davidson J. followed Apotex and ordered the plaintiff to pay the costs of several defendants who were forced to defend against a motion for an interim injunction on the solicitor and client scale. The plaintiff had made but failed to prove “very serious” allegations of wrongdoing against doctors and managers of the hospital over which “the professional integrity of the respondents was at stake”.
Coran v. Doyle,  O.J. No. 991 (QL) (Gen. Div.) involved a dispute over a sale of property that did not close because the defendant defaulted. In addition to a claim of breach of contract, the plaintiff alleged a fraudulent conveyance involving the transfer of shares in a corporation among several defendants. She sought an injunction and a certificate of pending litigation against the defendants to restrain them from disposing of shares in the corporation or of any interest in the property until the final disposition of the action. The motion for an injunction was dismissed for lack of merit and the plaintiff was ordered to pay solicitor and client costs of the defendants on the motion. It was not relevant, West J. determined, that this dispute was between individuals of modest means while the Apotex case involved large corporate competitors.
In Singdeer Investments Ltd. v. Holiday Inns Inc.,  O.J. No. 836, 47 A.C.W.S. (3d) 27 (Ont. Gen. Div.), Dennis Lane J. imposed solicitor and client costs on the plaintiff for its unsuccessful motion seeking an injunction to prevent the breach of a lease and a franchise agreement. The plaintiff had alleged that the co-defendants conspired to negotiate a “sham” agreement to terminate the franchise deal. The judge awarded solicitor and client costs against the plaintiff in respect of one co-defendant but ordered party-and-party costs in respect of the other defendant because some of the plaintiff’s allegations were proved to be true.
A case in which the plaintiff abandoned its motion for an ex parte injunction was Glanford Aviation Services Ltd. v. Marsh,  O.J. No. 1716, 42 A.C.W.S. (3d) 794 (Ont. Gen. Div.). Unlike the other cases, however, the claim for an injunction did not include allegations of wrongdoing. Rather, the case involved allegations of breach of contract. The plaintiff abandoned its motion after the judge refused to grant the injunction without notice to the defendants, and following two adjournments. Marshall J. granted the defendant’s request to be indemnified forthwith on the solicitor-client scale on the basis that the defendants “were virtually pulled out of bed for the plaintiffs … and worked very hard to prepare adequate responses” to the plaintiff’s submissions. In addition, the effect of the injunction would have effectively been to prevent Marsh from doing business at all.
In Yang v. Mao (1995), 23 O.R. (3d) 466, 39 C.P.C. (3d) 10 (Gen. Div.), the plaintiff obtained an interim Mareva injunction against the defendant over allegations of fraud, misappropriation of funds, and forgery. The injunction was dissolved when the defendant led evidence that the plaintiff had forged some of the documents he used to obtain the ex parte injunction. The plaintiff subsequently withdrew the motion for an injunction without explanation. In addition there was no indication that the plaintiff intended to pursue the main action further. Winkler J. determined that an award of solicitor and client costs against the plaintiff was an appropriate sanction.
Further, Winkler J. held, at p. 476, that rule 37.09(3) of the Rules of Civil Procedure places no restriction on a judge’s discretion to determine the scale of costs on an abandoned motion because the rule is silent as to the scale of costs. He stated, at pp. 476-77:
In the case of motions for injunctive relief and other extraordinary remedies, it is trite that the applicants must meet the highest standard of candour and disclosure to the court. This is particularly so in the case of a Mareva injunction . . .
. . . [w]here respondents to such motions are put to the expense of replying to a request for such relief, often on an emergency basis, only to have the motion abandoned or withdrawn when responding materials are served, the only means by which the court may punish such an abuse is by an award of solicitor and client costs. The case at bar is a case in point.
Mele v. Thorne Riddell (1997), 32 O.R. (3d) 674 (Gen. Div.), is, in my opinion, dipositive of this question. There, the defendant obtained (under rule 23.05) solicitor and client costs of the action against the plaintiff — one of 34 plaintiffs in the action — who had obtained leave to discontinue the action. The statement of claim included unfounded allegations of fraud and criminal behaviour, including accepting a secret commission, that were not publicly withdrawn until the beginning of the trial. Dambrot J. therefore concluded, at p. 677, that “[t]o completely absolve
[a] plaintiff of responsibility for unfounded allegations because of [its] withdrawal at the courtroom door would fail to deter reckless allegations from being pleaded in the first instance, or maintained after they are known to be without foundation”. The judge also commented about the harm done to the defendant’s reputation as a result of having to defend against allegations of wrongdoing, noting that such harm continues as long as unfounded charges remain on the public record. At p. 677 Dambrot J. wrote:
Where unfounded allegations of fraud or improper conduct seriously prejudicial to the character or reputation of a party are made in an action, a court may depart from the usual scale of costs and award costs on a solicitor-and- client scale … A plaintiff who proceeds in this manner must be prepared for the cost consequences if the allegations turn out to be unfounded.
Ordinarily, this court will not interfere with an order of costs. It is a classic exercise of discretion and will not be treated lightly. However, I am not satisfied that the motions judge recognized the significance of the undertaking as to damages given by the defendants in order to obtain this most intrusive injunctive relief against the appellant solicitors. Instead of asking himself if it was reasonable for the plaintiffs to assert fraud, in my opinion he should have addressed the issue of whether the solicitor-client costs incurred by the appellants in order to successfully defend themselves against the serious allegations relating to their practice constituted damages within the meaning of the undertaking. On my reading of the endorsement, he appeared to have accepted the argument of the respondent Church in this court that costs were outside the purview of damages within the meaning of the undertaking.
I want to be clear that I am not suggesting that costs on a solicitor-client basis must always be granted pursuant to the undertaking as to damages given by a plaintiff seeking injunctive relief. But this is not to say that they are not warranted in the particular case. I think the motions judge erred in not taking into consideration whether the full costs of retaining a solicitor fell within the ambit of the undertaking as to damages. That undertaking was given to the court to obtain the injunction.
In my opinion, properly considered, this case more than warranted an award of solicitor and client costs. Since the respondents maintained to the end, including on this appeal, that the allegations were true, such an award is the only public rehabilitation of the appellants’ reputation.
Accordingly, I would allow the appeal, set aside the order of Trafford J. relating to costs and substitute an order on the undertaking comprising costs on a solicitor and client basis to be assessed. For the same reasons, I would also allow solicitor and client costs to the appellants on the motion here and below.
1998 CanLII 7187 (ON CA)