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Review of Lacey v Lacey, 2016 ONSC 1716 (CanLII)
By: Jonathan M. Friedman, B.A., LL.B.
The March 11, 2016 decision of the Honourable Justice Hainey in Lacey v. Lacey1 provides a succinct overview of the law of costs in Estate Litigation and, more notably, provides an underlying “warning” to those alleging fraud and conspiracy in Estate Litigation matters.
Lacey v. Lacey2 can be briefly summarized as follows; The Plaintiff, Peter Alan Lacey (“Peter”) commenced an action relating to a family cottage against his mother, Grace Lacey (“Grace”), his sister, Barbara Smart (“Barbara”), Maurice O’Kelly (“O’Kelly”) and Grace’s legal counsel (the “Action”).3 The Action did not proceed against Grace’s legal counsel. Peter settled the claim with O’Kelly and Grace.4 However, Peter did not settle the claim with Barbara and Barbara brought a motion for summary judgment to dismiss Peter’s claim against her.5 When the motion came before Justice Hainey for a hearing, Peter consented to an order dismissing his claim against Barbara. The only remaining live issue which Justice Hainey had to decide was the issue of Barbara’s costs.6
Justice Hainey begins the portion of his decision addressing costs by stating that a successful party in litigation is entitled to costs in the absence of special, exceptional circumstances and citing Northwood Mortgage Ltd. v. Gensol Solutions Inc7 where the Court held that “an order depriving a successful party of costs is exceptional”8.9
Justice Hainey then cites the Court of Appeal decision in 1318706 Ontario Ltd. v. Niagara (Regional Municipality)10, where the Court held, in part, the following;
“This court will rarely interfere with the disposition of costs at first instance. However, as Stratton C.J.N.B. said in Larter v. Universal Sales Ltd. (1991), 1991 CanLII 4077 (NB CA), 50 C.P.C. (2d) 66 (N.B. C.A.), at 67-68:
In M.M. Orkin, The Law of Costs, 2d ed. (Aurora, Ont.: Canada Law Book, 1987) at p.2-13, the author points out that the principle that a successful party is entitled to his costs is of long standing and should not be departed from except for very good reasons. One might depart from the rule if there has been (1) misconduct of the parties, (2) miscarriage in the procedure, or (3) oppressive and vexatious conduct of proceedings.11”12
To summarize, the Court of Appeal in 1318706 Ontario Ltd. v. Niagara (Regional Municipality)13 held that a successful party may not be entitled to their costs in litigation if there has been misconduct of the parties, miscarriage in the procedure, or oppressive and vexatious conduct of proceedings.14
Justice Hainey accepted the position of Barbara’s counsel when he held that pre-litigation conduct of the parties has no bearing on the issue of costs of the Action since pre-litigation conduct does not fall within any of the exceptions referred to by the Ontario Court of Appeal in 1318706 Ontario Ltd. v. Niagara (Regional Municipality),15 referenced above. Therefore, the Court held that there was no basis to deprive Barbara of her costs of the Action.16
1 Lacey v Lacey, 2016 ONSC 1716 (CanLII)
3 Ibid. at paras. 1 and 2.
4 Ibid. at para. 3.
5 Ibid. at paras. 3 and 4.
6 Ibid. at para. 5.
7 Northwood Mortgage Ltd. v. Gensol Solutions Inc. (2005), 3 B.L.R. (4th) 312
8 Ibid. at para 6.
9 Lacey v Lacey, 2016 ONSC 1716 (CanLII), at para 25
10 1318706 Ontario Ltd. v. Niagara (Regional Municipality), 2005 CanLII 16071 (ON CA),  O.J. No. 1907
11 Ibid. at para. 50.
12 Lacey v Lacey, 2016 ONSC 1716 (CanLII), at para 26
13 1318706 Ontario Ltd. v. Niagara (Regional Municipality), 2005 CanLII 16071 (ON CA),  O.J. No. 1907 at para. 50
16 Lacey v Lacey, 2016 ONSC 1716 (CanLII), at para 28 and 29.
Potential Consequence(s) of Alleging Fraud & Conspiracy:
Peter alleged fraud and conspiracy against Barbara in the Action and failed to establish either at trial.17
Peter was put on notice multiple times by Barbara that she would seek costs against him on a substantial indemnity basis if he did not succeed at trial. Nonetheless, Peter proceeded with the Action against Barbara for almost three years. He did not establish his allegations of fraud and conspiracy against Barbara at trial18 and ultimately consented to the dismissal of his claim against Barbara.19
As a result of the above, Justice Hainey held that Peter ought to have reasonably expected that he would be exposed to substantial indemnity costs if he did not establish his allegations of fraud and conspiracy against Barbara at trial and that Peter is, therefore, responsible for Barbara’s reasonable costs of defending the Action on a substantial indemnity scale.20
Barbara was ultimately awarded costs on a substantial indemnity scale21 yet, the amount was to be determined at a later date, once counsel for Barbara’s Bill of Costs was assessed by an assessment officer and the motion was set to continue before Justice Hainey once the assessor’s report is obtained and presented to the Court.22
17 Ibid. at para. 31.
19 Ibid. at para. 5.
20 Ibid. at para. 32.
21 Ibid. at para. 33
Overview of Substantial Indemnity Cost Awards:
It is important to remember that substantial indemnity costs are very much the exception and should only be awarded in rare and exceptional cases to mark the court's disapproval of the conduct of the party in the litigation.23 The conduct in question must be reprehensible, scandalous or outrageous.24 The following circumstances have been considered to be rare or exceptional: where there is an unproven allegation of fraud, bad faith or misconduct against another party25, or where there has been improper conduct by a party during the litigation26.
I also note that it is not every case of unsuccessful allegations of fraud that will result in an award of substantial indemnity costs. For example, in Hamilton v. Open Window Bakery Ltd.27, Arbour J., held, in part, that although allegations of fraud and dishonesty are serious and potentially very damaging to those accused of deception, costs on a substantial indemnity scale will not always be awarded against an unsuccessful party who unsuccessfully proves fraud and/or dishonesty as not all attempts are considered to amount to reprehensible, scandalous or outrageous conduct.28 Nevertheless, as in Lacey v. Lacey29 costs on the higher scale can be awarded as a form of chastisement and as a mark of the court's disapproval of a litigant's conduct which is intended to punish as well as to deter others from engaging in similar conduct30. Unproven allegations of fraud frequently attract awards on the higher scale31. Where serious allegations of dishonest or illegal acts are made, but are so inadequately pleaded that they are not permitted to go forward, costs consequences should likewise follow.32
22 Ibid at para. 38.
23 Hunt v. TD Securities Inc. (2003), 2003 CanLII 3649 (ON CA), 66 O.R. (3d) 481,  O.J. No. 3245 (C.A.) at para. 123
24 Young v. Young,  4 S.C.R. 3, 1993 CanLII 34 (SCC), 1993 CanLII 34, at para. 250; see also: United States of America v. Yemec (2007), 2007 CanLII 65619 (ON SCDC), 85 O.R. (3d) 751,  O.J. No. 2066 (Div. Ct.) at para. 30.
25 1483677 Ontario Ltd. v. Crain, 2010 ONSC 1353 (CanLII),  O.J. No. 886, Himel J. stated, at paras. 16 – 18, see also Murano v. Bank of Montreal (1998), 1998 CanLII 5633 (ON CA), 41 O.R. (3d) 222,  O.J. No. 2897 at para. 82 (C.A.)
26 Ibid. see also, Foulis v. Robinson (1978), 1978 CanLII 1307 (ON CA), 21 O.R. (2d) 769 at p. 776 (C.A.).
27 Hamilton v. Open Window Bakery Ltd., 2004 SCC 9 (CanLII),  1 S.C.R. 303,  S.C.J. No. 72
28 Ibid. at para. 26.
29 Lacey v Lacey, 2016 ONSC 1716 (CanLII)
Lacey v. Lacey33 provides a helpful illustration of the potential consequences of alleging fraud and/or conspiracy in Estate Litigation matters. Here, Justice Hainey appeared to have utilized similar reasoning for imposing a substantial indemnity cost award as the reasons put forth by prior Justices in Civil Litigation matters. Whether or not the Court would have imposed the substantial indemnity costs award regardless of Barbara notifying Peter multiple times of her intention to seek substantial indemnity costs if he were not successful at trial and/or if Peter had agreed to discontinue the Action against Barbara at an earlier date are both unknown. Yet, the underlying “warning” to those alleging fraud and conspiracy in Estate Litigation matters which is found in Lacey v. Lacey34 should still be thought of in the back of counsels’ mind, even if only for a brief moment, prior to alleging fraud and/or conspiracy in their pleadings.
30 Manning v. Epp,  O.J. No. 4239 (S.C.J.) at paras. 7 - 9
33 Lacey v Lacey, 2016 ONSC 1716 (CanLII)
Jonathan M. Friedman
This article should not be used in substitute for legal advice and was in no way intended to be relied upon as legal advice. Furthermore, the contents of these notes are intended as a guide for readers. They can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law.