What penalties can a court impose on a party for not making full and frank disclosure at an ex parte hearing?

[37] On an ex parte application, the relevant principles include the following:

1) the applicant must make full and frank disclosure of all material facts;

2) a material fact is one that may affect the outcome of the application;

3) it is for the court to determine if the fact is material, not the applicant or his legal advisors;

4) the duty to disclose applies not only to known facts, but also to those facts that ought to have been known had proper inquiries been made;

5) the extent of the inquiries required depend on the circumstances of the particular case;

6) if material non-disclosure is established, the court may deprive the applicant of any advantage gained by reason of the breach of duty to disclose;

7) the failure to provide such full and frank disclosure will allow a court to set aside the order without regard to the merits of the application;

8) in deciding whether the Order should be set aside, the court must consider the importance of the non-disclosed fact to the issues which were to be decided by the judge at the ex parte hearing;

9) an innocent non-disclosure is an important consideration, but not decisive as to whether the breach is such that the Order is to be set aside; and

10) not every omission necessarily results in the order being set aside.

Girocredit Bank Aktiengesellschaft Der Sparkassen v. Heidrun Hedwig Bader, Anton Hans Bader and Tomax Enterprises Ltd., (25 June 1998) Vancouver CA 021618 (B. C. C. A.) at para 45; Procon Mining and Tunneling Ltd. et al v. McNeil, Bonnar et al., 2007 BCSC 454 at paras. 10-11.

[38] An ex parte applicant must be “fastidious” in disclosing all important aspects of the evidence and pointing out what defenses may be available to the opposing party. An applicant is not to exaggerate or misrepresent the strength of the claim being advanced. The duty of disclosure is onerous, particularly when seeking the draconian nature of Anton Piller relief: Green v. Jernigan, 2003 BCSC 1097, at paras. 24-25.

[39] The law relating to ex parte applications generally is clear and well-known: the applicant must, in the words of the chambers judge, make “full and frank” disclosure to the Court. The seminal case in this province is that of Wilson J. (as he then was) in Gulf Islands Navigation Ltd. v. Seafarers International Union of North American (Canadian District) (1959) 1959 CanLII 291 (BC SC), 18 D.L.R. (2d) 216 (B.C.S.C.), aff’d (1960) 1959 CanLII 272 (BC CA), 28 W.W.R. 517. Wilson J. stated:

I find there is some divergence of judicial thought as to the grounds upon which an ex parte order ought, upon notice, to be discharged. The area of divergence does not include such generally accepted fundamental concepts as this: That the ex parte order is obtained periculo petentis so that if there has not been made to the Judge a full and frank disclosure of relevant facts, the order will be voided. Sheppard J. in Kraupner v. Ruby (1957), 1957 CanLII 236 (BC CA), 7 D.L.R. (2d) 383 at p. 391 cites Scrutton L.J. in Lazard Bros. & Co. v. Banque Industrielle de Moscou, [1932] 1 K.B. 617 at p. 637: “‘Persons applying ex parte to the Court must use the utmost good faith, and if they do not, they cannot keep the results of their application.’” [At 218; emphasis added.]

[40] The chambers judge referred to Evans v. Umbrella Capital LLC 2004 BCCA 149, where Mr. Justice Donald for this court observed that the applicant’s counsel was obliged “as an officer of the court to disclose any facts which might have influenced the court’s decision.” (At para. 33; my emphasis.) As well, the chambers judge noted U.S.A. v. Friedland [1996] O.J. No. 4399 (Ont. Gen. Div.), where Mr. Justice Sharpe (as he then was) stated the duty in expansive terms:

For that reason, the law imposes an exceptional duty on the party who seeks ex parte relief. That party is not entitled to present only its side of the case in the best possible light, as it would if the other side were present. Rather, it is incumbent on the moving party to make a balanced presentation of the facts in law. The moving party must state its own case fairly and must inform the Court of any points of fact or law known to it which favour the other side. The duty of full and frank disclosure is required to mitigate the obvious risk of injustice inherent in any situation where a Judge is asked to grant an order without hearing from the other side. [At para. 27; emphasis added.]

[49] The authorities are clear that the usual remedy for failing to make full disclosure on an ex parte motion is the setting aside of the order thus obtained: see, e.g., Gulf Islands Navigation (1959) 1959 CanLII 272 (BC CA), 18 D.L.R. (2d) 625 (C.A.) at 518–9; Nalcor Energy at para. 16 and cases cited therein; and Vancouver v. Imperial Ventures Construction Ltd. (1985) 1985 CanLII 360 (BC SC), 60 B.C.L.R. 265 (S.C.) at 268. For the sake of completeness, I note that when an order made ex parte is set aside due to a failure of disclosure, the applicant may apply for the order again on the basis of the evidence originally presented on the ex parte application but also with the benefit of material subsequently filed by both parties. In British Columbia, the general practice is that the judge who heard the application ex parte also hears the application de novo: see Vancouver v. Imperial Ventures at 268; Gulf Islands (C.A.) at 518–523; see also Canadian Paraplegic Association (Newfoundland and Labrador) Inc. v. Sparcott Engineering Ltd. (1997) 71 A.C.W.S. (3d) 1053 (N.L.C.A.) at paras. 14–15.

[23] At an ex parte hearing, the applicant must make full and frank disclosure of all material facts: Gulf Islands at 518; 472900 B.C. Ltd. v. Thrifty Canada Ltd., 1997 CanLII 4322 (B.C.S.C.) at para. 34; United States v. Friedland, (1996) 30 O.R. (3d) 568 at 573, 1996 CanLII 8213 (O.N.S.C.); Evans v. Umbrella Capital LLC, 2004 BCCA 149 at para. 32. However, an ex parte order will not be set aside because the applicant has misrepresented or omitted non-material facts; the test of materiality is objective, and a material fact is a fact that may or might affect the outcome of the application: Pixhug Media Inc. v. Steeves, 2016 BCSC 1714 at paras. 19 to 24; Evans at para. 33. A material misrepresentation is a representation which, either expressly or by omission, is of sufficient importance “as to induce reliance by the court upon it in granting the order” and causes the court to grant an order it would not have otherwise granted: Wilder Estate v. Davis & Co., 1992 CanLII 865 (B.C.S.C.), rev’d on other grounds, 1994 CanLII 2239 (B.C.C.A.). It is for the Court to determine what is a material fact: Money in a Minute Auto Loans Ltd. v. Price, 2001 BCSC 864 at paras. 12 to 13 [Money in a Minute]; Evans at para. 33; Russell v. Parks, 2013 BCSC 734 at para. 19.

[93] The principles governing an award of special costs are well settled and undisputed by the parties. Both referred to the leading case of Garcia v Crestbrook Forest Industries Ltd. (1994), 1994 CanLII 2570 (BC CA), 119 D.L.R. (4th) 740 (B.C.C.A.). It established that special costs can be awarded for misconduct in the course of litigation that is reprehensible in the sense of “deserving of reproof or rebuke”.

[94] There are cases in which a plaintiff’s conduct in obtaining an ex parte Order on the basis of intentionally or carelessly false, misleading or unforthcoming materials has been found to satisfy this standard: Bank of Credit and Commerce International (Overseas) Ltd. (Liquidator of) v Akbar, 2001 BCCA 204 at paras. 18-19; Money in a Minute Auto Loans Ltd. v Price, 2001 BCSC 864 at para. 38, aff’d 2002 BCCA 507 at paras. 17-22; Bernie’s Ltd v Bykerk, 2009 BCSC 1028 at paras. 13-14, 24; Old Abbey Ales Ltd. v BC Packaging Service, 2017 BCSC 1877 at paras. 9-14.

[95] In his reasons addressing costs, the Master stated:

[45] … On the issue of costs, what was sought, the special costs of these proceedings are of the day. I cannot remember the last time I ordered special costs. But this is very concerning. Very concerning. I have already dealt at length about the nature of the proceedings to date; twice without notice to Ms. [H], once when she was fully in the picture, at least, attempting to email.

[96] He stated that the following passages from Bernie’s Ltd. at para. 13 were apposite:

In the course of the oral hearing, counsel for the plaintiffs fell markedly short of fulfilling his duty of candour to the court. Specifically, and most importantly, when pressed to provide the details of the relationship and background of the parties, he failed to apprise the court that there was a familial connection … I am satisfied that matters were portrayed in a light that was, in respect of relevant and material issues, neither candid nor complete. In fact, I believe that the very basis for an ex parte without notice application was absent.

[97] The Master was not clearly wrong. I agree with his decision.

[...]

[99] It is important that the order was obtained without notice to Ms. H at the very commencement of the litigation. Mr. H had experience with family litigation. I infer that he sought and obtained the ex parte Order to obtain an early advantage in the lawsuit. Orders of this nature are readily subject to abuse. That is why the law imposes on a party seeking one an obligation of full and frank disclosure. A clear failure to satisfy that obligation in the circumstances of this case should attract the consequence of a punitive costs order.

[29] With respect to the claimant’s argument, special costs may be awarded where there has been reprehensible conduct on the part of the opposing party during the course of the litigation: Gichuru v. Pallai, 2018 BCCA 78 at para. 86; Tsai v. Li, 2020 BCCA 264 at para. 16. Special costs are punitive in nature, and not a bonus to the winning party. The party seeking special costs bears the burden of establishing exceptional circumstances, and the court must exercise restraint in awarding special costs: Westsea Construction Ltd. v. 0759553 B.C. Ltd., 2013 BCSC 1352 [Westsea] at para 73.

[30] The impugned conduct must be within the litigation and not pre-litigation conduct: Smithies Holdings Inc. v. RCV Holdings Ltd., 2017 BCCA 177 [Smithies] at para. 134. This “bright line rule” applies in the family law context: Sebok v. Babits, 2022 BCCA 2 [Sebok] at para. 51.

[31] Reprehensible conduct “encompasses scandalous or outrageous conduct” and “milder forms of misconduct deserving of reproof or rebuke”: Garcia v. Crestbrook Forest Industries Ltd. (1994), 119 D.L.R. (4th) 740, 1994 CanLII 2570 at para. 17 (C.A.). Not all misconduct attracts special costs: Westsea at para. 73. It is not necessary that all aspects of a party’s conduct be reprehensible to award costs for the entire proceeding, but the court may award special costs for only certain aspects of a proceeding if it would be disproportionate to award special costs of the entire proceeding: Sebok at para. 35. In the family law context, the types of conduct that may attract an award of special costs include: delayed disclosure of or a failure to disclose documents; dissipating or not disclosing assets; misleading the parties and court; depriving or disregarding the other party’s interest in family assets; pursuing meritless claims and being reckless with regard to the truth; improper motive and improper allegations of fraud; and making the resolution of an issue far more difficult than it should have been, including using superior financial resources to make litigation difficult or costly: Chapman v. Chapman, 2020 BCSC 1896 at paras. 4-10; Mayer v. Mayer, 2011 BCSC 914 at para. 11.

[13] In concluding that the order of December 12, 2008 could not stand, I found that:

a. a considerable part of the evidence tendered in support of the application was improper and inadmissible; namely it was hearsay evidence attributed to an unnamed source;

b. in the course of the oral hearing, counsel for the plaintiffs fell markedly short of fulfilling his duty of candour to the court. Specifically, and most importantly, when pressed to provide the details of the relationship and background of the parties, he failed to apprise the court that there was a familial connection and that the defendants had resided on one of the properties in issue for many years. The situation was presented as one of critical urgency. I am satisfied that matters were portrayed in a light that was, in respect of relevant and material issues, neither candid nor complete. In fact, I believe that the very basis for an ex parte without notice application was absent.

[...]

[22] Finally, in Money in a Minute Auto Loans Ltd. v. Price, 2001 BCSC 864, McKinnon J., in setting aside an ex parte order, made an order for special costs on a number of bases, including that counsel had “... failed to provide full and frank disclosure of material in his possession, failed to provide an affidavit that met the evidentiary test for such an application, and alluded to an urgency that was not supported by the facts”: Money in a Minute at para. 38.

[23] His decision was subsequently upheld on appeal.

[24] Having in mind these authorities and the facts that I have found in the present circumstances, I am satisfied that the conduct of the plaintiffs was improper and deserving of reproof or rebuke such that they should be required to substantially indemnify the defendants for the costs occasioned by their actions. An award of special costs in favour of the defendants is warranted.

[25] The defendants, in their material, have particularized and quantified their claim. They say that legal fees incurred to respond to and set aside the December 12, 2008 order total $21,250. They claim as well the GST and PST for those fees. Additionally, they seek to recover disbursements and taxes in the amount of $1,724.06. In total, their claim for fees, disbursements and taxes is $25,524.06.

[26] Furthermore, it is the position of the defendants that the award of special costs should be payable forthwith.

[27] The plaintiffs take a different view of the matter. While it is agreed that the defendants are entitled to costs, the plaintiffs contend that the basic principle of reasonableness must factor into the analysis. They submit that the conduct of the plaintiffs was neither malicious nor in bad faith. Rather, they characterize the representations made to the court as “imprecise”, and deny that there was any intent to mislead the court. The plaintiffs accept that the award of costs should be greater than party and party costs, but the quantum advanced by the defendants is not accepted as being fair or reasonable.

[28] In the submission of the plaintiffs, an appropriate award of costs is in the range of $4,000, payable in any event of the cause. As well, Mr. Kapalka (the personal plaintiff) says that he is currently in a particularly difficult financial situation, being indebted to Revenue Canada for one million dollars. Accordingly, he says that it would be punitive to award costs that would be payable forthwith or in any short time frame.

[29] I do not find unreasonable the contention of the defendants that a significant share of the fees claimed are attributable to dealing with the December 12, 2008 order and to setting it aside. At the same time, it must be recognized that some of what was done was necessary to defend against the action and would have been necessary in any event. In the circumstances, I find it appropriate to bring a “rough judgment” analysis to the matter, and to order that, with respect to legal fees, the defendants should recover a sum approximating 80% of the actual fees incurred. I fix that at $17,000. Additionally, the defendants are entitled to recover the applicable PST and GST on those fees, which sum is $2,040.

[30] As for disbursements, the defendants shall recover the sum of $1,724.06 as necessary disbursements and related taxes.

[31] The total award of costs is $20,764.06.

[14] I find that this is a case where it should be inferred that Old Abbey and Mr. Piccolo intentionally misled the Court. It was not a situation of one or two instances of nondisclosure or representation of material facts. The totality of the nondisclosure raises an inference that intent can be made on the facts.

[15] I therefore order that the defendants be assessed special costs without referring the matter to the registrar.

[16] The defendants seek special costs of this application payable by the plaintiffs to the defendants forthwith on a full indemnity basis or in the alternative in the amount of $21,000 including costs, disbursements and applicable taxes. Because this matter continued beyond the first day of hearing and there was no response from the plaintiffs although accommodations were made to ensure that they had an opportunity to respond, I find that the amount of $27,500 inclusive of costs, disbursements and applicable taxes is appropriate.