Otal v. Azure Foods Inc.

2019 BCSC 1510 Otal v. Azure Foods Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Otal v. Azure Foods Inc., 2019 BCSC 1510 Date: 20190830 Docket: S183596 Registry: New Westminster Between: Sikander Singh Otal, Jagdeep Otal, Bhupinder Kaur Otal, Paramjit Kaur Otal, Pritam Singh Otal (a partnership operating as Otal Farm), Jasbir Singh Banwait, Agri Grow Farm Service Limited, Amardeep Singh Mann, Surinder Singh Mann, and Baljinder Singh Parmar (a partnership operating as Amex Blueberry Farm), Davinder Pal Singh Bains, Eagle Mountain Farm Limited, JHD Investments Limited, MKR Growers Limited, Davinder Singh Brar (a.k.a. Devinder Singh Brar), Amrinder Chowhan and Gurmeet Chowhan (a partnership operating as U and R Harry Chowhan Farms), Rama Farms Limited, Manmohan Singh Heer and Sukhvir Gill (a general partnership operating as Pacific Organic Blueberry Farm), Randhir Singh Grewal (doing business as Golden Agriculture) Plaintiffs And Azure Foods Inc. (a company incorporated in British Columbia), Azure Foods Inc. (a company incorporated in Alberta), Martin Chia Hoon San and Ngo Minh and Memory Express Inc. Defendants Before: The Honourable Mr. Justice Walker Oral Reasons for Judgment Counsel for the Plaintiffs: G. Badh Counsel for the Defendants, Memory Express Inc. and Ngo Minh: B.J. Promislow Counsel for the Defendant, Martin Chia Hoon San: B. Hicks Place and Dates of Hearing: Vancouver, B.C. August 20 & 28,

2019 Place and Date of Judgment: Vancouver, B.C. August 30, 2019 Introduction [1] The plaintiffs assert that the defendants, Azure Alberta and Azure BC, as well as the controlling mind of those companies, their former director and shareholder, the defendant, Mr. Martin Chia Hoon San, misled this court when the Azure defendants brought an application to vary the Mareva injunction I ordered in September 2016 (and subsequently varied to include Azure Alberta). The application ("Variation Application") was argued on July 10, 2018. The Azure defendants sought to lift a cap that I had previously placed on the dollar amount they could spend on legal expenses. The cap amount was $50,000. [2] The plaintiffs claim that the Azure defendants, with the concurrence of Mr. Chia, misled the court when the Variation Application was argued by their jointly retained counsel. They submit that the conduct of the Azure defendants and Mr. Chia was reprehensible such as to warrant rebuke. [3] The plaintiffs seek an order that the court institute contempt proceedings ex mero motu. They acknowledge that ex mero motu proceedings should only be commenced in exceptional circumstances, which they say are present in this case. The plaintiffs argue that the manner in which the court was misled was sufficiently egregious that those defendants have demonstrated their contempt for the court, such that the court

should institute contempt proceedings ex mero motu. [4] Alternatively, their position is that the conduct of the Azure companies and Mr. Chia warrants rebuke through an award of special costs. [5] The plaintiffs seek relief against Mr. Chia on the basis that he was the sole, controlling mind of the Azure companies throughout, he was added as a named respondent to the notice of application filed for the Variation Application on behalf of counsel representing him and the Azure defendants, and permitted the Court to be misled. [6] The plaintiffs have two applications before the Court. The first is part of and consequent on my decision to dismiss the relief sought on the Variation Application. The second was filed on approximately June 24, 2019. Both applications seek an award for special costs, albeit the second application seeks it in the alternative to the ex mero motu order. [7] Argument on the plaintiffs' application in the context of the Variation Application began last November 2018, but was adjourned when counsel for the Azure defendants and Mr. Chia, Hakemi Ridgedale, advised that they were no longer acting in the case. While it has taken some time to have the continuation of the application brought forward, it has been, in the main, to accommodate the Azure defendants to allow them to retain new counsel. Only Mr. Chia has retained new counsel. The Azure defendants have

not retained counsel, and moreover, have failed to participate in this or any other interlocutory hearing in the case since Hakemi Ridgedale ceased to represent them. I agree with the plaintiffs' submission that for all intents and purposes, the Azure defendants have abandoned the litigation. [8] Azure Alberta and Azure BC have not responded or participated in the instant application although duly served. Plaintiffs' Position [9] The plaintiffs submit that the Azure defendants misled the court on the Variation Application by painting a picture of two companies with little to no assets. Azure BC was said to have no assets. Azure Alberta was described, they submit, as having insufficient means to pay legal bills to defend the case and to pay for the costs to investigate the potential recovery of its blueberries (supplied by the plaintiffs) being held by Purewal Berry Farms Limited ("Purewal"), a fruit processing company located in the Lower Mainland. The plaintiffs say that a plain reading of the transcript of proceedings clearly shows that after hearing the submissions of the Azure defendants' counsel, I was close if not at the point of acceding to the request to vary the Mareva order, although on certain conditions involving oversight. [10] In contrast to the submissions made on behalf of the Azure defendants on the Variation Application, the plaintiffs point to documents sent

by Azure Alberta to the government of Canada in 2017 and 2018 seeking permission to hire foreign workers for their blueberry farms and operations located at different places in this province. The plaintiffs submit that the effect of those documents is that contrary to Azure Alberta's submissions before this court, Azure Alberta was a viable business with financial liquidity. The plaintiffs obtained some of these documents initially and prior to the hearing of the Variation Application through their own efforts and then a complete nearly unredacted set of the documents following their court application, which also named Canada as a party, which was contested by Mr. Chia. Mr. Chia's Position [11] Mr. Chia's position is that the Court was not misled. He defends the application on the following basis: (a) The Variation Application was premised on removing the cap since the cap amount prevented Azure Alberta from paying its legal fees. According to Mr. Chia, the Variation Application was "all about the cap" and the purpose of that application was to remove it. (b) The submissions of Azure Alberta's counsel, both written and oral, were all centred around that theme. (c) The plaintiffs have not established from the evidence they have adduced on the instant applications that the Court was misled. (d) Any statement or statements by Azure Alberta's counsel in the course of submissions

concerning its asset position that might be said to have created the impression that Azure Alberta had no other assets other than funds in trust with Hakemi & Ridgedale and possibly the blueberries held by Purewal was, in the context of the application and its purpose, inconsequential. (e) There is no evidence that Azure Alberta and Mr. Chia committed fraud or otherwise concocted evidence in order to mislead the Court, which must be established by the plaintiffs to demonstrate reprehensible conduct. (f) Mr. Chia was not a party to the Variation Application and whatever impression any statement from Azure Alberta's counsel may have left should not be visited upon him as a non-party. (g) The circumstances required to impose costs upon a non-party are not present in this case. My Decision on the Variation Application [12] The plaintiffs are correct in their submission that I was nearly persuaded to vary the Mareva order based on the submissions of counsel for the Azure defendants. However, I ultimately dismissed the application without the need to call on the plaintiffs to reply. In Otal v. Azure Foods Inc. (10 July 2018), New Westminster S183596 (B.C.S.C.), I dismissed the application because: (a) the Azure defendants had failed to comply with my prior order requiring them to provide particulars of payment amounts made to legal and accounting professionals; (b) of what I viewed

at that time as the inconsistent positions taken by those defendants and Mr. Chia concerning the quality and identify of the ownership of the impugned blueberries supplied by the plaintiffs and held by Purewal; and (c) of the movement of money from Azure Alberta's bank account to an account in Mr. Chia's own name. [13] Neither Azure defendant filed any current evidence of any directors, officers, or employees on the Variation Application attesting to their financial circumstances. They essentially relied on the strength of the submissions of counsel to the court and exhibits attached to the pro forma affidavit of counsel's legal assistant. [14] Thus, there was no direct evidence from either Azure defendant. Test to Vary a Mareva Injunction Order [15] Before I turn to my findings concerning the effect of the submissions of counsel for Azure Alberta at the Variation Application and of the documents delivered by Canada consequent upon the plaintiffs' production application, I wish to set out the test an applicant must meet to vary or even set aside a Mareva injunction order. [16] The plaintiffs submit the test applicable is described in the decision of Mr. Justice Groberman in ICBC v. Dragon Driving School Canada Ltd., 2004 BCSC 1580, who drew upon the decision of Mr. Justice Malloy in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, [2003] O.J. No.

40. I agree. [17] In Dragon Driving School, Groberman J. cited the test from Credit Valley at para. 7 of his reasons. He described the first prong of the multi-part test as follows: Has the defendant established on the evidence that he has no other assets available to pay his expenses other than those frozen by the injunction? [18] The complete test is set out at para. 26 of the reasons in Credit Valley, as follows: 26 Accordingly, the test to be applied is as follows: (i) Has the defendant established on the evidence that he has no other assets available to pay his expenses other than those frozen by the injunction? (ii) If so, has the defendant shown on the evidence that there are assets caught by the injunction that are from a source other than the plaintiff, i.e. assets that are subject to a Mareva injunction, but not a proprietary claim? (iii) The defendant is entitled to the use of non-proprietary assets frozen by the Mareva injunction to pay his reasonable living expenses, debts and legal costs. Those assets must be exhausted before the defendant is entitled to look to the assets subject to the proprietary claim. (iv) If the defendant has met the previous three tests and still requires funds for legitimate living expenses and to fund his defence, the court must balance the competing interests of the plaintiff in not permitting the defendant to use the plaintiff's money

for his own purposes and of the defendant in ensuring that he has a proper opportunity to present his defence before assets in his name are removed from him without a trial. In weighing the interests of the parties, it is relevant for the court to consider the strength of the plaintiff's case, as well as the extent to which the defendant has put forward an arguable case to rebut the plaintiff's claim. [Emphasis added] [19] I respectfully disagree with Mr. Chia's submission that the description of the first prong of the test cited in Dragon Driving School applies only to applications to vary a Mareva injunction order concerning proprietary assets, and does not arise in this case. [20] Mr. Justice Groberman's reasons do not confine or restrict it in that manner. Instead, his reasons reflect, at paras. 9-10, that he accepted the test proposed by Malloy J. as "helpful in guiding the exercise of the court's discretion" in the context of the application before him, which concerned proprietary assets. [21] Further, in Credit Valley, Malloy J. did not limit that part of the test to proprietary assets. It is clear from his reasons at paras. 16-27 as well as the discussion commencing at para. 37, under the heading "Payments Out of Funds Not Subject to the Proprietary Claim", that the test applies to both Mareva injunctions generally as well as proprietary injunctions. [22] The following

excerpts from the reasons serve as useful examples: 16 A Mareva injunction does not require the plaintiff to show any ownership interest in the property subject to the injunction and does not require the plaintiff to establish a case of fraud or theft. It is a recognized exception to the rule established in Lister v. Stubbs (1890), 45 Ch. D.1 that the court has no jurisdiction to attach the assets of a debtor for the protection of a creditor prior to the creditor obtaining judgment. Because of the exceptional nature of the relief, the test on the merits for obtaining a Mareva injunction is more onerous than for other injunctive relief and requires that the plaintiff establish a strong prima facie case: Chitel v. Rothbart (1983), 39 O.R. (2d) 513 at 522 and 532 (C.A.). In addition to the other requirements for an injunction, the plaintiff must show that the defendant is taking steps to put his assets out of the reach of creditors, either by removing them from the jurisdiction of the court or by dissipating or disposing of them other than in the normal course of business or living: Chitel v. Rothbart at p. 532-533. 17 The purpose of the Mareva injunction is a limited one. It is meant to restrain a defendant from taking unusual steps to put his assets beyond the reach of the plaintiff in order to thwart any judgment the plaintiff might eventually obtain. It is not meant to give

the plaintiff any priority over other creditors of the defendant, nor to prevent the defendant from carrying on business in the usual course and paying other creditors. The nature of the Mareva is such that it is typically sought and granted, in the first instance, without notice to the defendant, but then is subject to a motion by the defendant to vary the injunction to permit payments in the usual course of business or living. 18 This principle has been endorsed by the Supreme Court of Canada (referring with approval to the Iraqi Ministry of Defence decision) in Aetna Financial Services Ltd. v. Fegelman (1985), 15 D.L.R. (4th) 161 at 177. Thus, even where the Mareva injunction may have been originally granted in a broad and sweeping form, this is in contemplation that it will likely later be modified to permit the defendant to maintain his normal standard of living and to meet legitimate debt payments accruing in the normal course. It is common for such exemptions to include the payment of ordinary living expenses and reasonable legal expenses to defend the lawsuit: University of British Columbia v. Conomos, [1989] B.C.J. No. 2269 (B.C.S.C.); Kelly v. Brown, [1999] O.J. No. 419 (Ont.Ct. Gen. Div.); National Bank of Canada v. Melnitzer, [1991] O.J. No. 2424 (Ont.Ct. Gen. Div.); Pharma-Investment Ltd. v. Clark, [1997] O.J. No. 1334 (Ont.Ct. Gen. Div.); Halifax plc v. Chandler,

[2001] E.W.J. No. 5249 (R.C.J.C.A.). 19 The English cases apply a preliminary test before granting relief from a Mareva injunction. Under those authorities, before an Order will be made permitting payment of expenses out of funds frozen by a Mareva injunction, the defendant must satisfy the court that he has no other assets from which to make the payments: Halifax plc v. Chandler, at para 17; Ostrich Farming Corporation v. Ketchell, December 10, 1997, English Court of Appeal (Civil Division), per Roch and Millett LJJ. Although I could find no Canadian authority explicitly adopting that test, I believe it is implicit in many of the decisions . 20 Additional considerations apply to a defendant's motion to vary a proprietary injunction. 21 The test to be applied in determining whether a defendant ought to be permitted to make payments out of funds subject to a proprietary injunction begins (as does the variation of a Mareva injunction) with a consideration of whether the defendant has established on proper evidence that he has no other assets available to him to pay the expenses. If the defendant passes that hurdle, the court must engage in a balancing exercise "as to whether the injustice of permitting the use of the funds by the defendant is out-weighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may of course turn out to be a

successful defence": Halifax plc v. Chandler at para 17. 22 Mr. Caylor (for the plaintiff) argues that in cases where the defendant seeks to use funds subject to a proprietary injunction, there is an additional hurdle he must cross before the court will engage in this balancing of interests process: he must show an arguable case rebutting the plaintiff's position that the funds in question are the property of the plaintiff . 27 I turn now to a consideration of whether the defendant in this case is entitled to a variation of the injunction to permit payment of the expenses he seeks. The first step of the analysis is to determine whether the defendant has assets he could use to pay these expenses other than the assets frozen by the injunction. This is a preliminary step in the consideration both in respect of the funds to which the plaintiff asserts a proprietary claim and the funds that are assets of the defendant and subject only to a Mareva type injunction. I have come to the conclusion, although not without some misgivings, that the defendant has satisfied this test. [Emphasis added] [23] That was the onus on the Azure defendants in the Variation Application. There can be no doubt that they were aware of the case authorities and the onus before the hearing of the Variation Application since the plaintiffs, who opposed the application, cited Dragon Driving School and Credit

Valley in Part 5: Legal Basis of their application response on the Variation Application. [24] Indeed, in Part 3: Legal Basis of their notice of application, the Azure defendants appear to address the first part of the test, when they said that Mareva injunctions should not be used to allow plaintiffs to shut off funds for legal fees. [25] Viewing the evidence before me objectively, and in the absence of any evidence from Azure Alberta, Mr. Chia, or anyone else, such as their former counsel, I find that the Variation Application was argued in the context of the onus set out in those two authorities, including their onus to demonstrate that they had no other assets in which to meet their expenses, including payment of legal expenses to defend the action. Effect of the Submissions on the Variation Application [26] Here I set out my findings concerning the effect of the submissions of counsel for both Azure companies on the Variation Application. [27] At its core, the Azure companies were represented to lack financial liquidity as well as other assets in which to acquire financial liquidity to pay its counsel to defend the case, and also to investigate and ultimately pursue Purewal Farms for the recovery of the impugned blueberries. [28] Azure BC was candidly acknowledged to be a shell company with no assets and no financial resources. [29] Azure Alberta's only assets of any

significance were said to be the funds held by Hakemi & Ridgedale that it had received from California Giant that totalled approximately CAD $100,000, and potentially its blueberries held by Purewal. However, in respect of those blueberries, inconsistent positions had previously been taken by the Azure defendants and Mr. Chia as to whether it was Azure BC or Azure Alberta who owned the blueberries. No evidence was provided on the Variation Application to provide clarity. [30] In respect of its assets, Azure Alberta stated in its written submissions: 8. When the court makes an order freezing a defendant's assets before trial, it is not the court's intention to shut off the defendant's access to funds for the purpose of defending the claim. To do otherwise would allow a plaintiff who obtains a Mareva injunction to avoid facing any defence on the merits. Hans v. Volvo Trucks North America Inc., 2014 BCSC 1123 at para. 140 9. Azure BC has no assets. Azure Alberta's most significant assets are US$80,113.66 received from a customer, California Giant. This amount, which is C$95,984.18, is currently held in trust by Hakemi & Ridgedale LLP. Azure Alberta also owns approximately 790,000 lbs. of frozen blueberries that were held by Purewal Berry Farms Ltd. ("Purewal"). Aff. #3 of M. Chia at para. 8 (Tab 32) Aff. #4 of M. Chia at para. 6 (Tab 33) Aff. #9 of M. Chia at Ex. C, pp. 35 (Tab

K) 10. Azure Alberta was, as of July 21, 2017, owed US$742,207.00 by the personal defendant, Mr. Chia, but owed C$829,690.24 to Mr. Chia. Aff. #9 of M. Chia at para. 9 (Tab K) 12. The status of the blueberries owned by Azure Alberta that were held by Purewal are not entirely clear, but it appears that Purewal may have sold some or all of them and retained the proceeds for itself. Aff. #4 of A. Panchal at Ex. B, pp. 4-62 (Vol. 5, Tab3) [Emphasis added] [31] I have excerpted below, by way of example, from the oral submissions of counsel for Azure Alberta and Azure BC made in support of his clients' efforts to vary the Mareva order, as set out at page 28 of the transcript: MR. MUIRHEAD: No, and it could be varied to -- - to provide that, but --- and the other reality is Azure's money -- if you look at Azure's most significant assets there -- there's about $100,000 that's in trust at my firm received from California Giant. There -- there's a cost awards that's in trust. There is this claim about the blueberries, and then there is also a debt owing from Mr. Chia, but it -- - but it corresponding debt owing to him from Azure, but if you look at --- THE COURT: All right. That's -- that's ---- that's -- in dispute. MR. MUIRHEAD: -- -- liquid funds Azure has access, -- - has access to, in practice the significant funds are the funds in my firm's trust account. THE COURT: What happened

to the money that Mr. Chia moved into his own account in -- -- I think it's the Royal Bank, isn't it, in; -- is it in West Vancouver or the North Shore? MR. MUIRHEAD: That's not ---- THE COURT: Do you have any evidence about what happened to that? MR. MUIRHEAD: No, that's not addressed in the evidence -- THE COURT: I see. MR. MUIRHEAD: -- but -- THE COURT: And it was about half a million dollars, wasn't it? Is my recollection right on that? MR. BADH: Around -- - in one affidavit he says five ninety and the other he says seven hundred, so I don't -- THE COURT: Okay. I don't have any evidence of what happened to that. MR. MUIRHEAD: And the relaxation -- but if -- practically speaking the relaxation we're seeking doesn't have any impact on that Azure Alberta doesn't have the -- I mean its significant assets are -- are the money held in trust at our firm. There isn't money in bank accounts or some other money that's under the control of anyone. [Emphasis added] [32] And as I take it, in the course of acknowledging the first part of the test as described by Groberman J. and Malloy J., Azure's counsel said in submissions, as reflected in page 29 of the transcript: MR. MUIRHEAD: My friend has just -- or my colleague, sorry, is allowing me to answer that question, but whether it would be or not the purpose of the Mareva order isn't to -- is to prevent the improper disposal of assets.

It's not to prevent a party from spending money on legal fees, and when you have 25 days of chambers -- [33] The distinct effect of those submissions was that Azure Alberta had no other access to funds other than the funds held in trust by Hakemi & Ridgedale, and was effectively a company with minimal assets and no other funds or access to funds or assets in which to pay legal expenses. Effect of the Documents Filed with Canada [34] Here, I set out my findings concerning the effect of the documents Azure Alberta filed with the government of Canada to obtain permission to hire a significant number of foreign workers (40) as follows. [35] Azure Alberta was a very viable business operating in 2017 and in 2018, at least up until and at the time the variation application was argued on July 10, 2018. [36] It had sufficient business that any delay in its ability to hire foreign workers would cause it economic harm as it would be unable to meet its commitments and also to take advantage of market opportunities. [37] It had sufficient financial resources, or access to them, to obtain and to provide housing for the foreign workers and to cover their meals and pay them competitive hourly wages. [38] Financial information, including information required by the Canada Revenue Agency, showing gross sales for Azure Alberta in 2017 of $4.191 million, gross profits of $984,814, net income of

$164,048, and assets of $797,515 were provided to Canada. Azure Alberta also provided payroll information to Canada in 2017 and 2018 confirming it was paying wages to its farm workers. [39] Azure Alberta was obliged to advise Canada if any of its circumstances set out in its application to Canada changed, which it did not. Instead, it sent a follow up request on an urgent basis asking for its request to be approved. Moreover, in 2018, it continued to represent to Canada that it required foreign workers for its business operations. Mr. Chia's Involvement [40] Here, I set out my findings concerning Mr. Chia's involvement in respect of the Variation Application and the application to Canada. [41] Throughout all material times, Mr. Chia was the sole director and shareholder of Azure Alberta. [42] He signed the documents submitted to Canada, which included representations concerning Azure Alberta's business, revenues, expenses, profit, and retained earnings, and its ability to provide for the foreign workers, all to obtain permission to hire the foreign workers. [43] He also signed documents on an ongoing basis that were sent to Canada to advise of new foreign workers who replaced departing or departed workers and of Azure Alberta's ongoing business operations. [44] At no time did he or Azure Alberta advise Canada, as Azure Alberta was obliged to do, that any of the information it

and Mr. Chia had previously submitted to obtain approval had changed. [45] Even though Mr. Chia was represented by the same firm and the individual counsel representing the Azure defendants, he was named as a respondent to the application brought by the Azure companies to vary the Mareva order. [46] Mr. Chia did not file a response or any evidence on the Variation Application. Nor has he filed any evidence in respect of his opposition to the plaintiffs' claim for relief on the two instant applications even though he is now represented by new counsel acting solely on his behalf. Analysis and Determination Reliance on Submissions of Counsel [47] I agree with the plaintiffs' submission that a high regard is placed on unsworn statements of counsel in light of counsel's professional obligation not to mislead the court, as opposed to unsworn statements made by litigants who are interested in the outcome of the litigation: Harbin Ding Culture v. Newman, 2004 BCSC 107 at paras. 12-13. [48] It is also accepted as good practice for courts to consider unsworn statements of counsel even on evidentiary matters, unless a fact spoken to by counsel is of "singular importance" to the determination: Harbin at paras. 10 -11. [49] In the circumstances, I took counsel's submissions as evidence to support the Variation Application. I relied on their apparent veracity. [50] As noted, I dismissed the

Variation Application without calling on the plaintiffs. Hence, it was not necessary for me to engage in determining whether the submissions of counsel for the Azure defendants should be disregarded since they went to a fact of singular importance. It is clear that if I had called on the plaintiffs to reply, they would have put the accuracy of counsel's submissions in issue, which in turn would have led to either adjourning the application to allow the applicants to tender additional evidence or to the Variation Application being dismissed given the conflicts between the effect of the several documents the plaintiffs had obtained by that time and the submissions of counsel for the Azure companies. Reprehensible Conduct [51] I will begin with my determination that the Court was not misled in respect of the financial position and circumstances of Azure BC. Its counsel acknowledged during the Variation Application that it had no assets and was essentially a shell company. The documents from Canada tendered by the plaintiffs concern Azure Alberta and do not reflect the circumstances of Azure BC. Hence, there is no basis to suggest that Azure BC misled the Court. The plaintiffs are therefore entitled to party-party costs against Azure BC in respect of the July 20, 2018 hearing and preparation related to it. [52] In my opinion, the conduct of Azure Alberta is deserving of rebuke in

the circumstances where the submissions of Azure Alberta's counsel, who was also Mr. Chia's lawyer, were misleading in respect of the financial circumstances of Azure Alberta. [53] Reprehensible conduct is well defined in the case authorities. It is not restricted to cases of fraud or proof of a deliberate intention to concoct evidence to mislead the court. [54] In Consbec Inc. v. Walker, 2015 BCSC 410, Madam Justice Hyslop discussed the definition in her reasons: [15] Special costs are to provide full indemnity, or almost full indemnity, for a party. They can be awarded when there is reprehensible and scandalous behaviour. The starting point in interpreting scandalous and reprehensible behaviour starts with Garcia v. Crestbrook Forest Industries Ltd., [1994] B.C.J. No. 2486, 119 D.L.R. (4th) 740. [16] In Garcia, Mr. Justice Lambert described reprehensible behaviour as: [17] it is my opinion that the single standard for the awarding of special costs is that the conduct in question properly be categorized as "reprehensible". As Chief Justice Esson said in Leung v. Leung, the word reprehensible is a word of wide meaning. It encompasses scandalous or outrageous conduct but it also encompasses milder forms of misconduct deserving of reproof or rebuke. Accordingly, the standard represented by the word reprehensible, taken in that sense, must represent a general and all encompassing

expression of the applicable standard for the award of special costs. [17] Special costs are not compensatory. They are intended to be punitive: Westsea Construction Ltd. at para. 72. [18] In Westsea Construction Ltd., Madam Justice Gropper reviews a number of cases where conduct was found to attract special costs and others that did not. She categorizes certain conduct as improper motive, abuse of the court process, conduct of sharpe practice relating to the rules of professional conduct, and misleading the court. [55] Useful guidance is also obtained from the reasons in International Hi-Tech Industries Inc. v. FANUC Robotics Canada Ltd., 2007 BCSC 1724 at paras. 4-6:

SPECIAL COSTS [4] It is settled that the court has the authority to make an award of special costs by virtue of its inherent jurisdiction as well as pursuant to Rule 57(1) of the Rules of Court. The test for awarding special costs was laid out by Mr. Justice Lambert in Stiles v. B.C. (W.C.B.) (1989), 38 B.C.L.R. (2d) 307 at 311, 39 C.P.C. (2d) 74 [Stiles]: The principle which guides the decision to award solicitor-and-client costs in a contested matter where there is no fund in issue and where the parties have not agreed on solicitor-and-client costs in advance, is that solicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances giving rise to the cause of action, or in the proceedings, which makes such costs desirable as a form of chastisement. The words "scandalous" and "outrageous" have also been used. [citations omitted] [5] In Garcia v. Crestbrook Forest Industries Ltd. (1994), 119 D.L.R. (4th) 740, 9 B.C.L.R. (3d) 242 (C.A.) [Garcia cited to D.L.R.], Lambert J.A. canvassed the leading authorities on special costs and endorsed a broad interpretation of the term "reprehensible conduct" at p. 747: the word "reprehensible" is a word of wide meaning. It encompasses scandalous or outrageous conduct but it also encompasses milder forms of misconduct deserving of reproof or rebuke. Accordingly, the standard

represented by the word "reprehensible", taken in that sense, must represent a general and all encompassing expression of the applicable standard for the award of special costs. Lambert J.A. continued at p. 748: However, the fact that an action or an appeal "has little merit" is not in itself a reason for awarding special costs: see the reasons for Madam Justice McLachlin, for the majority in the Supreme Court of Canada on the question of costs, in Young v. Young at p.

283. Something more is required, such as improper allegations of fraud, or an improper motive for bringing the proceedings, or improper conduct of the proceedings themselves, before the conduct becomes sufficiently reprehensible to require an award of special costs. [6] Special costs are punitive and are intended as well to encompass an element of deterrence: Fullerton v. Matsqui (District) (1992), 74 B.C.L.R. (2d) 311, 12 C.P.C. (3d) 319). The purpose of awarding them is to chastise and discourage reprehensible conduct. Accordingly, the focus of the inquiry is on the party's blame-worthiness and intent: Bank of Credit and Commerce International (Overseas) Ltd. v. Akbar et al, 2001 BCCA 204, 86 B.C.L.R. (3d) 312, at para. 23. [56] The impugned conduct of Azure Alberta is in respect of misleading submissions presented in the guise of evidence through counsel that was clearly inconsistent with the statements that it and Mr. Chia made to Canada, including the financial information they disclosed. [57] Azure Alberta effectively shielded itself through its counsel's submissions which it ought to have know were misleading. [58] Misleading the court to obtain relief is an abuse of the court's process: FANUC at paras. 66. [59] While the plaintiffs have not established fraud on its part, Azure Alberta's conduct lies closer to it on the spectrum than the milder forms of misconduct

referred to in Garcia and Consbec. [60] Mr. Chia was also formally named as a party to the application by his own counsel and failed to file any materials. His counsel represented the applicants as well as himself. Mr. Chia was the sole directing mind of Azure Alberta. His counsel made submissions to the court in the face of directly contradictory documents Mr. Chia had submitted to Canada. Submissions of counsel are presumed to be made on the client's instructions. Here, the controlling mind of counsel's client, Azure Alberta, was Mr. Chia. It is no excuse for Mr. Chia to say that he did not bring the application and that it was brought only by the Azure companies. [61] In these circumstances, Mr. Chia's conduct is deserving of rebuke because as the controlling mind of Azure Alberta, and the signatory to contradictory documents sent to Canada, he allowed the Court to be misled. [62] Should the court institute contempt proceedings ex mero motu? [63] I am mindful of the reasons of Abrioux J, as he then was, in A.N.H. v. L.D.G., 2018 BCSC 1086 where he said at paras. 66-67: IV: THE EX MERO MOTU CONTEMPT APPLICATION Introduction [66] While it is clear that the court has the jurisdiction to initiate contempt proceedings on its own motion, the power to do so should be used cautiously. Furthermore, the alleged contemnor must be provided with an opportunity to explain their conduct:

R. v. Jolly, [1990] B.C.W.L.D. 1889 at para. 10 (C.A.). [67] In Shaw Cablesystems Ltd. v. Er-Conn Development Inc., 2005 BCSC 478 at para. 11, Justice Johnston summarized the framework this way: [11] Counsel relies on R. v. United Fishermen & Allied Workers' Union et al (1967), 65 D.L.R. (2d) 579 (B.C.C.A.). On the question whether this court ought to have acted on its own motion to initiate the contempt proceedings, Davey C.J.B.C. said, and this is relied upon by counsel for Shaw, that the jurisdiction in this court to proceed in that way is "... a drastic procedure which should be used cautiously only to uphold the authority of the Court and its process or to enable justice to be properly administered, or to maintain the authority of the law." [Emphasis and bold in original] [64] Although Azure Alberta and Mr. Chia have had ample opportunity to provide the explanation contemplated by Abrioux J., they have not done so in evidence, and with respect to Mr. Chia, he has only attempted to do so through the submissions of his counsel. However, I am not persuaded that this a case where contempt proceedings should be initiated by the Court. At the end of the day, the misrepresentations and omissions did not lead to a result in favour of the applicants such that there was no miscarriage of justice. The principle of deterrence spoken of in the cases is appropriately served through an

award of special costs. [65] Costs may be awarded against a non-party who is a directing mind of a company who commits fraud or misleads the court. In Oasis Hotel Ltd. v. Zurich Insurance Company (1981) 28 B.C.L.R. 230, the Court of Appeal said at para. 27: [27] In my opinion, where Mr. Surowiec, with his wife, is the sole owner of all the shares of Oasis Hotel Ltd.; and where Mr. Surowiec conceives a scheme to defraud the insurers of Oasis Hotel Ltd; and where he puts that scheme into effect; and where he uses proceedings in the Supreme Court of British Columbia as the instrument of his fraud; and where he attempts to deceive the court,; then the Supreme Court of British Columbia has power to order that Mr. Surowiec pay to the insurers their party-and-party costs of those proceedings, notwithstanding that he is not a party to the record in those proceedings. [66] Fraud is not a prerequisite to imposition of an award against a non-party. In International Hi-Tech Industries at paras. 51-52, 54-55, Madam Justice Ballance explained that the issue of awards against non-parties was "revived" by the Court of Appeal in Anchorage Management Services Ltd. v. 465404 B.C. Inc., 1999 BCCA 771. The result, she said, is a non-exhaustive list of circumstances where costs may be awarded against a non-party for abuse of process and gross misconduct in the litigation: [51] The court has an

inherent jurisdiction to award costs, including special costs, against a non-party in limited circumstances. Such an order is exceptional and unusual: Anchorage Management Services Ltd. v. 465404 B.C. Inc., 1999 BCCA 771, 72 B.C.L.R. (3d) 389 at para. 21 [Anchorage]. [52] In Oasis Hotel Ltd. v. Zurich Insurance Company (1981) 124 D.L.R. (3d) 455, 28 B.C.L.R. 230 (C.A.) [Oasis cited to D.L.R.], the corporate plaintiff claimed against the defendant insurer in respect of the destruction by fire of its hotel. The trial judge found that the principal shareholder of the plaintiff had deliberately burned down the hotel and, therefore, dimissed the plaintiff's claim. The corporate plaintiff was insolvent and the trial judge ordered that the defendant's costs on a solicitor-and-client basis (essentially equivalent to an order for special costs) were to be paid by the principal shareholder of the plaintiff. The ruling on costs was upheld on appeal. The Court of Appeal noted that the shareholder had, in effect, created the cause of action by his act of arson and attempted to defraud the insurer by using the court as an instrument of his fraud. At p. 461-462, Lambert J.A., speaking for the court, stated: I conclude that there is no authority in Canada that either binds me or persuades me to the conclusion that in a case where the Court is made the instrument to perpetrate a fraud the Court

cannot award the costs of the proceedings that are instigated as part of the fraud to be paid by the active mind that put the fraud into effect and directed the institution of the Court proceedings. [Italics in original] [67] In contrast to those cases where the person whose conduct is impugned is not a party, Mr. Chia was a party to this action when the Variation Application was brought and was named as a party of record to that application by his counsel who represented him jointly with the Azure defendants. In those circumstances, Mr. Chia cannot maintain that he was not served with the application materials of the Azure defendants or did not otherwise have notice of them. [68] Accordingly, I order Azure Alberta and Mr. Chia to each pay the special costs to the plaintiffs, to be assessed by the Registrar, forthwith in any event of the cause. Hearings Covered by the Order [69] The plaintiffs are entitled to special costs in respect of preparation for and attendance at the hearing on July 10, 2018. [70] I agree that they are entitled to special costs relating to the hearing that commenced in respect of their initial application seeking special costs, which commenced on November 18, 2018 and adjourned, subject to a credit in respect of party-party costs I ordered thrown away as a result of the adjournment due to the withdrawal of Hakemi & Ridgedale as counsel for the Azure

defendants and Mr. Chia. [71] They are also entitled to special costs in respect of their application to obtain Azure Alberta's documents from Canada in order to overcome objections concerning the provenance and admissibility of such evidence. It was through the plaintiffs' independent efforts to demonstrate that Azure Alberta could not meet its onus on the Variation Application that it obtained evidence to establish reprehensible conduct. [72] The plaintiffs are also entitled to special costs in respect of their preparation and attendance at hearings in respect of their notice of application filed June 24, 2019, except insofar as those costs are duplicative of any costs previously awarded since the claim for special costs in that application is repetitive of the relief sought in their prior application. "Walker J." ______ The Honourable Mr. Justice Walker