Case information

Civil procedure – Costs – Undertakings – Fraud and abuse of process – Whether a court’s power to insist on the duty of candour to the court in an undertaking with respect to damages is subject to a standard of equitable fraud or strict fraud – In the circumstances, whether the litigation was an abuse of process and whether the respondent, on behalf of his corporation, had provided a fraudulent undertaking to the court with respect to the corporation’s means to satisfy a damages award such that costs should be awarded against him personally.

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Mr. Merrill, respondent, is the sole shareholder, president and director of a corporation which competes with the applicant Quest Management Systems, a division of 1281068 Ontario Inc. (“Quest”) in the ISO 9000, ISO 14000 and 150 management systems consulting services field. Quest was a defendant in an action filed by Mr. Merrill’s corporation for trade-mark infringement, passing-off and unlawful interference with economic interests. The action was unsuccessful and ultimately, the court awarded costs against Mr. Merrill personally on the grounds that (1) the litigation was an abuse of process, and that (2) on behalf of his corporation, he had provided a fraudulent undertaking to the court with respect to the corporation’s means to satisfy a damages award. The Court of Appeal allowed the appeal. In its view, there was no evidence before the motion judge to establish that Mr. Merrill engaged in an abuse of process in commencing the action, and there was no basis to award costs against him simply because he was the president and sole shareholder of the corporation.