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Civil Litigation: Contract, Trust, Property, Real Estate, Damage, Trial, Appeal

Civil Litigation: Contract, Trust, Property, Real Estate, Damage, Trial, Appeal

**Paulus et al. v. Fleury2018 ONCA1072

During a pre-trial conference in an action for damages arising from a motor vehicle accident, counsel for the plaintiffs stated that he had “independent” witnesses to the collision who were “good people” and “solid good witnesses”.

The defendant’s counsel agreed to settle theclaim. Defence counsel thendiscovered that the witnesses’ son lived across the street from the plaintiffs. He repudiated thesettlement. The plaintiffs brought a motion to enforce the settlement. Theyarguedthatwhentheircounseldescribedthewitnessesasindependent,hemeant that they could give evidence extrinsic to that of the plaintiffs, as they were in a separate car in a separate lane, and not that they did not know the plaintiffs. The motion judge rejected that interpretation. He found that the plaintiffs’ counsel’sstatementthatthewitnesseswere“independent”wasastatementoffact,not opinion, and that it was untrue. He concluded that the statement amounted to civil fraud and that the defendant was induced to settle the case because of the falserepresentation.Themotionwasdismissed.Theplaintiffsappealed.

Held, the appeal should be allowed.

Thestatement in question was an opinion,not a statement of fact. Counsel did not have the mental state or intention required for civil fraud in the context of submissions made by counsel before a judge. A finding of civil fraud could have devastating consequences for a lawyer’s reputation. The potential forthis type of findingcouldhaveachillingeffectoncounsel’swillingnesstoadvocateresolutelyfor hisorherclient.Statementsorsubmissionsmadebycounseldonotamount tocivil fraud if either there is a reasonable basis for them, or if counselis not knowingly misleadingthecourt,thatis,isactingingoodfaith.Inthiscase,therewasareasonable basis for the statement that the witnesses were independent, given counsel’s knowledge at the time of the pre-trial conference. There was no familial relationship between the plaintiffs and the witnesses. Although the plaintiffs’ counsel knew that the witnesses were acquainted with the plaintiffs, he was unaware of thenatureoftheiracquaintance.Thewitnesseshadnothingtogainfromthetrial of the accident claim. Counsel’s description of the witnesses as independent was a legitimate exercise of advocacy. The point at which the degree of acquaintance renders a witness not independent is open to debate and may differ in different contexts. There was also no basis to conclude that plaintiffs’ counsel did not sincerely and in good faith describe the witnesses in the manner he did. Further, itwouldbeunreasonabletoconcludethatplaintiffs’counselintendedopposingcounseltorelyonhissubmissioninsettlingtheaction,giventheadversarialcontextandthe nature of the impugned statement. Finally, defence counsel did not act with due diligenceininvestigatinganylinkbetweentheplaintiffsandthewitnesses.

  1. Analysis
  2. The test for civilfraud

As the defendant’s allegationof civil fraud was central to the motion judge’s decision, I begin by notingthat courts have used the same test for civil fraud as theyhave for the torts of deceit and fraudulent misrepresentation: see, e.g.,Deposit InsuranceCorp.ofOntariov.Malette,[2014]O.J.No.2194,2014ONSC 2845(S.C.J.),atpara.19;AmertekInc.v.CanadianCommercialCorp. (2005), 76 O.R. (3d) 241, [2005] O.J. No. 2789 (C.A.),at para.63,leavetoappealtoS.C.C.refused[2005]S.C.C.A.No.439; and Midland Resources Holding Ltd. v. Shtaif(2017), 135 O.R. (3d) 481, [2017] O.J. No. 1978, 2017 ONCA 320, at para. 162, leavetoappealtoS.C.C.refused[2017]S.C.C.A.No.246.

For the purposes of this appeal, I adopt Brown J.A.’s articulationofthistestinMidlandResourcesHoldingLtd.,atpara.

162. The five elements of the test are as follows:

  • a false representation of fact by the defendant to the plaintiff; (ii) knowledgetherepresentationwasfalse,absenceofbeliefinitstruth,orrecklessness as to its truth; (iii) an intention the plaintiff act in reliance on the representation;(iv)theplaintiffactsontherepresentation;and(v)theplaintiff suffers a loss in doingso.

(Citations omitted)

Here  the  statement  by counsel  was an  opinion,  not  a statementof fact, counsel did not have themental state or intention required for civil fraud in the context of submissions made by counsel before a judge and the defendant’s lack of due diligence barred it from setting aside the settlement on the ground of fraud. I turn then to consider each of these issues.

  • The proper approach tocivil fraud in the context of submissions bycounsel

The motionjudge did not have thebenefit of Groia v. Law SocietyofUpperCanada,[2018]1S.C.R.772,[2018]S.C.J.No.27, 2018 SCC 27, 34 Admin.L.R. (6th) 183, released after his decision. Groia is relevant here becauseof its discussion of a lawyer’sduty of resolute advocacy on behalf ofa client. That duty is relevantto an assessmentofwhethersubmissionsbycounselamounttocivilfraud.

Groiadealtwiththebalancingthatmustoccurindeciding whether a lawyer’s mistaken allegations of misconduct on the part ofopposing counsel amount to professional misconduct and whetheritisamatterfordisciplinebyalawsociety.Thefactthat a lawyeris mistaken is not a basis in itselffor a finding of misconduct. Where counsel challenges opposing counsel’s integrity, that challenge does not amount to professional misconduct if the allegations are reasonably based and made in good faith, even if counsel is mistaken [at para.7]:

That said, the Appeal Panel’sfinding of professional misconduct against Mr. Groiaon the basis ofincivility was, in my respectful view,unreasonable. Even though theAppeal Panel acceptedthat Mr. Groia’s allegations of prosecutorialmisconductweremadeingoodfaith,itusedhishonestbuterroneousviewsasto the disclosure andadmissibility of documents to concludethat his allegations lackedareasonablebasis.However,asIwillexplain,Mr.Groia’sallegationswere made ingood faith and they were reasonably based. As such, the allegations themselvescouldnotreasonablysupportafindingofprofessionalmisconduct.

The assessment of whether uncivil behaviour amounts to professional misconduct is “fundamentally contextual and fact specific”: Groia, at para.79.

InGroia,MoldaverJ.forthemajorityheldthatchallenges to opposing counsel’s integrity must “both be made in good faith andhaveareasonablebasis”[emphasisinoriginal]:atpara.84.

He shared the intervenors’ concerns that this could result in sanctions for a lawyer expressing sincerely held but mistaken legal positions or adopting questionable legal strategies, but held that the impact of an accusation of professional misconduct could so severely affect the reputationof the recipient of the criticism thatitwasappropriatetorequirebothgoodfaithandareasonable basisfortheallegation.Hestatedthefollowing,atpara.86:

Maintaining a reputationfor practicing with integrity is a lifelong challenge. Once sullied, a lawyer’s reputation may never be fully restored. As such, allegations of prosecutorial misconduct must have a reasonablefoundation. I agree with the Appeal Panel that anything less “gives too much licence to irresponsible counsel with sincere butnevertheless unsupportable suspicions”: para.235.Theconsequencesfortheopposinglawyer’sreputationaresimply too severe to require anything less than a reasonable basis for allegations impugning his or herintegrity.

Here the context is different. This is not a case of professional discipline, however, a finding of civil fraud is a matter that couldhave devastating consequences for a lawyer’s reputation. The potential for such a finding could have achilling effect on counsel’s willingness to advocate resolutely for his or her client. Statementsorsubmissionsmadebycounseldonotamounttocivilfraudifeitherthereisareasonablebasisforthem,orifcounsel isnotknowinglymisleadingthecourt,i.e.,isactingingoodfaith.This conclusion plays a necessary role in ensuring that counsel isable to fulfill the duty of “resolute advocacy” that he or she owes to his or herclients.

There can be no doubt that theplaintiffs’ trial counsel owedhisclientsthisdutyofresoluteadvocacyinadvancingtheir best interests, whether at a trial or a pretrial conference. The importance of this duty was highlighted in Groia, at paras. 72 and 73:

Theimportanceofresoluteadvocacycannotbeunderstated.Itisavitalingredientinouradversarialjusticesystem—asystempremisedontheidea that forceful partisan advocacy facilitates truthseeking: see e.g.Phillips

v. Ford Motor Co. (1971), 18 D.L.R. (3d) 641, at p. 661. Moreover, resolute advocacy is a key component of the lawyer’s commitment to the client’s cause,aprincipleoffundamentaljusticeunders.7oftheCanadianCharter of Rights and FreedomsCanada (Attorney General) v. Federation of Law SocietiesofCanada,2015SCC7,[2015]1S.C.R.401,atparas.83-84.

Resoluteadvocacyrequireslawyersto“raisefearlesslyeveryissue,advance everyargumentandaskeveryquestion,howeverdistasteful,thatthelawyer thinkswillhelptheclient’scase”:FederationofLawSocietiesofCanada,Model CodeofProfessionalConduct(online),r.5.1-1commentary1.Thisisnosmall order.Lawyers are regularly called on to make submissions on behalf of their clients that are unpopularand at times uncomfortable.These submissions can be met with harsh criticism — from the public, thebar, and even the court. Lawyersmuststandresoluteinthefaceofthisadversitybycontinuingtoadvocateontheirclients’behalf,despitepopularopiniontothecontrary.

The corollary of this duty is that counsel owes nosuch dutytotheopposingparty:Bironv.AvivaInsuranceCo.,[2014] O.J. No. 3436, 2014 ONCA 558, at para. 6.

Thedutyofresoluteadvocacyhaslimits.Asrule5.1-2(e)of the Law Society of Ontario’s Rules of Professional Conduct indicates, when a lawyer is acting as an advocate, he or she shall not “knowinglyattempt to deceive a tribunal or influence the course ofjusticebyofferingfalseevidence,misstatingfactsorlaw, presentingorrelyinguponafalseordeceptiveaffidavit,suppressing what ought to be disclosed, or otherwise assisting in any fraud, crime, or illegal conduct” (emphasis added). Advocates shouldnotusetacticsthataredishonest,includingintheirinteractions with opposing counsel, or “engage in any . . . conduct calculatedtoinducethecourttoactunderamisapprehensionofthefacts”: Advocates’ Society, Principles of Professionalism for Advocates (2009), at p. 6; and Advocates’Society, Principles of Civility for Advocates (2001), at p.11.

That being said, it is worth bearing in mind that in almost every trial, at least one counsel’s submissions will be rejected as unsustainable. By definition, a losing party’s counsel will have made factual or legal arguments that are rejected by the judge. The notion that judicial disagreement with an opinion expressed by counsel in the course of judicial proceedings makes that counsel guilty of civil fraud is incompatible with the duty of counseltoadvocateonbehalfofhisorherclient.

In a personal injury trial onecounsel may submit that the evidenceshowstheplaintiffhasmadeafullrecovery.Theopposing counselmaysubmitthattheevidenceshowsthattheplaintiffwill suffer lifetime impairments. Neither counsel is required tohave a personal belief in the submissionmade.

Hereplaintiffs’counsel’sstatementdidnotamounttocivil fraud. There was a reasonable basis for his statement,and the statement was made in goodfaith.

  • Reasonablebasis

The statements by counsel were expressions of opinion forwhich there was a reasonable basis, given counsel’s knowledge at the time of the pre-trial. There was no familial relationship between the plaintiffs and the witnesses. Although the plaintiffs’ counsel knew that the witnesses were acquainted with the plaintiffs,thenatureoftheiracquaintancewasunknown.Neitherwas anemployee of the other. The witnesses were in their owncar adjacenttotheaccidentscene.Theyhadnothingtogainfromthe trialof the accident claim. That they haddifficulty expressing themselves in English did not mean they were not good peoplenor that they would make poor witnesses if translation was provided. There is no indication of any criminal record that might undermine their credibility or any other history of dishonesty. That they refused to speak to the defendant’s counsel, as was their right, did not undermine their credibility. The fact that the plaintiffs gave the witnesses’ contact information to their counsel does not mean the witnesses werebiased.

The plaintiffs’ counsel’s  description  of  the  witnesses  was a legitimate exercise of advocacy. No complaint could have been made if counselhad provided a jury with the sameobservations concerning the qualityof the witnesses in issue.Opinions as to whether someone is a good orindependent witness are as open todebate  anddisagreement  asopinions  as to whether  someone is  agoodlawyer.Thedegreeofacquaintancemayrangefromintimateto non-existent, with innumerable variations between those extremes. The pointat which the degree  of acquaintance renders  a witness “not independent” or biased may be open todebate and may differ indifferent settings. In somecommunities where jurorsare tested for impartiality, for example, the fact that a juror may havegonetothesamehighschoolasanaccusedmaybeamatterof indifference;inothersitmayresultindisqualificationofthejuror.

Even if mistaken, the expression of this opinion didnot amount to civil fraud. As noted, at para. 91, of Groia,

[I]nquiring into the legal merit of a lawyer’s position to conclude that his or herallegationslackareasonablebasiswoulddiscouragelawyersfromraising well-foundedallegations,impairingthelawyer’sdutyofresoluteadvocacy.

The motion judge ultimately had a different view as to whether the witnesses could be describedas independent. However, a contrary opinion expressed in submissions bycounsel does not make that counsel guilty of civil fraud where there is     a reasonable basis for thatopinion.

Furthermore, themotion judge erred inrelying on information that came to light after the pretrial conference and that wasunknowntoplaintiffs’counselatthetimehisstatementswere made to assess whether those statements were false,i.e., lackedany reasonable basis. The motion judge was also wrong to infer thatthe plaintiffs’ counsel knowingly made a false statement because he knew of the matters highlighted in para. 4 above. The fact that he knew about those matters does not mean that he was knowinglymakingafalsestatementandnotactingingoodfaith.

(b)Good faith

There is also no basisto conclude that plaintiffs’ counseldid not sincerely and in good faith describe the witnesses in the manner he did. For example, counsel’s portrayal of the witnessesas independent was consistent with a statement that he made in aletter months before the November 22, 2016 pretrial. In that letter, dated July 25, 2016, counsel described thewitnesses as independent to his ownclients:

MrandMrsEftimov’sevidencewillbeveryimportantbecausetheyareindependentwitnesses with no stake in the outcome of your trial. That kind of testimony isimportant and helpful in a jury trial. I want to “look them over” and listen to their story so I can be sure of their reliability.

Mistakes by lawyers are not an infrequent occurrence. Counselmaylosecredibilitywiththecourtandtheircolleaguesif they are not scrupulously careful about factual assertions, or if they advance arguments with no reasonable foundation, but theseshouldnotamounttocivilfraudinthiscontextunlessthere is neither a reasonable basis for the statementsnor a good faith belief in their accuracy.Arguments that might amount to an enormous stretch may later seem quitereasonable.

Thisisnottosaythattheremaynotbesomecircumstances where a factual misrepresentation by counsel injudicial proceedings amounts to deceit or civil fraud. For example, counsel who tendered as evidence  a  forged  cheque evidencing  payment  of a debtin an action on that debt, and who knew the cheque was  a falsedocument, could be liable for deceit. In those circumstances there would be no reasonable basis for the factual assertion; nor coulditbesaidthatthestatementwasmadeingoodfaith.

  • Reliance

Further, it would be unreasonable to conclude that plaintiffs’counselintendedopposingcounseltorelyonhissubmission.

The intention that theopposing party rely on the representation is an essential element of civil fraud which is absent here.InTheLawofTorts,5thed.(Toronto:IrwinLaw,2015),at p. 333, Philip Osborne explains the policy rationale behind the intent requirement when discussing the tort of deceit:

Thedefendantmustintendthattheplaintiffwillrelyonthefraudulentmisrepresentationandtheplaintiffmustinfactrelyonit.Therequirementthat the defendant intends that the plaintiff will rely on the misrepresentation addressestheproblemofpotentiallyindeterminateliabilityindeceit.

(Footnotes omitted)

Given the adversarial context and the nature of the impugned statements, it would be unreasonableto conclude in this case that plaintiffs’ counsel intended that opposing counsel rely on his submissions as to the qualities of the witnesses in deciding whether to settle the action. This is not to foreclose the possibility that there may be other circumstances where reliance bycounsel upon a factual assertion by opposing counsel would be reasonable.

  • The defendant’sconduct

The accident occurred in 2008. The plaintiffs’ counsel had disclosed the witness statement in an affidavit of documentsand had provided a copy of the statement to defendant’s counsel. Defendant’s counsel asked no questions about the witnesses at discovery. Defendant’s counsel knew the witnesses refused to speak to him. Fourdays before the pre-trial in 2016, defendant’s counsel had concerns about the witnesses’ credibility  and sent an investigator out to explore what connections the witnesses might have had with the plaintiffs. Despite these concerns, and withoutwaitingforthereportfromtheinvestigatorjustretained, thedefendant’scounselandtheadjusterelectedtosettlethecase.

ThiscaseisanalogoustoInternationalCoronaResources Ltd. v. LAC Minerals Ltd. (1988), 66 O.R. (2d) 610, [1988] O.J. No. 3118 (H.C.J.). In that case, a losing party attempted to set aside a judgment on account of fraud. It alleged that a witness had intentionally perjured himself and intentionally misled the court. Osborne J. noted that the issues raised on the motion wereleft “twisting in the wind” as a result of decisions, perhaps strategic and tactical, by counsel as to how counsel would conduct cross-examinationat trial. Osborne J. observed, at pp. 622-23 O.R.,that a losing party who seeks to set aside a judgment on account of fraud mustestablish due diligence on his or her own part, and that the questions to be asked are“what did the moving party know, andwhatoughtthemovingpartytohaveknown”.

This pre-trial occurred some eight years after theaccident.Itcannotbesaidthatthedefendant’scounselactedwithduediligence in investigating or asking anyquestions about any link between the plaintiffs and the witnesses.In the absence of such due diligence,the need for finality in legal proceedings favours enforcing the settlement. The motion judgeerred in concluding that any need for due diligence on the part of the defendants came to an end as a result of the submission made on behalf of theplaintiffsaboutthequalitiesofthewitnesses.

  • Conclusion

I would set aside the order of the motion judge dated February20,2018andsubstitutejudgmentinfavouroftheplaintiffs in the sum of $850,000 plus post-judgment interest from November 22,2016.

I would set aside the costs award in the sum of $100,000 granted in favour of the defendants on the motion below and awardthatamounttotheplaintiffsforthemotionbelow.

I would award costs of the appeal tothe plaintiffs in the agreed upon amount of $30,000, inclusive of disbursements and HST.

**source: Ontario Reports

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