DIVISIONAL COURT FILE NO.: 13-0760
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
Levac Supply Limited
Plaintiff/Defendant by Defendant’s Claim (Respondent)
– and –
Norceram Products Inc.
Defendant/Plaintiff by Defendant’s Claim (Appellant)
– and –
Stanley Andrews
Defendant by Defendant’s Claim (Respondent)
Matthew E. Wright, for the Respondent
JD Sharp, Celine Delorme, Sarah Lapointe, for the Appellant
Eric G. Lavictoire, for the Respondent
HEARD IN BROCKVILLE: September 8, 2014
K.B. PHILLIPS J.
REASONS FOR JUDGMENT
1The Appellant, Norceram Products Inc. (“Norceram”), appeals to the Divisional Court from the Small Claims Court judgment of the Honourable Justice Simpson made in Brockville, Ontario on May 29, 2013. In that decision, judgment was granted in favor of Levac Supply Ltd. (“Levac”) in the sum of $8,031.04 with an order for costs of $1,250. Justice Simpson further dismissed the Appellants claim against Mr. Stanley Andrews (“Andrews”) in its entirety, awarding additional costs of $1,000 to both him and Levac for having successfully defended themselves on allegations of fraud.
The Facts
2Norceram is a manufacturer of plumbing fixtures which operates in Ingleside, Ontario. It is a subsidiary of Dometic Corporation, an international company based out of Ohio. Levac is a supplier of industrial, automotive and construction equipment and was one of Norceram’s main suppliers of goods. Andrews was the most senior officer on site at Norceram. A long-term employee, he exercised a very high degree of autonomy and control over operations. This authority included the ability to bind the company with respect to expenses of up to $1,000.
3The evidence accepted by the trial judge was that in 2011 Dometic was putting considerable pressure on Andrews and Norceram to meet increased production targets without the need for overtime. This put Andrews in a bind. He had to increase production without the workers getting any increase in their paychecks for the extra hours involved. He worried that morale would plummet, that the workers would refuse to work overtime for free, and that Norceram would fail to meet its production targets as set by Dometic.
4Andrews came up with the idea that he would compensate the workers for their overtime by giving them gifts instead of pay. He contacted Levac and asked them to supply items like gas station gift cards and remote-controlled toy cars and helicopters. He instructed Levac to invoice Norceram not for those items but for more regularly purchased things.
5Levac understood that Andrews was trying to distribute gifts to the Norceram employees in an effort to reward them for overtime and to generally keep morale up. Levac purchased the requested items, added a markup of 15% and sent them to Norceram along with an invoice misdescribing them as barrels. This sort of thing happened with respect to at least 32 invoices between June 2011 in December 2011, for a total of $23,251.29 worth of goods.
6I note that the trial judge found that Levac had no knowledge that Norceram was a subsidiary of Dometic. As well, it was established that Levac had a long-standing relationship with Andrews who was effectively the face of Norceram, regularly binding that company in its dealings with Levac. The trial judge accepted Levac’s assertion that he went along with Andrews’s request that the invoices be erroneously prepared so as to keep the paperwork simple at Norceram’s end.
7It is also crucial to note that the trial judge found that Andrews’ idea worked. Apparently, the employees received the gifts with grateful enthusiasm and worked well beyond the hours for which they were being paid. A racetrack was set up in the back parking lot and toy car and helicopter races were held after shift-end. Morale increased. Norceram met its production targets. In fact, as found by the trial judge, they had a banner year without having to pay the actual overtime accrued by the workers in meeting those targets.
8Dometic eventually found out what was going on at Norceram with respect to the gifts in lieu of overtime and the erroneous paperwork prepared by Levac and sent up the line by Andrews. Andrews was fired and this action was commenced for recovery against him and Levac for all monies spent on “gifts” for the employees.
9Importantly, the trial judge found as a fact that neither Andrews nor Levac intended for Norceram (or Dometic) to suffer any loss or harm. Rather, he found that the intention was that Norceram would benefit. Indeed, the trial judge found as a fact that benefit did actually occur.
Grounds for Appeal:
10The Appellant asserts that the trial judgment should be overturned on three grounds:
that the trial judge made an error of law (reviewable, of course, on a correctness standard) with respect to the issue of fraud;
that the trial judgment also made an error of law with respect to the elements of conspiracy;
that the trial judge’s decision was tainted by bias on his part in that he had prejudged the case before it was completed
Legal Principles
(i) Standard of Review
11Findings of fact are entitled to deference on appellate review unless they should be set aside because of palpable and overriding error. As the concept was explained by the Supreme Court of Canada in Stein et al. v. ‘Kathy K’ et al. (The Ship), 1975 146 (SCC), [1976] 2 S.C.R. 802 at 808:
Although findings of fact made at trial are not immutable, they are not to be reversed by an Appellate Court unless it can be established that the trial judge made some palpable and overriding error which affected his assessment of the facts. While the Court of Appeal is seized with the duty of re-examining the evidence in order to be satisfied that no such error occurred, it is not a part of its function to substitute its assessment of the balance of probability for the findings of the judge who presided at trial.
(ii) The Tort of Fraud
12Fraud is made out where a Defendant makes a false representation of fact, knowing the representation to be false, with the intention that it should be acted upon by the Plaintiffs, and the Plaintiff acted on the representation suffering damage. Put another way, in order to establish liability for this tort of deceit the following factors must be proven: (1) the Defendant made a false representation of fact; (2) the representation was made with knowledge of its falsity; (3) the representation was made with the intention that it should be acted on by the Plaintiff; (4) the Plaintiff acted upon the representation; and (5) the Plaintiff suffered damage by so doing: Harland et al v. Fancsali et al (1994) 1994 10548 (ON SC), 21 O.R. (3d) 798 (Div. Ct.).
(iii) The Tort of Conspiracy
13The test for civil conspiracy is set out by the Supreme Court of Canada in Canada Cement La Farge Ltd. et al v. British Columbia Lightweight Aggregate Ltd. et al (1983) 1983 23 (SCC), 145 D.L.R. (3d) 385 (S.C.C.). At page 398, Estey J. outlined the tort of conspiracy as follows:
Where the conduct of the Defendant is unlawful, is directed towards the Plaintiff, and the Defendant should know in the circumstances that injury to the Plaintiff is likely to and does result.
It is not necessary that the predominant purpose of the Defendant’s conduct would be to cause injury but in the prevailing circumstances it must be a constructive intent derived from the fact that the Defendant should have known that injury to the Plaintiff would ensue.
(iv) Reasonable Apprehension of Bias
14Finally, the test for reasonable apprehension of bias on the part of a trial judge is well-established. It was reiterated by the Supreme Court of Canada in R. v. S.(R.D.) (1997) 1997 324 (SCC), 118 C.C.C. (3d) 353 (S.C.C.) as being that set out by de Granpre J in Committee for Justice and Liberty v. National Energy Board, 1976 2 (SCC), [1978] 1 S.C.R. 369:
… the apprehension of bias must be a reasonable one, held by reasonable and right minded persons, applying themselves to the question in obtaining thereon the required information. …[T]hat test is ’what would an informed person, viewing the matter realistically and practically - and having thought the matter through - conclude. Would he think that it is more likely than not that [the decision-maker], whether consciously or unconsciously, would not decide fairly.
Analysis
Issue One: Fraud
15It was admitted during the trial, and formed part of the reasons of the trial judge, that both Andrews and Levac knowingly cooperated in the generation of a paper trail that was a misrepresentation of the truth. Both knew that the invoices submitted along with the gift cards and toys were works of fiction. If dishonesty alone were enough, the Plaintiff’s case would have been easily made out.
16However, I find that it was open to the trial judge on the evidence before him to conclude that the misrepresentations did not cause either Norceram or Dometic to suffer any damage. There was evidence supporting the conclusion that the overall end result of the gifts in lieu of overtime scheme was positive with respect to the company’s productivity and ultimate bottom line. While I appreciate that there is evidence suggestive of the opposite (i.e. that Dometic is now left with several pallets of toys it has no present use for) inconsistency in the evidence is a normal feature of a trial to be resolved by the trial judge.
17I cannot say that the finding of fact that Norceram ultimately did not suffer harm with respect to the invoice misrepresentations was based on palpable or overriding error. In my view, such a determination was one of the outcomes available to the trial judge on the evidence. He appears to have taken a broad view of things and come to the conclusion that the purchase of the toys and other gifts generated an ultimate and indirect benefit to the company. While others might disagree with the trial judge in this regard, his assessment of the evidence is not based on error. I further conclude that the trial judge’s determination that harm needed to be caused by the misrepresentation for it to amount to tortious fraud is a proper interpretation and application of the law.
Issue Two: Civil Conspiracy
18I take from the test set out above by the Supreme Court of Canada with respect to conspiracy that the concept does not involve absolute liability. It is not enough to merely show misrepresentation. Rather, the misrepresentation must be accompanied by intention to cause harm. Of course, intention can be inferred from the fact of the misrepresentation but that is not necessarily so. Where multiple inferences are available, considerable deference should be extended to a trier of fact who was put into position to choose from among them.
19The trial judge heard testimony from both Andrews and Levac. He determined that neither party had any intent, constructive or otherwise, to cause any harm or damage to Norceram or Dometic.
20With respect to Andrews, the trial judge found that he was intent only on improving the company’s productivity. In my view, this was a conclusion open to the trial judge on the evidence. While I agree that there were other conclusions that could have been drawn, the trial judge’s discretion in making findings of fact with respect to intention is entitled to appellate deference.
21As for Levac, the trial judge found that he was also aware of the idea of improving morale and rewarding Norceram’s employees for unpaid overtime with the ultimate goal of improving output at the plant. Importantly, the trial judge also found that Levac did in fact provide goods commensurate with what they were being re-enumerated for. Finally, the trial judge accepted that Levac could take instruction from Andrews with respect to what information should be on the invoices. The relationship between Levac and Andrews was a long-standing one and the trial judge found that there could be innocent explanation from Levac’s perspective as to why Andrews would require the invoices to misstate the true facts (an accounting program, for instance). In the end, the trial judge declined to infer intent to cause harm from the misrepresentation on the invoice. While others might disagree with his judgment in that regard, that determination was his to make. Just because an inference is available does not mean it must be drawn.
Issue Three: Reasonable Apprehension of Bias
22I make nothing of the fact that the trial judge revealed at the outset of the trial that he knew Levac. Certainly, counsel did not object or raise any concerns. In any event, the mere fact that a judicial official knows a member of the community is not enough to raise a reasonable apprehension of bias. If that were so the administration of justice would grind to a halt in every small town, especially when the small claims court judge is a long-standing member of the local bar.
23Much is made by the Appellant of the fact that the trial judge intervened several times with respect to the nomenclature involved in describing the impugned invoices. For instance, the Appellant presently takes issue with the fact that the trial judge resisted the invoices being described during the hearing as “falsified” documents. I note that the Webster’s Dictionary definition of falsify is “to alter with intent to defraud”. The question of intent was the ultimate issue in this trial. As such, that question was for the trial judge to resolve. I find that his restriction on counsel with respect to using terms implying conclusions that were his alone to make was reasonable. A trial judge is allowed to exercise some control over the proceedings unfolding before him. In any event, the point strikes me as a small one when viewed in the larger context. It does not, even when considered as an indicator of bias in an aggregate or cumulative way, amount to evidence of partiality.
24A central complaint advanced by the Appellant on the subject of reasonable apprehension of bias arises from the following statement made by the trial judge before breaking for lunch:
THE COURT: but let me say this, that we will try and accommodate everybody today, including the court staff, by 4:30, and everybody from out of town. I understand how important that is. I won’t rush it. If people take time, that is fine. I want to make this comment now, however, that this is a very, very unfortunate case. This is an extremely unfortunate case. I am getting the sense of everybody trying to do the right thing and sometimes the right things did not happen for various, various reasons. I know you - if you have been encouraged to chat and I would encourage you to chat as well. I am very prepared to make a decision. You may or may not like my decision…
25The Appellant argues that the trial judge’s statement to the effect that “I am very prepared to make a decision” is tantamount to a declaration that he has decided the case before its completion. I cannot agree. In my view, the trial judge is simply encouraging the parties to discuss resolution all while indicating that if necessary he is prepared to decide the matter.
26In the result, having considered all of the bases upon which the Appellant asserts partiality, I have not been persuaded that there is sufficient evidence on the record to establish a reasonable apprehension of bias on the part of the trial judge. While his various declarations along the way show that the evidence was having an effect on him, they do not demonstrate that he had closed his mind with respect to any of the issues.
Conclusion
27The appeal is dismissed. I will receive written submissions with respect to costs within 30 days.
The Honourable Mr. Justice Kevin B. Phillips
Released: October 1, 2014
CITATION: Levac Supply Ltd. v. Norceram Products Inc., 2014 ONSC 5737
DIVISIONAL COURT FILE NO.: 13-0760
DATE: 2014/10/01
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
Levac Supply Limited
Plaintiff/Defendant by Defendant’s Claim (Respondent)
– and –
Norceram Products Inc.
Defendant/Plaintiff by Defendant’s Claim (Appellant)
– and –
Stanley Andrews
Defendant by Defendant’s Claim (Respondent)
REASONS FOR JUDGMENT
K.B. PHILLIPS J.
Released: October 1, 2014