[1998] OLRB REP. NOVEMBER/DECEMBER 1014
0899-96-R International Association of Machinists and Aerospace Workers, Applicant v. R-Theta, Responding Party
BEFORE: K. G. 0 'Neil, Vice-Chair, and Board Members R. W Pirrie and K. Brennan.
APPEARANCES: Mark Wright for the applicant; Timothy P Liznick for the responding party.
DECISION OF K. G. O'NEIL, VICE-CHAIR AND BOARD MEMBER K. BRENNAN; November 25, 1998
These are the reasons for the Board's decision, issued October, 1997, after hearing the evidence of the parties, that the union's certificate was not obtained by fraud.
The issue is whether the union obtained its certificate by fraud when it indicated there were 57 people in the bargaining unit in its application for certification, when the employer had earlier told them there were 64 people in the bargaining unit.
The facts
On May 6, 1996, the company, which makes auto parts, closed its location on Macadam Road in Mississauga, and reopened at the Kestrel Road location which is the subject of this certification application. The move was first announced in November of 1995 by a letter from the company president to employees, a copy of which was given to the bargaining team. From May 6, 1996, the date of the move, forward, the company took the position that, because of the change of address, it was not bound by the union's bargaining rights, which were established by voluntary recognition in 1993.
All employees from the MacAdam location were offered employment at the new location. The union wrote accepting employment on behalf of the members of the bargaining unit. A welcoming meeting was held on May 6 at the new location for employees from all three shifts. The chief steward, Jude Angelo, was in attendance. The company president made welcoming remarks and acknowledged that all the people from the old location were at the new location. According to the estimate of Sarah Barrett, the company's human resources manager, there were about 80 to 90 people at that meeting, including management.
Brian Short is the union's business agent. The last seniority list provided to him before the move was dated January 1996 and showed 57 people in the bargaining unit. Mark Lewis, union counsel, received it on May 10, 1996. Neither relied on it for coming up with the number for the June, 1996 application, though Mr. Angelo looked at it after the application went in to reassure himself about the numbers.
The company remitted dues at the beginning of May for April, 1996 to the local union s secretary in Norval Ontario, a different address than Mr. Short's. The list sent with this remittance showed 61 people in the bargaining unit. Neither Mr. Short nor Mr. Angelo, the Chief Steward, had seen the list sent with the dues by the time the certification application went it. Mr. Short said that he would only be contacted about dues if there was a delinquency problem, which there had never been with this employer. Further, he was not an employee of the local, who receives the dues, but of the international union. The employer acknowledges that if the union had relied on that list, the 25 membership cards submitted with the application would have constituted the 40% necessary to get a vote.
Following the move, an application under section 1(4) and 96 was filed by the union. At a meeting on May 10, 1996 with a labour relations officer concerning that application, union counsel asked employer representatives how many people would be in the bargaining unit at the new Kestrel Road location. Ms. Barrett responded 64. The company also indicated that employment levels would be growing. Employer counsel specifically pointed out a portion of the response to the application in question which mentioned the anticipated growth. It showed a manufacturing labour force of 59 in fiscal year 1995/96 (November to October 31), and a projection for 1996/97 of 72, growing to 259 by the year 2000. There was mention of four or five people hired for the move and a couple of new maintenance employees. Mr. Short testified that he thought the four or five were just for the move and that they would not be staying on permanently. In his testimony, he acknowledged with, as he put it, "Twenty-twenty hindsight" that 64 was a correct number at the time.
There was no indication from the union at the May 10 meeting that they did not believe the number 64. Nor did anyone from the union ask for a list confirming that number or the identity of the employees prior to filing the certification application. No employees left the employ prior to the application, and one new employee was hired. However, since the employer no longer considered itself to have bargaining rights, Ms. Barrett acknowledged they would not have notified the union of any such change in personnel. Ms. Barrett felt there was no reason for the union to question the number she provided, as she had never mislead them. However, she acknowledged that, given the company's position that there were no bargaining rights, it would not be surprising if the union took her figure with a grain of salt.
After the meeting with the company, union counsel met with Brian Short, the Business Agent, and Jude Angelo, the Chief Steward. As to how many people were in the bargaining unit, both Messrs. Short and Angelo thought the number 64 was high. Jude Angelo thought there were between 50 and 55 employees in the bargaining unit, because there had been 52 to 53 at MacAdam before the move. He was definite that it was not 64. Union counsel asked Messrs. Short and Angelo to look into it for the anticipated certification application. He knew Mr. Short already knew the right number was important, and Mr. Lewis told Mr. Angelo that they needed to know the number, that they needed 40% and it was important. As well, he made clear that he was not asking for perfection, but to check and give a number. Mr. Short also told Mr. Angelo to do what he could to get back with as accurate a figure as he could come up with. Mr. Short did not have access to the Kestrel Road plant at the time. Although Mr. Angelo did not recall this, Mr. Short testified he suggested Mr. Angelo count the time cards, but Mr. Angelo expressed concern about doing that, worrying that if his supervisor saw him, it would jeopardize his position.
Mr. Angelo was a lead hand in the fab fin department, working days. There were three shifts, each with a fifteen-minute overlap. Mr. Angelo said he judged the number of people on the machines in each department as he saw the shifts change. Having done a mental calculation in this manner, Mr. Angelo testified credibly that he honestly believed that there were 55 people in the bargaining unit. When Mr. Angelo told Mr. Short that he was planning to figure out the number in this manner, he did not make other specific suggestions, trusting his judgment.
Mr. Angelo said no one told him to get an accurate number. Rather, they said to try to find out how many people there were. No one told him what the number would be used for, or that it would be used to decide whether to grant a vote. He said it was hard to get a number, and once he gave the number he thought others would take care of the rest.
Mr. Angelo said that at one point Mr. Short suggested he count the lockers. He said the locker lists showed 52 to 55 in the men's locker room. He knew there were three women in the plant at the time, but did not check the lists for the women's lockers.
In cross-examination employer counsel went through the list of employees with Mr. Angelo, who was able to identify only 53 names. At least one was on sick leave, and he could not remember if he counted her or not. Although he counted machines, he said sometimes one person covers two machines. And he did not count a building maintenance person.
Mr. Angelo did not ask everyone to sign a card, and did not know if everyone had been asked by others.
Leading up to the filing of the application, Mr. Lewis indicated once again in a phone conversation with Mr. Short that he needed to know how many employees there were, and Mr. Short indicated he would get back to him. In a second phone conversation, Mr. Short reported that Mr. Angelo's best guess as to the correct number in the bargaining unit was 55. In that conversation, he also transmitted the information that all the cards were voluntarily signed by the person whose name is on them. In a third conversation, on June 19, they confirmed that they would file the certification application on the following day. Mr. Lewis told Mr. Short he had put 57 as the number in the bargaining unit in the draft application, to which Mr. Short replied it might be high, but agreed. Mr. Short said he was comfortable with the number 57, that it was as accurate a number as they were going to get based on the information they had.
For his part, Mr. Short saw numerous problems with determining the number of people in the bargaining unit. Although there was a core of senior people, there was a substantial amount of turnover of new employees. The union had problems knowing who was who because of the nature of the names of the largely Sri Lankan workforce. Mr. Short gave as an example of this difficulty the fact that the union challenged seven names at the meeting with the Labour Relations Officer and all seven turned out to be already be on the list in a different form.
Based on the information in the conversations, with Mr. Short referred to above, Mr. Lewis signed the Board's Form A-4, which he swore was true to the best of his knowledge and belief at the time. Mr. Lewis testified that, mindful of the fact that what the legislation calls for is an estimate, he used 57 to be on the safe side. The information he had received from the union representatives was 50 to 55, and without the payroll records he knew there is never a completely accurate list. He did not use the number 64 given to him by the employer's representative at the meeting with the Labour Relations Officer on May 10 because, given his role as union lawyer, he was naturally skeptical and felt it had to be checked out. As he said, he did not discount it, but did not accept it verbatim. He added that if his clients had said they had no idea, he would have used the employer's number, but he specifically asked them to check, and they came up with a lower number. Mr. Lewis added that he had worked with Mr. Short for many years, and had come to trust information given by him.
Although Mr. Lewis acknowledged that the dues records would have been a place to start, he was not of the opinion that they were necessarily accurate. This was because no dues had been coming in since the move, and he had been told there was a group of employees who came and went. As well, he had trouble keeping track of the names himself, given confusion over first and last names. If he had had the dues list with the number 61, he would have asked Mr. Short to check that as well. Mr. Lewis observed that the union was trying to win a vote, not just get one.
When Ms. Barrett received the application for certification on June 18, 1996, she was concerned with the number 57 on it, when the company had indicated, only a month before, that there were 64 people in the bargaining unit and that the company was in a growth mode.
During the pre-vote consultation after the certification application was filed, the union agreed that there were 65 people in the bargaining unit.
The Party's Arguments
The company argues that the Union was put on sufficient notice to be required to investigate, should their estimate be any less than the number 64, which the company gave them on May 10. The number 61, from the April dues list, should be considered the minimum legitimate number. Putting the number 57 on the Form A-4 and in the application, amounts to fraud in the circumstances, in employer counsel's estimation. Company counsel argues that fraud is established where the union is reckless as to the truth of the information it submits. Further, given the Board's interpretation of the certification provisions under Bill 7, in cases like The City of Toronto [1996] OLRB Rep. July/Aug 552 the reckless standard ought to be strictly applied.
Counsel argues that the union can have no honest belief in the number 57 because the steps they took to ascertain that number were entirely careless. It is submitted that Mr. Angelo was not told clearly enough that the number would be given to the Board or be used to determine if a vote would be held. Although in an ordinary case, it might be enough to think about the number of machines as Mr. Angelo did, counsel says it was not sufficiently careful here. This is because they had the number 64 from Ms. Barrett, a person Mr. Short would expect to be intimately familiar with the number of employees, and a person who had never been dishonest before. In order to disregard that number, the union had to carefully consider the number of people in the plant.
The company submits that the union's investigation ignored available information. They only looked at the list in the men's locker room, and did not count up the numbers or consider the women or the seniority list in determining the count. No one bothered to check the dues list. Counsel notes that the union's actions disregard a credible number given by the company in the context of litigation where that number was critical to their defense that they had grown.
Further, employer counsel notes that Mr. Short did not even ask Mr. Angelo what he had done to find out the number of people in the bargaining unit. Just the word of Mr. Angelo should not be considered sufficient to ignore the credible company number, in the circumstances, submits counsel. If Mr. Angelo had paid attention, says counsel, he would have had to have found at least 7 more names. There was also a building maintenance employee, which should have put the count at 61. That would have put Messrs. Short and Lewis in the position where it was very close to 64 and they would have had to wonder if the company's number was right.
Counsel asserts that the Board should infer from all the evidence that the union could not get anymore than 25 cards and they used whatever number would get the denominator low enough to assure them 40%.
Counsel refers to the case of Derry v. Peek, (1889) 14 A.C. 337 at pg. 374, which has been adopted by the Board in earlier jurisprudence. The above facts show that the union was careless, had no belief in the truth, which amounts to fraud in counsel's submission. Company counsel observes that even on Mr. Lewis' own evidence, he did not believe the number 57; he grossed up from the number 55 given to him. And he had a number which flew in the face of it.
Employer counsel stated that he did not blame Mr. Lewis, who was following instructions. Nonetheless, he asserted that technically what Mr. Lewis did was fraud because he could have no belief in the truth of the number. Although counsel submits that he is sure Mr. Lewis was acting honestly, that motive is immaterial.
Counsel also referred to other jurisprudence such as Parna et al v, G&S Properties Ltd. et al (1970), 1970 CanLII 25 (SCC), 15 D.L.R. (3d) 336 (S.C.C.) and L'Abbe' Construction Limited, [1971] OLRB Rep. Mar. 141.
Referring to Carleton University (Edward Kantowicz), [1976] OLRB Rep. Aug. 450 at para. 10, company counsel alludes to the wording "known or ought reasonably to have known" the information was wrong. He submits a reasonable person would have checked his own records as to dues or financial records and generated a listing of some kind.
Referring to N. J. Spivak Limited, [1976] OLRB Rep. Dec. 857, employer counsel says that the Board applied a practical analysis as to the aim of the statue. He asserts that here section 64 is aimed at gerrymandering the list in order to get a vote. Counsel asserts that to give the section any other interpretation would be to deprive it of meaning.
As to the suggestion by the union that any misrepresentation involved here could be cured by a vote, employer counsel says that would not prevent the fraud at which s. 64 is aimed. In his view, a fraudulent statement leading to a vote and certification is equivalent to a certificate being obtained by fraud. In a system where cards are largely irrelevant, s. 64 must be aimed at ensuring that the parties have acted non-fraudulently in the representations they make to the Board.
Employment counsel also cites Ontario Taxi, [1981] OLRB Rep. Sept. 1280 at para. 20 on discretion. The employer submits that given the previous Board jurisprudence in the City of Toronto, cited above, and the cases that followed it, if the Board is not willing to strongly penalize a union who does not take all reasonable steps to ascertain the correct number, there is no meaning to the 40% requirement. That would be the cumulative effect of such a decision in the wake of the earlier jurisprudence, asserts counsel.
By contrast, the union submits there is no hint of fraud in this case, nor of anything improper. The evidence is clear that Mr. Lewis had an honest belief in what he submitted to the Board. Honest belief is inconsistent with a finding of fraud, in the union's submission.
In the union's view, this case is an "end-run" on the City of Toronto decision, cited above, with which the employer was not happy. Since that decision has been followed, the employer wishes to insert an unbelievably high standard into section 64, asserts union counsel. Union counsel submits that although diligent inquiry was made, the evidence should not have been required. Putting this on for hearing, in the union's submission, will open up litigation in a way not intended by the legislation. Alleged inaccuracy in the estimate is not fraud at which the legislation is aimed. Even if the allegation were proven, the union did not obtain a certificate by fraud. It only obtained a vote. Counsel argues that the fraud involved has to be sufficient to ensure that a certificate will issue, or so close that the Board cannot determine whether or not it would have issued. In the union's view, only fraud related to the vote itself should be found to violate section 64, such as employees who represent themselves as being in the voting constituency when they are not. Counsel observes that the Board's jurisprudence on fraud derives from a card based system, and harkens back to a time when there was no intervening vote to truly test the wishes of the employees. The Bill 7 amendments and a vote based system were not meant to give a more stringent enforcement to section 64 in order to support the 40%, counsel submits.
Union counsel refers to the City of Toronto, cited above at paras. 141 and ff., where it is suggested that a vote would be curative of misrepresentation, a position which we are urged to adopt. That is the spirit of Bill 7: the ultimate faith is in the ballot box, submits counsel.
In the alternative, if the Board holds an inquiry in a case like this, the union submits it should only be evidence of the A-4 declarant that is required. Nonetheless, the union called other witnesses in this case, but observed that in large certification applications, it would be impractical to call evidence from everyone down the line.
Further, if the Board finds that section 64 can be triggered in a case like this, it is to be noted that section 64 provides a discretion to the Board. Where there is nothing to suggest that the result of the vote is not the voluntary wishes of the employees, we are urged not to exercise that discretion. In a vote-based system, it should only be the most extraordinary case where the Board would invalidate a certificate.
As to the case law, union counsel agrees that Derry v. Peek, cited above, is a correct statement of the law. However, he argues that this case is nowhere close to that. Further, union counsel submits that the company has forgotten para. 36 of the Board's decision of February 14, 1997 in this matter which determined that the issue was not due diligence, but fraud. In any event, an employee in the plant counting heads is not evidence of lack of due diligence. Union counsel refers to National Steel Car Corporation Limited, [1966] OLRB Rep. Jan. 738, and submits the proper inquires were made in this case.
Honest belief is evident in the testimony of all three union witnesses, in counsel's view. There is no reason for these people not to trust each other's information, and no evidence to contradict their testimony as to their honest belief.
As to the idea that the employer's number should have been accepted uncritically by the union, counsel submits that the union has the right to be skeptical in circumstances where the employer has moved and is not recognizing the union's bargaining rights. Further, it is the union's duty to conduct its own inquiry. The reasonableness of the union's estimate is shown by the number 57 on the seniority list, and the number 61 on the dues remittance. If they had used the locker lists, as it turns out, they would have gotten 58. Counsel observes that the ONLY number that would not have gotten them a vote from the available ways of counting was the number 64 given by the employer at the LRO meeting in a different proceeding. Moreover, there is no suggestion that the employer was willing at any time to provide a list of employees to the union to verify the numbers during the certification drive.
Further, union counsel argues that even if Mr. Angelo should have found eight more names than he did on the run-through of the list that employer counsel did on cross-examination, the number would have been 61, which would have been a number which would have allowed a vote with the twenty-five cards that were submitted.
The crux of the matter, says union counsel, is that the most the evidence shows is that perhaps Mr. Angelo could have been more thorough, not that anyone was involved in fraud. This is not reckless disregard for the truth. There was nothing here like a willful shutting of eyes, or heedless rashness, or the deliberately running of an unjustifiable risk.
In reply, employer counsel says that the matter of a vote curing fraud was already decided in the decision to put the matter on for hearing. Further, in counsel's submission, the absurdity of the proposition that fraud should only go to the actual conduct of the vote is shown by the example of an employer with a thousand employees. The union could say there were only two employees in the bargaining unit and get a vote with one card. Even if it is unlikely that the union would win in those circumstances, the union could harass the employer with the disruption of a vote. They could take a "roll of the dice" whenever they wanted to.
In this case, employer counsel submits that the recklessness was in the lack of follow-through to verify the number that Mr. Angelo came up with, in the face of the recent, reliable, information that it was 64 and rising. Without counting, he came up with the same number as he did with his inadequate way of counting in the plant. He submits that union counsel has turned Derry v. Peek, cited above, on its head. In his view, it does not say that honest belief is incompatible with fraud, but that recklessness is incompatible with honest belief.
As to the difference between the standard he urges and one of simple negligence, employer counsel says it relates to the sufficiency of the investigation, that all avenues were not exhausted. They were willfully blind, and so reckless that they could have no belief in the number.
As to the word "estimate" in section 7 { 12 }, counsel observes that best efforts were not used to come up with the best estimate. Further, the Form A-4 does not require an estimate, but a declaration of the number of people in the bargaining unit.
In sum, employer counsel asks the Board to void the certificate to send a strong message to unions.
The relevant sections of the Act are as follows:
(12) The application for certification shall include a written description of the proposed bargaining unit including an estimate of the number of individuals in the unit.
(13) The application for certification shall be accompanied by a list of the names of the union members in the proposed bargaining unit and evidence of their status as union members, but the trade union shall not give this information to the employer.
- (1) Upon receiving an application for certification, the Board may determine the voting constituency to be used for a representation vote and in doing so shall take into account,
(a) the description of the proposed bargaining unit included in the application for certification; and
(b) the description, if any, of the bargaining unit that the employer proposes.
(2) If the Board determines that 40 per cent or more of the individuals in the bargaining unit proposed in the application for certification appear to be members of the union at the time the application was filed, the Board shall direct that a representation vote be taken among the individuals in the voting constituency.
(3) The number of individuals in the proposed bargaining unit who appear to be members of the trade union shall be determined with reference only to the information provided in the application for certification and the accompanying information provided under subsection 7(13).
(4) The Board shall not hold a hearing when making a decision under subsection (1) or (2).
(5) Unless the Board directs otherwise, the representation vote shall be held within five days (excluding Saturdays, Sundays and holidays) after the day on which the application for certification is filed with the Board.
(6) The representation vote shall be by ballots cast in such a manner that individuals expressing their choice cannot be identified with the choice made.
(7) The Board may direct that one or more ballots be segregated and that the ballot box containing the ballots be sealed until such time as the Board directs.
(8) After the representation vote has been taken, the Board may hold a hearing if the Board considers it necessary in order to dispose of the application for certification.
(9) When disposing of an application for certification, the Board shall not consider any challenge to the information provided under subsection 7(13).
- (1) The Board shall certify a trade union as the bargaining agent of the employees in a bargaining unit that is determined by the Board to be appropriate for collective bargaining if more than 50 per cent of the ballots cast in the representation vote by the employees in the bargaining unit are cast in favour of the trade union.
(2) The Board shall not certify the trade union as bargaining agent and shall dismiss the application for certification if 50 per cent or less of the ballots cast in the representation vote by the employees in the bargaining unit are cast in favour of the trade union.
(3) If the Board dismisses an application for certification under this section, the Board shall not consider another application for certification by the trade union as the bargaining agent of the employees in the bargaining unit until one year has elapsed after the dismissal.
11.(l) Upon the application of a trade union, the Board may certify the trade union as the bargaining agent for the employees in a bargaining unit in the following circumstances:
An employer, employers' organization or person acting on behalf of an employer or employers' organization has contravened the Act.
The result of the contravention is that a representation vote does not or would not likely reflect the true wishes of the employees in the bargaining unit about being represented by the trade union.
No other remedy, including the taking of another representation vote, is sufficient to counter the effects of the contravention.
The trade union has membership support adequate for the purposes of collective bargaining in a bargaining unit found by the Board to be appropriate for collective bargaining.
(2) Upon the application of an interested person, the Board may dismiss an application for certification of a trade union as the bargaining agent for the employees in a bargaining unit in the following circumstances:
A trade union, council of trade unions or person acting on behalf of a trade union or council of trade unions has contravened the Act.
The result of the contravention is that a representation vote does not or would not likely reflect the true wishes of the employees in the bargaining unit about being represented by the trade union.
No other remedy, including the taking of another representation vote, is sufficient to counter the effects of the contravention.
(3) The Board may consider the results of a representation vote when making a decision under this section.
(4) Subsections 10(1) and (2) do not apply with respect to a representation vote taken in the circumstances described in this section.
- (1) If a trade union has obtained a certificate by fraud, the Board may at any time declare that the trade union no longer represents the employees in the bargaining unit and, upon the making of such a declaration, the trade union is not entitled to claim any rights or privileges flowing from certification and, if it has made a collective agreement binding upon the employees in the bargaining unit, the collective agreement is void.
(2) Subsection 8(9) does not apply with respect to an application for a declaration under subsection (1).
(3) If an applicant has obtained a declaration under section 63 by fraud, the Board may at any time rescind the declaration. If the declaration is rescinded, the trade union is restored as the bargaining agent for the employees in the bargaining unit and any collective agreement that, but for the declaration, would have applied with respect to the employees becomes binding as if the declaration had not been made.
(4) Subsection 63(13) does not apply with respect to an application for the recession under subsection (3) of a declaration.
Conclusions
- On the surface, the parties do not disagree about the law in regards to the elements of fraud. They both accept the classic statement as to the law of fraud set out in Derry v. Peek, cited above, as follows:
"First, in order to sustain an action of deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is when it is shown that a false representation was made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must I think always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.
However, the parties disagree about the application of the law to the facts of this case. Indeed, a close look at the arguments as to how the law should be applied to the facts, shows that there is a more basic disagreement. The employer argues that "recklessly, careless as to whether something is true or false" in the above quote should cover the facts of this case, where there was other information available to the applicant which it did not use. The union, on the other hand, says that recklessness in the context of fraud requires a lack of honest belief, and that the evidence shows there was honest belief. Although one may think this is a matter of semantics, it is really part of the legal debate that the Privy Council in Derry v. Peek was trying to put an end to.
Derry v. Peek is a case dealing with fraudulent misrepresentation. The plaintiff alleged he bought shares in a company based on the fraudulent misrepresentation that the company in question had an absolute right to use steam, or other mechanical power, to operate a tramway. As it turned out the right was conditional on an authorization which did not materialize and the company was wound up.
The case report makes it clear that what was underlying the debate before the Privy Council was an ongoing process of refining the distinction between the law on material misstatement, or negligent misrepresentation, and fraud, or fraudulent misrepresentation, which has an element of dishonesty. The case put to the Privy Council was that it was an error in the Court of Appeal to have held that an action for deceit, or fraud, lies where the statement is made in the honest belief that something is true, even if there were no reasonable grounds for believing it. The plaintiff/respondents argued the reverse: that fraud was made out on the basis of a false statement which they ought to have known was false. As can be seen from the various judgments, the Privy Council specifically thought it was NOT good law that fraud was made out where the person concerned believed what they asserted, even if the person ought reasonably to have known it was false.
Accordingly, since the directors of the company in issue were found to have believed in good faith that the representation was true, even though it was not in fact completely true, they were found not to have engaged in fraud. There was an inaccuracy in what the directors put forward in their prospectus, in that there was a condition that had not yet been satisfied, but because that was not present to their minds, it was not a case of fraud. Rather, the Privy Council decided that the directors were simply mistaken in a portion of their statement.
In the lengthy portion of the judgment of Lord Hersehell, leading up to the classic passage quoted above, he makes it clear that in the context of fraud, "Recklessly" does not mean "without
reasonable grounds for the belief'. Rather it means without belief in its truth. He makes this even more clear on pg. 373 when he writes:
I cannot assent to the doctrine that a false statement made through carelessness, and which ought to have been known to be untrue, of itself renders the person who makes it liable to an action for deceit. This does not seem to me by any means necessarily to amount to fraud, without which the action will not, in my opinion, lie.
And further at pg. 375:
In my opinion making a false statement through want of care falls far short of, and is a very different thing from fraud, and the same may be said of a false representation honestly believed though on insufficient grounds.
Nonetheless, the judgment also makes it clear that whether there are reasonable grounds for a belief, or not, may be evidence relevant to the issue of whether or not there actually was an honest belief. Lord Herschell adds that if he thought that a person making a false statement had shut his eyes to the facts, or purposely abstained from inquiring into them, he would hold that honest belief was absent. In those circumstances, he would find that the person was just as fraudulent as if he had knowingly stated that which was false. Nonetheless, he makes it clear that "mischief is likely to result from blurring the distinction between carelessness and fraud." So, it is clear that it is the fact of the purposefulness of shutting the eyes to the facts which makes it fraud in that example.
The test he actually employs to decide the case, at pg. 377, is as follows:
The test which I purpose employing is to inquire whether the defendants knowingly made a false statement in this respect, or whether, on the contrary, they honestly believe what they stated to be a true and fair representation of the facts.
- In 1970 the Supreme Court of Canada in Parna v. G. & S. Properties Ltd., cited above, accepted Derry v. Peek, cited above, and the following quote from Anson on Contract, 12th ed., p. 187 as the state of the law on fraud in Canada:
Fraud is a false representation of fact, made with a knowledge of its falsehood, or recklessly, without belief in its truth, with the intention that it should be acted upon by the complaining party, and actually inducing him to act upon it.
Parna, supra also has the added feature that what was at issue was an estimate, as in the application before us. It is clear that the court thought that, by definition, an estimate could not be expected to provide a warrant of accuracy.
Derry v. Peek has long been accepted by the Board as the law on fraud. However, both the context and the language of some of the Board's decisions make the distinction between negligent misrepresentation and fraud less than readily apparent.
For instance, Ontario Taxi Association 1688, cited above, considered the meaning of section 50 as it then was, which is worded identically to the current section 64. The allegation in that case was that the union was guilty of fraud with respect to the membership evidence submitted under the cardbased system then in place. A forged card was submitted by the union. Since there was no evidence to convince the Board that this was an isolated incident unknown to responsible officers, the Board exercised its discretion to terminate the bargaining rights involved. At para. 19, the Board, citing Derry v. Peek and Carleton University (Edward R. Kantowicz), [1976] OLRB Rep. Aug. 450, articulated the standard as follows:
To establish a fraud under section 50, [now 64] it must be demonstrated that a false representation was made to the Board which the Board relied on and also that the representation was known, or ought reasonably to have been known by the purveyor thereof to be false.
It can be seen that the language "ought reasonably to have been known to be false", is precisely the articulation that Derry v. Peek was at pains to say did not constitute fraud. But the facts in that case, Ontario Taxi, cited above, were that the people responsible for submitting the card knew that it had not been signed by the person named, and that a dollar had not been paid. And it was a case concerning the reliability of written membership evidence. Misrepresentation which could not be considered isolated was sufficient for the Board to disregard written membership evidence. Thus, the decision does not turn on the added words "ought reasonably to have known
Similarly, in Carleton University, cited above, although the Board repeats the "ought reasonably to have known" language, the case did not revolve around a finding that a statement was false, but ought reasonably to have been known to be otherwise. The statements made were found not to be false or misleading.
Neither of these two cases dealt with the kind of facts before us, where it is said that there was recklessness. In the first case, it was clear that the fact misrepresented was false, and knowingly so, in the second, it was clear that the contrary was so.
The case of L'Abbe Construction Limited, cited above, is also distinguishable on its facts. There the management and the union colluded to deprive employees of their right to choose whether to be a member of the union or not, telling all applicants that there was a union and they had to join. The Board found that this amounted to obtaining a certificate by fraud.
N.J. Spivak, cited above, dealt with an allegation of fraudulently obtained membership evidence. It held that the Board did not need to go beyond the Derry v. Peek test, although it had to be applied in a labour relations context. But there is no suggestion that the labour relations context requires the elimination of the distinction between the fraud and negligent misrepresentation standards. The conclusion that there was no attempt to mislead the Board as to membership evidence disposed of the allegation of fraud in that decision.
Much of the Board's jurisprudence on "fraud" prior to Bill 7 is essentially concerned with the reliability of membership evidence in a card-based system, where votes were not the norm. In those cases, both advertent dishonesty and misrepresentations without reasonable basis, or sufficient inquiry would cast doubt on the reliability of membership evidence. Thus the fact that the distinction between fraudulent and negligent misrepresentation is not made clearly in some of those cases is not determinative of the result. Moreover, much of the Board's jurisprudence on misrepresentation or unreliable evidence explicitly articulate as a major factor the context that a representation vote will not be available, and the resulting need for safeguards when dealing with the hearsay nature of the card-based system. See for example, General Motors of Canada Limited [1980] OLRB rep. October 1437 and Kitchener News Company Limited, [1980] OLRB Rep. Nov. 1656 and the cases cited therein.
The general law makes it clear that fraud requires an element of dishonesty. This is discussed in a recent commentary, "The Fraud Elements of Deceit and Fraudulent Misrepresentation" Paul Perell, The Advocates Quarterly, Vol. 18, No. 1, March 1996. In that article the commentator makes the apt observation that the essence of fraud is a discordance between a persons' words and belief. That is, believing in the falsity of a fact, one asserts it as true, or believing that one does not know whether it is true or false, one asserts it as true, nonetheless. Thus an essential element of fraud is mental dishonesty. The other required elements cited are that the representation is in fact false, and an intent to deceive in the sense developed in the jurisprudence since Derry v. Peek. Fraud has an element of advertent misconduct and goes beyond carelessness or negligent misrepresentation. It is a disregard for the importance of the truth which separates fraud from negligence. This disregard for the truth is different from getting something wrong, not doing sufficient spadework, or any of the other countless forms of less than perfect conduct that do not amount to fraud. See Caterers Ltd. v. C.N.R. (1988), 1988 CanLII 178 (BC CA), 54 DLR (4th) 43.
In light of the above, we are of the view that Derry v. Peek remains in essence the applicable law on fraud. Applying the Derry v. Peek test, set out at para. 56 above, to the facts of this case, makes the result clear. Each of the union witnesses gave credible evidence that they honestly believed that the information they gave was true. And there is no evidence that they purposely abstained from inquiring into the sources that employer counsel argues they should have consulted. Nor do we think this is a proper inference from all the evidence. Mr. Angelo used a reasonable practical approach and came up with a number that he believed was accurate from his experience in the plant. Mr. Short trusted that judgment, and he had no means of physically verifying the numbers himself because he had no access to the plant. The number was not so far different from the actual number as to lead to any obvious questions as to the reality of the honest belief. There would be such question in a situation such as the one Mr. Liznick cited of a plant of a 1,000 and an estimate of 2. It is particularly inappropriate to draw any inference of lack of honest belief where using the number on either the seniority list, or the dues list, sources suggested by the employer, would have resulted in a vote as well.
Part of the labour relations context under Bill 7 is, of course, the quick vote based certification system which provides that the union is to provide an estimate of the number of people in the bargaining unit in its application. It is our view that the process engaged in by Messrs. Angelo, Short and Lewis in this case resulted in an honest estimate, and was therefore not fraudulent.
Employer counsel made the additional argument that there should be a higher standard on the Board's Form A-4, as opposed to the application form itself, because what is required is a declaration, rather than an estimate. We do not think it necessary to rule in general on whether there may be a case that requires the standard to be articulated in a different fashion. In the circumstances of this case, we think it is sufficient that Mr. Lewis, the lawyer, who filled out the Form A-4, honestly believed that the number he put on the A-4 was as accurate a number as they were going to get under the circumstances before him at the time. This is not fraud.
For the above reasons, we determined that the union's certificate was not obtained by fraud.
DECISION OF BOARD MEMBER R. W. PIRRIE; November 25, 1998
I dissent.