Paulus et al. v. Fleury
[Indexed as: Paulus v. Fleury]
Ontario Reports Court of Appeal for Ontario K.N. Feldman, Pardu and L.B. Roberts JJ.A. December 21, 2018
144 O.R. (3d) 791 | 2018 ONCA 1072
Case Summary
Civil procedure — Settlement — Setting aside — Defendant agreeing to settle action for damages arising from motor vehicle accident after plaintiffs' counsel stated at pre-trial conference that he had independent witnesses to collision — Defence counsel subsequently discovering that witnesses' son lived across street from plaintiffs — Motion judge erring in refusing to enforce settlement on basis that statement of plaintiff's counsel amounted to civil fraud — Plaintiff's counsel's statement not amounting to civil fraud as there was reasonable basis for it and it was made in good faith — Plaintiffs' counsel not intending opposing counsel to rely on his submission in deciding whether to settle action — Defence counsel not acting with due diligence in investigating link between plaintiffs and witnesses.
Torts — Fraud — Defendant agreeing to settle action for damages arising from motor vehicle accident after plaintiffs' counsel stated at pre-trial conference that he had independent witnesses to collision — Defence counsel subsequently discovering that witnesses' son lived across street from plaintiffs — Motion judge erring in refusing to enforce settlement on basis that statement of plaintiff's counsel amounted to civil fraud — Plaintiff's counsel's statement not amounting to civil fraud as there was reasonable basis for it and it was made in good faith — Plaintiffs' counsel not intending opposing counsel to rely on his submission in deciding whether to settle action — Defence counsel not acting with due diligence in investigating link between plaintiffs and witnesses.
Facts
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 the claim. Defence counsel then discovered that the witnesses' son lived across the street from the plaintiffs. He repudiated the settlement. The plaintiffs brought a motion to enforce the settlement. They argued that when their counsel described the witnesses as independent, he meant 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's statement that the witnesses were "independent" was a statement of fact, 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 false representation. The motion was dismissed. The plaintiffs appealed.
Decision
Held, the appeal should be allowed.
The statement 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 for this type of finding could have a chilling effect on counsel's willingness to advocate resolutely for his or her client. Statements or submissions made by counsel do not amount to civil fraud if either there is a reasonable basis for them, or if counsel is not knowingly misleading the court, that is, is acting in good faith. In this case, there was a reasonable 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 the nature of their acquaintance. The witnesses had nothing to gain from the trial 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, it would be unreasonable to conclude that plaintiffs' counsel intended opposing counsel to rely on his submission in settling the action, given the adversarial context and the nature of the impugned statement. Finally, defence counsel did not act with due diligence in investigating any link between the plaintiffs and the witnesses.
Authorities
Groia v. Law Society of Upper Canada, 2018 SCC 27 — considered
Other cases referred to:
- Amertek Inc. v. Canadian Commercial Corp., 76 O.R. (3d) 241
- Biron v. Aviva Insurance Co., 2014 ONCA 558
- Deposit Insurance Corp. of Ontario v. Malette, 2014 ONSC 2845
- International Corona Resources Ltd. v. LAC Minerals Ltd., 66 O.R. (2d) 610
- Midland Resources Holding Ltd. v. Shtaif, 2017 ONCA 320, 135 O.R. (3d) 481
- Pepe v. State Farm Mutual Automobile Insurance Co., 2011 ONCA 341, 105 O.R. (3d) 794
Authorities referred to:
- Advocates' Society, Principles of Civility for Advocates (2001)
- Advocates' Society, Principles of Professionalism for Advocates (2009)
- Law Society of Ontario, Rules of Professional Conduct, s. 5.1-2(e)
- Osborne, Philip H., The Law of Torts, 5th ed. (Toronto: Irwin Law, 2015)
Appeal
APPEAL from the order of Heeney J., 2018 ONSC 1188 (S.C.J.) dismissing the motion to enforce a settlement.
Counsel:
Raymond Colautti, for appellants.
Vanda Santini and Alicia Tymec, for respondent.
Judgment
The judgment of the court was delivered by
PARDU J.A.:
A. Background
[1] The plaintiffs appeal from the refusal of the motion judge to enforce a settlement reached at a pre-trial conference in their action for damages resulting from a car accident. In the course of that conference, their counsel made submissions indicating that he had "independent" witnesses to the collision that had resulted in injury to his clients. He described the witnesses as "good people . . . independent . . . solid . . . good witnesses". The defendant's counsel agreed to settle the claim for $850,000. Immediately after the pre-trial, the defendant's counsel got a call from his own investigator indicating that tax, mortgage and insurance records revealed that it was likely that the witnesses' son lived across the street from the plaintiffs. Defendant's counsel wrote to the plaintiffs' counsel the next day to repudiate the settlement.
B. Motion Judge's Findings
[2] The plaintiffs argued before the motion judge that when their counsel described the witnesses as independent, he meant to indicate that they could give evidence extrinsic to that of the plaintiffs. The witnesses were in a separate car in a separate lane. Counsel said he did not mean to suggest that the witnesses did not know the plaintiffs. This interpretation of "independent" was arguably supported by appellate authority: Pepe v. State Farm Mutual Automobile Insurance Co., 2011 ONCA 341, 105 O.R. (3d) 794. The motion judge rejected this interpretation, concluding that counsel had given the impression that the witnesses were "neutral witnesses, who had no connection to anyone involved in the case, and therefore had no reason to favour either side with their evidence, and would be credible and reliable witnesses at trial".
[3] He found that counsel for the plaintiffs' statement that the witnesses were "independent . . . solid . . . good" was untrue. He found that this was untrue because the witnesses contacted one of the plaintiffs, Mr. Paulus, at his office to tell him they had witnessed the accident, because Mr. Paulus provided his own counsel with the witnesses' contact information and because plaintiffs' counsel knew his client was acquainted with the witnesses in some undefined way. The motion judge also relied on information not known to the plaintiffs' counsel at the time of the pretrial to corroborate his finding that the statement was false.¹
[4] The motion judge found that plaintiffs' counsel knew the statement was untrue or was reckless as to its truth. He drew this conclusion because, at the time of the pre-trial, plaintiffs' counsel knew that it was Mr. Paulus who had provided him with the names, address and contact information for the witnesses, knew that his clients and the witnesses were somehow acquainted with one another, and knew the witnesses had difficulty communicating in English.
[5] He also held that counsel had a duty to opposing counsel not to knowingly make misleading statements. He characterized counsel's statement about the characteristics of the witnesses as a statement of fact, not opinion.
[6] The motion judge concluded that the plaintiffs' counsel's statement amounted to civil fraud and that the defendant was induced to settle the case as a result of the false representation. He accordingly refused to enforce the settlement.
[7] The plaintiffs appeal from this decision and ask that the settlement be enforced. For the reasons that follow, I would allow the appeal and enforce the settlement.
C. Analysis
(1) The test for civil fraud
[8] As the defendant's allegation of civil fraud was central to the motion judge's decision, I begin by noting that courts have used the same test for civil fraud as they have for the torts of deceit and fraudulent misrepresentation: see, e.g., Deposit Insurance Corp. of Ontario v. Malette, 2014 ONSC 2845, at para. 19; Amertek Inc. v. Canadian Commercial Corp., 76 O.R. (3d) 241, at para. 63, leave to appeal to S.C.C. refused [2005] S.C.C.A. No. 439; and Midland Resources Holding Ltd. v. Shtaif, 2017 ONCA 320, 135 O.R. (3d) 481, at para. 162, leave to appeal to S.C.C. refused [2017] S.C.C.A. No. 246.
[9] For the purposes of this appeal, I adopt Brown J.A.'s articulation of this test in Midland Resources Holding Ltd., at para. 162. The five elements of the test are as follows:
(i) a false representation of fact by the defendant to the plaintiff; (ii) knowledge the representation was false, absence of belief in its truth, or recklessness as to its truth; (iii) an intention the plaintiff act in reliance on the representation; (iv) the plaintiff acts on the representation; and (v) the plaintiff suffers a loss in doing so.
(Citations omitted)
[10] Here the statement by counsel 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 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.
(2) The proper approach to civil fraud in the context of submissions by counsel
[11] The motion judge did not have the benefit of Groia v. Law Society of Upper Canada, 2018 SCC 27, released after his decision. Groia is relevant here because of its discussion of a lawyer's duty of resolute advocacy on behalf of a client. That duty is relevant to an assessment of whether submissions by counsel amount to civil fraud.
[12] Groia dealt with the balancing that must occur in deciding whether a lawyer's mistaken allegations of misconduct on the part of opposing counsel amount to professional misconduct and whether it is a matter for discipline by a law society. The fact that a lawyer is mistaken is not a basis in itself for 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's finding of professional misconduct against Mr. Groia on the basis of incivility was, in my respectful view, unreasonable. Even though the Appeal Panel accepted that Mr. Groia's allegations of prosecutorial misconduct were made in good faith, it used his honest but erroneous views as to the disclosure and admissibility of documents to conclude that his allegations lacked a reasonable basis. However, as I will explain, Mr. Groia's allegations were made in good faith and they were reasonably based. As such, the allegations themselves could not reasonably support a finding of professional misconduct.
[13] The assessment of whether uncivil behaviour amounts to professional misconduct is "fundamentally contextual and fact specific": Groia, at para. 79.
[14] In Groia, Moldaver J. for the majority held that challenges to opposing counsel's integrity must "both be made in good faith and have a reasonable basis" [emphasis in original]: at para. 84.
[15] 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 reputation of the recipient of the criticism that it was appropriate to require both good faith and a reasonable basis for the allegation. He stated the following, at para. 86:
Maintaining a reputation for 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 reasonable foundation. I agree with the Appeal Panel that anything less "gives too much licence to irresponsible counsel with sincere but nevertheless unsupportable suspicions": para. 235. The consequences for the opposing lawyer's reputation are simply too severe to require anything less than a reasonable basis for allegations impugning his or her integrity.
[16] Here the context is different. This is not a case of professional discipline, however, a finding of civil fraud is a matter that could have devastating consequences for a lawyer's reputation. The potential for such a finding could have a chilling effect on counsel's willingness to advocate resolutely for his or her client. Statements or submissions made by counsel do not amount to civil fraud if either there is a reasonable basis for them, or if counsel is not knowingly misleading the court, i.e., is acting in good faith. This conclusion plays a necessary role in ensuring that counsel is able to fulfill the duty of "resolute advocacy" that he or she owes to his or her clients.
[17] There can be no doubt that the plaintiffs' trial counsel owed his clients this duty of resolute advocacy in advancing their best interests, whether at a trial or a pretrial conference. The importance of this duty was highlighted in Groia, at paras. 72 and 73:
The importance of resolute advocacy cannot be understated. It is a vital ingredient in our adversarial justice system -- a system premised on the idea that forceful partisan advocacy facilitates truth-seeking: see e.g. Phillips v. Ford Motor Co., 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, a principle of fundamental justice under s. 7 of the Canadian Charter of Rights and Freedoms: Canada (Attorney General) v. Federation of Law Societies of Canada, 2015 SCC 7, at paras. 83-84.
Resolute advocacy requires lawyers to "raise fearlessly every issue, advance every argument and ask every question, however distasteful, that the lawyer thinks will help the client's case": Federation of Law Societies of Canada, Model Code of Professional Conduct (online), r. 5.1-1 commentary 1. This is no small order. Lawyers are regularly called on to make submissions on behalf of their clients that are unpopular and at times uncomfortable. These submissions can be met with harsh criticism -- from the public, the bar, and even the court. Lawyers must stand resolute in the face of this adversity by continuing to advocate on their clients' behalf, despite popular opinion to the contrary.
[18] The corollary of this duty is that counsel owes no such duty to the opposing party: Biron v. Aviva Insurance Co., 2014 ONCA 558, at para. 6.
[19] The duty of resolute advocacy has limits. As rule 5.1-2(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 "knowingly attempt to deceive a tribunal or influence the course of justice by offering false evidence, misstating facts or law, presenting or relying upon a false or deceptive affidavit, suppressing what ought to be disclosed, or otherwise assisting in any fraud, crime, or illegal conduct" (emphasis added). Advocates should not use tactics that are dishonest, including in their interactions with opposing counsel, or "engage in any . . . conduct calculated to induce the court to act under a misapprehension of the facts": Advocates' Society, Principles of Professionalism for Advocates (2009), at p. 6; and Advocates' Society, Principles of Civility for Advocates (2001), at p. 11.
[20] 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 counsel to advocate on behalf of his or her client.
[21] In a personal injury trial one counsel may submit that the evidence shows the plaintiff has made a full recovery. The opposing counsel may submit that the evidence shows that the plaintiff will suffer lifetime impairments. Neither counsel is required to have a personal belief in the submission made.
[22] Here plaintiffs' counsel's statement did not amount to civil fraud. There was a reasonable basis for his statement, and the statement was made in good faith.
(a) Reasonable basis
[23] The statements by counsel were expressions of opinion for which 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, the nature of their acquaintance was unknown. Neither was an employee of the other. The witnesses were in their own car adjacent to the accident scene. They had nothing to gain from the trial of the accident claim. That they had difficulty expressing themselves in English did not mean they were not good people nor 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 were biased.
[24] The plaintiffs' counsel's description of the witnesses was a legitimate exercise of advocacy. No complaint could have been made if counsel had provided a jury with the same observations concerning the quality of the witnesses in issue. Opinions as to whether someone is a good or independent witness are as open to debate and disagreement as opinions as to whether someone is a good lawyer. The degree of acquaintance may range from intimate to non-existent, with innumerable variations between those extremes. The point at which the degree of acquaintance renders a witness "not independent" or biased may be open to debate and may differ in different settings. In some communities where jurors are tested for impartiality, for example, the fact that a juror may have gone to the same high school as an accused may be a matter of indifference; in others it may result in disqualification of the juror.
[25] Even if mistaken, the expression of this opinion did not 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 her allegations lack a reasonable basis would discourage lawyers from raising well-founded allegations, impairing the lawyer's duty of resolute advocacy.
[26] The motion judge ultimately had a different view as to whether the witnesses could be described as independent. However, a contrary opinion expressed in submissions by counsel does not make that counsel guilty of civil fraud where there is a reasonable basis for that opinion.
[27] Furthermore, the motion judge erred in relying on information that came to light after the pretrial conference and that was unknown to plaintiffs' counsel at the time his statements were made to assess whether those statements were false, i.e., lacked any reasonable basis. The motion judge was also wrong to infer that the 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 knowingly making a false statement and not acting in good faith.
(b) Good faith
[28] There is also no basis to conclude that plaintiffs' counsel did not sincerely and in good faith describe the witnesses in the manner he did. For example, counsel's portrayal of the witnesses as independent was consistent with a statement that he made in a letter months before the November 22, 2016 pretrial. In that letter, dated July 25, 2016, counsel described the witnesses as independent to his own clients:
Mr and Mrs Eftimov's evidence will be very important because they are independent witnesses with no stake in the outcome of your trial. That kind of testimony is important 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.
[29] Mistakes by lawyers are not an infrequent occurrence. Counsel may lose credibility with the court and their colleagues if they are not scrupulously careful about factual assertions, or if they advance arguments with no reasonable foundation, but these should not amount to civil fraud in this context unless there is neither a reasonable basis for the statements nor a good faith belief in their accuracy. Arguments that might amount to an enormous stretch may later seem quite reasonable.
[30] This is not to say that there may not be some circumstances where a factual misrepresentation by counsel in judicial proceedings amounts to deceit or civil fraud. For example, counsel who tendered as evidence a forged cheque evidencing payment of a debt in an action on that debt, and who knew the cheque was a false document, could be liable for deceit. In those circumstances there would be no reasonable basis for the factual assertion; nor could it be said that the statement was made in good faith.
(3) Reliance
[31] Further, it would be unreasonable to conclude that plaintiffs' counsel intended opposing counsel to rely on his submission.
[32] The intention that the opposing party rely on the representation is an essential element of civil fraud which is absent here. In The Law of Torts, 5th ed. (Toronto: Irwin Law, 2015), at p. 333, Philip Osborne explains the policy rationale behind the intent requirement when discussing the tort of deceit:
The defendant must intend that the plaintiff will rely on the fraudulent misrepresentation and the plaintiff must in fact rely on it. The requirement that the defendant intends that the plaintiff will rely on the misrepresentation addresses the problem of potentially indeterminate liability in deceit.
(Footnotes omitted)
[33] Given the adversarial context and the nature of the impugned statements, it would be unreasonable to 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 by counsel upon a factual assertion by opposing counsel would be reasonable.
(4) The defendant's conduct
[34] The accident occurred in 2008. The plaintiffs' counsel had disclosed the witness statement in an affidavit of documents and 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. Four days 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 without waiting for the report from the investigator just retained, the defendant's counsel and the adjuster elected to settle the case.
[35] This case is analogous to International Corona Resources Ltd. v. LAC Minerals Ltd., 66 O.R. (2d) 610. 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 were left "twisting in the wind" as a result of decisions, perhaps strategic and tactical, by counsel as to how counsel would conduct cross-examination at 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 must establish due diligence on his or her own part, and that the questions to be asked are "what did the moving party know, and what ought the moving party to have known".
[36] This pre-trial occurred some eight years after the accident. It cannot be said that the defendant's counsel acted with due diligence in investigating or asking any questions 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 judge erred 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 the plaintiffs about the qualities of the witnesses.
D. Conclusion
[37] I would set aside the order of the motion judge dated February 20, 2018 and substitute judgment in favour of the plaintiffs in the sum of $850,000 plus post-judgment interest from November 22, 2016.
[38] I would set aside the costs award in the sum of $100,000 granted in favour of the defendants on the motion below and award that amount to the plaintiffs for the motion below.
[39] I would award costs of the appeal to the plaintiffs in the agreed upon amount of $30,000, inclusive of disbursements and HST.
Appeal allowed.
Notes
¹ For example, plaintiffs' counsel only learned after the pre-trial that one of the plaintiffs, who was in the business of preparing tax returns, had prepared tax returns for the witnesses at some time in the past (motion judge's reasons, para. 48). There was no finding that at the time of the pre-trial, plaintiffs' counsel knew that the witnesses' son lived across the street from the plaintiffs.
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