671122 Ontario Limited formerly Design Dynamics Limited v. Sagaz Industries Canada Inc. et al. [Indexed as: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.]

46 O.R. (3d) 760

[2000] O.J. No. 121

No. C30047

Court of Appeal for Ontario

Catzman, Borins and Sharpe JJ.A.

January 25, 2000

*Note: An appeal from the following judgment of the Ontario Court of Appeal to the Supreme Court of Canada (McLachlin C.J., Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.) was allowed on September 28, 2001 and an application for rehearing was dismissed with costs on November 28, 2001. S.C.C. File No. 27820. S.C.C. Bulletin, 2001, p. 1949. See 2001 SCC 59, 55 O.R. (3d) 782 and [2001] S.C.J. No. 61 (2001 SCC 59). Canada

Employment -- Independent contractor -- A Co. retaining consultant to help it obtain business from B Co. -- Consultant bribing representative of B Co. into giving A Co. contract -- Plaintiff losing business as result -- Consultant liable to plaintiff in conspiracy and for unlawful interference with economic relations -- Contract between consultant and A Co. describing consultant as independent contractor -- Consultant acting on behalf of A Co. as part of its organization and sales team -- Consultant not independent contractor -- A Co. vicariously liable for consultant's tortious behaviour.

Civil procedure -- Trial -- Re-opening of trial -- A Co. retaining consultant to help it obtain business from B Co. -- Consultant bribing representative of B Co. into giving A Co. contract -- Plaintiff losing business as result -- Consultant liable to plaintiff in conspiracy and for unlawful interference with economic relations -- Trial judge finding principal officer of A Co. not liable for tortious acts of consultant as he was unaware of conspiracy -- Consultant not testifying at trial -- Before formal judgment taken out consultant giving plaintiff affidavit implicating officer in conspiracy -- Trial judge erring in refusing to reopen trial to hear consultant's evidence.

The plaintiff was Canadian Tire's principal supplier of synthetic seat covers for 30 years. The plaintiff lost that business when the head of Canadian Tire's automotive division decided to give the seat cover supply contract to the defendant S Inc. S Inc. had retained the defendants L and his company A Inc. to assist it in marketing the seat covers to Canadian Tire. The head of Canadian Tire's automotive division was subsequently charged and convicted of accepting a bribe to give the contract to S Inc. The plaintiff brought an action alleging that the defendants had bribed the head of the automotive division and that, but for those bribes, the plaintiff would have continued to enjoy Canadian Tire's business. The trial judge found that L and A Inc. had offered the bribe and that the bribe was the cause of the plaintiff's loss of the business. He found that L and A Inc. were liable to the plaintiff in conspiracy and on the basis that their conduct amounted to the tort of unlawful interference with economic relations. The claims against S Inc. and K, its principal officer, were dismissed. The trial judge found that A Inc. was an independent contractor and that, accordingly, S Inc. was not vicariously liable for the tortious conduct of L and A Inc. He also found that neither K nor S Inc. were parties to the conspiracy or otherwise responsible for the tortious acts of A Inc. After the release of the trial judge's reasons, but before the formal judgment was taken out, L, who had not testified at trial, gave the plaintiff an affidavit admitting to a conspiracy to bribe and implicating K in the conspiracy. The plaintiff brought a motion before the trial judge to have the trial re-opened to hear L's evidence. The trial judge dismissed the motion on the grounds that the plaintiff failed to show that the new evidence would probably change the result and that L was available as a witness at trial, but the plaintiff's counsel made a tactical choice not to call him. The plaintiff appealed, arguing that the trial judge erred in finding that A Inc. was an independent contractor and rejecting the plaintiff's claim against S Inc. for vicarious liability and in refusing to re-open the trial.

Held, the appeal should be allowed.

The strongest evidence to support the finding that A Inc. was an independent contractor was the written agreement between S Inc. and A Inc. which specifically provided that A Inc. was an independent contractor. However, the contract did not determine the legal classification of A Inc. vis-à-vis S Inc. for the purposes of vicarious liability. To determine whether one party is vicariously liable for the tortious acts of another, the court is required to scrutinize the facts carefully to determine the true nature of the relationship, rather than base the decision on the label the parties chose to attach to their relationship. The question is whether the agent or servant functions as part of the principal's organization and whether an agent's work is done as an integral part of the principal's business. If the answer to these questions is yes, the principal is liable for the tortious acts of the agent even though, as between themselves, the principal and the agent have chosen to designate the relation ship as that of independent contractor. The evidence in this case disclosed that L and A Inc. were, at all material times, acting on behalf of S Inc. as part of the S Inc. organization and sales team. Neither L nor A Inc. was acting in an independent capacity. They worked under the direct supervision and direction of S Inc. and appear to have exercised no independent discretion on any significant matter in relation to dealings with Canadian Tire. They functioned as integrated elements of the S Inc. organization. The trial judge erred in dismissing the claim against S Inc. based on vicarious liability for the acts of L and A Inc.

In order to have the trial re-opened, the plaintiff had to establish that the new evidence might probably have altered the judgment and that the evidence could not with reasonable diligence have been discovered earlier. The affidavit evidence of L, if believed, would clearly implicate K and S Inc. in the bribery scheme. Accordingly, there was no doubt that if the trial judge accepted the evidence as truthful it would have changed the outcome. L was extensively cross-examined on his affidavit prior to the motion to re-open. It was not suggested on this appeal that his evidence was significantly undermined. The affidavit met the standard of being reasonably capable of belief. The plaintiff also met the test of showing that L's evidence was not discoverable by reasonable diligence prior to the trial, since L refused to co-operate with the plaintiff and denied wrongdoing under oath. A new trial was required on the issue of whether K was personally liable to the plaintiff by reason of his participation in the br ibery scheme.

APPEAL by the plaintiff from a judgment of Cumming J. (1998), 1998 14850 (ON SC), 40 O.R. (3d) 229, 42 C.C.L.T. (2d) 50 (Gen. Div.) dismissing an action as against certain defendants and from a refusal to re- open the trial.

Becker Milk Co. Ltd. v. Consumers' Gas Co. (1974), 1974 545 (ON CA), 2 O.R. (2d) 554, 43 D.L.R. (3d) 498 (C.A.); Mayer v. J. Conrad Lavigne Ltd. (1979), 1979 2088 (ON CA), 27 O.R. (2d) 129, 105 D.L.R. (3d) 734 (C.A.), apld Other cases referred to A. (C.) v. Critchley (1998), 1998 9129 (BC CA), 60 B.C.L.R. (3d) 92, 166 D.L.R. (4th) 475, 43 C.C.L.T. (2d) 223, 42 R.F.L. (4th) 427 (C.A.) (sub nom. A. (C.) v. C. (J.W.)); B. (P.A.) v. Curry, 1999 692 (SCC), [1999] 2 S.C.R. 534, 62 B.C.L.R. (3d) 173, 174 D.L.R. (4th) 45, 241 N.R. 266, [1999] 8 W.W.R. 197, 43 C.C.E.L. (2d) 1, 46 C.C.L.T. (2d) 1, 99 C.L.L.C. 210-033; Castlerigg Investments Inc. v. Lam (1991), 1991 7355 (ON SC), 2 O.R. (3d) 216, 47 C.P.C. (2d) 270 (Gen. Div.); Charlesworth v. Relay Roads Ltd., [1999] 4 All E.R. 397 (Ch. D.); Colonial Life Assurance v. Producers Assurance Co. (1931), 46 C.L.R. 41 (Aust. H.C.); Co-operators Insurance Assn. v. Kearney, 1964 21 (SCC), [1965] S.C.R. 106, 48 D.L.R. (2d) 1; International Corona Resources Ltd. v. LAC Minerals Ltd. (1988), 1988 4534 (ON SC), 66 O.R. (2d) 610, 54 D.L.R. (4th) 647 (H.C.J.); Jacobi v. Griffiths, 1999 693 (SCC), [1999] 2 S.C.R. 570, 63 B.C.L.R. (3d) 1, 174 D.L.R. (4th) 71, 241 N.R. 201, [1999] 9 W.W.R. 1, 44 C.C.E.L. (2d) 169, 46 C.C.L.T. (2d) 49, 99 C.L.L.C. 210-034 (sub nom. J. v. Griffiths, T. (G.) v. Griffiths); Ladd v. Marshall, [1954] 3 All E.R. 745, [1954] 1 W.L.R. 1489, 98 Sol. Jo. 870 (C.A.); London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299, 73 B.C.L.R. (2d) 1, 97 D.L.R. (4th) 261, 143 N.R. 1, [1993] 1 W.W.R. 1, 43 C.C.E.L. 1, 13 C.C.L.T. (2d) 1; R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759, 106 D.L.R. (3d) 212, 30 N.R. 181, 50 C.C.C. (2d) 193, 14 C.R. (3d) 22; R. v. Warsing, 1998 775 (SCC), [1998] 3 S.C.R. 579, 59 B.C.L.R. (3d) 47, 233 N.R. 319, [1999] 6 W.W.R. 372, 130 C.C.C. (3d) 259, 21 C.R. (5th) 75; Scott v. Cook, 1970 331 (ON SC), [1970] 2 O.R. 769, 12 D.L.R. (3d) 113 (H.C.J.); Stevenson, Jordan and Harrison Ltd. v. MacDonald, [1952] 1 T.L.R. 101; Wiebe Door Services Ltd. v. M.N.R., 1986 6775 (FCA), [1986] 3 F.C. 553, 46 Alta. L.R. (2d) 83, 70 N.R. 214, [1986] 5 W.W.R. 450, 86 C.L.L.C. 14,062, 87 D.T.C. 5025 (C.A.) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 59.06(2) (a) Authorities referred to Fleming, The Law of Torts, 7th ed. (Sydney, Australia: Law Book Co.), pp. 342-43 Waddams, The Law of Damages (Aurora, Ont.: Canada Law Book, 1999, looseleaf), paras. 11.420-11.425

Martin Teplitsky, Q.C., and James M. Wortzman, for appellant. Joel Goldenberg, for respondents, Sagaz Industries Canada Inc., Sagaz Industries Inc. and Joseph Kavana. Maxwell M. Steidman, for respondents, Stewart Landow and American Independent Marketing Inc.

The judgment of the court was delivered by

[1] SHARPE J.A.: -- For some 30 years, the appellant, Design Dynamics Limited, was Canadian Tire's principal supplier of synthetic seat covers. The appellant lost that business in June 1984 when Robert Summers ("Summers"), the head of Canadian Tire's automotive division, decided that the respondents Sagaz Industries Canada Inc. and Sagaz Industries Inc. (collectively "Sagaz") would be Canadian Tire's seat cover supplier. Summers was subsequently charged and convicted of accepting a bribe in relation to the Sagaz contract. The loss of Canadian Tire's business was devastating to the appellant and it brought this action alleging that the defendants had bribed Summers and that, but for those bribes, the appellant would continue to enjoy Canadian Tire's business.

[2] The defendants, Stewart Landow ("Landow), and his company, American Independent Marketing Inc. ("AIM"), were retained by Sagaz to assist in marketing the seat covers to Canadian Tire. The trial judge found that Landow and AIM had bribed Summers and that those bribes were the cause of the appellant's loss of the Canadian Tire business. He found that Landow and AIM were liable to the appellant in conspiracy and on the basis that their conduct amounted to the tort of unlawful interference with economic relations. The appellant's damages were assessed in the amount of $1,857,500. The appellant was also awarded $50,000 in punitive damages and $3,381,613.51 prejudgment interest.

[3] The claims against Sagaz and Joseph Kavana ("Kavana"), the principal officer of Sagaz, were dismissed. The trial judge found that AIM was an independent contractor and that, accordingly, Sagaz was not vicariously liable for the tortious conduct of Landow and AIM. The trial judge also found that Kavana and Sagaz did not know that Landow was bribing the Canadian Tire buyer and that neither Kavana, nor Sagaz, were parties to the conspiracy, or otherwise responsible for the tortious acts of AIM.

[4] After the release of the trial judge's reasons [reported (1998), 1998 14850 (ON SC), 40 O.R. (3d) 229, 42 C.C.L.T. (2d) 50], but before the formal judgment was taken out, Landow, who had not testified at trial, gave the appellant an affidavit admitting to a conspiracy to bribe, implicating Kavana in the conspiracy. A motion was brought before the trial judge to have the trial re-opened to hear Landow's evidence. The trial judge dismissed that motion on the grounds that the appellant failed to show that the new evidence would probably change the result and on the ground that Landow was available as a witness at trial, but appellant's counsel made a tactical choice not to call him.

[5] Before this court, no issue is taken with the trial judge's findings that Landow and AIM were guilty of bribery, that the bribery caused the loss of the appellant's Canadian Tire business, that Landow and AIM were liable for conspiracy and unlawful interference with economic relations, and that the appellant suffered damages as a result of their tortious conduct in the amount assessed by the trial judge.

[6] The appellant raises three grounds of appeal:

1. that the trial judge erred in finding that AIM was an independent contractor and in rejecting the appellant's claim against Sagaz for vicarious liability;

2. that the trial judge's factual findings with respect to Kavana's knowledge of, or participation in, the bribery scheme were unreasonable and ought to be set aside; and

3. that the trial judge erred in refusing to re-open the trial.

Issue 1 -- Is Sagaz Vicariously Liable for Landow and AIM?

[7] While the trial judge gave carefully considered reasons for judgment, those reasons contain no analysis of the evidence or legal principles pertaining to the claim against Sagaz for vicarious liability for the acts of Landow and AIM. In fairness to the trial judge, it would appear that this issue was not pressed as vigorously before him as it was before this court. Mr. Teplitsky conceded that at trial he relied principally upon the contention that Kavana was an actual participant in a bribery conspiracy and that he did not place the same degree of emphasis on the vicarious liability claim. However, there is no doubt that the issue of vicarious liability was raised at trial. In his reasons for judgment, the trial judge specifically identified seven issues to be addressed, one of which was the following [at p. 233]:

If the defendants Mr. Landow and AIM Inc. are found to have bribed Mr. Summers but it is found that this was done without the knowledge of Sagaz, is Sagaz liable to the plaintiff on a basis of vicarious liability for the wrongdoing of Mr. Landow and AIM Inc.?

[8] The only findings of the trial judge on this point are three one-sentence, conclusory statements that AIM was an independent contractor in its relationship with Sagaz. London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299, 97 D.L.R. (4th) 261 was cited for the proposition that liability should not be imposed on Sagaz for the tortious acts of its independent contractors. While the trial judge made no detailed factual findings on this issue, the pertinent facts are not in dispute. The task of this court is to determine whether on those facts, it was open in law for the trial judge to dismiss the appellant's vicarious liability claim against Sagaz.

[9] The strongest evidence to support the finding that AIM was an independent contractor is the written agreement between Sagaz and AIM which specifically provides as follows:

3. AUTHORITY; RELATIONSHIP. AIM is and shall in all events be an independent contractor. AIM shall not have the authority to sign for or bind Sagaz, and nothing herein shall be construed as constituting AIM as the partner or legal representative of Sagaz.

[10] We were also referred to Kavana's evidence to the effect that Landow insisted upon the written agreement designating him as an independent contractor. Kavana testified that he understood this to mean that Landow and his company had no authority to sign on behalf of or to bind Sagaz. Mr. Goldenberg also referred us to extracts from the examination-for-discovery of Landow, read in at the trial by the appellant, in which Landow described himself as a "consultant". Landow also indicated that he acted in that capacity for many other companies in the United States, although in situations that were not competitive with Sagaz.

[11] The contract between Sagaz and AIM designating AIM as Sagaz's "independent contractor" does not determine the legal classification of AIM vis-à-vis Sagaz for purposes of vicarious liability. To determine whether one party is vicariously liable for the tortious acts of another, the court is required to scrutinize the facts carefully to determine the true nature of the relationship, rather than base the decision on the label the parties chose to attach to their relationship. Although it is a tax case, Wiebe Door Services Ltd. v. M.N.R., 1986 6775 (FCA), [1986] 3 F.C. 553, [1986] 5 W.W.R. 450 (C.A.) is apposite. The court rejected the contention that, with respect to third parties, a principal and agent could themselves control the legal categorization of the nature of their relationship by labelling it "independent contractor". McGuigan J. stated as follows (at p. 453): "Such an agreement is not of itself determinative of the relationship between the parties, and a court must carefully examine the fac ts in order to come to its own conclusion." In A. (C.) v. Critchley (1998), 1998 9129 (BC CA), 166 D.L.R. (4th) 475, 60 B.C.L.R. (3d) 92 (C.A.), the court held that vicarious liability attached despite the fact that, as between the principal and the agent, the relationship was described as that of independent contractor. McEachern C.J.B.C. wrote (at p. 503) that: "More recent authorities make it clear, however, that like so many formerly 'well established principles', this distinction between independent contractors and employees may be blurred in many cases where there are overlapping obligations." McEachern C.J.B.C added (at p. 504) that the "designation [of the agent] as an independent contractor may not be a significant factor in the modern law that tends to look not at traditional classifications but rather at the true nature of the relationship". In Jacobi v. Griffiths, 1999 693 (SCC), [1999] 2 S.C.R. 570 at pp. 606-07, 174 D.L.R. (4th) 71 at p. 99, Binnie J. referred, with apparent approval, to the Critchley approach, ". . . that it is the true nature of the relationship, not the traditional classification, that is determinative".

[12] In Mayer v. J. Conrad Lavigne Ltd. (1979), 1979 2088 (ON CA), 27 O.R. (2d) 129 at p. 132, 105 D.L.R. (3d) 734 (C.A.), MacKinnon A.C.J.O. described the determination of whether an individual is a servant or independent contractor as being "completely dependent on the facts". MacKinnon A.C.J.O. went on to refer to "the organization test", noting that it had been approved and applied by the Supreme Court of Canada in Co-operators Insurance Assn. v. Kearney, 1964 21 (SCC), [1965] S.C.R. 106, 48 D.L.R. (2d) 1. Reference was also made to Stevenson, Jordan and Harrison Limited v. MacDonald, [1952] 1 T.L.R. 101 were Lord Denning stated:

One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.

[13] MacKinnon A.C.J.O. applied the organization test in holding that a commission agent who sold advertising for a television station was in a master-servant relationship (at p. 133):

. . . the relationship satisfies the "organization" test. The respondent's work was a necessary and integral part of the appellant's business. It supplied the financial life-blood of the appellant, and his work was subject to the co- ordinational control of management. His work was clearly integrated into the business and not merely accessory to it. In my view, applying the common law tests, the facts establish that the respondent was a servant and employee of the appellant.

[14] These authorities indicate that the "organization test" inquires into whether the agent or servant functions as part of the principal's organization and whether an agent's work is done as an integral part of the principal's business. If the answer to these questions is yes, the principal is liable for the tortious acts of the agent even though, as between themselves, the principal and the agent have chosen to designate the relationship as that of independent contractor.

[15] The appellant also relies on the following passage from Fleming, The Law of Torts, 7th ed., at pp. 342-43:

At other times, the term "agent" crops up to designate someone through whose instrumentality the defendant has committed a tort of his own, as when he has authorised an "agent" to commit a tort or ratified it afterwards. It also includes situations "where the function entrusted is that of representing the person who requests its performance in a transaction with others, so that the very service to be performed consists in standing in his place and assuming to act in his right and not in an independent capacity". On this basis, an insurance agent was held to have made his principal answerable for defaming a competing company in the course of soliciting proposals, because "he was authorised to speak, and in fact spoke, with the voice of the defendant". Whereas in the ordinary case, an independent contractor carries out his work, not as a representative but as principal, here the agent acts in a genuinely representative capacity for a principal who is accordingly treated as if he were conducting the transactio n in person. The liability is therefore personal, not vicarious -- a true instance of Qui facit per alium facit per se.

(Footnotes omitted)

[16] The passages quoted by Professor Fleming are taken from the judgment of Dixon J. in Colonial Life Assurance v. Producers Assurance Co. (1931), 46 C.L.R. 41 (Aust. H.C.) at p. 48, where liability was imposed on an insurance company for defamatory statements made by an agent in soliciting business despite an explicit term in the agent's contract forbidding him from saying anything that would discredit or bring into disrepute any other person or institution.

[17] There is no doubt that AIM was a legal entity separate from Sagaz. AIM's offices were in New York whereas the offices of Sagaz were in Florida. Kavana testified that Landow was hired to represent Sagaz in Canada and that his duties on Sagaz's behalf were to obtain Canadian Tire's business and to maintain its goodwill. In the portions of Landow's discovery evidence, read in as part of the appellant's case, Landow stated that there was no requirement as to how much time AIM would have to spend on the affairs of Sagaz. He also stated that he decided for himself how many trips he should take to Toronto to promote Sagaz's business with Canadian Tire.

[18] Kavana testified that sales representatives, such as AIM, cover a territory and work with the sales manager or vice- president of sales. The sales representative "introduces the sales managers to the accounts" and "does the servicing of the account on a day-to-day basis". Sagaz relied on its sales representatives to "keep up the maintenance of the account". It is clear from Kavana's evidence that Landow and AIM did their work as part of the Sagaz team. In large part, no doubt, this was due to the fact that Canadian Tire did not wish to deal with external sales agents. Although AIM was hired to represent Sagaz, AIM did not initiate contact with Canadian Tire on its own. Kavana testified that initial contact with Canadian Tire was made by Sagaz's national sales manager, Mr. David English ("English"), who gave price quotations. The initial meeting with Canadian Tire was attended by Landow, English and Kavana. Following that meeting, revised price quotations were sent by English. Landow's role was limited t o presenting prices that were set and negotiated by Kavana and English. In his evidence, Kavana admitted that Landow worked in a joint effort with the in-house sales manager and that Landow required instructions with respect to price, terms and various other aspects of the business he was conducting on Sagaz's behalf.

[19] Apart from the AIM -- Sagaz agreement, the documentary evidence does not support a finding that AIM was acting in an independent capacity, outside the Sagaz organization, but suggests that AIM was acting throughout as part of the Sagaz organization. Quotations to Canadian Tire indicated that the account was a "house account". Kavana could not explain why neither Landow nor AIM was shown as the agent. Neither Landow nor AIM was shown on invoices as sales representatives. On one significant occasion, the letter of June 12, 1984, Landow communicated with Canadian Tire directly using Sagaz's letterhead. This letter was written at the time Sagaz was attempting to get Canadian Tire's business away from the appellant. While Kavana at first denied that Landow had been supplied with Sagaz's letterhead, he later admitted this to be the case on cross-examination. The June 12, 1984 letter was signed by Landow in his own name under "Sagaz Industries, Inc.". There is no reference to AIM. The letter confirmed price s and terms under which Sagaz would be prepared to supply Canadian Tire.

[20] In my view, on the evidence that was presented, the inevitable conclusion is that Landow and AIM were, at all material times, acting on behalf of Sagaz as part of the Sagaz organization and sales team. Neither Landow nor AIM was acting in an independent capacity. They worked under the direct supervision and direction of Sagaz and appear to have exercised no independent discretion on any significant matter in relation to dealings with Canadian Tire. They functioned as integrated elements of the Sagaz organization.

[21] It is my view that the trial judge erred in dismissing the claim against Sagaz based on vicarious liability for the acts of Landow and AIM. The evidence brings Landow and AIM squarely within the "organization test" for vicarious liability and it follows, accordingly, that Sagaz is liable to the appellant for the tortious conduct of Landow and AIM.

[22] It is not necessary to consider the alternate argument advanced by the appellant that by receiving the benefit of the wrongful activities of Landow and AIM, Sagaz attracted liability. I would point out, however, that the wrong committed by Landow and AIM fell squarely within the scope of their mandate to secure the business of Canadian Tire and that the wrong was committed in furtherance of the aims and objectives of Sagaz. Even though, on the findings of the trial judge, the wrongful acts were unauthorized by Sagaz, they fall within the category of "unauthorized acts so connected with authorized acts that they may be regarded as modes (albeit improper modes) of doing an authorized act" for which the principal is liable as distinct from "a random act wholly unconnected to the nature of the enterprise and the employee's responsibilities" for which the principal is not liable: B. (P.A.) v. Curry, 1999 692 (SCC), [1999] 2 S.C.R. 534 at pp. 543 and 548, 174 D.L.R. (4th) 45 at pp. 52-53 and 56, per McLa chlin J.

[23] It follows that Sagaz is liable for the tortious conduct of Landow and AIM. Vicarious liability should not, however, extend to the award of punitive damages, in view of the findings of the trial judge with respect to Kavana's lack of knowledge and participation in the bribery scheme: see: S.M. Waddams, The Law of Damages (Canada Law Book: Aurora, 1999 looseleaf), paras. 11.420-11.425.

Issue 2 -- Are the Trial Judge's Factual Findings With Respect to Kavana's Knowledge of or Participation in the Bribery Scheme Unreasonable?

[24] The trial judge accepted Kavana's evidence denying knowledge of and participation in the bribery scheme. The appellant submits that the trial judge's factual findings with respect to Kavana were unreasonable and ought to be set aside. The appellant contends that Kavana failed to explain some very suspicious circumstances and that he was successfully impeached on several crucial points on cross-examination.

[25] The circumstances in which an appellate court will substitute its own findings in the face of an explicit finding of credibility by the trial judge are, to say the least, exceptional. The best the appellant could hope for in the circumstances of the present case would be a new trial, and even that remedy will be rare where the trial judge has considered contested evidence and found a witness to be credible.

[26] The result of the first ground of appeal is to hold Sagaz liable. As will be seen below, I have concluded, under the third ground of appeal, that a new trial must be ordered with respect to Kavana's liability. In these circumstances, it is neither necessary, nor desirable, for me to deal with this ground of appeal.

Issue 3 -- Did the Trial Judge Err in Refusing to Re-Open the Trial to Hear the Evidence of Landow?

[27] The trial judge dismissed the appellant's motion pursuant to rule 59.06(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, reg. 194 to re-open the trial to hear the evidence of Landow. It was common ground between the parties before the trial judge and before this court that, in the circumstances of this case, the appellant had to establish two points:

1. that the evidence "might probably have altered the judgment", and

2. that the evidence "could not with reasonable diligence have been discovered sooner".

(See Becker Milk Co. Ltd. v. Consumers' Gas Co. (1974), 1974 545 (ON CA), 2 O.R. (2d) 554 at p. 557, 43 D.L.R. (3d) 498 (C.A.).) The trial judge found that the appellant failed to satisfy both elements. With respect to the first test, the trial judge concluded that he should not exercise his discretion in the appellant's favour because although Landow's evidence "may have" affected the result, he was not satisfied that it "would probably" have changed the outcome.

[28] With respect to the second branch, the trial judge found that Landow was available to be called as a witness at trial and that the appellant was stuck with counsel's tactical decision not to call him.

[29] In my view, the trial judge erred on both branches of the test. The affidavit evidence of Landow, if believed, would clearly implicate Kavana and Sagaz in the bribery scheme. Accordingly, there is no doubt that if the trial judge accepted the evidence as truthful it would have changed the outcome. The trial judge's refusal to re-open the trial on the grounds that Landow's evidence only "may have" changed the outcome, must have been based on the fact that Landow's evidence might not be believed.

[30] In this regard, I note that a recent English case dealing with a motion to re-open a trial, Charlesworth v. Relay Roads Ltd., [1999] 4 All E.R. 397 (Ch. D.) at p. 404, Neuberger J. adopted the test laid down by Lord Denning in Ladd v. Marshall, [1954] 3 All E.R. 745 at p. 748, [1954] 1 W.L.R. 1489 (C.A.) for admission of new evidence on appeal:

. . . first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; second, the evidence must be such that, if given, it would probably have an important influence on the result of the case, although it need not be decisive; third, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

While I think that these three factors should be in the forefront of the mind of the court when considering an application to admit new evidence after judgment has been handed down, but before the order has been drawn up, I incline to the view that the court is entitled to be somewhat more flexible, and not to proceed on the strict basis that each of these three conditions always has to be fully satisfied before fresh evidence can be admitted before judgment.

(Emphasis added)

I note that it has been suggested in Ontario as well that a more flexible approach may be warranted on motions to re-open a trial: see Castlerigg Investments Inc. v. Lam (1991), 1991 7355 (ON SC), 2 O.R. (3d) 216 at p. 223, 47 C.P.C. (2d) 270 (Gen. Div.); Scott v. Cook, 1970 331 (ON SC), [1970] 2 O.R. 769, 12 D.L.R. (3d) 113 (H.C.J.). In Canada, the test for admission of new evidence on appeal includes a similar criterion of credibility: "the evidence must be credible in the sense that it is reasonably capable of belief". (See R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759 at p. 775, 106 D.L.R. (3d) 212; R. v. Warsing, 1998 775 (SCC), [1998] 3 S.C.R. 579 at p. 592, 233 N.R. 319.)

[31] Landow was extensively cross-examined on his affidavit prior to the motion to re-open. It was not suggested before this court that his evidence was significantly undermined. In my view, it met the standard of "reasonably capable of belief" or "apparently credible, though . . . not . . . incontrovertible". In the circumstances of this case, I find it difficult to see how, without hearing Landow, the trial judge could say with a sufficient degree of certainty that Landow would not be believed. There are undoubtedly cases where a late blooming affidavit challenging findings of fact in reasons for judgment can be rejected out of hand. It is my view, however, that on this record, it was not sufficiently clear that Landow would be disbelieved, and that the appropriate approach in assessing the motion to re-open the trial was to consider whether Landow's evidence, if believed, might probably change the result.

[32] I also find that the trial judge erred with respect to the second branch of the test. There was uncontradicted affidavit evidence before the judge on the motion to re-open that before the trial the appellant made serious efforts to persuade Landow to co-operate and to testify against Kavana and Sagaz. Landow was a named defendant and was examined for discovery. On discovery, he maintained his own innocence as well as that of Kavana. Landow did not attend the trial, but he was represented by counsel throughout. It was only after the trial that he co-operated with the appellant by giving an affidavit confessing to his own wrongdoing and implicating Kavana in the scheme.

[33] In these circumstances, it is my view that the appellant satisfied the test of showing that Landow's evidence was not discoverable by reasonable diligence prior to the trial. It is difficult to see what more the appellant could have done. The appellant examined Landow under oath and made repeated efforts to secure his co-operation. Landow refused to co-operate and denied wrongdoing under oath. While Landow was available to testify, the evidence he is now prepared to give was not available until he changed his story. His change of heart and change of story after the trial qualify as evidence that could not have been discovered by reasonable diligence prior to trial.

[34] It is also my view that the motion to re-open should not have been dismissed on the ground that the appellant exercised a tactical choice not to call Landow at trial. The decision not to call Landow was made on the basis of the facts as they appeared at trial. Landow was a named defendant who gave sworn evidence on discovery denying any wrongdoing. The decision not to call him was made in that specific factual context. The facts have now changed significantly and, as I have already indicated, the appellant cannot be faulted for the change. This is quite unlike the situation (as in International Corona Resources Ltd. v. LAC Minerals Ltd. (1988), 1988 4534 (ON SC), 66 O.R. (2d) 610, 54 D.L.R. (4th) 647 (H.C.J.)) where counsel is aware of evidence that might or might not assist the case and decides, for tactical reasons, to pursue the case without calling that evidence.

[35] I note that the trial judge quite appropriately observed that the public interest in the finality of litigation must be taken into account and that the courts must be wary of motions to re-open for they have the potential to create an injustice. As was said in Charlesworth v. Relay Roads Ltd., supra, at p. 404, "there must be a strong presumption against letting [a litigant] have a second chance, particularly after he has seen in detail from the judgment why he has lost". However, it is my view that in refusing the appellant's motion to re-open the trial to hear Landow's evidence, the trial judge did not apply the appropriate principles and that it is open to this court to intervene.

[36] I would add here that we were not asked to consider whether a trial judge has a broad discretion to re-open the trial "to avoid a miscarriage of justice": see Castlerigg Investments Inc. v. Lam, supra; Scott v. Cook supra. As I have concluded that the appellant has met the test set out in Becker Milk Co. Ltd. v. Consumers' Gas Co.], supra, it is unnecessary for me to consider this issue.

[37] The result of my conclusion with respect to the vicarious liability issue is that Sagaz is liable to the appellants. The remaining issue is whether Kavana is personally liable by reason of his participation in the bribery scheme. In these circumstances, the appropriate order is to allow the appeal on the ground that the trial judge should have re-opened the trial to hear Landow's evidence and to order that there be a new trial on the issue of Kavana's liability before a different trial judge. I hardly need add that the findings that have not been appealed or reversed will bind the parties on the subsequent trial.

Cross-appeal

[38] The trial judge refused to award Sagaz and Kavana their costs against the appellant, but did make a "Sanderson order", awarding Sagaz and Kavana costs against Landow and AIM. Landow and AIM seek leave to appeal against that order. In view of the result of the main appeal, leave to appeal is granted and the costs award against Landow and AIM in favour of Sagaz and Kavana is set aside.

Conclusion

[38] For these reasons, the appeal and cross-appeal are allowed and paras. 4, 7, and 8 of the judgment are set aside. The appellant is entitled to judgment against Sagaz for the damages and prejudgment interest awarded in paras. 1 and 3. There shall be an order for a new trial with respect to the liability of Kavana. The appellants are entitled to their costs of the trial against Sagaz and their costs of the appeal against both Sagaz and Kavana. The cross-appellants are entitled to their costs of the appeal against Sagaz.

Appeal allowed.