



COURT OF APPEAL FOR ONTARIO

CITATION: Paulus v. Fleury, 2018 ONCA 1072

DATE: 20181221

DOCKET: C65082

Feldman, Pardu and
    Roberts JJ.A.

BETWEEN

Bassman Paulus, Basma
    Paulus, and Rita Paulus and Ayad Paulus
both minors by their Litigation Guardian, Bassman Paulus

Plaintiffs (Appellants)

and

Michael W. Fleury

Defendant (Respondent)

Raymond Colautti, for the appellants

Vanda Santini and Alicia Tymec, for the respondent

Heard: October 15, 2018

On appeal from the
    order of Justice Thomas A. Heeney of the Superior Court of Justice, dated February
    20, 2018, with reasons reported at 2018 ONSC 1188.

Pardu
    J.A.:

A.

BACKGROUND

[1]

The plaintiffs appeal from the refusal of the
    motion judge to enforce a settlement reached at a pretrial 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 defendants counsel agreed to settle the claim for $850,000. Immediately
    after the pretrial, the defendants 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.
    Defendants counsel wrote to the plaintiffs counsel the next day to repudiate
    the settlement.

B.

MOTION JUDGES 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 pretrial, 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 counsels
    statement about the characteristics of the witnesses as a statement of fact,
    not opinion.

[6]

The motion judge concluded that the plaintiffs
    counsels 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 defendants allegation of civil fraud was
    central to the motion judges 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. (Executor and
    Trustee) v. Canadian Commercial Corp.
(2005), 76 O.R. (3d) 241 (C.A.), at
    para. 63, leave to appeal refused, [2005] S.C.C.A. No. 439; and
Midland
    Resources Holding Limited v. Shtaif
, 2017 ONCA 320, 135 O.R. (3d) 481, at
    para. 162, leave to appeal 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 defendants 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, 34 Admin. L.R. (6th) 183, released
    after his decision.
Groia
is relevant here because of its discussion
    of a lawyers 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 lawyers 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 counsels 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:

[7] That said, the Appeal Panels 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.
    Groias 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. Groias 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 counsels integrity must both be made in good
    faith
and
have a reasonable basis: at para. 84.

[15]

He shared the interveners 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 lawyers 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 lawyers 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 lawyers reputation. The potential for such
    a finding could have a chilling effect on counsels 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.
(1971), 18 D.L.R. (3d) 641, at p. 661. Moreover, resolute
    advocacy is a key component of the lawyers commitment to the clients 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,
    [2015] 1 S.C.R. 401, 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 clients
    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 Company
,
    2014 ONCA 558, at para. 6.

[19]

The duty of resolute advocacy has limits. As r.
    5.1-2(e) of the Law Society of Ontarios
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 counsels submissions will be rejected
    as unsustainable. By definition, a losing partys 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 counsels 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 counsels knowledge at
    the time of the pretrial. 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 defendants 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 counsels 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 lawyers position to conclude that his or her allegations lack
    a reasonable basis would discourage lawyers from raising well-founded
    allegations, impairing the lawyers 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 paragraph 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, counsels 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 Eftimovs 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 defendants 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 defendants counsel. Defendants
    counsel asked no questions about the witnesses at discovery. Defendants
    counsel knew the witnesses refused to speak to him. Four days before the
    pretrial in 2016, defendants 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
    defendants counsel and the adjuster elected to settle the case.

[35]

This case is analogous to
International
    Corona Resources Ltd. v. LAC Minerals Ltd.
(1988), 66 O.R. (2d) 610 (H.C.).
    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 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 pretrial occurred some eight years after
    the accident. It cannot be said that the defendants 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.

G. Pardu J.A.

I agree K Feldman
    J.A.

I agree L.B. Roberts
    J.A.

Released: December 21, 2018

KF





[1]

For example, plaintiffs counsel only learned after the
    pretrial 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 judges reasons, para. 48) There was no finding that at the time of the
    pretrial, plaintiffs counsel knew that the witnesses son lived across the
    street from the plaintiffs.


