Facts before the Court of Appeal
The plaintiffs and the defendant were involved in a car accident. At the pre-trial conference in their action for damages, plaintiffs’ counsel made submissions indicating 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”. As a result, defendant’s counsel agreed to settle the claim for $850,000. However, immediately after the pre-trial, defendant’s counsel received a call from his own investigator indicating that tax, mortgage, and insurance records revealed it was likely that the witnesses’ son lived across the street from the plaintiffs. Defendant’s counsel wrote to plaintiffs’ counsel the next day to repudiate the settlement.
Motion Judge’s Findings:
In an attempt to enforce the settlement reached at pre-trial, the plaintiffs’ argued before the motion judge that when their counsel described the witnesses as independent, he meant to indicate they could give evidence extrinsic to that of the plaintiffs. The motion judge rejected this interpretation and concluded that counsel had given the impression that the witnesses were “neutral witnesses, who had no connection to anyone in the case, and therefore had no reason to favour either side with their evidence, and would be credible and reliable witnesses at trial.”
The motion judge found that plaintiffs’ counsel knew the statement was untrue or was reckless as to its truth. 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 one of fact, not opinion. The motion judge concluded that plaintiffs’ counsel’s statement amounted to civil fraud and refused to enforce the pre-trial settlement.
The plaintiffs appealed the decision of the motion judge.
Analysis and Decision by the Court of Appeal
Test for Civil Fraud
Clearly, the finding of civil fraud would have a devastating effect on a lawyer’s reputation. Maintaining a reputation for practicing with integrity is a lifelong challenge. Once, lost, it may never be fully regained.
The test for civil fraud is the same as for the torts of deceit and fraudulent misrepresentation. As was stated by the Ontario Court of Appeal in Midland Resources Holding Limited v. Shtaif:
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.
Here, the Ontario Court of Appeal found the statement made by counsel about the witnesses to be an opinion, not a statement of fact. Counsel did not have the mental state or intention required for civil fraud. These were submissions made in the course of case prosecution. Further, the defendant’s lack of due diligence barred it from setting aside the settlement. Otherwise, there would be a fear in all counsel’s mind about advocating resolutely for their clients. Statements or submissions by counsel amount to civil fraud only when there is no reasonable basis for them or where counsel is knowingly misleading the court. The hallmark is good faith.
This position was premised on the findings of the Supreme Court of Canada in Groia v. Law Society of Upper Canada which highlights the importance of counsel’s duty of resolute advocacy in advancing the interest of their clients.
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), 1971 CanLII 389 (ON CA), 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 (CanLII),  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 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.
The corollary to this duty is that counsel does not owe the same duty to the opposing party. In every trial, counsel will have opposing submissions but only one set will be accepted. The losing counsel will have made factual or legal arguments that were rejected. The concept that judicial disagreement makes the losing counsel guilty of civil fraud is incompatible with zealous advocacy.
The Court of Appeal held that counsel’s statement did not amount to civil fraud, that there was a reasonable basis for his statement, and that the statement was made in good faith.
The statement made about the witnesses was an expression of opinion with a reasonable basis for doing so. Although plaintiffs’ counsel was aware that the witnesses knew the plaintiffs, the nature of the acquaintance was unknown. They saw the accident and had nothing to gain from the result. It was a legitimate exercise in advocacy. Had he made the same statement to the jury, there would have been no complaint.
There is no basis to conclude that plaintiff’s counsel did not act in good faith. His description of the witnesses as independent had been asserted by him in the past to his own clients. Lawyers make mistakes. They also understand that they may lose credibility with other counsel and the courts if they are not careful with the factual statements they make or suggest arguments without any reasonable foundation.
It was unreasonable to conclude that plaintiff’s counsel intended opposing counsel to rely on his submissions. This was an adversarial process. Such intent is an essential element of the tort of civil fraud. None existed here.
The Defendant’s Conduct
A party seeking to set aside a judgement/settlement by reason of fraud must establish their own due diligence and that the questions to be asked are “what did the moving party know, and what ought they to have known?” Here, the witnesses statements were produced long before the pre-trial, yet defendant’s counsel did not ask any questions about the witnesses at discovery and despite having concerns about the witnessess’ credibility, defendant’s counsel agreed to settle the case before receiving a report from their investigator. Accordingly, defendant’s counsel did not act with due diligence.
At Milosevic & Associates, our team of Toronto corporate commercial lawyers regularly represent clients in complex commercial litigation matters ranging from straightforward contract and partnership disputes to complex multi-party commercial claims including dealing with claims of oppression. Over the years, our team of exceptional litigators has seen it all and has successfully fought for our clients’ rights with resolute advocacy and with integrity. Our impressive track record speaks for itself. Call us at 416-916-1387 or contact us online for a consultation.