Update: No Civil Fraud Says Ontario Court of Appeal – Overturning Paulus v. Fleury

December 21, 2018 | Michael Prosia

Earlier this year, the Ontario Superior Court of Justice refused to enforce a settlement after finding that the plaintiffs’ lawyer had engaged in civil fraud by misrepresenting the independence of two witnesses at a pre-trial conference.  In addition to refusing to enforce the settlement, the Court awarded $100,000 in costs payable by the plaintiffs on the failed motion to enforce settlement.

Today, the Ontario Court of Appeal overturned the decision, and agreed to enforce the settlement.  The Court of Appeal found that plaintiff counsel’s representations did not amount to civil fraud given the adversarial nature of litigation, and the fact that the representations were reportedly made in good faith (at para 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.

Furthermore, the Court of Appeal referenced the importance of finality in litigation, and expressed concerns that the pretrial occurred eight years following the accident (at para 36).

This pretrial 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.

In the result, not only was the $850,000 settlement found enforceable with $30,000 in costs payable on the appeal, but the $100,000 lower court costs award was also reversed and found payable to the plaintiffs.

Ultimately, the court left open the possibility that, on different facts, a settlement could be found unenforceable where civil fraud was committed; however, it appears these circumstances will be rare (at para 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.

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