Friday, March 11, 2016

Court of Appeal Rejects Lawyer's Application to Set Aside Fraudulent Misrepresentation Finding

In a recent decision - Meridian Credit Union Limited v. Ahmed Baig, 2016 ONCA 150  - the Ontario Court of Appeal affirmed a motion judge’s decision to grant summary judgment against the party who had made the motion despite the fact that the responding party had not made a cross-motion for judgment.  The court also upheld a finding by the motion judge that the defendant  was personally liable for fraudulent misrepresentation; failed to disturb the motion judge’s finding that the defendant could be held vicariously liable for his lawyer’s fraudulent misrepresentation; and refused leave of the lawyer, and his law firm, to introduce fresh evidence on appeal .  The court dismissed the lawyers' argument that they had a right to be heard and refused to set aside the findings of fraudulent misrepresentation the motion judge had made against them.


In this case, Meridian Credit Union Limited (“Meridian”) was a creditor in a court-appointed receivership.  The defendant, Ahmed Baig (“Baig”), agreed to purchase a building located on Bay Street in Toronto from the receiver for $6.2 million.  Unknown to the receiver and prior to closing, Baig agreed to resell the property to Yellowstone Property Consultants Corp. (“Yellowstone”) for $9 million.   The receiver claimed that had it known of this resale transaction, it would not have recommended that the court approve the sale to Baig.


Meridian subsequently discovered the resale transaction.  It had not recovered the full amount owing to it in the receivership.  The receiver assigned its cause of action against Baig to Meridian and Meridian then commenced an action against Baig for breach of contract and fraudulent misrepresentation.


The receiver had agreed to sell the property to Baig in trust for a corporation to be incorporated.  Before that transaction closed, Baig agreed to resell the property to Yellowstone.  Baig did not tell the receiver about the second agreement with Yellowstone.


Baig then retained the law firm of Miller Thomson to assist him with the transaction.  Peter Kiborn, who practiced law at Miller Thomson, acted for Baig in structuring the transaction.  Both Baig and Kiborn wanted to prevent the receiver from discovering the sale to Yellowstone because they believed that the $2.8 million difference in price would jeopardize court approval.  As a result, Kiborn informed the receiver that title was to be directed to Yellowstone on closing.   The receiver assumed that Yellowstone was Baig’s corporation incorporated for the purpose of the agreement.  Neither Baig or Kiborn,  or anyone else at Miller Thomson,  ever corrected that misunderstanding. 


At the summary judgment motion before Justice Frederick Myers of the Superior Court of Justice, Baig brought a motion for summary judgment dismissing Meridian’s claim.  Justice Myers dismissed that motion.  Instead he found Baig liable for fraudulent misrepresentation.  The Court of Appeal found that Justice Myers did not err by granting summary judgment against Baig.  Baig’s lawyers had submitted that all of the relevant evidence was before the court and had explicitly invited Justice Myers to render a decision in favour of either party.  Two recent decisions from the Court of Appeal make it clear that it is permissible for a motion judge to grant judgment in favour of the responding party even in the absence of a cross-motion for such relief. 


Justice Myers found Baig liable for two reasons.  He concluded Baig was liable for misrepresentations made by Miller Thomson – the documents delivered as part of the closing contained untrue statements.  Kiborn knew that these statements were false and he intended for the receiver to rely on them.  On the motion, Justice Myers noted a concession made by Baig’s lawyer, that Baig could be held liable for tortious misrepresentations made by his lawyers Miller Thomson.


Second, Justice Myers found Baig liable for his own personal conduct.  He held that Baig’s failure to correct the misimpression that Yellowstone was a corporation created by Baig amounted to a fraudulent misrepresentation.


Baig subsequently commenced an action against both Kiborn and Miller Thomson, claiming among other things, contribution and indemnity.  Miller Thomson and Kiborn obtained leave to intervene on the appeal.  In addition, they sought leave to introduce fresh evidence on the appeal.  The interveners sought to set aside the finding of Justice Myers that they had made fraudulent misrepresentations on the grounds that the motion judge breached the rules of natural justice and procedural fairness by making findings about them in their absence. 


The appeal was heard before Justices LaForme, Strathy and Huscroft.  The court’s decision was written by Justice LaForme.


The Court of Appeal dismissed Baig’s appeal and denied the interveners’ application for the following reasons.  The Court of Appeal reviewed the recent Supreme Court of Canada decision in Hyrniak v. Mauldin concerning proving civil fraud and noted that the record disclosed that Baig had engaged in actions that amounted to misrepresentation.  Both he and his counsel had actively concealed the agreement to sell to Yellowstone and had fraudulently misrepresented that Yellowstone was the corporation incorporated to close the sale with the receiver.  In certain circumstances, silence and half-truths can amount to a misrepresentation. 


At the appeal, Baig’s counsel attempted to withdraw his concession at the motion that Baig would be liable for any tortious misrepresentation made by his lawyers.  Justice LaForme found that it was inappropriate for Baig to withdraw such concession and argue for the first time on appeal that there was no basis for him to be held liable because he was protected by the corporate veil.  In any case, Justice LaForme found that Baig had made the fraudulent misrepresentations in his personal capacity.  Because that finding was upheld, Justice LaForme found it was not necessary to address whether Baig would be liable for his lawyers’ actions.


With respect to the interveners’ arguments, Justice LaForme denied their application to introduce fresh evidence on the appeal.  He held that the fresh evidence about why they did not intervene in the summary judgment motion was irrelevant to the issues raised and could not have affected the results of the motion. 


Justice LaForme also rejected the interveners’ argument that they had a right to be heard because Justice Myers had made adverse findings against them.  To the contrary, he held that they did not have a right to be heard or to receive notice.  As non-parties to the action, Miller Thomson and Kiborn were not directly impacted by the summary judgment order.  They were not bound by Justice Myers’ finding that they made fraudulent misrepresentations.  They were free to defend their reputations and argue in the action made against them by Baig that they never made fraudulent misrepresentations. 


Their main complaint was that Justice Myers’ publicly available reasons could damage their reputations.  Justice LaForme found that the authorities did not support the right in a civil action to notice of a non-party witness or to adduce evidence and make submissions whenever an adverse finding may be made.  Such procedural entitlements would impose too great a burden on the courts and threaten the finality of decisions.   Justice LaForme held that non-parties are limited to whatever procedural rights they have under the rules. 


Justice LaForme held that Miller Thomson and Kiborn were fully aware of the action and its potential impact on the claim against them.  In spite of this, they chose not to intervene, adopting a wait and see approach.  Now that a finding had been made with which they took issue, they believed that the finding should be set aside.  He held that non-parties should not be able to lurk in the shadows and then spring up to challenge a decision whenever the outcome or findings of fact may affect them in some manner they do not like.  



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