Law Society Ordered to Pay $1.3 Million in Costs

Law Society of Upper Canada v. DeMerchant, 2017 ONLSTA 5

 

In this case, the Appeal Division of Ontario's Law Society Tribunal, ordered the Law Society of Upper Canada (“LSUC”) to pay $650,000 each to Beth DeMerchant and Darren Sukonick, two lawyers at Torys LLP who were successful in defending themselves against professional misconduct allegations brought by the LSUC.  The LSUC had alleged that the lawyers had acted in a conflict of interest while working on the sale of Conrad Black’s Hollinger Group of Companies.  Both lawyers have since retired from the practice of law.

 

The legal saga lasted 11 years and ended with the Appeal Division of the Tribunal finding that the hearing should never have taken the nearly 140 days that it took.  The Tribunal found the Law Society bore the lion’s share of responsibility for its length.  The LSUC’s definition of the issues, its approach to examination and its lack of focus on the legal test for conflicts of interest were the largest factors in a hearing whose time and costs were grossly disproportionate to the issues at stake.   In the end the Appeal Division found that approximately 110 hearing days were wasted and were not necessary. 

 

The LSUC first learned of an issue between Torys and Hollinger International Inc. from a Globe and Mail article in 2005.  It instituted an investigation into the lawyers' professional conduct.  The allegations included that the lawyers may have acted in a conflict of interest. 

 

In November of 2008, the LSUC concluded that there had been a conflict of interest which impacted the lawyers' ability to represent the legal interests of their clients.  The LSUC’s Proceeding Authorization Committee (“PAC”) then authorized an application for professional misconduct against the lawyers.

 

A hearing panel of the LSUC tribunal held that the proceedings were not unwarranted and that there was a significant public interest in the issues and that it was appropriate for the LSUC to conduct an investigation. 

 

These findings were overturned by the Appeal Division in part.   It held that there were multiple issues that both individually and combined warranted PAC’s decision to commence the application.  There was no evidence of bad faith nor was the application doomed to fail. 

 

However, the Appeal Division criticized the LSUC harshly on the conduct of the hearing. 

 

It held that typically allegations of conflict of interest would, if proven, likely have led to no more of a short suspension.  The LSUC attempted to prove that the lawyers’ conflict had manifested itself in misjudgments in their work for the corporations that resulted from preferences for the interests of executives of the corporations.  The theory of the LSUC's case was that the lawyers should have taken steps when working on the transactions to protect the public companies from exploitation by the executives.  These were serious allegations but importantly did not form part of the legal test for conflict of interest.

 

The hearing started on April 26, 2010 and completed on December 13, 2012, after nearly 140 days of hearing.  The hearing panel found that after the lawyers had presented their expert evidence about general practice in the corporate bar, the proceedings became unwarranted and the LSUC should have re-evaluated its case. 

 

On appeal, the Appeal Division found that continuing after the lawyers’ expert evidence was not the fundamental problem.  A valid legal theory of conflict of interest continued to exist but the problems with the case and how the LSUC conducted the hearings started long before that.

 

The Appeal Division found that the time taken by the LSUC to present its case was unprecedented in the history of LSUC discipline proceedings.  It began with a four day opening statement, conducted cross-examinations of the lawyers for more than 40 hearing days.  It found that the LSUC had acted unreasonably and caused costs to be wasted throughout the hearing by disregarding the need for the proceedings to be proportionate to the issues at stake in their seriousness; failing to focus its evidence in cross-examination on the test for conflict of interest; conducting argumentative cross-examinations of unprecedented length and detail that added little to the analysis and were not justified by the issues at stake in the case; and taking issue with detailed aspects of the lawyers’ work in a complex and specialized area of practice with no expert or other evidentiary support.

 

The tribunal held that it was important to explicitly acknowledge in its reasons the stress the proceedings had put on the lawyers given the pall that hung over their careers for longer than it should have, the months they spent in the hearing room dealing with these allegations and the evident strain of so many days on the witness stand under cross-examination. 

 

In addition, it found that the LSUC had wasted costs without reasonable cause throughout the hearing.  Its conduct at the hearing was entirely disproportionate to what was at stake.  The LSUC did not focus on the key elements of the test for conflict of interest.  Cross-examinations focused on unimportant details, were repetitive and argumentative.

 

In calculating the costs, the Appeal Division found that the lawyers should be awarded costs of approximately 110 hearing days.  Counsel representing the lawyers had practiced for over 20 years and the hourly rate for lawyers with that level of experience under the LSUC’s current tariff was $350.  This resulted in an award of $650,000 each (as opposed to the $1.8 million that they were seeking).   The LSUC also awarded the lawyers costs of the appeal of $17,500.

 

In March of 2017, the lawyers commenced an action against the LSUC claiming over $2 million in damages for misfeasance in public office, negligent investigation, abuse of process, malicious prosecution and libel.  There will be much to follow on this case.  

Regards,

Blair

 

Court Breathes New Life Into Summary Judgment Process

For many years, Ontario litigation counsel cautioned their clients against making motions for summary judgment, even when they believed that the client's case was strong, because of the expense, delay and uncertainty inherent in making such motions.  Under Ontario's Rules of Civil Procedure, summary judgment was available where the court was satisfied that there was no genuine issue requiring a trial.  However, issues of credibility were often viewed by motion judges as "genuine" issues that required a trial to resolve.  In addition, motion judges had limited fact finding powers.

 

In 2010, the summary judgment rule was amended based on the recommendations of former Associate Chief Justice Coulter Osborne.  The new rules gave a judge hearing a motion for summary judgment the powers to weigh evidence, evaluate the credibility of a witness and to draw inferences from the evidence.  In the Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA764, a five judge panel of the Ontario Court of Appeal explained the effect of the 2010 amendments and adopted a new "full appreciation test" that judges should use to decide whether a trial was required.  Under this test, the motion's judge must assess whether a trial was necessary to enable the court to fully appreciate the evidence and issued posed by the case.  The Court of Appeal held that summary judgment should be granted only where the benefits of the trial process are not required to achieve a "full appreciation" of the evidence.  

 

While the Court of Appeal meant to be helpful in articulating the "full appreciation test", motion judges were still reluctant to grant summary judgment in cases where they considered that a trial would ensure "fairness" in resolving a dispute.

 

In a recent decision of the Supreme Court of Canada (Hryniak v. Mauldin, 2014 SCC 7), the court held that a "shift in culture" in the approach to summary judgment cases was required.  The court held that, far from ensuring it, undue process and protracted trials, with unnecessary expense and delay, could prevent "fairness" in the dispute resolution process.  The court ruled that if the process is disproportionate to the nature of the dispute and the interest involved, it will not achieve a fair and just result.  

 

The court recognized that the summary judgment rule was amended to improve access to justice.  However, failed or even partially successful summary judgment motions only added to costs and delay.  The court set out to address those concerns in this case.  In its decision, written by Justice Karakatsanis, a former judge of the Ontario Court of Appeal, the Supreme Court rejected the "full appreciation test".  It held that the new fact-finding powers granted to motion judges under the new rules may be employed on a motion for summary judgment unless it is in the interest of justice for them to be exercised only at trial.  These new powers included hearing oral evidence, deciding issues of credibility and making findings of fact. 

 

Justice Karakatsanis held that the power to hear oral evidence should be employed when it allows the motion judge to reach a fair and just adjudication on the merits and it is the "proportionate" course of action.  Where a party seeks to lead oral evidence, it should be prepared to demonstrate why such evidence would assist the motion judge and to provide a description of the proposed evidence so that the judge will have a basis for setting the scope of the oral evidence.  

 

The Supreme Court ruled that on a motion for summary judgment under the new rules, the judge should first determine whether there is a genuine issue requiring trial based only on the evidence before him without using the new fact finding powers.  If there appears to be a genuine issue requiring a trial, he should then determine if the need for a trial can be avoided by using the new powers under the rules.  Justice Karakatsanis held that the use of such powers will not be against the interest of justice if they lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.  

 

Then, if summary judgment is unsuccessful or only partially successful, the judge should make use of the trial management powers provided in the rule and the court's inherent jurisdiction to craft a trial procedure that will resolve the dispute in a way that is sensitive to the complexity and importance of the issue, the amount involved in the case and the effort expended on the failed motion.  

 

All of this leads to the obvious conclusion that parties will make motions for summary judgment more frequently, even where they are not confident of success, with a view of taking advantage of the proportionality course of action or to utilize the court's trial management powers of the new rules if the motion fails.  

 

Regards,

 

Blair