Monday, June 29, 2015

Public Confidence in the Administration of Justice and the Appearance of Judicial Impartiality: Court of Appeal in Hazelton ONCA 793




COURT OF APPEAL FOR ONTARIO

CITATION: Hazelton Lanes Inc. v. 1707590 Ontario Limited, 2014 ONCA 793
DATE: 20141112 DOCKET: C57686, C58205 and C58206

Sharpe, Simmons and Benotto JJ.A.

BETWEEN

Hazelton Lanes Inc. and Stephen Chan

Plaintiffs (Respondents)

and

1707590 Ontario Limited and John Faraci, Adriana Verrelli, Susete Antunes, Rose Sperandeo, 1203279 Ontario Limited, and Isis Societe Co. Ltd.

Defendants (Appellants)

Milton A. Davis, Ronald D. Davis and Robert Macdonald, for the appellants William A. Chalmers, for the respondents
Heard: June 23, 2014

On appeal from the orders and judgments of Justice P. Theodore Matlow of the Superior Court of Justice, dated September 16, 2013, October 15, 2013 and

November 8, 2013 and December 23, 2013.


  

A.                 REASONABLE APPREHENSION OF BIAS


[58] The test for reasonable apprehension of bias is that set out in de Grandpr√© J.’s dissenting opinion in Committee for Justice and Liberty v. Canada (National Energy Board) (1976), [1978] 1 S.C.R. 369 (S.C.C.), at pp. 394-95, which reads as follows:
[T]he apprehension of bias must be a reasonable one, held by reasonable and right minded persons, applying themselves to the question and obtaining thereon the required information…. [The] test is what would an informed person, viewing the matter realistically and practically and having thought the matter through conclude. Would he think that it is more likely than not that [the decision-maker], whether consciously or unconsciously, would not decide fairly.

[59] The Supreme Court of Canada has repeatedly endorsed this test. In his reasons in R. v. S. (R. D.), [1997] 3 S.C.R. 484, Cory J. explained, at para. 111, that the test set down by de Grandpr√© J. in Committee for Justice and Liberty contains a “two-fold objective element”: not only must the person considering the alleged bias be reasonable, but “the apprehension of bias itself must also be reasonable in the circumstances of the case.”
[60] It has also been held that, in order to maintain public confidence in the administration of justice, the appearance of judicial impartiality is as important as the reality. In Metropolitan Properties Co. (F.G.C.) Ltd. v. Lannon, [1968] 3 All E.R.     304 (C.A.), at p. 310, Lord Denning M.R. stressed the importance of the appearance of judicial impartiality. He said:
[I]n considering whether there was a real likelihood of bias, the court does not look at the mind of the justice himself.... It does not look to see if there was a real likelihood that he would, or did, in fact favour one side at the expense of the other. The court looks at the impression which would be given to other people. Even if he was as impartial as could be, nevertheless, if right- minded persons would think that, in the circumstances, there was a real likelihood of bias on his part, then he should not sit. And if he does sit, his decision cannot stand.

[61] This passage was cited with approval by Major J. in his dissenting reasons in S. (R. D.), at para. 11, and by this court in Benedict v. Ontario (2000), 51 O.R. (3d) 147.  In Benedict, this court added, at para. 20:
We note that while Lord Denning M.R. spoke in terms of a “real likelihood” rather than a “reasonable apprehension”, in National Energy Board de    Grandpr√©
J. took care to state that such variations in the expression used should not generally be treated as involving any substantive difference in the approach to be taken. “Reasonable apprehension”, “real likelihood”, “reasonable likelihood” and “reasonable suspicion” amount to the same standard.

[62] This reasoning accords with the decision of Lord Nolan in R. v. Bow Street Metropolitan Stipendiary Magistrate et al., [1999] 1 All E.R. 577 (H.L.), at p. 592: [I]n any case where the impartiality of a judge is in question the appearance of the matter is just as important as the reality.

[63] The appearance of impartiality was emphasized  in  Wewaykum  Indian Band v. Canada, [2003] 2 S.C.R. 259, at para. 66:
[W]here disqualification is argued, the relevant inquiry is not whether there was in fact either conscious or unconscious bias on the part of the judge, but whether a reasonable person properly informed would apprehend that there was.

[64] A review of this court’s recent statements in Chippewas of Mnjikaning First Nation v. Ontario, 2010 ONCA 47, 265 O.A.C. 247, leave to appeal to S.C.C. refused, [2010] S.C.C.A. No. 91, at paras. 229-30, and Marchand (Litigation Guardian of) v. Public General Hospital Society of Chatham (2000), 51 O.R. (3d) 97, leave to appeal to S.C.C. refused, [2001] S.C.C.A. No. 66, at para. 131, reveals the following principles for assessing a claim of reasonable apprehension of bias that are particularly applicable in this case:
·         “Impartiality reflects the state of mind in which the judge is disinterested in the outcome and is open to persuasion by the evidence and submissions. In contrast, bias reflects a state of mind that is closed or predisposed to a particular result on material issues”: Marchand, at para. 131.
·         The threshold for a finding of reasonable apprehension of bias is high. “Courts presume that judges will carry out their oath of office”:  Marchand, at para. 131.

·         To determine that a reasonable apprehension of bias exists requires “a fact-specific inquiry” that considers “the facts and circumstances of a particular trial”: Chippewas, at para. 230.
·         “The party alleging reasonable apprehension of bias has the onus of proving it on the balance of probabilities”: Marchand, at para. 131.
·         The grounds for finding a reasonable apprehension of bias must be substantial; establishing an allegation of judicial bias requires “cogent evidence”: Marchand, at para. 131.
[65] If a judge’s words or conduct give rise to a reasonable apprehension of bias, it colours the entire trial. Therefore, on appeal, a finding of actual or apprehended bias will ordinarily result in a new trial”: Marchand, at para. 131.

B.                 ANALYSIS


[66] In my view, an informed person, viewing the trial  judge’s  conduct realistically and practically, would reasonably conclude that at least three aspects of that the trial judge’s conduct, taken together, give rise to a reasonable apprehension of bias:
i)                    statements and findings made during the trial indicating that the trial judge had prejudged Faraci’s conduct and credibility – namely, the trial judge’s interjections and adverse comments on Faraci’s credibility during Faraci’s cross-examination; his suggestion that plaintiffs’ counsel bring a Mareva injunction motion; and his findings on the Mareva injunction motion and a related ruling that Faraci had engaged in a fraudulent scheme to divest himself of assets;
ii)                  the 19 directions for mid-trial production of masses of documents that had not previously been requested and the relevance and probative value of which had not been established; and
iii)                the finding that Faraci and 170 were in contempt for failing to comply fully with the 19 mid-trial directions, where the ruling contained no analysis of the extent to which Faraci and 170 had complied or of the validity of their reasons for any non-compliance.

(1)               Statements and Findings Made During the Trial Concerning Faraci’s Conduct and Credibility

(a)               Interjections and Comments During Faraci’s Cross-Examination

[67] On November 21, 2012, soon after Faraci’s cross-examination began, the trial judge interjected and made comments to the effect that Faraci’s evidence “defie[d] common sense” and was “gobbledygook”.
[68] The first interjection occurred after Faraci acknowledged that he had paid higher than market rent for the office space he occupied at Hazelton Lanes to create artificial income for Hazelton. Faraci maintained that this arrangement was not illegal so long as it was disclosed to prospective lenders or purchasers.  According to him, “the key” was how “the document was usedand whether it was disclosed to third parties.
[69]    In   response    to   this   evidence,    the   trial   judge    challenged    Faraci’s explanation:
THE COURT: Mr. Faraci, your explanation,  with respect, defies common sense. Now, I want to give you a chance to re-think it.

What would be the point of setting up, what I think is a scheme, if it weren’t to deceive somebody with the information that appears in financial records or statements and things like that. There would be  no point, would there, in setting up this kind of scheme and then going and telling the lender or the purchaser what the true facts are.

So you knew, I’m sure – I shouldn’t put it that strongly  I put it to you that you must have known that Mr. Chan was going to use this for an improper purpose.

THE WITNESS: I knew I was paying a higher rent, Your Honour

THE COURT: Come on, Mr. Faraci, think about it carefully. This wasn’t done for some business reason or tax reason or some other bon[a] fide reason. This was done to set the table so that Mr. Chan could mislead other people about what the true income of Hazelton Lanes was.

THE WITNESS: According to my lease, if he used it for those purposes, that’s fine, that’s fine.

THE COURT: Mr. Faraci, I give up. I won’t pursue it with you. [Emphasis added.]




[70] After this exchange, the trial judge put it to Faraci that the whole purpose of the inflated rental scheme would fail if Chan disclosed it to lenders or purchasers. Faraci agreed. The trial judge then suggested there was no reason for Faraci to engage in the scheme unless he was prepared to close [his] eyesto what Chan was doing. In response, Faraci maintained that his role was to tell Chan whether a particular tenant was a strong tenant or a weak tenant. The trial judge described explanation as “gobbledygook”, “not making sense”, and “not addressing the point”. Excerpts of these portions of Faraci’s cross-examination are included in Appendix B” to these reasons.
[71] Considered in isolation, these comments could be viewed as reflecting nothing more than a trial judge’s exasperation with a difficult witness. However, considered in the context of the trial judge’s other conduct that suggests that he prejudged Faraci’s conduct and credibility, they form part of a pattern that gives rise to a reasonable apprehension of bias.

(b)               The Suggestion that Plaintiffs’ Counsel Bring a Mareva Injunction Motion

[72] I have reviewed the genesis of the Mareva injunction motion above. I note simply that, whenever granted, a Mareva injunction is an extraordinary remedy. It provides a moving party with broad relief before the issues in the case are determined. The granting of such relief is exceptional. Granting such relief mid- trial is even more exceptional.


 [73] Here, the trial judge suggested that a mid-trial Mareva injunction motion would be appropriate. The suggestion that the respondents might reasonably bring a mid-trial motion for such extraordinary relief creates an appearance that the trial judge had prejudged Faraci’s conduct and that he was aligning himself the respondents. This conduct by the trial judge contributes to the appearance of a reasonable apprehension of bias. Further, as I will explain, this appearance of bias is confirmed by the trial judge’s reasons for granting the Mareva injunction he had suggested.

(c)               The Trial Judge’s Mid-Trial Findings Concerning Faraci’s Conduct and Credibility

[74] In his reasons for granting the Mareva injunction, excerpts of which are set out below, the trial judge found that Faraci had engaged in a fraudulent scheme to divest himself of assets. As the trial judge himself later noted in his reasons for denying the recusal/mistrial motion (which were delivered after the appellants filed their notice of appeal of the contempt motion), he should have done no more in his reasons on the Mareva injunction motion than state that the evidence gave rise to a prima facie case. By going further and making findings, the trial judge effectively prejudged at least some of the issues on the added claims and commented adversely on Faraci’s honesty and credibility:
During his cross-examination … [Faraci] described how he has, since about 2001, systematically divested himself of his assets and has become judgment proof. His scheme for achieving this objective was carried  out in concert with the new defendants with whom he engaged in numerous non-arm’s length  transactions and to whom he effectively transferred large sums of money.… As part of their role in Faraci’s fraudulent scheme, the new defendants provided Faraci with cash from time to time for his personal day to day needs as he request[ed] it. I am persuaded that those payments were really a return to Faraci of his own money by those to whom he transferred it to hold for him in order to conceal the extent and whereabouts of his own wealth….

Accordingly, I have concluded that I must  take what may be seen as a very unusual, perhaps unprecedented, step in the interests of justice by granting the order that is described below. Otherwise, Faraci will likely continue to abuse the civil justice system by engaging it without any financial risk. [Emphasis added.]

[75] The trial judge’s subsequent statements, in an endorsement dated September 16, 2013, concerning whether the Mareva injunction should continue as against the added defendant Susete Antunes only add to the perception that the trial judge had drawn adverse conclusions about Faraci’s conduct and credibility:
The evidence of Antunes and Faraci, viewed separately and together, has no air of reality and, when compared, are in conflict on many important factual issues. Both Antunes and Faraci will have to deal with serious issues relating to credibility if this action is ultimately tried. As well, all of their evidence must be viewed in light of Faraci’s earlier admission, made without  any reasonable explanation, that he has already dissipated all of his assets and survives only with the generosity of persons such as Antunes who are willing to provide him with money from time to time when he requests it. [Emphasis added.]


 [76] Taken together, these comments add to the perception of a reasonable apprehension of bias. In my view, a reasonable person would inevitably conclude that the trial judge granted and continued the injunction because he had prejudged the conduct and credibility of Faraci and those associated with him.

(2)               The 19 Mid-Trial Directions for Production of Documents


[77] According to respondents’ counsel, his cross-examination of Faraci was longer than it should have been for two reasons, both of them Faraci’s fault. First, Faraci was evasive, unresponsive and generally uncooperative in his cross- examination. Second, respondentscounsel was required to address with Faraci in his cross-examination various extraneous issues that Faraci attempted to add to the lis between the parties in the action. To deal with these issues, respondents’ counsel was required to obtain production of related documents.
[78] While acknowledging that most, if not all, of the productions sought were for the purpose of challenging Faraci’s credibility, respondent’s counsel submits that a review of Faraci’s cross-examination demonstrates that the 19 directions for mid-trial productions were appropriate and necessary.
[79] I agree that a review of Faraci’s cross-examination reveals that he was an evasive, unresponsive and generally uncooperative witness. Otherwise, I reject respondents’ counsel’s submissions.


 [80] On my review of the transcript, respondents’ counsel launched into many areas of cross-examination that were extraneous to the issues at trial. Moreover, in many, if not most instances, the documents he requested were of little, no or unknown relevance to the issues at the trial. Where the requested documents may have been of some relevance generally to Faraci’s credibility much more modest directions for production would have sufficed. If such documents were not produced, then it would have been open to the trial judge to draw an adverse inference from their non-production.
[81] Instead of taking a realistic and proportionate approach to production (or curtailing the various lines of cross-examination), the trial judge directed and oversaw production of masses of documents mid-trial, without analyzing the potential relevance or probative value of the documents at issue and without considering the impact of his directions on trial efficiency and fairness.
[82] Considered globally, in my opinion, the number, breadth and fundamental lack of relevance of the documents that were the subject of the 19 directions for production create an appearance that the trial judge was disdainful of Faraci  and 170 and that he was prepared to accede unquestioningly to respondents’ counsel’s production requests. In effect, the trial judge aligned himself with the respondents on the production issue and lost all sense of what was proportionate and necessary to preserve trial fairness and efficiency. Two examples will suffice to illustrate these points.
[83] The first example begins with respondents’ counsel’s cross-examination of Faraci about Faraci’s understanding of 170’s obligation to pay rent to Hazelton.
[84] Faraci claimed that 170 was not obliged to pay rent if it did not receive funds from Chan or his companies. Respondents’ counsel pointed out that rent had been paid in response to notices of default issued by Hazelton on two occasions in 2011, albeit under protest, which was after Faraci claimed that Chan and his companies had stopped sending rent monies.
[85] As part of the flow of this cross-examination, Faraci revealed that the funds to pay the rent had been supplied by others. On receiving this information, respondents’ counsel began questioning Faraci about how he had arranged his affairs.
[86] This in turn, led to questions about Faraci’s ability to pay the amount demanded for rent immediately prior to Hazelton re-entering 170’s premises and terminating its tenancy.
[87] As a result of this questioning, respondents’ counsel requested, and the trial judge directed that Faraci produce, numerous documents relating to his personal financial affairs. For example, Faraci was directed to:
·         contact his former counsel and obtain details of all judgments filed against him of which his former counsel is aware;


       ·         produce all bank documents pertaining to his personal and corporate bank                 accounts, from the beginning of 1998 to the date of trial; and
·         produce copies of all statements, invoices, bills, and all other documents pertaining to payments received and expenses incurred by Faraci in his provision of legal services to clients in 2010 and 2011.
[88] The trial judge gave these directions before Chan and Hazelton had amended their pleadings to allege fraud and conspiracy. In the circumstances, the documents had no apparent relevance to the issues then pleaded. In effect, the trial judge permitted respondents’ counsel to turn Faraci’s cross-examination into a judgment-debtor examination. As I have said, by doing so, the trial judge appears to have aligned himself with the respondents, which contributed to the appearance of a reasonable apprehension of bias.
[89] The second example involves the trial judge’s  direction  to  Faraci  to produce all documentation relating to his trust accounts, including bank account statements, ledgers, and reconciliations, from 1998 to the date of trial.
[90] The request for the direction arose initially out of Faraci’s evidence that he may have deposited a cheque he received in June 2006 for $376,686.45 in relation to his 3% interest in Hazelton Lanes into his trust account. Respondents’ counsel wanted an explanation of how Faraci disbursed those funds. The requested direction expanded further so that respondents’ counsel could  explore the flow of funds into and out of Faraci’s trust account relating to Chan’s claim for the return of $20,000 paid to Faraci in 1998 for a deposit on a real estate transaction. The direction was further expanded so that respondents’ counsel could verify whether Faraci had received any funds from Chan to pay as inducements to other tenants.
[91] The problem with respondents’ counsel’s requests is twofold. First, the documents had not been requested in advance of trial as part of the normal process of production and discovery. Second, with limited exceptions, the requested documents could not assist in resolving the issues at trial.
[92] What Faraci did with the $376,686.45 he received in 2006 was irrelevant to the issues at trial.
[93] As for the $20,000 advanced by one of Chan’s companies to serve as a deposit, Faraci acknowledged receiving the funds but claimed that Chan had authorized him to apply them to his legal fees. It was up to Faraci to show when and based on what authorization the funds were disbursed from his  trust account. How a broad review of the flow of funds into and out of his trust account might assist the respondent is not apparent. A direction requiring Faraci to produce the trust ledger and any related documents demonstrating when the trust  funds  were  disbursed  and  how  this  was  authorized  would  have  been sufficient. Had Faraci failed to produce documents relevant to proving his case, it was open to the trial judge to draw an adverse inference.
[94] Concerning the possibility that Faraci had received funds from Chan, deposited them into his trust account and then paid them out as tenant inducements, it was Faraci who was claiming that Chan had paid tenant inducements. Accordingly, it was up to Faraci to prove it. Moreover, other than perhaps in relation to one transaction, Faraci did not assert that Chan had given him money for tenant inducements that he deposited into trust and then paid out. It was therefore unnecessary for respondents’ counsel to disprove such an allegation.
[95] Based on the breadth and scope of this direction, it is apparent that it required production of a significant number of documents. The trial judge himself acknowledged that the documents he was directing Faraci to produce were of uncertain relevance. As he stated in making this direction, “I want Mr. Faraci to come with [a] large box of trust related records tomorrow [a]nd we’ll see if they are admissible, relevant and all that.”
[96] The fact that the trial judge would make  a  direction  involving  such extensive production with no apparent purpose related to resolving the issues at trial contributes to the appearance that he had aligned himself with the respondents, and to the creation of a reasonable apprehension of bias.




(3)               The Trial Judge’s Contempt Ruling


[97] In his September 16, 2013 endorsement finding the appellant in contempt, the trial judge noted factors indicating that 170 and Faraci were fully aware of the trial judge’s directions for production and what they required. He gave the following additional reasons for his finding of contempt:
I am persuaded beyond a reasonable doubt that the Faraci defendants have wilfully engaged in ongoing efforts throughout this trial to delay it and impede the efforts of the plaintiffs to bring this action to the moment of judgment. The failure of Faraci to comply with my orders has been part of that strategy. He has partially complied, in drips and drabs, only when pressured by my orders and the prospect of being found in contempt and punished. He has rarely done what he has been ordered to do within the time limits prescribed. To the extent that he has complied, he has routinely done so in a way that makes it difficult to examine the fruits of his efforts.

When Faraci was cross-examined by [counsel for Hazelton and Chan], he was questioned on issues related to the extent of Faraci’s compliance with my orders. Many of those questions were met with Faraci’s refusal to answer on the advice of his  present counsel…. That advice, and Faraci’s refusals as disclosed in the transcript of evidence, were not only wrong but unreasonable. In these circumstances, I draw an inference adverse to the Faraci defendants. This conduct supports my findings that the conduct on the part of Faraci that constitute contempt was wilful and deliberate. There is no other reasonable inference that can be made.

Faraci’s conduct throughout this trial has been consistent with his strategy to obstruct and delay this trial.…




Faraci’s strategy must not be allowed to succeed. His ongoing efforts to hijack this trial are an affront to the administration of justice. Unless I interfere, they will also threaten the plaintiffs’ right to a fair trial.

[98] In addition to the contempt finding, the trial judge stated that, even if he had not found Faraci and 170 in contempt, he would have made an order for security for costs under rule 60.12(c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which permits a court to make “such other order as is just”, where a party has failed to comply with an interlocutory order.
[99] The difficulty with the trial judge’s contempt finding (and his alternative security for costs order) is that he conducted no analysis of the extent to which Faraci and 170 had complied with his directions or of the extent to which any non-compliance was due to factors beyond Faraci’s and 170’s control. The trial judge did not advert to Faraci’s affidavits in which he provided particulars of what had, and had not been, produced and the reasons for any non-production.
[100] As I have said, my review of the trial judge’s mid-trial directions leads me to conclude that their breadth, scope and lack of relevance to the issues at trial contributes to a reasonable apprehension of bias. His willingness to invoke the quasi-criminal remedy of contempt in relation to those directions only adds to that appearance.
[101] Moreover, in the circumstances of this case, the trial judge’s failure to consider  Faraci’s  evidence and  his  failure  to  conduct a  direction by  direction




analysis of compliance suggests more than mere inadvertence or misapprehension. Rather, his treatment of the issue demonstrates he had become aligned with the respondent.

C.                 CONCLUSION


[102] For the reasons I have explained, I conclude that the cumulative effect of the trial judge’s conduct gave rise to the appearance of a reasonable apprehension of bias.
[103] As part of their submissions, the respondents argued that, in the  absence of a complete trial record, such a finding should not be made. They rely on the fact the appellants did not file a full trial transcript with the court; rather, all the appellants filed was a copy of Faraci’s cross-examination.
[104] In the particular circumstances of this case, I would not accept this submission.
[105] I acknowledge that an appeal court will generally look to the trial record “in its entirety to determine whether a claim for reasonable apprehension of bias has been made out: Chippewas, at para. 230. In general, it is necessary to consider the complete record to determine whether the trial judge deprived a party of the ability to advance its case, or treated the parties in such an uneven manner that trial fairness was compromised.


 [106] In this case, however, no complete trial record exists; the trial was not completed. Rather, the appellantspleadings were struck and the respondents moved successfully for default judgment.
[107] The respondents claim that the trial judge’s ruling that pre-2006 issues were relevant and Faraci’s evidence-in-chief somehow justified respondents’ counsel’s demands and the trial judge’s actions during Faraci’s cross- examination. They say this court is unable to assess the claim of reasonable apprehension of bias because we do not have the full record.
[108] I would not accept this submission. As I have said already, respondents’ counsel also claimed that a review of Faraci’s cross-examination would demonstrate why the 19 mid-trial directions were necessary and appropriate. I rejected that submission. The respondents have not identified specific aspects of the balance of the trial that would justify the trial judge’s actions or detract from the appellants’ claim of a reasonable apprehension of bias.
[109] Given the facts and circumstances of this particular trial, I am satisfied that the record before us provides an adequate basis to assess the trial judge’s conduct of the trial.




D.                 DISPOSITION


[110] For the foregoing reasons, I would allow the appeal, set aside the judgments and orders under appeal and order a new trial before a different trial judge.
[111] Although I would order a new trial, I have also accepted the respondents’ submission that the personal appellant was a difficult and uncooperative witness. In my view, it is apparent, from a review of the record, that all parties contributed to the trial spiralling out of control. In the circumstances, I would make no order as to the costs of the trial below.
[112]  For the same reason, I would make no order as to the costs of the appeal.




Released:

“MLB”                                       “Janet Simmons J.A.”
NOV 12 2014”                          “I agree Robert Sharpe J.A.” “I agree M.L. Benotto J.A.

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