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 Grandpré 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 Grandpré
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
Grandpré
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 used” and 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] eyes”
to 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, respondents’ counsel
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 appellants’ pleadings
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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