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INCONCEIVABLE

When we decide to move forward in an action, we have to analyse the facts, apply the law, and apply the “random factors”. The random factors are the factors that enter into every court decision, comprising the unknowns that can affect every court decision: which judge will you draw; will the judge have a bad day; will the judge have prior experience with the issues; will your witnesses melt down and forget most everything they know; will the judge key on an insignificant fact and base the decision on it. Actually, as is obvious from reviewing the random factors examples, we can never apply random factors, with or without precision – other than to say “you never know what can happen.” In Toronto-Dominion Bank v. Lumberland, a 2013 Ontario Divisional Court decision, the plaintiff’s counsel had a prime example of the random factors effect.

Fraud

It was a run-of-the-mill story of fraud. The bankrupt ran a lumber company. We say “ran” because the reasons for decision were short and we were not told whether the bankrupt was a director, officer, or shareholder. Regardless, we know that the bankrupt concocted false reports of accounts receivable to induce the bank to grant the company a $750,000 line of credit. Of course, the company then went under and the bankrupt followed suit.

The bank commenced an action against the bankrupt for its shortfall and brought a motion for summary judgment, requesting, in addition, that the judgment survive the bankrupt’s bankruptcy.

Ammunition

After the bankrupt’s examination for discovery, the bank had adduced the following evidence:

1. The bankrupt ran the company during the time the company filed the false reports with the bank.

2. The bankrupt filed those reports.

3. The bankrupt was familiar with the company’s credit facility with the bank and knew that the bank was using those reports to calculate the company’s line of credit.

4. The bankrupt admitted to the bank’s receiver that she had been falsely reporting to the bank for 1-2 years; she then provided the receiver with the correct reports. It seems that she was content to keep two sets of books.

The motions judge dismissed the summary judgment motion – and the bankrupt had not even opposed the motion. The judge held that the bank had not provided enough evidence to prove its claim for fraud. So you ask yourself, “What other evidence would the bank have needed to prove fraud?” The answer, we suggest, is “nothing.” We can only rationalise the decision, which to us makes no sense, on the random factors.

Appeal

A plaintiff’s motion for summary judgment that is dismissed (i.e. the defendant is successful) is an interlocutory decision because it does not end the action. If the plaintiff is successful, then it is a final decision. A disgruntled litigant may appeal a final decision as of right, but may only appeal an interlocutory decision with leave of another judge. The bank therefore moved for leave to appeal the motions judge’s (interlocutory) decision.

To obtain leave to appeal, the bank had to show:

a) There is a conflicting decision and it is desirable for leave to be granted; or

b) There is good reason to doubt the correctness of the decision and the appeal involves matters of public importance.

The judge hearing the leave application stated “I accept that there is good reason to doubt the correctness of (the motion judge)’s decision”. So far, so good. However, then she said that the motion involves a very fact-specific situation that does not raise an issue of conflict in the case law and does not involve an issue beyond the parties’ interests; it therefore did not meet either test for granting leave to appeal

For what it is worth, the leave judge also questioned what advantage the bank would gain by appealing the matter, rather than setting it down for what she felt would be a short and likely unopposed trial.

We can answer that question. When you get a decision that is simply inconceivable to fathom, you appeal it out of principle. The statement from the leave judge, which acknowledged that there was good reason to doubt the correctness of the original decision, is, in itself, worth the cost of the leave motion, regardless of the ultimate result.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.

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