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CIVIL PROCEDURE - Pleadings - Striking out pleadings - Grounds - Failure to disclose a cause of action - False, frivolous, vexatious or abuse of process

Friday, September 08, 2017 @ 8:43 AM  

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Appeal by Canada from an order striking out its statement of claim on the basis that it was frivolous and vexatious and an abuse of process. The defendant law firm had played a significant role in advancing class actions on behalf of residential school survivors and in negotiating the Indian Residential Schools Settlement Agreement (IRSSA). The IRSSA, including the provisions relating to legal fees, was approved by the court in December 2006. Pursuant to the IRSSA, Canada had paid the defendant $25 million in legal fees. Following a series of court applications, the defendant provided Canada with the last of its billing records and retainer agreements. An accounting firm retained by Canada reviewed the records and found numerous illegitimate time entries and excessive disbursements. As a result, Canada commenced an action seeking the return of the money alleging that the defendant committed the torts of fraud, fraudulent misrepresentation and deceit during the negotiation and approval of the IRSSA. In response, the defendant brought an application to strike the statement of claim on the grounds that it disclosed no reasonable cause of action, was scandalous, vexatious and was an abuse of process. The Chambers judge who heard the application agreed with the defendant and struck the claim, finding that it disclosed no reasonable cause of action and was frivolous and vexatious. Canada appealed.

HELD: Appeal allowed. Canada properly pleaded reliance. The statement of claim clearly asserted Canada would not have agreed to the defendant’s fees had it known the truth about the illegitimate time entries and excessive disbursement records. Canada pleaded sufficient facts to establish a loss as a result of its reliance on the defendant’s alleged misrepresentations. Its claim for damages was grounded in tort. Issue estoppel did not apply in the circumstances of this case. The question identified by the Chambers judge as constituting issue estoppel was not determinative of the issues raised by Canada’s action. The circumstances of the case under appeal weighed in favour of the exercise of discretion not to apply the doctrine of issue estoppel, so that Canada’s allegation of fraud could be heard and adjudicated in the interests of justice. Furthermore, the action was not an abuse of process. Canada’s allegations of fraud were not and could not have been properly addressed in the earlier proceedings. Canada’s action raised serious allegations that required a full hearing in the interests of justice.

Canada (Attorney General) v. Merchant Law Group LLP, [2017] S.J. No. 332, Saskatchewan Court of Appeal, R.K. Ottenbreit, P.A. Whitmore and J.A. Ryan-Froslie JJ.A., August 9, 2017. Digest No. TLD-Sept42017010