Breaking Fraud Cases from Canadian Courts
At Canadian Fraud News, we report on decisions issued by Canadian Courts related to fraud, that are not reported in the mainstream media, and that contain legal issues the Canadian public and fraud recovery experts should be aware of. The following is one such story.
On August 9, 2017, the Saskatchewan Court of Appeal released its decision in the civil fraud action of the Government of Canada as against the law firm Merchant Law Group LLP. The Government of Canada has alleged that Anthony Merchant, the founder and senior partner of the Merchant Law Group LLP, made fraudulent misrepresentations to the former Supreme Court of Canada judge, the Honourable Frank Iacobucci, who was Canada’s negotiating agent to settle claims related to the Indian Residential School survivors.
A Chambers judge had struck the pleading of the Government of Canada last year, ending its action against Merchant Law Group LLP to seek the return of some of the fees and disbursements paid to the law firm. The Government of Canada appealed. The Saskatchewan Court of Appeal reversed the Chamber Judge’s decision, allowing the Government of Canada’s claim to proceed. This article summarizes the ongoing dispute.
The Indian Residential School Survivor Case
Between 1997 and 2005, the Merchant Law Group LLP initiated actions against Canada on behalf of Indian Residential School survivors on both an individual and a class basis.
In 2005, Canada appointed Mr. Iacobucci to act as its agent in negotiating a settlement of those and similar claims initiated by other law firms across Canada. Negotiations took place between August and November 2005 and included discussions with respect to the payment of legal fees and disbursements incurred by the law firms advancing the Indian Residential School claims.
It is alleged that during those negotiations, Mr. Iacobucci asked Mr. Merchant about the amount of fees and disbursements the Merchant Law Group LLP had incurred and the number of retainer agreements it had acquired. Mr. Merchant allegedly represented that the Merchant Law Group LLP had approximately $80 million in unbilled time and 7,000 to 8,000 retainer agreements (statement of claim at para 11).
It is further alleged that Mr. Iacobucci had serious concerns about the information Mr. Merchant had provided and therefore required a process by which the Merchant Law Group LLP’s claim for fees could be verified. Accordingly, Canada and the Merchant Law Group LLP negotiated a verification agreement.
On November 20, 2005, an agreement in principle settling the Indian Residential School claims was signed – the Indian Residential Schools Settlement Agreement “IRSSA”). In the verification agreement, the Merchant Law Group LLP agreed to provide to Canada its “dockets, computer records of Work in Progress and any other evidence” relevant to its claim for legal fees. If Canada and the Merchant Law Group LLP could not agree on the amount of fees to be paid, the matter was to be determined by arbitration but that amount was to “in no event be more than $40 million or less than $25 million”.
On May 8, 2006, the IRSSA was signed by all parties. On December 15, 2006, the IRSSA, including the provisions relating to legal fees, was approved by a judge. On July 2, 2008, a judge of the Court of Queen’s Bench determined the Merchant Law Group LLP was entitled to $25 million in fees without verification and ordered Canada to pay that amount to the law firm. The court also ordered that the verification process must be completed.
On August 15, 2013, following a series of court applications, the Merchant Law Group LLP provided Canada with the last of its billing records and retainer agreements as required by the verification process. Canada had asked Deloitte, an accounting firm, to review the law firm’s billing records and retainer agreements and advise of any irregularities.
On January 8, 2014, Canada received Deloitte’s report, which indicated the Merchant Law Group LLP’s billing records were replete with allegedly illegitimate time entries and excessive disbursements. As a result of that report, on January 26, 2015, Canada commenced the legal action in issue against the Merchant Law Group LLP.
The Striking of the Government of Canada Fraud Action
On January 20, 2016, a Chambers judge from the Saskatchewan Court of Queen’s Bench struck the claim of the Government of Canada on the basis that the claim disclosed no cause of action, that it was frivolous and vexatious, and that it was an abuse of process. For the full reasons, see: CanLii
As mentioned above, the Government of Canada appealed. It seems hard to believe that lawyers for the Government of Canada would draft a claim that disclosed no cause of action, that was so frivolous and vexatious, and that was an abuse of process. It seems the Saskatchewan Court of Appeal agreed. And as mentioned above, on August 9, 2017, the Saskatchewan Court of Appeal overturned the decision of the Chambers judge. For the full reasons, see: CanLii
The Restoration of the Government of Canada Fraud Action
The following are statements made by the Saskatchewan Court of Appeal in its reasons for restoring the Government of Canada’s fraud action against the Merchant Law Group LLP (“MLG”):
First, Canada’s claim for damages is grounded in tort, not contract. It is based on the allegation that MLG wrongfully induced Canada to agree to the fee arrangement by fraudulently misrepresenting the number of retainer agreements MLG had and the work it had done with respect to the Indian Residential School claims. That Canada can pursue a remedy in tort versus contract was clearly established.
The verification agreement cannot be seen as essentially a contract that waives Canada’s rights if fraud is later discovered. Moreover, at the time Canada entered the MLG fee agreement, it did not have all the necessary information to make an informed waiver. Canada only became fully-informed through the verification process. Furthermore, the MLG fee agreement makes no mention of fraud, nor does it contain the type of language necessary to waive fraud.
Canada’s claim is in tort. It is premised on the allegation Canada would not have entered into the fee agreement it did with MLG but for Mr. Merchant’s alleged fraudulent misrepresentations. The determination in the Prior Decisions that Canada had to pay MLG $25 million “no matter the outcome” of the verification process was premised on the existence of a valid fee agreement untainted by fraud. The underlying basis for that fee agreement is now being challenged by Canada’s legal action.
In my view, Canada’s submissions have merit in that the Chambers judge failed to consider the factors relevant to a claim of injustice.
Being aware of the “possibility” of misrepresentation is not synonymous with a knowledge of fraud. Misrepresentations can be innocent, negligent or fraudulent. The ramifications of an innocent or, indeed, negligent misrepresentation are far different than the ramifications of a fraudulent one.
Canada did not have the opportunity in the prior proceedings to raise the issue of fraud. As the Chambers judge himself noted, Canada did not have the information that allegedly establishes fraud when those applications were being dealt with.
The fact the $25 million fee has been found to be fair and reasonable for the purposes of approving the class action settlement is irrelevant to the interest of justice question.
In my view, the Chambers judge failed to consider the effect of the alleged fraud on the integrity of the justice system. In 100 Main Street East Ltd. v Sakas, (1975), 58 DLR (3d) 161 (Ont CA), Estey J.A. (as he then was) stated the“process appears to be one of balancing the need for the Courts to protect the integrity of their process against fraudulent practices before the Court, on the one hand, against the practical requirement of certainty and finality in litigation on the other” (at 165).
Further, Estey J.A. noted “the principle of law preserving the sanctity of the principle of res judicata must give way to the principle recognizing the right and duty of the Court to protect its own processes so as to ensure that litigants do not profit from their improper conduct.”
The Merchant Law Group Deserves the Opportunity to Be Vindicated
The Saskatchewan Court of Appeal noted that Canada’s action raises serious allegations that require a full hearing in the interests of justice. The Court stated:
If the allegations are well-founded, Canada (which represents the people) is entitled to appropriate compensation. If the allegations are not well-founded, MLG deserves the opportunity to be vindicated.
To state the obvious, the allegations of the Government of Canada are only allegations. The Merchant Law Group LLP is a reputable law firm. Nothing has been proven. This is a highly unusual action.
Factors Considered When Assessing a Lawyer’s Accounts
The Saskatchewan Court of Appeal also noted that there are several factors that Courts look at when reviewing whether a lawyer’s account is reasonable. They include:
- Time expended;
- Complexity of the action;
- The degree of responsibility assumed by the lawyer;
- The monetary value of the claim to the client;
- The importance of the action;
- The degree of skill and competence demonstrated by the lawyer;
- The results achieved;
- The ability of the client to pay the fee; and
- The client’s expectations as to the amount of the fees.
The most important of these factors is the amount of money involved and the results achieved.
Information on this and Other Fraud Recovery Stories
For further information on this case, or any other fraud recovery inquiry, contact Canadian Fraud News Inc. at Kayla@Canadianfraudnews.com .