Wednesday, March 21, 2018

Living In Splendid Isolation - Lessons Learned Enforcing an Ontario Judgment in Mexico

Living in Splendid Isolation:  Ten Lessons Learned
Enforcing an Ontario Judgment in Mexico  
Blair Bowen
Fogler, Rubinoff LLP, Toronto
This article presents a cautionary tale for any person who wishes to take legal proceedings against an individual or company resident in Mexico.
More than 25 years ago, the Supreme Court of Canada's decision in Morguard Investments Ltd. v. De Savoye[1], represented a sea change in the way Canadian courts recognized and enforced foreign judgments.  The "foreign" aspect of Morguard involved British Columbia plaintiffs seeking to enforce an Alberta judgment.  Writing for the court, Justice La Forest rejected the centuries' old principles regarding recognizing and enforcing foreign judgments which were anchored in the concept of territoriality.  He held that modern states like Canada should no longer live in "splendid isolation" from the rest of the world and should give effect to judgments made in other countries.  In arriving at its conclusion, the court relied heavily upon the concept of comity which had been adopted by the Supreme Court of the United States.  It held that comity would "impel sovereigns to mutual intercourse". 
These lofty ideals were written just four years before commerce between Canada and Mexico was facilitated by the North American Free Trade Agreement ("NAFTA").  NAFTA sought to reduce, and in some instances, eliminate barriers to trade and commerce between Canada, Mexico and the United States.  Indeed, after NAFTA, trade between Canada and Mexico increased substantially and Mexico is now one of Canada's largest business partners and export destinations.
More recently however, a case in which I was involved, drove home the very unsettling point that the Supreme Court's vision of greater ease in enforcing foreign judgments between trading partners has not been fully embraced by Mexico.  You will learn from reading this offering that Mexico and its judicial system still exist in a state of "splendid isolation" when it comes to recognizing and enforcing judgments from Canada. 
A "Garden Variety" Breach Of Contract Case
Several years ago, I was retained by an Ontario company to sue defendants who resided in Mexico[2].  The client was a producer of live entertainment and theatre and was owed a substantial sum of money as a result of a failed business deal with a Mexican promoter.  The Mexican promoter had persuaded our client to allow a touring dance company to deliver several performances in Mexican venues, without first paying our client for the performances or without providing adequate security for payment.  After several broken promises, our client soon determined that the promoter had no intention of honouring his contractual obligations. 
At first review, this seemed like a straight-forward "garden variety" breach of contract case, the only wrinkle being the non-resident defendants.  After receiving no response to its demands for payment, the client needed to make a decision.  Should it sue the Mexican promoter in Mexico or in Ontario?  The client's Mexican lawyers advised that so long as an Ontario court would take jurisdiction over the Mexican promoter and the other proposed defendants – the promoter's wife and his "theatre arts" company, a Mexican court would recognize and enforce a judgment obtained from the proceedings.  This advice seemed promising and we commenced the action in the Ontario Superior Court of Justice. 
Lesson Number 1 
Before commencing proceedings in Ontario against Mexican defendants, obtain advice from Mexican lawyers describing in detail the process involved for recognizing and enforcing an Ontario judgment in Mexico and the defences that may be raised by Mexican defendants in resisting recognition and enforcement.
Doing Justice Formally
The defendants could be served with the statement of claim outside of Ontario without a court order because Ontario had jurisdiction simpliciter.  A substantial connection existed between Ontario and the cause of action for many reasons:  the contract was made in Ontario;  a breach of the contract had been committed in Ontario;  damage was sustained by our client in Ontario arising out of the defendants' breach of contract; and, the contract provided that the courts of Ontario had jurisdiction to resolve a dispute arising out of the contract. 
Canada and Mexico are both signatories to the Hague Convention on the service abroad of judicial and extra-judicial documents in civil or commercial matters (the "Convention").  Normally, we would be able to serve the statement of claim on the Mexican defendants by any means legally provided for service of an originating document in Mexico.  However, the client's Mexican lawyers warned that when Mexico ratified the Convention, it opposed the use of the simplest methods of serving a foreign statement of claim.  Instead, it had designated a branch of its Foreign Ministry as the only competent authority to receive originating documents from another country.  
Lesson Number 2
Mexican courts require foreign court and other inbound documents to be certified or authenticated.  This generally means having all documents originally signed by the issuing authority, i.e. judge, clerk or other authority, and attesting that the documents are true and correct copies of the originals. 
Mexico, as we were just beginning to learn, is a jurisdiction that does justice very formally.  We learned that Mexican courts required formalistic procedures for often the simplest administrative steps.  At the advice of the Mexican lawyers, we followed a multi-step process to ensure that service of the statement of claim was properly effected on the Mexican defendants.  Such steps included translating our request for service and the statement of claim into Spanish, providing the Mexican lawyers with a power of attorney from our client which needed to be notarized by us and then "legalized" at the Canadian consulate in Mexico City and then transmitting all documents in duplicate to the Mexican Foreign Ministry. 

Lesson Number 3
Once authenticated, Mexican courts require that all inbound documents be "legalized".  The process of legalization can be done by obtaining another document from the Mexican Consulate in Ontario called an "apostille" which will be attached to the documents in question.  The apostille gives Ontario documents full binding effect in Mexico.    
The Mexican lawyers told us that we needed the Mexican Consulate in Toronto to apply a "legalization" stamp on the documents.  We were also told that since our client was a foreign company, it would have to submit an original certificate of status showing it was in good standing, its articles of incorporation, an original copy of the company's by-laws and articles which included the powers vested in the board of directors authorizing the lawsuit, an original copy of the minutes of the relevant meeting of the board with the full names of all the directors and their official titles, an original copy of the minutes of the meeting of the board respecting the election of the present board of directors, an original copy of the minutes of the meeting of the board where it was resolved to confer the power of attorney. 
All of this was necessary to serve the statement of claim on the defendants.  
Lesson Number 4
Utilize the services of Global Affairs Canada where possible.  Global Affairs Canada is the federal government agency that manages Canada's diplomatic and consular relations.  It offers to authenticate a variety of documents so that they will be accepted for use abroad. 
We had two options available to us, (1) the client could present the notarized power of attorney to Global Affairs Canada.  We needed Global Affairs Canada to apply an authentication stamp on the documents and then submit it to the Mexican Consulate to be legalized; or (2) the client's president could attend at the Mexican Consulate in Toronto to execute a power of attorney according to Mexican law.  If he chose this option, he would have to present all of the corporate documents referred to above.  Needless to say, we chose the former option. 
The Mexican lawyers also advised that in addition to serving the statement of claim, it was customary to serve the plaintiff's certificate of status, articles of amendment, if any, and the power of attorney.  While the defendants would not require those documents in order to file a defence, we were advised that to be on the safe side and to avoid the possibility of a technical defence being raised, we should serve all of such documents with the statement of claim.
Having received that advice, we completed a request for service pursuant to the Convention together with a notice summarizing the nature of the documents that were to be served on the defendants.  Since Mexico had objected to "other means of service" under the Convention, we needed to deliver the documents to Mexico using the Central Authority for Canada in Haileybury, Ontario ("Haileybury"). 
Haileybury sent the documents to the client's Mexican lawyers.  The lawyers told us that the documents were "acceptable in principle" but were missing an official stamp and signature of the Canadian "requesting authority".  It was essential to the Mexican Foreign Ministry that Haileybury officially stamp the documents so that it could process our request for service in Mexico.  The Mexican lawyers sent the documents back to Haileybury.  Haileybury stamped the documents and sent them back to the Mexican lawyers who then attempted to file the documents for service with the Mexican Foreign Ministry. 
Lesson Number 5
Ensure that all documents are translated by a certified translator.  According to Mexico's Federal Code of Civil Procedure ("FCCP"), all documents pertaining to an action in Mexico must be translated into Spanish.  I recommend that the translation work is performed by a certified translator appointed by the court where you intend to enforce the judgment and that such work is monitored by legal counsel in Mexico.
After a month of waiting, we were informed that the Foreign Ministry had again returned the documents to the Mexican lawyers because of "technical deficiencies".  The issue appeared to be that the Mexican court wanted an Ontario court to sign the request for service of the documents.  Upon attendance at the registrar's office, our law clerk was informed by the Registrar of the Superior Court that he would not sign such a request.  Haileybury also advised that they would not sign the request.  However, after some persuasion by our law clerk, the Registrar relented and signed the request for service.  To make them look more formal and official, our law clerk put a red paper seal on the documents. 
Lesson Number 6
Follow all instructions from Mexican courts completely, even the instructions that appear to be arbitrary.
We intended to send the documents back to Haileybury for re-stamping.  Before doing so, we noticed that the documents that had been returned from Mexico included new instructions in Spanish.  The Mexican court was now requesting two sets of originally signed documents instead of one.  We were told by the Mexican lawyers that the request for duplicate originals was new and was a criterion of an individual officer at the Foreign Ministry.  It was not a requirement under the Convention or a requirement of Mexican law.  It was simply a requirement of the person dealing with the matter in Mexico.  We were told that we would have to comply with the request in order to have the documents accepted. 
Once we had sent the duplicate documents back to Mexico via Haileybury, the Mexican lawyers told us that the Foreign Ministry still refused to accept them because the preamble in the statement of claim did not specify whether the days required to respond to the claim were calendar days or business days.  The Foreign Ministry wanted the Ontario Court to issue a "resolution" to confirm that the days referred to in the preamble were calendar days.  Just as we were attempting to determine how we could obtain such a resolution from the Ontario Court, we were surprised by the Mexican lawyers who told us that the Foreign Ministry had relented.  The Mexican lawyers had met with the Director of the Foreign Ministry and persuaded her that she did not require the Ontario court to explain its preprinted form by resolution after all.  Apparently they felt they had tormented us long enough. 
Several months after we were first retained, two of the three defendants (the promoter and his company) were finally served with the statement of claim.  Service on the third defendant (the promoter's wife) was pending because the judge that received the request asked for extra copies of the documents even though the Convention did not require that these extra copies be provided. 
No Cakewalk In Ontario Either
The Mexican defendants subsequently attorned to the jurisdiction of the Ontario Court and defended the action.  We hoped that the action would now proceed expeditiously.  We were naive. 
It quickly became apparent that the Mexican defendants would not willingly participate in the action or take any step towards furthering or resolving the proceeding unless ordered to do so by the court.  As a result, we were required to initiate or threaten a number of useless interlocutory motions for, among other things, (a) requiring the defendants to deliver their affidavits of documents; (b) requiring the defendants to attend for discovery (in the end, it was much quicker and cost-effective to examine the defendants in Mexico City rather than to pay for the cost of their attendance in Ontario and wait for travel visas to be issued).  At the time, Citizenship and Immigration Canada had just imposed a travel visa requirement on all Mexican nationals; (c) requiring the defendants to deliver answers to the undertakings given on their examinations for discovery; and (d) exempting the action from mediation. 
Settling (Apparently) On The Eve Of Trial
We set the matter down for trial and obtained a trial date.  On the eve of trial, we heard from the trial coordinator in Toronto.  Her office had overbooked trials and that there were no judges available to hear our trial.  We were on standby until Wednesday of the trial week.  Faced with having to actually purchase plane tickets to come to Toronto for the trial, the defendants became serious in their settlement negotiations.  The trial coordinator further delayed the start of the trial advising that the  matter would need to be put over from spring to the fall of that year.  Our client, wanting to end the matter instructed us to accept the last offer to settle that the defendants had served. 
Once the action had been settled, it became abundantly clear that the Mexican defendants had no intention of paying any part of the settlement amount, just as they had originally no intention of paying my client the amount owed under the contract.  The opposing lawyer attempted to reassure me that my client's rights were protected because the terms of the settlement which provided that my client could obtain consent judgment for a much higher amount if the defendants defaulted in paying any part of the settlement.  Eventually communication with the other lawyer ceased.  We were required to bring a motion to enforce the terms of the settlement. 
Appealing From An Unopposed Judgment
We scheduled a motion for judgment based on the accepted offer to settle, which the Mexican defendants did not oppose.   
Three weeks later, the defendants' lawyers served their clients' notice of appeal from the unopposed judgment.  Because the defendants had not opposed the motion for judgment, it was beyond me as to what their grounds for appeal might be. 
We received a notice of change of lawyer in the appeal proceedings.  However, just before the holiday season that year, the new lawyers for the defendants served a notice abandoning the appeal.
Once the appeal had been abandoned we set about, again, speaking with Mexican lawyers to understand the procedure involved in having the judgment recognized and enforced against the defendants in Mexico.  As we were in the midst of doing so, we were contacted by a third Ontario law firm advising that they had been retained by the defendants to bring a motion to set aside or vary the judgment on the grounds that it had been obtained by mistake. 
Not surprisingly, our client was losing its resolve.  The defendants had put up numerous road blocks to prevent our client from seeing a penny of the amount it was owed.  Our client was willing to substantially compromise its judgment in order to move on with its business.  We began negotiating settlement with this third firm of lawyers.  But in the end, the defendants' threat to move to amend or vary the judgment simply faded away. 
Enforcing The Judgment – Part 1 – Obtaining "Novel" Letters Of Request
The client's Mexican lawyers told us something that had become obvious – the Mexican legal system was very formalistic and rigid in its requirements, particularly when it dealt with any parties or procedures outside of Mexico.
The process involved for recognizing and enforcing a foreign judgment in Mexico is called "homologación".  It is a procedure that involves both local and federal rules of procedure.  This happens within a Mexican civil law system that relies heavily on strict and full compliance with all formalities.  We were told at this late stage that it would have been wise to have considered all requirements and formalities for homologación before we commenced the proceedings in Ontario to make sure that all requirements and formalities would be strictly complied with.  (See Lesson 1)
Lesson Number 7
Obtain letters of request in Ontario which ask the Mexican court to recognize and enforce the judgment.  The letters of request should stress the principle of comity.  Under the FCCP Mexican courts will not enforce a foreign judgment if it is proven that the issuing court would not enforce a Mexican judgment under similar circumstances.  It is advisable that all letters of request include a short statement acknowledging that "under similar circumstances, this court would recognize and enforce a judgment coming from the requested court".
The first such formality was that we were required to obtain from the Ontario court, a letter of request, signed by both a judge and the registrar of the Ontario court asking the Mexican court to recognize and enforce the judgment. 
We could find only one Canadian case in British Columbia, First Majestic Silver Corp.[3], in which such a request had been granted.  The plaintiff in that case was seeking to enforce a British Columbia judgment, in you guessed it, Mexico.  In that case, the court held that Canada's Superior Courts possess an inherent jurisdiction to request international judicial assistance to enforce a domestic judgment.  The case also suggested that the Mexican court's requirement that the Ontario court must request its assistance before it will take steps to recognize and enforce the judgment could be fulfilled on the basis of comity.  Under the common law, Ontario regularly enforced judgments from Mexico by way of an action on the judgment.  The principles of "comity, order and fairness" dictated an expectation that judgments of Ontario would be recognized and enforced by the Mexican courts. 
I made a motion before a judge of the Superior Court of Justice and asked her to sign letters of request that I had drafted.  She refused to do so.  The judge told me that she had never signed such a document and indicated that she would "feel better" if we obtained an affidavit from a Mexican lawyer setting out the requirements of the Mexican court.  Accordingly, we drafted a short affidavit for our client's Mexican lawyer to sign and went back to court. 
My second court appearance took place on the Friday before the Victoria Day holiday long weekend.  I attended before another judge of the Ontario Superior Court of Justice.  Our motion was unopposed.  Having read my factum, the judge advised at the opening of court that he would hear my matter last.  Late in the afternoon, after all of the other motions had been dealt with, the judge told me that he did not oppose, in principle, the relief that I was seeking but had some difficulties with the language of the draft letter of request that gave the Mexican court the power to, among other things, fine and arrest the judgment debtors.  He told me that he would be "more comfortable" with language that reflected the enforcement powers contained in Ontario's Rules of Civil Procedure.  He asked me to revise the draft letter of request and email it to him for approval before I appeared before him again.  Approximately one week later, after appearing before the judge in chambers, and explaining the changes made to the draft letter, I received the signed order and letter of request.  This I considered to be a small victory.
Enforcing The Judgment In Mexico – Part 2 – Doing Justice Very Formally
The Mexican lawyers intended to take the letters of request to the Mexican court to initiate proceedings to enforce the Ontario judgment.  In order to do so, we needed to send them an original or certified copy of the contract on which the action was based, an original or certified copy of the judgment, the letter of request and a power of attorney from our clients.  We also were advised that all documents should be authenticated, translated into Spanish, and legalized by the Mexican consulate in Toronto and then sent to them in Mexico City. 
We then sent the notarial copies of the documents to Global Affairs Canada and asked them to authenticate them.  We received the authenticated documents back from Global Affairs Canada within a couple of weeks.  We then sent all documents to the Mexican lawyers for the necessary translation and submission to the court in Mexico.
The Mexican lawyers arranged to have the document translated into Spanish.  In addition, they made inquiries of the Office of Public Records in Mexico City to ascertain the status of the real properties owned by the defendants.  Once they had done so, and received the translated documents they were ready to file.  By that time, the courts in Mexico were on the November 1st "Dia de Muertos" (day of the dead) break and nothing was functioning.  
The Mexican court acknowledged receipt of the client's documents in or about the middle of November.  The next step would be to serve the judgment debtors.  We were advised the service might take a few days to a week after which the defendants would have 9 working days to present evidence, pleas and arguments as to why the judgment should not be recognized and enforced in Mexico.  The Mexican lawyers advised that the main defence to recognizing and enforcing a foreign judgment was to argue that the judgment was not final but Mexican judgment debtors would use every available defence to avoid execution on the judgment as a delay tactic. 
Lesson Number 8
Ensure that letters of request include a statement that the judgment is final and res judicata.  The FCCP requires that the judgment to be enforced is final and res judicata in the sense that there is no legal recourse pending or available to the defendant in Ontario.  It is advisable that a statement to that effect is contained in the letters of request.
After a few weeks of waiting, the Mexican lawyers advised that the defendants had not yet delivered a defence because they had not been notified of the judgment.  Apparently the judge who was reviewing the documents could not determine whether the judgment emanated from an action involving real property or a personal action involving a payment of money.  The Mexican lawyers also advised "surprisingly and absurdly, the judge also requests us to demonstrate that the judgment presented before him is firm and res judicata".  They advised that they were appealing this decision because the letters of request clearly stated the judgment was res judicata
The matter was then presented to an appeal judge of the Mexican court who advised that he had to study and analyze the matter before issuing a ruling.  The Mexican lawyer advised us, "please let me remind you that Mexican justice is not swift at all, quite the opposite".  He advised that the matter would not be wrapped up before the end of the year and then the courts would be on their year-end break for the holidays and the new year. 
Lesson Number 9
Ensure that the letter of request specifies that the judgment was a result of an action in personam and not an action in rem.  
By the end of January, the client's Mexican lawyers had still not heard from the appeals judge.  Finally, at the end of February, we received an answer but it was not one that we expected or desired.  The judge who had reviewed the materials, ruled that he could not accept the claim because the materials had not demonstrated that the Ontario judgment was final and the materials that were submitted to him did not show that they were in respect of personal rights rather than rights in rem.  When the client's Mexican lawyers submitted the appeal, they argued that the letters rogatory stated quite clearly that the judgment was final and was in respect of a contract between parties as opposed to real property situated in Ontario. 
The appeal judge upheld the ruling of the lower court and added that all documents would have to be sent back to Toronto to be "legalized" by the Mexican consulate. 
Lesson Number 10
Be patient.  This is perhaps the most important lesson.
The Mexican lawyers apologized to us saying that the delay was due to circumstances beyond their control and as a result of the "peculiar ways" of the Mexican judicial system.  They presented two options:
1.               To appeal to an even higher court in Mexico and ask for both decisions to be overturned.  That outcome was uncertain and could take a few months with no guarantee of it going our client's way; or
2.               To file the documents afresh.  The Mexican lawyers indicated that that was the best way to proceed.  The client agreed.
Accordingly, we sent the original contract between our client and the Mexican promoter to the Mexican lawyers to translate into Spanish to present to the judge to show that the judgment originated from an action in personam  as opposed to an action in rem.  In addition, the Mexican lawyers sent back all of the original documents that they had presented to the Mexican court so that we could take them to the Mexican consulate in Toronto to have them legalized.  (See Lesson 3)
Once the documents had been duly stamped by the Mexican Consulate, we sent them back to the Mexican lawyers.  The defendants presented the documents to the Mexican judge.  This time, the judge could not determine whether the judgment had emanated from a civil action or an arbitration, thus necessitating an appearance before him of the Mexican lawyers to explain.  Finally, at the end of August, the Mexican lawyers advised that the Mexican defendants had been served with the enforcement documents.  That gave them 9 working days to file their answer with the court.  A month later, when updating us as to the status of the proceeding, the Mexican lawyer commented, "as you might be aware by now, legal proceedings in Mexico tend to be slow and complicated".  He then advised that they had been first informed unofficially and then officially, that the judge in charge of the case had declined jurisdiction on the grounds that the case was the matter of a local court and not of a federal court.  Accordingly, he intended to send our client's file to a local court, i.e. with jurisdiction in Mexico City only.  The Mexican lawyers advised that they strongly disagreed with that view and were already preparing an appeal to keep the matter in Mexican Federal Court. 
The Mexican lawyers scheduled an appeal before a judge of the Federal Court.  On the date of the appointment, they were told the judge was not available.  As a result, they left their written argument with the judge's administrative assistant.  They were advised that the matter would go to "study and resolution" but they were not advised how long it would take.
Recently a Mexican appeal court ruled that our client's enforcement proceedings should be dealt with by the local court in Mexico City rather than by the Mexican Federal Court.  Although the client's Mexican lawyers disagreed with the ruling, in order to save time and expense, they conceded that the matter should be dealt with locally.  It was now a matter for the Federal Court to transfer the complete file to the Mexico City court, which, we were told, would take some time.
Summary Of Lessons Learned
Lesson Number 1 - Before commencing proceedings in Ontario against Mexican defendants, obtain advice from Mexican lawyers describing in detail the process involved for recognizing and enforcing an Ontario judgment in Mexico and the defences that may be raised by Mexican defendants in resisting recognition and enforcement.
Lesson Number 2 - Mexican courts require foreign court and other inbound documents to be certified or authenticated.  This generally means having all documents originally signed by the issuing authority, i.e. judge, clerk or other authority, and certifying or attesting that the documents are true and correct copies of the originals. 
Lesson Number 3 - Once authenticated, Mexican courts require that all inbound documents be "legalized".  The process of legalization can be done by obtaining another document from the Mexican Consulate in Ontario called an "apostille" which will be attached to the documents in question.  The apostille gives Ontario documents full binding effect in Mexico.    
Lesson Number 4 - Utilize the services of Global Affairs Canada where possible.  Global Affairs Canada is the federal government agency that manages Canada's diplomatic and consular relations.  It offers to authenticate a variety of documents so that they will be accepted for use abroad. 
Lesson Number 5 - Ensure that all documents are translated by a certified translator.  According to Mexico's Federal Code of Civil Procedure ("FCCP"), all documents pertaining to an action in Mexico must be translated into Spanish.  I recommend that the translation work is performed by a certified translator appointed by the court where you intend to enforce the judgment and that such work is monitored by legal counsel in Mexico.
Lesson Number 6 - Follow all instructions from Mexican courts completely, even the instructions that appear to be arbitrary.
Lesson Number 7 - Obtain letters of request in Ontario which ask the Mexican court to recognize and enforce the judgment.  The letters of request should stress the principle of comity.  Under the FCCP Mexican courts will not enforce a foreign judgment if it is proven that the issuing court would not enforce a Mexican judgment under similar circumstances.  It is advisable that all letters of request include a short statement acknowledging that "under similar circumstances, this court would recognize and enforce a judgment coming from the requested court".
Lesson Number 8 - Ensure that letters of request include a statement that the judgment is final and res judicata.  The FCCP requires that the judgment to be enforced is final and res judicata in the sense that there is no legal recourse pending or available to the defendant in Ontario.  It is advisable that a statement to that effect is contained in the letters of request.
Lesson Number 9 - Ensure that the letter of request specifies that the judgment was a result of an action in personam and not an action in rem.  
Lesson Number 10 - Be patient.  This is perhaps the most important lesson.

Blair Bowen
Fogler, Rubinoff LLP, Toronto

[1] [1990] 3 SCR 1077

[2] This saga began in 2008. It is not yet complete.
[3] 2015 BCSC1517

Friday, February 2, 2018

SCC Provides Guidance On When Costs Should Be Awarded Against Lawyers Personally

In a decision that was unsettling to many lawyers – Quebec (DCPP) v. Jodoin [2017] 1 SCR 478 – the Supreme Court of Canada upheld a lower court’s decision to award costs against a lawyer personally in a criminal proceeding. 

 In April 2013, a criminal lawyer Jodoin, was representing ten clients charged with impaired driving, and other charges.  There were twelve cases and they were jointly scheduled for a hearing in the Court of Quebec on a motion for disclosure of evidence.  On the morning of the hearing, Jodoin had the office of the Superior Court stamp a series of motions for writs of prohibition in which he challenged the jurisdiction of the judge who was to preside over the hearing, alleging bias on the judge’s part.  As an experienced criminal lawyer, Jodoin knew that the filing of such motions would result in the immediate postponement of the hearing until the Superior Court had ruled on them.

However, the same morning before the motions were served, the parties learned that another judge would be presiding over the hearing instead.  As the hearing began, the Crown stated that it would call an expert witness.  Jodoin objected on the ground that he had not received the notice required under the Criminal Code and requested an adjournment.  Instead, the judge heard the parties on the issue and decided to authorize an examination of the expert after the lunch break.   During the break, Jodoin chose instead to prepare a new series of motions for writs of prohibition, this time challenging the second judge’s jurisdiction and again alleging bias on the part of the judge.  After service of the motions, the judge had no choice but to suspend the hearing. 

The Crown attorney believing that the sole purpose of the motions was to obtain an adjournment, objected, and told Jodoin that he intended to seek an award of costs against him personally for delay and abuse of process.   

In the Superior Court, a judge found that Jodoin's motions were unfounded and frivolous in that they were of questionable legal value for an experienced lawyer such as Jodoin.  On the issue of costs against Jodoin personally, he concluded that Jodoin’s conduct satisfied the applicable criteria and ordered that he pay costs of $3,000 or $250 per case.

The Court of Appeal affirmed the Superior Courts judgment on the dispositions of the motions but allowed Jodoin’s appeal to set aside the award of costs against him personally. 

The Supreme Court of Canada (on a 7 – 2 majority) allowed the Crown’s appeal and restored the award of costs against Jodoin. 

The majority decision was delivered by Justice Gascon.  The majority found that the courts have the power to maintain respect for their authority.  A court has an inherent power to control abuse and to prevent the use of procedure in a way that would be manifestly unfair to a party to the litigation before it would bring the administration of justice into disrepute. 

The awarding of costs against lawyers personally flows from the right and the duty of the courts to supervise the conduct of the lawyers who appear before them and sometimes penalize conduct of such a nature as to frustrate or interfere with the administration of justice.  This power can be exercised in criminal cases, which means it can be exercised against defence lawyers. 

The threshold for exercising the court’s discretion to award costs against a lawyer personally is high.  It can be justified only in exceptional circumstances where the lawyer’s acts have seriously undermined the authority of the courts or seriously interfered with the administration of justice.  This high threshold is met where the court has before it an unfounded, frivolous, dilatory or vexatious proceeding that denotes a serious abuse of the judicial system by the lawyer or dishonest or malicious conduct on the lawyer’s part that is deliberate.   

There are two important “guideposts” that apply to the exercise of this discretion.  The first relates to the specific context of criminal proceedings.  The courts must show a certain flexibility towards the actions of defence lawyers, whose role is not comparable in every respect to that of a lawyer in a civil case.  Costs against a lawyer personally must not be to discourage the lawyer from defending his or her client’s rights or interest and the client’s right to make a full answer in defence.  Secondly, the guidepost requires a court to confine itself to the facts of the case and to refrain from indirectly putting the lawyer's disciplinary record or his or her career on trial. 

Before imposing the sanction, the lawyer must be given prior notice of the allegations against him and the possible consequences.  The lawyer should have an opportunity to make separate submissions on the issue and to adduce an relevant evidence.  The applicable standard of proof is the balance of probabilities. 

In this case, the majority found that the circumstances were exceptional.  It found that Jodoin’s conduct was “particularly reprehensible”.  His conduct was motivated by a desire to have the hearing postponed rather than by a sincere belief that the judges targeted by his motions were hostile.  He thus used the motions for a purely dilatory purpose with the sole objective of obstructing the orderly conduct of the judicial process in a calculated manner.  It was therefore reasonable for the court  to conclude that he acted in bad faith and in a way that amounted to an abuse of process thereby seriously interfering with the administration of justice. 

Two justices (Justices Abella and Côté) dissented.  They held that costs awards against a lawyer personally are exceptional and, in particular in the criminal context, such orders could have a chilling effect on criminal defence counsel’s ability to properly defend their client.  Accordingly, they should be only issued in the most exceptional circumstances and the Crown should be very hesitant about pursuing them. 

The dissenting judges held that in this case, it appears that Jodoin’s conduct was not unique and that he was being punished as a warning to other lawyers engaged in similar tactics.  The desire to make an example of his behaviour does not justify straying from the legal requirement that his conduct should be rare and exceptional before costs are awarded against him personally.  In addition, it was arguable that this tactic of trying to delay the hearing to obtain more time to cross-examine the expert, was a strategic one.  The Crown had not provided Jodoin with the requisite notice for the expert report and the presiding judge only granted him a brief one over the lunch break and mistakenly said that Jodoin had already cross-examined the Crown’s expert when that was not the case.   

Given the facts emphasized by the dissenting judges, it is apparent that criminal defence lawyers will now need to take a hard look at the perceived bona fides of strategies they may use to assist them to prepare their clients' cases.



Tuesday, January 30, 2018

Top Court Orders Transportation Agency to Consider Obese Passenger Complaint

Delta Airlines Inc. v. Gábor Lukács (2018 SCC 2)  This decision of the Supreme Court of Canada was released on January 19, 2018.

Dr. Gábor Lukács filed a complaint with the Canadian Transportation Agency (“Agency”) alleging that Delta Airlines Inc. (“Delta”) had applied discriminatory practices governing the carriage of obese persons.  The Agency dismissed the complaint on the basis that Dr. Lukács failed to meet the tests for private interest standing and public interest standing as developed by and for courts of civil jurisdiction.  The question was whether the Agency’s decision was reasonable.  Chief Justice McLachlin (Justices Wagner, Gascon, Cote, Brown and Rowe, concurring) concluded that it was not and remitted the matter to the Agency to reconsider whether to hear the complaint. 


Dr. Lukács’ complaint alleged discrimination on behalf of Delta’s obese passengers with respect to the air transportation regulations.  In support of his complaint, he attached an email from Delta in response to a passenger's negative experience of sitting next to another passenger who “required additional space”.  In the email Delta apologized and explained:  “Sometimes we ask the passenger to move to a location in the plane where there is more space.  If the flight is full we may ask the passenger to take a later flight.  We recommend that large passengers purchase additional seats so they can avoid being asked to rebook and so we can guarantee comfort for all.” 

On September 5, 2014, the Agency issued a letter decision in response to the complaint.  It stated:  “It is not clear to the Agency that on the basis of his position,  Dr. Lukács has an interest in Delta’s practices governing the carriage of obese persons.  As such, his standing in this matter is in question.”  The Agency called for submissions on the standing question.

In its ultimate decision, the Agency denied Dr. Lukács’ standing and dismissed the complaint.  It applied the tests for private interest standing and public interest standing as they have been developed by and for civil courts.  It found Dr. Lukács lacked private interest standing because he was not himself obese and so could not claim to be “aggrieved” or “affected” or have some other “sufficient interest”.  It then determined that he lacked public interest standing because his complaint did not challenge the constitutionality of legislation or the illegal exercise of administrative authority. 

The Federal Court of Appeal allowed Dr. Lukács’ appeal.  It held that a strict application of the law of standing as applied in the courts was inconsistent with the Agency’s enabling legislation.  Moreover, it was contrary to the Agency’s objective to refuse to examine a complaint based solely on whether a complainant had been directly affected or had public interest standing.  The Federal Court of Appeal directed the matter be returned to the Agency to determine otherwise than on the basis of standing.  

The Supreme Court of Canada held as follows.

The standard of review to be applied in this case is reasonableness.  Where an administrative body interprets its own statute and is required to exercise discretion under it, it is presumptively entitled to deference. 

However, in this case the Agency did not reasonably exercise its discretion to dismiss Dr. Lukács’ complaint.  A decision is reasonable if it is justifiable, transparent, and intelligible and falls within a range of possible, acceptable outcomes.  The Agency’s decision that Dr. Lukács lacked standing does not satisfy these requirements for two reasons:    

First, the Agency presumed public interest standing is available and then applied a test that can never be met.  Any valid complaint against an air carrier would impugn the terms and conditions established by a private company.  Such a complaint can never, by its very nature, be a challenge to the constitutionality of legislation or the illegality of administrative action.  This is not what parliament intended when they conferred a broad discretion on the Agency to decide whether to hear complaints.  The Agency did not maintain a flexible approach to the question and in doing so unreasonably fettered its discretion.   

Second, the total denial of public interest standing is inconsistent with a reasonable interpretation of the Agency’s legislative scheme.  Applying the test for private and public interest standing in the way the Agency did would preclude any public interest or representative group from ever having standing before the agency regardless of the content of its complaint.  In effect, only a person who was in herself targeted by the impugned policy could bring a complaint.  This is contrary to the scheme of the act.  Parliament has granted the Agency broad remedial authority and to allow the Agency to act to correct discriminatory terms and conditions before passengers actually experience harm.  To refuse a complaint based solely on the identity bringing it prevents the Agency from hearing potentially highly relevant complaints and hinders it ability to fill the statutory schemes objective. 

Justice Abella, writing for the dissenting judges (Justices Moldaver and Karakatsanis) held that there was no basis for interfering because the Agency’s mandate gave the Agency wide discretion in terms of power to process and resolve complaints.  The standing rules exist to enable a court or tribunal to economize and prioritize its resources.  Tribunals are not required to follow the same procedures the courts use.  Here the decision to deny Dr. Lukács’ complaint was reasonable in the circumstances.  He brought a complaint on no underlying facts, no  representative claimants and no argument.  His complaint was purely theoretical and his interest in the issue was academic.  Accordingly, the proposed suit did not constitute an effective and reasonable means of bringing the issue before the Agency.  It was therefore unnecessary to remit the matter back to the Agency.



Friday, January 5, 2018

Supreme Court of Canada Extends Human Rights Protection from Employment Discrimination to Co-Workers

In British Columbia Human Rights Tribunal v. Schrenk 2017 SCC62, a majority of the Supreme Court of Canada found that the British Columbia Human Rights Code’s (“Code”) prohibition against discrimination “regarding employment” prohibits discrimination against employees even where the discriminatory conduct was carried out by a co-worker and not the employer.  The court held that the Code applies whenever the discrimination has a “sufficient nexus” with employment. 

In this case the complainant Sheikhzadeh-Mashgoul (the “Complainant”) filed a complaint with the British Columbia Human Rights Tribunal (“Tribunal”) against the respondent Schrenk (the “Respondent”) alleging employment discrimination based on religion, place of origin and sexual orientation. 

The Complainant worked for an engineering company as a civil engineer on a road improvement project.  The engineering company had certain supervisory powers over employees of a construction company, the primary contractor on the project.  The construction company employed the Respondent as a site foreman and superintendent.  When the Respondent made racist and homophobic statements to the Complainant, he was initially removed from the site but when the harassment continued, the construction company terminated his employment.

The Complainant immigrated to Canada from Iran and identified as Muslim.  When the Respondent learned of the Complainant’s origin and religion he made jokes about being blown up by a suicide bomb, called the Complainant a “fucking Muslim piece of shit”, and asked him whether he was going to call  his gay friend.  After the Complainant complained the Respondent persisted and shouted “go back to your mosque where you came from”.  Such behaviour resulted in the Respondent being removed from the work site.  However, subsequently he sent unsolicited emails to the Complainant in which he made derogatory insinuations about his sexual orientation. 

The Respondent brought an application to dismiss the complaint in which he argued that his alleged conduct was not discrimination “regarding employment” and was consequently beyond the jurisdiction of the Tribunal.  The Respondent’s argument was simple:  he was not in a position of economic authority over the Complainant.  He was neither the Complainant’s employer nor his superior in the workplace.  His conduct, however egregious, could not be considered discrimination “regarding employment” within the meaning of the Code.  

The Tribunal held that it had jurisdiction to deal with the complaint and denied the Respondent’s application to dismiss the complaint.  The British Columbia Supreme Court dismissed the Respondent’s application for judicial review, but the Court of Appeal allowed his appeal and found that the Tribunal had erred in law by concluding that it had jurisdiction over the complaint.

A 6 – 3 majority of the Supreme Court (Moldaver, Karakatsanis, Wagner, Gascon, Rowe and Abella) disagreed with the Court of Appeal and allowed the appeal (Justice Moldaver wrote the majority decision with a separate concurring decision written by Justice Abella).  Justices McLachlin, Cote and Brown dissented. 

The majority held as follows. 

The case involved the interpretation of the meaning of the words “employment” and “person” in the Code.   Reading the Code in line with the modern principle of statutory interpretation and the particular rules that apply to the interpretation of human rights legislation the prohibition against discrimination against employees prohibits discrimination whenever that discrimination has a sufficient nexus with the employment context.  This may include discrimination by their co-workers even when those co-workers have a different employer.   The discrimination in the case had sufficient nexus to the Complainant’s employment because the Respondent was integral to the Complainant’s workplace, the impugned conduct had occurred in the Complainant’s workplace and the Complainant’s work environment was negatively affected.   This contextual interpretation furthers the purposes of the Code by recognizing how employee vulnerability stems not only from economic subordination to their employers but also from being a captive audience to other perpetrators of discrimination such as a harassing co-worker. 

In separate reasons, Justice Abella found that the analysis requires that the meaning of employment discrimination be considered in a way that is consistent with the Supreme Court’s well settled human rights principles and not just the particular words of the Code.  Applying these principles leads to the conclusion that an employee is protected from discrimination related to or associated with his or her employment, whether or not he or she occupies a position of authority.  As a result, the Tribunal had jurisdiction to hear the complaint.

The dissenting three judges held that the prohibition against workplace discrimination in the relevant section of the Code applied only to employer-employee or similar relationships and authorized claims against those responsible for ensuring that workplaces are free of discrimination.  If the section were interpreted to allow claims against anyone in the workplace most of the next section which provides a separate protection against discrimination by unions and associates would be redundant.  The Code required the Complainant to focus on the employer, i.e. the people responsible for maintaining a discrimination free workplace.  Where the employer fails to intervene or prevent or correct discrimination the section is engaged.   

Importantly in this case, the court expanded human rights code protection against employment discrimination to encompass discrimination outside of the confines of the traditional employer-employee relationship. 



Tuesday, December 19, 2017

Supreme Court of Canada Orders Estate Trustee to Exercise Discretion to Benefit Beneficiary

The Supreme Court of Canada released its decision in Cowper-Smith v. Morgan, 2017 SCC 61, on December 14, 2017 relating to siblings disputing the entitlement to their mother’s estate.  

As early as 1992, Elizabeth and Arthur Cowper-Smith of Victoria, BC, had made it clear that after their deaths, their property would be divided equally among their three children, Gloria, Max and Nathan.  Shortly before he died in 1992, Arthur explained such intention to his children to avoid family discord.  However, after their father’s death, the children became estranged from each other.  Gloria first fell out with Nathan.  She wrote him letters demanding that he not raise his voice in her mother’s home or entertain “gay males”.  When he went on an overseas trip, Gloria changed the locks to the family home although Nathan’s belongings were still inside.  He broke in but Gloria had the police escort him out.  Nathan eventually moved to Edmonton.

Gloria fell out with Max next.  After his father’s death, Max struggled with financial difficulties and his mental health deteriorated.  He turned to alcohol and drugs.  His marriage fell apart.  Max moved to England.  In 2005, Gloria made it clear to Max that their mother could no longer live on her own.  They began to discuss options for their mother’s care.  Max eventually agreed to give up his life in England and move back to Victoria to care for their mother in the family home.  He only did so after Gloria agreed that Max would be reimbursed for various expenses, have the use of their mother’s car and most importantly be able to live in the house permanently and eventually acquire Gloria’s one-third interest in the house.  That arrangement worked until 2009, when Gloria began to back away from her promises. 

In 2001, when Gloria kicked Nathan out of the property, her mother’s estate planning changed dramatically.  Elizabeth transferred title to the property and all of her investments into joint ownership with Gloria.  Pursuant to a “declaration of trust” Gloria would hold her interest in the house and the investments as bare trustee with Elizabeth as the sole beneficiary and Gloria would be entitled absolutely to both the property and the investments upon her mother’s death.  Elizabeth also executed a new will which appointed Gloria as executor and revoked all previous wills.   Elizabeth revoked this will in 2002 and executed another will, her last.  In this last will, she again named Gloria as executor but this time provided that her estate would be divided equally between her three children.  However, the trust declaration and Gloria’s joint ownership of the property and the investments, if valid, would have assured that Elizabeth’s estate would be virtually devoid of assets.  Those things were not changed.   

Nathan discovered Gloria’s joint ownership of the house in 2005.  Gloria assured him that the arrangement was to simplify the administration of their mother’s estate and that he and Max would still each receive a 1/3 share.  She gave Max the same assurance 4 years later when he learned that Gloria’s name was on title.  Gloria changed her position after their mother’s death when a trust declaration entitling Gloria to Elizabeth’s assets came to light and Gloria announced her plans to put the house, in which Max was still living, on the market.

Max and Nathan sought an order to set aside the trust declaration as a product of Gloria’s undue influence over their mother and declaring that Gloria held the property and the investments in trust for Elizabeth’s estate to be divided equally between the three children in accordance with Elizabeth’s most recent will.  They also claimed on the basis of proprietary estoppel, that Max was entitled to purchase Gloria’s one-third interest in the property.   The brothers succeeded at trial where the trial  judge found that Gloria had not rebutted the presumptions of undue influence and resulting trust, and declared that the property belonged to Elizabeth’s estate.  The British Columbia Court of Appeal unanimous upheld the trial judge’s conclusion with respect to undue influence and resulting trust, but split on proprietary estoppel.  The majority held that since Gloria owned no interest in the property at the time that she made assurances to Max, proprietary estoppel could not arise.  Max appealed on the issue of proprietary estoppel.

The Supreme Court of Canada allowed Max’s appeal.  The majority decision was written by Chief Justice McLachlin, in one of her last decisions as Chief Justice of the Court, Justices Abella, Moldaver, Karakatsanis, Wagner, Gascon and Rowe concurred.  Justices Brown and Cote wrote separate reasons, concurring in the result but dissenting with respect to the remedy.  The Court held that the trial judge did not err in concluding that proprietary estoppel operates to enforce Gloria’s promise. Since ownership at the time the representation or assurance was relied on is not a requirement of proprietary estoppel, the fact that Gloria did not have an interest in the property at the time Max relied on her promise did not negate Gloria’s obligation to keep her promise. 

To establish propriety estoppel, the claimant must establish three things:

1.      a representation or assurance that the claimant expects to enjoy some right or benefit over property;
2.      the claimant must rely on that expectation by doing or refraining from doing something and his reliance must be reasonable in all of the circumstances; and
3.      the claimant must suffer a detriment as a result of his reasonable reliance such that it would be unfair or unjust for the party who made the representation or assurance to go back on her word and insist on her strict legal rights.

In such circumstances, proprietary estoppel attaches to the interest that the claimant has in the property and protects the equity by making the representation or assurance binding.  It is not necessary that the party responsible for the expectation own an interest in the property at the time of the claimant’s reliance.  When that party has or acquires sufficient interest in the property, proprietary estoppel will attached to that interest and protect the equity.

Whether a claimant’s reliance is reasonable in the circumstances, is a question of mixed fact and law.  A trial judge’s determination of that point is, absent, palpable and overriding error, entitled to deference.  However, a claimant who establishes the need for proprietary estoppel is entitled only to the minimum relief necessary to satisfy the equity in his favour and cannot obtain more than he expected.  There must be a proportionality between the remedy and detriment.

The majority held that in this case, both Max and Gloria had clearly understood for well over a decade that Elizabeth’s estate, including the family home, would be divided equally between the three children upon her death.  It was thus sufficiently certain that Gloria would inherit a one-third interest in the property for her assurance to be taken seriously as one on which Max could rely.  There was no basis on which to overturn the trial judge’s conclusion that Max’s reliance was reasonable.  An equity arose in Max’s favour when he reasonably relied to his detriment on the expectation that he would be able to acquire Gloria’s one-third interest in the family home.  That equity could not have been protected by proprietary estoppel at the time it arose because Gloria did not own an interest in the property.  However, proprietary estoppel attached to Gloria’s interest as soon as she obtained it from the estate. 

Gloria as executor could be ordered to transfer a one third interest in the property to each of the estate beneficiaries so that her promise to Max could be fulfilled.  Such a distribution of shares in the property was not contrary to Elizabeth’s intent  and the court had the power to direct Gloria to exercise her discretion as executor in a certain manner.  With respect to remedy, the minimum necessary to satisfy the equity in Max’s favour was an order entitling him to purchase Gloria’s interest in the family home at it fair market value as at the approximate date on which he would reasonably have expected to do so in the first place.



Thursday, November 2, 2017

Court Of Appeal Vacates Its Security for Costs Order in Ecuadorian Litigation against Chevron

When I last reported on this case Yaiguaje v. Chevron Corporation 2017 ONCA 827, less than a month ago, I reported that Justice Gloria J. Epstein of the Ontario Court of Appeal had ordered that the Ecuadorian plaintiffs post security for costs of more than $942,000 in order to continue with an appeal from a summary judgment order dismissing their against Chevron Canada.  In a decision released on October 31, 2017, a three judge panel of the Ontario Court of Appeal unanimously reversed Justice Epstein’s decision and vacated her order.  The panel (Justices Hoy, Cronk and Hourigan) held that the unique factual circumstances of this case compelled the conclusion that the interests of justice required that no order for security for costs be made.  Unlike their colleague, Justice Epstein, the panel concluded that the motion for security for costs was simply a tactical move made by Chevron to end the litigation.


The panel agreed that under rules of civil procedure, the court may make an order for security for costs where it is “just” to do so.   It held that the rule, as written, was permissive not mandatory and that even where the requirements of the rule have been met, a motion judge has discretion to refuse to make the order.  The panel held that the overarching principle to be applied in all of the circumstances is the justness of the order sought.


Because Justice Epstein’s decision was discretionary, it should be afforded deference.  However, an error in principle is one of the bases on which the court may interfere with a discretionary order. 


The panel held that in deciding motions for security for costs, judges are obliged to first consider the specific provisions of the rules governing such motions and then effectively take a step back and consider the justness of the order sought in all the circumstances of the case, with the interests of justice at the forefront.  They held that Justice Epstein had failed to take into account the second part of that analysis and that failure constituted an error in principle.  It therefore fell to the appeal panel to conduct the necessary analysis of the justness of the order.


In concluding that no order for security for costs should be made in this case, the panel considered the following:


  1. the Ecuadorian plaintiffs were seeking to enforce a judgment in which they have no direct economic interest.  Funds collected on the judgment will be paid into a trust and net funds are to be used for environmental rehabilitation or health care purposes in Ecuador.   In essence, this is public interest litigation;
  2. although there is no direct evidence of impecuniosity before Justice Epstein, the panel held that it would be highly impractical to obtain this evidence from the representative plaintiffs, let alone the 30,000 people who would indirectly benefit from the enforcement of the judgment.  The court found “there can be no doubt that the environmental devastation to the appellants’ lands has severely hampered their ability to earn a livelihood” and that if they accept the findings that underlie the Ecuadorian judgment, Texaco Inc. contributed to the appellants’ misfortune;
  3. in contrast, Chevron Corporation and Chevron Canada have annual gross revenues in the billions of dollars.  It is difficult to believe that either of these two corporations require protection for costs awards that could amount to a miniscule fraction of their annual revenues;
  4. there should be no bright line rule that a litigant must establish that litigation funding is unavailable to successfully resist a motion in an appeal for security for costs.  In this case counsel for the appellants advised the court that he was operating under a contingency arrangement and there was evidence that Chevron Corporation has sued some of the appellants’ former third party funders and the funders withdrew their financial support;
  5. it can’t be said that this case is wholly devoid of merit;
  6. there is no doubt the legal arguments asserted by the appellants are innovative and untested but that does not foreclose the possibility that one or more of them may eventually prevail; and
  7. the history of the litigation which has been ongoing for almost 25 years makes it clear that Chevron has and will employ all available means to resist enforcement of the judgment.  This reality makes it difficult to accept that the motion for security for costs is anything more than a measure intended to bring an end to the litigation. 
    For all of those reasons, the court set aside Justice Epstein’s order and denied Chevron’s motion to require the Ecuadorian plaintiffs to post security for costs on the appeal.      



Wednesday, November 1, 2017

UK Court Says Dishonesty Not An Essential Element of Cheating


In a judgment given on October 25, 2017, five justices of the Supreme Court of the United Kingdom held unanimously that dishonesty was not an essential element of the civil tort of cheating. 


In Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2016] UKSC 67, the Supreme Court upheld the decision of Mr. Justice Mitting of the Queen’s Bench Division of the High Court of Justice.  Lord Hughes wrote the decision for the court (Lord Neuberger, Lady Hale, Lord Kerr and Lord Thomas all agreed). 


The facts giving rise to this case are unique.  The claimant is Phillip Ivey, an American professional gambler.  Mr. Ivey widely acknowledged to be one of the world’s best poker players.  He also plays blackjack, craps, roulette and baccarat.  At issue in this case is a variant of baccarat known as Punto Banco.


How to Play Punto Banco


The facts of this case are not in dispute.  Punto Banco is not a game of skill.  It is played with eight decks of cards, 416 cards in total, which are dealt from a shoe - face down by a croupier.  The croupier deals cards in a sequence from which no deviation is permitted to two positions on the table in front of her marked “player” (the Punto) and “banker” (the Banco), hence the name of the game.  The croupier deals one card to player, one to banker; a second card to player and a second to banker.  In some circumstances, she must deal one further card either to player or to banker or to both.  The basic object of the game is to achieve, on one of the two positions, a combination of two or three cards which when added together is nearer to nine in total than the combination on the other position.  Aces to nine count at face value, ten to king inclusive count as zero.  Any pair or trio of cards adding up to more than ten, requires ten to be deducted before the total count, thus four plus five equals nine but six plus five (which equals eleven) equals only one in the game. 


The gambler (or "punter" as they are known in the UK) bets before any card is dealt and can bet on player or banker.  It is possible to bet on a tie.  The house edge in Punto Banco is 1.24% if player wins and 1.06% if banker wins.


Before play begins, the cards are cut to eliminate a proportion of the shoe from those to be played.  Traditionally, seven cards out of the 416 in the shoe were cut, but some casinos routinely eliminate more.




On August 20 and 21, 2012, Mr. Ivey played fifteen shoes of Punto Banco at Crockfords Club in London.  He was aided by another professional gambler, Cheung Yin Sun (“Ms. Sun”).  Mr. Ivey won just over ₤7.7 million.  There is no dispute that he used a technique known as edge-sorting to achieve that win.


A deck of playing cards is manufactured in order to present a uniform appearance on the back of the card.  The backs of some cards are, however, not exactly uniform.  In casino games in which the orientation of the back of the card may matter, the casino attempts to use cards in which the backs and the edges are indistinguishable.  Edge-sorting is possible when the manufacturing process causes tiny differences to appear on the edges of the cards so that for example the edge of one long side is marginally different from the edge of another long side.  In some cases the machine which cuts the card leaves very slight differences or patterns which are visible on long edges of the cards.  Manufacturers assert that this is not a defect but is within a contractually specified tolerance of 0.3 millimetres.  Before a card is dealt from the shoe, it sits face down at the bottom of the shoe displaying one of its two long edges.  It is possible for a sharp-eyed person sitting close to the shoe (like Mr. Ivey), to see which long edge it is.  The information thus gained is only useful to the gambler if he knows or has a good idea of what card it is. 


Cards with a face value of seven, eight and nine are high value cards.  If the gambler knows that when the first card is dealt whether it is a seven, eight or nine, always to player, is a seven, eight or nine, he will know it is more likely than not, that the player will win.  If it is not one of those three cards, he will know that it is more likely than not that the banker will win.  Such knowledge will give the gambler a long-term edge of about 6.5% over the house.  Three conditions must occur before the gambler can gain that knowledge:  (1)  the same shoe of cards must be used more than once; (2) cards with a face value of seven, eight or nine must be turned through 180 degrees by comparison with all other cards; and (3) when reshuffled no part of the shoe must be rotated.  Step two is the process known as edge-sorting. 


If the casino realizes that the seven, eight and nine cards are being turned, it will take simple steps to avoid giving the gambler an advantage.  It is therefore essential for edge-sorting to work that the croupier does not realize that the seven, eight or nine cards have been deferentially sorted.  Two people can rotate the cards – the gambler or the croupier.  If the gambler touches the cards, most casinos, including Crockfords, will not permit that shoe to be reused.  Therefore, for edge-sorting to work at Crockfords, it is essential that the croupier is persuaded to rotate the relevant cards without her realizing why she is being asked to do so.  Casinos routinely play on quirky and superstitious behaviour by gamblers.  It is in the casinos’ interest that gamblers should believe that a lucky charm or practice will improve their chance of winning.  Consequently, a wide variety of requests by gamblers, particularly those willing to wager large sums, like Mr. Ivey, are accommodated by casinos.


Ivey’s Gambit


All of the games of Punto Banco that Mr. Ivey and Ms. Sun played were captured on CCTV, contemporaneously with audio recording.  The moment they persuaded the croupier, Kathy Yau, to rotate the cards was as 9:00 p.m. on August 20, 2012. 


Mr. Ivey began the Punto Banco game by betting modestly by his standards – between ₤4,000 to ₤75,000 per bet.  He was losing.  At 8:56 p.m. he requested a new shoe of cards.  At 8:57 p.m., Mr. Ivey asked the senior croupier overseeing the game, “If I win, can I say I want the same cards again?”, to which the senior croupier replied yes “because he was not bending them”.   Mr. Ivey had avoided touching the cards from either the first or second shoe onwards.  At that point, Justice Mitting describes in detail the video proceedings at the Punto Banco table captured by the CCTV.  Mr. Ivey and Ms. Sun persuaded the croupier to cut only seven cards from the end of the shoe.  Ms. Sun persuaded the croupier to turn the cards in a particular way in order to “change her luck”.  They then persuaded the croupier to keep the same shoe because they had won with that shoe.  The cards were reshuffled by a machine but the croupier did not rotate them before they were shuffled.  Mr. Ivey increased his betting so that the average stake was never less than ₤149,000.  By the end of the game he had won just over ₤7.7 million.  He was provided with a receipt for that amount and told it would be wired to him.


Crockfords’ Investigation


Crockfords’ practice when any large win by a gambler occurs is to conduct an investigation to determine how it happened.  Its investigation determined that Mr. Ivey had been edge-sorting, which he later freely admitted.  Accordingly, Crockfords did not pay Mr. Ivey his winnings but refunded him his stake of ₤1 million.  Mr. Ivey sued Crockfords for his winnings.


Trial Decision


The casino denied liability on, among other grounds, that there was in implied term that Mr. Ivey would not cheat and that term had been broken. 


Justice Mitting held that if Mr. Ivey had cheated then he would not be entitled to recover his winnings.  He also found that in the UK there was a “complete dearth of authority on cheating at common law, at least in the civil context".  In addition, there was a dispute among gaming experts as to whether edge-sorting does or does not amount to cheating.  Experts were called by both parties. 


Mr. Ivey described what he and Ms. Sun did as “legitimate gamesmanship”.  While the trial judge was not satisfied that the edge-sorting amounted to deception of such a kind as to vitiate the gaming contract, he held that it was deception nonetheless.  Mr. Ivey and Ms. Sun succeeded in persuading the casino staff not to depart from their usual practice of humouring high stakes gamblers by acceding to a request which in their view did not affect the outcome of the game.  But it did. 


The fact that Mr. Ivey did not see himself as cheating was not determinative of the issue.  The trial judge held that what he did amounted to cheating because:  (1)  he gave himself an advantage throughout the play of the sixth and subsequent shoes by knowing or having a good idea whether the first card was or was not a seven, eight or nine; (2)  he did so by using the croupier as his innocent agent by turning the seven, eight and nine cards differentially; and (3) he did so in circumstances in which he knew that she and her superiors did not realize the consequence of what she had done at his instigation. 


Accordingly, the judge found that Mr. Ivey had converted a game of essentially pure chance into a game in which his knowledge was greater than that of the croupier and greater than that which he would reasonably have expected it to be. 


Accordingly, the judge found that conduct that amounted to cheating for the purposes of civil law and it was immaterial that the casino could have protected itself against the cheating by simple measures.


The Appeal


Mr. Ivey appealed this decision to the Supreme Court.  The court dismissed his appeal and agreed with the trial judge.  In doing so, it held that it was necessary to determine whether cheating necessarily involves dishonesty.  It held that the answer was no.  Mr. Ivey had argued that he had not been dishonest, he had just simply engaged in “advantage play”. 


The court rejected that argument.   It held that cheating's essentials normally involve a deliberate act designed to gain an advantage in the play which is objectively improper given the nature, parameters and rules of the game.  The Court of Appeal agreed with the trial judge’s conclusions that Mr. Ivey’s action amounted to cheating.  It held that it is an essential element of Punto Banco that the game is one of pure chance, with the cards delivered entirely at random and unknowable by the gamblers or the house.  The court held that what Mr. Ivey did was "to stage a carefully planned and executed sting".  The key factor was arranging of the several packs of cards in the shoe differentially sorted so that Mr. Ivey would not know whether the next card was a high or low value one.  However, he had gained the knowledge through the unwitting but directed actions of the croupier, tricking her into thinking that what she did was irrelevant.  The court found that what Mr. Ivey did was much more than observe the cards.  He took positive steps to fix the deck.  That conduct, in a game which depends on random delivery of unknown cards constituted cheating.  While it was cleaver and skillful and must have involved what the court referred to as “remarkably sharp eyes”, it cannot alter that truth.     


After a detailed review of the law, the court held that the facts of the case did not arise to the legal element of dishonesty.  However, it was incorrect to suggest that the trial judge’s findings that Mr. Ivey was truthful when he said that he did not regard what he did as cheating amounted to a finding that his behaviour was honest.  It was not.  It was a finding that he was, in that respect, truthful.  A dishonest person may sometimes be truthful about his dishonest opinions.  The court held that the better conclusion was that Mr. Ivey’s conduct was, contrary to his own opinion, cheating and was, contrary to his own opinion also dishonest. 

However, the court also held that dishonesty was not an essential element of the civil tort of cheating in the sense that there was no requirement that a defendant must appreciate that his conduct was dishonest.