Beware of Going Overboard!

Mar 4th, 2015

By Barry Landy

It’s not that often that a case involving civil procedure, of all things, winds up being of tremendous importance to litigation lawyers and to the public at large, but believe it or not, it happens once in a while.

Such is the result of a relatively little-known case called Charland v. Lessard (2015 QCCA 14).

The case involved a minority shareholder, Charland, who claimed that she was being mistreated by the majority shareholders or “oppressed”, to use the time-honoured vernacular, in connection with her participation in a company called Concept Éco-Plein-Air Le Baluchon Inc. The legal proceedings raised a whole raft of complaints, principally made against the controlling directors and contained some 70 conclusions for relief including a demand by Charland that the company reimburse her legal fees of $1.5 million, in a file involving a small to medium size business and where the financial stakes were considerably less than the legal fees.

In defence, of course, the defending parties vigorously contested all of Charland`s complaints and in particular the allegations that they had oppressed her. But in addition, and here is the interesting point, the defendants pleaded that the recourse taken by Charland was disproportionate. The defendants thus claimed from Charland damages equivalent to their own legal defence costs and expenses.

To give you some idea of what was involved, the case necessitated 15 days of pre-trial out-of-court discoveries and 27 days of trial.

At the end of all of this, the trial judge dismissed almost the entirety of the 70 plus conclusions sought by Charland and concluded that she had not been oppressed by the majority shareholders. She did maintain certain conclusions of the action regarding a promise of sale of certain shares, but on the whole, this was minor piece of the puzzle.

The most striking conclusion, however, was that the trial judge decided that Charland had not respected article 4.2 of the Code of Civil Procedure  She decided that given the stakes involved, and the time and costs incurred to resolve  those stakes, Charland`s  procedure was disproportionate and therefore abusive, excessive and unreasonable.

Here is the innovative part: Prior to the Charland decision, the general consensus in the litigation bar was that recovering one's legal costs from the losing party, as damages, required a finding of abuse by the court, namely a finding that the proceedings as taken were manifestly unfounded on their face, or frivolous or vexatious, or having no reasonable chance of success. However, in the Charland case, this test could not be met. Madame Charland’s proceedings might have been ill-founded, but they were not manifestly unfounded on their face, or frivolous or vexatious, or having no reasonable chance of success. There was no malice in the legal proceedings per se, which would have amounted to an actionable civil fault.

In that respect the Court of Appeal innovated, by adopting the following new rule: A person who conducts a legal proceeding in an unreasonable way to assert his rights, even if that person is acting in good faith and without a malicious intention may nonetheless be held liable for prejudice caused to the opposing party. Carelessness or negligence or blameworthy conduct may all be sanctioned.

There will be sanctions if a reasonable person would conclude, looking at how the matter unfolded and the trial process, that there was an unreasonable use of procedure, taking into account, the costs, the time spent, the remedy or purpose of the proceedings and  the importance of the legal principles or interests at stake.

While the new rule might seem like a self-evident and long overdue great idea, arguably, the Court of Appeal has opened Pandora's box.

This is because the litigation system we live with is inherently adversarial.  Lawyers are supposed to defend their clients with all the vigour, energy and ingenuity they are able to muster, in a loyal and faithful manner. In principle, lawyers are not judges. They do not owe a duty to be accommodating to their opponent (even if they should be polite and respectful at all times).

However, with the new rule promulgated by the Court of Appeal, once a trial is over, the lawyer's conduct of the case may be examined after the fact, with a view to determining if the representation was overly zealous. And who will be the judge of that? Any analysis of how a lawyer conducted the case, after the fact, will always be subject to criticism of one kind or another, because hindsight is 20-20. What is reasonable to one person may very well prove to be unreasonable to another person, especially when the analysis is retrospective.

In conclusion, for litigating lawyers and parties,  it is a Brave New World out there. The old paradigms no longer hold true and a healthy dose of caution may be the "new normal".

Barry Landy is a senior litigation lawyer at Spiegel Sohmer who focuses his practice on commercial litigation and is also experienced in the area of media law.