Hazelton Lanes Inc. v. 1707590 Ontario Limited

Hazelton Lanes v. 1707590 Ontario Limited, 2014 O.J. No. 5365, is the most recent Ontario Court of Appeal decision to address judicial bias and misconduct.

Thirty-nine days into a trial scheduled for only three days in 2013, Superior Court Justice Theodore Matlow found that the Defendant John Faraci, a Toronto lawyer, “had engaged in a fraudulent scheme to hide assets and that…Faraci’s participation in the trial was an “abuse [of] the civil justice system” because he was “engaging it without any financial risk.” Faraci was still under cross-examination. He had also just lost a mid-trial Mareva injunction motion the Plaintiffs had brought on an ex parte basis at the Trial Judge’s suggestion.

Before the trial could properly finish, Faraci brought the case before the Court of Appeal for Ontario. Justices Janet Simmons, Robert Sharpe and Mary Lou Benotto unanimously ruled that the Trial Judge had demonstrated a reasonable apprehension of bias during the abortive trial, which ultimately ate up fifty days of court time. The Appeal Court allowed the appeal.

The case arose from a commercial dispute between Faraci, sole director of 1707590 Ontario Limited (170) and former lawyer for the plaintiffs Hazelton Lanes Inc. and its controlling shareholder Stephen Chan. In 1999, Faraci acted for Chan and one of his companies on the purchase of the Toronto shopping centre Hazelton Lanes. At the time, Faraci negotiated a three per cent interest in Hazelton Lanes, and a lease of office space in Hazelton Lanes from 2001 – 2011.

Chan’s and Faraci’s relations deteriorated. Hazelton Lanes was scheduled to be sold in October 2011. Before the sale, in June 2011, Faraci sued Chan and Hazleton for his three percent ownership interest. Faraci obtained an order that Hazelton Lane pay $1 million of the $108 million sale price into court to the credit of his action.

Days after this order, Hazelton and Chan began an action against Faraci and 170. They claimed rental arrears of $7,500 and $20,000 in trust funds paid to Faraci in 2004. They also asked for a referral to assessment of fees paid to Faraci from 2006-2010.

The trial began in April 2012 before Justice Matlow. It quickly exceeded its three day estimate. Plaintiffs’ counsel asserted that Faraci and 170 were judgment-proof. This led the Trial Judge to suggest the Plaintiffs move ex parte for a Mareva injunction, and for an order adding several defendants. The next court day, the Plaintiffs moved. Faraci was in cross-examination at the time. He had no opportunity to respond.

The Trial Judge allowed the Plaintiffs’ motion. He granted the Mareva injunction he had suggested, and authorized Hazelton and Chan to amend their claim to add five new defendants and several new causes of action. In his endorsement, the Trial Judge made his findings of a fraudulent scheme and an abuse of the civil justice system, quoted above.

These findings were not the only ones the Trial Judge made that were unfavourable to the Defendants. Soon after Faraci began his evidence, the Trial Judge interjected that it “defie[d] common sense” and was “gobbledygook.” The Trial Judge also imposed 19 mid-trial directions on Faraci. He ordered Faraci to obtain, produce and organize for Hazelton’s and Chan’s counsel, documents never previously requested. Faraci tried but could not comply with the directions in mid-trial. The Trial Judge declared him in contempt, after refusing Faraci’s request that the contempt motion be heard by a different judge. The Trial Judge ordered Faraci to post $35,000 as security for costs. Faraci did not comply. Finally the Trial Judge struck Faraci’s statement of defence and counterclaim, and granted partial judgment to the Plaintiffs. The Trial Judge also ordered Faraci to pay $650,000 in substantial indemnity costs.

Before the dismissal order in December 2013, Faraci and 170 moved for a mistrial before the Trial Judge in April and May 2013 citing an apprehension of bias. At the end of three days of submissions the Trial Judge dismissed the motion within minutes. Reasons, however, were only delivered after the Defendants launched an appeal.

Justice Simmons, writing for the Court of Appeal, said that three aspects of the Trial Judge’s conduct taken together gave rise to the reasonable apprehension of bias: the statements and findings made during the trial which indicated the Trial Judge had prejudged Faraci’s conduct and credibility; the 19 directions for mid-trial production of masses of documents for “no apparent purpose” and; the contempt finding against Faraci, which was made with no analysis of the extent to which Faraci and 180 had complied with the 19 mid-trial directions, or the validity of the reasons for non-compliance about which Faraci had given affidavit evidence.

The Court set aside the Trial Judge’s judgments and orders, and ordered a new trial before a different trial judge. The Court made no order as to the costs of either the trial or the appeal. The new trial is pending.

1707890 Ontario Limited and John Faraci were represented by Fogler, Rubinoff LLP with a team led by Milton Davis, Ronald Davis and Robert MacDonald.

Hazelton Lanes Inc. and Stephen Chan were represented by Aird & Berlis LLP with a team led by William Chalmers.