Amending Orders to Allege Fraud: Ontario Court of Appeal limits use of Rule 59.06

Today’s decision by the Court of Appeal for Ontario in Royal Bank of Canada v. Korman, 2010 ONCA 63 (Ont. C.A.) clarifies the purpose behind amending, setting aside or varying orders under Rule 59.06 of the Ontario Rules of Civil Procedure and reminds litigators that actions are framed by the pleadings. Rule 59.06 reads as follows:

Amending

59.06 (1) An order that contains an error arising from an accidental slip or omission or requires amendment in any particular on which the court did not adjudicate may be amended on a motion in the proceeding. R.R.O. 1990, Reg. 194, r. 59.06 (1).

Setting Aside or Varying

(2) A party who seeks to,

(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;

(b) suspend the operation of an order;

(c) carry an order into operation; or

(d) obtain other relief than that originally awarded,

may make a motion in the proceeding for the relief claimed. R.R.O. 1990, Reg. 194, r. 59.06 (2).

In Royal Bank of Canada v. Korman, the defendant, Ian Korman appealed from an order dismissing his motion to set aside a previous consent order, signed on his behalf by his former solicitor. The plaintiff bank, Royal Bank of Canada (“RBC”) had obtained a default judgment against Korman for $52,730.85 pursuant to his guarantee of his company, Futurecom Inc.’s debt to the bank.In the course of Korman’s examination-in-aid-of-execution, RBC learned that some of Korman’s statements provided to the bank in his personal statement of affairs were false. RBC also learned that Korman’s correct legal name was “Israel Ian Korman”, not “Ian Israel Korman” as originally named. RBC then brought a motion under r. 59.06(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 before Justice Miller who granted an order amending that judgment by adding the alias “Ian Israel Korman” to the style of cause and adding declarations of fraud to the prior judgment and a subsequently obtained cost award, forms of relief which were absent in the original pleading upon which the default judgment was granted.

Justice Rouleau focused on the solicitor’s lack of understanding of RBC’s notice of motion. At paragraph 6, the learned Justice writes:

“The solicitor clearly misunderstood the nature and scope of the relief sought. He understood only that the bank alleged that the appellant had fraudulently used the name Ian Israel Korman on certain loan documents and therefore sought to add the name Israel Ian Korman to the judgment. He did not notice that the bank also sought declarations of fraud. He therefore said nothing to the appellant concerning these declarations or the impact that they would have on him. Rather, he advised the appellant that, because he would suffer no prejudice, he should consent to the motion and avoid incurring unnecessary costs. The appellant was never provided with a copy of the motion materials and, based on his solicitor’s advice, authorized his solicitor to consent to the bank’s motion. Justice Miller then issued the consent order on February 27, 2008. I note that Miller J.’s order amending the judgment added the alias Ian Israel Korman and not Israel Ian Korman as requested in the motion. Nothing in this appeal turns on this apparent error.”

Justice Rouleau also considered Korman’s affidavit in which he provided an explanation for the alleged misstatements in his personal statement of affairs, as well as his former solicitor’s affidavit in which the solicitor confirmed his misunderstanding of what had been sought in the motion before Miller J., including his failure to advise his former client of the declarations and the implications of consenting to them. Rouleau, J.A. concluded that the motion judge erred in finding that there was no basis for disputing RBC’s claim that the funds were obtained by fraud, and in rejecting Korman’s submission that he consented to Miller J.’s order based on his solicitor’s mistake of fact , which amounted to a misapprehension of the evidence.

With respect to purpose underlying rule 59.06(2)(a), the Court of Appeal agreed with Korman’s contention that “a judgment obtained in contract for a debt cannot be declared to be in fraud after judgment and absent the appropriate pleadings”, and held that:

[22] In the present case, the respondent argues that the facts it relies on to prove the alleged fraudulent misrepresentations were discovered by it after the judgment was obtained. Assuming that the statements in the appellant’s personal statement of affairs were indeed fraudulent, the bank submits that this places it within the rule.

[23] I disagree. The difficulty with the respondent’s position is that it had never claimed fraud in the statement of claim. The claim was simply for recovery of a debt based on the guarantee. The claim contained no allegation of fraud nor was declaratory relief of the nature ordered by Miller J. sought. In my view, this placed the relief requested by the bank beyond the scope of that available under r. 59.06.

[24] The rule does not contemplate altering a judgment or order to provide for relief never sought in the moving party’s pleading. In order to come within the rule, the motion must be one brought “in the proceeding”. As a general rule, pleadings lay out the four corners of the dispute and parties are bound by their pleadings: See Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), 41 O.R. (3d) 528 (C.A.); leave to appeal refused, [1999] SCCA No. 253 (S.C.C.). The proceeding continues to be defined by the pleadings even after judgment is obtained. For the motion to be “in the proceeding”, therefore, it must be a motion that, even before judgment, was available to the moving party to bring. In this case, even on a generous reading, a motion for judgment declaring the sums to be owing in fraud could not have been brought or succeeded before judgment based on the pleadings as they stand. Rather, the respondent’s pleading would have to have been amended to request such relief.

Justice Rouleau also rejected the bank’s argument that the consent order operated to waive or cure any procedural defects, noting that:

“[25]…Assuming that this court has the discretion to dismiss the appeal on this basis, I do not consider this to be an appropriate case for granting such relief and would decline to do so. Given the seriousness of the allegation, fraud must normally be pleaded and proved with particularity and the defendant ought generally to be entitled to defend. Here, fraud was neither pleaded nor proved and the materials filed raise a serious issue as to whether fraud was involved in the advancing of the funds owing to the bank. Further, it is apparent from the affidavit filed by the appellant’s former solicitor that the appellant’s consent was based on a misunderstanding of the nature of the relief being sought.

[26] I am not persuaded that the fact that Mr. Korman consented to the order of Miller J. on the basis of mistaken advice from his solicitor should preclude him from setting aside the impugned parts of the order. It is neither just nor equitable in the circumstances to allow the order to stand and I would set it aside.”

2 Responses to “Amending Orders to Allege Fraud: Ontario Court of Appeal limits use of Rule 59.06”

  1. searchengineman Says:

    Hi the link to the actual case does not seem to be working, can you fix this. Thanks.Great Article.

  2. Antonin Pribetic Says:

    Thanks to http://searchengineman.wordpress.com/ for pointing out the broken link to the Royal Bank of Canada v. Korman appeal judgment, which I now corrected.

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