Ontario Superior Court Sets Aside Judgment on Grounds of Fraud

Justice Thomas Lederer of the Ontario Superior Court of Justice has set aside the 1998 judgment in Canada v. Granitile Inc. on the basis that it was obtained through fraud.

The proceeding began in 1991 when Granitile Inc. and its principal, Nicholas Pirruccio, commenced an action against the Government of Canada alleging breach of contract and negligent misrepresentation in its handling of an application for financial assistance made to the Atlantic Canada Opportunities Agency (ACOA). This led to a 1997 trial, following which judgment was granted to the plaintiffs. In granting judgment, the court relied upon a variety of letters, which purported to contemporaneously record representations made by government employees to the plaintiffs.

In 2000, the Government of Canada brought a motion to set aside the judgment on the basis of fraud. The Government of Canada alleged that Nicholas Pirruccio had perjured himself at the initial trial and that the letters recording the representations, among other documents, were fraudulent in that they were not authored or sent on the dates on the face of the letters. The motion was converted into an action that was tried before Justice Lederer in 2008.

Justice Lederer set aside the judgment granted to the plaintiffs at the 1997 trial. He found that 14 letters and a memorandum, which supported the plaintiffs' claim, were fraudulent and should not be relied upon in any subsequent proceeding by which the plaintiffs may seek to re-establish the claim.

In his reasons, Justice Lederer applied a four-part test for setting aside a judgment on the basis of fraud: (i) the moving party must prove the fraud on a balance of probabilities with clear and cogent evidence; (ii) the moving party must not have had knowledge of the fraud, including the evidence necessary to prove the fraud, at the time of the initial trial; (iii) the moving party must show that the fraud affected the result in the judgment but need not show that it was a determining factor; and (iv) the moving party must not have acted with undue delay in bringing the motion. The Government of Canada established that it met each part of the test.

Justice Lederer found that there was no due diligence requirement as part of the test to set aside a judgment on the ground of fraud. He found that Lac Minerals Ltd. v. International Corona Resources Ltd., a leading case dealing with setting aside a judgment on the basis of fraud, did not include as part of the test a requirement on the moving party to establish that it could not have uncovered the fraud with the exercise of due diligence.

Justice Lederer rejected the due diligence requirement in cases of fraud and affirmed that, instead, the moving party had to establish that it did not possess full knowledge of the fraud, including the evidence necessary to prove the fraud, at the time of the first trial.

The reasons describe this as a case that reflects a tension in the core values of our justice system — the tension between a desire for finality and the integrity of the court process. Justice Lederer found that once fraud is established, the integrity of the court system is paramount. The judgment against the Government of Canada was accordingly set aside.

The Government of Canada was represented by Ronald G. Slaght, QC, Monique Jilesen and Michael Hunziker of Lenczner Slaght Royce Smith Griffin LLP.

Granitile Inc., Granitile Limited Partnership and Nicholas Pirruccio were represented by Ronald B. Moldaver, QC, counsel at Davis Moldaver LLP.