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What Fraud Victims Should Know About a Fraudster’s Attempts to Stay Civil Recovery

Canadian Fraud Lawyer

We are often asked by fraud victims about whether a fraudster can ask a Court to stay their civil proceedings for recovery because the fraudster has been charged under the Criminal Code. The short answer is not in most cases.

The issue of staying civil proceedings for fraud because of outstanding criminal charges related to the same underlying facts is one of many issues that arise in civil fraud recovery cases due to the nature of fraud as both a civil tort and a criminal offence. We encounter these issues on a daily basis, and have blogged on this issue in the past – see: Coordinating Criminal and Civil Justice as a Means of Recovery for Fraud Victims

Motions in the Civil Courts to Stay Civil Proceedings Because of Outstanding Criminal Proceedings

The case of Toth Equity Limited ats Mirzakhalili is one example of criminal fraud defendants attempting to stay civil actions from proceeding while the criminal charges they are facing is outstanding. The civil courts in Toth held that there is no general rule requiring a stay of a civil proceeding simply because a criminal case relating to the same underlying facts is pending. Rather, the civil court in Toth held that it will grant a stay at the request of either party only if there are extraordinary or special circumstances. In order to prove extraordinary or special circumstances, the moving party will have to provide the civil court with compelling and cogent evidence of prejudice.

Notwithstanding this general rule against staying civil proceedings, the civil court in Toth acknowledged that often, as a practical matter, civil actions are stayed on consent of all parties pending the results of a criminal proceeding. This is because a criminal conviction may be used as evidence in a civil proceeding, and there may be little point in the parties running up the costs of civil discovery if the evidence relating to liability is already determined by the criminal courts. The important exception to this consideration, as discussed further below, is that the defendant fraudster is not compellable in a criminal proceeding whereas he or she is compellable in a civil proceeding, and his or her evidence from the civil action may be used for impeachment purposes in his or her criminal case.

Affidavits of Criminal Defence Lawyers in Motions to Stay Civil Fraud Recovery Proceedings

Some criminal defence lawyers have filed affidavits in support of the criminal clients in the civil courts for the purpose of supporting their client’s motion to stay a civil action proceeding concurrent with a criminal case. The late Edward Greenspan was one such lawyer on behalf of a fraud defendant. In Stickney ats Trusz, Mr. Greenspan provided an affidavit to the civil courts advising that the conduct of his client Trusz would be seriously impaired and prejudiced if he was required to plead a Statement in Defence in response to Stickney’s Statement of Claim, and then submit to the civil discovery process which includes production of documents and examinations for discovery. Mr. Greenspan further alleged in his affidavit that if the civil action was not stayed, his client Trusz would be required to divulge the nature of his defence before the Crown was required call any evidence or substantiate the charges.

Mr. Greenspan was cross examined on his affidavit in support of his client’s motion. Mr. Greenspan declined to disclose whether his client had a defence to the criminal charge. Mr. Greenspan also failed to provide a specific ground of prejudice except for the general interference with his client’s right to silence. The Plaintiff argued that the deemed undertaking rule, as discussed below, provides protection against the prejudice of a criminal accused testifying in his or her civil case prior to the trial of his or her criminal proceeding. On this basis, the Court in Stickney dismissed the motion of Trusz, and the civil fraud recovery action continued to discoveries.

Extraordinary Circumstances: Breach of the Deemed Undertaking Rule

We have blogged in the past on the deemed undertaking rule as found in the Rules of Civil Procedure as the mechanism to protect the criminal right against self incrimination – see: Fraud Recovery and the Deemed Undertaking Rule

The deemed undertaking rule imposes on both plaintiff and defendants in civil litigation, and their lawyers, an undertaking (a promise) not to use the documents and oral evidence they receive from the opposing side for purposes other than the litigation they are in. In other words, the Rule imposes a duty on parties to litigation and their lawyers to keep the documents and oral evidence they receive from the opposing side confidential. The duty of confidentiality has a further implication: a breach of such duty may result in the evidence being held to be inadmissible, or the civil action stayed. A breach of the deemed undertaking rule is an example of extraordinary or special circumstances.

In addition to the Rules of Civil Procedure, section 5 of the Canada Evidence Act (and the corresponding sections of provincial Evidence Acts) provides that evidence given at civil discovery shall not be used and is not admissible in a criminal trial or other criminal proceeding against him or her other than a prosecution for perjury, or for impeachment purposes.

Use of Evidence from the Civil Proceedings to Impeach a Fraud Defendant at their Criminal Trial

The use of evidence of a defendant to a civil fraud action at his or her criminal proceeding should not be underestimated by fraud victims and criminal complainants. If the fraudster takes the stand in his or her criminal trial and attempts to tell the Court or a jury a different story than what he or she told at their civil discovery to explain away their fraud, their evidence from their civil case may be put to them during their criminal trial and used to undermine their credibility:  see R v. Nedelcu, [2007] OJ No. 1188 (SCJ) at para 54 (affirmed 2012 SCC 59).  As stated in Junan ats Doucette [2005] S.C.J. No. 8, para 41, it is a societal interest in justice that a fraudster not be allowed to play games in the Courts.

Bankruptcy

Often fraudsters will assign themselves or their companies into bankruptcy for the purpose of seeking the protection of the Bankruptcy and Insolvency Act (BIA) which stays civil proceedings upon an assignment into bankruptcy. The BIA, however, contains an exception to the general stay rule for civil actions sounding in fraud. When a defendant to a fraud action assigns him, her or itself into bankruptcy, a fraud victim can make an application to the bankruptcy courts to lift the stay. The fraud victim will have to allege that he or she will likely be materially prejudiced by the stay of proceedings. If the civil fraud claim is properly plead, and if the application to lift the bankruptcy stay is properly prepared, the bankruptcy courts will lift the stay, and the civil proceeding against the now undischarged bankrupt fraudster will be permitted to continue. It is not the role of the bankruptcy courts to determine the merits of the case.

Inquiries 

Coordinating civil recovery prosecutions with criminal complaints is something most fraud victims should canvas with their fraud recovery lawyers before commencing either process. For further information on coordinating criminal complaints with civil fraud recovery actions, please contact us.

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Norman Groot

About Norman Groot

Based on my police experience and my experience thereafter as a litigator, I have joined forces with other lawyers with police experience and created the law firm Investigation Counsel Professional Corporation.

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