Should a party be jailed or otherwise penalized for lying in a civil action? That is a question that Justice C.L. Kenney of the Alberta Court of Queen’s Bench recently had to address in the case of Security Bancorp Inc. v. Faria,  A.J. No. 845. That case was an employment-related dispute. Specifically, Mr. Faria was a former employee of Security Bancorp, which installs and services automatic banking machines. The company alleged that after he resigned from his position, he took confidential information from the company and used it in order to set up his own company that competed directly with them. It was also alleged that he induced a variety of merchants to breach their existing agreement with Security Bancorp in order to do business with him. As a result, the company commenced litigation against him.
Almost everyone who has been through the litigation process knows that it is not unusual for one party or the other (or both) to say, at some point during the proceeding, that the other side is lying. As a lawyer, in most cases when this occurs and it is my client who is complaining that the other side is lying, it is not unusual to downplay these concerns and focus on putting forward sufficient evidence to convince the court that our version of events is the right one. Typically, we will focus on proving our case, and perhaps trying to catch the other side in a lie when they are cross-examined. While I would not say that it is expected that parties will lie in litigation, I would say that it is not unusual for one side or the other to feel that the adverse party is being dishonest.
In the Faria case, Mr. Faria gave evidence during his examination for discovery in which he specifically denied ever having solicited any business from clients of Security Bancorp and also denied operating any automatic banking machines at particular locations. Security Bancorp was apparently of the view that this was untrue. As a result, their lawyers sought and obtained an order allowing them to obtain information from a third party. That is not unusual. Typically, if the evidence that is obtained contradicts the evidence given by the adverse party, it can be used during the proceedings in order to suggest that the adverse party’s evidence is inaccurate.
In this case, the evidence obtained from a third party showed that Mr. Faria’s evidence at discovery was inaccurate, and that he had dealings with customers of Security Bancorp and also operated automatic banking machines at the locations in question. However, rather than simply using this evidence as the litigation progressed, Security Bancorp asked the court to find Mr. Faria in civil contempt as a result of his lies during the discovery process. Seeking such a ruling is extremely unusual, and in fact counsel on both sides acknowledged during the hearing that they were unable to provide cases that were precisely on point.
In his ruling, Justice Kenney held that while “it would be extremely rare to find a party in civil contempt for lying in examinations for discovery, I am satisfied that this is one of those cases where it is appropriate. … What makes this matter one for contempt rather than costs in my view, is that the questions and answers deal directly with the main issue. It is not a peripheral issue or something that would not have much bearing on the outcome of the matter. It is the entire point of the lawsuit. Costs in my view would not adequately reflect the court’s concern that Mr. Faria has shown contempt for the court process.”
By way of explanation, the reference to costs related to the fact that in many cases, courts that determine that one party has been dishonest in the process will penalize them by ordering them to pay legal costs on a more substantial scale than they would otherwise have to. Of course, where the dishonesty relates to relevant issues, it will typically result in a finding against the dishonest party.
There will be another hearing in order to determine the penalty that will be imposed upon Mr. Faria as a result of his contempt. Jail is a possibility, as is a fine. However, this case does set a precedent that may well be used in the future where one party can prove that the adverse party has lied during examinations for discovery.
Clearly, if a court finds that one party has been dishonest, it will have serious negative repercussions with respect to their chances of success. It can also result in a cost award against them. The question for today, however, is whether it is appropriate to also find parties who lie during the litigation process in contempt, and if so, what the appropriate penalty should be.