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Lawyers Must Be Candid With the Court

edit_B_Baynham_Web[1]Lawyers have many duties: to the State, to the law, to the court, to other lawyers, to clients, to the public, and to themselves.  One of their highest duties to the court is that lawyers must be candid.  We can pitch our client’s case strongly, but when asked a direct question by the court, we must either answer it fully and honestly, or expressly refuse to answer.  We can say: “I don’t think that’s relevant, M’Lady”.  Or answer fully.  No in-betweens.

At no time is that duty of forthrightness more strict, than when applying for an order without notice to the other side.

Example: Let’s say your client is accused of being a crooked stock-promoter.  Someone puts out newsletter which claims your client was “fined over $9.4 million by the SEC for ill-gotten gains”.  Your client denies this and instructs you to sue for defamation.  As part of the case, you decide to apply – without notice to the other party – for an order allowing you to search the other guy’s home, and seize computers, etc.  In this context, if the judge asks: “Was Mr. Pierce fined the 9.4 million as is stated? – You really, really, ought to answer candidly.

A candid answer might be: “the United States Securities and Exchange Commission (the “SEC”) ordered Mr. Pierce to cease and desist from selling securities without the appropriate registration statement. Mr. Pierce was also ordered to disgorge “ill-gotten gains” of $2,043,362.33, plus interest.”

And: “In a related proceeding on July 27, 2011, the SEC ordered Mr. Pierce to cease and desist, and disgorge “ill-gotten gains” of $7,247,635.75, plus interest. Judge Elliot commented that Mr. Pierce’s offending conduct had been long lasting and “his fraudulent concealment demonstrates a high degree of scienter, and the harm to investors and the marketplace was substantial”.”

It would be candid to say that those two SEC orders total $9,290,998.08 – and that interest in accruing.

It would not be candid to say:

MR. BAYNHAM: There are — Mr. Reid can deal with that in more detail. There were fines assessed in the United States by the Securities and Exchange Commission.” [page 4, lines 36-41; transcript Mar 28, 2012]

Mr. Reid (co-counsel for Mr. Pierce) later made the following comments:

And I’ll pause there. Your Lordship had a question at the outset about were there fines actually levelled against Mr. Pierce by the SEC. I will pause and address that at this point in time.

First, that is but one of the allegations in there. So now our submission is that the allegations aren’t just there’s been a fine levied. As Mr. Baynham went through, the allegations are incredibly serious that there’s ongoing criminal accounting frauds and hundreds of millions of dollars stolen. But secondly, whether or not a matter is true doesn’t change whether or not a prima facie case in defamation is made out. Truth is an affirmative defence. So something can be both defamatory and true. Our submission is on this hurdle, is there a strong prima facie case, not is there a potential defence to defamation being raised. So that addresses the issue of that fine.”

It can’t be good when a judge says this of you:

[43] This was not an innocent breach of the duty to disclose all material facts. It was a deliberate tactic to avoid reference to relevant and important information that would have been material to the determination of the application.

Or when the same judge says:

[44] It is particularly troubling in these circumstances where the court made a specific inquiry that would have alerted the applicant as to the materiality of the undisclosed facts. The courts rely on applicants in ex parte hearings to be cognizant of the duty to make full and frank disclosure. The courts expect a specific inquiry to be answered candidly.

And then says:

[40] Previous counsel’s failure to provide the court with fair disclosure at the ex parte hearing was reprehensible and deserving of rebuke. The level of deficient conduct by previous counsel was egregious. That is particularly so given the court was misled into authorizing entry into a citizen’s home – a place where a person can expect to be secure against unlawful entry. Although the punitive aspect of special costs is a factor, the overriding focus on deterrence requires that special costs be granted in this case.

Meet Bryan Baynham, Q.C., partner at Harper Grey LLP.