Costs awarded against board after several investigation and discovery errors

An Ontario court, in a March 2 decision, overturned a decision to award costs against a licensee whose disciplinary case was dropped after several questionable decisions during the investigatory and discovery process, holding that the Law Society of Ontario had added considerable expense to the licensee’s defense by failing to consider or turn over exculpatory evidence.

In 2008, a client, the producer and former Olympian Sylvia Sweeney, filed a complaint against attorney Richard Watson, alleging that, while representing her, he had stolen approximately $185,000 and falsely altered corporate documents to make himself a 48 percent shareholder in her companies.

During the discovery phase of disciplinary proceedings before the Law Society of Ontario, the Society failed to disclose all of its investigation files to Watson and Sweeney, herself, withheld relevant documents from both Watson and the Law Society, problems that continued during the several years that disciplinary proceedings continued and caused multiple delays. Eventually, some of those documents proved exculpatory to Watson, and an attorney for Watson claimed some of the withheld material proved that other documents – originally appearing to implicate Watson in wrongdoing – had been altered. After two years of hearings, the Law Society sought to drop the disciplinary charges, saying that it was unlikely to prove its case.

Following the dismissal of his case, Watson sought costs from the Society. Unfortunately, prior to a hearing on the matter, one of the members of the hearing panel that had conducted Watson’s case was appointed as a judge and left the case. When the two remaining members of the panel were unable to agree on a decision, a second panel was convened and Watson now also sought costs related to the first, nullified, costs hearing. He was again denied, and the second panel instead awarded the Law Society $52,000 in costs, based both on expenses incurred during a failed attempt by Watson to obtain a memorandum used in the case and for the second costs hearing panel. After an appeals panel upheld the costs decision, Watson appealed to the Divisional Court of the province’s Superior Court of Justice.

The Court first addressed the issue of a memorandum that had been relied on by the Law Society when it decided to pursue a disciplinary case, and which Watson had unsuccessfully sought to obtain through discovery. Watson claimed that the memorandum was relevant to the issue of whether his disciplinary case was “unwarranted,” an important issue in determining the award of costs. The appeals panel had ruled that it was irrelevant to Watson’s case, as well as being privileged.

Addressing the apparent failure of the Society to turn over documents relevant to Watson’s defense, the Court noted that the final investigatory report released to Watson by the Society in March 2009 did not include any information or documents from a significant interview with Watson by a Society investigator, as that interview occurred three weeks later. Watson had thus claimed that there was no way to know if the Society had considered the information from that interview in making its decision without seeing the memorandum, which had been produced later. Although the Law Society stated during hearings that the memorandum would have included information about the interview, Justice Anne Molloy criticized that assertion, writing, “Not only is that inappropriate as a factual submission in the absence of an evidentiary record, it is unfair to opposing counsel who, in the absence of the memorandum, is completely unable to refute it.”

Nevertheless, the Court held that the memorandum was irrelevant to the issue of whether the case against Watson was unwarranted, writing that the only relevant evidence on that issue was the existing evidence against Watson at the beginning of the hearing process. If Watson had alleged that the Law Society had acted in bad faith in deciding to pursue disciplinary charges, the memorandum would have been relevant to his costs case. He did not, and so it wasn’t.

With more success, Watson also attacked the Law Society for failing to uphold his procedural rights, arguing that the investigation had been improperly focused only on finding support for Sweeney’s allegations against him, rather than being a neutral fact-gathering process. The Court agreed, with Justice Molloy writing that the Law Society’s investigator and in-house counsel failed to adhere to due process standards. “In particular, their approach appeared to be fixated on finding support for Ms. Sweeney’s claims, rather than towards testing their truth and the truth of explanations put forward by Mr. Watson,” she stated. Among other things, Justice Molloy noted the Law Society counsel’s repeated assertions that financial statements – originally withheld from Watson – showing that he was owed $40,000 were not relevant to the question of whether he misappropriated money from those companies by paying himself $33,000, a stance that Justice Molloy called “puzzling to say the least.”

Although Watson eventually obtained the exculpatory records through a motion, he had to expend significant money to obtain and analyze them. Justice Molloy also listed several other times the Society had erred in failing to either turn over documents or asserting that they contained nothing relevant, only to have those documents reveal significant exculpatory evidence once viewed by Watson’s attorney.

Additionally, the justice also pointed critically to the Law Society investigator’s report filed prior to the final interview with Watson, which contained negative conclusions that the investigator had not yet asked Watson to explain. “[T]he fact that a final report would be filed without interviewing [Watson] about many of the allegations says a lot about the general approach of the investigation,” Justice Molloy wrote.

Last, the justice criticized a decision by the Law Society to not investigate Sweeney’s credibility, a decision for which it improperly cited a directive of the Law Society on standards for investigations involving sexual impropriety. “The policy for dealing with credibility issues in sexual impropriety cases is a sound one,” wrote Justice Molloy. “In that situation, complainants should not be cross-examined vigorously at the investigation stage, nor should they be disbelieved merely because there is no corroboration for their story . . . However, this was not such a case. This was a documents case. The allegations against Mr. Watson related to matters of fraud, theft, and corporate responsibilities. Testing the veracity of the complainant by reference to corporate documents and communications between the parties is part of a competent investigation and must be undertaken for the investigation to accord with principles of procedural fairness.”

This decision by the investigator caused them to fail to uncover the fact that a document offered by Sweeney as evidence that Watson had fraudulently altered it had, in fact, been filed with authorities by Sweeney before she ever met Watson, as well as other evidence that significantly contradicted the most serious of Sweeney’s claims.

The Court held that the investigation suffered from procedural unfairness, and Justice Molloy held that the second costs panel had erred by finding that the procedural flaws in the Law Society’s investigation and hearing process did not merit an award of costs to Watson. The Law Society’s investigatory errors led Watson’s attorney to conduct much of the investigation himself, at considerable expense.

Molloy ruled that the second costs panel’s finding be set aside and a new panel convened to issue a ruling based on her rulings. The Court also awarded Watson $17,500 for the costs of the appeal to the Court.