Town of Norman Wells chastised by judge for behaviour in lawsuit against former mayor

A judge said the Town of Norman Wells was guilty of "an egregious miscarriage of justice" in a lawsuit against a former mayor and former senior administrative officer.

"We typically hear about miscarriages of justice in the context of the criminal justice system," said N.W.T. Supreme Court Justice Karan Shaner on Wednesday.

"But they do occur in civil cases as well. This is one of those cases."

Shaner was referring to the tactics the town used to convince a judge to put a freeze on the assets of former mayor Nathan Watson and former SAO Catherine Mallon.

The town applied for the freeze the same day it filed a lawsuit against the two. In the lawsuit, the town alleges the two conspired to defraud it of $1.25 million. The town alleges most of the fraud was committed through a new and lucrative employment contract Watson secretly gave Mallon.

In asking for the freeze, the town's lawyer told the judge the town had been unable to contact Mallon or Watson to serve notice of the lawsuit. The town was concerned Mallon may flee the country. It said it had information that Watson had purchased two transport trucks and that it was "a mystery" how he could afford to do that.

Because Mallon and Watson had not been served notice of the application for a freeze and had no chance to defend themselves, the town had a legal obligation to give the judge all the relevant information it had, even information that undermined its efforts to get a freeze.

Information 'downright misleading'

The main piece of evidence the town used was an affidavit sworn by current SAO Cathy Clarke.

Shaner said there were "extremely troubling" inconsistencies between what Clarke said in her affidavit and what she said months later, when cross-examined by Mallon's and Watson's lawyers as part of the examination for discovery.

"Some of the evidence put before [the judge] was downright misleading," said Shaner.

Both Watson and Mallon were in court for the hearing and the decision. Mallon wiped away tears as Shaner gave her decision. Outside the courtroom Watson wore a ball cap with "Read the Transcript" on the front. He said it referred to the transcript of Clarke's cross-examination.

In her affidavit, Clarke alleged that Watson received some of the money the town was defrauded of. During her cross-examination, Clarke admitted she had no knowledge of Watson receiving any payments from the town other than those he was entitled to.

In her affidavit, Clarke said she had reviewed a report by a forensic accountant that identified the alleged fraud. She went on to refer to the report, which the town did not provide to the judge, as a forensic audit.

Shaner pointed out that the town did not disclose to the judge that the report was in a draft stage, and said it was misleading to characterize it as a forensic audit.

"Had the whole picture been put in front of [the judge] I doubt very much [the freeze] would have been granted," said Shaner.

"This is the kind of behaviour that must be discouraged."

Shaner took the highly unusual step of ordering the town to pay the full legal costs Watson and Mallon incurred to challenge the freeze order. Watson's lawyer said the costs amount to "tens of thousands of dollars."

Shaner also ordered the town to pay the two as soon as possible, not at the end of the trial and the town had argued.

During the hearing, Mallon's lawyer said that the town will face a lawsuit for the damage it has done to his client.

"She's not seeking damages at this stage, although that will come," said Matthew Woodley.