After the police raid on its headquarters in Toronto, the Church of Scientology decided to destroy the reputation of Casey Hill, the Crown Attorney who was preparing the case for the prosecution. False allegations of contempt of court were prepared. Appearing on the steps of Osgoode Hall (Appeal Court) in his barrister's robes, lawyer Morris Manning announced to a press conference that his client, the Church of Scientology, was bringing contempt charges against Hill for allegedly misleading a judge and breaching a court order sealing seized documents.
The contempt charges were later dismissed by a judge, and Hill sued the church for libel. Hill's lawyers met with the church's lawyers before the libel trial and offered to settle for $50,000, but the church refused. The jury trial ending October 3rd, 1991 awarded general damages of $300,000 against Scientology and lawyer Morris Manning. The jury also awarded $500,000 in aggravated damages against Scientology, and a further $800,000 in punitive damages against Scientology, for a total of $1.6 million.
The Church of Scientology appealed the size of the award, and on March 11th, 1992, Mr. Justice Douglas Carruthers decided that the church should pay pre-judgement interest at the rate of 10% since 1985, effectively adding $500,000 more to the award. He also issued a permanent injunction against church officials from making defamatory statements about Hill.
When a lawyer for Mr. Hill, Robert Armstrong, attempted to collect, he found that the Church's offices, with an appraised value of $6 million, had been mortgaged to the Church of Scientology of California within weeks of the judgement. The cash from the mortgages had ostenstibly been used to pay legal fees. A payment of $3.1 million was shown to the law firm of Clayton Ruby, although $2.1 million of that was not owed at that time.
Armstrong asserted that the church's property was essentially debt-free before the trial, but within weeks it had three mortgages registered against it for $10 million.
The Church appealed to the Ontario Court of Appeal and in a unanimous judgement on May 10, 1994, the court found in favour of Mr. Hill. The three-judge panel was severely critical of the church's conduct, calling it "character assassination" and noting that Scientology kept an internal file on Hill, identifying him as "Enemy Canada" - a category reserved for the vilest individuals.
"Scientology decided that Casey Hill was the enemy and it set out to destroy him", the court said in its 129 page judgement. "It levelled false charges against him. It prosecuted him on those charges ... In summary, the evidence suggests that Scientology set upon a persistent course of character assassination over a period of seven years with the intention of destroying Casey Hill."
Although the church knew within 10 days of the Osgoode Hall news conference that some of its allegations were untrue, it continued to defend them as justified right up to the start of the appeal.
Mr. Justice W. David Griffiths wrote that the appeal court had reviewed the evidence and found that it was sufficient to find "malice and egregious conduct on the part of Scientology". The malice alone was sufficient to merit the punitive damage award, the judgement said, and "what seemed to be of overriding importance was the need for specific deterrence of Scientology to prevent it from repeating its libel."
Scientology was not easily deterred, the appeal court judges said. It not only published the libel when there was no evidence to support the allegations but continued its unfounded proceedings against Mr. Hill when it knew the principal allegation was untrue. It also made allegations that it knew were untrue in documents it submitted to court.