Legal Blog:

Punitive Damages

Gennett Lumber Co v. John Doe aka Harvey 2019 Ont SCJ

The plaintiff was defrauded of 168,000 USD by way of a conspiracy among 4 people. The conspiracy involved fraudulent orders for materials, paid for by stolen credit cards. The defendant involved in the civil action was convicted and sentenced to prison. The civil court still granted judgment against him for the amount defrauded plus punitive damages of $100,000. The judge found that the criminal sanction involved only a portion of the defendant’s involvement in the scheme and did not reflect the overall justification for punitive damages flowing from the fraud as a whole. The judge decided that the goals of retribution, deterrence, and denunciation of the organised fraud justified his order for punitive damages. He felt that an award of 50% of the actual damages reflected proportionality.

Cross-Examination-Bankruptcy

In re Gagnon 2019 Ont SCJ (MC)

As a general rule, an applicant for a bankruptcy order will not be permitted to establish its case by compelling evidence from the respondent debtor. A creditor had issued an action for a fraudulent conveyance and, on the same day, also had issued a petition for bankruptcy alleging the same fraudulent conveyance and the debtor’s alleged inability to pay his debts as they came due. The debtor defended both the application and the action. The creditor then brought a motion in the action for a certificate of pending litigation. When the debtor filed an affidavit in support of resisting the motion, the creditor sought to cross-examine on the affidavit. The Master refused to allow this cross-examination, holding that civil court procedures could not be used to thwart substantive bankruptcy laws.

Corporate Veil

Yaiguaje v. Chevron Corporation 2018 Ont CA

Judgment creditors by way of an Ecuadorian judgment were attempting to domesticate their judgment. To do so, they attempted to get judgment against a 7^th-level subsidiary of the judgment debtor. They were forced to do because the judgment debtor was situated in the United States and that country’s courts had ruled that the judgment was obtained by way of fraud. The creditors argued that the subsidiary’s shares were exigible. The court disagreed; a corporation’s shares do not belong to the corporation, but to the shareholders. The court held that the Execution Act did not assist the creditors because the creditors had no existing rights against the assets of the subsidiary. The court also refused to lift the corporate veil. It relied on Transamerica Life v. Canada Life Assurance 1996 Ont (General Division), appeal to Court of Appeal dismissed for reasons of motions judge. In that case, the judge held that the separate legal personality of a corporate entity would be disregarded only if the corporate entity were completely dominated and controlled by a parent corporation and used as a shield for fraudulent or improper conduct. In the present case, the creditors never alleged that the subsidiary was involved in fraudulent or improper conduct. For this reason alone, the majority dismissed the motion. The majority and the minority also dismissed the motion on the equities because the creditors may not have come to court with clean hands. The minority would have kept open the option to allow equity to authorise a departure from the strict application of corporate separateness. The Transamerica rules should apply equally well to individual shareholders completely dominating and controlling a corporation.

Security for Costs

Groia & Company Professional Corporation v. Cardillo 2019 ONCA

Rule 61.06 allows the Court of Appeal to order security for costs of an appeal if it appears that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the appeal costs. In olden days, respondents often brought security for costs motions because the wait time for an appeal was so long. Now, the appeal times are much quicker and fewer motions are brought. In this case, the appellant has rendered himself effectively judgment proof and, after analysis, the appeal seemed to be doomed to fail. The court ordered the appellant to post costs of $80,000, $60,000 for the costs awarded on the judgment being appealed and $20,000 for the costs of the appeal.

Partition and Sale

Rumanek & Co. v. Abuomar 2019 Ont SCJ

A creditor had been unable to sell a debtor’s joint interest in the matrimonial home and had obtained an order appointing a receiver for the debtor see Luu v. Abuomar. The receiver then brought an application under the Partition Act for partition and sale. Although it was practically impossible to sell the debtor’s one-half interest in the house, it would be relatively easy for the entire house to be sold, with the debtor’s share being applied to the debt. As it happened, the judge who appointed the receiver also dealt with the application. Although he was initially reticent to allow the receiver’s application, he decided that a court appointed receiver stood in the shoes of the debtor and therefore had standing to bring the application. The judge determined that the receiver had acted without vexation or oppression and came to court with clean hands. He further held that the inconvenience to the debtor’s wife was insufficient to outweigh the creditor’s right to collect her debt. Accordingly, the judge granted the application.

Interim Motion to Strike

Koon v LPIC 2019 Ont SCJ

A lawyer who had been held to have been negligent, continued her fight with LPIC regarding that finding. She brought a motion to set aside previous arbitral and court decisions that upheld her liability to LPIC. In that motion, she continued to make disparaging remarks about LPIC’s counsel. LPIC brought a motion to strike paragraphs in her affidavit. The Master noted that an attack on an affidavit in support of a motion should not normally be brought by way of motion before the main motion, but only at the hearing of the main motion itself. Here however, the fraud and unprofessional conduct allegations resulted in a successful motion to strike for abuse of process. The Master initially awarded $6,198 for substantial indemnity costs. However, when the lawyer reminded her that she needed to be granted the ability to make submissions on costs, the Master agreed. After submissions, the Master ordered $6,800 in costs to compensate LPIC for responding to the lawyer’s costs submissions.

Knowing Receipt of Breach of Trust Proceeds

Vancouver Coastal Health Authority v Moscipan 2019 BCCA

Wife stole money from employer. Husband, who did not work outside the home, was suspicious about all of the money that wife was bringing home, but never investigated. The court held that husband was liable for knowing receipt of funds in breach of trust, which has a lesser threshold than knowing assistance in a breach of trust. However, husband was not liable for the full amount wife embezzled, only the money that went directly for his benefit. The employer was able to prove that $130,000 of its money was paid to the credit of husband’s Visa and husband was held liable for it. Wife had also transferred her interest in the matrimonial home to husband and her as joint tenants, just as the fraud was being uncovered and knowing she had been diagnosed with a terminal illness. The court held that this conveyance was fraudulent. Husband had alleged that half of the property had always been held in trust for him. The court disagreed and, in any case, noted that, even if husband beneficially owned half of the house, a transfer of the other half of the house into joint tenancy could still be fraudulent.

Knowing Assistance

Christine DeJong Medicine Professional Corp v. DBDC Spadina Ltd. 2019 SCC overturning

DBDC Spadina Ltd. v. Walton 2018 Ont CA

In a two-paragraph decision, the Supreme Court overturned the majority decision at the Court of Appeal and adopted the minority decision in its entirety. The action concerns a convoluted fraud by one person playing a shell game with various corporations. One group of corporations attempted to get priority for its losses over another group of corporations, who had also been defrauded. All judges agreed that there was not knowing receipt of funds because there was no tracing of money from one group of corporations to the other group of corporations. The decision as to knowing assistance turned on the inability of the first group of corporations to establish that the 2^nd group of corporations, not just the fraudster, knew of the fiduciary relationship and dishonest conduct and participated in or assisted the fraudulent or dishonest conduct. The court noted that a defendant’s liability is measured by the plaintiff’s injury consequent to the trustee’s misconduct so that, if liable, the stranger is not just liable for its share of the profit, but to the full amount that the plaintiff lost. Accordingly, knowing assistance requires the stranger’s actual, and not constructive, knowledge of the breach of fiduciary duty.

Renege (2)

This is the 2^nd newsletter dealing with purchasers refusing to close agreements and the issues raised in ensuing actions.

Ready or Not

In Di Millo v. 2099232 Ontario Inc. 2018 ONCA 1051, a purchaser bought a lot in the vendor’s subdivision. The agreement provided that the purchaser was to construct a building within 30 months of closing, failing which the vendor had the option to buy back the land at the original price less real estate commission. Once the vendor exercised the option, the parties were to complete the sale within one month.

The purchaser failed even to start to construct, much less construct, the building within 30 months. He asked for and was granted a one-year extension. One year later, he had done nothing. The vendor’s lawyer gave notice (improperly) of the exercise of the option three months after the date on which the purchaser was to have built his building, but, regardless, gave proper notice of the option exercise three months after the first notice.

Deep Pocket

Maggiacomo v. Yumasak 2018 ONSC 3368 is an example of the adage that no good deed goes unpunished. In this case, the good deed was that of the purchaser’s father. He had planned to sell his house and give a significant amount from the sale proceeds to help his son finance the purchase of his house.

Son paid $100,000 as a deposit for the house purchase. However, when it came time to close, father was unable to sell his house for the expected sale proceeds because of a drop in real estate values. Accordingly, son defaulted in his purchase. His vendor claimed the $100,000 deposit and sued both son and father for additional damages.