People sometimes behave very badly. Really, it’s true! This behaviour (e.g. assault) can result in both civil awards of damages and criminal prosecution. Punitive damages can be awarded in civil proceedings, but can they be awarded if the defendant has also been convicted and punished criminally? That question was the subject of Gennett Lumber Co v. John Doe aka Harvey, a 2019 decision of the Ontario Superior Court of Justice.
The plaintiff was defrauded of approximately $200,000 by way of a four-person conspiracy. The conspiracy involved fraudulent orders for hardwood flooring, paid for by stolen credit cards.
Two of the conspirators were the operating minds of the criminal group. They acted with the defendant, a close friend of the fourth conspirator (whose involvement was not set out in the reasons for decision). The shared purpose of the group was to defraud the plaintiff. The defendant’s role was to transport the flooring, which he carried out admirably over three months.
The plaintiff finally became aware of the fraud and was able to recover two of the five fraudulent shipments. The $200,000 in damages represented the loss of the three shipments and the costs incurred to recover the other two.
All four conspirators were charged criminally. The defendant was convicted and sentenced to 150 hours of community service and a conditional discharge if he was a good boy for two years. The charges against the second conspirator were stayed and, against the third, withdrawn. The trial of the fourth was imminent.
The plaintiff commenced a civil action against the defendant for the tort of civil conspiracy, requesting compensatory and punitive damages. The judge concluded that the four bad guys engaged in a civil conspiracy such that the defendant was certainly liable for compensatory damages (i.e. $200,000).
The real issue in this case was whether the court should also award punitive damages for “malicious, oppressive, and high-handed misconduct that offends the court’s sense of decency.”
The judge noted the following as a guideline:
“An assessment of punitive damages requires an appreciation of: (a) the degree of misconduct; (b) the amount of harm caused; (c) the availability of other remedies; (d) the quantification of compensatory damages; and (e) the adequacy of compensatory damages to achieve the objectives of retribution, deterrence, and denunciation. These factors must be known to ensure that punitive damages are rational and to ensure that the amount of punitive damages is not greater than necessary to accomplish their purposes.”
The judge had no problem finding that the defendant’s fraudulent conduct entitled the plaintiff to punitive damages; he had engaged in reprehensible conduct far removed from ordinary standards of decent behaviour. Further, if defendants were merely ordered to give back the equivalent of ill-gotten gains, then there would be little to deter future fraudulent conduct.
The judge then analysed the various factors to assess punitive damages:
- The defendant’s role in the conspiracy was not as bad as that of the two main perpetrators.
- The plaintiff lost money, but its commercial viability was not jeopardised.
- The award had to be significant to deter this defendant and others in deciding whether to take their chances in financial crimes after performing a cost-benefit analysis.
- The defendant had been punished criminally, but the full extent of the conspiracy of all the defendants had not been fully tried. Although this punishment had to be taken into account to reduce double punishment, it did not completely eliminate the punitive damages award. The judge set a proportionate award after accounting for the prior punishment.
The plaintiff had asked for an award of $200,000. The judge decided that an award of $100,000 would be more appropriate. It was about 50% of the plaintiff’s actual damages and was therefore proportionate to the offence and the damages. Too little would not deter. Too much would not account for the criminal sanctions.
In a collections context, debtors often attempt to fraudulently hide their assets from seizure. Conveyances without any, or with inadequate, consideration are the norm for this type of fraud. Similarly, we see conveyances that are made to look like debtors no longer have title to the assets, but, actually, (i) title is being held in trust for them and will be re-transferred when the creditors go away, or (ii) the property will ultimately be sold – with sale proceeds that are disbursed for the debtors’ benefit or used to buy something else that is held in trust for the debtors. In all of our actions in which we attack these conveyances and the subterfuge used, we claim punitive damages.
Image courtesy of Ichigo121212.
Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.