1. Roth Estate v.
Juschka, 2016 ONCA 92 (Feldman, Hourigan and
Benotto JJ.A.), February 2, 2016
2. Mapleview-Veterans Drive
Investments Inc. v. Papa Kerollus VI Inc. (Mr.
Sub), 2016 ONCA 93 (Blair, Hourigan and Brown
JJ.A.), February 2, 2016
3. Teva Canada Limited v. Bank of
Montreal, 2016 ONCA 94 (Weiler, Laskin and Cronk
JJ.A.), February 2, 2016
4. Gray v.
Rizzi, 2016 ONCA 152 (Sharpe, Brown and Miller
JJ.A.), February 25, 2106
5. Meridian Credit Union
Limited v. Baig, 2016 ONCA 150 (Strathy C.J.O.,
LaForme and Huscroft JJ.A.), February 25, 2016
1. Roth Estate v. Juschka,
2016 ONCA 92 (Feldman, Hourigan and Benotto JJ.A.), February 2,
2016
A lawyer acted for all parties in a transaction where there was a significant potential conflict of interest. In this decision, the Court of Appeal considered whether he breached his fiduciary duty to his clients.
Harold Roth, an experienced grocer, wanted to acquire a grocery store in Corunna and operate it with his wife Marlene and his daughter and son-in-law, Cynthia and Roy Juschka, while teaching them the business. They acquired the store in 1985. Later that year, they incorporated Roth-Juschka Holdings Ltd., with Harold receiving 51% and Roy and Cynthia receiving 49% of the shares.
The respondent lawyer, Allan D. Brock, acted for all of the
parties on the incorporation.
The store became very successful, with the Juschkas taking
over more responsibility while the Roths cut back on their
involvement over time. In 1992, confronted with health issues,
Harold decided to deal with succession planning for the disposition
of his shares in the company and to provide an ongoing income for
himself and his wife for the rest of their lives. He wanted his
shares to go to Roy and Cynthia, but was concerned about
interference from other family members if the shares were left as
part of his estate.
Ultimately, the parties entered into a share-purchase
agreement, with the Roths as vendors and the Juschkas as
purchasers, consulting agreements for Harold and Marlene (for
ongoing income) and a promissory note from the Juschkas to Harold.
The note provided that Roy and Cynthia would pay Harold $408,000,
representing the purchase price of the shares, on demand in 40
years' time, if the store was sold or if Cynthia's voting
share interest fell below fifty percent.
Brock prepared the documents, delivered them to the parties,
and claimed that all four individuals were familiar with the
documents and understood the arrangement. Notably, he explained to
the Juschkas that the promissory note was meant be forgiven in the
Roths' wills, but that this could not be put into writing. It
was not incorporated into the note as Brock believed it would
undermine the position taken with Revenue Canada that it was an
arm's length transaction for fair value. Although the deal was
directed by Harold, Brock acted for all four parties, and did not
consider the question of independent legal advice for the
Juschkas.
Following the share transfer, the Juschkas operated the
business alone and paid the Roths an ongoing income pursuant to the
consulting agreements. The store started having financial
difficulties and, in late 2007, the Juschkas sold it to Sobeys.
After Harold died in 2008, Marlene demanded payment of the note,
and eventually brought an action against the appellants, the
Juschkas and Roth-Juschka Holdings Ltd.
The appellants brought a third party claim against Brock for
negligence and breach of fiduciary duty. At trial, the action on
the note was successful, while the third party claim was dismissed.
The parties to the main action settled for a lesser sum after
judgment.
The appellants appealed the dismissal of their claim against
Brock, seeking indemnification for the amount they paid to settle
the judgment on the note. They argued that the trial judge made
palpable and overriding errors of fact which undermined his
conclusion on their third party claim. The Court of Appeal agreed,
holding that the respondent breached his fiduciary duty to the
appellants by acting for all parties where there was a significant
potential conflict of interest and by not sending them for
independent legal advice. The respondent also fell below the
standard of care by failing to warn the appellants of the risks of
the transaction.
A solicitor acting for a client owes the client a duty to act
in the best interests of that client. As Justice Wilson explained
in Davey v. Woolley (1982), 35 O.R. (2d) 599, (leave to
appeal to S.C.C. refused (1982) 37 O.R. (2d) 499n),
A solicitor is in a fiduciary
relationship to his client and must avoid situations where he has
or potentially may develop a conflict of interests. This is not
confined to situations where his client's interests and his own
are in conflict [...] It also precludes him from acting for two
clients adverse in interest unless, having been fully informed of
the conflict and understanding its implications, they have agreed
in advance to his doing so.
In Waxman v. Waxman (2004), 44 B.L.R. (3d) 165 (C.A),
(leave to appeal refused [2005] 1 S.C.R. xvii (note)), the Court
affirmed the principle that a lawyer should not act on both sides
of a transaction where the interests of one client potentially
conflict with those of the other. The Court noted that there may be
some simple or routine transactions where a lawyer can act for both
parties, "but a share sale is not one of them".
Writing for the Court, Feldman J.A. noted that the respondent
acted for all parties on a share sale transaction without ever even
considering whether there was a potential conflict of interest
because he viewed the transaction as a gift from Harold to the
Juschkas. The respondent failed to fulfill the most basic
obligations of a lawyer to his client: to raise the issue of acting
for both sides, to explain the potential conflict and to obtain
consent to act for both sides or to recommend that the parties seek
independent legal advice.
In Feldman J.A.'s view, the trial judge's finding that
the transaction was, as the respondent claimed, beneficial to the
Juschkas such that there was no conflict, was based on a
misapprehension of the transaction and an error of law. In fact,
the transaction did not leave the Juschkas in a financially better
position and there was a significant potential conflict of interest
between them and the Roths. Moreover, the respondent's
suggestion that a term of the transaction that was critical to
the interests of the Juschkas, namely that the promissory note be
forgiven, remain undocumented and potentially unenforceable by them
in order to protect Harold's interests, revealed an
actual conflict of interest.
Justice Feldman found that the respondent failed to both
understand and explain the significance and potential consequences
of the transaction to the Juschkas. It was a palpable and
overriding error for the trial judge to find that the Juschkas
would have signed the documentation "whether they had gone to
another lawyer or not" as there was no evidence to support
that conclusion.
Feldman J.A. also noted that the respondent was required to
bring reasonable care, skill and knowledge to the performance of
his services, and fell below that standard of care on behalf of the
Juschkas. He failed to appreciate that, between the consulting
agreement and the promissory note, the Juschkas could potentially
pay an amount for the Roths' percentage of the shares that was
far in excess of their value. He also failed to warn the Juschkas
of the risks of the transaction.
2. Mapleview-Veterans Drive Investments Inc.
v. Papa Kerollus VI Inc. (Mr. Sub), 2016 ONCA 93
(Blair, Hourigan and Brown JJ.A.), February 2, 2016
At issue in this appeal was whether the respondent was
entitled to exercise a right of renewal contained in a commercial
lease of a Barrie premises, where it operates a Mr. Sub
franchise.
The respondent, Papa Kerollus VI Inc., entered into a
commercial lease agreement in 2000 for a 15 year term. The lease
gave Papa Kerollus an option to renew for one further period of
five years on the same terms and conditions "save as to the
rental rate which shall be the then current rate". Papa
Kerollus purported to exercise the renewal option within the time
required, in November, 2014.
The appellant, Mapleview-Veterans Drive Investments Inc., was
the owner of the premises and the successor landlord under the
lease. It disputed Papa Kerollus' right to renew, claiming that
the renewal option was void for uncertainty, with no guidelines for
the calculation of the renewal term rent and no arbitration
provision to settle it if an agreement was not reached. Mapleview
further argued that Papa Kerollus was in default of a precondition
to the exercise of the option because it had not "paid the
rent and all other sums payable" under the lease and was also
in default of a precondition to the exercise of the option because
it had not "performed all other covenants under the
Lease" at the time it purported to exercise the renewal
option.
Mapleview applied to court for declaration that the renewal
option was void for uncertainty, or in the alternative, for an
order and declaration that Papa Kerollus was in breach of terms of
the lease such that the purported exercise of the renewal option
was invalid and unenforceable.
The application judge held that the renewal option was not
void for uncertainty because the term "current rate" was
capable of judicial determination provided the parties called
expert evidence on the point. He found that there was a live issue,
however, as to the proper calculation of what Papa Kerollus owed
for additional amounts of arrears, and that once it had paid the
arrears, if any, the "current rate" for the renewal
period was to be determined judicially on the basis of expert
evidence presented by the parties. The application judge found that
Papa Kerollus' alleged default of non-rent covenants, such as
its failure to maintain the premises and the improper subleasing of
space to others for advertising, had been "substantially
cured" by the time of the application.
Mapleview withdrew its reliance on the non-rent covenant
defaults in support of its argument that the renewal option could
not be exercised, but pursued its appeal of the application
judge's other findings. Specifically, Mapleview argued that the
application judge erred in holding that the renewal option clause
was not void for uncertainty and in concluding that Papa Kerollus
was entitled to exercise the renewal option once the amount of
rental arrears owed by it had been determined by way of a trial of
that issue.
Writing for the Court of Appeal, Blair J.A agreed with the
application judge that the renewal option was not void for
uncertainty. The parties clearly intended to make a binding
agreement as to the renewal rate. They simply declined to specify
that rate in a dollar amount because neither wished to assume the
risk of error fifteen years later. It made commercial sense to
express the renewal rate as the "then current rate", the
functional equivalent of specifying the "then market
value" or the "then prevailing market rate",
expressions that have been deemed sufficient to overcome a
void-for-uncertainty argument.
Blair J.A. found that the application judge erred, however, in
concluding that Papa Kerollus was not in rent-related default at
the time of its purported exercise of the option to renew and was
entitled to judicial determination of what amounts were owed under
the lease. Papa Kerollus failed to demonstrate that it complied
with its obligation to "[have] paid the rent and all other
sums payable under [the] Lease when due" as a precondition for
the exercise of the renewal option. Justice Blair held that the
application judge erred in law in overlooking the onus that Papa
Kerollus was required to meet, and made palpable and overriding
errors of mixed fact and law in failing to hold that Papa Kerollus
had not complied with its obligation to pay all additional rent
when due and that it consequently was not in a position to exercise
its option to renew the lease.
If the application judge considered the question of onus, the
Court determined that he would have realized that Papa Kerollus
failed to meet that onus. While there was a dispute as to the
amount of additional rent Papa Kerollus was required to pay, there
was no dispute that it was required to pay something. In
fact, Papa Kerollus itself acknowledged some arrears and conceded
that it was not in compliance with the method for payment set out
in the lease. Blair J.A. concluded that, based on the record, Papa
Kerollus was in default in the payment of additional rent and,
therefore, could not satisfy its onus of establishing that it had
complied with all the preconditions for its exercise of the renewal
option.
3. Teva Canada Limited v. Bank of
Montreal, 2016 ONCA 94 (Weiler, Laskin and Cronk
JJ.A.), February 2, 2016
This appeal concerned the application of provisions of the
Bills of Exchange Act which create statutory defences for
banks in actions for conversion in the case of fictitious and
non-existing payees and holders in due course.
The appellant banks, TD Canada Trust and Bank of Nova Scotia,
and the respondent Teva Canada Limited, a manufacturer of generic
pharmaceuticals, were the innocent victims of a more than $5
million fraud, perpetrated by Neil McConachie, a Teva employee.
Between 2003 and 2006, McConachie requisitioned numerous cheques
payable to six entities he designated. Four of these entities were
current or former customers of Teva, while the other two he simply
invented. None of these entities was owed any money by Teva.
McConachie and several accomplices opened accounts in the names of
the six entities and deposited sixty-three cheques, which the banks
negotiated, into these accounts.
After the fraud was discovered, after firing McConachie, Teva
sued the banks for damages for conversion. As the Supreme Court
explained in Boma Manufacturing Ltd. v. Canadian Imperial Bank
of Commerce, [1996] 3 S.C.R. 727, this strict liability tort
arises when a bank converts an instrument, such as a cheque, by
dealing with it under the direction of one not authorized, by
collecting it and making the proceeds available to someone other
than the person rightfully entitled to possession. The Supreme
Court confirmed that the drawer of a cheque has an action in
conversion against a collecting bank for crediting the account of a
party not authorized to deal with it. Because neither McConachie
nor his accomplices were lawfully in possession of the sixty-three
cheques at issue, TD Canada Trust and Bank of Nova Scotia were
prima facie liable to Teva for converting them.
The banks argued that because the cheques were payable to
non-existing or fictitious payees, they were entitled to negotiate
them pursuant to section 20(5) of the Bills of Exchange Act
(BEA), R.S.C. 1985 chapter B.4, and the banks became holder in
due course under section 165(3). On competing motions for summary
judgment, the motion judge rejected these defences, concluding that
the banks should bear the loss for the fraud.
The Court of Appeal allowed the banks' appeal, finding
that they indeed had a valid defence to Teva's conversion
action under the BEA as the payees were fictitious and
non-existing.
While a bank that credits the account of someone not
authorized to deal with the cheque, even innocently, is prima
facie liable in conversion, section 20(5) of the BEA
provides both a collecting bank and a drawing bank with a valid
defence to a conversion claim. That section provides that where the
payee is "a fictitious or non-existing person", a cheque
is payable to the bearer. The purpose of section 20(5) is to
protect banks from fraud on the drawer committed by a third party,
including, as in this case, an insider in the drawer's
organization. This allocates the loss to the drawer, who is
typically better able to discover the fraud or insure against
it.
Writing for the Court, Laskin J.A. outlined the four
propositions identified by Falconbridge in Banking and Bills of
Exchange for determining whether a payee is non-existing or
fictitious:
- If the payee is not the name of any real person known to the drawer, but is merely that of a creature of the imagination, the payee is non-existing, and is probably also fictitious.
- If the drawer for some purpose of his own inserts as payee the name of a real person who was known to him but whom he knows to be dead, the payee is non-existing, but is not fictitious.
- If the payee is the name of a real person known to the drawer, but the drawer names him as payee by way of pretence, not intending that he should receive payment, the payee is fictitious, but is not non-existing.
- If the payee is the name of a real person, intended by the drawer to receive payment, the payee is neither fictitious nor non-existing, notwithstanding that the drawer has been induced to draw the bill by the fraud of some other person who has falsely represented to the drawer that there is a transaction in respect of which the payee is entitled to the sum mentioned in the bill.
The Supreme Court modified the non-existing payee defence
under Falconbridge's first proposition in Boma, as
Iacobucci J. appeared to treat non-existing and fictitious payees
interchangeably. Instead of adhering to Falconbridge's
explanation of "non-existing" as a question of objective
fact, he imported the notion of "plausibility" into the
question of whether a payee is non-existing. The effect of this
modification is that even if a payee is "a creature of the
fraudster's imagination", the payee may still not be
"non-existing" if the drawer had a plausible and honest
belief that the payee was a real creditor of the drawer's
business.
The appellants argued that all six payees designated by
McConachie fell under Falconbridge's first proposition: the two
"creatures of his imagination" were non-existing, while
the other four payees, though not non-existing, were fictitious
because Teva had no intention that payments be made to them.
Laskin J.A. agreed, finding that the motion judge erred in
failing to hold that the two inventions of McConachie were
non-existing payees under Falconbridge's first proposition,
even as modified in Boma. Teva argued that they were
payees under the Boma modification, as although invented by
McConachie, the names of these two invented companies were similar
to those of legitimate customers, such that Teva could plausibly
have believed that these entities were real with a connection to
its business. Justice Laskin rejected this submission, observing
that there was no evidence of anyone at Teva other than McConachie
turning their minds to the names of the payees on the cheques at
the time they were drawn.
Laskin J.A. found that the motion judge further erred in
failing to hold that the payees were "fictitious". In
Boma, Iacobucci J. explained that fictitiousness depends
not on the intent of the creator of the instrument, but on that of
the drawer itself. Therefore, it was Teva's intent, not
McConachie's, that governed, at the time the cheques were
drawn, not afterward. The four existing payees were real persons,
actual Teva customers or service providers, but Teva failed to
demonstrate that it intended them – or the two non-existing
payees – to receive the proceeds of the cheques.
Justice Laskin concluded that the two invented companies were
non-existing and that, even if deemed "real", all six
payees were fictitious. The banks therefore had a valid defence to
Teva's conversion action under section 20(5) of the Bills of
Exchange Act. The Court set aside the judgment of the motion judge
and dismissed Teva's action.
4. Gray v. Rizzi, 2016 ONCA 152
(Sharpe, Brown and Miller JJ.A.), February 25, 2106
In this decision, the Court of Appeal considered a retroactive
variation order under the Divorce Act which resulted in
the elimination of substantial child and spousal support arrears
and imposed significant repayments from recipient to payor.
Nadine Ellen Gray commenced an application for divorce from
Mario Rizzi in 2003 and, in 2005, a final order was made dealing
with access and child support of two children, as well as spousal
support. The final order granted Gray sole custody of both children
and placed Rizzi's access to the children in Gray's sole
discretion. It imputed annual income to Rizzi in the amount of
$133,000 and ordered that he pay monthly child support of $1,584
and monthly spousal support of $2,874, as well as a proportional
share of section 7 expenses, all retroactive to the date of
separation.
In 2009, Rizzi brought a motion to vary the final order
pursuant to section 17 of the Divorce Act, R.S.C. 1985,
chapter 3 (2nd Supp.), on the ground that he had experienced a
material change in circumstances as a result of a significant
reduction in his income. In 2014, the motion was disposed of by a
variation order, the trial judge holding that Rizzi had
demonstrated that he experienced a material change in circumstances
which justified a reduction in his child and spousal support
obligations retroactive to the date of the parties'
separation.
Based on this variation order, about $320,000 in support
arrears owed by Rizzi were eliminated and Gray was obligated to
reimburse him a significant amount for overpayment of
support.
Gray appealed, asking that the variation order be set aside
and Rizzi's motion be dismissed. She submitted that the trial
judge erred in finding that events which took place prior to the
making of the final order could constitute a material change in
Rizzi's circumstances, and in making a support variation order
extending back to the date of separation.
Writing for the Court of Appeal, Brown J.A. found that the
trial judge improperly relied on events that pre-dated the final
order to conclude that Rizzi had met the threshold for a variation
of support under section 17 of the Divorce Act. This was
an error in principle. The trial judge effectively conducted a
correctness review of the final order, impermissibly substituting
her view about what order should have been made at first instance.
She further erred in accepting that a motion to vary is available
to a payor on the basis of financial information that is new to the
court because the payor had failed to meet his prior financial
disclosure obligations. To do so would "eviscerate the
financial disclosure regime". The trial judge made no error,
however, in calculating Rizzi's income from 2006 to 2012. It
was clear that he experienced a "significant and
sustained" reduction in his annual income which constituted a
material change in means and circumstances, meeting the threshold
for a variation of the final order during that time period.
The Court of Appeal also agreed with Gray that the trial judge
erred in making retroactive adjustments to Rizzi's support
obligations, ignoring the principles set out in D.B.S. v.
S.R.G., 2006 SCC 37, and L.M.P. v. L.S., 2011 SCC
64.
In D.B.S. v. S.R.G, the Supreme Court identified four
factors that a court should consider before making a retroactive
child support order: (i) the reason why a variation in support was
not sought earlier; (ii) the conduct of the payor parent; (iii) the
circumstances of the child; and (iv) any hardship occasioned by a
retroactive award. Brown J.A. held that the trial judge erred in
principle in concluding that she need not consider each of these
factors. Despite some modification being necessary, the
fundamentals of these factors still apply where the income has gone
down rather than up. Although the evidence supported the conclusion
that Rizzi's change in circumstances caused him to be unable to
make all the ordered support payments, it did not support a finding
that he would be unable to pay the arrears in the future. By
failing to consider the D.B.S. v. S.R.G. factors in her
variation analysis, the trial judge disregarded the fact that the
elimination of support arrears would require that Gray repay Rizzi
a substantial amount of the child support previously paid, causing
her financial hardship. Rizzi had not given notice earlier than his
motion. Brown J.A. concluded that Rizzi was not entitled to any
retroactive variation of his child support obligations for his
daughter, but was so entitled with respect to his son after 2010
when his son started receiving payments under the Ontario
Disability Support Program (both children suffer mental health
problems).
In L.M.P. v. L.S. the Supreme Court identified the
approach that courts should take to motions to vary spousal support
under the Divorce Act: any variation should properly
reflect the objectives set out in section 17, take account of the
material changes in circumstances and consider the existence of a
separation agreement and its terms. Justice Brown held that the
trial judge erred in principle by holding that L.M.P. v.
L.S. did not apply because there was no separation agreement.
Moreover, while Gray had achieved a level of economic
self-sufficiency by 2011, there was no basis for retroactively
varying Rizzi's spousal support obligations before January,
2012. His delay in pursuing the variation application, his failure
to make timely financial disclosure and his failure to co-operate
with the support enforcement agencies all worked against an earlier
retroactive variation date. Brown J.A. held that the trial judge
further erred in failing to consider that, as with child support,
the elimination of spousal support arrears would require that Gray
repay Rizzi a substantial amount of the support previously
paid.
Thus, Brown J.A. found that Rizzi experienced a material
change in his financial circumstances after the final order and,
applying the principles governing the variation of child and
spousal support orders under section 17 of the Divorce
Act, varied his child and support obligations. While the
variation would have some retroactive effect, Rizzi remained
obliged to pay significant support arrears and Gray would no longer
be required to make any repayment to him.
5. Meridian Credit Union Limited v.
Baig, 2016 ONCA 150 (Strathy C.J.O., LaForme and
Huscroft JJ.A.), February 25, 2016
The appellant, Ahmed Baig, agreed to purchase a building
located at 984 Bay Street in Toronto from the court-appointed
receiver and manager of the property, in trust, for a corporation
to be incorporated, for the price of $6.2 million. Unbeknownst to
the Receiver and prior to the closing of the sale, the appellant
agreed to flip the property to Yellowstone Property Consultants
Corp. for $9 million.
While the agreement did not prevent the appellant from
re-selling the property, it did prohibit him from assigning his
interest under the agreement without the Receiver's consent,
which the Receiver could arbitrarily refuse unless the assignee was
the corporation to be incorporated for the purpose of the
agreement.
The Receiver was obligated to obtain court approval before
selling the property.
Peter Kiborn of Miller Thomson LLP acted for the appellant in
structuring the transaction. To avoid land transfer tax, Kiborn
recommended that title to the property be transferred directly to
Yellowstone. Kiborn informed the Receiver that title was to be
directed to Yellowstone on closing and provided the Receiver with a
number of documents listing Yellowstone as the purchaser. The
Receiver assumed that Yellowstone was incorporated by the appellant
for the purpose of the agreement, and neither Kiborn nor the
appellant – both of whom wanted to prevent the Receiver from
discovering the re-sale to save the land transfer tax –
corrected this misunderstanding.
The Receiver obtained court approval for the agreement and the
transaction closed. It claimed, however, that had it known of
Baig's plan to re-sell the property at a profit, it would not
have recommended approval of the sale and would instead have
negotiated with the appellant or Yellowstone to obtain a higher
purchase price or have solicited new offers.
Three years after the sale, the respondent, Meridian Credit
Union Limited, discovered the re-sale and informed the Receiver.
Meridian had not recovered the full amount owing to it in the
receivership proceeding. The Receiver assigned to Meridian its
right, title and interest in a cause of action against the
appellant.
Meridian commenced an action against the appellant, claiming
that he misrepresented that Yellowstone was incorporated by him for
the purpose of the agreement with the Receiver. Meridian sought an
accounting for the profit made on the re-sale to Yellowstone or, in
the alternative, damages for breach of contract, fraudulent
misrepresentation and conspiracy.
The appellant moved for summary judgment dismissing
Meridian's claim. The motion judge dismissed the motion and,
instead, granted summary judgment in favour of Meridian finding the
appellant liable for fraudulent misrepresentation. The Court of
Appeal noted that doing so without a motion being brought by
Meridian was permissible.
The appellant had commenced an action against Kiborn and
Miller Thomson, claiming contribution and indemnity for any amounts
found owing to Meridian. Kiborn and Miller Thomson were not parties
to either the Meridian action or the summary judgment motion, but
sought to intervene as parties to Baig's appeal of the motion
judge's order.
The Court of Appeal considered whether the motion judge erred
by finding the appellant personally liable for fraudulent
misrepresentations and whether the interveners were denied natural
justice when the motion judge made adverse findings about them in
their absence.
The appellant submitted that there was no evidence to support
the motion judge's finding he was liable. He also argued that
the motion judge erred in piercing the corporate veil and in
holding him liable for a fraud committed by his counsel. The Court
rejected each of these submissions.
As the Supreme Court explained in Hryniak v. Mauldin,
2014 SCC 7, a plaintiff asserting a claim for civil fraud must
prove, on a balance of probabilities: (i) a false
representation by the defendant, (ii) some level of knowledge of
the falsehood of the representation on the part of the defendant,
whether actual knowledge or recklessness, (iii) that the false
representation caused the plaintiff to act and (iv) that the
plaintiff's actions resulted in a loss.
Writing for the Court of Appeal, LaForme J.A. held that there
was sufficient evidence to prove all four elements of this test and
to find the appellant personally liable for fraudulent
misrepresentation. The appellant engaged in actions that amounted
to misrepresentations. Both he personally and his counsel actively
hid his agreement to sell the property to Yellowstone and
fraudulently misrepresented that Yellowstone was incorporated to
close the sale with the Receiver. The appellant personally signed
the title direction falsely identifying Yellowstone as the
purchaser, knowing that it was not, in order to avoid paying the
land transfer tax.
The representations caused the Receiver to seek court approval
and to transfer title of the property directly to Yellowstone. But
for the false representations, the Receiver likely would have acted
differently and, notably, to the appellant's detriment.
Finally, as a result of the misrepresentations, the Receiver lost
an opportunity to negotiate a higher price with the appellant or
another party. As the Court held in Hamilton (City) v. Metcalfe
& Mansfield Capital Corporations, 2012 ONCA 156, that lost
opportunity is a sufficient loss to ground a claim for civil
fraud.
Justice LaForme concluded that the motion judge did not err in
finding the appellant personally liable for fraudulent
misrepresentations. This finding was implicitly based on the
corporate veil as having no application and was established without
the need to rely on vicarious liability.
Citing the principle of audi alteram partem, or the
right to be heard, the interveners submitted that by making adverse
findings against them in their absence, the motion judge breached
the rules of natural justice and procedural fairness. LaForme J.A.
denied the interveners' request to introduce fresh evidence on
appeal, concluding that they did not have the right to be heard in
this case.
Audi alteram partem applies whenever a person's
rights, interests or privileges are affected by a decision. As
non-parties to this action, the interveners were not directly
impacted by the order. They were not bound by the motion
judge's finding that they made fraudulent misrepresentations
and were able to argue that they never made them when defending
against the appellant's action. Accordingly, the "right to
be heard" did not apply.
LaForme J.A. cautioned that affording non-party witnesses in a
civil action entitlement to notice, to make submissions and to
adduce evidence whenever an adverse credibility finding may be
made, would "impose a great burden on the courts and threaten
the finality of decisions". Non-parties are limited to
whatever procedural rights they have under the Rules of Civil
Procedure. Once served with the statement of claim in the
appellant's action, the interveners knew about the Meridian
action and had the option to intervene as a party on the motion,
yet they chose not to. They cannot "lurk in the shadows"
and then challenge a decision when the outcome affects them in a
manner they did not like.
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