Canada: Ontario Court Of Appeal Summaries (January 22 – January 26, 2018)

Last Updated: January 29 2018
Article by John Polyzogopoulos

Good evening.

It was a busy week for the Ontario Court of Appeal. Numerous decisions were released on such issues as estates litigation, wrongful dismissal, the liability of directors and officers for acts of the corporation, insider trading and tipping, fraud and franchise law, among other issues.

In a positive decision for franchisors, the Court allowed the franchisor's appeal in Raibex Canada Ltd. v. ASWR Franchising Corp.. The Court held that the failure to disclose in a franchise disclosure document served under the Arthur Wishart Act a lease for a location that did not yet exist, and the cost of upgrading an existing location rather than building one out from a shell, did not entitle the franchisee to the two-year rescission remedy under ss 6(2) of the AWA.

In Finkelstein v. Ontario Securities Commission, a regulatory prosecution, the Court discussed the test for establishing insider trading and insider tipping under Section 76(5)(e) of the Securities Act.

In DBDC Spadina Ltd. v. Walton, the Court discussed at length the claims and remedies of knowing assistance of breach of trust/fiduciary duty and knowing receipt of trust property in the context of whether corporations under the de facto control of a fraudster could be saddled with liability for knowing assistance or knowing receipt. The court also discussed the remedies of damages for such breaches, as well as the constructive trust remedy. Justice van Rensburg dissented because the effect of the majority's decision would be to grant most of the remaining spoils to the large claimants and deny recovery to claimants owed smaller amounts.

Finally, I would like to invite all of our readers to attend the Top Appeals of 2017 CLE that my partner, Lea Nebel and I will be co-chairing with Justice Epstein of the Court of Appeal. The CLE has been scheduled as a casual evening/dinner program at the OBA offices on Toronto Street to take place on Monday, February 26, 2018. In-person registration will be at 5:30, dinner will be served at 6, and the formal program will run from 6:30 to 8pm. For those who cannot attend in person, you can participate via live webcast. Please see the program agenda for further details and to register.

There are three decisions being featured. The first is Moore v Sweet, 2017 ONCA 182, which relates to the remedy of constructive trust. That case will be heard by the Supreme Court on February 8. Counsel on that matter, David M. Smith and Jeremy Opolsky, have agreed to participate in our panel discussion. The second case is Presidential MSH Corporation v. Marr Foster & Co. LLP, 2017 ONCA. That case canvassed, summarized and clarified the law regarding when the "appropriate means" analysis under s. 5(1)(a)(iv) of the Limitation Act, 2002, can be applied to delay the start of the running of the basic two-year limitation period. Counsel for the parties on that matter, Allan Sternberg, Daniella Murynka and Michael Girard, will be our panelists. The law in this area is continuing to evolve. The third decision featured is Hodge v Neinstein, 2017 ONCA 494. That case has certainly received the attention of the plaintiffs' personal injury bar and the media and has, no doubt, been a catalyst behind the Law Society's efforts to develop a standard form contingency fee agreement and disclosure obligations aimed at providing better information to clients. Counsel for the class plaintiffs, Peter Waldmann, will be joined on our panel by Bevin Shores and Audrey P. Ramsay, who are involved with the OBA and the Law Society working groups looking at this issue.

Wishing everyone a very nice weekend.

Civil Decisions:

Bennett v. Bennett Estate, 2018 ONCA 45

[Feldman, MacPherson and Huscroft JJ.A.]

Counsel:

William V. Sasso, for the appellant

Christopher Statham, for the respondent A. Miron Topsoil Ltd.

No one appearing for the respondents the Estate of Joyce Margaret Bennett, Deceased, Alan Leslie Soles and Bertram Shan Soles

Keywords: Contracts, Real Property, Rights of First Refusal, Privity of Contract

Facts:

The Bennett brothers (Donald, John, Dennis and George) divided a large parcel of land given to them by their father into separate properties, and entered into an agreement establishing a right of first refusal in the event of a sale of any of the properties by any of them. Donald Bennett died in 2006 and is survived by his wife Darlene Bennett. John Bennett died in 2009, and his property was transferred to his wife Joyce and her sons, Bertram Shaun Soles and Alan Leslie Soles.

In 2012, Joyce and her sons proposed to sell their property to Miron Topsoil Ltd. The agreement of purchase and sale acknowledged the right of first refusal agreement. Notice of the offer to sell to Miron was given by the vendor's lawyer to the surviving brothers, Dennis and George, as well as to Darlene Bennett.

Darlene Bennett provided notice that she was exercising the right to purchase the property under the right of first refusal, and provided the required deposit. Both Miron and Darlene Bennett took the position that they were entitled to purchase the property. Neither proposed sale of the property closed. Darlene Bennett brought a motion for summary judgment requesting an order of specific performance granting her the right to purchase the property. Miron responded with its own motion for summary judgment, requesting an order dismissing Darlene Bennett's claim on the basis that she was not entitled to exercise the right of first refusal.

The motion judge found that the right of first refusal agreement clearly limited the right of first refusal to parties to the agreement, a right that did not extend to "family members" of the parties. Darlene Bennett could not exercise the right of first refusal because she was not a party to the agreement.

Issues:

(1) Was Darlene Bennett entitled to exercise the right of first refusal on the basis that she was a "family member" under the agreement?

Holding: Motion dismissed.

Reasoning: No. There was no evidence before the motion judge and the Court of Appeal concerning the appellant's ability to exercise the right of first refusal on behalf of the estate. The vendor's simple act of extending the offer to the appellant did not establish her legal entitlement to accept it on behalf of the estate, as the appellant asserts, nor did the respondent's statement that the appellant "purported" to exercise the right of first refusal constitute an admission that she had done so in accordance with the agreement. The motion judge was asked to determine the appellant's entitlement on the basis that she was a "family member". He cannot be faulted for having done so.

The motion judge's interpretation of the agreement is entitled to deference. It was open to the motion judge to find that the agreement was not ambiguous. On its face, the right of first refusal is limited to parties to the agreement. The problem for the appellant is that she failed to establish her ability to act on behalf of Donald Bennett's estate.

The motion judge also did not err in his analysis of the privity of contract doctrine. The doctrine applies only where the contract in question confers the relevant benefit on a third party. The motion judge's finding that the agreement did not confer a right of first refusal on anyone but the parties to the agreement is determinative of this analysis. In the absence of a benefit conferred on a third party, recent caselaw ameliorating the strictures of the privity doctrine and allowing third parties to enforce contractual provisions for their benefit is irrelevant and cannot assist the appellant.

Grabarczyk v. 2198802 Ontario Limited, 2018 ONCA 47

[Simmons, Roberts and Nordheimer JJ.A]

Counsel:

Julian Binavince, for the appellants

Jonathan Rosenstein, for the respondent

Keywords: Contracts, Interpretation, Real Property, Agreements of Purchase and Sale of Land, Civil Procedure, Applications, Actions

Facts:

The appellant, 2198802 Ontario Limited (the "appellant"), offered to purchase real property from the respondent under an offer that was accepted on October 10, 2015. The offer stipulated that it was conditional on the appellant satisfying itself of certain matters, and that unless the appellant gave notice in writing "not later than 11:59 p.m. thirty (30) days after acceptance, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned" (the "due diligence clause"). The 30-day period elapsed on November 9, 2015. The appellant did not deliver notice in writing that the condition was satisfied by that date. Nonetheless, the appellant submitted an Amendment to Agreement of Purchase and Sale to the respondent that was accepted on November 14, 2015. The Amendment purported to delete the due diligence clause from the original agreement and to substitute an identically worded due diligence clause, save that "sixty (60)" was substituted for "thirty (30)".

The application judge concluded that even though the original agreement had become null and void, the amendment reflected an intention to create a new agreement incorporating all the terms of the original agreement, but modifying the original due diligence period from 30 days to 60 days from the date of acceptance of the original offer.

Issues:

(1) Did the application judge err by treating the modification as a new agreement?

Holding: Appeal allowed.

Reasoning:

(1) Yes. While holding that there was a new agreement, the application judge's interpretation treated the amendment as a resurrection of the original agreement. The application judge failed to turn her mind to the distinction between resurrection of a prior agreement; creation of a new agreement; the parties' intentions in that regard; and the parties' intentions had they turned their minds to the fact that the original agreement had become null and void. The record did not sufficiently address the parties' intentions with respect to whether they turned their mind to the fact that their original agreement had become null and void. This gap created an issue requiring the matter to proceed by way of action rather than by way of application. The application judge's order was set aside, and an order was substituted directing that the matter proceed by way of action.

Iaboni Estate v. Iaboni, 2018 ONCA 48

[Strathy C.J.O. and Hourigan and Miller JJ.A.]

Counsel:

A S Schorr, for the appellant

E Bisceglia and H Tariq, for the respondents

Keywords: Wills and Estates, Passing of Accounts, Notices of Objection

Facts:

This appeal arose from a long-running dispute between the appellant, Carlo Iaboni, and his two siblings, the respondents Ferdinando Iaboni and Norma Morretto. The subject of the dispute was the administration of the estates of their parents Umberto and Lidia Iaboni. After Lidia became incapable, the three children managed the property of both Umberto and Lidia pursuant to a power of attorney. In 2008, Carlo resigned as attorney and the respondents continued to manage the property of their parents. When Umberto died in 2010, he left his estate to Lidia. After Lidia died in 2012, there was a dispute among the siblings over the administration of her estate. Bank of Nova Scotia Trust Company ("BNS") was appointed as estate trustee.

Prior to his mother's death, and prior to the appointment of BNS, Carlo had objected to the respondents' management of their parents' property and brought an action against the respondents alleging misappropriation of funds, seeking an accounting of transactions since he resigned as trustee for property in 2008, and seeking reinstatement as a trustee for property. There was a settlement between the siblings whereby they agreed to exchange an accounting of their mother's assets. The respondents provided an accounting, the appellant did not. The appellant took no steps to pursue the action and it was dismissed administratively for delay.

In 2015, BNS brought an application to pass accounts for Lidia's estate, and Carlo filed a notice of objection, on substantially the same grounds as had been the basis of his earlier action that was administratively dismissed. The respondents brought a motion to strike the notice of objection, which was granted because the notice of objection was: (1) without merit, (2) an abuse of process for attempting to relitigate the subject matter of the appellant's dismissed action; and (3) time-barred under the Limitations Act, 2002. At the hearing, Carlo consented to the passing of accounts from the time of the appointment of BNS, but not before.

Issues:

  • Did the motion judge err in striking the notice of objection?

Holding: Appeal dismissed

Reasoning:

  • The appellant consented to the passing of accounts from the time of the appointment of BNS, and has not appealed that aspect of the order. The motion judge made findings of fact that the appellant had not substantiated his suspicions. That was fatal to the appeal, as those findings were entitled to deference.

DAC Group (Holdings) Limited v. Fuego Digital Media Inc., 2018 ONCA 43

[Benotto J.A. (In Chambers)]

Counsel:

Kevin Higgins, self-represented, appearing for the Moving Party

L Theall and M Wright, for the Responding Party

Keywords: Civil Procedure, Appeals, Jurisdiction, Stay Pending Appeal, Final or Interlocutory Orders, Arbitrations, Arbitration Act, 1991 S.O. 1991, s. 50 (5),(8)

Facts:

The parties to this motion attended arbitration concerning the ownership of certain software. The arbitrator declared that the respondent ("DAC") owned the software, provided for injunctive relief, and ordered costs of over $1.5 million. Fuego Digital Media Inc. ("Fuego") commenced an application under s. 46 of the Arbitration Act, 1991 S.O. 1991, c.17 to set aside parts of the award. The application judge stayed the award pending final determination pursuant to section 50(5) and 50(8) of the Arbitration Act.

Issue:

(1) Is an order granting a conditional stay of enforcement of an arbitration award final or interlocutory?

Holding:Appeal quashed.

Reasoning:

(1) The order is interlocutory and jurisdiction lies with the Divisional Court, not the Court of Appeal. First, the merits of Fuego's application remain to be determined. Second, the award is under s. 50(5) of the Arbitration Act which confirms that a final order has yet to be made. This matter is pending and remains before the court for a final determination under s. 50(3) of the Arbitration Act.

Ceballos v. DCL International Inc., 2018 ONCA 49

[Simmons, Roberts and Nordheimer JJ.A.]

Counsel:

Danilo Ceballos in person

Jaime VanWeichen and Heidi LeBlanc, for the respondents

Keywords: Employment Law, Wrongful Dismissal, Civil Procedure, Striking Pleadings, No Reasonable Cause of Action, Corporations, Liability of Officers and Directors, Piercing Corporate Veil, Rules of Civil Procedure, Rule 21

Facts:

The appellant, Danilo Ceballos, appealed from the order of the motion judge that struck out his claim against the individual respondent, George Swiatek.

The appellant was employed by DCL International Inc. He was first laid off from his employment and then subsequently his employment was terminated. Both of these actions were taken by way of letters signed by Mr. Swiatek, in his capacity as the President and Chief Executive Officer of DCL.

In his statement of claim, the appellant essentially alleged that the reason given by DCL for his termination, namely, economic downturn, were false. The appellant alleged that his employment was wrongfully terminated as a reprisal for his workplace injury claim.

The respondents brought a Rule 21 motion to dismiss the appellant's entire action on the basis that it was statute-barred, and that the claim against Mr. Swiatek disclosed no reasonable cause of action. The motion judge determined that the discoverability of the appellant's claims against DCL was a triable issue. However, the motion judge dismissed the claim against Mr. Swiatek on the basis that the appellant had not pleaded sufficient grounds that would take Mr. Swiatek's actions outside of the scope of his duties and responsibilities as an officer of DCL so as to possibly attract personal liability.

Issues:

(1) Did the motion judge err in failing to find that the appellant pleaded allegations of tortious conduct on the part of Mr. Swiatek that would, if proven, find individual liability against him?

Holding: Appeal dismissed.

Reasoning:

(1) No. The court stated that there is no question that, if sufficiently and adequately pleaded, allegations of conspiracy, fraudulent misrepresentation and other tortious conduct may form the basis of a reasonable cause of action against an officer or a director of a corporation.

However, to permit the piercing of the corporate veil, the claim must be specifically pleaded.

The court held that in this case, the motion judge correctly struck out the claim against Mr. Swiatek as disclosing no reasonable cause of action against him. There was no proper and sufficient pleading of the necessary elements of a specific and separate tortious act by Mr. Swiatek, necessary to give rise to personal liability on his behalf. Therefore, the court held that it was plain and obvious that the claim, as baldly pleaded, could not succeed.

Wittington Properties Limited v. Goodlife Fitness Centres Inc., 2018 ONCA 52

[Simmons, Roberts and Nordheimer JJ.A.]

Counsel:

John K. Downing and Brian Whitwham, for the appellant

Wolfgang Kaufmann and Daniel Waldman, for the respondent

Keywords: Real Property, Commercial Leases, Options to Renew, Remedies, Relief from Forfeiture, 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 67 O.R. (3d) 161 (C.A.)

Facts:

For many years, the appellant has leased premises from the respondent for the operation of a fitness club called the St. Clair Club. Under the provisions of the lease as set out in a lease amending and extension agreement, the appellant was entitled to extend the lease for an additional five years, provided the appellant was not "in default of the Lease and has not regularly been in default during the Extended Term beyond any applicable cure periods".

The application judge determined that the appellant had breached the lease in two ways. First, by operating its club at Park Road, it breached the geographic restrictions on the non-compete clause of the lease. Second, it breached the lease by not calculating and reporting its gross revenue to the respondents, which formed the basis for the calculation of its percentage rental payments under the lease. The application judge further determined that the appellant was given ample notice to cure its defaults under the lease but did not do so.

Issues:

(1) Did the application judge make an overriding and palpable error in her interpretation of the meaning of the non-compete provisions of the lease?

(2) Did the application judge err in determining that the admitted failure to accurately report gross revenue constituted a breach of lease?

(3) Did the application judge err in failing to find that the doctrine of promissory estoppel and waiver applied in this case?

(4) Did the application judge err in failing to grant the appellant relief from forfeiture of its option to extend the lease because any breaches were "technical" in nature?

Holding: Appeal dismissed.

Reasoning:

(1) No. The application judge's conclusions about the breach caused by the operation of the Park Road Club were open to her based on her interpretation of the lease and the other evidence before her.

(2) No. These conclusions were firmly rooted in the evidence. This evidence included the report of the accountant retained by the respondent under the audit provisions of the lease and the admissions made by the appellant's Vice President of Accounting.

(3) No. There was no evidence to support the appellant's argument with respect to either waiver or promissory estoppel.

(4) No. The evidence did not satisfy a necessary condition for relief from forfeiture, namely, evidence that "the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own": see 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 67 O.R. (3d) 161 (C.A.), at para. 80.

El-Khodr v. Lackie, 2018 ONCA 66

[Doherty, MacFarland and Rouleau JJ.A.]

Counsel:

J Y Obagi and E A Quigley, for the moving party

B A Percival, Q.C. and J W Gibson, for the responding parties

Keywords: Civil Procedure, Appeals, Motions for Reconsideration or Rehearing, Procedural Fairness, Notice, Stare Decisis, Over-Ruling Prior JurisprudenceDeciding Issues Not Argued, Statutory Accident Benefits, Bannon v. Hagerman Estate (1998), 38 O.R. (3d) 659 (C.A.), Ontario Drug Benefit Program

Facts:

By way of a motion in writing, the moving party seeks an order: (i) withdrawing the reasons for decision in this appeal dated September 19, 2017; (ii) granting a rehearing of the within appeal before the same five-judge panel that is scheduled to hear a new trilogy of cases in Carroll v. McEwen (C62293); Cadieux v. Cloutier (C63160) and Persad v. Silva (C62935); (iii) in the alternative, a stay of the decision rendered in this appeal, pending determination in the appeal in that new trilogy of cases, which involve issues that over-lap to those that were considered in the within appeal; and (iv) such further and other relief as the Honourable Court may deem just.

Issues:

(1) Did the three-judge panel of the Court of Appeal, in its ruling in this matter, effectively over-rule Bannon v. Hagerman Estate (1998), 38 O.R. (3d) 659 (C.A.) and its progeny without notice to counsel that it intended to do so and where any such challenge could only and ought to have been heard by a five-judge panel?

(2) Did the Court of Appeal address an entirely new issue in its reasons, one not raised by either party, dealing with the trial judge's treatment of the Ontario Drug Benefit Program, and, in so doing, ignore relevant jurisprudence of the Court of Appeal in Lurtz v. Duchesne (2005) 194 O.A.C. 119 (Ont. C.A.)?

Holding: Motion dismissed.

Reasoning:

(1) No. The Court of Appeal did not overrule Bannon. While the court's reasons, in particular paras. 55 through 61, call into question whether Bannon remains good law in Ontario, nowhere in the reasons does the court "overrule Bannon", as suggested by the moving party.

(2) No. The Treatment of the Ontario Drug Benefit Program was not a new issue. The issue of the Ontario Drug Benefit Program and its applicability was argued during the appeal. The trial judge's treatment of the issue was the subject of a ruling made at trial after the point was argued before her. In the Court of Appeal, the issue was squarely addressed by the moving party at paras. 66 through 70 of his factum filed in the appeal, and in paras. 32 through 35 of the responding parties' factum filed in the appeal. The issue of whether the liability insurer of the responding parties was entitled to an assignment of the moving party's entitlement to statutory accident benefits payments in relation to these expenses was directly before the court and was the subject of oral argument by both parties.

The Court of Appeal also noted that the moving party did not appropriately bring their motion. Issues raised in this motion are properly the subject of further appeal, and not a motion for reconsideration.

Finkelstein v. Ontario Securities Commission, 2018 ONCA 61

[Simmons, Rouleau and Brown JJ.A.]

Counsel:

S Bieber and I Graham, for the appellant Howard Jeffrey Miller

J Wright and G Temelini, for the respondent Man Kin (Francis) Cheng

J M Lynch and C Johnson, for the respondent/appellant Ontario Securities Commission

Keywords: Administrative Law, Securities Regulation, Insider Trading, Insider Tipping, Securities Act, R.S.O. 1990, c. S.5, ss. 76 and 127

Facts:

The Ontario Securities Commission ("OSC") initiated administrative proceedings against five individuals, including the appellant Howard Miller and the respondent Francis Cheng, alleging they had breached the insider trading and tipping provisions of the Securities Act, R.S.O. 1990, c. S.5 (the "Act"), and had acted contrary to the public interest by recommending to family and clients the purchase of shares in a reporting issuer, Masonite International Corporation ("Masonite"). The OSC alleged Miller and Cheng stood in a special relationship with Masonite and had informed another person of a material fact with respect to the issuer before the material fact had been generally disclosed.

The OSC alleged the material, non-public information about Masonite flowed through a chain of five people. Dissemination of the information originated with Mitchell Finkelstein, a mergers and acquisitions lawyer in Toronto who was working on a takeover bid involving Masonite. Finkelstein informed an investment adviser friend in Montreal, Paul Azeff, of material facts about the bid. In turn, Azeff informed a Montreal accountant, L.K., who passed the information on to the appellant, Howard Miller, an investment advisor in Toronto, who then conveyed the information to his associate, Francis Cheng, an investment advisor at the same firm. Finkelstein learned that Masonite had agreed to a takeover transaction that would be completed quickly. Both Miller and Cheng conceded that this information was material, non-public information, as defined in the Act. Miller was Cheng's mentor.

By Reasons and Decision dated March 24, 2015 (the "Merits Decision"), the OSC hearing panel (the "Panel") found that Finkelstein, Azeff, Bobrow, Miller, and Cheng were in a special relationship with Masonite and had informed others of material facts concerning Masonite before they had been generally disclosed, contrary to s. 76(2) of the Act and contrary to the public interest in violation of s. 127. As well, the Panel found Azeff, Miller, and Cheng each purchased Masonite securities with knowledge of undisclosed material facts contrary to s. 76(1) and the public interest. The Panel imposed administrative sanctions on the five by reasons dated August 24, 2015 (the "Sanctions Decision").

The Divisional Court allowed Cheng's appeal but dismissed all others. Miller's leave to appeal to the Court of Appeal was granted, as was the OSC's appeal with respect to Cheng. There was no dispute Miller and Cheng received material, non-public information about Masonite. At issue was the Panel's interpretation and application of s. 76(5)(e) in finding that Miller and Cheng "ought reasonably to have known" that their respective tippers stood in a special relationship with Masonite.

Issues:

(1) Was the Panel's interpretation of S.76(5)(e) of the Act reasonable?

(2) Was the Panel's finding that Miller contravened ss. 76(1) and (2) of the Act, together with the public interest, reasonable?

(3) Was the Panel's finding that Cheng contravened ss. 76(1) and (2) of the Act, together with the public interest, reasonable?

(4) Were the Panel's sanctions against Cheng reasonable?

Holding: Miller appeal dismissed. OSC appeal granted.

Reasoning:

Prior to discussing the issues, the Court of Appeal first considered the statutory scheme of the Act. The Court noted that "the prohibition in s. 76(1) against insider trading is a significant component of the schemes of investor protection and of the fostering of fair and efficient capital markets and confidence in them" and that "it would be grossly unfair to permit a person who obtains undisclosed material information with respect to a reporting issuer because of his relationship with the issuer to trade with the informational advantage this gives him or her." The Court of Appeal noted as well that insider trading undermines investor confidence in capital markets, stating that it is for this reason that the OSC regards insider tipping as conduct just as serious as illegal insider trading.

The Court then went on the review the definition of "person in a special relationship" with the issuer. The Court found that this definition creates two categories: The first encompasses those who are part of, or very closely connected to, the issuer, as set out in ss. 76(5)(a)-(d). The second encompasses those further removed from the issuer but who receive material, non-public information in the circumstances specified in s. 76(5)(e). The Court noted that "the core of this appeal concerns the interpretation of s. 76(5)(e) and its application to the circumstances of Miller and Cheng. Specifically: were Miller and Cheng persons who learned of a material fact with respect to the issuer, Masonite, from any other person who was a "person in a special relationship with the issuer", and ought they reasonably to have known that the other person was a person in such a relationship?"

(1) Yes. Miller and Cheng take issue with a set of factors the Panel used to guide its application of the "person connection" requirement to the specific circumstances of the case. In their view, the use of the factors resulted in an unreasonable interpretation and application of s. 76(5)(e). Section 76(5)(e) contains two requirements to establish liability: an "information connection" and a "person connection." The parties regard as reasonable the Panel's interpretation of how the "information connection" is established. The opening language of s. 76(5)(e) describes the "information connection" requirement: the person "learns of a material fact or material change with respect to the issuer" from any other person in a special relationship. To prove the tippee possesses knowledge of a material fact or material change that has not been generally disclosed, the adjudicator must contrast the knowledge of the tippee with the information available in the public domain.

The "person connection" test requires a demonstration that the recipient of material, non-public information "ought reasonably to have known" that the person who provided the information was in a special relationship with the issuer. This is an objective test. The Panel explored a number of factors to reach its determination. Those factors are: (a) the relationship between the tipper and the tippee (e.g., close friends, are they aware of the tipper trading patterns); (b) The professional qualification of the tipper; (c) the professional qualification of the tippee; (d) how detailed and specific the information is; (e) how long after the information is received does the tippee trade; (f) did the tippee take any steps to verify the information; (g) has the tippee owned the stock before; and (h) was the trade a significant one relative to the size of the tippee's portfolio.

Miller argued that all the Factors fundamentally diverge from the plain language of s. 76(5)(e) and, therefore, constitute an unreasonable interpretation of the section. He contends the language of the section mandates an inquiry into the informant/tipper's special relationship with the issuer and what the tippee ought to have known about that relationship. Instead, the factors focus on the relationship between the tipper and the tippee, not on that between the tipper and the issuer.

Cheng's quarrel with the factors is narrower in scope. He acknowledges the factors are relevant to the application of the objective knowledge test. However, he contends two of the factors are not relevant: the lapse of time between the tippee receiving the information and initiating a trade, and the intermediate steps taken by the tippee to verify the information before trading.

The "knows or ought reasonably to have known" requirement in s. 76(5)(e) focuses on the state of the tippee's knowledge about whether the information was conveyed to him by a person in a special relationship with an issuer. Section 76(5)(e) extends the chain of potential liability by including as a proscribed source of information "a person or company described in this clause," that is a person whom the tippee "knows or ought reasonably to have known" was a person or company in a special relationship with the issuer. This provision catches tippees who, themselves, convey information they have received to others. Section 76(5)(e) calls for an inquiry into the tippee's knowledge of his tipper's connection with the issuer or any other person in a special relationship with the issuer who stood higher up the information chain and from whom the tipper received the information.

There was no dispute that Miller and Cheng did not have actual knowledge that their informant, or tipper, was in a special relationship with Masonite. The question before the Panel was: ought they reasonably to have known? As observed by the Panel, the reality of most insider trading cases is that circumstantial evidence "usually forms the bulk of the evidence in cases where insider trading and tipping is alleged." In such circumstances, it was reasonable for the Panel to identify certain factors, or groups of circumstantial evidence, that could assist in drawing permissible inferences as to whether it was more likely than not that insider trading and tipping had occurred. Miller contends that the factors focus exclusively on the "information connection" and not the "person connection." The Court of Appeal disagrees. Factor (b) directs a panel to look into the tipper's qualifications and employment to ascertain whether the tipper holds a position that puts him or her in a milieu where transactions are discussed. The Court of Appeal finds that all the factors used by the Panel were reasonable in addressing whether the parties "ought reasonably to have known" the person from whom they received information was in a special relationship with the issuer. The factors point to a consideration of certain groups of circumstantial evidence that may permit drawing a deduction, in a logical and reasonable fashion, about the tippee's state of knowledge of the relationship between the tipper and the issuer or another person in a special relationship higher up the information chain. The probative value of such evidence will depend upon the specific circumstances, when considered in light of the totality of the evidence.

(2) Yes. Miller submits the Panel's findings that he contravened ss. 76(1) and (2) of the Act and acted contrary to the public interest was unreasonable because it failed to find that L.K., the person from whom Miller received the Masonite MNPI, was in a special relationship with Masonite.

The Divisional Court rejected a similar argument made by Miller concluding that while the Panel did not make an express finding that L.K. was in a special relationship, it undertook an analysis of the issue, and a finding that L.K. stood in a special relationship was implicit in its reasons. The court agreed with the Divisional Court's conclusion.

(3) Yes. The Panel found that Cheng learned of the Masonite MNPI from Miller, a person whom he ought reasonably to have known was in a special relationship with Masonite. Cheng therefore was a person in a special relationship with Masonite within the meaning of s. 76(5)(e). The Panel concluded that Cheng purchased Masonite securities with knowledge of material facts not generally disclosed, contrary to s. 76(1) of the Act and the public interest. The Panel also held that Cheng, with knowledge of the Masonite MNPI, recommended that a client purchase Masonite securities thereby acting contrary to the public interest.

The Divisional Court set aside those findings and allowed Cheng's appeal. It held that the Panel made a number of factual errors in its analysis of the evidence concerning Cheng that undermined the foundation upon which the Panel concluded that Cheng ought to have known he was receiving inside information.

The court held that the function of a reviewing court, such as the Divisional Court, is to determine whether the tribunal's decision contains an analysis that moves from the evidence before it to the conclusion that it reached, not whether the decision is the one the reviewing court would have reached: Ottawa Police Services, at para. 66. The court held that the Divisional Court failed to do so in the case of the Panel's decision regarding Cheng. Instead, it impermissibly re-weighed the evidence and substituted inferences it would make for those reasonably available to the Panel.

In his compelled interview, Cheng admitted that Masonite was not one of the stocks he was following at the time. Cheng stated he could not recall the specifics about what he did after receiving Miller's information about Masonite. He then talked about his normal practice, but unequivocally denied seeing any information that confirmed what Miller was telling him regarding Masonite.

At the same time, the evidence showed that immediately upon his return from Asia on November 29, 2004, Cheng started buying Masonite shares for his wife, his brother in Hong Kong, and other family members. By the end of November, Masonite shares accounted for 98% of the value of his wife's portfolio. That evidence reasonably supported the Panel's findings that Cheng did not conduct due diligence on Masonite after receiving Miller's information and started "precipitously" to buy Masonite shares for family members upon receipt of the Masonite MNPI from Miller.

Accordingly, the court held that the findings of fact made and inferences drawn by the Panel in respect of Cheng were reasonably supported by the record. It set aside the Divisional Court's ruling on this issue and restored the Panel's decision.

(4) Yes. In its Sanctions Decision, the Panel imposed on Cheng (i) a 10-year trading ban, with carve-outs, (ii) a 10-year ban on acting as a director or officer of a reporting issuer, (iii) a 10-year ban on registration, (iv) $200,000 in administrative penalties, or $100,000 per breach, and (v) costs of $25,000. The Panel rejected OSC Staff's request for an order that Cheng disgorge the profits made by his family members on their Masonite purchases.

In its Merits Decision, the Panel stated: "We find that neither Miller nor Cheng knew that the MNPI Miller received from LK and that Cheng received from Miller came from a knowledgeable person." In its Sanctions Decision, the Panel stated: "As registrants, [Miller and Cheng] knew that they were utilizing MNPI..." Cheng submits these statements conflict and render the sanctions against him unreasonable.

The OSC submits the statements are not inconsistent – the statement in the Merits Decision refers to Cheng's knowledge about where the material information came from, whereas that in the Sanctions Decision refers to Cheng's knowledge that the information was material and non-public.

The Court accepted the OSC's submission that the sanctions are reasonable and did not accept Cheng's argument that the sanctions are unreasonable.

York (Regional Municipality) v. Tomovski, 2018 ONCA 57

[Juriansz J.A. (In Chambers)]

Counsel:

C G Bendick, for the moving party

R Tomovski, for the responding party

L Schwalm, for the intervener

Keywords: Civil Procedure, Appeals, Jurisdiction, Appeals from Reasons, Provincial Offences Act, R.S.O. 1990, c. P., s. 139, Presumptive Delay Ceiling, R v. Jordan, 2016 SCC 27, Stay of Proceedings, Canadian Charter of Rights and Freedoms, s. 11(b)

Facts:

The moving party (the Municipality of York), supported by the Attorney General, seeks leave to appeal a judgment in its favour. The responding party, Mr. Tomovski, was charged with speeding contrary to s. 128 of the Highway Traffic Act, R.S.O. 1990, c. H.8. The police officer laid a charge pursuant to Part I of the Provincial Offences Act, R.S.O. 1990, c. P.33 ("POA"). The responding party decided to contest the charge. The trial date was originally scheduled for May 22, 2015.

The trial date was adjourned multiple times due to certain disclosure requests and the failure to provide notice of a s. 11(b) Canadian Charter of Rights and Freedoms application to the Attorneys General for Canada and Ontario. When the s. 11(b) Charter application was finally heard on February 10, 2016, the Justice of the Peace hearing the s. 11(b) Charter application applied the analytical framework from R v. Morin, [1992] 1 S.C.R. 771, and held that the delay breached s. 11(b), and stayed the proceedings.

York appealed the stay of proceedings pursuant to s. 135 of the POA. When the matter came before the provincial court appeal judge on February 17, 2017, the Supreme Court of Canada had released its decision in R v. Jordan, 2016 SCC 27. In the provincial court appeal judge's decision, the provincial court appeal judge held that the 18 month presumptive delay ceiling set out in R v. Jordan was "too high to adequately protect Part I [of the POA] defendants' constitutional right to be tried within a reasonable time." He found "the appropriate presumptive ceiling for Part I proceedings is in the 13 to 15 month range" and applied a 14 month presumptive ceiling to this case. Nevertheless, the provincial court appeal judge found that Mr. Tomovski's s. 11(b) Charter right was not breached because a significant portion of the delay was attributable to Mr. Tomovski. He allowed York's appeal and ordered a new trial.

York proposes that leave to appeal should be granted on the following questions of law:

(a) What should the presumptive delay ceiling be?

(b) How should s. 11(b) of the Charter be applied for Part I POA proceedings commenced by a certificate of offence?

Issues:

(1) Should leave to appeal be granted on the questions of law proposed by York?

Holding: Motion dismissed.

Reasoning:

(1) No. There is no question that the proposed questions of law transcend the immediate case and pertain to the administration of justice generally in the province. The issue is whether York is seeking leave to appeal from a "judgment" of the provincial court appeal judge rather than his reasons and thus whether the court has jurisdiction to hear the appeal. It is well established that "[a]n appeal lies from the judgment, not the reasons for judgment": R v. Sheppard, 2002 SCC 26.

York and the Attorney General submit that the word "judgment" in s. 139 of the POA is broad enough to allow an appeal of the provincial court appeal judge's determination that the presumptive delay ceiling for Part I POA proceedings is in the 13 to 15 month range. York points out that s. 135 of the POA only provides a right of appeal from "an acquittal, conviction or sentence" entered by a Justice of the Peace to a judge of the Ontario Court of Justice whereas s. 139 allows leave to appeal from any "judgment".

The Court of Appeal did not find the text of s. 135 helpful, nor did it find the authorities submitted by York and the Attorney General, and the subsequent case law, to be persuasive. York argues it is seeking leave to appeal from the provincial court appeal judge's "decision" that the presumptive delay ceiling for Part I POA proceedings is 13 to 15 months. While the Court of Appeal accepted that a "judgment" appealable under s. 139 may in some circumstances be described as a "decision", it was not persuaded that s. 139 extends to a "decision" in the sense York suggests.

The proposed appeal seeks an advisory opinion of the court that is detached from the underlying facts. Ontario courts have repeatedly held that appeals cannot be based on a disagreement with certain determinations within the reasons for judgment.

1418885 Ontario Ltd. v. 2193139 Ontario Limited, 2018 ONCA 54

[Simmons, Roberts and Nordheimer JJ.A.]

Counsel:

David Goodman, for the appellant

Charles Chang, for the respondent

Keywords: Real Property, Agreements for Purchase and Sale of Land, Conditions, Requisitions, Zoning, Residential Rental Units, Legal Non-Conforming Use, Waiver, Civil Procedure, Summary Judgment

Facts:

The respondent was the owner of land and entered into an agreement of purchase and sale (the "APS") with the appellant to buy the Property. Two deposits were to be paid. The Property had been advertised for sale as containing a variety of buildings, including residential apartments. An issue arose respecting the residential apartments and whether they were a permitted use under the existing zoning by-law applicable to the Property. The lawyer for the appellant submitted a requisition that required the respondent to provide "on or before closing an amendment to the local zoning bylaws to permit the current use to continue legally after closing". The lawyer for the respondent rejected this requisition and advised that the residential apartments were "a legal non-conforming use".

The lawyer for the appellant suggested that if a resolution could not be reached, the deposits had to be returned. On the day set for closing, the lawyer for the appellant advised the lawyer for the respondent that the appellant would not be closing the purchase because of the issue over the residential apartments.

This claim was then commenced by the appellant for the return of the deposits. After pleadings were exchanged, the appellant brought a motion for summary judgment for the amount of the deposits. The motion judge dismissed that motion. The motion judge then also dismissed the appellant's entire action. The motion judge made various findings, including that the appellant had, by its conduct, waived the objection.

Issue: Was the finding that the appellant had waived the objection a proper one based on the evidence?

Holding: Appeal allowed.

Reasoning:

No. None of the conduct of the appellant amounts to an unequivocal act constituting waiver. It is consistent with the appellant placing itself in a position to close the transaction if, in the end result, it decided to waive the deficiency or some other solution came about. That never happened. There was a deficiency arising from the APS. It was never waived by the appellant. In accordance with the express terms of the APS, given that deficiency, the APS came to an end and the deposits had to be returned. That is the conclusion to which the motion judge ought to have come. The appellant was entitled to summary judgment as claimed.

DBDC Spadina Ltd. v. Walton, 2018 ONCA 60

[Cronk, Blair and van Rensburg JJ.A.]

Counsel:

Peter H. Griffin and Shara N. Roy, for the appellants, DBDC Spadina Ltd. and those corporations listed on Schedule A hereto

Rosemary A. Fisher and B. Sarsh, for the respondents, Christine DeJong Medicine Professional Corporation and Dennis and Peggy Condos

Mark Dunn, for Schonfeld Inc., Inspector/Manager

  1. Blumenfeld, for the respondents, Gideon and Irene Levytam

Keywords: Torts, Fraud, Breach of Fiduciary Duty, Knowing Assistance of Breach of Trust, Knowing Receipt of Trust Property, Unjust Enrichment, Joint and Several Liability, Corporations, Controlling Mind, Identification Doctrine, Canadian Dredge and Dock Company Limited v. R., [1985] 1 S.C.R. 662, Remedies, Constructive Trust, Indalex Ltd., Re, 2013 SCC 6, Damages

Facts:

This appeal arises out of a complex multi-million dollar commercial real estate fraud perpetrated by Norma and Ronauld Walton over the course of several years. The appellants and the respondents are all victims of the fraud. Underlying the issues on appeal is a contest between them over who ranks in priority to whom in claiming against the proceeds remaining from the sale of certain properties acquired as part of the fraudulent scheme.

The appellant corporations, known as the DBDC Applicants, are owned and controlled by Dr. Stanley K. Bernstein. Through them, Dr. Bernstein invested approximately $111 million with the Waltons, in 31 projects, between September 2010 and June 2013. In each instance, the individual DBDC applicant entered into an equal shareholding agreement with the Waltons with respect to the specific-project corporation that was to acquire and hold the particular property. The corporations into which the DBDC Applicants' monies were to be invested are known as the "Schedule B Companies". These investments took the form of equity (approximately $2.6 million), shareholder loans ($78.5 million) and mortgages ($29.5 million).

The respondent, Christine DeJong Medicine Professional Corporation ("DeJong"), is owned and controlled by Dr. Christine DeJong. She and her husband, Michael DeJong, invested approximately $4 million with the Waltons – Dr. DeJong through DeJong, and Michael through his own corporations. Those investments were made in equal shareholder arrangements in substantially the same form as those entered into between the Waltons and the DBDC Applicants. The specific-project corporations established for the purposes of the DeJong investments are included in the group of companies known in the proceedings as the "Schedule C Companies". The properties acquired by the Schedule C Companies are collectively known as the "Schedule C Properties". The individual respondents, Dennis and Peggy Condos, and Gideon and Irene Levytam, made similar, but smaller investments in the same fashion. Their interests were also in relation to certain of the Schedule C Companies and the Schedule C Properties those companies acquired.

On September 23, 2016, the application judge released the decision under appeal. He:

  • awarded the DBDC Applicants damages in the amount of $66,951,021.85, plus interest, as against the Waltons personally, for fraudulent misrepresentation, deceit (civil fraud), and breach of fiduciary duty, and declared that the damage award would survive bankruptcy;
  • dismissed the DBDC Applicants' claim for joint and several damages against the Listed Schedule C Companies, concluding that Norma Walton was not the controlling mind of the Listed Schedule C Companies and therefore, that they could not be liable for knowing assistance or knowing receipt arising out of her breach of fiduciary duty;
  • granted DeJong constructive trusts in the aggregate amount of $2,176,045.57 against four properties owned by four of the Listed Schedule C Companies into which the DeJongs had invested;
  • awarded costs against the DBDC Applicants in favour of DeJong, the Condos and the Levytams, further particularized in a Costs Endorsement dated November 28, 2016; and
  • dismissed the Waltons' counter-application for damages.

Issues:

(1) Did the application judge err in holding that the Listed Schedule C Companies are not jointly and severally liable to the DBDC Applicants on the basis of knowing assistance and/or knowing receipt?

(2) Did the application judge err in granting DeJong constructive trusts over the Listed Schedule C Properties in question?

(3) Did the application judge err in awarding costs against the DBDC Applicants?

Holding: Appeal allowed.

Reasoning (R.A. Blair J.A. and E.A. Cronk JJ.A.):

(1) Yes. A stranger to a trust or fiduciary relationship may be liable under the doctrine of "knowing receipt" if the stranger receives trust property in his or her own personal capacity with constructive knowledge of the breach of trust or fiduciary duty. A stranger to a trust or fiduciary obligation may also be liable in equity on the basis of "knowing assistance" where the stranger, with actual knowledge, participates in or assists a defaulting trustee or fiduciary in a fraudulent and dishonest scheme. The criteria for establishing a claim for knowing assistance in the breach of a fiduciary duty are: there must be a fiduciary duty; the fiduciary – in this case, Ms. Walton – must have breached that duty fraudulently and dishonestly; the stranger to the fiduciary relationship – in this case, the Listed Schedule C Companies – must have had actual knowledge of both the fiduciary relationship and the fiduciary's fraudulent and dishonest conduct; and the stranger must have participated in or assisted the fiduciary's fraudulent and dishonest conduct.

In determining whether the above criteria were met and whether the Schedule C Companies should be held jointly and severally liable for damages arising from knowing assistance in the breach by Ms. Walton of her fiduciary duties to the DBDC Applicants, there were three questions to be answered. The first is whether Norma Walton was the directing and controlling mind of the Listed Schedule C Companies for purposes of the transactions through which her fraud was perpetrated, such that her knowledge and conduct in that regard may be attributed to the Schedule C Companies as their knowledge and conduct. Second, if the answer to that question is "yes", does it follow that the knowledge and participation requirements for knowing assistance have been met with respect to those Listed Schedule C Companies utilized by Ms. Walton in the course of perpetrating her scheme? Third, if the answer to the foregoing question is "yes", are the Listed Schedule C Companies nonetheless able to avoid joint and several liability in damages on the basis that knowing assistance liability, having its roots as an equitable doctrine, ought not to apply on the facts of this case?

There is no issue in the present case that Ms. Walton owed a fiduciary duty to the DBDC Applicants and Dr. Bernstein, or that she fraudulently breached that duty. The liability of the Listed Schedule C Companies – the "strangers" to the fiduciary relationship in this scenario – therefore turns on a determination of the third and fourth requirements for knowing assistance: their actual knowledge of the fiduciary relationship and the fraudulent breach, and their participation or assistance in the breach itself.

The application judge dismissed the DBDC Applicants' claim on the basis that Ms. Walton was not the directing and controlling mind of the Listed Schedule C Companies, and accordingly that her knowledge and conduct could not be taken to be their knowledge and conduct for the purpose of the knowing assistance claim. The majority disagreed with this conclusion. The application judge failed to recognize that, for purposes of attribution and determining whether a person is the controlling mind of a corporation with respect to a particular transaction or series of transactions, the formal governing structure established by the contractual and corporate documentation is not dispositive. What matters is the factual reality of the situation and whether Walton was acting "within the field of operation assigned to [her]" and "carrying out [her] assigned function[s]" with respect to the corporations at the time she used them as vehicles to perpetrate her fraud.

Further, the application judge mistakenly focused on whether it was appropriate to hold that "Ms. Walton could cause the Schedule C investors to be a party to her fraudulent dealings with Dr. Bernstein." The pertinent question was whether Ms. Walton had caused the Schedule C Companies to participate in her fraudulent dealings. The errors of fact, or of mixed fact and law, consist of the application judge's failure to find, on this record: (i) that Ms. Walton's position as the sole active director, officer and manager of the Listed Schedule C Companies, for all practical purposes, and her conduct and knowledge with respect to them, met the legal test for the directing and controlling mind of those companies; and (ii) that the Listed Schedule C Companies participated in the fiduciary breach.

It was not open to the application judge to hold that Ms. Walton was not the alter ego and directing and controlling mind of the Listed Schedule C Companies, as she orchestrated the transfer of source funds from the investors and, in some cases, the re-casting of corporate shareholding structuring necessary to affect those purposes. It was a palpable and overriding error on the part of the application judge to find that Ms. Walton was not in fact the directing and controlling mind of the Schedule C Companies. Overall, Ms. Walton's knowledge and conduct can be attributed to the corporations.

In a detailed analysis, the court rejected the Respondents argument that the criteria set out in Canadian Dredge regarding when a corporation may be pinned with criminal liability had not been met (the identification doctrine). In that case, Estey J stated the identification doctrine only operates where the Crown demonstrates that the action taken by the directing mind: (a) was within the field of operation assigned to him; (b) was not totally in fraud of the corporation; and (c) was by design or result partly for the benefit of the company. As the instant case concerns a civil matter, policy considerations dictate that these criteria should not be applied in a rigid fashion.

For purposes of the "participation" and "knowledge" analyses, it matters little that the DBDC Applicants were unable to demonstrate the receipt of any particular Schedule B Company funds by any particular Listed Schedule C Company (other than the funds with respect to which Brown J. previously granted constructive trusts). It is therefore of little significance that the "net transfer analysis" was not intended to, and does not, establish such a connection. The fact that the net transfer analysis wasn't intended to be used for the purpose of establishing a claim by the DBDC Applicants against the property of other defrauded investors is not relevant, and emphasizing this fact conflates knowing assistance with knowing receipt. If it were necessary to demonstrate the receipt of funds by the defendant in order to establish a claim for knowing assistance, there would be no need for the knowing assistance remedy. The claim of "knowing assistance" is designed to capture circumstances where "knowing receipt", unjust enrichment, or a constructive trust on some other basis cannot be established, but where a fault based remedy is appropriate to compensate for the defendant's knowing assistance in the perpetration of a fraudulent and dishonest breach of fiduciary duty. This is one of those cases.

The majority did not agree with the argument that the Listed Schedule C Companies were not participants in Ms. Walton's fraudulent breach because they were victims of the same fraudulent scheme, and were merely used by Ms. Walton as "conduits" or "pawns" in the perpetration of that scheme, without the demonstration of receiving any benefit themselves. The Listed Schedule C Companies are not defrauded victims of Ms. Walton's fraudulent scheme; their investors and preferred shareholders are the defrauded victims. Ms. Walton's breach of fiduciary duty to the DBDC Applicants was to cause the funds they invested in the Schedule B Companies to be diverted out of those Companies for her own personal use. That the Schedule C investors or the Schedule C Companies were also the objects of a similar co-mingling and diversion of their funds was not important for the "participation" and "knowledge" requirements of the knowing assistance analysis. For the Listed Schedule C Companies to be found liable on that basis, it need not be shown that they assisted directly in acts involving the diversion of Schedule B Companies' funds into the Listed Schedule C Companies' accounts. It need only be shown that they knowingly assisted in Ms. Walton's fraudulent and dishonest scheme to divert monies out of the Schedule B Companies' accounts. It is the overall fraudulent scheme, and the Listed Schedule C Companies' knowing assistance in the perpetration of that "shell game" that provides the prism through which liability for this claim must be determined.

DeJong and the other Respondents raise an additional argument. They submit that the fact they had no knowledge of the scheme or breaches personally, or in their capacities as lenders to or shareholders of the Schedule C Companies, shields the Listed Schedule C Companies from liability for knowing assistance. However, it is the knowledge of the corporation that is relevant to the establishment of liability, not the knowledge of the corporation's creditors, shareholders, or its directors or officers other than the directing mind. If the existence of an express prohibition forbidding a directing mind to commit an act is not sufficient, by itself, to avoid corporate criminal responsibility, the breach of a shareholder agreement on the part of the directing mind cannot be sufficient to avoid corporate civil responsibility. The fact that Ms. Walton was carrying out the transactions for a corrupt purpose, and not advising her co-investors of the details, does not affect the attribution of her intentions and actions to the Listed Schedule C Companies. For these reasons, the DBDC Applicants established the necessary components for a claim of knowing assistance in a breach of fiduciary duty.

The Respondents advanced an additional argument based on equitable grounds, submitting that to give effect to the claim for damages based on knowing assistance in the circumstances of this case would be to "[stretch] the bounds of equity in ways not contemplated by the goals of restitutionary proprietary remedies." This argument conflates a claim for damages, claim for knowing assistance, with a claim for proprietary remedy, claim for knowing receipt. Knowing assistance is not a remedy grounded in the principles of restitution or proprietary remedies. The DBDC Applicants are not seeking a restitutionary or proprietary-based remedy; they seek only a remedy in damages.

Liability for knowing assistance does not depend on receipt of property and the measure of recovery does not depend on value of property obtained as a result of the breach of fiduciary's obligations. The essence of liability for knowing receipt is unjust enrichment, while the essence for liability for knowing assistance is knowing participation or assistance in the breach in furtherance of the defaulting trustee or fiduciary's fraudulent and dishonest conduct. It is the knowledge of the Listed Schedule C Companies, rather than the knowledge of their investors or shareholders, which is relevant in assessing the claim for knowing assistance.

The requirement of knowledge for knowing assistance is actual knowledge, whereas for knowing receipt the requirement is constructive knowledge. It is hard to conceive of a case where in the face of a defendant's participation or assistance in a fraudulent and dishonest scheme perpetuated by a fiduciary with actual knowledge of both the fiduciary relationship and the fraudulent and dishonest scheme, a court would decline a remedy.

The Listed Schedule C companies are not excused from "fault" on the ground that they were simply caught up because they remained participants and actors in the scheme. Once it is determined that the Listed Schedule C Companies knowingly participated in the fraudulent and dishonest breach of fiduciary duty by the Waltons, the DBDC Applicants are entitled to an award of damages against them as knowing accessories to the breach. The appropriate measure is the loss caused to the applicants by the dishonest fiduciary's fraudulent scheme arising from the participation and assistance of the Listed Schedule C companies in that scheme. The Listed Schedule C Companies are jointly and severally liable for the losses sustained. However, any amounts recovered by the applicants pursuant to the constructive trusts awarded must be applied in reduction of the damage award.

(2) Yes. The application judge granted constructive trusts in favour of DeJong against the properties as a remedy for breach of fiduciary duty. However, in Indalex Ltd., Re, 2013 SCC 6, the Supreme Court of Canada held that a remedial constructive trust for a breach of fiduciary duty is only appropriate if the wrongdoer's acts give rise to an identifiable asset which it would be unjust for the wrongdoer (or sometimes a third party) to retain. The application judge failed to apply the Indalex principle that the fiduciary's wrongful acts must give rise to an identifiable asset, and he failed to give effect to the interests of the other creditors and third parties.

The DBDC Applicants also submitted that, in an insolvency context, the availability of other remedies and the adverse impact of imposing a proprietary remedy on other creditors and parties must be taken into account in determining whether to impose a constructive trust. Granting a constructive trust over the properties as a remedy for breach of fiduciary duty would enable DeJong to leapfrog over other creditors in its capacity as a lender by obtaining a proprietary remedy not available to other creditors. It is not enough to say that, because different groups of investors have been victims of an overall fraudulent scheme, and one group of investors is entitled to a constructive trust against certain of those properties to which their funds can be traced, the other group of investors is in equity entitled to a proprietary remedy against those or other properties in order to achieve some similar recovery in an attempt to be equitable. These factors do not justify the imposition of a proprietary remedy, for the benefit of the latter group of investors/creditors and to the prejudice of others, where the fiduciary breach did not directly relate to the acquisition of the properties in question.

(3) Yes. Leave was granted to appeal the costs portion of the Judgments and Orders and the costs order, and the costs order was set aside and remitted for reconsideration in view of the above.

The appeal was allowed, and the judgments and orders of the application judge holding that the Listed Schedule C Companies were not jointly and severally liable to the DBDC Applicants, granting constructive trusts in favour of DeJong, and awarding costs against the DBDC Applicants in favour of DeJong, the Condos and the Levytams, were all set aside.

Dissent (van Rensburg J.A.):

van Rensburg J.A. agreed that Norma Walton was in breach of the fiduciary duties she owed to the DBDC Applicants and that the DBDC Applicants are unable to establish the liability of the Listed Schedule C Companies for knowing receipt. She did not agree with the conclusion that the Listed Schedule C Companies participated in or assisted Ms. Walton in the breach of her fiduciary duties to the DBDC Applicants, and in awarding damages of $22.6 million against these ten companies. In her opinion, liability for knowing assistance cannot be made out in this case.

A judgment for $22.6 million against the Listed Schedule C Companies would enable the DBDC Applicants to share as unsecured creditors in the proceeds of sale of each of ten Schedule C Properties, after satisfying the constructive trust claims they made out against some of the properties. She argued this judgment will overwhelm the claims of the investors in the ten Listed Schedule C Companies, who were victims of the Waltons in the same manner as the appellants. She argued that the damage award does not correspond with the loss caused by the actions of the fiduciary or with the loss caused by or benefit to some or all of the Schedule C Companies.

In her view, the "participation" element of the fault-based claim of knowing assistance is not made out on this record. She would have dismissed the DBDC Applicants' appeal.

van Rensburg J.A. identified two general concerns:

(1) The knowing receipt and knowing assistance claims were late-breaking add-ons to the oppression proceedings against the Waltons; and

(2) Since the DBDC Applicants' claims against the Listed Schedule C Companies depend on the court's acceptance of the "net transfer analysis", its purpose and limitations must be understood.

Raibex Canada Ltd. v. ASWR Franchising Corp., 2018 ONCA 62

[Sharpe, Blair and Epstein JJ.A.]

Counsel:

Geoffrey B. Shaw and Christopher Horkins, for the appellants

David S. Altshuller and Lara Di Genova, for the respondents

Keywords: Contracts, Franchise Law, Rescission, Disclosure, Misrepresentation, Damages, Arthur Wishart Act, 2000, S.O. 2000, ss. 3, 5, 6 & 7, Caffé Demetre Franchising Corp. v. 2249027 Ontario Inc., 2015 ONCA 258, Canada Inc. v. Dollar It Ltd., 2009 ONCA 385, Fresh Evidence, Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208 (C.A.), Civil Procedure, Summary Judgment

Facts:

The central issue on this appeal is whether the franchise disclosure document ("FDD") provided by the appellant franchisor was so inadequate that it entitled the respondent franchisee to rescind the parties' franchise agreement under s. 6(2) of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the "AWA").

The franchise agreement in issue was between Raibex Canada Ltd. (the "Franchisee") and ASWR Franchising Corp. (the "Franchisor"). It gave the Franchisee the right to acquire and operate an AllStar Wings and Ribs ("ASWR") franchise in Mississauga. Neither the agreement nor the FDD specified a site for the prospective franchise. Rather, the agreement stipulated that a suitable location would be selected through the "reasonable best efforts" of both parties. The FDD included an estimated range of costs for constructing an ASWR franchise from a shell, but did not provide cost estimates for converting a pre-existing restaurant to an ASWR outlet (a "conversion"). The parties, working together, agreed upon a site for the franchise outlet that included an existing restaurant suitable for conversion. Differences arose after the costs of developing the franchise proved higher than the Franchisee expected. The Franchisee purported to rescind the franchise agreement on the basis of material non-disclosure. The Franchisor sought judgment for certain costs it incurred after taking over the restaurant following receipt of the Franchisee's notice of rescission.

The parties brought motions for summary judgment to, among other things, determine the validity of the Franchisee's decision to rescind the agreement. The motion judge held that the franchise agreement had been validly rescinded and dismissed the Franchisor's claim for damages. The Franchisor appeals both aspects of her decision. The Franchisee cross-appeals certain related issues addressed in the motion judge's reasons, and moves to admit fresh evidence.

Issues:

(1) Did the motion judge err in holding that the franchise agreement was validly rescinded?

(2) If the Franchisee did not validly rescind the agreement, is the Franchisor entitled to damages?

(3) Did the motion judge err in dismissing the Franchisee's claims based on misrepresentation and breach of the duty of fair dealing?

(4) Should the fresh evidence be admitted?

Holding: Appeal allowed. Cross-appeal and motion to admit fresh evidence dismissed.

Reasoning:

(1) Yes. The inquiry into whether disclosure deficiencies are such that they justify rescission under s. 6(2) ultimately focuses on whether the franchisee has been "effectively deprived ... of the opportunity to make an informed [investment] decision": Caffé Demetre Franchising Corp. v. 2249027 Ontario Inc., 2015 ONCA 258, at para. 63. The seriousness of any given failure to comply with s. 5 must be measured by reference to the underlying purposes of s. 5 and the AWA more broadly in order to "obligate a franchisor to make full and accurate disclosure to a potential franchisee so that the latter can make a properly informed decision about whether or not to invest in a franchise": Canada Inc. v. Dollar It Ltd., 2009 ONCA 385 at para. 16.

The lengthy and detailed FDD in this case should have put the Franchisee on notice as to the potential risks associated with pursuing a conversion opportunity.

The AWA draws a clear distinction between imperfect disclosure (or deficient disclosure) and situations where a franchisor provides "no disclosure", thereby entitling the franchisee to rescission within a two year window. The motion judge erred in law by failing to give effect to this important legislative distinction.

(2) Yes. The Franchisor is entitled to damages arising out of the Franchisee's failure to fulfill its financial obligations under the franchise agreement. However, these damages should account for the financial benefits the Franchisor derived from operating the franchise outlet. The matter was therefore remitted back to the Superior Court for a determination of this issue.

(3) No. the motion judge correctly dismissed the s. 3 and s. 7 misrepresentation claims. They were not particularized in the Franchisee's statement of claim and were largely ignored in its oral and written argument. By not mounting a defence to the cross-motion, the Franchisee failed to "put its best foot forward".

(4) No. The proposed evidence did not exist at the time of the hearing. This is not one of those rare cases where admission of such evidence would further the interests of justice (see: Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208 (C.A.), at paras. 8-10), and the motion was not brought in a timely fashion. There is no basis to assess the reliability of the proposed evidence.

Tam v. El-Hawary, 2018 ONCA 70

[Laskin, Sharpe and Fairburn JJ.A.]

Counsel:

M Diegel, for the appellant

J-F Laberge, for the respondent

Keywords: Corporations, Oppression, Affiliates, Ontario Business Corporations Act, R.S.O. 1990, c. B.16, s 1 (4)

Facts:

The appellants (Stanley Tam aka Stanley Bor Tam, 1202817 Ontario Inc., RTM Resources Inc. and 1041376 Ontario Inc.) concede that the motion judge did not err in finding that Tam and the pharmacy, 1202827 Ontario Inc. ("120") are liable. The appellants argue, however, that the motion judge erred in finding that the landlord, 1041376 Ontario Inc. ("104"), and RTM Resources Inc. are also liable. The appellants submit that the statement of claim pleads that these defendants are liable because they intended to defeat the respondent's claim, and yet the motion judge held that the question of intent could not be decided until after a trial. Second, the respondent pleaded that 104 and RTM were liable as affiliates, and yet she led no evidence to show that they were affiliates.

Issues:

(1) Did the motion judge err in finding that the landlord, 1041376 Ontario Inc. ("104"), and RTM Resources Inc. are liable?

Holding: Appeal dismissed.

Reasoning:

(1) No. On the pleadings point, once the appellants concede that Tam and 120 are liable, they concede that under the oppression remedy it is effect not intent that matters, as indeed the motion judge found. On the affiliate point, the motion judge's reasons are sufficient to support a finding that both 104 and RTM are affiliates. Under section 1(4) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, one body corporate shall be deemed to be affiliated with another body corporate if each of them is controlled by the same person.

Conner v. Scotia Capital Inc., 2018 ONCA 73

[Simmons, Roberts and Nordheimer JJ.A.]

Counsel:

Amanda Chapman, for the appellant

David Di Paolo and Caitlin Sainsbury, for the respondent

Keywords: Employment Law, Wrongful Dismissal, Striking Pleadings, Frivolous, Vexatious or Abuse of Process, Rules of Civil Procedure, Rule 21.01(3)(d), Summary Judgment

Facts:

The appellant's employment with the respondent, Scotia Capital Inc., was terminated on October 19, 2012. In December 2012, the appellant entered into a settlement agreement with the respondent and also signed a release. In October 2014, the appellant commenced an action against the respondent for wrongful dismissal, defamation and conversion of his book of business.

The respondent successfully brought a motion under rule 21.01(3)(d) to stay or dismiss the appellant's action based on the settlement agreement and release. The motion judge determined that the respondent did not breach a duty of good faith to the appellant, did not make fraudulent misrepresentations to him and that the settlement agreement entered into by the parties was neither unconscionable nor unenforceable.

Issues:

(1) Did the motion judge err in dismissing the appellant's action?

Holding: Appeal allowed.

Reasoning:

(1) Yes. The court stated that to dismiss a case as frivolous or vexatious or an abuse a process on a motion under rule 21.01(3)(d), a court must be satisfied that on the face of the action and in all the circumstances, it is plain and obvious that the action cannot succeed. Rather than articulating or applying this test, the motion judge proceeded as if she was hearing a summary judgment motion and made findings of fact based on the evidence presented. However, unlike a summary judgment motion, it cannot be presumed that all relevant evidence has been presented on a rule 21.01(3)(d) motion.

The court stated that given the dispute over the validity of the release, this was not an appropriate case to be determined on a rule 21.01(3)(d) motion. The court therefore allowed the appeal and set aside the order below.

Criminal Decisions:

R v. Hansen, 2018 ONCA 46

[Sharpe, Watt and Roberts JJ.A.]

Counsel:

  1. Lafontaine, for the appellant
  2. Schwartz, for the respondent

Keywords: Criminal Law, Perjury, Obstruction of Justice, Sentencing, Controlled Drugs and Substances Act, Section 11, Evidence, Search Warrants, Credibility

R v. J.S., 2018 ONCA 39

[Simmons, Rouleau and Roberts JJ.A.]

Counsel:

  1. Lumba, for the appellant
  2. Latimer, for the respondent

Keywords: Criminal Law, Sexual Assault, Forensic Evidence

R v. Ontario (Review Board), 2018 ONCA 50

[Rouleau, Watt and Brown JJ.A.]

Counsel:

  1. Jenner, for the appellant
  2. Mackenzie, for the respondent

Keywords: Constitutional Law, Jurisdiction, Criminal Proceedings Rules, r. 27.03, Rules of Civil Procedure, r. 14.05(3)(g.1)

R v. Tran, 2018 ONCA 35

[Doherty, LaForme and Paciocco JJ.A.]

Counsel:

  1. Kerbel, for the appellant
  2. Devlin, for the respondent

Keywords: Criminal Law, Consent, Conviction Quashed

Wong v. Canada (Attorney General), 2018 ONCA 68

[Doherty, LaForme and Paciocco JJ.A.]

Counsel:

Ian B. Kasper, for the appellant

Sanam Goudarzi and Korinda McLaine, for the respondent

Keywords: Criminal Law, Corrections and Conditional Release Act, S.C. 1992, c. 20, s. 27(1), Mission Institution v. Khela, 2014 SCC 24

R v. Degraw, 2018 ONCA

[Feldman, Fairburn and Nordheimer JJ.A.]

Counsel:

  1. Sheppard, for the appellant
  2. Schwartz, for the respondent

Keywords: Criminal Law, Firearms Offences, Constructive Possession, Evidence

R v. Foster, 2018 ONCA 53

[Watt, Epstein and Brown JJ.A.]

Counsel:

  1. Martell, for the appellant
  2. Proestos and Y. Pressman, for the respondent

Keywords: Criminal Law, Controlled Substances, Trafficking, Duress, Sentencing

R v. Parshall, 2018 ONCA 59

[Hoy A.C.J.O., MacPherson and Rouleau JJ.A.]

Counsel:

  1. DesLauriers, for the appellant
  2. Carrasco, for the respondent

Keywords: Criminal Law, Canadian Charter of Rights and Freedoms, Search and Seizure, Search Warrants

R v. Dagenais, 2018 ONCA 63

[Strathy C.J.O., Doherty J.A. and McCombs J. (Ad Hoc)]

Counsel:

  1. Dineen and M. Halfyard, for the appellant
  2. Schwartz and E. Whitford, for the respondent

Keywords: Criminal Law, Accessory to Murder, Obstructing Police, Public Mischief

R v. Le, 2018 ONCA 56

[Doherty, Lauwers and Brown JJ.A.]

Counsel:

  1. McDunnough, for the appellant
  2. Sandy Tse, for the respondent

Keywords: Criminal Law, Evidence, Canadian Charter of Rights and Freedoms, s. 8

R v. Pindus, 2018 ONCA 55

[Laskin and Pepall JJ.A. and Gans J. (ad hoc)]

Counsel:

  1. Gourlay and K. Grad, for the appellant
  2. De Filippis, for the respondent

Keywords: Criminal Law, Sexual Assault, Evidence, Sentencing

R v. Sagoo, 2018 ONCA 58

[Feldman J.A. (Motion Judge)]

Counsel:

  1. Price, for the appellant
  2. Smith Joy, for the respondent

Keywords: Criminal Law, Driving Prohibition

R v. Victoria, 2018 ONCA 69

[Watt, Brown and Miller JJ.A.]

Counsel:

  1. Vandebeek, for the appellant
  2. G. Walsh, for the respondent

Keywords: Criminal Law, Controlled Substances, Possession, Canadian Charter of Rights and Freedoms, s. 8, Sentencing

Short Civil Decision and Ontario Review Board Decision:

Srebrolow Lebowitz Spadafora PC v. PW Lawyers Professional Corporation, 2018 ONCA 64

[Laskin, Sharpe and Fairburn JJ.A.]

Counsel:

  1. Slade and C. Giordano, for the appellants
  2. Srebrolow and G. Fabiano, for the respondents

Keywords: Contracts, Solicitors, Referral Fees, Rules of Professional Conduct

Ohenhen (Re), 2018 ONCA 65

[Watt, Tulloch, Pardu, Benotto and Roberts JJ.A.]

Counsel:

  1. Szigeti and J. Berger for the appellant, Julius Ohenhen
  2. R. Presser and A. Menchynski, for the appellant Gaurav Kalra
  3. Alyea for the respondent, Her Majesty the Queen
  4. S. MacKenzie for the respondent, the Person in Charge of the Centre for Addiction and Mental Health
  5. Walker-Renshaw and J. McIntyre, for the respondent, the Person in Charge of Royal Ottawa Mental Health Centre

Keywords: Ontario Review Board, Criminally Responsible, Mental Disorder, Health Care Consent Act, Consent, Criminal Code, s. 672.55(1), Conditions, Treatment

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Authors
John Polyzogopoulos
Events from this Firm
8 Nov 2018, Conference, Toronto, Canada

This year’s program is entitled “An Analysis of Fidelity Claims for the Modern World.” The program will address important substantive and practical issues germane to today’s fidelity claims handling.

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