Court Of Appeal Summaries (August 21 – August 25, 2023) - Civil Law

Good afternoon.

Following are this week's summaries of the Court of Appeal for Ontario for the week of August 21, 2023.

In Sase Aggregate Ltd. v. L, Sase discovered its pit manager apparently stole $2.1 million and pursued a constructive trust claim over a property owned by the manager's wife, Ms. L., alleging she benefited from the stolen money. The Court found that the application judge did not misstate the law and correctly identified the requirements for unjust enrichment. The Court also determined that Sase failed to adequately trace the funds and establish Ms. L's connection to the alleged fraudulently obtained proceeds. The appeal was dismissed.
Other topics covered this week included an appeal from a vesting order, appellate jurisdiction in an OBCA case and stay pending appeal.

Wishing everyone an enjoyable weekend.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Ines Ferreira
Blaney McMurtry LLP
416.593.2953 Email

Civil Decisions

Sase Aggregate Ltd. v. L, 2023 ONCA 554

Keywords: Torts, Fraud, Unjust Enrichment, Knowing Receipt, Knowing Assistance, Remedies, Tracing, Constructive Trust, Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, 2007 BCCA 52, 278 D.L.R. (4th) 501, rev'd on other grounds 2009 SCC 15, Re Oatway, [1903] 2 Ch. 356, Peel (Regional Municipality) v. Canada; Peel (Regional Municipality v. Ontario, [1992] 3 S.C.R. 762

Rose-Isli Corp v Smith, 2023 ONCA 548

Keywords: Bankruptcy and Insolvency, Receiverships, Sales Process, Mortgages, Right of Redemption, Mortgages Act, R.S.O. 1990, c. M.40, s. 2, Rose-Isli Corp. v. Frame-Tech Structures Ltd., 2022 ONSC 4135, BCIMC Construction Fund Corporation et al. v. The Clover on Yonge Inc., 2020 ONSC 3659, Royal Bank of Canada v. Soundair Corp., (1991), 4 O.R. (3d) 1 (C.A.), B&M Handelman Investments Limited v. Mass Properties Inc. (2009), 55 C.B.R. (5th) 271 (Ont. S.C.)

Short Civil Decisions

Foglia v. Grid Link Corp, 2023 ONCA 560

Keywords: Corporations, Oppression, Civil Procedure, Appeals, Jurisdiction, Business Corporations Act, R.S.O. 1990, c. B.16, s. 255, Courts of Justice Act, R.S.O. 1990, c. C.43, s. 110, Gustafson v. Johnson, 2017 ONCA 581, Buccilli v. Pillitteri, 2016 ONCA 775

Buffone v. Sokil, 2023 ONCA 558

Keywords: Civil Procedure, Judgments, Enforcement, Writs of Possession, Appeals, Stay Pending Appeal, Mootness

CIVIL DECISIONS

Sage Aggregate Ltd. v L., 2023 ONCA 544

[van Rensburg, Miller and Nordheimer JJ.A.]

COUNSEL:

C. Carter, for the appellant

J. Montgomery, for the respondent

FACTS:

The appellant, Sase, owned and operated a gravel pit in Uxbridge, Ontario. In 2021, it discovered evidence that its pit manager, JS, had defrauded the company of more than $2.1 million over a period of several years.

Sase brought an application seeking to recover its stolen funds not against JS, but instead against his wife, the respondent Ms. L. Sase claimed that its stolen funds were used to purchase and renovate a property owned by Ms. L (the “Property”), and sought a constructive trust over the net proceeds from the sale of the Property. It alleged that Ms. L was liable based on the doctrines of knowing receipt, knowing assistance and unjust enrichment.

Ms. L denied knowledge of the fraud. Her evidence was that the payments that she had arranged for the purchase and renovation of the property came from legitimate sources. However, she admitted that, in the course of reviewing banking records, she had discovered that her husband had made payments totalling $177,632.38 using Sase's funds.
The application judge concluded that, except for the acknowledged amount, Sase had not made out its claims, essentially because: (1) Ms. L had no actual or constructive knowledge of the fraud; (2) Sase was unable to trace the rest of its funds into the Property; and (3) Ms. L used legitimate sources to buy and renovate the Property. Thus, the application judge concluded that the net sale proceeds belonged to Ms. L (minus the $177,632.38 Ms. L admitted came from Sase).

ISSUES:

Did the application judge err in finding that the imposition of a constructive trust depends on a finding of a fiduciary relationship and in failing to impose a constructive trust
Did the application judge err in law in finding that the appellant failed to provide sufficient evidence to establish that LS owed his employer a fiduciary duty?
Did the application judge err in law in finding that Sase had not properly traced the funds in and out of the joint accounts because “a tracing analysis must follow the funds through as many steps or transfers as necessary to arrive at the conclusion that they are the same funds”?
Did the application judge commit a palpable and overriding error in finding that Ms. L did not receive Sase property or benefit from the fraud perpetrated by her husband?

HOLDING:

Appeal dismissed.

REASONING:

1. No

The Court was not persuaded that the application judge misstated the law, as submitted by Sase. The Court did not read the application judge as having required a finding of a fiduciary or trust relationship before she could impose a constructive trust. Indeed, later in her reasons the application judge accurately identified the requirements for a finding of unjust enrichment as: (1) a benefit to the defendant; (2) a corresponding detriment to the plaintiff; and (3) the absence of any juridical reason for the defendant's retention of that benefit. The balance of her reasons demonstrated that she understood and applied the test for unjust enrichment, including finding that Ms. L was unknowingly unjustly enriched by payments totaling $177,632.38 made by her husband toward the Property using Sase funds. The application judge refused to grant a constructive trust with respect to the balance because Sase had not met its burden to show that its money was used in the acquisition and improvement of the Property.

Sase also contended that there was no law to support the proposition that all Ms. L had to do was prove that she had legitimate, independent sources of funds and that she was required to prove that she provided “valuable consideration”, from her own funds, and not those belonging to her husband.

In the Court's view, whether Ms. L was “availing herself” of “what had been obtained by the fraud of another” was the very issue in dispute. Sase had the burden of proving that Ms. L had received the proceeds of the fraud – that the funds used to purchase and renovate the Property were its funds – and Ms. L only needed to show that the funds were not Sase's funds to meet the evidentiary burden placed on her.

2. No

The Court agreed with Sase that the evidence did support the conclusion that L S's fraudulent actions were in breach of a fiduciary duty he owed to Sase.
However, the Court noted that the application judge's finding that the appellant had not tendered sufficient evidence to establish that L S owed his employer a fiduciary duty was immaterial to the outcome of the appeal. The application judge rejected Sase's claims for knowing receipt and knowing assistance because the other elements of these claims ─ knowledge of the duty and the breach, receipt of its proceeds and assistance in the breach ─ had not been made out. She accepted Ms. L's evidence that she was unaware of her husband's fraud and found a lack of evidence supporting constructive knowledge (findings which, while not necessarily accepted by Sase, were not challenged on appeal as palpable and overriding errors). She also accepted, on the evidence before her, that Ms. L had not used or received any of the Sase funds for her own benefit.

3. No

The Court noted that the application judge's statement about the nature of tracing was correct, citing the Supreme Court's decision in B.M.P.:
Tracing is an identification process. The common law rule is that the claimant must demonstrate that the assets being sought in the hands of the recipient are either the very assets in which the claimant asserts a proprietary right or a substitute for them.
The application judge concluded that, on this evidence, Sase's evidence was inadequate to prove its assertion that its money was used to purchase and improve the Property. By contrast, in explaining the source of funds used for the purchase and renovation of the Property, Ms. L provided detailed evidence, showing the original source of payments she had arranged and step-by-step how the transfer of funds occurred.

4. No

With respect to the allegation that Ms. L benefited when the funds were deposited into her husband's account and then a joint she had with her husband, the evidence was that Ms. L had nothing to do with her husband's account, and rarely used the joint account. There was no evidence linking her to such transfers. Further, in view of the claims Sase was making and the remedy it was seeking – a constructive trust over the proceeds of sale of the Property – the benefit had to relate to the Property itself. Sase was required to show that its money had ended up in the Property and any benefit or enrichment was required to be a tangible benefit: “without a benefit which has ‘enriched' the defendant and which can be restored to the donor in specie or by money, no recovery lies for unjust enrichment”: Peel (Regional Municipality) v. Canada; Peel (Regional Municipality v. Ontario.

Ms. L provided evidence that was accepted by the application judge that there were legitimate sources of money available to her and that she used those other sources to acquire and renovate the Property. Whether Ms. L benefited from her husband's fraud was an issue to be determined in the context of Sase's claims and the remedy it was seeking. Specifically, the question before the application judge was not whether Ms. L benefited in some way from the fraud but whether Sase had demonstrated that she had benefited in that the Sase funds were used to buy and renovate the Property. Given gaps in the evidence, it was still an open question where the stolen funds went

Rose-Isli Corp v Smith, 2023 ONCA 548

[Hourigan, Brown, and Monahan JJ.A.]

COUNSEL:

J. Wadden, C. Sayao, and T. Milosevic, for the appellants

M. Mednick, for the respondents, Frame-Tech Structures Ltd., FS, Capital Build Construction Management Corp. and 2735447 Ontario Inc.

S. Kour and B. Bissell, for the receiver Ernst & Young Inc.

N. Read-Ellis, for Ora Acquisitions Inc.

FACTS:

The appellants appealed the approval and vesting order issued by the motion judge that authorized the Receiver to proceed with a sale of the property in the receivership, and a related ancillary order.

The appellants had initially sought to appoint the Receiver over the property, which would engage in a sales process for the property. One of the appellants held a second mortgage on the property. The Receiver secured court approval for the sale process, however, the appellants opposed the sale. The appellants sought an order that would allow them to redeem the first mortgage or be recognized as a successful creditor bidder. The motion judge granted the Receiver's approval motion and dismissed the appellants' cross-motion for redemption.

ISSUES:

Did the motion judge err is dismissing the appellant's cross-motion?

HOLDING:

Appeal dismissed.

REASONING:

No.

One of the applicants for the appointment of a receiver consented to the Appointment Order. Section 9 of the Appointment Order stated that “all rights and remedies against the Company, the Receiver, or affecting the Property, are hereby stayed and suspended except with written consent of the Receiver or leave of this Court”. The Court held that the motion judge was correct to determine that the issue was not whether the appellant had a right to redeem but whether it should be permitted to exercise that right once the court-approved sales process had run its course and the Receiver had entered into an agreement with the successful bidder. The ability of the appellants to exercise a right of redemption had to consider the reality that the property remained subject to an active receivership, which engaged interests beyond those of the second mortgagee.

The Court noted that the motion judge correctly considered the impact of allowing the encumbrancer to exercise its right of redemption on the integrity of a court-approved sales process. The Court noted that if a court-approved sales process has been carried out in a manner consistent with the principles in Royal Bank of Canada v Soundair Corp, a court should not permit a later attempt to redeem to interfere with the completion of the sales process.

The Court concluded that the motion judge correctly identified the interests at play which was required when balancing the right to redeem against the impact on the integrity of the court-approved receivership process. The motion judge's conclusion that the conduct of the sales process met the Soundair criteria was reasonable and free of palpable and overriding error.

SHORT CIVIL DECISIONS

Foglia v. Grid Link Corp, 2023 ONCA 560

[Lauwers, Zarnett and Thornburn JJ.A.]

COUNSEL:

N. Wainwright, for the appellants

E. Zablotny, for the respondents

Buffone v. Sokil, 2023 ONCA 558

[Lauwers, Zarnett and Thornburn JJ.A.]

COUNSEL:

B.L.S, acting in person

J. Friedman, for the respondent/responding party E.A.B

E. Zablotny, for the respondents

W.M.S, acting in person

Keywords: Civil Procedure, Judgments, Enforcement, Writs of Possession, Appeals, Stay Pending Appeal, Mootness

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be ought about your specific circumstances.

Canada: Court Of Appeal Summaries (August 21 – August 25, 2023)
Blaney's Appeals

Table of Contents

CIVIL DECISIONS

SHORT CIVIL DECISIONS

Canada: Court Of Appeal Summaries (August 21 – August 25, 2023) Blaney's Appeals

Table of Contents

CIVIL DECISIONS

SHORT CIVIL DECISIONS

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Canada: Court Of Appeal Summaries (August 21 – August 25, 2023)
Blaney's Appeals