At Canadian Fraud News, we review the decisions as they are released by Canadian Courts and then publish those which we believe are of interest to private sector civil fraud recovery lawyers and investigators, as well as public law enforcement, security regulators, and victims of fraud. The cases we report on are generally not published in the mainstream media. We also report on significant events taking place in the fraud recovery community.
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In this newsletter, we review two Mareva set aside motions, a summary judgment motion to dismiss a fraud action by reason of the Limitations Act, an art fraud case that was dismissed and successfully appealed due to improper use of expert evidence, and a sentencing decision in a tax evasion and fraud case. These are our stories.
Trade Capital Finance Corp. v. Cook, 2019 ONSC 4950 / Judgment: September 24, 2019 / Docket: Toronto CL
Counsel: Peter Carey for the Plaintiff / Motion to Set Aside Mareva by Defendant- dismissed
The plaintiff, Trade Capital, is a factoring company. Factoring is a financial transaction in which the factoring company buys invoices owing to a creditor at a discount and then collects the full amount of the invoice from the debtor. When collection is made, the factoring company pays the balance to the creditor after deducting commission and other charges.
Peter Cook was the president of Trade Capital and a shareholder. At the outset of its incorporation in 2011, Trade Capital purchased a portfolio of invoices from one of Cook’s companies. Cook was responsible for bringing in all of the other business as well. Through a series of internal investigations in 2013, Trade Capital became aware that it had been the victim of a systematic fraud perpetrated by Mr. Cook and others. Most of the invoices Trade Capital had acquired from Mr. Cook and his companies were fraudulent. Mr. Cook confessed to his role in the fraud during an interview with other Trade Capital principals. Mr. Cook was ultimately convicted of fraud and is serving a penitentiary sentence.
In the civil action, the Plaintiff alleged that the defendants and Cash House Inc., a money services business that was owned from 2011 to 2013 by Mr. Carlo De Maria, knowingly received the money defrauded from the plaintiff and “laundered” the ill-gotten money. The Defendants stated that if they received any ill-gotten money, it was in the normal course of operations of the Cash House’s business. Cash House, they stated, was a legitimate money services company offering payday loans, third party cheque cashing and foreign exchange services. The Defendants stated that they, and Cash House, had no knowledge of Mr. Cook’s fraud and that they received no benefit other than the usual transaction fees for performing money-related services.
In 2015, the Plaintiff was granted a Mareva injunction, freezing the assets of Mr. De Maria and Cash House. Mr. De Maria and Cash House moved to have the Mareva injunction set aside for lack of prosecution of the action by the Plaintiff. The Plaintiff brought a cross motion for summary judgment or alternatively an order striking out the defendant’s defence. With respect to the motion to set aside the Mareva injunction, the Court held that the general rules are that a plaintiff who obtains a Mareva order is obliged to proceed as rapidly as possible with the action so that, if the defendant does succeed, the disadvantage will be minimized. The second rule is that if a motion is brought to reopen, vary or dissolve a Mareva order, is itself a request for extraordinary relief, and the burden of proof is on the moving party.
The Court held that the principal cause of delay in the prosecution of these proceedings has been Mr. De Maria’s persistent failure to cause the Cash House and other companies to make full production of documents. Thus, the bulk of any delay was the result of the Defendants’ conduct, not that of the Plaintiff. This conclusion alone was a sufficient basis to deny the Defendant’s motion to set aside the Mareva order. The Court further held that although this was not a contempt motion, it was apparent that there was prima facie evidence that the Defendants had breached the Mareva order. This weighed heavily in support of denying the relief sought by the Defendants in their motion.
With respect to the Plaintiff’s motion for summary judgment, the Court held that most fraud cases involve circumstantial evidence because, by definition, fraud involves deceit and is usually not done out in the open. Circumstantial evidence adds to the complexity of the analysis of the evidence because, unlike direct evidence, circumstantial evidence involves a logical gap between the proven fact and the fact sought to be proved. That logical gap must be filled by inference—that is, a further fact must be inferred on the basis that it logically and rationally follows from the fact proved. In the absence of a logical and rational connection, there is no permissible inference; there is only speculation. Inferences can be drawn on a motion for summary judgment. However, credibility, and the extent to which the inferences sought to be drawn depend on a full appreciation of all of the evidence, becomes that much more important in the summary judgment context.
The Court held that the Plaintiff had not proven a clear cut case in their summary judgment motion. Another problem was that both sides submitted conflicting expert evidence. The Plaintiff’s motion for judgment was dismissed.
Glegg v. 2137691 Ontario Limited, 2019 ONSC 5136 / Judgment: September 3, 2019 / Docket: Brampton
Counsel: J. Zibarras for the Plaintiff / Motion to Set Aside Mareva and CPL – Both Orders Set Aside
This action was for alleged deficient renovation work done to the plaintiff’s home. Essentially, the plaintiff claims fraud and negligence by the defendants with respect to electrical work done to his home, including the manner in which the work was carried out. The alleged cost to repair the deficient work was $475,000. The plaintiff also claims $1,500,000 in punitive damages. An interim ex parte Mareva injunction and a Certificate of Pending Litigation was granted by this court. Upon being served, the defendants brought a motion to set aside the orders. Cross examinations on affidavits were held. The defendants submitted that the plaintiff had failed to disclose material facts when it brought its ex parte motion. The plaintiff submitted that the defendants were obliged to give particulars of the material facts not disclosed prior to the motion.
Held: The onus is on the applicant/plaintiff to make full and frank disclosure to the court of all material matters. The defendants are under no obligation to include a reference to such issues in its responding materials. The defendants have no obligation to file any responding materials. Deficiencies in the applicant/plaintiff disclosure can be demonstrated to the court based on the applicant’s materials alone or the cross-examination of the applicant alone. The issue of whether there is other insurance available to the applicant/plaintiff (and whether any claim has been made on such insurance) is highly relevant to the issue whether the defendants are attempting to (or have a reason to) dissipate their assets to avoid paying a judgment to the Plaintiff. The availability of insurance or the extent of the electrical deficiencies will have an impact on whether the original order was made. The failure of the plaintiff to respond to these questions is fatal to the continuation of the Mareva and CPL orders. The orders are dissolved.
Further Held: even if there were no material non-disclosures, the Mareva and CPL orders would be set aside on the basis of a lack of a prima facie case. On a set aside motion, the plaintiff admits that there is a strong credibility issue in the competing affidavits on important issues. Acknowledging competing credible and reasonable evidence, including those which if accepted at trial that there was no fraud, significantly weakens the plaintiff’s argument that he has a strong prima facie case. Mareva injunctions are a limited and extraordinary exception to the rule against granting execution before judgment. In this case, the circumstances do not establish the need or meet the test for granting such an extraordinary remedy. As a result, the Mareva and CPL orders are dissolved.
Lee v. Dhillon, 2019 ONSC 5114 / Judgment: September 3, 2019 / Docket: Toronto
Mr. Herschel Gold, for Defendants / Summary Judgment to dismiss Fraud and Breach of Confidence Action
This was a motion for summary judgment by the defendants, asking that the plaintiff’s fraud and malicious prosecution action be dismissed. The plaintiff alleged that the defendants conspired with the Canada Revenue Agency and the Real Estate Council of Ontario to falsely accuse the plaintiff of tax evasion. These conspiracies included the forgery of documents that were used against the plaintiff in court proceedings. On November 23, 2007, the plaintiff was found guilty of three counts of Income Tax Evasion. The plaintiff alleges that he was wrongfully convicted. The plaintiff subsequently appealed his assessments. His appeals were dismissed by the Ontario and Federal Courts of Appeal, and leave to appeal was denied by the Supreme Court of Canada on June 30, 2011, and November 7, 2013, respectively. The defendants’ submit that the plaintiff’s claim is barred by the two year limitation period in section 4 of the Limitations Act, 2002, S.O. 2002 c. 24. The defendant argues that there is no genuine issue regarding the date that the plaintiff discovered the claim.
Held: There is no dispute that the plaintiff discovered the facts giving rise to the alleged fraud by July 6, 2009. The Statement of Claim was not issued until more than nine years later, on August 20, 2018. The plaintiff argues that there is no statute of limitations with respect to violations of the Criminal Code. That is correct with respect to Criminal Code prosecutions. The plaintiff’s case is not a prosecution; it is a civil proceeding and is therefore subject to the Limitations Act. With respect to the test for malicious prosecution, the plaintiff was found guilty, and his appeals were dismissed. He cannot allege that he was wrongfully convicted in the face of these court decisions. The facts relevant to the determination of the limitation period issue are not disputed. There is no genuine issue requiring a trial with respect to the limitation period issue.
Hearn v. McLeod Estate, 2019 ONCA 682 / Judgment: September 3, 2019 / Docket: Toronto
Matthew Fleming for Appellant–Plaintiff / Appeal of Dismissal of Art Fraud Claim – Improper Expert Treatment
Kevin Hearn, the appellant, claimed that the respondents sold him a fake painting by the renowned Anishinaabe artist Norval Morrisseau, accompanied by a false provenance statement verifying the painting’s authenticity. He claimed for the return of the purchase price of $20,000, an additional $25,000 representing the loss of investment return on the painting, and the sum of $50,000 in punitive damages. The trial judge dismissed the action. The Court of Appeal set aside the dismissal of the action. First, in considering the painting’s authenticity, the trial judge erred in rejecting plaintiff expert evidence based on his own personal research, which was not in evidence. Second, the trial judge misapprehended the evidence regarding the nature and purpose of the contract particularly the contractual term that the respondents-defendants provide a valid provenance statement for the painting.
Held: The evidence overwhelmingly supports the appellant-plaintiff’s claim that he bargained for and was promised an authentic Morrisseau painting to be accompanied by a valid provenance statement attesting to the painting’s authenticity. The trial judge effectively severed the contractual term that the painting be an authentic Morrisseau from the contractual term that the painting be accompanied by a valid provenance statement. The error relates to the treatment of expert evidence of the plaintiff. The trial judge rejected the plaintiff’s expert evidence on a contrary theory that was not put to her and on which she was not cross-examined. The trial judge drew on resources that were not in evidence but were obtained by him outside of the courtroom through research done by him or at his direction. In doing so, the trial judge stepped out of the impartiality of his position as trial judge and descended into the arena, effectively becoming the art expert posed against the plaintiff expert. In other words, the trial judge assumed “the multi-faceted role of advocate, witness, and judge”. This was not appropriate.
R. v. Lawson, 2019 BCCA 290 / Judgment: September 4, 2019 / Docket: Vancouver
Tax Fraud Sentencing / incarceration and DNA orders upheld
Keith David Lawson was convicted by a jury of income tax and GST evasion, making false statements on income tax returns and counselling to commit fraud. He was sentenced to 18 months imprisonment and ordered to provide his DNA to police. Mr. Lawson appealed. Mr. Lawson had been an educator employed with Paradigm Educational Group – what the Court referred to as “an organization that essentially instructed individuals on how to commit tax evasion.” Mr. Lawson earned approximately $160,000 in annual income and did not report it on his tax returns. He also failed to collect GST from his clients.
Mr. Lawson submitted that he should be granted a conditional sentence / house arrest. He submitted that he was a stay at home father for two children and that he had significant health issues. The Court held that the primary goal of sentencing for the types of frauds perpetrated by Mr. Lawson was denunciation and deterrence. The Court held that permitting house arrest would not achieve these goals. The Court further held that penal institutions are designed to deal with health issues and that children unfortunately need to fall victim to their father’s criminal conduct.
The Court further held that a DNA production order was appropriate as it has a deterrent effect which outweighed Mr. Lawson’s privacy interests. Mr. Lawson’s appeal was dismissed.
The research and cost to produce this newsletter is sponsored by the civil fraud recovery law firm Investigation Counsel PC. At Canadian Fraud News, we welcome receiving cases from lawyers and others involved in the fraud recovery industry who feel their cases should be published, as well as sponsorship or assistance in creating this publication.