Court Of Appeal Summaries (June 6 – 10)

Hello everyone. Below are the summaries of this week's civil decisions released by our Court of Appeal. Topics covered include real estate, family law, non-share capital corporations, labour law and leave to extend time to appeal. The most interesting civil decision of the week was in Paton Estate v Ontario Lottery and Gaming Commission. In that case, a law clerk defrauded two estates of millions of dollars and gambled most of it away at OLG casinos. The estates sued the OLG for negligence, unjust enrichment and knowing receipt of trust funds for failing to investigate the source of the law clerk's money and allowing a known addict to continue gambling at its casinos. The claim was struck by the motions judge as disclosing no reasonable cause of action. In a 2-1 split decision, the Court of Appeal set aside the motion judge's decision and permitted the claim to go to trial. It found the claim to be novel and not certain to fail and that it should have the benefit of a full evidentiary record before being decided.

While we normally do not summarize criminal decisions, we have summarized the sentencing decision in R v. Sona because it is of general interest and of interest to those who practice elections law. The accused was convicted under the Canada Elections Act for subverting our democratic process through his participation in the "robo-calls scandal" during the 2011 federal election. He was sentenced to nine months' in prison and twelve months' probation. Appeals from his sentence by both the Crown and the accused were dismissed.

Also of note this week, leave to appeal was granted by the Supreme Court in the Livent case, so the Court of Appeal's decision in that matter from earlier this year will not be the final word.

Have a nice weekend.

CIVIL DECISIONS

Paton Estate v. Ontario Lottery and Gaming Corporation (Fallsview Casino Resort and OLG Casino Brantford), 2016 ONCA 458

[Hoy A.C.J.O., Pardu and Roberts JJ.A.]

Counsel:

Don Morris and T. Andrew Sprung, for the appellants

Matthew Milne-Smith and Bryan McLeese, for the respondent

Keywords: Torts, Negligence, Duty of Care, Anns/Kamloops Test, Pure Economic Loss, Indeterminate Liability, Knowing Receipt of Trust Funds, Constructive Trust, Unjust Enrichment, Unconscionability, Consumer Protection, Consumer Protection Act, Unfair Practices, Unconscionable Representations, Rules of Civil Procedure, R. 21.01, No Reasonable Cause of Action, Novel Claims

Facts:

The appellants are two estates that were defrauded by Ms. Spinks, a law clerk who was addicted to gambling. She spent the majority of the stolen funds at a casino in Ontario. The appellants sued the Ontario Lottery and Gaming Corporation ("OLGC"), alleging knowing receipt of trust funds, unjust enrichment, and negligence. Their statement of claim was struck by the motions judge on the grounds that the action disclosed no reasonable cause of action and clearly could not succeed.

Issues:

Did the motion judge err in striking the claim at the pleadings stage? Holding: Appeal allowed.

Reasoning (majority-Pardu and Roberts JJ.A.]):

Yes. The motion judge erred in striking the claim. Correctness is the standard of review for determining whether the claim should have been struck. Judges should allow claims to proceed unless they are patently unreasonable. The factual allegations in the statement of claim were in some instances not clearly linked to the causes of action, but this is not fatal to the claim. While the appellants' claim was not certain to succeed, the claim was not certain to fail, particularly if the statement of claim is read generously. On the allegation that the OLGC knowingly received trust funds, a stranger to a trust may incur liability if it receives trust property for its own benefit, has knowledge of facts that would put a reasonable person on inquiry, but fails to inquire as to the possible misapplication of trust property. Given the appellants' allegations that the OLGC had knowledge sufficient to put a reasonable person on inquiry but failed to do so, the appellants' claim for knowing receipt of trust funds should be allowed to proceed to trial.

Unjust enrichment requires enrichment of the defendant, a corresponding loss by the plaintiff, and the absence of a legal reason for the enrichment. The motion judge held that third parties could not advance a claim for unjust enrichment unless the gambler also had that right. The motions judge failed to consider that the legal reason behind the OLGC acquiring the stolen funds as a bona fide purchaser for value without notice could have been vitiated on the grounds of unconscionability. The statement of claim pleads that the OLGC received an "unconscionable benefit", a claim that would not necessarily fail. Additionally, the remedy of constructive trust may be imposed where required by good conscience in situations where unconscionable unjust enrichment occurs. This is a possible outcome at trial. The appellants could also rely on the Consumer Protection Act, which may assist consumers who are not reasonably able to protect their own interests.

Regarding the negligence claim, the appellants alleged that the OLGC owed them a duty of care and that they acted negligently by permitting the clerk to continue gambling. The motion judge held that third parties could not advance a claim for negligence unless the gambler also had that right. He found that the pleadings did not establish reasonable foreseeability and proximity between casinos and problem gamblers. He also found that imposing liability in this instance could create a policy problem of indeterminate liability. The majority disagreed with the motion judge's view that case law in Ontario establishes that there is no duty of care owed by casinos to gamblers. The motion judge made findings of fact on this issue that were premature, given that this was a pleadings motion. The majority also found that it was too early in the proceedings to determine that the issue of indeterminate liability could arise from recognizing a duty of care. It might be difficult but not impossible to establish a duty of care in this case.

Reasoning (dissent-Hoy A.C.J.O):

No. The judge did not err in striking the claim and the appeal should be dismissed. When considering a novel claim on a motion to strike, a judge must evaluate the claim in the context of the facts pleaded and the available jurisprudence. The appellants failed to plead the facts required to justify their claims that the OLGC had or should have had knowledge that Ms. Spinks had a gambling problem. The pleaded facts were not capable of supporting the inference that the gambled funds were obtained through breach of trust. A generalized possibility of breach of trust is insufficient to trigger a duty to make inquiries with a bank.

On the issue of unjust enrichment, the motion judge correctly concluded that the OLGC had a legal reason for retaining the gambled funds, and properly held that the OLGC had no notice of the fraudulent activity. The appellants cannot rely on the doctrine of unconscionability to vitiate the OLGC's legal basis for retaining the gambled funds, as the appellants did not plead any facts supporting the position that the OLGC's conduct was unconscionable or outside the normal course of business. Hoy A.C.J.O. disagreed with the majority's view that the Consumer Protection Act could have assisted the appellants, as there is no authority for the propositions that permitting a problem gambler to gamble is either an "unconscionable representation" or an "unfair practice".

On the claim of negligence, Ontario law has not determined that a casino owes no duty of care to those it identifies as problem gamblers, but this duty of care has not been rejected outright. It was foreseeable that a failure to prevent problem gambling in general might lead to loss. The appellants' claim has no prospect of...