Court Of Appeal Summaries (November 14, 2022 ' November 18, 2022)

• Published date: 22 November 2022
• Subject Matter: Finance and Banking, Employment and HR, Litigation, Mediation & Arbitration, Criminal Law, Family and Matrimonial, Insolvency/Bankruptcy/Re-structuring, Charges, Mortgages, Indemnities, Financial Services, Insolvency/Bankruptcy, Employee Rights/ Labour Relations, Family Law, Arbitration & Dispute Resolution, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud, Civil Law
• Law Firm: Blaney McMurtry LLP
• Author: Mr John Polyzogopoulos

Good evening.

Following are this week's summaries of the Court of Appeal for Ontario for the week of November 14, 2022.

Notably, in the companion decisions of Enercare Home & Commercial Services Limited Partnership v. UNIFOR Local 975 and Turkiewicz (Tomasz Turkiewicz Custom Masonry Homes) v. Bricklayers, Masons Independent Union of Canada, Local 1, the Court considered two appeals from Divisional Court decisions that overturned Ontario Labour Relations Board ("OLRB") rulings that had found the respondents in each case to be related employers. The Court held that each of the Divisional Court decisions had failed to comply with the Supreme Court of Canada's directives from its landmark decision in Vavilov. The Court concluded that the OLRB's decisions each bore the hallmarks of a reasonable decision - justification, transparency, and intelligibility. The Divisional Court had erred when it applied its "own yardstick and measured the Board Decision against it", instead of considering the decision within the Vavilov framework.

In Bimman v. Igor Ellyn Professional Corporation (Ellyn Law), the Court clarified s. 24 of the Solicitors Act as it applies to a lawyer seeking to invalidate a retainer agreement. The Court determined that the motion judge did not err in his application of the two-part test from Raphael Partners v. Lam, but clarified that the lawyer bears the burden to rebut the presumption of fairness of the retainer agreement. As such, the Court allowed the appeal in part and varied the motion judge's order.

McDonald v. Toronto-Dominion Bank dealt with the second largest Ponzi scheme in history. Stanford International Bank Ltd. ("SIB") was used as a vehicle to defraud bank customers of over seven billion dollars. Upon its collapse, it was liquidated and the Joint Liquidators commenced an action on behalf of SIB against TD Bank, claiming: (1) it was liable to SIB for knowing assistance in breach of fiduciary duty; and (2) it was negligent in the provision of services. The trial judge dismissed the action finding that TD Bank had no actual knowledge of the fraud and was not reckless or wilfully blind. As for the negligence claim, the trial judge concluded that there was insufficient proximity to give rise to what would have been a novel duty of care. The Joint Liquidators appealed from the dismissal of the negligence claim. The Court held the trial judge did not err in both the duty of care and standard of care analysis, and that she did not make a flawed procedural finding resulting in an unfair trial process.

Other topics include whether a claim of assault was statute barred, whether mortgage financing was void ab initio for violating the Fraudulent Conveyances Act, the duty of good faith and honest performance in the context of a right of first refusal over assets, and the discoverability principle in the context of a negligent misrepresentation claim.

Wishing everyone an enjoyable weekend.

CIVIL DECISIONS

Stevens v. Hutchens , 2022 ONCA 771

[Feldman, Hoy and Favreau JJ.A.]

Counsel:

B. Moldaver, for the appellant, Adroit Advocacy LLC (Non-Party)

J. Necpal, for the respondents, G. S., L. S., and 1174365 Alberta Ltd.

J. Gibson, for the respondent, A. Farber & Partners Inc. (Receiver)

B. F. VanBunderen, for the respondents, CGC Holding Company, LLC, Harlem Algonquin LLC, and J. T. M.

Keywords: Fraudulent Conveyance, Void Ab Initio, Mortgages, Constructive Trust, Lien, Legal Fees, Receivership, Rights of Creditors, Priority, Unjust Preference, Intent to Defeat, Abuse of Process, Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, Assignments and Preferences Act, R.S.O. 1990, c. A.33, Ontario Securities Commission v. Money Gate Mortgage Investment Corporation, 2020 ONCA 812, Royal Bank of Canada v. North American Life Assurance Co., [1996] 1 S.C.R. 325, Indcondo Building Corp. v. Sloan, 2014 ONSC 4018, Mohammed v. Makhlouta, 2020 ONSC 7494

facts:

The respondents are judgment creditors of TH and SH (the "Hutchens"). The Hutchens live in Ontario and their known assets are in Ontario. The respondents brought their motion in the context of the receivership proceeding. The receiver deferred to the appellants to bring the motion and took no position on the motion for cost reasons. The judgment, dated July 5, 2019, recognized two 2018 judgments of the United States District Court for the Eastern District of Pennsylvania, each for more than $26 million USD. The Pennsylvania judgments arose from a mortgage financing fraud perpetrated by the Hutchens. There were other judgement creditors of the Hutchens' as a Colorado class action resulted in an award of damages to the plaintiffs of more than $24 million USD. The presiding judge in Colorado also imposed a constructive trust over several properties, including five of the six mortgaged properties at issue, finding that they were probably purchased using funds advanced by the Colorado plaintiffs in the fraudulent scheme.

The appellant, Adroit Advocacy LLC (a U.S. law firm), acted for various defendants in the Colorado class action, including the Hutchens and, until they were released from the action, the corporations (the "mortgagor corporations") which were the registered owners of the mortgaged properties. On October 4, 2017, 8 days after the Colorado judgment, the appellant law firm registered a $2 million CAD mortgage against six properties in Ontario to secure its payment of legal fees, five of which were subject to the constructive trust imposed by the Colorado class action. TH gave the mortgages in her capacity as the sole shareholder of the mortgagor corporations.

At the time, the appellant's outstanding invoices for legal fees were in the range of $180,000 USD. In an email to SH, a lawyer at the appellant law firm complained about the delay in the granting of the mortgages: "[I]t is nearly incomprehensible to me that there is a delay in allowing us to receive a lien to ensure our payment that will put us ahead of the plaintiff...."

The Hutchens live in Ontario and have known assets in Ontario. In February 2019, over the objections of the Hutchens, an interim receiver was appointed in Ontario over their property, including the mortgagor corporations. The mortgages represent over half of the value of the just over $3 million CDN available to creditors.

The respondents brought their motion in the receivership proceeding. The Colorado plaintiffs supported their motion. The receiver deferred to the appellants to bring the motion and took no position on the motion for cost reasons.The motion judge found that the mortgages were void under two statutes: they constituted fraudulent conveyances under s. 2 of the Fraudulent Conveyances Act (the "FCA") and were made with the intent to defeat creditors and were an unjust preference under ss. 4(1) and 4(2) of the Assignments and Preferences Act (the "APA").

issues:

(1) Did the motion judge err in concluding that the respondents had standing to bring their motion?

(2) Did the motion judge err in concluding that the respondents, who were creditors of TH and not creditors of the mortgagor corporations, were "creditors or others" with intent to defeat "creditors or others" within the meaning of those terms in s. 2 of the FCA?

(3) Did the motion judge err in concluding that the mortgages were not made "in good faith" and "upon good consideration", and, therefore, that the exceptions to s. 2 of the FCAset out in ss. 3 and 7(2) did not apply?

(4) Did the motion judge fail to conclude that that motion was barred by res judicataor was an abuse of process?

holding:

Appeal dismissed.

reasoning:

(1) No.

The Court disagreed with the appellant's assertion that in the context of a receivership, only the receiver, and not a creditor in the receivership, can bring a motion affecting the rights of another creditor in the receivership.

The Court held that a receivership proceeding has a time sensitive and multi-stakeholder nature: Ontario Securities Commission v. Money Gate Mortgage Investment Corporation. The mortgagor corporations were included in the scope of the receivership order, and the appellant and the respondents were creditors in the receivership. The respondents' motion involved a priority dispute between two creditors asserting claims against the assets of the receivership. The Court agreed with the motion judge who found, and the appellants do not dispute, that the receiver deferred to the respondents to bring the motion for cost efficiency reasons. Moreover, the appellants did not point to any prejudice to them resulting from the respondents proceeding in the manner that they did.

(2) No.

The appellant argued that s. 2 of the FCA required the mortgagor corporations to have made the mortgages with the intent to defeat creditors or prospective creditors of the mortgagor corporations and that there was no evidence that the mortgagor corporations had creditors or prospective creditors other than the appellant. Hence, the mortgages were not made to defeat "creditors or others" within the meaning of s. 2 of the FCA.

The Court rejected this argument and noted that the appellant had construed s. 2 of the FCA too narrowly and ignored the substance of what occurred. The Court reasoned that the FCA is remedial in nature and should be given a fair, large, and liberal interpretation that best achieves its purpose, namely to strike down all conveyances of property made with the intention of delaying, hindering, or defrauding creditors and others except for conveyances made for good consideration and bona fide to persons not having notice of such fraud: Royal Bank of Canada v. North American Life Assurance Co.

The Court stated that TH was the sole shareholder or "principal" of the mortgagor corporations. She granted the mortgages in her capacity as sole shareholder of the mortgagor corporations, thus causing the mortgages to be granted as security for, among other liabilities, her liabilities to the appellant. She treated the properties registered...