Ontario Court Of Appeal Summaries (August 25th)

Following are the summaries for this week's civil decisions of the Court of Appeal for Ontario.

One of the substantive decisions this week involved an appeal from civil contempt findings. In Business Development Bank of Canada v Cavalon Inc., the Court of Appeal upheld the lower court's finding of contempt and jail time for both the principal of a company and his former lawyer for violating a court order. The Court allowed the appeal in part, and reduced the custodial sentences from 90 days to 45. The decision contains a summary of the elements of contempt and sentencing principles.

For those interested in Charter issues, the decision in Ogiamien v. Ontario (Community Safety and Correctional Services) dealt with the issue of whether frequent lockdowns at Maplehurst Correctional Complex constituted a violation of section 12 (cruel and unusual punishment), in relation to two inmates who brought section 24 applications under the Charter.

Also, in Bracken v. Fort Erie (Town), the appellant successfully challenged a trespass notice issued by the Town of Fort Erie following a loud protest outside the Town Hall, as a violation of his rights to freedom of expression under section 2(b) of the Charter. The appellant was angered by the Town's decision to introduce a by-law permitting a medical marijuana facility to be built across the street from his home. The Court held that while the protest was disruptive, the appellant's actions were not violent in nature and that the application judge erred in characterizing the protest as outside the protection of s. 2(b) of the Charter. The appellant's section 2(b) rights were engaged, and the Town could not justify the infringement under s. 1 of the Charter.

CIVIL DECISIONS

Arrow ECS Norway AS v. John Doe, 2017 ONCA 664

[Sharpe, Lauwers and Roberts JJ.A.]

Counsel:

R. Wingfield and D. Robins, for the appellant R. Worsfold, for the respondent Keywords: Torts, Fraud, Bona Fide Purchasers For Value Without Notice, B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, 2009 SCC 15, Remedies, Tracing

Facts:

The appellant was defrauded by Sunny Stable Ltd. ("Sunny Stable") and HongKong JYC Limited ("JYC") of over US$66 million in a much larger series of banking transactions. However, there were only two bank transfers in issue on this appeal. The first is the transfer of CDN$100,000 on January 20, 2016, to the respondent, Yiong Tian's former employee, Hong Yao, to repay monies that he had borrowed from her in November 2015. The second is the transfer of US$300,000 on January 21, 2016 to the respondent's US dollar bank account with the Royal Bank of Canada.

Both of these transfers were arranged through the respondent's intermediary, Li Wang. The first transfer was from Sunny Stable's HSBC account to the former employee's RBC account. The second transfer was ordered to be transferred by JYC from the Sunny Stable's HSBC account to the Royal Bank of Canada ("RBC"). RBC deposited the funds to the respondent's US dollar account on January 25, 2016.

After receiving confirmation of the receipt of the Canadian and US dollar transfers, the respondent paid for the transfers by sending the equivalent in Chinese currency on January 21 and 22, 2016 to accounts with Agricultural Bank of China, as instructed by Li Wang. It was later discovered that these accounts were also held in the name of Sunny Stable. The Canadian and US dollar funds that had been transferred were stolen funds.

The respondent's uncontroverted evidence is that he is a highly successful businessman who transferred monies to Canada to support his grandchildren's education and to purchase real estate. He maintained in his affidavit and during his cross-examination that he had no knowledge of and did not participate in the defrauding of the appellant. He also stated that he was unaware of the source of the monies at the time that he had purchased them through his intermediary, Li Wang.

The motion judge held that the appellant had failed to trace its stolen monies to the respondent. Regardless, the motion judge was satisfied that the respondent was innocent and ignorant of the fraud perpetrated on the appellant, and that the respondent was a bona fide purchaser of the stolen funds and thereby entitled to the funds.

Issues:

(1) Did the motion judge err in failing to find that the appellant had traced the stolen funds to the respondent? (2) Did the motion judge err in finding that the respondent was a bona fide purchaser for value of the funds stolen from the appellant?

Holding:

Appeal dismissed.

Reasoning:

(1) No regarding one of the transfers. Yes regarding the other transfer. There was no error with the motion judge's conclusion that the appellant had not traced the CDN$100,000 funds. However, the motion judge made an overriding and palpable error in finding that the appellant had not traced the US$300,000 fund. In the latter case, the monies clearly traced from their withdrawal from the appellant's account to their final deposit in the respondent's account. The respondent's submission that the commingling of the appellant's funds with funds in the accounts of JYC or Sunny Stable prevents their tracing was rejected.

(2) No. The court applied the test adopted by the Supreme Court in B.M.P. Global Distribution Inc. v. Bank of Nova Scotia for monies paid under a mistake of fact. The test is that if a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. However, there are three defences under which the claim may fail:

The payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; Payment is made for good consideration; and The payee has changed his position in good faith, or is deemed in law to have done so. While the first defence does not apply in this case, the motion judge accepted the respondent's evidence that he was innocent of any wrongdoing and unaware of the fraud perpetrated against the appellant. The motion judge also found that the respondent had paid valuable consideration for the funds that were deposited to his US bank account. Therefore, the second and third defence applied. The court added that B.M.P. does not stand for the proposition that the second and third defences only apply if the respondent no longer retains the stolen funds.

Finally, the court rejected the appellant's submission that the motion judge erred in finding that the respondent was a bona fide purchaser because he had obtained access to all of the stolen funds through his knowing participation in an illegal underground currency exchange that engaged in money laundering. The motion judge determined that there was insufficient evidence to demonstrate that the underground currency exchange was illegal or commonly used for money laundering. More important, the motion judge found that there was no evidence that the respondent knew or had reasonable grounds to believe that the funds that he had purchased had an illicit source. These findings were available to the motion judge and contained no error. There is no basis to interfere.

Business Development Bank of Canada v Cavalon Inc., 2017 ONCA 663

[Weiler, van Rensburg and Huscroft JJ.A.]

Counsel:

D LaFramboise, for the Appellant Robert Francis Bortolon

A J Esterbauer, for the Appellant Robyrt Regan

B Frydenberg, for the Respondent Business Development Bank of Canada

Keywords: Debtor-Creditor, Oppression, Civil Procedure, Orders, Enforcement, Contempt, Rules of Civil Procedure, Rule 60.11(5), Carey v Laiken, 2015 SCC 17, Korea Data Systems Co. v Chiang, 2009 ONCA 3, Vidéotron Ltée v Industries Microlec produits électriques Inc., [1992] 2 SCR 1065, Sentencing, Boily v Carleton Condominum Corp 145, 2014 ONCA 574, College of Optometrists (Ontario) v SHS Optical Ltd., 2008 ONCA 685, Sussex Group Ltd v Sylvester (2002), 62 O.R. (3d) 123 (S.C.)., R v Pham, 2013 SCC 15

Facts:

The Respondent Business Development Bank ("BDC") loaned Cavalon $100,000 which was secured by a General Security Agreement. Cavalon defaulted on the loan and BDC commenced an action for judgment in the amount of the indebtedness. Judgment was obtained in December 2011. The Appellant, Bortolon, was the principal of Cavalon as well as 2365222 Ontario Ltd. ("236"). The other Appellant, Regan, was formerly Bortolon's lawyer. The solicitor-client relationship between the Appellants ended in February 2013 as a result of unpaid legal fees and a refusal by Bortolon to return Regan's antique Cadillac.

A fire occurred on Cavalon's premises in November 2013 in which $98,000 worth of assets were lost. 236 asserted that it owned these assets and was therefore entitled to the insurance proceeds. 236 alleged that the proceeds were not subject to the security agreement between Cavalon and BDC.

BDC alleged that Bartolon shifted assets from Cavalon to 236 in order to circumvent BDC's judgment and security interest against Cavalon. BDC brought an application against 236 pursuant to the oppression provisions of the Ontario Business Corporations Act ("OBCA").

In 2015 BDC applied for, and obtained, a declaration that Bortolon and his companies had waived solicitor-client...