Recovering Damages From The 'Lesser Losers'

A recent Supreme Court of Canada case highlights the importance of procedural and substantive decisions where restitutionary damages are to be calculated on an aggregate basis. These issues are particularly acute in cases that seek to recover damages from a large scale fraud.

In Christine DeJong Medicine Professional Corp v. DBDC Spadina Ltd., 2019 SCC 30 ("DeJong"), the litigation arose from a complex multi-million dollar commercial real-estate fraud perpetrated by Norma Walton and her husband over several years. They conned their victims into investing in various commercial real estate projects, where each project was held by a specific project company. Although the Waltons committed to invest equal amounts side by side with their victims, in reality, it was simply a shell game or Ponzi scheme with Mrs. Walton moving the investors' money between the various project companies with none of the Waltons' funds at risk. In moving money between the companies in breach of her fiduciary obligations, Mrs. Walton moved money through their own company Rose & Thistle Group Ltd. ("Rose & Thistle"), which acted like a "clearing house".

The flow of money through Rose & Thistle made recovery seem considerably more difficult. With monies flowing through Rose & Thistle from and to more than 60 companies/projects, the ability to trace funds from any particular company into another company's assets appeared limited. As a result, the applicant creditors attempted to use the equitable cause of action of knowing assistance to extend recovery to what were perceived to be "net winners" in the fraud. As noted below, other causes of action ought to have been emphasized and procedural steps taken to give the court more flexibility to assess damages on an aggregate basis and on a restitutionary basis.

The applicant companies, referred to in the decision as the "DBDC Applicants", had invested $111 million in 31 project companies. They established damages arising from the fraud in the amount of $67 million. Although the ability to trace was limited, they were successful in tracing a portion of their loss ($8 million) for which various constructive trusts were ordered.

Evidence presented showed that over a 3 year period, $23.6 million was transferred on a net or aggregate basis from the DBDC Applicants to Rose & Thistle, and during the same period, $25.4 million was transferred to 10 other project specific companies, referred to in the decision as the "Schedule C...