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Bankruptcy and Insolvency

Proving claim

Provable debts

Fund liquidators failed to establish damages

British Virgin Islands fund, F Ltd., was part of group (F Group) which provided funds on behalf of itself and S Ltd. and L Ltd. to B’s security brokerage, B LLC, for investment. In December 2008, B was arrested for operating Ponzi scheme and trustee and liquidator was appointed under US Securities Investor Protection Act (SIPA) to collect and set aside fund of BLMIS customer property for distribution among BLMIS customers. SIPA trustee sought return of 3.5 billion from F Group. F Ltd. filed claims in SIPA proceeding. In 2011, liquidator appointed for F Ltd., K, agreed to pay SIPA trustee $70 million, parties consented to judgments in favour of SIPA trustee against each F Group fund, and F Ltd. was granted $230 million claim in SIPA proceeding. F Group brought action in breach of contract and negligence against auditor of its 2006 and 2007 financial statements for failing to discover and disclose Ponzi scheme, claiming US $2.577 billion difference between actual and estimated liquidation deficits had auditors discovered scheme earlier. Auditor admitted negligence. Auditor brought motion for summary judgment. Motion granted; action dismissed. Liquidators failed to establish damages so there was no genuine issue requiring trial. Evidence of auditor’s witness that F Group were better off by some $857,500,000 was accepted. Liabilities of F Group or their liquidators to SIPA trustee or customers of B LLC were incorrectly included in calculations. Net liability figure $2,329,525,000 used in calculation was invalid. Investments S Ltd. and L Ltd. made in B LLC were double-counted. Phantom earnings were included in calculations based on fictitious entries on B LLC statements. Hypothetical, statute-barred claims of B LLC investors against F Fund were included in calculations. Liquidators gave no details as to claims they rejected or included in damage calculation and no details of separate proceedings in BVI in which F Group were allegedly liable to investors.
Fairfield Sentry Limited et al v. PwC et al (2017), 2017 CarswellOnt 8995, 2017 ONSC 3447, Newbould J. (Ont. S.C.J. [Commercial List]).


Income Tax

Administration and enforcement

Taxpayer liable for gross negligence penalty

Taxpayer was certified general accountant whose participation in charitable donation program, on invitation of close friend, led to reassessments and significant tax liabilities for three taxation years during period when he lost employment. Friend then promised that such liabilities could be “reversed” by having organization prepare his next tax return. Taxpayer, who was spending significant amount of time outside Canada to assist with family’s foreign farm venture and was anxious about tax liabilities, authorized friend to look after preparation and filing of tax return. Taxpayer’s income tax return was prepared by organization to report net business loss of $274,576.54, eliminating his taxable income for that year as well as for three preceding years. Minister reassessed taxpayer under Income Tax Act, denying loss and imposing gross negligence penalty. Taxpayer appealed only to challenge penalty. Appeal dismissed. Statements in taxpayer’s income tax return claiming business income and expenses were false. Taxpayer’s education and work experience provided him with knowledge and understanding of business and financial matters. Taxpayer did not make inquiry into previously unknown tax preparing organization, partly because of misplaced trust in friend. Warning signs included magnitude of claimed business loss, ready visibility of false entries about business income and separate statement of business activities, and absence of tax preparer’s name and contact information in box beside where he signed. Taxpayer failed to see warning sign of referral by friend who had also recommended donation program. Friend’s “explanation” clearly did not explain how taxpayer could be entitled to refund of taxes but he readily agreed to let friend proceed as proposed to clear tax liabilities, without insisting on full explanation of contents of return. Considering all factors, taxpayer was wilfully blind when he signed return. Placing undue trust in tax preparer, to extent of signing return without reviewing it, demonstrated indifference as to whether Act was complied with or not. Taxpayer made false statements in tax return under circumstances amounting to gross negligence.
Rowe v. The Queen (2017), 2017 CarswellNat 3032, 2017 TCC 122, Don R. Sommerfeldt J. (T.C.C. [General Procedure]).


Goods and Services Tax


Immigration status not relevant for determining eligibility for new housing rebate

Property owner and his wife were citizens of United Kingdom (U.K.) who sold their U.K. home and came to Canada, with their passports stamped for admission for six months. Owner entered into agreement to purchase newly built home in Canada and, immediately upon closing, moved in. Before expiry of six months, owner and wife left Canada briefly and returned, receiving stamps for further six month stay. Owner’s three children were born in Canada and family continued practice of regular travel and re-entry. Owner’s application for new housing rebate under s. 254(2) of Excise Tax Act was refused on basis house could only be considered secondary place of residence because of owner’s visitor immigration status. Owner appealed. Appeal allowed. It was clear that owner and family had resided in house in Canada for at least ten months each year since its purchase and there was no evidence that they had available to them any other place of residence anywhere in world. Requirement to be satisfied was whether housing unit was occupied as primary place of residence, which was very distinct from either buyer’s residence status in Canada for income tax law purposes or whether buyer was lawfully present or resident in Canada for immigration law purposes. Home occupied as only place of residence could not be characterized as anything other than owner’s primary place of residence. Immigration status of owner and wife as non-citizens of Canada was not relevant for new housing rebate purposes. Minister did not present any evidence on immigration law. Characterization of house did not turn on whether owner could have been subject of removal order or deportation or whether owners’ intention to use house as primary place of residence was risky plan given their immigration status as visitors. Owner intended to acquire house as sole place of residence and had used it as that ever since closing on purchase.
Parthiban v. R. (2017), 2017 CarswellNat 608, 2017 TCC 30, Patrick Boyle J. (T.C.C. [Informal Procedure])

Immigration and Citizenship

Refugee protection

Elements of protected refugee status

Refugee claim denied where motive was economic, not ethnic

Principal applicant and minor applicants were ethnic Chinese citizens of Guyana and claimed fear of persecution on basis of their race. Applicants fled Guyana and unsuccessfully claimed refugee status in Canada. Applicants appealed decision to refugee appeal division (RAD), which confirmed decision. Applicants brought application for judicial review. Application dismissed. RAD conducted its own analysis of documentary evidence. RAD’s conclusions from review of documentary evidence were within range of possible, acceptable outcomes. RAD reviewed evidence and reached conclusion that motive was economic, not ethnic. Evidence in present case differed significantly from that in other case law.
Su v. Canada (Minister of Citizenship and Immigration) (2017), 2017 CarswellNat 681, 2017 FC 243, Richard F. Southcott J. (F.C.).

Immigration and Citizenship

Exclusion and removal

Removal from Canada

Refugee given meaningful opportunity to participate in process

Refugee was citizen of Nicaragua who had voluntarily joined youth wing of Frente Sandanista de Liberacion Nacional (FSLN) in 1978 or 1979. In 1980 or 1981, refugee joined FSLN’s armed force, Ejercito Popular Sandinista (EPS), and performed activities in conjunction with Military Police Special Forces Branch. Refugee claimed much of her participation was coerced and that she was subjected to several threats and assassination attempts because of her knowledge of EPS’ activities. Refugee came to Canada in 1993 and was determined to be Convention refugee. Immigration officer later determined refugee was inadmissible to Canada because of her past membership in FSLN, which was believed to have engaged in terrorism. Refugee unsuccessfully applied for ministerial relief. Refugee brought application for judicial review. Application dismissed. Refugee had not established that she was treated unfairly in ministerial relief process, nor that decision of Minister of Public Safety and Emergency Preparedness was unreasonable. Refugee had clearly been given meaningful opportunity to participate in minister’s decision-making process and had been provided with multiple extensions of time to respond to draft recommendation of President of Canada Border Services Agency (CBSA). There was no evidence that refugee was prejudiced in any way by being forced to provide response to draft recommendation of President of CBSA before she had received response from CBSA with respect to access to information request. At end of day, refugee sought to have court re-weigh evidence that was before minister and come to different result, but that was not role of court sitting in review of ministerial decision.
Steves v. Canada (Minister of Public Safety and Emergency Preparedness) (2017), 2017 CarswellNat 621, 2017 FC 247, Anne L. Mactavish J. (F.C.).


Income tax

Administration and enforcement

Taxpayer’s motion to have settlement agreement declared invalid was dismissed

Settlement. Taxpayer appealed from Minister’s reassessments under Income Tax Act. Settlement negotiations occurred between Minister and taxpayer’s counsel. Counsel sent email to taxpayer setting out Minister’s latest counter-offer, to which taxpayer responded “accepted ok”. Taxpayer’s counsel signed out-of-court settlement document and Notice of Discontinuance on his behalf. Notice of Discontinuance was to be held in trust until Minister issued reassessments reflecting settlement. Reassessments were issued in line with settlement. Taxpayer took position that Notice of Discontinuance could not be filed since he had never given his counsel mandate to settle and that he still wanted his day in court. Counsel withdrew from acting for taxpayer. Taxpayer’s motion to have settlement agreement set aside and declared invalid was dismissed, Minister’s motion to enforce settlement was granted, and appeals were quashed. Taxpayer appealed. Appeal dismissed. Tax Court Judge did not commit any legal error or any palpable and overriding error in her analysis of governing legal principles and appreciation of evidence given terms of agreement and counsel’s authority to sign settlement documents. Email sent by counsel outlined settlement reached and all modifications which she was able to negotiate on his behalf. Modifications so described were accepted without any form of ambiguity by taxpayer’s responding email. By sending this email, taxpayer conferred express mandate on counsel to execute agreement on his behalf. Counsel, as counsel of record, was entitled to provide “consent in writing” referred to in s. 169(3) of Act for purposes of executing settlement agreement. No fault could be found with Tax Court judge’s conclusions as to agreement’s validity and enforceability of Minister’s reassessments.
Granofsky v. Canada (2017), 2017 CarswellNat 2562, 2017 FCA 119, Noël C.J., A.F. Scott J.A., and Boivin J.A. (F.C.A.); affirmed (2016), 2016 CarswellNat 3783, 2016 CarswellNat 5269, 2016 TCC 181, 2016 CCI 181, Johanne D’Auray J. (T.C.C. [General Procedure]).


Construction and interpretation

General principles

Testimony clearly in breach of parol evidence rule

Plaintiff entered into fixed price agreement with defendant suppliers to govern its purchase of bunkers on “time to time” basis. Plaintiff placed two spot orders with supplier for supply of bunkers to vessels, for which supplier made arrangements with third party M Ltd. for physical delivery of bunkers. Supplier invoiced plaintiff while M Ltd. invoiced supplier. After suppliers declared bankruptcy, both M Ltd. and suppliers’ receivers requested payment from plaintiff. In action by plaintiff and shipowners seeking determination as to which entity should be paid, motions by M Ltd. and receivers for summary judgment led to ruling that plaintiff pay M Ltd. its invoiced amount and pay receivers small amount equal to supplier’s mark up. Receivers appealed. Appeal allowed. Motion judge erred in accepting evidence from plaintiff’s representative that suppliers had orally agreed to accept plaintiff’s position in agreement negotiations that terms and conditions of schedule 3 of agreement would apply to all purchases including spot purchases. Representative’s testimony was clearly in breach of parol evidence rule and was not supported by any documentary evidence. Representative’s evidence did not fall within rubric of surrounding circumstances and, in its absence, motion judge would necessarily have concluded that suppliers’ general terms and conditions would have applied pursuant to agreement and to supplier’s order confirmations. Motion judge erred in law by failing to apply relevant principles of contractual interpretation. Motion judge did not turn his mind to supplier’s general terms and conditions which differed from one found in schedule 3 by requiring insistence of third party for its terms and conditions to replace supplier’s. Motion judge made no finding whether M Ltd. insisted that plaintiff be bound by its terms and conditions. There were other differences between clauses that might be material. Matter would be returned to motion judge for reconsideration in light of these reasons.
ING Bank N.V. v. Canpotex Shipping Services Ltd. (2017), 2017 CarswellNat 697, 2017 FCA 47, M. Nadon J.A., Eleanor R. Dawson J.A., and Wyman W. Webb J.A. (F.C.A.); reversed (2015), 2015 CarswellNat 4741, 2015 CarswellNat 9601, 2015 FC 1108, 2015 CF 1108, Russell J. (F.C.).

Civil Practice and Procedure

Class and representative proceedings

Representative or class proceedings not under class proceedings legislation

Failure to obtain representation order within two year limitation period was fatal to action

Limitation period. Family-owned meat processing business went bankrupt and 800 employees were terminated without notice or severance. Two actions were commenced against bankrupt businesses, other allegedly family-owned companies and two individuals alleged to be common employers. Actions were intended to be representative actions, one on behalf on unionized employees and one on behalf of non-unionized employees, and sought damages for wrongful dismissal as well as punitive damages on basis of common employer, conspiracy and oppression. Solvent defendants brought motion to dismiss representative actions on basis they were time-barred because required representation order was not obtained within two-year limitation period. Motion granted in part; action on behalf of unionized employees dismissed. Failure to obtain representation order within two-year limitation period was fatal to action on behalf of unionized employees, because it was brought under R. 12.08 of Rules of Civil Procedure, which required representation order be made before proceeding was commenced. Action on behalf of non-unionized employees was brought under R. 10.01, which contemplated prior proceeding and later representation order. Nothing in R. 10.01 plainly and obviously required representation order be obtained within two-year period. Action on behalf of non-unionized employees could proceed, on proviso plaintiffs apply for representation order forthwith, upon which defendants could pursue arguments about balance of convenience and prejudice.
Caetano v. Quality Meat Packers Holdings Ltd. (2017), 2017 CarswellOnt 4093, 2017 ONSC 1199, Edward P. Belobaba J. (Ont. S.C.J.).

Construction Law

Construction and builders’ liens

Practice on enforcement of lien

Motion by third party to validate fourth party claim nunc pro tunc granted

Defendant in action brought under Construction Lien Act added third party without leave. Claim was not limited to contribution and indemnity. Third party added fourth parties without seeking leave. Fourth party claim was limited to contribution and indemnity. Plaintiff’s statement of claim and claim for lien were dismissed. Order said third party claim survived but said nothing about fourth party claim. Motion by third party to validate fourth party claim nunc pro tunc was granted. Fourth parties appealed on basis that limitation period for third party to bring claim had expired before leave was sought. Appeal dismissed. Motion judge correctly found that intention of order dismissing statement of claim and claim for lien, made on consent of third party, was to continue action on “ordinary track”. After disposing of lien claim entirely, order stated that third party claim, seeking damages for breach of contract and negligence in addition to contribution and indemnity, would “survive”. Since only claims for contribution and indemnity are permitted in construction lien third party proceedings under s. 56 of Act, third party claim that asserts other claims can only proceed on ordinary track. Accordingly, motion judge adopted only reasonable interpretation that could be given to order. Decision to allow third party to continue fourth party claim was correct. However, since third party proceedings continued on ordinary track, there was no need for nunc pro tunc order for leave.
Bentivoglio v. Groupe Brigil Construction (2017), 2017 CarswellOnt 7511, 2017 ONCA 413, H.S. LaForme J.A., K. van Rensburg J.A., and Grant Huscroft J.A. (Ont. C.A.); affirmed (2016), 2016 CarswellOnt 3318, 2016 ONSC 1237, W.D. Newton J. (Ont. S.C.J.).

Civil Practice and Procedure

Class and representative proceedings

Representative or class proceedings under class proceedings legislation

Class plaintiffs permitted to plead unlawful means conspiracy claim

Plaintiffs brought competition law class action on behalf of direct and indirect purchasers in two distribution channels in marketplace for rechargeable lithium ion batteries. Motion judge granted plaintiffs’ motion to certify class action. Plaintiffs satisfied cause of action criterion only for statutory cause of action under ss. 36 and 45 of Competition Act. Judge did not certify claim for umbrella purchasers because it was plain and obvious that umbrella purchasers did not have reasonable cause of action. Judge did not certify claims for unlawful means conspiracy and unjust enrichment because they failed to satisfy cause of action criterion and had been precluded by statutory cause of action. Plaintiffs, with leave, appealed denial of certification of unlawful means conspiracy claim and umbrella purchaser claims. Appeal allowed in part. Judge erred in denying certification of unlawful means conspiracy claim. Court of Appeal had permitted amendment to plead unlawful means conspiracy in similar case and on principle of stare decisis, this court was bound to follow that decision. Judge did not err in denying certification of umbrella purchaser claims. Four reasons advanced by defendants did not provide proper basis to conclude that umbrella purchasers did not have reasonable cause of action. Judge was right to conclude that allowing claims by umbrella purchasers would expose defendants to indeterminate liability. Claim of umbrella purchasers did not satisfy criterion under s. 5(1)(a) of Class Proceedings Act. Plaintiffs failed to plead requisite elements of claim that could be advanced for umbrella purchasers. No common issues were proposed respecting claims of umbrella purchasers, nor was there proposed representative plaintiff for umbrella purchasers.
Shah v. LG Chem, Ltd. (2017), 2017 CarswellOnt 6145, 2017 ONSC 2586, Kiteley J., Nordheimer J., and LeMay J. (Ont. Div. Ct.); reversed (2015), 2015 CarswellOnt 15099, 2015 ONSC 6148, Perell J. (Ont. S.C.J.).
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