A preferential transaction occurs where an insolvent person or debtor makes a transfer of property or a payment that has the effect of favouring one creditor over another. Creditors and bankruptcy trustees can use federal or provincial legislation to attack preferential transactions. A recent Ontario Court of Appeal decision, Golden Oaks Enterprises Inc v Scott, 2022 ONCA 509, upheld the finding that certain transactions were an unlawful preference under section 95(1)(b) of the Bankruptcy and Insolvency Act, RSC 1985 c B-3 (“BIA”). As a result, the Court ordered the monies be repaid to the bankruptcy estate.
Continue Reading Insolvency Remedies Available to Combat Preferential Transactions

In a previous post, we discussed disgorgement as an alternative remedy to compensatory damages in cases where a fraudster has profited from the wrongful acts. In a recent Ontario Superior Court decision, Justice Koehnen granted a $10.2 million disgorgement order to return ill-gotten profits made by a former Canadian National Railway Company (CN) employee in breach of his fiduciary duties. This is noteworthy as most of the profits to be disgorged were gone as they been used up during the course of a long and expensive receivership.
Continue Reading Ontario Superior Court Grants Significant Disgorgement Order in Canadian National Railway v. Holmes

When a plaintiff suffers a loss due to the misconduct of a defendant, the typical approach is to award damages that reflects the loss. However, this does not always fit the circumstances of the breach. In some cases, a plaintiff may have suffered no damages, but the defendant has gained significantly. For example, a wrongdoer who improperly uses trust funds, profits from that breach of trust, and later returns the monies to the trust account, but seeks to keep the gains. Where a wrongdoer’s profits are so intimately connected with the wrong and these profits would not have been earned but for the wrongful acts, a plaintiff may turn to gain-based disgorgement remedy as a more appropriate measure of damages.
Continue Reading Disgorgement instead of Damages?

In Thrive Capital Management Ltd. v. Noble 1324, 2021 ONCA 722, the Ontario Court of Appeal reversed a Superior Court’s judgment against Noble 1324 Inc. for contempt of court for the failure to disclose their assets and account for money paid in respect of real estate investments. The Superior Court ordered two alleged fraudsters to repay at least $9 million to investors as a sentence for being found in contempt of court, notwithstanding that the trial on the merits had not been heard. In allowing the appeal, the Ontario Court of Appeal offered important guidance on strategic considerations and remedies when a party is dealing with a party who refuses to comply with court orders.
Continue Reading Judgment is not a Sanction for Contempt: Ontario Court of Appeal Offers Guidance on the Enforcement of Orders in Fraud Proceedings

Business Email Compromise (BEC) also known as email account compromise (EAC) attacks exploit our collective reliance on email to conduct business and personal affairs. While there are many variations on this cyberattack, the most difficult to detect are situations where an attacker gains control over a supplier’s email address and uses it to request a seemingly legitimate business payment. The fraudster will request a payment be sent electronically to a new account that they control. This is what makes it so effective, because to the recipient, the compromised email is authentic since it originates from a known authority figure from a supplier. Many employees will fail to realize that it is a cyberattack.
Continue Reading Electronic Fraud: Responding to a Business Email Compromise (BEC)

The Court of Québec recently considered whether the complexity of a white collar case justifies a departure from the presumptive 18-month limit for the prosecution of criminal offences after charges are laid. The Court’s decision affirms that white collar matters that are often thought of as “complex” are not necessarily exempt from the 18-month ceiling.
Continue Reading Complex White Collar Prosecutions and Dismissal for Delay

On October 28, 2020, the Ontario Court of Appeal overturned a respected Commercial Court judge’s decision on a motion affecting a range of important legal issues, including the fraud exception to the autonomy principle regarding letters of credit. In 7636156 Canada Inc. (Re), 2020 ONCA 681, Ontario’s highest court clarified the law regarding a landlord’s right to call on a letter of credit (“LC”) when its tenant becomes bankrupt. The Court of Appeal confirmed that, under the autonomy principle, a bank’s obligation under an LC is independent of a tenant’s obligations under the lease, and clarified the fraud exception that allows a bank to refuse to pay on an LC. The case also holds implications for Canadian bankruptcy law.
Continue Reading Fraud exception to letter of credit autonomy principle requires “impropriety, dishonesty or deceit”. Court of Appeal overturns ruling that had denied commercial landlord of bankrupt tenant full amount of credit.

In an unreported judgment Pallotta v. Cengarle, Court file CV-16-56337 released on February 27, 2020, Faieta J. found real estate lawyer Licio Cengarle vicariously liable for his clerk’s mortgage fraud scheme as well as for breach of trust. This case is a cautionary tale for professionals and employers about the need for internal controls.
Continue Reading Ignorance of Fraud is No Defence: Employer Vicariously Liable for Rogue Employee

David Holden was recently convicted of defrauding Canadian investors in Seaquest Corporation and Seaquest Capital Corporation of more than $54-million in a complex ponzi-scheme. In related civil proceedings our team acted to obtain significant recoveries for some of Holden’s victims. Sadly, this was not the first time that Holden had defrauded investors.
Continue Reading Ponzi Mastermind Sentenced to 12 Years – $54 Million Payment Ordered