In DBDC Spadina Ltd et al v Norma Walton et al, Justice Newbould of the Ontario Superior Court recently granted a motion for summary judgment on the basis that there was sufficient evidence to justify a finding of fraud. The decision reflects the guidance set out in the landmark Supreme Court Canada decision Hyrniak v. Mauldin, 2014 SCC 7, which recognized that the adjudicative process can be fair and just without requiring the expense and delay of a trial.

The facts of the case are that Dr. Bernstein, a well-known founder of local health clinics, invested through his corporations (the applicants) $111 million in a portfolio of 31 properties in Toronto with Norma and Ronald Walton (the respondents). The investment arrangement included what were called the “Schedule B” companies that were jointly owned by Dr. Bernstein and the Waltons, and “Schedule C” companies that were owned and controlled only by the Waltons.

As result of irregularities regarding the use of funds between the Schedule B and Schedule C companies, an inspector under section 161 of the Ontario Business Corporations Act  was appointed by the Court in October 2013 to trace the use of the funds by the Waltons. In 2014, on an application requesting various grounds of relief, another Order was made cancelling the Waltons’ outstanding shares in the Schedule B companies. At this time, the Court found that the Waltons did not make their portion of the equity investments into the properties, did not report as required, and contravened the parties’ agreement by failing to keep the funds for the development of each property in separate accounts. The Court was unwilling to grant an order for restitution and repayment because the proper measure of damages for the amounts claimed had not been fully articulated yet. However, the Court found that the Waltons deceived and defrauded Dr. Bernstein of his investment funds. This was a key finding when a summary judgment motion was brought before Justice Newbould in 2016.

When the applicants’ (Dr. Bernstein and his corporations) brought a motion for summary judgment against the Waltons. The Waltons brought a cross-motion for a trial of the issue of fraud. The Waltons, had also been charged criminally with fraud, and contended that a trial was necessary because:

  1. a civil finding of fraud could cause serious prejudice and unfairness in the criminal matter;
  2. the affidavits filed in the civil matter could be used against the Waltons in the criminal matter which would be a violation of their right to remain silent; and
  3. a trial was required to determine the appropriate level of damages including whether the Waltons should receive credit for work done on the properties.

In rejecting the arguments that the Waltons’ three issues warranted a trial, Justice Newbould emphasized that the Waltons had not brought a motion to stay the civil proceedings in light of the criminal charges. Therefore the issue before him was whether there was enough evidence on the record combined with previous judicial findings made in the proceedings that would justify a declaration of fraud that would survive any bankruptcy of the Waltons. If there was not, then a trial would be required.

In his reasons, Justice Newbould held that the previous findings of fraud in 2014 with respect to the properties were not interlocutory findings, and therefore were res judicata. This doctrine holds that a matter that has been adjudicated by a competent court (and not overturned on appeal) may not be pursued further by the same parties. Justice Newbould criticized the attempts by the Waltons to introduce evidence that contradicted the earlier findings of fact with regard to whether the transfers of funds constituted breaches of agreements between the parties and whether Dr. Bernstein was apprised of developments relating to the properties on the basis of res judicata.

Justice Newbould dismissed the request for a trial, awarded Dr. Bernstein $66.9 million in damages and held that the evidence clearly established that the Waltons committed the tort of deceit/civil fraud and made fraudulent misrepresentations.

Key Takeaways

  • Our courts are prepared to grant summary judgment in fraud cases where there is sufficient evidence to make findings with regard to liability and damages.
  • When a court makes a finding with respect to liability for fraud, the parties must give close consideration to whether those findings are final or interlocutory.