This is our third and final post on the complex fraud carried out by Norma and Ronald Walton, and the Ontario Court of Appeal decisions arising from their scheme. In our earlier posts, we focused on the use of a constructive trust as a remedy for breach of fiduciary duty and third party fraud liability. In this post, we discuss the risk that comes with bringing a summary judgment motion in the context of a complex fraud action.
In Trez Capital Limited Partnership v. Bernstein, 2018 ONCA 107 the Court of Appeal dismissed an appeal by Dr. Bernstein and his companies (“Dr. Bernstein”) from an unsuccessful motion for summary judgment. Trez Capital Limited Partnership (“Trez”) had commenced an action against Dr. Bernstein claiming that his companies fraudulently authorized and directed the Waltons to make the misrepresentation to Trez that the Waltons owned 100% of the borrowing companies and that Dr. Bernstein did so to shield himself from having to sign a guarantee of the loans made by Trez to four projects that were, in reality, jointly owned by Dr. Bernstein and the Waltons.
Dr. Bernstein and his companies moved to dismiss Trez’s action on the basis that it was statute-barred by the two-year limitation period in the Limitations Act 2002. This seemingly focused summary judgment motion was premised on the argument that Trez was put on notice of the potential action during a telephone call on September 13, 2013, and had not brought a claim in time. Following a mini-trial held as part of the summary judgment motion, the motion judge preferred the evidence given by an employee of Trez who testified that at no time during the September 13, 2013 telephone call was Dr. Bernstein’s ownership interest revealed.
On appeal, Dr. Bernstein and his companies argued that the motion judge’s order should be set aside because the motion judge made findings that went beyond the scope of what was required to be determined on the motion, and which could have an adverse effect at trial.
In rejecting the appeal, the Court of Appeal ruled that:
- the parties had agreed that the mini trial was based on a sufficient record for a binding finding of fact to be made as to what took place during the 2013 telephone call and for a finding of whether the action is statute-barred;
- Dr. Bernstein made a tactical decision to bring a motion for summary judgment on a basis that would inevitably require the Court to make factual and credibility findings; and
- as set out in Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc., 2015 ONCA 718 it is well settled that it is impermissible to appeal the reasons that underlie an order or judgment.
- The Court of Appeal rejected arguments that Dr. Bernstein was “taken by surprise” by the factual findings made by the motion judge in the context of the credibility assessment made during the mini-trial. The Court of Appeal added that “[s]urely, it cannot be the function of this court to criticize a judge for providing too detailed an analysis in support of his credibility finding“. The Court also noted that it would be contrary to the purposes of a summary judgment motion to afford Dr. Bernstein another opportunity at trial to persuade the trial judge that his evidence should be accepted over that of the Trez employee.
This decision is a reminder that the strategic choice to bring a summary judgment motion (even one with a narrow limitations focus) will often come with the risk of factual and credibility findings that may have a material impact on the overall case.