COURT OF APPEAL FOR ONTARIO

CITATION: Sase Aggregate Ltd. v. Langdon, 2023 ONCA 644

DATE: 20230928

DOCKET: M54477 (COA-22-CV-0100)

MacPherson J.A. (Motion Judge)

BETWEEN

Sase Aggregate Ltd.

Moving Party (Appellant)

and

Michelle Langdon

Responding Party (Respondent)

Christine G. Carter, for the moving party

John Montgomery, for the responding party

Heard: September 1, 2023

MacPherson J.A.:

A. Introduction

[1] The moving party, Sase Aggregate Ltd., seeks a stay of the Order of this court (Sase Aggregate Ltd. v. Langdon, 2023 ONCA 554) dated August 21, 2023 which dismissed the moving party’s appeal seeking a constructive trust and other relief over funds held in trust pursuant to lower court orders pending its application for leave to appeal to the Supreme Court of Canada.

[2] In my view, it is in the interests of justice to grant the stay. I would grant the stay pending final disposition of the moving party’s application for leave to appeal to the Supreme Court of Canada, with the funds remaining in trust during that period.

B. Facts

[3] The moving party was defrauded by its manager to the tune of over $2.1 million, which prompted it to bring an application against the manager’s wife, the responding party, to recover its stolen funds. The moving party claimed its stolen funds were used to purchase and renovate a property owned by the responding party. The property has since been sold and the moving party sought a constructive trust over the net proceeds arising from that sale.

[4] The application judge concluded the moving party had not made out its claims with the exception of $177,632.38 in payments towards the property that did come from the moving party’s funds. The application judge found that the responding party had no actual or constructive knowledge of the fraud, that the moving party was unable to trace any more of its funds beyond the acknowledged amount into the property, and that the responding party used legitimate sources to buy and renovate the property.

[5] On appeal to this court, the moving party contended that the application judge erred in not imposing a constructive trust over all the net sale proceeds. Specifically, the moving party submitted that the application judge erred in finding that the imposition of a constructive trust depends on the existence of a fiduciary relationship, that there was insufficient evidence to establish that the manager owed the moving party a fiduciary duty, that the moving party had not properly traced its funds, and that the responding party did not receive the moving party’s property or benefit from the fraud perpetrated by her husband.

[6] While this court found there was “no question” that the moving party was defrauded by its manager in a way consistent with money laundering practices, it dismissed the appeal. Writing for the court, Justice van Rensburg found the application procedure used by the moving party to be “ill-suited to the determination of the issues between the parties”, holding the documentary record to be “an incomplete and thus unsatisfactory account of what happened to the fraudulently-obtained funds” making it “impossible to know whether they might indirectly have made their way” into the property. Acknowledging the moving party proceeded with an application “without oral evidence and on a written record that was not fully developed”, she saw no error of law or palpable and overriding error of fact in the application judge’s decision.

C. Analysis

(1) Motion to stay pending leave to appeal to the Supreme Court of Canada

[7] Pursuant to s. 65.1 (1) of the Supreme Court Act, R.S.C. 1985, c. S-26 (the “SCA”), a judge or panel of the Court of Appeal may hear a motion to stay a judgment of the Court of Appeal pending leave to appeal to the Supreme Court of Canada. Section 65.1(2) permits the court to hear the stay motion before the serving and filing of the notice of application for leave to appeal if the court is satisfied that the party seeking the stay intends to apply for leave to appeal and that delay would result in a miscarriage of justice.

[8] The moving party has indicated it can file its materials with the Supreme Court of Canada within 14 days if pressed, and 30 days comfortably. As a result, I am satisfied that the moving party intends to apply for leave to appeal at the Supreme Court of Canada and will do so in a timely fashion.

(2) Test for Granting a Stay

[9] In RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, at p. 334, the Supreme Court of Canada outlined a three-part test for obtaining a stay of a judgment pending appeal:

(1) a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried;

(2) it must be determined whether the applicant would suffer irreparable harm if the application were refused; and

(3) an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.

[10] These factors are not to be considered in isolation of each other. In other words, they are not watertight compartments. The strength of one may compensate for the weakness of another while considered against the backdrop of the overarching consideration: do the interests of justice call for a stay: BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust, 2011 ONCA 620, at para 16; Livent Inc. v. Deloitte & Touche, 2016 ONCA 395, at para. 5; and Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 919, at para. 35.

(a) Serious Question

[11] This factor is typically adjudicated by appellate courts with a low threshold, focussing less on an extensive review of the merits of the appeal and more on determining that the issues raised are not frivolous or vexatious:RJR-MacDonald Inc., at p. 334 and Hollinger Inc. (Re), 2011 ONCA 765, at para. 9.

[12] In the context of stays pending leave to appeal applications to the Supreme Court of Canada, however, a modified approach applies. In addition to determining whether there is a serious question at play, a judge must be mindful of s. 40(1) of the SCA which sets out that court’s stringent leave requirements. The Supreme Court of Canada typically grants leave to appeal only in cases of public importance. Acknowledging this, the threshold on both the merits and the public importance considerations remains relatively low: see Livent at para. 8; Circuit World Corp. v. Lesperance (1997), 1997 CanLII 1385 (ON CA), 33 O.R. (3d) 674 (C.A.), at p. 677; and Alectra Utilities Corp. v. Solar Power Network Inc., 2019 ONCA 332 at para 13.

[13] In BTR Global Opportunity, Laskin J.A. summarized the role an appellate judge is to play in reviewing a request to stay an order pending an application for leave to the Supreme Court of Canada, at paras. 18-19:

Ordinarily, the threshold for showing a serious issue to be adjudicated is low. However, the criteria for granting leave to appeal to the Supreme Court of Canada add another layer to this component of the test. Under s. 40(1) of the Supreme Court Act, R.S.C. 1985, c. S-26, the Supreme Court of Canada typically grants leave to appeal only in cases of public or national importance. Thus, a provincial appellate court judge hearing a motion for stay pending leave to appeal to the Supreme Court of Canada must take account of the stringent leave requirements in the Supreme Court Act: see Merck & Co. v. Nu-Pharm Inc. (2000), 2000 CanLII 15240 (FCA), 5 C.P.R. (4th) 417 (F.C.A.) and Ontario Public Service Employees Union v. Ontario (A.G.) (2002), 2002 CanLII 44918 (ON CA), 158 O.A.C. 113.

The Supreme Court of Canada itself decides when leave should be granted and does not give reasons for doing so. As Rothstein J.A. noted in Merck, this puts provincial appellate court judges in a "somewhat awkward position." Nonetheless, the stay test requires that I make some preliminary assessment of the merit of the leave motion.

[14] In my view, the proposed appeal gets over the low threshold, even when considering the burdens of the SCA. The moving party asserts that the decision of this court for which it now seeks leave to appeal represents a narrower interpretation of the law of constructive trusts in relation to unjust enrichment and is inconsistent with leading cases of the British Columbia Court of Appeal and the Supreme Court of Canada itself. Given the importance to society writ large for victims of fraud to have sufficient and accessible remedies, the moving party suggests that direction from the Supreme Court of Canada on the proper scope of remedies for fraud and money laundering, with particular reference to constructive trusts, is a matter of public and national importance.

[15] To support its case, the moving party highlights two leading cases: Soulos v. Korkontzilas, 1997 CanLII 346 (SCC), [1997] 2 S.C.R. 217 and B.M.P Global Distribution Inc. v. Bank of Nova Scotia, 2007 BCCA 52, rev’d on other grounds 2009 SCC 15.

[16] In Soulos, a real estate broker negotiating the purchase of a commercial building failed to bring an offer to his client and instead arranged for his wife to purchase the property. It was subsequently transferred to the broker and his wife as joint tenants. The broker’s client brought an action against the broker to have the property conveyed to him, alleging breach of fiduciary duty giving rise to a constructive trust. Because the market value of the property had dropped from the time of purchase to the time of trial, the trial judge found unjust enrichment could not be made out and therefore a constructive trust could not be applied as a remedy. The Court of Appeal for Ontario reversed the judgment and ordered that the property be conveyed to the client subject to appropriate adjustments. The Supreme Court affirmed the Court of Appeal and dismissed the appeal.

[17] In Soulos, McLachlin J. wrote what can be described as a seminal judgment on constructive trusts in Canada. She first surveyed the purpose and evolution of constructive trusts in Canada, at para. 17:

The history of the law of constructive trust … suggests that the constructive trust is an ancient and eclectic institution imposed by law not only to remedy unjust enrichment, but to hold persons in different situations to high standards of trust and probity and prevent them from retaining property which in “good conscience” they should not be permitted to retain. This served the end, not only of doing justice in the case before the court, but of protecting relationships of trust and the institutions that depend on these relationships. These goals were accomplished by treating the person holding the property as a trustee of it for the wronged person’s benefit, even though there was no true trust created by intention….In the United States and recently in Canada, jurisprudence speaks of the availability of the constructive trust as a remedy; hence the remedial constructive trust. [Emphasis added.]

[18] Ultimately, McLachlin J. held that constructive trusts can arise in Canada under the broad umbrella of good conscience, at para. 43:

I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation. While cases often involve both a wrongful act and unjust enrichment, constructive trusts may be imposed on either ground: where there is a wrongful act but no unjust enrichment and corresponding deprivation; or where there is an unconscionable unjust enrichment in the absence of a wrongful act, as in Pettkus v. Becker, supra. Within these two broad categories, there is room for the law of constructive trust to develop and for greater precision to be attained, as time and experience may dictate. [Emphasis added.]

[19] McLachlin J. recognized this as a common unifying concept, one that can extend beyond the two categories of unjust enrichment and wrongful act. Getting to the heart of the matter at paras. 34-35, she seems to recognize the implications of such a broad interpretation:

It thus emerges that a constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case.

Good conscience as a common concept unifying the various instances in which a constructive trust may be found has the disadvantage of being very general. But any concept capable of embracing the diverse circumstances in which a constructive trust may be imposed must, of necessity, be general. Particularity is found in the situations in which judges in the past have found constructive trusts. A judge faced with a claim for a constructive trust will have regard not merely to what might seem “fair” in a general sense, but to other situations where courts have found a constructive trust. The goal is but a reasoned, incremental development of the law on a case-by-case basis. [Emphasis added.]

[20] The moving party contends that British Columbia courts have implemented this broader interpretation of the law while the Ontario courts have not. As an example of this contention, it cites B.M.P. Global Distribution Inc. as decided by the British Columbia Court of Appeal, where a third party sought to keep gains it accrued innocently from a fraud. In that decision, the Court extensively referenced Soulos and found McLachlin J.’s approach to the principle of good conscience was previously adopted by that court in an earlier decision, ICBO v. Lo, 2006 BCCA 584, and should also be applied in B.M.P.

[21] By contrast, according to the moving party, the decision of this court for which it now seeks leave to appeal represents a narrower interpretation of the law on constructive trust, one that negates the principle of good conscience and imposes a stricter approach to tracing which is inconsistent with the British Columbia Court of Appeal and Supreme Court of Canada jurisprudence. In my view, there is a legitimate debate as to the proper scope of the constructive trust remedy, which militates in favour of granting the motion.

(b) Irreparable Harm

[22] The second factor to consider is whether or not the moving party will suffer irreparable harm if the stay is not granted. Irreparable harm is harm that would result to the moving party if the order in question were not stayed pending the application for leave to appeal. It may arise if refusing to grant a stay would render the leave application and appeal moot: Donovan v. Sherman Estate, 2019 ONCA 465, at paras. 19-20; Ting (Re), 2019 ONCA 768, at para. 29; and Ducharme v. Hudson, 2021 ONCA 151, at para. 20.

[23] The moving party asserts it will suffer irreparable harm if the funds over which it claims a constructive trust are released to the respondent before these issues are finally determined on the proposed appeal rendering the proposed appeal moot. This is a legitimate concern, which was expressed by Thorburn J.A. when she granted a stay pending appeal to this court: “the appellant would suffer irreparable harm if the funds were released to the respondent as the appeal would be rendered moot”. This same concern remains on the present motion. The irreparable harm faced by the moving party should a stay not be granted militates in its favour.

(c) Balance of Convenience

[24] The third factor to consider is the balance of convenience between the parties, which requires the court to consider the fact that the matter has already been adjudicated and the order must be regarded as prima facie correct: Circuit World Corp., at p. 678. The court must also consider which of the parties will suffer the greater harm from the stay being granted or refused: RJR-MacDonald, at p. 342.

[25] In my view, the balance of convenience favours the moving party. The moving party will comply with the statutory timelines for filing its leave to appeal application. Indeed, the moving party volunteered to file its application within 14 days “if pressed”. This is not necessary. Compliance with the statutory timelines is sufficient.

[26] Once the parties have filed their materials in a timely fashion, it is likely that the Supreme Court of Canada will render a decision on the leave application in approximately three to four months: Yaiguaje v. Chevron Corporation, 2014 ONCA 40, at para. 17.

[27] In the meantime, the funds remain secure in trust in an interest-bearing account. Should the moving party be unsuccessful in obtaining leave, the funds will become available to the respondent immediately. As noted by the respondent, she has been without the proceeds of the sale of the property for two years. The inconvenience of an extra few months maintaining the status quo of the past two years is not sufficient to overcome the interests of justice which call for a stay.

D. Conclusion

[28] All three factors of the RJR-MacDonald test militate in the moving party’s favour, with perhaps the most pressing consideration being rendering the appeal moot should the funds be released prior to final adjudication of the matter.

[29] It is true that the factual arguments advanced by the moving party have been made before the application judge and this court and have twice been rejected. This militates in favour of the respondent. However, it is not sufficient to overcome the three factors that each weigh in favour of the moving party.

[30] The motion for a stay is granted. The stay will remain in place until the moving party’s application for leave to appeal the decision of this court to the Supreme Court of Canada is determined.

[31] The moving party is entitled to its costs of the motion in the agreed upon amount of $7,500, inclusive of disbursements and HST.

“J.C. MacPherson J.A.”