CITATION: Moore v. Morris 2017 ONSC 1980 DIVISIONAL COURT FILE NO.: DC-14-134-00 DATE: 20170331
ONTARIO
SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
KITELEY, SWINTON, M.L.J. EDWARDS JJ.
BETWEEN:
Jennifer Ann Moore
Plaintiff/Respondent
– and –
Matthew Adam Morris
Defendant/Appellant
G. William Corby, for the Plaintiff/Respondent
Chris Reed, for the Defendant/Appellant
HEARD at Brampton: March 27, 2017
REASONS FOR JUDGMENT
KITELEY J.
[1] This appeal is from the judgment of Belleghem J. dated November 26, 2014 in which the Appellant was ordered to pay $30,526. In a judgment dated September 18, 2015 the appellant was ordered to pay costs in the amount of $29,880.57. For the reasons that follow, the appeal is allowed and the judgments are set aside.
Background
[2] The parties began cohabiting in 2006 and have a daughter born in 2004. In July 2006, the Respondent sold her home and used $140,000 from the proceeds of sale toward the purchase price of a home in Cambridge, (“the family residence”) which, at the initiative of the Respondent was registered in the name of the Appellant and Respondent jointly. The remaining purchase funds were acquired through a mortgage on which both parties were liable. The parties separated in October 2006.
[3] The Appellant started legal proceedings in January 2007 in which he claimed custody or access. In her Answer and Claim the Respondent also asked for custody as well as child support and for an order that the Applicant transfer title to the family residence to her.
[4] Throughout their relationship, each of the Appellant and Respondent were sole proprietors of a landscaping business. In the four financial statements provided by the Appellant in the family law proceedings, he disclosed his ownership of the business but did not disclose business assets or liabilities.
[5] The trial was scheduled to begin on February 18, 2009. That morning the parties and their counsel negotiated the terms of a consent that was reflected in Minutes of Settlement and incorporated into a court order that required the Appellant to transfer his interest in the family residence to the Respondent. The Appellant subsequently signed the transfer of title.
[6] On March 23, 2009, before the transfer of title was registered, the Canada Revenue Agency (“CRA”) certified the Appellant’s tax debt and registered a lien (“the lien)” against the Appellant’s half interest in the family residence. The lien arose by virtue of subsections 227(4) and 227(4.1) of the Income Tax Act. The Appellant’s interest in the property was deemed to have been impressed with a trust in favour of the Crown in 2006 as a result of his failure to properly remit source deductions in accordance with the Act.
[7] As a result of negotiations with the Respondent, CRA agreed to lift its lien upon payment by the Respondent in the amount of $30,562.73, which represented the deemed trust portion accrued in 2006 and 2007. CRA released the lien for the remaining $35,000.
[8] On December 22, 2009, the Appellant made an assignment into bankruptcy and on October 8, 2010 he received his certificate of discharge.
[9] In February 2011, the Respondent issued a Statement of Claim in which she sought damages in the amount of $80,562 and punitive damages in the amount of $50,000. The Statement of Claim includes the following:
The plaintiff states that on December 24, 2008, the defendant fraudulently deposed in a financial statement that his only debts were to the Royal Bank of Canada and a Visa credit card. . . . .
The plaintiff pleads that on negotiating and consenting to the terms of the consent that she relied upon the defendant’s deposed financial statement.
The plaintiff pleads that the respondent fraudulently misrepresented his debts in his deposed financial statement in that he knowingly did not disclose his indebtedness to Her Majesty the Queen in Right [sic] as represented by the Minister of National Revenue in the amount of $30,562.73 plus accrued interest.
The plaintiff further pleads that at all times relevant to this action that the defendant held his interest in the real property in a deemed trust for Her Majesty The Queen in Right [sic], as represented by the Minister of National Revenue, and he fraudulently entered into an agreement with the plaintiff to convey to her his interest in the real property.
The plaintiff states that in order to acquire a clear title to the real property free of any interest of Her Majesty The Queen in Right [sic] as represented by the Minister of National Revenue that she had to pay to Canada Revenue Agency the sum of $30,562.73.
The plaintiff further states that as a result of fraud of the defendant that she has suffered further damages for legal fees, disbursements and other expenses, which the full particulars are presently unknown to the plaintiff, but are estimated in the amount of $25,000.00.
The plaintiff pleads that as a result of the outrageous behaviour of the defendant, without any colour of right, the plaintiff claims punitive damages.
The plaintiff pleads and relies upon the following:
(i) Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 178;
(ii) Income Tax Act, R.S.C. 1985, c. 1 (5th) Supp), ss. 227 (4) and 227(4.1);
(iii) Family Law Rules, O. Reg. 114/99, Rule 13.
Judgment after trial
[10] The main issue in the trial was whether the Appellant’s liability for the CRA debt survived his bankruptcy. To answer that question, the Trial Judge had to interpret and apply s. 178 of the Bankruptcy and Insolvency Act (BIA) which reads:
(1) An order of discharge does not release the bankrupt from . . .
(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim; . . .
(2) Subject to subsection (1), an order of discharge releases the bankrupt from all claims provable in bankruptcy.
[11] In his reasons for decision the Trial Judge quoted s. 178 of the Bankruptcy and Insolvency Act and in paragraphs 17 to 26 he referred to decisions dealing with fraud and breach of fiduciary duty. At paragraph 27 he held that at material times there was a fiduciary relationship between the parties with respect to the family residence. At paragraph 30, he held that the defendant was not the “honest but unfortunate debtor” referred to in Simone v. Daley [1999 3208 (ON CA), 43 O.R. (3d) 511] but that he had committed fraud upon the plaintiff on a number of occasions in relation to the family property. He held that the Appellant’s failure to honour his disclosure obligations only compounded the fact that he was also defrauding CRA by misappropriating funds for his own use that he was deducting from employees’ wages as income tax source deductions. He held that the Appellant’s conduct constituted civil fraud.
[12] The Trial Judge then referred to the elements of the criminal offence of fraud summarized in R. v. Theroux, 1993 134 (SCC), [1993] 2 S.C.R. 5 and the distinction between civil fraud and fraud that is criminal in nature. The Trial Judge also considered the “companion decision” of R. v. Zlatic, 1993 135 (SCC), [1993] 2 S.C.R. 29 as well as the definition of “fraudulent act” as defined in Black’s Law Dictionary, 7th ed., (St. Paul, Minn: West Group) at 672.
[13] At paragraph 37 the Trial Judge found that the defendant made
both material misrepresentations and material concealment or nondisclosure of important facts when he knew or ought to have known that revelation of the information would likely affect how the plaintiff dealt with her litigation with him and how she would have negotiated a settlement with him. Alternatively, he did so with willful disregard for the consequences of misrepresenting or concealing the facts. The evidence is replete with intentional misrepresentation, intentional nondisclosure and concealment by the defendant.
[14] The Trial Judge reviewed the disclosure obligations in the Family Law Rules and held at paragraph 41 that
the most significant nondisclosure relates to the failure to disclose, prior to executing the minutes of settlement on February 18, 2009 the fact that the defendant was indebted to CRA for failing to remit income tax deducted at source for wages paid to employees, which resulted in the statutory lien under s. 227 of the Income Tax Act, referred to above.
[15] The Trial Judge held at paragraph 43 that the Appellant intentionally did not disclose the existence of the CRA debt and that that was “unscrupulous and dishonest”. Having produced only one business statement for the year end 2006, the Trial Judge held that the Appellant had a positive obligation to produce more and that his “intention was not to produce them”.
[16] At paragraph 45 the Trial Judge listed the “numerous other examples of the unscrupulous conduct of the defendant in failing to disclose”, namely his financial statements sworn January 11, 2007; October 4, 2007; January 16, 2008 and December 24, 2008 as well as the notice of assessment dated April 1, 2008 that showed $71,444.42 owing. At paragraph 46, the Trial Judge held that the Appellant “intentionally chose not to reveal in his financial statement [sworn December 24, 2008] the fact that his company owed $72,000 at that time to CRA.”
[17] At paragraph 47, the Trial Judge accepted the evidence of the Respondent
when she testified that she did not know the defendant had the debt to CRA which resulted in a lien on the property she put into joint tenancy. She would certainly have never put the property into joint tenancy if she had known that there was a chance the property would have a lien placed on it by CRA. The only information she had was that he had some debts.
[18] The Appellant and his lawyer in the family law proceedings testified that in anticipation of the trial starting on February 18, his lawyer had prepared a brief of documents which was identified as exhibit 5 in this trial and it contained the Notice of Assessment dated April 2008. At paragraph 51 the Trial Judge rejected the submission that that signaled an intention on the part of the Appellant to disclose and at paragraph 61 he held that whatever intent he may have had to reveal the existence of the CRA debt and how it had arisen prior to the settlement negotiations was moot because the fact was that it was never given to the plaintiff or her lawyer at the time.
[19] At paragraph 52, the Trial Judge held as follows:
I also accept the plaintiff’s evidence and her counsel’s argument, that had she known about the tax arrears and the consequences attached to them by virtue of section 227 of the Income Tax Act, that she would never have entered into the settlement agreement she did. She certainly would never have put the property into joint names if she had known that he was arrogating to himself source deduction money that could form the basis of a lien against the property.
[20] And in conclusion he held as follows:
At the end of the day I am satisfied that this is a simple case of fraudulent misrepresentation, and fraudulent nondisclosure, by a fiduciary. Any reasonable person viewing the defendant’s conduct, and hearing his explanations would conclude that he intentionally withheld the information. He did not want to disclose that he had in the range of one half million dollars of gross income and that he was unable to account for how he had personal income of over $40,000, while his business showed him running at a $10,000 loss. This is simply information he did not want to disclose. In particular, he did not want to disclose that he was not remitting the tax deductions he was taking from his employees. Had he done so, both lawyers would be aware. They would advise their clients that this would have serious ramifications by way of a potential lien on any property owned by both parties, i.e. the joint tenancy. This non-disclosure clearly detrimentally affected the plaintiff’s property.
In the eyes of any reasonable person, his conduct, attitude and explanations for his conduct would all be viewed as dishonest, unscrupulous and contumelious.
Whether or not such conduct would amount to conduct of a “willful” nature such as to attract criminal liability is not an issue I need to resolve. I am satisfied on balance that the civil standard of fraud has been met. It has been met on the basis of very clear cut readily ascertainable, and virtually undisputed, evidence. The evidence is that the defendant embarked upon, and maintained a two and one half year campaign of secrecy, with respect to how he was dealing with money he owed to CRA, which had the potential, which had it been disclosed to his lawyer or the plaintiff’s lawyer, to impact seriously how settlement negotiations would resolve. That information was never disclosed by him, right up to, and including, the time of the final execution of the minutes of settlement. . . .
I am satisfied, therefore, that the plaintiff’s case has been made out as pleaded. There will be judgment, therefore, for the plaintiff in the sum of $30,526.
The issues in the appeal and the standard of review
[21] Counsel for the Appellant has raised the following issues:
(a) the Trial Judge failed to apply the proper legal test for fraudulent misrepresentation;
(b) the Trial Judge made findings of fact that are contrary to the evidence and unsupported by the evidence;
(c) the Trial Judge failed to give weight to crucial evidence.
[22] I agree with counsel for the Appellant that the first issue is a question of law for which the standard of review is correctness; and the second and third issues are questions of fact for which the standard of review is palpable and overriding error. I also agree that if the appeal is allowed on the first issue, that that would dispose of the appeal.
Analysis
[23] The elements of the tort of fraudulent misrepresentation are these: (a) a representation (b) that is false (c) known to the defendant to be false and intended by the defendant to be relied upon, (d) that is relied upon by the plaintiff. (Equirex Vehicle Leasing (2004) Inc. v. Ingoglia, 2015 ONSC 1011 at paras. 22 and 25) In my view, the Trial Judge failed to apply the proper legal test to find fraudulent misrepresentation; the evidence does not support a finding of misrepresentation with respect to his debts; he made some key findings of fact that were not supported by the evidence; and he failed to give weight to crucial evidence.
[24] I begin with the evidence on the first element of the tort, namely whether the Appellant made a representation that he did not have a debt or liability to CRA. In her examination-in-chief the Respondent said that, at the time of the negotiations on February 18, 2009, she did not know about the debt to CRA. In cross-examination she acknowledged that in an affidavit in the family law proceedings she had said that the Appellant’s business was on the verge of bankruptcy. She also said that she did not know what his debts were but she assumed he had debts. She confirmed that during the proceedings he had produced a balance sheet for The Garden Landscape Company as of December 2006 that listed debts of almost $200,000 including payroll liabilities for income tax deductions, CPP and EI totaling about $1000. The Respondent also agreed that in all of the Appellant’s four sworn financial statements he had not listed debts and liabilities related to the business. The evidence of the Respondent, the Appellant and the Appellant’s family law lawyer was that in four sworn financial statements he did not disclose any debt or liability to CRA.
[25] On the basis of the evidence, it was not open to the Trial Judge to find that the Appellant had made a representation that he did not have a debt or liability to CRA. The most that could be said was that the financial statements were silent.
[26] As to the second element of the tort, given that there is no evidence on which the court could find that he had made a representation that he did not have a debt or liability to CRA, there is no basis for a finding that he made a representation that was false.
[27] The third element of the tort of fraudulent misrepresentation consists of two parts: that the Appellant knew he had made a false representation to the Respondent and he knew that the Respondent intended to rely upon it. Having found that he did not make a representation that was false, it follows that there is no evidence that he knew that the Respondent intended to rely on it.
[28] The evidence is that he knew he had a liability to CRA. It is not clear when he received the 2008 Notice of Assessment indicating that he owed over $70,000 but the evidence is that at some point between December 24, 2008, when he signed the last sworn financial statement, and February 17, 2009, when his lawyer prepared the brief of documents for trial that contained the Notice of Assessment, he gave the 2008 Notice of Assessment to his family law lawyer, expecting that it would be disclosed to the Respondent. From that I conclude that he knew he had significant exposure for source deductions that he admitted he had failed to remit for years because of cash flow issues.
[29] On the issue of the Appellant’s intent, he was not asked in examination-in-chief or cross-examination whether he intended that the Respondent rely on the absence of debts and liabilities in his sworn financial statements as a representation that he had no CRA debt or liability. There is no direct evidence of his intent that the Respondent rely on the absence of debts and liabilities in his sworn financial statements as a representation that he had no CRA debt or liability. Furthermore, to succeed, the Respondent would have to establish that the debt or liability to CRA would result in CRA registering a lien against his joint interest in the family residence. There is no evidence that either the Appellant or the Respondent knew that that course of action was open to the CRA. The evidence of the Appellant that his accountant possibly explained to him that there would be “ramifications of his huge debt to the CRA” is insufficient to establish knowledge on his part that a lien against his interest in the family residence was one of the ramifications. He specifically said that he was not aware that the source deductions were to be held in trust for the CRA. There is no evidence that he deliberately tried to mislead the Respondent and her lawyer about the true state of affairs. Furthermore, while a Trial Judge can infer intent from other evidence, in this case there is no evidence from which to infer a fraudulent intent.
[30] On the fourth element of the tort of fraudulent misrepresentation, in combination, paragraphs 13 and 16 of the Statement of Claim allege that she relied on the Appellant listing only debts to the Royal Bank and a credit card in “negotiating and consenting to the terms of the consent”. In her evidence at the trial, the Respondent was not asked about reliance and, accordingly, there is no evidence that the Respondent relied on the absence of entries in the Appellant’s financial statements as to debts and liabilities to CRA when she entered into the Minutes of Settlement on February 18, 2009. As indicated above in the excerpted paragraphs 47 and 52, the Trial Judge held that the Respondent would not have agreed that the Appellant be registered as a joint owner of the family residence in July 2006 had she known of his debt. However, that was at the point of the transfer of title, not at the point of the Minutes of Settlement, which is the basis for the claim. In any event, the Respondent did not give evidence as to reliance at the time of the Minutes of Settlement. It was simply a submission by her counsel.
[31] The Trial Judge did not analyze the evidence as it related to those four elements of the test for fraudulent misrepresentation. Instead, he approached the case on the basis of fraudulent non-disclosure which detrimentally affected the plaintiff’s property. That was an error of law. Had he used and applied the correct test, he would have been compelled to the conclusion that the Respondent had failed to prove on a balance of probabilities all four of the elements of the tort of fraudulent misrepresentation and he would have dismissed the claim because it did not survive the Appellant’s bankruptcy.
[32] If he had used and applied the correct test, the Trial Judge would also have had to make findings as to the other elements of s. 178 including whether the Appellant had obtained property or services as a direct result of the fraudulent misrepresentation. The evidence indicated that the Appellant did not acquire property or services. In accordance with the Minutes of Settlement, he transferred to the Respondent the only asset he had of any material value, namely his share of the family residence.
[33] While not necessary to the decision on this appeal, I turn briefly to the submissions that certain findings of the trial judge are unsupported by, and contrary to the evidence. The Trial Judge made findings that (a) in paragraph 61 above, the Appellant engaged in a “two and one half year campaign of secrecy”; (b) in paragraphs 41, 46 and 58 above, the Appellant intentionally failed to disclose information in order to affect negotiations; and (c) in paragraph 43 above, the Appellant did not disclose any information about his business other than a 2006 financial statement. There is no evidence to support (a) or (b) nor is there evidence from which such inferences could be drawn. As for (c), there was evidence that the Appellant had also provided a business income and expense statement for the period January 1 to September 30, 2007 attached to his financial statement sworn October 4, 2007. Furthermore, the lawyer who acted for him in the family law proceedings gave evidence that while his client thought that the requests for information made on behalf of the Respondent were “onerous”, the Appellant never resisted providing disclosure and the Appellant gave him the 2008 Notice of Assessment expecting that it would be disclosed.
[34] Counsel for the Appellant also argues that the Trial Judge failed to give weight to crucial evidence, namely that he dismissed as “moot” the inclusion of the 2008 Notice of Assessment in the brief of documents for trial. It is true that because the case settled the document brief was not served on the Respondent or her counsel and was not filed in court. But the reason for putting forth that evidence is that it showed that the Appellant intended to share that document with the Respondent. It was relevant for purposes of arriving at findings of his intention.
[35] In making findings not supported by and contrary to the evidence and in failing to give weight to crucial evidence the Trial Judge made palpable and overriding errors.
Costs of the trial
[36] In reasons for decision dated September 18, 2015 the Trial Judge reviewed the Respondent’s offer to settle and the bill of costs. He observed that it would be “extremely unusual to see a case in which a $30,000 judgment was accompanied by a $30,000 cost award” and then identified three reasons why that was warranted. He fixed the costs at $29,880.57.
[37] In allowing the appeal and setting aside the judgment, it follows that the costs award is set aside. In his Notice of Appeal the Appellant asked that this court grant a judgment dismissing the claim with costs payable by the Respondent. At the conclusion of submissions, we asked counsel whether they had agreed on the issue of the costs of the trial. They had not agreed but Mr. Reed took the position that if the appeal was allowed, the Respondent should pay costs of the trial in the amount of $15,000.
[38] Pursuant to rule 57.01 of the Rules of Civil Procedure, in exercising its discretion under s. 131 of the Courts of Justice Act to award costs, the court may consider enumerated factors and “any other matter relevant to the question of costs”. In four sworn financial statements the Appellant did not disclose the liability to the CRA including the financial statement sworn December 24, 2008 required to be delivered within 30 days of the trial. By that point he must have had the April 2008 Notice of Assessment. By failing to disclose as required by the Family Law Rules, the Appellant brought this on himself. He benefitted because the Respondent paid $30,526 of a debt he owed to CRA. Although the claim was not successful, his conduct caused the Respondent to bring this claim. Her conduct was reasonable. The Respondent ought not to be penalized for launching and pursuing the claim. The Appellant ought not to be rewarded for his failure to comply with his disclosure obligations. On that basis, he ought not to recover costs of the trial.
Costs of the appeal
[39] Counsel agreed that the successful party on the appeal should recover costs in the amount of $10,000.
Order
[40] The appeal is granted. The action is dismissed. The judgments dated November 26, 2014 and September 18, 2015 are set aside.
[41] The Respondent shall pay costs of the Appeal in the amount of $10,000.
___________________________ Kiteley J.
I agree
Swinton J.
I agree
M.L.J. Edwards J.
Date of Release: March , 2017
CITATION: Moore v. Morris, 2017 ONSC 1980 DIVISIONAL COURT FILE NO.: DC-14-134-00 DATE: 20170331
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KITELEY, SWINTON, M.L.J. EDWARDS JJ.
BETWEEN:
JENNIFER ANN MOORE
RESPONDENT
– and –
MATTHEW ADAM MORRIS
APPELLANT
REASONS FOR JUDGMENT
Kiteley J.
Date of Release: March , 2017