DATE: 20020405 DOCKET: C37345

COURT OF APPEAL FOR ONTARIO

RE:

JOHN BEAD CORPORATION LIMITED and MICHAEL JOHN Plaintiffs (Respondents) -and- PAUL SONI and BIRGIT SONI (Defendants(Appellant))

BEFORE:

FELDMAN, MacPHERSON and SIMMONS JJ.A.

COUNSEL:

Peter A. Downard

For the appellant

David Bell

For the respondents

HEARD:

April 2, 2002

RELEASED ORALLY:

April 2, 2002

E N D O R S E M E N T

[1] The motions judge struck out several paragraphs of the statement of defence which paragraphs set out facts which purport to raise the defence of ex turpi causa non oritur actio. The issue on the motion and on the appeal is whether the impugned paragraphs raise that defence in a manner which has the possibility of succeeding at trial.

[2] The motions judge concluded that they did not.

[3] The respondents’ claim against the appellant and his wife is for fraud, misappropriation of funds, conversion and breach of fiduciary duty. Essentially, the respondents claim that while acting as director and officer of a company owned by the respondents, the appellant in effect stole $1.6 million dollars from the company. The appellant denies the allegation, but also pleads in detail that the respondents skimmed cash from their own related company in order to defraud the revenue authorities and therefore cannot seek the assistance of the court in pursuing the appellant for similar activities.

[4] The appellant relies on the Supreme Court of Canada case of Hall v. Herbert, [1993] 2 S.C.R. 159 where the proper role of the ex turpi causa principle in tort claims was reviewed. The appellant concedes that the illegal acts alleged against him are separate and distinct from the illegal acts he alleges against the respondents. The issue therefore is whether and in what way, the illegal or immoral impugned acts by the plaintiff must be linked to the tort claim against the defendant in order for the maxim to have any application.

[5] In the Hall case, the Supreme court recognized a limited role for the maxim to apply in a tort case. The purpose and scope of the application is that a plaintiff will not be allowed to profit from his or her wrongdoing. One example where the maxim could apply is where one wrongdoer claims in tort against another for financial loss arising from an illegal joint venture. Another example is where a plaintiff claims as a head of damage suffered in a personal injury claim, loss of earnings from an illegal activity. In that case, the plaintiff and defendant are not jointly involved in the same illegal act, but the reason the maxim will apply in such a case is because otherwise, in the context of the tort claim, the law would be allowing the plaintiff to profit from illegal activity.

[6] McLachlin J. summarized her views as follows at pp. 179-80:

I conclude that there is a need in the law of tort for a principle which permits judges to deny recovery to a plaintiff on the ground that to do so would undermine the integrity of the justice system. The power is a limited one. Its use is justified where allowing the plaintiff’s claim would introduce inconsistency into the fabric of the law, either by permitting the plaintiff to profit from an illegal or wrongful act, or to evade a penalty prescribed by criminal law.

[7] The appellant relies in particular on one passage from the reasons of McLachlin J. where she says that it is not necessary that the plaintiff and defendant both be involved in the illegal activity for the maxim to apply. (p. 179). However, in our view, the appellant misreads the intent of this reference. It does not mean that because a plaintiff is a person who has engaged in illegal activity, unrelated, even if similar to that of the defendant, such a plaintiff can be denied recovery. It refers instead, for example, to the type of situation discussed above, where a plaintiff may seek to recover as a head of damage, compensation for loss from his or her own illegal activity.

[8] In our view, the Hall decision does not support the position of the appellant, that if the respondents engaged in separate, illegal activity in respect of their company, unrelated to the claim against the appellant, that such conduct, by itself, disentitles them from bringing action against the appellant for his alleged fraudulent conduct in respect of the same company.

[9] The appellant also asserts an alternative basis for the ex turpi defence based on paragraphs 7 and 8 of the statement of defence and referred to in paragraph 13 which was also struck out. The appellant says that paragraphs 7 and 8, in effect, plead in an alternative fashion a joint illegal enterprise which could form the basis for the defence. However, in our view, a close reading of those paragraphs does not disclose such an alternative plea of a joint illegal enterprise.

[10] We agree with the conclusion of the motions judge that the paragraphs struck out cannot form a defence to the action as pleaded. The appeal is therefore dismissed with costs. Counsel are agreed that costs be fixed at $5,000. Therefore costs shall be to the respondents in that amount, payable forthwith.

Signed: “K. Feldman J.A.”

“J. C. MacPherson J.A.”

“J. Simmons J.A.”