COURT OF APPEAL FOR ONTARIO

CITATION: Meridian Credit Union Limited v. Baig, 2016 ONCA 150

DATE: 20160225

DOCKET: C59249

Strathy C.J.O., LaForme and Huscroft JJ.A.

BETWEEN

Meridian Credit Union Limited

Plaintiff (Respondent)

and

Ahmed Baig

Defendant (Appellant)

Milton A. Davis and John Adair, for the appellant

J. Anthony Caldwell, for the respondent

Clifford Lax, Q.C., James Renihan and Linda Galessiere, for the interveners Miller Thomson LLP and Peter Kiborn

Heard: November 26, 2015

On appeal from the order of Justice Frederick L. Myers of the Superior Court of Justice, dated August 15, 2014, with reasons reported at 2014 ONSC 4717.

H.S. LaForme J.A.:

INTRODUCTION

[1] Ahmed Baig, the appellant, agreed to purchase a building located at 984 Bay Street, Toronto (the “Property”), from the court appointed receiver and manager of the Property (the “Receiver”) for $6.2 million. Unknown to the Receiver and prior to closing, the appellant agreed to re-sell the Property to Yellowstone Property Consultants Corp. (“Yellowstone”) for $9 million. Had it known, the Receiver claims it would not have recommended approval of the sale to the court in the receivership proceeding.

[2] Meridian Credit Union Limited (“Meridian”), the respondent, discovered the re-sale. As Meridian had not recovered the full amount owing to it in the receivership proceeding, the Receiver assigned its cause of action against the appellant to Meridian. Meridian then commenced the within action against the appellant.

[3] In the decision under appeal, the motion judge dismissed the summary judgment motion brought by the appellant and instead found him liable for fraudulent misrepresentation.

[4] This appeal examines whether the motion judge erred by finding the appellant personally liable for fraudulent misrepresentations, and whether the interveners — the appellant’s former lawyer and law firm — were denied natural justice when the motion judge made an adverse finding about them in their absence. For the reasons that follow, I would dismiss the appeal.

BACKGROUND

[5] The Receiver was appointed in March 2005. After a lengthy marketing process, the Receiver agreed to sell the Property to the appellant, in trust for a corporation to be incorporated, for $6.2 million (the “Agreement”).

[6] Before that transaction had closed, the appellant agreed to re-sell the Property to Yellowstone for $9 million. The appellant did not tell the Receiver about this second agreement.

[7] The Agreement did not prevent the appellant from re-selling the property. It did prohibit him from assigning his interest under the Agreement without the Receiver’s consent. The Receiver could arbitrarily refuse such consent unless the assignee was the “corporation to be incorporated for purposes of this Agreement”.

[8] The Receiver was obligated to obtain court approval before selling the Property. The Agreement was conditional on receiving that approval. If it had known about the second sale, the Receiver claims it would not have recommended that the court approve the Agreement.

[9] The appellant retained the law firm of Miller Thomson to assist him with the transaction. Peter Kiborn — a lawyer who at all relevant times practiced law at Miller Thomson — acted for the appellant in structuring the transaction.

[10] To avoid land transfer tax, Kiborn suggested that title to the Property be transferred to Yellowstone directly. The appellant agreed. Both the appellant and his counsel wanted to prevent the Receiver from discovering the sale to Yellowstone, because the $2.8 million differential in the price would jeopardize court approval.

[11] Kiborn informed the Receiver that title was to be directed to Yellowstone on closing. The Receiver assumed that Yellowstone was the appellant’s corporation incorporated for the purpose of the Agreement. Neither the appellant nor his lawyers ever corrected that misunderstanding.

[12] In the course of closing the transaction, Kiborn delivered to the Receiver a number of documents – a draft title direction, a document registration agreement, and a resolution of Yellowstone’s board of directors – in which Yellowstone was listed as the purchasing corporation. Kiborn admitted that he intended for the Receiver to rely on those documents.

[13] The Receiver obtained court approval for the Agreement and a vesting order. The transaction closed on August 23, 2006, and title was transferred to Yellowstone.

[14] Meridian discovered that Yellowstone had purchased the Property for $9 million in 2009. Upon learning of this information, Meridian contacted the Receiver. In January 2010, the Receiver assigned to Meridian its right, title, and interest in a cause of action against the appellant, and Meridian then commenced the within action against the appellant.

PROCEEDINGS BELOW

[15] Meridian claimed that the appellant misrepresented that Yellowstone was the company incorporated by him for the purpose of the Agreement. As noted, the Receiver claims that it would not have recommended court approval of the sale if it knew about the agreement between the appellant and Yellowstone. Instead the Receiver could have negotiated with the appellant or Yellowstone to obtain a higher purchase price, or solicited new offers.

[16] Meridian sought an accounting for the profit made on the re-sale to Yellowstone or, alternatively, damages of approximately $2.1 million for breach of contract, fraudulent misrepresentation, and conspiracy. The appellant moved for summary judgment dismissing Meridian’s claim. The motion judge dismissed that motion. Instead, he found the appellant liable for fraudulent misrepresentation. He seized himself of the matter and directed that a trial be held to determine the issue of damages.

[17] I pause to note that Meridian had not brought a cross-motion asking for summary judgment in its favour. However, the motion judge did not err by granting summary judgment. Counsel for the appellant submitted that all of the relevant evidence was before the court and explicitly invited the motion judge to render a decision in favour of either party. Two recent decisions from this court make it clear that it is permissible for a motion judge to grant judgment in favour of the responding party, even in the absence of a cross-motion for such relief: King Lofts Toronto I Ltd. v. Emmons, 2014 ONCA 215, 40 R.P.R. (5th) 26, at paras. 14-15; and Kassburg v. Sun Life Assurance Company of Canada, 2014 ONCA 922, 124 O.R. (3d) 171, at paras. 50-52.

[18] The motion judge found the appellant liable for two reasons. First, he concluded that the appellant was liable for misrepresentations made by his lawyers. The documents delivered as part of closing contained untrue statements. Kiborn knew that these statements were false and he intended for the Receiver to rely on them. The motion judge noted a concession by the appellant’s counsel that the appellant could be held liable for tortious misrepresentations by his solicitors.

[19] Second, the motion judge found the appellant liable for his own personal conduct. In particular, while acknowledging that the appellant did not have an obligation to disclose the agreement with Yellowstone, the motion judge concluded that the failure to correct the misimpression that Yellowstone was a corporation created by the appellant amounted to a fraudulent misrepresentation.

APPELLANT’S ACTION AGAINST INTERVENERS

[20] In January 2012, the appellant commenced an action against both Kiborn and Miller Thomson. The appellant claims, among other things, contribution and indemnity for any amounts found owing to Meridian in the within action.

[21] The interveners were aware of the action commenced by Meridian against the appellant and of the appellant’s motion for summary judgment. A lawyer working at Miller Thomson provided an affidavit in support of the appellant’s motion. Kiborn was examined under oath by Meridian’s counsel, pursuant to rule 39.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[22] Miller Thomson and Kiborn are not parties to either the action or the summary judgment motion that is the subject of this appeal. They were granted leave to intervene as parties to this appeal on May 8, 2015. In her reasons Hoy A.C.J.O. noted that their submissions “shall deal exclusively with the argument that the motion judge breached the rules of natural justice and procedural fairness by making findings regarding them in their absence”.

THE ISSUES

[23] The issues on appeal are whether the motion judge erred by: (i) finding the appellant personally liable for fraudulent misrepresentations; and (ii) concluding that the interveners had made misrepresentations in their absence. In addition, the interveners seek to introduce fresh evidence on appeal.

[24] The appellant’s arguments ask that this court reconsider and reweigh the evidence that was before the motion judge and reach a different conclusion. Absent an obvious error of law, the motion judge’s findings are subject to a palpable and overriding error standard of review: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

ANALYSIS

I. Appellant’s personal liability

[25] The appellant advances three arguments. First, there is no evidence that supports finding the appellant liable. Second, in finding the appellant personally liable, the motion judge pierced the corporate veil without justification. Third, the motion judge erred by holding a client liable for unauthorized and unknown fraud committed by an innocent client. I disagree with all three arguments.

(a) Sufficiency of evidence

[26] The Supreme Court of Canada recently affirmed in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 87, that a plaintiff asserting a claim for civil fraud must prove the following on a balance of probabilities:

1. A false representation by the defendant;

2. Some level of knowledge of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness);

3. The false representation caused the plaintiff to act;

4. The plaintiff’s actions resulted in a loss.

[27] In my view there was sufficient evidence to prove all four elements and to find the appellant personally liable.

[28] First, the record discloses that the appellant engaged in actions that amounted to misrepresentations. As noted by the motion judge, at para. 29 of his reasons, both the appellant and his counsel actively hid the agreement to sell to Yellowstone. They fraudulently misrepresented that Yellowstone was the corporation incorporated to close the sale with the Receiver. For instance, the appellant personally signed a title direction that falsely identified Yellowstone, and not himself or his company, as the purchaser. He admitted that he knew this information was false.

[29] At para. 27 of his reasons, the motion judge found that:

The title direction, the other closing documents, the corporate resolution, and the document registration agreement contained untrue statements…Although [the appellant] had no duty to disclose his flip, once his lawyers knowingly made misleading disclosures misrepresenting Yellowstone to be the purchaser under [the appellant’s] agreement with the Receiver, the failure to correct the misimpression created amounts to fraudulent misrepresentation as well.

[30] In certain circumstances, silence and half-truths can amount to a misrepresentation: Alevizos v. Nirula, 2003 MBCA 148, 180 Man.R. (2d) 186, at paras. 20-25; Outaouais Synergest Inc. v. Keenan, 2013 ONCA 526, 116 O.R. (3d) 742, at para. 77.

[31] Second, the appellant had some level of knowledge about the misrepresentations. As noted, he personally signed the title direction while knowing that it was false. He did not deny that he reviewed the document. It is trite that “the signatory to a document is presumed to have read it, and is deemed to be fixed with the knowledge of its contents”: Self v. Garito (1998), 73 O.T.C. 365 (Gen. Div.), at para. 33.

[32] The appellant’s purpose in transferring title directly to Yellowstone “was to avoid paying land transfer tax”. He stated that the idea to avoid paying the land transfer tax twice “would’ve been the solicitor’s idea, but we would’ve been obviously notified of this, right?” He knew that the two sales were being represented as one for the purpose of saving land transfer tax and that the Receiver would be told to transfer title to Yellowstone – without ever informing the Receiver that Yellowstone was an arms-length company rather than a company incorporated by him for the purposes of the Agreement.

[33] Third, the representations caused the Receiver to seek court approval and to transfer title directly to Yellowstone. But for the false representations, the Receiver would likely have acted differently and to the detriment of the appellant. The motion judge describes this at para. 17:

As counsel for [the appellant] submitted quite forthrightly in court, had the Receiver known that [the appellant] was likely to profit on a re-sale, he “probably would not have gotten the deal”. Had [the appellant] tried to assign his agreement with the Receiver to Yellowstone, he would have run into the Receiver’s right to arbitrarily withhold its consent under article 39 of the [Agreement]…

[34] Finally, as a result of the misrepresentations, the Receiver lost an opportunity to negotiate a higher price with the appellant or another party. That lost opportunity is a sufficient loss to ground a claim for civil fraud: Hamilton (City) v. Metcalfe & Mansfield Capital Corporations, 2012 ONCA 156, 347 D.L.R. (4th) 657, at paras. 55-58.

[35] The motion judge’s findings are reasonable and amply supported by the evidence before him. The appellant has identified neither an error in principle nor a palpable and overriding error. For these reasons, I would reject this ground of appeal.

(b) The corporate veil

[36] At para. 30 of his reasons, the motion judge recorded a concession by the appellant’s counsel that the appellant would be liable for any tortious misrepresentation made by his lawyers. On appeal, the appellant resiles from that concession. Furthermore, before this court the appellant argues that the motion judge’s reasons do not explain why he pierced the corporate veil to find him personally liable.

[37] In my view, it is inappropriate for the appellant to withdraw the concession and argue, for the first time on appeal, that there was no basis for him to be held liable because he was protected by the corporate veil. It is hardly surprising that the motion judge’s reasons do not grapple with that issue.

[38] In any case, the motion judge found that the appellant made the fraudulent representations in his personal capacity, and thus implicitly viewed the corporate veil as having no application. That implied conclusion is supported by the following:

• The corporation incorporated by the appellant never took title to the Property. The appellant’s corporation never had any dealings with the Receiver and was never a part of the transaction. Indeed, the whole fraud was that the appellant’s corporation was not the purchaser being represented.

• The appellant signed the title direction (which falsely indicated Yellowstone as purchaser) as “Ahmed Baig”, without any reference to his corporation or to any title or position he held at the corporation.

• Kiborn’s statement that Miller Thomson LLP represented Ahmed Baig.

[39] Subject to an exception that does not apply in this case, “[t]he consistent line of authority in Canada holds simply that, in all events, officers, directors and employees of corporations are responsible for their tortious conduct even though that conduct was directed in a bona fide manner to the best interests of the company”: ADGA Systems International Ltd. v. Valcom Ltd. (1999), 1999 1527 (ON CA), 168 D.L.R. (4th) 351 (Ont. C.A.), at para. 18. I conclude that the motion judge’s reasons — when read as a whole, together with the record — are responsive to the corporate veil issue. This ground of appeal should be dismissed.

(c) Liability for his lawyer’s actions

[40] As noted, the appellant is personally liable for misrepresentations made by him. The appellant’s liability is firmly established without the need to rely on vicarious liability or his counsel’s concession. Therefore, it is not necessary to address this ground of appeal.

II. The interveners’ arguments

[41] During the motion, counsel for the appellant invited the motion judge to render a “decision on the merits in favour of either party”. The motion judge found that the appellant was liable to Meridian on the basis of fraudulent misrepresentations, including misrepresentations made by the interveners.

[42] The interveners’ position is that, by making adverse findings against them in their absence, the motion judge breached the rules of natural justice and procedural fairness. They rely on the principle of audi alteram partem, or the right to be heard.

(a) Fresh evidence

[43] The interveners also seek to introduce as fresh evidence affidavits sworn by a lawyer with Miller Thomson and by Kiborn. The affidavits provide evidence concerning what the interveners knew of the summary judgment motion and why they were not present at it. They are the same affidavits sworn for the intervention motions, and were the subject of cross-examination by Meridian.

[44] The interveners first contend that the fresh evidence should be admitted pursuant to this court’s decision in R. v. Poulos, 2015 ONCA 182, 124 O.R. (3d) 675, at paras. 13-14. They argue that because the affidavits concern the validity of the motion process and comply with the normal rules of evidence, they should be admitted.

[45] In any case, the interveners say the criteria in R. v. Palmer 1979 8 (SCC), [1980] 1 S.C.R. 759, at p. 775, are satisfied. That is, the evidence: (i) could not, through the exercise of due diligence, have been adduced at the summary judgment motion; (ii) is relevant in that it bears on a decisive or potentially decisive issue; (iii) is reasonably capable of belief; and (iv) if believed, could reasonably be expected to have affected the result at the motion being appealed.

[46] The fresh evidence application should be denied. Poulos does not assist the interveners because their honest, though mistaken, belief about the outcomes possible does not affect what rights they were entitled to. In other words, the fresh evidence is irrelevant to the validity of the process followed by the motion judge.

[47] The fresh evidence application also fails if considered under the Palmer criteria, for similar reasons. Because the interveners’ belief is irrelevant to the issues raised, the fresh evidence could not have affected the results of the motion below.

(b) The interveners’ right to be heard

[48] The interveners were witnesses in the summary judgment motion. No relief was sought from them and none was granted. Although they were not present at the motion, the motion judge released a decision which, they say, seriously affects them. The motion judge found that they had prepared documents which contained fraudulent misrepresentations and held that they had “actively hid” Yellowstone’s ownership through those misrepresentations.

[49] As noted in Ontario (Provincial Police) v. Mosher, 2015 ONCA 722, 340 O.A.C. 311, at paras. 60-63, the principle of audi alteram partem, which the interveners rely on heavily, is composed of two elements: a right to be heard by a decision-maker, and a right to notice of a hearing sufficient in time and substance to enable a party to present their case. In my opinion, the interveners did not have a right to be heard or to receive notice in this case.

[50] Audi alteram partem applies whenever a person’s rights, interests, or privileges are affected by a decision. As non-parties to this action, the interveners are not directly impacted by the order. They are not bound by the motion judge’s finding that they made fraudulent misrepresentations. They are free to defend their reputations and argue that they never made fraudulent misrepresentations when defending against the appellant’s action. The only tangible manner in which they are impacted is indirect: now that the appellant is liable for damages, the interveners are exposed to a greater risk that they may be found liable for a portion of the appellant’s liability.

[51] The interveners are no different than any other non-party witness. Their main complaint is that the motion judge’s publicly available reasons could damage their reputation. The authorities they rely on do not support the right of a non-party witness in a civil action to notice, a chance to adduce evidence, and to make submissions whenever an adverse credibility finding may be made. Such procedural entitlements are significant, and would, in my view, impose a great burden on the courts and threaten the finality of decisions.

[52] This court considered and rejected a similar argument in Hurd v. Hewitt (1994), 1994 874 (ON CA), 120 D.L.R. (4th) 105. In that case, an arbitration panel concluded that the grievor had been improperly denied a tenure-track position because of a conspiracy among members of the search committee. Those committee members applied for a declaration that their rights to procedural fairness had been breached as the arbitrators did not allow them to respond or make submissions before making adverse findings against them. The application judge granted the requested declaration but that decision was reversed on appeal. As noted by Griffiths J.A. at p. 106, this court rejected the proposition that “every decision-maker has an absolute duty in law to afford non-parties the opportunity to be heard before making adverse findings against them.”

[53] In summary, the common law does not provide non-parties with the right to notice, to adduce evidence, or to make submissions whenever an adverse credibility finding may be made in judicial proceedings that involve them. Non-parties are limited to whatever procedural rights they have under the rules.

[54] Rule 13.01 of the Rules of Civil Procedure provided the interveners with the right to intervene in this action as a party. After being served with a statement of claim in the appellant’s action against them, they would have been fully aware of this action and its potential impact on the claim against them. In spite of this, they chose not to intervene, adopting a wait-and-see approach.

[55] Similarly, rule 6 provided the interveners with the ability to consolidate the hearings on common issues of fact or law. Again, they chose not to pursue this option. Now, once a finding of fact with which they take issue has been made, they believe the result of a motion they knew about should be set aside.

[56] Non-parties should not be able to lurk in the shadows and then spring up to challenge a decision whenever the outcome – or findings of fact – may affect them in some manner they do not like. In my view, the statement of claim in the appellant’s action is the only notice to which the interveners were entitled. Once they were served with the claim, they knew about this action and had an option to intervene as a party.

[57] For these reasons I conclude the interveners were not denied natural justice and I would deny the relief sought.

DISPOSITION

[58] For the reasons given, the appeal should be dismissed. I would award Meridian its costs of the appeal from the appellant as well as its costs of responding to the interveners. I would require the parties to file costs submissions with this court within 30 days from the release of these reasons. And I would limit each of the costs submissions to 5 pages.

Released: February 25, 2016

“H.S. LaForme J.A.”

“I agree G.R. Strathy C.J.O.”

“I agree Grant Huscroft J.A.”