Reid Lester

The Court of Appeal for Ontario dismissed Surefire Dividend Capture, LP’s appeal from the Superior Court’s decision denying insurance coverage for losses suffered in a Ponzi scheme perpetrated by Brenda Smith, CEO of Broad Reach Capital, LP.

The court held that the fidelity bond did not cover losses caused by fraudulent acts of a sub-advisor’s directing mind, as the bond’s language did not extend “Employee” status to such individuals.

The court also found no coverage for “Theft of Customer Property” because SDC no longer had a property interest in the funds once invested in BRC.

The trial judge’s interpretation of the bond was entitled to deference, and no reversible error was found.

The appellants, two veterinarians, appealed the penalty and costs orders made by the Discipline Committee of the College of Veterinarians of Ontario following findings of professional misconduct related to inadequate record keeping and other issues.

Dr. Van Arem appealed his one-month suspension, arguing it was disproportionate.

Both appellants appealed the costs orders, arguing the Committee failed to properly account for their offers to settle and the time spent on unproven allegations.

The Divisional Court dismissed the appeals, finding the suspension was within the appropriate range and fit given the aggravating factors, and finding no error in principle in the Committee's discretionary costs decision.

The Honourable Mark Falk (Ret.), as U.S. Ancillary Receiver for Broad Reach Capital, LC (BRC), sought leave to intervene as an added party in an appeal under Rule 13.01 of the Rules of Civil Procedure.

The appeal concerned a fidelity bond claim by Surefire Dividend Capture, LP (SDC) against National Liability & Fire Insurance Company (Berkshire) for losses from a Ponzi scheme.

The Ancillary Receiver argued that the trial judge's findings, including that BRC was an insured entity under the bond and the non-determination of the alter ego issue, were favorable to BRC's potential claim against Berkshire and could be prejudiced on appeal.

SDC consented, while Berkshire opposed the intervention.

The court granted the motion for leave to intervene, conditional on the U.S. Court confirming the Ancillary Receiver's authority, finding that BRC had a common question of law or fact with the appeal and that intervention would not unduly delay or prejudice the appeal.

SureFire Dividend Capture LP (SDC) sought indemnification from Berkshire Hathaway Specialty Insurance under a fidelity bond for losses incurred due to a Ponzi scheme perpetrated by Brenda Smith, manager of Broad Reach Capital, LP (BRC), in which SDC had invested.

SDC claimed coverage under three insuring agreements (A)(1), (A)(4), and (B)(1)(b) of the Bond.

The court found that SDC failed to establish that its loss fell within the initial grant of coverage under any of the agreements, primarily because the stolen funds belonged to BRC, not SDC or its investors, and Brenda Smith was not an "Employee" of SDC as defined by the Bond for the purposes of SDC's direct claim.

The court also noted that SDC failed to disclose a material "in-kind" transfer of interests from other funds to SDC, which would have excluded coverage for that portion of the loss.

SDC's claim for punitive damages for bad faith was also dismissed.

This endorsement addresses the plaintiff's request for costs following a previous decision.

The plaintiff sought $10,000 inclusive of HST.

After reviewing the plaintiff's Costs Outline, which detailed $10,604.81 in legal fees, HST, and disbursements on a partial indemnity basis, the court awarded the plaintiff $9,500.00 all-inclusive.

The reduction was due to administrative clerk time, an undescribed entry, and counsel's time for reviewing the endorsement and attending a call with the judge, emphasizing that cost fixing is not an exact mathematical calculation.

The Canadian Imperial Bank of Commerce (CIBC) brought a motion for default judgment against Yohance Parsons and Hiclass Union Music Business to recover $59,120 in funds stolen from a CIBC client's account and traced to the defendants' business account.

CIBC had reimbursed its client and was proceeding by way of subrogation.

The court granted default judgment, finding that the defendants were deemed to admit the facts due to their default, including that they were not bona fide purchasers for value without notice.

The court affirmed that the recipients of stolen funds hold them in constructive trust for the rightful owner and that tracing such funds is a matter of right.

The issue of costs was deferred pending the plaintiff's submission of a costs outline.

The appellant insurance company appealed a Superior Court judgment dismissing its motion to recover $600,000 held back from distribution by a receiver.

The insurance company argued the funds were paid based on mistake of fact, lack of consideration, unjust enrichment, equitable subrogation, and constructive trust.

The Court of Appeal upheld the lower court's decision, finding that the trustee lawfully received the funds to reduce a legitimate outstanding debt and had altered its position in good consideration by deferring its receivership application.

The appellant failed to establish the defence of mistake of fact.

A law firm deposited a fraudulent bank draft into its trust account and subsequently issued a certified trust cheque for $600,000 to the responding party, an innocent third party who was owed a significant debt by the law firm's client.

The law firm's insurer, having covered the bank's loss, brought a motion to recover the funds from the responding party, arguing mistake of fact.

The court dismissed the motion, holding that as between two innocent parties, the law firm must bear the loss because it was in a position to prevent the fraud through basic diligence but acted carelessly.

The plaintiff sued the defendants for negligent misrepresentation after extending credit to a company that subsequently went bankrupt.

The defendants brought motions for summary judgment to dismiss the action.

The credit union argued it was protected by a disclaimer on the credit inquiry form, while the individual defendants argued they owed no duty and made no misrepresentations.

The court dismissed the motions, finding that the plaintiff had established a prima facie case of negligent misrepresentation and that a trial was required to resolve credibility issues and determine the effect of the disclaimer.

The appellants, Piro and Montaldi, appealed a summary judgment finding them liable for knowingly assisting an Enbridge employee, Marinaccio, in breaching his fiduciary duty through a fraudulent invoicing scheme.

Over six years, Enbridge paid over $6.5 million for fake invoices submitted by entities controlled by the appellants, who then shared the proceeds with Marinaccio.

The Court of Appeal dismissed the appeal, upholding the motion judge's findings that Marinaccio owed a fiduciary duty, the appellants knowingly assisted in his dishonest conduct, and they were liable for bribery and unjust enrichment.

The court also upheld the calculation of damages and the award of compound interest.

The defendants appealed an order striking out certain paragraphs of their statement of defence.

The Court of Appeal found that the motion judge erred by failing to consider the plaintiff's cause of action in fraud, which has a different measure of damages than breach of fiduciary duty.

As a result, the motion judge wrongly struck out relevant allegations.

The appeal was allowed, the motion judge's order was set aside, and only the portions of the defence relating to the plaintiff's profits were struck out, with leave to amend.

The appellants were awarded $3,000 in costs.

The plaintiff employer settled a claim arising from its employee's fraudulent issuance of a performance bond, providing a release to the third-party contractor.

The release promised not to sue anyone who might claim contribution or indemnity from the contractor.

The plaintiff subsequently sued the employee, who then third-partied the contractor.

The Court of Appeal upheld the motion judge's decision to stay the plaintiff's action and the third-party claim as an abuse of process, finding that the plaintiff's undertaking not to seek amounts recoverable from the contractor was an impermissible unilateral amendment to the clear terms of the release.

The appellants appealed a motions judge's decision finding them liable for computer-generated cheques.

The Court of Appeal dismissed the appeal, agreeing with the motions judge that the conclusion was dictated by the Supreme Court of Canada's decision in Boma Manufacturing Ltd. v. C.I.B.C. The Court rejected the argument that a distinction should be drawn because the cheques were entirely produced by computer.