COURT FILE NO.: CV-09-385199
DATE: 20120514
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
TRENT AKAGI
Plaintiff
– and –
SYNERGY GROUP (2000) INC., SHANE DAVIDSON SMITH, DAVID PRENTICE, SANDRA DELAHAYE and JEAN LUCIEN BREAU
Defendants
Terry Corsianos, for the Plaintiff
Gerald Matlofsky, for the Defendants
HEARD: March 1, 2012
mcewen j.
reasons for decision
introduction
[1] The Plaintiff Trent Akagi (“Akagi”) brings this motion pursuant to Rule 20.01(1) of the Rules of Civil Procedure, R.R.O. 1990 Reg. 194, seeking summary judgment against the Defendants Synergy Group (2000) Inc. (“Synergy”), Shane Davidson Smith (“Smith”) and David Prentice (“Prentice”), (collectively “the Responding Defendants”). Specifically, the Plaintiff seeks the following orders:
(a) summary judgment against the Responding Defendants, jointly and severally, for compensatory damages in the amount of $116,575.98 and punitive damages in the amount of $200,000 on account of the fraud and unlawful conspiracy to defraud perpetrated against the Plaintiff; and
(b) in the alternative, an order granting partial summary judgment in favour of Akagi, as against the Responding Defendants, jointly and severally for compensatory damages in the amount of $116,575.98 on account of the Responding Defendants’ contractual breach to refund the monies given to them by the Plaintiff, with a further order pursuant to Rule 20.05(1) of the Rules of Civil Procedure, ordering the issue of fraud to proceed to trial.
[2] It need be noted that the Defendant Sandra Delahaye (“Delahaye”) has been served with the Statement of Claim but has made a voluntary assignment into bankruptcy and as such this action is now stayed against her. The other remaining Defendant Jean Lucien Breau (“Breau”) was never served with the Statement of Claim and has not been involved in this action to date.
overview
[3] This action arises out of a series of contracts entered into between Akagi and Synergy with respect to certain investment vehicles that were being promoted by Synergy. Smith is the President of Synergy and Prentice is a Vice President of Synergy.
[4] In November of 2006, Akagi and his wife Nora Bederian (“Bederian”) met on two occasions with Delahaye to discuss the Synergy investment program. Delahaye provided Akagi and Bederian with certain written materials and they all reviewed a PowerPoint presentation.
[5] There is considerable dispute in this action as to exactly how the funds were to be invested. Essentially, however, it was represented to Akagi that Synergy offered a legitimate investment vehicle whereby he would invest money with Synergy. Synergy would then purchase units in small to medium sized, privately owned businesses that were under the management and guidance of a company by the name of Integrated Business Concepts Inc. (“IBC”). The alleged benefit to Akagi, and indeed all Synergy investors, would be a proportionate share of the collective profits or the collective losses (the losses would allow Akagi to offset taxable income) of the aforementioned small to medium sized, privately owned businesses under the management of IBC.
[6] As a result, Akagi entered into three agreements with Synergy, being the Transfer Agent Agreement (“TAA”), the Unit Purchase Agreement (“UPA”), and the Business Referral Agreement (“BRA”).
[7] The operative portion of the TAA reads as follows:
WHEREAS the Client is interested in purchasing units in small to medium sized, privately owned businesses that are under the management and guidance of Integrated Business Concepts Inc. (hereinafter referred to as IBC).
AND WHEREAS the Transfer Agent has been directed to act as Liaison between the Purchaser and IBC to facilitate the placement of capital into aforementioned small and medium sized, privately owned businesses.
NOW THEREFORE IN CONSIDERATION of the fulfillment of each party of the agreements contained herein, the parties hereto agree as follows:
The Purchaser irrevocably nominates, constitutes and appoints Synergy Group 2000 Inc as the true and lawful agent and attorney-in-fact of the undersigned for taking all proceedings and executing all documents with respect to acquiring the capital (purchase) and forwarding these funds to IBC for enactment of the transaction.
IBC agrees to execute the purchase on behalf of Purchaser, provide complete documentation to support the purchase and any related tax benefit and provide all necessary follow-up documentation and service in the event that Canada Revenue Agency requests substantiating proof of Purchasers’ Participation and any resulting Income Tax Deduction claims.
The undersigned hereby acknowledges that he/she has received independent financial advice and has reviewed the risk and his/her Advisor.
[8] The UPA set out that Akagi was to purchase twenty $1,000 units for a total investment cost of $20,000. Akagi also appointed Synergy as agent to implement the tax strategy. The relevant portion of that agreement in this regard reads as follows:
Appointment of Agent. The Purchaser hereby appoints Synergy Group 2000 Inc. as agent to assist with securing small to medium size business in the alternative income tax strategy.
[9] Lastly, the BRA, amongst other things, provided as follows:
Whereas the company and the participant desire to enter into an agreement to explore alternative income tax strategies by purchasing units in small to medium Businesses.
[10] In March of 2007, Akagi received a Statement of Business Activities (Form T2124) for the year 2006 with respect to IBC. The statement indicated that based on Akagi’s investment of $20,000 he was entitled to a share of net business losses in IBC for the 2006 tax year in the amount of $104,000. Akagi incorporated the Form T2124 into his own 2006 personal tax return and as a result received a tax credit from the Canada Revenue Agency (“CRA”) in the amount of $27,262.10.
[11] Subsequently, Akagi decided to invest more money with Synergy. In November of 2007 he invested a further $90,000. Once again, he signed the identical three types of agreements previously executed: namely, a TAA, UPA and BRA with respect to the $90,000 investment.
[12] In February of 2008, Akagi received a letter from IBC along with a cheque for $284.78. The letter from IBC indicated that it had earned profits for the year 2007 and as a result he was entitled to the enclosed funds.
[13] Things began to sour, however, in March of 2008 when Akagi received a letter from the CRA advising that he was being audited with respect to the loss reported on the Form T2124 for the 2006 tax year. Ultimately, when the audit was concluded, Akagi’s claim for net businesses losses was denied by the CRA and he was required to pay monies to the CRA. In March of 2008, Akagi received a letter from Synergy concerning the CRA issue. The letter requested Akagi’s continued support for the investment scheme or alternatively offered to refund his participation contribution for the 2007 year. The letter had a form attached which was to be completed if Akagi opted for a refund. On July 24, 2008, Synergy sent Akagi another letter, indicating that there may be some delay in providing refunds. On August 27, 2008, Akagi completed the form and requested a refund of his 2007 participation contribution, i.e. $90,000. He requested the funds by October 15, 2008.
[14] The $90,000 has never been refunded. Synergy does not deny that it agreed to refund the 2007 contribution. It claims, however, that it is unable to do so since IBC has been unable to “unwind” capital from businesses that received funding.
[15] In December of 2008, Akagi received correspondence from the CRA in which the CRA indicated, amongst other things, that the IBC arrangement was a sham. Accordingly, Akagi could not take advantage of any of the gains or losses for income tax reasons.
[16] In August of 2009, Akagi commenced this action.
[17] In this action Akagi claims that the Responding Defendants acted fraudulently and conspired to defraud him on the basis that, notwithstanding the wording of the three agreements, Synergy never purchased any small to medium sized businesses. Rather, it appears as though the monies invested were simply forwarded to other entities, in some allegedly non-arm’s length transactions, by way of promissory notes.
[18] The position of the Responding Defendants is that there was never any agreement to purchase any interest in any businesses. Their position is best summarized in an extract taken from a “Communique” that Synergy prepared and sent to its investors:
The foundation of the Program is in the three documents signed by the participants to join the Program, namely: Unit Purchase Agreement (“UPA”), Transfer Agent Agreement (“TAA”), and the Business Referral Agreement (“BRA”). The Synergy PowerPoint Presentation (“Synergy PPT”) provided some further explanations.
While the UPA calls for the “purchase of units”, there never was a purchase of any units in anything. The UPA is not a subscription for shares in Synergy for units in a mutual fund or in any other fund, or for units in any form of partnership. The term “unit” was used as a “measure word” in the computation of the intended contribution of the participant rather than as a description of units of property. In fact, it can be said that there was no advancement of money as consideration for title rights to interests or property. This is because the title to the money never changed. It remained the property of the participant. The explanation for this is further below.
[19] In addition to this action, Akagi points to other proceedings involving Synergy, Smith and Prentice to support his claims of fraud and conspiracy to defraud. Specifically, Akagi points to the proceeding before the Alberta Securities Commission where it was determined that Synergy’s “Alternative Tax Strategy Program” required registration under the Alberta Securities Act, R.S.A. 2000, c. S-4, and the application the Ontario Securities Commission (“OSC”) brought against Synergy, Smith, Prentice and IBC in which adverse findings were made against them and sanctions imposed. Synergy, Smith and Prentice provided evidence at that application. According to the Responding Defendants, the OSC decision is currently under appeal.
analysis
The Refund
[20] It is important to note from the outset that there is no claim in this action for breach of contract resulting from Synergy’s failure to purchase interests in any small to medium sized businesses. The only two claims being advanced involve allegations that the Responding Defendants conspired to defraud and defrauded Akagi, and that they failed to refund the monies as promised.
[21] Akagi, in his Fresh as Amended Statement of Claim and Reply, claims damages in the amount of $116,575.98 arising from the Responding Defendants’ failure to refund the monies that he invested with Synergy. At the hearing of the motion, counsel for Akagi conceded that this claim can only be made against Synergy since it was Synergy’s promise to pay.
[22] The amount of $116,575.98 sought by the Plaintiff includes the amount of $20,000 that Akagi invested in 2006; the $90,000 he invested in 2007; and the resulting losses that he incurred as a result of interest and penalties he had to pay the CRA for the 2006 tax year that were in the amount of $26,575.98.
[23] As noted, however, the refund offer that was extended to Akagi from Synergy only involved the 2007 year in which Akagi invested $90,000. This is specifically set out in Synergy’s letter of March 24, 2008 and also in the attached form that was completed and returned by Mr. Akagi. Accordingly, any damages awarded to Akagi arising out of the purported promise to refund would be limited to $90,000.
[24] For the reasons below, I am prepared to grant Akagi summary judgment against Synergy in the amount of $90,000.
[25] It is clear that pursuant to the March 24, 2008 letter, Synergy offered the refund to Akagi. It is also clear that he accepted that offer in his August 27, 2008 correspondence. Counsel for Synergy does not dispute the fact that there was a valid agreement entered into between Synergy and Akagi. Synergy submits, however, that prior to Mr. Akagi accepting the offer he received the July 24, 2008 letter from Synergy, referred to above. In that letter, Synergy explained that there may be some delay in providing the refund since IBC had to first “unwind” capital from businesses that received funding and, “as a result, this has caused a delay in requested refunds being issued.”
[26] Counsel for Synergy therefore submits that while the amount is properly owing, Synergy is within its rights to continue to delay payment until which time it can obtain capital from IBC so that it has proper funding for the refund. I disagree. Firstly, Synergy’s offer to refund as set out in its March 28, 2008 letter was unequivocal and Akagi accepted this offer. In advance of his acceptance, Synergy circulated the July 24, 2008 letter indicating there may be some delay in providing the refund but it never stipulated that the delay would be indefinite or that it may result in the refund not being paid. Almost four years have passed since the letter was sent and no refund has been provided.
[27] Synergy cannot continue to indefinitely avoid payment that it does not dispute it owes to Akagi. To do so would render the agreement meaningless and Akagi would be deprived of the consideration owed to him as a result of entering into the bargain. In order to give the agreement business efficacy, I accept Akagi’s argument that it must be implied that the refund would take place in a reasonable amount of time, which time has passed. My conclusion in this regard is in keeping with the Supreme Court of Canada decision in Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 CanLII 55 (SCC), [1987] 1 S.C.R. 711, in which the court held that a term of a contract can be implied as a matter of presumed intention when it is necessary to give business efficacy to a contract.
[28] It is also important to point out that in addition to the correspondence referred to above, Prentice, in his affidavit dated November 14, 2011, does not deny that the money is owed to Akagi and concedes that Synergy still intends to pay the refund. He provides no concrete details, however, of any kind as to why the $90,000 cannot or has not been repaid. Furthermore, Synergy, Smith and Prentice maintain that Synergy continues to operate and provide valuable services to customers. This, if true, would presumably generate profits for Synergy. Lastly, by virtue of a previous order of this court, Synergy has been able to pay $60,000 into court in this action as well as paying $22,000 in costs with respect to previous motions and appeals. In these circumstances, Synergy must explain why it therefore cannot afford to pay the refund owed to Akagi. It has failed to do so.
Fraud and Conspiracy to Defraud Claims
[29] Akagi claims that the Responding Defendants are liable to him in fraud and in conspiracy to defraud for the following three reasons:
Synergy entered into an agreement with Akagi wherein it was indicated that units would be purchased in small to medium sized, privately owned businesses under the management of IBC, but no businesses were ever purchased. Instead, the invested monies were used to provide loans to other companies, some in allegedly non-arm’s length transactions.
The Responding Defendants failed to disclose that a 20% commission was being charged to Akagi.
The financial statements provided to Akagi from ICB were fraudulent.
[30] For the reasons that follow, I dismiss this portion of the summary judgment motion.
[31] In order to grant judgment to Akagi, I would have to conclude that the defences of the Responding Defendants are without merit or that there are no genuine issues requiring a trial. As set out by the Ontario Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, I have to ask myself the following question: Can the full appreciation of the evidence and issues that is required to make the positive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial? In Combined Air, the court found that in cases that call for multiple findings of fact, on the basis of conflicting evidence emanating from a number of witnesses and a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process.
[32] In this case, I simply cannot have a full appreciation of the evidence and issues required to make findings of fraud or conspiracy to defraud.
[33] Firstly, with respect to the TAA, UPA and BRA, Smith and Prentice have both provided affidavit evidence alleging that the wording used in the contracts justifies the fact that no businesses were actually purchased, but rather loans were provided. While their evidence would potentially be inadequate, or indeed not even admissible, with respect to any breach of contract claim, no such claim is being asserted. With respect to allegations of fraud and conspiracy to defraud, however, credibility determinations will have to be made that lie at the heart of this dispute. Furthermore, it is also alleged that Akagi and his wife were well aware of the fact that loans were being made. There is arguably some support for this contention in the record, particularly in the cross-examination of Bederian.
[34] Secondly, with respect to the issue of the 20% commission, the Responding Defendants claim that commissions were not in fact paid from the funds advanced by Akagi but rather the commissions were received from funds obtained from the small and medium sized businesses that received funding.
[35] Thirdly, amongst other things, the Responding Defendants deny that the financial statements provided to Akagi were fraudulent and in any event, the financial statements were not prepared by them.
[36] In addition to the above, the Responding Defendants submit that the investment strategies were supported by accounting and legal opinions and that the dispute between Synergy and the CRA is ongoing. It denies that the findings made by the OSC have any bearing in this litigation since it under appeal and the issues in question before the commission are different than the ones arising in this action.
[37] I am mindful of the guidance provided by the Court of Appeal in Combined Air, particularly when it discussed the Maudlin group and Bruno actions, both of which contained allegations of fraud and conspiracy. This case, like those, bears the hallmarks of an action in which a full appreciation of the evidence and issues can only be achieved by way of a trial. Furthermore, the motion materials were voluminous, five witnesses filed affidavits, nine transcripts of evidence were filed (totalling nearly 1000 pages), and dozens of documents were filed at the hearing of the motion.
[38] In order to find for Akagi, I would have to make significant credibility determinations on issues that lie at the heart of this dispute. Like Maudlin group and Bruno, the evidence of the major witnesses conflict on key issues concerning what took place in meetings between the parties, what documents and PowerPoint presentations were reviewed, and the understandings of Akagi, Delahaye, Smith and Prentice with respect to the nature of the agreements. All of these issues are critical with respect to the allegations of fraud and conspiracy to defraud. If this matter proceeds to trial it is clear that numerous witnesses will be required to testify. In addition to the parties, testimony will very likely be required from the lawyer and accountant that Synergy says it relied upon in creating the investment strategy, a representative of IBC, perhaps Breau, as well as other persons that participated in the Synergy investment strategy. It is likely that anywhere between 10 to 20 witnesses would be called at trial.
[39] In these circumstances, the issues of fraud and conspiracy to defraud should not be decided by summary judgment.
disposition
[40] For the reasons above, Akagi’s motion for summary judgment in the amount of $90,000 against Synergy plus prejudgment interest and costs is granted. The remainder of Akagi’s motion for compensatory and punitive damages arising from alleged fraud and conspiracy is dismissed.
[41] There is currently $60,000 that has been paid into Court by order of the Ontario Court of Appeal. This raises the question as to whether those monies should be used, in part, to pay the amount awarded to Akagi at this motion.
[42] I am prepared to entertain written submissions in this regard along with written submissions concerning costs. Akagi is to deliver his submissions within 21 days. The Responding Defendants have 14 days thereafter to respond and Akagi, thereafter, seven days to reply.
T. McEwen J.
Released: May 14, 2012