COURT FILE NO.: CV-08-362807-00 CP
DATE: 20120118
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MICHAEL CANNON
Plaintiff
- and -
FUNDS FOR CANADA FOUNDATION, MATT GLEESON and SARAH STANBRIDGE as trustees for the DONATIONS CANADA FINANCIAL TRUST, PARKLANE FINANCIAL GROUP LIMITED, TRAFALGAR ASSOCIATES LIMITED, TRAFALGAR TRADING LIMITED, APPLEBY SERVICES BERMUDA LTD. as trustee for the BERMUDA LONGTAIL TRUST, EDWIN C. HARRIS Q.C., PATTERSON PALMER also known as PATTERSON PALMER LAW, PATTERSON KITZ (Halifax), PATTERSON KITZ (Truro), McINNES COOPER, SAM ALBANESE, KEN FORD, RIYAD MOHAMMED, DAVID RABY, GREG WADE, GLEESON MANAGEMENT ASSOCIATES INC., MARY-LOU GLEESON, MATT GLEESON and MARTIN P. GLEESON
Defendants
Samuel S. Marr, Margaret Waddell and Susan Brown, for the Plaintiff
John F. Rook, Q.C., Eric R. Hoaken and Mark W. Smyth for the defendants Patterson Palmer (aka Patterson Palmer Law), Patterson Kitz (Halifax), Patterson Kitz (Truro), McInnes Cooper, Edwin C. Harris, Q.C.
John P. Brown and Meighan Leon, for the defendants ParkLane Financial Group,
Trafalgar Associates Limited and Trafalgar Trading Limited
Deborah Berlach and Emma Holland, for the defendants Funds for Canada Foundation, Sam Albanese, Ken Ford, David Raby, Greg Wade, Riyad Mohammed and Mary-Lou Gleeson
Gary H. Luftspring and Andrea Sanche, for the defendants Matt Gleeson and Gleeson Management Associates Inc.
Bradley E. Berg and Charles Dobson, for the defendant Appleby Services (Bermuda) Ltd. as trustee of The Bermuda Longtail Trust
HEARD: August 22-25, 2011
CONTENTS
1. Cannon and the Proposed Class. 2
8. Contractual Materials for the Gift Program.. 2
III. THE CERTIFICATION MOTION.. 2
A. The Test for Certification. 2
5. Representative Plaintiff and Litigation Plan. 2
6. Conclusions on Certification. 2
IV. THE SUMMARY JUDGMENT MOTIONS. 2
A. The Test for Summary Judgment 2
B. ParkLane’s Motion for Summary Judgment 2
2. Submissions of the Plaintiff 2
C. The Lawyers’ Motion for Summary Judgment 2
1. Submissions of the Lawyers. 2
2. Submissions of the Plaintiff 2
3. Duty of Care: Is a Trial Required?. 2
4. Negligent Misrepresentation: Is a Trial Required. 2
G.R. STRATHY J.
I. INTRODUCTION
[1] When Michael Cannon heard about the Donations for Canada Gift Program – an opportunity to obtain a $10,000 charitable tax credit in return for a $2,500 donation – he thought it was “too good to be true”.
[2] It was.
[3] A few years later, his tax returns were reassessed by Canada Revenue Agency (“C.R.A.”) and he had to repay his deductions, with interest. The only thing he received for his “donation” was a tax bill.
[4] In the eyes of C.R.A., the Donations for Canada Gift Program (the “Gift Program”) was nothing more than a scheme, in which the funds of “donors” like Cannon flowed through a giant circle and into the pockets of the promoters. In return for participating in the Gift Program, the charities got 1% of the total money donated and the promoters’ promise of a 20-year income stream from an investment that the promoters would make, using a fraction of the Gift Program donations.
[5] C.R.A. said that donors like Cannon lacked “donative intent” – there was no element of impoverishment in the so-called charitable donation, because the donor expected to be enriched by receiving a tax credit well in excess of his or her donation. The “donation” could not be characterized as a gift. Therefore, there was no allowable tax deduction and the full amount deducted had to be repaid – with interest.
[6] Cannon brings a motion for certification of this action as a class proceeding under the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the “C.P.A.”) and seeks to represent a class composed of almost 10,000 Canadian taxpayers who contributed to the Gift Program.
[7] Motions for summary judgment are brought by two groups of defendants, ParkLane Financial Group Limited (“ParkLane”) and Edwin C. Harris Q.C. (“Harris”) and law firms with which Harris has been associated.
[8] For the reasons that follow, I certify this action as a class proceeding, on the terms set out below, and I dismiss the motions for summary judgment.
II. THE FACTS
1. Cannon and the Proposed Class
[9] Cannon is an Ontario resident who participated in the Gift Program by contributing $10,600 in 2005 and $12,500 in 2006. In 2008 and 2009, his tax returns were reassessed by C.R.A. The charitable tax credits he had claimed for his donations to the Gift Program were disallowed. He has since paid the reassessed taxes and $6,703.76 in interest.
[10] Cannon had a 33 year career as a police officer, having risen to the rank of Staff Sergeant. He is a reasonably sophisticated investor, with some experience in tax planning strategies. He understands their risks and rewards. He participated in the Gift Program after receiving advice from his “professional counsel and tax advisor”, in whom he placed trust and confidence.
[11] Cannon brings this action on his own behalf and on behalf of a national class of Canadian residents who participated in the Gift Program (the “Class”). The Class is described as follows:
Any person who participated in the ParkLane Donations for Canada Charitable Gift Program while resident in Canada during the period between January 1, 2005 and December 31, 2009 [The “class period”], excluding Edward Furtak, Wayne Robertson, the Defendants, their subsidiaries, affiliates, officers, directors, senior employees, legal representatives, heirs, predecessors, successors and assigns, and any member of the families of the Individual Defendants, Wayne Robertson and Edward Furtak, and any entity in which any of the foregoing persons or entities has a legal or de facto controlling interest.
[12] Cannon asserts that he is representative of the Class and that his experience can be extrapolated to all members of the Class. The defendants dispute this.
[13] The Class consists of approximately 9,926 persons. There are Class members in every province and territory, except the Northwest Territories, with more than one-third located in Ontario. The out-of-pocket payments of Class members to the Gift Program total approximately $144 million.
2. The Gift Program
[14] In the following sections, I will describe the structure of the Gift Program, including the players involved and their functions. To put what follows in context, I will give a short and somewhat simplistic overview.
[15] The Gift Program was the brainchild of Edward Furtak (“Furtak”), a developer of software and a sometime promoter of tax avoidance schemes, who is the President and CEO of the Trafalgar Group of Companies. Furtak had developed a computer program called the Trafalgar Global Index Futures Program (the “Software Program” or “Global Index Futures Program”), which purportedly had a methodology for making money from the trading of S & P futures contracts by predicting short-term movements in the financial markets. Furtak established a trust in Bermuda, called the “Bermuda Longtail Trust” (the “Bermuda Trust”), for the benefit of himself and his family and he granted the Bermuda Trust the right to license the Software Program to third parties. The Software Program was in turn licensed by the Bermuda Trust to a Bermuda company owned by Furtak called Trafalgar Trading Limited (“TTL”).
[16] Most of the cash donated to charities by participants in the Gift Program found its way into the pockets of Furtak’s companies and the Bermuda Trust. The donations made by participants were super-sized by the very temporary injection of funds from the Bermuda Trust, which flowed briefly into the charities. Most of these funds were immediately returned to the Bermuda Trust, by way of the licensing agreement between the charities and TTL for the use of the Software Program. The super-sizing made the taxpayer’s donation appear to be much larger than it was in fact, thus justifying the enhanced charitable tax credit each taxpayer was to receive.
[17] To make the Gift Program work, it was necessary to have six ingredients.
[18] First, there had to be taxpayers, like Cannon, who were willing to buy into the concept that they could maximize their tax deductions not just by giving money to charity, but by getting a receipt for more than they had actually given – that is, by making a profit from their charitable donations. There were almost 10,000 Canadians who were convinced to do this. They came from all walks of life, teachers, lawyers, nurses, administrators, presidents and police officers. Some donated in multiple years. The minimum donation was $10,000, but one enthusiastic donor made total donations of $4,000,000. Over 1,700 Donors donated between $50,000.00 and $100,000.00 each, and over 700 Donors donated over $100,000.00 each.
[19] Second, there had to be legitimate charities or Registered Canadian Amateur Athletic Associations that were in need of cash and were prepared to give back 99% of the money donated to them to Furtak’s companies in return for the promise of a future income stream from the use of the Software Program.
[20] Third, there had to be an infrastructure of companies, trusts and agreements that would process the flow of funds. This infrastructure was designed by behind-the-scenes lawyers and accountants and populated by companies that were led by ParkLane and largely controlled by Furtak.
[21] Fourth, there had to be a legal opinion, attesting to the fact that the Gift Program could likely sustain a challenge by C.R.A. Otherwise, no sensible donor would contribute to the program. Harris provided this opinion.
[22] Fifth, there had to be a sales force to market the Gift Program to potential donors. This was done by a network of fundraisers, also called distributors (the “Distributors”), who were enlisted by ParkLane.
[23] Sixth, there had to be cash, to inflate the donors’ contributions, in order to convince C.R.A. that real money was being donated to the charities in return for the charitable receipts they were giving to the donors. This money was provided by Furtak through the Bermuda Trust.
[24] As described in the marketing materials prepared by ParkLane, the Gift Program worked in the following way. I will take the case of a typical $10,000 total donation. There were seven steps, which are identified in the diagram set out below.
[25] The first step was that a donor would write a $2,500 cheque or make a pledge to a “participating charity” – that is, a charity that had enrolled in the program and had entered into an agreement to use most of the funds donated to it to acquire a right to use the Software Program. Funds for Canada Foundation (“FFC Foundation”), was established in the second year of the Gift Program as an umbrella organization to receive donations and to disburse them to other qualified charities.
[26] In the second step, which occurred simultaneously with the first, the donor applied to become a beneficiary of the Donations Canada Financial Trust (the “Donations Canada Trust”), a private charitable trust created by Furtak. The donor executed an escrow agreement appointing ParkLane to hold the trust units and to donate them to the designated charity on the donor’s behalf.
[27] On receipt of the donor’s application, the third step occurred. The Donations Canada Trust made an “investment” in a sub-trust and was issued two units in the sub-trust.
[28] The fourth step occurred when ParkLane, as escrow agent on behalf of the donor, was issued two sub-trust units by the Donations Canada Trust. The donor was issued a confirmation of issuance of the “discretionary” interest in two sub-trust units, having an ostensible value of $7,500, in return for his or her cheque or pledge.
[29] The fifth step was the donation of the sub-trust units by the donor to the charity. The charity was then sitting with $2,500 in cash and a piece of paper representing the two sub-trust units donated by the donor, with an ostensible value of $7,500.
[30] Under the terms of its agreement with the Gift Program, the charity was required to “redeem” the sub-trust units. To provide the funds to make the redemption, the Bermuda Trust primed the pump by indirectly acquiring the sub-trust units, through Donations Canada Trust, for $7,500. That was the sixth step. The charity was now sitting with a total of $10,000 in cash.
[31] At this point, the seventh step occurred: in return for his or her total donations, the donor would receive two charitable donation receipts, a cash receipt for $2,500 and a donation-in-kind receipt for $7,500, the stated value of the sub-trust units. At this stage, the donor’s involvement ended and he or she would submit the charitable receipts along with his or her tax return.
[32] In point of fact, as I will describe below, the $10,000 did not remain with the charity for more than a scintilla juris – a “spark of right”. At the “closing” of the donor’s contribution, which was invariably done at the same time as a number of other transactions, most of the funds flowed in and out of the charity’s bank account in rapid succession.
[33] The following chart describes the “front half” of the Gift Program, as it was depicted in ParkLane’s marketing materials. The chart is taken from those materials, with some minor modifications.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY BLANK]
DONATIONS CANADA
Example of $10,000 Donation
(Based on, but not identical to, diagram in ParkLane brochure)
[34] I will now describe the “back half” of the Gift Program – that is, what happened to the money after it was donated to the charity. This part of the Gift Program was not described in the marketing materials; however, ParkLane and some of the Distributors have adduced evidence that the Distributors were informed about various aspects of the back half, including the involvement of the Bermuda Trust, the software licensing agreement between the Bermuda Trust and TTL, and the royalty agreement the charity was required to enter into with TTL. A chart illustrating the “back half” of the Gift Program is contained at the end of this description.
[35] In order to participate in the Gift Program, a charity was required to enter into a royalty agreement with TTL. In consideration for this agreement, the charity paid TTL 99% of the total donations it received. The charity was entitled to keep 1% of each donation (i.e., $100 for each $10,000 donation) for its own operating expenses. In cases where FFC Foundation received donations, it kept 25% of the 1% and paid the balance to either the charity to which the funds were directed or to one of its own approved charities.
[36] As I mentioned earlier, Furtak’s Software Program was licensed to TTL by the Bermuda Trust. The funds paid by the charity to TTL were to be invested by TTL on behalf of the charity, using the Software Program. TTL established a leveraged cash and margin trading facility on behalf of the charity, using the charity’s cash, ostensibly leveraged up to the amount paid by the charity for the royalty agreement. The charity was to receive a speculative and unguaranteed future income stream from the Software Program, based on 60% of the monthly profits generated by its investment, for a period of twenty years. TTL was to receive 20% of the monthly profits and the remaining 20% was to be re-invested in the trading facility. The charity was never to receive a return of its principal.
[37] After it had received the licensing fee from the charity, i.e., the payment of 99% of the donations the charity had received, TTL:
(a) paid $600 or $800 (the amount varied in different program years) to ParkLane to cover ParkLane’s profit and the Distributors’ commissions of about 18-20% of the donor’s cash contribution;
(b) paid approximately $8,000 to the Bermuda Trust as a “software licensing fee” for the use of the Software Program - the effect of this was that the advance of $7,500 was immediately repaid to Furtak and his family, through the Bermuda Trust, with an overnight profit of $500. This profit was ostensibly for giving TTL the privilege of using the Software Program on behalf of the charity;
(c) retained approximately $1,100 in its own account to trade futures on margin, notionally leveraged up to as much as $9,100, using the Software Program, for the benefit of the charity to whom the donor made his or her contribution.
[38] The following schematic describes the “back half” of the Gift Program.
The “Back Half” of the Gift Program
[39] There are, unfortunately, some messy questions that remain. It is not necessary for me to answer these questions, for the purpose of either the certification motion or the summary judgment motion. I will mention them only because I have concluded that a trial is required in order to answer them and the numerous other questions that must be answered in order to determine the liability of the defendants.
[40] First, there is no conclusive evidence that the sub-trust units donated by the donor had any significant intrinsic value and certainly no evidence that they had the value of $7,500 that was assigned to them. Second, there is no evidence that the right to the future income stream represented by the royalty agreement was commensurate with the consideration paid by the charity. Third, while there is some evidence that a few charities have obtained some returns for their “investments”, the evidence does not show whether the “software licensing fee” paid by the charity to TTL represented the fair market value of the future investment stream. This is particularly troubling considering that the charity did not retain its capital. There is evidence that the returns generated by TTL for the charities have been meager.
[41] Some of the people and entities that populated this structure have already been introduced. I will describe them in more detail.
3. The Defendants
(a) Edward Furtak
[42] Furtak was the puppet master of this complex machinery. He was the President and CEO of the Trafalgar Group of Companies, which included ParkLane, TTL and Trafalgar Associates Limited (“TAL”) (together, the “ParkLane Defendants”). He was also the settlor of the Bermuda Trust.
[43] Furtak was originally a defendant in this action, but the plaintiff has settled with him in exchange for information and some degree of cooperation.
[44] The evidence is open to the conclusion that the primary purpose of the Gift Program was to benefit Furtak and his family, through both:
• Furtak’s control of the Bermuda Trust, of which the defendant Appleby Services Bermuda Ltd. (“Appleby”) is ostensibly the trustee, but which appears to have been manipulated by Furtak and his colleagues to serve the ends of the Gift Program; and
• the ParkLane Defendants, which were the public face of the Gift Program and which facilitated the flow of funds.
(b) ParkLane
[45] ParkLane is an Ontario corporation incorporated by Furtak for the purposes of promoting leveraged charitable donation programs, including the Gift Program, to Canadian taxpayers. Between 2003 and 2006, ParkLane had promoted a tax shelter called the “Donation Program in Support of Canadian Amateur Athletics”. Beginning in 2005, and continuing until 2009, under the direction of Furtak, ParkLane created, promoted and operated the Gift Program and sold it to the Class through its network of Distributors, which I will describe below.
(c) TAL and TTL
[46] TAL is an Ontario corporation, also incorporated by Furtak. It worked in conjunction with ParkLane to create, promote and operate the Gift Program.
[47] TTL is a Bermudan corporation established by Furtak. It participated in the creation and operation of the Gift Program and played a key role in the transfer of funds to the various participants in the program. Its role will be described in more detail below.
[48] The plaintiff alleges that the ParkLane Defendants are closely affiliated. They share common offices, computer systems, employees, officers, directors, shareholders, legal and beneficial owners, and professional advisors.
(d) Donations Canada Trust
[49] The Donations Canada Trust was a private charitable trust, created and settled by Furtak to facilitate the operation of the Gift Program. The plaintiff asserts that the purpose of the Donations Canada Trust was to be the false front of the Gift Program. It posed as a “charitable Canadian trust” and the ostensible source of the “matching” payments in the Gift Program. The plaintiff argues that, in reality, it was a shell through which funds flowed from the Bermuda Trust.
(e) Funds for Canada Foundation
[50] FFC Foundation was a registered charity, created in 2005 as a vehicle for disbursing donations to qualified charities. It facilitated the operation of the Gift Program in two ways. In the “front half” of the Gift Program, it received donations directly from donors and issued tax receipts to them. In the “back half” of the Gift Program, it served as a link between the participating charity and TTL. It gave the participating charity 75% of 1% of the initial donation, entered into a royalty agreement with TTL for the investment of a portion of the funds donated by the donor, received royalty payments from TTL, and distributed a portion of those royalties to the participating charity, less its own administration fee.
[51] FFC Foundation was established by the defendant Matt Gleeson, also known as Martin P. Gleeson (“Gleeson”), who provided consulting services to charities through his company, Gleeson Management Associates Inc. (“GMA”). Donations were received by FFC Foundation under the Gift Program from 2006 to July 2009, when its status as a registered charity was revoked by C.R.A. During that period, FFC Foundation disbursed funds it received to the participating charities, as required by the Gift Program.
[52] FFC Foundation informed participating charities that it had entered into the royalty agreement with TTL, which provided for a stream of royalty payments based on the profits from the licensing of the Software Program.
[53] There is evidence that the total returns through the Gift Program to the charities have been in the range of $6 million since 2006. Considering that the aggregate donations by Canadian taxpayers to the Gift Program were in excess of $140 million, this rate of return is less than 1% per annum on the contributors’ donations and is an infinitesimal return on the total supersized donation that taxpayers were allegedly making to support the inflated charitable donation receipts that they received. In assessing these returns, it must be kept in mind that the charities have no right to receive the principal at the expiry of the 20 year royalty agreements with TTL.
(f) Directors of FFC Foundation
[54] The defendants Sam Albanese, David Raby, Ken Ford, Riyad Mohammed and Greg Wade were the directors of FFC Foundation during the Class period (the “FFC Directors”).
(g) The Gleesons
[55] Gleeson was the founding director of FFC Foundation and the original trustee of the Donations Canada Trust. He held the position of trustee of the Donations Canada Trust until 2006, when he was replaced by Sarah Stanbridge. Through GMA, he also acted as “Director of Development” for FFC Foundation. In that capacity, he recruited charities to participate in the Gift Program through the FFC Foundation and was actively involved in the operations of FFC Foundation.
[56] Gleeson’s wife, Mary-Lou Gleeson (“Ms. Gleeson”) was and continues to be the Executive Director of FFC Foundation. Ms. Gleeson is also a shareholder of GMA and ran that company with her husband.
[57] GMA provides fundraising consulting services to charities and foundations. In 2005, GMA introduced a number of its pre-existing charity clients to the Gift Program. Six of these charities became beneficiaries of FFC Foundation through which they received charitable donations raised by the Gift Program.
[58] Gleeson is sued both in his personal capacity and, together with Sarah Stanbridge, in his capacity as trustee of the Donations Canada Trust. The action has been dismissed against Stanbridge as a result of a settlement.
[59] I will refer to Gleeson, Ms. Gleeson and GMA as the “Gleesons”.
(h) The Lawyers
[60] Harris is a senior tax lawyer. In each of 2005, 2006 and 2007, Harris issued an opinion letter to ParkLane concerning the Gift Program (each of which will be referred to as the “Opinion Letter”).
[61] The 2005 Opinion Letter was based on a statement of facts prepared by ParkLane’s in-house lawyer. Although the 2005 Opinion Letter did not expressly say so, the clear implication was that a donor to the Gift Program would be entitled to receive tax credits both for his or her cash donation and for the donation in kind of sub-trust units. This implication was made express in the 2006 and 2007 Opinion Letters, although it was expressed to be “[S]ubject to the remaining uncertainties regarding the application of the GAAR [General Anti-Avoidance Rule] …”
[62] Harris’s evidence is that he issued the Opinion Letter on the understanding that it was not to be shown to donors but could be used by their professional advisors for the purpose of advising their clients and that all donors would be required to sign documents acknowledging that they had received independent advice and were prepared to assume the risk of reassessment.
[63] In addition to providing an Opinion Letter, Harris provided what I will describe as a “Comfort Letter” in each of 2005, 2006 and 2007. The Comfort Letter, which I will refer to in more detail below, was included in the Gift Program materials given to potential donors and confirmed that Harris had provided ParkLane with an opinion concerning the Gift Program. Harris understood that the Comfort Letter would be used by ParkLane to inform prospective donors that he had issued the Opinion Letter for the benefit of ParkLane.
[64] Harris’s name, photograph and biography were included in the Gift Program materials, along with the Comfort Letter. The fact that he had given ParkLane a tax opinion was highlighted several times in the Gift Program materials, along with an invitation to donors to have their professional advisors review his opinion.
[65] Patterson Kitz (Halifax), Patterson Kitz (Truro), Patterson Palmer, also known as Patterson Palmer Law, and McInnes Cooper (together, the “Law Firms” and, together with Harris, the “Lawyers”) are partnerships carrying on the practice of law in Eastern Canada. Patterson Kitz (Truro) and Patterson Kitz (Halifax) carried on business in partnership under the name Patterson Palmer Law until December 2005. Harris was counsel at Patterson Palmer in 2005. Since January 1, 2006, he has been counsel at McInnes Cooper.
[66] I will describe in more detail below the involvement of Harris in the Gift Program.
(i) Appleby and the Bermuda Trust
[67] Appleby is an independent corporate trustee, based in Bermuda. Furtak created the Bermuda Trust in 1998, naming a predecessor of Appleby as trustee. The trustee was given wide-ranging powers to manage the assets of the trust, but was not required to interfere in the management or conduct of any company owned by the trust. Included in the trust assets managed by Appleby were two computer software programs developed by Furtak, the most recent being the Software Program. In its capacity as trustee, Appleby licensed the use of the Software Program to third parties
[68] Appleby granted TTL a limited, non-exclusive licence to use the Software Program, in return for license fees that were to be paid to the Bermuda Trust. The “software licensing fee” of about $8,000, paid by TTL to Appleby out of the funds remitted from each $10,000 “donation”, was ostensibly for the privilege of using the Software Program to trade on behalf of the charity.
[69] Appleby professes to have little knowledge of the Gift Program. It does acknowledge, however, that from time to time it was requested, by or on behalf of Furtak, to transfer sums of money from the Bermuda Trust to the Donations Canada Trust. Appleby claims that it has no knowledge of the reasons for those transfers. It also acknowledges that TTL paid licence fees to Appleby, to the account of the Bermuda Trust, during the life of the Gift Program.
[70] I will now describe some of the other participants in the Gift Program, namely the Distributors, the Donors and the Charities.
4. The Distributors
[71] As noted earlier, ParkLane did not market the Gift Program directly to the public. Instead, it relied on a network of 455 Distributors, who were financial planners and the like, who marketed the Gift Program to their clients. The defendants attach considerable importance to the Distributors, whom they call “Independent Financial Advisors”, as sources of independent advice to the donors regarding the Gift Program and its associated risks.
[72] ParkLane recruited the Distributors. It conducted training sessions for the Distributors and provided them with written materials, explaining the structure of the Gift Program. ParkLane told the Distributors how the Gift Program worked and that $7,500 of the total donation was provided by the Bermuda Trust. It showed the Distributors copies of Harris’s Opinion Letter.
[73] All Distributors were required to enter into a “Charity Fundraising Agreement” with ParkLane. The recital to this agreement referred to the desire of ParkLane to engage the Distributor to raise donations for and to refer clients to the Gift Program. The agreement provided, in part, that the Distributor was strictly limited to supplying donors with written materials about the Gift Program that had been approved in advance by ParkLane:
4.4 The Distributor shall not, without the consent of ParkLane, make any representations, tax or otherwise, in the course of marketing the Donation Program and he or it will not distribute any written material with respect to the marketing of the Donation Program which representations and material have not been provided or approved in advance by ParkLane.
4.5 Neither the Distributor or any other person is authorized to give any information or to make any representations, tax or otherwise, in connection with the Donation Program other than as contained in the Donation Program Materials, as approved by ParkLane, or in any amendments or supplements thereto, or in any other marketing materials provided by ParkLane … to the Distributor.
4.6 The Distributor shall, in furtherance of his or its obligations hereunder, and at his or its own cost and expense:
(a) take all diligent and reasonable steps to ensure that every potential or actual donor is fully informed as to the structure and mechanics of, and any and all amounts and fees payable or to be contributed pursuant to, the Donation Program and has been advised by a professional advisor of the nature of any and all potential tax and business/commercial risks associated with entering into the Donation Program and to take reasonable efforts to ensure that each such participant is a suitable candidate for the Donation Program and that funds contributed to the Donation Program by each such participant is from a legitimate source …
[74] ParkLane has filed affidavit evidence from three Distributors, Ted Gacich (“Gacich”), William MacKay (“MacKay”) and Lorne Allen (“Allen”). As well as advising their clients to participate in the Gift Program, each of these three Distributors participated for several years as a donor.
[75] Gacich was Cannon’s financial advisor. He holds designations as a Financial Planner, Chartered Life Underwriter and Chartered Financial Consultant and has been in the financial services business for 19 years, specializing in tax planning. He marketed the Gift Program in 2005, 2006 and 2007 to approximately 80 clients and participated himself as a donor in two of those years. In 2005, he was a sub-distributor of another Distributor, Life Planning Insurance Agency Limited (“LPL”). Thereafter, he was a Distributor in his own right, through his company.
[76] The Fundraising Agreement between ParkLane and Gacich for 2006 begins with the following recital:
WHEREAS ParkLane and LPL wish to engage the Distributor to raise donations to and to refer clients to the ParkLane Donations for Canada Program …
AND WHEREAS the Distributor wishes to refer clients to the Donation Program for the fundraising fees enumerated herein …
[77] The Agreement goes on to provide that:
• ParkLane and LPL grant Gacich, the Distributor, a non-exclusive right to raise donations for and to refer clients to the Gift Program;
• Gacich accepts the appointment and undertakes to use best efforts to raise donations and refer clients;
• the Distributor is entitled to remuneration for raising donations and securing and closing transactions;
• the information that the Distributor was entitled to provide to his or her clients concerning the Gift Program was strictly controlled, as set out in clauses 4.4, 4.5 and 4.6 above;
• there is also an acknowledgment that the Distributor has no authority to act on behalf of ParkLane in connection with the Gift Program and a statement that there is no partnership, agency or employment relationship between them.
[78] Gacich deposed that prior to recommending the Gift Program to his clients, he did due diligence to satisfy himself that it was a valid and viable program. He deposed that he always carefully reviewed the Donor Declaration and the Tax Risk Disclosure Statements (described below) with his clients to ensure that they understood the obligations and risks involved in participating in the Gift Program. He said that he reviewed the Donor Declaration with Mr. Cannon in 2005 and 2006 and he reviewed the new Tax Risk Disclosure Statement with him in 2006.
[79] Gacich stated:
I recall reviewing each of the matters addressed in the Donor Declaration with Cannon in 2005 and 2006 before he decided to participate in the Gift Program in each of those years. Based on my discussions with him and the questions he asked of me on the various different occasions that I met with him I was of the view at the time, and I continue to be of the view that he is a reasonably knowledgeable investor who understood the nature of the Gift Program and how it worked and the risks involved in the Program, including the risk that he might be re-assessed and be required to pay penalties and interest as a result.
[80] Gacich stated that the Tax Risk Disclosure Statement, which Cannon signed in 2006, reflects an acknowledgement of the risks that Gacich had discussed with Cannon. He denied that he “promised” Cannon that he would receive a tax credit and says that, on the contrary, he fully reviewed the risks with Cannon. Gacich swore that Cannon was also aware that by signing the Donor Declaration, he was unconditionally releasing ParkLane.
[81] Gacich swore that he discussed these matters with all his clients and that, in some cases, clients decided not to participate because they were risk adverse. His clients’ donations varied: one was $1 million in total and others ranged as high as $100,000 to $280,000.
[82] Gacich swore that he received a commission of 18-20% of each client’s cash donation. He had 80 clients who participated in the Gift Program. He likely made tens of thousands, if not hundreds of thousands of dollars in commissions through the sale of the Gift Program to his clients.
[83] Gacich testified that he was aware of the “back half” of the Gift Program – that is, the part that was not described in the glossy marketing brochures that were given to donors. He knew that:
• the charities did not retain more than $100 of the total donation;
• the charities paid the balance in exchange for an unguaranteed and unsecured future income stream from the use of the Software Program;
• the Bermuda Trust financed the sub-trust units by paying $7,500 to Donations Canada Trust, which was immediately returned to the Bermuda Trust with an additional $500, ostensibly for the charity’s use of its Software Program; and
• most of the donations circulated back to the promoters.
[84] Gacich was not aware, at the time at least, that the Bermuda Trust was established by Furtak for the benefit of himself and his family. Nor did he tell his clients – unless they asked – where the money was coming from to finance the acquisition of the sub-trust units.
[85] Gacich did not recall having told Cannon that the money he was putting into the Gift Program would be used by the charity to purchase the royalty agreement. He acknowledged that, under the terms of the distributorship agreement, this was not information he would likely have provided to Cannon. He also acknowledged that he did not inform Cannon of the role played by TTL and the Bermuda Trust in the structure of the Gift Program.
[86] Allen was the President of LPL, the company that originally engaged Gacich as a sub-distributor. Allen recruited approximately 100 sub-distributors and entered into agreements with them to market the Gift Program. Most of these people were professional financial, tax or legal advisors, including accountants, life insurance agents, licensed financial planners and occasionally lawyers or mortgage brokers. He also did some individual marketing to his own clients. Like Gacich, Allen says that he was careful to review the Donor Declaration, the Tax Risk Disclosure Statement and the release of ParkLane with his clients.
[87] MacKay is a financial planner and provided financial services and tax planning advice to his clients. He marketed and promoted the Gift Program; approximately 200 of his clients participated in the Gift Program. He personally participated in the Gift Program from 2005 to 2008. His evidence concerning his dealings with his clients is substantially the same as the evidence of Gacich and Allen.
[88] ParkLane, TAL and TTL have issued a third party claim against all the Distributors. They say that if Cannon’s action is certified, they will proceed with their claims against the Distributors for any donors who do not opt out of the action, in order to ensure that all liability issues are determined in the same proceeding.
[89] As I mentioned earlier, the defendants make much of the role of the Distributors, whom they call the “Independent Financial Advisors”, an expression that appears to be an artful creation of counsel, rather than a term that was actually used by the promoters of the Gift Program. This label glosses over the fact that the Distributors were retained and paid by ParkLane under a “Fundraising Agreement” and that their role was to “raise funds” for the Gift Program. The Distributors were limited in the information concerning the Gift Program that they were permitted to provide to donors. They made substantial commissions if their clients donated to the Gift Program. There are certainly arguments to be made that the Distributors were a cog in the machinery of the Gift Program and that they were recruited because they had a stable of well-heeled clients who would be interested in contributing to the Gift Program as a way of reducing their taxes. It could open to a trial judge to find that, in spite of the language in the “Fundraising Agreement”, the Distributors were agents of ParkLane for the purpose of raising funds.
5. The Donors
[90] ParkLane has adduced evidence from six Donors who participated in the Gift Program between 2005 and 2008. These include: Mr. Russ Mergelas, Mr. Ralph Narum, Mr. Robert MacKay, Mr. Lorne Allen, Mr. William MacKay and Mr. Gacich.
[91] Each of these could be described as a reasonably knowledgeable investor, who participated in the Gift Program after being advised by his personal financial advisor and who understood how the program worked and the risks involved, including the risks of a re-assessment by C.R.A., penalties and interest. Each reviewed the Donor Declaration and Tax Risk Disclosure Statement with his advisor before participating in the program and understood the nature and scope of the release that he signed in favour of ParkLane. Like Cannon, these donors have had their tax returns reassessed by C.R.A. but, unlike him, they have not accepted C.R.A.’s position and they are appealing the re-assessment.
6. The Charities
[92] In 2005, there were six participating charities that received funds through the Gift Program. These were all Registered Canadian Amateur Athletic Associations: Biathlon Canada, Canadian Amateur Football Association, Canadian Amateur Wrestling Association, Canadian 5 Pin Bowlers Association, Canadian Lacrosse Association, and Little League Baseball Canada. Donors could designate one of these charities as the recipient of their donations. It is fair to note that these organizations were not well-recognized in the Canadian not-for-profit landscape and the idea of a sustained flow of income, even with modest returns, was probably enticing to them.
[93] From 2006 onward, FFC Foundation was prominently identified in the promotional materials of the Gift Program as a registered Canadian charity that supported a group of participating Canadian charities. It received donations through the Gift Program and disbursed them to the participating Canadian charities, including at least some of the charities that had participated in 2005. Charities that participated in the Gift Program through FFC Foundation included Canadian Community Living Foundation, Scarboro Foreign Missions and the New Brunswick Foundation for the Arts. Other charities continued to participate directly in the Gift Program rather than though the FFC Foundation.
[94] Certain qualifying charities could receive “directed donations” through the FFC Foundation, that is, donations specifically earmarked by donors to the charities. To qualify for a directed donation, the charity or Distributors would have to assemble $1.5 million in aggregate donations, i.e. $375,000 in contributions from donors. All charities participating through FFC Foundation entered into letters of understanding, committing to their participation in the Gift Program.
[95] If FFC Foundation was the charity designated by a participant, then it decided which qualifying charity would be the recipient of Gift Program funds, unless donations were earmarked for a particular charity through a directed donation.
7. Marketing Materials
[96] ParkLane prepared a promotional brochure that, with some variations, was in substantially the same form from year to year. The cover for the brochure in 2005 was entitled “Donations Canada” and showed pictures of athletes, presumably representing the beneficiaries of the 1% of the charitable donations actually retained by the charities, though this fact was not mentioned in the brochure.
[97] Inside the brochure, there was a description of how the Gift Program worked. The brochure for 2005 described the Gift Program as a “unique charitable donation program” that would enable donors to “enhance their personal cash contributions to a variety of supported Canadian charities through a gift of [sic] beneficial interest in a Canadian resident trust.” The brochure said that the Gift Program was designed to “assist charities in raising much needed funding.” It described Donations Canada Trust as having been established “with a funding commitment of $200,000,000 in cash to promote charitable giving in Canada”. I note parenthetically that if this “funding commitment” was made by the Bermuda Trust to the Donations Canada Trust, there is no evidence at all that the Bermuda Trust had resources of this magnitude.
[98] The brochure went on to explain that donors who donated cash to a charity would be able to apply to become a beneficiary of Donations Canada Trust and that upon this happening, the donor would assign his or her beneficial interest in the trust to the charity “which will result in an additional cash contribution to the charity”. The clear implication of all this was that the donor’s cash would be matched with an appropriate portion of the $200 million “funding commitment” provided by the Donations Canada Trust and given to the charity.
[99] The brochure contained a diagram, showing how the entire donation of $10,000, the $2,500 cash donation from the donor and the $7,500 “investment” from the Donations Canada Trust to the sub-trust, were distributed to the charity. That diagram was in substantially the same form as the first of the two diagrams earlier in these reasons.
[100] Nowhere in the brochure was there any explanation of the role of the Bermuda Trust or of the fact that the funds “donated” to the charity were not actually retained by the charity and that 99% of the funds flowed back to the promoters. The niceties of these issues were, apparently, left to the Distributors, who were limited in what they could tell their clients, as set out above. It is apparent, at least from the evidence of Gacich, that he only told his clients about the “back half” of the Gift Program, when they asked.
[101] The 2005 brochure contained a letter dated June 15, 2005, on Patterson Palmer letterhead, signed by Harris, which stated as follows:
You requested our opinion concerning the consequences under the Canadian Income Tax Act and Regulations of participation in the Program by an individual who donates cash and a beneficial interest in a trust to a charitable organization, a charitable foundation, or a registered Canadian amateur athletic association.
We reviewed the Program and its compliance with the Income Tax Act and Regulations and with the proposed amendments thereto, and we issued our opinion to you dated May 18, 2005.
That opinion may be viewed by the professional adviser of any potential donor by contacting your office, providing that the adviser agrees that the opinion is the property of ParkLane Financial Group and is provided to the adviser without responsibility on our part, or the part of ParkLane Financial Group, for his or her sole use in assessing the Program and in determining its suitability to a donor’s specific circumstances.
[102] This letter and similar letters written by Mr. Harris and included in the marketing materials in 2006 and 2007 are what I have referred to above as the “Comfort Letter”, because they were intended to give a prospective donor comfort that the Gift Program had been vetted by a respected Canadian tax lawyer who was satisfied that it complied with the Income Tax Act and regulations.
[103] Also included in the brochure was a page addressed “To Donors”, with this statement:
ParkLane Financial Group Ltd. has received a tax opinion from Mr. Edwin C. Harris, Q.C. of Patterson Palmer, Halifax, with respect of [sic] the Donations Canada Program.
Mr. Harris’ opinion is available for review by your professional advisor. For more information, please have your accountant or lawyer contact our Burlington, Ontario office at [phone number].
[104] Underneath these statements was a picture of Mr. Harris and a brief summary of his impressive credentials:
B.Com. (Dalhousie) 1954; LL.B (Dalhousie) 1958; LL.M. (Harvard) 1959; C.M.A. (1956); C.A. (1957); Admitted to Nova Scotia Bar (1959); Q.C. (1975); F.C.M.A. (1984); F.C.A. (1984).
[105] Beneath this was the following statement:
Mr. Harris is counsel with the law firm of Patterson Palmer, Halifax. The author of many articles on taxation and estate planning, and texts on Canadian income taxation, he is an adjunct professor at Dalhousie Law School, Halifax and the Former Chair of the Canadian Tax Foundation.
[106] The marketing materials for the Gift Program in 2006 and 2007 were substantially similar to the 2005 materials, except that they now contained a description of FFC Foundation, which had come into existence in 2005. There was also a description of some of the participating charities. The materials in each year up until and including 2007 contained a Comfort Letter from Harris and a note addressed from ParkLane “To Donors”, indicating that it had received a “tax opinion” from Harris with respect to the Gift Program. Additionally, one of the benefits of the Program listed in the brochure was a:
Tax Opinion by top Canadian legal professionals
[107] Inside the cover of the 2007 brochure, there was a letter from Mr. Olsthoorn, the President of ParkLane. In the letter, Mr. Olsthoorn described the Gift Program as an “innovative product design [which] provides a unique opportunity for Canadian donors to make significant cash contributions to registered Canadian Charities and Foundations.”
[108] Mr. Oolsthoorn went on to say in his letter that:
ParkLane has consulted with top Canadian tax and legal professionals in the design of this program. In addition, the Program has been reviewed by hundreds of tax and legal advisors of participating donors.
[109] As we now know, the ParkLane brochure told only half the story about the Gift Program. In particular, it did not describe what happened to the donor’s money after it reached the hands of the charity. It did not show that 99% of the $10,000 aggregate donation immediately left the charity, which was left with $100 and a promise of a future income stream.
8. Contractual Materials for the Gift Program
[110] Every donor participating in the Gift Program was required to sign certain standard form documents. These documents were amended from time to time during the Gift Program. In 2005, the standard documents included:
(a) a Pledge to a Charity directed to ParkLane as escrow agent;
(b) an Enduring Property Pledge to a Charity directed to ParkLane as escrow agent, directing that the “cash gift shall be retained by the Charity … for not less than 10 years from the date the gift was received by the Charity…”;
(c) an Application to be Designated as a Beneficiary of the Donations Canada Trust, stating, among other things, “I am interested in supporting the work of the charity to which I have made a pledge of a cash gift (the “Charity”) and would like to see it benefit from further gifts”;
(d) a Donor Declaration in which the donor declared and agreed that:
(i) they had read and fully understood all and any written materials and documents in the Gift Program Materials, including (after 2005) the Tax Risk Disclosure Statement, in respect of their participation in and donations to the Gift Program;
(ii) except for what was contained in the materials provided by ParkLane, no other promise, representation or warranty had been made by ParkLane to them or was relied upon by them;
(iii) they had received independent professional advice in respect of the Gift Program from their own personal advisor/lawyer/accountant;
(iv) they fully understood the advice and information provided to them by their own personal advisor/lawyer/accountant in respect of all and any legal, commercial/business and tax consequences related to their participation in the Gift Program, including the fact that up to 8% of their aggregate donation amounts would be used to pay charity fundraising fees;
(v) they accepted any and all tax risks whatsoever related to their participation in the Gift Program, including the risk that their charitable donations, or a portion of them, might be re-assessed and even denied; and
(vi) they unconditionally released ParkLane and its officers and employees from any and all claims or liabilities of any kind whatsoever that they then had, or in the future might have with respect to matters occurring on, prior to or after the date of the Donor Declaration, arising out of, based upon, resulting from or in connection with their participation in the Gift Program; and
(e) a Transfer of Units of Sub-trust to Charity, recognizing that all registered holders of the sub-trust units “have mutually agreed to donate our respective units to” a participating charity and designating ParkLane as escrow agent to hold and transfer the sub-trust units.
[111] In 2006, a Tax Risk Disclosure Statement was included in the documents to be signed by donors. It provided, among other things:
(a) The ParkLane Donations for Canada Program (the “Program”) is being offered by ParkLane Financial Group Ltd. (“ParkLane”) to assist registered Canadian amateur athletic associations, foundations, charities and other qualified donees under the Income Tax Act (Canada) (the “Act”) (“Charity” or “Charities”) in raising long-term and short-term charitable funding. The Program is principally designed to provide a donor resident in Canada (“Donor” or “Donors”) with the means of effecting: (1) a cash donation to a Charity, entitling such Donor to a cash receipt; and (2) a distribution from a sub-trust (“Sub-Trust”) of a Canadian-resident trust (“Master Trust”) to a Charity, entitling the Donor to a donation-in-kind receipt.
(b) Tax Opinion & Advice
(c) Edwin C. Harris, Q.C., of McInnes Cooper, tax counsel to ParkLane, has, based on the interpretation of the Act and favourable case law, provided a legal opinion to ParkLane outlining the tax consequences and the intended results for a Donor making a donation under the Program. ParkLane recommends and urges any prospective donor interested in participating in the Program to review the tax consequences of making a donation with his or her professional legal, accounting and tax advisor.
(d) ParkLane has worked closely with leading Canadian accounting and tax law professionals in the structure, design and development of the Program. Should C.R.A. or RQ choose to challenge the tax structure of the Program, ParkLane believes that very strong arguments can be made in supports of its position. ParkLane has at its disposal a contingency fund of $500,000 set aside to support Donors in dealing with audits, reassessments or challenges made against the Program. This fund will remain in place until December 31, 2010 and will be used exclusively to provide assistance to Donors, which, in the past, has included assisting clients in responding to C.R.A. questionnaires drafting and filing of notices of objection, preparing appeals and funding tax litigation.
(e) While ParkLane intends to assist and support Donors in the event of such challenges and has committed the funds in this regards, ParkLane cannot guarantee that each Donor will receive the income tax consequences contemplated under the Program and makes no representations in respect of a Donor’s entitlement to claim the tax credits in respect of any donations made pursuant to the Program. ParkLane cautions each Donor that he or she may not ultimately obtain the income tax results designed to be achieved under the Program and may, in fact, incur certain costs and interest payments associated with any reassessment by the C.R.A. or RQ. [emphasis in original]
9. The C.R.A. Re-Assessment
[112] Cannon was reassessed by C.R.A., which disallowed his deductions for his charitable gifts to the Gift Program in 2005 and 2006. On about May 7, 2008, he received a letter from C.R.A. indicating that of the $40,000 he had claimed, representing $10,000 in cash and $30,000 in kind, no amount was allowable as a charitable gift. A letter dated February 4, 2009 gave him the same bad news concerning his 2006 donation, $12,500 of which was in cash and $37,500 was in kind.
[113] The C.R.A. letters described the nature of the Gift Program and described the Bermuda Trust as the “Facilitator”. They stated that in the first year of the agreement, the charities that participated in the Gift Program received payments from TTL equivalent to an annual return of 0.16% (zero point sixteen percent). C.R.A. was unable to confirm that the funds paid had actually been invested on behalf of the charities.
[114] The position taken by C.R.A. was that the donations made by Cannon were not a gift, because they were made in the expectation of a material advantage, namely, the expectation that he would receive the trust units at no costs to himself and that he would transfer those units to a charity and receive a second charitable donation receipt for three times the value of his cash payment. The 2008 letter continued:
Furthermore, the charities were obliged as a condition of participation in the Program to transfer almost all of these funds to specific parties. Through a series of transactions and directions signed by all parties involved, these funds followed a circular flow and ended up back in the hands of the promoters. This series of transactions was preordained with the result that, for a cash payment, you would claim donation receipts four times greater than the cost of participating in this scheme. It is our opinion that you participated in this scheme with full knowledge of this material benefit. Accordingly, it is our opinion that the full amount of the funds transferred to the charities does not represent a gift.
[115] In the absence of a “donative intent”, Cannon was not entitled to claim a charitable deduction.
[116] In 2008, C.R.A. audited FFC Foundation for the period December 2005 to December 2006. It concluded that the Foundation had not complied with the requirements of the Income Tax Act and revoked its charitable status in 2009. C.R.A. has also disallowed all charitable deductions made by Class members with respect to tax receipts issued under the Gift Program.
III. THE CERTIFICATION MOTION
1. Introduction
[117] The plaintiff submits that this is an ideal case for certification and that it is substantially the same as Robinson v. Rochester Financial Limited et al., [2010] O.J. No. 187, 2010 ONSC 463 (S.C.J.), application for leave to Divisional Court denied, 2010 ONSC 1899 (Div. Ct.) (“Banyan Tree”), a decision of Justice Lax, certifying a class action relating to a charitable donation scheme called the “Banyan Tree Gift Program”. The plaintiff says that he relies on well-established causes of action, that the Class is clearly identifiable and that the common factual and documentary underpinnings of the claim of every Class member give rise to common issues of fact and law. He says that he is an appropriate representative of the Class, that he has a suitable litigation plan and that certification is the preferable procedure for the resolution of claims of Class members and will accomplish the goals of the C.P.A.
[118] The defendants say that this case is distinguishable from Banyan Tree. While they make a number of objections, their fundamental complaint is that the claims of the Class members are not common, because they can only be resolved by analyzing individual circumstances. They say that liability cannot be determined on a class-wide basis and will require an examination of such matters as the investor’s knowledge, sophistication, experience and risk tolerance and the information, written and oral, disclosed to each investor. The defendants say that for those reasons a class proceeding is not the preferable procedure for dealing with the claims of the Class.
2. Banyan Tree
[119] In Banyan Tree, the plaintiffs sought to certify a class action on behalf of taxpayers, who had contributed to the Banyan Tree gift program. They sued the promoters and a law firm as a result of C.R.A.’s disallowance of their tax deductions. Lax J. certified causes of action in negligence and breach of contract against the promoters and also certified the action against the law firm in negligence.
[120] The structure of the Banyan Tree gift program was quite different from the ParkLane Gift program, although as in this case, the participants were solicited by a network of “financial advisors” who promoted and sold the program. In Banyan Tree, however, the charitable donation of each taxpayer was pumped up through a loan from the promoters of 85% of the amount of the donation. The plaintiffs alleged that it was an express or implied term of their contracts with the promoters that they would receive a charitable tax receipt that would be recognized by C.R.A. and that they would not be at risk to repay the loans. They pleaded causes of action in contract and negligence.
[121] The promoters did not dispute that the statement of claim disclosed causes of action in breach of contract and negligence, and Lax J. agreed. There was substantial debate with respect to the commonality criterion for certification. The promoters argued that the action was essentially a point-of-sale misrepresentation case and that, even though a cause of action for misrepresentation was not being asserted, it would be necessary to present “evidence as to who said what to whom in respect of each and every transaction”. Lax J. found that the standard form of brochure and program information, the standard contract language and the evidence of the plaintiffs and their witnesses provided a sufficient evidentiary basis to raise common issues “that the tax opinion was considered to be part of the gift program, that it was necessary to launch the program, and that participants entered into common contracts on express or implied terms that they would receive a charitable donation tax receipt recognized by CRA and a risk-free loan” (at para. 50).
[122] In Banyan Tree, the plaintiffs alleged that the law firm’s opinions were prerequisites for the promotion and sale of the program and that the law firm intended that the participants would rely on its opinion in deciding whether or not to participate in the program. They pleaded that the law firm owed the participants a duty of care and that it was negligent in the preparation of the opinions. The lawyers argued that because the plaintiffs had never read their opinions, there could be no duty of care and they brought a motion to dismiss the claim on the basis of the plaintiffs’ admission that they had not read the opinion letters.
[123] Justice Lax found a cause of action in negligence against the lawyers. She addressed the lawyers’ argument as follows, at para. 21:
FMC [the law firm] submits that a duty of care cannot be created based on the fact that an opinion was prepared, when its contents were never read or relied upon by anyone. They say that the allegations against FMC arise from the existence and the contents of the letters and that, in substance, the claim is made for negligent misrepresentation. I disagree. The claim is not pleaded on the basis that the plaintiffs read or relied upon the FMC letters, but on the basis that FMC issued the opinion letters with the expressed intention that they be relied upon by the gift program defendants and knowing that the gift program defendants would rely upon and publish the existence of the opinions in promoting the gift program.
[124] The law firm argued that the opinion letters disclaimed reliance on the letter by anyone other than the promoters and donors who were provided with copies of the letter, and that it was not reasonably foreseeable that persons who did not receive or read the letters would sustain damages as a result of the opinions in the letter. Lax J. concluded that the lawyers knew or ought to have known that the very existence of the opinion would be used to market the Gift Program and that potential donors would rely on the existence of the opinion in deciding whether to participate. She stated, at paras. 24 and 25:
The allegation is not that FMC provided the letters intending that they be read and relied upon by the plaintiffs and proposed class members, although some may have done so, but rather that FMC provided the letters (1) with the intention that they be used by the gift program defendants in the manner the plaintiffs allege, namely to market the program as one in which proposed class members would receive a charitable tax receipt recognized by C.R.A.; and (2) with the intention and knowledge that the existence of a tax opinion would inform the decision of class members about whether or not to participate in the gift program. If these allegations are made out at trial, it is not plain and obvious that they could not support a duty to take care that the opinions expressed in the letters were accurate and reliable and that a failure to take such care or a failure to warn was the proximate cause of the losses the plaintiffs allege they suffered.
To put this in a different way, the reliance the plaintiffs allege is not on the tax opinion per se, but on there being a tax opinion that FMC intended and knew would be used by the gift program defendants to support the legitimacy of the gift program for income tax purposes and would be relied upon by the class members in deciding whether or not to participate. I would therefore not give effect to FMC's argument that this is a negligent misrepresentation claim "dressed up" as a negligence claim. It is properly pleaded as a negligence claim and the essential elements of the cause of action - duty, foreseeability, proximity, breach, and damage - are present. The express qualifications on the opinion are not matters to be considered at the certification stage.
[125] Justice Lax went on to note at para. 26 that “there is precedent … for advancing a class action claim in negligence against a law firm even though generally, a lawyer owes a duty of care only to the lawyer's client: Baypark Investments Inc. v. Royal Bank (2002), 2002 49402 (ON SC), 57 O.R. (3d) 528 at paras. 23 and 33 (Sup. Ct.), aff'd, [2002] O.J. No. 4377 (C.A.); Elms v. Laurentian Bank of Canada, 2004 BCSC 1013, 35 B.C.L.R. (4th) 373 (S.C.) at paras. 63-65, aff'd, 2006 BCCA 86.”
[126] After reviewing previous decisions, such as CC&L Dedicated Enterprise Fund (Trustee of) v. Fisherman (2001), 2001 28387 (ON SC), 18 B.L.R. (3d) 240, [2001] O.J. No. 4622 (S.C.J.), Delgrosso v. Paul (1999), 1999 15084 (ON SC), 45 O.R. (3d) 605 (Gen. Div.) and Elms v. Laurentian Bank of Canada, 2001 BCCA 429, 90 B.C.L.R. (3d) 195, Lax J. found, at para. 30, that “there is clearly a developing line of authority in Ontario and elsewhere that have permitted claims of this kind to proceed”. She concluded at para. 31:
… it is certainly arguable that FMC ought reasonably to have foreseen that its tax opinion would be used to market the gift program and that the participants would be "disappointed" and suffer damages if FMC was negligent in giving that opinion. In my view, FMC placed itself in a relationship of sufficient proximity to owe a prima facie duty of care to the plaintiffs and proposed class members and I would leave to trial the question of whether policy considerations ought to negative that duty.
[127] Justice Lax found that the proposed class definition, “all individuals who participated in the Banyan Tree Gift Program for [the taxation years at issue]” was acceptable.
[128] Justice Lax also found that a class proceeding would be the preferable procedure for the resolution of the common issues and rejected the defendants’ motion to stay the proceeding until the donors’ appeals to the Tax Court had been determined. Finally, she found that the representative plaintiff was appropriate and had produced a satisfactory litigation plan.
[129] A motion for leave to appeal to the Divisional Court was dismissed by Dambrot J. He found that the appeal of the gift program defendants was highly fact-driven and did not meet the test for leave. Regarding the appeal by the lawyers, he found at paras. 23 to 25 that the absence of direct reliance on the advice of the law firm was not fatal to the claim in negligence:
It is arguable that reliance by the plaintiffs on the existence of a positive opinion given by Fraser [the law firm] to the gift program defendants supports their claim against Fraser in negligence. In my view, the words of Sharpe J., as he then was, at paragraph 10 of his judgment in Delgrosso v. Paul (1999), 1999 15084 (ON SC), 45 O.R. (3d) 605(Gen. Div.), one of the many cases relied on by Lax J., are apposite:
The defendant also submits that there can be no cause of action for breach of duty, whether as a solicitor or as a fiduciary, absent a plea of reliance by the plaintiff on his advice. While the plaintiff does not allege direct reliance on the solicitor, it seems to me at least arguable that where a party invests money in an RRSP to be invested in mortgages, the reliance the party places on the trustee or other advisors to ensure that adequate steps are taken to protect his interests may be adequate to support a claim against the solicitor retained by the trustee or advisor, particularly where the solicitor is aware of the identity of the party and the nature of the party's interest: see White v. Jones, [1995] 1 All E.R. 691 (H.L.).
Here, equally, the absence of direct reliance by the plaintiffs on the solicitor's advice may not be determinative. Even without direct reliance on the advice, it remains arguable that when the plaintiffs entered the scheme, they were relying on the legal advisors of the architects of the scheme to ensure that their pledges would qualify as valid charitable donations for tax purposes. If the legal advisors acted negligently in giving their advice to the gift plan defendants, the plaintiffs could have a claim in negligence against those legal advisors.
While it may be, particularly taking into account the qualifications and reservations expressed in Fraser's opinion, that the claim against Fraser will ultimately fail, I cannot say that there is good reason to doubt the correctness of the orders in issue, namely, the order to certify as against Fraser, the order to decline to strike the pleadings against Fraser and the order refusing to strike the claim against Fraser.
[130] Accordingly, leave was not granted.
[131] Against this background, I turn now to the question of whether, and on what terms, this action should be certified as a class proceeding.
A. The Test for Certification
[132] Section 5(1) of the C.P.A. sets out the criteria for the certification of a class proceeding. The court shall certify the action as a class proceeding where the five-part test for certification is met:
(a) the pleadings or the notice of application discloses a cause of action;
(b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff;
(c) the claims of the class members raise common issues;
(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and
(e) there is a representative plaintiff who,
(i) would fairly and adequately represent the interests of the class,
(ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and
(iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.
[133] As Justice Lax observed in Banyan Tree at para. 14, these requirements are linked:
"There must be a cause of action, shared by an identifiable class, from which common issues arise that can be resolved in a fair, efficient and manageable way that will advance the proceeding and achieve access to justice, judicial economy and the modification of behaviour of wrongdoers": Sauer v. Canada (A.G.), 2008 43774 (ON SC), [2008] O.J. No. 3419, 169 A.C.W.S. (3d) 27 (Sup. Ct.) at para. 14.
[134] It has been observed on many occasions that the C.P.A. is remedial legislation and that it should be interpreted generously in order to give effect to its objectives: access to justice, behaviour modification and judicial economy: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534; Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158; Abdool v. Anaheim Management Ltd. (1993), 1993 5430 (ON SC), 15 O.R. (3d) 39 at 47 (Gen. Div.), aff’d (1995), 1995 5597 (ON SCDC), 21 O.R. (3d) 453 (Div. Ct.).
[135] I turn to the five components of the s. 5(1) test.
1. Causes of Action
[136] Section 5(1)(a) of the C.P.A. requires that the pleadings disclose a cause of action. The test is the same as that applied in a motion to strike a pleading under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, reg. 194 on the ground that it discloses no reasonable cause of action: "assuming that the facts as stated in the Statement of Claim can be proved, is it 'plain and obvious' that the plaintiff's Statement of Claim discloses no reasonable case of action?" - Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93 at para. 33.
[137] This test was summarized by Cameron J. in Balanyk v. University of Toronto (1999), 1999 14918 (ON SC), 1 C.P.R. (4th) 300, [1999] O.J. No. 2162 at para. 25 (S.C.J.) as follows:
The test to be applied is whether, assuming the facts pleaded are true, it is plain and obvious that the plaintiff's statement of claim discloses no reasonable cause of action. Only if the action is certain to fail because the pleading contains a radical defect should the relevant portions be struck out. If the pleading has some chance of success, it should remain. An arguable point of law or a novel cause of action should be left to the trial judge or a motion for judgment based on the point after exchange of pleadings. The motion for judgment may be under Rule 21.01(a) on the basis of some question of law or under Rule 20 where a factual context is required for its resolution: see Hunt v. Carey Canada, 1990 90 (SCC), [1990] 2 S.C.R. 959; Prete v. Ontario (1993), 1993 3386 (ON CA), 16 O.R. (3d) 161 (C.A.); Nash v. Ontario (1995), 1995 2934 (ON CA), 27 O.R. (3d) 1 (C.A.); Abramovic v. Canadian Pacific Ltd. (1991), 1991 7248 (ON CA), 6 O.R. (3d) 1 (C.A.).
[138] The principles applicable to this aspect of the test are settled:
• no evidence is admissible for the purposes of determining the section 5(1)(a) criterion;
• all allegations of fact pleaded, unless patently ridiculous or incapable of proof, must be accepted as proved and thus assumed to be true;
• the pleading will be struck only if it is plain, obvious and beyond doubt that the plaintiff cannot succeed and only if the action is certain to fail because it contains a radical defect;
• matters of law that are not fully settled by the jurisprudence must be permitted to proceed; and,
• the pleading must be read generously to allow for inadequacies due to drafting frailties and the plaintiff's lack of access to key documents and discovery information.
See generally: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158 at para. 25; Cloud v. Canada (Attorney General) v. Canada (Attorney General) (2004), 2004 45444 (ON CA), 73 O.R. (3d) 401 (C.A.) at para. 41, leave to appeal to the S.C.C. ref'd, [2005] S.C.C.A. No. 50 , rev'g (2003), 2003 72353 (ON SCDC), 65 O.R. (3d) 492 (Div. Ct.); Abdool v. Anaheim Management Ltd., (1995), 1995 5597 (ON SCDC), 21 O.R. (3d) 453 (Div. Ct.) at p. 469.
[139] As is so often the case in class actions, the plaintiff asserts multiple causes of action against multiple defendants. The following chart describes the causes of action asserted against the various defendants:
Cause of Action
Party
(a)
Negligence
All Defendants
(b)
Negligent Misrepresentation
The ParkLane Defendants
The Gleesons
Harris
Patterson Palmer Law (for 2005 only)
McInnes Cooper (for 2006 – 2009)
(c)
Fraud and Fraudulent Misrepresentation
The ParkLane Defendants
Appleby
Trustee Gleeson (which refers to Gleeson in his capacity as trustee for the Donations Canada Trust from 2005 to in or about April 2006)
The Gleesons
(d)
Conspiracy
The ParkLane Defendants
Appleby
Trustee Gleeson (from 2005 to in or about April 2006)
The Gleesons
(e)
Consumer Protection Legislation
(rescission and damages)
The ParkLane Defendants
FFC Foundation (from 2006 – 2009) and FFC Directors
Trustee Gleeson
The Gleesons
(f)
Breach of Contract
ParkLane
Trustee Gleeson
(g)
Unjust Enrichment and Constructive Trust
The ParkLane Defendants
FFC Foundation and FFC Directors,
Appleby
Trustee Gleeson
The Gleesons
[140] The claims against the FFC Directors begin from the time period of 2006 onwards. Although this chart indicates that the plaintiff claims against the FFC Directors for negligence, breach of the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A, and unjust enrichment, there is no pleaded claim against them for unjust enrichment.
(a) Negligence
[141] There are allegations of negligence against all defendants and separate allegations of negligence against the Lawyers and the FFC Directors. The allegations of negligence essentially boil down to this:
(a) all the defendants, other than the FFC Directors, were negligent in the planning and creation of the Gift Program and in failing to ensure that C.R.A. would recognize the charitable donation receipts issued to Class members and the tax credits they claimed;
(b) all the defendants, other than the FFC Directors, negligently misrepresented that the Gift Program would provide valid charitable donation receipts when they knew or ought to have known that this would not occur;
(c) the Lawyers issued their Opinion Letters and Comfort Letters without due care and attention, with the intention that those letters would be relied upon by the Class, when they knew or ought to have known that the letters were inaccurate;
(d) the FFC Directors owed a duty of care to the Class to ensure that the charity was properly operated and they failed to ensure that Class members’ donations were being received by the charities as gifts so that the donations would qualify for charitable tax credits.
[142] In Banyan Tree, the “gift program defendants” did not dispute that there was a properly pleaded claim against them in negligence and a cause of action was certified in negligence.
[143] I will make some general observations about the negligence pleading before turning to the submissions of each group of defendants.
[144] The ParkLane Defendants, together with some of the other defendants, say that the claim in negligence is in substance a claim in negligent misrepresentation and is “subsumed” by that claim. They say that where the plaintiff’s claim is that the defendant breached a duty to provide accurate information and not to make false or misleading statements, the cause of action is for negligent misrepresentation and the plaintiff cannot circumvent the requirement to plead reliance by pleading the case in negligence. The defendants rely, in particular, on Deep v. M.D. Management, 2007 22655 (ON SC), [2007] O.J. No. 2392 at para. 28 (S.C.J,), aff’d 2008 ONCA 189 and Singer v. Schering-Plough Canada Inc., [2010] O.J. No. 113, 2010 ONSC 42.
[145] This is a major battle ground for the defendants, for understandable reasons. If the claim is for negligent misrepresentation alone, the defendants will argue that issues of individual reliance make the claim unsuitable for certification: see McKenna v. Gammon Gold Inc. et al., 2010 ONSC 1591, [2010] O.J. No. 1057 at para. 135 (S.C.J.), varied, 2010 ONSC 1591, [2010] O.J. No. 1057 (Div. Ct.) and the authorities referred to there. If, on the other hand, the plaintiff has a cause of action in negligence, as was the case in Banyan Tree, the focus will be on the defendants’ conduct, making the claim more amenable to certification. This is, no doubt, why the plaintiff’s pleading describes the claim under the heading of “Negligence”, although most of the allegations sound like negligent misrepresentation.
[146] I agree that a plaintiff cannot dress up a negligent misrepresentation claim in negligence clothes and then assert negligence as a separate cause of action. That is what happened in Deep v. M.D. Management. The plaintiff owned Nortel shares in his RRSP and claimed against Nortel when the value of the shares dropped dramatically. Justice Brown struck the claim for negligent misrepresentation, as the plaintiff had failed to plead that he had relied upon any representations made by Nortel. This left a claim for negligence, but Brown J. found that it was in substance a claim for misrepresentation. The alleged duty of care was to accurately represent Nortel’s financial situation and the breach of this duty was by misrepresentation and failure to disclose. Justice Brown held, at para. 28:
As I read Dr. Deep's negligence pleading, it acts simply as an additional pleading of the first element for the cause of action of negligent misrepresentation - the existence of a duty of care based on a special relationship. In my view opinion [sic] Dr. Deep has not pleaded a cause of action sounding in negligence that is separate from his cause of action for negligent misrepresentation. As a result, it suffers from the same defects as his pleading of negligent misrepresentation.
[147] It was clearly a case where the pleading of negligence was in substance a pleading of negligent misrepresentation.
[148] Similarly, in Singer v. Schering-Plough Canada Inc., the plaintiff claimed that two sunscreen manufacturers had misrepresented the degree of protection their products provided against UVA rays. Causes of action were asserted for negligence and breach of the Consumer Protection Act, 2002, among others. In an apparent effort to avoid the issue of reliance that would arise in a claim for negligent misrepresentation, the plaintiff asserted a cause of action in negligence.
[149] I found in that case that the pleading of negligence was essentially that the defendants owed a duty of care to provide consumers with accurate information on the labels of the products and not to make false or misleading claims in the labeling and advertising of their products. In substance, it was a claim for misrepresentation without a pleading of reliance and was therefore not properly pleaded. There was no allegation in that case that the product itself was defective.
[150] In Silver v. Imax Corp., 2009 72334 (ON SC), [2009] O.J. No. 5585 (S.C.J.), van Rensburg J. made a similar observation at para. 88:
The negligence pleading in this case is in substance a pleading of negligent misrepresentation without the ingredient of reliance. There is also no pleading that the alleged negligence caused damage to the plaintiffs and no separate claim for a remedy based on negligence. Accordingly, the claims sounding in negligence simpliciter ... will not be permitted to proceed and the claim shall be amended accordingly.
[151] On the other hand, there is no reason that a plaintiff cannot plead both negligence and negligent misrepresentation, arising out of the same factual circumstances, as long as the claims are, in fact, distinct. Thus, in Dobbie v. Arctic Glacier Income Fund, [2011] O.J. No. 932, 2011 ONSC 25, there were distinct pleadings of negligence on the one hand and of negligent misrepresentation on the other. It was pleaded not only that the defendants issued prospectuses that contained misrepresentations, but also that, had the defendants fulfilled their duties, the securities would either not have been issued or would have been offered at lower prices. In that case, Tausendfreund J. noted, at para. 59:
A review of the pleadings in the case before me indicates that unlike Deep and Imax, the claims of negligence and negligent misrepresentation are pleaded quite differently and raise separate causes of action. The negligence simpliciter claim asserts that the securities issued pursuant to the prospectuses would not have been issued, or would have been issued at a substantially reduced offering price, but for the negligence of the defendants. The negligent misrepresentation pleading, on the other hand, points to a number of misrepresentations contained in various prospectuses and public disclosures.
[152] Similarly, in Lipson v. Cassels Brock & Blackwell LLP, 2011 ONSC 6724, [2011] O.J. No. 5062 (S.C.J.), Perell J. certified a class action pleading both negligent misrepresentation and negligence. He stated, at para. 79:
I agree with Justice Lax's analysis [in Banyan Tree]. The [Banyan Tree] case is not distinguishable from the case at bar, and, indeed, the case at bar is a stronger case for her analysis, which posits that it is arguable that the law firm had a duty of care and that the other constituent elements of negligence claim might be established; i.e. it is not plain and obvious that Mr. Lipson and the Class Member's do not have a free-standing claim for negligence that is discrete from a claim for negligent misrepresentation. See also: Yorkshire Trust Co. v. Empire Acceptance Corp. Ltd. 1986 6898 (BC SC), [1986] B.C.J. No. 3254 (B.C.S.C.); Collette v. Great Pacific Management Co., 2004 BCCA 110, [2004] B.C.J. No. 381 (B.C.C.A.); McCann v. C.P. Ships, [2009] O.J. No. 5182 (S.C.J.); Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25.
[153] In the Lipson case before Justice Perell, the lawyers’ letters were expressly stated to be prepared so that they might be relied upon by potential donors. In the case at bar, they were not. It is arguable, however, in this case, as it was in Banyan Tree, that it was reasonably foreseeable that the Opinion Letters and the Comfort Letters in this case would be used to market the Gift Program.
[154] It seems to me that, in the application of the s. 5(1)(a) test, the court should be careful not to strike a pleading on the ground that it has been “subsumed” by another pleading when the evidence at trial could well support separate causes of actions under both pleadings. Put another way, only when it is plain and obvious that a pleading has been dressed up to hide its real identity, should a court refuse to allow it to go forward.
[155] In this particular case, reading the pleading generously, there are allegations that the “product” – the Gift Program – was negligently designed and that it did not work. There are also allegations that the defendants negligently made misrepresentations that it would work. It is conceivable that one claim might succeed and the other might fail. Why should it not be left for the common issues judge to determine whether one or both claims have been made out, assuming that both claims are appropriate for certification? Similar observations were made by Wilson J. in Hunt v. Carey, above, in the context of conspiracy pleadings.
[156] I now turn to a consideration of the negligence pleading against each group of defendants.
(i) ParkLane, TTL, TAL
[157] The pleading against the ParkLane Defendants includes allegations that these defendants “negligently planned and created the Gift Program” and that they “failed to ensure that C.R.A. would in fact recognize the charitable donation receipts issued and tax credits claimed by the Class members”.
[158] Reading the pleading generously and with due allowance for drafting deficiencies, including the lack of particulars, there is a pleading of negligence that is distinct from the pleading of negligent misrepresentation. It is possible to envisage circumstances in which the misrepresentation claim could fail, but the negligence claim could succeed. If, for example, the Gift Program could have been structured in such a way that the Class members at least obtained a valid receipt for their $2,500 cash donations, then the ParkLane Defendants could have a liability in negligence, whether or not they misrepresented the fact that donors would be able to “supersize” their donations. Alternatively, as in Dobbie v. Arctic Glacier Income Fund, the plaintiff could argue that the Gift Program would not have been offered at all had the ParkLane Defendants properly investigated the tax consequences.
[159] I am satisfied, therefore, that the plaintiff has properly pleaded a cause of action in negligence against the ParkLane Defendants.
(ii) FFC Foundation
[160] Reading the pleading generously, the plaintiff pleads that FFC Foundation was negligent in failing to ensure that C.R.A. would recognize its charitable donation receipts as valid. It is arguable and not therefore plainly and obviously wrong that a charity owes a duty of care to donors to ensure that it is operated in such a way as to give the donor a valid charitable receipt in return for a donation. I will therefore certify a cause of action in negligence against FFC Foundation.
(iii) FFC Directors
[161] The plaintiff asserts a claim in negligence against the FFC Directors, and Ms. Gleeson, the Executive Director of FFC Foundation. He also says that he is asserting a claim for negligent misrepresentation against Ms. Gleeson, but apparently not against the FFC Directors.
[162] The pleading against the FFC Directors is that they, among other things:
• owed a duty to Class members to ensure that the FFC Foundation was operated in keeping with its objects and that their donations were in fact gifted to charities as set out in the promotional materials;
• owed a duty to Class Members to supervise Ms. Gleeson to ensure that the charity was operated in keeping with its objects and their donations were in fact gifted to charity;
• were negligent in the performance of their duties and obligations as directors of the FFC Foundation and, as a result, caused damages to the plaintiff and Class members;
• negligently breached their duties by permitting the FFC Foundation to be used as a vehicle whereby the other defendants (other than the Lawyers) perpetrated a fraud; and
• failed to identify the fact that the charitable donees did not have free use of the funds donated to them and were in fact required to pay the vast majority of the donations they received to the Bermuda Trust or to TTL.
[163] There are no pleadings that:
• the FFC Directors were parties to any breach of contract;
• that they negligently planned or created the Gift Program;
• that they were involved in any conspiracy, fraud, or misrepresentation; or
• that they were unjustly enriched.
[164] While there is no question that directors of a not-for-profit corporation owe a duty of care and a fiduciary duty to the corporation, they do not owe a duty to the corporation’s shareholders or other stakeholders. In Re. London Humane Society, [2010] O.J. No. 4827, 2010 ONSC 5775 (S.C.J.), Granger J. observed, at para. 19:
Directors of not-for-profit and charitable organizations are subject to fiduciary duties at common law. The Supreme Court of Canada has held that directorial fiduciary duties are owed primarily to the corporation, not to the corporation's shareholders or other stakeholders (See Re BCE Inc., 2008 SCC 69 at paras. 36-38). While most litigation in this area focuses on for-profit corporations, various academic texts apply the same concept to the directors of not-for-profit corporations (See McCarthy Tétrault, Directors' and Officers' Duties and Liabilities in Canada, M.P. Richardson, Ed. (Toronto: Butterworths, 1997)).
[165] Officers and directors may have a liability to persons other than the corporation where they engage in “fraud, dishonesty, want of authority or other conduct specifically pleaded which justified piercing the corporate veil”: Alvi v. Misir (2004), 2004 47790 (ON SC), 73 O.R. (3d) 566, [2004] O.J. No. 5088 at para. 52 (S.C.J.). In this case, however, there is no pleading of fraud, dishonesty, want of authority or other conduct of FFC Foundation or the FFC Directors that would justify the piercing of the corporate veil: see Budd v. Gentra Inc., 1998 5811 (ON CA), [1998] O.J. No. 3109 (C.A.); McKenna v. Gammon Gold Inc., above.
[166] In fact, the plaintiff has assiduously avoided lumping the FFC Directors into the allegations of malfeasance and fraud made against the other defendants.
[167] The plaintiff argues that the claim against the FFC Directors should be allowed to proceed because it falls within the principle that “novel” claims should be allowed to proceed. There is nothing novel about this area of the law. The principle that directors owe a duty to the corporation and not to others goes back to Foss v. Harbottle (1843), 67 E.R. 189.
[168] The plaintiff therefore has no cause of action in negligence against the FFC Directors and that claim will be struck.
(iv) The Gleesons
[169] It is pleaded that the Gleesons, together with the ParkLane Defendants and the Bermuda Trust, created the FFC Foundation and the Donations Canada Trust for the purpose of facilitating the operation of the Gift Program. It is also alleged that GMA, as agent for ParkLane and Gleeson, promoted, marketed and sold the Gift Program to Class members. There are also allegations that all of the defendants, other than the FFC Directors, negligently planned and created the Gift Program and negligently distributed or permitted the distribution of the promotional materials when they knew or ought to have known that the representations were false.
[170] Counsel for Gleeson and GMA makes vigorous objections to the pleading against his clients. He submits that the pleading is devoid of material facts against Gleeson, that it contains broad sweeping allegations that lump Gleeson and GMA together with the other defendants and that the claim for negligence is subsumed in the claim for negligent misrepresentation.
[171] For the reasons set out in relation to the claim against ParkLane, I find that there is a properly pleaded claim in negligence against Gleeson and GMA. Although the pleading against Ms. Gleeson lumps her in with all the other defendants, as having negligently planned and created the Gift Program, the pleading is broad enough to include her.
(v) The Lawyers
[172] For the reasons set out below, dealing with the Lawyers’ summary judgment motion, I find that there is a properly pleaded cause of action against the Lawyers in negligence.
(vi) Appleby
[173] There is no separate pleading of negligence or negligent misrepresentation against Appleby – Appleby is simply bundled together, in the statement of claim, with “all of the Defendants”, other than the FFC Directors.
[174] Appleby contends that the statement of claim does not disclose a cause of action against it in negligence, because the plaintiff fails to plead the existence of a duty of care. It says that there is no duty of care, since the claim is for pure economic loss and does not fall within one of the relationships that have been recognized as giving rise to such a duty: see Canadian National Railway v. Norsk Pacific Steamship Co., 1992 105 (SCC), [1992] 1 S.C.R. 1021, [1992] S.C.J. No. 40 at para. 31.
[175] To establish a new duty of care, the plaintiff must meet the test set out in Attis v. Canada (Minister of Health) (2008), 2008 ONCA 660, 93 O.R. (3d) 35 (C.A.), which in turn confirmed the approach described in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537 and Edwards v. Law Society of Upper Canada, 2001 SCC 80, [2001] 3 S.C.R. 562. See also: Design Services Ltd. v. Canada, 2008 SCC 22, [2008] S.C.J. No. 22.
[176] I will discuss the duty of care analysis at length when I consider the Lawyers’ summary judgment motion. This approach requires, at the first stage, that the plaintiff establish that the harm that occurred was a reasonably foreseeable consequence of the defendant’s conduct and that there is sufficient proximity arising from the relationship between the parties to justify imposing a duty of care on the defendant. At the second stage, if the court has made findings of foreseeability and proximity, the onus shifts to the defendant to show that there are residual policy considerations that negative the imposition of a duty of care.
[177] I do not accept Appleby’s submission. There is a pleading that the Bermuda Trust, for which Appleby is the trustee, is affiliated with the ParkLane defendants and that it acted in concert with them in the creation, administration, marketing and sale of the Gift Program. Accepting these allegations as true for the purposes of the s. 5(1)(a) test, Appleby as a creator of the Gift Program arguably owed a duty of care to a prospective donor to ensure that the program would work and that the donor would receive a valid charitable donation receipt in return for his or her gift. I conclude that there is a properly pleaded cause of action against Appleby for negligence.
(b) Negligent Misrepresentation
[178] A claim for negligent misrepresentation is made in para. 1(d) of the statement of claim against the ParkLane Defendants[^1], the Lawyers and the Gleesons.
[179] In Queen v. Cognos Incorporated, 1993 146 (SCC), [1993] 1 S.C.R. 87, the Supreme Court of Canada set out the requirements of the tort of negligent misrepresentation:
(a) there must be a duty of care based on a “special relationship” between the representor and the representee;
(b) the representation in question must be untrue, inaccurate, or misleading;
(c) the representor must have acted negligently in making the representation;
(d) the representee must have relied, in a reasonable manner, on the negligent misrepresentation; and
(e) the reliance must have been detrimental to the representee in the sense that damages resulted.
[180] Misrepresentation must be pleaded with particularity. The pleading must set out, with “careful particularity”: (a) the alleged representation; (b) when, where, how and by whom it was made; (c) its falsity; (d) the inducement; (e) the intention that the plaintiff should rely on it; (f) the alteration by the plaintiff of his or her position relying on the misrepresentation; and (g) the resulting loss or damage to the plaintiff: see Lysko v. Braley (2006), 2006 11846 (ON CA), 79 O.R. (3d) 721, [2006] O.J. No. 1137 at para. 30 (C.A.).
[181] As I have noted, in attempting to dance around the difficulties associated with certifying a class action based on negligent misrepresentation, the statement of claim has bundled together allegations of both negligence and negligent misrepresentation under the single heading of “Negligence”. The pleading of negligent misrepresentation is lacking in “careful particularity”, but, read generously, it does include allegations that the defendants, other than the FFC Directors:
• owed a duty of care to the Class;
• negligently created the Gift Program promotional materials;
• knew or ought to have known that Class members would be relying on the accuracy of those materials;
• knew or ought to have known that the materials were inaccurate;
• failed to take steps to correct the inaccuracy;
• failed to explain that the cash and in kind donations were granted to the charities conditionally and on terms limiting their use;
• failed to disclose to Class members that there was no charitable intent to the Gift Program and that the primary purpose was to financially benefit the defendants; and
• that Class members relied on the representations contained in the promotional materials to their detriment.
[182] The plaintiff says in his factum that “[T]he facts alleged in the Claim that support the claim for negligent misrepresentation are included, above, in the facts that support the claim in negligence, simpliciter.” He says that the defendants created promotional materials that contained material misstatements and omissions when they knew or ought reasonably to have known that the Class members would rely on these misrepresentations to their detriment, which in fact occurred.
[183] Reading the pleading generously, as I must, with due allowance for drafting deficiencies, including the lack of particulars, I find that the plaintiff has adequately pleaded a cause of action for negligent misrepresentation against the defendants identified above.
(c) Fraud and Fraudulent Misrepresentation
[184] The plaintiff pleads that the Gift Program was an elaborate fraud, planned and created by the ParkLane Defendants, Appleby and the Gleesons for the purpose of profiting themselves by approximately $100 million at the expense of Class members. He also pleads that these defendants fraudulently misrepresented to the Class that they would receive tax benefits, which they knew or ought to have known would not occur, and that the Class members relied on these representations. He alleges that the defendants knew, or were reckless or willfully blind to, the fact that the representations in the promotional materials were untrue.
[185] ParkLane does not contest that there is an adequately pleaded cause of action for fraudulent misrepresentation. It submits, however, that the claims in fraud are, in substance, claims for fraudulent misrepresentation and disclose no separate cause of action. The other defendants make similar submissions and also assert that the plaintiff has failed to provide sufficient particulars of the alleged fraud.
[186] A pleading of fraudulent misrepresentation (also referred to as deceit) requires that there be: (a) a false representation of fact; (b) made with knowledge of its falsehood or recklessly, without belief in its truth; (c) with the intention that it should be acted upon by the plaintiff; and (d) that actually induces the plaintiff to act on it to his or her detriment: Parna v. G & S Properties Ltd., 1970 25 (SCC), [1971] S.C.R. 306, 15 D.L.R. (3d) 336; McKenna v. Gammon Gold Inc. et al., above (S.C.J.), aff’d on this issue on motion for leave to appeal, 2010 ONSC 4068 at para. 20 (Div. Ct.).
[187] Fraud is the deprivation of another’s property by dishonest means. While many of the classic definitions of fraud have a component of false representation (see Parna v. G. & S. Properties Ltd., above, at S.C.R. 316) or deceit (see Re London and Globe Finance Corp., [1903] 1 Ch. 728, [1900-3] All E.R. Rep. 891, 88 L.T. 194, 10 Mans. 198 at 732-33 [cited to Ch.]), other cases have held that these definitions are not exhaustive and fraud can simply mean the dishonest deprivation of someone else’s property. For example, in Scott v. Commissioner of Police for the Metropolis, [1974] 3 All E.R. 1032, [1975] A.C. 819, 60 Cr. App. Rep. 124, 181 Sol. Jo. 863 (H.L.) [cited to All E.R.], Viscount Dilhorne held at p. 1038:
The definition of "defraud" in the London and Globe Finance case is not exhaustive and the word ordinarily means: “... to deprive a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud, be entitled.”
[188] This is consistent with the definition of the criminal offence of fraud set out in s. 380 of the Criminal Code, R.S.C. 1985, c. C-46:
Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security …[is guilty of an offence]. [emphasis added].
[189] In Harland v. Fancsali (1993), 1993 8457 (ON SC), 13 O.R. (3d) 103, [1993] O.J. No. 961 (Gen. Div.) at paras. 15-17, Ferguson J. pointed out that fraud is broader than deceit and there is no need to prove a false representation:
Many of the texts and cases are not very clear about the relationship and differences between a civil claim based on fraud and one based on deceit. It would appear that a remedy for fraud was originally only available in equity but that in current theory it would be more helpful to simply consider it as a category of liability based on unjust enrichment (Klar, Remedies in Tort, vol. 1 (Toronto: Carswell, 1987), at pp. 5-11; Klippert, Unjust Enrichment (Toronto: Butterworths, 1983), pp. 280-82) (where the defendant has benefited at the expense of the plaintiff) or, more generally, as simply a tort for which the court will grant a remedy to restore the plaintiff to his original position or compensate him for any loss caused.
As a theory of liability, fraud is much broader in scope than deceit. There is no need to prove a false representation. Indeed, the courts have recognized that it is difficult, if not impossible, to define fraud because it is capable of being committed in endless forms and new forms continually arise: see Klar, Remedies in Tort, supra, pp. 511-12.
Justice Montgomery reviewed the definitions of fraud in Ontex Resources Ltd. v. Metalore Resources Ltd. (1990), 1990 6952 (ON SC), 75 O.R. (2d) 513 (Gen. Div.). Perhaps the most general definition he quoted was that "defraud" means to deprive a person dishonestly of something which is his or of something to which he is or would or might, but for the perpetration of the fraud, be entitled.
[190] Fraud, in its widest sense, may include a component of deceit or misrepresentation, but it need not necessarily do so.
[191] In this case, the pleading of fraud refers not only to the alleged fraudulent misrepresentation (which was in essence, “you will receive a valid charitable receipt much greater than your cash contribution”), but also to the allegation that the defendants constructed and participated in a dishonest scheme to siphon the plaintiff’s charitable donations out of the charities and into their own pockets. The allegations in the statement of claim, read generously, are broad enough to include fraud by deceit and fraud by other dishonest acts.
[192] I agree with the submission of counsel for the plaintiff that some of the defendants could be found liable for having committed a fraud, without necessarily having made fraudulent misrepresentations, and other defendants could be liable for both fraud and fraudulent misrepresentation.
[193] I therefore conclude that there are sufficient pleadings of fraud and fraudulent misrepresentation against the defendants identified above. The role of each defendant in the alleged fraud is sufficiently spelled out in the pleading to make it clear what acts made up the fraud.
(d) Conspiracy
[194] The plaintiff pleads that all the defendants, other than the Lawyers, the FFC Foundation and the FFC Directors, engaged in a conspiracy to cause harm to the plaintiff and the Class. He also says that they agreed to act unlawfully, the predominant purpose of which was to cause injury to the plaintiff and the Class and that they did in fact cause injury. Alternatively, the plaintiff says that the defendants entered into an agreement to engage in unlawful conduct directed towards the Class, which they knew or ought to have known would cause injury, and which in fact caused injury to the Class by the loss of their donations. The allegations of conspiracy, and the particulars, are set out in paras. 95 to 106 of the statement of claim.
[195] A pleading of conspiracy must include the following particulars:
(a) the parties and their relationship;
(b) an agreement to conspire;
(c) the precise purpose or objects of the alleged conspiracy;
(d) the overt acts that are alleged to have been done by each of the conspirators; and
(e) the injury and particulars of the special damages suffered by reason of the conspiracy.
See 2038724 Ontario Ltd. v. Quizno's Canada Restaurant Corp. (2008), 2008 8421 (ON SC), 89 O.R. (3d) 252, [2008] O.J. No. 833 at para. 90, rev'd on other grounds (2009), 2009 23374 (ON SCDC), 96 O.R. (3d) 252, [2009] O.J. No. 1874 (Div. Ct.); Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 1998 2447 (ON CA), 37 O.R. (3d) 97, [1998] O.J. No. 391 (C.A.); D.G. Jewelry Inc. v. Cyberdiam Canada Ltd., [2002] O.J. No. 1465 (S.C.J.); Cineplex Corporation v. Viking Rideau Corporation (1985), 28 B.L.R. 212, [1985] O.J. No. 304 (Ont. H.C.J.).
[196] There are two different ways that the tort of conspiracy may be established:
(a) by proof of “simple motive conspiracy,” e.g. that the defendants had a purpose of injuring the plaintiff; or
(b) by proof of “unlawful conduct conspiracy” or “unlawful means conspiracy” - that the defendants were engaging in unlawful conduct that they knew or ought to have known would injure the plaintiff.
[197] In Harris v. GlaxoSmithKline Inc. (2010), 2010 ONSC 2326, 101 O.R. (3d) 665, [2010] O.J. No. 1710, Perell J. identified the elements of the tort of conspiracy and the two different ways in which a conspiracy may be committed, and therefore pleaded, at para. 74:
In Canada, the tort of conspiracy can be committed in two discrete ways that may arise on the same set of facts; namely, (1) by two or more persons using some means (lawful or unlawful) for the predominate purpose of injuring the plaintiff; and (2) by two or more persons using unlawful means with knowledge that their acts were aimed at the plaintiff and knowing or constructively knowing that their acts would result in injury to the plaintiff. The other elements of the tort of conspiracy are: (a) an agreement to injure between two or more persons; (b) acts in furtherance of the agreement to injure; and (c) the plaintiff suffering damages as a result of the defendants' conduct.
[198] Perell J. referred to the leading Canadian case of Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 23 (SCC), [1983] 1 S.C.R. 452, in which the Supreme Court of Canada defined the tort of conspiracy as follows, at para. 33-34:
…[T]he law of torts does recognize a claim against [Defendants] in combination as the tort of conspiracy if:
(1) whether the means used by the Defendants are lawful or unlawful, the predominant purpose of the Defendants’ conduct is to cause injury to the Plaintiff; or
(2) where the conduct of the Defendants is unlawful, the conduct is directed towards the Plaintiff (alone or together with others), and the Defendants should know in the circumstances that injury to the Plaintiff is likely to and does result.
In situation (2) it is not necessary that the predominant purpose of the Defendants’ conduct be to cause injury to the Plaintiff but, in the prevailing circumstances, it must be a constructive intent derived from the fact that the Defendants should have known that injury to the Plaintiff would ensure. In both situations, however, there must be actual damage suffered by the Plaintiff.
[199] In Agribrands Purina Canada Inc. v. Kasamekas, [2011] O.J. No. 2786, 2011 ONCA 460, the Court of Appeal identified the following elements of the tort of unlawful conduct conspiracy:
(a) they act in combination, that is, in concert, by agreement or with a common design;
(b) their conduct is unlawful;
(c) their conduct is directed towards the respondents;
(d) the appellants should know that, in the circumstances, injury to the respondents is likely to result; and
(e) their conduct causes injury to the respondents.
[200] The Court of Appeal confirmed that the “unlawful conduct” component of this form of conspiracy may include conduct that is “wrong in law”, but not necessarily actionable in private law. This could include, for example, breach of a criminal statute or breach of a statute that does not confer a civil cause of action. The Court of Appeal stated, at paras. 37-38:
It is clear from that jurisprudence that quasi-criminal conduct, when undertaken in concert, is sufficient to constitute unlawful conduct for the purposes of the conspiracy tort, even though that conduct is not actionable in a private law sense by a third party. The seminal case of Canada Cement LaFarge is an example. So too is conduct that is in breach of the Criminal Code. These examples of "unlawful conduct" are not actionable in themselves, but they have been held to constitute conduct that is wrongful in law and therefore sufficient to be considered "unlawful conduct" within the meaning of civil conspiracy. There are also many examples of conduct found to be unlawful for the purposes of this tort simply because the conduct is actionable as a matter of private law. In Peter T. Burns & Joost Blom, Economic Interests in Canadian Tort Law (Markham: LexisNexis, 2009), the authors say this at p. 167-168:
There are two distinct categories of conduct that can be described as comprising "unlawful means": conduct amounting to an independent tort or other actionable wrong, and conduct not actionable in itself.
Examples of conspiracies involving tortious conduct include inducing breach of contract, wrongful interference with contractual rights, nuisance, intimidation, and defamation. Of course, a breach of contract itself will support an action in civil conspiracy and, as one Australian court has held, the categories of "unlawful means" are not closed.
The second category of unlawful means is conduct comprising unlawful means not actionable in itself.
The first class of unlawful means not actionable in themselves, but which nevertheless supports a conspiracy action, is breach of a statute which does not grant a private right of action, the very instance rejected in Lonrho (1981) by the House of Lords. A common case is a breach of labour relations legislation, and another is the breach of a criminal statute such as the Canadian Criminal Code.
What is required, therefore, to meet the "unlawful conduct" element of the conspiracy tort is that the defendants engage, in concert, in acts that are wrong in law, whether actionable at private law or not. In the commercial world, even highly competitive activity, provided it is otherwise lawful, does not qualify as "unlawful conduct" for the purposes of this tort.
[201] The plaintiff’s pleading sets out a proper cause of action for unlawful conduct conspiracy. It is alleged that the ParkLane Defendants, “Trustee Gleeson”, and the Gleesons:
(a) acted by agreement;
(b) to engage in unlawful conduct, namely the allegedly fraudulent Gift Program;
(c) which was directed at Class members;
(d) which they knew or ought to have known would cause injury to the Class;
(e) and that injury did, in fact, result.
[202] The primary objection made by the defendants is that the conspiracy claim adds nothing, is “merged” in the underlying torts, and should be struck – see Lord Denning M.R. in Ward v. Lewis, [1955] 1 All E.R. 55 (C.A.) at 56:
It is important to remember that when a tort has been committed by two or more persons an allegation of a prior conspiracy to commit the tort means nothing. The prior agreement merges in tort.
See also McKenna v. Gammon Gold Inc. (Div. Ct.), above, at paras. 62-76; Normart Management Ltd v. West Hall Redevelopment Co. 1996 8210 (ON SC), [1996] O. J. 3655 (S.C.J.), aff’d [1998] O.J. No. 329 (C.A.).
[203] Put another way, where the plaintiff complains that the defendants planned to do something and then did it, the pleading of conspiracy adds nothing: Apple Bee Shirts Ltd. v. Lax (1988), 27 C.P.C. (2d) 226 (Ont. H.C.J.).
[204] Lord Denning amplified on the rationale of the merger principle in Ward v. Lewis, above, at p. 56:
The prior agreement merges in the tort. A party is not allowed to gain an added advantage by charging conspiracy when the agreement has become merged in the tort. It is sometimes sought, by charging conspiracy, to get an added advantage, for instance in proceedings for discovery, or by getting in evidence which would not be admissible in a straight action in tort, or to overcome substantive rules of law, such as here, the rules concerning republication of slanders. When the court sees attempts of that kind being made, it will discourage them by striking out the allegation of conspiracy on the simple ground that the conspiracy adds nothing when the tort has in fact been committed.
[205] In para. 96 of the statement of claim, the plaintiff pleads that the defendants conspired to make fraudulent representations. There are pleadings in paragraphs 98 and 99 that the defendants agreed to participate in a “scheme” to acquire the Class member’s money and, in para. 104, that the defendants conspired to commit a fraud. The plaintiff relies upon the same conduct for the claims for fraud and fraudulent misrepresentation.
[206] The defendants say that in substance the pleading of conspiracy is that the defendants conspired to engage in a fraudulent scheme to separate the Class members from their money. The underlying facts supporting the conspiracy claim are the same facts that are pleaded in relation to the fraud and fraudulent misrepresentation claims.
[207] The plaintiff relies upon Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, a leading case on the pleading of conspiracy, and on the “plain and obvious” test on a motion to strike a pleading as disclosing no cause of action. In that case, Wilson J. refused to give effect to an argument that the conspiracy claim had merged with the tort claim, concluding that the issue should be left to the trial judge to determine after considering all the evidence. She stated at paras. 53-55:
Finally, the defendants also submit that a cause of action in conspiracy is not available when a plaintiff has available another cause of action. Since the plaintiff has alleged in paragraph 20 of his statement of claim that the defendants engaged in various tortious acts, the defendants contend that it is not open to the plaintiff to proceed with his claim in conspiracy.
In my view, there are at least two problems with this submission. First, while it may be arguable that if one succeeds under a distinct nominate tort against an individual defendant, then an action in conspiracy should not be available against that defendant, it is far from clear that the mere fact that a plaintiff alleges that a defendant committed other torts is a bar to pleading the tort of conspiracy. It seems to me that one can only determine whether the plaintiff should be barred from recovery under the tort of conspiracy once one ascertains whether he has established that the defendant did in fact commit the other alleged torts. And while on a motion to strike we are required to assume that the facts as pleaded are true, I do not think that it is open to us to assume that the plaintiff will necessarily succeed in persuading the court that these facts establish the commission of the other alleged nominate torts. Thus, even if one were to accept the appellants' (defendants) submission that "upon proof of the commission of the tortious acts alleged" in paragraph 20 of the plaintiff's statement of claim "the conspiracy merges with the tort", one simply could not decide whether this "merger" had taken place without first deciding whether the plaintiff had proved that the other tortious acts had been committed.
This brings me to the second difficulty I have with the defendants' submission. It seems to me totally inappropriate on a motion to strike out a statement of claim to get into the question whether the plaintiff's allegations concerning other nominate torts will be successful. This a matter that should be considered at trial where evidence with respect to the other torts can be led and where a fully informed decision about the applicability of the tort of conspiracy can be made in light of that evidence and the submissions of counsel. If the plaintiff is successful with respect to the other nominate torts, then the trial judge can consider the defendants' arguments about the unavailability of the tort of conspiracy. If the plaintiff is unsuccessful with respect to the other nominate torts, then the trial judge can consider whether he might still succeed in conspiracy. Regardless of the outcome, it seems to me inappropriate at this stage in the proceedings to reach a conclusion about the validity of the defendants' claims about merger. I believe that this matter is also properly left for the consideration of the trial judge.
[208] Hunt v. Carey Canada Inc. was discussed recently by the Divisional Court in an appeal from a certification decision in McKenna v. Gammon Gold Inc., [2011] O.J. No. 3240, 2011 ONSC 3782, a case involving alleged misrepresentations affecting the price of the shares of a publicly-traded company. I had adjourned the motion for certification, pending the delivery by the representative plaintiff of particulars of the special damages allegedly sustained that were separate and distinct from the damages arising from the underlying tort. Leave to appeal on this issue was granted, as well as on an issue related to the conspiracy claim on behalf of purchasers in the secondary market. The Divisional Court (Herman and Swinton JJ., Wilton-Siegel J. concurring in the result) held that the plaintiff was not required to provide particulars as a precondition to certification of the conspiracy claim.
[209] The Divisional Court reviewed a number of authorities on the issue, including Hunt v. Carey Canada Inc. It noted that in Yordanes v. Bank of Nova Scotia, 2006 1777 (ON SC), [2006] O.J. No. 280 (S.C.J.), Cullity J., following Hunt v. Carey Canada Inc., had rejected the idea that a conspiracy plea would only be certified if the damages claimed relate to losses not covered by the damages claimed in respect of the other pleaded torts. In Dean v. Mister Transmission (International) Ltd. (2008), 66 C.P.C. (6th) 287, [2008] O.J. No. 4372 (S.C.J.), Gray J., following the decision of the Court of Appeal in Smith v. National Money Mart Co., 2006 14958 (ON CA), [2006] O.J. No. 1807 (C.A.), had also left this issue for trial.
[210] On the other hand, in Normart Management Ltd. v. West Hall Redevelopment Co., the Court of Appeal upheld a decision to strike a conspiracy claim on the basis that it would have no impact on the success or failure of the action. The Court of Appeal held, per Finlayson J.A.:
[T]his court must determine whether the allegations relating to the claim of conspiracy and the ensuing damages are substantially the same as those of the cause of action for breach of contract and fiduciary duty, such that the two causes of actions relate to the same underlying factual foundation and no significant differences between the two causes of actions emerge.
[211] The Divisional Court in McKenna v. Gammon Gold Inc. concluded that these decisions could be reconciled by the application of the principle set out immediately above. It stated, at para. 62:
… at the pleadings stage of a conspiracy claim, the court's task is to determine whether the allegations relating to the claim of conspiracy and the ensuing damages are substantially the same as those pleaded in another cause of action such that the conspiracy claim adds nothing.
[212] The Divisional Court put the test as follows, at para. 64:
The question the court needs to consider is whether it is plain and obvious that the conspiracy claim adds nothing to the other claims. Is it plain and obvious that if the [other cause(s) of action] claim does not succeed, the conspiracy claim cannot succeed; and if the [other cause of action] claim does succeed, is it plain and obvious that the conspiracy claim adds nothing further?
[213] It will be helpful for the analysis to juxtapose this test with the observation of Wilson J. in Hunt v. Carey Canada Inc. at para. 55 that:
If the plaintiff is successful with respect to the other nominate torts, then the trial judge can consider the defendants' arguments about the unavailability of the tort of conspiracy. If the plaintiff is unsuccessful with respect to the other nominate torts, then the trial judge can consider whether he might still succeed in conspiracy.
[214] I take the test set out by the Divisional Court to require me to determine whether it is plain and obvious that if the other causes of action do not succeed, the conspiracy claim could also not succeed, or that if the other cause of action does succeed, the conspiracy claim could add nothing.
[215] In applying that test, I am required to construe the pleading generously, having regard, among other things, to the plaintiff's lack of access to key documents and discovery information at the pleadings stage. This observation is particularly apt in a conspiracy pleading, where the conduct complained of is invariably outside the plaintiff’s knowledge. Cumming J. commented on this very point in North York Branson Hospital v. Praxair Canada Inc., 1998 14799 (ON SC), [1998] O.J. No. 5993, 84 C.P.R. (3d) 12 (Gen. Div.), at para. 22:
In truth, the very nature of a claim of conspiracy is that the tort resists detailed particularisation at early stages. The relevant evidence will likely be in the hands and minds of the alleged conspirators. Part of the character of a conspiracy is its secrecy and the withholding of information from alleged victims. The existence of an underlying agreement bringing the conspirators together, proof of which is a requirement borne by a plaintiff, often must be proven by indirect or circumstantial evidence. A conspiracy is more likely to be proven by evidence of overt acts and statements by the conspirators from which the prior agreement can be logically inferred. Such details would not usually be available to a plaintiff until discoveries. These considerations and the general theme of Hunt, instructing courts not to shy away from difficult litigation, also militate against holding pleadings in civil conspiracy cases to an extraordinary standard.
[216] This is a case in which several causes of action are asserted against five sets of defendants. The allegations of conspiracy in the pleading are general and it is impossible to speculate what constellation of facts or combination of facts may ultimately be proven at trial and what underlying causes of action may ultimately be established against which defendants. It is possible, for example, that the unlawful conduct of the defendants might be sufficient to support the underlying cause of action, such as misrepresentation, fraud, or breach of the Consumer Protection Act, 2002, but that the cause of action itself might fail for any number of reasons, leaving the cause of action for conspiracy still standing.
[217] I am unable to say that it is plain and obvious that if none of the several causes of action succeeds, the conspiracy claim could not succeed, or, that if one of those claims does succeed, the conspiracy claim would add nothing.
[218] I prefer, therefore, in this complex and multi-party action, to adopt the course suggested by Wilson J. in Hunt v. Carey and to leave it to the trial judge to determine, after all the evidence is in, whether conspiracy and any of the other causes of action have been made out and, if so, whether the conspiracy claim adds anything.
[219] Ms. Gleeson submits that there is no cause of action against her for conspiracy, in her capacity as an officer of GMA, for her actions on behalf of the corporation.
[220] In Normart Management Ltd. v. West Hill Redevelopment Co.., above, the Court of Appeal observed, at para. 18:
It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity or interest from that of the corporations such as to make the acts or conduct complained of those of the directing minds: see Scotia McLeod Inc. v. Peoples Jewellers Ltd. (1995), 1995 1301 (ON CA), 26 O.R. (3d) 481 at 491 (C.A.).
See also: Craik v. Aetna Life Insurance Co. of Canada, [1995] O.J. No. 3286 at para. 23 (Gen. Div.), aff’d. [1996] O.J. No. 2377 (C.A.); Accord Business Credit Inc. v. Bank of Nova Scotia, [1997] O.J. No. 2562 at para. 34 (Gen. Div.).
[221] In Normart, however, the Court of Appeal noted that there was no factual basis for the allegation that the individual directors were acting outside their corporate capacities. In the case before me, there are allegations that the Gleesons were acting in their own personal capacities, with a view to their own enrichment. That is sufficient to make out a cause of action in their personal capacities.
[222] As I will explain when I discuss the breach of contract claim against Gleeson, there is no cause of action against Gleeson, referred to as “Trustee Gleeson”, in his capacity as Trustee of the Donations Canada Trust, as he is no longer a trustee of that trust. The cause of action against him for conspiracy, in his personal capacity as opposed to his capacity as a trustee, will be certified.
[223] In summary, a cause of action in conspiracy will be certified against the ParkLane Defendants, Appleby and the Gleesons.
(e) Breach of Consumer Protection Legislation
[224] The plaintiff pleads that the Gift Program was a “consumer transaction” and as such, was governed by the Consumer Protection Act, 2002 and comparable legislation in other provinces. The claim under the statute is asserted against all defendants other than Appleby and the Lawyers.
[225] There are broad pleadings that:
• the ParkLane Defendants and the Gleesons marketed and sold the Gift Program to the Class;
• these defendants made misrepresentations to the Class concerning the Gift Program; and
• these defendants had a duty to comply with the Consumer Protection Act, 2002, and failed to do so.
[226] The plaintiff alleges that these defendants engaged in unfair practices prohibited by s. 17(1) of the Consumer Protection Act, 2002, by making false, misleading or deceptive representations and unconscionable representations concerning the Gift Program, giving rise to a remedy in rescission or damages under s. 18.
[227] The Consumer Protection Act, 2002 applies to “consumer transactions” if the “consumer” or the person engaging in the transaction with the consumer is located in Ontario when the transaction takes place (s. 2(1)). A “consumer” is defined as “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes” and a “consumer transaction”, means “any act or instance of conducting business or other dealings with a consumer, including a consumer agreement” (s. 1).
[228] The substantive and procedural rights conferred by the statute apply despite any agreement or waiver to the contrary (s. 7(1)).
[229] The statute prohibits, among other things, an “unfair practice” (s. 17(1)). This includes making a “false, misleading or deceptive representation”, defined by s. 14(1) to include a variety of statements, including:
A representation that the goods or services have sponsorship, approval, performance characteristics, accessories, uses, ingredients, benefits or qualities they do not have.
A representation that the goods or services are available for a reason that does not exist.
A representation that the goods or services or any part of them are available or can be delivered or performed when the person making the representation knows or ought to know they are not available or cannot be delivered or performed.
A representation that the transaction involves or does not involve rights, remedies or obligations if the representation is false, misleading or deceptive.
A representation using exaggeration, innuendo or ambiguity as to a material fact or failing to state a material fact if such use or failure deceives or tends to deceive.
[230] It is also an unfair practice, and therefore prohibited, to make an “unconscionable representation” (s. 15(1)). Section 15(2) provides:
Without limiting the generality of what may be taken into account in determining whether a representation is unconscionable, there may be taken into account that the person making the representation or the person’s employer or principal knows or ought to know,
(c) that the consumer is unable to receive a substantial benefit from the subject-matter of the representation;
(e) that the consumer transaction is excessively one-sided in favour of someone other than the consumer;
(f) that the terms of the consumer transaction are so adverse to the consumer as to be inequitable;
(g) that a statement of opinion is misleading and the consumer is likely to rely on it to his or her detriment; or
[231] An unfair practice gives rise to a remedy in rescission under s. 18(1) or where rescission is not possible, damages, including exemplary or punitive damages, under s. 18(2).
[232] To qualify for rescission or damages, section 18(3) requires that notice of rescission or recovery of damages must be given within one year. However, the Court has jurisdiction under s. 18(15) to waive this requirement if it is in the interests of justice to do so.
[233] Cannon’s argument on this cause of action is, in summary, as follows:
(a) he and Class members fall within the definition of “consumer” in the Consumer Protection Act, 2002, because they are “an individual acting for personal, family or household purposes … s. 1;
(b) a “consumer transaction”, is “any act or instance of conducting business or other dealings with a consumer, including a consumer agreement”: s. 1;
(c) a “consumer agreement” means an agreement between a supplier and a consumer in which the supplier agrees to supply goods or services for payment”: s.1;
(d) a “consumer transaction” is necessarily broader than a “consumer agreement” and can include agreements that are for something other than the supply of goods or services;
(e) the general “anti-avoidance” section of the statute provides that, in determining whether the statute applies to an “entity or transaction”, the court is required to “consider the real substance of the entity or transaction and in so doing may disregard the outward form”: s. 3;
(f) the defendants engaged in conduct that was an unfair practice and also engaged in making unconscionable representations;
(g) the Consumer Protection Act, 2002 applies to “all consumer transactions if the consumer or the person engaging in the transaction with the consumer is located in Ontario when the transaction takes place.”: s.2; and
(h) since all the Defendants against whom the Plaintiff claims this relief are located in Ontario, except for TTL, the Consumer Protection Act, 2002 will apply to all Class members’ claims against all these Defendants, except TTL. The Consumer Protection Act, 2002 will apply in respect of the claims of Ontario Class members as against TTL, as well. Only the consumer protection claims asserted against TTL on behalf of Class members located in other provinces will require reference to the legislation in the other provinces.
[234] The plaintiff states no authority or precedent for the proposition that a claim such as this, which involves no sale of goods or provision of services, falls within the Consumer Protection Act, 2002. Nor is he required to do so. The novelty of the cause of action is not a factor in the application of the s. 5(1)(a) test: Khanna v. Royal College of Dental Surgeons of Ontario (2000), 2000 5167 (ON CA), 47 O.R. (3d) 95, [2000] O.J. No. 946; Hunt v. Carey Canada Inc., above at S.C.R. p. 980:
[235] The ParkLane Defendants, FFC Foundation and the Gleesons have advanced some cogent arguments in support of the proposition that the plaintiff has no cause of action under the Consumer Protection Act, 2002. In summary, these arguments are:
(a) in substance, Cannon’s donation to the program was a “gift” – it had to be a gift, with the requisite donative intent, in order to qualify for a tax credit – and the Consumer Protection Act, 2002 is plainly not intended to apply to gifts;
(b) Cannon was not entering into an agreement requiring the payment by a “consumer” to a “supplier” in exchange for the supply of “goods” or “services”;
(c) a “consumer transaction” is generally associated with the exchange of goods and services and a “consumer” is defined in the Canadian Oxford Dictionary as “(i) a person who consumes, esp. one who uses a product and (ii) a purchaser of goods and services” – the ordinary grammatical reading of the statute is inconsistent with its application to charitable donations; and
(d) the overall scheme of the Consumer Protection Act, 2002 is intended to regulate ordinary consumer agreements for the supply of goods and services, as well as specific sectors of the consumer market, such as internet agreements (sections 37-40), repair services for motor vehicles and goods (sections 55-65), credit agreements (sections 66-76) and leases (sections 86-90) – the fact that charitable giving is not included in the regulated transactions suggests that the statute was intended to regulate only ordinary and well-understood forms of consumer agreements.
[236] There are some equally compelling answers to the defendants’ submissions. First, the Consumer Protection Act, 2002 is, as its name suggests, designed for the protection of the public – it is remedial legislation and should be liberally construed in order to give effect to its objects: Weller v. Reliance Home Comfort Limited Partnership, 2011 ONSC 3148, [2011] O.J. No. 2344 at para. 38.
[237] Second, it is relatively new legislation and the Court should be reluctant to define its scope on a pleadings motion. Horkins J. made the observation recently in Wright v. United Parcel Service Canada Ltd., 2011 ONSC 5044, [2011] O.J. No. 3936 at para. 134:
For most of the Consumer Protection Act causes of action, the jurisprudence is either unsettled or non-existent. As a result, it is important to respect the principle that matters of law not fully settled in the jurisprudence be permitted to proceed.
[238] Third, s. 3 of the statute requires the Court to consider the substance and not the form of the transaction. While the form of Cannon’s contribution to the Gift Program was a “gift”, there is certainly an argument, which was advanced by C.R.A., that the substance of his contribution was not a gift, because he lacked the necessary donative intent. That is an issue of fact that will require an evidentiary record. It is also arguable that in providing an elaborate structure that would ramp up Cannon’s donation by a multiple of four, the defendants were in fact providing a “service” or that, at the very least, the arrangement was a “consumer transaction” within the scope of the statute.
[239] Fourth, while the ordinary dictionary definitions of “consumer” or “consumer transaction” are more limited, the statute contains its own definitions which expand the ordinary meaning of these terms. Cannon is arguably a “consumer” within the meaning of the statute because he was “acting for personal … purposes” and the defendants were arguably engaged in a “consumer transaction”, because they were “conducting business” or had “other dealings” with Cannon.
[240] Fifth, it may not be stretching the scope of the language to say that, in substance, the Gift Program was selling a financial product or service, other than a product or service covered by the exceptions outlined in s. 2(2), below. ParkLane’s own literature referred to the Gift Program as part of its “suite of products”.
[241] Sixth, the broad scope of the statute is illustrated by the exceptions set out in s. 2(2), which include:
(a) consumer transactions regulated under the Securities Act, R.S.O. 1990, c. S.5;
(b) financial services related to investment products or income securities;
(c) financial products or services regulated under the Insurance Act, the Credit Unions and Caisses Populaires Act, 1994, the Loan and Trust Corporations Act or the Mortgage Brokerages, Lenders and Administrators Act, 2006;
(d) consumer transactions regulated under the Commodity Futures Act;
(e) prescribed professional services that are regulated under a statute of Ontario;
(f) consumer transactions for the purchase, sale or lease of real property, except transactions with respect to time share agreements as defined in section 20; and
(g) consumer transactions regulated under the Residential Tenancies Act.
[242] Many of these exceptions, such as transactions in securities, investment products, financial products and commodity futures, would not normally be thought of as dealings in “goods and services” or as “consumer transactions”. The fact that they have been specifically excluded from the scope of the Consumer Protection Act, 2002, suggests that other financial products or plans, such as a charitable donation program with enhanced tax benefits, might well be covered by the statute.
[243] While an ordinary charitable donation would be highly unlikely to fall within the Consumer Protection Act, 2002, the Gift Program itself was far from ordinary. Bearing in mind the liberal test under s. 5(1)(a) of the C.P.A., the caution that the novelty of the cause of action is not a bar, and the importance of allowing unsettled questions to be determined on a full record, it would be wrong, in my view, to resolve this issue at this stage.
[244] I therefore find that the plaintiff has pleaded a tenable cause of action under the Consumer Protection Act, 2002 against the defendants identified above. All those defendants, other than TTL, are located in Ontario and are therefore subject to the application of the statute. The statute will apply to TTL insofar as the claims of Ontario Class members are concerned. The liability, if any, of TTL in relation to Class members outside Ontario will fall to be determined under the consumer protection legislation of the particular province in which the class member resides. If necessary, this can be determined as a sub-issue.
[245] Insofar as Appleby and the Bermuda Trust are concerned, I have previously ruled that there is no evidence of a contractual relationship between Cannon and Appleby to support service of the statement of claim under the Consumer Protection Act, 2002 out of the jurisdiction on Appleby in Bermuda: see Cannon v. Funds for Canada Foundation, [2010] O.J. No. 3486, 2010 ONSC 4517.
(f) Breach of Contract
[246] The plaintiff asserts a claim against ParkLane “and the Donations Canada Trustees” for breach of contract, rescission, and return of monies paid under the Gift Program. The pleading alleges that there was a contract between the plaintiff and ParkLane and the Donations Canada Trustees and that ParkLane and the trustees breached the contract, causing damages to the plaintiff and Class members. It further alleges that the terms of the contract between the plaintiff and ParkLane and the Donations Canada Trustees were set out in the promotional materials. The terms included, among other things, that in exchange for the donor’s cash donation, he or she would receive a charitable receipt that would be accepted by C.R.A. as a valid and legitimate claim for charitable donation tax credits.
[247] The pleading continues that there was a fundamental and material breach of the terms of their contracts by ParkLane and the Donations Canada Trustees, that the Gift Program was a fraud and that virtually none of the Class Members’ donations were gifted to charities and the Class members did not receive valid receipts recognized by C.R.A.
[248] The plaintiff claims rescission of the contract and return of all monies paid under the Gift Program.
[249] In Banyan Tree, the plaintiffs had made a similar pleading to the effect that it was an express or implied term of the contract between participants and the gift program that participants would receive a charitable tax receipt that would be recognized by C.R.A. In that case, the gift program defendants did not oppose certification of that cause of action.
[250] ParkLane does not contest the cause of action for breach of contract. It does, however, take issue with the proposition that the claim gives rise to common issues, a subject I will discuss below.
[251] As noted earlier, and as pleaded, Gleeson was the original trustee of the Donations Canada Trust and the pleading asserts that Sarah Stanbridge became the trustee in 2006. She continued in that role until the action was dismissed against her on June 27, 2011, as a result of a settlement with the plaintiff, whereby she agreed to produce all documents in her possession or control relating to the Donations Canada Trust.
[252] I agree with the submission on behalf of Gleeson that the only possible breach of contract claim against him would be in his capacity as a trustee of the Donations Canada Trust, a position that he no longer holds and that, on the face of the pleading, he ceased to hold in 2006.
[253] In an earlier decision in this proceeding, relating to the Bermuda Trust, Cannon v. Funds for Canada Foundation, [2010] O.J. No. 3486, 2010 ONSC 4517, I noted at para. 65 that a trust does not have an independent legal status. It operates through its trustees and it is held accountable through its trustees – referring to Foo v. Yakimetz, [2002] O.J. No. 3958 at para. 72 (S.C.J.); Kingsdale Securities Co. v. Canada (MNR), 1974 2545 (FCA), [1974] 2 F.C. 760, [1974] F.C.J. No. 182 (C.A.).
[254] In this case, the substance of the pleading is that the plaintiff and the Class members entered into a contract with Donations Canada Trust through its trustees. A breach of contract claim can only be asserted by suing the trust through its current trustees. Gleeson was not a trustee at the time the proceeding was commenced. There is no claim against him in his personal capacity in relation to his activities as trustee and there is no claim that he acted outside his duties. For this reason, any pleading against Gleeson in his capacity as trustee of the Donations Canada Trust should be struck.
(g) Unjust Enrichment
[255] Cannon’s pleading, under the heading “Restitution, Unjust Enrichment, Waiver of Tort, Constructive Trust”, is a hodgepodge of allegations against “the Defendants, or some of them”. It mixes causes of action and remedies to assert an entitlement to “damages on the basis of unjust enrichment and constructive trust.” I remind myself, however, that I am required to read the pleading generously and with due allowance for drafting deficiencies.
[256] The plaintiff claims that the actions of the defendants, other than the Lawyers and the FFC Directors, were intended to induce the plaintiff and Class members to invest in the Gift Program and that those defendants have received some or all of the money paid by the Class to the Gift Program. It is alleged that the Gift Program was a fraud, that the Class members have suffered a deprivation and that there has been enrichment of the defendants without juristic reason. The plaintiff pleads waiver of tort and seeks an order for restitution or a declaration that the defendants hold the proceeds on constructive trust.
[257] The Supreme Court of Canada set out the essential elements to establish a claim for unjust enrichment in Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, at para. 30. The plaintiff must show that:
(a) the defendant was enriched;
(b) there was a corresponding deprivation to the plaintiff; and
(c) there was no juristic reason for the enrichment.
[258] The ParkLane Defendants do not challenge the pleading of a cause of action for unjust enrichment. For reasons discussed later, however, they take the position that the common issues based on unjust enrichment are not appropriate for certification.
[259] Claims for unjust enrichment against FFC Foundation and the Gleesons have been lumped together with claims against the ParkLane Defendants. There is also a claim against Appleby as trustee of the Bermuda Trust. There is no pleading of unjust enrichment against the FFC Directors.
[260] These defendants argue that the plaintiff’s claim for unjust enrichment must fail, because, as pleaded, any enrichment they received was indirect and ancillary, rather than direct.
[261] FFC Foundation argues that this is a case like Boulanger v. Johnson & Johnson Corp. (2003), 2003 52154 (ON CA), 174 O.A.C. 44, [2003] O.J. No. 2218 or Singer v. Schering-Plough Canada Inc., above, because there is no direct nexus between the alleged deprivation of the plaintiff and the alleged enrichment of FFC Foundation and Ms. Gleeson. It says that the re-assessment of Cannon by C.R.A. is not, in itself, indicative of a lack of juristic reason for the funds being retained by FFC Foundation.
[262] Gleeson and GMA make similar submissions, although most of their submissions are based on factual assertions that are not relevant on a motion of this kind. They say that, at best, any benefit or enrichment they may have received was indirect and ancillary and that, at best, the pleading alleges that at some point they received payments from FFC Foundation and other charities.
[263] Appleby makes much the same point. Appleby says that the claim cannot succeed because any benefit to it was only indirectly conferred. It submits that for there to be a cause of action for unjust enrichment, the enrichment must be direct, relying on Peel (Regional Municipality) v. Canada, 1992 21 (SCC), [1992] 3 S.C.R. 762, [1992] S.C.J. No. 101 at para. 58; Boulanger v. Johnson & Johnson Corp. (2003), 2003 52154 (ON CA), 174 O.A.C. 44, [2003] O.J. No. 2218 at para. 20 (C.A.). See also Singer v. Schering-Plough Inc., above, at para. 111. It says that on the plaintiff’s case as pleaded, the enrichment was indirect, because it is alleged that the plaintiff’s funds went initially to ParkLane, then to the charity, then to TTL and finally, to Appleby. In the course of this route, the funds flowed through the charities, which are not even parties to the proceeding and against which the plaintiff makes no allegation of wrongdoing.
[264] The requirement that the benefit to the defendant be “direct” is to ensure that the plaintiff does not recover twice – once from the party who received a direct benefit and again from those who received indirect, incidental or collateral benefits. This point was addressed by Chief Justice Lamer in Peel (Regional Municipality) v. Canada, at para. 58:
While not much discussed by common law authorities to date, it appears that a further feature which the benefit must possess if it is to support a claim for unjust enrichment, is that it be more than an incidental blow-by. A secondary collateral benefit will not suffice. To permit recovery for incidental collateral benefits would be to admit of the possibility that a plaintiff could recover twice -- once from the person who is the immediate beneficiary of the payment or benefit (the parents of the juveniles placed in group homes in this case), and again from the person who reaped an incidental benefit. … It would also open the doors to claims against an undefined class of persons who, while not the recipients of the payment or work conferred by the plaintiff, indirectly benefit from it. This the courts have declined to do.
[265] It was on this basis that claims for unjust enrichment were not permitted to proceed against manufacturers where the plaintiffs had purchased the product from retailers: Boulanger v. Johnson & Johnson Corp. (C.A.), above, at para. 20 and Singer v. Schering-Plough Canada Inc., above.
[266] This case is different. The core allegation in this case is that the defendants engaged in a course of conduct that was conspiratorial and fraudulent, that they intended to enrich themselves at the expense of the donors and that the elaborate structure of the Gift Program was contrived for that very purpose. The funds may have passed through various pockets before they got to any individual defendant, but that is all it was – a pass through. Reading the pleading generously, it cannot be said that the benefit to the defendants was an “incidental blow-by” or a “secondary collateral benefit”, to use the words of Chief Justice Lamer in Peel (Regional Municipality) v. Canada.
[267] The plaintiff pleads that the donors’ money “travelled in a giant circle”. Allegedly, some of it was retained by FFC Foundation, some was paid to ParkLane for fees, some was paid to the Gleesons, and some was paid to TTL, which in turn passed on most of what it received to Appleby for the Bermuda Trust.
[268] Whether the benefit, if any, received by these defendants is sufficiently direct to give effect to a successful claim for unjust enrichment is an issue requiring proof at trial, but the pleading itself is sufficient.
[269] Additionally, the allegation that FFC Foundation was enriched by its receipt of funds extracted from the Class due to the fraudulent conspiracy with the defendants is sufficient to meet the “absence of juristic reason” requirement.
[270] Construing the pleading generously, again as I must, there is a pleading that the plaintiff suffered a deprivation, that there was an enrichment of Appleby in its capacity as trustee of the Bermuda Trust and that there was a fraud, which is the antithesis of a juristic reason.
[271] As the ParkLane defendants have conceded that a cause of action of unjust enrichment is made out against them, I conclude that this pleading meets the test under s. 5(1)(a). The claims of unjust enrichment against the other defendants also meet s. 5(1)(a).
(h) Summary Concerning cause of Action
[272] My conclusions concerning the cause of action requirement in section 5(1)(a) is that the plaintiff has pleaded the following causes of action against the defendants set out below:
(a) Negligence: the ParkLane Defendants, Appleby, FFC Foundation, the Gleesons and the Lawyers;
(b) Negligent Misrepresentation: the ParkLane Defendants, the Gleesons, and the Lawyers;
(c) Fraud and Fraudulent Misrepresentation: the ParkLane Defendants, Appleby, and the Gleesons;
(d) Conspiracy: the ParkLane Defendants, Appleby and the Gleesons;
(e) Consumer Protection Act, 2002: the ParkLane Defendants, FFC Foundation, and the Gleesons;
(f) Breach of Contract: ParkLane; and
(g) Unjust enrichment and constructive trust: the ParkLane Defendants, FFC Foundation, the Gleesons, and Appleby.
[273] The plaintiff has not pleaded a tenable cause of action against Gleeson in his capacity as a former trustee of the Donations Canada Trust and the action against him in that capacity will be dismissed.
[274] The plaintiff has failed to plead a tenable cause of action against the FFC Directors and the claim against them will be dismissed.
[275] To state the obvious, my conclusions on the cause of action requirement are not to be taken as conclusions on the merits of the plaintiff’s cause of action against any defendants. Some of the defendants have made submissions going to the merits of the plaintiff’s claims, raising numerous factual arguments to show why, in their view, the plaintiff’s claims are bound to fail. That issue is not before me on the certification motion. I will deal with the specific motions for summary judgment of the ParkLane Defendants and the Lawyers later in these reasons.
2. Identifiable Class
[276] Section 5(1)(b) of the C.P.A. requires that “there be an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant.”
[277] The Class is described above. It consists of residents of Canada who participated in the Gift Program during the period January 1, 2005 to December 31, 2009, the years in which it was offered. The identity of the Class members is readily ascertainable from the records of ParkLane.
[278] The defendants do not dispute that there is an identifiable class. A class similar to this was certified by Justice Lax in Banyan Tree. I approve the Class definition.
3. Common Issues
[279] Section 5(1)(c) of the C.P.A. requires that the claims of class members raise “common issues”. These are defined in section 1 as:
(a) common but not necessarily identical issues of fact, or
(b) common but not necessarily identical issues of law that arise from common but not necessarily identical facts.
[280] The plaintiff refers to the principles applicable to the common issues analysis, which I summarized in McKenna v. Gammon Gold at paras. 125 and 126. No party has taken issue with those principles, but there is considerable disagreement about how they should be applied in this case. I do not propose to re-state those principles, which are well-understood and oft-quoted. The first principle, however, bears repeating: The underlying foundation of a common issue is whether its resolution will avoid duplication of fact-finding or legal analysis. This principle derives from the judgment of Chief Justice McLachlin in the important case of Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534, [2000] S.C.J. No. 63 at paras. 39 and 40:
Commonality tests have been a source of confusion in the courts. The commonality question should be approached purposively. The underlying question is whether allowing the suit to proceed as a representative one will avoid duplication of fact-finding or legal analysis. Thus an issue will be "common" only where its resolution is necessary to the resolution of each class member's claim. It is not essential that the class members be identically situated vis-à-vis the opposing party. Nor is it necessary that common issues predominate over non-common issues or that the resolution of the common issues would be determinative of each class member's claim. However, the class members' claims must share a substantial common ingredient to justify a class action. Determining whether the common issues justify a class action may require the court to examine the significance of the common issues in relation to individual issues. In doing so, the court should remember that it may not always be possible for a representative party to plead the claims of each class member with the same particularity as would be required in an individual suit.
… with regard to the common issues, success for one class member must mean success for all. All members of the class must benefit from the successful prosecution of the action, although not necessarily to the same extent
[281] The considerations mentioned in the second half of the first paragraph of this extract are properly factors to be considered in the preferability analysis under s. 5(1)(d). The Chief Justice’s comment that the analysis should be approached purposively reminds us that the ability to engage in fact finding or legal analysis on a common basis drives the resolution of the claims of the class members and achieves both access to justice and judicial economy. If the issues put forward are simply not capable of resolution on a common basis, these goals cannot be achieved.
[282] I would also emphasize the point that an issue will not be common if its resolution is dependent upon individual findings of fact that have to be made with respect to each individual claimant: Fehringer v. Sun Media Corp., [2002] O.J. No. 4110, 27 C.P.C. (5th) 155 (Sup. Ct.), aff'd [2003] O.J. No. 3918, 39 C.P.C. (5th) 151 (Div. Ct.).
[283] I turn to the common issues proposed by the plaintiff.
(a) Did ParkLane and Matt Gleeson as Trustee of the Donations Canada Trust (“Trustee Gleeson”) breach their contracts with the Class Members?
[284] I have found that there is no cause of action against Gleeson in his capacity as a former trustee of the Donations Canada Trust, but I have certified a cause of action against ParkLane for breach of contract.
[285] The plaintiff claims that the contract for the Gift Program for the years 2005 to 2009 included substantially the same documents, all of which were executed by Class members when they participated in the program. The Tax Risk Disclosure Statement was not introduced until 2006.
[286] ParkLane’s submission on this issue is, essentially, that properly interpreted, the contract documents are clear and unambiguous and do not support Cannon’s claims. It says that there is a disconnect between what Cannon says he was “promised” and what the contract actually says. As a result, ParkLane argues, that the breach of contract claim will ultimately have to be determined based on what Cannon, and every other Class member, understood about the contract and the individual circumstances that lead him or her to that understanding. I disagree. The meaning of the contract will be determined objectively, not by what a party may have thought it means.
[287] ParkLane relies upon Bellaire v. Independent Order of Foresters, 2004 95288 (ON SC), [2004] O.J. No. 2242, 19 C.C.L.I. (4th) 35 (S.C.J.), in which Nordheimer J. declined to certify a breach of contract claim concerning the interpretation of an insurance policy because he found that the plaintiff’s claim was fundamentally a “point of sale” misrepresentation case.
[288] In effect, ParkLane’s submission is really to interpret the contract and to say that the plaintiff’s interpretation is so manifestly wrong that it cannot succeed, so there can be no common issue. This argument actually concedes that there is a common issue of contractual interpretation that is capable of providing an answer applicable to all donors.
[289] I agree with the submission of the plaintiff that the issue is not who will ultimately win the breach of contract issue. The only issue is whether the proposed issue is common to the Class and whether its resolution will advance the proceeding. If ParkLane is correct in its interpretation, there will be a binding determination of the contractual rights of all Class members. If ParkLane is wrong, there will be an equally binding determination in favour of the entire Class.
[290] In Banyan Tree, Lax J. certified common issues dealing with the existence of contract terms and whether the contract had been breached by the defendants.[^2] She found that the gift program in that case was marketed in common to class members and sold by agents, many of whom were trained in a standard way and were given information that was prepared by the defendants and intended to be used to promote the program. She found that variations from year to year did not detract from the commonality. That is precisely the case here. There are common contractual materials and the Distributors were supplied with standardized information and training.
[291] In this case, the plaintiff pleads that it was an express or implied term of the contract between the plaintiffs and Donations Canada Trust that the charitable tax receipts received by Class members “would be accepted by C.R.A. as valid and legitimate claims for charitable donation tax credits” and that Class members “would receive the tax savings as stated in the promotional materials and the contract.”
[292] In my view, the existence of such an implied term is an appropriate common issue. The case is not unlike Hickey-Button v. Loyalist College of Applies Arts & Technology (2006), 2006 20079 (ON CA), 211 O.A.C. 301, [2006] O.J. No. 2393 at para. 47 and Ramdath v. George Brown College of Applied Arts and Technology, 2010 ONSC 2019, [2010] O.J. No. 1411 (S.C.J.), in which implied terms of a contract arising out of a university calendar were certified to be determined on a common basis.
[293] To the extent there is an issue of an implied term, this case is similar to Glover v. Toronto (City), 2009 16740 (ON SC), [2009] O.J. No. 1523, 70 C.P.C. (6th) 303, in which there was an implied term to provide clean air, which would not depend on individual circumstances. The contract material, although varying slightly from year to year, was substantially the same in each year. To the extent there may be variations that might affect the answers, sub-issues can be developed.
(b) Are the Class Members entitled to rescind their contracts with ParkLane and the Donations Canada Financial Trust?
[294] The plaintiff claims rescission, as an alternative to damages, on the grounds of fraud, total failure of consideration, and material misrepresentation inducing the contract. As I have found that the plaintiff has properly pleaded these causes of action, that these pleadings give rise to common issues of fact and law, it is appropriate to certify a common issue of whether Class members are entitled to the remedy of rescission if their claims are made out.
[295] As I have found that the Donations Canada Trust is not properly before the Court, this common issue relates solely to ParkLane and is confined to the common law claim for rescission, as opposed to the claim under the Consumer Protection Act, 2002, which is addressed below.
(c) Common Issues Relating to Negligence
[296] The plaintiff proposes the following common issues relating to negligence:
(i) Did the Defendants owe the Class a duty of care?
(ii) What is the applicable standard of care? Did the Defendants’ acts and omissions breach the applicable standard of care?
(iii) Was the gift program so poorly conceived that Harris and the other defendants, or some of them, should have determined that the Class were always unlikely to have received the stated tax benefits? Against those defendants against whom fraud is pled, was this failure to determine that the tax benefit would never be received the result of dishonesty and fraud?
(iv) Was material information about the “back end” transaction missing from the Gift Program documents? If so, was the omission negligent or fraudulent?
(v) Did the Gift Program documents fail to disclose other material information? Was the failure due to negligence? Was the failure due to fraud?
[297] It seems to me that the second sentence in para. (iii) as well as paras. (iv) and (v) relate to fraud and fraudulent misrepresentation and are subsumed under those common issues.
[298] I have found that there is a proper pleading of negligence against the ParkLane Defendants, Appleby, FFC Foundation and the Gleesons. In essence, the pleading against those defendants is that the Gift Program was negligently constructed and that the defendants failed to ensure that C.R.A. would recognize charitable receipts issued pursuant to the Gift Program. It also alleges that the defendants were negligent in continuing the Gift Program after they knew or ought to have known that it was defective.
[299] I have also found that there is a properly pleaded cause of action in negligence against the Lawyers.
[300] In Banyan Tree, Lax J. certified similar common issues relating to the existence of a duty of care and whether the duty of care had been breached.[^3]
[301] The essence of the defendants’ objections relating to the negligence common issues is that the action is, at its core, about express misrepresentations and implicit misrepresentations by omission. The defendants say that liability cannot be established without determining what misrepresentations were made, whether those misrepresentations were material, whether there was reasonable reliance by the donor and whether that reliance caused each Class member’s damages. Thus, they say, the issue of liability for negligence will require individual inquiries to determine each Class member’s knowledge, motivations and sensitivity to risks.
[302] The defendants focus, as they do throughout this motion, on the role played by the Distributors in the marketing of the Gift Program. ParkLane says that it had no direct dealings with Class members and that it was really the Distributors who were responsible for the “point of sale” representations to the donors. Thus, the defendants all say that each Class member’s knowledge depends on the information about the Gift Program that he or she received from the Distributor and other financial advisors. In my view, those objections are not applicable to negligence common issues, but may be applicable to the negligent misrepresentation common issues.
[303] In my view, the first three common issues above are appropriate. The question of breach of duty focuses on whether the Gift Plan was negligently designed. It can be examined by focusing on the structure of the Gift Program and the conduct of the defendants in putting the Program together. It does not require individual inquiries into the actions of particular Class members.
(d) Are ParkLane, Trafalgar Associates, TTL, Appleby Services, the Donations Canada Trustees, GMA, Matt Gleeson and Ms. Gleeson (or any combination thereof) liable to the Class Members for conspiracy?
[304] I have set out above my conclusion that the plaintiff has pleaded a tenable cause of action for conspiracy. The elements of tort of unlawful conduct conspiracy focus on the conduct of the defendant. At the risk of repetition, as noted in Agribrands, the Court asks the following questions:
(a) did the defendants act in concert, by agreement or with common design?
(b) was their conduct unlawful?
(c) was their conduct directed toward the plaintiff and the Class?
(d) did the defendants know that injury to the plaintiff and the Class was likely to result?
(e) did the conduct in fact cause injury to the plaintiff and the Class?
[305] The first four requirements focus exclusively on the defendant’s conduct and knowledge. Only the last requirement needs an examination of the effect of the defendant’s conduct on the plaintiff and the Class. One could say that a conspiracy claim is ideally suited to class action treatment, because it focuses substantially on the conduct of the defendant.
[306] It is not surprising, therefore, that common issues of conspiracy have been certified in a number of class proceedings – see, for example: Smith v. National Money Mart Co. (2007), 37 C.P.C. (6th) 171, [2007] O.J. No. 46 (S.C.J.); Silver v. Imax Corp., above; Irving Paper Ltd. v. Atofina Chemicals Inc., 2009 92127 (ON SC), [2009] O.J. No. 4021 (S.C.J.); Carom v. Bre-X Minerals (2000), 2000 16886 (ON CA), 51 O.R. (3d) 236 (C.A.), [2000] O.J. No. 4014;Chadha v. Bayer (2003), 2003 35843 (ON CA), 63 O.R. (3d) 22, [2003] O.J. No. 27 (C.A.), leave to appeal to S.C.C. ref’d [2003] S.C.C.A. No. 106.
[307] In this case, it is unlikely that individual inquiries will be required to determine injury to the Class, because the tax deductions claimed by all Class members have been treated in the same manner – all have been disallowed and all Class members have received no deduction in return for their donations.
[308] The defendants argue that the conspiracy claim is not suitable for certification, because the unlawful conduct at issue is fraudulent misrepresentation, which necessitates individual findings of reliance, materiality, reasonableness and causation. They also say that conspiracy requires proof of causation and damages, neither of which can be determined on a common basis, because the Court would have to examine whether the defendants’ fraudulent misrepresentation actually caused the plaintiff to take actions that resulted in damages.
[309] I do not agree that the unlawful conduct must necessarily be the fraudulent misrepresentation. It could be fraud by other dishonest acts or a breach of the Consumer Protection Act, 2002. The answer to the common issue will focus on the conduct of the defendants, without a need for individual inquiries.
[310] Moreover, the nature of the allegedly unlawful misrepresentation – telling people that in exchange for a $2,500 donation, they would get a $10,000 tax deduction – is such that reliance, materiality, reasonableness and causation would be presumed. Even if it cannot be presumed, the determination of common issues of fact relating to the conduct of the defendants would significantly advance the claim of every Class member.
[311] While the evidence is sparse, as it necessarily will be at this stage, I am satisfied that there is a basis in fact for a common issue of conspiracy in relation to the ParkLane Defendants, the Gleesons and Appleby.
(e) Are ParkLane, Trafalgar Associates, TTL, Appleby Services or the Bermuda Longtail Trust, the Donations Canada Trustees, GMA, Matt Gleeson and/or Ms. Gleeson liable to the Class Members on the basis of fraud or fraudulent misrepresentations?
[312] I have found that there are properly pleaded causes of action against the ParkLane Defendants, Appleby and the Gleesons for fraud and for fraudulent misrepresentation.
[313] In arguing that these claims do not give rise to common issues, the defendants treat the claims as one and then attempt to demonstrate that the fraudulent misrepresentation claim is not an appropriate common issue. They argue that if the fraudulent misrepresentation claim fails then fraud must fail as a common issue as well. They say that claims based on negligent misrepresentation or fraudulent misrepresentation cannot give rise to common issues, due to the presence of individual issues of reliance, materiality, reasonableness and causation that could not be determined in common: see Williams v. Mutual Life Assurance Co. (2003), 2003 48334 (ON CA), 226 D.L.R. (4th) 112, [2003] O.J. No. 1160 (C.A.), Zicherman v. The Equitable Life Insurance Company of Canada (2003), 2003 21250 (ON CA), 226 D.L.R. (4th) 131, [2003] O.J. No. 1161 (C.A.), app. for leave to appeal dismissed, [2003] S.C.C.A. No. 280; Bellaire v. Independent Order of Foresters (2004), 2004 95288 (ON SC), 5 C.P.C. (6th) 68, [2004] O.J. No. 2242 (S.C.J.) and Moyes v. Fortune Financial Corp. (2002), 2002 23608 (ON SC), 61 O.R. (3d) 770, [2002] O.J. No. 4297 (S.C.J.), aff’d. (2003), 2003 872 (ON SCDC), 67 O.R. (3d) 795, [2003] O.J. No. 4731 (Div. Ct.).
[314] Applying the reasoning of the Court of Appeal in Carom v. Bre-X Minerals Ltd.(1999), 1999 14794 (ON SCDC), 44 O.R. (3d) 173, [1999] O.J. NO. 1662, aff’d. (19991), 1999 19916 (ON SCDC), 46 O.R. (3d) 315, [1999] O.J. No. 5514, (Div. Ct.), rev’d. (2000), 2000 16886 (ON CA), 51 O.R. (3d) 236, [2000] O.J. No. 4014 (C.A.)., to which I will turn in a moment, the defendants say that if their arguments about negligent misrepresentation not being an appropriate common issue are accepted, the same fate should befall the fraudulent misrepresentation claim.
[315] ParkLane and FFC Foundation argue that the claims in this case will require examination of what each Class member was told by one of the 455 “Independent Financial Advisors” (the Distributors) over a period of five years, an analysis of each Class member’s particular knowledge, experience, sophistication and risk tolerance and a determination of whether each Class member was induced to act as a result of these representations. Similar arguments, ultimately unsuccessful, were made in Carom v. Bre-X Minerals Ltd.
[316] In Carom v. Bre-X Minerals Ltd., there was a claim in fraudulent misrepresentation. It was argued by the defendants there that there was no conceivable commonality since the plaintiff was relying on numerous representations contained in statements originating from Bre-X and some of the defendants over a period of almost four years. The plaintiffs said that these representations were, in effect, a single representation, namely “gold was present in mineable quantities in the Busang.” There, as here, it was argued that the statements were received by investors of vastly different sophistication, knowledge and investment strategies.
[317] Winkler J., who heard the certification motion, found at paras. 78 and 79 that the claim for negligent misrepresentation was not suitable for certification, but that the claim for fraudulent misrepresentation was suitable:
A reduction of the numerous representations to a common representation requires analysis and characterization of each individual representation, the plaintiff's perception of the representation and the circumstances in which it was made. This is, of necessity, an individual inquiry. Thus, the plaintiffs contention that a multitude of statements can be reduced to a single core representation is antithetical to the essence of a common issue in a class proceeding. That is to say, that the common trial in the class proceeding is intended to resolve issues which have been determined to be common between the defendants and the plaintiff class. As such, a resolution binds every class member. The existence of the common issue must be discernible at the certification stage since it provides the basis for the common issue trial and the viability of a class proceeding. The common issue cannot be dependent upon findings which will have to be made at individual trials, nor can it be based on an assumption to circumvent the necessity for the individual inquiries. As such, there is no prospect of a resolution in a trial on common issues which would advance this litigation in any manner as it relates to the claim in negligent misrepresentation.
However, I am of the view that the claim in fraudulent misrepresentation raises common issues. The plaintiffs' allegation is that the Bre-X operation was fraudulent. Therefore, it is contended, every representation, whenever made, is tainted by the fraud. The allegation that the fraud permeates every statement raises common issues regardless of whether individual issues may arise from the actual communications made to the class members.
[318] The decision of Winkler J. was upheld by the Divisional Court. It observed at para. 4:
There is a complex, overlapping, differing and sometimes inconsistent tissue of representations made by different people at different times. As Winkler J. pointed out, the case of each individual plaintiff requires an individual inquiry as to what representations he or she relied upon and how he or she was affected by the particular representation. These individual inquiries cannot be circumvented.
The common issue cannot be dependent upon findings which have to be made, as here, at individual trials.
[319] The Court of Appeal reversed, holding that the claim for negligent misrepresentation should have been certified.
[320] MacPherson J.A., giving the judgment of the Court, observed as a preliminary matter at para. 41 that the courts have been wary of setting the bar too high on the common issues test. He noted the observation of Cumming J.A. in Campbell v. Flexwatt Corp. (1997), 1997 4111 (BC CA), 15 C.P.C. (4th) 1 (B.C.C.A.), at p. 18:
When examining the existence of common issues it is important to understand that the common issues do not have to be issues which are determinative of liability; they need only be issues of fact or law that move the litigation forward. The resolution of a common issue does not have to be, in and of itself, sufficient to support relief. To require every common issue to be determinative of liability for every plaintiff and every defendant would make class proceedings with more than one defendant virtually impossible. [emphasis added].
[321] The observation above that I have emphasized is particularly apt in a case such as this, where there are multiple defendants, each taking a run at the commonality of the common issues.
[322] MacPherson J.A. went on to find that it was appropriate to certify common issues dealing with both fraudulent misrepresentation and negligent misrepresentation and that a class action was the preferable procedure for the resolution of those claims. On the first point, the common issues, he noted at para. 44 that there