ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 12-53360
DATE: 2012/09/07

BETWEEN:

Wymor Construction Inc. Plaintiff – and – Hannah Gray, also known as Heather Lyn Gray, Christina O’Shea and the Toronto-Dominion Bank Defendants

Martin Z. Black, for the Plaintiff
Danesh Rana, for the Defendant, Hannah Gray

HEARD: August 23, 2012

REASONS FOR SUMMARY JUDGMENT

Aitken J.

Nature of Proceedings

[ 1 ] The Plaintiff, Wymor Construction Inc. (“Wymor”) seeks summary judgment against the Defendants, Hannah Gray (“Gray”) and Christina O’Shea (“O’Shea”), for damages in the amount of $27,023.44, plus pre-judgment and post-judgment interest and costs. The Plaintiff also seeks punitive and exemplary damages against O’Shea in the amount of $20,000. Finally, the Plaintiff seeks a declaration as against O’Shea that the total liability arose out of fraud and misappropriation while acting in a fiduciary capacity, such that the judgment not be released from O’Shea’s bankruptcy, if any.

[ 2 ] Gray defended the action and this motion for summary judgment. O’Shea did neither.

Facts

[ 3 ] In August 2011, Wymor hired O’Shea as its bookkeeper. O’Shea had extensive accounting experience. After she was trained on Wymor’s accounting system, O’Shea had access to Wymor’s cheques for the purpose of preparing them for signature by the signing officers at the company. Wymor’s chequing account was with the Toronto-Dominion Bank (“TD Bank”). In September 2011, O’Shea prepared twelve cheques totalling $70,589.42 on Wymor’s chequing account. The cheques were payable to “Gray, H.” or “H. Gray”. On the cheques, O’Shea forged the signature of one of the company’s signing officers. Each cheque was then deposited into Gray’s account at the Bank of Montreal (“BMO”). Gray was the sole owner and the person with sole signing authority on this account. Shortly thereafter, the cheques cleared through Wymor’s account at the TD Bank.

[ 4 ] Wymor discovered the fraudulent transactions on about October 2, 2011. Steps were immediately taken to stop payment on any cheques that had not yet cleared Wymor’s account and to seize the balance in Gray’s BMO account, namely, $20,853.70. Through these steps, Wymor was able to recoup all but $27,023.44.

[ 5 ] From October 2010 until October 2011, Gray and O’Shea were cohabiting as life partners. During this period, Gray had provided O’Shea with her private PIN bank access number for Gray’s BMO account. Gray knew that O’Shea had full access to this account for the purpose of making deposits and withdrawals.

[ 6 ] In October 2010, Gray had lent O’Shea $10,000. The loan was to be repaid in two weeks, but never was. In February or March 2011, Gray discovered that O’Shea had not paid their rent for the previous six months, which had been their agreement. Gray also knew by February 2011 that O’Shea had been diagnosed with severe depression.

[ 7 ] It is not in dispute that, in September 2011, O’Shea deposited the fraudulent cheques she had drawn on Wymor’s account into Gray’s BMO account. Gray thought the deposits were in repayment of the $10,000 loan and other moneys O’Shea owed Gray or was money received from O’Shea’s mother as her contribution to a down payment on a new home for Gray and O’Shea. At this time, Gray and O’Shea were planning to purchase a home and had decided to submit an offer on one in particular. O’Shea had told Gray that her mother would assist financially with the down payment for the home.

[ 8 ] It is not in dispute that O’Shea withdrew from Gray’s account most of the money deposited by virtue of the fraudulent cheques and used the funds for her own purposes. On one occasion, however, Gray used $8,950 from her account to repay a CIBC Visa account in her name.

[ 9 ] O’Shea was charged with, and pled guilty to, one count of fraud over $5,000.

Conversion

[ 10 ] Wymor bases its claim against Gray and O’Shea on the tort of conversion and the doctrines of “money had and received”, tracing, and unjust enrichment. In that I have concluded that the tort of conversion applies to the facts of this case in regard to Wymor’s claims against both Gray and O’Shea, I will not consider the other doctrines.

[ 11 ] The essence of the tort of conversion was outlined by Iacobucci J. in Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce , 1996 149 (SCC) , [1996] 3 S.C.R. 727, at para. 31 :

The tort of conversion involves a wrongful interference with the goods of another, such as taking, using or destroying these goods in a manner inconsistent with the owner’s right of possession. The tort is one of strict liability and, accordingly, it is no defence that the wrongful act was committed in all innocence.

[ 12 ] This characterization of the tort of conversion has been subsequently adopted by numerous courts. By way of example, see: Westboro Flooring and Décor Inc. v. Bank of Nova Scotia (2004), 2004 59980 (ON CA) , 71 O.R. (3d) 723 (C.A.), at para. 14 ; Khosla v. Korea Exchange Bank of Canada , [2008] O.J. No. 4344 , at para.13, aff’d 2009 ONCA 467 , at paras. 5-6 ; and Franklin Traffic Service Inc. v. Canadian Imperial Bank of Commerce , [2008] O.J. No. 3898 (S.C.J.), at para. 32 .

Motion for Summary Judgment

(a) As against O’Shea

[ 13 ] O’Shea has been noted in default. Consequently, pursuant to r. 19.02 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194, O’Shea is deemed to admit the truth of all allegations of fact made in the Statement of Claim. Those allegations of fact include the allegations that O’Shea fraudulently forged the signature of one of Wymor’s signing authorities on twelve cheques, which she then presented to the BMO for deposit, resulting in funds being taken from Wymor’s chequing account at the TD Bank. In the affidavit of Yigal Hadad filed in support of Wymor’s motion for summary judgment, and in the affidavit of Gray filed in response to the motion for summary judgment, additional undisputed facts were provided, as summarized above.

[ 14 ] Judgment is granted against O’Shea in the amount of $27,023.44. Despite the fact that O’Shea acted fraudulently when she converted money from Wymor’s account to her own use, I am not prepared to award punitive or exemplary damages. There is evidence before the Court to the effect that O’Shea suffers from mental illness. As well, I note that O’Shea did not defend the action or the motion for summary judgment. She attended in court when the motion was heard to advise the Court that she assumed full responsibility for the fraudulent transactions and to ensure that the Court was aware that her former partner, Gray, had no knowledge of the fraud while it was occurring. As indicated above, O’Shea pled guilty to one count of fraud over $5,000 and is awaiting sentence. She is impecunious and has no means of paying any additional damage award. In these circumstances, the Plaintiff has not established its entitlement to punitive and exemplary damages and, in any event, nothing useful would be achieved from imposing such damages.

[ 15 ] The Plaintiff is also granted a declaration that the total liability attributable to O’Shea arose out of fraud and misappropriation while acting in a fiduciary capacity, such that this judgment against O’Shea shall not be released in any subsequent bankruptcy on her part.

(b) As against Gray

[ 16 ] Gray has defended the action and filed an affidavit in response to the motion for summary judgment. Her counsel argued that summary judgment would be inappropriate in the circumstances of this case – though he was unable to articulate why a trial judge would be in any better position than this Court to hear and decide the action.

[ 17 ] The thrust of the argument advanced by Gray’s counsel seemed to be that, since summary judgment was denied in Fisher v. McKean 2011 ONSC 5251 , a case with similar facts to those in this case, the Court should deny the motion. In Fisher , Mrs. McKean misappropriated funds from her employer and deposited those funds in an account she held jointly with her husband. The employer sued both Mr. and Mrs. McKean. The employer obtained default judgment against Mrs. McKean and recovered a portion of the damages claimed. Mr. McKean defended the action and also responded to the employer’s motion for summary judgment. He argued that (1) he had been an innocent party throughout who had been unaware of his wife’s fraud, (2) he had not benefitted from any of the funds taken by his wife, and (3) the amount of money fraudulently taken by his wife from her employer was less than that claimed by the employer. DiTomaso J. decided that there was a genuine issue to be tried, both in regard to Mr. McKean’s liability and in regard to the quantum of damages he might owe. In regard to the liability issue, DiTomaso J. implied that Mr. McKean might be able to answer the claim for damages for the tort of conversion where he had no knowledge of his wife’s wrongdoing, there was no common purpose between them, and he may not have benefitted from the funds being deposited to the account he held jointly with his wife. With respect, this Court has difficulty fitting such an analysis into the framework set out in Boma and Westboro Flooring .

[ 18 ] As has been repeated in numerous cases, the tort of conversion is a strict liability tort. All that has to be established is that the defendant wrongfully interfered with the goods of another, such as taking, using, or destroying those goods in a manner inconsistent with the owner’s right of possession. Further wrongdoing on the part of the defendant need not be established. Individuals acting in all innocence can still be found liable for the tort of conversion – the many cases where banks have been found liable for conversion speaks to that.

[ 19 ] It is admitted by Gray that cheques drawn on Wymor’s account – to which Gray had no legal right – were deposited into a bank account in her sole name and were thereby available for her use, whether that was in regard to payment of a Visa bill or in regard to allowing O’Shea to remove such funds and use them for her own purposes. The mere fact that she had, to her credit, funds belonging to another, without that person’s permission, and without such possession being pursuant to any legal entitlement, amounts to conversion.

[ 20 ] In summary, no material facts are in dispute. All of the fraudulent cheques have been identified and their deposit to Gray’s bank account has been acknowledged. In regard to the question of law, as to the requirements to establish the tort of conversion, the law is clear. This Court is as well suited as a judge hearing any subsequent trial in this action to apply that law to the facts at hand.

[ 21 ] Rule 20.04 of the Rules of Civil Procedure reads as follows:

(2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or

(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.

Powers

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

[ 22 ] In Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 , 108 O.R. (3d) 1, the Court of Appeal stated, at para. 50, that, in applying r. 20.04(2.1), the judge hearing a motion for summary judgment must ask herself: “[c]an the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?” In the circumstances of this case, I have no doubt that a trial is unnecessary to fairly determine the action against Gray. Her acknowledged innocence and the minimal benefit she received from the funds being deposited to her account will not operate as a defence to the action for conversion.

[ 23 ] The motion for summary judgment against Gray is granted.

Crossclaim

[ 24 ] O’Shea shall indemnify and save harmless Gray in regard to all sums Gray owes Wymor under this judgment, including costs. As well, costs are awarded against O’Shea on the Crossclaim in the amount of $3,000. Finally, Gray is also granted a declaration that the total liability attributable to O’Shea arose out of fraud and misappropriation while acting in a fiduciary capacity, such that this judgment against O’Shea on the Crossclaim shall not be released in any subsequent bankruptcy on her part.

Costs

[ 25 ] The Plaintiff is seeking costs on a full indemnity basis in the amount of $10,241.54 inclusive of disbursements and HST. Considering Mr. Black’s year of call to the Bar, I consider his hourly rate reasonable. I also accept as reasonable the time he devoted to this matter. In my view, this action was lengthened and made more costly due to a misunderstanding on the part of Gray, or her counsel, as to the defences available to her. Too much reliance was placed on the Fisher case and not enough on the Boma and Westboro Flooring cases.

[ 26 ] That being said, the costs award sought is high, considering the amount of recovery is just over $27,000. As well, although there are grounds for costs on a full indemnity basis against O’Shea (namely, her fraudulent behaviour), the grounds do not exist for full indemnity costs against Gray. She was an innocent party who, unfortunately, was the victim of her partner’s fraud.

[ 27 ] Full indemnity costs are awarded against O’Shea in the amount of $10,000, inclusive of disbursements and HST. Gray shall be jointly and severally liable for costs in the amount of $6,000 (calculated on a partial indemnity basis).

Aitken J.

Released: September 7, 2012

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Wymor Construction Inc. Plaintiff Hannah Gray, also known as Heather Lyn Gray, Christina O’Shea and the Toronto-Dominion Bank Defendants REASONS FOR SUMMARY JUDGMENT Aitken J.

Released: September 7, 2012