ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-909-13
DATE: 2014-07-08
BETWEEN:
E. & E. Seegmiller Limited
Plaintiff
– and –
2132483 Ontario Inc. o/a Isle of Innisfree Designs, 2308164 Ontario Ltd. o/a Chym Company, Complete Survey Solutions Inc., Chau, Pulver, Smith & Associates Inc., 1471872 Ontario Inc. o/a Downsview Group, 1471871 Ontario Inc. o/a Downsview Group, 2062338 Ontario Inc., o/a Downsview Group, 2050491 Ontario Inc. o/a Downsview Group, Lee Charpentier, Andrea Yates, Ka Leung Chau a.k.a. Buddy Chau, Gerald Perger a.k.a. Jerry Perger and Margaret Perger
Defendants
J. Greg Murdoch, for the Plaintiff/Responding Party
Theodore P. Charney, for the Defendants 1471872 Ontario Inc. o/a Downsview Group, 147871 Ontario Inc. o/a Downsview Group, 2062338 Ontario Inc. o/a Downsview Group, 2050491 Ontario Inc. o/a Downsview Group, Gerald Perger a.k.a. Jerry Perger and Margaret Perger
David Thrasher for the Defendants 2132483 Ontario Inc. o/a Isle of Innisfree Designs, Lee Charpentier
Jason Cherniak for the Defendants 2308164 Ontario Inc. o/a Chym Company, Ka Leung a.k.a. Buddy Chau
Frank Carere and Chistopher Clemmer for the Defendant Andrea Yates
Krista Chaytor and Faren Bogach for the Defendants Complete Survey Solutions Inc., Chau Pulver, Smith and Associates
HEARD: June 9, 2014
THE HONOURABLE JUSTICE P.B. HAMBLY
Judgment
[1] This is a motion by one of two groups of defendants for an order that the claims of the plaintiff against them be asserted in another proceeding pursuant to Rules 5.02 and 5.05 of the Rules of Civil Procedure.
The Parties and the Evidence
[2] The plaintiff, E. and E. Seegmiller (Seegmiller), is a road construction company. It alleges that it was defrauded by the defendants in two kickback schemes orchestrated by its Vice President of construction, Lee Charpentier (Charpentier). Seegmiller issued a statement of claim on January 23, 2014 against 13 defendants as follows:
Charpentier
Andrea Yates (Yates)
213483 Ontario Inc., operating as Isle of Innisfree Designs (Innisfree)
2308164 Ontario Ltd., operating as Chym Company (Chym)
Complete Surveys Solutions Inc. (Complete)
Chau, Pulver, Smith and Associates Inc. (Chau Pulver)
Ka Leung Chau, also known as Buddy Chau (Chau)
1471872 Ontario Inc., 1471871 Ontario Inc., 2062338 Ontario Inc. and 2050491 Onario Inc. all operating as Downsview Group (Downsview Group)
Gerald Perger (Perger)
Margaret Perger (Margaret)
[3] Seegmiller relies on affidavits summarizing evidence that it filed to support motions to freeze the assets of the Defendants. Robert Fowlie (Fowlie), a chartered accountant with Deloitte, swore an affidavit dated October 22, 2013. He conducted a forensic examination of Seegmiller after Charpentier's resignation in July, 2013. It was then that he discovered evidence to support Seegmiller's allegations. Tim Seegmiller (Tim), the President of Seegmiller, swore an affidavit dated October 2, 2013. Kieth Nentwig (Nentwig) is the Vice President of Seegmiller. He swore an affidavit dated October 31, 2013. Frank Stranges (Stranges) is the Operations Manager of the Downsview Group. He swore an affidavit dated October 27, 2013. Seegmiller has filed these affidavits from Tim, Fowlie, Nentwig and Stranges in support of its motion.
The Alleged Fraudulent Schemes
[4] Charpentier, on behalf of Seegmiller, placed bids on road construction projects. Charpentier filed with Seegmiller estimates of the cost of retaining sub-contractors to do the work on the projects. It was his responsibility to pay the sub-contractors as they completed the work that they had contracted to do. Seegmiller alleges two schemes orchestrated by Charpentier and the person controlling two subcontractors between 2005 and 2011. Charpentier paid amounts substantially greater than the actual cost of construction to the two subcontractors. Charpentier and the person controlling the two sub-contractors divided the excess payments.
[5] Charpentier retained Chym to do surveying work. Chym entered into sub-contracts with Chau Pulver and Complete which actually did the work. Chau controlled all these entities. Seegmiller alleges that the bids filed by Charpentier to do surveying work on projects by Chym were artificial and much higher than the actual cost of doing the work. It alleges that Carpentier and Chau divided the difference. As the work was being completed, Charpentier would file Partial Payment Certificates (PPC's) with Seegmiller in amounts much higher than the cost of the work that was actually completed. This would cause Seegmiller to make payments in the amounts certified in the PPC's to Chym. Yates is the wife of Charpentier. Innisfree is a company controlled by Charpentier and Yates. On the direction of Charpentier, Chau would cause Chym to pay half of the excess payment to Yates or to Innisfree. It alleges that by this means Charpentier, Chym, Chau, Yates, Chau Pulver and Innisfree defrauded Seegmiller of $6,300,000 between 2005 and 2013.
[6] Charpentier entered into sub-contracts with Downsview to do landscaping work on road construction projects. Downsview is owned by Margaret and her son Perger. Seegmiller alleges that Charpentier and Perger entered into an arrangement similar to the arrangement between Charpentier and Chau. It alleges that they defrauded Seegmiller over the same period on 12 construction projects of a total of $1,700,000.
[7] Downsview relies on the Statement of Claim. Statements of Defence have not been filed. Seegmiller alleges fraud against each of the defendants. It claims the amount from each defendant for which it alleges that the particular defendant defrauded it or participated in the scheme to defraud it. I will refer to the defendants Chym, Chau, Chau Pulver, and Complete as the Chau defendants. I will refer to the defendants the Downsview Group, Perger and Margaret as the Downsview defendants.
[8] Seegmiller pleads the same allegations against each of Charpentier and the Chau defendants which it calls Scheme 1 and Charpentier and the Downsview defendants which it calls Scheme 2 in paragraphs 21 and 22 of the statement of claim as follows:
The agreement or common design included Charpentier approving Chym/Downsview as a subcontractor for surveying/landscaping work on contracts being performed by Seegmiller. Charpentier would then fraudulently and in breach of his fiduciary duties manipulate Seegmiller's accounting records and process inflated and unjustified payments to Chym/Downsview Group.
[9] Chau met with Fowler four times in October and November 2013. He admitted to Fowler the fraudulent scheme which Seegmiller alleges that Charpentier and Chau perpetrated against Seegmiller. Chau provided financial records to Fowler. From these records and the records of Seegmiller, Fowler was able to calculate the amount by which Charpentier and Chau had defrauded Seegmiller. Charpentier, in a cross-examination on November 18, 2013, also admitted the scheme by which he and Chau had defrauded Seegmiller. He was unable to confirm the amount of the fraud. Chau has made partial repayment to Seegmiller.
[10] Tim, in his affidavit, describes two projects in which Charpentier and Chau conspired to defraud Seegmiller. In the Terrace Bay project, Charpentier filed a bid with Seegmiller which showed the estimated cost of surveying to be $35,000 for a project estimated to cost $6,365,704.77. This was within industry standards. Charpentier filed a new bid with Seegmiller in which he estimated survey costs to be $225,000. Charpentier generated six PPCs for this project which resulted in total payments by Seegmiller to Chym of $265,000. Project 12004 had an estimated cost of $6,389,081.00. Industry standards for survey costs on a project of this size would be $64,000. Charpentier filed bids with Seegmiller which showed the estimated survey costs to be $148,000. He submitted five PPCs to Seegmiller which caused Seegmiller to pay Chym $177,855.
[11] Particulars of the projects in which Seegmiller alleges that Charpentier and Perger conspired to defraud it are set out in paragraph 32 of the statement of claim and in Tim's affidavit. The 12004 project required hydro seeding of 25,470 square meters. The owner paid Seegmiller at the rate of $0.75 per square meter, the amount of $19,103. Charpentier processed payments to the Downsview Group of $92,340 which represents an overpayment of $73,238. The 11005 project required hydro seeding of 10,270 square meters. At a rate of $0.75 per square metre, the value of the work was $7,703. Using falsified PPCs, Charpentier paid the Downsview Group $141,974 at the rate of $4.00 per square meter which reflected an overpayment of $134,272. In the 12010 project, Charpentier used falsified PPCs to pay the Downsview Group $66,614 for work that was performed by another contractor. In the 12017 project, Charpentier used falsified PPCs to pay the Downsview Group $15,000 for work that the owner paid Seegmiller $2,750. This was an overpayment of $12,250. In the 9006 project, the owner paid Seegmiller for hydro seeding at the rate of $0.75 per square meter, $11,363. Using falsified PPCs, Charpentier paid the Downsview Group $75,343 which was an overpayment of $75,343. In the 8001 project, the value of the work for hydro seeding at the rate of $0.75 per square metre was $44,212 which the owner paid Seegmiller. Using falsified PPCs, Charpentier paid the Downsview Group $156,882 which reflected an overpayment of $112,470. In the 11003 project, Charpentier processed payments to the Downsview Group of $106,200 for supplying topsoil which Seegmiller supplied. In the 5115 project, Charpentier processed payments to the Downsview Group which were fictitious. In the 10008 project, hydro seeding at a rate of $0.75 per square foot had a value of $21,817. Charpentier, using falsified PPCs, paid the Downsview Group $164,673 which reflected an overpayment of $142,856. In the 6002 project, Charpentier processed falsified PPCs to pay the Downsview Group $77,545 for fictitious items. In the 6007 project, Charpentier used falsified PPCs to pay the Downsview Group $108,710 for work that was done by other contractors. In the 11014 project, Charpentier overpaid the Downsview Group $786,055.
[12] Stranges met with Nentwig on October 1, 2013. On behalf of Downsview and Perger, he denied Seegmiller's allegations.
Relevant Rules of Civil Procedure
[13] The relevant Rules of Civil Procedure are as follows:
5.02 (2) Two or more persons may be joined as defendants or respondents where,
(a) there are asserted against them, whether jointly, severally or in the alternative, any claims to relief arising out of the same transaction or occurrence, or series of transactions or occurrences;
(b) a common question of law or fact may arise in the proceeding;
or
(e) it appears that their being joined in the same proceeding may promote the convenient administration of justice.
5.03 (1) Every person whose presence is necessary to enable the court to adjudicate effectively and completely on the issues in a proceeding shall be joined as a party to the proceeding.
(6) The court may by order relieve against the requirement of joinder under this rule.
5.05 Where it appears that the joinder of multiple claims or parties in the same proceeding may unduly complicate or delay the hearing or cause undue prejudice to a party, the court may,
(a) order separate hearings;
(b) require one or more of the claims to be asserted, if at all, in another proceeding;
(c) order that a party be compensated by costs for having to attend, or be relieved from attending, any part of a hearing in which the party has no interest;
(d) stay the proceeding against a defendant or respondent, pending the hearing of the proceeding against another defendant or respondent, on condition that the party against whom the proceeding is stayed is bound by the findings made at the hearing against the other defendant or respondent; or
(e) make such other order as is just.
6.01 (1) Where two or more proceedings are pending in the court and it appears to the court that,
(a) they have a question of law or fact in common;
(b) the relief claimed in them arises out of the same transaction or occurrence or series of transactions or occurrences; or
(c) for any other reason an order ought to be made under this rule, the court may order that,
(d) the proceedings be consolidated, or heard at the same time or one immediately after the other; or
(e) any of the proceedings be,
(i) stayed until after the determination of any other of them, or
(ii) asserted by way of counterclaim in any other of them.
(2) In the order, the court may give such directions as are just to avoid unnecessary costs or delay and, for that purpose, the court may dispense with service of a notice of listing for trial and abridge the time for placing an action on the trial list.
Analysis
[14] In City of Toronto v. MFP Financial Services Ltd. [2005] O.J. No. 3214, the City of Toronto sued MFP for breach of contract related to computer leases. The City sought to amend its statement of claim to add an allegation of fraud against MFP. It also sought to add allegations of similar facts based on alleged fraudulent conduct of MFP in entering into computer leases with the Cities of Hamilton, Windsor and Waterloo. Master McLeod allowed the amendment alleging fraud but denied the amendment alleging similar facts. He held that to permit the City of Toronto to allege similar facts against non-parties would add complexity to the claim that could not be justified and would be prejudicial to MFP. In his judgment, he noted that although the law on similar facts had been developed for the most part in criminal cases it applied equally to civil cases (para. 26). The allegations against Charpentier, Chau and Perger in this case, although they are made in a civil action, could well form the basis for criminal charges.
[15] The common link between the two schemes alleged is the alleged conduct of Charpentier. In Scheme 1, he is alleged to have conspired with Chau and in Scheme 2, with Perger. Seegmiller alleges that Charpentier used the same modus operandi in each scheme. Charpentier and Chau have admitted the allegations in Scheme 1. It would appear open to the plaintiff to move for summary judgment based on these admissions against Charpentier, Yates, Innisfree, Chym, Complete, Chau Pulver and Chau. At most, the claims against these defendants would seem to require an assessment of damages.
[16] In the paragraphs of the statement of claim cited above, Seegmiller is pleading the same modus operandi against the Charpentier and Perger in respect of its claim against the Downsview defendants that Charpentier and Chau have admitted. In R. v. Shearing, 2002 SCC 58, [2002] 3 S.C.R. 33, the accused was the leader of a cult. He preached that sexual experience by a young girl enables her to reach a high level of spiritual consciousness. He was charged with sexual assault on 11 young girls. The Supreme Court of Canada, in the judgment of Justice Binnie, held that the trial judge was correct in denying a severance. He held that the evidence on each count was admissible as similar fact evidence on the other charges. The charges against the accused were appropriately tried together. Justice Binnie confirmed the test for the admission of similar fact evidence stated by Justice McLaughlin in B.(C.R.) 1990 142 (SCC), [1990] 1 S. C. R. 717 as follows:
[33] Handy, supra, affirms the test for admissibility of similar fact evidence set out in Sweitzer v. The Queen, 1982 23 (SCC), [1982] 1 S.C.R. 949, and R. v. B. (C.R.), 1990 142 (SCC), [1990] 1 S.C.R. 717. It was there held that although evidence relating to the accused's disposition will generally be excluded, exceptions to this rule will [page56] arise when the probative value of the evidence outweighs its prejudicial effect, per McLachlin J. (as she then was) in B. (C.R.), at pp. 734-35:
The analysis of whether the evidence in question is admissible must begin with the recognition of the general exclusionary rule against evidence going merely to disposition.... [E]vidence which is adduced solely to show that the accused is the sort of person likely to have committed an offence is, as a rule, inadmissible. Whether the evidence in question constitutes an exception to this general rule depends on whether the probative value of the proposed evidence outweighs its prejudicial effect.
[34] McLachlin J. formulated the test for admissibility of disposition or propensity evidence, at p. 732:
...evidence of propensity, while generally inadmissible, may exceptionally be admitted where the probative value of the evidence in relation to an issue in question is so high that it displaces the heavy prejudice which will inevitably inure to the accused where evidence of prior immoral or illegal acts is presented to the jury.
[17] Justice Binnie accepted the argument of the crown which he expressed as follows:
[31] The similar fact evidence provided by the G complainants was only circumstantial evidence in relation to the non-G counts and vice versa. As with all circumstantial evidence, the cogency of the similar fact evidence rested entirely on the validity of the inferences it could be said to support with respect to the issues in question. The Crown's argument for its admission was that the jury could legitimately make a "double inference", firstly that the appellant has a situation-specific propensity to groom adolescent girls for sexual gratification by exploiting pseudo-religious elements of the Kabalarian cult and/or its related domestic arrangements at the Kabalarian "Centre", and secondly, that his character or propensity thus established gives rise to the further inference that he proceeded in that way with the complainant in each of the charges under the jury's consideration.
[18] In this case, the trial judge could well decide to admit the evidence of Charpentier and Chau in which they admit that they conspired together to defraud Seegmiller in support of Seegmiller's allegation that Charpentier conspired with Perger to defraud it in a similar way. The trial judge could use that evidence to draw a conclusion as follows:
Charpentier had a situation specific propensity to conspire with another to enter into a scheme by which he artificially increased bids of a sub trade on a construction project, paid the artificially increased bids by PPC's to a willing participant in the sub trade and divided the increased profits with that willing participant. With other evidence the trial judge could come to the conclusion that Charpentier conspired in this manner with Perger.
[19] The plaintiff will seek to introduce the evidence related to Scheme 1 as similar fact evidence if the claims are severed. This would require a voir dire to determine its admissibility. It can as easily be adduced in a single case as evidence against the Chau defendants. The Downsview defendants will benefit by learning of its particulars in productions and examination for discoveries. The claims against the two groups of defendants are properly joined pursuant to Rule 5.03(2)(b). I see no prejudice against the Downsview defendants or unjustified complexity which should lead to severance of the claims pursuant to Rule 6.01 rather than maintaining a single action.
[20] The motion is dismissed. The plaintiff and the Chau defendants may make written submissions on costs within 10 days and the Downsview defendants may have 10 days to respond.
P.B. Hambly, J.
Released: July 8, 2014
Addendum
COURT FILE NO.: C-909-13
DATE: 2014-08-11
BETWEEN:
E. & E. Seegmiller Limited
Plaintiff
– and –
2132483 Ontario Inc. o/a Isle of Innisfree Designs, 2308164 Ontario Ltd. o/a Chym Company, Complete Survey Solutions Inc., Chau, Pulver, Smith & Associates Inc., 1471872 Ontario Inc. o/a Downsview Group, 1471871 Ontario Inc. o/a Downsview Group, 2062338 Ontario Inc., o/a Downsview Group, 2050491 Ontario Inc. o/a Downsview Group, Lee Charpentier, Andrea Yates, Ka Leung Chau a.k.a. Buddy Chau, Gerald Perger a.k.a. Jerry Perger and Margaret Perger
Defendants
J. Greg Murdoch, for the Plaintiff/Responding Party
Theodore P. Charney, for the Defendants 1471872 Ontario Inc. o/a Downsview Group, 147871 Ontario Inc. o/a Downsview Group, 2062338 Ontario Inc. o/a Downsview Group, 2050491 Ontario Inc. o/a Downsview Group, Gerald Perger a.k.a. Jerry Perger and Margaret Perger
David Thrasher for the Defendants 2132483 Ontario Inc. o/a Isle of Innisfree Designs, Lee Charpentier
Jason Cherniak for the Defendants 2308164 Ontario Inc. o/a Chym Company, Ka Leung a.k.a. Buddy Chau
Frank Carere and Chistopher Clemmer for the Defendant Andrea Yates
Krista Chaytor and Faren Bogach for the Defendants Complete Survey Solutions Inc., Chau Pulver, Smith and Associates
HEARD: June 9, 2014
Addendum
[21] In my judgment dated July 8, 2014 changes are made as follows:
In para. 5 “Yates is the wife of Seegmiller” is replaced by “Yates is the wife of Charpentier”.
In para. 7 “the Chym defendants” is replaced by the “Chau defendants”.
P.B. Hambly, J
Released: August 11, 2014