CITATION: 8490635 Canada Inc. v. Jones DesLauriers Insurance Management Inc., 2015 ONSC 1993
COURT FILE NO.: CV-13-00494340-0000
DATE: 20150327
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
8490635 CANADA INC. and EAGLE COVER AUTO MANAGEMENT INC.
Plaintiffs
– and –
JONES DESLAURIERS INSURANCE MANAGEMENT INC., JOHN ENRIGHT also known as JOHN ENWRIGHT and MARK WATSON
Defendants
Vusumzi Msi, for the Plaintiffs
Andrew L. Mercer and Ian H. Gold, for the Defendant Jones DesLauriers Insurance Management Inc.
HEARD: October 28, 2014
REASONS FOR DECISION
JUSTICE w. MATHESON
[1] The plaintiffs move for summary judgment against the defendant Jones DesLauriers Insurance Management Inc. They seek a declaration that Jones DesLauriers holds $475,000 in trust for them, and related relief.
[2] Although relief was also sought against the defendant Mark Watson, at the hearing of the motion the plaintiffs agreed to drop the claim against him upon written confirmation that the funds at issue would be held in trust pending the outcome of this action. Counsel to Jones DesLauriers agreed to provide that written confirmation.
[3] This action arises out of an attempt to set up a captive insurance company in Bermuda with the assistance of Jones DesLauriers. There is now no issue that the plaintiffs advanced $500,000 in support of such an application, nor that the funds, net a fee, were returned to Jones DesLauriers after an application was denied. The issue is whether or not Jones DesLauriers must return the funds to the plaintiffs, or may retain the funds and use them as a set-off against the debts of another company it believes was involved.
[4] The parties agree that this issue can be decided on a motion for summary judgment under Rule 20 of the Rules of Civil Procedure. Each side seeks summary judgment in its favour.
[5] Affidavits of a number of the key witnesses were filed on the motion along with relevant documentation. Cross-examinations of the key affiants were conducted. Answers to undertakings have been filed. A Rule 39.03 examination of another key witness was also conducted. Based on the record before me, I am confident that I can fairly and justly resolve the dispute without a trial: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 57.
Events giving rise to action
[6] Prior to 2013, Jones DesLauriers had arranged for insurance coverage for a company that carried on business as Automobile Rental Insurance Management, or ARIM. ARIM provided rental car companies with risk management services and access to insurance coverage. Through Jones DesLauriers, insurance coverage for ARIM was placed with Alternative Risk Underwriting and fronted by Arch Insurance Canada Ltd. (the Arch program).
[7] John Enright, the Eastern Regional Manager at Jones DesLauriers, was the primary point person at Jones DesLauriers with respect to setting up the insurance program for ARIM and dealing with it thereafter. As of 2013, when the events at issue here took place, Mr. Enright had been a licensed insurance agent for about thirty years and these activities were within the scope of his duties. He did not require specific instructions, direction or authority.
[8] ARIM had many members, each of which paid a fee to benefit from the insurance coverage. Among others, a rental car business run by Lucas Obi called Trinity Car Rental was a member. Mr. Obi is also the sole officer and director of the plaintiff companies, although those companies are separate from his Trinity Car Rental business.
[9] In September 2012, ARIM was notified that the Arch program would not be renewed following the expiration of its term on March 31, 2013.
[10] Although efforts were made, an alternate ARIM insurance program had not been set up as of March 31, 2013. Mr. Enright therefore arranged for ARIM’s coverage to be placed with The Facility Association on a month-to-month basis. That Association ensures that all owners and drivers are able to obtain automobile insurance, even when insurers refuse to accept the risk voluntarily. Its premiums tend to be significantly higher than premiums on voluntary policies.
[11] In this time period, ARIM was working with Mr. Enright to establish a new captive insurer fronted by AIG Canada, with the assistance of not only Jones DesLauriers but also Universal Risk Intermediaries Inc. (UNIRISK) in Bermuda. Jones DesLauriers and ARIM executed an authorization permitting UNIRISK to negotiate with AIG. Other paperwork was completed. In order to apply to establish a captive insurer, among other requirements, ARIM was also obliged to deposit $500,000 with UNIRISK. There was a nonrefundable fee of $25,000.
[12] Issues began to arise between ARIM and Jones DesLauriers because ARIM was not paying Jones DesLauriers its monthly premiums for its Facility coverage. Mr. Watson, Vice-President of Claims at Jones DesLauriers, had a meeting on July 12, 2013, with the principal of ARIM, Nantharuban Navaratnarajah (referred to in these proceedings as Ruben). As of that meeting, ARIM owed Jones DesLauriers $1,644,950 for outstanding premiums. In addition, ARIM had not yet transferred the $500,000 to UNIRISK that was needed for the application for the new insurance captive. According to Mr. Watson, Ruben said he would have the monies for both the premiums and the application wired to Jones DesLauriers from France in less than a week.
[13] No monies were wired from France. The outstanding premiums remained outstanding. Nor did Ruben transfer funds for the application for a new insurance captive. However, this latter fact was not known to Mr. Watson at the time. At the time, Mr. Watson heard that UNIRISK had received the funds for the application, and he was unaware that the funds were sent by an unrelated party.
[14] As a member of ARIM, Mr. Obi knew Ruben. He also knew Zahir Murji, who had worked for ARIM and was talking with members about alternate coverage at around this time. Mr. Murji told Mr. Obi that AIG had declined ARIM’s application to establish an insurance captive. As reflected in the evidence on this motion, this information was incorrect. At that time, the application had not been formally completed because the required $500,000 had not been paid, but it had also not been formally declined.
[15] When Mr. Obi heard that ARIM was not going ahead with a new insurance captive, Mr. Obi was himself interested in setting up an insurance captive. On the evidence, he did not join with ARIM to do so. ARIM was not his partner or joint venturer in connection with establishing an insurance captive. Nor does the evidence establish that Mr. Obi was asked to or interested in providing financing to ARIM for its application.
[16] At this point, Mr. Murji was no longer working for ARIM, and he did assist Mr. Obi in the pursuit of this plan to establish a captive insurer. However, the main person assisting Mr. Obi was not Mr. Murji – it was Mr. Enright of Jones DesLauriers.
[17] Mr. Obi knew Mr. Enright. He contacted Mr. Enright. He dealt with Mr. Enright with respect to his interest in establishing an insurance captive. From Mr. Obi’s standpoint, he retained Jones DesLauriers to assist his numbered company, the plaintiff 8490635 Canada Inc., in setting up a captive insurance company. For whatever reason (Mr. Enright was not asked), they decided to meet at a Tim Hortons to discuss it. Mr. Murji joined them, but did not stay for the whole discussion.
[18] Mr. Obi testified that when he met with Mr. Enright, he wanted to sign papers, but Mr. Enright told him that he would first have to show he was serious by putting forward the $500,000 deposit. Mr. Obi explained that he accepted what Mr. Enright said because Mr. Enright was a broker, a manager and a professional, and an expert who had done these transactions before where Mr. Obi did not have prior experience in establishing a captive insurance company. Mr. Enright confirmed in his evidence that he did not require paperwork at this time.
[19] Mr. Obi was the sole director and officer of the plaintiff numbered company, which was originally incorporated for a transport business that did not come to fruition. He thought he would use that company for this initiative. However, when they met, Mr. Enright told him that a named company would be better received than a numbered company as an applicant for an insurance captive. He therefore promptly incorporated the second plaintiff, Eagle Cover.
[20] The plaintiffs applied for a loan on July 14, 2013, which was accepted. Mr. Obi was required to personally guarantee the loan. Mr. Obi is Nigerian. He has produced the loan and wire documentation in this litigation, which is now not disputed. It shows the plaintiffs’ application for a loan in Nigeria and subsequent wire transfers of the funds to UNIRISK in Bermuda. The funds were received July 17, 2013. The requisite wire transfer information had been provided to Mr. Obi by Mr. Enright.
[21] With respect to paperwork, Mr. Enright testified that he asked the two individuals he was dealing with regarding the Bermuda application to establish an insurance captive – Mr. Nordstrom from UNIRISK and Mr. Bass from Black Star Risk – for the form that needed to be completed by the plaintiffs. Mr. Bass provided the form. Mr. Enright then provided the form to Mr. Obi. It is headed R & Q Quest Management Services Limited and indicates that it is a form to be completed by persons that propose to be the direct owner or ultimate beneficial owner of a Bermuda company.
[22] The form was completed and signed on July 19, 2013, including information about Mr. Obi and the plaintiffs, and appending identity documents and financial information. In his testimony, Mr. Enright described this paperwork completed by the plaintiffs as a new application to “take over” the process that had been underway. He further testified that he conveyed that information to both Mr. Nordstrom and Mr. Bass.
[23] In the course of this litigation, Mr. Nordstrom confirmed by email that his file did include email from Mr. Enright with documents, one of which referenced the plaintiff 8490635 Canada Inc. Presumably in an effort to explain his earlier communications to a different effect, Mr. Nordstrom indicated in his email that “It is possible that something got lost in the shuffle.”
[24] When asked on cross-examination why other forms (such as a letter authorizing UNIRISK to act or a Request for Assistance) were not completed, Mr. Enright indicated that he assumed Messrs. Nordstrom and Bass knew what they were doing, and if the process had continued, more documents would have had to be been signed.
[25] Jones DesLauriers does not dispute that Messrs. Nordstrom and Bass were involved, and produced the email containing Mr. Nordstrom’s late acknowledgment that his file did contain information that is consistent with Mr. Enright’s account of the events. Jones DesLauriers did not put forward either Mr. Nordstrom or Mr. Bass as a witness on this motion.
[26] I conclude that Mr. Enright did provide the information about the new application by the plaintiffs to Messrs. Nordstrom and Bass in July of 2013, as he said he did.
[27] Before the end of July 2013, UNIRISK learned that the application would be unsuccessful. Mr. Nordstrom contacted Jones DesLauriers asking for instructions regarding the balance of the funds (the $500,000 less the $25,000 fee). Mr. Nordstrom’s email had the re-line “ARIM” and was directed to Mr. Watson, not to Mr. Enright. Mr. Watson reasonably but wrongly assumed that the funds were ARIM funds.
[28] Mr. Watson conceded in cross-examination that he did not have authority from ARIM to have the funds sent to Jones DesLauriers. He said he attempted to reach Ruben by phone but did not reach him. No written request for instructions was made. Nonetheless, Mr. Watson instructed Mr. Nordstrom to wire the money to Jones DesLauriers, and then purported to retain it as a set-off of ARIM’s debts.
[29] When Mr. Enright learned that the application had failed in late July, he made inquiries. Although some of his emails had the re-line “captive”, one had the re-line “ARIM captive”. These emails were not copied to the plaintiffs. In his examination, Mr. Enright explained the reference to ARIM by saying that even as a new captive of the plaintiffs, it was likely that the members would still come from the old ARIM members. He was focused on the ARIM members. This re-line contributed to Mr. Watson’s continuing misunderstanding about the source of the funds. The re-line was cryptic and confusing, and if taken at face value it was incorrect.
[30] In early September 2013, the Chief Financial Officer for the plaintiff companies contacted Mr. Nordstrom at UNIRISK about the application and was told that the funds had already been wired back to Jones DesLauriers. Mr. Nordstrom told the plaintiffs to deal with Mr. Watson at Jones DesLauriers regarding the funds.
[31] Mr. Obi attempted to contact Mr. Enright, and learned that he had been dismissed in August 2013. Jones DesLauriers has not put forward the reason for Mr. Enright’s dismissal on this motion and accordingly does not submit that it was related to these events.
[32] Mr. Obi was able to contact Mr. Enright and met with him in early September 2013. At that time, Mr. Enright provided a handwritten and signed note confirming that the $500,000 was wired from Nigeria on behalf of the plaintiffs.
[33] Mr. Obi and his CFO went to see Mr. Watson on September 9, 2013. Mr. Watson made a vague reference to the police, said this was a fraud case and said it would all be resolved in a few days. However, the police never visited Mr. Obi to make inquiries. On cross-examination in 2014, Mr. Watson admitted that even then he did not have information about what the police were allegedly investigating, and his reference to fraud was in relation to the large amount of money owing by ARIM and Mr. Murji’s personal history, which included dropped fraud charges. On neither occasion, in 2013 or 2014, did Mr. Watson allege that the plaintiffs themselves were engaged in a fraud. Nor is there a basis for such an allegation in the evidence before me.
[34] After the meeting in September of 2013, Mr. Watson asked for information from Mr. Obi about the source of the funds, which was provided, but ultimately Jones DesLauriers maintained the position that it was entitled to retain the $475,000.
Discussion
[35] Jones DesLauriers submits that the $500,000 was advanced by the plaintiffs on ARIM’s behalf. The evidence demonstrates that it was not advanced on ARIM’s behalf and also demonstrates understandable confusion at Jones DesLauriers in that regard in 2013.
[36] There is no longer any dispute that the funds at issue originated from a loan taken out by the plaintiffs. They were the plaintiffs’ funds when wired to UNIRISK in Bermuda. They were sent in furtherance of an application by the plaintiffs to set up a captive insurer in Bermuda. They were not sent as financing for ARIM or as a result of a business relationship with ARIM in connection with establishing a new captive insurer. The funds were and remained the plaintiffs’ funds subject only to the requirement to pay a $25,000 administrative fee if the application failed, which it did.
[37] To the extent that the defendant Jones DesLauriers wishes to rely on a business relationship between the plaintiffs and ARIM in connection with establishing an insurance captive, they have failed to establish one.
[38] Jones DesLauriers relies in part on the involvement of Mr. Murji. His involvement does not change the above conclusion. Jones DesLauriers has not established that Mr. Murji asked the plaintiffs for financing on ARIM’s behalf, or that the plaintiffs agreed to do so. The evidence supports the contrary conclusion.
[39] Mr. Murji was connected to ARIM but he did not feature prominently in the key steps once Mr. Obi met with Mr. Enright. It was Mr. Enright who was in charge.
[40] Jones DesLauriers also relies on the lack of paperwork before the money was transferred to UNIRISK. Again, this was driven by Mr. Enright. The plaintiffs were entitled to take their direction from him regarding what paperwork was required. They completed the form he gave them on his time line. If Mr. Enright took some shortcuts in regard to the paperwork or Jones DesLauriers otherwise has a problem with how Mr. Enright chose to proceed, that is an issue between them. It remains the case that the plaintiffs were entitled to rely on Mr. Enright. Mr. Enright was a senior insurance professional with authority, and the Eastern Regional Manager at Jones DesLauriers.
[41] In that I have found the funds to be the funds of the plaintiffs only, advanced for what was intended to be an application of the plaintiffs only, those funds ought to have been returned to the plaintiffs or otherwise transferred in accordance with their instructions. They are presumptively being held in trust for the plaintiffs by Jones DesLauriers unless it can establish some legal basis upon which it can retain them.
[42] Jones DesLauriers relies upon equitable set-off. It argues that it is entitled to retain the funds as a set-off against ARIM’s debt.
[43] In support of this submission, Jones DesLauriers relies upon the Supreme Court of Canada decision in Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 and the cases canvassed in that decision. As set out in that decision, it is not necessary that the plaintiffs’ claim and that of the defendant arise from the same contract. However, it is necessary that the defendant’s claim be so closely connected with the plaintiffs’ claim that it would be manifestly unjust not to allow set-off: Telford, at paras. 35 and 39.
[44] Jones DesLauriers cannot even approach the satisfaction of this test. Its position is fundamentally based on the unproven assumption that the funds were advanced to UNIRISK on ARIM’s behalf. This was the cornerstone to its argument as set out in its factum and oral submissions, and has not been established on the evidence.
[45] I accept that it was, up to a point, an understandable error on Jones DesLauriers’ part to assume these were ARIM funds. It was nonetheless an error.
[46] Jones DesLauriers’ reliance on the substantial debt owed to it by ARIM is therefore not a basis for equitable set-off against the plaintiffs. It is an unrelated debt for which the plaintiffs cannot be called to account. In this case, it would be manifestly unjust to allow Jones DesLauriers to retain the funds, not the contrary. The claim of equitable set-off fails.
[47] The plaintiffs made a number of other arguments in favour of the relief they were seeking, including arguments based upon breach of trust, conversion and unjust enrichment of Jones DesLauriers. It is not necessary to deal with those arguments. The one claim made by Jones DesLauriers, for equitable set-off, is unsuccessful. The funds remain funds of the plaintiffs.
Order and costs
[48] I therefore declare that the funds currently held in trust at Jones DesLauriers, in the amount of $475,000, are held in trust for the plaintiffs. Prompt arrangements must therefore be made for the return of those funds to the plaintiffs, or as directed by the plaintiffs, which requested their funds back in 2013.
[49] If the parties are unable to agree on interest and costs, the plaintiffs shall make their submissions by brief written submissions together with a costs outline to be delivered by April 17, 2015. Jones DesLauriers may respond by delivering brief written submissions by April 30, 2015.
Justice Matheson
Released: March 27, 2015
CITATION: 8490635 Canada Inc. v. Jones DesLauriers Insurance Management Inc., 2015 ONSC 1993
COURT FILE NO.: CV-13-00494340-0000
DATE: 20150327
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
8490635 CANADA INC. and
EAGLE COVER AUTO
MANAGEMENT INC.
Plaintiffs
– and –
JONES DESLAURIERS INSURANCE
MANAGEMENT INC., JOHN ENRIGHT
also known as JOHN ENWRIGHT and
MARK WATSON
Defendants
REASONS FOR DECISION
Justice W. Matheson
Released: March 27, 2015