SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 7072/13
DATE: 2015 11 18

RE: TADEUSZ MAZGAJ v. PROFITABLE PLOTS (CANADA) INC., PROFITABLE PLOTS PTE LTD., SYNDICATIONS CANADA INC., JOHN ANDREW NORDMANN, GERALDINE ANTHONY THOMAS, TIMOTHY NICHOLAS GOLDRING, DOUGLAS WILLIAM CHADDOCK, DANIEL STRUMOS, MICHAEL BAUM, JEMIMAH ST. HILARE, GORDON EDWARD BUELL, STEPHEN BAILEY, LIIA TRUMAN, LISA LAURINE DAVIES, SAMUEL SCHWARTZ, DAVIS LLP, and BLACK SUTHERLAND LLP

BEFORE: LEMAY J

COUNSEL: H. Albrecht, counsel for the Plaintiff

HEARD: November 9, 2015

ENDORSEMENT

[1] The Plaintiff, Mr. Tadeusz Mazgaj (“Mr. Mazgaj”), was the victim of a land banking scheme whereby he was defrauded of approximately $250,000.00. This is a significant portion of his life savings. This fraud was perpetrated by a number of Corporate defendants, as well as the personal defendants Mr. Douglas William Chaddock (“Mr. Chaddock”) and Mr. Daniel Strumos (“Mr. Strumos”)

[2] For the reasons that follow, I am granting an award against the personal Defendants Chaddock and Strumos jointly and severally for the value of the investments that Mr. Mazgaj made. I am also awarding punitive damages in the sum of $ 25,000.00 against the Defendant Strumos only. I am dismissing the Plaintiff’s claims for aggravated damages, and his claim for punitive damages against the Defendant Chaddock.

Background

a) The Plaintiff

[3] Mr. Mazgaj was born in Poland, and he moved to Canada in 1989. His parents continue to live in Poland. He is completely deaf, and provided his evidence through an American Sign Language (“ASL”) interpreter. Mr. Mazgaj’s first language is Polish, and he has difficulties reading and writing the English language. He functions in English at a basic level.

[4] As a result of Mr. Mazgaj’s difficulties in understanding the English language, there were two interpreters present in the Courtroom during the hearing. The first was an interpreter arranged by the Court staff, who was sworn to interpret from ASL to English, and conducted the interpretation during the hearing. The second was from the Canadian Hearing Society (“CHS”) and has worked with Mr. Mazgaj. As a result, she was available to assist if there were difficulties with the interpretation.

[5] Mr. Mazgaj has worked for a number of years selling pins, flags and other items. He sells these items to businesses and on the street, and he travels around from city to city selling these items. He makes between $27,000.00 and $35,000.00 a year through this business.

[6] He was interested in retiring at some point, and had begun to make plans to do so. He has been able to put approximately $50,000.00 into an RRSP and a similar amount into an RDSP. He has also been able to purchase, with another person who is also deaf, a house in Burlington, and has paid the mortgage on this house off. In short, he is frugal and industrious.

[7] However, he wanted to be able to live off his savings rather than continuing to work. As a result, when he met some of the Defendants at a financial trade show, he was very attracted to the high returns that they were offering on investments and decided to purchase these investments. Between February of 2007 and February of 2011, Mr. Mazgaj purchased $276,031.00 in investments from the Defendants. He has not received a penny of these investments back from any of the Defendants.

b) The Defendants

[8] There are a number of Defendants to this action. There are two law firms that were originally named in the action, and I was advised that the claim is no longer proceeding against them. There were also three companies named in the action, and I was advised that none of these companies continue to exist at this point.

[9] Finally, there were a number of personal Defendants that were named, and Mr. Mazgaj is proceeding with his claim against two of those Defendants, Mr. Chaddock and Mr. Strumos, as they were the principals involved in his case.

[10] It is worth setting out some information about the corporate structure. Two of the Corporate Defendants have the words Profitable Plots in their name. Based on the information that was filed with me, they were companies based in the United Kingdom that purchased large tracts of land, and then subdivided the land into different parcels. These parcels were then sold to individual investors.

[11] The individual investors were told that these parcels were likely to be developed, and that they could make a substantial return on these investments when the plots were developed. These returns ranged from 25% to 75% on an annual basis.

[12] In Canada, Profitable Plots withdrew from the market directly and came to an arrangement with the Corporate Defendant Syndications Canada Inc. (“Syndications”). In approximately 2008, Syndications took over Profitable Plots’ operations in Canada, including office space that had previously been rented by Profitable Plots.

[13] Prior to the change described in the previous paragraph, Mr. Chaddock was employed as the Sales Director by Profitable Plots’ Canadian operation. When they withdrew from direct operations in the Canadian market, Mr. Chaddock incorporated Syndications, and took over the Canadian business operations on behalf of Profitable Plots.

[14] Mr. Strumos was employed by Profitable Plots in Canada as the Client Service Manager. He fulfilled this same role with Syndications after Syndications took over Profitable Plots operations in Canada. In that role, Mr. Strumos was responsible for soliciting additional sales from clients that had already purchased a product from Profitable Plots or Syndications.

[15] Mr. Mazgaj came to be aware of these investments as a result of a trade show that he attended in February of 2007, where he met Mr. Strumos. The Plaintiff was told that his investment would have a 70% return in 1 year, and that he could make up to $60,000.00 on a $25,000.00 investment over three years.

[16] As a specific example, one of the investments worked in the following way. A plot of land was purchased for £20,000.00. At the end of the first year, the purchaser could either get their capital plus 12.5% interest back, or they could use the money (including the one year’s worth of interest) to purchase additional smaller plots of land.

[17] In every case where the buy-back option was available, the purchasers were encouraged to reinvest the interest and principal in additional land, with the promise of much higher returns. One example of this comes from a January 20th, 2010 e-mail from Mr. Strumos in which he says that Mr. Mazgaj can either take an eighteen percent (18%) return on his investment immediately, or a 200% return in two years. There was a strong incentive to reinvest the money, including the nominal interest that had allegedly been earned.

[18] Over the course of the next four years, Mr. Mazgaj invested $276,031.00 in this investment opportunity. Some of these investments were made by reinvesting money that Syndicates owed Mr. Mazgaj under the terms of previous investments.

[19] This investment consisted of plots in an area near Heathrow Airport, called Concord Village. It is in the Borough of Hounslow. Officials from the Borough of Hounslow have repeatedly advised anyone who has asked them that Concord Village is greenbelt land and that development will likely not be permitted there in the foreseeable future. This also means that there was no chance that planning permission would have been given to develop the land.

[20] The Defendants had purchased the entirety of the land known as Concord Village for approximately £3 million from a major developer. The sales of the plots raised approximately £50 million dollars, which suggests that the resale value of the plots was approximately 15 times the amount that was paid for them.

[21] Mr. Strumos had regular contact with Mr. Mazgaj. As a result of that regular contact, and as a result of information that Mr. Mazgaj provided to Mr. Strumos he was well aware that Mr. Mazgaj was deaf, had difficulty understanding written English, and that his first language was Polish.

[22] In spite of these obstacles, Mr. Strumos assisted Mr. Mazgaj in completing all of the paperwork associated with the investment opportunities. What that meant was that Mr. Strumos would tell Mr. Mazgaj where to sign the relevant documents and how much money to give the company. Although Mr. Strumos was clearly aware of Mr. Mazgaj’s vulnerability, Mr. Strumos took no steps to provide Mr. Mazgaj with a sign language interpreter, did not suggest that he obtain independent legal advice, and did not provide Mr. Mazgaj with a fair or impartial explanation of the investment opportunity.

[23] I find as a fact that Mr. Strumos knew that Mr .Mazgaj did not understand the agreements he was signing, and pushed Mr. Mazgaj to sign them anyway. He also knew that Mr. Mazgaj had no idea as to the potential consequences of these investments.

[24] When Mr. Mazgaj became concerned that he was not getting the interest payments that he had been promised for some of the investments, Mr. Strumos told him that he had an option to invest in an additional property rather than being paid out the interest he would have been owed. These new investments had similar terms to the ones described above.

[25] Eventually, in late 2011, Mr. Mazgaj received a letter from the Ontario Securities Commission (“OSC”) advising him that there was an investigation into the activities of Syndicates, and asking him to complete a questionnaire. This was the first time that Mr. Mazgaj became aware that there might be a problem with his investments.

c) The Proceedings

[26] The Statement of Claim was served on Mr. Chaddock by way of substituted service on June 26th, 2014. Service was effective shortly thereafter. This substituted service was authorized by an Order of Gray J. dated May 21st, 2014. Mr. Chaddock has not taken any steps to defend this action, and was Noted in Default on August 25th, 2014.

[27] The Statement of Claim was served on Mr. Strumos personally on March 5th, 2014. Mr. Strumos did not take any steps to defend this action, and was noted in Default on August 1st, 2014.

[28] This matter came before Coats J. on August 25th, 2014 as a motion for Default Judgment. Given the nature of the claims that the Plaintiff was making against the Defendants, Coats J. directed that an undefended trial should take place. This trial was heard before me on November 9th, 2015.

[29] At that time, I received into evidence the Affidavit that was sworn by the Plaintiff for the August 25th, 2014 motion, as well as a series of Exhibits showing the relationship between the Plaintiff and the Defendants. I also heard viva voce evidence from the Plaintiff. I will address what that evidence shows in each of the areas below.

[30] I should note that one of the Exhibits was a decision of the Ontario Securities Commission relating to this investment scheme, and to another scheme run by the Defendant Syndications Canada Inc. At the conclusion of that decision, the OSC Commissioner (Mr. Allan Lenczner, Q.C.), found that both Mr. Strumos and Mr. Chaddock had contravened the Ontario Securities Act. I have reviewed that decision as it provides helpful context, but I have based my factual findings on other documents before the Court.

The Law

a) The Effect of a Noting in Default

[31] The effect of a noting in default is clear from Rule 19.02 (1), which states:

CONSEQUENCES OF NOTING DEFAULT

19.02 (1) A defendant who has been noted in default,

(a) is deemed to admit the truth of all allegations of fact made in the statement of claim; and

(b) shall not deliver a statement of defence or take any other step in the action, other than a motion to set aside the noting of default or any judgment obtained by reason of the default, except with leave of the court or the consent of the plaintiff.

[32] Under this Rule, the Defendants are deemed to accept everything in the pleadings as being true, and I have made my findings of fact on that basis. These findings of fact, however, only apply to Mr. Chaddock and Mr. Strumos. I was not advised as to whether any other parties have been noted in default.

[33] However, even if the facts plead in the Statement of Claim are deemed to be true, there is then a question of whether those facts allow the Plaintiff to make out a claim at law. A pleading of law or mixed fact and law is not binding on the Court. Instead, the Court must consider whether judgment should be granted based on the facts before it.

[34] Mr. Mazgaj has made a claim for damages on account of fraud, fraudulent misrepresentation, conspiracy, negligence and breach of contract. In reviewing the materials, it is clear that Mr. Mazgaj has made out a claim for fraudulent misrepresentation.

[35] The constituent elements of fraud and fraudulent misrepresentation are the same (see Holley v. Northern Trust Co. Canada 2014 ONSC 889). These elements and their application to this case are as follows:

a) A false representation made by the Defendants. It is clear from the pleadings that the Defendants knew that the land they were selling would likely never receive planning permission and, as a result, would likely never increase in value. They told the Plaintiff something different, which as a false representation.

b) A level of knowledge on the part of the Defendants of the false representation. It is also clear that the Defendants knew or ought to have known that the representation that this land would increase in value because it would be developed was false. It was clear from the pleadings that Officials from Hounslow Council were advising anyone who bothered to ask of this fact.

c) An intent on the part of the Defendants to deceive the Plaintiff- again, this is clear on the pleadings that the Defendants set out to deceive the Plaintiff. Further, rather than paying out the Plaintiff after his first investment had matured, the Defendants encouraged him to purchase additional investments in order to keep up the deception.

d) The deception was material and caused the Plaintiff to act. Again, this is clear from the pleadings and evidence. The only reason the Plaintiff bought this investment is that he wanted the returns he was being promised. The Defendants knew that those returns were not going to materialize.

e) A loss was caused to the Plaintiff- the Plaintiff invested more than $250,000.00 in these investments and has not received a penny in recompense. This is clearly a situation where there is a loss.

[36] The Defendant Strumous was the one who was interacting with the Plaintiff on a regular basis. However, he reported to the Defendant Chaddock, who was well aware of the relationship with the Plaintiff and was the directing mind of the Corporate Defendant Syndications. In those circumstances and based on the pleadings, Mr. Chaddock is also responsible for the fraud.

[37] I have not considered the other torts of conspiracy and negligence or the breach of contract claim. While it is likely that they are all made out as well, I asked Mr. Albrecht in argument whether it mattered how the action was determined in his client’s favour and he did not express any preference as between tort and contract, or which tort. All he wanted to be clear on was that Mr. Muzgaj seeking a remedy against Mr. Chaddock and Mr. Strumos personally.

[38] However, the facts plead in the Statement of Claim did not, in and of themselves, make out a claim for aggravated or punitive damages. Those claims required additional evidence. I now turn to them.

b) The Claim for Aggravated Damages

[39] Aggravated damages are described in Fidler v. Sun Life Assurance Co. of Canada. Mr. Albrecht referred me to the British Columbia Court of Appeal decision (2004 BCCA 273). However, this decision was appealed to the Supreme Court of Canada, and the Supreme Court’s decision can be found at 2006 SCC 30. The relevant passage on aggravated damages can be found at paragraphs 44 and 45, where the Court stated:

We conclude that damages for mental distress for breach of contract may, in appropriate cases, be awarded as an application of the principle in Hadley v. Baxendale: see Vorvis. The court should ask “what did the contract promise?” and provide compensation for those promises. The aim of compensatory damages is to restore the wronged party to the position he or she would have been in had the contract not been broken. As the Privy Council stated in Wertheim v. Chicoutimi Pulp Co., [1911] A.C. 301, at p. 307: “the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed”. The measure of these damage is, of course, subject to remoteness principles. There is no reason why this should not include damages for mental distress, where such damages were in the reasonable contemplation of the parties at the time the contract was made. This conclusion follows form the basic principle of compensatory contractual damages: that the parties are to be restored to the position they contracted for, whether tangible or intangible. The law’s task is simply to provide the benefits contracted for, whatever their nature, if they were in the reasonable contemplation of the parties.

It does not follow, however, that all mental distress associated with a breach of contract is compensable. In normal commercial contracts, the likelihood of a breach of contract causing mental distress is not ordinarily within the reasonable contemplation of the parties. It is not unusual that a breach of contract will leave the wronged party feeling frustrated or angry. The law does not award damages for such incidental frustration. The matter is otherwise, however, when the parties enter into a contract, an object of which is to secure a particular psychological benefit. In such a case, damages arising from such mental distress should in principle be recoverable where they are established on the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made. The basic principles of contract damages do not cease to operate merely because what is promised is an intangible, like mental security.

[40] I have reproduced this passage in detail as Mr. Albrecht does not appear to have been aware of this decision when he made his arguments.

[41] Mr. Mazgaj was clear when he gave his evidence that the Defendants were not aware that he intended to fund his retirement out of the proceeds of this investment. As a result, there was no evidence that Mr. Mazgaj told the defendants he was seeking a psychological benefit when the contract was made. Therefore aggravated damages are not appropriate in this case.

[42] Mr. Albrecht provided me with a letter approximately a week after the trial was completed, outlining additional arguments about what Mr. Mazgaj had lost in these transcations. This letter was not solicited by me, and it was not appropriate for Mr. Albrecht to attempt to make further arguments after the hearing was completed.

[43] I have, however, considered the arguments that Mr. Albrecht made in his letter, and I do not find them persuasive. While it is entirely possible that Mr. Mazgaj suffered a loss to his trust in society, and a loss to his dignity and self-worth, these are not issues that can be compensated for in this case because the evidence is clear that Mr. Mazgaj did not make the Defendants aware, in any way, of the fact that he was seeking a psychological benefit with this contract.

c) The Claim for Punitive Damages

[44] Punitive damages are described in Barrick Gold Corp v. Lopehandia (2004 ONCA 12938), [2004] O.J. No. 2329 (C.A.) where the Court quoted from Hill v. Church of Scientology as follows:

57. Cory J. described punitive damages in the following fashion in Hill at 1208:

Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handed that it offends the court’s sense of decency. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant. They are in the nature of a fine which is meant to act as a deterrent to the defendant and to others from acting in this manner. It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence.

[45] In this case, the conduct of the Defendant Strumos goes beyond the ordinary civil fraud. Mr. Strumous was aware that Mr. Mazgaj was deaf and did not have a good understanding of the English language. In spite of this knowledge, Mr. Strumos encouraged Mr. Mazgaj to invest his money in a land scheme that Mr. Strumos knew would result in Mr. Mazgaj losing all of his money.

[46] Not only did Mr. Strumos prey on Mr. Mazgaj’s naïve and trusting nature, he also preyed on his disability. Mr. Strumos took advantage of the fact that Mr. Mazgaj was deaf and the fact that he did not speak English well in order to defraud Mr.Magaj of his savings. This is egregious conduct, and it outrages the Court.

[47] Further, the award of damages merely makes Mr. Mazgaj whole. It does not provide sufficient punishment to Mr. Strumos and it does not provide sufficient deterrence to others who, in the future, might choose to act as Mr. Strumos did in this case. As a result, punitive damages against Mr. Strumos are appropriate, and I fix those damages in the sum of $25,000.00.

[48] I decline to award punitive damages against Mr. Craddock because there is no evidence that he was aware of Mr. Mazgaj’s disability or his limitations in the English language.

Disposition

[49] The claims for fraudulent misrepresentation are allowed jointly against the Defendants Craddock and Strumos in the sum of $276,031.00 plus interest as described below.

[50] In addition, an award of punitive damages against the Defendant Strumos is allowed in the sum of $25,000.00.

[51] I have made no findings on the claims for breach of contract or the remainder of the torts that are claimed in the statement of claim, as I understood that such findings were not necessary.

[52] Mr. Albrecht has asked for prejudgment interest under the Courts of Justice Act. However, he is seeking an Order that would require payment of the interest back to the date on which Mr. Mazgaj made the investment, and not just the date on which the claim was commenced. Mr. Albrecht did not cite any authority for this proposition. He argues that such an order is warranted in these circumstances.

[53] My review of this issue starts with section 128(1) of the Courts of Justice Act, which states:

Prejudgment interest

128. (1) A person who is entitled to an order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the prejudgment interest rate, calculated from the date the cause of action arose to the date of the order.

[54] When the words of this section are reviewed, it is clear that the interest on the amounts owing starts to run from the date that the wrong occurred. In this case, given that I have found a fraudulent misrepresentation, the wrong occurred on the date that the contracts were entered into. As a result, I am prepared to allow interest from the date on which Mr. Mazgaj made his investment.

[55] In terms of costs, Mr. Albrecht has filed a Bill of Costs requesting approximately $41,000.00. This bill of costs is too high for two reasons. First, there is the fact that it includes time preparing the claim against the lawyers who are no longer part of this action. Second, the materials covered more territory than they should have, suffered from a lack of focus on the discrete elements that needed to be proven in establishing the claim and did not provide the Court with everything that was necessary to resolve the legal issues. In other words, although this was a complicated claim, the work could have been done more effectively.

[56] Given the foregoing, I am prepared to award costs in the sum of $25,000.00 inclusive of HST and disbursements in this matter.

LEMAY J

DATE: November 18, 2015

COURT FILE NO.: 7072/13
DATE: 2015 11 18

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: TADEUSZ MAZGAJ v. PROFITABLE PLOTS (CANADA) INC., PROFITABLE PLOTS PTE LTD., SYNDICATIONS CANADA INC., JOHN ANDREW NORDMANN, GERALDINE ANTHONY THOMAS, TIMOTHY NICHOLAS GOLDRING, DOUGLAS WILLIAM CHADDOCK, DANIEL STRUMOS, MICHAEL BAUM, JEMIMAH ST. HILARE, GORDON EDWARD BUELL, STEPHEN BAILEY, LIIA TRUMAN, LISA LAURINE DAVIES, SAMUEL SCHWARTZ, DAVIS LLP, and BLACK SUTHERLAND LLP

COUNSEL: H. Albrecht, counsel for the Plaintiff

ENDORSEMENT

LEMAY J

DATE: November 18, 2015