Tzaras et al. v. Tzaras et al.; Maharaj et al., Third Parties

[Indexed as: Tzaras v. Tzaras]

Ontario Reports Ontario Superior Court of Justice, Pattillo J. Date: July 25, 2016 Citation: 132 O.R. (3d) 471 | 2016 ONSC 4717

Case Summary

Civil procedure — Third party actions — Plaintiffs suing T and 222 after T fraudulently transferred property into his own name and obtained mortgage from 222 — 222 cross-claiming against T for fraud and obtaining summary judgment on that claim — T bringing third party action against MA for contribution and indemnity on basis that employee of MA aided actual fraudster and that MA failed to supervise its employee — MA's motion for summary judgment dismissing third party claim on basis of 222's judgment on cross-claim dismissed — Issue estoppel or res judicata not arising as issues in cross-claim and third party claim were different and third parties were not involved in 222's summary judgment motion — Defence of ex turpi causa not applying to prevent third party claim.

The plaintiffs sued T and 222 after T fraudulently transferred property belonging to his father's estate into his own name and obtained a mortgage from 222, which cross-claimed against T for fraud. After the main action was settled, 222 successfully moved for summary judgment against T. T brought a third party claim against MA for contribution and indemnity, alleging that a mortgage broker employed by MA aided the actual fraudster and that MA failed to supervise its employee. MA brought a motion for summary judgment relying on 222's judgment and asserting that T had no claim against it based on issue estoppel or res judicata and the defence of ex turpi causa.

Held, the motion should be dismissed.

Neither issue estoppel nor res judicata arose from the decision of the motion judge on 222's summary judgment motion, as the issues on that motion were very different than the issues in the third party claim and none of the third parties was involved in 222's summary judgment motion.

The defence of ex turpi causa did not apply to prevent the third party claim. The claim against MA for contribution and indemnity did not seek to profit by a fraud or evade a penalty prescribed by criminal law.

Hall v. Hebert, [1993] 2 S.C.R. 159, [1993] S.C.J. No. 51, 101 D.L.R. (4th) 129, 152 N.R. 321, [1993] 4 W.W.R. 113, J.E. 93-903, 26 B.C.A.C. 161, 78 B.C.L.R. (2d) 113, 15 C.C.L.T. (2d) 93, 45 M.V.R. (2d) 1, 39 A.C.W.S. (3d) 1080; Pupiec v. Dereniowski (1998), 39 O.R. (3d) 150, [1998] O.J. No. 2002, 80 A.C.W.S. (3d) 222 (C.A.), consd

Other cases referred to Tzaras v. Tzaras, [2011] O.J. No. 4379, 2011 ONSC 5723, 73 E.T.R. (3d) 59 (S.C.J.)

MOTION for summary judgment dismissing a third party claim.

Counsel: Murray Stieber, for third party Mortgage Alliance Company of Canada Inc. J. David Sloan, for defendants.

Endorsement

[1] Endorsement of PATTILLO J.: — This is a motion for summary judgment by the third party Mortgage Alliance Company of Canada Inc. ("MA") to dismiss the third party claim of the defendant Stephen Tzaras ("Stephen") against it.

[2] In June of 2010, Stephen fraudulently transferred property belonging to his father's estate into his own name and then obtained a mortgage for $400,000 from the defendant 2227304 Ontario Inc. ("222").

[3] When his mother and siblings found out what had happened, they obtained a Mareva injunction against Stephen freezing the funds and then commenced an action against him and 222, amongst others. 222 cross-claimed against Stephen.

[4] After the main action was settled, 222 brought a motion for summary judgment against Stephen.

[5] Shortly after being served with the claim, Stephen commenced the third party action against MA and Lloyd Maharaj and Jean Paul Massamba. The claim alleges that Maharaj carried out the fraud and that Massamba, who was employed as a mortgage broker or consultant by MA, worked with him. The claim against MA is that it failed to supervise Massamba, was negligent in not being aware of the fraud and failed to exercise due diligence.

[6] MA filed a defence denying vicarious liability and asserting that Massamba was an independent contractor not an employee and if an employee was acting outside the scope of his employment. It denied it owed Stephen any duty of care. Further, it submitted that if Stephen suffered any damages, he is responsible for his own losses.

[7] 222's summary judgment motion was heard on September 13, 2011. In reasons dated September 29, 2011, Fregeau J. [2011] O.J. No. 4379, 2011 ONSC 5723 (S.C.J.) (the "motion judge") allowed the motion and granted judgment against Stephen on 222's cross-claim on the basis that 222 had made out all the essential elements of a claim of fraud against Stephen. The judgment was for, among other things, the full amount of the mortgage loan ($400,000), plus interest and costs together with $35,000, which 222 paid to the plaintiffs to resolve their claim.

[8] MA's summary judgment motion is not the typical summary judgment motion. In support, it has filed the pleading, 222's judgment and the reasons of the motion judge. It asserts that Stephen has no claim against it based on issue estoppel or res judicata and the defence of ex turpi causa (a party cannot profit from his illegal activity). It has filed no affidavit of anyone from MA dealing with the issues as raised by it in the third party claim.

[9] I do not consider that either res judicata or issue estoppel arise from the decision of the motion judge. The issue before the motion judge was whether there was a genuine issue for trial concerning 222's claim of fraud against Stephen. The issue in the third party claim is essentially whether Maharaj and Massamba were involved in the fraud and if Massamba was involved, whether MA is responsible in law for his conduct. Those issues are very different than the issues that were before the motion judge and accordingly do not give rise to issue estoppel.

[10] Further, none of the third parties were involved in 222's summary judgment motion. Although the third party claim was commenced on May 6, 2011, it is not clear when it was served on MA. MA did not file its defence until early January 2012, well after 222's summary judgment motion was decided.

[11] Nor, in my view, can it be concluded that the defence of ex turpi causa applies to prevent the third party claim. Apart from the fact that MA has not pleaded it, the defence is very limited and is only justified where allowing the plaintiff's claim would introduce inconsistency into the fabric of the law, either by permitting the plaintiff to profit from an illegal or wrongful act, or to evade a penalty prescribed by criminal law: Hall v. Hebert, [1993] 2 S.C.R 159, [1993] S.C.J. No. 51, at para. 5.

[12] The third party claim is for contribution and indemnity arising out of 222's judgment against Stephen. In that regard, Stephen has been found liable for the entire amount of the fraud. To the extent that his third party claim seeks profit from fellow fraudsters, ex turpi causa does not permit it. To the extent, however, that the claim is for contribution in respect of the moneys that Maharaj and Massamba received from the fraud, in my view, ex turpi causa would not prevent that claim. Such a claim does not seek to profit by the fraud nor evade a penalty prescribed by criminal law. Nor do I consider that such a claim would introduce inconsistency into the fabric of our law.

[13] MA relies on the decision of the Court of Appeal in Pupiec v. Dereniowski (1998), 39 O.R. (3d) 150, [1998] O.J. No. 2002 (C.A.). The court, in a brief endorsement, relied on ex turpi causa to disallow the plaintiff's claim for damages against the defendants. The plaintiff's claim for damages was for the value of two worthless vendor take-back mortgages she received in the sale of her property to the defendants. The trial judge found that the plaintiff and defendants were involved in a scheme to inflate the value of the plaintiff's property to obtain financing and granted judgment to the plaintiff, apportioning the value of the mortgages 75 per cent to the defendants and 25 per cent to the plaintiff. In allowing the appeal, the court stated that once the trial judge found that the plaintiff and defendants participated in a scheme to defraud a third party, the court should not entertain an action between the participants of the fraud to allocate responsibility for the loss.

[14] I do not read Pupiec to be inconsistent or contrary to the ratio in Hall v. Herbert. Ms. Pupiec's claim was in essence a claim for lost profit arising out of the sale of her property. In that circumstance, ex turpi causa clearly applies to prevent the claim. The claim was not a claim for contribution and indemnity. In my view, Pupiec does not stand for the proposition that a fraudster who has a judgment against him or her for the entire amount of the fraud cannot seek contribution from fellow fraudsters for any amounts they received from the fraud.

[15] MA further submits there is no genuine issue for trial because Stephen has admitted all of the essential elements of 222's claim of fraud against him. But the third party claim alleges that Maharaj and Massamba were also involved in the fraud. There is no admission that they were not.

[16] There is no evidence before me (apart from Stephen's) concerning the role of Maharaj and Massamba in the fraud. Nor is there any evidence of the relationship between Massamba and MA to determine MA's liability, if any, for his actions. Accordingly, I am unable to find there is no genuine issue for trial.

[17] MA's motion is therefore dismissed.

[18] The parties have agreed on costs of $7,500. Payable by MA to Stephen within 30 days.

Motion dismissed.

End of Document