Doyle Salewski Inc. in its Capacity as Trustee in Bankruptcy for Golden Oaks Enterprises Inc. et al. v. Lalonde et al.

[Indexed as: Golden Oaks Enterprises Inc. (Trustee in Bankruptcy of) v. Lalonde]

Ontario Reports

Ontario Superior Court of Justice,

Kershman J.

August 22, 2016

133 O.R. (3d) 513 | 2016 ONSC 5313

Case Summary

Limitations — Discoverability — Trustee in bankruptcy conducting investigation after appointment and discovering that bankrupt was running Ponzi scheme — Trustee suing defendants for charging usurious rate of interest and receiving unlawful commissions — Claims not discoverable until trustee had completed investigation — Action commenced within two years of investigation — Action not statute-barred.

Unjust enrichment — Trustee in bankruptcy suing defendants for charging usurious interest rate and receiving unlawful commissions — Trustee referring to Criminal Code and Securities Act — Defendants moving to strike statement of claim on basis that there is no free-standing tort in Canada for breach of statute — Motion dismissed — Trustee permitted to amend statement of claim to plead unjust enrichment — Breach of statute not relied on as tort in itself but rather as establishing lack of juristic reason for enrichment — Claim not clearly and obviously doomed to fail.

After being appointed as GOE's trustee in bankruptcy in July 2013, the plaintiff conducted an investigation and determined that GOE was running a Ponzi scheme. The plaintiff obtained leave to commence an action claiming that the Lalonde defendants had entered into lending agreements by means of promissory notes that included a usurious rate of interest and that the defendant Scott had received unlawful commissions. The promissory notes were issued between February 2012 and February 2013, and the commissions were received between March 2012 and February 2013. The action was commenced in July 2015. The statement of claim relied on s. 347 of the Criminal Code, R.S.C. 1985, c. C-46 and the Ontario Securities Act, R.S.O 1990, c. S.5. The defendants brought a motion to strike the claim as statute-barred and because there is no free-standing tort in Canada for breach of statute. The plaintiff brought a cross-motion for leave to amend the statement of claim.

Held, the motion should be dismissed; the cross-motion should be granted.

The claims were not discoverable until a reasonable person would have determined that GOE was engaged in a Ponzi scheme rather than a legitimate business. The plaintiff had to conduct a lengthy investigation, hampered by GOE's poor accounting records. It was not until the plaintiff's fourth report in May 2014 that the plaintiff was able to confirm with certainty that usurious interest rates and unlawful commissions were being received. The clock started to run from that point. The action was commenced within the two-year limitation period.

The plaintiff was not asserting a claim of breach of tort. Rather, it was claiming that the defendants were unjustly enriched through usurious interest rates and unlawful commissions. The breaches of statutes were being relied on, not as torts in themselves, but rather as establishing a lack of juristic reason for the enrichment. The plaintiff was granted leave to amend the statement of claim to specifically plead unjust enrichment. It was not plain and obvious that the claim had no chance of success.

Choc v. Hudbay Minerals Inc. (2013), 116 O.R. (3d) 674, [2013] O.J. No. 3375, 2013 ONSC 1414, 4 C.C.L.T. (4th) 65, 17 B.L.R. (5th) 303, 230 A.C.W.S. (3d) 649 (S.C.J.); R. v. Canadian Dredge & Dock Co., 1985 32 (SCC), [1985] 1 S.C.R. 662, [1985] S.C.J. No. 28, 19 D.L.R. (4th) 314, 59 N.R. 241, 9 O.A.C. 321, 19 C.C.C. (3d) 1, 45 C.R. (3d) 289, 14 W.C.B. 195, apld

J.W.O. Enterprises Ltd. (Re), 1981 3417 (MB QB), [1981] M.J. No. 44, [1981] 4 W.W.R. 540, 12 Man. R. (2d) 18, 38 C.B.R. (N.S.) 245 (Q.B.); McKenster Estate (Trustee of) v. Canada Life Assurance Co., 1985 5890 (NS SC), [1985] N.S.J. No. 46, 74 N.S.R. (2d) 209, 58 C.B.R. (N.S.) 308, 10 C.C.E.L. 193 (S.C.T.D.); Van Halteren v. De Boer Tool Inc., [2015] O.J. No. 4136, 2015 ONSC 4939 (S.C.J.), distd

Mancini (Trustee of) v. Falconi, [1995] O.J. No. 2207 (C.A.), varg (1994), 17 O.R. (3d) 512, [1994] O.J. No. 206, 24 C.B.R. (3d) 165, 45 A.C.W.S. (3d) 964 (Gen. Div.), consd

Other cases referred to

1597203 Ontario Ltd. v. Ontario, [2007] O.J. No. 2349, 158 A.C.W.S. (3d) 707, 2007 21966 (S.C.J.); Beardsley v. Ontario Provincial Police (2001), 2001 8621 (ON CA), 57 O.R. (3d) 1, [2001] O.J. No. 4574, 151 O.A.C. 324, 17 C.P.C. (5th) 94, 52 W.C.B. (2d) 45 (C.A.); Canada v. Saskatchewan Wheat Pool, 1983 21 (SCC), [1983] 1 S.C.R. 205, [1983] S.C.J. No. 14, 143 D.L.R. (3d) 9, 45 N.R. 425, [1983] 3 W.W.R. 97, 23 C.C.L.T. 121, 18 A.C.W.S. (2d) 133; Canada (Attorney General) v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735, [1980] S.C.J. No. 99, 115 D.L.R. (3d) 1, 33 N.R. 304, 5 A.C.W.S. (2d) 255; Cami International Poultry Inc. v. Chicken Farmers of Ontario, [2013] O.J. No. 5273, 2013 ONSC 7142 (S.C.J.); Combined Air Mechanical Services Inc. v. Flesch (2011), 108 O.R. (3d) 1, [2011] O.J. No. 5431, 2011 ONCA 764, 286 O.A.C. 3, 97 C.C.E.L. (3d) 25, 14 C.P.C. (7th) 242, 13 R.P.R. (5th) 167, 93 B.L.R. (4th) 1, 10 C.L.R. (4th) 17, 211 A.C.W.S. (3d) 845; Dawson v. Rexcraft Storage and Warehouse Inc., 1998 4831 (ON CA), [1998] O.J. No. 3240, 164 D.L.R. (4th) 257, 111 O.A.C. 201, 26 C.P.C. (4th) 1, 20 R.P.R. (3d) 207, 81 A.C.W.S. (3d) 783 (C.A.); Den Haag Capital, LLC v. Correia, [2010] O.J. No. 4316, 2010 ONSC 5339, 193 A.C.W.S. (3d) 1137 (S.C.J.); Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, 2004 SCC 25, 237 D.L.R. (4th) 385, 319 N.R. 38, J.E. 2004-931, 186 O.A.C. 128, 43 B.L.R. (3d) 163, 9 E.T.R. (3d) 163, 130 A.C.W.S. (3d) 32; Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, J.E. 90-1436, 49 B.C.L.R. (2d) 273, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105, 23 A.C.W.S. (3d) 101; Impact Tool & Mould Inc. (Interim Receiver of) v. Impact Tool & Mould Inc. (Trustee of), [2016] O.J. No. 18, 2016 ONSC 133, 33 C.B.R. (6th) 80, 262 A.C.W.S. (3d) 752 (S.C.J.); Indcondo Building Corp. v. Sloan (2010), 103 O.R. (3d) 445, [2010] O.J. No. 5583, 2010 ONCA 890, 272 O.A.C. 275, 329 D.L.R. (4th) 351, 73 C.B.R. (5th) 265, 199 A.C.W.S. (3d) 1317; Jevco Insurance Co. v. Pacific Assessment Centre Inc. (2014), 120 O.R. (3d) 43, [2014] O.J. No. 1704, 2014 ONSC 2244 (S.C.J.); Kay v. Caverson, [2010] O.J. No. 5559, 2010 ONSC 6743, 196 A.C.W.S. (3d) 632 (S.C.J.); Livent Inc. (Special Receiver and Manager of) v. Deloitte & Touche (2016), 128 O.R. (3d) 225, [2016] O.J. No. 51, 2016 ONCA 11, 52 B.L.R. (5th) 225, 31 C.B.R. (6th) 205, 24 C.C.L.T. (4th) 177, 393 D.L.R. (4th) 1, 342 O.A.C. 201, 262 A.C.W.S. (3d) 54; Marks v. Ottawa (City), [2011] O.J. No. 1445, 2011 ONCA 248, 280 O.A.C. 251, 81 M.P.L.R. (4th) 161, 200 A.C.W.S. (3d) 329; Millard v. North George Capital Management Ltd., 2006 41287 (ON SC), [2006] O.J. No. 4902, 26 B.L.R. (4th) 231, 153 A.C.W.S. (3d) 836 (S.C.J.); Montague v. Perkins (1853), 22 L.J. (C.P.) 187; Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549, [1997] S.C.J. No. 31, 151 D.L.R. (4th) 429, 217 N.R. 371, J.E. 97-1825, 103 O.A.C. 161, 46 C.C.L.I. (2d) 147, 12 C.P.C. (4th) 255, 30 M.V.R. (3d) 41, 74 A.C.W.S. (3d) 117; R. v. Imperial Tobacco Canada Ltd., [2011] 3 S.C.R. 45, [2011] S.C.J. No. 42, 2011 SCC 42, 308 B.C.A.C. 1, 419 N.R. 1, 2011EXP-2380, J.E. 2011-1326, 335 D.L.R. (4th) 513, 21 B.C.L.R. (5th) 215, 25 Admin. L.R. (5th) 1, 86 C.C.L.T. (3d) 1, [2011] 11 W.W.R. 215, 83 C.B.R. (5th) 169, 205 A.C.W.S. (3d) 92; Shubaly v. Coachman Insurance (2012), 112 O.R. (3d) 620, [2012] O.J. No. 4951, 2012 ONSC 5455, 15 C.C.L.I. (5th) 280, 222 A.C.W.S. (3d) 20 (S.C.J.); Skuy v. Greenough Harbour Corp., [2012] O.J. No. 5841, 2012 ONSC 6998, 10 B.L.R. (5th) 146, 224 A.C.W.S. (3d) 200 (S.C.J.); Standard Investment Ltd. v. Canadian Imperial Bank of Commerce (1985), 1985 164 (ON CA), 52 O.R. (2d) 473, [1985] O.J. No. 2668, 22 D.L.R. (4th) 410, 11 O.A.C. 318, 30 B.L.R. 193, 33 A.C.W.S. (2d) 135 (C.A.); Terry v. Bryson, [2014] B.C.J. No. 546, 2014 BCSC 522; Titan Investments Ltd. Partnership (Re), [2005] A.J. No. 1041, 2005 ABQB 637, 383 A.R. 323, 14 C.B.R. (5th) 112, 141 A.C.W.S. (3d) 968

Statutes referred to

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 [as am.], ss. 71 [as am.], 243(1)(c)

Criminal Code, R.S.C. 1985, c. C-46, s. 347 [as am.]

Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, ss. 4, 7(1), 12

Securities Act, R.S.O 1990, c. S.5 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 21, 21.01(1)(a), 25.06(2), 26.01, 26.02, 26.03

Authorities referred to

Houlden, Lloyd W., Geoffrey B. Morawetz and Janis P. Sarra, , Bankruptcy and Insolvency Law of Canada, 4th ed., looseleaf (Toronto: Carswell, 2009)

Mew, Graeme, The Law of Limitations, 2nd ed. (Toronto: LexisNexis, 2004)

Woods, Roderick J., Bankruptcy and Insolvency Law, 2nd ed. (Toronto: Irwin Law, 2015)

MOTION to strike a claim; CROSS-MOTION for leave to amend a statement of claim.

Robert De Toni and John Dempster, for plaintiff.

Alyssa Tomkins and James Plotkin, for defendants.

KERSHMAN J.: —

Overview

[1] The defendants Monique Lalonde and Paul Lalonde ("Lalondes") have brought a representative motion on their own behalf and, on behalf of others, to strike various claims brought by the plaintiff Doyle Salewski Inc. ("DSI") in its capacity as trustee in bankruptcy in the estates of Golden Oaks Inc. ("Golden Oaks") and Jean-Claude Lacasse ("Lacasse").

[2] The defendant Lorne Scott has also brought a representative motion to strike out certain portions of the amended statement of claim in the action brought by the plaintiff.

[3] The claims fall into two categories:

(1) claims that certain defendants entered into lending agreements by means of promissory notes that included a usurious rate of interest ("usurious interest claims");

(2) claims that certain defendants received so called "unlawful commissions" based on referrals of new investors to Golden Oaks ("unlawful commissions claims").

[4] In order to streamline the procedure on the defendants' motions to strike, which are 28 in all, the parties have agreed to argue the present motion on the basis of two of those claims. The claim against the Lalondes, Court File No. 15-65120, is a representative claim for the usurious interest claims. The claim against Lorne Scott, Court File No. 15-65108, represents the unlawful commissions claims.

[5] On the present motion, the defendants seek to strike out the Lalonde claim in its entirety.

[6] In relation to the Scott claim, the defendants seek to strike out paras. 1(c), 21, 22, 23, 24 and 25 of the amended statement of claim. Furthermore, the defendants seek to strike out other unlawful commissions claims in other files in their entirety.

[7] In both matters, the defendants claim that (1) the action is statute-barred, having been brought after the expiry of the relevant limitation period; (2) DSI failed to identify a known cause of action, claiming damages for breach of statute, which is not a civil action; and (3) DSI failed to plead material facts that could support a cause of action.

[8] The motion in relation to usurious interest claims applies to claims against the following defendants in the following files:

-- Janet Arsenault (15-SC-136371);

-- Josée Bouchard (SC-15-136391, 15-SC-136477);

-- Tanya Contant / Heather Borquez (15-65113);

-- Barbara Kennedy (15-SC-136402);

-- Paul Lalonde / Vincent Carriere (15-SC-136617);

-- Ronald Leduc / 2044475 Ontario Inc. (15-65116);

-- Marck McKenna (SC-15-136415);

-- Judy McKenna (15-SC-136414);

-- Joe Messa / Ernest Toste (15-SC-136424);

-- Jeremy Mitchell (15-SC-136425);

-- Le-Thu Nguyen (15-65115);

-- Claudia Nicholson (15-SC-136444);

-- Armen Patel (15-SC-136619);

-- Ibrahim Mansour (15-SC-136505);

-- Paul St. Laurent (15-SC-136582); and

-- Vinko Surla (15-SC-136443).

[9] The motion in relation to the unlawful commissions claims applies to claims against the defendants in the following files:

-- Tanya Contant (15-SC-136029);

-- Mark McKenna (15-SC-136482);

-- Judy McKenna (15-SC-136506);

-- Susan McKillup / 1531425 Ontario Inc. (15-SC-136483);

-- William Myles/Camille Gerard-Ruel (15-65114);

-- Arman Patel (15-SC-136619);

-- Oksana Strelbitski (15-SC-136481);

-- Ibrahim Mansour (15-SC-136506); and

-- Paul St. Laurent (15-SC-136582).

Factual Background

Parties

[10] DSI is a trustee in bankruptcy in the estates of Golden Oaks and Mr. Lacasse. The words "trustee" and "receiver" will be used interchangeably in this decision.

[11] The defendant Lalondes are individuals residing in Ottawa, Ontario.

[12] The defendant Scott is an individual residing in Gatineau, Quebec. He is a licensed real estate agent operating in the Province of Ontario.

[13] For ease of reference, the court refers to the claim against Paul and Monique Lalonde as the "Lalonde claim" and the claim against Lorne Scott as the "Scott claim".

Facts Common to Both Claims

[14] Beginning in early 2010, Golden Oaks, under the direction of Mr. Lacasse, began operating and marketing a real estate "rent to own" program whereby individuals and families could rent dwellings with an option to later purchase them.

[15] Golden Oaks purchased a number of properties in order to carry out the "rent-to-own" program.

[16] Golden Oaks sought out investors to help fund the "rent-to-own" program.

[17] Golden Oaks issued promissory notes to cover the investments.

[18] On or about July 9, 2013, DSI was appointed by the court as a receiver and manager of Golden Oaks and Mr. Lacasse. On July 26, 2013, Golden Oaks and Lacasse filed assignments in bankruptcy and DSI was appointed the trustee in both estates. After that date, DSI commenced an investigation into their affairs.

[19] According to DSI, its investigation was complicated by the fact that Golden Oaks did not have a proper accrual accounting system. Furthermore, records were not kept properly which required the trustee to source much of the data from banks and other third parties in determining what had transpired. The process of obtaining the information was slow. Banking information was received throughout 2015.

[20] According to DSI, it was during the course of its investigation that it discovered that there were 503 promissory notes issued to 153 Golden Oaks investors with the first investment being made in 2009 and the last being made in May 2013. Interest payments made on the promissory notes made up a significant multiple of the number of the 503 notes. As such, there were thousands of transactions to match to investors.

[21] In addition, during the course of its investigation, DSI conducted examinations of 25 individuals, commencing in August 27, 2013 and ending on July 8, 2014. By the time the third report of the receiver was completed on March 10, 2014, the receiver had only examined 15 individuals. Ten individuals remained to be examined.

[22] In addition, as of the date of the third report, DSI was still examining approximately 30,000 e-mails and text messages.

[23] As part of its investigation, DSI discovered 17 bank accounts connected to Mr. Lacasse or Golden Oaks, together with 20 credit cards.

[24] Accordingly, DSI continued examining the records and speaking to individuals with knowledge of the matter well after the date of its third report.

[25] At para. 58 of the third report, DSI asked the court for authority to commence litigation. Although DSI had determined that moneys had been paid improperly by Golden Oaks and Lacasse to individuals, the investigation was not complete and it had not been determined which individuals should be liable to the estate and the respective amounts owing.

[26] The ongoing investigation revealed that Golden Oaks was predominantly engaged in the business of selling promissory notes to investors. According to DSI, over 96 per cent of the funds that came into Golden Oaks from March 1, 2012 to February 28, 2013 was generated by investors. Only 3 per cent of the revenue came from business operations. The revenue from business operations did not support the disbursements required to maintain the houses or other businesses operated by Golden Oaks. DSI's investigation further revealed that the promissory notes offered rates of interest of up to 66,981.9 per cent on an annualized basis.

[27] Based on DSI's investigation and the Golden Oaks financial statements, Golden Oaks lost money from the beginning and was never profitable.

[28] The DSI investigation further revealed the following:

(1) that Golden Oaks was involved in unlawful activities;

(2) that Golden Oaks made preferential payments to various creditors;

(3) that Golden Oaks paid usurious interest to various promissory note holders; and

(4) that Golden Oaks paid unlawful referral commissions to persons who referred investors to Golden Oaks.

The Lalonde Claim

[29] Between February 24, 2012 and February 22, 2013, the Lalondes made several loans to Golden Oaks as evidenced by promissory notes. The promissory notes were payable 45 days after they were entered into.

[30] On July 23, 2015, DSI issued a statement of claim in the same matter (Court File No. 15- 65120). DSI as trustee in bankruptcy in the estate of Golden Oaks claimed that the promissory notes entered into by Golden Oaks and the Lalondes resulted in the Lalondes receiving criminal rates of interest.

[31] The statement of claim relies on s. 347 of the Criminal Code, R.S.C. 1985, c. C-46 and provisions of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA").

[32] In addition, DSI states that the usurious interest paid by Golden Oaks to the Lalondes were misappropriated funds of stakeholders, which should be returned to DSI representing the interests of all stakeholders.

The Scott Claim

[33] DSI, as trustee in bankruptcy in the estates of Golden Oaks and Mr. Lacasse, issued a statement of claim against Mr. Scott on July 23, 2015. The statement of claim was amended on January 7, 2016. The amended statement of claim alleges among other things that Mr. Scott was paid a total of $44,700 by Golden Oaks as referral commission for sums advanced to Golden Oaks by various investors that Mr. Scott referred to Golden Oaks.

[34] The investments pursuant to which Mr. Scott was paid referral commissions took place between March 2012 and February 28, 2013.

[35] DSI's amended statement of claim states the final commission was paid to Scott on March 5, 2013, one week after the end of the investment.

[36] In its amended statement of claim, DSI relies on the Ontario Securities Act, R.S.O 1990, c. S.5, seeking that Mr. Scott repay the funds advanced to him by Golden Oaks on the basis that he was not "licenced to sell and/or receive remuneration for the sale of promissory notes".

[37] In addition, DSI claims that the referral commissions paid to Mr. Scott were misappropriated moneys belonging to stakeholders, which should be returned to DSI representing interest of all of the stakeholders.

Issues

[38] The issues on the motion are as follows:

(1) Should the court consider references made to the Cunningham arbitration decision in coming to its decision?

(2) What is the test on a Rule 21 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] motion to strike?

(3) Should the statement of claim be struck as statute-barred, due to the expiration of the relevant limitation periods?

(4) Should the statement of claim be struck because it does not disclose a cause of action?

(5) If the answer to issue #4 is no, then should the statement of claim be struck because it does not contain sufficient material facts to support the cause of action?

[39] The issue on the cross-motion is:

(6) Should the court grant leave to amend the statements of claim in any, or all, of the court actions noted in the cross-claim?

Issue #1

Should the court consider references made to the Cunningham arbitration decision in coming to its decision?

Defendants' position

[40] The defendants argue that all references in relation to the Cunningham arbitration decision in the Steeves arbitration matter should not influence or have any bearing in relation to the decision being made on this motion.

[41] The defendants also argue that the Cunningham arbitration decision is not binding on the cases which are now before the court.

Plaintiff's position

[42] The plaintiff acknowledges that the Cunningham arbitration decision is only binding on the parties to that decision, and not binding on third parties.

Analysis

[43] The arbitrator's decision in the Cunningham arbitration was only in relation to the parties involved in that arbitration. None of the defendants in this proceeding were involved in the Cunningham arbitration. This court will not consider the Cunningham arbitration decision in relation to the decision that the court will be making on this motion.

Issue #2

What is the test on a Rule 21 motion to strike?

Defendants' position

[44] The defendants argue that the test on a Rule 21 motion to strike is set out by the Supreme Court of Canada in Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93. At p. 979 S.C.R., Wilson J. endorsed the "plain and obvious test" which was cited by Estey J. speaking for the court in Canada (Attorney General) v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735, [1980] S.C.J. No. 99, at p. 740 S.C.R.:

As I have said, all the facts pleaded in the Statement of Claim must be deemed to have been proven. On a motion such as this, a court should, of course, dismiss the action or strike out any claim made by the Plaintiff only in plain and obvious cases and where the Court is satisfied that "the case is beyond reasonable doubt".

[Citation omitted]

[45] The defendants also rely on the case of R. v. Imperial Tobacco Canada Ltd., [2011] 3 S.C.R 45, [2011] S.C.J. No. 42, 2011 SCC 42, at paras. 19 and 20:

The power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measure essential to effective and fair litigation. It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial.

This promotes two goods -- efficiency in the conduct of the litigation and correct results. Striking out claims that have no reasonable prospect of success promotes litigation efficiency, reducing time and cost. The litigants can focus on serious claims, without devoting days and sometimes weeks of evidence and argument to claims that are in any event hopeless. The same applies to judges and juries, whose attention is focused where it should be -- on claims that have a reasonable chance of success. The efficiency gained by weeding out unmeritorious claims in turn contributes to better justice. The more the evidence and arguments are trained on the real issues, the more likely it is that the trial process will successfully come to grips with the parties' respective positions on those issues and the merits of the case.

Plaintiff's position

[46] The plaintiff argues that the test for striking a statement of claim is a stringent one. Only in the clearest of cases should a plaintiff be deprived of the opportunity of convincing a judge at trial that his or her claim ought to succeed. It relies on the case of Choc v. Hudbay Minerals Inc. (2013), 116 O.R. (3d) 674, [2013] O.J. No. 3375, 2013 ONSC 1414 (S.C.J.), at para. 42 ("Choc v. Hudbay"), which states:

The test for striking the Statement of Claim at the pleadings stage is stringent, with a difficult burden for the defendant to meet. Only in the clearest of cases should a party be deprived of the opportunity of persuading a trial judge that the evidence and the law entitle it to a remedy or defence. The fact that allegations in an action might be novel is not justification for striking the Statement of Claim. In this regard, Molloy J. observed in McLean v. Toronto (City) Police Service, [2001] O.J. No. 2882 (Sup. Ct.) at para. 2, with respect to the novelty or complexity of a cause of action:

For purposes of the motion, the allegations of fact in the statement of claim must be taken as proven (unless patently ridiculous or incapable of proof). The pleading must be read generously, with allowances for inadequacies due to drafting deficiencies. The novelty or complexity of a cause of action does not require that the claim be struck on a summary basis. On the contrary, it is preferable that difficult and important points of law be examined within a full factual context, which can only take place at trial.

[47] The plaintiff also relies on the Cami International Poultry Inc. v. Chicken Farmers of Ontario, [2013] O.J. No. 5273, 2013 ONSC 7142 (S.C.J.). At para. 27 of that case, the court sets out a summary of the governing principles relating to Rule 21 motions, quoting from 1597203 Ontario Ltd. v. Ontario, [2007] O.J. No. 2349, 2007 21966 (S.C.J.):

The governing principles relating to Rule 21 motions are nicely summarized by Conway J. in the case of 1597203 Ontario Ltd. v. Ontario, 2007 21966 (ON SC), [2007] O.J. No. 2349, at para. 12 as follows:

(a) The facts in the pleading are to be taken as proven and true unless they are patently ridiculous or incapable of proof.

(b) It must be "plain and obvious" that the pleading is unfounded or contains no reasonable cause of action in order for the motion to succeed.

(c) The threshold for sustaining a pleading is not high -- a "germ" or "scintilla" of a cause of action will be sufficient.

(d) The pleading will only be struck if the allegations do not give rise to a recognized cause of action or if the claim fails to plead the necessary elements of an otherwise recognized cause of action.

(e) No evidence is to be admitted on the motion.

(f) The pleading is to be read generously.

(g) The novelty of the claim does not prevent a plaintiff from proceeding with its case.

(h) The court's role at the motion is not to determine the strength of the case or the likelihood of success.

Analysis

[48] The court finds that the correct test for a Rule 21 motion to strike is set out in the case of Choc v. Hudbay. At para. 41, Brown J. states the following:

The pleadings should not be struck if there is a chance that the Plaintiff may succeed. Neither the length nor the complexity of the issues, the novelty of the cause of action nor the potential for the Defence to present a strong case should prevent the Plaintiff from proceeding with his or her case. Only if the action is certain to fail because it contains a radical defect should the claim be struck.

[49] At para. 42, the court says that a motion judge should read the pleadings generously, providing allowances for any inadequacies due to drafting deficiencies.

[50] The court agrees that the threshold for sustaining a pleading is not high: as set out by Conway J. in 1597203 Ontario Ltd. v. Ontario, "a germ or scintilla" of a cause of action will be sufficient. The court agrees with that test.

[51] This issue was also dealt with in Dawson v. Rexcraft Storage and Warehouse Inc., 1998 4831 (ON CA), [1998] O.J. No. 3240, 111 O.A.C. 201 (C.A.), at para. 9:

Because the purpose of a rule 21.01(1)(b) motion is to test whether the plaintiff's allegations (assuming they can be proved) state a claim for which a court may grant relief, the only question posed by the motion is whether the statement of claim states a legally sufficient claim, i.e., whether it is substantively adequate. Consequently, the motions judge, as mandated by rule 21.01(2)(b), does not consider any evidence in deciding the motion. The motions judge addresses a purely legal question: whether, assuming the plaintiff can prove the allegations pleaded in the statement of claim, he or she will have established a cause of action entitling him or her to some form of relief from the defendant. Because dismissal of an action for failure to state a reasonable cause of action is a drastic measure, the court is required to give a generous reading to the statement of claim, construe it in the light most favourable to the plaintiff, and be satisfied that it is plain and obvious that the plaintiff cannot succeed. See Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959.

[52] The court is aware that the Dawson decision has been reversed by the Ontario Court of Appeal in the case of Combined Air Mechanical Services Inc. v. Flesch (2011), 108 O.R. (3d) 1, [2011] O.J. No. 5431, 2011 ONCA 764, at para. 36, in relation to summary judgments. At the same time, the Court of Appeal decision does not apply to Dawson's explanation of Rule 21 in relation to non-summary judgment motions.

[53] In para. 11, the court continues, noting that the court should allow amendments to a statement of claim where it is possible that failure to allege an essential element is the result of an oversight.

[54] Based on the reasoning in para. 9, the court finds that the plaintiff can establish a cause of action, assuming the plaintiff can prove the allegations pleaded.

[55] It is not "plain and obvious" to this court that these claims will not succeed. The court finds that there is at least a germ or scintilla of evidence with respect to all of these claims, on the basis of which they could succeed.

[56] Pursuant to para. 11 of Dawson, even if there is an oversight in the pleadings, the court finds that the amendments should be allowed with respect to both the Lalonde claim and the Scott claim.

Issue #3

Should the statements of claim be struck as statute-barred, due to the expiration of the relevant limitation period?

Defendants' position

[57] The defendants rely on Beardsley v. Ontario Provincial Police (2001), 2001 8621 (ON CA), 57 O.R. (3d) 1, [2001] O.J. No. 4574 (C.A.), at para. 21, where the Court of Appeal held that rule 21.01(1)(a) may be applied to strike a claim where it is plain and obvious from a review of the statement of claim that no additional facts can be asserted that would alter the conclusion that a limitation period has expired.

[58] The defendants argue that pursuant to s. 71 of the BIA, the trustee is a successor to the bankrupt. They also rely on s. 12 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, which addresses the issue of discoverability and successors. It states that for successors, the person shall be deemed to have knowledge of the matters referred to in that section on the earlier of the day that the predecessor first knew, or ought to have known about these matters, or the day the person claiming first knew or ought to have known of them.

[59] They argue that DSI brings the claim as the successor in interest to Golden Oaks and Mr. Lacasse and it is therefore Golden Oaks' and Lacasse's discoverability date which is relevant.

[60] They rely on the case of Indcondo Building Corp. v. Sloan (2010), 103 O.R. (3d) 445, [2010] O.J. No. 5583, 2010 ONCA 890, at para. 18. In that case, the court held that pursuant to s. 12, the discoverability date relating to a fraudulent conveyance was that of the trustee's predecessor's interest in title, in that case one of the estate's creditors.

[61] They also point to Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, Bankruptcy and Insolvency Law of Canada, 4th ed., looseleaf (Toronto: Carswell, 2009), Vol. 2, at 3-16 and 3-17, which states that "the general rule is that the Trustee stands in the shoes of the bankrupt, except where statutory provisions otherwise decree": see, also, J.W.O. Enterprises Ltd. (Re), 1981 3417 (MB QB), [1981] M.J. No. 44, 12 Man. R. (2d) 18 (Q.B.); McKenster Estate (Trustee of) v. Canada Life Assurance Co., 1985 5890 (NS SC), [1985] N.S.J. No. 46, 74 N.S.R. (2d) 209 (S.C.T.D.).

[62] The defendants further argue that Professor Woods in his book entitled Bankruptcy and Insolvency Law, 2nd ed. (Toronto: Irwin Law, 2015), at pp. 195 and 196, says that there are three hats that the trustee can wear in order to bring an action to recover the usurious interest or the unlawful commissions:

(a) as a successor in interest to the property of the debtor;

(b) as a trustee with an independent status in the exercise of certain kinds of powers conferred by federal and provincial law to impugn certain kinds of transactions;

(c) in a representative capacity that permits the trustee to exercise rights held by creditors in relation to avoidable transactions.

[63] The defendants argue that none of these hats apply to the claims being asserted with respect to usurious interest or unlawful commissions.

The Lalonde claim

[64] The defendants argue that the Lalonde claim is statute-barred because the last promissory note was dated February 22, 2013 and was repayable by April 8, 2013. The defendants argue that, in accordance with s. 4 of the Limitations Act, 2002, there is a two-year limitation period from the date of discovery and all of the payments due under the promissory notes were made more than two years before the statement of claim was issued. The statement of claim was issued on July 23, 2015, which is beyond the two-year limitation period and, therefore, is statute-barred.

[65] They argue that the limitation period with respect to negotiable instruments such as promissory notes begin to run from the date that the instrument comes due, unless the note is payable on demand rather than on a specific maturity date as in Montague v. Perkins (1853), 22 L.J. (C.P.) 187; and Skuy v. Greennough Harbor Corp., [2012] O.J. No. 5841, 2012 ONSC 6998 (S.C.J.), at para. 46.

[66] They also argue that Graeme Mew, as he was then, in the text The Law of Limitations, 2nd ed. (Toronto: LexisNexis, 2004), at p. 175, states that the limitation period begins to run from the date that the promissory note comes due.

[67] The defendants argue that the trustee steps into the shoes of Golden Oaks and therefore had no greater rights than Golden Oaks in terms of extending the time for discovery under the Limitations Act, 2002. Since Golden Oaks and Mr. Lacasse were the signatories to the promissory notes, they were the ones with knowledge of the terms of the promissory notes including the interest rates and their due dates.

The Scott claim

[68] The defendants argue that para. 21 of the amended statement of claim confirms that the last commission paid to Mr. Scott was on March 5, 2013, meaning that the cause of action should have been commenced by March 4, 2015, in order to comply with the Limitations Act, 2002.

[69] The statement of claim was not issued by the trustee until July 23, 2015, and was subsequently amended on January 7, 2016.

[70] The defendant argues that the referral agreement was between Golden Oaks and Mr. Scott and therefore the knowledge of that agreement and its terms was clearly known or deemed to have been known by Golden Oaks at the time the commission payments were made. No additional facts could have been pleaded that would alter the conclusion that the limitation period had expired.

Plaintiff's position

[71] DSI acknowledges that s. 4 of the Limitations Act, 2002 provides that a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. They rely, however, on the case of Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549, [1997] S.C.J. No. 31, in which the Supreme Court of Canada held, at para. 36, as follows: ". . . discoverability is a general rule applied to avoid the injustice of precluding an action before the person is able to raise it".

[72] DSI argues that the determination of when the limitation period runs is a factual determination to be made on a case-by-case basis and relies on the case of Impact Tool & Mould Inc. (Interim Receiver of) v. Impact Tool & Mould Inc. (Trustee of), [2016] O.J. No. 18, 2016 ONSC 133, 33 C.B.R. (6th) 80 (S.C.J.), at para. 58: "The determination of when the clock begins to run is a factual determination made on a case by case basis."

[73] DSI argues that the court must take into account that a trustee is an officer of the court and is expected to abide accordingly in determining whether or not bringing a legal proceeding is appropriate. It argues that the limitation period will begin to run when the trustee knew or ought to have known that, by exercising reasonable diligence, the bankrupt estate had a claim that it should pursue by commencing a legal proceeding.

[74] They argue that this was a fraudulent Ponzi scheme given that Golden Oaks was being used by Mr. Lacasse and possibly others as a front. They argue that it would not be reasonable to expect that Golden Oaks would commence its own actions to challenge the payments that it made with respect to the promissory notes.

[75] They argue that the limitation period began to run against DSI in its capacity as trustee in bankruptcy for Golden Oaks for the benefit of the unsecured creditors when DSI ought to have known of the cause of action and that legal proceedings were the most appropriate remedy.

[76] DSI says that it was not until publication of its fourth report dated May 30, 2014 that DSI was able to inform itself and the court of the claims against specific investors.

[77] DSI says that it filed statements of claim in advance of the second anniversary date of its appointment as trustee as a matter of prudence and caution to preserve the rights of the bankrupt estates. This was not meant to solidify its claims against any specific party as DSI intended to commence further claims when warranted.

[78] DSI takes the position that its initial "knowledge" of the liability of specific investors tied to specific transactions is May 30, 2014, being the date of issuance of its fourth report, or later, since banking information was still being received throughout 2014 and examinations were continuing through to July 2015.

[79] The plaintiff argues that the trustee does not step into the shoes of Golden Oaks in relation to the Limitations Act, 2002 for the purposes of the commencement date of the actions. The trustee is not acting on behalf of Golden Oaks or Mr. Lacasse. The trustee is conceptually a representative plaintiff on behalf of the body of unsecured creditors including promissory note holders, trade creditors and other unsecured creditors.

[80] Therefore, it argues that the discoverability date is when the trustee on behalf of all of the unsecured creditors discovered these claims.

[81] It argues, in the alternative, that throughout the time Golden Oaks was being controlled by Mr. Lacasse and possibly others in perpetrating the Ponzi scheme, that Golden Oaks was rendered physically incapable of commencing legal proceedings within the meaning of s. 7(1) of the Limitations Act, 2002.

Analysis

[82] The court notes that this is a bankruptcy proceeding. The trustee acts for the general benefit of all unsecured creditors, including promissory note holders, trade creditors and others.

[83] The trustee asserts that Golden Oaks was running a Ponzi scheme.

[84] The uncontradicted evidence before the court in the bankruptcy file is the following:

(1) that Golden Oaks had poor accounting records;

(2) that the receiver reviewed over 18,700 e-mails and over 11,400 text messages and voice-to-text messages;

(3) that the receiver had identified 17 bank accounts from five different banking institutions as being connected to Golden Oaks and/or Mr. Lacasse;

(4) the receiver indicated that there was little available in terms of accounting records, and what was available was not complete or properly organized, thereby requiring the receiver to obtain records from other sources, including law firms and financial institutions;

(5) the trustee has described this operation as a Ponzi scheme;

(6) over 96 per cent of the funds that came into Golden Oaks from March 1, 2012 to February 28, 2013 were generated by investors;

(7) only 3 per cent of the revenue came from business operations;

(8) the revenue from business operations did not support the disbursements required to maintain the houses or other businesses operated by Golden Oaks;

(9) Golden Oaks lost money from the beginning and was never profitable.

[85] Hawco J., in the case of Titan Investments Ltd. Partnership (Re), [2005] A.J. No. 1041, 2005 ABQB 637, 383 A.R. 323, at para. 8, says:

Ponzi schemes are fraudulent investment schemes whereby individuals are enticed by a conman or fraudster to make investment or operation promising an unreasonably high rate of return. Once the first few investments are made, subsequent investors are entitled to investment partly through reported gain and partly through the high payouts of earlier investors. Ultimately, the conman either spends or disappears with the remaining money, or the scheme collapses on itself as funds are exhausted by payouts to earlier investors.

[86] In Millard v. North George Capital Management Ltd., 2006 41287 (ON SC), [2006] O.J. No. 4902, 26 B.L.R. (4th) 231 (S.C.J.), at para. 11, Cumming J. describes a Ponzi scheme as a fraud:

. . . whereby the source of distributions to the early investors consist primarily of a return of their own capital or moneys obtained from new investors and with the payments ultimately stopping there when there are no further investors. The result is that everyone loses money except the perpetrators of the fraud.

[87] In the case of Terry v. Bryson, [2014] B.C.J. No. 546, 2014 BCSC 522, Myers J. says the following, at para. 2:

A Ponzi scheme is one in which the scheme operators do not make genuine investments with the funds provided by the investors; rather, the initial investors are paid their returns from contributions made by later investors. Those returns are therefore fictional. The schemes require a consistent flow of money from new investors to pay returns to the earlier investors and they collapse (revealing their fraudulent nature) when the flow of new money slows, or when investors seek a return of their capital. The scheme is named after Charles Ponzi, who operated an investment scam in England in the 1920s.

[88] The court finds that the defining features of a Ponzi scheme are as follows:

(a) investors make deposits to a Ponzi scheme;

(b) the scheme operators did not make genuine investments or conduct legitimate business with the moneys provided by the investors;

(c) the scheme generates no, or little, legitimate income; and

(d) initial investors are paid out from contributions of later investors.

[89] The court finds that the following elements of a Ponzi scheme are present in the Golden Oaks case:

(1) initial investors made deposits to the Golden Oaks scheme;

(2) based on the uncontradicted evidence from the trustee, the Ponzi fraudster conducted little or no legitimate business operations;

(3) the fraudster's business produced little or no earnings;

(4) payments were made to initial investors with moneys received from new investors.

[90] Based on the aforesaid, the court finds that Golden Oaks is a Ponzi scheme.

[91] In the court's view, when an individual or corporation is engaged in fraudulent activity and then becomes bankrupt, it would be unequitable to bar a trustee from recovering the assets used in the fraudulent scheme by the bankrupt.

[92] A bankrupt, who is a fraudster, has no interest in exposing his, her or its own fraudulent acts.

[93] While in this case there may be no injury to the corporation in relation to usurious interest rates and/or unlawful commissions that injury is in fact to the various creditors who were defrauded in order to fund the corporation to pay the usurious interest and unlawful commissions.

[94] Based on this approach, the claim would not be discoverable until a reasonable person would have determined that either there was a Ponzi scheme in existence or that Golden Oaks was not engaged in a legitimate business.

[95] The court has reviewed the three-hat model set forward by Roderick Wood in Bankruptcy and Insolvency Law, 2nd ed. (Toronto: Irwin Law, 2015), at pp. 195 and 196, and relied upon by the defendants.

[96] While the court finds that the three-hat model is a helpful way of viewing the trustee's general rule and duties, the court finds that it is not an exhaustive description of the powers and/or status of the trustee.

[97] In a case like this, where a bankrupt has perpetrated fraud on creditors of a bankrupt estate prior to bankruptcy, the trustee acting on behalf of the unsecured creditors must seek to recover those assets which were fraudulently used or transferred by the bankrupt. In doing so, the trustee will have to conduct various investigations to see if there were fraudulent activities and how the assets were used and who received the benefit from their use. Once this is determined, the trustee can then decide who has received the benefit of the fraud and by how much they benefitted. Then, the trustee must determine the appropriate course of action to deal with those situations. It is only during the course of the investigation that the claims will become discoverable.

[98] In this case, the investigation began after the appointment of the trustee on July 26, 2013, but was not discoverable or discovered until the trustee had conducted its investigations which was sometime in 2014. All statements of claim were issued by July 23, 2015.

[99] Based on the aforesaid analysis, the court finds that the claims for usurious interest and unlawful commissions are not statute-barred.

[100] In relation to the promissory note claims, the court cannot accept the defendants' argument that the limitation was two years from the date that the promissory notes became due.

[101] In addition, the court cannot accept the argument that the limitation period in relation to the unlawful commissions ended two years from when the last commission was paid.

[102] In terms of the defendants' reliance on the McKenster Estate case, the court finds that that case is distinguishable because that case dealt with real property and personal property, but was not a Ponzi scheme.

[103] The J.W.O Enterprises Ltd. case is also distinguishable on the facts because it involved the sale of goods that the trustee claimed as part of the estate equipment that had been sold as part of the bankruptcy. That is not the issue that is being dealt with in this case.

[104] In the case of Mancini (Trustee of) v. Falconi (1994), 1994 7237 (ON SC), 17 O.R. (3d) 512, [1994] O.J. No. 206 (Gen. Div.), the trustee brought a motion for a declaration that the estate of a deceased lawyer was jointly and severally liable with the defendant for any amounts due and owing by the defendant to the trustee. Ground J., at para. 24, says the following:

I am not satisfied that any of the authorities cited by counsel for Klein or the analogies drawn by counsel for Klein in his submissions establish the proposition that a trustee in bankruptcy stands only in the shoes of the bankrupt and has no powers or rights beyond those of the bankrupt. . . . A trustee in bankruptcy has, by virtue of provisions of the bankruptcy legislation, the right and the obligation to bring action to recover property or the value of property from persons who acquired it from the bankrupt and has the right to set aside certain transactions, such as fraudulent preferences and settlements, which the bankrupt could not set aside. In addition, I accept the submission of counsel for the plaintiff that the policy of the bankruptcy legislation is to permit a trustee to bring actions on behalf of the estate for the benefit of all creditors and that it would be contrary to that policy to foreclose a trustee in bankruptcy from bringing an action for the benefit of the estate simply because the action involves the setting aside of transactions which the bankrupt could not set aside or involves a claim for damages based upon the conspiracy of the bankrupt and others to defeat the creditors of the bankrupt estate. Accordingly, I am satisfied that the Trustee has standing to bring the within action against all of the defendants including the claim for general damages based upon breach of duty and conspiracy.

[105] The Ground J. decision was appealed and that decision appears at [1995] O.J. No. 2207 (C.A.). The defendants argue that the appeal decision might not allow para. 24 of the original decision to stand. The court notes that on appeal, only part of the original decision was overturned. The court has reviewed the two decisions and is satisfied that the law in relation to para. 24 of original Mancini decision were not affected by the Court of Appeal decision.

[106] In the present case, Mr. Doyle, in his affidavit, says that the trustee had to conduct a lengthy investigation because of the number of investors, the size of the Ponzi scheme -- approximately $28 million -- the fact that there were poor accounting records and the requirement to reconcile the accounting records with who had been paid how much.

[107] Court appearances on the Golden Oaks bankruptcy were held on October 8, 2014 and December 18, 2014. The receiver sought various forms of relief including expanding the powers of the receiver as set out in the appointment order to include

Power to initiate, prosecute and continue the prosecution of any and all proceedings and to defend all proceedings now, pending or hear and after instituted with respect to the Debtor(s), the property or the receiver, and to settle or compromise any such proceedings. The authority hereby conveyed shall extend to such appeals or applications for judicial review in respect of any order or judgment pronouncing any proceedings;

-- Leave to commence legal proceedings against:

(a) Certain stakeholders of the estate of Golden Oaks ("Estate") for recovery of interest payments, referral fees and commissions paid by Golden Oaks and/or Mr. Lacasse;

(b) Certain professionals that render professional services to Golden Oaks and/or Mr. Lacasse.

[108] The receiver requested that the powers set out in the McKinnon J. order dated July 9, 2013 and in para. 9 of the Kershman J. order dated July 23, 2013 be expanded as aforesaid. It argued that the Toronto Commercial Court Model order, on which the July 9, 2013 and July 23, 2013 orders were based, contained clauses which allow the receiver to commence litigation. Those clauses were inadvertently omitted during editing and drafting of both the McKinnon J. order dated July 9, 2013 and Kershman J. order of July 23, 2013.

[109] The only parties opposing the expansion of the receiver's powers were the parties against whom the receiver was seeking to commence litigation.

[110] The court was satisfied that the increase in the receiver's powers as set out above were contemplated by s. 243(1) (c) of the BIA as well as para. 6 of the McKinnon J. order and para. 9 of the Kershman J. order.

[111] On June 10, 2015, the court made an endorsement that the trustee could commence legal proceedings. The court held that it was appropriate to preserve the rights of the creditors in any potential litigation by the trustee that was deemed appropriate.

[112] On October 20, 2015, the court made a further endorsement. In paras. 32 and 33, the court ordered that the powers of the trustee be amended as follows:

Leave to commence legal proceedings against:

1. Certain stakeholders of the Estate of Golden Oaks ("Estate") for recovery of interest payments, referral fees and commission paid by Golden Oaks and/or Lacasse;

2. Certain professionals that rendered professional services to Golden Oaks and/or Lacasse.

These additional powers are to be effective as of January 15, 2015, to ensure that there is no issue in relation to any notice of action and/or Statement of Claim being issued by the Receiver and/or Trustee against any party prior to the release date of this decision.

[113] The court was satisfied that it was in the best interests of the creditors as a whole that the receiver proceeds with litigation that it felt was appropriate.

[114] The court noted specifically that the additional powers were effective as of January 15, 2015 to ensure that there was no issue in relation to any notice of action and/or statement of claim being issued by the receiver and/or trustee against any party prior to the release date of the decision.

[115] The court notes that, based on the aforesaid, the trustee/receiver required the consent of the court in order to commence those actions.

[116] The court has reviewed the authorities put forward by the defendant, particularly the one by Graeme Mew in the Law of Limitations. The court finds that the current situation is not the same as laid out in that text because those situations did not involve a bankruptcy, Ponzi scheme or fraudulent transactions. The court finds that the current situation is an exception to the situation laid out by the then Mr. Mew.

[117] If Golden Oaks had defaulted in repayment of the promissory note, the Lalondes would have had two years to bring their action against Golden Oaks. That is not the case here; no one is claiming that the trustee defaulted on the promissory note.

[118] The court follows the reasoning of Ground J., in para. 24 of the Mancini case, which attributes to the trustee, by virtue of the bankruptcy legislation, the right and obligation to bring an action to recover property or the value of property from persons who acquired it from the bankrupt, and a right to set aside certain transactions which the bankrupt could not set aside.

[119] Furthermore, the court agrees with the Mancini decision that the policy of the bankruptcy legislation is to permit a trustee to bring actions on behalf of the estate for the benefit of all creditors. It would be contrary to that policy to foreclose a trustee from bringing an action for the benefit of the estate simply because the action involves the setting aside of transactions which the bankrupt could not set aside, or involves a claim for damages based upon conspiracy of the bankrupt and others to defeat the creditors of the bankrupt estate.

[120] While the defendants argued that the limitation period for bringing the action arises from the due date of the promissory note and rely on the case of Van Halteren v. De Boer Tool Inc., [2015] O.J. No. 4136, 2015 ONSC 4939 (S.C.J.), the court is not prepared to follow the Van Halteren decision because that case is distinguishable on the basis that it did not involve a bankruptcy situation. The court finds that the bankruptcy filing alters the discoverability date for the limitation period to start running.

[121] In the case of Impact Tool, the court discusses the issue of whether an action is statute-barred. At para. 58, the court says that the determination of when the clock begins to run is a factor to be made on a case-by-case basis.

[122] The court says the following, at paras. 90-94:

It is necessary that all of the requirements set out in s. 5(1) of the Limitations Act be met before the limitations clock starts to run.

It would be both unfair and improper for DSI to have been required to commence a legal action any earlier than 2009. Both parties are officers of the court and should be discouraged from pursuing adversarial proceedings against each other until reasonable efforts to resolve the matter have been addressed.

To determine otherwise on the facts before me would send the wrong message regarding the duties of a trustee to act fairly and impartially to all creditors, even those opposing its SRD's. BDO should not benefit from their prior misconduct.

This court has and will continue to expect the highest standard of conduct on the part of trustees in the discharge of their duties to the court and the Estate: see Murphy v. Sally Creek Environs Corporation, supra, at paras. 139, 151 and 155.

In my view, the legally appropriate date upon which DSI knew or ought to have known, by the exercise of reasonable diligence, that a cause of action arose against BDO, was after January 18, 2008.

[123] The court finds that discoverability in relation to a trustee in bankruptcy is different than in relation to an ordinary person and/or corporation, particularly as it relates to a fraudulent scheme such as a Ponzi scheme.

[124] The defendants argue that the plaintiff's argument runs contrary to the corporate identification doctrine. The court does not accept that perspective. In an ordinary case, the doctrine stands for the proposition that a corporation is generally imputed to have the knowledge of its directing minds: R. v. Canadian Dredge & Dock Co., 1985 32 (SCC), [1985] 1 S.C.R. 662, [1985] S.C.J. No. 28, at p. 704 S.C.R.

[125] Based on Canadian Dredge, because the alleged incidents involve fraud, the corporate identification doctrine does not apply. As Estey J. explains, at pp. 712-13 S.C.R.:

In my view, the outer limit of the delegation doctrine is reached and exceeded when the directing mind ceases completely to act, in fact or in substance, in the interests of the corporation. Where this entails fraudulent action, nothing is gained from speaking of fraud in whole or in part because fraud is fraud. What I take to be the distinction raised by the question is where all of the activities of the directing mind are directed against the interests of the corporation with a view to damaging that corporation, whether or not the result is beneficial economically to the directing mind, that may be said to be fraud on the corporation.

[126] Estey J., at pp. 713-14 S.C.R., also explains the criteria that need to be present for the doctrine to apply:

. . . in my view the identification doctrine only operates where the Crown demonstrates that the action taken by the directing mind

(a) was within the field of operation assigned to him;

(b) was not totally in fraud of the corporation; and

(c) was by design or result partly for the benefit of the company.

[127] Though Canadian Dredge dealt with the application of the corporate identification doctrine to corporate criminal liability, this doctrine has been recognized as a mechanism to establish corporate liability in the civil context as well (Standard Investment Ltd. v. Canadian Imperial Bank of Commerce (1985), 1985 164 (ON CA), 52 O.R. (2d) 473, [1985] O.J. No. 2668 (C.A.), at p. 493 O.R.; Livent Inc. (Special Receiver and Manager of) v. Deloitte & Touche (2016), 128 O.R. (3d) 225, [2016] O.J. No. 51, 2016 ONCA 11, at paras. 103, 114).

[128] Based on Canadian Dredge, since the Ponzi scheme involved a fraud, the presence of fraud vitiates the corporate identification doctrine from the start.

[129] Specifically, it appears as though two out of the three criteria for the corporate identification doctrine to apply, as per Canadian Dredge, are not satisfied in this case. If found to be true, the actions of Lacasse would have defrauded Golden Oaks itself, thus running against criterion b). Moreover, Lacasse's actions would not have resulted in any benefit to Golden Oaks, thus running against criterion c) of Estey J.'s test. The court cannot find that the corporate identification doctrine applies here.

[130] Furthermore, since the corporate identification doctrine applies in circumstances where the wrongdoings of a manager extend to the liability of the corporation s/he is controlling, it would be illogical to suggest that Lacasse's actions, who allegedly headed the Ponzi scheme against Golden Oaks, are to be subsumed in the very company he was trying to defraud.

[131] The court finds that the corporate identification doctrine does not apply to the present case and rejects the defendant's argument.

[132] It was not until the trustee's fourth report dated May 30, 2014 that the trustee was able to confirm with certainty that usurious interest rates and unlawful commissions were being received.

[133] Notwithstanding the arguments put forward by the defendants that the plaintiff's claims are statute-barred because discoverability is based on the date that Golden Oaks discovered or should have discovered the claim, the court finds that because of the fraudulent scheme, the matter was not discoverable or discovered until the fourth report was prepared in May 2014. Therefore, the court finds that the discoverability clock ran from the time that the fourth report was prepared.

[134] All of the trustee's statements of claims were issued by July 2015. Therefore, the court finds that these claims are not statute barred.

Issue #4

Should the statement of claim be struck because it does not disclose a cause of action?

Defendants' position

[135] The defendants argue that the statements of claim should be struck because there is no free-standing tort in Canada for a breach of statute. The defendants rely on Canada v. Saskatchewan Wheat Pool, 1983 21 (SCC), [1983] 1 S.C.R. 205, [1983] S.C.J. No. 14, at pp. 222-23 S.C.R.

[136] They argue that if the alleged breaches were actually made out, there could be a remedy but that remedy could not be obtained by a civil court since s. 347 of the Criminal Code is a criminal prohibition and does not expressly provide a basis for a civil cause of action.

Plaintiff's position

[137] The plaintiff argues that while it cannot bring the action in relation to the breach of a particular statute, i.e., either s. 347 of the Criminal Code or pursuant to the Ontario Securities Act, it has the right to bring this action on the basis of unjust enrichment.

[138] The plaintiff alleges that various defendants received moneys belonging to Golden Oaks and investors that they should not have received and that should be returned to the trustee. They argue that the funds were clearly misappropriated moneys from Golden Oaks and investors.

[139] They also argue that the statements of claim allege either usurious interest or unlawful commissions and that the moneys were misappropriated from Golden Oaks and should be returned.

[140] The plaintiff relies on Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, 2004 SCC 25, at para. 30, wherein the Supreme Court of Canada found that receiving criminal interest constitutes unjust enrichment because

(a) there is enrichment of the defendant;

(b) there is a corresponding deprivation to the plaintiff; [and]

(c) there is no juristic reason for the enrichment.

[141] The plaintiff also relies on the case Den Haag Capital, LLC v. Correia, [2010] O.J. No. 4316, 2010 ONSC 5339 (S.C.J.), at para. 68, where Pepall J. found that the law of unjust enrichment requires a return of Ponzi profits.

[142] The plaintiff argues, in short, that the claim for the return of the usurious interest and unlawful commissions are claims based on unjust enrichment.

Analysis

[143] Breach of a statute, while not a tort in itself, goes towards the third element of the unjust enrichment analysis, i.e., that there is no juristic reason for the defendants to keep the proceeds from either the usurious interest or the unlawful commissions.

[144] In this case, the plaintiffs are not claiming a tort for a breach of statute. They are claiming unjust enrichment through usurious interest and unlawful commissions. They are seeking to amend their statements of claim in order to obtain damages for the unjust enrichment. The court finds that unjust enrichment is a valid cause of action.

Issue #5

If the answer to issue #4 is no, then should the statement of claim be struck because it does not contain sufficient material facts to support the cause of action?

Defendants' position

[145] In the alternative, the defendants argue that the plaintiff has failed to plead the material facts necessary to establish the elements of the alleged cause of action.

[146] In particular, the defendants argue that there are three basic financial elements of the offence in relation to s. 347 of the Criminal Code dealing with usurious interest rates that were not pleaded:

(1) the amount paid by the person making the loan to the borrower;

(2) the due date when the loan is payable; and

(3) the total amount which is due on the due date.

[147] The defendants argue that a legal conclusion, i.e., the defendants contracted for or received usurious interest, shall not be pled absent the material facts to sustain that conclusion: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 25.06(2).

[148] They rely on the case of Jevco Insurance Co. v. Pacific Assessment Centre Inc. (2014), 120 O.R. (3d) 43, [2014] O.J. No. 1704, 2014 ONSC 2244 (S.C.J.), at paras. 92-93, as authority that pleading the commission of a crime is a scandalous pleading that should be struck:

In paragraph 94 of the Fresh as Amended Statement of Claim, Jevco pleads that the Defendants have contravened s. 380(1) of the Criminal Code. This paragraph should be struck from the pleading.

When the commission of a crime is irrelevant to the proof of the pleader's claim or defence, pleading that the opponent was convicted of a criminal offence is a scandalous pleading that will be struck out. Similarly, where the commission of a civil wrong is alleged, pleading that the opponent would be convicted of a Criminal Code offence is a scandalous pleading that should be struck out.

[Footnotes omitted]

Plaintiff's position

[149] The plaintiff argues that the facts as pled in all of the statements of claim describe the defendants receiving interest and commissions as part of a Ponzi scheme. They rely on the decision in Titan Investments (Re), at para. 8; and Millard v. North George Capital Management Ltd., at para. 11.

Analysis

Usurious interest

[150] Looking first at the usurious interest claim, in relation to the criterion that there was an enrichment to the defendants, the court has reviewed the statement of claim and amended statement of claim. The court finds that, if found to be true, it is possible that the alleged interest paid to the defendants appears to be usurious resulting in an enrichment to the defendants (amended statement of claim, at para. 17).

[151] Since the trustee found that the Golden Oaks investment scheme was unprofitable, the payment of these alleged interest rates to the defendants was all the more unsustainable to its business operations. Therefore, in relation to the criterion that there was a deprivation to the plaintiff, the court finds that, if found to be true, there was a potential corresponding deprivation to the plaintiff due to the payment of excessive rates of interest to the defendants (amended statement of claim, at para. 18).

[152] In relation to the criterion that there was no juristic reason for the enrichment, the court finds that, if found to be true, the payment of excessive interest rates to the defendants appear to originate from misappropriated stakeholder funds (amended statement of claim, at para. 19). As such, there does not appear to be a juristic reason for this enrichment.

Unlawful commissions

[153] In relation to the criterion that there was an enrichment to the defendant, the court has reviewed the amended statement of claim wherein the plaintiff pleads that the defendant received seven commissions totalling $44,700 between March 2012 and March 2013 (Scott amended statement of claim, at para. 21). If found to be true, this appears to be a form of enrichment to the defendant, Lorne Smith.

[154] Since the trustee found that the Golden Oaks investment scheme was unprofitable, the payment of these alleged commissions to the defendant was all the more unsustainable to its business operations. Therefore, in relation to the criterion that there was a deprivation to the plaintiff, the court finds that, if found to be true, there was a potential corresponding deprivation to the plaintiff due to the payment of commissions to the defendant (amended statement of claim, at para. 22).

[155] In relation to the criterion that there was no juristic reason for the enrichment, the court finds that the payment of commissions to the defendant appear to originate from misappropriated stakeholder funds (amended statement of claim, at para. 23). If found to be true, there does not appear to be a juristic reason for this misappropriation.

[156] While the court may not have in this decision decided in chronological order that it was prepared to accept the amendments to the statements of claim requested in the cross-motion, the court will detail later on in this decision the reasons behind accepting the amendments to the statements of claim.

[157] Therefore, the court finds that the statement of claim and/or the amended statement of claim contains sufficient material facts to support the causes of action and to allow the defendants to know the case they will have to meet.

Cross-Motion

Issue #6

Should the court grant leave to amend the statements of claim in any, or all, of the noted court actions?

Overview

[158] The plaintiff brings a motion for leave to amend the statements of claims in the following court actions:

(a) Court File No. 15-65120 in the form attached as Schedule "A" in the notice of cross-motion -- Monique Lalonde and Paul Lalonde.

(b) Court File No. 15-65116 in the form attached as Schedule "B" in the notice of cross-motion -- 2044475 Ontario Inc. and Ronald Leduc.

(c) Court File No. 15-65124 in the form attached as Schedule "C" in the notice of cross-motion -- Camille Gerard -- Ruel and William Myles.

(d) Court File No. 15-65115 in the form attached as Schedule "D" in the notice of cross-motion -- Le-Thu Nguyen.

(e) Court File No. 15-65113 in the form attached as Schedule "E" in the notice of cross-motion -- Tanya Contant.

[159] The trustee issued a total of 28 statements of claim. On this cross-motion, and in two related motions, the trustee seeks to amend a total of seven statements of claim.

[160] The other 21 statements of claim were previously amended. It appears to the court that the amendments to those 21 statements of claim are very similar to the amendments being sought on this cross-motion.

The proposed amendments

[161] The plaintiff has provided the court with the proposed amended pleadings in the specific cases. The court has reviewed the amended pleadings. The court notes that the amendments in each case are very similar, most of which deal with the issue of usurious interest or unlawful commissions.

(a) Court File No. 16-65120

[162] This matter involves a claim for usurious interest.

[163] The first amendment sought in relation to para. 1(a) is to include the claim being brought on the basis of unjust enrichment.

[164] The other amendment relates to para. 19, which seeks to add the following words:

. . . because, as described above, the Defendants were enriched when the usurious interest was paid to them and Golden Oaks suffered a corresponding deprivation. As also described above, there was no juristic reason for the enrichment in that any agreement to pay usurious interest was void and of no force and effect. Therefore, as described above, the Defendants were unjustly enriched and the usurious interest paid to them should be repaid to the Plaintiff as Trustee in bankruptcy of Golden Oaks.

(b) Court File No. 16-65116

[165] This matter involves a claim for usurious interest.

[166] The first amendment sought is in relation to para. 1(a) is to include the claim being brought on the basis of unjust enrichment.

[167] The other amendment relates to para. 19, which seeks to add the following words:

. . . because, as described above, the Defendants were enriched when the usurious interest was paid to them and Golden Oaks suffered a corresponding deprivation. As also described above, there was no juristic reason for the enrichment in that any agreement to pay usurious interest was void and of no force and effect. Therefore, as described above, the Defendants were unjustly enriched and the usurious interest paid to them should be repaid to the Plaintiff as Trustee in bankruptcy of Golden Oaks.

(c) Court File No. 15-65114

[168] This matter involves claims of usurious interest and unlawful commissions on the basis that the plaintiff seeks to amend the paras. 1(c) and (d). Paragraph 1(c) is amended to include that the claim is being made on the basis of unjust enrichment. Paragraph 1(d) includes that the repayment of unlawful commissions is on the basis of unjust enrichment.

[169] The balance of the amendment sought is as follows:

(a) paragraph 7 indicates that at all material times Mr. Myles was the vice-president of Golden Oaks;

(b) paragraph 14 deals with preferential payments made to Mr. Myles;

(c) paragraph 19 deals with Mr. Myles' role as vice-president of Golden Oaks, further that the co-defendant, Gerard-Ruel, was also paid commissions;

(d) paragraph 22 adds the name of Gerard-Ruel;

(e) paragraph 23 includes the reason why the trustee seeks the return of the commissions.

(d) Court File No. 15-65115

[170] This matter involves a claim for usurious interest.

[171] The first amendment sought in relation to para. 1(a) is to include the claim being brought on the basis of unjust enrichment.

[172] The other amendment relates to para. 19, which seeks to add the following words:

. . . because, as described above, the Defendant was enriched when the usurious interest was paid to them and Golden Oaks suffered a corresponding deprivation. As also described above, there was no juristic reason for the enrichment in that any agreement to pay usurious interest was void and of no force and effect. Therefore, as described above, the Defendant was unjustly enriched and the usurious interest paid to them should be repaid to the Plaintiff as trustee in bankruptcy of Golden Oaks.

(e) Court File No. 15-65113

[173] This matter involves a claim of usurious interest.

[174] The first amendment sought is in relation to para. 1(a) to include the claim being brought on the basis of unjust enrichment.

[175] The other amendment relates to para. 19, which seeks to add the following words:

. . . because, as described above, the Defendants were enriched when the usurious interest was paid to her and Golden Oaks suffered a corresponding deprivation. As also described above, there was no juristic reason for the enrichment in that any agreements to pay usurious interest were void and of no force and effect. Therefore, as described above, the Defendant Tanya Contant, was unjustly enriched and the usurious interest paid to her should be repaid to the Plaintiff as trustee in bankruptcy of Golden Oaks.

[176] In addition, an amendment is sought to delete the names of one of the defendants and any information related to her.

Plaintiff's position

[177] The plaintiff argues that rule 26.01 of the Rules of Civil Procedure allows that on a motion at any stage of an action, the court shall grant leave to amend a pleading on terms that are just unless prejudice would result that could not be compensated for by costs or by an adjournment.

[178] The plaintiff argues that the four factors set out in Marks v. Ottawa (City), [2011] O.J. No. 1445, 2011 ONCA 248, 280 O.A.C. 251, at para. 19, must be considered when determining whether an amendment will be allowed, namely,

an amendment should be allowed unless it would cause an injustice not compensable in costs;

the proposed amendment must be shown to be an issue worthy of trial and prima facie meritorious;

no amendment should be allowed which, if originally pleaded, would have been struck; and

the proposed amendment must contain sufficient particulars.

[179] In the alternative, DSI asserts that its claims for usurious interest and unlawful commissions are based in part on the doctrine of unjust enrichment. DSI submits that it has already pled all the material facts supporting its claim for unjust enrichment. It claims that the amendments sought merely confirm a cause of action that already arose by operation of law out of the facts already pled. It relies on Shubaly v. Coachman Insurance (2012), 112 O.R. (3d) 620, [2012] O.J. No. 4951, 2012 ONSC 5455 (S.C.J.), at paras. 13-16 and 18.

Defendants' position

[180] The defendants argue that the court should deny the plaintiff's motion to amend the pleadings because (a) unjust enrichment was not pleaded in the original statement of claim and therefore constitutes a new cause of action; (b) any new cause of action is now statute barred; and (c) the plaintiffs failed to make out a claim for unjust enrichment even with the amendments.

[181] The defendant relied on the case of Kay v. Caverson, [2010] O.J. No. 5559, 2010 ONSC 6743 (S.C.J.), where the plaintiff sought to amend its pleadings after it had closed its case and within 20 days before trial, not having provided any evidence as to why the amendments were being sought at that time and with no explanation as to the very lengthy delay to seek leave to make the amendments. The court decided not to grant the amendments because the prejudice could not be compensated for by way of costs or an adjournment.

Analysis

[182] According to the plaintiff, all of the Small Claims Court actions have already been amended. In addition, the Scott claim has also been amended in Superior Court.

[183] There are seven other claims which the plaintiff seeks to amend, five of which involve defendants represented by the law firm of Caza Saikeley. In the MRL Telecom matter, File No. 15-65688, the defendants are represented by Mr. J. McGillvary. In the Laschewski matter, File No. 15-65117, the defendant is represented by Mr. E. Atnikov.

[184] Separate decisions will be prepared with respect to the MRL Telecom and the Laschewski motions. Representations were made at the beginning of the motions that the defendants in the MRL Telecom and the Laschewski matters would abide by the decisions made in the Lalonde claim and Scott claim as they relate to their particular matters.

[185] Rule 26.01 of the Rules of Civil Procedure deals with the amendment of pleadings and provides that:

26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[186] Based on this rule, amendments are presumptively approved; however, there is no absolute right to amend pleadings. Where appropriate, the court has a residual right to deny an amendment: Marks v. Ottawa (City), at para. 19.

[187] As noted above, the Marks case says that four factors must be considered:

an amendment should be allowed unless it would cause an injustice not compensable in costs;

the proposed amendment must be shown to be an issue worthy of a trial and prima facie meritorious;

no amendment should be allowed which, if originally pleaded, would be struck; and

the proposed amendment must contain sufficient particulars.

[188] Under rule 26.02, in a case where consent is not granted for leave to amend, it can be made by the court with leave.

[189] Rule 26.03 deals with how amendments are to be made.

[190] The court had previously ordered that the defendants not file any statements of defence, which has been complied with.

[191] The defendant relies on the case of Kay to argue that no amendments should be allowed. That case is clearly distinguishable on the facts from this case in that the motion to amend the pleading occurred after the close of pleadings and 28 days before trial.

[192] In Kay, at para. 31, the court said that there was no evidence as to why the amendments were being sought at that time or why there was a lengthy delay.

[193] In the present case, no statements of defence have been filed, pleadings have not been closed and the matters are not ready for trial. Therefore, the court finds that the Kay case is distinguishable from this case on these facts.

[194] The court has already found that the limitation period to bring these claims based on unjust enrichment has not expired, as the claims were originally issued in July 2015, and all necessary material facts were included. Therefore, the argument put forward by the defendants that the sought amendments are new causes of action that are statute-barred fails.

Prejudice

[195] The court notes that, pursuant to an order made by this court on June 16, 2015, at para. 10, no statements of defence were to be filed in these actions pending a decision on the matter.

[196] Under rule 26.01 of the Rules, the court has the power to grant leave to amend the pleading on such terms as are just, unless prejudice would result which could not be compensated for either by costs or adjournment.

[197] Upon a review of the pleadings in questions in relation to usurious interest and unlawful commissions, the court finds that sufficient material facts supporting a conclusion of law have been pleaded.

[198] The defendants argue that in relation to the Ontario Securities Act, no section numbers were included in the pleadings and therefore the claim should be struck for that reason. The court finds that the balance of the pleadings is clear and sufficient. The existing pleadings allow the defendants to know the case that they must meet. The court will allow the pleadings dealing with the Ontario Securities Act to be amended to include the section numbers where they have not been included.

[199] In certain cases, specific BIA sections have not been pleaded. The court finds that the balances of the pleadings are clear and sufficient. The existing pleadings allow the defendants to know the case that they must meet. The court will allow those pleadings dealing with the BIA to be amended to include the section numbers where they have not been included.

[200] In this case, because no statements of defence have been filed, the prejudice, if any, can be compensated by way of an adjournment. In this case, the court finds that an adjournment would be the appropriate remedy. The adjournment by way of an extension of time will allow the defendants additional time to prepare their statements of defence once the amended statements of claim have been served. The court orders that the amended statements of claim are to be served within the next 20 days following the release of the present decision.

[201] Thereafter, the defendants will have 40 days as opposed to the normal 20 days to serve and file their statements of defence.

Miscellaneous

[202] In the defendants' notice of motion to strike, an order was requested to strike the portion of the statement of claim in relation to civil conspiracy by Mr. Scott. That relief was never addressed at the motion and no submissions were made with respect to that relief. The court dismisses the request to strike that portion of the statements of claim dealing with the civil conspiracy claim.

[203] A case conference will be held on October 20, 2016 at 10:00 a.m. in all of the matters listed herein, together with the matters in Court File No. 15-65117 and 15-65688.

Costs

[204] Both parties have submitted costs outlines. The parties are encouraged to resolve the issue of costs within the next 14 days.

[205] If they are unable to do so, the parties shall contact the trial coordinator and obtain a date to argue the issue of costs. This matter shall be heard in conjunction with any costs issues in File 15-65117 and 15-65688.

[206] Order accordingly.

Motion dismissed; cross-motion granted.