CITATION: Liguori Investments Inc. v. Gershwin Gabriel, 2015 ONSC 7732
COURT FILE NO.: CV-09-390487
DATE: 20160121
CORRIGENDA: 2016, ONSC 476
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LIGUORI INVESTMENTS INC. and WOODCHESTER NISSAN INC. operating as WOODCHESTER NISSAN INFINITI
Plaintiffs
– and –
GERSHWIN GABRIEL, LIVOX CORPORATION operating as JCP AUTO and JCP AUTO LTD.
Defendants
John H. Reiterowski, for the Plaintiffs
Galyna Pribytkova, for the Defendant
HEARD: December 8 and 9, 2015
G. DOW, j
reasons FOR DECISION
[1] The plaintiffs (hereafter referred to as “Woodchester Nissan”) seek recovery of $202,851.47 which represents the total of the sale of seven of 27 vehicles sold to the defendant Livox Corporation operating as JCP Auto (hereafter referred to as “Livox”) through the defendant, Gershwin Gabriel, employed by Woodchester Nissan at the time of all sales as the Infiniti lease renewal manager.
[2] Counsel for the plaintiffs advises the action against JCP Auto Ltd. has been discontinued and the Amended Trial Record contains a default judgment dated June 30, 2015 against the defendant, Gershwin Gabriel in the amount of $208,076.61 plus pre-judgment interest of $10,655.59 and costs assessed at $30,984.94. This judgment is subject to section 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 given the circumstances described below. The plaintiffs seek recovery from the defendant based upon the legal doctrines of unjust enrichment and knowing receipt.
Facts
[3] Livox is operated by Andrei Lissenkov and carries on business as a wholesale automobile export dealer buying high-kilometer used vehicles and exporting them overseas, primarily to Russia. His relationship with Gabriel commences in late 2003 when he attends at Woodchester Nissan to lease a new 2004 Infiniti for his spouse. Gabriel becomes aware of Lissenkov’s business which involves the purchase of about 1,000 vehicles per year at that time with an estimated expense of $8,000,000. Gabriel begins offering Lissenkov Infiniti’s being turned into Toronto area dealerships as the result of the end of a lease or a trade-in for a newer vehicle.
[4] The mechanics of each sale would involve contact by Gabriel to Lissenkov identifying the vehicle and the proposed price. Lissenkov would accept the proposal, reject it or make a counterproposal which would be accepted or rejected. If the price was agreed upon, Gabriel would prepare and fax to Lissenkov, Woodchester Nissan’s “Wholesale Buyer’s Car Order and Agreement” which detailed the date of the transaction, the parties to the transaction, the vehicle involved and the price. There was also a statement that title to the vehicle would remain with the vendor until the entire purchase price was paid and a sentence often described as an “entire agreement” clause. Payment in whole or part was then made which permitted Gabriel to pay out what was owed on the vehicle, usually to Nissan’s finance company, Nissan Canada Finance or “NCF”. The ownership was changed to Livox and the vehicle delivered, usually to the company involved in shipping it overseas. When the ownership transfer was completed, a representative of Livox, usually Maria Lisenkova would attend at Woodchester Nissan and secure the ownership papers from the receptionist of Woodchester Nissan.
[5] The transaction also usually involved a bill of lading which would sometimes be prepared by Woodchester Nissan if HST was not included or paid by Livox as part of the purchase or by Livox if HST was being paid by it.
[6] Deposits were often paid by Livox to Woodchester Nissan and Mr. Lissenkov produced two cheques dated August 18, 2006 in which he wrote cheques payable to “Woodchester Infiniti” which was altered to identify the payee as Gershwin Gabriel. The cheques were apparently honoured and the alteration was not noticed by Mr. Lissenkov until searching his records in response to this action.
[7] The bulk of the payments involved wire transfers with Mr. Lissenkov preparing the initial template listing Woodchester Nissan as the beneficiary but inserting a TD Canada Trust bank account number that was, in fact, a bank account of Gershwin Gabriel. At some point, Mr. Gabriel acknowledged and advised Mr. Lissenkov that the funds were being paid to him directly. Mr. Lissenkov made an inquiry to Mr. Gabriel about this and accepted an explanation that it avoided “bureaucracy” and gave Mr. Gabriel a more efficient method of paying those to whom funds were owed. Importantly, in my view, while wire transfers were involved in the seven vehicles in which Mr. Gabriel did not transfer the funds to Woodchester Nissan, there are a number of other transactions in the 27 involved where Mr. Gabriel did provide funds to Woodchester Nissan without arousing any suspicion or inquiries by anyone at Woodchester Nissan.
[8] It is clear Woodchester Nissan had deficient management and governance over Mr. Gabriel. He had the authority to request the accounting department (including the controller at the time, Grace Xu, issue cheques without having to prove receipt and deposit of funds). Similarly, there was no regular review of the inventory of used vehicles for sale on the lot (consisting of about 40 to 50 at the dealership of a total of 60 to 65). As stated in the parties’ joint statement of facts, during “2005 or 2007 there were no safeguards in place with respect to making sure that the inventory list matched vehicles physically present at the dealership”. The fraud perpetrated by Gabriel on his employer was only discovered when the used car manager resigned and an inventory of used vehicles was conducted. When confronted about the missing vehicles on November 8, 2007 Gabriel advised the plaintiffs that the paperwork was in his office but then indicated his daughter had been rushed to the hospital and he needed to leave the premises. He did so and never returned.
[9] As Mr. Lissenkov testified, Mr. Gabriel was clearly a senior person at the dealership as, unlike other salesmen, he had his own office and was observed to give instructions to other Nissan employees. Mr. Lissenkov only faxed material to the dealership fax machine and I conclude had a reasonable basis to believe and accept his dealings were with Woodchester Nissan and not Mr. Gabriel personally.
Unjust Enrichment Claim
[10] The plaintiffs submit the above facts fall within this type of claim on the basis the defendant has been enriched by receipt of the vehicles and the plaintiffs have been deprived as a result of the benefit the defendant has received. It is the third element of the benefit and corresponding detriment having occurred without a juristic reason which requires analysis. The decision in Kerr v. Baranow, 2011 SCC 10, 2011 S.C.C. 10 addresses this to mean that “there is no reason in law or justice for the defendant’s retention of the benefit conferred by the plaintiff” (at paragraph 40). The decision goes on to indicate juristic reasons to deny recovery can include “a contract” and suggests due consideration for the autonomy of the parties including their right to “order their affairs by contract”.
[11] The situation at hand is clearly not a typical situation for unjust enrichment. Each vehicle was sold under a Wholesale Buyer’s Car Order and Agreement, drafted by the plaintiff which contained the words “the above shall comprise of the entire agreement affecting this purchase and no other agreement, understanding, representation, condition or warranty either express or implied by law or otherwise is a part of this transaction and any such agreement, understanding, representation, conditions, or warranty being hereby expressly excluded.” In Kerr v. Baranow, supra, the Court reviewed its earlier decision of Garland v. Consumer’s Gas Co., 2004 SCC 25, 2004 S.C.C. 25, and the two-step analysis for the absence of juristic reason. That is, first the plaintiff must show a prima facie case which is rebuttable. That is, the defendant can show that there is another reason to deny recovery.
[12] In my view, such an analysis is not required as the plaintiff has failed to show the absence of juristic reason. Its employee contracted with the defendant for the sale of each vehicle. The defendant paid the agreed upon price for each vehicle. While the plaintiff did not receive the funds, the funds are not with the defendant. The defendant’s “benefit” would appear to be limited to the estimated $500 per vehicle profit made on the resale.
[13] On this basis, the plaintiffs’ claim should be dismissed. I am reinforced in this conclusion by the decision in Jacobs v. Yehia, [2014] B.C.J. No. 941, where it was noted, “The existence of a contract may amount to a juristic reason to deny recovery for unjust enrichment”.
Knowing Receipt
[14] This equitable remedy appears to arise from the existence of a trust and, as submitted by the plaintiffs, a “knowledge requirement for this type of liability is actual knowledge; recklessness or wilful blindness will also suffice” found in paragraph 22 of) Citadel General Assurance Co. v. Lloyd’s Bank Canada, 1997 334 (SCC), [1997] S.C.J. No. 92. The argument advanced by the plaintiff was that aspects of the business relationship between Gabriel and Lissenkov constituted recklessness and wilful blindness by Lissenkov. Later in the reasons (paragraph 25) Justice Iacobucci is quoted from the Air Canada v. M & L Travel Ltd, 1993 33 (SCC), [1993] 3 S.C.R. 787, that liability “requires a stranger to the trust to have received trust property in his or her personal capacity, rather than as an agent of the trustees”. Counsel for the plaintiffs submits that Mr. Lissenkov showed wilful blindness in the lack of diligence in his inquiries about the unusual aspects of the transactions, particularly forwarding funds to Mr. Gabriel directly. However, in my view, the fact he made an inquiry and received an explanation which he found satisfactory was sufficient. I am reinforced in this conclusion by the acknowledged evidence of Mr. Lissenkov’s experience in purchasing used vehicles at the rate of 1,000 per year and that while such a payment was unusual, this was not the only occasion where it had occurred. I also consider the fact the method of completing the transaction was satisfactory in a number of instances to be an important factor in favour of Livox. That is, Gabriel turned over the requisite funds to the plaintiffs on some occasions. In my view, the unfortunate result occurred because the plaintiffs failed to have any or adequate safeguards or reasonable accounting procedures in effect during the period of time when the transactions occurred.
[15] Counsel for the defendant relied on the Eaton v. HMS Financial Inc., [2010] A.J. No. 8, a decision where the equitable remedy of knowing receipt is discussed and its elements include a trust as well as the defendant not taking the property “as a bona fide” purchaser for value without notice. In the situation at hand, it is not disputed that Livox paid fair market value for the seven vehicles involved (and for the other 20 vehicles).
[16] As a result, the plaintiffs’ claim also fails on this basis. It should be noted this claim was the subject of a motion to amend the prayer for relief of the Statement of Claim at the opening of the trial and opposed by the defendant. The defendant opposed same on the basis it raised a new cause of action and the loss, having been discovered in November, 2007 was beyond the two years permitted under the Limitations Act, S.O. 2002 c.24. I allowed the amendment under Rule 26 with leave to the defendant to amend its Statement of Defence to both deny the claim and plead it was statute barred. I accepted and inserted into the Amended Trial Record the amended pleadings. Given my conclusion above, it is not necessary for me to deal with these arguments.
Costs
[17] As Livox has been successful, it is entitled to costs of this action. Counsel failed to prepare and submit a Costs Outline as required by the Rules.
[18] Counsel for the plaintiffs submitted a Costs Outline claiming $50,645.98 in substantial indemnity costs and $35,313.57 partial indemnity costs. Counsel acknowledged that the cost component in the default judgment against Gabriel June 30, 2015 of $30,984.94 represented the plaintiffs’ substantial indemnity costs to that date.
[19] I permitted defence counsel until December 11, 2015 at 4:30 p.m. to provide her Costs Outline and not more than two pages of submissions to be emailed to my assistant. The plaintiff was permitted until December 18, 2015 at 4:30 p.m. to submit not more than two pages of reply cost submissions. Both were received and reviewed. Of note in the Costs Outline of the defendant, Livox claimed $28,796 for partial indemnity fees, and $36,308 for full indemnity (plus HST) and disbursements of $2,310.79. There is reference to an offer to settle of June 10, 2013 open for acceptance as of the commencement of trial. This was acknowledged in the plaintiffs’ reply costs submissions.
[20] While the details of this offer to settle have not been disclosed to the Court, in the face of the action being dismissed against Livox, its offer is of no consequence under Rule 49, given r. 49.10(2)(c) only speaks of a defendant’s entitlement to partial indemnity costs where the result at trial is more favourable than its offer. In my view, the issue is whether Livox is entitled to partial or substantial indemnity costs in all the circumstances and within the Court’s discretion under section 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, Rule 57 and the relevant authorities. Given the amount sought by each side in the event of success was similar, I would fix the costs of Livox at 85 percent of full indemnity or $30,861.80 for fees plus HST of $4,012.03 plus disbursements of $2,310.79 for a total of $37,184.62, all inclusive, payable by the plaintiff forthwith.
Mr. Justice G. Dow
Released: January 21, 2016
CORRIGENDA
Note: the neutral citation number has been changed from 2015 ONSC 7732 to 2016, ONSC 476.
CITATION: Liguori Investments Inc. v. Gershwin Gabriel, 2015 ONSC 7732
COURT FILE NO.: CV-09-390487
DATE: 20160121
CORRIGENDA: 2016, ONSC 476
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LIGUORI INVESTMENTS INC. and WOODCHESTER NISSAN INC. operating as WOODCHESTER NISSAN INFINITI
Plaintiffs
– and –
GERSHWIN GABRIEL, LIVOX CORPORATION operating as JCP AUTO and JCP AUTO LTD.
Defendants
REASONS FOR DECISION
Mr. Justice G. Dow
Released: January 21, 2016