BLM Investments v. FCMI, 2017 ONSC 7327

CITATION: BLM Investments v. FCMI, 2017 ONSC 7327

COURT FILE NO.: C-1167-11

DATE: 2017-12-14

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: BLM INVESTMENTS INC., Plaintiff

AND:

FCMI GLOBAL INC., HOWARD BRODSKY, ROZ BRODSKY, JONATHAN BRODSKY, JOHN GILLESPIE, BY DESIGN FINE JEWELLERY BY HOWARD BRODSKY, 1329552 ONTARIO INC., REMY SALES LTD. and CRITICAL PATH COURIERS LTD., Defendants

BEFORE: The Honourable Mr. Justice C.S. Glithero

COUNSEL: Peter Madorin, Q.C., for the Plaintiff (Respondent) James Thomson, for the Defendants (Applicants)

HEARD: December 5, 2017

RULING ON SUMMARY JUDGMENT MOTION

[1] This is a motion on behalf of all defendants except FCMI Global Inc. (“FCMI”) for summary judgment dismissing the plaintiff’s action as against them.

[2] Default judgment has already been obtained against the defendant FCMI, although it appears that company has no assets.

[3] The plaintiff claims damages in the amount of $1,000,000 against the defendant Howard Brodsky for fraudulent misrepresentation.

[4] The plaintiff also claims as against all defendants damages in the amount of $1,000,000 as a result of alleged unlawful conversion of that amount to their own use.

[5] In his factum, Mr. Madorin, counsel for the plaintiff, advised that he would not be pursuing the claim for conversion as against any of the defendants as a result of the information obtained through this litigation process to date. Default judgment has already been obtained as against FCMI.

[6] During submissions, Mr. Madorin further confirmed that it would be appropriate to grant partial summary judgment dismissing the action for conversion as against all remaining defendants.

[7] Accordingly, the remaining claim in this action is that of the plaintiff against Howard Brodsky for fraudulent misrepresentation.

Background

[8] In 2010 the plaintiff invested a total of $1,000,000 in three instalments in a mining exploration venture said to be available in Equatorial Guinea and other African countries. James D. McConnell, the president and sole director of the plaintiff, entered into the investments on behalf of the corporate plaintiff. It is in respect of this investment totalling $1,000,000 that the plaintiff claims that same amount in damages.

[9] Howard Brodksy is a jeweller who had many long-time clients who were successful businessmen. Mr. McConnell was one of those clients. He thought of Mr. Brodsky as a trusted friend, as the two of them had known each other for 30 years.

[10] In 2009, one Robert Zuk, another of Mr. Brodsky’s jewellery clients, informed Mr. Brodsky about mining exploration opportunities in Africa and claimed that his friend, Derrick Snowdy, had connections in Africa. Mr. Zuk asked Mr. Brodsky to help raise money. Mr. Brodsky claims that his role was to help raise the money by putting Mr. Zuk in contact with potential investors. Eventually, Mr. Brodsky raised approximately $4,000,000 from approximately 25 investors. Whether Mr. Brodksy’s role was to simply introduce investors to Mr. Zuk, or whether he played a more active role in promoting the investments is an issue as between the parties on the motion.

[11] FCMI was an existing private corporation acquired by Mr. Zuk from a friend of his. Mr. Brodsky became FCMI’s president and sole shareholder. He held all 100 shares in the corporation, and did so until April 2011.

[12] Sillenger Exploration Corp. (“Sillenger”) was an existing company publicly traded in the United States. According to Mr. Brodsky, Mr. Zuk explained to him that the potential investors would be given shares in Sillenger in exchange for their investments. According to Mr. Brodsky he, Mr. Zuk and Mr. Snowdy were each given approximately 4,000,000 shares in Sillenger.

[13] On May 26, 2010, FCMI entered into a contract with the Government of the Republic of Equatorial Guinea to fly an aerial survey over parts of that country in exchange for the right to exploit natural resources discovered as a result of the survey. Four days later, on June 1, 2010, FCMI assigned that contract to Sillenger. According to Mr. Brodsky, Sillenger is run by his cousin, John Gillespie.

[14] According to Mr. Brodsky, he and Mr. Gillespie discovered that Mr. Zuk and Mr. Snowdy had improperly dealt with the finances of the venture, and the rights and obligations under the contracts with Equatorial Guinea and with the aerial survey company contracted were acquired by Brilliant Mining Corp. (“Brilliant”) and Ivory Resources Inc. (“Ivory”). In exchange, Sillenger received shares in Brilliant. In 2015 Brilliant and its subsidiary Ivory were paid more than $30,000,000 U.S. by the Government of Equatorial Guinea to relinquish the mining rights first acquired by FCMI and shortly thereafter assigned to Sillenger.

The Involvement of the Plaintiff

[15] Mr. Brodsky told Mr. McConnell about the mining venture. On February 11, 2010, he brought Mr. Zuk to Mr. McConnell’s office, where the two of them met with Mr. McConnell and his controller, Henry Godinho. What was said during the meeting is of prime importance to the outcome of this case.

[16] According to Mr. Brodsky, it was Mr. Zuk who explained the project to Mr. McConnell, following which Mr. McConnell agreed to invest $100,000. According to Mr. Brodsky, Mr. McConnell agreed to purchase 200,000 common shares of Sillenger for $100,000. According to Mr. Godinho, Mr. Brodsky produced a binder which provided the information about FCMI and its proposed project. The binder is produced as exhibit A to his affidavit. The brochure details FCMI’s investment expertise, technical expertise, operating experience and global resources. It claims that FCMI’s mining arm has the exploration and production capabilities to market high end mineral products and claims that it will develop and realize mineral projects through cooperation with international partners. It speaks of gold, diamonds and other products intended to be mined in Equatorial Guinea. It also describes gas and oil potential. It does not mention Sillenger as being a partner in the project, or as being the entity that would spearhead the implementation of the project. It doesn’t mention Sillenger at all.

[17] The plaintiff paid $100,000 by cheque, payable to FCMI.

[18] Mr. McConnell, president of the plaintiff, signed a subscription agreement that day for the purchase of 200,000 common shares of FCMI. He claims it was FCMI shares he intended to buy. Mr. McConnell is adamant that Mr. Brodsky told him that he was buying FCMI shares. Mr. Godinho claims that it was FCMI shares that the plaintiff agreed to purchase. Mr. Zuk says that the plaintiff agreed to purchase FCMI shares and did so by means of the subscription agreement. Mr. Brodsky claims that Mr. McConnell agreed to buy 200,000 shares of Sillenger. He claims that it was just sloppiness that an FCMI form was used as opposed to a Sillenger share subscription form.

[19] On March 23, 2010, a certificate for 200,000 shares in Sillenger was issued in the plaintiff’s name.

[20] Mr. Zuk, in his affidavit, states that he can’t understand why Sillenger shares were issued, as it was always the intention that the plaintiff would receive shares in FCMI.

[21] Mr. Brodsky’s evidence is that he was never asked any questions about why Sillenger shares were issued rather than FCMI shares as he says it was always the understanding that the plaintiff would receive Sillenger shares.

[22] The second investment by the plaintiff occurred on April 18, 2010 when Mr. McConnell signed a subscription agreement for the purchase of 400,000 shares of FCMI, not Sillenger. The purchase price was $200,000, which was paid by cheque dated April 19, 2010, payable to FCMI, not Sillenger. That agreement was also signed by Mr. Brodksy, on behalf of FCMI, not Sillenger.

[23] Mr. Godinho swears that on April 30, 2010, Mr. Brodsky met with him and provided him with the share certificate for 200,000 Sillenger shares and also provided him with an undated letter attached as exhibit “B” to Mr. Godinho’s affidavit. That letter addressed to Mr. McConnell is from Mr. Brodsky and begins “Enclosed is a share certificate for a public company listed in the U.S.”. This wording seems most curious if, as Mr. Brodsky asserts, it had been understood throughout that the plaintiff would be getting Sillenger shares. It is at that same meeting where Mr. Godinho asked Mr. Brodsky why it was Sillenger shares being provided as opposed to FCMI shares and was given an explanation that he did not understand but the explanation concluded with the phrase “trust me” and Mr. Godinho took his word.

[24] Mr. Godinho also asserts that at that same meeting on April 30, 2010, Mr. Brodsky provided him with a one page “information sheet” together with the share certificate. It is found as exhibit “C” to the Godhino affidavit. It appears to be a draft of possible questions that could be asked, together with suggested answers. It doesn’t make clear what shares are being talked about, but indicates that Mr. Brodsky was the source of the shares. Mr. Godinho indicates the Mr. Brodsky told him to familiarize himself with the information on the sheet in case Mr. McConnell asked him where the shares had come from. It seems curious that Mr. Brodsky would be worried about such questions if Mr. McConnell had been advised throughout that he was buying Sillenger shares.

[25] Mr. Brodsky swears that Mr. Zuk spoke to Mr. McConnell before the second purchase, whereas Mr. Zuk denies having done so and swears that he was out of the country at the time of that transaction. Although not present, Mr. Zuk swears that it was always the intention that the investors were to receive FCMI shares.

[26] On May 6, 2010, 400,000 shares of Sillenger were issued to the plaintiff.

[27] On July 7, 2010 the plaintiff and FCMI met again and had further discussions about a further investment by the plaintiff in the amount of $700,000. At that meeting a document was signed by Mr. Brodsky on behalf of FCMI, the owner of 934,000 shares of Sillenger, to sell those shares to the plaintiff. The plaintiff’s investment was by way of a cheque in the amount of $700,000 payable to FCMI. The agreement which on its face indicates that the plaintiff is buying shares in Sillenger was never signed by Mr. McConnell or anyone else on behalf of the plaintiff. On July 19, 2010 a certificate was issued evidencing the plaintiff’s ownership of those shares in Sillenger.

[28] Mr. Godinho’s evidence is that he is not sure whether Mr. McConnell realized that the third purchase was for Sillenger shares as Mr. McConnell believed he had been buying FCMI shares throughout. The agreement of purchase and sale with respect to this third purchase is signed by Mr. Brodsky as president of FCMI. It is not signed by anyone on behalf of the plaintiff.

[29] Mr. Zuk says that the third transaction for the 934,000 shares was properly recorded as by that time Sillenger had taken an assignment of the Equatorial Guinea contract and was pursing the aerial survey project.

[30] Mr. Zuk indicates that he was not present at the time of the third purchase. He indicates he cannot be sure if Mr. McConnell realized that he was buying Sillenger shares on that occasion, as he says it had been represented to Mr. McConnell in the past that he would be receiving FCMI shares.

[31] Mr. Zuk denies Mr. Brodsky’s assertion that Mr. Zuk said that he had funding in the amount of between $25,000,000 and $50,000,000 for the project. If that were true, Mr. Zuk says he would have had no need to pursue investors.

[32] On or about May 26, 2010, FCMI entered into a contract with the Government of the Republic of Equatorial Guinea whereby FCMI would fly aerial surveys over part of the country in return for the rights to exploit natural resources discovered as a result of the survey. Four days later, on June 1, 2010, FCMI assigned that agreement to Sillenger.

The Position of the Plaintiff

[33] The plaintiff’s position is that at all times it was told that it was investing the $1,000,000, in three instalments, for shares in FCMI and that it understood that FCMI continued to hold the contract with the government of Equatorial Guinea. The plaintiff claims that it was not advised of the assignment of the contract from FCMI to Sillenger, and then from Sillenger to Ivory Coast and Brilliance until long after it had invested in the project as represented by FCMI.

The Position of the Defendant Brodsky

[34] Mr. Brodsky’s position is that the plaintiff, through Mr. McConnell, was advised throughout that he was investing in the project by purchasing shares in Sillenger. His position is that the plaintiff knew of the speculative nature of the venture, and that, as is the case with all investors in such projects, he took his chances and lost. Mr. Brodsky’s position is that Mr. McConnell is simply a “sore loser” and is now rearranging the facts to try and recoup a loss that the plaintiff incurred legitimately.

The Alleged Misrepresentations

[35] The plaintiff claims that Mr. Brodsky said that FCMI was the sole shareholder of Sillenger. Mr. Brodsky denies saying that and rather asserts that he indicated that FCMI was an agent for Sillenger.

[36] The plaintiff asserts that Mr. Brodsky represented that on investing in FCMI, the plaintiff would receive FCMI shares. Mr. Brodsky denies saying that and claims that it was made clear that the plaintiff, as an investor, would receive shares in Sillenger. The evidence from Mr. Mr. Zuk is that Mr. McConnell was told that for his investment he would receive shares in FCMI. Mr. Godinho’s evidence is that he understood the plaintiff was purchasing shares in FCMI and couldn’t understand why instead shares in Sillenger were issued.

[37] The plaintiff alleges that Mr. Brodsky told Mr. McConnell that he had invested two or three million dollars in FCMI. Mr. Brodsky denies saying that and claims that he may have told Mr. McConnell that he had two or three million shares in Sillenger. It appears on the record that Mr. Brodsky was issued his shares in Sillenger without payment, other than for the effort he provided. It is clear from the evidence that Mr. Brodsky did own shares in FCMI at parts of the relevant time period. Mr. Zuk swears in his affidavit that Mr. Brodsky indicated that he had invested two to three million dollars in the project.

[38] The plaintiff claims that Mr. Brodsky said he guaranteed the investment of the plaintiff to the extent of $400,000 if the project failed. Mr. Brodsky denies guaranteeing anything. Mr. Zuk’s evidence is that Mr. Brodsky said he guaranteed the plaintiff’s investment if the project failed.

[39] The plaintiff alleges that Mr. Brodsky said that his family was involved in the project so, “don’t worry”. Mr. Brodsky agrees he told Mr. McConnell that his family was invested in the project, but denies saying “don’t worry”. From other evidence in the motion record materials, it seems that Mr. Brodsky’s wife received shares in Sillenger, although it is unclear whether they were purchased, and that Mr. Brodsky’s son and his wife loaned monies to the project, which were repaid. It is unclear from the record whether Mr. Brodsky, his son, or his wife, lost any money on this project.

[40] The plaintiff’s position is that Mr. McConnell was told that his invested funds would be used to obtain the contract with Equatorial Guinea for FCMI.

[41] In Mr. McConnell’s examination for discovery he testified that the plaintiff was set up as a shell corporation for this investment. He maintains that he was told by Mr. Brodsky, a friend of 30 years that he was purchasing shares in FCMI and Mr. McConnell claims to have no knowledge of Sillenger. He agreed he paid little attention to his investments generally. His evidence is that during the efforts to have him invest in this matter, Sillenger was never brought up. On discovery, Mr. McConnell swears that he did not receive the share certificates, but rather that Mr. Godinho did, and that he came to later understand that Mr. Godinho questioned why the shares were those of Sillenger rather than FCMI. Mr. McConnell testified under oath on discovery that as far as he’s concerned he bought FCMI shares and he had no knowledge until after the whole “thing had blown up” that he had received Sillenger shares instead. At another point he testified that he had never seen any of this paper, because Mr. Brodsky was his friend, that he trusted him when he was told he was getting FCMI shares.

[42] When asked about the agreement of purchase and sale relating to the third investment, Mr. McConnell’s evidence on discovery was that the agreement was between the plaintiff and FCMI. When asked about the portion of the contract indicating that the plaintiff is buying shares in Sillenger, and not FCMI, Mr. McConnell indicates that’s probably why there is no signature on behalf of the plaintiff on the agreement.

Summary Judgment Motion Principles

[43] As indicated in Rule 20.04, I am to grant summary judgment if I am satisfied that “there is no genuine issue requiring a trial”.

[44] Sub rule (2.1) provides that in making that determination I am to consider the evidence presented by the parties and that I may choose to weigh the evidence, evaluate the credibility of the deponent, and draw any reasonable inference from the evidence unless I determine it to be in the interests of justice that such powers be exercised only at a trial.

[45] Under sub rule (2.2) I have the discretion to order the presentation of oral evidence.

[46] In Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada set out a “road map” for summary judgment motions. It dictates that the motion judge should first determine if there is a genuine issue requiring trial, based only on the evidence, without resort to the new fact finding powers. That will be the case if the judge is able to “fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure”. If there does appear to be a genuine issue requiring a trial, then the motion judge is to determine whether it can be avoided by using the new fact finding powers under sub rules (2.1) and (2.2). The use of those powers is at the discretion of the motion judge. They are not to be used if it is against the interests of justice, which will be so if such use would not “lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole” (at paragraph 66).It is the obligation of the party moving for summary judgment to present a record upon which the motion judge can determine whether there is a genuine issue requiring a trial: Grant Thornton Limited v. Carillion Construction Inc., 2016 ONSC 1354 at para. 11.

Elements of False Representation

[47] In Hryniak (supra), at para. 7, borrowing from the court’s companion decision in Bruno Appliance and Furniture Inc. v. Hyrniak, 2014 SCC 8, civil fraud has four elements to be proven to the civil standard: “(1) a false representation by the defendant, and (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness); (3) the false representation caused the plaintiff to act; (4) the plaintiff’s actions resulted in a loss.”

[48] The false statements may be either oral or written, or a combination thereof. Incomplete disclosure, amounting to half-truths, may constitute the necessary deceit: C.R.F. Hldg. Ltd. v. Fundy Chem. Int. Ltd. (1980), 1980 CanLII 586 (BC SC), 21 B.C.L.R. 345 (B.C.S.C.); So may acts of concealment by conduct: Brown & Associates Advertising Inc. v. Farmco Steel Building Inc. (1983), 26 SASK. R. 305 (SASK. Q.B.)

[49] Silence as to a change in circumstance which renders untrue a previously true representation may constitute actionable deceit: Brownlie v. Campbell (1880), 5 APP. CAS. 925 (H.L.).

[50] In such actions, the plaintiff must prove knowledge on the part of the defendant that his or her representations were false or that they were made with careless and callous disregard for the truth: McLaughlin v. Colvin, 1941 CanLII 302 (ON CA), [1941] 4 D.L.R. 568 (Ont. C.A.). at 583, Aff’d 1942 CanLII 359 (SCC), [1942] 3 D.L.R. 292 (S.C.C.). The representation must be shown to have been made with the intent to deceive the plaintiff to act upon it: BG Checo International Ltd. v. British Columbia Hydro & Power Authority, 1990 CanLII 819 (BC CA), [1990] 3 W.W.R. 690 (B.C.C.A.), Aff’d 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12.

[51] It is no defence to claim that the plaintiff ought to have been more prudent or conducted further investigations: Siametis v. Trojan Horse (Burlington) Inc. (1979), 194 D.L.R. (3d) 556 (Ont. H.C.).

[52] The defendant bears the onus of showing that the plaintiff did not rely on the impugned representation: Baker v. Guar. Savings & Loan Assn., 1930 CanLII 27 (SCC), [1931] 1 D.L.R. 968 (S.C.C.).

[53] In actions for deceit, the plaintiff is entitled to damages based on the position he would have been in had the false representation not been made, rather than on the basis of what the position would be if the representation had been true. In other words, a successful plaintiff is entitled to the return of the lost investment: Metropolitan Stores of Can Ltd. v. Nova Const. Co. (1987), 1987 CanLII 9199 (NS SC), 39 C.C.L.T. 185 (N.S.T.D.); Toronto Dominion Bank v. Mapleaf Furniture Manufacturing Ltd., [2003] O.J. No. 4719 (Ont. S.C.J.); Sugar v. Peat Marwick (1988), 1988 CanLII 5742 (ON SC), 55 D.L.R. (4th) 230 (Ont. H.C.J.).

Discussion

[54] On the motion record before me, I am far from satisfied that “there is no genuine issue requiring a trial”. There is a real issue as to whether the plaintiff was led to believe by the defendant Brodsky that it was purchasing FCMI shares. It is clear it never received such shares. This issue pits the evidence of Mr. Brodsky against that of Mr. McConnell, Mr. Zuk and Mr. Godinho. The issue is also far from clear on the basis of the documentation produced. There is ample evidence which, if accepted’ would support a finding that Mr. Hufsky knew the representations to be false, that the falsehoods caused the plaintiff to invest, and that the investments resulted in a loss.

[55] There is a genuine issue as to whether Mr. Brodsky told Mr. McConnell that he owned 2-3 million shares of FCMI. If he did, it may well have served to induce the plaintiff to invest by way of connoting Mr. Brodsky’s belief in the viability of the project.

[56] There is a genuine issue as to whether Mr. Brodsky gave a guarantee as to all or part of the plaintiff’s investment. There is also an issue as to whether Mr. Brodsky led the plaintiff to believe that his own family were investors and that for that reason the plaintiff need not worry.

[57] In my opinion there is a genuine issue as to whether the plaintiff was ever advised prior to its last investment that the Equatorial Guinea contract had been assigned from FCMI to Sillenger.

[58] These genuine issues turn on findings of credibility. They cannot be resolved on the basis of the record materials only.

[59] I conclude that the trial required to determine these issues cannot be avoided by the use of the fact finding provisions enumerated in rule 20.04(2.1). The credibility assessments relate to discussions that occurred more than seven years ago and are evidenced by documents which are in themselves incomplete and curious, and which can be interpreted with differing results.

[60] I have considered whether a trial could be avoided by the use of the oral evidence provision in sub rule (2.2). I raised the issue with counsel. They agreed that taking oral evidence from the witnesses, Brodsky, McConnell, Zuk and Godinho, may enable me as a motion judge to determine whether the alleged representations were made and whether they were untrue. They also expressed a belief that findings of credibility by the use of the oral evidence provision may result in them being able to resolve the matter without further trial proceedings.

[61] After careful consideration, I have concluded that I ought not to utilize that discretionary process. My review of the extensive record materials leads me to conclude that the oral testimony from these individuals would most likely lead to references to many other portions of the evidence which would then in turn require consideration. If counsel are correct in the hope that hearing oral evidence from those four witnesses could be determinative, then a trial judge can just as easily hear their evidence as could I. A trial judge can also be quickly acquainted with the underlying facts in this matter, by way of an agreed statement of fact, if counsel are accurate in their belief that the outcome largely turns on findings of credibility.

[62] The resolution of the unlawful conversion claims greatly simplifies the trial. It means that a trial is less disproportionate in terms of expense as compared to the (2.2) procedure.

[63] In this region, the judges circuit, which makes the scheduling of future sessions to utilize the (2.2) procedure more difficult. As it is, my schedule is full until the end of April. Between now and then, there are two trial sittings here in Kitchener to which this case can be added. Accordingly, it would be less expeditious for me to hear the evidence pursuant to (2.2).

Result

[64] For those reasons, the motion is allowed to the extent of granting summary judgment on consent dismissing the unlawful conversion claim as against all defendants, except FCMI. The motion for summary judgment dismissing the claim for damages for false representation as against Mr. Brodsky fails and that portion of the motion is dismissed.

Costs

[65] If the parties are unable to agree on the issue of costs, written submissions may be submitted. As summary judgment was granted dismissing the claims against all defendants except FCMI and Mr. Brodsky, submissions on behalf of all defendants should be made within 30 days, and any responding submissions on behalf of the plaintiff within 21 days thereafter. Such typewritten submissions are not to exceed 10 pages in length, exclusive of bills of costs and relevant authorities or offers to settle. If no submissions are received within the above timelines, or such extensions as may be sought and granted, the issue of costs will be deemed to have been resolved between the parties.

C.S. Glithero J.

Date: December 14, 2017