Court File and Parties
COURT FILE NO.: CV 14-5976 DATE: 2019/06/28 ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
STEELE INDUSTRIAL SUPPLIES INC. Plaintiff
- and -
SHARON ELLIOTT and THE ESTATE OF KERRY ELLIOTT, Deceased Defendants
COUNSEL: Joseph D. Kennedy, for the Applicant Paul E. Trenker, for the Defendants
HEARD: March 20, 2019
BEFORE: Ellies R.S.J.
REASONS FOR DECISION
OVERVIEW
[1] Sharon Elliott worked as a bookkeeper for the plaintiff, Steele Industrial Supplies Inc. (“Steele”), from 2006 to 2012. During those years, she stole a sum of money from her employer, the exact amount of which is in dispute.
[2] A little less than two years after she was fired, Steele sued the defendants, Mrs. Elliott and her husband, for damages resulting from the theft. Mr. Elliott passed away after the action was commenced and Steele’s claim was continued against his estate (the “Estate”).
[3] Steele moves for summary judgment under r. 20 of the Rules of Civil Procedure, R.R.O. 1990, O. Reg. 194 (the "Rules) against Mrs. Elliott and the Estate in the amount of $355,470. Mrs. Elliott and the Estate bring their own motion for an order dismissing Steele's action on the basis that it was commenced after the expiry of the limitation period.
[4] For the following reasons, the defendants’ motion is dismissed and the plaintiff’s motion is allowed in part. I am satisfied that the limitation period did not begin to run until September 24, 2012, the date Mrs. Elliott confessed to the theft. The action was, therefore, commenced within the limitation period.
[5] I am further satisfied that Mrs. Elliott is liable to the plaintiff for the full amount of the money she stole and that the Estate is liable for the amount by which Mr. Elliott was unjustly enriched. However, I am unable to fairly and justly determine either of those amounts based on the evidence before me, even using the enhanced fact-finding powers available to me under subrules 20.04(2) and (2.2) of the Rules.
FACTS
[6] The following summary has been prepared using the pleadings, the affidavits filed on both motions, and the exhibits appended to those affidavits, including copies of statements given by witnesses to the police.
[7] Steele is an industrial supply company. The company is owned and controlled by the majority shareholder, Shaun Wilson.
[8] Steele began in 2002. Mrs. Elliott joined the company in 2006. As of 2007, Steele employed only three people. In that year, Mr. Wilson discovered that Mrs. Elliott was defrauding the company by paying herself for 80 hours when she had only worked 70. [1] Mr. Wilson confronted Mrs. Elliott about the situation and she admitted that she had been overpaying herself. She agreed to repay the money by taking only one paycheque per month until the money was repaid. Mr. Wilson told the police that he "trusted her and believed that the [money] was paid back”.
[9] In 2008 and 2009, Steele’s business grew considerably. However, notwithstanding the company's growth, Steele's accountant told Mr. Wilson that Steele was not making any money. This surprised Mr. Wilson, given the volume of business that the company was doing and the company’s profit margin. At the suggestion of the company’s accountants, Steele hired Rob Watchorn, a Certified General Accountant, to review the company’s books.
[10] According to a statement Mr. Watchorn gave in August 2012, he was not initially hired to find a thief. Instead, he was given two other tasks. The first was to prepare a “flow chart” about the company’s accounting practices. The purpose of the flow chart was to explain “who does what in payroll, accounts payable and accounts receivable”. The flow chart was required in case an employee had to be replaced.
[11] The second task assigned to Mr. Watchorn was to try to determine why the business was not profitable. The theory at the time was that inventory simply was not selling fast enough and was being stockpiled for too long.
[12] Mr. Watchorn began his work for Steele in May 2012. He first met with Mrs. Elliott in order to get an overview of the company’s accounting practices. In the months that followed, Mr. Wilson began hearing stories from employees about odd practices. Among the things he heard was that sales personnel were being given lists of invoice numbers by Mrs. Elliott to be reused and that Mrs. Elliott was taking gambling trips to Casino Rama on the weekends.
[13] At some point, Mr. Watchorn began to suspect that Mrs. Elliott was a cause of the company's losses. Because of that fact, Mr. Watchorn began to examine the company’s records on Mrs. Elliott’s days off. In a statement he gave to the police on September 27, 2012, Mr. Watchorn said that, by July of that year, he “had a pretty good idea that [Mrs. Elliott] was definitely stealing money.”
[14] In August 2012, Mr. Wilson went to a lawyer, John D’Agostino, for advice. Police notes show that Mr. D’Agostino contacted the North Bay Police Service on August 28, 2012 and advised them that “Steele … has confirmed a large scale fraud perpetrated by their bookkeeper”.
[15] On September 24, 2012, Mr. Watchorn and Mr. Wilson met with Mrs. Elliott. They presented her with the documents that Mr. Watchorn had prepared after reviewing the company's books of account. They told Mrs. Elliott that it had appeared that cash was missing and asked her to explain why. She confirmed that there was cash missing and confessed that she had taken it. According to Mr. Watchorn, Mrs. Elliott said that she began stealing the cash in 2008, after she had agreed to repay the extra salary she had been paying herself.
[16] Mrs. Elliott was fired that day.
[17] In 2013, Mrs. Elliott was charged with a number of criminal offences relating to the missing cash. In May 2015, she pleaded guilty to one count of fraud over $5,000 and one count of fraud under $5,000. At about the same time, she paid restitution to Steele in the amount of $100,000.
[18] The action within which these motions are brought was started on September 19, 2014, in between the date that Mrs. Elliott was charged and the date the charges were disposed of. In the claim, Steele seeks damages in the amount of $1,500,000 for fraud, breach of fiduciary duty, breach of confidence, and breach of contract. As I will explain, Steele also alleges that the defendants were unjustly enriched.
[19] In their statement of defence, the defendants deny that Mrs. Elliott defrauded Steele. However, the statement of defence was delivered about one month before Mrs. Elliott pleaded guilty to the criminal charges. As well, she later admitted stealing the money during her examination for discovery and in the affidavit she filed in response to Steele’s motion. Nonetheless, Mrs. Elliott deposes that the amount she stole was only $94,000. She further deposes that her late husband never benefited from the theft because she gambled away all of the money she stole.
[20] Steele has obtained an expert report in which the author opines that Mrs. Elliott misappropriated $455,470. Deducting the $100,000 already paid by way of restitution, Steele moves for summary judgment against both Mrs. Elliott and the Estate for $355,470.
[21] The defendants have obtained their own expert report, which quantifies the amount stolen at between $67,000 and $165,000, without deducting the $100,000 already paid.
ISSUES
[22] In its statement of claim, Steele seeks damages going beyond the amount stolen, including damages to the company’s reputation, as well as aggravated and punitive damages. In its motion, however, Steele asks only for damages in the amount that it alleges it was defrauded.
[23] Because of Mrs. Elliott’s pleas of guilty and the admissions that she has made under oath, there is no genuine issue that she is liable for the amount she stole. The remaining issues are:
(1) Whether the action is statute-barred because it was commenced outside of the limitation period; (2) If not: (a) the amount for which Mrs. Elliott is liable; (b) whether Mr. Elliott was unjustly enriched; and, if so; (c) the amount by which Mr. Elliott was unjustly enriched.
[24] Underlying the resolution of all these issues is the overarching question of whether some or all of them can be disposed of summarily under r. 20. I will deal first with the provisions of that rule in the analysis that follows. I will then address the limitation and the unjust enrichment issues before turning to the issues relating to quantum.
ANALYSIS
Rule 20: The Summary Judgment Rule
[25] A great deal has been written about r. 20 since it was amended in 2010 to expand the court’s ability to decide cases that do not require a trial. The applicable parts of r. 20 read:
20.01 (1) A plaintiff may, after the defendant has delivered a statement of defence or served a notice of motion, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim.
(3) A defendant may, after delivering a statement of defence, move with supporting affidavit material or other evidence for summary judgment dismissing all or part of the claim in the statement of claim.
20.02
(2) In response to affidavit material or other evidence supporting a motion for summary judgment, a responding party may not rest solely on the allegations or denials in the party’s pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial.
20.04
(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or
(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation.
(3) Where the court is satisfied that the only genuine issue is the amount to which the moving party is entitled, the court may order a trial of that issue or grant judgment with a reference to determine the amount.
20.05 (1) Where summary judgment is refused or is granted only in part, the court may make an order specifying what material facts are not in dispute and defining the issues to be tried, and order that the action proceed to trial expeditiously.
(2) If an action is order to proceed to trial under subrule (1), the court may give directions or impose such terms as are just ...
[26] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada held that amendments to r. 20 of the Rules in 2010 heralded a new approach in which trials are no longer required for all but the most obviously unmeritorious claims. The court called for a "culture shift" towards a more proportionate, more expeditious and less expensive dispute resolution process.
[27] Rule 20 is mandatory. Where a judge concludes that there is no genuine issue requiring a trial, he or she must make the appropriate final order. In Hryniak, the Supreme Court explained that (para. 49):
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
[28] The summary judgment rule permits the motion judge to perform the functions of a trial judge by weighing evidence, evaluating credibility and drawing inferences in order to determine if there is a genuine issue requiring a trial. As the Supreme Court pointed out in Hryniak, the decision to use these powers is a discretionary one (para. 68). The motion judge is not required to use them, but is required not to use them if the "interest of justice" dictates that they be used only at a trial.
[29] In Hryniak, the Supreme Court explained the process a summary judgment motion judge should follow under the Rules by providing the following "roadmap" (para. 66):
On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will 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.
[30] With these principles in mind, I turn to the substantive issues in these motions.
Was the Action Commenced Outside of the Limitation Period?
[31] The defendants submit that a trial is not required to determine the limitation period issue. I agree with that submission. As I hope to demonstrate, the evidence permits me to fairly and justly adjudicate the issue on the motion. However, I do not agree with the conclusion the defendants urge me to reach on the basis of that evidence.
[32] There is no dispute that the basic limitation period of two years set out in s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24 (the “Act”) applies. The defendants argue that the limitation period began to run as early as the beginning of July 2012 and certainly no later than August 28, 2012. The earlier of the two dates is the date upon which Mr. Watchorn said in the statement he gave to the police that he had a “pretty good idea” that Mrs. Elliott was stealing from her employer. The later of the two dates is the one on which Mr. D’Agostino told the police that Steele had “confirmed” the fraud.
[33] In his responding affidavit, Mr. Wilson refers to the evidence he gave during his examination for discovery (to which the defendants make no objection) and deposes that he believes the limitation period did not begin to run until Mrs. Elliott confessed on September 24, 2012. Of course, Mr. Wilson’s belief is not determinative. The question of when the limitation period begins to run is a legal one. However, I have concluded that his opinion is correct.
[34] Section 5(1) of the Act governs when a limitation period begins to run. It provides:
5 (1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
[35] I agree with the submission made on behalf of the defendants that, by the time Mr. D’Agostino placed his call to the police, the first three requirements of s. 5(1) (a) had been met. As the defendants correctly submit, the law does not require absolute certainty before the limitation clock starts to tick: Kowal v. Shyiak, 2012 ONCA 512, at para 18. Nonetheless, in my view, the clock did not start to tick regarding the requirement in s. 5(1) (a)(iv) until later.
[36] In Federation Insurance Co. of Canada v. Markel Insurance Co. of Canada, 2012 ONCA 218, the Court of Appeal considered the meaning of the fourth requirement set out in s. 5(1) (a)(iv). On behalf of the court, Sharpe J. A. wrote (para. 34):
In my view, when s. 5(1) (a)(iv) states that a claim is “discovered” only when “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”, the word “appropriate” must mean legally appropriate. To give “appropriate” an evaluative gloss, allowing a party to delay the commencement of proceedings for some tactical or other reason beyond two years from the date the claim is fully ripened and requiring the court to assess [the] tone and tenor of communications in search of a clear denial would, in my opinion, inject an unacceptable element of uncertainty into the law of limitation of actions.
[37] Section 5(1)(a)(iv) requires that the court have regard to “the nature of the injury, loss or damage”. In that regard, it must be borne in mind that what was involved here was an allegation that Mrs. Elliott, a ten-year employee who was in a position of trust, had defrauded her employer. This was not a case of failed cosmetic surgery or faulty construction. Here, the act or omission was much less obvious, and the allegation was much more odious. I accept that an employer might not be in a position to know that an action was appropriate until it had confronted the suspected employee.
[38] In both his examination for discovery and in his statement of September 9, 2012 to the police, Mr. Wilson said he had not fired Mrs. Elliott before Mr. D'Agostino called the police because he was concerned that, if he did, Mrs. Elliott might have a claim for wrongful dismissal. While Mr. Watchorn told the police a few days after Mrs. Elliott was fired that he was reasonably sure that Mrs. Elliott was responsible for a loss by July 2012, he was much less sure before she confessed. In a statement he gave on August 31, 2012, Mr. Watchorn used the word “suspect” frequently when referring to his belief about Mrs. Elliott’s actions. Mrs. Watchorn stated at that time that he was still in the process of conducting a cash test to corroborate his findings.
[39] It is clear from the fact that Mrs. Elliott was not fired until she was confronted on September 24, 2012 that Mr. Wilson was not certain enough of Mrs. Elliott’s guilt to risk being a defendant in a wrongful dismissal suit, let alone being a plaintiff in an action for theft and fraud. In these circumstances, I believe it was reasonable for Mr. Wilson to wait to fire Mrs. Elliott until after he had confronted her, and to commence an action within two years of that date, which he did.
[40] For these reasons, the defendants' motion to dismiss the action as being out of time must fail. However, I am not limited to simply dismissing the motion. Notwithstanding the fact that the plaintiff has not brought a motion seeking the opposite relief, the court may make a finding as to when the limitation period began and may make a declaration accordingly: Kassburg v. Sun Life Assurance Co. of Canada, 2014 ONCA 92, at para. 52. Based on the foregoing facts, I find that the limitation period began to run on September 24, 2012.
Was Mr. Elliott Unjustly Enriched?
[41] I also believe that the issue of Mr. Elliott's unjust enrichment can be fairly and justly determined on the motion for summary judgment. However, as I will explain, I am not able to determine the amount by which he was enriched on the evidence before me.
[42] The law of unjust enrichment is well-settled. As the Supreme Court of Canada stated recently in Moore v. Sweet, 2018 SCC 52, at para. 37, a plaintiff will succeed on the cause of action in unjust enrichment if he or she can show: (a) that the defendant was enriched; (b) that the plaintiff suffered a corresponding deprivation; and (c) that the defendant's enrichment and the plaintiff's corresponding deprivation occurred in the absence of a juristic reason.
[43] Although it could have been pleaded with more particularity in the sense that it could have been listed as one of the legal grounds upon which Steele based its claims in para. 1 of the statement of claim, the defendants concede that Steele has advanced a claim of unjust enrichment against them. At para. 13 of the claim, Steele pleads:
The defendants were both unjustly enriched, to the corresponding deprivation of the Plaintiff, for no juristic reason.
[44] In response, Mrs. Elliott deposes that she misappropriated the sum of $94,000 and that Mr. Elliott was not unjustly enriched because she gambled all of that money away. This contention has little support in the rest of the evidence, however.
[45] First, Mrs. Elliott offers no information as to how she knows how much money she stole. Indeed, during the cross-examination on her affidavit, she admitted that she kept no records of exactly how much money she stole.
[46] Second, in her examination for discovery, Mrs. Elliott testified that she deposited the cash she stole into accounts held jointly by her and Mr. Elliott. She also admitted that her husband's expenses such as rent, utilities, and vehicle loan payments were paid out of these accounts. There is no evidence that only legitimately earned funds were used to pay for these expenses, as opposed to mixed funds from legitimate and illegitimate sources. During cross-examination, Mrs. Elliott also admitted the comingling of funds. At Q. 277, she testified as follows:
- Q. Were some of the funds that you misappropriated from Steele Industrial also used to pay other invoices for your husband?
A. Whatever money went into the account is what got used, so it could very well - it might have, yes. He did not know that.
[47] I am satisfied on the evidence that Mr. Elliott was enriched and that Steele was correspondingly deprived. The third element – absence of a juristic reason – has also been established, in my view.
[48] In Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, the Supreme Court of Canada set out a two-part test for establishing this third requirement. The test was summarized by Côté J. on behalf of the majority in Moore, at paras. 57 and 58, as follows:
The first stage requires the plaintiff to demonstrate that the defendant's retention of the benefit at the plaintiff's expense cannot be justified on the basis of any of the "established" categories of juristic reasons: a contract, a disposition of law, a donative intent, and other valid common law, equitable or statutory obligations (Garland, at para. 44; …). If any of these categories applies, the analysis ends; the plaintiff's claim must fail because the defendant will be justified in retaining the disputed benefit. For example, a plaintiff will be denied recovery in circumstances where he or she conferred a benefit on a defendant by way of gift, since there is nothing unjust about a defendant retaining a gift of money that was made to him or her by (and that resulted in the corresponding deprivation of) the plaintiff. In this way, these established categories limit the subjectivity and discretion inherent in the unjust enrichment analysis and help to delineate the boundaries of this cause of action (Garland, at para. 43).
If the plaintiff successfully demonstrates that none of the established categories of juristic reasons applies, then he or she has established a prima facie case and the analysis proceeds to the second stage. At this stage, the defendant has an opportunity to rebut the plaintiff's prima facie case by showing that there is some residual reason to deny recovery (Garland, at para. 45). The de facto burden of proof falls on the defendant to show why the enrichment should be retained. In determining whether this may be the case, the court should have regard to two considerations: the parties' reasonable expectations and public policy (Garland, at para. 46; …).
[49] Steele has satisfied its obligation to show that there is no established category of juristic reason that would justify allowing the Estate to retain the benefit that Mrs. Elliott bestowed upon Mr. Elliott at Steele's expense. It has established a prima facie case with respect to this third element of the cause of action.
[50] The Estate relies on evidence that Mr. Elliott did not know that he was being enriched at Steele's expense. I am not persuaded that he was completely unaware that his wife was stealing. These were joint accounts. I have not been taken to any evidence that Mr. Elliott had no access to the account information or that he never took advantage of that access. Even if that were true, there was a significant body of other circumstantial evidence from which he should at least have been put on inquiry, including trips he and Mrs. Elliott took to gambling establishments, and other trips.
[51] In any event, even if I accepted that Mr. Elliott remained ignorant as to the source of the money being placed into his bank account and being used to pay for these trips, it would not be sufficient to satisfy the Estate's obligation under the second part of the test in Garland. Innocence on the part of the recipient, alone, is not a juristic reason. In Moore, for example, the Supreme Court deprived the innocent defendant of the deceased's life insurance proceeds because the deceased failed to fulfill his agreement to designate the plaintiff as the beneficiary.
[52] Consequently, the Estate has failed to rebut Steele's prima facie case on the juristic reason issue and Steele has established all three elements necessary to maintain a claim for unjust enrichment against it.
Quantum
[53] Both the plaintiff and the defendants have filed expert reports quantifying the amount that Mrs. Elliott misappropriated. They differ wildly.
[54] Steele retained MNP LLP ("MNP"). MNP estimated the amount of cash misappropriated by Mrs. Elliott by identifying where she used the cash, either by depositing it in the bank or by spending it in the casino. Whereas Mr. Watchorn estimated Steele's losses at approximately $104,000 in his statement to the police of September 27, 2019, Steele's expert quantifies it at $455,740.
[55] The defendants retained KPMG Forensic Inc.("KPMG"). Using information obtained from Casino Rama, KPMG quantifies the amount misappropriated at between $67,000 and $165,000.
[56] A good deal of time was spent during the argument of the motion on exactly how to interpret both reports. The fact that much time at all had to be spent on the issue is a pretty good indicator that the quality of the evidence on the motion falls short of allowing the court to decide the issue of how much money Mrs. Elliott misappropriated on a summary basis. As the Supreme Court held in Hryniak, in order to fairly and justly adjudicate an issue on a summary judgment motion, the motion judge must be able to make the necessary findings of fact. I cannot do that on the reports alone. In addition to the interpretive problem, there was no evidentiary basis for things like the information KPMG relied on from Casino Rama.
[57] The issue of how much money Mrs. Elliott misappropriated from Steele must go to trial. However, that does not mean that the trial has to be a long or complex affair.
[58] In Hryniak, the Supreme Court held that, where a summary judgment motion fails, the motion judge should use the trial management powers contained in r. 20.05. to attenuate the increased costs and delay that may result. For that reason, I am directing the parties to schedule a trial management conference before me through the office of the trial coordinator to discuss the most expeditious and least costly way to resolve this final issue.
CONCLUSION
[59] The defendants' motion is dismissed. A declaration shall issue that the limitation period did not start to run against the plaintiff until September 24, 2012.
[60] The plaintiff's motion is allowed in part. Mrs. Elliott is liable to the plaintiff for the full amount of the misappropriated money. Mr. Elliott's estate is liable to the plaintiff for the amount that he was unjustly enriched.
[61] A trial shall be held before me on the issue of damages, on a date to be determined at or after a trial management conference.
[62] The question of costs for the motion shall also be addressed at the trial management conference.
Ellies R.S.J. Released: June 28, 2019