COURT FILE NO.: CV-16-545978
DATE: 202012014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SOIL ENGINEERS LTD.
Plaintiff/Moving Party
– and –
ANTHONY UPPER
Defendant/Respondent
Michelle Gibbs, for the Plaintiff/Moving Party
No one appearing
HEARD: December 2, 2020
papageorgiou j.
Nature of the Motion
[1] The plaintiff brought an action for fraudulent misrepresentation and deceit against the defendant, a former employee, alleging he falsified records and reports and concealed his activities.
[2] The plaintiff served the defendant with the Statement of Claim. The defendant delivered a Notice of Intent to Defend but then failed to deliver a Statement of Defence within prescribed timelines. The plaintiff noted the defendant in default and moved for judgment, but served the motion materials on the defendant nonetheless pursuant to court order. The plaintiff filed affidavits of service.
Damages Claimed
[2] The plaintiff has claimed pecuniary damages in the amount of $629,226, damages at large for loss of business reputation in the amount of $100,000, punitive damage in the amount of $50,000 and costs on a substantial indemnity basis. For the reasons that follow, I am awarding the plaintiff $699,226 plus costs on a substantial indemnity basis.
Rule 19
[3] Pursuant to Rule 19.02(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, where a defendant has been noted in default, he is deemed to admit the truth of all allegations of fact made in the statement of claim. A plaintiff is not entitled to judgment on a motion for judgment or trial merely because the facts alleged in the statement of claim are deemed to be admitted unless the facts entitle the plaintiff to judgment: Rule 19.07.
[4] Accordingly, on a motion for default judgment the inquiry undertaken by the court is on the following:
(a) What deemed admissions of fact flow from the facts pleaded in the Statement of Claim?
(b) Do those deemed admissions of fact entitle the plaintiff, as a matter of law, to judgment on the claim? and
(c) If they do not, has the plaintiff adduced admissible evidence, which when combined with the deemed admissions, entitles it to judgment on the pleaded claim?
Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at para. 14.
Liability
[5] In the case of Douglas v. Kinger, 2008 ONCA 451, 90 O.R. (3d) 721, the Court held that an employer is not entitled to indemnification from its employee in matters involving “ordinary negligence” of the employee. However, the Court recognized that the “result could be different if the loss is occasioned by negligence outside the parties’ reasonable expectations, such as one caused by an intentional tort or wilful misconduct on the respondent’s part”: at para. 65. In that case the Court reviewed past case law in this area and highlighted the fact that previous cases often turned on the nature of the conduct of the employee at issue.
[6] Courts have awarded damages to an employer for losses sustained by it as a result of the employee’s misconduct. See for example: Parsons v. Nathoo et al., 2013 ONSC 5975 and Viktoria Granite and Marble Ltd. v. Allan Franczuk, 2010 SKPC 166, at paras. 8-10.
[7] The plaintiff’s causes of action are the intentional torts of deceit and fraudulent misrepresentation, and if proven, constitute wilful misconduct which takes this matter outside of the limitation imposed by the Court of Appeal in Douglas.
[8] The Ontario Court of Appeal recently held that the test for civil fraud, the tort of deceit and fraudulent misrepresentation are the same. The test consists of the following elements:
(i) A false representation of fact by the defendant to the plaintiff;
(ii) Knowledge the representation was false, absence of belief in its truth, or recklessness as to its truth;
(iii) An intention the plaintiff act in reliance on the representation;
(iv) The plaintiff acts on the representation; and
(v) The plaintiff suffers a loss in doing so.
Paulus v. Fleury, 2018 ONCA 1072, at paras 8-9.
[9] Based upon deemed admissions in the Statement of Claim, affidavit evidence filed by the Vice President of the plaintiff, Mr. Ian Chiu, and inferences which I draw from these, I find the following facts:
a) The plaintiff is a soil engineer consulting firm with a focus on geotechnical engineering evaluating soil and contaminants in soil.
b) The plaintiff provides engineering services to clients in residential and commercial development including the completion of Phase One and Phase Two Environmental Site Assessments and the preparation and filing of Record of Site Condition forms required under the Environmental Protection Act, R.S.O. 1990, c. E.19. (the “ESA”).
c) The plaintiff employed the defendant as a project manager beginning in April 2012.
d) The defendant was responsible for carrying out Phase One and Phase Two ESA remediation projects and for consolidating information gathered into technical reports.
e) On February 9, 2015 the plaintiff terminated the defendant after it discovered that he had falsified a Designated Substance Survey report.
f) The plaintiff conducted an internal audit, and retained Deloitte LLP to conduct a third-party forensic investigation to determine the complete scope of the defendant’s activities.
g) This analysis revealed that the defendant’s actions were wide-spread and that he falsified numerous reports and documents.
h) The plaintiff sought the defendant’s cooperation and assistance in identifying any further falsified documents to mitigate the impact of his actions but he declined to provide any assistance or input.
i) The defendant’s actions were deliberate and intentional. It would not be possible for the falsification which the plaintiff found to have been done negligently or by accident—many of these documents are falsified letters on the Ministry of the Environment letterhead and lab reports of tests which were changed or which were never done.
j) The defendant intended that the plaintiff rely upon these falsified records and documents.
k) The plaintiff acted on the false representation by permitting the defendant to continue in his job and provide such documents, which the plaintiff did not know were falsified, to its clients.
l) The plaintiff contacted its clients to advise them of issues which its internal audit revealed which affected such clients who were upset to learn of the defendant’s actions.
m) The plaintiff had to redo some work and/or compensate its clients, thus incurring costs as a result of the defendant’s conduct. Further details follow below.
n) The plaintiff is currently employed as a senior technologist/project manager with another company in the same industry.
[10] Based upon the deemed admissions, evidence filed, and inferences I have drawn from both, I am satisfied that the plaintiff has established the defendant’s liability for the torts of deceit and fraudulent misrepresentation.
Pecuniary Damages
[11] Where a party has established the tort of deceit and fraudulent misrepresentation, the plaintiff is entitled to be put in the same position they would have been in if the representations had not been made: Midwest Amusement Park, LLC v. Cameron Motorsports, 2018 ONSC 4549, at para. 91.
[12] In this case the plaintiff provided detailed description of the work that was falsified by the defendant, as well as the costs incurred to address issues discovered as follows:
Labour expenses in the amount of $197,815: The plaintiff incurred labour costs for reviewing previous work performed on projects, updating information, re-performing some work, meeting with clients, municipalities and contractors who were affected by the falsified reports. In some cases, the falsification of some reports was discovered more than 18 months after the initial analysis was done and pursuant to O. Reg. 153/04 any record reviews, interviews and site reconnaissance needed to be completed within 18 months. As a result, even where the work done was not specifically in doubt, it had to be redone when other falsification issues were found and addressed on a particular project. These employees were taken away from revenue generating activity and their time could not be billed to other clients. Labour costs and out-of-pocket expenses incurred by an employer in repairing and remedying damages are compensable where they arise as a result of an employee’s wilful conduct: Viktoria Granite, at paras. 8-10.
Third party fees in the amount of $69,286: As part of its work, the plaintiff engaged third parties to assist with the work which had to be redone. These out-of-pocket expenses are compensable: See again Viktoria Granite, at paras. 8-10.
Fee waivers in the amount of $20,886: When the plaintiff discovered the falsifications, it approached its clients, many of whom were very upset since the reports they received were now in doubt and work had to be redone. In some instances, the plaintiff elected to waive further fees to a client to manage its relationship issue. The plaintiff did not provide any examples where courts have awarded these, but I am satisfied that the plaintiff’s actions were reasonable and that it had to waive fees as a result of the defendant’s conduct. These damages are required to put the plaintiff in the same position as if the fraudulent misrepresentation had not occurred.
Settlements with clients in the amount of $217,039: In two instances clients retained lawyers and threatened to bring litigation against the plaintiff for damages because such clients had to incur additional costs as a result of the falsified records, for example delays in project completion and interest charges. The plaintiff has provided evidence of these client demands as well as the details of its negotiated settlements which are less than half of the claims. The plaintiff indicated that it chose to settle these claims to avoid protracted litigation, and to mitigate the damage to its business reputation. Had the plaintiff not resolved these claims, the clients indicated they would sue and the plaintiff would have been in the position to third party the defendant. In my view, the settlement of these claims was necessitated by the defendant’s conduct and as such he is responsible in law. See my reasons in subparagraph 12 above.
Investigation costs in the amount of $80,445: After the initial fraud was discovered, the plaintiff retained forensic auditors to investigate and establish the full extent of the falsified documents. See Parsons, at para. 37, where a Court awarded such damages.
Ministry of Environment fine in the amount of $43,755: This is self-explanatory - the plaintiff had to pay a fine to the Ministry because of the defendant’s conduct.
[13] In my view, all of the above damages are the result of the plaintiff’s conduct and I award the plaintiff the amount of $629,226 in respect of these.
Damages at Large/Reputation Losses
[14] The plaintiff has also claimed damages at large for loss of reputation in the amount of $100,000. The plaintiff referred me to the following cases where courts have awarded a range of between $15,000 and $500,000 for such damages: Grand Financial Management Inc. v. Solemio Transportation Inc., 2016 ONCA 175, at para. 89; Midwest Amusement Park, at para. 100; Uni-Jet Industrial Pipe Ltd. v Canada (Attorney General), 2001 MBCA 40, at para. 83; Alleslev-Krofchak v. Valcom Limited, 2009 CanLII 30446 (Ont. S.C.), at para. 361.
[15] In Grand Financial, at para. 86, the Court explained:
Damages at large for intentional torts include damages for loss of reputation, but are not limited to that type of loss…. Generally speaking, they are compensatory for loss that can be foreseen, but not readily quantified…
[16] The Court in Grand Financial, at para. 89, further indicated that damages at large are “a matter of impression and are not something that can be precisely measured.”
[17] In this case, the plaintiff has provided evidence that demonstrates it had a good reputation in the industry, that it had to approach and disclose the defendant’s fraudulent activities to its clients, that his activities resulted in a fine from the MOE, that it lost some clients and that clients expressed concern over what had happened. I am satisfied that as a matter of inference as well as fact, there has been damage to the plaintiff’s reputation. I award the plaintiff $50,000 under this head of damages.
Punitive Damages
[18] Punitive damages may only be imposed if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 94.
[19] In assessing the moral blameworthiness of the defendant’s conduct, courts consider, among other things:
a) Whether the conduct was planned and deliberate.
b) The intent or motive of the defendant;
c) Whether the defendant persisted in the conduct over a lengthy period of time; and
d) Whether the defendant concealed or attempted to cover up the misconduct.
Whiten, at para. 113.
[20] The plaintiff’s conduct was deliberate. It was conducted over a period of 3 years. When the plaintiff discovered the initial fabricated document, it approached the defendant and asked for an explanation and the defendant attempted to conceal his activities. Later, the plaintiff requested his assistance in dealing with the problems discovered but the defendant failed to provide any explanation or assistance.
[21] The plaintiff points out, and I accept, that the reports and documents falsified by the defendant related to the condition of land intended to be used for development. The purpose of the reports and other documents at issue are to ensure that the land is not contaminated or otherwise unsafe for the intended development projects. The defendants conduct had potential health implications for the public.
[22] The defendant continues to work in the industry for another construction company and the plaintiff points out that it is important that the Court censure his past conduct to provide a disincentive and deterrence to his undertaking this kind of conduct again.
[23] I agree that the plaintiff is entitled to punitive damages which I assess in the amount of $20,000.
Costs
[24] The plaintiff requests substantial indemnity costs in the amount of $22,596.05 in fees and $782.43 on the principle of 80 % recovery of its full legal costs. In Elekta, at para. 41, the Court indicated that fraudulent conduct may attract substantial indemnity costs.
[25] Given that I have found that the defendant has engaged in reprehensible conduct I am satisfied that an award of substantial indemnity costs is appropriate in accordance with the Bill of Costs filed.
Conclusion
[26] I award the plaintiff the following:
Pecuniary damages: $629,246
Damages at large: $50,000
Punitive damages: $20,000
Total damages: 699,226
Substantial indemnity costs: $23,378.48
[33] I award prejudgment and post judgment interest at the CJA rates from the date of the claim. I ask that the plaintiff provides the calculation of the prejudgment interest and provide me with a draft order which sets out the terms of this order. The plaintiff need not obtain any approval as to form and content.
Papageorgiou J.
Released: December 14, 2020
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SOIL ENGINEERS LTD.
Plaintiff/Moving Party
– and –
ANTHONY UPPER
Defendant/Respondent
REASONS FOR JUDGMENT
Papageorgiou J.
Released: December 14, 2020