COURT FILE NO.: CV-18-2904

DATE: 20201211

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Canadian Imperial Bank of Commerce

Plaintiff

Ron Aisenberg, for the Plaintiff

– and –

Donald Desrochers, also known as Don Desrochers and We Care Community Living Centres Ltd.

Defendants

Paul Robson, for the Defendants

HEARD: December 3, 2020

REASONS FOR JUDGMENT

J.M. Woollcombe J.

Introduction

[1] The plaintiff, Canadian Imperial Bank of Commerce (“CIBC”) moves for summary judgment on the basis that there is no genuine issue for trial.

[2] It is the plaintiff’s position that on March 29, 2017, the individual defendant, Donald Desrochers, improperly withdrew $45,000 from the CIBC account of Concept Loft Ltd (“Concept”), a company for which he was an officer and director. The withdrawal is said to be improper because the defendant knew that withdrawal of funds from that account required the signatures of two of its three officers. After making the cash withdrawal, Mr. Desrochers bought a bank draft for $45,000 payable to We Care Community Operating Ltd. (“We Care”), a business for which he was the sole principal and directing mind.

[3] On September 7, 2017, CIBC credited the Concept account with $45,000 because it had permitted the withdrawal by Mr. Desrochers alone, rather than insisting on two signatures, as was required under its Agreement with Concept. CIBC then requested that Mr. Desrochers reimburse it for the $45,000. He has not done so.

[4] On July 12, 2018, CIBC issued a statement of claim against the defendants. The plaintiff claims: $45,000 plus pre-judgment interest pursuant to the Courts of Justice Act, punitive damages and costs of the action.

[5] The defendants have filed their statement of defence.

The Pleadings

[6] The plaintiff pleads that the defendants knew about the September 9, 2016 “Business Account Application and Agreement” (the “Agreement”) between Concept and the CIBC that required Concept to provide signatures of two of its three officers to make withdrawals or write cheques. It pleads that the defendants intended to and did procure a breach of the Agreement.

[7] CIBC pleads that it mistakenly permitted the withdrawal of the $45,000 from the Concept account by requiring only one signature, and that it is entitled to restitution because it has returned the $45,000 to Concept.

[8] The plaintiff pleads three theories of liability:

i) Unjust enrichment. The basis for this is that due to a mistake of fact by CIBC, We Care and Mr. Desrochers were unjustly enriched, for no juristic reason, at the expense of CIBC, and are thus liable to CIBC.

ii) Fraud. The basis for this pleaded is that Mr. Desrochers knew he was not permitted to withdraw the money with one signature and did so and took the money. He defrauded Concept and knew or should have known that injury to CIBC would follow.

iii) Conspiracy: Mr. Desrochers and We Care acted in combination or in concert in the purchase of the bank draft payable to We Care.

[9] The defendants filed a statement of claim dated November 29, 2019. In it, the defendants admit to many of the facts.

[10] The defendants plead that they did not intend to procure a breach of the Agreement between CIBC and Contact and that the plaintiff had been ignoring that two-signature requirement for several years. Further, it is pleaded that any action for inducing the breach of contract would rest with Concept, and that the plaintiff has no standing to pursue the claim.

[11] In respect of the plaintiff’s mistake of fact claim, the defendants plead that the plaintiffs cannot rely on this doctrine because We Care was in fact owed $45,000 by Concept.

[12] With respect to unjust enrichment, the defendants plead that We Care was entitled to the $45,000 it received and that it was not unjustly enriched. While the plaintiff has suffered a deprivation, the defendants plead that it was not as a result of their conduct. Rather, it was because of the plaintiff’s negligence in indemnifying Concept and because of fraud on the part of Concept, which failed to inform CIBC that the $45,000 was properly the property of We Care.

[13] In respect of the plaintiff’s fraud claim, the defendants deny having engaged in fraud.

[14] In respect of the plaintiff’s conspiracy claim, the defendants plead that they did not engage in fraudulent conduct or induce a breach of the Agreement or a conspiracy.

Legal Principles

[15] The law applicable on a summary judgment motion is set out in Rule 20 of the Rules of Civil Procedure. Significantly, Rule 20.02(2) makes clear that in response to an affidavit 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 for trial”.

[16] In accordance with Rule 20.04, summary judgment shall be granted if the court is satisfied that there is no genuine issue requiring a trial. In deciding this, the court is to consider the evidence submitted by the parties and may, unless it is in the interest of justice for such powers to be exercised only at trial:

Weigh the evidence

Evaluate the credibility of a deponent

Draw any reasonable inference from the evidence.

[17] In Hryniak v. Maudlin, 2014 SCC 7, the Supreme Court of Canada set out the principles applicable to when summary judgment may be granted on the basis that there is “no genuine issue requiring a trial” at para. 49:

There will be no genuine issue requiring 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.

[18] The most important question is whether a summary judgment motion will provide a "fair process and just adjudication". The court went on to say, at para. 50, that "the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute".

[19] The Court also set out the approach to be taken on a summary judgment motion. The motion judge:

…should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-findings powers. There will be no genuine issue requiring 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).

[20] If there is no genuine issue for trial the motion should be granted. If there is a genuine issue requiring a trial then the motion judge is to assess whether a trial can be avoided by using the powers under Rules 20.04 (2.1) and (2.2).

[21] On a summary judgment motion, the court is entitled to assume that the parties have presented all of the evidence that will be available for trial. A party responding to a summary judgment motion may not rest on allegations contained in pleadings and must provide admissible evidence of specific facts showing that there is a genuine issue requiring a trial. As is often said, responding parties must “put their best foot forward” and “lead trump or risk losing”.

Positions of the parties on the summary judgment motion

[22] The plaintiff’s notice of motion and motion record were served on counsel for the defendants on June 25, 2020. The motion record includes an affidavit and attached exhibits as well as a copy of the pleadings. The plaintiff’s factum was served on the defendants’ counsel by email on September 24, 2020.

[23] Counsel for the defendants failed to file a factum or any written material responding to the motion. Although permitted to seek an adjournment to comply with the Rules, which require a factum, Mr. Robson chose not to. He indicated that he was opposing the motion and wished to make oral submissions. Mr. Aisenberg did not oppose Mr. Robson being permitted to make oral submissions and I permitted him to do so.

[24] As I understand Mr. Robson’s position, it is that he relies on what he refers to as “basic principles of negotiable instruments”. He says that the plaintiff’s material does not show that Mr. Desrochers was the endorser of the documents and so no liability can attach to him. He says that there is an issue as to how he withdrew the $45,000. He also says that there is no evidence that Mr. Desrochers was not acting on behalf of Concept when he withdrew the $45,000, and that the correct payee was Concept. He also submits that there is no evidence that Mr. Desrochers knew he was in violation of the rule that required two signatures. He further submits that there was a course of conduct where only one signatory was required for the Concept account. He says that there is no basis to attach liability to Mr. Desrochers or to We Care.

Analysis

[25] When asked about the absence of any affidavit evidence to support the defendant’s position, Mr. Robson, relying on Healthy Lifestyle Medical Group Inc. v. Chand Morningside Plaza Inc., 2019 ONCA 6, asserted that he is entitled to rely on the claims made in the statement of defence. I do not read that decision as changing the principles articulated in the Rules and the jurisprudence respecting summary judgment motions. I recognize that in that case, the Court of Appeal gave effect to the appellants’ argument that they had, in fact, pleaded a defence that the motions court judge found had not been pleaded. The Court stated, at para. 7, that when considering whether a pleading discloses a reasonable defence, “a court is obliged to read the pleading generously to allow for drafting deficiencies, and if the defence has some chance of success, it must be permitted to proceed. A statement of defence is required to contain the material facts on which a party will rely.”

[26] However, two points are worth noting. First, it is clear that the appellant had, in fact, filed an affidavit supporting his position in that case. The issue on appeal was not whether there was evidence to support a defence, it was whether a meritorious defence had been pleaded or not. That distinguishes it from this case. Second, the decision does not purport to overrule the Rules of Civil Procedure, which make clear that affidavit evidence is required to support factual assertions made in the pleadings.

[27] In my view, summary judgment should be granted in favour of the plaintiff because there is no issue warranting a trial.

[28] I will address, first, the defendants’ position that this case is about basic principles respecting negotiable instruments, a position that I reject.

[29] First, the defendants have not pleaded anything about the principles of negotiable instruments. They plead that Concept owed the $45,000 to We Care, that Mr. Desrochers had no intention to breach the Agreement and that the plaintiff wrongly reimbursed Concept, meaning that its claim is against Concept and not the defendants.

[30] Second, given the admissions made in the statement of defence, I do not see any basis for the defence advanced by Mr. Robson being viable. In the statement of defence, the defendants admit the critical facts upon which the plaintiff relies.

[31] More specifically, the defendants acknowledge that Mr. Desrochers went to CIBC on March 29, 2017 and withdrew $45,000 from the Concept account. They admit paragraph 13 of the statement of claim, which asserts that Mr. Desrochers signed the withdrawal slip, that the withdrawal was by Mr. Desrochers alone, and that it was used for the purchase of the bank draft payable to We Care. The defendants further admit the content of paragraph 15 of the statement of claim, which is that Mr. Desrochers knew of the Agreement between Concept and CIBC that two of three officers were required to sign this sort of withdrawal. In these circumstances, particularly in the absence of an affidavit from Mr. Desrochers respecting these admissions of fact, I fail to see how any of the principles of negotiable instruments upon which Mr. Robson seeks to rely are relevant or advance any argument warranting a trial.

[32] The defendants assert in the statement of defence that CIBC should not have indemnified Concept because Concept had no right to the $45,000, and that the money was properly withdrawn to pay We Care for work it had done for Concept, as is alleged to be supported by an invoice (that has not been provided). As a result, the defendants says the plaintiff cannot rely on the mistake of fact doctrine. I do not accept this as a basis to deny CIBC’s claim of unjust enrichment based on mistake of fact.

[33] The law respecting mistake in fact in payment was set out by the Supreme Court of Canada in B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, 2009 SCC 15 at paras. 20-22:

[20] In Bank and Customer Law in Canada (2007), M. H. Ogilvie writes (at p. 284):

[B]anks make payments by mistake for a variety of reasons, including simple error, either personal or by computer, in making a payment more than once, payment over an effective countermand, payment where there are insufficient funds, or payment of a forged or unauthorized cheque. Prima facie, in these situations, with the exception of insufficient funds which is treated as an overdraft, the bank is liable to reimburse the customer’s account because it is in breach of contract with the customer. But the bank is also permitted to look to the recipient of the mistaken payment for restitution of the sum paid under a mistake of fact.

[21] That a bank has a right to recover from a recipient a payment made under a mistake of fact was made clear in a restatement of the law by Goff J. (as he then was) in Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd., [1979] 3 All E.R. 522 (Q.B.), at p. 541. Canadian courts have long recognized that right on the basis of the analytical framework adopted in Royal Bank v. The King, 1931 CanLII 304 (MB QB), [1931] 2 D.L.R. 685 (Man. K.B.). Since Simms, however, and I agree with this approach, many Canadian courts have relied on the English case as setting the conditions for recovery in restitution by a bank, subject to Canadian law with respect to change of position, an issue that will be discussed below: Royal Bank of Canada v. LVG Auctions Ltd. (1983), 1984 CanLII 1921 (ON CA), 43 O.R. (2d) 582 (H.C.J.), aff’d (1984), 1984 CanLII 3074 (ON CA), 12 D.L.R. (4th) 768 (Ont. C.A.); Toronto-Dominion Bank v. Pella/Hunt Corp. (1992), 1992 CanLII 7429 (ON SC), 10 O.R. (3d) 634 (Gen. Div.); A.E. LePage Real Estate Services Ltd. v. Rattray Publications (1994), 1994 CanLII 1506 (ON CA), 120 D.L.R. (4th) 499 (Ont. C.A.), at p. 507: “Barclays Bank v. Simms is the accepted authority explaining the obligations of a bank to its customer and its redress against the payee of a cheque who appears to be taking advantage of an innocent mistake on the part of a bank employee”; Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp. (1994), 1994 CanLII 1429 (ON CA), 24 O.R. (3d) 506 (C.A.), at p. 512, fn. 1; Ogilvie, at p. 285; P. D. Maddaugh and J. D. McCamus, The Law of Restitution (loose‑leaf), at p. 10‑32.

[22] The test laid down in Simms for recovering money paid under a mistake of fact (at p. 535) is straightforward:

1. If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact.

2. His claim may however fail if: (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; (c) the payee has changed his position in good faith, or is deemed in law to have done so.

[34] As was explained by Chapnik J. in The Royal Bank of Scotland PLC v. Oblak, 2013 ONSC 4376 (“Oblak”) at para. 7, recovery of funds that were paid because of a mistake in fact is rooted in the principles of unjust enrichment. It thus requires a showing of a benefit to the defendant, a corresponding deprivation to the plaintiff and the absence of a juristic reason for the enrichment. The claim will not succeed if: :

1. The plaintiff intended the defendant to have the mistaken payment;

2. The plaintiff made the payment for good considerations; or

3. The defendant changed his position in good faith, or is deemed in law to have done so.

[35] In her decision, Chapnik J., relying on Garland v. Consumer’s Case Co., 2004 SCC 25, at paras. 63-64, noted that the rationale for the “change of position” defence is that where an innocent defendant has so changed his position that he will suffer an injustice if required to repay, the injustice of requiring repayment outweighs the injustice of denying the plaintiff restitution. She also made clear that there are limited circumstances in which the defence of change of position is made out. She held, at paras. 9-10:

[9] It is well established that the defence of change of position is not made out if the defendant knew or ought to have known he was not entitled to the funds; that is, if the change of circumstances occurs after the defendant has knowledge of the mistaken facts. The defendant must be, in effect, an “innocent recipient of the excess funds” (RBC Direct Investing Inc. v. Khan, 2010 ONSC 3100, [2010] O.J. No. 2241, at paras. 21-22).

[10] As noted in National Trust Co. v. Newmaster (2003), 2003 CanLII 64233 (ON SC), 67 O.R. (3d) 310 (S.C.), at para. 25:

In the “bank error” cases, the circumstances are rare indeed: the recipient must be “innocent” in the sense of not realizing that she had actually been a “recipient” at all …

[36] I agree with the plaintiff that in this case, given the acknowledgment in the pleadings that he knew of the requirement for two signatures, and knowingly chose to withdraw the $45,000 with one only signature, Mr. Desrochers cannot be said to be an innocent recipient of the funds. To the contrary, he knew, or ought to have known that he was not entitled to withdraw the funds on his own.

[37] The next question is what is the significance of the fact the defendants’ assertion that the money was owed to We Care by Concept and thus that CIBC’s claim is against Concept.

[38] The first difficulty with this assertion is that while it is pleaded, there is no evidence before me to support it.

[39] But, even assuming that there was evidence to support the defendants’ position, this factual situation is very similar to that considered in Oblak. In that case, the plaintiff bank mistakenly wired the funds at issue twice. Mr. Oblak received both payments, but claimed that he had dispersed the funds not knowing that they had been sent in error and thus, because he had received no benefit from them, was not legally responsible for their repayment.

[40] In granting summary judgment against the defendant, Chapnik J. noted that the defendant knew he was not entitled to the payment and that the money sent to him mistakenly had conferred a benefit on him, albeit for a short time, to the detriment of the bank. She summarized the position advanced by Mr. Oblak at paras. 3-5:

[3] Oblak contends that he acted as a trustee only, by receiving funds and disbursing them on the instructions of the defendant, Hamilton; and that he disbursed the impugned funds without knowing that they were sent in error.

[4] Moreover, he received no benefit from them. Accordingly, he is not legally responsible for the repayment of the funds.

[5] According to the plaintiff, the defendant, Oblak, did receive a “benefit” arising from the receipt of the mistaken funds. As well, he disbursed the funds knowing they were sent to him in error. In the circumstances, there is no genuine issue for trial.

[41] Yet, Chapnik J. rejected this position and concluded, at paras. 23-29:

[23] The monies mistakenly sent to Oblak’s account were, in my view, a benefit which enriched him for a short time, and which must be restored to the plaintiff. As noted in Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 38, “the benefit need not be retained permanently”.

[24] Given the type of goods purchased and the lack of disclosure by the defendant, I do not accept his submission that he acted only as a “bare trustee” for Hamilton. He has not satisfied the onus of showing he was an innocent recipient of the funds who changed his position in good faith without knowledge of the error.

[25] I find that Oblak knew or ought to have known the second payment was a mistake, but spent the monies anyway. In such a case, he cannot rely on materially changed circumstances to claim he should not be compelled to return the funds.

[26] The defendant has not put his best foot forward.

[27] The plaintiff has a right to recover the payment made under mistake of fact and the defendant has not established any juristic reason to deny the plaintiff recovery. I find he has not changed his position in good faith and he is not an innocent recipient of the funds within the meaning of the case law.

[28] It would therefore, not be inequitable to require the benefits be returned to the plaintiff.

[29] This court is able to gain a “full appreciation” of the evidence and issues in order to make dispositive findings in this case within the meaning of Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, [2011] O.J. No. 5431, at para. 50. I am satisfied there is no genuine issue requiring a trial for its resolution. Accordingly, the plaintiff is entitled to summary judgment against the defendant Oblak pursuant to rule 20.04(2) for the mistaken payment in the sum of $99,975 plus prejudgment and post-judgment interest in accordance with the Courts of Justice Act.

[42] In my view, the same reasoning applies to this case. CIBC made a mistake and has a prime facie entitlement to recovery of the funds. Mr. Desrochers knew he was not entitled to obtain the $45,000 in the manner that he did from the Contact account. He knew or ought to have known that he was not an innocent recipient of the funds. While he only had the funds for a short time, before transferring them into an account of a corporation for which he was the directing mind, sole officer, director and shareholder, he was enriched. The transfer continued that enrichment as the money went to his corporation, We Care. The plaintiff has been deprived because it reimbursed Concept. There is no juristic reason for this enrichment. Mr. Desrochers cannot successfully claim the defence of having been an innocent recipient of the funds who changed his position in good faith without knowledge of the error. It follows that, in accordance with the law respecting mistake of fact and the principles of unjust enrichment, that the plaintiff’s claim must succeed. There is no genuine issue for trial and the plaintiff is entitled to summary judgment.

[43] The plaintiff’s calculation of the amount owing as of December 3, 2020 was $45,000 plus interest of 1.5 % for 1183 days, resulting in interest of $ 2,187.74. As of December 11, 2020, it is 1191 days and so $2,202.53. The total judgment, therefore, is for $47,202.53.

[44] As a result of this conclusion, I need not address the plaintiff’s alternative basis for liability of fraud, conspiracy and oppression.

Punitive Damage

[45] The plaintiff seeks punitive damages. In its factum, CIBC sought punitive damages of $20,000. In oral submissions, counsel suggested that $15,000 was an appropriate figure.

[46] Punitive damages are warranted when compensatory damages are inadequate to accomplish the objectives of retribution, deterrence and condemnation. The overriding principle in setting an award of punitive damages is proportionality. Proportionality is related to the blameworthiness of the defendants’ conduct, the degree of vulnerability of the plaintiff the harm or potential harm directed at the plaintiff, the need for deterrence other penalties paid by the defendants and the advantage wrongfully gained by the defendant: Pate Estate v. Galway-Cavendish and Harvey (Township), 2013 ONCA 669 at paras. 95, 101, 211-239.

[47] I am not persuaded that this is a proper case in which to award punitive damages. CIBC mistakenly permitted Mr. Desrochers to withdraw money he should not have been able to withdraw without another officer’s signature. I accept that there is no issue, on the basis of the facts admitted in the statement of defence, that Mr. Desrochers was aware of the Agreement between Concept and the plaintiff that two officer’s signatures were required for the withdrawal. I also accept that Mr. Desrochers knowingly used the money he was not entitled to withdraw to benefit himself, aware that CIBC would compensate Concept for his improper withdrawal. On this basis, there is no issue for trial regarding the plaintiff’s unjust enrichment claim and I granted summary judgment. But that does not, in my view, provide a basis for an award of punitive damages, in addition to the appropriate compensation, in favour of the bank.

[48] Accordingly, I dismiss the plaintiff’s claim for punitive damages.

Costs

[49] At the conclusion of the oral hearing, counsel for the plaintiff indicated that if the plaintiff were to be granted summary judgment, it seeks costs. Were punitive damages to be granted, the plaintiff, would seek costs on a partial indemnity basis. Were punitive damages not awarded, the plaintiff would seek costs on a substantial indemnity basis. Counsel reminds me that the defendants did not file a factum, as required by the rules, and failed to respond to his confirmation of hearing notice.

[50] The plaintiff’s bill of costs has been provided. It sets out costs of $12,819.08 total, inclusive of HST, on a partial indemnity basis. This represents 26 hours of time on the action and motion. Counsel seeks an additional $3,000 plus HST if costs are awarded on a substantial indemnity basis.

[51] While the plaintiff is entitled to costs, and counsel indicated that he had nothing further to say beyond what was said at the oral hearing and in his bill of costs, the defendants have not had an opportunity to make responding submissions on the issue of costs. Accordingly, before ordering costs, the defendants may make brief written submissions of not more than three pages double-spaced, in addition to any bill of costs and case law. These are to be served and filed within seven days of the release of this decision, failing which I shall decide costs without their input. The plaintiff will have one week after receiving the defendants’ costs submissions to reply, in not more than one page.

Woollcombe J.

Released: December 11, 2020