Court File and Parties

Court File No.: CV-18-00138604-0000 Date: 2021-03-03 Superior Court of Justice - Ontario

Re: 784773 Ontario Limited O/A Lowton Co-Tenancy, Plaintiff And: Michael Larkin and Larkin + Land Use Planners Inc., Defendants

Before: Justice V. Christie

Counsel: Neil G. Wilson, Counsel, for the Plaintiff D. Gordon Bent, Counsel, for the Defendants

Heard: In Writing

Endorsement

[1] The Plaintiff has brought this motion, pursuant to Rule 51.06 of the Rules of Civil Procedure, for partial judgment in the amount of $1,038,616, admitted being owed by the Defendants. Further, the Plaintiff seeks other ancillary relief, including a declaration that this judgment survives bankruptcy, substantial indemnity costs, and directions with respect to the hearing of the Plaintiff’s motion for summary judgment with respect to the remaining amounts owing.

[2] The Plaintiff, 784773 Ontario Ltd., is a land development company. Beginning in 1995, the Plaintiff, together with other developers, retained the Defendants, Michael Larkin and his firm, to act as a trustee with respect to a cost sharing agreement between them for the development of lands into residential subdivisions in Newmarket, Ontario.

[3] This action concerns money misappropriated by the Defendants while acting as trustees from 1995 to 2018. Mr. Larkin and his firm were to be compensated for their services as a trustee by providing invoices for work completed. In their role as trustees, the Defendants collected funds from the parties to the cost sharing agreement and were expected to apply the funds to shared development costs. It was agreed that the trustee would issue calls for funds for community costs owing by the landowners under the agreement, collect the funds from the landowners, and disburse the funds to the various suppliers to whom money was owing. Nearing the conclusion of the development, in 2017, discrepancies in the accounting provided by the Defendants were discovered and it was ultimately determined that the Defendants had misappropriated funds from the Plaintiff. It would appear that Mr. Larkin misappropriated the funds by taking money received in excess of the calls for funds he issued, and transferred money from the group’s bank account, which he controlled, to his own personal and business bank accounts.

[4] At examinations for discovery, on January 16, 2020, the Defendant admitted that he took funds from the Plaintiff that he had no legal entitlement to, and that he used those funds to pay operating expenses of his company. The Defendants undertook to provide their calculations of the total funds taken, and in their answers to undertakings on February 6, 2020, calculated the amount owning as $1,038,616. The Plaintiff’s position is that there is in fact $3,571,422 owing.

[5] Following the examinations for discovery, Mr. Larkin consented to a CPL being registered against his home in Newmarket. The Plaintiff obtained an order granting leave to register the CPL.

[6] The Plaintiff brought a motion for summary judgment, which was served on July 13, 2020. The Defendants have not yet served responding materials.

[7] On this motion, the Plaintiff requests partial judgment for the amount admitted to be owing by the Defendants.

[8] The Defendants do not oppose partial judgment in the amount of $1,038,616.

[9] There is no question that judgment is available to the Plaintiff based on admissions made at the examination for discovery and in answers to undertakings. There is most certainly no genuine issue requiring a trial on this point and the amount has been admitted to be owing by Mr. Larkin.

[10] Rule 51.06 (1) of the Rules of Civil Procedure provides:

51.06 (1) Where an admission of the truth of a fact or the authenticity of a document is made, (a) in an affidavit filed by a party; (b) in the examination for discovery of a party or a person examined for discovery on behalf of a party; or (c) by a party on any other examination under oath or affirmation in or out of court, any party may make a motion to a judge in the same or another proceeding for such order as the party may be entitled to on the admission without waiting for the determination of any other question between the parties, and the judge may make such order as is just. R.R.O. 1990, Reg. 194, r. 51.06 (1).

[11] Partial judgment is available regardless of whether such an order would shorten the trial. Ford Motor Co. of Canada v. Ontario Municipal Employees Board

[12] A partial judgment may be granted on admissions made by a Defendant even where the total amount of damages is in dispute. In 8150184 Canada Corporation v. Rotisseries, 2014 ONSC 815, Justice Mew summarized the principles which the court should consider at para 5:

[5] The following principles have been held to be applicable to a motion such as this: a. The admission must be clear and definite; b. The admission must be of such facts as show the party is clearly entitled to the order asked for; c. The rule does not apply where there is any serious question of law to be argued; d. The rule does not apply where there is a serious question of fact outstanding; e. The motion is based on admissions and proof of facts is not permitted; f. The motion should be granted only on a clear case and much care must be taken not to take away the right of trial on viva voce evidence; g. To succeed, the moving party must show that there is a clear admission on the face of which it is impossible for the defendants to succeed.

See also: Starkman v. Home Trust Company, 2015 ONSC 1718, at para 34

[13] In the case at bar, the Defendants have admitted the following facts: a. Mr. Larkin and his firm were acting as a trustee; b. The obligation of Mr. Larkin and his firm as trustee was to request funds from the owners to cover shared community expenses, collect the funds, and to distribute the funds to cover the shared expenses; c. While acting as a trustee, Mr. Larkin took money that he had no entitlement to; d. Mr. Larkin admits owing $1,038,616.

[14] The admissions are clear and definite. There is no serious question of law to be argued and no serious question of fact. It is impossible for the Defendants to succeed in the face of the admissions. Partial judgment is granted to the Plaintiff in the amount of $1,038,616.

[15] The Plaintiff further argues that they are entitled to pre-judgment interest, initially stating that this was from January 31, 2012 to the date of this judgment at the rate of 1.8%. However, the Defendant argued, and the Plaintiff now agrees that pre-judgment interest should be from the date the funds were removed from the Group Account and put in the Larkin accounts rather than from the date the overpayments were made. The 2012 overpayment was made on January 24, 2012. During the remainder of 2012, $429,902 was moved to the Larkin accounts and during 2013, $615,611 was moved to the Larkin accounts. As such, pre-judgment interest should be awarded on $429,902 from January 1, 2013 and on $608,714 (the balance of the amount admitted to be owed) from January 1, 2014.

[16] The Plaintiff also argues that they are entitled to a declaration that the debt survives bankruptcy.

[17] Section 178(1)(d) of the Bankruptcy and Insolvency Act provides:

178(1) An order of discharge does not release the bankrupt from… (d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity;

[18] As discussed in Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, at para 48:

[48] The purpose of s. 178(1)(d) is to prevent a debtor from avoiding liabilities where the party was entrusted with the money or property of a creditor and, in breach of a fiduciary duty, misappropriated or converted the funds: Simone v. Daley, at p. 522.

[19] A declaration may be granted under s. 178(1)(d) even though a debtor has not declared bankruptcy. See: Sunwell Investments v. Cheung, 2013 ONSC 483; University Plumbing v. Solstice Two Limited, 2019 ONSC 2242 at para 23

[20] On the other hand, other cases have suggested that such an order should not be granted in advance of an actual bankruptcy, on the basis that such an order would be hypothetical: See B2B Bank v. Batson, 2014 ONSC 6105. However, alternatively in such a case, the courts have granted a declaration that the debt arises from “fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity”.

[21] In this case, there is no question that:

1. The Plaintiff is owed a debt by the Defendants;
2. The debt arose out of fraud, embezzlement, misappropriation or defalcation in that the Defendants took funds belonging to the Plaintiff for their own use; and
3. These actions occurred while the defendants were acting as trustee, in other words, in a fiduciary capacity.

[22] However, at this point, bankruptcy is hypothetical. The Plaintiff will be entitled to rely on s. 178(1)(d) of the Bankruptcy and Insolvency Act at the appropriate time. Having said that, this court does find it appropriate to make a declaration that the debt owing under this judgment arose out of fraud, embezzlement, misappropriation or defalcation that occurred while the Defendants were acting in a fiduciary capacity.

[23] With respect to costs, this would be an appropriate case for substantial indemnity costs. Costs have been awarded on a substantial indemnity basis in other cases involving misappropriated funds. See: Thibault v. The Empire Life Insurance Company, 2012 ONSC 5387 at para 166; 6071376 Canada Inc. v. 3966305 Canada Inc., 2019 ONSC 3947 at para 69. Having said that, the Defendants appear to have been very forthright at the examination for discovery, admitting their wrongdoing and undertaking to provide accounting of same, which was subsequently done.

[24] Having considered the cost outline provided and a fair and reasonable award in the circumstances, this court orders that costs be paid on a partial indemnity basis as reflected in the cost outline, in the amount of $33,302.07. These costs include all time for the action up to January 30, 2020, plus costs of this motion. The costs for the main summary judgment motion, previous motions, and the costs of PWC accountants have not been included.

[25] As for a timetable for the Plaintiff’s summary judgment motion, it is view of this court that the motion should be scheduled. The materials were served in July 2020 and no steps have been taken to release fees for the defence of this matter, even though still contemplated by the Defendants. There is no benefit to requiring another motion to deal with scheduling and this will only serve to create further unnecessary expense in this case.

[26] The Defendants will have until June 4, 2021 to provide responding materials. After responding material are served and filed, the parties should fix the earliest date possible for this hearing through the trial coordinator.

V. Christie Date: March 3, 2021