CITATION: Canadian National Railway Company v. Holmes et al., 2022 ONSC 1682 COURT FILE NO.: CV-08-7670-00CL DATE: 2022-03-17

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Monique J. Jilesen, Rebecca Jones, Brendan F. Morrison, Jennifer Power, for the Plaintiff

CANADIAN NATIONAL RAILWAY COMPANY

Applicant

– and –

SCOTT PAUL HOLMES, JENNIFER LYNN PARISIEN, also known as JENNIFER LYNN FLYNN in her personal capacity and as the sole proprietor and operating as EFFICIENT CONSTRUCTION, JANICE SHIRLEY MAUREEN HOLMES, MURRAY FUSSIE, SCOTT ALBERT POLE, RICK SOUSA, in his personal capacity and operating as TRAX UNLIMITED, MICHAEL SOUSA, in his personal capacity and operating as TRAX UNLIMITED, JULIE SOUSA, 2035113 ONTARIO LTD., COMPLETE EXCAVATING LTD., MONTEREY CONSULTING & CONSTRUCTION LTD., 2071438 ONTARIO LTD., operating as COMPLETE TRAX, 2071442 ONTARIO LTD., THE SCOTT HOLMES LIVING TRUST, THE JENNIFER LYNN FLYNN LIVING TRUST, GREYSLONE LTD. and BELVIEW MANAGEMENT LTD.

Respondents

John Kingman Phillips, Marc A. Munro, for Scott Holmes, Jennifer Lynn Flynn, Complete Excavating Ltd., Efficient Construction, 2035113 Ontario Ltd., Monterey Consulting & Construction Ltd., 2071442 Ontario Ltd., the Scott Holmes Living Trust, and the Jennifer Lynn Flynn Living Trust

Eric S. Block, Christine Wadsworth, for certain CN Police individuals

HEARD: May 19-21, 25-28, 31; June 1-4, 7-9, June 14-18, 21-26, August 5-6, 2021

KOEHNEN J.

PUBLIC REASONS FOR JUDGMENT

Overview

[1] In June 2008, Canadian National Railway Company’s (“CN”) Chief Executive Officer received an anonymous, undated letter advising CN that Scott Holmes was causing it to contract with companies of which he was the beneficial owner. CN investigated and interviewed Holmes as part of that investigation. As a result of that interview, CN terminated Holmes’ employment on July 9, 2008. It commenced this action shortly thereafter.

[2] In this action, CN claims $12,476,703 plus punitive damages of $1,000,000 against Holmes, Jennifer Lynn Flynn, Complete Excavating Ltd., Efficient Construction, 2035113 Ontario Ltd., Monterey Consulting & Construction Ltd., 2071442 Ontario Ltd., the Scott Holmes Living Trust, and the Jennifer Lynn Flynn Living Trust (collectively, “the defendants”).[^1] It also seeks judgment against Scott Pole.

[3] The action is rooted in the conduct of Holmes. Holmes had authority within CN to hire contractors and approve invoices. Unbeknownst to CN, Holmes created several corporations of which he was the beneficial shareholder and caused CN to hire them. CN alleges that: (1) in many cases, the work for which the Holmes Companies billed could have been obtained at a lower rate elsewhere; (2) the Holmes Companies billed CN for work that was never done (“phantom billing”); and (3) that Holmes took scrap rail owned by CN and sold it for his personal benefit through one of his corporations.

[4] CN also alleges that Holmes diverted the benefits of the scheme to the Scott Holmes Living Trust, Jennifer Flynn (his common law spouse), and the Jennifer Lynn Flynn Living Trust.

[5] CN claims compensation for breach of fiduciary duty, deceit, breach of contract, breach of confidence, conspiracy, and conversion. In addition to monetary relief, CN seeks accounting and tracing remedies and the imposition of a constructive trust in favour of CN over the property of Holmes, Flynn, and their personal trusts.

[6] Holmes admits that he incorporated several companies, caused CN to hire those companies, and approved invoices in their favour. Holmes denies the phantom billing and conversion allegations.

[7] Holmes submits that CN has failed to establish compensable harm because he says his companies charged CN less than other companies would have. The absence of damage, Holmes submits, must lead to the dismissal of the claims because they require damage as a constituent component.

[8] In addition, Holmes submits that disgorgement is a discretionary remedy which should be denied here because CN ran a lengthy, wasteful receivership of his affairs, which cost over $7,000,000 and which dissipated essentially all of his and Flynn’s assets. Holmes argues that whether his invoices to CN amounted to a breach of duty entitling CN to disgorgement could have been addressed as a simple legal issue that would have avoided what he describes as a 13 year war of attrition.

[9] While I agree with Holmes that the receivership took far more time and money than it should have, I attribute that to a pattern of obstruction and deceit by him and Flynn throughout the process.

[10] For the reasons set out below, I find the defendants Holmes, Flynn, Complete Excavating Ltd., Efficient Construction, 2035113 Ontario Ltd., Monterey Consulting & Construction Ltd., 2071442 Ontario Ltd., the Scott Holmes Living Trust, and the Jennifer Lynn Flynn Living Trust liable to disgorge to CN the amount of $10,264,237 (reflecting the profit they earned from CN).

[11] Holmes and his companies are liable to CN for breach of fiduciary duty, breach of contract, breach of confidence, and deceit.

[12] It is no answer for Holmes to say that CN suffered no damage because it would have had to pay more elsewhere for the work Holmes and his companies performed. Giving weight to that defence would allow any faithless fiduciary to assert that they were giving the beneficiary a better deal than they could get elsewhere. This defence misconceives the nature of a claim for breach of fiduciary duty. The claim is based on a breach of trust and a misrepresentation of the nature of the relationship. Courts have long recognized the need for disgorgement as the appropriate remedy for breach of fiduciary duty to deter others from similar breaches. Moreover, Holmes introduced no evidence of more expensive bids from other parties.

[13] I find Flynn liable for conspiracy. As part of the conspiracy, Flynn engaged in independently actionable conduct, namely, breach of the duty and standards of care she owed as a director of Holmes’ companies and deceit. By way of example, when she became a director and officer of Holmes’ companies, she began using her birth name, Jennifer Parisien. She signed all corporate documents as Jennifer Parisien. She did not use that name in any other aspect of her life. She signed a long string of corporate documents without, she says, knowing what she was signing. In those documents, she was attesting, among other things, to having attended meetings with various individuals who also co-signed the documents. The meetings never occurred, the signatures of her co-signatories were forged, and one co-signatory was an entirely fictitious person. Flynn knew or ought to have known that she was doing all of this as part of Holmes’ scheme to breach his duties to CN.

[14] I decline to find the defendants liable for phantom billing or conversion. Those decisions are based on inadequate disclosure by CN in its pleading and in answer to requests for particulars. Although CN was asked for particulars of these allegations during the course of the litigation, it failed to provide particulars for several years even though full particulars were in its possession. In other cases, CN buried the relatively few relevant particulars by referring generally to thousands of documents even though it knew or ought to have known that many of the documents referred to as particulars were, in fact, irrelevant to the issue in respect of which the particulars were provided.

[15] In my view, CN’s lack of disclosure impaired the defendants’ ability to defend against allegations of phantom billing and conversion. It would, in my view, result in serious unfairness in the trial process to allow those claims to continue.

[16] I decline to award judgment against Scott Pole. CN seeks both default judgment against Pole and judgment based on the evidence at trial. Default judgment is available if the facts alleged in the Statement of Claim are sufficient to support a judgment. The Statement of Claim does not contain sufficient factual allegations against Pole to warrant default judgment. Rather, the claim makes general allegations of legal conclusions against Pole. The only facts that could possibly support a judgment against Pole were those that Holmes levied at trial. As set out in the reasons below, I find that Holmes lacked credibility and am therefore not prepared to award judgment based solely on Holmes’ evidence— especially when such testimony was designed to deflect liability from Holmes onto Pole.

[17] I have structured these reasons to consider each individual cause of action in Part One followed by a discussion of remedies in Part Two.

[18] In the period leading up the trial and during the trial, I heard a number of motions that attempted to dispose of the entire claim or certain parts of it. I provided dispositive endorsements to those motions at or shortly after the conclusion of argument with reasons to follow. The grounds for those dispositions are contained in these reasons as the issues to which they relate arise.

The Key Parties

[19] CN describes itself on its website as a publicly traded transportation and logistics company with approximately 20,000 miles of railway from east to west in Canada and south from various points in Canada to the Gulf of Mexico. As of 2018, it had approximately 24,000 employees. While the number of employees between 1999 and 2008 was not in the record before me, CN was at all material times a significant public company with employees in the many thousands.

[20] Holmes joined CN as a Track Labourer as soon as he completed grade twelve in 1981. He worked his way through the ranks, becoming an Assistant Foreman, Foreman, Production Supervisor, Program Supervisor, and Track Supervisor. His base salary at CN was never greater than $94,000 (plus an annual bonus of approximately $10,000).

[21] Holmes’ first wife was Janice Holmes. Their marriage ended around 2005.

[22] In September 2005, Holmes began living with his current common law spouse, Jennifer Flynn. Flynn is also referred to in many of the documents introduced at trial as “Jennifer Lynn Parisien”. As noted earlier, Parisien was her birth name. To ensure precision, I will refer to her in these reasons by the name she used for the individual point at issue. In all cases, however, Flynn and Parisien are the same person.

[23] The Scott Holmes Living Trust and the Jennifer Lynn Flynn Living Trust are two trusts that Holmes and Flynn created to hold assets purchased with funds received from CN.

[24] Efficient Construction, Complete Excavating Ltd., and Monterey Consulting & Construction Ltd. are the three operating companies through which Holmes did business with CN (the “Holmes Companies”).[^2] Holmes is the beneficial owner of all three companies. All three billed almost exclusively to CN. They had no other customers that generated any material income. Between 1999 and 2008, the Holmes Companies billed CN $20,633,064.

[25] Scott Pole was an employee of the Holmes Companies. Pole did not defend the action and was noted in default.

[26] Michael and Rick Sousa are brothers who were the beneficial owners of Trax Unlimited and Complete Trax. They provided services to CN through these two companies. The action was settled against the Sousas and their companies in 2012.

PART ONE: INDIVIDUAL CAUSES OF ACTION

[27] CN claims relief for breach of fiduciary duty, breach of contract, breach of confidence, phantom billing, conversion, and conspiracy. I will address each cause of action in turn.

I. Fiduciary Duty Claim - The Facts

[28] CN alleges that Holmes breached his fiduciary duty by causing CN to contract with the Holmes Companies.

[29] Two preliminary issues arose with respect to the fiduciary duty claim. First, CN submitted that the claim was res judicata by virtue of an earlier decision of Justice Chiappetta. Second, an issue arose about what use, if any, could be made of materials that were prima facie privileged. The res judicata motion was heard at the end of the parties’ openings at trial. The issue about privilege was argued one week before trial on May 13, 2021. I provided dispositive results of both issues on the day they were argued with reasons to follow. Those reasons follow here in Sections A and B.

A. Is the Breach of Fiduciary Duty Claim Res Judicata?

[30] The res judicata motion arises out of a decision of Justice Chiappetta: Holmes v. Lerners LLP.[^3]

[31] The issue that Chiappetta J. had before her was an appeal from an arbitrator who had conducted a costs assessment of Holmes’ former lawyer, Don Jack. Approximately eight months after Holmes retained Jack, the two had a falling out. Holmes commenced an assessment of Jack’s accounts, which proceeded before an arbitrator.

[32] The arbitrator reduced Jack’s fees by approximately 10%. Holmes appealed and sought to have the accounts reduced to zero.

[33] During the course of the private arbitration, Jack included in the record a letter that he had written to Holmes on September 3, 2008 while he was acting as Holmes’ counsel. The letter stated, among other things:

However, the core of CN’s case is that you caused and permitted CN to carry on business with companies in which you had an ownership interest, and you did not disclose that ownership interest to them. You have confirmed to us that this core complaint of CN’s is true, and the truth of that allegation is the reason we are attempting to put you, ourselves, CN’s counsel and CN in the position where we can frankly discuss potential settlement.[^4]

[34] Jack put the letter into the record on the costs assessment to demonstrate the complexity of his retainer and, in turn, explain the relatively high costs. The letter made its way into a four-volume appeal record before Justice Chiappetta. Holmes never asked for the appeal record, or any portion of it, to be sealed.

[35] Justice Chiappetta’s decision refers to the letter and the acknowledgement of self-dealing. CN submits that an acknowledgement of self-dealing is an admission of a breach of fiduciary duty which renders either the breach of duty or, at a minimum, the self-dealing, res judicata.

[36] To successfully invoke principles of res judicata, a party must demonstrate that a question of law or fact was distinctly put in issue in a prior proceeding and was directly determined in a final judgment between the same parties or their privies in interest. In addition, the issue cannot have been raised collaterally or incidentally in the prior proceeding.[^5]

[37] On my view of events, the issue of whether Holmes caused CN to do business with the Holmes Companies without CN’s knowledge was not a question that was before Justice Chiappetta. As noted, Her Honour was hearing an appeal from an arbitrator’s decision on a costs assessment. The issue was solely whether the arbitrator had made a palpable and overriding error in settling Jack’s costs. Neither self-dealing nor breach of fiduciary duty had anything to do with whether the arbitrator made such an error. At best, the issue of self-dealing arose collaterally or incidentally on the appeal from the arbitrator’s decision.

[38] As a result, no aspect of the breach of fiduciary claim is res judicata.

B. Can “Privileged” Materials Be Entered into Evidence?

[39] The Jack letter was prima facie privileged. The appeal record included other information that was prima facie subject to solicitor client privilege. CN submits that Holmes waived any privilege over those materials by including them in a public record. Holmes submits that waiver of privilege requires a deliberate, conscious intention on the part of the client and that he had no such intention. At best, says Holmes, any waiver was inadvertent.

[40] The first issue on the motion to admit was whether I was permitted to review the Jack letter for the purposes of the motion. Holmes submitted that I was not. I ruled that I was. Courts have long been permitted to inspect documents over which privilege is claimed in order to determine whether privilege attaches.[^6] It has also been held that it is a reviewable error for a judge to rule on the issue of privilege without inspecting the documents at issue.[^7]

[41] Turning to the main issue on the motion, the legal principles are not in dispute:

(i) Confidentiality is an essential element of privilege. Without confidentiality, privilege is waived.[^8]

(ii) Privilege cannot attach to information that is already in the public domain because it lacks the element of confidentiality.[^9] When a party introduces privileged material into a public record, it effectively waives privilege.[^10]

(iii) Once privilege has been waived, it cannot be unwaived.[^11]

(iv) Inadvertent production of a privileged document does not necessarily waive privilege.[^12]

(v) Delay in reasserting privilege does not necessarily preclude privilege either. What happens during the delay is material. If, for example, documents have been used without objection after inadvertent waiver, a conclusion that privilege has been waived is more likely.[^13]

(vi) Even if the initial disclosure was inadvertent, the privilege holder must act promptly to reassert privilege.[^14] Failure to do so may support an inference that the party did not intend to maintain privilege over the documents.[^15] It is not for others to protect the privilege when the privilege holder’s conduct does not demonstrate a willingness to protect confidentiality.[^16]

(vii) The failure to take any steps to reassert privilege allows a court to infer that the privilege holder intended to waive privilege.[^17]

[42] Applying those principles to the facts here, I accept that production of the Jack letter and other privileged materials in the appeal record before Chiappetta J. was inadvertent, at least initially.

[43] There had been preliminary skirmishes in the arbitration that went to the Superior Court and the Court of Appeal. In both cases, the court files were sealed. When Holmes appealed the decision of the arbitrator, he did not ask that the court file be sealed. Holmes was represented by counsel at all times.

[44] As already noted, Chiappetta J. referred to the letter and its admission of self-dealing in her reasons. That decision has been publicly available since it was released in 2014. The letter has also been used in this action on several previous occasions. In 2014, for example, Holmes moved to set aside a Mareva injunction that CN had obtained against him. CN put the Jack letter to Holmes during his cross-examination on that motion and marked it as an exhibit without objection. The letter was filed as part of the publicly available motion materials on the set-aside motion. The letter was quoted in CN’s publicly available factum on that motion. The parties subsequently agreed that Holmes’ cross-examination on the set-aside motion would be treated as part of Holmes’ discovery evidence at trial. Holmes did not object to any of these steps. The letter was put to Holmes again during his examination for discovery in 2016. Although questions about the letter were refused at that time on the basis of privilege, Holmes took no steps in relation to the letter.

[45] Holmes says he became alive to the Jack letter when he learned that CN proposed to call Jack as a witness at trial and that his anticipated evidence included testimony about the letter. Holmes objected shortly after receiving the will say.

[46] Given the length of time since the first public disclosure of the letter, reference to it for over 7 years, the repeated use of the letter in this litigation, and Holmes’ failure to take any steps until shortly before trial, the letter has become sufficiently public to allow me to infer that privilege was waived. It would be anomalous to let the world at large have access to the gist of the letter but to single out CN and the court as the only ones denied access to it.

[47] In the circumstances set out above, it was for Holmes to protect the privilege. Having consistently failed to do so, he must live by those choices.

[48] The appeal record, however, falls into a different category. The privileged information contained in it, apart from the Jack letter, was not used on subsequent occasions in this litigation, nor was it reproduced in other public documents.

[49] Holmes and his counsel did not become alive to the issue of privileged materials in the appeal record until CN disclosed that it proposed to use them at trial. Holmes raised objections in relatively short order. In my view, there is no basis on which I can infer that Holmes intended to waive privilege over any privileged materials in the appeal record apart from the Jack letter.

[50] Although one might be able to argue in a technical sense that filing the privileged material before Justice Chiappetta without a sealing order waived privilege, I do not think that this would be an appropriate approach. It was clear that up until the hearing before Justice Chiappetta, Holmes treated the information as privileged. It was subject to two sealing orders and a private arbitration. Counsel for Holmes says that a sealing order was not obtained from Justice Chiappetta through inadvertence. I accept that as being consistent with counsel’s prior treatment of the information. Although privilege can be waived, it should not be waived by reason of an inadvertent slip that counsel moves to correct as soon as they become aware of it. I can find no basis for inferring that Holmes waived privilege over the entire four volume appeal record.

[51] As a result of the foregoing, I excluded the appeal record but admitted the Jack letter into evidence at trial.

[52] Jack confirmed the contents of the letter during his examination-in-chief. Holmes admits that he never disputed the contents of the Jack letter in writing but asserts that he raised objections verbally with Jack. That point was not put to Jack during cross-examination. I therefore accept Jack’s evidence about Holmes’ admission against interest.

[53] That said, I have placed no reliance on the admission against interest in these reasons. The admission was that Holmes caused CN to do business with the Holmes Companies without disclosing his ownership in them to CN. There was more than ample other evidence tendered at trial, including Holmes’ evidence, which allows me to draw the same conclusion without regard to the Jack letter.

C. Direction and Management of the Holmes Companies

[54] I now turn to the Holmes Companies and the manner in which Holmes came to create and operate them. I find that Holmes created and operated them in a manner that deliberately concealed his involvement from CN, that he caused CN to conduct business with the Holmes Companies, and that Holmes did not disclose his ownership interest in the Holmes Companies to CN.

[55] In 1994, Holmes became a Program Supervisor and began reporting to Wayne Dobbie, to whom he reported until 2003. As Program Supervisor, he was no longer an hourly, unionized employee, but, instead, became a salaried management employee who oversaw 14 work gangs totaling up to 400 people. In 2003 or 2004, he was promoted to Track Supervisor. By 2007, Holmes was responsible for the CN track in the Greater Toronto Area, which comprised approximately 350 miles of track. As Program and Track Supervisor, he was responsible for, among other things, enforcing CN’s policies and procedures within his team; managing and monitoring the budgets of the work he oversaw; hiring third party contractors within his area of responsibility; obtaining three quotes for any work he proposed to contract out; ensuring that work was done; and approving invoices for work within his area of responsibility.

[56] Holmes acknowledged that CN had increasing trust and confidence in him as he gained more responsibility.

i. Complete Excavating

[57] Complete Excavating was the first company to be incorporated. Upon its incorporation in December 1998, one share was issued to Holmes’ then wife, Janice Holmes, and another to Shelly Dobbie, the wife of Holmes’ supervisor, Wayne Dobbie. Its first director was David Hagar, Janice Holmes’ father. Hagar played no role in the company. According to Janice Holmes, Holmes asked her to incorporate Complete Excavating and name Hagar as a director because Holmes did not want his own name on the incorporation documents.

[58] The next director and officer was Scott Pole. Holmes describes Pole as the person who ran the day-to-day operations of Complete Excavating. He was removed as a director in 2000 when he went through a divorce.

[59] The next director was Murray Fussee. He was initially named as a defendant but was released from the action at an early stage. In addition to being listed as a director, Fussee was also listed as President and Secretary-Treasurer. Although Fussee testified that he became a director at the request of Holmes, he did not know that he was also President and Secretary-Treasurer. A long series of corporate documents bear what purports to be Fussee’s signature. He denies signing any of the documents. The signatures do not appear similar to those that Fussee identified as being his own.

[60] Holmes admitted during cross-examination that Fussee did not deal with the finances or management of Complete Excavating but that he ploughed snow and worked at the three coffee shops that Complete Excavating also owned and operated at a loss. When Holmes was confronted in cross-examination with the proposition that Fussee did not perform any role as President, he responded by asking whether there were things Fussee was supposed to have done as President. In a 2016 examination, Holmes admitted that he did not expect Fussee to oversee anything.

[61] At trial, Holmes denied forging Fussee’s signatures on any documents but said that when Fussee was unavailable, Pole signed as Fussee. In his 2016 examination, Holmes was unable to explain why documents bore false signatures of Fussee, said that he could not recall asking anyone else to sign on Fussee’s behalf, and said that he had no information about who signed Fussee’s name. Holmes explained the contradiction in his two versions by saying that he had now looked into the matter and had found additional information. He did not, however, correct his earlier evidence until being confronted with the contradiction during cross-examination.

[62] Throughout his evidence, Holmes tried to deflect responsibility for various issues onto Pole. Holmes did not call Pole as a witness. I draw an adverse inference from that. It was clear even on Holmes’ evidence that Pole was subordinate to Holmes. To the extent that Pole did sign Fussee’s signature, I infer that he did so at Holmes’ direction.

[63] Eugene Maurice was named as a director and officer as of July 4, 2008. Maurice testified at trial that he was never a director or officer and has no idea why his name was on the directors register.

[64] As of November 1, 2005, Jennifer Parisien became the Secretary of Complete Excavating. As already noted, Parisien is the birth name of Jennifer Flynn. Flynn admits that references to Parisien are in fact references to Flynn.

[65] Holmes says he was never an officer or director of Complete Excavating because he already earned income at CN and that any additional income from Complete Excavating would put him into a higher tax bracket. That explanation makes no sense given that there is no obligation to pay compensation to a director or officer.

[66] There was some debate at trial about whether the idea of incorporating Complete Excavating and using it to sell services to CN was that of Holmes or Dobbie. Holmes says that it was Dobbie’s idea. To the extent I accept that evidence, it presumably distances Holmes from the scheme and allows him to argue that he was acting on the instructions of his supervisor at CN.

[67] I find that it was Holmes’ idea to set up each of the three corporations and to use them to sell services to CN. There is no doubt on the evidence before me that Holmes was always the directing mind of the operation, not Dobbie. In addition, having reviewed and assessed the viva voce evidence of both Holmes and Dobbie, there is no doubt in my mind that Holmes was very much the more forceful, dominant personality of the two. Although Dobbie might initially have been Holmes’ supervisor, Holmes was the one in charge.

[68] At trial, Dobbie testified that it was his idea to incorporate Complete Excavating. According to Dobbie, the idea arose because CN had experienced difficulties with other contractors who, for example, were unwilling to follow CN around the province or whose employees damaged hotel rooms (damage for which CN was ultimately responsible).

[69] I do not accept Dobbie’s evidence on this point. Dobbie was examined on two earlier occasions. Those transcripts were ordered to be kept under seal by earlier court orders. I will therefore redact my discussion of that evidence from the public version of these reasons.

[70] Redacted paragraph: [...]

[71] Redacted paragraph: [...]

[72] Redacted paragraph: [...]

[73] Holmes submits that Dobbie’s evidence at trial should be preferred over his earlier evidence because his earlier evidence was tainted by the possibility of criminal charges or civil proceedings at the behest of CN. At trial, Dobbie testified that the CN police had told him that “everything would go away” if he cooperated. Holmes submits that Dobbie’s evidence at trial was free of threats and free of any motive to lie.

[74] Notwithstanding the possibility that Dobbie’s evidence before trial was tainted by self-interest, I prefer Dobbie’s pretrial evidence to his evidence at trial. Dobbie’s claim at trial that Complete Excavating was his idea does not coincide with the surrounding facts. By way of example, the first director of Complete Excavating was David Hagar, the father of Janice Holmes. Dobbie says he had no dealings with Hagar and does not know why he was named as the first director. Dobbie says he was not involved in the management of Complete Excavating, did not see its books or records, had no access to its bank accounts, made no arrangements to acquire equipment, and did not issue any invoices for Complete Excavating.

[75] According to Dobbie, he assumed that Complete Excavating was directed by Murray Fussee. Although it was supposedly Dobbie’s idea to start Complete Excavating, he never met Fussee. Dobbie also knew there was a person in the field, but did not know who was responsible for directing that person. Had Complete Excavating been his idea, it is likely that he would have had more knowledge of its affairs than he appears to have had.

ii. Efficient Construction

[76] Efficient Construction was set up as a division of Complete Excavating. I find that it was established to ensure that the income Complete Excavating earned from CN did not become so large as to attract undue attention from CN or from the union to which many CN employees belonged.

[77] Efficient Construction did not have any employees or equipment. It did, however, have a different registered address, different letterhead, different phone number, and different CN vendor number than Complete Excavating.

[78] Earlier invoices of Efficient Construction contained a P.O. box number in Simcoe, Ontario (where Holmes lives), as did the invoices of Complete Excavating (although the two companies had different box numbers). Later invoices of Efficient Construction contained a street address belonging to one of the corporations operated by Michael Sousa.[^18] Sousa never consented to having his address used in connection with Efficient Construction.

[79] According to Holmes, he set up Efficient Construction for tax reasons after his accountant suggested that he do so to stay under an income limit of $400,000 per corporation. Holmes says he only realized during the course of this litigation that Efficient Construction was not a separate corporation and was not getting the tax benefit for which it was supposedly incorporated. I find that difficult to accept. Efficient Construction earned income of $7,561,936 from CN between 2001 and 2008. Each year its income was well over $400,000. During the same period, Complete Excavating billed CN $10,875,826. Again, each year its billings to CN were well over $400,000. Each year, Holmes saw financial statements and tax returns that consolidated the income of Efficient Construction and Complete Excavating. If it was indeed accounting advice that led Holmes to set up Efficient Construction, one might have expected the accountants to notice that Complete Excavating and Efficient Construction were in fact a single corporation that was not enjoying the tax benefits the accountants had intended. Holmes did not call anyone from his accounting firm to confirm his version of events or to explain why they did not notice that the two were in fact a single corporation.

[80] Holmes had other reasons to divide income between corporations besides the purported tax advantages. One of Holmes’ business models was to hire CN employees after hours to work for his companies. Had the employees carried out that work in their capacity as CN employees, they would have been paid overtime or higher rates for shifts at certain hours. Holmes avoided that by having his own companies hire CN employees to work during their off-hours. If, however, the union became aware that an outside contractor was hiring a significant number of CN employees and was not adhering to the collective bargaining agreement, it could cause difficulties for the contractor and CN because the union would file a grievance. At one point, a grievance was in fact filed but resolved.

[81] In the foregoing circumstances, I find it more likely that Holmes created Efficient Construction to divide income between what looked like separate entities to outsiders than for tax purposes that were never achieved.

iii. Monterey Consulting & Construction

[82] Monterey was incorporated in 1999. Janice and Scott Holmes were directors of Monterey from incorporation to January 13, 2003. They also acted as President and Secretary-Treasurer until that time. As of January 13, 2003, Robert Helmer became the sole director, President and Secretary-Treasurer. Shortly after Helmer replaced Janice and Scott Holmes as officer and director of Monterey, it began doing business with CN. All of the invoices that Monterey sent to CN bear Helmer’s name as the contact person.

[83] I find that Helmer was a fictitious person whose only role was to create distance between Monterey and Holmes. Holmes was at all times the de facto officer, director, and directing mind of Monterey.

[84] In his examination-in-chief, Holmes testified that Helmer was the person from whom Holmes had bought Monterey. According to Holmes, Helmer was left on as a director after Holmes purchased the company and Helmer’s name was inadvertently left on the invoices.

[85] That version of events is contradicted by the fact that Holmes and his wife were the first officers and directors of Monterey for approximately 4 years before Helmer was listed as an officer or director. When asked in cross-examination how it was that Helmer only became a director in 2003 if Holmes had bought the company from him, Holmes answered “that’s just when he became a director I guess.” Holmes does not know if Helmer was paid to be an officer or director and does not know why Helmer would agree to become an officer or director for Holmes.

[86] Although Holmes says he bought the company from Helmer — and although Helmer was an officer and director from 2003 onward — Holmes says he never met Helmer. Rather, according to Holmes, Pole knew Helmer and “vouched for him”.

[87] The invoices that Monterey issued to CN also bear an address that turns out to be a residential address occupied by Flynn’s father. Flynn’s father maintained the house. It was also occupied from time-to-time by CN employees, who stayed there instead of a hotel. Flynn’s brother also stayed at the Monterey house sometimes.

[88] During cross-examination, Holmes admitted that Helmer did not live at the Monterey house and that Helmer would not have picked up the phone if anyone had called the number on the Monterey invoices. During an earlier cross-examination, on February 9, 2016, Holmes stated that one would have reached Helmer had one called the Monterey number. When confronted with the contradiction, Holmes replied that he could not say “for 100% sure” if one would have reached Helmer at the Monterey house. Even the possibility of reaching Helmer at the Monterey house is inconsistent with Holmes’ other explanation to the effect that Helmer’s name was inadvertently left on invoices.

[89] Although Helmer is listed as the accounts receivable representative on an Electronic Funds Transfer Registration Form[^19] that Monterey submitted to CN, Holmes admitted that no one named Helmer was involved in dealing with accounts receivable for Monterey. Holmes ultimately admitted during cross-examination that he could not provide any evidence that Helmer exists.

[90] As of November 3, 2005, Parisien became the Secretary of Monterey while Helmer continued as Treasurer. Although Parisien was an officer of Monterey at the same time as Helmer was an officer and director, and although Parisien signed documents that are also purported to have been signed by Helmer, she does not know who Helmer is.

[91] Janice Holmes testified that she had seen Holmes produce a driver’s license bearing the name Robert Helmer but with the picture of Holmes’ brother, Robert Holmes. CN notes that a fictitious driver’s license of that sort would have required the change of only two letters in Robert Holmes’ name. According to Janice Holmes, Holmes produced the driver’s license to open an investment account for Monterey. The investment advisor was unable to open the account without meeting Helmer in person. No account ever appears to have been opened in Helmer’s or Monterey’s name.

[92] Holmes takes issue with the evidence of his ex-wife, Janice. He submits that she lacks credibility because she refused to admit that their divorce was acrimonious. It does indeed appear that the divorce was acrimonious. Whether I accept Janice’s evidence about the forged driver’s license matters little. There is ample other evidence from Holmes and Flynn which leads me to conclude that Helmer was a fictitious individual whose only purpose was to distance Monterey from Holmes.

iv. 2035113 Ontario Limited

[93] 2035113 Ontario Limited (“2035113”) is a holding company that owns Complete Excavating and Monterey. As of January 1, 2004, Helmer was its President, Secretary, and Treasurer. He was also the sole director between January 2004 and April 18, 2006. On November 1, 2005, Parisien became Secretary. She became a director in April 2006. She did not know that she was a director. She ultimately became President, Secretary, and Treasurer, but did not understand what duties were involved in those positions.

[94] Holmes denies any secrecy about the officers and directors of his corporations. He notes that he was listed as the Secretary of Complete Excavating as of August 23, 2005. While that is correct, he was replaced by Parisien as Secretary on November 1, 2005. Holmes also notes that he and Janice were listed as directors of Monterey between March 10, 1999 and January 13, 2003. It is, however, in 2003 — when Monterey began invoicing CN — that both he and Janice were replaced by Helmer as the sole director. These brief appearances on publicly searchable records do not change my overall conclusion that Holmes deliberately concealed his presence from searchable public records by listing fictitious individuals, or sham directors and officers, who were nothing but fronts for himself.

D. Invoice Issues

[95] The manner in which the Holmes Companies invoiced CN strengthens my view that Holmes was knowingly breaching his fiduciary duties to CN and taking active steps to hide his breach of duty. Not only did Holmes cause CN to contract with his own companies, but he also approved those invoices on behalf of CN either directly on his own, through others on his instruction, or by approving them himself using the name of another employee. Evidence supporting the breach of fiduciary duty of this is found in the invoice approval process, the addressees of the invoices, invoice splitting, and other invoice anomalies.

i. Invoice Approval Process

[96] CN paid the Holmes Companies $20,652,122.85 worth of invoices between 1999 and 2008. According to CN’s SAP accounting records, Holmes approved $9,096,511.95 worth of those invoices and Dobbie approved another $4,792,778.32, for a total of $13,889,290.27 approved by the two of them.[^20]

[97] The true proportion of invoices approved by Holmes and Dobbie is likely higher because the SAP data convers only the years between 2001 and 2008. There is no record of who approved the invoices in 1999 and 2000 because SAP information for those years is no longer available. However, Holmes approved $1.4 million out of $1.7 million in invoices in 2001. Given the high proportion of invoices that Holmes approved during the periods for which SAP does have records, it can be reasonably inferred that Holmes also approved a substantial portion of the invoices in 1999 and 2000.

[98] Dobbie admits that when he approved invoices from the Holmes Companies, he never checked if the work had actually been done. In addition, although Dobbie stopped supervising Holmes in 2003, he continued to approve invoices in favour of the Holmes Companies for several years after that. Dobbie agreed that Holmes had his own manager who would be expected to approve his invoices. Dobbie did not know why he continued to receive Holmes’ invoices although he then added that it could be because the work was being done for a Track Supervisor in an area for which Dobbie was responsible.

[99] Although Dobbie denies it, on my view of the evidence, Dobbie continued to approve invoices for the Holmes Companies, at least in part, to create the illusion that those invoices were being approved by a broader range of CN employees than was actually the case.

[100] As of 2005, CN adopted a computerized system for inputting and preparing invoices. A clerk or subordinate would “prepare” the invoice on the computer and the person who was supposed to approve the invoice received an email indicating that an invoice or invoices were ready for approval. The approver then entered the accounting system using a personal identification number (“PIN”) to approve the invoice.

[101] Holmes testified that he provided his PIN number and password to three clerks, Shawn Tanner, Wayne Bates, and Doug Campbell. These clerks not only prepared the invoices using their own PINs and passwords, but also approved them using Holmes’ PIN and password. Tanner, Bates, and Campbell vehemently deny knowing or using Holmes’ password.

[102] Much time was spent on this issue at trial, particularly the degree to which it was common or uncommon at CN to share PINs and passwords. While it is not clear to me why Holmes spent so much time on the issue, I presume that, in Holmes’ view, if others approved invoices using his PIN, that distances him from the taint of approving invoices in favour of his own companies.

[103] In my view, Holmes is every bit as responsible for invoices that others approved using his PIN as he is for invoices he approved himself. Even on Holmes’ evidence, he gave subordinates his PIN and password in order to approve invoices on his behalf. If a superior like Holmes gives a subordinate invoices to approve in the superior’s name, the subordinate understandably assumes that the superior has actually approved the invoice and would simply like the subordinate to enter the approval as a clerical task. Holmes remains as responsible as he would have been had he done the keyboarding himself because his subordinates were acting on his direction.

[104] Holmes admits that he prepared certain invoices in favour of his own companies by using Bates’ PIN and password. When he did that, either he or Dave Roy would become the approver. During an interview with CN in July 2008, he described this as occurring over a couple of months. At trial, Holmes stated that he only used Bates’ password once for a few days in 2007. According to Bates, Holmes had offered to help him input invoices in 2004 because Bates was far behind in doing so. Bates says that he gave Holmes his PIN and password and that Holmes continued to prepare invoices for Bates until Holmes left CN in 2008.

[105] Holmes defends this by arguing that it was common practice within CN to share PINs and passwords to prepare and approve invoices for others. That provides no defence even if it was common practice. While perhaps not ideal, it is one thing to ask a colleague to approve a legitimate arm’s length invoice using your own PIN and password because you are too busy to do so yourself. It is a different thing entirely to approve an invoice in favour of a company you control by using a colleague’s PIN and password, thereby creating the illusion of effective internal controls which are aimed in part at preventing the very self-dealing in which you are engaging.

ii. Addressees of Invoices

[106] Invoices from Holmes’ companies were regularly addressed to unionized foremen.

[107] A number of witnesses testified that unionized employees could neither hire contractors nor approve invoices. The only exception to this was Dobbie, who claimed that a unionized employee could hire a contractor but could not approve the invoice. I do not accept that evidence. It is out of line with the evidence provided by Nick Nielsen, the Regional Chief of Engineering for the Eastern Region (and someone who had also previously acted as a Track Supervisor and Program Supervisor); Steve Schamehorn, a union employee to whom many Holmes company invoices were addressed; and Michael Sousa, a third-party service provider to CN who stated that he never addressed invoices to foremen because they had no approval authority. In addition, foremen like Schamehorn were usually working on track projects across the province and would not be in the office to receive the invoices.

iii. Invoice Splitting

[108] Holmes agreed that his authority to approve invoices was limited to invoices of $10,000 or less.

[109] Nielsen testified that splitting invoices to keep amounts under a supervisor’s approval authority was not permitted at CN. Nielsen also testified that both CN and its suppliers preferred to send and receive fewer invoices. As a result, suppliers would commonly send invoices to CN that covered a specific period of time even though the invoice might cover numerous projects and network codes. On receipt of an invoice with multiple project codes, the supervisor or preparer would simply allocate various items from the invoice to different project codes. I accept that evidence.

[110] The Holmes Companies did the opposite. They tended to issue invoices of $10,000 or less. Even if multiple invoices covered work on a single project on consecutive days, they would be broken down into two or more invoices if they collectively exceeded $10,000, so as to keep each invoice under $10,000.[^21]

[111] When confronted with this on cross-examination, Holmes could not explain why his companies did not send out a single invoice “because he did not prepare the invoices.” According to Holmes, Pole prepared the invoices. Holmes denies telling Pole to keep invoices under $10,000. When it was put to Holmes that he had no explanation for the multiplicity of invoices, he agreed that they could have been billed as one.

[112] I infer from this that Holmes either issued invoices or caused invoices to be issued so as to keep them under $10,000 and within his approval authority.

iv. Other Invoice Anomalies

[113] Several invoices introduced at trial showed CN retaining a Holmes Company that, in turn, contracted the work out to an arm’s length service provider. In those cases, the Holmes Company billed CN for an amount that was higher than what the Holmes’ Company had paid the arm’s length service provider.[^22] In at least one other case, Holmes had JM Construction bill CN approximately $24,000, one half of which was paid to Holmes.[^23] JM Construction was owned by Fussee. Holmes admitted that JM Construction did not do the work, but asserted that the invoice from JM Construction was prepared by Pole, not by Fussee. Holmes asserts that the work was actually performed by Complete Excavating but could not explain why Complete Excavating did not simply issue the invoice and could not explain why JM Construction was issuing the invoice. Fussee explained that he had done work on Holmes’ farm and that Holmes told him that Fussee would be receiving $24,000 from CN of which he should retain one half as payment for the work on the farm and pay the balance to Holmes.

E. Conflict of Interest Policies

[114] CN has had two published conflict of interest policies in place since at least 1986 which set out the duties of employees to CN. I find that Holmes was aware of those policies at all material times and knowingly failed to comply with them.

[115] The CN Policy Guide dated January 12, 1986 [^24] provided among other things that:

b) employees have an obligation to act in a manner that will bear the closest public scrutiny such that even apparent conflicts of interest do not arise; such obligation is not fully discharged by simply acting within the law;

c) employees shall not have private interests that would be particularly or significantly affected by CN actions in which they participate;

f) employees shall not step out of their official roles to assist private entities or persons to obtain preferential treatment in their dealings with CN;

g) employees shall not knowingly take advantage of or benefit from information that is obtained in the course of their employment duties and responsibilities and that is not available to the public[.]

[116] At trial, Holmes denied being aware of the Policy Guide. On discovery, Holmes admitted that he knew since 1994 that CN had a conflict of interest policy. The only evidence at trial of a conflict policy as of 1994 was the Policy Guide.

[117] Even assuming for the sake of argument that Holmes was not aware of the Policy Guide, Holmes agreed during cross-examination that it was reasonable of CN to expect that: (i) employees would arrange their affairs to prevent real, potential, or apparent conflicts of interest; (ii) if a conflict arose it should be resolved in favour of CN; (iii) employees would not step out of their official roles to assist private actors in obtaining preferential treatment in their dealings with CN; and (iv) employees would not take advantage of information obtained in the course of their duties that was not publicly available.

[118] In 2004, CN instituted a Code of Conduct which applied to all employees. It was mailed to employees’ homes and posted on the employee portal of CN’s website. Holmes admitted on discovery that the Code of Conduct had come to him in an email.

[119] The Code of Conduct[^25] provided, among other things, that:

When doing business, employees should always be sure to adhere to the spirit as well as letter of the law, rules, regulations and commonly accepted standards of business conduct. Ask yourself am I doing the right thing?

CN respects your right to manage your own affairs and investments. However, every employee must avoid situations where personal interests could conflict with, or even appear to conflict with, the interests of CN.

While it is not possible to detail every situation where conflicts of interest may arise, the following areas have clear potential for conflict.

Outside Interests

As CN employees, we owe our first business allegiance to CN. You must avoid outside interests that may impair or appear to impair the effective performance of your responsibilities to CN, either because of excess demands on your time or because the outside commitment could be inconsistent with your obligations to CN.

Corporate Opportunities

While you are employed by CN (and even after termination of your employment), you should never take advantage of any corporate opportunity that is available through the use of CN property, through information that is not generally available to the public or from your position at CN and you should never use such corporate property, information or position for personal gain. Similarly, you should never be in a position where you would compete against the company. You are always expected to advance the legitimate interests of CN when the opportunity to do so arises.

[120] Just to the right of the section on Corporate Opportunities in the Code of Conduct is a box with a red heading entitled, “Do’s and Don’ts”. In that section, employees are advised to disclose the facts and get advice before they act, to ask themselves if they stand to gain personally from their actions, if their actions will help or give advantage to a relative or friend, and whether they would feel uncomfortable or embarrassed with the situation if it were reported to their supervisor or senior management.

[121] Although the Code of Conduct applied to all employees, non-unionized employees like Holmes were required to confirm their adherence to the Code of Conduct annually. Confirmation occurred electronically over CN’s SAP system.

[122] The covering email accompanying the annual confirmation[^26] explained the need for an annual confirmation as follows:

One reason we’re asked to sign off annually is to ensure that we haven’t entered into new conflict of interest situations or even into the appearance of a conflict of interest. For example your spouse gets a job with a government agency that has dealings with CN. You should be up front with your supervisor about any situation that may appear to be suspicious. As well you must indicate the situation in the online “All About Me” application when you sign off.

[123] The confirmation process also included a requirement to declare any conflicts of interest. The Code of Conduct acceptance page in SAP[^27] required employees to state:

I have read and understood the Code of Conduct and agree to comply with the Code and underlying CN policies in my daily conduct of company business. If I am in a conflict of interest position, I will still comply with the Code and agree to disclose the pertinent facts in the “Comments” space below.

[124] Holmes acknowledges that he received the confirmation notice in 2008 and submitted it without declaring any conflict. He says that he did not read the 2008 confirmation notice but was advised by his secretarial assistant that it had been received and instructed her to send back a confirmation on his behalf.

[125] Holmes denies that he received any request to acknowledge the Code of Conduct between 2004 and 2007. I find that Holmes received and signed off on the Code of Conduct for those years as well.

[126] Linda Laliberte was the person at CN who had hands-on responsibility for tracking responses to the online process and following up with people who had not complied. She testified that Holmes provided an annual electronic signoff to the Code of Conduct in 2004, 2006, and 2007. No signoff was required in 2005 because the Code of Conduct was introduced in only late 2004.

[127] Laliberte testified that she went into the SAP program and extracted screen shots of Holmes’ signoffs, which were introduced at trial as Exhibits 30 and 31. They show Holmes accessing the program on given dates and accepting the Code of Conduct on those same dates in 2004, 2006, and 2007.

[128] Holmes tried to raise doubts about the reliability of Laliberte’s evidence by noting that: (1) the acknowledgement that the signatory had read and understood the Code of Conduct did not appear in the screenshots for earlier years, (2) the screenshots for earlier years showed a phone number for Holmes that he did not acquire until later, and (3) that the data in the SAP system was not static but could be altered.

[129] Laliberte explained that not all information was available for earlier years on SAP as was available for later years and that SAP extracted the most recent phone number it had for an employee and populated it into the relevant box on its forms. Others also testified at trial that SAP automatically deleted information after a certain period. In regard to concerns about the SAP system being changeable and not static, that is the case with most record keeping systems.

[130] Laliberte struck me as a credible witness. She was straightforward and candid. She was simply asked to go into the SAP system and extract information. She had no reason to do otherwise.

[131] Moreover, as noted, Laliberte was responsible for following up with people who were delinquent in responding to the annual sign off requirement. Had Holmes not signed off annually, he would have been subject to follow up which likely would have attracted attention. Undue attention is something that someone who was engaged in a multi-million dollar self-dealing scheme would want to avoid.

[132] Holmes submitted that the Code of Conduct did not apply to him and that he did not receive the annual signoff because he remained a unionized employee throughout his tenure at CN. As proof, Holmes pointed to the fact that he continued to pay union dues even as a Program and Track Supervisor. I do not accept that submission.

[133] Christine O’Neill was CN’s human resources manager for Eastern Canada between 2005 and 2013. She testified that the positions of Program Supervisor and Track Supervisor were non-unionized positions. A number of other witnesses testified to the effect that former union employees who were promoted to management positions could choose to keep paying union dues even though they were now in management. Doing so allowed them to maintain their seniority within the union if they ever returned to a unionized position. Continuing to pay union dues did not, however, make them unionized employees. I accept that evidence.

[134] Moreover, Holmes did not explain why he received a conflict sign off in 2008 if the Code of Conduct did not apply because he continued to pay union dues.

[135] If there were any doubt at all about Holmes’ knowledge of his conflict obligations (which I find there is not), it should have been dispelled by an email that Holmes received from his then superior, Daryl Barnett, after a meeting on May 3, 2006.[^28] The email stated:

We also discussed maintaining an arms length relationship with all vendors. This would mean not holding stocks or ownership in companies that we regularly do business [sic]. This would ensure that the decisions that we make are not adversely compromising what is best for the company.

[136] Holmes agrees that he never disclosed a conflict to Barnett.

[137] Holmes tried to put some context around the use of his own companies during the trial by noting that there was a significant push within CN to reduce or eliminate overtime. Holmes’ companies employed CN workers after hours without paying overtime. A general corporate desire to decrease overtime does not, however, amount to tearing up the corporation’s conflict policies or changing the law on fiduciary duties.

[138] When Holmes was confronted with the fact that he did not disclose his interest in his various corporations to CN, his answer was that it “depends on how you look at it.” Holmes says he believes Dobbie knew about Holmes’ interest in the companies but does not recall anyone other than Dobbie knowing.

[139] There is no doubt in my mind that Holmes knew he was engaging in conduct that was improper by retaining his own companies. As Dobbie put it in one of his earlier examinations:

Redacted Quotation: [...] [^29]

[140] Holmes’ evidence about the conflict policy and the secrecy with which he ran his corporations is rife with unexplained contradictions. On my view of the evidence, Holmes knew about CN’s Code of Conduct and conflict policies at all material times, signed off on the Code of Conduct annually, and knowingly breached those policies.

II. Fiduciary Duty Claim - Legal Analysis

[141] Whatever the facts may be about causing CN to retain the Holmes Companies, Holmes submits that he was not a fiduciary of CN. In the alternative, Holmes submits that if he was a fiduciary, his fiduciary duty was limited to the period between 2004 to 2008 and was limited to invoices that Holmes approved. I find that Holmes was a fiduciary from at least 1999 onward when he started to cause CN to contract with the Holmes Companies and that his fiduciary duties extended to all invoices between CN and the Holmes Companies.

A. Was Holmes a Fiduciary?

[142] A fiduciary relationship exists where one party has placed “trust and confidence” in another and the latter has accepted — expressly or by operation of law — to act in a manner consistent with such “trust and confidence.”[^30] In her dissenting reasons in Frame v. Smith, Wilson J. noted that fiduciary obligations have been imposed in situations possessing the following three general characteristics: (1) the scope for the exercise of some power or discretion; (2) the ability to unilaterally exercise that power or discretion to affect the beneficiary’s legal or practical interests; and (3) a beneficiary who is peculiarly vulnerable to, or at the mercy of, the person holding the power or discretion.[^31] Those characteristics have since become broadly accepted.

[143] Holmes denies that he was a fiduciary. He says he was a low-level supervisor, one rung above the unionized employees he oversaw. He was one of more than 35 supervisory-level employees at CN at the time, and one of many who had approval authority relating to third party contractors. He was not management, nor was he a key employee. Holmes submits that if he is a fiduciary, then so are a “vast swath” of other CN employees.

[144] Holmes further submits that fiduciary obligations are imposed only within the context of a relationship of “power-dependency”. He argues that the controls CN had in place regarding procurement and payment of contractors belie CN’s claims of vulnerability and therefore undermine the imposition of fiduciary obligations of even a limited nature.

[145] In my view, these submissions misconceive the concept of a fiduciary. The essence of a fiduciary duty does not depend on seniority within an enterprise, the importance of the individual to an organization, the number of people who might be burdened with such a duty, or whether an organization has controls in place that might detect financial wrongdoing. Rather, it depends on the indicia articulated in Frame. Those indicia are present here.

[146] Holmes had the discretion and power to hire contractors of his choice. He could unilaterally exercise that power so as to affect CN’s legal or practical interests. He could hire contractors unilaterally and did not require the approval of any superior within CN to do so. He could also unilaterally approve invoices up to $10,000. CN was peculiarly vulnerable to, or at the mercy of, Holmes exercising his power. An organization of CN’s size must delegate decision-making authority. It cannot reserve every contracting decision or invoice approval to a senior level executive. It depends on individuals like Holmes to make contracting and payment decisions in the interests of CN and is vulnerable to and at the mercy of employees with that authority.

[147] Although the extent of the fiduciary duties applicable to someone in Holmes’ position may not be as broad as those applicable to a more senior employee, the fiduciary duty extends at least so far as to apply to the powers that Holmes could exercise on behalf of CN. That is to say, he was required to exercise those powers solely in the interest of CN and could not exercise them for his personal benefit without CN’s express consent.[^32]

[148] The fact that CN may have financial controls in place to try to detect misuse does not belie the existence of a fiduciary duty. If anything, it might demonstrate the existence of a fiduciary duty. It provides evidence of peculiar vulnerability which CN has tried to limit by way of financial controls. If the existence of financial controls negated fiduciary duties, no employee of a large organization could ever be a fiduciary because such organizations invariably have some sort of financial controls in place. A fiduciary duty does not depend on an absence of financial controls; it depends on the trust reposed in individuals. Financial controls do not demonstrate lack of trust. They demonstrate trust with verification.

[149] Employees with signing authority to bind a company financially have been found to be fiduciaries.[^33] Non-management employees have also been found to owe fiduciary duties to their employers.[^34]

[150] In Boehmer Box L.P. v. Ellis Packaging Limited,[^35] Justice D. Brown (as he then was) held that the ability of a nonmanagement employee to set prices, conclude contracts, or supervise other employees reflects a level of trust indicative of a fiduciary relationship:

Factors, in my view, that have led courts to find the existence of this above-average level of trust in a non-management employee include the employee's exclusive relationships with customers of the employer and the ability of the employee to act unilaterally to bind the employer's interest by setting prices or concluding contracts. Supervisory responsibility over other employees, shy of being part of the formal management structure, also has operated as a factor pointing to a potential fiduciary relationship. Obviously these factors are not exhaustive, but they reflect circumstances where an employer has placed a higher degree of trust and confidence in a person than in most employees, with the resulting ability of that person to affect the economic interests of the employer.[^36]

[151] Enbridge Gas Distribution Inc. v. Marinaccio[^37] is a case with material similarities to the one before me. In that case, the defendant employee was a supervisor who had authority to hire outside contractors for Enbridge and approve invoices up to $5,000. The employee created his own company and hired it to do work for Enbridge. In upholding the finding that the employee owed Enbridge fiduciary duties, Laskin J.A. noted that:

A fiduciary relationship may exist where the fiduciary undertakes to act in the best interests of the beneficiary, the fiduciary has the power to affect the legal or substantial interests of the beneficiary, and, as a result, the beneficiary is vulnerable to the fiduciary: see Perez v. Galambos, 2009 SCC 48, 2009 3 S.C.R. 247 (S.C.C.) at paras. 68-70; Elder Advocates of Alberta Society v. Alberta, 2011 SCC 24, 2011 2 S.C.R. 261 (S.C.C.) at paras. 30-34. In the employment context, an employee may therefore be said to owe a fiduciary duty to his or her employer where the employee has discretionary power to affect adversely the employer's interests and the employer is vulnerable to the exercise of that power.[^38]

[152] It is well-established that a fiduciary employee cannot have interests that conflict with their employer without making full disclosure and obtaining the employer’s consent.[^39]

B. Alleged Limitations on Holmes’ Fiduciary Duty

[153] Holmes submits that even if he was a fiduciary, CN only pleaded a limited fiduciary duty that was circumscribed in time between 2004 and 2008 and circumscribed in scope to invoices that Holmes personally approved. I reject both such limitations.

[154] Holmes presumably relies on paragraphs 28 and 32 of the Amended Statement of Claim for those limitations. Paragraph 28 states:

“Holmes was employed as a Track Supervisor in the engineering group of CN.”

[155] What follows after paragraph 28 is a more detailed fleshing out of his fiduciary duties. Holmes did not become a Track Supervisor until 2004. Holmes reads the description of him being a Track Supervisor (as of 2004) as a general limitation on the description of the duties that follow.

[156] In addition, paragraph 32 provides, among other things, that:

“CN placed specific trust in him to approve only legitimate invoices that were within his area of control.”

[157] Holmes appears to read this as limiting any fiduciary duties to invoices that he approved.

[158] I do not think a fair reading of the Amended Statement of Claim supports those limitations. As a general rule, pleadings are to be interpreted broadly and generously.[^40] I reproduce below paragraphs 28-34 of the Amended Statement of Claim to provide the appropriate context to the pleading. I have bolded particular passages that, in my view, make it clear that the allegations of fiduciary duty went beyond the time Holmes acted as Track Supervisor and go beyond invoices that Holmes approved.

28. Holmes was employed as a Track Supervisor in the engineering group of CN.

29. As a result, Holmes was responsible for dealing with the maintenance and construction of CN’s trackage and related property.

30. Holmes had access to, and participated in, the procurement and authorization for payment of third-party construction services and equipment provided to CN.

31. As a CN employee, Holmes was obliged to faithfully comply with the CN Code of Business Conduct including provisions dealing with the absolute prohibition against engaging in any activity wherein Holmes would place himself in a position of conflict vis-à-vis his employer CN. Adherence to the CN Code of Business Conduct was an express term of his employment with CN. Accordingly, Holmes had an unequivocal obligation not [to] place himself in a position of conflict of interest, financial or otherwise, between his personal and corporate interests and those of CN.

32. Holmes was in a fiduciary position vis-à-vis CN in respect of his autonomy and independence in approving invoices for construction related expenses. CN placed specific trust in him to approve only legitimate invoices that were within his area of control.

33. Holmes owed CN a duty of good faith and a duty of loyalty throughout the employment relationship. These duties required Holmes to faithfully exercise his authority in CN’s best interests, and to forthwith disclose to CN any activity which would be or was an impediment to his compliance with these duties or the provisions of the CN Code of Business Conduct.

34. Holmes, in violation of the CN Code of Business Conduct and his obligations to CN, incorporated, participated in and profited directly and indirectly from various businesses providing services to CN without disclosure of those interests. He put his personal interests before those of his employer to profit from his position of authority within CN. In so doing, he appropriated and availed himself of confidential information as to systems and availability of contracts and divulged this information to entities in which he and his family members had a direct or indirect financial interest. (Emphasis added)

[159] The critical question about the link between the pleading and any alleged limitation on the fiduciary duty is whether Holmes has somehow been misled into believing that the claim against him was limited to invoices he approved between 2004 and 2008. Holmes does not actually make that claim nor would he have any basis for doing so. It was clear from the productions and CN’s expert report that CN was claiming disgorgement of all profits earned by the Holmes Companies as a result of invoices sent to CN regardless of when they were issued. Moreover, Holmes’ authority to approve invoices was not limited to his time as Track Supervisor. Holmes testified at trial that he obtained approval authority shortly after he became a Program Supervisor in 1994. That puts beyond doubt the fact that he had approval authority when he began incorporating his companies in 1999.

Conclusion on Fiduciary Duties

[160] I find that Holmes owed fiduciary duties to CN and breached those duties in two ways. First, he hired his own companies to do business with CN without disclosing his interest in those companies. The fact the Dobbie knew about the scheme does not amount to disclosure given that Dobbie was a co-conspirator of Holmes’ who benefited from the breach of duty. Proper disclosure is disclosure to someone in management who does not benefit from the breach. Second, he caused CN to approve invoices from the Holmes Companies by (1) approving the invoices himself (sometimes using PINs and passwords of others), (2) having his associate, Wayne Dobbie, approve the invoices, or (3) instructing subordinates to approve the invoices using Holmes’ PIN and password.

[161] Holmes took additional steps to hide his interest in the companies from others at CN by having others, real or fictitious, act as officers and directors, sometimes without their knowledge. Whoever may have been listed on publicly searchable documents as an officer or director, Holmes was always the one with direction, power, and control over the companies.

[162] Holmes was at all times aware of the fiduciary duties that were expected of him. His own description of what CN could reasonably expect from an employee accords with the general thrust of common law fiduciary duties. In addition, those duties were spelled out for Holmes in the 1986 Policy Guide, the 2004 Code of Conduct, and the May 3, 2006 email from Daryl Barnett.

III. Breach of Confidence

[163] An employee will breach his obligations of confidence to his employer where:

(a) Confidential information was conveyed;

(b) The information was conveyed in confidence; and

(c) The information was misused by the defendant to the detriment of the plaintiff.[^41]

All three elements are present here.

[164] Holmes testified that he had information about a wide variety of CN’s upcoming projects, schedules, and budgets. He also had information about the pricing and other bid terms of competitors on contracts that he ultimately awarded to his own companies. The CN budgets and the terms of other bids amounted to confidential information that belonged to CN.

[165] The information about budgets and other bids was conveyed to Holmes in confidence. Holmes was not free to share this information with others.

[166] Holmes submits that there was no evidence of confidential information being misused. I disagree. Any use of confidential information that is not authorized by the party who originally communicated the information is an unauthorized use.[^42] The relevant question, then, is: what was the recipient entitled to do with the information?[^43]

[167] Budget and bid information were conveyed to Holmes so he could obtain three arm’s length bids for each project and select the bid that was most advantageous to CN. Instead, Holmes used the budget information and the arm’s length bids to submit a bid himself. Holmes says there was no damage to CN because his bids were more advantageous than arm’s length bids. That in and of itself establishes the breach of confidence. The purpose of conveying the information to Holmes was to select the most advantageous arm’s length bid, not to allow Holmes to award the contract to himself by underbidding arm’s length bidders, assuming that his bids were in fact more advantageous to CN.

[168] Holmes submits that breach of confidence requires damage as a constituent part of the tort and that CN has not established any. I disagree. As the Court of Appeal for Ontario noted in Rodaro v. Royal Bank of Canada:[^44]

Disclosure of confidential information is actionable if it results in detriment or damage to the confider or wrongful gain to the confidant”[^45] (emphasis added).

[169] Holmes’ profits from self-dealing are wrongful gains.

[170] Even if the terms of Holmes’ contracts were truly more advantageous to CN than those of arm’s length suppliers, it was still to CN’s long term detriment to accept those contracts. If word were to get out that CN was manipulating the bidding process by allowing CN employees to underbid others and award contracts to themselves, arm’s length suppliers would quickly stop investing the time, money, and energy into bidding on CN jobs. That would leave CN at the mercy of people like Holmes and would deprive it of the benefit of a competitive market.

IV. Breach of Contract Claim

[171] CN also submits that Holmes breached express or implied terms of his employment contract with CN by causing it to contract with the Holmes Companies.

[172] Even if there was an absence of any formal conflict policy, I find that it was an implied term of Holmes’ employment contract that he would not use his discretionary authority as a CN employee to contract with entities he controlled without CN’s express approval.

[173] As noted earlier, Holmes agreed that it was reasonable for CN to expect that employees would arrange their affairs to prevent conflicts of interest; that any conflicts should be resolved in favour of CN; and that employees would not take advantage of information they obtained in the course of their duties if that information was not publicly available. The 1986 Policy Guide and the 2004 Code of Conduct made express what Holmes already knew were implied expectations. Holmes breached those express and implied expectations by taking information about bids and contracts and using it for his own benefit.

V. Conspiracy and Jennifer Flynn

[174] CN seeks to hold Flynn liable equally with Holmes on the theory that she conspired with him to engage in unlawful conduct to the detriment of CN.

[175] Flynn defends on the basis that there is no hard evidence of actual conspiracy in the sense of making an agreement and that there is no independently actionable conduct on her part.

[176] For the reasons set out below, I find that there is ample evidence from which I can infer an agreement or understanding between Flynn and Holmes. I find that Flynn knew or ought to have known of Holmes’ wrongdoing. To the extent that she did not, she was wilfully or recklessly blind to the truth. I also find that Flynn engaged in independently actionable conduct for purposes of the tort of conspiracy, namely engaging in deceit and falling short of the standard of care expected of a corporate director and officer.

A. Evidence of Conspiracy

[177] The defendants[^46] argue that there is insufficient evidence to demonstrate a conspiracy between Flynn and Holmes because there is nothing to show them expressly agreeing to do anything to hide Holmes’ involvement in the Holmes Companies from CN.

[178] The lack of evidence of an express agreement is not unusual in conspiracy cases. It has long been recognized that conspiracy claims are often based on inferences because it is difficult or impossible to prove them by direct evidence.[^47] As Rinfret J. put it in Paradis v. The King:

Conspiracy, like all other crimes, may be established by inference from the conduct of the parties. No doubt the agreement between them is the gist of the offence, but only in very rare cases will it be possible to prove it by direct evidence. Ordinarily the evidence must proceed by steps. The actual agreement must be gathered from “several isolated doings” . . . having possibly little or no value taken by themselves, but the bearing of which one upon the other must be interpreted; and their cumulative effect, properly estimated in the light of all surrounding circumstances, may raise a presumption of concerted purpose entitling the jury to find the existence of the unlawful agreement.[^48]

[179] Circumstantial evidence of a conspiracy is often all the court has.[^49]

[180] There is ample evidence here that leads me to infer that Flynn agreed to engage in conduct with Holmes to facilitate his breach of fiduciary duty. Flynn knew that the Holmes Companies were doing business principally with CN. She claims that Holmes told her that CN was aware of his ownership of the Holmes Companies and still agreed to contract with them. I do not accept that evidence. In my view, Flynn either knew or ought to have known of Holmes’ misconduct vis-à-vis CN.

[181] Flynn’s only job before meeting Holmes was working in administration for 18 years in what she described as one of Royal LePage’s busiest realty offices. She agreed on cross-examination that if she had wanted to hire a family member to do work for Royal LePage, she would have had to disclose the relationship to her employer. She understood the concept of a conflict of interest and knew that disclosure and consent was the way to address it.

[182] With that knowledge, and with knowledge that the Holmes’ Companies were working almost exclusively for CN, she agreed to become an officer, director, and signing authority for the Holmes Companies. She used her birth name, Parisien, in connection with the Holmes Companies. Flynn was the surname she acquired as a result of her first marriage. She testified at trial that she wanted to use the name Parisien as of September 2005 when she moved in with Holmes because that marked a new chapter in her life. That might make sense if she had begun using the name Parisien in other aspects of her life. That, however, was not the case. On the record before me, she continued to use the name Flynn in every aspect of her life but for the Holmes Companies. In those circumstances, I can only infer that Flynn knowingly used the name Parisien to keep her involvement as Holmes’ spouse hidden from public disclosure.

[183] Flynn consistently asked accountants for quarterly reports of the Holmes Companies. Flynn signed a wide variety of documents for the Holmes Companies, including minutes of shareholders meetings, waivers of notices of meetings, consents to audit exemptions, share purchase agreements, a contract for the purchase of a Ford pickup truck, audit engagement letters, management representation letters to accountants, cheques, and other banking documents. Many of those documents purported to be documents that she signed as Secretary of a meeting she is described as having attended with either Helmer or Fussee. She never attended any such meetings and says she was never present when either Helmer or Fussee purported to sign the documents. As noted earlier, Helmer is fictitious. Flynn admits that she never met him. Fussee never signed the documents in question. The signatures that purport to be his are not actually his.

[184] Every time Flynn signed a corporate document, it required a deliberate act of will to sign using a name that she did not use in any other aspect of her life. If she truly had been using her birth name because she had intended to open a new chapter of her life, one would think that it might have dawned on her at some point in the following 3 years that she was still using the name Flynn in all other aspects of her life. This should have led her to ask whether it was not more appropriate to use the name Flynn when signing corporate documents. There is no evidence that she ever asked that question either of herself or of others. In my view, she did not ask because she knew she was using the name Parisien as part of an understanding with Holmes to hide her, and therefore his, involvement in the Holmes Companies and not because she was opening a new chapter in her life.

B. Independently Actionable Conduct

[185] There are two types of conspiracy:

(a) one that requires the plaintiff to demonstrate that the defendants entered into an agreement the primary purpose of which was to cause injury to the plaintiff, whether by lawful or unlawful means;

(b) the other that requires the plaintiff to demonstrate that the defendants agreed to engage in unlawful conduct that they knew or should have known would likely cause injury to the respondent, regardless of its primary purpose.[^50]

CN relies on the second type of conspiracy, namely, unlawful conduct conspiracy.

[186] Flynn relies on the Ontario Court of Appeal’s decision in Agribrands Purina Canada Inc. v. Kasamekas[^51] for the proposition that CN must establish a specific unlawful act on her part before she can be held liable for conspiracy. Alleging that Flynn conspired with Holmes to breach his fiduciary duty to CN is insufficient because Flynn was not a fiduciary of CN. As a result, any involvement Flynn had in a breach of fiduciary duty would not be tortious as against her. As the Court of Appeal put it in Agribrands:

There is no basis for finding an individual liable for unlawful conduct conspiracy if his or her conduct is lawful … The tort is designed to catch unlawful conduct done in concert, not to turn lawful conduct into tortious conduct.[^52]

[187] Flynn adds that even if the Holmes Companies acted unlawfully in their business dealings with CN, it does not constitute a civil wrong to be a director or officer of a company that commits a tort.[^53]

[188] In Agribrands, the Court of Appeal held that “to constitute unlawful conduct for the purposes of the tort of intentional interference, the conduct must be actionable” in the sense that it is wrong in law.[^54] The court went on to hold that the conduct need not be actionable in the sense that a full cause of action must exist for it. If that were the requirement, it would mean that criminal conduct could never form the basis of a civil conspiracy because criminal conduct is not actionable at the suit of a civil plaintiff.[^55] Thus, while Flynn was not a fiduciary of CN, if she engaged in other, independent, unlawful conduct as part of an overall scheme that helped Holmes breach his fiduciary duties to CN, she is liable for conspiracy.

[189] In my view, there are two intertwined categories of behaviour by Flynn that were actionable in the sense that they were wrong in law: (1) falling short of the standard of care expected of an officer or director of a corporation[^56] and (2) engaging in deceit.

[190] As noted, Flynn consistently signed corporate documents without knowing what she was signing. She did that as part of a broader pattern of conduct that was aimed at aiding and abetting Holmes’ breach of fiduciary duty to CN.

[191] The documents she signed misrepresented the state of affairs. Those documents indicated that she had been present at meetings with Helmer or Fussee when that was not the case.

[192] Flynn seeks to avoid liability by claiming that she did not know what she was signing. That is of no avail.

[193] Ignorance does not excuse officers and directors from their responsibilities to those who may be injured by corporate conduct[^57] where they failed to exercise reasonable diligence.[^58] As Thorburn J. (as she then was) noted when she dismissed the defendants’ motion for summary judgment against CN at an earlier stage of this proceeding:

Directors cannot plead ignorance to shield themselves from their responsibilities as directors and officers of the corporation or to those who may be injured by the corporation’s conduct. An officer or director of a corporation may be liable for wrongdoing where there are findings of fraud, deceit or dishonesty. Courts have not excused directors from liability for wrongdoing where the director failed to exercise reasonable due diligence in circumstances where further inquiry is warranted.[^59]

[194] In Re Morlock & Cline, Ltd.,[^60] Morlock claimed that he should be relieved of liability because he was a “dummy” director. The court rejected the possibility of being a director in name only:

The further objection is taken in this case that the assignor Morlock was a director in the company. The answer is made that he was only a “dummy” director, but the law does not draw any distinction between “dummy” and non-dummy directors – and one who has accepted the position of director must be so dumb that he cannot say he was not a director – it would never do to allow a director to better his position by asserting that he did not do his duty as a director.[^61]

[195] Flynn’s overall conduct also amounts to deceit. Deceit is made out where the defendant either knows the representations she is making are untrue or is reckless as to the truth of the representation.[^62]

[196] All that is required for Flynn to be held liable is that she was aware that Holmes was dishonestly breaching his fiduciary duty and that she participated in that scheme.[^63] I find that Flynn knew that Holmes was dishonestly breaching his fiduciary duty to CN. Flynn knew it was inappropriate for an employee to cause his employer to do business with an entity related to the employee without the employer’s knowledge and consent. I cannot accept Flynn’s testimony to the effect that Holmes told her that CN had consented to him billing CN through his own companies. If that were in fact the case, there would be no reason to keep Holmes off publicly searchable corporate records, nor would there be any need for Flynn to sign under a pseudonym.

[197] False representations include misrepresentations by omission, silence, half-truths, inaction, or the non-disclosure of material information.[^64] A course of conduct may also constitute a false representation.[^65] Flynn is culpable of all of these. She engaged in a course of conduct whereby she says she omitted to read the documents she was signing. She did not tell the accountants that she did not know what she was signing. She did not tell the accountants that she was signing using a name that she used in no other aspect of her life. She did not tell the accountants that she had not attended meetings with Helmer and Fussee (as the documents she signed suggested she had). She did not raise any of these issues with Holmes and did not ask him to explain why he required her to sign in the manner she did.

[198] Where a reasonable person would consider a scheme to be dishonest, there is a duty not to participate in the scheme.[^66] There is no doubt in my mind that a reasonable person would consider it dishonest to sign documents under a pseudonym which documents reflect meetings with at least one fictitious person and which meetings never occurred, all as part of a scheme to keep Holmes’ name off publicly searchable records in furtherance of business dealings that required CN’s informed consent.

[199] Flynn cites a number of cases for the proposition that acquiescence without knowledge and that following directions from one’s superior[^67] are insufficient to find a conspiracy.[^68] While I accept that as a proposition of law, I have inferred from the circumstances that Flynn knew of Holmes’ dishonest breach of fiduciary duty and engaged in deceit and directors’ negligence as part of her conspiracy with him to further the breach of fiduciary duty.

[200] Signing corporate documents without reading them also demonstrates recklessness about the truth of the documents. Recklessness includes (i) acting in a way that creates obvious or serious risk; and (ii) doing so either without thought to the risk or recognizing the risk but deciding to take it.[^69] For Flynn to sign corporate documents without knowing what she was signing creates obvious risk: it commits the corporation to things without any knowledge on her part about what she is committing the corporation to.

[201] To the extent that damages are required as a component part of deceit when it forms part of the actionable conduct for conspiracy as opposed to a stand-alone tort, the damage here was to the integrity of the governance of the Holmes Companies and to the integrity of the bidding process of CN. As noted in paragraph 170 above, the manipulation of CN’s bidding process creates the risk of arm’s length suppliers refusing to participate, thereby leaving CN at the mercy of people like Holmes and depriving it of the benefit of a competitive market.

[202] The defendants also argue that if CN wanted to allege that Flynn committed a tort as a corporate officer or director, it was required to plead sufficient particulars of what she did or failed to do, failing which the claim should be dismissed.[^70] While that might be appropriate as a general rule of pleading, it must be tempered when the facts become known only as a result of the defendant’s defence. At the time of pleading, CN did not know that Flynn was signing documents without knowing what she was signing. These are facts Flynn raised as part of her defence. In part it is Flynn’s own defence theory that makes her liable. There was, moreover, no suggestion that Flynn was taken by surprise by any of the allegations against her at trial.

[203] Finally, with respect to conspiracy, the defendants complain that in its closing submissions, CN accuses them of fraud when fraud was not pleaded. Although fraud was not specifically pleaded, deceit was. The Supreme Court of Canada made it clear in Bruno Appliance and Furniture Inc. v. Hryniak[^71] that deceit is a form of fraud and that deceit and fraud are one and the same.

VI. Credibility Issues

A. Credibility with respect to Flynn

[204] Flynn’s counsel tried to present her as an innocent, inexperienced, naïve individual who was beyond her depth in the affairs of the Holmes Companies. As is implicit in my liability finding for conspiracy, I do not accept that characterization.

[205] Although Flynn initially seemed unsophisticated and nervous during examination-in-chief, I found her to be a more sophisticated individual than she first let on. She was able to handle herself effectively in cross-examination by handling difficult questions in a deft and nuanced manner. By way of example, when it was put to her in cross-examination that she understood while she was at Royal LePage that it was not appropriate for her to have hired a family member without advising her employer about the relationship, she asked to have the question repeated, initially answered that she was not sure what policies would have applied for that type of situation, added that it was common practice at Royal LePage for real estate agents to buy and sell their own homes, and that she was not sure how she would have answered that question at the time. Those are all relatively sophisticated strategies to avoid a difficult question. She ultimately agreed that it would make sense for her to have disclosed the relationship and that she would have done so in order to be up front with her employer.

[206] On other occasions, she had the confidence to ask the cross-examiner to scroll up and down in a document[^72] to get the full context of the document. She also pushed back on cross-examination questions by noting that the cross-examiner was not looking at the full context of a conversation or that she “might not have been clear about a point she was trying to get across.” Again, these are relatively sophisticated communication strategies.

[207] If anything, I found Flynn to be a more sophisticated, articulate, and nuanced communicator than Holmes was. Given her polite assertiveness, her communication skills, and the observational skills inherent in them, I have no doubt that she could and should have asked questions of Holmes and the accountants about the things she was signing, unless of course she knew what she was signing and why.

B. Credibility Issues with Respect to Holmes

[208] As already noted on numerous occasions, Holmes provided numerous explanations for things at trial that were implausible or that contradicted other evidence he had given. More instances of the lack of credibility in Holmes’ testimony are found in the section on litigation conduct at paras. 393-438 below.

[209] If there were any doubt about Holmes’ deception in the business transactions underlying this trial, his deception was starkly manifested in his first interview with CN on July 4, 2008. Holmes admitted at trial that he was not truthful during that interview.[^73]

[210] By way of example, during that interview he asserted that he had never heard of Jennifer Parisien. When asked about Jennifer Flynn, he identified her as a real estate agent. He identified Scott Pole as a truck diver. He claimed not to know the location of Complete Excavating and denied ever having been to the premises of Efficient Construction, Complete Excavating, or Monterey.

[211] At trial, he tried to justify these falsehoods by explaining that he “was worried when they asked about Jennifer Flynn what they would do.”[^74] This answer made no sense because Holmes misled CN repeatedly in the interview before anyone ever asked about Flynn.[^75] Indeed, Flynn is not mentioned until page 4 of the interview notes. Before that, Holmes was untruthful about his knowledge of Efficient Construction, Monterey, and Complete Excavating. He then tried to explain that contradiction away by changing his earlier answer and saying that he was worried about Flynn from the start of the interview.

[212] As the Court of Appeal for British Columbia noted in its classic statement in Faryna v. Chorny:

The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. The real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.[^76]

[213] I assess both Flynn’s and Holmes’ evidence in light of their consistency with the probabilities surrounding circumstances at issue. I find their general explanation of events to be internally inconsistent and to be inconsistent with the probabilities surrounding the circumstances at issue.

VII. Adverse Inferences

[214] CN asks me to draw an adverse inference from Holmes’ decision not to call his accountant, Pole, or Ted Brinker as witnesses at trial.

[215] A court may draw an adverse inference where a party fails to call a material witness.[^77] The decision to draw an adverse inference from the failure to call a witness is discretionary. In exercising that discretion, a court should consider several factors, including:

(i) Whether the witness has material evidence to give at trial;

(ii) Whether the witness is best placed to provide, or the only person who can provide, the evidence;

(iii) Whether the witness is available to both parties equally; and

(iv) Whether there is a legitimate explanation for the decision to not call a witness.[^78]

[216] Until well into the trial, the defendants indicated that they intended to call Pole as a witness and that he would testify about, among other things, the existence of Robert Helmer; the integrity of the Holmes Companies’ invoices to CN; the preparation and organization of the Holmes Companies’ invoices to CN; and the appearance of signatures for various individuals, including Maurice, Fussee, and Helmer.

[217] In addition, at trial, Holmes and Flynn attributed responsibility to Pole for a number of issues, including receiving and maintaining labour records, issuing invoices, burning corporate records, asking Fussee to become an officer and director of the Holmes Companies, and arranging for the J.M. Construction invoices to CN.

[218] As the learned authors of Sopinka, Lederman & Bryant - The Law of Evidence in Canada put it:

“The failure to call a material witness amounts to an implied admission that the evidence of the absent witness would be contrary to the party's case, or at least would not support it.”[^79]

[219] Holmes submits that there would have been nothing to gain by calling Pole because CN took the position that after he was noted in default, he could do nothing but testify in accordance with the allegations in the claim which he is deemed to have admitted. That, however, was merely CN’s position. No ruling had been made on the point because the issue never became live as a result of the defendants’ decision not to call Pole. Moreover, any evidence that Pole may have given would not necessarily be inconsistent with whatever specific allegations he was deemed to have admitted to. By way of example, there is nothing in the Statement of Claim suggesting that Pole had or had not selected directors, forged signatures, burnt records, or put Helmer’s name on invoices. Even had he been deemed to have admitted the facts contained in the Statement of Claim, there were no facts alleged against him on these issues. As a result, the concern Holmes raised about the scope of Pole’s evidence would never have arisen.

[220] In addition, CN asks me to draw an adverse inference from Holmes’ failure to call Ted Brinker as a witness. At various times in their evidence, Holmes and Flynn attributed responsibility to Brinker for organizing the activities of Complete Excavating, obtaining Fussee’s signature, and retaining corporate documents.

[221] CN asks me to draw adverse inferences to the effect that:

(i) Holmes was responsible for the invoices the Holmes Companies submitted to CN;

(ii) The reason for Efficient Construction invoicing CN was not related to tax advantages;

(iii) The reason the invoices were addressed to Schamehorn, or listed Robert Helmer, was not because of an invoice template issue;

(iv) Holmes and Flynn forged signatures of Helmer, Fussee, and Maurice; and

(v) The invoices prepared by the Holmes Companies and submitted to CN were false and regularly charged for services not provided.

[222] I am prepared to draw the adverse inferences requested in sub-paragraphs (i), (ii), and (iii) above. With respect to the inference sought in sub-paragraph (iv) above, I infer that Holmes forged the signatures of Helmer, Fussee, and Maurice but do not infer that Flynn forged those signatures. While Flynn may or may not have known about the forgeries, I find it less likely that Flynn would forge a signature beside her own signature. There would be too much risk that the style of writing would be similar. I will discuss the inference sought in sub-paragraph (v) above in the section of these reasons that address phantom billing.

[223] With respect to the inference that Holmes had responsibility for invoices, there is no doubt that Holmes had overall responsibility for invoices within the Holmes Companies even if Pole was the one who issued them. As noted earlier, Holmes was at all times the directing mind of the Holmes Companies.

[224] With respect to Efficient Construction not being created for tax reasons, Holmes’ accountants clearly would have had material evidence to give in light of his explanation for creating Efficient Construction. They would have been best placed to provide evidence to support Holmes’ explanation. Holmes provided no explanation for not calling the accountants.

[225] With respect to the addressees of invoices or Helmer’s name being on the invoice, Pole would have had material evidence on that issue, at least according to Holmes’ explanation of events. On Holmes’ version of events, Pole would also have been the only person who was able to provide evidence on those points. Holmes provided no explanation for failing to call Pole.

[226] With respect to the forged signatures, Holmes testified that Pole would sign for these individuals if they were unavailable. In that light, Pole was the only person who could possibly give evidence on the point.

[227] Although it might have been possible for CN to call the accountants or Pole as witnesses, it was not CN’s job to establish Holmes’ defence.

VIII. Phantom Billing

[228] CN alleges that the Holmes Companies billed for work that was never done, a practice CN referred to as phantom billing.

[229] To some extent, the issue of phantom billing is irrelevant to the primary remedy. As noted in the overview to these reasons, I have concluded that Holmes breached his fiduciary duties to CN and that the appropriate remedy is disgorgement of profit. Whether that profit was earned from phantom billing or from profit margins on work actually done is beside the point. It must be disgorged whatever its source.

[230] The parties nevertheless spent a great deal of time on the issue at trial. It may be that a finding on this issue affects steps that may follow the issuance of these reasons. I will therefore address the principal issues the parties raised in this regard even though the overall question of phantom billing has no bearing on the remedy I award.

[231] Holmes submits that CN’s claim of phantom billing should be dismissed because:

a. It is inadequately pleaded;

b. CN failed to disclose invoices relating to phantom billing; and

c. The circumstances surrounding the delivery of Exhibit 131 warrant dismissal of the claim in its entirety or, in the alternative, warrant dismissal of the phantom billing allegations.

[232] I dismiss CN’s claim for phantom billing because it is inadequately pleaded and because CN failed to make adequate disclosure in response to Holmes’ request for particulars relating to phantom billing. I dismiss Holmes’ complaints surrounding Exhibit 131.

[233] The pleading and disclosure issues are such that, in my view, they would lead to prejudice and trial unfairness to the defendants if I allowed the claim to stand. If I am wrong on this, I would have found that the record discloses enough evidence to find phantom billing.

A. Inadequate Pleadings

[234] The phantom billing allegations were pleaded in paragraph 82 of the Amended Statement of Claim as follows:

The interviews and accounting analysis done thus far suggest that invoices were approved for which equipment and services were not provided. This may reflect further wrongful conduct for which the plaintiff will amend the Statement of Claim if and when relevant facts are revealed.

[235] On the face of that pleading, there is no claim for phantom billing. Rather, there is an expression of an intention to amend to bring such a claim “if and when” relevant facts are revealed.

[236] The Amended Statement of Claim in which paragraph 82 is found is dated December 4, 2008. In the 13 years between the amended claim and the start of trial there was no further amendment.

[237] CN submits that it gave notice of the phantom billing claim in other ways. It points to the affidavit of Michael Farkouh[^80] in support of this proposition. I am of a different view.

[238] The relevant paragraphs of the Farkouh affidavit read as follows:

53. The interviews and accounting analysis done thus far also suggest that invoices were approved for which equipment and services were not provided. This reflects further wrongful conduct. For example:

[Examples redacted].

54. Full investigation of the scheme, all invoices submitted and all work ostensibly done for CN requires access to the records of the defendants, including but not limited to banking, financial, payroll and accounting records.

[239] This, once again, is a statement of a suggestion that there might be something amiss, this time with some examples. There is no statement, however, that something actually is amiss on the phantom billing front.

[240] The Farkouh affidavit was sworn on August 5, 2008. As noted, the Statement of Claim was amended four months afterwards. The amendment made no change to the description of phantom billing found in paragraph 82 as quoted above. Whatever the Farkouh affidavit does or does not say, the Amended Statement of Claim supersedes it.

[241] On the record before me, the next notice that CN provided of phantom billing allegations is found in the expert report of Steve Whitla of Ernst & Young.[^81] Whitla’s report is dated April 12, 2018, 10 years after the Statement of Claim was issued. This led to a debate about the extent to which CN had provided notice of phantom billing before delivery of the Whitla report.

[242] During an examination for discovery after delivery of the report, CN was asked for the following undertaking:

To the extent that counsel for CN take the position that other particulars have been provided with respect to the invoices CN says are false, outside of the Expert Report by Mr. Whitla and the June 29, 2019 email exchange (Exhibit 2), they will advise of such particulars.[^82]

[243] CN responded as follows:

The particulars of the allegations are well known to the Defendants and have been addressed since the very beginning of this proceeding. In addition to its pleading and initial motion record in support of the Mareva Order, CN also relies on its various other correspondence throughout this proceeding with respect to its allegations, including for example counsel’s email of April 30, 2019, advising, among other things, that:

(c) Holmes approved invoices on behalf of CN for amounts in excess of the actual work performed and/or equipment provided;

(d) Holmes approved multiple invoices on behalf of CN in respect of the same equipment or services;

(e) Holmes approved invoices on behalf of CN for work previously completed by other persons or companies;

(f) Holmes approved invoices on behalf of CN for work that had not yet been completed; and

(g) Holmes approved invoices on behalf of CN for companies that were unknown to CN, and/or in respect of equipment that was not provided and/or services not performed.

CN also relies on the evidence of the various witnesses who have testified throughout this proceeding, beginning with the affidavit of Michael Farkouh of August 5, 2008, the examinations for discovery of all CN witnesses and CN Police witnesses, the discoveries of non-parties, and the extensive productions to date, all of which detail the fraudulent nature of the Holmes Defendants’ conduct.[^83]

[244] Although the answer is long, it is ultimately non-responsive. Recall that the question was to provide particulars that CN had already provided about of phantom billing apart from the Whitla report. The response provides no particulars but merely repeats allegations in subparagraphs (c) through (g). The concluding paragraph provides no particulars but provides only generalities about the evidence of “various witnesses”, all examinations for discovery, and all productions to date. The most particular of the information provided is the reference to the Farkouh affidavit. As already noted, given the fact that the amended claim supersedes the Farkouh affidavit, the latter provides no meaningful particulars.

[245] I appreciate that one of the challenges that CN faced in this action was, to put it charitably, a lack of candour on the part of Holmes. That, however, does not relieve CN of its obligation to put forth its allegations in a clear and timely manner. CN provided no explanation for why Holmes was not given notice of phantom billing allegations in the 10 years between Statement of Claim being amended and the Whitla report being delivered.

[246] While I would be inclined to provide a plaintiff who is faced with a deceptive defendant, like Holmes, a generous amount of time to discover allegations and set them out, waiting 10 years to do so is excessive; especially when CN was already alive to the issue of phantom billing in 2008.

[247] In my view, delay of that nature runs afoul of the Limitations Act, 2002[^84] because the assertion of phantom billing in the Whitla report amounts to a new cause of action. The wording of the Statement of Claim is explicit. While there was a concern about phantom billing in 2008, there was no claim for it.

[248] A delay of 10 years in advising Holmes of the phantom billing allegation creates unfairness in the trial process. Documents go missing, memories fade, and witnesses become harder to track down. This is especially relevant when the allegations are that work was invoiced but not done or that equipment was invoiced but not provided. Ten years after the fact, few people are likely to remember where they were or what they were doing on a particular day.

[249] The allegation of phantom billing is essentially a form of fraud. It alleges that Holmes billed for something that was not done. That is an allegation which should be pleaded with particularity. Not only were no particulars pleaded here, not even generality was pleaded. What was pleaded was an undertaking to amend the pleading if CN intended to assert either a general or a particular claim for phantom billing. That was never done.

B. Failure to Disclose Invoices Relevant to Phantom Billing

[250] At trial, CN attempted to rely on a number of invoices to demonstrate phantom billing. I would decline to let CN use any individual invoice as proof of phantom billing because of inadequate disclosure. I would also dismiss the phantom billing claim for failure to disclose invoices in a timely manner and for the manner in which the invoices were disclosed. In my view, the manner of disclosure amounted to misdirection which placed material barriers to Holmes’ ability to defend against the issue.

[251] During its examination for discovery, CN was asked for particulars of phantom billing if it intended to rely on it. CN refused to identify invoices in respect of phantom billing and took the position that its claim would be particularized in an expert’s report. In 2018, CN served the Whitla report. It did not particularize phantom billing but, rather, advanced the theory that the margin of the Holmes Companies exceeded industry norms which, in the absence of any other explanation, suggested phantom billing. The Whitla report also expressed the view that invoices issued in March 2008 indicated phantom billing.

[252] In April 2020, CN revised its stance and took the position that 5,931 invoices totaling over $47,000,000 were false. At that time, the trial was scheduled to begin on November 16, 2020. Advising a defendant 7 months before trial that 5,931 invoices will now be at issue could be expected to lead to significant scrambling on the defence team.

[253] This issue becomes even more acute when one considers that over half of the 5,931 invoices were from companies unrelated to Holmes and included invoices rendered by the Sousa companies whom CN had initially implicated in Holmes’ wrongdoing. As late as April 2020, CN took the position that the Sousa invoices were fraudulent. CN took this position with Holmes even though CN had, unbeknownst to Holmes, paid those invoices in 2012 after it had settled the claim against the Sousas. Holmes did not become aware that CN had paid the Sousa invoices until the spring of 2021, when I ordered that information be disclosed.

[254] After I assumed case management for the matter and heard complaints from Holmes about invoice production, I made it clear that if CN intended to put an invoice to a witness and elicit more information than was evident on the face of the invoice, it would have to provide particulars of the information it intended to elicit. I ordered particulars to be delivered by August 30, 2020. In response to that direction, CN reduced its list of impugned invoices to 1,974 on July 27, 2020. CN also delivered Exhibit QQ by August 30, which it says contained the particulars of the invoices in question.

[255] At the end of the day, CN took witnesses to approximately 40 invoices at trial. That came as no surprise to me. There was no conceivable way that CN could go through 1,974 invoices at trial, let alone 5,931, to demonstrate phantom billing. While it is possible to go through a large number of individual invoices to establish an issue like phantom billing, that would typically be done through an expert report which summarizes the invoices and imposes some sort of analytical construct upon them. CN did not do that. In those circumstances, it was clear to me that CN would be introducing a small subset of the 5,931 or 1,974 invoices at trial to establish phantom billing. Hence, my direction in July 2020 to the effect that CN would not be allowed to rely on individual invoices at trial unless it provided particulars.

[256] For CN to advise Holmes in April of 2020 that it would be relying on 5,931 invoices at trial is unacceptable. That was 12 years after the events at issue, years after particulars were refused, 2 years after it delivered the first Whitla report (which CN said set out a theory of phantom billing that did not depend upon invoices), and 7 months before the scheduled trial. It did so knowing that many of the invoices it alleged were fraudulent had in fact been paid by CN after investigating the issue. That is not disclosure but misdirection.

[257] The Court of Appeal for Ontario has made it clear that:

[T]he discovery rules must be read in a manner to discourage tactics and encourage full and timely disclosure. Tactical manoeuvres lead to confrontation. Disclosure leads sensible people to assess their position in the litigation and to accommodate.[^85]

Obligations to disclose particulars are subject to the same analysis.

[258] Disclosure of particulars means just that. It means disclosing specifically those things that a party will actually rely on at trial to make its case. It does not mean giving your opponent a haystack and telling them to go find the needle. It means giving your opponent the needle.

[259] Even the reduction of the number of invoices from 5,931 to 1,974 amounts to continued misdirection. It still leaves a defendant guessing about the case it has to meet because it was abundantly clear that CN would not be relying on 1,974 invoices at trial.

[260] I appreciate that it might by difficult at an early stage to know exactly which invoices one will rely on. The particulars will almost always be larger than the specific evidence used at trial. That said, the ratio between the particulars given and the evidence used must still fall somewhere on a spectrum of reasonableness. While that ratio is not capable of numeric specificity in the abstract, 1,974 to 40 or even 1,974 to 100 remains solidly rooted at the tactical obfuscation end of the spectrum rather than at the end of true disclosure.

[261] Even then, the particulars that CN gave about the 1,974 invoices were inaccurate. As noted, the invoices were listed on Exhibit QQ, together with a statement about the issues to which they supposedly related. While I cannot guarantee that I compared every allegedly phantom invoice introduced at trial to its description on Exhibit QQ, I checked 15 invoices that my trial notes indicated CN relied on for phantom billing. Only 2 of the 15 were described on Exhibit QQ as relating to phantom billing.[^86] Even those two, however, contained a typographical error in the particulars and referenced invoice numbers ending in 925 and 926 when they should have referred to invoices ending in 935 and 936. The remaining invoices in my spot check were variously described on Exhibit QQ as:

No confirmation by preparer/approver that work was done.[^87]

The billing company (Monterey or Efficient Construction) did not own any equipment and did not have any employees.[^88]

Work completed but overbilled.[^89]

Invoice just below $10,000 in order to meet approval limit.[^90]

[262] The reference on Exhibit QQ of Monterey and Efficient Construction not having equipment or employees is not adequate notice of a phantom billing allegation. Monterey and Efficient Construction were used in order to ensure that Complete Excavating did not generate too much revenue and thereby attract the attention of CN or its union. While Monterey and Efficient Construction may have been the contracting party, the equipment was supplied by Complete Excavating. CN knew how to indicate phantom billing on Exhibit QQ when it wanted to. Numerous entries referred to invoices being “Double Billed” although those invoices were not necessarily addressed at trial.

[263] When I raised the disconnect between the issue indicated on Exhibit QQ and the use to which counsel for CN put the invoice at trial, CN noted that the defendants had not objected to the use of the invoices at trial. CN relied on authorities to the effect that a party must voice its objection to evidence in a timely manner[^91] and that courts should not raise objections to evidence when the parties have not done so.[^92]

[264] Although counsel for Holmes did not object to the use of the invoices when they were put to his client to demonstrate phantom billing, defence counsel did move to strike CN’s entire claim based on inadequate invoice production. I declined to do so because at the time the motion was made, I did not have enough information about the prejudice, if any, to which the defendants were put as a result of the disclosure complaints. I invited defence counsel to reiterate their objections at any time during the trial, including during closing argument once the nature of the prejudice had been demonstrated. Defence counsel reiterated their request to dismiss the action because of late disclosure in their closing argument.

[265] Having now seen the use to which CN wanted to put a handful of invoices, the manner in which those invoices were produced, and the descriptions of those invoices in Exhibit QQ, I am satisfied that CN did not abide by its disclosure obligations. I am also satisfied that its failure to do so would result in fundamental unfairness to the defendants if it were allowed to pursue its phantom billing claim at trial.

[266] Two other contextual points must be borne in mind in relation to this determination.

[267] The first is that it would have been impractical in the cut and thrust of trial to check each invoice against its description on Exhibit QQ. Invoices were generally referred to at trial by their number in the joint book of documents. Exhibit QQ did not reference the joint book of document number. Searching for each invoice involved a somewhat cumbersome term search on Exhibit QQ, which is impracticable for counsel to do when trying to listen to evidence at trial and keep track of the myriad of other factors that counsel need to keep track of during a cross-examination of their witness. This issue was exacerbated because the trial was conducted virtually and because members of the defence team were in different locations due to the COVID-19 pandemic.

[268] The second contextual factor is that the issue first arose as part of a complex production motion before trial. That motion arose in July 2020. At the time, the trial was scheduled for November 2020. There was no time for me to hear such a motion before trial. As a result, I told the parties that I expected them to abide by their obligations under the Rules of Civil Procedure,[^93] told CN that pointing to 5,931 invoices was nowhere near the spectrum of reasonableness for particulars that I expected, and that CN had to produce specific particulars of the documents it actually intended to use at trial. I also told the parties that if they did not abide by those directions, they would have to accept the consequences of their tactical decisions at trial.

[269] On my view of events, CN’s failure to make proper disclosure of the invoices on which it intended to rely at trial was tactical and was one that would result in fundamental unfairness to the defendants if I permitted the phantom billing claim to proceed. The unfairness results from: (1) the misdirection of resources that CN caused within the defence team on the phantom billing issue by delaying assertion of the claim for 10 years, (2) indicating first that no invoices would be relied on, then that 5,931 invoices would be relied on, then that 1,794 invoices would be relied on, and (3) producing Exhibit QQ, which did not allege phantom billing in relation to at least a substantial number of the invoices that CN sought to rely on for that issue at trial.

[270] I feel compelled to add a pre-emptive explanation. The defendants may argue that if CN’s conduct created unfairness by mis-directing their resources on the phantom billing issue, that mis-direction also had a detrimental effect on the defence’s ability to defend against other issues, including allegations of breach of fiduciary duty and conspiracy.

[271] I do not agree that this is the case. The prejudice from the phantom billing issue was initially the 10 year delay in raising it. That was then exacerbated by CN’s changing theories and failure to disclose particulars on an issue in respect of which particulars were essential.

[272] The fiduciary duty and conspiracy issues fall into a different category. They do not turn on factual allegations in respect of which detailed evidence[^94] is difficult or impossible to find this late in the day. They turn on largely uncontested facts of a more general nature and the legal characterization that flows from those facts. The fact that defence counsel may have had to spend time needlessly investigating thousands of invoices in the year before trial should not have affected their analysis of whether Holmes breached his fiduciary duty by self-dealing or whether Flynn was liable for conspiracy because of her conduct as a director and officer of the Holmes Companies when they had 13 years to consider those issues.

C. Circumstances Surrounding Delivery of Exhibit 131

[273] As part of their defence to the phantom billing allegations, the defendants moved to strike the claim in its entirety or, in the alternative, to strike the phantom billing allegations for CN’s failure to produce documents related to Exhibit 131 in a timely manner.

[274] Exhibit 131 is as an Excel spreadsheet with information that had been extracted from CN’s SAP system. It was delivered in the form produced as Exhibit 131 in February 2021. The defendants submit that delivery in February 2021 did not leave them adequate time to prepare for a trial that began on May 19, 2021 and that, in any event, Exhibit 131 was deficient in numerous respects.

[275] In my view, neither the circumstances surrounding the evolution and delivery of Exhibit 131 nor its alleged deficiencies warrant striking the claim or the phantom billing allegations. Neither factor caused any unfairness in the trial process for the reasons set out below.

[276] Exhibit 131 was not a pre-existing CN document. It was also not a document that CN relied on to establish phantom billing. Rather, it was a document created in response to specific requests from Holmes’ counsel about information they needed to respond to the phantom billing allegations in the first Whitla report. In response to that report, the defendants sought information from CN about budgets for maintenance, improvement, or construction projects that it undertook, including but not limited to projects that Holmes awarded to his own companies.

[277] Exhibit 131 was subject to something of a comedy of errors. Its first iteration was produced in September 2020. It did not have a complete set of network codes (the component parts into which a project is broken down). In addition, the first version was missing some of the functionality the defendants wanted. After defendants’ counsel pointed out these shortcomings, additional versions were produced on October 26, 2020 and November 10, 2020.

[278] An additional discovery was to be conducted of CN employee Shane Zazubek on February 3, 2021 to ask questions about the November 10th version. The day before the discovery, CN noticed that 188 network codes were missing from the November 10th version. The discovery was adjourned and CN produced an updated version on February 22, 2021.

[279] Holmes complains that delivery of the final version on February 22, 2021 left his own financial expert, Errol Soriano, inadequate time to prepare a report analysing it. While I would have some sympathy with that position in the right circumstances, those circumstances do not present themselves here, first and foremost because of what Soriano wanted to do with Exhibit 131.

[280] Soriano wanted to approach phantom billing initially by comparing the relationship between budget and actual billings in the Holmes projects to those of non-Holmes projects within CN. If the Holmes projects underperformed others, that might indicate phantom billing and would warrant further investigation. Soriano agreed that the further investigation would involve a more granular assessment of the use of assets in March 2008 similar to the one that Whitla conducted.

[281] As set out in the Section D, below, I find that Whitla’s report had already established phantom billing to an extent that it warranted a response on the merits from the defendants. The initial comparison of Holmes’ performance to other projects for which Soriano wanted to use Exhibit 131 for would have added nothing. Even if Soriano’s preliminary analysis had shown that Holmes’ projects outperformed others, that would not have dispelled concerns about phantom billing contained in the Whitla report. Holmes confirmed that he had input into the budgets and that he watched them like a hawk. He also testified that people often billed fees to incorrect projects in order to manipulate budgets and stay within them. If Holmes were inclined to engage in phantom billing, he had insider knowledge about which projects could bear it and which could not.

[282] Given the results of the Whitla report, the more useful analysis at that point would have been to demonstrate why Whitla’s analysis was flawed and to present one’s own analysis to the effect that phantom billing had not occurred. Soriano never proposed to do that. In fact, he admitted that he was never retained to conduct any analysis of phantom billing, even after receiving the Whitla report.

[283] Soriano testified that he reviewed the November 10th version of Exhibit 131 but did not perform any analysis on it, did not notice any missing network codes, and did not notice any missing functionality. According to Soriano, there was going to be a further discovery on it, and he wanted to see what the answers on discovery were before doing anything with the document. Soriano did not attend the additional discovery. He did not assist Holmes’ counsel by pointing out deficiencies in the November 10th document. He did not give counsel any questions or areas on which to examine CN for discovery.

[284] Soriano also never reviewed any of the earlier versions of Exhibit 131 that CN produced. Had Soriano looked at that data and provided a conceptual or directional analysis that supported the defendants’ position, their arguments about prejudice from delayed production may have had more weight.

[285] It strikes me that the defendants’ overall approach to Exhibit 131 and its predecessors was to find as many flaws as possible rather than using the document to advance even a directional defence. Their approach was to undermine CN’s case in the hope of persuading me that CN had not established its case on a balance of probabilities as opposed to mounting a proactive defence of their own. While that can be a valid defence strategy, it is a riskier one if it fails.

[286] I underscore that none of this is intended to be critical of Soriano. He struck me as a candid, direct witness who answered questions head on and did not shirk away from difficult issues. My comments about Soriano’s approach are not directed at him, but more so at what I perceive to be an effort by the defendants to gingerly craft questions for Soriano that would allow them to maintain complaints about Exhibit 131 when, in my view, the complaints had no practical effect.

[287] The defendants allege further prejudice because of a number of inadequacies in Exhibit 131.

[288] The defendants complain that Exhibit 131 does not allow them to track detailed network code estimates and actuals on a weekly and monthly basis. I do not understand how weekly or monthly tracking would assist the defendants defending against phantom billing because SAP data did not record the number of pieces of equipment rented on a particular network code but simply included the overall amount paid.

[289] The defendants pointed out that a number of network codes in Exhibit 131 contained no entries in their budgets. The defendants did not explain how that prevented a defence against phantom billing.

[290] The defendants criticized Exhibit 131 because corrective entries could be made in SAP by reopening a network code. The evidence was that one could reopen a network code if one had the requisite administrative authority to do so. That is not unusual. Most record keeping functions allow for changes to be made. That does not undermine the reliability of the record.

[291] The defendants complain that the final version of Exhibit 131 contained thousands of lines of changes which would have required them to undertake an entirely new analysis at the last minute. It appears that the thousands of lines of changes occurred because someone had replaced the word Canada with the initials CA. In addition, it appears that there were corrections to postings which were made on the first of the month when they should have been made on the 31st of the month or that items may have been billed in US dollars but recorded as Canadian dollars without applying the proper exchange rate. Those issues appear to have been relatively minor.

[292] Finally, Holmes submits that the phantom billing allegation should not be permitted because CN failed to produce labour module information from its SAP system that would have allowed him to demonstrate that the work was actually being done. Holmes’ theory is that if he had access to CN data which showed who was working on what site on a given day, he could demonstrate that the invoices his companies rendered were for work that was actually done.

[293] In this regard, Holmes relies on the evidence of Schamehorn, who testified that employees filled out timesheets indicating where and when they worked and that this information was put into the SAP system. Schamehorn agreed during cross-examination that it would be speculation to try to determine whether the work indicated on an invoice had actually been done merely by reviewing the invoice.

[294] Schamehorn’s evidence in this regard is tempered by three countervailing factors. First, any labour information would only show which CN employees were on a particular job site on a particular day. The Holmes Companies were billing for equipment rentals. CN records would not indicate whether particular equipment was being used on a particular day. Second, Soriano agreed in cross-examination that phantom billing would not be reflected in the timesheets or labour module data. Soriano noted that it would be more relevant to have the employment records and timesheets of the party that allegedly provided the equipment at issue, especially given that Holmes often provided operators with his equipment rentals. Third, the Holmes Companies had labour records which they did not produce. According to Holmes, his employees filled out timesheets, which were initialed by the jobsite foreman. Before the job sheets were introduced, his employees used 6 x 4 bill books in which they recorded their time and location. According to Holmes, Pole burned the timesheets and bill books during the course of the litigation. Holmes did not call Pole as a witness to confirm this allegation.

[295] In all of the foregoing circumstances, I do not believe that any of the problems associated with the development or delivery of Exhibit 131 caused any trial unfairness to the defendants.

D. Evidentiary Analysis of Phantom Billing

[296] If I am wrong in my view that the delays in pleading and disclosing particulars should preclude a claim for phantom billing, I would have found that the evidence at trial demonstrated, on a balance of probabilities, that phantom billing occurred. In my view, however, that finding is inherently flawed because the delays in pleading and disclosure made it unfairly difficult for Holmes to defend himself against the allegation. I will nevertheless analyse the evidence in the event that analysis becomes relevant for any potential later steps in this proceeding.

[297] Whitla expressed the opinion that there was phantom billing in his initial and reply reports. He used two methods to come to this opinion. First, he compared the profit margin of the Holmes Companies to that of comparator companies. Second, he conducted an analysis of equipment rentals to CN in March 2008 and concluded that the Holmes Companies had rented 65 more pieces of equipment to CN than they had available to rent.

[298] Holmes raises a number of objections to the Whitla analysis.

[299] First, Holmes submits that Whitla’s evidence at trial was considerably less equivocal than the way in which he expressed his views in his first report. After noting that the profitability of the Holmes Companies was significantly higher than that of comparator companies, Whitla stated at p. 7 of his initial report:

This indicates that the Holmes Companies were invoicing CN for goods and services without incurring the costs of providing those services. This would be representative of the situation where invoicing had taken place without the actual delivery of goods and services, and/or where billing rates were well in excess of industry norms.

At p. 40 of the same report, Whitla refers to the same profit margins and states:

This could be representative of a situation where invoicing had taken place without the actual delivery of goods and services.

[300] I would not read too much into the “would” or “could” qualifiers in these passages. On my reading of the report, Whitla is saying that the profit margins are a potential indicator of phantom billing. He recognized that high profits could also be the result of higher than normal billing rates. There was, however, no material evidence of that at trial.[^95]

[301] In addition, Whitla checked the directional conclusion that his analysis of profit margins suggested against an analysis of equipment use in March 2008. The latter showed that the Holmes Companies had billed CN for 65 more pieces of equipment in March 2008 than the Holmes Companies had available. Whitla also examined financial records to see if the Holmes Companies may have rented equipment elsewhere which they could use to make up the 65 unit deficit but found none.

[302] It is the combination of those overall circumstances that led to Whitla’s more definitive statements at trial compared to the statements in his initial report.

[303] Holmes further submits that the benchmarks against which Whitla compared the Holmes Companies were inappropriate.

[304] Whitla concluded that the Holmes Companies had a profit margin of 54.16% while comparator companies had margins of 4.2% to 9%. Whitla took his comparator margins from the Annual Statement Studies published by the Risk Management Association (“RMA”), a not-for-profit member-driven association that provides data from financial statements of over 250,000 commercial borrowers, classified into approximately 778 different industry categories.

[305] Holmes objects to the use of the RMA data because of the cautionary notes associated with it. By way of example, the RMA Annual Statement Study says:

RMA does not recommend using the Annual Statement Studies: Financial Ratio Benchmarks figures as absolute norms for a given industry. Rather, you should use the figures only as general guidelines and as a supplement to the other methods of financial analysis. RMA makes no claim regarding how representative the figures printed in this book are.

[306] RMA also identifies a number of other limitations to its data that would affect its reliability. These include the fact that the financial statements on which its data are based are not random; the industries are categorized by the companies’ primary product only and do not take into account other product lines; some industry samples are small in relation to the total number of companies in the industry; the data can be skewed by extreme or outlier financial statements; and the data does not adjust for operational differences in the companies that may affect their financial statements.

[307] Soriano noted that the RMA data contains averages of companies that lose money and companies that make money. As a result, one would expect profitable companies to have considerably higher profit margins than the average.

[308] Whitla’s benchmark profit margins were derived from a number of industry categories within the RMA data groups,[^96] but failed to consider RMA’s “Equipment Rental and Leasing” category, which Holmes submits relates more directly to the activities of the Holmes Companies. RMA data for that category reported more than double the profit margin of the comparator group that Whitla chose. Even so, that would result in a benchmark profit of approximately 9% to 18% compared to Holmes’ 54%.

[309] While I accept that the limitations on the RMA data would make one hesitate to use the data as an “absolute norm,” Whitla did not do so. Instead, Whitla used the RMA data as a potential indicator of phantom billing in the absence of any other explanation. One other explanation was that Holmes was billing at rates in excess of industry norms. As noted, there was no material evidence to that effect at trial. Whitla then tested the indicator of phantom billing against equipment charges for which Holmes billed CN in March 2008. That analysis confirmed the initial indicator from the profit margin analysis.

[310] Holmes also argues that Whitla never considered the possibility that Holmes donated services, such as accommodations for his employees, management fees, head office fees, and storage charges to his companies in a way that would reduce his operating expenses and did not study Holmes’ personal bank accounts to see whether such charges were incurred. I do not accept those arguments.

[311] Holmes had accountants prepare annual financial statements for each of his companies. If Holmes chose not to charge certain expenses, that was his decision. Indeed, one of the attractions of Holmes’ business model was that he did not have to pay head office or management fees aimed at, among other things, generating business and developing estimates. He already knew what he would have to price contracts at to win bids because he prepared the budgets, reviewed the bids of competitors, and chose the successful bidder. Moreover, the annual statements show substantial management fees being paid.

[312] Whitla considered whether the Holmes Companies had rented equipment from others to cover the short fall but could not find evidence to support that possibility. Holmes did not introduce any personal bank statements to demonstrate that he was in fact paying personally for corporate charges.

[313] Whitla’s analysis of equipment rental is contained in both his first report of April 2018 and in his reply report of May 2021. Holmes submits that Whitla’s reply analysis of rentals in March 2008 is improper because Soriano never received a mandate to analyse phantom billing or equipment rental in March 2008. As a result, there was nothing to reply to.

[314] While it may be that Soriano was not retained to analyse phantom billing or March equipment rentals, he nevertheless commented on Whitla’s analysis in his responding report of April 16, 2021. In paragraphs 7.17 and 7.18 of that report, Soriano indicated that counsel had advised him that evidence would be led during the trial to establish that Holmes had more equipment than Whitla had assumed because any one piece of equipment could be rented out more than once in a 24-hour period.

[315] In response to those comments, Whitla undertook a further analysis in his reply report and concluded that it was highly unlikely that using equipment in two locations in one day would support the billings of March 2008.

[316] In my view, that is proper reply. It arises out of a new theory set out in Soriano’s responding report. The Whitla reply report does not prejudice Holmes. If anything, it removes prejudice. CN could have foregone a reply report on this issue but could then have called Whitla as a reply witness to whatever evidence Holmes led about the point at trial. Given that CN had been provided information of Holmes’ intention to lead evidence about multiple uses in a single day, it was appropriate for CN to address the issue up front in Whitla’s reply report.

[317] The scenario Holmes posits would have a particular piece of equipment used on job 1 during the day, moved to job 2 for a night shift, and then returned to job 1 for the next morning. If it were even possible to move the equipment between jobs in that manner, it would mean that equipment was being used essentially 24-hours per day for prolonged periods.

[318] Holmes raises the following additional criticisms about Whitla’s analysis of the March 2008 billings:

(i) Whitla made no effort to determine whether March 2008 was a typical month. Holmes notes that in March 2008 CN experienced a derailment and a major blizzard, both of which increased the need for equipment rental.

(ii) Whitla took into account only seven backhoes when Holmes alleges there were eight.

(iii) Whitla failed to consider that equipment on standby for snow removal could be used for other purposes when not being used for snow removal.

(iv) Whitla failed to consider that equipment that the Holmes Companies had rented to Complete Trax on a monthly basis could be recalled for short term use to deal with an emergency, such as a derailment or a blizzard.

[319] My difficulty in accepting any of these defences is that Holmes did not call anyone to support his theories of equipment usage. Even if March 2008 was a busier month for equipment rental, Holmes provided no evidence about where he obtained the additional equipment, apart from his own general assertions. Although the directing mind of Complete Trax, Michael Sousa, testified at trial, Holmes did not ask him whether equipment that Complete Trax had rented could be or was recalled by the Holmes Companies for use on other projects. In apparent response to Whitla’s evidence that the bank statements of the Holmes Companies did not support short term equipment rentals from third parties, Holmes suggested that the short term rentals were charged to his credit card. He was able to point to only a single entry in support of this assertion — an entry on the general ledger of Complete Excavating for 2007 which reads:

1582 Equipment- Complete

10/20/2007 American Express Oct20 J1816 10,843.20[^97]

[320] Had there been short term rentals on the credit cards of the Holmes Companies for March 2008, presumably the general ledgers for those periods would have shown similar entries.

[321] Moreover, although Holmes purported to describe the enormous efficiency with which his companies were able to operate equipment for almost 24-hours per day for days on end by moving it from one job site to another and back again, he also testified that it was Pole and Brinker who were responsible for assigning equipment and operators to projects. As already noted, Holmes did not call either to explain that this is what they actually did.

[322] Although the RMA data and the March equipment analysis might be subject to criticism and might fall short of perfection, perfection is not the standard. Evidence at trial is often imperfect but courts are still required to make decisions based on the balance of probabilities taking into account the frailties of the evidence before them. In this light, the reasoning of Penny J. in Borelli v. Chan[^98] is instructive:

Canadian courts have applied this basic evidentiary principle to fraud and breach of fiduciary duty. Adverse inferences may be drawn against defendants as long as the plaintiff has made reasonable efforts to adduce evidence to link the defendant’s conduct to the harm suffered and the defendant provides no credible explanation. The court assessing damages will not demand exacting proof of the precise loss from fraud or breach of fiduciary duty, but instead draw an adverse inference against a defendant found to have been fraudulent or in breach of fiduciary duty unless that defendant leads evidence to disprove the amount or cause of the loss.

It is also a well-established legal principle that the Court is entitled to resolve evidentiary difficulties against the wrongdoer who created them. As the Ontario Court of Appeal ruled in Ticketnet Corp v. Air Canada, (1997) 1997 CanLII 1471 (ON CA), 105 O.A.C. 87, at para. 85: evidentiary difficulties should be resolved against the wrongdoer “where the wrongdoer’s own actions make it difficult for the innocent party to prove its loss or where the facts needed to prove the loss are known solely by the wrongdoer and the wrongdoer does not disclose these facts to the innocent party”.

[323] CN made a reasonable effort to produce evidence to link the conduct of the Holmes Companies to phantom billing and profit margins.[^99] Indeed, Soriano agreed with the analytical methodology Whitla used to analyse the March 2008 rentals.

[324] The defendants have made no effort to provide any competing analysis or explanation. Soriano was instructed not to provide any opinion on whether phantom billing had or had not occurred and was not asked to conduct his own analysis of the March 2008 rentals. Instead, the defendants focused on criticizing the analysis that CN tendered. The defendants have not presented any alternative data that presents a more accurate picture than Whitla’s analysis does. Nor have they produced any material evidence to demonstrate that their profit margins are in fact consistent with comparator businesses of their own choosing.

[325] In those circumstances, the Whitla analysis would, in the absence of any competing theory, have been sufficient to demonstrate phantom billing on a balance of probabilities had I permitted that claim to proceed.

IX. Conversion

[326] CN submits that Holmes is liable for conversion because he took scrap rail that belonged to CN and sold it to Trax Unlimited, a corporation owned by Sousa. CN’s evidence in this regard is based largely on Sousa’s evidence.

[327] Sousa’s evidence was subject to several challenges:

(a) A motion by Sousa to quash the summons under which CN compelled him to appear at trial;

(b) A motion by Holmes to strike out the claim based the principles set out in Aecon Buildings v. Brampton (City)[^100] and Handley Estate v. DTE Industries Limited;[^101]

(c) A motion by Holmes to quash the claim for nondisclosure; and

(d) A motion by Holmes to quash the claim for breach of the limitations period.

[328] For the reasons set out below, I dismiss the motions to quash the summons compelling Sousa to testify and to strike the claim based on Aecon principles. I grant the motion dismissing the conversion claim for nondisclosure and for breach of the limitations period. Had I not granted the motion to dismiss the conversion claim for nondisclosure, I would have found that Holmes committed the tort of conversion in respect of which CN would have been entitled to damages of $2,443,797.

A. Sousa’s Motion to Quash

[329] Sousa moved at trial to quash the summons compelling him to testify. I dismissed the motion at the conclusion of argument with reasons to follow. Those reasons are set out here.

[330] Sousa moved to strike CN’s summons to witness on the basis that the information to which CN wanted Sousa to testify was obtained as a result of a settlement agreement that released him, his wife Julie, his brother Rick, and their companies, Trax Unlimited and Compete Trax, from the action. As a term of the settlement, Sousa agreed to be interviewed by CN under oath. A court reporter transcribed the interview. At the outset of the interview, CN agreed that the information Sousa provided was “protected” and that the issues that were the subject of the settlement agreement would be “behind them.”

[331] A summons may be quashed where (a) the proposed witness has no relevant or admissible evidence; (b) the proposed evidence is not necessary or is extrinsic to the main evidence; or (c) where the summons is an abuse of process, or is issued for an ulterior, improper, or tactical purpose.[^102]

[332] Sousa clearly had relevant and admissible evidence. The evidence was necessary for CN to establish its allegations of conversion. It was also not extrinsic to the evidence or issues at trial.

[333] Sousa submits that the summons constitutes an abuse of process because it violates settlement privilege and forces him to incriminate himself.

[334] The questions Sousa was asked at trial do not relate to the settlement. They related to his activities with Holmes. The settlement had no bearing on those activities and did not affect them. Had Sousa wanted to avoid an obligation to testify truthfully in response to a summons to witness, he could have made it a term of the settlement that CN would not summons him as a witness at trial.

[335] With respect to Sousa’s concern about self-incrimination, in Canada, self-incrimination does not protect a witness against testifying. It merely prevents that testimony from being used against the witness in another proceeding.[^103]

[336] For the foregoing reasons, I dismissed the Sousa motion to quash the summons to witness.

B. Holmes’ Aecon Motion

[337] Shortly before the trial began, the defendants brought a motion to stay the proceeding. That motion was heard in writing because of an absence of hearing time before the commencement of trial. On May 7, 2021, I released a dispositive endorsement dismissing the motion with more detailed reasons to follow. Those reasons are set out below.

[338] The defendants base their motion on the principles articulated in Aecon, Handley Estate, and the cases that have followed them.

[339] The Amended Statement of Claim alleges that the Sousas participated in Holmes’ deceitful scheme to bill CN improperly. The amended claim does not tie the Sousas to the allegations of conversion. The Sousas never defended the action.

[340] CN settled with the Sousas in November 2011. The court and the defendants were advised of the settlement when it was reached but were not advised of its terms. In early 2012, the action was discontinued against the Sousas.

[341] Unbeknownst to Holmes, part of the settlement involved a process whereby Sousa would subject himself to an interview under oath. If CN was satisfied that he was telling the truth, CN would pay the outstanding invoices of the Sousa companies that CN had refused to pay since becoming aware of the allegations against Holmes.

[342] Sousa was interviewed on May 1, 2012. During the interview, Sousa disclosed that all invoices from Monterey to Trax Unlimited which, on their face were for consulting services, were actually payment for scrap rail that Sousa says Holmes directed him to pick up and purchase.

[343] Shortly after the interview, CN paid approximately $3,000,000 of outstanding invoices to the Sousa companies pursuant to the settlement.

[344] Aecon and Handley require that any change to the adversarial orientation of the litigation landscape be disclosed immediately and that the failure to do so amounts to an abuse of process which will result in a stay of the action.

[345] There is, however, a critical distinction between the cases applying the Aecon and Handley principles and the case before me. Cases that have stayed proceedings under Aecon and Handley involve situations where the defendant continued to be a party to the litigation even though they had become cooperative with the plaintiff. That is what underlies the abuse of process in those cases. The abuse consists of misleading the court and other parties about the adversarial relationship between the parties. One can assume that a defendant in a proceeding is adversarial to the plaintiff. A settlement that keeps the defendant in the proceeding but makes him friendly to the plaintiff misrepresents the true litigation landscape if it is not disclosed.

[346] Such situations arise most commonly out of Mary Carter or Pierringer agreements. A Mary Carter agreement is one pursuant to which a plaintiff settles with some but not all defendants. The settling defendants remain in the action but their liability to the plaintiff will never exceed that agreed to in the settlement even if the judge or jury ascribe a greater level of liability to the settling defendants. By remaining in the action, the settling defendants help the plaintiff either by cross-claiming against other defendants or by taking other steps to improve the plaintiff’s case against non-settling defendants.

[347] Pierringer agreements are similar but involve situations whereby the settling defendant is released from the action but agrees to cooperate with the plaintiff after it has been released.[^104]

[348] In Handley, the Court of Appeal extended the Aecon principle as follows:

The obligation of immediate disclosure is not limited to pure Mary Carter or Pierringer agreements. The disclosure obligation extends to any agreement between or amongst parties to a lawsuit that has the effect of changing the adversarial position of the parties set out in their pleadings into a co-operative one. To maintain the fairness of the litigation process, the court needs to “know the reality of the adversity between the parties” and whether an agreement changes “the dynamics of the litigation” or the “adversarial orientation.”[^105]

[349] Holmes suggests that more recent cases like Tallman Truck Centre Limited v. K.S.P. Holdings Inc.[^106] have taken Aecon further and require that all terms of any settlement with any party must be disclosed immediately. I do not share that reading of Tallman. In Tallman, Myers J. found an abuse of process because the settlement was not immediately disclosed. While Myers J. also referred to the terms not being disclosed, in my view, the reference to the terms were those that changed the litigation landscape. The critical portion of his reasons is found in paras. 66-68. It appears that the plaintiff had settled with one defendant. Part of the settlement involved the plaintiff bringing a motion for summary judgment, and the settling defendant filing a responding motion record in which it would take a position that supported the plaintiff’s motion, all without disclosing the settlement. That manner of proceeding amounted to a fundamental change in the adversarial positioning of the parties that was not disclosed to the court or the other defendants.

[350] The settlement between CN and the Sousas falls into a different category. The settlement was disclosed as soon as it was reached. The notice of discontinuance was disclosed when it was filed. Sousa’s examination occurred only after the action had been discontinued. By that time, there was no longer an adversarial relationship between the parties. No one could be misled into thinking that the plaintiff had an adversarial relationship with a party with whom it had reached a settlement or against whom it had discontinued the proceeding.

[351] Once the Sousas were released from the action, Holmes had no basis for thinking that their relationship with CN was adversarial. At that point, the Sousas were like any other person. They could be potential witnesses if they had relevant information. Nothing prevented Holmes from asking Sousa for an interview, just as nothing prevented CN from asking. Similarly, if a party interviews a witness in relation to an action, nothing prevents them from making notes or a transcript of the interview.

[352] The fact that a plaintiff has interviewed a potential witness and found their information to be helpful does not require the plaintiff to disclose that information to a defendant unless the information is responsive to questions that the plaintiff is asked on discovery.

[353] As a result of the foregoing, I dismissed the defendants’ motion to strike the claim based on the principles set out in Aecon and Handley.

C. Holmes’ Motion to Strike for Nondisclosure and Limitations

[354] Holmes made a further motion to strike the claim in its entirety or, in the alternative, strike the conversion allegations based on nondisclosure and a limitations defence relating to the conversion allegations.

[355] Paragraph 44(f) of the Amended Statement of Claim alleges that Holmes:

[U]nlawfully took and sold for his personal profit or that of the Holmes Companies significant amounts of CN rail and trackage materials, thereby creating the needed liquidity to make the capital investments necessary in setting up the Holmes Companies and business.

[356] That was not the conversion claim advanced at trial.

[357] Conversion in the Statement of Claim had nothing to do with the Sousas. Conversion at trial only concerned the Sousas. Conversion, as pleaded, suggested that the alleged misuse of track material occurred when the Holmes Companies were created to provide them with cash to make capital investments. Conversion at trial occurred between 2002 and 2006.

[358] Although other paragraphs of the Amended Statement of Claim speak of the Sousas and their companies, they do not allege any involvement on their part in conversion.

[359] Holmes asked for particulars of the conversion claim during an examination for discovery of CN on January 25, 2016. He was told he would get particulars by way of undertaking. Holmes also asked for a summary of the evidence CN expected the Sousa’s to provide at trial. The answer to that question was taken under advisement together with the comment that counsel did not think CN had any obligation to provide that information under the Rules of Civil Procedure.

[360] CN answered the undertaking to provide particulars of the conversion claim on October 31, 2016 by saying: “Delivery of this answer is ongoing.”

[361] That answer was inaccurate. No answer had been given at all to that date even though CN already had a full answer as a result of their interview of Sousa in May 2012. Information from that interview was directly responsive to the request for particulars of the conversion allegation and should have been provided either during the examination for discovery or shortly thereafter. If a party asks questions during an examination in respect of which the examinee has answers as a result of witness interviews, the examinee is obliged to disclose that information.[^107]

[362] Holmes did not learn that CN intended to have Sousa testify about conversion until August 14, 2020, after I ordered CN to produce a summary of the evidence CN expected Sousa to give at trial.

[363] Sousa resisted production of the transcript of his interview until I ordered it produced. That process took some time and it was not produced until shortly before trial.

[364] Holmes submits that the failure of CN to provide information in a timely way thwarted his ability to conduct reasonable discovery and prevented him from knowing the case he had to meet until very late in the day. He argues that the late disclosure of particulars about conversion meant that he was unable to obtain documents from the Sousas, unable to bring a cross-claim or third-party claim against them, and has been denied the opportunity to make strategic decisions in the litigation that might have arisen as a result of the knowledge that the Sousa defendants were supporting CN’s conversion allegations.

[365] The inability to obtain relevant documents is particularly germane here. The settlement agreement required the Sousas to preserve all relevant documents. At trial, Sousa testified that he did not recall being made aware of this provision and that he did not preserve documents. Had Holmes been made aware of the particulars to which he was entitled at an earlier stage, he may have been able to compel production of those documents. Sousa testified that he did not destroy any documents before his interview with CN in 2012.

[366] Exactly when the documents went missing or were destroyed was not clear from the evidence. To the extent CN argues that the documents were likely destroyed before the examination for discovery, I do not accept that argument. Having behaved as it did, it does not lie in CN’s mouth to speculate that its conduct caused no harm.

[367] Although CN did not argue the point, I note that in a further discovery on October 31, 2016, Holmes asked for production of all documents related to the discontinuance of the action against the Sousas, particularly any agreement between CN and the Sousas. That question was refused on the basis of settlement privilege. The answer was explained as follows:

Regarding the Sousas, any documents regarding any interviews, either under oath or otherwise, are protected by settlement privilege. CN is not permitted to disclose these documents.

[368] It might be argued that this put Holmes on notice that CN might have information from the Sousas that it was not producing, thereby leaving it open for Holmes to move aggressively for production. I do not find that argument persuasive. Given that Holmes is presumed not to have engaged in conversion until CN proves otherwise on a balance of probabilities, Holmes could not be considered to have any knowledge that the Sousas evidence would relate to conversion. There were a number of other allegations in the claim in which the Sousas were also involved, including the use of their address as a mailing address for one of the Holmes Companies, the presence of Flynn as a director of a Sousa company, and other transactions between the Holmes Companies and the Sousa companies.

[369] Moreover, the knowledge that CN claimed settlement privilege over certain documents did not excuse CN from the obligation to provide particulars of conversion when asked to do so. If CN believed that it was precluded from providing particulars of conversion by its settlement agreement with Holmes, then it should have been forthright about that and explained that they could not provide particulars because they were precluded from doing so by a settlement agreement with the Sousas. That would have put the issue squarely on the table and would have allowed Holmes to move for particulars in a timely manner.

[370] Holmes also argued that I should disallow the conversion claim because CN refused or failed to produce documents Holmes required to disprove the conversion allegations, including the scrap folder on his CN issued computer. Holmes says the scrap folder contained weigh bills specifying the precise quantity of scrap rail collected from project sites, the territory from which the scrap originated, where the scrap was eventually transported, and the corresponding inventory records maintained by CN Supply Management. In response to an interrogatory asking for production of this information, CN responded:

CN maintains its position that it has already produced all relevant records contained in Mr. Holmes’ laptop, desktop, and CN’s network drive.

[371] That is an inappropriate, unresponsive answer. A more appropriate answer would have been one that specifically said what CN had disclosed. For a litigant to tell a court that it has produced all relevant records, without saying what it has actually produced is neither helpful nor persuasive. I am particularly concerned about the non-responsiveness of the answer because CN was directed in several case conferences to provide more particulars than it had. Ultimately, I was told that the search terms that CN used to search Holmes’ computer were contained in a motion record from August 20, 2009. That motion record was not in the record before me.

[372] Although CN’s answer to Holmes’ production requests is inappropriately oblique, it is less material to my conclusion to disallow the conversion claim for lack of disclosure. It strikes me that Holmes’ computer is potentially less relevant. CN does not say that Holmes converted all of its scrap rail. The allegation is that a portion of scrap rail was diverted to Sousa. The fact that Holmes may have detailed records on his CN issued computer does not assist in disproving that some of the scrap was diverted. Presumably Holmes would not be keeping detailed records of the scrap that he diverted to the Sousas.

[373] I am sufficiently concerned about the lack of notice of conversion to disallow the claim for it. CN became aware of its full conversion claim during the Sousa interview in 2012. What it became aware of was quite different than what it had pleaded in the Statement of Claim. It did not amend the Statement of Claim and did not otherwise notify Holmes of what the conversion claim was truly about. When it was specifically asked for particulars in 2016, CN obfuscated and did not provide particulars. Holmes did not become aware of the actual claim for particulars until 2020, when I ordered CN to disclose to Holmes exactly what CN expected Sousa to say at trial. That was 8 years after CN had full knowledge of its claim.

[374] As noted earlier, tactical approaches to disclosure are improper. They delay the trial process, impede settlement, and deprive a party of the ability to respond to allegations. This fundamentally undermines the fairness of the trial process.

[375] In these circumstances, if the claim cannot be barred for lack of disclosure, it should be barred as running afoul of the Limitations Act, 2002.

[376] The conversion allegations in the Statement of Claim are materially different from the conversion allegations raised at trial. While courts should make generous allowance for plaintiffs who are unable to plead properly because of misfeasance on the part of the defendants, that was not the barrier to a proper pleading of conversion here. The barrier was CN’s refusal to amend or provide particulars.

[377] In my view, the combination of knowledge of particulars, the failure to amend, and the refusal to provide particulars in a timely manner when they were specifically asked for also amounts to an abuse of the court’s process, such that it would be unfair to allow the claim to proceed.

D. Findings on Conversion

[378] If I am found to be wrong in disallowing the conversion claim because of CN’s failure to provide responsive particulars in a timely manner, I would have allowed the conversion claim and found Holmes liable to CN for conversion in the amount of $2,443,797.

[379] Conversion is the wrongful taking, using, or destroying of goods inconsistent with the title of the owner. The elements of the tort are: a wrongful act, involving a chattel, consisting of handling, disposing or destruction of the chattel, with the intent or effect of denying the title of another person.[^108] A theft constitutes conversion.[^109]

[380] Sousa testified that Holmes asked him to collect scrap rail on CN property and pay for it by writing cheques from Trax Unlimited to Monterey or its predecessor 1340619 Ontario Ltd. Sousa says he made purchases of that nature between 2002 and 2006. Although Sousa testified that he rented equipment from time-to-time from Complete Excavating, he rented no equipment from Monterey. According to Sousa, all cheques to Monterey were for scrap rail. Most of the invoices from Monterey to Trax Unlimited were, on their face, for consulting services. Sousa testified that he received no consulting services from Monterey. Between 2002 and 2006, Trax Unlimited paid Monterey a total of $2,443,797.

[381] Holmes agreed in cross-examination that he provided no consulting services to Trax Unlimited. He asserted that it was his accountant who called them consulting services. Holmes did not explain how his accountant came to provide particulars of the invoice description nor did he call any accountant to corroborate his version of events.

[382] If I accept Sousa’s evidence, there is no doubt that the conduct to which he testified amounts to conversion for which Holmes is liable.

[383] Holmes raises a number of challenges to Sousa’s evidence.

[384] First, Holmes attacks Sousa’s credibility. Holmes argues that CN’s promise to pay $3,000,000 in outstanding invoices to Sousa’s companies if it was satisfied that Sousa was telling the truth in his 2012 interview is essentially the exchange of money for favourable evidence and constitutes a significant barrier to Sousa’s credibility.

[385] I do not accept that suggestion. Sousa struck me as a candid, careful, and straightforward witness. Holmes’ counsel made no dent in his credibility during cross-examination. Sousa was clearly not an eager witness. His lawyers made aggressive efforts to prevent him from having to testify. Sousa also indicated that he had not spoken to anyone from CN or CN’s counsel since his interview in 2012.

[386] Holmes argued that CN did not actually believe Sousa and that, as such, I should not either. Holmes based this submission on Sousa’s statement to CN that David Roy was worse than Holmes in asking for money. According to Sousa’s statement to CN, Roy was constantly asking Sousa for money for scrap rail and other things. Rather than being terminated, Roy was promoted. Holmes submits that this demonstrates that CN did not believe Sousa. I am not prepared to draw an adverse conclusion about Sousa’s credibility based on this submission. The allegations about Roy are irrelevant. Roy was not on trial, Holmes was.

[387] Holmes argued further that it would have been impossible to convert any of CN’s old rail because CN kept detailed inventories of it down to the foot. I do not accept that argument. The evidence at trial was that approximately 500 miles of rail is exchanged in Ontario every year. Each mile contains approximately 3,000 rails. Scrap rail was piled alongside the tracks by the hundreds. As a practical matter, it is impossible to count each rail. If a certain percentage goes missing, it is unnoticeable regardless of the inventory system used. Holmes agreed that some scrap rail was not properly inventoried and was stolen from time-to-time.

[388] As both Program Supervisor and Track Supervisor, Holmes knew where scrap was to be picked up. As a Program Supervisor, Holmes was responsible for the mechanics of dealing with scrap in his territory. As Track Supervisor, Holmes decided whom to sell the scrap to.

[389] Given that I have accepted the evidence of Sousa, I would have allowed the claim for conversion but for the disclosure and limitations issues.

PART TWO: REMEDIES

[390] The primary remedy CN seeks is disgorgement of profits from the defendants. Before addressing that and other remedies, I will address the defendants’ request that no remedy be granted even if I find them liable.

I. The Defendants’ No Remedy Request

[391] The defendants submit that no remedy should be awarded against them even if I find them liable for any breaches because they have already lost $7,000,000 in assets as a result of what they submit was an excessively time-consuming and expensive receivership and monitorship of their affairs.

[392] In this regard, Holmes relies on the Supreme Court of Canada’s decision in Strother v. 3464920 Canada Inc.,[^110] where the Court warned that “equity is not so rigid as to be susceptible to being used as a vehicle for punishing defendants with harsh damage awards out of all proportion to their actual behaviour.”[^111] The Court added that a “stringent rule” requiring a fiduciary to account for profits should never be “carried to extremes and ... in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff.”[^112] Holmes submits that disgorgement would have that effect here because the receivership has already used over $7,000,000 of his assets.

[393] I am unable to accede to the defendants’ request. While I agree that the receivership was excessively time-consuming and expensive, on my view of the record the time and expense are attributable to the conduct of Holmes and Flynn.

[394] The Receiver issued 19 reports, which were admitted into evidence at trial for the truth of their contents. Those reports show that Holmes and Flynn engaged in a lengthy pattern of conduct that increased the cost of the receivership. That conduct included dissipating assets on the eve of the Mareva injunction, failing to provide accurate information, obstructing access to assets, issuing unauthorized mortgages, and making false allegations against CN employees and the Monitor.

A. The Greyslone and Belview Transactions

[395] The first steps Holmes took to increase the time and cost of the receivership arose on the eve of the Mareva injunction and are known as the Greyslone and Belview transactions.

[396] Holmes and Flynn became aware of the Mareva injunction on August 6, 2008. That is the date on which Holmes’ local lawyers contacted Lerners LLP looking for representation. Holmes does not deny speaking with lawyers on August 6. Rather, he simply says he does not recall doing so.

[397] On August 7, 2008, Holmes and Flynn entered into 12 separate transactions which caused $1.1 million to be moved out of their company and personal accounts in an effort to put those assets beyond the reach of the court. Approximately $478,020 was recovered by the Receiver. The balance of $661,000 has never been recovered.

[398] The $661,000 was transferred from the Holmes accounts to be BMK Lawyers, allegedly as repayment of debts that Holmes and the Holmes Companies owed to two Bahamian companies, Greyslone Ltd. and Belview.

[399] BMK lawyers then transferred the funds to Robert Lof, a sole practitioner in Mississauga. Lof testified that he had been retained by Richard Czerlau in connection with some sort of a tax planning exercise pursuant to which he was instructed to pay $130,000 of the funds he received to Cline Backus, a law firm in Simcoe, Ontario (where Holmes lives) and to transfer the balance to a numbered bank account in Zurich. Lof then received a further $65,000 that he also transferred to the Zurich bank account. Lof did not know why the money was being transferred to Zurich. Lof was told that the funds were being transferred on behalf of Greyslone and Belview. Lof provided no legal advice in connection with the transactions.

[400] Holmes’ evidence about the payments to Greyslone and Belview was as follows: He had met an individual named Mark Lehman years ago when both Lehman and Holmes were involved in “Team Canada Desert Racing”, a group that fielded cars to race in the Baja 1000 (a race through the deserts of Baja California in Mexico). Lehman allegedly lent Holmes money. Holmes cannot recall the exact amount. The funds came from Lehman directly. When promissory notes were signed for the loan, Greyslone and Belview were listed as payees on the notes. Holmes says he used the money to pay for different equipment and properties. He serviced the loan over the time. By the time of Holmes’ termination by CN, Lehman had died. After CN terminated his employment, Holmes got hold of someone whose name he does not recall to pay off the loans. The person he got hold of directed him to pay the money to BMK lawyers.

[401] Holmes was unable to point to any banking or financial record evidencing receipt of any monies from Lehman, Greyslone, or Belview. The only record Holmes could point to was a one line item in a report that Holmes had prepared by Cole & Partners for this litigation. It simply refers to promissory notes from Greyslone and Belview and is based on information from Holmes. Neither Holmes nor the Cole & Partners report point to any bank account entries or other financial transfers showing receipt of funds or any payment of the loan. On cross-examination, Holmes admitted that there were no records of the loan amounts that he could recall. Holmes says he made interest payments on the loans but there were no records of that because the payments were made in cash.

[402] Richard Czerlau was examined for discovery by CN on behalf of Greyslone and Belview. Czerlau claims to have been an employee retained by the beneficial owners of both corporations. Czerlau refused to identify the owners. Although both corporations purported to have security against the defendants’ assets, that security was registered after the Mareva injunction had been granted.

[403] Holmes claims he did not meet Czerlau until 2011. Czerlau was, however, affiliated with the Team Canada Desert Racing team before 2008, just like Holmes and Lehman were. Czerlau was also Flynn’s boss at a winery that she worked at after Holmes was terminated from CN and was purportedly the CEO of an investment fund to which Holmes sent additional amounts to put them beyond the reach of the court. Czerlau is also the author of a book on tax havens.

[404] The Greyslone and Belview transactions were the subject of two res judicata motions at the outset of trial.

[405] The first res judicata motion was based on findings that Justice Hainey made in 2016 to the effect that Greyslone and Belview had been struck from the Bahamian Companies register before they supposedly lent money to Holmes. As a result, they were incapable of lending money to or taking security from Holmes.

[406] All parties agreed that the findings of Justice Hainey were subject to the principle of res judicata. Holmes nevertheless submitted that I had discretion to exclude the findings of Hainey J. at trial and asked that I do so. At the conclusion of argument on the motion, I indicated that I would not exclude Justice Hainey’s findings, with reasons to follow.

[407] For issue estoppel to be successfully invoked, three preconditions must be met: (i) the issue must be the same as the one decided in the prior decision; (ii) the prior judicial decision must have been final; and (iii) the parties to both proceedings must be the same or their privies.[^113] The findings of Hainey J. meet each of these three conditions.

[408] Moreover, the findings of Justice Hainey were made on a motion for summary judgment in this proceeding. He specifically noted that:

Summary judgment on these issues will make the trial with respect to the allegations by CN against Mr. Holmes and his other co-defendants more efficient and most likely will eliminate Greyslone and Belview as parties at the trial.

[409] In other words, Hainey J. specifically intended for his ruling to bind the trial judge. In those circumstances, I would effectively be overruling Justice Hainey if I elected to treat his findings as anything but binding on me.

[410] Hainey J. found that Greyslone and Belview did not have any legal status in the Bahamas when the loans were allegedly advanced. He found that they had no capacity to enter into loan transactions or to create security interests and that, as a result, they had no entitlement to the $661,000 that had been transferred to Zurich.

[411] In the foregoing circumstances, I do not believe that it would be appropriate to exercise my discretion to exclude the findings of Hainey J. from the trial and decline to do so.

[412] Hainey J. further ordered that the funds transferred to BMK be fully accounted for within 30 days. No accounting has been provided.

[413] The second res judicata motion involves a decision of Justice Dunphy. It falls into a different category and should, in my view, not be characterized as res judicata.

[414] Dunphy J. found that Greyslone and Belview were not operating at arm’s length from Holmes. That decision was rendered on an interlocutory motion for non-party discovery. Holmes took no position on the motion and did not participate in it.

[415] To successfully assert issue estoppel, CN must demonstrate that the point in question was directly at issue in the previous proceeding. The requirements of issue estoppel will not be met if the finding arose collaterally, incidentally, or inferentially. The finding in the earlier proceeding must also have been made in a final judgment between the same parties or their privies in interest.[^114]

[416] In my view, it would be an unfair to characterize as res judicata findings made on a motion seeking relief against a non-party and on which Holmes took no position. It would be additionally unfair because the findings were coincidental to the motion itself.

[417] The principal behind res judicata is not to apply a form of judicial “gotcha” but to avoid duplicative litigation of the same issue. Determining at trial whether Greyslone and Belview were at arm’s length from Holmes would not duplicate the issue litigated before Dunphy J. Indeed, the arm’s length nature of the relationship between Holmes, on the one hand, and Greyslone and Belview, on the other, was at best collateral or incidental to the issue of non-party production before Dunphy J. The sort of evidence that could be led on that issue at trial is considerably broader than the evidence that could be led on the production motion. Holmes also notes that the findings of Dunphy J. were just that, findings. They were not dispositive provisions in his order. An appeal is taken from an order, not from findings. Holmes submits that he therefore had no ability to appeal the order of Dunphy J., which would make holding him to those findings even more unjust. I share these concerns and therefore declined to hold that the findings of Dunphy J. were subject to the principles of res judicata.

[418] That said, the evidence at trial leads me to the same conclusion Dunphy J. reached. In my view, Greyslone and Belview were simply shams and fronts for Holmes. The lack of a single financial record for a loan of $661,000 is implausible. I find that there were no loans from Greyslone, Belview, or Lehman. The promissory notes and the security are simply another attempt by Holmes, successful so far, to put these assets beyond the jurisdiction of this court.

[419] I also find that Flynn is as culpable as Holmes with respect to the fund transfers immediately preceding the Mareva injunction. Flynn’s answers to questions at trial about her involvement in those transfers included the following:

(i) She did “not recall” having anything to do with the transactions “off the top of her head.”

(ii) She did “not recall” bringing $7,000 in cash to Brimage Tyrrel.

(iii) Although funds were removed from accounts over which she had signing authority, she “did not know the intricate details” of the withdrawals and did not have a “vivid recollection” of them.

(iv) She knew of the transfers when they occurred and says she believed they were being transferred to pay off debt.

(v) She agreed to transfer the funds on the instructions of Holmes.

(vi) She did what Holmes asked and did not ask any questions.

[420] For Flynn to engage in 12 fund transfers on one day, several of which essentially emptied the contents of the accounts, without asking any questions is, again, a breach of her duties as an officer and a director of the Holmes Companies and amounts to willful blindness.

[421] The Greyslone and Belview transactions were attempts to obstruct the receivership that the Receiver was fully justified in pursuing.

B. Failure to Provide Accurate Information

[422] The Receiver’s reports demonstrate that Holmes and Flynn persistently disregarded their obligations under various court orders. This greatly increased the cost of the receivership. By way of example, p. 14 of the Receiver’s Fifth Report, dated August 10, 2009, states:

[The Receiver] does not believe Holmes has provided full, complete and timely information to the Receiver, nor does it appear that some of the information provided by Holmes has been truthful. The result of such actions by Holmes has resulted in considerable additional time, money and effort being expended to obtain and check the veracity of the answers, information and requested documents.

[423] One of the principal pieces of information that Holmes consistently failed to produce to the Receiver were his accounting records. Holmes asserted that there had been a flood in his basement that destroyed the accounting records. I do not accept that as a valid explanation for his failure to provide accounting records to the Receiver for two reasons. First, Janice Holmes testified that the accounting records were kept in a second-floor storage area in their barn, not in the basement of their home. Given the significant problems in Holmes’ reliability and credibility, I accept Janice Holmes’ evidence in that regard. Holmes agreed that he kept records in the barn but said not all corporate records were kept there. He then explained that most of the corporate records were with his accountants, the Bossey Group. When it was put to him that the Bossey Group had returned the records to him, Holmes said he was not aware of that.

[424] Second, even if I am wrong in accepting Janice Holmes’ evidence, the flood does not excuse production of accounting records. As the Receiver noted, the accounting records for 2006 were in the possession of the accountants when the flood occurred. Holmes never produced those records. Nor did he produce the records for 2007 and 2008, which were created after the flood.

C. Obstructing Access to Assets

i. The Florida Properties

[425] Holmes and Flynn purchased two properties in Florida using money from CN. The Receiver attempted on numerous occasions to access those the properties to conduct appraisals. Holmes and Flynn refused access. On May 21, 2009, Holmes advised the court and the Receiver that he would not cooperate in allowing access to the Florida Properties and the Receiver should take whatever steps it deemed necessary.

ii. The Automobiles

[426] The initial receivership order authorized the Receiver to take possession of automobiles owned by Holmes. These included higher value automobiles such as a Ferrari, a 1963 Corvette, a 1973 Plymouth Barracuda, and a 2004 Dodge Viper. An order dated March 12, 2009 expressly authorized the Receiver to seize the vehicles.

[427] On March 21, 2009, Holmes advised the court that he would cooperate with the Receiver and arrange for a mutually convenient time at which the Receiver could remove the vehicles.

[428] On May 21, 2009, Holmes told the court that the 1963 Corvette was on his property in Florida. That was not true. Holmes had in fact sold the Corvette on May 20, 2009 to GTA Fine Automobiles in Toronto.

[429] When the Receiver wrote to arrange a time to attend to seize the automobiles, Holmes responded on May 29, 2009, asking for the authority under which the Receiver sought the vehicles. When the Receiver returned to court on June 3, 2009 because of the lack of cooperation, Holmes was asked why he was not cooperating. Holmes advised the court that:

[M]y objection right now is it is not a necessity right now that he has to do that.

That statement was made after court orders were issued empowering the Receiver to seize the vehicles and after Holmes had promised to cooperate.

[430] On June 3, 2009, Holmes also advised the court that the Barracuda was located in a body shop and had monies owing on it for alleged repairs. That was untrue. Holmes had sold the Barracuda and two other cars on May 7, 2009, without advising the court or the Receiver.

[431] Holmes and Flynn had consistently advised the Receiver that the Ferrari was in a disassembled state with Team Canada Desert Racing in Mexico. In fact, Flynn had sold the Ferrari to GTA Fine Automobiles on May 7, 2009. The Ferrari was registered in Flynn’s name even though she never drove it and did not know how because she could not drive a car with a manual transmission.

iii. Transfers to Blue-Chip

[432] After selling cars worth $245,000 despite the Mareva injunction and the order authorizing the Receiver to seize them, Holmes says he invested those funds with Blue-Chip Euro Growth. Holmes also says he invested the proceeds of a mortgage that he placed on his Florida properties with Blue-Chip.

[433] Exhibit 161 is a news clip from Business Wire dated September 6, 2000. It identifies Czerlau as president of Blue-Chip. Holmes claims he was unaware of this. Instead, Holmes’ explanation of his contact with Blue-Chip was as follows. He says that he met a man named Ken at an airport hotel through whom he made the investment. Holmes does not know Ken’s last name. Holmes received no receipt or certificate for his investments and claims not to know where Blue-Chip’s offices are.

[434] The avowed purpose of transferring the money to Blue-Chip was to secure funds for future legal expenses. Holmes does not explain why those funds were not secure in Ontario or why the funds were not transferred to an Ontario lawyer’s trust account instead of giving them to “Ken” at an airport hotel.

[435] The Receiver was required to bring a contempt of court motion before Holmes would re-pay the $245,000 generated on the sale of the automobiles.

iv. Unauthorized Mortgages

[436] On May 8, 2009, Holmes granted a mortgage on his Simcoe residence in the amount of $90,274 to Leo Tulpin. Holmes neither notified the Receiver of the mortgage nor obtained the Receiver’s consent. This was in breach of the Mareva order. In addition, Holmes failed to produce any evidence to support any alleged debt owing to Tulpin to justify this mortgage.

[437] On the same day, Holmes and Flynn placed a $400,000 mortgage on their Dory Lane property in Florida — again without notifying the Receiver or obtaining its consent. That too breached the Mareva injunction. Holmes and Flynn repeatedly failed to discharge the mortgage, in breach of a further court order dated August 24, 2009.

v. False Allegations

[438] During the course of this litigation, Holmes made allegations against senior CN employees, to the effect that they had received kickbacks which they deposited into Swiss bank accounts. He also alleged that the Receiver had received kickbacks. This required further steps by the Receiver to investigate and dispel those allegations.

[439] In addition, Holmes gave thousands of CN productions to a third party which documents ended up in the hands of a media outlet that was about to disseminate them until CN obtained an injunction restraining further distribution.[^115]

[440] Holmes and Flynn now say that the core issue in this action is whether Holmes owed and breached fiduciary duties to CN and, if so, what the remedy, if any, should be for such breach. They say now that this could have been resolved as a simple question of law. They did not, however, take that approach in the 13 years before trial. Rather, their conduct throughout the litigation reflected a scorched earth approach which rejected cooperation or efficiency. They now want to place the cost of that approach on to CN. In my view, that is inappropriate. If Holmes and Flynn feel that disgorgement would be disproportionate because of the cost of the receivership, they have only themselves to blame.

II. Disgorgement

[441] As noted earlier, CN seeks disgorgement of the profits of the Holmes Companies as its primary remedy. CN relied on Whitla’s “sources and uses” analysis, as well as Exhibit 124 (an excel spreadsheet containing certain data extracted from CN’s SAP system), to determine the amount it says must be disgorged. The defendants raise the following issues to resist disgorgement:

(a) Disgorgement is inappropriate because CN has suffered no damage.

(b) Whitla’s sources and uses analysis should be excluded from evidence.

(c) Exhibit 124 should be excluded from evidence.

A. Disgorgement and Damage

[442] Holmes submits that disgorgement is not the appropriate remedy in this case because CN has failed to demonstrate that it has suffered any damage. In doing so, he relies on Hodgkinson v. Simms[^116] and its statement to the effect that

[T]he proper approach to equitable compensation for breach of a fiduciary duty is restitutionary in nature. On this approach, the appellant is entitled to be put in as good a position as he would have been in had the breach not occurred.

[443] Holmes adds to this quotation the submission that, as a result of his efforts, CN obtained contracts at a lower price than it otherwise would have, which in turn generated greater profit for CN. In the end result, CN suffered no damage and is in fact in a better position than it would have been in had it not contracted with the Holmes Companies. On the facts of this case, I do not find this argument persuasive.

[444] Hodgkinson does not, on my reading, abrogate the general principle that a fiduciary is liable to disgorge profit. Rather, the statement quoted above was made in the context of the facts of that case. In Hodgkinson, the plaintiff sought advice tax advice from the defendant, an accountant who specialized in tax planning and sheltering. The defendant recommended that the plaintiff invest in a particular real estate venture. The plaintiff followed the accountant’s advice but lost heavily during an ensuing decline in the real estate market. As it turned out, the accountant was also acting for the developer of the real estate project in which he advised the plaintiff to invest. The accountant had not disclosed that relationship to the plaintiff. The Supreme Court of Canada awarded damages in the amount of the plaintiff’s loss on the investment, which put the plaintiff into as good a position as he would have been had the breach not occurred.

[445] If anything, Hodgkinson demonstrates the strictness with which courts apply fiduciary duties because disgorgement of the accountant’s profit would have amounted to disgorgement of the fees he earned from the plaintiff and would not have compensated the plaintiff for the loss suffered.

[446] Despite the adoption of another remedy in Hodgkinson, disgorgement remains widely available for both legal and equitable wrongs. While courts most commonly order disgorgement for breach of fiduciary duty, it is also available for breach of contract, breach of confidence, and conversion.[^117]

[447] Remedies for breach of fiduciary duty serve two main purposes: compensation and deterrence. Compensation is achieved primarily through restitution or damages. Deterrence is achieved primarily through disgorgement.[^118] Deterrence prevents fiduciaries from benefitting from their wrongdoing and maintains the integrity of the fiduciary relationship.

[448] A remedy for breach of fiduciary duty can be aimed at one or both of compensation and deterrence. The role each one plays depends on the facts of the case at hand.[^119] In Strother, the Supreme Court of Canada ordered disgorgement of profits not to make the beneficiary whole but to ensure that the faithless fiduciary did not profit from his wrongdoing:

Where, as here, disgorgement is imposed to serve a prophylactic purpose, the relevant causation is the breach of a fiduciary duty and the defendant's gain (not the plaintiff's loss). Denying Strother profit generated by the financial interest that constituted his conflict teaches faithless fiduciaries that conflicts of interest do not pay. The prophylactic purpose thereby advances the policy of equity, even at the expense of a windfall to the wronged beneficiary.[^120]

[449] In other words, Holmes’ argument that contracting with his companies allowed CN to obtain contracts at a lower price than they otherwise would have does not necessarily win the day. While that argument may be an appropriate factor to consider on a proper record, it is not determinative. I also note that Holmes did not introduce any evidence of the bids he rejected in favour of contracts with his own company.

[450] More recently, the Supreme Court of Canada reviewed the principles relating to disgorgement in Atlantic Lottery Corp. Inc. v. Babstock and confirmed that disgorgement is a gain-based remedy that is:

…calculated exclusively by reference to the defendant’s wrongful gain, irrespective of whether it corresponds to damage suffered by the plaintiff and, indeed, irrespective of whether the plaintiff suffered damage at all.

…disgorgement requires only that the defendant gained a benefit (with no proof of deprivation to the plaintiff required)...[^121]

[451] Belobaba J. developed this concept further in MacDonald et al v. BMO Trust Company et al.[^122] as follows:

The accounting of profits remedy focuses on the defendant's gain, not the plaintiff's loss, and is available even in cases where no actual loss can be established. The reason for this, as made clear over centuries of case law, is the need to ensure that trust and fiduciary obligations be taken seriously and wrongdoers be deterred from breaching these obligations…

The Court of Appeal made the same point in Mady Development v. Rossetto:

Deterrence is of particular importance where the beneficiary suffers no identifiable loss.

Causation. The defendants are right. A causal relationship between the breach of fiduciary duty and the profits is required for an accounting to be ordered. In Strother, however, the Supreme Court concluded that in cases where disgorgement (an accounting of profits) is imposed to serve a prophylactic purpose, the relevant causation is the breach of a fiduciary duty and the defendant's gain (not the plaintiff's loss).

When I add the deterrence factor to the balancing process, the scale tips decidedly in the plaintiff's favour. The Court of Appeal has confirmed that the equitable remedy appropriate for a particular case should “address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships.”

[452] Those comments are apposite here. The entire basis of a fiduciary relationship is trust. The beneficiary must be able to trust the fiduciary to act in the beneficiary’s interest alone and avoid all conflicts. It still remains possible for fiduciaries to benefit from the relationship in addition to whatever fee or salary they earn from the relationship if they obtain the beneficiary’s fully informed consent.

[453] If fiduciaries were allowed to benefit from the relationship by acting in their own interests without the beneficiary’s consent, it would be all too easy for any fiduciary to engage in self-dealing and claim that the beneficiary was still getting a more advantageous bargain than it otherwise could. That assertion misses the point. The point is not whether the beneficiary is getting a better deal than it otherwise could. Rather, the point is that the fiduciary is misrepresenting the basis of the relationship to the beneficiary. Fiduciaries obtain their power on the assumption that they will act solely in the beneficiary’s best interest. Fiduciaries abuse that power by taking information and authority from the beneficiary and using it to their own advantage, without obtaining the beneficiary’s informed consent. That is inherently deceitful. It misrepresents to the beneficiary the basis on which the fiduciary is acting. The fiduciary has, in effect, told the beneficiary that the fiduciary is acting one way when he is in fact acting in an entirely different way. Disgorgement of profit, even if it results in a windfall to the beneficiary, is a necessary mechanism to incentivize fiduciaries to avoid conflict.

[454] Finally, Holmes argues that CN is not entitled to an equitable remedy such as disgorgement because it comes to court with unclean hands. Holmes relies on the complaints about documentary production and disclosure that he raised throughout the trial. In my view, the more appropriate approach to that issue is to exclude disgorgement in respect of those claims where I have found Holmes to have a legitimate complaint concerning disclosure. That relates to the conversion claim. Given that the legitimate production complaint relates to conversion, I am denying any form of relief for the conversion claim.

B. Whitla’s Sources and Uses Analysis

[455] CN based its calculation of the amount to be disgorged on what it referred to as Whitla’s “sources and uses” analysis. Whitla’s analysis was recorded in a series of six spreadsheets and was then summarized in his first report. The spreadsheets record, in respect of each Holmes Company, each transaction that went through the company’s bank account and identify the source or the recipient of the funds. The spreadsheets also show how Whitla allocated any outflows as operating expenses or otherwise.

[456] During the trial, Holmes moved to strike CN’s claims for failure to make adequate production in relation to the sources and uses analysis, or, in the alternative, to exclude the Whitla report from the evidence at trial. At the end of argument on the motion, I declined to grant the motion because I was not satisfied that the production issues had a detrimental impact on trial fairness. I noted, however, that I was making that determination with only part of the picture visible to me. I therefore made it clear that the defendants could continue to lead evidence to demonstrate the unfairness that the production issues caused and that they could raise the issue again in closing or could request an adjournment to permit a sur-reply from Soriano. The defendants did not seek an adjournment but reiterated their request that the claim be dismissed or that the Whitla report be excluded because of the production issues surrounding the sources and uses analysis.

[457] The issue centres around the six spreadsheets that record the transactions of the Holmes Companies.

[458] Holmes asked CN to produce the spreadsheets in an examination for discovery in November 2019. The request was taken under advisement. Holmes notes that by virtue of r. 31.07, questions taken under advisement are deemed to become refusals after 60 days. Pursuant to r. 53.08, evidence that has been refused on discovery is admissible at trial only with leave of the trial judge on such terms as are just and with an adjournment if necessary.

[459] Counsel for CN sent the spreadsheets to defence counsel by email on March 25, 2021. Defence counsel did not notice the email and did not become aware of the oversight until April 21, 2021, when it came to light during an email exchange between counsel. The spreadsheets were then re-sent to defence counsel on April 21, 2021. On May 7, 2021, the parties became aware that the spreadsheets that were sent on March 25 and re-sent on April 21 included one irrelevant spreadsheet and were missing one relevant spreadsheet. The relevant spreadsheet was sent the same day. The trial began on May 19, 2021.

[460] The defendants submit that the claim should be dismissed because of the failure to produce the spreadsheets in a timely manner or that, in the alternative, the Whitla report should be excluded from evidence. The defendants rely heavily on my directions from July 2020 onward, to the effect that parties had to make full production, that I would draw adverse inferences for any failure to produce, and that parties would have to live by their litigation choices. The defendants submit that if they are not granted the relief they seek, I will be sending a signal to the effect that “production obligations are only for the naïve.”

[461] CN submits that the spreadsheets were akin to draft reports in that they formed the building blocks of the actual report. CN submits that it is obliged to produce findings, opinions, and conclusions of an expert — which CN says it did in the EY report — but that is not obliged to produce draft reports.

[462] In my view, the spreadsheets constitute findings, opinions, and conclusions of an expert. They are not a draft report. There was no suggestion, for example, that the conclusions in the Whitla report were anything but an aggregation of the data in the spreadsheets. The spreadsheets should have been produced when Holmes asked for them.

[463] I am nevertheless not prepared to dismiss the claim or to exclude the Whitla report. In my view, there is no unfairness in the trial that results to the defendants because of the way in which — and the time at which — the spreadsheets were produced. While I am mindful of the fact that the failure to meet one’s production obligations should be met with serious consequences or else, as Mr. Phillips put it, “production obligations will be only for the naïve”, I am equally mindful that opposing parties may try to take tactical advantage of production deficiencies that cause them no real prejudice. In my view, Holmes’ complaints about the spreadsheets fall squarely in the latter category.

[464] Whitla’s sources and uses analysis was based on source documentation that came from Holmes. As a result, Holmes and his experts were completely free to conduct their own sources and uses analysis from the outset of this case.

[465] Soriano admitted in cross-examination that had he done a sources and uses analysis, it probably would have come up with different allocations of funds than Whitla did. This only gives more force to the argument that, had Holmes wanted a sources and uses analysis performed, he could have done so through his own expert who would have come up with different results than Whitla did (presumably more favourable to Holmes). Holmes and Soriano had the ability to do so but chose not to.

[466] A further reason for declining the relief the defendants seek is that they never asked Soriano to carry out a sources and uses analysis even though, from the outset of the claim, the core issue has been the profit that the Holmes Companies earned from CN. Holmes and his experts had all of the data they needed to determine that issue. They never made any effort to do so.

[467] Section 2.2 of Soriano’s April 16, 2021 responding report states:

2.2 Our mandate does not include:

a. determining the sources and uses of funds in the Holmes Companies (i.e. E&Y’s Tracing Mandate), or E&Y’s execution of the same. We note that the E&Y Report does not include, nor have we been provided with, the detailed schedules necessary to undertake such analysis in any event;

[468] Although the quotation contains some slight ambiguity about the extent to which Soriano did not conduct a sources and uses analysis because it was not part of his mandate or because he did not have the spreadsheets to do such an analysis, I find on balance that Soriano failed to conduct a sources and uses analysis because it was never part of his mandate.

[469] The first portion of s. 2.2 states that Soriano was never asked to perform a sources and uses analysis nor was he asked to comment on Whitla’s sources and uses analysis. Nowhere does Soriano say that he wanted to conduct a sources and uses analysis or that he wanted to comment on Whitla’s analysis but was prevented from doing so because he did not have the spreadsheets. Soriano admitted several times at trial that a sources and uses analysis was simply never part of his mandate.[^123]

[470] The fact that the defendants had all the information necessary to perform their own analysis but never asked Soriano to do so leads me to conclude that their motion to strike the claim or exclude the Whitla report is a tactical effort to avoid liability and not a response to any unfairness in the trial or the process leading to it.

C. Motion to Exclude Exhibit 124

[471] Exhibit 124 is an excel spreadsheet prepared by CN employee, David Gareau. It contains extracts from CN’s SAP system and shows, among other things, the amounts that the various Holmes Companies billed CN and who within CN approved those invoices. That information also found its way into the Whitla report.

[472] The Holmes defendants submit that Exhibit 124 should be excluded from evidence because it consists of hearsay as do the parts of the Whitla report that rely on it.

[473] CN submits that Exhibit 124 is admissible as a business record and under the principled approach to hearsay. I agree.

i. Business Records Exception

[474] Business records are admissible as an exception to the hearsay rule under s. 35 of the Ontario Evidence Act.[^124] That section provides as follows:

Business records

Definitions

35 (1) In this section,

“business” includes every kind of business, profession, occupation, calling, operation or activity, whether carried on for profit or otherwise; (“enterprise”)

“record” includes any information that is recorded or stored by means of any device. (“document”) R.S.O. 1990, c. E.23, s. 35 (1).

Where business records admissible

(2) Any writing or record made of any act, transaction, occurrence or event is admissible as evidence of such act, transaction, occurrence or event if made in the usual and ordinary course of any business and if it was in the usual and ordinary course of such business to make such writing or record at the time of such act, transaction, occurrence or event or within a reasonable time thereafter.

Surrounding circumstances

(4) The circumstances of the making of such a writing or record, including lack of personal knowledge by the maker, may be shown to affect its weight, but such circumstances do not affect its admissibility.

[475] I am satisfied that Exhibit 124 should be admitted as a business record.

[476] Exhibit 124 was based on extracts from CN’s SAP accounting system. I have described in earlier how data got into the SAP system. I will not repeat that information here. Suffice it to say that the SAP system contains records of transactions made in the usual and ordinary course of CN’s business and that it was part of the usual and ordinary course of CN’s business to make such a record of the event at the time or at a reasonable time thereafter. The exhibit is therefore prima facie admissible under s. 35(2) of the Evidence Act.

[477] That leaves two issues to address: the reliability of entries in the SAP system for the purposes of s. 35(4) of the Evidence Act and the reliability of the SAP system as an electronic record for purposes of s. 34.1 of the Evidence Act.

[478] With respect to s. 35(4) of the Evidence Act, the rationale underlying the business records rule was helpfully summarized in Catholic Children's Aid Society of Toronto v. L.(J.)[^125] as follows. Certain types of records provide sufficient assurance of reliability to warrant their admissibility into evidence. They usually record routine and detailed information as part of someone’s job duties. They are admitted as an exception to the hearsay rule because the person who recorded the information frequently has no independent recollection of the act. As a result, the record may constitute the best evidence available.

[479] I am satisfied that Exhibit 124 meets these criteria. The information in Exhibit 124 was initially recorded by CN employees into the SAP system reasonably contemporaneously with the delivery of the underlying invoices. That reflects a routine entry of business data. The information entered into SAP is objective and factual. There is little room for subjective characterization of the information at the time of entry. Ms. Jilesen noted in argument that courts regularly admit far more subjective documents as business records including, for example, medical records. Medical records contain assessments as subjective as whether someone was feverish, agitated, uncoordinated, lightheaded, and so on. The information in Exhibit 124 consists of data such as the invoice date, the issuer, the person who approved the invoice, and the amount of the invoice. None of this involves judgement or subjective characterization.

[480] In assessing reliability, the court is not limited to the circumstances surrounding the transaction or recording of the transaction. The court can consider other corroborating evidence to establish reliability.[^126] Whitla’s sources and uses analysis examined inflows from CN into the bank accounts of the Holmes Companies and compared this information to the information in Exhibit 124. According to Exhibit 124, the Holmes Companies billed CN $20,652,122.85. Whitla’s analysis of the Holmes Companies’ bank statements shows inflows from CN that are $19,000 less (i.e., $20,633,064). Whitla expressed surprise that the figures were so closely aligned. He described the difference as a rounding error. In his experience, there are usually wider gaps between different sources of information in forensic analyses without those gaps undermining the credibility of either analysis.

[481] The defendants point to three alleged flaws in the recording of the data in SAP which they submit raise issues about reliability and, as such, justify excluding Exhibit 124 from the record.

[482] First, they note that until 2005, the invoices were approved in Toronto. Approval was recorded in handwriting on a form that was affixed to the invoice but was then entered into SAP at some later point by an employee in Montreal. The Montreal employee had no opportunity to crosscheck or verify the data. In addition, they submit that that the second stage entry in Montreal means that the entry is no longer contemporaneous with the transaction.

[483] In my view, this does not affect admissibility. The second stage data entry was just as much a business record as the first. With respect to the ability of the Montreal employee to crosscheck data, my understanding was that the form completed by hand in Toronto was affixed to the invoice. The Montreal employee could therefore crosscheck the amount of the invoice on the form. With respect to other information on the form, such as the identity of the approver of the invoice, the fact that the Montreal employee cannot verify that information does not detract from the business record nature of the form itself.

[484] I am also satisfied that the second stage data entry in Montreal was, to use the words of s. 35 of the Evidence Act, a record that was made “within a reasonable time” after the transaction. What constitutes a reasonable time will differ from one circumstance to another. Entering complex data that is replete with subjective characterization may require closer proximity between the time of the event and the time of its recording to constitute a business record. This is because human memory can shift and re-form with time, especially when dealing with high volumes of transactions that involve subjective characterization. Thus, a court might require a record that involves judgement and subjective characterization to be made more closely in time to the transaction than it would for a record that involves the transposition of objective data to which little or no subjective judgement is applied. Here, the passage of time is largely irrelevant. Entering an invoice in the amount of $1,000 into a computer system is likely to be as accurate 6 months after receipt of the invoice as it would be on the day the invoice was received.

[485] The second alleged flaw in recording the data to which the defendants point lies in the fact that approximately 200 invoices reportedly approved by Holmes exceeded his approval limit of $10,000.

[486] The fact that, approximately 200 invoices above $10,000 were entered with Holmes as the approver does not affect the reliability of the invoice entry. Until 2005, the computer system did not prevent someone from entering the name of an approver even though the invoice exceeded the approver’s authority level. As a result, while the entry of 200 invoices before 2005 that were above Holmes’ approval level may reflect a weakness in CN’s internal controls, it does not necessarily reflect any weakness in the reliability of the company’s record-keeping.

[487] The third alleged flaw is that over 1,000 of the 19,000 entries have the approver listed as blank. The fact that a certain number of entries do not record the approver does not affect the reliability of the information either. It appears that the SAP system automatically deletes some information after a certain period of time, including the identity of the approver. If anything, the absence of information about the approver might be to Holmes’ benefit. To the extent that CN argues that Holmes approved invoices from companies he controlled, the absence of that information in SAP would only decrease the percentage of invoices that SAP records as having been approved by Holmes.

[488] With respect to the transposition of data from SAP to Exhibit 124, the defendants had the ability to — and indeed did — cross-examine Gareau, the creator of Exhibit 124. Nothing arose during the cross-examination that leads me to question the reliability of Exhibit 124.

[489] Mr. Phillips, on behalf of the defendants, spent some time with Gareau in cross-examination establishing the possibility that the data within SAP could be changed and that Gareau prepared Exhibit 124 in 2021 while its underlying data dealt with transactions between 1999 and 2008. That leaves plenty of time for changes. However, almost any record system can be manipulated or changed. That there is a possibility a record can be manipulated is not immediate grounds for exclusion. Nor is it a substitute for hard evidence that the document was manipulated. It is for the trier of fact to determine what weight to accord the document with this consideration in mind.[^127] I heard nothing at trial to lead me to be concerned that Exhibit 124 had been inappropriately manipulated.

[490] Section 34.1 of the Evidence Act deals with the admissibility of electronic records. In Sopinka, Lederman & Bryant: The Law of Evidence in Canada,[^128] the learned authors summarize the issue surrounding admissibility of electronic records as follows:

The focus of admissibility is on the authenticity and reliability of the electronic documents which can be demonstrated by showing the integrity of the electronic documents system rather than the individual record itself. There is a presumption of integrity if among other things, it is shown that the computer was operating properly. Generally, in considering the system's integrity, the court may have regard to standards used to ensure the reliability and integrity of the system. They may include such factors as: contemporaneous recording of information and data; routine business data and entry; reliance on the data by the business organization; software reliability; processing verification of data in records; security against unauthorized access; maintaining back-up copies; and proper retention and disposition of electronic records.

[491] I am satisfied that the SAP data is sufficiently reliable to be admitted as an electronic record. The data is relied on by the entire CN organization to, among other things, prepare its financial statements as a publicly traded corporation and to provide the financial reporting required of publicly traded corporations. SAP is an internationally recognized software system. The defendants did not point to any defects in SAP as a system that would lead me to have concerns about the use of Exhibit 124 to corroborate the amount that the Holmes Companies billed CN or the proportion of those invoices that particular individuals within CN approved.

ii. The Principled Approach to Hearsay

[492] Exhibit 124 is also admissible under the principled approach to hearsay. The principled approach requires the satisfaction of three elements: necessity, reliability, and that the probative value of the evidence exceeds its prejudicial effect.

[493] The defendants concede that CN has established necessity. The focus of the analysis is therefore on reliability and probative value versus prejudicial effect.

[494] The Supreme Court of Canada described reliability in R. v. Khelawon[^129] as follows:

The evidence, although needed, is not admissible unless it is sufficiently reliable to overcome the dangers arising from the difficulty of testing it. As we shall see, the reliability requirement will generally be met on the basis of two different grounds, neither of which excludes consideration of the other. In some cases, because of the circumstances in which it came about, the contents of the hearsay statement may be so reliable that contemporaneous cross-examination of the declarant would add little if anything to the process. In other cases, the evidence may not be so cogent but the circumstances will allow for sufficient testing of evidence by means other than contemporaneous cross-examination. In these circumstances, the admission of the evidence will rarely undermine trial fairness. However, because trial fairness may encompass factors beyond the strict inquiry into necessity and reliability, even if the two criteria are met, the trial judge has the discretion to exclude hearsay evidence where its probative value is outweighed by its prejudicial effect.

[495] Here, cross-examination of the person entering the data into SAP is unlikely to be of any benefit. That data was entered between 1999 and 2008. It is part of a process by which thousands of pieces of information are entered annually. It is unrealistic to expect that the person who entered the data would have any specific memory of entering any particular piece of information. As noted in the discussion of the business records exception, the circumstances of the entry of the information and the nature of the information are sufficiently reliable to overcome the dangers arising from the inability to test individual recollections.

[496] Exhibit 124 was used for two purposes at trial. First, to establish the total dollar amount of invoices that the Holmes Companies billed CN. There is nothing to question the reliability of that information nor is that information in Exhibit 124 prejudicial to the defendants. As already noted, the total amount of billings in Exhibit 124 corresponds quite closely to the total amount of billings recorded in the bank statements of the Holmes Companies.

[497] The second purpose for which Exhibit 124 was used was to determine what percentage of invoices were approved by Holmes, Dobbie, or others. To the extent that there were concerns about the reliability of that information or its prejudicial effect, a significant number of the individuals who entered invoices and who approved invoices were called as witnesses at trial. These included Holmes, Dobbie, Roy, and Shawn Tanner.

[498] The burden to establish threshold reliability is on the proponent of the statement or record. The burden is not onerous.[^130] Determining admissibility is concerned with an assessment of whether it is sufficiently safe to admit the evidence because there are processes surrounding its creation or admission that give comfort about its reliability. One of those circumstances is the availability of cross-examination.[^131] Here, both the maker of Exhibit 124 and many of those who approved or recorded the invoices were available for cross-examination. Moreover, the second purpose for which it is being used — to determine what proportion of invoices was approved by whom — is very much collateral to the main issues in the action: namely, whether Holmes was a fiduciary, whether he breached his fiduciary duties by causing CN to do business with the Holmes Companies, and, if so, how much profit the Holmes Companies earned from billings to CN.

[499] In all the circumstances, I conclude that Exhibit 124 was admissible both as a business record and under the principled approach to hearsay.

D. The Amount to be Disgorged

[500] Whitla concluded that Holmes earned $12,476,703 in profit from CN.

[501] I am satisfied that Whitla took a conservative approach to the calculation of profit. By way of example, he took into account as legitimate business expenses the amount of $1,871,823 in respect of which there was insufficient information to determine whether those expenditures were actually business related.

[502] The defendants did not lead any evidence on the calculation of profits or the quantification of damages. They opted not to do so in spite of the fact that they had all the information necessary to do so and in spite of the fact that they retained an accounting and valuation expert.

[503] Although the financial statements of the Holmes Companies were introduced as evidence at trial, they do not, in my view, generate an accurate picture of the profits those companies earned for the purposes of calculating the amount that the Holmes Companies should disgorge.

[504] The largest earner of the Holmes Companies was Complete Excavating. In addition to providing services to CN, it also ran three coffee shops under the name “Country Coffee”. The coffee shops incurred significant losses. Complete Excavating transferred $3,098,966 to them during the time Complete Excavating was billing CN. Cash was removed from the Holmes Companies to pay personal expenses of the Holmes family and to give to Dobbie. Regular payments were made by the Holmes Companies to 2071442 Ontario Ltd., Jennifer Flynn, or Dobbie’s and Fussee’s relatives.[^132] Although they appear as expenses on the financial statements, they are essentially a distribution of profits. To deduct those from the amount on which disgorgement is calculated would allow Holmes to spin away profits by transferring them to friends and relatives in the guise of business expenses.

[505] Holmes submits that the amount disgorged should be limited to his after-tax profits. I do not share that view.

[506] When calculating profits to be disgorged, income tax is generally not regarded as an expense incurred to earn profit and is not deducted.[^133] As Ducharme J. put it in Treaty Group Inc. v. Drake International Inc.:[^134]

To accept the argument would be to permit the public treasury to be used to subsidize a party whose breach of contract or tortious behaviour has resulted in damages to another.

[507] Holmes submits that if disgorgement is awarded, the award should be limited to invoices approved by him and should not be based on invoices approved by others. I do not accept that submission. The fundamental basis for disgorgement here is breach of fiduciary duty. The breach lies in Holmes causing CN to contract with his own companies, not merely in approving invoices from his own companies.

[508] Whitla’s profit calculation does, however, need to be adjusted to take into account my disallowance of the claim for conversion. Whitla based his calculation on receipts of $20,633,064 from CN plus receipts from the Sousa companies of $2,212,466 for total inflows of $22,845,530. Whitla then determined that there were business and other expenses of $10,368,827, leaving profit of $12,476,703 or a profit margin of 54.61%.

[509] In my view, the appropriate calculation is to take receipts from CN of $20,633,064 and subtract from that the business expenses of $10,368,827, for a principal amount to be disgorged of $10,264,237. That is approximately $1,003,479 less than the result one would obtain if one applied the profit margin of 54.61% against receipts from CN. I nevertheless am of the view that this is the appropriate approach because it is unlikely that there would be much in the way of expense associated with Holmes’ sale of scrap rail. Holmes incurred no cost of acquiring the goods and Sousa arranged to pick up the rail. This contrasts with the equipment rental side of the Holmes Companies, which incurred the cost of buying or leasing equipment.[^135]

[510] It might be said that Flynn should only be liable for amounts that CN billed from September 2005 onward after she became involved. I do not believe that it would be appropriate to limit the judgment against Flynn in that manner. Doing so would provide too much scope to allow the defendants to transfer assets to Flynn in an effort to avoid judgment. Given that Flynn had no material assets before her relationship with Holmes, there is no material prejudice to holding her liable for amounts that Holmes billed to CN before 2005.

III. Constructive Trust

[511] CN seeks a constructive trust over the assets of Holmes, Flynn, the Scott Holmes Living Trust, and the Jennifer Lynn Flynn Living Trust.

[512] In Sun Indalex Finance, LLC v. United Steelworkers,[^136] the Supreme Court of Canada noted that “a remedial constructive trust for a breach of fiduciary duty is only appropriate if the wrongdoer’s acts give rise to an identifiable asset which it would be unjust for the wrongdoer (or sometimes a third party) to retain.” It then set out four pre-conditions necessary to impose a remedial constructive trust for breach of fiduciary duty:

(i) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;

(ii) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

(iii) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and

(iv) There must be no factors such as the interests of intervening creditors, that would render imposition of a constructive trust unjust in all the circumstances.[^137]

[513] All four factors are present here.

[514] With respect to the equitable obligation, Holmes owed fiduciary duties to CN that gave rise to profit for Holmes which he converted into assets. Flynn conspired with Holmes to assist him in breaching that fiduciary duty.

[515] The assets in the hands of Holmes, Flynn, and their living trusts resulted from the breach of fiduciary duty by Holmes and the wrongful acts of Flynn. There was no evidence to suggest that those assets were acquired with anything other than funds received from CN. Holmes earned $94,000 per year from CN. That is not an income that would allow him to accumulate the assets he did. There was no evidence that Flynn had any material assets before her relationship with Holmes. Flynn admitted that she received substantial amounts of income every year from the Holmes Companies. Holmes admitted that the Florida properties and his investment accounts were acquired using funds that originated from CN.

[516] A constructive trust is necessary because Holmes and Flynn have transferred assets to their living trusts, bank accounts in Zurich, and potentially to other parties and locations as may be revealed by the accounting and tracing orders. There was no evidence at trial to suggest that the trusts were anything but conduits through which Holmes and Flynn funnelled funds received from CN. A constructive trust is required both to assist CN in enforcing against those assets and to ensure that other fiduciaries do not get the misimpression that they can avoid liability for breach of fiduciary duty simply by transferring assets to others to hold for them.

[517] Finally, there were no factors raised at trial that would render the imposition of a constructive trust unjust to others. To the extent that there are disputes about whether assets are in the hands of good faith purchasers for value or funds are traced to legitimate intervening creditors, the court can fashion a timely mechanism to resolve any such disputes.

[518] I am satisfied that in circumstances where CN paid approximately $20,000,000 to the Holmes Companies and where neither Holmes nor Flynn had any other independent source of income, it is reasonable to infer that all of the assets of Holmes and Flynn are attributable to funds received from CN. A constructive trust will therefore be ordered over all of the assets of Holmes, Flynn, and their living trusts.

IV. Accounting and Tracing Orders

[519] CN also claims:

(i) An order for an accounting of all monies paid by CN; and

(ii) An order tracing all CN funds into the hands of the defendants or any other person to whom such funds have been transferred, including to any persons outside of Canada.

[520] An accounting remedy is inherent in the fiduciary duty. Since a fiduciary acts only on the authority of its beneficiary, the fiduciary can be required to account for its conduct and for what it did with assets of the beneficiary.

[521] Tracing orders are common where defaulting fiduciaries are required to account to their beneficiaries to ensure that they do not profit from their breach of duty.[^138] In Waxman v. Waxman, Justice Sanderson described the principles underlying accounting and tracing orders as follows:

By finding that the fiduciary has breached the duty owed, the Court may hold that the defaulting party must account to the beneficiary for the product of the breach. This concept stems from the trust-beneficiary obligation that the former not attain any personal “gain” from the relationship apart from that anticipated by the relationship itself. The prohibition therefore dictates that any such gain is not and never was lawfully in the hands of the defaulting fiduciary as its beneficial owner. The law imposes a trusteeship in the holder in favour of the party to whom the fiduciary owes the duty of fidelity. The “gain” is therefore legally owned by the wronged party: the fiduciary merely “holds” the gain on the other’s behalf.

She then continued:

The tracing remedy and the constructive trust declaration are extensions of the finding of trusteeship: the wronged party may “trace” the gain into a mixed fund and/or by-products of the gain in altered form.[^139]

[522] Where property is mixed or used to purchase different property, equity permits a plaintiff to trace the property so long as the property is identifiable:

Even if the trust property has changed in form, equity still follows the property so long as it can be ascertained to be the product of the original property. That is, the property must remain identifiable in order to be traced. To be identifiable, it must be the original property, or the product or sale of the original property. Equity permits the claimant to follow property into a mixed fund, or through such a fund into property purchased with monies from that fund, because the claim is against the traced asset itself and is not dependent on establishing some claim to the entirety of the converted asset.[^140]

[523] A tracing remedy is warranted to ensure that the defendants are held to account and that CN is not needlessly hampered in its efforts to enforce its judgment. Holmes’ obstruction and lack of transparency throughout this litigation demonstrates to me that CN should benefit from whatever orders are available to assist in the enforcement of its judgment, including an accounting and tracing remedy.

V. Punitive Damages

[524] CN seeks $1,000,000 in punitive damages against each of Holmes, Flynn, their living trusts, and the Holmes Companies. It also seeks $250,000 in punitive damages against Pole.

[525] I award punitive damages of $1,000,000 against Holmes, Flynn, their living trusts, and the Holmes Companies. I decline to award punitive damages against Pole.

[526] Punitive damages are exceptional. They “serve a need that is not met either by the pure civil law or the pure criminal law”,[^141] namely, that of retribution, denunciation, and deterrence.[^142] To warrant punitive damages, a defendant’s conduct must be so reprehensible and deliberate that it warrants retribution, denunciation, and deterrence. Holmes’ conduct warrants all three.

[527] Holmes engaged in a 9 year scheme of deception and subterfuge to abuse the trust CN placed in him for his own gain. He knew his conduct was wrongful. That is why he took such lengths to hide it.

[528] When his scheme was discovered, he engaged in a further 13 years of deception, misdirection, and abuse to prevent the Receiver from gaining access to assets. As I noted earlier:

(i) On the eve of the Mareva injunction, he took aggressive steps to put assets beyond the reach of the court.

(ii) He lied to the court on numerous occasions about the whereabouts of assets or his willingness to co-operate with the Monitor.

(iii) He maintained his reliance on documents bearing forged signatures purporting be those of Helmer, Fussee, and Maurice.

(iv) He transferred monies ostensibly to Greyslone and Belview. I have found those to be nothing but sham entities that he controls.

(v) He made false allegations against CN employees and the Receiver.

In addition, he hired investigators to investigate CN counsel and former Justice Colin Campbell.

[529] That conduct is important to denounce and deter. If the only sanction for 22 years of deception and abuse of the litigation process were disgorgement of ill gotten gains, it would incentivize others to engage in similar conduct. Without punitive damages, an amoral or immoral actor would conclude that it makes economic sense to engage in conduct of this sort. Doing so would potentially help him retain his ill gotten gains. The worst-case scenario in the absence of punitive damages would be no worse than if he had never breached his fiduciary duty or had behaved reasonably in the litigation process. That does not advance deterrence and would be an untenable message to send to the vast majority of the public who do adhere to accepted behavioural norms.

[530] In Whiten v. Pilot Insurance, the Supreme Court of Canada noted that punitive damages should be assessed in an amount reasonably proportionate to the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff, and any advantage or profit gained by the defendant. They should be set in an amount that is no greater than necessary to rationally accomplish their purpose.[^143]

[531] The punitive award of $1,000,000 that CN seeks represents approximately 9.7% of the overall award. If anything, I would be concerned that a 9.7% penalty may not reflect a sufficiently high penalty to disincentivize others.

[532] Holmes resists punitive damages for any breaches of court orders. He submits that the appropriate remedy was to move for contempt. Holmes further submits that those breaches are subject to issue estoppel. I do not accept those submissions. Moving for contempt amounts to a costly use of scarce judicial resources. It also sanctions only each isolated breach without addressing the defendants’ overall scorched earth litigation policy pursued in the hopes of avoiding judgment altogether. In my view, this is a case where Holmes’ consistent obstruction of the receivership is a factor to take into account in assessing punitive damages.

[533] In slightly different circumstances, I would have been disinclined to award punitive damages against Flynn. Flynn was not the directing mind of the scheme at hand. That said, she knew or ought to have known what was going on. She also had no material assets before her relationship with Holmes. The absence of a punitive damage award against Flynn opens up at least the conceptual possibility for Holmes to avoid the punitive damages award by transferring assets to Flynn. That would not be an acceptable outcome and leads me to extend the punitive damages award to her as well.

[534] As a result, I order a single award of punitive damages in the amount of $1,000,000 for which Holmes, Flynn, and their living trusts are jointly and severally liable.

[535] Pole did not defend the action. He was noted in default and CN seeks judgment against him. The only basis for a punitive damage award against him is that he is alleged to have burned documents, forged signatures of Helmer, Fussee, and Maurice, prepared invoices and assigned equipment and operators. Those allegations were made by Holmes. I have already found Holmes to lack credibility. In my view, it would not be appropriate to award punitive damages against Pole on the basis of allegations by Holmes, especially when those allegations were meant to deflect liability from Holmes to Pole.

VI. Holmes’ Counterclaim

[536] Although Holmes and certain other defendants mounted Counterclaims against CN, they were not pursued at trial. I therefore dismiss the Counterclaims.

VII. Judgment Against Scott Pole

[537] Scott Pole was noted in default earlier in these proceedings. As a result, he is deemed to have admitted the allegations of fact made in the Statement of Claim.[^144] CN seeks judgment against him based on the legal effect of his default and based on the evidence against him at trial. The legal effect of his default is that he is deemed to admit the factual allegations contained in the Statement of Claim.

[538] Paragraph 37 of the Statement of Claim alleges that Pole “knowingly aided and abetted, and conspired with Holmes and the defendant companies in their wrongful and deceitful conduct.”

[539] Paragraph 64 of the Statement of Claim alleges that:

Holmes, Parisien, Janice Holmes, Fussie, Pole, Monterey Consulting, Complete Excavating, Efficient Construction, 2071442 and 2035113 all conspired together to perpetuate the scheme by which Holmes paid millions of dollars from CN to the Holmes Companies.

[540] The essence of the claim as pleaded against Pole is one of conspiracy and knowing assistance. Those are, however, legal allegations, not factual allegations. A defendant who has been noted in default is not deemed to admit legal allegations but is deemed to admit only factual allegations. General legal allegations do not support a request for default judgment.[^145]

[541] As already noted, a claim of conspiracy based in unlawful conduct requires actionable conduct by a conspirator before he or she can be held liable.[^146] The claim does not allege actionable conduct in respect of Pole. While it does allege breach of fiduciary duty against Pole, he was not a CN employee and owed no fiduciary duty to CN.

[542] The evidence at trial revealed no further conduct by Pole to support the conspiracy. He is said to have prepared invoices, scheduled employees, and arranged for equipment. There is nothing independently actionable in that conduct. He is also alleged to have forged signatures, and burned documents. As noted, those allegations come from Holmes on whose evidence I am not prepared to enter judgment against Pole.

[543] One further allegation was made against Pole at trial by Sousa. According to Sousa, Pole came to see him in the summer of 2020 and said something to the effect that “any rat is a dead rat.” Sousa took the statements as a threat. I accept Sousa’s evidence in that regard. That statement may make Pole a disagreeable person. It is not, however, an allegation raised against him in the Statement of Claim, is not something for which anyone is seeking damages against him and does not, without something considerably more, warrant the damages of over $10,000,000 and punitive damages of $1,000,000 that CN seeks.

[544] For the reasons above, I decline to award damages against Pole. I do, however, award an accounting against Pole in furtherance of the constructive trust and tracing remedy against Holmes, Flynn, and the Holmes Companies. Pole will be liable to account for any funds received from any of Holmes, Flynn, or the Holmes Companies as a result of those remedies. I use the term “account for” in the sense of notifying and explaining. Whether Pole will be obligated to surrender funds or assets will turn on an evaluation of the reasons for which he received the funds or assets. By way of example, if his receipt of funds is limited to a reasonable salary for work he performed, that should not be subject to disgorgement. If his receipt of money or assets goes beyond reasonable salary, that will be another matter entirely.

Conclusion

[545] For the reasons set out above, I order that:

(i) Holmes, Flynn, Complete Excavating Ltd., Efficient Construction, 2035113 Ontario Ltd., Monterey Consulting & Construction Ltd., 2071442 Ontario Ltd., the Scott Holmes Living Trust, and the Jennifer Lynn Flynn Living Trust (the “defendants”) pay CN, on a joint and several basis, damages in the amount of $10,264,237 plus pre-judgment interest for breach of fiduciary duty, deceit, breach of contract, breach of confidence, and conspiracy.

(ii) The defendants pay punitive damages of $1,000,000 plus pre-judgment interest to CN on a joint and several basis.

(iii) The defendants and Scott Pole provide an accounting of all monies and accounts paid by CN to the defendants.

(iv) A declaration issue to the effect that all monies paid by CN to the defendants, be imposed with a constructive trust in favour of CN.

(v) CN shall have the right to trace all funds or assets which are the property of the constructive trust into the hands of the defendants or any other person to whom such funds have been transferred, including to persons outside of Canada.

(vi) The claims of phantom billing and conversion against the defendants be dismissed.

(vii) The defendants’ Counterclaim be dismissed.

(viii) The claim against Scott Pole be dismissed.

[546] Within 15 days of release of these reasons, I ask that counsel agree to a timetable for the exchange of submissions on costs. If counsel cannot agree on a timetable, they can approach me to schedule one.

Koehnen J.

Released: 03-17-2022

COURT FILE NO.: CV-08-7670-00CL

DATE: 03-17-2022

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CANADIAN NATIONAL RAILWAY COMPANY

Applicant

– and –

SCOTT PAUL HOLMES, JENNIFER LYNN PARISIEN, also known as JENNIFER LYNN FLYNN in her personal capacity and as the sole proprietor and operating as EFFICIENT CONSTRUCTION, JANICE SHIRLEY MAUREEN HOLMES, MURRAY FUSSIE, SCOTT ALBERT POLE, RICK SOUSA, in his personal capacity and operating as TRAX UNLIMITED, MICHAEL SOUSA, in his personal capacity and operating as TRAX UNLIMITED, JULIE SOUSA, 2035113 ONTARIO LTD., COMPLETE EXCAVATING LTD., MONTEREY CONSULTING & CONSTRUCTION LTD., 2071438 ONTARIO LTD., operating as COMPLETE TRAX, 2071442 ONTARIO LTD., THE SCOTT HOLMES LIVING TRUST, THE JENNIFER LYNN FLYNN LIVING TRUST, GREYSLONE LTD. and BELVIEW MANAGEMENT LTD.

Respondents

REASONS FOR JUDGMENT

Koehnen J.

Released: 03-17-2022

[^1]: Summary judgment was granted against the defendants Greyslone Ltd. and Belview Management Ltd. at an earlier stage. The other remaining defendants were released from the action at various times.

[^2]: Together with 2035113 Ontario Ltd. and 2071442 Ontario Ltd.

[^3]: 2014 ONSC 5449.

[^4]: Exhibit 61.

[^5]: Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, at para. 24.

[^6]: Solosky v. The Queen, 1979 CanLII 9 (SCC), [1980] 1 S.C.R. 821, at p. 837; Foster Wheeler Power Co. v. Societe intermunicipale de gestion et d’elimination des dechets Inc., 2004 SCC 18, [2004] 1 S.C.R. 456, at para. 47.

[^7]: Procter & Gamble Co. v. Nabisco Brands Ltd. (1989), 1989 CanLII 10241 (FCA), 97 N.R. 379 (Fed. C.A.).

[^8]: Adam M. Dodek, Solicitor-Client Privilege (Toronto: LexisNexis Canada, 2014), at c. 7; Sidney N. Lederman, Alan W. Bryant, & Michelle Fuerst, Sopinka, Lederman & Bryant - The Law of Evidence in Canada, 5th ed. (Toronto: LexisNexis Canada, 2018), at c. 14.

[^9]: Re B.(J.D.), 1996 CarswellOnt 1401 (Gen. Div.), at para. 13.

[^10]: Great Atlantic Insurance Co. v. Home Assurance Co. and Others, [1981] 2 All E.R. 485 (C.A.).

[^11]: Do Process LP v. Infokey Software Inc., 2015 BCCA 52, 382 D.L.R. (4th) 698, at paras. 30-32; Mayer v. Mayer, 2012 BCCA 77, 29 B.C.L.R. (5th) 232, at para. 185.

[^12]: Chapelstone Developments Inc., Action Motors Ltd. and Hamilton v. Her Majesty the Queen in Right of Canada, 2004 NBCA 96, 277 N.B.R. (2d) 350, at para. 55

[^13]: Mandeville v. Manufacturers Life Insurance Co., 2004 CarswellOnt 9988 (S.C.), at paras. 14-15.

[^14]: Eisses v. CPL Systems Canada Inc., 2009 CanLII 45440 (Ont. S.C.), at para. 60; Earth Energy Utility Corp. v. Maxwell, 2008 CanLII 35673 (Ont. S.C.), at para. 30.

[^15]: Federation of Newfoundland Indians Inc. v. Benoit, 2020 NLCA 16, at para. 51.

[^16]: Dodek, at §7.77.

[^17]: Benoit, at paras. 34, 36.

[^18]: Sousa was another CN contractor who will be discussed in greater detail during the discussion on conversion.

[^19]: Exhibit 150.

[^20]: Holmes submits that the data about the amount of invoices he and Dobbie approved should be inadmissible because it is contained in the reply report of CN’s financial expert, Steve Whitla of Ernst & Young (“EY”) when it should have been contained in Whitla’s first report. I do not share that view. Holmes tendered evidence from his own financial expert, Errol Soriano. In his responding report of April 16, 2021, Soriano stated that he would take a different approach to certain issues than Whitla took. Part of Soriano’s approach would be to isolate invoices from the Holmes Companies and determine which were authorized by Holmes. The Whitla reply report carries out that analysis and arrives at the numbers indicated above. In my view that is proper reply. I also note that Holmes and Soriano had information available to them that enabled them to carry out the same analysis.

[^21]: Examples include the following documents from the Joint Trial Brief: 1068, 1069, 1691-1994, 1869-1871, 1886-1888,, 1898-1899, 1907-1918, 1880 and 1875.

[^22]: See for example Exhibit 147, JTB 1824, Exhibit 156.

[^23]: See for example Exhibits 57 and 58.

[^24]: Exhibit 24.

[^25]: Exhibit 25.

[^26]: Exhibit 9

[^27]: Exhibit 28.

[^28]: Exhibit 120.

[^29]: Exhibit 114, SEALED-Excerpts of the Transcript of Examination of Wayne Dobbie, January 14, 2009, at p. 18 of the transcript, at p. 7 of the Exhibit.

[^30]: South Nahanni Trading Co. v. Gravel, 2007 CanLII 30668 (Ont. S.C.), at para. 9, citing Mark Vincent Ellis, Fiduciary Duties in Canada (Toronto: Thompson Canada Limited, 2004), at pp. 1-2.

[^31]: 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99, at p. 136. See also Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377.

[^32]: Felker v. Cunningham (2000), 2000 CanLII 16801 (ON CA), 191 D.L.R. (4th) 734 (Ont. C.A.), at para. 14.

[^33]: South Nahanni Trading Co. v. Gravel, 2007 CanLII 30668 (Ont. S.C.), at para. 11.

[^34]: See Fraser v. Proscience Inc., 2005 CanLII 21549 (Ont. S.C.); Manley Inc. v. Fallis (1977), 1977 CanLII 3487 (ON CA), 2 B.L.R. 277 (Ont. Sup. Ct. (A.D.)); GasTOPS Ltd. v. Forsyth, 2012 ONCA 134, 288 O.A.C. 201; Guzzo v. Randazzo et al., 2015 ONSC 6936; Ford. v. Keegan, 2014 ONSC 4989, 13 C.C.L.T. (4th) 188.

[^35]: 2007 CanLII 14619 (Ont. S.C.).

[^36]: Boehmer, at para. 52.

[^37]: 2012 ONCA 650, 298 O.A.C. 189.

[^38]: Marinaccio, at para. 16.

[^39]: Felker, at para. 14.

[^40]: Link v. Venture Steel Inc., 2010 ONCA 144, 259 O.A.C. 199, at para. 36; Holland v. Saskatchewan, 2008 SCC 42, [2008] 2 S.C.R. 551, at paras. 7, 16.

[^41]: Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574, at p. 635; CTT Pharmaceutical Holdings, Inc. v. Rapid Dose Therapeutics Inc., 2019 ONCA 1018, at paras. 31-32.

[^42]: Lac Minerals, at p. 642.

[^43]: Lac Minerals, at p. 642.

[^44]: (2002), 2002 CanLII 41834 (ON CA), 59 O.R. (3d) 74 (C.A.), at para. 48.

[^45]: Rodaro, at para. 48, citing Lac Minerals, at pp. 638-39, ICAM Technologies Corp. v. EBCO Industries Ltd. (1993), 1993 CanLII 2289 (BC CA), 52 C.P.R. (3d) 61 (B.C. C.A.), at p. 63, leave to appeal abandoned [1994] S.C.C.A. No. 23, and P. Perell, “Breach of Confidence to the Rescue” (2002) 25 Adv. Q. 199, at p. 205.

[^46]: By referring to the defendants in these reasons, I refer to those who defended at trial, namely Holmes, Flynn, Complete Excavating Ltd., Efficient Construction, 2035113 Ontario Ltd., Monterey Consulting & Construction Ltd., 2071442 Ontario Ltd., the Scott Holmes Living Trust, and the Jennifer Lynn Flynn Living Trust.

[^47]: Extreme Venture Partners Fund I LP v. Varma, 2019 ONSC 2907, 94 B.L.R. (5th) 38, at para. 242, aff’d 2021 ONCA 853.

[^48]: 1933 CanLII 75 (SCC), [1934] S.C.R. 165, at p. 168. See also Canadian Community Reading Plan Inc. v. Quality Service Programs Inc. (2001), 2001 CanLII 24156 (ON CA), 141 O.A.C. 289 (C.A.), at para. 27.

[^49]: HSBC Bank Canada v. Fuss, 2013 ABCA 235, 90 Alta. L.R. (5th) 400, at para. 27.

[^50]: Cement LaFarge v. B.C. Lightweight Aggregate, 1983 CanLII 23 (SCC), [1983] 1 S.C.R. 452, at pp. 471-472.

[^51]: 2011 ONCA 460, 106 O.R. (3d) 427.

[^52]: Agribrands, at para. 28.

[^53]: Henry v. 1213962 Ontario Ltd., 2005 CanLII 18312 (Ont. S.C.), at para. 9; Laurier Glass Ltd., v. Simplicity Computer Solutions Inc., 2011 ONSC 1510, 80 B.L.R. (4th) 305, at para. 39.

[^54]: Agribrands, at para. 33.

[^55]: Agribrands, at para. 37.

[^56]: Section 134 (1) of the Business Corporations Act, RSO 1990, c B.16 requires: “ Every director and officer of a corporation in exercising his or her powers and discharging his or her duties to the corporation shall,

(a) act honestly and in good faith with a view to the best interests of the corporation; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”

[^57]: 1394943 Ontario Inc. v. Roy, 2009 CanLII 9460 (Ont. S.C.), at para. 78.

[^58]: 699982 Ontario Ltd v. Chu, [2000] O.J. No. 2397 (S.C.), at para. 19.

[^59]: Canadian National Railway v. Holmes, 2014 ONSC 2914, at para. 37.

[^60]: 1911 CarswellOnt 116 (H.C.), at para. 17.

[^61]: Morlock, at para. 17.

[^62]: Midland Resources Holding Limited v. Shtaif, 2017 ONCA 320, 135 O.R. (3d) 481, at para. 162 .

[^63]: Marinaccio, at paras. 24-27.

[^64]: Borrelli v. Chan, 2018 ONSC 1429, 58 C.B.R. (6th) 1, at para. 912.

[^65]: Holmes, at para. 39.

[^66]: Holmes, at para. 39; Harland v. Fanscali, 1993 CanLII 8457 (Ont. Gen. Div.), at paras. 13, 28.

[^67]: At trial, Flynn gave evidence that Scott Holmes was her “boss” as well as her spouse.

[^68]: McFlow Capital Corp. v. James, 2020 ONSC 374, at para. 351; Atlas Copco Canada Inc. v. David Hillier, 2018 ONSC 1588, 58 C.B.R. (6th) 305, at para. 53.

[^69]: Machias v. Mr. Submarine Ltd., 2002 CanLII 49643 (Ont. S.C.), at para. 146; 1169822 Ontario Limited v. The Toronto-Dominion Bank, 2018 ONSC 1631, at para. 138.

[^70]: Henry, at para. 9; Laurier Glass, at para. 39.

[^71]: Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126, at paras. 18, 21.

[^72]: She was being examined virtually and was being shown documents through the share screen function.

[^73]: Holmes Cross, June 21, 2021, pp. 4068.

[^74]: Holmes Chief, June 18, 2021, pp. 3848.

[^75]: Holmes Cross, June 21, 2021, pp. 4068-4075; Exhibit 6.

[^76]: 1951 CanLII 252 (BC CA), [1952] 2 D.L.R. 354, at p. 357. Cited with approval in Brousseau. v. La Cité Collégiale et al., 2021 ONSC 2676, at para. 12.

[^77]: Levesque v. Comeau et al., 1970 CanLII 4 (SCC), [1970] S.C.R. 1010, at pp. 1012-1013.

[^78]: Peter Sankoff, The Law of Witnesses and Evidence in Canada, loose-leaf (Toronto: Thomson Reuters, 2019), at §7:13.

[^79]: Lederman, Bryant, and Fuerst, at §6.471. See also Edelstein v. Monteleone, 2017 ONSC 2717, at para. 60.

[^80]: Exhibit 10.

[^81]: Whitla is a forensic accountant whom I admitted as an expert qualified to give evidence on cash flow analysis of funds into and out of the Holmes Companies, the calculation of profits of the Holmes Companies and the reasonableness of the amounts that the Holmes Companies invoiced CN.

[^82]: Exhibit 198 (PDF), at p. 119.

[^83]: Exhibit 198 p. 119 of PDF.

[^84]: S.O. 2002, c. 24, Sch. B.

[^85]: Ceci v. Bonk (1992), 1992 CanLII 7596 (ON CA), 7 O.R. (3d) 381, at para. 10.

[^86]: Joint Book of Documents numbers 1699 and 1700.

[^87]: Joint Book of Documents numbers 1693, 1694, 1691, 1692, 1694, 1710.

[^88]: Joint Book of Documents numbers 54, 56, 1933, 1935, 1711.

[^89]: Joint Book of Documents numbers 1932, 1934.

[^90]: Joint Book of Documents number 1932.

[^91]: Lam v. Chiu, 2014 BCCA 32, 55 B.C.L.R. (5th) 227, at para. 47.

[^92]: Teva Canada Limited v. Pfizer Canada Inc., 2017 FC 526, at para. 36, relying on R. v. S.G.T., 2010 SCC 20, [2010] 1 S.C.R. 688, at paras. 35-36.

[^93]: R.R.O. 1990, Reg. 194.

[^94]: Such as who worked where when or which equipment was leased to whom when.

[^95]: I say no material evidence because there was evidence of a few instances of Holmes contracting someone else to do work for CN but billing the work to CN through a Holmes Company with a markup.

[^96]: More specifically, Support Activities for Rail Transportation, Site Preparation Contractors, Specialized Freight, and Other Support Activities for Road Transportation.

[^97]: JTB 2901 (PDF), at p. 30.

[^98]: Borelli, at paras. 934-935 (citation omitted).

[^99]: Assuming the 10 year delay in raising the issue explicitly does not bar the claim.

[^100]: 2010 ONCA 898, 328 D.L.R. (4th) 488.

[^101]: 2018 ONCA 324, 421 D.L.R. (4th) 636.

[^102]: Ramos and Kharbar v. The Independent Police Review Director, 2012 ONSC 7347, at para. 14.

[^103]: Canadian Charter of Rights and Freedoms, Part I of The Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11, at s. 13; Canada Evidence Act, R.S.C., 1985, c. C-5, at s. 5(1); Evidence Act, R.S.O. 1990, c. E.23, at s. s. 9(2); R. v. Noël, 2002 SCC 67, [2002] 3 S.C.R. 433, at para. 21.

[^104]: Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3rd ed. (Toronto: LexisNexis Canada, 2017), at p. 762.

[^105]: Handley Estate, at para. 39 (citations omitted).

[^106]: Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984.

[^107]: Reis v. CIBC Mortgages Inc., 2011 ONSC 2309, at para. 20.

[^108]: Vicor Mechanical Ltd. v. Pegah Construction Ltd., 2009 CanLII 68467 (Ont. S.C.), at para. 13.

[^109]: West Bros. Frame & Chair Ltd. v. Yazbek, 2019 BCSC 1844, at para. 111.

[^110]: 2007 SCC 24, [2007] 2 S.C.R. 177.

[^111]: Strother, at para. 88, citing Hodgkinson, at p. 444.

[^112]: Strother, at para. 89, citing Warman International Ltd. v. Dwyer (1995), 128 A.L.R. 201, at pp. 211-212 (H.C.A.).

[^113]: Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 23

[^114]: Danyluk, at para. 25.

[^115]: See Holmes.

[^116]: Hodgkinson, at p. 440.

[^117]: Lionel D. Smith, “Disgorgement of the Profits of Breach of Contract: Property, Contract, and ‘Efficient Breach’” (1995) 24 Can. Bus. L.J. 121, at p. 122.

[^118]: Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, at paras. 24 and 3.

[^119]: Extreme Venture Partners, at para. 293.

[^120]: Strother, at para. 77.

[^121]: 2020 SCC 19, 447 D.L.R. (4th) 543, at paras. 23-24.

[^122]: 2020 ONSC 93, 150 O.R. (3d) 95, at paras. 50-51, 54, and 62.

[^123]: I reiterate here the comments in paragraph 286, above, that I intend no criticism of Soriano in respect of any of these issues. He is limited by his instructions and was not given any instructions relevant to this issue.

[^124]: R.S.O. 1990, c. E.23.

[^125]: 2003 CanLII 57514 (Ont. C.J.), at para. 7.

[^126]: R. v. Clarke, 2016 ONSC 575, at para. 77.

[^127]: Clarke, at para. 77; United States v. Safavian, 435 F. Supp. 2d 36, at p. 41 (D.D.C. 2006); David M. Paciocco, “Proof and Progress: Coping with the Law of Evidence in a Technological Age” (2013) 11 C.J.L.T. 181.

[^128]: Lederman, Bryant, and Fuerst, at §6.259

[^129]: 2006 SCC 57, [2006] 2 S.C.R. 787, at para. 49.

[^130]: Clarke, at para. 127.

[^131]: Khelawon, at para. 80.

[^132]: Exhibit 142, Figures from EY Report of April 12, 2018, Figure 7.2-4, Figure 8.2-7, Figure 8.2-8, and Figure 9.2-9.

[^133]: 3464920 Canada Inc. v. Strother, 2010 BCCA 328, 289 B.C.A.C. 268, at paras. 48-51. See also Ellis, at §26:10.

[^134]: 2005 CanLII 45406 (Ont. S.C.), at para. 49, aff'd 2007 ONCA 450, 86 O.R. (3d) 366.

[^135]: I appreciate that by removing the income for scrap rail from the equation, I am implicitly reducing the profit margin of 54.16% that Whitla relied on as one indicator of phantom billing to approximately 49.7%. That does not, however, change my view of Whitla’s evidence on phantom billing set out earlier in these reasons. The difference in margin between 49.7% and comparator companies is still sufficiently large to serve as an indicator of phantom billing.

[^136]: 2013 SCC 6, [2013] 1 S.C.R. 271, at para. 227.

[^137]: Sun Indalex, at para. 277.

[^138]: Waxman v. Waxman, 2002 CanLII 20932 (Ont. S.C.), at para. 13.

[^139]: Waxman, at para. 12, citing M. Ellis, Fiduciary Duties in Canada (Toronto: Carswell, 2000), at p. 20-6.2.

[^140]: Eileen E. Gillese & Martha Milczynski, The Law of Trusts, 2nd ed. (Toronto: Irwin Law, 2005), at p. 173.

[^141]: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 37.

[^142]: Whiten, at para. 111.

[^143]: Whiten, at para. 94.

[^144]: Rule 19.02(1)(a).

[^145]: Batista v. Mason’s Masonry Supply Limited, 2014 ONSC 3955, 15 C.B.R. (6th) 157, at paras. 29-30.

[^146]: Agribrands, at para. 28.