



COURT OF APPEAL FOR ONTARIO

CITATION: Paton Estate v. Ontario Lottery and Gaming
    Corporation (Fallsview Casino Resort and OLG Casino Brantford), 2016 ONCA 458

DATE: 20160610

DOCKET: C60606

Hoy A.C.J.O., Pardu and Roberts JJ.A.

BETWEEN

The Estate of Ollie John Paton, Deceased, by His
    Estate Trustee During Litigation, Ronald McKay and the Estate of Eva Paton
    Deceased by Her Estate Trustee During Litigation, Ronald McKay

Plaintiffs (Appellants)

and

Ontario Lottery and Gaming Corporation, c.o.b. as
    Fallsview Casino Resort and as OLG Casino Brantford

Defendant (Respondent)

Don Morris and T. Andrew Sprung, for the appellants

Matthew Milne-Smith and Bryan McLeese, for the
    respondent

Heard: February 2, 2016

On appeal from the judgment of Justice P.B. Hambly of the
    Superior Court of Justice, dated May 20, 2015, with reasons reported at
2015 ONSC 3130,
125 O.R. (3d) 519.

Pardu J.A.:

A.

OVERVIEW

[1]

This case illustrates, once again, the catastrophic social consequences
    caused by problem gamblers, those unable to resist the allure of a casino. The
    appellants are two estates defrauded by an addicted gambler. They sued the
    respondent, Ontario Lottery and Gaming Corporation (OLGC), hoping to recover
    some portion of their losses. Their statement of claim was struck by the motion
    judge, who concluded that it was plain and obvious that the action could not
    succeed. They appeal from that dismissal, arguing that their claims for knowing
    receipt of trust funds, unjust enrichment, and negligence should be allowed to
    proceed to trial.

[2]

I would allow the appeal, and dismiss the motion to strike the action. While
    the action is by no means certain to succeed, nor is it necessarily certain to
    fail.

B.

FACTS

[3]

Shellee Spinks was a law clerk. She stole over $4,000,000 from the appellants
    and others by forging documents, selling estate assets and taking the money for
    herself. She lost about $3,000,000 of that money in the respondents casinos
    over a roughly 14-month period. The appellants allege that they were defrauded
    of approximately $1,500,000 by Ms. Spinks, that she gave about $200,000 of that
    money to her mother, and that the two women gambled and lost about $950,000 of
    the estates money in the respondents casinos, where Ms. Spinks held
    herself out to be a lawyer. The gambling took place between late 2006 and Ms.
    Spinks arrest on March 13, 2008.

C.

The motion judges decision

[4]

Under r. 21.01 of the
Rules of Civil Procedure
,
R.R.O. 1990, Reg. 194,
a party may move before a judge to strike
    out a pleading on the grounds that it discloses no reasonable cause of action.

[5]

The motion judge correctly set out the test for striking an action under
    r. 21.01, at para. 3:

In considering a motion under this rule to strike out a statement
    of claim, the judge must assume that the facts pleaded are true. He must read
    the statement of claim generously allowing for inadequacies due to drafting
    deficiencies. Because a cause of action is novel it should not be struck out on
    this basis. The statement of claim should only be struck out if it is plain
    and obvious and certain that the claim will fail.
Hunt v. Carey Canada
    Inc.
, 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959 and
Nash v. Ontario
,
    [1995] O.J. No. 40343 (C. of A.).

(1)

Knowing receipt of trust funds

[6]

The motion judge concluded that the fact that Ms. Spinks held herself
    out as a lawyer to the operators of OLGCs casinos did not mean that OLGC had
    notice that she was gambling with trust funds or that it had an obligation to
    investigate. He noted that many people lose money at gambling casinos and
    represent themselves, truthfully or not, as being from various occupations. The
    motion judge concluded that this could not be sufficient to put a casino on
    notice to investigate its customers as to the source of the money they are
    losing. The motion judge stated that such a practice would destroy the business
    of the casinos, a legally permitted activity.

(2)

Unjust enrichment

[7]

The motion judge concluded that OLGC had valid juristic reasons for retaining
    any money it received: (i) it entered into valid contracts with Ms. Spinks and
    her mother; and (ii) it was a
bona fide
purchaser without notice that
    they were gambling with money obtained by fraud. Therefore, the claim for
    unjust enrichment could not succeed.

(3)

Negligence

[8]

The motion judge concluded that the respondent did not owe a duty of
    care to the appellants. He held that in order for OLGC to owe a duty of care to
    the appellants, it would first have to owe a duty of care to Ms. Spinks and her
    mother as problem gamblers. After reviewing the jurisprudence from Canada and
    other jurisdictions, the motion judge concluded that OLGC did not owe a duty of
    care to problem gamblers, except perhaps in very limited circumstances, none of
    which existed in this case.

[9]

The motion judge also concluded that even if OLGC owed a duty of care to
    problem gamblers, this would not help the appellants cause of action for the
    following reasons: (i) the duty to problem gamblers would be negated because of
    residual policy concerns, specifically the danger of indeterminate liability; (ii)
    even if OLGC had prevented them from gambling, there were problems with proof
    of causation because Ms. Spinks and her mother would have retained the stolen money;
    and (iii) OLGC would still not owe a duty to the appellants to investigate the
    source of its customers money.

D.

Standard of review

[10]

As
    recently explained by this court in
Frank v. Legate
, 2015 ONCA 631, 390
    D.L.R. (4th) 39, at para. 35, a motion judge assessing whether a statement of
    claim discloses a reasonable cause of action is engaged in a purely legal
    analysis, and the standard of review is therefore correctness.

E.

ANALYSIS

(1)

Motions to strike

[11]

As
    the Supreme Court indicated in
R. v. Imperial Tobacco Canada Ltd
.
,
    2011 SCC 42,
[2011] 3 S.C.R. 45,
at
    para. 19, the purpose of a motion to strike is to eliminate hopeless claims. However,
    the court in that case also noted, at para. 21, that it is a tool that must be
    used with care.

[12]

It
    is not determinative, on a motion to strike, that the law has not yet
    recognized a particular claim. Rather, the court must ask whether it is plain
    and obvious that the claim has no reasonable prospect of success. The court
    must take the facts pleaded in the statement of claim as true, unless they are
    patently ridiculous or manifestly incapable of being proven, and the approach must
    be generous, erring on the side of allowing a novel, but arguable, claim to
    proceed. While no evidence is admissible on a motion to strike, claimants must
    clearly plead all facts on which they intend to rely, as those facts are the
    basis on which the possibility of success will be evaluated. See
Imperial
    Tobacco
, at paras. 17-22; and
Frank v. Legate
, at para. 36, and the
    cases cited therein.

(2)

The statement of claim

[13]

The
    statement of claim in this action is not a model of clarity, but, read
    generously, the following factual allegations may be gleaned from that document:

·

Ms. Spinks was a problem gambler;

·

OLGC knew she was a problem gambler;

·

OLGC knew problem gamblers sometimes steal to feed their habit
    and cause losses to others;

·

Ms. Spinks gambling of vast sums of money over a relatively
    short period would have caused a reasonable person to make inquiries about the
    source of her funds, and to suspect that the money might have been stolen; and

·

OLGCs failure to act contributed to the appellants losses.

[14]

I
    recognize that these factual allegations were not always neatly tied to a
    particular cause of action in the statement of claim. However, that is not
    fatal on a pleadings motion, provided the material facts are pleaded:
Deans
    Standard Inc. v. Hachem
, 2014 ONSC 1977, at para. 14;
McGillvray v.
    Penman
, 2016 ONSC 1271, at para. 12. See also
Almas v. Spenceley
,
    [1972] 2 O.R. 429 (C.A.), at p. 433.

(3)

The causes of action

(i)

Knowing receipt of trust funds

[15]

A
    stranger to a trust may be liable where it receives trust property for its own
    benefit, has knowledge of facts which would put a reasonable person on inquiry,
    but fails to inquire as to the possible misapplication of trust property:
Citadel
    General Assurance Co. v. Lloyds Bank Canada
, [1997] 3 S.C.R. 805, at para.
    49. The recipients enrichment is unjust due to the lack of inquiry with
    respect to the possible misapplication of the trust property. The focus is
    therefore on the recipients state of mind because, without constructive or
    actual knowledge of the breach of trust, the recipient could have a lawful
    claim to the funds and the plaintiff would not be entitled to a restitutionary
    remedy. See
Citadel General Assurance
, at paras. 48-51.

[16]

I
    am not convinced that the appellants claim for knowing receipt

could not possibly succeed. If a trier of fact
    were to conclude that OLGC had good reason to suspect that the money gambled by
    Ms. Spinks might have been stolen, the appellants may fall within the
    protection afforded by
Citadel General Assurance
.

[17]

According
    to Peter D. Maddaugh & John D. McCamus,
The Law of Restitution
,

loose-leaf (2015-Rel. 16), (Toronto: Canada Law Book, 2015), at paras.
    5-16 to 5-25, money obtained by fraud can be subject to a constructive trust. In
Healthy Body Services Inc. v. 1261679 Ontario Ltd. (Raytek Communications)
,
    2015 ONCA 516, 338 O.A.C. 346, at paras. 30-40, Lauwers J.A., dissenting, would
    have held that money obtained by fraud was subject to a constructive trust and
    that a party that subsequently obtained that money could be liable in knowing
    receipt. The majority in that case did not consider the issue of knowing
    receipt, as it held the funds in question could not be traced.

[18]

Moreover,
    in
In
re Equipment Acquisition Resources
,
Inc.
, 803
    F. 3d 835

(7th Cir. 2015), a plan administrator sought to recover
    embezzled funds lost at a casino. The District Court for the Northern District
    of Illinois granted the casinos summary judgment motion, and the Seventh
    Circuit Court of Appeal upheld the result, on the ground that unless the casino
    had some reason to know that it was receiving funds resulting from a fraudulent
    transfer, it should not be liable to the debtors creditors. The court also
    held that certain evidentiary red flags were not sufficient to impose a duty
    on the casino to investigate the source of the funds. Although the action
    failed, the court did not suggest that the cause of action itself was not
    valid.

[19]

The
    motion judge in this case rejected the appellants claim that the OLGC
    knowingly received trust funds, at para. 37 of his reasons:

S. Spinks held herself out to be a lawyer to the operators of
    the gambling casinos. Many people lose money at gambling casinos who will
    represent themselves truthfully or not as being from various occupations. This
    cannot be sufficient to put the casinos on notice to investigate these people
    as to the source of the money that they are losing. Such a practice would
    destroy the business of the casinos which they are conducting legally.

[20]

These
    factual assertions cannot form the basis to reject the appellants claim, if it
    was adequately pleaded. The question before the motion judge was whether,
    taking the facts in the statement of claim as true and reading the claim
    generously, it was plain and obvious that the action would fail. In my view, on
    a generous reading of the statement of claim, and given the appellants allegations
    that OLGC had knowledge sufficient to put a reasonable person on inquiry, but
    failed to take the necessary action, the appellants claim for knowing receipt
    of trust funds should be allowed to proceed to trial.

(ii)

Unjust enrichment

[21]

The trial judge correctly set out the requirements for a claim in
    unjust enrichment: (1) an enrichment of the defendant; (2) a corresponding
    deprivation of the plaintiff; and (3) the absence of a juristic reason for the
    enrichment. See
Pettkus v. Becker
, [1980] 2
    S.C.R. 834, at p. 848; and
Garland v. Consumers Gas Co.
, 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 30.

[22]

The
    motion judge held that third parties such as the appellants could not advance a
    claim for unjust enrichment unless Ms. Spinks, the gambler, also had that
    right. He held that while OLGC was enriched, and Ms. Spinks was correspondingly
    deprived, there were juristic reasons for the enrichment  namely, a valid
    gambling contract and the fact
that OLGC was a
bona
    fide
purchaser
for value
without
    notice that it was receiving money obtained by fraud.

[23]

The
    motion judge did not consider the possibility that the juristic reasons for the
    enrichment might be vitiated on the ground of unconscionability. The appellants
    pleaded in their statement of claim that OLGC received an unconscionable
    benefit. If OLGC knew that Ms. Spinks was addicted to gambling, and was in
    fact unable to refrain from losing money, but allowed her to continue gambling
    nonetheless, I am not convinced that the appellants claim in unjust enrichment
    would necessarily fail.

[24]

This
    approach was adopted by the Court of Appeal of the
Supreme
    Court of Victoria
in
Kakavas v. Crown Melbourne Ltd. & Ors
,
    [2012] VSCA 95, affd [2013] HCA 25. In that case, the appellant claimed that
    he was a pathological gambler and that the casinos actions in luring him
    back to the casino, and in encouraging his gambling, were unconscionable.

[25]

The
    court described, at paras. 17-19, the parameters of unconscionability in that
    context as encompassing circumstances in which: (i) a party to a transaction is
    under a special disability in dealing with the other party, such that there is
    no reasonable degree of equality between them; and (ii) the disability is
    sufficiently evident to the stronger party to make it
prima facie
unfair
    for

him or her to procure or accept the weaker partys agreement to
    the transaction in the circumstances. The common characteristic of adverse
    circumstances constituting a special disability is that they have the effect of
    placing one party at a serious disadvantage with respect to the other party. The
    focus is on the conduct of the stronger party in attempting to enforce or
    retain the benefit of a transaction with a person under special disability,
    where it is not consistent with equity or good conscience to allow him or her
    to do so.

[26]

Following
    trial, the plaintiffs claim in
Kakavas
was dismissed on the ground
    that he did not suffer from the special disability or disadvantage of addiction
    to gambling. Appeals to the Court of Appeal and the High Court of Australia
    were dismissed. Again, while the plaintiff lost because of the factual findings
    made in that case, a finding of unconscionability  knowingly taking advantage
    of an addicted gambler  could have opened the door to compensation.

[27]

In
    this case, if a trier of fact were to determine that OLGC acted unconscionably
    with respect to Ms. Spinks, a problem gambler, it is not plain and obvious that
    the appellants action in unjust enrichment would fail. While the argument may
    be novel, as observed by Professor Stephen M. Waddams in
The Law of
    Contracts
, 6th ed. (Toronto: Canada Law Book, 2010), at para. 551, [t]he
    categories of unconscionability can never be closed.

[28]

Furthermore,
    in
Soulos v. Korkontzilas
, [1997] 2 S.C.R. 217, at paras. 34 and 43,
    the Supreme Court of Canada recognized that the remedy of a constructive trust
    could be imposed where required by good conscience, including both for wrongful
    acts like fraud and where there is unconscionable unjust enrichment:

It thus emerges that a constructive trust may be imposed where
    good conscience so requires. The inquiry into good conscience is informed by
    the situations where constructive trusts have been recognized in the past. It
    is also informed by the dual reasons for which constructive trusts have
    traditionally been imposed: to do justice between the parties and to maintain
    the integrity of institutions dependent on trust-like relationships. Finally,
    it is informed by the absence of an indication that a constructive trust would
    have an unfair or unjust effect on the defendant or third parties, matters
    which equity has always taken into account. Equitable remedies are flexible;
    their award is based on what is just in all the circumstances of the case.



I conclude that in Canada, under the broad umbrella of good
    conscience, constructive trusts are recognized both for wrongful acts like
    fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and
    corresponding deprivation. While cases often involve both a wrongful act and
    unjust enrichment, constructive trusts may be imposed on either ground: where
    there is a wrongful act but no unjust enrichment and corresponding deprivation;
    or where there is an unconscionable unjust enrichment in the absence of a
    wrongful act, as in
Pettkus v. Becker
,
supra
. Within
    these two broad categories, there is room for the law of constructive trust to
    develop and for greater precision to be attained, as time and experience may
    dictate.

[29]

In
    addition to the notion of unconscionability, legislation such as the
Consumer
    Protection Act
, 2002
, S.O. 2002, c. 30,
Sched.
    A,
may shed light on the impact of the disability of one party to a
    contractual relationship on the agreement, such as when the consumer is not
    reasonably able to protect his or her interests because of disability and when
    unfair practices on the part of the supplier of services may entitle the
    consumer to rescission of the contract: see ss. 15(2)(a), 17, and 18(1).

[30]

In
    light of the foregoing considerations, it is my view that it is not plain and
    obvious that the appellants claim in unjust enrichment is certain to fail.

(iii)

Negligence

[31]

The
    appellants allege that OLGC owed them a duty of care to prevent Ms. Spinks
    from losing their money by stopping her from gambling. The motion judge applied
    the 
Anns/Kamloops
 test for recognizing a duty of care, as expressed
    in
Edwards v. Law Society of Upper Canada
, 2001 SCC 80, [2001] 3
    S.C.R. 562, at paras. 9-10. In that case, the Supreme Court confirmed that at
    the first stage of the
Anns/Kamloops
test, the court must examine
    whether the circumstances disclose reasonably foreseeable harm and sufficient proximity
    between the plaintiff and defendant to establish a
prima facie
duty of
    care. At the second stage, the question is whether there are residual policy
    reasons for not imposing a duty of care. See also
Cooper v. Hobart
,
    2001 SCC 79, [2001] 3 S.C.R. 537, at para. 30; and
Syl Apps Secure
    Treatment Centre v. B.D.
, 2007 SCC 38, [2007] 3 S.C.R. 83, at paras. 23-26,
    30-32.

[32]

The
    motion judge held that the respondent could not owe any duty of care to the
    appellants unless it also owed a duty of care to Ms. Spinks, the gambler. He
    referred to a number of authorities holding generally that problem gamblers are
    the authors of their own misfortune and should not be able to recover for
    economic loss: see
Burrell v. Metropolitan Entertainment Group
, 2010
    NSSC 476, affd 2011 NSCA 108; and
Calvert v. William Hill Credit Ltd.
,
    2008 EWHC 454 (Ch.), affd [2008] EWCA Civ. 1427.

[33]

The
    motion judge held, at para. 24, that the pleadings did not disclose facts
    sufficient to establish the required reasonable foreseeability and proximity
    between casinos and problem gamblers:

In this case, it is not pleaded that S. and A. Spinks
    recognized that they were problem gamblers and sought to have the casinos
    exclude them. The plaintiffs do not plead special circumstances as there were
    in
Preston.
The plaintiffs do not plead facts linking S. and A. Spinks
    to the casinos where they gambled that would differentiate them to the staff
    from the general population of patrons who attend to gamble there other than
    that they were problem gamblers. The case law establishes that this is not
    sufficient to create a duty of care to them by OLGC. That S. and A. Spinks
    would lose money at the casinos like every other person who gambled there for
    any length of time was foreseeable. It could hardly be otherwise or the casinos
    would go out of business. The facts pleaded, however, fail to assert sufficient
    proximity between S. and A. Spinks and OLGC to satisfy the second requirement
    of imposing a duty of care to them by OLGC.

[34]

The
    motion judge went on to hold that to impose a duty of care on OLGC would create
    indeterminate liability to problem gamblers for their losses, making it
    impossible for casinos to operate at a profit  policy concerns that the appellants
    had not adequately addressed in their pleadings. Because he found that OLGC
    owed no duty of care to problem gamblers, he found that it could not owe a duty
    of care to the appellants either.

[35]

I
    do not agree with the motion judge that case law binding in Ontario establishes
    definitively that casinos owe no duty of care to problem gamblers. I agree that
    casinos cannot be expected to conduct an individualized assessment of each of
    their customers to determine the wisdom of the decision to gamble. However,
    more may be expected when an individual is obviously addicted to gambling and
    out of control. Moreover, the factual assertion that casinos would go out of
    business if a duty of care to problem gamblers were to be recognized has no
    place on a pleadings motion. Factual findings will have to await a hearing on
    the merits with the benefit of an evidentiary record.

[36]

Nor
    am I persuaded at this early stage that recognition of a duty of care confined
    to the victims of an obvious problem gambler in circumstances where a
    reasonable person would have realized that the gambler could be using stolen
    funds to feed his or her addiction will necessarily result in indeterminate
    liability. The dimensions of this problem cannot be determined on a pleadings
    motion.

[37]

I
    recognize that there are some formidable barriers to a finding that casinos owe
    a duty of care to third parties who are the victims of problem gamblers. For
    one thing, the claim is for pure economic loss. Moreover, while loss to third
    parties may be reasonably foreseeable, the casinos have no relationship with
    the third parties, and there may be some indeterminacy in assessing the number
    of persons from whom addicted gamblers may have stolen.

[38]

On
    the other hand, this issue may be seen as analogous to that of a commercial
    host who serves alcohol to an intoxicated patron, who then drives while
    inebriated and injures an innocent third party. In that context, there is a recognized
    duty to both the intoxicated patron and the third party: see
Stewart v. Pettie
,
    [1995] 1 S.C.R. 131. The server of alcohol has no relationship with the third
    party, but injury is reasonably foreseeable and a sufficient degree of proximity
    exists between the server and the class of persons who could be expected to be
    on the road.

[39]

In
    the context of the proposed analogy, it is important to note that the
    respondent is in the casino business. The Supreme Court drew a distinction
    between social hosts and commercial hosts in
Childs v. Desormeaux
, 2006
    SCC 18, [2006] 1 S.C.R. 643, at paras. 17-23. The court concluded, at para. 47,
    that [a] social host at a party where alcohol is served is not under a duty of
    care to members of the public who may be injured by a guests actions, unless
    the hosts conduct implicates him or her in the creation or exacerbation of the
    risk.

[40]

However,
    the court also made clear, at para. 37, that where the defendant is a
    commercial enterprise that benefits from offering a service to the general
    public, it may have
attendant
    responsibilities to act with special care to reduce risk, and
a duty of
    care may arise
. The court described
    the rationale underlying the imposition of a duty of care on such a defendant,
    at para. 38
:

Running through all of these situations is the defendants
    material implication in the creation of risk or his or her control of a risk to
    which others have been invited. The operator of a dangerous sporting
    competition creates or enhances the risk by inviting and enabling people to
    participate in an inherently risky activity. It follows that the operator must
    take special steps to protect against the risk materializing The public
    provider of services undertakes a public service, and must do so in a way that
    appropriately minimizes associated risks to the public.

[41]

Moreover,
    in the course of distinguishing between social hosts and commercial alcohol
    providers, the court noted, at para. 22:

[T]he contractual nature of the relationship
    between a tavern keeper serving alcohol and a patron consuming it is fundamentally
    different from the range of different social relationships that can
    characterize private parties in the non-commercial context. The appellants
    argue that there is nothing inherently special about profit making in the law
    of negligence. In the case of alcohol sales, however, it is clear that profit
    making is relevant. Unlike the host of a private party, commercial alcohol
    servers have an incentive not only to serve many drinks, but to serve too many.
    Over-consumption is more profitable than responsible consumption. The costs of
    over-consumption are borne by the drinker him or herself, taxpayers who
    collectively pay for the added strain on related public services and, sometimes
    tragically, third parties who may come into contact with intoxicated patrons on
    the roads. Yet the benefits of over-consumption go to the tavern keeper alone,
    who enjoys large profit margins from customers whose judgment becomes more impaired
    the more they consume. This perverse incentive supports the imposition of a
    duty to monitor alcohol consumption in the interests of the general public.

[42]

These
    comments apply with equal force to casino operators.

[43]

Gambling,
    like serving alcohol, is a regulated activity. It is prohibited under the
Criminal
    Code
, unless a provincial government decides to adopt a law permitting the
    conduct and management of the activity by the province. The
Alcohol and Gaming Commission of Ontario
is the
    regulatory agency responsible for administering the statutes and regulations
    applicable to casinos. The Commission is mandated to exercise its powers and
    duties in the public interest and in accordance with the principles of honesty
    and integrity, and social responsibility:
Alcohol and Gaming Regulation
    and Public Protection Act, 1996
, S.O. 1996, c. 26, Sched., s. 3(3).

[44]

For
    all of these reasons, it is not plain and obvious that the appellants claim in
    negligence against OLGC is hopeless.

(iv)

Conversion

[45]

The
    appellants did not pursue the cause of action asserted in conversion in oral
    argument.

(4)

Conclusion

[46]

I
    have had the advantage of reading the dissenting reasons of Hoy A.C.J.O. I
    agree that there is no jurisprudence perfectly matching the claims in issue
    here, but in my view, that is inherent in the novelty of the claim.

[47]

My
    colleague is also of the view that the appellant has not adequately pleaded the
    knowledge that is a requisite element of the knowing receipt and unjust
    enrichment claims in this case. In particular, she is of the view that pleading
    that the OLGC had knowledge sufficient to put a reasonable person on inquiry
    is insufficient. I respectfully disagree and I would not require a more
    detailed pleading about OLGCs knowledge at this stage of the action.

F.

DISPOSITION

[48]

These
    are novel claims. A factual record is necessary to allow a court to confidently
    make judgments about the legal and policy issues raised, and to determine whether
    it is fair and just to expect casinos to pay some compensation for the high
    social costs of gambling out of the revenues generated by that activity. I am
    not persuaded that the appellants action is certain to fail. This was a
    pleadings motion under rule 21.01, based on the argument that no viable cause
    of action was pleaded. It was not a motion for summary judgment. The muddled
    organization of the statement of claim is not a basis to strike the claim,
    provided the essential material facts are pleaded. The appeal is accordingly
    allowed, and the motion to strike out the claim is dismissed. Costs are awarded
    to the appellants in the sum of $15,000 on the appeal, all inclusive.

G. Pardu J.A.

I agree L.B. Roberts
    J.A.


Hoy A.C.J.O. (Dissenting):

[49]

I
    acknowledge that the appellants claim illustrates the sometimes very serious
    social and economic consequences to gamblers and others of government-regulated
    gambling in Ontario. And I agree with my colleague that this claim is novel.
    However, unlike my colleague, I would dismiss the appeal. When considering a
    novel claim on a motion to strike, the court must nonetheless evaluate it in
    the context of the facts pleaded and the applicable jurisprudence. I agree with
    the motion judge that the appellants claim has no reasonable prospect of
    success.

[50]

I
    begin by outlining the facts pleaded by the appellants. As my colleague has
    already discussed the motion judges reasons, I do not need to summarize those.
    Then I address the various causes of action advanced by the appellants.

A.

What the appellants HAVE Pleaded

[51]

I
    agree that a court hearing a motion to strike must proceed on the basis of the
    facts pleaded by the plaintiff and that the pleadings should be construed
    generously. However, this indulgence is not limitless.

[52]

A
    plaintiff cannot simply plead legal conclusions or assert the constituent
    elements of a cause of action:
Apotex
Inc.
    v. Eli Lily and Company
, 2015 ONCA 305, 334 O.A.C. 99, at para. 21. A
    claimant must clearly plead the facts upon which it relies in support of its
    claim. The facts pleaded are the sole basis on which the claims at issue can be
    evaluated, and a court cannot consider the possibility that additional facts or
    evidence may become available in the future:
R. v. Imperial Tobacco Canada
    Ltd.
, 2011 SCC 42, [2011] 3 S.C.R. 45, at paras. 22-23.

[53]

The
    appellants have amended their claim twice. It is important to consider
    precisely what facts they plead in their Amended Amended Statement of Claim
    (Claim). There are three categories of facts that are significant: the
    Spinks fraud and their gambling, what Ontario Lottery and Gaming Corporation
    (OLGC) knew about the Spinks, and OLGCs interactions with problem gamblers in
    general.

(1)

The Spinks fraud and gambling

[54]

Shellee
    Spinks forged Ollie John Patons signature on an alleged will, appointing
    herself as executrix: Claim, at para. 12. Between January 1, 2006, and March
    13, 2008, she defrauded the appellant estates of approximately $1.5 million:
    Claim, at para. 4. Ms. Spinks gambled and lost about $750,000 of the money she
    took from the appellant estates at OLGC casinos, at least $550,000 of which was
    gambled and lost between late 2006 and March 13, 2008: Claim, at paras. 5 and
    7. Between December 21, 2006, and her arrest in 2008, Ms. Spinks gave about
    $200,000 of the money she took from the plaintiff estates to her mother, who
    gambled and lost that money at OLGC casinos: Claim, at paras. 9 and 10.

[55]

Ms.
    Spinks also defrauded other clients of at least another $3 million.  Except for
    about $1 million, the Spinks gambled away all the money that Ms. Spinks
    defrauded the appellant estates and other clients of: Claim, at para.18. The
    appellants do not plead when Ms. Spinks defrauded the other clients or the time
    period during which the Spinks gambled most of the money away.

[56]

The
    appellants do not know the precise amount of money lost by the Spinks, but OLGC
    knows or is capable of ascertaining the amount: Claim, at paras. 7 and 10. The
    Spinks gambling losses were inordinately high: Claim, at para. 16(a). They exhibited
    addictive, inordinately excessive gambling behaviour: Claim, at para. 28.

(2)

What OLGC knew about the Spinks

[57]

It
    is significant that the appellants do not plead that OLGC actually knew that
    the Spinks were problem gamblers, was wilfully blind to that fact, or wilfully
    and recklessly failed to make inquiries that an honest and reasonable person
    would make in the circumstances.

[58]

The
    appellants have pleaded only the following facts about what knowledge OLGC
    actually had: (i) Ms. Spinks held out to OLGC that she was a lawyer (Claim, at
    para. 5); (ii) OLGC knew that the Spinks lost large amounts of money at its
    casinos (Claim, at para. 17); and (iii) OLGC at all times knew how much money
    the Spinks had gambled and lost (Claim, at para. 25).

[59]

I
    acknowledge that the appellants have pleaded that the respondent had at all
    material times knowledge of facts that would put a reasonable person on
    inquiry and that the respondent had constructive knowledge of a potential
    breach of trust: Claim, at para. 17. However, these pleadings are legal
    conclusions and, as I discuss below, the appellants have not pleaded the
    material facts necessary to justify them.

(3)

OLGC and problem gamblers

[60]

According
    to the appellants, OLGC knows that a certain percentage of its customers are
    problem gamblers or people who have a gambling addiction: Claim, at para. 19.
    OLGC has been told by others of many specific instances where problem gamblers
    and addicted gamblers have lost extremely large amounts of money and have
    obtained the money they gamble from criminal activity, including fraud: Claim,
    at para. 20. More specifically, the appellants have pleaded that:

·

OLGC is aware at all times of losses being incurred by the vast
    majority of problem and addicted gamblers who gamble in OLGC casinos: Claim, at
    para. 21.

·

OLGC trains its employees to keep track of the gambling losses of
    its patrons, to spot problem gamblers, and to intervene in situations involving
    losses by problem gamblers: Claim, at paras. 21 and 22.

·

85 percent of OLGC employees believe that they can identify
    problem gamblers and intervene in situations where they are losing inordinate
    amounts of money: Claim, at para. 22.

·

OLGC had information at its disposal that permitted it to predict
    with statistical accuracy the risk of problem and addicted gamblers losing
    money obtained by illegal means, and it was sufficiently expert in the gaming
    industry to easily spot and quickly prevent the danger of Ms. Spinks gambling
    an inordinate amount of money that was obtained by fraud: Claim, at para. 34.

·

OLGC knows that problem and addicted gamblers cause great harm to
    themselves and to their families, employers, and creditors: Claim, at para. 23.

·

OLGC knows that long-term gambling will result in financial
    losses to the gambler: Claim, at para. 26.

B.

Knowing receipt of trust funds

(1)

Legal principles

[61]

A
    person who has not been appointed as trustee and is therefore a stranger to a
    trust may, under certain limited circumstances, attract the liabilities of
    trusteeship. In a category of liability referred to as knowing receipt, which
    the appellants rely on, a claimant may assert a restitution-based claim against
    a defendant that receives property in its own right and in breach of trust:
Citadel
    General Assurance Co. v. Lloyds Bank Canada,
[1997] 3 S.C.R. 805, at
    paras. 19 and 24.

[62]

As
    noted in
Gold v. Rosenberg
, [1997] 3 S.C.R. 767, at paras. 53 and 74,
    in order to recover property on the basis of knowing receipt, a plaintiff must
    prove that (1) the disputed property was subject to a trust in favour of the
    plaintiff; (2) the defendant received property, in its own right, which was
    taken from the plaintiff in breach of trust; and (3) the defendant had
    knowledge or notice of the breach of trust. Knowledge or notice may be
    established by showing that the defendant

(i) had actual knowledge;

(ii) wilfully shut its eyes to the
    obvious;

(iii) wilfully and recklessly failed
    to make such inquiries as an honest and reasonable person would make;

(iv) had knowledge of circumstances
    that would indicate the facts to an honest and reasonable person; or

(v) had knowledge of circumstances
    that would put an honest and reasonable person on inquiry.

The types of knowledge described in (iv) and (v) are
    referred to as constructive knowledge. For the sake of convenience, I will
    refer to categories (i)-(iii) as actual knowledge.

[63]

Where
    the foregoing requirements are met, the recipient of the trust property is held
    liable as a constructive trustee for the breach of trust:
Citadel
, at
    para. 19.

(2)

Appellants claim

[64]

In
    this case, the appellants argue that the funds gambled by the Spinks were
    subject to a trust in their favour. They advance two potential bases for that
    trust. First, I understand them to assert that Ms. Spinks improperly took on a
    trustees responsibilities and committed a breach of the trust created by Mr. Patons
    will. Second, the appellants submit that the stolen funds were impressed with a
    constructive trust while in Ms. Spinks hands. I assume from this that they
    argue that the Spinks breached this constructive trust by gambling with the
    stolen funds and that, as a result, OLGC received those funds for its own
    benefit.

[65]

The
    appellants submit that OLGC was aware of facts that would put a reasonable
    person on notice or inquiry as to a possible misapplication of trust funds
    because (i) it had been told by others of many specific instances where problem
    gamblers have obtained the monies used to gamble from criminal activity,
    including fraud; and (ii) because Ms. Spinks  whom OLGC believed to be a
    lawyer  sustained the quantum of gambling losses pleaded. The appellants do
    not submit that OLGC was required to conduct an investigation. Rather, they say
    that OLGC should have called the police and put the police on inquiry.

(3)

Analysis

[66]

I
    agree with my colleague that money obtained by fraud can be subject to a
    constructive trust:
Soulos v. Korkontzilas,
[1997] 2 S.C.R. 217, at
    para 43.  I am not aware of any case where liability for knowing receipt has
    been found arising out of a breach of a constructive trust, and the appellants
    have not provided any authorities that would support this proposition. However,
    in light of the dissenting reasons of Lauwers J.A. in
Healthy Body Services
    Inc. v. 1261679 Ontario Ltd. (Raytek Communications),
2015 ONCA 516, 338
    O.A.C. 346, which my colleague relies on, it cannot be said that there is no
    reasonable chance that a claim for knowing receipt based on the breach of a
    constructive trust could succeed.

[67]

Consequently
    I agree that the appellants may be able to establish the first two requirements
    for knowing receipt, i.e. existence of a trust and receipt of property subject
    to that trust.

[68]

However,
    in my view, there is no reasonable chance that a trial judge would find that
    the knowledge element that the appellants rely on  namely that OLGC had
    knowledge of circumstances that would put an honest and reasonable person on
    inquiry as to a breach of trust  was satisfied in this case and that OLGC is
    accordingly liable as constructive trustee for the breach of the trust.

[69]

Though
    the appellants claim and their submissions are far from clear, I believe that
    they rely on the following chain of arguments: (i) OLGC knows of many instances
    where problem gamblers have stolen or committed fraud to obtain the money they
    gamble with; (ii) OLGC and its staff are capable of identifying problem
    gamblers; (iii) the Spinks were problem gamblers and, therefore, fall into a
    category of people who may steal or commit fraud; and (iv) OLGC should have
    known that the Spinks were problem gamblers and that they may be gambling with
    stolen funds. The appellants claim for knowing receipt rests on their
    assertion that the Spinks were problem gamblers.

[70]

The
    appellants do not plead that OLGC had actual knowledge that the Spinks were
    problem gamblers. As noted, according to the appellants pleadings, OLGC knew
    only two things about the Spinks: that Ms. Spinks identified herself as a
    lawyer and that the Spinks spent a lot of money. Neither of those can be
    equated with a pleading that OLGC had actual knowledge that the Spinks were
    problem gamblers.

[71]

That
    an individual gambles large amounts of money does not, in and of itself, make
    that individual a problem gambler. Whether or not an individual is a problem
    gambler requires a careful, individualized assessment of factual issues
    relating to her personal autonomy and responsibility:
Dennis v. Ontario
    Lottery and Gaming Corporation
, 2013 ONCA 501, 116 O.R. (3d) 321, at para.
    57. The significance of the quantum gambled depends on the means and
    circumstances of the gambler. In
Kakavas v. Crown Melbourne Limited
,
    [2013] HCA 25, 250 C.L.R. 392, a case that my colleague relies on, the court
    refers to high rollers who frequently gamble with huge sums but are not
    problem gamblers. The difficulty of distinguishing the two was noted in
Burrell
    v. Metropolitan Entertainment Group
, 2011 NSCA 108, 309 N.S.R. (2d) 375,
    at para. 43, where the court noted that a casino could not reliably
    distinguish a gambling addict from a frequent gambler in the absence of a
    prohibition notice, put in place because of a request from the gambler.

[72]

The
    appellants do not plead that Ms. Spinks had identified herself as a problem
    gambler by self-excluding from OLGC casinos.

[73]

Taking
    their claim at its highest, the appellants plead that Ms. Spinks exhibited
    addictive, inordinately excessive gambling behaviour  behaviour which,
if observed
, might put an honest and reasonable person
    on inquiry as to whether Ms. Spinks was a problem gambler. They do not allege
    that OLGC observed any of this behaviour.

[74]

I
    question whether something less than actual knowledge of the fact that the
    Spinks were problem gamblers would be sufficient to put an honest and
    reasonable person on inquiry as to a possible breach of trust by the Spinks.
    However, assuming that it would, there is nonetheless no reasonable prospect
    that the appellants claim for knowing receipt of trust funds could succeed.

[75]

The
    appellants plead no facts that would put a reasonable person on inquiry as to
    whether these particular gamblers, i.e. the Spinks, were among the problem
    gamblers who were gambling with funds received through a breach of trust. The
    appellants do not plead that almost all problem gamblers gamble using monies
    obtained through criminal activity. How was OLGC to distinguish Ms. Spinks from
    a problem gambler who gambled using monies not obtained through a breach of
    trust?

[76]

I
    agree with the motion judge that OLGCs belief that Ms. Spinks was a lawyer is
    not a fact that would put an honest and reasonable person on inquiry as to
    whether Ms. Spinks was misapplying trust property.

[77]

The
    appellants do not plead that lawyers are more likely to engage in fraud than other
    persons, and I would find it difficult to accept such a proposition. The
    isolated fact that OLGC believed Ms. Spinks to be a lawyer more reasonably
    supports the inference that she had a reasonable and possibly significant
    income, possibly had significant assets, and was less likely to be involved in
    criminal conduct than other high-spending gamblers. A lawyer could well have
    had legitimate sources of the quantum of funds gambled: an inheritance, a
    mortgage on her home or other source of credit, significant return on
    investments, a large contingency fee award, or a lottery win.

[78]

For
    the appellants claim to have a reasonable prospect of success, the pleaded
    facts must be capable of supporting the inference that the gambled funds were
    obtained through breach of trust. These competing inferences preclude a leap
    from the pleaded fact that Ms. Spinks identified herself as a lawyer to the
    conclusion that OLGC should have suspected a breach of trust.

[79]

The
    appellants also do not plead that OLGC knew of facts that would suggest that
    Ms. Spinks was the kind of person likely to engage in fraud. They do not plead
    that OLGC had knowledge that Ms. Spinks had been implicated in any prior
    fraudulent activity, was the subject of pending criminal charges, or that she
    associated with a known criminal element.

[80]

Furthermore,
    for the same reasons that the quantum of funds gambled is not in and of itself
    an indicator that someone is a problem gambler, it is not a fact that would put
    an honest and reasonable person on inquiry as to the misapplication of trust
    funds.

[81]

This
    conclusion is supported by the decision in
Gold
. There, the issue was
    whether an honest and reasonable person in the position of the defendant bank
    would have made inquiries into whether another defendant had breached his
    fiduciary duties as trustee by obtaining a guarantee from the appellant.
    Sopinka J., speaking for the majority on this issue, concluded that the bank
    did not have a duty to make inquiries just because the relationship between the
    appellant and defendant trustee fell into a category of relationships where
    concerns might arise. Rather, for an obligation to make inquiries to arise,
    there must be suspicious circumstances in the particular relationship at issue:
Gold
, at paras. 79 and 83.

[82]

That
    conclusion is also supported by the decision in
Arthur Andersen Inc. v.
    Toronto-Dominion Bank
(1994), 17 O.R. 363 (C.A.).
[1]
In
Andersen
, the issue was whether the defendant bank was liable for
    accepting funds paid to it in breach of a trust imposed by the
Construction
    Lien Act
, R.S.O. 1990, c. C-30. At p. 381, Grange and McKinlay JJ.A.
    stated that, in the absence of sufficient facts or circumstances indicating
    that there is a
good possibility
of trust
    beneficiaries being unpaid there is no duty of inquiry on a bank (emphasis
    added).

[83]

In
    other words, a generalized possibility of breach of trust is not sufficient. A
    claimant must plead facts showing a real possibility of breach of trust in the
    particular circumstances.

[84]

Therefore,
    OLGC could not be subject to a duty to make inquiries solely because of
    knowledge, actual or constructive, that the Spinks were problem gamblers. There
    need to be facts showing that there was reason to suspect that these problem
    gamblers were gambling with stolen funds. In the absence of such facts, there
    is no reasonable prospect that OLGC was subject to a duty to make inquiries
    and, therefore, no reasonable possibility that OLGC will be found liable for
    knowing receipt.

[85]

Respectfully,
    my colleagues reliance on
In re Equipment Acquisition Resources, Inc.
,
    803 F. 3d 835 (7th Cir. 2015), is flawed. The issue in that case was whether
    the payment of funds to the casino was voidable under the U.S.
Bankruptcy
    Code
. It was not a knowing receipt case; it is not authority for the
    proposition that a U.S. court has considered and not ruled out the application
    of the doctrine of knowing receipt in the context of the operation of a casino.

C.

Unjust Enrichment

(1)

Legal principles

[86]

A
    plaintiff asserting a claim for unjust enrichment is required to prove (1) an
    enrichment of the defendant; (2) a corresponding deprivation of the plaintiff;
    and (3) the absence of a juristic reason for the enrichment:
Garland v.
    Consumers Gas Co.
, 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 30.
    Canadian law recognizes certain established categories of juristic reasons,
    including contracts:
Garland
, at para. 44.

[87]

The
    contract at issue, or any other juristic reason for that matter, need not arise
    from the relationship between the plaintiff and the defendant. A valid contract
    leading to a debtor-creditor relationship between the person being enriched and
    another is a valid juristic reason:
Bank of Montreal v. i Trade Finance
    Inc.
, 2009 ONCA 615, 96 O.R. (3d) 561 (
iTradeONCA
), affd, 2011
    SCC 26, [2011] 2 S.C.R. 360 (
iTradeSCC
), at para. 39. In cases
    involving allegations of fraud, a contract will be a valid juristic reason
    unless the defendant had notice of the fraud. To hold otherwise would defeat the
    purpose of the long-established equitable protection which the law makes
    available  for equally long-established policy reasons  to
bona fide
purchasers for value without notice:
iTradeONCA
, at para. 42.

(2)

Analysis

[88]

The
    motion judge concluded that OLGC had a juristic reason for retaining the money
    that the Spinks gambled  namely, the Spinks had entered into a valid contract
    with OLGC when they placed a bet. The chance of winning and the thrill of
    gambling were the consideration for the money advanced. The motion judge also
    concluded that OLGC did not have notice of Ms. Spinks fraud and was a
bona
    fide
purchaser for value without notice.

[89]

In
    my opinion, that analysis is correct. The Spinks and OLGC entered into a contract:
Tal v. Ontario Lottery Corporation/Loto 6/49 OLG
, 2011 ONSC 644, 80
    B.L.R. (4th) 248, at para. 43;
Ross v. British Columbia Lottery Corp.
,
    2014 BCSC 320, 12 C.C.L.T. (4th) 57. As noted, contracts, even between a
    defendant and a third-party other than the plaintiff that suffered a deprivation,
    are a valid juristic reason.

[90]

The
    appellants argue that OLGC received an unconscionable benefit because it
    received the gambled funds with knowledge of circumstances that would put an
    honest and reasonable person on inquiry as to a possible misapplication of
    trust property. They argue that OLGC had constructive notice that it was
    receiving money obtained by fraud.
Gold
, at paras. 46 and 53, makes
    clear that a
bona fide
purchaser for value will take any property it
    receives subject to an equity if it has constructive notice of the equity.

[91]

Gold
is a decision that dealt with the law governing knowing receipt. I have already
    discussed why the appellants cannot establish the kind of knowledge needed to
    successfully assert that cause of action. For the same reasons, it cannot
    assist them in vitiating the juristic reason that justifies OLGCs enrichment
    in this case.

[92]

My
    colleague does not seem to take issue with any of the analysis noted above.
    However, she states that the motion judge erred by not considering the
    possibility that the contract might be vitiated on the ground of
    unconscionability. The basis for her assertion is the appellants pleading that
    OLGC received an unconscionable benefit. Relying on the decision in
Kakavas
,
    my colleague posits that there is a reasonable chance that a gambling contract
    with a problem gambler would be found unconscionable simply because the
    gambler is a problem gambler and that OLGC would accordingly be found to have
    no juristic reason for its enrichment. If successful, this argument would
    require casinos to refund all monies gambled by problem gamblers.

[93]

Respectfully,
Kakavas
does not support the appellants position. In
Kakavas
,
    the plaintiff gambled more than AU$1.479 billion over 14 months at the Crown
    casino, losing AU$20.5 million in the process. Crown was aware that the
    plaintiff had a conviction for a fraud perpetrated ten years before, had been
    diagnosed by a clinical psychologist as a classic pathological gambler eight
    years before, had self-excluded from several casinos in Australia, and was
    subject to an exclusion order issued with respect to one casino at the
    direction of the police. Six years before the gambling in issue, Crown had
    withdrawn the plaintiffs licence to gamble at its premises because of pending
    armed robbery charges. The plaintiff repeatedly sought re-entry to the Crown
    casino. Crown was aware that the plaintiff was gambling significant amounts in
    Las Vegas. Finally, after requiring the plaintiff to provide an application
    accompanied by an opinion from a psychologist to the effect that he no longer
    had any gambling problems, Crown permitted him to gamble at its premises again.

[94]

The
    plaintiffs claim for restitution was struck at the pleadings stage.
[2]
The plaintiff sued for his losses, claiming that Crowns conduct in permitting
    him  a compulsive or pathological gambler  to gamble amounted to
    unconscionable conduct contrary to applicable consumer protection legislation
    and under the general law.

[95]

While
    accepting that he was a problem gambler, and indeed possibly a pathological
    gambler, three levels of court in Australia rejected his argument.

[96]

In
Kakavas
, the High Court of Australia wrote at para. 20:

The plaintiff must be able to point to conduct on the part of
    the defendant, beyond the ordinary conduct of the business, which makes it just
    to require the defendant to restore the plaintiff to his or her previous
    position.

[97]

It
    explained, at para. 21, that the flaw in the plaintiffs case was that it
    consists essentially of a complaint about the outcome of risk-laden activity
    between the parties conducted in the ordinary course of Crowns business.

[98]

At
    para. 26, it noted that the conduct of the business was lawful:

And the courts of equity have never taken it upon themselves to
    stigmatise the ordinary conduct of a lawful activity as a form of victimisation
    in relation to which the proceeds of that activity must be disgorged.  As the
    primary judge observed, [i]n the absence of relevant legislative provision,
    there is no general duty upon a casino to protect gamblers from themselves.

[99]

The
    High Court characterized the plaintiff as a high roller and observed, at
    para. 28, that members of that class of gambler present themselves to the
    casino, and are welcomed by it in the ordinary course as persons who can afford
    to lose and to lose heavily. It reasoned that requiring Crown to single out
    the plaintiff from other high rollers and to refuse to accommodate him would
    have cast too great a responsibility on Crown. And, in any event, it noted that
    the plaintiff would likely have taken his business elsewhere.

[100]

At para. 161,
    the High Court made clear that the principle of constructive notice had no
    part in a claim of unconscionability:

Equitable intervention to deprive a party of the benefit of its
    bargain on the basis that it was procured by unfair exploitation of the
    weakness of the other party requires proof of a predatory state of mind.
    Heedlessness of, or indifference to, the best interests of the other party is
    not sufficient for this purpose.

[101]

Given the facts
    pleaded in this case, the decision in
Kakavas
could not support the
    appellants claim. They have not pointed to any conduct on the part of OLGC
    that fell outside the latters ordinary course of business. Constructive notice
    of the Spinks addiction cannot be sufficient to vitiate an otherwise valid
    contract. Here, OLGC was operating a business it is legally permitted to and
    there is no allegation that it failed to abide by legislation or regulations
    governing its conduct. Therefore, there is no reasonable prospect that the
    appellants could vitiate the contract between the Spinks and OLGC on the basis
    of an unconscionable benefit.

[102]

Moreover, the
    appellants cannot invoke the principles articulated in
Kakavas
. The
    non-statutory claim advanced by the appellant in
Kakavas
is a species
    of equitable fraud which permits the
victim
to
    rescind the relevant transaction and to be restored to his or her original
    position: John McGhee,
Snells Equity
, 31st ed. (London: Sweet &
    Maxwell, 2005), at para. 8-02. Fraud makes a transaction voidable but it
    remains effective until voided by the party subject to the fraud:
Snells
    Equity
, at para. 8-03;
iTradeSCC
, at para. 53. The appellants
    were not party to the contract between the Spinks and OLGC, nor were they the
    victims of any alleged fraud committed by OLGC. Therefore, they cannot rely on
Kakavas
.

[103]

In any event,
    the parties did not rely on
Kakavas
and this point was not argued before
    the motion judge or on appeal.

[104]

Nor did the
    appellants plead that OLGC breached the
Consumer Protection Act, 2002,
S.O.
    2002, c. 30, Sched. A. Respectfully, my colleagues reference to it is
    misplaced.

[105]

Furthermore, the
    sections my colleague relies on do not support the appellants position either.
    Neither she nor the parties provide any authority for the proposition that
    permitting a problem gambler to gamble is either an unconscionable
    representation within the meaning of s. 15(1) or an unfair practice within
    the meaning of s. 17. Significantly, s. 18 only permits the consumer who
    suffered an unfair practice to rescind an agreement. In the context of this
    case, that may give the Spinks the ability to rescind the contracts with OLGC;
    however, it is not a basis for the appellants to attack those contracts. And,
    as noted, an agreement that may be rescinded remains effective until it is
    rescinded.

[106]

Finally, the
    passages from
Soulos
cited by my colleague are not a basis for
    providing the appellants a remedy. While it is true that the constructive trust
    is a flexible remedy and that good conscience may permit a court of law to
    employ it, that principle is subject to clear limits. Significantly, it cannot
    be employed against a
bona fide
purchaser for value without notice. As
    noted in
iTradeSCC
, at para. 60:

The effect of the defence [i.e. being a
bona fide
purchase
    without notice] is to allow the defendant to hold its legal proprietary rights
    unencumbered by the pre-existing equitable proprietary rights. In other terms,
    where the defence operates, the pre-existing equitable proprietary rights are
    stripped away and lost in the transaction by which the defendant acquires its
    legal proprietary rights.

[107]

As I have
    explained, there is no reasonable prospect that a court will find that OLGC was
    not a
bona fide
purchaser without notice of any fraud. Therefore, in
    my opinion, there is simply no basis for subjecting any receipt in its hands to
    a constructive trust.

D.

Negligence

(1)

Legal principles

[108]

In order to
    advance a successful claim in negligence a plaintiff must demonstrate that (1) the
    defendant owed him or her a duty of care; (2) the defendants behaviour
    breached the standard of care; (3) the plaintiff sustained damage; and (4) the
    damage was caused, in fact and in law, by the defendants breach:
Mustapha
    v. Culligan of Canada Ltd.
, 2008 SCC 27, [2008] 2 S.C.R. 114, at para. 3.

[109]

The issue on
    this negligence claim is whether there is no reasonable prospect that a court
    would find that OLGC owed a duty of care to the appellants. In cases where the
    jurisprudence has already accepted or rejected a duty of care, courts do not
    have to conduct an extensive analysis. However, where, as in this case, the
    proposed duty of care is novel, courts will consider whether to recognize a new
    duty by applying the 
Anns/Kamloops
 test.

[110]

In order to
    establish that OLGC owed them a duty of care, the appellants must demonstrate
    that (1) the harm complained of was reasonably foreseeable; (2) there is
    sufficient proximity between OLGC and the appellants that it would be fair and
    just to impose a duty of care; and (3) there are no residual policy reasons for
    declining to impose such a duty:
Syl Apps Secure Treatment Centre v. B.D.,
2007
    SCC 38, [2007] 3 S.C.R. 83
,
at para. 34.

[111]

The factors
    that may satisfy the proximity requirement are diverse and will depend on the
    particular circumstances of the case. A court will look to factors such as
    expectations, representations, reliance, and the property or other interests
    involved:
Cooper v. Hobart
, 2001 SCC 79, [2001] 3 S.C.R. 537, at
    paras. 34-35. Where the relationship at issue is within the context of a
    statutory scheme, the governing statute will be relevant to this inquiry:
Syl
    Apps
, at para. 27. The ultimate question is whether it is just and fair
    having regard to that relationship to impose a duty of care in law upon the
    defendant:
Cooper
, at para. 34.

[112]

At the final
    stage, a court should consider if there are any policy considerations that
    negate a
prima facie
duty:
Imperial Tobacco
, at para. 39. At
    this stage, the court will consider the effect of recognizing a duty of care
    on other legal obligations, the legal system and society more generally:
Cooper
,
    at para. 37.

(2)

Appellants claim

[113]

The appellants
    plead that OLGC owed a duty to two different classes: (i) to protect the Spinks
    from their addictive or inordinately excessive gambling behaviour; and (ii) to
    protect the appellant estates and other persons sufficiently connected to or
    related to [the Spinks] by virtue of family ties, business connections, or
    social and community ties and relationships from frauds that could be
    committed by the Spinks (Claim, at para. 28).

[114]

They argue that
    OLGC breached both duties by failing to intervene and stop the Spinks from gambling.

[115]

My colleague
    concludes, at para. 34, that when an individual is obviously addicted to
    gambling and out of control there is a reasonable chance that a casino would
    be found to owe the individual a duty of care. At para. 36, she further
    concludes that recognition of a duty of care confined to victims of an obvious
    problem gambler in circumstances where a reasonable person would have realized
    that the gambler could be using stolen funds to feed his or her addiction will
    [not] necessarily result in indeterminate liability. While acknowledging some
    formidable barriers to finding that casinos owe a duty of care to third
    parties who are the victims of problem gamblers, she concludes that it is not
    plain and obvious that the appellants claim in negligence is hopeless.

[116]

I disagree.  In
    my view, the barriers to the appellants negligence claim are formidable and,
    when considered in the context of the applicable jurisprudence, it has no
    reasonable chance of succeeding:
Imperial Tobacco
, at para. 25.

[117]

As noted, the
    appellants plead that OLGC owed a duty to problem gamblers and to people
    sufficiently connected to problem gamblers. I will only address the latter
    duty as that is sufficient to dispose of this appeal. I will first analyze the
    prior jurisprudence the appellants rely on. Then, I will analyze the
    appellants claim in three steps: foreseeability, proximity, and residual
    policy considerations.

(3)

Analysis

(a)

Prior authority

[118]

I agree with my
    colleague that Ontario law has not definitively determined that a casino owes
    no duty of care to persons it knows are problem gamblers (or to persons whom
    the casino ought to have recognized were problem gamblers). At the same time,
    the jurisprudence has not recognized the duty advanced by the appellants.

[119]

The appellants
    refer to the decision in
Dennis
, where it was held that it was not
    plain and obvious that a casino operator did not owe a duty of care to a class
    of problem gamblers. However, as I discuss below, the decision in
Dennis
does not assist the appellants here.

[120]

In
Dennis
,
    the plaintiffs moved for certification of a class action on behalf of
    individuals who had signed self-exclusion forms, seeking to recover gambling
    losses incurred as a result of OLGCs alleged failure to exclude them from its
    gambling venues. While dismissing the certification motion for other reasons,
    the motion judge concluded that it was not plain and obvious that the claim in
    negligence could not succeed:
Dennis v. Ontario Lottery and Gaming
    Corporation
, 2010 ONSC 1332, 318 D.L.R. (4th) 110.

[121]

On its cross-appeal
    to this court in
Dennis
, OLGC argued that the motion judge erred in
    finding that the plaintiffs statement of claim disclosed a cause of action in
    negligence. At para. 73, Sharpe J.A., writing for the court, acknowledged that
    the plaintiffs claim faced many significant legal hurdles, including the
    difficult issues of proximity and duty of care in negligence. However, he was
    not persuaded that the motion judge erred in concluding that the claim
    survived the minimal scrutiny for substantive adequacy mandated by s. 5(1)(a)
    of the
Class Proceedings Act, 1992,
S.O. 1992, c. 6. The test applied
    under s. 5(1)(a) is the same as that applied on a motion to strike, such as in
    this case.

[122]

To begin with, I
    note that the decision in
Dennis
is not sufficient to establish a
    reasonable chance that OLGC owed a duty of care to the Spinks. As noted by
    Sharpe J.A., at para. 6, the pleadings in
Dennis
alleged that the
    class members had given notice of their vulnerability as problem gamblers by
    signing self-exclusion forms. In addition, as noted at para. 24, the motion
    judge in that case (whose analysis Sharpe J.A. approved of) found that it was
    arguable that [OLGC] was in a relationship of proximity with Dennis because
    [OLGC] established the self-exclusion program and held the program out as
    assisting problem gamblers.

[123]

More
    importantly, the appellants in this case allege that OLGC owes a duty of care
    to different and much broader classes. In addition to alleging that OLGC owes a
    duty of care to the Spinks, they also claim that OLGC owes duty of care to
    anyone sufficiently connected to the Spinks. Therefore, the decision in
Dennis
is not authority for the duty of care asserted by the appellants.

[124]

I note that, in
Dennis
,
    the plaintiffs had also proposed a secondary class, consisting of family
    members of the self-excluded gamblers in the primary class. Neither the motion
    judge nor this court analyzed their claim independently of the primary class
    claims. The secondary class was relying on s. 61 of the
Family Law Act
,
    R.S.O. 1990, c. F-3. That provision provides family members with a right of
    action on the basis of wrong done, not to oneself, but to another:
Lord
    (Litigation Guardian of) v. Downer
(1998), 66 O.T.C. 39 (Gen. Div.),
    affd, 179 D.L.R. (4th) 430 (Ont. C.A.), at para. 10. Therefore, it is
    extremely dissimilar from the claim advanced by the appellants in this case.

(b)

Foreseeability

[125]

The appellants
    argue that they are linked to OLGC by the foreseeability of economic harm.
    While I am not persuaded that a reasonable person in the position of OLGC would
    have foreseen that Ms. Spinks had obtained the money she gambled with from
    fraud, I am willing to accept that it might be reasonably foreseeable that a
    failure to prevent problem gambling in general might lead to loss.

[126]

The appellants
    have pleaded that, over the years, OLGC has learned about specific instances of
    problem gamblers spending a lot of money and committing fraud to feed their
    habit. Therefore, there is a possibility that it was reasonably foreseeable
    that a failure to take action may permit a problem gambler to gamble away the
    proceeds of crime.

(c)

Proximity

[127]

The next
    question is whether there is sufficient proximity. In my opinion, it is plain
    and obvious that the facts pleaded by the appellants do not disclose sufficient
    proximity. I come to that conclusion for two reasons.

[128]

First, the facts
    pleaded do not disclose any relationship or interaction between OLGC and the
    appellants. There were no representations by OLGC, nor any evidence of reliance
    by the appellants on OLGC.

[129]

In many ways,
    this relationship is analogous to the one between Canada and consumers of light
    cigarettes at issue in
Imperial Tobacco
. There, at para. 49, McLachlin
    C.J.C. noted that the pleadings did not disclose any specific interactions
    between Canada and the class members and only disclosed statements made by
    Canada to the general public. Turning to the statutes that governed Canadas
    conduct in that case, at para. 50, McLachlin C.J.C. concluded that they did not
    impose any private law duties of care and disclosed duties owed to the public
    at large.

[130]

Those
    observations would inevitably lead to a similar conclusion in this case. The
    appellants claim discloses
no
interaction between
    them and OLGC. The plaintiffs have referred to the
Ontario Lottery and
    Gaming Corporation Act, 1999
, S.O. 1999, c. 12, Sched. L, and the
Gaming
    Control Act 1992
, S.O. 1992, c. 24. These laws do not impose any duty of
    care in respect of a particular individual. And, in fact, I note that Section
    0.1 of the
Ontario Lottery and Gaming Corporation Act
provides the
    following purposes for that statute:

(a) to enhance the economic development of the Province;

(b) to generate revenues for the Province;

(c) to promote responsible gaming with respect to lottery
    schemes; and

(d) to ensure that anything done for a purpose set out in
    clause (a), (b) or (c)
is also done for the public good
    and in the best interests of the Province
. [Emphasis added.]

[131]

I am not
    suggesting that, in this case, OLGC was a public authority, as it was clearly
    acting in a commercial capacity at all material times. However, as the
    appellants refer to these statutes, I note that to the extent that the
    legislation is relevant, in my opinion it imposes only a duty to the public at
    large and not to any specific gambler or people connected to specific gamblers.

[132]

My colleague
    refers to the
Alcohol and Gaming Regulation and Public Protection Act
,
    1996, S.O. 1996, c. 26, Sched. This Act created the Alcohol and Gaming
    Commission of Ontario, and defined the powers and obligations of that
    commission. It does not apply to OLGC and, therefore, cannot be a basis for
    concluding that OLGC owes a duty of care to the appellants.

[133]

Second, in this
    case, the appellants claim alleges negligent inaction on the part of OLGC and
    they seek damages for pure economic loss. Canadian law has been extremely
    reluctant to impose a duty of care in such circumstances.

[134]

In
Childs v.
    Desormeaux
, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 31, the court noted
    that where a defendant alleges a negligent failure to act, foreseeability alone
    cannot establish a duty of care. The mere fact that a person has become a
    danger to others does not impose any kind of duty on those in a position to
    become involved. In such cases, a duty of care requires foreseeability of harm
and
a special link or proximity disclosed by other
    aspects of the relationship:
Childs
, at para. 34.

[135]

At paras. 35-37
    in
Childs
, the court identified three situations where proximity has
    been found. The first is where a defendant intentionally attracts and invites
    third parties to an inherent and obvious risk that it has created or controls.
    The court mentioned a few examples in this category: a boat captain will owe a
    duty of care to a passenger who falls overboard and the operator of a dangerous
    inner-tube sliding competition owes a duty of care to exclude people who cannot
    safely participate. These examples all involve instances where the defendant
    created a risk of
physical injury
. Gambling is not
    a comparable, inherent, and obvious risk.

[136]

The second
    situation is where there is a paternalistic relationship of supervision and
    control, such as a parent-child or teacher-student relationship. It is also not
    applicable here.

[137]

The third
    concerns a defendant who exercises a pubic function or engages in a commercial
    enterprise that includes implied responsibilities to the public at large. Where
    a defendant assumes a public role or benefits from offering a service to the
    public at large, special duties arise. The duty of a commercial host who serves
    alcohol to prevent foreseeable harm to third-party users of the highway falls
    into this category.

[138]

I agree with my
    colleague that there are analogies between a commercial host who serves alcohol
    and a casino operator. However, there are also material differences.

[139]

It is recognized
    that commercial hosts owe a duty to patrons to take care that the patron is not
    exposed to injury because of her or his intoxication:
Stewart v. Pettie
,
    [1995] 1 S.C.R. 131, at para. 26.  No duty to ensure that a patron does not
    drink away her or his familys earnings has been recognized. To date, Canadian
    courts have limited tort recovery for economic loss absent physical harm or
    damage to property:
Arora v. Whirlpool Canada LP,
2013 ONCA 657, 118
    O.R. (3d) 113, at para. 52. Proximity and foreseeability are heightened
    concerns in claims for economic loss:
Imperial Tobacco
, at para. 42.
    In my opinion, that difference between the nature of the loss suffered is what
    distinguishes the present case from those involving commercial hosts who serve
    alcohol.

[140]

Dynasty
    Future Manufacturing Ltd. v. Toronto Dominion Bank
, 2010 ONCA 514, 321
    D.L.R. (4th) 334, is instructive. The plaintiffs in that case alleged that the
    defendant bank owed a general duty of care to third parties, who were not
    customers of the bank, to ensure that its customer was not engaged in a
    fraudulent scheme. They argued that to discharge this duty of care, the bank
    was required to, among other things, verify the legitimacy of a customers
    business activities at the time of opening new accounts and conduct a
    reasonable inquiry after being put on notice of facts suggesting the
    possibility of a fraudulent scheme. In other words, like the appellants here, the
    plaintiffs in that case were alleging negligent non-action on the basis of a
    failure to detect fraudulent activities.

[141]

Applying the
Anns/Kamloops
principles, the motion judge in
Dynasty
rejected the proposition that
    the defendant bank could owe a duty of care to third parties to prevent the use
    of its facilities for fraudulent purposes in circumstances where the bank did
    not have actual knowledge of the fraudulent activities, was not wilfully blind
    to the existence of such activities, and had not recklessly disregarded the
    existence of such activities:
Dynasty Furniture Manufacturing Ltd. v.
    Toronto Dominion Bank
, 2010 ONSC 436, 74 C.C.L.T. (3d) 286. To the extent
    that the claim was based on alleged constructive knowledge, there was
    insufficient proximity to ground a duty of care. The relationship between the
    plaintiffs and the bank was very indirect. At para. 67, the motion judge
    wrote:

[The bank] could not reasonably be expected to have had the
    plaintiffs in contemplation except as a member of the indeterminate class of
    all third parties who might have business dealings with [the fraudster] at that
    time or in the future. This is far too distant and indeterminate a relationship
    to establish proximity in respect of a claim for financial loss resulting from
    a failure to make inquiries as to the legitimacy of a new customers business.
    The plaintiffs position would expose a bank to guarantor liability

[142]

This court
    upheld the motion judges decision and, at para. 6 of its reasons, expressed
    general agreement with his
Anns/Kamloops
analysis.

[143]

In the present
    case, the relationship between OLGC and the appellants is just as distant and
    indeterminate. On the facts presented by the appellants, it is not reasonable
    to expect OLGC to have the appellants in contemplation when arranging or
    managing its affairs. Particularly given the fact that this is a claim seeking
    recovery for pure economic loss and given the tenuous relationship between the
    parties, in my view, there is no reasonable prospect that sufficient proximity
    between OLGC and the appellants would be found.

(d)

Policy concerns

[144]

However, even if
    there were a reasonable prospect that sufficient proximity between OLGC and the
    appellants would be found, there is a clear residual policy concern  the
    prospect of indeterminate liability  that is fatal to the appellants claim in
    negligence. In cases involving a claim for pure economic loss, a court must
    take care and recognize a duty of care only if the class of plaintiffs, the
    time, and the amounts are determinate:
Imperial Tobacco
, at para. 100.

[145]

My colleague,
    while recognizing the potential for indeterminate liability in this case, would
    not strike the claim on that basis at this stage of the litigation process.
    However, in my view, it is perfectly appropriate for a court to make that
    determination at a pleadings stage. Courts have done so in the past, for
    instance, in
Imperial Tobacco, Cooper
, and
Attis v. Canada
    (Health)
, 2008 ONCA 660, 93 O.R. (3d) 35.

[146]

Moreover, as
    noted in
Arora
, at para. 90, a court should consider what a factual
    record could reasonably be expected to add to the courts determination. As in
Arora
, it is unclear what useful evidence the appellants could
    possibly adduce. The issue here is not whether the appellants could prove their
    factual assertions; rather, the problem is that even if all of their assertions
    were accepted as true, their claims would fail because of the risk of
    indeterminate liability. A factual record cannot cure that defect.

[147]

The court in
Arora
,
    at para. 92, also noted that the motion judge had access to a significant body
    of jurisprudence and that, therefore, it was appropriate for him to conduct a
    policy analysis on a pleadings motion. We too have the benefit of a significant
    body of case law addressing the issue of indeterminate liability.

[148]

In
Imperial
    Tobacco
, tobacco companies sought to advance third-party claims against
    the government of Canada for economic loss. The basis for their claim was that
    they had relied on representations made by the government of Canada and, as a
    result, incurred liability by selling light cigarettes to consumers. The
    Supreme Court concluded that the prospect of indeterminate liability was fatal
    to the tobacco companies claims:
Imperial Tobacco
, at para. 99.
    Canada had no control over the number of people who smoked light cigarettes and
    therefore was not in control of the extent of its potential liability. The
    quantum of damages would depend on the number of smokers and the number of
    cigarettes sold. As Canada had no control over the number of people who smoked
    these cigarettes, the claim at issue raised the spectre of indeterminate
    liability.

[149]

That conclusion
    is also supported by the decision in
Design Services Ltd. v. Canada
,
    2008 SCC 22,  [2008] 1 S.C.R. 737. Although the decision in
Design Services
was rendered after a trial, the Supreme Court relied upon it in
Imperial
    Tobacco
, an appeal from a motion to strike.

[150]

In
Design
    Services
, the Supreme Court held that recognizing a duty of care owed by
    owners to sub-contractors in a tendering process would lead to indeterminate
    liability. In the first place, Rothstein J. noted that the plaintiffs before
    him included a company that had not been approved as a sub-contractor and was a
    subsidiary of an approved sub-contractor. The fact that the class of plaintiffs
    could seep into the lower levels of the corporate structure of the
    design-build team members meant that the case had indications of indeterminate
    liability:
Design Services
, at para.  63.

[151]

Furthermore,
    Rothstein J. also noted that the nature of the construction-contract field
    itself gave rise to the risk of indeterminacy. At para. 65, he noted that [e]ven
    where subcontractors are named and known by an owner, those subcontractors will
    have employees and suppliers and perhaps their own subcontractors who also
    could suffer economic loss. And these suppliers and subcontractors will have
    their own employees and suppliers who might claim for economic loss due to the
    wrongful failure of the owner to award the contract to the general contractor
    upon which they were all dependant.

[152]

Recognizing a
    duty of care to anyone sufficiently connected to or related to problem
    gamblers or persons whom OLGC should have recognized as problem gamblers by
    virtue of family ties, business connections, or social and community ties and
    relationships would similarly result in indeterminate liability. Even if we
    were to accept that OLGC could exercise complete control over who gambles at
    its facilities, it does not give it any meaningful control over the class of
    potential plaintiffs. OLGC has no control over the number of family members,
    friends, employers, and persons sufficiently connected to a gambler. And OLGC
    cannot control whether, when, and how much a problem gambler may choose to
    steal or misappropriate.

[153]

In other words,
    it is plain and obvious that recognizing the duty of care suggested by the
    appellants would expose OLGC to liability in an indeterminate amount for an
    indeterminate time to an indeterminate class.

E.

Leave to amend

[154]

The decision
    whether or not to grant leave to amend a pleading is a discretionary one and,
    absent palpable and overriding error of fact or error of law, such a decision
    is subject to deference on appeal:
Conway v. Law Society of Upper Canada
,
    2016 ONCA 72, 395 D.L.R. (4th) 100, at para. 16.

[155]

In this case,
    the motion judge concluded that [t]here is no amendment that could cure the
    statement of claim. I see no basis to interfere with his conclusion.

F.

Disposition

[156]

For the reasons
    given, I would dismiss the appeal.

Released: A.H. June 10, 2016

Alexandra Hoy
    A.C.J.O.





[1]
Cited with approval in
Citadel
, at para. 40.



[2]
His claim in negligence was also struck at the pleadings stage:
Kakavas v.
    Crown Melbourne Ltd. & Others
, [2012] VSCA 95, at para. 37.


