



COURT OF APPEAL FOR ONTARIO

CITATION: Meridian Credit Union Limited v. Baig, 2016 ONCA
    150

DATE: 20160225

DOCKET: C59249

Strathy C.J.O., LaForme and Huscroft JJ.A.

BETWEEN

Meridian Credit Union Limited

Plaintiff (Respondent)

and

Ahmed Baig

Defendant (Appellant)

Milton A. Davis and John
    Adair, for the appellant

J. Anthony Caldwell, for the
    respondent

Clifford Lax, Q.C., James Renihan
    and Linda Galessiere, for the interveners Miller Thomson LLP and Peter Kiborn

Heard: November 26, 2015

On appeal from the order of Justice Frederick
    L. Myers

of the Superior Court of Justice, dated August 15, 2014, with
    reasons reported at 2014 ONSC 4717
.

H.S. LaForme J.A.:

INTRODUCTION

[1]

Ahmed Baig, the appellant, agreed to purchase a building located at 984
    Bay Street, Toronto (the Property), from the court appointed receiver and manager
    of the Property (the Receiver) for $6.2 million. Unknown to the Receiver and
    prior to closing, the appellant agreed to re-sell the Property to Yellowstone
    Property Consultants Corp. (Yellowstone) for $9 million. Had it known, the
    Receiver claims it would not have recommended approval of the sale to the court
    in the receivership proceeding.

[2]

Meridian Credit Union Limited (Meridian), the respondent, discovered
    the re-sale. As Meridian had not recovered the full amount owing to it in the
    receivership proceeding, the Receiver assigned its cause of action against the
    appellant to Meridian. Meridian then commenced the within action against the
    appellant.

[3]

In the decision under appeal, the motion judge dismissed the summary
    judgment motion brought by the appellant and instead found him liable for
    fraudulent misrepresentation.

[4]

This appeal examines whether the motion judge erred by finding the
    appellant personally liable for fraudulent misrepresentations, and whether the
    interveners  the appellants former lawyer and law firm  were denied natural
    justice when the motion judge made an adverse finding about them in their
    absence. For the reasons that follow, I would dismiss the appeal.

BACKGROUND

[5]

The Receiver was appointed in March 2005. After a lengthy marketing
    process, the Receiver agreed to sell the Property to the appellant, in trust
    for a corporation to be incorporated, for $6.2 million (the Agreement).

[6]

Before that transaction had closed, the appellant agreed to re-sell the
    Property to Yellowstone for $9 million. The appellant did not tell the Receiver
    about this second agreement.

[7]

The Agreement did not prevent the appellant from re-selling the
    property. It did prohibit him from assigning his interest under the Agreement
    without the Receivers consent. The Receiver could arbitrarily refuse such
    consent unless the assignee was the corporation to be incorporated for
    purposes of this Agreement.

[8]

The Receiver was obligated to obtain court approval before selling the
    Property. The Agreement was conditional on receiving that approval. If it had
    known about the second sale, the Receiver claims it would not have recommended
    that the court approve the Agreement.

[9]

The appellant retained the law firm of Miller Thomson to assist him with
    the transaction. Peter Kiborn  a lawyer who at all relevant times practiced
    law at Miller Thomson  acted for the appellant in structuring the transaction.

[10]

To
    avoid land transfer tax, Kiborn suggested that title to the Property be transferred
    to Yellowstone directly. The appellant agreed. Both the appellant and his
    counsel wanted to prevent the Receiver from discovering the sale to Yellowstone,
    because the $2.8 million differential in the price would jeopardize court
    approval.

[11]

Kiborn
    informed the Receiver that title was to be directed to Yellowstone on closing. The
    Receiver assumed that Yellowstone was the appellants corporation incorporated
    for the purpose of the Agreement. Neither the appellant nor his lawyers ever
    corrected that misunderstanding.

[12]

In
    the course of closing the transaction, Kiborn delivered to the Receiver a
    number of documents  a draft title direction, a document registration
    agreement, and a resolution of Yellowstones board of directors  in which
    Yellowstone was listed as the purchasing corporation. Kiborn admitted that he
    intended for the Receiver to rely on those documents.

[13]

The
    Receiver obtained court approval for the Agreement and a vesting order. The
    transaction closed on August 23, 2006, and title was transferred to
    Yellowstone.

[14]

Meridian
    discovered that Yellowstone had purchased the Property for $9 million in 2009. Upon
    learning of this information, Meridian contacted the Receiver. In January 2010,
    the Receiver assigned to Meridian its right, title, and interest in a cause of
    action against the appellant, and Meridian then commenced the within action
    against the appellant.

PROCEEDINGS BELOW

[15]

Meridian
    claimed that the appellant misrepresented that Yellowstone was the company
    incorporated by him for the purpose of the Agreement. As noted, the Receiver
    claims that it would not have recommended court approval of the sale if it knew
    about the agreement between the appellant and Yellowstone. Instead the Receiver
    could have negotiated with the appellant or Yellowstone to obtain a higher
    purchase price, or solicited new offers.

[16]

Meridian
    sought an accounting for the profit made on the re-sale to Yellowstone or,
    alternatively, damages of approximately $2.1 million for breach of contract,
    fraudulent misrepresentation, and conspiracy. The appellant moved for summary
    judgment dismissing Meridians claim. The motion judge dismissed that motion.
    Instead, he found the appellant liable for fraudulent misrepresentation. He
    seized himself of the matter and directed that a trial be held to determine the
    issue of damages.

[17]

I
    pause to note that Meridian had not brought a cross-motion asking for summary
    judgment in its favour. However, the motion judge did not err by granting
    summary judgment. Counsel for the appellant submitted that all of the relevant
    evidence was before the court and explicitly invited the motion judge to render
    a decision in favour of either party. Two recent decisions from this court make
    it clear that it is permissible for a motion judge to grant judgment in favour
    of the responding party, even in the absence of a cross-motion for such relief:
King Lofts Toronto I Ltd. v. Emmons
, 2014 ONCA 215, 40 R.P.R. (5th) 26,
    at paras. 14-15; and
Kassburg v. Sun Life Assurance Company of Canada
,
    2014 ONCA 922, 124 O.R. (3d) 171, at paras. 50-52.

[18]

The
    motion judge found the appellant liable for two reasons. First, he concluded
    that the appellant was liable for misrepresentations made by his lawyers. The
    documents delivered as part of closing contained untrue statements. Kiborn knew
    that these statements were false and he intended for the Receiver to rely on
    them. The motion judge noted a concession by the appellants counsel that the appellant
    could be held liable for tortious misrepresentations by his solicitors.

[19]

Second,
    the motion judge found the appellant liable for his own personal conduct. In
    particular, while acknowledging that the appellant did not have an obligation
    to disclose the agreement with Yellowstone, the motion judge concluded that the
    failure to correct the misimpression that Yellowstone was a corporation created
    by the appellant amounted to a fraudulent misrepresentation.

APPELLANTS ACTION AGAINST INTERVENERS

[20]

In
    January 2012, the appellant commenced an action against both Kiborn and Miller
    Thomson.  The appellant claims, among other things, contribution and indemnity
    for any amounts found owing to Meridian in the within action.

[21]

The
    interveners were aware of the action commenced by Meridian against the
    appellant and of the appellants motion for summary judgment. A lawyer working at
    Miller Thomson provided an affidavit in support of the appellants motion.
    Kiborn was examined under oath by Meridians counsel, pursuant to rule 39.03 of
    the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194.

[22]

Miller
    Thomson and Kiborn are not parties to either the action or the summary judgment
    motion that is the subject of this appeal. They were granted leave to intervene
    as parties to this appeal on May 8, 2015. In her reasons Hoy A.C.J.O. noted
    that their submissions shall deal exclusively with the argument that the
    motion judge breached the rules of natural justice and procedural fairness by
    making findings regarding them in their absence.

THE ISSUES

[23]

The
    issues on appeal are whether the motion judge erred by: (i) finding the
    appellant personally liable for fraudulent misrepresentations; and (ii) concluding
    that the interveners had made misrepresentations in their absence. In addition,
    the interveners seek to introduce fresh evidence on appeal.

[24]

The
    appellants arguments ask that this court reconsider and reweigh the evidence
    that was before the motion judge and reach a different conclusion. Absent an obvious
    error of law, the motion judges findings are subject to a palpable and
    overriding error standard of review:
Housen v. Nikolaisen
, 2002 SCC
    33, [2002] 2 S.C.R. 235.

ANALYSIS

I.        Appellants personal liability

[25]

The
    appellant advances three arguments. First, there is no evidence that supports
    finding the appellant liable. Second, in finding the appellant personally
    liable, the motion judge pierced the corporate veil without justification.
    Third, the motion judge erred by holding a client liable for unauthorized and
    unknown fraud committed by an innocent client. I disagree with all three
    arguments.

(a)

Sufficiency of evidence

[26]

The
    Supreme Court of Canada recently affirmed in
Hryniak v. Mauldin
, 2014
    SCC 7, [2014] 1 S.C.R. 87, at para. 87, that a plaintiff asserting a claim for
    civil fraud must prove the following on a balance of probabilities:

1)

A false representation
    by the defendant;

2)

Some level of
    knowledge of the falsehood of the representation on the part of the defendant
    (whether knowledge or recklessness);

3)

The false
    representation caused the plaintiff to act;

4)

The plaintiffs
    actions resulted in a loss.

[27]

In
    my view there was sufficient evidence to prove all four elements and to find
    the appellant personally liable.

[28]

First,
    the record discloses that the appellant engaged in actions that amounted to
    misrepresentations. As noted by the motion judge, at para. 29 of his reasons,
    both the appellant and his counsel actively hid the agreement to sell to
    Yellowstone. They fraudulently misrepresented that Yellowstone was the
    corporation incorporated to close the sale with the Receiver. For instance, the
    appellant personally signed a title direction that falsely identified
    Yellowstone, and not himself or his company, as the purchaser. He admitted that
    he knew this information was false.

[29]

At
    para. 27 of his reasons, the motion judge found that:

The title direction, the other closing documents, the corporate
    resolution, and the document registration agreement contained untrue
    statementsAlthough [the appellant] had no duty to disclose his flip, once his
    lawyers knowingly made misleading disclosures misrepresenting Yellowstone to be
    the purchaser under [the appellants] agreement with the Receiver, the failure
    to correct the misimpression created amounts to fraudulent misrepresentation as
    well.

[30]

In
    certain circumstances, silence and half-truths can amount to a
    misrepresentation:
Alevizos v. Nirula
, 2003 MBCA 148, 180 Man.R. (2d)
    186, at paras. 20-25;
Outaouais Synergest Inc. v. Keenan
, 2013 ONCA
    526, 116 O.R. (3d) 742, at para. 77.

[31]

Second,
    the appellant had some level of knowledge about the misrepresentations. As
    noted, he personally signed the title direction while knowing that it was
    false. He did not deny that he reviewed the document. It is trite that the
    signatory to a document is presumed to have read it, and is deemed to be fixed
    with the knowledge of its contents:
Self v. Garito
(1998), 73 O.T.C.
    365 (Gen. Div.), at para. 33.

[32]

The
    appellants purpose in transferring title directly to Yellowstone was to avoid
    paying land transfer tax. He stated that the idea to avoid paying the land
    transfer tax twice wouldve been the solicitors idea, but we wouldve been
    obviously notified of this, right? He knew that the two sales were being
    represented as one for the purpose of saving land transfer tax and that the
    Receiver would be told to transfer title to Yellowstone  without ever
    informing the Receiver that Yellowstone was an arms-length company rather than
    a company incorporated by him for the purposes of the Agreement.

[33]

Third,
    the representations caused the Receiver to seek court approval and to transfer
    title directly to Yellowstone. But for the false representations, the Receiver
    would likely have acted differently and to the detriment of the appellant. The
    motion judge describes this at para. 17:

As counsel for [the appellant] submitted quite forthrightly in
    court, had the Receiver known that [the appellant] was likely to profit on a
    re-sale, he probably would not have gotten the deal. Had [the appellant]
    tried to assign his agreement with the Receiver to Yellowstone, he would have
    run into the Receivers right to arbitrarily withhold its consent under article
    39 of the [Agreement]

[34]

Finally,
    as a result of the misrepresentations, the Receiver lost an opportunity to
    negotiate a higher price with the appellant or another party. That lost
    opportunity is a sufficient loss to ground a claim for civil fraud:
Hamilton
    (City) v. Metcalfe & Mansfield Capital Corporations
, 2012 ONCA 156,
    347 D.L.R. (4th) 657, at paras. 55-58.

[35]

The
    motion judges findings are reasonable and amply supported by the evidence
    before him. The appellant has identified neither an error in principle nor a
    palpable and overriding error. For these reasons, I would reject this ground of
    appeal.

(b)

The corporate veil

[36]

At
    para. 30 of his reasons, the motion judge recorded a concession by the
    appellants counsel that the appellant would be liable for any tortious
    misrepresentation made by his lawyers. On appeal, the appellant resiles from
    that concession. Furthermore, before this court the appellant argues that the
    motion judges reasons do not explain why he pierced the corporate veil to find
    him personally liable.

[37]

In
    my view, it is inappropriate for the appellant to withdraw the concession and argue,
    for the first time on appeal, that there was no basis for him to be held liable
    because he was protected by the corporate veil. It is hardly surprising that
    the motion judges reasons do not grapple with that issue.

[38]

In
    any case, the motion judge found that the appellant made the fraudulent
    representations in his personal capacity, and thus implicitly viewed the
    corporate veil as having no application. That implied conclusion is supported
    by the following:

·

The corporation incorporated by the appellant never took title to
    the Property. The appellants corporation never had any dealings with the
    Receiver and was never a part of the transaction. Indeed, the whole fraud was
    that the appellants corporation was not the purchaser being represented.

·

The appellant signed the title direction (which falsely indicated
    Yellowstone as purchaser) as Ahmed Baig, without any reference to his
    corporation or to any title or position he held at the corporation.

·

Kiborns statement that Miller Thomson LLP represented Ahmed
    Baig.

[39]


Subject to an exception that does not apply in
    this case, [t]he consistent line of authority in Canada holds simply that, in
    all events, officers, directors and employees of corporations are responsible
    for their tortious conduct even though that conduct was directed in a bona fide
    manner to the best interests of the company:
ADGA Systems International
    Ltd. v. Valcom Ltd.
(1999), 168 D.L.R. (4th) 351 (Ont. C.A.), at para.
    18.  I conclude that the motion judges reasons  when read as a whole,
    together with the record  are responsive to the corporate veil issue. This
    ground of appeal should be dismissed.

(c)

Liability for his lawyers actions

[40]

As
    noted, the appellant is personally liable for misrepresentations made by him. The
    appellants liability is firmly established without the need to rely on
    vicarious liability or his counsels concession. Therefore, it is not necessary
    to address this ground of appeal.

II.       The interveners arguments

[41]

During
    the motion, counsel for the appellant invited the motion judge to render a
    decision on the merits in favour of either party. The motion judge found that
    the appellant was liable to Meridian on the basis of fraudulent
    misrepresentations, including misrepresentations made by the interveners.

[42]

The
    interveners position is that, by making adverse findings against them in their
    absence, the motion judge breached the rules of natural justice and procedural
    fairness. They rely on the principle of
audi alteram partem
, or the
    right to be heard.

(a)

Fresh evidence

[43]

The
    interveners also seek to introduce as fresh evidence affidavits sworn by a
    lawyer with Miller Thomson and by Kiborn. The affidavits provide evidence
    concerning what the interveners knew of the summary judgment motion and why
    they were not present at it. They are the same affidavits sworn for the
    intervention motions, and were the subject of cross-examination by Meridian.

[44]

The
    interveners first contend that the fresh evidence should be admitted pursuant
    to this courts decision in
R. v. Poulos
, 2015 ONCA 182, 124 O.R. (3d)
    675, at paras. 13-14. They argue that because the affidavits concern the
    validity of the motion process and comply with the normal rules of evidence,
    they should be admitted.

[45]

In
    any case, the interveners say the criteria in
R. v. Palmer
[
1980] 1 S.C.R. 759
, at p. 775,
are satisfied. That is,
the
    evidence: (i) could not, through the exercise of due diligence, have been
    adduced at the summary judgment motion; (ii) is relevant in that it bears on a
    decisive or potentially decisive issue; (iii) is reasonably capable of belief;
    and (iv) if believed, could reasonably be expected to have affected the result
    at the motion being appealed.

[46]

The
    fresh evidence application should be denied.
Poulos
does not assist
    the interveners because their honest, though mistaken, belief about the
    outcomes possible does not affect what rights they were entitled to. In other
    words, the fresh evidence is irrelevant to the validity of the process followed
    by the motion judge.

[47]

The
    fresh evidence application also fails if considered under the
Palmer
criteria, for similar reasons. Because the interveners belief is irrelevant to
    the issues raised, the fresh evidence could not have affected the results of
    the motion below.

(b)

The interveners right to be heard

[48]

The
    interveners were witnesses in the summary judgment motion. No relief was sought
    from them and none was granted. Although they were not present at the motion,
    the motion judge released a decision which, they say, seriously affects them. The
    motion judge found that they had prepared documents which contained fraudulent
    misrepresentations and held that they had actively hid Yellowstones
    ownership through those misrepresentations.

[49]

As
    noted in
Ontario (Provincial Police) v. Mosher
, 2015 ONCA 722, 340
    O.A.C. 311, at paras. 60-63, the principle of
audi alteram partem
,
    which the interveners rely on heavily, is composed of two elements: a right to
    be heard by a decision-maker, and a right to notice of a hearing sufficient in
    time and substance to enable a party to present their case. In my opinion, the
    interveners did not have a right to be heard or to receive notice in this case.

[50]

Audi
    alteram partem
applies whenever a persons rights, interests, or
    privileges are affected by a decision. As non-parties to this action, the
    interveners are not directly impacted by the order. They are not bound by the
    motion judges finding that they made fraudulent misrepresentations. They are
    free to defend their reputations and argue that they never made fraudulent
    misrepresentations when defending against the appellants action. The only
    tangible manner in which they are impacted is indirect: now that the appellant
    is liable for damages, the interveners are exposed to a greater risk that they
    may be found liable for a portion of the appellants liability.

[51]

The
    interveners are no different than any other non-party witness. Their main
    complaint is that the motion judges publicly available reasons could damage
    their reputation. The authorities they rely on do not support the right of a
    non-party witness in a civil action to notice, a chance to adduce evidence, and
    to make submissions whenever an adverse credibility finding may be made. Such
    procedural entitlements are significant, and would, in my view, impose a great
    burden on the courts and threaten the finality of decisions.

[52]

This
    court considered and rejected a similar argument in Hurd v. Hewitt (1994), 120 D.L.R. (4th) 105. In that case, an arbitration panel concluded that the grievor had been improperly denied a tenure-track position because of a conspiracy among members of the search committee. Those committee members applied for a declaration that their rights to procedural fairness had been breached as the arbitrators did not allow them to respond or make submissions before making adverse findings against them. The application judge granted the requested declaration but that decision was reversed on appeal. As noted by Griffiths J.A. at p. 106, this court rejected the proposition that "every decision-maker has an absolute duty in law to afford non-parties the opportunity to be heard before making adverse findings against them.

[53]

In
    summary, the common law does not provide non-parties with the right to notice,
    to adduce evidence, or to make submissions whenever an adverse credibility
    finding may be made in judicial proceedings that involve them. Non-parties are
    limited to whatever procedural rights they have under the rules.

[54]

Rule
    13.01 of the
Rules of Civil Procedure
provided the interveners with
    the right to intervene in this action as a party. After being served with a
    statement of claim in the appellants action against them, they would have been
    fully aware of this action and its potential impact on the claim against them.
    In spite of this, they chose not to intervene, adopting a wait-and-see
    approach.

[55]

Similarly,
    rule 6 provided the interveners with the ability to consolidate the hearings on
    common issues of fact or law. Again, they chose not to pursue this option. Now,
    once a finding of fact with which they take issue has been made, they believe
    the result of a motion they knew about should be set aside.

[56]

Non-parties
    should not be able to lurk in the shadows and then spring up to challenge a
    decision whenever the outcome  or findings of fact  may affect them in some
    manner they do not like. In my view, the statement of claim in the appellants
    action is the only notice to which the interveners were entitled. Once they
    were served with the claim, they knew about this action and had an option to
    intervene as a party.

[57]

For
    these reasons I conclude the interveners were not denied natural justice and I
    would deny the relief sought.

DISPOSITION

[58]

For
    the reasons given, the appeal should be dismissed. I would award Meridian its
    costs of the appeal from the appellant as well as its costs of responding to
    the interveners. I would require the parties to file costs submissions with
    this court within 30 days from the release of these reasons. And I would limit
    each of the costs submissions to 5 pages.

Released: February 25, 2016

H.S. LaForme J.A.

I agree G.R. Strathy
    C.J.O.

I agree Grant
    Huscroft J.A.


