



COURT OF APPEAL FOR ONTARIO

CITATION: McFlow Capital Corp. v. James, 2021 ONCA 753

DATE: 20211025

DOCKET: C68043

Rouleau, Hoy and Thorburn JJ.A.

BETWEEN

McFlow Capital Corp.

Plaintiff (Respondent/

Appellant by way of cross-appeal)

and

Kenneth James,
    personally and in his capacity as trustee for Laura McClenaghan, Rosemary
    Cremer and the Estate of Kenneth McClenaghan
,

Laura McClenaghan, personally
    and in her capacity as trustee for the Estate of

Kenneth McClenaghan, Dorothy
    Short in her capacity as trustee for the Estate of

Kenneth McClenaghan,
Rosemary
    Cremer
, Susan James, 1303678 Ontario Inc.,

Sterling
    Capital Corporation, Eveline Holdings Ltd., and G.A.C. Investments Ltd.

Defendants (Appellants/

Respondents by way of cross-appeal)

AND BETWEEN

Kenneth James,
    personally and in his capacity as trustee for Laura McClenaghan, Rosemary
    Cremer and the Estate of Kenneth McClenaghan
, Laura McClenaghan, personally
    and in her capacity as trustee for the Estate of Kenneth McClenaghan, Dorothy
    Short in her capacity as trustee for the Estate of Kenneth McClenaghan,
Rosemary
    Cremer
, 1303678 Ontario Inc., and G.A.C. Investments Ltd.

Plaintiffs by Counterclaim (
Appellants/

Respondents by way of cross-appeal
)

and

McFlow Capital Corp.,
    Premium Properties Limited

and Milton Winberg

Defendants to the Counterclaim

(Respondents/

Appellants by way of cross-appeal)

Theodore B. Rotenberg and Ranjan Das, for the
    appellants/respondents by way of cross-appeal

Hilary Book and Samantha Del Frate, for the
    respondents/appellants by way of cross-appeal

Heard: September 21, 2021 by video conference

On appeal from the judgment of Justice Sandra Nishikawa
    of the Superior Court of Justice, dated January 20, 2020 and October 9, 2020,
    with reasons reported at 2020 ONSC 374 and 2020 ONSC 6167.

Thorburn J.A.:

A.

INTRODUCTION

[1]

This is an appeal by the appellants (defendants), Kenneth James personally
    (James), and in his capacity as trustee for Laura McClenaghan, Rosemary
    Cremer, and the Estate of Kenneth McClenaghan, and Rosemary Cremer (Cremer).
    The appellants claim the trial judge erred in holding that the oppression and
    conspiracy claims against Cremer were not statute-barred, awarding punitive
    damages against Cremer, and ordering substantial indemnity costs payable to
    McFlow.

[2]

The respondents,
McFlow Capital Corporation (McFlow),
    Premium Properties Limited (Premium) and Milton Winberg, cross-appeal the
    trial judges award of prejudgment interest.

B.

THE PARTIES

[3]

The claim involves a condominium corporation called
Simcoe
    Condominium Corporation No. 27 (SCC 27).

[4]

The appellant, James, was the lawyer for both SCC 27,
    and the first and second mortgagees for 30 of the 44 units (the majority
    units) in SCC 27. The trial judge determined that James held a beneficial
    interest in the mortgages on the majority units in SCC 27 such that he was able
    to control SCC 27, himself or through two
off-shore companies, Eveline
    Holdings Ltd. (Eveline) and Sterling Capital Corporation (Sterling).
    Eveline and Sterling were James alter egos.

[5]

The appellant, Cremer, was the bookkeeper and office
    manager of James law firm, a director of SCC 27, and James friend and
    housemate.

[6]

The respondent McFlow was the mortgagee of the
    remaining 14 units (the minority units) in SCC 27, which were owned by
    1652030 Ontario Limited (165).

C.

BACKGROUND FACTS

[7]

In 2008, SCC 27 issued a special assessment of $40,000
    per unit on all the units in the complex (the 2008 special assessment). The
    trial judge found that there was no legitimate basis for this assessment amount
    and that the amount was set high enough that the minority unit owner, 165,
    would not be able to pay the sum and would be forced into default. Notices of
    Sale under Lien were issued by SCC 27 only for the minority units, even though
    the majority units had also not paid the 2008 special assessment.

[8]

In April 2009, McFlow, as mortgagee of the minority
    units, commenced an application for oppression against SCC 27 and James. In May
    2009, the court appointed an administrator to manage SCC 27s affairs.

[9]

In May 2009, James swore an affidavit that he was in
    possession of a $2 million GIC which he said was money paid by the majority
    mortgagees toward the 2008 special assessment and an earlier assessment in
    2004.

[10]

On June 3, 2009, the administrator served a Notice of
    Motion to have the $2 million GIC paid into court pending a determination
    of its ownership.

[11]

On June 4, 2009, the GIC was cashed and funds were
    wired to Evelines account in the Turks and Caicos Islands (TCI).
In
    his affidavit dated June 4, 2009,
James swore that he was
    holding the money in trust for Eveline and it was never SCC 27s property.

[12]

The funds were returned to Canada but James counsel
    informed the administrator that James had not personally received the $2
    million and no longer had control over any of the funds in the Eveline account.

[13]

On June 30, 2009, the court ordered Eveline and James
    to pay into court all the money derived from the proceeds of the GIC. The money
    was not paid into court.

[14]

In August 2009, McFlow commenced a negligence action
    against its own counsel and mortgage broker for losses, which was settled for
    the sum of $875,000.

[15]

In December 2009, the administrator listed the minority
    units for sale.

[16]

In 2011, James offered to purchase the minority units
    and three others for a total of $10,000, which the administrator refused. In
    2012, the administrator listed all the units for sale.

[17]

The court approved the sale and the sale was completed
    in August 2013.

[18]

In December 2013, the appellants counterclaimed for
    oppression against McFlow, Premium and Winberg. (Premium was a company related
    to McFlow, and Milton Winberg was the principal of McFlow and Premium.)

[19]

In May 2015, McFlow issued a statement of claim against
    all the defendants (including the appellants).

D.

THE TRIAL JUDGES REASONS

[20]

At paras. 314-16 of her reasons for decision, the trial judge held that:

After Mr. James took control of SCC 27, the disarray turned
    into paralyzing dysfunction. The dysfunction would ensure that no reasonable
    purchaser or lender would want any involvement in the Minority Units. In the
    end, only Mr. James would want to purchase the Minority Units, which he could
    do at a bargain price, leaving him in control of the entire Complex.



No rational condominium corporation, unit owner, or mortgagee
    would want this level of dysfunction and the attendant stigma, which would
    cause the property value to fall. The intent was to cause the owner, 165, and
    the mortgagee, McFlow, to walk away.

[21]

At para. 319 of her reasons, the trial judge found that:

Ms. Cremer has admitted to being involved in the decision to
    levy the 2008 Special Assessment and to register liens on the Minority Units,
    as well as the decision to wire the $2 million to the TCI. Ms. Cremer did not
    perform those acts while fulfilling the proper course of her duties as a
    director of SCC 27. Rather, she used her position as a director of SCC 27 to
    perpetrate acts that were prejudicial to its interest and to McFlows. Ms. Cremer
    admits to participating in or directing those decisions and was instrumental to
    Mr. James ability to carry them out. She engaged in the oppression in addition
    to Mr. James.

[22]

In respect of the alleged conspiracy among James, SCC 27 and Cremer, the
    trial judge held, at para. 341 that,

Mr. James, SCC 27 and Ms. Cremer acted in concert, by
    agreement or with a common design. Mr. James was the directing and controlling
    mind of SCC 27. Mr. James and Ms. Cremer were at all times acting in pursuit of
    a common design. Whether Mr. James was instructing Ms. Cremer or Ms. Cremer was
    instructing Mr. James, they both had the same objectives in mind. The
    predominant purpose of their conduct was to cause injury to the owner and/or
    mortgagee of the Minority Units by eliminating or rendering valueless their
    interests in SCC 27. Alternatively, they used unlawful means (oppression and
    breach of the
Condominium Act
) in circumstances where they knew or should
    have known that damage to McFlow was likely to result. As discussed above,
    their conduct caused McFlow damage.

[23]

The trial judge concluded that James actions were intended to force out
    McFlows interest in the minority units and that his actions, and his
    failures, in precipitating a state of dysfunction were oppressive, or at the
    very least, unfairly prejudicial, because it was intended specifically to
    squeeze out McFlows interest in the Minority Units.

[24]

She accepted that McFlow had not done enough due diligence before
    advancing and increasing loans on the mortgages on the minority units but held
    that McFlow was nonetheless entitled to damages for oppression from James and
    Cremer pursuant to s. 135 of the
Condominium Act 1998,
S.O. 1998, c.
    19.

[25]

She also granted judgment for conspiracy against Cremer, Eveline and
    Sterling on the basis that James was the directing mind of Eveline and Sterling
    and used them to execute his scheme to injure McFlow. She held that the failure
    to pay the $2 million to the administrator was a brazen disregard of a court
    order by an officer of the court.

[26]

The trial judge dismissed the appellants argument that McFlows claims
    were statute-barred by the expiry of the limitation period.

[27]

At paras. 357-65 of her reasons, she held that until 2013, the only
    information that McFlow had about Cremer was that she was James employee and,
    from 2008, a director of SCC 27.

While McFlow knew that Ms. Cremer was a director of SCC 27 when
    it served its Notice of Application in May 2009, she appeared to be nothing
    more than a nominee director acting for Mr. James. McFlow did not know and
    could not have known by the exercise of reasonable diligence, that it had a
    claim against Ms. Cremer personally. It could not have alleged any facts to
    support her liability as a director. Moreover, McFlow did not know until 2013
    that Ms. Cremer was a beneficiary of the McClenaghan Trust and that after Mr.
    McClenaghans death she was purportedly instructing Mr. James.

[28]

The beneficiaries of the McClenaghan Trust were Mr. McClenaghans
    spouse, Cremer and James then-spouse. According to James, he and Eveline were
    trustees of the trust at some points. The trial judge found that the
    McClenaghan Trust raises more questions than it answers and, even if the
    trust agreement were authentic and the trust legitimate, she rejected James
    argument that it held the beneficial interest in the majority units
in SCC 27.

[29]

The trial judge ordered the appellants to pay McFlow
    damages in the amount of $413,595.27 and prejudgment interest of $141,199.14,
    calculated at the rate of 1.3 percent per annum, as provided for in the
Courts
    of Justice Act
, R.S.O. 1990 c. C.43 (
CJA
), which was the interest rate when the action was commenced.

[30]

She also ordered punitive damages in the amount of $100,000,
    and post-judgment interest calculated at the rate of 3 percent commencing on
    January 20, 2020. She further ordered the appellants to pay substantial
    indemnity costs of $568,292.05 to McFlow, bearing 2 percent interest,
    commencing on October 9, 2020.

E.

THE ISSUES

[31]

While a number of issues were raised in the appellants factum, at the
    time of the hearing, the appellants advised that the only issues to be
    adjudicated on this appeal are whether the trial judge erred in holding that:


i.

the oppression and conspiracy claims against Cremer were not
    statute-barred;


ii.

punitive damages should be awarded against Cremer; and


iii.

substantial indemnity costs were warranted, in addition to punitive
    damages.

[32]

The respondents cross-appeal claiming
the trial judge
    erred in awarding interest at the rate of 1.3 percent as provided in the
CJA
rather than
prejudgment interest at the rate of 6.5 percent,
    compounded monthly, which was sought by McFlow.

F.

ANALYSIS

The First Issue: Were the Claims Against Cremer
    Statute-Barred?

[33]

The appellants submit that the trial judge erred in concluding that the
    claims against Cremer were not statute-barred.

[34]

A claim is discovered on the earlier of the day on which a party knew or
    ought to have known (i) that the injury, loss or damage had occurred, (ii) that
    it was caused by an act or omission of the person against whom the claim is
    made, and (iii) that a proceeding would be the appropriate means to seek to
    remedy it, or that a reasonable person with the abilities and in the
    circumstances of the person with the claim first ought to have known of these
    matters. At this point, the two-year limitation period is triggered:
Limitations
    Act
, 2002, S.O. 2002, c. 24, Sched. B.
,
s. 5(1).

[35]

In
Grant Thornton LLP v. New Brunswick,
2021 SCC 31, at para.
    42, Moldaver J., writing for the Court, held that in respect of a similar
    provision in the New Brunswick
Limitations of Actions Act
, S.N.B.
    2009, c. L-8.5, a claim is discovered when a plaintiff has knowledge, actual
    or constructive, of the material facts upon which a plausible inference of
    liability on the defendants part can be drawn.
Grant Thornton
was
    followed by this court in
Gordon Dunk Farms Limited v. HFH Inc.
, 2021
    ONCA 681, at paras. 36-38.

[36]

The appellants claim the trial judge applied too high a standard to
    determine whether McFlow had the requisite degree of knowledge to discover a
    claim under the
Limitations Act
and did not consider whether a
    plausible inference of liability could be drawn.

[37]

They claim that in 2009, McFlow knew Cremer was James employee and a
    director at the time of the 2008 special assessment. Since Cremer was a
    director, McFlow could have made a plausible inference that she supported the
    assessment in 2009 which McFlow alleged was oppressive and involved a
    conspiracy, triggering the limitation period.

[38]

I do not agree.

[39]

The trial judge found that while McFlow knew Cremer was a director of
    SCC 27 in 2009, she appeared to be nothing more than a nominee director. It was
    not until 2013 that McFlow knew or could have known by the exercise of
    reasonable due diligence, that Cremer was a beneficiary of the McClenaghan
    Trust, which James claimed held the beneficial interest in the majority units,
    and that after Mr. McClenaghans death, she was purportedly instructing
    James.

[40]

Until then, any claim in oppression or conspiracy would have been
    founded on mere suspicion or speculation which is not sufficient to draw a
    plausible inference of liability:
Grant Thornton,
at para. 46.

[41]

For these reasons, the first ground of appeal fails.

The Second Issue: Did the Trial Judge Err in Awarding
    Punitive Damages Against Cremer?

[42]

The appellants claim the trial judge erred in awarding punitive damages
    against Cremer as the only explanation for doing so was Cremers role in
    failing to have the $2 million GIC paid into court. They claim this cannot form
    the basis of a punitive damage award as the money was to be paid to the credit
    of the action the court administrator for SCC 27 was to commence and that
    action was never commenced.

[43]

As noted by the trial judge, in deciding whether to make an award of
    punitive damages, the question is whether the defendants conduct was so
    outrageous that punitive damages are rationally required for deterrence. Trial
    courts have latitude in determining punitive damages, provided the amount
    serves a rational purpose, namely prevention, deterrence and denunciation:
Whiten
    v. Pilot Insurance Co.,
2002 SCC 18, [2002] 1 S.C.R. 595
,
at
    paras. 94-100;
Richard v. Time Inc.,
2012 SCC 8, [2012] 1 S.C.R. 265
,
at para. 190;
Cinar Corporation v. Robinson,
2013 SCC 73, [2013]
    3 S.C.R. 1168, at para. 134.

[44]

Appellate courts should only intervene where there has been an error of
    law or a wholly erroneous assessment of the quantum of punitive damages, that
    is, if the amount awarded was not rationally connected to the purposes in
    awarding punitive damages:
Richard,
at para. 190;
Cinar
, at
    para. 134.

[45]

The trial judge did not rely exclusively on Cremers role with respect
    to the $2 million GIC. In this case, the trial judge found that Cremer acted in
    concert, by agreement or in pursuit of a common design with James to cause
    injury to the owner and/or mortgagee of the minority units by rendering
    valueless their interests in SCC 27 or to use unlawful means in circumstances
    where they knew or should have known that damage to McFlow was likely to
    result.

[46]

She held that punitive damages were warranted to denounce and deter
    James years of oppressive conduct and James and Cremers dissipation of the $2
    million GIC by deliberately hiding the money from the court, the administrator
    and creditors, knowing that a court order had been issued to pay the money into
    court. She rejected the appellants argument that the obligation to pay the $2 million
    into court was conditional on the administrator commencing a proceeding. As
    noted by the trial judge, the funds were only ever paid to the credit of the
    action, after being seized by the RCMP in an unrelated criminal proceeding.

[47]

The award of punitive damages was rationally connected to the policy
    objectives of deterrence and denunciation and there were adequate grounds to
    support the trial judges decision to impose punitive damages against Cremer.

[48]

For this reason, the second ground of appeal fails.

The Third Issue: Did the Trial Judge Err in Awarding
    Substantial Indemnity Costs?

[49]

The appellants also challenge the discretionary costs award. They argue
    that the trial judge erred in principle by relying on the same conduct that
    gave rise to her award of punitive damages as the basis of her decision to
    award costs on a substantial indemnity scale. This, they submit, is contrary to
    this courts decision in
Sliwinski v. Marks
(2006), 211 O.A.C. 215
    (C.A.), at para. 29.

[50]

Since the substantive appeal is dismissed, the appellants are required
    to seek leave to appeal the discretionary costs award:
CJA,
s. 133;
Gary
    Anthony Bennett Professional Corporation v. Triella Corp.,
2019 ONCA 225,
    at para. 7. To grant leave, there must be strong grounds upon which the
    appellate court could find that the trial judge erred in exercising his
    discretion:
Brad-Jay Investments Limited v. Village Developments Limited
(2006), 218 O.A.C. 315 (C.A.), at para. 21, leave to appeal refused, [2007]
    S.C.C.A. No. 92. This includes errors in principle or a costs award that is
    plainly wrong:
Hamilton v. Open Window Bakery Ltd.,
2004 SCC 9, [2004]
    1 S.C.R. 9, at para. 27, citing
Duong v. NN Life Insurance Co. of Canada
(2001)
,
141 O.A.C. 307 (C.A.), at para. 14.

[51]

The appellants have not sought leave.

[52]

In any event, I see no reason to interfere with the trial judges
    exercise of discretion in awarding costs as the trial judge committed no error
    in principle. She made numerous findings of egregious conduct by the appellants
    in the context of McFlows oppression claim and held, at para. 21 of her costs
    endorsement that:

[T]he Defendants significantly lengthened the proceedings by
    raising every possible argument, including limitation periods, laches,
    election, waiver and unclean hands; failing to make reasonable admissions and
    serving a blanket denial in response to McFlow's detailed chronology served
    before trial; and filing lengthy affidavit evidence rife with self-serving
    editorializing, speculation and rationalization.

[53]

The trial judge considered the appellants argument, relying on
Sliwinski,
that an award of substantial indemnity costs would be an unnecessary
    double judicial admonishment.

[54]

The trial judge held that
Sliwinski
was distinguishable from
    this case as:

[T]he punitive damages award and substantial indemnity costs
    were in relation to the same conduct; no issue was raised about the defendants
    conduct in the litigation.

In this case, even if the Defendants oppressive conduct is
    sufficiently compensated by the punitive damages award, I would nonetheless
    find that substantial indemnity costs are warranted based on the Defendants
    conduct in the litigation.

[55]

On the basis of these findings of fact which are supported by the
    evidence, I see no error in the trial judges exercise of her discretion to
    award substantial indemnity costs.

[56]

For these reasons, the third ground of appeal fails.

The Fourth Issue: Did the Trial Judge Err in Awarding Prejudgment
    Interest at the Court of Justice Act Rate Rather Than the Mortgage Rate?

[57]

McFlow claims the trial judge erred in awarding prejudgment interest at
    the
CJA
rate rather than the mortgage rate.

[58]

The party seeking an order to depart from the
CJA
rate pursuant
    to s. 130 of the
CJA,
has the onus to demonstrate that the
CJA
rate should be displaced:
Metropolitan Toronto Police Widows & Orphans
    Fund

v. Telus Communications Inc.
(2008), 44 B.LR. (4th) 140
    (Ont. SC), at para. 69, affd 2009 ONCA 111, 55 B.L.R. (4th) 12.

[59]

Awards of compound prejudgment or post judgment interest are generally
    limited to breach of contract cases where there is evidence that the parties
    agreed, knew, or should have known that the money would bear compound interest
    as damages:
Bank of America Canada v. Mutual Trust Co.,
2002 SCC 43,
    [2002] 2 S.C.R. 601, at para. 55. Compound prejudgment or post judgment
    interest may be awarded as consequential damages in other cases but there
    would be the usual requirement of proving that damage:
Bank of America,
at
    para. 55. The same principles apply to interest at a rate in excess of the rate
    provided for in the
CJA
.

[60]

This is not a breach of contract case; accordingly, McFlow was required
    to prove compound interest at a rate in excess of the
CJA
rates as
    consequential damages.

[61]

McFlow claims that, had it been able to sell the minority units in 2009,
    it would have had the funds available for reinvestment. McFlows principal,
    Milton Winberg, testified that McFlow could have earned interest similar to the
    mortgage rate on the minority units, which was 6.5 percent per annum,
    compounded monthly.

[62]

However, the trial judge held that there was no evidence to demonstrate
    a reasonable probability that McFlow could earn interest at a rate of 6.5
    percent compound interest other than Mr. Winbergs bald assertion. As noted by
    the trial judge: McFlow provided no evidence of the interest it was earning on
    other mortgage loans over the same time period.

[63]

For this reason, the trial judge held that, I am not satisfied that
    either party has raised a sufficient basis for departing from the applicable
    prejudgment interest rate under the
CJA,
which is the interest rate
    when the action was commenced, or 1.3 percent. The total amount of prejudgment
    interest is $141,199.14.

[64]

Since (i) the onus is on the moving party to satisfy the court that the
    interest rate set out in the
CJA
should be displaced and (ii) there
    was no evidence as to the amount McFlow was earning on its other loans at that
    time, the trial judge declined to exercise her discretion to award interest at
    a rate higher than that provided for in the
CJA
.

[65]

Given the evidence about McFlows lack of due diligence in its lending
    business, her conclusion that further evidence was required was reasonable. I
    see no reason to interfere with this exercise of her discretion and for this
    reason, the cross-appeal fails.

G.

CONCLUSION

[66]

For the above reasons, I would dismiss the appeal and cross-appeal.

[67]

I would award costs of the appeal to the respondents in the amount of
    $23,000 all-inclusive and costs of the cross-appeal to the appellants in the
    amount of $2,000 all-inclusive as agreed by the parties.

Released: October 25, 2021 P.R.

J.A. Thorburn J.A.

I agree. Paul Rouleau J.A.

I agree. Alexandra Hoy J.A.


