



COURT OF APPEAL FOR ONTARIO

CITATION: DBDC Spadina Ltd. v. Walton, 2015 ONCA 628

DATE: 20150917

DOCKET: C59822

Gillese, Lauwers and Benotto JJ.A.

BETWEEN

DBDC Spadina Ltd. and
    those corporations listed on Schedule A hereto

Applicants (Respondents)

and

Norma Walton, Ronauld Walton, The Rose &
    Thistle Group Ltd. and Eglinton Castle Inc.

Respondents

and

Those corporations listed on Schedule B hereto,
    to be bound by the result

Rosemary A. Fisher, for the appellants Christine DeJong,
    Michael DeJong, Christine DeJong Medical Professional Corporation, C2M2S
    Holding Corp. and DeJong Homes Inc.

Peter H. Griffin and Danielle Glatt, for the respondents
    DBDC Spadina Ltd. and those corporations listed on Schedule A hereto

Mark Dunn, for Schonfeld Inc., Manager and Inspector

Heard: September 10, 2015

On appeal from the judgment of Justice David M. Brown of
    the Superior Court of Justice, dated August 12, 2014.

ENDORSEMENT

OVERVIEW

[1]

This appeal is part of a complex, multi-party insolvency proceeding.

[2]

DBDC Spadina Ltd. and those corporations listed on Schedule A (the
    Bernstein applicants) are in ongoing litigation in which Norma Walton,
    Ronauld Walton, The Rose & Thistle Group Ltd., and Eglinton Castle Inc.
    (the Waltons), among others, are the respondents. Within this litigation, the
    Bernstein applicants brought a motion seeking an order for, among other things,
    a constructive trust over certain properties and the cancellation of the
    Waltons shares in certain corporations.

[3]

Christine DeJong, Michael DeJong and related entities (the DeJong
    appellants) brought a cross-motion that was heard at the same time as the
    Bernstein applicants motion. In their cross-motion, the DeJong appellants
    alleged that they were similarly situated to the Bernstein applicants  they,
    too, had invested funds with the Waltons which the Waltons had wrongfully
    diverted. The DeJong appellants contended that some of their monies had been diverted
    into properties over which the Bernstein applicants sought constructive
    trusts.

[4]

The DeJong appellants sought, among other things, an order cancelling
    the Waltons shares in United Empire Lands Ltd. (UEL). In the alternative,
    the DeJong appellants sought an order approving a proposed settlement agreement
    between them and the Waltons, in which the Waltons agreed to transfer a
    property (3270 American Drive) to them.

[5]

Based on tracing principles, the motions judge ordered constructive
    trusts over certain properties, including 3270 American Drive, in favour of the
    Bernstein applicants. By order dated August 12, 2014 (the Order), he
    dismissed the DeJong appellants cross-motion.

[6]

The DeJong appellants appeal.

[7]

For the reasons that follow, the appeal is dismissed.

THE ISSUES

[8]

The DeJong appellants raise a number of grounds of appeal which can be
    summarized as follows. They submit that the motions judge erred by failing:

1.

to adjudicate on their requested relief that the Waltons shares in UEL
    be cancelled and on their request for directions on their tracing rights;

2.

to correctly apply the test for a constructive trust and in finding that
    the Bernstein applicants were entitled to constructive trusts over certain
    properties; and

3.

to apply the correct legal test when finding that the settlement
    agreement constituted a preference under the
Assignments and Preferences Act
,
    R.S.O. 1990, c. A.33.

[9]

The court called on counsel for the respondents only in respect of one
    aspect of the second issue, namely, the allegation that the tracing relied on
    by the motions judge when he ordered the constructive trusts was flawed.

ANALYSIS

Issue #1 Did the motions judge err by failing to adjudicate on
    the DeJong appellants requested relief that the Waltons shares in UEL be
    cancelled and on their request for directions on their tracing rights?

[10]

The
    DeJong appellants acknowledge that the motions judge referred to their request
    for an order cancelling the Waltons shares in UEL. They submit, however, that although
    the motions judge dismissed their cross-motion, he failed to adjudicate this
    head of relief.

[11]

We
    do not accept this submission. We see no error in the motions judges result or
    reasoning on this matter.

[12]

At
    para. 281 of his reasons, the motions judge notes the DeJong appellants
    request that the Waltons shares in UEL be cancelled.  At para. 289 he deals
    with that request, stating:

I am not prepared to grant the relief sought by the [DeJong
    appellants]. The proposed settlement agreement would prefer the [DeJong
    appellants] interests as creditors of the Waltons over other creditors in
    respect of 3270 American Drive and, in the circumstances, I conclude that such
    a preference would be unfair to other creditors including, but not limited to,
    Dr. Bernstein. The legal entitlement, if any, of the [DeJong appellants], as
    preferred shareholders, to the proceeds from the sale of 3270 American Drive
    should be dealt with in the claims process for that property.

[13]

Read
    in context, in para. 289 the motions judge addressed both the DeJong
    appellants request for cancellation of the Waltons shares in UEL and their
    request in relation to the proposed settlement agreement. In respect of both,
    the motions judge refused to grant the relief requested because he was concerned
    that it would prefer the DeJong appellants over other claimants. In his view,
    the claims process was the appropriate mechanism for determination of the
    DeJongs appellants claims.

[14]

The
    DeJong appellants complaint about the motions judges failure to give
    directions on their tracing rights is related to the work of the Inspector. They
    contend that the Inspector was obliged to do a full tracing of all monies, as
    opposed to focusing on tracing the Bernstein applicants funds.

[15]

The
    Bernstein applicants are paying for the Inspector. He is tracing their funds. Of
    course, in fulfilling his obligations, the Inspector must be mindful that he
    was appointed by the court.  However, those obligations do not require the
    Inspector to trace the monies of all parties into and out of the various
    companies and properties. As the motions judge indicated, the DeJong appellants
    can assert their rights in the claims process. It is up to them to take such
    steps as are necessary to assert their rights in that process.

Issue #2 Did the motions judge fail to correctly apply the
    test for a constructive trust or in finding that the Bernstein applicants were
    entitled to constructive trusts over certain properties?

[16]

The
    essence of the DeJong appellants submission on this issue is that the
    Bernstein applicants got what they bargained for, therefore, they suffered no
    deprivation and the court could not grant a constructive trust based on unjust
    enrichment.

[17]

We
    do not accept this submission.

[18]

In
    rejecting this same submission, the motions judge found, at para. 265 of his
    reasons, that the Bernstein applicants and the Waltons agreed that the funds
    invested by the Bernstein applicants in a given property would be used only for
    the development of that property. He found that, contrary to their contractual
    obligations, the Waltons took the Bernstein applicants funds and used them in
    an unauthorized fashion which benefitted the Waltons.  On the record, this
    finding is unassailable.

[19]

We
    also reject the submission that the motions judge erred in his tracing
    analysis. The motions judge was entitled to accept the Inspectors analysis and
    prefer it over that of Mr. Froese, the Waltons expert.  Moreover, the motions
    judge made no error in terms of commingling. As we explain in the companion appeal
DBDC Spadina Ltd. v. Walton
, 2015 ONCA 624, at para. 6, in which a
    similar attack was made on tracing accepted by the motions judge, the motions
    judge imposed constructive trusts on only those properties in which commingling
    was not an issue.

Issue #3 Did the motions judge fail to apply the correct legal
    test when finding that the settlement agreement constituted a preference under
    the
Assignments and Preferences Act
?

[20]

As
    we have explained in relation to the first issue, the motions judge was concerned
    that enforcement of the proposed settlement agreement between the DeJong
    appellants and the Waltons would constitute a preference over the interests of
    other creditors in respect of 3270 American Drive.  Although the motions judge
    did not explicitly refer to the
Assignments and Preferences Act
, that
    omission could have had no appreciable influence on the result that he
    reached:
Canadian Broadcasting Corp. Pension Plan v. BF Realty Holdings Ltd.
(2002), 214 D.L.R. (4th) 121 (Ont. C.A.), at para. 64. The motions judges
    reasons are sufficient to permit the parties (and this, the reviewing court) to
    know why he found that the proposed settlement agreement would constitute a
    preference within the meaning of that Act.

[21]

It
    appears incontrovertible that the intent and effect of the proposed settlement agreement
    was to prefer the interests of the DeJong appellants over other creditors.  When
    the proposed settlement agreement was reached, the DeJong appellants had notice
    that the Bernstein applicants were seeking a certificate of pending litigation
    and a blanket charge over 3270 American Drive; the Bernstein applicants were
    unquestionably creditors of the Waltons; and, the DeJong appellants knew, or
    ought to have known, that the Waltons were insolvent or on the eve of
    insolvency.

DISPOSITION

[22]

For
    these reasons, the appeal is dismissed. If the parties are unable to agree on
    costs, they may make written submissions to a maximum of two pages in length,
    such submissions to be filed with the court no later than 10 days from the date
    of the release of this endorsement.

E.E. Gillese
    J.A.

P. Lauwers J.A.

M.L. Benotto J.A.


Schedule A Companies

1.

Dr. Bernstein Diet Clinics Ltd.

2.

2272551 Ontario Limited

3.

DBDC Investments Atlantic Ltd.

4.

DBDC Investment Pape Ltd.

5.

DBDC Investments Highway 7 Ltd.

6.

DBDC Investments Trent Ltd.

7.

DBDC Investments St. Clair Ltd.

8.

DBDC Investments Tisdale Ltd.

9.

DBDC Investments Leslie Ltd.

10.

DBDC Investments Lesliebrook Ltd.

11.

DBDC Fraser Properties Ltd.

12.

DBDC Fraser Lands Ltd.

13.

DBDC Queens Corner Inc.

14.

DBDC Queens Plate Holdings Inc.

15.

DBDC Dupont Developments Ltd.

16.

DBDC Red Door Developments Inc.

17.

DBDC Red Door Lands Inc.

18.

DBDC Global Mills Ltd.

19.

DBDC Donalda Developments Ltd.

20.

DBDC Salmon River Properties Ltd.

21.

DBDC Cityview Industrial Ltd.

22.

DBDC Weston Lands Ltd.

23.

DBDC Double Rose Developments Ltd.

24.

DBDC Skyway Holdings Ltd.

25.

DBDC West Mall Holdings Ltd.

26.

DBDC Royal Gate Holdings Ltd.

27.

DBDC Dewhurst Developments Ltd.

28.

DBDC Eddystone Place Ltd.

29.

DBDC Richmond Row Holdings Ltd.


Schedule B Companies

1.

Twin Dragons Corporation

2.

Bannockburn Lands Inc. / Skyline  1185 Eglinton Avenue Inc.

3.

Wynford Professional Centre Ltd.

4.

Liberty Village Properties Inc.

5.

Liberty Village Lands Inc.

6.

Riverdale Mansion Ltd.

7.

Royal Agincourt Corp.

8.

Hidden Gem Development Inc.

9.

Ascalon Lands Ltd.

10.

Tisdale Mews Inc.

11.

Lesliebrook Holdings Ltd.

12.

Lesliebrook Lands Ltd.

13.

Fraser Properties Corp.

14.

Fraser Lands Ltd.

15.

Queens Corner Corp.

16.

Northern Dancer Lands Ltd.

17.

Dupont Developments Ltd.

18.

Red Door Developments Inc. and Red Door Lands Ltd.

19.

Global Mills Inc.

20.

Donalda Developments Ltd.

21.

Salmon River Properties Ltd.

22.

Cityview Industrial Ltd.

23.

Weston Lands Ltd.

24.

Double Rose Developments Ltd.

25.

Skyway Holdings Ltd.

26.

West Mall Holdings Ltd.

27.

Royal Gate Holdings Ltd.

28.

Dewhurst Developments Ltd.

29.

Eddystone Place Inc.

30.

Richmond Row Holdings Ltd.

31.

El-Ad Limited

32.

165 Bathurst Inc.


