



COURT OF APPEAL FOR ONTARIO

CITATION:
Boughner v. Greyhawk Equity
    Partners Limited Partnership (Millenium), 2013 ONCA 26

DATE: 20130118

DOCKET: C55900

MacPherson, Cronk and Lauwers JJ.A.

BETWEEN

James Boughner,
Richard Gibson
and
Jack Waldock

Plaintiffs (
Appellant
) (
Respondent
)

and

Greyhawk Equity Partners Limited Partnership
    (Millenium), Greyhawk Equity Partners Ltd., Bedford and Associates Research
    Group Inc., Terrence M. Bedford and Joanne Harris-Bedford

Defendants

John J. Pirie and David Gadsden, for the appellants,
    Jack Waldock and the Waldock Group

Orestes Pasparakis and Alex Dimson, for the respondent,
    Richard Gibson

Paul Michell and Daniel Z. Naymark, for the receiver, A.
    Farber and Partners Inc.

Heard: January 10, 2013

On appeal from the order of Justice Geoffrey B. Morawetz
    of the Superior Court of Justice, dated July 16, 2012.

By the Court
:

[1]

The
    appellant Jack Waldock and the respondent Richard Gibson were both defrauded in
    an investment scheme called the Greyhawk Fund created and administered by
    Terrence Bedford and Joanne Harris-Bedford.

[2]

Once
    the fraud was discovered, the Greyhawk Fund quickly unravelled. On February 8,
    2011, Morawetz J. of the Superior Court of Justice ordered that A. Farber and
    Partners Inc. be appointed as Receiver over Greyhawk and related entities.
    There is money left in Greyhawk, but its value is far below the amounts various
    people, including Waldock and Gibson, invested in it.

[3]

The
    Receiver identified three methods of allocating the remaining funds to the
    remaining investors:

(1)
pro rata
    allocation
 based
on the
    size of each investors contributions to the Greyhawk Fund. Under this method,
    each investors distribution would be based on a percentage of the fund equal
    to the investors total claim;

(2)
fund unit
    allocation
 based on what each investors unit value in Greyhawk ought to
    have been in light of actual fund performance. Under this method, each
    investors distribution would be based on the performance of the fund during
    the period that the investors money was invested; and

(3)
last in,
    first out
(LIFO)  based on the chronological order of contributions.
    Under this method, the last investors in the fund would be the first to receive
    distributions of the remaining funds.

The Receiver took no position on which of these three distribution
    methods should be employed.

[4]

Waldock
    and Gibson agreed that the LIFO method should not be employed. Unfortunately,
    they could not agree on which of the other two methods was appropriate. Waldock
    supports the original contributions method; Gibson prefers the fund allocation
    method, which he says reflects a modified application of the lowest
    intermediate balance rule (LIBR), also based on the relative value of each
    investors investment in the fund at the time the funds were comingled.

[5]

Waldock
    brought a motion before Morawetz J. to determine the question of allocation
    method. In reasons released on July 12, 2012, the motion judge accepted
    Gibsons position, including his claim that the fund unit allocation method as
    described by the Receiver was a form of LIBR, and ordered that distributions
    be made pursuant to the fund unit allocation method (or
pro rata
on
    the basis of tracing, or LIBR).

[6]

Waldock
    appeals on two grounds.

[7]

First,
    the appellant submits that the motion judge erred in finding that
pro rata
sharing on the basis of tracing or LIBR is the general rule that ought to
    be applied in this case unless it is practically impossible to do so.

[8]

We
    do not accept this submission. In a very careful analysis, the motion judge
    discussed three leading decisions of this court,
Ontario Securities
    Commission v. Greymac Credit Corp.
(1986), 55 O.R. (2d) 673, affd 65 O.R.
    (2d) 479 (SCC);
Law Society of Upper Canada v. Toronto-Dominion Bank
(1998), 42 O.R. (3d) 257; and
Graphicshoppe Ltd. (Re)
, [2005] OJ No.
    5184. The motion judge concluded:

Thus, it seems to me that although the Court of Appeal did not,
    on the facts, apply LIBR in
Law Society
, it was accepted by Moldaver
    J.A. in
Graphicshoppe
. Thus, by virtue of the Supreme Court of
    Canadas affirmation of
Greymac
and the more recent decision in
Graphicshoppe
,
    LIBR is an available mechanism to distribute comingled funds.

The controlling authority,
Greymac
, directs, in my
    view, that
pro rata
sharing based on tracing (LIBR) is the general
    rule that ought to be applied in this case unless it is practically impossible
    to do so.

[9]

We
    agree with this analysis. The general rule, and the preferred allocation
    method, in cases like this is, per
Greymac
, the LIBR method. In some
    cases, as in
Law Society
, this method will not be appropriate because,
    as Blair J.A. (
ad hoc
) said at para. 33, it is manifestly more
    complicated and more difficult to apply. Thus the law in Ontario is as
    expressed by Morden J.A. in
Greymac
at para. 46:

While it might, possibly, be appropriate in some circumstances
    to recognize claims on the basis of a claimants original contribution... I do
    not think that it is appropriate where the contributions to the mixed fund can
    be simply traced, as in the present case.

[10]

Second, the
    appellant contends that the motion judge erred by equating the fund unit allocation
    calculations conducted by the Receiver with the tracing necessary to properly
    apply a LIBR calculation or a
pro rata
sharing on the basis of tracing
    and fund performance.

[11]

We disagree. In
    our view, this is a factual issue. LIBR involves the recalculation of the
    history of an investors contributions, using the actual values of the
    contributions at the time of comingling. The record indicates, and the motion
    judge accepted, that this is what the Receivers fund unit allocation
    calculations sought to do. Moreover, the motion judge concluded: I accept the
    evidence of the Receiver that all steps have been taken to establish that LIBR
    calculations can be made. We see nothing in the record or in the appellants
    submissions demonstrating that the motion judges conclusions on this issue are
    palpable and overriding errors.

[12]

The appeal is
    dismissed. The respondent is entitled to its costs of the appeal fixed at $
    20,000, inclusive of disbursements and applicable taxes, payable out of the
    Fund.

Released: January 18, 2013 (J.C.M.)

J.C. MacPherson J.A.

E.A. Cronk J.A.

P. Lauwers J.A.


