



COURT OF APPEAL FOR ONTARIO

CITATION: SFC Litigation Trust v. Chan, 2019 ONCA 525

DATE: 20190624

DOCKET: C65247

Hoy A.C.J.O., Brown and
    Zarnett JJ.A.

BETWEEN

Cosimo Borrelli, in his
    capacity as trustee of the SFC Litigation Trust

Plaintiff (Respondent)

and

Allen Tak Yuen Chan

Defendant (Appellant)

Robert Rueter, Sara J. Erskine, and Malik
    Martin for the appellant

Robert W. Staley, Jonathan G. Bell, William
    A. Bortolin, Jason M. Berall and Preet Bell, for the respondent

Heard: January 14 and 15, 2019

On appeal from the judgment of
    Justice Michael A. Penny of the Superior Court of Justice, dated March 14, 2018,
    with reasons reported at 2018 ONSC 1429.

Zarnett J.A.:

I.

Introduction

[1]

The
    appellant, Allen Tak Yuen Chan, was the co-founder, chief executive officer and
    chairman of the Board of Directors of Sino-Forest Corporation (SFC), a
    corporation which had its head office in Ontario and whose shares traded on the
    Toronto Stock Exchange.

[2]

SFCs
    subsidiaries carried on an integrated forest plantation and products business
    with assets located predominately in the Peoples Republic of China (PRC).

[3]

Between
    2003 and the second quarter of 2011, SFCs consolidated financial statements reported
    rapid growth, including in assets and revenues. A significant portion of the
    reported assets in the second quarter of 2011  some $2.99
[1]
billion  was BVI standing timber , that, is standing timber held under what
    was known as the BVI model. Sales of BVI standing timber accounted for $1.3
    billion of SFCs reported consolidated revenue in 2010, and over 90% of its
    reported consolidated income.

[4]

Representing
    BVI standing timber as an asset with significant value on the SFC financial
    statements enabled SFC to raise money in the debt and equity markets  approximately
    $3 billion up to 2010.

[5]

In
    June 2011, a report was issued by a short sellers research company (the Muddy
    Waters Report) which was, to say the least, highly critical of SFC. It alleged,
    among other things, that SFC did not hold anything close to the full amount of
    the timber assets reported on its financial statements and that it greatly overstated
    its revenues. SFC formed an Independent Committee to investigate. It was unable
    to rebut the allegations or confirm ownership of the BVI standing timber. SFC
    could not issue further financial statements and advised the public, following
    discussions with its external auditors, that prior years financial statements
    should not be relied upon. The Ontario Securities Commission (OSC) ordered
    that trading in SFC securities cease. SFC defaulted on its debt obligations. A number
    of class actions were commenced against SFC and its directors, auditors,
    underwriters and consultants.

[6]

On
    March 30, 2012, SFC obtained insolvency protection under the
Companies
    Creditors Arrangement Act
,
R.S.C. 1985, c. C-36
(
CCAA
).
On December 10, 2012, the Superior Court sanctioned SFCs CCAA Plan of
    Compromise and Reorganization (the Plan). Under the Plan, SFCs interests in its
    subsidiaries were transferred to holding companies owned by SFCs creditors and
    its causes of action were transferred to the SFC Litigation Trust (the
    Litigation Trust) constituted for the benefit of its creditors. In exchange, SFCs
    creditors released their claims for repayment of debts owed to them by the
    company.

[7]

In
    2014, the respondent, as trustee of the Litigation Trust, commenced this action
    alleging that the appellant had committed fraud against, and breached his
    fiduciary duty to, SFC.

[8]

After
    a 48-day trial, the trial judge found that the appellant had directed a
    massive fraud in breach of his fiduciary duties to SFC, causing SFC to
    misrepresent its assets and their value. This enabled SFC to raise significant
    funds in the capital markets. SFC would not have undertaken obligations of this
    magnitude to lenders or shareholders, or entrusted the funds raised to the
    appellant and his management team, but for the appellants fraud. The trial
    judge found that the appellants conduct caused a loss to SFC. The funds raised
    were either directed by the appellant into fictitious or over-valued lines of
    business which dealt with third parties secretly related to and entities secretly
    controlled by the appellant, or were largely consumed by the necessity of dealing
    with the consequences of the discovery of the appellants fraud and the
    collapse of SFC that followed. The trial judge awarded damages equal to what he
    found to be SFCs loss  $2,627,478.00  as well as punitive damages of $5
    million Canadian.

[9]

The
    appellant asks us to reverse the trial judgment, making the following principal
    arguments:

a)

The respondent is only entitled to advance claims that were transferred
    to the Litigation Trust under the Plan. Properly interpreted, the Plan did not
    transfer the claims advanced in this action to the Litigation Trust.

b)

The trial judges award of damages is flawed because he did not conduct
    a proper causation analysis and awarded compensation for losses not of SFC, but
    of its stakeholders (its noteholders and shareholders). In doing so he improperly
    exposed the appellant to duplicate claims and created risks of double recovery.

c)

The respondents claim ought to have been rejected under the doctrine of
    election. When SFC transferred the assets, contracts and businesses of its
    subsidiaries as contemplated by the Plan (by transferring its subsidiaries
    shares), there was an election to treat them as valid. Yet the respondents
    claim is premised on those same assets, contracts and businesses being
    fraudulent and invalid.

d)

The trial judge made various errors in his acceptance of evidence,
    including evidence based on documents that had not been translated into English
    and on opinions from a non-expert, which make his factual conclusions unsafe to
    rely upon.

[10]

For the reasons which
    follow I would dismiss the appeal. As I explain below:

a)

The trial judge did not err in his conclusion that the claims advanced
    in the action were causes of action that had been held by SFC, had been
    transferred to the Litigation Trust by SFC under the Plan, and could be pursued
    by the respondent against the appellant.

b)

The trial judge did not err in his causation analysis or assessment of
    damages. His determinations in that regard were not the product of legal errors
    and there is no basis to interfere with his factual determinations, which are
    subject to deference from this court.

c)

There is no merit to the argument that the transfer of the shares of SFCs
    subsidiaries pursuant to the Plan was an election that barred the respondent
    from suing for damages arising from the appellants conduct.

d)

The complaints of the appellant about the trial judges approach to
    certain evidence do not justify any interference with the judgment the trial
    judge reached. The trial judge assiduously reviewed the evidence given in a
    lengthy trial and his factual conclusions were supported by the record.

II.

The Facts and the Trial Judges Award

[11]

In addition to the
    facts outlined above, the following facts are important to appreciation of the
    issues on the appeal. I set them out based on the trial judges findings, since
    on the first three issues that the appellant raises, he contends the trial
    judgment cannot stand even on those findings. I then deal separately, as the
    parties did, with the appellants complaints about the trial judges fact-finding.

(1)

The
    Appellants Role and the Nature of the Wrongdoing

[12]

The trial judge found that
    the appellant had ultimate control over nearly all aspects of SFCs and its
    subsidiaries operations, directly and through a small group of individuals he
    directed on his management team (the trial judge referred to them collectively as
    Inside Management).

[13]

The trial judge
    identified four different, but related, frauds for which the appellant was
    responsible and one other transaction in which there was a breach by the
    appellant of his fiduciary duties. I summarize these below.


(a)

The
    BVI Model Fraud

[14]

The most significant
    fraud found by the trial judge had to do with the reporting, on SFCs consolidated
    financial statements, of assets held and revenue and income generated under the
    BVI model.

[15]

The BVI model involved
    SFC subsidiaries incorporated in the British Virgin Islands (BVIs). It was
    designed in light of restrictions at one time imposed by the PRC under which
    foreign entities were not permitted to have PRC bank accounts, operate or sell
    timber plantations, or own land use rights in the PRC.

[16]

To circumvent these
    restrictions, the BVI Model contemplated that SFCs BVI subsidiaries would
    acquire standing timber from third parties known as Suppliers, who in turn would
    acquire it from others, typically rural or business collectives. The BVIs would
    sell standing timber indirectly, through authorized intermediaries (AIs) that
    acted as their customers. The BVIs would not pay the Suppliers or receive
    payment from the AIs. Instead, the AIs and Suppliers would be directed to set
    off payments so that payment from an AI for the sale of standing timber rights
    would be rolled forward into the purchase of new BVI standing timber rights
    from a Supplier. Consequently, no cash would flow through the BVIs or SFCs
    bank accounts in connection with the BVI standing timber and money associated with
    the BVI standing timber would be locked up in the PRC to be rolled forward into
    further BVI standing timber purchases.

[17]

Under the BVI model, the
    BVIs would not acquire actual land use rights in the PRC. Instead, they
    ostensibly would acquire a contractual right to the standing timber itself.

[18]

As noted above, significant
    valuable assets were reported by SFC as held, and revenue and profit-generating
    activity was reported as occurring, under the BVI Model. By the second quarter
    of 2011, SFCs consolidated financial statements showed BVI standing timber
    assets valued at $2.99 billion. Trading under that model was the biggest
    contributor to the revenues and profits shown on the statements.

[19]

After the Muddy Waters
    Report, the Independent Committee was, however, unable to locate key documents
    to confirm valid title to the BVI standing timber or to even determine its
    location. Collections of accounts receivable from AIs, which had been
    represented to take place with 100% success, dropped to close to 0%.
    Consultants retained by SFCs creditors were also unable to locate or verify
    the BVI standing timber assets. When the Monitor for SFC appointed under the
CCAA
made unannounced site visits to Suppliers and AIs at their registered addresses,
    it found, with only one exception, little to no evidence of any operations. Those
    entities were later established to have undisclosed connections to the appellant
    and his management team.

[20]

The inability to
    locate or verify the BVI standing timber assets continued after the Plan was
    sanctioned by the Superior Court. Under the Plan, the rights to any such assets
    were transferred to entities owned by former SFC creditors; they were subsequently
    sold to a third party purchaser, New Plantations. The transferees had strong
    economic motivations to locate the standing timber assets. None of the
    transferees could do so.

[21]

The trial judge
    considered, among other things, expert and other evidence about the type of
    documents that would be required to validly show title to the reported BVI
    standing timber assets and evidence of the efforts taken to locate and
    establish ownership or valid title to the standing timber assets that had been
    represented on the SFC consolidated financial statements as having a value of
    $2.99 billion. He found that:

a)

Proper documentation to establish valid title to the assets did not
    exist. For example, maps, essential to establish the locations of the alleged
    standing timber assets, were produced by the appellant and his management team
    for only 1% of the claimed assets.

b)

Despite efforts by persons with significant motivation to locate those
    assets so they could be monetized, they had not been located even up to the
    time of trial in 2017.

[22]

The trial judge
    concluded that the BVI standing timber model was a fraud perpetrated by the
    appellant, that the assets reported simply did not exist, and that the
    transactions reported as resulting in revenue and income were paper
    transactions without substance. He stated:

[551]  The former assets of [SFC] have now been in the hands of
    New Plantations for more than a year. Even with Mr. Chans assistance, New
    Plantations has not produced any evidence that it has been able to find, prove
    title to or monetize any purported interest in the BVI standing timber assets. It
    has not paid anything to EPHL [the former-creditor-owned company] under the
    RAPA arising out of the sale of any BVI assets. The best [the appellant] can
    offer in this regard is revealed in the evidence of Alvin Lim, who testified
    that New Plantations is still in the process of investigation.

[552]  Six years have passed since the Muddy Waters Report was
    released and nobody, despite enormous financial incentives to do so,
    (incentives motivating [SFC], the bondholders, the purchaser Emerald [the
    former-creditor-owned company], the purchaser New Plantations and [the
    appellant] himself), has been able to locate, confirm ownership of, or monetize
    the BVI assets.  When considered in the context of all the evidence, the
    inescapable conclusion is that [SFC] did not own the BVI assets that it claimed
    to own.

[553]  All of the evidence considered as a whole, leads to the
    inescapable conclusion that the BVI standing timber model was a fraud. The
    logical and reasonable inferences to be drawn from the totality of the
    evidence, based on a preponderance of probabilities, are that:

i)        the defendant and others inside and outside [SFC] management
    operated an elaborate system of nominee companies ultimately controlled by [the
    appellant] or persons acting under his direction;

ii)       many of these nominees companies were major
    Suppliers of BVI standing timber;

iii)      the Suppliers and AIs were not
bona fide
arms length sellers and purchasers of BVI standing timber;

iv)      the BVI standing timber transactions were paper
    transactions. [SFC] employees under the direction of [the appellant] and his
    cadre of Inside Management created the contracts, the supporting documents and
    the so-called evidence of directed payments made between the AIs and Suppliers.
    No consideration in fact passed between these entities;

v)       [SFC] subsidiaries did not hold title to BVI
    standing timber plantations;

vi)      the value of [SFCs] BVI standing timber,
    represented at $2.99 billion in 2011, did not exist. Because [SFC] did not own
    these assets, this value was nil; and

vii)     the defendant and members of Inside Management
    exploited weaknesses and ambiguities in the PRC forestry regulatory regime to
    perpetrate this fraud and to conceal it from scrutiny by [SFC], external
    auditors, other professional advisors, independent members of the Board and the
    public.


(b)

The
    WFOE Standing Timber Fraud

[23]

A second fraud found
    by the trial judge arose within a method of doing business referred to as the
    WFOE standing timber model. That model was used because in 2004 the PRC gave
    permission for foreign investors to invest in PRC-incorporated trading
    companies, known as wholly foreign owned enterprises (WFOEs), which could
    acquire actual plantation land use rights, harvest timber, sell logs and
    standing timber directly to end users, and open PRC bank accounts. WFOEs were
    also permitted to plant standing timber plantations due to their land use
    rights.

[24]

Assets were acquired
    and activities undertaken by SFC subsidiaries which were WFOEs. These included planting
    forests and holding them until harvest (planted plantations) and, in
    addition, ostensibly acquiring and trading in existing standing timber
    (purchased plantations).

[25]

The trial judge found
    that the hallmarks of the BVI standing timber fraud were present in the purchased
    plantations aspect of the WFOE standing timber model. Many of the WFOE
    purchased plantation transactions were conducted through Suppliers controlled
    by the appellant and his management team. Plantation rights certificates were
    lacking for most of the purchased plantations.

The trial judge
    concluded that like the BVI standing timber, the majority of the WFOE
    purchased plantations were never actually owned by [SFC] and had no value: at para.
    562.


(c)

The
    Wood Log Trading Cash Gap Fraud

[26]

The third fraud found
    by the trial judge was in wood log trading activities. From 2005 to 2010,
    revenue from wood log trading ranged from 15% to 25% of SFCs total consolidated
    revenues, and a smaller percentage of SFCs consolidated profits. Under SFCs
    wood log trading model, an SFC BVI subsidiary would purchase logs from a
    Supplier outside of the PRC and pay for the logs using a letter of credit
    guaranteed by SFC. It would then resell the logs to a customer. However,
    typically only about 70% of the wood log sales accounts receivable were paid in
    cash by the customer. The remaining 30% was directed to BVI standing timber
    Suppliers, which had the effect of diverting new money into the BVI standing
    timber model.

[27]

The diversion of 30%
    of the wood-log-trading receivables to BVI standing timber Suppliers, for
    assets the trial judge determined did not really exist, created a cash gap  $239.8
    million more was paid out to purchase wood logs than was received on their sale.
    And, after the Muddy Waters Report, substantial amounts of accounts receivable
    associated with the wood log trading business were not paid  the customers
    vanished. Many of SFCs wood log customers were found not to have been at
    arms-length from the appellant.

[28]

The trial judge found
    the preponderance of probabilities, having regard to all of the evidence, is
    that the wood log cash gap was a fraud orchestrated by [the appellant] with the
    assistance of [his management team] at [the appellants] direction: at para.
    633.


(d)

The
    Wood Log Deposit Fraud

[29]

The fourth fraud found
    by the trial judge arose from the practice of placing deposits for the purchase
    of the logs. The appellant caused SFC subsidiaries to enter into wood log
    trading agreements requiring payment of substantial unsecured deposits and
    advance payments for the purchase of logs, which exceeded the value of any
    logs actually delivered. After the Muddy Waters Report, log deliveries ceased and,
    with one exception, none of the deposits or advance payments were repaid,
    resulting in a loss of $167.4 million. The appellants relationship with many
    of the wood log suppliers was not at arms-length.

[30]

The trial judge found
    the preponderance of evidence established that the wood log deposit
    transactions were a fraudulent mechanism for diversion of funds out of SFC to
    entities controlled by the appellant or acting under his direction.


(e)

The
    Greenheart Transaction

[31]

The further
    transaction in which the trial judge found a breach of fiduciary duty by the
    appellant was referred to as the Greenheart Transaction. Between July 2007 and
    July 2010, the appellant caused SFC to acquire a majority interest in
    Greenheart Resources Holdings Limited and its majority shareholder, Greenheart
    Group Limited (collectively, Greenheart), by purchasing shares from
    shareholders of Greenheart, including several in which the appellant had
    undisclosed interests. At the time of the acquisitions, the appellant knew but
    did not disclose that Greenheart was in serious financial difficulties. SFC
    ultimately invested $202.2 million, which was more than the amount realized
    when the Greenheart interest was later sold.

[32]

The trial judge found
    that the appellant had committed a clear violation of his fiduciary duties
    through his nondisclosure. In addition to causing a loss to SFC, he made an
    undisclosed personal profit of approximately $38 million on the transaction.

(2)

The Collapse
    of SFC, The Fate of the Funds Raised, The CCAA Process and Realizations on
    Assets

[33]

The events following
    the Muddy Waters Report and the inability of SFC to rebut its allegations had a
    profound impact on the company.

[34]

In August 2011, the
    OSC issued a cease-trading order over SFCs securities, alleging that SFC had engaged
    in significant non-arms-length transactions, its assets and revenues had been
    exaggerated, and that the appellant and others appeared to be involved in the
    fraud.

[35]

SFC became unable to
    issue further financial statements. In December 2011, it advised it could give
    no assurance it would ever be able to do so. In January 2012, SFC issued a
    press release which stated that its historic financial statements and related
    audit reports should not be relied upon.

[36]

By early 2012 SFC, the
    appellant, and others had been named in at least four class actions alleging
    that SFCs financial statements were materially false and misleading and
    claiming, on behalf of classes of debt and equity holders, damages for amounts
    that they overpaid when they purchased securities in reliance on the false financial
    statements, among other relief.

[37]

SFC defaulted on its
    debt obligations. In March of 2012, it entered into a Restructuring Support
    Agreement with its noteholders, who held first priority security interests over
    the shares of SFCs subsidiaries, which contemplated the transfer of SFCs
    business to those noteholders unless a sales process revealed that the value of
    SFCs assets exceeded its debt. The sales process revealed that potential
    purchasers were only willing to pay a fraction of the quantum of the debt for
    the companys assets. Consequently, the sales process terminated in June 2012.

[38]

SFC filed for
    insolvency protection under the
CCAA
on March 30, 2012, and the
    Superior Court sanctioned its Plan on December 10, 2012. Under the Plan, SFCs
    assets were transferred to creditor-controlled entities and SFCs causes of
    action were transferred to the Litigation Trust. The Plan provided for releases
    of SFC and specified others. The precise terms of the Plan bearing on the
    issues in this appeal are more fully described in the Analysis section below.

[39]

The trial judge found
    that by the time the fraud was uncovered and the dust settled, more than half
    of the almost $3 billion that had been raised by SFC on the capital markets was
    gone. He also found that what was left in cash by June of 2011 was largely
    consumed in propping up and managing the enterprise during the extended crisis
    brought on by the disclosure of the fraud and its investigation (including
    dealing with ongoing concealment by the appellant and his management team). He
    found that, to the extent that the funds raised on the capital markets had
    actually been invested in assets, the value of those assets was represented by the
    amounts realized on their sales, effected under and after implementation of the
    Plan.

[40]

Under the Plan,
    effective January 30, 2013, all of SFCs assets, including its interests in
    wholly-owned subsidiaries, were transferred to Emerald Plantation Holdings
    Limited (EPHL) and then by EPHL to Emerald Plantation Group Limited (EPGL),
    a wholly-owned subsidiary of EPHL. These entities were formed for the purpose
    of holding SFCs assets and realizing on them to achieve recoveries for SFCs
    creditors, who became EPHLs shareholders.

[41]

Commencing in October
    2014, EPGL caused the sale of the Greenheart business and then of miscellaneous
    assets to third parties. In 2016, EPGL caused the sale of the remaining assets to
    New Plantations, a third-party purchaser. The sale to New Plantations had special
    provisions for further payments if New Plantations was able to make any
    recovery on assets that were ascribed zero value in the sale, including the BVI
    standing timber, the BVI standing timber receivables, the wood log receivables,
    and the wood log deposits. The trial judge found that, at the time of trial,
    there had been no recoveries on, or any further payments in respect of, those
    assets: at paras 89 to 96.

[42]

The total net recoveries
    from the sale of assets of SFCs subsidiaries was $438.5 million.

(3)

The Trial
    Judges Damages Award


(a)

Causation

[43]

The trial judge
    approached causation on the basis that the but for causation test was to be
    applied in a common sense, robust fashion; that causation could be inferred
    from evidence that connected the wrongdoing to the injury; and that inferences
    could be drawn against a defendant found liable for fraud or breach of fiduciary
    duty who did not provide credible alternative causes for the loss.

[44]

The trial judges factual
    findings about causation can be summarized as follows. Between 2004 and 2010,
    SFC raised in excess of $2.9 billion in Canadas debt and equity markets, based
    on the appellants fraudulent misrepresentations of the existence and value of
    assets. But for the appellants deceit, SFC would never have undertaken
    obligations of this magnitude to lenders and shareholders, nor would it have entrusted
    the money it raised to the appellant and his management team. The appellant
    directed much of the money raised towards fictitious or over-valued lines of
    business, engaged in undisclosed related-party transactions and funneled funds
    into entities he secretly controlled. This conduct, and the consequences of its
    discovery, ultimately caused the collapse of SFC. The trial judge found that
    SFC had suffered losses directly related to the appellants fraud and breach of
    fiduciary duty.


(b)

Measurement
    of Damages

[45]

The trial judge referred
    to the measure of tort damages for deceit and to the principles of equitable
    compensation. He accepted that the proper approach to measuring SFCs loss was
    the primary approach put forward by the respondents expert, Peter Steger.

[46]

Stegers primary approach
    began with the $2.9 billion SFC raised in the debt and equity markets between
    2004 and 2010. Subtracting the share and debt issue costs and principal debt
    repayments made by SFC, he calculated the net cash available to SFC from these
    capital raises as $2.588 billion. To this, Steger added a proxy for the minimum
    return that SFC should have made by investing the cash. This led to an
    available cash figure of $3.065 billion.

[47]

On the basis that SFC
    would have had $3.065 billion in cash available for investment in
    profit-generating assets, Steger considered the effect of the appellants
    conduct, which saw those funds invested in subsidiaries engaged in largely
    fraudulent businesses. To the extent there was value in the businesses that
    were invested in, it was represented by the $438.5 million amount that was
    actually recovered by EPGL from the sales of the assets acquired from SFC under
    the Plan. The difference between these two figures  $2.627 billion 
    represented SFCs loss attributable to appellants conduct.

[48]

The trial judge
    rejected the appellants argument that damages could only be calculated on a
    transaction by transaction basis, both as a matter of law and because the
    appellants damages expert, who criticized Steger for not conducting that
    analysis, did not do it himself or hint at a methodology to do so.

[49]

The trial judge
    considered two other damages calculations, in case Stegers primary approach
    was found to be incorrect. The first was an alternative approach set out by
    Steger, which calculated damages of $3.2 billion based on a write-down of
    assets methodology. He then considered a specific loss approach, based on calculating
    the losses resulting from specific proven acts of fraud or breach of fiduciary
    duty, including the wood log cash gap fraud, the wood log deposit fraud, the
    Greenheart transaction, the appellants profits on the Greenheart transaction,
    the cost of SFCs investigation following the Muddy Waters Report, and the
    appellants remuneration. These amounts totalled $812.43 million. Deducting the
    net realization of $438.5 million from post-Plan sales produced an alternative specific
    loss compensation award of $373.9 million. However, the trial judge concluded
    that the primary Steger approach, rather than either of these other approaches,
    should be accepted.

[50]

The trial judge awarded
    punitive damages of $5 million Canadian on the basis of his finding that the
    appellant had abused his fiduciary position to orchestrate a large and complex
    fraud, resulting in billions of dollars of losses.

(4)

The Trial
    Judges Rejection of Specific Defences


(a)

Duplication
    with Class Actions

[51]

The trial judge
    rejected the argument that the respondent could not recover any amounts because
    there was duplication between the claims made in this action and claims made in
    certain class actions (the Class Actions, as defined in the Plan) that had
    named both SFC and the appellant, among others, as defendants. He noted that
    the Class Actions alleged some of the same facts as were alleged in this action
    and that those Class Actions had been brought on behalf of persons who acquired
    SFC securities (defined as common shares, notes and other securities) from 2007
    to 2011.

[52]

The trial judge held
    that the claims advanced in this action were transferred to the Litigation
    Trust and properly advanced by the respondent because they were claims against
    the appellant that, prior to their transfer, could have been asserted by SFC; were
    not released by the Plan (under which the appellant received no release); and
    were not Excluded Litigation Trust Claims as defined in the Plan, which were
    not transferred to the Litigation Trust. He noted the Plans language that
    claims advanced in the Class Actions were not transferred to the Litigation
    Trust, but held that the claims in the Class Actions were different than those
    in this action. The claims in the Class Actions were not for wrongs done to SFC
    but were claims for wrongs done to individual noteholders or shareholders; thus
    they were different causes of action held by different persons. Nor was there a
    risk of double recovery. The courts in the Class Actions could prevent that
    from occurring when those actions reached judgment (the Class Actions were
    still at the pleadings stage).


(b)

No
    Affirmation

[53]

The trial judge also
    rejected the argument that SFC had elected to affirm the validity of all of the
    assets, contracts, and transactions that the respondent complained of when it
    transferred the shares of its subsidiaries to EPGL under the Plan, such that
    the respondent could not sue and recover damages for them on the basis that
    they were fraudulent. He found the principle of affirmation had no application
    to the case.

III.

Analysis

(1)

Is the
    Respondent Precluded By The Plan from Advancing The Claims in This Action?


(a)

Introduction

[54]

The appellant makes
    three arguments that the Plan did not transfer, to the Litigation Trust, the
    causes of action that are asserted against him by the respondent and that
    therefore the Plan precludes those claims from being advanced: (1) the claims
    are the same as, or overlap with, the claims asserted in the Class Actions
    which were not transferred to the Litigation Trust; (2) the claims constitute Excluded
    Litigation Trust Claims which were excepted from the transfer of claims to the
    Litigation Trust; and (3) the claims constitute SFC Intercompany Claims that
    were assigned under the Plan by SFC to EPGL and not to the Litigation Trust.
    (Each of the quoted terms is a defined term in the Plan).

[55]

The appellants
    argument that the claims advanced in this action were not transferred to the
    Litigation Trust is an argument about the meaning of the Plan. It was common
    ground before the trial judge and in this court that the respondents ability
    to bring these claims had to derive from the provisions of the Plan, the
    Litigation Trust Agreement made thereunder and the terms of the Sanction Order
    which approved the Plan. These defined what causes of action were transferred
    to the Litigation Trust and which were not. It was not suggested that the terms
    or effect of these three documents differed on the issues material here, and
    accordingly argument was chiefly directed to the terms of the Plan itself.

[56]

I first address the
    principles of interpretation to be applied to the Plan and the standard of
    review to be applied by this court in assessing the interpretation arrived at
    by the trial judge. I then address the factors bearing on the interpretation of
    the Plan and the precise terms of the Plan. Finally I consider whether the
    appellants arguments disclose any reversible errors in the trial judges
    interpretation of the Plan.


(b)

The
    principles of interpretation

[57]

A
CCAA

plan
    of compromise and arrangement has been held to be in substance a contract,
    sanctioned by the Court, to be interpreted in light of the purposes of the
CCAA
,
    the overall purpose and intention of the plan in question, and the principles
    of contractual interpretation:
Re Canadian Red Cross Society
(2002)
, 35 C.B.R. (4th) 43 (Ont. S.C.),
    at paras. 12 to 13; affd 46 C.B.R. (4th) 239 (Ont. C.A.), leave to appeal
    refused, [2003] S.C.C.A. No. 539; see also
The Catalyst Capital Group Inc.
    v. VimpleCom Ltd.
, 2018 ONSC 2471, at para. 109, affd on other grounds,
    2019 ONCA 354, applying these principles to a corporate plan of arrangement.

[58]

The principles of
    contractual interpretation include: reading the words of the document as a
    whole, giving meaning to all its terms; determining the parties intentions in
    accordance with the words used; considering the factual matrix (the objective
    facts known at the time of contracting) to aid in understanding the words used;
    and adopting an interpretation which avoids commercial absurdity:
Ventas,
    Inc. v. Sunrise Senior Living Real Estate Investment Trust
,
2007
    ONCA 205, 85 O.R. (3d) 254, at para. 24;
Sattva Capital Corp. v. Creston
    Molly Corp.
, 2014 SCC 53, [2014] 2 SCR 633, at paras. 47-48, 57-58.


(c)

The
    standard of review

[59]

This court has given
    deference to the interpretation of a plan by a judge who had familiarity with
    the plans development through supervision of the debtors restructuring:
Red
    Cross

(Ont. C.A.), at para. 2. The respondent argues that the same
    approach of deference should apply here as the trial judge, an experienced
    Commercial List judge, had the opportunity to consider the Plan in light of its
    purpose, terms and the factual matrix explored in a lengthy trial. This
    deferential approach would be consistent with viewing the Plan as in substance
    a contract:
Red Cross
(Ont. S.C.), at para. 13. A trial judges
    contractual interpretation is, absent extricable legal error, generally subject
    to appellate deference:
Sattva,
at paras. 52-55.

[60]

The appellant asks
    this court to replace the trial judges interpretation of the Plan with its
    own, arguing that a correctness standard should apply. A correctness standard
    of appellate review applies to contractual interpretation where consistency of
    meaning is a primary concern and where there is no meaningful factual matrix to
    consider. Certain standard form contracts of adhesion are examples:
Ledcor
    Construction Ltd. v. Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016]
    2 S.C.R. 23.

[61]

Although a
CCAA
plan is not a standard form contract, plans often use language borrowed from
    other plans, giving rise to consistency concerns.  Moreover, a plan is
    different from an ordinary contract in that it takes its force not only from
    the consent of parties who have been involved in its negotiation, but also from
    the provisions of the

CCAA
which render a plan binding on those
    who have not agreed to or voted for it, if the requisite majorities of
    creditors have done so and court approval has been obtained:
CCAA
, s.
    6(1). In this respect a plan has aspects of a contract of adhesion.

[62]

Nonetheless, in my
    view a deferential standard of review should apply.
CCAA
plans are
    developed to fit the unique circumstances of each restructuring. The overall
    purpose and intention of the individual plan are important determinants of its
    interpretation, to be considered against the backdrop of the factual aspects of
    the restructuring and the events that led up to it. The types of considerations
    that will go into a plans interpretation will usually be fact and
    context-specific and the factual matrix will accordingly be important. The
    questions which arise in the interpretation of a plan will almost always be
    mixed questions of law and fact. All of this supports a deferential standard of
    appellate review, one that accords with the standard applicable generally to a
    trial judges interpretation of a contract.

[63]

Accordingly, absent an
    extricable error of law, an interpretation that involves palpable and
    overriding errors of fact, or one that is clearly unreasonable, the trial
    judges interpretation should not be interfered with.


(d)

The
    Factual Matrix

[64]

The trial judge did
    not expressly identify which facts he considered to be the factual matrix
    relevant to the Plans interpretation. But he did make significant findings
    about how and why the Plan came about.  It is the facts giving rise to the
    plan that are important to determine its scope and meaning:
Catalyst,
at para 110. Here, those facts include: that SFC had been forced to file for
CCAA
protection because of the fraud and the consequences of its discovery; the
    appellant had been identified, including by the OSC, as allegedly having been
    involved in that fraud; it had already been determined that the assets SFC
    offered in the sales process were worth substantially less than the amount of
    its debt so that additional sources of recovery by SFC, including recoveries through
    litigation, would be important; and class actions by SFC stakeholders were
    already pending against the appellant, amongst others, in which SFC
    stakeholders, but not SFC itself, were advancing claims.


(e)

The
    Purposes of the CCAA and of the Plan

[65]

The full title of the
CCAA

states that it

is: An Act to facilitate compromises and
    arrangements between companies and their creditors. The
CCAA
has the
    simultaneous objectives of
maximizing creditor recovery, preservation of
    going-concern value where possible
, preservation of jobs and communities
    affected by the firms financial distress, rehabilitation of honest but
    unfortunate debtors, and enhancement of the credit system generally. (emphasis
    added): Janis P. Sarra,
Rescue!: The Companies Creditors Arrangement Act
,
    2
nd
ed. (Toronto: Carswell, 2013), at p. 14.

[66]

Creditors are a key
    constituency under the
CCAA
, as the approval of specified majorities
    of creditors is required for a plan of compromise and arrangement to be
    effective:
CCAA
, s. 6(1). Given the objectives of the
CCAA
and the need for creditor approval, it is reasonable to expect that the goal of
    a plan will be to maximize the value to be obtained from the insolvent
    corporations assets, including its intangible rights such as litigation
    claims, so as to enhance ultimate distributions to creditors. A key barometer
    of a plans acceptability is how it proposes to achieve that goal compared to what
    would be available through alternative insolvency processes, such as
    liquidation or bankruptcy.

[67]

The SFC Plan addressed
    those objectives. It provided in section 2.1 that it was put forward with the
    expectation that the Persons with an economic interest in SFC  will derive
    greater benefit from the implementation of the Plan and the continuation of the
    SFC Business as a going concern than would result from a bankruptcy or
    liquidation of SFC.

[68]

And in keeping with
    this expectation, the Plan described its purpose: to release SFC from the
    claims of Affected Creditors
[2]
;
    to transfer ownership of the business of SFC to creditor-controlled entities
    free and clear of all claims against SFC and its subsidiaries, so as to enable
    the business to continue on a going-concern basis; and to allow Affected
    Creditors and Noteholder Class Action Claimants
[3]
to benefit from contingent value that may be derived from litigation claims to
    be advanced by the Litigation Trustee: section 2.1.

[69]

The Superior Court
    sanctioned the Plan, finding this purpose and its implementation in the Plan to
    be in compliance with the
CCAA
and its objectives:
Re Sino-Forest
    Corporation,
2012 ONSC 7050, at para. 79.


(f)

The
    Plans Operative Terms

[70]

The Plan provided two
    avenues for assets of SFC to be realized upon and the proceeds distributed to
    creditors: (1) by the transfer of SFC causes of action to the Litigation Trust;
    and (2) by the transfer of the shares of SFCs subsidiaries to creditor
    controlled entities, EPHL and EPGL: section 6.4(h). The provisions of the Plan
    implementing these transfers, as well as the release provisions of the Plan,
    are key to assessing the appellants arguments.

[71]

The Plan provided, in
    section 6.4(o), that SFC would establish the Litigation Trust. SFC and the
    trustees for SFCs noteholders would then convey to it the Litigation Trust
    Claims, defined by the Plan as:

[A]ny Causes of Action that have been or may be asserted by or on
    behalf of: (a) SFC against any and all third parties; or (b) the Trustees (on
    behalf of the Noteholders) against any and all Persons in connection with the
    Notes issued by SFC; provided, however, that in no event shall the Litigation
    Trust Claims include any (i) claim, right or cause of action against any Person
    that is released pursuant to Article 7 hereof or (ii) any Excluded Litigation
    Trust Claim. For greater certainty: (x) the claims being advanced or that are subsequently
    advanced in the Class Actions are not being transferred to the Litigation
    Trust; and (y) the claims transferred to the Litigation Trust shall not be
    advanced in the Class Actions.

[72]

Causes of Action, used
    in the definition of Litigation Trust Claims, was given a very broad meaning, which
    included any claims or entitlements in law, equity or otherwise for damages or
    other relief.

[73]

However, the definition
    of Litigation Trust Claims narrowed the transfer of claims to the Litigation
    Trust (i) by excepting claims against certain individuals and entities who were
    released by the Plan and (ii) by excepting Excluded Litigation Trust Claims
    from the claims that would otherwise have been transferred to the Litigation
    Trust: Article 7. Excluded Litigation Trust Claims were defined as Causes of
    Action agreed, as between SFC and a subgroup of Noteholders, to be excluded from
    the Litigation Trust Claims: section 4.12. Section 4.12(b) of the Plan specified
    that certain claims against SFCs Underwriters fell within this category,
    except if they were claims for fraud or criminal conduct.

[74]

The definition of
    Litigation Trust Claims contained greater certainty language specifying
    that claims in the Class Actions were not transferred to the Litigation
    Trust. The Class Actions referred to in the  greater certainty clause were
    defined to mean four specific actions in Ontario, Quebec, Saskatchewan and New
    York, brought on behalf of persons who, during defined class periods, had purchased
    SFC notes or shares. The Class Actions include: claims against the appellant based
    on allegations that he made false representations that SFCs financial statements
    were accurate when they in fact were materially misleading and grossly overstated
    SFCs assets; that the appellants misrepresentations induced class members to
    buy equity or debt at inflated prices; and that he thus caused them losses. The
    plaintiff classes seek damages, among other things, to recover the amounts they
    paid or overpaid to acquire those securities.

[75]

Section 4.11 of the
    Plan set out who would benefit from any recoveries on claims transferred to the
    Litigation Trust. Beneficial interests in the Litigation Trust were to be held
    75% by Affected Creditors
[4]
and 25% by Noteholder Class Action Claimants
[5]
.

[76]

In addition to their
    interests in the Litigation Trust, Affected Creditors also received interests
    in EPHL, a holding company which held the shares of EPGL, to which SFC
    transferred the shares of its subsidiaries (and indirectly the assets they held
    and businesses they carried on): sections 4.1, 6.4 and 6.6. Included among the
    assets transferred to EPGL were SFC Intercompany Claims defined to include
    amounts owing to SFC by any of its subsidiaries: section 4.10. The Plan
    provides that all obligations and agreements to which EPHL or EPGL became
    parties as a result of the transfer to them shall be and remain in full force
    and effect, unamended: section 8.2(j).

[77]

All equity holders in
    SFC released their claims against SFC: section 4.5. Noteholder Class Action
    claims against SFC were released: section 4.4. Affected Creditors  comprised
    mainly of SFCs noteholders, whose claims had been secured by first-priority
    security interests over the shares of SFCs subsidiaries  released SFC from
    their claims for payment of principal and interest on the notes: section 4.1.  Article
    7 specified individuals and entities also released by the Plan. The appellant
    was not one of the specified individuals.


(g)

Analysis
    of The Appellants Plan Preclusion Arguments

[78]

In light of the
    principles of interpretation, the factual matrix, the purposes of the
CCAA
and
    the Plan, and the Plans language, I turn now to the analysis of the
    appellants plan preclusion arguments.

(i)

No
    Right to Advance Claims Advanced in the Class Actions

[79]

The appellant argues
    that the claims made in the action are not Causes of Action that were
    transferred to the Litigation Trust because they are the same as, or overlap
    with, the claims made in the Class Actions. He asserts that the claims in this
    action on the one hand, and those in the Class Actions on the other, rely on
    the same or similar allegations of wrongdoing by the appellant and claim the
    same or similar amounts, based on the amounts that SFC raised, as debt or
    equity, in the capital markets. He also argues that there is an overlap in who will
    benefit from the claims, in that certain creditors are beneficiaries of the
    Litigation Trust and class members in the Class Actions.
[6]
The greater certainty language of the Plan makes it clear, he maintains, that
    these claims were not transferred.

[80]

I would not give
    effect to this argument.

[81]

The Plan, by the
    combination of section 6.4(o) and the definition of Litigation Trust Claims,
    transferred to the Litigation Trust two types of Causes of Action held by two
    different persons. First, it transferred Causes of Action of SFC against any
    and all third parties. Second, it transferred Causes of Action of the Trustees
    on behalf of Noteholders against any and all persons for certain matters. The
    respondent relies upon the first transfer only, that is, the transfer of Causes
    of Action that SFC had against the appellant. The trial judge did not err in
    concluding that the causes of action the respondent advanced in this action are
    Causes of Action that SFC had against the appellant. This differentiates them
    from causes of action of SFC stakeholders, which are being advanced in the
    Class Actions.

[82]

A wrong (such as a
    tort) done to a corporation is actionable by the corporation which is entitled
    to recover the loss it suffered. The shareholders and creditors of a
    corporation cannot sue for damage to the corporation, even though they are
    indirectly affected by it:
Hercules Management Ltd. v. Ernst and Young
,
[1997] 2 S.C.R. 165, at para. 59;
Meditrust Healthcare Inc. v. Shoppers
    Drug Mart
(2002)
,
61 O.R. (3d) 786 (Ont. C.A.), at paras. 11-16. Similarly, an action for breach
    of a corporate directors or officers fiduciary duty is an action of the
    corporation, whether it seeks damages or an accounting of profits:
BCE Inc.
    v. 1976 Debentureholders,
2008 SCC 69,
    [2008] 3 SCR 560,
at para. 41;
Midland Resources Holding
    Limited v. Shtaif,
2017 ONCA 320, 135
    O.R. (3d) 481,
at paras. 148-149 and 156, leave to appeal refused, [2018]
    S.C.C.A. No. 541.

[83]

On the trial judges
    findings, the appellant was a fiduciary of SFC and he breached his fiduciary
    duty to it. SFC was the victim of the appellants tort  his fraud  in that it
    was SFC that was caused to record fictitious or overstated assets and revenues
    on its financial statements, SFC that was caused to raise money from the public
    and incur obligations to lenders and others that it would not otherwise have incurred,
    and SFCs funds, received through these activities, that were invested and lost
    in illegitimate businesses or consumed by the consequence of the discovery of
    the fraud. Leaving aside the question of how damages for these matters are
    assessed, the causes of action to sue for them were Causes of Action of SFC.

[84]

The Plan transferred
    to the Litigation Trust Causes of Action that have been or may be asserted by
    or on behalf of  SFC against any and all third parties, a term which would
    include the appellant: section 1.1. The appellants contention could only be
    correct if there were something in the Plan that restricted the meaning that
    would otherwise be given to that transfer language. The provision of the Plan
    relied upon by the appellant for this effect is the greater certainty clause in
    the definition of Litigation Trust Claims, which reads as follows: For greater
    certainty: (x) the claims being advanced or that are subsequently advanced in
    the Class Actions are not being transferred to the Litigation Trust; and (y)
    the claims being transferred to the Litigation Trust shall not be advanced in
    the Class Actions. Like the trial judge, I do not read that phrase to have the
    meaning for which the appellant argues.

[85]

First, as the trial
    judge correctly noted, the claims made in the Class Actions are claims made on
    behalf of noteholders and equity holders for their causes of action arising
    from damages they suffered. SFC did not make claims in the Class Actions
    asserting SFC Causes of Action or seeking damages SFC suffered. The distinction
    is important and is not undermined by either the factual overlap in the claims or
    the fact that certain creditors are or may be both beneficiaries of the
    Litigation Trust and members of the plaintiff classes.

[86]

On the point of
    factual overlap, the same or similar facts may give rise to a cause of action
    by a shareholder and one by the corporation. The law recognizes that where a
    shareholder has been directly and individually harmed, that shareholder may
    have a personal cause of action
even though the corporation may also have a
    separate and distinct cause of action
 (emphasis added):
Hercules,
at para. 62. Shareholders and noteholders may have causes of action arising
    from misrepresentations made to them when acquiring securities, based on common
    law doctrines or under securities legislation. And where they do, they may have
    rights to sue for damages they personally have suffered. But the existence of
    those causes of action does not detract from the existence of a
separate and
    distinct cause of action
of the corporation, based on wrongdoing against or
    breach of duties owed to it, to sue for damages it has suffered.

[87]

As for the argument
    that, because creditors of SFC are Litigation Trust beneficiaries, the causes
    of action asserted by the Litigation Trust are or become indistinguishable from
    their personal rights of action, in my view this courts decision in
Livent
    Inc. v. Deloitte & Touche,
2016
    ONCA 11, 128 O.R. (3d) 225, revd in part on other grounds, 2017 SCC 63, [2017]
    2 S.C.R. 855,
stands as a complete answer to that proposition.

[88]

In
Livent
, it
    was held that the distinction between the corporations cause of action arising
    from wrongs done to it to recover damages it has suffered and the separate
    cause of action of a corporate stakeholder to assert a personal cause of action
    for a wrong done to her for damages she has suffered, does not cease to apply
    when the corporation is insolvent and intends to distribute any recovery to its
    stakeholders. In other words, the separate and distinct cause of action of the
    corporation does not become one and the same as the stakeholders cause of
    action even if the corporations intention is to benefit its stakeholders with
    any recovery. Blair J.A. explained why an argument to the contrary must be
    rejected, observing, at para. 57, that:

It impermissibly conflates damages sustained by the corporation
    with the distribution of those damages, once recovered, to creditors and other
    stakeholders, as part of the assets of the corporation, in the course of the
    proceeding under the [
CCAA
]. To conflate them is to disregard the
    long-recognized principle of corporate law that a corporation is a legal entity
    separate apart from its shareholders and stakeholders, and that the corporation
    alone has the right to sue for wrongs done to it. [Citations omitted.]

[89]

The Litigation Trust
    is the
CCAA
vehicle for the pursuit of SFCs corporate causes of
    action and the distribution of its damages, once recovered, to creditors. Thus
    the statement from

Livent
is equally applicable here. The
    Plans stated purpose of benefiting creditors by recoveries achieved by the
    Litigation Trust does not affect the distinction between SFCs causes of action
    (pursued through the Litigation Trust) and any personal causes of action that
    creditors or others may pursue, including in the Class Actions. That
    distinction continues.

[90]

In addition to
    conflicting with well-established corporate law principles, the appellants attempt
    to divorce the concept of a cause of action from the person or corporation that
    holds it conflicts with the language of the Plan. In defining the Litigation
    Trust Claims transferred to the Litigation Trust, the Plan refers to Causes of
    Action that have been or may be asserted on behalf of SFC and those that have
    been or may be asserted on behalf of the Trustees for the Noteholders. It links
    the Causes of Action transferred to the entity that held them. The greater
    certainty language in this definition must be read in the same way. The fact
    that the causes of action of shareholders and noteholders advanced in the
    Class Actions were not transferred to the Litigation Trust under the Plan has
    no bearing on the transfer of SFCs separate and distinct Causes of Action to
    the Litigation Trust, even if arising from the same or similar facts and even
    though creditors are beneficiaries of the Litigation Trust. SFCs Causes of
    Action were not being advanced in the Class Actions. The greater certainty
    language consequently does not have the effect for which the appellant
    contends.

[91]

Stepping back from the
    precise wording of the Plan, the appellant argues more generally that it
    represented a bargain that his wrongs would be pursued in the Class Actions
    only. I do not accept this argument, which does not find support in the text of
    the Plan, read in light of the factual matrix and the purposes of the Plan and
    the
CCAA
.

[92]

The Class Actions pre-dated
    the Plan. If they were intended to be the sole vehicle for recovery from the
    appellant, it is unclear why the appellant did not receive a release from SFC
    or the Litigation Trust under the Plan. Moreover, when the Plan was put forward
    and approved, the failed sales process had already established that recoveries
    from assets in SFC subsidiaries would be insufficient to allow SFC to satisfy
    creditor claims, making other sources of recovery, including enforcement of
    SFCs litigation rights, important. There is no reason why rights of action of
    SFC against the appellant, which would continue to exist in a bankruptcy or
    liquidation of SFC, would be given up in this
CCAA
Plan, where the
    object was to maximize recoveries in a manner more advantageous than bankruptcy
    or liquidation. Moreover, the stated purpose of the Plan includes allowing
    creditors to benefit from the pursuit of contingent claims by the Litigation
    Trust. Morawetz J., in granting the Sanction Order approving the Plan, noted that
    it provided the opportunity through the Litigation Trust, to pursue (in
    litigation or settlement) those parties that are alleged to share some or all
    of the responsibility for the problems that led SFC to file for
CCAA
protection:
Re Sino-Forest Corporation
, at para 65. When the Plan was approved,
    the appellant was already alleged to be one of those persons, but on the
    appellants argument the opportunity Morawetz J. identified would not exist.

[93]

The purposes of the
CCAA
and the Plan, and the Plans precise provisions read in light of the factual
    matrix, all rebut the appellants characterization of the Plan as preventing
    the Litigation Trust from pursuing a claim that SFC could have pursued against
    the appellant for his misconduct.

[94]

Accordingly, the trial
    judge did not err in interpreting the Plan as allowing the respondent to advance
    the claims made in this action against the appellant notwithstanding the claims
    by noteholders and shareholders advanced in the Class Actions.

(ii)

Excluded
    Litigation Trust Claims

[95]

The appellants second
    argument is that the claims advanced in the action are Excluded Litigation
    Trust Claims. As noted above, that exclusion applies where there is an
    agreement between SFC and a category of its creditors that a particular claim
    is excluded from those transferred to the Litigation Trust. The Plan specifies
    one category of excluded claim, encompassing certain claims against SFCs
    underwriters. There is no similar particularization of claim(s) of SFC against
    the appellant which are excluded.

[96]

The only agreement to
    exclude a claim of SFC against the appellant that the appellant points to is
    the greater certainty language providing that claims advanced in the Class
    Actions are not transferred to the Litigation Trust. The argument is therefore
    just a repackaging of the appellants first argument, as it depends for its
    validity on the Plan having exempted claims arising from facts asserted in the
    Class Actions from those Causes of Action of SFC transferred to the Litigation
    Trust. As previously discussed, the Plan does not have that effect.

[97]

I would therefore not
    give effect to this argument.

(iii)

SFC Intercompany
    Claims

[98]

The appellants third
    argument is that the claims for which he was found liable are SFC Intercompany
    Claims. He argues that these were assigned under the Plan by SFC to EPHL and
    EPGL, rather than to the Litigation Trust.

[99]

I agree with the
    appellant that SFC Intercompany Claims were not assigned to the Litigation
    Trust, but I disagree that the claims for which the appellant was found liable
    in this action are SFC Intercompany Claims.

[100]

SFC Intercompany Claim
    is defined in the Plan as any amount owing to SFC by any Subsidiary or
    Greenheart and any claim by SFC against any Subsidiary or Greenheart. SFCs
    shares in each Subsidiary and in Greenheart were transferred under the Plan to
    EPHL and by EPHL to EPGL. The SFC Intercompany Claims followed the same route: section
    4.10.

[101]

Essentially, the
    appellants argument is that the respondent is claiming money raised by SFC in
    the capital markets that was invested in its subsidiaries and lost. In his
    submission, a claim about funds invested in SFCs subsidiaries and not returned
    is an SFC Intercompany Claim, regardless of against whom it is made.

[102]

I disagree. In my view,
    reading the Plan in accordance with the interpretive principles noted above
    yields the conclusion that what was transferred to EPHL and then to EPGL were
    the debt obligations of
subsidiaries
or
Greenheart
to SFC

and the rights SFC had to
    claim against
those entities
. This makes commercial sense in light of
    the words used in the definition of SFC Intercompany Claim  any amount owing
    to SFC by any Subsidiary or Greenheart and any claim by SFC against [them]. It
    also makes sense in light of the fact that the shares of the Subsidiaries and
    Greenheart were being similarly transferred. It would not make commercial sense
    for EPHL and EPGL to acquire the shares in SFCs subsidiaries but to leave the
    subsidiaries exposed to SFCs claims against them. The concluding words of
    section 4.10 of the Plan make this clear: [T]he applicable Subsidiaries and
    Greenheart shall be liable to [EPGL] for such SFC Intercompany Claims from and
    after the Plan Implementation Date.

[103]

SFC Intercompany
    Claims does not refer to claims against the appellant arising from his conduct,
    even though that conduct involved investing SFCs funds in the companys subsidiaries.
    The transfer to EPGL of SFCs claims against its subsidiaries and Greenheart did
    not include the transfer of SFCs causes of action against the appellant.

[104]

I would accordingly
    reject this argument.

(iv)

Conclusion on
    Appellants Plan Preclusion Arguments

[105]

I would not give
    effect to the appellants arguments that the trial judge erred in concluding
    that the Plan transferred the claims advanced in this action to the Litigation
    Trust and did not preclude them from being advanced against the appellant by
    the respondent.

(2)

Causation
    and Damages


(a)

The
    Appellants Arguments

[106]

The appellant argues
    that, even if the claims made in the action were SFCs Causes of Action, that
    only takes the respondent so far. As transferee of Causes of Action of SFC, the
    respondent can only claim amounts that would have been properly claimable by
    SFC. Thus the only damages that could be claimed were damages of SFC proved to
    have been caused by the appellants wrongdoing. In interrelated arguments, the
    appellant submits that the damages that were awarded by the trial judge are not
    damages of SFC, nor was it appropriate to consider them as caused by the appellants
    wrongdoing.

[107]

The appellant submits
    that the core of the claim is for losses incurred by debt and equity holders
    and that the amounts raised from them, if acquired by fraud as the respondent
    alleges, never belonged to SFC and therefore could not form part of SFCs loss.
    He argues that allowing such a claim improperly creates the risk of double
    recovery.

[108]

The appellant goes on
    to submit that the trial judge simply presumed the appellant to have caused everything
    that led to SFCs ultimate collapse. He argues that the trial judge should have:
    required proof that each transaction that occurred would not have occurred
    without the appellants deceit; calculated, for each transaction so found, the
    loss resulting from it and; accounted for transactions on which there was no
    loss.

[109]

Finally, he argues
    that the trial judge applied incorrect principles of damages assessment. The
    Steger primary approach should have been completely rejected in favour of a
    transaction-by-transaction analysis. Even the specific loss analysis that the trial
    judge performed is flawed as it would, in part, award SFC damages which could
    only have been suffered by its subsidiaries.

[110]

For the reasons that
    follow, I would not give effect to the appellants principal causation and
    damages arguments or disturb the trial judges award of damages. Accordingly,
    it is unnecessary to address the appellants arguments about whether and how
    the trial judges alternative damages calculation should be adjusted.


(b)

The
    Standard of Review

[111]

Causation is a question
    of fact, and is reviewed on a deferential standard. Absent palpable and
    overriding error, appellate intervention is not warranted:
Ediger v.
    Johnston
,
2013 SCC 18, [2013] 2 S.C.R. 98, at para 29.

[112]

A trial judges
    assessment of damages attracts considerable deference. It will not be
    interfered with absent an error of principle or law, a misapprehension of
    evidence, a showing that there was no evidence on which the trial judge could
    have reached his or her conclusion, a failure to consider relevant factors or
    consideration of irrelevant factors, or a palpably incorrect or wholly
    erroneous assessment of damages:
Naylor Group Inc. v. Ellis-Don
    Construction Ltd.
, 2001 SCC 58,
[2001] 2 S.C.R.
    943, at para. 80
;
Rougemount Capital Inc. v. Computer Associates
    International Inc.
, 2016 ONCA 847, 410 D.L.R. (4th) 509, at para. 41.


(c)

Analysis
    of The Appellants Causation and Damages Arguments

(i)

The
    Trial Judges Factual Findings Appropriately Underpin His Causation Conclusion
    and Damages Assessment

[113]

The trial judges
    causation conclusion and his assessment of damages are conceptually linked.
    They both are premised on five core factual findings that he made.

[114]

The first was that SFCs
    raising of money in the debt and equity markets was something which was caused
    by the appellants wrongdoing, including his misrepresentation of BVI standing
    timber as a valuable asset. The second was that but for Mr. Chans deceit, [SFC]
    would never have undertaken obligations of this magnitude to lenders and
    shareholders. The third was that but for the appellants wrongdoing, SFC would
    not have entrusted this money [the funds raised on the capital markets] to [the
    appellant] and Inside Management. Fourth was his finding that the appellant, rather
    than directing [SFCs] spending on legitimate business operations, poured
    hundreds of millions of dollars into fictitious or over-valued lines of
    business where he engaged in undisclosed related-party transactions and
    funnelled funds to entities that he secretly controlled: at para. 1022. Fifth was
    the finding, at para. 1020, regarding the impact of the fraud and its
    discovery:

When the fraud was uncovered, and the dust settled, more than
    half of the money was gone. To the extent those funds went into the acquisition
    of assets, the value of those assets was realized through the EPHL sales
    process. What was left in cash on June 2, 2011 was largely consumed in propping
    up and managing the enterprise during the extended crisis brought on by the
    disclosure of the fraud and its ongoing investigation including the ongoing
    concealment by [the appellant] and Inside Management.

[115]

These five findings
    underlie the trial judges conclusion that what occurred was a chain of events all
    flowing from the appellants fraud and breach of duty, which resulted in the
    loss of the funds that had been raised. As he put it: [t]he loss of these
    funds to [SFC] was directly related to Mr. Chans fraud and breach of fiduciary
    duty: at para. 1022.

[116]

In my view, these
    findings were available to the trial judge on the record. The argument that the
    trial judge simply presumed the appellant to be responsible for everything that
    led up to SFCs ultimate collapse is without foundation.

(ii)

There Is
    No Legal Error In the Trial Judges Causation Analysis

[117]

The trial judge
    applied the appropriate legal principles to his causation analysis. He
    approached the but for causation test on the robust common sense approach the
    law contemplates:
Clements v. Clements
,
2012 SCC 32,
[2012] 2 S.C.R. 181, at para. 46;

Snell v.
    Farell
, [1990] 2 S.C.R. 311, at para. 34. Moreover, he was alive to
    the need to be satisfied that the loss was caused by the chain of events
    flowing from the wrongdoing after considering whether there were intervening
    causes that broke the chain of causation:
Canson Enterprises Ltd. v.
    Boughton & Co.
,
[1991] 3

S.C.R. 534, at paras. 9, 47,
    52, and 54-57.

[118]

The appellant argues
    that the trial judge did not take into account other causes for the discrepancy
    between the value of SFCs assets, held by its subsidiaries, and the value of
    the funds invested in them. Not all of the subsidiaries activities were found
    by the trial judge to be fictitious. Therefore external factors, such as
    climate, industry pricing etc., may have caused the losses, rather than the
    appellants fraud.

[119]

In my view the trial
    judge was entitled to reject this argument. He did not ignore the fact that not
    all of the businesses were fictitious. He found that a loss was caused by the
    appellant notwithstanding that finding. His approach credited the value
    actually existing in the subsidiaries. And, since once a loss arising from a
    fraud or breach of duty is established, it is the defendant who bears the onus
    of showing that the plaintiff would have suffered the same loss absent the
    defendants wrongdoing, the trial judge was not required to give effect to
    unproven alternative causes:
Rainbow Industrial Caterers Ltd. v. Canadian
    National Railway
, 1991 SCC 27, [1991] 3 S.C.R. 3, at pp. 15-16:
Hodgkinson
    v. Simms,
[1994] 3 S.C.R. 377
,
    at pp. 441-2.

(iii)

The Trial Judge Did
    Not Award Compensation For Amounts That Could Not Be Legally Considered Losses
    of SFC

[120]

The appellant submits
    that the trial judges analysis contains a fundamental flaw because the trial
    judge proceeded as though the money that SFC raised on the debt and equity markets
    belong[ed] to the corporation and its loss was a loss to SFC. This could not
    be, the appellant argues, since if the funds were raised [b]ased on fraudulent
    misrepresentations about the nature and value of the BVI standing timber
    assets, as the trial judge found, the funds would have been impressed with a
    trust in favour of the shareholders and noteholders who advanced the funds.
    Only they, not SFC, would have a right to claim for the loss of these funds. Moreover,
    allowing a claim for these funds would involve SFC in inconsistent positions  complaining
    that funds were obtained on its behalf through fraud while trying to obtain the
    benefit of those very funds.

[121]

In making the latter argument,
    the appellant relies on the Supreme Court of Canadas decision in
Corporation
    Agencies Ltd. v. Home Bank of Canada
, [1925] S.C.R. 706. In that case, an
    individual engaged in a fraudulent cheque kiting scheme, making unauthorized
    deposits into Corporation Agencies bank account followed by equally
    unauthorized withdrawals. Corporation Agencies sued the bank alleging it should
    not have honoured the unauthorized withdrawals. Success on that claim would
    have given it the benefit of the unauthorized deposits.

[122]

In rejecting the
    claim, the majority of Supreme Court held, at p. 726, that the plaintiff could
    not accept part of the fraudulent scheme  the part that saw money deposited to
    its account - while relying on the fraud to dispute withdrawals that had been
    made pursuant to the same fraudulent scheme.

[123]

In my view, this case
    does not assist the appellant because it is distinguishable on two fundamental
    points. Corporation Agencies was suing a party who was not the perpetrator of
    the fraud and was seeking to benefit from part of the fraud at that partys
    expense. Here, the claim is not against an innocent party, but against the
    perpetrator, for damages caused by the fraudulent scheme. Nothing in the
    Supreme Courts decision precludes that type of claim. Moreover, in
Corporation
    Agencies
,
the plaintiff did not establish that the monies deposited
    into its account were funds for which it would have to account to others: at p.
    726. Here, SFC had obligations in respect of the funds raised on the capital
    markets, which the appellants fraud deprived it of the ability to meet.

[124]

I do not have to
    decide if the appellants trust characterization is correct, as it does not support
    his position. The trial judge found that SFC had suffered damage because it raised
    money on the capital markets, incurred obligations to its shareholders and noteholders
    by doing so, and then lost the money raised, none of which would have occurred
    but for the appellants misconduct. The result was to leave SFC with the
    obligations it took on when it raised the funds while depriving it of the means
    to honour those obligations.

[125]

This analysis would
    not change if the monies raised were, as the appellant argues, impressed with
    a trust in favour of the shareholders and noteholders who advanced the funds.
    By reason of the appellants fraud, SFC would still have been left with obligations
    to its shareholders and noteholders  though trust obligations  while having
    been deprived of the means of honouring them. It would still have suffered damage,
    and accrued a cause of action to recover for that damage.

[126]

The trial judge did
    not commit a legal error by considering the loss of the funds raised to have
    been a loss suffered by SFC in these circumstances. Where directors cause a
    corporation to incur liabilities and misapply money which should have been paid
    to answer those liabilities, leaving the company with large liabilities and no
    means of paying them, the directors cause the corporation to suffer a
    recognizable form of loss:
Bilta (UK) Ltd v. Nazir (No. 2)
, 2015 UKSC
    23, [2015] 2 WLR 1168, at paras. 176-178. That proposition was accepted by this
    court in
Livent
: at para. 349.

[127]

Nor is the result
    changed because, as the appellant argues, SFC was ultimately released by the
    Plan from its obligations to equity holders and creditors. The appellant
    submits that the release undercuts the argument that SFC was left with obligations
    it could not honour by reason of the appellants conduct. I disagree. The fact
    that the Plan ultimately released SFC from its obligations to creditors and equity
    holders from whom funds were raised does not undermine the causation or damages
    conclusions of the trial judge.

[128]

The release of SFC by
    creditors does not result in a windfall gain. Absent the Plan, if SFC had
    itself pursued its claims against the appellant, it could have used any damages
    it recovered towards satisfying its creditors. The Plan transferred the right
    to pursue SFCs claims to the Litigation Trust together with the obligation to
    distribute damages, once recovered, to the creditors who are the beneficiaries
    of the Litigation Trust. Effectively, the Litigation Trust assumes and replaces
    SFCs obligations to creditors through its obligation under the Plan to
    distribute damages it recovers to beneficiary creditors. Releasing SFCs
    obligations to creditors and requiring the Litigation Trust to distribute
    damages it recovers to beneficiary creditors ensures that the obligations to
    creditors rests with the person that will recover the damages.

[129]

Similarly, the release
    of SFC by equity holders does not result in any windfall. Under s. 6(8) of the
CCAA
,
    unless all creditor claims are to be paid in full, a plan may not provide for
    payment of equity claims. (I)n enacting s. 6(8) of the
CCAA
, Parliament
    intended that a monetary loss suffered by a shareholder (or other holder of an
    equity interest) in respect of his or her equity interest not diminish the
    assets of the debtor available to general creditors in a restructuring: Re
Sino-Forest
    Corporation,
2012 ONCA 816 at para 56. The fact that the Plan does not
    provide for equity holders to benefit from the Litigation Trust thus follows
    the priorities set by the
CCAA
for the distribution of recoveries from
    the enforcement of an SFC asset.

[130]

It would be contrary
    to the purpose of the Plan, and the Litigation Trust it provided for, to give
    the release of SFC under the Plan the effect for which the appellant contends. The
    Litigation Trust was a vehicle to allow recoveries from persons whose conduct caused
    damage to SFC. The appellants argument would treat the Plan as effectively having
    released him from being pursued for causing that damage, something the Plan did
    not do.

(iv)

The Double Recovery Doctrine
    Does Not Apply

[131]

The appellant argues
    that the trial judges assessment of damages creates the risk of double
    recovery from him. He argues that a judgment against him should not issue
    because a defendant cannot be liable twice for the same alleged loss. Reduced
    to its bare essentials, the appellants position is that the funds raised by
    SFC on the debt and capital markets are at the core of both the claims in the
    Class Actions and the award of damages in this action. Even if separate causes
    of action and rights to damages exist, the damages award in this action will
    undoubtedly overlap with what may be awarded against him in the Class Actions.

[132]

I would not give
    effect to this argument. Since SFC has a separate and distinct cause of action
    and suffered a recognizable form of loss, neither the cause of action nor
    recovery for it can be defeated by an argument that the appellants conduct also
    gave rise to causes of action in others who may seek to claim their own damages
    from him, even if in similar amounts.

[133]

The appellant invokes
    the rule against double recovery, but his position does not attract the rule, properly
    understood. The rule does not prevent a party with a claim from obtaining a
    judgment for 100% of its losses. The rule only prevents a party who has made a
    recovery on a judgment from recovering, through other actions, more than 100%
    of those losses. It is not the
damage award
that amounts to
    satisfaction and bars a second action but the
recovery
by the plaintiff
    in the first action (emphasis in original):

The Treaty Group Inc.
    (Leather Treaty) v. Drake International Inc.
, 2007 ONCA 450, 86 O.R.
    (3d) 366, at para 13. The rule has no application here, where it is raised to
    avoid judgment against the appellant
[7]
.
    There is no suggestion that the Litigation Trust has already recovered 100% of the
    losses it is entitled to claim.

[134]

To the extent that the
    appellant raises the spectre of beneficiaries of the Litigation Trust achieving
    double recovery in the future if they receive benefits from the Litigation Trusts
    collection of the judgment against him and then are successful in the Class
    Actions against him, this is not an objection to the judgment in this action
    for the reasons set out above.

[135]

As the trial judge
    noted, it is in the recovery stage of the Class Actions that any issue of double
    recovery would have to be raised to the extent that members of the class attempt
    to recover damages already recovered through the Litigation Trust. For that
    issue to even emerge, the appellant would first have to pay the judgment
    granted against him in this action and then the plaintiffs in the Class Actions
    would have to fail to appropriately credit any distributions they receive. Neither
    precondition has occurred. Speculating on whether they will is inappropriate
    here. The point is that the rule against double recovery does not assist the
    appellant in resisting the granting of the judgment under appeal.

[136]

As an alternative
    basis to his finding that the prospect of double recovery did not stand as a
    bar to the respondents action, the trial judge interpreted the Plan to limit
    Class Action recoveries against the appellant to $150 million; thus, the
    overlap of claims would only be to the extent of $150 million, and not to the entirety
    of the respondents claim. The appellant argues that the trial judge
    misinterpreted the Plan, which does not limit the Class Action claims against him.

[137]

Any error in the trial
    judges interpretation of the Plan in this respect was immaterial. He advanced
    the point as an alternative only to the main point that the prospect of later
    recoveries in the Class Actions could not stand as a bar to the appellants
    liability to pay damages in this action.

[138]

I would therefore not
    give effect to this ground of appeal.

(v)

The Trial Judge
    Applied The Correct Principles of Damages Assessment

[139]

Given that the trial
    judge properly found causation of a recognizable form of loss to SFC, the
    measurement of that loss fell squarely within the trial judges broad powers to
    assess damages. I see no reason to interfere with that assessment, which was
    based on his findings of fact and acceptance of expert evidence consistent with
    the chain of causation he found to exist.

[140]

The trial judge
    referred to the measure of damages for deceit
.
He correctly described it
    as the difference between the financial position of the plaintiff as a result
    of the fraud, including losses flowing from it even if not foreseeable at the
    time of its commission, and the financial position of the plaintiff as it would
    have been if the tort had not occurred: para 928, citing
Rainbow Industrial
    Caterers Ltd. v Canadian National Railway
(1990)
, 67 D.L.R. (4th) 348  (B.C.C.A.), at p. 359, affd,1991
    SCC 27, [1991] 3 S.C.R. 3. Elsewhere in his reasons he referred to the
    principles of equitable compensation citing, among other authorities, this
    courts decision in
Whitefish Lake Band of Indians v. Canada (Attorney
    General)
,
2007 ONCA 744, 87 O.R. (3d) 321. He noted that equitable
    compensation is concerned with restoration of the actual value of the thing
    lost through the breach of duty, in this case [SFCs] funds raised on the
    capital markets and that compensation is assessed at the date of trial and
    with the presumption that trust funds will be invested in the most profitable
    way: at paras 1007 to 1011.

[141]

The appellant says the
    trial judge erred by awarding damages based on the full equitable measure of
    compensation, which is only appropriate where property is owned by a
    beneficiary but is controlled by the fiduciary as trustee. He relies on the
    distinction between cases of breach of trust and those of breach of a non-trust
    fiduciary duty made in
Whitefish Lake Band of Indians
,

at para.
    54, and
Canson Enterprises,
at p. 578. In
Canson Enterprises
,
the Supreme Court stated that in cases of breach of trust, the concern of
    equity is that [the trust property] be restored  or, where that cannot be
    done, to afford compensation for what the object would be worth, whereas in
    cases of breach of duty, the concern of equity is to ascertain the loss
    resulting from the breach of the particular duty: at p. 578. The court went on
    to observe that, in determining the loss resulting from breach of a particular
    fiduciary duty, equity may borrow common law concepts like remoteness,
    intervening cause, and mitigation to avoid undue harshness: at p. 579-80,
    585-586, and 588. The appellant argues that since the claim against him did not
    involve a breach of duty in respect of funds of SFC that he controlled, the
    trial judge should have assessed damages based on these common law principles.

[142]

I would not give
    effect to that complaint for a number of reasons. First, on the trial judges
    findings, the appellant had control over the funds raised by SFC, which the
    trial judge found to have been entrusted to the appellant and directed by
    him into various entities to which he was related or which he secretly
    controlled.  The trial judge properly concluded on the basis of these findings
    that the appellant owed fiduciary duties towards [SFC] akin to those of a
    trustee: at para. 923.

[143]

Second, even if the
    principles of equitable compensation applicable where trust property is
    involved were not available, the trial judges damage assessment can be
    justified based on the principles in
Canson Enterprises
. As I have
    discussed above, the trial judge properly considered causation and potential intervening
    acts in coming to his damages award, and remoteness does not appear to be an
    issue.

[144]

In any event, in my view
    the trial judges assessment of damages was in fact primarily based on the tort
    measure of damages. His reference to equitable compensation principles was made
    primarily in relation to a point the appellants expert made, namely that when
    credit was given for asset realizations, the Greenheart realization should have
    been adjusted to take into account what Greenheart was worth when SFC made its
    investment, not what it ultimately was sold for. The trial judge rejected that
    argument. He said: The fact that the discovery of [the appellants] fraud had
    a negative effect on the market value of the Greenheart asset is not a market
    risk [SFC] has to bear It is sufficient that [SFC] suffered a loss in fact,
    provided the realization was not improvident: at para. 1101.

[145]

The trial judges
    treatment of the Greenheart transaction is fully justified under the equitable
    principles of compensation applicable to a case where trust property is not
    involved. In
Hodgkinson
, the Supreme Court clarified that its
    observations in
Canson Enterprises

did not signal a retreat
    from the principle of full [equitable] restitution in all cases of breach of
    duty, as the appellant contends: at p. 443.  The majority rejected the
    defendant investment advisors argument that the plaintiffs loss was caused by
    the market rather than his breach of duty, holding that it was appropriate to place
    the risk of market exigencies on the defaulting fiduciary: at pp. 442, 452-3. It
    observed that breach of fiduciary duty can take a variety of forms, and
    consequently different approaches may be appropriate to remedy the harm caused
    by different breaches:
Hodgkinson
,
at pp. 443-444. Here, as in
Hodgkinson
,
there was a strong nexus between the wrong complained of, the fiduciary
    relationship, and the risk of market volatility that contributed to SFCs loss.
    The appellants wrongdoing involved abuse of his fiduciary role and breach of
    the duty of loyalty to the corporation that lay at its core: at pp. 445, 452-453.
    This is exactly the type of case that justifies placing the risk of market fluctuations
    on the appellant.

[146]

The trial judges
    reasons for rejecting the appellants experts proposed adjustment of the
    realization amount for Greenheart were also justified under a deceit measure of
    damages. As the trial judge found, the appellant knew or could be deemed to
    have known that the discovery of his fraud would send SFC into a tailspin: at
    para. 1012. The effect that had on the timing and distressed circumstances in
    which assets were realized can be seen as part of the chain of events flowing
    from the appellants fraud:
Rainbow
(B.C.C.A.),
at p. 359;
Canson Enterprises, at p. 565; Hodgkinson
,
at pp. 445-6.
    This conclusion reflects the reality that as courts strive to treat similar
    wrongs similarly, equitable and common law paths often produce the same result:
Hodgkinson
,
at p. 444-5,
Canson Enterprises,

at
    p. 585-6.

(3)

The Doctrine
    of Election

[147]

The appellant argues
    that the equitable doctrine of election, also known as the rule against
    approbation and reprobation, prohibits a party from asserting that a
    transaction is valid to obtain some advantage and then turning around to assert
    that it is invalid to secure some other advantage. The transfer, under the Plan,
    of SFC's assets to EPGL (and the subsequent transfers to third-party purchasers)
    constituted an election to treat the assets as valid and subsisting, since the
    Plan deemed obligations and agreements to which EPGL became a party in full
    force. The equitable doctrine of election, which he contends the trial judge
    erred in failing to consider, should prevent the respondent from making the
    inconsistent argument that the assets were fictitious, fraudulent, tainted or
    overvalued as a product of his fraud.

[148]

I would not give
    effect to this argument. First, the cases relied upon by the appellant deal
    with markedly different situations to the one at bar. As one example, in
Kin
    Tye Loong v. Seth
(1920), 1 C.B.R. 349 (P.C.), the plaintiff filed a claim
    in the defendant's bankruptcy for the price of goods sold and delivered,
    received a dividend on that claim, and compromised and released it. This
    conduct  consistent only with the position that a valid sale had taken place 
    barred a subsequent action by the plaintiff claiming that no sale in fact had
    taken place, that property in the goods had never been transferred, and that damages
    should be paid for conversion of what the plaintiff alleged were still its goods.
    Nothing analogous is present here.

[149]

Second, the language
    of the Plan cannot be read as elevating the nature or value of what was
    transferred under the Plan above what actually existed. For example, at the
    time of the Plan, the standing timber assets had not been located or verified
    and the trial judge found they were and had been fictitious. SFCs insolvency,
    which gave rise to the Plan, arose from, among other things, that very
    circumstance. In the sale to New Plantations effected by EPGL, the standing
    timber assets were ascribed no value unless recoveries on them were made, but
    none occurred. Nothing in the Plan or the steps taken under it can be read to
    treat the non-existent as existing, or the valueless as valuable, preventing
    the Litigation Trust from maintaining that the fraud alleged had occurred.

[150]

This court has
    recently explained the doctrine of election in both its common law and
    equitable aspects. At common law, the doctrine addresses the consequences of a
    party choosing between inconsistent alternatives; the choice of one
    alternative, for example, to affirm a contract, forecloses later choice of an
    inconsistent alternative, for example, to rescind the same contract. The
    equitable doctrine of election precludes a party who has accepted benefits
    under a particular instrument, for example, a will, from refusing to accept the
    balance of the provisions of that instrument: See
Charter Building Company
    v. 1540957 Ontario Inc.
, 2011 ONCA 487, 107 O.R. (3d) 133, at paras. 18-22.

[151]

The trial judge correctly
    held that there had been no election between inconsistent rights here. The
    transfer of SFC's assets to EPGL and the transfer of its claims against the
    appellant for fraud and breach of fiduciary duty to the Litigation Trust were
    not inconsistent. The Plan contemplated that the benefit of both would be
    preserved and pursued. This conclusion, reached by the trial judge upon
    consideration of the common law doctrine of election (the parties before us
    disagreed as to whether the equitable doctrine was argued before the trial
    judge), is equally applicable to the equitable doctrine. The Litigation Trust's
    acceptance of benefits under the Plan, namely the transfer of SFC's Causes of Action
    for fraud and breach of fiduciary duty, are not accompanied by any refusal to
    accept the burden of giving effect to other dispositions under the Plan, such
    as the obligation to distribute damages, once recovered, to the creditors who
    are the beneficiaries of the Litigation Trust, and the transfers of SFC's
    assets to EPGL, enabling the sales to subsequent purchasers. Indeed, the
    damages awarded by the trial judge deducted the value implied by the recovery
    from those sales.

[152]

As the trial judge
    noted, even where a party has elected to affirm a contract, its right to
    damages is not precluded. The same principle would apply here to the argument
    about the equitable doctrine of election. Nothing suggests that a party is
    foreclosed from pursuing damages when, as a result of being defrauded, its loss
    is mitigated by the disposition of whatever property was acquired in
    transactions affected by the fraud. Indeed, the measure of damages available to
    a party induced by fraud to enter into a transaction involves the calculation
    of the loss the plaintiff suffered, which usually requires a credit to be given
    for the actual value of the property that was acquired: Lewis N. Klar &
    Cameron Jefferies,
Tort Law
, 6th ed. (Toronto: Thompson Reuters,
    2017), at p.815.

[153]

In my view, the
    doctrine of election is of no assistance to the appellant.

(4)

Errors in
    Factual Findings

[154]

The appellant argues
    that the trial judge made two fundamental errors in his treatment of the
    evidence, which undermine his factual conclusions. First, the appellant argues
    that the trial judge drew the inference that the BVI standing timber model was
    a fraud based on one sample transaction for which the documentation had been
    translated into English. He goes on to argue that the inference that all of the
    525 transactions conducted under the BVI standing timber model were the same as
    the sample transaction was impermissible for two reasons: first, fraud in
    numerous transactions cannot be proven by reference to one example and, second,
    that proceeding as the trial judge did required the conclusion that the other
    transactions, comprised of documents which had not been translated into English,
    were substantially similar to the sample when those non-translated documents
    were inadmissible under the
Courts of Justice Act
, R.S.O. 1990, c. C.
    43, s. 125(2).

[155]

The trial judge
    considered the argument that one sample was not sufficient and rejected it. He
    stated that all of the purchase and sale contract documentation for all the
    transactions was in evidence and available to both parties and that trial and
    judicial economy dictated that unless absolutely necessary, time should not be
    devoted to the proof of every piece of documentation for all 525 transactions.
    Rather, if the defendant had wanted to quarrel with the assertion that the
    sample transaction was essentially the same as the rest of them, he had the raw
    material necessary to do that. He did not attempt to do so.

[156]

For the reasons given
    by the trial judge, and the following additional reasons, I would not give
    effect to the appellants argument:

a)

The requirement that fraud be proven by clear and cogent evidence does
    not mean, as a matter of law, that it can never be proven by inference drawn
    from a sample. It depends on the circumstances. Here, there was evidence from
    which the conclusion could be drawn that the sample was representative, beyond
    the evidence of the respondent himself. The appellant gave evidence that the
    content of certain documents was identical in each transaction and a defence
    witness testified as to how contracts and documents for each transaction were
    prepared from a template. Additionally, the appellant did not assert that any
    fraud evident in the sample transaction was an isolated incident. His position
    was that there was no fraud, a position that appears consistent with evaluating
    the matter on the basis of the sample. Finally, the trial judge described the
    protocol the parties had followed whereby documents could be translated when
    required. The appellant and various experts and witnesses were fluent in the
    language of the documents and it was open to them to require translations of any
    documents that they could use to show the non-representative nature of the
    sample. There was evidence about some other transactions and, to the extent
    that it was before the trial judge, it was for him to assess in terms of the
    samples representativeness.

b)

The trial judges finding of fraud was not solely based on an inference
    from the sample. The trial judge devoted over 200 paragraphs of his reasons to
    an analysis of the BVI standing timber model and why it was fraudulent,
    referring to evidence well beyond the sample. This included: the lack of
    objective evidence to support the existence of cash flows between the AIs and
    the Suppliers; the drop in collection of accounts receivable owing by the AIs
    to nil after the Muddy Waters Report; the failure to locate the BVI standing
    timber after the Muddy Waters Report and even until trial; the expert evidence
    about critical documents that were missing or deficient such as plantation
    certificates, maps, Forestry Bureau confirmations, sales contracts and
    harvesting permits; the inability of the Independent Committee to confirm the
    existence and operations of Suppliers and AIs; and the appellants control over
    supposedly arms-length counterparties. The trial judge made numerous findings
    of credibility in assessing all of that evidence, which he clearly viewed as a
    whole.

c)

A factual finding of fraud by a trial judge who has weighed large
    quantities of complex evidence is entitled to deference, absent palpable and
    overriding error. Such an error must go to the very outcome of the case:
Benhaim
    v. St. Germain
, 2016 SCC 48, [2016] 2 S.C.R. 352, at paras. 36-38. In
    light of the findings of the trial judge on the record before him, the alleged
    errors concerning the sample would not, in any event, rise to the level that
    would warrant appellate interference.

[157]

The appellant also
    argues that the trial judge erred in allowing the evidence of the respondent,
    given by affidavit, to remain in the record where it contained opinions that
    could only be given by an expert. The trial judge was alive to this issue; he
    ruled in a pre-trial admissibility motion that the respondents affidavit, where
    it deposed to matters outside his personal knowledge and contained opinions,
    would not be relied on as evidence but simply as a description of positions that
    had to be proven by admissible evidence. The trial judge did not rely on any
    opinions of the respondent that could only be given by an expert. The
    appellants objection that the trial judge should have gone on to redline out
    offending portions of the respondents affidavit elevates form over substance
    in these circumstances.

[158]

I would not give
    effect to the appellants arguments about the trial judges fact-finding.

IV.

Conclusion

[159]

I would dismiss the
    appeal. In accordance with the parties agreement, I would award costs of the
    appeal to the respondent in the amount of $100,000 inclusive of disbursements
    and applicable taxes.

Released: AH  JUN 24, 2019

B. Zarnett J.A.

I agree. Alexandra Hoy
    A.C.J.O.

I agree. David Brown
    J.A.





[1]

All references to currency are in USD, unless otherwise noted.



[2]
Affected
    Creditors were defined by the Plan as including persons with Noteholder Claims.
    A Noteholder Claim included a claim for principal and accrued interest under
    Notes (debt instruments issued by SFC when it raised financing on the public
    markets) by the owner or holder of such Note or their trustee.



3
Noteholder Class Action Claimants were
    persons with Noteholder Class Action Claims. These were defined as claims as Noteholders
    in class actions against SFC and its directors, officers, auditors or
    underwriters, relating to the purchase, sale or ownership of the Notes, but did
    not include Noteholder Claims, i.e., did not include claims for principal and
    accrued interest payable under the Note.



[4]
See note 2.



[5]
See note 3.



[6]
There is an overlap between this argument, and the appellants argument that in
    assessing damages the trial judge awarded the respondent amounts that could
    only be claimed in the Class Actions or were duplicative of those amounts.
    However, I have addressed the points as distinct. One argument is essentially
    about the respondents standing to assert certain claims. The other is about
    whether, even if he has standing, the damages actually awarded were
    appropriate.



[7]
The appellant clarified in oral argument that double recovery was raised to
    avoid judgment against the appellant, not to reduce any damage award made
    against him. Indeed, the appellant did not point to any recoveries that had
    been made against him.


