



COURT OF APPEAL FOR ONTARIO

CITATION: Caja Paraguaya de Jubilaciones y Pensiones del
    Personal de Itaipu Binacional v. Garcia, 2020 ONCA 124

DATE: 20200214

DOCKET:
C66155

Pepall, Pardu and Paciocco JJ.A.

BETWEEN

Caja
    Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional

Plaintiff
    (Respondent)

and

Eduardo
    Garcia Obregon a.k.a. Eduardo Garcia a.k.a. Eddie Obregon
,
Claudia Patricia Garcia a.k.a. Patricia Garcia a.k.a. Claudia
    Patricia De Garcia a.k.a. Claudia Santisteban
, Ligia Ponciano,
Managed
    (Portfolio), Corp.
,
Genesis (LA), Corp.
(Ontario
    Corporation Number 1653094)
,
Genesis (LA), Corp. (Alberta Corporate
    Access Number 2013145921)
,
FC Int, Corp.
,
First Canadian Int,
    Corp.
, Union Securities Limited, Scott Colwell, Marty Hibbs, Hibbs
    Enterprises Ltd., Columbus Capital Corporation, Antonio Duscio, Leanne Duscio,
    Leanne Duscio carrying on business as The Queen St. Conservatory, Catan Canada
    Inc., Vijay Paul, Greg Baker, Bradley F. Breen, Lou Maraj, 2138003 Ontario Inc.,
    Mackie Research Capital Corporation, First Canadian Capital Markets Ltd., First
    Canadian Capital Corp., FC Financial Private Wealth Group Inc., Jason C.
    Monaco, Daniel Boase, Paolo Abate, Nikolaos Stylianos Tsimidis, Genesis Land
    Development Corporation, Limited Partnership Land Pool (2007) and GP LPLP 2007
    Inc.

Defendants (
Appellants
)

David Milosevic, for the appellants

Jacqueline L. King and Christopher Gaytan, for the respondent

Heard: January 29, 2020

On appeal from the order of Justice Sean F. Dunphy of the
    Superior Court of Justice, dated October 12, 2018, with reasons reported at
    2018 ONSC 5379.

REASONS FOR DECISION

[1]

This appeal involves a massive fraud against the
    respondent, Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu
    Binacional (Cajubi), a Paraguayan pension fund, perpetrated by the individual
    Garcia and corporate appellants.

[2]

Cajubi invested over $34 million in three
    Canadian investments with the assistance of three insiders: its president, vice
    president, and treasurer. The appellants proposed three investment products to
    Cajubis Board of Directors with the guidance of the insiders. Each proposal
    purported to be advanced by one of three legitimate regulated Canadian
    institutions but in fact was made on behalf of an unregulated and unlicensed
    shell company designed to mimic the relevant legitimate Canadian institution.
    Those three shell companies are the corporate appellants in this matter. Each shell
    company was controlled by the individual Garcia appellants. In each case, the
    proposals deliberately and fraudulently misrepresented the attributes of the
    proposed investments.

[3]

Once a proposal was approved by Cajubis Board,
    about 90 percent of the payment would be paid to the legitimate Canadian
    company and 10 percent would be retained by the appellants as an up-front
    fee. This fee was not disclosed nor was it the subject of any invoice. A
    portion of the 10 percent was retained by the appellants but the bulk went to
    fund a kickback directed to the Swiss bank account of a Panamanian nominee
    company at the direction of the insiders. One or more of the appellants,
    through their shell companies, also received sales commissions from the
    legitimate Canadian institution which were not disclosed to Cajubi. In fact,
    the investments were freely available without the payment of any commission.
    False statements issued by the shell companies showed the entire amounts,
    including the money that was paid as kick-backs, as having been invested with the
    corresponding legitimate Canadian company and also reflected non-existent
    monthly investment returns.

[4]

The appellants involvement was shielded from
    all at Cajubi with the exception of the insiders.

[5]

The appellants controlled all communications
    with the legitimate Canadian institutions to ensure that the scheme remained
    undetected. Any audit inquiries were intercepted. The appellants also caused
    the addresses of the legitimate Canadian institutions within Cajubis records
    to be altered to addresses controlled by the appellants.

[6]

When the financial crisis intervened, one of the
    investments was liquidated and Mr. Garcia caused the funds of approximately $7
    million to be reinvested in Columbus Notes, a sham investment which was
    diverted to a bankrupt and fraudulent colleague and the proceeds were quickly
    dissipated.

[7]

The insiders were removed from office when the
    losses from the schemes became apparent, and at the time of trial were in jail
    in Paraguay.  New management of Cajubi then brought an action in an attempt to
    recover the millions of dollars lost.

[8]

The trial judge concluded that the appellants
    were variously responsible for all of Cajubis losses as the investments would
    not have been made but for their fraudulent misrepresentations.

[9]

He granted judgment in favour of Cajubi against
    the appellants for fraudulent misrepresentation and breach of fiduciary duty in
    the total amount of $20,843,888 and ordered an accounting. He also ordered
    punitive damages of $250,000 against Mr. Garcia due to the brazen fraud and Mr.
    Garcias vicious scorched earth campaign to damage or seek revenge from
    witnesses or professionals he deemed to be his enemies. Mrs. Garcia was ordered
    to pay $100,000 in punitive damages.

[10]

The appellants raise numerous grounds of appeal,
    many of them factual in nature. An appeal is not an opportunity to reargue the
    entire trial before new adjudicators. Here, having reviewed thousands of documents
    and the evidence from witnesses, the trial judge made numerous factual
    findings. He gave extensive reasons for decision consisting of 519 paragraphs
    detailing all of the transactions, investments, reporting, payments, and
    losses.

[11]

Cajubi called eight witnesses including
    representatives from Cajubi, and from the legitimate Canadian companies, and an
    expert witness on fraud. The appellants only called Mr. and Mrs. Garcia as
    witnesses. The trial judge conducted an extensive analysis of their credibility
    concluding at para. 430:

I found both witnesses prepared to be
    dishonest whenever they thought a dishonest answer might advance their cause. 
    Both of these witnesses have demonstrated a willingness to part with the truth
    only when all other options have been exhausted.  I attach no credibility to
    the testimony of either Mr. or Mrs. Garcia except in matters without
    controversy, where contrary to their interests or where satisfactorily
    corroborated by other sources.

[12]

Turning to the grounds of appeal, first the
    appellants submit that the trial judge failed to consider their defence based
    on the corporate identification doctrine.

[13]

The corporate identification doctrine is not a
    free-standing rule; rather it is used for the purposes of applying the
ex turpi causa

doctrine which is also relied on by the appellants. The overriding
    concern is whether recovery by the respondent would damage the integrity of the
    legal system. See:
Deloitte
& Touche v.

Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, at para.
    98.

[14]

Further, in
Christi
ne DeJong
    Medicine Professional Corp. v. DBDC Spadina Ltd.
, 2019 SCC 30, 435 D.L.R.
    (4th) 379,
Brown J. indicated, at para. 2:

What the Court directed in
Livent
, at para. 104, was
    that
even where those criteria are satisfied
, courts retain the
    discretion
to refrain
from applying [corporate attribution] where, in
    the circumstances of the case, it would not be in the public interest to do so.
    [Emphasis in original.]

[15]

While it is the case that the trial judge did
    not refer to the corporate identification doctrine or attribution by name, he
    unquestionably considered and rejected its application and that of
ex turpi causa
.

[16]

Amongst other things, he noted that the lawsuit raised
    the question of whether fraud committed with the knowledge of one or more
    insiders to whom kickbacks are paid, loses its character of fraud. He found
    that the appellants knew full well that the insiders were acting corruptly, and
    they worked actively with the insiders to prevent Cajubi from discovering that
    fact. He reasoned that fraud by the perpetrator cannot be excused on this
    basis.

[17]

He was also clearly of the view that recovery by Cajubi
    would not damage the integrity of the legal system. Based on the record, that
    conclusion is undeniable. Application of the corporate attribution rule here
    would not be in the public interest.

Perversely,
    its application would deprive a company, vulnerable to fraud because of the
    neglect and corruption of board members and officers, of any civil remedy, to
    the detriment of its shareholders and legitimate creditors. Meanwhile, it would
    permit fraudsters to pocket their gains with civil impunity.

[18]

In a similar vein, the appellants submit that
    the trial judge neglected to address the appellants stand-alone limitation
    defence (as distinct from the limitation submission made at trial that was
    dependent on the success of the corporate identification ground of appeal).

[19]

We agree that the trial judge did not address
    this argument. This may be because it was not raised in closing submissions. Or
    it may be because the appellants statement of defence pleaded no material
    facts in support of the defence. In any event, the limited evidence relied upon
    by the appellants would not ground a successful claim in this regard. Cajubis
    new Board of Directors took over in July 2010, and the statement of claim was
    issued on May 10, 2011. The trial judge found that the appellants had worked to
    conceal their identities from Cajubi. The earliest that any limitation period
    could begin to run would have been August of 2009, well within the applicable
    limitation period.

[20]

We also do not find any merit in the appellants
    written submission that the trial judge erred by finding them liable for
    conspiracy when it was not pleaded against them. The judgment against the
    appellants is not for conspiracy but for fraudulent misrepresentation, a
    conclusion amply supported by the record. The role of the insiders was an
    important part of the narrative of the appellants own fraudulent conduct.
    Moreover, the substance of the claim against the appellants was pleaded and it
    certainly cannot be said that the appellants were taken by surprise.

[21]

The appellants also argue that the trial judge
    erred in finding that there was reliance by Cajubi on the appellants
    representations. The trial judge found that the appellants were variously responsible
    for all of Cajubis net losses arising from the transactions in issue, none of
    which would have been entered into but for their fraudulent misrepresentations.
    Both the evidence and the trial judges many findings make it abundantly clear
    that the appellants conduct caused Cajubi to act. There was no other
    reasonable inference available. The Cajubi representative testified on reliance
    and the appellants were the source of the investment proposals.

[22]

Lastly, the appellants submit that the trial
    judge frequently misapprehended the evidence and invite us to conclude that the
    conduct of the trial judge raised a reasonable apprehension of bias. In
    particular, their counsel urged us to review his closing submissions at trial.

[23]

The appellants have painstakingly cherry-picked
    the evidence in their attempt to reveal factual inaccuracies. They must
    establish both palpable and overriding error in their factual challenges. They
    have not done so either individually or collectively.

[24]

We also do not accept the appellants
    submissions on bias. Amongst other things, a review of the closing submissions
    of the appellants shows that the trial judge was engaged in attempting to find
    answers to the shortcomings in the appellants case and was challenging
    counsel, albeit in a somewhat aggressive fashion, to provide guidance on the
    merits of his clients case. Unfortunately, there was no merit to their case.
    Their exchanges do not give rise to a reasonable apprehension of bias as
    alleged by the appellants.

[25]

For these reasons, we dismiss the appeal with
    costs to be paid by the appellants to the respondent fixed in the amount of
    $125,000 inclusive of disbursements and applicable tax.

S.E. Pepall J.A.

G. Pardu J.A.

David M. Paciocco J.A.


