



COURT OF APPEAL FOR ONTARIO

CITATION:
Ernst & Young Inc. v. Aquino, 2022
    ONCA 202

DATE: 20220310

DOCKET: C69263,
    C69264, C69278, C69305, C69306, C69318 & C69321

Lauwers,
    Coroza and Sossin JJ.A.

DOCKET:
    C69263

BETWEEN

Ernst & Young Inc., in its capacity as Court-Appointed Monitor
    of

Bondfield
    Construction Company Limited

Applicant
    (Respondent)

and

John Aquino, Marco Caruso,
Giuseppe Anastasio
    a.k.a. Joe Ana
,
Lucia Coccia a.k.a. Lucia Canderle
,
    The Estate of Michael Solano, Giovanni Anthony Siracusa a.k.a. John Siracusa,
    2483251 Ontario Corp. a.k.a. Clearway Haulage, 2420595 Ontario Ltd. a.k.a.
    Strada Haulage, 2304288 Ontario Inc., 2466601 Ontario Inc. a.k.a. MMC
    Contracting, 2420570 Ontario Ltd. a.k.a. MTEC Construction, Time Passion, Inc.
    and RCO General Contracting Ltd.

Respondents
    (
Appellants
)

DOCKET:
    C69264

AND BETWEEN

KSV
    Kofman Inc. in its capacity as Trustee-in-Bankruptcy of

1033803
    Ontario Inc. and 1087507 Ontario Limited

Applicant
    (Respondent)

and

John
    Aquino, Marco Caruso,
Giuseppe Anastasio a.k.a. Joe Ana
,
    The Estate of Michael Solano,
Lucia Coccia a.k.a. Lucia
    Canderle
,
Dominic Dipede
, 2483251 Ontario Corp. a.k.a. Clearway
    Haulage, MMC General Contracting, MTEC Construction, Strada Haulage, 2104664
    Ontario Inc. and 2304288 Ontario Inc.

Respondents
    (
Appellants
)

DOCKET:
C692
78

AND BETWEEN

KSV
    Kofman Inc. in its capacity as Trustee-in-Bankruptcy of

1033803
    Ontario Inc. and 1087507 Ontario Limited

Applicant
    (Respondent)

and

John Aquino, Marco Caruso, Giuseppe Anastasio a.k.a. Joe Ana, The
    Estate of Michael Solano, Lucia Coccia a.k.a. Lucia Canderle,
Dominic Dipede
,
    2483251 Ontario Corp. a.k.a. Clearway Haulage, MMC General Contracting, MTEC
    Construction, Strada Haulage,
2104664 Ontario Inc.
and 2304288 Ontario Inc.

Respondents
    (
Appellant
)

DOCKET:
    C69305

AND BETWEEN

Ernst
    & Young Inc., in its capacity as Court-Appointed Monitor of Bondfield
    Construction Company Limited

Applicant
    (Respondent)

and

John
    Aquino,
Marco Caruso
, Giuseppe Anastasio a.k.a. Joe Ana, Lucia Coccia a.k.a. Lucia
    Canderle, The Estate of Michael Solano, Giovanni Anthony Siracusa a.k.a. John
    Siracusa, 2483251 Ontario Corp. a.k.a. Clearway Haulage, 2420595 Ontario Ltd.
    a.k.a. Strada Haulage, 2304288 Ontario Inc., 2466601 Ontario Inc. a.k.a. MMC
    Contracting, 2420570 Ontario Ltd. a.k.a. MTEC Construction, Time Passion, Inc.
    and RCO General Contracting Ltd.

Respondents
    (
Appellant
)

DOCKET:
    C69306

AND BETWEEN

Ernst
    & Young Inc., in its capacity as Court-Appointed Monitor of

Bondfield
    Construction Company Limited

Applicant
    (Respondent)

and

John Aquino
, Marco Caruso, Giuseppe
    Anastasio a.k.a. Joe Ana, Lucia Coccia a.k.a. Lucia Canderle, The Estate of
    Michael Solano, Giovanni Anthony Siracusa a.k.a. John Siracusa, 2483251 Ontario
    Corp. a.k.a. Clearway Haulage, 2420595 Ontario Ltd. a.k.a. Strada Haulage,
2304288 Ontario Inc.
, 2466601 Ontario Inc. a.k.a. MMC
    Contracting, 2420570 Ontario Ltd. a.k.a. MTEC Construction, Time Passion, Inc.
    and RCO General Contracting Ltd.

Respondents
    (
Appellants
)

DOCKET:
    C69318

AND BETWEEN

KSV
    Kofman Inc. in its capacity as Trustee-in-Bankruptcy of

1033803
    Ontario Inc. and 1087507 Ontario Limited

Applicant
    (Respondent)

and

John Aquino
, Marco Caruso, Giuseppe
    Anastasio a.k.a. Joe Ana, The Estate of Michael Solano, Lucia Coccia a.k.a.
    Lucia Canderle,
Dominic Dipede
, 2483251 Ontario Corp. a.k.a. Clearway
    Haulage, MMC General Contracting, MTEC Construction, Strada Haulage, 2104664
    Ontario Inc. and
2304288 Ontario Inc.

Respondents
    (
Appellants
)

DOCKET:
    C69321

AND BETWEEN

Ernst
    & Young Inc., in its capacity as Court-Appointed Monitor of

Bondfield Construction Company Limited

Applicant
    (Respondent)

and

John
    Aquino,
Marco Caruso
, Giuseppe Anastasio a.k.a.
    Joe Ana, Lucia Coccia a.k.a. Lucia Canderle, The Estate of Michael Solano,
    Giovanni Anthony Siracusa a.k.a. John Siracusa, 2483251 Ontario Corp. a.k.a.
    Clearway Haulage, 2420595 Ontario Ltd. a.k.a. Strada Haulage, 2304288 Ontario
    Inc., 2466601 Ontario Inc. a.k.a. MMC Contracting, 2420570 Ontario Ltd. a.k.a.
    MTEC Construction, Time Passion, Inc. and RCO General Contracting Ltd.

Respondents
    (
Appellant
)

Michael Citak and Chris Junior, for the
    appellants John Aquino and 2304288 Ontario Inc.

George Corsianos, for the appellant
    Marco Caruso

Terry Corsianos, for the appellants
    Giuseppe Anastasio and Lucia Coccia-Canderle

Brian Belmont, for the appellant
    2104664 Ontario Inc.

Alan Merskey, Evan Cobb and Stephen
    Taylor, for the respondent Ernst & Young Inc., in its capacity as Court-Appointed
    Monitor of Bondfield Construction Company Limited

Jeremy Opolsky and Craig Gilchrist, for
    the respondent KSV Restructuring Inc. in its capacity as Trustee-in-Bankruptcy
    of 1033803 Ontario Inc. and 1087507 Ontario Limited

Heard: September 1 & 2, 2021 by video
    conference

On appeal from the order of Justice
    Bernadette Dietrich of the Superior Court of Justice, dated September 15, 2020 (C69306
    & C69318) and the judgments of Justice Dietrich, dated March 19, 2021, with
    reasons reported at 2021 ONSC 527, 88 C.B.R. (6th) 60 (C69263, C69264, C69278,
    C69305, C69306, C69318 & C69321).

Lauwers J.A.:

A.

Overview

[1]

John Aquino was the directing mind of Bondfield
    Construction Company Limited and its affiliate Forma-Con Construction. He and
    his associates carried out a false invoicing scheme over a number of years by
    which they siphoned off tens of millions of dollars from both companies.

[2]

The monitor and the trustee challenged the false
    invoicing scheme and sought to recover some of the money under s. 96 of the
BIA
[1]
and s. 36.1 of the
CCAA
.
[2]
They asserted that the false invoicing schemes were implemented by
    means of transfers at undervalue
[3]
by which John Aquino intended to defraud, defeat or delay a
    creditor.

[3]

John Aquino and most of the other participants,
    as the application judge noted, have conceded that no value was provided to
    Bondfield and Forma-Con for the fraudulent transfers. However, they boldly assert
    that at the time they took the money, both companies were financially strong
    and healthy enough to sustain the frauds. They say this establishes that they
    did not intend to defeat any actual creditors. They also argue that John Aquinos
    intent cannot be imputed to either Bondfield or Forma-Con so that s.
    96(1)(b)(ii)(B) of the
BIA
cannot be used to require them to repay
    what they took.

[4]

The application judge required John Aquino and
    the other participants to repay the money they took through the false invoicing
    scheme and held them jointly and severally liable.
[4]


[5]

I would dismiss the appeals for the reasons that
    follow. I begin with the basic facts, next set out the issues, and then carry
    out the analysis.

B.

The Facts

[6]

Bondfield was a construction company that
    operated in the Greater Toronto Area and elsewhere. Its affiliate, 1033803
    Ontario Inc., commonly known as Forma-Con, was in the concrete forming
    business. Bondfield and Forma-Con were part of the Bondfield Group,
[5]
a full-service group of construction companies that carried on
    business in the Greater Toronto Area and Southern Ontario starting in the
    mid-1980s.

[7]

Before its insolvency, the Bondfield Group was
    run by the Aquino family. Ralph Aquino founded the enterprise. He was joined by
    his son, John Aquino, in 1994 and by his son, Steven Aquino, in 2000.

[8]

By 2018, the Bondfield Group was in financial
    trouble. Bondfields bonding company, Zurich Insurance Company Ltd., engaged Ernst
    & Young Inc. to review the financial situation of the Bondfield Group. This
    eventually led Bondfield to start proceedings under the
CCAA
on April
    3, 2019. The court appointed Ernst & Young Inc. as the monitor of
    Bondfield and some of its affiliates. On December 19, 2019, the court appointed
    KSV Restructuring Inc. as the trustee in bankruptcy of Forma-Con.

[9]

The monitor and the trustee discovered that Bondfield
    and Forma-Con had illegitimately paid out tens of millions of dollars to John
    Aquino and several of the other appellants under a false invoicing scheme,
    which is described in detail by the application judge. Both the monitor and the
    trustee brought applications for various forms of declaratory relief, the
    monitor under a combination of s. 36.1 of the
CCAA
and s. 96 of the
BIA
and the trustee under the latter only.

(1)

The Bondfield Application

[10]

The monitor learned that between April 3, 2014
    and April 3, 2019, which was the five-year statutory review period under the
BIA
,
    John Aquino and his associates took $21,807,693 from Bondfield by means of a false
    invoicing scheme.
[6]


[11]

In cross-examination, Mario Caruso, Giuseppe
    Anastasio, and Lucia Coccia-Canderle  individuals who were involved in operating
    the Bondfield supplier parties  conceded that the suppliers who falsely
    invoiced Bondfield provided no value for the transfers. John Aquino made the
    same admissions. However, these participants denied an intent to defraud,
    defeat, or delay Bondfields actual creditors because the company was not then
    insolvent or in danger of insolvency. The Solano Estate insisted that it had no
    knowledge of the impugned Bondfield transactions, while Anthony Siracusa and
    Time Passion did not respond.

[12]

The application judge granted the declarations the
    monitor sought concerning the Bondfield false invoicing scheme and required the
    Bondfield parties to repay $21,807,693 on a joint and several liability basis
    (other than Coccia-Canderle, whose liability was limited to $88,008).

(2)

The Forma-Con Application

[13]

The trustee discovered that between 2011 and
    2017, Forma-Con had paid more than $34 million to certain suppliers under the
    false invoicing scheme. Between December 19, 2014 and December 19, 2019, which
    was the five-year review period under the
BIA
, Forma-Con paid over $11
    million to certain purported suppliers.
[7]


[14]

As in the Bondfield application, under
    cross-examination, John Aquino, Caruso, Anastasio, and Coccia-Canderle conceded
    that suppliers that falsely invoiced Forma-Con provided no value for the
    transfers (not including 230
[8]
),
    but maintained that they had no intent to defraud, defeat, or delay Forma-Cons
    actual creditors.

[15]

664 Ontario contended that it had provided value
    in the form of consulting services to Forma-Con regarding a hospital project in
    Hawkesbury. The Solano Estate asserted that it had no knowledge of the impugned
    Forma-Con transactions.

[16]

The application judge granted the declarations
    the trustee sought concerning the Forma-Con false invoicing scheme, and
    required the Forma-Con parties to repay $11,366,890 on a joint and several
    liability basis (other than 664 Ontario, whose liability was limited to $90,400,
    and Coccia-Canderle, whose liability was limited to the value of the cheques
    paid to her by the Forma-Con suppliers).

C.

The Issues

[17]

There are four issues, which I address in turn:

1.

Did the application judge err in finding that s.
    96 of the
BIA
could be used by the monitor and the trustee to recover the
    money John Aquino and his associates took from Bondfield and Forma-Con?

2.

Are the defences of legal and equitable set-off
    available to John Aquino and the other appellants who claim them?

3.

Did the application judge err in finding 664
    Ontario to be part of the false invoicing scheme?

4.

Should the application judge have converted the
    applications into an action, or, if not, have required a trial on the financial
    position of Bondfield and Forma-Con?

D.

Analysis

(1)

Can s. 96 of the
BIA
be used by the monitor and the trustee to recover the money John
    Aquino and his associates took from Bondfield and Forma-Con?

[18]

The interpreters task in statutory
    interpretation is to discern the legislatures intention in order to give
    effect to it.
[9]
The
    interpreter must attend to text, context, and purpose.
[10]
After discussing the text, purpose, and legislative history of s.
    96, I attend to the governing principles and to their application to the facts
    in this case.

(a)

The text and purpose of s. 96 of the
BIA

[19]

Section 96 of the
BIA
permits trustees
    to seek a court order voiding a transfer by the debtor to another party at
    undervalue, which is an improvident transaction from the debtors
    perspective. Section 96 provides, in part:

96(1) On application by the trustee,
    a court may declare that a transfer at undervalue is void as against the
    trustee 
or order that a party
    to the transfer or any other person who is privy to the transfer
[11]
, or all of those persons, pay to the estate
    the difference between the value of the consideration received by the debtor
    and the value of the consideration given by the debtor
 if



(b)
the party was not dealing at arms length with the debtor
and

(i) the
    transfer occurred during the period that begins on the day that is one year
    before the date of the initial bankruptcy event and ends on the date of the
    bankruptcy, or

(ii) the transfer occurred during the period that begins on the day
    that is five years before the date of the initial bankruptcy event
and ends on the day before the day on which the period referred to
    in subparagraph (i) begins and

(A)

the debtor was insolvent at the time of
    the transfer or was rendered insolvent by it, or

(B)


the debtor intended to defraud, defeat or
    delay a creditor
.
[Emphasis added.]

[20]

Textually speaking, the contrast between paras. (A)
    and (B) makes it clear that there are circumstances in which s. 96 will apply
    even though the transfer at undervalue occurs at a time that the debtor, in
    this case Bondfield or Forma-Con, is not insolvent. This scenario gives rise to
    a problem about the meaning to be given to creditor in para. (B). Section 2
    of the Act defines creditor as mean[ing] a person having a claim provable as
    a claim under this Act. The reasonable interpretation is that there must be a
    person to whom the debtor owes money at the moment the fraudulent transaction
    occurs who would be a creditor with a provable claim if the debtor were immediately
    insolvent.
[12]
There is an inescapable contingency to the test. There is also a prospectivity,
    which comes from the contrast between para. (A) (was insolvent) and para. (B),
    which lacks that language and therefore implies that the debtor is not yet
    insolvent.

[21]

Next, I would interpret the words a creditor
    in para. (B) as denoting any such creditor, not a target creditor or one
    necessarily known to the fraudulent debtor. It is reasonable to infer that any
    large enterprise in financial difficulty will have many such creditors, many of
    whom would not be actively known by the fraudster.

[22]

I understand s. 96 to be remedial in nature.
[13]
The Supreme Court has said
    with respect to provincial legislation governing fraudulent conveyances and
    preferences: All the provincial fraud provisions are clearly remedial in
    nature, and their purpose is to ensure that creditors may set aside a broad
    range of transactions involving a broad range of property interests, where such
    transactions were effected for the purpose of defeating the legitimate claims
    of creditors.
[14]
This remedial purpose led the court to conclude that the legislation should be
    given the fair, large and liberal construction and interpretation that best
    ensures the attainment of their objects.
[15]
In my view this approach applies equally to the interpretation of s. 96 of the
BIA
.

[23]

Section 96 was included in the 2009 amendments
    to the
BIA
. The section combines and simplifies the principles that
    were established pursuant to sections 91 and 100 in the pre-2009
    amendments addressing settlements and reviewable transactions, respectively,
    as Robyn Gurofsky explains.
[16]
In
    her view: Section 96, like section 95, is intended to create a framework for
    challenging transactions that have the effect of diminishing the value of the
    bankrupts estate and limiting the ability of creditors to recover all or a
    portion of their debt from the estate.
[17]

[24]

Michael Myers explains the genesis of s. 96:
    The law has long recognized the need to protect creditors from insolvent
    debtors who give away assets to third parties instead of using those assets to
    repay their debts.
[18]
This
    is an historic concern: [L]egislation prohibiting debtors from fraudulently
    dissipating their assets when heavily indebted was first enacted in England
    during the reign of Queen Elizabeth I in the 1500s and has been embodied into
    the
Fraudulent Conveyances Act
of Ontario since the late 1800s.
[19]
Gurofsky and Myers both point out that the idea was to prevent the
    dissipation of assets, especially to related recipients. They both cite Lord
    Hatherley L.C.s statement from
Freeman v. Pope
that persons must be
    just before they are generous and that debts must be paid before gifts can be
    made.
[20]
The policy of the
BIA
goes beyond this modest origin.

(b)

The governing principles and their application

[25]

In
Urbancorp Toronto Management Inc. (Re)
,
    van Rensburg J.A. noted that s.
96 is a remedy to
    reverse an improvident transfer that strips value from the debtor's estate,
    where its conditions are met.
[21]
She added: The interpretation of the section must be considered in relation to
    the remedy that is sought.
This echoed her earlier
    comments that even though s. 96 is a 
tool to address asset
    stripping by a debtor, a bankruptcy trustee or
CCAA
monitor that
    seeks to impugn a transfer under that provision must nevertheless meet the
    requirements of the specific words used in the section.
[22]

[26]

In order to require John Aquino and the other
    beneficiaries of the false invoicing scheme to repay the money they took under
    s. 96(1)(b)(ii)(B) of the
BIA
,

the monitor and the trustee
    had to prove two elements: first, John Aquino and the other participants were
    not dealing with Bondfield and Forma-Con at arms length; and second, at the
    time they took the money (during the statutory review period), they intended
    to defraud, defeat or delay a creditor of Bondfield or Forma-Con. The first
    element is amply established by the evidence. This case turns on the second
    element.

[27]

The obvious gap in the second element concerns
    the reach of the fraudsters intention. No doubt John Aquino and the other
    participants intended to defraud Bondfield and Forma-Con, but this does not
    immediately lead to the conclusion that they also intended at that time to
    defraud the creditors of Bondfield and Forma-Con. The application judge bridged
    the gap by imputing John Aquinos fraudulent intention to the debtors,
    Bondfield and Forma-Con, and on that basis found that it could be said that
    the debtor intended to defraud, defeat or delay a creditor.

[28]

Several aspects of the legal analysis are no
    longer in active dispute. John Aquino and his associates in the false invoicing
    scheme do not seriously contest their non-arms length status, that the transfers
    at issue were at undervalue, or their active intent to defraud the debtors,
    Bondfield and Forma-Con. Nor is there any doubt, as the application judge noted,
    that the transactions bristled with badges of fraud, including the value of
    the transactions being nil, the non-arms length status of the participants,
    the secrecy, and the unusual haste with which the transactions were completed.
[23]


[29]

John Aquino and his associates nonetheless
    dispute liability under s. 96 on two grounds. The first is that their
    fraudulent acts were not carried out
at a time
when Bondfield and Forma-Con were financially precarious. The second is that the
    fraudulent intentions of John Aquino
cannot be imputed
to Bondfield and Forma-Con. These are the two deep issues to be addressed in
    this appeal.


(i)

The timing of the fraudulent transfers

[30]

Recall the bold assertion made by John Aquino
    and his associates that at the time they took the money, both Bondfield and Forma-Con
    were sufficiently financially healthy to sustain the losses, which establishes
    that they did not intend to defraud, defeat or delay any actual creditors.
    The focus is on the fraudsters intent to defraud a creditor of these
    companies.

[31]

The court must not indulge the temptation to
    engage in hindsight bias. In
Montor Business Corp.
    (Trustee of) v. Goldfinger
, Brown J. (as he then
    was) stated the principle on which the appellants rely:

When inquiring into the intention of a debtor
    for the purposes of
BIA
s. 96(1)(a)(iii)  and the provincial preferences statutes for that
    matter 
a court must ascertain
    the intention at the time of the transfer or transaction in light of the
    information known at that time. A court must resist the temptation to inject
    back into the circumstances surrounding the impugned transaction knowledge
    about how events unfolded after that time.
The
    focus must remain on the belief and intention of the debtor at the time, as
    well as the reasonableness of that belief in light of the circumstances then
    existing.
[24]

[32]

Brown J. added a caution about the parties
    beliefs as to the value of certain properties in that case: 
In hindsight one might question the reasonableness of [their] belief,
    but the evidence given about the parties thinking at the time indicated a
    genuine belief in the value of the properties.
[25]
This he found to be evidence
    on which he placed significant weight.

(a)

The application judges reasons on the timing of
    the transfers

[33]

The application judge instructed herself correctly on the
    applicable legal principles by reference to the appropriate cases whose reach
    was also argued before us. She heard and recited the arguments made by John
    Aquino and his associates, who said that when they took the money, Bondfield
    and Forma-Con were financially strong.
[26]
This strength, they claim, was evidenced by the Deloitte audited financial
    statements
[27]
and by the report of Ross Hamilton of Cohen Hamilton Steger & Co. Inc., the
    forensic and investigative accounting experts retained by John Aquino (the CHS
    report).
[28]
John Aquino argued that the amounts they took were relatively small, so that inferentially
    the thefts did not impact the companies financial condition.
[29]
He cast the blame for the companies collapse on the actions of Zurich as well
    as on the National Banks having denied Bondfield Group an increase in its
    credit facility.
[30]

[34]

The application judge did not accept the CHS report as a reliable
    indicator of the companies financial health because it was based on unreliable
    information received from the companies.
[31]
She took a similarly skeptical view of the reliability of Deloittes financial
    statements, which are now the subject of litigation.
[32]

[35]

In the application judges opinion, a debtors financial health
    is relevant but not determinative regarding the debtors intent to defraud,
    defeat or delay creditors, particularly where, as here,
there
    is evidence of a number of badges of fraud. These provide a strong evidentiary
    basis on which to find that each of BCCL and Forma-Con, through the actions of
    its president John Aquino, intended to defraud, defeat or delay its creditors.
[33]

[36]

The application judge concluded that the
    presence of badges of fraud creates a rebuttable presumption of the intention
    to defraud, defeat or delay creditors that has the effect of shifting the
    evidentiary burden to those defending the fraud to adduce evidence to show the
    absence of fraudulent intent.
[34]
She found that John Aquino and his associates had not rebutted the presumption
    of fraudulent intent.
[35]

[37]

The application judge noted that there is a
    divergence of opinion between the parties on the financial condition of the
    Bondfield Group during the Bondfield review period and the Forma-Con review
    period.
[36]
She concluded her lengthy analysis: The true financial condition of each of
    BCCL and Forma-Con at the time of each impugned transaction cannot be
    determined on the record before the court.
[37]
The appellants referenced this statement in argument to attempt to undermine
    the certainty of the application judges factual findings and her conclusions.
    However, doing so mischaracterizes the meaning of her observation.

[38]

The application judge mustered a phalanx of
    facts in support of her conclusions:

The transferors, being the corporate debtors,
    also had actual and potential liabilities, or were about to enter risky
    undertakings. According to the reports of the Monitor and the Trustee, both BCCL
    and Forma-Con had significant long-term and off-balance sheet liabilities
    during the relevant review periods and were guarantors on BCCLs credit
    facility in respect of which there were contingent obligations in the tens of
    millions of dollars at the end of fiscal years 2014, 2015 and 2016. Ralph,
    Steven and John Aquinos sister Maria Bot, were all creditors of BCCL with
    substantial shareholder loan accounts. The Bondfield Group was facing actual
    and potential liabilities, and by John Aquinos own admission was embarking on
    a significant expansion in its construction activities at a time when its
    lender, National Bank, was not prepared to increase its lending. During the
    relevant period, John Aquino and Ralph were temporarily transferring funds to
    BCCL for the sole purpose of misleading BCCLs stakeholders, including its
    lenders, into believing that BCCL was in a stronger financial position than it
    was.
[38]

[39]

The application judge noted there were a number
    of unusual accounting practices at Bondfield and Forma-Con:

According to the Monitors reports, just as
    accounts payable were understated in BCCLs records, accounts receivable were
    overstated in a problematic fashion. While BCCLs contract revenues were going
    up, the collectability of those revenues was going down. Throughout the
    Bondfield review period, BCCLs accounts receivable collection was in continual
    decline.



These [unusual accounting practices] include
    John Aquinos admission that, during the Bondfield review period, he and Ralph
    routinely injected capital into BCCL to mislead BCCLs stakeholders into
    thinking that the Bondfield Group was financially stronger than it was; the
    fact that suppliers cheques were withheld to give BCCL an opportunity to
    extend the time it could use the funds owing to suppliers; the fact that BCCL
    was entering a date later than the date shown on the supplier invoice into its
    accounting system, which allowed its payables to remain outstanding longer; the
    fact that significant adjusting journal entries had to be made regarding BCCLs
    revenue and profit once the Monitor was appointed; and the fact that a claim
    has been brought against Deloitte with respect to its audit of Bondfield Group
    financial statements (which it is defending). In light of these concerns, it is
    reasonable to infer that the financial records provided to Deloitte and to Mr.
    Hamilton were likely not reliable.
[39]

[40]

Even though getting an absolutely accurate
    picture of the financial condition of Bondfield and Forma-Con was not possible,
    such precision was unnecessary. The application judge accepted the description
    of the state of affairs discovered in the monitors investigation. She listed
    the findings:

a) BCCLs financial records, prepared under
    the supervision of John Aquino, vastly overstated the revenues and
    profitability of its projects in the relevant period, causing BCCL to have to
    book significant adjusting journal entries under the supervision of the
    Monitor; b) Zurich had encountered stated losses of over $300,000,000 to date
    in paying sub-trades and completing BCCL projects, which losses arose from
    projects and project activities started many years before the
CCAA
filing; c) BCCLs loan was placed
    in special loans by its prior lender, The National Bank, no later than the
    start of 2017; d) BCCL faced persistent liquidity challenges as evidenced in
    part by John Aquinos steps to inject cash into BCCL temporarily at the
    beginning of 2014 through 2017 in order to improve the appearance of BCCLs
    liquidity for the purposes of its bonding and lending arrangements; and e) the
    Bondfield Groups auditors, Deloitte, are the subject of litigation by both
    BCCL and Zurich with respect to the accuracy of the financial statements that
    the defending Bondfield Respondents and Forma-Con Respondents rely upon.
[40]

[41]

The application judge added context, emphasizing
    that John Aquino signed a number of the cheques associated with the impugned
    transactions [and that in] cross-examination he stated that he would have been
    familiar with 100 percent of the suppliers and subtrades.
[41]
Meanwhile, [a]t the same
    time as he was authorizing payments on false invoices, [John Aquino] was
    injecting capital into BCCL from time to time in an attempt to disguise the
    true financial condition of BCCL.
[42]
In her view: It is reasonable to infer that John Aquino took these actions to
    avoid BCCLs and Forma-Cons obligations and defeat their creditors.
[43]
She added that he had not
    given evidence of an alternative explanation.

[42]

The application judge also addressed the
    question of the relatively small value of the amounts paid out on the false
    invoices as compared to Bondfields gross revenue or net profit. She was not
    persuaded that this ratio absolves John Aquino of an intent to defeat
    creditors.
[44]
She put the transfers in context, adding: The amounts, whatever the quantum,
    were paid out at a time when John Aquino was taking deliberate steps to mislead
    the stakeholders of BCCL with respect to its financial position and these
    payments bore a number of badges of fraud, and [e]ach of these payments
    reduced the funds available to pay long-term creditors and increased bank
    indebtedness.
[45]

[43]

The evidence led the
    application judge to conclude: 
The totality of the
    evidence demonstrates a pattern of an intent by John Aquino, on behalf of each
    of BCCL and Forma-Con to defraud, defeat or delay the creditors of BCCL and
    Forma-Con.
[46]
This conclusion built on her earlier finding:

The totality of the evidence, in my view,
    provides a firm basis for finding that John Aquino, as principal and directing
    mind of BCCL and Forma-Con, had fraudulent intent  an intent to defraud,
    defeat or delay creditors. It was in no way reasonable for him to believe that,
    throughout the period of the impugned transactions, BCCL and Forma-Con did not
    have long-term creditors, like lenders, including Ralph, who would not be
    defeated or delayed by the draining of tens of millions of dollars from BCCL
    and Forma-Con through the false invoicing schemes.
[47]

[44]

The requirement noted in
Montor
is that
    the 
court must ascertain the intention at the time of
    the transfer or transaction in light of the information known at that time.
[48]
In particular, a court must
    not rely on hindsight by injecting into the circumstances surrounding the
    impugned transactions knowledge about how events unfolded after that time. Contrary
    to the appellants submissions, this is not what the application judge did.

[45]

At the time of the fraudulent transactions under
    the false invoicing scheme, the interests of creditors were imperilled by the
    transfers because Bondfield and Forma-Con were already experiencing mounting
    financial difficulties.
As noted above, the application
    judge determined that it would have been entirely un
reasonable
    for John Aquino to believe that, during that time, the interests of the
    companies creditors would not be endangered by this fraudulent scheme.
[49]
He and his associates continued
    on nonetheless. The application judge found that because the companies had
    outstanding debts at the time of the transfers, including a substantial loan
    from its primary lender, 
there was a creditor or creditors
    toward whom BCCLs and Forma-Cons intent to defraud, defeat or delay could be
    directed, even though the companies were then paying off current liabilities.
[50]
In other words, the fact that
    current liabilities were being paid did not mean that the fraudulent transfers
    were never intended to defeat then-current creditors.

[46]

In short, the application judge took a pragmatic
    view on the totality of the evidence. She found that during the review periods
    both Bondfield and Forma-Con were experiencing increasing financial
    difficulties, to the knowledge of John Aquino, who carried on with the false
    invoicing scheme. She inferred that he did this with the intent to defeat the
    companies creditors. This court owes deference to the application judges
    findings of fact and findings of mixed fact and law. The appellants have not
    established any palpable and overriding errors nor legal errors with these
    findings.

[47]

The application judge also accepted that the
    false invoicing scheme might not have been solely motivated by an intention to
    defeat creditors. However, she noted that the monitor and trustee only had to
    demonstrate that
one of
the motives or intentions
    was to defraud, defeat, or delay a creditor.
[51]
As Wilton-Siegel J. explained:

[T]he relevant wording in s. 96 is to the
    effect that the debtor intended to defraud, defeat or delay a creditor. Of
    significance, it is not that the intention of the debtor was to defraud,
    defeat or delay a creditor. If it were the latter, I think an applicant would
    be required to establish that the principal intention of the debtor was to
    defeat his or her creditors. However, the wording of s. 96 does not require
    such a determination. Instead, I think
it requires only
    that an applicant establish that one of the debtors motives or intentions was
    to defraud, defeat or delay a creditor
.
[52]

[48]

Finally, as discussed, John Aquino was aware that
    the interests of the companies creditors were potentially imperilled by the false
    invoicing scheme. Although the application judge did not make findings with
    respect to recklessness, it is clear that at a minimum, John Aquino was
    reckless as to whether the scheme would defraud, defeat, or delay creditors. In
    the criminal context, the Supreme Court has held that fraud can be established on
    the basis of recklessness as to the consequences of a fraudulent act. As
    McLachlin J. put it:

I have spoken of knowledge of the consequences
    of the fraudulent act. There appears to be no reason, however, why recklessness
    as to consequences might not also attract criminal responsibility. Recklessness
    presupposes knowledge of the likelihood of the prohibited consequences. It is
    established when it is shown that the accused, with such knowledge, commits
    acts which may bring about these prohibited consequences, while being reckless
    as to whether or not they ensue.
[53]

[49]

I see no reason why John Aquinos recklessness
    as to the consequences of the fraudulent transfers with respect to the
    interests of the companies creditors would not be similarly sufficient for
    establishing the requisite intent under s. 96 of the
BIA
.
[54]


(ii)

The imputation of John Aquinos fraudulent intent
    to Bondfield and Forma-Con

[50]

For the purpose of construing the words, the
    debtor intended to defraud, defeat or delay a creditor in s. 96(1)(b)(ii)(B), the
    debtors are Bondfield and Forma-Con. The application judge imputed the
    fraudulent intention of John Aquino in the false invoicing scheme to Bondfield and
    Forma-Con, and found that the trustee and the monitor could pursue the
    repayment of the funds taken from the fraudsters under the
BIA
.

[51]

The appellants argue that the application judge
    erred legally because John Aquinos fraudulent intent cannot be imputed to
    Bondfield or Forma-Con as a matter of law, even though he was one of their directing
    minds. They assert that the binding principles of the common law doctrine of
    corporate attribution set out in
Canadian Dredge & Dock Co. v. The Queen
,
[55]
do not permit the imputation of his intention to either defrauded company.
    Accordingly, s. 96(1)(b)(ii)(B) of the
BIA
cannot be used to require
    John Aquino, or his associates as privies to the impugned transactions, to
    repay the money they took.

[52]

This argument raises a thorny question about the
    interplay between the provisions of the
BIA
and common law doctrine. When
    can common law doctrine be engaged by the court in construing and applying the
BIA
?
    I begin by setting out the application judges reasons. I next address this legal
    question and then turn to its implications for the application of the corporate
    attribution doctrine in this appeal.

(a)

The application judges reasons on corporate attribution

[53]

The application judge reviewed and considered
    the law concerning corporate attribution. She agreed that the actions of John
    Aquino were not intended to benefit BCCL and Forma-Con and they did not do so.
[56]
In her view, if the
Canadian
    Dredge
test were applied strictly, it would mean that John Aquinos
    intent could not be attributed to the debtor corporations.
[57]


[54]

However, the
    application judge took a different tack and concluded: [
T]he corporate attribution doctrine as set out in
Canadian Dredge
ought not to apply in
    these applications made pursuant to s. 96 of the
BIA
, and John Aquinos intent to defeat creditors ought to be
    attributed to Bondfield and Forma-Con.
[58]
She founded this result on several interrelated considerations:

·

The incompatibility of the
Canadian Dredge
formulation with the very purpose of s. 96 of the
BIA
, which is aimed
    at restoring value for the benefit of the debtors creditors;
[59]

·

The policy factors in
Canadian Dredge
, particularly
    the social purpose of holding a corporation responsible for the acts of its
    employees and the view that the doctrines application should only be by
    judicial necessity where it would advantage society by advancing law and
    order;
[60]

·

The remedial purpose of s. 96, which is
    directed towards recovering funds for creditors;
[61]
and

·

The principles of statutory interpretation,
    particularly the purposive approach, [g]iven that the
BIA
is
    concerned with providing proper redress to creditors.
[62]

[55]

In
DBDC Spadina Ltd. v. Walton
, van
    Rensburg J.A. took a strict approach to the application of the
Canadian
    Dredge
test, which the Supreme Court expressly approved on appeal.
[63]
However, based on the
    reasoning set out above, the application judge expressed hesitancy about
    whether [van Rensburg J.A.s reasoning in
Walton
] ought to apply in
    the context of s. 96.
[64]


[56]

As I will explain, the application judge did not
    err in her approach and in her judgment. I review several points of
    intersection between common law doctrine and the
BIA
before turning to
    the specific application of the corporate attribution doctrine.

(b)

Intersections between common law doctrine and
    the
BIA

[57]

There are several examples of situations in which common law doctrines
    have been used to interpret, apply, or supplement the
BIA
,
    apart from the corporate attribution doctrine.
[65]
I pick out four but could extend the list: the common law principles around the
    priority of secured claims; the doctrine of good faith; the anti-deprivation
    rule; and unjust enrichment.

[58]

The Supreme Court has held that Parliament is presumed to intend
    not to change the existing common law unless it does so clearly and
    unambiguously.
[66]
This frames the legal context.

[59]

First, regarding the priority of secured claims,
Houlden,
    Morawetz, and Sarra note: If no statutory provisions are applicable, then
    common law and equitable principles will be applied.
[67]
For example, the common law rule of first in time will
prima
    facie
be followed.

[60]

Second, various provisions of the
BIA
engage principles of good faith, including the duties of receivers under s.
    247, as well as the recent addition of the s. 4.2 good faith provision. These
    provisions engage the common law doctrine of good faith, which also exists in
    the civil law. But good faith is not a codified concept. For example, in
CWB Maxium Financial Inc v. 2026998 Alberta Ltd
, Mah J.
    considered the meaning of good faith in the
BIA
context and applied the principles of good faith derived from
Bhasin v. Hrynew
[68]
and
C.M. Callow Inc. v. Zollinger
[69]
to give content to s. 4.2,
while being cognizant of the
    policy objectives of the
BIA
.
[70]

[61]

The third example is the doctrine of fraud on
    the bankruptcy law and the associated anti-deprivation rule. These are common
    law doctrines applicable in commercial bankruptcies, as I noted in
Hutchingame
    Growth Capital Corporation v. Independent Electricity System Operator
:

Professor Wood explains that the anti-deprivation rule
    invalidates contractual provisions that remove assets otherwise available to
    creditors in the event of insolvency. He discusses the fraud on the bankruptcy
    law doctrine in
Bankruptcy and Insolvency Law
at p. 88:

Canadian courts have recognized that a contractual provision
    that is designed to remove value from the reach of an insolvent persons
    creditors is
void on the basis that it
    violates the public policy of equitable and fair distribution on bankruptcy.
    This is referred to as the fraud on the bankruptcy law principle.


The principle can be usefully
    broken down into two distinct components: the anti-deprivation rule and the
pari passu
rule. The anti-deprivation rule operates by
    invalidating provisions that withdraw an asset that would otherwise be
    available to satisfy the claims of creditors upon the insolvency of the party
    or the commencement of insolvency proceedings. [Internal citations omitted.]

The common law
    anti-deprivation rule applies in commercial bankruptcies
,
    including Greenview Powers bankruptcy
.
[71]

[62]

The Supreme Court affirmed this understanding of
    the law in
Chandos
. The majority held that the rule has
    existed in Canadian common law and has not been eliminated by either this Court
    or Parliament and noted that [t]he anti-deprivation rule renders void
    contractual provisions that would prevent property from passing to the trustee
    and thus frustrate s. 71 and the scheme of the
BIA
.
[72]
The common law anti-deprivation rule thus maximizes the assets that are
    available for the trustee to pass to creditors.
[73]

[63]

The
    fourth example of the active engagement of common law doctrine in supplementing
    the
BIA
is in the area of unjust enrichment
    and restitution. Professor Wood points to situations in which a trustee can
    avoid a transaction in which an innocent recipient of the bankrupts assets has
    paid some consideration to the debtor or added value. He notes that 
[u]njust enrichment law may be relevant in respect of
    the recovery of these gains.
[74]
He continues: These are not matters that are governed by the statutes dealing
    with impeachable transactions, and therefore the issue may be properly resolved
    through the application of principles of unjust enrichment.
The common
    law doctrine of unjust enrichment can be used to supplement the
BIA
in circumstances where the statute itself does not
    fully govern the transactions at issue.

[64]

I
    would draw several principles from this discussion of the active engagement of
    common law doctrine in the application of the
BIA
.
    Common law doctrine can be enlisted by a court to interpret and supplement the
BIA
where necessary to better achieve its purposes, one
    of which is to protect the interests of the bankrupts creditors. The common
    law can add content to the terms of the
BIA
not otherwise defined. In particular, the common law doctrine known as the
    anti-deprivation rule and its purpose of preventing a fraud on the bankruptcy
    is especially pertinent in this case. The use of common law doctrine must
    respect the policy of the
BIA
. But these
    principles do not license a court to do whatever it likes; the common law
    doctrines impose their own discipline.

[65]

I
    turn now to the common law doctrine of corporate attribution.

(c)

The common law doctrine of corporate attribution
    in the bankruptcy context

[66]

Corporations
    are not natural persons. In view of separate corporate personality, it is no
    small thing to impute to a corporation the intention of its directing mind. On
    the other hand, there is the spectre that corporations might commit criminal
    acts and civil delicts with impunity because these engage mental elements
    relevant to intentions. The corporate attribution doctrine creates a bridge
    between the corporation and the natural person whose directing mind caused
    the corporation to act as it did. The doctrine attributes the intent of the
    corporations directing mind to the corporation itself, whose conduct is then
    evaluated against the legal standard that applies to the implicated criminal or
    civil area of law.

[67]

The Supreme Courts current substantive teaching on the doctrine of
    corporate attribution is found in
Deloitte & Touche v. Livent Inc.
    (Receiver of
),
[75]
which contextualizes
Canadian Dredge
.
In
Livent
,
    the court restated the
Canadian Dredge

test:

To attribute the fraudulent acts of an employee to its
    corporate employer, two conditions must be met: (1) the wrongdoer must be the
    directing mind of the corporation; and (2) the wrongful actions of the
    directing mind must have been done within the scope of his or her authority;
    that is, his or her actions must be performed within the sector of corporate
    operation assigned to him. For the purposes of this analysis, an individual
    will cease to be a directing mind unless the action (1) was not totally in
    fraud of the corporation; and (2) was by design or result partly for the
    benefit of the corporation.
[76]

[68]

In the result, the court did not allow the
    doctrine to be used by the auditor Deloitte to defend against Livents

claim
    for negligence based on the fraudulent activities of its directing minds.

[69]

The Supreme Court in
Dejong
clarified
    that
Livent
invited a flexible application of the
Canadian Dredge
test, but only to make clear that courts retain discretion
not
to apply the test in circumstances where attributing
    the actions of a directing mind to a corporation would not be in the public
    interest. Courts must take seriously the elements of the corporate attribution
    test in
Canadian Dredge
.

(d)

The corporate attribution doctrine and the
BIA

[70]

Thus
    far, the corporate attribution doctrine has been applied in the fields of
    criminal and civil liability. Courts have yet to consider the doctrine in the
    bankruptcy and insolvency context under s. 96 of the
BIA
,
    making this a case of first impression.

[71]

I would extract three principles from
Livent
and
Canadian Dredge
to

guide the application of this doctrine
    in this setting. First, the court is sensitive to the context established by the
    field of law in which an imputation of intent to a corporation is sought to be
    made.

[72]

Second, the court recognizes that the attribution
    exercise is grounded in public policy.
[77]
I would generalize the point made by the
Livent
court about
Canadian
    Dredge
by paraphrasing: In the legal field of inquiry  civil, criminal,
    or bankruptcy  the underlying question is who should bear the responsibility
    for the [impugned] actions of the corporations directing mind?
[78]
The policy factors that weigh
    in favour of imputing to a corporation the wrongdoing intent of its directing
    mind flow from the social purpose of holding the corporation responsible. In
Livent
,
    the court stated: [A]s Estey J. himself recognized [in
Canadian Dredge
],
    the doctrine is only one of judicial necessity and where its application would
    not provide protection of any interest in the community or would not advantage
    society by advancing law and order, the rationale for its application fades
    away.
[79]

[73]

Third, these principles provide a
sufficient
basis to find that the actions of a directing mind be attributed to a
    corporation, not a
necessary
one.
[80]
Accordingly, [a]s a principle that is grounded in policy, and which only
    serves as a means to hold a corporation criminally responsible or to deny civil
    liability, courts retain the discretion to refrain from applying it where, in
    the circumstances of the case, it would not be in the public interest to do so.
[81]


[74]

While this court must take the elements of the
    corporate attribution doctrine seriously, the genius of the common law is in
    its robust circumstantial adaptability.

[75]

The circumstances in which the corporate
    attribution doctrine has traditionally been applied  the criminal and civil
    contexts  are quite different from the bankruptcy context. In the criminal
    context, the issue is whether it would be just to visit criminal liability on a
    corporation. As
Canadian Dredge
instructs, if the corporation benefited
    from the directing minds criminal activity, imposing criminal liability might
    be justified. But if the criminal activities do not, by design or in result,
    benefit the corporation, then it is not criminally liable.

[76]

The rule in the civil context seeks to determine
    whether it is just to visit civil liability on a corporation. Where a corporation
    benefits from the improper activities of the directing mind, that intent might
    be attributed to the corporation. But if it does not get a benefit, there is no
    attribution and no liability.

[77]

The application of these principles is not clear
    in the bankruptcy arena, where the policy currents flow rather differently. In
    particular, attributing the intent of a companys directing mind to the company
    itself can hardly be said to unjustly prejudice the company in the bankruptcy
    context, when the company is no longer anything more than a bundle of assets to
    be liquidated with the proceeds distributed to creditors. An approach that
    would favour the interests of fraudsters over those of creditors seems
    counterintuitive and should not be quickly adopted.

[78]

In light of these considerations, I would
    reframe the test for imputing the intent of a directing mind to a corporation in
    the bankruptcy context this way: The underlying question here is who should
    bear responsibility for the fraudulent acts of a companys directing mind that are
    done within the scope of his or her authority  the fraudsters or the creditors?

[79]

Permitting the fraudsters to get a benefit at
    the expense of creditors would be perverse. The way to avoid that perverse
    outcome is to attach the fraudulent intentions of John Aquino to Bondfield and
    Forma-Com in order to achieve the social purpose of providing proper redress to
    creditors, which is the core aim of s. 96 of the
BIA
. The
    application judge did not err in finding that the intention of the debtor
    under s. 96 can include the intention of individuals in control of the
    corporation, regardless of whether those individuals had any intent to defraud
    the corporation itself.
[82]

(2)

Are the defences of legal and equitable set-off
    available to John Aquino and the others claiming them?

[80]

I deal with the set-off claims of Anastasio and
    John Aquino separately.

(a)

Anastasios claim to set-off

[81]

The application judge found Anastasio to be an
    active participant in the false invoicing scheme.
[83]
The companies associated with
    Anastasio  MMC and RCO  received more than $4 million through the scheme.
[84]
Anastasio takes the same position as John Aquino on the merits of
    this appeal. He concedes that the transactions were at undervalue, essentially
    nil.
[85]
He also
    concedes that the transactions were not at arms length.
[86]

[82]

Anastasio asserts that he is owed US$3.75 million
    as his fee for introducing the Bondfield Group to Deutsche Bank, who considered
    providing the Group a credit facility of US$150 million.
[87]
The application judge rejected this claim. She set out the factual
    background to this assertion:

Prior to Zurichs
CCAA
application,
    in 2016, National Bank denied the Bondfield Group an increase in its credit
    facility from $60,000,000 to $120,000,000. Then, the Bondfield Group entered
    into an $80,000,000 loan facility with Bridging for one year at an interest
    rate of 13.5 percent calculated daily. In late 2017, the Bondfield Group
    negotiated long-term financing with Deutsche Bank, but it required an insurance
    policy for the construction holdbacks in which it would have priority. The
    insurance policy was obtained. However, a disagreement between Zurich and
    Deutsche Bank regarding the loan facility in relation to Zurichs bonds could
    not be resolved and the Deutsche Bank facility did not proceed.
[88]

[83]

Anastasio argues that his US$3.75 million fee remains
    unpaid.
[89]
He claims a set-off for that amount against any order for repayment of the
    proceeds of the false invoicing scheme. However, the application judge noted
    that he provided no documentary or corroborating evidence in support of his
    alleged claim against the Bondfield Group in this amount.
[90]
She added that while John
    Aquino agreed that Anastasio introduced Bondfield to Deutsche Bank, he made no
    mention of any fee owing to Anastasio for his services. The application judge concluded
    that Anastasio did not establish an entitlement to any legal or equitable set-off.

[84]

These are essentially factual findings to which
    this court owes deference. Anastasio has not pointed to any palpable and
    overriding error, nor error of law, with respect to these findings. I would not
    give effect to this ground of appeal.

(b)

John Aquinos claims to set-off

[85]

The statutory basis for a claim to set-off is s.
    97(3) of the
BIA
, which provides:

The law of set-off or compensation applies to
    all claims made against the estate of the bankrupt and also to all actions
    instituted by the trustee for the recovery of debts due to the bankrupt in the
    same manner and to the same extent as if the bankrupt were plaintiff or
    defendant, as the case may be,
except in so far as any
    claim for set-off or compensation is affected by the provisions of this Act
    respecting frauds or fraudulent preferences
. [Emphasis added.]

[86]

Houlden, Morawetz, and Sarra
comment on the
    operation of the exception under s. 97(3): It may be that the purpose of the
    concluding words of s. 97(3) is to make it clear that a creditor who has to
    return property to the trustee as a result of the setting aside of a fraudulent
    preference has no right to assert a set-off.
[91]
This is because the effect of according a set-off would be to give a preference
    to that creditor over other creditors.
Houlden, Morawetz, and Sarra
note that the effect of the set-off is to prefer one creditor over
    the general body of creditors, which has the effect of securing the claim of
    the party entitled to it.
[92]
Doing so would give a fraudster priority over other creditors for the amount
    set off, which is contrary to the
pari passu
principle of bankruptcy
    law.

[87]

John Aquino asserts that his liability for any
    s. 96 repayments should be reduced by a total of $19,009,987. He claims set-offs
    in the amounts of: (1) $11,922,811, which is the alleged amount of his
    shareholders loan to Bondfield
[93]
;
    (2) $3,270,631 on behalf of his holding company, 230, which is the
    difference between the inflows and outflows of cash between 230 and Bondfield
    during the review period ($17.3 million cash injections against repayment of $14,029,369)
[94]
; and (3) $3,816,545, which is
    the amount he argues would account for
Harmonized Sales Tax
input credits
    on the sums found to be transfers at undervalue.

[88]

Although the application judge recited the
    evidence about the first claim, she rejected it perfunctorily on the basis that
    John Aquino has not provided evidence to establish an entitlement to legal or
    equitable set off in the context of these insolvency and bankruptcy
    proceedings.
[95]
An insight into her reasoning would have been helpful, but I would not hesitate
    to come to the same conclusion.

[89]

The logic of the language of s. 97(3),
    particularly the underlined words quoted above, as explained by
Houlden,
    Morawetz, and Sarra, is determinative. G
iving effect to John
    Aquinos argument would perversely reward him for his fraud. This is sufficient
    to dispose of John Aquinos set-off claims. Neither legal nor equitable set-off
    is available to John Aquino. In support of the refusal to grant equitable
    set-off, I would paraphrase a hoary old equitable maxim: The one who comes to
    Equity must come with clean hands. John Aquinos hands are not clean.

[90]

Concerning the second set-off claim on behalf of
    230, the application judge noted that the monitor did not dispute that: Within
    the Bondfield review period, accounting for all ins and outs, 230 is in a net
    positive position at the end of the period and appears to be owed $3,270,631.
[96]
The monitor took the position
    that the cash flows were part of an illicit fund cycling scheme that were
    also transfers at undervalue. However, the application judge found that the
    monitor had not proven that claim.
[97]

[91]

But the application judges findings do not
    reinforce 230s claim to set-off. That claim suffers from the same fundamental
    deficiency as John Aquinos claims, and I would dismiss this ground of appeal
    on that basis.

[92]

The third claim, that the application judge did
    not take into account HST credits, is correct. The HST issue was not addressed
    in her reasons. The reason the monitor gives is that this issue was not raised
    before her but is a new issue raised for the first time on appeal. I agree with
    the monitor that it is not an issue this court should consider.

(3)

Did the application judge err in finding that 664
    Ontario was part of the false invoicing scheme?

[93]

The application judge noted that unlike most of the
    other participants in the false invoicing scheme, 664 Ontario denied
    involvement and asserted that it provided value for the payment by Forma-Con of
    an invoice in the amount of $90,400.
[98]


[94]

The application judge analyzed 664 Ontarios
    claim in a number of paragraphs in her decision and concluded: Because the
    evidence indicates that 664 Ontario was not involved in the false invoicing
    scheme during the Forma-Con review period to the same degree as the other
    Forma-Con Supplier Respondents, and it has not benefited to the same extent,
    its liability is limited to the benefit it derived from its involvement, which
    I find to be $90,400.
[99]

[95]

In reaching this conclusion, the application
    judge said: I am left with serious doubt about the legitimacy of 664 Ontarios
    explanation of the payment to it. On a balance of probabilities, in light of the
    pattern of the false invoicing scheme, I find that 664 Ontarios invoice, like
    many others produced as part of the false invoicing schemes, was a transaction
    in which no service was given for the value received.
[100]


[96]

This conclusion was well-supported. Although 664
    Ontario said that the work related to consulting services on the Hawkesbury hospital
    project: The Trustee has not been able to find, and 664 Ontario has not
    produced, any internal records to corroborate the work or the agreement.
[101]
The application judge noted
    that the consulting service 664 Ontario asserts that it provided required a
    high degree of structural engineering experience, which 664 Ontario did
    not possess as a matter of fact. She pointed out that 664 Ontario failed to
    provide relevant documents and correspondence regarding the involvement of a
    sub-consultant, refused to produce original documents, and refused to answer a
    number of questions in cross-examination.
[102]
The invoice at issue was solicited by Solano, who had no responsibility in the
    area in which 664 Ontario was operating. The method of invoicing was consistent
    with the other false invoices, including Solanos shady role.

[97]

Finally, the application judge found that 664
    Ontario was not acting at arms length with Forma-Con, largely based on her
    finding that no consulting services were actually supplied.
[103]

[98]

However, because 664 Ontarios participation was
    limited, she did not make the company jointly and severally liable, but instead
    only made it liable for the payment actually received from Forma-Con.

[99]

I would dismiss 664 Ontarios appeal on the
    basis that it failed to discharge its evidentiary burden of answering the case
    put forward by the trustee. It was open to the application judge to draw the
    adverse inferences she did. I do not discern any palpable and overriding error
    or error of law.

(4)

Did the application judge err in permitting the
    matter to proceed as an application?

[100]

John Aquino brought a motion to the application judge at the outset
    of the hearing to convert the combined applications of the monitor and trustee
    into an action, which Hainey J. had earlier refused to do. The application
    judges endorsement on the motion noted that the
BIA
permitted an application as the default procedural rule. She was
    aware that the
Rules of Civil Procedure
[104]
gave her discretion to convert the application into an action or to
    order the trial of an issue. She instructed herself on the jurisprudence and
    declined to do so, concluding:

I find that Mr. Aquino has not produced
    sufficient evidence to persuade me that there are material facts in dispute or
    credibility issues that cannot be resolved without the benefit of a trial. At
    the heart of the application is the question of whether the impugned
    transactions were carried out with intent to defraud
,
defeat or dela
y
creditors.
    The facts relevant to this fundamental question remain much the same as they
    were at the time Justice Hainey heard the moving parties

motion. If anything
,
the application has become less complex
    because the Respondents have now admitted that the transfers (other than the
    transfers
relating to 230) occurred
at undervalue
,
and
    they do not dispute any of the details or the operation of the false invoices
    scheme. Accordingly
,
the motion
    is dismissed.
[105]

[101]

John Aquino identifies as the first issue in the appeal 
whether the applications should have been converted into an action,
    and if not, whether there should have been a trial of an issue on the financial
    position of BCCL and Forma-Con and its application to the issues thereon.

[102]

John Aquino advances several grounds. First, he argues that he was
    not the only directing mind at Bondfield and Forma-Con and believes that his
    father Ralph and brother Steven should also have been embroiled, noting: The
    machinery of a trial was necessary in order for the Court to test the
    credibility of these material players, most fundamentally on whether the
    Bondfield Group had an intention to defeat creditors, and whether Ralph and
    Steven were privy to the impugned transactions. I agree with the application
    judge that this internecine fight is not relevant to the applications the
    monitor and the trustee brought. The application judge pointed out that it was
    open to John Aquino to pursue his father and sibling elsewhere. She found,
    quite rightly, that the participation of all three directing minds was not
    necessary to trigger s. 96 liability on the part of one of them.
[106]

[103]

Second, John Aquino asserts, as noted earlier,
    that Bondfield and Forma-Con were in strong financial shape and had no
    creditors at the time that he and his associates were looting them. He claims
    that expert evidence and cross-examination about the true financial condition
    of each company at the time of each impugned transaction was therefore
    required. I noted above that t
he application judge acknowledged
    that there was a divergence of opinion on the financial condition of the
    companies and that the true financial condition of each of BCCL and Forma-Con
    at the time of each impugned transaction cannot be determined on the record
    before the court.
[107]
But as described earlier, there was enough evidence to support the application
    judges conclusion
: 
The totality of the evidence demonstrates a pattern of an intent by
    John Aquino, on behalf of each of BCCL and Forma-Con to defraud, defeat or
    delay the creditors of BCCL and Forma-Con.
[108]


[104]

The application judges discretionary decision not to convert the
    consolidated applications into an action or to order the trial of an issue is
    entitled to appellate deference, in the absence of a legal error, an error in
    principle, or a palpable and overriding factual error. The appellants have not
    identified any. I would dismiss this ground of appeal.

E.

Disposition

[105]

I would dismiss the appeals by all of the appellants with costs.
    With respect to the appellants other than 664 Ontario, costs in the agreed upon
    amount of $75,000 all-inclusive are awarded to the respondents.

[106]

If 664 Ontario and the respondents are unable to agree on costs, then
    the respondents may file a written submission no more than three pages in
    length within ten days of the date of the release of these reasons and 664
    Ontario may file a written submission no more than three pages in length within
    ten days of the date the respondents submission is due.

Released: March 10, 2022 P.L.

P.
    Lauwers J.A.

I
    agree. Coroza J.A.

I
    agree. Sossin J.A.





[1]

Bankruptcy and Insolvency Act
, R.S.C.
    1985, c. B-3
(
BIA
).



[2]

Companies Creditors
    Arrangement Act
, R.S.C. 1985, c. C-36
(
CCAA
).



[3]
Defined in s. 2 of the
BIA
as: 
a disposition of property or provision of services for
    which no consideration is received by the debtor or for which the consideration
    received by the debtor is conspicuously less than the fair market value of the
    consideration given by the debtor.



[4]
The application judge also found that transactions relating to an
    alleged fund cycling scheme were not captured under s. 96, but that scheme is
    not at issue in this appeal.



[5]

I
    use Bondfield to denote
Bondfield Construction Company
    Limited, as distinct from the Bondfield Group. The application judge referred
    to Bondfield Construction Company Limited as BCCL.



[6]
The suppliers involved in this scheme were 2483251 Ontario Corp.
    a.k.a. Clearway Haulage (Clearway), 2420595 Ontario Ltd. a.k.a. Strada
    Haulage (Strada), 2466601 Ontario Inc. a.k.a. MMC Contracting (MMC),
    2420570 Ontario Ltd. a.k.a. MTEC Construction (MTEC), Time Passion, Inc.
    (Time Passion), and RCO General Contracting Inc. (RCO).



[7]

The Forma-Con suppliers were Clearway, MMC, MTEC, Strada,
    2304288 Ontario Inc. (230), which was John Aquinos personal holding company,
    and 2104664 Ontario Inc. (664 Ontario).



[8]
Despite the individual Forma-Con parties exclusion of 230 from
    their concessions, the application judge found that 230 was involved in the
    false invoicing scheme:
Ernst & Young Inc. v. Aquino
, 2021 ONSC 527,
    88 C.B.R. (6th) 60 (Decision Below), at paras. 120, 242.



[9]
Canada (Minister of
    Citizenship and Immigration) v. Vavilov
, 2019
    SCC 65, 441 D.L.R. (4th) 1, at para. 121.



[10]
Vavilov
, at paras. 117-24.



[11]
Section 96(3) of the
BIA
defines a privy as a person who is not dealing at arms length with a party
    to a transfer and, by reason of the transfer, directly or indirectly, receives
    a benefit or causes a benefit to be received by another person.



[12]

Section 121(1) of the
BIA
concerns what constitutes a provable claim: All
    debts and liabilities, present or future, to which the bankrupt is subject on
    the day on which the bankrupt becomes bankrupt or to which the bankrupt may
    become subject before the bankrupts discharge by reason of any obligation
    incurred before the day on which the bankrupt becomes bankrupt shall be deemed
    to be claims provable in proceedings under this Act.



[13]

This court has held that, in general, the 
BIA
is remedial legislation and should be given a
    liberal interpretation to facilitate its objectives:
Third
    Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc.
,
    2019 ONCA 508, 435 D.L.R. (4th) 416, at para. 43.



[14]

Royal Bank of Canada v. North American Life Assurance Co
.,
    [1996] 1 S.C.R. 325, at para. 59.



[15]

Royal Bank of Canada
, at para. 59, citing the
Interpretation
    Act
, R.S.C. 1985, c. I-21, s. 12.



[16]
Robyn
    Gurofsky, Fraudulent Preferences and Transfers at Undervalue: A Review of the
    Legal Developments under the
Bankruptcy
    and Insolvency Act
, in Janis P. Sarra, ed.,
Annual Review of
    Insolvency Law
, 2011 (Toronto: Thomson Reuters, 2012) 567, at p. 584.



[17]
Gurofsky, at p. 584 (footnote omitted).



[18]
Michael S. Myers, Transfers at Undervalue Under Section 96 of the Bankruptcy
    and Insolvency Act  A Primer, prepared for the Law Society of Ontario's
    Six-Minute Debtor-Creditor and Insolvency Lawyer Seminar (October 17, 2018), at
    p. 2, online: Papazian Heisey Myers, Barristers & Solicitors
    <www.phmlaw.com/site_files/content/pdf/published_works/michael_myers/2018_lso_seminar_6_minute_debtor-creditor_and_insolvency_law.pdf>.
    Myers analysis of s. 96 has been cited in M.A. Springman
et al.
,
Frauds
    on Creditors: Fraudulent Conveyances and Preferences
,
loose-leaf (2022-Rel. 1) (Toronto:
    Thomson Reuters, 2021).



[19]
Myers, at pp. 2-3 (footnote omitted).



[20]

Freeman v. Pope
(1870), L.R. 5 Ch. App 538, at p. 540.



[21]

Urbancorp Toronto Management Inc. (Re)
, 2019 ONCA 757, 74
    C.B.R. (6th) 23, at para. 48.



[22]

Urbancorp
, at para. 40.



[23]
Decision Below, at paras. 156-60.



[24]

Montor Business Corp. (Trustee of) v. Goldfinger
, 2013 ONSC 6635, 8 C.B.R. (6th) 200, at para. 272 (emphasis added),
    affd 2016 ONCA 406, 351 O.A.C. 241, leave to appeal refused, and [2016]
    S.C.C.A. No. 361 and revd in part on other grounds, 2016 ONCA 407,

398 D.L.R. (4th) 266, leave to appeal
    refused, [2016] S.C.C.A. No. 360.



[25]

Montor
, at para. 274.



[26]
Decision Below, at paras. 48, 144 and 163.



[27]
Decision Below, at paras. 98, 165, and 167.



[28]
Decision Below, at paras.
102-3, 165-66.



[29]
Decision Below, at para. 181.



[30]
Decision Below, at paras. 96-97.



[31]

Decision Below, at paras. 169, 176-77 and 193.



[32]

Decision Below, at paras. 99, 165 and 193.



[33]

Decision Below, at para. 145.



[34]

Decision Below, at para. 161, citing
Purcaru
    v. Seliverstova
, 2015 ONSC 6679, 69 R.F.L. (7th) 388, affd 2016
    ONCA 610, 80 R.F.L. (7th) 28.



[35]

Decision Below, at para. 164.



[36]

Decision Below, at para. 165.



[37]

Decision Below, at para. 193.



[38]

Decision Below, at para. 158.



[39]

Decision Below, at paras. 170, 193.



[40]

Decision Below, at para. 168.



[41]

Decision Below, at para. 190.



[42]

Decision Below, at para. 191.



[43]

Decision Below, at para. 192.



[44]

Decision Below, at para. 182.



[45]

Decision Below, at para. 182.



[46]

Decision Below, at para. 197.



[47]

Decision Below, at para. 160.



[48]

Montor
, at para. 272.



[49]

Decision Below, at para. 160.



[50]

Decision Below, at para. 204.



[51]

Decision Below, at para. 189.



[52]

Juhasz Estate v. Cordiero
, 2015 ONSC 1781, 24 C.B.R. (6th)
    69, at para. 54 (emphasis added).



[53]

R. v. Théroux
, [1993] 2 S.C.R. 5, [1993] S.C.J. No. 42, at
    para. 26.



[54]
Recklessness is also generally sufficient in cognate areas such as
    knowing assistance or fraudulent misrepresentation.



[55]

Canadian Dredge & Dock Co. v. The Queen
,
[1985] 1 S.C.R. 662.



[56]

Decision Below, at para. 217.



[57]

Decision Below, at para. 217.



[58]

Decision Below, at para. 230.



[59]

Decision Below, at para. 218.



[60]

Decision Below, at para. 219.



[61]

Decision Below, at para. 224.



[62]

Decision Below, at paras. 226-29.



[63]

DBDC Spadina Ltd. v. Walton
,
    2018 ONCA 60, 419 D.L.R. (4th) 409 (
Walton
),
per
van Rensburg J.A., in a dissenting opinion adopted
    by the Supreme Court as its reasons on appeal in
Christine DeJong Medicine
    Professional Corp. v. DBDC Spadina Ltd.
, 2019 SCC 30, [2019] 2
    S.C.R. 530 (
Dejong
).



[64]

Decision Below, at para. 224.



[65]
In
    this context, for terminological clarity, I treat the two somewhat distinct
    spheres of common law and equity as together comprising common law.



[66]

Chandos Construction Ltd. v. Deloitte Restructuring Inc
.,
    2020 SCC 25,
449 D.L.R. (4th) 293, at para. 29.



[67]
Lloyd
    W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra
,
Bankruptcy and
    Insolvency Law of Canada
,
4th ed.,
    loose-leaf, (Toronto: Thomson Reuters, 2009), at para. 6-163. See
Bulut v. Brampton (City)
,
    48 O.R. (3d) 108 (C.A.), leave to appeal refused, [2000] S.C.C.A. No. 259.



[68]

Bhasin v. Hrynew
, 2014 SCC 71, [2014] 3 S.C.R. 494.



[69]

C.M. Callow Inc. v. Zollinger
, 2020 SCC 45, 452 D.L.R.
    (4th) 44.



[70]

CWB
    Maxium Financial Inc v. 2026998 Alberta Ltd
,
    2021 ABQB 137, 25 Alta. L.R. (7th) 3, at paras. 41, 58. See also
    Houlden, Morawetz, and Sarra, at paras. 1-68 and 4-82 for further discussion on
    good faith in the
BIA

and
Ari Y. Sorek and
    Charlotte Dion, Good Faith in Insolvency and Restructuring: At the
    Intersection of Civilian and Common Law Paradigms, at a Fork in the Road or in
    a Merging Lane?
in Jill Corraini and the Honourable Blair
    Nixon, eds.,
Annual Review of Insolvency Law
, 2020 (Toronto: Thomson
    Reuters, 2021) 34.



[71]

Hutchingame Growth Capital
    Corporation v. Independent Electricity System Operator
,

2020 ONCA 430, at
    paras. 41-42 (emphasis added; citations omitted), leave to appeal refused, [2020]
    S.C.C.A. No. 312.



[72]

Chandos
, at paras. 25, 30.



[73]

Chandos
, at para. 30.



[74]

Roderick
    Wood,
Bankruptcy and
    Insolvency Law
, 2nd ed. (Toronto: Irwin Law Inc., 2015), at p.
    195.



[75]

Deloitte & Touche v. Livent Inc.
(Receiver of)
, 2017 SCC 63, [2017] 2
    S.C.R. 855, at paras. 100-4.



[76]
Livent
, at para. 100 (citations
    omitted).



[77]

Livent
, at para. 104.



[78]

Livent
, at para. 102.



[79]

Livent
, at para. 103 (citations omitted).



[80]

Livent
, at para. 104 (emphasis in original).



[81]

Livent
, at para. 104.



[82]

Decision Below, at para. 229.



[83]

Decision Below, at paras. 24, 136.



[84]

Decision Below, at paras. 72-73.



[85]
Decision Below, at paras. 35, 119 and 157.



[86]

Decision Below, at para. 138.



[87]

Decision Below, at para. 106.



[88]

Decision Below, at para. 97.



[89]

Decision Below, at para. 106.



[90]

Decision Below, at para. 284.



[91]

Houlden, Morawetz, and Sarra
, at para.
    5-547.



[92]

Houlden, Morawetz, and Sarra
, at para.
    5-543, discussing
King Insurance Finance (Wines) Inc. v. 1557359
    Ontario Inc. (Willowdale Autobody Inc.)
, 2012 ONSC 4263, 99 C.B.R. (5th)
    227.



[93]

Decision Below, at para. 93.



[94]

Decision Below, at para. 255.



[95]

Decision Below, at para. 283.



[96]

Decision Below, at para. 255.



[97]

Decision Below, at paras. 269, 278.



[98]

Decision Below, at paras. 36, 108.



[99]

Decision Below, at para. 282.



[100]

Decision Below, at para. 128.



[101]

Decision Below, at para. 123.



[102]

Decision Below, at paras. 124-25.



[103]

Decision Below, at para. 140.



[104]

Rules
    of Civil Procedure
, R.R.O. 1990, Reg. 194, r. 38.10(b).



[105]
Endorsement of Dietrich J., dated September 15, 2020, at para. 18.



[106]

Decision Below, at para. 196.



[107]

Decision Below, at paras. 165, 193.



[108]

Decision Below, at para. 197.


