On November 15, 2018, the Supreme Court of Canada granted Christine DeJong Medicine Professional Corporation’s (“DeJong”) application for leave to appeal from the decision in DBDC Spadina Ltd. v. Walton, 2018 ONCA 60. By granting leave, Canada’s highest court will weigh in on the liability of “victims” of fraud as against one another.

As described in our previous blog post, these long-running proceedings have pitted the investors against each other over the priority of their claims against proceeds from the sale of properties acquired under a fraudulent scheme. Over the course of several years, the Waltons convinced various parties to invest in equal-shareholder corporations to maintain commercial real estate properties in Toronto. Rather than investing funds of their own, the Waltons moved the investors’ money through shell corporations to further their personal interests. The respondents, the DBDC Parties and DeJong, invested in several projects with the Waltons.

On June 2, 2017, a majority of the Ontario Court of Appeal agreed with the DBDC Parties that DeJong had knowingly participated / assisted in the Waltons’ scheme. The Court of Appeal therefore overturned the lower court’s decision that DeJong was entitled to a constructive trust over certain properties and held that the companies created under DeJong’s investments (known as the “Schedule C Companies”) were jointly and severally liable to the DBDC Parties in the amount of $22.7 million. The majority’s analysis turned on the rationale that because Ms. Walton was the controlling mind of the Schedule C Companies, her actions could be attributed to them, and therefore they could be held jointly and severally liable for the fraudulent scheme.

Leave to the Supreme Court

In its leave application, DeJong identified the following issues to be determined by the Supreme Court:

  1. What does “participation” entail in a claim for knowing participation / assistance?
  2. How does the Corporate Identification Doctrine apply in the context of knowing assistance?
  3. In cases like this one, must a Court consider the effect on third-party investors when awarding remedies for knowing participation / assistance?

The Supreme Court of Canada has now set a hearing date of May 14, 2019. As noted by DeJong in its application for leave to appeal, this case marks the first time that a “claim of knowing assistance has been made by one group of defrauded investors against another similarly situated group.” The Supreme Court’s decision will clarify the law on whether and how a stranger to a trust can be held liable for breach of trust. We will continue to provide updates on this case as it progresses.

** With thanks to Faye Williams for her assistance writing this post.

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Photo of Glenn Gibson Glenn Gibson

Glenn Gibson is a member of Baker McKenzie’s Litigation & Government Enforcement Group in Toronto. Glenn acts for clients in civil fraud proceedings, contractual disputes, jurisdictional disputes, class actions, and on matters involving commercial arbitration. She is a frequent contributor to www.canadianfraudlaw.com, www.globalarbitrationnews.com, and to the Baker McKenzie International Arbitration and Litigation Newsletter. She also assists the Firm’s pro bono team in providing legal advice to victims of human trafficking and sexual exploitation.

Photo of John Pirie John Pirie

John Pirie leads the Firm’s Canadian Litigation and Government Enforcement Group. He acts for clients in complex litigation and investigations. Mr. Pirie’s practice includes a significant fraud law and asset recovery component, often involving matters in the financial services industry. He routinely acts for our clients in coordination with other Baker McKenzie offices globally. Mr. Pirie has expertise concerning asset recovery strategies and emergency relief measures related to fraud, including Mareva injunctions, Anton Piller orders, Norwich Pharmacal orders, global asset tracing and fraudulent conveyance proceedings. Mr. Pirie has acted as lead counsel on an array of reported cases in this field, and he has been recognized in Lexpert’s Annual Guide to the Leading Canada/US Cross-Border Litigation Lawyers, and in the Legal 500 for Dispute Resolution (Canada). He appeared in the Supreme Court of Canada on a case ranked by Lexpert Magazine as Canada’s #1 business decision for 2007. Mr. Pirie has previously been named one of Lexpert’s Rising Stars, a “top 40” award that recognizes Canadian lawyers with an outstanding record of success.