Republished citation follows // Emphasis added

Citation:     Craig v Dubin, 2016 ONSC 7889 (CanLII), <http://canlii.ca/t/gwhnl>, retrieved on 2016-12-21


Overview

[1]               Fraud is fraud because the fraudster intends to deceive his or her victim without the victim knowing that he or she has been duped. In this case the fraudster argues the victim either knew or should have known that he had been victimized and therefore the fraud is subject to the Limitations Act, 2002, SO 2002, c 24, Sch B.

[2]               The plaintiff seeks summary judgment for the amount that they have been defrauded, $342, 170.22. The defendant seeks to amend his statement of defence to plead that any amounts that the defendant stole prior to August 7, 2013 are statute barred.

The Facts

[3]               The plaintiff Anthony Craig (Craig) is a professional chartered accountant. Craig and his wife Betty Craig (Betty) are the sole partners in the accounting firm CTS & Associates (CTS). CTS specializes in providing accounting services, with particular emphasis on receiving tax credits and refunds.

[4]               CTS bills its clients on a contingency fee basis based on the tax refund or credit that is received by the client from Canada Revenue Agency (CRA).

[5]               The defendant Lowell Dubin (Dubin) married Craig’s daughter Heather Dubin (Heather) in September, 2007. Dubin began working with CTS in 2009.

[6]               The Plaintiffs allege Dubin represented to Craig and the Craig family that he had graduated from law school; that he was a lawyer and a member of the Law Society of Upper Canada. He also represented that he worked for the Canadian Security Intelligence Service (CSIS). Nowhere in Dubin’s responding material does he deny that he made these representations nor does he deny that these representations were false.

[7]               In July 2016, Dubin’s marriage to Heather terminated when Heather discovered that Dubin was having an extramarital relationship. Shortly after the termination of the relationship between Heather and Dubin, the Marketing Department at CTS discovered that a client (the Client) believed that it had paid CTS for services rendered when internal records demonstrated that CTS had not been paid. Craig therefore investigated the client’s concern.  The investigation revealed the following:

(a)   The client had paid another entity called “CTS and Associates” and the cheque had been deposited into an account at the Bank of Nova Scotia which had been opened in the name of CTS and Associates;

(b)   The account’s address was linked to Dubin;

(c)   CTS had never opened the aforementioned bank account at Scotia Bank; and

(d)   Dubin had filed paperwork in 2011 with the Ontario Government indicating that he was the owner and sole proprietor of  a company called CTS and Associates (the sham CTS).

[8]               In addition to opening the business account at Scotia Bank and the registration of the business name which I have referred to as the “sham CTS”, Dubin also created fraudulent sham CTS letterhead which he then used to bill clients of CTS which had been assigned to him by his father-in-law. Dubin would see the clients with CTS alone and would inform them of the necessary work that would result in a refund from the CRA to the client which would then result in Dubin billing the client using the fake sham CTS letterhead.

[9]               When the client received the sham CTS invoice the client would then send payment to Dubin’s home address. The payment would then be deposited into the sham CTS bank account at Scotia Bank. A total of 69 payments from clients of CTS were the subject matter of Dubin’s fraudulent conduct. The total of these payments is $342,170.22.

[10]           Dubin was cross examined on his affidavit and made various admissions. He admitted that he had the exclusive control of the sham CTS bank account with Scotia Bank. He admitted that he created the sham CTS invoices which had his home address. He admitted that he received payments from CTS clients that he deposited into the sham CTS bank account with Scotia Bank.

[11]           While Dubin admitted that the business name registration in the name of the sham CTS was registered in his name with his home address he refused to answer the question as to whether he was the person who registered the name. He did acknowledge, however, that he had no evidence to dispute the authenticity of the document.

[12]           Dubin admitted that his father-in-law trusted him and that he lied to him about defrauding CTS.

[13]           Craig was cross examined on his affidavit and not surprisingly gave evidence that he trusted his son-in-law. The following extract is demonstrative of the trust that Craig placed in Dubin:

I gave him some of my best clients, implicitly trusted him. He was my son-in-law. I treated him like a son, ok, never had one ounce of doubt on him, ok, at all times, whatsoever. The first time that I learned this was on the 29th of July, 2015 (Transcript of A. Craig p. 1, Q. 62)

[14]           Dubin filed a nine page, 38 paragraph affidavit responding to the plaintiffs motion. Nowhere in his affidavit does he dispute the fraud that he perpetrated on the plaintiffs. The statement of defence that was filed on his behalf in February, 2016, while not admitting the fraud, does admit to a “debt to the plaintiff in the amount of $240,042.74”. The so called debt admitted to in Dubin’s statement of defence represents the amount claimed by the plaintiffs less a 30% commission which Dubin suggests he would otherwise be entitled to had the CTS clients been billed in the normal course as opposed to being billed as a result of Dubin’s fraudulent scheme. In Dubin’s cross examination he admitted that he was liable to the plaintiffs for the plaintiffs’ loss, plus legal fees, disbursements and interest.

[15]           In the plaintiffs’ statement of claim, the plaintiff claims for various heads of damages above and beyond the actual amount of the fraud. Those claims included: claims that relate to loss of business, credibility, business development loss, damages caused as a result of the defendant’s divulging of trade secrets and other related heads of damages which total approximately $314,000. At the hearing of the motion, plaintiffs’ counsel abandoned all of the aforesaid claims with the exception of the actual amount of the fraud previously stated in the amount of $342,170.22. The plaintiff continues to assert a claim for punitive damages and aggravated damages in the amounts of $100,000 each.

Position of the Plaintiff

[16]           Counsel for the plaintiff argues that Dubin for all intents and purposes admitted in his cross examination to all of the necessary elements of the fraud that was perpetrated on the plaintiffs and that even his statement of defence admits to a debt owed to CTS. As for the proposed amendment to Dubin’s statement of defence pleading the Limitations Act, plaintiffs’ counsel argues that the evidentiary evidence to establish the plaintiffs knew or should have known of the fraud prior to August 7, 2013 is nothing more than unsupported vague speculation.

Position of the Defendant

[17]           Dealing first of all with the amount claimed by the plaintiffs, counsel for the defendant argues that under the employment relationship which the defendant had with CTS he would have been entitled to a 30% commission and as such, the amount of the claim should be reduced to approximately $240,000.

[18]           The main issue raised by the defendant arises out of the proposed amendment to the statement of defence pleading the Limitations Act. In that regard it is argued that there is a genuine issue for trial in determining when the limitation period began to run. It is argued that as a professional chartered accountant, Craig knew or ought to have known that there were discrepancies in the CTS accounts from 2011 through to 2015 totalling approximately $342,000. It is argued that the plaintiffs intentionally turned a “blind eye to or unreasonably failed to monitor, the alleged practice of the defendant due to the father/son-in-law relationship and the potential implications the exposure would have on Heather”. (Plaintiff’s Factum, para. 33.)

[19]           In his cross examination Dubin was asked about the discoverability issue raised by the proposed pleading of the Limitations Act. His answers are somewhat remarkable, I have re-produced the extract from his  cross examination as follows:

339.    Q. So it’s his fault of not being suspicious of you?

A. No, I’m not saying anything is his fault. I’m just saying that it’s reasonable for somebody to become suspicious, or at least look into something further when there is repeated deflections over time.

340.     Q. So I just want to understand your testimony. So he shares some of the responsibility for you having defrauded him?

A. “Defrauding him” is your term. I’m not admitting to defrauding.

341.    Q. So he shares some of the responsibility for you lying to him about obtaining payments from his clients and paying them into your own account? He shares some of that responsibility, according to you. It would have been reasonable for him to question you more?

A. It would have been reasonable for him to question me more, yes.

Analysis

[20]           In support of his argument that Craig knew or should have known about his fraudulent activities sooner than he did, Dubin argues that Heather either knew, or in some way covered up, what was occurring. Specifically it is argued that because cheques and invoices were being mailed to the Dubin residence for the sham CTS, Heather could or should have seen a cheque made out to the sham CTS and inquired as to why this was occurring.

[21]           Dubin took no steps to put any evidence before the court that could raise a genuine issue for trial as it relates to Heather. As I pointed out to Dubin’s counsel during the course of argument, if there was any evidentiary basis for the suggestion Heather knew or should have known about any or all of the details of Dubin’s fraudulent scheme, Dubin through his counsel could have obtained that evidence by serving a summons on Heather pursuant to the provisions of Rule 39.03. The cross examinations which took place on the affidavits filed in support of the motion for summary judgment only took place on November 29, 2016. The hearing of the motion took place on December 13, 2016. Part of the motion related to the extension of a Mareva injunction. In my view, if Dubin was serious in terms of his assertions as against Heather he had the means by which he could obtain that evidence. His failure to do so in my view is fatal with respect to the suggestion that Heather was in any way complicit with his fraud or should have brought to the attention of her father information that might have alerted Craig to the possibility that he was being victimized by his son-in-law.

[22]           It is one thing to speculate with respect to the suggestion that Craig, his wife or even his daughter should have in some way suspected Dubin’s deceitful conduct. His scheme while simple was nonetheless a scheme that was able to avoid detection until such time as the client of CTS alerted the plaintiffs to the possibility that something suspicious had occurred with respect to the payment of the client’s account.

[23]           Speculation does not amount to evidence. Dubin bore the responsibility of putting his best foot forward in terms of providing facts that would support an evidentiary basis that despite his deceitful conduct the plaintiffs should have known of that conduct at a much earlier date than they did with the result that the Limitations Act would potentially bar recovery. While I grant leave under Rule 26 to amend the defendant’s statement of defence as requested, I find no facts upon which this court could act in determining that the plaintiffs should have known at any date prior to late July, 2015 that Dubin had perpetrated fraud on the plaintiffs.

[24]           This is not a case where the full forensic machinery of a trial is required in order to establish the facts upon which the plaintiffs would be entitled to recovery as against the defendant. A trial in this case is not required to achieve a fair and just adjudication. This court has more than ample evidence, not only based on the facts alleged by the plaintiffs but more importantly admitted to by the defendant in his cross examination and in his statement of defence. While there was a motion before the court to amend the statement of defence, there was no motion to withdraw the admission made in the statement of defence with respect to the amount Dubin says was owed to the plaintiffs as a “debt”.

[25]           The Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7 (CanLII) makes it quite clear that a trial is not required where a motion for summary judgment can achieve a fair and just adjudication which provides for a process that allows the judge to make the necessary findings of fact and allows the motion judge to apply the law to those facts. In my view applying the principles set forth by the Supreme Court of Canada in Hryniak, the relief sought by the plaintiffs in the motion for summary judgment excluding the various claims for damages which were withdrawn is a proportional, expeditious and the least expensive means by which to achieve a fair result for all parties. There is no genuine issue that requires a trial as it relates to the plaintiffs’ claim for the fees received by the defendant from the plaintiffs clients totalling $342,170.22.

[26]           As for the defendant’s suggestion that he would be entitled to a 30% commission on the $342,170.22 I unreservedly reject that suggestion as it would only reward the defendant for his deceitful fraudulent conduct. Furthermore, at the point in time when the defendant began to defraud the plaintiffs his conduct would have amounted to just cause for dismissal disentitling the defendant to any commission as a result of his breach of contract. The plaintiffs are entitled to recover the full amount of $342,170.22.

[27]           As for the balance of the plaintiffs motion seeking punitive and aggravated damages I am satisfied that this is in fact a case where the plaintiff should be awarded punitive damages as this is a case which amply demonstrates malicious high-handed conduct that offends the courts sense of decency such that the court should award an amount for punitive damages. Dubin’s conduct in defrauding the plaintiffs was deceitful and not only breached the defendant’s obligation as an employee of the plaintiffs, but perhaps equally and more disturbing was a breach of the trust between a son-in-law and father-in-law. This is a case where the court should award punitive damages to condemn the defendant’s reprehensible conduct and to deter others in the future who might consider such conduct appropriate. In my view, the appropriate amount the court should award in punitive damages is $50,000.

[28]           I was advised during the course of argument that Dubin had not “yet” been charged criminally for his fraudulent conduct. Generally the court will not award punitive damages in a situation where a defendant has already been punished through the criminal process. That has not happened in this case and therefore punitive damages is an appropriate sanction for this court to impose on the defendant. In the event Dubin was charged and ultimately convicted for his fraudulent conduct Dubin would effectively have been punished twice; once by way of an award of punitive damages and secondly by the criminal process. Dubin should not have to  face a situation of double jeopardy.  If subsequent to the release of these reasons Dubin is dealt with by the criminal process and he receives some form of punishment Dubin should have the right to seek  relief from the award of punitive damages.

[29]           With respect to the plaintiffs’ claim for aggravated damages, I agree with the submission made by defence counsel that aggravated damages cannot be awarded to a corporate entity, see Thomas Management Limited v. Alberta (Minister of Environmental Protection), 2006 AJ 1332, ABCA 303 at paras. 12-13, 27.  I decline to make any award for aggravated damages.

[30]           The plaintiff also sought an order that an existing Mareva injunction be extended until the plaintiffs have recovered the judgment awarded by this court against Dubin. The plaintiffs have already placed before the court the evidentiary record that allowed for the granting of the Mareva injunction. Those conditions included a condition precedent that the plaintiff demonstrate a strong prima facie case. The strong prima facie case  is now more than amply been borne out by the granting of summary judgment  in favour of the plaintiffs.

[31]           The appropriate disposition with respect to the plaintiffs’ motion to extend the Mareva injunction would be to allow such an extension for a reasonable period of time to allow the plaintiffs to move from the Mareva injunction regime to taking the necessary steps to enforce their judgment in accordance with the enforcement procedures allowed for under the Rules of Civil Procedure. I am therefore exercising my discretion and extend the terms of the Mareva injunction order until July 30, 2017.

[32]           As for the question of costs I am satisfied given the fraudulent conduct demonstrated by Dubin that has now resulted in this judgement that the court should award full indemnity costs to the plaintiff. I was however advised that there may have been an exchange of offers to settle that could potentially trigger the consequences of Rule 49 and potentially may have some impact on the level of costs that this court should award. I am therefore deferring the Court’s decision with respect to costs pending receipt of the parties written submissions, limited to five pages in length to be received no later than January 30, 2017.

[33]           In summary, the plaintiffs are entitled to judgment against the defendant in the amount of $342,170.22 plus prejudgment interest calculated in accordance with the provisions of the Courts of Justice Act, R.S.O. 1990, c. C.43, plus $50,000 in punitive damages (without prejudgment interest). The plaintiffs shall also be entitled to their costs which costs are to be determined based on written submissions to be received from counsel limited to five pages in length and received no later than January 30, 2017.

Justice M.L. Edwards

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