Toronto Dominion Bank v. Poon, 2012 ABQB 606

Court of Queen ’ s Bench of Alberta Citation: Toronto Dominion Bank v. Poon, 2012 ABQB 606 Date: 20121002 Docket: 0901 12789 Registry: Calgary Between: The Toronto Dominion Bank Plaintiff - and - Joseph Poon Defendant - and - Bruce D. Blumell, Nixious Investments Inc., Alex Karmis and Krista Fa Third Party Corrected judgment: A corrigendum was issued on October 17, 2012; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the

Honourable Madam Justice C. A. Kent _______________________________________________________ [1] Joseph Poon was a straw buyer of a residential property. In return for a payment of $11,000, he agreed to become legalowner of the property and sign a mortgage to the Toronto-Dominion Bank. Mr. Poon alleges in a Third Party Notice filed against BruceBlumell, the lawyer acting on the transaction, that he was approached by the principals of a company called Nixious. Nixious agreed toobtain mortgage financing, engage a solicitor to complete the transaction, rent the property, collect the rent and pay the mortgagepayments.

Poon says that he was told by a principal of Nixious that the transaction was legal. Mr. Poon says that he insisted that alawyer be involved in the transaction and that that gave him comfort that everything was legal. Mr. Poon is a professional engineer andhas, in the past, purchased and mortgaged property. [2] Mr. Poon went to Mr. Blumell’s office to sign the necessary papers, including the mortgage, a Purchaser’sAcknowledgement and a statutory declaration. Within those documents were statements that the Mortgage was insured by CMHC, that itwas a high ratio mortgage, that Mr.

Poon was personally liable for default under the mortgage, that he could be liable for any deficiencyshould the property be of less value than the mortgage and related costs and that the property must be owner-occupied. Mr. Poon did nottell Mr. Blumell about his agreement with Nixious. Mr. Poon sued Mr. Blumell in negligence, contract and breach of fiduciary duty. Mr.Blumell defended, denying the allegations and asserting that the claim should fail based upon the principle of ex turpi causa non orituraction. [3] Mr. Blumell applied for

summary judgment. That application was granted by a Master and this is an appeal from thatdecision. The Master’s reasons were brief, stating that she was bound by the decision of Sullivan, J in Dhillon v. Ashraf, unreported,Alberta Court of Queen’s Bench, Sullivan J 2010-12-03, Docket 0901-09483. She made no findings of fact with respect to the claim. Thefacts in Dhillon are very similar to the facts in this case. Subject to a finding that Mr. Poon was a willing participant in the fraudulentscheme, pursuant to the rules of judicial comity, I would follow Dhillon except for one matter.

Nowhere in Dhillon is the case of Hall v.Hebert, (SCC), [1993] 2 S.C.R. 159 referred to. As discussed in more detail below, the majority in Hall set out somelimiting principles in the application of the principle of ex turpi causa, limitations that may be relevant to this case. [4] Two principles of law require no comment. First, the standard of review of a decision of a master is correctness: Bahcheli v.Yorkton Securities Inc., 2012 ABCA 166. Second, a party moving for

summary judgment must show that there is no genuine issue fortrial or, put another way, that it is plain and obvious that the claim cannot succeed: Murphy Oil Co. v. Predator Corp., 2006 ABCA 69. [5] Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd. is the starting point for the consideration ofthe ex turpi causa principle. The court found that the facts in the case did not support application of the principle.

In the course of thatfinding, the court confirmed that for the principle to apply, the act forming the basis of the plaintiff’s claim must be casually linked tothe plaintiff’s illegal act. It referred to two articles on the principle. The first, a case comment by Dale Gibson in (1969), 47 Can. BarRev. 89 says that the rule is limited to circumstances where the plaintiff seeks to profit from his illegality and not circumstances wherethe plaintiff seeks to be restored to the position that he was in prior to operation of the illegal act. The second, an

article entitled “TheWrongful Plaintiff” by Professor Fridman ((1972), 18 McGill L.J. 275, argues that the principle should apply if “...the plaintiff’swrongdoing is historically related to his loss or injury, if it operated with the defendant’s illegal behaviour to produce the harm sufferedby the plaintiff, and if his conduct makes him morally responsible or blameworthy for what happened to him.” While these analysesdiffer somewhat, they both start with the obvious proposition that the wrongdoing must be related to the loss for which recovery isclaimed. [6] In Hall v.

Hebert, Cory, J concluded that the doctrine should be abolished. McLachlin, J (as she then was), writing for themajority, disagreed. Rather, the doctrine should be applied in very limited circumstances; only where the integrity of the legal system isat stake (para 5). The correct application of this case to the facts here is central to my decision. As a result I will quote extensively fromMcLachlin, J’s reasons. At para 5 she says: My own view is that courts should be allowed to bar recovery in tort on the ground of the plaintiff’s immoral or illegal conduct only invery limited circumstances.

The basis of this power, as I see it, lies in duty of the courts to preserve the integrity of the legal system, andis exercisable only where this concern is in issue. This concern is in issue where a damage award in a civil suit would, in effect, allow aperson to profit from illegal or wrongful conduct, or would permit an evasion or rebate of a penalty prescribed by the criminal law...Itfollows from this that, as a general rule, the ex turpi causa principle will not operate in tort to deny damages for personal injury, since tort

suits will generally be based on a claim for compensation, and will not seek damages as profit for illegal or immoral acts. [ 7 ] At para 11, she says: One situation in which there seems to be a clear role for the doctrine is the case where to allow the plaintiff’s tort claim would be to permit the plaintiff to profit from his or her wrong. It is important at the outset to define what is meant by profit. As the cases illustrate, what is meant is profit in the narrow sense of a direct pecuniary reward for

an act of wrongdoing. Compensation for something other than wrongdoing, such as for personal injury, would not amount to profit in this sense.

An instance is the situation where one wrongdoer claims in tort against another for financial loss arising from a joint illegal venture. [ 8 ] After giving some examples where the ex turpi causa principle is appropriately applied such as in cases where a wrongdoer seeks punitive damages, she says at para 17: The narrow principle illustrated by the foregoing examples of accepted application of the maxim of ex turpi causa non oritur actio in tort, is that a plaintiff will not be allowed to profit from his or her wrongdoing.

This explanation, while accurate as far as it goes, may not, however, explain fully why courts have rejected claims in these cases. Indeed, it may have the undesirable effect of tempting judges to focus on the issue of whether the plaintiff is “getting something” out of the tort, thus carrying the maxim into the area of compensatory damages where its use has proved so controversial, and has defeated just claims for compensation. A more satisfactory explanation for these case, I would venture, is that to allow recovery in these cases would be to allow recovery for what is illegal.

It would put the courts in the position of saying the same conduct is both legal, in the sense of being capable of rectification by the court, and illegal. It would, in short, introduce an inconsistency in the law.

It is particularly important in this context that we bear in mind that the law must aspire to be a unified institution, the part of which – contract, tort, the criminal law – must be in essential harmony. [ 9 ] She then explains the distinction between compensatory damages and damages which amount to profit from an illegal act at para 18: ...compensatory damages are not properly awarded as compensation for an illegal act, but only as compensation for personal injury. Such damages accomplish nothing more than to put the plaintiff in the position he or she would have been in had the tort no occurred.

No part of the award which compensates injury can be said to be the profit of, or the windfall from, an illegal act. It may be that had the plaintiff not committed an illegal act, like driving while impaired as in this case, he or she would never have suffered injury. But the same point could be made in the context of every tort: had the injured party not first done X or Y, he or she would not have been subject to the negligence of the tortfeasor.

The question that the law asks is whether an injured party suffered a recognized sort of injury, at the hands of someone who owed this party a duty of care, and who caused reasonably foreseeable damage by falling below the standard of care that the law imposes.

The plaintiff’s behaviour will be relevant to the extent to which it can be shown, according to the established principles just referred to, that the plaintiff contributed to, or voluntarily accepted, the injury he or she suffered; his or her behaviour will be otherwise irrelevant, unless the plaintiff’s claim falls into that narrow group of excluded claims referred to above.

None of the foregoing propositions changes the fact that such compensation as a plaintiff properly recovers arises not from the character of his or her conduct, illegal or otherwise, but from the damage caused to him or her by the negligent act of the defendant. He or she gets only the value of, or a substitute for, the injuries he or she has suffered by the fault of another.

He or she gets nothing for or by reason of the fact he or she was engaged in illegal conduct. [ 10 ] She concludes her discussion with the following at para 25: I conclude that there is a need in the law of tort for a principle which permits judges to deny recovery to a plaintiff on the ground that to do so would undermine the integrity of the justice system. The power is a limited one.

Its use is justified where allowing the plaintiff’s claim would introduce inconsistency into the fabric of the law, either by permitting the plaintiff to profit from an illegal or wrongful act, or to evade a penalty prescribed by criminal law. Its use is not justified where the plaintiff’s claim is merely for compensation for personal injuries sustained as a consequence of the negligence of the defendant. [ 11 ] The cases decided after Hall fall into two categories. Some involve circumstances where the plaintiff and defendant were jointly involved in the illegal act.

Others are more like this case because the parties here were not jointly involved in the illegal act. Mr. Blumell had no knowledge that Mr. Poon was buying the property for someone else and receiving a payment to do that. Those cases are Holub Modelling Inc. v. Halifax Insurance Co. , 2000 CarswellOnt 2898 , MCAP Service Corp. v. Molina-Tan , 2009 ABCB 472 and Dhillon .

[ 12 ] Mr. Poon argues that the application for

summary judgment cannot succeed for two reasons. First, there has not been and there should not be, on a

summary basis, a finding that Mr. Poon was a willing participant in the illegal act. Mr. Poon has testified that he thought that what he was doing was legal and that the reason why he insisted on a lawyer being involved was to ensure that he would be warned if there was something untoward about the transaction. A judge, at trial, weighing the evidence, is the only one who can make that finding of fact. Second, Mr. Poon says that his claim is for indemnity; that is, for compensation to put him back into the position he would have been but for the conduct of Mr. Blumell.

It is akin to the personal injury case which Hall addresses. [ 13 ] Mr. Blumell argues first that I can make a finding that Mr. Poon was a willing participant. He is an educated person who has had previous experience in the real estate market. He has not provided any explanation for why he thought that it was legal to sign the documents including a statutory declaration, stating facts that were simply not the case and accepting $11,000 for a couple of hours work. He then argues that the principle of ex turpi causa applies. This is not a situation like in Hall . Here, if I find that the claim against Mr.

Blumell is seeking compensation rather than related to the illegal act, Mr. Poon will be overcompensated because he has already received $11,000 for his participation in the scheme. He argues that the ratio of Hall is that the principle will not apply when the claim is for compensation for personal injuries and that is not the case here. [ 14 ] First, I can make a finding that Mr. Poon was a willing participant in an illegal act. He is an educated man who had previous experience in the real estate market. What possible legal reason could there be for Nixious to pay him $11,000.

Why, if he was innocent, did he not find out more about the obligation he swore he was aware of - to occupy the property? His claim of innocence is not credible. [ 15 ] That takes me to the principle of ex turpi causa . I take Hall to mean two things. First, the principle of ex turpi causa is available, but should be applied very narrowly. Second, the basis upon which it should be applied is to preserve the integrity of the legal system.

The specific facts in Hall - a person involved in an illegal activity who was injured in an accident - is one circumstance where the principle should not be applied because the injured plaintiff is seeking compensation for injuries caused by a tortfeasor; not seeking profit from an illegal act. [ 16 ] However, that is not this case. This case is more like the cases where a wrongdoer seeks punitive damages. There, as McLachlin, J. says in para 17, what the court needs to focus on is whether allowing the claim to succeed will create an inconsistency in the law. In this case, Mr. Poon engaged in an illegal act.

Had the real estate market continued to rise, the property may have been resold and Mr. Poon would have earned $11,000.00 for his actions. But, by intentionally not disclosing to his lawyer that he was a straw buyer, when there was always a risk that the real estate market would fall, Mr. Poon had a claim his back pocket, against his lawyer. He hedged his bets. If this is permitted, straw buyers run no risk. The court would be saying that such action is both illegal and legal. That creates an inconsistency in the law which attacks the integrity of the legal system.

The principle of ex turpi causa is available in this case. [ 17 ] The appeal is dismissed. Heard on the 17 th day of September, 2012. Dated at the City of Calgary, Alberta this 2 nd day of October, 2012.

C. A. Kent J.C.Q.B.A. Appearances: Mr. John H. Wilson, Q.C. Wilson Laycraft for the defendant Mr. Robert W. Armstrong Jensen Shawa Solomon Duguid Hawkes LLP for the Third Parties _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Madam Justice C. A. Kent _______________________________________________________ Please note that the Plaintiff’s name in the title should read Toronto Dominion Bank instead of Toronto Dominium Bank.