2013 QCCQ 1914, 2013 QCCQ 1914

Grossi c. Julien 2013 QCCQ 1914 COURT OF QUEBEC "Small Claims Division" CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL No: 500-32-124399-108 DATE: MARCH 5, 2013 ______________________________________________________________________ BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ Salvatore MALTESE Lucia GROSSI […]Woodbridge, Ontario, […] Plaintiff v.

Michel JULIEN […] Westmount, Quebec, […] Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiffs Salvatore Maltese and Lucia Grossi sue the Defendant Michel Julien for the losses incurred in an investment that the Defendant induced them to make in 2006 in the amount of $ 50,000.00 US. [ 2 ] They alleged that the investment was held out by Mr.

Julien to be secured for the initial amount of $ 50,000.00 and that it would give them a return of 10% per month. [ 3 ] In fact, the Plaintiffs lost all the money invested and to date have only recovered a total of $ 10,000.00 from the Defendant and his wife. They voluntarily reduce the claim to $ 7,000.00 to take advantage of the procedure of the Small Claims Division. [ 4 ] Mr.

Julien's defence is that the recourse against him has been compromised because of a settlement agreement signed by the two Plaintiffs in May 2008 whereby they received $ 5,000.00, renouncing any rights against Regis Investment Ltd, the entity apparently used by Mr. Julien to channel the funds for the alleged investment and that the renunciation is in his favour, as well, as a director, officer, administrator, etc. of the entity. [ 5 ] Mr. Julien does not join issue with the allegations that the investment was in reality a means of defrauding his clients nor he did attend the hearing to argue his defence.

Issues [ 6 ] To decide this case, the Court must answer the following questions: 1) Do the Plaintiffs have a claim against the Defendant personally? 2) Was this claim extinguished through a contract of transaction when they made the settlement in May 2008? Facts [ 7 ] The Plaintiffs met Mr. Julien and his wife in April 2004, in Toronto. The two couples became good friends. [ 8 ] At this time, Mr. Julien was advertising in the National Post concerning a way to make money on the "Forex ". Mr . Julien was using a corporate name «Profit Trade FX». Mr.

Maltese attended a free demonstration evening held at a Toronto hotel and, impressed by what he heard, enrolled in a three-day workshop at the cost of $1,050.00 US. [ 9 ] After completing the three-days workshop, Mr Maltese began trading and his trades generated commissions for Profit Trade FX. [ 10 ] Through 2005, the friendship between the two couples became closer. The Plaintiffs grew to trust Mr. Julien who appeared both charming and trustworthy. He appeared to be knowledgeable in matters relating to investments. [ 11 ] Mr. Julien shared with Mr.

Maltese information about various projects that he was planning involving automatic trading

systems, hedge funds and the like. [ 12 ] In August 2006, Mr. Julien solicited the Plaintiffs, proposing a minimum investment of $ 50,000.00 US in a pool set up though an incorporation in the Seychelle Islands. They could expect a return of 10% per month and the principal would be guarantied. [ 13 ] On October 30, 2006, the Plaintiffs signed a "Lettre d'Intention" and a "contrat de participation" both drafted in French submitted by Mr. Julien (P-7).

The documents concern an investment of $ 50,000.00 to be made through a contract with Regis Investment Limited. [ 14 ] According to the "Contrat de Participation", the Plaintiffs, as "participant" entrust the sum of $ 50,000.00 US for investment to Regis Investment Limited for a fixed return of 10% per month.

The guarantee of the capital is expressed as follows: capital confié garanti à hauteur de 33.3% le quatrième mois, à 66.6% le cinquième mois, à 100% le sixième mois après le début de l'opération. [ 15 ] The person signing the agreement is led to believe that the funds are actually guaranteed through some sort of mechanism:

Article 8 - Garantie des fonds confiés Les fonds confiés à la Société REGIS INVESTMENT LTD par le PARTICIPANT sont garantis et bloqués graduellement sur un compte bancaire dans les conditions de l'article 4. Il est à noter que seuls les fonds confiés sont garantis. [ 16 ] Emails exchanged between October 16, 2006 show questions and answers between Mr. Maltese and Mr. Julien. Mr. Maltese has a limited understanding of French and is especially concerned with the guarantee. Note this exchange:

Article 8… Principal investment is guaranteed, correct? – YES! However, the rate of return proposed at 10% per month is not guaranteed, correct? – CORRECT, THE RETURN IS NOT GUARANTEED AT 100% LIKE THE EQUITY IS ALTHOUGH I AM 99.99% CONVINCED THAT WE WILL MAKE IT. [ 17 ] Based on the text and on the communication that he had with Mr. Julien, Mr.

Maltese truly believed that the capital amount invested of $ 50,000.00 was fully guaranteed and that, whatever happened with the return, he would be able to recover the capital amount, subject only to a certain waiting period. [ 18 ] Or course, nothing could have been further from the truth. Having transferred their money to an account apparently in the name of Regis Investment Limited in the Seychelles Islands, the Plaintiffs did not yet realise that their money was lost irremediably. November 21, 2007. Mr. Julien writes to Mr.

Maltese: … Regis Investment 's program suffered huge blows again in September and October (see attached statements) and it is specifically the slice in which you participate that got hit the hardest. During that period, we have lost $ 510 000 plus another $ 130 000 that Regis invested at one point to try to rescue the program. I know it sounds unbelievable but it is unfortunately true (P-9). [ 19 ] Mr.

Julien goes on to try to explain what he describes as a fiasco somehow related to the credit liquidity crisis: "Since there wasn't much time before left the end of the term on Dec 12, I tried to replace the strategy with another kind of hedge system hoping to regain the losses in order to meet the capital guarantee written in the contract. This was a big mistake. All I achieved was to take more risk, bigger positions and it backfired on me. Regis Investment is facing a major crisis right now." [ 20 ] As is often the case in this type of fraud, the investor is invited to reinvest.

"Our financial resources are very low right now. What are the options? Well, I can only see 2 possibilities at this time: 1) A reinvestment by each participant of 30% of the initial capital deposited. This would enable Regis to launch a brand new system that has produced very large gains on demo over the last month (see demo results.htm attached) and refund the lost money over the next 3 months.

With the insight I should have implemented this system when things started going bad but since I cannot guarantee the capital with this system I didn't dare to use it within the actual agreement. 2) An agreement by Regis to refund 10% of the initial capital at a rate of 1% per month for 10 months. Unfortunately, it is one or the other. Sal, I am so sorry and devastated by what happened. I don't know what to say. Fouzia could testify that I lost quite a few nights of sleep since the beginning of this nightmare. [ 21 ] At another stage in of these communications, (P-16), Mr. Julien replies to Mr.

Maltese's assertion that the money manager i.e. Mr. Julien must honor the contract. Mr. Julien replies: You say in your email "the written guarantee on the contract does not exonerate the money manager from honouring the contract". Well, like it or not Sal, the written guarantee does indeed exonerate the money manager. Your guarantee is with Regis Investment Limited, not with Michel Julien. I am only its director.

Plus, I have never said nor implied in any of the conversations or the written communications we exchanged in the past (as a director of Regis Investment or as a friend) that I was personally responsible for the capital you invested in this venture. [ 22 ] Mr. Julien goes on to state that: As Regis Investment's director, I am still working everyday to find a solution for the participants but I have to admit that I didn't find any new investor or magical solution yet. Sal, you have to start facing and accepting the fact that you will not get all of your capital back.

Writing to me every week to ask your money back will not change the reality and turn the situation around.

[ 23 ] Mr. Julien's wife, Fouzia remitted $ 5,000.00 to the couple, according to Mr. Julien "only as a gift between friends and nothing more". In addition to that, Mr. Julien remitted to them $ 5,000.00 in consideration of their signatures on a settlement and release agreement (D-1) on May 21, 2008.

The operative part of the agreement reads as follows: In consideration of payment to Salvatore Maltese and Lucia Grossi of the sum, of US $5,000.00 (five thousand US dollars), Salvatore Maltese and Lucie Grossi hereby release and discharge Regis Investment Limited and all principals; officers, agents, attorneys, servant, employees, heirs, administrators, executors, successors or assigns and or representatives of Regis Investment Limited, from any and all claims, demands, claims or causes of action, known or unknown, which Salvatore Maltese and Lucia Grossi may now have or may hereafter have on account of his dispute or controversy arising from «Article 4 – Rémunération de l'investissement» and «article 8 – Garantie de Fonds Confiés» of the «Contrat de Participation» signed by both parties on October 20 th , 2008. [ 24 ] Mr.

Julien states in his testimony, and the Court accepts his sincerity, that he did not realise that this release would operate to the benefit of Mr. Julien personally because of his status as an administrator of the corporation Regis Investment Limited. [ 25 ] He also points out that Mr. Julien took the position very strongly, as can be seen by reading the email of January 9, 2009 (P-16), that Mr. Julien, as an individual, had no liability for the financial lost occasioned by Regis Investment. [ 26 ] Mr. Maltese's understanding that this was in fact a fraud only came about gradually as he investigated the matter.

A turning point in his understanding that the matter occurred September 10, 2009 when he was informed by Nancy Westwick, compliance counsel of Lind Waldock, that the account for which Mr. Julien was providing statements was in fact not a real Lind-Waldock account but only a simulated account. In other words, Mr. Julien was providing a statement in order to prove that the investments had been lost but the statements were only that of a simulation and not a true accounting of money that had actually been invested. Analysis [ 27 ] The information that Mr.

Julien gradually collected to the effect that other investors were also defrauded and that Mr. Julien pleaded guilty on 22 counts regarding the Quebec Security Acts (P-12) support the conclusions that the Court comes to that this was, obviously, a fraudulent scheme. [ 28 ] In order to establish fraud, this additional information is not really necessary.

As far as the Plaintiffs are concerned, they were told by a friend and someone who ostensibly was a securities dealer or investment manager, apparently skilled and respected, that their capital amount of $ 50,000.00 was secured, guaranteed, i.e. safe from risk of loss. [ 29 ] They were naively induced to believe that their money was in a bank account to their credit managed by Mr. Julien throught a corporation formed in the Seychelles Islands. What was the guarantee?

It was a promise ostensibly made by the very entity that was supposedly placing money at risk to earn a fantastically high return (10% per month!) that the money was secure. There was no security on assets, no collateral guarantee by a solvent third party, no segregation of the funds. The statement that there was a guarantee, made to allay any doubts the Plaintiffs had about the investment, was just a lie. It is also doubtful that any investment was made. Mr. Julien may have just pocketed the funds for all we know. [ 30 ] If, in fact, Mr.

Julien expected to be protected by a limited liability corporation, the Court would have expected him to come the day of the hearing and prove the existence of this company, ostensibly incorporated offshore. That would be his burden. He did not, and there is an indication in the file that no such company exists because the counts to which he pleaded guilty initiated by the AMF speak of "Regis Investment funds". There is no mention of a corporation called Regis Investment Inc. [ 31 ] Mr.

Maltese, at the hearing, still seemed to believe that the corporation existed based on his understanding that it would not have been allowed to open an account in the Seychelles Islands in its name unless it could prove to the bank its corporate existence. [ 32 ] The Court is not convinced. It does not have judicial notice of banking practices in foreign jurisdictions. Even if the corporation did exist, which Mr. Julien failed to prove, it would not provide an adequate cover to Mr. Julien for the obvious fraudulent business he was carrying out.

The Civil Code clearly permits the piercing of the corporate veil in circumstances such as these. 317 . In no case may a legal person set up juridical personality against a person in good faith if it is set up to dissemble fraud, abuse of right or contravention of a rule of public order. [ 33 ] The French version of this text is drafted in the passive mode: 317.

La personnalité juridique d'une personne morale ne peut être invoquée à l'encontre d'une personne de bonne foi, dès lors qu'on invoque cette personnalité pour masquer la fraude, l'abus de droit ou une contravention à une règle intéressant l'ordre public. [ 34 ] In other words, neither the corporation nor any person who is seeking to use the corporation to commit a fraud can rely on the separate legal personality of the corporation to avoid the effects of the fraud. [ 35 ] Mr. Julien drafted and submitted to the Plaintiffs the settlement agreement for their signatures.

He was still acting as if they had lost money in an investment, as supposed to being the victims of a fraudulent scheme. [ 36 ] What's more, he did not point out to them the carefully drafted wording designed to extend the release to himself personally. This is something he ought to have done, since he was still dealing with them in an ostensible professional-client relationship. He owed them a duty of counsel. He should have counselled them not to sign. [ 37 ] In other words, the initial fraud was continuing through the artifice of a settlement with the company in a context where Mr.

Julien was trying to convince his clients that he had no personal liability and not letting them know that the settlement document was designed to protect him, just in case.

[ 38 ] He was a breaching the obligation of good faith that existed at the beginning and at the end of the relation. 1375 The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished. [ 39 ] The defence based on the settlement agreement cannot succeed, and the Plaintiffs' claim is well founded. FOR THESE REASONS, THE COURT: CONDEMNS the Defendant to pay to the Plaintiffs the amount of $ 7,000.00 together with interest at the legal rate of 5% per annum and the additional indemnity provided at

article 1619 of the Civil Code of Quebec , calculated from the date of the institution of the proceeding. WITH COSTS . __________________________________ David L. Cameron, J.C.Q. Date of hearing: January 15, 2013