Bato v Cano, 2023 ABCJ 114

In The Alberta Court of Justice Citation: Bato v Cano, 2023 ABCJ 114 Date: 20230523 Docket: P2290303221 Registry: Edmonton Between: Deogracias Bato Plaintiff - and - Darwin Cabigas Cano Defendant Reasons for Judgment of The Honourable Justice G.W. Sharek I.

Introduction [ 1 ] This matter came before me for a simplified trial and relates to an alleged debt owing by the Defendant Darwin Cabigas Cano (“Cano” or the “Defendant”) to the Plaintiff Deogracias Bato (“Bato” or the “Plaintiff”). [ 2 ] The Defendant failed to appear at the trial, despite having been given ample prior notice, and as a result his Dispute Note was struck.

Notwithstanding that, given the unique factual circumstances regarding the alleged debt, evidence on behalf of the Plaintiff was heard at the trial. [ 3 ] Although the Dispute Note was struck, I noted that the Defendant, while represented by legal counsel, plead that the debt was unenforceable as it was alleged that “the contract involved activities that are unlawful ...”, and that the Defendant was relying on “the defences of illegality, unconscionability, in pari delicto potior melior est conditio possidentis …”, meaning where both parties are wrong, the position of the defendant is the more favourable.

The Defendant also plead ex turpi causa non oritur actio (an action does not arise from a base cause).

I therefore determined that it was appropriate to assess whether the alleged debt was unenforceable on public policy grounds. [ 4 ] Also, the Plaintiff's claim was presented as $43,300 USD, $55,494.72 CDN, and it is necessary to address the issue of the US dollar (“USD”) / Canadian dollar (“CDN”) exchange rate. [ 5 ] The Defendant having elected not to appear at the trial, and therefore having his Dispute Note struck, is akin to a defendant choosing not to defend at all, and therefore according to Trinier v Shurnaik, 2011 ABCA 314 , the Defendant is deemed to have admitted the allegations of fact made against him in the Civil Claim.

That said, the court's obligation is to ensure that a fair process is conducted. II. Facts [ 6 ] The Plaintiff testified that over the course of two months in 2021, he loaned the Defendant $45,050 USD of which $43,300 USD remains outstanding, and that he has not been repaid any portion of that, despite demand.

That is consistent with the factual allegations made in the Civil claim, and therefore deemed to have been admitted by the Defendant. [ 7 ] Furthermore, on December 17 th , 2021 the Defendant, in the presence of two witnesses, both of whom testified at the trial and whose evidence was uncontradicted, signed a handwritten note that stated, in part, “I owe Deogracias Bato ... the sum of $43,300”. That note also stated that the Defendant promised to pay the Plaintiff $15,000 on December 20, 2021, and the balance on January 14, 2022. He made no payments as agreed or at all.

The evidence at the trial was that these sums referred to U.S. dollars. I am satisfied that the Defendant is indebted to the Plaintiff in the amount of $43,300 USD, as of January 14, 2022. [ 8 ] Mr. Bato testified that he knew when he advanced these funds to the Defendant that the money was to be used for breeding

or purchase of “gamefowls” by the Defendant. He also testified that the Defendant was breeding or purchasing these roosters inCalifornia, and that they were being shipped to the Philippines where they were sold to buyers in the Philippines, ultimately to be usedfor “competition”.

He described the competition as “between 2 rooster and who gonna win [sic]”, and the winner “have put some moneyon it”. [9] The Plaintiff confirmed that the birds which he was helping to finance the purchase of were shipped to the Philippineseventually in order to fight in the Philippines, and people would wager on the fight between the two birds. The Plaintiff did not supplygamefowl to the Defendant but simply loaned money to the Defendant which was not repaid.

Furthermore, the Plaintiff is seekingrecovery only of the amount of the loan plus interest, and not the profits of any business venture undertaken by the Defendant. III. Issues [10] I am satisfied that what is commonly referred to as “cock fighting” is illegal in Canada, and while there is ample argument onbehalf of the Plaintiff to suggest that this activity is legal in the Philippines, I am not in a position to conclude that.

The issue to bedecided is whether granting judgment for this debt would be condoning the financing of an activity which would be illegal in Canada. [11] The second issue which must be addressed is, if judgment is granted in favour of the Plaintiff, and given that no evidence waspresented by the Plaintiff at the trial, what exchange rate with the USD/CDN dollar should be used, and as of which date. IV. Analysis [12] At common law, a plaintiff seeking damages for breach of contract that involved immoral or criminal conduct would not beentitled to relief from the Courts.

Justice McLachlin (as she then was) articulated the principles of the doctrine of illegality in Hall vHebert, (SCC), [1993] 2 SCR 159 at 170-171 as follows: The power expressed in the maxim ex turpi causa non oritur actio finds its roots in the insistence of the courts that the judicial processnot be used for abusive, illegal purposes. Thus Professor Gibson, in "Comment: Illegality of Plaintiff's Conduct as a Defence" (1969),47 Can.

Bar Rev. 89, at p. 89, writes: Few would quarrel with the proposition that a man who murders his wealthy aunt should not be allowed to receive the proceeds of herlife insurance as beneficiary, or that two robbers who disagree over the division of the spoils would not be allowed to settle their disputein a court of law.

It was to deal with flagrant abuses like these that English courts developed the principle expressed in the maxim: exturpi causa non oritur actio -- no right of action arises from a base cause. [Emphasis added.] The use of the doctrine of ex turpi causa to prevent abuse and misuse of the judicial process is well established in contract law andinsurance law, where it provokes little controversy. [13] Justice McLachlin further observed at para 6 that historically the power to deny recovery was on the grounds of “immoral orillegal conduct”.

On this basis, conduct which is immoral, while not illegal, may be grounds for finding a contract to be void andunenforceable. [14] There are generally two categories of illegal agreements: “those determined to be contrary to public policy as a matter ofcommon law and those determined to be unlawful by statute” (John McCamus, The Law of Contracts, 3rd ed (Toronto: Irwin Law, 2020)at page 500). [15] In S.M.

Waddams, The Law of Contracts, 8th ed (Toronto: Thompson Reuters, 2022) at page 393, the author describes thedistinction between the two categories as follows: A distinction must be drawn between cases where the court interferes with an agreement as contrary to public policy – the cases of so-called common law illegality – and the cases where the court strikes down an agreement as directly contrary to statute – statutoryillegality.

In the former group of cases the court may of course take account of statutes, for the public policy of a society is reflected inits statutes, but the reason for striking down the agreement is the court’s apprehension of what public policy is. The court itself makesthe judgment as to what is public policy and the court itself must strike the necessary balance.

In the case of an agreement that iscontrary to a statute, though of course public policy remains the root reason for intervention, the court does not itself make the judgmentof what is public policy. [16] On June 21, 2019, the Criminal Code, RSC 1985, c C-46 was amended to include s 445.1(1)(

b) which expanded theprohibitions against animal fighting.

Section 445.1(1)(

b) expressly prohibits the promoting, arranging, assisting, taking

part in orreceiving money for the fighting or baiting of animals: 445.1(1) Every one commits an offence who ... (

b) in any manner encourages, aids, promotes, arranges, assists at, receives money for or takes

part in (

i) the fighting or baiting of animals or birds, or (ii) the training, transporting or breeding of animals or birds for the purposes of subparagraph (i); [17] The Plaintiff testified that he merely loaned money to the Defendant for the purchase of gamefowl in California which he

stated was a legal transaction in California.

In fact, the Plaintiff produced considerable written material confirming that, in the UnitedStates, there is a nonprofit group known as “United Gamefowl Breeders Association, established for the purpose of organizing gamefowlbreeders for their mutual benefit…” He furthermore testified and argued that cockfighting, subject to certain restrictions, is a legalactivity in the Philippines, the apparent ultimate destination for these birds. [18] The Alberta Court of Appeal in R v Chen, 2021 ABCA 382 at para 38 observed that “society’s understanding of animalprotection as an important value has increased”, noting as well that “cruelty to animals is incompatible with civilized society”.

Inarticulating some of the considerations in sentencing for crimes of animal cruelty, the Court noted at para 39 the vulnerability of animalsand the responsibility that falls on their human caretakers: The purpose of deterrence is to discourage the offender and others in the community from committing the offence. Animals feel pain andsuffer; they are not merely property and deserve protection under the criminal law.

All animals not living in the wild, includingcompanion animals, livestock, and animals in industrialized production settings, are under the complete dominion of human caretakersand are highly vulnerable to mistreatment and exploitation at the hands of those caretakers. They are at the mercy of those who areexpected to care for them and, unlike some other victims of crime, are incapable of communicating their suffering.

Sentencesfor animal cruelty must reflect these realities, and the primary focus must be on deterrence and denunciation. [19] Based on the forgoing it is reasonable to infer that the public policy in Canada is that cruelty to animals is to be condemned.Based strictly on the evidence at the trial, it has not been established that the parties committed a criminal offence, however, it iscertainly arguable that the Defendant at least was engaged in immoral conduct which is contrary to public policy and ought to bedenounced.

As such, this could form the basis for finding that this contract should not be enforced on the grounds of common lawillegality. [20] Conversely, not enforcing this agreement may create an unjust outcome. Both parties were engaged in questionable conduct.The Defendant was acquiring birds and selling them for an immoral activity, and the Plaintiff was knowingly facilitating that by lendingthe Defendant the funds to do so. However, the evidence is clear that the loan by the Plaintiff to the Defendant was for the Defendant topurchase gamefowl. This, in and of itself is not an illegal activity.

The lending of the money is a step or two removed from the illegalactivity. [21] The Defendant, while being morally blameworthy stands to gain a windfall if the contract is not enforced. In Still v Minister ofNational Revenue, (FCA), [1998] 1 FC 549 (FCA) at para 24, the Court observed that the historically rigidapplication of the doctrine of illegality often resulted in unfair outcomes.

The Court then identified three exceptions to the rule whichallow for a party to be relieved of the consequences of illegality where appropriate: ...For example, where the doctrine of ex turpi causa might otherwise apply, the courts have developed three exceptions to the rule that acourt will not order the return of property transferred under an illegal contract.

These are: (1) where the party claiming for return ofproperty is less at fault; (2) where the claimant "repents" before the illegal contract is performed; and (3) where the claimant has anindependent right to recover (for example, a situation where recovery in tort might be possible despite an illegal contract), see generally:Fridman, supra, at 424. [22] In addition, to these three exceptions, Professor Fridman, at 414, suggests that the door may not be closed to furtherexceptions: There may be other situations beyond the recognized exceptions where a court may lend assistance to a party to recover propertytransferred under an illegal contract.

In recent years there has been a recognition of the desirability of balancing the need to preservepublic policy by not enforcing illegal agreements and the need to avoid unjust enrichment. The striking of this balance may depend ineach case on the extent of the illegality and the unjust enrichment. [Footnotes omitted.] [23] Courts have adopted this more flexible approach in Tsoi v Lai, 2012 BCSC 1082 and Kim v Choi, 2020 BCCA 98. [24] In Tsoi the plaintiff sought repayment of a $50,000 loan he made to the defendant who used the proceeds to lend to gamblersin his illegal mah-jong business.

The Court found, at para 9, that the plaintiff knew the loan was to be used for an immoral purpose andtherefore the loan agreement was an illegal contract: The doctrine of illegality is divided into two categories: (1) common-law illegality, where an agreement is contrary to public policy and(2) statutory illegality, where an agreement is contrary to statute (Still v. Minister of National Revenue (1997), (FCA),154 D.L.R. (4th) 229 (Fed. C.A.) at para. 13 (F.C.A.) [Still]).

The aspect of public policy at issue in the instant case is morality (G.H.L.Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Thomson Carswell, 2011) at 374-76). The plaintiff knew that the loan was tobe used for an immoral purpose, namely lending to the customers of the defendant in his mah-jong business.

According to Fridman at376, "[o]nly if ... there is knowledge and actual or presumed intention to promote an immoral act or immoral conduct, then the contractwill be invalid as against public policy." I find that the plaintiff entered into the agreement with the actual or presumed intent that thefunds should be applied by the defendant to an illegal purpose. Even though the loan agreement on its face was not illegal, in the senseof being contrary to the criminal law, the plaintiff knew that the loan was to be used for an illegal purpose.

Therefore, in my view, theloan agreement is an illegal contract. [25] However, the Court in Tsoi enforced repayment of the loan noting that concerns about an unjustified windfall for an equallymorally culpable party may override any concerns about illegality. The Court at para 20 stated: An unjustified windfall in this case will arise if the defendant does not have to repay the loan. Concerns about unjustified windfalls mayoverride a court's concern about illegality (Daemore v. Von Windheim, 2011 BCSC 1523 (B.C.S.C.) at para. 75 [Daemore]; seealso Plumrose Inc. v. A & A Foods Ltd., 1996 CarswellBC 2437 (B.C.

S.C.) at para. 31). [26] The Court ultimately found in favor of the plaintiff stating, at para 22, that “in the circumstances of this case my concernabout an unjustified windfall or unjust enrichment overrides my concern about the nature of the illegality”. The Court ultimately ordered

that the defendant repay the outstanding principal with no pre-judgment interest.

However, court ordered interest applied to anyoutstanding principal after the entry of the judgment. [27] In Brett v Brett (1996) 7 RPR (3d) 90 (Ont Gen Div) the plaintiff vendor was granted specific performance despite the factthat he had tried to deceive his estranged spouse about the full price of the sale, because the defendant purchaser had activelyparticipated in the scheme and it would have been inappropriate to punish the plaintiff where that would have had the effect of rewardingthe defendant for the same conduct. [28] In Kim, the parties entered into an agreement to deceive immigration authorities in order for Ms.

Kim to obtain resident statusin Canada. As part of the scheme, Ms. Kim agreed to purchase a restaurant from Ms. Choi and to pay the operating expenses. Ms. Choimisrepresented the operating expenses and, when confronted by Ms. Kim, terminated the agreement and brought an end to Ms. Kim’simmigration application. The defendant, Ms. Choi, appealed a decision ordering her to return $300,000 to Ms. Kim. The trial court foundthat she was unjustly enriched by overstating certain expenses required to be paid by Ms. Kim. [29] At trial and on appeal, Ms. Choi argued that Ms.

Kim was barred from relief on the basis of the doctrine of illegality. At trialand on appeal, this argument was rejected. While the trial judge found that the agreement to pay the operating expenses was an illegalcontract, he concluded the court had discretion whether to give effect to the illegality defence. Specifically, the trial judge found that Ms.Kim was less at fault, or if he was wrong, allowing Ms.

Choi to enjoy an unjustified windfall would be unjust. [30] On appeal, the Court discussed the application of the doctrine of illegality to claims for restitution based on unjust enrichment.The Court at para 47 made the distinction between a party that seeks to enforce an illegal contract and thereby try to realize the benefitsof that agreement compared to a party that seeks to unwind the contract thereby placing the parties in the position they would have beenin had the contract never been entered into.

The Court held that the former would constitute profit from an illegal act and should not beenforced, whereas the latter merely places the plaintiff in the position they would have been in had the illegal act not occurred and, as itwould not permit profit from an unlawful act, the doctrine of illegality would seldom bar a claim in unjust enrichment. [31] It is not lost on me that the Defendant plead that the loan in question was unenforceable because it was made for an illegalpurpose. The Defendant does not come to court with clean hands.

The defence presented must fail because the Defendant seeks to relyon his own illegal act (Major v CPR (SCC)). Furthermore, while the Defendant was not cross-examined, because hechose not to appear at the trial, it is feasible that he intentionally duped the Plaintiff into lending him this substantial amount of moneynever intending to repay it because it was a loan made for an illegal purpose. While perhaps unnecessary to do so, an adverse inferencecan be drawn because the Defendant chose not to testify. [32] I am driven to the conclusion that this loan agreement should be enforced for the following reasons: 1.

The Plaintiff testified and argued that he did not partake in any illegal activity, and the facts support that conclusion. While ultimatelythe loan proceeds may have been used by the Defendant to facilitate an activity which, if undertaken in Canada would be illegal, thePlaintiff is several steps removed from that, were it even to occur. The uncontradicted evidence was that the loan proceeds were to beused by the Defendant to purchase gamefowl in California. There was no evidence that such a venture was illegal, in Canada orCalifornia. 2.

The Plaintiff did not accrue nor seek to gain any profit from any illegal activity. 3. A conclusion that the loan is unenforceable would result in an unjust enrichment of the Defendant, who borrowed this money fromthe Plaintiff and did not repay it. The adverse inference may well be that the Defendant never intended on repaying the loan because, ashe plead in the Dispute Note, he intended to use the funds for an immoral, perhaps illegal, purpose. The Defendant ought not to berewarded for engaging in the same or greater immoral acts than the Plaintiff. 4.

As stated by Waddams, supra, the court itself makes the judgment as to what is public policy, and the court itself must strike thenecessary balance. Like the court in Tsoi, supra, I find that in the circumstances of this case my concern about an unjust enrichment ofthe Defendant overrides my concern about the nature of the illegality. 5. Lastly, as in Still v MNR, supra, the Plaintiff has an independent right to recover pursuant to the promissory note wherein theDefendant clearly agreed to pay the Plaintiff $43,300 USD no later than January 14, 2022, and he has failed to pay any part of that.

Issue 2: US / Canadian Dollar Exchange Rate Absent anyEvidence [33] The Plaintiff made a loan to the Defendant in US dollars and the principal balance owing on the loan is $43,300 USD.However, the Plaintiff did not provide any evidence as to the applicable exchange rate between USD and CAD currency. On thePlaintiff’s Civil Claim, he alleges an outstanding debt of $54,494.72 CAD. However, the Plaintiff does not provide any information as towhen or how that number was arrived at.

Ultimately, however, the Plaintiff is only claiming $50,000 which are the financial limitsimposed under the Provincial Court Civil Procedure Regulation, Alta Reg 176/2018. [34]

Section 36 of the Provincial Court Act states: 36(1) For the purposes of a hearing, the Court (

a) is not bound by the laws of evidence applicable to judicial proceedings…

[ 35 ] As I have concluded that the Defendant borrowed money from the Plaintiff, did not repay it and that there is a just debt due and owing by the Defendant to the Plaintiff, it is only fair that judgment should go in favour of the Plaintiff. To grant judgment in Canadian dollars therefore, some conversion from US dollars to Canadian must be done, notwithstanding the lack of evidence on the topic at the trial. [ 36 ] The impact of

section 36 of the Act must be considered and whether judicial notice can be taken of the exchange rate between USD and CAD currency. The Supreme Court of Canada in R v Find, 2001 SCC 32 at para 48 set out the law regarding judicial notice.

Specifically, a court may take judicial notice of facts that are either “(1) so notorious or generally accepted as not to be the subject of debate among reasonable persons; or (2) capable of immediate and accurate demonstration by resort to readily accessible sources of indisputable accuracy”. [ 37 ] In the present case, while exchange rates may not be “so notorious or generally accepted as not to be the subject of debate among reasonable persons”, they are capable of “immediate and accurate demonstration” by resorting to the Bank of Canada historical exchange rates.

Further, the courts, most often in family cases, frequently take judicial notice of exchange rates by relying on the number published by the Bank of Canada. [ 38 ] In Interclaim Holdings Ltd v Down, 1999 ABCA 329 , the Court of Appeal at para 87 took judicial notice of the exchange rate between CAD and USD; and in Mateychuk v Mateychuk, 2001 MBQB 219 , Ball v Ball, 2012 BCSC 227 , Meydaner v Meydaner, 2020 ONSC 3857 , and Mao v Rao, 2021 BCSC 2073 , the courts took judicial notice of the USD to CAD exchange rates in the absence of there being any evidence presented, often relying on Bank of Canada records. [ 39 ] Given that no evidence has been led as to the applicable exchange rate and the Defendant did not appear at the trial to contest any claims, the Court may take judicial notice of the exchange rate based on data provided by the Bank of Canada. [ 40 ] Historically, courts were bound to apply the rate of exchange as of the date of breach (see Harvey Pitch & Ronald Snyder, Damages for Breach of Contract , 2nd ed (Canada: Thomson Reuters, 2022) at 15:1).

However, the Alberta Court of Appeal relaxed this hardline approach in Stevenson Estate v Siewert, 2000 ABCA 222 to allow Courts discretion to choose between the date of breach and the date of judgment.

The Court stated at para 74 that judges are not constrained to follow the breach date rule, “particularly where to do so would yield an inequitable result for the injured party”. [ 41 ] Further, Justice Graesser in Evans v The Sports Corporation, 2011 ABQB 244 held at para 332 that “the guiding principle for conversion is to attempt to achieve neutrality with respect to currency conversions, but if that is not reasonably possible, any conflict should be resolved in favour of the injured party”.

Further, he held at para 333 that the choice is “between the breach date or the judgment date”. [ 42 ] Breach of this obligation by the Defendant occurred on December 20, 2021, the date on which he agreed, but failed to make, the first payment on the loan and pursuant to the promissory note. On that date, the Bank of Canada conversion rate was 1 USD to 1.29 CAD. Based on a claim of $43,300 USD this would be $55,857 CAD.

The current exchange rate for the past week is an average of 1 USD to 1.34 CAD making the claim $59,190.45 CAD. [ 43 ] Here, whether the conversion date utilised is the date of breach or the date of judgment is of no moment. Both exchange rates place the claim above the $50,000 financial limit of this court, with the Plaintiff having waived any claim over that limit. V.

Conclusion [ 44 ] Accordingly, the Plaintiff shall have judgment against the Defendant in the amount of $50,000. [ 45 ] Notwithstanding that I have found that the Plaintiff is entitled to recovery, I nevertheless conclude that the questionable nature of this activity between the Plaintiff and Defendant warrants sanction of some sort. Accordingly, as in Tsoi , there will be no award of prejudgment interest to the Plaintiff although the Plaintiff will be entitled to post judgment interest. Furthermore, the Plaintiff will not be entitled to costs. [ 46 ] In

summary, the Plaintiff will have judgment against the Defendant in the amount of $50,000 Canadian and nothing more. DATED at the City of Edmonton, Alberta this 23 rd day of May, 2023. _________________________ Justice G.W. Sharek Alberta Court of Justice Appearances:

Plaintiff (Remote Appearance) C. Herrington Agent for the Plaintiff Defendant (No Appearance)