Summary

38051

Christine DeJong Medicine Professional Corporation v. DBDC Spadina Ltd., et al.

(Ont.) (Civil) (By Leave)

Keywords

Torts - Corporations - Tort law — Fraudulent misrepresentation — Fiduciary relationship — Corporations — Knowing participation — Net transfer analysis — What “participation” entails in knowing participation — How the corporate identification doctrine applies in the context of knowing participation — Whether, in cases like this one, a court must consider the effect on third party investors when awarding remedies for knowing participation. .

Summary

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Over the course of several years, Norma and Ronauld Walton perpetrated a complex multi-million dollar commercial real estate fraud. They convinced various parties to invest equally with them in equal-shareholder, specific-project corporations that would acquire, hold, renovate and maintain commercial real estate properties in Toronto. Rather than investing significant funds of their own, the Waltons moved their investors’ money in and out of numerous corporations through a clearing house. Dr. Stanley Bernstein, through DBDC Spadina Ltd. and the other respondent corporations (the “DBDC parties”), and Christine DeJong, through the Christine DeJong Professional Corporation (“DeJong PC”), invested in several projects with the Waltons. In relation to each project, they entered into a project-specific corporation for the particular property. None of the agreements contemplated third-party investors, and none permitted the use of the investors’ money for anything other than the specific project. The DBDC parties’ funds were to be invested in the “Schedule B Companies”, and the DeJongs invested in the “Schedule C Companies”. Ms. Walton was the directing mind of all of the relevant investor companies. Late in the course of oppression proceedings launched by the DBDC parties, the DBDC parties alleged that the DeJong PC had engaged in knowing participation and knowing receipt in the Waltons’ fraud.

Inter alia, Newbould J. dismissed the DBDC parties’ claim that the DeJong PC had knowingly participated in a fraudulent and dishonest breach of fiduciary duty. Inter alia, the Court of Appeal allowed the DBDC parties’ appeal with respect to knowing participation.