Case information

Torts — Corporations — Fraudulent misrepresentation — Insiders facilitating fraud against pension fund by allowing certain individuals and corporations to misrepresent the nature of investments in exchange for kickbacks — Pension fund replacing insiders, new management commencing action against the individuals and corporations implicated in the fraudulent scheme — Whether Court of Appeal erred in its application of the corporate identification doctrine — Whether Court of Appeal erred in its application of the ex turpi causa doctrine

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

The individual applicants, Eduardo Garcia and Patricia Garcia (together, the “Garcias”), immigrated to Canada from Guatemala in 2002. The corporate applicants were incorporated by the Garcias between 2005 and 2009 (together, the “Garcia corporations”). The respondent Caja Paraguaya De Jubilaciones Y Pensiones Del Personal De Itaipu Binacional (“Cajubi”) is a Paraguayan pension fund.

Cajubi invested over $34 million in investment products purported to be advanced by legitimate regulated Canadian institutions, but which were in fact the Garcia corporations, which had been designed to mimic the legitimate institutions. The Garcia corporations invested about 90% of Cajubi’s money with the legitimate Canadian institutions and took 10% in the form of an “up-front fee” which was neither disclosed nor invoiced. Some of the up-front fee was retained, but the bulk was paid as kickbacks to the Swiss bank account of a Panamanian nominee company at the direction of three Cajubi “insiders” — its president, vice president, and treasurer — who facilitated the investments.

When losses related to this scheme became apparent, the insiders were removed from office. Cajubi’s new management brought an action against a number of parties, including the Garcias and the Garcia corporations, in an attempt to recover its money. Following a trial, the Garcias were ordered to pay over $20 million in damages for fraudulent misrepresentation and breach of fiduciary duty; each of the Garcia corporations were held to be jointly and severally liable with the Garcias for specified amounts of those damages. Eduardo and Patricia Garcia were also ordered to pay punitive damages in the amounts of $250,000 and $100,000 respectively.

The Garcias and the Garcia corporations appealed from the trial judgment; their appeal was dismissed by the Court of Appeal for Ontario