Scott v. Golden Oaks Enterprises Inc.

Scott v. Golden Oaks Enterprises Inc.
Collection
Supreme Court Judgments
Date
2024-10-11
Neutral citation
2024 SCC 32
Case number
40399
Judges
Wagner, Richard; Karakatsanis, Andromache; Côté, Suzanne; Rowe, Malcolm; Martin, Sheilah; Jamal, Mahmud; O’Bonsawin, Michelle
On appeal from
Ontario
Subjects
Bankruptcy and insolvency
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Scott v. Golden Oaks Enterprises Inc., 2024 SCC 32
Appeal Heard: December 5, 2023 Judgment Rendered: October 11, 2024 Docket: 40399
Between:
Lorne Scott, Janet Arsenault, Jeremy Mitchell, Josée Bouchard, Le Thu Nguyen, Mark McKenna, Judy McKenna, Susan McKillip, 1531425 Ontario Inc., Joe Messa and Ernest Toste Appellants
and
Doyle Salewski Inc., in its capacity as Trustee in Bankruptcy of Golden Oaks Enterprises Inc., and Joseph Gilles Jean Claude Lacasse Respondents
- and -
Attorney General of Ontario and Insolvency Institute of Canada Interveners
Coram: Wagner C.J. and Karakatsanis, Côté, Rowe, Martin, Jamal and O’Bonsawin JJ.
Reasons for Judgment: (paras. 1 to 132)
Jamal J. (Wagner C.J. and Karakatsanis, Rowe, Martin and O’Bonsawin JJ. concurring)
Concurring Reasons: (paras. 133 to 189)
Côté J.
Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports.
Lorne Scott, Janet Arsenault, Jeremy Mitchell,
Josée Bouchard, Le Thu Nguyen, Mark McKenna,
Judy McKenna, Susan McKillip, 1531425 Ontario Inc.,
Joe Messa and Ernest Toste Appellants
v.
Doyle Salewski Inc., in its capacity as Trustee in
Bankruptcy of Golden Oaks Enterprises Inc., and
Joseph Gilles Jean Claude Lacasse Respondents
and
Attorney General of Ontario and
Insolvency Institute of Canada Interveners
Indexed as: Scott v. Golden Oaks Enterprises Inc.
2024 SCC 32
File No.: 40399.
2023: December 5; 2024: October 11.
Present: Wagner C.J. and Karakatsanis, Côté, Rowe, Martin, Jamal and O’Bonsawin JJ.
on appeal from the court of appeal for ontario
Bankruptcy and insolvency — Unjust enrichment — Limitation of actions — Corporate attribution doctrine — One-person corporations — Equitable set-off — Illegal contracts — Preferences — Ponzi scheme operated by company with sole officer, shareholder and directing mind collapsing — Trustee in bankruptcy commencing actions to recover amounts paid by company to investors in interest under loans and in commissions under referral agreements — Trustee’s actions commenced more than two years after company paid interest and commissions — Whether trustee’s actions statute-barred — Whether knowledge of sole officer, shareholder, and directing mind of company should be attributed to company — Whether investors can rely on principle of equitable set-off to set off interest payments they owe against loan principal owed to them — Whether referral agreements are illegal contracts at common law — Whether interest and commissions paid by company to real estate agent were unlawful preferences — Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, ss. 4, 5, 12 — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 95(1)(b), 97(3).
L was the sole shareholder, officer, and directing mind of a company. The company appeared to be successful; but, in reality, it was a textbook Ponzi scheme. L was a fraudster, who lured investors to lend money to the company for unreasonably high rates of return on promissory notes, and then paid existing investors by recruiting new investors, rather than by generating revenue from a legitimate business. The Ponzi scheme collapsed in July 2013. The company and L went into receivership and made assignments in bankruptcy, and a trustee in bankruptcy of their estates was appointed.
In 2015, the trustee launched actions against the company’s lenders, including 17 actions to recover illegal interest and commissions paid to investors by the company before its bankruptcy. In those actions, the trustee advanced statutory claims under the Bankruptcy and Insolvency Act (“BIA”) as well as unjust enrichment claims, arguing that there was no juristic reason for the interest payments made to the investors by the company because the interest rates were illegal, and the investors were enriched at the company’s expense. The trustee also asserted that the commissions paid to the investors for referring new investors to the company were unlawful and thus the referral agreements could not supply a juristic reason for the commissions.
The investors raised four main defences to the actions. First, they argued that the actions were statute-barred under ss. 4 and 12(1) of Ontario’s Limitations Act, 2002, which imposes a two‑year limitation period beginning when the bankrupt knew or ought to have known of its claims. They asserted that because L knew of the impugned payments when they were made between June 6, 2011 and April 3, 2013, L’s knowledge should be attributed to the company under the common law doctrine of corporate attribution. Second, the investors asserted that they were not unjustly enriched. Third, they invoked s. 97(3) of the BIA to set off amounts they owed the estate against the principal of the loans owed to them. Fourth, they argued that their referral agreements with the company were lawful and thus provided a juristic reason for them to keep the commissions that they had received.
The trial judge found the company was a Ponzi scheme and attributed L’s knowledge to the company, but she concluded that the trustee’s actions were not statute-barred because legal proceedings were not “appropriate”, under s. 5(1)(a)(iv) of the Limitations Act, 2002, before the trustee had been appointed, investigated the causes of the bankruptcy, and discovered the Ponzi scheme. She ordered the investors to return the illegal interest payments they had received, and refused to allow them to set off under s. 97(3) of the BIA the interest amounts they owed the estate against the principal they were owed. She rejected the trustee’s unjust enrichment claims for repayment of the referral commissions. Lastly, the trial judge granted the trustee’s claim that the interest and commissions paid by the company to a real estate agent, S, were unlawful preferences under s. 95(1)(b) of the BIA because S was not acting at arm’s length from the company.
The Court of Appeal dismissed the investors’ appeal. It agreed with the decision of the trial judge to reject the limitations defence but held that the trial judge should have exercised her discretion not to attribute L’s knowledge to the company on public policy grounds. In its view, the actions were not statute-barred because the company lacked the knowledge to initiate the actions before it entered into bankruptcy. It also agreed with the conclusion of the trial judge to reject the set-off defence and with her ruling on the unlawful preference claims against S. The Court of Appeal allowed the trustee’s cross‑appeal on the issue of whether the referral agreements constituted a juristic reason to deny the unjust enrichment claims for the commission payments, holding that they did not.
Held: The appeal should be dismissed.
Per Wagner C.J., Karakatsanis, Rowe, Martin, Jamal and O’Bonsawin JJ.: The trustee’s actions are not statute‑barred by the Limitations Act, 2002. The principles of the corporate attribution doctrine, summarized in Aquino v. Bondfield Construction Co., 2024 SCC 31, apply to one-person corporations. The Court of Appeal appropriately exercised its discretion to refuse to attribute L’s knowledge to the company because this would not have promoted the purposes of the laws under which attribution was sought.
Under the discoverability rule, a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence. Discoverability is a common law principle that is now codified by statute in Ontario under the Limitations Act, 2002. Section 5(1) sets out when a claim is discovered on the basis of actual or constructive knowledge. Section 12 sets out rules for when persons shall be deemed to have had the knowledge referred to in s. 5(1)(a). Section 12(1) addresses claims brought by a successor in right, title, or interest to the person with a claim, and stipulates when the successor is to be imputed with the knowledge of a predecessor. Section 12(2) addresses claims brought by a principal, and stipulates when the principal is to be imputed with the knowledge of an agent.
In the instant case, although the trustee’s actions were launched more than two years after the illegal interest and commissions were paid, the actions would not be statute-barred if the commencement of the limitation period were deferred by the rule of discoverability. The company’s knowledge must be imputed to the trustee under s. 12(1) of the Limitations Act, 2002, because the trustee is the successor in interest to the company. However, L’s knowledge cannot be attributed to the company under s. 12(2) of the Limitations Act, 2002. Section 12(2) only applies to “a proceeding commenced by a principal”. Assuming, without deciding, that the company acted as principal and L as its agent, and that L acted within the scope of the authority granted to him, the underlying proceedings were not commenced by the company, the supposed principal, but by the trustee, who was not a principal of L. Furthermore, there were insufficient findings at trial as to whether L was an agent of the company and whether he was acting within the scope of his authority, hampering the Court’s ability to apply common law agency principles for the first time. As a result, if L’s knowledge is to be attributed to the company, it must be under the doctrine of corporate attribution.
As noted in Aquino, the doctrine of corporate attribution provides guiding principles for when the actions, knowledge, state of mind, or intent of the directing mind of a corporation may be attributed or imputed to the corporation. It must be applied purposively, contextually, and pragmatically to give effect to the policy of the law under which attribution is sought. These principles provide sufficient flexibility to address most if not all situations of corporate attribution, including for one-person corporations. There is no principled basis to apply different guiding principles for corporate attribution to one-person corporations. Moreover, accepting the argument that the knowledge of a sole directing mind must always be attributed to the corporation would effectively disregard the bedrock principle of corporate separateness. Even one‑person corporations have an existence that is separate from that of their sole owner and directing mind.
As stated in Aquino, courts have discretion to refrain from attributing the actions, knowledge, state of mind, or intent of the directing mind to the corporation when this would be in the public interest, in the sense that it would promote the purpose of the law under which attribution is sought. Attributing L’s knowledge to the company would undermine the purpose of the discoverability rules of the Limitations Act, 2002 by making the trustee’s claims statute-barred before the trustee was even able to assert them, creating an injustice. Attributing L’s knowledge to the company would also undermine the purposes of the BIA, and would allow the investors to retain the proceeds of their wrongful conduct and thereby reduce the value of the debtor’s assets available for distribution to other creditors. This would not be in the public interest.
With respect to the other issues, the investors cannot rely on the principles of equitable set‑off under s. 97(3) of the BIA to set off the interest payments they owe the estate against the loan principal owed to them. The investors did not come to court with clean hands because their wrongful conduct was at the heart of their claim for set-off, thus disentitling them from the benefit of the defence of equitable set-off. Nor is there any basis to impugn the Court of Appeal’s conclusion that the referral agreements were illegal contracts at common law. The investors’ lack of subjective knowledge of illegality does not defeat the trustee’s illegality argument, because the question of whether a contract was entered into at least in part with the purpose of committing an illegal act is examined from the objective standpoint of a reasonable person. The investors all knew, or should have known, that they were entering into illegal agreements. Lastly, the lower courts did not err in finding that S was not dealing at arm’s length from the company for the purposes of s. 95(1)(b) of the BIA.
Per Côté J.: There is agreement with the majority that the trustee’s claims in unjust enrichment against the investors are not time‑barred by the two‑year limitation period set out in s. 4 of the Limitations Act, 2002; however, there is disagreement as to how this conclusion is reached. There is no need to resort to the corporate attribution doctrine, since codified rules of attribution exist in s. 12 of the Limitations Act, 2002 and provide a complete answer. Rather, during the time that the company was solely controlled by L, claims against the investors were not discoverable because legal proceedings by the company were not an appropriate means to seek to remedy that injury, loss or damage for the purposes of s. 5(1)(a)(iv) of the Limitations Act, 2002.
As stated by the majority, the trial judge correctly held that the trustee asserted the claims in unjust enrichment as a successor in interest to the bankrupt company. Whether the trustee’s claims in unjust enrichment are time-barred then hinges on when the claims were discovered by the company. To answer this question, it is not necessary to resort to the common law by way of the corporate attribution doctrine. That doctrine is reserved for exceptional cases. This is not such an exceptional case, as the question of discoverability can be answered using the codified rules of attribution, which include the general principles of agency. As a codified means of attribution exists, this precludes the application of the corporate attribution doctrine on the basis of the principle that the common law should not displace the will of the legislature expressed in a statute. Specifically, the legislature has codified the deeming rules of agency in s. 12 of the Limitations Act, 2002. Indeed, s. 12(2) provides that the principal “shall be deemed to have knowledge” of the matters referred to in s. 5(1)(a) where the agent was duty‑bound to communicate knowledge of those matters to the principal. Under the law of agency, L’s knowledge was that of the company throughout the Ponzi scheme. By finding L to be the corporation’s sole directing mind, the trial judge effectively found him to be an agent. This finding of fact by the trial judge is owed deference. The company therefore had knowledge more than two years before the actions were commenced of the payments to the investors that gave rise to the claims in unjust enrichment.
However, even though the company had the legal capacity to sue the investors, the claims in unjust enrichment were not “appropriate” and therefore not discoverable until the trustee was authorized by the court to bring them. The fact that the company, through L, knew of the injury, loss or damage and knew that it was caused by or contributed to by the investors is not enough to establish that the claims were discovered for the purposes of the Limitations Act, 2002. Section 5(1)(a)(iv) establishes that the company must also have known that, “having regard to the nature of the injury, loss or damage, a proceeding would have been an appropriate means to seek to remedy it”. Whether legal proceedings are “appropriate” is a fact‑specific inquiry. The trial judge was correct to hold that although the company may have known, through L, about its dealings with the investors, it did not and could not have known that it would be legally appropriate for it to sue them to recover its losses so long as it was directed by L. When the company became insolvent, L ceased to have unfettered control over it, and the possibility that the company could make claims in unjust enrichment actualized. The trustee was appointed receiver on July 9, 2013. Therefore, the claims in unjust enrichment brought by the trustee between June 23 and July 9, 2015, were all brought within the limitation period. As for the actions commenced between July 10 and July 23, 2015, they are not time-barred since it was not appropriate for the trustee to bring the actions until June 16, 2015, when the court supervising the insolvency process issued an interim order permitting the trustee to serve the statements of claim on the investors and to issue the actions.
There is agreement with the majority and the courts below that the investors are not entitled to set off the interest payments they were ordered to repay to the bankrupt estate of the company against the outstanding principal of their loans pursuant to s. 97(3) of the BIA. However, the trial judge erred in considering the effect of preferring one creditor over the general body of creditors as part of her set‑off analysis. Parliament has indicated that set‑off in insolvency must be considered in the same manner and to the same extent as it would outside of the insolvency context. In this way, Parliament has given its blessing for the reordering of a claimant’s priority in bankruptcy by virtue of the operation of the law of set‑off. Finally, there is agreement with the majority that the referral agreements between some of the investors and the company were illegal contracts at common law; and that S was not dealing at arm’s length with the company under s. 95(1)(b) of the BIA.
Cases Cited
By Jamal J.
Applied: Canadian Dredge & Dock Co. v. The Queen, [1985] 1 S.C.R. 662; Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855; Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd., 2019 SCC 30, [2019] 2 S.C.R. 530; Aquino v. Bondfield Construction Co., 2024 SCC 31; Singularis Holdings Ltd. v. Daiwa Capital Markets Ltd., [2019] UKSC 50, [2020] A.C. 1189; distinguished: Stone & Rolls Ltd. v. Moore Stephens, [2009] UKHL 39, [2009] 1 A.C. 1391; 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal, 2002 SCC 81, [2002] 4 S.C.R. 312; referred to: King Insurance Finance (Wines) Inc. v. 1557359 Ontario Inc., 2012 ONSC 4263, 99 C.B.R. (5th) 227; Grant Thornton LLP v. New Brunswick, 2021 SCC 31, [2021] 2 S.C.R. 704; Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; Kamloops (City of) v. Nielsen, [1984] 2 S.C.R. 2; Lefebvre (Trustee of), 2004 SCC 63, [2004] 3 S.C.R. 326; Bilta (UK) Ltd. v. Nazir, [2015] UKSC 23, [2016] A.C. 1; In re King, [1963] Ch. 459; Singularis Holdings Ltd. v. Daiwa Capital Markets Europe Ltd., [2017] EWHC 257 (Ch.), [2017] 2 All E.R. (Comm.) 445; Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801; Novak v. Bond, [1999] 1 S.C.R. 808; Peixeiro v. Haberman, [1997] 3 S.C.R. 549; Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150; Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327; Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Poonian v. British Columbia (Securities Commission), 2024 SCC 28; 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, [2020] 1 S.C.R. 521; D.I.M.S. Construction inc. (Trustee of) v. Quebec (Attorney General), 2005 SCC 52, [2005] 2 S.C.R. 564; Lister v. Hooson, [1908] 1 K.B. 174; Holt v. Telford, [1987] 2 S.C.R. 193; Coba Industries Ltd. v. Millie’s Holdings (Canada) Ltd., [1985] 6 W.W.R. 14; Grand Financial Management Inc. v. Solemio Transportation Inc., 2016 ONCA 175, 395 D.L.R. (4th) 529; Stewart v. Bardsley, 2014 NSCA 106, 353 N.S.R. (2d) 284; Re Jason Construction Ltd. (1972), 29 D.L.R. (3d) 623; DeJesus v. Sharif, 2010 BCCA 121, 284 B.C.A.C. 244; Strellson AG v. Strellmax Ltd., 2018 ONSC 1808, 62 C.B.R. (6th) 328; Canada Trustco Mortgage Co. v. Sugarman (1999), 179 D.L.R. (4th) 548; Phillips v. Nova Scotia (Commission of Inquiry into the Westray Mine Tragedy), [1995] 2 S.C.R. 97; Holman v. Johnson (1775), 1 Cowp. 341, 98 E.R. 1120; Hall v. Hebert, [1993] 2 S.C.R. 159; Youyi Group Holdings (Canada) Ltd. v. Brentwood Lanes Canada Ltd., 2020 BCCA 130, 35 B.C.L.R. (6th) 326; Zimmermann v. Letkeman, [1978] 1 S.C.R. 1097; Alexander v. Rayson, [1936] 1 K.B. 169; Hydro Electric Commission of Nepean v. Ontario Hydro, [1982] 1 S.C.R. 347; Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Canada v. McLarty, 2008 SCC 26, [2008] 2 S.C.R. 79; Montor Business Corp. (Trustee of) v. Goldfinger, 2016 ONCA 406, 36 C.B.R. (6th) 169; Piikani Nation v. Piikani Energy Corp., 2013 ABCA 293, 86 Alta. L.R. (5th) 203; National Telecommunications Inc., Re, 2017 ONSC 1475, 45 C.B.R. (6th) 181; National Telecommunications v. Stalt, 2018 ONSC 1101, 59 C.B.R. (6th) 263.
By Côté J.
Distinguished: Aquino v. Bondfield Construction Co., 2024 SCC 31; Ridel v. Goldberg, 2019 ONCA 636, 147 O.R. (3d) 23; considered: Meridian Global Funds Management Asia Ltd. v. Securities Commission, [1995] 2 A.C. 500; 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal, 2002 SCC 81, [2002] 4 S.C.R. 312; referred to: Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Saulnier v. Royal Bank of Canada, 2008 SCC 58, [2008] 3 S.C.R. 166; Tesco Supermarkets Ltd. v. Nattrass, [1972] A.C. 153; Livent Inc. (Receiver of) v. Deloitte & Touche, 2016 ONCA 11, 128 O.R. (3d) 225, rev’d in part 2017 SCC 63, [2017] 2 S.C.R. 855; El Ajou v. Dollar Land Holdings plc, [1994] 1 B.C.L.C. 464; R. v. Rozeik, [1996] 1 B.C.L.C. 380; Regina Fur Co. v. Bossom, [1957] 2 Lloyd’s Rep. 466; R. v. Andrews-Weatherfoil Ltd., [1972] 1 W.L.R. 118; Canadian Dredge & Dock Co. v. The Queen, [1985] 1 S.C.R. 662; 407 ETR Concession Co. Ltd. v. Day, 2016 ONCA 709, 133 O.R. (3d) 762; Beniuk v. Leamington (Municipality), 2020 ONCA 238, 150 O.R. (3d) 129; Nelson v. Lavoie, 2019 ONCA 431, 47 C.C.P.B. (2nd) 1; King Insurance Finance (Wines) Inc. v. 1557359 Ontario Inc., 2012 ONSC 4263, 99 C.B.R. (5th) 227; Stein v. Blake, [1995] 2 All E.R. 961; Lister v. Hooson, [1908] 1 K.B. 174.
Statutes and Regulations Cited
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 2 “property”, 4(4), 30(1)(d), 71, 95(1)(b), 97(3).
Criminal Code, R.S.C. 1985, c. C‑46, s. 347.
Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, ss. 4, 5, 12.
Securities Act, R.S.O. 1990, c. S.5.
Authors Cited
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APPEAL from a judgment of the Ontario Court of Appeal (Strathy C.J. and Roberts and Sossin JJ.A.), 2022 ONCA 509, 162 O.R. (3d) 295, 1 C.B.R. (7th) 53, [2022] O.J. No. 2999 (Lexis), 2022 CarswellOnt 9234 (WL), affirming in part a decision of Gomery J., 2019 ONSC 5108, 76 C.B.R. (6th) 3, [2019] O.J. No. 4446 (Lexis), 2019 CarswellOnt 14145 (WL). Appeal dismissed.
Charles R. Daoust, for the appellants.
Harvey G. Chaiton, Doug Bourassa and Laura Culleton, for the respondents.
Dona Salmon and Jennifer Boyczuk, for the intervener the Attorney General of Ontario.
Natasha MacParland, Chanakya A. Sethi, Rui Gao and J. Henry Machum, for the intervener the Insolvency Institute of Canada.
The judgment of Wagner C.J. and Karakatsanis, Rowe, Martin, Jamal and O’Bonsawin JJ. was delivered by
Jamal J. —
I. Introduction
[1] The main question raised by this appeal is how the common law doctrine of corporate attribution should be applied to a “one-person” corporation controlled by its sole officer, shareholder, and directing mind. This question arises in the context of determining whether actions commenced by a trustee in bankruptcy to recover funds that a corporation paid out under a Ponzi scheme are statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B.
[2] Golden Oaks Enterprises Inc. was ostensibly a legitimate rent-to-own residential property business operated by its sole officer, shareholder, and directing mind, Joseph Gilles Jean Claude Lacasse. In reality, Golden Oaks was a classic Ponzi scheme: the company continuously needed new loans to repay existing loans. It paid short-term investors interest at criminal interest rates to raise funds to pay its existing investors. Some investors also helped perpetuate the Ponzi scheme by entering into referral agreements with Golden Oaks to refer new investors to the company in exchange for commissions based on a percentage of the amounts invested. When the Ponzi scheme eventually collapsed, Golden Oaks and the respondent, Mr. Lacasse, went into receivership and made assignments in bankruptcy.
[3] The respondent trustee in bankruptcy, Doyle Salewski Inc., launched several actions to recover amounts that Golden Oaks had paid the appellant investors in interest under the loans and in commissions under the referral agreements. The trustee’s actions were based mainly on unjust enrichment. The appellants were all victims of the Ponzi scheme who lost their invested principal when Golden Oaks went bankrupt but managed to recoup some of their early investments through interest and commission payments before its bankruptcy.
[4] The appellants asserted that the trustee’s actions were statute-barred by the Limitations Act, 2002 because they were commenced more than two years after Golden Oaks had paid the interest and commissions. The appellants argued that Mr. Lacasse knew about these payments before the limitation period expired, and they asserted that Mr. Lacasse’s knowledge should be attributed to Golden Oaks under the common law doctrine of corporate attribution developed by this Court in Canadian Dredge & Dock Co. v. The Queen, [1985] 1 S.C.R. 662, Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, and Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd., 2019 SCC 30, [2019] 2 S.C.R. 530.
[5] The trial judge attributed Mr. Lacasse’s knowledge to Golden Oaks, but she concluded that the trustee’s actions were not statute-barred because legal proceedings were not “appropriate” under s. 5(1)(a)(iv) of the Limitations Act, 2002 before the trustee had been appointed, had investigated the causes of the bankruptcy, and had discovered the Ponzi scheme.
[6] The Court of Appeal for Ontario agreed that the limitations defence failed, but held that the trial judge should have exercised her discretion not to attribute Mr. Lacasse’s knowledge to Golden Oaks on public policy grounds in accordance with this Court’s decision in Livent.
[7] The appellants’ main submissions before this Court rely on the Limitations Act, 2002 and the corporate attribution doctrine. The appellants note that the Court’s decision in Livent left open whether the judicial discretion not to attribute the knowledge of a directing mind to a corporation applies in the case of a one-person corporation. They assert that the knowledge of a directing mind must always be attributed to a one-person corporation because the two are essentially one and the same. The result, the appellants submit, is that Mr. Lacasse’s knowledge of the interest and commission payments should be imputed to Golden Oaks, and then attributed to the trustee, with the consequence that the trustee’s actions are statute-barred because they were not commenced within two years after the payments were made.
[8] This appeal also raises questions as to whether: (i) the appellants can rely on the principles of equitable set-off under s. 97(3) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), to set off the interest payments they owe the estate against the loan principal owed to them; (ii) the referral agreements are illegal contracts at common law; and (iii) one appellant, Lorne Scott, was dealing at arm’s length from Golden Oaks under s. 95(1)(b) of the BIA.
[9] I would dismiss the appeal. As this Court noted in Aquino v. Bondfield Construction Co., 2024 SCC 31, at para. 1, the corporate attribution doctrine “provides guiding principles for when the actions, knowledge, state of mind, or intent of the directing mind of a corporation may be attributed or imputed to the corporation”. The attribution doctrine must be applied purposively, contextually, and pragmatically to give effect to the policy of the law under which attribution is sought (paras. 56, 64, and 82). In my view, the same principles apply to one-person corporations. These principles provide sufficient flexibility to address most if not all situations of corporate attribution, including for one-person corporations. Moreover, accepting the appellants’ argument that the knowledge of a sole directing mind must always be attributed to the corporation would effectively disregard the bedrock principle of corporate separateness.
[10] In this case, the Court of Appeal properly exercised its discretion to decline to attribute Mr. Lacasse’s knowledge to Golden Oaks because attribution of that knowledge would undermine the purposes of the limitations and bankruptcy provisions at issue. Attribution would create an injustice by precluding the trustee’s claims to recover the unlawful payments before the trustee was even able to assert them. It would also allow the appellants to retain the proceeds of their wrongful conduct of entering into illegal agreements and reduce the value of the debtor’s assets available to the other creditors in bankruptcy. I would also dismiss the remaining grounds of appeal.
II. Background
A. The Golden Oaks Ponzi Scheme
[11] Golden Oaks was founded by Mr. Lacasse and operated in Ottawa between 2009 and 2013. Mr. Lacasse was the company’s sole shareholder, officer, and directing mind. He publicly advertised Golden Oaks as an altruistic rent-to-own business that gave people who did not qualify for a mortgage a path to home ownership. Tenants would make a down payment and pay a slightly inflated rent for a property, which they would then acquire an option to purchase after three to five years.
[12] Mr. Lacasse also promoted Golden Oaks to prospective investors as a way to make a quick profit by lending the company money to fund its operations in exchange for high-interest promissory notes. Investors in Golden Oaks were short-term lenders to the company. Some investors also had referral agreements with Golden Oaks under which they recruited new investors in exchange for commissions of 8 percent of the amount invested.
[13] To outside observers, Golden Oaks appeared to be successful. The reality was completely different. Golden Oaks was a textbook Ponzi scheme. A fraudster, Mr. Lacasse, lured investors to lend money to the company for unreasonably high rates of return on promissory notes, and then paid existing investors by recruiting new investors, rather than by generating revenue from a legitimate business.
[14] Between 2009 and 2013, Golden Oaks issued 504 promissory notes to 153 investors. Rates of interest on the promissory notes were initially between 12 and 40 percent per year for loans at one- or two-year terms. Later, rates increased to over 60 percent per year — the threshold for the criminal rate of interest under s. 347 of the Criminal Code, R.S.C. 1985, c. C-46. On one occasion, Golden Oaks even offered interest at a rate approaching 67,000 percent per year. By 2012, most promissory notes involved loans at criminal interest rates. Overall, nearly two-thirds of all the promissory notes issued by Golden Oaks were at criminal interest rates. During the life of the Ponzi scheme, Mr. Lacasse personally pocketed about $1.3 million in profits.
[15] The Ponzi scheme collapsed in July 2013. Soon afterwards, Golden Oaks and Mr. Lacasse went into receivership and made assignments in bankruptcy, and Doyle Salewski Inc. was appointed trustee in bankruptcy of their estates.
B. Legal Actions Commenced by the Trustee
[16] In 2015, the trustee launched over 80 legal actions against Golden Oaks’ lenders, including 17 actions to recover illegal interest and commissions paid by Golden Oaks before its bankruptcy.
[17] The trustee’s 17 actions to recover the interest and commissions were consolidated and heard together in one trial. The trustee made two broad categories of claims. First, the trustee advanced statutory claims to recover alleged preferential payments and transfers under the BIA. It argued that because Golden Oaks was a Ponzi scheme, it was insolvent by definition and never had enough money to pay its legitimate creditors. The interest and commissions paid by Golden Oaks were therefore preferential payments that deprived legitimate creditors of their share of the company’s remaining equity.
[18] Second, the trustee advanced unjust enrichment claims. It argued that there was no juristic reason for the interest payments made by Golden Oaks because the interest rates that it offered were illegal, and that the defendants — including all the appellants before this Court — were enriched at Golden Oaks’ expense. The trustee also asserted that the commissions paid for referring new investors to Golden Oaks were unlawful and contrary to the Securities Act, R.S.O. 1990, c. S.5, and thus the referral agreements could not supply a juristic reason for the commissions.
[19] The appellants raised four main defences.
[20] First, the appellants argued that the trustee’s actions were statute-barred under ss. 4 and 12(1) of the Limitations Act, 2002, which impose a two-year limitation period beginning when the bankrupt, Golden Oaks, knew or ought to have known of its claims. The appellants asserted that because Mr. Lacasse knew of the impugned payments when they were made between June 6, 2011, and April 3, 2013, Golden Oaks also knew or ought to have known of the payments at that time. This was over two years before the trustee sued in its capacity as successor of Golden Oaks beginning in June 2015.
[21] Second, the appellants asserted that even if the trustee’s actions were not statute-barred, the appellants were not unjustly enriched. They invoked the doctrine of “notional severance”, which allows a court to partially enforce an otherwise illegal agreement by reading down a contractual provision to make the rest of the agreement legal and enforceable, rather than declaring the entire agreement to be void ab initio. The appellants argued that the court should reduce the criminal rate of interest to the maximum legal rate of interest and order the appellants to return only the interest above that rate, but not the principal or the lawful interest.
[22] Third, the appellants invoked s. 97(3) of the BIA to set off amounts they owed the estate against the principal of the loans owed to them. The appellants claimed a complete set-off because the loan principal exceeded what they owed.
[23] Fourth, those appellants who had referral agreements with Golden Oaks argued that their agreements were lawful and not contrary to the Securities Act and hence provided a juristic reason for them to keep the commissions they had received.
III. Judicial History
A. Ontario Superior Court of Justice, 2019 ONSC 5108, 76 C.B.R. (6th) 3 (Gomery J. (as she then was))
[24] The trial judge readily found that Golden Oaks was a Ponzi scheme. This had two implications. First, Golden Oaks never had enough money to pay its legitimate creditors and was insolvent by definition. Second, as of mid-2011, Golden Oaks’ operations were fraudulent.
(1) The Limitations Defence and the Corporate Attribution Doctrine
[25] The trial judge rejected the appellants’ argument that the trustee’s unjust enrichment claims were statute-barred.
[26] The trial judge noted that, under s. 5(2) of the Limitations Act, 2002, Golden Oaks was presumed to have known about the matters giving rise to its claims when it made the payments unless the contrary was proved. She also accepted that because the trustee advanced the unjust enrichment claims as the successor in interest to Golden Oaks under s. 71 of the BIA, it was deemed, by operation of s. 12(1) of the Limitations Act, 2002, to have known of Golden Oaks’ claims when the company discovered or reasonably could have discovered them. She found that the question of whether Golden Oaks knew or reasonably could have known about the payments had to be resolved by considering whether Mr. Lacasse’s knowledge of the payments should be attributed to Golden Oaks under the corporate attribution doctrine.
[27] The trial judge held that Mr. Lacasse’s knowledge should be attributed to Golden Oaks. She relied on Canadian Dredge for the proposition that the acts of the directing mind of a corporation are attributed to the corporation unless those acts were totally in fraud of the corporation or were not by design or result partly for its benefit. She found that neither exception applied. The trustee had not shown that Mr. Lacasse had acted totally in fraud of the corporation or solely for his own benefit. Of the $16.4 million raised from investors, Mr. Lacasse pocketed only $1.3 million. Another $7.7 million was used to pay other investors, while the rest was used partly for the benefit of the company, including to pay for operating expenses, the purchase, renovation, and repair of properties, advertising, and other administra