Dowe v. Hogaboam, 2019 BCPC 85 (CanLII)
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2019 BCPC 85 |
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Date: |
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File Nos: |
C82425, 82553, and C82552 |
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Registry: |
Nanaimo |
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File No: |
C82553 |
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Registry: |
Nanaimo |
IN THE PROVINCIAL COURT OF BRITISH COLUMBIA
BETWEEN:
FRED DOWE
CLAIMANT
AND:
LDI REALTY WESTERN LTD.
DEFENDANT
AND:
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File No: |
C82425 |
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Registry: |
Nanaimo |
IN THE PROVINCIAL COURT OF BRITISH COLUMBIA
BETWEEN:
FRED DOWE
CLAIMANT
AND:
LYLE HOGABOAM and LDI REALTY WESTERN LTD.
DEFENDANTS
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File No: |
C82552 |
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Registry: |
Nanaimo |
IN THE PROVINCIAL COURT OF BRITISH COLUMBIA
BETWEEN:
CAROL DOWE
CLAIMAINT
AND:
LDI REALTY WESTERN LTD.
DEFENDANT
REASONS FOR JUDGMENT
OF THE
HONOURABLE JUDGE GOUGE
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F. Dowe and C. Dowe |
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Counsel for the Defendants, L. Hogaboam & LDI Realty: |
S. King |
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Nanaimo, B.C. |
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Date of Hearing: |
April 25, 2019 |
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Date of Judgment: |
May 1, 2019 |
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A Corrigendum was released by the Court on September 26, 2019. The corrections have been made to the text and the Corrigendum is appended to this document.
The Issues
[1] The defendants apply for an order that the claims in each of these actions be dismissed, or, in the alternative, for an order that the two actions be consolidated.
[2] The defendants submit that the effect of the latter order, if granted, would be to limit the total claim to $35,000 rather than $70,000: Small Claims Act RSBC 1996, c 430, s. 3; Small Claims Court Monetary Limit Regulation BC Reg 120/2017.
Facts Which Are Not In Dispute
[3] It became apparent during argument of the application that some of the pertinent facts are not in dispute. They are:
a. Mr. Hogaboam was a licensed mortgage broker for some years. He surrendered his mortgage broker’s license in 2005. He is a shareholder and director of LDI Realty Western Ltd. (“LDI”).
b. In the 1980’s, Mr. Hogaboam was introduced to Mr. Arnold Breitkreutz, who was the sole shareholder of Base Finance Ltd. (“Base”). Mr. Breitkreutrz told Mr. Hogaboam that; (i) Base offered investors the opportunity to invest in mortgages of Alberta real estate; (ii) the ratio of the mortgages to the value of the real estate would normally be less than 60%, and always less than 75%; and (iii) each investor would receive an assignment of the mortgage as security for the investment.
c. In fact, Base was operating a Ponzi scheme. Base and its principals simply pocketed the funds invested by their clients. There were no mortgages to secure the investments of Base’s clients and the purported payments of mortgage interest to the clients were taken from money invested by later clients. When the Ponzi scheme eventually collapsed, as all Ponzi schemes eventually do, the clients lost all of their investment.
d. Mr. Hogaboam, his wife and LDI, collectively, invested $1.17 million of their own money in the Ponzi scheme promoted by Base, and lost that investment when the scheme collapsed.
e. Mr. Hogaboam met Mr. Dowe socially in 2005 and Ms. Dowe in 2008. He passed on to them the information about the investment opportunity which Mr. Breitkreutz had previously given to Mr. Hogaboam (subparagraph “b”, above). Acting on that information, Mr. and Ms. Dowe invested $50,000 on August 16, 2011, $30,000 on July 31, 2013, $50,000 on September 3, 2014 and $50,000 on October 26, 2014. They lost those investments when the Ponzi scheme collapsed. On this application, the defendants assert that each of those investments was a joint investment by Mr. and Ms. Dowe. Mr. and Ms. Dowe assert that: (i) they managed their investments separately; (ii) Ms. Dowe, acting solely on her own behalf, made the investments on August 16, 2011 and September 3, 2014; and (iii) Mr. Dowe, acting solely on his own behalf, made the investments on July 31, 2013 and October 26, 2014.
f. Between July 2013 and July 2015, Mr. Hogaboam received $11,700 in “finder’s fees” from Base in return for Mr. Hogaboam’s services in finding and referring investors for the Ponzi scheme. Those investors invested a total of $585,000 in the Ponzi scheme. On this application, there is neither an admission nor any evidence as to whether Mr. Hogaboam was paid a “finder’s fee” in relation to the investments by Mr. and Ms. Dowe.
g. Mr. and Ms. Dowe complained to the British Columbia Securities Commission. The Commission investigated the complaint. A settlement was reached between Mr. Hogaboam and the Commission on April 15, 2019. Under the terms of settlement, Mr. Hogaboam is prohibited from trading securities for a period of four years and required to pay a penalty of $20,000 to the British Columbia Securities Commission. The settlement does not require him to pay any compensation to investors whom he introduced to the Ponzi scheme, and, in particular, does not require him to pay any compensation to Mr. or Ms. Dowe.
h. The Alberta Securities Commission conducted an investigation into the activities of Mr. Breitkreutz. Mr. and Ms. Dowe gave evidence at the Alberta Securities Commission hearing. The Alberta Securities Commission imposed penalties on Mr. Breitkreutz, but did not order that he pay compensation to Mr. or Ms. Dowe.
The Pleadings
[4] Mr. and Ms. Dowe each commenced two actions in this Court, one each against Mr. Hogaboam and one each against LDI. In each action, they claimed damages for fraudulent misrepresentation and for negligence. The pleadings contain no particulars of the allegation of fraudulent misrepresentation. The particulars of negligence provided are an allegation that Mr. Hogaboam carried no errors and omissions insurance at the time that he referred Mr. and Ms. Dowe to Base.
[5] At a settlement conference on March 23, 2018, my colleague, Her Honour Judge Crockett, ordered that the four actions be consolidated into two, one with Mr. Dowe as the claimant and the other with Ms. Dowe as the claimant, and with Mr. Hogaboam and LDI as the defendants in each.
[6] On this application, the defendants seek an order for further consolidation of the two remaining actions into one, with Mr. and Ms. Dowe as claimants and Mr. Hogaboam and LDI as defendants.
[7] The Notices of Claim in these actions are inadequate.
a. A claim for fraudulent misrepresentation requires the following allegations: (i) that the defendant made a statement of fact to the claimant; (ii) that the statement of fact was false; (iii) that the defendant knew the statement of fact to be false when the statement was made (or, perhaps that the defendant made the statement recklessly); and (iv) that the claimant suffered loss as a result of reliance on the false statement. Each of those allegations must be made with sufficient particularity to allow the defendant to respond to them. No such allegations are made in the Notices of Claim in this case.
b. Similarly, the existing plea of negligence is inadequate. Mr. and Ms. Dowe’s loss was not caused by the absence of liability insurance. Liability insurance would be relevant if and only if the defendants’ responsibility arose from some other delict. The circumstances of this case might give rise to a claim for damages for negligent misrepresentation. The elements of such a claim were identified in Queen v. Cognos Incorporated 1993 CanLII 146 (SCC), [1993] 1 SCR 87 @ paragraph 34:
… there must be a duty of care based on a "special relationship" between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted. In the case at bar, the trial judge found that all elements were present and allowed the appellant's claim.
None of those elements are alleged in the Notices of Claim in this case.
[8] On this application, the defendants assert that these actions are an abuse of process because (in the defendants’ submission), Mr. and Ms. Dowe’s claims could and should have been adjudicated by the Alberta and/or British Columbia Securities Commissions. The defendants’ replies do not specifically raise that issue, nor do they plead the statutory authority under which the Securities Commissions might have adjudicated those claims.
[9] The pleadings matter because:
a. As will become apparent, Mr. and Ms. Dowe’s omission to plead the specific misrepresentations on which they rely, and the defendants’ omission to plead the specific statutory authority which they say the Securities Commissions could have invoked, makes it impossible to adjudicate the defendants’ present application to dismiss these claims as an abuse of process.
b. The pleadings define and limit the scope of evidence at trial. In their present state, it will be very difficult for the trial judge to maintain any kind of structure at the trial.
c. The pleadings also provide a useful checklist of matters to be proven. This is of assistance to the parties in gathering evidence before trial and leading evidence at trial.
The Application to Dismiss These Actions
[10] This Court possesses jurisdiction to dismiss an action at any stage of the proceedings if the Notice of Claim: (i) is made without reasonable grounds; (ii) discloses no triable issue; or (iii) is frivolous or an abuse of the process of the court: Watch Lake North Green Lake Volunteer Fire Department Society v. Haskins et al. 2010 BCPC 114; [2010] BCJ No. 1215 @ paragraphs 8 – 9.
[11] On the present application, the defendants assert that these actions are an abuse of process because, in the defendants’ submission, the claims advanced were, or could reasonably have been, adjudicated by the British Columbia and Alberta Securities Commissions. To oversimplify a complex set of legal principles, the defendants say that they should not be compelled to defend themselves against a single set of allegations in three separate proceedings, one before each of the Securities Commissions and the third before this Court. They point out that Mr. and Ms. Dowe were among the complainants whose complaints initiated the investigations by the two Securities Commissions. A detailed and scholarly review of the governing principles is found in Terry v. Bryson 2014 BCSC 522.
[12] The British Columbia Securities Commission has a limited jurisdiction to award compensation to investors who are the victims of misrepresentations which cause them to make bad investments. That jurisdiction is conferred by Part 16 of the Securities Act RSBC 1996, c. 418. Under Part 16, the Securities Commission may award compensation for losses resulting from certain defined kinds of misrepresentations made by certain defined kinds of people. For example, section 131 authorizes the Securities Commission to order a person who signed a prospectus to pay compensation to a person who was misled by the prospectus. Because of the deficiencies in the pleadings, noted above, I do not know whether the misrepresentations alleged by Mr. and Ms. Dowe were made in a prospectus, nor, if so, whether either of the defendants signed the prospectus. In order to decide the issue raised by the defendants on this application (abuse of process), it would be necessary to compare the allegations made by Mr. and Ms. Dowe to the catalogue of persons and misrepresentations found in Part 16 in order to determine whether the Securities Commission had jurisdiction to order the defendants to pay compensation to Mr. and Ms. Dowe. The pleadings in this case are insufficient to allow that comparison to be made. I cannot ascertain from the pleadings whether: (i) Mr. Hogaboam was a member of one or more of the classes of people defined in Part 16; or (ii) whether the misrepresentation alleged by Mr. and Ms. Dowe was of one of the kinds defined in Part 16. Unless both are true: (i) the Securities Commission had no jurisdiction to award compensation to Mr. and Ms. Dowe; and (ii) the principles reviewed in Terry v. Bryson have no application.
The Application to Consolidate the Two Actions
[13] In Schab v. Active Bailiff Service Ltd. [1993] BCJ No. 2936 @ paragraph 13, His Honour Judge Stansfield said:
In my view there is an important distinction between consolidation for all purposes, and actions being tried at the same time. In Crehan v. Heth (1964) 1964 CanLII 1245 (BC SC), 56 W.W.R. 692 (B.C. Co. Ct.), it was held that the consolidation for all purposes of two County Court actions limited the aggregate recovery to the monetary jurisdiction of that court. If one imagines two persons injured in a single accident, it likely makes sense that the actions be heard together, but it would not be just to limit the individuals to only half the monetary jurisdiction of the court, so the appropriate order would be for the actions to be tried at the same time.
If one were to accept Mr. and Ms. Dowe’s assertion that they did not invest jointly, but rather that each of them made two separate investments independently of the other, the principle articulated by Judge Stansfield would require me to dismiss the application to consolidate the two remaining actions. However, there remains a disputed issue of fact as to the character of those investments, which could be resolved only by the trial judge.
[14] There is another way of considering the question, which may affect the amount which Mr. and Ms. Dowe are entitled to recover if their claims are successful.
[15] In Crehan v. Heth, to which Judge Stansfield referred, the governing statute was section 30 of the County Courts Act RSBC 1960, c 81. It conferred on the County Courts jurisdiction “… in all personal actions where debt, demand or damages claimed do not exceed three thousand dollars …” (underlining added). By contrast, this action is governed by section 3(1) of the Small Claims Act, which provides:
The Provincial Court has jurisdiction in a claim for … debt or damages … if the amount claimed or the value of the personal property or services is equal to or less than an amount that is prescribed by regulation, excluding interest and costs.
(underlining added)
The amount prescribed by regulation is $35,000.
[16] In Crehan v. Heth, Judge Schultz concluded that it would be unjust to consolidate two actions, each advancing a separate claim, because the total amount claimed in the consolidated action would exceed the amount which could be awarded in a single action. No such difficulty arises under the Small Claims Act, because it does not impose a limit on the amount which may be awarded in a single action. Rather, it imposes a limit on the amount which may be awarded in respect of a single claim: Bains v. Mattu 2002 BCSC 1437; [2002] BCJ No. 2311. A claim is distinct from an action. A “claim” is an assertion of a right, and is synonymous with a “cause of action”: Kids Only Market Ltd v. Chan [1993] BCJ No. 2728. An action is a process by which a claim is enforced. More than one claim may be advanced in a single action. The following are some illustrative examples:
a. Joe negligently operates his motor vehicle so as to collide with Fred’s vehicle. The two men step out of their vehicles and a fight ensues, during which Joe punches Fred. Fred has two claims against Joe. One is for negligent operation of a motor vehicle, causing damage to Fred’s vehicle. The other is for assault, causing damage to Fred’s person. Fred may advance both claims in a single action. If he brings that action in Provincial Court under the authority of the Small Claims Act, he may not recover more than $35,000 in respect of either claim. However, the limit is on the amount recoverable in respect of each claim, not the amount recoverable in the action. As a result, he may be entitled to recover as much as $70,000 in a single action.
b. Mary lends Susan $25,000 in June, 2018, and a further $30,000 in October, 2018. Under the terms agreed, Mary was to repay the first loan, with interest, on January 15, 2019 and the second loan, with interest, on March 1, 2019. Susan makes no payment on account of either loan. Mary has two claims against Susan. She may advance both claims in a single action. The amount recoverable on each claim is limited to $35,000. The amount recoverable in the action may exceed that amount.
[17] The alternative would be to require Fred to bring two separate actions, one for negligent operation of a motor vehicle and the other for assault, and to require Mary to bring two separate actions, one for each debt. No provision of the Small Claims Act evinces such a legislative intention. Such a requirement would offend:
a. the stated objective of the Small Claims Act, i.e.: “… to allow people who bring claims to the Provincial Court to have them resolved … in a just, speedy, inexpensive and simple manner …”: Small Claims Act, s. 2.
b. section 10 of the Law & Equity Act, RSBC 1996, c 253, which provides:
In the exercise of its jurisdiction in a cause or matter before it, the court must grant, either absolutely or on reasonable conditions that to it seem just, all remedies that any of the parties may appear to be entitled to in respect of any legal or equitable claim properly brought forward by them in the cause or matter so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of legal proceedings concerning any of those matters may be avoided.
c. common sense. The suggestion is that Mary can recover the full amount of both loans if she commences two actions in this court, but only 63% of the total if she commences one action. That is simply absurd. If it were the intention of the Legislature to impose a $35,000 limit on the aggregate of all claims by a single claimant against a single defendant, the Legislature would have said so. It would not have created a regime by which the claimant could evade the limit by the simple expedient of commencing a separate action for each claim.
A similar problem was considered, and a similar conclusion reached, in Gates v. Sihota 2018 BCCA 375; [2018] BCJ No. 3357 @ paragraphs 72 – 74.
[18] In Shaughnessy v. Roth 2006 BCCA 547; [2006] BCJ No. 3125; 61 BCLR (4th) 268, Justice Chiasson said @ paragraphs 35 - 36:
The mandate of the legislation and the Rules is to provide an informal and efficient process for the disposition of claims up to $25,000. Beyond that amount the legislature intended that claims should be dealt with in the Supreme Court, but the right of parties to have their cases dealt with in the forum of their choice is respected. This is why they are given the right to abandon amounts in excess of $25,000.
* * *
… it appears to me of the utmost importance that the plaintiffs should be permitted, save in exceptional circumstances, to take their claims to the Small Claims Court when it is within the jurisdiction of that Court.
[19] The question is whether Mr. & Ms. Dowe have one claim against the Defendants, or more than one. The deficiencies in the pleadings make it impossible to decide that question on this application. Their claim is for damages for fraudulent misrepresentation and/or negligent misrepresentation and/or negligent advice. However, no particulars of those allegations have been pleaded. If each of the four investments which they made was induced by a separate misrepresentation or advice on the part of Mr. Hogaboam, then they may have four separate claims. If each investment was induced by the same misrepresentation or advice, they may have only one claim. The question is not, as Ms. King would have it, whether they invested jointly or separately, but rather whether they allege one tort or more than one.
[20] If Mr. & Ms. Dowe allege four or more separate torts, arising from their four investments in the Ponzi scheme, an issue may arise as to the applicability of a limitation period imposed by the Limitation Act RSBC 1996, c 265 or by the Limitation Act SBC 2012, c 13. I observe that an amendment to an existing pleading to allege a new cause of action may, in some cases, be allowed even after expiry of a limitation period: Shamrock Fencing (1992) Ltd v. Walker 2015 BCPC 289; [2015] BCJ No. 2265.
[21] In Sandhu v. HSBC Finance Mortgages Inc. 2016 BCCA 301; [2016] BCJ No. 1438; 87 BCLR (5th) 66, Justice Saunders said @ paragraph 44:
While the possibility of amendment of the pleadings is a consideration weighing against striking of pleadings under Hunt, it is an error to leave to trial issues that should be resolved on the pleadings at the certification stages: Jer v. Royal Bank of Canada, 2014 BCCA 116 at para. 108. Authorities tend to be generous in making available the possibility of amendments to fine tune the pleadings and to bring clarification to obscure issues, e.g., Watson v. Bank of America Corporation, 2015 BCCA 362 at paras. 87, 106, 140, 197. Nonetheless, in British Columbia -- a cost beneficial jurisdiction to plaintiffs -- fairness and access to justice considerations, including to defendants, reinforce the proposition that the essentials of a cause of action must be pleaded else the pleadings may be found to be fatally lacking. The court will consider in this mix the length of time the plaintiff has had to "get it right".
The original Notices of Claim in this case were filed in August and September, 2017. The cases are now set for trial on July 8 and 9, 2019. A further delay would be regrettable. However, I do not think that the cases should be allowed to proceed to trial on the existing pleadings.
Disposition
[22] Mr. and Ms. Dowe are to file and deliver an application for leave to amend their Notice of Claim in each action on or before June 1, 2019. A draft of the amended pleading(s) which they wish to file must be appended to the application.
[23] The trial of the actions are adjourned generally.
[24] The Defendants’ applications are adjourned generally.
May 1, 2019
______________________________
T. Gouge
Provincial Court Judge
CORRIGENDUM - Released - September 26, 2019
In the Reasons for Judgment dated May 1, 2019, the following changes have been made:
[1] The cover page be amended to include file C82553 and correctly set out the style of proceedings in each of the 3 files heard together as follows:
File No: C82553
Registry: Nanaimo
IN THE PROVINCIAL COURT OF BRITISH COLUMBIA
BETWEEN:
FRED DOWE
CLAIMANT
AND:
LDI REALTY WESTERN LTD.
DEFENDANT
File No: C82425
Registry: Nanaimo
IN THE PROVINCIAL COURT OF BRITISH COLUMBIA
BETWEEN:
FRED DOWE
CLAIMANT
AND:
LYLE HOGABOAM and LDI REALTY WESTERN LTD.
DEFENDANTS
File No: C82552
Registry: Nanaimo
IN THE PROVINCIAL COURT OF BRITISH COLUMBIA
BETWEEN:
CAROL DOWE
CLAIMAINT
AND:
LDI REALTY WESTERN LTD.
DEFENDANT
REASONS FOR JUDGMENT
OF THE
HONOURABLE JUDGE GOUGE
Appearing on their own behalf: F. Dowe and C. Dowe
Counsel for the Defendants, L. Hogaboam & LDI Realty: S. King
Place of Hearing: Nanaimo, B.C.
Date of Hearing: April 25, 2019
Date of Judgment: May 1, 2019
______________________________
T. Gouge
Provincial Court of British Columbia