Abstract
(156 paras.)
Reasons for judgment delivered by G.I. Pardu J.A., concurred in by L.B. Roberts J.A. Separate dissenting reasons delivered by A. Hoy A.C.J.O.
A. Overview
1 This case illustrates, once again, the catastrophic social consequences caused by problem gamblers, those unable to resist the allure of a casino. The appellants are two estates defrauded by an addicted gambler. They sued the respondent, Ontario Lottery and Gaming Corporation (“OLGC”), hoping to recover some portion of their losses. Their statement of claim was struck by the motion judge, who concluded that it was plain and obvious that the action could not succeed. They appeal from that dismissal, arguing that their claims for knowing receipt of trust funds, unjust enrichment, and negligence should be allowed to proceed to trial.
2 I would allow the appeal, and dismiss the motion to strike the action. While the action is by no means certain to succeed, nor is it necessarily certain to fail.
B. Facts
3 Shellee Spinks was a law clerk. She stole over $4,000,000 from the appellants and others by forging documents, selling estate assets and taking the money for herself. She lost about $3,000,000 of that money in the respondent's casinos over a roughly 14-month period. The appellants allege that they were defrauded of approximately $1,500,000 by Ms. Spinks, that she gave about $200,000 of that money to her mother, and that the two women gambled and lost about $950,000 of the estates' money in the respondent's casinos, where Ms. Spinks held herself out to be a lawyer. The gambling took place between late 2006 and Ms. Spinks' arrest on March 13, 2008.
C. The Motion Judge's Decision
4 Under r. 21.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, a party may move before a judge to strike out a pleading on the grounds that it discloses no reasonable cause of action.
5 The motion judge correctly set out the test for striking an action under r. 21.01, at para. 3:
In considering a motion under this rule to strike out a statement of claim, the judge must assume that the facts pleaded are true. He must read the statement of claim generously allowing for inadequacies due to drafting deficiencies. Because a cause of action is novel it should not be struck out on this basis. The statement of claim should only be struck out if it is “plain and obvious” and “certain” that the claim will fail. Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959 and Nash v. Ontario, [1995] O.J. No. 4043 (C. of A.).
(1) Knowing receipt of trust funds
6 The motion judge concluded that the fact that Ms. Spinks held herself out as a lawyer to the operators of OLGC's casinos did not mean that OLGC had notice that she was gambling with trust funds or that it had an obligation to investigate. He noted that many people lose money at gambling casinos and represent themselves, truthfully or not, as being from various occupations. The motion judge concluded that this could not be sufficient to put a casino on notice to investigate its customers as to the source of the money they are losing. The motion judge stated that such a practice would destroy the business of the casinos, a legally permitted activity.
(2) Unjust enrichment
7 The motion judge concluded that OLGC had valid juristic reasons for retaining any money it received: (i) it entered into valid contracts with Ms. Spinks and her mother; and (ii) it was a bona fide purchaser without notice that they were gambling with money obtained by fraud. Therefore, the claim for unjust enrichment could not succeed.
(3) Negligence
8 The motion judge concluded that the respondent did not owe a duty of care to the appellants. He held that in order for OLGC to owe a duty of care to the appellants, it would first have to owe a duty of care to Ms. Spinks and her mother as problem gamblers. After reviewing the jurisprudence from Canada and other jurisdictions, the motion judge concluded that OLGC did not owe a duty of care to problem gamblers, except perhaps in very limited circumstances, none of which existed in this case.
9 The motion judge also concluded that even if OLGC owed a duty of care to problem gamblers, this would not help the appellants' cause of action for the following reasons: (i) the duty to problem gamblers would be negated because of residual policy concerns, specifically the danger of indeterminate liability; (ii) even if OLGC had prevented them from gambling, there were problems with proof of causation because Ms. Spinks and her mother would have retained the stolen money; and (iii) OLGC would still not owe a duty to the appellants to investigate the source of its customers' money.
D. Standard of Review
10 As recently explained by this court in Frank v. Legate, 2015 ONCA 631, 390 D.L.R. (4th) 39, at para. 35, a motion judge assessing whether a statement of claim discloses a reasonable cause of action is engaged in a purely legal analysis, and the standard of review is therefore correctness.
E. Analysis
(1) Motions to strike
11 As the Supreme Court indicated in R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 19, the purpose of a motion to strike is to eliminate hopeless claims. However, the court in that case also noted, at para. 21, that it “is a tool that must be used with care.”
12 It is not determinative, on a motion to strike, that the law has not yet recognized a particular claim. Rather, the court must ask whether it is plain and obvious that the claim has no reasonable prospect of success. The court must take the facts pleaded in the statement of claim as true, unless they are patently ridiculous or manifestly incapable of being proven, and the approach must be generous, erring on the side of allowing a novel, but arguable, claim to proceed. While no evidence is admissible on a motion to strike, claimants must clearly plead all facts on which they intend to rely, as those facts are the basis on which the possibility of success will be evaluated. See Imperial Tobacco, at paras. 17–22; and Frank v. Legate, at para. 36, and the cases cited therein.
(2) The statement of claim
13 The statement of claim in this action is not a model of clarity, but, read generously, the following factual allegations may be gleaned from that document:
• Ms. Spinks was a problem gambler; • OLGC knew she was a problem gambler; • OLGC knew problem gamblers sometimes steal to feed their habit and cause losses to others; • Ms. Spinks' gambling of vast sums of money over a relatively short period would have caused a reasonable person to make inquiries about the source of her funds, and to suspect that the money might have been stolen; and • OLGC's failure to act contributed to the appellants' losses.
14 I recognize that these factual allegations were not always neatly tied to a particular cause of action in the statement of claim. However, that is not fatal on a pleadings motion, provided the material facts are pleaded: Dean's Standard Inc. v. Hachem, 2014 ONSC 1977, at para. 14; McGillvray v. Penman, 2016 ONSC 1271, at para. 12. See also Almas v. Spenceley, [1972] 2 O.R. 429 (C.A.), at p. 433.
(3) The causes of action
(i) Knowing receipt of trust funds
15 A stranger to a trust may be liable where it receives trust property for its own benefit, has knowledge of facts which would put a reasonable person on inquiry, but fails to inquire as to the possible misapplication of trust property: Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805, at para. 49. The recipient's enrichment is “unjust” due to the lack of inquiry with respect to the possible misapplication of the trust property. The focus is therefore on the recipient's state of mind because, without constructive or actual knowledge of the breach of trust, the recipient could have a lawful claim to the funds and the plaintiff would not be entitled to a restitutionary remedy. See Citadel General Assurance, at paras. 48–51.
16 I am not convinced that the appellants' claim for knowing receipt could not possibly succeed. If a trier of fact were to conclude that OLGC had good reason to suspect that the money gambled by Ms. Spinks might have been stolen, the appellants may fall within the protection afforded by Citadel General Assurance.
17 According to Peter D. Maddaugh and John D. McCamus, The Law of Restitution, loose-leaf (2015-Rel. 16), (Toronto: Canada Law Book, 2015), at paras. 5-16 to 5-25, money obtained by fraud can be subject to a constructive trust. In Healthy Body Services Inc. v. 1261679 Ontario Ltd. (Raytek Communications), 2015 ONCA 516, 338 O.A.C. 346, at paras. 30–40, Lauwers J.A., dissenting, would have held that money obtained by fraud was subject to a constructive trust and that a party that subsequently obtained that money could be liable in knowing receipt. The majority in that case did not consider the issue of knowing receipt, as it held the funds in question could not be traced.
18 Moreover, in In re Equipment Acquisition Resources, Inc., 803 F. 3d 835 (7th Cir. 2015), a plan administrator sought to recover embezzled funds lost at a casino. The District Court for the Northern District of Illinois granted the casino's summary judgment motion, and the Seventh Circuit Court of Appeal upheld the result, on the ground that unless the casin
19 The motion judge in this case rejected the appellants' claim that the OLGC knowingly received trust funds, at para. 37 of his reasons:
S. Spinks held herself out to be a lawyer to the operators of the gambling casinos. Many people lose money at gambling casinos who will represent themselves truthfully or not as being from various occupations. This cannot be sufficient to put the casinos on notice to investigate these people as to the source of the money that they are losing. Such a practice would destroy the business of the casinos which they are conducting legally.
20 These factual assertions cannot form the basis to reject the appellants' claim, if it was adequately pleaded. The question before the motion judge was whether, taking the facts in the statement of claim as true and reading the claim generously, it was plain and obvious that the action would fail. In my view, on a generous reading of the statement of claim, and given the appellants' allegations that OLGC had knowledge sufficient to put a reasonable person on inquiry, but failed to take the necessary action, the appellants' claim for knowing receipt of trust funds should be allowed to proceed to trial.
(ii) Unjust enrichment
21 The trial judge correctly set out the requirements for a claim in unjust enrichment: (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) the absence of a juristic reason for the enrichment. See Pettkus v. Becker, [1980] 2 S.C.R. 834, at p. 848; and Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 30.
22 The motion judge held that third parties such as the appellants could not advance a claim for unjust enrichment unless Ms. Spinks, the gambler, also had that right. He held that while OLGC was enriched, and Ms. Spinks was correspondingly deprived, there were juristic reasons for the enrichment—namely, a valid gambling contract and the fact that OLGC was a bona fide purchaser for value without notice that it was receiving money obtained by fraud.
23 The motion judge did not consider the possibility that the juristic reasons for the enrichment might be vitiated on the ground of unconscionability. The appellants pleaded in their statement of claim that OLGC received an “unconscionable benefit.” If OLGC knew that Ms. Spinks was addicted to gambling, and was in fact unable to refrain from losing money, but allowed her to continue gambling nonetheless, I am not convinced that the appellants' claim in unjust enrichment would necessarily fail.
24 This approach was adopted by the Court of Appeal of the Supreme Court of Victoria in Kakavas v. Crown Melbourne Ltd. & Ors, [2012] VSCA 95, aff'd [2013] HCA 25. In that case, the appellant claimed that he was a “pathological gambler” and that the casino's actions in luring him back to the casino, and in encouraging his gambling, were unconscionable.
25 The court described, at paras. 17–19, the parameters of unconscionability in that context as encompassing circumstances in which: (i) a party to a transaction is under a special disability in dealing with the other party, such that there is no reasonable degree of equality between them; and (ii) the disability is sufficiently evident to the stronger party to make it prima facie unfair for him or her to procure or accept the weaker party's agreement to the transaction in the circumstances. The common characteristic of adverse circumstances constituting a special disability is that they have the effect of placing one party at a serious disadvantage with respect to the other party. The focus is on the conduct of the stronger party in attempting to enforce or retain the benefit of a transaction with a person under special disability, where it is not consistent with equity or good conscience to allow him or her to do so.
26 Following trial, the plaintiff's claim in Kakavas was dismissed on the ground that he did not suffer from the special disability or disadvantage of addiction to gambling. Appeals to the Court of Appeal and the High Court of Australia were dismissed. Again, while the plaintiff lost because of the factual findings made in that case, a finding of unconscionability—knowingly taking advantage of an addicted gambler—could have opened the door to compensation.
27 In this case, if a trier of fact were to determine that OLGC acted unconscionably with respect to Ms. Spinks, a problem gambler, it is not plain and obvious that the appellants' action in unjust enrichment would fail. While the argument may be novel, as observed by Professor Stephen M. Waddams in The Law of Contracts, 6th ed. (Toronto: Canada Law Book, 2010), at para. 551, “[t]he categories of unconscionability can never be closed.”
28 Furthermore, in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, at paras. 34 and 43, the Supreme Court of Canada recognized that the remedy of a constructive trust could be imposed where required by good conscience, including both for wrongful acts like fraud and where there is unconscionable unjust enrichment:
It thus emerges that a constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case. … I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation. While cases often involve both a wrongful act and unjust enrichment, constructive trusts may be imposed on either ground: where there is a wrongful act but no unjust enrichment and corresponding deprivation; or where there is an unconscionable unjust enrichment in the absence of a wrongful act, as in Pettkus v. Becker, supra. Within these two broad categories, there is room for the law of constructive trust to develop and for greater precision to be attained, as time and experience may dictate.
29 In addition to the notion of unconscionability, legislation such as the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A, may shed light on the impact of the disability of one party to a contractual relationship on the agreement, such as when the consumer is not reasonably able to protect his or her interests because of disability and when unfair practices on the part of the supplier of services may entitle the consumer to rescission of the contract: see ss. 15(2)(a), 17, and 18(1).
30 In light of the foregoing considerations, it is my view that it is not plain and obvious that the appellants' claim in unjust enrichment is certain to fail.
(iii) Negligence
31 The appellants allege that OLGC owed them a duty of care to prevent Ms. Spinks from losing their money by stopping her from gambling. The motion judge applied the “Anns/Kamloops”, [1984] 2 S.C.R. 2 test for recognizing a duty of care, as expressed in Edwards v. Law Society of Upper Canada, 2001 SCC 80, [2001] 3 S.C.R. 562, at paras. 9–10. In that case, the Supreme Court confirmed that at the first stage of the Anns/Kamloops test, the court must examine whether the circumstances disclose reasonably foreseeable harm and sufficient proximity between the plaintiff and defendant to establish a prima facie duty of care. At the second stage, the question is whether there are residual policy reasons for not imposing a duty of care. See also Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, at para. 30; and Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83, at paras. 23–26, 30–32.
32 The motion judge held that the respondent could not owe any duty of care to the appellants unless it also owed a duty of care to Ms. Spinks, the gambler. He referred to a number of authorities holding generally that problem gamblers are the authors of their own misfortune and should not be able to recover for economic loss: see Burrell v. Metropolitan Entertainment Group, 2010 NSSC 476, aff'd 2011 NSCA 108; and Calvert v. William Hill Credit Ltd., 2008 EWHC 454 (Ch.), aff'd [2008] EWCA Civ. 1427.
33 The motion judge held, at para. 24, that the pleadings did not disclose facts sufficient to establish the required reasonable foreseeability and proximity between casinos and problem gamblers:
In this case, it is not pleaded that S. and A. Spinks recognized that they were problem gamblers and sought to have the casinos exclude them. The plaintiffs do not plead special circumstances as there were in Preston. The plaintiffs do not plead facts linking S. and A. Spinks to the casinos where they gambled that would differentiate them to the staff from the general population of patrons who attend to gamble there other than that they were problem gamblers. The case law establishes that this is not sufficient to create a duty of care to them by OLGC. That S. and A. Spinks would lose money at the casinos like every other person who gambled there for any length of time was foreseeable. It could hardly be otherwise or the casinos would go out of business. The facts pleaded, however, fail to assert sufficient proximity between S. and A. Spinks and OLGC to satisfy the second requirement of imposing a duty of care to them by OLGC.
34 The motion judge went on to hold that to impose a duty of care on OLGC would create indeterminate liability to problem gamblers for their losses, making it impossible for casinos to operate at a profit—policy concerns that the appellants had not adequately addressed in their pleadings. Because he found that OLGC owed no duty of care to problem gamblers, he found that it could not owe a duty of care to the appellants either.
35 I do not agree with the motion judge that case law binding in Ontario establishes definitively that casinos owe no duty of care to problem gamblers. I agree that casinos cannot be expected to conduct an individualized assessment of each of their customers to determine the wisdom of the decision to gamble. However, more may be expected when an individual is obviously addicted to gambling and out of control. Moreover, the factual assertion that casinos would go out of business if a duty of care to problem gamblers were to be recognized has no place on a pleadings motion. Factual findings will have to await a hearing on the merits with the benefit of an evidentiary record.
36 Nor am I persuaded at this early stage that recognition of a duty of care confined to the victims of an obvious problem gambler in circumstances where a reasonable person would have realized that the gambler could be using stolen funds to feed his or her addiction will necessarily result in indeterminate liability. The dimensions of this problem cannot be determined on a pleadings motion.
37 I recognize that there are some formidable barriers to a finding that casinos owe a duty of care to third parties who are the victims of problem gamblers. For one thing, the claim is for pure economic loss. Moreover, while loss to third parties may be reasonably foreseeable, the casinos have no relationship with the third parties, and there may be some indeterminacy in assessing the number of persons from whom addicted gamblers may have stolen.
38 On the other hand, this issue may be seen as analogous to that of a commercial host who serves alcohol to an intoxicated patron, who then drives while inebriated and injures an innocent third party. In that context, there is a recognized duty to both the intoxicated patron and the third party: see Stewart v. Pettie, [1995] 1 S.C.R. 131. The server of alcohol has no relationship with the third party, but injury is reasonably foreseeable and a sufficient degree of proximity exists between the server and the class of persons who could be expected to be on the road.
39 In the context of the proposed analogy, it is important to note that the respondent is in the casino business. The Supreme Court drew a distinction between social hosts and commercial hosts in Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at paras. 17–23. The court concluded, at para. 47, that “[a] social host at a party where alcohol is served is not under a duty of care to members of the public who may be injured by a guest's actions, unless the host's conduct implicates him or her in the creation or exacerbation of the risk.”
40 However, the court also made clear, at para. 37, that where the defendant is a commercial enterprise that benefits from offering a service to the general public, it may have attendant responsibilities to act with special care to reduce risk, and a duty of care may arise. The court described the rationale underlying the imposition of a duty of care on such a defendant, at para. 38:
Running through all of these situations is the defendant's material implication in the creation of risk or his or her control of a risk to which others have been invited. The operator of a dangerous sporting competition creates or enhances the risk by inviting and enabling people to participate in an inherently risky activity. It follows that the operator must take special steps to protect against the risk materializing … The public provider of services undertakes a public service, and must do so in a way that appropriately minimizes associated risks to the public.
41 Moreover, in the course of distinguishing between social hosts and commercial alcohol providers, the court noted, at para. 22:
[T]he contractual nature of the relationship between a tavern keeper serving alcohol and a patron consuming it is fundamentally different from the range of different social relationships that can characterize private parties in the non-commercial context. The appellants argue that there is “nothing inherently special” about profit making in the law of negligence. In the case of alcohol sales, however, it is clear that profit making is relevant. Unlike the host of a private party, commercial alcohol servers have an incentive not only to serve many drinks, but to serve too many. Over-consumption is more profitable than responsible consumption. The costs of over-consumption are borne by the drinker him or herself, taxpayers who collectively pay for the added strain on related public services and, sometimes tragically, third parties who may come into contact with intoxicated patrons on the roads. Yet the benefits of over-consumption go to the tavern keeper alone, who enjoys large profit margins from customers whose judgment becomes more impaired the more they consume. This perverse incentive supports the imposition of a duty to monitor alcohol consumption in the interests of the general public.
42 These comments apply with equal force to casino operators.
43 Gambling, like serving alcohol, is a regulated activity. It is prohibited under the Criminal Code, unless a provincial government decides to adopt a law permitting the conduct and management of the activity by the province. The Alcohol and Gaming Commission of Ontario is the regulatory agency responsible for administering the statutes and regulations applicable to casinos. The Commission is mandated to “exercise its powers and duties in the public interest and in accordance with the principles of honesty and integrity, and social responsibility”: Alcohol and Gaming Regulation and Public Protection Act, 1996, S.O. 1996, c. 26, Sched., s. 3(3).
44 For all of these reasons, it is not plain and obvious that the appellants' claim in negligence against OLGC is hopeless.
(iv) Conversion
45 The appellants did not pursue the cause of action asserted in conversion in oral argument.
(4) Conclusion
46 I have had the advantage of reading the dissenting reasons of Hoy A.C.J.O. I agree that there is no jurisprudence perfectly matching the claims in issue here, but in my view, that is inherent in the novelty of the claim.
47 My colleague is also of the view that the appellant has not adequately pleaded the knowledge that is a requisite element of the knowing receipt and unjust enrichment claims in this case. In particular, she is of the view that pleading “that the OLGC had knowledge sufficient to put a reasonable person on inquiry” is insufficient. I respectfully disagree and I would not require a more detailed pleading about OLGC's knowledge at this stage of the action.
F. Disposition
48 These are novel claims. A factual record is necessary to allow a court to confidently make judgments about the legal and policy issues raised, and to determine whether it is fair and just to expect casinos to pay some compensation for the high social costs of gambling out of the revenues generated by that activity. I am not persuaded that the appellants' action is certain to fail. This was a pleadings motion under rule 21.01, based on the argument that no viable cause of action was pleaded. It was not a motion for summary judgment. The muddled organization of the statement of claim is not a basis to strike the claim, provided the essential material facts are pleaded. The appeal is accordingly allowed, and the motion to strike out the claim is dismissed. Costs are awarded to the appellants in the sum of $15,000 on the appeal, all inclusive.
G.I. PARDU J.A.
L.B. ROBERTS J.A.:– I agree.
49 A. HOY A.C.J.O. (dissenting):– I acknowledge that the appellants' claim illustrates the sometimes very serious social and economic consequences to gamblers and others of government-regulated gambling in Ontario. And I agree with my colleague that this claim is novel. However, unlike my colleague, I would dismiss the appeal. When considering a novel claim on a motion to strike, the court must nonetheless evaluate it in the context of the facts pleaded and the applicable jurisprudence. I agree with the motion judge that the appellants' claim has no reasonable prospect of success.
50 I begin by outlining the facts pleaded by the appellants. As my colleague has already discussed the motion judge's reasons, I do not need to summarize those. Then I address the various causes of action advanced by the appellants.
A. What the Appellants Have Pleaded
51 I agree that a court hearing a motion to strike must proceed on the basis of the facts pleaded by the plaintiff and that the pleadings should be construed generously. However, this indulgence is not limitless.
52 A plaintiff cannot simply plead legal conclusions or assert the constituent elements of a cause of action: Apotex Inc. v. Eli Lily and Company, 2015 ONCA 305, 334 O.A.C. 99, at para. 21. A claimant must clearly plead the facts upon which it relies in support of its claim. The facts pleaded are the sole basis on which the claims at issue can be evaluated, and a court cannot consider the possibility that additional facts or evidence may become available in the future: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at paras. 22–23.
53 The appellants have amended their claim twice. It is important to consider precisely what facts they plead in their Amended Amended Statement of Claim (“Claim”). There are three categories of facts that are significant: the Spinks' fraud and their gambling, what Ontario Lottery and Gaming Corporation (“OLGC”) knew about the Spinks, and OLGC's interactions with problem gamblers in general.
(1) The Spinks' fraud and gambling
54 Shellee Spinks forged Ollie John Paton's signature on an alleged will, appointing herself as executrix: Claim, at para. 12. Between January 1, 2006, and March 13, 2008, she defrauded the appellant estates of approximately $1.5 million: Claim, at para. 4. Ms. Spinks gambled and lost about $750,000 of the money she took from the appellant estates at OLGC casinos, at least $550,000 of which was gambled and lost between late 2006 and March 13, 2008: Claim, at paras. 5 and 7. Between December 21, 2006, and her arrest in 2008, Ms. Spinks gave about $200,000 of the money she took from the plaintiff estates to her mother, who gambled and lost that money at OLGC casinos: Claim, at paras. 9 and 10.
55 Ms. Spinks also defrauded other clients of at least another $3 million. Except for about $1 million, the Spinks gambled away all the money that Ms. Spinks defrauded the appellant estates and other clients of: Claim, at para.18. The appellants do not plead when Ms. Spinks defrauded the other clients or the time period during which the Spinks gambled most of the money away.
56 The appellants do not know the precise amount of money lost by the Spinks, but OLGC knows or is capable of ascertaining the amount: Claim, at paras. 7 and 10. The Spinks' gambling losses were inordinately high: Claim, at para. 16(a). They exhibited addictive, inordinately excessive gambling behaviour: Claim, at para. 28.
(2) What OLGC knew about the Spinks
57 It is significant that the appellants do not plead that OLGC actually knew that the Spinks were problem gamblers, was wilfully blind to that fact, or wilfully and recklessly failed to make inquiries that an honest and reasonable person would make in the circumstances.
58 The appellants have pleaded only the following facts about what knowledge OLGC actually had: (i) Ms. Spinks held out to OLGC that she was a lawyer (Claim, at para. 5); (ii) OLGC knew that the Spinks lost large amounts of money at its casinos (Claim, at para. 17); and (iii) OLGC at all times knew how much money the Spinks had gambled and lost (Claim, at para. 25).
59 I acknowledge that the appellants have pleaded that the respondent had “at all material times knowledge of facts that would put a reasonable person on inquiry” and that the respondent had “constructive knowledge” of a potential breach of trust: Claim, at para. 17. However, these pleadings are legal conclusions and, as I discuss below, the appellants have not pleaded the material facts necessary to justify them.
(3) OLGC and problem gamblers
60 According to the appellants, OLGC knows that a “certain percentage” of its customers are problem gamblers or people who have a gambling addiction: Claim, at para. 19. OLGC has been told by others of many specific instances where problem gamblers and addicted gamblers have lost “extremely large amounts of money” and have obtained the money they gamble from criminal activity, including fraud: Claim, at para. 20. More specifically, the appellants have pleaded that:
• OLGC is aware at all times of losses being incurred by the vast majority of problem and addicted gamblers who gamble in OLGC casinos: Claim, at para. 21. • OLGC trains its employees to keep track of the gambling losses of its patrons, to spot problem gamblers, and to intervene in situations involving losses by problem gamblers: Claim, at paras. 21 and 22. • 85 percent of OLGC employees believe that they can identify problem gamblers and intervene in situations where they are losing inordinate amounts of money: Claim, at para. 22. • OLGC had information at its disposal that permitted it to predict with statistical accuracy the risk of problem and addicted gamblers losing money obtained by illegal means, and it was sufficiently expert in the gaming industry to easily spot and quickly prevent the danger of Ms. Spinks gambling an inordinate amount of money that was obtained by fraud: Claim, at para. 34. • OLGC knows that problem and addicted gamblers cause great harm to themselves and to their families, employers, and creditors: Claim, at para. 23. • OLGC knows that long-term gambling will result in financial losses to the gambler: Claim, at para. 26.
B. Knowing Receipt of Trust Funds
(1) Legal principles
61 A person who has not been appointed as trustee and is therefore a “stranger to a trust” may, under certain limited circumstances, attract the liabilities of trusteeship. In a category of liability referred to as “knowing receipt”, which the appellants rely on, a claimant may assert a restitution-based claim against a defendant that receives property in its own right and in breach of trust: Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805, at paras. 19 and 24.
62 As noted in Gold v. Rosenberg, [1997] 3 S.C.R. 767, at paras. 53 and 74, in order to recover property on the basis of knowing receipt, a plaintiff must prove that (1) the disputed property was subject to a trust in favour of the plaintiff; (2) the defendant received property, in its own right, which was taken from the plaintiff in breach of trust; and (3) the defendant had “knowledge” or “notice” of the breach of trust. Knowledge or notice may be established by showing that the defendant
(i) had actual knowledge; (ii) wilfully shut its eyes to the obvious; (iii) wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make; (iv) had knowledge of circumstances that would indicate the facts to an honest and reasonable person; or (v) had knowledge of circumstances that would put an honest and reasonable person on inquiry.
The types of knowledge described in (iv) and (v) are referred to as “constructive knowledge”. For the sake of convenience, I will refer to categories (i)–(iii) as “actual knowledge”.
63 Where the foregoing requirements are met, the recipient of the trust property is held liable as a constructive trustee for the breach of trust: Citadel, at para. 19.
(2) Appellants' claim
64 In this case, the appellants argue that the funds gambled by the Spinks were subject to a trust in their favour. They advance two potential bases for that trust. First, I understand them to assert that Ms. Spinks improperly took on a trustee's responsibilities and committed a breach of the trust created by Mr. Paton's will. Second, the appellants submit that the stolen funds were impressed with a constructive trust while in Ms. Spinks' hands. I assume from this that they argue that the Spinks breached this constructive trust by gambling with the stolen funds and that, as a result, OLGC received those funds for its own benefit.
65 The appellants submit that OLGC was aware of facts that would put a reasonable person on notice or inquiry as to a possible misapplication of trust funds because (i) it had been told by others of many specific instances where problem gamblers have obtained the monies used to gamble from criminal activity, including fraud; and (ii) because Ms. Spinks—whom OLGC believed to be a lawyer—sustained the quantum of gambling losses pleaded. The appellants do not submit that OLGC was required to conduct an investigation. Rather, they say that OLGC should have called the police and put the police on inquiry.
(3) Analysis
66 I agree with my colleague that money obtained by fraud can be subject to a constructive trust: Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, at para 43. I am not aware of any case where liability for knowing receipt has been found arising out of a breach of a constructive trust, and the appellants have not provided any authorities that would support this proposition. However, in light of the dissenting reasons of Lauwers J.A. in Healthy Body Services Inc. v. 1261679 Ontario Ltd. (Raytek Communications), 2015 ONCA 516, 338 O.A.C. 346, which my colleague relies on, it cannot be said that there is no reasonable chance that a claim for knowing receipt based on the breach of a constructive trust could succeed.
67 Consequently I agree that the appellants may be able to establish the first two requirements for knowing receipt, i.e. existence of a trust and receipt of property subject to that trust.
68 However, in my view, there is no reasonable chance that a trial judge would find that the knowledge element that the appellants rely on—namely that OLGC had knowledge of circumstances that would put an honest and reasonable person on inquiry as to a breach of trust—was satisfied in this case and that OLGC is accordingly liable as constructive trustee for the breach of the trust.
69 Though the appellants' claim and their submissions are far from clear, I believe that they rely on the following chain of arguments: (i) OLGC knows of many instances where problem gamblers have stolen or committed fraud to obtain the money they gamble with; (ii) OLGC and its staff are capable of identifying problem gamblers; (iii) the Spinks were problem gamblers and, therefore, fall into a category of people who may steal or commit fraud; and (iv) OLGC should have known that the Spinks were problem gamblers and that they may be gambling with stolen funds. The appellants' claim for knowing receipt rests on their assertion that the Spinks were problem gamblers.
70 The appellants do not plead that OLGC had actual knowledge that the Spinks were problem gamblers. As noted, according to the appellants' pleadings, OLGC knew only two things about the Spinks: that Ms. Spinks identified herself as a lawyer and that the Spinks spent a lot of money. Neither of those can be equated with a pleading that OLGC had actual knowledge that the Spinks were problem gamblers.
71 That an individual gambles large amounts of money does not, in and of itself, make that individual a “problem gambler”. Whether or not an individual is a problem gambler requires a careful, individualized assessment of factual issues relating to her personal autonomy and responsibility: Dennis v. Ontario Lottery and Gaming Corporation, 2013 ONCA 501, 116 O.R. (3d) 321, at para. 57. The significance of the quantum gambled depends on the means and circumstances of the gambler. In Kakavas v. Crown Melbourne Limited, [2013] HCA 25, 250 C.L.R. 392, a case that my colleague relies on, the court refers to “high rollers” who frequently gamble with huge sums but are not problem gamblers. The difficulty of distinguishing the two was noted in Burrell v. Metropolitan Entertainment Group, 2011 NSCA 108, 309 N.S.R. (2d) 375, at para. 43, where the court noted that a casino “could not reliably distinguish a gambling addict from a frequent gambler” in the absence of a prohibition notice, put in place because of a request from the gambler.
72 The appellants do not plead that Ms. Spinks had identified herself as a problem gambler by self-excluding from OLGC casinos.
73 Taking their claim at its highest, the appellants plead that Ms. Spinks exhibited addictive, inordinately excessive gambling behaviour—behaviour which, if observed, might put an honest and reasonable person on inquiry as to whether Ms. Spinks was a problem gambler. They do not allege that OLGC observed any of this behaviour.
74 I question whether something less than actual knowledge of the fact that the Spinks were problem gamblers would be sufficient to put an honest and reasonable person on inquiry as to a possible breach of trust by the Spinks. However, assuming that it would, there is nonetheless no reasonable prospect that the appellants' claim for knowing receipt of trust funds could succeed.
75 The appellants plead no facts that would put a reasonable person on inquiry as to whether these particular gamblers, i.e. the Spinks, were among the problem gamblers who were gambling with funds received through a breach of trust. The appellants do not plead that “almost all” problem gamblers gamble using monies obtained through criminal activity. How was OLGC to distinguish Ms. Spinks from a problem gambler who gambled using monies not obtained through a breach of trust?
76 I agree with the motion judge that OLGC's belief that Ms. Spinks was a lawyer is not a fact that would put an honest and reasonable person on inquiry as to whether Ms. Spinks was misapplying trust property.
77 The appellants do not plead that lawyers are more likely to engage in fraud than other persons, and I would find it difficult to accept such a proposition. The isolated fact that OLGC believed Ms. Spinks to be a lawyer more reasonably supports the inference that she had a reasonable and possibly significant income, possibly had significant assets, and was less likely to be involved in criminal conduct than other high-spending gamblers. A lawyer could well have had legitimate sources of the quantum of funds gambled: an inheritance, a mortgage on her home or other source of credit, significant return on investments, a large contingency fee award, or a lottery win.
78 For the appellants' claim to have a reasonable prospect of success, the pleaded facts must be capable of supporting the inference that the gambled funds were obtained through breach of trust. These competing inferences preclude a leap from the pleaded fact that Ms. Spinks identified herself as a lawyer to the conclusion that OLGC should have suspected a breach of trust.
79 The appellants also do not plead that OLGC knew of facts that would suggest that Ms. Spinks was the kind of person likely to engage in fraud. They do not plead that OLGC had knowledge that Ms. Spinks had been implicated in any prior fraudulent activity, was the subject of pending criminal charges, or that she associated with a known criminal element.
80 Furthermore, for the same reasons that the quantum of funds gambled is not in and of itself an indicator that someone is a problem gambler, it is not a fact that would put an honest and reasonable person on inquiry as to the misapplication of trust funds.
81 This conclusion is supported by the decision in Gold. There, the issue was whether an honest and reasonable person in the position of the defendant bank would have made inquiries into whether another defendant had breached his fiduciary duties as trustee by obtaining a guarantee from the appellant. Sopinka J., speaking for the majority on this issue, concluded that the bank did not have a duty to make inquiries just because the relationship between the appellant and defendant trustee fell into a category of relationships where concerns might arise. Rather, for an obligation to make inquiries to arise, there must be suspicious circumstances in the particular relationship at issue: Gold, at paras. 79 and 83.
82 That conclusion is also supported by the decision in Arthur Andersen Inc. v. Toronto-Dominion Bank (1994), 17 O.R. (3d) 363 (C.A.). 1 In Andersen, the issue was whether the defendant bank was liable for accepting funds paid to it in breach of a trust imposed by the Construction Lien Act, R.S.O. 1990, c. C-30. At p. 381, Grange and McKinlay JJ.A. stated that, “in the absence of sufficient facts or circumstances indicating that there is a good possibility of trust beneficiaries being unpaid there is no duty of inquiry on a bank” (emphasis added).
83 In other words, a generalized possibility of breach of trust is not sufficient. A claimant must plead facts showing a real possibility of breach of trust in the particular circumstances.
84 Therefore, OLGC could not be subject to a duty to make inquiries solely because of knowledge, actual or constructive, that the Spinks were problem gamblers. There need to be facts showing that there was reason to suspect that these problem gamblers were gambling with stolen funds. In the absence of such facts, there is no reasonable prospect that OLGC was subject to a duty to make inquiries and, therefore, no reasonable possibility that OLGC will be found liable for knowing receipt.
85 Respectfully, my colleague's reliance on In re Equipment Acquisition Resources, Inc., 803 F. 3d 835 (7th Cir. 2015), is flawed. The issue in that case was whether the payment of funds to the casino was voidable under the U.S. Bankruptcy Code. It was not a “knowing receipt” case; it is not authority for the proposition that a U.S. court has considered and not ruled out the application of the doctrine of knowing receipt in the context of the operation of a casino.
C. Unjust Enrichment
(1) Legal principles
86 A plaintiff asserting a claim for unjust enrichment is required to prove (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) the absence of a juristic reason for the enrichment: Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 30. Canadian law recognizes certain established categories of juristic reasons, including contracts: Garland, at para. 44.
87 The contract at issue, or any other juristic reason for that matter, need not arise from the relationship between the plaintiff and the defendant. A valid contract leading to a debtor-creditor relationship between the person being enriched and another is a valid juristic reason: Bank of Montreal v. i Trade Finance Inc., 2009 ONCA 615, 96 O.R. (3d) 561 (“iTradeONCA”), aff'd, 2011 SCC 26, [2011] 2 S.C.R. 360 (“iTradeSCC”), at para. 39. In cases involving allegations of fraud, a contract will be a valid juristic reason unless the defendant had notice of the fraud. To hold otherwise “would defeat the purpose of the long-established equitable protection which the law makes available—for equally long-established policy reasons—to bona fide purchasers for value without notice”: iTradeONCA, at para. 42.
(2) Analysis
88 The motion judge concluded that OLGC had a juristic reason for retaining the money that the Spinks gambled—namely, the Spinks had entered into a valid contract with OLGC when they placed a bet. The chance of winning and the thrill of gambling were the consideration for the money advanced. The motion judge also concluded that OLGC did not have notice of Ms. Spinks' fraud and was a bona fide purchaser for value without notice.
89 In my opinion, that analysis is correct. The Spinks and OLGC entered into a contract: Tal v. Ontario Lottery Corporation/Loto 6/49 OLG, 2011 ONSC 644, 80 B.L.R. (4th) 248, at para. 43; Ross v. British Columbia Lottery Corp., 2014 BCSC 320, 12 C.C.L.T. (4th) 57. As noted, contracts, even between a defendant and a third-party other than the plaintiff that suffered a deprivation, are a valid juristic reason.
90 The appellants argue that OLGC received an unconscionable benefit because it received the gambled funds with knowledge of circumstances that would put an honest and reasonable person on inquiry as to a possible misapplication of trust property. They argue that OLGC had constructive notice that it was receiving money obtained by fraud. Gold, at paras. 46 and 53, makes clear that a bona fide purchaser for value will take any property it receives subject to an equity if it has constructive notice of the equity.
91 Gold is a decision that dealt with the law governing knowing receipt. I have already discussed why the appellants cannot establish the kind of knowledge needed to successfully assert that cause of action. For the same reasons, it cannot assist them in vitiating the juristic reason that justifies OLGC's enrichment in this case.
92 My colleague does not seem to take issue with any of the analysis noted above. However, she states that the motion judge erred by not considering the possibility that the contract might be vitiated on the ground of unconscionability. The basis for her assertion is the appellants' pleading that OLGC received an “unconscionable benefit”. Relying on the decision in Kakavas, my colleague posits that there is a reasonable chance that a gambling contract with a “problem gambler” would be found unconscionable simply because the gambler is a “problem gambler” and that OLGC would accordingly be found to have no juristic reason for its enrichment. If successful, this argument would require casinos to refund all monies gambled by “problem gamblers”.
93 Respectfully, Kakavas does not support the appellants' position. In Kakavas, the plaintiff gambled more than AU$1.479 billion over 14 months at the Crown casino, losing AU$20.5 million in the process. Crown was aware that the plaintiff had a conviction for a fraud perpetrated ten years before, had been diagnosed by a clinical psychologist as a “classic pathological gambler” eight years before, had self-excluded from several casinos in Australia, and was subject to an exclusion order issued with respect to one casino at the direction of the police. Six years before the gambling in issue, Crown had withdrawn the plaintiff's licence to gamble at its premises because of pending armed robbery charges. The plaintiff repeatedly sought re-entry to the Crown casino. Crown was aware that the plaintiff was gambling significant amounts in Las Vegas. Finally, after requiring the plaintiff to provide an application accompanied by an opinion from a psychologist to the effect that he no longer had any gambling problems, Crown permitted him to gamble at its premises again.
94 The plaintiff's claim for restitution was struck at the pleadings stage. 2 The plaintiff sued for his losses, claiming that Crown's conduct in permitting him—a compulsive or pathological gambler—to gamble amounted to unconscionable conduct contrary to applicable consumer protection legislation and under the general law.
95 While accepting that he was a problem gambler, and indeed possibly a pathological gambler, three levels of court in Australia rejected his argument.
96 In Kakavas, the High Court of Australia wrote at para. 20:
The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position.
97 It explained, at para. 21, that the flaw in the plaintiff's case was that it consists “essentially of a complaint about the outcome of risk-laden activity between the parties conducted in the ordinary course of Crown's business.”
98 At para. 26, it noted that the conduct of the business was lawful:
And the courts of equity have never taken it upon themselves to stigmatise the ordinary conduct of a lawful activity as a form of victimisation in relation to which the proceeds of that activity must be disgorged. As the primary judge observed, “[i]n the absence of relevant legislative provision, there is no general duty upon a casino to protect gamblers from themselves.”
99 The High Court characterized the plaintiff as a “high roller” and observed, at para. 28, that “members of that class of gambler present themselves to the casino, and are welcomed by it in the ordinary course as persons who can afford to lose and to lose heavily.” It reasoned that requiring Crown to single out the plaintiff from other high rollers and to refuse to accommodate him would have cast too great a responsibility on Crown. And, in any event, it noted that the plaintiff would likely have taken his business elsewhere.
100 At para. 161, the High Court made clear that the principle of “constructive notice” had no part in a claim of unconscionability:
Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose.
101 Given the facts pleaded in this case, the decision in Kakavas could not support the appellants' claim. They have not pointed to any conduct on the part of OLGC that fell outside the latter's ordinary course of business. Constructive notice of the Spinks' addiction cannot be sufficient to vitiate an otherwise valid contract. Here, OLGC was operating a business it is legally permitted to and there is no allegation that it failed to abide by legislation or regulations governing its conduct. Therefore, there is no reasonable prospect that the appellants could vitiate the contract between the Spinks and OLGC on the basis of an unconscionable benefit.
102 Moreover, the appellants cannot invoke the principles articulated in Kakavas. The non-statutory claim advanced by the appellant in Kakavas is a species of equitable fraud which permits the victim to rescind the relevant transaction and to be restored to his or her original position: John McGhee, Snell's Equity, 31st ed. (London: Sweet & Maxwell, 2005), at para. 8-02. Fraud makes a transaction voidable but it remains effective until voided by the party subject to the fraud: Snell's Equity, at para. 8-03; iTradeSCC, at para. 53. The appellants were not party to the contract between the Spinks and OLGC, nor were they the victims of any alleged fraud committed by OLGC. Therefore, they cannot rely on Kakavas.
103 In any event, the parties did not rely on Kakavas and this point was not argued before the motion judge or on appeal.
104 Nor did the appellants plead that OLGC breached the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A. Respectfully, my colleague's reference to it is misplaced.
105 Furthermore, the sections my colleague relies on do not support the appellants' position either. Neither she nor the parties provide any authority for the proposition that permitting a problem gambler to gamble is either an “unconscionable representation” within the meaning of s. 15(1) or an “unfair practice” within the meaning of s. 17. Significantly, s. 18 only permits the consumer who suffered an unfair practice to rescind an agreement. In the context of this case, that may give the Spinks the ability to rescind the contracts with OLGC; however, it is not a basis for the appellants to attack those contracts. And, as noted, an agreement that may be rescinded remains effective until it is rescinded.
106 Finally, the passages from Soulos cited by my colleague are not a basis for providing the appellants a remedy. While it is true that the constructive trust is a flexible remedy and that “good conscience” may permit a court of law to employ it, that principle is subject to clear limits. Significantly, it cannot be employed against a bona fide purchaser for value without notice. As noted in iTradeSCC, at para. 60:
The effect of the defence [i.e. being a bona fide purchase without notice] is to allow the defendant to hold its legal proprietary rights unencumbered by the pre-existing equitable proprietary rights. In other terms, where the defence operates, the pre-existing equitable proprietary rights are stripped away and lost in the transaction by which the defendant acquires its legal proprietary rights.
107 As I have explained, there is no reasonable prospect that a court will find that OLGC was not a bona fide purchaser without notice of any fraud. Therefore, in my opinion, there is simply no basis for subjecting any receipt in its hands to a constructive trust.
D. Negligence
(1) Legal principles
108 In order to advance a successful claim in negligence a plaintiff must demonstrate that (1) the defendant owed him or her a duty of care; (2) the defendant's behaviour breached the standard of care; (3) the plaintiff sustained damage; and (4) the damage was caused, in fact and in law, by the defendant's breach: Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, [2008] 2 S.C.R. 114, at para. 3.
109 The issue on this negligence claim is whether there is no reasonable prospect that a court would find that OLGC owed a duty of care to the appellants. In cases where the jurisprudence has already accepted or rejected a duty of care, courts do not have to conduct an extensive analysis. However, where, as in this case, the proposed duty of care is novel, courts will consider whether to recognize a new duty by applying the “Anns/Kamloops” test.
110 In order to establish that OLGC owed them a duty of care, the appellants must demonstrate that (1) the harm complained of was reasonably foreseeable; (2) there is sufficient proximity between OLGC and the appellants that it would be fair and just to impose a duty of care; and (3) there are no residual policy reasons for declining to impose such a duty: Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83, at para. 34.
111 The factors that may satisfy the proximity requirement are diverse and will depend on the particular circumstances of the case. A court will look to factors such as expectations, representations, reliance, and the property or other interests involved: Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, at paras. 34–35. Where the relationship at issue is within the context of a statutory scheme, the governing statute will be relevant to this inquiry: Syl Apps, at para. 27. The ultimate question is whether “it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant”: Cooper, at para. 34.
112 At the final stage, a court should consider if there are any policy considerations that negate a prima facie duty: Imperial Tobacco, at para. 39. At this stage, the court will consider the “effect of recognizing a duty of care on other legal obligations, the legal system and society more generally”: Cooper, at para. 37.
(2) Appellants' claim
113 The appellants plead that OLGC owed a duty to two different classes: (i) to protect the Spinks from their addictive or inordinately excessive gambling behaviour; and (ii) to protect the appellant estates and other persons “sufficiently connected to or related to [the Spinks] by virtue of family ties, business connections, or social and community ties and relationships” from frauds that could be committed by the Spinks (Claim, at para. 28).
114 They argue that OLGC breached both duties by failing to intervene and stop the Spinks from gambling.
115 My colleague concludes, at para. 34, that “when an individual is obviously addicted to gambling and out of control” there is a reasonable chance that a casino would be found to owe the individual a duty of care. At para. 36, she further concludes that “recognition of a duty of care confined to victims of an obvious problem gambler in circumstances where a reasonable person would have realized that the gambler could be using stolen funds to feed his or her addiction will [not] necessarily result in indeterminate liability.” While acknowledging “some formidable barriers” to finding that casinos owe a duty of care to third parties who are the victims of problem gamblers, she concludes that it is not plain and obvious that the appellants' claim in negligence is hopeless.
116 I disagree. In my view, the barriers to the appellants' negligence claim are formidable and, when considered in the context of the applicable jurisprudence, it has no reasonable chance of succeeding: Imperial Tobacco, at para. 25.
117 As noted, the appellants plead that OLGC owed a duty to problem gamblers and to people “sufficiently connected” to problem gamblers. I will only address the latter duty as that is sufficient to dispose of this appeal. I will first analyze the prior jurisprudence the appellants rely on. Then, I will analyze the appellants' claim in three steps: foreseeability, proximity, and residual policy considerations.
(3) Analysis
(a) Prior authority
118 I agree with my colleague that Ontario law has not definitively determined that a casino owes no duty of care to persons it knows are problem gamblers (or to persons whom the casino ought to have recognized were problem gamblers). At the same time, the jurisprudence has not recognized the duty advanced by the appellants.
119 The appellants refer to the decision in Dennis, where it was held that it was not plain and obvious that a casino operator did not owe a duty of care to a class of problem gamblers. However, as I discuss below, the decision in Dennis does not assist the appellants here.
120 In Dennis, the plaintiffs moved for certification of a class action on behalf of individuals who had signed self-exclusion forms, seeking to recover gambling losses incurred as a result of OLGC's alleged failure to exclude them from its gambling venues. While dismissing the certification motion for other reasons, the motion judge concluded that it was not plain and obvious that the claim in negligence could not succeed: Dennis v. Ontario Lottery and Gaming Corporation, 2010 ONSC 1332, 318 D.L.R. (4th) 110.
121 On its cross-appeal to this court in Dennis, OLGC argued that the motion judge erred in finding that the plaintiffs' statement of claim disclosed a cause of action in negligence. At para. 73, Sharpe J.A., writing for the court, acknowledged that the plaintiffs' claim faced many significant legal hurdles, including the difficult issues of proximity and duty of care in negligence. However, he was not persuaded that the motion judge “erred in concluding that the claim survived the minimal scrutiny for substantive adequacy mandated by s. 5(1)(a)” of the Class Proceedings Act, 1992, S.O. 1992, c. 6. The test applied under s. 5(1)(a) is the same as that applied on a motion to strike, such as in this case.
122 To begin with, I note that the decision in Dennis is not sufficient to establish a reasonable chance that OLGC owed a duty of care to the Spinks. As noted by Sharpe J.A., at para. 6, the pleadings in Dennis alleged that the class members had given notice of their vulnerability as problem gamblers by signing self-exclusion forms. In addition, as noted at para. 24, the motion judge in that case (whose analysis Sharpe J.A. approved of) found that “it was arguable that [OLGC] was in a relationship of proximity with Dennis because [OLGC] established the self-exclusion program and held the program out as assisting problem gamblers.”
123 More importantly, the appellants in this case allege that OLGC owes a duty of care to different and much broader classes. In addition to alleging that OLGC owes a duty of care to the Spinks, they also claim that OLGC owes duty of care to anyone “sufficiently connected” to the Spinks. Therefore, the decision in Dennis is not authority for the duty of care asserted by the appellants.
124 I note that, in Dennis, the plaintiffs had also proposed a secondary class, consisting of family members of the self-excluded gamblers in the primary class. Neither the motion judge nor this court analyzed their claim independently of the primary class' claims. The secondary class was relying on s. 61 of the Family Law Act, R.S.O. 1990, c. F-3. That provision provides family members with a right of action on the basis of “wrong done, not to oneself, but to another”: Lord (Litigation Guardian of) v. Downer (1998), 66 O.T.C. 39 (Gen. Div.), aff'd, 179 D.L.R. (4th) 430 (Ont. C.A.), at para. 10. Therefore, it is extremely dissimilar from the claim advanced by the appellants in this case.
(b) Foreseeability
125 The appellants argue that they are linked to OLGC by the foreseeability of economic harm. While I am not persuaded that a reasonable person in the position of OLGC would have foreseen that Ms. Spinks had obtained the money she gambled with from fraud, I am willing to accept that it might be reasonably foreseeable that a failure to prevent problem gambling in general might lead to loss.
126 The appellants have pleaded that, over the years, OLGC has learned about specific instances of problem gamblers spending a lot of money and committing fraud to feed their habit. Therefore, there is a possibility that it was reasonably foreseeable that a failure to take action may permit a problem gambler to gamble away the proceeds of crime.
(c) Proximity
127 The next question is whether there is sufficient proximity. In my opinion, it is plain and obvious that the facts pleaded by the appellants do not disclose sufficient proximity. I come to that conclusion for two reasons.
128 First, the facts pleaded do not disclose any relationship or interaction between OLGC and the appellants. There were no representations by OLGC, nor any evidence of reliance by the appellants on OLGC.
129 In many ways, this relationship is analogous to the one between Canada and consumers of light cigarettes at issue in Imperial Tobacco. There, at para. 49, McLachlin C.J.C. noted that the pleadings did not disclose any “specific interactions between Canada and the class members” and only disclosed statements made by Canada to the general public. Turning to the statutes that governed Canada's conduct in that case, at para. 50, McLachlin C.J.C. concluded that they did not impose any private law duties of care and disclosed duties owed to the public at large.
130 Those observations would inevitably lead to a similar conclusion in this case. The appellants' claim discloses no interaction between them and OLGC. The plaintiffs have referred to the Ontario Lottery and Gaming Corporation Act, 1999, S.O. 1999, c. 12, Sched. L, and the Gaming Control Act 1992, S.O. 1992, c. 24. These laws do not impose any duty of care in respect of a particular individual. And, in fact, I note that Section 0.1 of the Ontario Lottery and Gaming Corporation Act provides the following purposes for that statute:
(a) to enhance the economic development of the Province; (b) to generate revenues for the Province; (c) to promote responsible gaming with respect to lottery schemes; and (d) to ensure that anything done for a purpose set out in clause (a), (b) or (c) is also done for the public good and in the best interests of the Province. [Emphasis added.]
131 I am not suggesting that, in this case, OLGC was a public authority, as it was clearly acting in a commercial capacity at all material times. However, as the appellants refer to these statutes, I note that to the extent that the legislation is relevant, in my opinion it imposes only a duty to the public at large and not to any specific gambler or people connected to specific gamblers.
132 My colleague refers to the Alcohol and Gaming Regulation and Public Protection Act, 1996, S.O. 1996, c. 26, Sched. This Act created the Alcohol and Gaming Commission of Ontario, and defined the powers and obligations of that commission. It does not apply to OLGC and, therefore, cannot be a basis for concluding that OLGC owes a duty of care to the appellants.
133 Second, in this case, the appellants' claim alleges negligent inaction on the part of OLGC and they seek damages for pure economic loss. Canadian law has been extremely reluctant to impose a duty of care in such circumstances.
134 In Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 31, the court noted that where a defendant alleges a negligent failure to act, foreseeability alone cannot establish a duty of care. The mere fact that a person has become a danger to others does not impose any kind of duty on those in a position to become involved. In such cases, a duty of care requires foreseeability of harm and a special link or proximity disclosed by other aspects of the relationship: Childs, at para. 34.
135 At paras. 35–37 in Childs, the court identified three situations where proximity has been found. The first is where a defendant intentionally attracts and invites third parties to an inherent and obvious risk that it has created or controls. The court mentioned a few examples in this category: a boat captain will owe a duty of care to a passenger who falls overboard and the operator of a dangerous inner-tube sliding competition owes a duty of care to exclude people who cannot safely participate. These examples all involve instances where the defendant created a risk of physical injury. Gambling is not a comparable, inherent, and obvious risk.
136 The second situation is where there is a paternalistic relationship of supervision and control, such as a parent-child or teacher-student relationship. It is also not applicable here.
137 The third concerns a defendant who exercises a pubic function or engages in a commercial enterprise that includes implied responsibilities to the public at large. Where a defendant assumes a public role or benefits from offering a service to the public at large, special duties arise. The duty of a commercial host who serves alcohol to prevent foreseeable harm to third-party users of the highway falls into this category.
138 I agree with my colleague that there are analogies between a commercial host who serves alcohol and a casino operator. However, there are also material differences.
139 It is recognized that commercial hosts owe a duty to patrons to take care that the patron is not exposed to injury because of her or his intoxication: Stewart v. Pettie, [1995] 1 S.C.R. 131, at para. 26. No duty to ensure that a patron does not drink away her or his family's earnings has been recognized. To date, Canadian courts have limited tort recovery for economic loss absent physical harm or damage to property: Arora v. Whirlpool Canada LP, 2013 ONCA 657, 118 O.R. (3d) 113, at para. 52. Proximity and foreseeability are heightened concerns in claims for economic loss: Imperial Tobacco, at para. 42. In my opinion, that difference between the nature of the loss suffered is what distinguishes the present case from those involving commercial hosts who serve alcohol.
140 Dynasty Future Manufacturing Ltd. v. Toronto Dominion Bank, 2010 ONCA 514, 321 D.L.R. (4th) 334, is instructive. The plaintiffs in that case alleged that the defendant bank owed a general duty of care to third parties, who were not customers of the bank, to ensure that its customer was not engaged in a fraudulent scheme. They argued that to discharge this duty of care, the bank was required to, among other things, verify the legitimacy of a customer's business activities at the time of opening new accounts and conduct a reasonable inquiry after being put on notice of facts suggesting the possibility of a fraudulent scheme. In other words, like the appellants here, the plaintiffs in that case were alleging negligent non-action on the basis of a failure to detect fraudulent activities.
141 Applying the Anns/Kamloops principles, the motion judge in Dynasty rejected the proposition that the defendant bank could owe a duty of care to third parties to prevent the use of its facilities for fraudulent purposes in circumstances where the bank did not have actual knowledge of the fraudulent activities, was not wilfully blind to the existence of such activities, and had not recklessly disregarded the existence of such activities: Dynasty Furniture Manufacturing Ltd. v. Toronto Dominion Bank, 2010 ONSC 436, 74 C.C.L.T. (3d) 286. To the extent that the claim was based on alleged constructive knowledge, there was insufficient proximity to ground a duty of care. The relationship between the plaintiffs and the bank was “very indirect”. At para. 67, the motion judge wrote:
[The bank] could not reasonably be expected to have had the plaintiffs in contemplation except as a member of the indeterminate class of all third parties who might have business dealings with [the fraudster] at that time or in the future. This is far too distant and indeterminate a relationship to establish proximity in respect of a claim for financial loss resulting from a failure to make inquiries as to the legitimacy of a new customer's business. The plaintiffs' position would expose a bank to guarantor liability …
142 This court upheld the motion judge's decision and, at para. 6 of its reasons, expressed general agreement with his Anns/Kamloops analysis.
143 In the present case, the relationship between OLGC and the appellants is just as distant and indeterminate. On the facts presented by the appellants, it is not reasonable to expect OLGC to have the appellants in contemplation when arranging or managing its affairs. Particularly given the fact that this is a claim seeking recovery for pure economic loss and given the tenuous relationship between the parties, in my view, there is no reasonable prospect that sufficient proximity between OLGC and the appellants would be found.
(d) Policy concerns
144 However, even if there were a reasonable prospect that sufficient proximity between OLGC and the appellants would be found, there is a clear residual policy concern—the prospect of indeterminate liability—that is fatal to the appellants' claim in negligence. In cases involving a claim for pure economic loss, a court must take care and recognize a duty of care only if the class of plaintiffs, the time, and the amounts are determinate: Imperial Tobacco, at para. 100.
145 My colleague, while recognizing the potential for indeterminate liability in this case, would not strike the claim on that basis at this stage of the litigation process. However, in my view, it is perfectly appropriate for a court to make that determination at a pleadings stage. Courts have done so in the past, for instance, in Imperial Tobacco, Cooper, and Attis v. Canada (Health), 2008 ONCA 660, 93 O.R. (3d) 35.
146 Moreover, as noted in Arora, at para. 90, a court should consider what “a factual record could reasonably be expected to add to the court's determination.” As in Arora, it is unclear what useful evidence the appellants could possibly adduce. The issue here is not whether the appellants could prove their factual assertions; rather, the problem is that even if all of their assertions were accepted as true, their claims would fail because of the risk of indeterminate liability. A factual record cannot cure that defect.
147 The court in Arora, at para. 92, also noted that the motion judge had access to a significant body of jurisprudence and that, therefore, it was appropriate for him to conduct a policy analysis on a pleadings motion. We too have the benefit of a significant body of case law addressing the issue of indeterminate liability.
148 In Imperial Tobacco, tobacco companies sought to advance third-party claims against the government of Canada for economic loss. The basis for their claim was that they had relied on representations made by the government of Canada and, as a result, incurred liability by selling light cigarettes to consumers. The Supreme Court concluded that the prospect of indeterminate liability was fatal to the tobacco companies' claims: Imperial Tobacco, at para. 99. Canada had no control over the number of people who smoked light cigarettes and therefore was not in control of the extent of its potential liability. The quantum of damages would depend on the number of smokers and the number of cigarettes sold. As Canada had no control over the number of people who smoked these cigarettes, the claim at issue raised the spectre of indeterminate liability.
149 That conclusion is also supported by the decision in Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737. Although the decision in Design Services was rendered after a trial, the Supreme Court relied upon it in Imperial Tobacco, an appeal from a motion to strike.
150 In Design Services, the Supreme Court held that recognizing a duty of care owed by owners to sub-contractors in a tendering process would lead to indeterminate liability. In the first place, Rothstein J. noted that the plaintiffs before him included a company that had not been approved as a sub-contractor and was a subsidiary of an approved sub-contractor. The fact that the class of plaintiffs could “seep into the lower levels of the corporate structure of the design-build team members” meant that the case had indications of indeterminate liability”: Design Services, at para. 63.
151 Furthermore, Rothstein J. also noted that the nature of the construction-contract field itself gave rise to the risk of indeterminacy. At para. 65, he noted that “[e]ven where subcontractors are named and known by an owner, those subcontractors will have employees and suppliers and perhaps their own subcontractors who also could suffer economic loss. And these suppliers and subcontractors will have their own employees and suppliers who might claim for economic loss due to the wrongful failure of the owner to award the contract to the general contractor upon which they were all dependant.”
152 Recognizing a duty of care to anyone “sufficiently connected to or related to” problem gamblers or persons whom OLGC should have recognized as problem gamblers “by virtue of family ties, business connections, or social and community ties and relationships” would similarly result in indeterminate liability. Even if we were to accept that OLGC could exercise complete control over who gambles at its facilities, it does not give it any meaningful control over the class of potential plaintiffs. OLGC has no control over the number of family members, friends, employers, and persons “sufficiently connected” to a gambler. And OLGC cannot control whether, when, and how much a problem gambler may choose to steal or misappropriate.
153 In other words, it is plain and obvious that recognizing the duty of care suggested by the appellants would expose OLGC to “liability in an indeterminate amount for an indeterminate time to an indeterminate class”.
E. Leave to Amend
154 The decision whether or not to grant leave to amend a pleading is a discretionary one and, absent palpable and overriding error of fact or error of law, such a decision is subject to deference on appeal: Conway v. Law Society of Upper Canada, 2016 ONCA 72, 395 D.L.R. (4th) 100, at para. 16.
155 In this case, the motion judge concluded that “[t]here is no amendment that could cure the statement of claim.” I see no basis to interfere with his conclusion.
F. Disposition
156 For the reasons given, I would dismiss the appeal.
A. HOY A.C.J.O.