In Paton Estate v. Ontario Lottery and Gaming Corporation, 2016 ONCA 458 <http://canlii.ca/t/gs1f5>, a legal clerk (and her mother) gambled away $3M of funds misappropriated from two estates. The personal representatives sued the casinos in knowing receipt, unjust enrichment, conversion and negligence. A motions judge held that the facts as pleaded did not disclose any cause of action, but the CA, by a majority of 2-1, restored three causes of action (conversion had been abandoned) and sent the case to trial.

In restoring the knowing receipt claim, the majority (Pardu and Roberts JJA) stated that misappropriated funds can be subject to a constructive trust. This seems a little superfluous inasmuch as the funds were, it would seem, held by the law firm on an express trust and the misappropriation would not have changed that. The motions judge had held that on the pleadings, it was not possible to establish the required mental state on the part of the defendants, but the majority disagreed.

The unjust enrichment point was decided without reference to Lipkin Gorman, although I think it’s correct to say that a crucial part of the reasoning in that case—that the casino must be treated as a donee—would not be relevant in Ontario. The motions judge held (http://canlii.ca/t/gj2wb at [32]-[33]) that the plaintiffs’ claims could not succeed since there was no unjust enrichment as between the gamblers and the casinos; the valid contracts between gamblers and casinos constituted a juristic reason. In restoring this claim, the CA said that the motions judge might be correct but that he had failed to consider unconscionability as between the gamblers and the casinos; the idea seems to be that if the casinos knew that the legal clerk was a pathological gambler, they could not rely on the contracts. So perhaps this part of the decision is rather similar to Lipkin Gorman, although I’m not quite sure what the majority had in mind here.

As for negligence, the motions judge similarly reasoned that unless the casinos owed a duty of care to the gamblers, it could not owe one to the plaintiffs; and, it did not owe a duty of care to the gamblers. The majority held that this was not clear and obvious so as to allow striking out, invoking the cases on the liability of commercial hosts.

Hoy ACJO, dissenting, agreed with the motions judge on all three points.

The majority’s conclusion states that “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.” [48] This is a common statement in recent years in Canadian courts but I confess I don’t understand it. In a striking out application, you assume all the pleaded facts are true. So you have all the facts you need to decide the purely legal issues of whether a cause of action is generated by those facts. Of course, judges may disagree, but I have never understood the argument that you need a genuine factual record, rather than a clear set of assumed facts, to decide what the law is. It did not stop the House of Lords in Donoghue v Stevenson.

Lionel