Date: 20040507
Docket: CI 98-01-06977
Indexed as: Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter
Cited as: 2004 MBQB 116 (Winnipeg Centre)
COURT OF QUEEN’S BENCH OF MANITOBA
B E T W E E N:
SELTA INTERNATIONAL TRADE INC.,
plaintiff,
- and -
DUBOFF, EDWARDS, HAIGHT & SCHACHTER,
defendant,
- and -
PATRICK MURPHY
third party.
Renald Guay and
Remi Smith
for the plaintiff
Richard Schwartz,
Marlaine Lindsay
and Cynthia Lau
for the defendant
Patrick Murphy
in person
JUDGMENT DELIVERED:
MAY 7, 2004
MONNIN, C.J.
I. INTRODUCTION
[1] The plaintiff, Selta International Trade Inc. (Selta), claims against its solicitors, the defendant Duboff, Edwards, Haight & Schachter (the firm), for damages it alleges arose from the unauthorized disbursement of funds it had deposited with the firm. It also claims for damages resulting from the purchase by Selta’s principal, Mr. Alexander Lysenko (Lysenko), of shares in a company which Mr. Neil Duboff (Duboff), a partner with the firm, had arranged. The defendant firm denies that the payment of any funds from its trust account were unauthorized. In the alternative, it third parties Mr. Patrick Murphy (Murphy) claiming that Murphy represented himself as the plaintiff’s agent and that it acted upon instructions from him. Murphy denies that he held himself out as the plaintiff’s agent and says that at all times the firm was aware that he did not have the authority, either express or implied, from Selta to authorize the payment of the funds.
[2] As to the purchase of the shares, the firm says that any investments made by Lysenko were not as a result of any improper conduct on the part of Duboff.
[3] This trial was unusually lengthy, arising from the fact that insufficient time was allocated for the hearing of the evidence. I do not say this as a criticism of counsel, only that the evidence of Lysenko was so lengthy that estimates of time agreed to between counsel were completely inaccurate. After the completion of the first three weeks of trial and Lysenko’s evidence, then counsel for Lysenko moved to withdraw as solicitors of record.
[4] I heard that motion and allowed them to do so (see Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter, 2001 MBQB 287 (CanLII), [2001] MBQB 287). There was then some delay required for the plaintiff to obtain alternate counsel. Again, when the matter resumed we were unable to complete all of the evidence within the time allowed, for a number of reasons unrelated to the parties themselves. The evidence was then completed on the third resumption of the trial.
II. THE PARTIES
(i) SELTA, CRISDAR AND LYSENKO
[5] Selta is a Manitoba corporation. Lysenko is the president and his wife is the sole shareholder. There are no other directors or officers other than Lysenko and the evidence satisfies me that he is and always was the directing mind of the corporation.
[6] Lysenko was born in Russia, lived most of his life there and in the Ukraine until 1977, when he emigrated to Europe. After a few years in Europe he left for Winnipeg in March 1979. After a short period of time working in a number of odd jobs, he built his own house and found that he could resell it at a profit. He launched himself into the construction of houses for resale, building and reselling approximately eight to nine houses over the next few years.
[7] In 1989, after a trip to Russia, he decided to become involved in the buying and selling of goods to and from countries in the former Soviet Bloc. During the course of those transactions, he learned the use of letters of credit and was introduced to Murphy, with whom he developed a friendship. In one transaction involving the sale of Chinese telephones to Russia, Murphy was the one who located the telephones to be sold and was offered a small percentage of the profit.
[8] In 1993, in the course of his international transactions, Lysenko’s bank account received substantial funds from diverse foreign locations. Those large sums were often quickly transferred out to pay for the transactions in which Lysenko was involved. Selta’s bank at the time, the Toronto Dominion Bank, was raising questions as to the source and purpose of these large amounts and indicating to Lysenko that they may prefer not to have him conduct his business through their institution. Duboff attempted to calm the bank’s fears as to the genuineness of the transactions in which Lysenko through his corporation Selta was involved, but was unable to do so. As a result he arranged with the Royal Bank to make its services available for Selta.
[9] In that time frame, Duboff arranged for the creation of Miralex Barbados Trade Corporation (“Miralex”). The corporation was incorporated in Barbados as an offshore trade corporation in order to obtain tax advantages. As Selta’s business was not connected to Canada but involved the trading of commodities from one foreign location to another, it wished to avoid having to have the profits from the transactions taxed in Canada. On Duboff’s advice, a Barbados trade corporation was created. Lysenko’s understanding was that it was important that Selta, as sole shareholder of Miralex, not be connected to the transaction for fear that the Canadian government would view it as carrying on business in Canada and subject Selta to Canadian taxation. The name of the company was subsequently changed to Crisdar Barbados Corporation (Crisdar). It is also beyond dispute that Lysenko was the directing mind of Crisdar.
(ii) DUBOFF
[10] Duboff, whose practice was in corporate and commercial law, first became Lysenko’s solicitor when he was asked to help in transferring Lysenko’s business from one bank to another.
[11] From 1993 onward, Duboff acted for Lysenko on a number of transactions. The nature of his retainer varied, but in general terms his services were drafting, reviewing and advising on documentation, arranging for letters of credit and, in some instances, receiving the funds in his trust account for payment out to Selta. Duboff claimed that he was not involved in any of the business decisions, nor did he review the transactions as to their business efficacy.
[12] Duboff advised Lysenko to utilize the firm’s trust account for purposes of payments to and from points overseas if it would facilitate the transactions, ensuring Lysenko that the trust account was safe from overview by tax authorities.
[13] From 1993 Duboff allowed Lysenko to use the firm’s trust account to process funds for his international transactions. According to Lysenko, which was not disputed by Duboff, the funds were forwarded to the firm’s trust account and Lysenko would provide instructions to Duboff as to where the funds were to go. In that fashion, according to Lysenko, there would be no questions raised by banks involved as to the source of the funds.
[14] That is not to say that all of the transactions with which Lysenko was involved were funneled through the firm’s trust account. After speaking to his bank manager in 1994, he realized that he was paying the law firm for the costs of directing the funds when it could be done by his bank at a lesser charge. From that point on, Lysenko would sometimes provide instructions to his bank manager, Ms Rubigny, and confirm them in writing.
[15] The use of the firm’s trust account was not limited to situations where Duboff was being consulted or was involved in the transaction. In some cases it was done as a convenience for Selta in order to avoid any potential scrutiny by the banks with respect to the funds being channeled.
[16] Whether this is an appropriate use of a trust account is not an issue before me, although it does indicate the extent to which Duboff went to accommodate the client.
(iii) MURPHY
[17] Murphy was a local businessman. Through his corporation, Caribou Ventures Limited, he was involved in a number of ventures, some of them in which he attempted to interest Lysenko.
III. REVIEW OF EVIDENCE
(A) PRIOR DEALINGS
(i) MR. TUBE STEAK
[18] In early April 1994, Lysenko and Duboff had a discussion with respect to a company known as Mr. Tube Steak. At the time Duboff was corporate counsel for a group of companies using the name Mr. Tube Steak. The companies were involved in the retail sale of hot dogs from vendors on the street. They were also involved in the manufacture of the carts from which the hot dogs were sold and franchising the business. Duboff did not recall precisely which companies in the group he acted for, but did act for one or more of them.
[19] All of the companies were privately held, but one of them, Mr. Tube Steak Canada Inc., was in the process of issuing shares and was contemplating being listed on a stock exchange. Duboff did not act for that corporation, but he and Mr. Schachter (Schachter), a partner in his firm, were planning to invest in the company. The expectation of Duboff, as represented to Lysenko, was that the company would be listed on a public stock exchange shortly and the value of the shares would increase at the time of the public offering.
[20] The circumstances surrounding Lysenko’s involvement are somewhat contradictory. Duboff either invited Lysenko to invest in the company or as a result of mentioning his potential investment was asked by Lysenko if he could invest as well.
[21] On April 4, 1994, Lysenko provided Duboff with a personal cheque in the amount of $30,000.00 to purchase shares in Mr. Tube Steak. The cheque was made out in blank as to the payee, but it was filled out by Duboff in his name a few days later when he deposited it into his personal bank account. He then wrote his own cheque for $30,000 and provided it to the company to subscribe for shares in Mr. Tube Steak Canada Inc., in addition to the $30,000 invested jointly between himself and Schachter.
[22] Duboff later became a director of Mr. Tube Steak Canada Inc. While a related company went public in 1996, Mr. Tube Steak Canada Inc. never did. In July 1997, as a result of receiving a letter from Lysenko complaining that he had received no accounting for the $30,000 cheque, Duboff forwarded to him a declaration of trust indicating that he held shares in Mr. Tube Steak Canada Inc. in trust for Lysenko. Lysenko’s evidence was that there was no distinction drawn between the various companies when he was asked to invest and he was of the impression that he was investing in a venture by the name of Mr. Tube Steak. It was only at a later time in 1996 that he became aware from comments made by Duboff that different companies were involved using the name Mr. Tube Steak, and that the company that had gone public was not the one in which the shares had been purchased.
[23] At the end of the day, the company in which Lysenko held shares has never gone public.
(ii) THE NIGERIAN CENTRAL BANK
[24] Some time in 1994 Murphy was approached by a local acquaintance, Barry Phillips (Phillips), who was aware of an Alberta corporation, McSorley Holdings Ltd., that had entered into a contract in Nigeria to supply a prototype concrete block machine. The principal of the company was one McSorley (McSorley).
[25] When the corporation agreed to the contract, it was asked to send a representative to Nigeria to conclude it. McSorley went. Upon arrival, he was presented with a contract which was substantially larger in dollar terms. He concluded that the Nigerian group wished to piggyback their commercial contract upon his, with the payments to be made out of the country. He agreed to the arrangement on the understanding that he would receive extra remuneration. Upon his return to Canada, he was sent documentation whereby he became aware that there was a request for a value added tax payable up front. The original amount for the value added tax was $1 million USD, which was reduced to approximately $408,000 USD.
[26] Attempts to have the value added tax deducted from the payments to be made by the Nigerian Central Bank were not successful, at which time McSorley concluded that what was truly being asked was for his company to pay to arrange for the payment out of the country. McSorley then proceeded to locate sources of funds to pay the proposed value added tax by letter of credit. Through Phillips he obtained the assistance of Murphy and, eventually, Lysenko.
[27] Duboff became involved in the latter part of 1994. He prepared documentation to act as an escrow agent and attempted through correspondence with the Nigerian representative to arrange for the payment of the contract price, namely $50 million USD, to his firm in escrow for disbursement to Mr. McSorley. Duboff was unclear as to how the transaction was structured. Documentation on his file shows a direction providing for payment to various individuals from the funds that the firm would eventually receive in escrow from the Nigerian Central Bank. From these funds, McSorley would receive the bulk with the rest distributed to various payees, including $2.2 million USD to Lysenko’s then Barbados based company.
[28] The transaction was never completed, primarily because the Nigerian individuals were always requesting funds be paid in cash or by way of transfer in advance of any monies being transferred to Duboff in escrow. At one point an individual claiming to be an officer of a London bank with Nigerian connections offered to assist in the transaction for the payment of $1 million USD to himself, in other words a bribe.
[29] It is clear from reading the documentation that the entire scheme was a sham, with a view of arranging for payment of funds in advance for a non-existent government contract. Duboff had some investigations done by members of his firm in the early part of 1995 after receiving some indication from another local lawyer that these transactions were of dubious origin. It should have been clear to anyone involved that the transaction was not a legitimate one. However, the possibility of substantial monies being paid for no apparent reason appeared to be too enticing for Murphy and Lysenko to give up.
[30] Lysenko’s evidence that he was not involved in these transactions is inconsistent with the documentation confirming that the original contact was with Murphy who would have gotten Lysenko involved, and with the authorization in Duboff’s file suggesting a payment to Lysenko’s Barbados corporation, which could only have been prepared in consultation with him.
(iii) THE SCRAP METAL DEAL
[31] In November 1995, Murphy had discussions with an acquaintance of his in Nairobi with respect to the potential sale of scrap metal from Kenya. Originally 250,000 metric tonnes of scrap metal was to be purchased. While Lysenko did not have experience in dealing with the sale of scrap metal, one of his business contacts, Daniel Schmid of Phonetex in Switzerland, did have the necessary contacts. Lysenko arranged for Murphy and Schmid to communicate and discussions were pursued. Murphy was to use his contacts in Nairobi to pursue discussions with the owner of the scrap metal.
[32] As a result of investigations conducted by inspectors on the part of Phonetex and Crisdar, it became apparent that the amounts of scrap metal promised were not located on the vendor’s premises or were not suitable for what was intended. Eventually, an amount much smaller than originally contemplated, some 12,000 metric tonnes, was considered to be suitable from the vendor’s premises. Phonetex used its contacts in Thailand to arrange for the potential sale to a large manufacturing concern in that country.
[33] Murphy, with Lysenko’s approval, drafted documents for the sale and asked Duboff to review the proposed contract between Phonetex and Crisdar Barbados, which contracts had Crisdar purchasing the scrap and reselling to Phonetex.
[34] The transaction required that the scrap metal be cut into specific sizes. On February 15, 1996, Murphy faxed to Duboff a request that he prepare a letter of credit, the proceeds of which were to be used for the cutting for a certain portion of the scrap. Duboff arranged for the letter of credit through the Toronto Dominion Bank for the sum of $30,000, which letter of credit was set to expire on March 15, 1996. Duboff used funds which were deposited into his trust account by Lysenko in January 1996.
[35] The transaction did not proceed smoothly. On March 14th the letter of credit was extended to March 31st, as the scrap had not yet been cut or prepared for inspection.
[36] By that time, Murphy had arranged for his son Michael to attend in Nairobi to supervise the cutting and also to meet with the ultimate purchaser’s representatives who wanted to view the merchandise.
[37] On March 22nd, Duboff faxed a letter to Lysenko requesting authorization from Crisdar to allow his firm to pay Murphy $2,000. Upon the signing of the authorization by Lysenko, Duboff gave Murphy the amount from trust which was wired to Murphy’s son in Kenya.
[38] Meanwhile, in Nairobi, the property on which the scrap metal was located was sold to a third party, Kiambi Ltd., who purported to have the sole right of sale of the scrap metal. Previous dealings with the Nairobi middleman were for naught and Murphy, acting for Crisdar, had to recommence negotiating with this new party. In the last few days of March, a number of offers were forwarded to this new entity, Kiambi Ltd., with an increasing price for the scrap metal.
[39] On the other side of the transaction, Schmid on behalf of Phonetex and his contacts from Thailand were becoming increasingly agitated by the fact that the transaction did not appear to be proceeding according to plan. No final document had been signed because Murphy had been unable to conclude the transaction with the actual owner of the scrap.
[40] On March 28, 1996 Murphy, under the letterhead of Crisdar Barbados Trade Corporation, sent a final offer to Kiambi Ltd. for the scrap metal with the offer expiring at 5:00 p.m. Nairobi time on Friday, March 29, 1996.
[41] Kiambi never responded to the final offer. Notwithstanding increasing attempts and entreaties from Mr. Schmid and his Thai contact, Murphy was not able to obtain Kiambi’s concurrence to sell for the price he wanted or to find replacement scrap. In any event, it would appear that a deal was not in place by March 29, 1996. This is of significance since Lysenko’s position throughout his evidence was that funds that were placed into the firm’s trust account on March 29, 1996 were placed there in order to pursue the scrap metal contract. The fact that the contract was not in place by that date does not preclude the possibility that the funds were placed there for that purpose, however, it is unlikely that Lysenko would commit such a large sum for an unspecified length of time.
(B) EVENTS RELATING TO MARCH 29TH TRANSFER
(i) GOLD BONDS
[42] Gold backed bonds play an important part in the dispute between the parties. To properly appreciate the evidence provided during the course of these proceedings, it is important to have an understanding of the nature of these bonds.
[43] There are two different types of bonds which are at issue in this case, the first being described as German bonds (German bonds) and the second category being gold backed railway bonds (Railway bonds).
[44] The German bonds were issued by the German government after the First World War or by one of its agencies through American banks, with the guarantee of the United States government, and were repayable in gold coins.
[45] Railway bonds were bonds issued by now defunct railway companies with the annual payments and interest all payable in gold coins. The bonds of two companies were at issue here, namely, the Chicago Saginaw and Canada Railway Company First Mortgage Gold Bond (the Chicago Saginaw bonds), and the Marietta and North Georgia Railway Company 6% First Mortgage Consolidated Gold Coin Bond (Mariettas). As their name implies, these were bonds whose principal and interest were payable in gold coins.
[46] The bonds would have some value as historical documents. However, they were touted by their vendors as having a far greater value based upon their face value and valuations performed by an alleged expert in the area, Mr. Gerald Dobbins of Fidelity Secured Mortgage and Deposit Co. (Dobbins). Dobbins would provide a valuation of the bonds, using the value of the gold due as payment under the bonds. Given today’s price of gold and the accrued interest the amounts were quite staggering, running in the millions of dollars for each bond.
[47] The vendors also tried to persuade potential purchasers to become involved in a “trading program” which involved using the bonds as collateral with an established bank to obtain a line of credit. The proceeds of the line of credit would be used for an aggressive investment program paying substantial amounts of interest.
[48] Suffice it to say that the premise upon which these bonds’ value was determined should have raised suspicions with anyone who had a modicum of understanding of investments and the operation of bonds.
(ii) EVENTS PRIOR TO MARCH 29, 1996
[49] Lysenko had an acquaintance, Eddie Garmel (Garmel), a friend of his from the Ukraine who had emigrated to the United States and lived in Los Angeles.
[50] In January 1996, Garmel called Lysenko to interest him in the purchase of gold bonds. Garmel had become aware of these bonds through his dealings with Mr. Jacob Laksman (Laksman), also of Los Angeles, with whom he was involved in purchasing cars for resale in Ukraine. Garmel explained to Lysenko that the bonds were a good investment and apt to be resold quickly for a profit. Lysenko, having no knowledge of these matters, involved Murphy and described Murphy as his partner to Garmel and Laksman. Lysenko’s evidence was that the initial approach was with respect to German bonds, while Laksman says that from the start the discussions were with respect to Railway bonds, namely, the Chicago Saginaws and the Mariettas which he had in his possession or to which he had access.
[51] The documentation does not support Laksman’s recollection, as the first document with respect to gold bonds is a draft letter dated March 19, 1996 sent by fax from Murphy to Duboff referring to the potential purchase of German bonds. The letter states that Lysenko had authorized payment of $10,000 USD to Laksman as a refundable deposit on the purchase of some 325 German bonds at a purchase price not to exceed $2,000 USD per bond. According to the letter Laksman was to provide information, including a list of bonds and a colour photocopy from each bond series with the coupons attached. Once the list of bonds and the photocopies were sent to Murphy, $10,000 USD was to be wired to a Los Angeles bank for credit to Laksman’s company.
[52] Upon receipt of the list and copies, Murphy was to have the bond numbers checked to verify their authenticity. Upon verification the bonds were to be placed in safekeeping with a U.S. bank. Once the bonds were placed in safekeeping, a letter of credit for the full purchase price less the deposit was to be provided by the purchasers.
[53] A notation on the bottom of the letter asks Duboff to call Murphy. Neither Murphy nor Duboff recall a conversation relating to this document, but the next document dated March 20, 1996 was sent to Laksman asking that if the terms met with his approval he sign the document and return it to Duboff, with the further notation that upon receipt of the signed copy Duboff would wire the $10,000 USD. In Duboff’s file there is a document suggesting that the March 20th document was returned on March 22nd by Laksman, with his signature showing acceptance on his behalf and on behalf of D.F. Hokland for D.D.J. Security Trust and an amendment to the price per bond from $2,000 to $3,000 USD.
[54] On March 25th, Murphy sent Duboff a fax requesting that he wire the $10,000 USD. This would suggest that an agreement was concluded between the parties. This is contrary to Lysenko’s evidence, which was to the effect that upon hearing from Murphy that the price for the German bonds had increased to $3,000, he advised Murphy to throw the document into the wastepaper basket as there would be no deal.
[55] On March 29th, Murphy faxed to Duboff a draft letter dated March 28th addressed to Dobbins, using a Crisdar Barbados Trade Corporation letterhead but signed by Murphy. The letter says it encloses copies of two bonds:
(a) Chicago Saginaw Canadian Railway Company First Mortgage Gold Bond No. 1108;
(b) Marietta and North Georgia Railway Company 6% First Mortgage Consolidated Gold Bond No. 2399.
[56] The letter states that Laksman holds forty other similar Mariettas, each with a gold value in the range of $10,000 to $12,000 USD per bond. Dobbins is asked to authenticate and value both bonds, the originals of which Laksman is to deliver immediately upon his request.
[57] Once authenticated, Laksman is to place the original Mariettas in safekeeping with his firm and a certificate is to issue in the name of Crisdar Barbados Trade Corporation. The bonds could then only be withdrawn on Murphy’s signature.
[58] Later on March 29th a similar draft letter is faxed to Duboff, with the number of bonds having been increased to two Chicago Saginaws and forty Mariettas to be delivered by Laksman to Dobbins on the same date. Once the Chicago Saginaws were authenticated, they were to be kept by Dobbins and a certificate issued in the name of Grange Trust Limited, Laksman and Crisdar. The receipt was to be provided to Laksman. Once Laksman had placed the 40 Mariettas in safekeeping with Dobbins in exchange for a certificate to be issued jointly in the names of Crisdar and Laksman or the latter’s nominee, the bonds were to be withdrawn only with two signatures, namely, those of Murphy and Lysenko together with Laksman or his nominee.
[59] Early in the afternoon of March 29th, Murphy sent to Duboff a copy of written instructions from Selta to the Royal Bank of Canada to transfer $300,000 USD from Selta’s account to the U.S. dollar business trust account of the firm, signed by Lysenko on behalf of Selta under his seal.
[60] During the afternoon of March 29th, further correspondence was sent from Murphy to Duboff suggesting revisions to the terms of the letter being sent to Dobbins.
[61] In addition, Murphy faxed to Duboff a document entitled “Power of Attorney and Authorization” which purports to be an authorization by Crisdar to be signed by Lysenko in favour of Stanley A. Lewy and Company Inc., authorizing that company and/or one James S. Tudhope to make arrangements for the trading programs with respect to 40 Mariettas. Duboff was asked for his approval and to call Murphy on his cell phone.
[62] Shortly thereafter, Duboff received from Murphy details of how to wire funds to Laksman’s corporate bank and to DDJ Security Trust’s bank account. On each of those documents were handwritten notations, one of $100,000 with respect to Laksman and one of $200,000 with respect to DDJ Security.
[63] A further form of letter to be sent to Dobbins was forwarded to Duboff by Murphy later in the afternoon of March 29th. That letter asked Dobbins to receive bonds from Laksman and to place the Chicago Saginaws in safekeeping with a certificate to be provided in the name of Crisdar. Once Dobbins received the sum of $10 million USD the certificate was to be transferred to Grange Trust, and from the $10 million USD the sum of $4.8 million USD was to be paid to Crisdar in Barbados. The balance of $5.2 million USD was to be released to V&A Trading Inc. or its nominee (V&A Trading Inc. being identified at a later time as Laksman’s partner’s corporate vehicle).
[64] Later in the afternoon, Duboff faxed Murphy a copy of his letter to the Toronto Dominion Bank asking that it immediately commence to wire transfers to the banking coordinates provided to Duboff in the earlier fax. Shortly thereafter Murphy faxed Duboff a copy of another letter to Dobbins, this time signed by Murphy on Crisdar letterhead, including revised procedures for the transfer of the funds. The last letter going to Dobbins appears to have been sent at 17:46 and speaks only of keeping the documents in Dobbins’ hands until released by the parties. It would therefore appear that while discussions were being had between the parties with respect to a potential sale of the bonds, final instructions to Dobbins on March 29th were simply with respect to the safekeeping of the bonds.
[65] March 29th was Duboff’s daughter’s birthday and as he had to leave the office to be home in time for the celebration he asked his partner Schachter to remain at the office to receive confirmation from the bank that the transfer had taken place. In the late afternoon, Schachter faxed Murphy a document received from the Toronto Dominion Bank which confirmed that the amounts had been wired.
[66] Duboff has no notation on his file and he does not recall specifically what, if any, discussions he had with either Murphy or Lysenko prior to forwarding those funds. Based upon his recollection of the events at the time, he believes the purpose of the transfer of the funds was to conclude a transaction whereby Crisdar would be obtaining an interest or benefit in the bonds described in the letters of March 28th and 29th to Dobbins. He does not believe he spoke directly to Lysenko on this, but believes that he would have received instructions from Murphy to forward the funds. It was his belief that Murphy was acting in accordance with Lysenko’s instructions at the time. He has no documentation from Lysenko to confirm Murphy’s authority to request the release of the funds or any written instructions from Lysenko authorizing the transfer.
[67] Lysenko, on the other hand, denies categorically that he gave instructions to Duboff or that he instructed Murphy to authorize the transfer of the funds. His evidence, as stated earlier, was that the funds were being transferred to Duboff’s account in anticipation of the scrap metal deal proceeding.
[68] Murphy does not recall the events surrounding March 29th in any detail, although believes that he would have been expecting Duboff to confirm his advice to send the funds with Lysenko directly.
[69] Laksman, contrary to the other witnesses, recalls a conference call with Murphy, Lysenko and Duboff on March 29th. (At that time Lysenko was in the Ukraine attending to his business.) Laksman recalls Lysenko yelling at Duboff and instructing him in no uncertain terms to arrange for the funds to be transferred out on that day, March 29th.
[70] During the course of the trial reference was made often to the faxed notation of times shown at the head of documents, which is normally an indication of when the document was received by the recipient of the fax. Suggestions were made during the course of the evidence that, on Mr. Murphy’s fax, it may have an indication of what time he sent it, but that the fax machine was displaying an incorrect time which was off by one hour. In other words, any notation on the fax coming from Murphy to Duboff showing a time should be brought back an hour. While much court time was spent on the issue, at the end of the day I do not believe much turns on it. I am satisfied that documents were forwarded to Duboff from Murphy throughout the day on March 29th and that the funds were sent out upon instructions from Duboff to the Toronto Dominion Bank by the late afternoon of March 29th.
[71] Where it may become relevant is where Murphy claims that he did not receive any notation that the funds had been sent out until Monday when he returned to his office. He claims that he may have left the office before 6:00 or turned his fax machine over to his computer to receive faxes for the weekend, and would therefore not have been aware that the funds had been transferred out.
[72] Dobbins, through his corporation, Fidelity Secured Mortgage and Deposit, issued a “Certification of Deposit” stating that it had on deposit two Chicago Saginaw Railway bonds 4850 and 4180 on behalf of Laksman, Grange Trust and Crisdar, which document was dated March 29, 1996. The fax notation at the top suggested it was sent to Murphy on April 1, 1996, and then by Murphy to Duboff on April 2nd. Also provided to the court was a document which I was advised was the last page of a document prepared by Dobbins, which was dated April 1, 1996 and states as follows:
Marietta North Georgia Railway Company, Bonds, face value $1,000.00 dollars is backed by gold coin. Date of the bond issue November 1, 1887 at 6% due and payable in 50 years, January A.D. 1937. No interest was ever paid and our figures for the interest due go back to November 1, 1887; and as of April 1, 1996 the total dollar amount due and payable and value of the bond is $12,501,875.00 price of gold for each ounce as of this date was $398.00 and used to determine the above calculation.
This suggests that Dobbins was asked and did, apparently in accordance with the draft correspondence of March 29th, prepare a certificate of deposit with respect to the Chicago Saginaws and a valuation with respect to the Mariettas.
(iii) EVENTS IMMEDIATELY AFTER MARCH 29TH
[73] Lysenko’s evidence was that he did not become aware of the transfer of the $300,000 until he spoke to Murphy on the morning of Monday, April 1st. Murphy indicated to him at that time that he had just received the fax from the firm advising of the transfer of the funds.
[74] Lysenko stated that he thought it was an April Fool’s joke at first, but upon receiving confirmation from Murphy that it appeared authentic, he desperately tried to get a hold of Duboff. His evidence was that he was so desperate that he did not take the time to use his credit card to go through an operator but called directly, thereby not leaving a record of the calls on his Canadian phone bill which was part of the evidence. Lysenko testified that he tried for the next two days to reach Duboff by phone to express his anger, but was unable to do so until April 3rd. His attempts to reach him before that time were done using direct calling, but on April 3rd he reverted back to using his credit card. Telephone records show that he had a five-minute conversation with Duboff on April 3rd. His evidence was that Duboff, during that conversation, acknowledged his error, was apologetic, but did not wish to discuss the issue over the telephone and thought it better to have a meeting upon Lysenko’s return to Canada.
[75] Lysenko returned to Canada on April 11th saying that he did not wish to spend the extra $175.00 to change his airline ticket to return earlier. He met with Duboff the very next day on April 12th. At that meeting, Lysenko stated that Duboff expressed his desire to make up for his mistake and do whatever was necessary to ensure that Lysenko’s money would not be lost.
[76] Duboff denied that he had such a conversation, but rather said that the conversations were, to the best of his recollection, attempts to discuss steps to be taken to pursue the bond investment, namely, how to either sell or place them to start the trading programs which were to be the source of revenue.
[77] Duboff’s recollection of the meeting with Lysenko on April 12th is hampered by the fact that he has no notes of the discussions. However, he denies that Lysenko would have expressed concern about the forwarding of the funds. Duboff believes Lysenko would have expressed pleasure at the manner in which the potential transactions were taking shape, as they would lead to substantial revenues.
[78] Documentation from Duboff’s files suggests that efforts were being made as early as March 29th to have the bonds used for trading programs. Murphy was forwarding to Duboff agreements for that purpose. For example, a draft agreement with Grange Trust would see that entity purchase two Chicago Saginaw bonds referred to in the correspondence of March 29th for $10 million USD. According to the draft agreement, which meshes to some degree with the draft letter to Dobbins of March 29th, the proceeds from the sale would be used firstly to pay off the balance of the purchase price of the bonds ($200,000 to Laksman which Laksman testified was for the Mariettas which he was placing in the program), and the balance to be split 50% to Laksman and the other 50% between Garmel, Crisdar and Murphy. The agreement further provided for the Mariettas to be used as collateral for a trading program with Laksman, Crisdar, Garmel and Murphy receiving a percentage of the trading profits. A revision to that agreement replaced Murphy’s interest with a payment to Crisdar in trust.
[79] Murphy acknowledges that discussions were taking place with respect to a potential sale of the bonds to Grange Trust, but could not explain why his name appeared as a potential beneficiary of the sale.
(iv) DEALINGS FROM MARCH 29 TO JUNE 1997
[80] After March 29th, a great deal of time and effort was spent by Lysenko, Duboff and Murphy in attempting to arrange transactions to sell or place the Chicago Saginaw and Marietta bonds. The parties have quite different views as to the motivations for these transactions.
[81] According to Lysenko, these efforts were made by Duboff in collaboration with him and Murphy to attempt to recover the funds that had been transferred on March 29th. According to Duboff, he was merely acting as a solicitor with respect to transactions which were brought to him by either Lysenko or Murphy. While these transactions relate only indirectly to the key issue in this case, namely, whether the transfer of funds was authorized, the credibility of the witnesses is affected by these further dealings and I will discuss them in further detail. They are as follows:
(a) Dealings with Grange Trust;
(b) Dealings with Riviera Trust;
(c) Placing of bonds in San Francisco;
(d) Dealings with Gracorp;
(e) Return of the bonds.
(a) Grange Trust
[82] Within days of the transfer of the funds out of the firm’s trust account, there are documents exchanged between Murphy and Duboff appearing to be drafts of an agreement between Crisdar, Lysenko, Garmel, Murphy, and one other party who remains unidentified on one side, and Laksman on the other, providing for the sale of two Chicago Saginaw bonds to Grange Trust Ltd. for $10 million USD. The document provides for the payment to Laksman of a further $200,000 USD and a further $5 million USD of the purchase price to Laksman, the balance being in almost equal shares to Garmel, Crisdar, and Murphy.
[83] The proposed agreement also involved 40 Marietta bonds with a gross trading profit of 5% being divided, after commission to a broker, equally between Laksman on one part and the three other parties, namely Garmel, Crisdar and Murphy, equally on the other part. A later draft of the agreement provides that the share which originally was stipulated to be payable to Murphy is payable to Crisdar in trust.
[84] Attached to a draft of the document is an invoice from Fidelity Security (Gerald Dobbins) for $2,500 sent to Crisdar for an affidavit of authenticity and certification and evaluation for 41 Marietta North Georgia bonds. A further document sent by Murphy to Duboff on April 2nd encloses a contract and Power of Attorney in favour of a firm named Intellivest. The contract is between Crisdar, Laksman and Intellivest, using the investment programs of the latter company to generate revenue using the bonds to obtain a line of credit. The draft agreement values the bonds at $512,576,875 USD. The Power of Attorney in favour of Intellivest appears to have been signed by Lysenko on April 3, 1996 in the Ukraine. His evidence at trial was that while it appeared to be his signature on the document, it was not. He was unable to explain how it came to be on the document.
[85] Lysenko’s evidence was that these documents only represented drafts prepared by Murphy in which he had no direct involvement. His testimony was that Murphy had conversations with individuals in Los Angeles, and arrived at these attempts to recoup Lysenko’s investments in the bonds. He himself had little faith in deals whereby his $300,000 payment was transformed into $1 million revenue. Duboff had no specific recollection of the documents nor of the purported transactions and neither did Murphy. The documents suggest, however, that at or around the time of the transfer of the $300,000 Murphy, with Lysenko’s knowledge, was attempting to arrange for the use of the Railway bonds as collateral for a trading venture agreement.
[86] Laksman testified that these agreements were signed by Lysenko after discussion with him and Murphy, with knowledge that the bonds were to be used as collateral for a trading program, which trading program was being arranged by Lysenko and Murphy.
[87] Laksman’s evidence was that the March 29th transfer was to do with Grange Trust. Grange Trust approached him to purchase Chicago Saginaw bonds for $5 million USD each. Laksman located two Chicago Saginaw bonds from an acquaintance of his, one DeVerne Hokland (Hokland) in January of 1996. Hokland was ready to sell them at $300,000 USD per bond. While discussing this with his partner, Mr. Vrej Arakelyan in front of Garmel, the latter offered to assist by having a friend of his from Canada purchase it. His friend was Lysenko. According to Laksman, he and Garmel called Lysenko in the beginning or middle of January. (Phone records produced at trial indicate that Lysenko called Garmel in Los Angeles on a number of occasions in January, starting from January 7th onwards.) They spoke Russian. In order to obtain confirmation that there was an actual deal for the sale of the bonds to Grange Trust, Lysenko and Murphy called Grange Trust.
[88] According to Laksman, the bonds were authenticated by Dobbins of Fidelity Security for the amount of $110 million each based upon the value of the gold that had accumulated over the lifetime of the bonds. Laksman’s evidence was then that the bonds were placed with Dobbins at Fidelity Security in anticipation of the transaction occurring.
[89] Laksman had also purchased from Hokland some 40 Mariettas which were valued at $12 million USD apiece. He had purchased them at $2,500 to $5,000 apiece as Hokland was desperate for money.
[90] Laksman was well acquainted with Dobbins. He described Dobbins as a curator, authenticator and valuator for these types of bonds. Dobbins placed a value on them which was recognized, according to Laksman, by banks all over the world.
[91] According to Laksman, he had purchased the Chicago Saginaws from DDJ (Hokland’s company), for $600,000 USD and resold one of them to Lysenko or Crisdar for $300,000 USD. The purchase price was paid by Lysenko forwarding him $100,000 and $200,000 to DDJ.
[92] Laksman’s evidence was that the $10,000 he received on March 25, 1996 from Duboff on Crisdar’s behalf as a deposit was used to purchase Mariettas from a person by the name of Dino Nurosi. He purchased 10 to 20 Mariettas on behalf of Lysenko, Murphy and himself.
[93] Laksman sent Murphy copies of Chicago Saginaw and Marietta bonds. On March 29, 1996, Dobbins issued a “Certification of Deposit” styling himself as master curator for Fidelity Security Deposit Corporation (Fidelity), stating that it had on deposit in its vaults for safekeeping on behalf of Laksman/Grange Trust Limited/Crisdar Barbados Trade Corporation, two Chicago Saginaw bonds numbered 4850 and 4180. The next day Dobbins also signed a document which included a valuation of the Marietta bonds at $12,501,875 USD each based upon a price of gold of $398 per ounce.
[94] Grange Trust was to forward $10 million USD to Dobbins who was acting as escrow. The draft agreement provided for a $200,000 payment to Laksman as compensation for the 41 Mariettas that were to be including in the transaction.
[95] It is not exactly clear how the transaction with Grange Trust unravelled, but suffice to say that Dobbins never received the funds required under the alleged deal from Grange Trust.
[96] On April 29th, the funds not having advanced, Laksman faxed a letter to Grange Trust indicating that pursuant to the terms of the purchase contract, the agreement between Grange and the other parties was null and void. (A copy of this contract was not in evidence.) The document was acknowledged as understood and agreed by Grange Trust on May 3, 1996.
(b) Riviera Trust
[97] According to Laksman, Grange Trust had received a copy of Dobbins’ Certificate of Deposit and had forwarded it to Riviera Trust, whose representative was one Nancy Shockley (Shockley), a resident of Houston. Shockley was held out by Grange Trust as being involved with it and able to set up some investment opportunities.
[98] In early May 1996, Duboff flew to Houston at Lysenko’s request. Duboff had been at a conference in Denver when he received a phone call from Lysenko requesting that he travel immediately to Houston to meet with Laksman and Hokland to receive some bonds. Duboff attended in Houston where, according to Laksman, the latter, Duboff and Dobbins met with a representative from Intellivest. An account was opened for them in a Houston bank and 41 Mariettas were placed there in a safety deposit box, with both Laksman and Duboff obtaining a key for the box.
[99] While in Houston they went to visit Shockley, who advised that the Certificate of Deposit had been transferred to another entity by the name of Keystone Financial, who would come up with the $10 million within the next few weeks.
[100] On May 9th, Murphy e-mailed to Duboff advising him that “Crisdar and Laksman reached an agreement with Riviera Trust to keep the (Chicago Saginaw bonds 4850 and 4180) in the bank debenture program between Keystone and Riviera.” Murphy also stated that it was agreed that Crisdar and Laksman were to receive 5%, namely, $9,442,682.88 USD per week of the established credit line of $188,843,657.60 for 40 weeks per trading year. The weekly payment was to be divided equally between Crisdar and Laksman. Murphy then asked Duboff to prepare an agreement and other documentation to reflect these terms.
[101] On May 10, 1996, an agreement was signed between Riviera Trust, Crisdar and Laksman dealing with the Chicago Saginaws, whereby Riviera stated that it had a joint venture agreement with Keystone Financial and agreed to pay Crisdar and Laksman in accordance with the terms described above, using the two bonds as collateral.
[102] Laksman’s evidence was also that some time in May, because Intellivest had not proceeded in using the collateral of the 41 Mariettas, he flew to Houston and withdrew those bonds from the safety deposit box. His evidence was that he was able to obtain the bonds without anyone’s assistance. Duboff’s evidence was that he came back from Houston with a key to the safety deposit box, but does not remember what if anything happened to the bonds in the box.
[103] Needless to say, no funds were ever advanced from Riviera to Crisdar and Laksman pursuant to the agreement.
[104] On July 15, 1996, Shockley wrote to Lysenko and Laksman making reference to a July 12th correspondence from Keystone Financial advising that the latter had issued a “cease and desist” regarding the placement of the Chicago Saginaws. The July 12th letter was not put into evidence and no explanation was given as to what a cease and desist was, although I infer that it was an indication from Keystone that they were not proceeding with the transaction.
(c) San Francisco
[105] On May 13, 1996, Lysenko, having been advised by Murphy that there was a potential for the sale of historical bonds to a group from Thailand, instructed Duboff to accompany him to San Francisco the next day. Lysenko purchased the tickets and Murphy accompanied them. Mr. Stanley Lewy of Stanley A. Lewy & Company, with whom Murphy had had previous correspondence with respect to selling or placing bonds, was to meet them in San Francisco.
[106] In San Francisco the group proceeded to the Bank of America where they met with a vice-president of the bank named James Ovens. Laksman arrived accompanied by his partner, Mr. Arakelyan. This was the first time that Lysenko and Laksman met face to face. Hokland arrived with bonds, namely 237 Mariettas. Once the bonds had been inventoried, the bank was asked to provide a valuation which Mr. Ovens refused to do.
[107] According to Lysenko, the conversation then became a discussion between Hokland, Laksman and himself as to how the profits from the sale or use of the bonds for collateral was to be divided. A security lawyer with the bank came to inspect the documents and, according to Lysenko, was suspicious as to the stated value of the bonds. Eventually the bank agreed to issue a safekeeping receipt.
[108] Laksman’s evidence was that in addition to the bonds brought by Hokland he also contributed the 41 Mariettas which had been located in Houston and which he had obtained for purposes of bringing them back to Los Angeles. In addition, a Mr. Anil Gupta (Gupta), who had access to a number of Chicago Saginaw bonds, was brought into the meeting. Laksman testified that he and Lysenko jointly agreed to purchase a further Chicago bond from Gupta for the sum of $25,000 shared equally.
[109] On May 14, 1996, in San Francisco, Crisdar and Laksman signed an agreement with DDJ Security Trust (Hokland’s company) whereby the 237 Mariettas owned by DDJ would be used by Crisdar to arrange a line of credit and to enter into a trading program.
[110] On May 23, 1996, Mr. Ovens from the Bank of America wrote to Crisdar (care of Duboff), DDJ Security and Gupta, advising them that the bank was not willing to establish a custodial relationship to keep the bonds. Ovens advised that the bonds were to be picked up in person at the bank’s office in San Francisco with the Mariettas to be delivered to Hokland and the Chicago Saginaws to be delivered to Mr. Gupta.
[111] Murphy prepared a draft letter for Duboff’s review and for Lysenko’s signature indicating that they were at a loss to understand why the bank had taken that position. As well the letter indicated that Lysenko was not available to retrieve the bonds given that he was in Ukraine, nor was he willing to incur any expense in attending in San Francisco to obtain the bonds. They were therefore ready to issue Powers of Attorney to Laksman in order to have the bonds picked up by him. The bonds were returned to either Laksman or Hokland.
(d) Gracorp
[112] The attempted transactions with Grange, Riviera and DDJ not having proven fruitful, Laksman was getting somewhat anxious. Along came Gracorp and Dr. Albert.
[113] When and how Lysenko was approached by Dr. Albert or Gracorp is not clear from the evidence. Lysenko’s recollection was that Dr. Albert, an Italian financier, had a Canadian lawyer based in Vancouver who approached either him or Duboff and wished to invest in historical documents such as gold bonds.
[114] In July 1996, Crisdar and Laksman signed a joint venture agreement for the purposes of selling or placing Railway bonds in trade investment programs. The joint venture was for a period of one year and the parties were to use their best efforts to deliver these bonds to the Royal Bank of Canada (Caribbean Corporation) for deposit in a safekeeping account in the name of Crisdar. Apart from Mariettas a number of other types of bonds were also listed, including Chicago Saginaw bonds. The net profits of any sale or investment in the program were to be equally shared between Laksman and Crisdar.
[115] Pursuant to that joint venture, Laksman travelled to Toronto in early August 1996. He brought with him a number of bonds for the purposes of meeting with Lysenko and Duboff and placing those bonds with the Royal Bank of Canada (Caribbean) in Toronto. Unfortunately, Laksman and his documentation were viewed with some suspicion by Customs and he was placed under arrest. Fortunately for him, at the same time, Duboff and Lysenko arrived from Winnipeg and were paged to the Customs area in order to assist Laksman. After Duboff’s explanation that the items were merely historical documents with no security value save as collector’s items, they were designated by the Customs Branch as antique bonds with a value of $6,800, and a duty of $1,775 was exacted. Lysenko paid the duty.
[116] The three of them then attended at the Royal Bank of Canada where 375 Mariettas and nine Chicago Saginaws were placed on deposit with the Royal Bank of Canada (Caribbean Corporation) on behalf of Crisdar.
[117] On September 26, 1996, Crisdar and Gracorp entered into an agreement whereby those bonds, which had been valued by Dobbins at $5,588,869,120 USD, would be purchased by Gracorp for that amount. The closing procedures contemplated Crisdar providing to Duboff as trustee certain documentation, including valuation and authentication certificates, and Gracorp was to provide Crisdar’s bank and Duboff with an irrevocable bank guarantee for the purchase price within five banking days of the agreement. The funds were to be paid to Crisdar’s bank in Barbados within 15 days of the delivery of the bonds. Not surprisingly, Gracorp never forwarded the necessary bank guarantee.
[118] In late October Laksman, upset at the failure of Gracorp to honour the terms of its agreement with Crisdar, indicated that if funds had not been deposited by October 31st, he would issue a formal demand on the Royal Bank for the return of the bonds which were on deposit. I have no evidence as to whether he did.
[119] On November 14, 1996, the Royal Bank of Canada (Caribbean Corporation) wrote to Crisdar’s director in Barbados, Ms Roach, requesting that steps be taken to collect the securities from their custody, attaching an invoice for $3,000 CAD.
[120] On December 11, 1996 Lysenko, in a long-winded and somewhat wordy letter, wrote to Dr. Albert complaining of the fact that no funds have been received notwithstanding promises to that effect, and sending a copy of his letter of complaint to a list of banks and individuals worldwide complaining about Dr. Albert and Gracorp’s conduct. This was the end of the Gracorp transaction.
(e) Return of the Bonds
[121] After the failure of the Gracorp deal, Laksman testified that he sent a letter requesting the return of his bonds. In return he received from Lysenko a demand for $600,000 USD towards his expenses. Neither letter was filed in evidence.
[122] Laksman testified that the demand comprised a claim for expenses incurred by Lysenko, including telephone calls, travel and other such items in attempting to sell the bonds. Laksman denied that he owed the amount. Lysenko sent back a portion of the bonds, but kept nine Chicago Saginaws and 164 Mariettas, indicating that he would return other bonds to Laksman when he received $600,000 USD. After a number of telephone calls arguing about the amounts, Laksman’s partner, Arakelyan, negotiated an agreement that Crisdar would receive $500,000 USD, but only on condition that the remaining bonds were sent to Dobbins and that the funds would only be paid once the bonds were sold.
[123] A draft agreement to that effect was put in evidence with a date of January 1997. In January of 1997, Lysenko and Murphy attended in Toronto to pick up the bonds and Murphy then went on to Los Angeles, taking the bonds with him. Laksman’s evidence is that he and Murphy had agreed to leave the bonds with Dobbins in accordance with the draft agreement which was to be signed by Murphy on Lysenko’s behalf. After discussions on the first day of their meetings, they had reached an agreement and the matter was to be concluded in the morning. Laksman’s evidence is that the next morning Murphy attended at Dobbins’ premises, removed the bonds and fled for Canada. When he got a hold of Murphy in Toronto, Murphy told Laksman that Lysenko had warned Murphy of a death threat against him and instructed him to return to Canada with the bonds.
[124] Laksman indicated that he then wrote to Lysenko indicating that if he and the other bond owners did not receive all of the bonds, including the nine Chicago Saginaws, he would take legal action.
[125] In July 1997, he sent a further letter to Lysenko and Murphy indicating that the joint venture agreement had expired and that he wished to have return of the bonds placed in the program. Laksman testified that he received some of the Saginaws back through Garmel’s help, was still owed five Chicago Saginaws and a number of Mariettas, which he believed that Lysenko retained or had sold. He had made arrangements to sell the Mariettas for approximately $5,000 apiece and would have been willing to discuss an appropriate agreement with Lysenko, but was unable to do so.
[126] Lysenko’s evidence is that the only bonds which Murphy brought back with him from Los Angeles were two Chicago Saginaws, copies of which were placed in evidence at trial.
(C) COMPLAINT BY LYSENKO AGAINST DUBOFF
[127] On July 8, 1997, Lysenko on behalf of Selta sent three similar letters to Duboff. In the first letter he requested an accounting of the disbursements with respect to $50,000 USD which had been placed in the firm’s trust account on February 9, 1996. In the second letter, he requested the return of the sum of $300,000 that had been placed in the trust account on March 29, 1996, plus accrued interest. In the third letter, he required an accounting of the purchase of shares of Mr. Tube Steak on behalf of Selta and the $30,000 CAD provided to Duboff by Lysenko. Lysenko in his third letter refers to a conversation on June 29, 1997 where the issue of the Tube Steak shares had been discussed, and where Duboff had promised to send a letter explaining the situation. Duboff recalls such a conversation, but does not recall anything else being discussed at that time.
[128] After receiving the letters Duboff called Lysenko and in a memorandum dated July 16th, which he sent to Lysenko, confirms the conversation. He indicates that he was surprised to receive the letter in that Lysenko indicated to him that there were no serious issues in his mind about the firm’s services, or any transactions worked on by Duboff for him. According to the memorandum, Lysenko stated having sent the letters because he had tried to reach Duboff on a number of occasions, had been unsuccessful and Duboff had not returned the calls. According to Duboff, Lysenko had told him to put the three letters away and not to do anything with them, that they were just to get his attention. They had agreed to speak on August 11th when Duboff returned from summer vacation.
[129] On August 12th, 1997, Lysenko wrote to the firm, again asking that it return the amounts deposited in trust. On August 18, 1997, Lysenko wrote to the Law Society of Manitoba seeking its assistance in obtaining the return of the funds. Additional information was provided under cover of letter dated August 19th, August 21st and a Statutory Declaration dated September 4, 1997. After exchange of correspondence between the parties, the Law Society denied the reimbursement claim and the matter has proceeded before the courts.
IV. CREDIBILITY FINDINGS
A. LYSENKO
[130] Lysenko was the plaintiff’s main witness. His mother tongue is Russian. His evidence at trial was at times longer because he needed to explain himself in a manner which is not as direct as it could be. He also displayed a great deal of emotion and was excitable.
[131] Lysenko’s basic position at trial was that he did not authorize the payment of the $300,000 USD from Duboff’s trust account, either directly or indirectly through Murphy, and that he was shocked when he heard that it had occurred. His evidence was that Duboff acknowledged the error and vowed to take all necessary steps to correct it, thereby explaining the long list of measures taken after March 29th to attempt to recover, in Lysenko’s view, his money.
[132] Lysenko was a difficult witness in that he tended to be unresponsive to the questions, preferring to return to his basic position. He had no documents to support a number of his contentions, explaining that he did not write English very well, but also that he relied upon Murphy to do some of his drafting given his limited use of English.
[133] Lysenko’s version of events with respect to the March 29th transfer is inconsistent with documentation surrounding the transfer of the funds on March 29th and subsequent documentation with Grange Trust with respect to the sale to it of the Chicago Saginaws.
[134] His contention that he was unaware of the ongoing discussions with respect to Railway bonds, as he was of the belief that the gold bond transaction was not going to proceed any further from the point that Laksman had increased the price per bond, is inconsistent with Murphy’s continuing involvement with individuals involved in the Railway bond transaction, such as Laksman, Tudhope and Lewy. The phone records indicate that Lysenko was often communicating throughout the months of January, February and March with Garmel. There was no evidence adduced by Lysenko of other ongoing matters he had with Garmel other than the gold bonds. Furthermore, Laksman and Murphy continued to communicate frequently during that same time period, again suggesting that gold bonds were being discussed.
[135] On March 28th and 29th, there was a large number of telephone communications between Laksman and Murphy and between Murphy and Lysenko. While a number may have been exchanges of faxes, it is inconceivable to me that some of those conversations did not deal with the bonds, given the nature of the documentation which was being exchanged at the time between Murphy and Duboff, and between Murphy and other parties. In addition, there were a large number of telephone communications between Murphy and Lewy or Tudhope, individuals who could only have been involved in discussions with respect to placing the bonds in an investment program. If as suggested by Lysenko the gold bond deal was dead, then these conversations would not have taken place.
[136] Lysenko’s version of events is also inconsistent with the activities with respect to the bonds after March 29th. Lysenko was extremely active in attempting to sell or place the bonds as security in order to earn substantial profits. While his evidence was that he had doubts, at least with respect to the Grange Trust sale and the Gracorp sale, given the incredible profit generated, there is no doubt that he was actively involved. His letter to Gracorp in December shows an extremely frustrated and angry man consistent with a belief that this transaction was going to proceed. Contrary to Lysenko’s alleged healthy skepticism as to the genuineness of these deals, the evidence suggests that he had a tendency to become involved in get rich quick schemes of doubtful legitimacy, such as the Nigerian Central Bank and the Gracorp scheme itself. If, as Lysenko suggested, the loss of the $300,000 was a substantial loss to him, which he blamed Duboff for, it is not credible to me that he would have waited over a year to take active steps against him to have the funds recovered.
[137] My view of Lysenko’s evidence is also tempered by three incidents upon which the court received evidence. The first one was evidence from Schachter, a partner of Duboff’s, who testified that when representing Lysenko on a trial dealing with a claim against a local travel agent, Lysenko offered to shape his testimony in the manner which best ensured success. While this may be an interpretation placed on Lysenko’s words by Schachter and that all Lysenko was attempting to do was ask for advice on how to speak to the court, Schachter’s testimony must be taken into consideration.
[138] Secondly, Duboff testified that at a break in the examinations for discovery, Lysenko came to speak to him and made a statement to the effect that if Duboff would only change his testimony and acknowledge the mistake, then Lysenko would be able to collect from the Law Society’s insurance company and would take care of Duboff’s deductible, suggesting that collection from the insurance company was the true motivation behind the lawsuit in the first place. Duboff reported this conversation to his counsel.
[139] Finally, the events surrounding Laksman attending in Winnipeg to testify bears some comment. Laksman testified that after having been subpoenaed, he received a call from Lysenko urging him not to attend as a witness at trial and made comments which Laksman interpreted as threats in the event he did attend. This led to Laksman’s testimony being given with security in the courtroom and with a complaint to the Winnipeg Police by Laksman against Lysenko. This was followed apparently by a cross-complaint by Murphy and Lysenko against Laksman, alleging that they had received threats.
[140] While none of these incidents were definitive in their nature as to the truthfulness of Lysenko during the trial, they reinforce my view that Lysenko’s testimony should not be given a great deal of weight.
[141] I have therefore placed limited weight upon Lysenko’s evidence where it is not confirmed either by other evidence or documents.
B. DUBOFF
[142] Duboff is an experienced commercial lawyer with a background in banking, which assisted him in providing help to Lysenko in dealing with Canadian banks on foreign transactions. However, it should have been obvious to him that Lysenko and Murphy were involved in a scheme which had doubtful if not suspicious business legitimacy. Most of the documentation in this case comes from Duboff’s files (save for the scrap metal deal documentation which surfaced shortly before the beginning of the trial from Murphy). Yet, there are no memos to file and very few confirming letters outlining what steps were being taken at the client’s request. It is not surprising, therefore, that Duboff has very little recollection of the events which occurred around March 29th and what if any advice he was called upon to give or did offer Lysenko.
[143] His letter of explanation to the Law Society with respect to the reasons why he allowed the funds to be transferred out based upon the lengthy relationship between Murphy and Lysenko and frequent payment out of funds without written authorization, proved to be inaccurate. While a great deal of funds were channeled through the firm’s trust account, save for the March 29th payments relating to the gold bonds, payments to Dobbins or to Murphy which were supported by promissory notes and written authorizations, no other funds went to third parties. All the payments were to the client.
[144] In fairness to Duboff, he did not try to present evidence based upon what he could not remember. His evidence was couched in terms of what he would have likely done in the circumstances or his beliefs. His recollection of the events of March 29th do not allow him to state categorically that he had received instructions either from Murphy or Lysenko, but he did state that he believed he would have received an indication from Murphy that the funds could be sent out, failing which he would not have sent out the funds. Duboff’s recollection, therefore, suffers not from a lack of credibility but from a lack of reliability, as it is not based upon actual recollection but a belief as to what likely occurred.
[145] Again, unless supported by documentation and other evidence, I am unable to place much weight upon Duboff’s evidence.
C. MURPHY
[146] Murphy’s evidence suffers from the two candid admissions he made at trial, namely, that as a result of a medical condition his memory of events was erased and that he fashioned his evidence based upon hearing the testimony of Lysenko.
[147] Murphy, as the third party, was entitled to attend throughout the trial and did so. He therefore sat through all of Lysenko’s evidence, including cross-examination. He also heard all of Duboff’s evidence.
[148] When he took the stand, he admitted that he had suffered a serious reaction to a drug, leaving him near death. After this event his memory of past dealings was gone. He was therefore unable to provide direct recollection of what occurred, but responded based upon the documentation presented to him and based upon Lysenko’s evidence which he indicated he accepted.
[149] One portion of Murphy’s evidence which I find difficult to accept in any event is that his interest in assisting Lysenko in some of these attempted transactions was only out of friendship and not out of any specific expectation of profit. He believed that Lysenko would be fair with him at the end of the day, to paraphrase his words. However, the documentation belies that fact. Correspondence with Duboff refers to Laksman as ‘our partner’. Murphy developed and used Crisdar letterhead, copies of which were sent to Lysenko. Draft documents prepared for transactions with Grange Trust show him receiving a portion of the proceeds. Similarly with the Nigerian Central Bank deal, he was instrumental in bringing the matter to Lysenko’s attention, and then was seen to be potentially participating in the benefits.
[150] For these reasons I am unable to place much if any weight upon Murphy’s version of the events, again, unless it is confirmed by other evidence or documentation consistent therewith.
D. LAKSMAN
[151] Laksman’s evidence must be assessed in light of certain facts. Laksman was actively involved in what can only be described as a scheme to obtain money from purchasers or from banking institutions premised upon the very doubtful suggestion that antique railway bonds, payable at one time in gold coins, maintain an inherent value based upon their imputed gold value. He was assisted in that scheme by Dobbins.
[152] I received evidence at trial that Dobbins was the source of a number of cease and desist orders from the Securities and Exchange Commission of the United Sates. Documentation in that litigation filed at trial supports the contention that, at least in relation to the Chicago Saginaw bonds, the bankruptcy of the company in 1873 rendered the bonds valueless and that any company who had taken over the company’s assets denied having any obligation in respect of them. This factual background raises a concern to me as to whether Laksman is a con artist or merely someone who genuinely believed in the valuation of his bonds and thought that he had hit the mother lode.
[153] I also note that Laksman contends that Lysenko and Murphy wrongfully took a number of Marietta and Chicago bonds, for which they still owe Laksman certain funds and for which Laksman has made demand.
[154] However, I accept his evidence as it relates to the manner in which the involvement with Lysenko came about, as it not only conforms to some extent to Lysenko’s own explanation arising from his friendship with Garmel, but is also consistent with the documentation prepared shortly before March 29th, shortly after that date and the telephone records. In particular, his explanation of what the parties had intended to do in the sale of the bonds to Grange Trust and how those funds would be distributed explains in a manner which no other version provided by either Lysenko or Murphy does, why $300,000 USD was forwarded on March 29th and what interest Lysenko obtained in the bonds and in the transaction. Furthermore, his explanation of what transpired after March 29th is consistent with the documentation provided through Duboff’s file.
[155] I do not accept Laksman’s evidence with respect to the events on March 29th themselves, namely, that he was involved in a conference call with Lysenko, Murphy and Duboff, where Lysenko screamed at Duboff and instructed in no uncertain terms to forward the funds from his trust account. If such a conversation took place I believe Duboff would have remembered it and would have certainly recounted it as part of his evidence at trial. The fact that he did not do so leads me to the conclusion that it did not occur, although some variation of the conversation between Laksman and Murphy and, perhaps, Duboff may well have occurred.
[156] I therefore maintain a healthy skepticism towards a great deal of Laksman’s evidence.
E. OTHER WITNESSES
[157] I will not comment specifically on the other witnesses as I found their evidence to be fairly non-controversial and, for the most part, uncontested.
[158] Schachter’s evidence I accept, that he received a request from Duboff to assist him in arranging for funds to be paid out and that he did so late in the afternoon on March 29th. I have already commented on his evidence with respect to Lysenko’s involvement in another matter.
V. FINDINGS
[159] Relying upon the factual background set out above and the credibility assessments made of the main protagonists, I have concluded as follows with respect to the factual issues of this case:
A. SCRAP METAL DEAL
(i) From late 1995 to the end of March 1996, Lysenko and Murphy were actively seeking to put together a scrap metal deal involving shipments of scrap metal from Kenya to Thailand, using the services of Mr. Daniel Schmid of Phonetex;
(ii) By March 29, 1996, the likelihood of a successful transaction not occurring with respect to scrap metal was recognized by both Lysenko and Murphy, given the lack of response from the newly discovered owner of the property to the various offers sent through Murphy’s offices. I also find as a fact that the transaction, if capable of being revived, was not at a stage where payments were going to be required;
(iii) I conclude that the $300,000 USD placed in the trust account of the firm on March 29th by Selta was not for the purposes of advancing the scrap metal deal. I reach this conclusion on the basis that the negotiations had failed and no contract was in sight. There was no need for the funds to be placed into that account at that time if it was for the purposes of that transaction. I do not accept Lysenko’s attempts at trial to explain the manner in which the amount of $300,000 corresponded to the funds that would be required in the event the transaction could go ahead. I note that neither Schmid or Michael Murphy, who were involved in the scrap metal deal, were called as witnesses to testify as to the state of the transaction on March 29th.
B. GOLD BONDS
Pre-March 29th
(i) I find that the introduction of Laksman to Lysenko was through Eddie Garmel, a friend of Lysenko’s, and that it occurred in early January 1996. I also find as a fact that while initial discussions may have been related primarily to German gold bonds, they eventually extended to the Railway bonds.
(ii) Lysenko, using the services of Murphy, continued to be involved in negotiations with respect to obtaining the bonds, and seeking a purchaser or individuals who may be involved using the bonds as collateral.
(iii) In late March 1996, correspondence exchanged between the parties was related to German bonds, but at the same time the parties were also discussing the transaction related to the Railway bonds, and in particular with respect to Grange Trust.
(iv) I accept Laksman’s evidence that the transaction with respect to the two Chicago Saginaw bonds 4180 and 4850 originally contemplated their resale to Grange Trust for the sum of $10 million, and that in order to obtain the bonds from individuals which he knew, using Garmel’s connections, he convinced Murphy and Lysenko to participate in the scheme through the payment of $300,000 USD. The original transaction contemplated Laksman receiving, after another payment of $200,000 for the use of 41 Marietta bonds in a trading program, payment of one-half of the sale price received from Grange Trust, the balance being distributed in approximately equal shares to Crisdar, Garmel and Murphy.
(v) The transaction as between Laksman and Crisdar and Murphy was predicated upon Laksman delivering to Dobbins of Fidelity on March 29th two Chicago Saginaws and 41 Mariettas, all of which were to be kept by Dobbins. He was to issue safekeeping certificates showing in the case of the Chicago Saginaws that the parties interested were Grange Trust, Jacob Laksman and Crisdar, while in the case of the Mariettas it was to be issued in the name of Crisdar and Laksman.
(vi) The telephone records show continuing communications between Laksman and Murphy on dates preceding March 29, including a number of phone calls between Lysenko and Murphy as well. Furthermore, the phone records reveal lengthy conversations between Murphy and Lewy, including a 30-minute conversation on March 27th. Lewy’s only involvement, according to the documentation, was as an individual who could find trading programs using the bonds as collateral. Similarly on March 28th Murphy has a number of lengthy conversations with Laksman, including two which are over 20 minutes in length. On March 29th, the fax line between Murphy and Dobbins at Fidelity was busy on over six occasions. As well Murphy had a further conversation with Mr. Lewy of Stan Lewy & Associates of over twenty minutes long. All these telephone conversations or fax exchanges lead me to the inescapable conclusion that discussions were continuing at great length with respect to gold bonds.
(vii) I find that in the days leading up to March 29th Murphy, with Lysenko’s knowledge, was actively discussing obtaining the bonds for resale to Grange and for placement in an investment program. I find that the placing of the $300,000 in the trust account on March 29th by Lysenko was in furtherance of a plan to forward the funds to Laksman and DDJ Security in exchange for ownership of one bond and participation with Laksman in the resale to Grange and in an investment program.
March 29th and authorization
(viii) I am unable to find from the documentation, nor am I able to infer that Lysenko directly authorized the Duboff firm to transfer the funds. However, I infer from the events that occurred prior to March 29th, on the day in question and in the few days following it that the funds were placed there for the purposes of forwarding to Laksman and DDJ Security in accordance with the routing information provided by Murphy. I also find that Murphy was in contact with Lysenko on a regular basis during that period of time and on March 29th itself, as indicated from the phone records. Contrary to Lysenko’s assertions that conversation was limited to the scrap metal deal or other matters, there was most likely discussion with respect to the state of the gold bond transaction. I also note that there was a lengthy conversation on March 28th between Lysenko and the Duboff office. While there may have been faxes or discussions with respect to the issue of obtaining visas, given the flurry of activity between Murphy and Laksman with respect to the gold bond deals, it is most likely that the matter was discussed at the time. However, I am unable to find on the basis of the evidence that Lysenko would have authorized Duboff in those conversations to release the funds.
(ix) I find that the funds were forwarded from the Duboff office to the Toronto-Dominion Bank and through their channels to the two designated recipients in the late afternoon of March 29th, namely $200,000 to DDJ Security and $100,000 to V&A for the benefit of Laksman. While I am unable to conclude definitively from the evidence that Murphy was aware that the funds had been sent, I would surmise that that was the case given the level of activity between Laksman and Murphy, and between Murphy and Lysenko on the 29th, 30th and 31st of March.
After March 29th
(x) I find that Lysenko did not attempt to call Duboff to complain about the transfer of the funds on April 1st as he contends, nor do I find that in his phone conversation of April 3rd with Duboff he expressed his anger as to Duboff’s conduct. I find that the first time Lysenko complained to Duboff that the funds had been sent out without authorization was in July 1997. I reach that conclusion based upon the continuing discussions between Lysenko, Murphy, Laksman and others, as well as Mr. Lewy, all suggesting attempts to implement what I have described as the Grange Trust sale. While it is conceivable that Lysenko would have been displeased at the payment out of the trust, but would have relented in expectation of receiving the benefit of the sale to Grange, I would have expected that if he had been genuinely upset there would have been some form of documented reaction to Duboff’s alleged error. I also find it difficult to believe that Duboff would have knowingly and expressly advised Lysenko that he would obtain his funds back. If in error in disbursing the funds, Duboff would have recognized his obligations to the Law Society, and in particular to its insurers. Had he failed to report such an error on a timely basis, he and his firm would have lost the protection of the insurance covering negligent acts. I do not accept that he consciously did so on April 3rd.
(xi) I find that Lysenko has in his possession the two Chicago Saginaws and that they have no intrinsic value, save as perhaps a collector’s item.
Mr. Tube Steak
(xii) I find that Duboff invited Lysenko to invest in Mr. Tube Steak. At the time he did so he was a solicitor acting for at least one of the related companies.
(xiii) I conclude from the evidence that he did disclose that he was the solicitor for Mr. Tube Steak. He did not suggest to Lysenko that he obtain independent legal advice.
(xiv) I also find that he did not make Lysenko aware of the distinctions between the various companies at the time of the investment. I also find that Lysenko invested in the company upon Duboff’s representations that the company would be going public. Lysenko did eventually receive shares for his investment and there is no evidence the company has in fact issued its shares publicly. There was no direct evidence presented to the court as to the value of the shares at this time.
VI. ISSUES
[160] The above findings of fact raise the following issues:
(a) Did Duboff or his firm receive authorization from Lysenko or from Murphy as his agent, to disburse the trust funds at issue in this case? If so, what damages flow?
(b) Was Duboff or his firm negligent in the manner in which the funds were disbursed, or did he fail in his duty towards his client? If so, what damages flow?
(c) Was Duboff in breach of his duty to his client with respect to Lysenko’s investment in Mr. Tube Steak? If so, what damages flow?
VII. ANALYSIS
1. PAYMENT OF FUNDS WITHOUT AUTHORIZATION
A. THE PAYMENT OF $300,000 USD ON MARCH 29, 1996
[161] The payment of $300,000 USD on March 29, 1996 represents the major portion of the plaintiff’s claim against Duboff. The plaintiff’s position is simply that Duboff did not have authorization from Selta to make such transfers, that he failed in his duty as a lawyer to preserve and safekeep the client’s property entrusted to him.
[162] A major argument for the plaintiff was that the funds received by Duboff were for the credit of Selta and at no time was there authorization given to Duboff allowing him to transfer to Crisdar’s account or use the funds for the benefit of Crisdar. Law Society rules referred to by counsel suggest that no transfer from the trust account of one client shall be done to another’s without written authorization. No such written authorization was provided.
[163] On the facts of this case I am satisfied that Lysenko was the directing mind of both Selta and Crisdar. There is no serious dispute to that fact. I also find that Lysenko used both corporate vehicles on a regular basis in a manner which he found most advantageous. In accordance with the tax advice he had received from Duboff, the transactions in Canada were generally those of Selta and international transactions were through the Crisdar vehicle. His evidence was that he followed these rules religiously.
[164] While that may have been the case, a suggestion that payment out of the funds by the firm was unauthorized because there had been no written authorization allowing the funds to flow from Selta to Crisdar or to be sent out to Crisdar’s benefit is, in my view, a technicality which does not affect the true legal principles which should apply to this case. That is not to say that it is normal practice to change one corporation for another. On the facts of this case I am satisfied that Lysenko was the directing mind behind the transaction and wished to have Crisdar involved. I also find that he directed the funds to the trust account for use by Crisdar.
[165] It is trite to say that the lawyer owes a fiduciary duty to his client. Where funds are entrusted to the lawyer, such duty includes dealing with those funds in a prudent manner and not to disburse them, save in accordance with the instructions of the client or as authorized by contract or by law.
[166] The evidence is that payments were made from the trust account to Laksman and Hokland on March 29th. The firm had no written authorization from the client or from Murphy to do so. Duboff’s evidence was that he would have relied upon instructions from Murphy which he believed to be authorized by Lysenko to allow the transfer of the funds. He is unable to say what exactly Murphy would have represented to him or instructed him to do, but, using his professional judgment, he concluded that what he had been asked to do by Murphy represented what Lysenko wanted him to do.
[167] Murphy admitted in his evidence that Laksman wanted the funds paid out that day. It is reasonable that that was made known to Duboff. But Murphy denies that he would have given instructions to Duboff to disburse the funds and says that, in any event, it would have been in his mind that Duboff would seek specific instructions from Lysenko, whether verbally or in writing, to release the funds and not do so merely on Murphy’s request.
[168] Contrary to Lysenko’s evidence that the payments were unrelated to any matter for which Duboff’s advice had been sought, I am satisfied from the evidence that there was at the time of the payment a contemplated transaction for which Duboff had been consulted. The payment was consistent with that transaction. There is no direct evidence from which I could conclude that Lysenko had directly authorized payments, nor is there any direct evidence that Murphy had authorized the payment. However, the documentation prior and after March 29th, the flurry of phone calls and Laksman’s evidence, confirm that Murphy was actively involved in requesting that the funds be paid to Laksman and Hokland on March 29th as part of a transaction to gain an interest for Lysenko and himself in that transaction. This begs the question whether Murphy was acting as Lysenko’s agent and whether he had the actual, implied or apparent authority to authorize the transfers.
(i) Actual Authority
[169] While Duboff was entitled, based upon the correspondence such as the March 19th letter which referred to Laksman as “our partner in this business”, to conclude that Murphy was involved with Lysenko in the gold bond transactions, this did not lead to the conclusion that he was necessarily given the authority to authorize the transfer of funds. Murphy drafted documentation using Crisdar letterhead, some of which directly involved Lysenko in the transaction. Presumably, in his discussions with Duboff, Murphy would have made reference to his discussions with Lysenko on the matter. While Duboff was aware of Murphy’s previous involvement with Lysenko, none of the previous dealings were of the same nature nor placed Murphy in such a critical role. Even in the scrap metal deal, Murphy, when requesting funds for his son, had to provide Duboff with documents confirming the transfer.
[170] In this case Duboff forwarded $10,000 USD to Laksman with respect to the German bonds, and then the further sum of $300,000 on March 29th to Laksman and Hokland without any written authorization from Lysenko or verbal authorization from Lysenko to the effect that Murphy could authorize the transfer.
[171] I am not satisfied that Duboff, who has the onus of satisfying the court that there was actual authority given by Lysenko to Murphy to authorize the payment of the sums has done so, nor am I satisfied from the nature of the relationship that such authority could be implied as it cannot be argued that the nature of the relationship between Lysenko and Murphy was such that it would be reasonable to assume that the authorization to transfer funds from Duboff’s accounts came within that authority.
(ii) Agency by Estoppel
[172] The defendant argues that the plaintiff is prevented by the concept of agency by estoppel from denying that Murphy had the necessary authority to instruct Duboff to send the funds. By allowing Murphy to deal with Duboff in respect to the transaction, including the forwarding of documents using Crisdar letterhead, telephone conversations directly between Duboff, and having Murphy provide instructions to Duboff to forward funds to Laksman with respect to the $10,000 deposit on the German bonds, Lysenko created a state of affairs such that Duboff could reasonably conclude that Murphy was speaking with Lysenko’s authority.
[173] In order for the defendant to succeed on this ground, it must be able to show representations or conduct of Lysenko which amounted to a representation to Duboff that Murphy could instruct him in the manner in which he did, and that Duboff relied upon that representation to his detriment. (See Fridman’s The Law of Agency (7th ed.) at pp. 111 – 119.)
[174] The difficulty that the defendant faces is that there is no statement or conduct on the part of Lysenko which the defendant can indicate as being a representation to Duboff by Lysenko that Murphy had the authority to act on Lysenko’s behalf in the way he did.
[175] The use of Crisdar letterhead on letters signed by Murphy may have amounted to some form of representation had it been done on a consistent basis and with the avowed knowledge of Lysenko and Duboff. However, the only other situation where Murphy used Crisdar letterhead and signed letters prior to March 29th, apparently on behalf of the company, was in the scrap metal deal. There was no evidence that those specific letters where he did so were ever brought to Duboff’s attention prior to March 29th. With respect to the letters that were forwarded by Murphy to Duboff on Crisdar letterhead for his revision in the Railway bond transactions, there is no evidence that Lysenko was aware that he was doing so or acquiesced to the use of the letterhead prior to March 29th.
[176] Allowing Murphy to play a major role in the negotiations with Laksman does not, even in combination with other factors, lead to a representation that he was also entitled to deal with trust funds. The fact that he gave directions with respect to a payment of $10,000 as a deposit can only be used as a representation if that was authorized by Lysenko. Again, I have no evidence other than Murphy’s statement in his letter that that was the case. Murphy’s position is that he was still expecting Duboff to receive either verbal or written authorization from Lysenko before proceeding with that transfer.
[177] Therefore, I am unable to conclude from the evidence that there was a representation or conduct by Lysenko which would have allowed Duboff to reasonably conclude that Murphy was authorized by Lysenko to instruct payment in these circumstances.
(iii) Ratification
[178] There remains, however, the issue of agency by ratification. Ratification involves the concept of the principal acquiescing after the fact to the act done by the agent, although the agent did not have the required authority to do so at the time he did it. (See Fridman’s The Law of Agency (7th ed.) at pp. 84 – 110. See also Abbott v. McDougall and Cowans, [1927] 37 Man.R. 135 (C.A.), and Good v. Bescoby, [1913] 23 Man.R. 603 (C.A.).)
[179] Ratification requires:
(a) The existence of a principal at the time the act was done;
(c) That the principal could be ascertained at that time;
(d) That the principal be aware of all the material facts when the ratification occurs; and
(e) That the principal be able to have done the act that the agent did on his behalf.
[180] In this case, in the issue of ratification we are concerned with respect to the agency relationship with Duboff and Lysenko. I am satisfied that there existed a relationship between Lysenko and Duboff created by the solicitor/client relationship and that Lysenko was ascertainable as the client and able to have disbursed the funds if so inclined. I am also satisfied that his conduct after March 29th displays acquiescence of what steps had been taken by Duboff on March 29th.
[181] I am satisfied on the evidence that Lysenko did not complain to Duboff as alleged. In fact, I have found that no complaint was raised by Lysenko with respect to the release of the funds until July 8, 1997. Lysenko also actively participated in attempting to put together transactions dealing with the sale of the bonds or placing them in investment programs, all acts inconsistent, in my view, with opposition to the transfer to Laksman. Furthermore, at no time did he request from Laksman return of the $300,000 USD forwarded by Duboff.
[182] In my view, by his conduct, he ratified the steps that Duboff had taken on March 29th.
B. $10,000 USD ADVANCED ON MARCH 25TH
[183] On March 25, 1996, Duboff received instructions from Murphy in writing to transfer the $10,000 USD to Laksman, which Duboff did. The $10,000 was a deposit on German bonds. Again, the purchase of the German bonds was for the purposes of an investment program from which Crisdar was expected to receive a substantial amount of profit. Agreements were signed with Grange Trust in April with respect to these bonds, although nothing came of the suggested investment program.
[184] There is no evidence of a direct authorization by Lysenko or actual authority in Murphy to authorize Duboff to forward the funds, however, for the same reasons explained above, I am of the view that Lysenko ratified Duboff’s actions. This is evidenced by his conduct whereby he signed agreements with Grange Trust attempting to put these documents into an investment program and never complained to Duboff of the transfer until July 1997.
C. $4,025 USD PAID ON APRIL 3, 1996
[185] On April 3, 1996, Duboff transferred funds from his account of approximately $4,025 USD to Dobbins, in payment of invoices for certificates of deposit issued by Dobbins. While again there is no evidence that Duboff had specific authorization from Lysenko, the conduct of Lysenko serves, in my view, as ratification of Duboff’s actions.
D. RELEASE OF $2,000 USD
[186] The plaintiff originally claimed for return of the $2,000 advanced from Duboff’s trust account to Murphy on March 22nd. That particular claim was withdrawn at the outset of the trial as the documentation showed that Lysenko signed an authorization to Duboff to pay that sum to Murphy.
E. RELEASE OF $8,586.98 U.S. AUGUST 2, 1996
[187] On August 2, 1996, the firm’s bookkeeper signed a letter addressed to Crisdar Barbados at its Barbados address, although Lysenko’s evidence was that it was forwarded to him in Winnipeg. The letter stated as follows (Tabs 125 and 213):
This is to confirm that we have transferred $8,586.98 U.S. which converted to $11,637.93 CAD from the trust account and applied it on outstanding statements, as per attached.
Lysenko testified that he had never authorized this transfer and expressed his displeasure to Duboff shortly after receiving the letter. He indicated that he had never paid for Duboff’s accounts by transfer from trust, but always by cheque. He also testified that this letter was contrary to the understanding that he had with Duboff with respect to recovering his funds. He said Duboff attempted to explain the need for the sending of the cheques due to a request by his partners to bill outstanding time and the fact that Lysenko had the bonds which he had intended to purchase.
[188] Lysenko’s position was that until Duboff had arranged to get his money back there were not to be any further accounts. Duboff’s evidence was that there had been a conversation with Lysenko whereby the latter had consented to the funds being transferred. He also pointed out in his evidence that there was no complaint made with respect to these accounts until one year later in July 1997.
[189] I am satisfied that the transfer took place after statements of account had been submitted in accordance with Law Society rules set out in Practice Direction 89-03. Whether or not Lysenko consented to the transfer, the fact remains that the law firm was entitled upon presentation of its account to transfer funds in trust, unless they had been specifically set aside for other purposes by agreement between the parties and were not the subject of any claim or dispute between the firm and the client.
I discount Lysenko’s evidence on this point given that it is again predicated on the assumption that Duboff was to take steps to obtain his funds, which for reasons set out above I do not accept.
2. DID THE DEFENDANT FAIL IN HIS DUTY OF CARE TO THE PLAINTIFF?
[190] This aspect of the plaintiff’s claim is predicated on the position that the defendant Duboff owed a duty of care to the plaintiff which required him to:
(a) Make reasonable investigations with respect to individuals involved in the transaction relating to the bonds prior to the disbursement of the funds;
(b) To warn the plaintiff of the risk associated with forwarding the funds in the circumstances;
(c) To advise the plaintiff as to the risk involved in the transaction itself.
[191] The defendant’s position on this issue is that Duboff was not retained to perform investigations, to make inquiries, or to advise the plaintiff with respect to the transaction itself. His retainer was limited to reviewing documents, receiving and forwarding the funds. The defendant argues that the plaintiff, who is a sophisticated businessman, conducted his business in his own fashion without assistance from Duboff, or for that matter anyone else, as to the manner in which he did things.
[192] Duboff’s evidence was that his relationship with Lysenko was that he provided help with respect to banking matters and to ensure that the latter’s legal affairs were conducted within the law and convention. He was not involved in the business side of the transaction and was not asked for advice on the business efficacy of deals and never volunteered that advice. He was not always provided with the entire details of a transaction, but was only asked to perform limited tasks such as the preparation of contracts on deals that have already been agreed to, and asked for revisions to documents prepared by others such as Murphy.
[193] The plaintiff relies on the case of Watson v. Johnson, (1990), 66 Man.R. (2d) 10, where the court found an obligation on a lawyer to advise a client of the risks involved in proceeding in the transaction where the lawyer had particular knowledge of those risks as a result of his being involved in prior transactions involving the property. The land was being used in “flips” whereby the values were being inflated upon each transfer, a highly questionable procedure. The lawyer had sought advice from the Law Society and an independent law firm as to the propriety of his dealing and had been advised to withdraw from acting on the file. In finding liability, Mr. Justice Scollin stated as follows at p. 18:
[12] Much of the legal system is predicated on a rather cynical view of the well-springs of human behaviour and by its very nature law brings the lawyer, in many cases, into contact with unpleasant people and also with generally pleasant people who sometimes do unpleasant things. The realization of this is the foundation of the rule in the Code of Professional Conduct that the lawyer must be both candid and honest when advising his client. Paragraph 6 of the commentary on that rule (already quoted from Mr. Taylor's letter) is particularly apposite in this case:
"When advising his client the lawyer must never knowingly assist or encourage any dishonesty, fraud, crime or illegal conduct or instruct his client as to how to violate the law and avoid punishment. He should be on his guard against becoming the tool or dupe of an unscrupulous client or those who are associated with that client."
[13] It follows that, as a general rule, if proper and timely advice might have prevented loss or damage, the responsibility of the lawyer should not be diluted by the moral inadequacies of the client. Law and morals are a highly combustible mixture. Any client, even the most unpleasant and dishonest one, has as much right to receive advice as he has to reject it. Where the client's conduct, if continued, would be dishonest or contrary to law and he rejects the advice, then obviously the lawyer cannot continue to act. In this case, such advice should have been given to Barber and the buyers and sellers as soon as Deans was asked to participate in the civil fraud by deliberately swearing unsupportable affidavits of value and as soon as he began to face the serious conflicts which this manipulative scheme involved.
[194] The case may be distinguished, however, on the basis that there is no evidence that Duboff was made aware at any time prior to the disbursement of the funds that there would be an attempt to sell the bonds for a vastly inflated price to Grange Trust. Murphy was unable to testify that he gave that information to Duboff and Duboff had no recollection that he was aware of the details of the transaction before March 29th. In fact, to the best of his recollection he was not aware of the details of the sale to Grange Trust. Presumably, he would only have become aware when the documentation was forwarded to him some time in early April for his comments. The suspicious and possibly fragile nature of the transaction was only, by the evidence before me, available to him after the disbursement of the funds.
[195] The defendant relies upon Cordery's Law Relating to Solicitors, (8th ed.) F.T. Horne, ed, (London: Butterworths, 1988), at pp. 138 and 147, as support for the position that in the absence of special instructions, there is no duty on the part of the solicitor to advise his clients on matters of business, nor to advise the client on an entire transaction unless specifically retained to do so.
[196] In Silver v. Morris, [1995] N.S.J. No. 111 (C.A.), it was held that the client, a successful businesswoman, was not entitled to rely upon her lawyer to provide her with tax advice when not specifically requested. It was held that there was no duty on the lawyer to provide advice or even to advise the client to seek the expertise elsewhere.
[197] I agree with the defendant’s submission that, for the most part, Lysenko’s requests from Duboff were limited to assistance in obtaining letters of credit, payment of funds out of the trust account, and drafting of particular agreements reflecting the transactions which had been arrived at between Lysenko and his business partners. There is no evidence that Duboff was retained to advise Lysenko with respect to this transaction. In fact, Lysenko’s position at trial was that he was unaware that the transaction was to take place at all, being surprised on April 1st when told that the funds had been disbursed for the purchase of bonds.
[198] Duboff’s position is not helped by lack of any documentation setting out the terms of his retainer or expressing any concern to the client with respect to the payment of funds to a third party without any assurances that the alleged certificate of safekeeping served the purpose for which it was intended. A prudent solicitor may well have:
(a) sought information as to the entire transaction so as to properly advise the client on the nature of the documentation required to safeguard his interests and refused to be further involved if such information was not available;
(b) placed in writing the limited nature of his retainer and the risks involved.
Duboff did neither of these.
[199] While I have characterized that as perhaps imprudence in the circumstances, given the nature of the evidence before me, I find that the plaintiff has been unable to satisfy me on a balance of probabilities that Duboff failed in respect to the duties created by the services which he had undertaken to provide. I am further satisfied from the evidence of Lysenko that he did not seek nor rely upon Duboff’s advice on whether to advance the funds, nor did he instruct Murphy to do so.
3. BREACH OF DUTY WITH RESPECT TO INVESTMENT IN MR. TUBE STEAK
[200] On April 4, 1994, Lysenko provided Duboff with a personal cheque in the amount of $30,000 to purchase shares in an entity known as Mr. Tube Steak. The circumstances surrounding the exchange of the cheque is not the same from both parties. Only Lysenko and Duboff were parties to the conversation. Lysenko’s position is that he was asked by Duboff to invest, while Duboff’s recollection is that he mentioned that he was investing in the venture, as a result of which Lysenko asked that he be allowed to participate. While I have found that Duboff likely invited Lysenko to invest, in my view, nothing much turns on who asked whom. The more pertinent matter is the manner in which the investment was explained and what advice, if any, Duboff provided Lysenko at the time.
[201] Duboff was counsel to one or more of the Mr. Tube Steak corporations carrying on business in Manitoba. His position is that he was not counsel for Mr. Tube Steak Canada Inc., which was the corporation which intended to issue its shares publicly in the future and the company in which he was going to invest. It is without contention that Duboff advised Lysenko that he was investing in the company at the time with the expectation or hope that it would go public in the near future and that a profit could be obtained when the company went public.
[202] Lysenko’s evidence is that he was not aware that Duboff was counsel to Mr. Tube Steak, only that Duboff was going to be investing in the corporation. Nor did Duboff, according to Lysenko, explain that the venture was organized into a number of different corporations and only one was going to be going public, one for which he did not act.
[203] I prefer Duboff’s evidence on this point, namely, that the subject of his acting for Mr. Tube Steak in Manitoba would have likely occurred as a means of explaining why Duboff was investing in the first place and how the opportunity arose. However, I accept Lysenko’s evidence that no explanation was given of the different companies involved and that when he agreed to invest in the company, he was doing so in the belief that he was investing in a company called Mr. Tube Steak, not one of many corporations with that name.
[204] This would be consistent with the conversation which took place in May 1996 on the trip to San Francisco where Duboff pointed out to Lysenko that a Mr. Tube Steak company had gone public, but that it was different from the company in which they had invested. Duboff remembered the conversation but did not recall the specifics. Lysenko recalls specifically that the issue of the difference between the company they had invested in and the company going public was discussed.
[205] As to Duboff being a director of the company, the only evidence on that matter is that he did not become a director until after the investment had taken place and would not have been at the time that he spoke to Lysenko.
[206] Duboff, in the summer of 1997, after an inquiry from Lysenko, did prepare a declaration of trust confirming ownership of 100,000 shares in his name on behalf of Lysenko. The declaration of trust only referred to being a trustee of shares valued at $30,000 without specifying any amount. The amount was later set out in a letter and certificate sent to Lysenko by Mr. Tube Steak Services Ltd., whereby they advised him that he held 130,000 common shares in the name of Selta International.
[207] The plaintiff’s position is that Duboff owed a duty of care to advise Lysenko of his involvement with Tube Steak. Given the potential conflict of interest, he should have advised Lysenko to seek independent legal advice. The defendant’s position is that it was not necessary to send Lysenko to seek independent legal advice as Duboff was not an officer of the corporation, but merely its lawyer and shareholder. The defendant submits that Duboff did not stand to benefit financially from Lysenko’s investment and as such had no personal interest in the company, and that Lysenko had suffered no damages from the investment as he has received shares. Finally, the defendant contends that Lysenko would not have attended upon another lawyer to obtain independent legal advice even had it been suggested to him.
[208] The relationship between Duboff and Lysenko in April 1994 was that of a solicitor and his client, and while Duboff had not accepted a retainer from Lysenko with respect to advising him on the investment in Mr. Tube Steak, the fact that he was representing him in other matters created a fiduciary relationship which required that he be careful in his dealings with Lysenko in this matter. The fact that he represented Mr. Tube Steak and was a potential investor created, in my mind, a sufficient interest on his part which would be viewed as a conflict with Lysenko’s interests. The suggestion that Duboff had no interest in whether or not Lysenko invested in the company was not the subject of evidence before me. There was no evidence as to the financial status of the corporation and whether it was actively seeking investment for reasons of financial stability. Schachter’s evidence was that this was a highly speculative investment, which has been borne out.
[209] In my view, Duboff created a situation where he was obligated to advise Lysenko specifically of what the nature of his investment was, namely, in what corporation he was investing as opposed to simply suggesting it was a venture. He could not rely upon Lysenko’s alleged sophistication as Lysenko’s experience in business was not related to the sale and purchase of shares on the stock market. Any sophistication he did have was with respect to international trade transactions. Apart from advising Lysenko of the exact nature of the transaction, which I am not satisfied from the evidence that he did, it was also incumbent upon Duboff to suggest to Lysenko that he obtain independent legal advice.
[210] The defendant’s position is that Lysenko would have refused to consult another counsel. The defendant relies upon the following excerpt from the evidence of Lysenko where he is asked as follows:
Q. Okay. At the time that you made the investment did Duboff make any suggestions to you?
A. No. He was my partner. What he, would he want to suggest to me? I don’t understand.
Q. Okay, did he suggest that you go see another lawyer?
A. No.
Q. Did he suggest that you go see a financial adviser?
A. No. He know I never do this. He tell me I never will do this. I trust him. He invite me be a partner. I go.
[211] The manner in which the need for independent legal advice would have been explained to Lysenko may well have affected his view, especially if the exact nature of the investment was explained to him.
[212] I cannot accept the evidence proposed as being conclusive that Lysenko would not have obtained independent legal advice if advised to do so by Duboff, nor that he would necessarily agree to the purchase of the shares had the differences between the companies been explained to him.
[213] The onus of proving that this would have occurred is upon the defendant and I am not satisfied that they have met that burden. In the circumstances, Duboff was in breach of his fiduciary duty to Lysenko.
VIII. DAMAGES
[214] The plaintiff’s claim for damages was set out in a brief filed as part of the exhibits at trial and supplemented. They are as follows:
(1) Expenses with respect to the claim for unauthorized release of trust funds:
(a) $10,025 USD with respect to the release of trust funds on or about May 25, 1996 to Laksman, together with interest thereon;
(b) $300,000 USD relating to the release of trust funds on March 29, 1996 to Laksman and DDJ Security, together with interest;
(c) $4,025 USD with respect to the release of trust monies on April 3, 1996 to Dobbins;
(d) $8,586.98 USD with respect to the transfer of trust monies on August 2, 1996 towards payment of outstanding accounts;
(e) $289 USD with respect to the release of trust funds on February 23, 1996, March 19, 1996 and April 1, 1996.
(2) Expenses claimed with respect to steps taken by Lysenko and his companies in order to recover the $300,000 USD, including:
(a) Telephone expenses of $4,346.50;
(b) Travel to San Francisco in May of 1996 - $3,899.55;
(c) Travel to Toronto - $1,197.33;
(d) Payment to Customs Canada in Toronto - $1,717.75;
(e) Amount paid to the Royal Bank (Caribbean Corporation) to act as a custodian - $4,130.00;
(f) Telephone expenses for January 1 to December 31, 1997 - $2,465.03.
(3) Lysenko’s investment in Mr. Tube Steak – the amount of $30,000 plus interest.
(4) A claim for loss of opportunity and profit was abandoned at trial.
DAMAGES WITH RESPECT TO MARCH 29TH TRANSFERS (Items 1(b) and 2(a–f)
[215] With respect to the damages for the payment of $300,000 from the trust funds and other related amounts (items 1(b) and 2), having found that Lysenko was aware of the impending transactions with Laksman and ratified Duboff’s transfer of the funds, then the plaintiff’s claim for this aspect of damages fails.
[216] If I am wrong on the ratification issue, I am of the view that Lysenko was actively involved in pursuing the bonds and wishing to participate in the sale to Grange Trust, and acquiesced to the payment of $300,000, certainly after March 29th. He received bonds, which he holds today, and therefore has suffered no damages which are related to Duboff’s actions. No loss arises from his own attempts to obtain valueless documents.
[217] If I am incorrect in my assessment of his evidence and that he in fact never contemplated purchase of these bonds, then the damages would be as claimed under this heading together with interest starting on July 8, 1997, when he first made demand for the return of funds.
OTHER TRANSFERS FROM TRUST (Items 1(a), (c), (d) and (e))
[218] For the reasons outlined previously, I do not believe that the plaintiff has a claim against Duboff for payments made out of trust, either because Lysenko ratified the payments at a later time or the payments were authorized at the time they were made.
OVERPAYMENT ON ACCOUNTS AND CASH PAYMENTS
[219] In its revised brief as to damages, plaintiff’s counsel set out a claim for $15,000 which it is argued was given in cash to Duboff and not credited against the accounts. While it was Duboff’s evidence that from time to time he received cash towards accounts, it was also his evidence that the amount was either deposited in his trust account or applied against outstanding accounts. The plaintiff has not proven that any of these amounts were not accounted for other than the possibility of an amount slightly over $300 taken out for a trip to Chicago by Duboff involving the Nigerian Central Bank transaction. Duboff could not recall whether that amount was returned to trust or what became of it. I am not ready in these circumstances to find that Duboff did not make a proper accounting of it either to his accounting department or in other fashion with the client.
DAMAGES IN RESPECT OF MR. TUBE STEAK (Item 3)
[220] On the issue of the investment in Mr. Tube Steak the considerations are different.
[221] I have found that Duboff was in a fiduciary relationship with Lysenko with respect to this investment and that it was incumbent upon him in those circumstances to inform him fully of his own involvement in the corporations, and to advise him to seek independent counsel.
[222] There is no direct evidence as to the current value of those shares, although an indication can be had of the fact that Duboff in his own testimony indicated that he had written off his investment as a loss. In the circumstances I think it would be appropriate to assume that the shares have no marketable value.
[223] There is some debate in the jurisprudence as to how one should assess damages in the case of a breach of duty by a fiduciary. (See Canson Enterprises Ltd. v. Boughton & Co., 1991 CanLII 52 (S.C.C.), [1991] 3 S.C.R. 534.) In discussing the developments of the law and in particular commenting upon Canson, Freedman J.A. in Blanco v. Canada Trust Co. [2003] M.J. No. 153, commented that there are different remedies depending on the nature of the conduct which is seen as inappropriate. At para. 59 he stated:
… On the state of the evidence the conduct of Canada Trust appears to lie closer to the low end than the upper end of a continuum of conduct calling for a remedy. At the low end one might find cases of simple negligence, where a remedy of a restitutionary nature would be limited by principles of causation and remoteness. At that point on the spectrum the plaintiffs' loss would be seen, from a common sense perspective, to have nothing to do with Canada Trust's alleged failure, or breach of duty. At the upper end, the remedy, also restitutionary in character, would likely be premised on a finding of improper, deceitful or fraudulent conduct, or the like, and might involve disgorgement of benefit. At worst, so it appears, Canada Trust committed an act of negligence, with no allegation of improper conduct even being made. This could call for the application of traditional principles of remoteness and causation. …
[224] The facts in this case are not one where there has been an egregious abuse of position by a solicitor towards his client, nor is this a situation where the client was particularly vulnerable to entreaties by his solicitor, or where the solicitor was seeking to obtain a benefit to which he was not entitled. At most it can be said that Duboff was attempting to offer an opportunity to a client whose business he wished to develop in an investment from which he may himself recoup a benefit if the project was successful.
[225] Nevertheless, I am of the view that there was a fiduciary duty which was breached and that in this case the cause of the loss to Lysenko can be related to the failure to abide by the duty. Accordingly, a restitutionary approach is the appropriate one in the circumstances and I find that Lysenko is entitled to recovery of the sum of $30,000.
[226] As to interest, the letter sent to Duboff on July 8, 1997 does not demand return of the sum, but rather an accounting with respect to the purchase of the shares which was provided by Duboff. Even in the statutory declaration of September 4, 1997, at paragraph 6 the plaintiff does not seek return of the funds, but rather seeks assignment and transfer of the shares in a declaration of trust to him, or if the shares have not been purchased, then return of the funds.
[227] The first indication before the court of a claim being advanced by or on behalf of Selta by Lysenko for the return of the $30,000 is in its brief to the Reimbursement Fund of the Law Society of Manitoba on May 5, 1998. Accordingly, it is from that date only that I would grant pre-judgment interest to Lysenko for the $30,000 invested in Mr. Tube Steak. These shares should be assigned to Duboff as it would only be fair that he be entitled to whatever value the shares may have at this time.
IX. COSTS
[228] The plaintiff seeks solicitor and client costs. Given the only breach that I have found, I do not believe that this is an appropriate case for solicitor and client costs. In light of the relative successes of the parties in this case, namely that the vast amount of the trial was spent with respect to claims advanced by the plaintiff which were unsuccessful, the defendant is entitled to costs less an adjustment for that portion of the trial for which the plaintiff was successful. I therefore award the defendant 75% of its costs. If the parties are unable to agree as to what that amount should be, they may speak to the issue.
X. THIRD PARTY CLAIM
[229] The defendant has third partied Murphy, alleging that Murphy held himself out as Lysenko’s agent and that Duboff relied upon those representations when disbursing the funds. If the court finds that Murphy was not so authorized, then it claims against Murphy for breach of warranty of authority.
[230] While I have concluded that Duboff was under the impression that Lysenko wanted to have the funds transferred out on March 29th, I am not satisfied from the evidence that Duboff has proven that Murphy gave him specific instructions to do so without confirming with Lysenko.
[231] It is unlikely that Duboff would have forwarded the funds without believing that he had the instructions to do so from Lysenko, or from Murphy on Lysenko’s instructions. It does not equate with a conclusion that Murphy made a direct representation that Lysenko had authorized him to instruct Duboff to transfer the funds.
[232] The concept of ratification would also apply to this portion of the claim since, if there was a representation by Murphy that he was authorized to instruct Duboff to forward the funds but was not in fact authorized, then Lysenko’s conduct after March 29th would have served as ratification for Murphy’s actions.
[233] For these reasons, I will dismiss the third party claim.
[234] Murphy was not represented by counsel at trial, however, he did have counsel represent him at the early part of the matter. If Murphy wishes to advance a claim as to costs, those costs will be assessed against the plaintiff. If there is no agreement, I will hear the parties.
XI. CONCLUSION
[235] In summary, the plaintiff will have judgment against the defendant for the sum of $30,000 plus pre-judgment interest from May 5, 1998. All other claims by the plaintiff are dismissed, as well as the third party claim.
________________________
Monnin, C.J.
Docket: CI 98-01-06977
Indexed as: Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter
Cited as: 2004 MBQB 116 (Winnipeg Centre)
COURT OF QUEEN’S BENCH OF MANITOBA
B E T W E E N:
SELTA INTERNATIONAL TRADE INC.,
plaintiff,
- and -
DUBOFF, EDWARDS, HAIGHT & SCHACHTER,
defendant,
- and -
PATRICK MURPHY
third party.
Renald Guay and
Remi Smith
for the plaintiff
Richard Schwartz,
Marlaine Lindsay
and Cynthia Lau
for the defendant
Patrick Murphy
in person
JUDGMENT DELIVERED:
MAY 7, 2004
MONNIN, C.J.
I. INTRODUCTION
[1] The plaintiff, Selta International Trade Inc. (Selta), claims against its solicitors, the defendant Duboff, Edwards, Haight & Schachter (the firm), for damages it alleges arose from the unauthorized disbursement of funds it had deposited with the firm. It also claims for damages resulting from the purchase by Selta’s principal, Mr. Alexander Lysenko (Lysenko), of shares in a company which Mr. Neil Duboff (Duboff), a partner with the firm, had arranged. The defendant firm denies that the payment of any funds from its trust account were unauthorized. In the alternative, it third parties Mr. Patrick Murphy (Murphy) claiming that Murphy represented himself as the plaintiff’s agent and that it acted upon instructions from him. Murphy denies that he held himself out as the plaintiff’s agent and says that at all times the firm was aware that he did not have the authority, either express or implied, from Selta to authorize the payment of the funds.
[2] As to the purchase of the shares, the firm says that any investments made by Lysenko were not as a result of any improper conduct on the part of Duboff.
[3] This trial was unusually lengthy, arising from the fact that insufficient time was allocated for the hearing of the evidence. I do not say this as a criticism of counsel, only that the evidence of Lysenko was so lengthy that estimates of time agreed to between counsel were completely inaccurate. After the completion of the first three weeks of trial and Lysenko’s evidence, then counsel for Lysenko moved to withdraw as solicitors of record.
[4] I heard that motion and allowed them to do so (see Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter, 2001 MBQB 287 (CanLII), [2001] MBQB 287). There was then some delay required for the plaintiff to obtain alternate counsel. Again, when the matter resumed we were unable to complete all of the evidence within the time allowed, for a number of reasons unrelated to the parties themselves. The evidence was then completed on the third resumption of the trial.
II. THE PARTIES
(i) SELTA, CRISDAR AND LYSENKO
[5] Selta is a Manitoba corporation. Lysenko is the president and his wife is the sole shareholder. There are no other directors or officers other than Lysenko and the evidence satisfies me that he is and always was the directing mind of the corporation.
[6] Lysenko was born in Russia, lived most of his life there and in the Ukraine until 1977, when he emigrated to Europe. After a few years in Europe he left for Winnipeg in March 1979. After a short period of time working in a number of odd jobs, he built his own house and found that he could resell it at a profit. He launched himself into the construction of houses for resale, building and reselling approximately eight to nine houses over the next few years.
[7] In 1989, after a trip to Russia, he decided to become involved in the buying and selling of goods to and from countries in the former Soviet Bloc. During the course of those transactions, he learned the use of letters of credit and was introduced to Murphy, with whom he developed a friendship. In one transaction involving the sale of Chinese telephones to Russia, Murphy was the one who located the telephones to be sold and was offered a small percentage of the profit.
[8] In 1993, in the course of his international transactions, Lysenko’s bank account received substantial funds from diverse foreign locations. Those large sums were often quickly transferred out to pay for the transactions in which Lysenko was involved. Selta’s bank at the time, the Toronto Dominion Bank, was raising questions as to the source and purpose of these large amounts and indicating to Lysenko that they may prefer not to have him conduct his business through their institution. Duboff attempted to calm the bank’s fears as to the genuineness of the transactions in which Lysenko through his corporation Selta was involved, but was unable to do so. As a result he arranged with the Royal Bank to make its services available for Selta.
[9] In that time frame, Duboff arranged for the creation of Miralex Barbados Trade Corporation (“Miralex”). The corporation was incorporated in Barbados as an offshore trade corporation in order to obtain tax advantages. As Selta’s business was not connected to Canada but involved the trading of commodities from one foreign location to another, it wished to avoid having to have the profits from the transactions taxed in Canada. On Duboff’s advice, a Barbados trade corporation was created. Lysenko’s understanding was that it was important that Selta, as sole shareholder of Miralex, not be connected to the transaction for fear that the Canadian government would view it as carrying on business in Canada and subject Selta to Canadian taxation. The name of the company was subsequently changed to Crisdar Barbados Corporation (Crisdar). It is also beyond dispute that Lysenko was the directing mind of Crisdar.
(ii) DUBOFF
[10] Duboff, whose practice was in corporate and commercial law, first became Lysenko’s solicitor when he was asked to help in transferring Lysenko’s business from one bank to another.
[11] From 1993 onward, Duboff acted for Lysenko on a number of transactions. The nature of his retainer varied, but in general terms his services were drafting, reviewing and advising on documentation, arranging for letters of credit and, in some instances, receiving the funds in his trust account for payment out to Selta. Duboff claimed that he was not involved in any of the business decisions, nor did he review the transactions as to their business efficacy.
[12] Duboff advised Lysenko to utilize the firm’s trust account for purposes of payments to and from points overseas if it would facilitate the transactions, ensuring Lysenko that the trust account was safe from overview by tax authorities.
[13] From 1993 Duboff allowed Lysenko to use the firm’s trust account to process funds for his international transactions. According to Lysenko, which was not disputed by Duboff, the funds were forwarded to the firm’s trust account and Lysenko would provide instructions to Duboff as to where the funds were to go. In that fashion, according to Lysenko, there would be no questions raised by banks involved as to the source of the funds.
[14] That is not to say that all of the transactions with which Lysenko was involved were funneled through the firm’s trust account. After speaking to his bank manager in 1994, he realized that he was paying the law firm for the costs of directing the funds when it could be done by his bank at a lesser charge. From that point on, Lysenko would sometimes provide instructions to his bank manager, Ms Rubigny, and confirm them in writing.
[15] The use of the firm’s trust account was not limited to situations where Duboff was being consulted or was involved in the transaction. In some cases it was done as a convenience for Selta in order to avoid any potential scrutiny by the banks with respect to the funds being channeled.
[16] Whether this is an appropriate use of a trust account is not an issue before me, although it does indicate the extent to which Duboff went to accommodate the client.
(iii) MURPHY
[17] Murphy was a local businessman. Through his corporation, Caribou Ventures Limited, he was involved in a number of ventures, some of them in which he attempted to interest Lysenko.
III. REVIEW OF EVIDENCE
(A) PRIOR DEALINGS
(i) MR. TUBE STEAK
[18] In early April 1994, Lysenko and Duboff had a discussion with respect to a company known as Mr. Tube Steak. At the time Duboff was corporate counsel for a group of companies using the name Mr. Tube Steak. The companies were involved in the retail sale of hot dogs from vendors on the street. They were also involved in the manufacture of the carts from which the hot dogs were sold and franchising the business. Duboff did not recall precisely which companies in the group he acted for, but did act for one or more of them.
[19] All of the companies were privately held, but one of them, Mr. Tube Steak Canada Inc., was in the process of issuing shares and was contemplating being listed on a stock exchange. Duboff did not act for that corporation, but he and Mr. Schachter (Schachter), a partner in his firm, were planning to invest in the company. The expectation of Duboff, as represented to Lysenko, was that the company would be listed on a public stock exchange shortly and the value of the shares would increase at the time of the public offering.
[20] The circumstances surrounding Lysenko’s involvement are somewhat contradictory. Duboff either invited Lysenko to invest in the company or as a result of mentioning his potential investment was asked by Lysenko if he could invest as well.
[21] On April 4, 1994, Lysenko provided Duboff with a personal cheque in the amount of $30,000.00 to purchase shares in Mr. Tube Steak. The cheque was made out in blank as to the payee, but it was filled out by Duboff in his name a few days later when he deposited it into his personal bank account. He then wrote his own cheque for $30,000 and provided it to the company to subscribe for shares in Mr. Tube Steak Canada Inc., in addition to the $30,000 invested jointly between himself and Schachter.
[22] Duboff later became a director of Mr. Tube Steak Canada Inc. While a related company went public in 1996, Mr. Tube Steak Canada Inc. never did. In July 1997, as a result of receiving a letter from Lysenko complaining that he had received no accounting for the $30,000 cheque, Duboff forwarded to him a declaration of trust indicating that he held shares in Mr. Tube Steak Canada Inc. in trust for Lysenko. Lysenko’s evidence was that there was no distinction drawn between the various companies when he was asked to invest and he was of the impression that he was investing in a venture by the name of Mr. Tube Steak. It was only at a later time in 1996 that he became aware from comments made by Duboff that different companies were involved using the name Mr. Tube Steak, and that the company that had gone public was not the one in which the shares had been purchased.
[23] At the end of the day, the company in which Lysenko held shares has never gone public.
(ii) THE NIGERIAN CENTRAL BANK
[24] Some time in 1994 Murphy was approached by a local acquaintance, Barry Phillips (Phillips), who was aware of an Alberta corporation, McSorley Holdings Ltd., that had entered into a contract in Nigeria to supply a prototype concrete block machine. The principal of the company was one McSorley (McSorley).
[25] When the corporation agreed to the contract, it was asked to send a representative to Nigeria to conclude it. McSorley went. Upon arrival, he was presented with a contract which was substantially larger in dollar terms. He concluded that the Nigerian group wished to piggyback their commercial contract upon his, with the payments to be made out of the country. He agreed to the arrangement on the understanding that he would receive extra remuneration. Upon his return to Canada, he was sent documentation whereby he became aware that there was a request for a value added tax payable up front. The original amount for the value added tax was $1 million USD, which was reduced to approximately $408,000 USD.
[26] Attempts to have the value added tax deducted from the payments to be made by the Nigerian Central Bank were not successful, at which time McSorley concluded that what was truly being asked was for his company to pay to arrange for the payment out of the country. McSorley then proceeded to locate sources of funds to pay the proposed value added tax by letter of credit. Through Phillips he obtained the assistance of Murphy and, eventually, Lysenko.
[27] Duboff became involved in the latter part of 1994. He prepared documentation to act as an escrow agent and attempted through correspondence with the Nigerian representative to arrange for the payment of the contract price, namely $50 million USD, to his firm in escrow for disbursement to Mr. McSorley. Duboff was unclear as to how the transaction was structured. Documentation on his file shows a direction providing for payment to various individuals from the funds that the firm would eventually receive in escrow from the Nigerian Central Bank. From these funds, McSorley would receive the bulk with the rest distributed to various payees, including $2.2 million USD to Lysenko’s then Barbados based company.
[28] The transaction was never completed, primarily because the Nigerian individuals were always requesting funds be paid in cash or by way of transfer in advance of any monies being transferred to Duboff in escrow. At one point an individual claiming to be an officer of a London bank with Nigerian connections offered to assist in the transaction for the payment of $1 million USD to himself, in other words a bribe.
[29] It is clear from reading the documentation that the entire scheme was a sham, with a view of arranging for payment of funds in advance for a non-existent government contract. Duboff had some investigations done by members of his firm in the early part of 1995 after receiving some indication from another local lawyer that these transactions were of dubious origin. It should have been clear to anyone involved that the transaction was not a legitimate one. However, the possibility of substantial monies being paid for no apparent reason appeared to be too enticing for Murphy and Lysenko to give up.
[30] Lysenko’s evidence that he was not involved in these transactions is inconsistent with the documentation confirming that the original contact was with Murphy who would have gotten Lysenko involved, and with the authorization in Duboff’s file suggesting a payment to Lysenko’s Barbados corporation, which could only have been prepared in consultation with him.
(iii) THE SCRAP METAL DEAL
[31] In November 1995, Murphy had discussions with an acquaintance of his in Nairobi with respect to the potential sale of scrap metal from Kenya. Originally 250,000 metric tonnes of scrap metal was to be purchased. While Lysenko did not have experience in dealing with the sale of scrap metal, one of his business contacts, Daniel Schmid of Phonetex in Switzerland, did have the necessary contacts. Lysenko arranged for Murphy and Schmid to communicate and discussions were pursued. Murphy was to use his contacts in Nairobi to pursue discussions with the owner of the scrap metal.
[32] As a result of investigations conducted by inspectors on the part of Phonetex and Crisdar, it became apparent that the amounts of scrap metal promised were not located on the vendor’s premises or were not suitable for what was intended. Eventually, an amount much smaller than originally contemplated, some 12,000 metric tonnes, was considered to be suitable from the vendor’s premises. Phonetex used its contacts in Thailand to arrange for the potential sale to a large manufacturing concern in that country.
[33] Murphy, with Lysenko’s approval, drafted documents for the sale and asked Duboff to review the proposed contract between Phonetex and Crisdar Barbados, which contracts had Crisdar purchasing the scrap and reselling to Phonetex.
[34] The transaction required that the scrap metal be cut into specific sizes. On February 15, 1996, Murphy faxed to Duboff a request that he prepare a letter of credit, the proceeds of which were to be used for the cutting for a certain portion of the scrap. Duboff arranged for the letter of credit through the Toronto Dominion Bank for the sum of $30,000, which letter of credit was set to expire on March 15, 1996. Duboff used funds which were deposited into his trust account by Lysenko in January 1996.
[35] The transaction did not proceed smoothly. On March 14th the letter of credit was extended to March 31st, as the scrap had not yet been cut or prepared for inspection.
[36] By that time, Murphy had arranged for his son Michael to attend in Nairobi to supervise the cutting and also to meet with the ultimate purchaser’s representatives who wanted to view the merchandise.
[37] On March 22nd, Duboff faxed a letter to Lysenko requesting authorization from Crisdar to allow his firm to pay Murphy $2,000. Upon the signing of the authorization by Lysenko, Duboff gave Murphy the amount from trust which was wired to Murphy’s son in Kenya.
[38] Meanwhile, in Nairobi, the property on which the scrap metal was located was sold to a third party, Kiambi Ltd., who purported to have the sole right of sale of the scrap metal. Previous dealings with the Nairobi middleman were for naught and Murphy, acting for Crisdar, had to recommence negotiating with this new party. In the last few days of March, a number of offers were forwarded to this new entity, Kiambi Ltd., with an increasing price for the scrap metal.
[39] On the other side of the transaction, Schmid on behalf of Phonetex and his contacts from Thailand were becoming increasingly agitated by the fact that the transaction did not appear to be proceeding according to plan. No final document had been signed because Murphy had been unable to conclude the transaction with the actual owner of the scrap.
[40] On March 28, 1996 Murphy, under the letterhead of Crisdar Barbados Trade Corporation, sent a final offer to Kiambi Ltd. for the scrap metal with the offer expiring at 5:00 p.m. Nairobi time on Friday, March 29, 1996.
[41] Kiambi never responded to the final offer. Notwithstanding increasing attempts and entreaties from Mr. Schmid and his Thai contact, Murphy was not able to obtain Kiambi’s concurrence to sell for the price he wanted or to find replacement scrap. In any event, it would appear that a deal was not in place by March 29, 1996. This is of significance since Lysenko’s position throughout his evidence was that funds that were placed into the firm’s trust account on March 29, 1996 were placed there in order to pursue the scrap metal contract. The fact that the contract was not in place by that date does not preclude the possibility that the funds were placed there for that purpose, however, it is unlikely that Lysenko would commit such a large sum for an unspecified length of time.
(B) EVENTS RELATING TO MARCH 29TH TRANSFER
(i) GOLD BONDS
[42] Gold backed bonds play an important part in the dispute between the parties. To properly appreciate the evidence provided during the course of these proceedings, it is important to have an understanding of the nature of these bonds.
[43] There are two different types of bonds which are at issue in this case, the first being described as German bonds (German bonds) and the second category being gold backed railway bonds (Railway bonds).
[44] The German bonds were issued by the German government after the First World War or by one of its agencies through American banks, with the guarantee of the United States government, and were repayable in gold coins.
[45] Railway bonds were bonds issued by now defunct railway companies with the annual payments and interest all payable in gold coins. The bonds of two companies were at issue here, namely, the Chicago Saginaw and Canada Railway Company First Mortgage Gold Bond (the Chicago Saginaw bonds), and the Marietta and North Georgia Railway Company 6% First Mortgage Consolidated Gold Coin Bond (Mariettas). As their name implies, these were bonds whose principal and interest were payable in gold coins.
[46] The bonds would have some value as historical documents. However, they were touted by their vendors as having a far greater value based upon their face value and valuations performed by an alleged expert in the area, Mr. Gerald Dobbins of Fidelity Secured Mortgage and Deposit Co. (Dobbins). Dobbins would provide a valuation of the bonds, using the value of the gold due as payment under the bonds. Given today’s price of gold and the accrued interest the amounts were quite staggering, running in the millions of dollars for each bond.
[47] The vendors also tried to persuade potential purchasers to become involved in a “trading program” which involved using the bonds as collateral with an established bank to obtain a line of credit. The proceeds of the line of credit would be used for an aggressive investment program paying substantial amounts of interest.
[48] Suffice it to say that the premise upon which these bonds’ value was determined should have raised suspicions with anyone who had a modicum of understanding of investments and the operation of bonds.
(ii) EVENTS PRIOR TO MARCH 29, 1996
[49] Lysenko had an acquaintance, Eddie Garmel (Garmel), a friend of his from the Ukraine who had emigrated to the United States and lived in Los Angeles.
[50] In January 1996, Garmel called Lysenko to interest him in the purchase of gold bonds. Garmel had become aware of these bonds through his dealings with Mr. Jacob Laksman (Laksman), also of Los Angeles, with whom he was involved in purchasing cars for resale in Ukraine. Garmel explained to Lysenko that the bonds were a good investment and apt to be resold quickly for a profit. Lysenko, having no knowledge of these matters, involved Murphy and described Murphy as his partner to Garmel and Laksman. Lysenko’s evidence was that the initial approach was with respect to German bonds, while Laksman says that from the start the discussions were with respect to Railway bonds, namely, the Chicago Saginaws and the Mariettas which he had in his possession or to which he had access.
[51] The documentation does not support Laksman’s recollection, as the first document with respect to gold bonds is a draft letter dated March 19, 1996 sent by fax from Murphy to Duboff referring to the potential purchase of German bonds. The letter states that Lysenko had authorized payment of $10,000 USD to Laksman as a refundable deposit on the purchase of some 325 German bonds at a purchase price not to exceed $2,000 USD per bond. According to the letter Laksman was to provide information, including a list of bonds and a colour photocopy from each bond series with the coupons attached. Once the list of bonds and the photocopies were sent to Murphy, $10,000 USD was to be wired to a Los Angeles bank for credit to Laksman’s company.
[52] Upon receipt of the list and copies, Murphy was to have the bond numbers checked to verify their authenticity. Upon verification the bonds were to be placed in safekeeping with a U.S. bank. Once the bonds were placed in safekeeping, a letter of credit for the full purchase price less the deposit was to be provided by the purchasers.
[53] A notation on the bottom of the letter asks Duboff to call Murphy. Neither Murphy nor Duboff recall a conversation relating to this document, but the next document dated March 20, 1996 was sent to Laksman asking that if the terms met with his approval he sign the document and return it to Duboff, with the further notation that upon receipt of the signed copy Duboff would wire the $10,000 USD. In Duboff’s file there is a document suggesting that the March 20th document was returned on March 22nd by Laksman, with his signature showing acceptance on his behalf and on behalf of D.F. Hokland for D.D.J. Security Trust and an amendment to the price per bond from $2,000 to $3,000 USD.
[54] On March 25th, Murphy sent Duboff a fax requesting that he wire the $10,000 USD. This would suggest that an agreement was concluded between the parties. This is contrary to Lysenko’s evidence, which was to the effect that upon hearing from Murphy that the price for the German bonds had increased to $3,000, he advised Murphy to throw the document into the wastepaper basket as there would be no deal.
[55] On March 29th, Murphy faxed to Duboff a draft letter dated March 28th addressed to Dobbins, using a Crisdar Barbados Trade Corporation letterhead but signed by Murphy. The letter says it encloses copies of two bonds:
(a) Chicago Saginaw Canadian Railway Company First Mortgage Gold Bond No. 1108;
(b) Marietta and North Georgia Railway Company 6% First Mortgage Consolidated Gold Bond No. 2399.
[56] The letter states that Laksman holds forty other similar Mariettas, each with a gold value in the range of $10,000 to $12,000 USD per bond. Dobbins is asked to authenticate and value both bonds, the originals of which Laksman is to deliver immediately upon his request.
[57] Once authenticated, Laksman is to place the original Mariettas in safekeeping with his firm and a certificate is to issue in the name of Crisdar Barbados Trade Corporation. The bonds could then only be withdrawn on Murphy’s signature.
[58] Later on March 29th a similar draft letter is faxed to Duboff, with the number of bonds having been increased to two Chicago Saginaws and forty Mariettas to be delivered by Laksman to Dobbins on the same date. Once the Chicago Saginaws were authenticated, they were to be kept by Dobbins and a certificate issued in the name of Grange Trust Limited, Laksman and Crisdar. The receipt was to be provided to Laksman. Once Laksman had placed the 40 Mariettas in safekeeping with Dobbins in exchange for a certificate to be issued jointly in the names of Crisdar and Laksman or the latter’s nominee, the bonds were to be withdrawn only with two signatures, namely, those of Murphy and Lysenko together with Laksman or his nominee.
[59] Early in the afternoon of March 29th, Murphy sent to Duboff a copy of written instructions from Selta to the Royal Bank of Canada to transfer $300,000 USD from Selta’s account to the U.S. dollar business trust account of the firm, signed by Lysenko on behalf of Selta under his seal.
[60] During the afternoon of March 29th, further correspondence was sent from Murphy to Duboff suggesting revisions to the terms of the letter being sent to Dobbins.
[61] In addition, Murphy faxed to Duboff a document entitled “Power of Attorney and Authorization” which purports to be an authorization by Crisdar to be signed by Lysenko in favour of Stanley A. Lewy and Company Inc., authorizing that company and/or one James S. Tudhope to make arrangements for the trading programs with respect to 40 Mariettas. Duboff was asked for his approval and to call Murphy on his cell phone.
[62] Shortly thereafter, Duboff received from Murphy details of how to wire funds to Laksman’s corporate bank and to DDJ Security Trust’s bank account. On each of those documents were handwritten notations, one of $100,000 with respect to Laksman and one of $200,000 with respect to DDJ Security.
[63] A further form of letter to be sent to Dobbins was forwarded to Duboff by Murphy later in the afternoon of March 29th. That letter asked Dobbins to receive bonds from Laksman and to place the Chicago Saginaws in safekeeping with a certificate to be provided in the name of Crisdar. Once Dobbins received the sum of $10 million USD the certificate was to be transferred to Grange Trust, and from the $10 million USD the sum of $4.8 million USD was to be paid to Crisdar in Barbados. The balance of $5.2 million USD was to be released to V&A Trading Inc. or its nominee (V&A Trading Inc. being identified at a later time as Laksman’s partner’s corporate vehicle).
[64] Later in the afternoon, Duboff faxed Murphy a copy of his letter to the Toronto Dominion Bank asking that it immediately commence to wire transfers to the banking coordinates provided to Duboff in the earlier fax. Shortly thereafter Murphy faxed Duboff a copy of another letter to Dobbins, this time signed by Murphy on Crisdar letterhead, including revised procedures for the transfer of the funds. The last letter going to Dobbins appears to have been sent at 17:46 and speaks only of keeping the documents in Dobbins’ hands until released by the parties. It would therefore appear that while discussions were being had between the parties with respect to a potential sale of the bonds, final instructions to Dobbins on March 29th were simply with respect to the safekeeping of the bonds.
[65] March 29th was Duboff’s daughter’s birthday and as he had to leave the office to be home in time for the celebration he asked his partner Schachter to remain at the office to receive confirmation from the bank that the transfer had taken place. In the late afternoon, Schachter faxed Murphy a document received from the Toronto Dominion Bank which confirmed that the amounts had been wired.
[66] Duboff has no notation on his file and he does not recall specifically what, if any, discussions he had with either Murphy or Lysenko prior to forwarding those funds. Based upon his recollection of the events at the time, he believes the purpose of the transfer of the funds was to conclude a transaction whereby Crisdar would be obtaining an interest or benefit in the bonds described in the letters of March 28th and 29th to Dobbins. He does not believe he spoke directly to Lysenko on this, but believes that he would have received instructions from Murphy to forward the funds. It was his belief that Murphy was acting in accordance with Lysenko’s instructions at the time. He has no documentation from Lysenko to confirm Murphy’s authority to request the release of the funds or any written instructions from Lysenko authorizing the transfer.
[67] Lysenko, on the other hand, denies categorically that he gave instructions to Duboff or that he instructed Murphy to authorize the transfer of the funds. His evidence, as stated earlier, was that the funds were being transferred to Duboff’s account in anticipation of the scrap metal deal proceeding.
[68] Murphy does not recall the events surrounding March 29th in any detail, although believes that he would have been expecting Duboff to confirm his advice to send the funds with Lysenko directly.
[69] Laksman, contrary to the other witnesses, recalls a conference call with Murphy, Lysenko and Duboff on March 29th. (At that time Lysenko was in the Ukraine attending to his business.) Laksman recalls Lysenko yelling at Duboff and instructing him in no uncertain terms to arrange for the funds to be transferred out on that day, March 29th.
[70] During the course of the trial reference was made often to the faxed notation of times shown at the head of documents, which is normally an indication of when the document was received by the recipient of the fax. Suggestions were made during the course of the evidence that, on Mr. Murphy’s fax, it may have an indication of what time he sent it, but that the fax machine was displaying an incorrect time which was off by one hour. In other words, any notation on the fax coming from Murphy to Duboff showing a time should be brought back an hour. While much court time was spent on the issue, at the end of the day I do not believe much turns on it. I am satisfied that documents were forwarded to Duboff from Murphy throughout the day on March 29th and that the funds were sent out upon instructions from Duboff to the Toronto Dominion Bank by the late afternoon of March 29th.
[71] Where it may become relevant is where Murphy claims that he did not receive any notation that the funds had been sent out until Monday when he returned to his office. He claims that he may have left the office before 6:00 or turned his fax machine over to his computer to receive faxes for the weekend, and would therefore not have been aware that the funds had been transferred out.
[72] Dobbins, through his corporation, Fidelity Secured Mortgage and Deposit, issued a “Certification of Deposit” stating that it had on deposit two Chicago Saginaw Railway bonds 4850 and 4180 on behalf of Laksman, Grange Trust and Crisdar, which document was dated March 29, 1996. The fax notation at the top suggested it was sent to Murphy on April 1, 1996, and then by Murphy to Duboff on April 2nd. Also provided to the court was a document which I was advised was the last page of a document prepared by Dobbins, which was dated April 1, 1996 and states as follows:
Marietta North Georgia Railway Company, Bonds, face value $1,000.00 dollars is backed by gold coin. Date of the bond issue November 1, 1887 at 6% due and payable in 50 years, January A.D. 1937. No interest was ever paid and our figures for the interest due go back to November 1, 1887; and as of April 1, 1996 the total dollar amount due and payable and value of the bond is $12,501,875.00 price of gold for each ounce as of this date was $398.00 and used to determine the above calculation.
This suggests that Dobbins was asked and did, apparently in accordance with the draft correspondence of March 29th, prepare a certificate of deposit with respect to the Chicago Saginaws and a valuation with respect to the Mariettas.
(iii) EVENTS IMMEDIATELY AFTER MARCH 29TH
[73] Lysenko’s evidence was that he did not become aware of the transfer of the $300,000 until he spoke to Murphy on the morning of Monday, April 1st. Murphy indicated to him at that time that he had just received the fax from the firm advising of the transfer of the funds.
[74] Lysenko stated that he thought it was an April Fool’s joke at first, but upon receiving confirmation from Murphy that it appeared authentic, he desperately tried to get a hold of Duboff. His evidence was that he was so desperate that he did not take the time to use his credit card to go through an operator but called directly, thereby not leaving a record of the calls on his Canadian phone bill which was part of the evidence. Lysenko testified that he tried for the next two days to reach Duboff by phone to express his anger, but was unable to do so until April 3rd. His attempts to reach him before that time were done using direct calling, but on April 3rd he reverted back to using his credit card. Telephone records show that he had a five-minute conversation with Duboff on April 3rd. His evidence was that Duboff, during that conversation, acknowledged his error, was apologetic, but did not wish to discuss the issue over the telephone and thought it better to have a meeting upon Lysenko’s return to Canada.
[75] Lysenko returned to Canada on April 11th saying that he did not wish to spend the extra $175.00 to change his airline ticket to return earlier. He met with Duboff the very next day on April 12th. At that meeting, Lysenko stated that Duboff expressed his desire to make up for his mistake and do whatever was necessary to ensure that Lysenko’s money would not be lost.
[76] Duboff denied that he had such a conversation, but rather said that the conversations were, to the best of his recollection, attempts to discuss steps to be taken to pursue the bond investment, namely, how to either sell or place them to start the trading programs which were to be the source of revenue.
[77] Duboff’s recollection of the meeting with Lysenko on April 12th is hampered by the fact that he has no notes of the discussions. However, he denies that Lysenko would have expressed concern about the forwarding of the funds. Duboff believes Lysenko would have expressed pleasure at the manner in which the potential transactions were taking shape, as they would lead to substantial revenues.
[78] Documentation from Duboff’s files suggests that efforts were being made as early as March 29th to have the bonds used for trading programs. Murphy was forwarding to Duboff agreements for that purpose. For example, a draft agreement with Grange Trust would see that entity purchase two Chicago Saginaw bonds referred to in the correspondence of March 29th for $10 million USD. According to the draft agreement, which meshes to some degree with the draft letter to Dobbins of March 29th, the proceeds from the sale would be used firstly to pay off the balance of the purchase price of the bonds ($200,000 to Laksman which Laksman testified was for the Mariettas which he was placing in the program), and the balance to be split 50% to Laksman and the other 50% between Garmel, Crisdar and Murphy. The agreement further provided for the Mariettas to be used as collateral for a trading program with Laksman, Crisdar, Garmel and Murphy receiving a percentage of the trading profits. A revision to that agreement replaced Murphy’s interest with a payment to Crisdar in trust.
[79] Murphy acknowledges that discussions were taking place with respect to a potential sale of the bonds to Grange Trust, but could not explain why his name appeared as a potential beneficiary of the sale.
(iv) DEALINGS FROM MARCH 29 TO JUNE 1997
[80] After March 29th, a great deal of time and effort was spent by Lysenko, Duboff and Murphy in attempting to arrange transactions to sell or place the Chicago Saginaw and Marietta bonds. The parties have quite different views as to the motivations for these transactions.
[81] According to Lysenko, these efforts were made by Duboff in collaboration with him and Murphy to attempt to recover the funds that had been transferred on March 29th. According to Duboff, he was merely acting as a solicitor with respect to transactions which were brought to him by either Lysenko or Murphy. While these transactions relate only indirectly to the key issue in this case, namely, whether the transfer of funds was authorized, the credibility of the witnesses is affected by these further dealings and I will discuss them in further detail. They are as follows:
(a) Dealings with Grange Trust;
(b) Dealings with Riviera Trust;
(c) Placing of bonds in San Francisco;
(d) Dealings with Gracorp;
(e) Return of the bonds.
(a) Grange Trust
[82] Within days of the transfer of the funds out of the firm’s trust account, there are documents exchanged between Murphy and Duboff appearing to be drafts of an agreement between Crisdar, Lysenko, Garmel, Murphy, and one other party who remains unidentified on one side, and Laksman on the other, providing for the sale of two Chicago Saginaw bonds to Grange Trust Ltd. for $10 million USD. The document provides for the payment to Laksman of a further $200,000 USD and a further $5 million USD of the purchase price to Laksman, the balance being in almost equal shares to Garmel, Crisdar, and Murphy.
[83] The proposed agreement also involved 40 Marietta bonds with a gross trading profit of 5% being divided, after commission to a broker, equally between Laksman on one part and the three other parties, namely Garmel, Crisdar and Murphy, equally on the other part. A later draft of the agreement provides that the share which originally was stipulated to be payable to Murphy is payable to Crisdar in trust.
[84] Attached to a draft of the document is an invoice from Fidelity Security (Gerald Dobbins) for $2,500 sent to Crisdar for an affidavit of authenticity and certification and evaluation for 41 Marietta North Georgia bonds. A further document sent by Murphy to Duboff on April 2nd encloses a contract and Power of Attorney in favour of a firm named Intellivest. The contract is between Crisdar, Laksman and Intellivest, using the investment programs of the latter company to generate revenue using the bonds to obtain a line of credit. The draft agreement values the bonds at $512,576,875 USD. The Power of Attorney in favour of Intellivest appears to have been signed by Lysenko on April 3, 1996 in the Ukraine. His evidence at trial was that while it appeared to be his signature on the document, it was not. He was unable to explain how it came to be on the document.
[85] Lysenko’s evidence was that these documents only represented drafts prepared by Murphy in which he had no direct involvement. His testimony was that Murphy had conversations with individuals in Los Angeles, and arrived at these attempts to recoup Lysenko’s investments in the bonds. He himself had little faith in deals whereby his $300,000 payment was transformed into $1 million revenue. Duboff had no specific recollection of the documents nor of the purported transactions and neither did Murphy. The documents suggest, however, that at or around the time of the transfer of the $300,000 Murphy, with Lysenko’s knowledge, was attempting to arrange for the use of the Railway bonds as collateral for a trading venture agreement.
[86] Laksman testified that these agreements were signed by Lysenko after discussion with him and Murphy, with knowledge that the bonds were to be used as collateral for a trading program, which trading program was being arranged by Lysenko and Murphy.
[87] Laksman’s evidence was that the March 29th transfer was to do with Grange Trust. Grange Trust approached him to purchase Chicago Saginaw bonds for $5 million USD each. Laksman located two Chicago Saginaw bonds from an acquaintance of his, one DeVerne Hokland (Hokland) in January of 1996. Hokland was ready to sell them at $300,000 USD per bond. While discussing this with his partner, Mr. Vrej Arakelyan in front of Garmel, the latter offered to assist by having a friend of his from Canada purchase it. His friend was Lysenko. According to Laksman, he and Garmel called Lysenko in the beginning or middle of January. (Phone records produced at trial indicate that Lysenko called Garmel in Los Angeles on a number of occasions in January, starting from January 7th onwards.) They spoke Russian. In order to obtain confirmation that there was an actual deal for the sale of the bonds to Grange Trust, Lysenko and Murphy called Grange Trust.
[88] According to Laksman, the bonds were authenticated by Dobbins of Fidelity Security for the amount of $110 million each based upon the value of the gold that had accumulated over the lifetime of the bonds. Laksman’s evidence was then that the bonds were placed with Dobbins at Fidelity Security in anticipation of the transaction occurring.
[89] Laksman had also purchased from Hokland some 40 Mariettas which were valued at $12 million USD apiece. He had purchased them at $2,500 to $5,000 apiece as Hokland was desperate for money.
[90] Laksman was well acquainted with Dobbins. He described Dobbins as a curator, authenticator and valuator for these types of bonds. Dobbins placed a value on them which was recognized, according to Laksman, by banks all over the world.
[91] According to Laksman, he had purchased the Chicago Saginaws from DDJ (Hokland’s company), for $600,000 USD and resold one of them to Lysenko or Crisdar for $300,000 USD. The purchase price was paid by Lysenko forwarding him $100,000 and $200,000 to DDJ.
[92] Laksman’s evidence was that the $10,000 he received on March 25, 1996 from Duboff on Crisdar’s behalf as a deposit was used to purchase Mariettas from a person by the name of Dino Nurosi. He purchased 10 to 20 Mariettas on behalf of Lysenko, Murphy and himself.
[93] Laksman sent Murphy copies of Chicago Saginaw and Marietta bonds. On March 29, 1996, Dobbins issued a “Certification of Deposit” styling himself as master curator for Fidelity Security Deposit Corporation (Fidelity), stating that it had on deposit in its vaults for safekeeping on behalf of Laksman/Grange Trust Limited/Crisdar Barbados Trade Corporation, two Chicago Saginaw bonds numbered 4850 and 4180. The next day Dobbins also signed a document which included a valuation of the Marietta bonds at $12,501,875 USD each based upon a price of gold of $398 per ounce.
[94] Grange Trust was to forward $10 million USD to Dobbins who was acting as escrow. The draft agreement provided for a $200,000 payment to Laksman as compensation for the 41 Mariettas that were to be including in the transaction.
[95] It is not exactly clear how the transaction with Grange Trust unravelled, but suffice to say that Dobbins never received the funds required under the alleged deal from Grange Trust.
[96] On April 29th, the funds not having advanced, Laksman faxed a letter to Grange Trust indicating that pursuant to the terms of the purchase contract, the agreement between Grange and the other parties was null and void. (A copy of this contract was not in evidence.) The document was acknowledged as understood and agreed by Grange Trust on May 3, 1996.
(b) Riviera Trust
[97] According to Laksman, Grange Trust had received a copy of Dobbins’ Certificate of Deposit and had forwarded it to Riviera Trust, whose representative was one Nancy Shockley (Shockley), a resident of Houston. Shockley was held out by Grange Trust as being involved with it and able to set up some investment opportunities.
[98] In early May 1996, Duboff flew to Houston at Lysenko’s request. Duboff had been at a conference in Denver when he received a phone call from Lysenko requesting that he travel immediately to Houston to meet with Laksman and Hokland to receive some bonds. Duboff attended in Houston where, according to Laksman, the latter, Duboff and Dobbins met with a representative from Intellivest. An account was opened for them in a Houston bank and 41 Mariettas were placed there in a safety deposit box, with both Laksman and Duboff obtaining a key for the box.
[99] While in Houston they went to visit Shockley, who advised that the Certificate of Deposit had been transferred to another entity by the name of Keystone Financial, who would come up with the $10 million within the next few weeks.
[100] On May 9th, Murphy e-mailed to Duboff advising him that “Crisdar and Laksman reached an agreement with Riviera Trust to keep the (Chicago Saginaw bonds 4850 and 4180) in the bank debenture program between Keystone and Riviera.” Murphy also stated that it was agreed that Crisdar and Laksman were to receive 5%, namely, $9,442,682.88 USD per week of the established credit line of $188,843,657.60 for 40 weeks per trading year. The weekly payment was to be divided equally between Crisdar and Laksman. Murphy then asked Duboff to prepare an agreement and other documentation to reflect these terms.
[101] On May 10, 1996, an agreement was signed between Riviera Trust, Crisdar and Laksman dealing with the Chicago Saginaws, whereby Riviera stated that it had a joint venture agreement with Keystone Financial and agreed to pay Crisdar and Laksman in accordance with the terms described above, using the two bonds as collateral.
[102] Laksman’s evidence was also that some time in May, because Intellivest had not proceeded in using the collateral of the 41 Mariettas, he flew to Houston and withdrew those bonds from the safety deposit box. His evidence was that he was able to obtain the bonds without anyone’s assistance. Duboff’s evidence was that he came back from Houston with a key to the safety deposit box, but does not remember what if anything happened to the bonds in the box.
[103] Needless to say, no funds were ever advanced from Riviera to Crisdar and Laksman pursuant to the agreement.
[104] On July 15, 1996, Shockley wrote to Lysenko and Laksman making reference to a July 12th correspondence from Keystone Financial advising that the latter had issued a “cease and desist” regarding the placement of the Chicago Saginaws. The July 12th letter was not put into evidence and no explanation was given as to what a cease and desist was, although I infer that it was an indication from Keystone that they were not proceeding with the transaction.
(c) San Francisco
[105] On May 13, 1996, Lysenko, having been advised by Murphy that there was a potential for the sale of historical bonds to a group from Thailand, instructed Duboff to accompany him to San Francisco the next day. Lysenko purchased the tickets and Murphy accompanied them. Mr. Stanley Lewy of Stanley A. Lewy & Company, with whom Murphy had had previous correspondence with respect to selling or placing bonds, was to meet them in San Francisco.
[106] In San Francisco the group proceeded to the Bank of America where they met with a vice-president of the bank named James Ovens. Laksman arrived accompanied by his partner, Mr. Arakelyan. This was the first time that Lysenko and Laksman met face to face. Hokland arrived with bonds, namely 237 Mariettas. Once the bonds had been inventoried, the bank was asked to provide a valuation which Mr. Ovens refused to do.
[107] According to Lysenko, the conversation then became a discussion between Hokland, Laksman and himself as to how the profits from the sale or use of the bonds for collateral was to be divided. A security lawyer with the bank came to inspect the documents and, according to Lysenko, was suspicious as to the stated value of the bonds. Eventually the bank agreed to issue a safekeeping receipt.
[108] Laksman’s evidence was that in addition to the bonds brought by Hokland he also contributed the 41 Mariettas which had been located in Houston and which he had obtained for purposes of bringing them back to Los Angeles. In addition, a Mr. Anil Gupta (Gupta), who had access to a number of Chicago Saginaw bonds, was brought into the meeting. Laksman testified that he and Lysenko jointly agreed to purchase a further Chicago bond from Gupta for the sum of $25,000 shared equally.
[109] On May 14, 1996, in San Francisco, Crisdar and Laksman signed an agreement with DDJ Security Trust (Hokland’s company) whereby the 237 Mariettas owned by DDJ would be used by Crisdar to arrange a line of credit and to enter into a trading program.
[110] On May 23, 1996, Mr. Ovens from the Bank of America wrote to Crisdar (care of Duboff), DDJ Security and Gupta, advising them that the bank was not willing to establish a custodial relationship to keep the bonds. Ovens advised that the bonds were to be picked up in person at the bank’s office in San Francisco with the Mariettas to be delivered to Hokland and the Chicago Saginaws to be delivered to Mr. Gupta.
[111] Murphy prepared a draft letter for Duboff’s review and for Lysenko’s signature indicating that they were at a loss to understand why the bank had taken that position. As well the letter indicated that Lysenko was not available to retrieve the bonds given that he was in Ukraine, nor was he willing to incur any expense in attending in San Francisco to obtain the bonds. They were therefore ready to issue Powers of Attorney to Laksman in order to have the bonds picked up by him. The bonds were returned to either Laksman or Hokland.
(d) Gracorp
[112] The attempted transactions with Grange, Riviera and DDJ not having proven fruitful, Laksman was getting somewhat anxious. Along came Gracorp and Dr. Albert.
[113] When and how Lysenko was approached by Dr. Albert or Gracorp is not clear from the evidence. Lysenko’s recollection was that Dr. Albert, an Italian financier, had a Canadian lawyer based in Vancouver who approached either him or Duboff and wished to invest in historical documents such as gold bonds.
[114] In July 1996, Crisdar and Laksman signed a joint venture agreement for the purposes of selling or placing Railway bonds in trade investment programs. The joint venture was for a period of one year and the parties were to use their best efforts to deliver these bonds to the Royal Bank of Canada (Caribbean Corporation) for deposit in a safekeeping account in the name of Crisdar. Apart from Mariettas a number of other types of bonds were also listed, including Chicago Saginaw bonds. The net profits of any sale or investment in the program were to be equally shared between Laksman and Crisdar.
[115] Pursuant to that joint venture, Laksman travelled to Toronto in early August 1996. He brought with him a number of bonds for the purposes of meeting with Lysenko and Duboff and placing those bonds with the Royal Bank of Canada (Caribbean) in Toronto. Unfortunately, Laksman and his documentation were viewed with some suspicion by Customs and he was placed under arrest. Fortunately for him, at the same time, Duboff and Lysenko arrived from Winnipeg and were paged to the Customs area in order to assist Laksman. After Duboff’s explanation that the items were merely historical documents with no security value save as collector’s items, they were designated by the Customs Branch as antique bonds with a value of $6,800, and a duty of $1,775 was exacted. Lysenko paid the duty.
[116] The three of them then attended at the Royal Bank of Canada where 375 Mariettas and nine Chicago Saginaws were placed on deposit with the Royal Bank of Canada (Caribbean Corporation) on behalf of Crisdar.
[117] On September 26, 1996, Crisdar and Gracorp entered into an agreement whereby those bonds, which had been valued by Dobbins at $5,588,869,120 USD, would be purchased by Gracorp for that amount. The closing procedures contemplated Crisdar providing to Duboff as trustee certain documentation, including valuation and authentication certificates, and Gracorp was to provide Crisdar’s bank and Duboff with an irrevocable bank guarantee for the purchase price within five banking days of the agreement. The funds were to be paid to Crisdar’s bank in Barbados within 15 days of the delivery of the bonds. Not surprisingly, Gracorp never forwarded the necessary bank guarantee.
[118] In late October Laksman, upset at the failure of Gracorp to honour the terms of its agreement with Crisdar, indicated that if funds had not been deposited by October 31st, he would issue a formal demand on the Royal Bank for the return of the bonds which were on deposit. I have no evidence as to whether he did.
[119] On November 14, 1996, the Royal Bank of Canada (Caribbean Corporation) wrote to Crisdar’s director in Barbados, Ms Roach, requesting that steps be taken to collect the securities from their custody, attaching an invoice for $3,000 CAD.
[120] On December 11, 1996 Lysenko, in a long-winded and somewhat wordy letter, wrote to Dr. Albert complaining of the fact that no funds have been received notwithstanding promises to that effect, and sending a copy of his letter of complaint to a list of banks and individuals worldwide complaining about Dr. Albert and Gracorp’s conduct. This was the end of the Gracorp transaction.
(e) Return of the Bonds
[121] After the failure of the Gracorp deal, Laksman testified that he sent a letter requesting the return of his bonds. In return he received from Lysenko a demand for $600,000 USD towards his expenses. Neither letter was filed in evidence.
[122] Laksman testified that the demand comprised a claim for expenses incurred by Lysenko, including telephone calls, travel and other such items in attempting to sell the bonds. Laksman denied that he owed the amount. Lysenko sent back a portion of the bonds, but kept nine Chicago Saginaws and 164 Mariettas, indicating that he would return other bonds to Laksman when he received $600,000 USD. After a number of telephone calls arguing about the amounts, Laksman’s partner, Arakelyan, negotiated an agreement that Crisdar would receive $500,000 USD, but only on condition that the remaining bonds were sent to Dobbins and that the funds would only be paid once the bonds were sold.
[123] A draft agreement to that effect was put in evidence with a date of January 1997. In January of 1997, Lysenko and Murphy attended in Toronto to pick up the bonds and Murphy then went on to Los Angeles, taking the bonds with him. Laksman’s evidence is that he and Murphy had agreed to leave the bonds with Dobbins in accordance with the draft agreement which was to be signed by Murphy on Lysenko’s behalf. After discussions on the first day of their meetings, they had reached an agreement and the matter was to be concluded in the morning. Laksman’s evidence is that the next morning Murphy attended at Dobbins’ premises, removed the bonds and fled for Canada. When he got a hold of Murphy in Toronto, Murphy told Laksman that Lysenko had warned Murphy of a death threat against him and instructed him to return to Canada with the bonds.
[124] Laksman indicated that he then wrote to Lysenko indicating that if he and the other bond owners did not receive all of the bonds, including the nine Chicago Saginaws, he would take legal action.
[125] In July 1997, he sent a further letter to Lysenko and Murphy indicating that the joint venture agreement had expired and that he wished to have return of the bonds placed in the program. Laksman testified that he received some of the Saginaws back through Garmel’s help, was still owed five Chicago Saginaws and a number of Mariettas, which he believed that Lysenko retained or had sold. He had made arrangements to sell the Mariettas for approximately $5,000 apiece and would have been willing to discuss an appropriate agreement with Lysenko, but was unable to do so.
[126] Lysenko’s evidence is that the only bonds which Murphy brought back with him from Los Angeles were two Chicago Saginaws, copies of which were placed in evidence at trial.
(C) COMPLAINT BY LYSENKO AGAINST DUBOFF
[127] On July 8, 1997, Lysenko on behalf of Selta sent three similar letters to Duboff. In the first letter he requested an accounting of the disbursements with respect to $50,000 USD which had been placed in the firm’s trust account on February 9, 1996. In the second letter, he requested the return of the sum of $300,000 that had been placed in the trust account on March 29, 1996, plus accrued interest. In the third letter, he required an accounting of the purchase of shares of Mr. Tube Steak on behalf of Selta and the $30,000 CAD provided to Duboff by Lysenko. Lysenko in his third letter refers to a conversation on June 29, 1997 where the issue of the Tube Steak shares had been discussed, and where Duboff had promised to send a letter explaining the situation. Duboff recalls such a conversation, but does not recall anything else being discussed at that time.
[128] After receiving the letters Duboff called Lysenko and in a memorandum dated July 16th, which he sent to Lysenko, confirms the conversation. He indicates that he was surprised to receive the letter in that Lysenko indicated to him that there were no serious issues in his mind about the firm’s services, or any transactions worked on by Duboff for him. According to the memorandum, Lysenko stated having sent the letters because he had tried to reach Duboff on a number of occasions, had been unsuccessful and Duboff had not returned the calls. According to Duboff, Lysenko had told him to put the three letters away and not to do anything with them, that they were just to get his attention. They had agreed to speak on August 11th when Duboff returned from summer vacation.
[129] On August 12th, 1997, Lysenko wrote to the firm, again asking that it return the amounts deposited in trust. On August 18, 1997, Lysenko wrote to the Law Society of Manitoba seeking its assistance in obtaining the return of the funds. Additional information was provided under cover of letter dated August 19th, August 21st and a Statutory Declaration dated September 4, 1997. After exchange of correspondence between the parties, the Law Society denied the reimbursement claim and the matter has proceeded before the courts.
IV. CREDIBILITY FINDINGS
A. LYSENKO
[130] Lysenko was the plaintiff’s main witness. His mother tongue is Russian. His evidence at trial was at times longer because he needed to explain himself in a manner which is not as direct as it could be. He also displayed a great deal of emotion and was excitable.
[131] Lysenko’s basic position at trial was that he did not authorize the payment of the $300,000 USD from Duboff’s trust account, either directly or indirectly through Murphy, and that he was shocked when he heard that it had occurred. His evidence was that Duboff acknowledged the error and vowed to take all necessary steps to correct it, thereby explaining the long list of measures taken after March 29th to attempt to recover, in Lysenko’s view, his money.
[132] Lysenko was a difficult witness in that he tended to be unresponsive to the questions, preferring to return to his basic position. He had no documents to support a number of his contentions, explaining that he did not write English very well, but also that he relied upon Murphy to do some of his drafting given his limited use of English.
[133] Lysenko’s version of events with respect to the March 29th transfer is inconsistent with documentation surrounding the transfer of the funds on March 29th and subsequent documentation with Grange Trust with respect to the sale to it of the Chicago Saginaws.
[134] His contention that he was unaware of the ongoing discussions with respect to Railway bonds, as he was of the belief that the gold bond transaction was not going to proceed any further from the point that Laksman had increased the price per bond, is inconsistent with Murphy’s continuing involvement with individuals involved in the Railway bond transaction, such as Laksman, Tudhope and Lewy. The phone records indicate that Lysenko was often communicating throughout the months of January, February and March with Garmel. There was no evidence adduced by Lysenko of other ongoing matters he had with Garmel other than the gold bonds. Furthermore, Laksman and Murphy continued to communicate frequently during that same time period, again suggesting that gold bonds were being discussed.
[135] On March 28th and 29th, there was a large number of telephone communications between Laksman and Murphy and between Murphy and Lysenko. While a number may have been exchanges of faxes, it is inconceivable to me that some of those conversations did not deal with the bonds, given the nature of the documentation which was being exchanged at the time between Murphy and Duboff, and between Murphy and other parties. In addition, there were a large number of telephone communications between Murphy and Lewy or Tudhope, individuals who could only have been involved in discussions with respect to placing the bonds in an investment program. If as suggested by Lysenko the gold bond deal was dead, then these conversations would not have taken place.
[136] Lysenko’s version of events is also inconsistent with the activities with respect to the bonds after March 29th. Lysenko was extremely active in attempting to sell or place the bonds as security in order to earn substantial profits. While his evidence was that he had doubts, at least with respect to the Grange Trust sale and the Gracorp sale, given the incredible profit generated, there is no doubt that he was actively involved. His letter to Gracorp in December shows an extremely frustrated and angry man consistent with a belief that this transaction was going to proceed. Contrary to Lysenko’s alleged healthy skepticism as to the genuineness of these deals, the evidence suggests that he had a tendency to become involved in get rich quick schemes of doubtful legitimacy, such as the Nigerian Central Bank and the Gracorp scheme itself. If, as Lysenko suggested, the loss of the $300,000 was a substantial loss to him, which he blamed Duboff for, it is not credible to me that he would have waited over a year to take active steps against him to have the funds recovered.
[137] My view of Lysenko’s evidence is also tempered by three incidents upon which the court received evidence. The first one was evidence from Schachter, a partner of Duboff’s, who testified that when representing Lysenko on a trial dealing with a claim against a local travel agent, Lysenko offered to shape his testimony in the manner which best ensured success. While this may be an interpretation placed on Lysenko’s words by Schachter and that all Lysenko was attempting to do was ask for advice on how to speak to the court, Schachter’s testimony must be taken into consideration.
[138] Secondly, Duboff testified that at a break in the examinations for discovery, Lysenko came to speak to him and made a statement to the effect that if Duboff would only change his testimony and acknowledge the mistake, then Lysenko would be able to collect from the Law Society’s insurance company and would take care of Duboff’s deductible, suggesting that collection from the insurance company was the true motivation behind the lawsuit in the first place. Duboff reported this conversation to his counsel.
[139] Finally, the events surrounding Laksman attending in Winnipeg to testify bears some comment. Laksman testified that after having been subpoenaed, he received a call from Lysenko urging him not to attend as a witness at trial and made comments which Laksman interpreted as threats in the event he did attend. This led to Laksman’s testimony being given with security in the courtroom and with a complaint to the Winnipeg Police by Laksman against Lysenko. This was followed apparently by a cross-complaint by Murphy and Lysenko against Laksman, alleging that they had received threats.
[140] While none of these incidents were definitive in their nature as to the truthfulness of Lysenko during the trial, they reinforce my view that Lysenko’s testimony should not be given a great deal of weight.
[141] I have therefore placed limited weight upon Lysenko’s evidence where it is not confirmed either by other evidence or documents.
B. DUBOFF
[142] Duboff is an experienced commercial lawyer with a background in banking, which assisted him in providing help to Lysenko in dealing with Canadian banks on foreign transactions. However, it should have been obvious to him that Lysenko and Murphy were involved in a scheme which had doubtful if not suspicious business legitimacy. Most of the documentation in this case comes from Duboff’s files (save for the scrap metal deal documentation which surfaced shortly before the beginning of the trial from Murphy). Yet, there are no memos to file and very few confirming letters outlining what steps were being taken at the client’s request. It is not surprising, therefore, that Duboff has very little recollection of the events which occurred around March 29th and what if any advice he was called upon to give or did offer Lysenko.
[143] His letter of explanation to the Law Society with respect to the reasons why he allowed the funds to be transferred out based upon the lengthy relationship between Murphy and Lysenko and frequent payment out of funds without written authorization, proved to be inaccurate. While a great deal of funds were channeled through the firm’s trust account, save for the March 29th payments relating to the gold bonds, payments to Dobbins or to Murphy which were supported by promissory notes and written authorizations, no other funds went to third parties. All the payments were to the client.
[144] In fairness to Duboff, he did not try to present evidence based upon what he could not remember. His evidence was couched in terms of what he would have likely done in the circumstances or his beliefs. His recollection of the events of March 29th do not allow him to state categorically that he had received instructions either from Murphy or Lysenko, but he did state that he believed he would have received an indication from Murphy that the funds could be sent out, failing which he would not have sent out the funds. Duboff’s recollection, therefore, suffers not from a lack of credibility but from a lack of reliability, as it is not based upon actual recollection but a belief as to what likely occurred.
[145] Again, unless supported by documentation and other evidence, I am unable to place much weight upon Duboff’s evidence.
C. MURPHY
[146] Murphy’s evidence suffers from the two candid admissions he made at trial, namely, that as a result of a medical condition his memory of events was erased and that he fashioned his evidence based upon hearing the testimony of Lysenko.
[147] Murphy, as the third party, was entitled to attend throughout the trial and did so. He therefore sat through all of Lysenko’s evidence, including cross-examination. He also heard all of Duboff’s evidence.
[148] When he took the stand, he admitted that he had suffered a serious reaction to a drug, leaving him near death. After this event his memory of past dealings was gone. He was therefore unable to provide direct recollection of what occurred, but responded based upon the documentation presented to him and based upon Lysenko’s evidence which he indicated he accepted.
[149] One portion of Murphy’s evidence which I find difficult to accept in any event is that his interest in assisting Lysenko in some of these attempted transactions was only out of friendship and not out of any specific expectation of profit. He believed that Lysenko would be fair with him at the end of the day, to paraphrase his words. However, the documentation belies that fact. Correspondence with Duboff refers to Laksman as ‘our partner’. Murphy developed and used Crisdar letterhead, copies of which were sent to Lysenko. Draft documents prepared for transactions with Grange Trust show him receiving a portion of the proceeds. Similarly with the Nigerian Central Bank deal, he was instrumental in bringing the matter to Lysenko’s attention, and then was seen to be potentially participating in the benefits.
[150] For these reasons I am unable to place much if any weight upon Murphy’s version of the events, again, unless it is confirmed by other evidence or documentation consistent therewith.
D. LAKSMAN
[151] Laksman’s evidence must be assessed in light of certain facts. Laksman was actively involved in what can only be described as a scheme to obtain money from purchasers or from banking institutions premised upon the very doubtful suggestion that antique railway bonds, payable at one time in gold coins, maintain an inherent value based upon their imputed gold value. He was assisted in that scheme by Dobbins.
[152] I received evidence at trial that Dobbins was the source of a number of cease and desist orders from the Securities and Exchange Commission of the United Sates. Documentation in that litigation filed at trial supports the contention that, at least in relation to the Chicago Saginaw bonds, the bankruptcy of the company in 1873 rendered the bonds valueless and that any company who had taken over the company’s assets denied having any obligation in respect of them. This factual background raises a concern to me as to whether Laksman is a con artist or merely someone who genuinely believed in the valuation of his bonds and thought that he had hit the mother lode.
[153] I also note that Laksman contends that Lysenko and Murphy wrongfully took a number of Marietta and Chicago bonds, for which they still owe Laksman certain funds and for which Laksman has made demand.
[154] However, I accept his evidence as it relates to the manner in which the involvement with Lysenko came about, as it not only conforms to some extent to Lysenko’s own explanation arising from his friendship with Garmel, but is also consistent with the documentation prepared shortly before March 29th, shortly after that date and the telephone records. In particular, his explanation of what the parties had intended to do in the sale of the bonds to Grange Trust and how those funds would be distributed explains in a manner which no other version provided by either Lysenko or Murphy does, why $300,000 USD was forwarded on March 29th and what interest Lysenko obtained in the bonds and in the transaction. Furthermore, his explanation of what transpired after March 29th is consistent with the documentation provided through Duboff’s file.
[155] I do not accept Laksman’s evidence with respect to the events on March 29th themselves, namely, that he was involved in a conference call with Lysenko, Murphy and Duboff, where Lysenko screamed at Duboff and instructed in no uncertain terms to forward the funds from his trust account. If such a conversation took place I believe Duboff would have remembered it and would have certainly recounted it as part of his evidence at trial. The fact that he did not do so leads me to the conclusion that it did not occur, although some variation of the conversation between Laksman and Murphy and, perhaps, Duboff may well have occurred.
[156] I therefore maintain a healthy skepticism towards a great deal of Laksman’s evidence.
E. OTHER WITNESSES
[157] I will not comment specifically on the other witnesses as I found their evidence to be fairly non-controversial and, for the most part, uncontested.
[158] Schachter’s evidence I accept, that he received a request from Duboff to assist him in arranging for funds to be paid out and that he did so late in the afternoon on March 29th. I have already commented on his evidence with respect to Lysenko’s involvement in another matter.
V. FINDINGS
[159] Relying upon the factual background set out above and the credibility assessments made of the main protagonists, I have concluded as follows with respect to the factual issues of this case:
A. SCRAP METAL DEAL
(i) From late 1995 to the end of March 1996, Lysenko and Murphy were actively seeking to put together a scrap metal deal involving shipments of scrap metal from Kenya to Thailand, using the services of Mr. Daniel Schmid of Phonetex;
(ii) By March 29, 1996, the likelihood of a successful transaction not occurring with respect to scrap metal was recognized by both Lysenko and Murphy, given the lack of response from the newly discovered owner of the property to the various offers sent through Murphy’s offices. I also find as a fact that the transaction, if capable of being revived, was not at a stage where payments were going to be required;
(iii) I conclude that the $300,000 USD placed in the trust account of the firm on March 29th by Selta was not for the purposes of advancing the scrap metal deal. I reach this conclusion on the basis that the negotiations had failed and no contract was in sight. There was no need for the funds to be placed into that account at that time if it was for the purposes of that transaction. I do not accept Lysenko’s attempts at trial to explain the manner in which the amount of $300,000 corresponded to the funds that would be required in the event the transaction could go ahead. I note that neither Schmid or Michael Murphy, who were involved in the scrap metal deal, were called as witnesses to testify as to the state of the transaction on March 29th.
B. GOLD BONDS
Pre-March 29th
(i) I find that the introduction of Laksman to Lysenko was through Eddie Garmel, a friend of Lysenko’s, and that it occurred in early January 1996. I also find as a fact that while initial discussions may have been related primarily to German gold bonds, they eventually extended to the Railway bonds.
(ii) Lysenko, using the services of Murphy, continued to be involved in negotiations with respect to obtaining the bonds, and seeking a purchaser or individuals who may be involved using the bonds as collateral.
(iii) In late March 1996, correspondence exchanged between the parties was related to German bonds, but at the same time the parties were also discussing the transaction related to the Railway bonds, and in particular with respect to Grange Trust.
(iv) I accept Laksman’s evidence that the transaction with respect to the two Chicago Saginaw bonds 4180 and 4850 originally contemplated their resale to Grange Trust for the sum of $10 million, and that in order to obtain the bonds from individuals which he knew, using Garmel’s connections, he convinced Murphy and Lysenko to participate in the scheme through the payment of $300,000 USD. The original transaction contemplated Laksman receiving, after another payment of $200,000 for the use of 41 Marietta bonds in a trading program, payment of one-half of the sale price received from Grange Trust, the balance being distributed in approximately equal shares to Crisdar, Garmel and Murphy.
(v) The transaction as between Laksman and Crisdar and Murphy was predicated upon Laksman delivering to Dobbins of Fidelity on March 29th two Chicago Saginaws and 41 Mariettas, all of which were to be kept by Dobbins. He was to issue safekeeping certificates showing in the case of the Chicago Saginaws that the parties interested were Grange Trust, Jacob Laksman and Crisdar, while in the case of the Mariettas it was to be issued in the name of Crisdar and Laksman.
(vi) The telephone records show continuing communications between Laksman and Murphy on dates preceding March 29, including a number of phone calls between Lysenko and Murphy as well. Furthermore, the phone records reveal lengthy conversations between Murphy and Lewy, including a 30-minute conversation on March 27th. Lewy’s only involvement, according to the documentation, was as an individual who could find trading programs using the bonds as collateral. Similarly on March 28th Murphy has a number of lengthy conversations with Laksman, including two which are over 20 minutes in length. On March 29th, the fax line between Murphy and Dobbins at Fidelity was busy on over six occasions. As well Murphy had a further conversation with Mr. Lewy of Stan Lewy & Associates of over twenty minutes long. All these telephone conversations or fax exchanges lead me to the inescapable conclusion that discussions were continuing at great length with respect to gold bonds.
(vii) I find that in the days leading up to March 29th Murphy, with Lysenko’s knowledge, was actively discussing obtaining the bonds for resale to Grange and for placement in an investment program. I find that the placing of the $300,000 in the trust account on March 29th by Lysenko was in furtherance of a plan to forward the funds to Laksman and DDJ Security in exchange for ownership of one bond and participation with Laksman in the resale to Grange and in an investment program.
March 29th and authorization
(viii) I am unable to find from the documentation, nor am I able to infer that Lysenko directly authorized the Duboff firm to transfer the funds. However, I infer from the events that occurred prior to March 29th, on the day in question and in the few days following it that the funds were placed there for the purposes of forwarding to Laksman and DDJ Security in accordance with the routing information provided by Murphy. I also find that Murphy was in contact with Lysenko on a regular basis during that period of time and on March 29th itself, as indicated from the phone records. Contrary to Lysenko’s assertions that conversation was limited to the scrap metal deal or other matters, there was most likely discussion with respect to the state of the gold bond transaction. I also note that there was a lengthy conversation on March 28th between Lysenko and the Duboff office. While there may have been faxes or discussions with respect to the issue of obtaining visas, given the flurry of activity between Murphy and Laksman with respect to the gold bond deals, it is most likely that the matter was discussed at the time. However, I am unable to find on the basis of the evidence that Lysenko would have authorized Duboff in those conversations to release the funds.
(ix) I find that the funds were forwarded from the Duboff office to the Toronto-Dominion Bank and through their channels to the two designated recipients in the late afternoon of March 29th, namely $200,000 to DDJ Security and $100,000 to V&A for the benefit of Laksman. While I am unable to conclude definitively from the evidence that Murphy was aware that the funds had been sent, I would surmise that that was the case given the level of activity between Laksman and Murphy, and between Murphy and Lysenko on the 29th, 30th and 31st of March.
After March 29th
(x) I find that Lysenko did not attempt to call Duboff to complain about the transfer of the funds on April 1st as he contends, nor do I find that in his phone conversation of April 3rd with Duboff he expressed his anger as to Duboff’s conduct. I find that the first time Lysenko complained to Duboff that the funds had been sent out without authorization was in July 1997. I reach that conclusion based upon the continuing discussions between Lysenko, Murphy, Laksman and others, as well as Mr. Lewy, all suggesting attempts to implement what I have described as the Grange Trust sale. While it is conceivable that Lysenko would have been displeased at the payment out of the trust, but would have relented in expectation of receiving the benefit of the sale to Grange, I would have expected that if he had been genuinely upset there would have been some form of documented reaction to Duboff’s alleged error. I also find it difficult to believe that Duboff would have knowingly and expressly advised Lysenko that he would obtain his funds back. If in error in disbursing the funds, Duboff would have recognized his obligations to the Law Society, and in particular to its insurers. Had he failed to report such an error on a timely basis, he and his firm would have lost the protection of the insurance covering negligent acts. I do not accept that he consciously did so on April 3rd.
(xi) I find that Lysenko has in his possession the two Chicago Saginaws and that they have no intrinsic value, save as perhaps a collector’s item.
Mr. Tube Steak
(xii) I find that Duboff invited Lysenko to invest in Mr. Tube Steak. At the time he did so he was a solicitor acting for at least one of the related companies.
(xiii) I conclude from the evidence that he did disclose that he was the solicitor for Mr. Tube Steak. He did not suggest to Lysenko that he obtain independent legal advice.
(xiv) I also find that he did not make Lysenko aware of the distinctions between the various companies at the time of the investment. I also find that Lysenko invested in the company upon Duboff’s representations that the company would be going public. Lysenko did eventually receive shares for his investment and there is no evidence the company has in fact issued its shares publicly. There was no direct evidence presented to the court as to the value of the shares at this time.
VI. ISSUES
[160] The above findings of fact raise the following issues:
(a) Did Duboff or his firm receive authorization from Lysenko or from Murphy as his agent, to disburse the trust funds at issue in this case? If so, what damages flow?
(b) Was Duboff or his firm negligent in the manner in which the funds were disbursed, or did he fail in his duty towards his client? If so, what damages flow?
(c) Was Duboff in breach of his duty to his client with respect to Lysenko’s investment in Mr. Tube Steak? If so, what damages flow?
VII. ANALYSIS
1. PAYMENT OF FUNDS WITHOUT AUTHORIZATION
A. THE PAYMENT OF $300,000 USD ON MARCH 29, 1996
[161] The payment of $300,000 USD on March 29, 1996 represents the major portion of the plaintiff’s claim against Duboff. The plaintiff’s position is simply that Duboff did not have authorization from Selta to make such transfers, that he failed in his duty as a lawyer to preserve and safekeep the client’s property entrusted to him.
[162] A major argument for the plaintiff was that the funds received by Duboff were for the credit of Selta and at no time was there authorization given to Duboff allowing him to transfer to Crisdar’s account or use the funds for the benefit of Crisdar. Law Society rules referred to by counsel suggest that no transfer from the trust account of one client shall be done to another’s without written authorization. No such written authorization was provided.
[163] On the facts of this case I am satisfied that Lysenko was the directing mind of both Selta and Crisdar. There is no serious dispute to that fact. I also find that Lysenko used both corporate vehicles on a regular basis in a manner which he found most advantageous. In accordance with the tax advice he had received from Duboff, the transactions in Canada were generally those of Selta and international transactions were through the Crisdar vehicle. His evidence was that he followed these rules religiously.
[164] While that may have been the case, a suggestion that payment out of the funds by the firm was unauthorized because there had been no written authorization allowing the funds to flow from Selta to Crisdar or to be sent out to Crisdar’s benefit is, in my view, a technicality which does not affect the true legal principles which should apply to this case. That is not to say that it is normal practice to change one corporation for another. On the facts of this case I am satisfied that Lysenko was the directing mind behind the transaction and wished to have Crisdar involved. I also find that he directed the funds to the trust account for use by Crisdar.
[165] It is trite to say that the lawyer owes a fiduciary duty to his client. Where funds are entrusted to the lawyer, such duty includes dealing with those funds in a prudent manner and not to disburse them, save in accordance with the instructions of the client or as authorized by contract or by law.
[166] The evidence is that payments were made from the trust account to Laksman and Hokland on March 29th. The firm had no written authorization from the client or from Murphy to do so. Duboff’s evidence was that he would have relied upon instructions from Murphy which he believed to be authorized by Lysenko to allow the transfer of the funds. He is unable to say what exactly Murphy would have represented to him or instructed him to do, but, using his professional judgment, he concluded that what he had been asked to do by Murphy represented what Lysenko wanted him to do.
[167] Murphy admitted in his evidence that Laksman wanted the funds paid out that day. It is reasonable that that was made known to Duboff. But Murphy denies that he would have given instructions to Duboff to disburse the funds and says that, in any event, it would have been in his mind that Duboff would seek specific instructions from Lysenko, whether verbally or in writing, to release the funds and not do so merely on Murphy’s request.
[168] Contrary to Lysenko’s evidence that the payments were unrelated to any matter for which Duboff’s advice had been sought, I am satisfied from the evidence that there was at the time of the payment a contemplated transaction for which Duboff had been consulted. The payment was consistent with that transaction. There is no direct evidence from which I could conclude that Lysenko had directly authorized payments, nor is there any direct evidence that Murphy had authorized the payment. However, the documentation prior and after March 29th, the flurry of phone calls and Laksman’s evidence, confirm that Murphy was actively involved in requesting that the funds be paid to Laksman and Hokland on March 29th as part of a transaction to gain an interest for Lysenko and himself in that transaction. This begs the question whether Murphy was acting as Lysenko’s agent and whether he had the actual, implied or apparent authority to authorize the transfers.
(i) Actual Authority
[169] While Duboff was entitled, based upon the correspondence such as the March 19th letter which referred to Laksman as “our partner in this business”, to conclude that Murphy was involved with Lysenko in the gold bond transactions, this did not lead to the conclusion that he was necessarily given the authority to authorize the transfer of funds. Murphy drafted documentation using Crisdar letterhead, some of which directly involved Lysenko in the transaction. Presumably, in his discussions with Duboff, Murphy would have made reference to his discussions with Lysenko on the matter. While Duboff was aware of Murphy’s previous involvement with Lysenko, none of the previous dealings were of the same nature nor placed Murphy in such a critical role. Even in the scrap metal deal, Murphy, when requesting funds for his son, had to provide Duboff with documents confirming the transfer.
[170] In this case Duboff forwarded $10,000 USD to Laksman with respect to the German bonds, and then the further sum of $300,000 on March 29th to Laksman and Hokland without any written authorization from Lysenko or verbal authorization from Lysenko to the effect that Murphy could authorize the transfer.
[171] I am not satisfied that Duboff, who has the onus of satisfying the court that there was actual authority given by Lysenko to Murphy to authorize the payment of the sums has done so, nor am I satisfied from the nature of the relationship that such authority could be implied as it cannot be argued that the nature of the relationship between Lysenko and Murphy was such that it would be reasonable to assume that the authorization to transfer funds from Duboff’s accounts came within that authority.
(ii) Agency by Estoppel
[172] The defendant argues that the plaintiff is prevented by the concept of agency by estoppel from denying that Murphy had the necessary authority to instruct Duboff to send the funds. By allowing Murphy to deal with Duboff in respect to the transaction, including the forwarding of documents using Crisdar letterhead, telephone conversations directly between Duboff, and having Murphy provide instructions to Duboff to forward funds to Laksman with respect to the $10,000 deposit on the German bonds, Lysenko created a state of affairs such that Duboff could reasonably conclude that Murphy was speaking with Lysenko’s authority.
[173] In order for the defendant to succeed on this ground, it must be able to show representations or conduct of Lysenko which amounted to a representation to Duboff that Murphy could instruct him in the manner in which he did, and that Duboff relied upon that representation to his detriment. (See Fridman’s The Law of Agency (7th ed.) at pp. 111 – 119.)
[174] The difficulty that the defendant faces is that there is no statement or conduct on the part of Lysenko which the defendant can indicate as being a representation to Duboff by Lysenko that Murphy had the authority to act on Lysenko’s behalf in the way he did.
[175] The use of Crisdar letterhead on letters signed by Murphy may have amounted to some form of representation had it been done on a consistent basis and with the avowed knowledge of Lysenko and Duboff. However, the only other situation where Murphy used Crisdar letterhead and signed letters prior to March 29th, apparently on behalf of the company, was in the scrap metal deal. There was no evidence that those specific letters where he did so were ever brought to Duboff’s attention prior to March 29th. With respect to the letters that were forwarded by Murphy to Duboff on Crisdar letterhead for his revision in the Railway bond transactions, there is no evidence that Lysenko was aware that he was doing so or acquiesced to the use of the letterhead prior to March 29th.
[176] Allowing Murphy to play a major role in the negotiations with Laksman does not, even in combination with other factors, lead to a representation that he was also entitled to deal with trust funds. The fact that he gave directions with respect to a payment of $10,000 as a deposit can only be used as a representation if that was authorized by Lysenko. Again, I have no evidence other than Murphy’s statement in his letter that that was the case. Murphy’s position is that he was still expecting Duboff to receive either verbal or written authorization from Lysenko before proceeding with that transfer.
[177] Therefore, I am unable to conclude from the evidence that there was a representation or conduct by Lysenko which would have allowed Duboff to reasonably conclude that Murphy was authorized by Lysenko to instruct payment in these circumstances.
(iii) Ratification
[178] There remains, however, the issue of agency by ratification. Ratification involves the concept of the principal acquiescing after the fact to the act done by the agent, although the agent did not have the required authority to do so at the time he did it. (See Fridman’s The Law of Agency (7th ed.) at pp. 84 – 110. See also Abbott v. McDougall and Cowans, [1927] 37 Man.R. 135 (C.A.), and Good v. Bescoby, [1913] 23 Man.R. 603 (C.A.).)
[179] Ratification requires:
(a) The existence of a principal at the time the act was done;
(c) That the principal could be ascertained at that time;
(d) That the principal be aware of all the material facts when the ratification occurs; and
(e) That the principal be able to have done the act that the agent did on his behalf.
[180] In this case, in the issue of ratification we are concerned with respect to the agency relationship with Duboff and Lysenko. I am satisfied that there existed a relationship between Lysenko and Duboff created by the solicitor/client relationship and that Lysenko was ascertainable as the client and able to have disbursed the funds if so inclined. I am also satisfied that his conduct after March 29th displays acquiescence of what steps had been taken by Duboff on March 29th.
[181] I am satisfied on the evidence that Lysenko did not complain to Duboff as alleged. In fact, I have found that no complaint was raised by Lysenko with respect to the release of the funds until July 8, 1997. Lysenko also actively participated in attempting to put together transactions dealing with the sale of the bonds or placing them in investment programs, all acts inconsistent, in my view, with opposition to the transfer to Laksman. Furthermore, at no time did he request from Laksman return of the $300,000 USD forwarded by Duboff.
[182] In my view, by his conduct, he ratified the steps that Duboff had taken on March 29th.
B. $10,000 USD ADVANCED ON MARCH 25TH
[183] On March 25, 1996, Duboff received instructions from Murphy in writing to transfer the $10,000 USD to Laksman, which Duboff did. The $10,000 was a deposit on German bonds. Again, the purchase of the German bonds was for the purposes of an investment program from which Crisdar was expected to receive a substantial amount of profit. Agreements were signed with Grange Trust in April with respect to these bonds, although nothing came of the suggested investment program.
[184] There is no evidence of a direct authorization by Lysenko or actual authority in Murphy to authorize Duboff to forward the funds, however, for the same reasons explained above, I am of the view that Lysenko ratified Duboff’s actions. This is evidenced by his conduct whereby he signed agreements with Grange Trust attempting to put these documents into an investment program and never complained to Duboff of the transfer until July 1997.
C. $4,025 USD PAID ON APRIL 3, 1996
[185] On April 3, 1996, Duboff transferred funds from his account of approximately $4,025 USD to Dobbins, in payment of invoices for certificates of deposit issued by Dobbins. While again there is no evidence that Duboff had specific authorization from Lysenko, the conduct of Lysenko serves, in my view, as ratification of Duboff’s actions.
D. RELEASE OF $2,000 USD
[186] The plaintiff originally claimed for return of the $2,000 advanced from Duboff’s trust account to Murphy on March 22nd. That particular claim was withdrawn at the outset of the trial as the documentation showed that Lysenko signed an authorization to Duboff to pay that sum to Murphy.
E. RELEASE OF $8,586.98 U.S. AUGUST 2, 1996
[187] On August 2, 1996, the firm’s bookkeeper signed a letter addressed to Crisdar Barbados at its Barbados address, although Lysenko’s evidence was that it was forwarded to him in Winnipeg. The letter stated as follows (Tabs 125 and 213):
This is to confirm that we have transferred $8,586.98 U.S. which converted to $11,637.93 CAD from the trust account and applied it on outstanding statements, as per attached.
Lysenko testified that he had never authorized this transfer and expressed his displeasure to Duboff shortly after receiving the letter. He indicated that he had never paid for Duboff’s accounts by transfer from trust, but always by cheque. He also testified that this letter was contrary to the understanding that he had with Duboff with respect to recovering his funds. He said Duboff attempted to explain the need for the sending of the cheques due to a request by his partners to bill outstanding time and the fact that Lysenko had the bonds which he had intended to purchase.
[188] Lysenko’s position was that until Duboff had arranged to get his money back there were not to be any further accounts. Duboff’s evidence was that there had been a conversation with Lysenko whereby the latter had consented to the funds being transferred. He also pointed out in his evidence that there was no complaint made with respect to these accounts until one year later in July 1997.
[189] I am satisfied that the transfer took place after statements of account had been submitted in accordance with Law Society rules set out in Practice Direction 89-03. Whether or not Lysenko consented to the transfer, the fact remains that the law firm was entitled upon presentation of its account to transfer funds in trust, unless they had been specifically set aside for other purposes by agreement between the parties and were not the subject of any claim or dispute between the firm and the client.
I discount Lysenko’s evidence on this point given that it is again predicated on the assumption that Duboff was to take steps to obtain his funds, which for reasons set out above I do not accept.
2. DID THE DEFENDANT FAIL IN HIS DUTY OF CARE TO THE PLAINTIFF?
[190] This aspect of the plaintiff’s claim is predicated on the position that the defendant Duboff owed a duty of care to the plaintiff which required him to:
(a) Make reasonable investigations with respect to individuals involved in the transaction relating to the bonds prior to the disbursement of the funds;
(b) To warn the plaintiff of the risk associated with forwarding the funds in the circumstances;
(c) To advise the plaintiff as to the risk involved in the transaction itself.
[191] The defendant’s position on this issue is that Duboff was not retained to perform investigations, to make inquiries, or to advise the plaintiff with respect to the transaction itself. His retainer was limited to reviewing documents, receiving and forwarding the funds. The defendant argues that the plaintiff, who is a sophisticated businessman, conducted his business in his own fashion without assistance from Duboff, or for that matter anyone else, as to the manner in which he did things.
[192] Duboff’s evidence was that his relationship with Lysenko was that he provided help with respect to banking matters and to ensure that the latter’s legal affairs were conducted within the law and convention. He was not involved in the business side of the transaction and was not asked for advice on the business efficacy of deals and never volunteered that advice. He was not always provided with the entire details of a transaction, but was only asked to perform limited tasks such as the preparation of contracts on deals that have already been agreed to, and asked for revisions to documents prepared by others such as Murphy.
[193] The plaintiff relies on the case of Watson v. Johnson, (1990), 66 Man.R. (2d) 10, where the court found an obligation on a lawyer to advise a client of the risks involved in proceeding in the transaction where the lawyer had particular knowledge of those risks as a result of his being involved in prior transactions involving the property. The land was being used in “flips” whereby the values were being inflated upon each transfer, a highly questionable procedure. The lawyer had sought advice from the Law Society and an independent law firm as to the propriety of his dealing and had been advised to withdraw from acting on the file. In finding liability, Mr. Justice Scollin stated as follows at p. 18:
[12] Much of the legal system is predicated on a rather cynical view of the well-springs of human behaviour and by its very nature law brings the lawyer, in many cases, into contact with unpleasant people and also with generally pleasant people who sometimes do unpleasant things. The realization of this is the foundation of the rule in the Code of Professional Conduct that the lawyer must be both candid and honest when advising his client. Paragraph 6 of the commentary on that rule (already quoted from Mr. Taylor's letter) is particularly apposite in this case:
"When advising his client the lawyer must never knowingly assist or encourage any dishonesty, fraud, crime or illegal conduct or instruct his client as to how to violate the law and avoid punishment. He should be on his guard against becoming the tool or dupe of an unscrupulous client or those who are associated with that client."
[13] It follows that, as a general rule, if proper and timely advice might have prevented loss or damage, the responsibility of the lawyer should not be diluted by the moral inadequacies of the client. Law and morals are a highly combustible mixture. Any client, even the most unpleasant and dishonest one, has as much right to receive advice as he has to reject it. Where the client's conduct, if continued, would be dishonest or contrary to law and he rejects the advice, then obviously the lawyer cannot continue to act. In this case, such advice should have been given to Barber and the buyers and sellers as soon as Deans was asked to participate in the civil fraud by deliberately swearing unsupportable affidavits of value and as soon as he began to face the serious conflicts which this manipulative scheme involved.
[194] The case may be distinguished, however, on the basis that there is no evidence that Duboff was made aware at any time prior to the disbursement of the funds that there would be an attempt to sell the bonds for a vastly inflated price to Grange Trust. Murphy was unable to testify that he gave that information to Duboff and Duboff had no recollection that he was aware of the details of the transaction before March 29th. In fact, to the best of his recollection he was not aware of the details of the sale to Grange Trust. Presumably, he would only have become aware when the documentation was forwarded to him some time in early April for his comments. The suspicious and possibly fragile nature of the transaction was only, by the evidence before me, available to him after the disbursement of the funds.
[195] The defendant relies upon Cordery's Law Relating to Solicitors, (8th ed.) F.T. Horne, ed, (London: Butterworths, 1988), at pp. 138 and 147, as support for the position that in the absence of special instructions, there is no duty on the part of the solicitor to advise his clients on matters of business, nor to advise the client on an entire transaction unless specifically retained to do so.
[196] In Silver v. Morris, [1995] N.S.J. No. 111 (C.A.), it was held that the client, a successful businesswoman, was not entitled to rely upon her lawyer to provide her with tax advice when not specifically requested. It was held that there was no duty on the lawyer to provide advice or even to advise the client to seek the expertise elsewhere.
[197] I agree with the defendant’s submission that, for the most part, Lysenko’s requests from Duboff were limited to assistance in obtaining letters of credit, payment of funds out of the trust account, and drafting of particular agreements reflecting the transactions which had been arrived at between Lysenko and his business partners. There is no evidence that Duboff was retained to advise Lysenko with respect to this transaction. In fact, Lysenko’s position at trial was that he was unaware that the transaction was to take place at all, being surprised on April 1st when told that the funds had been disbursed for the purchase of bonds.
[198] Duboff’s position is not helped by lack of any documentation setting out the terms of his retainer or expressing any concern to the client with respect to the payment of funds to a third party without any assurances that the alleged certificate of safekeeping served the purpose for which it was intended. A prudent solicitor may well have:
(a) sought information as to the entire transaction so as to properly advise the client on the nature of the documentation required to safeguard his interests and refused to be further involved if such information was not available;
(b) placed in writing the limited nature of his retainer and the risks involved.
Duboff did neither of these.
[199] While I have characterized that as perhaps imprudence in the circumstances, given the nature of the evidence before me, I find that the plaintiff has been unable to satisfy me on a balance of probabilities that Duboff failed in respect to the duties created by the services which he had undertaken to provide. I am further satisfied from the evidence of Lysenko that he did not seek nor rely upon Duboff’s advice on whether to advance the funds, nor did he instruct Murphy to do so.
3. BREACH OF DUTY WITH RESPECT TO INVESTMENT IN MR. TUBE STEAK
[200] On April 4, 1994, Lysenko provided Duboff with a personal cheque in the amount of $30,000 to purchase shares in an entity known as Mr. Tube Steak. The circumstances surrounding the exchange of the cheque is not the same from both parties. Only Lysenko and Duboff were parties to the conversation. Lysenko’s position is that he was asked by Duboff to invest, while Duboff’s recollection is that he mentioned that he was investing in the venture, as a result of which Lysenko asked that he be allowed to participate. While I have found that Duboff likely invited Lysenko to invest, in my view, nothing much turns on who asked whom. The more pertinent matter is the manner in which the investment was explained and what advice, if any, Duboff provided Lysenko at the time.
[201] Duboff was counsel to one or more of the Mr. Tube Steak corporations carrying on business in Manitoba. His position is that he was not counsel for Mr. Tube Steak Canada Inc., which was the corporation which intended to issue its shares publicly in the future and the company in which he was going to invest. It is without contention that Duboff advised Lysenko that he was investing in the company at the time with the expectation or hope that it would go public in the near future and that a profit could be obtained when the company went public.
[202] Lysenko’s evidence is that he was not aware that Duboff was counsel to Mr. Tube Steak, only that Duboff was going to be investing in the corporation. Nor did Duboff, according to Lysenko, explain that the venture was organized into a number of different corporations and only one was going to be going public, one for which he did not act.
[203] I prefer Duboff’s evidence on this point, namely, that the subject of his acting for Mr. Tube Steak in Manitoba would have likely occurred as a means of explaining why Duboff was investing in the first place and how the opportunity arose. However, I accept Lysenko’s evidence that no explanation was given of the different companies involved and that when he agreed to invest in the company, he was doing so in the belief that he was investing in a company called Mr. Tube Steak, not one of many corporations with that name.
[204] This would be consistent with the conversation which took place in May 1996 on the trip to San Francisco where Duboff pointed out to Lysenko that a Mr. Tube Steak company had gone public, but that it was different from the company in which they had invested. Duboff remembered the conversation but did not recall the specifics. Lysenko recalls specifically that the issue of the difference between the company they had invested in and the company going public was discussed.
[205] As to Duboff being a director of the company, the only evidence on that matter is that he did not become a director until after the investment had taken place and would not have been at the time that he spoke to Lysenko.
[206] Duboff, in the summer of 1997, after an inquiry from Lysenko, did prepare a declaration of trust confirming ownership of 100,000 shares in his name on behalf of Lysenko. The declaration of trust only referred to being a trustee of shares valued at $30,000 without specifying any amount. The amount was later set out in a letter and certificate sent to Lysenko by Mr. Tube Steak Services Ltd., whereby they advised him that he held 130,000 common shares in the name of Selta International.
[207] The plaintiff’s position is that Duboff owed a duty of care to advise Lysenko of his involvement with Tube Steak. Given the potential conflict of interest, he should have advised Lysenko to seek independent legal advice. The defendant’s position is that it was not necessary to send Lysenko to seek independent legal advice as Duboff was not an officer of the corporation, but merely its lawyer and shareholder. The defendant submits that Duboff did not stand to benefit financially from Lysenko’s investment and as such had no personal interest in the company, and that Lysenko had suffered no damages from the investment as he has received shares. Finally, the defendant contends that Lysenko would not have attended upon another lawyer to obtain independent legal advice even had it been suggested to him.
[208] The relationship between Duboff and Lysenko in April 1994 was that of a solicitor and his client, and while Duboff had not accepted a retainer from Lysenko with respect to advising him on the investment in Mr. Tube Steak, the fact that he was representing him in other matters created a fiduciary relationship which required that he be careful in his dealings with Lysenko in this matter. The fact that he represented Mr. Tube Steak and was a potential investor created, in my mind, a sufficient interest on his part which would be viewed as a conflict with Lysenko’s interests. The suggestion that Duboff had no interest in whether or not Lysenko invested in the company was not the subject of evidence before me. There was no evidence as to the financial status of the corporation and whether it was actively seeking investment for reasons of financial stability. Schachter’s evidence was that this was a highly speculative investment, which has been borne out.
[209] In my view, Duboff created a situation where he was obligated to advise Lysenko specifically of what the nature of his investment was, namely, in what corporation he was investing as opposed to simply suggesting it was a venture. He could not rely upon Lysenko’s alleged sophistication as Lysenko’s experience in business was not related to the sale and purchase of shares on the stock market. Any sophistication he did have was with respect to international trade transactions. Apart from advising Lysenko of the exact nature of the transaction, which I am not satisfied from the evidence that he did, it was also incumbent upon Duboff to suggest to Lysenko that he obtain independent legal advice.
[210] The defendant’s position is that Lysenko would have refused to consult another counsel. The defendant relies upon the following excerpt from the evidence of Lysenko where he is asked as follows:
Q. Okay. At the time that you made the investment did Duboff make any suggestions to you?
A. No. He was my partner. What he, would he want to suggest to me? I don’t understand.
Q. Okay, did he suggest that you go see another lawyer?
A. No.
Q. Did he suggest that you go see a financial adviser?
A. No. He know I never do this. He tell me I never will do this. I trust him. He invite me be a partner. I go.
[211] The manner in which the need for independent legal advice would have been explained to Lysenko may well have affected his view, especially if the exact nature of the investment was explained to him.
[212] I cannot accept the evidence proposed as being conclusive that Lysenko would not have obtained independent legal advice if advised to do so by Duboff, nor that he would necessarily agree to the purchase of the shares had the differences between the companies been explained to him.
[213] The onus of proving that this would have occurred is upon the defendant and I am not satisfied that they have met that burden. In the circumstances, Duboff was in breach of his fiduciary duty to Lysenko.
VIII. DAMAGES
[214] The plaintiff’s claim for damages was set out in a brief filed as part of the exhibits at trial and supplemented. They are as follows:
(1) Expenses with respect to the claim for unauthorized release of trust funds:
(a) $10,025 USD with respect to the release of trust funds on or about May 25, 1996 to Laksman, together with interest thereon;
(b) $300,000 USD relating to the release of trust funds on March 29, 1996 to Laksman and DDJ Security, together with interest;
(c) $4,025 USD with respect to the release of trust monies on April 3, 1996 to Dobbins;
(d) $8,586.98 USD with respect to the transfer of trust monies on August 2, 1996 towards payment of outstanding accounts;
(e) $289 USD with respect to the release of trust funds on February 23, 1996, March 19, 1996 and April 1, 1996.
(2) Expenses claimed with respect to steps taken by Lysenko and his companies in order to recover the $300,000 USD, including:
(a) Telephone expenses of $4,346.50;
(b) Travel to San Francisco in May of 1996 - $3,899.55;
(c) Travel to Toronto - $1,197.33;
(d) Payment to Customs Canada in Toronto - $1,717.75;
(e) Amount paid to the Royal Bank (Caribbean Corporation) to act as a custodian - $4,130.00;
(f) Telephone expenses for January 1 to December 31, 1997 - $2,465.03.
(3) Lysenko’s investment in Mr. Tube Steak – the amount of $30,000 plus interest.
(4) A claim for loss of opportunity and profit was abandoned at trial.
DAMAGES WITH RESPECT TO MARCH 29TH TRANSFERS (Items 1(b) and 2(a–f)
[215] With respect to the damages for the payment of $300,000 from the trust funds and other related amounts (items 1(b) and 2), having found that Lysenko was aware of the impending transactions with Laksman and ratified Duboff’s transfer of the funds, then the plaintiff’s claim for this aspect of damages fails.
[216] If I am wrong on the ratification issue, I am of the view that Lysenko was actively involved in pursuing the bonds and wishing to participate in the sale to Grange Trust, and acquiesced to the payment of $300,000, certainly after March 29th. He received bonds, which he holds today, and therefore has suffered no damages which are related to Duboff’s actions. No loss arises from his own attempts to obtain valueless documents.
[217] If I am incorrect in my assessment of his evidence and that he in fact never contemplated purchase of these bonds, then the damages would be as claimed under this heading together with interest starting on July 8, 1997, when he first made demand for the return of funds.
OTHER TRANSFERS FROM TRUST (Items 1(a), (c), (d) and (e))
[218] For the reasons outlined previously, I do not believe that the plaintiff has a claim against Duboff for payments made out of trust, either because Lysenko ratified the payments at a later time or the payments were authorized at the time they were made.
OVERPAYMENT ON ACCOUNTS AND CASH PAYMENTS
[219] In its revised brief as to damages, plaintiff’s counsel set out a claim for $15,000 which it is argued was given in cash to Duboff and not credited against the accounts. While it was Duboff’s evidence that from time to time he received cash towards accounts, it was also his evidence that the amount was either deposited in his trust account or applied against outstanding accounts. The plaintiff has not proven that any of these amounts were not accounted for other than the possibility of an amount slightly over $300 taken out for a trip to Chicago by Duboff involving the Nigerian Central Bank transaction. Duboff could not recall whether that amount was returned to trust or what became of it. I am not ready in these circumstances to find that Duboff did not make a proper accounting of it either to his accounting department or in other fashion with the client.
DAMAGES IN RESPECT OF MR. TUBE STEAK (Item 3)
[220] On the issue of the investment in Mr. Tube Steak the considerations are different.
[221] I have found that Duboff was in a fiduciary relationship with Lysenko with respect to this investment and that it was incumbent upon him in those circumstances to inform him fully of his own involvement in the corporations, and to advise him to seek independent counsel.
[222] There is no direct evidence as to the current value of those shares, although an indication can be had of the fact that Duboff in his own testimony indicated that he had written off his investment as a loss. In the circumstances I think it would be appropriate to assume that the shares have no marketable value.
[223] There is some debate in the jurisprudence as to how one should assess damages in the case of a breach of duty by a fiduciary. (See Canson Enterprises Ltd. v. Boughton & Co., 1991 CanLII 52 (S.C.C.), [1991] 3 S.C.R. 534.) In discussing the developments of the law and in particular commenting upon Canson, Freedman J.A. in Blanco v. Canada Trust Co. [2003] M.J. No. 153, commented that there are different remedies depending on the nature of the conduct which is seen as inappropriate. At para. 59 he stated:
… On the state of the evidence the conduct of Canada Trust appears to lie closer to the low end than the upper end of a continuum of conduct calling for a remedy. At the low end one might find cases of simple negligence, where a remedy of a restitutionary nature would be limited by principles of causation and remoteness. At that point on the spectrum the plaintiffs' loss would be seen, from a common sense perspective, to have nothing to do with Canada Trust's alleged failure, or breach of duty. At the upper end, the remedy, also restitutionary in character, would likely be premised on a finding of improper, deceitful or fraudulent conduct, or the like, and might involve disgorgement of benefit. At worst, so it appears, Canada Trust committed an act of negligence, with no allegation of improper conduct even being made. This could call for the application of traditional principles of remoteness and causation. …
[224] The facts in this case are not one where there has been an egregious abuse of position by a solicitor towards his client, nor is this a situation where the client was particularly vulnerable to entreaties by his solicitor, or where the solicitor was seeking to obtain a benefit to which he was not entitled. At most it can be said that Duboff was attempting to offer an opportunity to a client whose business he wished to develop in an investment from which he may himself recoup a benefit if the project was successful.
[225] Nevertheless, I am of the view that there was a fiduciary duty which was breached and that in this case the cause of the loss to Lysenko can be related to the failure to abide by the duty. Accordingly, a restitutionary approach is the appropriate one in the circumstances and I find that Lysenko is entitled to recovery of the sum of $30,000.
[226] As to interest, the letter sent to Duboff on July 8, 1997 does not demand return of the sum, but rather an accounting with respect to the purchase of the shares which was provided by Duboff. Even in the statutory declaration of September 4, 1997, at paragraph 6 the plaintiff does not seek return of the funds, but rather seeks assignment and transfer of the shares in a declaration of trust to him, or if the shares have not been purchased, then return of the funds.
[227] The first indication before the court of a claim being advanced by or on behalf of Selta by Lysenko for the return of the $30,000 is in its brief to the Reimbursement Fund of the Law Society of Manitoba on May 5, 1998. Accordingly, it is from that date only that I would grant pre-judgment interest to Lysenko for the $30,000 invested in Mr. Tube Steak. These shares should be assigned to Duboff as it would only be fair that he be entitled to whatever value the shares may have at this time.
IX. COSTS
[228] The plaintiff seeks solicitor and client costs. Given the only breach that I have found, I do not believe that this is an appropriate case for solicitor and client costs. In light of the relative successes of the parties in this case, namely that the vast amount of the trial was spent with respect to claims advanced by the plaintiff which were unsuccessful, the defendant is entitled to costs less an adjustment for that portion of the trial for which the plaintiff was successful. I therefore award the defendant 75% of its costs. If the parties are unable to agree as to what that amount should be, they may speak to the issue.
X. THIRD PARTY CLAIM
[229] The defendant has third partied Murphy, alleging that Murphy held himself out as Lysenko’s agent and that Duboff relied upon those representations when disbursing the funds. If the court finds that Murphy was not so authorized, then it claims against Murphy for breach of warranty of authority.
[230] While I have concluded that Duboff was under the impression that Lysenko wanted to have the funds transferred out on March 29th, I am not satisfied from the evidence that Duboff has proven that Murphy gave him specific instructions to do so without confirming with Lysenko.
[231] It is unlikely that Duboff would have forwarded the funds without believing that he had the instructions to do so from Lysenko, or from Murphy on Lysenko’s instructions. It does not equate with a conclusion that Murphy made a direct representation that Lysenko had authorized him to instruct Duboff to transfer the funds.
[232] The concept of ratification would also apply to this portion of the claim since, if there was a representation by Murphy that he was authorized to instruct Duboff to forward the funds but was not in fact authorized, then Lysenko’s conduct after March 29th would have served as ratification for Murphy’s actions.
[233] For these reasons, I will dismiss the third party claim.
[234] Murphy was not represented by counsel at trial, however, he did have counsel represent him at the early part of the matter. If Murphy wishes to advance a claim as to costs, those costs will be assessed against the plaintiff. If there is no agreement, I will hear the parties.
XI. CONCLUSION
[235] In summary, the plaintiff will have judgment against the defendant for the sum of $30,000 plus pre-judgment interest from May 5, 1998. All other claims by the plaintiff are dismissed, as well as the third party claim.
________________________
Monnin, C.J.
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Marion Barry Charged With Stalking
View Discussion Last Updated: Mon, 07/06/2009 - 10:37am
The District of Columbia’s renowned crack head mayor—elected to the city council four times after prison—has been arrested and charged with stalking his former girlfriend in violation of his probation for separate crimes.
The United States Park Police arrested Marion Barry over the weekend for stalking a 40-year-old woman who flagged an officer down in the District’s Anacostia Park area and pointed Barry out as the man bothering her. He was sitting in a nearby vehicle as the area filled for a 4th of July fireworks celebration at around 8:45 p.m.
The woman is a political consultant who evidently had a short relationship with the crooked 73-year-old lawmaker and says he continues stalking her even though they broke up months ago.
It marks the latest of many legal troubles for the politician best known for starring in an FBI surveillance video smoking crack as D.C. mayor. Since that 1990 incident, which led to a drug conviction and jail sentence, Barry has failed to pay around half a million dollars in city and federal taxes.
Earlier this year outraged federal prosecutors tried sending him to jail for repeatedly violating the terms of his probation for tax evasion, which he pleaded guilty to in 2007. However, a magistrate judge refused, ruling that prosecutors did not prove Barry “willfully failed to file his returns” for multiple years.
Incredibly, the corrupt politician keeps getting elected and no judge dares to revoke his probation despite his blatant disregard for the law. Frustrated federal prosecutors call Barry’s conduct “indefensible” and point out that it’s not acceptable for any citizen to shirk a basic civil duty, let alone a former mayor and current city councilman.
Barry isn’t the only convicted criminal serving on the D.C. Council, however. Last year a lobbyist convicted of money laundering in the late 1990s was elected to the District of Columbia Council. Michael Brown, the son of Clinton Commerce Secretary Ron Brown, won a seat despite his serious legal problems.
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GOP Pols Losing Control Of Tea Party Movement?
By Eric Kleefeld - July 6, 2009, 12:33PM
Thousands of right-wing activists across this country rang in the Independence Day holiday with yet another round of tea-party protests against President Obama, inadvertently highlighting an interesting divide in the Republican Party. On the one hand are the hard-line activists who attend these things, versus the more mainstream politicians who want to win elections and are looking for their votes -- and are running into all manner of conflicts as a result, or finding themselves taking on some rather interesting policy stances along the way.
Most notably, Sen. John Cornyn (R-TX), who is chairman of the National Republican Senatorial Committee, was booed at the event in Austin -- on the grounds that he's part of the problem in Washington, having voted for the Wall St. bailout last fall. "I'm not part of Washington," Cornyn said in his own defense. "I happen to work there, but on behalf of Texas, and I can vote 'no' on these reckless spending bills, on the refusal to cut taxes."
Gov. Rick Perry -- who famously seemed to raise the specter of Texas seceding from the union during the April Tax Day protests -- was also booed at the same Austin event as Cornyn. Attendees saw him as yet another tax-hiking tyrant, because he supports toll roads in order to relieve traffic congestion.
The Dallas tea party also attracted some interesting folks in the crowd, as the Dallas Morning News reports:
Katie Vandermeer and her family, including her husband and four children, were sitting under a pop-up tent they brought to the ranch. She heard about the tea party through the Texas Nationalist Movement, which advocates Texas' secession from the U.S.
In Bemidji, Minnesota, a headline speaker for their "Freedom Over Socialism" rally was state Rep. Mary Seifert, one of the leading Republican candidates for Governor, who warned of government taking away everyone's personal freedom: "Now suddenly we tell you that you have to wear your seat belts or someone is gong to come racing down the road and fine you." Another speaker, former state legislative candidate John Carlson, spoke favorably of the Articles of Confederation.
The tea party in Columbia, South Carolina, featured Sen. Jim DeMint and state Rep. Nikki Haley, a leading Republican candidate for Governor. One prominent person was missing, though: Gov. Mark Sanford, who had previously headlined a Tax Day tea party back in April.
The tea party in Boiling Springs, South Carolina, featured a colorful cast of characters. The headline speaker was Alan Keyes, who has been a leading name of the "Birther" movement. Lead organizer Michael Brady came dressed up as Thomas Paine -- who in real life was a left-winger in favor of progressive taxation and opposed to traditional religion. One attendee took out a flyer that said, "Zelaya today, Obama tomorrow," but said he was advocating impeachment of Obama after he was asked directly whether he was in favor of a coup.
At the event in Los Angeles, right-wing former Saturday Night Live actress Victoria Jackson -- who has previously called Barack Obama a Muslim and a communist -- called for the President's impeachment, "There, I said it," and did a handstand dedicated to our men and women in uniform. As Chris Erskine of the Los Angeles Times writes: "But Victoria Jackson held that handstand for, like, almost a minute -- strong and proud. In my book, that's worth 10 bucks alone."
(Cornyn video via The Huffington Post.)
YOU'RE NOT THE BOSS OF ME!
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Just finished reading the Duboff post – God it was long! Was amazing how the judge was able to keep track of all the machinations, twists, turns, plots, sub plots, agreements and sub agreements. At times it felt like trying to unravel a mini Bernie Madoff ponzi scheme. This might have been avoided had Mr. Duboff exercised a little more due diligence and kept better records and notes to file. Getting personally involved with the Mr. Tube Steak deal was another unwise decision. What caught my attention very early on was when mention of the Nigerian Central Bank was mentioned in connection with a deal these jokers were working on – everyone knows, or at least should, Nigeria is the scam capital of the world.
As for the Plaintiffs, it was as though one was dealing with a den of thieves. Didn’t know who to believe so in the end gave very little credence to any of them.
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