COURT OF APPEAL SUMMARIES (AUGUST 31 – SEPTEMBER 4)

In Caroti v. Vuletic, the Court allowed an appeal seeking to set aside a distribution order regarding the recovery of misappropriated/mismanaged investor funds in a housing development project. There, certain groups of investors had taken their claim as against the defendants to trial, whereas others had settled with the defendants. However, the terms of the settlement agreements, including the monetary payments thereunder, were unfulfilled at the time of trial. The distribution order made at the conclusion of trial would have excluded the settling parties, and distributed funds to only those parties that had taken their claim to trial. The Court held that trial judge had erred in making the distribution order, and that the money paid by the settling parties towards the property were being held in resulting trust on their behalf. Moreover, as the amounts owing under the settlement agreement were never paid, the settling parties still had a right to pursue their contractual claims in court. In light of this, the Court set aside the distribution order and prescribed a tiered distribution scheme involving all parties. The Court also dismissed the appeal of a sub-group of the trial parties who sought to set aside the distribution order on the basis that it incorrectly incorporated costs into the distribution percentages set out in the distribution order.

In Taylor v. Salytics Inc., the Court upheld the dismissal of a constructive dismissal application brought by an employee who had been temporarily laid off. The Court held that a temporary lay-off clause that expressly incorporated the requirements of the ESA was not a termination clause. As a matter of legislative policy, the ESA distinguishes between temporary lay-offs and terminations. The location of the clause under the “Termination” heading in the employment agreement was not determinative.

Wishing everyone an enjoyable weekend.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Table of Contents

Civil Decisions

Caroti v. Vuletic, 2026 ONCA 614

Keywords: Contract Law, Breach of contract, Fraud, Conspiracy, Brach of fiduciary duty, Misappropriation,  Orders, Distribution Order, Equitable Remedies, Constructive Trust, Resulting Trust, Costs, Damages, Development Project, Investments, Investors,   Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1), s.134(1); Caroti v. Vuletic, 2022 ONSC 4695; Leclair v. Leclair Estate (1998), 159 D.L.R. (4th) 638 (C.A.); McMillan v. Johnson (Estate), 2011 BCCA 48; 306440 Ontario Ltd. v. 782127 Ontario Ltd. (Alrange Container Services), 2014 ONCA 548; Moore v. Sweet, 2018 SCC 52; Rawluk v. Rawluk, [1990] 1 S.C.R. 70; Rathwell v. Rathwell, [1978] 2 S.C.R. 436;  Nishi v. Rascal Trucking Ltd., 2013 SCC 33,;Lalli v. Lalli, 2026 ONCA 123; Archer v. St. John, 2008 ABQB 245; Fanelli v Fanelli-Bruno, 2023 ONSC 6501; Charter Building Company Co. v. 1540957 Ontario Inc. (Mademoiselle Women’s Fitness & Day Spa), 2011 ONCA 487; Carmichael v. GlaxoSmithKline Inc., 2020 ONCA 447; Carmichael v. GlaxoSmithKline Inc., 2020 ONCA 447; Whiten v. Pilot Insurance Co., 2002 SCC 18; A.H. Oosterhoff, Robert Chambers & Mitchell McIness, Oosterhoff on Trusts, 10th ed. (Toronto, Ontario: Thomson Reuters, 2024)

Taylor v. Salytics Inc., 2026 ONCA 621

Keywords: Contracts, Employment, Termination, Constructive Dismissal, Temporary Lay-Off, Statutory Interpretation, Employment Standards Act, 2000, S.O. 2000, c. 41, ss. 56(1), (2), and (4), Waksdale v. Swegon North America Inc., 2020 ONCA 391, Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255, Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831, Stolze v. Addario (1997), 36 O.R. (3d) 323 (C.A.), Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158

Short Civil Decisions

Rosso v. Rosso, 2026 ONCA 626

Keywords: Civil Procedure, Contracts, Costs, Palpable and Overriding Error, Reviewable Errors,  Limitation Period, Accounting Order

Rosenberg v. Macdonald Sager Manis LLP, 2026 ONCA 627

Keywords: Civil Procedure, Costs, Assessment of Costs, Leave to Appeal Costs, Courts of Justice Act, R.S.O. 1990, c. C-43, s. 133(b), Mullin v. Lagace, 2015 ONCA 757

Evertz Technologies Limited v. Providius Corp., 2026 ONCA 628

Keywords: Civil Procedure, Costs, Partial Indemnity and Substantial Indemnity Costs, 1086289 Ontario Inc. (Urban Electrical Contractors) v. Welland (City), 2026 ONCA 352, Handley Estate v. DTE Industries Limited, 2018 ONCA 324

Victim Services Toronto v. Dabrowski, 2026 ONCA 632

Keywords: Contracts, Oral Contracts, Property, Palpable and Overriding Error, Costs

Luo v. Yang, 2026 ONCA 630

Keywords: Family, Separation Agreements, New Issues on Appeal, Kaiman v. Graham, 2009 ONCA 77

CIVIL DECISIONS

Caroti v. Vuletic, 2026 ONCA 614

[Roberts, Trotter and Dawe JJ.A.]

Counsel:

D. M. Cunningham, for the respondents /appellants, P. P, T. L, F. T, and 958041 Ontario Limited

A.J. Esterbauer and A. March, for the appellants M. B, F.D, J.B, Mr R.B, Mrs R.B, R. S and J. F

A. Honickman and S. Lau, for the appellants A. G and K.G

C. Abela, for the respondents A. C, J. C, I. G, M. G, N. K, B. M, B. N, M. P-M, W. J, M. S

A.J. MacDonald, for the respondent A.B

Keywords: Contract Law, Breach of contract, Fraud, Conspiracy, Brach of fiduciary duty, Misappropriation,  Orders, Distribution Order, Equitable Remedies, Constructive Trust, Resulting Trust, Costs, Damages, Development Project, Investments, Investors,   Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1), s.134(1); Caroti v. Vuletic, 2022 ONSC 4695; Leclair v. Leclair Estate (1998), 159 D.L.R. (4th) 638 (C.A.); McMillan v. Johnson (Estate), 2011 BCCA 48; 306440 Ontario Ltd. v. 782127 Ontario Ltd. (Alrange Container Services), 2014 ONCA 548; Moore v. Sweet, 2018 SCC 52; Rawluk v. Rawluk, [1990] 1 S.C.R. 70; Rathwell v. Rathwell, [1978] 2 S.C.R. 436;  Nishi v. Rascal Trucking Ltd., 2013 SCC 33,;Lalli v. Lalli, 2026 ONCA 123; Archer v. St. John, 2008 ABQB 245; Fanelli v Fanelli-Bruno, 2023 ONSC 6501; Charter Building Company Co. v. 1540957 Ontario Inc. (Mademoiselle Women’s Fitness & Day Spa), 2011 ONCA 487; Carmichael v. GlaxoSmithKline Inc., 2020 ONCA 447; Carmichael v. GlaxoSmithKline Inc., 2020 ONCA 447; Whiten v. Pilot Insurance Co., 2002 SCC 18; A.H. Oosterhoff, Robert Chambers & Mitchell McIness, Oosterhoff on Trusts, 10th ed. (Toronto, Ontario: Thomson Reuters, 2024)

facts:

The Development Project

In 2001, J.V and his son A.V sought to buy and develop a 12 ½ acre farm on the outskirts of Brampton into multiple residential lots. With help from family friend A.K, they solicited investors who would acquire the right to purchase individual lots once the property was subdivided. Investors were told they would pay approximately $50,000 per lot in servicing costs and would double their money within a short period. During early 2002, multiple investors entered into purchase and sale agreements with a corporation controlled by J.V and A.V. Many investors received a prospectus that inaccurately stated the property was already zoned for “executive housing” when it was only zoned for residential agriculture.

By July 2002, J.V and A.V had raised a total of approximately $1 million from multiple investors. They proceeded to purchase the farm property for approximately $1.3 million, financing the balance of the price.

Over the next decade, J.V and A.V led their investors to believe that the development project was proceeding smoothly. In reality it had encountered multiple obstacles, including serious zoning and regulatory development issues that the J.V and A.V concealed from the investors. During this time, they asked some of the investors to make additional payments for “servicing costs”

J.V and A.V decided to abandon the development project and sell the property, which by that time had significantly increased in value. In 2016, the property sold for approximately $15.4 million, financed in part through a vendor take-back mortgage. This was more than $14 million higher than the 2002 purchase price. J.V and A.V did not pay any of the sale proceeds to the investors.

In 2017, various combinations of the investors commenced two separate actions against the J.V and A.V and two corporations they controlled.  The two actions were ultimately tried together.

In 2019, some of the plaintiffs obtained a court order requiring the purchaser to pay the money it owed under the vendor take-back mortgage into court. As of May 2024, the amount that was held in court, including interest, came to approximately $11.3 million.

Before the trial began, eleven of the litigants entered into settlement agreements with the defendants (the “Settling Parties”). In addition to paying the agreed-upon settlement amounts, the defendants agreed to bring a motion for an order permitting the Settling Parties to be paid out of the money being held in court.

The defendants’ motion for an order allowing the Settling Parties to be paid from the money held in court was brought but ultimately adjourned. When the trial of the investors’ actions began in the fall of 2021, none of the Settling Parties had been paid.

The plaintiffs who took their actions to trial were successful (the “Trial Parties”). The trial judge found the J.V and A.V and their corporations liable for breach of contract, fraud, conspiracy, and breach of fiduciary duty. He also found that but for the J.V and A.V’s misappropriation of funds and mismanagement of the development project, the property would have sold for approximately $19.5 million, or $4.1 million more than the actual $15.4 million sale price. The trial judge used this higher amount to calculate the Trial Parties’ damages and awarded them a total of approximately $10.6 million in compensatory damages, plus $150,000.00 in punitive damages. He also granted each of the Trial Parties remedial constructive trusts, and, in the alternative, found that they also had purchase money resulting trusts.

The trial judge later awarded costs to the Trial Parties. Including the costs awards, the total awards made to the Trial Parties came to $16,368,576.53, plus interest. As of June 2024, this amount had grown to $17,521,614.10, which exceeded the $11.3 million held in court.

Litigation then ensued between the Trial and Settling Parties over who was entitled to shares of the money that had been paid into court. In December 2024, the trial judge granted judgment to the Settling Parties in the amounts of their settlement agreements, as they had requested. However, he held that they had no equitable claim to the money being held in court, and allocated these funds entirely to the Trial Parties.

The net result was that while the Trial Parties would not collect the full amount of their judgment debts, plus interest and costs, they would still make very substantial profits on their investments. The Settling Parties, in contrast, would lose their investments and come away empty-handed, as well as having to pay costs to the Trial Parties for the distribution motion.

The Settling Parties appeal against the trial judge’s distribution order. They also seek leave to appeal the costs award. One group of the Trial Parties (the “P. Group”) also appeals against a different aspect of the distribution order, arguing that the trial judge should have allocated more money to them, and less to the other Trial Parties.

issues:

1. Did the trial judge err in finding that the Settling Parties did not have purchase money resulting trusts over a portion of the preserved funds from the farm sale?
2. In respect of the P. Group’s appeal, did the trial judge err in his calculation for the amounts awarded to the Trial Parties?
3. Was the distribution award made by the trial judge fair and equitable?

holding:

Settling Parties’ Appeal allowed.
P. Group’s Appeal dismissed.

reasoning:

1. Yes.

The Court held that the trial judge’s reasons disclosed three related legal errors that, in combination, led him to incorrectly find that the Settling Parties did not have purchase money resulting trusts over a portion of the preserved funds from the sale of the property.

The Court held that the trial judge’s first error was based on a misunderstanding of the differences between constructive trusts and purchase money resulting trusts.  Constructive trusts are purely remedial. They are not based on the intentions of the parties, but may be imposed by the court as a remedy for unjust enrichment. Constructive trusts do not follow automatically from a finding of unjust enrichment, but must be judicially declared

In this case, the Settling Parties did not pursue unjust enrichment claims and the trial judge only granted constructive trusts to the Trial Parties. Accordingly, the Court held that the Settling Party appellants could not now assert any entitlement to be awarded similar constructive trusts. Resulting trusts, however, are conceptually different from constructive trusts. The Court cited Dickson J. (as he then was) in Rathwell v. Rathwell which stated that the settlor’s intent in resulting trusts is inferred, or presumed as a matter of law from the circumstances of the case.

The Court held that a purchase money resulting trust arises when a settlor pays money towards the purchase price of property, in circumstances where the evidence establishes or the law presumes that they intended to acquire a beneficial interest in the property. The Court held that there was no dispute that the Trial Parties and the Settling Parties all provided money that went towards the purchase of the farm property, and that none of the investors intended their contributions to be a gift or a loan. Thus, the Court found that the trial judge erred by failing to recognize that these undisputed facts were sufficient to give the Settling Parties a purchase money resulting trusts over the proceeds from the sale of the farm property.

The Court held that the trial judge’s second error was to hold that the Settling Parties could not claim purchase money resulting trusts because they had not obtained the necessary factual findings at trial. The Court held that to establish their entitlements to purchase money resulting trusts, a;; the Settling Parties had to establish was that they each had given money to the defendants, intending the money to go towards the purchase of the property, in circumstances where the legal presumption that they meant to acquire a beneficial interest in the property was not rebutted. The Court held that it was uncontested that the Settling Parties had met all of these conditions at trial.

The Court held that the trial judge’s third error was to conclude that the Settling Parties had effectively relinquished their rights to claim an equitable share of the sale proceeds. In their settlement agreements, the Settling Parties each contractually agreed that they would give up their proprietary claims once the defendants had paid them the specified settlement amounts. However, the defendants never actually paid any of this money to any of the Settling Parties. Faced with these breaches of the settlement agreements, the Court held that the Settling Parties were entitled to elect whether to enforce the settlements or to pursue their original claims, including their claims that they had purchase money resulting trusts over the property and the proceeds from its sale.

The Court, in the result, held that the trial judge made a palpable and overriding error by concluding that the Settling Parties, by choosing not to participate in the trial, had “effectively discontinued or abandoned their claims” to a proprietary interest in the proceeds from the sale of the property, and had “rolled the dice” and gambled that the defendants would emerge with sufficient funds to pay the settlements. To the contrary, The Court held that when the trial began, the Settling Parties had not elected to give up their proprietary claims. Rather, they had merely chosen to proceed in a manner that would cap the amounts of their damages awards.

2. No

The P. Group contended that the trial judge erred by adding the costs awards to the amounts he had previously awarded to the Trial Parties in damages, and using these totals to calculate a new percentage split between the different Trial Parties.

The Court was not persuaded by the P. Group’s argument. That Court held that when the trial judge was deciding how the preserved funds should be distributed, he had to also take into account any other claims over this money that might be legitimately advanced by others, including the Settling Parties. Moreover, as between the different groups of Trial Parties, the trial judge had a broad discretion under s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, to decide the relative priority that should be given to the costs and the damages awards. The Court held that the trial judge was not obliged to award costs using the same percentages he had used to award damages.

In the result, while The Court would set aside the trial judge’s distribution order on the basis that it improperly excluded the Settling Parties, The Court would not have set the order aside on the strength of the P. Group’s arguments.

3. No.

The Court held that the distribution award made by the trial judge, in which the Trial Parties received all of the available money and the Settling Parties received nothing, was not fair and equitable. In determining the question of how the profits should be equitably divided between the parties, the Court held that: (1) all of the parties; equitable claims should be treated as standing on an equal footing, (2) the Settling Parties could not take advantage of findings of misconduct that were particular to the Trial Parties and grounded their punitive damages claim, (3) the Trial Parties had a legitimate claim that fairness required the reimbursement of their costs, (4) however, the Settling Parties should not be punished for having settled their claims, and (5) the preservation motion was brought by investors from both groups, the Trial Parties and the Settling Parties.

In the result, the Court imposed the following distribution scheme in respect of the proceeds paid into court:

1. The investors from both groups would receive their investments back, plus interest pursuant to the Courts of Justice Act;
2. The Trial Parties would each be awarded their trial costs;
3. The $150,000 awarded in punitive damages to the Trial Parties would be distributed to them to compensate them for the risk of taking their claims to trial; and
4. Finally, the Trial Parties and the Settling Parties would be awarded the balance of their judgment debts, plus interest in accordance with the Courts of Justice Act, on a pro rata basis.

Taylor v. Salytics Inc., 2026 ONCA 621

[Tulloch C.J.O., Rouleau and Lauwers JJ.A.]

Counsel:

S. Moreau and K. Duff, for the appellant

A. Rousseau and I. Xie, for the respondent

Keywords: Contracts, Employment, Termination, Constructive Dismissal, Temporary Lay-Off, Statutory Interpretation, Employment Standards Act, 2000, S.O. 2000, c. 41, ss. 56(1), (2), and (4), Waksdale v. Swegon North America Inc., 2020 ONCA 391, Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255, Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831, Stolze v. Addario (1997), 36 O.R. (3d) 323 (C.A.), Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158

facts:

The respondent employed the appellant under an employment agreement signed on June 24, 2013. The agreement contained a clause permitting the respondent to temporarily lay the appellant off, as well as a separate clause permitting termination without cause by providing ESA minimum entitlements.

The respondent experienced financial difficulties in 2024. In February 2024, the appellant agreed to a temporary 20 percent reduction in hours and pay. The respondent’s financial situation worsened, and the appellant was placed on a temporary lay-off effective April 1, 2024. His benefits continued during the lay-off. The respondent recalled the appellant on September 6, 2024, offering a return to full-time work with the same position, hours, and salary. He returned to work on September 30, 2024.

On July 19, 2024, while still on lay-off, the appellant applied for a declaration that the temporary lay-off constituted constructive dismissal and sought damages in lieu of 12 months’ notice. The application judge found that the temporary lay-off clause was not an unenforceable termination clause under the Employment Standards Act, 2000 (the “ESA“) and dismissed the application.

issues:

Did the application judge err in law in determining that the temporary lay-off clause in the employment agreement was not a termination clause under the ESA?

holding:

Appeal dismissed.

reasoning:

The Court applied the text, context, and purpose framework from Vavilov to interpret s. 56 of the ESA. The standard of review was correctness.

The Court held that the ESA draws a clear distinction between terminations of employment (s. 56(1)) and temporary lay-offs (s. 56(2)). At common law, a unilateral lay-off constitutes constructive dismissal. The temporary lay-off provisions in the ESA responded to this state of the law by permitting employers to temporarily lay off employees without triggering termination obligations, provided the lay-off fell within the prescribed conditions.

The Court rejected the appellant’s first argument that any lay-off clause in an employment agreement is automatically a termination clause because it contradicted the plain language of the ESA. Section 56(1)(c) states that a lay-off is a termination only if it exceeds the length of a temporary lay-off as defined in s. 56(2). Section 56(4) further clarifies that an employee is not terminated even if laid off without a specified date of recall, so long as the lay-off period does not exceed that of a temporary lay-off.

The Court also rejected the appellant’s second argument that the clause’s location under the “Termination” heading in the employment agreement converted it into a termination clause. Drawing on Waksdale v. Swegon North America Inc., the Court held that an employment agreement must be interpreted as a whole, not on a piecemeal basis. Further, the location of a clause is not determinative of whether it is a termination clause. The Court also noted that the headings in the particular agreement were inconsistent across the document.

The Court held that the temporary lay-off clause at issue expressly incorporated by reference the ESA‘s temporary lay-off provisions: “In the event a temporary lay-off is ever required, it may be implemented in accordance with the requirements of the Employment Standards Act, 2000.” To interpret this temporary lay-off clause as a termination clause would contradict the purpose of the ESA in permitting temporary lay-offs and defeat the legislature’s longstanding intent to provide relief to struggling businesses. The Court held that by using the defined statutory term “temporary lay-off,” the parties agreed to be governed by the provisions applicable to temporary lay-offs, not terminations.

Since the appellant was not terminated, it was not necessary to address his vacation pay issue. Finally, the Court awarded costs to the respondent in the amount of $10,000, all inclusive.

SHORT CIVIL DECISIONS

Rosso v. Rosso, 2026 ONCA 626

[Paciocco, Gomery and Madsen JJ.A.]

Counsel:

G.W. Bowden and L. Ferreira, for the appellants

E. Marrocco and O. Eng, for the respondent, S. R.

J. Radnoff and A. Khan, for the respondents, B. R. and N. R.

Keywords: Civil Procedure, Contracts, Costs, Palpable and Overriding Error, Reviewable Errors,  Limitation Period, Accounting Order

Rosenberg v. Macdonald Sager Manis LLP, 2026 ONCA 627

[Paciocco, Sossin and Madsen JJ.A.]

Counsel:

R. Piehler, for the appellant

J. Thomas and I. Nazarian, for the respondent

Keywords: Civil Procedure, Costs, Assessment of Costs, Leave to Appeal Costs, Courts of Justice Act, R.S.O. 1990, c. C-43, s. 133(b), Mullin v. Lagace, 2015 ONCA 757

Evertz Technologies Limited v. Providius Corp., 2026 ONCA 628

[Tulloch C.J.O., Lauwers, Sossin, Wilson and Pomerance JJ.A.]

Counsel:

J.C. Orr and J. H.W. Careen, for the appellants

A. Koshal, R. Chan and A. MacDonald, for the respondents

Keywords: Civil Procedure, Costs, Partial Indemnity and Substantial Indemnity Costs, 1086289 Ontario Inc. (Urban Electrical Contractors) v. Welland (City), 2026 ONCA 352, Handley Estate v. DTE Industries Limited, 2018 ONCA 324

Victim Services Toronto v. Dabrowski, 2026 ONCA 632

[Paciocco, Gomery and Madsen JJ.A.]

Counsel:

E. Pandy-Szekeres and S. Walker, for the appellant

D. Collett and H. Downard, for the respondent Victim Services Toronto

C. Lloyd, for the respondent B. M.

Keywords: Contracts, Oral Contracts, Property, Palpable and Overriding Error, Costs

Luo v. Yang, 2026 ONCA 630

[Thorburn, Coroza and Dawe JJ.A.]

Counsel:

S. Kirby, for the appellant

H. (P.) Du, for the respondent

Keywords: Family, Separation Agreements, New Issues on Appeal, Kaiman v. Graham, 2009 ONCA 77