Executive Summary: Key Legal and Evidentiary Issues

• The legitimacy of invoices and receipts submitted by Eaton Equipment Ltd. for warranty repairs was central, with most found to be falsified.

• The extent of complicity among corporate and individual defendants in orchestrating and benefiting from the fraudulent scheme was scrutinized.

• The legal effect of an intermediary (Dixie) between Canadian Tire Corporation and Eaton Equipment Ltd. was challenged but found immaterial to liability.

• The sufficiency of evidence supporting summary judgment for civil fraud, including the knowledge and intent of the defendants, was a key issue.

• The adequacy of the motion judge’s reasoning regarding Carleigh Milburn’s alleged involvement and knowledge of the fraud was contested.

• The appropriateness of damages, costs, and punitive awards, as well as the allocation of liability among defendants, was reviewed.

Facts of the case

Canadian Tire Corporation, Limited (CTC) initiated legal proceedings against Eaton Equipment Ltd. (Eaton), its principal Scott Milburn, and several related individuals and corporations after uncovering a fraudulent scheme involving warranty repair claims. In 2008, CTC contracted with Servantage Dixie Sales Canada Inc. (Dixie) to administer its warranty repair program, and in 2009, Dixie appointed Eaton to perform repairs on defective products. Under the program, customers would provide proof of purchase, Eaton would invoice Dixie for the repairs, and Dixie would invoice CTC, which would then pay Dixie with the expectation that funds would be remitted to Eaton.

Between 2015 and 2018, Eaton submitted over 35,000 invoices and nearly 28,000 receipts, of which only 135 receipts were genuine. The vast majority were fabricated, using fake customer information and non-existent products, with the assistance of a graphic designer. CTC ultimately paid over $3.2 million for fraudulent claims, including administrative fees paid to Dixie. The scheme was exposed after CTC and Dixie noticed irregularities, such as batches of claims with suspicious patterns and receipts that did not match those from legitimate repair companies. An investigation quickly revealed the extent of the fraud.

Legal proceedings and policy terms

CTC sued for damages on grounds including fraud, fraudulent misrepresentation, misappropriation, conversion, knowing receipt, knowing assistance, and unjust enrichment. The court granted Mareva and Norwich orders to freeze assets and obtain information, and denied the defendants’ attempts to set aside those orders or dismiss the action as a SLAPP (Strategic Lawsuit Against Public Participation).

The motion judge granted summary judgment in favor of CTC, finding clear and uncontroverted evidence of civil fraud. The judge applied the established test for civil fraud, which requires: (1) a false representation by the defendant; (2) knowledge or recklessness as to the falsehood; (3) reliance by the plaintiff; and (4) resulting loss. The judge found these elements satisfied, noting that Dixie’s role as intermediary did not break the chain of reliance since Dixie merely passed on Eaton’s claims to CTC.

Appellate review and outcome

On appeal, the defendants challenged the summary judgment, particularly arguing that the intermediary role of Dixie precluded a finding of fraud against Eaton. The Court of Appeal rejected this argument, affirming that Dixie was simply a conduit and that CTC’s reliance on the fraudulent claims was direct and attributable to Eaton. The court also found no merit in the other grounds of appeal for most appellants.

However, the court found that the motion judge’s reasoning regarding Carleigh Milburn’s liability was insufficient. Although she managed funds and received payments from Eaton, the evidence did not adequately establish her knowledge of the fraudulent scheme. The Court of Appeal set aside the summary judgment against her, noting that while the record might contain such evidence, it was not the appellate court’s role to draw new inferences.

Ruling and overall outcome

The Court of Appeal allowed the appeal for Carleigh Milburn, setting aside the judgment against her, but dismissed the appeal for all other individual and corporate appellants. The court upheld the damages award of $3,325,238.09 (including pre-judgment interest), $1.2 million in costs on a partial indemnity basis, and $50,000 in punitive damages against Scott Milburn. Costs of $30,000 were awarded to CTC for the appeal, with Carleigh Milburn exempted from costs both on appeal and at trial. Thus, Canadian Tire Corporation, Limited was the successful party, with significant monetary awards confirmed in its favor, except as against Carleigh Milburn, who was released from liability.