Executive Summary: Key Legal and Evidentiary Issues

• Central allegation that Cartel & Bui LLP and its partners misappropriated private mortgage loan proceeds held in their trust account instead of paying them to the lender clients.
• Evidentiary focus on Law Society of Ontario correspondence warning of a million-dollar trust shortage before Nicholas Cartel instructed borrowers to pay into the firm’s trust account.
• Contested issue of Mr. Cartel’s role and responsibility, resolved by the court finding he assumed carriage of the files and owed duties despite claiming limited involvement in real estate work.
• Findings that reassurances to the plaintiffs that their funds were “secure” were false or reckless, supporting a conclusion of civil fraud and fraudulent misrepresentation.
• Procedural question of whether the Cartel defendants’ noting in default should be set aside, answered negatively due to the absence of a proper motion, explanation, or draft defence.
• Determination that the judgment is based on fraud but refusal, as premature, to declare under s. 178(1)(e) BIA that the debt will automatically survive any future bankruptcy.

Factual background and loan structure
The dispute stems from two private mortgage investment loans advanced by individual investors. The first loan was for $313,150.28, funded 35.1% ($108,000) by Johann, Anthony and John Paul Ingarra and 64.9% ($200,000) by Paul Evans, and secured by a mortgage over a property owned by Waller Holding Inc. at 75 Fire Route 300 in McKellar, Ontario. The second loan was for $97,593.88, advanced solely by Shaun Henderson and secured by a mortgage over a property owned by Toronto Church on the Rock Ministries at 800 Simcoe Street East South in Oshawa, Ontario. Both loans matured on 1 December 2023. On that date, Waller Holding and Toronto Church wired $313,150.28 and $97,593.88 respectively to the trust account of the law firm Cartel & Bui LLP, as instructed, to discharge the secured indebtedness. The plaintiffs later learned from their mortgage broker that the transactions had closed and funds were paid into the firm’s trust account, yet they received no payout of their principal or return on the investments.

The retainer and the lawyers’ role
The investors had retained lawyer Singa (also referred to as Singha) Bui and her firm Cartel & Bui LLP to handle all legal work related to the loans. The mandate encompassed advancing the funds, preparing and registering the mortgage security, and, crucially, receiving and distributing the repayment funds to the plaintiffs at the end of the loan term. In their Statement of Claim, the plaintiffs pleaded that the borrowers’ payments into trust on 1 December 2023 were specifically identifiable deposits for their benefit and that the lawyers requested and received those monies to be held in trust pending payout to the lenders. Once the funds arrived, however, they alleged that Cartel & Bui LLP and its partners withdrew or diverted funds from the trust account so that an insufficient balance remained to satisfy the plaintiffs’ entitlements under the First and Second Loans. The statement of claim also described the defendants as trustees of those monies and accused them of using the law firm trust account as a de facto line of credit for personal and non-client expenditures, creating a systemic trust shortage.

Law Society investigation and trust account risk
A pivotal evidentiary development was the involvement of the Law Society of Ontario (LSO). On 22 November 2023, just days before the loans were due, LSO investigators attended the firm and delivered a letter to Nicholas Cartel indicating that Cartel & Bui LLP was under investigation for mishandling trust monies. The letter signalled that available information suggested the trust account might be in an “over million-dollar shortage position” and categorized the file as high risk. Mr. Cartel did not dispute receiving this letter and later acknowledged it at a Law Society Tribunal suspension hearing. Despite being put on notice of a serious regulatory concern about trust funds, he did not tell the Ingarra plaintiffs, Paul Evans, or Shaun Henderson that their firm was under investigation or that the trust account might not be fully funded. Nor did he undertake a meaningful review of the trust ledgers or inquire of Ms. Bui about the state of the account. The court later found that this silence deprived the investors of the opportunity to protect themselves by redirecting payouts to another lawyer’s trust account or replacing their counsel before the loans matured.

Payout instructions, bank records and movement of funds
On 30 November 2023, eight days after receiving the LSO letter, Mr. Cartel sent a payout statement under his own name to Waller Holding Inc., directing that $315,926.50 be paid as of 1 December 2023 to the Cartel & Bui LLP trust account. Bank records from TD Bank showed that deposits of $313,150.28 (the First Loan amount) and $97,593.88 (the Second Loan amount) were made on 1 December 2023, bringing the trust balance to approximately $957,779.84. Only a few days later, on 4 December 2023, there was a withdrawal of about $597,801.74 from the trust account. At the time of these events, Mr. Cartel was the only partner in the firm licensed to practise law. In his affidavits, he offered no satisfactory explanation for why such a significant sum was withdrawn so soon after the loan proceeds arrived, who received the funds, or how the withdrawals could be squared with his assurances to the plaintiffs. This financial trail was central to the court’s conclusion that the trust monies had been improperly dissipated and that the plaintiffs’ loss resulted from conduct occurring on his watch.

Communications and alleged misrepresentations to the investors
The investors began seeking information once they discovered that the borrowers had in fact wired their repayment funds. On 4 December 2023, Anthony Ingarra emailed the mortgage broker about the status of the payouts and was told that the loans had closed and the funds were with Cartel & Bui LLP. In the following weeks, Mr. Cartel emailed the investors, telling them he was “gaining control of trust funds as I take control of this practice,” stating he had made “administrative changes” to access funds to “assist and resolve,” and repeatedly assuring them that the “funds are secure.” In reality, the evidence showed that the trust account had been frozen on 4 December 2023—around the same time as the large withdrawal—and no funds were ever remitted to the plaintiffs. The judge found that these statements, when viewed against the bank records and the LSO investigation, amounted to false or at least reckless representations that induced the investors to rely on Cartel & Bui LLP rather than take immediate protective steps.

Procedural path to default judgment
The procedural history set the stage for a default judgment motion. The plaintiffs issued their Statement of Claim on 25 April 2024. On 28 April 2024, counsel Michael Kestenberg wrote confirming he was instructed to accept service on behalf of both Nicholas Cartel and Cartel & Bui LLP, and he did so. The claim was served on Ms. Bui on 1 May 2024; she did not deliver a Statement of Defence, and the court subsequently granted default judgment against her on 13 November 2024. The Cartel defendants likewise failed to defend and were noted in default on 15 October 2024. When the plaintiffs moved for default judgment, the court directed that the motion record be served on the Cartel defendants and gave Mr. Cartel opportunities to respond and, if he wished, to bring a motion to set aside the noting in default. Although he filed responding and sur-reply materials, he never actually brought a proper motion to set aside the default, did not explain the failure to defend or the length of the delay, and did not tender a draft Statement of Defence. The court applied the factors in Westcott v. Khan, emphasizing that while the threshold for setting aside a noting in default is low and courts prefer decisions on the merits, they still require some focused request and evidentiary basis. In the absence of any such motion or explanation, the court declined to set aside the noting in default and proceeded to assess the plaintiffs’ entitlement to judgment under Rule 19.02(1)(a).

Deemed admissions and the negligence findings
Because the Cartel defendants were noted in default, the well-pleaded factual allegations in the Statement of Claim were deemed admitted. Among those admissions were that the plaintiffs had entered into the investment loan agreements, that they retained Ms. Bui and Cartel & Bui LLP to manage the entire transactional lifecycle, that the borrowers paid the principal amounts into the firm’s trust account on 1 December 2023, that those deposits were clearly identifiable, and that the defendants then made withdrawals or payments from trust such that insufficient money remained to pay the investors. The pleadings also alleged, and the court treated as admitted, that the firm used the trust account as a line of credit for unauthorized personal and non-client expenditures, that this created a sustained trust shortfall across files, and that the defendants owed and breached a duty of care to warn the plaintiffs not to allow the borrowers to pay the proceeds into the firm’s compromised trust account. In assessing the evidence, the court accepted that the investors had properly retained Cartel & Bui LLP for the loan transactions and found that, by late November 2023, Mr. Cartel had in fact assumed responsibility for their matter. Even if he had little prior involvement in real estate, the judge held that a reasonable lawyer, especially one who had just been alerted to a potential seven-figure trust deficit, would either have referred the matter to an experienced real estate practitioner or at least disclosed the LSO investigation and the attendant risk to the clients. His choice instead to direct payout into the same trust account and to keep the clients in the dark was characterized as professionally negligent.

Civil fraud and fraudulent misrepresentation
In addition to negligence, the plaintiffs advanced and the court accepted a claim for civil fraud. Applying the established elements, the judge considered whether there were false representations, knowledge or recklessness as to their truth, reliance by the plaintiffs, and resulting loss. The court drew on appellate authorities confirming that recklessness—making statements without caring whether they are true or false—is sufficient to ground fraud. When Mr. Cartel assumed responsibility for the Ingarra matter in the third week of November 2023, there had been no loss; the loans only fell due on 1 December 2023. The loss materialized because he took active steps to facilitate the borrowers’ payments into a trust account he knew was under investigation and potentially in a million-dollar shortage position, and then allowed or oversaw a large withdrawal of nearly $600,000 within days. Coupled with his assurances that the funds were secure and his failure to disclose that the account had been frozen or that major withdrawals had occurred, the judge concluded that he had no genuine intention of remitting the funds to the plaintiffs and that his representations were at least reckless. On this basis, the elements of civil fraud and fraudulent misrepresentation were met.

Absence of insurance or policy terms discussion
There was no substantive discussion in this decision of insurance policy terms, indemnity clauses, or other contractual insurance provisions that might respond to the loss. The focus instead was on duties arising from the solicitor-client relationship, trust obligations, and the tort of fraud. References to regulatory oversight pertained to the Law Society’s investigation of trust account handling rather than to coverage issues under any professional liability or fidelity policies.

Damages, pre-judgment interest and punitive relief
On damages, the plaintiffs asked the court to mirror the monetary relief already awarded against Ms. Bui in the earlier default judgment. The judge accepted that the plaintiffs’ losses were proven. For compensatory damages, the court awarded $109,915.74 to the three Ingarra plaintiffs collectively, $203,234.52 to Paul Evans, and $97,593.88 to Shaun Henderson, reflecting their respective interests in the First and Second Loans. Pre-judgment interest was calculated from 1 December 2023 (the date the funds were paid into trust) to 5 January 2026, a period of 665 days. Based on the applicable quarterly interest rate of 5.3% per annum for claims issued in the second quarter of 2024, the total interest over that period amounted to 9.66%. The court therefore awarded pre-judgment interest of $10,617.86 to the Ingarra group, $19,632.45 to Paul Evans and $9,427.57 to Shaun Henderson. The plaintiffs also sought punitive damages. Citing the high threshold for such awards—reserved for malicious, oppressive and high-handed conduct—the judge found that standard met. The reasons emphasized that when Mr. Cartel took control of the files there was no loss, that he nevertheless instructed the borrowers to pay into a trust account in a precarious state, and that while he was responsible for the firm’s practice, close to $600,000 was withdrawn from trust, resulting in the plaintiffs losing what the court described as their life savings. To denounce and deter such conduct, particularly by a lawyer dealing with client funds, the court awarded a total of $50,000 in punitive damages: $12,500 to the Ingarra plaintiffs, $25,000 to Paul Evans, and $12,500 to Shaun Henderson.

Bankruptcy implications and refusal of declaratory relief
The plaintiffs sought a declaration that their judgment would not be released by a discharge in bankruptcy under s. 178(1)(e) of the Bankruptcy and Insolvency Act, which excludes from discharge debts arising from property obtained by false pretences or fraudulent misrepresentation. Having already found civil fraud established, the court accepted that in principle the debt could fall under that section. However, consistent with other Ontario case law, the judge considered it premature and hypothetical to grant a bankruptcy-survival declaration where the defendant had not made an assignment in bankruptcy and there was no active bankruptcy proceeding in which a discharge issue had arisen. As a result, the court refused the requested declaration without foreclosing future arguments under s. 178(1)(e) should bankruptcy proceedings materialize.

Disposition and overall outcome for the successful parties
In disposition, the court granted default judgment against the Cartel defendants—Cartel & Bui LLP and Nicholas Cartel—in favour of all five plaintiffs, in addition to the earlier default judgment already obtained against Ms. Bui. It ordered that the Ingarra plaintiffs recover $109,915.74 in damages, $10,617.86 in pre-judgment interest and $12,500 in punitive damages; that Paul Evans recover $203,234.52 in damages, $19,632.45 in pre-judgment interest and $25,000 in punitive damages; and that Shaun Henderson recover $97,593.88 in damages, $9,427.57 in pre-judgment interest and $12,500 in punitive damages. The court also fixed the plaintiffs’ costs at $2,500 on an all-inclusive basis. Altogether, the compensatory damages, pre-judgment interest, punitive damages and costs produce a total monetary award of $502,922.02 in favour of the plaintiffs as the successful parties in this litigation.