



COURT OF APPEAL FOR ONTARIO

CITATION: Locking v. McCowan, 2016 ONCA 88

DATE: 20160129

DOCKET: C61038

Gillese, MacFarland and van Rensburg JJ.A.

BETWEEN

Daniel Locking

Plaintiff (Appellant)

and

Ronald McCowan, Allen W. Weinberg, Joseph
    Feldman, Marc Charlebois,
Laura Philp (a.k.a. Laura
    Phelp, a.k.a. Laura Philps, a.k.a. Laura Philip, a.k.a. Laura Philips), Holyrood
    Holdings Limited
, Samuel H. Nash, Goldman Sloan Nash & Haber LLP,
    Graham Rawlinson, and Torys LLP

Defendants (
Respondents
)

Proceeding under
    the
Class Proceedings Act, 1992

John Archibald and Paul Bates, for the appellant

J. Thomas Curry and Julia G. Brown, for the respondents

Heard: January 20, 2016

On appeal from the order of Justice Edward P. Belobaba of
    the Superior Court of Justice, dated August 19, 2015, with reasons reported at
    2015 ONSC 4435.

Gillese
    J.A
.:


FACTS IN BRIEF

[1]

The appellant is the representative plaintiff in a proposed class action
    by unit holders of Partners REIT, an unincorporated real estate investment
    trust whose units trade on the Toronto Stock Exchange. The appellant claims
    that the class sustained losses when the REITs unit price dropped because an
    improper property transaction had to be set aside.

[2]

Partners REIT is governed by a board of trustees.

[3]

Ronald McCowan and Allen W. Weinberg are two of the named defendants
    and, as will be seen, are central to this appeal. McCowan was the REITs interim
    CEO at the relevant time and Weinberg was one of the trustees. The other named
    defendants in the proposed class action include two other trustees and those
    who sold the properties to the REIT.

The Transaction

[4]

On April 2, 2014, the respondent Laura Philp and her company Holyrood
    Holdings Limited (Holyrood) (together, the Respondents) sold three
    properties to the REIT (the Transaction) at McCowans behest. McCowan failed
    to disclose that he had a longstanding, close personal and business
    relationship with Philp and, according to the appellant, a
de facto
ownership interest in the properties and
de facto
control of Holyrood.

[5]

When McCowans conflict of interest was exposed, the Transaction was set
    aside and all monies paid were returned to the REIT. However, it is alleged
    that the fall-out caused the REITs unit price to drop by more than 30 per
    cent.

The Proposed Class Action

[6]

For the purposes of this appeal, the relevant claims in the Amended
    Statement of Claim are as follows:

·

against Weinberg, Feldman and Charlebois, the defendant trustees
    at the relevant time: breach of trust;

·

against McCowan: breach of fiduciary duty and knowing assistance
    in Weinbergs breach of trust; and

·

against the Respondents: knowing assistance in Weinbergs breach
    of trust and McCowans breach of fiduciary duty.

The Underlying Motion

[7]

A certification motion was brought.

[8]

The motion was bifurcated, with the motions judge first determining
    whether the claims constituted viable causes of action under s. 5(1)(a) of the
Class
    Proceedings Act
, S.O. 1992, c. 6 (
CPA
). As the motions judge
    correctly noted, for the purposes of the motion, the facts as set out in the pleadings
    are assumed to be true.

THE DECISION UNDER APPEAL

[9]

By order dated August 19, 2015 (the Order), among other things, the
    motions judge permitted the breach of trust claim against Weinberg
[1]
(and the other defendant trustees) and the knowing assistance claim against
    McCowan to proceed. However, he struck the knowing assistance claim against the
    Respondents.

[10]

In
    respect of Weinberg, the motions judge noted that the breach of trust claim is supported
    by the following facts as pleaded: Weinberg knew of McCowans material interest
    in the properties and control over Holyrood; he knowingly breached his duties
    by permitting the REIT to enter into the Transaction without the required
    disclosure and unit holder approval; he did so in order to preserve the
    relationship between his law firm and McCowan, its long-time client, and to
    garner future legal work; and, in so doing, he failed to act honestly and in
    good faith, with a view to the best interests of both the REIT and the class.

[11]

In
    respect of McCowan, the motions judge noted the following factual allegations:
    Weinberg and McCowan had a solicitor-client relationship on property deals that
    pre-dated the Transaction; Weinberg was appointed to the board of trustees on
    McCowans direction; McCowan orchestrated the Transaction for his own benefit;
    McCowan knew that Weinberg would be in breach of trust if McCowans material
    interest in the Transaction was not disclosed; and, Weinberg was under
    McCowans influence and control. The motions judge concluded that there was a
    reasonable prospect that a court could find that McCowan persuaded, signaled or
    otherwise influenced Weinberg in Weinbergs decision to allow the Transaction
    to proceed without the required disclosure and unit holder approval. Accordingly,
    the claim that McCowan knowingly assisted Weinberg in Weinbergs breach of
    trust could proceed.

[12]

The
    motions judge struck the knowing assistance claim against the Respondents on
    the basis that the pleaded facts did not amount to active assistance or
    participation by the Respondents in Weinbergs decision to allow the
    Transaction to proceed. He said, the suppression of information, without more,
    by a third party that otherwise has no obligations to the REIT or its trustees
    does not satisfy the requirement of active assistance or participation in a
    breach of trust.

THE ISSUE

[13]

While
    the appellant raises a number of grounds of appeal, in essence, they are all
    targeted at a single issue: did the motions judge err in striking the knowing assistance
    claim against the Respondents?

ANALYSIS

[14]

I
    agree with the appellant that the claim against the Respondents is legally
    plausible. In my view, the motions judge erred in two ways in reaching the
    conclusion that the pleadings failed to disclose a reasonable cause of action
    as against the Respondents. To explain, I begin by summarizing the motions
    judges reasoning on this matter.

[15]

Relying
    on the Supreme Courts decisions in
Citadel General Assurance Co. v. Lloyds
    Bank Canada
, [1997] 3 S.C.R. 805, 1997 CanLII 334,
Air Canada v.
    M&L Travel Ltd.
, [1993] 3 S.C.R. 787, 1993 CanLII 33, and
Gold v.
    Rosenberg
, [1997] 3 S.C.R. 767, 1997 CanLII 333, the motions judge correctly
    stated that for a knowing assistance claim to succeed, the plaintiff must
    establish:

(i)

an act of fraud or dishonesty on the part of the trustee;

(ii)

that the defendant had knowledge of the trustees dishonest conduct; and

(iii)

that the defendant assisted the trustee in perpetrating the dishonest
    conduct.

[16]

The
    motions judge found that the appellant had sufficiently pleaded the first two
    elements: an act of dishonesty on the part of trustee Weinberg and the
    Respondents actual knowledge of, or wilful blindness to, that conduct.

[17]

In
    respect of the third element, the motions judge stated that for the words
    knowing assistance to have meaning, they must mean more than simply standing
    by or acquiescing. Consequently, the motions judge said, assistance or
    participation in a breach of trust requires, at the very least, that the
    defendant take a positive step to help or take part in the trustees breach of
    trust. Based on that view, the motions judge concluded that the Respondents mere
    suppression of information did not amount to active assistance or participation
    in a breach of trust.

[18]

The
    motions judges first error was in failing to accurately and generously construe
    the claim made against the Respondents. He read the Amended Statement of Claim
    as alleging that the Respondents only assistance or participation in the
    breach of trust was their suppression of information which they had no duty to
    disclose. On the pleadings, however, the Respondents did not simply stand by
    and remain silent as the trustee Weinberg, a lawyer acting at the behest of his
    client McCowan, authorized a self-interested transaction for McCowans benefit.
    Rather, it is pleaded that the Respondents were active participants  playing
    the roles of genuinely disinterested arms length parties who were the sole
    owners of the properties  who concealed the improprieties underlying the
    Transaction and sold those properties to the REIT. Without the Respondents, the
    Transaction could not have taken place. They actively participated in the
    Transaction, selling the properties (which McCowan actually owned) to the REIT
    while intentionally concealing information and falsely portraying themselves as
    an arms length vendor. This role enabled Weinberg to commit the breaches of
    trust alleged against him.

[19]

The
    motions judges second error relates to his approach to the third element of
    the knowing assistance claim against the Respondents. The motions judge viewed
    this element as requiring that the defendant take a positive step
to help
or
to take part in
the trustees
    breach of trust. [Emphasis in original.] Consequently, the motions judge concluded
    that suppression of information was not sufficient to amount to assistance or
    participation.

[20]

As
    the motions judge recognized, the test under s. 5(1)(a) of the
CPA
is
    the same as the test under rule 21.01(1)(b) of the
Rules of Civil Procedure
:
    see
Kang v. Sun Life Assurance Co. of Canada
, 2013 ONCA 118, at paras.
    26-27. Accordingly, the Respondents had to demonstrate that it was plain and
    obvious that the claim against them could not possibly succeed.

[21]

What
    amounts to assistance  or, in the words of the motions judge, helping or
    taking part  has not yet been fully explored in the jurisprudence. It may be
    that silence is, in certain circumstances, sufficient to constitute assistance.
    Thus, it is not plain and obvious that the claim against the Respondents could
    not possibly succeed.

[22]

However
    and in any event, as I have explained, on the pleadings, the Respondents role
    was more than a mere suppression of information. They worked in concert with
    McCowan and intentionally concealed information in order to cloak the true
    nature of the Transaction and assist Weinberg, who entered into the Transaction
    in breach of his trust obligations.

DISPOSITION

[23]

Having
    determined that the Amended Statement of Claim pleads facts which assert a
    legally plausible claim against each of the Respondents under s. 5(1)(a) of the
CPA
, I would allow the appeal, and order that the Order be amended
    accordingly. I would order costs of the appeal and motion below in favour of
    the appellant, fixed at $20,000, all inclusive.

Released: January 29, 2016 (E.E.G.)

E.E. Gillese
    J.A.

I agree. J. MacFarland J.A.

I agree. K. van Rensburg
    J.A.





[1]
Weinberg did not oppose the s. 5(1)(a) motion.


