





CITATION:
Harris v. Leikin Group Inc., 2011 ONCA 790



DATE: 20111215



DOCKET: C54033



COURT OF APPEAL FOR ONTARIO



Rosenberg, Cronk and Watt JJ.A.



BETWEEN



Adam Leikin
          Harris, Naomi Sara (Harris) Stanton,

Sheira Rachel
          Harris, Zena Leah Harris, Hilliard Brian (Rick) Kesler,

and David
          Joseph Spieler



Plaintiffs/Appellants



and



Leikin Group
          Inc., Barbara Linda Farber, David Lawrence Katz,

Andrew Mark
          Katz, Grant Jameson, Geoffrey Gilbert,

Ogilvy Renault
          LLP, Gerald Levitz, Patricia Day,

Ginsburg Gluzman
          Fage & Levitz LLP and
First Capital Realty Inc.



Defendants/Respondents



Randy Bennett and Sara J. Erskine, for the appellants



Crawford Smith and Molly M. Reynolds, for the respondent First
          Capital Realty Inc.



Heard:
December 5, 2011



On appeal from the Order of Justice
          David M. Brown of the Superior Court of Justice, dated August 10, 2011,
          reasons reported at 2011 ONSC 3556.



BY THE COURT:




I.         Background

[1]

The dispute in this case arose from transactions involving changes in
    the ownership of a retail shopping mall in Ottawa known as College Square.

[2]

Prior to the events at issue, College Square was owned by a group of
    cousins through shareholdings in various family-owned companies.  When some of
    the cousins (the appellants) sought to liquidate their interests in the
    property, negotiations commenced with the remaining cousins (the Katz Group) about
    a possible share redemption transaction with the family companies that would permit
    the Katz Group to acquire the appellants interests in College Square.

[3]

The Katz Group required financing to fund the share redemption
    transaction.  Ultimately, they obtained the necessary funds by selling a 50% interest
    in College Square to the respondent, First Capital Realty Inc. (FCR).

[4]

The purchase price paid for the appellants shares (based on a total
    value of $60 million for College Square) was considerably less than the
    purchase price paid to the Katz Group by FCR (based on a total value of $78.8
    million for College Square).  When the appellants subsequently learned of the differential
    between the values assigned to College Square for the share redemption
    transaction, on the one hand, and for the FCR acquisition, on the other hand, they
    sued the Katz Group and others for damages based on various torts, including
    breach of fiduciary duties, among other matters.  The appellants also sued FCR
    for damages based on the tort of knowing assistance in breach of fiduciary duties.

[5]

On motion brought by FCR, Brown J. of the Superior Court of Justice granted
    summary judgment in favour of FCR on the ground that the appellants had no
    legal or evidentiary basis on which to complain against FCR and, thus, no
    genuine issue for trial arose concerning FCR.  Concurrently, the motion judge
    denied summary judgment motions brought by the remaining defendants, including the
    Katz Group, concluding that the appellants claims against those parties required
    a trial.  This appeal concerns only the motion judges summary judgment ruling
    regarding FCR.

II.        Issues and
    Discussion

[6]

The appellants attack the motion judges decision regarding FCR on two
    main grounds.  They submit that the motion judge: (1) misapplied the test for
    knowing assistance in breach of fiduciary duty; and (2) failed to consider
    relevant evidence that allegedly supported their claim against FCR, including
    circumstantial evidence that the appellants say supported the inferences that
    FCR had the requisite knowledge to meet the test for the tort asserted and,
    armed with that knowledge, that it participated or assisted in the breach or
    breaches of fiduciary duty said to have been committed by the Katz Group.

[7]

We reject these arguments.  For the following reasons, we conclude that there
    is no basis for appellate intervention with the motion judges ruling
    concerning FCR.

[8]

There is no dispute concerning the constituent elements of the tort of
    knowing assistance in breach of fiduciary duty: (1) there must be a fiduciary
    duty; (2) the fiduciary must have breached that duty fraudulently and
    dishonestly; (3) the stranger to the fiduciary relationship must have had
    actual knowledge of both the fiduciary relationship and the fiduciarys
    fraudulent and dishonest conduct; and (4) the stranger must have participated
    in or assisted the fiduciarys fraudulent and dishonest conduct:
Air Canada v.
    M & L Travel Ltd.
, [1993] 3 S.C.R. 787;
Gold v. Rosenberg
,
    [1997] 3 S.C.R. 767.  The knowledge requirement for liability based on this
    tort is actual knowledge, which, as the Supreme Court confirmed in
Air
    Canada
, at para. 38, includes recklessness and wilful blindness.  As this
    court observed in
Keeton v. The Bank of Nova Scotia
, 2009 ONCA 662, 254
    O.A.C. 251, at para. 82, to found liability [on knowing assistance in a breach
    of fiduciary duty], the stranger to the trust must have actual (as opposed to
    constructive) knowledge of the misconduct, or be wilfully blind to the breach
    or reckless in his failure to realize that there was a breach.

[9]

In order to successfully resist FCRs summary judgment motion in the
    circumstances of this case, the appellants were required to demonstrate a
    genuine issue for trial concerning: (1) FCRs actual knowledge of the existence
    of fiduciary duties owed to the appellants by the Katz Group and of the
    fraudulent and dishonest breach of those duties by one or more members of the
    Katz Group; and (2) FCRs participation or assistance in those breach of duties.

[10]

The motion judge reviewed the evidence at great length in his reasons,
    including that relied on by the appellants as the basis for their claim against
    FCR.  Based on his detailed review of the evidence, the motion judge held that
    the appellants had failed to establish a genuine issue for trial regarding the
    requisite knowledge by FCR.

[11]

In our view, this finding is firmly anchored in the evidentiary record. 
    We note, in particular, the following.

[12]

The appellants maintain that members of the Katz Group breached their fiduciary
    duties to the appellants by failing to disclose  at a time when the parties were
    engaged in discussions about the sale of the appellants shares to the Katz
    Group  FCRs interest in College Square and its apparent willingness to pay a
    purchase price for a partial equity position in College Square based on a value
    that significantly exceeded the appraised value of the property as at August
    2004 and the value(s) for College Square discussed between the appellants and
    the Katz Group.  The appellants maintain that this information was relevant and
    material to their decision to sell their shares at the price eventually agreed
    on and, if known to them at the time, could well have influenced their decision
    to sell their shares.

[13]

However, it was FCRs evidence on the summary judgment motion that
    neither the involved FCR business executive nor FCRs transaction counsel knew
    the details of the proposed share redemption arrangement between the appellants
    and the Katz Group, including the various proposed or agreed share redemption
    prices.

[14]

As the motion judge pointed out, the appellants failed to adduce any
    evidence to counter FCRs evidence on this critical point.  Simply put, on the
    record before the motion judge, there was no evidence that FCR had the
    requisite knowledge that the Katz Group was withholding information, let alone
    information potentially material to the appellants decision to sell their
    shares, from the appellants at the relevant times.

[15]

The appellants argue that there was evidence that FCR knew that the
    acquisition of the appellants interests in College Square by the Katz Group
    was a necessary precondition to the acquisition by FCR of an interest in the
    property.  They also contend that the Katz Groups discussions with FCR were
    conducted in secret and that FCR was requested to keep these discussions
    secret when they were told to refrain from contacting any of the appellants
    concerning College Square.  The appellants submit that this was circumstantial
    evidence that FCR had sufficient information of the share redemption
    transaction to put it on inquiry as to the authority of David Katz to speak for
    the owners of College Square and as to the propriety of the Katz Groups
    dealings with the appellants.  In these circumstances, the appellants maintain,
    FCRs failure to inquire further constituted recklessness or wilful blindness
    in respect of the Katz Groups alleged breach of fiduciary duties.

[16]

We disagree.  As we have said, there was no evidence before the motion
    judge that FCR had the requisite knowledge that the purchase of the appellants
    shares was to be effected at a materially lower price than that which
    corresponded to the value placed by FCR on College Square.

[17]

Further, the appellants entered into a binding letter of intent
    regarding the sale of their shares in April 2005.  The record contains no
    indication that FCR knew any details of the discussions between the appellants
    and the Katz Group in the fall of 2004 and the spring of 2005 concerning the
    value of College Square, the price for the appellants shares or the other
    arrangements which led to the signing of the letter of intent by the
    appellants.  Indeed, FCR had no significant contact with the Katz Group throughout
    the entire period of October 2004 to May 2005.

[18]

Moreover, after the appellants entered into their letter of intent, the
    proposed sale of part of College Square to an institutional or other investor
    was the subject of an independent and public auction process conducted by a
    sophisticated and experienced external investment firm.  FCR submitted its
    first and only offer to acquire an interest in College Square in July 2005, as
    part of that external bid process.  Its offer was recommended to the Katz Group
    for acceptance by the independent overseer of the public bid process.

[19]

Finally, while it is true that FCR was asked not to contact the
    appellants directly, this request did not render FCRs discussions with the
    Katz Group clandestine or surreptitious.  This was a family share buy-out
    situation.  FCRs discussions were held with a senior executive of the
    corporate group that controlled College Square.  There is no evidence that FCR
    had any reason to believe that the fact and content of those discussions were
    being hidden from some involved family members but not others.  Viewed in this
    context, there is nothing untoward in the request that FCR not negotiate or
    undertake discussions with other family members.

[20]

We therefore agree with the motion judge that no genuine issue for trial
    exists regarding the appellants claim against FCR.  As framed by the
    appellants, that claim rests solely on the tort of knowing assistance in breach
    of fiduciary duty.  Whatever view is taken of the knowledge required to make
    out this tort, the evidence before the motion judge, taken at its highest, failed
    to establish the requisite knowledge by FCR of any fraudulent and dishonest
    conduct by the Katz Group in its dealings with the appellants.  On this basis
    alone, the appellants claim against FCR was doomed to fail.

III.      Disposition

[21]

Accordingly, the appeal is dismissed.  FCR is entitled to its costs of
    the appeal, fixed in the amount of $14,000, inclusive of disbursements and all
    applicable taxes.

RELEASED:

MR                                                              M.
    Rosenberg J.A.

DEC 15 2011                                                E.A.
    Cronk J.A.

David
    Watt J.A.


