



COURT OF APPEAL FOR ONTARIO

CITATION: Harris v. Leikin Group Inc., 2014 ONCA 479

DATE: 20140618

DOCKET: C56933

Hoy A.C.J.O. and Sharpe and van Rensburg 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, Ingrid Levitz in her Capacity as Estate Trustee with a Will of the
    Estate of Gerald Levitz, Patricia Day, Ginsburg Gluzman Fage & Levitz LLP
and First Capital Realty Inc.

Defendants/Respondents

Robert Rueter and David Barbaree, for the appellants

Stephen Victor, Q.C. and David Cutler, for the
    respondents Barbara Farber, David Lawrence Katz and Andrew Mark Katz

David Scott, O.C., Q.C. and Isabella Mentina, for the
    respondent Leikin Group Inc.

Benjamin Zarnett and Ryan Cookson, for the respondents
    Grant Jameson, Geoffrey Gilbert and Ogilvy Renault LLP

Alan DSilva and David Spence, for the respondents Ingrid
    Levitz in her Capacity as Estate Trustee with a Will of the Estate of Gerald
    Levitz, Patricia Day and Ginsburg Gluzman Fage & Levitz LLP

Heard: February 25-26, 2014

On appeal from the judgment of Justice David M. Brown of
    the Superior Court of Justice, dated September 13, 2013, with reasons for
    judgment reported at 2013 ONSC 1525, 85 E.T.R. (3d) 1, and reasons for costs
    reported at 2013 ONSC 3300.

Sharpe J.A.:

[1]

In 2005, following a serious falling out, the majority of shareholders
    in a family business proposed that their interests be bought out. After
    extensive negotiations, a share redemption agreement was concluded, and each
    member of the selling group received $3.395 million. In 2007, six of the eight
    members of the selling group, the appellants before this court, commenced this
    action. They claimed that the non-selling group, the corporation, and the corporations
    lawyers and accountants owed them fiduciary duties which the defendants had
    breached, primarily by withholding material information during the negotiations
    leading to the share redemption. The appellants claims were dismissed at trial.
    This is an appeal from that decision.

[2]

The appellants attack the trial decision on both procedural and
    substantive grounds. Procedurally, they argue that the hybrid trial model the
    judge adopted, which made extensive use of the work product of failed motions
    for summary judgment, was unfair, unjust and contrary to this courts
    instructions in
Combined
Air Mechanical Services Inc. v. Flesch
,
    2011 ONCA 764, 108 O.R. (3d) 1, even as that decision was modified in
Hryniak
    v. Mauldin
, 2014 SCC 7, 314 O.A.C. 1 (S.C.C.).

[3]

Substantively, they argue that the trial judge erred in fact and law in
    his analysis of the fiduciary duty issue. They also seek leave to appeal the
    trial judges costs order.

[4]

For the following reasons, I would dismiss the appeal.

[5]

I observe at the outset that the trial judge gave lengthy and thoughtful
    reasons. He exhaustively reviewed the evidence, he made clear factual findings
    and he carefully considered and applied the relevant legal principles. As I fundamentally
    agree with the trial judges reasons, I will not deal with every detail of this
    case and will focus on the specific points necessary to decide this appeal.

FACTS

(1)

The Leikin Group

[6]

The Leikin Group is an Ottawa-based collection of real estate and
    property development companies founded by the late Harry Leikin.

[7]

Harry and his wife Zena had four daughters: Josephine Harris, Ethel
    Kesler, Goldie Spieler and Libby Katz. Each of Harrys daughters held an equal
    number of preferred shares in the Leikin Group. Each of his 11 grandchildren
    held an equal number of common shares. The Leikin Groups corporate structure
    prevented shareholders from selling or transferring shares to anyone other than
    the issue of Harry Leikin. This restriction was designed to keep the
    shareholdings and management of the business within the family.

[8]

All of Harry Leikins daughters held seats on the Leikin Groups boards
    of directors. Around 2000, Ethel, Goldie and Libby stepped down and their
    children took their places. By 2004, the boards of directors of the Leikin
    Group of companies consisted of Josephine Harris, Ethels son Rick Kesler,
    Goldies son David Spieler, and Libbys children Barbara Farber and Andrew
    Katz. Barbara Farber was the CEO of the Leikin Group, having taken over after
    Harrys death in 1998. David Katz was a consultant to the Leikin Group from
    2001 to 2003, when he became its president. He was forced by a majority of the
    boards to resign in 2004. Thereafter he continued under a fixed term contract
    as a consultant to one of the Leikin Groups companies.

[9]

The Leikin Groups principal asset is College Square, a big box
    shopping complex in Ottawas west end.

(2)

The share redemption agreement

[10]

By
    2002 the relationships among the Leikin sisters and their children were fractious.
    Rick Kesler said his cousin Barbaras management style was causing tension.
    David Spieler described Josephines children and Steven Kesler as bugbears.
    Grant Jameson, who became the Leikin Groups lawyer in 2003, confirmed that
    little trust or cooperation existed amongst the common shareholders. The boards
    were similarly polarized.

[11]

Prompted
    by this rancour, in early 2004 Josephines four children announced that they
    wanted to liquidate their holdings in the Leikin Group. Later, three of the
    other shareholders indicated their desire to liquidate their interests in the
    companies, and ultimately eight of the 11 Leikin grandchildren (the selling
    shareholders) decided to sell their shares. Libbys children Barbara Farber,
    David Katz and Andrew Katz (the non-selling shareholders) wished to carry on
    and grow the business. Following difficult negotiations, in April 2005 the corporations
    and the three non-selling shareholders entered into a letter of intent for a share
    redemption transaction (the share redemption agreement) with the eight selling
    shareholders. The share redemption agreement provided for the selling
    shareholders to receive a payout amount representing their interests in the
    principal assets of the Leikin Group while retaining their interests in the
    remaining assets of the corporations.

[12]

The
    negotiations leading to the share redemption agreement were characterized by
    bitterness and distrust. Josephine Harris described the negotiations as highly
    adversarial, difficult, fractious, and infused with self-interest where each
    side sought to maximize their returns. She deposed that it was impossible for
    the selling shareholders to rely on the non-selling shareholders to look out
    for their interests because of the level of discord between them.

[13]

A
    key point of contention was the value to be assigned to College Square. From
    the start, it was understood that the value to be attributed to College Square
    would essentially determine the amount the selling shareholders would receive in
    the deal  and consequently the amount required to finance the transaction. It
    was agreed that the non-selling shareholders could use the Leikin Groups core assets
    to finance the transaction.

[14]

Ultimately,
    the parties settled on an attributed value for College Square of $60 million. At
    trial, Josephine Harris and Rick Kesler agreed that the $60 million figure was
    reached through negotiations and was not based on any appraisal of College
    Square or on its fair market value. They also testified that at the time the
    selling shareholders entered into the share redemption agreement, they knew
    that College Square might be worth more than $60 million.

[15]

In
    the course of the negotiations between the two groups of shareholders, and
    before concluding the share redemption agreement, the selling shareholders knew
    that the non-selling shareholders might decide to sell a stake in College
    Square if they wanted to carry on the business. They also knew that the
    non-selling shareholders would have to raise enough money both to buy out the
    selling shareholders and to retain majority control of the Leikin Group, if the
    family were to continue to control the business consistent with their late
    grandfathers wishes.

[16]

In
    the course of the negotiations, the selling shareholders became concerned that
    the non-selling shareholders, in financing the share redemption, might sell an
    interest in College Square that reflected a much higher price than the
    attributed value. Accordingly, the selling shareholders requested: (i) a tag-along
    clause that would allow them to share in any upside of financing the buyout;
    (ii) a representation that the non-selling shareholders did not have any
    information which, if known to the other shareholders, might reasonably be
    expected to deter the parties from entering into the share redemption agreement;
    and (iii) a representation that the non-selling shareholders have no present
    intention of selling their interest in College Square. The non-selling
    shareholders refused these requests. The selling shareholders accepted that
    refusal and proceeded with the share redemption agreement in any event.

[17]

On
    April 18, 2005, the shareholders and the corporations executed a letter of
    intent for the share redemption agreement using a value of $60 million for
    College Square. The letter of intent provided Newco, whose shareholders were the
    non-selling shareholders, a 120-day window in which to secure financing, the
    method of which was in their sole discretion.

[18]

Shortly
    after, the non-selling shareholders retained RBC Capital Markets to find an
    equity partner for College Square. First Capital Realty (FCR) was the
    successful bidder. On August 11, 2005, one week after the share redemption agreement
    closed in escrow, FCR and Newco entered into an agreement of purchase and sale
    for a 50% interest in College Square.

[19]

The
    deal with FCR was based on an attributed value for College Square of $78.8
    million  $18.8 million more than the amount attributed for the purpose of
    executing the share redemption agreement.

(3)

The litigation

[20]

In
    2007, the appellants commenced an action seeking damages of $11 million, which
    they claimed was the non-selling shareholders profit from the deal with FCR.
    The plaintiffs were Josephines children Adam, Sheira and Zena Harris and Naomi
    Stanton; Ethels son Rick Kesler, and Goldies son David Spieler (who started
    as a non-selling shareholder but later joined the selling shareholder group).
    Ethels other sons, Steven Kesler and Ivan Kesler, also sold their shares but
    did not join in the lawsuit.

[21]

The
    selling shareholders named five defendants: the three non-selling shareholders;
    the Leikin Group; the Leikin Groups accountants Gerald Levitz, Patricia Day
    and Ginsburg Gluzman Fage & Levitz LLP; the Leikin Groups lawyers, Grant
    Jameson, Geoffrey Gilbert and Ogilvy Renault LLP; and FCR.

[22]

Against
    the non-selling shareholders and the Leikin Group, the selling shareholders
    alleged breach of fiduciary duty. In the alternative, they alleged oppression,
    misuse of confidential information and unjust enrichment (the latter two claims
    were not pressed at trial). Against the Leikin Groups accountants and lawyers,
    they alleged breach of fiduciary duty, and in the alternative, knowing
    assistance in breach of fiduciary duty. They also alleged knowing assistance in
    breach of fiduciary duty against FCR.

[23]

The
    appellants central claim was that the non-selling shareholders and the Leikin
    Groups professional advisors knew as early as February 2004 that FCR was
    willing to buy a partial share of College Square using an attributed value of
    at least $70 million. They claimed that throughout the negotiations leading to
    the share redemption agreement, the defendants knowingly withheld material
    information about the advanced state of talks between the non-selling
    shareholders and FCR. The appellants alleged that if the information had been
    disclosed, they would not have sold their interests based on a value of $60
    million.

(4)

The motions for summary judgment

[24]

In
    January 2011 all the defendants moved for summary judgment. The motions judge
    noted that in order to give the motions the requisite hard look, he ended up
    reviewing a volume of material more typical of a three-week trial.

[25]

In
    a 406-paragraph decision in which he considered the evidence in great detail,
    the motions judge dismissed the claim against FCR and directed a trial before
    him against the remaining defendants. In doing so, he specifically identified
    the areas where he needed to hear further evidence and legal argument to decide
    the case. In particular, the motions judge explained that he would need to make
    credibility findings about the main protagonists in the share redemption
    transaction: David Katz, Rick Kesler, Barbara Farber and Josephine Harris.

[26]

Pursuant
    to rules 20.05(1) and (2) of the
Rules of Civil Procedure
, R.R.O. 1990,
    Reg. 194, the motions judge ordered that the trial adopt a hybrid form in
    which the evidence filed on the summary judgment motions would be preserved and
    supplemented with further evidence to be led at trial.

[27]

The
    appellants unsuccessfully appealed the order granting FCR summary judgment to
    this court:
Harris v. Leikin Group Inc.
, 2011 ONCA 790. For reasons I
    explain below, it is significant to note that there was a single order emanating
    from the summary judgment motions that both granted summary judgment in favour
    of FCR and dismissed the summary judgment motions brought by the other
    defendants. The order provided that the claims were to proceed to trial
    subject to the [trial management] directions set out in paragraph 404 of the
    Reasons for Decision dated June 13, 2011, and to the Supplementary Reasons for
    Decision with Directions for Trial dated August 10, 2011.

[28]

While
    the selling shareholders appealed the paragraph of the order granting summary
    judgment in favour of FCR, they did not appeal, or seek leave to appeal, the
    paragraph of the order setting out the directions for trial.

(5)

The trial

[29]

The
    trial took place over eight days in May and June 2012. The trial judge released
    his decision dismissing the appellants claims in their entirety in March 2013.
    In reasons spanning 585 paragraphs, the trial judge adopted significant
    portions of his reasons on the summary judgment motions and made further
    findings based on the evidence led at trial.

[30]

In
    brief, the trial judge found that there was no evidence of either a
per se
or
    an
ad hoc
fiduciary relationship between the selling and non-selling
    shareholders or between the selling shareholders and the Leikin Groups lawyers
    and accountants. On the contrary, any
per se
duty was to the corporation
    and any
ad hoc
duty was, in the circumstances of this case, belied by
    the explicitly adversarial relationship between the selling and the non-selling
    shareholders. In reaching these conclusions the trial judge made crucial
    credibility findings in favour of the non-selling shareholders. In particular,
    the trial judge largely accepted the evidence of David Katz, the principal
    architect of the non-selling shareholders position. He largely rejected the
    evidence of Rick Kesler and Josephine Harris, the principal architects of the selling
    shareholders position.

[31]

The
    trial judge emphasized that on the evidence, there was no offer or bought
    deal with FCR during the time the parties were negotiating the share redemption
    agreement. This was consistent with his finding on the summary judgment
    motions, which was affirmed by this court in its 2011 decision, at para. 18:

[T]he 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.

[32]

The
    plaintiffs oppression claim was rooted in the same conduct that they alleged
    amounted to a breach of fiduciary duty. Accordingly, the trial judge dismissed
    that claim as well.

[33]

As
    the trial judge found no fiduciary relationship between the selling and
    non-selling shareholders, he dismissed the claims against the lawyer and
    accountant defendants for knowing assistance of breach of fiduciary duty. He
    dismissed the breach of fiduciary duty claim against the lawyer defendants on
    the ground that there was no solicitor-client relationship between the selling
    shareholders and the Leikin Groups legal counsel that would give rise to a
per
    se
duty, and no context-specific relationship that would give rise to an
ad
    hoc
duty.  He dismissed the breach of fiduciary duty claim against the
    Leikin Groups accountants for similar reasons. In doing so, the trial judge
    emphasized his findings that the selling shareholders had retained their own
    professionals, including their own lawyers and real estate appraisers, to
    protect their interests in the share redemption negotiations.

[34]

In
    light of having pleaded intentional torts, the selling shareholders accepted
    that substantial indemnity costs were appropriate. The trial judge carefully
    scrutinized the defendants bills of costs and ultimately ordered the selling
    shareholders to pay nearly $2.5 million, spread among the non-selling
    shareholders, the Leikin Group and the lawyer defendants. The selling
    shareholders settled the accountant defendants costs for $550,000.

THE APPEAL

[35]

The
    issues raised on this appeal may be grouped under three headings:

(1)

Did the trial judge err in
    directing a hybrid trial, effectively robbing the appellants of control of the
    trial
narrative
?

(2)

Did the trial judge make errors of
    law or palpable and overriding errors of fact about whether the respondents
    owed, and breached, fiduciary duties to the appellants during the share
    redemption negotiations?

(3)

Did the trial judge err in holding
    that a costs order of over $2.5 million was fair and reasonable?

ANALYSIS

(1)

Did the trial judge err in directing a hybrid trial, effectively
    robbing the appellants of the ability to control the trial
narrative
?

[36]

Rule
    20.05 gives a judge who refuses to grant summary judgment, or who grants partial
    summary judgment, extensive powers to specify facts that are not in dispute and
    identify those to be tried, and to direct the terms on which the trial is to
    proceed.

[37]

In
    disposing of the summary judgment motions, the motions judge wrote that he
    intended to issue directions regarding the conduct of the trial. He explained
    that it was only fair that before he do so, counsel should be given the
    opportunity to discuss the matter amongst themselves and present a plan for his
    approval.

[38]

Although
    the motions judge stated that he wished to discuss the trial management plan
    before making final directions, at para. 404 of his summary judgment reasons he
    offered some preliminary thoughts to guide counsels discussions. These
    included:  transcripts of the cross-examinations conducted for the motions
    should serve as examination for discovery transcripts; transcripts of all the
    examinations conducted for the motions should serve as the cross-examinations
    at trial; affidavits filed on the motions should serve as examinations-in-chief;
    and additional examinations and cross-examinations should be time-limited.

[39]

The
    motions judge also reminded counsel that in the course of his lengthy reasons he
    had identified the parties from whom he needed to hear
viva voce
evidence, and on what issues, and advised that he wanted counsel to focus on
    those areas of concern.

[40]

The
    preliminary thoughts set out at para. 404 of the motions judges reasons were
    incorporated into the summary judgment order after the parties found themselves
    unable to agree on a trial management plan. After hearing further submissions
    at three subsequent trial management conferences, the judge issued further
    directions for trial pursuant to rule 20.05 on issues such as the timing and
    duration of further examinations, the delivery of expert reports and deadlines
    for filing material. However, on appeal the appellants have focused on the
    trial management directions made in the initial order.

[41]

I
    note that the summary judgment motions were decided before this court released
Combined
    Air
and two of the three subsequent trial management orders were issued
    after. This appeal was perfected before the Supreme Court of Canada released
    its decision in
Hryniak v. Mauldin
but the parties filed additional
    written submissions on the impact of that decision prior to the oral argument
    of this appeal.

(a) Are the appellants precluded from raising this ground of
    appeal?

[42]

As
    I have noted, following the motions for summary judgment in 2011, the
    appellants appealed the paragraph of the order dismissing their claim against
    FCR, but they did not appeal the paragraph of the order dealing with the
    directions for trial. The respondents submit that it is too late now for the
    appellants to challenge the fairness or propriety of those directions. I agree.

[43]

The
    appellants had an opportunity to challenge the trial management order by
    appealing, or seeking leave to appeal, at the time it was made. Having failed
    to do so, they should not be allowed to attack it collaterally now:
R. v.
    Wilson
, [1983] 2 S.C.R. 594, at p. 599.

[44]

The
    parties proceeded with a lengthy, complex and costly trial on the basis of the
    terms laid down by the trial management order. In my view, it would be contrary
    to law and common sense to allow the disappointed loser to complain now about
    the fairness of an order that could have been challenged when it was made.

[45]

I
    note parenthetically that the question of whether the appeal would be to the
    Divisional Court with leave or to this court as of right would turn on the
    specific nature of the direction being challenged. Most directions for trial
    would be interlocutory in nature and require leave. However, a direction that
    takes a substantive claim or defence off the table, could, on the governing
    jurisprudence, amount to a final order from which there would be an appeal as
    of right.

[46]

I
    disagree with the appellants characterization of the order as a mid-trial ruling
    that must have awaited a final outcome before an appeal could be brought. There
    were two distinct phases to this proceeding: the summary judgment phase and the
    trial phase. The trial did not begin until after the summary judgment phase had
    been completed. Rule 20.05, by its terms, contemplates an order that the
    action
proceed to trial
expeditiously (emphasis added). This recognizes
    the existence of two discrete phases of the proceeding: a pre-trial phase when
    directions for trial are made and then the trial itself. The terms of the impugned
    order, made almost exactly one year before the trial started, dealt with issues
    such as discovery that were quite obviously pre-trial in nature. I cannot agree
    that these directions should be characterized as falling within the trial
    proper so as to permit a party to sit on a right of appeal to be used if the
    party is unsuccessful at trial.

(b) Did the trial judge err in the directions for and conduct
    of the trial?

[47]

Although
    I have concluded that there is no right of appeal at this point from the trial
    management order, the correctness of that order was fully argued and I offer
    the following observations.

[48]

First,
    it is my view that the specific terms of the judges directions fell squarely
    within the language of rule 20.05.

[49]

Second,
    it is my view that both the letter and the spirit of the judges directions
    fell squarely within what the Supreme Court of Canada contemplated in
Hryniak
    v. Mauldin
, at paras. 76-77:

Rules 20.05(2)(a) through (p) outline a number of specific
    trial management orders that may be appropriate.  The court may: set a
    schedule; provide a restricted discovery plan; set a trial date; require
    payment into court of the claim; or order security for costs.  The court
    may order that: the parties deliver a concise summary of their opening
    statement; the parties deliver a written summary of the anticipated evidence of
    a witness; any oral examination of a witness at trial will be subject to a time
    limit or; the evidence of a witness be given in whole or in part by affidavit.

These powers allow the judge to use the insight she gained from
    hearing the summary judgment motion to craft a trial procedure that will
    resolve the dispute in a way that is sensitive to the complexity and importance
    of the issue, the amount involved in the case, and the effort expended on the
    failed motion.

[50]

It
    seems to me that Karakatsanis J. was urging judges to do exactly what the judge
    did in this case. After considering the voluminous material filed on the
    summary judgment motions, he concluded the case could fairly and properly be
    decided on the basis of a trial focussed on the specific issues that required
viva
    voce
evidence.

[51]

The
    appellants submit that while
Hryniak
modified this courts decision in
Combined
    Air
in some respects, it did not disturb this courts instruction, at para.
    65, that while the court may use rule 20.05 to salvage the resources that went
    into the summary judgment motion, the rule should not be applied so as to
    effectively order a trial that resembles the motion that was previously
    dismissed. [T]he trial ought not to be simply a reconfiguration of the
    dismissed motion.

[52]

I
    cannot agree that the trial in this case was simply a reconfiguration of the
    dismissed motion. The trial judge did salvage the resources that went into
    the summary judgment motion and he afforded the parties considerable latitude
    in the presentation of the case. Indeed, the appellants did not complain about
    any aspect of the procedure during the trial.

[53]

As
    a general rule, a party to a civil action cannot appeal on the basis of some
    aspect of trial procedure to which it did not object or sit on an objection
    only to raise it once it learns of an unfavourable result: see
Marshall v.
    Watson Wyatt & Co.
(2002), 57 O.R. (3d) 813 (C.A.), at paras. 14-15;
Leader
    Media Productions Ltd. v. Sentinel Hill Alliance Atlantis Equicap Limited
    Partnership
(2008), 90 O.R. (3d) 561 (C.A.), leave to appeal refused,
    [2008] S.C.C.A. No. 394, at paras. 50-51.

[54]

Here,
    even with the benefit of hindsight, the appellants cannot point to a specific
    instance during the trial that was unfair or prejudicial, nor have they shown
    that they were prevented from putting the case they wanted to put before the
    trial judge. They have not identified anything they would have done differently
    if the trial had proceeded as a full-fledged conventional trial rather than a
    modified hybrid trial. The argument that the hybrid trial effectively robbed
    the appellants of the ability to control the trial
narrative
was not advanced before the trial judge and it
    remains a bald assertion as advanced on this appeal.

[55]

Finally,
    I do not accept the submission that the hybrid trial process led the trial
    judge to reverse material findings of fact found on the summary judgment motions.
    His detailed reasons following the trial carefully track his earlier reasons.
    In particular, I cannot agree that he found on the summary judgment motions
    that during the discussions with David Katz and before it made its binding
    offer, FCR had expressed a desire to purchase College Square at an assigned
    value in excess of $70 million. The label trial balloon that the trial judge used
    in his final reasons to describe the reference by David Katz to a price during
    such discussions is entirely consistent with the findings or tentative findings
    he made on the summary judgment motions.

[56]

The
    appellants sought to file fresh evidence to establish that their counsel
    objected to the trial management process after the release of
Combined Air
.
    This was in response to the respondents contention that the appellants had
    consented to the trial management process. In my view, the proposed fresh
    evidence could not affect the outcome of this appeal and, as I have explained,
    the proper way to challenge the trial management order was to appeal or seek
    leave to appeal.

(2)

Did the trial judge make errors of law or palpable and overriding
    errors of fact about whether the respondents owed, and breached, fiduciary duties
    to the appellants during the share redemption negotiations?

[57]

The
    appellants asserted breach of various
per se
and
ad hoc
fiduciary
    duties by the respondents. Any
per se
duties owed by any of the
    respondents (as directors, officers and professional advisors) were determined
    correctly by the trial judge to be owed to the corporations. The central issue
    was whether there was any
ad hoc
fiduciary duty arising in the
    circumstances of this case. The appellants argued at trial and before this
    court that the fiduciary duty of the non-selling shareholders consisted of the
    obligation to act in the interests of the appellants, described by the trial
    judge, at para. 441 of his reasons for judgment, as one under which the Non-Selling
    Shareholders undertook to act in the
joint
interests of the parties
    (emphasis in original).

[58]

As
    I have indicated, the trial judge exhaustively reviewed the evidence and made
    detailed and comprehensive findings. For purposes of this appeal, he made three
    central findings that are fatal to the appellants claims, and in particular
    their claims with respect to the
ad hoc
fiduciary duty that they
    alleged.

[59]

First,
    the trial judge found the relationship between the selling shareholders and the
    non-selling shareholders was adversarial, bitter, acrimonious, and marked by
    distrust. This dynamic was reflected in the negotiations leading to the share
    redemption agreement.

[60]

Second,
    there was no bought deal between the non-selling shareholders and FCR, nor did
    the non-selling shareholders know during the share redemption negotiations that
    FCR was prepared to pay a specific price for College Square. As this court found
    when it upheld the dismissal of the appellants claim against FCR in 2011, the
    first and only offer FCR submitted to acquire an interest in College Square was
    after the share redemption agreement and during the independent and public
    auction process.

[61]

Third,
    the trial judge found that in the course of the negotiations leading to the
    share redemption agreement the selling shareholders requested a tag-along
    clause that would allow them to share in any upside of financing the buy-out.
    They also sought representations that the non-selling shareholders did not
    possess any information that might reasonably be expected to deter them from
    entering into the agreement, and that the non-selling shareholders had no
    present intention to sell College Square. As I have explained, the
    non-selling shareholders refused these requests. The appellants, who had their
    own professional advisors, accepted that refusal and proceeded with the share redemption
    agreement in any event. Each, it will be recalled, received nearly $3.4
    million.

[62]

These
    findings led the trial judge to conclude that the non-selling shareholders did
    not owe the selling shareholders the fiduciary duty alleged, that is to act in
    their interests, when negotiating the share redemption agreement.

[63]

For
    the following reasons, I am of the view that these central findings were
    well-supported by the evidence and the trial judges conclusions on the
    fiduciary duty issues were well-grounded in law. I see no basis for this court
    to interfere.

(a)  The relationship between the selling and non-selling
    shareholders was acrimonious

[64]

The
    evidence that there was a complete absence of trust between the selling and
    non-selling shareholders was uncontested and overwhelming. The bitterness
    between the Leikin cousins was not just the product of the share redemption
    negotiations; it was what led to the negotiations in the first place.

[65]

To
    cite just one illustration, by early 2004 when Josephine Harris informed her
    fellow directors that her children wished to sell their shares, her group had
    already retained a lawyer and accountant to advise them on the sale. Then and throughout
    the process that led to the share redemption agreement, the selling
    shareholders retained and relied upon their own legal and accounting advisors
    to protect their interests. The selling shareholders even retained their own
    real estate appraiser when they suspected that the appraisal presented to the
    Leikin Group board had undervalued College Square.

[66]

Josephine
    Harris offered some of the strongest evidence to support the trial judges
    conclusion that the level of discord between the shareholder groups belied any
    fiduciary relationship. In cross-examination, she had the following exchange
    with counsel for the non-selling shareholders:

Q. And, really, that because of this mistrust of the
    non-selling shareholders, you werent really relying upon the non-selling
    shareholders, were you?

A. Impossible.

Q. Impossible for what?

A. Yes.

Q. Impossible to rely on them?

A. Yes
.


[67]

The trial judge recounted this
    testimony and concluded, at para. 447: I cannot reconcile that evidence
from
    the plaintiffs with their submissions at trial that they expected the
    Non-Selling Shareholders to protect and look after their interests in the share
    redemption transaction.

[68]

Similarly,
    Rick Keslers legal partner and the selling shareholders principal negotiator,
    Jules Lewy, agreed at trial that both sides were negotiating in their own
    interests. The trial judge considered this evidence and held, at para. 450:
    Negotiations containing those characteristics usually do not attract the
    imposition of a fiduciary duty on one of the negotiating sides  [Lewys
    admission] severely undermines the plaintiffs' legal submission that the
    Non-Selling Shareholders owed a duty to protect the joint interests of the
    shareholders in that transaction. I agree with this analysis.

[69]

In
    my view, the trial judge correctly held that on the evidence the appellants
    were not expecting the selling shareholders to protect their interests in the
    negotiations. As he put it, at para. 448, the dependent, special and close
    personal relationship that can give rise to an
ad hoc
fiduciary relationship
    in some family business arrangements is a far cry from the factious,
    conflicted, self-interested and untrusting relationship amongst the two sets of
    cousins in the present case.

[70]

At
    trial and on appeal, the appellants relied heavily on a memo Barbara Farber
    sent to her fellow shareholders on September 1, 2004, as a representation that
    the non-selling shareholders would protect the interests of the selling
    shareholders during the share redemption negotiations. That memo read in part:

I am extremely confident that all shareholders will approach
    the CIBC shareholder liquidity process with the knowledge that a successful
    outcome can only be achieved if it is beneficial to all shareholders. I look
    forward to working together with all directors and shareholders that will ensure
    a favourable conclusion.

[71]

The
    trial judge rejected the suggestion that Farbers memo was an undertaking to
    protect the selling shareholders interests. Instead he found that the memo
    simply reflected the reality of the situation: the two groups had opposing
    interests; they could no longer get along; and an orderly, business-like
    process was required to allow one group to liquidate its interests. In my view,
    this conclusion was amply supported by the evidence. I would not interfere with
    it.

(b)  The appellants cannot succeed on the basis of a
per se
duty owed to the corporations

[72]

I
    do not accept the argument that the appellants can succeed on the basis of any
per
    se
duty the respondents owed to the corporations. It is well-established
    that directors owe a duty to the corporation, not to stakeholders, and the
    reasonable expectation of stakeholders is simply that the directors act in the
    best interests of the corporation:
BCE Inc. v. 1976 Debentureholders,
2008
    SCC 69, [2008] 3 S.C.R. 560, at para. 66.

[73]

Moreover,
    a shareholder of a corporation  even a controlling shareholder or the sole
    shareholder  does not have a personal cause of action for a wrong done to the
    corporation:
Meditrust Healthcare Inc. v. Shoppers Drug Mart
(2002),

61 O.R. (3d) 786 (C.A.), at para. 12. A shareholder
    may bring a derivative action
on behalf of the corporation
for a loss
    suffered by the corporation, but the appellants did not seek leave to commence
    a derivative action, as required by the
Business Corporations Act
,
    R.S.O. 1990, Ch. B.16, s. 246(1), to claim that the non-selling shareholders
    had diverted a corporate opportunity for their personal benefit. Indeed, they
    did the reverse by asserting a claim on their own behalf
against the
    corporation.

(c)  There was no bought deal between the non-selling
    shareholders and FCR, and no knowledge that FCR was willing to pay a specific
    price for College Square

[74]

Central
    to the appellants claim is the contention that David Katz failed to disclose
    the extent of his discussions with FCR regarding the possible sale of an
    interest in College Square. Those discussions began in early 2004 and were raised
    at a Leikin Group board meeting on April 15, 2004.

[75]

The
    trial judge carefully reviewed the conflicting evidence as to what occurred at that
    meeting and thereafter. He found that Katz made a presentation about a possible
    strategic alliance with FCR, but the selling shareholders were not interested
    and the discussions went nowhere at that time.

[76]

The
    appellants place great emphasis on the fact that Katz did not inform the board
    that he had floated an estimated value of $72 million as part of his
    exploratory discussions with FCR. As noted, the discussion of the possibility
    of a deal with FCR was cut short. As the trial judge put it, at para. 111: [T]he
    two family groups were like ships passing in the night. One group wanted to
    hold on to and grow the company, the other group wanted to get its money out.

[77]

The
    trial judge aptly described the figure of $72 million proposed by David Katz in
    his pre-agreement discussions with Sylvie Lachance, the Executive
    Vice-President and Chief Operating Officer of FCR, as nothing more than a
    trial balloon. Lachance testified that there was no discussion about price
    until the formal bid process in 2005. As the trial judge found, at para. 73,
    David Katz had not received any sort of response from FCR as to the $72
    million number before the critical board meeting in April 2004 when he floated the
    idea of an alliance with FCR.

[78]

The
    trial judge accepted David Katzs evidence that he had no discussions with FCR
    between March 12 and July 14, 2004, when Katz met with Farber and the Leikin
    Groups lawyer, Grant Jameson. Although none of the appellants were present at
    the July 14 meeting, they alleged based on Jamesons notes that Katz told the
    attendees that FCR was interested in College Square at a valuation of at least $72
    million. The trial judge rejected that contention. He found, at para. 160, that
    the trail with FCR had gone cold. He also accepted that a valuation of approximately
    $71.5 million was discussed not because Katz thought that FCR was willing to
    pay it, but because a sale based on that amount would be required if the
    selling shareholders were to retain control of the business after redemption of
    the selling shareholders shares.

[79]

Katz
    had further discussions with FCR between July 14 and October 12, 2004, but the
    trial judge found that during those discussions, FCR did not state a price at
    which it might be interested in College Square, let alone make an offer to
    purchase. At para. 190, the trial judge accepted the evidence that Katz
    appreciated he had found in FCR an entity willing to continue discussions with
    him about College Square, but that is as far as matters had progressed by
    October when Katz terminated the discussions.

[80]

The
    trial judges findings about the information David Katz and the other non-selling
    shareholders had prior to concluding the share redemption agreement were soundly
    based on the evidence and, significantly, on his positive assessment of Katzs credibility
    and his negative assessment of Keslers. Those findings are entitled to
    deference on appeal and I am far from persuaded that there is any basis upon
    which this court could interfere.

(d)  The selling shareholders requested, but did not get,
    assurances aimed at maximizing their returns on the share redemption agreement

[81]

The
    trial judge found that by the fall of 2004, the selling shareholders knew that
    the non-selling shareholders had two objectives: first, retain their interest
    and grow the company and second, retain control of the company. It was apparent
    that in order to achieve both, the three non-selling shareholders had to find a
    partner who would pay them enough to buy out the eight selling shareholders and
    still hold a majority interest in College Square. As a result, the trial judge
    found that the selling shareholders knew that there would most likely be a
    spread between the appraised value of College Square for purposes of the
    share redemption agreement and the price an equity investor would pay for an
    interest in the property.

[82]

Against
    this backdrop, the selling shareholders requests for assurances that would
    maximize their returns  and the non-selling shareholders refusals  are
    highly significant. They demonstrate that: (1) the selling shareholders knew or
    strongly suspected that the non-selling shareholders would secure an
    advantageous deal to finance the buy-out; (2) the selling shareholders did not
    trust the non-selling shareholders; (3) the selling shareholders knew the
    non-selling shareholders were out to maximize their own interests; and (4) the
    selling shareholders were ultimately prepared to sell their shares even without
    the assurances they had sought. In my view, these uncontested facts alone are
    fatal to the appellants claims for breach of fiduciary duty.

(e)  Conclusion on fiduciary duty

[83]

The
    appellants initiated the buy-out by insisting that they wanted to sell their
    interests. From the start, they retained and relied on their own legal,
    accounting and real estate advisors because they did not trust the other side.
    They threatened litigation. Before completing the transaction, they knew that
    the respondents would likely negotiate a favourable deal with a new partner.
    They sought and were refused assurances that would give them what they seek in
    this litigation and proceeded to close the transaction anyway. In these
    circumstances, the trial judge quite properly rejected their claims for breach
    of fiduciary duty.

(f)  The professional defendants

[84]

The
    professional defendants, the lawyers Ogilvy Renault LLP, Grant Jameson and
    Geoffrey Gilbert, and the accountants Ginsburg Gluzman Fage & Levitz LLP,
    the estate of Gerald Levitz and Patricia Day, were retained by and acted for
    the Leikin Group. They were not retained and did not act for the shareholders
    or the appellants. The trial judge found that none of the professional
    defendants had engaged in conduct that gave rise to either a
per se
or
ad
    hoc
fiduciary relationship. The trial judge also found that none of the
    professional defendants were in possession of and had wrongly failed to
    disclose material information to the appellants.

[85]

The
    appellants have failed to identify any reason for overturning those findings.
    The appellants were self-interested parties who retained and relied on their
    own professional advisors and the claim of breach of fiduciary duty is without
    merit.

[86]

I
    agree with the trial judge that the only possible basis for recovery against
    the professional defendants would be knowing assistance of a breach of
    fiduciary duty. That claim depends on a finding that the non-selling shareholders
    owed, and breached, a duty to the selling shareholders. As that claim has
    failed, so to must the claim for knowing assistance.

(3)

Did the trial judge err in holding that a costs order of over $2.5
    million was fair and reasonable?

[87]

The
    appellants acknowledge that substantial indemnity costs were warranted.
    Nevertheless, they submit that the trial judges costs order of over $2.5
    million is not fair and reasonable in the circumstances of the case.

[88]

In
    my view, the trial judges reasons reveal no error in principle. The trial
    judge painstakingly scrutinized the respondents bills of costs and produced a
    65-paragraph decision in which he allowed some costs and disallowed others. In
    the end, he awarded the non-selling shareholders and the lawyer defendants costs
    of $1,003,090.00 and $1,012,650.51, respectively. He awarded the Leikin Group costs
    of $470,161.21.

[89]

Significantly,
    the appellants costs were approximately $990,000 on a substantial indemnity
    basis. This is roughly on par with what the trial judge awarded the
    respondents. The trial judge rejected the suggestion that the appellants should
    only be responsible for a portion of the respondents costs due to the overlap
    in the claims against them. In my view, he did not err in holding that, having
    brought multiple defendants into the lawsuit and making allegations that
    implicated them all in a complex series of events, the appellants could
    reasonably expect that costs incurred by each of those defendants would
    approximate the costs they incurred themselves.

DISPOSITION

[90]

For
    these reasons, I would dismiss the motion to file fresh evidence, dismiss the
    appeal and fix the costs of the respondents as follows: Farber, David Katz and Andrew
    Katz, $100,000; Leikin Group, $45,000; Ogilvy Renault LLP $45,000; Ginsburg Gluzman
    Fage & Levitz LLP, $45,000, all inclusive of disbursements and applicable
    taxes.

Robert J. Sharpe J.A.

I agree Alexandra Hoy A.C.J.O.

I agree K. van
    Rensburg J.A.

Released: June 18, 2014


