



COURT OF APPEAL FOR ONTARIO

CITATION: Firepower Debt GP Inc. v. TheRedPin, Inc., 2019
    ONCA 903

DATE: 20191115

DOCKET: C66336

Lauwers, Fairburn and Zarnett JJ.A.

BETWEEN

Firepower
    Debt GP Inc., as Agent

Applicant (Respondent in Appeal)

and

TheRedPin, Inc. and TheRedPin.Com Realty Inc.

Respondents (Appellants)

Jordan Goldblatt, for the appellant Agents

Jeffrey S. Klein, for the appellant, Certain Underwriters
    of Lloyds of London

Harvey Chaiton, for the respondent, Firepower Debt GP
    Inc.

Aubrey E. Kauffman, for the respondent, Trilogy Growth
    Fund LP

Harry Fogul, for the receiver, MNP Ltd.

Heard: September 27, 2019

On appeal from the order of Justice Michael A. Penny of
    the Superior Court of Justice, dated November 30, 2018, with reasons reported
    at 2018 ONSC 7182.

REASONS FOR DECISION

[1]

At issue in this appeal is whether certain real estate sales commissions
    collected by the receiver of an insolvent brokerage firm are trust funds for the
    real estate salespersons who effected the sales, or form part of the assets of
    the insolvent firm available to its creditors.

[2]

Prior to its insolvency, TheRedPin.Com Realty Inc. (TRP Realty)
    operated a real estate brokerage business registered under the
Real Estate
    and Business Brokers Act
, 2002
, S.O. 2002, c. 30, Sch C. TRP Realtys
    registration entitled it to effect trades in real estate and earn and be paid
    commissions. An important focus of its business was the new and future
    condominium market.

[3]

TRP Realty engaged real estate salespersons (the Agents) to perform
    the listing and selling activities that generated trades in real estate and TRP
    Realtys entitlement to commissions. Under agreements with each of the Agents,
    TRP Realty was required to pay a specified portion of the commissions it earned
    and received to the Agents.

[4]

In June 2018, MNP Ltd. was appointed receiver of TRP Realty as a result
    of its insolvency. The respondents, Firepower Debt GP Inc. and Trilogy Growth
    Fund LP, are secured creditors of TRP Realty.

[5]

At the time of the appointment of the receiver, there were commissions
    to be received by TRP Realty on transactions in new and future condominium
    projects that were scheduled to close at various times through 2023. The Agents
    are owed a portion of those pending commissions (approximately $3.7 million).

[6]

The receiver brought a motion for advice and directions as to whether
    these commissions, when collected, are to be held in trust for the benefit of the
    Agents to the extent of TRP Realtys obligation to pay a portion of them to the
    Agents. If the amount is required to be held in trust, it would be excluded
    from TRP Realtys available assets which are subject to the claims of
    creditors, including the claims of the respondent secured creditors. If the
    amount is not required to be held in trust for the Agents, the Agents claims
    to their share of commissions would be as unsecured creditors in the insolvency,
    ranking behind those of secured creditors.

[7]

Before the motion judge, the parties agreed, as they did before us,
    that: (i) there is no statutory or regulatory requirement to hold the Agents
    commissions in trust; (ii) there is no definitive document that unambiguously
    establishes a trust in favour of the Agents; (iii) a trust may be implied from
    surrounding circumstances, including transaction documents and TRP Realtys conduct;
    (iv) the existence of a trust requires three certainties to be present: subject
    matter, object, and intention; and (v) in the circumstances here, certainty of
    subject matter (the commissions themselves) and certainty of object (TRP Realty
    and the Agents) were present.

[8]

The disagreement between the parties was about certainty of intention 
    whether TRP Realty intended to establish a trust in favour of the Agents over
    commissions payable to TRP Realty from condominium transactions.

[9]

The motion judge rejected the claim that there was a trust. He concluded
    that based on the objective evidence I am unable to agree with the Agents that
    the requirement for certainty of intention to create a trust has been
    established. I conclude that the commissions, while clearly a debt owing to the
    Agents, are not held in trust and are, therefore, not excluded from TRP
    Realtys available assets subject to the [secured creditors] security: at
    para. 53.

[10]

The Agents and their insurer appeal.

[11]

The appellants do not dispute the legal test the motion judge
    articulated at paras. 15-16 of his reasons:

Certainty of intent requires that it be clear that the donor or
    settlor intended to create a trust; i.e., that the settlor intended for the
    property in question to be held for the benefit of another. No formal document
    evidencing the creation of a trust is required. Nor is it necessary that the
    settler use any specific language - even the use of the word trust is not
    necessarily dispositive one way or the other. The question is one of substance
    - did the settlor evidence an intention that the property be held by one person
    for another persons benefit? This intention may be express or implied and may
    be determined from words or acts.

Where a trust is to be implied, however,
    effect must be given to inferences as to the intention of the parties which a
    reasonable person would draw from the words or conduct of the parties and not
    to any subjective or other intention which was not made manifest at the time.
    Certainty of intention cannot solely derive from a moral obligation as to what
    is to be done with the property,
Bank of Nova Scotia v. Atcon Group Inc.
2012 NBCA 57 (CanLII), at para. 18 and
Waters Law of Trusts in Canada
(4th ed.) at para. 5.1.

[12]

Rather, the appellants attack the motion judges conclusion of mixed
    fact and law that certainty of intent had not been established. They do so on
    two interrelated bases. First, they submit that the motion judge made errors
    which led him to attach significance to evidence which weighed against the
    existence of the requisite intention on the part of TRP Realty. Second, they
    submit that the motion judge made errors which led him to attach insufficient
    significance to evidence which supported a finding of the requisite intention.

[13]

Turning to the appellants first basis of appeal, the motion judge
    considered the agreements between TRP Realty and the Agents, and TRP Realtys
    financial statements, to be evidence that TRP Realty lacked the intention to
    create a trust.

[14]

The appellants argue that the motion judge erred when he placed weight
    on the fact that the agreements between TRP Realty and the Agents did not contain
    a provision that commissions are to be held in trust by TRP Realty for the
    benefit of the Agents. This, they submit, was an error of law, since a formal
    agreement to hold funds in trust is not necessary for an implied trust to
    arise.

[15]

We do not accept the appellants argument. It is one thing to say that a
    trust may arise without a formal agreement. It is quite another to say that
    where there is a formal agreement that does not provide for a trust, it must be
    ignored when considering whether an intention to create a trust existed. No
    authority for the latter proposition was provided.

[16]

As is apparent from para 15 of his reasons referred to above, the motion
    judge was clearly alive to the point that a formal trust agreement was not
    required. In our view he was entitled to consider, as evidence of whether TRP
    Realty intended to create a trust, the fact that the agreements with each of
    the Agents neither created a trust, nor required that one be created. This was
    especially so given that the agreements specified that they contained the
    entire agreement between the parties. It was for the motion judge to decide
    what weight to put on that evidence.

[17]

The appellants also argue that the motion judge erred when he found that
    TRP Realtys audited financial statements were a clear statement of its
    intention that the pending commissions are not held in trust, and that the
    Agents split of the commissions represented an unsecured debt owing to them.

[18]

The motion judge viewed the financial statements as indicating that TRP
    Realty knew how to say it was holding funds in trust, and that, importantly, it
    made no such statement in the financial statements about the Agents
    commissions.

[19]

The financial statements showed deposits TRP Realty was holding on
    transactions in which it was the listing broker as Restricted cash; notes to
    the financial statements explained these were amounts held in trust as
    required by various purchase and sale agreements. In contrast, balances in TRP
    Realtys commission account  the bank account into which commissions earned by
    TRP Realty were paid and out of which the Agents portion of the commissions
    were paid  were shown as Cash and cash equivalents assets of TRP Realty with
    no indication the funds were held in trust. Moreover, the Agents portion of
    commissions was included on the financial statements as part of TRP Realtys Revenues
    without any indication that any portion of them were held for someone elses
    benefit, and the amounts payable by TRP Realty to Agents for commissions were
    grouped with their salaries and bonuses as TRP Realtys Cost of revenue, not
    as a disbursal of trust funds.

[20]

According to the appellants, the flaw in the motion judges approach was
    that he contrasted only two relevant categories of entries: Agents commissions,
    which were not indicated to be held in trust, and purchasers deposits, which
    were expressly noted as being held in trust. However, there was a third
    relevant category, namely, amounts that were to be paid by TRP Realty to
    Cooperating Brokerages, which the appellants say were unambiguously required to
    be held in trust by TRP Realty, but were not shown in the Restricted cash
    category on the financial statements as amounts being held in trust. The
    appellants argue that it was a palpable and overriding error for the motion
    judge to have overlooked this as it undermines his inference that the financial
    statements were a reliable indicator of what were and were not intended to be
    trust funds.

[21]

We do not accept this argument, for two reasons.

[22]

First, the parties before us did not agree about what TRP Realtys financial
    statements show concerning commissions owed to Cooperating Brokerages. The respondents
    did not agree that such amounts were included in the financial statement
    category of Cash and cash equivalents, that is, as amounts shown as TRP
    Realtys assets rather than as trust funds. Nor were we pointed to any
    breakdown showing an amount representing commissions payable to Cooperating
    Brokerages included in the Cash and cash equivalents category.

[23]

Second, even if the appellants are correct that amounts in TRP Realtys
    hands that were to be paid to Cooperating Brokers were not shown on the
    financial statements as held in trust, this would not materially detract from
    the motion judges point. TRP Realtys financial statements reflected certain
    amounts as held in trust in the Restricted cash category. It did not include
    Agents commissions in that category, and instead showed them as assets of TRP
    Realty in the Cash and cash equivalents category. The financial statements
    were represented by TRP Realty management to its auditors as accurate and not
    misleading. The auditors opined that the statements fairly presented TRP
    Realtys financial position. They were approved by its Board of Directors. The
    motion judge properly treated the financial statements as supporting an
    inference inconsistent with the existence of a certainty of intention that the Agents
    commissions were to be held in trust.

[24]

It may be that a similar inference from a failure to record amounts owed
    to Cooperating Brokerages as being held in trust on the financial statements
    could be overcome, because the evidence that could be mustered to show the
    intention that those funds were held in trust would outweigh the inference. But
    the motion judges essential point here was that the inference was not
    outweighed for Agents commissions, when the evidence that was proffered to
    show the requisite intention that the Agents commissions were to be held in
    trust was considered. He stated, at para. 51:

When weighed against the ambiguous
    inferences sought to be drawn from standard form documents provided by someone
    else (brokerWolf, not TRP Realty), notations included on address lines in bank
    statements and Mr. Gidamys after the fact characterization of the status of
    the commissions (a characterization totally at odds with the representations he
    made to the companys auditors, to the Board of Directors and to entities such
    as the applicant), I am unable to conclude that the requisite intention to hold
    the commissions in the commission account in trust has been established.

[25]

The weighing of evidence is the province of the motion judge. We see no palpable
    and overriding

error in his conclusion that would justify appellate
    intervention.

[26]

We turn to the appellants second basis of appeal, that the motion judge
    did not give appropriate significance to the evidence that was said to support
    a conclusion that TRP Realty intended that the Agents commissions be held in
    trust. This primarily consisted of evidence of the existence and history of a
    separate commission account at TRP Realtys banks, entries on various
    transaction documents, and evidence of TRP Realtys founder given in the
    proceedings below in which he stated his understanding about to whom the
    Agents commissions belonged.

[27]

The motion judge considered this evidence. He concluded it was
    essentially ambiguous.

[28]

The motion judge looked at the history of the bank accounts into which
    commissions were deposited and from which they were paid. He noted that bank statements
    on commission accounts TRP Realty had operated in the past had used the term
    Commission Trust. But, he also noted that the commission account in existence
    most proximate to the receivership had not been opened or named as a trust
    account.

[29]

The motion judge also considered trade record sheets provided to Agents
    by TRP Realty once an agreement and purchase and sale had gone firm. He noted
    these trade record sheets showed the Agents commission split with TRP Realty and
    stated that it constituted a commission trust agreement as set out in the
    contract. The motion judge found that the reference to the contract was to the
    agreements between TRP Realty and the Agents, and that these agreements contained
    no mention of a trust, did not include any requirement to hold Agents
    commissions in trust, and used no language from which a trust obligation or
    intention could reasonably be inferred.

[30]

The motion judge also reviewed an affidavit sworn by TRP Realtys
    founder, Mr. Gidamy. He noted that the affidavit described Mr. Gidamys
    understanding of to whom the Agents commissions belonged, but that this after
    the fact description was inconsistent with objective behaviour at the relevant
    time, including what Mr. Gidamy had represented to TRP Realtys auditors and
    Board of Directors about the financial statements, and what he represented to TRP
    Realtys secured creditors about financial information provided to them, which
    also did not show the Agents commissions as held in trust.

[31]

The motion judge concluded that the ambiguous evidence in favour of the
    trust provided relatively weak indicators of an inference of TRP Realtys
    intention: at para. 48. He concluded that the evidence in favour of the trust was
    outweighed by the absence of a mention of a trust requirement in the agreements
    with the Agents and the representations in TRP Realtys financial statements,
    which were inconsistent with a trust. That weighing of evidence is entitled to
    deference. In our view it involved no palpable and overriding error.

[32]

This conclusion is not altered by the appellants argument that the
    motion judge engaged in speculation when he stated that there were ample
    commercial, accounting and cash tracking and management reasons to direct the
    commissions into a separate account, altogether apart from whether they were
    being held in trust: at para. 52. The appellant argues that there was no
    evidence that these were the reasons for a separate commission account. However,
    as we read the motion judges reasons, he was simply drawing a common-sense
    inference from facts he properly found about the importance of commissions to TRP
    Realtys business and the need to properly account for the Agents commission split,
    which was their remuneration for the services they performed for TRP Realty. A
    separate account does not necessarily imply a trust account, and in our view
    the motion judge did not commit a palpable and overriding error in considering
    the commercial context for a separate account, especially in light of the main
    grounds for his decision as noted above.

[33]

Accordingly, we dismiss the appeal.

[34]

The respondents are entitled to their costs of the appeal which we fix
    in the following amounts: Firepower Debt GP Inc., $20,000; Trilogy Growth Funds
    LP, $6,000. Both amounts are inclusive of disbursements and applicable taxes.

P.
    Lauwers J.A.

Fairburn
    J.A.

B.
    Zarnett J.A.


