



COURT OF APPEAL FOR ONTARIO

CITATION: Trez Capital Limited Partnership v. Bernstein, 2018
    ONCA 107

DATE: 20180206

DOCKET: C63940

Strathy C.J.O., Hourigan and Miller JJ.A.

BETWEEN

Trez Capital Limited Partnership, Trez Capital
    (2011) Corporation and Computershare Trust Company of Canada

Plaintiffs (Respondents)

and

Dr. Stanley Bernstein
, Norma Walton, Ronauld
    Walton,
DBDC West Mall Holdings Inc.
,
2272551 Ontario Limited
,
DBDC
    Global Mills Ltd.
, West Mall Holdings Ltd., Wynford Professional Centre
    Ltd., Global Mills Inc., Devry Smith Frank LLP and John Todd Homes

Defendants (
Appellants
)

Peter H. Griffin and Christopher Yung, for the
    appellants, Dr. Stanley Bernstein, DBDC West Mall Holdings Inc., 2272551
    Ontario Limited, and DBDC Global Mills Ltd.

Sabrina Waraich, for the appellants, Norma Walton,
    Ronauld Walton, West Mall Holdings Ltd. and Global Mills Inc.

Irving Marks  and Dominique Michaud, for  the
    respondents, Trez Capital Limited Partnership, Trez Capital (2011) Corporation
    and Computershare Trust Company of Canada

Heard: January 19, 2018

On appeal from the order of Justice F. Newbould of the
    Superior Court of Justice, dated May 24, 2017 with reasons reported at 2017
    ONSC 3111 and 2017 ONSC 4120.

Hourigan J.A.:

[1]

The appellants, Stanley Bernstein and his companies, appeal from the
    order of the motion judge dismissing their motion for summary judgment. They
    had moved to dismiss the action commenced by the respondents on the basis that
    it is statue barred by operation of the
Limitations Act
, 2002, S.O.
    2002, c. 24, Sch. B.

[2]

For the reasons that follow, I would dismiss the appeal.

Background Facts

[3]

Dr. Bernstein was involved in a business relationship with Norma and
    Ronauld Walton, who operated The Rose & Thistle Group Ltd. (Rose &
    Thistle). Dr. Bernstein and the Waltons agreed to invest jointly in various
    commercial real estate projects. Ultimately, Dr. Bernstein invested
    approximately $110 million in 31 such projects. Each project was held in a
    separate corporation in which Dr. Bernstein was a 50% shareholder and the
    Waltons were 50% shareholders (the project corporations). The Waltons were
    responsible for managing and supervising the projects and arranging financing.

[4]

The respondent,
Trez
Capital
    Limited Partnership (Trez), is a commercial lender. It financed four of the
    projects jointly owned by Dr. Bernstein and the Waltons. For each loan, the
    Waltons falsely represented to
Trez
that they were the beneficial owners of 100% of the shares of the
    relevant project corporation.

[5]

With respect to the disclosure of Dr. Bernsteins involvement in the
    projects, an email dated February 25, 2013 from Ms. Walton to Dr. Bernstein
    (the Resignation Email) is significant. It provides, in part, as follows:

Ron and I are working on eliminating the need for personal
    guarantees of any kind on our mortgages for our properties. In the meantime,
    though, each institutional lender wants us and all directors and shareholders
    to personally guarantee the mortgages. That has become a problem with our
    jointly owned portfolio. Hence, if we advise that you are a joint owner and
    director, they want your personal guarantee or your company's personal
    guarantee. Obviously we have refused to either disclose or provide that.

To remove any focus on your personal or business covenant, I
    have asked Tom to prepare your resignation as a director for Wynford, Spadina
    and Eglinton. Obviously our partnership agreement will remain in place but you
    will not show as a director of the company for public consumption purposes and
    thus the lenders will not ask for your guarantee on the mortgages. I hope that
    is okay. It seems to me the simplest method of removing you from the lender's
    radar while preserving your 50% ownership.

[6]

In response to the Resignation Email, Dr. Bernstein temporarily resigned
    as a director from Wynford Professional Centre Ltd. (Wynford), one of the project
    corporations that were borrowing from Trez at the time. After loan funds were
    advanced to Wynford, Dr. Bernstein was immediately reinstated as a director of
    the corporation.

[7]

The business relationship between the Waltons and Dr. Bernstein became strained
    beginning in June 2013. James Reitan, the then Director of Accounting and
    Finance at Dr. Bernstein Diet & Health Clinics, had concerns with respect
    to the Waltons management of the projects. On June 7, 2013 he emailed Ms.
    Walton to raise certain issues. Mr. Reitan was not satisfied with the response
    to his email. On August 14, 2013 he caused title searches to be done on the 31
    properties and learned that on two properties, 1450 and 1500 Don Mills Road, North
    York, new mortgages of $3 million had been placed on each, without Dr.
    Bernsteins knowledge.  Global Mills Inc. (Global Mills), one of the project
    corporations, owns 1450 Don Mills Road.

[8]

Over the course of the next several weeks, Mr. Reitan made repeated
    requests of staff at Rose & Thistle regarding mortgage payments for Global
    Mills property and requested to be advised if the mortgage on the property
    increased. He did not receive information to his satisfaction, so he sent an
    email to Ms. Walton and one of her staff on September 13, 2013 complaining that
    he had not received complete information and about the fact that payments were
    being made under the mortgage by Rose & Thistle to
Trez
instead of by Global Mills to
Trez
.

[9]

Ms. Walton then emailed
Gaetano Coscia of
Trez

and asked for a return email confirming that
    the Global Mills mortgage was in good standing. She told Mr. Coscia the
    confirmation was being requested by her accountant.  Mr. Coscia emailed Ms.
    Walton and confirmed that the Global Mills mortgage was in good standing. That email
    was forwarded to Mr. Reitan and Dr. Bernstein.

[10]

According
    to Mr. Reitans affidavit filed on the summary judgment motion, he then called
    Mr. Coscia to follow up on the status of the mortgage. The call was made on the
    morning of September 13, 2013 (the September 13 Call).

[11]

The
    parties to the September 13 Call gave very different evidence about what took
    place on the call. This divergence of evidence was the critical issue for
    determination on the motion below. Mr. Reitan testified that during the September
    13 Call he revealed Dr. Bernsteins 50% interest in Global Mills. The position
    taken by the appellants is that the September 13 Call provided Trez with sufficient
    notice that it had a potential claim against Dr. Bernstein for failing to
    reveal his ownership interest in the investments funded by Trez. According to
    the appellants, because Trez did not assert that claim within two years of the September
    13 Call it is statute barred.

[12]

The
    evidence of Mr. Coscia regarding the September 13 Call is markedly different.
    In his affidavit filed on the summary judgment motion, he stated that at no
    time during September 13 Call did Mr. Reitan reveal Dr. Bernsteins ownership
    interest. He said that the first he became aware of it was when he received a
    call from an employee of Rose & Thistle on November 7, 2013. During that
    call he was advised that a receiver had been appointed to manage and operate
    the 31 properties as a consequence of a dispute between Ms. Walton and Dr.
    Bernstein, an equity partner.

[13]

D
r. Bernstein filed an affidavit in which he swore that
    he told Mr. Reitan to contact Mr. Coscia and that he did not instruct Mr.
    Reitan to withhold information about his ownership interest in Global Mills. At
    trial, Dr. Bernstein testified that he told Mr. Reitan to advise Trez who they
    were and he said that they discussed telling Trez that he was a 50% shareholder

[14]

Given
    the conflicting evidence about the September 13 Call, the motion judge ordered
    a mini-trial on the issue. Dr. Bernstein, Mr. Reitan and Mr. Coscia all gave
viva
    voce
evidence. The motion judge preferred the evidence of Mr. Coscia to
    that of Dr. Bernstein and Mr. Reitan. He dismissed the motion for summary judgment
    and made a finding that the limitation period had not expired prior to the
    issuance of the respondents statement of claim.

Issues

[15]

The
    appellants do not submit that this court should make a finding that the
    respondents claim is statute barred. Rather, they argue the order of the
    motion judge should be set aside because he made findings that went beyond what
    was required to determine the motion and these findings will have an adverse
    impact on them at trial. Further, they submit that the motion judge made
    palpable and overriding errors of fact in his analysis of whether Dr.
    Bernsteins ownership interest was revealed during the September 13 Call.
    Finally, they argue the motion judge erred in law in two respects. First, when
    he found that the claim was not discoverable even if the ownership interest was
    revealed during the September 13 Call. Second in finding it was not appropriate
    for Trez to commence an action until it was known whether its security would be
    sufficient to pay the mortgage loans.

[16]

I
    would not give effect to any of these submissions, which are considered in turn
    below. In summary, I do not accept that the motion judge made findings beyond
    what was necessary to resolve the critical issue of credibility that was required
    to determine the summary judgment motion.  While there were inconsequential
    errors in the motion judges credibility analysis, I do not find that he made
    any palpable and overriding errors.  In his reasons, he cited a strong body of
    evidence in support of his conclusion and drew appropriate inferences from that
    evidence.  Given these conclusions, it is unnecessary for us to consider the
    appellants submissions regarding the alleged legal errors, as they are
    predicated on a finding that Dr. Bernsteins ownership interest was revealed
    during the September 13 Call.

Analysis

(i)

Scope of the Order

[17]

The appellants submit that the motion judge made findings of fact
    that went beyond what was required to determine the motion and that may
    significantly affect the trial of the action. They base this submission on a
    statement the motion judge made at the outset of the hearing of the motion
that
he was, not going to make findings of fact as to
    anything that is substantive in this case whatsoever.

[18]

The appellants argue that contrary to that
    statement, the motion judge made findings that go to the heart of the dispute
    between the parties to be resolved at trial. They submit that the motion judge should
    have confined his findings to only what was necessary to dispose of the summary
    judgment motion. In particular, they complain about paragraph 28 of his
    reasons, where he found:

Dr. Bernstein gave evidence that
    prior to Mr. Reitan's call to Mr. Coscia he had no reason to know whether Trez knew
    about him or not, i.e. whether he was a shareholder of Global Mills. He also
    testified that he did not give any thought to it because it was not his
    responsibility to organize financing and that he did not know how Trez looked
    for guarantors. I do not accept his evidence as it is quite clear that he knew
    that Ms. Walton was misrepresenting to lenders, including Trez, that she and
    her husband were the only shareholders of the borrowing companies and that she
    was doing this so that they would not ask for Dr. Bernstein's guarantee. He
    knew that lenders such as Trez would ask for his guarantee if they knew he was
    a shareholder or director of the borrowing company.

[19]

The
    appellants submit that this was a substantive finding regarding Dr. Bernsteins
    participation in the misrepresentation to Trez and was inconsistent with the motion
    judges statement that he would not make any substantive findings of fact.
    Consequently, they argue that their position at trial has been prejudiced.  I
    would not give effect to this ground of appeal for the following reasons.

[20]

First, I note that the motion judges statement was made in the
    context of a discussion about findings impacting defendants who were not
    participating in the motion for summary judgment. The statement has to be read
    in that context.

[21]

Second, the credibility of the parties regarding the
September
    13 Call
was the critical issue for determination on the motion
    for summary judgment. The motion judge conducted a mini-trial in which the
    parties led evidence and made submissions. There was no suggestion that if the
    appellants failed on their motion that they would have the ability to
    re-litigate the issue at trial. As the motion judge noted, 
The
parties agree
    that this procedure is sufficient and capable and that there is a sufficient
    record for a binding finding of fact to be made as to what took place during
    the telephone call and for a finding of whether the action is statute-barred.

[22]

Third,
    the appellants made a tactical decision to bring a motion for summary judgment
    on a basis that would inevitably require the court to make a credibility
    assessment of both Dr. Bernstein and Mr. Reitan. They cannot assert that they
    were taken by surprise that the motion judge made detailed factual findings in doing
    so. Indeed, in their reply factum filed on the summary judgment motion they
    stated:

Trez Capital states that Dr. Bernstein participated in a scheme
    to conceal his involvement in the Project Companies. That issue is not relevant
    to this summary judgment motion, except as it impacts upon Mr. Reitans
    credibility with respect to what he said on the September 13 Call (and Dr.
    Bernsteins credibility about what Mr. Reitan communicated to him.)

[23]

The
    finding complained of in paragraph 28 of the motion judges reasons, that Dr.
    Bernstein knew that Ms. Walton was misrepresenting the ownership of the project
    corporations, was a relevant consideration in the motion judges credibility analysis
    regarding the September 13 Call.  The motion judge was tasked with determining
    what took place on a call, which occurred over three and a half years earlier,
    for which there were no contemporaneous notes or subsequent written
    confirmation. In determining what was said on that call, he was obliged to
    consider all of the surrounding evidence and draw appropriate inferences. That
    is precisely what he did, including with regard to Dr. Bernsteins knowledge of
    Ms. Waltons misrepresentation. That was a critical finding in considering
    whether Mr. Reitan would be willing to reveal Dr. Bernsteins ownership in Global
    Mills during the September 13 Call.

[24]

Trial
    judges are sometimes taken to task by appellate courts for not thoroughly
    scrutinizing the evidence and detailing the factual findings that underlie
    their credibility findings. Surely, it cannot be the function of this court to
    criticize a judge for providing too detailed an analysis in support of his
    credibility finding.

[25]

Having made the findings he did, the motion judge did not err in finally
    determining the limitation period issue. The appellants limitation defence
    centered on the disclosure they say was made by Mr. Reitan on the
September
    13 Call
. That evidence was not accepted.  It would be contrary
    to the purpose of the summary judgment rule to afford the appellants another
    opportunity at trial to persuade the trial judge that their evidence should be accepted.

[26]

With respect to the appellants trial prejudice submission, I note
    that the motion judges order only dismisses the motion for summary judgment
    and declares that the respondents claim is not barred by operation of the
Limitations
    Act
.  It is well settled law that it is impermissible to
    appeal the reasons that underlie an order or judgment:

Drywall
    Acoustic Lathing and Insulation
,
Local 675
    Pension Fund (Trustees of) v. SNC-Lavalin Group Inc.
,
    2015 ONCA 718, 340 O.A.C. 271, at para. 13;
MacKinnon v. Ontario
    (Municipal Employees Retirement Board)
, 2007
ONCA 874, 88 O.R. (3d) 269, at para. 44.

(ii)

Palpable and Overriding Errors

[27]

The
    appellants advance a number of arguments in support of their submission that
    the motion judge made palpable and overriding errors of fact in considering the
    evidence on the mini-trial.  They argue that given these errors the motion
    judges dismissal of the limitation defence is unsafe and the issue should
    proceed to trial. I am not satisfied that the motion judge made any palpable
    and overriding errors and would therefore dismiss this ground of appeal.

[28]

In
    my view, the motion judge made two minor factual errors in his credibility analysis.
    First, he erred when referring to the consideration of the Resignation Email in
    an earlier decision in litigation among Dr. Bernstein, the Waltons and various other
    parties. The motion judge mistakenly stated that he authored the earlier
    decision when, in fact, it was a decision of D.M. Brown J. However, that error
    is of no moment, as the reference to the earlier decision was clearly obiter
    and was made to explain why the motion judge was reaching a different
    conclusion on the significance of the Resignation Email than the one made previously.

[29]

The
    motion judge also made a minor factual error when he stated that
Mr. Reitan did not give evidence regarding a
    conversation with Dr. Bernstein before the September 13 Call until Dr.
    Bernstein mentioned the conversation in his affidavit.  In fact, while Mr.
    Reitan made no reference to the conversation in his affidavit, he did testify
    regarding the conversation during the cross-examination on his affidavit, which
    preceded the filing of Dr. Bernsteins affidavit. Despite the submissions of
    the appellants to the contrary, I am not persuaded that this was an overriding
    error.

[30]

This conclusion is buttressed by strong evidence supporting
    the motion judges finding that Mr. Reitan did not disclose Dr. Bernsteins
    ownership interest during the September 13 Call. This evidence includes the
    following:


(i)

The Resignation Email, which was
    compelling evidence that Dr. Bernsteins resignation as a director from Wynford
    was motivated by a desire to conceal his involvement in the corporation in
    order to avoid the obligation of providing personal guarantees on the
    mortgages.


(ii)

Dr. Bernsteins
admission in cross-examination
that the purpose
    of his temporary resignation as a director of Wynford was to avoid having to
    provide a personal guarantee.


(iii)

Dr. Bernsteins
    receipt of the Trez loan commitments, which disclosed that the Waltons were the
    sole guarantors and shareholders of the relevant project corporations.


(iv)

Dr. Bernsteins
admission in cross-examination
that he knew
    that Ms.  Walton was not disclosing to lenders that he was a director or
    shareholder and that the purpose of the non-disclosure was so that Dr.
    Bernstein would not have to provide a personal guarantee.


(v)

An examination of Mr.
    Coscias conduct. After the September 13 Call he made no note of the call,
    which is consistent with him not being told anything of significance. This
    contrasts with his actions after the November 7, 2013 call advising him of the
    receivership and Dr. Bernsteins ownership interest. After that call he
    immediately w
rote an email to the partners of
Trez
advising of what he had learned. He also spoke with
    Trezs outside counsel and told them of Dr. Bernsteins involvement.

[31]

The
    motion judge made no palpable and overriding errors in his credibility
    analysis. He thoroughly considered the evidence and drew appropriate
    inferences. There is no basis for appellate interference with his findings.

(iii)

Limitations Period Analysis

[32]

Given my conclusion that the motion judge did not err in finding
    that Dr. Bernsteins ownership interest was not revealed on the September 13 Call,
    it is unnecessary to consider this ground of appeal.

Disposition

[33]

I would dismiss the appeal and order that the appellants pay the
    respondents their costs of the appeal in the agreed upon, all-inclusive sum of
    $30,000.

Released: G.R.S. February 6, 2018

C.W.
    Hourigan J.A.

I
    agree. G.R. Strathy C.J.O.

I
    agree. B.W. Miller J.A.


