



COURT OF APPEAL FOR ONTARIO

CITATION: Mirkais Investments Inc. v. Klotz, 2015 ONCA 632

DATE: 20150918

DOCKET: C59832

Cronk, Lauwers and van Rensburg JJ.A.

BETWEEN

Mirkais Investments Inc.

Appellant/ plaintiff

and

Robert A. Klotz

Respondent/defendant

Melvyn Solmon and Jeffrey Radnoff, for the Appellant

Michael R. Kestenberg, for the Respondent

Heard:  September 2, 2015

On appeal from the judgment of Justice F.L. Myers of the Superior
    Court of Justice, dated November 28, 2014, with reasons reported at 2014 ONSC
    6907.

ENDORSEMENT

[1]

The trustee in bankruptcy of the bankrupt, Morris Kaiser, obtained access
    to certain funds totalling almost $1 million.

[2]

The appellant, Mirkais Investments Inc., is owned by Mr. Kaisers
    spouse, Miriam. Mirkais is the assignee of a 1992 General Security Agreement (the
    GSA) signed by Mr. Kaiser in favour of Standard Chartered Bank covering his
    assets. Mirkais claimed to be a secured creditor in Mr. Kaisers bankruptcy and
    sought to recover the entire amount of the funds. It instructed the respondent,
    its counsel, to file a notice of claim with the trustee in bankruptcy, which
    was disallowed. The respondent was instructed to appeal the trustees disallowance,
    but he failed to do so. Mirkais sued him for negligence.

[3]

The motion judge granted the respondents motion for summary judgment
    and dismissed the action on the basis that there was no genuine issue requiring
    a trial and, hence, the action must fail because the appellant could not prove
    that it was a secured creditor and that it had suffered damages as a result of
    the respondents negligence. The appellant appeals that ruling, and seeks leave
    to appeal the costs award made against it by the motion judge.

The Applicable Law

[4]

The motion judge found that in order for the appellant to have a
    security interest in the funds at issue, the funds must form part of the
    collateral described in and secured under the appellants GSA. He noted, at
    para. 6: If the property is part of the collateral secured by the agreement,
    then, under clause 20(1)(b) of the
Personal Property Security Act
,
    R.S.O. 1990, c.P.10 (the 
PPSA
), the security interest over the
    collateral must be perfected under the statute in order for it to take priority
    over the interest of the trustee. The motion judge added, at para. 8:

Section 19 of the PPSA requires that in order for a security
    interest to be perfected (and hence trump the priority of a trustee in
    bankruptcy) it must have first "attached". Subsection 11(2) of the
    PPSA provides that, among the requirements for a security interest to attach
    the debtor must have rights in the collateral.

The appellant accepts the correctness of these
    statements. The contested issues are whether the collateral in question is
    covered by the GSA and whether the appellants security interest was perfected
    as required under the
PPSA
.

The Funds

[5]

The funds came to the trustee in three tranches. The first tranche was
    the proceeds of a settlement of litigation commenced by the trustee. The second
    tranche was $100,000 paid to the trustee as consideration for the trustees agreement
    not to intervene in in an unidentified piece of litigation. The third tranche
    was $50,000 paid to the trustee to facilitate the discharge of the bankrupt. The
    appellant pursues the first and second tranches, and abandoned any claim for relief
    in respect of the third on appeal.

[6]

The first tranche was described by the motion judge, at para. 12, as the
    proceeds of a settlement of litigation commenced by the trustee, supported by
    two funding creditors, against Cecil Bergman, on the basis that Mr. Bergman was
    allegedly a front for Mr. Kaiser who was the real owner of a 76-unit
    townhouse project in Brampton, Ontario. The yield was about $835,000 and was
    paid to the creditors (and their lawyers in trust) pursuant to the order of C.
    Campbell J. of the Superior Court of Justice, dated November 23, 2012.

[7]

The appellant argues that the first tranche properly falls under the
    heading Proceeds in clause (xii) of the GSAs description of the secured collateral,
    as the proceeds of the sale of Real Property described in clause (viii). It
    argues that the second tranche is a chose-in-action that comes under
    Intangibles described in clause (vii) of the GSA.

[8]

The motion judges factual findings belie these arguments. In
    particular, the motion judge made the following key factual finding, amply
    explained, at para. 11:

Mr. and Mrs. Kaiser were present in court for this motion.
    Neither gave any evidence to establish that the funds in the three tranches set
    out above belonged to Morris Kaiser or were money due to him or over which he
    had any rights or causes of action. In fact, throughout the bankruptcy and its
    various proceedings, Mr. Kaiser and his friends and colleagues through whom
    money flowed to Mr. Kaiser denied that any money or assets belonged to Mr.
    Kaiser.

[9]

The motion judge added, at para. 17:

The only evidence at all concerning whether Morris Kaiser owned
    or had rights in the funds are his own denials commencing in his sworn
    Statement of Affairs and continuing throughout the bankruptcy proceeding and
    the related litigation proceedings and Mrs. Kaiser's evidence that he had and
    has no assets. The plaintiff [Mirkais] simply failed to put forward any
    evidence contradicting the evidence of the Kaisers to raise a triable issue on
    whether Morris Kaiser had rights in or over the three tranches of funds. There
    is no basis for it [Mirkais] to say that even if it had a security interest,
    its interest would have entitled it to receive the funds to which it refers.

[10]

Indeed,
    the obdurate position of Mr. and Mrs. Kaiser in the Brampton townhouse
    litigation that underpinned the first tranche was that Mr. Kaiser did not have
    an interest in the property. Mr. Kaiser made no admission or assertion in the
    settlement agreement, which he signed, that he had any interest in the
    property.  Nor was there such a finding in the consent court order approving
    the settlement and the payout of the funds.

[11]

The
    motion judge concluded that the appellants security interest did not attach as
    a matter of law because the appellant had not established that Mr. Kaiser had
    any interest in or right to the collateral. Accordingly, the appellant did not have
    a prior perfected security interest in the funds. Without an enforceable
    security interest, the appellant was unable to prove damages, which is a
    constituent element of the cause of action of negligence.

[12]

The
    same logic applies to the second tranche of funds, consisting of monies paid to
    the trustee for not intervening in active litigati
on.
The trustee, who was investigating sources
    of assets of the bankrupt, brought a motion in an appeal of a judgment against
    Mr. Kaiser. As the motion judge noted, there was no evidence that the money
    paid to the trustee was money in which Mr. Kaiser had any rights. The appellant
    led no evidence that Mr. Kaiser owned the money. Doing so would have been
    inconsistent with the position taken by both Mr. Kaiser and his wife in the
    bankruptcy. Accordingly,
Mr. Kaiser had no conceivable interest
    in these funds to which the GSA could apply.  Nor did he assert such an
    interest in the bankruptcy.  To the contrary, he denied having any assets of
    any kind.

[13]

The
    appellant has not demonstrated that the motion judge made a legal error in his
    reasoning, or a palpable and overriding error of fact.  Nor is there any fresh
    evidence before this court indicating that Mr. Kaiser had any interest in any
    of the funds at issue or any viable claim to any right in respect of those
    funds.

The Lost Chance Submission

[14]

The
    appellant argues before this court, for the first time, that, but for the
    respondents negligence, the appellant would not have lost the chance to prove
    the Secured Claim and to be in a position to participate to claim, negotiate
    for and share in proceeds recovered by the trustee in bankruptcy. The
    appellant argues that the value of this lost chance can underpin the negligence
    claim.

[15]

A
    loss of chance as the basis for proving damages in support of a negligence
    claim has support in the caselaw. See, in this court, for example,
Folland
    v. Reardon
, [2005] O.J. No. 216.

[16]

In
    our view, there is no genuine issue requiring a trial in respect of the
    appellants lost chance claim. The appellant did not clearly invoke the lost
    chance principle in its statement of claim, nor did it plead material facts
    sufficient to support this claim.  Further, as we have said, this argument was
    not advanced before the motion judge.  Instead, the appellant seeks on appeal
    to reposition his case to ground the relief sought on this new basis.  As the
    respondents counsel points out, if this argument had been properly advanced at
    an earlier stage, the evidence before the motion judge might have been
    different and the bankruptcy itself might have unfolded in a different fashion.

[17]

These
    concerns are sufficient to require rejection of this ground of appeal.  To
    permit the appellant to advance this argument now would result in fundamental
    unfairness.

[18]

There
    is a further, important consideration.  As we have emphasized, both Mr. Kaiser
    and Mrs. Kaiser  the principal of the appellant  maintained throughout that
    Mr. Kaiser had no assets of any kind.  It is inconceivable that the appellant
    corporation could successfully have taken a position in the bankruptcy that was
    completely at odds with the sworn evidence of its principal. And, as we have
    said, the evidence on the motion was not developed with that possibility in
    view, and it would be unfair for this court to proceed on that basis.  Simply
    put, on the record before this court, there is no evidence that the appellant
    lost the chance of an advantage of some real substantial monetary value. The
    appellant, therefore, failed to establish the requisite causation requirement
    in respect of his negligence claim against the respondent.

[19]

We
    reject this ground of appeal.

Leave to Appeal Costs

[20]

The
    appellant argues that the motion judges costs award, at about $95,000, was
    grossly disproportionate for a motion that took less than a day. We observe,
    however, that the award was for the entire action. The motion judge instructed
    himself properly as to the relevant principles, at para.19. He pointed out that
    the exposure was large, and the circumstances unusual and complex. The motion
    judge noted, at para. 20, that it was: Mr. Kestenberg's effort and industry in
    analyzing and preparing his client's case that allowed the issues to be
    rationalized and reduced to the one factual question underlying two legal
    grounds of resolution.

[21]

The
    motion judges discretionary costs award is neither plainly wrong nor tainted
    by an error in principle.  Accordingly, while we grant leave to appeal costs, we
    see no basis for appellate interference with the motion judges costs award.

Disposition

[22]

The
    appeal is dismissed, with costs payable to the respondent in the all-inclusive amount
    of $15,000.

E.A.
    Cronk J.A.

P.
    Lauwers J.A.

K.
    van Rensburg J.A.


