DATE: 20061222

DOCKET: C44432

COURT OF APPEAL FOR ONTARIO

RE:

BRAD-JAY INVESTMENTS LIMITED (Plaintiff/Appellant) – and – VILLAGE DEVELOPMENTS LIMITED (Defendant/ Appellant) – and – MARICA SZIJJARTO, TIBOR SZIJJARTO, MONICA DARABOS, SANDO KOSA, MEL GREENGLASS, also known as MELVIN GREENGLASS, MARCY GREENGLASS, TRIPLE A PROPERTY MANAGEMENT, 350052 ONTARIO LTD. carrying on business as the REXALE LOTTERY BOUTIQUE and 719931 ONTARIO LTD. (Defendants/ Respondents)

BEFORE:

O’CONNOR A.C.J.O., SIMMONS and JURIANSZ JJ.A.

COUNSEL:

R. B. Moldaver. Q.C. and Barbara Green

for the appellants

Jill M. Knudsen and Douglas Christie

for the respondents

HEARD:

December 19, 2006

On appeal from the judgment of Justice Blenus Wright of the Superior Court of Justice dated October 12, 2005.

E N D O R S E M E N T

[1] The appellant owners of Jane-Finch Mall (the “Mall”), Brad-Jay Investments Limited (“Brad-Jay”) and Village Developments Limited (“Village”) alleged at trial that the respondent, Greenglass, misappropriated cash from the revenues of a flea market (the “Flea Market”) operated on Sundays at the Mall from 1981 to 1999.

[2] Brad-Jay and Village were each 50% owners of the Mall. Village was also the Mall’s manager. Greenglass was employed as Village’s manager. The appellants claimed return of the misappropriated money, which they estimated to be between $685,972 to $953,895.

[3] Village also alleged that Greenglass had profited from outside business activities and claimed disgorgement of these profits in the amount of $1,179,303.

[4] The trial judge dismissed the appellants’ claims and Greenglass’ cross-claim for wrongful dismissal. The appellants appeal. Greenglass seeks leave to appeal the trial judge’s disposition of costs.

Misappropriation

[5] For purposes of this appeal we assume, as the trial judge did, that money was misappropriated. The issue is whether the trial judge erred in finding that the appellants had not established that it was the respondent, Greenglass, who stole the money. The appellants’ main argument is that the trial judge erred in applying a standard of proof that was greater than a balance of probabilities.

[6] Although the trial judge used some language to suggest that he may have applied a higher standard, it is by no means clear that he did. In any event, we are satisfied that the trial judge concluded on the facts as he found them that the evidence implicating Greenglass raised a suspicion, nothing more. That finding falls short of proof on a balance of probabilities that Greenglass stole money as the appellants alleged.

[7] The trial judge’s conclusion that the evidence raised only a suspicion was amply supported by the evidence. The trial judge, for good reason, rejected the discovery evidence of Szijjarto and quite reasonably did not attach any weight to the adding machine tapes. Thus, there was no direct evidence that Greenglass was the thief. While all of the circumstances and the Greenglass’ evidence raised suspicions about his role in the handling of the receipts from the Flea Market, there were opportunities for Szijjarto, and perhaps others, to have stolen the money as well. In the end, we are of the view that the trial judge quite rightly saw this as a case where suspicions about the Greenglass’ role were raised but adequate proof was lacking.

[8] The conclusion that the appellants failed to establish that Greenglass misappropriated the money disposes of the appellants’ argument that Greenglass is liable as a trustee de son tort. Greenglass bore no obligation to account for money that he did not receive.

Negligence

[9] The trial judge dismissed the claim for negligence on the basis that neither Village nor Greenglass had responsibility for the management of the Flea Market. Thus the trial judge concluded that Greenglass did not have a duty of care with respect to the operation of the Flea Market upon which to found a claim for negligence. In our view, there was evidence to support the trial judge’s finding. To start there was no written agreement or other document indicating that Village or Greenglass had such management responsibilities.

[10] Further, the evidence established that Brad-Jay, not Village, employed Szijjarto directly to manage the Flea Market. Brad-Jay paid Szijjarto a salary and she was the individual responsible for the week-to-week management functions. She did not report to Village, and did not take direction from Village or Greenglass about how the Flea Market should be operated. The trial judge found it significant that Brad-Jay’s Board’s auditor reviewed how the Flea Market was operated, examined its internal controls, was satisfied with those controls and never suggested changes to those controls. In addition, the trial judge noted that Brad-Jay never asked the auditor to implement different controls.

[11] Accordingly, while Greenglass received Flea Market earnings from Szijjarto and deposited them, he did not undertake management responsibilities. Greenglass’ role as found by the trial judge was as a conduit between Szijjarto and the Board of Brad-Jay.

[12] Although Village received a share of the proceeds from the Flea Market, this was consistent with Village’s role as the mall manager. As such, it was open for the trial judge to conclude that Village received its share of the proceeds for that reason and not as compensation for managing the Flea Market or supervising the collection of funds from vendors at the Flea Market.

[13] Consequently, we see no basis for interfering with the trial judge’s conclusion that Greenglass did not owe a duty of care to the appellants in the management of the Flea Market.

Disgorgement

[14] It is not clear that the trial judge found that Greenglass breached a fiduciary duty. However, assuming that his finding that Greenglass’ outside activities and his dishonesty in failing to disclose those outside activities to Village amounted to a breach of fiduciary duty, we consider whether the trial judge erred in declining to grant a remedy of disgorgement.

[15] Initially, Village asserted that as a matter of law once a breach of fiduciary duty is established, the person owed that duty is entitled to disgorgement of the fiduciary’s profits whether that person suffered lost profits or damage or would not have taken advantage of the opportunities appropriated by the fiduciary.

[16] However, in oral argument Village recognized the law is more nuanced and all the circumstances must be considered in fashioning the appropriate remedy for a particular case. As MacLaclin J. pointed out in Soulos v. Korkontzilas, 1997 346 (SCC), [1997] 2 S.C.R. 217, “Equitable remedies are flexible, their award is based on what is just in all the circumstances of the case.” In discussing the basis for the imposition of a constructive trust for breach of a fiduciary duty she said:

[A]constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. [Emphasis added.]

[17] We are of the view that the trial judge was within his discretion to decline to grant disgorgement in all the circumstances of this case. The trial judge pointed out that Village admitted that Greenglass performed his duties as manager of its properties completely and satisfactorily. He also concluded that Greenglass’ outside activities did not interfere with his obligations to Village, Village was not interested in performing any of Greenglass’ outside activities, and Village had not suffered damages as a result of those outside activities. Further, the trial judge found that Greenglass did not use his position with Village to obtain his outside consultant work. These findings were open to the trial judge on the evidence.

[18] The trial judge also found that Greenglass did not use any property of Village in order to make a profit. The trial judge did note that from time to time Greenglass did use Village’s fax machine, computer, cell phone, and company car – however, we understand his finding to mean that Village’s property was not instrumental in Greenglass making a profit. Moreover, it is apparent the trial judge regarded this use of property as minor.

[19] Village asserts for the first time on appeal that it had a proprietary interest in the time of Greenglass, who was Village’s full-time employee. However, Village acknowledges that a full-time employee can perform outside work in some circumstances. In this case, as noted above, Village admitted at trial that Greenglass performed his duties completely and satisfactorily.

[20] In light of all these findings, which were open to the trial judge, we see no basis to interfere with his exercise of discretion in refusing to grant the remedy of disgorgement.

Cross-Appeal

[21] Leave to appeal a costs order will not be granted save in obvious cases where the party seeking leave convinces the court there are “strong grounds upon which the appellate court could find that the judge erred in exercising his discretion”. We are not persuaded that this is an appropriate case for granting leave.

Costs

[22] For these reasons the appeal is dismissed and leave to cross-appeal is denied. Costs of the appeal are fixed in favour of the respondent in the amount of $25,000 inclusive of disbursements and GST.

“D. O’Connor A.C.J.O.”

“J. Simmons J.A.”

“R. Juriansz J.A.”