Court of Appeal for Ontario

DATE: February 6, 2018

DOCKET: C63940

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

Parties

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)

Counsel

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.

Decision

Hourigan J.A.:

Introduction

[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 statute 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. Bernstein's 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. Bernstein's 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. Reitan's 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. Bernstein's 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. Bernstein's 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] Dr. 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. Bernstein's 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 judge's 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. Bernstein's 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. Bernstein's participation in the misrepresentation to Trez and was inconsistent with the motion judge's 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 judge's 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. Reitan's credibility with respect to what he said on the September 13 Call (and Dr. Bernstein's credibility about what Mr. Reitan communicated to him.)

[23] The finding complained of in paragraph 28 of the motion judge's reasons, that Dr. Bernstein knew that Ms. Walton was misrepresenting the ownership of the project corporations, was a relevant consideration in the motion judge's 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. Bernstein's knowledge of Ms. Walton's misrepresentation. That was a critical finding in considering whether Mr. Reitan would be willing to reveal Dr. Bernstein's 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 judge's 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 judge's 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. Bernstein's 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 judge's finding that Mr. Reitan did not disclose Dr. Bernstein's ownership interest during the September 13 Call. This evidence includes the following:

(i) The Resignation Email, which was compelling evidence that Dr. Bernstein's 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. Bernstein's 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. Bernstein's receipt of the Trez loan commitments, which disclosed that the Waltons were the sole guarantors and shareholders of the relevant project corporations.

(iv) Dr. Bernstein's 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. Coscia's 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. Bernstein's ownership interest. After that call he immediately wrote an email to the partners of Trez advising of what he had learned. He also spoke with Trez's outside counsel and told them of Dr. Bernstein's 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. Bernstein's 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: February 6, 2018

"C.W. Hourigan J.A."

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

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