COURT OF APPEAL FOR ONTARIO

DATE: 2004-06-21

DOCKET: C39203

RE: 753770 ONTARIO INC. and 891193 ONTARIO INC., in the name and on behalf of 6 AND 5 LTD. (Plaintiffs/Respondents) – and – DOUGLAS A. ROSART and ROSART PROPERTIES INC. (Defendants/Appellants)

BEFORE: MCMURTRY C.J.O., GILLESE and BLAIR JJ.A.

COUNSEL: Louis A. Frapporti and Donald E. Morris for the appellants W. Graydon Sheppard for the respondents

HEARD: June 17, 2004

On appeal from the judgment of Justice David S. Crane of the Superior Court of Justice dated March 1, 2002.

E N D O R S E M E N T

Released Orally: June 17, 2004

[1] This is an appeal from the judgment of Crane J. dated March 21, 2002. The appeal revolves around the question of whether one party to a joint venture, who acted as the manager of the affairs of the joint venture, stood in a fiduciary relationship to the corporation through which the joint venture carried out is operation.

[2] Although the trial judge did not analyze the facts in precisely those terms, he did set out the legal principles underlying fiduciary relationships and he did make the findings of fact necessary to support such a finding. Included in the trial judge’s recital of the law is a quotation from Professor Finn’s book on what must be found in order to determine that a fiduciary relationship exists, including the need to show that one party to a relationship is entitled to expect that the other will act in his or her interests and for the purpose of the relationship.

[3] The trial judge made the following findings which, in our view, support both a finding of a fiduciary relationship and a breach of the duties that flow from such a finding:

• the investors were operating as a joint venture;
• the respondent numbered company (“6 and 5”) through which the joint venture was carried out, held title to a real estate development comprised of approximately 44 acres of land located at the intersection of highways 6 and 5 in Hamilton, Ontario. The property was subject to a mortgage held by the Toronto-Dominion bank;
• 6 and 5 required management;
• the management function at the relevant times was performed by RPI through the services of Douglas Rosart;
• RPI through Mr. Rosart was in a position of confidence to all of the investors in the joint venture;
• the Bank regarded RPI as the “point man” for 6 and 5 and communicated solely with Mr. Rosart with regard to the Power of Sale proceedings;
• RPI decided on a strategy that would result in the Bank taking the property belonging to 6 and 5 under a mortgage Power of Sale and under that process that RPI would purchase a 100% interest in the real estate;
• RPI did encourage the Power of Sale proceedings after June 18, 1996, in the manner it dealt with the investors’ obligations for payment;
• RPI acted on its intention to acquire the property to a 100% interest with the result that it foreclosed the property interest of 6 and 5 and thru 6 and 5 the interests of the other investors;
• Once the Power of Sale proceedings began, RPI and Mr. Rosart were in a direct conflict of interest with 6 and 5. RPI, as purchaser of the property, would seek the lowest possible purchase price whereas 6 and 5 as the owner of the property subject to a mortgage, would require the highest possible sale price;
• RPI, through Douglas Rosart, breached its obligation to not act in conflict with the interests of 6 and 5; and
• RPI ought to have resigned its management function and declared its conflict of interest at a time when there were still options open to the other investors. This time would likely be before June 18, 1996 but not later than July of 1996.

[4] It will be apparent that we do not accept the characterization of the functions performed by RPI and Mr. Rosart as purely administrative, as was argued by Mr. Frapporti. The trial judge’s findings of fact on this matter are entitled to deference and we see no basis upon which to interfere with those findings.

[5] We are of the view that a fiduciary relationship existed between the appellants and 6 and 5 at the relevant times and that the appellants breached their duty of good faith. In particular, they breached their obligation to avoid placing themselves in a position where their self-interest conflicted with their obligation to act in the best interests of 6 and 5. It was as a result of that breach that the appellants acquired the property; the imposition of a constructive trust on the property in the circumstances is an appropriate remedy.

[6] As a consequence of this conclusion, there is no need to address the other issues raised on appeal such as whether there was a breach of a duty to communicate and whether the appellants acted improperly in refusing to pay interest arrears.

[7] Accordingly, the appeal is dismissed with costs to the respondent fixed in the amount of $17,000.00, inclusive of GST and disbursements.

“R. Roy McMurtry C.J.O.”

“E. E. Gillese J.A.”

“R. A. Blair J.A.”