DATE: 20051220

DOCKET: C41990 M32755, M32762

COURT OF APPEAL FOR ONTARIO

RE:

RANDI BANTING and RANDY MYERS (Plaintiffs/Respondents) – and – GERALDINE CHILD, JEFFREY R. CHILD, CHIDON CORPORATION and SPECTRE CORPORATION (Defendants/ Appellants)

BEFORE:

WEILER, BLAIR and ROULEAU JJ.A.

COUNSEL:

DOUGLAS QUIRT

for the appellants Jeff Child and Chidon Corporation

David J. McGhee

for the respondents

HEARD & RELEASED ORALLY:

December 15, 2005

On appeal from the judgment of Justice J.R. Sproat of the Superior Court of Justice dated May 31, 2004.

E N D O R S E M E N T

[1] The appellants, Jeffrey Child et. al., appeal the trial judge’s order that they pay compensation in the amount of $ 91,947.11 to Mr. Banting respecting his investment in a failed restaurant venture. The trial judge found that Mr. Child owed Mr. Banting a fiduciary duty and that Mr. Child breached that duty: 1) by causing Chidon – a corporation solely owned by him and that owned the building in which the restaurant was to operate – to enter into a secret Agreement to Lease with Spectre Corporation, a company in which Child and Banting were partners, (2) by failing to negotiate the terms of the Agreement to Lease with Mr. Banting in advance, and (3) by failing to disclose the Agreement to Lease to Mr. Banting. In addition, the trial judge found that, but for this breach of fiduciary duty, Mr. Banting would not have invested the bulk of his money as a partner with Mr. Child.

[2] The appellants allege, first, that Mr. Banting is not able to sue in his own right for breach of fiduciary duty but that it is necessary for the partnership to sue, and that the only remedy available is for an accounting to the partnership under s. 29 of the Partnership Act R.S.O. 1990 Chap. P.5. Section 45 of that Act, provides:

[t]he rules of equity and of common law applicable to partnership continue in force, except so far as they are inconsistent with the express provisions of this Act.

[3] The appellants submit that the right of one partner to sue another at common law or in equity has been superceded by the combined effect of ss. 29 and 45, and that a suit by the partnership and an accounting is the only remedy available. In support of this position, the appellants rely on the decision of this court in Olson v. Gullo (1994), 17 O.R. (3d) 790. In our opinion, that decision does not support the appellant’s position.

[4] Olson does not deal with the situation before us. The question there, was whether a defaulting fiduciary who had made a secret profit on partnership property was required to forfeit the entire profit or whether he was entitled, in spite of the breach, to his partnership share. The court said that he was entitled to receive his partnership share. Morden J.A. held that the Partnership Act “…may not exclusively cover the matter” before the court and that s. 29(1) “…does not preclude depriving the partner who acted wrongly of his or her share of the benefit.” Here, the issue is quite different, however. The issue is whether Mr. Banting would have invested the bulk of his money had he known of the existence of the Agreement to Lease that had been signed secretly.

[5] Secondly, the appellant submits that by the time of trial, Mr. Banting knew of the Agreement to Lease and sought to maintain it. He elected his remedy. As a result, the appellant says that Mr. Banting could not disavow the relationship and seek restitution of the money he had put into the partnership. He could only seek an accounting of profits based on a “windfall gain.” This issue was not pleaded in the appellant’s statement of defence; the argument was not made at trial; it is not set out in the notice of appeal; and is raised for the first time on appeal. We would not give effect to it. In any event, our understanding is that at trial Mr. Banting sought the return of his investment or, alternatively, an accounting of the future profits based on a “windfall gain”. Mr. Banting did not elect one remedy to the exclusion of the other. When the trial judge rejected the claim for the alleged “windfall gain”, he was entitled to award Mr. Banting compensation equal to the amount of his investment.

[6] Thirdly, the appellant submits that the trial judge erred in concluding that Mr. Child breached his fiduciary duty to Mr. Banting. He further submits that Mr. Banting suffered no loss as a result of the breach of fiduciary duty. On the evidence, it was open to the trial judge to find that Mr. Child breached his fiduciary duty to Mr. Banting. The trial judge did not commit any palpable and overriding error in making this finding. The appellant’s submission is that Mr. Banting suffered no loss of profit. He did not have to suffer a loss of profit, however. As stated in Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534, at paras. 21 & 72:

21. A breach of fiduciary duty is a wrong in itself, regardless of whether a loss can be foreseen. Moreover the high duty assumed and the difficulty of detecting such breaches makes it fair and practical to adopt a measure of compensation to ensure that fiduciaries are ‘ kept up to their duty’.

22. There is a sharp divide between a situation where a person has control of property which in the view of the court belongs to another, and one where a person is under a fiduciary duty to perform an obligation where equity’s concern is simply that the duty be performed honestly and in accordance with the undertaking the fiduciary has taken on; see Sealy, “Some Principles of Fiduciary Obligation”, [1963] Cambridge L.J. 119; Sealy, “Fiduciary Relationships”, [1962] Cambridge L.J. 69. In the case of a trust relationship, the trustee’s obligation is to hold the res or object of the trust for his cestui que trust, and on breach the concern of equity is that it be restored to the cestui que trust or if that cannot be done to afford compensation for what the object would be worth. In the case of a mere breach of duty, the concern of equity is to ascertain the loss resulting from the breach of the particular duty. Where the wrongdoer has received some benefit, that benefit can be disgorged, but the measure of compensation where no such benefit has been obtained by the wrongdoer raises different issues. [emphasis added]

[7] Finally, the appellants submit that the trial judge erred in the remedy he awarded. The appellants submit that the remedy awarded by the trial judge is too harsh in the circumstances and did not take into account the entire relationship between the parties because it resulted in Mr. Child losing his share of the partnership. As well, Mr. Banting was an active partner in the partnership and participated in the decisions that led to its demise. The result of the trial judge’s decision, the appellant submits, was to leave Mr. Child with all of the loss resulting from the partnership and none of its benefit. We disagree. Mr. Child transferred all the assets of the restaurant to his own company, the appellant Chidon, and subsequently resold them for a substantial amount. Amongst other things, he entered into a lease with a new tenant for a rental of $2 more per square foot than the previous lease called for, in partial payment of those same chattels that the new tenant was acquiring. The trial judge did not deprive Mr. Child of all the benefit of the partnership nor deprive him of his partnership interest. The trial judge was entitled to make an award of compensation where, as here, neither an accounting or restitution are appropriate: Canson Enterprises Ltd., supra, at paras. 21-23 & 72.

[8] Accordingly the appeal is dismissed.

[9] The respondent claims a total of $154,062.94 in costs with respect to the appeal and two motions heard one following the other to lift an execution and for security for costs. This is not a case in which to award costs on a substantial indemnity basis. We would award costs of $2500 for the motions. In our opinion the amounts put forward are generally excessive. For example the respondent has billed seven hours in costs at $550 an hour to draft the order that was given by the motion judge.

[10] The Offer to Settle the Appeal, while ordinarily a factor to consider, was a limited compromise and we give it little weight.

[11] The respondent’s counsel claims fees of $110,000 for the appeal including 200 hours of preparation. The appeal lasted just over half a day and respondent’s counsel was not called upon on any issues of substance. In our view the claim is, as the appellant’s counsel put it, “beyond the pale” for an appeal of this nature, having regard to the factors set out in Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.). We would fix the costs of the appeal at $27,500 inclusive of disbursements and PST and GST.

“K.M. Weiler J.A.”

“R.A. Blair J.A.”

“Paul Rouleau J.A.”