Harris et al. v. Leikin Group Inc. et al.

[Indexed as: Harris v. Leikin Group Inc.]

Ontario Reports

Court of Appeal for Ontario,

Hoy A.C.J.O., Sharpe and van Rensburg JJ.A.

June 18, 2014

120 O.R. (3d) 508 | 2014 ONCA 479

Case Summary

Civil procedure — Trial — Hybrid trial — Trial judge adopting hybrid trial model which made extensive use of work product of failed motions for summary judgment — Appellants failing to appeal order dealing with directions for trial — Appellants precluded from challenging hybrid model on appeal from trial judge's final judgment — Trial not unfair or prejudicial to appellants in any event.

Fiduciaries — Relationship — Majority of shareholders of family business proposing that other shareholders buy out their interests — Share redemption negotiations conducted in context of relationship between selling and non-selling shareholders that was adversarial and marked by distrust — Non-selling shareholders not owing selling shareholders fiduciary duty when negotiating share redemption agreement.

The majority of shareholders in a family business (the "selling shareholders" or "appellants") proposed a buyout of their interests. After extensive negotiations, a share redemption agreement was concluded. The parties settled on an attributed value of $60 million for the corporation's principal asset, a shopping complex. That figure was not based on any appraisal of the property or on its fair market value. The selling shareholders were aware that the non-selling shareholders might decide to sell a stake in the shopping complex if they wanted to carry on business and were concerned that they might sell an interest that reflected a much higher price than the attributed value. Accordingly, they requested a "tag-along" clause that would allow them to share in any upside of financing the buyout, a representation that the non-selling shareholders did not have any information which, if known to the selling shareholders, might reasonably be expected to deter them from entering into the share redemption agreement, and a representation that the non-selling shareholders had no present intention of selling their interest. The non-selling shareholders refused these requests, and the selling shareholders accepted that refusal and proceeded with the share redemption agreement. Shortly after the share redemption agreement closed in escrow, a corporation formed by the non-selling shareholders entered into an agreement to sell a 50 per cent interest in the shopping complex to FCR based on an attributed value of $78.8 million. The selling shareholders brought an action for damages for breach of fiduciary duty and oppression against the non-selling shareholders, the corporation's lawyers and accountants, and FCR. The defendants moved for summary judgment. The motion judge dismissed the claim against FCR and directed a trial against the remaining defendants before him. Pursuant to rule 20.05(1) and (2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, he ordered that the trial adopt a "hybrid" form in which the evidence on the summary judgment motions would be preserved and supplemented with further evidence to be led at trial. The appellants unsuccessfully appealed the order granting FCR summary judgment but did not appeal the trial directions. The trial judge found that there was no evidence of either a per se or an ad hoc fiduciary relationship between the selling and non-selling shareholders. The oppression claim was [page509] rooted in the same conduct that allegedly amounted to a breach of fiduciary duty. Both claims were dismissed. The claims against the lawyer and accountant defendants for breach of fiduciary duty or knowing assistance of breach of fiduciary duty were also dismissed. The appellants appealed.

Held, the appeal should be dismissed.

The appellants were precluded from arguing on appeal that the trial judge erred in directing a hybrid trial. It would be contrary to law and common sense to allow the disappointed losers to complain now about the fairness of an order that could have been challenged when it was made. In any event, the trial judge did not err in the directions for and conduct of the trial. The specific terms of his directions fell squarely within the language of rule 20.05. The appellants could not point to a specific instance during the trial that was unfair or prejudicial nor had they shown that they were prevented from putting the case they wanted to put before the trial judge. The hybrid trial process did not lead the trial judge to reverse material findings of fact found on the summary judgment motions.

The trial judge did not err in finding that the respondents owed no fiduciary duties to the appellants. The trial judge made certain crucial findings of fact. First, the relationship between the selling shareholders and the non-selling shareholders was adversarial, bitter, acrimonious and marked by distrust. That dynamic was reflected in the negotiations leading to the share redemption agreement. Second, there was no "bought deal" between the non-selling shareholders and FCR before the share redemption agreement was entered into nor did the non-selling shareholders know during the share redemption negotiations that FCR was prepared to pay a specific price for the shopping complex. Third, the selling shareholders sought, but did not receive, assurances aimed at maximizing their returns on the share redemption agreement, indicating that they knew or strongly suspected that the non-selling shareholders would secure an advantageous deal to finance the buyout; that they did not trust the non-selling shareholders; that they knew the non-selling shareholders were out to maximize their own interests; and that they were ultimately prepared to sell their shares even without the assurances they had sought. Those uncontested facts were fatal to the appellants' claim for breach of fiduciary duty. The claim against the professional defendants depended on a finding that the non-selling shareholders owed, and breached, a duty to the selling shareholders.

Hryniak v. Mauldin, [2014] S.C.J. No. 7, 2014 SCC 7, 314 O.A.C. 1, 453 N.R. 51, 2014EXP-319, J.E. 2014-162, EYB 2014-231951, 95 E.T.R. (3d) 1, 12 C.C.E.L. (4th) 1, 27 C.L.R. (4th) 1, 21 B.L.R. (5th) 248, 46 C.P.C. (7th) 217, 37 R.P.R. (5th) 1, 366 D.L.R. (4th) 641, consd

Other cases referred to

BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 52 B.L.R. (4th) 1, EYB 2008-151755, J.E. 2009-43, 301 D.L.R. (4th) 80, 71 C.P.R. (4th) 303, 383 N.R. 119, 172 A.C.W.S. (3d) 915; Combined Air Mechanical Services Inc. v. Flesch (2011), 108 O.R. (3d) 1, [2011] O.J. No. 5431, 2011 ONCA 764, 286 O.A.C. 3, 97 C.C.E.L. (3d) 25, 14 C.P.C. (7th) 242, 13 R.P.R. (5th) 167, 10 C.L.R. (4th) 17, 93 B.L.R. (4th) 1, 211 A.C.W.S. (3d) 845; Harris v. Leikin Group Inc., [2011] O.J. No. 5714, 2011 ONCA 790; Leader Media Productions Ltd. v. Sentinel Hill Alliance Atlantis Equicap Ltd. Partnership (2008), 90 O.R. (3d) 561, [2008] O.J. No. 2284, 2008 ONCA 463, 237 O.A.C. 81, 167 A.C.W.S. (3d) 896 [Leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 394]; Marshall v. Watson Wyatt & Co. (2002), 2002 CanLII 13354 (ON CA), 57 O.R. (3d) 813, [2002] O.J. No. 84, 209 D.L.R. (4th) 411, 155 O.A.C. 103, 16 C.C.E.L. (3d) 162, [2002] CLLC Â210-019, 111 A.C.W.S. (3d) 75 (C.A.); [page510] Meditrust Healthcare Inc. v. Shoppers Drug Mart (2002), 2002 CanLII 41710 (ON CA), 61 O.R. (3d) 786, [2002] O.J. No. 3891, 220 D.L.R. (4th) 611, 165 O.A.C. 147, 28 B.L.R. (3d) 163, 117 A.C.W.S. (3d) 713 (C.A.); R. v. Wilson, 1983 CanLII 35 (SCC), [1983] 2 S.C.R. 594, [1983] S.C.J. No. 88, 4 D.L.R. (4th) 577, 51 N.R. 321, [1984] 1 W.W.R. 481, J.E. 84-70, 26 Man. R. (2d) 194, 9 C.C.C. (3d) 97, 37 C.R. (3d) 97, 11 W.C.B. 200

Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16, s. 246(1)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 20.05, (1), (2)

APPEAL from the judgment of D.M. Brown J., [2013] O.J. No. 1097, 2013 ONSC 1525, 85 E.T.R. (3d) 1 (S.C.J.) dismissing an action; and for costs, [2013] O.J. No. 2633, 2013 ONSC 3300 (S.C.J.).

Robert Rueter and David Barbaree, for appellants.

Stephen Victor, Q.C., and David Cutler, for respondents Barbara Farber, David Lawrence Katz and Andrew Mark Katz.

David Scott, O.C., Q.C., and Isabelle Mentina, for respondent Leikin Group Inc.

Benjamin Zarnett and Ryan Cookson, for respondents Grant Jameson, Geoffrey Gilbert and Ogilvy Renault LLP.

Alan D'Silva and David Spence, for respondents Ingrid Levitz in her capacity as estate trustee with a will of the estate of Gerald Levitz, Patricia Day and Ginsburg Gluzman Fage & Levitz LLP.

The judgment of the court was delivered by

[1] SHARPE J.A.: — In 2005, following a serious falling out, the majority of shareholders in a family business proposed that their interests be bought out. After extensive negotiations, a share redemption agreement was concluded, and each member of the selling group received $3.395 million. In 2007, six of the eight members of the selling group, the appellants before this court, commenced this action. They claimed that the non-selling group, the corporation and the corporation's lawyers and accountants owed them fiduciary duties which the defendants had breached, primarily by withholding material information during the negotiations leading to the share redemption. The appellants' claims were dismissed at trial. This is an appeal from that decision.

[2] The appellants attack the trial decision on both procedural and substantive grounds. Procedurally, they argue that the "hybrid" trial model the judge adopted, which made extensive use of the work product of failed motions for summary judgment, was unfair, unjust and contrary to this court's instructions in [page511] Combined Air Mechanical Services Inc. v. Flesch (2011), 108 O.R. (3d) 1, [2011] O.J. No. 5431, 2011 ONCA 764 even as that decision was modified in Hryniak v. Mauldin, [2014] S.C.J. No. 7, 2014 SCC 7, 314 O.A.C. 1.

[3] Substantively, they argue that the trial judge erred in fact and law in his analysis of the fiduciary duty issue. They also seek leave to appeal the trial judge's costs order.

[4] For the following reasons, I would dismiss the appeal.

[5] I observe at the outset that the trial judge gave lengthy and thoughtful reasons. He exhaustively reviewed the evidence, he made clear factual findings and he carefully considered and applied the relevant legal principles. As I fundamentally agree with the trial judge's reasons, I will not deal with every detail of this case and will focus on the specific points necessary to decide this appeal.

Facts

(1) The Leikin Group

[6] The Leikin Group is an Ottawa-based collection of real estate and property development companies founded by the late Harry Leikin.

[7] Harry and his wife Zena had four daughters: Josephine Harris, Ethel Kesler, Goldie Spieler and Libby Katz. Each of Harry's daughters held an equal number of preferred shares in the Leikin Group. Each of his 11 grandchildren held an equal number of common shares. The Leikin Group's corporate structure prevented shareholders from selling or transferring shares to anyone other than the issue of Harry Leikin. This restriction was designed to keep the shareholdings and management of the business within the family.

[8] All of Harry Leikin's daughters held seats on the Leikin Group's boards of directors. Around 2000, Ethel, Goldie and Libby stepped down and their children took their places. By 2004, the boards of directors of the Leikin Group of companies consisted of Josephine Harris, Ethel's son Rick Kesler, Goldie's son David Spieler, and Libby's children Barbara Farber and Andrew Katz. Barbara Farber was the CEO of the Leikin Group, having taken over after Harry's death in 1998. David Katz was a consultant to the Leikin Group from 2001 to 2003, when he became its president. He was forced by a majority of the boards to resign in 2004. Thereafter, he continued under a fixed term contract as a consultant to one of the Leikin Group's companies.

[9] The Leikin Group's principal asset is College Square, a "big box" shopping complex in Ottawa's west end. [page512]

(2) The share redemption agreement

[10] By 2002, the relationships among the Leikin sisters and their children were fractious. Rick Kesler said his cousin Barbara's management style was causing tension. David Spieler described Josephine's children and Steven Kesler as "bugbears". Grant Jameson, who became the Leikin Group's lawyer in 2003, confirmed that little trust or co-operation existed amongst the common shareholders. The boards were similarly polarized.

[11] Prompted by this rancour, in early 2004 Josephine's four children announced that they wanted to liquidate their holdings in the Leikin Group. Later, three of the other shareholders indicated their desire to liquidate their interests in the companies, and ultimately eight of the 11 Leikin grandchildren (the "selling shareholders") decided to sell their shares. Libby's children Barbara Farber, David Katz and Andrew Katz ("the non-selling shareholders") wished to carry on and grow the business. Following difficult negotiations, in April 2005 the corporations and the three non-selling shareholders entered into a letter of intent for a share redemption transaction (the "share redemption agreement") with the eight selling shareholders. The share redemption agreement provided for the selling shareholders to receive a payout amount representing their interests in the principal assets of the Leikin Group while retaining their interests in the remaining assets of the corporations.

[12] The negotiations leading to the share redemption agreement were characterized by bitterness and distrust. Josephine Harris described the negotiations as highly adversarial, difficult, fractious and infused with self-interest where each side sought to maximize their returns. She deposed that it was "impossible" for the selling shareholders to rely on the non-selling shareholders to look out for their interests because of the level of discord between them.

[13] A key point of contention was the value to be assigned to College Square. From the start, it was understood that the value to be attributed to College Square would essentially determine the amount the selling shareholders would receive in the deal -- and consequently the amount required to finance the transaction. It was agreed that the non-selling shareholders could use the Leikin Group's core assets to finance the transaction.

[14] Ultimately, the parties settled on an attributed value for College Square of $60 million. At trial, Josephine Harris and Rick Kesler agreed that the $60 million figure was reached through negotiations and was not based on any appraisal of College Square or on its fair market value. They also testified that [page513] at the time the selling shareholders entered into the share redemption agreement, they knew that College Square might be worth more than $60 million.

[15] In the course of the negotiations between the two groups of shareholders, and before concluding the share redemption agreement, the selling shareholders knew that the non-selling shareholders might decide to sell a stake in College Square if they wanted to carry on the business. They also knew that the non-selling shareholders would have to raise enough money both to buy out the selling shareholders and to retain majority control of the Leikin Group if the family were to continue to control the business consistent with their late grandfather's wishes.

[16] In the course of the negotiations, the selling shareholders became concerned that the non-selling shareholders, in financing the share redemption, might sell an interest in College Square that reflected a much higher price than the attributed value. Accordingly, the selling shareholders requested (i) a "tag-along" clause that would allow them to share in any upside of financing the buyout; (ii) a representation that the non-selling shareholders did not have any information "which, if known to the other shareholders, might reasonably be expected to deter the parties" from entering into the share redemption agreement; and (iii) a representation that the non-selling shareholders "have no present intention of selling their interest in College Square". The non-selling shareholders refused these requests. The selling shareholders accepted that refusal and proceeded with the share redemption agreement in any event.

[17] On April 18, 2005, the shareholders and the corporations executed a letter of intent for the share redemption agreement using a value of $60 million for College Square. The letter of intent provided Newco, whose shareholders were the non-selling shareholders, a 120-day window in which to secure financing, the method of which was in their "sole discretion".

[18] Shortly after, the non-selling shareholders retained RBC Capital Markets to find an equity partner for College Square. First Capital Realty ("FCR") was the successful bidder. On August 11, 2005, one week after the share redemption agreement closed in escrow, FCR and Newco entered into an agreement of purchase and sale for a 50 per cent interest in College Square.

[19] The deal with FCR was based on an attributed value for College Square of $78.8 million -- $18.8 million more than the amount attributed for the purpose of executing the share redemption agreement. [page514]

(3) The litigation

[20] In 2007, the appellants commenced an action seeking damages of $11 million, which they claimed was the non-selling shareholders' "profit" from the deal with FCR. The plaintiffs were Josephine's children Adam, Sheira and Zena Harris and Naomi Stanton; Ethel's son Rick Kesler, and Goldie's son David Spieler (who started as a non-selling shareholder but later joined the selling shareholder group). Ethel's other sons, Steven Kesler and Ivan Kesler, also sold their shares but did not join in the lawsuit.

[21] The selling shareholders named five defendants: the three non-selling shareholders; the Leikin Group; the Leikin Group's accountants Gerald Levitz, Patricia Day and Ginsburg Gluzman Fage & Levitz LLP; the Leikin Group's lawyers, Grant Jameson, Geoffrey Gilbert and Ogilvy Renault LLP; and FCR.

[22] Against the non-selling shareholders and the Leikin Group, the selling shareholders alleged breach of fiduciary duty. In the alternative, they alleged oppression, misuse of confidential information and unjust enrichment (the latter two claims were not pressed at trial). Against the Leikin Group's accountants and lawyers they alleged breach of fiduciary duty, and in the alternative, knowing assistance in breach of fiduciary duty. They also alleged knowing assistance in breach of fiduciary duty against FCR.

[23] The appellants' central claim was that the non-selling shareholders and the Leikin Group's professional advisors knew as early as February 2004 that FCR was willing to buy a partial share of College Square using an attributed value of at least $70 million. They claimed that throughout the negotiations leading to the share redemption agreement, the defendants knowingly withheld material information about the advanced state of talks between the non-selling shareholders and FCR. The appellants alleged that if the information had been disclosed, they would not have sold their interests based on a value of $60 million.

(4) The motions for summary judgment

[24] In January 2011, all the defendants moved for summary judgment. The motion judge noted that in order to give the motions the requisite "hard look", he ended up reviewing a volume of material more typical of a three-week trial.

[25] In a 406-paragraph decision in which he considered the evidence in great detail, the motion judge dismissed the claim against FCR and directed a trial before him against the [page515] remaining defendants. In doing so, he specifically identified the areas where he needed to hear further evidence and legal argument to decide the case. In particular, the motion judge explained that he would need to make credibility findings about the main protagonists in the share redemption transaction: David Katz, Rick Kesler, Barbara Farber and Josephine Harris.

[26] Pursuant to rule 20.05(1) and (2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the motion judge ordered that the trial adopt a "hybrid" form in which the evidence filed on the summary judgment motions would be preserved and supplemented with further evidence to be led at trial.

[27] The appellants unsuccessfully appealed the order granting FCR summary judgment to this court: Harris v. Leikin Group Inc., [2011] O.J. No. 5714, 2011 ONCA 790. For reasons I explain below, it is significant to note that there was a single order emanating from the summary judgment motions that both granted summary judgment in favour of FCR and dismissed the summary judgment motions brought by the other defendants. The order provided that the claims were to proceed to trial "subject to the [trial management] directions set out in paragraph 404 of the Reasons for Decision dated June 13, 2011, and to the Supplementary Reasons for Decision with Directions for Trial dated August 10, 2011".

[28] While the selling shareholders appealed the paragraph of the order granting summary judgment in favour of FCR, they did not appeal, or seek leave to appeal, the paragraph of the order setting out the directions for trial.

(5) The trial

[29] The trial took place over eight days in May and June 2012. The trial judge released his decision dismissing the appellants' claims in their entirety in March 2013. In reasons spanning 585 paragraphs, the trial judge adopted significant portions of his reasons on the summary judgment motions and made further findings based on the evidence led at trial.

[30] In brief, the trial judge found that there was no evidence of either a per se or an ad hoc fiduciary relationship between the selling and non-selling shareholders or between the selling shareholders and the Leikin Group's lawyers and accountants. On the contrary, any per se duty was to the corporation and any ad hoc duty was, in the circumstances of this case, belied by the explicitly adversarial relationship between the selling and the non-selling shareholders. In reaching these conclusions, the trial judge made crucial credibility findings in favour of the non-selling shareholders. In particular, the trial judge largely [page516] accepted the evidence of David Katz, the principal architect of the non-selling shareholders' position. He largely rejected the evidence of Rick Kesler and Josephine Harris, the principal architects of the selling shareholders' position.

[31] The trial judge emphasized that on the evidence, there was no offer or "bought deal" with FCR during the time the parties were negotiating the share redemption agreement. This was consistent with his finding on the summary judgment motions, which was affirmed by this court in its 2011 decision [2011 ONCA 790, [2011] O.J. No. 5714 (C.A.)], at para. 18:

[T]he proposed sale of part of College Square to an institutional or other investor was the subject of an independent and public auction process conducted by a sophisticated and experienced external investment firm. FCR submitted its first and only offer to acquire an interest in College Square in July 2005, as part of that external bid process.

[32] The plaintiffs' oppression claim was rooted in the same conduct that they alleged amounted to a breach of fiduciary duty. Accordingly, the trial judge dismissed that claim as well.

[33] As the trial judge found no fiduciary relationship between the selling and non-selling shareholders, he dismissed the claims against the lawyer and accountant defendants for knowing assistance of breach of fiduciary duty. He dismissed the breach of fiduciary duty claim against the lawyer defendants on the ground that there was no solicitor-client relationship between the selling shareholders and the Leikin Group's legal counsel that would give rise to a per se duty, and no context-specific relationship that would give rise to an ad hoc duty. He dismissed the breach of fiduciary duty claim against the Leikin Group's accountants for similar reasons. In doing so, the trial judge emphasized his findings that the selling shareholders had retained their own professionals, including their own lawyers and real estate appraisers, to protect their interests in the share redemption negotiations.

[34] In light of having pleaded intentional torts, the selling shareholders accepted that substantial indemnity costs were appropriate. The trial judge carefully scrutinized the defendants' bills of costs and ultimately ordered the selling shareholders to pay nearly $2.5 million, spread among the non-selling shareholders, the Leikin Group and the lawyer defendants. The selling shareholders settled the accountant defendants' costs for $550,000.

The Appeal

[35] The issues raised on this appeal may be grouped under three headings: [page517]

(1) Did the trial judge err in directing a "hybrid" trial, effectively robbing the appellants of control of the trial narrative?

(2) Did the trial judge make errors of law or palpable and overriding errors of fact about whether the respondents owed, and breached, fiduciary duties to the appellants during the share redemption negotiations?

(3) Did the trial judge err in holding that a costs order of over $2.5 million was "fair and reasonable"?

Analysis

(1) Did the trial judge err in directing a "hybrid" trial, effectively robbing the appellants of the ability to control the trial narrative?

[36] Rule 20.05 gives a judge who refuses to grant summary judgment, or who grants partial summary judgment, extensive powers to specify facts that are not in dispute and identify those to be tried, and to direct the terms on which the trial is to proceed.

[37] In disposing of the summary judgment motions, the motion judge wrote that he intended to issue directions regarding the conduct of the trial. He explained that it was "only fair" that before he do so, counsel should be given the opportunity to discuss the matter amongst themselves and present a plan for his approval.

[38] Although the motion judge stated that he wished to discuss the trial management plan before making final directions, at para. 404 of his summary judgment reasons, he offered some "preliminary thoughts" to guide counsel's discussions. These included: transcripts of the cross-examinations conducted for the motions should serve as examination for discovery transcripts; transcripts of all the examinations conducted for the motions should serve as the cross-examinations at trial; affidavits filed on the motions should serve as examinations-in-chief; and additional examinations and cross-examinations should be time-limited.

[39] The motion judge also reminded counsel that in the course of his lengthy reasons he had identified the parties from whom he needed to hear viva voce evidence, and on what issues, and advised that he wanted counsel to "focus" on those areas of concern.

[40] The "preliminary thoughts", set out at para. 404 of the motion judge's reasons, were incorporated into the summary judgment order after the parties found themselves unable to agree on a trial management plan. After hearing further submissions at three subsequent trial management conferences, the judge issued further directions for trial pursuant to rule 20.05 on [page518] issues such as the timing and duration of further examinations, the delivery of expert reports and deadlines for filing material. However, on appeal the appellants have focused on the trial management directions made in the initial order.

[41] I note that the summary judgment motions were decided before this court released Combined Air and two of the three subsequent trial management orders were issued after. This appeal was perfected before the Supreme Court of Canada released its decision in Hryniak v. Mauldin but the parties filed additional written submissions on the impact of that decision prior to the oral argument of this appeal.

(a) Are the appellants precluded from raising this ground of appeal?

[42] As I have noted, following the motions for summary judgment in 2011, the appellants appealed the paragraph of the order dismissing their claim against FCR, but they did not appeal the paragraph of the order dealing with the directions for trial. The respondents submit that it is too late now for the appellants to challenge the fairness or propriety of those directions. I agree.

[43] The appellants had an opportunity to challenge the trial management order by appealing, or seeking leave to appeal, at the time it was made. Having failed to do so, they should not be allowed to attack it collaterally now: R. v. Wilson, 1983 CanLII 35 (SCC), [1983] 2 S.C.R. 594, [1983] S.C.J. No. 88, at p. 599 S.C.R.

[44] The parties proceeded with a lengthy, complex and costly trial on the basis of the terms laid down by the trial management order. In my view, it would be contrary to law and common sense to allow the disappointed loser to complain now about the fairness of an order that could have been challenged when it was made.

[45] I note parenthetically that the question of whether the appeal would be to the Divisional Court with leave or to this court as of right would turn on the specific nature of the direction being challenged. Most directions for trial would be interlocutory in nature and require leave. However, a direction that takes a substantive claim or defence off the table, could, on the governing jurisprudence, amount to a final order from which there would be an appeal as of right.

[46] I disagree with the appellants' characterization of the order as a "mid-trial ruling" that must have awaited a final outcome before an appeal could be brought. There were two distinct phases to this proceeding: the summary judgment phase and the trial phase. The trial did not begin until after the summary [page519] judgment phase had been completed. Rule 20.05, by its terms, contemplates an order "that the action proceed to trial expeditiously" (emphasis added). This recognizes the existence of two discrete phases of the proceeding: a pre-trial phase when directions for trial are made and then the trial itself. The terms of the impugned order, made almost exactly one year before the trial started, dealt with issues such as discovery that were quite obviously pre-trial in nature. I cannot agree that these directions should be characterized as falling within the trial proper so as to permit a party to sit on a right of appeal to be used if the party is unsuccessful at trial.

(b) Did the trial judge err in the directions for and conduct of the trial?

[47] Although I have concluded that there is no right of appeal at this point from the trial management order, the correctness of that order was fully argued and I offer the following observations.

[48] First, it is my view that the specific terms of the judge's directions fell squarely within the language of rule 20.05.

[49] Second, it is my view that both the letter and the spirit of the judge's directions fell squarely within what the Supreme Court of Canada contemplated in Hryniak v. Mauldin, at paras. 76-77:

Rules 20.05(2)(a) through (p) outline a number of specific trial management orders that may be appropriate. The court may: set a schedule; provide a restricted discovery plan; set a trial date; require payment into court of the claim; or order security for costs. The court may order that: the parties deliver a concise summary of their opening statement; the parties deliver a written summary of the anticipated evidence of a witness; any oral examination of a witness at trial will be subject to a time limit or; the evidence of a witness be given in whole or in part by affidavit.

These powers allow the judge to use the insight she gained from hearing the summary judgment motion to craft a trial procedure that will resolve the dispute in a way that is sensitive to the complexity and importance of the issue, the amount involved in the case, and the effort expended on the failed motion.

[50] It seems to me that Karakatsanis J. was urging judges to do exactly what the judge did in this case. After considering the voluminous material filed on the summary judgment motions, he concluded the case could fairly and properly be decided on the basis of a trial focused on the specific issues that required viva voce evidence.

[51] The appellants submit that while Hryniak modified this court's decision in Combined Air in some respects, it did not disturb this court's instruction, at para. 65, that while the court [page520] may use rule 20.05 "to salvage the resources that went into the summary judgment motion", the rule "should not be applied so as to effectively order a trial that resembles the motion that was previously dismissed . . . [T]he trial ought not to be simply a reconfiguration of the dismissed motion."

[52] I cannot agree that the trial in this case was "simply a reconfiguration of the dismissed motion". The trial judge did "salvage the resources that went into the summary judgment motion" and he afforded the parties considerable latitude in the presentation of the case. Indeed, the appellants did not complain about any aspect of the procedure during the trial.

[53] As a general rule, a party to a civil action cannot appeal on the basis of some aspect of trial procedure to which it did not object or sit on an objection only to raise it once it learns of an unfavourable result: see Marshall v. Watson Wyatt & Co. (2002), 2002 CanLII 13354 (ON CA), 57 O.R. (3d) 813, [2002] O.J. No. 84 (C.A.), at paras. 14-15; Leader Media Productions Ltd. v. Sentinel Hill Alliance Atlantis Equicap Ltd. Partnership (2008), 2008 ONCA 463, 90 O.R. (3d) 561, [2008] O.J. No. 2284 (C.A.), at paras. 50-51, leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 394.

[54] Here, even with the benefit of hindsight, the appellants cannot point to a specific instance during the trial that was unfair or prejudicial, nor have they shown that they were prevented from putting the case they wanted to put before the trial judge. They have not identified anything they would have done differently if the trial had proceeded as a full-fledged conventional trial rather than a modified hybrid trial. The argument that the hybrid trial effectively robbed the appellants of the ability to control the trial narrative was not advanced before the trial judge and it remains a bald assertion as advanced on this appeal.

[55] Finally, I do not accept the submission that the hybrid trial process led the trial judge to reverse material findings of fact found on the summary judgment motions. His detailed reasons following the trial carefully track his earlier reasons. In particular, I cannot agree that he found on the summary judgment motions that during the discussions with David Katz and before it made its binding offer, FCR had expressed a desire to purchase College Square at an assigned value in excess of $70 million. The label "trial balloon" that the trial judge used in his final reasons to describe the reference by David Katz to a price during such discussions is entirely consistent with the findings or tentative findings he made on the summary judgment motions.

[56] The appellants sought to file fresh evidence to establish that their counsel objected to the trial management process [page521] after the release of Combined Air. This was in response to the respondents' contention that the appellants had consented to the trial management process. In my view, the proposed fresh evidence could not affect the outcome of this appeal and, as I have explained, the proper way to challenge the trial management order was to appeal or seek leave to appeal.

(2) Did the trial judge make errors of law or palpable and overriding errors of fact about whether the respondents owed, and breached, fiduciary duties to the appellants during the share redemption negotiations?

[57] The appellants asserted breach of various per se and ad hoc fiduciary duties by the respondents. Any per se duties owed by any of the respondents (as directors, officers and professional advisors) were determined correctly by the trial judge to be owed to the corporations. The central issue was whether there was any ad hoc fiduciary duty arising in the circumstances of this case. The appellants argued at trial and before this court that the fiduciary duty of the non-selling shareholders consisted of the obligation to act in the interests of the appellants, described by the trial judge, at para. 441 of his reasons for judgment, as "one under which the Non-Selling Shareholders undertook to act in the joint interests of the parties" (emphasis in original).

[58] As I have indicated, the trial judge exhaustively reviewed the evidence and made detailed and comprehensive findings. For purposes of this appeal, he made three central findings that are fatal to the appellants' claims, and in particular their claims with respect to the ad hoc fiduciary duty that they alleged.

[59] First, the trial judge found the relationship between the selling shareholders and the non-selling shareholders was adversarial, bitter, acrimonious and marked by distrust. This dynamic was reflected in the negotiations leading to the share redemption agreement.

[60] Second, there was no "bought deal" between the non-selling shareholders and FCR, nor did the non-selling shareholders know during the share redemption negotiations that FCR was prepared to pay a specific price for College Square. As this court found when it upheld the dismissal of the appellants' claim against FCR in 2011, the first and only offer FCR submitted to acquire an interest in College Square was after the share redemption agreement and during the independent and public auction process.

[61] Third, the trial judge found that in the course of the negotiations leading to the share redemption agreement the selling [page522] shareholders requested a "tag-along" clause that would allow them to share in any upside of financing the buyout. They also sought representations that the non-selling shareholders did not possess any information that might reasonably be expected to deter them from entering into the agreement, and that the non-selling shareholders had no "present intention" to sell College Square. As I have explained, the non-selling shareholders refused these requests. The appellants, who had their own professional advisors, accepted that refusal and proceeded with the share redemption agreement in any event. Each, it will be recalled, received nearly $3.4 million.

[62] These findings led the trial judge to conclude that the non-selling shareholders did not owe the selling shareholders the fiduciary duty alleged, that is to act in their interests, when negotiating the share redemption agreement.

[63] For the following reasons, I am of the view that these central findings were well supported by the evidence and the trial judge's conclusions on the fiduciary duty issues were well grounded in law. I see no basis for this court to interfere.

(a) The relationship between the selling and non-selling shareholders was acrimonious

[64] The evidence that there was a complete absence of trust between the selling and non-selling shareholders was uncontested and overwhelming. The bitterness between the Leikin cousins was not just the product of the share redemption negotiations; it was what led to the negotiations in the first place.

[65] To cite just one illustration, by early 2004 when Josephine Harris informed her fellow directors that her children wished to sell their shares, her group had already retained a lawyer and accountant to advise them on the sale. Then and throughout the process that led to the share redemption agreement, the selling shareholders retained and relied upon their own legal and accounting advisors to protect their interests. The selling shareholders even retained their own real estate appraiser when they suspected that the appraisal presented to the Leikin Group board had undervalued College Square.

[66] Josephine Harris offered some of the strongest evidence to support the trial judge's conclusion that the level of discord between the shareholder groups belied any fiduciary relationship. In cross-examination, she had the following exchange with counsel for the non-selling shareholders:

Q. And, really, that because of this mistrust of the non-selling shareholders, you weren't really relying upon the non-selling shareholders, were you? [page523]

A. Impossible.

Q. Impossible for what?

A. Yes.

Q. Impossible to rely on them?

A. Yes.

[67] The trial judge recounted this testimony and concluded, at para. 447: "I cannot reconcile that evidence from the plaintiffs with their submissions at trial that they expected the Non-Selling Shareholders to protect and look after their interests in the share redemption transaction."

[68] Similarly, Rick Kesler's legal partner and the selling shareholders' principal negotiator, Jules Lewy, agreed at trial that both sides were negotiating in their own interests. The trial judge considered this evidence and held, at para. 450: "Negotiations containing those characteristics usually do not attract the imposition of a fiduciary duty on one of the negotiating sides . . . [Lewy's admission] severely undermines the plaintiffs' legal submission that the Non-Selling Shareholders owed a duty to protect the joint interests of the shareholders in that transaction." I agree with this analysis.

[69] In my view, the trial judge correctly held that on the evidence the appellants were not expecting the selling shareholders to protect their interests in the negotiations. As he put it, at para. 448, "[t]he dependent, special and close personal relationship" that can give rise to an ad hoc fiduciary relationship in some family business arrangements is "a far cry from the factious, conflicted, self-interested and untrusting relationship amongst the two sets of cousins in the present case".

[70] At trial and on appeal, the appellants relied heavily on a memo Barbara Farber sent to her fellow shareholders on September 1, 2004, as a representation that the non-selling shareholders would protect the interests of the selling shareholders during the share redemption negotiations. That memo read in part:

I am extremely confident that all shareholders will approach the CIBC shareholder liquidity process with the knowledge that a successful outcome can only be achieved if it is beneficial to all shareholders. I look forward to working together with all directors and shareholders that will ensure a favourable conclusion.

[71] The trial judge rejected the suggestion that Farber's memo was an undertaking to protect the selling shareholders' interests. Instead, he found that the memo simply reflected the reality of the situation: the two groups had opposing interests; [page524] they could no longer get along; and an orderly, business-like process was required to allow one group to liquidate its interests. In my view, this conclusion was amply supported by the evidence. I would not interfere with it.

(b) The appellants cannot succeed on the basis of a per se duty owed to the corporations

[72] I do not accept the argument that the appellants can succeed on the basis of any per se duty the respondents owed to the corporations. It is well established that directors owe a duty to the corporation, not to stakeholders, and the reasonable expectation of stakeholders is simply that the directors act in the best interests of the corporation: BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, at para. 66.

[73] Moreover, a shareholder of a corporation -- even a controlling shareholder or the sole shareholder -- does not have a personal cause of action for a wrong done to the corporation: Meditrust Healthcare Inc. v. Shoppers Drug Mart (2002), 2002 CanLII 41710 (ON CA), 61 O.R. (3d) 786, [2002] O.J. No. 3891 (C.A.), at para. 12. A shareholder may bring a derivative action on behalf of the corporation for a loss suffered by the corporation, but the appellants did not seek leave to commence a derivative action, as required by the Business Corporations Act, R.S.O. 1990, c. B.16, s. 246(1), to claim that the non-selling shareholders had diverted a corporate opportunity for their personal benefit. Indeed, they did the reverse by asserting a claim on their own behalf against the corporation.

(c) There was no "bought deal" between the non-selling shareholders and FCR, and no knowledge that FCR was willing to pay a specific price for College Square

[74] Central to the appellants' claim is the contention that David Katz failed to disclose the extent of his discussions with FCR regarding the possible sale of an interest in College Square. Those discussions began in early 2004, and were raised at a Leikin Group board meeting on April 15, 2004.

[75] The trial judge carefully reviewed the conflicting evidence as to what occurred at that meeting and thereafter. He found that Katz made a presentation about a possible "strategic alliance" with FCR, but the selling shareholders were not interested and the discussions went nowhere at that time.

[76] The appellants place great emphasis on the fact that Katz did not inform the board that he had floated an estimated value of $72 million as part of his "exploratory" discussions with FCR. [page525] As noted, the discussion of the possibility of a deal with FCR was cut short. As the trial judge put it, at para. 111: "[T]he two family groups were like ships passing in the night". One group wanted to hold on to and grow the company, the other group wanted to get its money out.

[77] The trial judge aptly described the figure of $72 million proposed by David Katz in his pre-agreement discussions with Sylvie Lachance, the executive vice-president and chief operating officer of FCR, as nothing more than [at para. 73] "a trial balloon". Lachance testified that there was no discussion about price until the formal bid process in 2005. As the trial judge found, at para. 73, David Katz "had not received any sort of response from FCR" as to the $72 million number before the critical board meeting in April 2004, when he floated the idea of an alliance with FCR.

[78] The trial judge accepted David Katz's evidence that he had no discussions with FCR between March 12 and July 14, 2004, when Katz met with Farber and the Leikin Group's lawyer, Grant Jameson. Although none of the appellants were present at the July 14 meeting, they alleged based on Jameson's notes that Katz told the attendees that FCR was interested in College Square at a valuation of at least $72 million. The trial judge rejected that contention. He found, at para. 160, that "the trail with FCR had gone cold". He also accepted that a valuation of approximately $71.5 million was discussed not because Katz thought that FCR was willing to pay it, but because a sale based on that amount would be required if the selling shareholders were to retain control of the business after redemption of the selling shareholders' shares.

[79] Katz had further discussions with FCR between July 14 and October 12, 2004, but the trial judge found that during those discussions, FCR did not state a price at which it might be interested in College Square, let alone make an offer to purchase. At para. 190, the trial judge accepted the evidence that "Katz appreciated he had found in FCR an entity willing to continue discussions with him about College Square, but that is as far as matters had progressed by October when Katz terminated the discussions".

[80] The trial judge's findings about the information David Katz and the other non-selling shareholders had prior to concluding the share redemption agreement were soundly based on the evidence and, significantly, on his positive assessment of Katz's credibility and his negative assessment of Kesler's. Those findings are entitled to deference on appeal and I am far from persuaded that there is any basis upon which this court could interfere. [page526]

(d) The selling shareholders requested, but did not get, assurances aimed at maximizing their returns on the share redemption agreement

[81] The trial judge found that by the fall of 2004, the selling shareholders knew that the non-selling shareholders had two objectives: first, retain their interest and grow the company; and second, retain control of the company. It was apparent that in order to achieve both, the three non-selling shareholders had to find a partner who would pay them enough to buy out the eight selling shareholders and still hold a majority interest in College Square. As a result, the trial judge found that the selling shareholders knew that there would most likely be a "spread" between the appraised value of College Square for purposes of the share redemption agreement and the price an equity investor would pay for an interest in the property.

[82] Against this backdrop, the selling shareholders' requests for assurances that would maximize their returns -- and the non-selling shareholders' refusals -- are highly significant. They demonstrate that (1) the selling shareholders knew or strongly suspected that the non-selling shareholders would secure an advantageous deal to finance the buyout; (2) the selling shareholders did not trust the non-selling shareholders; (3) the selling shareholders knew the non-selling shareholders were out to maximize their own interests; and (4) the selling shareholders were ultimately prepared to sell their shares even without the assurances they had sought. In my view, these uncontested facts alone are fatal to the appellants' claims for breach of fiduciary duty.

(e) Conclusion on fiduciary duty

[83] The appellants initiated the buyout by insisting that they wanted to sell their interests. From the start, they retained and relied on their own legal, accounting and real estate advisors because they did not trust the other side. They threatened litigation. Before completing the transaction, they knew that the respondents would likely negotiate a favourable deal with a new partner. They sought and were refused assurances that would give them what they seek in this litigation and proceeded to close the transaction anyway. In these circumstances, the trial judge quite properly rejected their claims for breach of fiduciary duty.

(f) The professional defendants

[84] The professional defendants, the lawyers Ogilvy Renault LLP, Grant Jameson and Geoffrey Gilbert, and the accountants [page527] Ginsburg Gluzman Fage & Levitz LLP, the estate of Gerald Levitz and Patricia Day, were retained by and acted for the Leikin Group. They were not retained and did not act for the shareholders or the appellants. The trial judge found that none of the professional defendants had engaged in conduct that gave rise to either a per se or ad hoc fiduciary relationship. The trial judge also found that none of the professional defendants were in possession of and had wrongly failed to disclose material information to the appellants.

[85] The appellants have failed to identify any reason for overturning those findings. The appellants were self-interested parties who retained and relied on their own professional advisors and the claim of breach of fiduciary duty is without merit.

[86] I agree with the trial judge that the only possible basis for recovery against the professional defendants would be knowing assistance of a breach of fiduciary duty. That claim depends on a finding that the non-selling shareholders owed, and breached, a duty to the selling shareholders. As that claim has failed, so to must the claim for knowing assistance.

(3) Did the trial judge err in holding that a costs order of over $2.5 million was "fair and reasonable"?

[87] The appellants acknowledge that substantial indemnity costs were warranted. Nevertheless, they submit that the trial judge's costs order of over $2.5 million is not fair and reasonable in the circumstances of the case.

[88] In my view, the trial judge's reasons reveal no error in principle. The trial judge painstakingly scrutinized the respondents' bills of costs and produced a 65-paragraph decision in which he allowed some costs and disallowed others. In the end, he awarded the non-selling shareholders and the lawyer defendants costs of $1,003,090 and $1,012,650.51, respectively. He awarded the Leikin Group costs of $470,161.21.

[89] Significantly, the appellants' costs were approximately $990,000 on a substantial indemnity basis. This is roughly on par with what the trial judge awarded the respondents. The trial judge rejected the suggestion that the appellants should only be responsible for a portion of the respondents' costs due to the overlap in the claims against them. In my view, he did not err in holding that, having brought multiple defendants into the lawsuit and making allegations that implicated them all in a complex series of events, the appellants could reasonably expect that costs incurred by each of those defendants would approximate the costs they incurred themselves. [page528]

Disposition

[90] For these reasons, I would dismiss the motion to file fresh evidence, dismiss the appeal and fix the costs of the respondents as follows: Farber, David Katz and Andrew Katz, $100,000; Leikin Group, $45,000; Ogilvy Renault LLP, $45,000; Ginsburg Gluzman Fage & Levitz LLP, $45,000, all inclusive of disbursements and applicable taxes.

Appeal dismissed.