COURT OF APPEAL FOR ONTARIO

CITATION: Density Group Limited v. HK Hotels LLC, 2014 ONCA 605

DATE: 20140822

DOCKET: C55944

Feldman, MacFarland and Epstein JJ.A.

BETWEEN

Density Group Limited

Plaintiff

(Appellant)

and

HK Hotels LLC and Henry Kallan

Defendants

(Respondent)

Martin Teplitsky, Q.C., for the appellant

Martin J. Henderson, for the respondent

Heard: February 12, 2014

On appeal from the judgment of Justice Janet Wilson of the Superior Court of Justice, dated July 20, 2012, with reasons reported at 2012 ONSC 3294, 5 B.L.R. (5th) 131.

MacFarland J.A.:

[1] This appeal arises from a business dispute between the parties who were working together to pursue the development of a hotel project. After a falling out, HK Hotels, LLC (“HKH”) terminated its relationship with the appellant, Density Group Ltd. (“Density”), and Density brought an action against HKH and the respondent, Henry Kallan, the company’s president and owner.

[2] Mr. Kallan, in turn, brought a motion for summary judgment to have the action against him dismissed. The motion was successful: the breach of fiduciary duty and the inducing breach of trust, breach of fiduciary duty and breach of contract claims were all dismissed.

[3] The motion judge was guided in her decision by Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1. Since her 2012 decision, of course, the law has changed with the release of the Supreme Court of Canada’s decision in Hryniak v. Mauldin, 2014 SCC 7, 366 D.L.R. (4th) 641, which greatly expands the use of the summary judgment process for the resolution of civil disputes.

[4] For the reasons that follow, I would dismiss Density’s appeal. In my view, the summary judgment process was available to the motion judge and was appropriately used by her on the record before her.

A. THE FACTS

[5] HKH, a New York corporation, operates a number of boutique hotels in New York City. As noted above, Mr. Kallan is the company’s owner and president. He is also a director of the company. He is regarded as an innovative and successful hotelier.

[6] Sean Majerovic is the principal and only director of Density, an Ontario corporation. He is the son of Peter Majer. Mr. Majer and Mr. Kallan had known one another for some time before the events giving rise to this action and had been involved in a business venture together.

[7] In late 2006, the Board of Directors of Exhibition Place (the “Board”) issued a “Request for Expressions of Interest”, seeking proposals for the development of a hotel at Exhibition Place in Toronto.

[8] Mr. Majer and Mr. Kallan discussed the matter and it was decided that HKH would respond to the Board’s request and submit an expression of interest. It was also decided that Density would work with HKH.

[9] Density and HKH entered into a letter of understanding (“LOU”), dated April 30, 2007. The LOU defines the nature of the relationship between the two corporations with respect to the hotel project. It describes the parties as “Co-Venturers” and states that the “Co-Venturers are proceeding with the intent that each shall have a 50% ownership interest in the Project.”

[10] The LOU provides that, unless otherwise agreed, costs and expenses associated with the pre-development and city approval phases of the project are to be shared on a 50/50 basis. The LOU also contemplates that, within three months of the execution of the LOU, the parties will enter into more formal contracts to define their respective roles.

[11] While Density and HKH extended the deadline for entering into the specified agreements to February 15, 2008, they never did enter into any of the agreements contemplated by the LOU.

[12] They did, however, enter into an agency agreement, dated May 11, 2007 (the “Agency Agreement”). It appoints Density as HKH’s agent with the authority to bind HKH in relation to matters specified in the LOU. In the Agency Agreement, HKH acknowledges that the agreement does “not create the relationship of partner or fiduciary between the Agent and [HKH].”

[13] In practice, Density conducted much of the day-to-day business for the project, while HKH lent its name and experience in the hotel business to the venture.

[14] As agreed, an expression of interest was submitted to the Board in the early part of 2007 in HKH’s name alone.

[15] By letter dated October 16, 2007, the Board confirmed to HKH that its proposal had been selected as the “preferred proposal”. In her reasons, the motion judge refers to the letter as the “First Letter of Intent”.[1]

[16] The First Letter of Intent, which makes no mention of Density, sets out the framework for negotiating a formal letter of intent. It specifies that the parties to the letter of intent will be the Board and HKH. It provides that a Canadian company wholly-owned by HKH may also be a party to the formal letter of intent but any other parties must be approved by the Board:

[T]he introduction of any new parties whether at the stage of signing the LOI, or as co-venturer in the development and operation of the hotel, or as tenant to the ground lease, or at any other time, shall constitute an assignment and be subject to the approval of the Board….

[17] The Board and HKH entered into a formal letter of intent in July 2008 (the “Second LOI”). The Second LOI, dated July 9, 2008, was prepared by a lawyer retained by Density and signed by Mr. Majerovic on behalf of HKH. It confirms the parties’ intention to negotiate a land lease and ancillary agreements necessary to bring the hotel project to fruition.

[18] Although the Second LOI is addressed only to HKH, Density’s name appears in paras. 4 and 26 of the document. Paragraph 4 deals with the granting of a lease and specifies that the Board and the City will grant a ground lease “to a corporation (the “Tenant”) owned by HKH and Density Group Limited”. Paragraph 26, which deals with assignment and subletting, provides that “HKH shall not assign its rights under this LOI other than to a Canadian company owned by HKH and Density Group Limited without the consent of the Board”.

[19] Following the execution of the Second LOI, the relationship between the parties began to fray. The motion judge summarized the parties’ explanations as to why their relationship deteriorated:

[44] It is the position of Density that the relationship between Density and [HKH] soured when an unrelated restaurant project in New York City fell apart in the fall of 2008. Density alleges that Kallan improperly ended the Hotel Project as a consequence of the failure of the restaurant project. It is this conduct that Density argues constitutes bad faith and improper dealings on the part of Kallan, underpinning in part their assertion of personal liability owed by Kallan.

[45] [HKH] asserts that the relationship ended abruptly when the comptroller for [HKH], Tom Mangan, requested on January 15, 2009 the back-up documentation and bank documentation for the project expenses incurred by [HKH] to complete the year-end financial statements, and learned for the first time that Density had been paying itself unauthorized project management fees.

[20] The unrelated restaurant project involved Mr. Kallan and Mr. Majer. Density was not involved. As a result of a dispute between the two men over the project, Mr. Majer ultimately withdrew from the restaurant venture in the fall of 2008.

[21] The two men disagree about the degree of animosity that resulted from Mr. Majer’s withdrawal. Mr. Majer describes the situation as acrimonious and says that litigation lawyers were retained to deal with the dispute. Mr. Kallan says counsel was only retained to formalize Mr. Majer’s withdrawal from the project. Ultimately, Mr. Majer’s money was returned to him and Mr. Kallan continued with the restaurant project.

[22] In mid-January 2009, Mr. Kallan asked his comptroller, Tom Mangan, to review the expenses of the Toronto hotel project. As a result of that exercise, Mr. Kallan learned that Density had been paying itself project management fees. Until then, Mr. Kallan had understood that HKH and Density were each contributing one half of the expenses incurred for the project in accordance with the LOU.

[23] None of the documentation submitted to HKH to this point in time, disclosed that Density was paying itself fees. The budgets produced were generic in nature: they referenced project management fees but did not reveal the identity of Density as the payee. It was not until the expense review began in January 2009 that Mr. Mangan requested back-up documentation, including copies of bank records. The documentation revealed that the budget claim item for “project management fees” represented monies going to Density.

[24] Upon discovering Density’s payment of project management fees to itself, HKH took action.

[25] By letter dated March 4, 2009 signed by Mr. Kallan, HKH informed Density that their relationship was at an end since Density had paid itself as much as $199,000 in project management fees without authority or approval to do so. Moreover, its financial contribution to the project was minimal.

[26] In the meantime, Mr. Kallan spoke to the CEO of the Board, Ms. Dianne Young, and advised her that HKH wished to continue the hotel project without any further involvement from Density.

[27] Eventually, in the fall of 2009, a third letter of intent was concluded between HKH and the Board in terms identical to the Second LOI except that the references to Density were deleted.

[28] Density commenced its action against HKH and Mr. Kallan in April 2009. It made breach of contract, breach of trust and breach of fiduciary duty claims against HKH. As noted above, it made breach of fiduciary duty and inducing breach of trust, breach of fiduciary duty and breach of contract claims against Mr. Kallan.

[29] Underlying the fiduciary and trust claims was Density’s assertion that the Second LOI was a trust asset and that HKH held the asset in trust for the joint venture (i.e. for Density and HKH). Density alleged that removing its name from the Second LOI amounted to misappropriation of a trust asset.

[30] It claimed that HKH’s “breach of trust and fiduciary duty was inspired, induced and caused by Kallan for his own benefit and not for [HKH’s] benefit”.

[31] Density also alleged that Mr. Kallan excluded Density from the hotel project through his improper actions, thus breaching the joint venture agreement between Density and HKH. Density contended that, in doing so, he was not acting in HKH’s best interests.

B. MOTION JUDGE’S DECISION

[32] The motion judge articulated the question before her at para. 5 of her reasons: was there was a genuine issue requiring a trial as to whether Mr. Kallan was personally liable to Density on the facts of the case?

[33] She began her analysis by making a number of important factual findings, setting out a number of assumptions and noting what was not to be decided on the summary judgment motion.

[34] First, she noted that it was not for her to “decide definitively at this juncture what the nature of the relationship was between Density and [HKH] and the obligations, if any, that may flow from the relationship between the two corporations:” para. 29. Counsel agreed that was an issue for trial.

[35] Second, she assumed, for the purposes of the motion, that the LOU and the Agency Agreement “continued to apply and [were] relevant in defining the relationships between the parties”: para. 34.

[36] Third, she found “as a fact that [the] assertion by Density of a link between the Hotel Project and a failed restaurant project was clearly disproved in the evidence before [her]”: para. 48. She did not accept that Mr. Kallan’s actions “with respect to the Hotel Project were a retaliation or reaction to the aborted restaurant transactions in New York”: para. 46.

[37] Fourth, the motion judge found, at para. 66, that payment of the project management fees to Density was never discussed or agreed upon and that the “precipitating event causing a breakdown in the relationship between Density and [HKH] was the discovery that Sean Majerovic had improperly caused payment to Density of unauthorized project management fees of some $199,000.00”: para. 67.

[38] Fifth, she concluded that when Mr. Kallan met with Board CEO Dianne Young in February 2009 and asked for Density’s name to be deleted from the Second LOI, he was acting on behalf of HKH and in its best interests in accordance with his obligations as a director of HKH: para. 115.

[39] The motion judge then turned to the first claim against Mr. Kallan – that he personally owed a fiduciary duty to Density. She concluded that there was no genuine issue requiring a trial:

[118] There are no disputed facts that require a closer review and involve findings of credibility that should be considered in a trial. The facts that Density purports to rely on were either proven to be totally unreliable (the allegations of the restaurant deal colouring the actions of Kallan) or were not supported by any evidence (the allegation of peculiar vulnerability of Density).

[119] Applying the [Frame v. Smith, infra] and [Alberta v. Elder Advocates of Alberta Society, infra] analysis as well as the full appreciation test, I conclude that there is no genuine issue for trial regarding whether Kallan individually prima facie owed a fiduciary duty to Density based upon the various arguments raised by Density. There is no such duty [on] the facts of this case.

[40] Next, she considered whether there was a genuine issue for trial that the Second LOI could be characterized as a trust asset owned by Density and HKH.

[41] The motion judge set out Density’s position: “as Density and [HKH] were arguably in a fiduciary relationship in a co-venture relationship, any agreement entered into on behalf of the parties including the Second LOI, becomes a trust asset.” That trust “in turn imposes fiduciary duties upon directors of the co-venturer corporations and personal liability upon directors if an agreement is dealt with contrary to the interests of one of the co-venturer corporations”: para. 138.

[42] The motion judge was alive to the fact that the nature of the relationship between HKH and Density was not before her. However, as mentioned above, she made an assumption for the purposes of the motion that the terms of the LOU bound Density and [HKH] together as co-venturers or joint venturers and that it [was] arguable that a fiduciary duty existed between Density and [HKH]”: para. 134.

[43] Nonetheless, she concluded that “being a party to a joint venture with fiduciary duties owed between joint venturers … does not mean that any agreement is a trust asset, unless the requirements of what constitutes a trust have been met”: para. 140.

[44] The motion judge then reviewed the law of trusts, the agreements between Density and HKH, and the surrounding circumstances to assess whether the Second LOI was impressed by a trust. She concluded a trial was not necessary to determine that issue: para. 170. There was no evidence that the Second LOI was a trust asset. And if the Second LOI was not a trust asset, summary judgment should be granted: para. 171.

[45] In the event she was wrong that there was no triable issue as to whether the Second LOI was a trust asset, she considered Density’s argument that there was a triable issue as to whether Mr. Kallan was personally liable for inducing breach of contract and breach of fiduciary duty based on his conduct.

[46] The motion judge concluded there was no genuine issue as to whether Mr. Kallan was personally liable to Density for inducing breach of contract or breach of fiduciary duty: para. 192. She found that there was no independent tortious or unlawful conduct by Mr. Kallan and he was entitled to rely on the principle in Said v. Butt, [1920] 3 K.B. 497: para. 191. She noted that for an officer or director to rely on that principle “the director must be acting bona fide in the best interests of the corporation and cannot have individually engaged in tortious or unlawful conduct that would lead to the director having a separate legal identity from the corporation”: para. 186.

[47] In summary, the motion judge concluded that the issues of Mr. Kallan’s personal liability could and should be decided on the motion and that a trial was not required.

C. ISSUES ON APPEAL

[48] Density challenges the motion judge’s decision on the basis that she made a number of factual errors that tainted her analysis.

[49] Density submits that the motion judge also erred in failing to make an important factual finding – whether Density has an “interest” in the Second LOI as a co-owner.

[50] Density further contends that the motion judge erred in describing and applying the Said v. Butt defence.

[51] Finally, Density submits that resolving the claims against Mr. Kallan on a motion for summary judgment was not appropriate in this case, particularly since the case against HKH will go to trial in any event.

[52] I will address each of these points. First, however, it is helpful to review the principles to be applied in reviewing a decision on a summary judgment motion.

D. ANALYSIS

(1) SUMMARY JUDGMENT UNDER HRYNIAK

[53] As noted above, the Supreme Court’s decision inHryniak greatly expands the use of the summary judgment process for the resolution of civil disputes.

[54] The decision makes it clear that the new fact-finding powers available to judges under Rules 20.04 (2.1) and (2.2) are discretionary and presumptively available: para. 45.

[55] The Court directs that deference is owed to motion judges on summary judgment motions:

[81] In my view, absent an error of law, the exercise of powers under the new summary judgment rule attracts deference. When the motion judge exercises her new fact-finding powers under Rule 20.04(2.1) and determines whether there is a genuine issue requiring a trial, this is a question of mixed fact and law. Where there is no extricable error in principle, findings of mixed fact and law, should not be overturned, absent palpable and overriding error [citation omitted].

[82] Similarly, the question of whether it is in the “interest of justice” for the motion judge to exercise the new fact-finding powers provided by Rule 20.04(2.1) depends on the relative evidence available at the summary judgment motion and at trial, the nature, size, complexity and cost of the dispute and other contextual factors. Such a decision is also a question of mixed fact and law which attracts deference.

[83] Provided that it is not against the “interest of justice”, a motion judge’s decision to exercise the new powers is discretionary. Thus, unless the motion judge misdirected herself, or came to a decision that is so clearly wrong that it resulted in an injustice, her decision should not be disturbed.

[56] The Supreme Court recognizes at para. 60 of its decision that it may not be in the “interest of justice” to grant summary judgment in favour of a single defendant if the matter must still go to trial:

… [I]f some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant.

[57] On the other hand, summary judgment may be appropriate even if some claims must still proceed to trial, as was the case in Hryniak itself. The Court recognizes that “the resolution of an important claim against a key party could significantly advance access to justice”: para. 60.

[58] The Court also notes that “[p]rompt judicial resolution of legal disputes allows individuals to get on with their lives”: para. 25.

[59] Here, Density argues that it was not in the “interest of justice” to determine Mr. Kallan’s personal liability on the motion because, regardless of the outcome of the motion, a trial is still necessary to determine virtually the same issues between Density and HKH.

[60] While that is true, it is not the only consideration. The motion judge’s decision resolved Mr. Kallan’s personal liability. The record discloses that he is an active, experienced businessman involved in the hotel industry. I am sure that to him, having his personal liability determined at this stage is preferable to waiting perhaps years for a trial to resolve an action that was commenced more than five years ago. The threat of a lawsuit continuing to hang over his head, where damages claimed against him are “well in excess of $10,000,000.00”, may well have an impact on his ability to carry on his business affairs.

[61] Accordingly, it is clear that absent an error of law, deference is owed to the motion judge’s determination to proceed by way of summary judgment and her findings made on the record before her.

(2) FACTUAL ERRORS

[62] Density alleges that the motion judge made a number of factual errors. In particular, Density takes issue with the following findings:

1. Mr. Majer, Mr. Majerovic and Density did not respond to Mr. Kallan’s March 4th letter, which terminated the relationship between Density and HKH.

2. Density’s bank statements were never voluntarily produced.

3. The audit conducted by Tom Mangan was “routine”.

4. Mr. Kallan was unaware of Density’s inclusion in the Second LOI until his meeting with Ms. Young in February 2009.

5. The payment of project management fees to Density was unauthorized.

6. Density did not plead dishonest conduct by Mr. Kallan.

7. Mr. Kallan acted in the best interests of HKH in terminating its relationship with Density and removing Density’s name from the Second LOI.

[63] The question is whether she did err and, if so, whether any of the errors are material.

[64] In oral argument, counsel for Density submitted that five findings were necessary to support Mr. Kallan’s personal liability. Noticeably, this list of findings and the list of alleged factual errors above do not directly correspond to one another.

[65] According to Density, the first finding necessary to ground its case is a finding that there was a joint venture between Density and HKH. As noted above, the motion judge made this assumption for the purposes of the motion.

[66] The second necessary finding is that the LOU provided for the co-ownership of assets. As previously mentioned, the motion judge assumed for the purposes of the motion that the LOU continued to apply.

[67] The third finding necessary to support its claims against Mr. Kallan is a finding that there was a fiduciary relationship between Density and HKH. Again, the motion judge assumed for the purposes of the motion that there was a fiduciary relationship between the two corporations.

[68] The fourth finding necessary to support its theory of the case, says Density, is a finding that the Second LOI was a trust asset of the joint venture. As mentioned above, the motion judge concluded that was not the case.

[69] The fifth necessary finding, according to Density, is a finding that the removal of Density’s name from the Second LOI was a misappropriation of a trust asset. Given that the motion judge found that the Second LOI was not a trust asset, it followed that removal of Density’s name from the letter of intent did not amount to a misappropriation of a trust asset.

[70] As discussed below, I agree that the motion judge made factual errors but, in my view, none of the errors, either individually or together, are material.

(a) Failure to Respond to the March 4th Letter

[71] The motion judge noted that Mr. Majer, Mr. Majerovic and Density did not respond to the March 4, 2009 letter from HKH terminating its relationship with Density: para. 86.

[72] In fact, the record discloses that Mr. Majerovic did respond to Mr. Kallan’s letter in two emails, one dated March 9, 2009 and the other dated March 13, 2009.

[73] Counsel for Density submits that the motion judge’s error on this point, as well as other factual errors, tainted her view of Mr. Majerovic’s and Mr. Majer’s credibility. Density does not submit that the error undermined any particular legal conclusion.

[74] Counsel for Mr. Kallan conceded in oral argument that the motion judge erred in finding that there was no response to the March 4th letter but contends that the contents of the two emails from Mr. Majerovic do not assist Density’s position.

[75] In his emails, Mr. Majerovic says that Mr. Kallan was “aware of” the fees and that “[n]o attempts were made to conceal fees”. In particular, Mr. Majerovic points to the fact that the fees were documented in the budgets provided to, and approved by, Mr. Kallan. He also says that the LOU “attributed” a project development fee in favour of Density.

[76] The motion judge clearly rejected these explanations:

[62] First, in an email dated March 2, 2009 Sean Majerovic provides the explanation that development/ project management fees were “as per project budgets provided in advance to [HKH]”.

[63] I find based upon the record before me that although clearly projected budgets provided to [HKH] included an entry for project management fees, there was never any indication to whom project management fees were being paid. Kallan confirmed that he understood all expenses, including project management fees, were payable to third parties. No document ever confirms that the project management fees were being paid to Density, until the Expenses as of January 2009 document was produced at the request of [HKH’s] comptroller.

[65] Finally, in Sean Majerovic’s affidavit sworn September 26, 2011 he stated that “he needed the money to live on, and was not going to do this work for free”. Whatever Sean Majerovic’s needs may have been, there is no indication anywhere of any agreement in writing, or any disclosure to [HKH] until February 2009 that Sean was to be paid for alleged services rendered.

[77] In light of these findings, it is difficult to see how the motion judge’s decision would have been different had she considered the emails and their contents. Thus, I find that her error is not material.

(b) Density’s bank statements were never voluntarily produced

[78] The funds for the hotel project flowed through a bank account opened and controlled by Density. At para. 69 of her reasons, the motion judge noted that Density’s bank statements for the account “were never voluntarily produced.”

[79] She also commented on Density’s failure to disclose bank documentation until ordered to do so:

[167] [HKH] had no access to the bank documentation, and in fact was denied access in spite of requests for bank documentation from the comptroller to prepare the year-end financial statements of [HKH]. The bank documentation was only disclosed after this litigation commenced pursuant to an order of this court. As outlined in the facts, [HKH] alleges improprieties by Density with respect to the bank funds both before and after the dispute between the parties. [Emphasis added.]

[80] The motion judge noted that the bank statements revealed regular payments to Density in the amount of $5,000 both before and after the March 4th termination letter: paras. 71 and 74.

[81] Mr. Majerovic provided evidence about the bank statements. In his affidavit, he states that he provided bank statements to Mr. Mangan, HKH’s comptroller, in February 2009. Appended to his affidavit is his March 2, 2009 email to Mr. Mangan. The email simply says “attached” after Mr. Mangan’s statement that “I don’t understand why we never received any copies of bank statements, after so many requests; they are the most important thing I need.”

[82] Mr. Mangan responded to Mr. Majerovic’s assertion that the bank statements were provided by email on March 2, 2009. In his affidavit he states:

I agree that the email dated March 2, 2009 was exchanged with me. Nevertheless, and as I have already explained above, although Density finally did provide some supporting documentation in response to my requests, [HKH] did not receive a complete copy of bank statements from Density.

[83] And, earlier in his affidavit, he states:

It is my recollection that I encountered some difficulty in obtaining the documents that I was looking for from Density. Eventually, I did receive some supporting invoices and bank statements, which I reviewed. I do recall that although I received these materials, [HKH] continued to await full production of bank statements that were never provided.

[84] In his cross-examination on his affidavit, Mr. Mangan was asked “how long it took Mr. Majer to get [him] all the documents, from the time [he] asked for them for the audit until the time [he] got them?” He answered that he “got about half of what [he] needed by March, mid-March, roughly.”

[85] There was also evidence before the motion judge relating to a motion in this litigation heard by Master Sproat on March 26, 2010. The Master ordered Density 1) to produce bank statements for the period July 8, 2009 to the date of motion, and 2) to provide authorization permitting the defendants to request bank documentation and information relating to the account directly from the bank.

[86] In assessing costs, Master Sproat noted that, while the motion was on consent, “the relief was agreed to only over the course of the hearing”. She concluded the defendants were entitled to costs “having been put to the task of obtaining production.”

[87] Density submits that, prior to the termination of its relationship with HKH, it voluntarily produced its bank statements to Mr. Kallan and notes that Master Sproat’s order provides for the production of bank statements post-termination of the joint venture.

[88] Paragraph 12 of Mr. Kallan’s factum states:

12. Density continued to conceal evidence about the full extent of its misappropriation of project monies provided by HKH. The bank statements for the Toronto project account, which was controlled by Density, were never voluntarily produced to HKH. On March 26, 2010, after a motion was brought in this action, Master Sproat made an order requiring Density to produce an authorization to HKH to obtain the Density bank statements for the hotel project.

[89] While on the evidence before her the motion judge may have gone too far in saying that bank statements for the hotel project were never voluntarily produced, there is evidence that:

• Density was slow to produce the bank records when they were requested in January 2009;

• Density did not produce all its bank records prior to the March 4th termination letter;

• Master Sproat ordered that the post-termination bank records be produced;

• Master Sproat ordered Density to provide an authorization to the defendants to permit them to obtain bank statements and information relating to the account; and,

• while the motion before Master Sproat was on consent, the relief was only agreed to over the course of the hearing.

[90] In light of this evidence, I am not persuaded that the motion judge’s comment that the bank statements were never voluntarily produced, is material.

(c) The audit was routine

[91] Density takes issue with the motion judge’s comment that the 2009 audit conducted by Mr. Mangan was “routine”:

[53] The documentary trail could not be clearer. The accountant for [HKH] made routine inquiries concerning the production of back up documentation for the expenses for the Hotel Project. On January 15, 2009, he began making such requests in order to prepare the year end statements for [HKH]. [Emphasis added.]

[92] Evidence was provided about the nature of the audit.

[93] In his affidavit, Mr. Kallan refers to Mr. Mangan’s request for records as “part of his annual reconciliation and auditing process for [HKH’s] 2008 fiscal year.”

[94] Under cross-examination, Mr. Mangan said that the 2009 audit was done at Mr. Kallan’s request. Mr. Mangan was asked whether Mr. Kallan explained why he wanted the bank statements and other documentation. Mr. Mangan replied: “No, I mean, I just assumed it was regular business procedure.”

[95] In his affidavit, Mr. Mangan comments on the fact that no audit was conducted for the year ending 2007:

First, [HKH] had a different comptroller at the beginning of 2008 .… Second, it is my recollection that [HKH] had far fewer expenses incurred to date at the beginning of 2008, as opposed to the beginning of 2009. There was a greater need as of early 2009 to reconcile the expenses on this project.

[96] Mr. Mangan also denies, that he told Mr. Majer that there was no year-end audit being performed and that Mr. Kallan was simply looking for an excuse to end the parties’ business dealings.

[97] Density submits that it is significant that Mr. Kallan ordered the audit on the heels of the dispute between him and Mr. Majer over their New York restaurant venture. Counsel for Density also says the motion judge overlooked evidence that no audit was done in the prior year and evidence about what else was going on at the time of the audit – for instance, Mr. Kallan was failing to attend meetings with, or make payments to, Density.

[98] Underlying these submissions is the suggestion that the audit was motivated by Mr. Kallan’s desire to retaliate against Mr. Majer for his withdrawal from their New York restaurant venture.

[99] The motion judge rejected that suggestion based on the evidence before her:

[47] Majer relies in his affidavit on hearsay evidence from three individuals to confirm this link between the failed restaurant venture in New York and the Hotel Project. Counsel for [HKH] contacted these three individuals, and they conclusively denied under oath the contents and assertions contained in Majer’s affidavit dated September 26, 2011 linking the restaurant failure to any dealings in this matter.

[48] I find as a fact that this assertion by Density of a link between the Hotel Project and a failed restaurant project was clearly disproved in the evidence before me, in affidavits and cross-examinations, when counsel for [HKH] contacted the individuals and obtained sworn evidence from them.

[49] The credibility of Peter Majer was significantly undermined with respect to this issue.

[100] In my view, it was open to the motion judge to make the finding that there was no link between the restaurant project and the hotel project.

[101] In particular, I note the hearsay evidence referred to by the motion judge in para. 47 of her reasons. In Mr. Majer’s affidavit, he swore that three individuals had independently told him that Mr. Kallan was ending Density’s involvement in the hotel project because he was angry about Mr. Majer’s withdrawal from the restaurant venture. However, each of the three individuals provided sworn statements denying they had made such a statement.

[102] In conclusion, I reject Density’s submission that the motion judge erred in characterizing the audit as “routine”. As outlined, there was evidence to support the conclusions that the audit was done in the normal course and that Mr. Kallan did not act out of revenge for Mr. Majer’s withdrawal from the New York restaurant venture.

(d) Mr. Kallan was unaware of Density’s inclusion in the Second LOI

[103] Density takes issue with the motion judge’s comments about Mr. Kallan’s discovery of references to Density in the Second LOI:

[79] At the meeting with the [Board] on February 26, 2009, Kallan became aware that Density was specified in the Second Letter of Intent in paragraphs 4 and 26 as co-owner of the tenant corporation. Kallan’s comptroller had not been provided with a copy of the Second Letter of Intent dated July 9, 2008, although he had asked for a copy from Sean Majerovic.

[81] When Kallan became aware that Density was referred to in the Second Letter of Intent with the [Board], he sought to remove the name of Density from paragraphs 4 and 26 of that document.

[164] It appears that Kallan saw the Second LOI at the meeting with the [Board] on February 26, 2009 for the first time, and that his comptroller did not have a copy of this document. The Second LOI may have been sent to Kallan by email.

[104] Mr. Majer provided evidence that Mr. Kallan had received a draft copy of the Second LOI prior to his meeting with Ms. Young at the end of February 2009. In his affidavit, Mr. Majer swears that Mr. Kallan was provided with a draft of the Second LOI by email dated March 2, 2008, in which Density is referenced. He says Mr. Kallan also received a copy of the signed document.

[105] Mr. Kallan acknowledges in his reply affidavit that he may have received the drafts in question but, if he did, there was nothing to alert him to the fact Density had been inserted into the lengthy agreement.

[106] Mr. Kallan’s evidence on his cross-examination in relation to his knowledge about Density’s specific inclusion in the Second LOI is relatively straightforward. He was asked:

224. Q. Mr. Kallan, could you answer my question? What drafts or copies of the LOI did you receive prior to February 2009?

Mr. Martin: Can you answer that question here today?

The Deponent: Prior to February, I don’t remember specifically what drafts I received.

By Mr. Teplitsky:

225. Q. But did you receive some?

A. I really remember only this letter.

226. Q. So you do not recall ever receiving any letter of intent, any letter of intent agreement?

A. Not specifically.

227. Q. What do you mean “not specifically”? You don’t have a specific memory?

A. I don’t have a specific memory receiving a draft of an LOI.

Mr. Martin: Apart from the one he has made reference to.

By Mr. Teplitsky:

228. Q. So you are not denying that you received them?

Mr. Martin: No.

[107] There follows a discussion between counsel and the witness which is generally unhelpful. The questioning continued:

231. Q. Are you denying that you received --

A. I am not denying anything. I’m saying that it’s possible that the drafts arrived, but I did not pay attention maybe to the fact that I relied completely on Sean to represent me as my agent with the city, and I had complete confidence in him to deliver the LOI, according to this draft signed by Dianne Young and Sean, which was an outline of the relationship for the future.[2]

[108] In its factum, Density describes Mr. Kallan’s position as “evolving”: Mr. Kallan never said he was unaware that Density was included in the Second LOI until discovery in October 2012 and, ultimately, Mr. Kallan abandoned this position as it was “exposed as a contrivance on cross-examination”. Density suggests that Mr. Kallan “obviously felt he had to make the LOI assertion to justify his ex-post facto claim that Density was only [HKH’s] agent”.

[109] Density faults the motion judge for not attempting to reconcile her finding that Mr. Kallan “may” have received a copy of the Second LOI with her finding that he only saw the document for the first time at the February 26, 2009 meeting with Ms. Young.

[110] As to the significance of the error, Density’s factum states:

It is not clear from Justice Wilson’s Reasons, what bearing, if any, her finding that Henry was unaware of the inclusion had on her decision to grant the motion.

[111] In response to these submissions, Mr. Kallan’s factum suggests that he received the draft copies of the Second LOI but did not look at them closely:

While drafts of the second LOI were emailed to Kallan in March of 2008, they were sent as attachments, and nothing in the covering emails alerted Kallan to the change adding the reference to Density as a shareholder in the proposed tenant corporation. [References omitted.] Kallan’s evidence was that he did not deny, but had no recollection of receiving the emails. They contain no indication on their face of the reference to Density as a shareholder.

[112] Counsel for Mr. Kallan submits that the motion judge did not make a definitive finding as to when Mr. Kallan first became aware of the references to Density in the Second LOI. In any event, her finding is not dispositive of any issue affecting the parties’ rights, and, in particular, any cause of action against Mr. Kallan personally.

[113] In my view, the motion judge’s comments about Mr. Kallan’s discovery of the inclusion of Density in the Second LOI ought to be read in light of her comments at paras. 112 and 163 of her reasons:

[112] … Kallan was at all times behind the scenes, and as I read the lengthy file, not paying close attention to matters, relying entirely on Density and Sean Majerovic.

[163] Density was in charge of all negotiations with the City, and the Second LOI was prepared on Density’s instructions.

[114] In other words, the motion judge seemed to accept that Mr. Kallan was not paying close attention to matters as they unfolded. Thus, in para. 164 she said that it “appear[ed]” that he first saw the Second LOI on February 26, 2009, although she acknowledged that the document “may” have been sent to him by email.

[115] I agree that this does not amount to a definitive finding. However, it was unnecessary to make a definitive finding as I fail to see the relevance of when Mr. Kallan first discovered Density’s inclusion in the Second LOI to the question before the motion judge; namely, Mr. Kallan’s personal liability. I note that Density itself questions “what bearing, if any, her finding that Henry was unaware of the inclusion had on her decision to grant the motion.”

(e) No agreement to pay management fees

[116] Whether the payment of project management fees to Density was authorized was a significant issue before the motion judge.

[117] She concluded that the fees were not authorized:

[66] I am satisfied based on the record before me that there was never any discussion or agreement that Density would be paid management fees. The diverse and conflicting explanations given by Sean and Peter are to be given little or no weight as they are clearly contradicted by the documentary trail. There is no genuine issue requiring a trial about these findings.

[118] Both Mr. Majer and Mr. Majerovic provided justifications for the payment of the fees.

[119] In his affidavit sworn September 26, 2011, Mr. Majerovic discusses the management fee issue as follows:

7. Density disclosed in the Project budgets it sent to Henry that a management fee was being charged. It was also discussed with Henry at the outset.

8. Project manager was one of the roles that Density was going to perform which it did. The work done by Density pre and post bid was extensive – it was a full time job. I wasn’t going to do the work for free.

[120] Mr. Majerovic was not cross-examined on these statements.

[121] In Mr. Majer’s examination for discovery, he described the fees paid to Mr. Majerovic as “activated based on advances”.

[122] In contrast, Mr. Kallan denies that Density’s payment of project management fees to itself was authorized. Under cross-examination, he stated that he “probably” read the budgets provided to him but there was “never a reference to … Density collecting management fees.” He did not ask any questions because the budgets could have been referring to all the consultants and because there was no need since he trusted Mr. Majer and Mr. Majerovic.

[123] Density submits that there are a number of problems with the motion judge’s finding that the fees were not authorized. First, the finding was unnecessary and, given that there was conflicting evidence on this point, it was inappropriate to resolve the issue on a motion for summary judgment. Moreover, the motion judge failed to mention Mr. Majerovic’s statement that the fees were discussed and agreed to at the outset, or the fact that he was not cross-examined on his sworn statement.

[124] In oral argument, Density’s counsel also took great issue with the motion judge’s various comments that the “documentary trail” was clear and that Density’s evidence was inconsistent with it. According to counsel, inferences favourable to Mr. Majer and Mr. Majerovic can be drawn from the paper trail but the motion judge ignored those inferences.

[125] In response, counsel for Mr. Kallan submits that while Mr. Majerovic’s evidence is that the fees were disclosed to Mr. Kallan, Mr. Majerovic never says that Mr. Kallan agreed that Density could charge management fees during the pre-construction phase of the project. None of the management fee invoices had Density’s name on them. Even after the March 4th termination letter, Density continued to pay itself fees out of the joint venture’s bank account.

[126] I do not accept that it was unnecessary to decide whether the fees were authorized or that it was inappropriate to decide the issue given the conflicting evidence.

[127] The project management fee issue was of utmost relevance. Two theories were presented to the motion judge: 1) Mr. Kallan acted to achieve personal revenge without regard to the interests of the corporation; or 2) he acted in accordance with his duties as an officer of HKH to protect the corporation’s interest by ending all dealings with Density after the unauthorized fees were discovered.

[128] The question of good faith was clearly in play because the Said v. Butt defence is limited to actions done in good faith within the scope of an individual’s authority.

[129] Rule 20.4 (2.1) permits a motion judge to weigh evidence, evaluate the credibility of a deponent and draw reasonable inferences from the evidence in determining whether there is a genuine issue requiring a trial, unless it is in the interest of justice for such powers to be exercised only at a trial. Courts are reminded that “absent an error of law, the exercise of powers under the new summary judgment rule attracts deference”: Hryniak, at para. 81.

[130] The motion judge considered the explanations provided by Mr. Majer and Mr. Majerovic for the payment of the fees. She also had the budget sheets before her, which described the reported outlay as “management fees” without any reference to Density’s name. Only when Mr. Mangan asked for back-up documentation in early 2009 was it revealed that Density was paying itself these monies.

[131] In my view, this evidence coupled with the LOU between Density and HKH, which provides that the costs and expenses associated with the pre-development and city approval phases of the project were to be shared 50/50, renders the motion judge’s finding a safe one.

(f) Density failed to plead dishonest conduct by Mr. Kallan

[132] In the course of her reasons, the motion judge commented, at para. 107, that “Density does not allege in its pleading any allegation of fraud, deceit or dishonesty in Kallan’s conduct.”

[133] In fact, Density’s Amended Statement of Claim includes a number of allegations of dishonesty on the part of Mr. Kallan. For example:

14.1 At the time [HKH] informed Density that [HKH] was taking the position that it could proceed unilaterally with the development, Density was unaware that Kallan had misrepresented to the Board the nature of Density’s role in the development. Kallan lied to the Board by advising it that Density was merely an agent of HK as opposed to informing the Board as to the truth which was that Density was in fact [HKH’s] joint venture partner in the development. As a consequence of Kallan’s misrepresentation to the Board, the Board agreed to revise the LOI to remove Density’s name from the LOI. Density did not become aware of Kallan’s misrepresentation and its exclusion from the LOI until August of 2009. In making the misrepresentation to the Board, Kallan was not acting in [HKH’s] best interests nor in good faith.

Kallan’s Inducement of [HKH’s] Breach of Trust and

Fiduciary Duty

16.1 Density states [HKH’s] breach of trust and fiduciary duty was inspired, induced and caused by Kallan for his own benefit and not for [HKH’s] benefit. Density further states that Kallan’s inducement of [HKH] to commit these unlawful acts was dishonest and constitutes [tortious] conduct independent of [HKH’s] own [tortious] conduct for which he is personally liable. Density states that in committing this [tortious] conduct, Kallan breached his fiduciary duty of good faith and loyalty to Density and as such, is liable to it for breach of fiduciary duty. [Underlining in original.]

[134] While not a model pleading, there are pleas of lying, dishonesty and misrepresentation in the Amended Statement of Claim, although they appear to have been added as an afterthought just before the motion for summary judgment was heard. Nevertheless, the pleas are there.

[135] Density submits that the motion judge’s error may have contributed to her finding that Mr. Kallan’s conduct was not dishonest.

[136] I note that para. 107 of the motion judge’s reasons is found under the heading “Is there a prima facie fiduciary duty owed by Kallan to Density?” It is in the context of her analysis of that question that she made the puzzling comment that Density had not pleaded fraud, deceit or dishonesty against Mr. Kallan personally.

[137] It is unclear how her comment is relevant to her analysis of the question whether Mr. Kallan owed Density a fiduciary duty. It is also difficult to understand why she made the comment she did, given the express pleading of dishonesty in the Amended Statement of Claim. It may be that the motion judge was only referring to para. 12 of the Amended Statement of Claim, since that is the paragraph that deals with “Kallan’s Personal Fiduciary Obligations” and that is the subject of her para. 107. Paragraph 12 of the Amended Statement of Claim does not specifically allege dishonest conduct but rather makes a general allegation of breach of fiduciary duty.

[138] Notwithstanding the possibly erroneous comment about Density’s pleading, it is clear the motion judge was alive to the allegation that Mr. Kallan had acted dishonestly.

[139] For instance, just two paragraphs after the impugned comment, the motion judge referenced Density’s allegation that Mr. Kallan had breached duties owed to Density by meeting with representatives of the Board to have Density’s name removed from the Second LOI.

[140] She also referred, at para. 83, to the allegation that Mr. Kallan misappropriated a trust asset:

[83] It is the actions resulting in the removal of Density from the Third Letter of Intent, that Density alleges is a misappropriation of a trust asset by Kallan in breach of his fiduciary duties to Density giving rise to potential personal liability. [Emphasis added.]

[141] And, at para. 191, the motion judge commented:

[191] There are no facts before me of fraud or dishonesty by [HKH] in seeking to have Density’s name removed from the Second LOI in the circumstances of this case. Kallan was taking steps on behalf of, and in the interests of, [HKH] in an attempt to salvage a potential opportunity for the company. The actions by the [HKH] cannot be held to be fraudulent or dishonest. There was no independent [tortious] or unlawful conduct by Kallan and he is entitled to rely on the Said v. Butt principle.

[142] Given her awareness of these allegations of dishonesty against Mr. Kallan, I am not convinced her comment at para. 107 contributed to her finding that Mr. Kallan’s conduct was not dishonest.

(g) Kallan acted in HKH’s best interests

[143] In a number of places in her reasons, the motion judge found that Mr. Kallan acted in HKH’s best interests in cutting its ties with Density and in seeking to have the references to Density in the Second LOI removed.

[144] For instance, in answering the question, “is there a prima facie duty of care owed by Kallan to Density?”, the motion judge made the following finding:

[115] I find that when Kallan went to Toronto to meet with the [Board] and sought to delete Density’s name from the Second Letter of Intent, he was acting on behalf of [HKH] in its best interests in accordance with his obligations as a director to that corporation. Clearly, continuing the relationship with Density in the circumstances was not in [HKH’s] interest. [Emphasis added.]

[145] In discussing whether there was “proof that the HKH’s actions were fraudulent or dishonest”, the motion judge stated:

[190] It was clear when Kallan discovered that Sean Majerovic had been paying unauthorized project management fees to Density, that this was the end of any co-venture relationship. In response, Kallan promptly, on behalf of [HKH], attended a meeting with the Board to ascertain whether the Board would continue with the Hotel Project without the involvement of Density. Kallan took these steps to preserve [HKH’s] interests and reputation. In the highly competitive commercial world, Kallan’s conduct was prudent and could not on any view of the facts be characterized as unlawful or wrong. Any understanding or convention which may have existed between the parties was brought to an abrupt end when the financial disclosure was finally made by Density.

[191] There are no facts before me of fraud or dishonesty by [HKH] in seeking to have Density’s name removed from the Second LOI in the circumstances of this case. Kallan was taking steps on behalf of, and in the interests of, [HKH] in an attempt to salvage a potential opportunity for the company. The actions by [HKH] cannot be held to be fraudulent or dishonest. There was no independent [tortious] or unlawful conduct by Kallan and he is entitled to rely upon the Said v. Butt principle.

[146] Density submits that the motion judge erred in concluding that Mr. Kallan was acting in HKH’s best interests in excluding Density from the Second LOI. She ought, instead, to have found that his conduct in lying to the Board so as to misappropriate the Second LOI, was dishonest. As a matter of law, an officer who acts dishonestly cannot be said to be acting in good faith or in the best interests of the officer’s company.

[147] Counsel for Mr. Kallan characterizes the situation differently. He says that HKH acted through Mr. Kallan to terminate any and all contractual relationships between it and Density once the company confirmed that Density had taken improper fees. That included terminating the Agency Agreement and any joint venture, whether lapsed or still existing. Whether termination of the agreements results in any liability being imposed on HKH is a matter that will be dealt with at trial.

[148] Among other evidence that supports this view of things is Mr. Kallan’s March 4th termination letter. In it, he explains his reasons for cutting ties between the two companies:

... [I]t is clear that you have been paying Density “project management” fees of at least $154,000.00 (and possibly as much as $199,000) despite having no authority or approval to do so. Considering that the other invoiced amounts on your list total approximately $234,000, the outrageousness of your charging such project management fees while not fully paying third party vendors should be readily apparent. Aside from those improper project management fees, Density’s financial contribution to the potential project is minimal. In short, it is clear that I have contributed almost all of the requested funds for this potential project (aside from the project management fees improperly paid to Density) and that you have not properly accounted for the expenditure of my contributions. In light of the foregoing and your general failure to act in good faith and in a forthright and trustworthy manner, I have no further interest in having you as a partner of HK Hotels, LLC (“HK”) or participant in any manner whatsoever in this potential project.

[149] Mr. Kallan also points out in his letter that the LOU had expired, and he rescinds and terminates the Agency Agreement.

[150] Density offers a different explanation for Mr. Kallan’s actions. However, the difficulty for Density is that the motion judge rejected its theory of the case against Mr. Kallan.

[151] She found that the fees Density paid to itself were not authorized and that the reason for the rupture between HKH and Density was the discovery that Density paid itself the unauthorized fees. She also explicitly rejected the notion that Mr. Kallan had excluded Density from the hotel project, out of spite. As previously discussed, it was open to the motion judge to make these findings

[152] Another significant finding supporting her conclusion that Mr. Kallan acted in good faith, is the motion judge’s finding that there was no misappropriation of a trust asset since there was no trust asset to misappropriate. In my view, that finding was also available to her.

[153] There is no reason to interfere with the motion judge’s finding that there was no evidence to support Density’s submission that the Second LOI is impressed with a trust. Without evidence of intention to create a trust, either express or implied, there is no trust. As explained in Maralta Oil Co. Ltd. v. Industrial Incomes Ltd., (1964) 1964 CanLII 463 (AB SCAD), 46 D.L.R. (2d) 511, at p. 514 (Alta. Supreme Court - Appellate Division), aff’d 1968 CanLII 61 (SCC), [1968] S.C.R. 822, “it is necessary that the intention to create a trust can be clearly inferred from the language used or the surrounding circumstances.”

[154] There is nothing in the language of the LOU or the Agency Agreement that would suggest any intention to create a trust. Similarly, none of the versions of the LOI suggest in their language that they are “trust assets” belonging to the joint venture. Nor do the surrounding circumstances suggest an intention to create a trust.

[155] In conclusion, there is no reason to interfere with the motion judge’s findings that 1) Mr. Kallan did not act out of revenge, 2) the fees Density paid to itself were unauthorized, 3) Mr. Kallan’s reason for terminating the relationship between HKH and Density was to protect HKH’s interests after the unauthorized fees were discovered, 4) the Second LOI was not a trust asset, and 5) in going to the Board and seeking to have the references to Density removed from the agreement between the Board and HKH, there was no dishonesty or misappropriation of a trust asset. These findings all support the motion judge’s more general conclusion that Mr. Kallan acted in good faith and in HKH’s best interests in ending the arrangement with Density.

(h) Failure to make finding re: Density’s interest in the Second LOI

[156] Finally, I turn to a different type of error. Density submits that the motion judge erred in failing to make an important finding - whether Density had an “interest in the Second LOI” as a co-owner.

[157] Mr. Kallan rejects Density’s submission, saying the motion judge properly dealt with the issues as presented to her.

[158] I am not convinced that the motion judge misunderstood Density’s position. Having reviewed Density’s factum on the summary judgment motion, it is clear that Density characterized its interest in the Second LOI as a trust asset. For instance, in its factum Density states:

32. As referenced above, Density submits that it had an interest in the LOI and that [HKH] was holding that interest in trust given its control over the LOI. As for when an express trust may arise, the Courts have held that:

• In the absence of a formal trust documentation, the Court must consider the circumstances and evidence as to what the parties intended, what was actually agreed to and how the parties conducted themselves to determine if the requisite clear intention to create a trust is present;

• It is clear that no technical language is required to create a trust....;

• A trust can be construed from conduct alone. The intention to create a trust can be inferred from the language used, along with the surrounding circumstances;

• An implied trust “can refer to an express trust where the language creating the trust was not clear... but in the end the court interpreted it as imposing a trust obligation;

• An implied trust is merely a species of express trust … Since Equity looks at the intent rather than at the form, no special form of words is necessary for the creation of a valid trust; and,

• The exceptions to privity of contract, being agency, trust, assignment or statute, may be explicitly embodied in the contract, or simply implied in it. [Citations omitted.]

[159] I reference this paragraph at length, as it illustrates that the motion judge understood and responded to the arguments put to her. It was argued that Density had an interest in the Second LOI and the nature of that interest was a trust asset. As discussed above, the motion judge addressed the question whether the Second LOI was a trust asset at length, and concluded it was not.

[160] Thus, in my view, there is no merit to this ground of appeal.

(i) Conclusion re: factual errors

[161] In my view, none of the factual errors made by the motion judge are material. It cannot be said that, either individually or collectively, they might reasonably have affected the result. I would not give effect to this ground of appeal.

(3) OTHER ERRORS

[162] I now turn to the other issues raised by Density on this appeal, beginning with a brief review of three important cases.

[163] In this court’s decision in ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995), 1995 CanLII 1301 (ON CA), 26 O.R. (3d) 481, leave to appeal refused, [1996] S.C.C.A. No. 40, Finlayson J.A. discussed situations in which directors may be held personally liable for actions ostensibly carried out in the corporate name. I think it is helpful to review the principles set out at pp. 490-91:

The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact- specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal which had gone sour. There is also a considerable body of case-law wherein injured parties to actions for breach of contract have attempted to extend liability to the principals of the company by pleading that the that the principals were privy to the tort of inducing breach of contract between the company and the plaintiff: see Ontario Store Fixtures Inc. v. Mmmuffins Inc. (1989), 1989 CanLII 4229 (ON SC), 70 O.R. (2d) 42 (H.C.J.), and the cases referred to therein. Additionally there have been attempts by injured parties to attach liability to the principals of failed businesses through insolvency litigation. In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.

[164] In ADGA Systems International Ltd v. Valcom Ltd. (1999), 1999 CanLII 1527 (ON CA), 43 O.R. (3d) 101, leave to appeal refused, [1999] S.C.C.A. 124, Carthy J.A. had occasion to review the law in relation to when an officer or director may be held personally liable even though purportedly acting bona fide in the best interests of the corporation. At p. 107 he stated:

The consistent line of authority in Canada holds simply that, in all events, officers, directors and employees of corporations are responsible for their tortious conduct even though that conduct was directed in a bona fide manner to the best interests of the company, always subject to the Said v. Butt exception.

[165] The so-called “Said v. Butt exception” is a longstanding rule dating back to a 1920 decision by the Court of King’s Bench. As that decision comes into play into this case, it is worth briefly reviewing it.

[166] The facts of the case are as follows. Mr. Said wanted to be present at the opening night of a play but knew that if he ordered a ticket in his own name his request would be refused because had made certain serious and unfounded charges against some members of the theatre’s staff. He therefore obtained a ticket through a friend but when he showed up at the theatre with the ticket, he was spotted by the theatre’s managing director, Sir Alfred Butt, and was denied admission. Mr. Said sued Sir Butt on the basis that he wrongfully and maliciously procured the company to break a contract made by the company in selling him a ticket to the performance.

[167] McCardie J. concluded that there was no contract upon which Mr. Said could have sued the theatre. Nonetheless, the trial judge went on to consider whether if the plaintiff had established that there was a valid contract between the theatre and himself, the claim against Mr. Butt personally could have succeeded.

[168] The trial judge concluded, at p. 506, that:

…if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken.

[169] He also clarified that nothing in his decision should be taken as being “inconsistent with the rule that a director or a servant who actually takes part in or actually authorizes such torts as assault, trespass to property, nuisance, or the like may be liable in damages as a joint participant” in such a tortious wrong: p. 506.

[170] I will now consider whether the motion judge erred in dismissing the four claims against Mr. Kallan.

(a) Breach of Fiduciary Duty

[171] In her analysis of the fiduciary duty claim against Mr. Kallan, the motion judge referred to a number of leading Supreme Court of Canada decisions on fiduciary duties: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, which cites the Court’s earlier decision in Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99, and Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, 2 S.C.R. 261.

[172] In particular, she highlighted the principle from Hodgkinson v. Simms that to establish a fiduciary duty outside the established fiduciary categories “what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party”: pp. 409-10.

[173] She also referred to the requirements set out in Elder Advocates for establishing a fiduciary relationship outside a recognized category. First, there must be evidence that the alleged fiduciary undertook to act in the best interests of the beneficiary. Second, it must be shown that the alleged fiduciary has a discretionary power over a defined person or class of persons. Third, there must be evidence that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary: Elder Advocates, paras. 30 to 34.

[174] The motion judge concluded that there was no evidence of a mutual understanding that Mr. Kallan had relinquished his own self-interest and agreed to act in Density’s best interests:

[114] As the allegation of fiduciary duty by Density is outside the recognized categories where such a duty exists, what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party. There is no evidence presented by Density that could possibly support such a finding in this case. [Emphasis added.]

[175] Before reviewing the evidence before the motion judge, it is important to examine the claims as pleaded by Density.

[176] Density’s Amended Statement of Claim articulates the fiduciary duty claim against Mr. Kallan as follows:

Kallan’s Personal Fiduciary Obligations

12. Density states that it also reposed its complete trust and confidence in Kallan and was vulnerable to the exercise of his discretion and power. Density’s trust and confidence in Kallan was a result of the Majerovic family’s long standing friendship dating back to at least the 1908’s [sic] and business relationship with Kallan, which began in or around 2007 with a restaurant business venture in New York City, but for which, and to Kallan’s knowledge, Density would not have entered into the joint venture. Kallan was a trusted adviser to Density. It was also Kallan’s reputation (in addition to the [“HKH”] name), and personal assets that Density and the Board were relying on in order for the development to be feasible. Density was vulnerable to the exercise of his discretion and power which Kallan, in breach of his fiduciary duty, ultimately used against Density as set out herein. Density therefore states that, at all material times, Kallan owed it a fiduciary duty. [Emphasis in original.]

[177] I note that Density does not specifically plead that there was a mutual understanding that Mr. Kallan had relinquished his self-interest and agreed to act in the best interests of Density. Instead, the pleading focuses on reasons Density allegedly placed its trust and confidence in Mr. Kallan.

[178] In assessing whether there was a mutual understanding that Mr. Kallan had relinquished his self-interest and agreed to act in the best interests of Density, the motion judge took into account that, as a director of HKH, Mr. Kallan owed a fiduciary duty to that corporation.

[179] Another important factor the motion judge noted was Density’s role in the hotel project. She found that it was clear that Density acted as HKH’s agent in the discussions and negotiations with the Board.

[180] The motion judge also referenced para. 4 of the Agency Agreement:

[26] Of particular note, and very relevant to the question of whether Kallan owes fiduciary duties to Density is paragraph 4 of the Agency Agreement which confirms that “[HKH] acknowledges that this agreement does not create the relationship of partner or fiduciary between the Agent [Density] and [HKH].” [Underlining in original.]

[181] Other factors she considered on the question of vulnerability were HKH’s reputation and the prior business dealings between the parties:

[116] … The stellar reputation of [HKH] for the management of quality hotels in New York City was the reason that [HKH] was chosen for the Hotel Project. Reliance by the City and the Board upon [HKH’s] established reputation in granting the LOI does not create a peculiar vulnerability on the part of Density or a fiduciary duty owed by Kallan personally. As well, any prior business dealings between the parties do not create vulnerability or a fiduciary obligation.

[182] I note that the reference to “prior business dealings” is a reference to the New York City restaurant venture that Mr. Majer says lead to acrimonious dealings between the parties. On the one hand, the venture is said to be the reason for the dispute between Density and HKH and, on the other, it is said to be one of the reasons Density reposed its trust in Mr. Kallan.

[183] The motion judge concluded that the “allegations in the pleading, of vulnerability and reliance by Density, are not born out in the primary role that Density played with the City and Board in all negotiations”: para. 117. In other words, HKH relied on Density as its agent, rather than the other way around.

[184] Ultimately, the motion judge found that there “is no genuine issue for trial regarding whether Kallan individually prima facie owed a fiduciary duty to Density based upon the various arguments raised by Density”: para. 119.

[185] On this record, I see no reason to interfere with that conclusion. I agree with the motion judge that the evidence does not point to the existence of a mutual understanding that Mr. Kallan undertook to act in the best interests of Density.

(b) Inducing Breach of Contract

[186] The first of the three tort claims against Mr. Kallan is the claim for inducing breach of contract. This claim is set out at para. 15 of Density’s Amended Statement of Claim. It states that Mr. Kallan did not act in good faith in causing the alleged breach:

Kallan’s Inducement of [HKH’s] Breach of Contract

15. Shortly thereafter, [HKH] notified Density that it was going to continue with development without its involvement. [HKH’s] purported reason for excluding Density was that Density had allegedly breached its obligations under the Joint Venture Agreement. Density in fact did not breach any of its obligations under the Joint Venture Agreement. [HKH’s] true reason for excluding Density was that it believed that it could manage the development without Density and did not want to continue to pay Density’s agreed upon management fees and share the future profits generated from the development. As well, Kallan was angry at the Majerovic family because of an unrelated business dispute. He decided to exclude Density from the joint venture to obtain revenge. Kallan intended to cause [HKH] to breach the Joint Venture Agreement and did cause the breach which breach damaged Density. There was no justification for his conduct. He was not acting in the best interests of [HKH] despite the fact that Mr. Kallan did not want [HKH] to continue to pay Density’s fees and have Density to share in the profits, within the scope of his authority as an officer and Director of [HKH], nor in good faith. [Underlining in original.]

[187] Thus, it is claimed that the reason Mr. Kallan caused the alleged breach of contract was so HKH would no longer have to pay fees to, or share profits with, Density. It is also alleged he was seeking personal revenge.

[188] In assessing the inducing breach of contract claim, the key question is whether the Said v. Butt defence is available to Mr. Kallan on the facts of this case. As outlined above, the Said v. Butt principle affords a defence to an officer, director or employee who causes his or her company to breach an agreement, provided the individual acts bona fide within his or her authority. It is not available as a defence to an individual who engages in dishonest conduct in inducing breach of contact.

[189] The motion judge concluded the defence was available to Mr. Kallan: “[t]here was no independent [tortious] or unlawful conduct by Kallan and he [was] entitled to rely upon the Said v. Butt principle”: para. 191.

[190] Density disagrees. In its submission, the principle in Said v. Butt is not available to Mr. Kallan as a defence to the claim of inducing breach of contract because he acted dishonestly and not in the best interests of HKH. It is alleged that Mr. Kallan misappropriated the Second LOI, which the Amended Statement of Claim describes as a “trust asset” owned by Density and HKH. In particular, Density points to the fact Mr. Kallan met with Board CEO Dianne Young without advising Density, allegedly made misrepresentations to her about Density’s role in the hotel project and asked that Density’s name be removed from the Second LOI.

[191] As discussed above, the motion judge made the necessary finding that Mr. Kallan acted honestly and in good faith in taking steps to protect HKH’s interests after discovering that Density had paid itself unauthorized fees. I would not interfere with this finding.

[192] That finding disposes of Density’s submission that Mr. Kallan was not entitled to rely on Said v. Butt as a defence to the inducing breach of contract claim because he acted dishonestly and not in HKH’s best interests.

(c) Inducing Breach of Trust and Breach of Fiduciary Duty

[193] Density takes issue with the motion judge’s analysis of the inducing breach of trust and breach of fiduciary duty claims.

[194] Density suggests that the motion judge erred in not squarely dealing with the inducing breach of fiduciary duty claim by conflating that claim with the inducing breach of trust claim as a result of “her incorrect understanding that Density’s claim for breach of fiduciary duty depended on a finding of a breach of trust”.

[195] Density submits that had the motion judge turned her mind to the fiduciary duty issue, she would have found that HKH’s actions were inconsistent with its fiduciary obligations. In particular, it points to Mr. Kallan’s meeting with Ms. Young and his request to the Board that Density’s name be deleted from the Second LOI.

[196] In my view, the motion judge understood the nature of the claims before her. Given Density’s pleadings and submissions, it is understandable why she dealt with the two tort claims together.

[197] The Amended Statement of Claim sets out the inducing breach of trust and inducing fiduciary duty claims together. These claims must be read in light of another part of the claim that sets out the breach of trust and fiduciary duty claims against HKH:

[HKH’s] Breach of Trust and Fiduciary Duty

16. Density states that at all material times, [HKH] held the LOI and the “HK Hotel” name in trust for the joint venture (the “Trust Assets”). Density further states that in breach of its duties as trustee and in breach of its contractual obligations (the Joint Venture Agreement), [HKH] has misappropriated the Trust Assets for its own use. Density also states that the misappropriation was a breach of the fiduciary duty that it and Kallan owed to Density.

Kallan’s Inducement of [HKH’s] Breach of Trust and

Fiduciary Duty and His Own Breach of Fiduciary Duty

16.1 Density states [HKH’s] breach of trust and fiduciary duty was inspired, induced and caused by Kallan for his own benefit and not [HKH’s] benefit. Density further states that Kallan’s inducement of [HKH] to commit these unlawful acts was dishonest and constitutes [tortious] conduct independent of [HKH’s] own [tortious] conduct for which he is personally liable. Density states that in committing this [tortious] conduct, Kallan breached his fiduciary duty of good faith and loyalty to Density and as such, is liable to it for breach of fiduciary duty.

[198] After setting out its claims against Mr. Kallan, Density pleads its claims for relief as follows:

Relief Sought

17. In furtherance of its claim for breach of trust and breach of fiduciary duty, Density seeks a declaration confirming that [HKH] holds the Trust Assets in trust for the joint venture members under an express, implied or constructive trust.

18. In the alternative to Density’s claim for a declaration that the Trust Assets are held in trust by [HKH] (and its claim for an equitable accounting), Density claims damages from [HKH] for breach of trust and breach of contract, damages from Kallan personally for inducing [HKH’s] breach of contract, breach of trust and breach of fiduciary duty, and from both Defendants for breach of fiduciary duty. [Underlining in original.]

[199] Thus, as pleaded by Density, the breach of trust and breach of fiduciary duty claims are closely intertwined. In particular, misappropriation of “Trust Assets” underpins both claims.

[200] In her reasons, the motion judge summarized Density’s submissions:

[138] The argument is as follows: as Density and [HKH] were arguably in a fiduciary relationship in a co-venture relationship, any agreement entered into on behalf of the parties including the Second LOI, becomes a trust asset. This trust in turn imposes fiduciary duties upon directors of the co-venturer corporations and personal liability upon directors if an agreement is dealt with contrary to the interests of one of the co-venturer corporations.

[139] Density argues that Kallan induced a breach of contract, or a breach of fiduciary duty owed by [HKH] to Density, when he negotiated with the [Board] to remove Density from the Letter of Intent, and therefore is personally liable for these actions.

[201] Her summary reflects the submissions made to her. For instance, Density’s factum on the summary judgment motion states that “[t]he premise of Density’s claim against Mr. Kallan is that [HKH] was holding Density’s interest in the [Second] LOI (the “Joint Venture” asset) in trust for Density”. This position is elaborated on throughout Density’s factum. Later in the factum, Density states that “[i]f there was a fiduciary duty and/or express trust, the exclusion of Density from the [Second] LOI (the trust asset) constitutes a breach.”

[202] Density’s factum before this court also groups the claims for inducing breach of trust and breach of fiduciary duty together. For example:

49. As a trustee, [HKH] owed a duty of good faith to Density. Density submits that [HKH] breached that duty and the trust when it excluded Density from the LOI. Henry is personally liable for assisting in [HKH’s] breach of fiduciary and trust duties if the following elements exist: (a) a fiduciary or trust duty owed by [HKH] (b) [HKH’s] dishonest breach of that duty (c) Henry must have had actual knowledge of both [HKH’s] fiduciary relationship or trust and its dishonest conduct, and (d) Henry must have assisted in [HKH’s] dishonest conduct. [References omitted.]

[203] Given the manner in which the case was pleaded and argued, the motion judge approached the inducing breach of trust and breach of fiduciary duty claims by considering whether there was a genuine issue for trial that the Second LOI could be characterized as a trust asset owned by Density and HKH.

[204] The motion judge concluded that the Second LOI was not a trust asset. As discussed, there is no reason to interfere with that conclusion. And, I agree with the motion judge that if the Second LOI is not a trust asset, the claim for inducing breach of trust must necessarily fail.

[205] The motion judge’s finding that the Second LOI is not a trust asset also disposes of the inducing breach of fiduciary duty claim as it was articulated by Density. To quote Density’s Amended Statement of Claim, HKH is alleged to have “misappropriated Trust Assets for its own use”, which “misappropriation was a breach of the fiduciary duty it owed to Density.” HKH’s breach of trust and fiduciary duty was said to be “inspired, induced and caused” by Mr. Kallan.

[206] While that disposes of the three tort claims against Mr. Kallan, for the sake of completeness I will address Density’s submission that the motion judge misunderstood the application of the principle in Said v. Butt.

[207] In the event she was wrong in concluding that there was no triable issue as to whether the Second LOI was a trust asset, the motion judge went on to consider “whether there is a triable issue that Kallan may be found personally liable for inducing [HKH] to breach its fiduciary duty or its contract based upon his conduct”: para. 172. She concluded that there “was no independent [tortious] or unlawful conduct by Kallan and he is entitled to rely upon the Said v. Butt principle”: para. 191.

[208] On my reading of the motion judge’s reasons, she appears to have understood that the Said v. Butt defence applied to both the inducing breach of contract and the inducing breach of fiduciary duty claims.

[209] As I read the case law provided by counsel, Said v. Butt is not available as a defence to an inducing breach of fiduciary duty claim. However, given the motion judge’s findings, any error in her interpretation of the case law is immaterial.

(d) Conclusion

[210] I conclude that Density has not pointed to any error in the motion judge’s reasons that provides a basis for overturning her decision.

E. MOTION TO INTRODUCE FRESH EVIDENCE

[211] Density seeks to introduce fresh evidence on this appeal. The evidence consists of statements by Ms. Young from a related proceeding.

[212] Density submits that certain evidence given by Ms. Young when cross-examined on an affidavit she filed in a related proceeding contradicts evidence given by her when she was cross-examined on her affidavit filed in this proceeding. In particular, Density says that when cross-examined in this proceeding, Ms. Young stated that she did not discuss the Second LOI with Mr. Kallan. However, Density says that when she was cross-examined in the related proceeding, she stated that Mr. Kallan knew about Density’s inclusion in the Second LOI and that she had discussed it with him prior to the inclusion.

[213] Density submits that Ms. Young’s evidence bears directly on an important issue in that Mr. Kallan asserts that Density was not a co-owner of the LOI and that assertion rests in part on his allegation that he was unaware of Density’s inclusion in the Second LOI. Density also reiterates its submission, dealt with above, that the motion judge erred in finding that Mr. Kallan only became aware of Density’s inclusion in the Second LOI after the March 4th termination letter.

[214] In response, counsel for Mr. Kallan submits that the fresh evidence is not admissible on the basis that it does not bear upon a potentially decisive issue, it does not bear the meaning ascribed to it by Density, it cannot reasonably be expected to have affected the result and it will not likely be conclusive of an issue in the appeal.

[215] In my view, Density has not satisfied the test to admit fresh evidence. While the evidence in question was not available at the time the summary judgment motion was argued, the interpretation Density puts on Ms. Young’s evidence is misplaced and would, in no event, effect the result.

[216] Density has filed a five-page excerpt from an examination of Ms. Young in an application by the City of Toronto and Princes Gates Hotel Limited Partnership against Density related to the validity of a notice Density registered on title of the Exhibition Place property.

[217] Looking at the evidence in its proper context, there is, in my view, no contradiction between Ms. Young’s 2012 examination and her 2013 examination on the related proceeding.

[218] Density relies on Ms. Young’s answers to two questions in the 2013 examination in which she refers to what Mr. Kallan “wanted” or “asked for”:

80 Q. So are you saying that when you wrote the LOI… when it was created, you didn’t write it, that Density was going to be an owner of the lease, you are saying that wasn’t your understanding that they were going to be an owner, even though it says it there? That is what I am just trying to get my head around.

A. All I’m saying is that at that point of writing the lease, it could be Density. It could have been somebody else. I mean, right now what Henry was saying is he wanted to have Density stated in here but, you know, we all thought that at some point in the future when we were looking at the lease, when we were down to the lease and detailed terms on assignments and partners, or joint venturers, or anything, we would certainly be getting from HKH some further details of what that meant.

83 Q. You mean Density was kind of pre-approved?

A. In that sense, yes. Henry was asking for it and we decided to agree with him, although the language was put in, as you know, with respect to … we wanted to add some terms with respect to Henry’s [continued operation of it…] [Emphasis added.]

[219] In making these statements, Ms. Young was not speaking of Mr. Kallan’s actual knowledge or of any specific conversation she had with him. Instead she was speaking of her own belief about what Mr. Kallan must have desired because she believed that Density, as his agent, was doing what Mr. Kallan must have wanted done when Density amended the Second LOI.

[220] That Ms. Young only dealt with Sean Majerovic throughout the period when the Second LOI was being negotiated is clear. In her affidavit sworn June 5, 2013 in the related proceeding she states:

19. Throughout this process of reviewing various drafts to the LOI, I am not aware of the Board having any communications directly with Kallan as to his thoughts about the wording of the LOI. All negotiations were conducted through Majerovic as the local agent of [HKH].

[221] In my view, the evidence simply does not support the assertion that there is a contradiction in Ms. Young’s evidence as to her discussions about the Second LOI with Mr. Kallan.

[222] Even if there were a contradiction, it would be nothing more than a prior inconsistent statement for the motion judge to make of it what she would. Ms. Young’s evidence on the point is, in any event, quite irrelevant to the issue of Mr. Kallan’s personal liability.

[223] As I have already discussed, the motion judge did not make a definitive finding as to when Mr. Kallan first discovered Density’s inclusion in the Second LOI. She did not need to do so. The issue before the motion judge was Mr. Kallan’s personal liability and when he might have seen the Second LOI for the first time is not definitive of that issue.

[224] For these reasons I would dismiss the motion to admit the fresh evidence.

F. ORDER

[225] The appeal is dismissed. Costs payable to the respondent are fixed in the amount of $25,000 (including HST and disbursements) – the figure to which counsel agreed.

Released: August 22, 2014 (J.M.)

“Jean MacFarland J.A.”

“I agree K. Feldman J.A.”

“I agree Gloria Epstein J.A.”

[1] The term “First Letter of Intent” is a misnomer, since the letter merely provides for the negotiation of a letter of intent. However, nothing, in my view, turns on the misnomer.

[2] Mr. Kallan was referring to the First LOI, which contained no references to Density.