COURT OF APPEAL FOR ONTARIO

CITATION: Mirkais Investments Inc. v. Klotz, 2015 ONCA 632

DATE: 2015-09-18

DOCKET: C59832

Cronk, Lauwers and van Rensburg JJ.A.

BETWEEN

Mirkais Investments Inc.

Appellant/ plaintiff

and

Robert A. Klotz

Respondent/defendant

Counsel:

Melvyn Solmon and Jeffrey Radnoff, for the Appellant

Michael R. Kestenberg, for the Respondent

Heard: September 2, 2015

On appeal from the judgment of Justice F.L. Myers of the Superior Court of Justice, dated November 28, 2014, with reasons reported at 2014 ONSC 6907.

ENDORSEMENT

[1] The trustee in bankruptcy of the bankrupt, Morris Kaiser, obtained access to certain funds totalling almost $1 million.

[2] The appellant, Mirkais Investments Inc., is owned by Mr. Kaiser’s spouse, Miriam. Mirkais is the assignee of a 1992 General Security Agreement (the “GSA”) signed by Mr. Kaiser in favour of Standard Chartered Bank covering his assets. Mirkais claimed to be a secured creditor in Mr. Kaiser’s bankruptcy and sought to recover the entire amount of the funds. It instructed the respondent, its counsel, to file a notice of claim with the trustee in bankruptcy, which was disallowed. The respondent was instructed to appeal the trustee’s disallowance, but he failed to do so. Mirkais sued him for negligence.

[3] The motion judge granted the respondent’s motion for summary judgment and dismissed the action on the basis that there was no genuine issue requiring a trial and, hence, the action must fail because the appellant could not prove that it was a secured creditor and that it had suffered damages as a result of the respondent’s negligence. The appellant appeals that ruling, and seeks leave to appeal the costs award made against it by the motion judge.

The Applicable Law

[4] The motion judge found that in order for the appellant to have a security interest in the funds at issue, the funds must form part of the collateral described in and secured under the appellant’s GSA. He noted, at para. 6: “If the property is part of the collateral secured by the agreement, then, under clause 20(1)(b) of the Personal Property Security Act, R.S.O. 1990, c.P.10 (the “PPSA”), the security interest over the collateral must be perfected under the statute in order for it to take priority over the interest of the trustee.” The motion judge added, at para. 8:

Section 19 of the PPSA requires that in order for a security interest to be perfected (and hence trump the priority of a trustee in bankruptcy) it must have first "attached". Subsection 11(2) of the PPSA provides that, among the requirements for a security interest to attach the debtor must have rights in the collateral.

The appellant accepts the correctness of these statements. The contested issues are whether the collateral in question is covered by the GSA and whether the appellant’s security interest was perfected as required under the PPSA.

The Funds

[5] The funds came to the trustee in three tranches. The first tranche was the proceeds of a settlement of litigation commenced by the trustee. The second tranche was $100,000 paid to the trustee as consideration for the trustee’s agreement not to intervene in in an unidentified piece of litigation. The third tranche was $50,000 paid to the trustee to facilitate the discharge of the bankrupt. The appellant pursues the first and second tranches, and abandoned any claim for relief in respect of the third on appeal.

[6] The first tranche was described by the motion judge, at para. 12, as the proceeds of a settlement of litigation commenced by the trustee, supported by two funding creditors, against Cecil Bergman, on the basis that Mr. Bergman was allegedly a “front” for Mr. Kaiser who was the real owner of a 76-unit townhouse project in Brampton, Ontario. The yield was about $835,000 and was paid to the creditors (and their lawyers in trust) pursuant to the order of C. Campbell J. of the Superior Court of Justice, dated November 23, 2012.

[7] The appellant argues that the first tranche properly falls under the heading “Proceeds” in clause (xii) of the GSA’s description of the secured collateral, as the proceeds of the sale of “Real Property” described in clause (viii). It argues that the second tranche is a chose-in-action that comes under “Intangibles” described in clause (vii) of the GSA.

[8] The motion judge’s factual findings belie these arguments. In particular, the motion judge made the following key factual finding, amply explained, at para. 11:

Mr. and Mrs. Kaiser were present in court for this motion. Neither gave any evidence to establish that the funds in the three tranches set out above belonged to Morris Kaiser or were money due to him or over which he had any rights or causes of action. In fact, throughout the bankruptcy and its various proceedings, Mr. Kaiser and his friends and colleagues through whom money flowed to Mr. Kaiser denied that any money or assets belonged to Mr. Kaiser.

[9] The motion judge added, at para. 17:

The only evidence at all concerning whether Morris Kaiser owned or had rights in the funds are his own denials commencing in his sworn Statement of Affairs and continuing throughout the bankruptcy proceeding and the related litigation proceedings and Mrs. Kaiser's evidence that he had and has no assets. The plaintiff [Mirkais] simply failed to put forward any evidence contradicting the evidence of the Kaisers to raise a triable issue on whether Morris Kaiser had rights in or over the three tranches of funds. There is no basis for it [Mirkais] to say that even if it had a security interest, its interest would have entitled it to receive the funds to which it refers.

[10] Indeed, the obdurate position of Mr. and Mrs. Kaiser in the Brampton townhouse litigation that underpinned the first tranche was that Mr. Kaiser did not have an interest in the property. Mr. Kaiser made no admission or assertion in the settlement agreement, which he signed, that he had any interest in the property. Nor was there such a finding in the consent court order approving the settlement and the payout of the funds.

[11] The motion judge concluded that the appellant’s security interest did not attach as a matter of law because the appellant had not established that Mr. Kaiser had any interest in or right to the collateral. Accordingly, the appellant did not have a prior perfected security interest in the funds. Without an enforceable security interest, the appellant was unable to prove damages, which is a constituent element of the cause of action of negligence.

[12] The same logic applies to the second tranche of funds, consisting of monies paid to the trustee for not intervening in active litigation. The trustee, who was investigating sources of assets of the bankrupt, brought a motion in an appeal of a judgment against Mr. Kaiser. As the motion judge noted, there was no evidence that the money paid to the trustee was money in which Mr. Kaiser had any rights. The appellant led no evidence that Mr. Kaiser owned the money. Doing so would have been inconsistent with the position taken by both Mr. Kaiser and his wife in the bankruptcy. Accordingly, Mr. Kaiser had no conceivable interest in these funds to which the GSA could apply. Nor did he assert such an interest in the bankruptcy. To the contrary, he denied having any assets of any kind.

[13] The appellant has not demonstrated that the motion judge made a legal error in his reasoning, or a palpable and overriding error of fact. Nor is there any fresh evidence before this court indicating that Mr. Kaiser had any interest in any of the funds at issue or any viable claim to any right in respect of those funds.

The Lost Chance Submission

[14] The appellant argues before this court, for the first time, that, but for the respondent’s negligence, the appellant would not have “lost the chance to prove the Secured Claim and to be in a position to participate to claim, negotiate for and share in proceeds” recovered by the trustee in bankruptcy.” The appellant argues that the value of this lost chance can underpin the negligence claim.

[15] A “loss of chance” as the basis for proving damages in support of a negligence claim has support in the caselaw. See, in this court, for example, Folland v. Reardon, 2005 CanLII 1403 (ON CA), [2005] O.J. No. 216.

[16] In our view, there is no genuine issue requiring a trial in respect of the appellant’s lost chance claim. The appellant did not clearly invoke the lost chance principle in its statement of claim, nor did it plead material facts sufficient to support this claim. Further, as we have said, this argument was not advanced before the motion judge. Instead, the appellant seeks on appeal to reposition his case to ground the relief sought on this new basis. As the respondent’s counsel points out, if this argument had been properly advanced at an earlier stage, the evidence before the motion judge might have been different and the bankruptcy itself might have unfolded in a different fashion.

[17] These concerns are sufficient to require rejection of this ground of appeal. To permit the appellant to advance this argument now would result in fundamental unfairness.

[18] There is a further, important consideration. As we have emphasized, both Mr. Kaiser and Mrs. Kaiser – the principal of the appellant – maintained throughout that Mr. Kaiser had no assets of any kind. It is inconceivable that the appellant corporation could successfully have taken a position in the bankruptcy that was completely at odds with the sworn evidence of its principal. And, as we have said, the evidence on the motion was not developed with that possibility in view, and it would be unfair for this court to proceed on that basis. Simply put, on the record before this court, there is no evidence that the appellant lost the chance of an advantage of some real substantial monetary value. The appellant, therefore, failed to establish the requisite causation requirement in respect of his negligence claim against the respondent.

[19] We reject this ground of appeal.

Leave to Appeal Costs

[20] The appellant argues that the motion judge’s costs award, at about $95,000, was grossly disproportionate for a motion that took less than a day. We observe, however, that the award was for the entire action. The motion judge instructed himself properly as to the relevant principles, at para.19. He pointed out that the exposure was large, and the circumstances unusual and complex. The motion judge noted, at para. 20, that it was: “Mr. Kestenberg's effort and industry in analyzing and preparing his client's case that allowed the issues to be rationalized and reduced to the one factual question underlying two legal grounds of resolution.”

[21] The motion judge’s discretionary costs award is neither plainly wrong nor tainted by an error in principle. Accordingly, while we grant leave to appeal costs, we see no basis for appellate interference with the motion judge’s costs award.

Disposition

[22] The appeal is dismissed, with costs payable to the respondent in the all-inclusive amount of $15,000.

“E.A. Cronk J.A.”

“P. Lauwers J.A.”

“K. van Rensburg J.A.”