Court File and Parties

Court of Appeal for Ontario Date: 20220826 Docket: C68549

Huscroft, Nordheimer and Copeland JJ.A.

Between: 2264052 Ontario Inc. cob Louch & Louch, 968275 Ontario Ltd. cob Louch Home Development, and Orren Louch, sometimes known as Orren James Louch Plaintiffs (Respondents)

And

Brockville Centre Development Corp., Jacobson Property and Holding Corp., Robert Thompson, Gerald Goldsmith Polite and Toycrad Investments Ltd. and Sweetwater Homes Ltd., and Rob Thompson Realty Corp., Brokerage Defendants (Appellants)

And Between:

Brockville Centre Development Corp., Jacobson Property and Holding Corp., Sweetwater Homes Ltd., and Rob Thompson Realty Corp., Brokerage Plaintiffs by Counterclaim (Appellants)

And

2264052 Ontario Inc. cob Louch & Louch, 968275 Ontario Ltd. cob Louch Home Development, and Orren Louch, sometimes known as Orren James Louch Defendants by Counterclaim (Respondents)

Counsel: Joseph W.L. Griffiths and Matthew G.T. Glass, for the appellants James L. McDonald, for the respondents

Heard: June 23, 2022

On appeal from the judgment of Justice Robert F. Scott of the Superior Court of Justice dated July 10, 2020.

Nordheimer J.A.:

[1] The appellants appeal from the judgment of the trial judge who awarded the respondents damages and other amounts along with various declaratory, accounting, and other relief.

[2] For the following reasons, I would allow the appeal, set aside the judgment below, and order a new trial.

A. Background

[3] This case arises out of a land development project in the City of Brockville. The two principals in this project are the appellant, Robert Thompson, and the respondent, Orren Louch. Mr. Thompson was the owner of the lands. Mr. Louch was looking for lands upon which to build homes. The two came together and the land development project began. It ultimately led to this litigation.

[4] The appellant, Brockville Centre Development Corp. (“BCDC”), is the owner of land on Centre Street in the City of Brockville. The principals of BCDC are Mr. Thompson and his business partner, Eric Norenberg. Mr. Norenberg owns a building supply company called Kemptville Building Centre (“KBC”), which was the exclusive supplier of construction materials to the respondent, Louch and Louch, for the project described below. The appellant, Jacobson Property and Holding Corp. (“Jacobson”) is Mr. Thompson’s holding company through which he held his shares in BCDC and in the appellant, Sweetwater Homes Ltd. (“Sweetwater”). Sweetwater is a building company owned by Mr. Thompson, Mr. Norenberg, and Kevin Scott. Finally, the appellant, Rob Thompson Realty Corp., Brokerage (“RTRC”), is a real estate brokerage firm owned by Mr. Thompson. Gerald Goldsmith Polite is a private mortgage lender who is not a participant in this appeal.

[5] The respondents are all corporations controlled and operated by Mr. Louch. 2264052 Ontario Inc., carrying on business as Louch and Louch (“L&L”), is his building company and 986275 Ontario Ltd., carrying on business as Louch Home Development (“LHD”), is his property rental and holding company.

[6] The project in issue was called the “Meadows”. The project involved the sale and transfer of parcels of land from BCDC to L&L, who in turn would build a triplex on each parcel. The individual homes within the triplex would be sold by RTRC to an end consumer. The sale of the parcels of lands to L&L were financed with vendor take back (“VTB”) mortgages provided by BCDC. Each VTB was personally guaranteed by Mr. Louch.

[7] To get construction off the ground at the Meadows, Mr. Louch caused L&L to borrow construction funds from 739572 Ontario Limited (“FinanceCo”). FinanceCo provided the construction financing to L&L through installment draws, which were secured by a mortgage against each parcel of land acquired by L&L from BCDC. To make this financing work, BCDC agreed to postpone each of its VTB mortgages in favour of FinanceCo’s construction mortgages.

[8] In total, L&L purchased three parcels of land from BCDC between July 2011 and July 2012. L&L built two triplexes, consisting of six houses on two of those three parcels. Those six houses were all sold to end consumers through RTRC. L&L acquired its last parcel (“Block #2”) from BCDC on June 22, 2012, but never built any homes on it. A VTB in favour of BCDC was registered the same day.

[9] On the same day that L&L acquired Block #2, it also obtained a construction mortgage from FinanceCo, which included an initial draw of $70,000. Mr. Louch testified that he did so because he “had a plan to build on …Block 2” in the summer of 2012. He never did.

[10] As part of the project, BCDC and L&L had signed a contract on July 11, 2011 (the “Agreement”). The transfer of Block #2 to L&L prompted an amendment to the Agreement, which was executed by BCDC and L&L on May 18, 2012 (the “Amended Agreement”). Section 7 of the Agreement imposed a “restriction period on subsequent transfers” of lots by BCDC to any other buyer. The Amended Agreement deleted this restriction and thereby permitted BCDC to freely sell lots to another builder from May 2012 onwards. It did so by selling lots over time, and on the same terms, to Sweetwater. As earlier noted, Mr. Thompson had an interest in Sweetwater, a fact that Mr. Louch says was not disclosed to him and which became the subject of another issue between them.

[11] The amendment that removed the restriction on the sale of parcels to others appears to have arisen out of concerns by Mr. Thompson regarding the slow pace of home building being done by Mr. Louch. Mr. Louch said that he agreed to the deletion of section 7 because he understood he had been delayed by some months in building units on the properties he had acquired. He was also concerned that he was going to be completely cut out of the purchase of any further blocks and he wanted a guarantee of at least two more blocks.

[12] Mr. Louch’s failure to build caused problems between Mr. Thompson and him. Mr. Thompson was concerned with the delays in construction. It seems that these delays are what led to the sale of the other blocks to Sweetwater.

[13] L&L did not undertake any construction at Block #2 between June 2012 and November 2012. In November 2012, L&L secured a building permit and caused a contractor to dig a hole, ostensibly as a part of the start of the triplex construction. Mr. Thompson expressed concerns about this work and the City of Brockville shut down the job until it was re-inspected.

[14] On both January 20, 2013, and March 12, 2013, flooding occurred at the Meadows next to Block #2 which prevented any construction. This led to another dispute between Mr. Louch and Mr. Thompson over who was responsible for drainage at the Meadows.

[15] Litigation eventually ensued. In their first statement of claim, the respondents’ allegations focused on the two flooding events. The respondents initially alleged that BCDC was, pursuant to a subdivision agreement dated October 18, 2005, between it and the City of Brockville, responsible for ensuring that the Meadows received proper drainage. They went on to allege that Mr. Louch and L&L had reasonably relied on BCDC to carry out its duties pursuant to the subdivision agreement. They also alleged that BCDC and Mr. Thompson had represented to L&L that the parcels purchased by L&L would be “properly drained into and by a drainage ditch”.

[16] The respondents framed their action as one based on negligent misrepresentation. They alleged four distinct misrepresentations. However, in addition to negligent misrepresentation, there was a generalized allegation of negligent or deliberate interference with contractual relations and negligent or intentional infliction of economic harm.

[17] Some three years later, the respondents amended their statement of claim. They added Sweetwater and RTRC to the action. They also added a plea of civil conspiracy. The respondents also alleged that Mr. Thompson owed Mr. Louch and L&L a fiduciary duty to disclose his involvement in Sweetwater. However, the respondents did not specifically plead breach of fiduciary duty as a cause of action. Rather, they alleged the fiduciary duty as a particular of the civil conspiracy claim.

[18] About two years later, the respondents amended their statement of claim for the second time. However, it is unclear whether this further amended pleading was before the trial judge. No amended trial record was filed with it and the trial judge does not make any reference to it in his reasons.

B. The Decision Below

[19] The trial was held over twelve days in April and May 2019 with a couple of additional days in October 2019. On July 10, 2020, the trial judge released his reasons. The trial judge found in favour of the respondents. He awarded a variety of relief including damages and an accounting of monies owing on the mortgages. The trial judge ordered a set-off of the amounts owed by the appellants against arrears due on the mortgages by the respondents. The trial judge declined to award punitive damages.

[20] In reaching his conclusions, the trial judge made the following findings:

1. that the appellants, Mr. Thompson and BCDC, breached their duty of care when they misrepresented to L&L and Mr. Louch with respect to the floods and their cause, when they failed to construct the drainage ditch in a timely manner, and when they negligently advised L&L that BCDC was not responsible for all aspects of properly maintaining and repairing the drainage ditch;
2. that Mr. Thompson and RTRC owed a fiduciary duty to L&L and Mr. Louch to inform them of Mr. Thompson’s involvement in Sweetwater at all relevant times relating to the amendment of the Agreement, and that they breached that duty;
3. that Mr. Thompson and Jacobson negligently misrepresented to Mr. Louch, and thereby to LHD, in the taking of the assignment of the FinanceCo construction mortgage; and
4. that Mr. Thompson and the other appellants, except Mr. Polite, conspired with each other to cause damages to the respondents, including lost opportunity to build out the Meadows in addition to other damages, in that each knew or constructively knew that their acts, including the above, would cause financial harm to the respondents.

[21] Central to the findings made by the trial judge is his conclusion that Mr. Thompson, through BCDC, was responsible for “the proper and timely installation of the drainage ditch”. The trial judge based this finding on the subdivision agreement. He also said that there “is no argument” about this fact. The trial judge proceeded from this finding to hold the appellants responsible for the floods that occurred in early 2013, which prevented the respondents from constructing additional units.

[22] The trial judge also placed considerable reliance on the fact that Mr. Thompson did not advise Mr. Louch of Mr. Thompson’s interest in Sweetwater when Mr. Louch agreed to allow the sale of blocks to other purchasers. Those lands were, in fact, sold to Sweetwater who proceeded to build on them. The trial judge found this to be a breach of the fiduciary duty that he found that Mr. Thompson owed to Mr. Louch (or their respective companies).

[23] The trial judge also relied on the fact that Mr. Thompson’s company, RTRC, was the exclusive real estate agent for the sale of units built by Mr. Louch to the end consumers, as also evidencing the fiduciary duty that he found existed between Mr. Louch and Mr. Thompson.

[24] In the course of his findings, the trial judge also made it clear that he favoured the evidence of Mr. Louch over the evidence of Mr. Thompson.

C. Analysis

[25] The appellants raise a large number of challenges to the trial judge’s analysis and conclusions. In my view, it is unnecessary to address each and every one of those challenges. It is sufficient to address the most significant ones. First and foremost in that regard is the fact that the trial judge’s analysis is lacking in regards to almost all of the issues raised.

[26] I start with the trial judge’s finding that a fiduciary duty arose between Mr. Thompson and Mr. Louch. The trial judge never set out the factors to be considered in deciding whether a fiduciary duty will arise. The respondents concede the absence of any recitation of those factors in the trial judge’s reasons.

[27] The factors that are to be examined in deciding whether a fiduciary duty arises are set out in Hodgkinson v. Simms, [1994] 3 S.C.R. 377, at p. 408. They are: (1) the scope for the exercise of some discretion or power; (2) that the power or discretion can be exercised unilaterally so as to affect the beneficiary's legal or practical interests; and (3) a peculiar vulnerability to the exercise of that discretion or power.

[28] The trial judge never identifies the discretion or power that Mr. Thompson exercised over Mr. Louch that would begin to establish the proper foundation for a fiduciary duty. It is important, in this regard, to remember that Mr. Thompson and Mr. Louch were both businesspeople. They each had their own commercial interests in mind when they entered into the project to develop these lands and they signed a written agreement regarding their venture.

[29] The trial judge also never identifies the power or discretion that Mr. Thompson could unilaterally exercise over Mr. Louch that would affect the latter’s interests. There is reference in the trial judge’s reasons to the financial difficulties that Mr. Louch was experiencing because of unrelated events but the trial judge never clearly identifies how those difficulties could give rise to the necessary power or discretion in the hands of Mr. Thompson that could establish a fiduciary duty. Indeed, reduced to its core, the trial judge’s finding of fiduciary duty appears to emanate almost entirely from Mr. Thompson’s failure to reveal his interest in Sweetwater and the fact that his company, RTRC, acted as the exclusive real estate agent for the sale of the units built by Mr. Louch.

[30] It is difficult to understand how the failure of Mr. Thompson to reveal his interest in Sweetwater could found a fiduciary duty. Mr. Louch voluntarily entered into the Amended Agreement that allowed Mr. Thompson to sell blocks of lands to others. There is no term in the Amended Agreement that restricts the persons to whom those blocks of land could be sold. There is no evidence that Mr. Louch ever asked who was involved in Sweetwater or made any efforts to find out who was behind Sweetwater (at least not until after the litigation began). There is also no evidence that Mr. Louch had ever asked that it be a term of the Amended Agreement that lands could only be sold to entities with which Mr. Thompson had no connection.

[31] It is unclear to me what legal obligation Mr. Thompson would have had to Mr. Louch to reveal his interest in Sweetwater in these particular circumstances nor does the trial judge identify one. It is equally unclear to me how the presence of RTRC as the exclusive agent for the sale of the homes built by Mr. Louch could assist in providing the necessary foundation for a legal conclusion that a fiduciary duty arose between Mr. Thompson and Mr. Louch. The trial judge’s reliance on Knoch Estate v. Jon Picken Ltd., [1991] O.J. No. 1394 (C.A.) to establish a fiduciary relationship is unpersuasive given the absence of factual findings to support it.

[32] Still further, the trial judge never addresses the salient fact that a breach of fiduciary duty was never pleaded in the statement of claim as a separate cause of action. In that regard, it is insufficient that an alleged breach of a fiduciary duty was pleaded as a particular of the civil conspiracy claim. Breach of fiduciary duty is a stand-alone cause of action and must be pleaded as such if it is to found liability on a defendant – see r. 25.06(8) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. No such pleading was made but nonetheless the trial judge both finds a fiduciary duty and a breach of that duty and uses that as a basis for finding liability.

[33] In a similar vein, the trial judge found that a civil conspiracy was engaged in by the appellants. He cited the decision of Wawrzkiewicz v. Integrated Distribution Systems Limited Partnership, 2017 ONSC 1664, as setting out the factors for such a finding. However, the trial judge never engages in any analysis of those factors. He does not identify the agreement between two or more defendants that is necessary, nor does he identify what means (other than the flooding which I will address shortly) were used to injure the respondents. Rather, after citing the decision, the trial judge simply finds that the appellants “committed civil conspiracy in their wrongful actions towards Mr. Louch and Louch and Louch.”

[34] In yet another similar vein, the trial judge refers to the duty of honest performance established in Bhasin v. Hrynew, [2014] 3 S.C.R. 494. He finds that the appellants failed in that duty. His application of the principle is, however, problematic. While the trial judge stated that the duty of honest performance is not a separate cause of action, he appears to treat it as one. Further, the trial judge never directly identifies the contract to which the duty of honest performance would relate or how that contract was breached.

[35] In defining the duty of honest performance in Bhasin, Cromwell J. said, at para. 73:

I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one's contractual performance.

[36] The trial judge does not identify how the appellants lied or otherwise knowingly misled the respondents “about matters directly linked to the performance of the contract.” For example, the trial judge points to the various mortgages on this issue but does not identify how the appellants lied about the performance of those mortgages. The trial judge again refers to the Sweetwater issue but also fails to identify how that relates to the duty of honest performance. On that point, I note Cromwell J.’s observation that the duty of honest performance does not impose a duty of disclosure, which appears to be at the heart of the complaint regarding Sweetwater.

[37] The trial judge also refers to a number of additional causes of action including intentional infliction of economic harm and breach of a duty of care. Once again, there is no analysis of the component parts of these causes of actions and how the evidence would sustain any finding in relation to them. For example, there is no analysis of the nature of the duty of care found by the trial judge, how it arose between the parties, or the particulars of its breach.

[38] It appears that the trial judge’s conclusions on the respondents’ claims were driven almost exclusively by the facts surrounding the flooding that occurred in relation to Block #2, which hampered the respondents’ ability to construct homes on that parcel. Central to his finding on this issue is the trial judge’s conclusion, to which I referred above, that Mr. Thompson, through BCDC, was responsible for “the proper and timely installation of the drainage ditch”. The trial judge drew this responsibility out of the subdivision agreement.

[39] The problem with that essential finding is that the subdivision agreement does not contain any such provision. All that the subdivision agreement required was that BCDC had to prepare a grading and drainage plan satisfactory to the City Engineer. The subdivision agreement does not stipulate any time frame by which that grading and drainage plan is to be provided. The respondents acknowledge that this is the case.

[40] Further, the Director of Environmental Services for the City of Brockville was called as a witness. His department reviews the engineering aspects of subdivision agreements, such as the one in issue in this case. In his evidence, the Director said that while the drainage ditch in this case was an element of the plan of subdivision, the timing of its construction was up to the developer. He added that whether the drainage is constructed before or after the construction of the homes is also up to the developer. The trial judge does not make any reference to this evidence as it relates to his finding that BCDC was responsible for the proper and timely installation of the drainage ditch nor does the trial judge explain what he meant by the “timely” installation of the drainage ditch.

[41] In the end result, given the lack of analysis of the various causes of action that were advanced, the failure to relate the evidence to them, and certain factual findings that were made by the trial judge but are not borne out by the evidence, the reasons of the trial judge do not allow for appellate review. They simply fail to properly explain to the parties the basis upon which the trial judge fixed liability on the appellants.

[42] While that is sufficient to deal with the appeal, I will comment on two other aspects of this trial that are problematic.

[43] First, at the outset of the trial, the trial judge identified the flooding as what he considered to be the central issue in the trial. He then directed counsel to call their evidence on that specific issue. In doing so, he essentially bifurcated the trial. However, having directed counsel to call all their evidence on this point, he ultimately determined that he was not going to decide that issue until the end of the trial. The parties then had to lead their evidence on the other issues in the action, including recalling witnesses that had already testified.

[44] As a general proposition, trial judges should leave the presentation of the case to counsel. While trial judges may intervene to ensure that only relevant evidence is being presented and to ensure that trial time is effectively used, those interventions should be rare. It is counsel’s responsibility to present their client’s case and they should be left to decide how they will best fulfill that responsibility. Bifurcating a trial, especially on the motion of the trial judge alone, is a risky strategy, one that is likely, as this trial demonstrates, to complicate the issues rather than simplify them.

[45] Second, the appellants advanced a claim of bias with respect to the conduct of the trial judge during the trial and in his reasons. In the latter regard, the trial judge, in his reasons, appears to disparage Mr. Thompson as a businessman or land developer by making reference to him as having a background as a potato farmer, a comment that was taken out of context from the evidence. There were also other unnecessary comments made during the course of the trial that suggested that the trial judge personally identified with Mr. Louch. Further, there were times during the trial when the trial judge made it appear that he was using his own personal experiences and knowledge to supplement the evidence led.

[46] All of these instances were unfortunate. Trial judges should remain vigilant in terms of the appearance of fairness. They should avoid commentary that might suggest to an outside observer that they are not impartial as between the parties. They should also avoid comments that might suggest that they are bringing their own personal knowledge of subjects to bear on the issues in the case. While it is unnecessary for me to reach a conclusion on whether these instances rise to the level of evidencing a reasonable apprehension of bias, it is a cautionary note that is worth repeating.

D. Conclusion

[47] I would allow the appeal, set aside the judgment below, and order a new trial. The appellants are entitled to their costs of the appeal in the agreed amount of $15,000, inclusive of disbursements and HST. I would reserve the disposition of the costs of the first trial to the judge determining the second trial or otherwise disposing of the action.

Released: August 26, 2022 “G.H.” “I.V.B. Nordheimer J.A.” “I agree. Grant Huscroft J.A.” “I agree. Copeland J.A.”