ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-09-003766550000
DATE: 20120720
BETWEEN:
DENSITY GROUP LIMITED Plaintiff – and – HK HOTELS LLC and HENRY KALLAN Defendants
Counsel:
Martin Teplitsky, Brad Teplitsky, for the Plaintiff
Brian J.E Brock, Paul E.F. Martin, for the Defendants
HEARD: May 28, 2012
Justice: J. Wilson
REASONS FOR JUDGMENT
The Motion
[ 1 ] The defendant Henry Kallan (Kallan) brings this motion for summary judgment seeking dismissal of the claims against him personally as not establishing genuine issues requiring trial.
[ 2 ] In this action initiated by Density Group Limited (Density) against HK Hotels LLC (HK Hotels) and Kallan, the plaintiff Density seeks a declaration that HK Hotels holds in trust for Density a fifty percent interest in a joint venture agreement to construct a luxury hotel at Exhibition Place in the City of Toronto. Density alleges that Kallan, as the owner, president, and directing mind of HK Hotels breached the terms of the trust and hence breached fiduciary duties owed to Density.
[ 3 ] After receiving notice of the motion for summary judgment, Density brought a motion to amend the pleadings to amplify the claims against Kallan personally. In the contested motion, on July 27, 2011, Master Hawkins allowed the amendments to the claim alleging various breaches by Kallan personally, subject to the right of the defendant to plead a limitation defence.
[ 4 ] In the amended Statement of Claim, Density seeks damages from HK Hotels for breach of contract, and claims damages against Kallan personally for breach of fiduciary duty and for inducing breach of contract, trust, and fiduciary duty. Density asserts that its damages are in excess of $10,000,000.00.
The Issues
[ 5 ] Is there a genuine issue requiring a trial whether Kallan may be personally liable to Density on the facts of this case? Conversely, is the claim as cast an attempt to utitize a breach of trust to implicate Kallan personally that has no merit in law or in fact?
[ 6 ] It is the position of the defendants that this action involves a straightforward dispute for breach of contract between two commercial entities – Density and HK Hotels. Any remedies that may be available are between the two corporate entities.
[ 7 ] To determine whether Kallan may be personally liable, I must decide whether I can reach conclusions based upon the record before me without the necessity of a trial about what caused the break-down in the relationship between Density and HK Hotels, and whether in the facts and circumstances there was any conduct by Kallan that could arguably create a fiduciary duty engaging potential personal liability by Kallan to Density.
Test for Summary Judgment
[ 8 ] On January 1, 2010 amendments were made to the Rules of Civil Procedure as they apply to summary judgment motions.
[ 9 ] The Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 [ Combined Air ], interpreted the meaning of the amended rule 20 and provided comprehensive guidelines to the profession and to motion judges.
[ 10 ] The new rule provides enhanced powers to the motions court to weigh evidence, evaluate credibility and draw reasonable inferences from the evidence guided at all times by the over arching principle of the “full appreciation test”.
[ 11 ] The “full appreciation test” as a primary guideline to decide whether or not a trial is necessary in the interest of justice is outlined at paras. 50-55 of Combined Air. I cite paragraphs 51 and 55:
[51] We think this “full appreciation test” provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. In cases that
call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the “interest of justice” requires a trial.
[55] Thus, in deciding whether to use the powers in rule 20.04(2.1), the motion judge must consider if this is a case where meeting the full appreciation test requires an opportunity to hear and observe witnesses, to have the evidence presented by way of a trial narrative, and to experience the fact-finding process first-hand. Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record – as may be supplemented by the presentation of oral evidence under rule 20.04(2.2) – the judge cannot be “satisfied” that the issues are appropriately resolved on a motion for summary judgment.
[ 12 ] The Court describes three kinds of cases, in which summary judgment may be granted. The first is when the parties submit their dispute on consent to be determined by summary judgment. The second is when the claim or the defence has no chance of success. The third kind of case, the most nuanced of the three, is deciding whether issues can be fairly and justly resolved without a trial, guided by the full appreciation test.
[ 13 ] As this case falls within the third category, I outline the guidance provided by the Court at para. 74 when considering this category of of case:
The amended rule also now permits the summary disposition of a third type of case, namely, those where the motion judge is satisfied that the issues can be fairly and justly resolved by exercising the powers in rule 20.04(2.1). In deciding whether to exercise these powers, the judge is to assess whether he or she can achieve the full appreciation of the evidence and issues that is required to make dispositive findings on the basis of the motion record – as may be supplemented by oral evidence under rule 20.04(2.2) – or if the attributes and advantages of the trial process require that these powers only be exercised at a trial.
Background Facts
[ 14 ] Kallan is a director and officer of HK Hotels. HK Hotels operates a line of luxury boutique hotels in New York City. Peter Majer, who was a friend involved in other business dealings, advised Kallan that the Board of Directors of Exhibition Place in Toronto (the City) was exploring building a hotel project at Exhibition Place (the Hotel Project).
[ 15 ] In response to the City’s Request for Expressions of Interest, Majer and Kallan agreed to submit a bid for the Hotel Project. Majer chose to use Density, a company owned by his son, Sean Majerovic, as the vehicle involved in the Hotel Project, and Kallan conducted all matters through HK Hotels.
[ 16 ] There is a dispute in the proceeding between Density and HK Hotels about the nature of the relationship between the two corporations. Density claims that the relationship between it and HK Hotels is that of joint venturers, giving rise to potential fiduciary duties, whereas HK Hotels asserts that Density was the agent of HK Hotels under an agency agreement that negated fiduciary duties. There are two documents between Density and HK Hotels relevant to this issue, both prepared by Density.
[ 17 ] The first is a Letter of Understanding, and the second is an Agency Agreement.
... (continues exactly as in the source text)
J. Wilson J.
Released: July 20, 2012
COURT FILE NO.: CV-09-00376655-0000
DATE: 201206--
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
DENSITY GROUP LIMITED Plaintiff – and – HK HOTELS LLC and HENRY KALLAN Defendants
REASONS FOR JUDGMENT
J. Wilson J.
Released: July 20, 2012