ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 07-CV-334617 PD3
DATE: 20120814

B E T W E E N:

CHRIS KUBAS, 732663 ONTARIO LTD. AND 1121935 ONTARIO LTD. Plaintiff s - and - MERVYN SMITH, DEVENDRANAUTH MISIR, SMITH BROWN CHARTERED ACCOUNTANTS AND MISIR AND CO. BARRISTERS & SOLICITORS Defendants

Morris Cooper , for the Plaintiffs, Chris Kubas, 732663 Ontario Ltd. and 1121935 Ontario Ltd.
David Steinberg , for the Defendants, Devendranauth Misir and Misir and Co. Barristers & Solicitors
Chris Hluchan , for the Defendants, Mervyn Smith and Smith Brown Chartered Accountants

HEARD: May 3, 2012

Kenneth L. Campbell J.

I

Introduction

[ 1 ] Chris Kubas is a Mississauga business man. In the early 1990’s, he invested in second mortgages on two commercial premises in downtown Toronto. He conducted this business through his company, 732663 Ontario Ltd. For a number of years, these mortgages were very profitable and Mr. Kubas made a tidy return on his investments. Indeed, Mr. Kubas was so happy with these investments that, over the years, he significantly increased his financial stake in these premises until, by 2002, he had invested some $1.5 million in these two second mortgages.

[ 2 ] Unfortunately, problems began to surface in late 2003. The mortgage on one of the properties came due, could not be paid by the mortgagor and went into default. The same thing happened with respect to the second property in mid-2004. When this first default happened, the mortgagor tried to secure increased financing in connection with the first mortgage. Had this increased financing been obtained, the plaintiffs would have been content to remain invested in their second mortgage on that property, albeit on new terms. However, the mortgagor’s efforts to secure this new, increased first mortgage funding ultimately failed.

[ 3 ] Eventually, these second mortgage interests were transferred to other numbered corporations. One of these corporations is 1121935 Ontario Ltd., another company owned by Mr. Kubas and the third plaintiff in these proceedings. Ultimately, the mortgagors went into receivership and both commercial properties were sold by the first mortgagees. In the result, Mr. Kubas and his two numbered companies lost the entirety of their investment in the second mortgages.

[ 4 ] Subsequently, Mr. Kubas and his corporations started an action against their accountant, Mervyn Smith, and his firm, Smith Brown Chartered accountants. The plaintiffs included as defendants in this action Devendranauth Misir, a Toronto lawyer, and his law firm Misir and Company. The plaintiffs claim that the defendants owe them about $2 million in damages.

[ 5 ] Mr. Misir had a personal interest in both of the mortgaged premises, as he was a director and shareholder of the corporations who owned those properties (ie. the mortgagors). Without disclosing this personal interest in the properties, his law firm performed the legal work in relation to the relevant mortgage transactions. While there were no complaints or difficulties with any of this legal work, the plaintiffs contend that Mr. Misir and his firm are liable for their investment losses because they breached their retainer and their fiduciary duty by acting for the plaintiffs without disclosing Mr. Misir’s personal interest. The plaintiffs also contend that Mr. Misir and his firm are liable for at least $900,000 of this loss for allegedly breaching a contract that was drafted in mid-2004 when efforts were being made by the mortgagor to refinance the first mortgage on one of the properties.

[ 6 ] Mr. Misir and his law firm have brought a motion seeking summary judgment against the plaintiffs under rule 20 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194. The other defendants have not. Mr. Misir and his law firm claim that there is no genuine issue that requires a trial on the merits and contend that they are entitled to a judgment, based on the evidence, dismissing the claim against them. These defendants argue that there is no evidence that any potential breach of any retainer or fiduciary duty in any way caused the losses suffered by the plaintiffs. According to Mr. Misir and his firm, this is because in 2000, long before the plaintiffs suffered their investment losses, Mr. Kubas and his companies retained independent legal counsel, Mr. Stanley Letofsky, to act for them in relation to their investments. With the advice and assistance of Mr. Letofsky, the plaintiffs did not withdraw their investments, but rather increased their investments. The moving defendants contend that the early intervention of independent legal counsel breaks any potential causal connection between the alleged breach of any retainer or fiduciary duty and the financial losses eventually suffered by the plaintiffs. Further, these defendants also claim that the agreement drafted in mid-2004 was contingent on the mortgagor successfully refinancing the first mortgage. This refinancing never materialized. As this condition precedent to the contract was not met, the defendants claim that the contract was void and unenforceable.

[ 7 ] For the reasons that follow, I agree with the moving defendants. In my view, the plaintiffs have no case against Mr. Misir or his law firm, and these defendants should not have to endure a full trial on the merits in order to secure the judgment to which they are entitled on the evidence. Applying the “full appreciation” test articulated in Combined Air Mechanical Services Inc. v. Flesch (2011), 2011 ONCA 764 , 108 O.R. (3d) 1 (C.A.); Leave granted : [2012] S.C.C.A. No. 47 and 48, it is apparent that there is simply no genuine issue that requires a trial.

[The remainder of the decision continues exactly as in the source text.]

Kenneth L. Campbell J.

Released: August 14, 2012

COURT FILE NO.: 07-CV-334617 PD3
DATE: 20120814

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N:

CHRIS KUBAS, 732663 ONTARIO LTD. AND 1121935 ONTARIO LTD. Plaintiffs - and - MERVYN SMITH, DEVENDRANAUTH MISIR, SMITH BROWN CHARTERED ACCOUNTANTS AND MISIR AND CO. BARRISTERS & SOLICITORS Defendants

REASONS FOR JUDGMENT Kenneth L. Campbell J.

Released: August 14, 2012

[^1]: This evidence was confirmed by the testimony of Mr. Misir, who testified that, during their discussions at the time, Mr. Kubas told him that, if Mr. Misir was able to secure the refinancing of the first mortgage, Mr. Kubas really did not want to be “paid out,” but would rather renew the mortgage on some terms.