Court File and Parties

COURT FILE NO.: CV-11-420738

DATE: 2013-10-11

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: JOHN DiPOCE, Plaintiff

AND:

TONY DeCICCO and LANDPLEX INC., Defendants

BEFORE: D.L. Corbett J.

COUNSEL:
P. John Brunner, for the Plaintiff

Michael R. Kestenberg, for the Defendants

HEARD: November 17, 2012

ENDORSEMENT

[1] The defendants move for summary judgment dismissing the action.

Summary and Disposition

[2] The motion must be dismissed. The central disputes in this case will turn on the credibility of Mr DiPoce and Mr DeCicco. Assessing their credibility will require a trial.

[3] Further, it appears likely that the plaintiff will win, even if most of the disputed factual issues are resolved against him. At the heart of this dispute is a land development partnership between Mr DiPoce and Mr DeCicco. Mr DiPoce left the partnership before its project was completed. Later, after the partnership concluded its business with a $4 million legal settlement, all partners received back their capital contributions except for Mr DiPoce.

[4] Mr DeCicco takes the position that Mr DiPoce’s partnership contributions were forfeit upon his departure from the partnership. That is not the law.

[5] I do not have a cross-motion for summary judgment from the plaintiff, and I have no evidence upon which to measure Mr DiPoce’s entitlement as a withdrawing partner. And there is one issue of credibility that would lie at the heart of Mr DiPoce’s entitlement to recover anything on this theory of the case. So I would not grant partial summary judgment for the plaintiff here. But, on a close reading of the motion record, this was a borderline case for granting partial summary judgment for the plaintiff; it is no case for summarily dismissing the action.

[6] The motion is dismissed with costs on a substantial indemnity basis, fixed at $90,000, payable within thirty days.

Overview of the Dispute

[7] Mr DiPoce is in the business of manufacturing and distributing wood and home improvement products. Mr DeCicco is a land developer. Both men are successful. They have known and done business with each other for more than a decade. They are partners in two other land investments in Ontario. Prior to the events in this proceeding, they trusted and respected each other. They would do business with each other based on a telephone call, a conversation over breakfast, a handshake.

[8] They disagree about one of their partnerships. It seems that each is disappointed with the other and feels that he has been treated less well than he would have expected. On the record before me, it seems that the sums involved, though large for most people, are probably not as important to the parties as the personal dimension of this conflict.

[9] The parties entered into an oral partnership agreement to purchase, develop and sell land located in Mississauga City Centre. Before the end of the project, Mr DiPoce advised Mr DeCicco that he would not continue to contribute to or undertake risk of the partnership. The project ultimately ended in litigation which was settled on a basis that saw Mr DeCicco receiving back his investment and some profit. Other partners got repaid their capital contributions. But because Mr DiPoce withdrew before the project was completed, he was not paid anything.

[10] Mr DeCicco takes the position that Mr DiPoce walked away from his investment when he stopped contributing. Not only is Mr DiPoce not entitled to share in profits, he is not entitled to any distribution from the partnership at all, no longer being a partner.

[11] There are several difficulties with this argument:

(a) several other partners did not make financial contributions after Mr DiPoce left the project. They were repaid their capital contributions. Mr DeCicco responds that these other partners were not required to make financial contributions – they contributed in other ways, and that was always the understanding.

(b) Mr DiPoce received a release from the corporate defendant when he left the partnership and paid his share of agreed partnership expenses up to his date of departure. Mr DiPoce was not asked for and did not provide a release of his share of partnership assets as of the date of his departure from the partnership.

(c) there was no written partnership agreement, and the Partnership Act would not have the effect of Mr DiPoce forfeiting his partnership contributions upon departure from the partnership.

[12] The transaction is “high profile” because it involved Peter McCallion, son of the long-serving mayor of Mississauga, and had as its subject-matter a large development in Mississauga’s City Centre area. Aspects of these transactions were the subject of a judicial inquiry before Associate Chief Justice Douglas Cunningham, and have been a matter of press and public interest. That context has some small bearing on this litigation in regard to the limitations and laches issues.

[13] Most of the partnership’s expenses were to be funded equally by Mr DeCicco and Mr DiPoce.[^1] Mr DiPoce contributed $992,753.21 to the partnership. At the end of the project, proceeds of $4 million were paid to the corporate defendant, of which $2.2 million was paid to Mr DeCicco. All partners other than Mr DiPoce received back their capital contributions. It seems likely, but is not certain, that there were net profits after repayment of capital contributions, and that all of the profit was retained by Mr DeCicco.

1. Principles of Summary Judgment

[14] The moving party bears the burden of showing, on a balance of probabilities, that there is no genuine issue for trial. If that burden is satisfied, it is then for the defence to show that it has a “real chance of success”.[^2]

[15] The Court of Appeal decision in Combined Air Mechanical sets out the “full appreciation” test for summary judgment:

A motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to fully appreciate the evidence and issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examines the record in chamber.

Thus, in deciding whether to use their 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 the 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.[^3]

The “full appreciation” test may be met in cases largely driven by documents or where there is no great contention about central factual issues. It is not likely to be met where there are multiple factual issues involving conflicting evidence from several witnesses. As noted above, even document-heavy cases tend to turn on a few core documents. However, the more voluminous the documents relevant to the central issues in the case, the more likely the judge will need to be immersed in the trial process to gain a full appreciation of the context in which the core documents arise.[^4]

[16] Rule 24.04(2.1) now permits the motions judge to assess credibility. This new power is not limited to making obvious credibility calls, such as discounting evidence that is clearly contrary to the controlling documents. However, the discretion to assess credibility is not an invitation to avoid the trial process when the central issues involve disputed factual contentions that will turn on assessing credibility.[^5]

Applicable Partnership Law

[17] The parties had no written partnership agreement, and so their partnership is governed by the Partnership Act.[^6]

[18] Partners owe each other fiduciary duties, including duties of loyalty, utmost good faith, and avoidance of conflict of duty and self-interest.[^7] Utmost good faith and loyalty require partners to disclose to their partners “full information of all things affecting the partnership”: this disclosure is necessary to establish and maintain trust and confidence among partners.[^8]

[19] The fiduciary duties of loyalty and utmost good faith do not arise upon formation of the partnership, but precede it to include the conduct leading up to the formation of the partnership. Here, where there were almost no negotiations and no written partnership agreement, the pre-formation duties may be of greater significance than in other cases.[^9]

[20] DiPoce alleges that DeCicco breached his fiduciary duties of utmost good faith and loyalty by failing to disclose the following facts at the time that their partnership was formed:

(a) that Mr Couprie and Mr Cook owned 80% and 20% respectively of the shares of WCD;

(b) the Put and Call Agreement;

(c) the Loan Agreement between WCD and Mr Couprie;

(d) the Agreement of Purchase and Sale between the Vendors and WCD;

(e) the Declaration of Trust between Mr Couprie and Mr McCallion;

(f) the Shareholders Agreement between Mr Cook and Mr Couprie.

[21] DiPoce claims that as a result of these failures, he is entitled to equitable rescission of the partnership agreement. If rescission is granted, DiPoce would be entitled to an award of money to place him back in the position he would have been in as if he had never entered the partnership agreement, including return of his capital contributions to the partnership.[^10]

[22] On the evidence on this motion, it seems likely that Mr DiPoce knew more than he says he was told when he entered the partnership. And it seems likely that he was kept abreast of partnership affairs in regular meetings with Mr DeCicco. On the other hand, it seems that “full information” was not provided to Mr DiPoce, although whether this was by design or just as a result of the informal way these men did business is a matter I cannot determine on this motion. Whether the deficiencies in the information would be sufficient to justify rescission of the partnership is not at all clear.

[23] Some things that Mr DiPoce did not know when he entered into the partnership became known to him before the end of his participation. It is possible that some aspects of the transaction were not clear to him until the time of the judicial inquiry. For those that he learned about before he ended his participation, there is a good argument that he affirmed the transaction despite those matters. At the time he left the partnership, Mr DiPoce did not assert that he was entitled to rescission because of these issues, and he agreed to and did pay agreed partnership expenses to the date of his withdrawal.

[24] As may be inferred from the intentionally general language I have used here, I decline to make specific findings about what Mr DiPoce knew when. This is a motion to dismiss the claim, not to evaluate and make findings on each specific incident that took place. Having concluded that I should dismiss the motion, I should not hamper the work of the trial judge or confuse the effect of this decision by making atomized observations. At this juncture it is not clear whether there is a case for rescission. That will depend on the trial judge’s determination as to what each of Messrs DiPoce and DeCicco knew, and when they each knew it.

Affirmation

[25] Even though a party may be entitled to rescission as a result of conduct by the other party, this right will terminate if the innocent party, in full knowledge of the circumstances that give rise to the right of rescission, affirms the contract.

[26] However, affirmation does not arise on any subsequent act in furtherance of the transaction. Here, unless DiPoce was aware of the circumstances giving rise to his right of rescission, his subsequent conduct does not amount to an affirmation of the partnership agreement.[^11]

[27] As stated above, on the record before me, it seems clear that Mr DiPoce was aware of some of the matters of which he now complains before he left the partnership. It may be that he was not aware of others. The trial judge, having made definitive findings of fact about these points, will then be able to draw the inferences necessary to determine whether Mr DiPoce has a basis for rescission, even after having affirmed some of the matters of which he now complains.

Termination of the Partnership

[28] The partnership was formed to purchase, develop and sell the City Centre Lands, and was thus for a “single adventure or undertaking” pursuant to the Partnership Act.[^12]

[29] DiPoce argues that the partnership was never dissolved, and that the “adventure or undertaking” did not happen until the litigation between the Vendors and WCD ended, resulting in payments of $4 million to Landplex and $2.2 million to DeCicco. DiPoce argues that he is entitled to his share of partnership profits, based on these payments.

[30] Mr DeCicco argues that the partnership was dissolved more than a year before the “adventure or undertaking” came to an end, as a result of Mr DiPoce’s email of April 25, 2008. But even if this is true, this does not mean that Mr DiPoce was not entitled to anything. Upon dissolution, the Partnership Act provides for settlement of all accounts and distribution of the assets of the partnership.[^13]

[31] The termination arrangements were made between Mr DiPoce and Mr DeCicco. There is no evidence that anyone else was privy to their discussions. The focus of these discussions was Mr DeCicco’s efforts to persuade Mr DiPoce to stay with the project. When this proved unsuccessful, the two men then agreed that Mr DiPoce would pay half of the expenses to the date of Mr DiPoce’s withdrawal (April 30, 2008). They then agreed on what those expenses were. Following that agreement, Mr DiPoce paid a further amount of slightly less than $400,000. He received a release from Landplex, the company which held the partnership’s interests. It is disputed as to who asked for this release; it is not disputed that the release was drafted by Mr DeCicco’s solicitor for the transaction.

[32] It is clear that Mr DeCicco was unhappy that Mr DiPoce left the deal, leaving him 100% responsible for the costs and risks of the project. I infer that Mr DeCicco felt that he had been abandoned, and that he did not like being treated this way. Mr DeCicco agrees that he never again advised Mr DiPoce of matters relating to the partnership, and Mr DiPoce agreed that he never sought further information.

[33] Mr DiPoce learned through the judicial inquiry that there had been litigation involving the project, that the litigation was resolved with a $4 million payment to the benefit of the partnership, and that all the other partners would get their money back except him.[^14]

[34] Assuming without deciding that Mr DiPoce left the partnership as of April 30, 2008, he should be entitled to an accounting of his share of the partnership’s assets, valued as at the date he left the partnership. That value could be determined on a “wait and see” basis, if that was what had been agreed between Mr DeCicco and Mr DiPoce. If not, then ordinary valuation principles would apply. I have no evidence of the value of the partnership assets as of April 30, 2008.

Limitations and Laches

[35] The payments in settlement of the litigation between WCB and Vendors, which resulted in the $4 million payment to Landplex, took place in September 2009.

[36] Claims to an accounting as a partner, and other claims arising from alleged breaches of the Partnership Act are governed by a two year limitation period.[^15] The period begins to run when the cause of action is complete or when the plaintiff knew or, in the exercise of reasonable diligence, ought to have known the cause of action was complete.

[37] It is arguable that the cause of action was not complete until receipt of payment of the proceeds from the litigation – sometime after September 2009.

[38] Mr DiPoce claims that he did not know all of the facts that give rise to his claim until the Cunningham Report was released. This is a defensible position, and will turn on the court’s assessment of what Mr DiPoce knew about the $4 million, and when he knew it.

[39] Laches is a more flexible doctrine. It is a form of equitable estoppel. In this case it is related to the claims of affirmation. The longer Mr DiPoce delayed after he knew his claim, the greater chance he will be have found to have either affirmed the partnership transaction, or to be estopped as a result of his delay. Again, it is a question of fact as to how much Mr DiPoce knew, and when he knew it.

Issues for Trial

[40] I am satisfied that the following issues require a trial:

(i) Whether there were material misrepresentations by Mr DeCicco to Mr DiPoce that induced Mr DiPoce to enter into and remain in the partnership;

(ii) Whether Mr DeCicco breached his partnership duties to Mr DiPoce by failing to advise him of material information, known to Mr DeCicco, relating to the decision by Mr DiPoce to enter into and remain in the partnership;

(iii) What was agreed between Mr DiPoce and Mr DeCicco at the time that Mr DiPoce advised that he would no longer make financial contributions to or assume the risks of the partnership;

(iv) When Mr DiPoce knew sufficient information to know that he had the causes of action against Mr DeCicco that are asserted in this proceeding.

[41] All of these issues will turn on the credibility of Messrs DiPoce and Mr DeCicco. The critical points in this case, for the most part, will be proved by oral testimony rather than through documents. This is the sort of case that must be tried.

Costs

[42] Mr DiPoce is entitled to costs of this motion. Counsel agreed on the general quantum of costs and I am satisfied that they are in a reasonable range, given the seniority of counsel retained for the file, the amounts in issue, and the reasonable expectations of the parties as to the costs. I fix the quantum of costs at $80,000 on this basis, payable by the defendants to the plaintiff within thirty days.

Delay Releasing this Decision

[43] I regret the long delay releasing this decision. I have been on an extended medical absence following a heart attack in August 2012 and a premature return to work in October to December 2012. This left me with an extensive backlog of reserve decisions which I am just now clearing following my return to full-time work in September 2013. Hence the delay.

D.L. Corbett J.

Date: October 11, 2013