COURT FILE NO.: CV-11-419796

DATE: 20140725

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MORRIS ASA, DIONIGI BASTONE, MICHAEL LAMBERT,
PETER LAWSON, FRED MANSOOR, FRANCINE PHILLIP,
CHRISTA SAUTER, D’ARCY SWEENEY, GRANT THEAKSTON,
and KILIAN WALSH

Plaintiffs

AND:

DAVID SACKS, GARY POLLACK, 465519 ONTARIO LIMITED,
ROBERT MILNE, HUTCHINSON COWLING LLP, NEIL COWLING,
DEIGHTON HUTCHINSON, LESMILL CONSULTING INC., SILPIT
INDUSTRIES CO. LTD., FIRST NATIONAL FINANCIAL GP CORP-
ORATIO, CASSELS BROCK & BLACKWELL LLP, LORNE SHAPIRO,
SHARON SHAPIRO and CECIL SCHWARTZ

Defendants

BEFORE: Mr. Justice Lederer

COUNSEL: Brian P. Bellmore, for the Plaintiffs

Megan Marrie, for the Defendants,
Hutchinson Cowling LLP, Neil Cowling and Deighton Hutchinson

Tanya Pagliaroli, for the Defendant, Cecil Schwartz

Oscar Strawcynski, for the Defendant, Gary Pollack

HEARD: July 22, 2014

ENDORSEMENT

[1] This is a motion brought pursuant to rule 48.04 (1). In this matter, certain of the defendants have indicated their intention to bring motions for summary judgment. Despite the fact that, at their behest, the matter has been set down for trial, the plaintiffs seek leave to bring a cross-motion seeking summary judgment in their favour.

Background

[2] The plaintiffs were partners in the Winston Village Partnership. It was formed in 1980. The sole purpose of the partnership was to purchase property required for, complete construction of, own and operate a seventy-two unit rental townhouse project in the City of Guelph. The defendant, 465519 Ontario Limited, is a corporation formed and organized to hold the property, as a bare trustee, on behalf of the Winston Village Partnership.

[3] The defendant, Cecil Schwartz, is a lawyer. At the time, the law firm to which he, then, belonged undertook the legal work necessary to form the partnership and incorporate the company. Subsequently, he became the lawyer for the Winston Village Partnership. The defendant, Hutchinson, Cowling LLP and predecessor firms, were and remained the accountants for Winston Village Partnership, 465519 Ontario Limited and some, or all, of the plaintiffs. The defendants, Neil Cowling and Deighton Hutchinson, are chartered accountants. They were and are partners in Hutchinson, Cowling LLP and predecessor firms.

[4] The defendants, David Sacks and Gary Pollack, were chartered accountants and partners in firms that were predecessors to the defendant, Hutchinson, Cowling LLP. Initially, Gary Pollack was and, subsequently David Sacks became, the general partner of the Winston Village Partnership.

[5] It is alleged that, in March 1998, acting on instructions of either or both of David Sacks and Gary Pollack, the lawyer, Cecil Schwartz, amended the corporate books and records of 465519 Ontario Limited to record Gary Pollack as its sole shareholder, officer and director. It is alleged that, during the year 2004, this time on the instructions of David Sacks, Cecil Schwartz changed the corporate documents of 465519 Ontario Limited to record David Sacks as its sole shareholder and director in place of Gary Pollack. It is said that both these changes were implemented without confirming that they had been authorized; in the first case, by the Board or the other partners and, in the second case, by Gary Pollack. It is further alleged that, subsequent to each of these changes, a succession of mortgages were registered against the property held by 465519 Ontario Limited to the benefit of first, Gary Pollack and, then, David Sacks without advice to, or the authority of, any of the other partners, in particular, the plaintiffs. It is said that the legal work necessary to complete these mortgages was undertaken by Cecil Schwartz and that while Neil Cowling, one of the accountants, was aware of at least two of these mortgages they were not recorded in the financial statements of the partnership or the corporation and the plaintiffs were not advised of their existence. There is one exception. In 2008, a first mortgage was placed on the property to secure a $5.7 million loan. This mortgage was recorded on the balance sheet attached to the Notice to Reader addressed to the partners. The plaintiffs say that Hutchinson, Cowling resigned as accountants to the partnership on April 30, 2009. The statements which recorded the 2008 mortgage were, apparently, not provided to the partners until January 2010. By the time the plaintiffs became aware of these problems, it was too late. There was a default on the current mortgages and the property was or had already been sold under power of sale.

[6] As a result, this action was commenced. The Amended Amended Statement of Claim is dated February 8, 2011. Examinations-for-Discovery were conducted between November 2012 and May 2013. A mediation was held on October 1, 2013. The plaintiff set the action down for trial on November 4, 2013. A 22-day trial has been scheduled to begin on May 25, 2015.

[7] In the meantime, the action had been discontinued against the defendants, Lorne Shapiro, Sharon Shapiro and Cassels Brock. David Sacks, 465519 Ontario Limited, and Lesmill Consulting Inc. did not defend and have been noted in default. On November 4, 2013, the defendants, Robert Milne, a mortgage broker, and Silpit Industries Co. Ltd., a mortgage lender to 465519 Ontario Limited, brought motions for summary judgment seeking to have the claims against them dismissed. The motions were heard by Mr. Justice Perell and the orders sought made. Among the reasons for the dismissal of the claim as against Silpit Industries Co. Ltd. (there were several), was the determination that the plaintiffs, as limited partners, were without standing to bring the action against it. “It is well-established law that individual shareholders or individual Limited Partners have no cause of action for alleged damages to their corporation or Limited Partnership. If an action is brought in respect of the losses of the corporation or Limited Partnership, the action must be brought either by management of the corporation or the Limited Partnership, by way of a derivative action” (Asa v. Sacks, 2013 ONSC 7133, being the decision of Mr. Justice Perell, at para. 202). There is no derivative action and, on that basis, Mr. Justice Perell concluded that the plaintiffs did not have standing to advance a claim against Silpit Industries Co. Ltd. This reasoning also applied to the claims against Robert Milne (Asa v. Sacks, supra, at paras. 205 and 232).

[8] Prior to May 28, 2014, the day on which the trial date was set, counsel for Hutchinson, Cowling LLP, Neil Cowling and Deighton Hutchinson advised counsel for the plaintiffs that, based on the decision of Mr. Justice Perell, they would move for summary judgment. Counsel for Cecil Schwartz received the same instructions. This morning, without prior notice to the Court, counsel on behalf of the defendant, Gary Pollack, appeared for the first time, indicated that he had been retained with respect to any motions for summary judgment and advised that he was instructed, like the others, to bring a motion for summary judgment.

[9] In response, counsel for the plaintiffs brings this motion seeking leave, in the face of having set the matter down for trial, to bring a cross-motion seeking summary judgment on their behalf.

Legal Considerations

[10] The authority for the motion is found in rule 48.04 (1), which says:

Subject to subrule (3), any party who has set an action down for trial and any party who has consented to the action being placed on a trial list shall not initiate or continue any motion or form of discovery without leave of the court.

[Emphasis added]

[11] Typically, leave is sought where circumstances have changed or some necessary step requiring a motion has been missed and the permission of the court is requested, the matter having been set down for trial (see: Fruitland Juices Inc. v. Custom Farm Services Inc. et al, 2012 ONSC 4902, 112 O.R. (3rd) 453; 2012 ONSC 4902 (), at para.26). This situation is different. The motion which the plaintiffs wish to bring is not founded on a concern that the action is not ready for a final determination but, rather, to utilize summary judgment as a means of coming to that resolution in a more expeditious manner.

[12] In opposing the motion, counsel for the various defendants rely on the following:

In my view leave should not be granted to the plaintiff to pursue a motion for summary judgment. The facts underlying the proposed motion have been known to the plaintiff before the matter was set down for trial and no new or unexpected change in the circumstances have been shown since that date. While it is, of course, appropriate for the court to consider that a successful motion for summary judgment might obviate the need for a trial or substantially lessen the time required for trial the plaintiff has not demonstrated either that the motion for summary judgment will likely be successful or that such a motion will be dispositive as it is agreed that the issue of the plaintiff’s damages will remain outstanding. In the circumstances where this action has been on the trial list for almost one year, and, where it is not unreasonable to suppose that the matter will proceed to trial in the not too distant future it is not, in my view, appropriate to bring a motion for summary judgment at this late date.

(Theodore Holdings Ltd. v. Anjay Ltd., [1993] O.J. No. 2042 (Gen. Div.), at para. 16)

[13] In the years since this statement, our perspective on the need for, and recognition of the advantages offered by, motions for summary judgment have changed. Most recently, the Supreme Court of Canada has observed:

Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.

To that end, I conclude that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims.

(Hryniak v. Mauldin, 2014 SCC 7, 2014 S.C.C. 7, at paras. 2 and 5)

[14] It is in this current context that further consideration was given to a motion for leave to seek summary judgment after the action had been set down for trial:

The requirement for a substantial and unexpected change in circumstances is not a helpful or logical test where the motion for which leave is requested seeks summary judgment. The primary purpose of such a motion is to spare the parties and the legal system the expense and intrusion of an unnecessary trial or, at least, unnecessary issues within the trial. A party is not obliged to bring a summary judgment motion at the earliest opportunity; neither must there be a precipitating event such as a change in circumstances. So long as the motion, if successful, will be less costly and time-consuming than the trial, and will not unduly delay the start of the trial, I do not see why the moving party must explain his or her choice of timing [See Note 3 below]. In other motions (such as to add parties, raise new issues or amend pleadings), the explanation for a delay in so moving is relevant, as is the issue of prejudice to the opposing party. However, none of that is relevant or required in a motion for summary judgment, at least in the circumstances of this case. A summary judgment motion brought at any time is a potential blessing for the administration of justice.

[Emphasis added]

(Fruitland Juices Inc. v. Custom Farm Service Inc., supra, at para. 28)

[15] In Note 3 to which this quotation refers, the motion judge observed:

And, when arguing leave, I do not see the need for the moving parties to satisfy any threshold regarding the merits of the proposed motion for summary judgment. It would be for the responding party to show that the proposed motion is utterly devoid of merit.

[16] This is not to say that, where leave is sought, the question of the merits of the proposed motion is entirely irrelevant:

…when asked to grant leave under subrule 48.04(1) to bring a motion for summary judgment, the court should consider whether the proposed motion is likely to provide a ‘proportionate, more expeditious and less expensive means to achieve a just result than going to trial.’ In most cases, this would include some consideration of the likelihood of success.

(Dickson v. Di Michele, 2014 ONSC 2513, [2014] O.J. No. 1925, at para. 10; and. see: 2014 ONSC 3043, [2014] O.J. No. 2369 where leave to appeal to the Divisional Court was refused. The quotation internal to this quote is from Hryniak v. Mauldin, supra, at para. 4)

[17] It is with this more recent understanding of our approach to motions for summary judgment that this motion for leave should be considered. It is, in essence, a procedural motion: one which examines the efficacy of the process being proposed and only to that extent accounts for the substance or merits of the motion for summary judgment that will be brought if the motion is successful. A measure of the procedural efficacy required may be seen in circumstances where what is to be determined on the summary judgment motion cannot be separated from what would remain:

The plaintiff claims psychological damages, including post-traumatic stress disorder, accompanied by nightmares. Counsel for the defendant wishes to challenge the plaintiff’s position that she suffered trauma as a result of a frightening dog attack. This being the case, the evidence of the incident itself, upon which a finding of liability would be based, would need to be explored again at trial for the purpose of determining damages.

and

I do not see any material savings resulting from the proposed summary judgment motion. More likely, even if successful, the motion would increase the overall costs of the proceeding.

(Dickson v. Di Michele, supra, at paras. 17 and 19)

[18] In the case quoted, leave to bring a summary judgment motion was refused.

Analysis

[19] In the case I am asked to decide, counsel representing the accounting firm and the accountants and counsel for the lawyer submitted that their motions for summary judgment would be founded on a single, narrow proposition. As with the decision of Mr. Justice Perell, it is the view of counsel that the plaintiffs are without standing to pursue their clients because, as limited partners, in the absence of any authority to bring a derivative action, the plaintiffs have no ability to sue for the damages being claimed. They are the losses of the partnership and not the individual plaintiffs.

[20] Counsel for the plaintiffs submitted that the law on this issue is not clear. He referred to the case of Sherman v. Orenstein & Partners, [2003] O.J. No. 3361 (S.C.J.) affirmed 2005 44674 (ON CA), [2005] O.J. No. 5161 (C.A.), where the following appears:

Although it follows that, as limited partnerships, Great Gatsby and Elegance had attributes of corporations to a greater extent than if they were general partnerships, I see no reason of principle why that should be considered sufficient to create, or support, the proposition that duties to exercise reasonable skill and care in the performance of their professional responsibilities were owed to the partnerships and not to the partners.

(Sherman v. Orenstein & Partners, supra, at para. 68)

[21] The defendants respond by submitting that the case is distinguishable. The damages being sought were not the damages of the partnership, but losses that were personal to the plaintiff, a limited partner:

The damages claimed by the plaintiff related to his interest payments to OCGC [the general partner] in the period after April, 1988 and before January, 1990. In the aggregate, these amounted to $634,996.80.

(Sherman v. Orenstein & Partners, supra, at para. 106)

[22] Counsel for the plaintiffs responds by suggesting that, in effect, the same is the case here. The plaintiffs have relationships with the accountants and the lawyer which are independent of, or at least separate from, their status as limited partners. The lawyer was instructed to do what was necessary to form the partnership and, as part of that responsibility, to prepare the partnership agreement. At that point, there was no partnership. The clients of the lawyer were the individuals who subsequently became limited partners. As counsel sees it, this created a separate duty of care owed by the lawyer to the plaintiffs, a duty that is said to have continued and was breached.

[23] In a similar vein, counsel says that there is an independent relationship between the accountants and the limited partners. The accountants have done work for some of the individual limited partners and, to that extent, have an independent relationship with them demonstrating a duty of care separate from their role as accountants for the partnership. Moreover, the material provided to the court on the motion for leave included the financial statements provided in respect of “Winston Village” for the years 1999, 2005 and 2006. In each case, the “Notice to Reader” which accompanied the delivery of the statements is addressed to “…the Partners of Winston Village”. Those receiving the statements are cautioned as to the level of reliance that should be placed on them (“Readers are cautioned that these statements may not be appropriate for their purposes.”). Counsel is of the view that the fact that the statements are delivered to the “partners”, as opposed to the partnership or the general partners, is the recognition of a direct relationship with each of the partners, including the limited partners and demonstrative of a duty owed to each of them, a duty which is said to have been breached. On this reading, the caution could serve to confirm the understanding that it was expected that each of the partners would, for their own purposes, rely on the statements as delivered.

[24] Counsel for the plaintiffs submitted that to respond to the motions for summary judgment proposed by counsel for the lawyer (Cecil Schwartz) and counsel for the accountants (Hutchinson, Cowling LLP. Neil Cowling and Deighton Hutchinson), it will be necessary for all of the information respecting the relationship between the parties to be placed before the court. To put it simply, counsel for the plaintiffs says that the motions will not be as narrowly circumscribed as counsel for the parties bringing those motions suggest. Moreover, once all the information required to respond is in place, it is said that the plaintiffs will be in a position to argue that summary judgment should be granted on their behalf. It is on this basis that they seek leave to bring a cross-motion seeking that relief.

[25] The answer to the question of whether allowing for such a motion will lead to a more efficacious process is made simpler by the introduction of counsel for Gary Pollack. He, too, says a motion for judgment will be brought on behalf of his client, but he is not prepared, as are the others, to limit it to the question of whether the plaintiffs have standing. It should be said that his client, Gary Pollack, is in a different position than that of the accountants and the lawyer. Gary Pollack, while at a time a member of the accounting firm, was also a general partner of the Winston Village Partnership. The partnership agreement contains a provision by which each limited partner gives a power of attorney to the general partner to record and file the documents necessary to operate the partnership as outlined in the partnership agreement. As counsel for the plaintiffs sees it, the power of attorney is the basis of a duty of care (it may be that there is a fiduciary duty) owed by a general partner to the limited partners, a duty that has been breached by the mortgages which it is said were for the personal benefit of Gary Pollack and, subsequently, David Sacks. The indication that a broader motion for summary judgment is to be brought serves to underscore the likelihood that the plaintiffs will have to provide a more comprehensive response leading to the prospect that the material necessary to support a motion for summary judgment in favour of the plaintiffs will be before the court. This suggests that little will be lost and time saved if the plaintiffs are permitted to move for summary judgment.

[26] What is apparent from the different positions taken by the various parties is that the motions for summary judgment proposed by the defendants may raise issues that demand a full response from the plaintiffs, not the sort of limited information base the defendants foresee. Any further inquiry into the merits of the defendants’ prospective motions would require consideration of the substance and validity of the position the plaintiffs intend to rely on. A judge would have to inquire into whether there are sufficient grounds to believe the action, as against the lawyer, the accountants and the general partner can and should be resolved by way of a summary judgment without reliance on the broader questions counsel for the plaintiffs say these motions will raise. To my mind, this would go well beyond the contribution any consideration of the merits may make to the efficacy of the motion and into the substance of the issues to be determined on a motion for summary judgment.

[27] The defendants have a further objection to the motion of the plaintiff seeking leave. Collectively, they say that the time that a motion for summary judgment brought by the plaintiffs will take militates against a determination that it will expedite the process. In part, the defendants rely on the position taken on behalf of the plaintiffs when the Certification Form was filed with the Trial Coordinator in furtherance of obtaining a date on the Long Trial List. It refers to 7-8 witnesses being called on behalf of the plaintiffs (including 2 experts) and 8-9 witnesses being called on behalf of the defendants (including 3 experts). It was estimated that the plaintiffs’ case would take 7 days and the defendants’ case 15 days, for a total of 22 days for the trial. To counsel for the defendants, this was a more realistic evaluation of what will be required to resolve the issues of the plaintiffs and they should be held to it. This denies the obvious. The understanding of how a matter may best be dealt with can evolve. The actions of the other side can have an impact on that evaluation.

[28] Counsel for the defendants submitted that their motion for summary judgment would take 1 day. This relies on the narrower view of the issue (standing of limited partners to sue for losses suffered by the partnership) as opposed to the broader understanding of the plaintiffs as to what they require to respond (recognition of a duty of care owed by each of the defendants to the plaintiffs independent of their position as limited partners). It also does not consider the impact of the extended motion and participation of Gary Pollack. The plaintiffs say that, if they are granted leave, their motion will take 3 days. No matter how all of this is weighed, there is the prospect of a substantial saving of time. A trial date has been set for May 25, 2015. There is plenty of time to have the motions heard before that day. There is always a risk that the motions will all fail and a trial required. Even if this is what transpires, there remains the hope that any decision that is made or greater understanding of the issues that is forthcoming will reduce the time the trial will take up.

[29] For the reasons reviewed herein, the motion for leave is granted.

[30] As agreed to by the parties, costs of this motion are to be in the cause.

LEDERER J.

Date: 20140725