Court File and Parties

COURT FILE NO.: CV-15-11147-00CL DATE: 20170524 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

B E T W E E N:

TREZ CAPITAL LIMITED PARTNERSHIP, TREZ CAPITAL (2011) CORPORATION and COMPUTERSHARE TRUST COMPANY OF CANADA Plaintiffs

and

DR. STANLEY BERNSTEIN, NORMA WALTON, RONAULD WALTON, DBDC WEST MALL HOLDINGS INC., 2272551 ONTARIO LIMITED, DBDC GLOBAL MILLS LTD., WEST MALL HOLDINGS LTD., WYNFORD PROFESSIONAL CENTRE LTD., GLOBAL MILLS INC., DEVRY SMITH FRANK LLP and JOHN TODD HOLMES Defendants

BEFORE: Newbould J.

COUNSEL: Peter H. Griffin and Shara N. Roy, for the Dr. Stanley Bernstein, DBDC West Mall Holdings Inc., 2272551 Ontario Limited, DBDC Global Mills Ltd. and Wynford Professional Centre Ltd. Irving Marks and Dominique Michaud, for the Plaintiffs Jessica S. Parise, for Norma and Ronauld Walton

HEARD: May 18, 2017

Amended Endorsement

Nature of action and motion

[1] Dr. Bernstein and his companies move for summary judgment dismissing the claims against them on the grounds that the action is statute-barred under the Limitations Act, 2002. Central to the motion is a telephone call that took place between Mr. Reitan, an employee of Dr. Bernstein's companies, and Mr. Gaetano Coscia of Trez Capital Limited Partnership (“Trez”) on September 13, 2013 in which it is claimed that Trez was put on sufficient notice that it had a claim against Dr. Bernstein to cause the limitation period to start running. The action was not commenced until October 20, 2015, more than two years after the telephone call.

[2] Affidavits were filed and out of court cross-examinations were conducted. A mini-trial was ordered to deal with the limitation issue at which viva voce evidence from Dr. Bernstein, Mr. Reitan and Mr. Coscia was given. The parties agree that this procedure is sufficient and capable and that there is a sufficient record for a binding finding of fact to be made as to what took place during the telephone call and for a finding of whether the action is statute-barred.

[3] The genesis of this action is a business relationship between Dr. Bernstein and Norma and Ronauld Walton who operated a business The Rose & Thistle Group Ltd (“Rose & Thistle”). Beginning in 2008, Dr. Bernstein acted as the lender/mortgagee of several commercial real estate properties owned by the Waltons either through Rose & Thistle or through other corporations of which they are the beneficial owners. Following several financings, Dr. Bernstein and the Waltons agreed to invest jointly in various commercial real estate projects. Dr. Bernstein invested approximately $110 million in 31 commercial real estate projects. Each project was held in a separate company in which Dr. Bernstein was a 50% shareholder and the Waltons were 50% shareholders. The Waltons were to manage and supervise the projects and arrange the financing for the projects. Details of the arrangements and what went wrong can be found in several decisions of this Court, including a decision of October 7, 2013 in which Schonfeld Inc. was appointed an inspector of the 31 companies and a decision of November 5, 2013 in which Schonfeld Inc. was appointed a manager over the properties of the 31 companies.

[4] Trez is a commercial lender that advanced approximately $50 million in mortgage loans to four projects jointly owned by Dr. Bernstein and the Waltons, being (i) $18 million to Global Mills Inc. (“Global Mills”) which owned property at 1450 Don Mills Rd; (ii) $1,937,500 to West Mall Holdings Limited (“West Mall”); (iii) $9,850,000 to Wynford Professional Centre Ltd.(‘Wynford”); (iv) $16.8 million to Royal Gate Nominee Inc. (“Royal Gate”); and (v) increasing the Global Mills mortgage from $18 million to $21 million. On each of those loans, the Waltons represented to Trez that they were beneficial owners of 100% of the shares of the corporations that held the properties. The representations were not true as Dr. Bernstein owned 50% of the shares of each company.

[5] A receiver was eventually appointed over each of the properties and they were sold by the receiver with court approval. Trez did not suffer a loss on the Royal Gate project. It did suffer a loss on the Global Mills, West Mall and Wynford projects as the proceeds of sale were not sufficient to pay out the Trez secured loans on those properties. In this action started by Trez on October 25, 2015 it is claimed that Dr. Bernstein fraudulently authorized and directed the Waltons to make the misrepresentations to Trez regarding the Waltons owing 100% of the borrowing companies and that he did so to shield himself from having to sign a guarantee of the loans. Claims of fraud, conspiracy and oppression are made against him.

[6] For the reasons that follow, the motion by Dr. Bernstein and his companies is dismissed.

Relevant factual background

[7] Mr. Reitan in 2013 was the Director of Accounting and Finance at Dr. Bernstein Diet & Health Clinics. He is now the CFO. He was in charge of clinic operations and in 2013 was becoming involved in Dr. Bernstein's real estate investments. He became concerned with several aspects of the way Norma Walton was operating the projects and he emailed her on June 7, 2013 setting out his concerns, including concerns that the Waltons were not making their portion of the equity investments they had agreed to make, they were taking on third party investors, they were engaged in significant related party transactions and Dr. Bernstein was not receiving the required reporting. Ms. Walton’s reply did nothing to assuage Mr. Reitan’s concerns which he says made him more concerned with Dr. Bernstein's investments with her.

[8] Mr. Reitan had title searches done on all of the 31 properties. They are dated August 14, 2013. He learned that on the 1450 and 1500 Don Mills Rd. properties, new mortgages of $3 million had been put on each of the properties. For 1450 Don Mills Rd. owned by Global Mills, the $18 million mortgage had been increased to $21 million on July 31, 2013. For 1500 Don Mills Rd., owned by El-Ad (1500 Don Mills) Limited, a $3 million mortgage was registered on August 1, 2013 to a lender other than Trez.

[9] Two weeks later, Mr. Reitan called Mr. Bucci at Rose & Thistle and requested that he document the payment to Trez for August for the Global Mills property. Under the agreements between Dr. Bernstein and the Waltons, each property was to be siloed with its own bank account from which all payments required for the property were to be paid. In an email of August 29, 2013 to Mr. Bucci and Ms. Walton, Mr. Reitan stated that it was clear that funds had been transferred from Global Mills to Rose & Thistle (rather than going directly from Global Mills to Trez as should have been the case), and he asked that if there was any change in the status of the mortgage, Mr. Bucci should immediately inform him and document the change. Mr. Reitan did not tell Mr. Bucci or Ms. Walton that he was aware that the mortgage loan had been increased by $3 million.

[10] On September 4, 2013 no response had been received. Mr. Reitan again emailed Mr. Bucci and Ms. Walton asking for payment confirmation for the Global Mills mortgage payment for August in the amount of $127,000. This was the amount of the interest payment for the original mortgage of $18 million. Again, nothing was said about Mr. Reitan and Dr. Bernstein knowing the mortgage had been increased to $21 million or that the monthly payment would be higher than the $127,000. On September 11, 2013 Ms. Walton emailed Mr. Reitan and Dr. Bernstein and said that $127, 000 per month was being made to Trez for the Global Mills mortgage. Mr. Reitan and Dr. Bernstein had to know that was misleading because the increased mortgage payment would be more than $127,000 per month.

[11] On September 13, 2013 at 7 a.m. Mr. Reitan emailed Ms. Walton and Mr. Bucci complaining of not receiving complete information and the fact that payments were being made by Rose & Thistle to Trez instead of by Global Mills to Trez. He said he would need to validate the transaction with Trez. At 8 a.m. Ms. Walton then emailed Mr. Coscia at Trez and asked for a quick email confirming that all payments for the mortgage at 1450 Don Mills Rd were in good standing and said that her accountants needed this information so they could paper their file. At 9:31 a.m. Mr. Coscia emailed Ms. Walton and confirmed that Global Mills was in good standing with Trez with no arrears to report, and this was forwarded to Mr. Reitan and Dr. Bernstein. Mr. Reitan testified that the request by Ms. Walton to Mr. Coscia was troubling because she was not asking Mr. Coscia for the information that Mr. Reitan wanted and she was misleading Mr. Coscia as to who wanted the information.

[12] Mr. Reitan testified that he then spoke to Dr. Bernstein and they agreed he would call Trez. He said that they agreed that Dr. Bernstein was a 50% owner and that he had a right to the information they were seeking. Mr. Reitan said that meant to him that he could disclose that Dr. Bernstein was a 50% owner. He said there was no discussion about disclosing to Trez that they knew the mortgage had been increased and that Dr. Bernstein had not been aware of it at the time and had not consented to it. Mr. Reitan testified that his focus was validating the payment, the amount of payment, and where it came from.

[13] Dr. Bernstein said in his affidavit that when Mr. Reitan spoke to him he told Mr. Reitan to contact Mr. Coscia at Trez, that he had no reservations in contacting Trez and that he did not instruct Mr. Reitan to withhold information about his interest in Global Mills. “Quite the opposite. I believed that it was because I was a 50% shareholder of Global Mills Ltd. that I was entitled to the information about the Trez mortgage.” At trial, Dr. Bernstein said that he and Mr. Reitan discussed that they should call Trez and let Trez know who they were and they definitely discussed telling Trez that he was a 50% shareholder.

[14] Mr. Reitan then called Mr. Coscia that morning on September 13, 2013. In his affidavit he said that he identified himself by name and as the director of accounting and finance at Dr. Bernstein Diet and Health Clinics, that he told Mr. Coscia that Dr. Bernstein was a 50% shareholder in Global Mills Inc., that he was trying to obtain documentation regarding the Global Mills mortgage from Ms. Walton and that Ms. Walton refused to provide it. He said that Mr. Coscia refused to provide him with any information and did not acknowledge Dr. Bernstein’s interest and did not indicate any interest in investigating the Waltons’ apparent misrepresentation of the ownership of Global Mills. He testified that he did not disclose to Mr. Coscia that he was aware that the Global Mills mortgage had been increased and that Dr. Bernstein had not consented to it.

[15] Mr. Reitan testified that after the call to Mr. Coscia he told Dr. Bernstein that he told Mr. Coscia that Dr. Bernstein was a 50% owner and that Mr. Coscia would not give him any information. Dr. Bernstein testified to the same effect as to that discussion with Mr. Reitan.

[16] Mr. Reitan did not confirm to Mr. Coscia in writing after the call that Dr. Bernstein had a 50% interest in the Global Mills property or disclose that he was aware that the mortgage had been increased without Dr. Bernstein's knowledge or consent.

[17] After his call to Mr. Coscia Mr. Reitan said he then emailed Ms. Walton. His email to her at 11:31 that morning said his request for information was outstanding and he wanted confirmation in a document of the payment of $127,500 for the August and September mortgage payments. Again, he did not suggest he knew the mortgage payments would have had to be higher.

[18] Mr. Coscia worked for Trez from July, 2011 to January of this year when he joined a new organization. His responsibility at Trez as a vice-president was to bring in mortgage business to Trez. In his affidavit he denied that Mr. Reitan disclosed Dr. Bernstein's interest in Global Mills. He said that Ms. Walton emailed him on the morning of September 13, 2013 and asked that he confirm by email that the Global Mills loan was in good standing and that Rose & Thistle’s accountants needed this confirmation so they could paper their file. After he confirmed this to her, he received a phone call from her advising him that he should anticipate receiving a call from someone at her accountant's office where he would be asked questions in respect of the standing of the Global Mills loan.

[19] In his affidavit, Mr. Coscia said that following the phone call with Ms. Walton, he received a telephone call from a man. He did not recognize the person and he did not believe that the person identified himself by name. During the call, which he said was very brief, he was asked to and did confirm that Global Mills had borrowed the funds for the Global Mills loan and that the loan was in good standing. After he confirmed the status of the Global Mills loan, he was asked some more detailed questions about the borrower and the property. He advised that he could not answer these types of additional questions as he did not have approval from the borrower. He believed that he was prohibited from answering these additional questions as a result of privacy regulations. He said the call was completely uneventful and for that reason did not make any notes or follow up with Ms. Walton.

[20] On his cross-examination out of court, Mr. Coscia said it was possible that the caller identified himself by name but beyond that no details were provided. At the trial, Mr. Coscia testified on cross-examination that if the caller had identified himself and said that Dr. Bernstein was a 50 percent equity owner in the properties, after his heart stopped and he found a defibrillator, he would have picked up the phone and called the Trez partners.

[21] On November 7, 2013 Mr. Coscia received a call from Mr. Goldberg of Rose & Thistle advising that a receiver had been appointed to manage 31 properties of their properties, five of which Trez had financed, and that they were not going bankrupt but rather the receivership was as a result of a dispute they had with their equity partner Dr. Bernstein. Mr. Coscia's evidence is that this is the first that he heard that Dr. Bernstein was an equity partner with the Waltons and may have had an ownership interest in the properties that Trez financed. That day he reported his conversation to the Trez partners and spoke with Trez’s outside counsel.

[22] The mortgage commitments of Trez, including the Global Mills, West Mall and Wynford commitments and the increase in the Global Mills commitment to $21 million, all of which were signed by the Waltons, stated that the authorized share capital for each borrower consisted of 50 common shares held by Norma Walton and 50 common shares held by Ronauld Walton. It is acknowledged that these were misrepresentations.

Analysis

[23] The first issue is to determine what was said in the telephone call from Mr. Reitan to Mr. Coscia on September 13, 2013. Neither made a note of the call. Nor did Mr. Reitan or Dr. Bernstein make any notes of their conversations said to have been conducted just before and after the call. It is necessary to weigh conflicting evidence. Involved in deciding this issue is the need to consider the credibility and reliability of the evidence given.

[24] In making credibility and reliability assessments, I find helpful the statement of O'Halloran J.A. in R. v. Pressley (1948), 94 C.C.C. 29 (B.C. C.A.):

The Judge is not given a divine insight into the hearts and minds of the witnesses appearing before him. Justice does not descend automatically upon the best actor in the witness-box. The most satisfactory judicial test of truth lies in its harmony or lack of harmony with the preponderance of probabilities disclosed by the facts and circumstances in the conditions of the particular case.

[25] I also find helpful the statement of Farley J. in Bank of America Canada v. Mutual Trust Co. (1998), 18 R.P.R. (3d) 213 at para. 23:

Frequently in cases judges will be called upon to make findings concerning credibility of witnesses. This usually is a most difficult task absent the most blatant of lying which is tripped up by confession, by self-contradictory evidence, by directly opposite material developed at the relevant time period or by evidence of an extremely reliable nature from third parties. One is always cognizant that people's perceptions of the same event can sincerely differ, that memories fade with time, that witnesses may be innocently confused over minor (and even major) matters as well as the aspect of rationalization, a very human and understandable imperfection. A point that a witness may not be sure of initially becomes eventually a point that the witness is certain about because it fits the theory of his side. Rationalization will also affect some person's views so that a certainty that a fact was "A" evolves into a confirmation that that fact was "not A".

[26] Farley J. used the word "rationalization". I take his comments to refer to what is often said to be "reconstruction" of evidence. Reconstruction can be either inadvertent or advertent. In either case, when it occurs, it is something that the trier of fact must consider in weighing evidence.

[27] For the reasons that follow, I prefer the evidence of Mr. Coscia to that of Mr. Reitan and Dr. Bernstein whose evidence was given to corroborate Mr. Reitan's evidence. I find that while Mr. Reitan may have identified himself, he did not tell Mr. Coscia that Dr. Bernstein was a 50% shareholder of Global Mills or a 50% owner of the Global Mills property.

[28] Dr. Bernstein gave evidence that prior to Mr. Reitan's call to Mr. Coscia he had no reason to know whether Trez knew about him or not, i.e. whether he was a shareholder of Global Mills. He also testified that he did not give any thought to it because it was not his responsibility to organize financing and that he did not know how Trez looked for guarantors. I do not accept his evidence as it is quite clear that he knew that Ms. Walton was misrepresenting to lenders, including Trez, that she and her husband were the only shareholders of the borrowing companies and that she was doing this so that they would not ask for Dr. Bernstein's guarantee. He knew that lenders such as Trez would ask for his guarantee if they knew he was a shareholder or director of the borrowing company.

[29] On February 25, 2013, Ms. Walton sent an email to Dr. Bernstein as follows:

Dear Stan,

I hope you are well.

As our business grows, Ron and I are working on eliminating the need for personal guarantees of any kind on our mortgages for our properties. In the meantime, though, each institutional lender wants us and all directors and shareholders to personally guarantee the mortgages. That has become a problem with our jointly owned portfolio. Hence, if we advise that you are a joint owner and director, they want your personal guarantee or your company's personal guarantee. Obviously we have refused to either disclose or provide that.

To remove any focus on your personal or business covenant, I have asked Tom to prepare your resignation as a director for Wynford, Spadina and Eglinton. Obviously our partnership agreement will remain in place but you will not show as a director of the company for public consumption purposes and thus the lenders will not ask for your guarantee on the mortgages. I hope that is okay. It seems to me the simplest method of removing you from the lender's radar while preserving your 50% ownership.

If agreeable, please sign and return to me via PDF.

Thanks!

Norma

[30] Dr. Bernstein signed his resignation as a director to the companies in question, including Wynford that was borrowing from Trez at the time, so that he would not be asked for his guarantee. After the loans were funded, he immediately became a director again of the companies.

[31] Dr. Bernstein received copies of the Trez loan commitments. They disclosed that the Waltons were the sole guarantors and the sole shareholders. Dr. Bernstein testified that he read the first part of the commitments that said who the guarantors were but did not read the later pages which said that the Waltons were the sole shareholders. This is convenient evidence that I have difficulty accepting and I have considerable doubt that Dr. Bernstein would be that careless. He had been a significant mortgage lender to the Waltons before becoming an investor of some $110 million in the 31 projects. However, whether or not he had read the pages that represented that the Waltons were the sole shareholders, he knew Ms. Walton was deceiving the lenders such as Trez about his shareholdings and he did not take any steps to stop it. He agreed with what she was doing and he participated in the deception by temporarily resigning as a director to permit the loans to be funded without his guarantee.

[32] In these circumstances, I find it hard to accept that Dr. Bernstein was so easily willing to disclose to Trez his shareholding in Global Mills. He would know that if he did so, he would be asked on any refinancing of Trez mortgages to provide his guarantee, something that he did not want to do. He testified that he did not think about the consequences of disclosing his shareholdings to Trez. When asked that if he disclosed his shareholding he knew that on any refinancing of the Global Mills mortgage Trez would ask for his guarantee, his response was that he didn’t even think that far down the road. I do not accept that evidence. Dr. Bernstein was well aware that Trez had financed some $50 million on projects he and the Ms. Walton were involved in and that the mortgages were not long term. He was too sophisticated and experienced not to think of the consequences of now disclosing his shareholding to Trez.

[33] If Mr. Reitan told Mr. Coscia that Dr. Bernstein owned 50% of the shares of Global Mills, his rationale for not telling Trez that Dr. Bernstein was aware of the $3 million increase in the mortgage and did not consent to it makes little sense. According to Mr. Reitan, he said he was trying to salvage a relationship with Ms. Walton and he wanted to have Trez disclose the size of the increased mortgage payment that had been made as “that would give me something now to go back to Norma with to continue a more substantive conversation.” Mr. Reitan had all he needed without the call to Trez to go back to Ms. Walton. He had been unhappy with Ms. Walton and the way she operated for some time and had not hesitated to tell her that in June. He was not getting responses from her and he eventually had obtained a search of title that showed the increased mortgage that he says Dr. Bernstein did not agree to.

[34] Further, there was no attempt to “salvage” a relationship with Ms. Walton. Dr. Bernstein testified that as soon as Mr. Reitan could get no information from Mr. Coscia on September 13, 2013, they decided to get lawyers involved. On September 20, 2013, Dr. Bernstein appointed Schonfeld Inc. to gather information related to the projects. When Ms. Walton was not forthcoming an application was quickly brought to have Schonfeld Inc. appointed an inspector and the application was heard and ordered on October 4, 2013.

[35] If Dr. Bernstein had been open with Trez and willing to disclose his shareholding, which he knew would come as a surprise to Trez, and he had not agreed to the increased mortgage for the Global Mills project, it would have been normal and the reasonable thing to do to immediately notify Trez not only that he was a 50% shareholder but that he had not agreed to the increase in the mortgage and to put that in writing. A difficulty in him doing that, however, was that he knew that the original mortgage loan from Trez and the increase in the loan had been made with Trez being misled into thinking that the Waltons were the only shareholders of Global Mills and that Trez might well find out that he was complicit in that.

[36] What Mr. Coscia did is consistent with his not being told about Dr. Bernstein's shareholding in Global Mills in the call from Mr. Reitan. He made no note, which is consistent with him not being told anything of importance. He was the person who brought in the Waltons as borrowers from Trez of approximately $50 million in mortgages and if he learned that Trez had been deceived, there would have been no reason for him to keep that to himself. He was not responsible for the credit side of the business that did the due diligence to be satisfied that the loan should be made. It was argued that as the loans were not in arrears he had no reason to be concerned. I do not accept that. Lenders take guarantees for a reason, which is to have a source of payment if a loan goes bad and the security is not sufficient to retire the loan. Mr. Coscia would be quite aware that if Trez had been aware that Dr. Bernstein was a shareholder at the time the loan was made, it would have wanted his guarantee.

[37] When Mr. Coscia was advised on November 7, 2013 of the court order described to him as a receiver order and that Dr. Bernstein was an equity partner of the Waltons, he immediately wrote an email to the partners of Trez advising of what he had learned. It is argued that it is telling that he did not say that he had not known before that Dr. Bernstein was a shareholder of Global Mills, an indication that he did know that from his call with Mr. Reitan on September 13, 2013. I do not accept that assertion. On the same day he was advised of the order, he spoke with the outside lawyers for Trez and told them of the involvement of Dr. Bernstein. It is said that he may have spoken only of the dispute between Dr. Bernstein and Ms. Walton that he had been told of that day. That is speculation at best. The email from the Mr. Cohen of Blaneys about what Mr. Coscia told him speaks only of the issue of Dr. Bernstein's involvement, not of the dispute.

[38] Mr. Coscia did not provide any more information to Mr. Reitan than what he had already provided to Ms. Walton. That is agreed. He said that he had confidentiality concerns. If he had been told that Dr. Bernstein was a 50% shareholder, there would have been no reason for him to refuse to provide further information to Mr. Reitan. The fact that he did not is an indication that he had not been told that Dr. Bernstein was a shareholder of Global Mills.

[39] I found the testimony of Dr. Bernstein and Mr. Reitan a little too pat. In his affidavit, Mr. Reitan said nothing about speaking to Dr. Bernstein before he called Mr. Coscia. He said only that after receiving Mr. Coscia's email, he phoned Mr. Coscia. After the February 25, 2013 email from Ms. Walton to Dr. Bernstein had been found and produced, and Dr. Bernstein then swore an affidavit dealing with that email, Dr. Bernstein said he talked to Mr. Reitan before Mr. Reitan's call to Mr. Coscia. It was only then that Mr. Reitan said in his evidence that he had had a conversation with Dr. Bernstein before calling Mr. Coscia. Each said in their testimony at the trial that in their discussion before Mr. Reitan called Mr. Coscia, they both said to each other that as Dr. Bernstein was a 50% shareholder, he was entitled to the information and that Trez should be told that Dr. Bernstein was a 50% shareholder of Global Mills. For them to both recall some three and a half years later that each of them said the same thing to the other is a little too coincidental. Particularly when Dr. Bernstein knew that Trez had been misled when the loans were made and had a reason not to disclose that.

[40] Mr. Reitan said that he was not aware of the February 25, 2013 email from Ms. Walton in which the deception of lenders as the shareholders was made clear. Why then would he think that Trez had to be told that Dr. Bernstein was a shareholder? There was no reason for him to think that Trez did not know that. In his cross-examination out of court, Mr. Reitan said that it was “our understanding” that Trez knew that Dr. Bernstein was a 50% owner based on the fact that there was an agreement in place. If Mr. Reitan had that understanding, there was no need for him to tell Mr. Coscia that in his call to him.

[41] It may well have been that Mr. Reitan told Mr. Coscia who he was and that he was with Dr. Bernstein's clinic, although I cannot say that with any confidence taken my view of the evidence of Mr. Reitan. The conversations in question took place over three and a half years ago and there are no notes of Mr. Reitan or Dr. Bernstein as to anything they said to anyone. Whether it is a question of reconstruction on the part of Mr. Reitan, or a matter of credibility, is difficult to say. But I am not persuaded at all that Mr. Reitan told Mr. Coscia that Dr. Bernstein was a 50% shareholder of Global Mills or a 50% owner of the property. I find that he did not tell that to Mr. Coscia. I accept the evidence of Mr. Coscia to the contrary.

[42] On that basis alone, the motion to have the action against Dr. Bernstein and his companies must be dismissed.

[43] In my decision of November 5, 2013 in which Schonfeld Inc. was named as manager of the 31 properties, I rejected an argument by Ms. Walton that Dr. Bernstein had instructed her not to disclose his shareholding. I stated:

[A]s part of the Don Mills Road mortgage transaction documents Ms. Walton falsely certified that only she and her husband were the shareholders of Global Mills Inc. In fact Dr. Bernstein’s company, DBDC Global Mills Ltd., was a 50% shareholder. Ms. Walton testified that Dr. Bernstein had instructed her not to disclose his shareholding interest in Schedule B Companies. Ms. Walton produced no documents to support that allegation, and I reject it.

[44] Unfortunately, the evidence at that time did not include the February 25, 2013 email from Ms. Walton to Dr. Bernstein, nor did Dr. Bernstein admit that he was aware that Ms. Walton was telling the lenders that the Waltons were the only shareholders and that he was participating in the deception by temporarily resigning as a director to permit the lending to take place and then reinserting himself as a director. Based on the evidence before me now, I would not make the finding I made on November 5, 2013 when appointing a manager of the properties. [1]

The Limitations Act, 2002

[45] In light of my finding that Mr. Reitan did not tell Mr. Coscia of Trez that Dr. Bernstein was a 50% shareholder of Global Mills, it is not strictly necessary to deal with issues raised regarding the Limitations Act, 2002 (“Act”). However I shall briefly do so.

[46] Section 4 of the Act provides that a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. Section 5 of the Act deals with when a claim can be said to have been discovered:

Discovery

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[47] Discoverability, as set out in section 5(1)(b), requires a consideration of a reasonable person with the abilities and in the circumstances of the person with the claim, in this case Trez, and when the claimant first ought to have known of the matters referred to in (a). It is a fact-based analysis. In Lawless v Anderson, 2011 ONCA 102, Rouleau J.A. said:

22 The principle of discoverability provides that "a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence. This principle conforms with the generally accepted definition of the term 'cause of action' - the fact or facts which give a person a right to judicial redress or relief against another": Aguonie v. Galion Solid Waste Material Inc. (1998), 38 O.R. (3d) 161 (C.A.), at p. 170.

23 Determining whether a person has discovered a claim is a fact-based analysis. The question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of negligence against the defendant. If the plaintiff does, then the claim has been "discovered", and the limitation begins to run: see Soper v. Southcott (1998), 39 O.R. (3d) 737 (C.A.) and McSween v. Louis (2000), 132 O.A.C. 304 (C.A.).

[48] In Galota v. Festival Hall Developments Ltd. 2016 ONCA 585 at para. 23, Laskin J.A. adopted the following from Fennell v. Deol, 2016 ONCA 249:

While due diligence is a factor that informs the analysis of when a claim ought to have reasonably been discovered, lack of due diligence is not a separate and independent reason for dismissing a plaintiff's claim as statute-barred.

Due diligence is part of the evaluation of s. 5(1)(b). In deciding when a person in the plaintiff's circumstances and with his abilities ought reasonably to have discovered the elements of the claim, it is relevant to consider what reasonable steps the plaintiff ought to have taken. Again, whether a party acts with due diligence is a relevant consideration, but it is not a separate basis for determining whether a limitation period has expired.

[49] Regarding the presumption set out in paragraph 5(2) of the Act, Trez clearly was not aware when the misrepresentations were made regarding share ownership of the three companies involved in this case. The earliest possible time regarding the Global Mills property that Trez could be said to have known of the elements giving rise to a claim would be on September 13, 2013 if on that day Mr. Reitan had told Trez of the shareholding of Dr. Bernstein in Global Mills.

[50] Trez argues that even if Mr. Reitan had disclosed to Mr. Coscia that Dr. Bernstein was a 50% shareholder of Global Mills, that said nothing about the West Mall or Wynford companies that had also obtained mortgage loans from Trez and which form part of the claim pleaded against Dr. Bernstein. Trez says that so far as Global Mills is concerned, Mr. Reitan acknowledged that he did not tell Mr. Coscia when Dr. Bernstein acquired shares in Global Mills. That is, it would not have put Trez on notice that Dr. Bernstein had a share interest in Global Mills at the times the original $18 million loan or the $3 million increase were made. It might have put Trez on notice of a claim against the Waltons, but not notice of any complicity on the part of Dr. Bernstein.

[51] In this case, the time between the September 13, 2013 call by Mr. Reitan to Mr. Coscia and the start of the two year limitation of October 20, 2013 was 37 days. The lawyers at Blaneys who did the legal work for Trez on the loans were told of the fact that Dr. Bernstein was an equity partner in Global Mills on November 7, 2013. They quickly determined that for all of the Trez loans to the Walton entities, Dr. Bernstein's involvement had not been indicated. Mr. Greene, a Trez partner, said they had retained their current lawyers to look into this to see what it meant to Trez, and he said that “the Waltons do not seem like nice people”. After that, as Schonfeld Inc. had been as manager of the 31 projects, their lawyers were able to talk to the manager and get information.

[52] Had Mr. Coscia been told of Dr. Bernstein's interest in Global Mills on September 13, 2013, and the lawyers for Trez at that time had become involved, it is very questionable that they could have learned much. I doubt that Dr. Bernstein would have been forthcoming as to when he obtained his shareholding in Global Mills in light of his actions in assisting Ms. Walton in keeping notice of his shareholdings and directorships from the lenders. He chose not to give Trez notice of his proceedings taken against the Waltons in October and November, 2013. Ms. Walton would almost certainly not have been forthcoming. She has never in all of the years of litigation been forthcoming about her role in keeping Dr. Bernstein's shareholdings and directorships from the lenders and she deceived Mr. Coscia is saying it was her accountants who wanted information about the Global Mills mortgage being up to date.

[53] In my view, had Mr. Reitan disclosed to Mr. Coscia on September 13, 2013 that Dr. Bernstein had a 50% shareholding in Global Mills, a reasonable person in the position of Trez would not have discovered that it had a claim against Dr. Bernstein for fraudulent misrepresentation, conspiracy or oppression before October 20, 2013 and thus the limitation period would not have started running on that date.

[54] Trez also argues that a claim is not discovered under section 5(1)(a) of the Act until a person, in this case Trez, first knew that a proceeding would be an appropriate means to seek to remedy the injury, loss or damage. It relies on 407 ETR Concession Co. v. Day (2016), 2016 ONCA 709, 133 O.R. (3d) 762 (C.A.) in which Laskin J.A. said:

33 The appropriateness of bringing an action was not an element of the former limitations statute or the common law discoverability rule. This added element can have the effect -- as it does in this case -- of postponing the start date of the two-year limitation period beyond the date when a plaintiff knows it has incurred a loss because of the defendant's actions.

34 Also, when an action is "appropriate" depends on the specific factual or statutory setting of each individual case: see Brown v. Baum, 2016 ONCA 325, 397 D.L.R. (4th) 161, at para. 21. Case law applying s. 5(1)(a)(iv) of the Limitations Act, 2002 is of limited assistance because each case will turn on its own facts.

[55] 407 involved a driver who did not pay for using the 407 highway. Under the applicable legislation, if a payment were outstanding for 90 days, 407 could send a notice to the Registrar of Motor Vehicles of the failure to pay and when the driver’s licence came up for renewal, the Registrar was required to refuse the renewal. It was held that it was not appropriate for an action by 407 to be commenced to collect the unpaid amount until the licence plate denial process had run its course and the driver’s licence was not renewed. In so holding, Laskin J.A. said:

40 First, under s. 5(1)(a)(iv) of the Limitations Act, 2002, the date a proceeding would be an appropriate means to recover a loss must have "regard to the nature of the ... loss". So, in fixing the appropriate date, it may not be enough that the loss exists and the claim is actionable. If the claim is the kind of claim that can be remedied by another and more effective method provided for in the statute, then a civil action will not be appropriate until that other method has been used. Here, a claim will not be appropriate until 407 ETR has used that other method, without success.

[56] In Presidential MSH Corp. v. Marr, Foster & Co. LLP 2017 ONCA 325, an action against accountants for negligence in the processing of tax returns was held not to be an appropriate procedure until after a tax appeal procedure had run its course because it was possible that the loss would be eliminated in that tax appeal procedure. Only when CRA responded to a notice of objection by advising it intended to rely on its initial assessment would the limitation period start to run.

[57] Trez contends that in this case, it would not be an appropriate procedure to sue Dr. Bernstein until it knew whether it would suffer a shortfall on the sale of the properties by the receiver that were covered by Trez’ mortgage security. That was not known until less than two years before it commenced its action against Dr. Bernstein.

[58] I am inclined to agree with Trez. It would not be a good use of judicial resources for an action to be taken in the circumstances of this case before it were known whether the Trez security would be sufficient to pay the Trez loans outstanding on the various properties. In this case, no loss was suffered on the Royal Gate property as the sale price was sufficient to pay off Trez on its loan, and no action has been taken regarding that property. This action was brought in relation to the other three properties.

Conclusion

[59] The motion of Dr. Bernstein and his companies is dismissed.

[60] The plaintiffs are entitled to their costs. If costs cannot be agreed, brief written submissions along with a proper cost outline are to be made in writing within 7 days and brief written reply submissions are to be made within a further 7 days.

Newbould J.

Date: May 24, 2017

[1] The February 25, 2013 email from Ms. Walton to Dr. Bernstein that disclosed the deception being made to Trez was only produced after I refused to hear this motion until documentary production requested by Trez was answered and a computer search for documents was made by Dr. Bernstein's lawyers. It had not earlier been produced by Dr. Bernstein in any of the litigation, including the motions for the appointment of the inspector and later for the appointment of the manager. In saying this, I do not suggest that the lawyers for Dr. Bernstein acted in any way improperly.