COURT FILE NO.: CV-11-00428358 DATE: 20181029 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

864401 Ontario Limited Plaintiff – and – 944952 Ontario Limited, Dan McGill, Ryan McGill and Ian McGill Defendants

Benjamin Salsberg, for the Plaintiff W. Gerald Punnett, for the Defendants

HEARD: May 7-9, 2018

reasons for decision nishikawa J.

Overview and Procedural Background

[1] This is a breach of trust claim relating to a property management contract. Both parties allege that the other repudiated the contract. From 1991, the Defendant, 944952 Ontario Limited (“944”), managed a property owned by the Plaintiff, 864401 Ontario Limited (“864”), pursuant to an oral agreement. On December 1, 2008, 864 and 944 entered into a written agreement stipulating that 944 would manage the property for a five-year term (the “Management Contract”). In March 2011, the parties’ relationship ended abruptly. Each party claims that the other repudiated the Management Contract.

[2] In July 2011, the Plaintiff commenced a breach of contract and breach of trust claim against 944 and the individual defendants: Dan McGill, Ryan McGill, and Ian McGill (the “Individual Defendants”), all of whom were directors of 944. The Defendant Dan McGill commenced a counterclaim, seeking only the cost of an airline ticket from Florida to Toronto to meet with the Plaintiff in late March 2011 (the “Airfare”).

[3] On August 5, 2011, the Plaintiff brought a motion under r. 45.02, Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to order the Defendants to pay $53,000.00 into court, which the Plaintiff claimed that 944 misappropriated from a bank account held for 864 (the “Trust Account”). The Defendants admitted to transferring $50,000.00 (the “Funds”) from the Trust Account to their own account. They justified taking the amount to pay for: (i) $3,897.28 for expenses relating to the property; (ii) $932.05 for the Airfare; and (iii) $57,178.00 for management fees, for a total of $62,007.33. The Defendants claimed that 944 was owed a further $12,007.33 over and above the $50,000.00 that was transferred. The Plaintiff admitted that it owed $6,900.00 for management fees for the three months preceding March 31, 2011. On the motion, Stinson J. found that the Funds 944 transferred constituted a specific fund, and ordered that the Defendants pay $43,100.00 into court within 30 days. This amount represented the $50,000.00 which 944 transferred minus the management fees admitted by the Plaintiff. The Defendants did not comply with this order until over three years later, and only after the Plaintiff commenced a motion to strike the Statement of Defence for failure to comply with a court order.

[4] At a pre-trial before J. Wilson J. approximately one month before the trial, the parties consented to an order narrowing the issues and setting out the applicable procedure (the “Pre-trial Order”). The evidence in chief was to be submitted by affidavit, with cross-examinations to be conducted at trial. The issues were narrowed and articulated as follows:

(a) Whether 864 terminated the Management Contract with 944 or whether 944 provoked a situation then quit; (b) Whether a provision in the Management Contract was an acceleration clause, entitling the Defendant to the balance for the remaining term of the contract; and (c) A determination to the entitlement of funds in the amount of $62,007.33.

[5] The affidavit evidence both parties submitted was brief, cursory, and, as became evident, frequently inaccurate. The Plaintiff’s evidence consisted of the affidavit of Ferdinando Polla (“Fred”), the President of 864. The affidavit is a mere seven paragraphs in length and “repeats” the allegations in the Statement of Claim. The Plaintiff also relied upon affidavits which it submitted in support of motions in the proceeding, notwithstanding that those affidavits asserted facts that later proved to be inaccurate.

[6] The Defendants submitted affidavits from Dan McGill and Ian McGill. Both affiants “adopt” their Statement of Defence as evidence. The affidavit of Ian McGill is seven paragraphs long and does nothing more than disclaim any knowledge of the factual circumstances of the case. The affidavit of Dan McGill is 17 paragraphs in length. Some of the sentences in both affidavits are unintelligible.

[7] None of the affidavits contain detailed descriptions of the discussions during which the Management Contract was allegedly repudiated. Both parties’ lack of care in providing substantive and accurate affidavit evidence negatively impacted the conduct of the trial. At trial both parties sought to supplement or correct their evidence and to raise new issues on cross-examination. A summary trial does not permit the parties to fail to provide the court with complete, proper, and accurate evidence in chief.

[8] Moreover, although the action was commenced almost seven years ago, the Defendants produced documents on the eve of and at trial, some of which responded to undertakings given at 944’s examination for discovery in June 2016. In addition, the Plaintiff had only an incomplete version of the Management Contract. The Defendants did not produce a complete copy, which included the alleged acceleration clause, until required to do so by the Pre-trial Order.

Facts

A. The Parties

[9] The Plaintiff, 864, is a corporation incorporated under the laws of the Province of Ontario. Fred is the President of 864. 864 owns properties, including a townhouse complex at 1500 Tansley Drive, Oakville, Ontario (the “Complex”).

[10] The Defendant, 944, was incorporated under the laws of the Province of Ontario in June 1991. The Individual Defendants, Dan McGill, Ryan McGill, and Ian McGill are and were at all material times directors of 944. I will refer to the parties by their first names to avoid confusion. Ryan and Ian are Dan’s sons.

[11] A corporation profile report for 944 dated April 30, 2018 shows that Dan was President from 1991 to 2008. Ryan is identified as President and authorized signing officer beginning in July 2008. Ian is identified as Secretary, Treasurer, and authorized signing officer. 944 conducted business under the name Lakeshore Management, although it does not appear that this name was formally registered. Although Dan stated that the affairs of 944 were wound up, the corporation profile report shows its status as “active.”

B. The Management Contract

[12] The parties’ evidence differs as to when they first entered into an agreement for the management of the Complex. According to Fred, he hired Dan as the property manager in 1989. Dan claims that 944 was not incorporated until 1991, and that is when the arrangement with 864 began. The commencement of the parties’ relationship is not material to the issues in dispute. Both agree that 864 initially retained 944 and Dan as manager and agent for the Complex pursuant to an oral agreement. Both also agree that 944 was the property manager under the terms of the oral agreement from 1991 until December 2008.

[13] On or about December 1, 2008, 864 and 944 executed a written management agreement (the “Management Contract”). Each party claims that the other drafted the agreement. The terms of the Management Contract included the appointment of 944 as the exclusive manager of the Complex in respect of all matters relating to its commercial operations. As the manager, 944 was to collect rents, pay for various expenses relating to the Complex, and maintain the books and records. 944 earned $20.00 per suite per month, or $2,300.00 per month plus HST as a management fee. The term of the agreement was for five years until November 30, 2013.

[14] The Defendants rely upon Clause 17 of the Management Contract (“Clause 17”) as an “acceleration clause.” Clause 17 states:

This agreement may not be terminated prior to the date shown in paragraph 2 herein as the ending of the initial term. After the before-mentioned date, termination may be effected by both parties by giving notice in writing of at least 90 days prior to termination. The term in paragraph 2 states that the agreement is for a term of five years commencing on December 1 and ending on November 30, 2013.

C. The Trust Account

[15] At the beginning of the parties’ arrangement, 944 deposited the rents and paid for expenses relating to the Complex using its own bank account. At some point, 944 opened a bank account bearing account number *2165 in the name of “1500 Tansley” at the Toronto-Dominion Bank in Milton, Ontario (the “Trust Account”).

[16] On December 16, 2010, based on the bank’s requirement and at Dan’s request, Fred executed a document authorizing 944 to “operate a trust account in the form of a current account” (the “Authorization”).

[17] There was initially a dispute about whether a separate current account existed for 864, but it became apparent during the litigation that there was no additional account. 944 maintains its own current account at the same Toronto-Dominion Bank branch, bearing account number *2688.

D. The Parties’ Relationship Deteriorates

[18] The parties’ relationship initially ran smoothly. 864 made no complaints about 944’s management of the Complex until sometime in 2010. The Management Contract contained a term requiring 864’s approval for expenditures over $5,000.00. However, Fred admitted on cross-examination that this term was not enforced because 864 was generally satisfied with 944’s performance. Until 2000, the Complex made a profit of approximately $300,000.00 per year. Fred did not dispute that 944 prepared regular reports regarding income and expenditures for the Complex, as well as yearly profit and loss statements, of which he acknowledged receipt in writing on an annual basis.

[19] In August 2010, 864 found that the expenses for the Complex increased significantly, leading to an apparent shortfall in the revenues. Until that time, the yearly expenditures were approximately $120,000.00 to $140,000.00. The Plaintiff states that the expenditures rose “significantly” in 2010 and in particular, $40,000.00 was incurred to remodel one townhouse unit.

[20] The Plaintiff claims to have sent a letter to 944 in August 2010 seeking a detailed accounting of the “excessive” expenditures. 944 denies receiving this letter and counters that it made clear to Fred that he could attend 944’s office and review the books and records at any time.

[21] From February to June 2011, Fred proceeded to buy out 864’s other shareholders. By March 2011, Fred owned 90 percent of 864’s shares. Only one other shareholder was left. Both recalled that Fred advised Dan of this buy out during a telephone call in March 2011.

[22] The Plaintiff also mortgaged the Complex for a substantial amount. 864 was using the returns on an unrelated investment to pay the monthly mortgage payments. In 2009, that investment failed. The Complex’s rental revenues now had to be used to make mortgage payments. Dan testified that the mortgage payments led to the Complex’s cash flow issues. Fred asserted that the loss of revenue from the investment was not a problem because the revenue from the Complex went to pay the mortgage instead of paying the shareholders.

[23] On or about March 15, 2011, Fred called Dan, who was in Florida (the “March 15 Call”). Fred claims that he called to ask Dan about the expenditures on the Complex. Dan alleges that Fred called him because he was upset that Dan would not agree to disburse $90,000.00, presumably from the Trust Account, to Fred. Fred denies that he requested any payment. He explains that by then he substantially owned 864, and would not have jeopardized his interest by taking money needed to pay the mortgage and taxes on the Complex from the Trust Account. In his affidavit, Dan deposes that Fred terminated the Management Contract during the March 15 Call because he would not agree to pay Fred the $90,000.00. On cross-examination, however, Dan admitted that during that call, things were “left for further discussion” and that they arranged to meet at 944’s office later that month.

[24] It appears from the parties’ evidence that Fred and Dan spoke on the phone again on or about March 25, 2011. In his affidavit, Dan claims that Fred told him that “it was his complex and he would run it as he saw fit. Mario was now in charge as [Dan] had forgotten [his] place.” Fred denies making these statements.

[25] On cross-examination, Dan testified that the superintendent told Ryan that Fred had taken control of the Complex. The Plaintiff objected that this statement was inadmissible as double hearsay. I will address the admissibility of this statement in the Analysis section below.

E. The March 28, 2011 Meeting

[26] On March 28, 2011, Dan and Fred met at 944’s office (the “March 28 Meeting”). Both parties agree that they met to review the year-end financial statements for the Complex, but disagree about what they actually discussed. It appears from the evidence that 864’s accountant, Paul Murray, also attended. However, neither party obtained an affidavit from him.

[27] Fred claims that he raised concerns about cash flows relating to the Complex and advised Dan that any expenditures would have to be approved by his brother, Mario. Fred stated that he involved Mario because the bank required a guarantee for the increased mortgage on the Complex. Mario guaranteed the mortgage and wanted to be involved in 864’s management. Fred claims that Dan objected to Mario’s involvement and said that he did not want to interact with Mario, and that he was “out of this.” According to Fred, Dan told him to have Mario come with a truck to pick up the files relating to the Complex.

[28] Dan claims that Fred told him Mario would be involved in all of the day to day dealings of the Complex other than landlord-tenant matters. Dan considered this a repudiation of the Management Contract, under which 944 was to be the exclusive manager.

[29] At some point, Fred, Mario, and their cousin attended to obtain the files. However, Fred claims that they were only provided with a shoebox of documents.

F. 864 Discovers That the Funds Are Missing

[30] On March 29, 2011, the Plaintiff became aware that 944 had withdrawn money from the Trust Account. In his affidavit in support of the motion for payment of the Funds into court, Fred stated that as a result of the March 28 Meeting, he “undertook a review of 864’s bank accounts” and discovered that $53,000.00 had been withdrawn. The withdrawal was without notice to or authorization from the Plaintiff. According to Fred, when he confronted Dan about the withdrawal, Dan claimed that the funds were to reimburse him or 944 for monies lent to the Plaintiff. While the Defendants no longer rely upon this justification, they led no evidence as to what explanation Dan provided to Fred.

[31] A Deposit Account History provided a few days before trial shows that the Funds were transferred from the Trust Account to 944’s account on March 25, 2011. The document is incomplete: only one of five pages was produced. The Defendants did not proffer an explanation for the missing pages of the critical document. At trial, Dan testified that Ryan transferred the Funds from the Trust Account to 944’s account. At his examination for discovery, Dan testified that he transferred the Funds to Lakeshore Management.

[32] Fred testified that 944 was required to use the Funds to pay the April 2011 mortgage payment. Because 944 transferred the Funds to itself, the mortgage could not be paid from the Trust Account.

G. Trial Balance Document

[33] On April 21, 2011, Dan sent Fred a document entitled “1500 Tansley Trial Balance as of March 2011” (the “Trial Balance”). The Trial Balance appears to be a balance sheet of income and expenditures for the Complex, and includes $64,975.00 in management fees due and payable on March 31, 2011. The Defendants gave no evidence in chief regarding the Trial Balance. They provided no basis for the Trial Balance’s figures.

H. Witnesses

Fred Polla

[34] Fred was 864’s only witness. As noted above, certain statements in affidavits sworn by Fred for previous motions proved to be inaccurate, but were tendered as evidence for this trial without being corrected. For example, an affidavit for a previous motion stated that 864 also had a current account at the Toronto-Dominion Bank. This was in fact 944’s account. The affidavits lacked detail on key facts. For example, there was no mention of Mario’s proposed involvement in any of the affidavits. This is a significant omission.

[35] Fred’s testimony regarding the letter to 944 requesting an accounting was inconsistent. His evidence changed during his testimony, although I find that these changes were minor and can be attributed to the passage of time. He first stated that his brother faxed the letter requesting an accounting and then said that he faxed it, because his brother would have been deceased at the time. Fred had difficulty remembering specifics and dates. He was cross-examined about his statement that he went to see Dan during the first week of March 2011 at the examination for discovery. Dan was in Florida at the time. He corrected this to state that he was referring to the March 15 Call. He readily accepted these corrections.

Dan McGill

[36] Dan was the main witness for 944. On cross-examination, Dan testified that he retired from 944 in 2008 and moved to Florida, but at the same time gave evidence on every aspect of the case. He stated that other than communicating with Fred, which he did, Ryan was responsible for managing the Complex. According to Dan, he was not involved in the daily activities relating to the Complex, such as depositing the rent cheques, arranging for repairs, and paying invoices for expenses. Dan nonetheless reviewed the financial statements on a monthly basis. He also authored all of the key documents in this proceeding, including the Trial Balance and Invoice. Dan was 944’s representative for discovery and paid the $43,100.00 that was ordered to be paid into court, since 944 no longer had the Funds.

[37] Dan gave glib and unconvincing explanations when questioned about compliance with Stinson J.’s order and 944’s document production. Dan explained the delay in complying with Stinson J.’s August 5, 2011 order by claiming to be unaware “until last week” that the order required the Defendants to pay the funds into court within 30 days. Dan made this claim even though he attended court the day Stinson J. made the order. The Defendants were represented by Mr. Punnett at the motion. Dan claimed not to know that the order was not complied with until the Plaintiff brought a motion to strike the defence. Dan explained that he could not provide documents responsive to certain undertakings given at his June 2016 examination for discovery because Ryan’s former father-in-law took them from Ryan’s garage and threw them in a dumpster when Ryan was divorced. Dan provided this explanation for the first time at trial, even though Ryan was divorced in 2012. If the documents had been destroyed shortly after 2012, as Dan testified, he would have known at the examination for discovery that the documents were not available.

Ian McGill

[38] Ian was cross-examined at trial. Ian is currently employed in the banking industry and holds or is pursuing various licences, including a securities licence. He claims that he had no involvement in 944’s business and only agreed to become a director as a favour to his father. He is nonetheless identified on the Corporation Profile Report as Secretary, Treasurer, and authorized signing officer.

[39] Ian stated that he “only consented to act as a Director to help out.” Ian appears to have had no interactions with 864 or Fred, and did not participate in any of the meetings or telephone calls at issue. His name does not appear on any of the relevant documents. Although Ian was ostensibly a director of 944, this was in name only. There is no evidence that Ian knew of any of the underlying facts, the parties’ relationship, or even the Trust Account’s existence.

Ryan McGill

[40] The Defendant, Ryan McGill, did not participate in the trial. Neither party called him as a witness, nor did the Defendants obtain his affidavit. The Plaintiff requests that I draw an adverse inference from the Defendants’ failure to call Ryan as a witness. The Defendants conveniently lay all the blame on the one person who was not present at trial. I agree that Ryan’s evidence was critical to the Defendants’ case. His apparent relocation to Florida does not justify his failure to testify. There is no reason why he could not have provided an affidavit. Under the circumstances, I find it appropriate to infer that Ryan’s evidence would not have assisted the Defendants.

Credibility Assessment

[41] While I find Fred’s memory for certain dates and specifics was occasionally foggy, this goes to the reliability of his evidence, and not its credibility. I found Fred to be a more credible and forthcoming witness. Fred was not disingenuous in the same manner as Dan. He acknowledged when his previous evidence was incorrect, for example, when he was mistaken about certain dates. When Dan did not have an answer or document, he tended to blame Ryan or his lawyer. Therefore, where Dan’s evidence conflicts with Fred’s, I prefer Fred’s evidence.

Issues

[42] The issues were narrowed pursuant to the Pre-trial Order to the liability of each party and the entitlement to the funds. In order to arrive at a determination of those issues, it is necessary to consider the following issues:

(a) Did the Plaintiff repudiate the Management Contract? (i) If so, was Clause 17 an acceleration clause, entitling 944 to the balance of the management fees under the Management Contract? (ii) If not, did 944 breach the Management Contract? (b) Did 944 commit a breach of trust? (i) If so, did Dan, Ryan, and/or Ian knowingly participate or knowingly assist in the breach of trust? (c) Who is entitled to the Funds, and in what amount?

Analysis

The Position of the Parties

[43] The Plaintiff submits that it did not repudiate the Management Contract but sought only to further supervise 944’s expenditures on the Complex. The Plaintiff claims that by taking the money from the Trust Account, 944 breached the Management Contract. It claims that 944 had no entitlement to the money in the Trust Account, and took the funds unlawfully, committing a breach of trust. The Plaintiff alleges that Dan, Ryan, and Ian, as 944’s officers and directors, are liable for either knowing participation or knowing assistance in 944’s breach of trust. The Plaintiffs claim entitlement to the $64,675.00 in management fees identified on the Trial Balance.

[44] The Defendants submit that 864 repudiated the Management Contract by advising that Mario would be involved in managing the Complex. Based on 864’s alleged repudiation, 944 claims that it considered the Management Contract to be terminated. The Defendants submit that Clause 17 was an “acceleration clause” which, on termination, entitled them to compensation for management fees for the balance of the contract term. This would mean compensation for 32 months at $2,300.00 per month, for a total of $73,600.00. However, they have not made a counterclaim for management fees. They have only counterclaimed for reimbursement of the Airfare. As a result, the Defendants’ repudiation argument is raised only as a defence to the Plaintiff’s claim for breach of contract and breach of trust.

A. Did the Plaintiff Repudiate the Management Contract?

[45] While the Defendants’ repudiation claim is in the nature of a defence, I will first deal with this issue because it precedes the breach alleged by the Plaintiff. Repudiation can occur by words or by conduct evincing an intention not to be bound by the contract: Sunguard Availability Services v. ICON Funding ULC, 2011 ONSC 7367, at para. 33. The test is objective: Ball v. 189557 Ontario Inc., 2016 ONSC 3224, 34 C.C.E.L. (4th) 102, at para. 54. The Defendants bear the onus of demonstrating that the Plaintiff repudiated the Management Contract.

[46] The Defendants argue that 864 repudiated the contract when Fred demanded that Dan pay him $90,000.00 from the Trust Account during the March 15 Call, and Dan refused to pay what he felt was an unjustifiable demand. They also argue that by requiring 944 to work with Mario, 864 was removing 944 from its role as exclusive manager of the Complex, in repudiation of the Management Contract.

[47] The Defendants have not demonstrated on a balance of probabilities that the Plaintiff repudiated the Management Contract, whether during the March 15 Call, the March 25 Call, or the March 28 Meeting.

[48] First, the Defendants’ allegation that the Management Contract was repudiated during the March 15 Call has no basis in fact. The parties’ evidence diverges as to what was said during that call. It is unnecessary to determine what actually transpired because, on cross-examination, Dan admitted that at the end of the call, he and Fred agreed to meet and matters were “left for further discussion.” Leaving matters for further discussion is not enough to repudiate the Management Contract. Dan purchased an air ticket to return to meet with Fred, consistent with an agreement to discuss matters further. If 864 had repudiated the Management Contract, Dan would not have bought an air ticket.

[49] Similarly, Dan’s evidence that the Management Contract was repudiated on March 25 fails to withstand scrutiny. Dan’s affidavit contains the following statement: “Between 10-11:00 a.m. Ryan McGill received a call from Mr. Polla has assumed control and Fred Polla and Mario Polla were at the complex running the operation.” On cross-examination, Dan corrected the statement, testifying that it should read: …Ryan McGill received a call from the superintendent that Mr. Polla has assumed control…” The content of the revised statement is quite different, since the original statement contained no mention of the superintendent, whose name was never provided. In any event, the statement is inadmissible for the truth of its contents since it is either hearsay or double hearsay. I place no weight on it. If Fred repudiated the Management Contract during the March 25 Call, it is unlikely that Dan would have met with him on March 29. Even if Fred said “Mario was now in charge” and that Dan had “forgotten [his] place” this would not establish a repudiation of the Management Contract.

[50] Based on the witnesses’ testimony regarding the March 28 Meeting, I find that Fred told Dan that 944 would have to obtain Mario’s approval for the expenditures and that Dan said he was “out of this” because he did not want to deal with Mario or be subject to supervision. Since the Management Contract required approval for expenses over $5,000.00, the requirement that 944 obtain Mario’s approval was not a repudiation. Fred’s evidence is consistent that throughout the parties’ discussions in March 2011, he was seeking an accounting of the expenditures and not an end to the relationship.

[51] Moreover, despite 944’s significant responsibilities for the Complex, at no time did it write to 864 to advise that it considered the Management Contract terminated or repudiated and that 944 was no longer responsible for the Complex. At no point did the Defendants point to the five-year term of the agreement or an entitlement to the balance of the management fees under Clause 17. This is all the more surprising considering that the Complex appeared to be 944’s only source of income. Given that 944 was essentially deprived of its only business, it would be reasonable to expect 944 to take steps other than to simply stop operating as a business without even a letter to the other party to the contract.

[52] Based on the foregoing, I find that the Defendants have not demonstrated on a balance of probabilities that the Plaintiff repudiated the Management Contract, whether on March 15, 25, or 28, 2011.

[53] Not only did 944 not advise 864 that it considered the Management Contract repudiated, it also failed to advise 864 that it believed it was entitled to the money in the Trust Account or provide an invoice to substantiate its claim to management fees. 944 simply took the funds without any notice to 864. At trial, the Defendants provided, for the first time, a handwritten document on Lakeshore Management letterhead that they claimed was an invoice for 22 months of management fees (the “Invoice.”) The Defendants also provided a handwritten document on Lakeshore Management letterhead to justify the expenses they claim were incurred on behalf of 864. While Dan initially stated that he saw the Invoice in his lawyer’s file “last week” he later clarified that the document came from his file but that he thought that he had provided the Invoice previously.

[54] 944’s failure to counterclaim for the 32 months allegedly owing under the Management Contract further supports that 944 did not in fact view the agreement as repudiated, or believe that it had a bona fide claim to outstanding management fees. There is no explanation as to why 944 would accept 22 months’ worth of management fees if it was entitled to 32 months’ pursuant to its interpretation of Clause 17. Twenty-two months of fees was simply closer to the amount taken from the Trust Account. This appears to be an after-the-fact attempt by 944 to justify taking funds that did not belong to them.

[55] Since I have found that the Plaintiff did not repudiate the Management Contract, it is unnecessary for me to consider whether the Defendant mitigated its damages.

Was Clause 17 an Acceleration Clause?

[56] Since I have concluded that the Plaintiff did not breach the Management Contract, it is not necessary to determine whether Clause 17 was an “acceleration clause” which made the management fee for the remainder of the contract due and owing. I nonetheless find that Clause 17 was not an acceleration clause.

[57] Clause 17 states that the Management Contract “may not be terminated prior to” its end on November 30, 2013. The consequences of terminating before that date are not stated. Acceleration clauses are frequently used in loan agreements, where the entire amount would become due upon a failure to pay an installment. Clause 17 contains no language to suggest that if the contract was terminated early, the entire amount became due. Absent any specific language to this effect, I do not interpret Clause 17 as an acceleration provision. The Defendants have provided no authority to support their interpretation of Clause 17 as an acceleration clause.

[58] Even if Clause 17 was an acceleration clause, the language of the provision does not suggest that 944 would be permitted to realize on any outstanding amount by taking funds held in trust for the Plaintiff. The proper course would have been for 944 to advise the Plaintiff that it considered the Management Contract terminated, contrary to Clause 17, and assert a claim for outstanding management fees for the remaining contract term, along with any other expenses or claims. At no time did 944 or any of the Defendants do this. As noted above, the Defendants did not provide an invoice for outstanding management fees until the trial.

B. Did 944 Breach the Management Contract?

[59] Dan’s affidavit does not reference transferring funds from the Trust Account to 944’s bank account. Dan’s affidavit states:

14. As a result of this, to wind up Lakeshore Management the following had to be done. Since this was the only client the Lakeshore Management had the firing put Lakeshore Management out of business. As a result of this the following had to be done: a) Lakeshore Management had to pay his manager one year’s severance pay which amounted to $40,000.00. b) Leases and contracts entered into by 944952 Ontario Limited for the express purpose and related to the operation of 864401 Ontario Limited had to be paid and c) To pay $10,000 other leases and expenses.

15. 864401 Ontario Limited paid a fee to Lakeshore Management for 22 months of the 32 months remaining. 864401 Ontario Limited paid $50,000.00 against these listed charges.

[60] Despite the statement that 864 paid a fee to 944, it is the Defendants who, without notice to or consent from 864, transferred the Funds from the Trust Account they held for 864’s benefit to 944’s account. When 944 took the money on March 25, 2011, the Management Contract had was still in force. There was no term in the Management Contract that permitted 944 to exercise self-help in this fashion, and there is no reasonable interpretation of the Management Contract that would permit this. 944 acted against 864’s interest, in breach of the Management Contract.

[61] The evidence would also support a finding that it was 944 who repudiated the contract at the March 28 Meeting when Dan said he did not want anything to do with Mario and that he was “out of this.” 864 was seeking an accounting and a way to continue the Management Contract while taking steps to better supervise 944’s activities. 944 would have nothing to do with this. I find that it is 944 who walked away from the Management Contract, and not the Plaintiff.

C. Did 944 Commit a Breach of Trust?

[62] A trust arrangement must have three characteristics: certainty of intent, of subject matter, and of object: Air Canada v. M & L Travel Ltd., [1993] 3 S.C.R. 787, at p. 803. The Management Contract and the Authorization evidenced intent to create a trust. The subject matter is the rent collected by 944 on behalf of the Plaintiff and deposited in the Trust Account. The object, or the beneficiary, is 864. Because the “three certainties” existed, a trust relationship existed between 944 and 864. Moreover, the bank required that 864 execute the Authorization to permit 944 to operate the Trust Account as a current account for 864. Otherwise, 944 would not have been permitted to do so. The Trust Account was meant to be kept separate apart from any other accounts in 944’s name.

[63] The Plaintiff relied upon 944 to manage the Complex on its behalf. This management included collecting rent, paying expenses, paying for repairs, and keeping a proper accounting of the revenues and expenditures. The Plaintiff did not constantly monitor 944’s conduct of affairs relating to the Complex. The evidence is that until 2010, 944 was operating the Complex in a manner satisfactory to 864.

[64] In Air Canada, the defendant travel agency committed a breach of trust by failing to account for monies collected from Air Canada ticket sales. In this case, by appropriating the money in the Trust Account, 944 committed a breach of trust. 944 held the money in the Trust Account for 864’s benefit. It was not for 944 to take for its own benefit or to pay Ryan $40,000.00 in severance pay.

D. Did Dan, Ryan, or Ian Knowingly Assist or Participate in the Breach of Trust?

[65] At trial, the Plaintiff argued that this court should hold Dan, Ryan, and Ian personally liable for 944’s breach of trust. Based on my finding that the amount at issue is limited to the amount paid into court (see below), it would serve no purpose to find the Individual Defendants personally liable, since the Plaintiff is entitled to judgment in the amount paid into court. Nonetheless, in the event that I am mistaken in this regard, I will examine the personal liability issue.

[66] In Air Canada, the Supreme Court identified three circumstances in which a stranger to the trust should be held liable for breach of trust: (i) as a trustee de son tort, when a stranger to the trust takes it upon themselves to act as trustee and to possess and administer trust property; (ii) for knowingly assisting in a fraudulent and dishonest design on the part of the trustee; and (iii) for knowing receipt of trust property: at pp. 808-811.

[67] The Plaintiff submits that Dan, Ryan, and Ian are personally liable because they knowingly assisted or participated in 944’s breach of trust. Liability based on knowing assistance arises where the third party participated in the breach of trust. The Plaintiff must demonstrate: (a) that the trustee’s breach of trust was fraudulent and dishonest and (b) that the third party knowingly participated in the breach of trust. The knowledge requirement for knowing assistance is actual knowledge, recklessness, or wilful blindness: York Region Condominium Corp. No. 890 v. RPS Resource Property Services Ltd., 2010 ONSC 3371, at para. 50. Where the trustee is a corporation, rather than an individual, the question is whether the stranger’s conscience is sufficiently affected to justify imposing further liability. The taking of a knowingly wrongful risk resulting in prejudice to the beneficiary is sufficient to ground personal liability: Air Canada, at p. 826.

Dan McGill

[68] In this case, the evidence supports a finding that Dan knowingly participated or assisted in 944’s breach of trust. 944’s breach of trust was fraudulent and dishonest because it knowingly took a wrongful risk that it knew it had no right to take, resulting in prejudice to 864: YRCC, at paras. 59-60.

[69] Dan knew that the Funds in the Trust Account belonged to 864. He knew they were taken from the Trust Account. While he claimed at trial that Ryan made the decision to take the money and to pay himself a severance, he admitted at his examination for discovery that he transferred the Funds. Even if Ryan misappropriated the Funds, Dan admitted that he was aware that Ryan had done so and did not require that Ryan repay the Funds. Dan prepared the Trial Balance, the Invoice for management fees, and the document to substantiate the claimed expenses. I find that Dan was intimately involved in all aspects of the Management Contract and the decision to misappropriate the Funds. Since Dan had knowledge of the trust and assisted in its breach, he is liable for knowing assistance in a breach of trust.

Ryan McGill

[70] It is also clear from the evidence that Ryan knowingly participated in the breach of trust. The Defendants’ own evidence is that Ryan decided to transfer the Funds from the Trust Account and used them to pay himself $40,000.00 in severance. As President of 944, Ryan knew or ought to have known that the Funds were held in trust for 864. He knew or ought to have known that the April 2011 mortgage payment would soon have to be paid. He not only transferred the Funds into 944’s account, but he then appropriated the Funds to himself personally. The Defendants did not provide evidence to substantiate 944’s decision to pay Ryan a year’s salary in severance. In misappropriating the funds, Ryan acted against 864’s interests. Ryan is also personally liable for breach of trust.

Ian McGill

[71] As noted above, the knowledge requirement for knowing assistance is actual knowledge, recklessness, or wilful blindness. In YRCC, at para. 77, Pattillo J. refers to the criminal law definition of wilful blindness: “Wilful blindness arises where a person who has become aware of the need for some inquiry declines to make the inquiry because he does not wish to know the truth. He would prefer to remain ignorant.” R. v. Briscoe, [2010] 1 S.C.R. 411, at para. 22. It is a person’s deliberate failure to inquire when he or she knows that there is reason for inquiry that justifies a finding of fault.

[72] The Plaintiff has provided no evidence to demonstrate that Ian had any knowledge of 944’s affairs, the existence of the Management Contract, or the trust relationship between 944 and 864. Ian appears to have had no interactions with 864 or Fred, and did not participate in any of the meetings or telephone calls at issue. His name does not appear on any of the relevant documents. Although Ian was ostensibly a director of 944, this was in name only. There is no evidence that Ian knew of any of the underlying facts or the parties’ relationship, or even the existence of the Trust Account. Ian was so disengaged from 944’s affairs that he would not have known that there was reason to make inquiries. There is no basis for finding him liable to 864 for breach of trust.

[73] While the Plaintiff argues that Ian’s liability could be based upon his duties as a director under s. 134 of the Business Corporations Act, R.S.O. 1990, c. B.16, this was not pleaded in the Statement of Claim. The Plaintiff has not pleaded any specific facts to support lifting the corporate veil in relation to Ian. Moreover, this was not among the issues for trial consented to by the parties in the Pre-trial Order. I thus find it unnecessary to make a determination as to whether Ian could be liable based on his statutory or common law duties as a director.

[74] Based on the evidence before me, I find that Ian did not knowingly assist the breach of trust because he did not have knowledge of either the existence of the trust, or that 944 had taken the money from the Trust Account.

E. Damages

[75] The parties consented to narrow the damages issue at trial to the entitlement to $62,007.33: the total of management fees, airfare, and certain expenses paid by 944. As noted at the outset, this was the amount that the Defendants alleged was owed to 944 when it appropriated the Trust Account funds. Since the Defendants brought no counterclaim, other than Dan’s counterclaim for the Airfare, they would not be entitled to anything other than the Airfare.

[76] In any event, I have found that the Plaintiff did not repudiate the Management Contract, and further that the Defendants breached the Management Contract and committed a breach of trust. Therefore, only the Plaintiff’s damages entitlement is at issue. The Airfare is no longer at issue.

[77] Since 944 has been paid the $6,900.00 that it was owed for management fees for the first three months of 2011, no further amounts are owing to it. 864 is entitled to the $43,100.00 that was paid into court, which was in any event money from 864’s Trust Account.

[78] As the parties agreed to narrow the issue to entitlement to the $62,007.33 amount, it is not open to me to consider whether the Plaintiff is entitled to further consequential damages arising from the breach of contract or breach of trust. The Plaintiff claims that according to the Trial Balance, 944 allocated $64,975.00 to itself in management fees and that 864 is thus entitled to this amount. The Trial Balance is an accounting document created by Dan, and is not evidence of funds having been transferred. The only evidence of money transferred from the Trust Account to 944 is the Deposit Account History showing the $50,000.00 transfer. There is simply no evidence regarding any amount other than the $50,000.00. The Plaintiff has not established on a balance of probabilities that 944 actually took $67,975.00 of 864’s funds.

Conclusion

[79] Based on the foregoing, I find the Defendants 944, Dan McGill, and Ryan McGill jointly liable for breach of trust and breach of the Management Contract. The Plaintiff is entitled to judgment in the amount of $43,100.00, which has been paid into court. Since the amount was not paid into court until September 2014, the amount is subject to prejudgment interest until that date, and post-judgment interest from the date of this decision.

Costs

[80] If the parties cannot agree to costs, the Plaintiff shall make written costs submissions by November 16, 2018. The Defendants’ responding written costs submissions are due by November 30, 2018. No costs submissions shall exceed five pages in length. If no costs submissions are received within this time frame, costs will be presumed to have been resolved by the parties.

Nishikawa J. Released: October 29, 2018