Court File and Parties
Court File No.: CV-22-679095 and CV-22-679119 Date: 2022-03-31 Ontario Superior Court of Justice
Re: CHARLES SHAKER, in his capacity as Trustee for the Richie Rich Holdings Trust, and CHADWICK R. BOYD, in his capacity as Trustee for the Richie Rich Holdings Trust, Applicants -and- FERNANDO LUNA Respondent
Before: F.L. Myers J
Counsel: Brian M. Studniberg, and Peter J. Henein, for the Applicants Daniel J. Dochylo and Elizabeth Egberts, for the Respondents
Heard and Read: March 30 and 31, 2022
Endorsement
[1] These counter-applications were commenced on Tuesday and Wednesday of this week. They concern a real estate transaction that is closing today. The vendor is a trust. The applicants are its current trustees. The issue is whether the respondent was previously a trustee and, if so, whether he is entitled to ensure that the funds of the trust are properly applied to its liabilities, including its tax liabilities, if any.
[2] In the circumstances before the court, I am not persuaded to grant any of the relief sought at this time. The urgency is self-induced and reflects a tactical approach that does not have much appeal to equity. Rather, there are issues between the parties that deserve a fair airing on proper notice.
[3] At a hastily arranged case conference yesterday afternoon, counsel for the applicants advised that they had prepared an affidavit that was in the process of being delivered. I note that there appear to be separate counsel for each applicant. That is an irregularity in this proceeding that is to be resolved. Absent leave there can only be one counsel speaking for the trust. If the applicants have issues between themselves and need separate counsel, that is yet another wrinkle that leads me to proceed with caution.
[4] I received an affidavit of the respondent in support of his counter-application late last evening. The applicants’ material came later because it was revised to respond to issues raised at the case conference. This morning I received a further affidavit from the respondent/counter-applicant.
[5] In my view, in the circumstances discussed below, the applicants started too late and are not being fair to the respondent or to the court in how they proposed to proceed. This matter has been percolating for many months. I cannot do justice to the parties or the issues on the material before me.
[6] I am loathe to see a bona fide sale not close. However, the applicants have it within their ability and authority to take steps to resolve this matter if they wish to preserve the sale. If the sale aborts due to the vendor’s inability to close, the applicants have only themselves to blame at this stage.
[7] It is Mr. Luna’s evidence that in the fall of 2007, he was employed for a few months by Mr. Shaker as a personal assistant. Mr. Luna was in first year university at the time. One day he was asked to sign some documents by Mr. Shaker presumably as a witness. He did so.
[8] The applicants evidence is that Mr. Luna was one of three original trustees of the trust that owns a condominium. He is said to have signed documents to purchase the condominium for about $1 million in 2007. Although the applicants revised their material last night, they did not answer Mr. Luna’s allegations about the initial signing of the documentation. The applicants do not contradict Mr. Luna’s evidence concerning his age, position, or the circumstances at the time the documents were signed.
[9] Mr. Shaker is a financial advisor who used to practise in Ottawa. He moved to the UK some time ago and now lists his residency as Monaco. He does not say why he wanted an unrelated, Canadian resident student to be a trustee of the trust.
[10] The CRA alleges that Mr. Shaker owes over $4 million in tax arrears. The taxes are said to be owing by him personally. The CRA has not alleged that the taxes are owed by the trust.
[11] The applicants agree that Mr. Luna has had no involvement in the trust since its inception in 2007. The trust is a passive holder of the condominium. Mr. Luna says he was not told anything about the documents that he signed. He says he had no idea that he was a trustee of a trust until he heard from the CRA.
[12] In 2017, CRA send a demand for information to Mr. Luna concerning the trust and Mr. Shaker. It is apparent that Mr. Shaker treats the CRA as an adversary and regards Mr. Luna’s response to his legal obligation to comply with CRA’s information request as adversity and a breach of trust. Viewed from afar, it might be simple lawful prudence.
[13] At the case conference yesterday, counsel for the applicants raised the spectre that Mr. Luna was somehow offering up cooperation with CRA to try to access the value of the trust’s assets for his personal liabilities or his personal problems with the tax man. They made no mention of the fact that the CRA is coming after Mr. Shaker for his outstanding taxes rather than Mr. Luna.
[14] Mr. Luna obtained legal counsel and accounting advice. Mr. Shaker objects to counsel acting for Mr. Luna. He asserts that the lawyers are in conflict of interest. If that is so, Mr. Luna needs time to retain new counsel. Litigants who want time-sensitive relief take risks asserting positions that take time to resolve.
[15] Mr. Luna’s counsel has been dealing with CRA for some time. Mr. Boyd contacted Mr. Luna in late 2021 to arrange a meeting. It never happened as the trustees quickly became adverse.
[16] In early March, CRA went to the Federal Court and obtained an order without notice to the parties charging the condominium in relation to Mr. Shaker’s tax debt. By order dated March 24, 2022, Walker J. set aside the order on the basis that trust property is not exigible for a trustee’s personal tax debt. But she left open the issue of whether Mr. Shaker may have an interest in the trust property as a beneficiary.
[17] The decision is a full answer to the applicants’ alleged concerns that Mr. Luna may be setting up the trust to pay claims against him personally. As Walker J. held, the trust property cannot be seized for personal debts of a trustee.
[18] But Mr. Luna fears liabilities in the trust for which he may be liable as trustee. I do not think it far-fetched to wonder whether the trust will accrue at least capital gains tax liability in relation to the sale of its property. Mr. Luna fears that he may be saddled with the risk of personal liability as a trustee if the trust is found to owe taxes or to have done something wrong. Moreover, while he may well be entitled to indemnity from the trust, he wants to ensure that the proceeds of the sale are applied properly and are not removed to Monaco or elsewhere by Mr. Shaker leaving the trustees at risk of liability for unpaid taxes on the trust.
[19] Mr. Luna has demanded information to conduct basic due diligence as to the transaction and his position as trustee. The applicants have refused to provide information on the basis that the trust deed apparently allows them, as the majority of trustees, to act. But they need Mr. Luna’s signature to close the sale today.
[20] As Mr. Luna has not been willing to sign documents without due diligence, Mr. Shaker has reportedly removed Mr. Luna as a trustee. That may have been validly done. But the Registrar of Titles is requiring a document signed by Mr. Luna to implement the title change in the condominium from the three trustees to the remaining two.
[21] In the case conference yesterday, counsel or Mr. Luna agreed that the sale should proceed as long as either Mr. Luna was declared to never have been a trustee at all or the proceeds of sale are held until Mr. Luna has some reasonable assurance that he has no risk of liability for taxes or otherwise as former trustee.
[22] I have no factums and have been referred to no law authorizing me to declare someone never to have been a trustee assuming he signed the documents but did not read them. Mr. Shaker says that he did provide documents to Mr. Luna. That evidence may be in issue. I have no idea what the applicable law is and I have been provided no time to look.
[23] I noted above that Mr. Shaker’s affidavit answered issues raised at the case conference. He advises that there is a mortgage against the condominium that must be discharged to convey title. He opposes any order to hold the proceeds as the trust needs to discharge the mortgage. He also argues in his affidavit that there can be no personal liability for Mr. Luna as a trustee in relation to the trust. I suspect that the tax man may have a different view if the trust itself accrues tax liability – like when it sells its sole asset for more than double the initial purchase price paid in 2007.
[24] Of greater significance, Mr. Shaker advises that he is the founder of the mortgagee. In other words, discharging the mortgage is within his power. Under s. 12 of the Mortgages Act it is common for mortgages to be discharged while proceeds are held. The argument in his affidavit that he needs the sale proceeds to discharge his own mortgage is just an aggressive tactic. Moreover, it gives credence to Mr. Luna’s concern that the proceeds of sale may be moved out of reach of the trustees in respect of any liabilities of the trust for which they may be held liable.
[25] Mr. Shaker’s approach is exemplified by the following evidence in his affidavit:
Based on Mr. Luna’s continued refusal to sign the necessary documentation required to conclude the sale of the Navy Wharf Unit, it became apparent to me that Mr. Luna has no legitimate interest in acting as a qualified trustee of the RRHT. I believe that Mr. Luna’s refusal to sign the necessary documentation constitutes an attempt to sabotage the sale of the Navy Wharf Unit, for his own interests and against the interests of the trust.
To the contrary, Mr. Luna has refused to act as trustee, and is, in fact, in breach of trust. Based on what I have seen in the exhibits to the Falco Affidavit, Mr. Luna has repeatedly sought to place his own interests ahead of the trust. Prior to his negotiations with the CRA, he had no duties to fulfil in his capacity as a trustee of the RRHT, as the investment was held passively and there were no day-to-day tasks (such as, for example, active management of the Navy Wharf Unit) required for any of the trustees, including Mr. Luna. This meant that for a period of over 10 years, Mr. Luna had no active duties as a trustee of the RRHT. However, his recent demands for documents and information relating to the trust are not legitimate requests in his capacity as trustee, but rather are demands for his own personal use and benefit as part of his co-operation with the CRA. This conduct is contrary to the interests of the trust and manifestly unacceptable to me as a co-trustee.
[26] What is or is not acceptable does not lie with Mr. Shaker. While Mr. Shaker may treat CRA as his litigation adversary, there is no evidence that Mr. Luna has any personal tax issues. Rather, he has allegedly found himself treated as a dupe when he was a kid with a part time job as a go-fer and now, 15 years later, Mr. Shaker wants to continue to dictate terms to him.
[27] It is Mr. Shaker who has tax problems and is trying to structure his way out of them. I make no comment or criticism of any steps between Mr. Shaker and the tax man. But, his approach to the tax man seems to have blinded him to the position in which he might have put Mr. Luna who is no longer a child and will not do Mr. Shaker’s bidding (whether he finds this acceptable or not).
[28] I make no findings of fact. The evidence is not closed. There have been no cross-examinations. Despite the very aggressive, tactical positions and demands by the applicants, I see nothing untoward in Mr. Luna (a) responding to the CRA in accordance with the law; (b) being careful to ensure that his personal situation is not prejudiced by acts of Mr. Shaker and Mr. Boyd; and (c) asking for transparency of information before he takes the steps demanded of him.
[29] The applicants argue that if Mr. Luna was truly concerned he would have resigned unilaterally as trustee years ago. Therefore Mr. Shaker assumes Mr. Luna must have a nefarious motive. It seems to me that a trustee has rights to information that a former trustee may lack. Moreover, it is simple prudence not to alter the status quo blindly. It is also certainly possible that Mr. Luna’s counsel is responding to tactics with tactics. I do not know today whether Mr. Luna has ulterior motives or whether Mr. Shaker may be projecting his own strategy and tactics on to Mr. Luna.
[30] I considered ordering the sale to close with funds held for a time to allow a fair process for investigation of the parties’ positions in expedited proceedings. But with Mr. Shaker solemnly affirming that he cannot find a way to discharge his mortgage to convey title while funds are held to allow his lawsuit to proceed fairly, then there is no point in making the orders sought.
[31] The court will not be bullied by last-minute demands and one-sided positions. This sale can close today if Mr. Shaker and Mr. Boyd want it to close.
[32] The parties are to agree on a schedule for the hearing of the two counter-applications at the same time and attend Civil Practice Court when they are ready to obtain a return date.
[33] I am not to be contacted today. I am not asked to or inclined to mediate self-induced urgency and tactics.
[34] The win-win outcome is patently obvious if the parties step back and take a deep cleansing breath.
[35] Under Rule 1.09, I direct that the only contact that I may receive today is a single, joint email on behalf of both sides that contains a signed consent form and a draft consent order for my review and signature, if appropriate. I suspect that to reach such an agreement the parties may have to communicate and listen actively to each other’s legitimate concerns and interests.
[36] No costs.
F.L. Myers J Date: March 31, 2022
