Raponi v. Olympia Trust Company, 2022 ONSC 4481

COURT FILE NO.: CV-20-00643593-00CP

DATE: 2022-08-02

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DANIELE RAPONI Plaintiff

• and –

OLYMPIA TRUST COMPANY Defendant

COUNSEL:

Garth Myers, Paul Bates, Serge Kalloghlian, and David Milosevic for the Plaintiff

Ryan Morris and Daniel Szirmak for the Defendant

Proceeding under the Class Proceedings Act, 1992

HEARD: May 30, 31, and June 1, 2, 2022

PERELL, J.

REASONS FOR DECISION

Contents

A. Introduction. 2 B. Dramatis Personae. 4 C. Summary of the Parties’ Case Theories and Substantive Arguments. 6 D. Procedural and Evidentiary Background. 10 E. Related Class Actions. 14 F. Preliminary Evidentiary Rulings. 15

1. The Missing Evidence. 15
2. The Disqualification of Mr. Wells as an Expert Witness. 16
3. Should the Court Draw Adverse Inferences from the Testimony of Ms. Revol?. 17 G. Registered Savings Accounts under the Income Tax Act 19 H. Fortress Developments: The Fall of the Pied Piper of Syndicated Mortgages. 22 I. Summary of Syndicated Mortgage Estimated Loan Losses. 27 J. Olympia Trust’s Role in the Syndicate Mortgages. 28 K. Mr. Raponi’s Investment in the Collier Centre Project 37 L. Class Size. 37 M. Certification: General Principles. 38 N. The Cause of Action Criterion (s. 5 (1)(a)) 39
4. Pleadings Sufficiency and the Plain and Obvious Test 39
5. Breach of Fiduciary Duty and of Trust (Statement of Claim, paras.79-92) 41
6. Breach of Contract (Statement of Claim, paras. 93-97) 47
7. Negligence (Statement of Claim, paras. 98.-103) 48
8. Summary Cause of Action Criterion. 52 O. Identifiable Class Criterion (s. 5 (1)(b)) 54
9. General Principles: Identifiable Class Criterion. 54
10. Analysis: Identifiable Class Criterion. 54 P. Common Issues Criterion (s. 5 (1)(c)) 55
11. General Principles: Common Issues Criterion. 55
12. Analysis: Common Issues. 57 Q. Preferable Procedure Criterion (s. 5 (1)(d)) 59
13. General Principles: Preferable Procedure Criterion. 59
14. Analysis: Preferable Procedure Criterion. 59 R. Representative Plaintiff Criterion (s. 5 (1)(e)) 60
15. General Principles: Representative Plaintiff Criterion. 60
16. Analysis: Representative Plaintiff Criterion. 60 S. Conclusion. 61 Schedule “A” – Excerpts Income Tax Act and Income Tax Regulations. 62 Schedule “B” – Excerpts Bulletin IT-320R3 and Income Tax Folio S3-F10-C1. 65

A. Introduction

[1] Pursuant to the Class Proceedings Act, 1992,[^1] the Plaintiff, Daniele Raponi, brings a motion to certify his action against the Defendant Olympia Trust Company as a class proceeding.

[2] Between 2008 and 2017, Fortress Real Capital Inc. and Fortress Real Developments Inc. (“Fortress Developments”) designed, promoted, and marketed syndicated mortgages for real estate projects across Canada. A syndicated mortgage is a loan where multiple Lenders fund a loan that is secured by a mortgage against the title of the land underlying the mortgage. The mortgage is held by a trustee/mortgagee for the Lenders. Each Lender obtains a security interest proportional to his or her contribution to the loan.

[3] The immediate proposed class action concerns 54 land development projects and 69 syndicated mortgage loans marketed by Fortress Developments in the period between 2011 and 2017. Mr. Raponi was a “Lender” for the Collier Centre, one of the 54 projects. He funded a portion of the loan from his self-directed registered savings account that he had arranged with the Defendant Olympia Trust.

[4] Fortress Developments was a Pied Piper, and it allegedly lured around 13,000 Lenders into funding the syndicated mortgages by false representations. The design of the syndicated mortgages was allegedly a sham to line the pockets of Fortress Developments and some of the “Borrowers” by deceiving the Lenders. Some of the Borrowers were avatars of Fortress Developments and participants in the alleged fraud.

[5] The Lenders were provided with promotional material and copious legal documentation. The Lenders like Mr. Raponi were unaware that the mortgage brokers and Fortress Developments were receiving approximately 35% of the money up front and that much of the mortgage money was not being used to build out the projects. The Lenders were unaware that the loan agreements had “waterfall” provisions that permitted Borrowers and the owners of the Borrowers to receive a return on their investment in the project before the Lenders were repaid and the project built. The Lenders were allegedly given false “as is” appraisals or opinions of value for the land that was being developed and mortgaged. After the Borrowers defaulted on the loans, the security of the syndicated mortgage proved improvident. The Lenders were deceived and suffered losses.

[6] While Fortress Developments is the alleged fraudster in this proposed class action, it is not a defendant. Rather, Mr. Raponi, sues Olympia Trust with respect to the Class Members’ investment in the 69 syndicated mortgage loans. The Class Members are a subset of the larger set of Lenders. The larger set of Lenders is comprised of: (a) Lenders who made their investments with funds advanced from unregistered accounts, and (b) Lenders who made their investments in the 69 syndicated mortgages from funds in savings accounts registered under the Income Tax Act.[^2] The trustee/mortgagee/administrator for the Lenders who advanced funds from unregistered accounts were mortgage brokers or law firms. The trustee/mortgagee/administrator for the Lenders who advanced funds from registered savings accounts was Olympia Trust.

[7] Why is Olympia Trust being sued? The Borrowers, some of whom were avatars of Fortress Developments, defaulted on the syndicated mortgages, and Mr. Raponi alleges that Olympia Trust breached trust, fiduciary, contractual, and common law duties and is the cause of the putative Class Members’ losses because, to quote Mr. Raponi’s factum: “Olympia Trust was a critical gatekeeper without which [the Borrower] could not have accessed the capital it needed to finance its failed development.”

[8] Mr. Raponi’s principal allegation against Olympia Trust is that it failed to satisfy itself, before, at the outset, and throughout the approximately 200 advances of the 69 syndicated mortgages for the 54 projects that the syndicated mortgages were “fully secured” and “qualified investments” under the Income Tax Act and its regulations (Income Tax Regulations).[^3] More precisely, Mr. Raponi submits that before, at the outset, and throughout the approximately 200 advances made on the 69 syndicated mortgages that Olympia Trust failed to ensure that the amount of loan did not exceed the fair market value of the Borrower’s property at the time of the advance.

[9] For the reasons that follow, Mr. Raponi’s motion is dismissed. It is plain and obvious that Mr. Raponi has no cause of action against Olympia Trust, which acted in accord with its trust, fiduciary, contractual, and common law responsibilities. Olympia Trust was not a gatekeeper. It was not a guardian angel. It ought not be made a scapegoat.[^4] Mr. Raponi’s proposed class action fails all of the certification criteria. His action should be dismissed even as an individual action.

B. Dramatis Personae

[10] The principal actors in this proposed class action are the following:

• Bates Barristers is Mr. Raponi’s co-lawyer of record and proposed co-Class Counsel.
• Blake, Cassels & Graydon LLP is Counsel for to Olympia Trust Company.
• Building and Development Mortgage Canada Inc. (“BDMC”) (formerly Centro Mortgage Inc.) is a mortgage broker that promoted and marketed Fortress Developments’ syndicated mortgages. BDMC shared premises with Fortress Developments. BDMC was the trustee/mortgagee/administrator in 44 of the 69 syndicated mortgages for the 54 land development projects for Lenders who did not make their investments with funds from unregistered accounts.
• Computershare Trust Company of Canada, (“Computershare”), a trust company that acted as the trustee/mortgagee/administrator for some of the estimated 2,750 - 3250 syndicated mortgage Lenders who lent money to 54 Borrowers in the 69 syndicated mortgages that are the subject of this proposed class action. Pursuant to the Income Tax Act, the mortgage funds were advanced from savings accounts registered by Computershare. (Computershare is not a party to this proposed class action.)
• FAAN Mortgages Administrators Inc. (“FAAN”). After some of the 69 syndicated mortgages went into default, upon the applications of FSCO and of the Law Society of Ontario, FAAN was appointed as trustee and administrator of the 69 syndicated mortgages for the 54 development projects.
• FDS Broker Services Inc. (“FDS”) is a mortgage broker that promoted and marketed Fortress Developments’ syndicated mortgages. FDS’s principals had formerly been associated with BDMC, which promoted and marketed Fortress Developments’ syndicated mortgages.
• FFM Capital Inc. (“FFM”), formerly Fortress Financial Management Inc., is a mortgage broker that promoted and marketed Fortress Developments’ syndicated mortgages. FFM’s principals had formerly been associated with BDMC, which promoted and marketed Fortress Developments’ syndicated mortgages.
• Pursuant to the Financial Services Commission of Ontario Act, 1997,[^5] and the Mortgage Brokerages, Lenders and Administrators Act, 2006,[^6] the Financial Services Commission of Ontario (“FSCO”) is the regulator of syndicated mortgages.
• FMP Mortgages Investment Inc. (“FMP”) is a mortgage broker that promoted and marketed Fortress Developments’ syndicated mortgages. FMP’s principals had formerly been associated with BDMC, which promoted and marketed Fortress Developments’ syndicated mortgages.
• Fortress Real Capital Inc. and Fortress Real Developments Inc., along with their associated corporations (collectively “Fortress Developments”) developed, promoted, and marketed 69 syndicated mortgages for the 54 land development projects that are the subject of this proposed class action. In some instances, Fortress Developments or a company owned by Fortress Developments was a Borrower whose project was being financed by the syndicated mortgage. The principals of Fortress Developments are Vincenzo Petrozza and Jawad Rathore.
• Kalloghlian Myers LLP is Mr. Raponi’s co-lawyer of record and proposed co-Class Counsel.
• Milosevic Fiske LLP is Mr. Raponi’s co-lawyer of record and proposed co-Class Counsel.
• Olympia Trust Company is a non-deposit taking trust corporation formed under the Alberta Loan and Trust Corporations Act,[^7] with its head office located in Calgary, Alberta. Olympia Trust is a wholly owned subsidiary of Olympia Financial Group Inc., an Alberta corporation that is also headquartered in Calgary. Olympia Financial Group Inc. is a reporting issuer in British Columbia, Alberta, and Ontario and its common shares are listed for trading on the Toronto Stock Exchange. Olympia Trust was a trustee/mortgagee/administrator for some of the estimated 2,750 - 3250 syndicated mortgage Lenders who lent money to 54 Borrowers in the 69 syndicated mortgages that are the subject of this proposed class action. Pursuant to the Income Tax Act, the mortgage funds were advanced from registered savings accounts administered by Olympia Trust.
• Raponi, Daniele resides in the Township of King, Ontario. Mr. Raponi invested $95,000 in a Fortress Developments’ syndicated mortgage for the Collier Centre project, one of the 54 land development projects.
• Sorrenti, Derek and Sorrenti Law Professional Corporation are a lawyer and his law firm. Mr. Sorrenti was the trustee/mortgagee/administrator in 10 of the 69 syndicated mortgages for the 54 land development projects for Lenders who did not make their investments with funds from registered savings accounts. As Mr. Sorrenti is a lawyer, he was qualified to administer mortgages under the exemption in the Mortgage Brokerages, Lenders and Administrators Act, 2006. In addition to being a lender and trustee, among other things, Mr. Sorrenti and his firm provided legal advice to Lenders of the syndicated mortgages.

C. Summary of the Parties’ Case Theories and Substantive Arguments

[11] A summary of the parties’ case theories and their substantive arguments follows.

[12] The background to Mr. Raponi’s case is that Fortress Developments and companies associated with Fortress Developments designed, promoted, and marketed syndicated mortgages for 54 land development projects across Canada. One of the land development projects was in British Columbia, one was in Saskatchewan, one was in Manitoba, seven were in Alberta, and 44 were located in Ontario. The funds for the syndicated mortgages were advanced in tranches for each of 69 syndicated mortgages. It is estimated that there were approximately 200 tranches for the 54 projects and that approximately $600 million was raised by Fortress Developments to finance the 54 land development projects across the country and across Ontario.

[13] Fortress Developments represented to Lenders that the 69 syndicated mortgages qualified for registered savings accounts (Registered Retirement Savings Plans (“RRSPs”), Registered Retirement Income Funds (“RRIFs”), Tax-Free Savings Accounts (“TFSAs”) and Registered Education Savings Plans (“RESPs”)) under the Income Tax Act and its regulations.

[14] Thus, a non-corporate Lender had the choice of making his or her loan in the syndicated mortgage using funds from an unregistered account or from a registered savings account. It is estimated that there were around 13,000 Lenders. Of these, it is estimated that 2,750 – 3,250 of the Lenders made their loans from funds in a registered savings account.

[15] Some, but not all, of the Borrowers were land development companies with reputable records of successful land development projects; however, some of the Borrowers were incarnations of Fortress Developments. In his affidavit for a search warrant, RCMP investigator, Constable Williamson noted that Fortress Developments had represented that it had partnered with over 25 builders and developers in British Columbia, Alberta, Saskatchewan, Manitoba, and Ontario.[^8] FAAN in its trustee’s report noted that many of the Borrowers were Fortress Development entities or otherwise related to Fortress Developments.

[16] After the 69 syndicated mortgages were placed for the 54 projects, the Borrowers defaulted on the primary, secondary, and tertiary mortgages, and they failed to complete the projects. After mortgage enforcement proceedings, the Lenders in the syndicated mortgages lost all or substantially all of their investment.

[17] Mr. Raponi’s theory of the case is that Olympia Trust is liable because it failed to satisfy itself, before, at the outset, and throughout the approximately 200 advances of the 69 syndicated mortgages for the 54 development projects that the syndicated mortgages were “fully secured” and “qualified investments” under the Income Tax Act and its regulations (Income Tax Regulations), which is to say that it is Mr. Raponi’s theory that Olympia Trust is liable because before and during the life of the syndicated mortgage, before advancing funds, it failed to satisfy itself that the value of the syndicated mortgage loan plus prior encumbrances did not exceed the fair market value of the property at the time of the advance under the syndicated mortgage.

[18] Mr. Raponi’s submits that Olympia Trust is liable because it has trust, fiduciary, contractual, and common law duties owed to the Class Members. The alleged duties are: (a) to ensure that the 69 syndicated mortgage loans were fully secured; and (b) to warn the Class Members that some or all of the syndicated mortgage loans appeared to be or would likely become non-qualified investments under the Income Tax Act. Further, Mr. Raponi submits that Olympia Trust’s breach of trust, fiduciary, contractual, and common law duties is the cause of the Class Members’ losses because to quote Mr. Raponi’s factum: “Olympia Trust was a critical gatekeeper without which [the borrower] could not have accessed the capital it needed to finance its failed developments.”

[19] Mr. Raponi argues that the standard of care of a reasonable trustee/mortgage of a syndicated mortgage charged with ensuring that the mortgage is compliant for a registered savings account, entails the following eleven duties, promises, and obligations that:

(1) Before agreeing to act, Olympia Trust must review the syndicator’s marketing material to make sure the promotional material is not misleading, and Olympia Trust must refuse to act as trustee if the syndicator’s marketing materials contains misrepresentations.

(2) Before agreeing to act, Olympia Trust must identify risks to Lenders including the risk that the syndicated mortgage can be subordinated after its execution, and Olympia Trust must refuse to act as trustee in those circumstances.

(3) Olympia Trust must review the use to be made of the funds to be advanced to ensure that the use of the funds is exclusively to develop the property and not for other purposes such as consulting fees, marketing costs expenses, and sales commission, and Olympia Trust must refuse to act as trustee if the use of the mortgage’s funds is for such purposes.

(4) Olympia Trust must review the loan agreement to ensure that it was permitted to fulfill its obligation to communicate with and report to the Class Members.

(5) Olympia Trust must obtain appraisals and not use opinions of value to determine the fair market value of the mortgaged lands.

(6) Olympia Trust must determine if a proper appraisal of the mortgaged property uses an appropriate valuation method and must not advance funds for the mortgage relying on an appraisal based on the “residual method of valuation” or an appraisal based on future hypothetical assumptions.

(7) Olympia Trust must refuse to act as trustee if the value of the syndicated mortgage plus prior encumbrances exceeds the appraised fair market value of the mortgaged land.

(8) Olympia Trust must refuse to act as trustee for any of the 69 syndicated mortgages if it knows or ought to know that the value of the syndicated mortgage plus prior encumbrances on any one of the syndicated mortgages plus prior encumbrances exceeds the appraised fair market value of the land mortgaged in that syndicated mortgage. This duty is an aspect of Mr. Raponi’s proposition that since Fortress Developments has been involved in prior syndicated mortgage loans, then a prudent trustee should review the history of each prior syndicated mortgage loan to determine whether the loan remained a qualified investment throughout its term.

(9) Olympia Trust must determine whether Fortress Developments was ever involved in syndicated mortgages where during the life of the loan, the amount of the loan plus the prior encumbrances exceeded the fair market value of the mortgaged lands and, if so, Olympia Trust should refuse to be trustee. This duty is an aspect of Mr. Raponi’s proposition that since Fortress Developments has been involved in prior syndicated mortgage loans, then a prudent trustee should review the history of each prior syndicated mortgage loan to determine whether the loan remained a qualified investment throughout its term.

(10) During the life of the syndicated loan, Olympia Trust must conduct an annual review of each and every syndicated mortgage loan, to determine whether the fair market value of the land exceeds the value of the loan plus prior encumbrances and whether the borrower is in good standing in making its mortgage payments, and if the syndicated mortgage is non-compliant, Olympia Trust must inform the Canada Revenue Agency (“CRA”) of the non-compliance. This duty is an aspect of Mr. Raponi’s proposition that since Fortress Developments has been involved in prior syndicated mortgage loans, then a prudent trustee should review the history of each prior syndicated mortgage loan to determine whether the loan remained a qualified investment throughout its term.

(11) Before and during the life of the syndicated mortgage, Olympia Trust must advise Class Members if the syndicated mortgage was at risk of being or of having become one in which the value of the syndicated mortgage and prior encumbrances exceeded the fair market value of the mortgaged land.

[20] It is a critical component of Mr. Raponi’s proposed class action that the providence of all 69 syndicated mortgages be adjudicated in one class action. Mr. Raponi advances what I shall label the “Omnibus Class Action Argument.” The argument is that Olympia Trust’s duties must be adjudicated “as a whole … because the status of prior Fortress Development Properties ought to have impacted its responsibility and decision making for funding later Development Properties.”

[21] At the heart of Mr. Raponi’s case is the proposition that since Fortress Developments Fortress) has been involved in prior syndicated mortgage loans, then a prudent trustee should review the history of each prior syndicated mortgage loan to determine whether the loan remained a qualified investment throughout its term. Mr. Raponi says that it is an absolute necessity to have an Omnibus Class Action. Because of the professed critical importance and necessity of having an Omnibus Class Action, I set out his argument as it is found in paragraphs 33-36 of Mr. Raponi’s certification factum (The argument is repeated numerous times in the factum):

33. Olympia Trust’s duties and obligations applied for each Fortress Development Property.

34. At the same time, Olympia Trust’s duties and obligations also applied across the Fortress Development Properties as a whole. A reasonably prudent Registered Plan trustee in the position of Olympia Trust ought to have relied on information about existing Fortress Development Properties (including whether each existing Fortress Development Properties was a qualified investment) in determining whether it should act as trustee and make advances for each subsequent Fortress Development Property syndicated mortgage loans.

35. Put another way, a reasonably prudent Registered Plan trustee should not consider each project in isolation, because the status of prior Fortress Development Properties ought to have impacted its responsibility and decision making for funding later Development Properties.

36. The significance of this interrelationship between the Fortress Development Properties is that a class action and common issues trial determining Olympia Trust’s liability individually for each Fortress Development Property (i.e., 54 separate class actions and 54 separate common issues trials) is inappropriate. Instead, one common issues trial considering all the Fortress Development Properties is necessary to adjudicate Olympia Trust’s liability.

[22] In its defence, Olympia Trust’s case theory and counterargument is that while it had duties: (a) it owed no duties to ensure that the 69 syndicated mortgage loans were fully secured; (b) it owed no duties to warn the Class Members that some or all of the syndicated mortgage loans appeared to be or would likely become non-qualified investments; and (c) it owed no duties to satisfy the enumerated duties and standard of care alleged by Mr. Raponi. Olympia Trust submits that it is not the gatekeeper or guardian angel of the Class Members and ought not to be made the scapegoat because the alleged duties do not exist in the circumstances of the 69 syndicated mortgage loans.

[23] As the factual underpinning for its defence, Olympia Trust says that it did not design, promote, or market the syndicated mortgages. Rather, after a Lender (a putative Class Member) had received promotional and appraisal information about the project and about the syndicated mortgage, and after he or she had received warnings about the risk of the investment and recommendations to obtain investment, and after he or she received legal and business advice from the mortgage broker and others, and after the Lender had received copious amounts of contractual documents from and with the syndicator, broker, and Borrower, and after the Lender acknowledged receiving advice and after he or she had already decided to participate in the syndicated mortgage, Olympia Trust made itself available to be the trustee/mortgagee/administrator of a registered savings account for the syndicated mortgage loan.

[24] Olympia Trust says that after the putative Class Member applied to Olympia Trust, Olympia Trust applied to the Canada Revenue Agency (“CRA”) for registration of the registered savings account for the Class Member and the Class Member signed (a) an “Account Application”, (b) a “Self-Directed Savings Plan Declaration of Trust”, (c) a “Lender Acknowledgment and Consent Agreement” and (d) a “Mortgage Investment Direction and Indemnity Agreement”. Olympia Trust submits that the terms of its agreements with the Class Members define and preclude Olympia Trust having the alleged fiduciary, contractual, and common law duties with their attendant standards of care.

[25] In its defence, Olympia Trust submits that the alleged duties and the alleged standards of care do not exist and are a fabrication of Mr. Raponi looking for someone to atone for the deceits of Fortress Developments.

[26] Further still, Olympia Trust submits that it is not the cause of the Class Members’ losses; rather the syndicators, the mortgage brokers, the appraisers, and the 54 defaulting Borrowers are the cause of the Class Members’ losses along with the attendant risks of development projects and the economy. Olympia Trust submits that the die was cast before Olympia Trust became involved and before each and every of the 200 advances of mortgage funds for the 69 syndicated mortgages. In short, Olympia Trust submits that the Class Members may have claims against others, but they do not have sustainable claims against Olympia Trust.

[27] Olympia Trust’s denial of responsibility is disputed by Mr. Raponi who, amongst other things, submits that both as a matter of interpreting and applying the direct agreements between the Class Members and Olympia Trust and also as a matter of overarching fiduciary, contractual, and common law principles, the alleged duties exist and that Olympia Trust is the cause of the Class Members’ losses because Olympia Trust could have and should have stopped the Class Members’ losses from happening by not accepting the retainer as trustee/mortgage and by refusing to advance mortgage funds to the Borrowers who ultimately defaulted and whose development projects were not completed. Mr. Raponi submits that situated as it was, Olympia Trust ought not to have agreed to act as the trustee for the registered savings accounts and having wrongfully taken on that position it had a duty to warn, which it breached, before making any advances from the registered savings accounts.

D. Procedural and Evidentiary Background

[28] On July 8, 2020, Mr. Raponi commences his proposed class action by Notice of Action.

[29] On August 7, 2020, Mr. Raponi files the Statement of Claim.

[30] On April 30, 2021, Mr. Raponi files a Fresh as Amended Statement of Claim.

[31] On April 30, 2021, Mr. Raponi brings a motion for certification of his action.

[32] On September 29, 2021, Olympia Trust delivers its Statement of Defence.

[33] In 2020-21, Olympia Trust delivers 143 Third Party Claims against Fortress Developments as well as against the mortgage brokers, mortgage administrators, project developers, Borrowers, valuators, lawyers, law firms, and investment advisors associated with the 69 syndicated mortgages.

[34] On December 24, 2021, Mr. Raponi delivers an amended Notice of Motion for Certification.

[35] Mr. Raponi proposes the following class definition:

All persons wherever they may reside or be domiciled, who invested in a syndicated mortgage loan investment through a registered retirement savings plan, registered retirement income fund, tax-free savings accounts, registered education savings plan and/or other registered plan accounts under Division G of the Income Tax Act, R.S.C. 1985, c 1 (5th Supp) held in trust by Olympia Trust Company that was secured by the land of any of the Development Properties (as defined in the Statement of Claim).

[36] Mr. Raponi proposes the following 34 common issues:[^9]

Breach of Trust

1. Did Olympia Trust Company owe duties as a Registered Plan trustee to the Class Members to:

(a) exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that the Class Members’ Registered Plans held non-qualified investments?

(b) exercise the care, diligence and skill of a reasonably prudent person to determine the current fair market value of the security for the Fortress Development Property syndicated mortgage loans?

(c) advance Registered Plan funds to Borrowers only after satisfying itself based on appropriate care, diligence and skill that the debt obligation secured by the mortgage was fully secured and a qualified investment?

(d) advise, warn or notify the Class Members that some or all of the Fortress Development Property syndicated mortgage loans appeared to be or would likely become non-qualified investments?

(e) report to the Class Members if their Registered Plans ceased to hold qualified investments?

(f) decline to act as Registered Plan trustee for some or all the Fortress Development Property Registered Plan syndicated mortgage loans?

2. If so, did Olympia Trust Company breach some or all these duties?

Breach of Fiduciary Duty

3. Did Olympia Trust Company owe fiduciary duties to the Class Members to:

(a) exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that the Class Members’ Registered Plans held non-qualified investments?

(b) exercise the care, diligence and skill of a reasonably prudent person to determine the current fair market value of the security for the Fortress Development Property syndicated mortgage loans?

(c) advance Registered Plan funds to Borrowers only after satisfying itself based on appropriate care, diligence and skill that the debt obligation secured by the mortgage was fully secured and a qualified investment?

(d) advise, warn or notify the Class Members that some or all of the Fortress Development Property syndicated mortgage loans appeared to be or would likely become non-qualified investments?

(e) report to the Class Members if their Registered Plans ceased to hold qualified investments?

(f) decline to act as Registered Plan trustee for some or all the Fortress Development Property Registered Plan syndicated mortgage loans?

4. If so, did Olympia Trust Company breach some or all these duties?

Breach of Contract

5. Did Olympia Trust Company have contractual obligations to Class Members to:

(a) exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that the Class Members’ Registered Plans held non-qualified investments?

(b) exercise the care, diligence and skill of a reasonably prudent person to determine the current fair market value of the security for the Fortress Development Property syndicated mortgage loans?

(c) advance Registered Plan funds to Borrowers only after satisfying itself based on appropriate care, diligence and skill that the debt obligation secured by the mortgage was fully secured and a qualified investment?

(d) advise, warn or notify the Class Members that some or all of the Fortress Development Property syndicated mortgage loans appeared to be or would likely become non-qualified investments?

(e) report to the Class Members if their Registered Plans ceased to hold qualified investments?

(f) decline to act as Registered Plan trustee for some or all the Fortress Development Property Registered Plan syndicated mortgage loans?

6. If so, did Olympia Trust Company breach some or all these contractual obligations?

Negligence

7. Did Olympia Trust Company owe the Class Members a duty of care to:

(a) exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that the Class Members’ Registered Plans held non-qualified investments?

(b) exercise the care, diligence and skill of a reasonably prudent person to determine the current fair market value of the security for the Fortress Development Property syndicated mortgage loans?

(c) advance Registered Plan funds to Borrowers only after satisfying itself based on appropriate care, diligence and skill that the debt obligation secured by the mortgage was fully secured and a qualified investment?

(d) advise, warn or notify the Class Members that some or all of the Fortress Development Property syndicated mortgage loans appeared to be or would likely become non-qualified investments?

(e) report to the Class Members if their Registered Plans ceased to hold qualified investments?

(f) decline to act as Registered Plan trustee for some or all the Fortress Development Property Registered Plan syndicated mortgage loans?

8. If so, what was the standard of care applicable to Olympia Trust Company?

9. Did Olympia Trust Company breach the standard of care?

Causation

10. Did Olympia Trust Company's breach of breach of trust, breach of fiduciary duty, breach of contract and/or the standard of care cause damages to the Class Members?

Remedies

11. What remedies are available to the Class Members?

12. If damages, equitable compensation and/or disgorgement are available to the Class Members, how should they be calculated?

13. If an accounting is available to the Class Members, what is the amount of funds that the trustee must return to each trust?

14. Does Olympia Trust Company’s conduct justify an award for punitive damages? If so, in what amount?

[37] Mr. Raponi’s Litigation Plan does not envision individual issues trials. The plan is structured on the resolution of the common issues followed by an individual claims process based on documents filed by each Class Member. The Litigation Plan’s details for the resolution of the common issues are as follows:

TRIAL OR SUMMARY JUDGMENT ON THE COMMON ISSUES

If appropriate, the Plaintiff may seek summary judgment on one or more of the common issues. If the Plaintiff does not seek summary judgment on common issues, or if any common issues remain following a motion for summary judgment, the Plaintiff will seek the early appointment of the common issues trial judge. The Plaintiff will address issues of trial management in advance of the trial to ensure the orderly and efficient determination of any remaining common issues. The Plaintiff will ask the Court to hold the hearing on the merits (whether a motion for summary judgment or common issues trial) no later than one (1) year after the completion of the examinations for discovery and the production of information required by the undertaking and any motions.

[38] Mr. Raponi supports his motion for certification with the following evidence:

a. Affidavits dated December 24, 2021 and February 3, 2022 of Serge Kalloghlian. Mr. Kalloghlian is a partner of Kalloghlian Myers LLP, co-Class Counsel.

b. Affidavit dated April 28, 2021 of Daniele Raponi. Mr. Raponi is the Plaintiff and the proposed Representative Plaintiff.

c. Affidavits dated April 29, 2021 and February 7, 2022 of Edward G. Wells. Mr. Wells is a business consultant who formerly was a business development manager for Community Trust Company, one the few trust companies that like Olympia Trust, offered services as a trustee/mortgagee for registered savings account syndicated mortgages.

d. Excerpts from a redacted affidavit, circa April 2018, of Constable Martin Williamson for the RCMP Integrated Market Enforcement Team in support of a request for search warrant in respect of the premises of Fortress Developments, BDMC, FDS, FFM, and FMP.

e. Affidavit dated April 19, 2018 of Brendan Forbes in support of an application by FSCO for a court order seizing the assets of BDMC, the major broker used by Fortress Developments to market its syndicated mortgages. Mr. Forbes is a legal counsel of the Ministry of the Attorney General assigned to the FSCO Branch of the Civil Law Division to, among other things, prosecute regulatory proceedings under the Financial Services Commission of Ontario Act, 1997.

f. Affidavit without exhibits dated September 30, 2019 of Nadia Musclow in support of an application by the Law Society of Ontario for a court order to seize the ten syndicated mortgages administered by Mr. Sorrenti and his law firm. Ms. Musclow is the Manager, Trustee Services of the Law Society of Ontario.

[39] Olympia Trust resisted the certification motion with the affidavits dated January 7, 2021 and March 2, 2022 of Kelly Revol. Ms. Revol is the Executive Vice President, Investment Account Services, of Olympia Trust. She began her career at Olympia Trust in 2002 and had a succession of increasingly senior roles at Olympia Trust in mortgages, operations and client services relating to registered savings accounts, including RRSPs, RRIFs, and TFSAs.

[40] On March 3, 2022, Mr. Kalloghlian is cross-examined. (608 questions, 168 pages)

[41] On March 4, 2022, Mr. Raponi is cross-examined. (213 questions, 54 pages)

[42] On March 8, 2022, Ms. Revol is cross-examined. (208 questions, 56 pages)

[43] On March 11, 2022, Mr. Wells is cross-examined. (874 questions, 215 pages)

[44] On March 30, 2022, Olympia Trust brings a motion to strike the evidence of Mr. Wells.

[45] In April 2022, Mr. Raponi delivers his Factum (121 pages).

[46] Mr. Raponi’s Motion Record is 8,409 pages and his Books of Authorities is 4,380 pages.

[47] On April 29, 2022, Olympia Trust delivers its Factum (83 pages). Olympia Trust’s Motion Record is 6,439 pages and its Book of Authorities is 1,620 pages.

[48] In May 2022, Mr. Raponi delivers his Reply Factum (102 pages).

[49] On May 3, 2022, Olympia Trust delivers its Factum (38 pages) for a motion to strike the evidence of Mr. Wells.

[50] In May 2022, Mr. Raponi delivers his Responding Factum to Olympia Trust’s motion to strike the evidence of Mr. Wells. (40 pages)

[51] The motion materials comprised approximately 23,000 pages.[^10]

E. Related Class Actions

[52] Before the commencement of this action, five proposed class proceedings were brought against Fortress Developments, and the Borrowers, mortgage brokers, investment advisors, appraisers, and lawyers in relation to the syndicated mortgages pertaining to projects known as: (a) Collier Centre, (b) Progress, (c) Sutton, (d) Harmony-Village and (e) Orchard, an Alberta property. At one time, Olympia Trust was a party defendant to those actions.

[53] In 2017, I struck out the pleadings in the Collier Centre, Progress, Sutton, and Harmony Village actions against Olympia Trust, with leave to amend.[^11] No amendments were made, and the actions as against Olympia Trust were subsequently discontinued in July 2021, after the commencement of Mr. Raponi’s action. The action against Olympia Trust with respect to Orchard was also discontinued.

[54] The class actions with respect to these four properties continue against the other defendants, on behalf of all Lenders who invested in the syndicated mortgages.

F. Preliminary Evidentiary Rulings

1. The Missing Evidence

[55] Notwithstanding that there was a voluminous motion record and Class Counsel had two years to prepare for the certification motion, there were many significant gaps in the evidentiary record for this certification motion.

[56] A less than comprehensive evidentiary foundation for a certification motion is an expected and acceptable phenomenon for a certification motion, which occurs before documentary production and which is a procedural, non-merits motion, with a low evidentiary standard. However, in the immediate case, there was evidence that was feasible to produce and whose absence raised serious issues about the class definition, common issues, and preferable procedure criteria.

[57] For example, neither party filed the syndicated mortgage documents for any of the 69 syndicated mortgages until, during the course of the hearing, I asked Olympia Trust to file a sample of the registered mortgage documentation, and Olympia Trust provided a copy of the charge/mortgage and a copy of the transfer of charge for five of the development projects. Mr. Raponi did not object to the admission of the additional documentary material, which added 109 more documents and another 1,000 pages to the motion record. The admission of the actual syndicated mortgage instruments disclosed problems of commonality and about the class definition.

[58] As revealed below, there is quite a bit of evidence and analysis from Mr. Raponi about the common bad outcome of the 54 development projects and the common bad prospects of recovery for the Class Members who invested in the syndicated mortgages. However, my review of the evidence and the additional evidence revealed that there were some major uncommonalities; visualize: (a) some - and I do not know precisely how many - of the 54 Borrowers were incarnations of Fortress Developments; and (b) some - and I do not know how many - of the 54 Borrowers may have been independent land developers and some of these – and I do not know how many – may have had proven track records as successful land developers. Further, I do not know how many of the 69 syndicated mortgages involved Olympia Trust as opposed to Computershare.

[59] In this last regard, Mr. Raponi’s motion record noted that he only had copies of 41 loan agreements up to September 2016; he did not have copies of the remaining 28 loan agreements. The parties seem to have argued the certification motion on the basis that Olympia Trust was involved in all 69 syndicated mortgages. However, Mr. Raponi proffered the affidavit of Brendan Forbes, whose affidavit was filed in support of the appointment of FAAN to administer the liquidation of the syndicated mortgages. In his affidavit, Mr. Forbes notes that as of August 2017, Olympia Trust announced that it would no longer accept new business from Ontario Lenders and that after that date, Computershare Trust Company of Canada facilitated the investments in the syndicated mortgages for Lenders who wished to invest funds held in registered savings accounts.

[60] Mr. Forbes’ evidence casts some doubt on whether Olympia Trust was the trustee/mortgagee/administrator for all 69 of the syndicated mortgages as is alleged, and most emphatically alleged in support of Mr. Raponi’s assertion that there must be an Omnibus Class Action.

[61] For another example of evidence that could have feasibly been forthcoming for the certification motion, is the appraisal evidence. The appraisals are the focus of the allegation that Olympia Trust breached its standard of care. What was required from Mr. Raponi, but was not made available, was an expert appraiser qualified to say that there was some basis in fact that the appraisals for a particular project or for some or for all of the projects was not an “as is” evaluation of the security or was an improper “as is” appraisal – at the time that the syndicated mortgage’s funds were advanced.

[62] Rather than proffering what would have been helpful evidence, the evidence from Mr. Raponi about the appraisals used for the syndicated mortgages was very poor. The appraisal evidence was largely of two types. The first type of appraisal evidence was double or triple or who knows the degree of hearsay evidence from persons who are not qualified to give appraisal evidence. Mr. Wells is an example of a person unqualified to give appraisal evidence and his informants and the qualifications of them are unknown.

[63] Another example of this poor quality of evidence was RCMP Investigator Constable Williamson whose search warrant affidavit stated that there were “as is” appraisals, but that they were inflated “as is” appraisals. Constable Williamson, who is no appraiser, was relying on who-knows-whom, who may have been relying on who-knows-whom for information about the adequacy of the appraisals. Moreover, so far as it went, Constable Williamson’s evidence somewhat contradicts Mr. Raponi’s position that the appraisals were not “as is” appraisals at all.

[64] The second type of poor appraisal evidence was some sort of res ipsa loquitur double or triple or who knows the degree of circumstantial evidence that inferred from the deficient ultimate recovery made in enforcement or settlement of the mortgage indebtedness, that the appraisals of the syndicated mortgages were palpably and patently deficient from the outset. In Fontaine v. British Columbia (Official Administrator),[^12] the Supreme Court of Canada debunked the use of res ipsa loquitur as a basis to infer negligence. In the immediate case, however, this circumstantial evidence was very weak because there was no one with expertise and as Alexander Pope noted a little learning is a dangerous thing.

[65] Nevertheless, despite these deficiencies, as discussed later, the appraisal evidence is sufficient for Mr. Raponi to scale the knoll of the some-basis-in-fact evidentiary standard to prove that a problem with the appraisals may exist.

2. The Disqualification of Mr. Wells as an Expert Witness

[66] As noted above, Olympia Trust brought a motion to strike the evidence of Mr. Wells.

[67] Mr. Wells is the former Business Development Manager of Community Trust one of four financial institutions that offer services as a trustee/mortgagee for registered savings accounts with syndicated mortgage investments. Mr. Wells was proffered by Mr. Raponi as an expert witness to provide evidence on the duties and the standard of care of trustees of registered savings accounts that invest in syndicated mortgages.

[68] As explained in separately released Reasons for Decision, I do not admit Mr. Wells’ evidence for this certification motion.[^13]

[69] However, as it happens, very little turns on the rejection of Mr. Wells’ evidence because very much of it was legal opinion and argument or hearsay or hearsay upon hearsay about the appraisal evidence for which Mr. Wells was just a mouthpiece for Class Counsel. At the hearing of the certification motion, relying on the voluminous materials put on the record by both parties, Class Counsel made the same arguments relying on the same documentation, statutory material, and hearsay, as Mr. Wells did.

3. Should the Court Draw Adverse Inferences from the Testimony of Ms. Revol?

[70] Mr. Raponi submits that pursuant to rule 34.15 (1) of the Rules of Civil Procedure,[^14] this court should draw adverse inferences against Olympia Trust. The requested adverse inferences come in three tranches of questions.

[71] For the first tranche of three adverse inferences, Mr. Raponi relies on Ms. Revol’s refusal to answer the following six questions.

1. Does Olympia Trust have a procedures manual that describes what is to be done and not done by mortgages services when deciding to advance funding under a syndicated mortgage loan?

2. What was Olympia Trust’s review officer supposed to determine from opinions of value?

3. To provide information about Fortress’s business acceptance practices.

4. Is there a record in Olympia’s possession of what it will accept as evidence of value?

5. To produce Olympia Trust’s record of syndicated mortgage acceptance criteria.

6. Did Olympia Trust treat the residual method of valuation as satisfactory for purposes of funding a syndicated mortgage loan?

[72] From Ms. Revol’s refusal to answer these six questions, Mr. Raponi asks the court to draw the following three adverse inferences:

1. Olympia Trust did not have adequate business acceptance practices to act as a Registered Plan trustee or, if it did, it did not meet its business acceptance practices for the Registered Plan Fortress Development Property syndicated mortgage loan investments.

2. Olympia Trust did not meet its internal funding requirements for the Registered Plan Fortress Development Property syndicated mortgage loan investments.

3. Olympia Trust treated the “residual method” of property valuation as a sufficient basis to advance Registered Plan funds for the Fortress Development Property syndicated mortgage loan investments.

[73] For the second tranche of two adverse inferences, Mr. Raponi relies on Ms. Revol’s refusal to answer the following three questions.

1. Did Olympia Trust assess the Fortress business model in any way?

2. What was Olympia Trust’s understanding of the level of risk involved in the Fortress syndicated mortgage loan investments?

3. Describe the risks in the Fortress syndicated mortgage loan investments.

[74] From Ms. Revol’s refusal to answer these three questions, Mr. Raponi asks the court to draw the following two adverse inferences:

1. Olympia Trust did not assess the Fortress Development Property business model in any way.

2. Olympia Trust had undisclosed knowledge of risks associated with the Fortress Development Property syndicated mortgage loan investments.

[75] For the third tranche for one adverse inference, Mr. Raponi relies on Ms. Revol’s refusal to answer the following question.

1. Did Olympia Trust have any dealings with FSCO in connection with their investigations into Fortress?

[76] Olympia Trust refused to have Ms. Revol answer these three tranches of questions on the grounds that the questions were not proper questions. More precisely, Olympia Trust’s position was that the questions were merits questions not material and not relevant to the certification motion criteria, which are procedural and not merits based measurements.

[77] Rule 34.15 (1) states:

Sanctions for Default or Misconduct by Person to be Examined

34.15 (1) Where a person fails to attend at the time and place fixed for an examination in the notice of examination or summons to witness or at the time and place agreed on by the parties, or refuses to take an oath or make an affirmation, to answer any proper question, to produce a document or thing that he or she is required to produce or to comply with an order under rule 34.14, the court may,

(a) where an objection to a question is held to be improper, order or permit the person being examined to reattend at his or her own expense and answer the question, in which case the person shall also answer any proper questions arising from the answer;

(b) where the person is a party or, on an examination for discovery, a person examined on behalf or in place of a party, dismiss the party’s proceeding or strike out the party’s defence;

(c) strike out all or part of the person’s evidence, including any affidavit made by the person; and

(d) make such other order as is just.

[78] Relying on Snelgrove v. Steinberg,[^15] and 236523 Ontario Inc. v. Nowack,[^16] Mr. Raponi submits that notwithstanding that a party has not brought a preliminary refusals motion, a court may draw an adverse inference against the opposing party because of his or her refusal to answer a proper question on his or her examination.

[79] I agree with Olympia Trust’s position that the questions Ms. Revol refused to answer were not proper questions for this certification motion and, therefore, I shall not draw any adverse inferences from Ms. Revol’s refusals.

[80] Moreover, some of the questions posed to Ms. Revol were justifiably refused on grounds of proportionality or unanswerability (vague, unclear, inconsistent, unintelligible, redundant, superfluous, repetitious, overreaching, fishing, beyond the scope of the examination, speculative, unfair, oppressive, or a matter of rhetoric or argument).[^17]

[81] Further still, and more to the point, even if the questions were proper and Ms. Revol’s refusals unjustified, the adverse inferences requested do not logically follow from the refusal and are merits determinations that should be determined on a full evidentiary record and not on the basis of the miniscule some-basis-in-fact standard used for a certification motion.

[82] In the discussion of the facts below, I may draw inferences, but those inferences will not be based on Ms. Revol’s refusals to answer the three tranches of questions.

[83] Much like the situation with Mr. Raponi or Mr. Wells’ absent evidence, very little turns on the absence of additional evidence from Ms. Revol in determining whether or not Mr. Raponi’s case was certifiable.

G. Registered Savings Accounts under the Income Tax Act

[84] Fundamental background information for Mr. Raponi’s proposed class action, is the matter of the regulation of registered savings accounts under the Income Tax Act and the Income Tax Regulations. The relevant excerpts of the Income Tax Act and the Income Tax Regulations are set out in Schedule “A” to these Reasons for Decision.

[85] The CRA provides guidance to trustees and administrators of registered savings accounts through tax bulletins and tax folios. Pertinent to the immediate case are: (a) Bulletin IT-320R3 and (b) Income Tax Folio S3-F10-C1, which updated and replaced the tax bulletin. The relevant provisions of these guidelines are set out in Schedule “B” to these Reasons for Decision.

[86] Olympia Trust provides its clients with self-directed savings accounts, including RRSPs, RRIFs, TFSAs, Locked-in Retirement Accounts (LIRAs) and Life Income Funds (LIFs). In the immediate case, these accounts were made available for the Lenders in the Fortress Developments syndicated mortgages. (It appears that Computershare also provided registered savings accounts to some Lenders.) The nature and operation of these registered accounts is at the heart of all of Mr. Raponi’s substantive arguments about his various causes of action against Olympia Trust.

[87] Part XI.01 of the Income Tax Act specifies the tax treatment of registered savings accounts. Under the Income Tax Act, registered savings account plans permit investors to defer tax on invested funds and/or gains on investments until funds are withdrawn from their registered savings account. Investing through a registered savings account provides investors with tax advantages in respect of the gains on their investments but exposes them to potential adverse tax consequences if the investment does not meet the requirements of the Income Tax Act and its regulations.

[88] For a Lender to hold a syndicated mortgage investment in a registered savings account under the Income Tax Act, he or she must open a registered account with a custodial trustee or an approved financial institution. The trustee will register the investor’s account with the Canada Revenue Agency (“CRA”).

[89] Olympia Trust was the custodial trustee for some of the 69 syndicated mortgages for the 54 development projects. The certification motion was argued on the basis that Olympia Trust was the trustee/mortgagee/administrator for all of the syndicated mortgages for Lenders who advanced funds from a registered savings account.

[90] Pursuant to sections 146(1), 146.1(1), 146.2(6), and 146.3(1) of the Income Tax Act, investments that meet the definition of a “qualified investment” may be held in a registered savings account. Sections 146(1) and 204 of the Income Tax Act provide the definition of a “qualified investment” for a trust governed by an RRSP and similar definitions are provided for RRIFs, TFSAs, and RESPs.

[91] Regulation 4000 (1)(j) of the Income Tax Regulations, set out in Schedule “A” to these Reasons for Decision, prescribes that a debt obligation (such as a syndicated mortgage), is a qualified investment for registered savings accounts if it is “fully secured by a mortgage … in respect of real … property situated in Canada, or would be fully secured were it not for a decline in the fair market value of the property after the debt obligation was issued …”

[92] The Income Tax Act and its regulations do not define “fully secured,” but s. 1.33 of the Income Tax Folio S3-F10-C1 provides that:

In general, a debt obligation would be considered to be fully secured if the value of the real or immovable property pledged by the borrower to the lender in the event of default is sufficient to cover the full amount of the principal and interest outstanding on the loan. For this purpose, any decline in the fair market value of the property after the debt obligation was issued can be ignored.

[93] The Income Tax Act and its regulations do not define “fair market value,” but s. 1.96 of the Income Tax Folio S3-F10-C1 states:

[…] While the term fair market value is not defined in the Act, it generally is considered to mean the highest price expressed in terms of money that can be obtained in an open and unrestricted market between informed and prudent parties, who are dealing at arm's length and under no compulsion to buy or sell. The determination of fair market value is a question of fact.

[94] Thus, to be eligible as an investment in a registered savings account, a syndicated mortgage had to be a “qualified investment” under paragraph 4900(1)(j) of the Income Tax Regulations, meaning that it had to be “fully secured” by a mortgage or would be fully secured were it not for a decline in the fair market value of the property after the debt obligation was issued.

[95] Section 207.01 (5) of the Income Tax Act, set out in Schedule “A”, requires that the trustee of a registered plan “shall exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that a trust governed by the registered plan holds a non-qualified investment.” Mr. Raponi says that s. 207.01(5) is critical to his case because it is “the foundation of Olympia Trust’s duties and obligations to Class Members.”

[96] At the heart of s. 207.01(5) is the notion of minimizing the possibility of the secured savings account holding a non-qualified investment. How the trustee is to minimize the possibility that the registered savings accounts might hold a non-qualified investment is not spelled out in the Income Tax Act or the Income Tax Regulations. However, sections 1.92-1.98 of Folio S3-F10-C1 provide guidance with respect to the obligations of the registered savings accounts trustee as follows:

Obligations of registered plan trustees

1.92 Responsibility for compliance with the qualified investment rules generally lies with the trustee of the registered plan. […] In some cases, the trustee may require the plan’s controlling individual [in the immediate case the Class Member/Lender] to provide the trustee with evidence for the purpose of determining qualified investment status. In these cases, the trustee must exercise due diligence in satisfying itself that the documentation provided is sufficient. The CRA may ask the trustee to demonstrate how it determined that a particular property was a qualified investment.

1.93 Subsection 207.01(5) requires the trustee of an RRSP, RRIF, RDSP, or TFSA, or the promoter of an RESP, to exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility of the plan holding a non-qualified investment. If a trustee […] fails to comply with this obligation, the trustee […] is liable to a penalty under subsection 162 (7).

1.95 The trustee of an RRSP, RRIF, RDSP, or TFSA, […], is also required to report information to the CRA and the controlling individual of the plan [in the immediate case, the Class Member/Lender] if the plan begins or ceases to hold a non-qualified investment in a year. For information on these reporting obligations, refer to: […]

1.96 The Act requires that all contributions, acquisitions and dispositions of property, distributions, and any other transactions involving a registered plan occur at fair market value. Otherwise, adverse tax consequences will arise. While the term fair market value is not defined in the Act, it generally is considered to mean the highest price expressed in terms of money that can be obtained in an open and unrestricted market between informed and prudent parties, who are dealing at arm's length and under no compulsion to buy or sell. The determination of fair market value is a question of fact.

1.97 It is the responsibility of the registered plan trustee to determine the fair market value of property involved in a transaction. […] In some cases, the trustee may require the controlling individual of the registered plan [in the immediate case, the Class Member/Lender] to provide evidence to determine the property’s fair market value. In these cases, the trustee must exercise due diligence in satisfying itself that the documentation provided is sufficient. The CRA may ask the trustee to demonstrate how the fair market value of a particular property was determined.

1.98 Except for RESPs, it is common for registered plan trustees to have an agreement with an agent or mandatary, such as an investment broker, that allows the agent or mandatary to provide the trustee with certain administrative and investment functions. However, the ultimate responsibility for ensuring that a registered plan complies with the qualified investment rules always remains with the trustee.

[97] Pausing here - and this is crucial to Mr. Raponi’s theory of why Olympia Trust is liable for the Class Members’ losses – Mr. Raponi submits that s. 207.01(5) of the Income Tax Act’s directive that Olympia Trust be reasonably prudent to minimize the holding of a non-qualified investment along with the guideline provisions of Income Tax Folio S3-F10-C1 are the source of and establishes Olympia Trust’s trust, fiduciary, and contractual duties.

[98] In other words, it is Mr. Raponi’s argument that these provisions are in effect read into the various agreements between the Lender and Olympia Trust with the result that Olympia Trust is obliged to determine the current fair market value of the security for the syndicated mortgage and to advance funds only if the syndicated mortgage is fully secured. Further, it is Mr. Raponi’s thesis that Olympia Trust is obliged to warn the Class Members if some or all of the syndicated mortgage loans appeared to be or would likely become not fully secured. Moreover, it is Mr. Raponi’s critical submission that Olympia Trust has trust, fiduciary, and contractual duties to decline to act as trustee if it ought to have determined that any of the syndicated mortgage loans were not fully secured.

[99] I will discuss the merits of Mr. Raponi’s critical argument below, but I foreshadow to say that I shall show that it is plain and obvious that Olympia Trust does not have the alleged trust, fiduciary, and contractual duties based on s. 207.01(5) of the Income Tax Act.

[100] I shall end this discussion of the regulation of registered savings accounts under the Income Tax Act and its regulations by what is entailed by the Income Tax Act if a trustee does not comply with its obligations under s. 207.01(5) of the Act.

[101] If an investment in a registered savings account is not a qualified investment, then pursuant to sections 162 (7) and 207 of the Income Tax Act, set out in Schedule “A”, there are penalties imposed on the trustee. If an investment ceased to be “fully secured,” the custodial trustee must report to the Canada Revenue Agency and the investment would become disqualified for preferential tax treatment. If the custodial trustee failed to report, it could be subject to a penalty “of the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100, during which the failure continues;” i.e., the trustee would be subject to a minimum penalty of $100 to a maximum penalty of $2,500.

H. Fortress Developments: The Fall of the Pied Piper of Syndicated Mortgages

[102] Between 2008 and 2017, Fortress Developments designed, promoted, advertised, and marketed syndicated mortgages for residential and commercial real estate projects across Canada. It was a Pied Piper of syndicated mortgages. The immediate case concerns 54 land development projects and 69 syndicated mortgage loans (eight projects have more than one syndicated mortgage loan). Fortress Developments raised over $600 million from these mortgages, and it allegedly lined its own pockets. Fortress Developments lured approximately 13,000 Lenders into funding the mortgages by false promises of the rewards of investing in what was essentially a scam.

[103] To be fair and to avoid confusion and because it is relevant to the analysis of commonality of the facts discussed later in these Reasons, it should be noted that Fortress Developments was involved in more than 54 land development projects across Canada. I cannot say precisely how many, but some of projects and mortgages apparently were successful and the Lenders received their anticipated returns.

[104] To finance the 54 land development projects, the Borrowers, many of whom were emanations of Fortress Developments, arranged first mortgages from financial institutions, and then they raised money through syndicated mortgage loans that were secondary or tertiary to the prior encumbrances. The loan funds were typically to be advanced in tranches.

[105] Some of the Lenders in the Fortress Developments syndicated mortgages made their investment through an investment account that was not registered under the Income Tax Act. In contrast, the putative Class Members in the immediate case invested through registered savings accounts under the Income Tax Act.

[106] Fortress Developments and the parties responsible for brokering and administering the syndicated mortgages were required to be licensed under the Mortgage Brokerages, Lenders and Administrators Act, 2006 and they were subject to regulatory oversight by FSCO. Among other things, FSCO required the licensees to provide accurate representations and adequate disclosures to Lenders regarding the projects and syndicated mortgages and to take reasonable steps to ensure the suitability of these investments.

[107] Brokers of the Syndicated Mortgages were required to provide detailed disclosure statements to Lenders in a form prescribed under the Mortgage Brokerages, Lenders and Administrators Act, 2006 that detailed, among other things, the costs and terms of the syndicated mortgages, the appraised value of the project’s land based on a valuation obtained by the broker, and the amounts of any other mortgages registered on title to the property.

[108] FSCO required Fortress Developments to encourage Lenders to obtain independent legal advice before deciding to invest in a syndicated mortgage.

[109] Lenders learned about Fortress Developments’ syndicated mortgages through promotional materials prepared for Fortress Developments or through their own investment advisors or mortgage brokers. Many of the eventual Lenders, like Mr. Raponi, attended promotional seminars. While the nature and content of the promotional materials varied across projects, the marketing material typically included: (a) a description of the project, (b) the total value and term of the loan, (c) the purpose of the loan, (d) the status of the project, and (e) the eligibility of the syndicated mortgage as a registered savings account under the Income Tax Act.

[110] The Lenders were given the materials prescribed by FSCO, and eventually the Lenders signed numerous contracts with the participants in the syndicated mortgage.

[111] Olympia Trust is not a licensed mortgage administrator or broker under the Mortgage Brokerages, Lenders and Administrators Act, 2006. Olympia Trust was not involved in the structuring, operation, promotion, or sales of the syndicated mortgages. Olympia Trust typically had no contact with Lenders before their decision to invest.

[112] To elucidate the run up to participating in a syndicated mortgage, before entering into a syndicated mortgage loan investment, a Lender – including the Class Members – would receive and they would sign a “Form 1 – Investor/Lender Disclosure Statement for Brokered Transactions.” This is a form issued by FSCO pursuant to the Mortgage Brokerages, Lenders and Administrators Act, 2006.

[113] For present purposes, the following provisions of Form 1 are pertinent to understanding the respective obligations and duties of the Class Member and Olympia Trust.

FORM 1 – INVESTOR/LENDER DISCLOSURE STATEMENT FOR BROKERED TRANSACTIONS

Important Disclosure Duties

In this Investor/Lender Disclosure Statement For Brokered Transactions (“Disclosure Statement”), mortgage brokerages are required to provide you with the completed Disclosure Statement that contains important information in connection with this transaction.

A brokerage must:

5. Disclose material risks about the transaction that you should consider.

6. Take reasonable steps to ensure that any mortgage investment the brokerage presents to you is suitable having regard to your needs and circumstances.

You must receive these disclosures in writing and acknowledge receipt of them. You should keep a copy for your records

Important: This form is required by law and will provide the prospective investor/lender with important information to assist you in making a decision about whether to invest/lend.

Section 1 - Caution 1.

2. All mortgage investments carry a risk. There is a relationship between risk and return. In general, the higher the rate of return, the higher the risk of the investment. You should very carefully assess the risk of the mortgage transaction described in this Disclosure Statement, the Addendum (Form 1.2) if applicable and in the supporting documentation before making a commitment.

3. Syndicated mortgages (defined as more than one investor/lender) may carry additional risks pertaining not only to the risk of default but also to the risks associated with participating in a syndication and the financing of real estate transactions.

4. Inexperienced investors are not advised to enter into mortgage investments.

5. You are strongly advised to obtain independent legal advice before committing to invest.

6. This mortgage investment cannot be guaranteed by the mortgage brokerage. If you are not prepared to risk a loss, you should not consider mortgage investments.

7. If this investment is for a mortgage to fund a development, construction or commercial project, the repayment of this investment may depend on the successful completion of the project, and its successful leasing or sale.

8. If you are one of several investors in a syndicated mortgage, you may not be able to enforce repayment of your investment on your own if the borrower defaults.

9. You should ensure you have sufficient documentation to support the property valuation quoted in this Disclosure Statement. The property value may decrease over time, including the period between the date of the most recent appraisal and the date you complete the transaction. A decline in property value may also affect the return and/or value on your investment in the event of a default in payments under this mortgage.

10. You should satisfy yourself as to the borrower’s ability to meet the payments required under the terms of this mortgage investment.

11. This Disclosure Statement, the Addendum (Form 1.2) if applicable and the attached documents are not intended to provide a comprehensive list of factors to consider in making a decision concerning this investment. By law, the mortgage brokerage must disclose in writing the material risks of the mortgage investment. There may be additional risks to the investment. You should satisfy yourself regarding all factors relevant to this investment before you commit to invest.

SECTION 3 – INFORMATION DISCLOSURE SUMMARY

Part A. Property/Security to be Mortgaged

3. Purchase Price:

(a) Purchase Prices of Property $XXX (b) Date of Purchase

7. Appraisal

□ An appraisal has not been done on the property within the past 12 months OR

□ An appraisal has been done within the past 12 months. For all properties, appraised “as is” value $XXX.

If the appraisal was addressed to someone other than the investor/lender or record, provide a transmittal letter.

Date of appraisal:

Name and address of appraiser: {…}

[114] If a person decided to invest in a syndicated mortgage, he or she would enter into a loan agreement with Fortress Developments and with the mortgage administrator. The loan agreements would specify the principal amount of the loan, the interest rate, the term of the loan, the priority of the security with respect to other financing. The loan agreements would specify the syndicated mortgage as the security for the loan.

[115] The syndicated mortgage typically began as a second-ranking or third-ranking mortgage registered behind other mortgages. The syndicated mortgage could be further subordinated as a result of the postponement and subordination provisions contained in the loan agreement and syndicated mortgage granted by the Borrower.

[116] Although it would not have been readily apparent, under the loan agreements, Fortress Developments and or the mortgage brokers were receiving approximately 35% of the money up front and much of the mortgage money was not being used to build out the projects. The Lenders were also deceived because many of the loan agreements had “waterfall” provisions that permitted Borrowers and owners of the Borrowers receiving some of their investment in the project before the Lenders and before the project was completed.

[117] More precisely, to proceed with an investment in a syndicated Fortress Developments mortgage, the Lender would receive some or all of and sign some of the following documents: (a) a letter from Fortress Real Capital and Building & Development Mortgages Canada Inc.; (b) Investor/Lender Disclosure Statement for Brokered Transactions; (c) Attestation; (d) Investment Authority – Form 9D; (e) Mortgage Commitment; (f) the Loan Agreement; (g) Memorandum of Understanding; (h) Lender Acknowledgement and Consent Agreement; (i) Mortgage Investment Direction and Indemnity Agreement; (j) Solicitor’s Certificate of Disclosure & Undertaking Regarding Arms-Length Mortgages; (k) Client Suitability Form; (l) Confirmation of Lender’s Interest; and (m) an opinion of land value.

[118] Where the Lender was investing funds from his or her registered savings account made available by Olympia Trust as discussed below, the Lender would sign: (a) an Account Application, (b) a Self-Directed Savings Plan Declaration of Trust, (c) a Lender Acknowledgment and Consent Agreement and (d) Mortgage Investment Direction and Indemnity Agreement. (These documents are discussed later in these Reasons for Decision.)

[119] In 2014, some of Fortress Developments’ projects began to experience financial difficulties. The Borrowers failed to make interest payments on some of its prior mortgages and the syndicated mortgages began to fall into arrears.

[120] With the mortgage defaults, some of the projects were sold under power of sale and some Fortress Developments entities sought protection under the Companies’ Creditors Arrangement Act.[^18]

[121] Many Lenders complained to FSCO about the syndicated mortgages, and in December 2015, FSCO began an investigation of Fortress Developments and of BDMC, the primary mortgage broker of the syndicated mortgages, because of concerns about the syndicated mortgages.

[122] In October 2016, the RCMP received a complaint about the Collier Centre syndicated mortgages. The RCMP opened an investigation with respect to the alleged fraudulent activities of Fortress Developments and BDMC.

[123] In February 2018, FSCO and BDMC entered into a settlement agreement pursuant to which FAAN would assume the responsibility to administer 44 syndicated mortgages that had been administered by BDMC. Under the settlement agreement, various mortgage brokers agreed to be suspended.

[124] On April 13, 2018, the RCMP executed a search warrant on the offices of Fortress Developments, BDMC, FFM, FDS, and FMP.

[125] In a short time after the execution of the search warrant, the agreement between FSCO and BDMC was found to be dysfunctional and inadequate, and the Superintendent of Financial Services made an application for a court order pursuant to s. 37 of the Mortgage Brokerages, Lenders and Administrators Act, 2006, to have FAAN permanently appointed as trustee of the 44 syndicated mortgages that had been administered by BDMC.

[126] On April 20, 2018, the late Justice Hainey officially appointed FAAN to be trustee of the 44 syndicated mortgages that BDMC was administering for 11,000 Lenders, some of whom had invested in registered savings accounts and some of whom had invested through non-registered savings accounts.

[127] On June 26, 2018, Justice Hainey appointed Chaitons LLP as representative counsel for the Lenders in the 44 syndicated mortgages that had previously been administered by BDMC.

[128] Meanwhile, the Law Society of Ontario had for some time been receiving complaints about the Fortress Developments syndicated mortgages that were being administered by Mr. Sorrenti and his law firm. Mr. Sorrenti was outside the regulation of FSCO, and he was not adequately responding to FAAN’s inquiries.

[129] On September 30, 2019, pursuant to an application by the Law Society of Ontario, FAAN was appointed trustee of the assets of Derek Sorrenti. These assets included ten Fortress Developments syndicated mortgages that Sorrenti and his law firm were administering for 2,900 Lenders, some of whom had invested in registered savings accounts and some of whom had invested through non-registered savings accounts. On September 30, 2019, Justice Hainey appointed Chaitons as representative counsel for the syndicated mortgages that had been administered by Mr. Sorrenti and his law firm.

[130] Under the Court Orders, FAAN was given broad authority to enforce the securities associated with the syndicated mortgages and to prosecute proceedings with respect to the development projects. To date, FAAN has recovered in excess of $175 million, but there will be deficiencies in the recoveries for Lenders in the syndicated mortgages.

I. Summary of Syndicated Mortgage Estimated Loan Losses

[131] In the motion material for the certification motion, there are 28 reports to the court made by FAAN. The following chart provided by Class Counsel sets out what Class Counsel submits represent the Lenders’ losses on the 54 projects and 69 syndicated mortgages.

Development Project (69 mortgages)

No. of Lenders

Syndicated Mortgage Loan Losses (Estimate Based on Trustee Reports)

1. Gotham, ON

145

$0.2 million

2. Kingridge Square ON

45

$0.4 million

3. Bauhaus ON

110

$0.7 million

4. White Cedar Estates ON

42

$1.2 million

5. The Wade (Victoria Medical) BC (2 mtgs)

118

$1.3 million

6. Jasper House AB

163

$1.3 million

7.Residences of Bayview ON

504

$1.9 million

8. The Woodsworth (The James) ON

130

$1.9 million

9. The Greenwood ON

162

$2.0 million

10. Wellington House ON

139

$2.0 million

11. Humberstone ON

94

$2.2 - $3.0 million

12. Prescott Homes AB

53

$2.4 million

13. Mississauga Meadows 2 ON

82

$3.6 million

14.Crestview (Manors of Mineola) ON

166

$3.7 million

15. Solterra ON

362

$4.2 million

16. Port Place Condos Phase 2 ON

67

$4.4 million

17. Bowmanville ON

103

$4.7 million

18. Mississauga Meadows 1 ON

130

$5.2 million

19. The Harlowe ON

303

$5.2 million

20. Nobleton South ON

137

$5.3 million

21. Treehouse ON

115

$5.4 million

22. Eden ON

129

$5.9 million

23. Braestone ON

250

$6.0 million

24. Estates of Nobleton North ON

353

$6.5 million

25.Wismer3-Mark Condos/Mount Joy ON

108

$6.6 million

26. North Condominiums AB

152

$6.8 million

27.Mapleview (Julien Ct) ON

155

$8.1 million

28. Harmony Village ON

542

$8.2 million

29. Bradford Bond Head ON

186

$8.3 million

30. Pivot AB

176

$8.6 million

31. Lake & East ON

154

$9.1 million

32. Charlotte Adelaide Tower ON

301

$10.5 million

33. Old Market Lane ON (3 mtgs.)

241

$10.9 million

34. Castlemore ON

453

$11.4 million

35. Peter & Richmond ON

612

$12.2 million

36. Victoria Park Place ON

282

$12.3 million

37. Glens of Halton Hills ON

306

$14.4 million

38. Whitby Commercial Park ON

257

$15.1 million

39. Triple Creek AB

280

$15.4 million

40. The Kemp (Harmony Village) ON

360

$15.8 million

41. The Orchard AB (2 mortgages)

382

$16.1 million

42.Union Waterfront (Port Place Phase 1) ON

353

$16.8 million

43. The South Shore ON (3 mtgs.)

639

$27.4 million

44. SkyCity Centre MB (5 mortgages)

649

$32.3 million

45. Capital Pointe SK (3 mortgages)

728

$33.3 million

46. Collier Center ON (3 mortgages)

949

$52.9 million

47.The Sutton (Condos+Towns) ON

456

48. Highlands of York Region ON

59

$2.5 million

49.Unionvillas ON

145

50. Soba ON (2 mortgages)

188

51. Progress Manor (Ten88) ON

364

52. 6th and Tenth Condo AB

207

$8.8 million

53. Brookdale on Avenue Rd ON

491

54. King Square ON

176

Total

14,253

$442.2 + ? million

J. Olympia Trust’s Role in the Syndicate Mortgages

[132] As noted above, for a Lender to hold the Fortress Developments syndicated mortgage in a registered savings account under the Income Tax Act, he or she needed to open a registered account with a custodial trustee or another approved financial institution which would register the account with the Canada Revenue Agency. It is alleged that Olympia Trust was the custodial trustee for the syndicated mortgages for the 54 development projects. With respect to the Fortress Developments’ syndicated loans, Olympia Trust’s role was to register the Lender’s self-directed accounts with the Canada Revenue Agency and to execute the Lender’s instructions to receive funds, hold funds, and advance funds from the self-directed accounts and to report to the Lender.

[133] Olympia Trust charged fees for its services to the Class Members, i.e., the holders of the self-directed registered savings accounts during the relevant period. Olympia Trust charged a $100 purchase fee, plus monthly fees of $10 to $12 for most projects or an annual fee of $60 for certain Fortress Development projects. For each syndicated mortgage, Olympia Trust received a one-time set up fee of $1,000 from Fortress Developments. Olympia Trust did not charge any investment management fee. It was not a participant in the investments or in the Fortress Development projects.

[134] For a Class Member to obtain a registered savings account with Olympia Trust for the 69 syndicated mortgages that are the subject of this proposed class action:

a. Before November 2013, the Class Member signed: (a) an Account Application, (b) a Self-Directed Savings Plan Declaration of Trust, (c) a Lender Acknowledgment and Consent Agreement and (d) Mortgage Investment Direction and Indemnity Agreement.

b. After November 2013, the Class Member signed: (a) an Account Application, (b) a Self-Directed Savings Plan Declaration of Trust, and (c) Mortgage Investment Direction and Indemnity Agreement.

[135] As it appears, before November 2013, the Class Member signed four documents and after November 2013, the Class Member signed three documents. Nothing turns on these circumstances because substantively the three post-November 2013 documents have the same substantive content as the four pre-November 2013 documents. For present purposes, I shall describe the pre-November 2013 documents.

[136] For present purposes, the following provisions of the Account Application are pertinent:

ACCOUNT APPLICATION

1. Annuitant Information

2. Plan Holder Authorization and Acceptance

(i) I acknowledge that this is a request for Olympia Trust Company to apply for registration of the Olympia Trust Company Self-Directed Retirement Savings Plan, or Olympia Trust Company Self-Directed Retirement Income Fund, under the Income Tax Act (Canada) and if applicable, under the Taxation Act (Quebec) as: (a) a Registered Retirement Savings Plan if I have selected RSP, Spousal RSP, or locked-in RSP/LIRA, as my plan type; or (b) a Registered Retirement Income Fund if I have selected RIF, Spousal RIF, Prescribed RIF, LRIF, RLSP, LIF/RLIF or New LIF as my plan type. I certify that the information contained in this Plan Application is true and correct, and that I have read and am bound by the attached Declaration of Trust that governs my Plan and any applicable Locking-in Supplements. I understand that it is my responsibility to arrange for the transfer of assets to my Plan from any predecessor retirement plan or other permitted source.

(ii) I acknowledge and agree that I am solely responsible for all investments in my Account and all investment decisions relating thereto. Olympia is not in the business of providing investment advice and does not provide direction or advice with respect to the purchase of any securities or other form of investment. Olympia strongly recommends that you should: (i) conduct extensive due diligence on any investment prior to purchasing and obtain extensive information on the investment, the risk associated with the investment and the ability to recover your investment; (ii) review the investment objectives of any investment you have chosen to ensure that it meets your financial needs; and (iii) if you invest in exempt market securities and/or publicly traded shares or bonds, obtain a prospectus, offering memorandum or other prescribed documentation describing the investment prior to or at the time you make your investment. You understand that if you have any questions or doubts about a particular investment, it is your sole responsibility to obtain independent advice from a qualified professional. Olympia will execute any order it receives from you without making any inquiries in connection with the suitability of the investment.

(iii) I understand that Olympia Trust Company has the right to reject an order if the proper documentation is not in place or if the investment is not eligible.

(vi) I understand that it is my responsibility to notify Olympia Trust Company in writing of any errors or omissions within the time limits specified on the statements or other notices.

(vii) I acknowledge that I will advise Olympia Trust Company of any changes to my account.

(ix) I understand that I may be liable for certain tax consequences arising in connection with a non-compliant qualifying arrangement.

[137] For present purposes, the following provisions of the Declaration of Trust are pertinent:

OLYMPIA TRUST COMPANY SELF-DIRECTED RETIREMENT SAVINGS PLAN DECLARATION OF TRUST

Olympia Trust Company ("the Trustee"), a trust company incorporated under the laws of Alberta, hereby declares that it agrees to act as trustee under the Olympia Trust Company Self-Directed Retirement Savings Plan ("your Plan") for you, the annuitant, as defined in the Income Tax Act, named in the Self-Directed Application Form ("your Application") which accompanies this declaration on the following terms and conditions:

1. Registration: The Trustee will apply for registration of your Plan under the Income Tax Act (Canada) ("the Act"). If you live in Quebec as indicated by your address on your Application, the Trustee will also apply for registration of your Plan under the Taxation Act (Quebec).

2. Compliance: It is intended that, at all times, your Plan will comply with all relevant provisions of the Act and, if applicable, the Taxation Act (Quebec) with respect to a retirement savings plan ("RSP"). You will be bound by the terms and conditions imposed on your Plan by all applicable legislation.

3. No Financial Advice: I acknowledge and agree that I am solely responsible for all investments in my Account and all investment decisions relating thereto. Olympia is not in the business of providing investment advice and does not provide direction or advice with respect to the purchase of any securities or other form of investment. Olympia strongly recommends that you should: (i) conduct extensive due diligence on any investment prior to purchasing and obtain extensive information on the investment, the risks associated with the investment and the ability to recover your investment; (ii) review the investment objectives of any investment you have chosen to ensure that it meets your financial needs; and (iii) if you invest in exempt market securities and/or publicly traded shares or bonds, obtain a prospectus, offering memorandum or other prescribed documentation describing the investment prior to or at the time you make your investment. You understand that if you have any questions or doubts about a particular investment, it is your sole responsibility to obtain independent advice from a qualified professional. Olympia will execute any order it receives form you without making any inquiries in connection with the suitability of the investment.

4. Investments: Contributions and transfers to your Plan will be invested and reinvested from time to time in accordance with investment instructions unless the proposed investment does not comply with requirements imposed by the Trustee in its sole discretion. Before the Trustee will act on your investment instructions, the instructions must be in a form acceptable to the Trustee and be accompanied by related documentation as required by the Trustee in its sole discretion. The Trustee may accept and act on any investment instructions which it believes in good faith to be given by you. The Trustee will endeavor to execute any purchase or sale of an investment within 5 business days after receipt of cash and your investment instructions at the market or sale price in effect on the day the transaction is executed. Any loss or gain resulting from errors made by the Trustee, its officers, employees or agents in the execution of investment instructions from your Plan will be for the Trustee's account.

5. Annuitant's Responsibility: You are responsible for ensuring that: (i) contributions to your Plan do not exceed the maximum limits permitted by the Act; (ii) the investments held in your Plan are qualified investments for your Plan under the Act. You acknowledge and accept responsibility for the above-mentioned matters.

6. Non-Qualified Investments: If your Plan becomes liable for tax, interest or penalties under the Act or similar provincial legislation, the Trustee is authorized to realize sufficient investments of your Plan (unless prohibited from the Act), selected in its sole discretion, to pay the liability and the Trustee will not be liable for any resulting loss.

7. Accounting and Reporting: The Trustee will maintain an account in your name reflecting, with appropriate dates: (i) contributions to your Plan; (ii) the name, number and cost of investments purchased or sold by your Plan; (iii) dividends, interest and other distributions received by your Plan; (iv) cash; (v) withdrawals, transfers and expenses paid from your Plan; and (vi) the balance of your account. The Trustee will send you an annual statement of your account. Before April of each year, the Trustee will provide any applicable tax reporting required to be refiled with your or your spouse's personal income tax return relating to contributions to or withdrawals from your Plan in respect of the previous year.

8. Delegation of Duties: Without detracting in any way from the responsibility of the Trustee, the Trustee may appoint agents and may delegate to its agents the performance of clerical, administrative and other duties under this declaration. The Trustee may employ or engage accountants, brokers, lawyers or others and may rely on their advice and services. The Trustee will not be liable for the acts or omissions of any of its advisors or agents. The Trustee may pay to any advisor or agent all or part of the fees received by it under the provisions of this declaration. Notwithstanding any other provision in this declaration, the Trustee acknowledges that it is ultimately responsible for the administration of your Plan.

9. Fees and Expenses: The Trustee may charge you or your Plan fees for its services under this declaration as set out from time to time in the Olympia Trust Company fee schedule. The Trustee will give you at least 30 days' notice of any change in its fees. Unless prohibited from the Act, the Trustee is entitled to reimbursement from your Plan for disbursements and expenses (including taxes, interest and penalties) reasonably incurred by the Trustee in connection with your Plan. The Trustee is entitled to deduct its unpaid fees, disbursements and expenses (unless prohibited by the Act) from the assets of your Plan and for this purpose you authorize the Trustee to realize sufficient assets of your Plan selected in its sole discretion. The Trustee will not be responsible for any resulting loss. You agree to pay Olympia annual fees and transaction fees in exchange for providing services in connection with your self-directed account. The annual fee is charged immediately upon opening an account and is prorated to half price for accounts opened August 1st or later each year. The full annual fee will then be charged on January 1st of each year thereafter. All other fees are charged when the transaction is processed. Please review the Olympia Trust Company Fee Schedule for a full list of fees that may apply to your account.

10. Liability of the Trustee: The Trustee and its officers, employees and agents are indemnified by you and your Plan from and against all expenses, liabilities, claims and demands arising out of the holding of the assets of your Plan; the dealing with the assets of your Plan in accordance with investment instruction which the Trustee, its officers, employees or agents believe in good faith to be given by you or your properly authorized agent; and the delivery of release of assets of your Plan in accordance with this declaration, provided that: (i) the Trustee exercises the same degree of care with the assets of your Plan as it would with its own assets to minimize the fact that the Plan hold any non-qualified investments; and (ii) the Trustee complies with applicable laws, regulations and orders now or later in force that purport to impose a duty on the holder of assets of your Plan to take or refrain from taking any action in connection with any asset of your Plan. Notwithstanding any other provision of this declaration, the Trustee will not be liable for any loss or penalty suffered as a result of any act done by it in reasonable reliance of your authority or the authority of your properly authorized agent or legal representatives.

11. Governing Laws: This declaration will be governed, construed and enforced in accordance with the laws of Alberta and Canada except that the word "spouse" and “common law partner” as used in this declaration will have the same meaning as for the purposes of the Act.

12. Arms’ Length Mortgages: I hereby acknowledge and agree that where arms’ length mortgages are held under this plan, whether syndicated or otherwise, they must be registered in the name of Olympia Trust Company, as Trustee. The ranking of said mortgages may be either first, second or third.

[138] For present purposes, the following provisions of the Lender Acknowledgment and Consent Agreement are pertinent:

LENDER ACKNOWLEDGEMENT AND CONSENT AGREEMENT

This Agreement made and effective as of the xxx.

BETWEEN:

FORTRESS REAL CAPITAL INC., a corporation incorporated under the laws of the Province of Ontario (hereinafter called "Fortress")

• and –

CENTRO MORTGAGE INC., a corporation incorporated under the laws of the Province of Ontario (hereinafter called "Centro")

• and –

OLYMPIA TRUST COMPANY, a corporation incorporated under the laws of the Province of Alberta (hereinafter called "Olympia" or the Trustee")

• and -

DEREK SORRENTI, a Banister and Solicitor licensed to practice law in the Province of Ontario (hereinafter called "Sorrenti")

• and -

The undersigned individual Lender that has advanced funds to the Borrower and has agreed to be a party hereto (hereinafter called the "Lender")

WHEREAS XXX (the "Borrower") is borrowing up to XXX from the undersigned Lender pursuant to certain loan agreements (collectively referred to herein as the “Loan Agreements");

AND WHEREAS the loan from the Lender to the Borrower ranks pari passu with other borrowings by the Borrower pursuant to similar Loan Agreements with other individual Lenders (collectively referred to herein with the Lender as the "Junior Secured Lenders ") and such loans are collectively secured by a mortgage (the "Mortgage") on the Borrower's lands described as XXX (the "Lands");

AND WHEREAS the Lender and the Junior Secured Lenders have agreed to postpone their loans to one or more construction loans obtained by the Borrower up to XXX (the "First Priority Construction Loans"), whereby the collective indebtedness of the Junior Secured Lenders would rank junior to the First Priority Construction Loans;

AND WHEREAS the Lender is lending the Borrower funds from his or her registered savings plan accounts ("RRSP Account") and is holding the mortgage granted by the Borrower in such account as security for payment;

AND WHEREAS the RRSP Account is administered by Olympia pursuant to a trust account agreement with the Lenders;

AND WHEREAS the RRSP Account is subject to the requirements of the Income Tax Act (Canada) and the regulations thereunder;

AND WHEREAS the Lender is a client of Fortress and/or Centro and has been introduced to the Borrower by either Fortress or Centro;

AND WHEREAS the Borrower has delivered Olympia a legal opinion confirming that the Mortgage granted by the Borrower to the Lender is eligible for investment by the RRSP Account provided the amount of the First Priority Construction Loans and the Mortgage granted to all of the Junior Secured Lenders do not exceed the fair market value of the Lands;

AND WHEREAS the above representations are being made by Fortress, Centro and the Lender and not by Olympia or Sorrenti;

NOW THEREFORE, IN CONSIDERATION OF the premises and mutual covenants herein contained, the sufficiency of which is hereby acknowledged and confirmed, do hereby covenant and agree as follows:

1. The Lender acknowledges and confirms that he or she has leaned the Borrower XXX pursuant to the Loan Agreement, whereby his or her participating share in the Mortgage as at the date hereof is XXX (based on the aggregate loans made by the Junior Secured Lenders being XXX.

2. The Lender hereby acknowledges and confirms that prior to entering into the Loan Agreement that he or she was aware that: (i) certain provisions in the Loan Agreement allow for the postponement of the Mortgage in favour of additional construction and/or mezzanine or related mortgage financing to a maximum of XXX (the "Maximum Priority Financing Amount" or "MITA"); and (ii) the Lender is required to the postponement of his or her interest in the Mortgage in favour of certain development agreements between the Borrower and certain governmental authorities (including but not limited to: city site plan, development plans, Planning Act requirements, mezzanine financing and/or insurance on deposits, and/or Condominium Act registrations), as such requirements are more particularly described in the Loan Agreement, in order to facilitate the development of the Lands.

3. The Lender confirms that he or she fully understands the effect of the terms of the Loan Agreement and that the Lender hereby reconfirms his or her instructions to proceed with the loan pursuant to the terms and conditions outlined in the Loan Agreement.

4. The Lender hereby agrees to postpone the Mortgage to an amount not to exceed the MPFA and/or to any required development agreements between the Borrower and the applicable government authority(ies) in order to facilitate the development of the Lands.

5. The Lender acknowledges that the MPFA may be advanced to the Borrower in multiple stages based on the achievement of certain construction milestones and may be advanced by various parties and/or secured via multiple registrations on the Lands.

6. The Lender hereby acknowledges that he or she was advised that the face value of the Mortgage could be amended periodically during the term to increase the face value of the Mortgage to a maximum of XXX. The Lender hereby confirms that he or she fully understands the effect of this term of the Loan Agreement and that the Lender re-confirms his or her instructions to proceed with the investment.

7. The Lender understands that, as at the date hereof, pursuant to the Loan Agreement, the Mortgage securing the loan ranks subsequent to other registered mortgages against the Lands in the amount of XXX Further, the Lender understands that prior to further advances under the Mortgage the Borrower shall be required to provide an updated valuation of the Lands to Sorrenti for the purpose of confirming that the combined value of all registered mortgage security on the Lands does not exceed the most recent valuation of the Lands (which currently indicates an estimated value of XXX for the Lands authored by XXX and is in accordance with the terms and provisions of the Loan Agreement).

8. The Lender hereby indemnifies and saves harmless Sorrenti and Olympia and each of their directors, officers, employees, shareholders and agents for, and hold. such persons harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, suit, settlement, cost or expense (including, without limitation, the fees and expenses of legal counsel), incurred without gross negligence, willful misconduct or fraud on the part of the indemnified person (each as determined by a final, non-appealable judgment of a court of competent jurisdiction), for any action taken, suffered or omitted to be taken by such indemnified person in connection with the exercise or performance of its duties hereunder, including without limitation, the costs and expenses of defending against any claim of liability hereunder, directly or indirectly. All indemnities, all limitations of liability and all other provisions for the protection of Sorrenti and Olympia and the other indemnified persons provided for in this Agreement shall survive the termination of this Agreement.

9. All parties hereto (including the Lender) have obtained independent legal advice (and if necessary independent tax advice) with regard to the Loan Agreement, the Mortgage and this Agreement.

10. Fortress, Centro and the Lender each acknowledge and agree that Olympia may be required to issue T4 slips to the Lender pursuant to the Income Tax Act (Canada) in the event that it is concluded that the First Priority Construction Loans and the mortgage granted to all of the Junior Secured Lenders exceeds the fair market value of the Lands. Further, the parties also acknowledge that Olympia may be required to issue T4 slips to the Lender pursuant to the Income Tax Act (Canada) in the event that the Borrower fails to provide Olympia with the requisite confirmation as to the value of the Lands as set out above. Fortress, Centro and the Lender acknowledge and agree that the Lender will suffer adverse tax consequences in the event that Olympia is required to issue them T4 tax slips in accordance with the Income Tax Act (Canada) and each of Fortress and Centro agrees to use its commercially reasonable efforts to take such actions to avoid such result.

11. The parties hereto agree that this agreement shall be construed and enforced in accordance with the laws of the Province of Alberta.

[139] For present purposes, the following provisions of the Mortgage Investment Direction and Indemnity Agreement are pertinent:

MORTGAGE INVESTMENT DIRECTION AND INDEMNITY AGREEMENT

The undersigned and Olympia Trust Company (“Olympia”) are parties to a Declaration of Trust (the “Trust Agreement”) which governs my Plan (as identified above). In consideration of Olympia accepting the above mortgage (the “Mortgage”) as an asset of my Plan, I hereby agree to the following terms and conditions and I acknowledge that this Agreement shall constitute an addendum to the Trust Agreement as if the following terms and conditions were set out therein:

1. I hereby confirm that I am fully aware of the nature of the Mortgage and its terms and conditions.

2. I acknowledge that I have been advised to seek independent legal, tax, or other professional advice before deciding to invest funds held in my Plan in the Mortgage and before signing this Agreement.

3. I hereby authorize and direct Olympia to invest funds held by my Plan in the Mortgage as described above.

4. I understand and acknowledge that it is my sole and entire responsibility to verify that:

a. the Mortgage is an “Arms-Length” transaction as defined in the Income Tax Act (Canada) (the “Tax Act”);

b. the Mortgage is a “qualified investment” and is not a “prohibited investment” (as such terms are defined in the Tax Act);

c. the Mortgage is a proper charge against the Land (as specified in the Mortgage) and is fully secured;

d. all payments due on the Mortgage are to be made on the dates specified in the Mortgage and all Mortgage payments are to be paid directly to Olympia; and

e. there is adequate fire / property insurance in place for the Lands specified in the Mortgage.

5. I acknowledge that I do not rely and have not relied upon any representation made by Olympia in deciding to invest Plan funds in the Mortgage. Without limiting the generality of the foregoing, I also specifically agree and represent to Olympia that I have not, cannot and will not look to Olympia or any of its employees for advice as to:

a. whether an interest in the Mortgage constitutes a “qualified investment” for my Plan;

b. whether the Lands securing the Mortgage are adequate or will be adequate security; and

c. whether the interest in the Mortgage otherwise constitutes a suitable investment for my Plan.

7. In addition to all indemnities and other provisions benefiting Olympia that I have agreed to in the Trust Agreement, I agree to indemnify and save harmless Olympia and their respective officers, directors, and employees from and against all claims, demands, actions, suits, or other proceedings by whomsoever brought, and from all losses, costs, fines, levies, damages, expenses (including any legal fees and disbursements on a solicitor and client basis and any costs incurred in connection with the enforcement of this indemnity), taxes, penalties, and other liabilities whatsoever, directly or indirectly arising from or in connection with: (i) Olympia acting in accordance with the instructions set out herein; (ii) the investment of funds from my Plan in the Mortgage; or (iii) any breach of any representation, warranty or covenant made by me in the Trust Agreement or this Agreement. This indemnity shall survive the termination of or transfer out of my Plan; the termination of the investment in the Mortgage; and the resignation or revocation of the trusteeship of my Plan by Olympia.

8. Olympia’s obligation to me is limited to accounting to me from time to time for the actual amounts received by Olympia in respect of the Mortgage. I agree that for each and every payment remitted to Olympia by the mortgagor which is not honoured for any reason, a charge (in accordance with the current fee schedule) shall be payable by me.

9. I have received a copy of Olympia’s current fee schedule and I acknowledge that the mortgage fees charged by Olympia are not pro-rated and are not based on the amount of activity, value, quality or standing of a mortgage.

10. I am NOT a non-resident of Canada for the purposes of the Tax Act or any treaty or convention that Canada may have with another country. Further, I undertake to immediately advise Olympia if my status as a Canadian taxpayer and resident changes.

11. I acknowledge that I have sought and obtained independent financial, investment, tax, and legal advice and carried out such due diligence and made other such enquiries to the extent that I deem necessary and appropriate in making this investment for my Plan to determine the suitability of the investment in light of my personal circumstances.

12. I will provide at my expense, at any time as Olympia may require, such independent information or opinions as deemed necessary by Olympia with respect to the continued status of the Mortgage as a “qualified investment” and as not being a “prohibited investment” (as such terms are defined in the Tax Act). In the event that I fail to satisfy any of the requirements set forth above, Olympia is fully entitled to deem that the Mortgage is not a “qualified investment”, or is a “prohibited investment”, and to effect whatever actions and reporting is, in Olympia’s opinion, required for the purposes of the Tax Act. I understand and agree that in such event, adverse tax consequences may be suffered and I confirm that I will assume full responsibility for such tax consequences.

In accordance with the above and the Trust Agreement, I hereby direct Olympia to advance $xxx to the specified Lawyer in accordance with this Agreement in order to facilitate my investment in the Mortgage.

[140] Also relevant to the relationship between the Class Members and Olympia Trust is the application form that Olympia Trust submitted to the CRA. In the immediate case, Olympia Trust applied for registration of the Fortress Developments’ syndicated mortgages for registered savings accounts. It did so using form T550 E(16), a form authorized by the Minister of National Revenue. Mr. Raponi relies on the form as an aspect of determining Olympia Trust’s duties to the Class Members. For present purposes, the pertinent parts of the form are set out below:

APPLICATION FOR REGISTRATION OF:

• retirement savings plans (RSPs)

• education savings plans (ESPs)

• retirement income funds (RIFs)

• Use this form if you are an RSP issuer as described in subsection 146(1) of the Income Tax Act (the Act), an ESP promoter as described in subsection 146.1(1) of the Act, or a RIF carrier as described in subsection 146.3(1) of the Act.

I request that the contracts or arrangements on the attached paper list (ESPs only) or CD-ROM or DVD-ROM be registered under the Income Tax Act.

Certification

I, [Print name of authorized official] of [Business address] certify that:

1. the owners of the contracts or arrangements identified on the CD-ROM, DVD-ROM, or paper list (ESPs only) have requested that I apply to register their contracts or arrangements;

2. the contracts or arrangements on the CD-ROM, DVD-ROM, or paper list (ESPs only) comply with the applicable sections of the Income Tax Act;

3. the contracts or arrangements and the application conform in all respects to the documents constituting the specimen plan or fund identified above, as approved by the Minister of National Revenue; and

4. the information given in this application and in any document attached is, to the best of my knowledge, correct and complete.

[141] When Olympia Trust’s accountholders first invested in a syndicated mortgage and as subsequent advances were made under the syndicated mortgage, Olympia Trust received and relied on appraisals or valuations for each syndicated mortgage. On cross-examination, Ms. Revol confirmed that Olympia Trust employed a review officer to consider the propriety of the opinions of value. The review officer’s job was to determine whether Olympia Trust should advance funds from a registered savings account.

[142] The nature and content of these valuations varied across projects. Sometimes Olympia Trust was provided with formal appraisals from appraisers accredited by the Appraisal Institute of Canada. Other times, Olympia Trust was provided “opinions of value” from real estate valuators. Depending on the circumstances of a given project, different approaches and methodologies were used to assess the fair market value of the underlying property. The appraisals or valuations also made varying assumptions about the existing and future use and characteristics of the property, depending on the nature of the project, the stage of development, the financing and permitting that was in place, and other factors.

K. Mr. Raponi’s Investment in the Collier Centre Project

[143] Daniele Raponi is 45 years old. He lives in King City, Ontario. He is employed as a radio station mix show coordinator.

[144] Mr. Raponi retained Olympia Trust to be his registered savings account trustee for a $95,000 investment in a $16.9 million syndicated mortgage loan for the Collier Centre project.

[145] The Collier Centre developers purchased the property for $4 million.

[146] After some development of the property, in 2018, the Collier Centre defaulted on its loans. Following a sales process, the property was sold for $18.5 million.

[147] The Lenders in the Collier Centre syndicated mortgage loans, including Mr. Raponi, suffered a complete loss of their investments.

L. Class Size

[148] Although s. 5 (3) of the Class Proceedings Act, 1992 directs that: “Each party to a motion for certification shall, in an affidavit filed for use on the motion, provide the party’s best information on the number of members in the class,” in the immediate case neither party filed an affidavit as to class size.

[149] It might have been possible for either party to provide more precise information had they thought to analyze the 69 syndicated mortgage documents that were registered against title, but neither party thought to include the syndicated mortgages in the thousands of pages of documents. At my request, during the course of the hearing, the samples of the syndicated mortgage loan documentation for five projects were added to the documentary record for the certification motion; namely: (a) the Residence of Bayview, (b) Capital Pointe, (c) Harmony Village, (d) Simcoe Kemp, and (e) Soba.

[150] I used that evidence, the guesses of the parties in their factums and during argument, and the massive amounts of other evidence to make a guestimate of class size.

[151] Assuming that some Lenders invested in more than one project, it seems that there were between 11,000 to 13,000 Lenders in the syndicated mortgages. Some of these Lenders were corporate investors, which do not save for retirement and are not eligible for registered savings accounts.

[152] Based on what evidence might be gathered from the documented five projects of (a) the Residence of Bayview, (b) Capital Pointe, (c) Harmony Village, (d) Simcoe Kemp, and (e) Soba, it would appear that approximately 25% of the Lenders used registered savings accounts from either Computershare Trust or Olympia Trust. If that is correct, then a guestimate of the class size is between 2,750 to 3,250 Class Members had registered savings accounts with Olympia Trust or Computershare.

[153] My guestimate from sampling some of the projects for which information was available is that the average investment per Class Member was approximately $25,000.

M. Certification: General Principles

[154] The court has no discretion and is required to certify an action as a class proceeding when the following five-part test in s. 5 of the Class Proceedings Act, 1992 is met: (1) the pleadings disclose a cause of action; (2) there is an identifiable class of two or more persons that would be represented by the representative plaintiff; (3) the claims of the class members raise common issues; (4) a class proceeding would be the preferable procedure for the resolution of the common issues; and (5) there is a representative plaintiff who: (a) would fairly and adequately represent the interests of the class; (b) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (c) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

[155] On a certification motion, the question is not whether the plaintiff’s claims are likely to succeed on the merits, but whether the claims can appropriately be prosecuted as a class proceeding.[^19] The test for certification is to be applied in a purposive and generous manner, to give effect to the goals of class actions; namely: (1) to provide access to justice for litigants; (2) to encourage behaviour modification; and (3) to promote the efficient use of judicial resources.[^20]

[156] For certification, the plaintiff in a proposed class proceeding must show “some basis in fact” for each of the certification requirements, other than the requirement that the pleading discloses a cause of action.[^21] The some-basis-in-fact standard sets a low evidentiary standard for plaintiffs, and a court should not resolve conflicting facts and evidence at the certification stage or opine on the strengths of the plaintiff’s case.[^22] In particular, there must be a basis in the evidence to establish the existence of common issues.[^23] To establish commonality, evidence that the alleged misconduct actually occurred is not required; rather, the necessary evidence goes only to establishing whether the questions are common to all the class members.[^24]

[157] The some-basis-in-fact standard does not require evidence on a balance of probabilities and does not require that the court resolve conflicting facts and evidence at the certification stage and rather reflects the fact that at the certification stage the court is ill-equipped to resolve conflicts in the evidence or to engage in the finely calibrated assessments of evidentiary weight and that the certification stage does not involve an assessment of the merits of the claim and is not intended to be a pronouncement on the viability or strength of the action.[^25]

N. The Cause of Action Criterion (s. 5 (1)(a))

1. Pleadings Sufficiency and the Plain and Obvious Test

[158] The first criterion for certification is that the plaintiff’s pleading discloses a cause of action. The "plain and obvious" test from Rule 21 of the Rules of Civil Procedure for disclosing a cause of action from Hunt v. Carey Canada,[^26] is used to determine whether a proposed class proceeding discloses a cause of action for the purposes of s. 5(1)(a) of the Class Proceedings Act, 1992. To satisfy the first criterion for certification, a claim will be satisfactory, unless it has a radical defect, or it is plain and obvious that it could not succeed.[^27]

[159] The failure to establish a cause of action usually arises in one of two ways: (1) the allegations in the statement of claim do not plead all the elements necessary for a recognized cause of action; or (2) the allegations in the statement of claim do not come within a recognized cause of action.[^28]

[160] Matters of law that are not fully settled should not be disposed of on a motion to strike an action for not disclosing a reasonable cause of action,[^29] and the court’s power to strike a claim is exercised only in the clearest cases.[^30] The case law establishes that issues that are novel, complex, and important should normally be decided on a full factual record after trial.[^31] However, novelty by itself is not a reason to allow a cause of action to proceed to trial and a novel claim must also be arguable, have some elements of a cause of action recognized in law, be a reasonable and arguable incremental extension of established law and have a reasonable prospect of success.[^32] In Atlantic Lottery Corp. Inc. v. Babstock,[^33] the majority of the Supreme Court stated:

[A] claim will not survive an application to strike simply because it is novel. It is beneficial, and indeed critical to the viability of civil justice and public access thereto that claims, including novel claims, which are doomed to fail be disposed of at an early stage in the proceedings. This is because such claims present “no legal justification for a protracted and expensive trial”. If a court would not recognize a novel claim when the facts as pleaded are taken to be true, the claim is plainly doomed to fail and should be struck. [citation omitted]

[161] In the Ontario Court of Appeal’s decision in Darmar Farms Inc. v. Syngenta Canada Inc.,[^34] Justice Zarnett stated:

51. The fact that a claim is novel is not a sufficient reason to strike it. But the fact that a claim is novel is also not a sufficient reason to allow it to proceed; a novel claim must also be arguable. There must be a reasonable prospect that the claim will succeed.

[162] In R. v. Imperial Tobacco Canada Ltd.,[^35] the Supreme Court of Canada noted that although the tool of a motion to strike for failure to disclose a reasonable cause of action must be used with considerable care, it is a valuable tool because it promotes judicial efficiency by removing claims that have no reasonable prospect of success and it promotes correct results by allowing judges to focus their attention on claims with a reasonable chance of success.

[163] On a pleadings motion, the court accepts the pleaded allegations of material fact as proven, unless they are patently ridiculous or incapable of proof.[^36] Bare allegations and conclusory legal statements based on assumption or speculation are not material facts; they are incapable of proof and, therefore, they are not assumed to be true for the purposes of a pleadings motion.[^37] In making findings of fact and in applying the law to those facts the court is not obliged to accept as necessarily true allegations of fact that are rhetorical conclusions or that are inconsistent with the documents incorporated by reference.[^38] Documents referred to in a pleading are incorporated by reference into the pleading, and on a motion to determine whether the plaintiff has pleaded a legally viable cause of action, the court is entitled to consider any documents specifically referred to and relied on in a pleading.[^39]

2. Breach of Fiduciary Duty and of Trust (Statement of Claim, paras.79-92)

[164] It is Mr. Raponi’s thesis that s. 207.01(5) of the Income Tax Act, which states that a custodial trustee ought to “exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that a trust governed by the registered plan holds a non-qualified investment” is a term of the trust that has been breached by the trustee Olympia Trust. Mr. Raponi fashions eleven gatekeeper and warning obligations, set out above, from s. 207.01(5) of the Income Tax Act and from the guidelines of Income Tax Folio S3-F10-C1. Mr. Raponi submits that these duties were breached by Olympia Trust. Mr. Raponi asserts that these duties were designed by the Federal Government to protect Lenders in syndicated mortgages from sustaining investment losses and to avoid Lenders taking undue risk in investing funds being saved for the Lender’s retirement years. He submits that these trust and fiduciary duties are immutable and cannot be changed by the trust and contract instruments signed by the Lenders and Olympia Trust.

[165] It is plain and obvious that Mr. Raponi’s breach of trust and breach of fiduciary duty thesis does not establish a reasonable cause of action. The existence of trust and fiduciary duties requires a case-by-case analysis and the court will analyze the trust and contract terms as well as the circumstances and nature of the relationship.[^40]The scope of a trustee’s or a fiduciary’s duty arises within the scope of the engagement and the functions assumed by the trustee or fiduciary in a given case.[^41]

[166] Mr. Raponi relies on the statement of Justice Corthorn in Cahill v. Cahill:[^42] “Whenever a trustee fails to carry out her obligations under the trust instrument, at common law, or statute, that failure amounts to a breach of trust” and on the statement of Justice Gillese, writing extra-judicially, in The Law of Trusts,[^43] where she states:

Trusteeship is an extremely onerous position. Trustees are subject to the specific duties created by the trust instrument and by legislation. In addition, they have a great many duties placed upon them by equity. […] Because of the dependency relationship and the fact that the trustee controls the beneficiary’s property, the trustee is held to the most exacting standards of all fiduciaries.

[167] There is no doubt about the correctness of these statements, but they beg the question of what are the duties of a person who is a fiduciary or a trustee.

[168] It is a major doctrinal premise that underlies Mr. Raponi’s causes of action based on breach of trust and breach of fiduciary duty that fiduciary and trust duties are immutable and cannot be restricted or nullified. This premise is false, and the truth is that the scope of a trustee’s and a fiduciary’s duties are a matter to be determined on a case-by-case basis.

[169] In addition to Mr. Raponi’s argument’s false premise, there are three more doctrinal mistakes that underly Mr. Raponi’s causes of action based on breach of trust and breach of fiduciary duty. The first doctrinal mistake is to conflate breach of fiduciary duties with the breach of a professional trustee’s duty of care. The second doctrinal mistake is to reason backward from a trust or a fiduciary relationship and from harm suffered by the beneficiary of the trust or fiduciary relationship to conclude that there has been a breach of trust or of fiduciary duty. The third doctrinal mistake is to conflate powers with duties.

[170] Because of the false premise and or because of the three doctrinal mistakes, it is plain and obvious that Mr. Raponi’s causes of action for breach of fiduciary duty and for breach of trust are legally unsound and are bound to fail. These causes of action and also his causes of action based on breach of contract or common law negligence have no reasonable prospect of success.

[171] The essential allegation against Olympia Trust in all of the causes of action is that Olympia Trust should not have obeyed the Class Member’s instruction to invest in a syndicated mortgage and Olympia Trust should not have obeyed the Class Member’s instructions to advance funds on a syndicated mortgage because Olympia Trust ought to have known that the security for the loans was improvident. It should immediately be observed that Olympia Trust’s alleged misconduct does not involve any dishonesty, misappropriation, disloyalty, deceit, conflict of interest, self-dealing, or gaining a benefit beyond the agreed remuneration for acting as trustee. In other words, Olympia Trust’s alleged misdeeds are not the sort of misconduct that would typically support a viable action for breach of fiduciary duty.

[172] Fiduciary duties are not fixed or immutable. In Canadian Aero Services Ltd. v. O’Malley,[^44] which is still the leading case about the cause of action for breach of fiduciary duty, Justice Laskin, as he then was, said that cases about alleged breaches of fiduciary duty involved four issues: (1) the determination of whether the relationship is fiduciary; (2) the determination of the duties that arise from the particular relationship; (3) the determination of whether a particular duty has been breached; and (4) the determination of the extent of liability for the breach of the particular fiduciary duty. The extent or scope of a fiduciary’s duty is not fixed or immutable but rather must be determined on a case-by-case basis.

[173] The doctrine that there is a special quality to a fiduciary obligation and that the extent of a fiduciary’s obligation is a variable and not a constant is supported by the following much quoted passage from the 1911 judgment of Fletcher Moulton, L.J. in Re Coomber.[^45] The passage advances the propositions that fiduciary responsibilities depend upon the facts of the particular relationship and that once a fiduciary relationship is established, it does not follow that in a given circumstance any fiduciary obligations are imposed:

Fiduciary relations are of many different types; they extend from the relation of myself to an errand boy who is bound to bring me back my change up to the most intimate and confidential relations which can possibly exist between one party and another where the one is wholly in the hands of the other because of his infinite trust in him. All these are cases of fiduciary relations, and the Courts have again and again, in cases where there has been a fiduciary relation, interfered and set aside acts which, between persons in a wholly independent position, would have been perfectly valid. Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of interference. Of course, that is absurd. The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the Court on those facts, than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them.

[174] In Lac Minerals Ltd. v. International Corona Resources Ltd., [^46] Justice La Forest observed that “the fiduciary obligation may vary in its specific substance depending on the relationship, though compendiously it can be described as the fiduciary duty of loyalty and will most often include the avoidance of a conflict of duty and interest and a duty not to profit at the expense of the fiduciary.” In Canson Enterprises Ltd. v. Boughton & Co.,[^47] in McInerney v. MacDonald;[^48] and in M. (K.) v. M. (H.),[^49] Justice La Forest stated that equity will impose on a fiduciary a range of obligations co-ordinate with the undertaking; fiduciary obligations are not uniform and are shaped by the demands of the situation. And in Hodginson v. Simms, [^50] he stated:[^51]

However, while both negligent misrepresentation and breach of fiduciary duty arise in reliance-based relationships, the presence of loyalty, trust, and confidence distinguishes the fiduciary relationship from a relationship that simply gives rise to tortious liability. Thus, while a fiduciary obligation carries with it a duty of skill and competence, the special elements of trust, loyalty, and confidentiality that obtain in a fiduciary relationship give rise to a corresponding duty of loyalty.

[175] In Frame v. Smith,[^52] Justice Wilson stated: “Perhaps the biggest obstacle to the development of a general fiduciary principle has been the fact that the content of the fiduciary duty varies with the type of relationship to which it is applied.”

[176] The nature or character of fiduciary duties is not only malleable, but as noted by Justice La Forest, it also involves a particular quality that differentiates fiduciary duties from a fiduciary’s concurrent other duties. In Girardet v. Crease & Co.,[^53] the plaintiff sued her lawyer for negligence in advising her to settle a personal injury claim. In Girardet, Justice Southin said that it was a perversion of words to say that simple carelessness in giving advice was a breach of fiduciary duty and that fiduciary misconduct must involve the particular quality of duties that the law imposes on particular fiduciaries. Thus, Justice Southin observed:

That a lawyer can commit a breach of the special duty of a trustee, e.g., by stealing his client’s money, by entering into a contract with the client without full disclosure, by sending a client a bill claiming disbursements never made and so forth is clear. But to say that simple carelessness in giving advice is such a breach is a perversion of words. The obligation of a solicitor of care and skill is the same obligation of any person who undertakes for reward to carry out a task. One would not assert of an engineer or physician who had given bad advice and from whom common law damages were sought that he was guilty of a breach of fiduciary duty. Why should it be said of a solicitor? [^54]

[177] In K.L.B. v. British Columbia, [^55] Chief Justice McLachlin stated:

The traditional focus of breach of fiduciary duty is breach of trust, with the attendant emphasis on disloyalty and promotion of one's own or others' interests at the expense of the beneficiary's interests. Parents stand in a relationship of trust and owe fiduciary duties to their children. But the unique focus of the parental fiduciary duty, as distinguished from other duties imposed on them by the law, is breach of trust. Different legal and equitable duties may arise from the same relationship and circumstances. Equity does not duplicate the common law causes of action, but supplements them. Where the conduct evinces breach of trust, it may extend liability, but only on that basis.

[178] In Luscar Ltd. v. Pembina Resources Ltd.,[^56] Justice Conrad of the Alberta Court of Appeal noted that fiduciary duties should not be conflated with contractual duties; he stated:

[A] party may have fiduciary obligations arising from its relationship, but not every obligation is a fiduciary one. In the case of contract, one party may be put in a position of owing extended duties, but it is important to examine carefully the alleged actions to ensure that they derive from the loyalty of the relationship, and are truly fiduciary obligations, as opposed to merely contractual, express or implied.

[179] In Varcoe v. Sterling,[^57] where a stockbroker was liable for negligence but not for breach of fiduciary duty, Justice Keenan stated: “But not every wrong done by a fiduciary is a breach of that duty. It must be a wrong which is a betrayal of that trust component of the relationship.” Justice Sopinka also made this point in Lac Minerals Ltd. v. International Corona Resources Ltd.,[^58] where he stated that fiduciary obligation “must be reserved for situations that are truly in need of the special protection that equity affords.” In Norberg v. Wynrib,[^59] Justice Sopinka noted that fiduciary duties should not be superimposed on common law duties to improve the nature or extent of the remedy.

[180] That there is a special quality to fiduciary relations and a special quality to fiduciary obligations can lead to the doctrinal mistake of reasoning from a situation in which there is a fiduciary relationship and the beneficiary of the relationship has suffered a loss, that the fiduciary is responsible for the loss. Both Justice La Forest and Justice Sopinka warned against this kind of reasoning in Lac Minerals Ltd. v. International Corona Resources Ltd., where Justice La Forest said that using the term “fiduciary” as a conclusion to justify a result “reads equity backwards” [^60] and where Justice Sopinka said:[^61] [T]he presence of conduct that incurs the censure of a court of equity in the context of a fiduciary duty cannot itself create the duty.”

[181] In the immediate case, Mr. Raponi builds eleven breaches of a standard of care from s.207.01(5) of the Income Tax Act’s imposition of a duty to “minimize the possibility that the Class Members’ Registered Plans held non-qualified investments.”[^62]

[182] It should immediately be observed how humble and unimposing is the duty on the trustee entailed by the Income Tax Act. A robust obligation would be an absolute duty on the trustee to not apply for non-qualified investments. But the Income Tax Act imposes no such categorical duty to eliminate non-qualified investments. Rather, it imposes a much more modest obligation of reporting the non-qualified investment and the modest penalty of between $100 to $2,500 of the failure to report.

[183] There actually is no penalty on Olympia Trust for failing to minimize the possibility that the Class Member held a non-qualified investment. The penalty is for failing to report a non-qualified investment. (I parenthetically note that in the immediate case, the CRA has never sought or obtained any penalty from Olympia Trust in respect of the syndicated mortgages.)

[184] It should next be observed that s. 207.01(5) the Income Tax Act, the foundational building block of Mr. Raponi’s breach of trust and breach of fiduciary duty thesis, does not impose any obligation on the trustee to comply with the qualified investment rules. It is the CRA in Income Tax Folio S3-F10-C1 that suggests compliance, but even that suggestion is attenuated because while the ultimate compliance responsibility is said to rest with the trustee, the trustee may require the “controlling individual of the registered plan” i.e., in the immediate case the Class Member/Lender “to provide evidence to determine the property’s fair market value” and “the trustee must exercise due diligence in satisfying itself that the documentation provided is sufficient.”

[185] Apart from the circumstances that the nebulous “satisfying itself that the documentation provided is sufficient” is not a part of the Income Tax Act itself and is found in the CRA’s Folio of guidelines, there is little to nothing there to entail the eleven posited duties, including the categorial duties: (a) of determining if a proper appraisal of the mortgaged property uses an appropriate valuation method; (b) of not advancing funds relying on an appraisal based on the “residual method of valuation”; (c) of not advancing funds relying an appraisal based on future hypothetical assumptions; and (d) of refusing to act as trustee if the value of the syndicated mortgage plus prior encumbrances exceeds the appraised fair market value of the mortgaged land.

[186] Next, it should be observed that Mr. Raponi’s thesis negates the principle that the existence of trust and fiduciary duties requires a case by case-by-case analysis and the court will analyze the trust and contract terms as well as the circumstances and nature of the relationship. Indeed, Mr. Raponi argues that anything contrary to s. 207.01 (5) and the CRA’s Income Tax Folio S3-F10-C1 is illegal and unenforceable on grounds of public policy. In Mr. Raponi’s thesis, the terms of the agreements that the Lenders actually entered into before applying for a registered savings plan and the terms of the agreement that the Lenders actually entered into with Olympia Trust count for nothing and s. 207.01 (5) and a hyperventilating extrapolation of the CRA’s Income Tax Folio S3-F10-C1 counts for everything.

[187] Mr. Raponi’s argument is plainly and obviously flawed, untenable, and contrary to the correct principle as asserted by Justice Laskin in Canadian Aero Services Ltd. v. O’Malley,[^63] which case is about alleged breaches of fiduciary duty and involves the court determining the duties on a case-by-case basis. The Income Tax Act does not preclude the court from examining the agreements entered into by the Lenders before they contracted with Olympia Trust or from examining the agreements between the Lenders and Olympia Trust.

[188] When one does examine the agreements between the Lenders and Olympia, the plain language reveals that while Olympia Trust does have responsibilities, those responsibilities are both limited and also compliant with Olympia Trust’s actual obligations imposed by the Income Tax Act.

[189] There are no express gatekeeper duties imposed on Olympia Trust. Under the various agreements, Olympia Trust expressly disavowed responsibilities to Lenders to confirm the tax status of their investments. The duties imposed on Olympia Trust by s. 207.01(5) of the Income Tax Act are humble and modest and do not extrapolate to require extensive gatekeeping responsibilities. Moreover, the limited duties undertaken by Olympia Trust under the trust agreements do not conflict with the modest and humble duties imposed by s. 207.01(5) of the Income Tax Act.

[190] Next, it should be observed that Mr. Raponi’s arguments giving privilege, paramountcy, and supremacy to s. 207.01 (5) of the Income Tax Act and his argument that there are public policy reasons to give no force to the provisions of the agreements between the Lenders and Olympia Trust depend on his argument that the provisions of the Income Tax Act are consumer protection to protect taxpayers from the peril of improvident investments in their registered savings account. However, the registered savings account provisions of the Income Tax Act are not consumer protection. The Income Tax Act is a taxation statute pursuant to the Federal Government’s legislative authority under the Constitution Act, 1867. It is not consumer protection legislation or legislation regulating financial marketplaces. It is FSCO not the CRA that regulates those selling syndicated mortgages.

[191] Next, it should be observed that Mr. Raponi’s arguments conflate powers with duties. Olympia Trust was empowered to not follow the Lender’s instructions to apply for a registered savings account and it was empowered to refuse to advance funds from that registered account if it determined that the syndicated mortgage did not qualify or no longer qualified as an investment for a registered account. However, those powers do not transform into eleven duties and those powers were contracted for so that Olympia Trust could perform its modest obligations to the CRA.

[192] In advancing his thesis, Mr. Raponi relies on the decisions of: (a) the Federal Court in Olympia Trust Company v. The Queen;[^64] (b) the British Columbia Court of Appeal in Froese v. Montreal Trust Co. of Canada;[^65] (c) the British Columbia Court of Appeal in Elms v. Oliver Drabik Carruthers & Chalcraft; [^66] (d) the Saskatchewan Court of Appeal in ADAG Corporation Canada Ltd. v SaskEnergy Incorporated,[^67] and (e) the decision of Justice Lauwers in Ivany v. Financiere Telco Inc.[^68]

[193] These decisions do not assist Mr. Raponi. They are examples of cases where a case-by-case analysis defined the duties of the trustee. The immediate case’s case-by-case analysis yields its own analysis of the scope of the trust, fiduciary, and contractual duties assumed by Olympia Trust, and it is plain and obvious that the eleven hypothesized of duties are not to be found. There are a few immutable trustee duties, such as loyalty, the avoidance of conflicts of interest, and not misappropriating the trust property, but no immutable trustee duties of this sort are engaged in the immediate case.

[194] It is doctrinally wrong to fail to distinguish the quality of trust and fiduciary duties from contractual and tortious duties. It is doctrinally wrong to reason backwards from the fact that Lenders suffered losses to impose duties on a fiduciary. It is doctrinally wrong to not do a case-by-case analysis to determine whether there are material facts that would support a fiduciary or trust duty. It is plain and obvious that in the immediate case, the Class Members do not have viable claims for breach of trust or breach of fiduciary duty.

[195] I conclude that Mr. Raponi’s breach of trust and breach of fiduciary duty claims do not satisfy the cause of action criterion.

3. Breach of Contract (Statement of Claim, paras. 93-97)

[196] For similar reasons, I conclude that Mr. Raponi’s breach of contract claim is doomed to fail and does not satisfy the cause of action criterion.

[197] Mr. Raponi’s breach of contract cause of action is a poorly pleaded cause of action because the constituent elements of a claim for breach of contract are not pleaded, and the breach of contract cause of action, such as it is, emerges from Mr. Raponi’s two factums for the certification motion. The essence of his breach of contract claim is that there is a promise that Olympia Trust will comply with the Income Tax Act. It is this allegation that is the link to s. 207.01(5) of the Income Tax Act and as already observed above, s. 207.01(5) mushroom-clouds into eleven trust, fiduciary, and contractual duties. For largely the same reasons as expressed above, Mr. Raponi and the Class Members do not have a breach of contract action because the alleged contract terms are not to be found.

[198] Moreover, it is plain and obvious that Mr. Raponi’s breach of contract action is not legally viable because the constituent elements of a breach of contract cannot be pleaded. The implied terms cannot be pleaded because the express terms of the several contracts between Olympia Trust and a Class Member are that Olympia Trust does not have liability for ensuring that the fair market value of the lands mortgaged by the syndicated mortgage exceeds the value of the syndicated mortgage. There is no basis for implying the alleged promises into the agreements between Mr. Raponi and Olympia Trust, and properly interpreted in accordance with the principles of contract interpretation, the terms of the contracts between Olympia Trust and a Class Member do not promise that Olympia Trust will ensure that the fair market value of the lands mortgaged by the syndicated mortgage exceeds the value of the syndicated mortgage. It is trite law, that court will not imply a term that contradicts the express language of the contract.[^69]

[199] I, therefore, conclude that Mr. Raponi’s breach of contract claim does not satisfy the cause of action criterion.

4. Negligence (Statement of Claim, paras. 98.-103)

[200] It is plain and obvious that Mr. Raponi does not have a legally viable action for negligence, which Class Counsel confirmed during oral argument was a pure economic loss claim under the recognized category of negligent performance of a service. In this case the alleged negligence concerns Olympia Trust’s performance of its alleged duty of care as trustee/mortgagee/administrator of the syndicated mortgages.

[201] The immediate case is on all fours with my decision in Barkley v. Tier 1 Capital Management Inc.,[^70] which was a similar case against Olympia Trust, in which, in a decision affirmed by the Court of Appeal, I held that the plaintiffs had no legally viable action against it.

[202] Strictly speaking, the claim in Barkley v. Tier 1 Capital Management Inc. was negligent misrepresentation cause of action against Olympia Trust but the case also involved a negligent performance of a service claim that is similar to the claims advanced against Olympia Trust in the immediate case. Moreover, upon analysis all of Mr. Raponi’s gatekeeper allegations in the immediate case are just disguised negligent misrepresentation actions, for which the established law is that Olympia Trust is not responsible for misrepresentations or the frauds of others. The essential alleged gatekeeper wrongdoing in the immediate case is that Olympia Trust failed to warn the Lenders that the security for their syndicated mortgage was improvident and a failure to warn is a misrepresentation by omission.

[203] But assuming that I am not bound by my own decision to come to the same decision in the immediate case, I will start from square one and demonstrate that it is plain and obvious that Mr. Raponi does not have a viable claim in negligence for misrepresentation or for the negligent performance of a service.

[204] The Canadian approach to determining whether there is a duty of care has been developed in a series of Supreme Court of Canada decisions[^71] adapting and explaining the House of Lord's decision in Anns v. Merton London Borough Council,[^72] and derived from the seminal cases of Donoghue v. Stevenson[^73] and Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.[^74]

[205] A duty of care to another exists when three elements are satisfied; (1) foreseeability, in the sense that the defendant ought to have contemplated that the plaintiff would be affected by the defendant’s conduct; (2) sufficient proximity, in the sense that the relationship between the plaintiff and the defendant is sufficiently close prima facie to give rise to a duty of care; and (3) the absence of overriding policy considerations that would negate any prima facie duty established by foreseeabilty and proximity. A relationship giving rise to a duty of care depends on foreseeability, moderated by policy concerns.[^75]

[206] To determine the foreseeability element, the court asks whether the harm that occurred was the reasonably foreseeable consequence of the defendant’s act.[^76] A reasonable foreseeability analysis requires only that the general harm, not its manner of incidence, be reasonably foreseeable.[^77]

[207] Proximity focuses on the type of relationship between the plaintiff and defendant and asks whether this relationship is sufficiently close that the defendant may reasonably be said to owe the plaintiff a duty to take care not to injure him or her.[^78] Proximate relationships giving rise to a duty of care are of such a nature as the defendant in conducting his or her affairs may be said to be under an obligation to be mindful of the plaintiff’s legitimate interests.[^79] The proximity inquiry probes whether it would be unjust or unfair to hold the defendant subject to a duty of care having regard to the nature of the relationship between the defendant and the plaintiff.[^80] The focus of the probe is on the nature of the relationship between victim and alleged wrongdoer and the question is whether the relationship is one where the imposition of legal liability for the wrongdoer’s actions would be appropriate.[^81] The proximity focuses on the connection between the defendant’s undertaking, the breach of which is the wrongful act, and the loss claimed.[^82]

[208] The proximity analysis of the first stage of the duty of care test involves policy issues because it asks the normative question of whether the relationship is sufficiently close to give rise to a legal duty.[^83] The proximity analysis involves considering factors such as expectations, representations, reliance, and property or other interests involved.[^84] Proximity is not concerned with how intimate the plaintiff and defendant were or with their physical proximity, so much as with whether the actions of the alleged wrongdoer have a close or direct effect on the victim, such that the wrongdoer ought to have had the victim in mind as a person potentially harmed.[^85] The proximity analysis is intended to be sufficiently flexible to capture all relevant circumstances that might in any given case go to seeking out the close and direct relationship that is the hallmark of the common law duty of care.[^86]

[209] In cases of negligent misrepresentation or performance of a service, proximity will be more usefully considered before foreseeability because what the defendant reasonably foresees as flowing from his or her negligence depends upon the characteristics of his or her relationship with the plaintiff, and specifically, the purpose of the defendant’s undertaking.[^87] In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are determinative in the proximity analysis: the defendant’s undertaking and the plaintiff’s reliance.[^88] Any reliance on the part of the plaintiff which falls outside of the scope of the defendant’s undertaking of responsibility falls outside the scope of the proximate relationship and, therefore, of the defendant’s duty of care.[^89]

[210] As was the case with a trustee’s or fiduciary’s duties, and his or her contractual duties, the scope of the trustee’s common law duty of care is a matter to be determined and defined and the court’s analysis focuses on the defendant’s undertaking of responsibility. In this regard, in Deloitte & Touche v. Livent Inc. (Receiver of),[^90] Justices Brown and Rowe for the majority of the court stated at paras. 30-31 and 34-35:

30. In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are determinative in the proximity analysis: the defendant's undertaking and the plaintiff's reliance. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff's reasonable reliance, the defendant becomes obligated to take reasonable care. And the plaintiff has a right to rely on the defendant's undertaking to do so. [….] These corollary rights and obligations create a relationship of proximity. [….]

31. Rights, like duties, are, however, not limitless. Any reliance on the part of the plaintiff which falls outside of the scope of the defendant's undertaking of responsibility -- that is, of the purpose for which the representation was made or the service was undertaken -- necessarily falls outside the scope of the proximate relationship and, therefore, of the defendant's duty of care. […]. This principle, also referred to as the "end and aim" rule, properly limits liability on the basis that the defendant cannot be liable for a risk of injury against which he did not undertake to protect. […] By assessing all relevant factors arising from the relationship between the parties, the proximity analysis not only determines the existence of a relationship of proximity, but also delineates the scope of the rights and duties which flow from that relationship. In short, it furnishes not only a "principled basis upon which to draw the line between those to whom the duty is owed and those to whom it is not" (Fullowka, at para. 70), but also a principled delineation of the scope of such duty, based upon the purpose for which the defendant undertakes responsibility. […]

32. As we have already observed, however, reasonable foreseeability of injury is no longer the sole consideration at the first stage of the Anns/Cooper framework. Since Cooper, both reasonable foreseeability and proximity -- the latter expressed in Cooper as a distinct and more demanding hurdle than reasonable foreseeability -- must be proven in order to establish a prima facie duty of care. And, in cases of negligent misrepresentation or performance of a service, the proximate relationship -- grounded in the defendant's undertaking and the plaintiff's reliance -- informs the foreseeability inquiry. Meaning, the purpose underlying that undertaking and that corresponding reliance limits the type of injury which could be reasonably foreseen to result from the defendant's negligence.

33. As a matter of first principles, it must be borne in mind that an injury to the plaintiff in this sort of case flows from the fact that he or she detrimentally relied on the defendant's undertaking, whether it take the form of a representation or the performance of a service. It follows that an injury to the plaintiff will be reasonably foreseeable if (1) the defendant should have reasonably foreseen that the plaintiff would rely on his or her representation; and (2) such reliance would, in the particular circumstances of the case, be reasonable (Hercules, at para. 27). Both the reasonableness and the reasonable foreseeability of the plaintiff's reliance will be determined by the relationship of proximity between the parties; a plaintiff has a right to rely on a defendant to act with reasonable care for the particular purpose of the defendant's undertaking, and his or her reliance on the defendant for that purpose is therefore both reasonable and reasonably foreseeable. But a plaintiff has no right to rely on a defendant for any other purpose, because such reliance would fall outside the scope of the defendant's undertaking. As such, any consequent injury could not have been reasonably foreseeable.

[211] Moving on to the final stage of the duty of care analysis, if the plaintiff establishes a prima facie duty of care, the evidentiary burden of showing countervailing policy considerations shifts to the defendant, following the general rule that the party asserting a point should be required to establish it.[^91] Policy concerns raised against imposing a duty of care must be more than speculative, and a real potential for negative consequences must be apparent.[^92]

[212] The final stage of the analysis is not concerned with the type of relationship between the plaintiff and the defendant. At this stage of the analysis, the question to be asked is whether there exist broad policy considerations that would make the imposition of a duty of care unwise, despite the fact that harm was a reasonably foreseeable consequence of the conduct in question and there was a sufficient degree of proximity between the plaintiff and the defendant such that the imposition of a duty would be fair.[^93] The final stage of the analysis is about the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally.[^94]

[213] Applying these duty of care principles to the immediate case, it is plain and obvious that Olympia Trust did not owe the gatekeeper duties alleged by Mr. Raponi. Having regard to the contracts signed by the Lenders with Olympia Trust and with others, Olympia Trust disavowed any undertaking to be a gatekeeper and did not invite the Lenders to rely on Olympia Trust to be a gatekeeper. Just the opposite, the Lender was essentially warned not to rely on Olympia Trust in making his or her investment decision about the syndicated mortgage.

[214] A proximate relationship giving rising to a duty of care is absent in the immediate case. As was the case with the representative plaintiff in Barkley v. Tier 1 Capital Management Inc., Mr. Raponi is just making a scapegoat out of Olympia Trust notwithstanding the documentation by which Olympia Trust attempted to protect itself from being scapegoated.

[215] The standard for identifying a defendant’s duty requires the Court to consider whether there is a relationship of proximity between Mr. Raponi and Olympia Trust such that it would be just and fair having regard to their relationship to impose a duty of care and whether the damages suffered by the plaintiff were a reasonably foreseeable consequence of the defendant’s conduct. It is plain and obvious that the standard for identifying a proximate relationship is not met in the immediate case. That Olympia Trust was in a fiduciary relationship with the Lenders does not disturb this analysis because, as discussed above, fiduciary duties and contractual and common law duties are not to be conflated.

[216] Further, I agree with Olympia Trust’s argument set out in paragraph 71 of its factum:

71. In any event, Olympia Trust’s express contractual disclosures to investors in Barkley (including in the governing terms of trust) were clear that its involvement was merely “to allow the investors to shelter their investment from tax, about which Olympia Trust also disavowed any representations.” These disclosures demonstrated that Olympia Trust “assumed no undertaking to advise or protect the investors” and “would have no reason to think that it was being relied on in respect of that decision.” Accordingly, any reliance by investors on Olympia Trust to protect them from an improvident investment would have been unreasonable and outside the scope of Olympia Trust’s undertaking. The analysis in Barkley applies equally to the plaintiff’s allegations in this case. In both Barkley and this case, the plaintiff is merely “making a scapegoat out of Olympia Trust notwithstanding the documentation by which Olympia Trust attempted to protect itself from being scapegoated”. [footnotes omitted]

[217] As I noted with respect to the appraiser defendants in Barkley v. Tier 1 Capital Management Inc.,[^95] the circumstance of Olympia Trust of expressly limiting its responsibility with respect to the providence of the syndicated mortgages bears some similarity to the seminal case of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.[^96] where the defendant bank had no liability when it responded to the inquiry about the creditworthiness of its customer on the basis that its reply was without responsibility. As Lord Morris of Borth-y-Gest noted, if an inquirer chooses to receive and act upon a reply, he or she cannot disregard the definite terms upon which the reply was given; the inquirer cannot accept a reply given with a stipulation and then reject the stipulation.

[218] In the circumstances of the immediate case, it is not necessary to go onto the third stage of a duty of care analysis to ask whether a prima facie duty of care is negated by policy factors. In the immediate case, there is no duty of care and Mr. Raponi’s cause of action in common law negligence for pure economic losses is bound to fail. Had it been necessary to go onto the third stage, I would have concluded that there were policy factors to negate the duty of care. The essentially commercial relationship between the Lenders and Olympia Trust is best left to be regulated by the law of trusts, fiduciary duties, and contract and should not be overridden by the law of negligence.

[219] In circumstances where the Lenders have alternative remedies, the imposition of liability against Olympia Trust: (a) would impose an unfair and disproportionate liability given that it is not the fraudster and land values and the strength of the Borrower’s covenant are not something Olympia Trust can control; and (b) would inundate the courts with an expansive range of unnecessary claims.[^97]

[220] For the above reasons, I conclude that Mr. Raponi and the Class Members do not have a cause of action in negligence against Olympia Trust and that the negligence claim does not satisfy the cause of action criterion.

5. Summary Cause of Action Criterion

[221] It is plain and obvious that Mr. Raponi’s causes of action are not legally viable. Each of his proposed causes of action is doctrinally unsound and based on premises that are legally unsound. There was no undertaking of trust, fiduciary, contract, or common law duties. Further, all of Mr. Raponi’s actions contain the fallacious major premise that the Income Tax Act is a consumer protection statute that imposes obligations on Olympia Trust to ensure that the Class Members did not make an investment in a syndicated mortgage loan where the value of the syndicated mortgage and the prior encumbrances exceeds the fair market value of the mortgaged lands. There is nothing to support Mr. Raponi’s various gatekeeper claims.

[222] Mr. Raponi’s breach of trust and breach of fiduciary duty actions are not legally viable. These actions want for a breach of the term of the trust, and while there may be super-added equitable (fiduciary) duties in addition to the express terms of the trust, none of the super-added duties exist in the circumstances of the immediate case. In particular, in the circumstances of the immediate case, there is no super-added duties to refuse to be a trustee or to safeguard the trust corpus from an improvident investment and moreover, the trustee and the beneficiary of the trust are free to structure the terms of their trust relationship to prescribe and limit the trustee’s responsibilities. It is plain and obvious from an analysis of the relationship between the Class Members and Olympia Trust that the eleven alleged duties are not arguable.

[223] Mr. Raponi’s breach of contract action is not a legally viable cause of action because the constituent elements of a claim for breach of contract have not and could not be pleaded; visualize, the express or implied terms alleged to have been breached by Olympia Trust have not been pleaded nor could they be pleaded because the express terms of the several contracts between Olympia Trust and a Class Member are that Olympia Trust does not have liability for ensuring that the fair market value of the lands mortgaged by the syndicated mortgage exceeds the value of the syndicated mortgage. There is no basis for implying the alleged promises into the agreements between Mr. Raponi and Olympia Trust, and properly interpreted in accordance with the principles of contract interpretation, the terms of the contracts between Olympia Trust and a Class Member do not promise that Olympia Trust will ensure that the fair market value of the lands mortgaged by the syndicated mortgage exceeds the value of the syndicated mortgage. It is trite law, that court will not imply a term that contradicts the express language of the contract.

[224] Mr. Raponi’s common law negligence claim is not a legally viable cause of action because: (a) if classified as a pure economic loss claim for negligence in the provision of professional services, safeguarding the Class Members from entering into an improvident syndicated mortgage is not within the scope of the duty of care; (b) if classified as a pure economic loss claim for negligence in the provision of professional services, safeguarding the Class Members from entering into an improvident syndicated mortgage has been disclaimed and the reliance or holding out element of a pure economic loss claim cannot be established; and, (c) if classified as a novel pure economic loss claim for negligence, no duty of care can be established because of failure of proximity and because of public policy negating a duty of care.

[225] Moreover, the immediate case is on all fours with my decision in Barkley v. Tier 1 Capital Management Inc.,[^98] which was a similar case against Olympia Trust, in which, in a decision affirmed by the Court of Appeal, I held that the plaintiffs had no legally viable action against it. As was the case in Barkley v. Tier I¸ the first criterion for certification, the cause of action criterion (s. 5 (1)(a) of the Class Proceedings Act, 1992) is not satisfied for all of Mr. Raponi’s causes of action. In their essence, Mr. Raponi’s causes of action are disguised negligent misrepresentation actions or negligent professional service claims for pure economic losses for which the established law is that Olympia Trust is not responsible for misrepresentations or the frauds of others.

[226] The result is that Mr. Raponi’s action flounders at the starting gate and cannot be certified and rather should be dismissed for failure to show a cause of action.

O. Identifiable Class Criterion (s. 5 (1)(b))

1. General Principles: Identifiable Class Criterion

[227] Since my conclusion is that Mr. Raponi’s action is stillborn, it follows that he fails all the other certification criteria. However, I shall assume that I am mistaken, and I shall go on to consider the remaining fact-based criteria.

[228] The second certification criterion is the identifiable class criterion. The definition of an identifiable class serves three purposes: (1) it identifies the persons who have a potential claim against the defendant; (2) it defines the parameters of the lawsuit so as to identify those persons bound by the result of the action; and (3) it describes who is entitled to notice.[^99]

[229] In defining the persons who have a potential claim against the defendant, there must be a rational relationship between the class, the cause of action, and the common issues, and the class must not be unnecessarily broad or over-inclusive.[^100] An over-inclusive class definition binds persons who ought not to be bound by judgment or by settlement, be that judgment or settlement favourable or unfavourable.[^101] The rationale for avoiding over-inclusiveness is to ensure that litigation is confined to the parties joined by the claims and the common issues that arise.[^102] A proposed class definition, however, is not overbroad because it may include persons who ultimately will not have a successful claim against the defendants.[^103]

[230] The class must also not be unnecessarily narrow or under-inclusive. A class should not be defined wider than necessary, and where the class could be defined more narrowly, the court should either disallow certification or allow certification on condition that the definition of the class be amended.[^104]

2. Analysis: Identifiable Class Criterion

[231] In the immediate case, Olympia Trust submits that the identifiable class criterion is not satisfied because all of the class members’ causes of action have damages as a constituted element, but the proposed class definition extends to all individuals who invested in the syndicated mortgages through registered savings accounts with Olympia Trust, whether or not they suffered a loss on their investments. Thus, relying on Merck Frosst Canada Ltd. v. Wuttunee,[^105] Olympia Trust submits that the class definition is over-inclusive and the Class Members who have not suffered a loss do not have a cause of action against the defendant and should not be included in the proposed class.

[232] There is no merit to the letter of Olympia Trust’s submission. Subject to my comments that follow, the class definition in the immediate case satisfies the technical requirements of s. 5 (1)(b) of the Class Proceedings Act, 1992. All the Class Members who invested through an Olympia Trust registered savings account arguably have claims for damages and the same complaint that Olympia Trust should not have put their money at risk. As noted above, a proposed class definition is not overbroad because it may include persons who ultimately will not have a successful claim against the defendants.

[233] There are, however, problems with the proposed definition in the sense that it seems that the parties have assumed that Olympia Trust was the only trustee for the Lenders that invested through a registered savings account. The evidence on the certification motion, however, discloses the possible involvement of Computershare Trust as the trustee/mortgagee/administer of some of the syndicated mortgages. As noted above, Mr. Raponi only has copies of loan agreements up until September 2016, and as noted above, there is evidence from Mr. Forbes that as of August 2017, Olympia Trust announced that it would no longer accept new business from Ontario Lenders and after that date it was Computershare Trust that became the vehicle for Lenders using registered savings accounts.

[234] If this evidence is correct, then from an access to justice prospective, the class definition is under-inclusive because Computershare Trust ought to have been made another defendant so that the Class definition could encompass all the Lenders who used a registered savings account to fund the syndicated mortgage; however, with the passage of time, a claim against Computershare Trust may be statute-barred and it may not be possible to join it now.

[235] This all said, it remains the case that, technically speaking, the current definition is satisfactory. Had the action been certified, some attention would have to be paid to how to give notice without giving false hope to the Computershare Trust Lenders that Mr. Raponi is their Representative Plaintiff.

[236] Thus, had the other criteria been satisfied, then, technically speaking, the class definition would have been satisfied, although there would have been infelicities in the class definition, in the sense that there would be persons that invested through Computershare Trust and they would identify themselves as having a cause of action because of the Fortress Developments fiasco, but these persons would not be invited to participate in the class action.

[237] However, in any event, the second criterion for certification, the identifiable class criterion (s. 5 (1)(b) of the Class Proceedings Act, 1992) is not satisfied because if there are no viable causes of action, it is axiomatic that none of the other certification criteria are satisfied.

P. Common Issues Criterion (s. 5 (1)(c))

1. General Principles: Common Issues Criterion

[238] The third criterion for certification is the common issues criterion. For an issue to be a common issue, it must be a substantial ingredient of each class member’s claim and its resolution must be necessary to the resolution of each class member’s claim.[^106]

[239] The underlying foundation of a common issue is whether its resolution will avoid duplication of fact-finding or legal analysis of an issue that is a substantial ingredient of each class member’s claim and thereby facilitate judicial economy and access to justice.[^107]

[240] An issue is not a common issue if its resolution is dependent upon individual findings of fact that would have to be made for each class member.[^108] Common issues cannot be dependent upon findings which will have to be made at individual trials, nor can they be based on assumptions that circumvent the necessity for individual inquiries.[^109] All members of the class must benefit from the successful prosecution of the action, although not necessarily to the same extent. The answer to a question raised by a common issue for the plaintiff must be capable of extrapolation, in the same manner, to each member of the class.[^110]

[241] The common issue criterion presents a low bar.[^111] An issue can be a common issue even if it makes up a very limited aspect of the liability question and even though many individual issues remain to be decided after its resolution.[^112] Even a significant level of individuality does not preclude a finding of commonality.[^113]A common issue need not dispose of the litigation; it is sufficient if it is an issue of fact or law common to all claims and its resolution will advance the litigation.[^114]

[242] From a factual perspective, the plaintiff must show that there is some basis in fact that: (a) the proposed common issue actually exists; and (b) the proposed issue can be answered in common across the entire class, which is to say that the Plaintiff must adduce some evidence demonstrating that there is a colourable claim or a rational connection between the Class Members and the proposed common issues.[^115] The plaintiff must establish some basis in fact for the existence of the common issues in the sense that there is some factual basis for the claims made to which the common issues are connected.[^116]

2. Analysis: Common Issues

[243] As noted above, and most particularly with respect to Mr. Raponi’s argument about the necessity that there be Omnibus Class Action, a fundamental component of his proposed class action is the idea that there is a commonality in the improvidence of the security for 69 syndicated mortgages.

[244] It is Mr. Raponi’s proposition that determining whether Olympia Trust breached its duty of care and determining whether a syndicated mortgage was improvident requires an assessment of the varied and evolving circumstances of the 54 Projects and the 69 Syndicated Mortgages at the time a given proposed class member first invested in the Syndicated Mortgage through a Self-Directed Account with Olympia Trust and at the various junctures thereafter when Olympia Trust allegedly failed to meet its ongoing responsibilities, including when each new tranche of funding was advanced on each of the 69 syndicated mortgages.

[245] However, it is patently obvious that: (a) whether the hypothesized eleven duties have been breached is a discrete issue for each of the 54 projects; and (b) an Omnibus Class Action has no commonality.

[246] The thesis of the Omnibus Class Action is not a matter of systemic breaches; rather, the thesis is a proposition that a reasonably prudent trustee would scrutinize every prior Fortress Developments syndicated mortgage for a breach of duty. However, commonality does not exist for such a proposition because: (a) the location of the mortgaged land is different; (b) the development status (zoning and other planning approvals) of the mortgaged land is different for each of the different lands; (c) the development status of any particular land changes over time; (d) the market conditions for the different mortgaged lands are different and also change over time; (e) the financial and economic circumstances for the lending are different and also change over time; (f) the state of the improvements, if any, on the mortgaged property is different and also changes over time; (g) the state of the prior encumbrances is different and changes over time; (h) the appraisals of the mortgaged land are different (i.e., unique to each syndicated mortgage) and appraised values change over time; (i) the alleged appraisal errors will be different and will not be uniform; (j) the Borrowers are different for each of the 54 projects and some but not all of the Borrowers were avatars of Fortress Developments; (k) since the Borrowers are different, the value of the Borrower’s covenants to pay the mortgage debt and the availability of collateral security are different; (l) the investment risks are different having regard to all of the above factors; (m) the proper parties to any litigation about any one of the 69 syndicated mortgage varies project by project; and (n) the individual circumstances of the Class Member are different between one syndicated loan and another syndicated loan.

[247] Notwithstanding the glaringly apparent absence of commonality for an Omnibus Class Action, Mr. Raponi insists that there must be an Omnibus Class Action. In addition to the excerpts noted earlier in these Reasons for Decision, examples of this insistence are found in paragraph 253 of his factum and paragraph 154 of his reply factum, where he states:

253. Moreover, Mr. Raponi’s uncontradicted evidence is that Olympia Trust’s alleged breach must not be examined only on a project-by-project basis. To the contrary, in determining whether to act as Registered Plan trustee and to advance funds, Olympia Trust had to consider the status of each existing Fortress Development Property syndicated mortgage loans. For this reason, not only is there commonality as between investors in each Fortress Development Project, but no individual Fortress Development Project can be considered in isolation.

254. Put another way, a reasonably prudent Registered Plan trustee should not consider each project in isolation, because the status of prior Fortress Development Properties ought to have impacted its responsibility and decision making for funding later Development Properties. The significance of this interrelationship between the Fortress Development Properties is that a class action and common issues trial determining Olympia Trust’s liability individually for each Fortress Development Property (i.e., 54 separate class actions and 54 separate common issues trials) is inappropriate and unnecessarily duplicative. This is because, to determine Olympia Trust’s liability for any one Fortress Development Project, it would be necessary to consider the status of each prior Project, including whether each prior Project remained a “qualified investment” throughout its life, and whether Olympia Trust knew or ought to have known of those facts. For this reason, one common issues trial considering all the Fortress Development Properties is necessary to adjudicate Olympia Trust’s liability.

[248] One wonders if Class Counsel gave any thought to what in practical terms it would mean if it was true that one common issues trial for all 54 projects was an absolute necessity. In practical terms, if the proposition for an Omnibus Action were true, I would conservatively estimate that it would take six weeks for the court to answer the 34 common issues for trial of each of the syndicated mortgages. In turn, this means that if Class Counsel’s proposition were true, then the common issues trial would last approximately eight years to be followed by individual issues trials and third party proceedings. Each and every Class Member would need to wait a decade or more to obtain access to justice.[^117] In practical terms, the Omnibus Action is reductio ad absurdum. It certainly would not be in the interests of judicial economy or in the best interests of the Class Members to address in a single class proceeding rather than in a number of separate class actions.

[249] I acknowledge that treating the 54 projects discretely, and analyzing the proposed common issues accordingly, there are some questions that would satisfy the common issues criterion. However, apart from the circumstance that this is not the design of Mr. Raponi’s proposed class action, it would require establishing 54 discrete subclasses with the attendant preferable procedure problem of unmanageability, discussed below, and with the attendant representative plaintiff problem, discussed below, that Mr. Raponi is incapable of representing and giving instructions with respect to syndicated mortgages with which he had no involvement.

[250] Thus, the third criterion for certification, the common issues criterion (s. 5 (1)(c)) is not satisfied because if there are no viable causes of action, it is axiomatic that if the cause of action criterion is not satisfied, then none of the other certification criteria are satisfied. Moreover, and in any event, none of the proposed issues are common to an Omnibus Class action for 69 syndicated mortgages for 54 projects. The similarities of Fortress Developments being the Pied Piper mastermind of the syndicated mortgages does not make common what is 69 separate financial follies and aggregating the separate financial follies destroys the commonalities necessary for a class action.

Q. Preferable Procedure Criterion (s. 5 (1)(d))

1. General Principles: Preferable Procedure Criterion

[251] Under the Class Proceedings Act, 1992, the fourth criterion for certification is the preferable procedure criterion. Preferability captures the ideas of: (a) whether a class proceeding would be an appropriate method of advancing the claims of the class members; and (b) whether a class proceeding would be better than other methods such as joinder, test cases, consolidation, and any other means of resolving the dispute.[^118]

[252] In AIC Limited v. Fischer,[^119] the Supreme Court of Canada emphasized that the preferability analysis must be conducted through the lens of judicial economy, behaviour modification, and access to justice. Thus, for a class proceeding to be the preferable procedure for the resolution of the claims of a given class, it must represent a fair, efficient, and manageable procedure that is preferable to any alternative method of resolving the claims.[^120]

[253] Whether a class proceeding is the preferable procedure is judged by reference to the purposes of access to justice, behaviour modification, and judicial economy and by taking into account the importance of the common issues to the claims as a whole, including the individual issues.[^121] To satisfy the preferable procedure criterion, the proposed representative plaintiff must show some basis in fact that the proposed class action would: (a) be a fair, efficient and manageable method of advancing the claim; (b) be preferable to any other reasonably available means of resolving the class members' claims; and (c) facilitate the three principal goals of class proceedings; namely: judicial economy, behaviour modification, and access to justice.[^122]

2. Analysis: Preferable Procedure Criterion

[254] It is axiomatic that if the cause of action and or the common issues criterion are not satisfied, the preferable procedure criterion is not satisfied.[^123] That precisely is the situation in the immediate case, and thus the case at bar does not satisfy the preferable procedure criterion.

[255] But even if the other certification criteria had been satisfied, the case at bar would not have satisfied the preferable procedure criterion because of unmanageability, which brings the analysis again to the thesis of the Omnibus Class Action. Without repeating my observations above about the decadal duration of such an action, in my opinion, the proposed Omnibus Class Action would not be a fair, efficient, and manageable method of advancing the putative Class Members’ claims.

[256] Preferable to the Omnibus Class Action would be discrete and separate project-by-project class actions, each with their own genuine Representative Plaintiff. To be clear, setting up subclasses in the immediate case would not solve but rather would exacerbate the unmanageability of the proposed class action.

[257] Thus, the fourth criterion for certification, the preferable procedure criterion (s. 5 (1)(d)) is not satisfied because: (a) there are no viable causes of action and it is axiomatic that if the cause of action criterion is not satisfied, then none of the other certification criteria are satisfied; (b) an Omnibus Action would not be manageable; and (c) an Omnibus Action with 54-69 subclasses would also not be manageable.

R. Representative Plaintiff Criterion (s. 5 (1)(e))

1. General Principles: Representative Plaintiff Criterion

[258] The fifth and final criterion for certification as a class action is that there is a representative plaintiff who would adequately represent the interests of the class without conflict of interest and who has produced a workable litigation plan. The representative plaintiff must be a member of the class asserting claims against the defendant, which is to say that the representative plaintiff must have a claim that is a genuine representation of the claims of the members of the class to be represented or that the representative plaintiff must be capable of asserting a claim on behalf of all of the class members as against the defendant.[^124]

2. Analysis: Representative Plaintiff Criterion

[259] In the immediate case, Mr. Raponi would be a suitable Representative Plaintiff for the Lenders for the three Collier Centre syndicated mortgages, but he cannot adequately represent the interests of the Class Members for the other 66 syndicated mortgages, with which he was not involved.

[260] It is perhaps odd to have to point this out, but there is a difference between the word “representative” nominally (as a noun), where it means “spokesperson” and the word “representative” as a modifier (as an adjective or adverb), where it means “typical” or “similar” or “characteristic”. In a class action, the “representative” for the class in the nominal sense of being a spokesperson is Class Counsel. Under the Class Proceedings Act, 1992, the notion of “representative plaintiff” for the class is used in the adjectival or adverbial sense of being a person typical of the other class members. Mr. Raponi is not typical of the Lenders in syndicated mortgages with which he had nothing to do with.

[261] For example, Mr. Raponi is not typical of the Lenders in Saskatchewan for the Capital Pointe syndicated mortgage, because he was not involved with that syndicated mortgage. While in theory Mr. Raponi could assert a claim on behalf of all of the Lenders in Saskatchewan, because of the commonality of suing the same defendant about syndicated mortgages, he would be indifferent to the ultimate outcome of the other Class Members’ actions which would ultimately involve common and individual issues about which Mr. Raponi had no involvement.

[262] Visualize, assuming Mr. Raponi were to succeed - or even fail - in his claim about the three Collier Centre syndicated mortgages, he has no knowledge, interest, and no skin in the game, so to speak, about whether any of the Class Members who invested in the 66 syndicated mortgages that Mr. Raponi did not participate in succeeds or fails. Mr. Raponi has no genuine or adequate ability to instruct Class Counsel and nothing but altruism to motivate him to stay involved. Thus, Mr. Raponi does not qualify to be a Representative Plaintiff for other than the Collier Centre project.

[263] It follows that for the Omnibus Action to proceed, it would require subclasses and 53 to 66 more candidates for Representative Plaintiff. It further follows that at present the Representative Plaintiff criterion is not satisfied with just Mr. Raponi as representative of all the Lenders.

[264] Moreover, Mr. Raponi’s Litigation Plan is woefully inadequate for his proposed Omnibus Class Action. His plan is premised on the notion that individual issues trials are not required. His plan, however, ignores the numerous individual issues that would have to be determined in the context of the main action including limitation period issues, causation issues, reliance issues, mitigation issues, and contributory negligence issues. And his plan ignores the presence of the third party claims.

[265] Thus, the fifth criterion for certification, the representative plaintiff criterion (s. 5 (1)(e)) is not satisfied because: (a) there are no viable causes of action, and it is axiomatic that if the cause of action criterion is not satisfied, then none of the other certification criteria are satisfied; (b) Mr. Raponi is not an adequate Representative Plaintiff for other than a severed action for the Collier Centre project; (c) Mr. Raponi has not produced a workable litigation plan; and (d) as an Omnibus Class action or as 54 severed class actions, a workable litigation plan is not feasible given the obvious unmanageability of the Omnibus Class Action.

S. Conclusion

[266] For the above reasons, Mr. Raponi’s certification motion is dismissed.

[267] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Olympia Trust’s submissions within twenty days of the release of these Reasons for Decision followed by Mr. Raponi’s submissions within a further twenty days.

Perell, J.

Released: August 2, 2022

Schedule “A” – Excerpts Income Tax Act and Income Tax Regulations

REGISTERED RETIREMENT SAVINGS PLANS

Definitions

146(1) In this section, […]

issuer means the person referred to in the definition retirement savings plan in this subsection with whom an annuitant has a contract or arrangement that is a retirement savings plan;

non-qualified investment has the same meaning as in subsection 207.01(1);

qualified investment for a trust governed by a registered retirement savings plan means:

(a) an investment that would be described by any of paragraphs (a) to (d), (f) and (g) of the definition qualified investment in section 204 if the reference in that definition to “a trust governed by a deferred profit sharing plan or revoked plan” were read as a reference to “a trust governed by a registered retirement savings plan” and if that definition were read without reference to the words “with the exception of excluded property in relation to the trust”,

(d) such other investments as may be prescribed by regulations of the Governor in Council made on the recommendation of the Minister of Finance;

retirement savings plan means

(a) […], or

(b) an arrangement under which payment is made by an individual or the individual’s spouse or common-law partner

(i) in trust to a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, of any periodic or other amount as a contribution under the trust,

(ii) […], or

Failure to comply

162 (7) Every person (other than a registered charity) or partnership who fails

(a) […], or

(b) to comply with a duty or obligation imposed by this Act or the regulations is liable in respect of each such failure, except where another provision of this Act (other than subsection 162(10) or 162(10.1) or 163(2.22)) sets out a penalty for the failure, to a penalty equal to the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100, during which the failure continues.

Definitions

204. In this Part, qualified investment for a trust governed by a deferred profit sharing plan or revoked plan means, with the exception of excluded property in relation to the trust, […]

(c) debt obligations issued by

(i) a corporation, mutual fund trust or limited partnership the shares or units of which are listed on a designated stock exchange in Canada,

(ii) a corporation the shares of which are listed on a designated stock exchange outside Canada, or

(iii) an authorized foreign bank and payable at a branch in Canada of the bank,

[…], and

(h) prescribed investments; […]

PART XI.01 TAXES IN RESPECT OF REGISTERED PLANS

Definitions

207.01 (1) The following definitions 207.01 (1) The following definitions and the definitions in subsections 146(1) (other than the definition benefit), 146.1(1), 146.2(1), 146.3(1) and 146.4(1) apply in this Part and Part XLIX of the Income Tax Regulations, […]

controlling individual, of a registered plan, means

(a) the holder of a TFSA;

(b) a holder of a RDSP;

(c) a subscriber of a RESP; or

(d) the annuitant of a RRIF or RRSP.

Obligation of issuer

207.01(5) The issuer, carrier or promoter of a registered plan shall exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that a trust governed by the registered plan holds a non-qualified investment.

Tax payable on prohibited or non-qualified investment

207.04 (1) The controlling individual of a registered plan that governs a trust shall pay a tax under this Part for a calendar year if, at any time in the year, the trust acquires property that is a prohibited investment, or a non-qualified investment, for the trust.

Amount of tax payable

(2) The amount of tax payable in respect of each property described in subsection (1) is 50% of the fair market value of the property at the time referred to in that subsection.

3. Income Tax Regulations, CRC, c 945

Registered Plans — Investments

9000 (1) For the purposes of paragraph (d) of the definition qualified investment in subsection 146(1) of the Act, paragraph (e) of the definition qualified investment in subsection 146.1(1) of the Act, paragraph (c) of the definition qualified investment in subsection 146.3(1) of the Act, paragraph (d) of the definition qualified investment in subsection 146.4(1) of the Act, paragraph (h) of the definition qualified investment in section 204 of the Act and paragraph (c) of the definition qualified investment in subsection 207.01(1) of the Act, each of the following investments is prescribed as a qualified investment for a plan trust at a particular time if at that time it is […]

(j) a debt obligation of a debtor, or an interest, or for civil law a right, in that debt obligation, where

(i) the debt obligation is fully secured by a mortgage, charge, hypothec or similar instrument in respect of real or immovable property situated in Canada, or would be fully secured were it not for a decline in the fair market value of the property after the debt obligation was issued, and

(ii) the debtor (and any partnership that does not deal at arm’s length with the debtor) is not a connected person under the governing plan of the plan trust;

Schedule “B” – Excerpts Bulletin IT-320R3 and Income Tax Folio S3-F10-C1

Bulletin IT-320R3 Qualified Investments (Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds)

Summary

This bulletin discusses the kinds of property that constitute qualified investments for trusts governed by registered retirement savings plans (RRSPs), registered education savings plans (RESPs) and registered retirement income funds (RRIFs), as well as the income tax consequences of such trusts acquiring and holding property that is not a qualified investment. Certain trusts governed by registered plans may be subject to a special tax in respect of investments in foreign property. For a discussion on this matter, see the current version of IT-412, Foreign Property of Registered Plans.

Discussion and Interpretation

General

¶ 1. This bulletin only discusses the kinds of property that constitute qualified investments for trusts governed by RRSPs, RESPs and RRIFs and does not include other types of arrangements such as a depositary RRSP or an insurance contract RRSP. Unless otherwise noted

• a reference to an RRSP, an RESP or a RRIF in this bulletin means a trust governed by an RRSP, an RESP or a RRIF, respectively;

• a reference to a "plan trust" in this bulletin means a trust governed by an RRSP, an RESP or a RRIF; and

• all statutory references throughout the bulletin are to the Act.

Registered Holder of Investments

¶ 2. All qualified investments of a plan trust must be owned by the trustee of the plan trust and not by the annuitant, beneficiary or subscriber under the plan trust. In the case of a share or other security, registration of the security in the name of the trustee of the plan trust demonstrates ownership by the trustee. […]

Qualified Investments

Definitions

¶ 3. The kinds of property that constitute qualified investments for RRSPs, RESPs and RRIFs are described in the definitions of "qualified investment" in subsections 146(1), 146.1(1) and 146.3(1), respectively. Paragraph (a) of those definitions includes certain of the investments listed in the definition of "qualified investment" in section 204. In addition, properties prescribed by section 4900 of the Regulations are also qualified investments. […]

Debt obligations

Types

¶ 10. The most common debt obligations that are qualified investments for a plan trust are as follows:

¶ 11. A mortgage, or an interest therein, in respect of real property situated in Canada is a qualified investment for a plan trust. There is no requirement that the mortgage be a first mortgage or a residential mortgage. However, where the mortgagor is

• a person who is an annuitant, a beneficiary or a subscriber under the plan trust, or

• any other person who does not deal at arm's length with such person the mortgage must be administered by an approved lender under the National Housing Act and insured

• under the National Housing Act, or

• by a corporation that offers its services to the public as an insurer of mortgages and is approved as a private insurer of mortgages.

Where an RRSP or a RRIF holds a mortgage on real property owned by the annuitant, or by a person who does not deal at arm's length with the annuitant, the registration of the plan trust may be jeopardized and/or certain benefit and penalty provisions of the Act may apply where

• the amount of the mortgage interest rate and other terms do not reflect normal commercial practice; and

• the mortgage is not administered by the approved lender in the same manner as a mortgage on property owned by a stranger.

¶ 28. When an RRSP acquires a property that is not a qualified investment, the fair market value of that property at the time it is acquired is added to the income of the annuitant under the RRSP pursuant to subsection 146(10). However, subsection 146(10) does not apply to property that was a qualified investment at the time of acquisition and subsequently becomes property that is not a qualified investment. By virtue of subsection 146(6), when an RRSP disposes of property that is not a qualified investment, the annuitant can deduct from income for the year of disposition, the lesser of

• the amount previously included in income at the time the property was acquired, and

• the proceeds of its disposition.

If the income inclusion exceeds the proceeds of disposition of that property, the excess cannot be deducted. The equivalent provisions for a RRIF are in subsections 146.3(7) and (8).

Income Tax Folio S3-F10-C1, (Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, and TFSAs)

Summary

Registered retirement savings plans (RRSPs), registered education savings plans (RESPs), registered retirement income funds (RRIFs), registered disability savings plans (RDSPs), and tax-free savings accounts (TFSAs) are required to limit their investments to qualified investments. This Chapter discusses the most common types of property that constitute a qualified investment, as well as the tax consequences of acquiring, holding and disposing of a non-qualified investment. It also discusses the tax consequences of a registered plan carrying on a business or borrowing money.

Overview of qualified investments

1.1 This section is intended to give the reader an overview of the qualified investment rules for RRSPs, RESPs, RRIFs, RDSPs, and TFSAs. It is not intended as a substitute for the more detailed and comprehensive discussion that follows it, which will be primarily of interest to financial institutions, brokerage firms, tax specialists and others who are involved in plan administration.

1.2 The qualified investment rules apply to registered plans that are set up as a trust. Trusteed plans that allow investors to choose a wide variety of investments are often referred to as self-directed plans. Trusteed plans also include plans that restrict investments to mutual funds and other investment products issued by the firm that administers the plan.

1.4 The following are common types of qualified investments:

• money, GICs and other deposits

• most securities listed on a designated stock exchange, such as shares of corporations, warrants and options, and units of exchange-traded funds and real estate investment trusts

• mutual funds and segregated funds

• Canada Savings Bonds and provincial savings bonds

• debt obligations of a corporation listed on a designated stock exchange

• debt obligations that have an investment grade rating

• insured mortgages or hypothecs

1.5 While the Act and Regulations set out the types of investments that are qualified investments, many firms have internal policies that further limit the types of qualified investments that may be held by the registered plans they administer. The legislation does not prohibit them from having such policies, which reflect the business decisions of the firm.

1.6 Given the numerous and wide variety of investments that exist, the CRA does not maintain a master list of specific investments that are qualified investments, nor does it make determinations as to whether a specific investment qualifies except in the context of an advance income tax ruling or audit.

1.7 Registered plan trustees are responsible for monitoring investments to minimize the possibility of a plan holding a non-qualified investment.

1.8 If an individual acquires a non-qualified investment in their registered plan or an existing investment becomes non-qualified, significant adverse tax consequences apply. The individual is subject to a 50% tax on the value of the investment (which is refundable in certain circumstances) and is required to file a special tax return and remit the tax. In addition, the plan is taxable on any income earned on the non-qualified investment. The trustee of the plan is required to file a tax return and remit the tax on behalf of the plan.

References to various terms

1.9 The following terms are used throughout this Chapter:

• A trust governed by an RRSP, RESP, RRIF, RDSP, or TFSA is referred to individually as an RRSP, RESP, RRIF, RDSP, or TFSA, respectively, and collectively as a registered plan

• A reference to the trustee of a registered plan means the issuer of a trust governed by an RRSP, RDSP, or TFSA, the carrier of a trust governed by a RRIF, or the trustee of a trust governed by an RESP

• A bond, debenture, note or similar obligation is referred to as a debt obligation

Types of qualified investments

1.10 The types of property that constitute a qualified investment for an RRSP, RESP, RRIF, RDSP, and TFSA are described in the respective definitions of qualified investment in subsections 146(1), 146.1(1), 146.3(1), 146.4(1), and 207.01(1). Those definitions also include by reference certain property described in the definition of qualified investment in section 204. In addition, investments prescribed by section 4900 of the Regulations are qualified investments. […]

1.11 Generally, the conditions that must be met for an investment to be a qualified investment apply on an on-going basis. However, several provisions contain conditions that apply only at a point in time, typically on acquisition of the investment by the registered plan. Where this is the case, it has been noted in the section of the Chapter describing that investment.

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