Caroti v. Vuletic, 2022 ONSC 4695

COURT FILE NOS.: CV-17-5302-00 and CV-17-1481-00

DATE: 2022 08 15

SUPERIOR COURT OF JUSTICE - ONTARIO

BETWEEN: Aleardo Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brian McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona and Mike Klecina, in his capacity as Estate Trustee of the Estate of Boris Klecina (also known as Borislav Klecina), Plaintiffs

AND:

Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp., 1857325 Ontario Ltd. and Brampton G&A Holdings Inc., Defendants

AND BETWEEN:

Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp. AND 1857325 Ontario Ltd., Plaintiffs by Counterclaim

AND:

Aleardo Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brian McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona, Milena Boland, Frank Demaria, Jurica Biondic, Renato Biondic, Roberta Biondic, Mike Klecina, in his capacity as Estate Trustee of the Estate of Boris Klecina (also known as Borislav Klecina), Anna Bilich, Emma Faria, Katarina Granic, Anton Granic, Marianne Martinovic, Frank Samardzic and Robert Sokic, Defendants by Counterclaim

AND BETWEEN:

Peter Pichelli, Todd Leslie, Frank Toth and 958041 Ontario Limited, Plaintiffs and Defendants by Counterclaim

AND:

Ante Kegalj, Anthony Vuletic, John Vuletic, Embleton Properties Gorp., 1857325 Ontario Ltd., and Brampton G&A Holdings Inc., Defendants and Plaintiffs by Counterclaim

BEFORE: Doi J.

COUNSEL: Caroline Abela and Michael Statham, for the Plaintiffs Aleardo Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brian McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona and Mike Klecina, in his capacity as Estate Trustee of the Estate of Boris Klecina also known as Borislav Klecina

Andrew J. MacDonald, for the Defendant and Plaintiff by Counterclaim Anna Bilich

Douglas M. Cunningham, for the Plaintiffs Peter Pichelli, Todd Leslie, Frank Toth and 958041 Ontario Limited

Ryan Breedon and Jessica Mor, for the Defendants Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp. and 1857325 Ontario Ltd.

HEARD: September 13-17, 20-24 and 27-29, October 1, 4-8, 12-15, 18-22, and 25-29, November 1-5 and 18, 2021, and January 12-13, 2022.

Contents

Overview

Background

a. The Actions and the Parties

b. The Project

c. The Restaurant Meeting

d. Ms. Bilich’s Investment in the Project

e. The Workplace Group Members’ Investment in the Project.

f. The Savonas’ Investment in the Project

g. The Investment by the Pichelli Group

h. The Investment by Ms. Nizalek and Mr. McDowell in the Project

i. Ms. Ceifets’ Retainer

j. Omissions about the Project

k. The Investor APS Contracts

l. Anthony’s Status as a Lawyer

m. Acquisition of the Property

n. Poor Retention of Project Records and Documents

o. Poor Corporate Governance

p. Mortgages on the Property

q. Mortgages were Serviced from New Mortgage Proceeds

r. Servicing or “Cash Call” Payments

s. Ratio of Personal to Project Expenses

The Development

a. Project Status Updates and Cash Calls

b. Cash Call #1 – March 31, 2003

c. Cash Call #2 – October 28, 2005

d. Cash Call #3 – January 29, 2007

e. Dissolution of Embleton

f. Cash Call #4 – September 23, 2008

g. The December 2009 “Statement of Intention”

h. The OPA

i. Cash Call #5 – December 2012

j. Accounting Issues

k. The 2013 Draft Plan of Subdivision

l. The Savonas and the “Lost” Lot Interest

n. Alleged Default by Mr. and Ms. Caroti

o. Management Fees

p. Control Over Project Funds

q. The Kegalj Action in 2010-2011

r. The Project in Crisis

s. The Project Corporations

t. The Ufkes and Teramoto Lands

u. The Accounting

v. Draft Plan of Subdivision and Decision to Sell the Property

w. Agreement to Sell the Property

x. The Bilich Motion Materials

y. Mr. Adair’s Letter to Investors

z. The Accounting Reports

aa. Details Regarding the Sale of the Property

bb. Proceeds from the Sale of the Property

Plaintiffs’ Expert Evidence

a. Errol Soriano

b. Michael Parsons

c. John Galluzzo

d. No Defence Expert Evidence

Analysis

a. Credibility

b. Limitations Defence

c. Investment Relationship under the APS

d. Anna Bilich’s Interest

e. The Pichelli APS

f. The APSs were Not Forfeited for a Failure to Pay Cash Calls

g. Breach of Contract

h. Fraud, Deceit and Fraudulent Misrepresentation

i. Breach of Fiduciary Duty

j. Conspiracy

k. The Remedy of a Constructive Trust

l. Purchase Money Resulting Trust

m. The “But-For” Analysis

i. Overview of KSV’s Methodology

ii. Use of Relative Capital Contributions to Calculate the But-For Proceeds

aa. But-For Cash Inflows

bb. But-For Cash Outflows

Punitive Damages

Outcome

REASONS FOR JUDGMENT

Overview

1The Plaintiffs and others invested funds in a land development scheme in Brampton that never materialized as the subject land was sold in 2016 as undeveloped land to a third-party developer for over $15.38 million. In actions brought in 2017, the Plaintiffs claim that the Defendants devised the development scheme to perpetrate a fraud and unjustly enrich themselves at the expense of investors by taking funds that had been invested in the scheme and by heavily mortgaging the subject land and taking its mortgage proceeds. The Plaintiffs seek damages against the Defendants, jointly and severally, for breach of contract, fraud, conspiracy, breach of fiduciary duty and unjust enrichment, among other relief. They also seek punitive damages.

2The Defendants concede that the land development project never came to fruition and that lots on the subject land were never delivered to investors as promised. They also concede that investors in good standing are entitled to share in the proceeds from the sale of the subject land. In addition, they assert that certain lots interests held by some Plaintiffs were terminated due to a non-payment of servicing costs. By working on the development project, the Defendants claim that they advanced the development process, albeit without actually developing the subject lands, for which they claim an entitlement to significant management fees despite clear and obvious irregularities with the method they adopted to draw these purported fees from project funds. They deny any fraudulent intent.

3For the reasons that follow, the actions for breach of contract, fraud, conspiracy and breach of fiduciary duty are allowed. Damages are assessed in the aggregate amount of $10,617,193.00, and punitive damages are fixed at $150,000.00.

Background

a. The Actions and the Parties

4Two actions came before me. One of the actions (CV-17-5302) was brought by a group of investors that included Aleardo and Jacinta Caroti, Ian and Moraig Grounds, Nancy Kostelac, Marielle Pelchat-Morris, Brian McDowell, Biljana Nizalek, Wilma Jesus and Monica Savona (collectively the “Caroti Plaintiffs”). Mr. and Ms. Caroti are spouses who entered into an agreement to buy one lot interest in the development project, as further discussed below. Similarly, Mr. and Ms. Grounds are spouses who contracted to buy a lot interest in the project. Ms. Kostelac contracted to purchase two (2) lot interests in the project. Ms. Pelchat-Morris and her late husband, Ron Morris, acquired two (2) lot interests. Mr. McDowell and Ms. Nizalek are spouses who bought one lot interest. Ms. Jesus and Ms. Savona are sisters who bought four (4) lot interests in the development project under an arrangement with their father, Antonio Savona. Included in this action was another investor, Anna Bilich, who brought and defended a crossclaim in respect of the single lot interest that she acquired in the development project.

5The second action (CV-17-1481) was brought by another group of investors consisting of Peter Pichelli, Todd Leslie, Frank Toth and 958041 Ontario Limited (“958 Ontario”), a corporation of which Mr. Pichelli was the principal officer and director (collectively the “Pichelli Group”). Mr. Pichelli entered into an agreement to acquire a total of five (5) lot interests in the development project held in trust for himself, 985 Ontario, Mr. Leslie, Mr. Toth and Frank Campli. Mr. Pichelli later took an assignment of Mr. Campli’s lot interest.

6Both actions were defended by Anthony, John and Mira Vuletic and Embleton Properties Corp. (“Embleton”) and 1857325 Ontario Ltd. (“185 Corp.”) (collectively the “Defendants”).[1] Anthony Vuletic (“Anthony” ) is the son of John Vuletic (“John”) and Mira Vuletic (“Mira”) who are spouses.[2] As discussed below, Anthony and John established Embleton and later 185 Corp. (ie., following Embleton’s dissolution) as corporate entities which they could use in managing or dealing with the development project and the subject land itself. Mira served as the bookkeeper for Embleton and 185 Corp. and maintained financial ledgers for the development project.

b. The Project

7One evening in 2001, John met a long-time family friend, Ante Kegalj, to discuss a project to acquire a 12 ½ - acre property at 78 Cliffside Drive in Brampton (the “Property”), known as the Taylor Farm, as a land development opportunity. The Property had a bungalow and a garage and was located just outside Huttonville, a Brampton neighbourhood. John had been monitoring the Property since 1972, liked its surrounding area, and wanted to acquire the Property to pursue what he believed was its good land development potential. But John lacked the necessary funds to purchase the Property or finance its acquisition.

8Earlier in the year, John and Anthony had considered a possible venture with a criminal lawyer to have him put up the funds to acquire the Property that John and Anthony would develop. After those talks ended, John asked Mr. Kegalj to help finance the purchase of the Property through his contacts. Mr. Kegalj had no experience in developing real estate, but he was intrigued by the opportunity and eventually agreed to approach others in a bid to raise funds to acquire the Property as a land development project (the “Project”). Using his circle of then-current and former work colleagues at a downtown Toronto law firm, Mr. Kegalj solicited interest in the Project from Ms. Pelchat-Morris and her late husband Mr. Morris, Ms. Kostelac, Ms. Caroti and Mr. Caroti, and Ms. Grounds and Mr. Grounds (collectively, the “Workplace Group”). Mr. Kegalj also solicited interest from Ms. Bilich after initially approaching her brother, Robert Bilich, who was a friend.

9The Workplace Group and Ms. Bilich were all relatively unsophisticated investors. Some speak English as a second language, others have rather modest formal education, and most had little or no experience with real estate development or investing in land development projects.

c. The Restaurant Meeting

10To promote interest in the Project, Mr. Kegalj invited the Workplace Group, Ms. Bilich and other potential investors to attend a presentation at a Mississauga restaurant in late November or early December 2001 (the “Restaurant Meeting”).

11A number of potential investors attended the Restaurant Meeting. John acted as the main speaker at the presentation. He claimed to have 30 years of real estate development experience, and he spoke in positive, passionate and enthusiastic terms about the Project. He shared his view that it was time to purchase and develop the 12 ½-acre land that he had been monitoring for quite some time. He described his plan to divide the Property into 51 lots, including 4 ravine lots, with each of the non-ravine or “standard” lot to be 50 feet across and 140 feet in depth. He envisioned building executive homes on the Property.

12John told those in attendance that each lot in the Project would cost $35,500.00 and that a deposit of $5,000.00 per lot would have to be paid by the end of January 2002. He shared his intention to service the Property with utilities, and indicated that servicing infrastructure was to be installed up to the lot lines. Given the pricing, John told attendees that Project lots would sell without difficulty. He also stated his intention to sell lots to others if attendees did not buy them. John described the Project as a two-to-five year development and indicated that investors would double their money within that timeframe.

13Based on the presentation, some attendees initially thought that John was selling actual lots in the Project but later came to realize that he was actually selling rights to acquire future lots, as further explained below. Once the lots were ready to be transferred, John indicated that investors would obtain title to the lots after which they could sell the lots or build on them (i.e., once the architectural style of a home to be built on the Property was approved). Along the way, he stated that investors would be told of the servicing costs that would be charged to develop the Property and obtain municipal approval for a draft plan of subdivision. He estimated that servicing costs would approach about $50,000.00 per lot and advised that those with lot interests would pay their proportionate share of the servicing costs that were to be allocated to all lot holders.

14John explained that he would be responsible for making decisions on the Project, and that his son, a lawyer who had worked in New York, would help to manage the Project. He indicated that a management fee would be invoiced to lot holders and that he would be compensated for the installation of services at the end of the Project. John told attendees that he was investing in the Project, that he would be buying the ravine lots on the Property which he had set aside for himself, and that he planned to live on the lots that he purchased. He explained that there were residential homes in the area, and that expensive homes would be in the planned subdivision for the Property.

15During his presentation, John told attendees that Embleton would acquire and hold title to the Property that was expected to cost about $800,000.00 to purchase.

16John explained that he was not buying the Property alone because he preferred to share the risk of developing the Project with other investors. As a result, he stated that he was looking for so-called “lot purchasers” to contribute funds and pay for the right to acquire lots on the Property in due course. However, as set out below, actual lots were never delivered.

17After hearing John’s remarks, the Plaintiffs who attended the presentation were favourably impressed and saw him as a trustworthy and honest person who was confident about the Project. These factors, together with John’s purported 30-years of experience in real estate development and his other representations about the development opportunity, persuaded attendees to invest in the Project. John successfully won the trust of attendees by convincing them that any money they invested in the Project would be in safe hands. This was an important outcome for John as he was soliciting people that he did not know to invest in the development scheme.

18Equally important was what John and Anthony did not reveal at the Restaurant Meeting. Although John had some limited development experience at best, he held himself out as being highly experienced in real estate development. But at trial, John conceded that he was not a land use planner, surveyor or engineer, that he had never taken any real estate development or real estate courses, and that he was not a licenced contractor. For his part, Anthony had no land development experience or training, was only to help John manage the Project, and was not supposed to actually run the Project as he later ended up doing. Neither John nor Anthony had any professional training or credentials for developing real property. Although Anthony claimed that John had been a registered builder with Tarion from 2000 to 2016, the Defendants never produced any supporting records to corroborate this. Instead, the only evidence of John’s connection to Tarion was through two companies, being Archom Ltd. and Lapad Development Ltd., that were registered with Tarion for brief periods in the late 1980s and early 1990s prior to John’s bankruptcy around 1994 or 1995.

19John and Anthony both admitted that they did not inform attendees at the Restaurant Meeting about:

a) John’s prior bankruptcy

b) Anthony’s outstanding student loans and lack of creditworthiness

c) their plan to have Mr. Kegalj enter into an agreement of purchase and sale with Ms. Taylor to acquire the Property on their behalf, as further discussed below.

d. Ms. Bilich’s Investment in the Project

20Based on what she had heard, Ms. Bilich believed that the Project was a good investment opportunity. Following the presentation at the Restaurant Meeting, Ms. Bilich agreed to advance funds to Mr. Kegalj to help raise the initial $60,000.00 required to submit an offer to purchase the Property from Ms. Taylor.

21On January 14, 2002, Ms. Bilich gave Mr. Kegalj a $5,000.00 bank draft as part of her investment in the Project.

e. The Workplace Group Members’ Investment in the Project.

22Based on the information presented at the Restaurant Meeting, Ms. Kostelac, Mr. and Ms. Grounds, and Ms. Pelchat-Morris believed that the Project was a good investment and they all paid deposits before signing an Agreement of Purchase and Sale (“APS”) with Embleton to invest in the development opportunity. Upon learning of the Project and being told that it was almost sold out, Ms. Caroti immediately paid funds to secure her investment in the Project. John and Anthony cultivated a sense of urgency with investors to quickly raise funds and acquire the Property.

23Members of the Workplace Group received documents with details of the development opportunity, some of which they received before they decided to invest in the Project.

24According to Mr. Kegalj, John and Anthony gave him a document entitled “Embleton Property Prospectus” (the “Prospectus”) which they had prepared to explain the development to potential investors. Although Anthony denies that he and John drafted the Prospectus, its content is consistent with the emails that he wrote to describe the Project to potential investors. In addition, and certain changes to the Prospectus are consistent with notes prepared by Karen Ceifets, the real estate solicitor that John and Anthony had retained to prepare agreements to support the acquisition of the Property. The content of the Prospectus is also consistent with the information that Anthony claims to have shared with attendees at the Restaurant Meeting. Furthermore, as Mr. Kegalj had only limited insight or experience with land development, it seems unlikely that he could have prepared the Prospectus given the level of detail that it contained and his limited ability to comment on any such matters. To this end, Anthony testified that Mr. Kegalj took copious notes of his conversations with John about the Project, and would later ask for clarification, but ultimately did not really understand real estate development and had difficulty appreciating, comprehending or capturing the development concepts that John explained to him. In the circumstances, I accept that John and Anthony made the representations found in the Prospectus.

25The Prospectus disclosed information about the Project. Among other things, it claimed that the Property was zoned for executive housing (i.e., homes in excess of 2,900 square feet) under a Primary Plan that purportedly had been approved in 1998, although this claim was not accurate. The Prospectus also set out a proposal to subdivide the Property into roughly 47 lots, with each lot having a minimum 50 foot frontage and 140 foot depth. It gave an all-inclusive asking price for each lot of $35,500.00 with no “hidden” costs, and explained that Embleton was to be the holding company for the Project that was to be run by John (i.e., described as a developer and builder for over 30 years with “a personal interest tied in the property”) as he worked to establish a plan of subdivision for the Property. According to the Prospectus, Anthony’s stated role was to supervise the development process during all of its stages and phases. Once the plan of subdivision was approved by the City of Brampton, investors could then choose their lot (i.e., with any disputes by investors over the same lot to be resolved by an open lottery) and have their lot ownership registered with the municipality. Investors were told that they could buy multiple lots and sell them at any time. The Prospectus stated that the subdivision process would take about two (2) years, that digging for the installation of servicing infrastructure would begin in the Spring of 2003, and that John would receive a salary for his work over this two-year period “after all duties and responsibility has been complied with.” In a side note, the Prospectus advised that an earlier reference to “Management Fees” had been changed to “Administrative Costs” to capture fax, printing and filing costs that would apply only if the Property was subdivided. The Prospectus described the Project as “a strong and very, very safe investment.” Anthony’s name and email address were set out at the end of the document.

26Ms. Kostelac obtained the Prospectus from Mr. Kegalj before she signed her APS to invest in the Project.

27After signing her APS, Ms. Grounds obtained a copy of the Prospectus from Ms. Caroti to remind her of what had been said at the Restaurant Meeting. According to Ms. Grounds, the Prospectus was generally consistent with what John had explained during his presentation at the Restaurant Meeting.

28On March 22, 2002, Ms. Grounds received an email from Mr. Kegalj that provided information about the Project. Mr. Kegalj advised that he had obtained this further information from Anthony which was forwarded on to her. The email gave a general breakdown of the costs to service the Property including the costs for planners, electrical engineers, surveyors, sewer engineers, road and sewer construction, and municipal levies, and estimated the final servicing costs to approach $40,000.00 to $45,000.00 per lot. When she received the email, Ms. Grounds had understood that John, whose name was at the bottom of the email, had written the message. However, Anthony testified that he wrote the email using information that John had given to him. Ms. Grounds stated that the email was consistent with what had been presented at the Restaurant Meeting in December 2001 and during a subsequent meeting with Workplace Group members that Anthony attended in January 2002. Anthony testified that the estimated $40,000.00 to $45,000.00 cost per lot to service the Property was true. But his evidence on this point was inconsistent with other evidence he gave in which he indicated that no one could possibly know in 2002 how much it would cost to service the Property in the future.

29On March 22, 2002, Anthony wrote another email to Mr. Kegalj under the subject line “Ante: Important Added Notation” which stated:

Ante,

I forgot to mention to the notes below, that the work required for the services is a “work in progress” schedule – meaning payments are paid as each services is first completed In the end, the only remaining amount will be the levy (18K approx..) – which does NOT have to be paid until the owners of such lots intend to sell to a buyer in the future. So, in essence, the services in the end can be only 25-30K and the levy to paid whenever the owner intends to sell. More importantly, you can pass the levy price to the purchaser ie. When you sell the lot the new purchaser must pay the LEVY (tax/charge) etc. Therefore the levy charge need not be a concern to the original purchasers at all. [Emphasis in original]

30According to Anthony, his email was intended to assure potential investors who were later unable to pay $45,000.00 to $50,000.00 in servicing costs that they could decide how much of the services they could pay and then quit the investment if they could not pay the full servicing cost. This email is consistent with the evidence given by Ms. Nizalek who understood that she would not have to pay servicing cost until much later. It is also inconsistent with the representation that every investor would pay their proportionate share of the servicing costs for the Project. It follows that the Vuletics knew by March 2002 that not every investor would pay their proportionate share of the servicing costs.

31On March 23, 2002, Anthony wrote another email to Mr. Kegalj with information to share with potential investors if they asked. Under the subject line “Ante: Breakdown and Brochure” the email stated the following:

Ante,

Below, you will find a general breakdown of excess cost of the property and its later use.

Hopefully, this is sufficient, if not, please contact me to address any further issue(s).

Please know, that when lots are mentioned as lost to “conservation, and new cul de sac” that such incidents were taken into consideration originally and estimated as such.

This of course does not affect the purchaser, and that everyone who purchases a lot is of course GUARANTEED to receive them. Lots have not been over sold here rather under sold, and I want to make sure that it is reiterated if anyone were to ask – and that no panic ensues, etc. [Emphasis in original]

In effect, the email guaranteed the delivery of lots to those who bought lot interests. At trial, Anthony admitted that investors were “guaranteed” to receive their lots.

32By email dated June 5, 2002 under the subject line “Embleton Properties Ante”, Anthony wrote another email to Mr. Kegalj (the “Email Guarantee”) stating:

EMBLETON PROPERTIES

ANTHONY Vuletic, L.L.B.

2372 Glengarry Rd., Mississauga, ON L5C 1Y2

Tel (905) 276-3019

Email: rand80@rogers.com

EMBLETON PROPERTIES (Mississauga/Brampton LIONSHEAD Golf Course) is envisaged to be a high end residential neighbourhood that will provide prestige housing in a very private and intimate setting.

PRESENT

There are approximately 45 lots (only 5 remaining) [Emphasis added] on EMBLETON PROPERTIES. The lots are situated across the prestigious LIONSHEAD golf course. They overlook a private entrance upon a hill with ravine and forests on the exclusive Mississauga Road.

1. The property has been zoned four (4) years ago as “Upscale Executive Housing”.

2. Lot size is guaranteed at 50’ x 140’ although frontage will increase for those who care to do so with multiple lot (blocks) of purchases.

3. Initial Purchase price is 36K. Services are estimated to be approximately 40-45K per lot at a later date. Total cost of lot range of 75K -80K.

4. Estimated profit margin (conservative) values per lot range from 70K-120K clear. Lot value will be between 150K to 200K per lot when plan of subdivision registered – dependent on market.

5. FULL SERVICE lots less than one year (10-12 months) guaranteed.

6. A money back guarantee in the agreement of 1 year plus an option at 2% above prime rate shall be included to ensure that all services are guaranteed to present and conditions met.

7. There is no mortgage on the property, nor can the property be mortgaged by purchaser until title passes. This is to ensure that property is free and clear when title given to purchaser, as well as offering further guarantees of the property value.

• Please Note: Since the property as of yet, is not subdivided ie A plan of subdivision registered – title cannot be given to the purchase holder – which at present is held by Embleton Corp. All available guarantees will be available to the purchaser – namely, money back guarantee, clear title, no mortgage allowance, etc. In addition, if the client/purchaser wishes to make further adjustments or amendment to the agreement to offer further and greater security, etc. Embleton Corp will be amenable to such suggestions.

Anthony Vuletic, L.L.B.

Embleton Corp.

33According to Mr. Kegalj, Anthony drafted the Email Guarantee as a form of “summary prospectus” to give prospective investors information that was consistent with Mr. Kegalj’s understanding of the Project at the time. For his part, Anthony claimed that he did not draft the entire Email Guarantee but only portions of it. He also asserted that someone hacked his emails (i.e., to suggest that someone else sent the Email Guarantee from his email account) and that the document was not an email but instead a scanned document (i.e., inferring that it had been altered), but without offering any corroboration of his evidence on this point. Ultimately, Anthony conceded that he wrote parts of the Email Guarantee except for portions that were later shown to be false or incorrect which he now denies having written. His evidence on this lacked credibility.

34Another document that is similar to the Email Guarantee was also circulated to potential investors (the “Brochure”). The only differences between the Email Guarantee and the Brochure are found in paragraphs 7 and 8 of the Brochure, which state:

7. In the enclosed general sketch of layout of homes, there will be two (2) cul de sacs, not one as presently shown resulting in 45 lots.

8. If a buyer wishes to make amendments to the agreement that are reasonable we have no problem in doing so. in addition, whatever further securities the purchaser may need we will provide.

35Anthony testified that he did not draft the Brochure, in particular paragraph 7, but his name and contact information are found on the document that appears to have been signed by him.

36According to Ms. Caroti, Mr. Kegalj gave her a copy of the Email Guarantee on June 7, 2002 before she signed her APS and after she received a copy of the Brochure. Mr. Kegalj also spoke with Ms. Caroti to share some information about the Project which she felt was consistent with John’s presentation at the Restaurant Meeting and the content of the Brochure. For instance, Ms. Caroti was informed that the lot sizes were guaranteed to be 50 feet x 140 feet, that Embleton was to purchase the Property, and that she would double her investment in a fairly short period. Mr. Kegalj told Ms. Caroti that she had only limited remaining time to obtain a lot, and the Brochure indicated that the Project was almost sold out, which led Ms. Caroti to understand that she had to decide on whether to invest in the Project fairly quickly. From the information provided, Mr. and Ms. Caroti came to believe that the Project was a good investment. Ms. Caroti testified that John convinced her that the Project would be done well given his good reputation as a builder.

37Before signing their APSs to invest in the Project, Ms. Kostelac and Ms. Grounds attended a meeting on May 22, 2002 with Anthony and members of the Workplace Group that was held in a boardroom at their offices. According to Ms. Kostelac and Ms. Grounds, the discussion at the meeting repeated much of what had previously been shared at the restaurant meeting.

38Believing Anthony to be a lawyer, Ms. Kostelac inquired about various provisions in the APS which he explained to her. Ms. Kostelac made these inquiries with him as the investors were not permitted to make any changes to the APS and certain terms concerned her. In particular, she inquired about the “use of land” term in the APS which provided that Embleton would decide the use of the Property during its development. Believing at the time that the Property was farmland, Ms. Kostelac asked what was going to happen with it as she felt there might be an opportunity to earn some revenue by renting the land to a farmer or by having billboards on the Property to defray servicing costs. According to Ms. Kostelac, Anthony assured her that Embleton would decide how to use the Property by making the best decisions for the Project. At the time, Ms. Kostelac was unaware that a bungalow was located on the Property or that the home was being rented to tenants. Notably, Anthony did not disclose that the Vuletics intended to occupy the home and live rent-free on the Property as reflected in Ms. Ceifets’ notes of her meetings with John and Anthony.

39Ms. Kostelac stated that Anthony assured her of the intention to deliver 50 x 140 ft. lots as the Vuletics planned to make the future subdivision their home and wanted it to look nice. He is also said to have advised that lot dimension changes would only be made if the City of Brampton or some other government body required a change that left them with no other alternative. After speaking with Anthony, Ms. Kostelac felt that her concerns had been addressed and she accepted that decisions regarding the Property would be made in the Project’s best interests. She proceeded to sign her APS and gave it to Anthony at the meeting.

40Anthony denies that any such Workplace Group meeting occurred. He further stated that if the meeting had unfolded as Ms. Kostelac had suggested, then he would have signed back her APS at the meeting. But Ms. Kostelac testified that Anthony informed her that he needed to take her signed APS with him to execute it on behalf of Embleton with a corporate seal. Ms. Kostelac’s account is corroborated by Ms. Ceifet’s notes which show that she advised John and Anthony to place Embleton’s corporate seal on the APS contracts. In light of this, I accept the accounts given by Ms. Kostelac and Ms. Grounds of the May 22, 2002 meeting which I find took place that day.

f. The Savonas’ Investment in the Project

41In March 2002, Antonio Savona, the father of the Plaintiffs Wilma Jesus and Monica Savona, was approached by John Biondic, a real estate agent, about the Project. Mr. Savona and Mr. Biondic previously had been shareholders in an unrelated investment in which Mr. Savona had made a profit. Mr. Biondic told Mr. Savona that the Project was being run by a developer who was a family friend, and that the Project would take about 5 to 6 years to develop.

42According to Mr. Savona, John and Anthony attended his home with Mr. Biondic to discuss the Project. John does not remember meeting Mr. Savona in 2002 and testified that Anthony had dealt with the Savonas. Anthony claimed that he first met Mr. Savona, who initially had dealt with Mr. Biondic, only after Mr. Savona submitted the APS for the Savonas’ investment in the Project. However, Mr. Savona produced contemporaneous notes that he had prepared to record events as the Project unfolded which indicate that he met John and Anthony in 2002. Given Mr. Savona’s recollection as supported by his contemporaneous notes, I am satisfied that he met with John and Anthony at his home where they made representations about the Project before the Savonas signed their APS with Embleton.

43During the 2002 meeting with Mr. Savona, Mr. Biondic introduced John as an experienced developer and Anthony as a lawyer. John and Anthony advised that the Property consisted of roughly 12 acres that would be divided into 50 lots with each lot being 50 x 140 feet and having a price of $35,000.00 per lot. They told Mr. Savona that other investors would contribute funds to the Project, that the cost to install services would approach $75,000.00 to $95,000.00 per lot, that it would take about 10 years to develop the Property, and that the Project was a good investment.

44Intrigued by the Project, Mr. Savona said that he wanted to buy four lots – two for himself and one for each of his two daughters. When Mr. Savona asked if he would be a shareholder in the Project, John or Anthony indicated that Mr. Savona would be a 5% shareholder like he was in his other unrelated investment with Mr. Biondic. John also explained that he would be in charge of developing the Project. Anthony advised Mr. Savona that he was a lawyer, offered to explain the terms of the APS, reassured Mr. Savona that he did not need to take the APS to a lawyer for review, and advised Mr. Savona to save on legal fees by relying on him to explain everything he needed to know. Anthony then outlined portions of the APS to Mr. Savona who did not read the agreement and relied on Anthony in forming his understanding of the terms for the APS.

45Mr. Savona arranged for both of his daughters to sign the APS. The next day, Mr. Biondic witnessed the APS.

46During the 2002 meeting with Mr. Savona, John and Anthony did not disclose that John was a bankrupt and lacked funds, that the Vuletics intended to live rent-free in the house on the Property, that management fees would be charged, or that funds raised for the Project would be used to pay for their personal expenses. They also did not disclose that Project investors would not be buying actual lots on the Property but instead would acquire rights to buy lots there in the future. For his part, Mr. Savona believed that he had bought lots on the Property as reflected in a signed declaration dated June 26, 2002 that Anthony gave Mr. Savona to acknowledge receipt of his $122,000.00 payment to Embleton as follows:

I hereby declare that I have received from Tony Savona an amount of ($122,000) one hundred twenty thousand for the property he has purchased from Embleton Properties Corp. Please see contract. [signed Anthony Vuletic]

47Despite this signed declaration, however, Embleton did not actually own any land, whether beneficially or otherwise, as the transaction for the purchase of the Property from Ms. Taylor had not yet occurred. In reality, Mr. Savona did not buy any land but instead had subscribed for future lots that Embleton was to develop on the Property. John and Anthony would clearly have known that Mr. Savona could not have purchased any lots as of June 26, 2002 as no plan of subdivision for the Property had been registered with the municipality. Simply put, the lots did not exist.

g. The Investment by the Pichelli Group

48During a meeting on July 3, 2002, John and Anthony met with Mr. Pichelli to sign an APS for five (5) lot subscriptions in the Project for the Pichelli Group members. But the content of the APS for the Pichelli Group is materially different from the APS that other investors have signed. On its face, the Pichelli APS varies significantly from the APS template that Ms. Ceifets drafted for Embleton as substantial and important terms that she included in the APS template are clearly missing from the Pichelli APS. As a result, the Pichelli Plaintiffs and the Defendants strongly disagree on the actual terms of the Pichelli APS which led both sides to call highly conflicting evidence on this point, as detailed further below in these reasons.

h. The Investment by Ms. Nizalek and Mr. McDowell in the Project

49In October 2002, Biljana Nizalek and Brian McDowell joined John, Anthony and Mira for dinner at their home on the Property. Ms. Nizalek had immigrated to Canada from Eastern Europe in 1993, spoke Croatian, and had formed a good friendship with John, a person of Croatian descent, after both had worked together on several construction and renovation projects. Ms. Nizalek’s husband, Mr. McDowell, described John as having been a father figure to her.

50During the dinner party, the conversation turned to the Project and the investment opportunity that it offered. Ms. Nizalek and Mr. McDowell were reluctant to invest in the Project because they had a new baby, a mortgage, and wanted to save for their child’s education. In addition, both were financially helping to support Ms. Nizalek’s family in Eastern Europe at the time, which John was aware of.

51John advised Ms. Nizalek and Mr. McDowell that he had bought the Property and wanted them “in on it” to make some money. He explained that the investment would only be for two years and that he would quickly develop the land. He told Ms. Nizalek that she could double her money in two years. He also indicated that Embleton owned the Property.

52John told Ms. Nizalek and Mr. McDowell that they would be buying a 50 x 140 foot lot in an upscale 51-lot development. He did not explain that they would not receive an actual lot but rather a right to purchase a future lot.

53John informed Ms. Nizalek and Mr. McDowell that he had bought three ravine lots and would build homes on them for his daughter, his son, and himself. While walking the Property, he told Mr. McDowell where his home and his children’s homes would be built, and he shared his excitement to develop the Property. John also told Ms. Nizalek where his ravine lots would be located on the Property. John indicated that he moved to the Property so that he could develop it quickly, be closer to the Project, and act more efficiently. Ms. Nizalek felt that John’s interests would be aligned with hers as he wanted to live on the Property and make the development into his neighbourhood.

54John told Mr. McDowell that he needed investors for the Project to alleviate the risk that he was assuming by pursuing the development. He also told Ms. Nizalek that he was one of a group of investors and that Ms. Nizalek and Mr. McDowell could also be investors in the Project.

55John told Ms. Nizalek that he had developed land before and spoke of the developers that he knew. He also told Ms. Nizalek and Mr. McDowell that he knew a planner, Uri Salmona, who had prepared a draft plan of subdivision for the Property.

56John told Ms. Nizalek that he only had two or three lots left in the Project. Other investors also believed that the Project was “sold out” based on information given to them by Mr. Kegalj or contained in the pre-contract documents mentioned earlier.

57John told Ms. Nizalek that an investor could either sell their lot or invest in services after a site plan for the Property was developed and approved. He told Ms. Nizalek and Mr. McDowell that servicing would cost $45,000.00. However, he did not explain that investors would have to pay cash calls before services were installed. He did not mention anything about a management fee, a mortgage on the Property, the lands adjacent to the Property, or any further costs when Ms. Nizalek and Mr. McDowell chose to invest in the Project. He did not tell them to see a lawyer.

58After much laughter and drinks, John brought out the APS for discussion. During the party, Ms. Nizalek and Mr. McDowell signed an APS to acquire a lot interest and Ms. Nizalek gave John a deposit cheque.

59Mr. McDowell testified that he and Ms. Nizalek did not intend to live on the Property but wanted to sell their lot as an investment and might not have invested in the servicing costs.

60John never advised that the Vuletics saw the investment in the Project by Ms. Nizalek and Mr. McDowell, and the funds they paid, to constitute the Vuletics’ own contribution to the Project.

i. Ms. Ceifets’ Retainer

61John and Anthony retained Karen Ceifets, a real estate lawyer, to act for themselves and Embleton to acquire the Property in 2002 and to prepare a template agreement for use in signing on investors to the Project. From the evidence, I am satisfied that Ms. Ceifets obtained instructions from both John and Anthony. To distance himself from Ms. Ceifets’ evidence, John claimed that he had no dealings with her. However, Ms. Ceifets produced her file containing extensive notes and work products that documented her various interactions with John and Anthony. Although her memory of her engagement with John and Anthony in 2002 has faded over time, she carefully gave her evidence by using her detailed contemporaneous file notes and correspondence that recorded her engagement in some detail. In addition, both John and Anthony, who resided together, testified that they jointly made decisions for the Project. Moreover, Ms. Ceifets directed her communications to John and Anthony together. Taking this all into account, I am satisfied that both instructed her about the Property and the Project over the course of her retainer.

62On February 13, 2002, Ms. Ceifets met with John and Anthony to discuss their preliminary plan to buy the Property to create a 51-lot subdivision. Lots were to be sold for $35,000.00 each to eager friends and family members. In turn, the solicited proceeds were to be used to purchase the Property with a May 31, 2002 closing date. To implement the plan, John and Anthony required a contract to sell lots to investors in order to raise funds, as well as a further contract to purchase the Property from its owner, Ms. Taylor.

63In her notes to file for the February 13, 2002 meeting, Ms. Ceifets recorded that she had not previously seen a similar type of transaction which she regarded as unusual as funds from investors were to be used to buy land without first having a subdivision in place. This led her to flag a concern with John and Anthony that lawyers acting for lot purchasers might not like this kind of deal given the potential for fraud and other legal problems. At the time, it was unlawful to sell lots, or otherwise offer or agree to sell lots, in an unregistered plan of subdivision except for lots on a draft plan of subdivision that was approved: s. 52 of the Planning Act, RSO 1990, c. P.13.

64Given her concerns with the proposed scheme, Ms. Ceifets consulted with a senior real estate lawyer at a different law firm to discuss her engagement with respect to the Project. From her consultation, Ms. Ceifets considered the following precautions which the senior lawyer had recommended to avoid or mitigate potential issues or disputes with the Project:

a) not having her firm hold deposits from investors;

b) having the vendor hold investor funds in a segregated account pending the completion of the transaction;

c) having the vendor give a personal covenant to hold deposits if a purchaser or investor wanted this;

d) having purchasers or investors obtain independent legal advice;

e) including an arbitration clause in the APS;

f) setting out certain items in the APS, such as the vendor’s intention to develop the Property, to clarify the nature of the Project;

g) advising John and Anthony to act “above board” by disclosing in the APS that they are keeping lots and can mortgage the Property;

h) placing a corporate seal on documents so investors cannot go behind the corporate entity; and

i) having a discussion with John and Anthony to address all foreseeable issues in the event that the Project fails or succeeds, and confirming that nothing fraudulent is associated with the Project.

65In discussions with John and Anthony, Ms. Ceifets cautioned them about the potential for the proposed transaction with investors to be considered fraudulent and advised them to avoid any appearance of impropriety. Specifically, Ms. Ceifets advised John and Anthony of the following over the course of her retainer:

a) There is a benefit to being transparent and not withholding anything from investors;

b) They must be as clear, detailed and forthright as possible with investors to avoid any appearance of impropriety or possible claims for misrepresentation or other wrongdoing;

c) They could not sell more lots than they intend to have;

d) Failing to disclose an intention to live in the house on the Property may be seen as not being forthright and cause investors to claim that their funds were improperly used to allow them to live in the house rent and mortgage free;

e) To complete the APSs, Embleton was required to comply with s. 50 of the Planning Act;

f) The lots could not be conveyed to investors before a plan of subdivision was available;

g) Investors needed to get independent legal advice;

h) The APS with investors should not be changed to vary the terms for different investors;

i) When accepting an APS from an investor, an authorized signing officer of Embleton should sign the APS and affix Embleton’s corporate seal;

j) The agreement of purchase and sale for the initial purchase of the Property from Ms. Taylor indicated that the Property is zoned only for residential agriculture and not for executive housing;

k) The APS with investors was not conditional if something prevented John and Anthony from developing the Property, and there were no “outs” for them if they were to determine that the Property could not be used for what they intended;

l) Ms. Ceifets would not be involved in any misrepresentations to mortgage lenders, and the mortgage for any purchase had to be in the name of whoever was taking title;

m) The APS with investors provided (at para 9f of the agreement) that Embleton could mortgage the Property only for the purpose of raising funds to service and develop the land, and that Embleton may be in breach of this term as a result of non-compliance with this term of the APS by mortgaging the Property to initially purchase the land in 2002, which could be construed as a misrepresentation. Anthony indicated that he understood Ms. Ceifets’ advice on this point; and

n) The transaction with Ms. Taylor to initially purchase the Property was inconsistent with how transaction documents were signed on July 11, 2002 as Mr. Kegalj originally assigned all rights under the agreement of purchase and sale with Ms. Taylor to Embleton and gave notice of the assignment to advise that Embleton was the purchaser before he later signed another document indicating that there was no trust as he had signed the agreement with Ms. Taylor in his personal capacity.

66Ms. Ceifets testified that she did not know whether John or Anthony took her advice for the Project. With hindsight, it is apparent that much of her advice was not followed.

67Over the course of Ms. Ceifets’ retainer, John and Anthony advised of their intention to reside in the house on the Property. Nevertheless, they instructed her to not disclose this in the APS with investors and to remove any term in the agreement for the house to be demolished.

68John and Anthony explained that the Project was to be based on a 51 lot concept with no ravine lots available to investors. After indicating that the actual number of lots might vary by a few lots due to possible changes by the municipality and adjacent developments, they instructed Ms. Ceifets to ensure that Embleton did not lose any of its lots if the overall number of lots were reduced (i.e., as any lost lots were to be borne by investors). However, if the Project ended up with more than 51 lots, they instructed her that Embleton was to assume the additional lots as its bonus. Both also instructed Ms. Ceifets to not raise this in the APS in a deliberate effort to not disclose to investors how many lots Embleton would retain, as Anthony conceded in his evidence at trial. They also instructed her that the balance of any funds received from investors would constitute profits for Embleton which, at one point in 2002, they intended to use to purchase their own lots. In addition, they instructed her to not draft an APS term to require deposits from investors to be held in a segregated account.

69Initially, John and Anthony instructed Ms. Ceifets that the Property could not be mortgaged to raise funds to initially purchase the land. Later on, however, they advised her of their intention to mortgage the Property to raise funds for its purchase despite their earlier instructions which led to the inclusion of a term in the APS that did not permit the land to be mortgaged for this purpose. They also advised her that the mortgage was to be obtained on the basis that the Property was owner-occupied and that the house on the land would not be demolished.

70John and Anthony advised Ms. Ceifets that John would invoice any management or administration fees in service costs that were billed to investors. However, as discussed later in these reasons, no such invoices were ever prepared or issued. Both instructed her to change the term “management fee” in the APS to “administration fee” after potential investors expressed reluctance to paying management fees for the Project. In light of this, I accept that both instructed Ms. Ceifets to make this terminology change to obfuscate their intention to charge management fees and thereby side-step any hesitation by potential investors to commit funds to the Project.

71In his testimony, Anthony admitted that Ms. Ceifets called him to discuss and review the APS terms but that he did not care for these calls. Ultimately, I accept that John and Anthony did not take the APS terms seriously or necessarily consider themselves to be strictly bound by them.

j. Omissions about the Project

72John and Anthony did not disclose important facts about the Project to investors.

73John admitted that he lacked sufficient funds the buy the Property. He also admitted that he devised the scheme for investors to pay now for future lots to fund the acquisition of the land, and that this was the first land development project in which he and his son had sold future interests in lots to obtain project financing. None of this was disclosed to investors.

74Anthony admitted that the Property was zoned for only 12 lots when it was acquired and acknowledged that more lots could not be developed for the Project while this zoning designation (i.e., the so-called “Village Residential” zoning status) stayed in place. He admitted that investors were not told that some had more favourable APS terms than others (i.e., such as Workplace Group investors having a preferential opportunity to select their lots on the Property), or that he had eased some APS restrictions for certain investors to secure their funds and close on the purchase of the Property. He also admitted that an APS could only be amended in writing.

75Anthony conceded that everyone having a lot interest in the Property, including investors and the Vuletics alike, were supposed to pay their proportionate share of the Project costs. He also admitted that any mortgages on the Property were only to be used to further the development while conceding that Embleton entered into a vendor take-back mortgage to finance the acquisition of the Property after its purchase price increased, as further set out below, to avoid having to sell more lots that otherwise would have left the Vuletics with fewer remaining lots for themselves. From the evidence, I am satisfied that the Vuletics always intended from the outset to keep any unsold lots for themselves and maximize the number of these unallocated lots on the Property with no intention of using their own funds to pay for them. Anthony conceded that he made no efforts to sell any unallocated lot interests to investors after 2004 as he wanted to keep them all for himself without paying for them. None of this was disclosed to investors.

76Anthony admitted that the Defendants never signed an APS for any unsold ravine or standard lots in the Project. Instead, the Vuletics simply claimed the ravine and unallocated lots for themselves. He asserted that Embleton was not required to pay servicing calls for any of the unsold lots, and admitted that the Defendants paid no cash call for any unallocated lots despite making cash call demands. None of this was disclosed to investors.

77Anthony testified that the Vuletics intended from the outset of the Project to use proceeds from a mortgage on the Property to pay for their personal living expenses. John admits that he did not disclose that Project funds were used to pay the Vuletics’ personal expenses, and claims that he was under no obligation to disclose this. Mr. Grounds and Ms. Caroti testified that they would not have invested had they known that Project funds would be used to pay for personal expenses. The fact that the Vuletics had taken mortgage and cash call funds to pay for their personal expenses only came to light when Robert Bilich served his motion materials in Mr. Kegalj’s action to enforce a requirement for investors to receive an accounting of Project funds, as further discussed below.

78Although Anthony claims that he told a number of investors that he was living on the Property, he admitted that he never disclosed that he was living there rent-free. Initially, investors including Ms. Kostelac, Ms. Pelchat-Morris, Ms. Caroti and Ms. Grounds were unaware of the house on the Property or the intention of the Vuletics to reside there. Mike Klecina testified to the same effect. When Ms. Kostelac visited the Property in July 2011, she entered the home to use the washroom and thought that it was unoccupied due to its sparsely decorated interior which appraisal photos taken of the home later corroborated. Only during this litigation did the Plaintiffs learn that a tenant previously occupied the house on the Property and paid $1,250.00 in monthly rent before the Vuletics moved in after obtaining vacant possession from Ms. Taylor on closing the sale of the Property in 2002.

79From the evidence, I am satisfied that the Defendants purposefully did not disclose to investors that:

a) the Defendants intended to claim the unsold or unallocated lots on the Property for themselves without paying for them;

b) the Defendants intended to pay nothing for the servicing costs related to the unsold or unallocated lots on the Property which they had claimed for themselves, all while demanding that investors pay the servicing costs;

c) the Defendants planned to mortgage the Property, initially to fund the purchase of the Property from Ms. Taylor and later to fund their personal spending; and

d) the Vuletics intended to live rent-free in the home on the Property.

Moreover, I am satisfied on the evidence before me that the Plaintiffs would not have invested in the Project had the Defendants made these disclosures to them beforehand.

k. The Investor APS Contracts

80As set out below, each Plaintiff investor signed an APS with Embleton for the right to later purchase a standard-sized 50 foot x 140 foot lot (“Standard Lot”) under the agreement. The term “APS” broadly refers to the agreement that Project investors had with Embleton. Some investors signed an APS earlier in 2002 that had slightly different content than what other investors signed later that year.

81On March 18, 2002, Ms. Jesus and Ms. Savona each signed an APS with Embleton and their father, Mr. Savona, paid a total of $142,000.00 to Embleton that year for the right to purchase four (4) Standard Lots.

82On April 12, 2002, Ms. Grounds and Mr. Grounds signed an APS with Embleton and paid a total of $35,000.00 that year for the right to buy a Standard Lot in the Project. Before signing the APS, they arranged for their lawyer, Stan Joffe, to review the agreement. Mr. Joffe inquired about making changes to the APS but Ms. Ceifets, Embleton’s lawyer, refused to make changes. After deciding that they were prepared to trust John and Anthony to develop the Property, the Ground proceeded to invest in the Project. For reasons that are unclear, the Grounds’ APS was not signed by Embleton.

83Ms. Pelchat-Morris and her late husband Ron Morris also signed an APS with Embleton on April 12, 2002, and Ms. Pelchat-Morris paid Embleton a total of $71,000.00 in 2002 for the right to buy two (2) Standard Lots under the agreement.

84On May 22, 2002, Ms. Kostelac signed her APS with Embleton for the right to purchase two (2) Standard Lots under the agreement and paid a total of $71,000.00 to Embleton that year.

85On June 11, 2002, Ms. Caroti and Mr. Caroti each signed an APS with Embleton and paid a total of $35,000.00 to Embleton in 2002 for the right to buy one Standard Lot. The Carotis did not receive back a signed copy of the APS.

86On July 3, 2022, Mr. Pichelli signed an APS on behalf of the Pichelli Group members for a five (5) lot subscription in the Project for which Embleton was paid $175,000.00 that year.

87On October 1, 2002, Ms. Nizalek and Mr. McDowell signed an APS with Embleton and paid a total of $37,000.00 that year for the right to purchase one Standard Lot under the agreement. As mentioned earlier, they signed the APS while attending a dinner party with the Vuletics. They did not read the APS, relied on John’s explanation of the terms of the agreement, and were never advised to obtain independent legal advice on the investment.

88Schedule A to each APS states that Embleton was to provide investors, referred to as “Purchasers” under the agreement, with title to the lots upon closing (i.e., with closing defined in section 3 of Schedule A to the APS). Each APS also provided as follows:

a. 1b. Recital. Embleton “intends to take all necessary proceedings required in order to have the Land zoned to permit single family residential dwellings including the servicing of the Land and the registration of a plan of subdivision to create residential building lots.

b. 1c. Recital. The “initial concept …, which is subject to modification, is the registration of a plan of subdivision with 51 lots. …”

c. 1f. Recital. Embleton “will be using such portion of the [deposit monies from the investors] as it may require, to complete its purchase of the Land. …”

d. 2. Use of Land. Embleton “may permit the Land to be used for any purpose, and on such terms and conditions, as [Embleton] may determine in its sole and absolute discretion. [Embleton] covenants to proceed diligently with its plans to develop [the Property].”

e. 4. Services. Embleton was to install services to the lot line of the lots. The term “Services” was defined in the APS to include services to be installed within the Property or within a registered plan of subdivision.

f. 4. Servicing Costs. “Servicing Costs” were defined to “mean and include all costs incurred, by [Embleton] in developing the Land and registering a plan of subdivision” and were to “include such reasonable charges of [Embleton] or any associated company or entity, for services provided in connection with the development of the Land and registration of the plan of subdivision, including, without limitation the management and administration of the installation and completion of the Services (“Administration Fee”). The Servicing Costs shall be allocated equally among all lots which form part of the plan of subdivision.”

g. 4. Servicing Costs to be Invoiced. Prior to the closing date, which is when the Purchaser under the APS was to receive the lot, the agreement directed that Embleton “shall invoice the Purchaser from time to time, for the Purchaser’s share of the Servicing Costs …”

h. 8a. Reduction in Number of Lots. “In the event, there is a reduction in the number of Standard Lots to be included in the plan of subdivision, [Embleton” shall have the right, in its sole discretion, to reduce the number of Lots being sold to the Purchaser.”

i. 8b. Change in Lot Frontage. In the event there is a change in the dimensions of the Lots, “with the result that any of the Lots have frontages of less than fifty (50) feet, the Purchase Price will be decreased. The amount of the decrease will be based on the Fair Market Value (as hereinafter defined) of the reduced linear feet of frontage for the Lots at the time of closing …” “Fair Market Value” was defined to mean the value determined by Embleton based on the average of two appraisals conducted by independent licensed appraisers within 120 days of the closing.

j. 9f. Purchaser’s Covenants. There is an express restriction in the APS on the corporate Defendants’ ability to mortgage the Property. The Plaintiffs agreed that Embleton (and later 185 Corp.) “is permitted to mortgage the Land for purposes of completing the Services and the development of the Land …”

k. 17b. Amendments in Writing. All amendments to the APS must be in writing. The APS featured no provision to allow for the sale of the Property in bulk.

l. 17g. General. Each Purchaser agreed that they were not “a partner, associate, joint venturer, or any other participant” with Embleton with respect to the Property and the development, and that “the Purchaser’s only interest is as purchaser of the Lots as provided for herein and that [Embleton] owes no fiduciary obligation to the Purchaser.”

89In his evidence, John admitted that he had a responsibility to be honest with the investors who had signed an APS with Embleton, and that he was required to deliver 50 foot x 140 foot lots to investors who had trusted him to do this. He admitted that the investors looked to him as the person with development experience to ensure that the plan of subdivision for the Property was registered with the municipality. He also admitted that he was responsible for ensuring that the funds given to him by the investors was spent on the Project and not on other things. For his part, Anthony admitted that Embleton and 185 Corp.’s obligations under the APS were to be carried out to further the development of the Property. He also admitted that any management fees were to be charged in connection with the development of the Property.

l. Anthony’s Status as a Lawyer

90In my view, Anthony’s status as a lawyer was strategically employed to instill investor confidence in the Project.

91Anthony graduated from law school in 1998 and was called to the Ontario Bar in 2006. In 2018, his licence to practice law in Ontario was administratively suspended.

92On various occasions, John and Anthony told investors that Anthony was a lawyer even before 2006 when he was called to the Ontario Bar. For instance, at the 2001 restaurant meeting, John told attendees that his son, Anthony, was a lawyer. In addition, Anthony introduced himself as a lawyer to Mr. Grounds at the meeting. Later on, during a meeting in 2002, John and Anthony introduced Anthony as a lawyer to Mr. Savona when they met to discuss the Project and reiterated this point in discussing Anthony’s role in the Project. Similarly, at the 2002 dinner party, John told Ms. Nizalek that Anthony was a lawyer and informed Mr. McDowell that John was a lawyer who had practiced in New York and was helping with Project-related work. In addition, Anthony told Mr. McDowell directly that he had been an entertainment lawyer in New York.

93Anthony described himself as a lawyer in 2002 to Mr. Kegalj who later overheard Anthony tell others that he was a lawyer in the entertainment industry. In turn, Mr. Kegalj told Ms. Caroti in 2002 that Anthony was a lawyer who had worked in New York before coming back to help his father. In somewhat similar fashion, John told Mr. Kegalj in 2007 that Anthony could afford the charges that he had incurred while borrowing Mr. Kegalj’s credit card because he was practising law on the side at the time (i.e., in addition to working on the Project).

94In correspondence with investors, Anthony repeatedly referred to his LL.B. degree and his “attorney” designation to inform readers of his status as a lawyer. His email address continues to be anthonylaw@rogers.com which suggests an involvement with the practice of law. Collectively, these efforts led some, including Mr. Klecina, to believe that Anthony was a practising lawyer.

95Anthony denied telling investors that he was a lawyer, but then conceded that he may have introduced himself as a lawyer to investors. Anthony admitted that he referred to his law degree in communications with investors as he felt that doing so added credibility to his statements. John denied telling anyone that Anthony is a lawyer and specifically denied saying that his son was a lawyer at the 2001 restaurant meeting because the issue purportedly never came up. But John also claimed that he explicitly told attendees at the Restaurant Meeting that Anthony was not a lawyer. In my view, John’s evidence was inconsistent and not credible.

96Based on this, I am satisfied that John and Anthony referred to Anthony as a lawyer to leverage their credibility by using his status as legal professional to gain the trust and confidence of Project investors.

m. Acquisition of the Property

97In mid-July 2002, Mr. Kegalj bought the Property from Carol Taylor for a total purchase price of $1,262,878.00, inclusive of transaction fees. Mr. Kegalj held title to the Property from July 2002 until its transfer to 185 Corp. on February 16, 2012, and understood that it was being held in trust for investors. Embleton never held title to the Property.

98John and Anthony made no net capital contribution towards the purchase the Property.

99From the total purchase price, $23,331.90 related to transaction costs. Although Anthony claims that he paid $19,400.00 of the fees and disbursements for the July 2002 purchase, Embleton fully reimbursed him for the $19,400.00 almost immediately in August 2002 when proceeds from a mortgage with Maple Trust were received, as further described below.

100John directed a $60,000.00 cash contribution towards the purchase of the Property. These funds came from a bank draft that Brithuron gave to John who signed over the draft to Anthony Klemencic, a real estate solicitor who acted on the purchase of the Property, when the deal closed in July 2002. Shortly thereafter, Embleton repaid the $60,000.00 to Brithuron in August 2002 using the Maple Trust mortgage proceeds and paid $3,932.00 to Mr. Klemencic for his legal fees (i.e., which formed part of the $23,331.90 transaction costs).

101$1,015,500.00 of the total purchase price was financed by cash contributions from investors between January and July 2002, of which a collective $427,000.00 was paid by Mr. and Ms. Caroti, Mr. and Ms. Grounds, Ms. Kostelac, Ms. Pelchat-Morris, Mr. Savona on behalf of Ms. Jesus and Ms. Savona, and Mr. Klecina. Anna Bilich initially paid $5,000.00 towards the initial $60,000.00 down payment, and later subscribed for one lot on the Property. Members of the Pichelli Group contributed $175,000.00 towards the capital cost of the Property. Ms. Nizalek and Mr. McDowell paid for their investment contribution in October 2002.

102To fund the remaining balance of the total purchase price, John and Anthony arranged for Mr. Kegalj to act as the borrower for a short term vendor take-back (“VTB”) mortgage that charged 10% annual interest and matured on September 15, 2002. On August 6, 2002, the Vuletics arranged for the VTB mortgage to be discharged with a $165,178.63 payment and replaced with a $320,000.00 mortgage from Maple Trust with Mr. Kegalj as the borrower. As mentioned earlier, John and Anthony used the Maple Trust mortgage proceeds to reimburse themselves for their contributions to the purchase of the Property.

103In the result, John and Anthony contributed nothing on a net basis to acquire the Property. In effect, to close the Property acquisition, the Vuletics gave the Project a bridge loan that was repaid to them in full in August 2002.

104Until the discovery process in this litigation, John and Anthony did not advise the Plaintiffs of how the Property acquisition was financed or how many lots were sold. Only through this litigation did the Plaintiffs come to know that Mr. Kegalj, rather than Embleton, was the borrower under the mortgages obtained for the Property, and that a VTB mortgage was taken out on the Property to close its purchase. As John was a bankrupt and Anthony had poor credit, neither could qualify for a mortgage. Accordingly, both arranged for Mr. Kegalj to obtain a mortgage on their behalf. Doing so required Mr. Kegalj to hold title to the Property. Neither John nor Anthony disclosed to investors that the registered owner of the Property was Mr. Kegalj, who was someone not previously known to Mr. Savona, Ms. Jesus, Ms. Savona, the Pichelli Group, Ms. Nizalek or Mr. McDowell. Some of the Workplace Group members, including Ms. Kostelac, came to learn that Mr. Kegalj was the Property’s registered owner only after he started an action in 2010, but neither John nor Anthony disclosed this fact beforehand.

n. Poor Retention of Project Records and Documents

105From the outset of the development, the Defendants’ handling of the Project documents and records was haphazard and left much to be desired.

106Anthony confirmed that he was responsible for overseeing the execution, collection and safeguarding of the APS contracts that Embleton entered into with its Project investors. However, for reasons that are unclear, Embleton neglected to sign a number of APS contracts even though the corporation received the initial capital investments from signing investors and also received subsequent cash calls from them.

107Anthony testified that he kept all of the APS contracts in a box at his home office and that he never reviewed them after they were collected from investors. From the evidence, I accept that Anthony’s record-keeping practices were poor and reflected a high degree of inattention which likely revealed the lack of importance that he placed on these records.

108Anthony claims that he was unaware in 2002 that contracts relating to interests in land had to be in writing. When pressed, he conceded that investor agreements for the Project had to be in writing, and that any revisions or changes to an APS had to be in writing under its terms.

109For reasons that are unclear, a number of Project records and documents apparently were lost over the years. As a result of the lost records, Anthony claimed to be unable to corroborate many of the assertions that he made at trial.

o. Poor Corporate Governance

110Anthony oversaw Embleton’s corporate affairs. However, by his own admission, he had little if any meaningful knowledge of corporate governance matters in 2002. He did not know about Ontario law governing corporations, was unaware of the duties of directors and officers for a corporation, and conceded that he had not known that Embleton should appoint officers to manage its affairs and records. He acknowledged that Embleton did not have a minute book or a shareholders register, and admitted that he had no records to prove who its shareholders had been. Although Anthony had graduated from law school in the late 1990s and had been called to the Ontario Bar in 2006, he purportedly had “cleansed … [himself] personally and psychologically of anything that had to do with the law,” testified that he had somehow forgotten the distinction between an individual and a corporation, and claimed to not know the difference between legal and beneficial interests in property. He claimed to know that directors and officers of corporations had to avoid placing themselves in a conflict of interest and avoid self-dealing, and claimed to see no distinction between John and himself on the one hand and Embleton as a company on the other.

111Anthony claimed that 185 Corp. at one point had a minute book and shareholders register but both apparently were lost and no steps were taken to replace them. He conceded that he was unable to prove who 185 Corp.’s shareholders were.

112Under cross-examination at trial, Anthony admitted that he was not aware of any financial statements ever being prepared for Embleton. Despite claiming that Mr. Pichelli had been retained in 2002/2003 to deal with Embleton’s tax returns, Anthony was not aware of any retainer letter with Mr. Pichelli or his firm and did not know whether Embleton had ever filed any tax returns. Anthony deferred questions about whether Mr. Pichelli or his firm had filed any tax returns for Embleton or 185 Corp. to Mira who did bookkeeping for the companies. When presented with his sworn testimony in March 2018 that Mr. Pichelli was never retained to act for Embleton, Anthony tried to resile from his own evidence at trial. For his part, Mr. Pichelli denied that Embleton or 185 Corp. ever retained his firm to provide tax services. Anthony admitted that it had been his responsibility to address Embleton’s annual filing requirements but that these filings were never done for reasons that are unclear.

113In February 2014, Anthony took on the role of secretary and treasurer of 185 Corp. but did not conduct any due diligence to learn what those duties were. When the general responsibilities of these roles were put to him in cross-examination, he professed to be ignorant about the duties.

114Anthony claimed that Embleton employed Mira to perform bookkeeping work but did not know of any T-4 slips ever being issued by Embleton or 185 Corp. for her employment.

115For his part, John testified that he did not care whether he was a director, president or vice-president of Embleton and, in fact, could not recall his actual title or role with Embleton apart from knowing that he was “in the company.” He did not take any steps to determine what a director was required to do and claimed that he never discussed with Anthony who would be president of Embleton. John knew nothing about Embleton’s corporate minute books, shareholders register, directors meetings, or corporate by-laws. He repeatedly stated that Anthony was responsible for dealing with any documents or paperwork. Significantly, John claimed that he never reviewed any APS agreements and claimed that Anthony was responsible for all negotiations with investors. Under cross-examination, John admitted that he relied on Anthony to manage documents, receive and pay invoices from planners and consultants, handle corporate matters, and deal with any legal matters that involved reading and writing. In effect, John testified that he entirely deferred to Anthony when it came to any responsibility for managing the Project from 2002 onwards.

p. Mortgages on the Property

116From August 2002 to May 2015, John and Anthony arranged to have various mortgages registered on the Property that led to about $1,43 million in total net mortgage proceeds being paid to Embleton and 185 Corp. over this period. As set out below, Embleton and 185 Corp. received the following net mortgage payments:

a. $153,450.00 from the Maple Trust mortgage in 2002;

b. $75,000.00 from the First Line mortgage in 2003;

c. $140,000.00 drawn on the MCAP line of credit in 2008;

d. $59,000.00 drawn on the MCAP line of credit in 2009;

e. $117,475.29 from the TD mortgage in March 2012;

f. $64,235.85 from the Atrium mortgage in February 2014;

g. $279,871.18 from the Van Der Avoird mortgage in April 2014; and

h. $540,115.30 from the Rathcliffe mortgage in May 2015.

117Using these net mortgage proceeds, John and Anthony paid for personal and non-Project expenses which are further discussed below.

118From July 2002 when the Property was purchased from Ms. Taylor until February 2012 when title to the Property was transferred to 185 Corp., Mr. Kegalj was the titleholder to the Property. Unable to obtain financing themselves due to their poor credit history, John and Anthony arranged for Mr. Kegalj to apply for residential mortgages by submitting mortgage applications in which Mr. Kegalj falsely claimed to maintain his principal residence at the Property. In doing so, Mr. Kegalj obtained financing as the borrower on the Maple Trust mortgage, the First Line mortgage, and the MCAP lines of credit, respectively.

119In August 2011, Mr. Kegalj obtained a further $768,750.00 mortgage from TD Bank to comply with his obligations, as he then understood them, under the terms of a settlement reached with John and Anthony on July 11, 2011 to resolve an action that Mr. Kegalj had brought to claim an interest in the Project. In December 2011, John and Anthony appeared before Justice Lederer, the trial judge for Mr. Kegalj’s action, to seek relief on the basis that the mortgage had had obtained breached the terms of their settlement agreement. To resolve the matter, the proceeds of the TD mortgage from August 2011 were applied to discharge the MCAP line of credit, a line of credit related to Bonk Productions, an adult-entertainment business that Anthony had started, and certain personal debts unrelated to the Project that Mr. Kegalj had incurred.

120Embleton was not a party to any of the mortgages that Mr. Kegalj obtained and serviced by directly paying Maple Trust, First Line and MCAP, respectively, using a combination of funds received from Embleton that he “topped up” with his own funds to make the servicing payments. According to Mr. Kegalj, who initially paid for one lot interest in the Project, his “top up” payments from his own funds constituted his method of paying for a second lot on the Property by instalment. Once Mr. Kegalj transferred title of the Property to 185 Corp. in February 2012, the corporation thereafter made the mortgage servicing payments directly to the lenders.

q. Mortgages were Serviced from New Mortgage Proceeds

121As a general matter, Embleton and 185 Corp. arranged for the proceeds obtained from each new mortgage to be applied to pay off previous mortgage obligations. To do this, portions of new net mortgage proceeds were held back to provide a ready pool of funds from which monthly debt servicing payments were made. In effect, borrowed funds were used to service debt obligations as they came due. Over time, as the available pool of borrowed funds was depleted, new mortgages were obtained against the Property to replenish the pool of borrowed funds from which payments to service the ever-growing debt were drawn to continue the cycle of indebtedness. Neither John nor Anthony disclosed any of this to investors who had no idea of how the Project was financed.

122In 2014 and 2015, 185 Corp. obtained financing through the Atrium, Van Der Avoird and Rathcliffe mortgages. Each one of these mortgages:

a) had an interest rate of 8% or higher;

b) was subordinate to the TD mortgage that 185 Corp. obtained after Ms. Kostelac agreed to personally guarantee that mortgage;

c) had larger principal amounts and higher interest rates (i.e., when compared to the mortgages obtained earlier in the Project); and

d) were obtained after a decision had been made to sell the Property.

According to Anthony’s testimony, these additional mortgage were obtained to raise sufficient funds to pay monthly debt servicing obligations as they came due to keep the Project solvent in order to develop the Property. But from 2014 to September 12, 2016, 185 Corp. obtained total net mortgage proceeds of $884,864.00 while spending just $52,121.00 on development costs, property taxes and office or other expenses, and $145,519.00 to service the TD mortgage from March 2012. The $197,640.00 in total spending outflow reflected only 22.3% of the $884,864.00 in total net mortgage proceeds that 185 Corp. obtained over this period.

123In comparison, the Vuletics took $319,877.00 from 185 Corp. for personal and non-Project uses reflecting 36.1% of the total net mortgage proceeds obtained over this period. The amount to service just the Van Der Avoird and Rathcliffe mortgages alone was $315,333.00 or 35.6% of the total net mortgage proceeds obtained from these mortgages and the Atrium mortgage during this period. It follows that about 71.7% of the total net proceeds from the 2014-2015 mortgages was spent on paying the Vuletics and mortgage servicing costs.

124Taking this all into account, I am satisfied that the plain and overriding purpose of securing the 2014-2015 second mortgages was to primarily structure a personal cash flow mechanism that benefitted the Vuletic family. The cash outflows tracked in 185 Corp.’s own records give ample evidence to show that the second mortgages were not required to retain or develop the Property but instead were used by the Vuletics to make non-Project payments of a clearly personal nature.

125On September 12, 2016, 185 Corp. closed on its sale of the Property to Brampton G&A Holdings Inc. (“Brampton G&A”). At the time of closing, three (3) charges remained on the Property, namely:

a) the March 2012 TD mortgage;

b) the April 2015 Rathcliffe second mortgage; and

c) the $700,000.00 lien registered on the Property on April 22, 2016 by Geoff Adair, or his spouse, for legal services provided to Embleton, John and Anthony for defending the action that Mr. Kegalj had started in 2010.

These outstanding charges amounted to $3,389,861.00 collectively as of September 12, 2016 when the sale transaction closed and each remaining charge was fully discharged from the sale proceeds that 185 Corp. received from the transaction.

r. Servicing or “Cash Call” Payments

126Between 2003 and 2013, the Plaintiffs collectively made cash call payments to Embleton and 185 Corp. totalling $294,494.00. In contrast, however, the Defendants paid no cash calls despite claiming over half the lots in the Project for themselves.

127As set out earlier, s. 4 of the APS provided that, “[t]he Servicing Costs shall be allocated equally among all lots which form part of the plan of subdivision.” It follows that Servicing Costs for the Project were to be divided proportionately (i.e., on an equal per lot basis) amongst the lot subscribers who had invested in the Project. The Plaintiffs understood from this that lot subscribers were to give proportionate contributions for these costs by making cash call payments.

128By the end of 2008, four of the five cash calls for the Project had been paid. Understanding that most of the Project lots had been fully subscribed for, and that investors were required to pay their proportionate share of the servicing costs for the Project, Ms. Pelchat-Morris and Ms. Caroti came to believe that the subscribers were paying cash calls to make their proportionate servicing cost payments. For her part, Ms. Kostelac believed that 45 lots in the Project had been sold, that all of the investors were paying cash calls, and that John and Anthony were paying their proportionate share of the servicing costs for the ravine and other lots that Embleton presumably held. However, in January 2013 around the time of the fifth and final cash call, Ms. Kostelac learned from John and Anthony that a few investors in the Project, namely Anna Bilich, Kim Gushu (Whyte) and Ann-Marie Leveriza, had not paid cash calls that had been demanded.

129By March 2016, Ms. Kostelac discovered that Anthony had not applied the proportionate approach to collect cash calls as required by the APS after reviewing the materials that Mr. Bilich served on his motion in the Kegalj’s action to enforce the requirement for investors to receive a full accounting of Project funds. Among other things, Ms. Kostelac learned from Mr. Bilich’s materials that Anthony had pro-rated the servicing costs over only 28 lots (i.e., instead of a figure closer to 50 that she believed more accurately reflected the actual number of lots in the Project). As a result, Ms. Kostelac learned that she and other investors had contributed disproportionately to the servicing costs which were not being shared equally on a per lot basis across the Project.

130For his part, Anthony acknowledged that investors were not informed that Embleton was not paying Servicing Calls for its lots in the Project. He also explained that cash call obligations were based on the number of people who had subscribed for a lot in the Project, and not the number of actual lots in the Project, which was contrary to the term under s. 4 of the APS for servicing costs to be allocated equally among all of the lots in the plan of subdivision which, in my view, properly encompassed all of the lots in the Property based on how it was notionally divided in the initial concept for the Project. Anthony further explained that servicing costs payments had been waived at various times for certain investors, including Mr. Kegalj, Mr. Sokic and Mr. Granic, by apparently exercising his sole and absolute discretion without disclosing this to other investors.

s. Ratio of Personal to Project Expenses

131Between July 2002 and September 2016, the Defendants used a total of $923,020.00 of Project funds for personal and non-Project expenditures. In doing so, they spent over 2 ½ times on themselves as they did on direct development costs for the Project that totalled $378,904.00.

132As Anthony explained, investor Cash Calls and mortgage proceeds were comingled in company bank accounts. Although he claimed to rarely use funds from investor cash call payments (i.e., as opposed to mortgage proceeds) to pay for his personal expenses, he admitted having no way of knowing, due to the comingling, whether Project funds used to pay for personal expenses were originally received as mortgage or cash call proceeds.

133There is no dispute that the Defendants used Project funds to pay for personal and non-Project expenses, as corporate records have confirmed and the Defendants have acknowledged. Among other things, Project funds were used:

a) to pay for costs incurred by Bonk Productions, an adult film business that Anthony had started;

b) to purchase an engagement ring for Anthony’s fiancé;

c) to pay for John’s trips to Europe and cash withdrawals in Europe;

d) to buy furniture for the Vuletic family;

e) to acquire two (2) vehicles, including a luxury German car; and

f) to transfers funds to the Defendants or their other companies.

There is some dispute over the actual extent to which Project funds were used by the Defendants to pay for non-Project expenses. However, Anthony’s own estimates indicate that the Defendants used Project funds to pay for non-Project expenses totalling between $822,000.00 and $888,000.00.

134After analysing the Defendants’ accounting records and other related financial information, KSV, the Plaintiff’s valuation firm, reported that a total of $866,436.00 in Project funds were used to pay for non-Project expenses. In addition, KSV reported that a further $56,584.00 in Project funds were diverted from 185 Corp.’s TD bank account between September 2014 and August 2016 to pay for legal and other professional fees for an unrelated development project in Oakville that John and Anthony had pursued. According to KSV, the Defendants spent a total of $923,020.00 of Project funds on personal and non-Project expenses from July 2002 until September 2016.

135To put these figures into perspective, the Defendants spent roughly 2 ½ times as much on themselves as they did on the $378,904.00 in direct development costs for the Project, and took over 4 ½ times as much on personal and non-Project expenses as they put into the Project by making $184,000.00 in capital contributions.

136Despite having not invoiced or disclosed these expenses to investors, the Defendants claim that all of their personal and non-Project expenses constituted proper management fees to which they were entitled. They also claim that they had absolute control and discretion regarding the use of any funds held by Embleton and 185 Corp., respectively, and that John and Anthony, as the directing minds of the companies. As set out later below, I am not persuaded that these expenses constituted proper management fees.

The Development

137In November 2002, Embleton’s planner, Gagnon Law Bozzo (“GLB”) wrote to the City of Brampton to advise of its retainer by Mr. Kegalj in connection with a redevelopment plan for the Property (the “Kegalj Redevelopment Plan”) and its review of the Bram West Secondary Plan and Community Design Study. Without mentioning Embleton, GLB wrote that Mr. Kegalj took issue with the Village Residential (i.e., low density) designation for the Property. GLB also advised of an intention to develop the Property with lots having 40 foot frontages. At trial, Anthony admitted that the intention to have lots with less than 50 foot frontages was never disclose to investors.

138In February 2003, the Planning Department at the City of Brampton commented internally on its pre-application review of GLB’s proposal and clearly indicated that the unique character and image of the Village of Huttonville, in which the Property was located, was to be maintained. The Planning Department gave no indication that the Village Residential designation, which only allowed for 12 lots to be developed on the Property, would be changed. To change the zoning designation for the Property, detailed community design guidelines would need to be submitted to the City under the Bram West plan and policies for the area, among other things. At trial, Anthony agreed that the City was not receptive to rezoning the Property to allow suburban development on the land.

139In March 2003, Embleton’s other planner, Salmona Tregunno, prepared a subdivision site plan which envisioned intensive development on the Property and the neighbouring Teramoto property. This detailed site plan was tied to a proposed development of the lands located to the south of the Property where intensive development was also being sought. Significantly, this site plan did not contemplate a neighbourhood on the Property consisting of 50 foot x 140 foot lots as promised to investors in the APSs.

140By late March 2003, Embleton retained a consulting firm, Ander Engineering Limited, to prepare a cost estimate for the proposed physical servicing of the Property based on the assumption that municipal water and sewage services, which were non-existent in the area, would be brought to the Property and surrounding area by the Region of Peel and the City of Brampton. The cost estimate prepared by the firm in 2003 for servicing the Property and the neighbouring Teramoto and Ufkes lands, as discussed below, exceeded $5.715 million. The estimate would later increase by 30 to 40% the following year. None of the cost estimates prepared by Ander Engineering Limited were given to investors. Anthony claimed that it made no sense to share this information with investors due to their different levels of sophistication and because actual servicing costs are never known until the installation of services begins.

141In March 2003, the City of Brampton approved a Block Plan Review Process that required the preparation and approval of a block plan for all new secondary plans adopted after September 1, 2002. As a result, individual plans for subdivision would not be reviewed or approved in the Bram West region until a block plan, whose boundaries would be determined by the City, had been established. In effect, all of the City’s design objectives, land use determinations, technical issues, environmental impacts and management, community services, transportation, public consultation, and water and sewage infrastructure had to first be addressed at the block plan level.

a. Project Status Updates and Cash Calls

142The Defendants periodically gave Project updates that sounded positive and led investors to believe that the development was progressing well and on track. In turn, investors paid cash calls to the Project believing that their contributions would be used to further develop the Property. The development progress, or lack thereof, is further discussed below. Regrettably, the Project updates often misled investors about the Project’s true status and did not give complete or accurate disclosure by failing to give important information. Ultimately, I find that these updates deceived investors regarding the actual circumstances of the Project or how it was being run and managed.

143Between 2003 and 2010, Anthony attended several meetings with the Workplace Group investors to update them on the Project’s status. He also shared update letters at the meetings, and asked investors to pay cash calls at a number of these meetings.

b. Cash Call #1 – March 31, 2003

144By letter dated March 31, 2003, Anthony informed investors that Embleton had engaged development firms in Oakville and Brampton to obtain municipal planning approval for “the Embleton Properties.” However, the letter did not disclose that Embleton had retained both firms to also develop two (2) adjacent properties to the north of the Property, the first having been acquired from Marilyn and Michael Ufkes (the “Ufkes”) and the other from Emiko Teramoto and Shirly Mitsuko Teramoto (the “Teramotos”), in addition to developing the actual Property itself. The March 31, 2003 letter also claimed that both development firms were working in diligent cooperation to progress the development as expeditiously as possible, but without disclosing that:

a) Embleton had no application for a plan of subdivision prepared or filed with the City;

b) the Property was zoned “Village Residential” which allowed for only 12 lots to be developed on the land;

c) the City of Brampton was not interested in changing the Village Residential zoning designation at that time;

d) Embleton intended to make a joint development application with the neighbouring landowners (i.e., Mr. Ufkes and the Teramotos) whose planning costs would be paid for by Project investors;

e) John and Anthony knew before the Property was acquired that it was not expected to be serviced (i.e., with water, sewage, or other such infrastructure) until about 2016 (i.e., being roughly 13 years into the future); and

f) the cost to service the Property would be quite significant as set out in a cost estimate by Ander Engineering Limited.

145The March 31, 2003 letter reported that Embleton had submitted a plan of subdivision to the City of Brampton for approval. This was not true, as Embleton had not submitted a plan of subdivision by that date. Earlier, in November 2002, the Defendants had wanted to develop the Property together with the adjacent Ufke and Teramoto lands into single detached residential lots with 40 feet frontages, but Embleton’s first plan of subdivision was only filed on March 23, 2004 (i.e., well after the March 31, 2003 letter) which contemplated 98 units on all three properties. The Defendants never advised investors of any application, or contemplated application, having more than 51 lots in total. Project investors, including the Plaintiffs, paid for the various draft plans of subdivision that Embleton filed with the municipality. In addition, the March 31, 2003 letter told investors that the Region of Peel would start building a main sewer trunk line by November 1, 2003 which implied that the Property would soon be serviced, although this was not the case. Despite clear and obvious barriers to developing the Project with a plan approaching 50 lots on the Property, the March 31, 2003 letter claimed that the Project was running “ahead of schedule,” which clearly was not true.

146The Defendants never told investors that Project funds were being used to pay for personal expenses or disclose the amount of Project funds they took for this purpose. In addition, they did not inform investors that cash call funds were being used to develop the adjacent north properties owned by Mr. Ufkes and the Teramotos together with the Property. Furthermore, investors were not informed that John and Anthony planned to claim unsold lots on the Property for themselves, or that neither Embleton nor the Vuletics were paying any cash calls.

147In May 2003, Embleton obtained additional cost estimates from surveying and engineering firms for certain services related to the Property. In July 2003, GLB sent a memo to John making it clear that no application for a plan of subdivision had been filed with the City as the memo set out all of the information that was needed to prepare an application. Despite this, the Vuletics never advised investors of any errors or misrepresentations in the March 31, 2003 cash call letter.

148In January 2004, the City of Brampton released a lengthy (130 page) report entitled “Bram West Secondary Plan Review: Land Use & Growth Management Strategy” (the “January 2004 Report”) that detailed the City’s approach to developing the 6,050 acre Bram West area in which the Property was a modest 12 ½ acre parcel in the historic Huttonville neighbourhood with “Village Residential” zoning status. The report revealed the complicated and multi-layered framework for suburban development in the Bram West area, which the City has carefully managed and controlled, which complemented the earlier Block Plan Review Process from March 2003. The January 2004 Report also confirmed that Bram West had been divided into five block plan areas and two sub-areas. The block plan area in which the Property was found is Block Plan 40-3 that comprises over 1,100 acres of undeveloped land.

149Significantly, the January 2004 Report clearly set out two distinct phases of approval for development related to the Property. First, block plans would need to be prepared (i.e., requiring the interests of various land owners and developers within each block plan to be coordinated). Thereafter, the City would consider applications for plans of subdivision. Despite this, and without any block plan, GLB wrote to the Mayor and City Council in March 2004 to advise that it had reviewed the January 2004 Report and intended to submit an application for a plan of subdivision in relation to the Property, together with the neighbouring Ufkes and Teramoto lands, to develop 98 lots with only 21 lots having 50 foot frontages under the plan.

150In late March 2004, Anthony instructed GLB to submit a joint application to develop the 98 subdivided lots on the three properties. At trial, Anthony conceded that the joint application lacked a sufficient number of 50 foot lots to fulfill Embleton’s contractual obligations to deliver the lots which investors had been promised under the APSs. He asserted that the lack of 50 foot lots in the joint application plan was no secret as he had disclosed this with investors in mid-2002, but he did not produce any records or evidence to independently corroborate his assertion. He also asserted that he was not required to seek the consent of investors to amend their APS terms or otherwise give investors any notice of the changes to the Project concept.

151Initially, Anthony denied that a block plan had to be prepared and approved before subdivision development could proceed on the Property and other lands in the block plan area, which he characterized as a City “wish list” that was not a formal requirement under years later. He also denied that GLB submitted the March 2004 application outside of the block plan process, and tried to suggest that the process contemplated individual subdivision applications coming first before block plans were later created. However, as set out below, the City’s response to the March 2004 application makes it clear that Anthony’s explanation was simply wrong as the City held that the application that GLB submitted was entirely premature.

152By letter dated May 13, 2004, Anthony advised investors that an application for “site plan approval” of the Property had been submitted to the City. He also identified the planners working with Embleton, and wrote that he was pleased with the rate of progress. However, as GLB had actually made an application for a plan of subdivision and not an application for site plan approval (i.e., which is a distinct part of the development process), his update to investors was false and misleading. Enclosed with the May 13, 2004 letter was the City’s acknowledgement of an application by Embleton to amend the Official Plan and Zoning By-laws, but this was not a site plan application or the draft plan of subdivision that GLB had submitted for City approval. In addition, Anthony did not disclose that the Property had Village Residential zoning status, or that no development or rezoning of the Property could occur until a block plan was approved and implemented, among other things. Furthermore, the letter did not disclose that the layout for the Property in the subdivision application lacked a sufficient number of 50 foot lots to satisfy Embleton’s contractual obligations to investors, that Mr. Kegalj actually held title to the Property, that Embleton had mortgaged the Property to close the purchase transaction, that the Vuletics had used the Maple Trust mortgage proceeds to fully reimburse themselves for what they paid to close the purchase deal (i.e., leaving them with no net capital investment in the Project), that investors were paying to develop the neighbouring Ufkes and Teramoto lands, that the Vuletics were not paying any cash calls despite having reserved a number of Project lots for themselves, or that Anthony had taken at least $120,000.00 in Project funds to pay expenses related to his adult film business. The Defendants concede that investors did not receive any invoices to disclose or substantiate the amounts taken from Project funds. The letter concluded by stating Embleton’s satisfaction with “the present rate of progress, and [the anticipated] further work and continued efforts to ensure that the site plan approval is expedited in a timely manner, along with the necessary expenses and services for the property.” The letter’s optimistic tone reassured investors who relied on Embleton to advise them on how the Project was advancing. In reality, however, Embleton made only very limited if any material progress to meaningfully develop the Property.

153Importantly, about one week later, John, Anthony and Embleton learned of significant obstacles for the development of the Property. After conducting an initial review of Embleton’s March 2004 application, the City of Brampton advised Embleton that it would not support the rezoning of the Property or the proposed residential densities in the application. More importantly, the City advised that servicing infrastructure for the area in which the Property was located was not planned to be in place until 2016. As a result, the City concluded that Embleton’s application for a plan of subdivision was premature. In a later memo, the City reiterated that the application remained premature as:

a) the area lacked a block or tertiary plan; and

b) sanitary services were not planned for the area until 2016.

With hindsight, it is clear that the City’s projection in 2004 for bringing services to the area was overly optimistic as water and sanitary services remained unconnected in the area by late 2021. As well, the Credit Valley Conservation Authority decided not to support Embleton’s application given the Property’s proximity to the Credit River Valley and the lack of environmental implementation reports. Based on all of this, the City maintained that Embleton’s application was premature and would not be further processed.

154Clearly, these outcomes raised obstacles for Embleton’s efforts to develop the Property. However, none of this information was shared with investors who were kept unaware of the misstatements about the Project’s development status in the May 13, 2004 letter. Claiming to have believed that the information from the City was either preliminary, speculative or otherwise wrong, Anthony chose to not share any of it with investors. As a result, investors were deprived of any opportunity to meaningfully assess their investment in the Project and make informed decisions.

155Under cross-examination, Anthony claimed that investors were verbally warned that the Property had Village Residential zoning that constituted a significant risk for the Project. but the Defendants adduced no records to confirm that investors were warned about the Property’s zoning status or the City’s opposition to having its zoning changed. Anthony repeatedly stated that he orally disclosed the Project’s problems and risks to investors, but his evidence about what he actually said to whom and when was vague and unclear. There is no dispute that the Defendants never held a plenary meeting for all investors to meet each other and discuss the Project, and did not circulate a contact list to allow investors to know and contact each other.

156In July 2004, GLB was advised that City Council had rejected Embleton’s request to remove the Village Residential designation from the Property’s zoning status in favour of its proposed development densities. In late August 2004, GLB reported negative feedback from various City departments, including the Planning Department’s comment that Embleton’s March 2004 application was premature.

157In late 2004, the City was preparing an official plan amendment to deal with land use changes in the Bram West area. By this time, Anthony clearly knew that the City would not be supporting a change to the Village Residential designation for the Property. Nevertheless, he chose to not disclose this information to investors because, in his opinion, nothing had changed and he anticipated a long fight with the City before obtaining a zoning change. He also felt that it was not necessary to inform investors, whom he felt were unsophisticated people, that the Property would have to be part of the block plan process in order to be developed. Instead, he claimed to follow an approach by which he gave investors status reports every two years and encouraged them to ask if they had any questions. However, there is no record to show that Anthony or the other Defendants gave status reports to investors every two years, or that question and answer sessions were held with investors. Instead, Anthony sent periodic letters that gave favourable but misleading accounts of the progress being made for the Project while asking investors to pay increasingly larger cash call amounts.

158In a functional servicing report in late 2004, Ander Engineering Limited stated that it was unable to quantify area-wide water and sewage service routing for the Property because there was no approved block plan for the land. Ander also reported that there was no available municipal sanitary servicing infrastructure (i.e., no existing local or trunk sewer facilities) in the Property’s vicinity, and no feasible way to provide municipal sanitary servicing to the Property. As a result, before the Property could be developed, significant external sanitary servicing would be required. According to Ander, sanitary service for the area would most likely be provided through servicing infrastructure for the Bram West development area that was not expected to be ready before 2009. Therefore, in addition to the City’s own report that servicing infrastructure would not extend to the Property until 2016, Embleton’s own consultant was advising that servicing would not be built before 2009.

159Under cross-examination, Anthony explained that he did not share the servicing-related information with investors because he believed that the information was not correct based on the advice he purportedly received from Great Gulf Homes (“Great Gulf”), a major developer that Embleton had worked with to coordinate development plans and harmonize a block plan for the area where the Property was located. According to Anthony, Great Gulf advised in 2005 that services for the Property would be available imminently. However, he provided no records to corroborate his claim that Great Gulf gave this information. Anthony also testified that his approach was to not share detailed information with investors regarding Project reports unless they specifically asked. The obvious problem with his alleged approach is that investors could never ask questions about reports or information of which they were unaware.

160Around January 2005, Anthony became aware of the City of Brampton’s concern that the municipality lacked capital funding to provide servicing infrastructure for the Bram West area and that new statutes and regulations would complicate the planning process. Anthony did not disclose this to all investors as he purportedly saw his role as “delivering a product” by placing emphasis on the progress being made rather than the problems being encountered.

161By early 2005, Embleton was developing a new layout for the Property that was consistent with Great Gulf’s proposed Riverview Heights development to the west and south. Anthony did not circulate the layout or draft plans of subdivision to investors, or advise that the Property would likely be the last piece in the block plan development process, or that lot sizes and layouts for the Property would have to be consistent with the proposals being made by other developers. Although he claimed that he showed draft plans to investors at every possible meeting, he did not identify these investors nor give any meaningful evidence of these meetings. By this time, Anthony clearly understood that the development of the Property would occur within a block plan to coordinate the development activities of numerous area landowners within Block 40-3 that covered 1,100 acres. In February 2005, GLB wrote to Great Gulf to confirm Embleton’s interest in having its planned development fall in line with Great Gulf’s vision.

162In May 2005, GLB filed with the City an amended application for a plan of subdivision for the Property and adjacent Ukfes and Teramoto lands to increase the total number of subdivided lots from 98 lots to 118 lots. The amended application indicated that its layout generally reflected the high-density Riverview Heights development proposal that Great Gulf had designed. Given its increased number of lots, the amended application clearly signalled that Embleton was abandoning the Project’s initial concept under the APSs and its commitment to deliver the 50 foot x 140 foot lots that investors had contracted for.

163In June 2005, the City advised Embleton that its amended application was premature as various studies, land use concepts, and official plan amendments for the Bram West Secondary Plan were not expected to be reviewed and approved by the City until late 2004. As the revised plan of subdivision reflected an entirely reconfigured proposal, the City also charged Embleton a $3,000.00 fee due to the addition of 20 lots in the revised plan. After Embleton paid the fee, the City returned the funds in early October 2005 with a direction to re-file a fresh application:

[T]his revised submission constitutes a totally re-configured draft plan of subdivision that requires complete internal and external circulation to various agencies and the preparation of new reports to committees involved with this type of development application. In this regard, we require you to make a new application and pay related fees in accordance with the type of application. [Emphasis added]

In giving this direction, the City gave no indication that the Village Residential zoning designation for the Property would be changed.

164The Defendants did not disclose Embleton’s reconfigured proposal to develop 118 lots on the lands to investors.

c. Cash Call #2 – October 28, 2005

165By letter dated October 28, 2005, Embleton sent a second cash call letter to investors that requested payment of $2,649.00 per lot. Claiming “recent positive developments,” the completion of “substantial planning work,” and the need for “additional work to [achieve] the goal of site plan approval,” Embleton advised investors that annual cash call payments would be required. As set out below, the letter gave investors a positive but misleading account of the Project’s progress.

166Embleton advised investors that it had been waiting for the City of Brampton to make a final or conclusive finding on an amended block plan for the area of Huttonville (i.e., where the Property was located) and its surroundings. This was entirely false. No plan for Block 40-3 had been prepared or filed leaving the City with no block plan to consider. In addition, the letter did not disclose to investors that:

a) there had been no movement by the City to install water or sanitary infrastructure to the Property, which was not expected until 2009 if not later in 2016

b) the City had turned down Embleton’s development application in 2004

c) City officials had told Embleton that any application for a plan of subdivision was premature and would not be circulated for formal review or comment until the Bram West Secondary Plan Review was done and a revised plan amendment was approved; and

d) there was no block or tertiary plan for the City to use in considering a proper application to develop the Property, which meant that Embleton’s ability to obtain development approval for the Project could well be significantly delayed.

Despite these serious obstacles, Embleton did not inform investors of any obstacles to developing the Property.

167The October 28, 2005 letter further advised that Embleton’s planners had met with another developer, Great Gulf, over the past few months to collaboratively ensure that Embelton’s design plans and lots met with Great Gulf’s vision for the area that it planned to submit to the City of Brampton for approval. Critically, Embleton did not disclose to investors its plan to increase the number of lots on the Property by supporting Great Gulf’s design proposal for Riverview Heights that would allow Embleton to increase its “yield” (i.e., number of lots) on the Property. In addition, Embleton did not disclose that the City did not support any changes to the Village Residential zoning designation for the Property, or inform investors that the Vuletics intended to keep the unallocated lots on the Property for themselves.

168Embleton claimed that investors had to pay annual cash calls until further notice to cover its “substantial planning work both in the past years and present, along with necessary additional work to the goal of site plan approval for out lots.” However, Embleton did not disclose that direct Project development costs approached only $69,000.00 by then, or that very little Project funds were being spent to develop the Property even as further cash calls were being demanded. In addition, Embleton did not disclose that Anthony was waiving cash calls for select persons that he chose, including himself, despite not waiving them for others including a number of the Plaintiffs.

169On October 28, 2005 (i.e., the same date as Embleton’s second cash call letter to investors), the City issued a recommendation report as part of the Bram West Secondary Plan Review. The report confirmed that the City was not contemplating any change to the Village Residential zoning designation for the Property. After mentioning the previous March 2004 (98-lot) and May 2005 (118-lot) development proposals that Embleton had submitted, GLB’s request to have the Property included with the Village of Riverview Heights project by Great Gulf (i.e., for the development of its own lands), and the existing Village Residential designation for the Property and the Ufkes and Teramoto lands, the City gave the following response:

In a previous report to [the Planning Department] staff did not support the proposal as submitted, noting such issues as incompatible densities with the Village of Huttonville and visual impact on the valley. Staff continue to express the same concerns and believe it is premature to remove the subject lands from the Village Residential designation and revise its land use designations.

Staff note that the subject lands are within the Special Study Area designation that applies to the Villages of Riverview Heights concept. This designation provide [sic] a broader planning context for staff to evaluate this proposal which wasn’t the case when GLB Urban Planners made their submission in the Spring of 2004. Therefore, staff are of the view that [the Property and the Ufkes and Teramoto lands] should continue to be subject to the Special Study Area designation and that it be evaluated together with Great Gulf’s Riverview Heights proposal. Further development approvals for [Embleton’s] application will be subject to the City’s Block Plan and Grown Management Programs. [Emphasis added]

170Embleton did not disclose the City’s recommendation report nor its ongoing refusal to change the Village Residential zoning designation for the Property to investors. It also chose to not retract nor correct the misrepresentations in its October 28, 2005 cash call letter. Although Anthony claimed that he showed investors the draft plans of subdivision (i.e., without providing them with copies), no supporting evidence was adduced to corroborate his claim.

171In April 2006, the City released a major 300-page report entitled Draft Official Plan that set out its vision for development in Brampton. Among other things, the plan addressed residential, commercial and employment lands development, transportation systems and road networks, environmental management and the preservation of natural areas, recreational open space, the installation of servicing infrastructure and utilities, institutional and public uses of lands, cultural heritage, urban design, financial issues, and special study area. Notably, the plan confirmed the City’s very restrictive approach to development, particularly in respect of properties within fill or flood regulation areas subject to the Credit River Conservation Authority, as was the case with the Property.

172In May 2006, GLB delivered Embleton’s revised draft plan of subdivision for the Property to the City that featured a 105-lot layout that was quite different from an earlier 107-lot layout that GLB had prepared for the Property in January 2006. From these development plans, it is apparent that Embleton had effectively abandoned the Project’s initial concept by then and was acting as though it were not bound by its contractual obligations to investors under the APS. Embleton did not inform investors that it had filed yet another draft plan of subdivision with the City nor disclose the above-mentioned developments to investors.

173Around June 2006, the Vuletics and Embleton provided the Pichelli Group with a purported summary of Project costs incurred since 2002 that allegedly totalled $208,223.00 and purportedly matched the amount of the first two cash calls (i.e., that combined to total $4,265.00 per lot) that investors having interests in 45 lots on the Property allegedly paid by proportionally contributing to the Project development costs. However, the summary was misleading as it failed to disclose that the actual Project expenses or costs were nowhere near $208,223.00, that neither Embleton nor the Vuletics were paying cash calls for unallocated lots they had reserved for themselves, that investors were paying to develop the neighbouring Ufkes and Teramoto lands, that Embleton had not paid its planners or consultants in timely fashion, or that Embleton had not paid municipal property taxes in respect of the Property. Moreover, the summary did not disclose any of the municipal development issues mentioned earlier.

174By late 2006, the City had not processed any of Embleton’s applications for subdivision nor recognized the Property as part of the Riverview Heights development proposal submitted by Great Gulf. In mid-October 2006, the City granted an Official Plan Amendment (“OPA”) that did not change the Property’s Village Residential zoning designation nor remove the Property from the historic Village of Huttonville despite Embleton’s earlier development applications. In mid-November 2006, Embleton appealed the OPA to the Ontario Municipal Board (“OMB”). None of these developments were disclosed to investors.

175By the end of 2006, the Property was not formally included in the block plan process for Block 40-3 and the City continued to regard Embleton’s subdivision applications as premature. Despite its pending OMB appeal, Embleton filed yet another draft plan of subdivision on December 22, 2006 which emphasized that its site layout for the Property and Ufkes and Teramoto lands had been designed to reflect the layout submitted by Great Gulf on December 19, 2006. Although Anthony claimed that he showed the new draft plan to investors, he did not lead any evidence to corroborate his account. He also agreed that he did not circulate the plan to investors.

176In late 2006, a number of developers and landowners formed the Bram West Landowners Group (“BWLG”). By early 2007, Embleton and other landowners had joined the group to address or coordinate development issues at the block plan level. The block plan process was complex and involved four (4) levels of government giving their approval under the following tandem approvals process:

a) a review of the block plan and corresponding OPA as approved by the City plus an Environmental Study Report for the 1,100 acres in block Plan 40-3; and

b) a review of a complete functional design for roads, water and sewage services, and utilities to be installed in the block plan area.

d. Cash Call #3 – January 29, 2007

177By letter dated January 29, 2007, Embleton asked investors to pay a cash call of $3,649.00 per lot. Based on previous cash call responses, Embleton stood to raise about $100,000.00 under this third cash call letter.

178The January 29, 2007 letter from Anthony advised investors that the Region of Peel was bringing water and sewer services to the Property that year. This claim was clearly false. No such services were being brought to the 1,100-acre Block 40-3, let alone the Property. As Anthony well knew from Ander Engineering Limited and the City of Brampton itself, services were not due to arrive to the Property until at least 2009 if not 2016. In fact, by the start of trial in 2021, sewer and water line infrastructure had still not arrived. The letter also misrepresented that the installation of sewer and water services was ahead of original forecasts and that Embleton was pleased as those services were integral to the development process. Embleton never issued a correction.

179The letter of January 29, 2007 falsely claimed that development costs had increased due to new policies instituted by the City that introduced more expensive land development policies with up-front conservation charges and fresh taxes that had raised Embleton’s development consulting and planning costs. The letter did not disclose that:

a) Embleton had not paid the Conservation Authority apart from $500.00 on April 16, 2004 (i.e., roughly three years earlier);

b) property taxes for the Property were not being paid in timely fashion as the Vuletics believed that they had a two-year payment window;

c) Project funds were being taken to pay the Vuletics’ personal expenses which, by that time, came to at least $150,000.00 and exceeded Embleton’s actual development-related costs;

d) GLB had invoiced Embleton only $47,297.43 in planning charges which remained unpaid as Anthony felt the invoice amount was excessive;

e) Embleton’s other planner, Salmona Tregunno, had carried most of its work-in-progress for years and allowed most of its accounts with Embleton to go unpaid until 2016 after the Property was sold; and

f) work on the block plan process had started in 2004 but the City of Brampton had no budget to review the block plan.

The letter also purported to enclose reports showing the extent of outstanding work that had to be addressed, but it only gave the cover pages for the reports that had been commissioned by BWLG (i.e., the group of developers with interests in the area were the Property was situated) and not by Embleton although it paid dues to BWLG as member of the group.

180The January 29, 2007 letter misrepresented that Embleton would have to pay hundreds of thousands of dollars towards various consulting fees (i.e., about $250,000.00 for an environmental assessment, $105,000.00 for an environmental implementation report, plus a “small percentage” of other consulting fees for a newly formed development group estimated to approach between $350,000.00 and $500,000.00). In reality, however, the various consulting fees were incurred through BWLG with Embleton’s share being just $9,800.00, which was not disclosed to investors. Around this time in 2007, Embleton owed BWLG about $15,000.00. But the Defendants were purposely vague as to what BWLG was owed which understandably left investors with the likely impression that Embleton had incurred expensive consulting fees. The January 29, 2007 letter also advised investors that Embleton had to pay cash calls to BWLG on time or face strict penalties with very high interest charges and, more damagingly, a permanent exclusion or removal from the developers group. However, Embleton’s share of the first BWLG cash call was only $6,890.00. Moreover, despite leaving investors with the impression that BWLG strictly enforced the terms of its cost sharing agreement with its members, Embleton’s payments to BWLG were late and had fallen into arrears after its first February 2007 invoice was paid. The letter’s request for timely cash call from Project investors led them to believe that everyone with lot interests would pay their proportionate share, but this was false. Finally, the letter strongly suggested that the upcoming cash call payment due in March 2007 would be the last or second last payment before site plan approval, depending on the pace and efficiency of the planning department and city council at the City of Brampton. By stating this in the letter, Anthony gave investors the misleading impression that municipal site plan approval was imminent which was clearly not true. The Property still had its Village Residential zoning status and Embleton’s various development applications to the City were still premature and outside of any approvals process. Moreover, the recent OPA by the City had not changed the permitted land use for the Property which had led Embleton to appeal the OPA to the OMB. None of this was disclosed to investors. The assertion of a last or next to last cash call was simply a ruse to convince investors that the development process was almost over when, in fact, it was nowhere near complete.

181In late October 2007, BWLG issued a second cash call to its members. Embleton’s share was a modest $8,638.00. However, it only paid $1,000.00 of the $15,285.00 owed to BWLG for the first two cash calls. Embleton later had its third BWLG cash call of just $5,646.00 fall into arrears. By early 2008, Embleton was not paying its own planners for their development work or BWLG’s cash calls which Anthony had warned Project investors had to be paid in a timely manner. Instead, the Vuletics took Project funds to travel abroad and pay for personal expenses, including an $18,000.00 engagement ring that Anthony bought for someone he was pursuing romantically.

e. Dissolution of Embleton

182In January 2008, the Ontario Government served Embleton with a notice of dissolution for failing to comply with the Corporations Tax Act, RSO 1990, c. C40 by not submitting its filings. Among other things, Embleton never filed any financial statements for its business activities and never obtained a GST number for its operations. Embleton never filed any income tax returns with CRA nor pay any taxes to the federal or provincial governments before its dissolution.

183Anthony claims that he was initially unaware that Embleton had been dissolved and only learned of the dissolution by 2010 at the latest (i.e., due to an apparent combination of factors including a failure to update the corporation’s mailing address). After discovering the dissolution, neither Anthony nor John took any steps to revive the company after instructing their lawyer, Geoff Adair, to inquire into the matter. As a result, Embleton’s corporate filings remained outstanding and its taxes remain unpaid. None of the Defendants disclosed Embleton’s dissolution to investors.

184Anthony’s lack of awareness until sometime in 2010 that Embleton had been dissolved in 2008 reveals a dismal failure to administer the corporation’s affairs with appropriate due diligence. The subsequent failure by any of the Defendants to disclose Embleton’s dissolution to investors seems quite incredible as it difficult to see a more significant obligation than advising investors that the corporation that is holding their funds in exchange for future lot interests on land it owns no longer exists. The fact that the Vuletics went on to demand cash call payments from investors by continuing to use Embleton’s name without disclosing its dissolution was highly improper and clearly deceptive. As well, the Vuletics continued use of a dissolved corporate entity is noteworthy by strongly signaling that Embleton’s contractual relationships and corresponding obligations to investors were irrelevant or inconsequential to them.

185In February 2008, Embleton brought a second appeal to the OMB from the Region of Peel’s decision to support the City’s October 2006 OPA that preserved the Village Residential zoning designation for the Property which remained in the Village of Huttonville neighbourhood. The Defendants did not disclose either of the two pending OMB appeals to investors.

186In late March 2008, the City issued a detailed report on its 2008 development allocation strategy to manage the rate, direction and quality of growth in Brampton. The report cautioned that a “development allocation” (i.e., the number of lots that the City would allow for development in a block plan area in any given year) would not guarantee draft approval of any subdivision plans, as Planning Act requirements would have to be satisfied for each development proposal before any draft plan was approved. In the report, the City also confirmed that it was facing significant challenges in funding growth infrastructure due to deficiencies in the Development Charges Act, 1997, SO 1997, c 27, the operating costs of new facilities (e.g., fire stations), and the limited available tax base. Block plan areas, such as Block Plan Area 40-3 where the Property was found, had no existing suburban development and lacked a residential and commercial tax base to fund the extension of municipal services. To address this, the City’s report advised that infrastructure resources would be concentrated in fewer areas to maximize existing infrastructure and minimize operational costs (i.e., instead of being spread thinly across all block plan areas), and that “growth allocations would be directed to areas that are already served or about to be served by fire stations, outdoor and indoor recreational facilities, transit routes and road capacity, and [areas] surrounded by or contiguous to existing development.” The report also advised that the allocation of units in a particular area would ordinarily lead to subdivisions and construction several years later assuming that infrastructure funding was available to match the allocation of units. Although Anthony was aware of the development caps and capital funding limitations which the City of Brampton and the Region of Peel were facing, the Defendants not share any of these barriers to development with investors. Given the nature of these barriers, I find that the representations in the cash call letters to Project investors suggesting that “site plan approvals” for the Property were imminent were quite false and misleading.

187In July 2008, R.J. Burnside & Associates Limited released a report (the “July 2008 Report”) that BWLG commissioned to address stormwater management and functional servicing for Block Plan 40-3, which was primarily an agricultural area, to address the City’s requirement for an environmental implementation study. Among other things, the July 2008 Report noted that the 1,100 acres of Block 40-3 did not have sanitary sewer services, that the Region of Peel was upgrading services in the area, and that existing systems had to be expanded before Block 40-3 could be fully developed. At trial, Anthony repeatedly asserted his belief that municipal services for Block 40-3 would come to the Property from the east via Mississauga Road, but the July 2008 Report confirmed that the Property would be serviced by an extension of two primary trunk sewers from Steeles Avenue northward to Block 40-3. Stormwater management for Block Plan 40-3 and protecting the Credit River Valley, which was in close proximity to the Property, were significant issues in the July 2008 Report which identified numerous tasks that had to be completed and clearly signalled that development of municipal infrastructure and construction on serviced lots on the lands were not likely imminent in all of the circumstances.

188In July 2008, BWLG issued a fourth cash call to its members. Financial information from the group showed that Embleton had paid only $11,890.00 of its $35,290.00 share of the first four BWLG cash calls, which left Embleton owing $23,400.00 in arrears which Anthony had warned Project investors must be paid on time. In August 2008, Anthony was pressed by the BWLG secretary to pay Embleton’s outstanding cash calls and agreed to make a payment to BWLG in September 2008 but failed to do so. In September 2008, the Vuletics terminated their relationship with GLB, its former principal planner, after the firm substantially discounted its unpaid account and the parties released each other from any further obligations.

f. Cash Call #4 – September 23, 2008

189By letter dated September 23, 2008, Anthony circulated a fourth cash call to Project investors that required a “final payment” of $5,595.00 per lot interest.

190The September 23, 2008 letter misrepresented to investors that the development of the Property was in its “final stage” and that the Project would receive block plan approval in the last quarter of 2008. At trial, Anthony claimed that he had relied on Great Gulf and other developers in forming the view that municipal approval for Block Plan 40-3 was imminent, as he asserted in the letter. However, Anthony did not provide any evidence from other developers to corroborate his claim. In any event, for the reasons explained earlier, I am satisfied that his assertion of imminent block plan approval was clearly false and misleading. The letter advised investors that, “[i]n the second quarter of 2009, we will be compete and [sic] finish in this project with draft plan and site plan approval. [Emphasis in original]” However, at the time, Block Plan 40-3 was still being articulated, the Property was still part of the Village of Huttonville (i.e., outside the block plan) with Village Residential zoning status, and no site plan for the Property had been prepared for municipal approval. Ultimately, municipal approval for Block Plan 40-3 came in 2011/2012, several years after his purported timeframe. In my view, Anthony’s claim that the Project would finish in 2009 was simply untrue and misleading.

191The letter of September 23, 3008 asked investors to contribute one final $5,595.00 cash call payment to cover all 2008 and 2009 costs for the Project that purportedly arose in large part due to increased municipal fees and the added development complexity due to various unforeseen ordinances, by-laws and regulations by municipal and provincial bodies, particularly in relation to environmental issues. Although the Defendants’ explanation for some of the added regulatory development costs are not disputed per se, the Plaintiffs submit that the need for added funds would not have arisen had the Vuletics not wrongfully taken Project funds for their personal expenses. The letter also suggested that funds were needed to pay for professional reports totalling about $480,000.00 to progress the Project which was said to be nearing final completion, and that cash call funds were needed as soon as possible to avoid punitive BWLG cost sharing penalties. However, the letter did not disclose that Embleton, now a dissolved entity, bore only a fraction of the report costs, or that BWLG did not strictly enforce sanctions against its members for late payments. And while the letter falsely gave investors the impression that major costs would be incurred, only $123,669.00 was spent on direct Project development costs by the end of 2008.

192Meanwhile, during 2007 and 2008, Anthony had travelled and vacationed in Europe, the United Kingdom, and the United States by using Project funds drawn from mortgage proceeds and investor cash call payments. At the same time, accounts for GLB, Salmona Tregunno, BWLG and municipal taxes went unpaid.

193In November 2008, Marshall Macklin Monaghan Group (“MMM”), a consultant retained by BWLG, delivered a lengthy and detailed draft environmental study report that was prepared to satisfy provincial environmental assessment requirements for proposed suburban and commercial development in Block Plan 40-3. Drawing from municipal documents and guidance, the MMM report described the many complicated issues that required investigation in the block plan process. Among other things, MMM reported the need for landowners to complete the following studies to support a block plan application:

a. environmental impact studies/implementation reports;

b. functional servicing reports;

c. detailed community design guidelines including architectural and landscape guidelines;

d. preliminary noise assessment;

e. transportation impact study, including transit;

f. phase 1 archaeological study and heritage impact statement;

g. planning justification;

h. growth management analysis;

i. staging and sequencing analysis; and

j. landowner cost sharing agreement(s).

194The block plan process followed a two (2) stage process. Stage 1 required the identification and completion of sufficient research and study to ensure a comprehensive understanding of key structural requirements of the block, including the community design vision, transportation infrastructure, servicing requirements, school locations and natural features. To this end, MMM indicated that the above-listed studies would be needed. During stage 2, the component studies were to be finalized and approved by the City if they met the requirements of the complete community block plan. Given the layered complexity of the impending block plan process, I find that Anthony’s claim in the September 23, 2008 cash call letter that the Project would receive block plan approval in the last quarter of 2008 was clearly untrue and lacked any credibility.

195In February 2009, BWLG made its fifth cash call to members including Embleton whose share was $26,402.00 excluding its $18,400.00 in cash call arrears. By the end of March 2009, BWLG was following up with Embleton to obtain payment. By the end of September 2009, Embleton had $25,391.00 in cash call arrears to BWLG and was the group’s single largest debtor despite accounting for only 2.8% of the group’s total cash call payments.

196By April 2009 (i.e., the second quarter in 2009 when the Project was to have been completed based on Anthony’s representation to investors in September 2008), the City of Brampton had only confirmed that proposed land uses in the area where the Property was located would be the subject of a study. On April 9, 2009, BWLG held a meeting to discuss Riverview Heights (i.e., Block 40-3) and the many tasks that had to be completed before any stage 1 approvals for the block could be obtained from the City. From April 2009 onwards, BWLG agendas and notes, together with reports from Burnside, show that many outstanding tasks had to be completed before the City would consider Block Plan 40-3 for approval. Among other things, the federal Department of Fisheries and Oceans declined to approve the large storm water pond proposed by Great Gulf near the Property over concerns that the pond would likely have significant impacts on fish and marine habitats that could implicate an environmental assessment under the Canadian Environmental Assessment Act, SC 1992, c. 37. Instead, the Department proposed meetings to consult on the issue. The Department’s involvement was not disclosed to investors despite the obvious delay to the Project that arose from having to address the storm water management issue.

197In October 2009, Steve Vuceta, a mortgage broker engaged by the Vuletics and Embleton to obtain mortgage financing against the Property, make inquiries with the City of Brampton in an apparent effort to obtain additional financing. According to Mr. Kegalj, proceeds from an earlier $600,000.00 line of credit obtained in January 2008 had been almost depleted by late 2009. Around this time, Mr. Kegalj had become suspicious and concerned with how the Vuletics were managing the Project and taking Project funds for their personal use. Mr. Kegalj was particularly concerned by Anthony’s accumulation of significant charges on a credit card under Mr. Kegalj’s account that he had allowed Anthony (i.e., who did not have his own credit card given his bad credit history) to use. Over time, Mr. Kegalj grew concerned as he saw Anthony’s credit card charges climb while his only apparent source of funding to pay the charges remained Project funds.

198On October 9, 2009, Mr. Vuceta wrote to Robert Nykyforchyn, a senior official with the City’s planning department, to confirm the Village Residential zoning for the Property that had not been subdivided. On October 16, 2009, Mr. Nykyfortyn confirmed the various development applications for the Property that Embleton had filed with the City and wrote the following:

This is to clarify that a development application was file for the properties at 49, 62 and 78 Cliffside Drive on March 25, 2004 and which requested that the lands be subdivided and zoned for 98 lots containing single detached dwellings. This application was later amended on May 16, 2005 for 118 lots and amended again on May 16, 2006 for 105 lots and amended again on December 16, 2006 for 108 lots.

Notwithstanding these submissions, the applicant was advised on June 30, 2005 that these submissions were deemed to be premature and would not be circulated for formal review and comment until after the Bram West Secondary Plan Review had taken place and a revised amendment to the secondary plan had been approved. In this regard, it is noted that the [Brampton City Council] endorsed Bram West Second Plan Amendment which has been appealed to then [sic] Ontario Municipal Board, and that it appears that the OMB may not be in a position to approval [sic] this document until either the summer or fall of next year.

In summary, the aforementioned development application has not been formally reviewed by staff, has no planning status, and therefore has no approval status at this point in time. [Emphasis in original]

199When confronted with this at trial, Anthony asserted that the City had given conflicting responses on Embleton’s development application, being an “external” response that confirmed with Mr. Nykyfortyn’s communication on October 16, 2009 and an “internal” response that allegedly supported Anthony’s more optimistic view that Project development was progressing. However, Anthony led no evidence to corroborate his account of the City’s “internal” response. In the circumstances, I find that his account lacks credibility. Under cross-examination, Anthony confirmed that he never informed Project investors that Embleton’s development applications had no planning status before the City. He also conceded that it would be fruitless to file an application for a plan of subdivision unless and until Block Plan 40-3 had been completed and approved.

g. The December 2009 “Statement of Intention”

200In December 2009, Anthony wrote a document “Statement of Intention” that revealed his plan to sell the Property for profit without giving any lots to investors. Believing that his life was in danger, Anthony wrote the statement for his mother or friend, Stephen Tjan, to read if he died so they would know his plans for managing the Project. The document was written after investors paid cash calls in 2008 and clearly revealed Anthony’s thinking and strategy for managing the Project to best preserve the Defendants’ financial interests at the expense of others.

201In the Statement of Intention, Anthony revealed his belief that the Property was worth about $6.3 million, or roughly $500,000.00 per acre, in its unserviced state. He then ranked the order of debts for the Project and gave instructions to first service the mortgage on the Property and then pay taxes and planners. To preserve funds, he instructed the reader to defer paying property taxes as he believed that taxes could go unpaid for three years. Although Embleton owed $40,000.00 to BWLG in 2009, Anthony instructed the reader to not pay this debt because it was incurred by Embleton which, “DOES not own the [P]roperty – I do, under a trust with ANTE KEGALJ who is the trustee.” This passage reveals Anthony’s belief that he was not accountable to anyone for obligations incurred by Embleton because he personally owned the Property. To defeat potential claims from BWLG, Anthony instructed the reader to move Embleton’s funds to prevent BWLG from collecting the debt that Embleton owed, writing “Tell BRAMWEST group we will play [sic] etc but they can never ever enforce it since all they can do is sue EMBLETON – so if that ever happens, make sure to move EMBLETON funds … I cannot stress strongly enough do not pay BRAMWEST.” Anthony further gave instructions for the reader to finance the Project through investor cash calls until a draft plan of subdivision was in place at which point the reader could sell the Property for the best price. In setting this out, Anthony admitted that his plan was for investors to continue financing the Project despite his underlying intention to sell the Property.

202Importantly, Anthony disclosed his strategy in the Statement of Intention as follows:

Strategy –

Of course, you will not develop the property – but rather sell the lots – all in one shot, or half one year and then half [document cut off] … keep one for yourself, and give 3 to KEGALJ or one lot ravine to kegalj plus money equalling two lots to him.

For investors … to keep them at bay – when you sell you can give them a little money back, it all depends on the sale – if you sell everything … then double there [sic] investment, (do not double there [sic] payments for services, that’s [sic] an equal refund, no doubles here..) mama [Mira] will know what I mean … [Emphasis added]

203By this point, the Project was about seven years old during which time the Property had jumped in value from $1.26 million (i.e., when it was purchased in 2002) to about $6.3 million (i.e., based on Anthony’s own estimate in 2009) which was a significant increase. In revealing statements, Anthony clearly disclosed to the reader his strategy to not develop the Property but instead sell it for a profit while keeping investors “at bay” by paying them a double-return on what they invested in the Project. Anthony’s strategy in the Statement of Intention effectively mirrors the Defendants’ position in this litigation, namely that each eligible Project investors should get a double-return per lot subscription, less expenses, while the Vuletics get to keep for themselves the lion’s share of the proceeds from the sale of the Property in its undeveloped state (i.e., the value of all unsold or unsubscribed lots plus the value of lots subscribed by investors that are purportedly no longer in good standing).

204When he wrote the Statement of Intention in 2009, Anthony harboured real concerns that John was too elderly to develop the Project. Given the central role that John ostensibly had to lead the development of the Property, Anthony’s concerns raised serious questions about the ongoing viability of the Project. At trial, Anthony testified that he had concluded by 2009 that John was incapable of developing the Project due to his age and heart condition. This gives strong support for the view that the Defendants, with Anthony in the lead, effectively abandoned any real intention of developing the Property by that point in time. Importantly, the evidence at trial shows that the Defendants effectively stopped taking any meaningful steps from 2009 onwards to physically develop the Property and provide serviced lots to any of the investors.

205In the end, the Defendants did not develop the Project past the draft plan approval stage, and did not install any services (i.e., hydro, sewers, cable, etc.) for the Property. Instead, they sold the unserviced Property as a block after making little to no financial contributions to the Project in a manner that effectively followed the strategy outlined in the 2009 statement.

206Pursuant to the strategy of keeping investors “at bay,” Anthony did indeed “give a little money back” to Mr. Savona by paying him $32,000.00. He also made the following comments in the Statement of Intention which are revealing and noteworthy:

For example, the italian guy who owns 4 lots … this is what happens to him …

2 lots double up – ie he paid 35k gets back 70k per lot …

Remaining two lots he has – he paid 35k gets 35k plus small bonus of 5k

Why does he get so little? Agreements states if there is not enough lots to give back, or we decide it is not a good situation, at any time we can give back lots with full refund …

207The “Italian guy” referred to is clearly Mr. Savona, who is the only investor of Italian background who held 4 lot subscriptions. The Vuletics earlier tried to implement their scheme to remove one of Mr. Savona’s lots (i.e., by falsely claiming that the City of Brampton wanted to build on the Property) and only reimburse him for what he had paid for the lot interest. Anthony asserted that the APS entitled him to take the lot by giving Mr. Savona $35,000.00 plus a $5,000.00 bonus, and testified that his intention, depending on the individual, was to just return a Project investor’s money with a small bonus.

208In similar fashion, Anthony shared his intended approach in the following comments in the Statement of Intention:

These are the people that get only equal, refund not double …

Italian guy – refund 2 lots out of 4

Biondic – return one lot out of 4

Antes Group = there is a girl who has not made consistent payments give her a full refund …

Tax man – I think we took 2 lots over due to nonpayment, and they get full refund plus interest

HOWEVER, remember clearly, you control all the shots … if your sale is not in FULL but rather partial, then you only give partial refund, let them wait, etc. …

REMEMBER, take care of yourself FIRST, so you are comfortable … !!!!!!!!!!!!

209Anthony implemented his strategy with Kim Gushue and Anne-Marie Leveriza, who were Project investors who only obtained a refund of their investments and later sued the Vuletics and Embleton in separate proceedings.

210Having regard to how events later unfolded, I am satisfied that the Statement of Intention captured the broad strategy taken by the Vuletics after 2009 to take care of themselves first and place their own self-interest ahead of the interests of Project investors. As Anthony exhorted his mother and Mr. Tjan, “REMEMBER, take care of yourself FIRST, so you are comfortable!”

h. The OPA

211On January 28, 2010, the City of Brampton approved an OPA for phase 1 of Block Plan 40-3 as submitted by BWLG, subject to the application of its development allocation strategy.

212In March 2010, Mr. Kegalj brought an action against John, Anthony and Embleton in which he claimed an interest in the Property and alleged that the Vuletics were misusing Project funds. The Kegalj action is discussed in more detail later on in these reasons.

213In mid-March 2010, Embleton’s new planner, Glen Schnarr & Associates Inc. (“Schnarr”), filed yet another draft plan of subdivision with a 94-lot layout for the Property and the Ufkes and Teramoto lands. But like before, the Defendants did not disclose the application to investors nor advise their planner, the City or investors that Embleton was dissolved. In April 2010, the City staff circulated an internal memo stating that a notice of incomplete application was sent to Schnarr to advise that a list of supplemental information and studies had to be filed before the application could be comprehensively reviewed. The memo also advised that a final recommendation report for the draft plan would not be prepared until all of the technical submissions in support of phase 2 of Block Plan 40-3 had been submitted either by BWLG or Embleton. In addition, the memo stated that the Property was still zoned as “Village Residential” but that a further amendment would not be required to implement Embleton’s development proposal pending approval of phase one of Block Plan 40-3 such that its proposal would be fully addressed under Block Plan 40-3.

214In May 2010, the City released an information report to propose a public meeting, later scheduled for June 7, 2010, to discuss the proposals by Embleton and other developers for Block Plan 40-3. In its notice of the meeting, the City cautioned that the Property’s development could be impacted by its growth management program which required the timing and staging of the development to be delayed or coordinated with the provision of essential community services and infrastructure. Schnarr also filed documents for Embleton’s incomplete draft plan of subdivision. None of this was disclosed to investors.

215From 2010, the Defendants gave verbal Project updates to some of the Plaintiffs.

216In June 2010, John, Anthony and Colin Chung, a planner, met with the Workplace Group members to give a status update on the Project. Investors were told that the Project was progressing towards development approvals, despite some setbacks. However, investors were not advised of Embleton’s 2010 application to rezone the Property and the adjacent Ufkes and Teramoto lots from “Village Residential” to “Residential Single Detached” and develop 94 lots that would reflect a significant departure from the original Project concept. Investors were also not told of the June 2010 public meeting for the application or the outstanding planning issues that had to be addressed before the City would consider the application. In addition, investors were not told that:

a. on March 25, 2004, a prior development application had been filed for approval to subdivide these three (3) properties into 98 lots;

b. on May 16, 2005, the application had been amended to seek approval for 118 lots;

c. on May 16, 2006, the application was further amended to seek 105 lots;

d. on December 16, 2006, the application was further amended to seek 108 lots;

e. City planning staff had not formally reviewed the applications which therefore had no planning status nor any approval status in 2009; and

f. The City would not consider an application for subdivision for approval until the broader block plan for the block where the lands were situated had been confirmed, as Anthony conceded. At the time, the impugned block plan had been undergoing numerous changes and iterations which had stalled Embleton’s ability to submit an application for subdivision approval.

In light of this, the development of the Property was clearly nowhere close to being completed in 2010 while the City gave warnings that development within Block Plan 40-3 would be contingent on the availability of public services and infrastructure development that were still non-existent. Despite all of this, John assured the attendees that the Project was being capably managed and was progressing. He also expressed being upset about the Kegalj litigation, as further discussed below.

217In August 2010, the OMB gave phase one approval for Block Plan 40-3. But as Schnarr conceded in its October 2010 letter to the City, there were preliminary requirements including the phase two submissions for Block Plan 40-3 that had to be completed before the City would even begin to process Embleton’s March 2010 draft plan of subdivision. By this time, the litigation of Mr. Kegalj’s action was well underway and shining light on the Vuletics’ personal use of Project funds that were being depleted. As of September 2010, the Vuletics had allowed $24,561.00 in municipal tax arrears for the Property to accumulate.

218On May 28, 2011, Anthony met with the Workplace Group and circulated an agenda which suggested that investors would realize an increased “profit margin” on each lot.

219In July 2011, the Vuletics settled the litigation with Mr. Kegalj by providing him with a very lucrative payout that was financed by placing a larger mortgage on the Property. To this end, a $768,000.00 mortgage was obtained for the Property in August 2011, in large part to pay out the overdue $600,000.00 line of credit in the face of a foreclosure on the Property by the debtholder.

220After Mr. Kegalj’s litigation had settled, Anthony met the Workplace Group at a restaurant in July 2011 to view the area and visit model homes unrelated to the Project that were in the vicinity of the Property. Although Anthony swore an affidavit a few months later claiming that the Project was in disarray, he did not raise any concerns about the Project during this meeting.

221In October 2011, the City gave partial phase two approval for Block Plan 40-3 to further refine its stage one approval of the plan. But before giving stage one and two approvals, the City still required a number of reports and investigations to be completed as BWLG later noted in its July 2012 report.

222In November 2011, the Vuletics returned to court claiming that Mr. Kegalj had failed to implement the terms of the July 2011 settlement. To this end, Anthony swore an affidavit claiming to have run out of money to carry on with the Project leaving its mortgage, planners, municipal taxes, and BWLG cash calls unpaid and in arrears. He also claimed that the BWLG arrears led to Embleton’s exclusion from the group’s activities which left it without any knowledge of decisions that may be undertaken that would affect the value of the Project. Although Anthony’s affidavit blamed Mr. Kegalj for the Project’s host of financial problems, I find that most of these problems resulted from the Vuletics’s undisclosed personal use of substantial Project funds and their prior decisions to not pay planners, taxes or BWLG cash calls which Mr. Kegalj cannot be faulted for. In my view, Anthony’s affidavit revealed the aftermath of years of persistent mismanagement by the Vuletics, and Anthony’s propensity to say whatever he felt was expedient, without regard to its truth or accuracy, to avoid responsibility for misdeeds and to retain control over Project funds.

223In February 2012, a $900,000.00 TD Bank mortgage was taken against the Property by 185 Corp., a new corporate the Vuletics established in August 2011, with Ms. Kostelac guaranteeing the debt. Thereafter, 185 Corp. purported to carry on developing the Property, for which 185 Corp. had become its registered owner, without any assignment or transfer of the dissolved Embleton’s rights, interests or entitlements under the APSs with respect to Project investors.

224In an email to Ms. Kostelac on July 9, 2012, Anthony gave assurances that all services to the Property were to be paid and installed by 2012, with Embleton’s service costs to be staggered, and that home construction on the lots to the Property were to start in 2013 as part of a “second stage”. However, in a July 1, 2012 report that was not disclosed to investors, the City advised that first occupancy would not be until at least 2015. Anthony’s email also advised Ms. Kostelac that the value of each lot (i.e., once fully serviced) had gone from $175,000.00 as initially projected to a figure between $300,000.00 and $325,000.00 based on “conservative internal estimates” from a bank that valued the lots at $6,400.00 per linear foot based on a 50 foot frontage.

225Anthony’s assurances regarding the Project’s progress were essentially dispelled by BWLG’s comprehensive report entitled “Growth Management Phasing and Sequencing Strategy” released in July 2012, which gave a framework for a graduated development of the 1,100 acres in Block Plan 40-3 once the required planning approvals had been obtained. The report, which was not disclosed to investors, showed the enormity and complexity of the municipal planning process to develop Block Plan 40-3 and clearly revealed the overly simplistic and misleading assurances in Anthony’s earlier cash call letters to investors and his recent July 2012 email. Among other things, this lengthy report detailed the servicing infrastructure or features that had to be developed before lots could be subdivided and homes could be built, including:

a) sanitary and water services and upgrades outside the block plan

b) stormwater management

c) road improvements

d) new roads

e) intersection improvements

f) bridges

g) public transit

h) schools

i) recreational facilities

j) emergency services

k) natural systems

l) heritage protection

m) employment and economic development.

The BWLG report was prepared by Malone Given Parsons Ltd., the longstanding consultant for Great Gulf, and set out the phasing and sequencing of each developer’s property within the broader development strategy. Notably, the report put the Property in Phase 2 (i.e., after Phases 1A and 1B) and stated that residential development on the Property would, at the earliest, be possible in 2015, which corresponded with the City’s own development estimates. Based on this, I find that Anthony’s claim that Great Gulf allegedly advised him that infrastructure development and lot construction would be imminent from 2009 onwards was unfounded.

226As part of the Phase 2 approval of Block Plan 40-3, the City required BWLG members to enter into a cost sharing agreement to coordinate and finance servicing infrastructure (i.e., to make suburban development possible) before it would review or approve any draft plans for subdivision. However, BWLG had expelled Embleton from the group for its non-payment of cash calls that clearly resulted from a decision by the Vuletics to not pay Embleton’s contributions to the group. As Embleton’s own cash call letters to Project investors clearly warned that BWLG could impose draconian sanctions if its cash calls went unpaid, Embleton’s expulsion from BWLG was quite foreseeable and clearly jeopardized the timely development of the Property. By the end of 2012, BWLG prepared a cost sharing agreement in which Embleton or 185 Corp. were excluded.

i. Cash Call #5 – December 2012

227During a December 2012 meeting with the Workplace Group, Anthony announced another cash call but without explaining why more funds were being collected. Anthony allowed attendees to be the first investors to “pick” their lots from drawing that set out a number of lots on a subdivision plan that combined the Property with the Ufke and Teramoto lands. However, he did not explain that certain lots could not be picked as Embleton did not own them. For example, Anthony did not disclose that lots 33 and 34, which were picked at the meeting, were found on the Teramoto property. In any event, as Anthony conceded at trial, lots could not be assigned until December 2013 as a draft plan did not exist before then. Given the restriction on transferring lots before a draft plan of subdivision was in place, having investors “pick” their lots was meaningless despite raising some excitement that likely assured some investors that the Project had sufficiently progressed to make a further cash call payment more palatable.

228Upon examining the draft plan of subdivision at the December 2012 meeting, Ms. Grounds noticed that the lots were not 140 feet in depth as the Project initially conceived. When asked about this, Anthony claimed that the City of Brampton imposed a 115 foot lot depth which the Defendants were forced to accept. However, this explanation was false and failed to disclose that the Defendants wanted more lots (i.e., higher lot density) to increase their returns without giving notice to investors that the number of lots for the Project would be anything other than 51 lots. Other than the Workplace Group members, none of the other investors were shown a draft plan of subdivision for the Project prior to this litigation.

229In late December 2012, Anthony contacted Mr. Pichelli to demand $20,000.00 in cash calls for two lots (i.e., $10,000.00 per lot) which Mr. Pichelli paid in early 2013. In demanding the cash call, Anthony promised to give Mr. Pichelli a payment statement with confirmation of his lot numbers and further details to “close out” the Project. But Mr. Pichelli did not get any lot numbers given the lack of a registered plan of subdivision for the Property at the time. Moreover, by 2014, Anthony was trying to sell blocks of up to 40 lots to third parties despite his inability to legally transfer title to any lots on the Property due to the absence of a registered plan of subdivision.

230From the evidence, I find that the Vuletics were strategic and selective in choosing which investors to approach for a fifth cash call by only approaching those whom they believed would likely pay a $10,000.00 per lot cash call with minimal or no hesitation. For instance, Mr. Pichelli complied with the $20,000.00 cash call demand while other investors were not approached with a fifth demand for a cash call payment. Bookkeeping records confirm that the fifth cash call raised $120,000.00 in contributions from Project investors.

231In January 2013, Anthony advised Ms. Kostelac that the impending cash call would be used to pay for legitimate Project development and servicing costs. He did not disclose that Project funds taken from cash calls or mortgage proceeds would be used to pay for personal expenses. He also falsely told Ms. Kostelac that financial accounting for the Project had to first be approved by his lawyer, Mr. Adair, before it could be shared with investors. For his part, Mr. Adair expressly denied this and emphasized that it had been Anthony’s responsibility under the July 2011 settlement with Mr. Kegalj to provide investors with the accounting.

j. Accounting Issues

232By late January 2013, Ms. Kostelac was complaining about the lack of transparency in the limited accounting information that she and other investors had received. She noted the lack of meaningful detail in the accounting and observed that it lacked any figures for 2010 to 2012. In response, Anthony tried to reassure her by claiming that the accountant, Mr. Hinchcliffe, had verified all of the figures in the accounting with receipts and statements that Mr. Adair’s law firm had provided. Anthony also asserted that the APSs had always contemplated that any financial accounting or information would be given at the end of the Project, and that he had agreed under the settlement with Mr. Kegalj to temporarily open the books to show the costs that Embleton had incurred on behalf of the lot holders which led him to send lot holders “mid-term” statements. He later disclosed to Ms. Kostelac many unpaid expenses including $25,000.00 per year in municipal taxes, $24,000.00 in conservation authority charges, about $60,000.00 per year in mortgage costs, $35,000.00 owed to BWLG, and $15,000.00 in outstanding planning costs. He also promised to provide an accounting for 20