COURT FILE NO.: CV-21-00661458-00CL DATE: 2024-04-22 ONTARIO SUPERIOR COURT OF JUSTICE [COMMERCIAL LIST]

BETWEEN:

ONTARIO SECURITIES COMMISSION – and – BRIDGING FINANCE INC, BRIDGING INCOME FUND LP, BRIDGING MID-MARKET DEBT FUND LP, SB FUND GP INC., BRIDGING FINANCE GP INC., BRIDGING INCOME RESP FUND, BRIDGIND MID-MARKET DEBT RSP FUND, BRIDGING PRIVATE DEBT INSTUTIONAL LP, BRIDGING REAL ESTATE LENDING FUND LP, BRIDGING SMA 1 LP, BRIDGING INFRASTRUCTURE FUND LP, BRIDGING MJ GP INC., BRIDGING INDIGENOUS IMPACT FUND, BRIDGING FERN ALTERNATIVE CREDIT FUND, BRIDGING SMA 2 LP, BRIDGING SMA 2 GP INC. and BRIDGING PRIVATE DEBT INSTITUTIONAL RSP FUND Respondents

BEFORE: Justice J. Steele COUNSEL: Erin Pleet and John Finnigan, for the Receiver, PriceWaterhouseCoopers Lawrence Thacker and Jonathan Chen, for Natasha Sharpe Alistair Crawley and Alexandra Grishanova, for David Sharpe Denise Sayer, for the Trustee of the Alexander Morris Sharpe Trust Kelly Charlebois and Tsvetomira Niklin, for Alexander Morris Sharpe, a Minor by his Litigation Guardian, The Children’s Lawyer Robert Staley, Court-Appointed Representative Counsel DATE HEARD: April 10, 2024

ENDORSEMENT

Overview

[1] There were several issues that were scheduled to be before the Court. However, the parties determined that the threshold issue for the Court to address was the trust interpretation issue.

[2] The Trustee of the Alexander Morris Sharpe Trust (the “AMS Trust”) seeks advice and directions from the Court on the interpretation of the AMS Trust. Specifically, the Trustee seeks direction as to whether certain legal fees can be paid from the AMS Trust given the language in the AMS Trust that it is for the “sole and exclusive” benefit of the minor, Alexander Morris Sharpe (age 12) (“Alex”).

[3] The Office of the Children’s Lawyer (the “OCL”) is of the view that the legal fees cannot be paid from the AMS Trust given the language in the trust that it is for the “sole and exclusive” benefit of Alex.

[4] For the reasons set out below, I have determined that the AMS Trust funds cannot be used to pay the Legal Fees (defined below).

Background

[5] This motion is brought in the context of the ongoing proceedings involving, among others, David and Natasha Sharpe, who are former directors and officers of Bridging Finance Inc.

[6] Bridging Finance Inc. and certain related entities were placed into receivership by the OSC in April 2021.

[7] The Bridging entities and David and Natasha Sharpe face several legal challenges. In addition, claims in certain proceedings name Alex personally and the Trustee. The proceedings (collectively, the “Bridging Proceedings”) include:

a. Enforcement proceedings have been brought against, among others, David and Natasha Sharpe, before the Capital Markets Tribunal, In the Matter of Bridging Finance Inc. et al., Tribunal File No. 2022-9. b. David and Natasha Sharpe are defendants in a claim brought by the Receiver on behalf of the Bridging parties (Court File No. CV 23-00698633-00CL). The Trustee of the 182 Trust (defined below) is named as a defendant in this claim. c. David and Natasha Sharpe also face several lawsuits from investors, some of which have been stayed because of the receivership order. d. Alex and the Trustee of the AMS Trust have been named in another action initiated by the Receiver on behalf of the Bridging entities (Court File No. CV-23-00698702-00CL).

[8] David Sharpe has brought an application challenging the public disclosure of his confidential compelled evidence by the OSC in connection with the receivership application. He also commenced a civil proceeding against the OSC (Court File No. CV-22-00679153-0000) related to this disclosure.

[9] David and Natasha Sharpe are also subjects of a criminal investigation conducted by the RCMP’s Integrated Market Enforcement Team. At this time, no criminal charges have been laid against them.

[10] There are consent preservation orders covering all of Natasha and David Sharpe’s assets.

Legal Fees

[11] David Sharpe is represented by Crawley Mackewn Brush LLP. Crawley MacKewn’s accounts receivable for services provided to David Sharpe as of April 1, 2024 is $726,723 (the “Crawley A/R”). Mr. Sharpe’s total outstanding legal fees are $887,805, with $122,770.68 outstanding to Greenspan Humphrey Weinstein LLP, and $38,210.95 outstanding to Nicolas M. Rouleau Professional Corporation (David’s Legal Fees”).

[12] Natasha Sharpe is represented by Lenczner Slaght LLP. Lenczner Slaght’s accounts receivable for services provided to Natasha Sharpe between April 2023 and March 2024 is $883,921.21 (“Natasha’s Legal Fees”, and collectively with David’s Legal Fees, the “Legal Fees”).

[13] The consent preservation order, issued in this proceeding on August 20, 2021, and amended on September 16, 2021, provides the following with respect to payment of living expenses and legal fees:

THIS COURT ORDERS that [...] (a) Each of the Sharpe Respondents are entitled to spend a reasonable amount on ordinary living expenses and legal advice and representation in such amounts as may be agreed upon by the Receiver and the Sharpe Respondents or determined by the Court; (b) With the Receiver’s written consent for each transaction and/or withdrawal, any financial institution or other such person may carry out any transaction and/or withdrawals relating to accounts connected to the Sharpe Respondents, including but not limited to any investment accounts held by David Sharpe; and (c) Any financial institution may rely on the written consent of the Receiver in carrying out any transactions and/or withdrawals authorized under this provision and shall have no obligation to supervise or monitor compliance with this Order in connection with such a transaction.

[14] Following the negotiation of the consent preservation order, until May 4, 2023, the Receiver’s counsel routinely approved the payment of David and Natasha Sharpe’s legal fees, which were paid from the Richardson Account and the BMO Account.

[15] The Richardson Account and BMO Account have been depleted. Following the depletion of these accounts, the Receiver has not approved the Sharpes’ legal fees.

[16] When the Receiver approved the December 2022 and January-March 2023 legal accounts, counsel for the Receiver indicated that the funds from previously approved sources had been depleted and requested a proposal for further sources of funding.

[17] The following sources have been identified by the Sharpes as ones that may potentially be available to pay David and Natasha Sharpes’ legal fees and living expenses:

a. Proceeds from the surrender of the Sharpes’ life insurance policy with Manulife, worth approximately $1.1 million plus a $337,363 refund cheque from Manulife; b. Proceeds from the sale of the Sharpes’ residence at 182 Crescent Road, Toronto, in the approximate amount of $5 million, held in the AMS Trust; and c. A balance of $62,085 in Crawley Mackewn’s trust account.

[18] Alex is also a beneficiary of two foreign trusts with significant assets: the Salus Rete Trust in Liechtenstein and the Tansi Trust in the Bahamas. Neither David nor Natasha Sharpe is currently a beneficiary of the two foreign trusts.

[19] There is no evidence before the Court regarding David and Natasha Sharpe’s other assets that could be used to pay the Legal Fees. Similarly, there is no affidavit evidence from David and Natasha Sharpe specifying that they have no other assets to pay the Legal Fees.

Analysis

[20] The Trustee of the AMS Trust seeks the opinion, advice or direction of the Court under section 60 of the Trustee Act, R.S.O. 1990, c. T.23, which provides that trustees may apply to the Court for advice and direction on any question respecting the management or administration of the trust property.

[21] As noted above, one of the sources of funds that David and Natasha have identified as being potentially available to pay the Legal Fees is the proceeds of sale of 182 Crescent Road (the “182 Proceeds”), which are held in the AMS Trust.

[22] The Trustee of the AMS Trust wants to use the 182 Proceeds to pay the Legal Fees. However, she is of the view that the trust terms are unclear and, therefore, seeks direction from the Court.

The Trust Terms

[23] David Sharpe and Natasha Sharpe settled a trust on or about April 24, 2018 (the “182 Trust”). The following persons are named as the “Primary Beneficiaries” of the 182 Trust:

a. David Sharpe, b. Natasha Sharpe, c. David and Natasha’s son, Alexander Morris Sharpe, and d. A trust established for the benefit of Alexander Morris Sharpe, as set out in Article 3.2.

[24] Article 3.2 of the 182 Trust provides:

If Alexander Morris Sharpe shall become entitled to a distribution of the capital of the Trust, including the Initial Trust Property, before attaining the age of twenty-five (25), the capital property so distributed shall be held as a separate Trust (the “Alexander Morris Sharpe Trust”) for the sole and exclusive benefit of Alexander Morris Sharpe by the Trustees on the following terms:

a) The initial Trustees of the Alexander Morris Sharpe Trust shall be the Trustees at the time of the establishment of the Alexander Morris Sharpe Trust. b) The provisions of this Agreement respecting the administration of the Trust under Articles 4, 5, 6, 7, 8, 9 and 10 herein shall apply mutatis mutandis to the Alexander Morris Sharpe Trust. c) Upon Alexander Morris Sharpe attaining the age of twenty-five (25), the Alexander Morris Sharpe Trust shall wind up, and all of the remaining property shall be transferred to Alexander Morris Sharpe. d) If Alexander Morris Sharpe passes away before the distribution of all the property held by the Trust, the remaining property shall be distributed in the same fashion as set out under paragraph 3.1(d) as if the property had been held at the Division Date and none of the Primary Beneficiaries were then alive.

[25] The initial trust property in the 182 Trust was the residential property known as 182 Crescent Road. There was also a transfer made into the 182 Trust of certain investment accounts.

[26] On December 7, 2020, the BMO Trust Company (the then trustee of the 182 Trust) exercised its discretion and allocated the 182 Crescent Road Property to Alex to be held in the AMS Trust. BMO Trust, in its capacity as the trustee, acknowledged:

BMO Trust Company, as trustee of the Trust, continues to hold 182 Crescent Road in trust for Alex until he attains the age of TWENTY-FIVE (25) years in accordance with and subject to the terms and conditions set out in paragraph 3.2 of the Original Trust Indenture.

[27] The AMS Trust was confirmed by a Declaration of Bare Trust and Nominee Agreement dated December 7, 2020.

[28] On May 6, 2021, the Trustee, Juliana Contreras, replaced the BMO Trust Company as the Trustee for the 182 Trust.

[29] Article 3.2 of the 182 Trust was amended by deed of amendment on February 5, 2024, to add the following paragraph 3.2(a.1) to permit the Trustee to encroach on the income and capital of the AMS Trust for the “sole and exclusive” benefit of Alex, prior to Alex attaining age twenty-five:

3.2(a.1) The Trustees shall hold and may invest the trust property and pay such portions of the income and capital thereof for the sole and exclusive benefit of Alexander Morris Sharpe, at such time or times, and in such manner as the Trustees, in their absolute discretion, determine.

[30] The Trustee seeks the Court’s guidance on the interpretation of paragraph 3.2 of the 182 Trust.

Interpretation of the Trust Agreement

[31] A trust, unlike a corporation, is not a separate legal entity. It is a relationship between the trustees and the beneficiaries. When a party transfers property to a trust, the party parts with the property. The trust agreement is the document that set out the trust terms. The trustee has the obligation to deal with the trust property for the benefit of the beneficiaries in the manner specified in the trust agreement.

[32] The Trustee submits that the language in the AMS Trust can support an interpretation that the trust funds may be used to pay the Legal Fees.

[33] The Trustee first points to paragraphs 4.1(r) and 4.1(u) of the 182 Trust (which are incorporated in the AMS Trust):

4.1 Without in any way limiting or derogating from the powers, authorities, discretions and immunities otherwise howsoever available to the Trustees, whether under any statute or at law or otherwise, the Trustees hereunder shall have and be invested with the following powers, authorities, discretions and immunities, which they shall be entitled to exercise in such manner as they in their absolute discretion deem advisable, and their decisions shall be final, conclusive and binding upon all interested parties and not subject to question by any person who may be entitled hereunder or by any court or tribunal, and no person dealing with them shall be charged with any duty to enquire into the propriety of their action:

Legal Action

(r) To institute, prosecute and defend any suits or actions or other proceedings affecting them or the Trust Property or any part thereof, to compromise or settle any matter of difference or to submit any such matters to arbitration, to compromise or compound any debts owing to or by the Trust upon evidence that they consider sufficient; to make partition in whole or in part at public auction or private sale or otherwise and upon such terms as they deem advisable with any co-owners or joint owners having any interest in any properties comprised in the Trust Property and to make such partition either by sale or by set-off or by agreement or otherwise (including where deemed desirable, provision for equality or exchange).

Infant Beneficiary

(u) To hold and keep invested the share (and any income derived therefrom) of any Beneficiary who becomes entitled indefeasibly to a share in the Trust Property before he or she attains the age of majority, and the income and capital thereof, or so much thereof as the Trustees may deem advisable, may be used for the benefit of such Beneficiary until he or she attains the age of majority. Any net income of such Beneficiary’s share not so used in any year shall be accumulated and added in such year to the capital thereof. The provisions of this Agreement respecting the administration of the Trust shall apply mutatis mutandis to any such infant Beneficiary’s share held by the Trustees.

[34] The Trustee submits that in interpreting the meaning of “sole and exclusive benefit”, the Court ought to consider that 4.1(r) permits the trustee to use trust funds to defend legal actions affecting the trustee or the trust property, and 4.1(u) permits the trustee to use the money in the trust for the benefit of an infant beneficiary before reaching the age of majority. These general powers are included in the trust agreement so that the trustee has the power to take these actions. The trust agreement contains the trust terms, and absent broad powers being given to a trustee in a trust document, the trustee does not have the powers. The inclusion of these powers does not inform the interpretation of the language of paragraph 3.2. The trustees have the power to defend legal actions. However, this does not mean that they can use trust property that is for the sole and exclusive benefit of a beneficiary to defend a legal action against persons who are not trust beneficiaries. Similarly, giving the trustees the broad power to hold and invest any share of the property for a minor beneficiary, and the ability to use the income or capital “for the benefit of” the minor beneficiary does not modify the specific language in paragraph 3.2 with regard to the trust for the “sole and exclusive benefit” of Alex.

[35] Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters’ Law of Trusts in Canada, 5th ed. (13 May 2021) at ch. 20.1, online: (WL Can) Thomson Reuters Canada (“Waters”), notes that “[t]he object of the trustees’ administrative powers is to enable them to manage the trust property so that they are best able to fulfill the terms of the trust.” Waters further explains the rationale for granting a large number of powers in the trust instrument as follows:

[...] The tendency is to provide expressly in the trust instrument a large number of powers. [...] [O]ften a range of powers is desired that is not contemplated in the legislation. If such powers are not expressly provided, the only solution when a problem arises may be the making of an application to the court, with the attendant uncertainty and cost to the trust estate. Even where the legislation does include some desired power, often its formulation of that power is not so comprehensive as the testator or settlor would wish, leading again to the need for an express version in the instrument. [...]

[36] The Trustee submits that the Bridging Proceedings have the potential to have catastrophic effects on Alex. Among other things, the Receiver takes the position that the funds in the AMS Trust “were wrongfully transferred into the trusts, whether the claim is proprietary or non-proprietary, and must be returned to Bridging.” The Trustee submits that Alex has a direct financial interest in helping his parents succeed in the litigation against them. Specifically, if the allegations against Natasha and David Sharpe are proven successful, then Alex would not be entitled to any of the funds. The Trustee submits that as trustee she is obligated to act in Alex’s best interests and that includes protecting the AMS Trust’s assets: Gonder v. Gonder Estate, 2010 ONCA 172, 259 O.A.C. 295, at para. 22.

[37] The Trustee also argues that Alex’s emotional security is at risk. Alex’s parents face the risk of criminal proceedings, and accordingly there is the possibility of their incarceration. The Trustee states that Alex’s mental, emotional, and psychological well-being would be negatively affected if he were to be separated from his parents.

[38] The Trustee is of the view that it is in Alex’s best interests for her to use her discretion to permit up to $1.5 million requested by Natasha and David Sharpe to be used to pay the Legal Fees. However, the Trustee seeks guidance from the Court because the Trustee is of the view that the language in the AMS Trust is not clear as to whether being in Alex’s interests, or potentially necessary to protect his financial and legal interests, is sufficient to permit the Trustee to exercise her discretion and use the trust funds as requested by Natasha and David Sharpe.

[39] The OCL submits that the trust language is clear. The funds in the AMS Trust can only be used for the sole and exclusive benefit of Alex. While the OCL agrees that there may be payments that could made for the primary benefit of Alex that could also indirectly benefit another person, the OCL states that what the Trustee seeks is the payment of trust funds to primarily benefit Natasha and David Sharpe, with an accompanying or secondary benefit to Alex. The OCL states that the language in the AMS Trust cannot bear the interpretation suggested by the Trustee.

[40] The OCL submits that had the settlors of the 182 Trust/AMS Trust intended a lesser test than “sole and exclusive benefit”, they could have chosen different words such as “for the benefit of Alex.” Instead, the settlors chose to use the most restrictive language possible. The OCL points to the following definitions of “sole” and “exclusive:”

SOLE, adj. 1. Solitary, single or individual <”sole proprietorship”>. 2. Exclusive <”the sole right to reproduce the work”>. 3. Unmarried (as in a woman who is single, widowed or divorced). See CORPORATION FEME. Nancy McCormack, The Dictionary of Canadian Law, 5th ed. (Toronto: Carswell, 2020).

Exclusive adj. (16c) 1. Limited to a particular person, group, entity, or thing . 2. Unable to be true if something else is true . 3. Whole; undivided . Bryan A. Garner, ed., Black’s Law Dictionary, 11th ed. (Toronto: Thomson Reuters, 2019).

[41] The OCL also points to the history leading up to this motion to bolster its position that the requested encroachment is not for Alex’s sole and exclusive benefit. Specifically, this motion for advice and directions was first brought in the spring 2023. The OCL delivered its factum, which noted that the AMS Trust did not permit income and capital encroachments. It required that the funds be held for the sole and exclusive benefit of Alex until he attained age 25, when the AMS Trust was to be wound up and all the remaining property in the trust distributed to Alex. The Trustee’s motion was adjourned. On or about February 5, 2024, the Settlors (David and Natasha Sharpe) and the Trustee amended the AMS Trust to include the new section 3.2(a.1) to permit encroachments on income and capital for the sole and exclusive benefit of Alex. The OCL submits that this trust amendment was made by David and Natasha Sharpe and the Trustee to facilitate the payment of the Legal Fees from the AMS Trust.

[42] I understand the submission of Natasha and David Sharpe that it is in the interests of all parties concerned, and the administration of justice, that the defendants have access to counsel to present their defence. However, this does not mean that funds that are subject to clear trust terms can be encroached upon and used for expenses that are not for the sole and exclusive benefit of Alex.

[43] I agree with the OCL that the language used in the AMS Trust is the most restrictive possible. The settlors could have used less restrictive language, such as “for the benefit of Alex,” but they chose not to. Accordingly, the payment of Natasha and David Sharpe’s Legal Fees, which would have a collateral benefit to Alex, cannot be said to be for Alex’s sole and exclusive benefit. The payment of the Legal Fees from the AMS Trust is not even primarily for Alex’s benefit. The primary benefit would accrue to Natasha and David Sharpe.

[44] The “sole and exclusive benefit” language of the AMS Trust precludes the use of the trust funds to pay the Legal Fees.

Reasonableness of Fees

[45] Counsel for each of David and Natasha Sharpe ask the Court to approve the invoices submitted as being reasonable pursuant to the Court’s authority to approve under the consent preservation order. However, it is still unclear the source from which the Legal Fees will be paid.

[46] The Receiver indicated that it did not have any issue, nor submissions, with the Court reviewing and approving the Crawley A/R and Natasha’s Legal Fees. No party objected to the Court reviewing and approving the fees.

[47] Counsel for David and Natasha Sharpe filed their redacted invoices. The Court was provided with a breakdown of the fees charged by timekeeper, including their hourly billing rates, year of call, and time spent. The hourly rates charged are commensurate with sophisticated legal counsel in the City of Toronto.

[48] There is no dispute that the allegations against David and Natasha Sharpe made in this proceeding, and the other Bridging Proceedings, are complex and significant, requiring extensive legal assistance.

[49] I am satisfied that the Legal Fees are reasonable in light of the volume, urgency and complexity of the work performed by Natasha and David Sharpe’s legal counsel. However, the issue as to the source of funds to pay the Legal Fees is still outstanding.

[50] The parties are scheduled for a Case Conference before me on April 25, 2024 at 11:30 am (one hour) via Zoom.

J. Steele J. Released: April 22, 2024

COURT FILE NO.: CV-21-00661458-00CL DATE: 2024-04-22 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ONTARIO SECURITIES COMMISSION – and – BRIDGING FINANCE INC, BRIDGING INCOME FUND LP, BRIDGING MID-MARKET DEBT FUND LP, SB FUND GP INC., BRIDGING FINANCE GP INC., BRIDGING INCOME RESP FUND, BRIDGIND MID-MARKET DEBT RSP FUND, BRIDGING PRIVATE DEBT INSTUTIONAL LP, BRIDGING REAL ESTATE LENDING FUND LP, BRIDGING SMA 1 LP, BRIDGING INFRASTRUCTURE FUND LP, BRIDGING MJ GP INC., BRIDGING INDIGENOUS IMPACT FUND, BRIDGING FERN ALTERNATIVE CREDIT FUND, BRIDGING SMA 2 LP, BRIDGING SMA 2 GP INC. and BRIDGING PRIVATE DEBT INSTITUTIONAL RSP FUND Respondents

REASONS FOR JUDGMENT

Steele, J. Released: April 22, 2024