The Ontario Court of Appeal’s decision to overturn several of the trial judge’s findings in 1417217 Ontario Inc. v. River Trail Estates Inc., 2024 ONCA 491, serves as a crucial lesson for those involved in complex commercial litigation. The case underscores the necessity of precise pleadings and the importance of including all relevant parties and theories of liability.
While there is much to discuss in the decision, a key question was whether River Trail Estates Inc. (“River Trail Inc.”) owed a fiduciary duty to 1417217 Ontario Inc. (“141”). The trial judge found such a duty existed. The Court of Appeal, however, disagreed, holding in three brief paragraphs that no ad hoc fiduciary relationship existed.
The Trial Court’s Findings
The trial decision, 2021 ONSC 4785, intricately detailed the relationships amongst the parties and their various dealings as part of a joint venture arrangement. In paragraph 37, the trial judge observed that the “holding companies, such as River Trail Inc., would hold any properties for the benefit of 141.” This suggested a fundamental understanding that River Trail Inc. was, in effect, a trustee for 141. Further reinforcing this was paragraph 137, which found that the “River Trail [property] was purchased using Joint Venture funds.”
Despite these findings, the apparent absence of a formal pleading of any kind of trust by the plaintiffs (see para 172) significantly undermined their position. A trust relationship, once established, results in fiduciary responsibility owed by the trustee to the beneficiary. Instead, the Court’s focus was on determining whether an ad hoc fiduciary duty existed.
The Court of Appeal’s Rationale for Overturning
One of the principal reasons cited by the Court of Appeal for overturning the trial judge’s finding of an ad hoc fiduciary duty was the insufficient evidence to justify a leap from a contractual duty to a fiduciary duty. Following Eldar Advocates of Alberta Society v. Alberta, 2011 SCC 24, for an ad hoc fiduciary duty to arise, several criteria must be satisfied: an undertaking by the fiduciary to act in the best interest of the alleged beneficiary; vulnerability; and the fiduciary’s power to affect the beneficiary’s interests. The Court of Appeal held that these criteria were not adequately demonstrated merely through the existence interconnectedness between parties to the joint venture.
Particularization and Inclusion of All Parties
Other apparent oversights were the plaintiffs’ failure to particularize their claim against the director of River Oaks Inc., Meena Sharma (“Meena”), and include a non-joint venture entity, 2132161 Ontario Inc. (“213”), as a party to the action.
213 was a corporation controlled by Meena’s mother. The trial judge found (and it does not even seem to be disputed) that Meena directed the net proceeds from the sale of River Trail Inc.’s property to 213. However, the trial judge also found that the plaintiffs did not sufficiently explain how Meena’s actions were tortious or differed from their claims against 141 within their pleadings. Instead, the trial judge found Meena personally liable based on her status as an Estate trustee for her father’s estate and based on a veil piercing argument. The Court of Appeal held that both results were wrong in law.
If we accept the argument that River Trail Inc. was acting as a trustee for 141, Meena’s actions could have been framed as knowing assistance in the breach of fiduciary duty. Here, Meena, as a director of River Trail Inc., had the corporation move funds intended for 141’s benefit to another entity for the purpose of putting the funds beyond 141’s recovery. This would be a clear breach of fiduciary duty by 141, with Meena assisting in diverting trust assets. This claim, however, needed particularization in the pleadings, a step the plaintiffs unfortunately overlooked.
The plaintiffs’ failure to plead trust and adequately particularize claims against individual actors like Meena turns into a broader lesson about legal strategy. Even with the trial judge making findings that strongly suggested fiduciary duties derived from a trust relationship, the case was apparently weakened by pleadings oversights.
Michael Crampton