The Court of Appeal for Ontario dismissed a multi-million dollar claim by a Toronto real estate developer against Royal Bank of Canada (RBC) and Barbican Properties Inc. on March 26, 2002, reversing the trial decision of Justice James Spence of the Superior Court of Justice.
In 1989, Frank Rodaro and his companies began to develop a 750-acre real estate project in Barrie, Ontario. RBC agreed to provide financing for phase one of the development and expressed interest in participating in future phases that were expected to proceed over the following 10 to 12 years.
During the recession in mid-1990, the relationship between RBC and Rodaro deteriorated. In 1992, RBC advised Rodaro that it was not prepared to provide further financing. Instead of demanding payment and commencing foreclosure or power of sale proceedings, RBC assigned its debt and security to Barbican, a real estate development company related to RBC. Rodaro refused to co-operate with Barbican's efforts and, ultimately, the lands were sold by Barbican by way of power of sale for an amount substantially less than the outstanding loans.
Immediately after the assignment to Barbican, Rodaro sued RBC and Barbican for damages in the amount of $160 million, claiming that RBC had breached contractual and fiduciary duties by refusing to continue to finance the project. Rodaro also claimed that RBC and Barbican had unlawfully conspired to appropriate the project for themselves through the assignment to Barbican.
Justice Spence dismissed Rodaro's claims for breach of contract, breach of fiduciary duty and conspiracy. Justice Spence accepted RBC's and Barbican's argument that the loans were in default, that RBC was under no obligation to provide further funding and that there was no merit in Rodaro's claim that RBC and Barbican had unlawfully conspired to appropriate the project for themselves. Justice Spence also found that RBC could have commenced foreclosure or power of sale proceedings if it had wished to do so.
However, notwithstanding these findings, Justice Spence held that RBC breached its duty of customer confidentiality when, in addition to giving Barbican loan account information, it gave Barbican an appraisal that included information from Rodaro's confidential business plan for the project. Justice Spence found that Barbican had used this information in making its decision to accept the assignment of the loan and security and found RBC and Barbican jointly liable to Rodaro in damages.
In reaching his decision, Justice Spence recognized the longstanding exception to the rule of banker/customer confidentiality that permits a lender to disclose confidential customer information when disclosure is necessary to protect the lender's legal interests. However, Justice Spence ruled that RBC could not rely on the exception because the information disclosed to Barbican included confidential business plan information and was not limited to loan account information. Justice Spence ruled that Rodaro had lost the opportunity to negotiate to sell his confidential business plan information to Barbican and that he was entitled to compensation in damages for that lost opportunity.
After a three-day hearing, the Court of Appeal disagreed, ruling that the assignment to Barbican had not caused Rodaro to suffer any loss. The court also ruled that Justice Spence erred by imposing liability on RBC and Barbican based on the lost opportunity theory because the theory had not been pleaded and was not part of Rodaro's case at trial. In the result, the court dismissed Rodaro's claims in their entirety and ruled that Barbican was entitled to proceed with a counterclaim against Rodaro for the deficiency suffered when the development was sold by power of sale.
Timothy Gilbert, Robert Minnes and Jean-Claude Rioux of Gilbert's in Toronto represented Rodaro. Catherine Francis and Tamara Vanmeggelen of Minden Gross Grafstein & Greenstein LLP represented RBC. Paul Macdonald and Brett Harrison of McMillan Binch represented Barbican.
In 1989, Frank Rodaro and his companies began to develop a 750-acre real estate project in Barrie, Ontario. RBC agreed to provide financing for phase one of the development and expressed interest in participating in future phases that were expected to proceed over the following 10 to 12 years.
During the recession in mid-1990, the relationship between RBC and Rodaro deteriorated. In 1992, RBC advised Rodaro that it was not prepared to provide further financing. Instead of demanding payment and commencing foreclosure or power of sale proceedings, RBC assigned its debt and security to Barbican, a real estate development company related to RBC. Rodaro refused to co-operate with Barbican's efforts and, ultimately, the lands were sold by Barbican by way of power of sale for an amount substantially less than the outstanding loans.
Immediately after the assignment to Barbican, Rodaro sued RBC and Barbican for damages in the amount of $160 million, claiming that RBC had breached contractual and fiduciary duties by refusing to continue to finance the project. Rodaro also claimed that RBC and Barbican had unlawfully conspired to appropriate the project for themselves through the assignment to Barbican.
Justice Spence dismissed Rodaro's claims for breach of contract, breach of fiduciary duty and conspiracy. Justice Spence accepted RBC's and Barbican's argument that the loans were in default, that RBC was under no obligation to provide further funding and that there was no merit in Rodaro's claim that RBC and Barbican had unlawfully conspired to appropriate the project for themselves. Justice Spence also found that RBC could have commenced foreclosure or power of sale proceedings if it had wished to do so.
However, notwithstanding these findings, Justice Spence held that RBC breached its duty of customer confidentiality when, in addition to giving Barbican loan account information, it gave Barbican an appraisal that included information from Rodaro's confidential business plan for the project. Justice Spence found that Barbican had used this information in making its decision to accept the assignment of the loan and security and found RBC and Barbican jointly liable to Rodaro in damages.
In reaching his decision, Justice Spence recognized the longstanding exception to the rule of banker/customer confidentiality that permits a lender to disclose confidential customer information when disclosure is necessary to protect the lender's legal interests. However, Justice Spence ruled that RBC could not rely on the exception because the information disclosed to Barbican included confidential business plan information and was not limited to loan account information. Justice Spence ruled that Rodaro had lost the opportunity to negotiate to sell his confidential business plan information to Barbican and that he was entitled to compensation in damages for that lost opportunity.
After a three-day hearing, the Court of Appeal disagreed, ruling that the assignment to Barbican had not caused Rodaro to suffer any loss. The court also ruled that Justice Spence erred by imposing liability on RBC and Barbican based on the lost opportunity theory because the theory had not been pleaded and was not part of Rodaro's case at trial. In the result, the court dismissed Rodaro's claims in their entirety and ruled that Barbican was entitled to proceed with a counterclaim against Rodaro for the deficiency suffered when the development was sold by power of sale.
Timothy Gilbert, Robert Minnes and Jean-Claude Rioux of Gilbert's in Toronto represented Rodaro. Catherine Francis and Tamara Vanmeggelen of Minden Gross Grafstein & Greenstein LLP represented RBC. Paul Macdonald and Brett Harrison of McMillan Binch represented Barbican.
Lawyer(s)
Timothy H. Gilbert
Tamara Vanmeggelen
Brett G. Harrison
Jean-Claude J. Rioux
R. Hector MacKay-Dunn
Catherine Francis
Paul G.F. Macdonald
Firm(s)
Gilbert's LLP
McMillan LLP