Law Times

Law Times • January 29, 2018 Page 3 www.lawtimesnews.com Client launches lawsuit against Torys LLP for $10 million BY ALEX ROBINSON Law Times A real estate investment trust has launched a $10-million claim against Torys LLP for alleged negligence and breach of its fiduciary duty on a now- rescinded real estate transaction. Partners REIT retained the international business law firm to act for it in a 2014 real estate transaction — known as the Holyrood transaction — that it entered into based on advice received from Torys lawyers, according to an amended state- ment of claim filed on Jan. 9. The REIT later discovered that Torys had knowledge that the purchaser in the transaction had been working jointly with the CEO of the time to fend off a hostile takeover, the claim said. The REIT also claimed that Torys had allegedly preferred the interests of other clients over those of Partners REIT when it found itself in a position of con- f lict. None of the allegations has been proven in court. Les Viner, managing partner of Torys, confirmed that no claim has been served on the firm. "We will respond if and when we are served with a claim," he said in an email. In its statement of claim, Partners REIT said that, in the transaction, the trust acquired retail centres in Hamilton, Kemptville and London, Ont. from Holyrood Holdings Lim- ited in exchange for 18.7 per cent of the REIT's outstanding units. According to the statement of claim, Holyrood was owned and controlled by Laura Philp, who Partners REIT later learned was a close friend and business asso- ciate of Ron McCowan, the RE- IT's interim CEO, who owned approximately 14.9 per cent of the REIT's outstanding units. Partners REIT also discov- ered that Torys had knowledge of the nature of their relation- ship, the claim alleges. The claim alleges that, in 2013, Torys acted for McCowan when he acquired 14.9 per cent of out- standing units of Partners REIT and the right to manage the trust. Torys was appointed as counsel to the trust and its trustees, and the firm then provided legal ad- vice to both McCowan and the putative trustees with respect to the change of trustees — failing to appreciate this might place the firm in a conf lict, according to the statement of claim. Partners REIT argued that Torys knew or ought to have known that the legal and commercial interests of McCowan might not always align with those of the REIT, ac- cording to the claim. Faced with a possible hostile takeover of Partners REIT at around that time, Torys told Mc- Cowan that he needed to secure a "blocking position," meaning a third party friendly to him would sell assets to the trust in exchange for enough equity that would deter a takeover, accord- ing to the statement of claim. The trust claimed that it was this need to preserve McCow- an's control over the trust that underpinned Torys conduct, as it was not a need of the REIT, and it did not "recognize, disclose, or seek their clients' informed ap- proval of this conf lict." McCowan and Torys ad- vised trustees that, in order to grow the REIT, McCowan had approached Philp about her in- terest in selling properties to the trust in exchange for securities and mortgage assumptions, the statement of claim said. Mc- Cowan held her up as "an arm's length business woman who carried on a real estate and nurs- ing home business" with whom he had shared office space. "Torys did not disagree with Mr. McCowan's representations about Ms. Philp even though it knew or ought to have known, and ought to have disclosed to the REIT" the extent of their relationship, according to the statement of claim. It turned out that McCowan and Philp were actually close friends and business associates going back to the early 1980s, according to the statement of claim. They had frequently pro- vided loans to each other and he had managed various properties for her and was CEO of some of her companies, according to the statement of claim. Torys knew the two had been acting jointly by Jan. 22, 2014 at the latest, said the statement of claim, which added "any reason- able lawyer would have advised Partners REIT to either not close the Holyrood Transaction or to have it approved by a vote of its disinterested unit holders." Torys also found itself acting for Partners REIT with respect to the purchase of these prop- erties at the same time that the firm was advising McCowan on how to deter the hostile bid, ac- cording to the claim. "Torys saw the need to close the Holyrood transaction through the lens of McCowan's lawyers, not Partners REIT's law- yers," the statement of claim said. "The former needed completion of the Holyrood Transaction ur- gently. The latter did not." The fact that the two had been allegedly working jointly was problematic as Partner REIT claimed it was under the mistaken belief that no insider within the trust had an interest in the trans- action, that the transaction would not materially affect control of the trust and that, in closing the transaction, Partners REIT was complying with securities laws. It wasn't until after the trans- action closed that Partners REIT became aware of their close re- lationship and that they could be "considered acting together under applicable securities regu- lation," the claim said. When the REIT learned this information, it claimed it immediately re- tained new counsel and looked to rescind the transaction. The REIT claimed that it completed the transaction with- out an independent valuation and without seeking the approv- al of disinterested unit holders based on Torys' legal advice. The trust also claimed that Torys knew representations the trust then made to the TSX about the transaction were false, as the firm knew McCowan had a financial interest in the trans- action and that it would affect the control of the trust by cre- ating a blocking position. The REIT claimed it needlessly spent millions of dollars as a result of Torys advice on negotiating the transaction, agreeing to the pur- chase, investigating the alleged misconduct and unwinding the transaction. The lawyer repre- senting Partners REIT, Paul Pape, said in an email that the claim had not been served. LT NEWS A building reputation We are pleased to announce the launch of Singleton Urquhart Reynolds Vogel LLP (formerly Singleton Urquhart LLP), and the DUULYDObRIBruce Reynolds, Sharon Vogel, Peter Wardle, James Little and their team in our newly opened Toronto office. This new partnership adds considerable bench strength to our construction, infrastructure and commercial litigation practices. We will also continue to serve our clients with an extensive range of legal services in the areas of commercial real estate, corporate commercial, insurance defense, professional liability, product liability, workplace law, and business immigration. Learn more at singleton.com John Singleton, Q.C. Managing Partner Peter Wardle Associate Counsel Sharon Vogel, FCIArb Partner Bruce Reynolds, FCIArb Partner 6LQJOHWRQ8UTXKDUW5H\QROGV9RJHObL Vancouver | Toronto Untitled-5 1 2018-01-23 11:24 AM

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