The Facts
Raponi v. Olympia Trust Company, 2022 ONSC 4481, was a decision on a certification motion brought in the wake of the Fortress Developments (“Fortress”) scandal. Fortress was a developer that financed its projects through syndicated mortgages that were largely funded by small private lenders. Among other false representations, Fortress assured investors that its development projects were “fully secured” and a “qualified investment” as defined under the Income Tax Act (the “ITA”), and could therefore be invested in through a registered savings account. Some 13,000 lenders invested in syndicated mortgages in reliance on these representations. Once they did so, their money was placed with the trustee and administrator, Olympia Trust Company (“Olympia”), who forwarded payments to Fortress. Many of the projects financed by Fortress syndicated mortgages eventually failed, and it was revealed after the fact that the mortgages were neither “fully secured” nor “qualified investments”.
The representative plaintiff alleged that, as trustee, Olympia owed a duty to ensure the syndicated mortgages were compliant with the ITA throughout the term of the mortgages. The source of these duties and obligations, the plaintiff contended, was a regulation under the ITA that required a trustee to “exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that a trust governed by the registered plan holds a non-qualified investment.” On behalf of lenders who invested in Fortress syndicated mortgages through registered savings accounts, the plaintiff sued Olympia for breach of fiduciary duty, breach of trust, breach of contract, and negligence.
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