Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether the long-standing commercial real estate relationship among John Pearson (through 4818106 Manitoba Ltd.), Sandy Shindleman and Robert Shindleman (through their limited partnerships and Shindico Realty Inc.) constituted a partnership under The Partnership Act or mere co-ownership of properties

• Contested terms of the unwritten business arrangement, including whether major decisions required unanimity or could be made by majority rule, and the scope of any agreement not to charge fees other than reasonable property management fees to Shindico Realty

• Allegations that the defendants breached fiduciary duties and/or the partnership agreement by imposing 5 per cent property management fees, “accounting” fees, a “house take” on commissions, and later “Zarnowski” legal fees from the co-owned properties’ accounts

• Competing expert appraisal and tax evidence regarding the valuation of seven co-owned commercial properties (with a portfolio value of over $150,000,000) and the most just and equitable method of distributing them on dissolution of the relationship

• Credibility and reliability issues in the testimony of the main witnesses, including findings that John Pearson was generally credible, while Sandy and Robert Shindleman and Justin Zarnowski displayed animus towards John that undermined aspects of their evidence

• Dispute over ICI Properties’ entitlement to a 1 per cent listing commission on the Ironclad sale at Westport, in light of a July 2021 email agreement, the prior brokerage MOU, and conflicting testimony about who performed the work on the transaction

Background and business relationship

John Pearson, Sandy Shindleman and Robert Shindleman have worked together in commercial property development and leasing for more than 20 years. They acquired and developed large commercial properties in Manitoba, Saskatchewan and Ontario and currently own seven properties together, described as the “co-owned properties,” with a total value of over $150,000,000. John is the president and director of 4818106 Manitoba Ltd. (4818) and is a licensed real estate agent and broker. Sandy is president and director of Shindico Realty Inc., and Robert is vice president of that company. Beginning in 2000, John (through 4818), Sandy (through Shindico Limited Partnership) and Robert (through Prairie Ventures Limited Partnership) operated together in real estate development, purchasing, developing, leasing and selling commercial real estate in several provinces. During that period they owned 10 properties together, three of which—Harbour Crossing (Thunder Bay), Sault Centre (Sault Ste. Marie, sold in 2021 for $5,400,000) and Winkler Crossing (Winkler, sold in 2022 for $9,800,000)—were sold at a profit, with net proceeds divided equally so that each of John, Sandy and Robert received one-third.

Structure of the relationship and brokerage arrangement

In 1993, John, Sandy and Shindico Realty entered into a Memorandum of Understanding that established a real estate brokerage association between John and Shindico Realty, later adding John’s company ICI. Under the MOU, John was provided office space and administrative support by Shindico Realty in return for a percentage of the commissions he earned in his real estate business. John gave notice of termination of that agreement on January 21, 2022. Beginning around 2000, the parties moved beyond brokerage work into joint development. Legal title for each of the remaining seven co-owned properties is held by a bare trust corporation, with each of the three co-owners holding a one-third beneficial interest. The co-owned properties include: 221 Winnipeg Street North in Regina (initially four co-owners, later three equal one-third interests); Corral Centre in Brandon (a mixed-use regional retail centre with anchor and shadow anchor elements and a very low vacancy rate); Selkirk Crossing in Selkirk (a developed mixed-use retail centre with Walmart as shadow anchor); Selkirk Crossing North (vacant development land near Selkirk Crossing); 270 Peter Pond Road in Yorkton (vacant development land adjacent to a Walmart Supercentre, listed for sale since 2018 at $749,000); St. Vital Outparcels in Winnipeg (development land near a commercial property called St. Vital Festival, owned by Sandy and Robert); and Westport, a large development on the western outskirts of Winnipeg acquired between 2014 and 2021, with 58.57 acres remaining as of May 2024 after some parcels were sold.

Facts regarding how the development venture operated

John testified, and the court accepted in material respects, that between about 1999 or 2000 the three men discussed working together on property development, sharing costs and profits. John described an understanding that profits and costs would be shared one-third each, that all three would contribute work, and that major decisions would be made unanimously. For example, 221 Winnipeg was acquired in or about 2000 when John, acting for a commercial client, approached Sandy and Robert to purchase the property, and they added a fourth beneficial owner, later bought out so that each of the three principal co-owners held one-third. Corral Centre was purchased in 2004 after John, acting as agent for Home Depot, identified the site, Home Depot purchased the portion it needed and the remaining land was acquired and developed by the three co-owners. John described his role in development as including site planning, identifying tenants, pursuing municipal and provincial approvals, coordinating services and construction, and keeping Sandy and Robert informed through emails and discussions, with all three signing major contracts. Similar patterns were described for other projects including Selkirk Crossing, Harbour Crossing and Westport, where the three would agree on acquisitions, hiring a general contractor and making major decisions, often in meetings they attended together. For many years the relationship was cordial, with the parties agreeing that decisions were made informally and without written agreements because the arrangement was working well.

Breakdown of the relationship and credibility findings

Over time, discord developed between John and the Shindleman brothers. John terminated the brokerage MOU in January 2022 and, in the same letter, proposed that property management of the co-owned properties be put to tender and suggested other potential property management providers. Robert described this in evidence as a “knife in the back” and compared it to “Pearl Harbour.” John subsequently gave notice to terminate the partnership on April 22, 2022. Around 2020, Sandy and Robert had given Shindico’s in-house counsel, Justin Zarnowski, authority to communicate with John on their behalf and to make decisions in relation to the co-owned properties. John and his son Brennan had a heated conversation with Zarnowski in November 2020; John acknowledged the conversation became angry and later tried to apologize and explain personal pressures. The judge found John generally credible, albeit at times overstating his own role, and rejected the defendants’ characterization of him as dishonest. The judge found Michelle Brady, John’s executive assistant at Shindico Realty under the MOU, generally credible and reliable. By contrast, the judge considered Robert and Sandy credible in general but found their testimony undermined by animus towards John, disingenuous attempts to minimize his contribution, limited recollection of past discussions and assertion-based denial of unanimity. The judge described Zarnowski as argumentative, aggressive and disdainful, with clear animus towards John that undermined his credibility.

Issue 1 – Existence and terms of a partnership

The first issue was whether the relationship in respect of the co-owned properties was a partnership under The Partnership Act, which defines partnership as “the relation which subsists between persons carrying on a business in common, with a view of profit.” The Act also sets out rules for determining whether a partnership exists, including that joint or common ownership and sharing of gross returns do not by themselves create a partnership, but receipt of a share of profits is prima facie proof of partnership, subject to exceptions. The court referred to Supreme Court of Canada authorities, including Spire Freezers Ltd. v. Canada, Backman v. Canada, and Continental Bank Leasing Corp. v. Canada, and noted that intention can be inferred from conduct, including contribution of skill, joint property interests, profit and loss sharing, tax filings, financial statements, bank accounts and dealings with third parties. Applying those principles, the judge found that John, Sandy and Robert, through their companies and bare trust corporations, acquired and owned significant assets together and operated a business of property development in common with a view to profit. They identified development opportunities, purchased land, developed retail centres, leased premises and collected rent, sharing revenues and expenses. The court concluded that even though there was no written agreement, the unwritten agreement was sufficiently certain to establish a partnership: all three would work on development and leasing of the properties, no fees would be charged by them for their work, only reasonable property management fees would be payable to Shindico Realty, and major decisions would be made by unanimity. The judge accepted that “equal work” was too vague as a strict term, but found there was an agreement that each would contribute to the business. On the key dispute of decision-making, the court considered John’s evidence of unanimity, the lack of any convincing contrary recollection by Sandy and Robert, a 2022 incident where Sandy and Robert first invoked majority rule over John’s objection on a St. Vital Outparcels tender, and draft agreements from 2001 and 2016 that contemplated unanimity. Weighing this, the judge found that major decisions were to be made unanimously and concluded that the relationship was a partnership. John’s April 22, 2022 notice was found to terminate that partnership.

Issue 2 – Alleged breach of fiduciary duty or agreement and entitlement to damages

The second issue was whether the defendants breached any fiduciary duty or the partnership agreement and whether John was entitled to damages. Property management for the co-owned properties was provided throughout by Shindico Realty, which charged 5 per cent of gross revenue as a management fee and, on occasion, additional fees. The parties agreed that no fees would be charged for their work except for reasonable property management fees to Shindico Realty. John argued that the 5 per cent fee was not reasonable, that additional charges labelled as “accounting fees,” a “house take” on commissions, and later “Zarnowski” fees were improper, and that Sandy was in a conflict of interest as owner of Shindico Realty.

For the 5 per cent property management fees, evidence showed that Shindico Realty’s accounting department handled banking and accounting, collected the 5 per cent from bare trust accounts monthly, and that John received financial reports and monitored the properties’ financial position. John testified that he frequently objected to the 5 per cent rate as too high and that the fees were taken over his objections, but the judge found that other than occasional complaints and his 2022 proposal to tender management, John took no steps over many years to change the structure and effectively consented, albeit reluctantly. Both sides called expert evidence on market property management rates; both experts acknowledged fees could reach 5 per cent depending on the property and service scope. The judge concluded that 5 per cent fell within a reasonable range for such services and that these fees were consistent with the agreement and not a breach of fiduciary duty.

The “accounting fees” recorded in the general ledgers were explained by Shindico’s CFO, Leanne Fontaine, as charges to recover the cost of accounting software and installation and management of security cameras. There was no contrary evidence. John had financial statements showing these charges and did not specifically object at the time. The court accepted that these fees were legitimate, fell under the broad understanding of reasonable property management fees, and had been acquiesced in; no breach or damages were found.

The “house take” related to commissions paid to Shindico Realty agents for leasing and sales on the co-owned properties, of which Shindico Realty retained a portion under its usual brokerage compensation structure. John did not challenge the agents’ commissions but argued that the retained house portion was effectively an unauthorized fee to Sandy and Robert contrary to the “no fees” agreement. The court rejected that argument, holding that Shindico’s share of commissions pursuant to its internal arrangements with its agents could not be equated with Sandy and Robert charging fees in their capacity as partners and was not a breach.

A different conclusion was reached for the “Zarnowski fees.” These were charges for legal services by Justin Zarnowski that were introduced only after John terminated the brokerage MOU and gave notice of partnership termination in April 2022. Emails showed Zarnowski suggested to Sandy and Robert that John was benefiting from his legal work without paying, and proposed charging fees through the properties, knowing that because payments would go to Shindico Realty, the net impact would fall on John. An email described the effect as “one-third net recovery,” and Sandy and Robert acknowledged this meant the fees would not affect them because the money flowed back to Shindico. Zarnowski instructed the accounting department to begin charging these fees without telling John and directed that if John noticed and complained he should be sent to Zarnowski. The court found there was no justification for these charges, that they were imposed without John’s agreement or knowledge, that they were not part of the agreed reasonable property management fees, and that they appeared retaliatory. John was held entitled to damages equal to the full amount of these charges, $22,000, plus pre-judgment and post-judgment interest at the statutory rate.

Issue 3 – Distribution of the co-owned properties

The third issue was how the co-owned properties should be distributed on dissolution. All parties relied on the court’s broad discretion to craft a just and equitable remedy and none favoured liquidation of all assets as the primary course. John proposed an in-kind distribution: he would receive Westport, Selkirk Crossing and Selkirk Crossing North, while Sandy and Robert together would receive Corral Centre, 221 Winnipeg, St. Vital Outparcels and Yorkton. The defendants proposed that John be ordered to sell his interest in each co-owned property to them at fair market value, with a “minority discount” adjustment, and, in the alternative, two auction mechanisms introduced for the first time in written closing submissions. They also advanced an in-kind split as a distant fourth option under which John would receive 221 Winnipeg, Yorkton and Selkirk Crossing, and they would hold Westport, St. Vital Outparcels, Selkirk North and Corral Centre.

The court rejected auction proposals outright because they had not been pleaded or raised earlier, and held that John was entitled to proper notice of any proposed remedy. The court also declined to force John to sell all his interests to the defendants, noting that such a remedy would leave him with none of the properties into which he had invested time, energy and funds, and that an in-kind division was feasible given the number and nature of properties.

Both sides called experienced commercial appraisers. The plaintiff’s expert, Debbra Holt of Altus Group, and the defendants’ expert, Jason Schellenberg of Red River Group, prepared detailed appraisal reports on each of the seven co-owned properties and rebuttal reports. Their total portfolio valuations were close: Ms. Holt at $151,715,000 and Mr. Schellenberg between $151,740,000 and $152,640,000. For three properties—Yorkton, St. Vital Outparcels and Selkirk Crossing North—their values were broadly similar, but they differed significantly on Westport, Corral Centre, 221 Winnipeg and Selkirk Crossing. The judge found Ms. Holt to be a careful and credible witness whose approach and adjustments were well explained. By contrast, the judge identified weaknesses in Mr. Schellenberg’s evidence, including his reliance on unverified information supplied by Shindico Realty, failure to obtain lease documentation for certain income-producing properties, and errors and omissions that contravened guidance from the Appraisal Institute of Canada.

For Westport, Ms. Holt used a direct comparison approach and valued it at $28,425,000. Mr. Schellenberg used a land subdivision development approach and reached $49,400,000 or $50,300,000 depending on a pending transaction. On cross-examination he acknowledged that he had assumed all 23 subdivided lots were fully serviced to the lot line and had failed to account for approximately $12 million in servicing costs, as well as financing and administrative holding costs and a developer’s profit. The court accepted Ms. Holt’s uncontested view that, with appropriate adjustments, even using his method, a value in the range of $31–$32 million would result, and preferred her valuation of $28,425,000.

On Corral Centre, Ms. Holt valued the property at $76,300,000 and Mr. Schellenberg at $63,000,000, both using discounted cash flow analysis. Both assumed approximately $21 million in future roof and parking lot repairs to be fully recovered from tenants, but Mr. Schellenberg omitted three years of tenant recoveries, a shortfall of $6.4 million, which he conceded should be corrected. The judge also preferred Ms. Holt’s chosen terminal capitalization and discount rates, given Corral Centre’s strong performance, and questioned Mr. Schellenberg’s inclusion of a Walmart store in Flin Flon with a 23 per cent discount rate as a comparable, which skewed his range.

On 221 Winnipeg, Ms. Holt’s value was $20,625,000 and Mr. Schellenberg’s $15,600,000. The court was not concerned by his reliance on a Saskatchewan appraiser to identify comparables but found that his own selection of two older, lower-rent comparables, which alone supported his $10 per square foot rent estimate, lacked explanation. He admitted that without those comparables the market rent would be $12 per square foot, in line with Ms. Holt’s estimate, which would increase his valuation by about $2.5 million. The court preferred Ms. Holt’s value.

For Selkirk Crossing, Ms. Holt valued it at $20,900,000 while Mr. Schellenberg valued it at $17,100,000, again omitting three years of tenant recoveries for repairs. When corrected, his value approached Ms. Holt’s, and the court again preferred her appraisal. Overall, where the experts diverged, the court adopted Ms. Holt’s valuations.

Relying on Ms. Holt’s values, the accounting expert for the plaintiff, Jeremy Bomhof of PricewaterhouseCoopers, calculated the total net value of the portfolio, after mortgages and corporate income taxes triggered by disposition, at $96,668,286 and concluded that under John’s proposed distribution Westport, Selkirk Crossing and Selkirk Crossing North together would have a value of $33,117,082, approximately $894,320 more than one-third of the net portfolio value. The judge accepted his analysis.

On tax consequences more generally, both parties’ experts agreed that a sale of all properties on the open market would create the largest tax burden. Mr. Bomhof estimated that total taxes on disposition of all properties to a third party (assuming a 50 per cent capital gains inclusion rate) would be about $32 million. He also estimated that under John’s proposed in-kind distribution the total tax owing would be $13.2 million, with $8.1 million borne by John’s company and $2.5 million by each of Sandy’s and Robert’s companies. By comparison, the defendants’ proposed buy-out of John would result in lower total tax of $10.66 million but that liability would be borne by the plaintiff alone. The court noted a British Columbia decision stating that tax consequences should not “influence the court greatly” in selecting a remedy, but may still be considered, and held that John’s proposal equitably spread the tax burden.

Taking into account the history of the partnership, the nature of the properties, their interrelationships, and the valuations and tax evidence, the court concluded that John’s proposed distribution was the most equitable remedy. It kept complementary properties together: St. Vital Outparcels, which were closely tied to St. Vital Festival already owned by Sandy and Robert, were awarded to them, and Selkirk Crossing and Selkirk Crossing North, which John associated with his late brother’s work for the City of Selkirk, were awarded to John. It gave each side both income-producing and development properties and divided net value roughly one-third to John and two-thirds collectively to Sandy and Robert.

Issue 4 – ICI’s entitlement to commission on the Ironclad deal

The fourth issue was whether John’s brokerage company, ICI Properties, was entitled to a commission on a sale of three acres of land at Westport to Ironclad Developments Westfield Landling Holdings Inc. In July 2021, about six months before John terminated the brokerage MOU, an exchange of emails recorded an agreement that ICI would receive a 1 per cent commission on that sale. John testified that he had earlier expected a 2 per cent listing commission for land sales of that price range but agreed to 1 per cent after Sandy and Robert refused the higher rate. ICI invoiced for 1 per cent and Shindico Realty insisted that, under the brokerage MOU, it was entitled to a split, resulting in ICI being paid half of 1 per cent ($18,627), with the remaining $7,450 placed in a law firm’s trust account pending resolution.

Sandy and Robert later refused to allow ICI to receive the full 1 per cent, said John would have to sue, and eventually commenced an action asserting that John and ICI were not entitled to any commission. John and ICI discontinued a small claim they had filed and defended the King’s Bench action and counterclaimed. In evidence, Robert stated John should receive nothing because he allegedly did not work on the deal, but also said Shindico would be entitled to 50 per cent of the 1 per cent commission based on a “house take” under the MOU, and was confronted with earlier discovery evidence suggesting the 50/50 split number had been chosen simply as something he and Sandy thought fair. Sandy acknowledged that 1 per cent was half of a previously expected 2 per cent commission and at one point tied the 50/50 split to a 50 per cent brokerage override, but he also advanced a position that John’s entitlement was only half of 1 per cent under the MOU. Their pleading in response to John’s earlier small claim had asserted there was no agreement to any commission on the Ironclad transaction.

Zarnowski testified that the 1 per cent agreement was made while the brokerage association still existed and remained subject to the MOU’s commission splits, and that, after the MOU ended, John was not entitled to any commission. However, he was confronted with his own July 7, 2021 email stating that John had “done the work as the listing agent” on the transaction and that this should be recognized with a fee. He also acknowledged that in 2020 John had proposed, and Sandy and Robert had accepted, a change in their co-ownership arrangement under which he would charge a commission on transactions related to the co-owned properties.

The judge found the positions of Sandy, Robert and Zarnowski on this issue inconsistent and lacking a principled basis. The court accepted John’s testimony that he worked on the sale, found that the July 2021 email exchange documented an agreement that ICI would receive a 1 per cent commission as listing broker on the Ironclad sale, and was satisfied that ICI was entitled at least to the $7,450 held in trust. The court therefore ordered payment of that amount to John, together with pre-judgment and post-judgment interest at the statutory rate.

Outcome and relief ordered

In conclusion, the court held that John, Sandy and Robert were partners in a property development business and that their business was a partnership under The Partnership Act. It found that the partners had agreed not to charge fees for their work, except that Shindico Realty was entitled to reasonable property management fees, and that, other than the specifically impugned “Zarnowski” fees, the challenged management, accounting and commission structures did not breach the agreement or fiduciary duties. The court ordered that the partnership properties be distributed in kind, with Westport, Selkirk Crossing and Selkirk Crossing North awarded to John, and 221 Winnipeg, Corral Centre, St. Vital Outparcels and Yorkton awarded to Sandy and Robert. It awarded John damages in the amount of $22,000 in respect of the “Zarnowski fees,” plus pre-judgment and post-judgment interest at the statutory rate, and held that John, through ICI, was entitled to the $7,450 Ironclad commission held in trust, also with pre-judgment and post-judgment interest at the statutory rate. The judgment left the matter of costs to be spoken to if not agreed, and the exact total of any costs and interest amounts could not be determined from the decision.