Executive Summary: Key Legal and Evidentiary Issues

• Class action certified and settlement approved for 100+ real estate investors alleging financial misconduct.

• Investors claimed breach of contract, trust, fiduciary duty, securities misrepresentation, and conspiracy.

• Property was sold under power of sale, and class members lost their entire investment value.

• Settlement restores their 35% interest in the now more valuable and lower-debt property.

• Court found the settlement generous, fair, and in the class’s best interest with no objections raised.

• Class counsel fees were approved after court scrutiny, despite the unusual funding arrangement by a defendant.

Factual background and investment losses

The case arose from a failed real estate investment in a development project at 91 Baldwin Street in Whitby, Ontario. Around 100 investors purchased either Limited Partnership (LP) units directly in George Street (Brooklin) LP or Trust Units through Progressive Development Fund Trust, which held LP units on their behalf. The investment, marketed and managed by Virtus Capital and associated entities, was intended to generate returns through property development. However, in 2021 the property was sold under power of sale, eliminating the sole asset of the LP. Investors’ units became worthless.

The purchasers alleged a variety of wrongdoing by multiple individuals and entities involved in the project, including breach of contract, negligence, breach of trust, fiduciary breach, conspiracy, and violations under the Ontario Securities Act. Some of the key allegations included misappropriation of funds, misrepresentation in offering documents, failure to monitor and protect investments, and oppressive conduct by corporate directors.

Terms of the settlement and benefits to class members

Under the court-approved settlement, Virtus will acquire control over the investment structure and cause 35% of the issued shares in Baldwin Street Holdings Inc. (the new owner of the property) to be transferred back to the LP. This restores the class members’ original 35% interest in the development, now enhanced by a doubling of development density and significant reduction in mortgage debt. No claim form is required for participation, though an optional form is available for class members to confirm eligibility.

Importantly, the class will now share in the project’s future value, with better development prospects than at the time of the initial investment. The court described the outcome as generous and more advantageous than what could likely be achieved through continued litigation.

Certification and legal foundation for class action

The case was certified for settlement purposes under the Class Proceedings Act. The plaintiff’s pleadings were found to support multiple viable causes of action, including contract and tort claims, breach of fiduciary and trustee duties, statutory securities violations, conspiracy, conversion, and unjust enrichment. The court held that all required criteria for certification—cause of action, identifiable class, common issues, preferable procedure, and adequate representative plaintiff—were met.

The class consisted of two sub-classes: direct LP investors and indirect Trust Unit investors. Though the representative plaintiff was only part of one sub-class, the court held he could represent both due to overlapping causes of action and shared claims against common defendants.

Court’s review of fairness and legal fees

In approving the settlement, the court emphasized that the deal offered a realistic and positive recovery to class members, restoring their ownership stake in a project that now holds greater value. There were no objections from any class members, and the terms were negotiated at arm’s length with experienced counsel.

The court also reviewed class counsel fees, which were not based on a contingency but on hourly rates billed directly to the plaintiff and paid by Virtus. While this arrangement was unusual, the court approved it after confirming the reasonableness of the fees, which it found modest and well-justified. The judge emphasized that even hourly fees in a class proceeding must be reviewed for fairness due to the representative nature of the action.

Remaining litigation and final orders

The settlement concludes the class claims, but the broader litigation remains active due to outstanding crossclaims among the defendants. The class action designation is removed going forward, and the court suggested that the commercial aspects of the remaining litigation might be best suited to the Commercial List.

The court certified the action, approved the settlement, appointed MNP as settlement administrator, and confirmed class counsel’s fees. The settlement allows class members to move forward with a revived interest in the project, while preserving the right of the defendants to resolve their internal disputes separately.