Proposed syndicated mortgage class action rejected

A proposed class action against Olympia Trust Co. over its alleged role in the Fortress Real syndicated mortgage debacle has once again been rejected.

The Court of Appeal for Ontario dismissed an effort to overturn a Superior Court of Justice decision from August 2022. That decision dismissed a proposed class action against Olympia Trust on behalf of investors who lost money in a syndicated mortgage investment scheme involving Fortress Real Capital Inc. and Fortress Real Developments Inc.

Olympia Trust was a trustee for certain investors who used their self-directed registered accounts to participate in the scheme.

In its decision, the court noted that the syndicated mortgage design “was allegedly a sham.” Investors allegedly lost a combined $442.2 million to the scheme, although the proposed class action sought to cover a subset of investors who lost money.

The motion judge calculated the proposed suit would apply to approximately 2,750 to 3,250 investors who used registered savings accounts with Olympia Trust, with an average loss per class member at $25,000 (which would represent around $75 million).

However, the lower court judge dismissed the motion seeking to certify the proposed class action, ruling that its claims for breach of trust, breach of fiduciary duty, breach of contract and negligence could not succeed.

“Olympia Trust was not a gatekeeper. It was not a guardian angel. It ought not be made a scapegoat,” the lower court said in its original ruling.

On appeal, the plaintiff sought to narrow the proposed class action on behalf of the investors in one specific project and its three syndicated mortgages, claiming breach of trust and fiduciary duty.

The appeal court again rejected the claim, ruling that the motion judge did not err in dismissing the original action.

“In my view, the motion judge’s reasoning and conclusion reveals no error,” it said in its decision.

“While there may be differing views on the scope of a ‘duty to minimize’ the possibility of investments from the registered savings plans in non-qualifying properties, the text, context and purpose of this provision makes clear that it is a duty owed by trustees to the CRA, not to investors,” the court said in its decision.

Additionally, the appeal court noted that the motion judge found the plaintiff’s argument conflated the powers of the trustee with its duties.

“In other words, while the agreements confer on the trustee the power to decline to complete investment transactions, the agreements do not impose duties on the trustee to ensure [syndicated mortgage] investments are in qualified properties,” it said.

The appeal court also upheld the motion judge’s conclusion that the agreements between Olympia Trust and investor/lenders did not create any “gatekeeping duties” on the company.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.