COURT FILE NO.: 378/06
DATE: 20080222
SUPERIOR COURT OF JUSTICE – ONTARIO
DIVISIONAL COURT - TORONTO
RE: Roula Tarkalas
And
Theodore Zographos and Vasilikh Zographos a.k.a. Bessie Zographos and 1260092 Ontario Inc.
BEFORE: Justice Kiteley
COUNSEL: Jonathan L. Rosenstein, solicitor for the Plaintiff/Appellant
Robert D. Malen, solicitor, for the Defendant 1260092 Ontario Inc. and the proposed Defendant 1260093 Ontario Inc.
DATE HEARD: November 19, 2007
E N D O R S E M E N T
[1] The appellant/plaintiff appeals from the decision of Master Haberman dated February 28, 2006[^1] in which the motion to amend the statement of claim and to add a new party defendant was dismissed.
Background:
[2] Tarkalas alleged that, between December 1997 and January 1998, she provided to her friend Bessie Zographos and her husband Theodore Zographos the sum of $150,000.00. In her statement of claim issued in March 2000, Tarkalas characterized the payment of the funds as a “loan” to be used by them as a down payment towards the purchase of a property. The property was purchased in December 1997 and is owned by 1260092 Ontario Inc. The plaintiff alleged that the loan was to be secured by a mortgage against the property. Despite repeated requests, the mortgage had not been registered, nor had Tarkalas been repaid. She asserted a claim against Theodore Zographos and Bessie Zographos, the directing minds of 1260092 Ontario Inc. She sought judgment for the return of the $150,000.00 loan that was used to purchase the property.
[3] Immediately after issuing the statement of claim, Tarkalas obtained an exparte Certificate of Pending Litigation against the property. Her supporting affidavit sets out the facts contained in the statement of claim. On the basis of that affidavit, the CPL was issued and has been registered against the property ever since.
[4] The statement of defence was delivered in May 2000. The pleading was not delivered by counsel. The defendants admitted that monies were advanced but pleaded that Theodore Zographos told Tarkalas about a proposed business venture that involved acquiring a property and then using it to house an adult entertainment business. Tarkalas asked to participate, along with her son Michael. The defendants alleged that Tarkalas advanced $135,000.00 in exchange for a 20% interest in the venture. The defendants denied that there was an agreement to provide a mortgage; rather the agreement was that Tarkalas would be repaid at some future time if the venture was profitable. The defendants characterized the transaction as an investment, not a loan. Michael Tarkalas worked at the club until he quit as a result of a dispute with John Telios, the President of the company that operated the club.
[5] The plaintiff took no steps to prosecute the action. At Call-Over Court in April, 2004, the matter was adjourned to May, 2004 and then to September 2004 at which time a trial date of November 14, 2005 was scheduled. At the pre-trial in August, 2005, that trial date was vacated as a result of the plaintiff’s intention to bring a motion to amend the statement of claim.
[6] In the motion before the Master, Tarkalas sought to amend her statement of claim to:
(a) plead, in the alternative, that the funds were an equity investment (as opposed to a loan) along with related relief including a declaration of 20% ownership, an accounting of profits, the appointment of a receiver, and relief from oppression pursuant to s. 248 of the Business Corporations Act; and
(b) add 1260093 Ontario Inc. as a defendant.
[7] Tarkalas filed an affidavit sworn December 28, 2005 in support of her motion in which she deposed that she had “provided” funds to Theodore Zographos, that the funds were advanced to purchase a property and to run an adult entertainment strip club, that Theodore Zographos told her that the money would be “invested and secured” in the property and in the business, and she would receive a 20% interest in the business and the property and employment for her son, Michael.
[8] The affidavit contained an explanation for the change in position. She confirmed that the affidavit sworn in 2000 in support of the CPL reflected her understanding at the time. In August 2005, a lawyer for 1260092 asked for consent to file a statement of defence on the basis that the statement of defence filed in May 2000 was only on behalf of the personal defendants. The statement of defence filed on behalf of 1260092 indicated that while it held title to the property, 1260093 Ontario Inc. owed and ran the business. The first she knew that there was a second company was when she read that statement of defence. As well, at her examination for discovery in September 2005, she was shown corporate documents that altered her earlier belief.
[9] In his capacity as the sole shareholder of 1260093 Ontario Inc. and a director of 1260092, John Telios filed an affidavit in opposition to the motion.
Reasons for Decision of the Master:
[10] The Master noted that the relief sought included both an amendment and the addition of a party. Yet the motion had been brought only under rule 26.01 and had been argued on the basis that rule 26 was mandatory. The Master noted the differences between the affidavit in March 2000 on which the CPL had been issued and the affidavit in support of the motion to amend; most importantly, the characterization of the transaction had changed from a loan to an investment. She observed that the December affidavit was consistent with the statement of defence that had been filed in 2000. She held that since Tarkalas had not replied to the statement of defence in May 2000, she was deemed by rule 25.08(4) to have denied the defendants’ version of events.
[11] The Master quoted the explanation given by Tarkalas for seeking the amendment and noted the ambiguities and anomalies that arose from her affidavit and her cross-examination.
[12] The Master acknowledged that rule 26.01 speaks in mandatory terms unless leave to amend creates prejudice that cannot be compensated for in costs. She pointed out that although prejudice was not asserted directly in Telios’ affidavit, he referred to the fact that Theodore Zographos had moved back to Greece and there was little prospect he would return to be a witness. She noted however, that that would prejudice Tarkalas because the statement of defence delivered in 2000 and his evidence supported her proposed amendment.
[13] The Master also noted that an amendment should be refused if what is proposed would be untenable in law. She held as follows:
What is unique about this case is that what Tarkalas now seeks to plead is not only inconsistent with a previous version of the story as articulated by her in her original statement of claim – it is also entirely in conflict with the position she advanced in her 2000 affidavit, delivered to assist her in securing a CPL against the property. The proposed pleading also conflicts with Tarkalas’ evidence on cross-examination. It is noteworthy that the CPL still stands and that there has been no overture from Tarkalas at any time during these proceedings to give up her CPL, which, if her current affidavit is accurate, appears to have been obtained on the basis of false information.
The issue for this court is whether to permit an amendment that flies in the face of the plaintiff’s evidence, evidence already relied on by her to obtain relief. In short, having sworn in unequivocal terms in 2000 that:
• she was approached for a loan;
• that she advanced a loan to two individuals;
• that the loan would be used to purchase property;
• that the loan would be secured by a mortgage against the property purchased;
• that she would not have advanced any money to the defendants had she not been convinced by the individual defendants that she would be given a mortgage against the property;
• that the purchase price of the property was paid for in part by her loan;
• that the defendants have refused to register her mortgage despite her repeated requests that they do so;
• that they have not repaid any of the money loaned to them
can Tarkalas now be permitted to plead, as the primary basis of her claim, that she advanced monies to the defendants in order to acquire an interest in property and in two businesses?
[14] In her consideration of the legal principles applicable, the Master referred to National Trust v. Furbacher et al.,[^2] for the proposition that leave to amend should be refused under rule 26.01 when to grant leave amounts to an abuse of process. The Master held:
- . . . Effectively, what Farley J. appears to be saying is that the court must be able to patrol its own process and that it should refrain from giving its endorsement to conduct that is clearly questionable.
[15] The Master concluded that what Tarkalas sought to achieve was questionable. She declined to permit the amendments proposed regarding 1260092 Ontario Inc.
[16] The Master then noted that Tarkalas was, in effect, seeking to withdraw an admission:
- There is a further basis for refusing to grant this relief. Although Tarkalas is not technically seeking to withdraw her assertions that the monies were advanced by her as a loan, secured by a mortgage and that it was her understanding that the monies would be paid back, her new characterization of the transaction as an investment completely negates her initial position. Though still in the pleading, the loan scenario has been relegated to a fall-back position, one which is factually inconsistent with the proposed amendment. At the end of the day, the court will have to construe her intention and her understanding of what was taking place when the money left her hands. How she can advance both positions simultaneously when the ultimate outcome largely involves a finding regarding her own [sic] her belief is difficult to imagine and the evidence she gave on her recent cross-examination has only exacerbated her difficulties in that regard. As the primary thrust of Tarkalas’ argument will now be that she is a co-investor, she is effectively resiling from the loan version altogether. As a result, the proper test to be applied here should be that which applies when a party withdraws an admission.
[17] Although the responding parties did not seek to assert that there was a technical withdrawal of an admission, the Master concluded that “in view of the dramatic shift in stance this amended pleading presents”, the plaintiff had to advance a “reasonable explanation”.[^3] The Master held that that explanation was “entirely unconvincing”.
[18] With respect to the addition of 1260093 Ontario Inc., the Master considered the discretionary language of rule 5.04(2). She noted that since a limitation period had expired, there was a presumption of prejudice that Tarkalas had not rebutted. Even if Tarkalas had advanced an explanation to rebut the prejudice, the Master noted that Tarkalas would have had to demonstrate that there were “special circumstances” at play such that fairness demanded that leave be granted.[^4] Tarkalas had failed to make submissions on such “special circumstances”. Instead, she had focused on “discoverability”. The Master pointed out that the test on discoverability is not only on what the plaintiff knew but on what she reasonably ought to have known. She concluded that Tarkalas was not in a position to claim that 1260093’s involvement could not have been discovered within the limitation period.
Standard of Review:
[19] Counsel agree that the standard of review on the questions of law that are engaged in a motion to amend is correctness.
Analysis:
[20] The appellant/plaintiff took the position that the Master erred in three ways: by refusing to permit the amendment on the basis that the amended claims were untenable; by concluding that the plaintiff was seeking to withdraw an admission; by refusing to add 1260093 as a party defendant.
A. Amended claims were untenable
[21] Although the moving party relied only on rule 26.01, rule 5.04(2) must also be considered. Seaway Trust Co. v. Markle[^5] is an important starting point. Master Haberman accepted the proposition that on a motion to amend, the court should not consider the factual or evidentiary merits of the proposed new claim. She went on however to quote from the passage where Master Sandler held that that did not mean a plaintiff should be allowed to amend the statement of claim where the proposed amendment and the facts to be relied upon are totally inconsistent with everything the plaintiff had said and pleaded up to that point.
[22] As Master MacLeod pointed out in Shoe Talk Ltd. v. Match-Pair Inc.[^6] the difference in language in rules 26.01 and 5.04(2) confers different levels of discretion on the court but the threshold tests are the same. The court must be satisfied that no prejudice exists which cannot be compensated by costs or an adjournment. He also observed that although not specifically stated in either rule, the court must be satisfied that the proposed pleading is proper and discloses a cause of action. He concluded that if those hurdles are crossed, the court retains discretion not to add a party under rule 5.04(2) while rule 26.01 is otherwise mandatory.
[23] As Master Haberman did, Master MacLeod considered the decision in National Trust Co. v. Furbacher[^7] where Farley J. noted that notwithstanding the use of “shall” in rule 26.01, the Court may consider whether the proposed amendments (a) constitute an abuse of process; (b) conform with the rules of pleading or are otherwise unintelligible; and (c) are, on their face, tenable at law. As Master Haberman observed above, Farley J. appeared to be saying that the court must be able to patrol its own process and the court should refrain from giving its endorsement to conduct that is clearly questionable.
[24] Counsel for the appellant argued that the amendment was sought on the basis of evidence that emerged in the course of the action. I agree with counsel for the respondent that at the point in time in August 2005 when the plaintiff proposed to adjourn the imminent trial in order to bring the motion to amend, there had been no steps taken in the action. While counsel for the appellant is correct that amending a claim to conform to the emerging evidence is often permitted[^8], the Master was correct in drawing the conclusion that that was not what had occurred here.
[25] Counsel for the appellant took the position that the decision in Furbacher is distinguishable because Farley J. refused to permit the proposed amendments because he found they had been advanced for purely tactical reasons. Indeed, Farley J. did make that finding at paragraph 7. But that did not exhaust the concept of “abuse of process”. The three factors identified by Farley J. were somewhat differently described in Anderson Consulting Ltd. v. Canada (Attorney General)[^9] where the Ontario Court of Appeal held that amendments like those sought should be presumptively approved unless they would occasion prejudice that cannot be compensated by costs or an adjournment; they are shown to be scandalous, frivolous, vexatious or an abuse of the court’s process; or they disclose no reasonable cause of action. It is clear that “abuse of process” is a factor that encompasses more than tactical reasons.
[26] Counsel for the appellant agreed that the Master may evaluate whether or not the amendments disclose a reasonable, or tenable cause of action. However, counsel argued that the evaluation must be made on the basis of the pleadings themselves, and not on the underlying evidence which may or may not support that pleading. In this case, counsel asserted that the Master erred in paragraph 31 by framing the issue as “whether to permit an amendment that flies in the face of the plaintiff’s evidence, evidence already relied on by her to obtain relief”.
[27] I do not agree that framing the issue in that way was an error. The plaintiff had given evidence under oath in support of a CPL; she had been the beneficiary of an order granting the CPL; she had taken advantage of that order for years; and that evidence was inconsistent with the amendment she was proposing. The Master was not “weighing the evidence, interpreting controversial contractual provisions and making findings of fact”.[^10] She was relying on evidence by the plaintiff in which two inconsistent versions were advanced. Given the uniqueness of this case, as was observed by the Master, she was looking at whether there was a prima facie meritorious case set forth in the original pleading and the proposed amended pleading. Given the original pleading in March 2000 which had been confirmed in an affidavit and the proposed pleading in December 2005 which had also been confirmed in an affidavit, the two were incompatible.
[28] There are occasions when advancing legal and factual theories in the alternative constitutes a tenable pleading, such as where the plaintiff succeeded in amending her statement of claim by adding a legal theory of quantum merit in addition to the original claim for breach of contract, both claims for relief derived from essentially the same factual allegations.[^11] Such alternative pleading is anticipated by rule 15.06(4). However, there are occasions when advancing legal and factual theories in the alternative is not tenable. The Master was correct in her conclusion at paragraph 42 that the fundamental inconsistency in the plaintiff’s positions meant that this was one such occasion. The proposed amended pleading, in this case, could not support a successful claim. As Rosenberg J. said in Vaiman v Yates,[^12] this proposed pleading contained a fatal flaw. I agree that the Master was correct in her conclusion that the court ought to refrain from giving its endorsement to conduct that is clearly questionable.
B. Withdrawal of an admission
[29] Having rejected the amendment, the Master identified an alternative basis for refusing the motion to amend, namely that it constituted a withdrawal of an admission. Applying that test, the Master concluded that the plaintiff had failed to advance a “reasonable explanation” in the “the unique factual context at play here”.
[30] Counsel argued that the appellant did not seek to resile from the factual bases of her claim. She sought to claim, in the alternative, that the legal consequence of her having provided funds to the defendant was that she made an equity investment, rather than a loan. He also argued that an allegation in a statement of claim ought not to be treated as an admission in rule 51.03.[^13]
[31] I agree with counsel for the appellant that amending to assert an alternate legal basis for a cause of action does not constitute the withdrawal of an admission.[^14] However, for the reasons indicated above, that was not what was proposed. Furthermore, the “admission” was not simply an allegation in a statement of claim; it had been contained in an affidavit and relied upon in obtaining a CPL. I am not persuaded that the Master erred in this analysis.
C. Add a party defendant
[32] In the notice of motion, the appellant had not sought to add 1260093 Ontario Inc., relying instead on rule 26.01. Counsel for the appellant argued that the Master erred in the analysis of the limitation period. The appellant claimed in her evidence that she only discovered the existence of 1260093 in August 2005 when the statement of defence of 1260092 was served. The Master rejected this evidence. Based on the reference in the statement of defence filed in 2000 to two corporate entities and the evidence of the plaintiff that she did not follow up to ascertain the identity or role of the other, the Master held that Tarkalas was not in a position to claim that the involvement of 1260093 “could not have been discovered within the limitation period”.
[33] Counsel for the appellant argued that even if the Master was correct that Tarkalas knew or should have known in May, 2000 that she had a claim against 1260093, the six year limitation period from the date of that discovery had not expired. Counsel argued that the Master compounded her error by making a factual determination as to when Tarkalas did or should reasonably have discovered her claims against 1260093.
[34] I agree that the Master erred in drawing a factual conclusion that the limitation period had expired on the basis that the facts giving rise to the claim had taken place more than six years earlier as opposed to when the cause of action arose; and in drawing a factual conclusion on the evidence of the appellant as to when she ought to have known she had a claim against 1260093.[^15] But, in view of my earlier finding on the issue of tenable claim, that error does not lead to the decision being overturned.
D. Conclusion
[35] The appellant has failed to satisfy me that the Master erred in her application of rule 26.01. The appeal is dismissed.
Costs:
[36] The appellant provided a Costs Outline for the appeal that totaled $7287.50 on a partial indemnity basis together with disbursements of $2205.36 (including $205.00 for legal research and approximately $1300.00 for copying/binding). The respondent provided a costs outline for the appeal that totaled $5814.44 on a partial indemnity basis together with disbursements of $464.44 ($84.00 for photocopying charges and $380.40 for legal research). These were provided at the conclusion of the hearing but counsel made no submissions.
[37] Since the fees and disbursements of the respondent are less than those of the appellant (as might be expected), the appellant could not seriously challenge the contents of the respondents’ Costs Outline. Submissions took about 1 hour in an appeal that was not factually complex and where much of the appeal involved a repeat of the submissions made before the Master. I consider a fair and just fee to be $4000.00 for fees and disbursements of $464.44 (both including GST) to be paid by the appellant.
Kiteley J.
DATE:
[^1]: Reasons are reported at [2006] O.J. No. 794; the order was dated August 28, 2006 when it was signed and entered. [^2]: [1994] O.J. No. 2385 [^3]: Antipas v. Coroneos (1982) 1988 10348 (ON SC), 26 C.P.C.(2d) 63 [^4]: Basarsky v. Quinlan 1971 5 (SCC), [1972] S.C.R. 380 [^5]: (1988) 25 C.P.C. (2d) 64 (Ont. Master) [^6]: [2000] O.J. No. 503 at paragraphs 6 - 9 [^7]: FN 2 at paragraph 6 [^8]: Gloucester Organization Inc. v. Canadian Newsletter Managers Inc. 1995 CarswellOnt 142 (O.C.J.) [^9]: Anderson Consulting Ltd. v. Canada (Attorney General), 2001 8587 (ON CA), 2001 CarswellOnt 3139 (C.A.) paragraph 37 [^10]: FN 9 paragraph 35 [^11]: Gangnon v. Kohn Estate (1987) 24 C.P.C. (2d) 45 Ont. H.C. [^12]: (1987) 1987 4345 (ON SC), 60 O.R. (2d) 696 at page 698 [^13]: Belsat Video Marketing Inc. v. Zellers Inc. 2003 CarswellOnt 3059 [^14]: FN 11 [^15]: Smyth v. Waterfall 2000 CarswellOnt 3324 (C.A.), paragraph 10