Court of Appeal for Ontario

Date: 2022-10-12 Docket: C70384

Judges: Zarnett, Coroza and Favreau JJ.A.

Between:

Kirubakaran Mahendran Plaintiff Defendant by Counterclaim

and

9660143 Canada Inc., Sandeep Singh, 1713691 Ontario Inc., and Karl Nodel Defendants Plaintiffs by Counterclaim (Appellants)

and

The Nationwide Groups Ltd. Third Party (Respondent)

Counsel: Sandeep Singh, acting in person and for the appellant 9660143 Canada Inc. Hilary Book and William McLennan, for the respondent

Heard: September 23, 2022

On appeal from the order of Justice R. Cary Boswell of the Superior Court of Justice, dated January 20, 2022.

Reasons for Decision

[1] The appellants, Sandeep Singh and 9660143 Canada Inc. (“966”), appeal an order dismissing their third-party claim on the basis that it does not disclose a cause of action.

[2] In the main action, the plaintiff, Kirubakaran Mahendran, sues a number of defendants, including the appellants, under the Construction Act, R.S.O. 1990, c. C.30, in relation to services and materials he allegedly provided for a property at 252 Church Street, Markham, Ontario. 966 is the owner of the property and Mr. Singh is a shareholder and director of 966.

[3] Mr. Singh and 966 have defended the main action and brought a counterclaim against Mr. Mahendran. They claim that Mr. Singh and Mr. Mahendran were business partners working together to renovate the property at 252 Church Street and a number of other properties.

[4] As part of the counterclaim, the appellants allege that Mr. Singh and Mr. Mahendran had agreed to develop a property at 7450 9th Line, Markham. They allege that the property was owned by 938359 Canada Ltd. (“938”), another company of which Mr. Singh is a director and shareholder. The appellants allege that 938 had agreed to sell the 9th Line property to Mr. Mahendran’s sister-in-law, Yasotha Surendran, for $2,050,000, which was reduced from the listed price of $2,599,000. The reduction in price of approximately $550,000 was meant to reflect 938’s investment in the development of the property. However, Ms. Surendran refused to close the deal and the appellants allege that Mr. Mahendran is responsible for this loss.

[5] The appellants’ third-party claim, which is the focus of this appeal, is against The Nationwide Groups Ltd. (“Nationwide”). Nationwide obtained an appraisal for the 9th Line property for Ms. Surendran’s lender, the Royal Bank of Canada (“RBC”). In the third-party claim, the appellants allege that Nationwide’s appraisal undervalued the 9th Line property, which led Ms. Surendran to refuse to close the transaction.

[6] Nationwide brought a motion to strike the third-party claim on the basis that it does not disclose a cause of action. The motion judge granted the motion and dismissed the third-party claim. The motion judge noted that there were “numerous obvious problems” with the third-party claim, including the fact that 938, and not Mr. Singh or 966, was the owner of the property. However, the motion judge ultimately focused his analysis on a finding that the claim does not disclose a cause of action because Nationwide does not owe the appellants a duty of care and the appellants do not plead that they relied on Nationwide’s appraisal.

[7] We see no error in the motion judge’s decision. The issue of whether a duty of care is owed is a question of law that can, in appropriate circumstances, be resolved on a pleadings motion: 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, 450 D.L.R. (4th) 181, at paras. 24-25; R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45. Here, we agree with the motion judge that, on the facts pleaded in this case, it is plain and obvious that Nationwide does not owe the appellants a duty of care.

[8] As correctly stated by the motion judge, on a motion to strike a claim under r. 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the court should only strike the claim if it is plain and obvious that there is no reasonable chance of success: Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, at para. 36. The court is to read the claim generously and to assume that the allegations in the claim are true, unless they are patently ridiculous or incapable of proof: Imperial, at para. 22; McCreight v. Canada (Attorney General), 2013 ONCA 483, 116 O.R. (3d) 429, at para. 29.

[9] The motion judge also identified the correct legal test for negligent misrepresentation, which requires a plaintiff to show that (1) there is a “special relationship” between the person making the statement and the person hearing it; (2) it is reasonable for the person hearing the statement to rely on it; (3) the statement is untrue; (4) the person was careless in making the statement; and (5) the person who reasonably relied on the statement suffered damages: Queen v Cognos Inc., [1993] 1 S.C.R. 87, at para. 34.

[10] The issue of whether Nationwide owes the appellants a duty of care turns on whether they are in a special relationship of proximity. In Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, at para. 30, the Supreme Court confirmed that in cases of pure economic loss arising from negligent misrepresentation or performance of a service, the two determinative factors for establishing a special relationship are:

the defendant’s undertaking and the plaintiff’s reliance. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care. And, the plaintiff has a right to rely on the defendant’s undertaking to do so. [Emphasis added.]

[11] Here, as found by the motion judge, even on a generous reading of the pleadings, the appellants and Nationwide were not in the type of special relationship described in Livent. Nationwide was retained by RBC, which was Ms. Surendran’s lender. The appraisal documents, which are incorporated into the third-party claim by reference, specify that they were only prepared for the benefit of RBC. Nationwide did not undertake to appraise the property for the appellants’ benefit nor did Nationwide invite the appellants to rely on the appraisal. In addition, as found by the motion judge, the appellants did not allege that they relied on Nationwide’s appraisal; on the contrary, the third-party claim alleges that the appellants provided RBC with an alternative appraisal they had obtained independently which they claimed provided an accurate valuation of the property.

[12] As noted by the motion judge, the finding that Nationwide does not owe the appellants a duty of care when retained to appraise the property by the buyer’s lender is consistent with the decision in Barkley v. Tier 1 Capital Management Inc., 2018 ONSC 1956, aff’d 2019 ONCA 54.

[13] Mr. Singh argues that Nationwide owed a duty of care to all people to whom the appraisal may be shown and who may be expected to rely on it. However, this is contrary to the requirement that a special relationship be founded on an undertaking by the person making the representation and reliance by the person receiving the representation. Specifically, here, as reviewed above, the third-party claim and the incorporated appraisal documents do not assert that Nationwide undertook the appraisal for Mr. Singh. Further, as noted by the motion judge, the appellants do not plead that they relied on the appraisal.

[14] Mr. Singh also argues that the motion judge misunderstood the third-party claim, and that the claim discloses a cause of action because Nationwide used improper comparator properties in conducting its appraisal. Had it used appropriate comparators, the sale of the 9th Line Property to Ms. Surendran would have closed. However, the issue of whether Nationwide fell below the standard of care is irrelevant to the issue of whether Nationwide owed the appellants a duty of care. Only if Nationwide owed the appellants a duty of care would the standard of care become relevant.

[15] The appeal is dismissed. Nationwide is entitled to its costs in the amount of $6,780.00, inclusive of disbursements and HST.

“B. Zarnett J.A.”

“S. Coroza J.A.”

“L. Favreau J.A.”