Court File and Parties

Court File No.: CV-16-558270 Date: 2017-03-14 Ontario Superior Court of Justice

Between: JOHN WAWRZKIEWICZ (also known as Jan Wawrzkiewicz), Plaintiff – and – INTEGRATED DISTRIBUTION SYSTEMS LIMITED PARTNERSHIP, carrying on business as WAJAX EQUIPMENT (also known as the WAJAX ROTATING EQUIPMENT BRANCH) and WAJAX INDUSTRIAL COMPONENTS, a division of WAJAX CORPORATION, Defendants

Counsel: Mark Wainberg, for the Plaintiff Krista Chaytor, for the Defendants

Heard: March 6, 2017

Perell, J.

Reasons for Decision

[1] In this action, John Wawrzkiewicz sues Integrated Distribution Systems Limited Partnership (“Integrated”) and Wajax Corporation (“Wajax”) for payment of $57,049.65 for goods and services delivered. Paragraph 1 of Mr. Wawrzkiewicz’s Statement of Claim states:

1. The plaintiff claims against both defendants, jointly and severally:

(a) judgment for payment of invoice #B067-1 in the sum of $8,959.65;

(b) judgment for payment of invoice #B076-1 in the sum of $48,090.00;

(c) …

[2] In their Statement of Defence, Integrated and Wajax pleaded at paragraphs 2 to 4 as follows:

2. The defendants have recently learned that the plaintiff was involved in a scheme with a former employee or employees of the defendants pursuant to which the plaintiff overbilled the defendants for numerous goods and services and provided the defendants' former employee or employees with a portion of the excess profit generated by the overbilling.

3. The defendants deny that the plaintiff provided the goods for which he invoiced Wajax. In the alternative, if the goods were provided, which is not admitted, then the amounts charged by the plaintiff were not agreed to by the defendants and do not represent the fair value of those goods and services.

4. In the alternative, if any amounts are owing to the plaintiff, then the defendants claim a setoff against amounts owing to the defendants as a result of the plaintiff’s conduct as described above.

[3] Integrated and Wajax also pleaded a Counterclaim as follows:

13. The defendants claim:

(a) an order that the plaintiff account for all amounts paid to him, directly or indirectly, in money or in cash-equivalents or benefits by the defendants pursuant to the scheme described in this Statement of Defence and Counterclaim and an order that the plaintiff disgorge and/or pay restitution to the defendants; ….

[4] After Mr. Wawrzkiewicz brought a motion to have paragraphs 2 to 4 of the Statement of Defence and the Counterclaim for set-off struck out, Integrated and Wajax served an Amended Statement of Defence and Counterclaim which stated:

2. The defendants have recently learned that between 2012 and 2015 the plaintiff was involved in a scheme with a former employee Nathan Lenny ("Lenny"), a field services superintendent for Wajax in Fort McMurray, who provided services to Wajax through an employment agency, and possibly other representatives or employees of the defendants pursuant to which (the "Scheme") . Pursuant to the Scheme , the plaintiff overbilled the defendants for numerous goods and services and provided Lenny and/or the defendant’s former employee other representatives and/or employees with a portion of the excess profit generated by the overbilling.

2A. In order to effect the Scheme, Lenny and/or other representatives and/or employees of the defendants, with the knowledge of the plaintiff, submitted false purchase orders to the plaintiff. The purchase orders were for goods and/or services not approved and/or required by Wajax or were at inflated prices not approved by Wajax. The plaintiff in turn submitted false and/or inflated invoices to Lenny and/or other representatives and/or employees of the defendants. In other instances, the plaintiff submitted invoices to Wajax for which Wajax had not issued a purchase order (collectively the invoices submitted to Wajax by the plaintiff are referred to as the "Improper Invoices").

2B. As a result of Lenny's position with Wajax and the positions of the other representatives and/or employees of Wajax involved in the Scheme, the Improper Invoices were approved and paid by Wajax.

2C. The particulars of all of the false purchase orders and/or the Improper Invoices are known to the plaintiff and not the defendants.

2D. For participating in the Scheme, Lenny and/or other representatives and/or employees of the defendants received payments and/or other benefits from the plaintiff. With respect to at least some of the Improper Invoices, the plaintiff paid Lenny 6.5% of the amount invoiced to Wajax. The full particulars of the payments made by the plaintiff to Lenny and other representatives and/or employees of the defendants are known to the plaintiff but not the defendants.

2E. On or about April 25, 2016, Wajax terminated its relationship with Lenny.

3. The defendants deny that the plaintiff provided the goods for which he invoiced Wajax and claims payment for in the Amended Statement of Claim. In the alternative, if the goods were provided, which is not admitted, then the defendants did not order the goods. Furthermore , the amounts charged by the plaintiff were not agreed to by the defendants and were inflated pursuant to the Scheme, and do not represent the fair value of those goods and services.

4. In the alternative, if any amounts are owing to the plaintiff, then the defendants claim a setoff against amounts owing to the defendants as a result of the plaintiff’s conduct as described above.

11A. In the alternative, if any amounts are owing to the plaintiff for invoices 8067-1 and 8076-1, as alleged in the Amended Statement of Claim, which is expressly denied, then the defendants claim a setoff against such amounts as a result of the overpayments and/or mistaken payments extracted by the plaintiff pursuant to the Scheme.

[5] Relying on rules 21.01, 25.06, and 25.11, Mr. Wawrzkiewicz persists in his motion to strike paragraphs 2A, 2B, 2C, 2D, 2E, 3 and 11A of the Statement of Defence and Counterclaim as disclosing no reasonable cause of action, or as prejudicial, scandalous, frivolous , vexatious , and an abuse of process. He argues that no material facts have been pleaded in support of the bald allegations of a conspiracy that are set out in the Statement of Defence and Counterclaim. He says that allegations in the nature of fraud, misrepresentation and deceit must be pleaded with a greater level of particularity than for other claims, such as breach of contract. He also submits that the Defendants’ pleading of set-off is improper because there is no basis to plead either legal or equitable setoff.

[6] Rules 21.01, 25.06, and 25.11 state:

Where available

21.01 (1) A party may move before a judge,

(a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,

and the judge may make an order or grant judgment accordingly.

(2) No evidence is admissible on a motion,

(a) under clause (1)(a), except with leave of a judge or on consent of the parties;

(b) under clause (1)(b).

Material Facts

25.06 (1) Every pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved.

Nature of Act or Condition of Mind

(8) Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.

Claim for Relief

(9) Where a pleading contains a claim for relief, the nature of the relief claimed shall be specified and, where damages are claimed,

(a) the amount claimed for each claimant in respect of each claim shall be stated; and

(b) the amounts and particulars of special damages need only be pleaded to the extent that they are known at the date of the pleading, but notice of any further amounts and particulars shall be delivered forthwith after they become known and, in any event, not less than ten days before trial.

STRIKING OUT A PLEADING OR OTHER DOCUMENT

25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(a) may prejudice or delay the fair trial of the action;

(b) is scandalous, frivolous or vexatious; or

(c) is an abuse of the process of the court.

[7] The most important rule about pleadings is rule 25.06 (1) that "[e]very pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved." This rule directs the disclosure of the material facts, which include facts that establish the constituent elements of the claim or defence: Philco Products, Ltd. v. Thermionics, Ltd., [1940] S.C.R. 501 at p. 505. The causes of action must be clearly identifiable from the facts pleaded and must be supported by facts that are material: Cerqueira v. Ontario, 2010 ONSC 3954 at para. 11. It will be plain and obvious that a claim discloses no cause of action when the allegations in the statement of claim do not plead all the elements necessary for a recognized cause of action: Dawson v. Rexcraft Storage & Warehouse Inc., [1998] O.J. No. 3240 (C.A.) at para. 10; Aristocrat Restaurants Ltd. v. Ontario, [2004] O.J. No. 5164 (S.C.J.) at paras. 18-20; EnerWorks Inc. v. Glenbarra Energy Solutions Inc., 2012 ONSC 414.

[8] The full particulars required by rule 25.06 (8) must set out precisely each allegation of wrongful conduct and the who, where, when, what, and how of that alleged misconduct: Balanyk v. University of Toronto, [1999] O.J. No. 2162 (S.C.J.) at para. 28. In the Balanyk case, Justice Cameron stated at para. 29:

The plaintiff must plead all the material facts on which it relies and all of the facts which it must prove to establish a cause of action which is legally complete. If any fact material to the establishment of a cause of action is omitted, the statement of claim is bad and the remedy is a motion to strike the pleadings, not a motion for particulars. If the plaintiff does not, at the time of pleading, have knowledge of the facts necessary to support the cause of action, then it is inappropriate to make the allegations in the statement of claim. It is improper to allow conclusions to be pleaded baldly and without any supporting facts: see Region Plaza Inc. v. Hamilton-Wentworth (Regional Municipality) (1990), 12 O.R. (3d) 750 (Ont. H.C.).

[9] Where a party submits that his or her opponent’s pleading does not disclose a reasonable cause or action or a reasonable defence, to succeed in having the opponent ’s action dismissed or his or her defence struck, the moving party must show that it is plain, obvious and beyond doubt that the opponent could not succeed in the claim or defence: Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959. A claim will be struck out if it has no reasonable prospect of success but where a reasonable prospect of success exists, the matter should be allowed to proceed: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 17. The threshold to be met by a moving party on a rule 21.01(1)(b) motion is very high: Amato v. Welsh, 2013 ONCA 258 at para. 32.

[10] In the case at bar, the Defendants, in their Statement of Defence and Counterclaim, plead two or three causes of action; namely: (1) civil fraud; (2) fraudulent misrepresentation or deceit; and (3) civil conspiracy (wrongful means). I say two or three causes of action because the elements of these causes of action overlap and the Defendants, in pleading a scheme, are not precise in designating or differentiating the constituent elements of their several causes of action. The Defendants also plead what appears to be an equitable set-off.

[11] With respect to the cause of action for civil fraud, to defraud a person is to deprive a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud, be entitled: Scott v. Commissioner of Police for the Metropolis , [1974] 3 All E.R. 1032 (H.L.) at p. 1038. The constituent elements of the tort of civil fraud are: (1) a false representation made by the defendant; (2) knowledge of the falsehood of the representation on the part of the defendant or reckless disregard of the truth or falsity of the representation; (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss. Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8 at para 21. In the case at bar, the Defendants plead a cause of action for civil fraud.

[12] The elements of a claim of fraudulent misrepresentation or deceit are: (1) a false statement by the defendant; (2) the defendant knowing that the statement is false or being indifferent to its truth or falsity; (3) the defendant having an intent to deceive the plaintiff; (4) the false statement being material and the plaintiff having been induced to act; and, (5) the plaintiff suffering damages: Parna v. G. & S. Properties Ltd. (1970), 15 D.L.R. (3d) 336 (S.C.C.) at p. 344; Derry v. Peek (1889), 14 App. Cas. 925 (H.L.). In the case at bar, the Defendants plead a cause of action for fraudulent misrepresentation or deceit.

[13] The constituent elements of the tort of conspiracy are: (1) two or more defendants make an agreement to injure the plaintiff; (2) the defendants (a) use some means (lawful or unlawful) for the predominate purpose of injuring the plaintiff, or (b) use unlawful means with knowledge that their acts were aimed at the plaintiff and knowing or constructively knowing that their acts would result in injury to the plaintiff; (3) the defendants act in furtherance of their agreement to injure; and, (4) the plaintiff suffers damages as a result of the defendants' conduct: Hunt v. Carey Canada Inc. , supra; Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452; Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 37 O.R. (3d) 97 (C.A.).

[14] The second element of the tort of conspiracy; i.e., that the defendants: (a) use some means (lawful or unlawful) for the predominate purpose of injuring the plaintiff; or (b) use unlawful means with knowledge that their acts were aimed at the plaintiff and knowing or constructively knowing that their acts would result in injury to the plaintiff, creates two types of conspiracy namely: (1) the predominate purpose to injure version; and (2) the using unlawful means with knowledge of injury version: Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd. , supra. In the case at bar, it appears that the Defendants are pleading the second of the two types of conspiracy.

[15] Turning to the pleading of set-off, there are two types of set-off, common law set-off, which is narrow and concerns liquidated debts, and equitable set-off, which is much broader in its scope: Telford v. Holt, [1987] 2 S.C.R. 193; Cuddy Food Products v. Puddy Bros. Ltd., [2002] O.J. No. 3181 (S.C.J.); Amhil Enterprises Ltd. v. Select Inc., [2001] O.J. No. 4517 (S.C.J.), affd Amhil Enterprises Ltd. v. Select Inc., [2002] O.J. No. 1232 (C.A.). Equitable set-off is considerably broader in its scope than legal set-off.

[16] The constituent elements of equitable set-off are: (1) there must be some equitable basis to resist the plaintiff’s claim; (2) the equitable ground must go to the essence of the plaintiff’s claim; and (3) it would be manifestly unjust to enforce the plaintiff’s claim without taking into consideration the defendant’s claim : Telford v. Holt , supra; Algoma Steel Inc. v. Union Gas Ltd. (2003), 63 O.R. (3d) 78 (C.A.); Ang v. Premium Staffing Ltd., 2015 ONCA 821; Venpax Corp. v Paniw, [2002] O.J. 377 (S.C.J.); Ferrum Inc. v. Three Dees Management Ltd. (1992), 7 O.R. (3d) 660 (Gen. Div.).

[17] For an equitable set-off there must be a close relationship between the dealings which gave rise to the respective claims: Telford v. Holt , supra; Cuddy Food Products v. Puddy Bros. Ltd., supra; Abrasive Engineering & Manufacturing Inc. v. Cowan & Stevens Machinery Sales Ltd., [2003] O.J. No. 2037 (S.C.J.); Univar Canada Ltd. v. Pax-All Manufacturing Inc., [2008] O.J. No. 3462 (S.C.J.), affd. Univar Canada Ltd. v. Pax-All Manufacturing Inc., [2009] O.J. No. 1698 (C.A.); Poss Design Ltd. v. Beograd Machine & Tools Co., 2014 ONSC 3051.

[18] In my opinion, with the exceptions that the Defendants have not listed or enumerated the false purchase orders and false invoices and they have failed to set out the amount claimed for damages, which I direct that they do by delivering particulars of the purchase orders and invoices and the amount of damages claimed, the Defendants have adequately pleaded their claims and the case is appropriate for an equitable set off.

[19] Therefore, the Plaintiff’s motion should be dismissed on terms that the Defendants provide particulars.

[20] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Defendants’ submissions within 20 days of the release of these Reasons for Decision, followed by Mr. Wawrzkiewicz’s submissions within a further 20 days. I alert the parties that my present inclination is to order costs in the cause.

Perell, J. Released: March 14, 2017