Court File No.: CV-16-558022 Date: 2017/04/28
Superior Court of Justice - Ontario
Re: Charles Moon and Yorkville Corporation v. Hunter Milborne et al.
Before: Master A. Graham Heard: April 25, 2017
Appearances: D. McConville, for the plaintiff R. Shekter, for the Milborne defendants (moving parties)
Reasons for Decision
(Motion for leave to file a Fresh as Amended Statement of Defence)
[1] The plaintiffs claim $2.5 million based on an alleged joint venture with the Milborne defendants in respect of four parcels of real estate in the Yorkville area of Toronto for development as residential condominiums. The plaintiffs allege as follows:
- Pursuant to the terms of the joint venture, they did not have to invest any money; the Milborne defendants and “other financiers” (also named as defendants) would finance 100% of the cost of completing the purchase of the land and of the development of the project;
- In August, 2014, all but one of the defendants agreed that the plaintiffs would release their “carried interest” in the joint venture upon payment of $2.5 million when an “additional significant financier” committed and invested in the project;
- On or about October 28, 2015, the defendant GG Eight Cumberland Inc. committed and invested in the joint venture to the extent of being an “additional significant financier”; at that point, the $2.5 million became payable to the plaintiffs and this amount has not been paid.
[2] The Milborne defendants brought a motion for particulars of the statement of claim and leave to deliver an amended pleading. The particulars motion was resolved except for the costs of that part of the motion, and I ruled on the costs following argument on April 25, 2017. The Milborne defendants had previously delivered a 1.5 page statement of defence essentially limited to a blanket denial of all allegations. They then argued their motion for leave to deliver a 17.5 page Fresh as Amended Statement of Defence in response to the original statement of claim and the particulars received. As set out in greater detail below, the plaintiff takes issue with one sentence in this pleading.
[3] The Milborne defendants, in their draft pleading, deny that they entered into a joint venture with the plaintiffs whereby they would have allowed the plaintiffs to obtain the alleged 10% carried interest. Although they acknowledge discussions with the plaintiff Moon with respect to a possible finder’s fee to be shared between them, they deny that they ever entered into any agreement with either of the plaintiffs to pay compensation of any kind in relation to a finder’s fee or any joint venture.
[4] The Milborne defendants further plead that all discussions were with Charles Moon in his personal capacity with no mention of the corporate plaintiff Yorkville Corporation until they were served with the notice of action and statement of claim. Specifically, the Milborne defendants plead as follows (paragraphs 19 and 20 of their draft pleading):
19 Further, at all material times, all of Hunter’s [the defendant Hunter Milborne’s] discussions with Charles were conducted by Charles personally and on his own behalf. At no time was the corporate Plaintiff, Yorkville Corp., mentioned. The first indication that Charles was purporting to act on behalf of Yorkville Corp. was when These Defendants were served with the Notice of Action and Statement of Claim in the within proceedings.
20 These Defendants plead that at all material times Yorkville Corp. was a bare trustee and/or nominee for Charles, and one of his various such companies used as a vehicle through which Charles has attempted to improperly insulate himself, without lawful justification or excuse, from any potential civil or other liability or from his obligation to account for funds received on Hunter’s behalf as more particularly described below and in the companion action to this proceeding, commenced by, inter alia , Hunter against Charles and his various agents, nominees and bare trustees, bearing Court File Number CV-17-572303 (hereinafter the “Companion Action”).
[5] The only portion of the proposed Fresh as Amended Statement of Defence with which the plaintiffs take issue is the first sentence of paragraph 21:
21 These Defendants plead further that during the course of his business life and activities, Charles has utilized sham/shell corporations not only to hide his personal involvement in business activities, but also to ensure that to the outside world he is, and remains, entirely judgment proof. These Defendants plead that, at all material times, Yorkville Corp. was a mere agent, alter ego, nominee, bare trustee, and/or an authorized representative of Charles and that Charles is personally responsible in law for the conduct of said corporation in connection with any activities pertinent to the within proceeding and within the Companion Action.
[6] The defendants submit that the impugned portion of this pleading sets out a tenable basis for eliciting similar fact evidence relating to the plaintiff Moon’s use of corporate entities to avoid personal liability. The plaintiffs submit that the pleading is improper.
[7] The motion to amend is brought under rule 26.01:
26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[8] Although the use of the word “shall” in rule 26.01 makes a proposed pleading amendment prima facie mandatory, the amendment must be tenable at law. In The Law of Civil Procedure in Ontario, LexisNexis Canada Inc. 2010, pp. 360-361, the authors Perell J. and John W. Morden state:
On a motion to amend a pleading, the court does not examine the factual merits of the proposed amendments or the moving party’s motives for seeking the amendment, but it does examine whether as a matter of law, the amendment raises a tenable claim or defence and whether the proposed amendment has been properly pleaded in the sense of complying with the rules that govern pleadings, including sufficient particularity. Put somewhat differently, it makes little sense to grant an amendment that will immediately be challenged as legally unsound, and the court may inquire into the merits to ensure that the amendment is tenable in law and compliant with the rules of pleading.
[9] The impugned amendment contains an allegation with respect to the conduct of the plaintiff Charles Moon, not in relation to the transaction that is the subject of his claim in this action, but in relation to other unspecified and unrelated business activities. The issue raised on this motion is whether it is a proper pleading of similar facts.
[10] The law with respect to the pleading of allegations of similar facts was summarized by Master Egan in Prism Data Services Limited v. Neopost Inc. (para. 9):
9 The following principles apply when a party seeks to plead allegations of similar facts:
(a) such allegations are proper as long as the added complexity resulting therefrom does not outweigh the probative value;
(b) similar acts are not probative if there is not a sufficient degree of similarity;
(c) the similarity must be provable without a prolonged inquiry although, inevitably, the litigation process will be lengthened to some extent as a result of proper similar fact allegations;
(d) the added complexity should not lead to undue oppression or unfairness; and
(e) if a system or scheme of conduct is alleged the past similar acts must have sufficient common features to constitute the system or scheme.
[11] The Milborne defendants submit that the allegations in paragraph 21, if taken to be true, could substantiate a pattern of conduct that would support the other allegations in the statement of defence that Charles Moon was always dealing with them on his own behalf and not through any corporation and that the plaintiff Yorkville Corporation was a bare trustee for him (see paragraph 20 reproduced at paragraph [4] above). These allegations would also support the allegation in paragraph 35 of the amended pleading that Charles Moon’s corporations Yorkville Property Corporation and Yorkville Equities Corporation were his alter egos on the basis that he had a history of using corporations for that purpose.
[12] The plaintiffs submit that applying the principles in Prism Data leads to the conclusion that the impugned pleading cannot stand. Using the letters from paragraph 9 of Prism Data quoted at paragraph [10] above, I accept the plaintiffs’ submissions for the following reasons:
(a) Allowing the pleading to stand would enable the Milborne defendants to examine Charles Moon for discovery about every company that he has ever incorporated as well as the business activities of each of those companies. These lines of enquiry regarding corporations used by Moon “during the course of his business life and activities” would cover an unknown number of entities that have nothing to do with the transactions in this action and would inevitably increase the complexity of disclosure in this action to an extent disproportionate to the probative value of any such disclosure.
(b) The first sentence of the proposed paragraph 21 refers to Moon “during the course of his business life and activities” using “sham/shell corporations not only to hide his personal involvement in business activities, but also to ensure that to the outside world he is, and remains, entirely judgment proof.” This allegation is too vague to determine whether there is a sufficient degree of similarity between Moon’s alleged previous conduct and his alleged conduct in this action to justify the disclosure of possible similar fact evidence.
(c) The alleged similar conduct is described so generally, and would give rise to such broad and open-ended discovery, that any enquiry into that conduct will inevitably prolong the discovery process to an unwarranted extent.
(d) If this very broad allegation were permitted to stand, it would amount to giving the Milborne defendants a license to conduct a “fishing expedition” into virtually all business dealings conducted by Moon through all of his corporations by way of an examination for discovery so wide-ranging as to be oppressive and unfair.
(e) The Milborne defendants are attempting to allege a past system or scheme of conduct on the part of Charles Moon. In order for the pleading to be tenable, “the past similar acts must have sufficient common features to constitute the system or scheme”. However, the impugned allegation is extremely general, referring only to corporations used by Charles Moon during the course of his business life and activities to hide his personal involvement and to make himself judgment proof. It is therefore impossible to determine what common features might exist as between any such past use of corporations and his use of corporations in the transactions that are the subject of this action.
[13] My conclusions with respect to the impugned “similar fact” allegation in this case are similar to those of Master Egan in Prism Data. First, in paragraph 13 of Prism Data, Master Egan comments that the proposed amendments before her “put into issue all of the plaintiff’s [ sic -this should read ‘defendant’s’] conduct with all of its customers, all of its agents and all of its equipment in an unlimited time frame”. Similarly, in the case before me, the proposed amendment puts into issue all of the plaintiff Moon’s conduct with everyone he and any of his corporations have ever dealt with. It therefore does not contain the “sufficient particularity” contemplated by the passage from Perell J. and John W. Morden quoted in paragraph 8 above.
[14] Second, Master Egan’s statement in paragraph 17 of Prism Data, in which she concluded that the allegations in the proposed amendment before her were not permissible, is equally applicable here:
17 The allegations are so broad and all encompassing that the added complexity resulting therefrom does not outweigh the potential probative value.
[15] For these reasons, the Milborne defendants are hereby granted leave to file and deliver an amended statement of defence in the form found at tab 1H of the Milborne defendants supplementary motion record, with the exception of the first paragraph of paragraph 21.
Costs
[16] If the parties cannot agree to the disposition of the costs of the motion, they shall provide written submissions, the Milborne defendants within 30 days and the plaintiffs within 20 days thereafter. Submissions shall not exceed three pages.