Court File and Parties

COURT FILE NO.: CV-17-131448 DATE: 20181024 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1806700 Ontario Inc. Plaintiff – and – Muhammad Aslam Khan, Saeeda Bibi, Tauqeer Aslam, Marian Dmuchowski, Leonila Fajardo, Farooq Mian, Shahzad Siddiqui, Muezzin Quershi, Faisal Hameed, Syed Abid Hussain, Abrahams LLP, Law Office of Faisal Hameed, Syed and Ellison Law Professional Corporation, MAK Law Office Professional Corporation and KM Law Professional Corporation Defendants

Counsel: Gregory L. Chang and Joga S. Chahal, for the Plaintiff Muhammad Aslam Khan, acting in person for himself and for the Defendants, Saeeda Bibi, Tauqeer Aslam and MAK Law Office Professional Corporation David Silver, for the Defendants, Faisal Hameed and Law Office of Faisal Hameed

HEARD: September 20, 2018

Reasons for Decision

CHARNEY J.:

Introduction

[1] This case involves three motions.

[2] The first is a motion by the defendants Muhammad Aslam Khan, Saeeda Bibi, Tauqeer Aslam, and MAK Law Office Professional Corporation (together referred to as the “Khan defendants”) for an order dismissing the plaintiff’s action or striking the Statement of Claim under Rules 21.01(1) and (3) and 25.11 of the Rules of Civil Procedure.

[3] A similar motion is brought by the defendants Faisal Hameed and the Law Office of Faisal Hameed (the Hameed defendants).

[4] There are nine other defendants named in this action, but they did not participate in this motion because they were noted in default (Marian Dmuchowski and Farooq Mian), have consented to the proposed Fresh as Amended Statement of Claim (Shahzad Siddiqui and Abrahams LLP), have filed for bankruptcy and served a notice of stay of proceedings (Leonila Fajardo), or the plaintiff has agreed to a dismissal of the action against them without costs (Syed Abid Hussain, Syed and Ellison Law Professional Corporation, Muezzin Quershi and KM Law Professional Corporation).

[5] A cross-motion is brought by the plaintiff to amend the Statement of Claim issued on June 14, 2017 with a Fresh as Amended Statement of Claim. The plaintiff wishes to remove all allegations of negligence and breach of the Rules of Professional Conduct against certain defendants and add or clarify allegations of fraud.

[6] The plaintiff’s action finds its origin in a real estate transaction that occurred on August 8, 2012, and has engendered multiple legal proceedings that have developed into a procedural morass. These various legal proceedings have been filed and heard in Brampton, Toronto, and Newmarket. By my count, I am the tenth Superior Court judge to address the legal disputes that have arisen from the original transaction. In reviewing the material presented by counsel, I could not help but be reminded of the classic Star Trek episode “Let That Be Your Last Battlefield”.

Facts

[7] Two of the defendants to this action, Marian Dmuchowski and Leonila Fajardo, owned a property at 67 Emeline Crescent in Markham, Ontario (“the property”).

The Brampton Proceedings

[8] The plaintiff, 1806700 Ontario Inc., was the second mortgagee. The second mortgage was in default, and 1806700 Ontario Inc. commenced a proceeding on December 24, 2012, for possession and personal judgment on the second mortgage. 1806700 Ontario Inc. was represented by a lawyer, Sandeep Singh Johal (Johal), in these proceedings. Since Rule 13.1.01(3) of the Rule of Civil Procedure (O. Reg. 259/14, s. 4 – effective March 31, 2015) had not yet been enacted, the proceeding was commenced in Central West Region rather than in Central East where the property is located.

[9] On January 21, 2013, the defendant, Muhammad Aslam Khan, as solicitor, registered a third mortgage on the property on behalf of the defendant Farooq Mian.

[10] Default judgment was granted on February 13, 2013.

[11] For ease of reference I adopt the following facts as set out by Ricchetti J. in 1806700 Ontario Inc. v Dmuchowski, 2017 ONSC 2817, at paras. 7-28, one of the cases leading up to the present proceeding:

The second mortgagee wanted to sell the property under a Power of Sale. Any such sale would be subject to the first mortgage on the property.

In order to sell the property, the plaintiff needed possession. Possession was granted by court order in July, 2013.

The property was listed for sale in July 2013. The property was sold the same month.

There is no issue regarding the first mortgage or the amount needed to discharge the first mortgage to permit the sale to close.

The net proceeds were held in trust.

As far as the second mortgagee was concerned, the only outstanding issue was the determination of the amount owing under the second mortgage and the distribution of the net proceeds of sale.

Somehow and despite the sale of the property, Mr. Khan, as solicitor, registered an assignment of the third mortgage to Bibi (Mr. Khan’s spouse). Then there appears to be another assignment to a company of which Mr. Khan is a director. To make a long story short, the third mortgage was eventually assigned to Mr. Khan personally. There is little doubt that the circumstances surrounding the dealings with the third mortgage raise reasonable questions about its validity and quantum but, whether those are questions which need to be decided in this proceeding becomes an issue to be decided by this court.

Subsequent to the sale of the property, the third mortgagee sought to set aside the Default Judgment. On July 16, 2014, a consent order was made by Donohue J. fixing the amount owed to the second mortgagee. The consent order also called for a reference.

Subsequently, the second mortgagee alleged it learned information that the third mortgage was a sham and, on this basis, sought to set aside the consent order by Donohue J. The second mortgagee sought leave to appeal Donohue J.’s order of July 16, 2014 despite the fact it was a consent order and a lengthy period of about two years had elapsed.

The reference was to proceed.

A Rule 30.10 motion was brought by the second mortgagee requiring Mr. Khan to produce records relating to the third mortgage. This motion was opposed by Mr. Khan. It is entirely unclear why the second mortgagee had any interest in the third mortgagee’s validity or quantum owing under the alleged third mortgage. The second mortgagee was entitled to the amounts under its second mortgage. Any remaining proceeds of sale would belong to either the mortgagors or the third mortgagee. It mattered not to the second mortgagee which party received the surplus.

Nevertheless, the Rule 30.10 motion was heard on June 22 and 23, 2016 by Snowie J. On July 20, 2016 Snowie J. ordered production by Mr. Khan of various documents related to the third mortgage and awarded costs on a substantial indemnity basis against Mr. Khan. The quantum of costs was reserved by Snowie J. pending written submissions.

Mr. Khan appealed Snowie J.’s order of July 20, 2016.

On September 26, 2016, the second mortgagee’s motion to set aside Donohue J.’s order of July 16, 2014 was scheduled to be heard. It came before this court. It was apparent to this court that the real issue was a reference to determine the amount owing under the second mortgage. The multiplicity of motions, leave to appeal and appeal were disproportionate to the amounts at issue or the reasonable and just determination of the issues. The reference would determine what amounts, if any, remained after payment of the second mortgage.

On September 26, 2016, all the parties agreed to a consent order which included:

1. setting aside Donohue J.’s order of July 16, 2014;
2. “the motion for leave to appeal J. Donohue’s order is hereby abandoned w/o costs”;
3. “Justice Snowie’s order of July 20, 2016 shall be complied with (para 85) within two weeks of today’s date”;
4. “the motion for leave to appeal J. Snowie’s order is hereby abandoned w/i [without] costs”;
5. “the reference as to the amount outstanding indebtedness on the second mortgage to be heard by me based on the evidence before me.”; and
6. “costs of the proceeding reserved to me after the conclusion of the Reference”

The reference was scheduled and took place on December 5, 2016. All parties were served. The reference took place.

This court found that $512,250.25 was properly due to the second mortgage (which included the payout to the first mortgagee). This left a total surplus of $17,300.29 from the net proceeds of sale of the property. This court’s endorsement on that date went on to:

1. address how costs submissions were to be dealt with; and
2. “if after the costs have been decided, if this court needs to determine the validity of the third mortgage (and it is properly before this court) then either party may schedule an attendance before me.”

Costs submissions were received in January 2017. In his submissions, Mr. Khan sought costs against Mr. Johal (the plaintiff's initial lawyer) personally.

The court declined to deal with costs by way of the written submissions…

Before this matter could be rescheduled for a hearing date, an issue arose in a Toronto proceeding involving some of these parties and the third mortgagee. Examinations were taking place in the Toronto proceeding. There was an outstanding motion in the Toronto proceeding scheduled for March 7, 2017. This court was asked to and did adjourn the costs hearing until after the motion in the Toronto proceeding had been decided. Eventually, Matheson J. decided the motion.

At a scheduling conference on March 29, 2017, this court imposed a timetable and scheduled a costs hearing on April 27, 2017.

Several things occurred before the hearing date:

1. Justice Snowie awarded costs of $14,672.58 against Mr. Khan for the Rule 30.10 motion. Justice Snowie’s endorsement was released on April 21, 2017; and
2. Matheson J. awarded costs of $15,000 against Mr. Khan for the motion in the Toronto action.

[12] That chronology brings us to May 8, 2017, when Ricchetti J. decided the costs of the reference that he had heard. Ricchetti J. made the following decisions:

1. Justice Snowie’s costs award for the Rule 30.10 motion remains.
2. The second mortgagee [the plaintiff in the present case] is entitled to $20,000 all-inclusive partial indemnity costs for the reference proceeding, payable jointly and severally by the defendants and Mr. Khan.
3. The second mortgagee may add to its second mortgage the amount of $17,300 (the surplus of sale proceeds following payment of the second mortgage) plus any accrued interest in full satisfaction of this portion of this costs award for the proceeding and reference.
4. A substantial indemnity costs award of $4,500 all-inclusive is payable by Mr. Khan to the second mortgagee forthwith for the April 27, 2017 hearing in relation to Mr. Khan’s claim for costs against Mr. Johal personally.
5. A substantial indemnity costs award of $6,000 all-inclusive is payable by Mr. Khan to Mr. Johal forthwith.

[13] Significantly, Ricchetti J. concluded that it was not necessary to determine the validity of the third mortgage. The final paragraphs of his endorsement state, at paras. 74 and 75:

There is no reason in this proceeding to embark upon a determination of the validity of the third mortgagee or the entitlement to the owner (defendants) as there are no monies to distribute to either party from the net proceeds of sale.

This action was for possession and judgment against the defendants/mortgagors. All of the claims in this proceeding are now spent.

[14] In reaching this conclusion Ricchetti J. emphasized (several times) the point that the validity of the third mortgage was irrelevant to the second mortgagee, since (at para. 17): “The second mortgagee was entitled to the amounts under its second mortgage. Any remaining proceeds of sale would belong to either the mortgagors or the third mortgagee. It mattered not to the second mortgagee which party received the surplus.”

[15] See also, paras. 50, 53 and 57-58:

[T]his court remains at a loss as to why the second mortgagee needed to embark upon the challenge of the validity of the third mortgage. The second mortgagee’s only interest should have been a reference to determine the amount owing to it under the second mortgage. Any surplus, whether belonging to the mortgagor/defendants and/or the third mortgagee, was not relevant to the second mortgagee after it was paid its entitlement under its second mortgage in full. A number of steps in this proceeding were unnecessary.

I have excluded the costs by the second mortgagee to set aside the Default Judgment. Having obtained a judgment as to the amount owing under its second mortgage, why would the second mortgagee care whether there was any or the amount owing under the third mortgagee? This was a power of sale. The second mortgagee is only entitled to be paid what it is owed under its second mortgage. The balance, if any, belongs to others or should be paid into court. As a result, it is unclear why the second mortgagee would have moved to set aside the Default Judgment just because it had found information regarding the third mortgage.

This court is satisfied that, to some extent, the second mortgagee unnecessarily complicated this proceeding by questioning the validity of the third mortgage which was not and is not an issue relevant to the issues in this proceeding, namely, the second mortgagee’s entitlement to have possession of the property, judgement against the defendants (mortgagors) or to permit it to sell the property.

Once the amount due to the second mortgagee was decided in this reference and paid to the second mortgagee, there is nothing else to be decided in this proceeding:

• There is no property left. The property is sold. The only issue is the distribution of the net proceeds and that has been determined by this court;
• The respective entitlement and distribution of the proceeds of sale; and
• Given this decision on costs of the proceeding and reference, there remains no further proceeds for distribution to the third mortgagee or the owners (even if the third mortgage was valid).

[16] I have set out these paragraphs in full because they are directly relevant to the legal issues raised in the motions before me.

[17] Following the decision of Ricchetti J., the third mortgagee, Mr. Khan, brought a motion to set aside part of the Reference Report of Ricchetti J. He asked that the surplus monies resulting from the mortgage sale, in the amount of $17,300.29, be paid to him, that he not be required to pay costs to any other party, and that he be awarded his costs of the proceeding. Mr. Khan’s motion was dismissed by Bielby J. on November 3, 2017 (1806700 Ont. Inc. v. Dmuchowski, 2017 ONSC 6626).

[18] Mr. Khan sought an extension of time to appeal the decision of Bielby J., and, by order of MacPherson J.A. dated April 5, 2018, was required to pay $10,000 to stand as security for costs before perfecting the appeal.

[19] Mr. Khan’s appeal from the order of MacPherson J.A. was dismissed by a full panel of the Court of Appeal on June 14, 2018 (1806700 Ontario Inc. v. Dmuchowski, 2018 ONCA 557). The Court of Appeal imposed a deadline of June 25, 2018 for payment of the security for costs and the perfection of the appeal, failing which “the appeal shall be dismissed as abandoned”.

[20] Mr. Khan perfected the appeal of Bielby J.’s decision on June 26, 2018, and the appeal is scheduled to be heard by the Court of Appeal on December 17, 2018.

[21] On September 13, 2018 Mr. Khan brought a motion to the Court of Appeal for an extension of time to file appeals of related orders, including the production order of Snowie J. dated July 20, 2016. Paciocco J.A. dismissed the motion, and fixed costs at $3,500 to each of the two respondents (1806700 Ontario Inc. and Mr. Johal).

[22] In reviewing the litigation proceedings to date, Paciocco J.A. noted, at para. 6: “A grossly disproportionate amount of litigation has been undertaken.”

The Toronto Proceedings

[23] On September 8, 2015 a company called Swat Emeraldmine & Marketing Inc. (Swat) issued a Statement of Claim against 1806700 Ontario Inc., and various other parties involved in the case, including 18067000 Ontario Inc.’s lawyer in the Brampton proceedings, Mr. Johal. Much of that original Statement of Claim has been struck out (see below), but the action, in its present form, is for a declaration, inter alia, that the third mortgage was a valid mortgage and that the defendants had conducted an improvident sale of the property and acted in bad faith. The claim seeks damages in the amount of $440,000, and was commenced in Toronto.

[24] Swat was the plaintiff in this action because the third mortgage was assigned from the original mortgagee, Farooq Mian, to Saeeda Bibi (Mr. Khan’s wife) to Swat. Mr. Khan is a director of Swat. Swat then assigned the mortgage to Mr. Khan.

[25] On May 18, 2016, the defendant Johal brought a motion to strike out the Statement of Claim. Matheson J. held that certain paragraphs in the claim should be struck with leave to amend. There was also a companion claim in which Mr. Kahn was the plaintiff and Mr. Johal the sole defendant, and that claim was struck in its entirety with leave to amend.

[26] The moving party also sought to have the claim dismissed or stayed under Rule 21.01(3)(d) as frivolous, vexatious and an abuse of process on the basis of the relationship between it and the Brampton action. Matheson J. concluded that given the issues with the pleadings, it was premature to decide whether the action should be stayed until after the pleadings had been amended.

[27] The Statement of Claim was amended on October 31, 2016.

[28] On November 16, 2016 a transmission of interest was filed and the Swat claim was continued with Mr. Khan as the plaintiff. The companion claim originally brought in Mr. Khan’s name was not amended and was struck out.

[29] On March 7, 2017 the matter returned to Matheson J., who held that there were still significant problems with the amended Statement of Claim and struck it out with leave to amend, but stayed that action pending the completion of the Brampton proceeding. In her oral reasons for decision Matheson J. expressed significant concern about the problems being created by the substantial overlap between the Brampton and Toronto actions. She stated at p. 13:

[I]t is very apparent to me that as a result of these parallel proceedings that are significantly overlapping with causes of one case being introduced into the other back and forth between proceedings in two different regions, that there is a very high risk of unfairness and inconsistency between these two proceedings dealing with, at its core, the same subject matter.

[30] Accordingly Matheson J. exercised her jurisdiction under Rule 21.01(3)(d) to temporarily stay the Toronto action pending the final determination or settlement of the Brampton proceedings, subject to further order of the court. Mr. Khan was given 60 days to deliver an amended Statement of Claim “if and when the stay is lifted” and if he has paid the costs order. Costs of the motion were fixed at $15,000, all inclusive.

[31] Mr. Khan sought leave to appeal the March 7, 2017 decision of Matheson J., and his motion to for leave to appeal was dismissed by Nordheimer J. (as he then was) on June 5, 2017. Costs were fixed at $5,000 on a substantial indemnity scale.

[32] On June 8, 2017, Mr. Khan filed with the Divisional Court office, a motion to set aside or vary Nordheimer J.’s order along with a request for an interim order staying enforcement of it. Nordheimer J. held that there is no right to appeal from an order refusing leave to appeal, and there was therefore no jurisdiction for the Divisional Court to entertain Mr. Khan’s motion. The motion was therefore dismissed as being frivolous, vexatious or an abuse of process (Khan v. 1806700 Ontario Inc., 2017 ONSC 3726). The endorsement states: “There will be no order as to costs”.

[33] On August 30, 2017, Mr. Khan sought an order vacating the stay imposed by Matheson J. Sanfilippo J. dismissed the motion because the record before him did not permit him to determine that the Brampton proceedings were “finally determined or settled”. Indeed, the record indicated that Mr. Khan’s motion to set aside Ricchetti J.’s decision had not yet been heard by the Brampton court. The motion was dismissed without costs.

[34] Following Bielby J.’s November 3, 2017 decision to dismiss Mr. Khan’s motion to set aside Ricchetti J.’s decision, Mr. Khan brought a second motion to vacate the stay imposed by Matheson J. On November 30, 2017 this second motion was dismissed by Spies J. because Mr. Khan intended to appeal the decision of Bielby J., and therefore the Brampton proceedings had not been finally determined. The endorsement notes that no costs were sought.

[35] As noted above, Mr. Khan perfected the appeal of the Brampton proceeding and it is scheduled to be heard by the Court of Appeal on December 17, 2018. As such, the stay imposed by Matheson J. remains in effect.

The Newmarket Proceedings

[36] That brings us to Newmarket.

[37] On June 14, 2017, 1806700 Ontario Inc. issued a Statement of Claim in Newmarket, against Mr. Khan and various other lawyers, law firms and parties involved in the case.

[38] In many respects the Newmarket claim issued by 1806700 Ontario Inc. against Khan et al. is a looking glass version of the Statement of Claim issued by Swat and Khan against 1806700 and Johal in Toronto. Both cases relate to the power of sale proceedings in Brampton. Where Swat and Khan claim that Johal was negligent and breached the Law Society’s Rules of Professional Conduct, 1806700 claims that Khan was negligent and breached the Law Society’s Rules of Professional Conduct. Where Swat and Khan seek a declaration that their third mortgage was valid, 1806700 alleges that the third mortgage was fraudulent.

[39] Indeed, many of the claims advanced by 1806700 Ontario Inc. against Khan are identical to the claims made by Khan against Johal that were struck out by Matheson J. in her endorsement dated May 18, 2016.

[40] The Newmarket claim, which obviously overlaps with the Toronto claim, was brought by 1806700 Ontario Inc. just three months after 1806700 Ontario Inc. successfully moved before Matheson J. to have Mr. Khan’s Toronto claim stayed.

[41] On July 9, 2017, four of the defendants to this action made a request pursuant to Rule 2.1.01(6) seeking an order dismissing the claim as frivolous, vexatious or otherwise an abuse of process. Di Luca J. issued his decision on April 16, 2018, declining to dismiss the proceedings under the limited scope of review contemplated by Rule 2.1.01(6). He did, however, express serious reservations regarding the merits of the case. These comments are instructive (at paras. 9-12):

The Plaintiff in this case is the second mortgagee in the subject transaction. It appears that the Plaintiff, through litigation in Brampton has recouped any amounts owed under the mortgage. Nonetheless, and for reasons which were unclear to Ricchetti J. in the reference and unclear to me in these proceedings, the Plaintiff is seeking to litigate events relating to the third mortgage.

…Even assuming that the third mortgage was fraudulent or otherwise improperly obtained, it is difficult to see how the Plaintiff would have any direct claim for damages against those involved in the third mortgage, seeing at is has been paid what it was owed under the terms of the second mortgage. Perhaps there is some claim that the conduct of the parties involved in the third mortgage made it more difficult and costly for the second mortgagee to secure its funds from the sale of the home, though that is not readily apparent from reading the statement of claim.

A review of the claim also suggests that there may be a limitation issue that could well be insurmountable. This claim was commenced on June 14, 2017. The third party mortgage was registered on January 21, 2013. It is unclear from the pleadings when the facts upon which the claim is based were discovered, though the proceedings in relation to the third mortgage have been ongoing for a number of years.

…It may well be that the third mortgage was fraudulently or improperly obtained. Indeed, it is also apparent from a review of Ricchetti J.’s endorsement that the conduct of Mr. Khan, the solicitor responsible for the third mortgage, raises numerous questions, many of which remain unanswered.

On the whole, when I examine the face of the pleadings, I am concerned that the action is potentially frivolous and vexatious in that there may be no valid basis for a claim between the second and third mortgagees in this case. I am also concerned that this litigation is essentially a “re-packaging” of related litigation…

The Proposed Fresh As Amended Statement of Claim

[42] Given their lack of success under Rule 2.1.01, the Khan and Hameed defendants brought the current motion to strike out the Statement of Claim under Rules 21.01(1) and (3) and 25.11.

[43] Recognizing the obvious defects in its original Statement of Claim, 1806700 Ontario Inc. brought a cross-motion on June 12, 2018 for an order granting leave to amend the Statement of Claim issued on June 14, 2017, in a form of a Fresh as Amended Statement of Claim.

[44] Pursuant to Rule 26.02(a), a party may amend the party’s pleadings “without leave before the close of pleadings, if the amendment does not include or necessitate the addition, deletion or substitution of a party to the action”. In the present case the defendants have not yet filed Statements of Defence, so pleadings have not closed, and the plaintiff is free to amend its Statement of Claim without leave of the court or the consent of the other parties.

[45] One of the risks that a defendant takes in bringing a motion to strike before pleadings are closed is that it may provide the plaintiff with a blueprint on how to redraft or amend the statement of claim to cure the defects identified in the motion to strike. If the plaintiff amends the statement of claim it may well render the motion to strike moot. Amending a statement of claim in response to a motion to strike does not, in my view, constitute an abuse of process, although there may be costs consequences if left to the eleventh hour or made on multiple occasions. Such amendments are, of course, subject to any limitation period defence that might apply.

[46] That said, the plaintiff accepts that there is a “longstanding practice” requiring leave to amend a pleading in the face of a motion to strike, despite the wording of Rule 26.02(a) (Riopelle v. Trucash Rewards Inc, 2014 ONSC 3414), and has therefore brought a motion to amend. The issue of whether a motion to amend is necessary in the face of the wording of Rule 26.02(a) was not argued before me, and I will proceed on the basis that a motion to amend has been brought.

[47] Given the plaintiff’s acknowledgment that the original Statement of Claim is unsustainable, there is nothing to be gained by refusing the amendment at this stage of the proceedings. All of the parties are prepared to deal with the proposed Fresh as Amended Statement of Claim, and I will consider only the proposed Fresh as Amended Statement of Claim on this motion.

[48] The proposed Fresh as Amended Statement of Claim alleges that Mr. Khan, together with the other Khan defendants, created and registered a fraudulent third mortgage on the property. As a result of this fraudulent third mortgage and other procedural steps taken by the Khan defendants, it is alleged that the plaintiff, 1806700 Ontario Inc., which was the second mortgagee, incurred unnecessary litigation fees and other losses in both the Brampton and the Toronto proceedings.

[49] With respect to the Hameed defendants, the proposed Fresh as Amended Statement of Claim alleges (at para. 38) that “To assist Mr. Khan in his Attempt to Hide the Fraud, … Lawyer Hameed acted for the Property Owners”, and alleges (at para. 59) that on December 5, 2014 Mr. Hameed advised Mr. Johal “that the Property Owners did not receive the funds purporting to be the Non-Existent Third Mortgage; and the facts surrounding the Non-Existent Third Mortgage were highly suspicious from the Property Owners’ perspective”.

[50] Paragraphs 61 and 62 of the proposed Fresh as Amended Statement of Claim sets out the specific allegation of fraud with respect to Mr. Hameed:

On December 13, 2014, in response to the Plaintiff’s Motion to Set Aside the Donohue Order, Lawyer Hameed swore and served an affidavit denying having made comments to Sandeep Johal abut the Non-Existent Third Mortgage.

By issuing this denial, Lawyer Hameed assisted the Attempt to Hide the Fraud, prolonged the Power of Sale Lawsuit and required the Plaintiff to expend time and money in order to respond to same.

[51] The proposed Fresh as Amended Statement of Claim seeks a declaration that the third mortgage was a fraudulent mortgage, in addition to general and special damages against the remaining defendants.

Position of the Defendants

[52] The defendants take the position that the proposed amendments do not correct the fundamental defects in the claim, and maintain their position that the Statement of Claim is fundamentally flawed with or without the proposed amendments.

[53] I will deal first with the position of the Hameed defendants.

The Hameed Defendants

(i) Collateral attack on previous costs rulings

[54] The first argument advanced by the Hameed defendants is that the proposed action constitutes a collateral attack on the costs decisions made in the Brampton reference proceeding before Ricchetti J. and the various Toronto proceedings.

[55] In the Brampton reference, the plaintiff (who was the second mortgagee in the reference) sought substantial indemnity costs in the amount of $86,612.09. Ricchetti J.’s endorsement of May 8, 2017 determined (at para. 49) that substantial indemnity costs were not appropriate or reasonable. He concluded that a number of steps taken by the second mortgagee in that reference were unnecessary because it was not necessary for the second mortgagee to embark on the challenge to the validity of the third mortgage for the purposes of the reference. Ricchetti J. held (at para. 59) that the plaintiff was entitled to partial indemnity costs of $20,000, all inclusive. The plaintiff did not seek leave to appeal Ricchetti J.’s costs order.

[56] In the Toronto proceedings (referred to by the parties as the “Swat action” after the name of the original plaintiff) costs orders were made by each of the judges (Matheson J., Nordheimer J., Sanfilippo J., and Spies J.) who dealt with each of the motions. The plaintiff (who was the defendant in the Toronto proceedings) did not seek leave to appeal any of those costs orders.

[57] Paragraph 101 of the proposed Fresh as Amended Statement of Claim (which I note is 12 pages long) alleges that as a result of the defendants’ efforts to enforce the fraudulent third mortgage:

[T]he plaintiff was/has been required to contend with frivolous, vexatious, unreasonable and/or unnecessary litigation, in the Power of Sale Lawsuit and the SWAT Lawsuit, as well as other proceedings for which the Plaintiff has suffered losses as a result of fraud of the defendants, jointly and/or severally…

[58] Paragraph 102 repeats these allegations of litigation costs:

As a result of the Attempt to Hide the Fraud and general fraudulent scheme, described herein, the Plaintiff has suffered loss and damage including but not limited to:

a) Litigation costs incurred, due to fraud, by the Plaintiff in the Power of Sale Lawsuit…of approximately $86,000.00; b) Litigation costs incurred in the SWAT Lawsuit, as a result of the fraud;

[59] The defendants note that the amount claimed in para. 102(a) - $86,000 – is the precise amount of costs claimed and denied in the proceeding before Ricchetti J.

[60] In Wilson v. The Queen, [1983] 2 S.C.R. 594, at p. 599, the Supreme Court of Canada described the rule against collateral attack as follows:

It has long been a fundamental rule that a court order, made by a court having jurisdiction to make it, stands and is binding and conclusive unless it is set aside on appeal or lawfully quashed. It is also well settled in the authorities that such an order may not be attacked collaterally — and a collateral attack may be described as an attack made in proceedings other than those whose specific object is the reversal, variation, or nullification of the order or judgment.

[61] In my view the proposed Fresh as Amended Statement of Claim seeks to relitigate the costs orders of Ricchetti J. and the various Toronto proceedings, none of which were appealed by the plaintiff in this case. This is an impermissible collateral attack on those costs orders and is clearly an abuse of process. A successful party in a legal proceeding cannot bring a second legal proceeding against the same person to claim the legal costs not awarded in the first proceeding: Salasel v. Cuthbertson, 2015 ONCA 115, at para. 22.

(ii) Absolute Privilege

[62] Paragraphs 61-62 of the proposed Fresh as Amended Statement of Claim allege that Mr. Hameed communicated to Mr. Johal that the third mortgage was “highly suspicious”, but in an affidavit sworn by Mr. Hameed in the Brampton proceedings, denied making these comments, and thereby assisted Mr. Khan’s attempt to hide the fraud and prolonged the power of sale lawsuit.

[63] The Hameed defendant takes the position that these allegations are barred by the doctrine of absolute privilege, which applies to any words spoken or written by counsel in the course of the judicial proceedings.

[64] The doctrine of absolute privilege was summarized by the Ontario Court of Appeal in Salasel, at para. 35:

The doctrine of absolute privilege contains several basic elements: no action lies, whether against judges, counsel, jury, witnesses or parties, for words spoken in the ordinary course of any proceedings before any court or judicial tribunal recognised by law; the privilege extends to documents properly used and regularly prepared for use in the proceedings.

[65] In Samuel Manu-Tech Inc. v. Redipac Recycling Corp. (1999), 124 O.A.C. 125, at para. 20, the Court of Appeal held that the immunity afforded by absolute privilege “extends to any action, however framed, and is not limited to actions for defamation”. In that case, the intentional acts upon which the plaintiff by counterclaim was relying in support of its claim for intentional interference with contractual relations were affidavits sworn by the defendants to obtain receivership orders. The court upheld the decision of the motion judge striking out the counterclaim on the basis that the affidavits were protected by absolute privilege.

[66] In Reynolds v. Kingston (Police Services Board), 2007 ONCA 166, at para. 14, Borins J.A. explained the policy reasons for this absolute privilege:

The rationale for witness immunity, which has become less an evidentiary rule than a rule of substantive law, is that the proper administration of justice requires full and free disclosure from witnesses unhampered by fear of retaliatory lawsuits.

[67] It is clear that the essence of the action against the Hameed defendants is based on the testimony given by Mr. Hameed in his affidavit, which was sworn in his capacity as counsel for the purposes of providing evidence in the Brampton power of sale proceeding. This evidence is protected by absolute privilege and cannot be the basis of a cause of action.

Conclusion Re: Hameed Defendants

[68] The two defects noted above – collateral attack on previous costs rulings and absolute privilege - are sufficient to address the Hameed defendants’ motion to strike the Fresh as Amended Statement of Claim. Based on those two defects, even assuming the truth of all of the allegations in the proposed Fresh as Amended Statement of Claim, it is plain and obvious that the claim against the Hameed defendants discloses no reasonable cause of action and constitutes an abuse of process. The Fresh as Amended Statement of Claim is therefore struck as against the Hameed defendants, without leave to amend.

Limitation Period

[69] The defendants also argue that the claim is barred by s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, because it was brought more than two years after the alleged fraud was discovered by the plaintiff.

[70] In my view it is not plain and obvious from the pleadings that the alleged fraud was discovered by the plaintiff more than two years before it commenced the action. Generally speaking, the expiration of the limitation period is a defence that must be pleaded unless it is plain and obvious from a review of the statement of claim that no additional facts could be asserted that would alter the conclusion that a limitation period has expired: Beardsley v. Ontario, at para. 21; Salewski v. Lalonde, 2017 ONCA 515, at para. 43.

[71] As such, limitation period questions are typically not appropriate for determination under Rule 21.01. Unless there are no material facts in dispute, a limitation period question should normally be determined after the close of pleadings (as a limitation period is a defence that must be pleaded) and by way of motion for summary judgment or trial. As the Ontario Court of Appeal noted in Salewski, where the facts of a case are not straightforward and have not been fully defined by the pleadings, it is unlikely that a proposed limitation defence can be properly dealt with on a motion under Rule 21.01(1). The Court stated, at para. 45:

However, the basic limitation period established by the Limitations Act, 2002 is now premised on the discoverability rule. The discoverability rule raises issues of mixed fact and law: Longo v. MacLaren Art Centre, 2014 ONCA 526, 323 O.A.C. 246, at para. 38. We therefore question whether there is now any circumstance in which a limitation issue under the Act can properly be determined under rule 21.01(1)(a) unless pleadings are closed and it is clear the facts are undisputed. Absent such circumstances, we are sceptical that any proposed limitation defence under the Act will involve “a question of law raised by a pleading” as required under rule 21.01(1)(a).

[72] See also: Taylor v. Workplace Safety & Insurance Board, 2018 ONCA 108, at para. 22:

This court has held consistently that only in rare cases, if any, will we entertain a motion to dismiss an action as statute barred under the Limitations Act in the absence of a statement of defence.

[73] This caveat is particularly applicable to an action for fraud, where the date of discoverability will rarely coincide with the date on which the fraud was committed. It is a question of fact when the plaintiff’s suspicion of fraud crystalized into discoverability. I find that it is not “plain and obvious” from the facts alleged in the proposed Fresh as Amended Statement of Claim that the claim was commenced more than two years after the alleged fraud was discovered.

The Khan Defendants

[74] The Fresh as Amended Statement of Claim against the Khan defendants suffers from the same defects as the claim against the Hameed defendants. It is a collateral attack on previous costs rulings, and at least some of the pleadings relate to steps taken by Mr. Khan that are protected by absolute privilege.

[75] That said, the claim against the Khan defendants raises a different issue that must be dealt with in a different way.

[76] Mr. Khan argues that the issue of the alleged fraudulent third mortgage has already been dealt with by Ricchetti J. in the Brampton proceeding, and Ricchetti J. decided that the second mortgagee had no interest in the validity of the third mortgage in that proceeding (see paras. 13-15, supra). Therefore, Mr. Khan argues, issue estoppel precludes 1806700 Ontario Inc. from challenging the validity of the third mortgage.

[77] The difficulty with this argument is that Mr. Khan has himself put the validity of the third mortgage in issue. In the Toronto proceeding in which Mr. Khan is the plaintiff, Mr. Khan seeks a declaration that the third mortgage is valid and seeks damages for improvident sale by the second mortgagee, 1806700 Ontario Inc. There is no question that 1806700 Ontario Inc., as the defendant to that action, is entitled to defend that action by claiming that Mr. Khan’s third mortgage is an invalid mortgage because it is a fraudulent mortgage. If the third mortgage is invalid, Mr. Khan’s claim for improvident sale cannot succeed.

[78] Thus, while Ricchetti J. and Di Luca J. questioned the need for 1806700 Ontario Inc. to challenge the validity of the third mortgage in the Brampton and the Newmarket proceedings, the reason for this position is clear in the Toronto proceeding.

[79] But the Toronto proceeding has been stayed pending the final disposition of the Brampton proceeding, which is now pending before the Court of Appeal.

[80] Moreover, the Statement of Claim in the Toronto proceeding has been struck with leave to amend within 60 days after the stay has been lifted.

[81] One thing is clear: if Mr. Khan’s Toronto action for improvident sale ever proceeds, 1806700 Ontario Inc. will respond that Mr. Khan’s third mortgage is a fraudulent mortgage.

[82] As things stand now, however, the Toronto action remains inchoate. There would be little value to my deciding the scope of 1806700 Ontario Inc.’s right to challenge the validity of Mr. Khan’s third mortgage in isolation. Once the Court of Appeal makes its decision in the Brampton case, the Superior Court may one day have to reconsider Mr. Khan’s right to bring his action for improvident sale against 1806700 Ontario Inc.

[83] Accordingly, given the fundamental defects in the Fresh as Amended Statement of Claim, I believe that it is appropriate to grant the same relief on this motion as Matheson J. granted in the motion to strike in the Toronto proceeding: The Fresh as Amended Statement of Claim is struck, with leave to amend.

[84] In addition, I am exercising my jurisdiction under Rule 21.01(3) to temporarily stay the Newmarket action pending the final determination or settlement of the Brampton proceeding. If and when the stay is lifted, 1806700 Ontario Inc. will have 30 days from the receipt of Mr. Khan’s amended Statement of Claim, or 30 days from the expiry of the 60 day period in which Mr. Khan was permitted to file an amended Statement of Claim, to deliver a Fresh as Amended Statement of Claim, Statement of Defence and/or Counterclaim consistent with these reasons. Leave to amend is not granted to assert claims that fall within paras. 54-68 above.

Rule 13.1.01(3) – Mortgage Claims – Place of Commencement

[85] Rule 13.1.01(3) came into force on March 31, 2015. Pursuant to that rule, an originating process containing a claim relating to a mortgage must be commenced in the county that the regional senior judge of the region in which the property is located designates for such claims. Rule 13.01(1) and (3) provide:

13.1.01 (1) If a statute or rule requires a proceeding to be commenced, brought, tried or heard in a particular county, the proceeding shall be commenced at a court office in that county and the county shall be named in the originating process.

(3) In the case of an originating process, whether it is brought under Rule 64 (Mortgage Actions) or otherwise, that contains a claim relating to a mortgage, including a claim for payment of a mortgage debt or for possession of a mortgaged property, the proceeding shall be commenced in the county that the regional senior judge of a region in which the property is located, in whole or in part, designates within that region for such claims.

[86] It is apparent that both the Toronto proceeding and the Newmarket proceeding contain claims “relating to a mortgage”. The Toronto proceeding seeks a declaration that the third mortgage is valid, while the Newmarket proceeding seeks a declaration that the same mortgage is fraudulent. All other relief is dependant on and consequent to this initial declaration of (in)validity. Accordingly, both claims (which post-date March 31, 2015) are subject to the requirements of Rule 13.1.01(1) and (3).

[87] The property in question is located in Markham, Ontario, which is within the Central East Region of the Ontario Superior Court. Pursuant to the Consolidated Practice Directions, Barrie or Oshawa have been designated as the places where mortgage proceedings may be commenced for property located anywhere in the Central East Region.

[88] It is apparent that both the Toronto and the Newmarket proceedings were improperly commenced in those respective locations. Where a proceeding is commenced in a location contrary to Rule 13.1.01, Rule 13.1.02(1) authorizes the court to transfer the proceeding to the county where it should have been commenced.

[89] Rule 13.1.02(1) provides:

If subrule 13.1.01 (1) applies to a proceeding but a plaintiff or applicant commences it in another place, the court may, on its own initiative or on any party’s motion, order that the proceeding be transferred to the county where it should have been commenced. (emphasis added)

[90] Section 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides: “As far as possible, multiplicity of legal proceedings shall be avoided”. It is clearly contrary to s. 138 to permit these separate proceedings, dealing with the same subject matter, to continue in two separate judicial regions. In her March 7, 2017 endorsement, addressing the substantial overlap between the Brampton and Toronto actions, Matheson J. warned of the “very high risk of unfairness and inconsistency” if those two actions were permitted to proceed. Adding a third proceeding to the mix compounds this risk. This multiplicity of proceedings is an unacceptable waste of judicial resources in a case already described by Paciocco J.A. as “grossly disproportionate”.

[91] Since both the Toronto and the Newmarket actions were commenced in the wrong place contrary to Rules 13.1.01 (1) and (3), I am exercising my authority under Rule 13.1.02(1) to transfer both the Toronto action (CV-15-535860) and the Newmarket action (CV-17-131448) to Oshawa.

Rule 6 - Consolidation

[92] Rule 6 provides:

6.01 (1) Where two or more proceedings are pending in the court and it appears to the court that,

(a) they have a question of law or fact in common; (b) the relief claimed in them arises out of the same transaction or occurrence or series of transactions or occurrences; or (c) for any other reason an order ought to be made under this rule,

the court may order that,

(d) the proceedings be consolidated, or heard at the same time or one immediately after the other; or (e) any of the proceedings be, (i) stayed until after the determination of any other of them, or (ii) asserted by way of counterclaim in any other of them.

(2) In the order, the court may give such directions as are just to avoid unnecessary costs or delay and, for that purpose, the court may dispense with service of a notice of listing for trial and abridge the time for placing an action on the trial list.

[93] It is clear that the Toronto and Newmarket actions have questions of law and fact in common. The validity of the third mortgage is the central question in both claims. It is also clear that both actions arise from the same transaction: the registration of the third mortgage and the sale of the house by the second mortgagee under the power of sale.

[94] Should one or both of these cases continue after the stay is lifted, this is a case that clearly requires case management, and I will act as the case management judge for these proceedings. Any motions in relation to these proceedings should be scheduled before me.

[95] At this stage we do not know the form that the pleadings will take. One thing is certain, if the parties issue two separate claims the first order of case management will be whether the two actions should be consolidated. The precise nature of the consolidation will be determined when and if the parties file amended pleadings after the stays are lifted or come to an end.

Conclusion

[96] This Court Orders:

(a) The plaintiff’s claim against Faisal Hameed and the Law Office of Faisal Hameed is struck out in its entirety, without leave to amend. (b) The plaintiff’s claim against Muhammad Aslam Khan, Saeeda Bibi, Tauqeer Aslam, and MAK Law Office Professional Corporation is struck out in its entirety with leave to amend subject to the terms of this order. (c) This action is stayed until the proceedings in Brampton Court File No. CV-12-5383 are finally determined or settled, which stay is subject to further order of the court. (d) That upon the stay being lifted or coming to an end, the plaintiff, 1806700 Ontario Inc. will have 30 days from the receipt of Mr. Khan’s amended Statement of Claim in Toronto action CV-15-535860, or 30 days from the expiry of the 60 day period in which Mr. Khan was permitted to file an amended Statement of Claim, to deliver a Fresh as Amended Statement of Claim, Statement of Defence and/or Counterclaim consistent with these reasons. (e) That Toronto action (CV-15-535860) and Newmarket action (CV-17-131448) are transferred to Oshawa. (f) Should one or both of these cases continue after the stay is lifted, I will act as the case management judge for these proceedings. The parties should schedule a case management conference after the period for delivery of pleadings set out above has expired.

[97] If the parties cannot agree on costs, the moving party defendants may serve and file costs submissions with 25 days of the release of these reasons. Each party’s submissions will be no more than 3 pages plus costs outline and any offer to settle. The plaintiff may file reply submissions within 15 days thereafter. Since the plaintiff must respond to both defendants, its submissions may be 5 pages in length.

Justice R.E. Charney

Released: October 24, 2018