Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20210622 DOCKET: C68331

Roberts, Zarnett and Sossin JJ.A.

BETWEEN

Peter Pichelli, Todd Leslie, Frank Toth and 958041 Ontario Limited Plaintiffs (Appellants)

and

Ante Kegalj, Anthony Vuletic, John Vuletic, Embleton Properties Corp., 1857325 Ontario Ltd., and Brampton G&A Holdings Inc. Defendants (Respondent)

Counsel: Douglas M. Cunningham, for the appellants Neil Paris, for the respondent

Heard: January 28, 2021 by video conference

On appeal from the order of Justice Jamie K. Trimble of the Superior Court of Justice, dated March 20, 2020, with reasons reported at 2020 ONSC 1705.

Reasons for Decision

Overview

[1] The appellants appeal from the dismissal of their action against the respondent, Ante Kegalj, following the respondent’s motion for summary judgment. Their principal submission is that the motion judge erred in his application of the analytical framework set out by the Supreme Court in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, and in concluding that there are no genuine issues requiring a trial.

[2] The appellants invested and lost hundreds of thousands of dollars in a land development scheme that never came to fruition. They allege the scheme was fraudulently devised and carried out by the respondent, together with the other defendants (except for Brampton G&A Holdings Inc.), and that the respondent, together with the defendants, John and Anthony Vuletic (“the Vuletics”), fraudulently used for their own personal enrichment the appellants’ investments and property servicing payments, as well as additional funds obtained by heavily mortgaging the property.

[3] In their statement of claim, the appellants claim judgment against the respondent and the other defendants jointly and severally for general damages in the amount of $5,000,000 for breach of contract, misrepresentation, deceit, fraud, conversion, detinue, breach of fiduciary duty, breach of trust, and unjust enrichment. They also seek punitive damages in the amount of $500,000.

[4] The appellants’ action was case managed with an action brought by other investors (“the Caroti plaintiffs”) who also lost money in the same land development project. The Caroti plaintiffs advance similar claims against the respondent and the same group of defendants. While initially intending to bring a summary judgment motion in both actions, the respondent only pursued summary judgment in this action.

[5] At the outset of the hearing on the respondent’s motion for summary judgment, the appellants moved to adjourn the motion until the documentary and oral discovery processes in both actions were completed. The appellants argued that the respondent should not be permitted to proceed with summary judgment in only one action because of the risk of adverse factual and legal consequences for the absent Caroti plaintiffs. The appellants took the position that the respondent was seeking an impermissible form of partial summary judgment. The motion judge dismissed the adjournment request and proceeded with the motion.

[6] The motion judge granted summary judgment and dismissed the appellants’ action against the respondent. The motion judge’s analysis turned on the appellants’ admissions that they had no knowledge of the respondent’s alleged role in the fraudulent land development scheme during the relevant period. He accepted the respondent’s submission that these admissions precluded recovery against the respondent personally. Instead, the motion judge concluded that the appellants’ recourse was against the other defendants. As a result, the motion judge determined that there was no genuine issue requiring a trial. Given his disposition of the motion, the motion judge did not determine the issue of whether the appellants’ claim was statute-barred.

Issues and the Parties’ Positions

[7] The appellants raise several grounds of appeal. The appeal turns on the alleged errors in the motion judge’s approach to summary judgment. It is therefore unnecessary to determine whether there was procedural unfairness in the motion judge’s refusal to adjourn the respondent’s motion or whether he erred in granting partial summary judgment.

[8] The appellants submit that the motion judge effectively converted a summary judgment motion into a pleadings motion and thereby failed to assess the full evidentiary record. As a result, he failed to appreciate the significant credibility issues raised by the conflicting evidence as to the respondent’s alleged involvement in the fraudulent scheme and erred in concluding that the respondent owed no duty to the appellants. He wrongly concluded that there were no genuine issues requiring a trial.

[9] The respondent argues that the appellants’ appeal is a thinly disguised attempt to re-litigate the motion; in detailed reasons, the motion judge explained why the appellants’ claims against the respondent could not stand in the face of the appellants’ admissions that they never met, contracted, communicated with, or relied on the respondent. The respondent says the motion judge correctly determined that there were no material credibility issues and that the respondent is not a proper party to this proceeding. According to the respondent, there is no basis for appellate intervention.

Fresh Evidence

[10] The appellants also move to admit fresh evidence on their appeal. Some of it is not strictly fresh evidence since it was in the record before the motion judge. However, the newly obtained evidence, including a series of cheques made out in favour of and cashed by the respondent, was produced to the appellants through the discovery process after the respondent’s summary judgment motion. This evidence is highly relevant to the issue of the respondent’s alleged role in and benefit from the alleged fraud. The likelihood that new, relevant evidence would emerge from the discovery process drove the appellants’ request to adjourn the respondent’s summary judgment motion as premature. As a result, the admission of the fresh evidence is necessary to deal fairly with the issues on appeal and declining to admit the evidence could lead to a substantial injustice: Sengmueller v. Sengmueller, 1994 111 D.L.R. (4th) 19 (Ont. C.A.), at p. 23.

Analysis

[11] We agree with the appellants’ submission that the motion judge’s analytical approach to summary judgment was flawed. His conclusions are therefore not owed deference on appeal: Hryniak, at paras. 80-84; Trotter Estate, 2014 ONCA 841, 122 O.R. (3d) 625, at para. 45.

[12] While he set out in some detail the correct framework articulated by the Supreme Court in Hryniak and subsequent case law, the motion judge did not fully follow it. Notably, he failed to engage in the requisite broad assessment of the entire record to determine whether summary judgment was appropriate or whether a trial would be required. Instead, he focussed on the adequacy of the pleadings and the appellants’ admissions that they had no contact with or knowledge of the respondent.

[13] The motion judge’s narrow approach led him to reject the appellants’ contention that a trial was required to deal with credibility issues. He determined that the respondent had “carefully drafted this Summary Judgment motion as a pleadings motion in which he attacks the factual underpinning of the causes of action that the [appellants] advance based on admissions the [appellants] have made, or their own answers in cross examination” and, “[t]o the extent that [the respondent’s] evidence is important, it is uncontested.” The motion judge therefore concluded that there was no need to resort to the fact-finding powers available under rr. 20.04(2.1) and (2.2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[14] This restrictive approach also caused the motion judge to misapprehend the nature of the appellants’ fraud allegations and the evidentiary support for them. He erroneously found that the appellants’ claim for fraud and deceit was limited to fraudulent misrepresentation and that there was no evidence that the respondent was unjustly enriched at the appellants’ expense or had received any funds that the Vuletics received from the mortgages or the appellants. He concluded that even if the appellants were correct that the respondent was knowingly involved in a massive diversion of equity to the Vuletics, who used the equity for personal purposes, the respondent owed duties to Embleton Property Corp. and not to the appellants.

[15] There are several difficulties with the motion judge’s conclusions.

[16] First, while the appellants plead several causes of action, their core fraud allegations against the respondent and the other defendants are not limited to fraudulent misrepresentation. The appellants plead that the respondent and the other defendants knowingly “participated in a scheme designed to perpetrate a fraud and other unlawful acts on the [appellants] and to prefer their own interests over those of the [appellants] and other investors in the Property”. The statement of claim includes allegations that the respondent knew that mortgage and other monies “were not being devoted to the development of the Property but, instead, those monies were being converted to the personal and other non-Property related business uses of [the respondent and other defendants]”.

[17] The fact that the appellants may not have framed their fraud allegations in perfectly pleaded causes of action should not have been the focus of the motion judge’s analysis. There is no suggestion that the appellants have failed to plead fraud with sufficient particularity for the purposes of r. 25.06(8) of the Rules of Civil Procedure and, in any event, this was not a pleadings motion under rr. 21 or 25 of the Rules. If it had been, the motion judge would have been required to accept the appellants’ allegations as true for the purpose of determining the sufficiency of the pleadings. Instead, the motion judge was required to determine whether it was appropriate to grant summary judgment by engaging with the Hryniak analytical framework and taking a hard and comprehensive look at the entirety of the record.

[18] The motion judge’s reliance on the appellants’ admissions that they did not know the respondent or have any dealing with him at the relevant time caused him to ignore evidence that, if accepted, supported the respondent’s participation in the alleged fraudulent scheme, his conversion of the fruits of that scheme to his own or other purposes, and his unjust enrichment at the appellants’ expense. The motion judge accepted that there was no factual basis to support any of the causes of action pleaded in the statement of claim based only on the appellants’ admissions. This was incorrect.

[19] It is of no moment that the appellants were unaware of the respondent’s existence during the relevant period. While the appellants did not know about the respondent, they allege that he knew about them and personally benefitted from their monetary contributions to the property. It is not surprising that the appellants did not know of the respondent’s role. Obfuscation, deceit and the employment of complicated corporate structures are the hallmarks of a fraudulent scheme. The appellants are not required to prove that they knew the respondent or were aware he played a role in defrauding them in order to make out their claims. Whether the respondent acted alone, with others, or through a corporate vehicle such as Embleton speaks only to the mechanism by which the alleged fraud was perpetrated. A trial judge could find the respondent liable for the appellants’ losses if the appellants were to establish that the respondent knowingly participated in a scheme that defrauded the appellants, unjustly enriched the respondent, or converted the appellants’ funds to the respondent’s benefit.

[20] The motion judge’s misapprehension of the appellants’ fraud allegations resulted in his failure to address the entirety of the evidence concerning the respondent’s role in the scheme, and the conflicts in the evidence. While the respondent denies any wrongdoing or knowledge of the appellants’ existence at the relevant time, there is no question that he was involved in the land development scheme, including that he was recruited by the Vuletics to devise and market the land development scheme. The property was purchased under the respondent’s name in July 2002 and remained registered in his name until February 2012 because he had a better credit rating than the Vuletics. He also took out several millions of dollars of mortgages on the property. His involvement was such that in 2010 he brought an action against the Vuletics, asserting that he was a partner with them in the development of the property.

[21] The motion judge did not grapple with Mr. Pichelli’s affidavit evidence that conflicted with the respondent’s denial of wrongdoing. Mr. Pichelli deposed that the respondent knew about the appellants and their investments, and that most of the mortgage monies obtained by the respondent and the other defendants were directed to the personal uses of the respondent and the Vuletics or businesses that had nothing to do with the development of the property. His affidavit stated that the respondent made a $47,000 investment as a lot purchaser, did not pay his share of servicing costs for the lots that he had purchased, and received close to $1,000,000 in consideration.

[22] If the motion judge did not accept Mr. Pichelli’s evidence, he was required to explain why he rejected it or why he preferred the respondent’s evidence where they conflicted. Given the clear contradictions in the evidence, it was incumbent on the motion judge to determine whether he could resolve them by recourse to the fact-finding powers under rr. 20.04(2.1) and (2.2) or whether they raised genuine issues of credibility that required a trial. He did not do so.

[23] While Hryniak requires a robust approach to summary judgment, the overarching goal remains to have “a fair process that results in a just adjudication of disputes”: at para. 28. This requires a serious engagement with the Hryniak analytical framework and the record. To do otherwise runs the risk that in an effort to dispose of a case in a summary fashion, motion judges will not properly analyze the evidence: Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, at paras. 25-27; Trotter Estate, at para. 49. That is what occurred here.

[24] When the Hryniak analytical framework is correctly applied, the evidence reveals that there are genuine issues requiring a trial concerning the respondent’s alleged role in the fraudulent scheme. Any deficiencies in the pleadings could and should have been resolved by way of amendment.

Disposition

[25] Accordingly, we allow the appeal and set aside the dismissal of the appellants’ action against the respondent.

[26] If the parties cannot resolve the issue of costs on appeal and before the motion judge, they may deliver written submissions of no more than two pages, plus a costs outline, within ten days of the release of these reasons.

“L.B. Roberts J.A.”

“B. Zarnett J.A.”

“L. Sossin J.A.”