The Catalyst Capital Group Inc. v. Dundee Kilmer, 2022 ONCA 168

COURT OF APPEAL FOR ONTARIO

DATE: 20220228 DOCKET: C69380

Rouleau, van Rensburg and Roberts JJ.A.

BETWEEN

The Catalyst Capital Group Inc. Plaintiff/Responding Party (Appellant)

and

Dundee Kilmer Developments Limited Partnership, Dundee Realty Corporation, KD Infrastructure L.P., Kilmer Van Nostrand Co. Limited., John Doe Corporations Partnerships, Infrastructure Ontario and Ontario Infrastructure and Lands Corporation (Formerly Ontario Infrastructure Projects Corporation), The Ministry of Infrastructure of Ontario and Her Majesty the Queen in Right of Ontario Defendants/Moving Party (Respondent)

Counsel: David C. Moore and Kenneth G.G. Jones, for the appellant Christopher P. Thompson and Mihaela Ion, for the respondent

Heard: January 5, 2022 by video conference

On appeal from the order of Justice Peter J. Cavanagh of the Superior Court of Justice, dated March 22, 2021, with reasons at 2021 ONSC 2132.

Rouleau J.A.:

Endorsement

[1] The Catalyst Capital Group Inc. appeals from the order striking its claim against Her Majesty the Queen in Right of Ontario (“HMQ”) without leave to amend. The action relates to Catalyst’s participation in the development of the Pan Am Athletes’ Village Project for the 2015 Pan Am games in Toronto. Catalyst claims that it entered into contracts to provide a novel financial model to the Dundee Kilmer defendants (“DKD”). In turn, DKD used that model and certain financings provided by Catalyst to secure their selection by Infrastructure Ontario (“IO”), a Crown corporation, as the successful bidder for the construction of the Athletes’ Village.

[2] In the action, Catalyst seeks damages against HMQ for misfeasance in public office based upon allegations that HMQ improperly caused its removal as a participant in the Athletes’ Village Project. Catalyst’s plea against HMQ is its third attempt to make out a viable claim. Its first two statements of claim were struck on December 16, 2014 and November 28, 2016 respectively. The first claim was struck on the basis that it did not comply with the rule requiring causes of action to be properly and intelligibly pleaded. The second was struck as against HMQ but with leave to amend the claim for misfeasance in public office. That amended claim is the subject of the present appeal.

[3] This court, at paras. 99-100 of its decision in The Catalyst Capital Group Inc. v. Dundee Kilmer Developments Limited Partnership, 2020 ONCA 272, 447 D.L.R. (4th) 610 (“Catalyst 2020”), set out the background to Catalyst’s claim as follows:

[T]he factual context of Catalyst’s claim concerns the process to select the Project’s developer. That process was set out in the [request for proposals (“RFP”)], which IO issued as agent for the Crown: RFP, s. 1.1(1). The RFP operated as a “Contract A” in the tendering process framework adopted by the Supreme Court in a series of cases starting with R. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111.

The RFP set out the rights and obligations of the government sponsors and the various proponents and their team members. Section 3.6 of the RFP specifically addressed the process to change members of a proponent’s team. Section 3.6(7) reserved to the government sponsors the right, in their sole discretion, to “refuse to accept a change in an Identified Proponent Party that occurs or is requested by the Proponent after the Submission Deadline (Technical).” In essence, all of Catalyst’s claims come down to DKD not negotiating hard enough or in good faith to secure IO’s consent to add Catalyst as a proponent team member and IO’s refusal to so recognize Catalyst pursuant to s. 3.6(7) of the RFP. [Emphasis added.]

Properly framed, therefore, the allegation of misfeasance is not that HMQ caused the removal of Catalyst from the project. Rather, Catalyst claims that HMQ directed IO not to exercise its discretion to allow Catalyst to be added as a proponent team member. These directions were contrary to certain representations HMQ is alleged to have made to Catalyst through DKD (defined in the pleading as “Governmental Representations”) to the effect that Catalyst could participate in the project without IO’s formal consent provided Catalyst was kept “behind the curtain”. These same alleged representations were the subject of a misrepresentation claim which this court struck as not disclosing a reasonable cause of action against HMQ at para. 114 of Catalyst 2020.

[4] For that alleged misfeasance, Catalyst seeks $110 million in damages as well as a declaration that HMQ breached its legal obligations and duties to Catalyst.

[5] Catalyst’s pleading alleges that HMQ’s directions or instructions to IO not to consent to DKD’s request that Catalyst participate in the financing were unlawful and in bad faith on the basis that HMQ knew that:

a. Catalyst had participated in the financing of DKD’s bid, that DKD’s bid was selected in part because of the financing, and that IO and HMQ had benefitted from the terms of the bid;

b. IO told DKD that IO and HMQ did not have concerns with the source of funding or funders, including Catalyst; had decided that Catalyst could participate without IO’s formal consent provided Catalyst was kept “behind the curtain”; and would raise no issue or difficulty if Catalyst were to participate in this manner. HMQ also knew that these Governmental Representations would be communicated to and relied on by Catalyst;

c. the decision not to consent to Catalyst’s participation was made based on “factually inaccurate information and assertions” and “irrelevant considerations”;

d. Catalyst was relying on DKD, and despite DKD’s request for Catalyst to provide financing, DKD did not want Catalyst to provide financing and HMQ knew that not consenting to Catalyst improperly favoured DKD; and

e. the decision was specific to and would cause harm to Catalyst.

[6] Catalyst has made a similar claim of misfeasance in public office as against IO. That pleading was not addressed in the motion below.

[7] The motion judge concluded that the second amended statement of claim as against HMQ should be struck on the ground that it discloses no reasonable cause of action against that defendant. In his view, HMQ was entitled to make decisions that targeted Catalyst and that it knew would exclude Catalyst from participation in the project and harm its financial interests, provided that it acted only in the public interest and not in a way that was inconsistent with the duties of the public office. The fact that HMQ knew that a decision to exclude Catalyst would harm Catalyst’s financial interests and advance those of DKD’s’ does not, without more, amount to a decision taken for an improper purpose. In making decisions, HMQ was not required to have regard to Catalyst’s interests. The motion judge concluded that the facts pleaded in the second amended statement of claim did not plausibly support the conclusion that HMQ representatives excluded Catalyst from the project for reasons other than the public good. Nor did the pleading offer material facts to show that HMQ representatives acted unlawfully, in bad faith, or in other ways inconsistent with their office. Drawing such a conclusion based on the facts pleaded would be purely speculative.

[8] As a result, the motion judge determined that the second amended statement of claim disclosed no reasonable cause of action against HMQ for misfeasance in public office.

[9] The motion judge went on to find that, had he not struck the claim for disclosing no reasonable cause of action, he would have held that the Crown Liability and Proceedings Act, 2019, S.O. 2019, c. 7, Sched. 17, applied to Catalyst’s claim against HMQ and that, pursuant to s. 17, the claim would be stayed and leave to proceed would have to be sought.

Issues

[10] On appeal, Catalyst argues that the motion judge erred in several respects. Specifically, Catalyst argues that the motion judge erred:

a. by misapplying his prior decision in CUPE v. HMQ, 2017 ONSC 4874, 40 C.C.L.T. (4th) 86, aff’d 2018 ONCA 309, 431 D.L.R. (4th) 12, to the case before him;

b. by failing to follow the principles of law that apply to claims of misfeasance in public office;

c. by treating the claim as being akin to a tender case;

d. by concluding that the amended pleading contained bald allegations; and

e. by holding that the Crown Liability and Proceedings Act applied to the claim.

[11] In my view, the appeal must be dismissed. As I will explain, the motion judge did not misinterpret the relevant jurisprudence and did not err in concluding that the facts pled, if taken as true, fail to make out the elements of a claim for misfeasance in public office.

The Law

[12] The law governing the appeal is not in dispute. Pursuant to r. 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, a claim will be struck only where it is plain and obvious that the pleaded facts, taken as true, do not disclose a reasonable cause of action. In making the determination, the motion judge is required to read the claim generously, making allowances for drafting inadequacies: Nash v. Ontario (1995), 27 O.R. (3d) 1 (C.A.), at p. 7.

[13] As this court set out in L. (A.) v. Ontario (Minister of Community and Social Services) (2006), 218 O.A.C. 150 (C.A.), at para. 35, leave to appeal refused, [2007] S.C.C.A. No. 36:

The tort of misfeasance in public office is founded on the principle that those that hold public office and exercise public functions are subject to the law and must not abuse their powers to the detriment of ordinary citizens.

[14] The elements of the misfeasance tort were set out by the Supreme Court of Canada in Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 63. The court explained that the tort of misfeasance in public office can arise in one of two ways. What it called Category A involves conduct that is specifically intended to injure a person or a class of persons. Category B involves a public officer who acts with knowledge both that she or he has no power to do the act complained of and that the act is likely to injure the plaintiff. The court explained, at para. 23, that there are elements common to both forms of the tort:

First, the public officer must have engaged in deliberate and unlawful conduct in his or her capacity as a public officer. Second, the public officer must have been aware both that his or her conduct was unlawful and that it was likely to harm the plaintiff. What distinguishes one form of misfeasance in public office from the other is the manner in which the plaintiff proves each ingredient of the tort.

[15] The court in Odhavji went on to explain that the requirement that the defendant must have been aware that his or her conduct was unlawful reflects the well-established principle that misfeasance in public office requires an element of “bad faith” or “dishonesty”. The fact that a public official makes a decision that harms a member of the public is not, in and of itself, a basis to infer bad faith. As the court stated at para. 28:

In a democracy, public officers must retain the authority to make decisions that, where appropriate, are adverse to the interests of certain citizens. Knowledge of harm is thus an insufficient basis on which to conclude that the defendant has acted in bad faith or dishonestly. A public officer may in good faith make a decision that she or he knows to be adverse to interests of certain members of the public. In order for the conduct to fall within the scope of the tort, the officer must deliberately engage in conduct that he or she knows to be inconsistent with the obligations of the office.

[16] In Pikangikum First Nation v. Nault, 2012 ONCA 705, 298 O.A.C. 14, at para. 77, leave to appeal refused, [2013] S.C.C.A. No. 10, this court explained that:

The tort of misfeasance of public office is difficult to establish. The plaintiff must prove more than mere negligence, mismanagement or poor judgment. To succeed, the plaintiff must demonstrate that the defendant knowingly acted illegally and in bad faith chose a course of action specifically to injure the plaintiff.

Analysis

[17] Contrary to the appellant’s submissions, the motion judge referenced and correctly applied the relevant jurisprudence. He did not, as the appellant suggests, misapply the decision in CUPE. His reference to that decision was simply for the uncontroversial principle that:

[C]are must be taken to focus on the material facts pleaded and avoid giving undue weight to conclusory statements or descriptive characterizations. A bald assertion that a public official acted unlawfully and in bad faith must be accompanied by pleadings of material facts which plausibly support such a conclusion.

[18] After reviewing the jurisprudence, the motion judge determined that the central issue to be decided was the sufficiency of the pleadings and, specifically, whether they were capable of supporting the bad faith component of the tort. In my view, the motion judge properly analysed the pleading according to the appropriate principles.

[19] In para. 52 of his reasons, the motion judge fairly summarized the relevant paragraphs of the second amended statement of claim as follows:

[N]amed persons representing the Crown gave directions and instructions to IO knowing and intending that:

(1) DKD wanted to exclude Catalyst from the project for its own economic benefit and the Crown representatives’ decisions and directives made it possible for DKD to achieve this objective;

(2) the exclusion of Catalyst was contrary to the Governmental Representations;

(3) Catalyst depended on DKD to protect and support its interests to be a participant in the project;

(4) DKD’s conduct and interests were in conflict with Catalyst’s interests;

(5) their decisions and instructions were arrived at without regard for relevant facts pertaining to Catalyst’s participation in the DKD bid;

(6) their actions were specific to and targeted at Catalyst and deliberately caused financial harm to Catalyst;

(7) Catalyst’s involvement in the DKD bid had benefited DKD, IO and the Crown; and

(8) their actions, decisions and instructions strongly favoured the interests of DKD to the detriment of Catalyst and intentionally disregarded and undermined (a) Catalyst’s lawful right to remain a participant in the DKD bid, (b) the Governmental Representation, (c) Catalyst’s reasonable belief in, reliance on, and expectations from the Governmental Representations; and (d) the obligations owed by DKD to Catalyst to protect Catalyst’s participation in the DKD bid.

[20] Focussing on the bad faith component, the motion judge found nothing in the pleading to plausibly support the conclusion that HMQ’s representatives excluded Catalyst from the project for reasons other than the public good.

[21] In its factum and in oral submissions, Catalyst reviewed the extensive pleadings contained in its second amended statement of claim and argued that the material facts pleaded against HMQ, when viewed in their totality, disclosed a reasonable cause of action. The claim contains specific allegations as to the timing and circumstances of Catalyst’s exclusion from the Athletes’ Village Project, and pleads that the actions of HMQ intentionally targeted Catalyst and that its removal after the successful bidder had been selected was wrongful. Catalyst maintains that the allegations identify specific individuals who gave directions and instructions to IO in order to harm Catalyst, and that their actions did in fact harm Catalyst. Catalyst further argues that the material facts as pleaded support the conclusion that HMQ’s actions were not solely for the public good but, rather, were specifically directed at frustrating Catalyst’s contractual rights in the Athlete’s Village Project at the instance of DKD. This, Catalyst submits, constitutes a Category A misfeasance in public office claim as set out by the Supreme Court of Canada in Odhavji because a public officer does not have the authority to exercise his or her power to harm a member of the public.

[22] Catalyst maintains that its claim against HMQ is sufficiently detailed by pointing to Trillium Power Wind Corporation v. Ontario (Natural Resources), 2013 ONCA 683, 117 O.R. (3d) 721, and Granite Power Corp. v. Ontario (2004), 72 O.R. (3d) 194 (C.A.), leave to appeal refused, [2004] S.C.C.A. No. 409, where, it argues, this court allowed similar claims to proceed.

[23] In my view, the motion judge did not err in concluding that the second amended statement of claim does not effectively plead the required element of bad faith or unlawful conduct. The pleadings, while extensive, do not provide the necessary factual underpinning to make out the tort of misfeasance in public office against HMQ.

[24] The material facts contained in the pleadings, if accepted as I must on a r. 21 motion, certainly support the claim that HMQ knew that its decision not to consent to Catalyst’s inclusion in the project would harm Catalyst. However, neither HMQ’s decision to specifically exclude Catalyst from the project, nor its knowledge of the potential harm this decision would cause, are enough to ground the tort of misfeasance in public office. Absent bad faith, such conduct is not inconsistent with the office of a public actor.

[25] Although I acknowledge that various paragraphs of the pleadings also allege that HMQ “deliberately caused harm to Catalyst, targeted Catalyst” and that HMQ’s conduct was “unreasonable, arbitrary, deliberate, unlawful” and “in bad faith”, these allegations are not supported by the facts as pleaded. A proper pleading of the tort requires more than bald allegations of bad faith and unlawful conduct.

[26] As explained at para. 103 of Gratton-Masuy Environmental Technologies Inc. v. Ontario, 2010 ONCA 501, 101 O.R. (3d) 321, leave to appeal requested but appeal discontinued, [2010] S.C.C.A. No. 397, broadly cast allegations of bad faith, malice and bias based merely on assumptions and speculation about the motivations underlying the conduct will not suffice.

[27] Despite the lengthy pleadings, a careful reading reveals no material facts from which a finding or inference can be drawn that the alleged decision and instructions were motivated by the desire to cause harm and injure Catalyst, that they were made in bad faith, or that they were made for some other purpose inconsistent with the obligations of public office.

[28] It is noteworthy that, at para. 85(1)-(5) of the second amended statement of claim, Catalyst alleges that HMQ refused to consent to its participation in the project based on factually inaccurate information. Making decisions on bad or incorrect information does not, of course, constitute bad faith.

[29] Having advanced this as a possible explanation, Catalyst appears to discount it later in its pleading. At paras. 120 and 150, Catalyst pleads that HMQ made decisions and gave instructions knowing that these were “arrived at without regard for the relevant facts pertaining to Catalyst’s participation in the DKD bid, as pleaded in paras. 85(1)-(5)”. Catalyst further claims that HMQ knew or ought to have known that its factual information and assumptions were inaccurate and deliberately relied on them, nonetheless. Again, the suggestion that HMQ knew that it was relying on incorrect information for the alleged instructions and directions, and nonetheless acted on it in bad faith, is simply a bald allegation. No material facts are pleaded that plausibly support this claim nor explain why one would look beyond the reasons that HMQ gave for its decision.

[30] Moreover, at para. 120(11)(b), Catalyst pleads that, in excluding it from participating in the project, HMQ “intentionally disregarded and undermined” the Governmental Representations. However, other than the bald allegation at para. 120(10) that the alleged “actions, decisions, directions and instructions were for unlawful and improper purposes,” the second amended statement of claim offers no material facts to support the suggestion that HMQ “deliberately engaged in conduct that [it] knows to be inconsistent with the obligations of the office”: Odhavji at para. 28.

[31] I turn now to Trillium and Granite, the cases relied on by Catalyst. In my view, those cases are of no assistance to Catalyst. They describe quite different situations in that the pleadings disclosed that government agents targeted the plaintiffs in a manner inconsistent with the duties of their office. In other words, there were material facts pleaded that could plausibly support a finding of bad faith.

[32] In Trillium, for example, the pleading went beyond a bald allegation that, in deciding to suspend or cancel the province’s wind power program, the government had specifically and deliberately targeted Trillium in bad faith. Trillium alleged that the government:

[S]pecifically targeted Trillium by cancelling Ontario’s wind power projects in order to undercut Trillium’s pending financing and thereby place Trillium in a position where it would not have the resources to litigate against Ontario: at para. 36(b).

[33] This court considered that these facts, taken as true, provided sufficient support for the allegation that the decision was not made in good faith but rather, was made with the specific intention of harming Trillium.

[34] Similarly, in Granite, the court allowed the claim to proceed because the statement of claim contained a plausible explanation in support of the allegation that the minister’s decision was inconsistent with the duties of his office and was targeted to harm Granite by interfering with its contractual rights. That alleged motivation was:

[T]o put Granite out of business long before the expiry of its agreement in 2004 in order to fulfill the minister’s pre-determined policy that “there would be no room in the new electricity regime in Ontario for small private utilities”: at para. 40.

[35] The court then listed several facts pleaded which supported the claim and satisfied the court that there existed “a narrow window of opportunity for Granite to make out its claim in misfeasance.”

Conclusion

[36] Therefore, I agree with the motion judge that it is plain and obvious that the allegations against HMQ cannot succeed. I would dismiss the appeal and award the respondent its costs in the agreed amount of $10,000 inclusive of disbursements and appropriate taxes.

[37] As I have concluded that the second amended statement of claim discloses no reasonable cause of action against HMQ, I need not address the appellant’s other ground of appeal: that the motion judge erred in applying the provisions of the Crown Liability and Proceedings Act, 2019, to Catalyst’s claims against HMQ. I should not, however be taken as agreeing with the motion judge’s findings on that issue.

Released: February 28, 2022 “P.R.” “Paul Rouleau J.A.” “I agree K. van Rensburg J.A.” “I agree L.B. Roberts J.A.”