SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Atlas Holdings & Investments Inc. and Atlas Maintenance Systems (A) Inc., Plaintiffs

AND:

George Vratsidas, Athansia Vratsidas, Maria Vratsidas, Shawna Vratsidas, Constantinos Vratsidas, 1715034 Ontario Inc. carrying on business as First Maintenance Solutions, Krzysztof Plewa and First Maintenance Solutions Ltd., Defendants

AND BETWEEN:

Krzysztof Plewa, Plaintiff by Counterclaim

AND:

Atlas Holdings & Investments Inc. and Atlas Maintenance Systems(A) Inc.,

BEFORE: D. M. Brown J.

COUNSEL:
G. Cohen, for the Plaintiffs

B. Reese, for First Maintenance Solutions Ltd.

G. Vratsidas, in person

M. Vratsidas, in person

HEARD: February 28, 2012

REASONS FOR DECISION

I. BIA section 38 action: motions to amend statements of defence and issue a counterclaim, and motions to strike the amendments

[ 1 ] This is a fraudulent conveyance action commenced on June 23, 2008 pursuant to leave granted on April 7, 2008 by the Registrar under section 38 of the Bankruptcy and Insolvency Act . The plaintiffs allege that the bankrupt, Canaclean Building Services Inc., fraudulently transferred customer contracts to other Vratsidas-family controlled companies, first to 1715034 Ontario Inc., and from there to First Maintenance Solutions Ltd. (“FMSL”). The contorted history of this proceeding was set out in my November 24, 2011 Reasons ( 2011 ONSC 6954 ), together with my December directions ( 2011 ONSC 7409 ).

[ 2 ] First Maintenance Solutions Ltd. and George Vratsidas seek to amend their statements of defence. Mr. Vratsidas also seeks leave to commence a counter-claim against the plaintiffs. For their part the plaintiffs seek to strike out portions of the proposed statements of defence and resist the granting of leave to commence a counter-claim.

[ 3 ] The plaintiffs do not oppose the following amendments requested by FMSL and Mr. Vratsidas:

(i) As to the FMSL’s proposed Amended Amended Statement of Defence: paras.10, 11 and 19;

(ii) As to Mr. Vratsidas’s proposed Amended Statement of Defence and Counterclaim: the last line of paragraph 5 and paragraphs 5(a) and 5(b).

In light of the position taken by the plaintiffs, I grant FMSL and Mr. Vratsidas leave to amend their pleadings in those respects.

II. The Limitations Act defences

A. The changes sought by FMSL

[ 4 ] FMSL seeks to amend its defence to alter the manner of pleading a limitations defence asserted in its initial defence: paras. 5, 7, 8, 9, 14 and 18.

[ 5 ] On November 29, 2010, C. Campbell J. granted the plaintiffs leave to add FMSL as a defendant, the allegation being that the fraudulently conveyed assets of Canaclean ultimately were conveyed by other Vratsidas family companies to FMSL. That company defended and amended its defence on January 5, 2011. In paragraph 4 of its defence FMSL pleaded that it was incorporated in September, 2007; in paragraph 6 it pleaded that when this action was commenced 1715034 Ontario was no longer carrying on business as “First Maintenance Solutions” (“The Two Facts”). FMSL pleaded that The Two Facts were readily available to the plaintiffs when they commenced their action, the plaintiffs had failed to perform due diligence on the various corporate defendant identities and, as a result, the claim against FMSL should be dismissed as statute-barred.

[ 6 ] In its proposed amended defence FMSL continues to plead The Two Facts, but wishes to amend its defence from one of “you should have known those facts” to one pleading that the plaintiffs “actually knew” The Two Facts.

B. The changes sought by Mr. Vratsidas

[ 7 ] Mr. Vratsidas incorporated FMSL. He does not seek to amend his defence in respect of a limitations period plea – paragraph 5 of his original defence pleaded, in the first two sentences, that the plaintiffs had commenced their action after the expiry of the limitation period.

[ 8 ] The plaintiffs move to strike that portion of the defence of Mr. Vratsidas.

C. Analysis

[ 9 ] The issue concerning the pleading by the defendants of the Limitations Act stems from the fact that no sooner had this Court permitted the plaintiffs to add FMSL as a party defendant than FMSL and Mr. Vratsidas moved under Rule 21 to dismiss their claim as statute-barred. Cumming J. dismissed that Rule 21 motion; the Court of Appeal upheld his decision.

[ 10 ] Rule 37.06(b) provides that every notice of motion shall refer to any “rule to be relied on”. In its notice of motion before Cumming J. FMSL simply referenced “Rules 37 and 21”; the notice of motion of Mr. Vratsidas contained the same language. Of course Rule 21 contains several different components: (i) a request for a determination of a question of law raised by the pleadings (21.01(1)(a)); (ii) striking a claim for failing to disclose a reasonable cause of action (21.01(1)(b)); and, (iii) staying or dismissing a motion on a variety of grounds (21.01(3)).

[ 11 ] The reasons of Cumming J. refer to the fact of the Rule 21 motions without specifying the sub-rule upon which the moving parties were relying. The reasons of the Court of Appeal did not identify the particular sub-rule of Rule 21.

[ 12 ] The consequences of an unsuccessful motion under Rule 21.01(1)(a) – question of law – differ from those of an unsuccessful motion under Rule 21.01(1)(b) – no reasonable cause of action. If a defendant moves for the determination of a question of law raised by the pleadings and loses, then the defendant cannot raise that question later as a defence at trial because the order “did…finally dispose of the issue raised by the defence and thereby deprived the defendant of a substantive right which could be determinative of the entire action” : Ball v. Donais (1993), 13 O.R. (3d) 322 (C.A.), para. 3 . By contrast, where a defendant loses a motion to strike out a statement of claim as disclosing no reasonable cause of action, no final determination of an issue in dispute has occurred. As explained by Morden J.A. in R.S. v. R. H. (2000), 52 O.R. (3d) 152 (C.A.) at para. 14 :

In this context, it is understandable why an order dismissing a motion to strike out a pleading is interlocutory. The matter in issue remains to be decided, one way or the other, at trial.

[ 13 ] The difference between an interlocutory result stemming from a failed “no reasonable cause of action” motion and a final result from a failed “determination of a question of law” motion was made clear by Morden J.A. in the R.S. case at para. 18 :

In my view Ball v. Donais is distinguishable from the present case. Both the terms of rule 21.01(1)(a), under which the order had been made, and the terms of the order itself, which were in accord with the purpose of rule 21.01(1)(a), indicate that the order was a final one. The order finally determined, subject to appeal, that the defendant's limitation period defence was not open to him. In the case before us, although Benotto J. gave very clear reasons for her conclusion that the defendant had not met the burden of establishing that the plaintiff did not have a cause of action, she did not finally resolve the question. As I have said, the purpose of rule 21.01(1)(b) is to enable claims and defences that do not, in law, have a chance of succeeding, to be stricken from the pleadings.

[ 14 ] In light of the absence of any reference to the specific sub-rule of Rule 21 under which the defendants were moving in the Notices of Motion, the reasons of Cumming J., or the decision of the Court of Appeal, how should I determine under which sub-rule the two motions before Cumming J. were brought? Plaintiffs’ counsel submitted that the motion records before Cumming J. contained some evidence. Since one cannot file evidence on a Rule 21.01(1)(b) motion, then the motion must have been for a determination of a question of law under Rule 21.01(1)(a): see Rule 21.01(2). Counsel for FMSL argued that no affidavits were filed before Cumming J., and the two business registration filings were placed before him only to allow the court to take judicial notice of the contents of a government registry file. I do not find those arguments particularly helpful; they cut both ways.

[ 15 ] Although towards the end of his endorsement Cumming J. used classic “no reasonable cause of action” language – “I am not satisfied that it is plain, obvious and without doubt that the impugned claim cannot succeed” – earlier in his reasons he had stated: “There is no evidence that the Plaintiffs discovered the underlying facts of conveyance or transfer of clients to FMSL more than two years before the Order by Campbell J. adding FMSL as a defendant”. That language suggests more a determination of a question of law approach.

[ 16 ] At the end of the day I think the most significant indicator of the nature of the motion before Cumming J. was how the Court of Appeal treated his decision. An appeal lies from a final order of a judge of this court to the Court of Appeal: Courts of Justice Act , s. 6(b); an appeal lies to the Divisional Court from an interlocutory order of a judge of this court, with leave: CJA, s. 19( b). In the R.H. case the Court of Appeal quashed an appeal to it by a defendant from an order dismissing its motion under Rule 21.01(1)(b) to strike out a claim as disclosing no reasonable cause of action. In the present case the Court of Appeal heard the appeals by both defendants from the order of Cumming J. and affirmed his decision. That signifies the Court of Appeal treated the order of Cumming J. as a final one, which means they treated it as an order in a Rule 21.01(1)(a) – determination of a question of law – motion.

[ 17 ] Such a conclusion is consistent with language used by both defendants in their notices of motion before Cumming J. FMSL sought an order to dismiss the claim against it on the grounds that the claim was asserted outside the limitation period, the plaintiffs were negligent in failing to conduct appropriate corporate searches, and no exceptional circumstances existed to justify extending the limitation period. The language used by Mr. Vratsidas in his notice of motion was much to the same effect.

[ 18 ] Given my conclusion that the motions before Cumming J. were brought and adjudicated under Rule 21.01(1)(a), then it follows, on the authority of Ball v. Donais , that having lost on the question of law as to whether the plaintiffs’ claims were statute-barred, the defendants cannot now rely on a limitation period defence.

[ 19 ] But, says FMSL, it should be allowed to change the way it pleads a limitations defence from one of “you should have known”, as set out in its pleading before Cumming J., to one of “you actually did know”. I disagree, for three reasons. First, Cumming J. wrote, in paragraph 19 of his reasons: “I view the motion to strike as being a collateral attack on the Order of Campbell J. to add FMSL as a party, being in effect an attempt to appeal or set aside that Order.” Those comments apply equally to the present effort by FMSL to amend its defence to further alter its limitations defence. Second, neither Cumming J. nor the Court of Appeal granted either defendant leave to amend their pleadings on the limitations defence. Finally, as Chapnik J. pointed out in Newmarch Mechnical Contstructors Ltd. v. Hyundai Auto Canada Inc. (1994), 18 O.R. (3d) 766 (Gen. Div.): “ The doctrine of res judicata has been used to bar attempts to raise the same issue both in subsequent actions and twice in the same action.”

[ 20 ] For those reasons I do not grant leave to FMSL to amend its statement of defence to alter its pleading of a limitation period defence as set out in paragraphs 5, 7, 8, 9, 14 and 18 of its proposed Amended Amended Statement of Defence. It follows that I grant the motion of the plaintiffs to strike out paragraphs 5, 7, 8, 9, 10, 11, 12, 13, 14 and 18 of the January 5, 2011 Amended Statement of Defence of FMSL; those pleadings cannot continue in light of the decision of the Court of Appeal.

[ 21 ] For the same reasons I strike out paragraphs 5 (first two sentences), 45, 59, 60 and 72 of the statement of defence of Mr. Vratsidas.

III. Further amendments sought by FMSL

[ 22 ] FMSL moves to amend, in a most radical fashion, paragraph 16 of its statement of defence. As presently constituted paragraph 16 reads:

This is not the first time that the Plaintiffs and/or their solicitors are negligent in not properly identifying and naming Defendants in this action and in the related Supreme Court files as listed in paragraph 8 of the Statement of Defence of George Vratsidas.

FMSL wishes to amend the paragraph to allege the following:

Solutions Ltd. is a competitor of the Plaintiffs. The Plaintiffs and/or their solicitors have improperly obtained access to confidential competitors’ materials in the past in the related Supreme Court files as listed in paragraph 8 of the Statement of Defence of George Vratsidas. Solutions Ltd. is using the same short forms as found in paragraph 8 of Geo Vrats’ pleading.

[ 23 ] In response the plaintiffs argued:

It is frivolous and vexatious to plead that the Plaintiffs “have improperly obtained access to confidential competitors’ material in the past”, in relation to other entities, or at all. Such a claim is plainly and obviously irrelevant to the claims pleaded against FMSL in this action. Rules 21.01(b) and 25.11(a) and (b) apply.

[ 24 ] I accept that submission, save for the reference to Rule 21.01(1)(b). The proposed amendment is a bald one, lacking any particulars, and bears no relevance to the issue at the centre of this action – whether certain transfers of contracts out of Canaclean constituted a fraudulent conveyance as against the bankrupt’s estate.

[ 25 ] Finally, I do not grant the amendment sought by FMSL in the last part of paragraph 17 concerning restrictions to be placed on the disclosure to the plaintiffs of productions made by FMSL. Rule 30.1 contains the deemed undertaking obligations applicable to all parties; more specific restrictions in respect of the Sealed Box were set out in paragraph 18 of my November Order.

IV. Leave sought by Mr. Vratsidas to issue a counter-claim

[ 26 ] Mr. Vratsidas seeks leave to issue a counter-claim against the plaintiffs. As I read his draft pleading, what Mr. Vratsidas proposes to do is to take the prolix and largely irrelevant passages from paragraphs 6 through to 71 of his existing statement of defence and convert them into a counter-claim, adding a paragraph 5A seeking $300,000 in damages for abuse of process, malicious prosecution or intimidation, as well as $100,000 in special damages, and then adding paragraphs 74 through to 85 detailing those torts. The plaintiffs oppose the issuance of a counter-claim or, alternatively, seek an order striking out much of the proposed counterclaim.

[ 27 ] I stated in open court that it appears the parties have lost sight of what this case is about. Almost four years ago leave was granted to the plaintiffs under section 38 of the BIA to commence this action which seeks to set aside, as fraudulent conveyances, the transfers of certain contracts from the bankrupt, Canaclean, to 1715034 Ontario Inc. and then subsequently from that Vratsidas-family company to a new Vratsidas-family company, FMSL. The pleadings in this action must relate to that issue for which leave was granted.

[ 28 ] Although a counterclaim may be asserted in a BIA section 38 action, in Manitoba Capital Fund Ltd. Partnership v. Royal Bank of Canada (2001), 2001 MBQB 197 , 27 C.B.R. (4 th ) 265 (Man. Q.B.) MacInnes J. described the permissible scope of such a counterclaim:

16 Ordinarily, the estate, rights and obligations of a bankrupt become vested in its trustee. In this case, KPMG refused to commence the action which the s. 38 plaintiffs desired and those plaintiffs then sought and obtained the orders in question. In Re Zammit (1998), 3 C.B.R. (4th) 193 the Court stated:

In a s. 38 proceeding, the creditor obtaining a s. 38 order advances not his or her own cause of action, but the trustee's cause of action. Section 38 does not create a cause of action in the creditor, but merely allows the creditors standing in the trustee's place to advance a cause of action vested in the trustee which the trustee has refused to take.

17 In effect, the s. 38 plaintiffs in this action are in essence representatives of the trustee. It seems clear to me that if the trustee had advanced this action against the defendant, attacking, as the s. 38 plaintiffs do, the defendant's loan agreements and resulting security with the TSG Companies, the defendant would be entitled to advance any defences or counterclaims against the TSG Companies which might assist it in defending the action, and/or providing it with a basis in law for recovery of all of the monies which it has lost whether as a secured or unsecured creditor. Where, as here, the plaintiffs pursuant to s. 38 of the BIA are, in essence, advancing not their own cause of action but the cause of action vested in the trustee which the trustee has refused to take, it follows logically, in my view, that the defendant ought to be entitled to advance any defence and/or counterclaim which it would have been able to advance in an action commenced by the trustee. In my view, therefore, the defendant should be entitled to advance any such defence or counterclaim in this s. 38 action and, subject to the lifting of the BIA Stay, should be entitled to add the trustee in the TSG Companies as party defendants to the counterclaim. (emphasis added)

[ 29 ] When read as a whole, the allegations which Mr. Vratsidas seeks to assert by way of counter-claim against the plaintiffs contend that the plaintiffs commenced this action for improper purposes relating back, in large part, to the history between the plaintiffs and Mr. Vratsidas which pre-dated the bankruptcy of Canaclean. Such allegations could not have been asserted against the Trustee if the Trustee had decided to initiate proceedings to challenge the transfer of certain Canaclean contracts as fraudulent conveyances. Such allegations also ignore the simple fact that the plaintiffs obtained leave under section 38 of the BIA to commence this action: the Trustee consented to that order, the order was obtained on notice to the defendants, the order resulted from a contested hearing at which the defendants opposed the granting of leave, but the Registrar did not accede to the defendants’ objections. The proposed counterclaim would constitute a collateral attack on the Registrar’s 2008 order. Acccordingly, no basis at law exists for Mr. Vratsidas to issue a counterclaim in this section 38 proceeding alleging that the proceeding constitutes malicious prosecution, abuse of process or intimidation.

[ 30 ] Further, certain sections of the proposed pleading (paras. 78 to 82) relate to the personal bankruptcy of Mr. Vratsidas, not the bankruptcy of Canaclean in respect of which this proceeding was commenced. Finally, the claim for “special damages” sought by Mr. Vratsidas concerns “all of the money he spent litigating with the Plaintiffs in the various litigation files, including in the Geo Vrats bankruptcy file” is not tenable in this proceeding which concerns what happened to certain assets of Canaclean.

[ 31 ] For these reasons I dismiss the motion by Mr. Vratsidas to issue the proposed counter-claim.

V. Summary

[ 32 ] By way of summary:

(i) I grant leave to FMSL to amend its statement of defence to include paragraphs 10, 11 and 19 set out in its proposed Amended Amended Statement of Defence;

(ii) I grant leave to Mr. Vratsidas to amend his statement of defence to include the last line of paragraph 5 and paragraphs 5(a) and 5(b) set out in his proposed Amended Statement of Defence and Counterclaim;

(iii) In all other respects I dismiss the motions of FMSL and Mr. Vratsidas;

(iv) I grant the motion of the plaintiffs to strike out paragraphs 5, 7, 8, 9, 10, 11, 12, 13, 14 and 18 of the January 5, 2011 Amended Statement of Defence of FMSL;

(v) I grant the motion of the plaintiffs to strike out paragraphs 5 (first two sentences), 45, 59, 60 and 72 of the Statement of Defence of Mr. Vratsidas; and,

(vi) Both FMSL and Mr. Vratsidas shall serve and file amended statements of defence within 20 days.

[ 33 ] If the parties are not able to settle the costs of these motions, the plaintiffs may serve and file written cost submissions, including a Bill of Costs, with my office (c/o Judges’ Reception, 361 University Avenue) no later than March 9, 2012. The defendants may serve and file written responding cost submissions no later than March 21, 2012. The written submissions shall not exceed three pages in length, excluding any Bill of Costs.

[ 34 ] Finally, any motion by the plaintiffs to lift the stay of proceedings in the bankruptcy of Maria Vratsidas must be brought before me no later than the end of March, 2012, failing which no such motion will be permitted. As I repeated several times to everyone in the courtroom, this proceeding is far too old, interlocutory motions must come to an end, and the action must proceed to trial in the near future.

D. M. Brown J.

Date : February 29, 2012