COURT FILE AND PARTIES

COURT FILE NO.: CV-12-5420

DATE: 20130829

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: 2198707 Ontario Inc. and Chaitali Modi, Plaintiffs

AND:

2259329 Ontario Inc. and Jayeshkumar Modi, Defendants

BEFORE: Ricchetti, J.

COUNSEL:
M. Whiteley, Counsel, for the Plaintiffs

M. Van Zandvoort, Counsel, for the Defendants

HEARD: August 26, 2013

ENDORSEMENT

THE MOTION

[1] The Plaintiffs move to strike paragraphs 39-42, part of 44 and 45 from the Statement of Defence.

THE FACTS

[2] The allegations are necessary to understand the possible relevance of the impugned paragraphs.

[3] Chaitali Modi (Chaitali) is the sole officer, director and shareholder of 2198707 Ont. Inc. (“219”). Yogesh Modi (“Yogesh”) is the husband of Chaitali. Up until 2010, 219 operated a “smoke and gift” shop in Guelph (219’s business). The lease was expiring near the end of 2010.

[4] Jayeshkumar Modi (“Jayesh”) is the uncle of Chaitali. Jayesh is the sole registered officer, director and shareholder of 2259329 Ontario Inc. (“225”). 225 now operates a “smoke and gift” shop in Guelph near the location of 219’s previous business (225’s business). Up until 2010 Jayesh was an employee of 219. Nidhi is Jayesh’s daughter.

[5] The allegations in the Statement of Claim are as follows:

i. Upon knowing that 219 was going to lose its location, Chaitali wanted to open a new “smoke and gift” store in the same area;

ii. “For ease of record keeping”, a new corporation was incorporated, being 225. Chaitali asked Jayesh to be the sole officer, director and shareholder because he “was expected to be available”. Jayesh was to hold the shares of 225 in trust for Chaitali;

iii. 219 paid for the construction, and the first and last month of the rent for the premises at 225’s business;

iv. The entire inventory and assets from 219’s business were transferred in late 2010 or early 2011 to 225’s business;

v. 225 opened for business in early 2011;

vi. Once 225’s business was opened, Jayesh was to have transferred the shares of 225 to Chaitali. He refused to do so; and

vii. Since 2011, Jayesh has taken the profits from 225’s business and refused to provide any financial information to the Plaintiffs.

[6] The Plaintiffs allege unjust enrichment and breach of trust. The Plaintiffs seek to have the shares of 225 transferred to them.

[7] The Statement of Defence alleges the following:

i. Yogesh is the directing mind of 219.

ii. In 2009, Yogesh moved to Port Colborne to operate a motel. Jayesh was asked to and took over the management and operations of 219’s business. He did so;

iii. In 2010, the parties were told that 219’s lease would not be renewed;

iv. Jayesh decided he was going to open his own business in Orangeville. Jayesh declined to be involved in any relocated 219 business in Guelph if Yogesh started one. As a result, Yogesh announced 219’s business would be closing;

v. Jayesh then found a location near 219’s business and decided to open his own "smoke and gift" business there, rather than in Orangeville;

vi. Jayesh is the sole officer, director and legal and beneficial shareholder of 225. A lease was signed by Jayesh on behalf of 225 for the new premises. 225's business opened in December 2010. Jayesh denies there was any trust arrangement regarding 225 as alleged in the Statement of Claim;

vii. Because of the family relationship and 219’s business was closing, Yogesh agreed to provide financing, inventory and equipment to Jayesh for 225’s business. This was done as a loan;

viii. After 225 started its business, Yogesh proposed a partnership with Jayesh and Yogesh and Yogesh’s brother. Given the need to repay the loan to Yogesh, Jayesh advised he would consider it. However, nothing was finalized;

ix. Jayesh, Yogesh and Yogesh’s brother looked at other potential joint investments;

x. In 2011, Jayesh was told by his daughter, Nidhi, that she did not want Jayesh to go into partnership with Yogesh or Yogesh's brother because in the past, Nidhi had been sexually assaulted by Yogesh. Hearing this, Jayesh no longer wished to consider or enter into any partnership with Yogesh or his brother. Jayesh was prepared to sell the new business to Yogesh or to repay Yogesh's loan. He told Yogesh this and made an offer to sell 225’s business or offered arrangements to repay the loan;

xi. In 2011, Jayesh and Yogesh agreed that Jayesh would pay $130,000 - $150,000 for the loan;

xii. In March 2012, Nidhi contacted the police regarding the sexual assault and charges were laid against Yogesh;

xiii. Yogesh refused repayment of the loan (or part of the loan);

xiv. This action was commenced in December 2012, two years after 219 had closed its business and two years after Jayesh ran 225's business without sharing profits or making any financial disclosure to Yogesh. Jayesh states that this action was brought in retaliation to Nidhi's sexual assault allegations; and

xv. Jayesh alleges that he had no knowledge, the existence of this alleged trust agreement and that the alleged trust agreement had ever been raised with him prior to the commencement of this action.

[8] The Defence submits the action should be dismissed.

[9] No Reply was served in this action.

The Position of the Moving Party

[10] The Plaintiffs take issue with the references to the sexual assault being referred to in the Statement of Claim. The Plaintiffs submit that the impugned allegations are not relevant to the issues to be tried.

The Position of the Responding Party

[11] The Defendants states that the allegations of sexual assault are relevant as to whether there existed a trust agreement as alleged. Essentially, the Defendants submit that the timing of the reporting of the sexual assault and the subsequent claim of the trust agreement is evidence, consistent with the lack of earlier claim or demands for two years, that no such trust agreement ever existed.

THE ANALYSIS

[12] Rule 25.11 of the Rules of Civil Procedure provides:

The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(a) may prejudice or delay the fair trial of the action;

(b) is scandalous, frivolous or vexatious; or

(c) is an abuse of the process of the court.

[13] Are the allegations in the impugned paragraphs relevant?

[14] Clearly, whether there was a trust agreement is a central issue in this case.

[15] In my view, the actions and timing of what occurred between the parties bears some comment:

a) 225 was incorporated in late 2010. There does not appear to be a good reason pled as to why Yogesh would have put the shares of 225 into Jayesh's name. Perhaps there may have been good reason to make Jayesh the officer and director of 225 but the explanation in the pleading does not explain why the shares had to be Jayesh's name;

b) Since 225 started to carry on business in late 2010, there is no allegation in the Statement of Claim of a demand for the shares of 225 to be transferred to Chaitali or Yogesh before December 2012 (other than to say Jayesh refused but without stating if and when such a demand(s) was made).

c) Jayesh has ran 225 without the Plaintiffs and kept all the profits for two years without any allegation in the Statement of Claim that the Plaintiff demanded all or a portion of the profits before December 2012; and

d) During the two years Jayesh did not provide financial disclosure to the Plaintiffs.

[16] The reasons for the delay in bringing this claim by the Plaintiffs are clearly going to be an issue at trial.

[17] The issue is: are the circumstances surrounding the sexual assault and the subsequent allegation of a trust agreement relevant as to whether the trust agreement alleged by the Plaintiffs really existed?

[18] Jayesh submits that this claim of an alleged trust agreement was only brought after Nidhi went to the police regarding the alleged sexual assault and a few months prior to the sexual assault trial and not because there existed a trust agreement. The facts regarding the sexual assault, its report to the police, the timing of the bringing of the claim and prior lack of any action by the Plaintiffs consistent with a trust agreement, might be considered by a trier of fact to be highly relevant to the issue as to whether there existed a trust agreement and to the credibility of the Plaintiffs on this issue. If this theory was advanced at trial without it being in the Statement of Defence, no doubt the Plaintiffs would argue that this was not pleaded, not explored on discovery and has taken them by surprise. This evidence might well be excluded.

[19] I am satisfied that it is necessary for these facts to be pled for the Defendants to make "full defence" on the issues and in particular, whether there existed a trust agreement as alleged in the Statement of Claim.

[20] I am not persuaded that "motive" is the basis upon which the impugned allegations are made. These allegations are made because they are relevant as to the existence of the trust agreement. For the reasons set out above, I am satisfied that they are relevant and may well be significant to the central issue in this case.

[21] Are the allegations in the impugned paragraphs of such marginal probative value and of such prejudicial effect that they ought to be stuck out? In Quizno's Canada Restaurant Corp. v. Kileel Developments Ltd, 2008 ONCA 644, the Court of Appeal made the following comments regarding when the court should exercise this jurisdiction at paragraphs 15-17:

[15] A court may strike out portions of a pleading, even where the allegations are relevant, if the applicant can establish that they are of marginal probative value and their probative value is outweighed by their prejudicial effect. Before doing so, a judge must balance the rights of the parties on the particular facts of the case and must consider carefully the extent to which the particulars attacked are necessary to enable the defendant to prove its case and their probative value in establishing that case: see Clement v. McGuinty (2001), 2001 7949 (ON CA), 18 C.P.C. (5th) 267 (Ont. C.A.), at paras. 21-24; Asper v. Lantos reflex, (2000), 2000 29038 (ON SCDC), 51 O.R. (3d) 215 (Div. Ct.), at paras. 18-20; Lee v. Globe and Mail 2001 28035 (ON SC), (2001), 52 O.R. (3d) 652 (S.C.), at paras. 11 and 14. Where the allegations in question are relevant and material, however, the court should exercise this power with considerable caution, in my view.

[16] Pleadings are not the appropriate stage in an action to engage at large in what is essentially a trial judge’s exercise for determining the admissibility of evidence at trial – i.e., weighing the probative value versus prejudice of facts. That exercise is not particularly well-suited to defining issues for trial, something which is for the parties to decide. Rule 25.11 provides that the pleading may be struck if it “may prejudice the fair trial of the action.” A fair trial requires that the defendant be able to put forward a “full” defence, not – as the motion judge erroneously concluded – a “reasonable” defence defined in advance by the plaintiff and the court.

[17] These parameters are consistent with the view expressed by MacFarland J. (as she then was) in Asper, at para. 20:

Pizza Pizza was concerned with whether a defendant could plead alternative defamatory meanings by way of justification, not the sufficiency of such a plea. In our view, Pizza Pizza does not stand for the proposition that it is open to a court to strike a pleading or particulars in a libel action where they are relevant, necessary and of reasonable probative value to the defendant on the ground that such a plea is “oppressive”. On the other hand, where a plea is strictly speaking relevant, but of marginal probative value, and would be onerous for a plaintiff, it may well be found to offend the rules. [Emphasis added.]

[22] I am not satisfied that the allegations are of marginal probative value. Furthermore, the Plaintiffs have not established that it would be onerous for them to deal with this issue.

[23] The allegations may be embarrassing for Yogesh, but he is not even a plaintiff in this action. It is not the accuracy or truthfulness of the allegations which is important in the circumstances of this case – it is the timing of the allegations and the subsequent claim being brought that may be important to the trier of fact. I am not persuaded that it will even be necessary for the trier of fact to determine whether the sexual assault allegations are true or not. It is the fact they were made in March 2012, and this claim was brought in December 2012, just a few months before the trial. This will not necessarily result in the court having to determine a collateral issue.

[24] I do not see the prejudice to the Plaintiffs in having to deal with these allegations and really none has been advanced except that the Plaintiffs submit the purpose of the allegations are to embarrass the Plaintiffs. I am not persuaded that these allegations are to intimidate and harass the Plaintiffs or bring pressure to bear in any settlement discussions through embarrassment. Yogesh is not a Plaintiff (although he is the husband of Chaitali). The issues are public in the criminal proceeding and at a trial which was scheduled to be heard in March 2013.

[25] Will it delay or prejudice the fair trial of this action? I am not persuaded that it will.

CONCLUSION

[26] The Plaintiffs’ motion is dismissed.

COSTS

[27] Any party seeking costs shall serve and file written submission on entitlement and quantum within two weeks of the release of these reasons. Written submissions shall be limited to three pages, with attached Costs Outline and any authorities.

[28] Any responding party shall have one week thereafter to serve and file responding submissions. Written submissions shall be limited to 3 pages with any authorities relied on attached.

[29] There shall be no reply submissions without leave.

Ricchetti, J.

Date: August 29, 2013