COURT FILE AND PARTIES

COURT FILE NO.: CV-11-9430-00CL
DATE: 20131203

SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)

RE: BRIAN JOSEPH TUCKER, SANDRA TUCKER AND THE BRIAN JOSEPH TUCKER FAMILY TRUST (TRUSTEE OF), Plaintiffs

AND:

SEAQUEST CAPITAL CORPORATION, SEAQUEST CORPORATION, DAVID BURNS HOLDEN, ROSA HOLDEN, VINCE JAMES BURLBROOK, ANTONIO MARIO COSENTINO, EDMOND CHIN-HO SO (AKA EDMOND SO, JEFFREY ALAN PHIPPS, SEAQUEST GLOBAL CORPORATION (#1), SEAQUEST GLOBAL CORPORATION (#2), TONYCOS INVESTMENTS LTD., HARRIS BROWN CORPORATION AND HARRIS BROWN AND PARTNERS LIMITED, NORTHSTAR BANKCORP LIMITED, MAGALY BIANCHINI AND JEFFERY (AKA JEFF) WATTS, Defendants

BEFORE: MORAWETZ J.

COUNSEL: M. Nowina, for the Plaintiffs

M. Z. Tufman, for the Defendants

HEARD: NOVEMBER 6, 2013

ENDORSEMENT

[1] Two defendants, Northstar Bancorp Limited and Magaly Bianchini (the “Defendants”), move under rules 21.01 and 25.11 of the Rules of Civil Procedure to strike portions of the plaintiffs’ Fresh as Amended Statement of Claim (the “Statement of Claim”). The underlying action concerns an alleged multi-million dollar investment fraud carried out through a web of related companies.

[2] The Defendants raise two concerns with the Statement of Claim. First, they submit the plaintiffs do not properly plead conspiracy and that the relevant paragraphs should be stuck. Second, they submit the plaintiffs’ description of the alleged fraud as a “typical bridge loan fraud … that is well known to law enforcement” should be struck because (a) the Defendants do not understand the term ‘bridge loan fraud’ and (b) it is prejudicial and vexatious.

[3] The motion is dismissed for the reasons below.

The Conspiracy Pleadings

Law

(i) General Principles for Striking Pleadings

[4] Rule 21.01(1)(b) provides that a party may move “to strike out a pleading on the ground that it discloses no reasonable cause of action or defence before a judge.”

[5] Rule 25.11 allows the court to strike all or part of a pleadings on the ground that the pleading:

(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.

[6] A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action: Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, at para. 17.

[7] One way a pleading may fail to disclose a cause of action is if it does not allege the necessary elements of that cause of action: Dawson v. Rexcraft Storage and Warehouse Inc. (1998), 1998 4831 (ON CA), 164 D.L.R. (4th) 257 (O.N.C.A.) at para. 10. As Epstein J. (as she then was) noted in Aristocrat Restaurants v. Ontario, [2003] O.J. No. 5331, at paras. 19-20,

A plaintiff must… plead the basic elements of a recognized cause of action… Vague allegations that make it impossible for an opposing party to reply should be struck… Pleadings must contain material facts. Rule 25.06 provides that every pleading must contain a concise statement of the material facts on which the party relies for the claim or defence. Furthermore, a party must plead all of the facts that it must prove to establish a cause of action that is legally complete.

[8] Finally, a statement of claim must be read “as generously as possible and to accommodate any inadequacies in the form of the allegations which are merely the result of drafting deficiencies”: Operation Dismantle Inc. v. Canada, 1985 74 (SCC), [1985] 1 S.C.R. 441, at 451; Dominion of Canada General Insurance Co. v. MD Consult Inc., 2013 ONSC 1347, 19 C.C.L.I. (5th) 306, at para. 12.

(ii) Pleading Conspiracy

[9] All the elements of a cause of action must be pleaded. There are two categories of civil conspiracy: (i) unlawful conduct conspiracy and (ii) conspiracy which does not require unlawful conduct. Accommodating both categories yields the following necessary elements for the cause of action:

(i) Two or more persons act in combination, that is in concert, by agreement or with a common design;

(ii) When acting in combination, one of the following two scenarios exists:

a. (i) the defendants’ conduct is unlawful; (ii) their conduct is directed towards the plaintiffs; and (iii) the defendants should know that, in the circumstances, injury to the plaintiffs is likely to result; or

b. the predominant purpose of the defendants’ conduct is to cause injury to the plaintiff.

(iii) The defendants’ conduct causes injury to the plaintiffs

See: Agribrands Purina Canada v. Kasamekas, 2011 ONCA 460, 106 O.R. (3d) 427, at paras. 24-26.

[10] A statement of claim pleading civil conspiracy should:

(i) Describe who the several parties are and their relationship with each other;

(ii) Allege the agreement between the defendants to conspire;

(iii) State precisely what the purpose was or what were the objects of the alleged conspiracy;

(iv) Set forth, with clarity and precision, the overt acts which are alleged to have been done by each of the alleged conspirators in pursuance and in furtherance of the conspiracy; and

(v) Allege the injury and damage occasioned to the plaintiff thereby.

See: Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 1998 2447 (ON CA), 37 O.R. (3d) 97 (C.A.), at 104.

[11] Finally, courts should not hold pleadings in civil conspiracy cases to an extraordinary standard. This is because the nature of the tort resists detailed particularisation at early stages.

Part of the character of a conspiracy is its secrecy and the withholding of information from alleged victims. The existence of an underlying agreement bringing the conspirators together, proof of which is a requirement borne by a plaintiff, often must be proven by indirect or circumstantial evidence. A conspiracy is more likely to be proven by evidence of overt acts and statements by the conspirators from which the prior agreement can be logically inferred. Such details would not usually be available to a plaintiff until discoveries (North York Branson Hospital v. Praxair Canada Inc., 1998 14799 (Gen. Div.), at para. 22.

Analysis

[12] The Defendants submit that the plaintiffs have complied with “none” of the rules of pleading conspiracy, and that the Statement of Claim “fails to even indicate who some of the named defendants have conspired with, how and when, and to what end”. On this basis, they submit the paragraphs pleading conspiracy should be struck.

[13] I do not address the issue of whether the conspiracy action merges with any other alleged torts (e.g. Normart, at 106). The Defendants stated in arguments that they were not raising the issue of merger.

[14] In my view, the plaintiffs have properly pleaded conspiracy. In arriving at this conclusion, I considered the criteria set out in Normart in light of the elements of the cause of action described in Agribrands.

1. The alleged conspirators and their relationship to each other

[15] The Statement of Claim sets out the role of the Defendants. Magaly Bianchini (“Bianchini”) is one of the “individual Defendants” identified as the “founders” and directing minds of the investment fraud. It sets out Bianchini’s address, and identifies Bianchini, along with other individual defendants, as one of the founders of Northstar Bancorp. It alleges that each of the named defendants, including Bianchini, owned shares of Northstar Bancorp directly or indirectly through companies that they owned. It also alleges that Northstar Bancorp was a company to which monies were funnelled and used for improper disbursements.

2. The agreement between the parties

[16] The Plaintiffs describe a “Scheme” from which an agreement can be readily inferred. The Scheme is alleged to have operated as follows. Harris Brown was an exempt market dealer who sought out investors including the plaintiffs, who were then referred to David Holden and the Seaquest Companies. The Seaquest Companies received the funds that Holden and others solicited from investors. The plaintiffs’ monies were largely funnelled through Northstar Bancorp and other related companies for improper disbursements.

[17] As discussed above, the existence of an agreement can be inferred from circumstantial evidence and overt acts and statements of the conspirators. Bianchini is alleged, with others, to have overseen and directed the Seaquest and Northstar companies. Paragraphs 75.1 to 75.7 of the Statement of Claim allege, in detail, that Bianchini, Northstar, and other individual defendants, inter alia, hid information from plaintiffs and other investors about the nature of the “investment structure” as well as the location of the investors’ funds, approved or acquiesced to false statements made in investor documentation, mislead investors and intended to deceive investors.

3. Purpose or objects of the conspiracy – unlawful conduct or predominant purpose

[18] For a pleading of unlawful conduct conspiracy, the plaintiff must show that (i) the defendants’ conduct is unlawful; (ii) their conduct is directed towards the plaintiffs; (iii) the defendants should know that, in the circumstances, injury to the plaintiffs is likely to result. Unlawful conduct in the context of conspiracy includes a crime, tort (e.g. fraud), breach of contract, breach of statute and breach of a directors’ fiduciary obligations: G.H.L. Fridman, The Law of Torts in Canada, 3rd ed. (Toronto: Carswell, 2010), at pp. 733-4.

[19] In my view, the above three requirements are met. First, the overt acts that form the basis for the conspiracy allegedly include fraud, deceit, and fraudulent misrepresentation. Second, the plaintiffs were allegedly targeted by the scheme. Third, the Statement of Claim alleges that Bianchini, Northstar Bancorp and others knew or ought to have known that the conspiracy and fraud would injure the plaintiffs.

4. The overt acts performed by each conspirator in furtherance of the conspiracy

[20] As discussed above, the overt acts alleged to have been performed by each conspirator are detailed in paragraphs 75.1 to 75.7 of the Statement of Claim.

5. The injury and damage occasioned to the plaintiff

[21] The Statement of Claim alleges injury and damages suffered by the plaintiffs as a result of the alleged conspirators’ conduct. It alleges, among other things, that the plaintiffs’ investments were not repaid as agreed and that loans made by the Seaquest companies were not secured.

Conclusion

[22] For the above reasons, I have concluded that the plaintiffs have properly pleaded conspiracy and the relevant paragraphs will not be struck.

“Typical Bridge Loan”

[23] The Defendants move to strike paragraph 1.2 of the Statement of Claim which reads:

The Scheme is a typical “bridge loan fraud”; a structure that is well known to law enforcement and investment professionals across North America. The Scheme is currently under investigation by, inter alia, the Royal Canadian Mounted Police.

[24] The Defendants advance two arguments for striking the paragraph. For the following reasons, both fail.

a. A term that cannot be pleaded back to?

[25] First, the Defendants claim the phrase “a typical ‘bridge loan fraud’” is “incapable of being pleaded back to” because the Defendants do not understand the term and ought not to be troubled with trying to discern the meaning of the allegations against them.

[26] In my view, Defendants’ argument fails. The plaintiffs could have simply used the word “fraud” but instead provide a greater level of detail which can only help, rather than harm, the Defendants’ ability to mount a defence. The elements and material facts of the underlying causes of action are properly pleaded.

b. Prejudicial and Vexatious?

[27] The Defendants also argue that the pleading that bridge loan fraud structures are under investigation in other instances by various law enforcement agencies does not create or support a cause of action, is prejudicial, and is vexatious.

[28] Rules 25.11(a) and (b) allow the court to strike all or part of a pleading where it may prejudice the fair trial of the action or where the pleading is scandalous, frivolous or vexatious.

[29] The Defendants’ claim that the allegation is vexatious is without merit. In my view, the passage is not argumentative, nor does it involve unfounded and inflammatory attacks on the integrity of a party. It is not a speculative, unsupported allegation. See George v. Harris, [2000] O.J. No. 1762 (S.C.), at para. 20.

[30] I now turn to the claim that the impugned passage is prejudicial. At the outset, I note the pleading that bridge loan fraud structures are “well known” to law enforcement and investment professionals is relevant to the plaintiffs’ claim. Numerous paragraphs allege that various defendants knew or ought to have known that they were facilitating fraudulent activity in various ways and that the scheme would injure the plaintiffs. Indeed, as discussed above, the claim of conspiracy requires such an allegation. Whether the alleged scheme in the present case was of a type well known to investment professionals and law enforcement is a material fact that is probative of the defendants’ constructive knowledge.

[31] Blair, J.A. set out the law regarding striking relevant allegations in a pleading on the basis that they are prejudicial:

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… Where the allegations in question are relevant and material, however, the court should exercise this power with considerable caution, in my view (Quizno's Canada Restaurant Corp. v. Kileel Developments Ltd. 2008 ONCA 644, 92 O.R. (3d) 347, at para. 15).

[32] The potential prejudice to the defendants is minimal. This is not a case where the plaintiffs do not plead fraud yet smear the defendants with the brush of fraud by association. In this case, the plaintiffs plead that the Defendants’ particular scheme is fraudulent and being investigated by the RCMP. Adding that it is similar to other schemes which are known to investment professionals and law enforcement does not do much harm.

[33] Balancing this minimal prejudice against the relevance of the allegations, and in light of the Court of Appeal’s instruction that this power should be exercised with “considerable caution,” I decline to strike the aforementioned paragraph.

Disposition

[34] In the result, the motion of the Defendants to strike portions of the Statement of Claim is dismissed with costs, fixed in the amount of $2,500 inclusive of disbursements and HST, payable by the Defendants within 30 days.

MORAWETZ J.

Date: December 3, 2013