ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-0385

DATE: 2014-09-22

B E T W E E N:

Gordon Gravelle o/a CodePro Manufacturing,

Barry Leon, counsel on the motion for the Plaintiff (Responding Party)

Plaintiff (Responding Party)

and -

A1 Security Manufacturing Corp. and Auto Parts Acquisition LLC dba Cumsa Distribution,

Derek E. Zulianello, for the Defendants (Moving Parties)

Defendants (Moving Parties)

HEARD: June 25, 2014,
at Thunder Bay, Ontario

Regional Senior Justice H.M. Pierce

Reasons on Motion to Strike Out Statement of Claim

[1] The plaintiff, Gordon Gravelle, is the sole proprietor of CodePro Manufacturing, which designs and produces electronic key cutting equipment. The defendant, A1 Security, manufactures locksmith tools and supplies. In 2011, its parent company, Avis Industrial, gave A1 approval to explore a joint business venture with the plaintiff. The defendant, Cumsa Distribution, is wholly owned by Avis and is a sister company to A1. Cumsa distributes various automotive brand products.

[2] The plaintiff alleges that he and A1 negotiated a joint venture agreement for the purpose of designing, developing, and marketing an electronic key cutting machine. The terms of this agreement were never set out in an executed contract. Rather, the plaintiff contends that a contract resulted from the communications between himself and A1 upon which both parties acted.

[3] The plaintiff claims that on July 4, 2011, he summarized the parties’ proposed agreement. When A1 expressed some concerns, the plaintiff amended the summary on July 10, 2011, and forwarded it to A1. Further amendments followed on July 13th, in accordance with the parties’ discussions.

[4] On July 15, 2011, A1 sent funds to the plaintiff for the purchase of two key machines. The plaintiff claims that this payment was made pursuant to express terms of the contract between the parties and therefore ratified the amendments to the agreement, binding the parties contractually. The plaintiff further alleges that on July 29, 2011, A1 further amended the terms of the agreement dated July 13th, referring to a long-term relationship between the parties.

[5] The plaintiff contends that a binding and enforceable agreement between himself and A1 Security resulted from either the initial proposal by A1, the plaintiff’s proposed amendments of July 13th, or alternatively, by the amendments of July 29th.

[6] The plaintiff alleges that the contract results from “mutual assent, ratification, and substantial performance.”

[7] The plaintiff alleges that the parties collaborated pursuant to the terms of the contract for the next two years. He pleads that he took certain steps and expended funds in order to fulfill monthly orders from A1.

[8] The plaintiff states that in 2013, A1 and Cumsa indicated an interest in acquiring the rights to certain technology in the plaintiff’s control, which the plaintiff believed was a threat by A1, in concert with Cumsa, to abandon the joint venture. Then in August 2013, the plaintiff learned that A1 was undergoing restructuring. Cumsa took carriage of the key machine joint venture, in place of A1. On September 16, 2013, the plaintiff was advised that A1 “formally terminated the parties’ business relationship.”

[9] The plaintiff alleges the defendants breached their contract with the plaintiff. In addition, the plaintiff alleges negligent misrepresentation, inducing breach of contract, “tortious interference with an existing contract,” “tortious interference with prospective economic relations,” aggravated and exemplary damages arising from loss of reputation, civil conspiracy, injury to trade, and/or extortion contrary to statute, and punitive damages.

[10] The defendants move for an order striking out the statement of claim on the grounds that:

(a) it discloses no reasonable cause of action and/or is frivolous, vexatious or an abuse of process;

(b) the claims for breach of contract and negligent misrepresentation against A1 disclose no reasonable cause of action;

(c) the claims against Cumsa for inducing breach of contract and tortiously interfering with prospective economic relations disclose no reasonable cause of action;

(d) the claims for punitive, aggravated and exemplary damages disclose no reasonable cause of action;

(e) both paragraphs 8 and 50 - 51 offend the rules of pleading in Rule 25.06; and,

(f) both paragraphs 8, 50 – 51, 64, 68 – 70, 73, 78 – 80, and 82 offend Rule 25.11 in that they may delay or prejudice a fair trial, are scandalous, vexatious, or an abuse of process.

In the alternative, the defendants seek an order for particulars.

Principles of Law

[11] The statement of claim was drafted by the plaintiff before he retained counsel. Admittedly, it is not as well-organized as one might wish.

[12] The thrust of the defendants’ notice of motion is to strike the statement of claim for disclosing no reasonable cause of action. The law was settled in Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, S.C.J. No. 93, paras. 32 – 33, that it must be “plain and obvious and beyond doubt” that the facts, if taken as proven, do not disclose a reasonable cause of action. The Supreme Court of Canada cautioned that novelty was not a bar to a claim proceeding. If there is a chance that the claim might succeed, the plaintiff “should not be ‘driven from the judgment seat’” (para. 24). Accordingly, the statement of claim should be read generously, particularly since the plaintiff is unrepresented.

Analysis

Breach of Contract

[13] The defendants submit that the statement of claim does not contain sufficient facts to support the claim of breach of contract against A1. I do not agree.

[14] The gist of the plaintiff’s claim is that the parties entered into a contract to develop and exploit a key cutting machine. It will be for the court to determine at trial whether a contract existed between the parties and if so, what its terms were. If a contract existed, the court will then determine whether it was breached.

[15] A contract need not be reduced to writing in order to be binding. A contract is grounded in an offer and acceptance, which may be evidenced by performance. The plaintiff describes this process in his statement of claim. He describes his performance of the contract by purchasing production tools and fabricating key machines in anticipation that they will be marketed. He describes the termination of the contractual relationship, initiated by an email from A1, and sets out the basis for his claim for damages.

[16] It is not improper to plead in the alternative that the contractual arrangements were formed by some or all of the negotiations. The statement of claim references the exchange of certain documents between the plaintiff and A1 that he says form the terms of the contract. Presumably, these documents are in the possession of A1. Thus, the claim is particularized. It is therefore not baldly pleaded. Prima facie, the plaintiff has pleaded a cause of action for breach of contract: offer, acceptance, and breach, which he alleges resulted in damages.

Negligent Misrepresentation

[17] The defendants submit that the plaintiff’s claim against A1 for negligent misrepresentation discloses no reasonable cause of action. I do not agree. The claim of negligent misrepresentation does not depend on the existence of a contractual relationship between the parties.

[18] The elements in the tort of negligent misrepresentation were set out in Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87 at 643, 99 D.L.R. (4th) 626, as follows:

(a) there must be a duty of care based on a “special relationship” between the representor and the representee;

(b) the representation in question must be untrue, inaccurate, or misleading;

(d) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and,

(e) the reliance must have been detrimental to the representee in the sense that damages resulted.

[19] The Supreme Court of Canada analyzed nature of the special relationship required in claims for negligent misrepresentation in Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, 3 S.C.R. 45, at paras. 41 - 42. Where a relationship between the parties is sufficiently close that it is foreseeable that a party will rely on one party’s representations, the law will impose a duty of care on that party to take reasonable steps not to injure the other party.

[20] The court added at para. 42:

…a special relationship will be established where: (1) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (2) reliance by the plaintiff would be reasonable in the circumstances of the case.

[21] The statement of claim pleads that the plaintiff and A1 were in a special relationship giving rise to a duty of care. The particulars giving rise to a special relationship are pleaded with the following particulars:

(a) the parties were in a joint venture agreement;

(b) both parties intended to profit from the agreement;

(d) A1 asserted it had a prominent place in the industry;

(e) A1 had an active role in the development of the key machine;

(f) A1 manufactured an essential component for the key machine; and,

(g) A1 was the dominant financial partner.

[22] The statement of claim specifies the following representations were made by a representative of A1:

(a) the joint venture would be long-term;

(b) the plaintiff could rely on A1 and its sister company for marketing and distribution of the product;

(d) the joint venture would involve the development and marketing of two types of key cutting machines; and,

(e) the plaintiff could trust A1’s representative.

[23] The statement of claim also pleads that the plaintiff relied on these representations which were negligently made both orally and in writing and suffered economic loss as a result.

[24] In my view, this pleading, when read as a whole, meets the essential criteria set out in Lysko v. Braley, 2004 40666 (ON SC), [2004] O.J. No. 4727, 135 A.C.W.S. (3d) 166 (S.C.J.) at para. 44 (varied by 2006 11846 (ON CA), [2006] O.J. No. 1137, 50 C.C.E.L. (3d) 1 (C.A.), that in pleading negligent misrepresentation:

the plaintiff must plead with sufficient particularity the alleged misrepresentation, who made it, to whom it was made, the occasion and manner in which it was made, the falsity of the representation, the inducement, the intention on the part of the representor that the representee rely on the representation, alteration by the representee of his position in reliance on the representation, and the resulting damage.

Inducement of Breach of Contract by Cumsa

[25] The defendants submit that the requisite elements of the tort of inducement of breach of contract are as set out in SAR Petroleum v. Peace Hills Trust Company, 2010 NBCA 22, N.B.J. No. 104 at para. 40:

(a) there must be a valid, subsisting contract between the plaintiff and a third party;

(b) the third party must have breached its contract with the plaintiff;

(d) the defendant must have been aware of the contract;

(e) the defendant must have known it was inducing the breach of contract;

(f) the defendant must have intended to procure the breach of contract; and,

(g) the plaintiff must prove that it suffered damage as a result of the breach.

[26] The defendants submit that the statement of claim does not plead any material facts in support of the allegation that Cumsa induced a breach of contract by A1. As well, they contend that if there is a finding that A1 breached its contract with the plaintiff, the claim would not add anything other than an additional pocket from which damages might be paid.

[27] This is not a correct statement of law. Damages for inducing breach of contract are discretionary and may encompass pecuniary and non-pecuniary damages such as injured feelings, and loss of reputation, as well as considering the nature of the defendant’s conduct, and punishment: Drouillard v. Cogeco Cable Inc., 2007 ONCA 322, O.J. No. 1664, at para. 42. Damages can be assessed at large: Waxman v. Waxman, 2002 49644 (ON SC), [2002] O.J. No. 2528, O.T.C. 443 (S.C.J.), at para. 1804, and may overlap with damages for breach of contract.

[28] In my view, the statement of claim alleges sufficient facts, which if accepted as true, support the claim of inducing breach of contract. For example, the plaintiff pleaded:

(a) that on August 14, 2013, he received an email from the general manager of A1 advising that the company was restructuring;

(b) a week later, the plaintiff was contacted by the president of A1’s sister company, Cumsa who denied there were any contractual obligations between A1 and the plaintiff;

(c) Cumsa’s president asked the plaintiff to prepare buy-out options for A1 to obtain the rights to the key cutting machine;

(d) the following day, A1’s general manager contacted the plaintiff, advising him to submit his best sales proposal, under threat of abandoning the joint venture; and,

(e) on September 16, 2013, A1 emailed the plaintiff, advising that it was terminating the parties’ business relationship.

The plaintiff also pleads that the defendants conspired together to extort from the plaintiff the rights to the key machine below its true value.

[29] It is not, therefore, plain and obvious, that this claim could not succeed at trial.

Intentional Interference with Economic Relations

[30] The plaintiff pleads that Cumsa tortiously interfered with an “existing contract.” I conclude that the plaintiff meant to allege that Cumsa had intentionally interfered with economic relations.

[31] The elements of this tort are described in EnerWorks Inc. v. Glenbarra Energy Solutions Inc., 2012 ONSC 414, O.J. No. 2272, at para. 80, as follows:

(a) intent to injure and cause loss to the plaintiff;

(b) interference with the plaintiff’s business or livelihood by illegal or unlawful means;

(c) the unlawful means are directed at a third party who has an actionable claim or an actionable claim but for the absence of having suffered a loss; and,

(d) the plaintiff suffers an economic loss as a result of the unlawful means.

In other words, the plaintiff’s claim arises out of economic loss sustained when the defendant acts unlawfully against a third party.

[32] In Bram Enterprises Ltd. v. A.I. Enterprises Ltd., 2014 SCC 12, 1 S.C.R. 177, the Supreme Court of Canada discussed what unlawful means comprise. At para. 76, the court concluded that:

… in order for conduct to constitute “unlawful means” for this tort, the conduct must give rise to a civil cause of action by the third party or would do so if the third party had suffered loss as a result of that conduct.

Therefore, the third party must have suffered damages arising from the defendant’s tortious interference and as a result of the damages, the third party could have brought its own civil action against the same defendant.

[33] The statement of claim in this case lacks any allegations as to what actionable claim A1 has or would have against Cumsa as a result of Cumsa’s tortious conduct. To the contrary, the pleading indicates that Cumsa took over the joint venture on behalf of A1. The plaintiff alleges that the defendants conspired together to cause him harm and obtain the intellectual property rights to the key machine.

[34] I conclude, therefore, that it is plain and obvious that the claim of tortious interference with economic relations cannot succeed against this factual background. Accordingly, it is struck.

Tortious Interference with Prospective Economic Relations

[35] The plaintiff also claims damages against Cumsa for its interference with “prospective economic relations.” In my view, this claim is an extension of the plaintiff’s claim that Cumsa tortiously interfered with its economic relations and speaks to damages. If A1 has no actionable claim against Cumsa, then the plaintiff has no claim for damages for interference with prospective economic relations.

[36] For reasons set out in the paragraph above concerning intentional interference with economic relations, the claim for tortious interference with prospective economic relations is also struck.

Aggravated and Exemplary Damages

[37] The plaintiff claims against either or both defendants for aggravated and exemplary damages “arising from loss of reputation, civil conspiracy, injury to trade, and/or extortion contrary to statute.” Exemplary damages are synonymous with punitive damages and are non-compensatory.

[38] Aggravated damages are compensatory in nature. The British Columbia Court of Appeal concisely described the nature of aggravated damages in Huff v. Price, 1990 5402, B.C.J. No. 2692, at para. 48, observing that aggravated damages are awarded to take into account:

… pain, anguish, grief, humiliation, wounded pride, damaged self-confidence or self-esteem, loss of faith in friends or colleagues, and similar matters that are caused by the conduct of the defendant; that are of the type that the defendant should reasonably have foreseen in tort cases or had in contemplation in contract cases; that cannot be said to be fully compensated for in an award for pecuniary losses; and that are sufficiently significant in depth, or duration, or both, that they represent a significant influence on the plaintiff’s life, can properly be the basis for the making of an award for non-pecuniary losses or for the augmentation of such an award. An award of that kind is frequently referred to as aggravated damages. It is, of course, not the damages that are aggravated but the injury. The damage award is for aggravation of the injury by the defendant’s high-handed conduct.

[39] The defendants submit that the claim for aggravated damages does not disclose a cause of action because it fails to plead sufficient material facts to support the claim. The Court of Appeal in Sommerard v. I.B.M. Canada Ltd., 2006 9581 (ON CA), [2006] O.J. No. 1209, 146 A.C.W.S. (3d) 998, at para. 25 requires a plaintiff claiming aggravated and/or punitive damages to particularize the actionable wrongs and material facts on which they rely to support the claim as well as any reprehensible conduct in support of the claim.

[40] In this case, an award for aggravated damages depends upon the plaintiff succeeding in his claim for breach of contract or intentional torts and proving the underlying claims. The statement of claim contains the bald statement that the plaintiff’s reputation has been damaged, that there has been a civil conspiracy, injury to trade and/or extortion with no particulars.

[41] The claim for aggravated damages is struck with leave to the plaintiff to amend the statement of claim to plead the particulars of this claim.

Punitive Damages

[42] Punitive damages are damages awarded to punish a defendant for reprehensible conduct. This claim is also baldly pleaded, without the necessary particulars. The claim for punitive damages is struck with leave to the plaintiff to amend the statement of claim to plead the particulars of this claim.

Rule 25.06

[43] The defendants submit that paragraphs 8, and 50 – 51 offend the rules of pleading in Rule 25.06, which requires each pleading to contain a concise statement of the material facts on which a party relies but not the evidence by which those facts are to be proved.

[44] Both paragraphs 8 explain the nature of the plaintiff’s business. They are introductory in nature and do not offend the spirit of the rule. However, paragraphs 50 – 51 do plead evidence, in that they refer to customer testimonials about the plaintiff’s products. These paragraphs are evidentiary in nature and may or may not be relevant to the claims being advanced. They are therefore struck.

Rule 25(11)

[45] The defendants submit that paragraphs 8, 50 – 51, 64, 68 – 70, 73, 78 – 80, and 82 offend Rule 25.11 in that they may delay or prejudice a fair trial, are scandalous, vexatious, or an abuse of process. As I have ruled on paragraphs 8, and 50 – 51, and have struck the claim for intentional interference with economic relations, including paragraphs 78 – 86, it is not necessary to further consider them.

[46] Rule 25.11 authorizes the court to strike out those parts of a pleading that may prejudice or delay the fair trial of the action; or that are scandalous or vexatious or an abuse of process of the court. These terms were described in George v. Harris, [2000] O.J. No. 1762, 97 A.C.W.S. (3d) 225 (S.C.J.), at para. 20.

[47] A pleading is frivolous and vexatious if it contains a complete absence of material facts.

[48] If a pleading contains allegations that are irrelevant, argumentative, inserted for colour, or contain bare allegations, it is scandalous.

[49] In this case, because of the disorganized way the statement of claim is drafted, certain paragraphs that appear to be bare allegations are not; they must be read in conjunction with other allegations in order to understand the claim as a whole. Such is the case with paragraphs 64, 68 – 70, and 73. As they are necessarily included to support the claims made, they are not ordered struck.

Costs

[50] If the parties cannot agree on costs, either party may, within thirty days of the release of these reasons, apply to the trial coordinator for an appointment to argue costs, failing which costs will be deemed to be settled. Mr. Leon has leave to appear by teleconference if so advised.

Regional Senior Justice H.M. Pierce

Released: September 22, 2014

COURT FILE NO.: CV-13-0385

DATE: 2014-09-22

ONTARIO
SUPERIOR COURT OF JUSTICE