COURT FILE AND PARTIES

COURT FILE NO.: CV-11-424111

DATE: 2014/12/19

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: FONTANA, RUI et al, Plaintiffs/Responding Parties

AND:

BLANDORD SQUARE DEVELOPMENTS et al., Defendants/Moving Parties

BEFORE: MASTER RONNA M. BROTT

COUNSEL:
Alistair Riswick, for the Plaintiffs

Stephen Schwartz, for the Defendants Vincorp Financial Ltd. and Salvatore

HEARD: November 6, 2014

ENDORSEMENT

[1] The defendants Vincorp Financial Ltd. (“Vincorp”) and Vincent P. Salvatore also known as Vincent Salvatore (“Salvatore”) bring this motion for the following relief:

i. Leave to amend their statement of defence to assert a counterclaim against the plaintiffs and a crossclaim against the co-defendant Blandford Square Developments Limited (“Blandford”)

ii. Leave to issue a third party claim against the Calvano Group and the Marignani Group.

[2] Salvatore, a builder and developer of commercial buildings, is the president of Vincorp, a family holding company for the Salvatore family.

[3] Salvatore incorporated the co-defendant Blandford in 2002 to acquire 192 acres of property. The Salvatore “family trust” was the owner of Blandford. A purchase money mortgage to acquire the property was granted by Blandford to Joseph Paradiso in trust. Mr. Paradiso explained to each investor that they would receive a proportionate beneficial interest in the principal. Further, each investor would receive a monthly interest payment of 10% on the amount which each investor had advanced. The mortgage (“the first mortgage”) was registered against title on August 7, 2002. There were a number of investors in the syndicated mortgage.

[4] On December 30, 2003 the family trust sold all outstanding shares of Blandford to First Summit Shopping Centres for the purchase price of $14,000,000. Vincorp was granted a vendor take back mortgage in the sum of $9,000,000 (“the second mortgage”), wherein he agreed to make payments due to the investors under the first mortgage.

[5] On August 3, 2006 the property was expropriated and title was transferred to the Corporation of the County of Oxford (“County of Oxford”). When the property was expropriated, the County of Oxford offered to pay to Blandford the sum of $4,200,000. Vincorp and Salvatore submit that the property’s estimated value at that time was $14,650,000. As the amount offered by the County of Oxford was not enough to satisfy the outstanding balances of the mortgages, Vincorp and Blandford commenced proceedings against the County of Oxford and the Corporation of the City of Woodstock alleging that the expropriation was improper. On April 30, 2014 Justice Horkins found the expropriation of the property to be lawful. The decision is under appeal.

[6] After the expropriation, monthly interest payments were made to the investors by Vincorp Financial Ltd. and/or Vincorp Holding Ltd. According to Salvatore, each of the investors received interest payments of 10% on the amounts of their investments in the Blandford mortgage up to June 2009.

[7] The statement of claim in this action was issued by Mr. Paradiso in April 2011. He named himself as a plaintiff as he was the trustee of the first mortgage. On September 20, 2011, an application was brought by most of the investors to remove Mr. Paradiso as trustee. Justice Mullins replaced Mr. Paradiso with the current plaintiffs as trustees. Vincorp and Salvatore delivered a statement of defence on October 14, 2011. Vincorp alleges that it was one of the investors in the first mortgage. Blandford delivered its statement of defence on March 6, 2012.

[8] After examinations for discovery were conducted in July 2013, the plaintiffs amended the Statement of Claim to delete a paragraph pleading that Vincorp had invested $1,075,276 in the first mortgage. No amended statement of defence was delivered.

[9] A Request to Admit facts and documents was served by the plaintiffs on January 3, 2013. No response to the Request to Admit has ever been served by any of the defendants.

[10] The defendants seek leave to amend their statement of defence. They did not bring a motion to withdraw admissions, despite their failure to respond to the plaintiffs’ Request to Admit. Further, the defendants’ proposed pleading is a Fresh as Amended Statement of Defence and counterclaim and crossclaim – not simply an Amended Statement of Defence and Counterclaim and Crossclaim.

[11] Vincorp alleges that it holds an interest in the remaining principal balance of the first mortgage. It also alleges that while it made interest payments to the investors, it never paid itself interest on account of its share of the first mortgage. It seeks to now amend the statement of defence to advance that claim.

[12] Vincorp also alleges that as there is no privity of contract between it and the first mortgagee, it assumed no responsibility to make payments thereunder. As well, it alleges that when the property was expropriated all encumbrances were discharged, including the first mortgage. Therefore it submits that there can be no liability on the part of Salvatore as guarantor, to the first mortgagee. Even if there is an outstanding balance, Salvatore seeks to amend to plead that the first mortgage is deemed to be fully paid, satisfied and discharged.

AMENDMENTS SOUGHT

Statement of Defence

[13] At paragraph 1 of the Fresh as Amended Statement of Defence, cross-claim and counterclaim of Vincorp Fiancial Ltd. and Vincent P. Salvatore (“the proposed pleading”) the defendants admit “the first part of paragraph 19 of the Statement of Claim. Paragraph 19 of the Statement of claim states:

“The plaintiffs claim against Salvatore is on the Guarantee he agreed to in both of the charges referred to in paragraph 6(a) and 6(b) herein.”

[14] As the proposed pleading only admits the reference to paragraph 6(a), the defendants are admitting only that the claim is based on a mortgage. Salvatore does not admit in the proposed pleading that he is a guarantor. That fact was deemed by the defendants to have been admitted based on the Request to Admit. The defendants may not now withdraw the admission under the guise of an amendment. The proposed paragraph is therefore struck.

[15] Paragraphs 16, 28, 29 and 30 of the proposed pleading plead that the individuals referred to as “the Calvano” group advanced funds over time to Vincorp. In the Request to Admit, the plaintiffs stated that the loans were made to Blandford and NOT to Vincorp. Again, the proposed paragraphs are the subject of deemed admissions due to the defendants’ failure to reply to the Request to Admit. The proposed amendments again seek to withdraw admissions and must therefore be struck.

[16] At paragraph 25 of the proposed pleading the defendants plead that “Vincorp holds an interest equivalent to the remaining principal balance of the First Mortgage…(of) $1,880,279.00”. The defendants assert that this paragraph simply explains the amount owing. Again, because the defendants have failed to respond to the Request to Admit, and because the amounts owing to the other investors are deemed admissions, then the specific amount pleaded by the defendants cannot be precise. The defendants may plead only that the defendants are entitled to the balance, if any, available after all of the investors take their respective shares.

[17] The defendants request an accounting at paragraph 41. The defendants submit that they are entitled to an accounting from June 2009 to date because there must be a determination made as to how much money is owing and how it is to be divided.

[18] This is a straightforward claim under a mortgage. To request an accounting is completely unnecessary. An accounting is not a defence to a mortgage action. Further, as stated above the amounts owing to the various investors are deemed to have been admitted.

[19] At paragraph 42 the defendants claim legal and equitable set-off. The plaintiffs submit that neither is a valid defence to a claim under the mortgage. If Salvatore is found to be liable under the guarantee, then there is no defence of legal or equitable set-off. It may be that the defendants may be successful in collecting from others in due course, (possibly the Calvano Group or the County of Oxford), but that reconciliation comes later. At this stage, within this mortgage action, any set-off is premature.

Counterclaim

[20] The defendants seek “an accounting of the proportional share of each investor in the First Mortgage together with an accounting of the amount sought by the plaintiff…and judgment against the plaintiffs in the amount determined by this Honourable Court to be due and owing to the defendants after a completion of the accounting…”.

[21] This is an action by the trustees of the mortgage. The amounts advanced by each participant have been admitted. The investors are not parties to this action. It is the trustees’ responsibility to collect the funds owing from any parties who are liable to pay under the mortgage. Vincorp paid each investor 10% interest on the stated amounts to June 2009. The individual investors are not parties to this action and should not now be required to give proof of the amounts which they advanced for the funding of the Blandford mortgage. Such a request is completely contrary to Rule 1.04 of the Rules of Civil Procedure.

Crossclaim

[22] The plaintiffs are not opposed to the proposed amendments with respect to the crossclaim.

Third Party Claim

[23] Rule 29.01 states:

A defendant may commence a third party claim against any person who is not a party to the action and who,

(a) is or may be liable to the defendant for all or part of the plaintiff’s claim;

(b) is or may be liable to the defendant for an independent claim for damages or other relief arising out of,

(i) A transaction or occurrence or series of transactions or occurrences involved in the main action, or

(ii) A related transaction or occurrence or series of transactions or occurrences; or

(c) should be bound by the determination of an issue arising between the plaintiff and the defendant.

[24] The defendants submit that the Third Party claim arises from a series of agreements between the Third Parties Marignani, the Calvano Group and Vincorp. The Calvano group allegedly loaned money to Vincorp with a portion of its security interest being its interest in the first mortgage. On June 29, 2007, the owner of a property in Beachville, Ontario granted a mortgage to Vincorp. Vincorp transferred 66% of its interest in the Beachville mortgage to Felice Marignani, P & M Construction Ltd. and F.M. Plastering Co. Ltd. By agreement dated June 10, 2008 Vincorp pledged its remaining 33% interest in the Beachville mortgage to the Calvano Group as security for loans granted by the Calvano Group to Vincorp. On November 7, 2012 the Calvano Group and the Marignani Group sold the Beachville property under power of sale for $615,490.00.

[25] Vincorp asserts that the Calvano Group and the Marignani Group should not have sold the Beachville property. Vincorp alleges that the Calvano Group and the Marignani Group owe Vincorp its share of the Beachville mortgage. Vincorp asserts that because the security which it provided for the mortgage which is the subject matter of this action, was an assignment of its Beachville interest, the third party action is proper.

[26] The principal issue in the proposed third party claim appears to be whether the property was sold improperly by the persons to whom Vincorp assigned its mortgage. The defendants submit that the improvident sale of Beachville would result in a set-off for Vincorp in the main action which goes directly to the issue of the potential liability of Vincorp in the main action. Whether the sale was or was not improvident has nothing to do with this action where the issue is to determine who owes approximately $6 million to the trustees. In the proposed third party claim Vincorp did not plead any facts in support of the claim other than repeating and relying upon the allegations in its statement of defence, counterclaim and cross-claim. It does not include a claim for indemnity. It is open to Vincorp to commence a separate action against Calvano and Marignani with respect to the alleged improvident sale. It is noteworthy that up to this point in time, Vincorp never commenced a separate action claiming its alleged residual interest in the Beachville mortgage nor any claim that the property was sold improvidently.

[27] The main action is a claim under a mortgage which was put into effect in 2002 and which went into default in 2009. The events giving rise to the proposed third party claim occurred in 2012. The proposed third party claim involves a completely different property (ie. Beachville) and has no connection to the Blandford mortgage.

[28] Simply because Vincorp gave its interest in the Beachville mortgage as security, that does not translate into it becoming a ‘related transaction’. The Beachville mortgage is a completely separate mortgage involving different parties.

[29] There is also another critical factor. The solicitor who acted on behalf of the selling parties in the Beachville transction is a partner of plaintiff’s counsel. If leave is granted for the proposed third party claim it is very possible that the defendants would then move to disqualify plaintiffs’ counsel which would unquestionably result in prejudice to the plaintiffs.

[30] In my view, the true intent of the proposed third party claim is to delay this action and to provide to Mr. Salvatore some strategic leverage to attempt to negotiate the various claims. As the majority of the investors for whom the plaintiffs/trustees are acting are elderly, any delay amounts to prejudice.

[31] The court must protect the plaintiffs’ claims from prejudice or unnecessary delay while weighing that with the defendants’ interests, taking into account a variety of factors. The motion to amend the Statement of Defence and counterclaim and for leave to issue a third party claim is hereby dismissed. The defendant’s motion to amend the statement of defence to include a crossclaim is, on an unopposed basis, granted.

[32] The parties shall attempt to agree on the issue of costs within 30 days. In the event that they are unable to reach an agreement, the plaintiffs shall within 45 days serve and file a Costs Outline and brief (1 – 2 pages) costs submissions. The defendants shall respond by delivering a Costs Outline and brief (1 – 2 pages) submissions within 15 days following receipt of the plaintiffs’ submissions. Any Reply requires leave of the Court.

MASTER RONNA M. BROTT

Date: December 19, 2014