Cavaliere v. BMO Nesbitt Burns Inc., 2015 ONSC 2078

CITATION: Cavaliere v. BMO Nesbitt Burns Inc., 2015 ONSC 2078

COURT FILE NO.: CV-11-00421360

MOTION HEARD: 20150204

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Giuliana Cavaliere, Plaintiff

AND:

BMO Nesbitt Burns Inc., The Bank of Montreal and Gregory Rao, Defendants

BEFORE: Master McAfee

COUNSEL: E. Bisceglia, Counsel for the Moving Party, the Plaintiff

J. Devereux and I. Schrager, Counsel for the Responding Parties, the Defendants BMO Nesbitt Burns Inc., The Bank of Montreal

HEARD: February 4, 2015

REASONS FOR DECISION

[1] This is a motion brought by the plaintiff for leave to amend the amended fresh as amended statement of claim in the form of the further amended fresh as amended statement of claim (latest version of proposed pleading found at tab 1 of the factum of the plaintiff). The defendants BMO Nesbitt Burns Inc. and the Bank of Montreal consent to certain relief and oppose certain relief.

Relief on Consent

[2] On consent, leave is granted to amend the amended fresh as amended statement of claim in the form of the further amended fresh as amended statement of claim with respect to the following proposed amendments:

(a) At paragraph 1(c) save that “Defendants” shall now read “Defendant, BMO Nesbitt Burns Inc.”;

(b) At paragraph 6;

(c) At paragraph 8;

(d) At paragraph 10;

(e) At paragraph 13;

(f) At paragraph 14;

(g) At paragraph 15 save that the words “and/or BMO” shall be deleted;

(h) At paragraph 16 save that the words “and/or BMO” shall be deleted;

(i) At paragraph 17 save that “Defendants were trustees and/or constructive trustees” shall now read, “Nesbitt was trustee and/or constructive trustee”;

(j) At paragraph 18 save that “Defendants have” shall now read “Nesbitt has” and “Defendants were” shall now read “Nesbitt was” and “Defendants are” shall now read “Nesbitt is”;

(k) At paragraph 20;

(l) At paragraph 21;

(m) At paragraph 22;

(n) At paragraph 22a save that BMO and/or” “and/or BMO” and “or BMO” shall be deleted;

(o) At paragraph 23;

(p) At paragraph 26;

(q) At paragraph 28;

(r) At paragraph 66(g);

(s) Heading above paragraph 89;

(t) Heading above paragraph 94; and,

(u) At paragraph 114.

[3] On consent, the following proposed amendments in the further amended fresh as amended statement of claim are withdrawn:

(a) At paragraph 5;

(b) Heading above paragraph 50;

(c) At paragraph 50;

(d) At paragraph 51;

(e) At paragraph 52;

(f) At paragraph 53;

(g) At paragraph 54;

(h) At paragraph 54(a);

(i) At paragraph 87; and,

(j) At paragraph 92.

[4] On consent, leave is granted with respect to the amendments set forth at paragraph 2 above, without prejudice to pleading any limitation period defence.

[5] On consent, the costs of those amendments consented to shall be in the cause.

Opposed Relief

[6] The proposed amendments at paragraphs 30 to 49 and at paragraph 66k are opposed.

[7] Rule 26.01 of the Rules of Civil Procedure provides,

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[8] In Kang v. Sun Life Assurance Co. of Canada, 2011 ONSC 6335, [2011] O.J. No. 4792 (Ont. S.C.J.) Justice Perell summarizes the law of pleadings at paragraphs 70 and 71, which law I have applied in determining whether to grant leave with respect to the contested proposed amendments.

[9] In applying the rules, I am also mindful of the requirement of proportionality at Rule 1.04(1.1) of the Rules of Civil Procedure.

Proposed amendments at paragraphs 30 to 49

[10] At the heart of the litigation is the issue of the broader fraud committed by Rao and how such a fraud was committed under the control, supervision and governance of the responding defendants (see amended fresh as amended statement of claim, paragraphs 7, 35, 36 a, b, f, i, j). The plaintiff argues that the proposed pleadings are necessary for the proper adjudication of the issue of the BMO defendants’ role and liability in connection with the Rao fraud. The basis for the proposed amendments is taken in part from the Charlton affidavit produced by the responding defendants.

[11] The plaintiff relies on the decision of Justice Allen in Caporella v. BMO Nesbitt Burns Inc., 2010 ONSC 6738, [2010] O.J. No. 5376 (Ont. S.C.J.) at paragraphs 20 and 21 which state in part,

21 It is clear from the case law that the determination whether a pleading ought to be struck depends very much on the facts of the particular case. It depends on the factual context whether the additional factual enquiry that could result from allowing the impugned pleading will unnecessarily increase costs and expand the proceedings. The court must in each case undertake a balancing of the added complexity created by allowing the pleading against the potential relevance or probative value of the alleged facts. I do not agree with Nesbitt that whether or not Rao defrauded other clients is irrelevant to establishing Nesbitt’s negligence in relation to Rao’s dealings with Caporella.

22 There is certainly a good likelihood the allegation of Rao’s fraud against other Nesbitt clients if allowed to stand will increase the scope and complexity of the discovery process and the trial. However, I find the additional facts have some relevance and are potentially probative of Nesbitt’s negligence in relation to Rao as part of an alleged systemic failure of Nesbitt’s supervisory and compliance systems.

[12] The responding defendants oppose the proposed amendments at paragraphs 30 to 49 on the basis that the proposed pleadings do not constitute material facts, are pleadings of evidence and the probative value does not outweigh the prejudicial effect.

[13] The responding defendants rely on the decision of Justice Pepall in Javitz v. BMO Nesbitt Burns Inc., 2011 ONSC 1332, [2011] O.J. No. 877 (Ont. S.C.J.). Javitz arose out of a motion to strike the plaintiff’s pleading which contained various allegations against the defendants relating to fraudulent activities of Rao in accounts held by other customers of the defendants. In striking those portions of the pleadings that related to other customers, Her Honour states, “[a]n examination of the circumstances of each fraud and what Nesbitt knew of each of them and disclosure of detailed, confidential financial information of other Nesbitt customers would be required.”

[14] Unlike the circumstances in Javitz, the within plaintiff confirms that she does not seek to amend her statement of claim for the purpose of requesting the names or information relating to other customers who were also defrauded by Rao.

[15] The plaintiff’s proposed amendments support the plaintiff’s existing action against the defendants in negligence and otherwise and in my view are necessary for the court to consider the bigger issue in the lawsuit which is how was it possible that this fraud was committed while under the watch of the responding defendants and what deficiencies in the defendants’ organizations may have caused or contributed to the fraud. Although the pleadings were struck in Javitz, Justice Pepall acknowledged that some inquiry related to the broader fraud would still be permitted (see Javitz at para 32).

[16] The responding defendants also rely on the decision of Justice Molloy in Brodie v. Thompson Kernaghan & Co., [2002] O.J. No. 1850 (Ont. S.C.J.). Brodie was a motion under Rule 21 to dismiss the action against two defendants for failure to disclose a cause of action. Although certain pleadings were struck, Justice Molloy did find that history of past complaints had potential relevance to the negligence claim and claim for punitive damages (Brodie at para 27).

[17] I am satisfied that these proposed pleadings do constitute material facts and are not pleadings of evidence. The responding defendants argue that because the events pleaded in these paragraphs post-date the fraud, they cannot constitute material facts for the cause of action. However, the responding defendants concede that the proposed pleadings are relevant to the claim for punitive damages. I am satisfied that the probative value outweighs any prejudicial effect. The forensic work has been conducted (see Charlton affidavit). While the proposed amendments will increase the scope and complexity of the discovery process and the trial, the additional facts are relevant and are potentially probative of negligence in relation to Rao as part of an alleged systemic failure of supervisory and compliance systems. I am satisfied that the granting of leave with respect to the proposed amendment is proportionate within the meaning of Rule 1.04(1.1) of the Rules of Civil Procedure.

[18] Leave is granted with respect to the proposed amendments at paragraphs 30 to 49.

Proposed amendment at paragraph 66k

[19] The plaintiff argues that the proposed amendment at paragraph 66k is a further particular of the alleged negligence of Nesbitt.

[20] The responding defendants oppose the proposed amendment at paragraph 66k on the basis that the proposed pleading would expand the scope of the claim, is overly broad, will not assist in the litigation in a meaningful way and is a pleading of evidence.

[21] I am satisfied that the proposed amendment at paragraph 66k is a further particular of the alleged negligence of Nesbitt and is not a pleading of evidence. The pleading is not overly broad. I am satisfied that the granting of leave with respect to the proposed amendment is proportionate within the meaning of Rule 1.04(1.1) of the Rules of Civil Procedure.

[22] Leave is granted with respect to the proposed amendment at paragraph 66k.

Costs

[23] The parties agree that if they are unable to resolve the issue of costs with respect to the contested amendments, these costs would be addressed at the return of the long motion for refusals.

Master McAfee

Date: May 11, 2015