CITATION: Mattar v. Dahnoun, 2015 ONSC 3803

COURT FILE NO.: 13-57506

DATE: June 11, 2015

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NASSIF MATTAR, Plaintiff

AND:

HASSAN DAHNOUN, Defendant

BEFORE: MASTER MACLEOD

COUNSEL: Miriam Vale Peters, for the Defendant, moving party

John D. Dempster, for the Plaintiff, responding party

HEARD: May 19th, 2015

ENDORSEMENT

[1] Mr. Mattar and Mr. Dahnoun are former joint investors in real estate. They have an issue. It is simply this. When Mr. Dahnoun paid Mr. Mattar $195,000.00 in 2012 was it the final adjustment of all amounts owing between them or was it instead only the amount owing for one of two pieces of real estate? This has been the issue for the past three years and throughout the litigation as currently framed. Now Mr. Dahnoun seeks to resile from his position and add new issues. He wishes to plead that Mr. Mattar was overpaid and must repay Mr. Dahnoun close to half of that money. Should he be allowed to do so?

[2] For the reasons that follow the motion by the defendant (to amend his statement of defence, to withdraw admissions and to add a counterclaim) is dismissed. Had the motion been granted, it would have required significant costs compensation to the plaintiff but in my view costs would be insufficient. The relief sought by the defendant at this stage in the litigation would result in prejudice that cannot be remedied in costs alone.

Background

[3] The background is as follows. In 2000 the parties purchased a home at 1106 Cyrville Road (“Cyrville”). Mr. Dahnoun and his family subsequently lived in that property but the title was registered in a corporation owned by the plaintiff. In 2004 the title to Cyrville was transferred to Mr. Dahnoun. At the same time, using funds raised by mortgaging Cyrville, the parties purchased a triplex at 1196 Rainbow Rd. (“Rainbow”). Rainbow was registered in the name of Mr. Mattar though it was later registered in both names.

[4] The transactions leading up to this result can be described in greater complexity and detail. The important fact is that both parties held a 50% beneficial interest in each property regardless of the registered title. On this they agree.

[5] When Mr. Dahnoun sold the Cyrville property in August of 2011 the property sold for $575,000.00. Nothing was paid to Mr. Mattar at that time. Mr. Dahnoun then moved into the Rainbow property. In approximately April of 2012 Mr. Dahnoun paid Mr. Mattar the sum of $195,000.00 and Mr. Mattar then transferred his interest in Rainbow to Mr. Dahnoun.

[6] The dispute is this. Mr. Dahnoun believes the payment along with an earlier payment of approximately $29,000.00 was a full and final payment for all of Mr. Mattar’s interest in both properties. Mr. Mattar however believes it was only payment for his half interest in the Rainbow property. He believes he is still owed money for his interest in Cyrville which he asserts should be 50% of the adjusted net proceeds of sale. The amount claimed by Mr. Mattar is $175,000.00 (which is slightly less than the amount in the statement of claim).

[7] This litigation was commenced on May 1st, 2013. At that time Mr. Dahnoun was represented by counsel. A statement of defence was delivered on June 7th, 2013. As is apparent from the affidavit filed in support of this motion there was an earlier draft of this pleading approved by Mr. Dahnoun with a minor addition (at tab 2b of the record).

[8] The defence set out in great detail the defendant’s version of events. Importantly that pleading contains a number of admissions. One of the most significant of those admissions is the admission by Mr. Dahnoun that in calculating the profit on the sale of Cyrville the balance on the mortgage should be taken as being $200,000.00 because the additional funds were borrowed by Mr. Dahnoun to reimburse himself for money spent in renovating the Rainbow property and were for his benefit alone. He goes on to acknowledge that the “remaining proceeds is $350,000 from the sale of the Cyrville property [sic]” and those proceeds were to be equally divided so that “would leave each party with $175,000.00 each”.

[9] The defence then asserts that the equity on the Rainbow property was only $95,000.00 so that the defendant owed the plaintiff $47,500.00 for his interest in Rainbow. Mr. Dahnoun asserts that he paid the plaintiff $29,000.00 in 2009 as an advance against the eventual purchase of Rainbow. Together with the $195,000.00 paid on closing, this is a total of $224,000.00 “representing the proceeds of sale for the Cyrville property and for the purchase of the Plaintiff’s 50% interest in the Rainbow property”.

[10] In July of 2013 Mr. Dahnoun filed a notice of intention to act in person. He then brought a motion to remove Mr. Dempster from the record. This motion was heard by Justice Belch in November of 2013 and was dismissed with costs. Justice Belch also ordered that the action be case managed.

[11] On February 25th, 2014 at a case conference, Mr. Dahnoun indicated that he wished to amend the statement of defence to add a counterclaim. There was however no draft pleading. The court ordered the defendant to provide a proposed pleading to the plaintiff and if it was to be opposed to bring a motion by the end of April.

[12] The parties appeared for a further case conference in June of 2014. By that time a proposed pleading had been provided in draft form. That document appears at Tab E of the responding motion record. Although it contained a draft counterclaim and added various particulars of financial dealings between the two partners, that document contained virtually all of the same admissions contained in the original pleading. The proposed amendments would have added more details to the pleading but would not have fundamentally altered the factual narrative or the issue in dispute.

[13] What happened at that case conference is important. Mr. Dempster indicated that he could not accept the proposed amendments because in his view they did not comply with Rule 25 and he could not understand the basis for the proposed counterclaim. He also stated that he felt it would be a waste of time to argue a contested pleading amendment motion. After discussion, Mr. Dahnoun confirmed that his position remained that when he paid $195,000.00 to the plaintiff it was in full and final settlement of all funds owed to the plaintiff. He advised that it was not his position the plaintiff owed him money but he wanted to add the details about various amounts he had paid over the years and to show that the plaintiff had failed to repay him his share of those expenses. He intended to use those facts as evidence to demonstrate why it was both fair and reasonable the $195,000.00 was full and final settlement.

[14] Ultimately it was agreed that the dispute boiled down to two questions of fact. Firstly was the $195,000.00 paid by the defendant only payment for the Rainbow property or was it payment for both? It would follow from the pleadings that if it was only payment for Rainbow, the plaintiff was still owed $175,000.00 for Cyrville. The second issue was whether the plaintiff was paid in full assuming the intention was to buy out both properties? The answer to those questions would have depended on whether or not there was a final and binding agreement on the one hand and on the proper value to be attributed to Rainbow and perhaps Cyrville on the other. It was agreed that rather than debate the form of the pleadings, the action should proceed as a trial of those two issues. On that basis the court made several disclosure orders, the pleading amendment motion (scheduled for June 26th, 2014) was abandoned, and the parties proceeded to discovery.

[15] The subsequent case conference held on September 11th, 2014 was quite adversarial. Mr. Dahnoun was extremely upset that Mr. Dempster had interfered with his attempt to discover the plaintiff by either objecting to questions or by answering for the plaintiff. On the other hand Mr. Dahnoun was refusing to produce a relevant appraisal he had obtained because he had paid for it. The parties were reminded of the order made in June for trial of two issues, directed to consider relevance in relation to those issues, and a further case conference was scheduled for January of 2015.

[16] In January Mr. Dahnoun appeared with counsel. Ms. Vale-Peters advised the court she wished to amend the defence and to consider whether or not the trial of the two defined issues remained appropriate. A proposed amendment was circulated and was not accepted by the plaintiff. In February of 2015 this motion was scheduled. It was argued on May 19th.

[17] The proposed “Fresh as Amended Statement of Defence and Counterclaim” appears at Tab 2g of the motion record. The pleading seeks to recast the entire matter. Although still pleading that the defendant paid the plaintiff $195,000.00 on or about April 23, 2012 for half of the proceeds of sale of the Cyrville property and to purchase the plaintiff’s interest in the Rainbow property, the proposed pleading asserts that this was an overpayment. The defendant seeks recovery from the plaintiff of $78,623.72 for either breach of contract or unjust enrichment. To reach this conclusion he relies on a series of financial transactions going back to 2004. He alleges the plaintiff repeatedly agreed to pay a share of certain costs and expenses incurred by the defendant and breached those agreements. I cannot help but wonder why they continued to do business together and purchased a second property if that is the case. There is no explanation of that in the proposed pleading.

The legal test

[18] Rule 26.1 deals with pleading amendments. Essentially the rule requires the court to grant amendments at any stage in the proceedings providing the amendment does not create prejudice for the other party that cannot be remedied in costs. The clear intent of this rule is that parties not be trapped by their pleadings. This is in keeping with the general principle in our rules that substance and not form is important and that cases should be decided on their merits and not on technicalities.

[19] Although the mandate to grant amendments is therefore broad it is not unlimited. Amendments will be refused if, for example, the proposed amendment is not a proper pleading since it makes no sense to allow the amendment under one rule and then to strike it out under another. Amendments will also be refused if they can be shown to be an abuse of process or if the amendment seeks to add a cause of action beyond the expiry of a limitation period.[^1]

[20] Nor are pleading amendments free of consequences. Though the pleading amendment must be granted if the prejudice can be remedied in costs, it follows that significant cost consequences may flow from a pleading amendment that results in wasted costs or duplication of work. In the case at bar, for example, now that the defendant is represented once again, it would not be surprising if his new counsel wished to amend the defence. A reconstituted defence might in turn require revisiting the question of trial of an issue but in that case the plaintiff would correctly argue that a year had been wasted pursuing narrower issues and much of the work done during that period would have to be redone. In particular much of the time spent at case conferences and in discovery might be wasted. Thus even if the amendment was granted, the court would award costs to the plaintiff to compensate for the prejudice of wasted legal fees, wasted time and delay.[^2]

[21] Rule 26.1 cannot be read in isolation. For example if the pleading amendment proposes to add a party then Rule 5.04 is the governing rule and not 26.01. The test under the latter rule is discretionary rather than mandatory.

[22] For purposes of this motion, the most critical rule is Rule 51.05. That rule requires that leave be obtained for the withdrawal of an admission made in a pleading or made in response to a request to admit. The rules encourage parties to make admissions to narrow the issues in dispute. Once an admission has been made it cannot be lightly withdrawn. Rule 51.05 does not contain the same presumption as Rule 26.01.[^3]

[23] The test for a pleading amendment under Rule 51.05 as approved by the Court of Appeal is as follows:

a. The proposed amendment must raise a triable issue;

b. The admission must have been inadvertent or have resulted from wrong instructions; and,

c. The withdrawal must not result in prejudice which cannot be compensated for in costs.[^4]

Analysis

[24] It has been the position of the defendant throughout this litigation that he and the plaintiff arrived at a final settlement in 2012 when he made a final payment of $195,000.00. The defendant wishes to set out in detail why that was fair and asserts that together with an earlier $22,000 “deposit” this final payment should actually be regarded as “a total sum of $224,000.00”. However the number was calculated, it has always been his position that the payment of $195,000.00 was a final payment to end all obligations between the parties. This continues to be his evidence given under oath.[^5] It is contrary to his own evidence on this point as well as the current pleading and his two previous draft pleadings to now permit him to amend the pleading to eliminate any reference to a settlement and release. Although the pleading rules in Ontario do not require a party to swear that they are true and parties may plead a theory in the hope that the evidence subsequently supports the allegation, it is clearly an abuse of process to plead a fact the party knows to be untrue or inaccurate. Similarly a party should not be permitted to amend a pleading to make it less accurate or more vague. Mr. Dahnoun’s narrative from the beginning has been that he believed he was paying the final payment of $195,000.00 in full and final settlement of all obligations between the parties. He asserts that Mr. Mattar knew this and agreed to it. He confirms this under cross examination. He should not be allowed to amend the pleading to assert something different.

[25] It must be conceded that the pleading of a $195,000.00 settlement is not technically an admission. This is because the plaintiff’s position in the statement of claim is different. The plaintiff alleges that the $195,000.00 was a full and final settlement for his interest in Rainbow but not for his half share of Cyrville. It is however fundamentally untenable and unfair to now permit the defendant to assert a position that ignores his own evidence and ignores the fact that there was some kind of agreement under which he at least intended to put all matters to rest.

[26] Another specific admission which Mr. Dahnoun’s counsel now seeks to withdraw is the admission in paragraph 29 of the existing defence that “the outstanding mortgage of the Cyrville property should be $200,000.00 as alleged in the Plaintiff’s statement of claim.” In her factum Mr. Dahnoun’s counsel suggests that this admission was inadvertent and was a misunderstanding by his original counsel. That is not accurate. In fact the evidence is to the contrary. The pleading does not assert that the mortgage was actually $200,000.00. Both parties understand that the balance was much more than that because the defendant had borrowed additional funds on the Cyrville mortgage to cover renovation costs for the Rainbow property. This is apparent from paragraph 20 of the original defence and also from paragraph 6 of the statement of claim.

[27] The admission was clearly advertent and considered. It appeared in the first draft of the claim sent by his then lawyer and approved by him with minor amendments. It was repeated in Mr. Dahnoun’s own previous iteration of a proposed pleading amendment last year. The admission is not that the mortgage was $200,000.00 but rather that any amount over $200,000.00 consisted of funds borrowed for Mr. Dahnoun’s sole benefit. There was no confusion on this point. It is not reasonable to permit this admission to be withdrawn.

[28] There are numerous other admissions contained in the original statement of defence and repeated in the two drafts which are in evidence. Most of these are absent in the proposed fresh as amended defence and counterclaim.

[29] One difficulty with which I am faced is the fact that the original statement of defence is probably non compliant with Rule 25. The rules on pleading provide that a pleading is to contain a statement of the material facts on which the party relies but not the evidence by which those facts will be proven. Conclusions of law may be pleaded but only if the facts in support of the legal conclusion are in the pleading. Mr. Dempster did not move against the original pleading. There are many reasons why the opposing party might prefer not to challenge the form of a pleading. One reason might be to avoid wasting his client’s money improving the pleading. Another might be that it contained detailed evidentiary admissions that would bind the defendant. The plaintiff has relied upon those admissions and relied upon the fact that the defendant’s pleading would bind him to a particular narrative, even if that is a narrative disputed by the plaintiff.

[30] The new proposed pleading is more compliant with Rule 25 because it omits the detailed evidence but in so doing it also omits important admissions. Moreover it recasts the litigation. No longer is Mr. Dahnoun asserting that both parties made a binding and fair agreement that the $195,000.00 settled all issues between them. Now he wishes to say that the plaintiff owes him money and he was mistaken in paying him $195,000.00. The basis of the counterclaim is now a series of allegations concerning a whole series of alleged agreements and breaches going back to 2004. In the new pleading the defendant’s position is that he overpaid the plaintiff and should be reimbursed.

[31] I recognize that there is a gap in the current pleading and I can see the potential need to plead alternative legal conclusions. Both Mr. Mattar and Mr. Dahnoun plead that there was an agreement resulting in the ultimate payment of $195,000.00. They disagree over the terms of that agreement. While the court might find that the agreement is binding and the terms of the agreement are either those alleged by Mr. Mattar or those alleged by Mr. Dahnoun, there is at least one other possibility. A court could find that each party believed the terms of agreement were clear but they each believed they were making a different deal. In that case the court could conclude there was no meeting of the minds and therefore no enforceable agreement. Under those circumstances the agreement might be set aside and the court would have to determine what each party was entitled to for his share of each property.

[32] This potential failure of the contract is a legal conclusion and I suppose it need not be specifically pleaded but I could see an amendment articulating that possibility based on the facts as pleaded. I believe it is encompassed in the issues as framed, however because in the absence of a binding agreement, the critical issue is the valuation of Rainbow. The parties know what Cyrville sold for. If Mr. Dahnoun’s valuation for Rainbow is correct then his calculation that $224,000.00 was fair compensation for both properties is correct. On the other hand if his valuation for Rainbow is dramatically underestimated then that number is neither fair nor reasonable. That is fundamentally how the issues are framed at the moment.

[33] It is not my role to speculate as to what form of pleading amendment might be acceptable and on what terms. My concern at the moment is with the pleading as proposed. As discussed above, this motion must fail.

[34] This is not a bar to a subsequent pleading amendment motion if a mechanism can be found to amend the pleading without withdrawing critical admissions. One possible mechanism would be to draft a pleading that is Rule 25 compliant but to treat the original admissions as if they were contained in a response to request to admit. I am not sure that serves much purpose however. The purpose of the order for trial of issues was to focus the litigation regardless of the form of the pleadings.

Conclusion, disposition and costs

[35] For the reasons given above, leave to withdraw admissions is denied. Leave to amend the defence and add a counterclaim in the form proposed is also denied.

[36] Subject to consideration of any relevant offers to settle, the plaintiff will be entitled to costs of this motion on a partial indemnity scale. Counsel may agree on those costs or may arrange to make submissions in writing within the next 30 days.

Master MacLeod

[^1]: See Plante v. Industrial Alliance Life Insurance Co. (2003) 2003 CanLII 64295 (ON SC), 66 O.R. (3d) 74 (S.C.J. – master)

[^2]: See King’s Gate Developments Inc. v. Colangelo (1994) 1994 CanLII 416 (ON CA), 17 O.R. (3d) 841 (C.A.)

[^3]: Kostruba and Sons Inc. v. Pervez, 2011 ONSC 4894 (S.C.J.)

[^4]: Szelazek Investements Ltd. v. Orzech (1996) 44 C.P.C. (3d) 102 (Ont.C.A.) approving Antipas v. Coroneos (1988) 1988 CanLII 10348 (ON SC), 26 C.P.C. (2d) 63 (Ont. H.C.J.)

[^5]: Cross examination, Q 272 – 280