ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-14-10527-00CL
DATE: 20150731

BETWEEN:

RYAN MITCHELL, THE MITCHELL CONSULTING GROUP, and THE MITCHELL CONSULTING GROUP INC.
Plaintiffs

– and –

ROBERT LEWIS, WENDY LEWIS, GLOBAL LEARNING GROUP INC. also known as GLOBAL LEARNING GIVING INITIATIVE also known as GLGI, GLOBAL LAND CONSORTIUM INC., ARDOCH LAKE DEVELOPMENTS INC., COLONIAL CHEVROLET LTD., 2168368 ONTARIO INC., DIGITAL CONSULTATION MANAGEMENT SERVICES, and 2168368 ONTARIO INC., carrying on business as DIGITAL CONSULTATION MANAGEMENT SERVICES
Defendants

Christopher P. Goldson, for the Plaintiffs

Stephen Brunswick and M. Sokolsky, for the Defendants

HEARD: November 6, 2014

l. a. pattillo j.:

[1] This is a motion by the defendants to strike claims of breach of contract, breach of fiduciary duty, fraud, fraudulent misrepresentation, conversion of funds, conspiracy, unjust enrichment and breach of trust pursuant to rules 21.01(1) (b), 25.06 and 25.11 of the Rules of Civil Procedure as disclosing no reasonable cause of action, being scandalous, frivolous or vexatious and/or failing to plead material facts. The motion encompasses the plaintiffs entire claim.

Background

[2] This action has had a somewhat tortuous history to this point. The Statement of Claim was first issued on April 28, 2014. The solicitors for the defendants served a notice of intent to defend on July 2, 2014 followed shortly by a request to inspect documents and a demand for particulars which the plaintiffs responded to on July 16, 2014.

[3] The defendants commenced their motion to strike all of the eight causes of action in the Statement of Claim by Notice of Motion dated July 24, 2014, returnable September 25, 2014. On September 18, 2014, the plaintiffs served an Amended Statement of Claim which was immediately followed by a further request from the defendants to inspect documents and a demand for particulars arising from the new paragraphs in the Amended Statement of Claim. The plaintiffs’ solicitor then advised the defendants’ solicitor that he would be requesting an adjournment of the September 25, 2014 motion as a result of receiving the defendants’ demand for particulars.

[4] On September 25, 2014, the defendants’ motion came on before me. I granted the plaintiffs’ request for a short adjournment in order to respond to the demand for particulars and in the process spent some time reviewing what I considered to be the deficiencies in some of the causes of action pleaded in the Amended Statement of Claim. As a term of the adjournment, I ordered that the plaintiffs deliver a Fresh as Amended Statement of Claim by October 23, 2014.

[5] On October 23, 2014, the plaintiffs issued a Fresh Amended Statement of Claim (the “Claim”). On November 6, 2014, the defendants’ motion came back on before me. The defendants submit that, notwithstanding the various iterations of the statement of claim, the causes of action as pleaded in the Claim are still manifestly deficient and should be struck, pursuant to rules 21.01(1) (b), 25.06 and 25.11.

[6] The principles applicable on a motion to strike under rule 21.01(1) (b) are well settled: the allegations of fact in the pleading, unless patently ridiculous or incapable of proof, must be accepted as proven; the pleading must be read generously with allowance for inadequacies due to drafting deficiencies; the moving party must show that it is “plain and obvious” and beyond doubt that the plaintiff cannot succeed; and a claim will not be dismissed simply because it is novel. Further, and while no evidence is admissible on the motion (rule 21.01(2) (b)), the motion judge is entitled to consider documents specifically referred to and relied on in the pleading. See: Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959 (SCC); Toronto Dominion Bank v. Deloitte Haskins & Sells (1991), 1991 7366 (ON SC), 5 O.R. (3d) 417 (OCJ General Division).

[7] Rule 25.11 provides that the court may strike out or expunge all or part of a pleading, with or without leave to amend on the ground that the pleading is, among other things, scandalous, frivolous or vexatious or may prejudice or delay the fair trial of the action.

[8] Finally, rule 25.06(1) provides that every pleading shall contain a concise statement of the material facts on which the party pleading relies but not evidence.

[9] Paragraphs 2 to 14 and 65 of the Claim identify the parties and their relationship to one another. In particular, the defendant Robert Lewis (“Robert”) is stated generally to be the “principal, guiding mind, and/or alter ego” of the corporate defendants and specifically a shareholder, president and principal, guiding mind and/or alter ego of the defendant Global Learning Group Inc. (“GLGI”) and the other corporate defendants except Colonial Chevrolet Ltd. (“Colonial”). The defendant Wendy Lewis (“Wendy”) is stated to be Robert’s wife and is also pleaded generally to be a “principal and guiding mind” of the corporate defendants and specifically in relation to GLGI and the other corporate defendants. Wendy is also stated to be a shareholder of Colonial.

[10] In Normat Management Ltd. v. West Hill Redevelopment Co. (1998), 1998 2447 (ON CA), 37 O.R. (3d) 97 (C.A.) at para. 18, the Court of Appeal reaffirmed the well-established principle that the directing mind of a corporation cannot be held civilly liable for the actions of the corporation they control and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity or interest from that of the corporation such as to make the acts or conduct complained of those of the directing mind.

[11] While I will address each of the causes of action specifically, generally speaking, the claims asserted against Robert and Wendy personally suffer from the fact that, having identified them as the directing minds of the defendant corporations, the plaintiffs have failed to plead sufficient material facts to establish that they are personally liable for the acts complained of as opposed to the corporations. That is particularly so in my view, in respect of the allegations against Wendy, which appear primarily towards the end of the claim.

[12] As stated by Perell J. in EnterWorks Inc. v. Glenbarra Energy Solutions Inc., 2012 ONSC 414 (S.C.J.) at para. 90, “It is not enough to say that there is independent misconduct. EnerWorks must actually plead material facts that show independent misconduct. The pleadings must address specifically the cause of action asserted against the personal defendant and why he or she is being sued separate from the corporation.”

[13] The claims asserted against Robert for the most part and Wendy entirely failed to meet the above standard.

Breach of Contract

[14] The plaintiffs plead that they entered into a consulting agreement with GLGI and Robert dated June 23, 2009 (the “Agreement”). Paragraphs 22, 23 and 26 to 36 in the Claim plead the contract and the breach. I am satisfied from the above paragraphs in the Claim that the plaintiffs have adequately pleaded a claim of breach of contract against GLGI.

[15] The Agreement, which was produced pursuant to the initial request to inspect documents, is titled between the plaintiff, The Mitchell Consulting Group on the one hand, and GLGI and “Affiliated Group of Companies” on the other. Nowhere in the Agreement are the “Affiliated Group of Companies” identified. The Agreement is signed by the plaintiff Ryan Mitchell (“Ryan”) for The Mitchell Consulting Group and by Robert for GLGI. Beyond the bald assertion the Agreement was with Robert, the Claim does not plead any material facts that support the claim that Robert entered into the Agreement in his personal capacity as opposed to on behalf of GLGI. Nor is the allegation the Agreement is with Robert supported by the Agreement itself. Accordingly, I am satisfied it is plain and obvious that the breach of contract claim against Robert cannot succeed and it should be struck.

[16] In paragraph 24 of the Claim, the plaintiffs plead that Robert advised Ryan that he would personally guarantee payment of any outstanding amounts to the plaintiffs. In paragraph 66, it is pleaded that Robert and Wendy, among other things, “personally guaranteed” the plaintiffs percentage of revenue due from GLGI. Although it is subsequently referred to in a number of paragraphs in the Claim in relation to other causes of action (paragraphs 40, 41, 66) there is no claim asserted on the guarantee itself. Nor is there any material facts pleaded to support that pleading such as when the guarantee was made. In my view, the paragraph offends rule 25.11(b) and should be struck.

Breach of Trust

[17] In paragraph 25, the plaintiffs plead that on or about November 11, 2011, Robert and Ryan entered into a written trust agreement that provided Robert would hold Ardoch Lake Development Lots 7, 8 and 9 in trust for Ryan as security for monies owed by GLGI to the plaintiffs at that time (the “Trust Agreement”).

[18] In response to the initial request to inspect documents, the plaintiffs produced a document which is a copy of a draft plan of subdivision upon which is written “Ardoch Lake Development, Lots 8 & 9 + 7 held in trust for Ryan Mitchell”. At the bottom, the words “Agreement to Follow” are written followed by the date of November 11, 2011 and what appear to be the signatures of both Robert and Ryan.

[19] In addition to the written Trust Agreement, the Claim also pleads a trust agreement to hold monies owing to the plaintiffs in trust and a breach of that trust by improperly diverting monies from GLGI to the other defendants (paragraphs 37, 38, 39, 41, 44, 45, 51, 52, 66, 67(c) and 70(a)). Paragraph 38 pleads that the funds which were due and owing to the plaintiffs by GLGI were held in trust for the plaintiffs in accordance with the Agreement and the Trust Agreement. Paragraph 39 refers to both the “verbal Trust Agreement” (not defined) and the written Trust Agreement. Paragraphs 51 and 52 allege that the trustees are Robert and GLGI. Later in paragraph 67(c) Wendy is alleged to be a trustee too.

[20] The defendants submit that the plaintiffs have failed to produce any trust agreement supporting the allegations in paragraph 25 of the Claim. They rely on sections 1 and 9 of the Statute of Frauds, R.S.O. 1990, c. S.19 to the effect that a trust in respect of land is unenforceable unless in writing. They further submit that the plaintiffs cannot succeed in equity as they have failed to plead sufficient facts to establish part performance. See: Palkowski v. Ivancic, 2006 CarswellOnt 5025 (Ont. S.C.J.), reversed on other grounds at (2009), 2009 ONCA 705, 100 O.R. (3d) 89 (C.A.).

[21] Given the written Trust Agreement, I do not consider that it is plain and obvious that Ryan’s claim for breach of trust in respect of the three lots cannot succeed. Whether the Trust Agreement is a valid trust agreement and what the terms of the trust are is a matter to be resolved in the action. I would therefore not strike Ryan’s claim for breach of the Trust Agreement.

[22] Absent a written trust agreement, a trust can be created in one of two ways: either from a person’s words or acts or by imposition of law. Waters’ Law of Trusts in Canada, (4th) edition, 2012, Carswell, p. 19. As a result, when asserting a claim for breach of trust, particularly an oral trust, it is important to plead the material facts that give rise to the trust as well as the breach. Even on a generous reading, the Claim does not come close to achieving that requirement in respect of the alleged trust in respect of monies owing by GLGI pursuant to the Agreement.

[23] As noted, the alleged trust with respect to monies owing to the plaintiffs pursuant to the Agreement is alleged to arise from the Agreement, the Trust Agreement and orally. Apart from a general assertion in paragraph 38, there is no allegation that the Agreement provided the monies due were to be held in trust, notwithstanding that the essential terms of the Agreement are pleaded in some detail in paragraphs 22 and 23. The Agreement itself contains no mention of a trust. Nor is there any mention of monies being held in trust in the Trust Agreement.

[24] In respect of the allegations that Robert and Wendy agreed to hold the monies owing under the Agreement in trust, the pleading fails to plead sufficient facts to establish when the trust arose, what its terms were and the basis for Robert and Wendy being personally engaged as opposed to acting on behalf of GLGI. There are no material facts pleaded to support the alleged oral trust. Just bald allegations that GLGI, Robert and Wendy agreed to hold the monies owing in trust. In my view, given the absence of material facts to establish the existence of a trust, the breach of trust claim relating to monies owing under the Agreement cannot succeed and should be struck.

Fraud, Fraudulent Misrepresentation, Conspiracy and Conversion

[25] The plaintiffs’ claims for fraud, fraudulent misrepresentation, conspiracy and conversion are set out in paragraphs 38 to 50 of the Claim. They are all based on the allegation that the defendants “improperly diverted, converted, and/or received, funds from GLGI, which funds were due and owing to, and held in trust for, the Plaintiffs.” (Paragraph 38).

[26] Claims of fraud, fraudulent misrepresentation, conspiracy and conversion are very serious civil torts and must be both strictly pleaded and proved.

[27] The pleading fails to plead the material facts in respect of the actions of each of the defendants in respect of the claims of fraud, fraudulent misrepresentation, conspiracy and conversion. Apart from GLGI, Robert and Wendy, the allegations against the other defendants are merely bald allegations.

[28] The claim of fraudulent misrepresentation is asserted against GLGI, Robert and Wendy and relates to alleged representations that the plaintiffs would be compensated for amounts owing under the Agreement. No specifics are set out as to when the allegations were made, by whom and what they entailed other than general assertions. Specifically, there are no facts to justify a claim against Robert and Wendy in their personal capacity. In my view, the Claim fails to assert the material facts necessary to establish a claim for fraudulent misrepresentation.

[29] There are two types of civil conspiracy: “unlawful conspiracy” in which the defendant’s conduct is unlawful, it is directed against the plaintiff and the defendant knows that injury is likely to result; and “conspiracy to injure” which arises where the predominant purpose of the defendant’s conduct (whether lawful or unlawful) is to cause injury to the plaintiff. See: Ontario Consumers Home Services Inc. v. EnerCare Inc., 2014 ONSC 4154 (S.C.J.) at para. 19.

[30] The conspiracy claim is set out in paragraphs 45, 49 and 50 and is also based on the alleged scheme to improperly divert and convert funds. It asserts that the purpose was to obtain funds for their own benefit to the detriment of the plaintiffs.

[31] In order to plead civil conspiracy, the statement of claim must plead with precision and clarity material facts in respect of:

a) The parties to the conspiracy and their relationship to one another;
b) The agreement between the defendants to conspire, including particulars as to time, place and mode of agreement;
c) The precise purpose or object of the conspiracy;
d) The overt acts alleged to have been done by each of the alleged conspirators in furtherance of the conspiracy, including the time, and place and nature of the acts; and
e) The injury and damage caused to the plaintiff as a result of the conspiracy.

Ontario Consumers Home Services, supra, at para. 24.

[32] The pleading of conspiracy in the Claim fails to set forth material facts in respect of all of the above requirements. As a consequence, it fails to disclose a cause of action in conspiracy and should be struck.

[33] The plaintiffs’ claim for conversion is set out in paragraphs 38, 41 44 of the Claim. It is based on the allegation that the defendants GLGI, Robert and Wendy “converted” funds held in trust for the Plaintiffs and owing to the Plaintiffs, to the other Defendants.” (Paragraph 44).

[34] Apart from the fact that, as with the other tort claims, the plaintiffs have failed to plead the material facts necessary to establish a cause of action for conversion, as I have struck the trust claim relating to monies owing to the plaintiff, it is plain and obvious that the claim for conversion cannot succeed. Any monies owing to the plaintiffs pursuant to the Agreement are a debt. The plaintiffs have no propriety interest in the monies such that their use for other purposes cannot amount to conversion. The claim for conversion should therefore be struck.

Unjust Enrichment

[35] Paragraphs 53 to 64 of the Claim deal with the plaintiffs’ claim for unjust enrichment. The facts alleged in support of the claim also relate to the alleged diversion of monies from GLGI to the other defendants, particularly Robert and Wendy.

[36] The essential elements of a cause of action for unjust enrichment are: an enrichment of the defendant; a corresponding deprivation of the plaintiff; and the absence of any juristic reason for the enrichment. See: Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261 (S.C.C.).

[37] The plaintiffs claim for unjust enrichment is based on the allegation that they have been deprived of monies held in trust for them to benefit of the other defendants. As I have struck the claim that those monies were held in trust for the plaintiffs, the plaintiffs claim against GLGI is for breach of the Agreement. As with the claim of conversion, the plaintiffs have no proprietary interest in the monies. As a result, any diversion of monies from GLGI cannot constitute a deprivation of the plaintiffs. In my view, therefore, it is plain and obvious that the claim for unjust enrichment also cannot succeed and should be struck.

Piercing the Corporate Veil

[38] Paragraphs 65 to 71 of the Claim follow the heading “Piercing the Corporate Veil”. They have been added to the Claim to further support the claims against Robert and Wendy personally for any monies found due and owing by GLGI under the Agreement.

[39] As Finlayson J.A. stated in Scotia McLeod Inc. v. Peoples Jewellers Limited (1995), 1995 1301 (ON CA), 26 O.R. (3d) 481 (C.A.) at para. 25, “Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal that had gone sour.”

[40] Paragraphs 65 to 71 contain no such allegations. In fact, paragraphs 15 to 21 of the Claim which set out in some detail the nature of GLGI’s business indicate that GLGI has carried on an active successful business for a number of years. There are no facts pleaded as to the origins or activities of the other corporate defendants save and except inferentially in relation to Ardoch Lake Developments Inc. and the Trust Agreement.

[41] The facts pleaded in support of piercing the corporate veil consist mainly of the prior allegations relating to the diversion of funds and breach of trust by the defendants and particularly Robert and Wendy. They are repetitious of what has been pleaded before. Simply put, in my view, they do not support piercing the corporate veil.

[42] A separate word about paragraph 69 of the Claim. It contains allegations of GLGI’s relationships or lack thereof with its banks and creditors. In my view, it is completely irrelevant and has been inserted by the plaintiffs solely to embarrass the defendants. Its presence will also needlessly prejudice and delay the fair trial of the action. The paragraph should be struck pursuant to rule 25.11.

[43] I hold the same view with respect to the paragraphs which allege the scheme to divert funds from GLGI, for the benefit of Robert, Wendy and the other defendants. In my view, the insertion of those allegations will serve only to needlessly prejudice and delay the fair trial of the action.

Conclusion

[44] The plaintiffs’ claim is in essence a breach of contract claim arising out of the alleged failure of GLGI to pay monies owing to the plaintiffs under the Agreement and the related claim for breach of the Trust Agreement with respect to the three lots in the Ardoch Lake Development. When read as a whole, apart from the breach of contract claim against GLGI and the breach of trust claim against Robert in respect of the three lots, the claim is disjointed, confusing, repetitive and often inconsistent in its factual assertions. Simply put, it is not a well thought out pleading, despite three tries and direction from the court. Both the Amended Statement of Claim and the Claim have simply added further confusion rather than clarity to the plaintiffs’ claims.

[45] Pleadings motions serve primarily to educate the party pleading. That is not the case here. The plaintiffs had the defendants’ detailed factums pointing out the deficiencies and the essential elements of many of the causes of action alleged prior to September 25, 2014 and were still not able to correct the deficiencies with the Claim. Given the history of the evolution of the Claim, I am not satisfied that granting the plaintiffs leave to further amend the Claim to remedy the above identified deficiencies will result in a proper pleading that the defendants can respond to. At the same time, to strike the offending paragraphs in the Claim will result in more black lines than operative paragraphs.

[46] Accordingly, the Claim is struck in its entirety. The plaintiffs are granted leave to file, within 20 days, a Further Fresh Amended Statement of Claim which asserts only the breach of contract claim against GLGI and the breach of trust claim against Robert relating to the three Ardoch Lake lots.

[47] The defendants have been successful on the motion and are entitled to their costs, on a partial indemnity basis. The costs include the appearance before me on September 25, 2014 as well as the costs of the action against all defendants except GLGI and Robert.

[48] The defendants claim total costs of $26,835.86 (after a credit of $3,000 for duplication). The plaintiffs’ costs outline sets out total costs of $17,340.26. Normally, pleadings motions should not result in such high cost claims. Given the history of this matter and the nature of the pleading, it is somewhat understandable how the costs got so high. That said, however, it is still a pleadings motion.

[49] In my view, given the issues, a fair and reasonable cost award is $20,000. Payable forthwith.

L. A. Pattillo J.

Released: July 31, 2015

COURT FILE NO.: CV-14-10527-00CL
DATE: 20150731

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

RYAN MITCHELL, THE MITCHELL CONSULTING GROUP, and THE MITCHELL CONSULTING GROUP INC.
Plaintiffs

– and –

ROBERT LEWIS, WENDY LEWIS, GLOBAL LEARNING GROUP INC. also known as GLOBAL LEARNING GIVING INITIATIVE also known as GLGI, GLOBAL LAND CONSORTIUM INC., ARDOCH LAKE DEVELOPMENTS INC., COLONIAL CHEVROLET LTD., 2168368 ONTARIO INC., DIGITAL CONSULTATION MANAGEMENT SERVICES, and 2168368 ONTARIO INC., carrying on business as DIGITAL CONSULTATION MANAGEMENT SERVICES
Defendants

REASONS FOR JUDGMENT

L. A. PATTILLO J.

Released: July 31, 2015