Greenwald et al. v. Ridgevale Inc. et al.

[Indexed as: Greenwald v. Ridgevale Inc.]

Ontario Reports Ontario Superior Court of Justice, Master Muir May 4, 2016 131 O.R. (3d) 774 | 2016 ONSC 3031

Case Summary

Civil procedure — Pleadings — Amendment — Plaintiffs bringing action for damages for alleged construction deficiencies after purchasing house from corporate defendant — Plaintiffs bringing motion to amend statement of claim to add another corporation as defendant on basis that that corporation was true vendor — Motion granted — Claim against proposed defendant not statute-barred as plaintiffs only discovered potential claim when they received answers to undertakings from defendants in June 2014 — Underlying merits of proposed claim not appropriate factor for consideration on motion under Rule 5.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

Civil procedure — Setting down for trial — Extension of time — Plaintiff having taken important steps to advance litigation and providing adequate explanation for delay — Defendants not suffering non-compensable prejudice if extension granted — Extension of time for setting action down for trial granted.

The plaintiffs purchased a house from the defendant R Inc. in April 2009. In April 2011, they commenced an action against R Inc. and against A and T (who were alleged to be R Inc.'s controlling minds) for damages for alleged construction deficiencies. They brought a motion for an order amending a timetable order and for a short extension of time to set the action down for trial. They also sought leave to amend their statement of claim to add M Inc. as a defendant, alleging that M Inc., R Inc., T and A were alter egos of one another and that M Inc. was the true vendor of the house.

Held, the motion should be granted.

Despite the delay, the plaintiffs had taken important steps to advance the litigation. They offered an adequate explanation for the delay. The defendants would not suffer non-compensable prejudice if an extension of time was not granted.

The claim against M Inc. was not statute-barred as the plaintiffs only became aware of the existence of a claim against M Inc. on the basis of the alter ego principle when they received certain answers to undertakings from the defendants on June 5, 2014. At that time, they learned that when the financing for the project was advanced by the lender, it was immediately transferred from R Inc. to M Inc. and that M Inc. and not R Inc. paid the vast majority of the construction expenses. The proposed amendments would not unduly complicate or delay the action. The underlying merits of the proposed claim were not an appropriate factor to consider on a motion under rule 5.04(2) of the Rules of Civil Procedure.

Hilltop Group Ltd. v. Katana, [2001] O.J. No. 1564, 104 A.C.W.S. (3d) 845 (S.C.J.); Jodha v. Dineen, [2015] O.J. No. 6071, 2015 ONSC 6848 (S.C.J.); Schembri v. Way (2012), 112 O.R. (3d) 241, [2012] O.J. No. 4356, 2012 ONCA 620, 7 B.L.R. (5th) 1, 222 A.C.W.S. (3d) 64, consd

Other cases referred to

Family Delicatessen Ltd. v. London (City), [2006] O.J. No. 669, 2006) 1006 (C.A.); Faris v. Eftimovski, [2013] O.J. No. 2551, 2013 ONCA 360, 42 C.P.C. (7th) 258, 363 D.L.R. (4th) 111, 87 E.T.R. (3d) 204, 306 O.A.C. 264, 228 A.C.W.S. (3d) 89; Homelife Realty Services Inc. v. Homelife Performance Realty Inc., [2005] O.J. No. 2330, [2005] O.T.C. 442, 140 A.C.W.S. (3d) 273 (S.C.J.); MDM Plastics Ltd. v. Vincor International Inc. (2015), 124 O.R. (3d) 420, [2015] O.J. No. 265, 2015 ONCA 28, 381 D.L.R. (4th) 249, 65 C.P.C. (7th) 225, 249 A.C.W.S. (3d) 562; Opper v. 1706737 Ontario Ltd., [2014] O.J. No. 1931, 2014 ONSC 2530 (S.C.J.); Shoppers Drug Mart Inc. v. 6470360 Canada Inc. (c.o.b. Energyshop Consulting Inc./Powerhouse Energy Management Inc.), [2014] O.J. No. 476, 2014 ONCA 85, 314 O.A.C. 341, 23 B.L.R. (5th) 26, 372 D.L.R. (4th) 90, 237 A.C.W.S. (3d) 390

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 5.04(2), 20, 20.05, 21, 25.06(1), (8), 26.01

MOTION for an order extending time for setting an action down for trial and for leave to amend a statement of claim to add the defendant.

Counsel: Sean Lawler, for plaintiffs. Peter Danson, for proposed defendant and defendants Ridgevale Inc., Danny Atkin, a.k.a. Daniel Atkin, and Debbie Tessler, a.k.a. Debbie Tessler-Glina. Antonios Antoniou, for defendant Abraham Barry Davis.

1MASTER MUIR: — This motion is brought by the plaintiffs. They seek an order amending the timetable order of Master Hawkins of October 31, 2014, and ask for a short extension of time to set this action down for trial. The plaintiffs also seek relief pursuant to rules 5.04(2) and 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the "Rules") in order to obtain leave to amend their statement of claim to add a new defendant. The defendant Abraham Barry Davis ("Davis") takes no position on this motion. The remaining defendants and the proposed new defendant are opposed to the relief sought by the plaintiffs.

Background

2The plaintiffs bought a house from the defendant Ridgevale Inc. ("Ridgevale") in April 2009. The defendants Danny Atkin ("Atkin") and Debbie Tessler ("Tessler") are alleged to be the controlling minds of Ridgevale (collectively, the "Ridgevale defendants").

3The house was a custom design and partly built to the plaintiffs' specifications. After taking possession of the house, the plaintiffs contacted Ridgevale and asked that certain alleged construction deficiencies be remedied. Ridgevale attended to address some of the alleged deficiencies during the month of April 2009. However, the plaintiffs allege that a number of deficiencies remained outstanding after Ridgevale left the project in May 2009.

Progress of the Action

4The plaintiffs commenced this action on April 4, 2011 seeking damages from the Ridgevale defendants arising from the alleged construction deficiencies. The plaintiffs also included a negligence claim against Davis, the lawyer who acted for them on the purchase of the property.

5The initial claim sought damages in the amount of $250,000. After the claim was issued, the plaintiffs settled a claim against their title insurer and received a partial payment on account of their claim. I was advised by counsel during the course of argument that the current value of the deficiencies claim is approximately $90,000.

6The statement of claim was served shortly after it was issued. Pleadings were closed by the end of June 2011. A period of delay for several months occurred after the close of pleadings. The plaintiffs explain this delay by pointing to their successful efforts to settle with the title insurance company. A discovery plan was prepared and agreed to in December 2011, but not followed. Affidavits of documents were not served until July and August 2012.

7The action was delayed again in the fall of 2012 and into 2013 while the plaintiffs amended their statement of claim to reflect the settlement with the title insurer. An order granting leave to amend was not obtained until May 2013, at which time the plaintiffs' lawyer proposed a new timetable.

8Significant progress was made in the summer and fall of 2013. The plaintiffs were examined for discovery in August 2013. Atkin was examined in December 2013. The plaintiffs' undertakings were answered, at least in part, in December 2013. By June 2014, the Ridgevale defendants' undertakings were answered. The Ridgevale defendants, quite properly, do not take issue with the progress of this action between May 2013 and June 2014.

9This action was administratively dismissed by the registrar on July 3, 2014. The plaintiffs' lawyer (not Mr. Lawler) explained the dismissal by stating that the set down deadline had been incorrectly diarized in his calendar. He thought the action would not be dismissed until the end of July, but in fact the deadline was the end of June. In any event, a new timetable was proposed and this action was reinstated, on consent, by order of Master Hawkins of October 31, 2014. Master Hawkins' order included a new set down deadline of August 30, 2015.

10In the interim, Mr. Danson had taken over carriage of the file on behalf of the Ridgevale defendants and it appears that he was provided with a brief period of indulgence in order to familiarize himself with the matter.

11Nothing further took place until February 2015, when counsel for the plaintiffs suggested that the parties attempt to settle the action and attend a mediation session. At the same time, the plaintiffs' lawyer raised the issue of adding the new defendant for the first time.

12Over the course of the next few months, the parties were engaged in preparing for the mediation session and Mr. Danson was also making additional production in an effort to convince the plaintiffs that any potential claim against the proposed new defendant was without merit.

13The mediation session took place in July 2015 and was unsuccessful. Settlement discussions continued for a few weeks thereafter but by the end of August 2015, the discussions had ended.

14Nothing happened to advance this action between September 2015 and February 2016 when the lawyer for the plaintiffs advised Mr. Danson that the plaintiffs intended to bring this motion and wished to examine Tessler. The plaintiffs' notice of motion was served on March 9, 2016. The plaintiffs' motion record was delivered in the middle of April 2016.

Extension of Time

15The parties agree on the test to be applied with respect to the extension of time request. The onus is on the plaintiffs to provide an adequate explanation for the delay to date and demonstrate that the defendants will not suffer any non-compensable prejudice. See Faris v. Eftimovski, [2013] O.J. No. 2551, 2013 ONCA 360, at para. 32.

16In my view, the plaintiffs have satisfied both elements of this test. It is obvious from the evidence that there has been some delay with the progress of this action. The events giving rise to the claim took place seven years ago. The claim itself is more than five years old and has yet to be set down for trial. The action has been administratively dismissed once and timetables have been amended and extended. ¹

17However, it is also true that the plaintiffs have taken a number of important steps to advance the litigation. The claim against the title insurer was settled and the statement of claim was amended to reflect the settlement. Affidavits of documents and productions have been exchanged. Examinations for discovery of the main parties have taken place. A mediation session has been held. There are certainly gaps in time when it appears that nothing was being done to move this action ahead. However, this is not a situation where a proceeding has been forgotten and ignored for months and years on end. There is no persuasive evidence of any intention on the part of the plaintiffs to abandon this claim. As I have stated in several previous decisions dealing with similar issues, the plaintiffs' explanation for the delay need not be perfect. It simply needs to be adequate. In my view, the court's consideration of litigation delay should not involve a week-by-week or month-by-month analysis of the conduct of the action. The court must take a larger view and assess the overall progress of the claim. From this perspective, I am satisfied that the plaintiffs have provided an adequate explanation for any delay to date.

18I am also satisfied that the plaintiffs have met their onus to demonstrate that the defendants will not suffer any non-compensable prejudice. As indicated above, the parties' documents have been preserved and produced. Examinations of the main parties have taken place and their evidence has been preserved. It appears that all parties and important witnesses are available to give evidence at trial if necessary. The Ridgevale defendants argued that the plaintiffs have failed to produce back-up documentation for many of their deficiency claims. That may be true. However, to the extent that the plaintiffs are unable to support those claims with the necessary documentary evidence, their claims will not succeed at trial. I also note that the Ridgevale defendants have been able to marshal a significant amount of evidence in response to the merits of the plaintiffs' proposed amendments. They appear to be fully able to defend themselves. Finally, in October 2014, all defendants consented to an order setting aside the administrative dismissal and extending the set down deadline to August 30, 2015. It follows that the Ridgevale defendants were obviously not concerned about prejudice at that point in time. It is difficult to see what has changed since then. See MDM Plastics Ltd. v. Vincor International Inc. (2015), 124 O.R. (3d) 420, [2015] O.J. No. 265, 2015 ONCA 28, at para. 34.

19I am therefore granting the extension of the set down deadline as requested by the plaintiffs.

Leave to Amend the Statement of Claim

20The second element of the relief requested by the plaintiffs is leave to amend their statement of claim to add a new defendant. The plaintiffs seek to add Monterey Park Inc. ("Monterey") as a defendant. Monterey appears to be a corporation controlled by the defendant Tessler. The plaintiffs' proposed amendments allege that Monterey, Ridgevale, Tessler and Atkin are alter egos of one another. The plaintiffs take the position that Monterey was in fact the real party behind the transaction with the plaintiffs. Ridgevale was a mere "straw man" for Monterey. It is alleged that the transaction was structured in such a way as to benefit the Ridgevale defendants without them being exposed to the risk of a claim for damages for deficient or incomplete work. Of course, the Ridgevale defendants strongly deny these allegations.

21The applicable test on a motion under rules 5.04(2) and 26.01 is summarized in my decision in Opper v. 1706737 Ontario Ltd., [2014] O.J. No. 1931, 2014 ONSC 2530 (Master), at para. 9. The applicable principles are as follows:

• the amendments must not result in prejudice;
• the amendments must be legally tenable;
• the amendments must comply with the rules of pleading;
• a motion to add a party must meet all of the requirements of a motion under rule 26.01;
• the addition of the party should relate to the same transaction or occurrence;
• the addition of the party should not unduly delay or complicate the hearing;
• the addition of a party will not be permitted if it is shown to be an abuse of process.

22These are the factors and principles I have applied in determining the issues on this portion of the plaintiffs' motion.

23In my view, it is just that the plaintiffs be granted leave to amend their statement of claim as requested.

24One of the elements the court must consider under the prejudice portion of its analysis is whether the proposed amendments seek to add a party after the expiry of a relevant limitation period. See Jodha v. Dineen, [2015] O.J. No. 6071, 2015 ONSC 6848 (Master), at paras. 72-74. The Ridgevale defendants and Monterey argued that the plaintiffs had sufficient information to make a claim against Monterey when they conducted their examination of Atkin in December 2013. The Ridgevale defendants and Monterey submitted that the applicable limitation period therefore expired two years later in December 2015, and this motion was not brought until March 2016. The plaintiffs' proposed claim against Monterey is therefore out of time.

25The plaintiffs take the position that they did not discover their potential claim against Monterey until they received certain answers to undertakings from the Ridgevale defendants on June 6, 2014. Based on this argument, the plaintiffs submitted that the limitation period has yet to expire.

26I agree with the plaintiffs, at least for the purposes of this motion. The plaintiffs' knowledge of Monterey in December 2013 was quite limited. They had not dealt with Monterey at the time of the purchase of the property in 2009. At or about the time of the Atkin discovery the plaintiffs learned that Monterey was Tessler's company, that it had guaranteed the construction mortgage on the subject property, that it did the bookkeeping for Ridgevale and that its offices were located in the same place. In my view, none of this information would raise any flags with respect to how these businesses were being operated. It is not uncommon for a lender to require guarantees from related parties when advancing financing. There is nothing unusual about individuals operating various independent business ventures from the same location. It was not until June 2014 that the plaintiffs learned that when the financing for the project was advanced by the lender it was immediately transferred from Ridgevale to Monterey. The plaintiffs also learned that Monterey and not Ridgevale paid the vast majority of the expenses connected with the construction of the house. In my view, this information demonstrated that Monterey may have been much more involved in the construction of the project than it appeared from the information obtained at the time of the Atkin discovery. For the purposes of this motion, I have concluded that it was only in June 2014 that the plaintiffs had sufficient knowledge to advance a claim against Monterey on the basis of the alter ego principle. Of course, Monterey is certainly free to plead a limitation defence when it is added to this action and to have the issue determined on a full evidentiary record.

27I am also satisfied that the plaintiffs have met the other elements of the test as well. The proposed amendments involve the same contractual relationship. In my view, the proposed amendments as drafted also contain sufficient material facts to meet the requirements of rule 25.06(1) and also rule 25.06(8), which requires full particulars when pleading fraud or misrepresentation. The proposed amendments are certainly quite limited but they do state that the Ridgevale defendants and the proposed defendant are alter egos of one another based on the allegations that funds were immediately transferred out of Ridgevale to Monterey and it was Monterey who paid the expenses for the project and was the ultimate beneficiary of the agreement with the plaintiffs. In my view, this pleading, read generously, is sufficient to invoke the alter ego doctrine for piercing the corporate veil. See Shoppers Drug Mart Inc. v. 6470360 Canada Inc. (c.o.b. Energyshop Consulting Inc./Powerhouse Energy Management Inc.), [2014] O.J. No. 476, 2014 ONCA 85, at paras. 43-45. Moreover, it is obvious from the Ridgevale defendants' responding evidence dealing with the merits of the plaintiffs' proposed amendments that any missing particulars are well within their knowledge.

28In my view, the proposed amendments will not unduly complicate or delay this proceeding. The plaintiffs have proposed a timetable that will see this action set down for trial within a few months. They have limited their discovery request to the defendant Tessler, who has not been previously examined and the plaintiffs seek no more than two hours of additional oral discovery. Monterey will be represented by the same counsel as the Ridgevale defendants and, as stated above, it is obvious from the evidence on this motion that Monterey is in a position to immediately plead to the allegations in the proposed second amended statement of claim.

29I agree with the Ridgevale defendants that delay in seeking an amendment to a pleading, especially when adding a new party, can be a basis for refusing the requested relief and may amount to an abuse of process. However, I do not view the plaintiffs' delay in bringing this motion as a basis for declining to grant leave to amend in the circumstances of this action. Some delay is attributable to the parties' attempts to settle this $90,000 action without involving additional parties or court proceedings. Other delay, from August 2015 to February 2016, is unexplained but is not of such significance as to warrant a dismissal of the plaintiffs' motion for leave to amend. The delay is certainly not of the magnitude of the delay found in the authorities cited by the Ridgevale defendants such as Family Delicatessen Ltd. v. London (City), [2006] O.J. No. 669.

30Finally, the Ridgevale defendants placed great emphasis on the underlying merits of the proposed amendments. They argued that it is proper for the court on a motion such as this to conduct at least some review and consideration of the merits of the proposed claim as part of its tenability analysis. The Ridgevale defendants submitted that the merits are an especially important consideration on this motion. They view the proposed claim against Monterey as patently devoid of merit. In this regard, they rely on the decision of Master Dash in Jodha, at para. 68, where he states:

If a party is to be added however, it may be "appropriate to consider the evidence proffered in support of the addition of the new party, as the court must consider whether the cause of action alleged against such party is tenable, as part of the process in determining whether such addition is just and reasonable." The court however should not engage in a "detailed examination of the evidentiary merits" such as in "a summary judgment analysis."

(Footnotes omitted)

31To the extent that Master Dash is suggesting that the underlying merits of the proposed claim are an appropriate factor to consider on a motion under rule 5.04(2), I must respectfully disagree. I disagree with Master Dash and with the Ridgevale defendants' submissions for the same reasons I expressed in Opper, at para. 15. The authority relied upon by Master Dash in Jodha can be traced back to the decision of Justice C. Campbell in Hilltop Group Ltd. v. Katana, [2001] O.J. No. 1564, 104 A.C.W.S. (3d) 845 (S.C.J.). ² As I stated in Opper, the Court of Appeal has considered Hilltop and narrowed its application. It held as follows in Schembri v. Way (2012), 112 O.R. (3d) 241, [2012] O.J. No. 4356, 2012 ONCA 620, at paras. 41-43:

The motion judge relied on the decision of C. Campbell J. in Hilltop Group Ltd. v. Katana, [2001] O.J. No. 1564 (S.C.) for the proposition that it is appropriate when considering a motion to add parties for the court to consider evidence advanced in support of the claim in order to assess its tenability. However, the facts in that case make it inapplicable to this situation. In Hilltop, the plaintiffs by counterclaim sought to name a new defendant by counterclaim two weeks before the trial. The basis of the claim was that they had only recently learned that the proposed new defendant was a 50 per cent shareholder in one of the companies operated by her husband, who was also a defendant, and that she may have played a role in his impugned activities.

The rule being relied on was rule 5.04(2), which allows a party to be added or deleted at any stage subject to non-compensable prejudice. The focus of the judge's analysis in that case was the lateness of the request, the effect on the upcoming trial and the issue of prejudice, and in that context, the tenability of the proposed new claim. For that purpose, because the proposed pleading was so bald, the court looked at the transcripts that were available to see if there was any suggestion of the involvement of the proposed new party and there was not. The court therefore found, among other things, that the pleading did not disclose a tenable claim. However, that was true without looking for evidence. Nonetheless, the judge was willing to apply any evidence he could find to support the claim and fill in the pleading if there was any basis for doing so, but there was none.

In my view, Moldaver J.A.'s statement in Andersen, quoted above, is again applicable. Where a party wishes to amend a claim or add a new party within the limitation period, the facts pleaded are taken to be true and provable (subject to unprovable assumptive or speculative conclusions) and the court is to assess the tenability of the claim on that basis.

32In my view, the Court of Appeal has explained and distinguished Hilltop. It must be confined to its very unique set of facts, specifically the bald pleading and the approaching trial date. The pleading in Hilltop failed to disclose a tenable claim even without looking for evidence and the amendments were sought on the very eve of trial. Those facts are very different from the facts before the court on this motion.

33In Schembri, the Court of Appeal reversed the motion judge and allowed the addition of new parties. Justice Feldman held that once it was determined that the proposed pleading adequately disclosed and pled the asserted cause of action, the fact that the plaintiffs did not produce evidence to support the allegations was not a reason to refuse the amendment. See Schembri, at para. 45.

34The decision of the Court of Appeal in Schembri is clear. The facts pleaded are to be taken as true and provable. It is not necessary to provide evidence to support the allegations. Tenability is to be assessed on that basis and a motion for leave to amend should not morph into a summary judgment motion or something similar. It is also my view that this reasoning is equally applicable to Mr. Danson's novel suggestion that a motion under rule 5.04(2) should involve some form of a "summary judgment light" analysis. Not a full Rule 20 review but something more than a pure Rule 21 tenable claim assessment. Rule 20.05 perhaps?

35I do not accept this suggestion. In my view, the governing authorities are clear. The underlying merits of the proposed claim are simply not relevant on a motion of this nature. It is therefore unnecessary for the court to consider the merits of the proposed claim.

36For these reasons, I am granting leave to the plaintiffs to amend their statement of claim as requested.

Order

37I therefore order as follows:

(a) the plaintiffs are hereby granted leave to amend their statement of claim to add Monterey as a defendant in the form of the draft second amended statement of claim at tab B1 of the plaintiffs' motion record; (b) Monterey shall have leave to plead a limitation defence if so advised; (c) the plaintiffs are hereby granted an extension of time to set this action down for trial; (d) the parties shall confer and attempt to agree on a timetable for the completion of the remaining steps in this action, including a new set down deadline; (e) if the parties are unable to agree on a timetable, they shall provide the court with brief written submissions by June 3, 2016; and (f) if the parties are unable to agree on the issue of the costs of this motion, they shall provide the court with brief written submissions, also by June 3, 2016.

Motion granted.

Notes

¹ A second administrative dismissal order was made on March 3, 2015, but it appears this order was made in error.

² Master Dash cites as his authority the decision of Justice Glithero in Homelife Realty Services Inc. v. Homelife Performance Realty Inc., [2005] O.J. No. 2330, [2005] O.T.C. 442 (S.C.J.). Justice Glithero relies on Hilltop. See para. 11.