ROYAL BANK OF CANADA v. DCM ERECTORS, INC.

Court File No.: CV-12-464416 Citation: 2016 ONSC 3313 Motion Heard: May 18, 2016

Counsel: Miranda Spence and Danielle Muise, student-at-law, for the plaintiff Douglas G. Loucks for the defendants

ENDORSEMENT

Master R. A. Muir -

[1] The plaintiff brings this motion pursuant to Rule 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) for an order granting it leave to further amend its amended statement of claim. The defendants oppose the relief sought.

[2] This is a claim by the plaintiff for payment of legal fees and other costs associated with the negotiation of a credit facility to be provided to the defendant DCM Erectors, Inc. (“DCM”). DCM requested the credit facility in connection with an ongoing project it was carrying out on behalf of the Port Authority of New York at the site of the new World Trade Center (the “WTC Project”).

[3] The negotiations over the credit facility lasted for more than a year but were ultimately unsuccessful. The plaintiff apparently incurred legal costs of more than $250,000.00. It seeks payment of this amount from DCM in accordance with a term sheet agreed to by the plaintiff and DCM. It apparently seeks the same damages from the other defendants on the basis of negligent misrepresentation.

[4] The plaintiff now seeks to amend its amended statement of claim to add further details of its negligent misrepresentation claim against the defendant Larry Davis. Mr. Davis is the principal of DCM. The plaintiff has recently learned that Mr. Davis has been indicted in the State of New York and charged with wire fraud and conspiracy to commit wire fraud in relation to the WTC Project. The charges involve allegations that Mr. Davis was involved in falsifying documents and other misrepresentations in connection with DCM’s use of minority and women owned business enterprises on the WTC Project.

[5] In view of this information, the plaintiff now seeks to amend its claim to allege that Mr. Davis made additional negligent misrepresentations to the plaintiff during the course of the negotiation of the credit facility and related agreements. The plaintiff alleges that Mr. Davis and DCM made express or implied representations that they were conducting themselves in accordance with the laws, regulations, policies and standards governing contractors on the WTC Project. The plaintiff alleges those representations were false, that it relied on those representations and has suffered damages as a result.

[6] Rule 26.01 provides as follows:

26.01 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.

[7] The language of Rule 26.01 is mandatory and, as a general rule, proposed amendments are presumptively approved. However, there is no absolute right to amend a pleading and the court retains a residual discretion to deny the right to amend in certain circumstances. The defendants do not suggest they will suffer non-compensable prejudice if the amendments are allowed. However, there are other factors the court may consider on a motion under Rule 26.01. Those additional factors have been identified by the Court of Appeal in Marks v. Ottawa (City), 2011 ONCA 248 at paragraph 19. They are summarized as follows:

(a) an amendment should be allowed unless it would cause an injustice not compensable in costs;

(b) the proposed amendment must be shown to be an issue worthy of trial and prima facie meritorious;

(c) no amendment should be allowed which, if originally pleaded, would have been struck; and,

(d) the proposed amendment must contain sufficient particulars.

[8] For the purposes of this motion, it is also important to note that proposed amendments must be tenable at law and must also comply with the general rules applicable to all pleadings. See Plante v. Industrial Alliance Life Insurance Co., 2003 CanLII 64295 (ON SC), [2003] OJ No. 3034 (SCJ – Master) at paragraph 21.

[9] Every pleading shall contain a concise statement of the material facts on which the party relies but not the evidence by which those facts are to be proved. See Rule 25.06(1). It is important that a statement of claim, or any other pleading, precisely frame the issues and matters before the court. Pleadings define the scope of documentary and oral discovery and improperly drafted pleadings may lead to wasted time and expense to the parties and the court. Where misrepresentation is involved, full particulars must be provided. See Rule 25.06(8). However, proposed pleadings should be read generously with allowance for drafting deficiencies. See Plante at paragraph 21.

[10] I have reviewed and considered the plaintiff’s proposed amendments with these principles in mind. In my view, it is just for the plaintiff to be granted leave to amend the statement of claim as requested, subject to providing additional particulars of certain allegations.

[11] In general terms, I am satisfied that the proposed amendments set out a claim tenable at law. Negligent misrepresentation requires a finding of a duty of care, an untrue representation made negligently and detrimental reliance. See Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 SCR 87 at paragraph 33. These elements are found in the proposed pleading. Proposed paragraph 33 alleges a special relationship between Mr. Davis and the plaintiff. Paragraphs 28 and 32 allege that false statements were made negligently. Paragraph 34 states that the plaintiff relied on these alleged false statements and suffered damages as a result.

[12] In my view, however, proposed paragraph 28 lacks particularity. It simply states that during the course of the negotiation of the term sheet, Mr. Davis, by his statements and conduct, represented to the plaintiff that DCM was conducting itself in accordance with the laws and regulations applicable to the WTC Project. No specifics are provided. The plaintiff is alleging misrepresentation. Rule 25.06(8) requires full particulars. In my view, the defendants are entitled to know what specific statements and conduct the plaintiff is referring to and when, to whom and where the statements were made. I am ordering that these particulars be provided as a term of granting the relief requested by the plaintiff.

[13] The defendants take issue with paragraphs 29 to 31 of the proposed pleading. These paragraphs provide a brief overview of the basis for the New York criminal charges against Mr. Davis. They argue that these paragraphs are evidence and not material facts. They also submit that these statements are simply inserted for colour and to embarrass Mr. Davis. I do not agree. The plaintiff is required to plead material facts in support of its allegation that DCM and Mr. Davis were not conducting themselves in accordance with the laws and regulations applicable to the WTC Project. These paragraphs do exactly that in a summary fashion. They do not describe conduct unrelated to the matters in issue in this action. The events described relate to the very project for which DCM was seeking financing from the plaintiff. The distinction between fact and evidence is not a bright line. Allowances must be made for some overlap, especially when a misrepresentation claim is being made and full particulars are required. In my view, these allegations are necessary and relevant. As such, they do not unduly stray into the area of evidence or amount to embarrassing or scandalous allegations.

[14] I see nothing improper with respect to proposed paragraph 32. As set out above, this paragraph simply sets out the allegation that Mr. Davis negligently made false representations to the plaintiff he knew the plaintiff would rely upon. These allegations are a necessary element of a claim for negligent misrepresentation.

[15] Proposed paragraph 33 is also an acceptable form of pleading, subject to the plaintiff providing additional particulars. This paragraph purports to demonstrate the special relationship between the plaintiff and Mr. Davis. This allegation is also a necessary element of a claim for negligent misrepresentation. However, it is my view that the plaintiff has not provided sufficient particulars of the nature of its relationship with Mr. Davis. The pleading speaks only of an ongoing relationship between Mr. Davis and the plaintiff. The balance of the statement of claim is also silent regarding this relationship other than to state that Mr. Davis is the principal of DCM. The defendants are entitled to know what specific facts the plaintiff is relying on in support of the allegation of a special relationship that gives rise to the duties set out in proposed paragraph 33. I am ordering that these particulars be provided as a term of granting the relief requested by the plaintiff.

[16] Proposed paragraph 34 is acceptable. It simply alleges reliance on the part of the plaintiff. This allegation is a necessary element of a claim for negligent misrepresentation.

[17] Proposed paragraphs 35 and 36 are also an appropriate form of pleading. They simply set out the plaintiff’s claim for damages and summarize the legal basis for the claim against Mr. Davis. However, I agree with the defendants that the phrase “all of the bank’s costs” needs further particulars. The current version of the statement of claim simply identifies the legal fees as the damages the plaintiff is seeking. Proposed paragraph 35 implies that there may be other “costs”. If the plaintiff is claiming other costs, particulars must be provided. If no other costs are being sought, the proposed pleading should be limited to the legal fees.

[18] I am therefore ordering that the plaintiff be granted leave to amend its statement of claim in the form of the draft amended amended statement of claim at Schedule A to its notice of motion, subject to the terms and particulars I have ordered in paragraphs 12, 15 and 17.

[19] Given the result on this motion, I strongly encourage the parties to attempt to resolve the issue of costs. If they are unable to do so, counsel shall provide the court with brief written submissions by May 27, 2016.

Master R.A. Muir

DATE: May 18, 2016