Court File and Parties
Court File No.: CV-15-527480 Motion Heard: June 15, 2016 Superior Court of Justice - Ontario
Re: QINCOME SERVICES CORP., in its capacity as Trustee of QINCOME FINANCE TRUST, Plaintiff And: DR. VINOGARAN PADAYACHEE, Defendant
Before: Master Lou Ann M. Pope
Counsel: Eryn Pond, Winkler Resolution, for the Plaintiff Roch Dupont, Merchant Law Group, for the Defendant
Reasons for Decision
1The plaintiff seeks to strike the statement of defence and counterclaim, or portions thereof, with no leave to amend on the grounds that the pleading fails to comply with the rules of pleadings and Rule 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”). The plaintiff also seeks to strike the pleading for the defendant’s failure to comply with two costs orders pursuant to Rule 57.03(2).
2This motion came on for hearing three times before today and each time the motion was adjourned at the defendant’s request. On April 6, 2016, I ordered the defendant to pay costs of $1,350 before the hearing of the motion which was adjourned to May 17, 2016.
3On April 12, 2016 the defendant filed a package of documents. The package did not contain an affidavit as required by the Rules; therefore, there is no evidence filed by the defendant on this motion. For the same reasons, the two letters addressed to the defendant that are contained in the package are not properly before this court. The defendant is permitted to rely on the decision that is contained in the package; however, defence counsel did not refer to the case in his submissions. The first two pages of the package entitled “Reply to Motion To Strike Statement of Defence”, is permitted to be considered a factum keeping in mind that it would be based only on the statement of defence and counterclaim (“defence”) as there was no evidence filed by the defendant.
4On the return of the motion on May 17, 2016, I made another costs order against the defendant in the amount of $1,000 payable by June 10, 2016, five days before the next hearing date.
5At the hearing on June 15, 2016, plaintiff’s counsel advised the court that the defendant had not paid the costs orders. Counsel for the defendant, Mr. Dupont, was present that day. His office is located in Regina, Saskatchewan. He was also present at the hearing on April 6, 2016. Mr. Dupont provided no explanation for the defendant failing to pay the costs orders other than to advise the court that the defendant would pay them by July 15, 2016.
6Admittedly the defendant had invested in the investments set out in the statement of claim. Further, it is undisputed that he is a “doctor” residing in Saskatchewan and he has presumably paid his lawyer to attend court in Toronto twice. Therefore, it is reasonable to assume that the defendant can well afford to pay these costs orders but has elected not to do so, yet he sent his lawyer to Toronto twice to request that this court uphold his pleading and dismiss the plaintiff’s motion based on no evidence and motion material that fails to comply with the Rules respecting responding material on motions. This, in my view, is disrespectful and offensive.
7Subrules 60.12(b) and (c) provide that where a party fails to comply with an interlocutory order, the court may in addition to any other sanction provided by these rules, strike out the party’s defence, or make such other order as is just.
8In addition to rule 60.12, subrule 57.03(2) grants the court discretion to strike out a party’s defence or make such other order as is just where a party fails to pay the costs of a motion.
9The plaintiff also seeks to strike the defence on the basis that it fails to comply with the rules of pleadings as set out in Rule 25.06, and pursuant to Rule 25.11 on the ground that it is scandalous, frivolous or vexatious.
10The defendant submits that the subject investment programs are a “tax sham” and purports to rely on a letter from CRA dated February 22, 2008 which states that both programs were shams. The letter goes on to state that CRA denied the defendant the entire amount he claimed as a donation and the interest he deducted in respect of the loans to acquire the units and the limited partnership losses. As stated above, this letter is not properly in evidence on this motion.
11Even if the letter from CRA was properly in evidence, it is clear that the defendant was aware that CRA denied his claims and deductions on his income tax returns since February 2008. It is unknown whether he has commenced an action against EquiGenesis Corporation (“EquiGenesis”); however, if he has not, in my view, any such claim would be statute barred under the Limitations Act, 2002, due to the expiry of the limitation period. Further, failing any evidence that demonstrates that the plaintiff herein had any involvement with EquiGenesis and the investment programs, which is denied by the plaintiff, it is clear that the defendant’s claims in his counterclaim will fail.
Motion To Strike Statement of Defence and Counterclaim
12In the statement of claim, the plaintiff seeks payment of some $880,000 being the outstanding principal and interest owing at April 30, 2015 in respect of loans made by the plaintiff to the defendant evidenced by loan agreements and promissory notes. The plaintiff is the payee and holder of said promissory notes.
13The plaintiff adduced the evidence of Kenneth M. Gordon (“Gordon”), the president of EquiGenesis. Gordon states that EquiGenesis is the creator of two investment programs in which the defendant invested. The investment programs involve the purchase of Class “A” units in the two programs. An investment in one of the programs also involved a pledge by investors to make a charitable donation to a Canadian charity. The defendant facilitated his purchase by borrowing amounts from the plaintiff. The defendant entered into loan agreements with the plaintiff, evidence by promissory notes signed by the defendant and delivered to the plaintiff. Copies of the promissory notes are attached as exhibits to Gordon’s affidavit.
14It is Gordon’s evidence that the plaintiff had nothing to do with designing, creating, promoting, selling or managing the investment programs. The plaintiff acted solely as an arms-length lender.
15The plaintiff submits that the defence contains serious and unfounded bald allegations against the plaintiff including “tax fraud”, “tax fraud scheme”, “criminal tax fraud scheme”, “illegal scheme,” “illegal tax scheme”, and “criminal enterprise”.
16By letter dated September 21, 2015, when serving the defence, Mr. Dupont advised plaintiff’s counsel that the defendant was “contemplating forwarding this matter for further investigation of the misleading representations to the Competition Bureau and to the Ontario Provincial Police anti-rackets squad”.
17The plaintiff also submits that the defence contains bald allegations of misrepresentation. In this respect, Gordon states that he was advised by Stewart Robertson (“Robertson”), President of the plaintiff, Qincome Services Corp., that the plaintiff had no direct communication with the defendant in relation to the subject investment programs.
18Gordon also states that Robertson advised him that Canada Revenue Agency (“CRA”), nor any government body, investigated, threatened or brought criminal or quasi-criminal proceedings against the plaintiff or accused it of participating in any type of tax fraud.
19The plaintiff delivered a Demand for Particulars to the defendant on September 30, 2015. The defendant’s response contains the following one sentence: “In response to your Paragraphs 1 to 5 you have copies of the CRA determinations that have ruled against your client and my client.” The defendant has never produced the “CRA determinations” that he says rule against both parties, nor has he given the particulars of the alleged determinations.
20Gordon states that both investment programs are, as of January 28, 2016, the subject of objections and appeals under the Income Tax Act and no final determination has been made. He states further that similar investment programs designed by EquiGenesis have successfully passed audit by the CRA.
21The plaintiff’s position is that given the complete absence of material facts in the defence, it is impossible for the plaintiff to respond to it by way of a reply.
22Rule 25.06(1) requires that every pleading shall contain a concise statement of material facts on which the party relies for the claim or defence but not the evidence by which those facts are to be proved.
23Rule 25.06(8) requires that where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.
24The court has jurisdiction under subrule 25.11(b) to strike out or expunge all or part of a pleading, with or without leave to amend, on the ground that the pleading is scandalous, frivolous or vexatious.
25I will now apply these rules to the defence.
26Paragraphs 1, 2, 3, 4 and 12: I find that the allegations following the words “because” in these paragraphs, and following the word “but” in paragraph 12, do not comply with rule 25.06(8) as they allege fraud and they fail to contain any particulars as mandated by the rule. Further, the defendant’s Response To Demand For Particulars fails to contain any particulars of those allegations. The said Response makes a bald statement that the “CRA determinations that have ruled against your client and my client” are in the plaintiff’s possession. If the defendant is aware of the specific “CRA determinations” relating to the alleged EquiGenesis investments, the specifics of the determinations must be pleaded in order for the plaintiff to properly reply to the allegation and, secondly, because subrule 25.06(8) mandates that where fraud is alleged, the pleading must contain full particulars. For the above reasons, these allegations are struck.
27Paragraphs 6, 7 and 10: I find that the allegations following the words “but” in each paragraph do not comply with rule 25.06(8) as they allege misrepresentations and they fail to contain any particulars of the misrepresentations as mandated by that rule. (See: Lana International Ltd. v. Menasco Aerospace Ltd., 1996 CarswellOnt 1534, para. 21) Further, for the same reasons set out above, the defendant’s Response To Demand For Particulars fails to contain any particulars of those allegations. Therefore, those allegations are struck.
[28] Paragraphs 8 and 11: (a) The defendant specifically denies the allegations in paragraphs 9(c) and 14(c) of the statement of claim that the promissory notes contain clauses whereby the defendant waives presentment, demand, notice of non-payment, protest, notice of protest and all other formalities with respect thereto. Copies of the subject promissory notes are attached to Gordon’s affidavit at Exhibit “A”. It is clear and apparent on the face of both promissory notes that they contain the said clauses. A court has discretion to strike a pleading, or portions thereof, if it is clear and obvious that the pleading cannot succeed at trial. Therefore, I find that it is clear and obvious on the evidence filed herein that the defendant’s allegations in paragraphs 8 and 11 will not succeed. For those reasons, the defendant’s denial of paragraphs 9(c) and 14(c) of the statement of claim contained in paragraphs 8 and 11 of the defence are hereby struck. (b) The defendant further pleads that the impugned clauses were never made aware to him. For the same reasons set out in subparagraph (a) above, in my view, it is clear and obvious on the evidence filed herein that these allegations will not succeed and they are therefore struck. (c) The allegations that the defendant “questions the legality of having such a clause in a contract”, is not a proper pleading as it lacks particularity and is vague. Therefore, this allegation is hereby struck.
[29] Paragraph 13: (a) The allegation that the defendant does not owe any money is unsupported by any material facts considering the material facts set out in the statement of claim regarding the loans evidenced by loan agreements and promissory notes all signed by the defendant. Further, the Response to Demand For Particulars fails to contain any particulars of this allegation. Given the allegations as set out in the statement of claim and the evidence on this motion, it is my view that this allegation will fail. Therefore, the allegation that the defendant does not owe any money is hereby struck. (b) The allegation of “an alleged criminal tax fraud scheme as determined by the CRA”, does not comply with rule 25.06(8) as it is an allegation of fraud which fails to contain particulars as mandated by that rule. Further, the Response To Demand For Particulars fails to contain any particulars of those allegations. Therefore, this allegation is hereby struck.
30Counterclaim, paragraph 14: The allegations of a “tax deferral scheme”, and the plaintiff (“defendant” in error) and its employees and or officers having given false and misleading information to the defendant do not comply with rule 25.06(8) as they are allegations of fraud and misrepresentation which fail to contain particulars as mandated by that rule. Further, the Response To Demand For Particulars fails to contain any particulars of those allegations. Therefore, the entire paragraph is hereby struck.
31Counterclaim, paragraphs 15, 17 through 20 inclusive: The allegations of “legal tax deferral plan”, “Tax deferral plan has been ruled illegal by the CRA”, “finding by CRA that the tax deferral scheme was illegal”, and the “CRA in their ongoing audit of the Plaintiff”, do not comply with rule 25.06(8) as they are allegations of fraud which fail to contain particulars as mandated by that rule. Further, the Response To Demand For Particulars fails to contain any particulars of those allegations. Therefore, the above-noted allegations are hereby struck.
32Having struck the above allegations, there are no allegations that remain in the statement of defence. The only claims that remain in the counterclaim are set out in paragraphs 15 through 21 being claims for monies allegedly paid to the plaintiff (“defendant” in error) in 2004, annual fees, tax arrears, tax interest on arrears, any other further tax arrears and interest that will be determined by CRA, costs of defending this action, and pre and post-judgment interest. As there are no material facts pled on which the defendant relies for his defence and counterclaim as required by rule 25.06(1), these claims are hereby struck.
Conclusion
33For the above reasons, I find that the defence is frivolous and vexatious as it exhibits a complete absence of material facts. I also find that the defence is scandalous and vexatious given the unfounded and inflammatory attacks on the integrity of the plaintiff, and the unsupported allegations of misrepresentation, and furthermore, the unsupported serious allegations of criminal activity such as tax fraud, tax deferral scheme and criminal enterprise. (Montgomery v. Seiden, 2012 ONSC 6235, para.38)
34Despite having had numerous opportunities to ensure his defence complied with the rules of pleadings, including responding to the Demand For Particulars and several hearings of this motion, the defendant failed to do so. Therefore, there is simply no basis for this court to allow the defendant leave to amend the defence.
35I would also strike the defence for the defendant’s failure to pay two costs orders without any explanation for failing to do so.
36For the above reasons, the statement of defence and counterclaim is hereby struck in its entirety without leave to amend.
37In my view, it is obvious that the defendant seeks to escape his legal responsibility to pay the subject loans to the plaintiff, an arms-length lender, because he made an unfortunate mistake in his choice of investments.
38The defendant shall pay costs of this motion fixed in the amount of $8,966.71 payable within 30 days.
___ (original signed) ___ Master Lou Ann M. Pope
Date Released: June 23, 2016