Gray v. Brathwaite, 2016 ONSC 4163
CITATION: Gray v. Brathwaite, 2016 ONSC 4163
COURT FILE NO.: CV-11-00437115-0000
DATE: 20160624
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ROSE ELIZABETH GRAY
Plaintiff
– and –
DAVID BRATHWAITE and 1492569 ONTARIO INC. and DAAB VENTURES INC. c.o.b. as CHESSWOOD TRANSMISSION DRIVELINE SPECIALISTS
Defendants
COUNSEL:
Sidney Klotz and Jennifer Klotz for the Plaintiff
Blair Bowen for the Defendants
HEARD: June 22, 2016
REASONS FOR DECISION
DIAMOND J.:
Overview
[1] The trial of this proceeding commenced before me on June 20, 2016.
[2] As the trial judge, I initially reviewed the pleadings to appreciate the nature of the relief being sought by both the plaintiff in her Statement of Claim, and the defendants in their Counterclaim. Part and parcel of that exercise is to understand and appreciate the respective theories of the parties’ cases being advanced in support of the relief they seek at trial. This is of course necessary so that when I receive and assess both the oral and documentary evidence tendered at trial, I do so through the lens of those theories of the parties’ cases with a view to determining whether the admissible evidence allows me to make the necessary findings in support of the cause(s) of action being pursued.
[3] A properly pleaded Statement of Claim sets out the material facts to be presumably proven by a plaintiff with admissible evidence at trial. In the absence of a tenable and/or legally understandable theory of a case, a trial judge may be ultimately unable to perform the task(s) expected of him/her by a plaintiff.
[4] As explained in greater detail below, upon my review of the plaintiff’s pleadings I found it quite difficult to understand the nature of her cause(s) of action being advanced against the defendants.
[5] During opening submissions, I asked counsel for the plaintiff several questions related to the theory of his client’s case. Over the course of the next few hours, for the reasons set out hereinafter counsel for the plaintiff realized that his client’s Statement of Claim was in dire need of repair. Accordingly, the trial was adjourned for one day to permit the plaintiff an opportunity to draft and deliver an Amended Statement of Claim for review and consideration by the defendants and this Court.
[6] The defendants did not consent to the plaintiff’s request for leave to amend her Statement of Claim. As such, on June 22, 2016 the plaintiff brought a formal motion seeking leave to amend her Statement of Claim.
Statement of Claim
[7] The plaintiff’s Statement of Claim was issued on November 14, 2011. Subject to the within motion, it has never been amended.
[8] There appear to be two irreconcilable theories of the plaintiff’s case set out in her Statement of Claim. Initially, the plaintiff alleged that she is the sole owner of the shares in the two defendant corporations 1492659 Ontario Inc. (“149”) and DAAB Ventures Inc. (“DAAB”). Each of 149 and DAAB owns real property.
[9] The plaintiff further alleges that through some unknown nefarious means, the defendant David Brathwaite (“David”) somehow managed to transfer ownership of her shares in 149 and DAAB “into his name without the plaintiff’s knowledge or consent”. As a result, the plaintiff requests an order setting aside any transfer of those shares in favour of David as being null and void, and a declaration that she is the legal and beneficial owner of 149 and DAAB.
[10] The above theory seems straightforward enough. However, the allegations do not end there. The plaintiff further pleads that she was in a common law relationship with David from 1999 until 2008/09, and during those years she contributed significant funds, time and effort towards 149 and DAAB. Such allegations support a claim for unjust enrichment, and a request for a constructive trust remedy (although neither of those terms are explicitly used in her Statement of Claim).
[11] Assuming the contents of the Statement of Claim to be true, if the plaintiff was the sole legal and beneficial owner of the shares in 149 and DAAB, why would she be seeking a constructive trust remedy? By asking the Court to create an ownership interest in 149 and DAAB by way of constructive trust, the plaintiff is advancing a theory based upon not having any legal or equitable interest in the two companies. The facts required to support both theories of the case are not pleaded “in the alternative”; rather, in my view they reside in two difference universes.
[12] Accordingly, I required the plaintiff to pick a proverbial horse: either I was being asked to return the shares in 149 and DAAB to her as the rightful owner, or I was being asked to find that David held all or a portion (as this was not specified) of the shares in 149 and DAAB in trust for the plaintiff as a result of David being unjustly enriched through the plaintiff’s contributions to the two companies.
[13] For the reasons continued below, I never received an adequate response.
Amended Statement of Defence and Counterclaim
[14] In reviewing the defendants’ Amended Statement of Defence and Counterclaim, I note two crucial allegations raised therein:
a) The plaintiff and David entered into Acknowledgment of Trust and Agreements for 149 and DAAB. These trust agreements are dated November 8, 2001, and state that the plaintiff holds beneficial title to the shares in 149 and DAAB in trust for David.
Of note, David takes the position that these trust agreements were signed in November 2001, while the plaintiff takes the position that she signed the trust agreements in February 2003 while she was hospitalized due to an ectopic pregnancy.
b) On October 19, 2006, the plaintiff made a voluntary assignment into bankruptcy.
There is no dispute that the plaintiff was subsequently discharged in or around July 2007, and that her purported shares in 149 and DAAB were not listed as assets in her estate.
Amended Reply and Defence to Counterclaim
[15] In response to the Amended Statement of Defence and Counterclaim, on or about August 18, 2015 the plaintiff delivered an Amended Reply to the Statement of Defence and Counterclaim (“Reply”). I note that the contents of the Reply are replete with pleadings of evidence that run afoul of Rule 25.06(1) of the Rules of Civil Procedure.
[16] Rule 25.06(5) provides as follows:
“An allegation that is inconsistent with an allegation made in a party’s previous pleading or that raises a new ground of claim shall not be made in a subsequent pleading but by way of amended to the previous pleading.”
[17] As held by my colleague Justice Corbett in Brazeau v. Toronto (City) 2014 ONSC 2945, any new cause of action cannot appear in a Reply as it must be asserted by amendment to the Statement of Claim.
[18] In attempting to address my concerns raised during his opening submissions, counsel for the plaintiff directed me to several paragraphs in his client’s Reply. A review of various paragraphs in the plaintiff’s Reply discloses the following:
| Paragraph | Content |
|---|---|
| 3 | The plaintiff and David were in a relationship and building a future together, and she was “sure that the businesses belonged to both her and David”. |
| 5 | When 149 and DAAB were incorporated, the plaintiff and David “did not discuss shares nor ownership and did not come to an agreement of shares nor ownership as they were in a relationship and were building a future together.” |
| 6 | The plaintiff and David jointly contributed to the growth of the companies and jointly employed staff. |
| 20 | When the plaintiff signed the trust agreements, she did so “in a vulnerable state and facing serious medical matters”. David backdated the trust agreements to November 8, 2001 as she signed them in February 2003. |
| 39 | Contrary to the contents of the prayer for relief in her Statement of Claim, the plaintiff “does not have any interest in the property or businesses” but wants to be paid for her share of investing and/or any compensation that the Court may grant for the plaintiff’s contribution to the businesses. |
| 41(C) | The plaintiff relies upon the doctrine of unjust enrichment and claims that (a) through her efforts David received a benefit, and (b) she has been deprived of the benefit without any juristic reason. |
| 41(D) | The plaintiff claims an interest in the property (i.e. the real estate owned by 149 and DAAB) pursuant to the doctrine of constructive trust. The plaintiff also seeks a declaration that she is the legal and beneficial owner of 149 and DAAB. |
[19] The Reply did not assist me in deciphering the nature of her cause(s) of action. It seemed as though the plaintiff was still advancing a request that she be declared the legal and beneficial owner of 149 and DAAB, while also relying upon the doctrine of unjust enrichment and the remedy of constructive trust in support of an order that her years of contributing money and effort be recognized by granting her a partial or full interest in the shares in 149 and DAAB (presumably owned by David).
[20] Counsel for the plaintiff then advanced, for the first time, an argument that the plaintiff and David were in fact parties to a legal partnership (i.e. over and above their common law relationship), and that David breached the terms of their (oral) partnership agreement resulting in the plaintive suffering losses. No partnership or partnership agreement has been pleaded in the Statement of Claim, or for that matter the Reply. Paragraph 3 of the Reply (i.e. the businesses allegedly belong to both the plaintiff and David) could amount to a relevant consideration in a family law proceeding (which this is clearly not, although arguably should be).
[21] Suffice it to say that counsel for the defendants was understandably quite surprised with these latest allegations. In his mind, the plaintiff’s claims turned upon whether or not the trust agreements were valid. When I asked counsel for the plaintiff whether his client was now going to seek an order setting aside the trust agreements (especially in light of her position in the Reply that she allegedly signed them at a time when she was “vulnerable and not in a right statement of mind”), I was told that no such relief was in fact being sought.
Adjournment
[22] As a result of the plaintiff’s morphing legal positions, I was more confused than I was before the trial commenced.
[23] Is the plaintiff still seeking an order transferring legal and beneficial title to the shares back to her as a result of those shares being fraudulently misappropriated by David?
[24] Is the plaintiff seeking a finding that David was unjustly enriched through her contributions to their common law relationship, thus giving rise to a constructive trust in all or part of the shares in 149 and DAAB?
[25] Is the plaintiff seeking a finding that she and David were partners in a legal partnership and that David breached the terms of their partnership agreement resulting in her suffering damages?
[26] I note that in response to this last position, counsel for the plaintiff advised that his client was now seeking “half” of the value of the two companies. Presumably, this is based upon the plaintiff and David being equal partners in a (yet to be pleaded) legal partnership, as I cannot understand why the plaintiff would be entitled to half of the value of 149 and DAAB if she was the sole legal and beneficial owner of the shares in both companies.
[27] I cautioned counsel for the plaintiff that I was concerned about receiving all the evidence in the absence of a cogent and coherent theory of his client’s case, as I did not want to lure the plaintiff into believing that I would ultimately be able to grant the plaintiff relief (if warranted) through the guise of phantom causes of action not requested in her Statement of Claim.
[28] Not surprisingly, it became readily apparent to counsel for the plaintiff that in the absence of a cogent and coherent theory of his client’s case, the plaintiff could not proceed to trial. Accordingly, the trial was adjourned for one day to allow counsel for the plaintiff to draft and deliver an amended pleading.
The Draft Amended Pleading
[29] As stated, counsel for the defendants did not consent to the plaintiff’s request for leave to amend. On the morning of June 22, 2016, the parties attended before me to argue the plaintiff’s motion seeking leave to amend her Statement of Claim.
[30] A copy of the plaintiff’s draft pleading was provided to me at the outset of the hearing. To my surprise, very little (if any) of the morphing causes of action advanced by counsel for the plaintiff before me on June 20, 2016 found their way into the draft pleading. Simply put, both of the previous horses had fallen out of the race.
[31] In the draft pleading, there is no mention whatsoever of the plaintiff and David being parties to an alleged legal partnership. Ironically, this is fortunate for the plaintiff due to the fact that any share she may have owned in the partnership would have vested in her trustee when she made her voluntarily assignment in bankruptcy. In addition, as held by Justice Power in Deschambault v. Abraham (MJDA Equipment) 2011 ONSC 5366, pursuant to section 33(1) of the Partnerships Act R.S.O. 1990 c.P.5, every partnership is dissolved by the insolvency of a partner. Accordingly, even if there was a legal partnership between the plaintiff and David, upon the plaintiff’s bankruptcy that partnership was dissolved by operation of law, and the plaintiff’s interest in the partnership vested in the trustee
[32] Instead, the draft pleading seeks to effectively withdraw admissions made by the plaintiff in her Statement of Claim, or at the very least spin a completely different story than what she originally alleged. The following is a summary of the relevant amendments for the purpose of this motion:
| Paragraph | Content |
|---|---|
| 1(c) | Contrary to the position taken by her counsel before me on June 20, 2016, the plaintiff is now asking for an order setting aside the trust agreements as well as an order setting aside her “resignation as director, consent, resolution of the shareholders and 2001 documents tendered by the defendant in his affidavit sworn October 27, 2011 for the purpose of removing the interest of the plaintiff in the defendant companies or any related documents put forth by the defendant in his affidavit dated October 27, 2011.” |
| 1(d) | The plaintiff is now asking for an order that she be declared “a half beneficial owner” of 149 and DAAB as a result of her financial contributions made to those companies. In support of that request, the plaintiff alleges that there was “at all times a common intention to retain an equal partnership interest” in 149 and DAAB, and that she is entitled to a resulting trust, or an (undefined) implied trust. |
| 1(e.1) | The plaintiff is requesting a reference before a Master that there be a full accounting of the affairs of 149 and DAAB for her financial contributions. |
| 1(e.2) | The plaintiff relies upon the provisions of the Family Law Act in support of a claim for unjust enrichment/constructive trust based upon the long term common law relationship between herself and David and her various contributions which “crystalized on separation of the parties in or around 2010.” |
| 1(e.3) | The plaintiff is requesting leave to amend her Reply to “ensure that her position is consistent.” |
| 1(g.1) | In the event that the trust agreements and other documents are not set aside, the plaintiff is seeking the Court to “infer a reasonable interpretation” of the parties’ intentions that the trust documentation was signed for the sole purpose that “in the event that the plaintiff would be impaired by health concerns her life partner would acquire her equal portion of the assets of 149 and DAAB.” |
| 5 | The plaintiff claims to no longer be the sole shareholder and president of 149 and DAAB, but a director and equal shareholder of those two companies based upon the common intention of herself and David at the time of incorporation to share equally at all times. |
| 10 | The plaintiff alleges that it was not until August 2010 when she knew that there was no possible reasonable prospect of reconciliation and that she and David were formally separated. |
[33] Not surprisingly, counsel for the defendant took significant issue with the ever-changing nature of the plaintiff’s various theories of her case.
[Bankruptcy and Insolvency Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)
[34] Section 67(1) of the Bankruptcy and Insolvency Act R.S.C. 1985 c.B-3 (“the Act”) provides that the property of a bankrupt divisible among his creditors shall comprise “all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge”.
[35] Section 67(1)(d) of the Act provides that the property of a bankrupt divisible among his creditors shall also comprise “such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit.”
[36] For completeness of the analysis, section 67(1)(a) of the Act provides that the property of a bankrupt divisible among his creditors shall not comprise property held by the bankrupt in trust for any other person.
[37] As at the date of her voluntarily assignment into bankruptcy, if the plaintiff was the legal and/or beneficial owner of the shares in 149 and DAAB (which she originally claimed to be in her Statement of Claim), those shares qualified as “property of the bankrupt” and vested in her trustee in bankruptcy. If the plaintiff was holding those shares in trust for David, then she never owned beneficial title to the shares and there cannot be any claim arising therefrom in this proceeding.
Decision
[38] If the plaintiff is still advancing any cause(s) of action based upon her legal and/or beneficial ownership of the shares in 149 and DAAB as at October 19, 2006, as stated those claims vested (and continue to vest) in her trustee, and in the absence of any evidence that her trustee conveyed such cause(s) of action back to her, she has no standing to pursue any of those claims.
[39] As a result, her request at paragraph 1(d) of the draft pleading for a resulting and/or implied trust is without foundation. Ownership in the shares cannot revert back to her from David, as those shares remain vested in her trustee. Accordingly, the amendments sought at paragraph 1(d) of the draft pleading are not tenable, and leave to amend that paragraph is denied. Such a finding is without prejudice to the plaintiff obtaining an assignment of that cause of action from her trustee and seeking leave to amend at a future date.
[40] Leave to amend paragraph 1(e.1) is denied, as if and when the plaintiff proceeds to trial seeking claims for unjust enrichment/constructive trust, the trial judge shall determine any and all accounting issues between the parties.
[41] Leave to amend paragraph 1(e.3) is denied, as Rule 25.06(5) precludes the plaintiff from advancing any causes of action in her Reply.
[42] Leave to amend paragraph 1(c) is granted save for the words “or any related documents put forth by the defendant in his affidavit dated October 27, 2011”. Such a request is far too vague to be pursued this late in the day, and lacks any particulars as required by Rule 25.06(8).
[43] With respect to paragraph 1(g.1) of the draft pleading, while I do not believe that this is a proper request for relief (in that it asks for the Court to interpret a document in some proposed manner), I am prepared to grant leave to amend that paragraph as it does at least set out some of the material facts in support of the plaintiff’s request that the trust agreements be set aside.
[44] This leaves the plaintiff’s claim for unjust enrichment/constructive trust as set out in paragraphs 1(e.2), 5 and 10 (and elsewhere) of the draft pleading.
[45] During argument, counsel for the plaintiff effectively conceded that the sole cause of action being pursued by his client was based in unjust enrichment given rise to the remedy of a constructive trust. Although not explicitly pleaded, it became apparent that what the plaintiff is now seeking is a finding that she and David had organized their lives in a domestic partnership or joint family venture. As held by the Supreme Court of Canada in Kerr v. Baranow 2011 SCC 10, a party who asserts the presence of a joint family venture must lead evidence to allow the Court to consider and assess four main factors:
a) Did the parties exert mutual efforts and work collaboratively towards common goals?
b) Were the parties’ economical interests intertwined, or was there mutuality and independence in their economic relationship?
c) Was there actual intent on the part of the parties to participate in a joint family venture?
d) To what extent did the parties give priority to the family in their decision making?
[46] To begin, the draft pleading lacks any particulars in support of the plaintiff’s new theory of her case that she and David organized their lives in a domestic partnership or joint family venture. While the claim for unjust enrichment/constructive trust is tenable, the plaintiff is ordered to provide further and full particulars in support of her position, including all material facts she relies upon in support of the alleged joint family venture.
[47] The sole remaining issue is whether the plaintiff’s cause of action for unjust enrichment/constructive trust is precluded by reason of her voluntarily assignment in bankruptcy. In other words, and assuming the facts as set out in the draft pleading to be true, did the plaintiff’s potential constructive trust claim (which was not disclosed in her statement of assets and liabilities) vest in her trustee in bankruptcy?
[48] The draft pleading alleges that the parties did not separate until well after the trustee was discharged. Counsel for the defendant directed me to the plaintiff’s affidavit filed in support of an injunction she sought earlier in these proceedings wherein the plaintiff seems to state that she and David effectively separated as early as 2007-2008. While that may end up being true, the trial is yet to be completed and I am not prepared to refuse leave to amend on that basis.
[49] The plaintiff relies upon the decision of my colleague Justice Perell in Elkaim v. Markina 2010 ONSC 874. In that case, a spouse who was a discharged bankrupt brought a motion seeking an order declaring that his constructive trust claim did not vest in his trustee in bankruptcy.
[50] In coming to the conclusion that the constructive trust claim did not vest in the spouse’s trustee in bankruptcy, Justice Perell held as follows:
“I wish to be clear that I am not deciding the merits of Mr. Elkaim's claim, but considering the three elements of an unjust enrichment claim and applying them to the circumstances of the case at bar, it does not appear to me that Mr. Elkaim had an unjust enrichment claim during his bankruptcy.
Without deciding the point, it may be true that Mr. Elkaim's labour enriched Ms. Markina, and again without deciding the point, it may be true that he suffered a corresponding deprivation for his unpaid labour, but at the time of his bankruptcy, there would have been nothing unjust about Ms. Markina's retaining the benefit of his labour. The unjustness only arises at it did in Pettkus v. Becker with the breakdown of the common law relationship, at which point in time it might become unjust for Ms. Markina to retain the benefits conferred on her during their cohabitation.
It is not that I think that Mr. Elkaim's constructive trust claim was inchoate at the time of his bankruptcy; rather, it is my opinion that given the state of his relationship with Ms. Markina, at that time he did not have an unjust enrichment claim at all and there was no property (technically a chose in action) to vest in the trustee in bankruptcy.
Further, it is my view that this is a fair result and consistent with good public policy. I see no reason why the creditors of a person in a common law relationship should be in a better position than creditors of a person in a formal marriage. I see no reason why these creditors should be able to increase the estate in bankruptcy by, in effect, requiring the bankrupt to advance a claim that he or she would not advance unless there was a genuine breakdown in his or her marital relationship.
The result of concluding that there was no unjust enrichment claim at the time of the bankruptcy is particularly appropriate in the circumstances of the case at bar where Ms. Markina concedes that some of Mr. Elkaim's labour was provided after his discharge from bankruptcy, and it is, therefore, acknowledged that a portion of the constructive trust claim would not be property of the estate in bankruptcy. It strikes me, however, that it would be a bad thing to introduce the idea that a claim for unjust enrichment could be temporally apportioned between the trustee in bankruptcy and Mr. Elkaim. Among other things, this would yield a dispute between Mr. Elkaim and the trustee in bankruptcy (or its successor should the claim be assigned) about the apportionment of the unjust enrichment claim.”
[51] It may very well be that the plaintiff was in possession of the necessary material facts to advance a claim for unjust enrichment/constructive trust by the time her trustee was discharged (which would result in her claim for unjust enrichment/constructive trust continuing to vest in the trustee). However, for the purpose of this motion, I am not prepared to conclude leave to amend ought to be denied.
[52] A plaintiff’s claims for unjust enrichment/construct trust would typically crystallize upon the breakdown of his/her relationship with a (common law) spouse. The evidence at trial may support a dismissal of her claim for unjust enrichment/constructive trust, but I find that she is nevertheless entitled to pursue that claim.
[53] Accordingly, I grant the plaintiff leave to amend paragraphs 1(e.2), 5, 10 and 15 of the draft pleading.
Conclusion
[54] The plaintiff shall deliver a revised Amended Statement of Claim in accordance with these Reasons within 14 days, inclusive of the particulars as ordered in paragraph 46 above.
[55] The defendants shall have 21 days from the receipt of the Amended Statement of Claim to serve and file their Amended Statement of Defence and Counterclaim.
[56] I shall remain seized of the trial of this proceeding, which shall be rescheduled before me on an expedited basis for a five day hearing in the fall of 2016. As I am scheduled to join the Family Team in Toronto, I am advised that the first available week for trial before me is November 28, 2016 and I would ask counsel for the parties to confirm their and their clients’ and witnesses’ availability.
[57] Both parties shall be entitled to proceed with further examinations for discovery, lasting no more than one full day for all examinations. The scope of these examinations shall be restricted to the new amendments.
[58] Pursuant to Rule 50.13, I am ordering that a case conference may be held in advance of the trial to address scheduling or other issues if necessary. Counsel may contact my assistant Michelle Giordano at michelle.giordano@ontario.ca to schedule that case conference.
Costs
[59] At the conclusion of the hearing, counsel for the defendants submitted that in the event that leave to amend was granted in whole or in part, the defendants would be seeking their costs thrown away on a substantial indemnity basis. I have received the defendants’ Costs Outline in that regard.
[60] As I advised counsel at the conclusion of the hearing, in the circumstances I am prepared to consider brief costs submissions.
[61] The defendants may serve and file written costs submissions totaling no more than two pages within ten business days after the release of these Reasons.
[62] The plaintiff shall thereafter serve and file responding written costs submissions, also totaling no more than two pages, within ten business days of the receipt of the defendants’ costs submissions.
Diamond J.
Released: June 24, 2016