COURT FILE NO.: CV-15-528335
CITATION: Davis v. JV Jadayda Ventures Inc., 2016 ONSC 4871
DATE: 2016/07/29
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Davis v. JV Jadayda Ventures Inc., Ng and Rachid
BEFORE: Master Graham
HEARD: June 17, 2016
APPEARANCES: A. Tahbaz for the plaintiff (moving party)
A. Assuras for the defendants and proposed defendant Imad Rachid
REASONS FOR DECISION
(Plaintiff’s motion to add a party and amend the statement of claim)
[1] The plaintiff’s claim arises from a contract that she entered into with the defendant corporation JV Jadayda Ventures Inc. (“Jadayda”) for the demolition and reconstruction of the garage at her residential property in Toronto. The claim is essentially that the defendants Dale Ng and Jad Rachid, identified as Jadayda’s officers, directors or managers, informed the plaintiff that a garage foundation wall would not be removed such that no City of Toronto permit would be required for the work, but Jadayda then demolished the foundation wall resulting in the need for a permit, which the defendants failed to obtain. The defendants then failed to complete the project, and the plaintiff incurred significant additional costs to have the work completed by another contractor.
[2] The plaintiff now seeks leave to add as a defendant Imad Rachid (“Imad”), whom she alleges “is a controlling mind and/or officer director, manager of Jadayda Ventures Inc.” and to make other amendments to the statement of claim. The defendants do not oppose the amendments other than those relating to the addition of Imad as a party. The proposed amended pleading under consideration is that attached to the notice of return of motion.
[3] The allegations in the draft amended pleading relating to the proposed added defendant Imad, with the proposed amendments underlined, are as follows:
5a. The Defendant, Imad Rachid also known as Richard Rachid, hereinafter “Imad Rachid”, is a controlling mind and/or officer, director, manager of Jadayda Ventures Inc., who at all material times resided in the City of Toronto, in the Province of Ontario.
On or about May 15, 2014, the Plaintiff entered into a contractual agreement with Jadayda Ventures (hereinafter referred to as the “Agreement”) for the demolition and reconstruction of the Plaintiff’s existing garage on the Plaintiff’s Property. The job was to be completed shortly after the Agreement and for the sum of $24,860.00. As per the Agreement, the Plaintiff paid an initial deposit in the sum of $12,000.
The Plaintiff pleads that at all material times, the Defendants advised the Plaintiff that a garage foundation wall would not be removed since Jadayda Ventures was able to construct on the existing garage structure. Accordingly, the Defendants assured the Plaintiff that a City of Toronto Permit to Construct or Demolish the existing garage would not be required in order to commence and continue with construction.
The Plaintiff pleads that there were implied terms of the contractual Agreement, inter alia, that: . . .
© Mr. Ng, Jad Rachid, and Imad Rachid, as directors, managers and controlling mind of Jadayda Ventures, would properly supervise and manage all works to be completed. . . .
In or around May 2014, Jadayda Ventures commenced the demolition and reconstruction of the Plaintiff’s existing garage at the Plaintiff’s Property. Without the Plaintiff’s instructions or knowledge and contrary to prior representations made by the Defendants, Jadayda Ventures negligently demolished a foundation garage wall. This resulted in the need to obtain a City of Toronto Permit to continue with construction and demolition, which the Defendants failed to obtain. . . .
On October 15, 2014, the Plaintiff and the Defendants reached an agreement. The agreement provided that the construction of the garage was to be commenced by May 1, 2015, after some minor variances of the Zoning by-law requirements approved at the Committee of Adjustment Hearing and when the weather permitted with [sic] such construction. . . .
The Defendants failed to comply with their obligations pursuant to their original Agreement dated May 15, 2014, and their subsequent agreement of October 15, 2014, and have abandoned the project all together. . . .
The Plaintiff pleads that the Defendants, Mr. Ng, Jad Rachid and Imad Rachid, were controlling minds of the corporate Defendant, Jadayda Ventures, and caused Jadayda Ventures to breach the agreement of May 15, 2014, and the agreement of October 15, 2014, and abandon the project all together. . . .
The Plaintiff claims that damages for the breach of the agreements [sic] and that the resulting damages were caused by the negligence of the Defendants, the particulars of which are, but not limited to, the following:
(a) they failed to have properly qualified employees;
(b) they knew or ought to have known of the potential consequences of demolishing a foundation garage wall on the Plaintiff’s Property, which ultimately led to a need for a City of Toronto Permit to Construct or Demolish the Plaintiff’s existing garage;
© they failed to ensure proper supervision of their officers, managers and employees;
(d) they failed to take reasonable precautions to ensure a foundation wall of the garage was not demolished;
(e) they created a nuisance by leaving substantial garbage on the Plaintiff’s Property; and
(f) they intentionally and knowingly permitted the demolition of a foundation garage wall.
- The Plaintiff pleads that the Defendants, Mr. Ng, Jad Rachid and Imad Rachid, as officers, directors, managers and/or controlling minds of Jadayda Ventures are personally liable to the Plaintiff as they caused Jadayda Ventures to breach its contract and agreements with the Plaintiff. . . .
[4] Under rule 5.04(2), the court may add Imad Rachid as a party unless prejudice would result that could not be compensated for by costs or an adjournment. In exercising its discretion under this rule, “the court is required to scrutinize the proposed claim to ensure it is meritorious in the sense of raising a tenable plea” (Plante v. Industrial Alliance, 2003 CanLII 64295). If the proposed amendment would not survive a motion to strike, then it should not be permitted.
[5] The proposed defendant opposes being added to the action on the basis that as an officer, director or employee of the defendant corporation JV Jadayda Ventures Inc. (“Jadayda”), there is no legally tenable basis for a finding of liability on him personally. The plaintiff submits that Imad could be found personally liable both on the basis that he intentionally interfered with the economic relations between the plaintiff and the corporate defendant Jadayda by causing Jadayda to breach its contract with the plaintiff and that he negligently misrepresented that the existing garage foundation wall would not be removed.
[6] In Scotia MacLeod Inc. v. Peoples Jewellers Limited, 1995 CanLII 1301 (ON CA), [1995] O.J. No. 3556, the Court of Appeal stated the following about personal liability on the part of a corporation’s employees and officers (at paragraphs 25 and 26):
25 The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact-specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. 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 which had gone sour. There is also a considerable body of case-law wherein injured parties to actions for breach of contract have attempted to extend liability to the principals of the company by pleading that the principals were privy to the tort of inducing breach of contract between the company and the plaintiff: see Ontario Store Fixtures Inc. v. Mmmuffins Inc. (1989), 1989 CanLII 4229 (ON SC), 70 O.R. (2d) 42 (H.C.J.), and the cases referred to therein. Additionally there have been attempts by injured parties to attach liability to the principals of failed businesses through insolvency litigation. In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.
26 . . . A corporation may be liable for contracts that its directors or officers have caused it to sign, or for representations those officers or directors have made in its name, but this is because a corporation can only operate through human agency, that is, through its so-called "directing mind". Considering that a corporation is an inanimate piece of legal machinery incapable of thought or action, the court can only determine its legal liability by assessing the conduct of those who caused the company to act in the way that it did. This does not mean, however, that if the actions of the directing minds are found wanting, that personal liability will flow through the corporation to those who caused it to act as it did. To hold the directors of Peoples [i.e. the defendant] personally liable, there must be some activity on their part that takes them out of the role of directing minds of the corporation. In this case, there are no such allegations. [emphasis added]
[7] In Ontario Store Fixtures v. Mmmuffins Inc., 1989 CanLII 4229 (ON SC), [1989] O.J. No. 1357, cited in Scotia MacLeod, supra, the court considered a motion to strike a claim for intentional interference with contractual relations made against an officer and director of a corporation. MacFarland J. (as she then was) accepted the proposition (at paragraph 8) that “where the necessary elements of the tort are not pleaded, a claim should be struck out”. The court also set out the elements of the tort (at paragraph 6):
6 The issue in this motion is whether the plaintiff has properly pleaded facts which set out all of the elements of the tort of intentional interference with contractual relations. The elements of this tort include the following: (1) an enforceable contract; (2) knowledge of the plaintiff's contract; (3) an intentional act on the part of the defendant to cause a breach of that contract; (4) wrongful interference on the part of the defendant, and (5) resulting damage.
[8] The elements of negligent representation from the Supreme Court of Canada decision in Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87 were stated by the court in Scotia MacLeod, supra (at paragraph 20):
There must be a duty of care based on a "special relationship" between the representor and the representee;
The representation in question must be untrue, inaccurate or misleading;
The representor must have acted negligently in making said misrepresentation;
The representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
The reliance must have been detrimental to the representee in the sense that damage resulted.
[9] On this motion to add Imad as a defendant, if the necessary elements of intentional interference with economic relations or of negligent misrepresentation are not pleaded, the challenged amendments should be refused. In addition, based on the statements of the Court of Appeal in paragraphs 25 and 26 of Scotia MacLeod, supra, the plaintiff’s pleading against the proposed defendant Imad must also allege that his conduct went beyond that of a directing mind of the defendant corporation.
[10] The amended pleading must also be reviewed to determine whether there are any other tenable claims advanced as against the proposed defendant Imad. Both the original pleading and the proposed amended pleading assert claims for breach of contract and negligence (as opposed to negligent misrepresentation) in addition to claims for causing Jadayda to breach its contract and possibly negligent misrepresentation.
[11] The plaintiff alleges a contract of May 15, 2014 with Jadayda (paragraph 6), pursuant to which the defendants Ng and Jad Rachid (as well as Imad if he were added) would properly supervise and manage all works to be completed (paragraph 8). The plaintiff also alleges (paragraph 13) a subsequent agreement of October 15, 2014 with “the Defendants” (including Imad if he were added). The plaintiff then alleges that “the Defendants” failed to comply with their obligations with respect to both contracts (paragraph 21).
[12] The contract of May 15, 2014 is described as a contract between the plaintiff and the corporate plaintiff Jadayda. Accordingly, the only party that could have breached that contract is Jadayda and there can be no tenable claim against Imad in that regard. However, it is open to the plaintiff to allege, as pleaded in the proposed amended paragraph 8.(c), an implied term of the May 15, 2014 contract that Jadayda’s principals including Imad would properly supervise and manage all of the work. This would not enable the plaintiff to add Imad as a party but it would render tenable the pleading in amended paragraph 8.(c) and this amendment is permitted.
[13] The contract of October 15, 2014 is alleged to have been made with “the Defendants” which include the corporate defendant Jadayda and the existing individual defendants. It is open to the plaintiff to allege that the proposed defendant Imad was a party to this contract along with the other individual defendants and on that basis, leave should be granted to add Imad as a party and proposed amended paragraph 5a. is a tenable pleading.
[14] With respect to the claims for negligence, the plaintiff alleges various particulars against “the Defendants” (paragraph 25), which include Jadayda, Ng and Jad Rachid (and Imad if he were added). Although the individual defendants may well have been acting in their capacities as directors or principals of Jadayda, the fact that Jadayda could be vicariously liable for their negligence does not insulate them from findings of negligence against them individually. The addition of Imad as a party is therefore also justified on the basis that the allegations of negligence against him are tenable pleadings.
[15] In the proposed amendments to paragraphs 23 and 26, the plaintiff is attempting to assert a claim against Imad for causing Jadayda to breach the contracts of May 15, 2014 and October 15, 2014. As indicated above, the issues with respect to the tenability of these pleadings are first, whether the plaintiff has pleaded facts setting out all of the elements of the tort (See: Ontario Store Fixtures, supra), and second, if those elements have been pleaded, whether the plaintiff has pleaded that Imad acted other than as a directing mind of Jadayda (See: Scotia MacLeod, supra).
[16] A review of the proposed amended pleading to determine whether it contains the required elements of the tort of intentional interference with contractual relations reveals the following (using the numbers from paragraph 6 of Ontario Store Fixtures):
The plaintiff alleges two enforceable contracts entered into on May 15, 2014 and October 15, 2014.
Although there is no specific pleading that the individual defendants, including the proposed defendant Imad, had knowledge of the contracts, the pleading must be read broadly. It is pleaded that the plaintiff first “entered into a contractual agreement with Jadayda Ventures”, of which it is also alleged that the individual defendants and Imad are the controlling minds, and then “reached an agreement” with “the Defendants”, which would include Imad. The pleading as a whole infers that the individual defendants and Imad had knowledge of the contracts.
The next fact that must be pleaded is “an intentional act on the part of the defendant” to cause a breach of the contract or contracts. The pleadings in this regard are that the defendants Ng and Jad Rachid, (and Imad Rachid if added), “were controlling minds of the corporate Defendant, Jadayda Ventures, and caused Jadayda Ventures to breach the agreement of May 15, 2014, and the agreement of October 15, 2014, and abandon the project all together” (paragraph 23) and as such “are personally liable to the Plaintiff” (paragraph 26). These pleadings are sufficient to meet the requirement of the pleading of an intentional act causing a breach of the contracts but it will still be necessary to consider whether there are any facts pleaded to the effect that the individuals acted other than as directing minds of the corporate defendant.
There is no pleading that the defendants’ conduct constituted wrongful interference on their part.
The plaintiff has pleaded that she has sustained damages as a result of the breach of the two agreements.
[17] Absent a pleading that the defendants’ conduct constituted wrongful interference on their part, the claim that the proposed defendant Imad caused Jadayda Ventures to breach the agreements is not tenable and the amendments adding Imad to paragraphs 23 and 26 are not permitted. In addition, to paraphrase the court in Scotia MacLeod, supra, to hold the directors and general manager of Jadayda Ventures personally liable, there must be some activity on their part that takes them out of the role of directing minds of the corporation. The pleadings against Ng, Jad Rachid and Imad in paragraphs 23 and 26 are limited to allegations that those individuals were controlling minds of Jadayda Ventures. As those individuals are alleged to have acted only as directing minds of the corporation, and there is no pleading that the individual defendants exhibited “a separate identity or interest from that of the company” (Scotia MacLeod, paragraph 25) the pleading of personal liability is not tenable.
[18] This finding on this motion cannot operate against the existing individual defendants Ng and Jad Rachid but it is a further basis for refusing the amendments to add Imad to paragraphs 23 and 26.
[19] The final issue is whether the statement of claim can be amended to add Imad on the basis of a claim of negligent misrepresentation. My consideration of the elements of such a claim is as follows (using the numbers from Queen v. Cognos, supra):
The pleading contains no allegation that would support any special relationship between Imad and the plaintiff.
The plaintiff alleges (paragraph 7) a representation by the defendants to the effect that the garage foundation wall would not be removed and that a City of Toronto permit would not be required for the construction. The plaintiff further alleges (paragraph 9) that contrary to this representation, Jadayda Ventures negligently demolished a foundation garage wall resulting in the need to obtain a City of Toronto permit. Read broadly, the representation is alleged to be untrue because the defendants, contrary to their representation, did demolish the wall, creating the requirement for the permit.
Although there are allegations of negligence against the defendants (paragraph 25), none of these consist of allegations that the defendants were negligent in making the representation.
There is no allegation that the plaintiff relied on the representation.
Although the plaintiff alleges damages arising from the demolition of the foundation wall and the defendants’ subsequent conduct, there is no allegation that any damages resulted from the plaintiff relying on the representation to her detriment.
[20] Read as a whole, the pleading is really that the defendants were negligent in demolishing the wall, resulting in damages consisting of additional construction costs to the plaintiff. However, there is no allegation of any special relationship between the plaintiff and defendants, no claim that the defendants acted negligently in making any representation and no claim that the damages resulted from the plaintiff’s reliance on any representation by the defendants. In addition, considering Scotia MacLeod, supra, there is also no pleading that any representations made by the individual defendants or Imad were made other than on behalf of Jadayda Ventures. There is therefore no basis for adding Imad as a defendant based on a claim of negligent misrepresentation.
[21] Once again, my findings on the claim of negligent misrepresentation operate only in respect of the motion to add Imad as a defendant.
[22] For the reasons set out above, my rulings are as follows:
The plaintiff is granted leave to amend the statement of claim to add “Imad Rachid also known as Richard Rachid” as a defendant.
The plaintiff is granted leave to amend the statement of claim in accordance with the proposed amendments in paragraphs 1.a) and b), 5a, 8.(c), 22, 22a., 25, 27, 28 and 29 of the draft amended statement of claim.
The proposed amendment in paragraph 23 is refused.
The proposed amendment to add Imad Rachid to paragraph 26 is refused. The balance of the proposed amendments to paragraph 26 are permitted.
Costs
[23] Following the hearing of the motion, counsel provided costs outlines and made submissions. However, since success on the motion was divided, I will give counsel an opportunity to make further submissions in the event that they cannot agree on costs. For the assistance of counsel, if I were to make the decision without the benefit of further submissions, I would award no costs.
MASTER GRAHAM
DATE: July 29, 2016