CITATION: 2027707 Ont. Ltd. v. Richard Burnside & Associates Ltd., 2016 ONSC 530
COURT FILE NO.: CV-13-489058
DATE HEARD: January 20, 2016 and written submissions January 29 and February 5, 2016
ENDORSEMENT RELEASED: February 19, 2016
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2027707 ONTARIO LTD. v. RICHARD BURNSIDE & ASSOCIATES LTD. and JOHN SCHNURR
BEFORE: Master R. Dash
COUNSEL: Peter Cozzi, for the plaintiff
Sean Dewart, for the proposed defendant Wilford
REASONS FOR DECISION
[1] In this action against the receiver of the plaintiff’s lodge business, the plaintiff moves to amend its statement of claim to add as a plaintiff the principal of the corporate plaintiff, John Kraner (“Kraner”) and to add as a defendant Allen Wilford (“Wilford”), the lawyer who acted for Kraner’s wife in matrimonial proceedings that resulted in the receivership.[^1] The only contested relief is the addition of the proposed defendant Wilford.[^2] Wilford submits that there is no tenable cause of action pled against him (other than for conversion of Kraner’s personal property) and that all claims against him are statute barred under the Limitations Act[^3].
BACKGROUND
[2] Kraner was the sole shareholder of 2027707 Ontario Ltd. (“202”) which in turn owned a lodge business known as Tobermory Lodge (the “Lodge”). Kraner personally owned the lands upon which Tobermory Lodge carried on business. In underlying matrimonial litigation between Kraner and his ex-wife Natasha Kraner (“Natasha”), Natasha successfully moved to have Richard Burnside & Associates Ltd. (“Burnside” or “Receiver”) appointed as receiver of all assets of Kraner used in relation to the Tobermory Lodge business. Wilford was the lawyer acting for Natasha in those proceedings. Mr. Cozzi acted for Kraner. In his May 16, 2012 order appointing Burnside, Corbett J. granted extensive powers to Burnside to protect the assets under receivership including management of the Lodge. In his reasons he found that Kraner had dissipated assets and had not accounted for cash revenue. Justice Corbett refused to allow Kraner to run the business, but declined to evict him unless and until he interfered with the business.
[3] Burnside took possession of the Lodge on what turned out to be the Victoria Day long weekend. Wilford (together with members of his family, his assistant and others) stayed at the Lodge over the weekend to help run it because of a staff shortage. In a subsequent decision made May 30, 2012, Corbett J. found that Kraner over the weekend had acted in a disruptive manner, contrary to the interests of the Lodge for the purpose of impeding the receivership and as a result evicted him from the property. Corbett J. also found it was poor judgment on the part of Wilford to work for the Receiver over the weekend and for the Receiver to have permitted it, despite the exigent circumstances.
[4] Corbett J. held that neither Mr. nor Mrs. Kraner had the authority “to manage the lodge to the exclusion of the other”, that the “receiver must be and must be seen to be independent of both of the parties” and that the receiver shall not be represented by counsel for either party.
[5] Burnside remained in possession of the Lodge from May 16, 2012 until the plaintiff sold the property for $1.1 million on April 22, 2013 to an arms-length purchaser, Tobermory Lodge and Resorts Inc. (“TLRI”).
[6] The plaintiff issued the statement of claim in this action against Burnside and its agent, the defendant John Schnurr (“Schnurr”) for damages for conversion of the plaintiff’s property. The plaintiff pled it first discovered the unlawful conversion after the April 22, 2013 sale. It pled that it suffered a loss when it was required to provide restitution to TLRI for failure to deliver the converted assets.
[7] The plaintiff has provided evidence of a friend of Kraner, Dr. Michael Byers (“Byers”) of conversations he (Byers) had with Schnurr on September 1, 2014 and further conversations in October and November 2014 during which Schnurr told Byers that Wilford undertook a series of actions designed to devalue the Lodge and to obtain the Lodge for himself at a depreciated price. This allegedly included Wilford recruiting Burnside with the intention of removing Kraner from the property, putting in offers through nominees to purchase the first mortgage and then the property itself, directing management of the hotel during the receivership, allowing the property to deteriorate, directing Schnurr not to show the property to prospective purchasers, directing Burnside and Schnurr to remove property belonging to 202 and personally breaking into Kraner’s office and stealing jewellery and other personal property of Kraner. Byers claims he passed on this information to Kraner after he learned it from Schnurr. In his own affidavit, Kraner swears he was unaware of Wilford’s involvement in the conversion and the intention to personally gain until he was given this information by Byers after September 1, 2014.
[8] The plaintiff served the notice of motion to add Kraner as a plaintiff and Wilford as a defendant on April 10, 2015. The parties agree that the plaintiffs’ rights against Wilford crystallized on April 10, 2015 for limitation purposes, such that for this motion not to be defeated on limitation grounds, the plaintiff’s knowledge of the facts of Wilford’s involvement in the matters herein that constitute a cause of action must neither have been discovered nor reasonably discoverable before April 10, 2013.
THE PROPOSED AMENDMENTS
[9] In the draft amended statement of claim, the plaintiffs assert three claims against Wilford (in addition to punitive damages). Firstly they claim for “damages for conversion of the property” of 202 in the sum of $316,245. This is the same claim asserted in the original statement of claim as against Burnside and Schnurr. This refers to allegations that the receiver removed and disposed of Lodge property (including kitchen equipment and lounge furniture) at the direction of Wilford in order to satisfy the Receiver’s indebtedness to Schnurr for services rendered. Secondly they claim “damages for the devaluation of the value of the Tobermory Lodge” in the sum of $600,000. While no cause of action is specifically named to make such damages actionable, Mr. Cozzi in argument submitted it was the tort of intentional interference in economic relations. Thirdly the plaintiffs claim for “damages for the conversion of the personal property of the plaintiff John Kraner” in the sum of $150,000. Wilford argues that the first two claims do not, as pled, amount to a tenable cause of action. He accepts that the conversion of personal property properly pleads a cause of action in conversion.
[10] The draft amendments add the following as material facts to support the causes of action or as background to those material facts. Wilford was a lawyer representing Natasha in matrimonial proceedings against Kraner. Wilford was “the directing mind for the following scheme of events intended to result in” Wilford “becoming the owner of Tobermory Lodge”: (a) He recruited Burnside as receiver of 202 which owned and operated the Lodge; (b) The purpose of the receivership was to remove Kraner as operator of the Lodge; (c) He personally attended with his family and others to operate the Lodge on Victoria Day weekend in 2012; while there he personally broke into and entered Kraner’s personal office at the Lodge; he offered to purchase the first mortgage on the Lodge using his client Natasha as his agent; he offered to purchase the Lodge in the name of his company Terrior Holdings Inc;[^4] (d) He recruited Schnurr to operate and do maintenance on the Lodge during the receivership; (e) He directed Schnurr to decline to show the Lodge to prospective purchasers; (f) He directed Burnside to authorize Schnurr to remove the plaintiff’s property from the Lodge in order to satisfy the indebtedness of Burnside to Schnurr and Schnurr’s company, Cedar Creek Remediation Ltd.; (g) He stole and converted to his own use Kramer’s jewellery, tools and other personal property and (h) He directed the management of the Lodge by the Receiver. As a result of the implementation of this scheme by Wilford, the sale price of the Lodge was reduced from $1.7 million to $1.1 million resulting in a $600,000 loss. Further, Kraner was evicted from his home resulting in an accommodation expense.
[11] Although the amendments apply only to Wilford, the balance of the claim applies to all the defendants in support of the initial conversion claim. These pleadings include the following: During the receivership, Schnurr removed the plaintiff’s property with the express approval of Burnside as a means to compensate Schnurr in part for the services performed by Schnurr for the Receiver during the receivership, alleged to be a conversion by Schnurr to his own use without lawful authority. The plaintiff subsequently received a demand letter from and had to pay restitution to TLRI (the purchaser of the Lodge) as compensation for the failure of the plaintiff to deliver all of its assets pursuant to the terms of the agreement of purchase and sale, resulting in the claim against the defendants for unlawful conversion of those assets.
TENABILITY: THE LAW
[12] Rule 26.01 provides that “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.” However, if a party is to be added by way of amendment to the pleading regard must be had to rule 5.04.
[13] Rule 5.04(2) provides that “at any stage of the proceeding the court may by order add…a party…on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.”
[14] While the court will not “conduct a detailed examination of the evidentiary merits of a proposed amendment”, the court is required to “scrutinize the proposed claim to ensure it is meritorious in the sense of raising a tenable plea”[^5]:
The amended pleading must be legally tenable. It is not necessary to tender evidence to support the claims nor is it necessary for the court to consider whether the amending party is able to prove its amended claim. The court must assume that the facts pleaded in the proposed amendment (unless patently ridiculous or incapable of proof) are true, and the only question is whether they disclose a cause of action. Amendments are to be granted unless the claim is clearly impossible of success. For this purpose amendments are to be read generously with allowance for deficiencies in drafting.[^6]
[15] On a motion to amend a pleading, the court does not examine the factual merits of the proposed amendments or whether the facts alleged can be proven, but the amendments must be prima facie meritorious. This means that the amendments must raise a tenable claim as a matter of law in the sense that assuming the facts pleaded to be true, the pleading discloses a reasonable cause of action. No amendment should be permitted which, if originally pleaded, would have been struck. To strike on the basis of tenability, it must be plain and obvious, assuming the facts pleaded are true, that the pleading discloses no reasonable cause of action – i.e. that the pleading fails to state a legally sufficient claim.[^7]
[16] Further, the proposed amendments must be “properly pleaded in the sense of complying with the rules that govern pleadings, including sufficient particularity.”[^8]
[17] This requirement has been stated more specifically as follows:
The proposed amendments must otherwise comply with the rules of pleading. For example the proposed amendments must contain a "concise statement of material facts" relied on " but not the evidence by which those facts are to be proved" (rule 25.06 (1)), the proposed amendments are not "scandalous, frivolous or vexatious" (rule 25.11 (b)), the proposed amendments are not "an abuse of the process of the court" (rule 25.11 (c)), the proposed amendments contain sufficient particulars - for example of fraud and misrepresentation (rule 25.06 (8)).[^9]
[18] In determining the tenability of the claim as set out in the draft amendments and whether the claim complies with the rules for pleadings, the proposed amendments are to be read generously with allowance for deficiencies in drafting.[^10]
TENABILITY: ANALYSIS
Damages for Conversion of Kraner’s Personal Property
[19] Wilford concedes that the amended claim based on conversion by Wilford of Kraner’s jewellery and other personal property, as a matter of law, raises a tenable claim in that it properly pleads a reasonable cause of action. Whether it is time barred will be considered separately.
Damages for Conversion of Lodge Property
[20] Wilford argues that the amended claim based on conversion of 202’s property (including the kitchen equipment and patio furniture) does not set out a tenable cause of action. The original statement of claim pled that Schnurr converted the property of 202 with the approval of Burnside and without lawful authority in order to pay for services that Schnurr and his company rendered to Burnside at the Lodge. There is no allegation that the value of the property exceeded the value of Schnurr’s services to the Receiver at the Lodge; however it is unclear to me whether Burnside was authorized by the order of Corbett J. to sell or transfer 202’s property to pay for services rendered to the Receivership. In the amendments it is pled that Wilford directed Burnside to authorize Schnurr’s removal of the property. I do not accept the suggestion that Wilford cannot be said to have converted the property of 202 since Wilford never obtained possession of the property for himself. In my view, the proposed amendments, as pled, support the proposition that Wilford was a party to the conversion of 202’s property by Schnurr and Burnside, having been the directing mind of those events and of the actions of his co-defendants. Wilford’s actions, as pled, could be seen as wrongfully depriving the plaintiffs of their property. While there may be a huge evidential hurdle for the plaintiffs to meet to establish the unlawfulness of Schnurr taking the property with the authority of the Receiver to pay for services rendered to the Receiver and an even greater hurdle to prove that Wilford was able to direct and did direct these unlawful acts, nonetheless the claim to conversion of 202’s property has been tenably pled.
Damages for Devaluation of the Lodge
(a) The Tort of Intentional Interference in Economic Relations
[21] Finally I must consider the plaintiffs’ claim against Wilford for “damages for the devaluation of the value of the Tobermory Lodge”. This claim is against Wilford alone. The draft amendments failed to name any specific tort or other cause of action that caused the damages for devaluation. In argument, Mr. Cozzi suggested that the damages for devaluation were caused by the tort of “intentional interference in economic relations”. This is sometimes referred to as “causing loss by unlawful means”.[^11]
[22] The tort is “available in three-party situations in which the defendant commits an unlawful act against a third party and that act intentionally causes economic harm to the plaintiff”. Conduct is unlawful “if it would be actionable by the third party or would have been actionable if the third party had suffered a loss as a result of it”.[^12] The tort does not “create new actionable wrongs” but simply expands “the range of persons who may sue for harm intentionally caused by existing actionable wrongs to a third party”.[^13] It does not expand the “types of conduct” for which a defendant may be made liable but merely adds another plaintiff who may recover if intentionally harmed as result of actionable conduct to another.[^14]
[23] In this case, Wilford is said to have directed both Burnside and Schnurr to commit acts that resulted in the devaluing of the plaintiff’s property – the Tobermory Lodge. The acts committed by Burnside and Schnurr that resulted in the devaluing of the Lodge include declining to show the Lodge to prospective purchasers while Wilford tried to obtain the Lodge for himself, removing property of the Lodge that would be necessary to transfer to a purchaser of the Lodge, and (although not specifically pleaded) allowing the property to physically deteriorate. The question is whether the actions of Wilford directing Burnside and Schnurr to take these steps were unlawful acts by Wilford as against Burnside and Schnurr (that resulted in intentionally causing economic harm to the plaintiffs). Could Wilford’s acts have been actionable by Burnside and Schnurr against Wilford if they had suffered damages as a result of those alleged actions? While Wilford is alleged to have directed Burnside and Schnurr to commit wrongful acts against the plaintiffs (and in fact the plaintiff 202 has directly sued Burnside and Schnurr for these acts) and while those actions are pled to have resulted in intentional damage to the plaintiffs, there is no plea of any unlawful act or actionable wrong committed by Wilford against Burnside and Schnurr or any other third party that could have resulted in an action by Burnside or Schnurr or any other third party against Wilford.
[24] Further, although (a) Wilford may have intended to obtain the Lodge for himself at a devalued price and taken steps in that regard for example by appointing the Receiver (in the course of his client’s matrimonial proceeding), engaging in improper conduct in the course of the receivership, refusing to allow inspections by proposed purchasers and making an offer to purchase without divulging his own interest and (b) those actions may have been designed to economically harm the plaintiffs and benefit Wilford, but (c) those actions did not involve unlawful or wrongful acts to Burnside or any other third party.
[25] Read generously, the amendments suggest that Wilford interfered with the receivership for his own improper ends, but this does not constitute an unlawful act against a third party. Even if Wilford orchestrated the entire receivership with a view to purchasing the property for himself on a distress sale, and even if it were designed to injure the plaintiff (which is in fact not specifically pled), such conduct does not amount to the tort of intentional interference in economic relations in the absence of an actionable wrong against a third party.
[26] The plaintiffs argue that the unlawful act was Wilford (a) directing the management of the Lodge by the Receiver during the receivership contrary to Justice Corbett’s order not to be involved in the Receiver’s activities and (b) inducing the Receiver to breach the Receiver’s fiduciary duties to the plaintiff, thereby permitting Wilford to gain ownership of the Lodge to the plaintiff’s economic detriment. The plaintiff however does not plead either Justice Corbett’s order prohibiting Wilford’s involvement or any fiduciary duty owing by Burnside to the plaintiff. Even if I were to grant leave to revise the draft amendments to plead these omitted facts, these actions do not constitute actionable conduct by Wilford against the Receiver. They were not unlawful acts done to Burnside, but rather acts said to have been done with Burnside against the plaintiffs. I will have more to say about pleading inducing breach of fiduciary duties as a separate tort further in these reasons.
[27] The plaintiffs also argue that inducing the Receiver to breach his fiduciary duties to the plaintiff was actionable by the Receiver because he was required to waive about $185,000 in receivership fees and expenses because of the alleged breaches by the Receiver of his duties during the Receivership. Again, none of this has been pleaded. The plaintiffs correctly state that even if Burnside suffered no actionable loss, it is sufficient to find an unlawful act if the conduct would have been actionable if a loss had been suffered. In support of this proposition however, the plaintiffs argue that intimidation (presumably by Wilford to the Receiver) would have been actionable had the third party (the Receiver) submitted to the threat. Again, there is no plea that Wilford intimidated Burnside, only that Wilford directed the Receivership. There is no plea of any objection by Burnside.
[28] The plaintiffs also submit that conspiracy may be the “unlawful act” to found the tort of intentional interference in economic relations. I disagree. While an agreement to injure the plaintiff by unlawful means may form the tort of conspiracy, a conspiracy cannot be the unlawful means in the tort of intentional interference in economic relations, at least in this case, since the unlawful act must have been directed at the third party (Burnside) resulting in injury to the plaintiff. There is no unlawful act alleged to have been committed by one co-conspirator (Wilford) against the other co-conspirators (Burnside and/or Schnurr). Rather it is the agreement among Wilford and Burnside and/or Schnurr, as co-conspirators, to injure the plaintiff or to do an unlawful act that was likely to injure the plaintiff that founds an actionable conspiracy. Furthermore no conspiracy or agreement is pled, only a “scheme” attributed to and carried out by Wilford. I will have more to say about the plaintiff pleading conspiracy as a separate tort causing the alleged devaluation of the Lodge further in these reasons.
[29] There is no reasonable cause of action pled in the draft amendments, even when read generously, that could support the tort of intentional interference in economic relations. In my view, on the factual matrix put forward by the plaintiffs, it is unlikely that the plaintiff could amend the draft pleading to satisfy the necessary constituent element of unlawful and actionable conduct by Wilford committed against Burnside, but I do not foreclose the possibility.
(b) The Tort of Conspiracy
[30] The plaintiffs submit in their supplementary written argument that Wilford has committed the tort of conspiracy to injure the plaintiffs by unlawful means. The constituent elements of the tort of conspiracy require an agreement among the co-conspirators to injure the plaintiff or alternatively an agreement to act unlawfully toward the plaintiff knowing that injury is likely to result.[^15] The plaintiff must plead the constituent elements of the conspiracy including particulars of the agreement among the co-conspirators as well as the acts done further to that agreement. In the draft amended statement of claim there is no plea that Wilford conspired with either or both of Burnside or Schnurr, nor is there a plea of a common agreement among the conspirators to cause injury to the plaintiffs nor a plea of unlawful conduct of the defendants acting together with the likelihood of injury known to all of them. Indeed, the actions designed to injure the plaintiffs by causing a devaluation of the property are pled only against Wilford. The claim against Burnside and Schnurr was restricted to conversion of 202’s property to pay monies owing to Schnurr. Although the amendments refer to a “scheme” and “scheme of events” in paragraphs 4.2 and 4.4, the words are used in the context of implementation of a scheme attributed to and carried out by Wilford and not of an agreement between Wilford and his co-defendants.
[31] Although the plaintiffs may have a cause of action based on a conspiracy among Wilford and the co-defendants that resulted in damages for devaluation of the Lodge, there is no reasonable cause of action pled in the draft amendments, even when read generously, that could support the tort of conspiracy.
[32] Furthermore, I note that in oral argument the plaintiffs referred only to the tort of intentional interference with economic relations to support the claim for “damages for the devaluation of the value of the Tobermory Lodge” in the sum of $600,000. Since it had not been earlier raised in the plaintiff’s factum or pled in the draft amendments, I permitted supplementary written submissions on this tort. No mention was made in oral argument of conspiracy as the tort supporting the devaluation loss. It was first raised in the supplementary written submissions and the lawyers for Wilford have had no opportunity to respond. Therefore any determination of the tenability of such claim could only be made when new draft amendments are drafted, sent to the defendants and considered by the court.
(c) The Tort of Inducing Breach of Fiduciary Duties
[33] The plaintiffs argue that by Wilford directing Burnside to remove the plaintiff’s property from the premises and otherwise to commit acts that resulted in the devaluing of the Lodge contrary to the plaintiffs’ interest, Wilford had induced the court appointed Receiver to breach the Receiver’s fiduciary duties to the plaintiffs and Wilford in turn committed the tort of inducing breach of those fiduciary duties. The plaintiffs analogize to the tort of inducing breach of contract.
[34] Are any fiduciary duties owing to the plaintiffs? There is no suggestion that Wilford himself had any fiduciary duty to the plaintiffs. Indeed, as counsel to Kraner’s wife in the matrimonial proceedings, he owed no duty to Kraner. While I concede that the Receiver may have fiduciary duties to the owner of the property under receivership, the moving party has not spelled out the nature or extent of such duties nor provided any jurisprudence in support.
[35] I am in no position to judge the merits of this alleged tort since it was not raised in oral argument or in the original factum. The plaintiffs were restricted in their supplementary submissions to the tort of intentional interference with economic relations and Wilford’s counsel has had no opportunity to respond. Further, the plaintiffs have provided no jurisprudence on inducing breach of fiduciary duty.
[36] In any event, the plaintiffs have failed to plead in the proposed amendments the existence of any fiduciary duties said to be owing by Burnside, nor have they specified any breach of those duties, nor have they pled any inducement by Wilford to cause Burnside to breach any such fiduciary duties. In the result, there is no reasonable cause of action pled in the draft amendments, even when read generously, that could support the tort of inducing breach of fiduciary duties.
[37] If the plaintiffs have a cause of action based on Wilford inducing Burnside to breach his fiduciary or other duties as a Receiver, it must be properly pled and supported by the jurisprudence. That cannot to be determined on this motion. It may be determined if a motion is brought to amend to add a cause of action for inducing breach of fiduciary duties.
(d) Conclusions
[38] The plaintiffs submit that the cause of action for the claim of “damages for the devaluation of the value of the Tobermory Lodge” in the sum of $600,000 is founded in the torts of intentional interference with economic relations, conspiracy or inducing breach of fiduciary duties. I have determined that there is no tenable plea for any of those torts in the draft amendments.
[39] Further, the tort of conversion could not be the cause of action for this loss, nor have the plaintiffs advanced that argument or pled it in the draft amendments in relation to the devaluation. In any event although other property was said to be converted by others and damages were claimed for that loss, it was Kraner himself who sold the Lodge. There may have been a trespass onto the plaintiffs’ property, for example Wilford’s private office, but no damages result from that trespass beyond the loss from the conversion which is separately claimed. The plaintiffs do not seek to rely on the tort of trespass to sustain the devaluation claim nor has it been pled as such.
[40] In the result, there is no tenable cause of action pled in the draft amendments, even when read generously, that could support the claim for “damages for the devaluation of the value of the Tobermory Lodge” in the sum of $600,000.
[41] Nonetheless, since there may be one or more causes of action that could be said to result in “damages for the devaluation of the value of the Tobermory Lodge” in the sum of $600,000 if properly pled, such as conspiracy and inducing breach of fiduciary duties, it would not be just to bar the plaintiffs at this stage from advancing such claims. In the result it is just to permit the plaintiffs to have one further opportunity to draft amendments that clearly set out a cause of action.
[42] Either of these causes of action may (or may not) require the claim to also be advanced against the co-defendants, particularly the conspiracy claim. Typically a claim based in conspiracy is advanced against all co-conspirators. Even if a devaluation claim based on conspiracy is not sought as against Burnside and/or Schnurr, it will still be necessary, as part of the material facts pled in support of the conspiracy claim against Wilford, to allege the agreement, the nature and object of the agreement and the parties to the agreement (i.e. the co-conspirators) as well as the acts done by Wilford and his co-conspirators in furtherance of the conspiracy. If the plaintiffs seek leave to advance a claim against Wilford for inducing Burnside to breach the Receiver’s fiduciary duties owing to the plaintiffs, even if the plaintiffs do not seek damages against Burnside for breaching those very duties, the nature and breach by Burnside of those duties will have to be pled in order that Wilford be liable for inducing such breach. Simply alleging that Wilford directed management of the Lodge by the Receiver is insufficient.
[43] The lawyers for the co-defendants will have to be put on notice of any further proposed amendments and may take a position on the motion, which they chose not to do when the claim was advanced only against Wilford, depending on how the plaintiffs choose to frame their cause of action. Whether a claim is advanced against Burnside and/or Schnurr for conspiracy or against Burnside for breach of fiduciary duties or whether the proposed amended statement of claim seeks relief only against Wilford but merely names Burnside and/or Schnurr as the persons with whom Wilford entered into an unlawful agreement (i.e. the co-conspirators) or merely alleges that Burnside breached his fiduciary duties which Wilford is liable for inducing, they are persons with an interest in the amendments.[^16] There may be additional limitation arguments advanced depending on when the fresh notice of motion to amend is served and what material facts not already pled, if any, are necessary to support those causes of action.
[44] I would therefore allow the two conversion claims to proceed as pled in the draft amendment subject to the limitations argument. I would dismiss as failing to plead a tenable cause of action the claim for “damages for the devaluation of the value of the Tobermory Lodge” in the sum of $600,000 as currently pled but with leave to move again on fresh amendments.
[45] Of course, material facts in the draft amended statement of claim that support only the devaluation claim must also be struck. If counsel cannot agree which portions of the current draft amendments fall into that category I may be contacted to resolve the issue. These same paragraphs however may form part of the material facts in a revised draft amended statement of claim in support, for example, of a claim based on conspiracy or on inducing breach of fiduciary duties, and those material facts, if repeated, will be deemed to have been made on April 10, 2015.
LIMITATIONS: THE LAW
[46] Wilford argues that all of the claims against him, but particularly Kraner’s claim to damages for conversion of his personal property, are time barred.
[47] Clearly, as stated in rules 26.01 and 5.04(2), an amendment will not be permitted if it will result in irremediable prejudice to the other party. One example of such prejudice is when an action is started or a party added after passage of a limitation period.
[48] Section 21(1) of the Limitations Act, 2002[^17] (“Limitations Act” or “Act”) provides:
21(1) If a limitation period in respect of a claim against a person has expired, the claim shall not be pursued by adding the person as a party to any existing proceeding.
[49] It is therefore clear that parties cannot be added to an existing action after the expiry of the limitation period.[^18] The common law doctrine permitting the extension of a limitation period due to special circumstances does not apply to actions governed by the Limitations Act which came into force on January 1, 2004. Rules 5.04(2) and 26.01 must now be applied so as to give effect to section 21(1) of the Act.[^19]
[50] The basic limitation period as set out in paragraph 4 of the Act is two years from the date of discovery of the claim:
- Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
[51] Establishing the day that the claim was discovered is governed by section 5 of the Act:
5(1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
[52] A cause of action “arises for purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence”.[^20]
[53] Section 5(2) of the Act sets out a presumption with respect to discoverability:
(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
It is therefore presumed that a claim was discovered on the day that the act or omission on which the claim was based occurred unless the moving party proves that the claim was not discovered and could not with reasonable diligence appropriate to the plaintiff have been discovered until a later date.
[54] The approach a court should take to a motion to add a party when it is alleged that a claim against that party was not discovered and could not reasonably have been discovered within two years of the amendment has been set out by the court of appeal as follows (although there dealing with discovering the identity of a defendant, it applies equally to discovering the factual elements of a claim against such person):
What is the approach a judge or master should take on a motion to add a defendant where the plaintiff wishes to plead that the limitation period has not yet expired because she did not know of and could not with due diligence have discovered the existence of that defendant? In my view, as is clearly implied in Zapfe, the motions court must examine the evidentiary record before it to determine if there is an issue of fact or of credibility on the discoverability allegation, which is a constituent element of the claim. If the court determines that there is such issue, the defendant should be added with leave to plead a limitations defence. If there is no such issue, as for example where the evidence before the motions court clearly indicates that the name of the tortfeasor and the essential facts that make up the cause of action against such tortfeasor, were actually known to the plaintiff or her solicitor more than two years before the motion to amend, the motion should be refused. If the issue is due diligence rather than actual knowledge, this is much more likely to involve issues of credibility requiring a trial or summary judgment motion, provided of course that the plaintiff gives a reasonable explanation on proper evidence as to why such information was not obtainable with due diligence. That is not to say that such motion could never be denied if the evidence is clear and uncontradicted that the plaintiff could have obtained the requisite information with due diligence such that there is no issue of fact or credibility.[^21]
[55] Discovery of a tortfeasor “involves more than the identity of one who may be liable. It involves the discovery of his or her acts, or omissions, which constitute liability”.[^22]
[56] Therefore, if the plaintiff actually knew of the facts that make up the cause of action more than two years before the motion to amend, the motion should be refused. If discoverability rather than actual knowledge is the issue, it is has been held that not much evidence is required to establish reasonable diligence at the pleadings amendment stage, however, one would expect to find evidence by way of affidavit setting out what attempts may have been made in the context of the circumstances surrounding the claim “to obtain information to substantiate the assertion that the party was reasonably diligent and provide an explanation for why she was unable to determine the facts.”[^23] This “is not a high threshold”.[^24]
[57] The rights of the parties crystallize when the notice of motion to add the party has been served on all persons affected by the order sought. Persons affected by the order sought, and on whom the notice of motion must be served, would include the proposed defendant, particularly when limitations issues are engaged.[^25] Amendments to add a party would be time barred if the plaintiff actually knew or with reasonable diligence ought to have known of the facts that make up the cause of action against the party to be added more than two years before the date of service of the notice of motion.
LIMITATIONS:ANALYSIS
[58] In this case the notice of motion was served (as part of the motion record) on April 10, 2015. Therefore the action would be time barred if the plaintiff actually knew, or with reasonable diligence ought to have known, the facts that make up the cause of action against Wilford before April 10, 2013.
[59] Wilford alleges that the plaintiff was aware or ought to have been aware of all of the claims advanced against him before April 10, 2013, but particularly with respect to the claims for conversion of Kraner’s personal property.
[60] It is undisputed on the evidence before me on this motion that Kraner had actual knowledge of Wilford’s conversion of Kraner’s personal property, of Wilford’s role in instructing Burnside and Schnurr to convert 202’s property to reimburse Schnurr for his services to the Receiver and of Wilford’s scheme to depress the value of the Lodge and then purchase it himself at a reduced price only when Schnurr gave this information to Byers in a conversation on September 1, 2014 and further conversations in October and November 2014. In each case Byers relayed the information to Kraner on the same date as Byers conversations with Schnurr or shortly thereafter.
[61] The evidence of both Byers and Kraner under oath is that this was the first time that Schnurr (or anyone) had indicated that Wilford had undertaken a series of actions designed to devalue the Lodge and to obtain the Lodge for himself at a depreciated price, including the recruitment of Burnside as receiver with the intention of removing Kraner from the property, putting in offers through nominees to purchase the first mortgage and then the property itself, directing management of the hotel during the receivership, directing Schnurr not to show the property to prospective purchasers, directing Burnside and Schnurr to remove property belonging to 202 and personally breaking into Kraner’s office and stealing jewellery and other personal property of Kraner. (Although not specifically pleaded, it appears Schnurr also told Byers that Wilford was involved in letting the property physically run down by not attending to such matters as bed bugs and leaks. Further the fact that the property was put under receivership by Wilford was also said to have financially depressed the Lodge’s value.)
[62] Therefore, on the evidence on this motion, the plaintiffs did not have actual knowledge of the facts that constitute a cause of action against Wilford until September 1, 2004, at the earliest. This was only seven months before the notice of motion to add Wilford as a party was served, well within the two year limitation period.
[63] Wilford however argues that Kraner reasonably ought to have known of Wilford’s involvement or have been put on enquiry as early as May 19, 2012 or as late as August 26, 2012. Kraner gave evidence on his cross-examination that he learned on May 19, 2012 that Wilford had “gone into” his private office and this caused him to be “very concerned”. He had no information that anyone else had gone into his office. He was then barred from the premises by order of Corbett J. on May 30, 2012. On August 26, 2012 Kraner was able to conduct an inspection of the premises in the company of Schnurr and at that time Kraner for the first time realized that jewellery, tools and other personal items had been taken from his personal office and from his shop and garage. On August 30, 2012 he wrote to the lawyer for the Receiver to demand return of his property.
[64] Wilford argues that Kraner’s knowledge in May 2012 of Wilford’s entry into his office combined with his discovery in August 2012 that his property was missing should have given Kraner reason to suspect that Wilford may have taken his property. Wilford asserts that Kraner’s due diligence should have commenced by August 2012, in which case Kraner’s notice of motion served in April 2015 was out of time. This is contrasted with the fact that Kraner’s demand for the return of his property on August 30, 2012 was made to Burnside and not to Wilford. Further, Kraner stated under oath that he only learned that Wilford took his possessions in September 2014 when Byers received the information from Schnurr. This was not shaken on cross-examination.
[65] Should knowledge that Wilford was in his office combined with knowledge received three months later that some of his personal property was missing mean that as of August 2012 Kraner should have reasonably suspected that Wilford stole his property and put him on his enquiry? It is not “clear” that Kraner should have known of Wilford’s role in the conversion by that date. In my view that is a triable issue. There is a low threshold for the plaintiff to meet to establish due diligence at the pleadings amendment stage. If Wilford pleads a limitations defence, the trial judge will be in the best position on a full evidentiary record to determine when Kraner should, with reasonable diligence, have known that Wilford was the person who converted his property.
[66] As to knowledge of Wilford’s involvement in matters of devaluing the Lodge, Byers gave evidence on his cross-examination that he (Byers) became aware in February 2013 that a potential buyer had been turned away. When Byers asked Burnside about this on April 23, 2013, Burnside indicated that it was a mistake and that Wilford was implicated in this decision. Byers says this was then supported by his conversations with Schnurr in September 2013. There is no evidence in any of the affidavits or cross-examinations that Byers passed on to Kraner the information he ascertained in April 2013 about Wilford’s involvement. The only evidence of Byers passing on information to Kraner followed the September 2013 discussion. It may be that evidence of earlier knowledge by Kraner will be developed at trial, but it was not evidence on this motion.
[67] There is no other evidence before me to impute knowledge to Kraner of Wilford’s involvement in devaluing the Lodge until September 2013.
[68] In any event, even if April 23, 2013 is fixed as the date of Kraner’s knowledge of Wilford’s involvement, that was still less than two years before the notice of motion was served on April 10, 2015 and was therefore not prima facie time barred.
[69] As to the claim against Wilford in conversion for directing Burnside to permit Schnurr to take 202’s property, although Kraner became aware of the missing property at or shortly after the Lodge was sold on April 22, 2013, there is no evidence before me to impute knowledge to Kraner of Wilford’s involvement in that conversion until September 2013. Even if Kraner should, with due diligence, have been put on notice as early as April 22, 2013, this was within two years of serving the notice of motion on April 10, 2015.
[70] I would not deny any of the amendments based on the limitation period having passed before service of the notice of motion. Whether Kraner ought to have known of Wilford’s involvement in any of the causes of action pled against him prior to April 10, 2013 is a triable issue. Wilford will be entitled to plead a limitations defence.
[71] I have earlier indicated that the dismissal of the motion to amend the statement of claim to claim damages for devaluation based on an untenable plea of intentional interference in economic relations was without prejudice to a fresh motion to amend supported by a fresh draft amended statement of claim based on, for example, conspiracy or inducing breach of fiduciary duties. That may (or may not) involve adding additional material facts to support those claims beyond the limitation period as against Wilford, and even more so if the conspiracy claim is advanced against either or both of the co-defendants. It will be a matter for a future motion court to determine if such amendments will be denied based on clear passage of a limitation period.
COSTS
[72] My preliminary view is that there was a division of success, such that there be no costs of the motion or perhaps more appropriately that they be in the cause of the action against Wilford. However, if the parties are unable to agree on an appropriate costs disposition, any party seeking costs of the motion shall within 10 days provide me with brief costs submissions (up to three pages) supported by a costs outline and redacted dockets. Any responding submissions (up to three pages) may be made within a further 10 days.
ORDER
[73] I hereby order as follows:
(1) The plaintiff has leave to add John Kraner as a plaintiff and John Allen Wilford as a defendant to the action and to amend the statement of claim in the manner set out as Schedule A to the notice of motion except as to the claim for devaluation of the value of the Tobermory Lodge as set out in paragraph 1.1(b) of the draft amended statement of claim.
(2) The motion to amend the statement of claim to add a claim for devaluation of the value of the Tobermory Lodge as set out in paragraph 1.1(b) of the draft amended statement of claim and statements of material facts pled solely in support of that claim are dismissed without prejudice to move again for leave to amend the statement of claim by adding other causes of action for the devaluation in value of the Tobermory Lodge, together with a plea of all necessary material facts in support of those causes of action.
(3) The added defendant John Allen Wilford has leave to plead a limitations defence to all claims advanced against him.
Master R. Dash
DATE: February 19, 2016
[^1]: It also appears that the plaintiff intends to add as a defendant 7887035 Canada Inc. c.o.b. as Cedar Creek Remediation (a company related to the existing defendant John Schnurr) but it is not included as a defendant in the proposed amended statement of claim. I am advised that Schnurr does not oppose that relief. [^2]: It is contested only by Wilford. The existing defendants consent to adding Wilford as a defendant. [^3]: Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, in force January 1, 2004. [^4]: Wilford has put in evidence that he had no beneficial or legal interest in Terrior Holdings Inc. and it was Natasha that initially considered purchasing the mortgage, but this motion is concerned with whether the allegations pled set out a cause of action assuming the facts to be true, not whether those facts can be proved or disproved on an evidentiary basis. [^5]: Plante v. Industrial Alliance Life Insurance Company, 2003 64295 (ON SC), [2003] O.J. No. 3034, 66 O.R. (3d) 74 (SCJ- master) at para. 19 [^6]: Plante v. Industrial Alliance, supra, para. 21(b) [^7]: Brookfield Financial Real Estate Group Ltd. v. Azorim Canada (Adelaide Street) Inc., 2012 ONSC 3818, 2012 ONSC 3406, 111 O.R. (3d) 580 (S.C.J.) at paras. 23, 24, 27-28, 30. [^8]: Brookfield Financial, supra at para. 23 [^9]: Plante v. Industrial Alliance, supra, para. 21(c) [^10]: Brookfield Financial, supra, at para. 23 [^11]: A.I. Enterprises Ltd. v. Bram Enterprises Ltd., [2014] S.C.J. No. 12, 2014 SCC 12, [2014] 1 S.C.R. 177 at para. 2 [^12]: A.I. Enterprises, supra, at para. 5 [^13]: A.I. Enterprises, supra, at para. 45 [^14]: A.I. Enterprises, supra, at para. 74 [^15]: These constituent elements of conspiracy are set out in Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 23 (SCC), [1983] 1 S.C.R. 452 and Hunt v. T&N plc, 1990 90 (SCC), [1990] 2 S.C.R. 959 at para. 46. [^16]: After this motion was heard, but before these reasons were released it was brought to my attention that Pollak J. on January 25, 2016 stayed the action as against Burnside. I do not have her reasons for decision. The stay against Burnside plays no role in my decision herein, although it may (or may not) affect the plaintiffs’ ability to plead conspiracy against Burnside as a co-conspirator with Wilford or to sue Burnside for breaching his fiduciary obligations. That is a matter that may be considered on a future amendment motion. In any event Mr. Cozzi advises me he is instructed to appeal Justice Pollak’s decision. [^17]: Limitations Act, 2002, S.O. 2002, c. 24, Sched. B [^18]: Joseph v. Paramount Canada’s Wonderland, (2008), 2008 ONCA 469, 90 O.R. (3d) 401 (C.A.) at para. 25. [^19]: Joseph v. Paramount Canada’s Wonderland, supra at paras. 13 and 27. [^20]: Aguonie v. Galian Solid Waste Material Inc., 1998 954 (ON CA), [1998] O.J. No. 459 (C.A.) at para. 24. [^21]: Pepper v. Zellers Inc., 2006 42355 (ON CA), [2006] O.J. No. 5042, 83 O.R. (3d) 648 (C.A.) at para. 18; Wong v. Adler, 2004 8228 (ON SC), [2004] O.J. No. 1575, 70 O.R. (3d) 460 (S.C.J. – master), affirmed (2005), 2004 73251 (ON SCDC), 76 O.R. (3d) 237 (Div. Ct.) [^22]: Aguonie, supra, at para. 24 [^23]: Wakelin v. Gourley, 2005 23123 (ON SC), [2005] O.J. No. 2746 (SCJ – Master) at para. 14, affirmed [2006] O.J. No. 1442 (Div. Ct.) [^24]: Wakelin v. Gourley, supra, at para. 15 [^25]: Jodha v. Dineen, 2015 ONSC 6848, [2015] O.J. No. 6071 (SCJ – Master) at para. 81