CITATION: 2254887 Ontario Inc. v. Ziedenberg, 2016 ONSC 6452
COURT FILE NO.: CV-12-463338 COURT FILE NO.: CV-15-541666
DATE: 20161020
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2254887 ONTARIO INC.
Plaintiff
– and –
HOWARD ZIEDENBERG and RICKI GOODLIN, as Estate Trustees for the ESTATE OF BETTY ZIEDENBERG and as Estate Trustees of the ESTATE OF PAUL ZIEDENBERG, RE/MAX REALTRON REALTY INC., MARY CIFUENTES and ADAM WOLMAN
Defendants
AND BETWEEN:
HOWARD LEWIS ZIEDENBERG and RICKI LEA GOODLIN, as named Estate Trustees for the Estate of Betty Ziedenberg and HOWARD LEWIS ZIEDENBERG and RICKI LEA GOODLIN, as named Estate Trustees for the Estate of Paul Ziedenberg, the ESTATE OF BETTY ZIEDENBERG and the ESTATE OF PAUL ZIEDENBERG
Plaintiffs
– and –
ALAN WEISBROD and ESTHER ROSEN
Defendants
Vanessa A. Ibe, for the Plaintiff
Alan J. Davis, for the Defendants
Alan J. Davis, for the Plaintiffs
Vanessa A. Ibe, for the Defendants
HEARD: June 16, 2016
M. D. FAIETA j.
REASONS FOR DECISION
INTRODUCTION
[1] By agreement of purchase and sale dated June 5, 2012 (“APS”), 2254887 Ontario Inc. (“225”) agreed to purchase, in trust, a house owned by the Defendants Betty and Paul Ziedenberg (together, the “Ziedenberg Defendants” or the “Ziedenbergs”) for the sum of $1,315,000. The APS was not completed. Two actions have been commenced in relation to this APS.
The First Action
[2] 225 commenced the First Action on September 12, 2012, for the return of the $70,000 deposit it made towards the purchase of the house. This action was commenced under Rule 76 (Simplified Procedure) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The Defendants in the First Action are the Ziedenbergs, as well as the real estate agents that represented both the vendor and the purchaser – namely, Re/Max Realtron Realty Inc. and their agents, Mary Cifuentes and Adam Wolman (the “ReMax Defendants”). 225 alleges that the ReMax Defendants made negligent misrepresentations regarding the financial viability of the potential re-development of the property, as well as Paul’s mental capacity to enter the APS, which it relied on in entering the APS.
[3] In its Statement of Defence dated November 8, 2012, the ReMax Defendants deny the allegations of negligent misrepresentation. They also submit that 225 waived all conditions under the APS on June 12, 2012. 225 failed to close the purchase on August 23, 2012, as required by the APS after it advised the ReMax Defendants that it was having trouble obtaining the financing required to complete the purchase.
[4] The Statement of Defence and Counterclaim for the Ziedenbergs, dated January 24, 2013, alleges that Alan Weisbrod and Esther Rosen are officers, directors and shareholders of 225. The Ziedenberg Defendants allege that in the spring of 2012, Weisbrod expressed an interest to the Ziedenbergs about purchasing their home. Michael Ziedenberg, the Ziedenbergs’ son, entered into an Exclusive Listing Agreement with the ReMax Defendants on May 24, 2012, pursuant to a power of attorney given to him by his parents. The ReMax Defendants presented the APS to the Ziedenbergs on June 5, 2012 and, following subsequent amendments, it was signed by the Ziedenbergs later that day.
[5] The Ziedenberg Defendants further allege that 225 sought to purchase the property for investment purposes with other persons. However, 255 failed to secure the necessary funds to complete the purchase. On August 21, 2012, counsel for 225 advised counsel for the Ziedenbergs that the APS was “null and void,” and requested return of the deposit. As a result of 225’s failure to complete the purchase, the Ziedenbergs seek a declaration that they are entitled to the deposit as well as damages in the amount of $100,000.
[6] 225 has also commenced a Third Party Claim against the ReMax Defendants for full indemnification with regards to any amount that 225 is ordered to pay. 225 alleges that the ReMax Defendants knew or ought to have known that Paul Ziedenberg did not have the mental capacity to sign the APS. It alleges that if 225 had been aware of Paul’s condition, it would not have entered the APS.
[7] Betty passed away in June 2013. Paul passed away in April 2015. The title of proceeding was amended by order of this court to reflect that their children are now their estate trustees.
[8] By decision dated February 12, 2016, Master Abrams ordered that 225 post security for costs in the amount of $65,000 and granted leave to the Ziedenberg Defendants to amend their Statement of Defence and Counterclaim to add Weisbrod and Rosen as defendants. 225, Weisbrod and Rosen (the “Purchasers”) appeal this decision.
The Second Action
[9] On December 1, 2015, the Ziedenberg Defendants commenced a new action against Weisbrod and Rosen seeking the same relief that was sought by way of their proposed amended counterclaim. This step was taken in order to protect the Ziedenberg Defendants’ interests, including limitation-related issues, pending the release of the Master’s decision.
[10] The Purchasers:
(1) appeal the Master’s order, which required 225 to post security for costs and also granted leave to the Ziedenberg Defendants to amend their counterclaim to add a claim against Weisbrod and Rosen; and
(2) move to dismiss the Second Action pursuant to Rules 21.01(3)(c) and (d) of the Rules of Civil Procedure on the grounds that (a) there is another proceeding pending in Ontario between the same parties in respect of the same subject-matter; and (b) the action is frivolous or vexatious or is otherwise an abuse of the process of the court.
[11] For the reasons described below, I have granted this appeal, in part, and have dismissed the Second Action.
ANALYSIS
Standard of Review
[12] A Master’s decision will be upheld unless the Master: (1) made an error of law, or (2) exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error: see Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.), at para. 38-41, aff’d 2009 ONCA 415, 96 O.R. (3d) 639, at para. 1.
ISSUE #1: DID THE MASTER COMMIT A REVIEWABLE ERROR IN ORDERING THAT 225 POST SECURITY FOR COSTS?
[13] The court, on motion by a defendant, may make such order for security for costs as is just where it appears that the plaintiff or applicant is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant: see Rule 56.01(1)(d) of the Rules of Civil Procedure.
[14] The Master’s decision, at paras. 5-13, states:
The Ziedenbergs’ concern about the financial wherewithal of the plaintiff is not a concern that arose only recently. The issue was first raised on behalf of the Ziedenberg defendants as early as October 2013. The Ziedenberg defendants had hoped to avoid the need to bring a security for costs motion.
In January 2014, in response to inquiries made on behalf of the Ziedenberg defendants, the plaintiff’s lawyer responded that there was “no basis for assuming that the plaintiff lacks assets” and that “the plaintiff corporation was not just incorporated for the Ziedenberg transaction but rather was incorporated earlier, has done other business and has some assets (emphasis added)”. Details were requested by the Ziedenbergs, again in the hope of obviating the need for this motion; but those details were not forthcoming.
Alan Weisbrod was examined for discovery on behalf of the plaintiff corporation (a corporation for which he is Vice-President) in September 2014. He declined to answer questions as to: the nature of the plaintiff’s business, whether the plaintiff was engaged in any business activity, whether the plaintiff had or has assets, and the plaintiff’s financial wherewithal, including whether it had a bank account and whether it had assets in Ontario sufficient to satisfy a costs award. The Ziedenberg defendants urge me to draw a negative inference from the plaintiff’s failure and refusal to provide even skeletal details of its purpose and asset position.
While counsel for the plaintiff submits that the moving parties have engaged in idle speculation and that the statement of the plaintiff corporation’s principal that there is no “good reason to believe that the plaintiff … has insufficient assets in Ontario to pay the costs of the [moving] defendant[s]” should be accepted as being true, particularly when considered together with the fact the plaintiff has already satisfied a $4,000.00 costs award. I cannot agree.
The Ziedenbergs need only satisfy me that they have good reason to doubt the sufficiency of the plaintiff’s asset position not that the plaintiff has no assets in Ontario (737071 Ontario Inc. v. Min-A-Mart Ltd., 1996 CarswellOnt 1252 (Gen. Div.), at para. 5). With no information as to the plaintiff’s asset position having been shared (notwithstanding a request that it be shared to forestall or avoid this motion), with no information even as to the nature of the plaintiff’s business having been disclosed, with no “give” on the part of the plaintiff to offer comfort to the Ziedenberg defendants as to its financial health, I am persuaded that there is good reason to believe that the plaintiff has insufficient assets in Ontario to defray a costs award. [Footnote: Then too, an[d] in any event, the plaintiff might here be said to be no more than a “nominal plaintiff”, with no formal trust having been established (see discussion below)].
The plaintiff suggests that the $70,000 deposit paid by it “would mean a substantial amount of security for the Ziedenberg [d]efendants” (affidavit of Alan Weisbrod, sworn August 31/15, at para. 3) and that no (further or other) monies ought to be ordered posted by it. With this too, I cannot agree. The Ziedenberg defendants submit that the deposit monies are subject to different considerations, as representing part of the claims advanced by them in their counterclaim. There is law that could entitle them to retain the deposit as “earnest money” – “not merely a part payment, but … an earnest to bind the bargain so entered into, and [which] creates by the fear of its forfeiture or motive in the payer to perform the rest of the contract” (see: Steppe et al. v. Lippa, 1984 CarswellOnt 595 (Masters’ Chambers), at para. 16; and Commonsents Inc. v. Hetherington Welch Design Ltd. et al., 2006 CanLII 33779 (ON SC), 2006 CarswellOnt 6173 (S.C.J.), at paras. 15-17).
The plaintiff also suggests that the Ziedenberg defendants have tarried in proceeding with their motion. While there has been some delay, it is true, the delay ought not to deny the Ziedenberg defendants security for costs. The history of this litigation, as set out in the motion materials, makes it clear that the Ziedenberg defendants were ever hopeful that a motion could here be avoided. Letters were written and efforts were made over more than one year to determine the financial health of the plaintiff, always with the stated desire to avoid the need to attend in court to argue the issue of security for cost being posted. The fact that there might be such a motion was always understood by the parties. [Footnote: I note, parenthetically, that efforts to schedule this motion for a hearing began as early as the Fall of 2014/early January/15].
The question then becomes whether the fact that the Ziedenberg defendants have advanced a counterclaim herein ought to deprive them of security for costs from the plaintiff. I agree with them that when they say that the answer to this is “no”. The claims advanced by way of counterclaim are inextricably linked with those advanced in the main action and as such, cannot be said to substantially increase these defendants’ costs; “[t]he majority of the counterclaim is the equivalent of a defence to the plaintiff’s claim” (see: Wilkings v. Velocity Group Inc., 2008 CarswellOnt 1665 (Div. Ct.), at paras. 24-26). And the alleged lack of capacity on the part of Paul Ziedenberg will be for the plaintiff to establish in the main action (see: Bjelakovic v. Accenture Global Services GmbH, 2008 CanLII 32802 (ON SC), 2008 CarswellOnt 3954 (S.C.J.), at para. 15).
I have considered the draft bill of costs proffered by the Ziedenberg defendants. There being no substantial issue taken in respect of the dollar amounts suggested and impecuniosity not having been asserted by the plaintiff, I am ordering that security for costs be posted by the plaintiff -- in such form and manner as the parties agree and the Accountant of the Superior Court permits, and as follows: $30,000.00 by March 31/16 and $35,000.00 at least 60 days before the date first set for the trial of the action herein.
[15] The Purchasers submit that the Master committed the following errors in ordering security for costs:
She applied the wrong test;
She erred in finding that no information about 225’s assets and business was disclosed to the Ziedenberg Defendants;
She erred in finding 225 has insufficient assets to satisfy an award of costs without any evidence;
She erred in failing to dismiss the motion for security for costs on the basis that the motion had not been brought promptly; and
She erred in requiring that any amount be posted as security for costs on the ground that the bill of costs lacked sufficient information.
Did the Master apply the wrong test?
[16] 225 submits that the Master’s finding that “the Ziedenberg Defendants ‘need only satisfy me that they have good reason to doubt the sufficiency of the Plaintiff’s asset position,’” not that the plaintiff has no assets in Ontario is an incorrect statement of law. 225 provides no support for this bald assertion: see 225’s Factum, at para. 23. In making this statement, the Master relied upon 737071 Ontario Inc. v. Min-A-Mart Ltd. (1996), 47 C.P.C. (3d) 68, [1996] O.J. No. 1173 (Gen. Div.), at para. 5:
The decisions in Ontario have established firstly that the onus is upon the defendant to satisfy the court that it has good reason to believe that the plaintiff has insufficient assets in Ontario. That onus does not require the defendants to prove that the plaintiff has insufficient assets but only to show that it has good reason to believe that. This lighter onus is based on the belief that it would be unfair to insist that the defendant prove something that is within the knowledge of the plaintiff. [Emphasis added.]
[17] This statement remains good law in Ontario. It was cited with approval by the Ontario Court of Appeal in City Commercial Realty Services (Canada) Ltd. v. Bakich, [2005] O.J. No. 6443, at para. 7.
Did the Master err in finding that no information regarding 225’s assets or financial health had been shared with the Ziedenberg Defendants?
[18] The court, at para. 9, found:
With no information as to the plaintiff’s asset position having been shared (notwithstanding a request that it be shared to forestall or avoid this motion), with no information even as to the nature of the plaintiff’s business having been disclosed, with no “give” on the part of the plaintiff to offer comfort to the Ziedenberg defendants as to its financial health, I am persuaded that there is good reason to believe that the plaintiff has insufficient assets in Ontario to defray a costs award. [Footnote: Then too, an[d] in any event, the plaintiff might here be said to be no more than a “nominal plaintiff”, with no formal trust having been established.] [Emphasis added.]
[19] The following evidence was before the Master.
• A letter dated October 30, 2013, after mediation had been held, from counsel for the Ziedenberg Defendants to counsel for 225, which requested the source of monies used for the deposit as well as all documents related to the purported trust relationship involving 225 as purchaser. The letter also requested information regarding the extent to which 225 has sufficient assets in Ontario to pay the costs of the Ziedenberg Defendants.
• A letter dated January 15, 2014, from counsel for the Ziedenberg Defendants to counsel for 225, which provides details of assets held by Michael Ziedenberg in response to 225’s request related to its concern regarding security for costs. The letter repeats the request for information about 225’s assets in Ontario and states “I assume the failure of plaintiff’s counsel to respond to such request is on account of the fact that the plaintiff corporation, in fact, is without sufficient assets to cover such costs, and accordingly, unless I forthwith receive information and documentation suggesting otherwise, I will proceed to schedule a motion with a view to obtaining an Order requiring the plaintiff to post security for costs.”
• On the next day, counsel for 225 replied:
There is no basis for assuming that the plaintiff lacks assets. My understanding is that the corporation was not just incorporated for the Ziedenberg transaction but rather was incorporated earlier, has done other business, and has some assets. I am seeking instructions as to how much detail to give you about this.…
• On the same day, counsel for the Ziedenberg Defendants replied:
I would kindly request that Mr. Frank provide me with the requested information … within the next 10 days; failing which, I will proceed to bring a motion seeking an Order for security for costs.
• On January 24, 2014, counsel for 225 replied:
The defendants and Mr. Davis currently have no good reason to believe that the plaintiff has insufficient assets to satisfy the costs of the action. Accordingly, there is no bona fide basis for bringing a motion for security for costs and there is no obligation for the plaintiff to provide details as to its assets.
• On May 5, 2014, counsel for the Ziedenbergs sent the following letter:
I have received instructions from my clients to further address security for costs issues as they relate to the plaintiff corporation, and in so doing, repeat my prior request for details as to the assets of the plaintiff corporation and any documents substantiating the same, with a view to avoiding the necessity of having to move for an Order for security for costs by way of motion.…
• On June 16, 2014, counsel for the Ziedenbergs sent the following letter:
I have no received no response from Mr. Frank to those issues outlined in my correspondence dated, May 5, 2014, and accordingly, I will be moving for an Order requiring the plaintiff to post sufficient security for costs.
• On June 19, 2014, counsel for 225 sent a “without prejudice” letter to counsel for the Ziedenbergs; however, a copy of that letter is not in the record.
• On June 20, 2014, counsel for the Ziedenbergs sent the following letter:
I confirm receipt of correspondence from Mr. Frank dated June 19, 2014.… I am seeking my clients’ instructions with respect to the information provided by Mr. Frank in his above-mentioned correspondence as it relates to the issues of security for costs.
In the interim, I would kindly request that Mr. Frank provide a copy of the most recent Financial Statement for 2254887 Ontario Inc. as well as copies of the documents giving rise to the financial information set out in paragraph 3 of Mr. Frank’s June 19, 2014 correspondence. I would further kindly request that Mr. Frank also confirm, in writing, the nature of the plaintiff’s active business operations which were referenced in paragraph 4 of his letter. This information and documentation will assist in addressing the security for costs issue raised on behalf of my clients. [Emphasis added.]
• On June 27, 2014, counsel for 225 sent the following letter:
The plaintiff has provided significant information that it was not obliged to provide, on a without prejudice basis, as to the ability to pay costs. This information cannot be quoted by counsel as it was provided without prejudice. We believe our client has provided sufficient information in the circumstances, considering the lack of basis evidenced to date by your clients. [Emphasis added.]
• The examination for discovery of Weisbrod, on behalf of 225, was held on September 18, 2014. At that time, Weisbrod refused to provide any information or documents related to any assets held by 225, including financial statements and bank accounts: see Questions 27-37.
• The Ziedenberg Defendants brought a motion for security for costs on or about October 30, 2014, originally returnable on January 29, 2015, but adjourned to November 17, 2015.
• The affidavit of Maria Galati, a law clerk for Ziedenbergs’ counsel, sworn January 14, 2015, states, at para. 29:
It is respectfully submitted that the plaintiff [225], through counsel, has failed to provide sufficient information and, or, documentation in response to Mr. Davis’ numerous written requests evidencing sufficient assets on the part of the plaintiff corporation to satisfy an award of costs with respect to the claims which they have advanced in these proceedings and that, in view of all the facts and circumstances, it would be both just and appropriate to order that the plaintiff corporation pay into court to the credit of these proceedings, as security for costs, the sum of $75,000.00 or such other amount or other form of security as to this Honourable Court may deem just.
• The affidavit of Alan Weisbrod, sworn August 31, 2015, states:
I am an officer of the Plaintiff, 2254887 Ontario Inc., which is a corporation.… None of the defendants … had or has an order against the plaintiff for costs that remained unpaid. Master Dash did make an order on August 5, 2015 requiring the plaintiff to pay costs of $4,000 to the Ziedenberg Defendants by September 4, 2015, and the plaintiff has paid that in full;
The plaintiff is a corporation but there is no “good reason to believe that the plaintiff ... has insufficient assets in Ontario to pay the costs of the defendant...”
• Weisbrod was not cross-examined on his affidavit given that it is prohibited under the simplified procedure for actions commenced under Rule 76.04(1) of the Rules of Civil Procedure.
[20] In my view, the Master misapprehended the evidence on whether 225 had shared any information regarding it financial position with the Ziedenberg Defendants. Some information had been provided on a “without prejudice” basis by letter dated June 20, 2014: see the letters dated June 20, 2014 and June 27, 2014, described above.
Did the Master exercise her discretion based on wrong principles in finding that there was good reason to believe that 225 had insufficient assets in Ontario to satisfy a costs award?
[21] 225 submits that the court’s finding that 225 has insufficient assets to satisfy an award of costs is based on speculation rather than evidence.
[22] In City Commercial Realty, supra, at para. 8, the Ontario Court of Appeal stated:
Even though the onus is a reduced one, the moving party must still provide enough information about the corporation to raise a belief of insufficiency that goes beyond mere conjecture, hunch, or speculation. As Master Haberman said in Websports Technologies Inc. v. Cryptologic Inc. (2004), [2003] O.J. No. 5455 (Ont. Master) at para. 8:
While all agree that this subrule places a higher onus on corporate plaintiffs, the phrase "good reason to believe" must have some meaning. In my view, it involves something more than a hunch or a concern. There must be some evidence placed before the court from which the court can accept that the concern is genuine and that it is based on proven facts regarding the corporation's current financial circumstances. A bald assertion that a party has insufficient assets, on its own, cannot satisfy the first part of the test. If that was all that was required, motions of this kind would be brought to "test the waters", in all cases where a plaintiff corporation alleges that the defendant's action has caused it to sustain a significant loss, with no information as to the state of a company's financial affairs and no legitimate basis for concern. The 2-part test, with the initial onus on the moving party, is intended to discourage parties from bringing these costly motions without actual grounds. While the moving party need not go so far as to prove that there are insufficient assets, they must, at least, prove facts from which a court can conclude that there is good reason to believe that that is the case. [Emphasis added.]
[23] There was no evidence before the Master to support a finding that 225 had insufficient assets. There was no evidence regarding the assets held by 225; however, counsel for 225 advised the Ziedenberg Defendants in January 2014 that 225 had “some assets.” There was no evidence that 225 was financially unstable or that it had failed to meet its liabilities. To the contrary, the evidence showed that it had complied with an order of this court to pay $4,000 in costs to the Ziedenberg Defendants. 225 was not obliged to disclose documents showing its financial condition to the Ziedenberg Defendants and, thus, even if 225 had refused to make such disclosure, such refusal cannot be viewed as evidence about the sufficiency of its assets.
[24] Accordingly, I find that the Master exercised her discretion on wrong principles in finding that there was good reason to believe that 225 had insufficient assets in Ontario to satisfy a costs award. There was no evidence before the court regarding 225’s circumstances to support that finding. The court’s view, albeit erroneous, that 225 had not shared any information regarding its financial position was an inadequate basis to find that 225 had insufficient assets.
Did the court err in failing to dismiss the motion for security for costs because it was not brought promptly?
[25] The court, at para. 11, found:
The plaintiff also suggests that the Ziedenberg defendants have tarried in proceeding with their motion. While there has been some delay, it is true, that delay ought not to deny the Ziedenberg defendants security for costs. The history of this litigation, as set out in the motion materials, makes it clear that the Ziedenberg defendants were ever hopeful that a motion could here be avoided. Letters were written and efforts were made over more than one year to determine the financial health of the plaintiff, always with the stated desire to avoid the need to attend in court to argue the issue of security for costs being posted. The fact that there might be such a motion was always understood by the parties.
[26] A motion for security for costs is typically brought after pleadings have closed and before any form of discovery has taken place: see Aviaco International Leasing Inc. v. Boeing Canada Inc., [2000] O.J. No. 3284, at para. 20. However a delay in bringing a motion for security for costs is not fatal unless the plaintiff demonstrates prejudice resulting from such delay: see Re 423322 Ontario Ltd. et al. and Bank of Montreal (1988), 1988 CanLII 4678 (ON SC), 66 O.R. (2d) 123, [1988] O.J. No. 1486 (H.C.), at para. 12.
[27] While the motion for security for costs could have been brought earlier, as the Ziedenberg Defendants had threatened, 225 has not alleged any prejudice and, accordingly, the court did not err in its determination that the motion should be dismissed due to delay.
Does the bill of costs lack sufficient information to be a basis for assessing costs?
[28] The court, at para. 13, found:
I have considered the draft bill of costs proffered by the Ziedenberg defendants. There being no substantial issue taken in respect of the dollar amounts suggested and impecuniosity not having been asserted by the plaintiff, I am ordering that security for costs be posted by the plaintiff -- in such form and manner as the parties agree and the Accountant of the Superior Court permits, and as follows: $30,000.00 by March 31/16 and $35,000.00 at least 60 days before the date first set for the trial of the action herein. [Emphasis added.]
[29] 225 argues that the bill of costs submitted by the Ziedenberg Defendants lacked sufficient information as a basis for assessing the amount of security for costs. However, 225 did not make this submission at the hearing of this motion, nor did it lead any evidence in support of this submission. In the circumstances, there is no reason to find that the amount awarded for security for costs was not just.
Conclusions
[30] For the reasons described above, I find that the Master made two palpable and overriding errors. First, the Master misapprehended the evidence in finding that 225 had shared no information with the Ziedenberg Defendants regarding its financial position. Second, the Master exercised her discretion on the wrong principles in relying on speculation, rather than evidence of 225’s financial condition, in finding that that 225 had insufficient assets to satisfy a costs award.
ISSUE #2: DID THE MASTER ERR IN GRANTING LEAVE TO AMEND THE CLAIM?
[31] 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: see Rule 26.01 of the Rules of Civil Procedure.
[32] In granting the Ziedenberg Defendants leave to amend their Statement of Defence and Counterclaim in the First Action to add Weisbrod and Rosen as defendants to their counterclaim, the Master’s decision, at paras. 14-18, states:
[T]he Ziedenberg defendants seek to add Alan Weisbrod and Esther Rosen as defendants to their counterclaim. The plaintiff did not delineate in its claim the nature of the trust relationship that was at issue when the agreement “in trust” that is the subject matter of this litigation was signed.
In early December 2013, when the plaintiff delivered its affidavit of documents, the Ziedenberg defendants saw, for the first time, documents which evidence financing arrangements entered into by Alan Weisbrod and Esther Rosen, personally (Exhibit “D” to the affidavit of Maria Gulati, sworn January 14/15) and a mortgage commitment in respect of the Ziedenbergs’ property naming, as borrower, Alan Weisbrod (Exhibit “E” to the affidavit of Maria Galati, sworn January 14/15).
Mr. Davis says, and I agree, that with Mr. Weisbrod and Ms. Rosen appearing to hold a beneficial interest in the agreement for the purchase of the Ziedenberg property, a tenable claim might be made that the plaintiff corporation was no more than an agent or bare trustee for them. With Mr. Weisbrod and Ms. Rosen applying for mortgage financing to complete the intended purchase (ostensibly personally and not qua officer /director of the corporate plaintiff), one or both could (and plausibly would) have been taking personal title and, as such, could be said to be liable at law for any liabilities that would arise from the purchaser corporation’s alleged breach of the agreement of purchase and sale.
In support of his argument, and persuasively, Mr. Davis points to the following evidence of Mr. Weisbrod from his earlier referenced examination for discovery, namely: at the time that the plaintiff entered into the agreement of purchase and sale “in trust”, no formal trust had been established; there was no documentation referencing the trust; the beneficiaries would have been either the plaintiff corporation or Alan Weisbrod and Esther Rosen; and Mr. Weisbrod and Ms. Rosen did not want the Ziedenbergs to know of their interest in the subject property. That being so and coupled with the mortgage financing documents naming Mr. Weisbrod and Ms. Rosen and making no mention of 2254887 Ontario Inc., a tenable claim could be made that the plaintiff was effectively acting as agent or bare trustee for Mr. Weisbrod and/or Ms. Rosen (see: 642947 Ontario Limited v. Fleischer et al., 2001 CanLII 8623 (ON CA), [2001] O.J. No. 4771 (C.A.), at para. 35). I agree with Mr. Davis when he says that the Ziedenberg defendants ought not, therefore, to be estopped from amending their pleading to make claim against Mr. Weisbrod and Ms. Rosen as principals. The relief sought by them, in this regard, is granted.
The motion to add Mr. Weisbrod and Ms. Rosen was brought within two years of the documentary disclosure by the plaintiff corporation that revealed to the Ziedenberg defendants, for the first time, that which Mr. Weisbrod acknowledged on discovery he had hoped to withhold from them, i.e. that he and Esther Rosen had an apparent beneficial interest in the agreement of purchase and sale. While it is true that, at the time of pleading in January 2013, the Ziedenberg defendants knew that Mr. Weisbrod and Ms. Rosen were officers, directors, shareholders and/or employees of the corporate plaintiff, they would not have been privy to the personal dealings of Mr. Weisbrod and Ms. Rosen as they relate to mortgage financing. There is nothing before me to suggest otherwise. Discoverability is thus a live issue. I cannot say, as Mr. Weisbrod and Ms. Rosen would have me say, that any claims against them are necessarily statute-barred, but I can and do say that Mr. Weisbrod and Ms. Rosen shall be at liberty to plead a limitations defence, if and as may be appropriate.
[33] The Purchasers submit that the Ziedenbergs have no tenable counterclaim against them for the following two reasons.
[34] First, where a party purports to purchase a property in trust, but in fact no trust was ever formed, then it is the contracting party who may sue and be sued on the agreement of purchase and sale: see Okinczyc v. Tessier, [1979] O.J. No. 151, at paras. 13, 18 and 19. However, the Ziedenbergs allege that 225 was the agent for Weisbrod and Rosen. In my view, 642947 Ontario Ltd. v. Fleischer, 2001 CanLII 8623 (ON CA), [2001] O.J. No. 4771, at para. 35, dealt with analogous circumstances and provides the basis for finding that the amended counterclaim is tenable:
642947 was a bare trustee under its trust agreement with Burnac. But as Morden J.A. pointed out in Trident Holdings Limited v. Danand Investments Ltd. (1988), 1988 CanLII 194 (ON CA), 64 O.R. (2d) 65 (C.A.), in many cases a bare trustee will also be an agent, and when it contracts on behalf of a principal, the principal may be liable for breach of the contract. Here, 642947 was undoubtedly an agent for Burnac in executing the second agreement of purchase and sale. Under the trust agreement, 642947 had no independent power, responsibility or discretion; it acted only on the instructions of Burnac. It was not so much carrying out the terms of the trust as it was doing Burnac's bidding. In short, 642947 was an agent for Burnac and the agency relationship predominated over the trust relationship. Because the agency relationship predominated, the agent's principal Burnac, though not disclosed and not a party to the second agreement, is still liable for the agreement's breach. Holding Burnac liable simply gives effect to the proposition that though an agent negotiates and signs a contract with a third party, the contract remains one between the principal and the third party. Fleischer and Newton were therefore not estopped from suing Burnac for breach of the second agreement of purchase and sale.
[35] Second, the Purchasers also submit that the court erred in allowing the Ziedenbergs to amend their counterclaim to assert a claim against Weisbrod and Rosen after the limitation period had expired. They submit that the limitation period began to run in February 2013, when the pleadings were served. They submit that the disclosure of the mortgage financing documents was not required in order for the Ziedenbergs to assert a claim against Weisbrod and Rosen, as there were sufficient facts already plead which could give rise to such allegations. The Purchasers submit that where a limitation period has passed, there will be a presumption of prejudice that cannot be compensated for by costs or an adjournment and leave to grant an adjournment should be denied: see Frohlick v. Pinkerton Canada Ltd., 2008 ONCA 3, at paras. 22-24.
[36] In my view, there was nothing in the Statement of Claim, which suggests that Weisbrod or Rosen held a beneficial interest in 225. I accept that it was not until 225 produced its Affidavit of Documents in December 2013, that it was revealed that the applications for mortgage financing in support of the purchase by 225 had been made by Weisbrod and Rosen personally and not on behalf of 225.
[37] I find that the Master committed no reviewable error in allowing the amendments to the counterclaim.
ISSUE #3: SHOULD THE SECOND ACTION BE DISMISSED?
[38] Rules 21.01(3)(c) and (d) provide:
(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that…
(c) another proceeding is pending in Ontario or another jurisdiction between the same parties in respect of the same subject matter; or
(d) the action is frivolous or vexatious or is otherwise an abuse of the process of the court.
[39] The Ziedenberg Defendants submit that the limitation period for their claim against Weisbrod and Rosen expired on December 4, 2015. The Ziedenbergs commenced the Second Action on December 1, 2015, in order to minimize the risk that their action against Weisbrod and Rosen would be statute-barred in the event that the amendments to the counterclaim were either denied by this court or not approved until after December 4, 2015.
[40] Given that I have dismissed the appeal in respect of this court’s decision to grant leave to amend Ziedenbergs’ counterclaim to add a claim against Weisbrod and Rosen, it is clear that the Second Action is another pending proceeding in Ontario between the same parties in respect of the same subject matter.
[41] It is appropriate to dismiss the Second Action, but before doing so, I direct that the parties attend a teleconference with me and propose terms for an order that provides that the amendments to the counterclaim against Weisbrod and Rosen in the First Action are effective nunc pro tunc to a date agreed upon by the parties, failing which I will impose such date.
CONCLUSIONS
[42] For the above reasons, I have granted the appeal in respect of the order for security for costs, dismissed the appeal in respect of the order that granted leave to amend the Ziedenbergs’ counterclaim and dismissed the Second Action; however, I seek further submissions on the terms on which such dismissal of the Second Action is granted.
[43] I direct that counsel for the Ziedenbergs, Weisbrod, Rosen and 225 attend a teleconference call to be held at 8:45 a.m. on October 26, 2016 to address the remaining issues, including costs. I direct that the parties deliver their bills of costs to my assistant by noon on October 25, 2016.
Mr. Justice M. D. Faieta
Released: October 20, 2016
CITATION: 2254887 Ontario Inc. v. Ziedenberg, 2016 ONSC 6452
COURT FILE NO.: CV-12-463338 COURT FILE NO.: CV-15-541666
DATE: 20161020
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
2254887 ONTARIO INC.
Plaintiff
– and –
HOWARD ZIEDENBERG and RICKI GOODLIN, as Estate Trustees for the ESTATE OF BETTY ZIEDENBERG and as Estate Trustees of the ESTATE OF PAUL ZIEDENBERG, RE/MAX REALTRON REALTY INC., MARY CIFUENTES and ADAM WOLMAN
Defendants
AND BETWEEN:
HOWARD LEWIS ZIEDENBERG and RICKI LEA GOODLIN, as named Estate Trustees for the Estate of Betty Ziedenberg and HOWARD LEWIS ZIEDENBERG and RICKI LEA GOODLIN, as named Estate Trustees for the Estate of Paul Ziedenberg, the ESTATE OF BETTY ZIEDENBERG and the ESTATE OF PAUL ZIEDENBERG
Plaintiffs
– and –
ALAN WEISBROD and ESTHER ROSEN
Defendants
REASONS FOR DECISION
Mr. Justice M. D. Faieta
Released: October 20, 2016