CITATION: Can-Stor Management Inc. v. Storage Advantage Corp., 2016 ONSC 6850

COURT FILE NO.: CV-16-544399

DATE: 20161206

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Can-Stor Management Inc., James Bennett and Reade Decurtins, Plaintiffs/Respondents

AND:

Storage Advantage Corp., Edev Realty Advisors Inc., John Levitt, Mark Cairns and Clifton Dyke, Defendants/Moving Parties

BEFORE: Stewart J.

COUNSEL: Brian Chung, for the Plaintiffs/Respondents

Julian R. Nawrocki and Karina Wong, for the Defendants/Moving Parties

HEARD: August 11, 2016

ENDORSEMENT

[1] The Plaintiff Can-Stor Management Inc. (“Can-Stor”) is a company which develops and operates self-storage facilities. The Plaintiffs James Bennett and Reade Decurtins are principals and shareholders of Can-Store.

[2] The Defendant Edev Realty Advisors Inc. (“Edev”) is a real estate consulting company. The Defendants John Levitt, Mark Cairns and Clifton Dyke are principals and shareholders of Edev.

[3] As pleaded by Can-Stor and the individual Plaintiffs, in November 2013 the principals of Edev and the principals of Can-Stor entered into a joint venture for the purpose of providing advice to, and carrying out the acquisition, development and management of, self-storage facilities. They incorporated Storage Advantage Corp. (“Storage Advantage”) for that purpose. Shares in Storage Advantage were issued to each of Edev and Can-Stor.

[4] In 2013, Storage Advantage entered into a Management Agreement with Storage Spot Operations Inc. (“SSOI”) for a term of 5 years. Under this Management Agreement, Storage Advantage was to provide storage facilities development, property management and ownership services to SSOI. This was to be an important and lucrative contract for Storage Advantage.

[5] It is further pleaded that the principals of Edev had direct contact with SSOI, managed the relationship and received directions and financial information on behalf of Storage Advantage.

[6] Due to various disagreements about the direction and future growth of the business, the parties agreed that Can-Stor and its principals would exit Storage Advantage. It was further agreed that Can-Stor and its principals would receive substantial payments as an inducement to entering into this departure agreement and in recognition of their past and ongoing services. In exchange, Edev would receive Can-Stor’s shares in Storage Advantage. Edev and its principals were to be released from all liabilities to the Plaintiffs, and the Plaintiffs correspondingly agreed to execute a non-competition covenant.

[7] The departure agreement was executed by the relevant corporate entities, and Levitt, Cairns and Dyke did not sign the departure agreement in their personal capacities.

[8] The first payment under the agreement was paid to the Plaintiffs. When the second payment became due, the Plaintiffs were told that Storage Advantage’s only asset - the Management Agreement with SSOI – had been terminated. Accordingly, Storage Advantage claimed it was insolvent and unable to pay the remaining installments owing to the Plaintiffs, being approximately 90% of the total anticipated payments.

[9] The Plaintiffs allege that shortly after executing the departure agreement the Defendants secretly and falsely terminated the Management Agreement with SSOI in an attempt to avoid their financial obligations to the Plaintiffs thereby causing Storage Advantage to become insolvent. The Plaintiffs characterize this as a sham termination.

[10] The Plaintiffs allege that a number of circumstances suggest that the termination was a sham: it was not done in accordance with the terms of the Management Agreement, there was no reasonable basis for the termination, there was a lack of resistance or response from Storage Advantage in the face of the termination, and Edev and its principals seamlessly continued their involvement with Storage Advantage’s customers and properties through alternative business arrangements.

[11] In their original Statement of Claim, the Plaintiffs had advanced their claim based on an alleged breach of the terms of their departure agreement alone.

[12] The Defendants delivered a Statement of Defence claiming that they were not, strictly speaking, parties bound by the terms of the departure agreement and therefore bore no personal liability.

[13] An Amended Statement of Claim delivered by the Plaintiffs essentially asserts that the Defendants, including Edev and the individual Defendants, acted improperly so as to thwart the fulfilment of the terms of the departure agreement.

[14] In their Amended Statement of Claim, the Plaintiffs make a variety of allegations against the Defendants in that regard and in relation to the performance, or failure to perform, the terms of the departure agreement. They allege breach of contract, oppression, breach of duty of good faith, misrepresentation and unjust enrichment.

[15] The Defendants now move for an order under Rule 21 of the Rules of Civil Procedure striking out the claims in Amended Statement of Claim as against Edev, Levitt, Cairns and Dyke on the basis that the Amended Statement of Claim fails to disclose a reasonable cause of action against them. Among other remedies, the Defendant Storage Advantage seeks an order striking out paragraphs in the Amended Statement of Claim that assert claims of misrepresentation and breach of duty of good faith against it. The Defendants also seek an order under Rule 25.11 striking out those portions of the Amended Statement of Claim which are argued to be so devoid of detail as to constitute a breach of the rules of pleading.

[16] The Plaintiffs submit that the Amended Statement of Claim should stand. Alternatively, they submit that they should be granted leave to amend to cure any pleading deficiencies.

Law and Discussion

[17] The purpose of a Statement of Claim is to plead a cause of action with sufficient particularly to allow a defendant to respond.

[18] To succeed in having the action struck under Rule 21, the Defendants must show that it is plain and obvious that the Plaintiffs cannot succeed in their claim. In order to make that determination, the Amended Statement of Claim must be read generously, with allowances for any drafting deficiencies (see: McCreight v. Canada (Attorney General), 2013 ONCA 483, [2013] O.J. No. 3263 (Ont. C.A.).

[19] Similarly, an order to strike under rule 25.11 should only be granted in the clearest of cases (see: Gardner v. Toronto Police Services Board, [2006] O.J. No. 3320 (O.S.J.)).

[20] The Amended Statement of Claim alleges that Edev and the individual Defendants engaged in dishonest conduct and acted outside the scope of their lawful authority as directors of Storage Advantage and that such actions warrant individual tortious liability and remedies for oppression. In that regard, it is also alleged that the Defendants purported to falsely terminate the Management Agreement to avoid their contractual obligations to the Plaintiffs under the Letter Agreement and thereby made misrepresentations to the Plaintiffs. Edev and the individual Defendants are also alleged to have benefitted from such false or sham termination and thus have been unjustly enriched.

[21] Damages and other remedies are being sought against Edev and the individual Defendants, separate and distinct from the orders being sought against Storage Advantage. These include tracing and accounting remedies designed to require a disgorgement of all profits.

[22] In my view, the allegations in the Statement of Claim, when read generously as the law requires, are not such that it may be concluded that it is plain and obvious that the claims must fail. The claims have been pleaded with sufficient particularity to enable the Defendants to plead in response.

[23] Even in circumstances where a direct contractual relationship cannot be established, it is not plain and obvious that a duty of good faith cannot be owed to the Plaintiffs in these circumstances and that the claim in that regard is doomed to fail (Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494).

[24] When read as a whole, the provisions of the Amended Statement of Claim allege facts which, if proved, can conceivably give rise to the remedies sought against Edev and the individual Defendants. The Amended Statement of Claim clearly alleges that those Defendants have engaged in conduct in a manner that is oppressive or unfairly prejudicial to the Plaintiffs. With respect to the individual Defendants, it is alleged that they have acted outside the scope of their capacity as directors, and personally benefitted from their illegal conduct.

[25] In my view, the Amended Statement of Claim is adequately drafted to withstand all of the various attacks advanced by the Defendants.

[26] If I am found to have been wrong in arriving at this conclusion, I nevertheless would in these circumstances grant leave to the Plaintiffs to further amend their pleading.

Conclusion

[27] For these reasons, the motion is dismissed.

Costs

[28] If the subject of costs cannot be agreed upon, written submissions may be delivered by the Plaintiffs within 20 days of the date of release of this endorsement, and by the Defendants within 15 days thereafter.

Stewart J.

Date: December 6, 2016