Court File and Parties

COURT FILE NO.: CV-12-464416 DATE: 20170426 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ROYAL BANK OF CANADA Plaintiff – and – DCM ERECTORS, INC., CONSTRUCTIONS INEGRATION INC., CONSTRUCTION INTERGRATION GROUP LIMITED and LARRY DAVIS Defendants

COUNSEL: Miranda Spence, for the plaintiff Douglas G. Loucks, for the Defendants

HEARD: April 25, 2017

Endorsement

DIAMOND J.:

Overview

[1] In this action, the plaintiff Royal Bank of Canada (“RBC”) seeks recovery of its legal fees incurred in negotiating a credit facility sought from RBC by the defendant DCM Erectors Inc. (“DCM”). On or about May 28, 2010, DCM and RBC executed a Term Sheet with respect to the potential credit facility in the amount of $10,000,000.00 USD.

[2] The remaining defendants - Construction Integration Inc. (“CII”, a holding company which owns all the shares in DCM), Construction Integration Group Limited (“CIGL”, a holding company which owns all the shares in CII) and Larry Davis (“Davis”, the president of DCM) - initially brought a motion for summary judgment seeking a dismissal of RBC’s claims against them. After being served with the moving defendants’ notice of motion, RBC brought its own motion seeking leave to amend its claim, and add additional allegations against all defendants.

[3] On May 18, 2016, Master Muir granted RBC leave to amend its claim, but as a term of his decision he ordered RBC to provide the defendants with additional particulars.

[4] The moving defendants then revised their notice of motion to seek an additional order striking out the new paragraphs 28 through 36 of RBC’s Amended Amended Statement of Claim pursuant to Rule 21.01(b) of the Rules of Civil Procedure. As such, the moving defendants sought an order granting summary judgment to dismiss the original Amended Statement of Claim against them, plus an order striking out the new paragraphs 28 through 36 as disclosing no reasonable cause of action.

[5] At the outset of the hearing of the motion, I advised counsel for the parties that in my view, the Rule 21 motion (brought specifically by Davis) ought to be heard and determined before the motion for summary judgment, as the potential disposition of Davis’ Rule 21 Motion could impact whether and how the motion for summary judgment would proceed.

[6] With the agreement of counsel for the parties, Davis’ Rule 21 Motion was argued and I took my decision under reserve. I agreed to seize myself of the motion for summary judgment should the moving defendants decide to pursue that relief after the release of my decision.

The impugned paragraphs

[7] As previously stated, the Term Sheet was executed by RBC and DCM on May 28, 2010. According to RBC’s Amended Amended Statement of Claim, the negotiations between the parties towards the Term Sheet commenced in or around 2009.

[8] At paragraphs 28 through 36 of the Amended Amended Statement of Claim, RBC advanced the following allegations:

• Through the course of the negotiations of the Term Sheet, Davis at all material times expressly and/or impliedly represented to RBC that he and DCM were “conducting themselves in accordance with the laws, regulations, policies and standards that govern contractors retained to work on project such as the Project.”
• On or about October 8, 2014, Davis and DCM were indicted in the State of New York on charges of wire fraud and conspiracy to commit wire fraud. The charges arose from allegations that Davis willfully engaged in a scheme to commit various business frauds in connection with the Project.
• Particulars of the allegations against Davis include that from 2009 -2012, (a) he caused materially false payable records to be submitted to the New York Port Authority, and (b) he caused DCM to fraudulently misrepresent to the New York Port Authority which company was performing work for the project.
• Davis’ alleged criminal conduct occurred during the time period when RBC was negotiating the Term Sheet and proposed credit facility with DCM.
• Davis’ express and/or implied representations to RBC (as set out in the first bullet above) were untrue and made negligently. Further, Davis knew or ought to have known that RBC would rely upon those misrepresentations at a time when Davis knew that DCM’s bid for the Project was non-compliant with the applicable regulations and policies.
• At all material times, Davis had an obligation to disclose to RBC any material issues relating to the project, including but not limited to the serious issues relating to DCM’s non-compliance with the applicable laws, regulations, policies and standards. Davis breached his obligation of honesty in contractual performance to RBC by failing to disclose such information, and impliedly misrepresented to RBC that DCM was conducting itself in accordance with the applicable laws, regulations, policies and standards.
• RBC reasonably relied upon Davis’ misrepresentations in negotiating and entering into the Term Sheet and pursuing negotiating towards the credit facility. But for Davis’ misrepresentations, RBC would not have involved itself in the transaction, and would not have incurred the damages sought now to be recovered.
• Davis is personally liable for all of RBC’s costs as his negligent misrepresentations constitute independently actionable torts separate and apart from the actions and interest of DCM.

[9] As stated above, Master Muir ordered particulars of the new amendments, including RBC’s allegation that Davis expressly and/or impliedly represented that he and DCM were conducting themselves in accordance with the applicable laws, regulations, policies and standards that govern contractors. On October 20, 2016, RBC delivered particulars in support of that allegation as follows:

• On November 27, 2007, Davis delivered an email to RBC advising that (a) he had personal, extensive experience in the structural steel industry, (b) DCM had a strong reputation in the New York market, (c) DCM worked for every major developer in the New York market; (d) DCM is invited to every bid in the New York market; and (e) the Davis Group Companies had a good track record; and
• The above express representations gave rise to an implied representation that DCM operated in compliance with the applicable laws, regulations, policies and standards that govern contractors.

Motions to Strike

[10] The test to be employed on a motion to strike is well known and arguably trite. As held by the Supreme Court of Canada in Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, assuming that the facts as stated in the Statement of Claim can be proven, I must decide whether it is “plain and obvious” that the claim discloses no reasonable cause of action. As the pleaded facts are presumed to be true, I can only strike out a claim which has no reasonable prospect of success.

[11] As held by Justice Myers in Salehi v. Professional Engineers Ontario 2014 ONSC 3816, a claim is to be read generously with allowance for mere drafting deficiencies. The test on a motion to strike is no doubt a stringent one as I must be satisfied that the claim, or a radical defect therein, is certain to fail.

[12] A concise and helpful summary of the principles to be applied on a motion to strike, and in particular a motion to strike a claim for intentional interference with economic relations, is set out in the decision of the Ontario Divisional Court in Resolute Forest Products Inc. et al v. 2471256 Canada Inc. 2014 ONSC 3996. Those principles are as follows:

(a) The words of the statement of claim relating to the cause of action in question should be read generously in favour of a plaintiff so as not to unfairly deny that party the benefit of the pleading. This is particularly so with the tort of intentional interference with economic relations, having regard to Cromwell J.’s comment in A.I. Enterprises Ltd. v. Brown Enterprises Ltd. 2014 SCC 12 at para. 2, that the scope of this tort has been unsettled. (b) Rule 25.06(8) of the Rules of Civil Procedure states that full particulars are required when “fraud, misrepresentation, breach of trust, malice or intent is alleged”. Its purpose is to ensure that bald allegations of this nature, totally devoid of any detail, should not be permitted even at this early stage of the action. However, the rule was never meant to stand in the place of discovery but only to ensure that a defendant knows the case to meet with respect to such allegations and is able to plead over. In our view, “full” means sufficient material facts to permit a defendant to respond in a meaningful way at the pleading stage; (c) The “plain and obvious” test sets a high hurdle for a Rule 21.01(1)(b) motion to be successful. It is only in the clearest of cases – where a claim is certain to fail – that a claim should be struck out; (d) Rule 1.04(1) of the Rules of Civil Procedure sets out the general principle that should be taken into account in interpreting and applying the Rules of Practice. It provides that “these rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.” Thus, Rule 21 motions should not become a battleground for highly technical complaints about the form of pleadings for tactical reasons to preclude issues from being heard on their merits. (e) Parties should not be faced with procedural motions right out of the litigation gate, as such motions only serve to frustrate the advancement of the litigation and result in the building up of unnecessary costs and delay. The purpose of a statement of claim is essentially to frame the issues in controversy and set out the material facts of the claim to allow a defendant to respond by way of a statement of defence. The recent emphasis on access to justice (see for example, Hyrniak v. Mauldin, 2014 SCC 7 at paragraphs 23-24 in respect of Rule 20 motions) supports the view that parties and counsel should engage less in disputing pleading details and move as expeditiously and as cost effectively as possible to a resolution on the merits.

Decision

[13] In my view, the allegations in paragraphs 28 through 36 of the Amended Amended Statement of Claim can be divided into two, separate theoretical causes of action: (a) Davis expressly and/or impliedly represented to RBC that he and DCM conducted themselves in accordance with the applicable laws, regulations, policies and standards, and (b) as part of a duty of care owed to RBC, Davis had an obligation to disclose the serious issues relating to DCM’s non-compliance with the applicable laws, regulations, policies and standards, and breached that duty by way of silence and/or omission.

[14] Dealing with the first theory, I agree with the Davis that based upon the particulars provided, there is no reasonable cause of action pleaded against Davis. Apart from the November 27, 2007 email, there are no other representations alleged to have been made by Davis to RBC. To begin, the November 27, 2007 email was delivered more than one year before the commencement of negotiations between the parties towards the Term Sheet. If that email is the only representation made by Davis, it cannot be said that it was delivered to RBC at any “material time” as alleged in paragraph 28 of the Amended Amended Statement of Claim.

[15] Further, I find nothing in the content of the November 27, 2007 email which could amount to a representation, express or impliedly, that DCM conducted itself in accordance with the applicable laws, regulations, policies and standards. The November 27, 2007 email is no more than an introductory email advising RBC, in a very summary fashion, of DCM’s line of work and projects which it performed and completed. Nowhere in that email does Davis make any mention of DCM being in compliance with any applicable laws, regulations, policies and standards.

[16] Accordingly, RBC’s claim against Davis based upon an express and/or implied misrepresentation of DCM’s compliance with the applicable laws, regulations, policies and standards is struck out without leave to amend.

[17] With respect the second theory (ie RBC’s claim that Davis made misrepresentations based upon a breach of a duty to disclose relevant information), while I have some difficulty with the tenability of that claim, I am not prepared at this early stage to strike it out. It is certainly arguable that RBC would have wanted to know about the actions of Davis and DCM (which ultimately led to criminal charges in the State of New York) as part and parcel of RBC’s due diligence towards the Term Sheet and the potential credit facility. Davis argues that there is no allegation in the Amended Amended Statement of Claim that RBC ever made any inquiries of Davis in this regard (i.e. the completion of a Term Sheet application for example), and there is no duty upon Davis other than a duty to take reasonable care in making statements.

[18] As held by Justice Mesbur in Turbo Logistics Canada Inc. v. HSBC Bank of Canada 2013 ONSC 7128, an individual who makes misrepresentations to a bank in order to induce a loan may be held responsible for those misrepresentations, and there can be sufficient proximity between a proposed borrower and a bank to create the “special relationship” required to support the existence of a duty of care.

[19] The question is really whether Davis had a duty to disclose the subject information to RBC. Davis relies upon the following extract from the Supreme Court of Canada’s decision in Queen v. Cognos Inc., [1993] 1 S.C.R. 87:

“In reality, the trial judge did not impose a duty to make full disclosure on the respondent and its representative. He simply imposed a duty of care, the respect of which required, among other things and in the circumstances of this case, that the appellant be given highly relevant information about the nature and existence of the employment opportunity for which he had applied.

There are many reported cases in which a failure to divulge highly information is a pertinent consideration in determining whether a misrepresentation was negligently made.”

[20] It remains to be seen whether making no representations at all can amount to a breach of an obligation to make disclosure in the contents of a duty of care. At this point in the proceedings, and despite Davis’ arguments, I am not prepared to foreclose that possibility.

[21] Accordingly, Davis’ motion to strike RBC’s claim for failure to disclose is dismissed.

Costs

[22] As success has been divided, it is my inclination to award no costs of this motion. If either party takes a different view, they may serve and file written costs submissions in accordance with the following schedule:

(a) Davis’ costs submissions, limited to five pages including a Bill of Costs, to be served and filed within 10 business days; and (b) RBC’s responding costs submissions, limited to five pages including a Bill of Costs, to be served and filed within 10 business days of the receipt of Davis’ costs submissions.

[23] Finally, in the event that the moving defendants wished to schedule their motion for summary judgment before me, at the conclusion of the hearing I shared three separate weeks during which I am currently scheduled to be sitting in motions court. Counsel may contact my assistant Michelle Giordano at michelle.giordano@ontario.ca to schedule a return date before me.

Diamond J. Released: April 26, 2017