Court File and Parties

COURT FILE NO.: CV-13-489058 MOTION HEARD: 21042017

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2027707 Ontario Ltd. Plaintiff AND: Richard Burnside & Associates Ltd. and John Schnurr Defendants

BEFORE: Master P. T. Sugunasiri

COUNSEL: P. Cozzi, Counsel, for the Plaintiff/Moving Party S. Dewart, Counsel, for Allen Wilford/Responding Party

HEARD: April 21, 2017

Reasons for Decision

[1] This action arises from the receivership of the Plaintiff’s lodge business. John Kraner is the principal of the Plaintiff. He and his former wife operated a motel in Tobermory called the Tobermory Lodge. Mr. Kraner was the registered owner of the property and the business was operated through the Plaintiff. In the course of matrimonial litigation, Mrs. Kraner alleged that Mr. Kraner was dissipating assets. Accordingly, Mr. Allen Wilford (“Wilford”) who acted for Mrs. Kraner moved successfully for the appointment of a receiver to operate the business.

[2] On May 16, 2012, Justice Corbett appointed the Defendant Richard Burnside & Associates Limited (the “Receiver”) as receiver and manager of Tobermory Lodge. In or around March 2013, Mr. Kraner agreed to sell the Lodge. After the sale was complete, Mr. Kraner alleged that kitchen equipment and other valuable fixtures had been removed from the property prior to closing. The Plaintiff commenced this action in September of 2013 seeking damages for conversion of property in the amount of $316,245.17 and punitive damages.

[3] On February 19, 2017, Master Dash added Mr. Kraner as a plaintiff to the action and Mr. Wilford as a defendant. He also permitted some, but not all of the proposed claims against Mr. Wilford. He granted the Plaintiff’s proposed conversion claim against Mr. Wilford but not the claim for “damages for the devaluation of the value of the Tobermory Lodge in the amount of $600,000.” Master Dash did not permit the addition of this form of relief on the basis that it was not supported by any tenable causes of action. Master Dash granted the Plaintiff “one further opportunity” to draft amendments to support that claim for relief.

[4] The Plaintiff therefore brings the within motion seeking leave to further amend the Statement of Claim (“Claim”). The proposed amendments continue to seek “Damages for the devaluation of the value of the Tobermory Lodge in the amount of $600,000.00” (the “devaluation claim”) and adds an additional claim for “Damages for the torts of inducing breach of fiduciary duty, civil conspiracy to injure, and trespass to property in the amount of $250,000.00.”

[5] For the reasons set out below, the Plaintiff is permitted to amend the Claim to include the devaluation claim, the claim for inducing breach of fiduciary duty and the claim for trespass as against Wilford. The conspiracy claim and material facts supporting the conspiracy claim are struck.

The Law

[6] There is no issue between the parties as to the applicable test to be met in amending the Claim. Amendments are governed by Rules 26.01 and 5.04. In short, amendments ought to be granted unless prejudice arising from the amendments cannot be compensated by costs or an adjournment. As Master Dash notes in his related decision at 2027707 Ont. Ltd. v. Richard Burnside & Associates Ltd., 2016 ONSC 530, in a motion to amend a pleading, the court is required to scrutinize the proposed claim to ensure it raises a tenable plea. [^1] No amendment should be permitted which, if originally plead, would have been struck. To strike on the basis of tenability, the court is to assume the facts as plead to be true, and examine if it is plain and obvious that the pleading, or a particular allegation in the pleading, fails to disclose a reasonable cause of action. [^2] Finally, in determining the tenability of a claim, the proposed amendments are to be read generously with allowances for deficiencies in drafting. [^3]

[7] The issue in the current motion is tenability of the proposed causes of action against Wilford.

Tenability Analysis

[8] In the Claim that was before Master Dash, the Plaintiffs had failed to set out the cause of action underlying the devaluation claim. In oral and supplementary written submissions, the Plaintiffs argued that the relief was grounded in the torts of intentional interference with economic relations and conspiracy. In the proposed Claim before me, there is no claim for intentional interference with contractual relations and I need not consider if that cause of action could be gleaned from the Claim if read generously. Master Dash permitted the Plaintiff to seek further amendment of the Claim with the benefit of his comments and concerns raised about that cause of action. If it is not expressly in the Claim now, I consider it to be abandoned.

[9] Despite this final opportunity to amend with the benefit of guidance from Master Dash, the devaluation claim against Wilford still has no cause of action overtly affiliated with it. Instead, the Plaintiffs (Mr. Kraner having been added by Master Dash) has added a new and separate head of relief against Wilford at paragraph 1.1(d) for “Damages for the torts of inducing breach of fiduciary duty, civil conspiracy to injure and trespass to property in the amount of $250,000.00”. On a strict reading of the proposed Claim, This alone is a reason to strike the devaluation claim, or rather, disallow its inclusion. This view is reinforced by the fact that in their plea relating to the devaluation claim, the Plaintiffs say: “As a result of the implementation by the Defendant John Allen Wilford of the scheme referred to in paragraph 7.1 above, the sale price of the Tobermory Lodge was reduced from a Pre-Receivership value of 1,700,000.00 to an actual sale value of 1,100,000.00 for a net loss to the Plaintiff of $600,000.00.” The substance of paragraph 7.1 is exactly what Master Dash considered in the motion before him and found the relief to be wanting of a cause of action.

[10] The Plaintiffs nevertheless seek to tie conspiracy and inducing breach of fiduciary duty to the devaluation claim in their factum and oral submissions. To give the Plaintiffs the benefit of the most generous reading of the proposed Claim possible, I will consider the sufficiency of the causes of action in paragraph 1.1(d) for the purposes of both the devaluation claim and the claim for $250,000.

Civil Conspiracy

[11] Since the pleading that was presented to Master Dash, the Plaintiffs have added paragraphs 8-36 and paragraph 45 to support their claims for trespass, civil conspiracy and inducing breach of fiduciary duty. Paragraphs 7.1(a) and (d), 17-22, 24-27, 29-32, 34 and 35 appear to address the tort of civil conspiracy though I agree with Wilford that the pleading for civil conspiracy is interspersed with trespass and inducing breach of fiduciary duty. For the reasons set out below, I am not persuaded that there is a tenable cause of action in civil conspiracy and it, and any supporting material facts, should be struck from the proposed Claim.

[12] The constituent elements of the tort of civil conspiracy are uncontroversial. Whether the claim is for “unlawful conspiracy” or “conspiracy to injure”, the Plaintiff’s proposed Claim must set out:

a. The parties to the agreement to conspire; b. The relationship of the parties; c. The particulars of the agreement; d. The purpose or object of the conspiracy; e. The overt acts done in pursuance of the conspiracy; and f. The injury and damages suffered by the plaintiff from those acts.

[13] For “unlawful conspiracy”, the defendant’s conduct must be unlawful, directed against the plaintiff and the defendant ought to know that the conduct is likely to injure the plaintiff. For ‘conspiracy to injure”, regardless of the means used by the defendant, causing harm to the plaintiff must be the predominant purpose. [^4]

[14] The proposed Claim satisfies some, but not all of the requirements in the list above. It identifies the parties to the alleged agreement to conspire as being Wilford and the Receiver (para. 19). The proposed Claim goes on to describe the relationship between Wilford and the Receiver. It states, for example, that Wilford and the Receiver had prior business relationships that caused Wilford to nominate the Receiver to manage Tobermory Lodge (para. 18). At this pleadings stage, those allegations meet a) and b) above.

[15] The difficulty with the proposed Claim starts to appear for criterion c) which requires particulars of the agreement. In that regard, the Plaintiffs allege that Wilford and the Receiver entered into an oral agreement to cause financial injury to the Plaintiff (para. 19) In my view, the allegation of this oral agreement is a baldly asserted after thought which is internally inconsistent with the rest of the proposed Claim. I note that paragraph 19 was added to the proposed Claim only after Plaintiffs’ counsel had the benefit of the Defendants’ factum.

[16] If one reviews the proposed Claim in its entirety, there are no material facts that support the allegation that the Receiver acted in concert with Wilford beyond the statement made in paragraph 19 and the use of the words “in concert” or “conspiratorial” in a smattering of other paragraphs (paragraphs 25,26, 34, 35 for example). I set out some of the proposed paragraphs below:

1. In particular, within two hours of the receivership having been granted to Richard Burnside and Associates by the court, the Defendant Wilford advised the Plaintiffs that the receiver would be employing the Defendant Wilford’s client, the Plaintiff Kraner’s ex-wife, to manage and operate the Plaintiff’s Tobermory Lodge during the receivership.
2. The Plaintiffs state that one week after the Court granted the receivership order, on May 2012 Victoria Day long weekend the Defendant Wilford, his family and his legal staff spent the entire long weekend at the Tobermory Lodge. On May 22, 2012, which was the next business day following that long weekend, the Defendant Wilford drafted the receiver’s affidavit in support of an order seeking the Plaintiff Kraner’s removal from the Lodge.
3. The Plaintiffs state that the Defendant Wilford directed the receiver’s affidavit to falsely claim that the Defendant Wilford’s client, the plaintiff Kraner’s ex-wife, was the most knowledgeable person to assist in operating the Lodge…
4. The Plaintiff’s plead that the Defendant Wilford’s submission to the court of that affidavit from the receiver was Wilford’s over act of directly inducing a breach of the receiver’s fiduciary duty owed to the Plaintiffs.
5. The Plaintiffs plead that the receiver’s May 22, 2012 affidavit is evidence which was directed by Wilford to be manufactured in order to evict the Plaintiff Kraner from his property of the Tobermory Lodge and with the common and predominant intent of harming the Plaintiff’s economic interests.
6. The Plaintiffs state that further to the oral conspiratorial agreement between the Defendant Wilford and the receiver, Wilford was at the Tobermory Lodge on a number of occasions during the receivership.
7. The Plaintiffs state the receiver and the Defendant Wilford acted in concert to manage the motel business of the Tobermory Lodge.
8. In particular, the Defendant Wilford improperly hired employees at the Lodge, hired tradespeople to work at the Lodge, and directed both of those groups of people as to how to do their work.
9. The Plaintiffs state that the Defendant Wilford induced the receiver to breach his fiduciary duty to the Plaintiffs by directing the receiver not to make full and frank disclosure to the Plaintiffs of the financial and business operations of the Tobermory Lodge during its receivership.
10. During the one year term of the receivership, the spending and hiring decisions made by the receiver and the Defendant Wilford caused the Plaintiff owners of the Lodge to be responsible for expenditure of almost $300,000.00 on gross business revenues of $211,243.00.
11. The Plaintiffs plead that it was the object of the collusion between the Defendant Wilford and the receiver to seek to bankrupt the Tobermory Lodge business so that the Defendant Wilford could obtain ownership upon a distress sale.

[17] The majority of these assertions and the remaining allegations made in paragraphs 31-36 in the proposed Claim allege that Wilford was essentially the mastermind of a scheme that induced the Receiver to act improperly and/or breach his fiduciary obligations to the Plaintiffs in managing the Lodge. If the Receiver was “induced” to breach his duties, then he cannot have been in a conspiracy with Wilford. If the Receiver was a co-conspirator, no inducing would be necessary. Further, there is no allegation that the Receiver agreed with Wilford’s alleged directions such that he was a co-conspirator. For example, in paragraph 28 quoted above, it states that Wilford directed the receiver not to make full and frank disclosure. However, there is no plea that the Receiver in fact listened to Wilford or followed through with that alleged plan. Given that the Receiver is the only other identified party to the alleged conspiracy, a shortfall in the plea against the Receiver leads to a shortfall in the plea of conspiracy as a whole.

[18] If I am wrong in my analysis above, I agree with Wilford that there are other defects in the conspiracy plea that causes it to be untenable. Taken as a whole, the conspiracy plea is for the subcategory of “conspiracy to injure”, rather than “unlawful conspiracy”. The proposed Claim says as much in paragraph 1.1(d). There is only one reference to unlawfulness in the proposed Claim, at paragraph 34. This means that the Plaintiffs must plead and provide material facts that the predominant purpose of the alleged conspiracy was to harm the Plaintiffs.

[19] Read as a whole, the predominant purpose of the conspiracy as alleged in the proposed Claim was not to injure the Plaintiffs. That injury is collateral to the predominant purpose of allowing Wilford to secure the Lodge at a distressed price (paragraphs 30,33, 34,36). The test is not met if the harm to the Plaintiff is collateral: “The defendant's predominant purpose must be to inflict harm on the plaintiff. It is not enough if the harm is the collateral result of acts pursued predominantly out of self-interest. The focus is on the actual intent of the defendant and not the consequences that the defendant either realized or should have realized would result.” [^5] The plea of predominant harm to the Plaintiffs at paragraphs 19 and 24 are in my view bald assertions that are inconsistent with the rest of the proposed Claim.

[20] Given the foregoing, it is plain and obvious that the Plaintiffs’ claim for civil conspiracy to injure is untenable and cannot succeed. The Plaintiffs are not permitted to amend their Claim to include it. Further, civil conspiracy cannot be the underlying cause of action for either the devaluation claim, or the separate damages claim for $250,000.00.

Inducing Breach of Fiduciary Duty

[21] As in the case of civil conspiracy, I will accept that this cause of action is plead not only to support the claim for general damages but also the devaluation claim. The Plaintiffs have not provided any jurisprudence to support their proposition that this is a cause of action recognized by our courts. However, the novelty of an action does not necessarily render it untenable, especially at the pleadings stage. While some courts have touched on the topic, I am not aware of any Court that has conducted an analysis of its viability. [^6] For the purposes of the present motion, however, there is sufficient acceptance from the Court of Appeal and our court of its possible existence that I am not prepared to strike it from the proposed Claim at this point. I do not agree with Wilford’s assertion that if there is such a tort as inducing breach of a fiduciary duty, the Plaintiffs should be required to meet the test for inducing breach of contract in their proposed Claim. The Court of Appeal in ADGA Systems International v. Valcom Ltd. et al. [^7] mentions that the two causes of action may be similar but the appropriate test to apply is to be decided on another day with the benefit of a full record and proper argument.

[22] The onus is still on the Plaintiffs, however, to plead the material facts to support this novel claim. In particular, the Plaintiffs must plead the fact of and the nature of the fiduciary relationship between the Receiver and the Plaintiffs. Having reviewed the new paragraphs of the proposed Claim, I find that they have done so (see for example paragraphs 8, 10-14, 23, 28, and 33). The fact that the Court or Wilford might have drafted the proposed Claim differently is not the test. The test is whether or not it is plain and obvious that this particular claim would not succeed. I cannot so conclude. It is well established that a court appointed receiver such as the one in this case owes a fiduciary duty to all of the stakeholders in the receivership. [^8] The question raised by the proposed Claim is whether or not the Receiver had a particular duty to the Plaintiffs and whether such a duty was breached due to Wilford’s directions. In my view, these and other questions are for a trier of fact. The Plaintiffs have met the threshold to allow the pleading to be added at this stage.

[23] The Plaintiffs shall therefore be permitted to proceed with their proposed Claim for inducing breach of a fiduciary duty, including the material facts in support of that potential cause of action and the devaluation claim.

Trespass to Property

[24] The Plaintiffs seek to add this cause of action as against Wilford. It is unclear what type of trespass the Plaintiffs allege. In the context of the proposed Claim, however, it could be for trespass to chattels. This is a traditional cause of action seeking to protect a person in possession of property. It is sometimes considered the “cousin” or “little brother” of conversion and requires that there be an unauthorized taking or moving of personal property. I was not presented with any significant argument on this potential cause of action by either party. Given that a primary complaint of the Plaintiffs is the removal of kitchen equipment and other chattels from the Lodge and that conversion is already plead, this cause of action should proceed as one of the bases for the $250,000 damages claim against Wilford. It cannot, however, possibly underlie the devaluation claim.

Adding 7887035 Canada Inc. c.o.b. as Cedar Creek Remediation

[25] The Plaintiffs wish to add this company as a defendant. The Receiver John Schnurr is a director and employee of Cedar Creek. This amendment proceeds on the consent of all parties except Wilford, who takes no position.

Disposition

[26] I order as follows:

a. The Plaintiffs are permitted to amend the Statement of Claim in the form set out at Tab 4 of the “Plaintiff’s Oral Submissions” save and except for the allegation of conspiracy and any material facts pleaded solely to support conspiracy, which are struck; b. If the parties cannot agree on what paragraphs are to be excised, they may arrange for a case conference with me through the Masters’ Administration to resolve the dispute; c. The Plaintiffs are permitted to add 788 Canada Inc. c.o.b. as Cedar Creek Remediation as a named Defendant as indicated at Tab 4 of the “Plaintiff’s Oral Submissions”; d. If the parties cannot agree on costs, any party seeking costs may serve and file with the Masters’ Administration, a costs outline and no more than two pages (double spaced) of submissions.

“Master P. Tamara Sugunasiri”

Date: July 11, 2017

[^1]: See the 2027707 Ont. Ltd. v. Richard Burnside & Associates Ltd., 2016 ONSC 530 at para. 14 (Master Dash) and Plante v. Industrial Alliance Life Insurance Company, [2003] OJ No 3034, 66 OR (3d) 74 at para. 19 (Master). [^2]: See for example Brookfield Financial Real Estate Group Ltd. v. Azorim Canada (Adelaide Street) Inc., 2012 ONSC 3818, 2012 ONSC 3406, 111 OR (3d) 580 at paras. 23, 24, 27-28, 30 (SCJ). [^3]: Brookfield, supra at para. 23. [^4]: Agribrands Purina Canada Inc. v. Kasamekas, 2010 ONCA 460 at para. 24; Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 SCR 452 at p. 47; Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 37 OR (3d) 97 (CA). [^5]: Ontario Consumers’ Home Services v. Enercare Inc., 2014 ONSC 4154 at para. 23. [^6]: See Algonquin Mercantile Corp. v. Cockwell, [1997] OJ No 4616 (OCJ)(QL); City of Toronto v. MFP Financial Services Ltd., [2003] OJ No 2523 (SC)(QL); ADGA Systems International Ltd. v. Valcom Ltd. et al.; [1999] OJ No 27 (CA)(QL); Ontario Public Service Employees Union v. Ontario, [2005] OJ No 1841 (SC)(QL); Ali Arc Industries v. S&V Manufacturing Ltd., 2011 MBQB 95 (Master). [^7]: ADGA, supra at p. 6. [^8]: Turbo Logistics Canada Inc. v. HSBC Bank Canada at para. 13 (SC).