Sax v. Aurora, 2017 ONSC 5563

CITATION: Sax v. Aurora, 2017 ONSC 5563

COURT FILE NO.: CV-14-498414

DATE: 20171023

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Adam Sax, Plaintiff

AND:

Rick Aurora, 2349336 Ontario Ltd. o/a The Condo Mall, Royal LePage West Realty Group Ltd., Jessica Lenouvel (Leung), Jaswinder Aurora and Pritina Bhavsar, Defendants

BEFORE: J. E. Ferguson J.

COUNSEL: Danny Kastner and Gregory Ko, for the Plaintiff

Katrina Marciniak, for the Defendant Royal LePage

HEARD: September 19, 2017

ENDORSEMENT

Background

[1] This is a motion brought by the plaintiff, Adam Sax (“Sax”), to amend the statement of claim and for leave to commence a derivative action on behalf of 2349336 Ontario Ltd. (“234”). Only the defendant Royal LePage West Realty Group Ltd. (“Royal LePage”) opposes the motion.

[2] Sax worked for Royal LePage as a real estate agent. On January 17, 2014 his employment was terminated. The plaintiff issued a statement of claim on February 13, 2014.

[3] Sax is also a minority shareholder of 234. 234 and Royal LePage allegedly entered into a joint venture in 2012. As there is an issue as to whether it is a joint venture, I will refer to it as an agreement.

[4] While working for Royal LePage, Sax sought to create a “one-stop shop” where builders could sell their pre-construction real estate to purchasers all in one location. 234 was incorporated for this purpose and it leased space to house where sales would take place. 234, however, was not a licensed brokerage and could neither sell real estate nor hire its own agents. Instead, it had to find brokerages to operate out of its space in exchange for a fee (a percentage of the commission from each agent’s sale). 234 had to find a brokerage to buy into the idea and so it entered into an agreement with Royal LePage, which Sax refers to as the joint venture, wherein a portion of every commission earned by Royal LePage would be paid to 234.

[5] By the end of 2014, examinations for discovery were completed. By November 12, 2014, Sax discovered that 234 had a potential cause of action against Royal LePage, which was confirmed by letter from his counsel dated February 17, 2015. That letter explained that Sax became aware that Royal LePage had not paid any revenues to 234 since Sax’s termination of employment.

[6] On August 8, 2016, Sax amended his statement of claim on consent by filing a fresh as amended statement of claim.

[7] On January 24, 2017, Sax provided notice to Rick Aurora (“Aurora”), 234’s sole director, that he intended to apply to the court under s. 246 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”), to commence a derivative action in the name and on behalf of 234 for Royal LePage’s breach of the agreement.

[8] Royal LePage opposes this motion on the following grounds:

(a) Sax’s proposed amendment is more than just a mere rectification of his fresh as amended statement of claim and seeks to add a new cause of action which would cause prejudice to Royal LePage;

(b) Sax’s failure to obtain leave within the limitation period is fatal to the derivative action against Royal LePage; and

(c) Sax does not satisfy all the requirements to bring a derivative action.

[9] I am going to deal with issues (a) and (b) at the same time, as much of the law applies to both, before turning to issue (c).

Is the proposed amended claim more than just a mere rectification of Sax’s fresh as amended statement of claim and is Sax’s failure to obtain leave within the limitation period fatal to the derivative action against Royal LePage?

[10] In bringing a derivative action, Sax must seek leave of the court, which leave must be obtained within two years from the discoverability date.

[11] Sax acknowledges that he discovered that 234 had a claim against Royal LePage by November 12, 2014, being the date of the examination for discovery of Royal LePage. Sax did not give notice to 234 of his derivative claim until January 24, 2017 and did not make an application seeking leave to do so until April 11, 2017, being the date of the subject notice of motion.

[12] Sax’s position is that all parties had notice of Sax’s factual allegations resulting from the breach to 234 in the statement of claim (as amended on August 22, 2016) and all parties have already discovered the plaintiff in relation to these allegations. The amendments will not contribute a “new” cause of action for the purposes of the limitations legislation.

[13] In Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6359, 134 O.R. (3d) 390, at para. 14 (Div. Ct.), the Divisional Court, quoting Lauwers J. in 1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505, 107 O.R. (3d) 384 (Ont. S.C.J.), made clear that a plaintiff is not required “to name or specify the technical cause of action as an essential part of pleading”. The court clarified as follows:

[I]f the defendant has notice of the factual matrix underlying the claim being advanced, then amendments that arise out of, or do not depart from, that factual matrix do not constitute “new” causes of action that would not be allowed by way of amendment.

[14] Sax’s position is that the amended statement of claim, filed by way of notice of motion on June 30, 2016 – and consented to by Royal LePage – clearly provided notice of the factual matrix underlying 234’s breach of joint venture claim against Royal LePage. The relevant positions of the amended statement of claim are as follows:

8. The joint venture between [234] and Royal LePage was subject to the following terms:

• [234] was responsible for recruiting agents and developers;

• Royal LePage would act as broker of record;

• [234] would receive all revenue from condominium developers who were installed in the showroom, or rented advertising space on the premises;

• The commission from each internal condominium sale would be split as follows: 45% to [234]; 50% to the agent; 5% to Royal LePage; and

• The broker portion of the commission made on every external sale by [234]/Royal LePage agents would be split as follows: 90% to [234] and 10% to Royal LePage.

11. Around the same time, Royal LePage insisted, as a condition of continuing to act as broker, that all revenues flow through its books. However, once Royal LePage controlled the revenue stream, it paid only a small share of [234]’s actual entitlement under the joint venture terms.

12. As described above, Royal LePage breached the terms of its joint venture with [234], and Sax has been damaged accordingly.

13. Sax has been damaged accordingly and is entitled to: compensatory damages equivalent to all unpaid revenue owing to him as shareholder in 234, all unpaid compensation, and for the failure to provide reasonable notice of termination; general damages; special damages; and damages for breach of the duties of good faith, honest performance, and fair dealing. [Emphasis added.]

[15] Sax’s position is that the amended statement of claim clearly sets out the following:

(a) the terms of the joint venture between 234 and Royal LePage;

(b) the fact that Royal LePage had breached the terms of its joint venture with 234; and

(c) the damages flowing from that breach.

[16] Sax submits that Royal LePage admitted on cross-examination that it understood that the amended statement of claim – which it had consented to – alleged as follows:

(a) 234 and Royal LePage were in a joint venture;

(b) Royal LePage breached the terms of the joint venture; and

(c) the plaintiff suffered damages as a shareholder of 234.

[17] Sax further submits that for Royal LePage to now claim ignorance of these factual allegations already pled and consented to is completely untenable. I agree.

[18] I agree that the fact that the amended statement of claim did not specifically frame the claim as a “derivative action” is not a bar to Sax amending his claim. The proposed amendments arising from this motion do not constitute a “newly” pled cause of action, but merely a clarification of the legal consequences of material facts already pled.

[19] I agree that the amended statement of claim provided sufficient notice to Royal LePage of the joint venture claims and Royal LePage was – on its own admission – fully aware of these claims no later than June 30, 2016, when it was served a copy of the amended statement of claim.

[20] I find that all parties had notice of Sax’s factual allegations regarding the breach of the agreement and the resulting damages from the breach in the statement of claim (as amended on August 22, 2016). As previously mentioned, the court in Farmers Oil and Gas confirmed that proposed amendments that merely plead new legal consequences are allowed when the defendant already “has notice of the factual matrix underlying the claim being advanced”.

[21] The newly pleaded consequences arising out of the proposed amendments merely clarify Sax’s claims and do not constitute new causes of action for the purposes of limitations legislation. In Farmers Oil and Gas, at para. 22, the court held that if the proposed amendments arise out of the same facts, or the factual matrix, that was pleaded in the original statement of claim, then the amendments should be permitted. If they do not, and the limitations period has expired, then the amendments should be refused. The court, at para. 15, quoted from Sweda Farms Ltd. v. Ontario Egg Producers, 2011 ONSC 6146, [2011] O.J. No. 4886, in which Lauwers J. stated that, consistent with a purposive approach to the interpretation of limitations legislation, “the defendant’s basic entitlement is to have notice of the factual matrix out of which the claim for relief arises.” As I have found, notice of the factual matrix underlying Sax’s claims was provided within the limitation period.

Does Sax satisfy all requirements for a derivative action?

[22] In order to obtain leave to commence a derivative action, the plaintiff must satisfy the court that:

(a) he or she is a complainant within the definition of s. 245 of the OBCA;

(b) the directors of the corporation will not bring, diligently prosecute or defend or discontinue the action;

(c) the complainant is acting in good faith;

(d) the action appears to be in the interest of the corporation.

[23] Royal LePage agrees that Sax is a shareholder of 234 and is a complainant within the meaning of s. 245 of the OBCA. It further agrees that the director of 234 has indicated that he will not cause the corporation to commence or prosecute 234’s claim against Royal LePage for breach of the agreement. It takes issue with the requirement that the derivative action be in 234’s interests and that Sax is acting in good faith.

[24] I find that Sax is acting in good faith by advancing claims on behalf of 234 against Royal LePage for the benefit of all 234’s shareholders. The derivative action is in 234’s best interests.

[25] None of 234’s shareholders, including Aurora, oppose the motion. I agree that I can infer that the shareholders recognize that a harm has been caused to 234 and that it is in 234’s interest to seek redress. Royal LePage has put forth no evidence to question the bona fides of Sax’s proposed amendments and derivative action other than the delay in formalizing the derivative action. There is no evidence that Sax is not acting in good faith.

[26] 234’s position is that the delay in seeking leave is part of Sax’s absence of good faith. However, that delay has been explained. I accept Sax’s position that the amended statement of claim set out the notice. Royal LePage was aware of the derivative claim which had been squarely pleaded in the existing action. Further, barring unusual circumstances, if a minority shareholder (Sax) is forced to bring a derivative action to protect the interests of the corporation because the corporation will not bring an action, it defies common sense how that could ever be in bad faith.

[27] The four requirements are met. There is no basis for this court to reject the derivative action on this basis.

[28] I grant an order granting Sax leave to commence and prosecute a derivative action against Royal LePage as set out in the amended statement of claim on a nunc pro tunc basis. I leave the effective date to be determined by the trial judge. I further order that Sax has leave to amend his amended statement of claim in the form attached as appendix “A” to the notice of motion.

[29] If any parties wish to conduct further discoveries as a result of this order, they are so entitled.

[30] If the parties cannot agree on costs, the moving party may provide his cost submissions within 14 days and the respondent may provide its reply cost submissions within seven days.

J. E. Ferguson J.

Date: October 23, 2017