COURT FILE NO.: CV-16-566439

DATE: 20180403

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HAGSHAMA FUND LIMITED PARTNERSHIP I, HAGSHAMA FUND LIMITED PARTNERSHIP V, HAGSHAMA FUND LIMITED PARTNERSHIP VII and HAGSHAMA FUND LTD. Plaintiffs

AND:

DANIEL GRYFE, TOURBILLON 6 LP, TOURBILLON CORP., TOURBILLON (5-11 BIRCHLEA) INC., TOURBILLON (5-11 BIRCHLEA) LIMITED PARTNERSHIP, TOURBILLON (1475 BLOOR) INC., TOURBILLON (BGL) LIMITED PARTNERSHIP and PRECISE CAPITAL MANAGEMENT INC., Defendants

BEFORE: Cavanagh J.

COUNSEL: Whitney Abrams, for the Plaintiffs

Jeremy Lum-Danson, for the Defendants

HEARD: March 27, 2018

ENDORSEMENT

[1] The plaintiffs move pursuant to rule 25.11 to strike out three paragraphs of the Statement of Defence and Counterclaim of the defendants on the grounds that (a) these paragraphs contain material that is scandalous, frivolous and/or vexatious, and which is included for the purpose of abusing or prejudicing the plaintiff; (b) the paragraphs contain material which is not relevant; (c) the paragraphs contain material which is evidence and not material facts; and (d) the inclusion of these paragraphs would prejudice and delay the fair trial of the action.

[2] The action is concerned with issues that arise from a former business relationship between the plaintiffs and the defendants which involved various joint real estate ventures. In the action, the plaintiffs seek payment of the sum of $2,185,359 that they claim is owing pursuant to a Memorandum of Understanding (“MOU”) that was entered into for the purpose of settling disputes between the parties concerning properties that they owned together.

[3] According to the affidavit of the plaintiffs’ counsel, the substance of the plaintiffs’ claim is centred around allegations that the defendants:

a. fraudulently misrepresented numerous facts about an investment property in Hamilton, Ontario, and about their knowledge and expertise of the real estate market;

b. failed to provide the necessary, or any, property management services as agreed upon in relation to the Hamilton property;

c. fraudulently misrepresented the source of distributions provided to the plaintiffs; and

d. failed to make continuing payments to the plaintiffs pursuant to the MOU.

[4] In the Statement of Defence and Counterclaim, the defendants plead, among other things, that the arrangements reflected in the MOU were forced upon them by the plaintiffs and that the MOU was made under duress. The defendants plead that the plaintiffs engaged in unlawful conduct that put the defendants in vulnerable positions and that they took advantage of this conduct to extract the MOU. The defendants plead that the MOU is void and must be rescinded.

[5] Certain general principles with respect to motions brought under rule 25.11 were set out by the Court of Appeal in Quizno’s Canada Restaurant Corp. v. Kileel Developments Ltd., 2008 ONCA 644. In Quizno’s, the Court of Appeal referred to the well-established principle that a pleading cannot be “scandalous” if it is relevant. The Court of Appeal also wrote at paras. 16 and 19:

16 Pleadings are not the appropriate stage in an action to engage at large in what is essentially a trial judge’s exercise for determining the admissibility of evidence at trial - i.e., weighing the probative value versus prejudice of facts. That exercise is not particularly well-suited to defining issues for trial, something which is for the parties to decide. Rule 25.11 provides that the pleading may be struck if it “may prejudice the fair trial of the action.” A fair trial requires that the defendant be able to put forward a “full” defence, not - as the motion judge erroneously concluded - a “reasonable” defence defined in advance by the plaintiff and the court. (Emphasis in original).

19 An examination of the pleading demonstrates that the motion judge struck portions of the pleading that were considerably more than “of marginal probative value” to the defendants and of little prejudice to the plaintiff. Indeed, in some instances at least, they went to the very heart of the defence.

[6] The first paragraph of the Statement of Defence and Counterclaim that the plaintiffs challenge is paragraph 40 which reads:

40. In their Statement of Claim, the Plaintiffs allege that they funded 82.14 percent of the equity. While the fund wired a sum which would appear to total 82.14 percent of the equity, it was done with instructions to the Defendants to immediately wire it back as a kickback which Shemesh needed to conceal from the fund’s investors. Accordingly, the equity contributions were actually 80/20.

[7] The plaintiffs submit that (i) the statements made in this paragraph are scandalous, (ii) they are pleadings of evidence not facts and, in the alternative, (iii) the statements are lacking in particularity.

[8] The defendants submit that the equity split was raised by the plaintiffs in the statement of claim, and that paragraph 40 is a response to this pleading. They submit that the statements in paragraph 40 are relevant and establish the context in which the MOU came to be signed.

[9] In my view, the statements in paragraph 40 are relevant to the equity split, an issue in the action. As noted, statements which are relevant cannot be scandalous. Although a portion of this paragraph may contain evidence, this does not justify striking out this paragraph. In this regard, I rely upon the following statement by Master Sugunasiri in Carter v. Minto Management Ltd., 2017 ONSC 3131 at paragraph 13:

A pleading that is relevant and material to the Claim cannot be abusive. Even if paragraph 7 can be seen as containing some evidence, the mere fact that a single paragraph in a five-pleading contains evidence is not de facto abusive. Such an interpretation would be overly restrictive and runs afoul of the above-mentioned principle that in general terms, [the parties] must be left to craft their own pleadings without forensic review by the Courts.

[10] Although the plaintiffs did not move for particulars, at the hearing of this motion counsel for the plaintiffs requested, in the alternative to an order striking out this paragraph, particulars of the statements made in paragraph 40. In my view, particulars are not needed at this stage of the action. The plaintiffs will be entitled to proper discovery with respect to this pleading.

[11] The second paragraph of the Statement of Defence and Counterclaim that is the subject of this motion is paragraph 56 which reads:

56. The fund, knowing that they could interfere with the closing of a transaction they had already agreed to, sought to take advantage of the situation. As the fund knew, they had Gryfe over a barrel. Unless Gryfe capitulated to their demands, the building which had several problems with it, would be sold under power of sale as a distress and Gryfe would be liable for the shortfall under his guarantee.

[12] The plaintiffs submit that the statements in this paragraph contain inflammatory language and are scandalous because they attack the moral character of the plaintiffs. They submit that the use of the term “over a barrel” is simply colourful language that does not explain what the plaintiffs did that is allegedly wrong.

[13] The defendants submit that the statements in this paragraph go directly to the defence that they have raised of unconscionability. They submit that they are entitled to plead that the plaintiffs engaged in conduct that involved an element of coercion and that the plaintiffs took advantage of the defendants’ position and their own superior bargaining position to extract an improvident agreement, the MOU.

[14] I do not agree with the plaintiffs’ submission that the statements made in paragraph 56 are included for the sole purpose of abusing or prejudicing the plaintiffs. In my view, the statements pleaded in paragraph 56 have not been shown to be irrelevant and, therefore, they are not scandalous. I would not strike out this paragraph.

[15] The third paragraph of the Statement of Defence and Counterclaim that is the subject of this motion is paragraph 70 which reads:

70. Also, during the negotiations concerning the MOU, Gryfe received an anonymous telephone call from a blocked phone number threatening him that if he did not sign the MOU, he could end up in jail or worse.

[16] The plaintiffs submit that the allegations of intimidation tactics or unlawful conduct contained in paragraph 70 bear cruelly on the moral character of the plaintiffs and are included for the sole purpose of abusing or prejudicing the plaintiffs. They submit that if the only purpose of a pleading is to cast the opposing party in a bad light, it will be struck.

[17] At the hearing of this motion, in response to questions from me, counsel for the defendants acknowledged that there was no allegation in paragraph 70 that the alleged telephone call was made by the plaintiffs or by someone on their behalf. He submitted that the fact that the statement was allegedly made by someone during the negotiation process makes it relevant. Counsel submitted that this paragraph should not be struck out, and that it could properly be the subject of discovery.

[18] I disagree with the defendants’ submissions in relation to paragraph 70. In my view, as pleaded, paragraph 70 is irrelevant because the allegation is not that the call was made by or on behalf of the plaintiffs. In my view, this paragraph was included only for the purpose of casting the plaintiffs in a bad light. This paragraph is scandalous and should be struck out.

[19] For the foregoing reasons, I order that:

a. Paragraph 70 of the Statement of Defence and Counterclaim is struck out.

b. The balance of the plaintiffs’ motion is dismissed.

[20] There was divided success on this motion. I have decided that the proper disposition as to costs is that the parties should bear their own costs.

Cavanagh J.

Date: April 3, 2018