Court File and Parties

COURT FILE NO.: CV-18-590850-00CL DATE: 20190108 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kevin Lauzon, Aleksandr Gershenovich, Allan Donnan, Bossa Embroidery Inc., Brian Kelly, Brian Morran, Christopher Dunn, Chui Ling Ng, Cyrus Patel, Cecil David Harrison, Doug Kelly, Edward Rzezniczek, Ingrid Malcolm, Jennifer Croth, Jozef Zakala, Ka Ming Ng, Kamlah Singh, Kelly Nezezon, Kimitra Lovell, Marguerite Alfred, Maureen Dunn, Rosemarie Tarasenko, Ruth Kelly, Sheila Baker, Svetlana Dikaya, Tara Taylor, Uladzimir Kukarav, Winfield Longe and Yuk Ling Ng, Plaintiffs

AND:

J. Paul Fletcher, Fletcher & Crichlow LLP, Village on the Grand Limited, Olympia Trust Company, T1CM Principal Secured Mortgages Inc., Tier 1 Capital Management Inc., Kingwood Homes Limited, Yuce Baykara, John Martin, Lou Yordanou, Sosie Demersesian, Jamila Aman, Dowarka Persaud, Brian Klein, Julio Ramirez, Gerry Yantha, Shaheen Jan Mohammed, Jonathan T. Weaver, Ron Baglatas, Rick Jones, Ashton Ward, David Rhodd, Limitless Solutions Financial Group Inc., Serguei Totrov, Jaroslaw Dalek, Centum Way2Save Inc., John Doe and Jane Doe, Defendants

BEFORE: Mr. Justice H.J. Wilton-Siegel.

COUNSEL: James P. McReynolds, for the Plaintiffs/Responding Parties David Schatzker, for the Moving Party, Shaheen Jan Mohammed

HEARD: November 26, 2018

Endorsement

[1] The applicant Shaheen Jan Mohammed (the “applicant”) moves under Rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”) to strike certain paragraphs of the statement of claim dated September 12, 2018 (the “Statement of Claim”) in the action or, alternatively, to dismiss the action against the applicant on the grounds that the Statement of Claim fails to disclose a reasonable cause of action against the applicant.

The Applicable Law

[2] The applicable principles on a motion under r. 21.01(1)(b) are set out in Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at p. 980. In particular, a claim shall only be struck if it is “plain and obvious” that it fails to disclose a reasonable cause of action.

[3] Further, r. 25.06(8) requires that “[w]here fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred”.

The Pleadings

[4] The plaintiffs invested in a syndicated mortgage (the “Syndicated Mortgage”) and have lost their investment.

[5] In the pleadings at para. 18, the plaintiffs plead that the applicant is one of a number of “individuals and corporations who were involved in the promotion, marketing and sale of the Syndicated Mortgage to the plaintiffs.” These individuals and corporations are collectively defined as the “Sellers” for the purposes of the Statement of Claim.

[6] In para. 28, the plaintiffs assert that, in making their investments, the plaintiffs relied upon the verbal and written representations provided to them by the defendants.

[7] In para. 36, the plaintiffs allege that they would never have made their investment in the Syndicated Mortgage but for the actions of the defendants, including the applicant.

[8] In para. 39, the pleadings assert claims of breach of contract, negligence, and negligent misrepresentation against various parties including the Sellers, and therefore the applicant, based on nine enumerated matters therein.

[9] In addition, in para. 42, the plaintiffs allege that the defendants conspired “to cause the plaintiffs to refrain from exercising their legal rights in the face of the failure to repay of [sic] the amounts invested in the Syndicated Mortgage and the payment of all interest amounts owing.” In para. 43, the plaintiffs plead various actions in furtherance of the alleged conspiracy. In respect of the Sellers, it is pleaded that certain Sellers represented to the plaintiffs that they had been negotiating (presumably with the developer) and that an offer to resolve the outstanding debt would be forthcoming provided no court proceedings were initiated. It is further pleaded that a letter of a particular lawyer was forwarded by Sellers to certain of the plaintiffs regarding his engagement on their behalf to negotiate the prospective settlement with the developer, even though the Sellers were aware that the plaintiffs had legal representation of their own. It is also alleged that a number of the Sellers made repeated, intimidating telephone calls to the plaintiffs to frighten them into participating in the developer’s proposed settlement.

Analysis and Conclusions

[10] I will address each of the claims asserted by the plaintiffs against the applicant.

Breach of Contract Claim

[11] First, the plaintiffs allege breach of contract. The plaintiffs acknowledge that this claim fails due to the absence of any pleading of a contract between the applicant and any of the plaintiffs.

Negligence Claim

[12] Second, the plaintiffs allege negligence by the applicant.

[13] The principles applicable to a claim of negligence were addressed by the Supreme Court in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537 at para. 30 as follows:

In brief compass, we suggest that at this stage in the evolution of the law, both in Canada and abroad, the Anns analysis is best understood as follows. At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant's act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here?

[14] In the present case, the issue is whether the plaintiffs have pleaded facts that establish the element of proximity for the purposes of the first stage of the Anns test. In respect of proximity, the Supreme Court made the following statements in Cooper v. Hobart at paras. 31, 32 and 34:

On the first branch of the Anns test, reasonable foreseeability of the harm must be supplemented by proximity. The question is what is meant by proximity. Two things may be said. The first is that "proximity" is generally used in the authorities to characterize the type of relationship in which a duty of care may arise. The second is that sufficiently proximate relationships are identified through the use of categories. The categories are not closed and new categories of negligence may be introduced. But generally, proximity is established by reference to these categories. This provides certainty to the law of negligence, while still permitting it to evolve to meet the needs of new circumstances.

On the first point, it seems clear that the word "proximity" in connection with negligence has from the outset and throughout its history been used to describe the type of relationship in which a duty of care to guard against foreseeable negligence may be imposed. "Proximity" is the term used to describe the "close and direct" relationship that Lord Atkin described as necessary to grounding a duty of care in Donoghue v. Stevenson, supra, at pp. 580-81:

Who then, in law is my neighbour? The answer seems to be -- persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.

Defining the relationship may involve looking at expectations, representations, reliance, and the property or other interests involved. Essentially, these are factors that allow us to evaluate the closeness of the relationship between the plaintiff and the defendant and to determine whether it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant.

[15] Apart from the bald statements in para. 18 of the Statement of Claim, there are no pleadings that assert any actions of the applicant in respect of any of the plaintiffs that could ground a claim of negligence. (I deal with negligent misrepresentation in the next section.) It is not sufficient to plead in para. 36 that the defendants breached a duty of care owed to the plaintiffs. In particular, the pleadings are deficient in that they fail to assert any facts that establish the element of proximity between the applicant and any particular plaintiff. Accordingly, the pleadings fail to establish the existence of a common law duty of care owed by the applicant to any of the plaintiffs. As a consequence of these deficiencies in the pleadings, they also fail to plead a breach of a duty of care.

[16] The respondents submit that the pleading, read generously, asserts that the applicant is a “mortgage broker” or an “agent” under the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29 (the “Act”). They say that the applicant is thereby subject to three statutory duties of care described in para. 22 of the Statement of Claim on page 13 thereof under the heading “Mortgage Brokers and Agents”.

[17] The pleadings do not identify the specific provisions of the Act upon which the plaintiffs rely in asserting the existence of these alleged statutory duties. The pleadings are therefore deficient in this respect insofar as they purport to assert a statutory duty of care.

[18] Further, under the Act, “mortgage broker” means “an individual who has a mortgage broker’s licence” and an “agent” means “an individual who has a mortgage agent’s licence”. The pleadings do not allege that the applicant is a “mortgage broker” or an “agent” nor do the plaintiffs plead any facts that would establish such a qualification. There would therefore appear to be no basis for asserting the existence of any statutory duties owed by the applicant to a plaintiff even if the pleadings were rectified to address the absence of specific statutory references.

[19] Accordingly, I conclude that the pleadings fail to disclose a reasonable cause of action in negligence because they fail to plead facts that establish the existence of a duty of care owed by the applicant in favour of a specific plaintiff and further fail to plead facts that establish a breach of that duty of care.

Claim for Negligent Misrepresentation

[20] The plaintiffs also allege that the applicant is liable for negligent misrepresentation.

[21] The principles applicable to a claim of pure economic loss arising from negligent misrepresentation or performance of a service were addressed and reformulated recently by the Supreme Court in Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855. I do not propose to recite the entire framework the Supreme Court. For present purposes, I note that the Supreme Court emphasized at paras. 30 and 31 that two factors are determinative of the proximity analysis – the defendants’ undertaking and the plaintiff’s reliance:

In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are determinative in the proximity analysis: the defendant's undertaking and the plaintiff's reliance. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff's reasonable reliance, the defendant becomes obligated to take reasonable care. And, the plaintiff has a right to rely on the defendant's undertaking to do so. [Citations omitted.]

Rights, like duties, are, however, not limitless. Any reliance on the part of the plaintiff which falls outside of the scope of the defendant's undertaking of responsibility – that is, of the purpose for which the representation was made or the service was undertaken – necessarily falls outside the scope of the proximate relationship and, therefore, of the defendant's duty of care …. This principle, also referred to as the "end and aim" rule, properly limits liability on the basis that the defendant cannot be liable for a risk of injury against which he did not undertake to protect …. By assessing all relevant factors arising from the relationship between the parties, the proximity analysis not only determines the existence of a relationship of proximity, but also delineates the scope of the rights and duties which flow from that relationship. In short, it furnishes not only a "principled basis upon which to draw the line between those to whom the duty is owed and those to whom it is not" (Fullowka, at para. 70), but also a principled delineation of the scope of such duty, based upon the purpose for which the defendant undertakes responsibility.

[22] In this case, the bald statement in para. 36 is insufficient to establish proximity. The pleading fails to assert facts that establish that the applicant undertook to provide a representation in circumstances that invited the reasonable reliance of any particular plaintiff. Accordingly, the pleadings are deficient in that they fail to plead facts that establish proximity between the applicant and any of the plaintiffs, which is an essential element of a duty of care upon which to base a claim of negligent misrepresentation. As such, the pleadings fail to disclose a reasonable cause of action in negligent misrepresentation.

[23] I make two other observations regarding the pleadings.

[24] First, the pleadings also fail to satisfy the requirements of r. 25.06(8) for full particulars in respect of the claim for negligent misrepresentation as required by applicable case law: see, for example, Balanyk v. University of Toronto (1999), 1 C.P.R. (4th) 300 (S.C.), at para. 65. In particular, the pleadings fail to set out the alleged misrepresentation of the applicant and the parties to whom the applicant is alleged to have communicated the misrepresentation.

[25] Second, because the framework set out by the Supreme Court in Deloitte & Touche v. Livent Inc. appears to apply to all claims for pure economic loss arising from negligent misrepresentation or performance of a service, the framework would also appear to govern the plaintiffs’ claim of negligence in this action. On this basis, the pleadings pertaining to the claim of negligence are deficient in particular because they fail to plead that the applicant undertook in favour of a specific plaintiff to perform a service or act in circumstances that would establish proximity between the applicant and such plaintiff.

[26] Accordingly, I conclude that the pleadings fail to disclose a reasonable cause of action in negligent misrepresentation because they fail to assert facts that establish the existence of a duty of care owed by the applicant in favour of a specific plaintiff and further fail to plead facts that establish a breach of that duty of care.

The Civil Conspiracy Claim

[27] The elements of a civil conspiracy claim have been set out in Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452, at pp. 471-472:

Although the law concerning the scope of the tort of conspiracy is far from clear, I am of the opinion that whereas the law of tort does not permit an action against an individual defendant who has caused injury to the plaintiff, the law of torts does recognize a claim against them in combination as the tort of conspiracy if:

(1) whether the means used by the defendants are lawful or unlawful, the predominant purpose of the defendants' conduct is to cause injury to the plaintiff; or,

(2) where the conduct of the defendants is unlawful, the conduct is directed towards the plaintiff (alone or together with others), and the defendants should know in the circumstances that injury to the plaintiff is likely to and does result.

In situation (2) it is not necessary that the predominant purpose of the defendants' conduct be to cause injury to the plaintiff but, in the prevailing circumstances, it must be a constructive intent derived from the fact that the defendants should have known that injury to the plaintiff would ensue. In both situations, however, there must be actual damage suffered by the plaintiff.

[28] The plaintiffs allege that the applicant participated in a conspiracy to harm the plaintiffs, by way of both a predominant purpose conspiracy and an unlawful means conspiracy.

[29] The pleadings regarding the alleged conspiracy are set out in paras. 42 and 43 of the Statement of Claim and have been described above. In respect of the Sellers, including the applicant, they involve various representations and other communications made by certain Sellers to certain plaintiffs. The plaintiffs are therefore in a position to know whether the applicant was one of the Sellers who participated in these actions. They are therefore also in a position to set out facts that establish the applicant’s participation in the conspiracy. The pleadings are, however, entirely silent with respect to the applicant’s involvement in any of the actions or with respect to any of the alleged communications.

[30] Insofar as the plaintiffs plead predominant purpose conspiracy, the pleadings allege intent on the part of the applicant. Because the plaintiffs know which defendants participated in the acts comprising the alleged conspiracy, r. 25.06(8) requires that the pleadings set out the relevant facts in respect of the applicant. In the absence of such material facts, the pleadings of predominant purpose conspiracy fail to satisfy the requirements in r. 25.06(8).

[31] To the extent that the applicants also plead unlawful means conspiracy, I am of the view that, in the present case, r. 25.06(8) also applies because the alleged unlawful means involved fraud, misrepresentation, or breach of trust. In these circumstances, a bald pleading of conspiracy against all of the Sellers cannot stand in respect of any particular defendant.

[32] Accordingly, I conclude that the pleadings of civil conspiracy fail to satisfy the requirements of r. 25.06(8) that all material facts known to the plaintiffs be pleaded. Insofar as the pleadings fail to assert any action of the applicant in furtherance of the alleged conspiracy, the pleadings also fail to establish a reasonable cause of action for the purpose of r. 21.01(1)(b).

[33] Further, the pleadings contain only a bald allegation of special damages suffered by the plaintiffs. The pleadings do not set out any facts that would establish the existence of any losses that were attributable to the alleged conspiracy, as opposed to the making of an investment in the Syndicated Mortgage itself. There is no pleading that the plaintiffs actually refrained from exercising their legal rights, let alone any pleading that sets out a nexus between any such forbearance and the loss suffered by the plaintiffs.

[34] Accordingly, the civil conspiracy claim against the applicant is struck under both r. 21.01(1)(b) as failing to disclose a reasonable cause of action and under r. 25.06(8) by virtue of a failure to plead all material facts known to the plaintiffs.

Conclusion

[35] Based on the foregoing, the claims against the applicant are struck.

[36] This is the first version of the Statement of Claim struck insofar as it pertains to the applicant. The Statement of Claim also raises important issues pertaining to the sale of the interests in the Syndicated Mortgage that might form the basis of a claim against the applicant, depending upon any actual involvement in the activities and actions described in the Statement of Claim. Accordingly, leave is granted to the plaintiffs to amend the Statement of Claim to assert claims against the applicant provided an amended Statement of Claim asserting such claims is delivered no later than 30 days from the date of this Endorsement.

[37] In view of her success on this motion, the applicant is entitled to costs on a partial indemnity basis. I do not agree with the plaintiffs that the more appropriate manner of proceeding would have been to bring a motion for particulars, given that the particular deficiencies of the pleadings at issue pertained to the failure to plead material facts that establish essential requirements of the causes of action asserted by the plaintiffs. Costs of this motion are fixed in the amount of $5,000 payable forthwith by the plaintiffs to the applicant. I consider such costs to be fair and reasonable given the nature and complexity of this motion, the amount of time required for the hearing and the relative level of seniority of the applicant’s counsel.

Wilton-Siegel J. Date: January 8, 2019