Court File and Parties

COURT FILE NO.: CV-17-585876 DATE: 2019 0227 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Horfil Holding Corp., Alborz Hormoz and Elvis Filo Plaintiffs – and – Queens Walk Inc., Jason Birnboim, Roy Birnboim, Joel Feldberg, Barry Godfrey, John Doe, Bridlepath Progressive Real Estate Inc., Leor Godfrey and David Brook Defendants

COUNSEL: Brian Sherman and Ardeshir Tahbaz, for the Plaintiffs Elliot Birnboim, for the Defendants, Jason Birnboim, Roy Birnboim and Joel Feldberg Stephanie Turnham for the Defendants, Queens Walk Inc. and Barry Godfrey

HEARD: December 5, 2018

BEFORE: Nishikawa J.

Overview

[1] The Plaintiffs, Horfil Holding Corp., Alborz Hormoz and Elvis Filo, commenced an action against the Defendants, Queens Walk Inc. (“Queens Walk”), Jason Birnboim, Roy Birnboim, Joel Feldberg, Barry Godfrey, John Doe, Bridlepath Progressive Real Estate Inc. (“Bridlepath”), Leor Godfrey and David Brook, for breach of contract and inducing breach of contract, deceit, misrepresentation and negligence in connection with an agreement of purchase and sale for a commercial condominium unit (the “APS”).

[2] The individual defendants, Jason Birnboim, Roy Birnboim, Joel Feldberg, and Barry Godfrey (together, the “Moving Defendants”), bring this motion to strike all of the claims against them. Queens Walk brings a motion to strike all of the claims, other than the claim for breach of contract claim, as disclosing no reasonable cause of action. At the hearing, Plaintiffs’ counsel clarified that the only cause of action pleaded against Queens Walk is breach of contract, and that all of the other allegations relate to the individual defendants. As a result, Queens Walk’s motion to strike relates only to the claim for punitive damages.

[3] The Defendants, Bridlepath, Leor Godfrey, and David Brook, did not participate in the motion.

[4] The Plaintiffs have amended their Statement of Claim twice. The hearing of the motions to strike was adjourned to allow the Plaintiffs to deliver their Amended Amended Statement of Claim. The motions proceeded on the Amended Amended Statement of Claim (the “Statement of Claim”).

Factual Background

The Parties

[5] The Plaintiffs, Alborz Hormoz, and Elvis Filo are dentists practicing in association. The Plaintiff, Horfil, is a corporation incorporated in the province of Ontario.

[6] The Defendant, Queens Walk, is a corporate developer incorporated in Ontario. The Statement of Claim alleges that the Moving Defendants were directors and officers, including authorized signing officers, vice-presidents and, from time to time, controlling minds, of Queens Walk.

[7] The Defendant, Bridlepath, is a real estate brokerage. The Defendant, David Brook, is the broker who represented the Plaintiffs in the transaction. Leor Godfrey is the sales representative who represented Queens Walk. Both Mr. Brook and Mr. Godfrey were employed by Bridlepath.

The APS

[8] The Plaintiffs and Queens Walk entered into the APS on July 9, 2017, for the purchase of a commercial condominium unit (the “Unit”) in a complex to be built at 2217 Queensway, Toronto. The APS was signed by Mr. Hormoz and Mr. Filo in trust for a company to be incorporated. The purchase price of the Unit was $1,633,000.00. After some further communications, the Plaintiffs paid a deposit of $81,650, and the APS became firm and binding on July 11, 2017.

[9] The APS contained a restrictive covenant that Horfil would be the sole dental office at the complex. Section 9(e) of the APS states:

The Purchaser covenants and agrees to use the Unit for the Business Use or, subject to the terms of this Agreement, for any other allowable use under the relevant zoning of the Property from time to time, provided that the Vendor has not granted or established such other use as an exclusive use for any other unit in the Condominium on or before the Occupancy Date and/or as established by the Vendor in the Creating Documents at the time of their registration under the Act. The Purchaser acknowledges that it is the Purchaser’s sole responsibility to ensure that the Purchaser’s use of the Unit is in compliance with all municipal by-law.

The Alleged Breach

[10] Section 47 of the APS states that the agreement “is conditional upon Queens Walk being satisfied, in its sole and absolute discretion with the credit worthiness of the Purchaser.” Queens Walk had ninety days from the acceptance of the APS to satisfy itself with respect to the Plaintiffs’ credit worthiness. The provision further states that if Queens Walk notifies the Purchaser in writing that the condition has not been satisfied or waived, the APS would be null and void.

[11] The Plaintiffs allege that on September 6, 2017, Queens Walk breached the APS when it invoked s. 47 to terminate the APS on the basis of the Plaintiffs’ credit worthiness without checking the Plaintiffs’ credit. The Statement of Claim alleges that the Moving Defendants unlawfully caused Queens Walk to rely on s. 47 to breach the APS, without a legitimate reason.

[12] The Plaintiffs further allege that in breach of the restrictive covenant, Queens Walk failed to secure the termination of an agreement with another dentist, despite having promised this to the Plaintiffs.

[13] The Plaintiffs claim that they had arranged the necessary funds to close the purchase of the Unit.

Issues

[14] The motions raise the following issues:

(a) Does the Statement of Claim disclose a reasonable cause of action against the Moving Defendants? (b) Should the Plaintiffs’ claim against Queens Walk for punitive damages be struck? (c) Should leave to amend the Statement of Claim be granted?

Analysis

Should the Claims Against the Moving Defendants be Struck?

[15] On a motion to strike a claim under r. 21.01(1)(b) of the Rules of Civil Procedure, R.R.O., Reg. 194, the defendant must demonstrate that it is “plain and obvious” that the Statement of Claim discloses no reasonable cause of action. For the purposes of the motion, the Statement of Claim is read generously, and the facts alleged are presumed to be true. The threshold for sustaining a pleading under r. 21.01 is low. A claim should be struck only in the clearest of cases: Ontario Consumers Home Services Inc. v. EnerCare Inc., 2014 ONSC 4154, at para. 10.

[16] The case law is clear that unless there is an independent cause of action against them, officers, directors, and employees are protected from personal liability for acts carried out under a corporate name. As the Court of Appeal stated in Montreal Trust Co. of Canada v. ScotiaMcLeod Inc. (1995), 26 O.R. (3d) 481 (Ont. C.A.), at paras. 25-26:

The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact-specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare.[…] In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.

[17] The Court of Appeal went on to say that a corporation’s directors or officers may cause it to sign a contract, since a corporation can only operate through human agents. However, this does not mean that “if the actions of the directing minds are found wanting, that personal liability will flow through the corporation to those who caused it to act as it did”: Montreal Trust v. Scotia McLeod, at paras. 25-26.

[18] Directors and officers are responsible for their tortious conduct even though that conduct was directed in a bona fide manner to the best interests of the company, subject to the exception for liability for procuring a breach of contract: Adga Systems International Ltd. v. Valcom Ltd., [1999] 117 O.A.C. 39 (Ont. C.A.), at para. 18. In order to properly plead a cause of action against the directors or officers of a corporation, a separate claim must be stated against the individuals in their personal capacity: Montreal Trust v. ScotiaMcLeod Inc., at paras. 25-26. The statement of claim must allege actions conducted by the individuals which are themselves tortious or exhibit a separate identity or interest from that of the corporation so as to make the act or conduct complained of their own: Ibid.

[19] In this case, the Plaintiff pleads causes of action for breach of contract, inducing breach of contract, misrepresentation, and negligence. The allegations in the Statement of Claim pertaining specifically to the Moving Defendants are as follows:

• The Moving Defendants are directors and officers, including authorized signing officers, vice-presidents and, from time to time, controlling minds, of Queens Walk;
• They induced Queens Walk to rely on s. 47 of the APS to terminate the APS;
• They expanded the use of s. 47 in bad faith and arbitrarily and without legitimate and cogent reason caused Queens Walk to rely on the provision to escape the APS;
• They knew or ought to have known of the agreement with another dentist and that the restrictive covenant could not be performed;
• They acted in bad faith by “intentionally making false or negligent misrepresentations” to the Plaintiffs that the other dentist would be leaving the building or they failed to make full disclosure regarding the other dentist;
• They made no attempt to satisfy themselves as to the Plaintiffs’ creditworthiness and that this was a pretense to terminate the APS;
• They were aware, or ought to have been aware, that entering into the APS was “a misadventure from the outset”;
• They subsequently colluded to concoct a false excuse to breach the APS and avoid responsibility;
• “They failed to act bona fide as corporate officers, directors and corporate representatives and instead acted outside the scope of duty with the respective corporate Defendants as they did not have a legal, lawful or cogent reason for acting negligently, deceitfully and intentionally inducing the corporate Defendants to breach the Agreement with the Plaintiffs.”
• Their actions “exhibited a separate identity and interest from the corporate Defendants as their unlawful efforts to possibly increase the revenue of the corporate Defendants or to breach a binding Agreement were not in the best interest of the corporate Defendants.”

Inducing Breach of Contract

[20] Where a corporation breaches a contract, the breach must in all cases have been procured by the directors or other representatives through which the corporate body exercises its functions. This is not sufficient to establish a separate cause of action for inducing breach of contract against the directors or other representatives: Gulfview Contracting Ltd. v. Liquid Rubber Engineered Cotaings Ltd., 2011 ONSC 7103 at paras. 8-9, 17, 20-21. It is not enough to allege that the defendant intentionally caused the company to breach the contract. They must do so while not acting bona fide within the scope of their authority. Otherwise, a claim for breach of contract cannot proceed against a director or officer where a claim for breach of contract lies against the corporation: Knox v. Niagara Falls Taxi Ltd., 2014 ONCA 140, at para. 2.

[21] In determining whether a plaintiff has sufficiently pleaded a cause of action for inducing breach of contract against an individual defendant such as a director or officer of a corporation, a court considers whether the plaintiff has pleaded facts to establish the elements of the tort and, if those elements have been pleaded, whether the plaintiff has pleaded that the individual acted other than as the directing mind of the corporation: Davis v. JV Jadayda Ventures Inc., 2016 ONSC 4871, at paras. 6-7, 15-17.

[22] The necessary elements of the tort of inducing breach of contract are: (i) the defendant had knowledge of the contract between the plaintiff and the third party; (ii) the defendant’s conduct was intended to cause the third party to breach the contract; (iii) the defendant’s conduct caused the third party to breach the contract; and (iv) the plaintiff suffered damages as a result of the breach: Persaud v. Telus Corporation, 2017 ONCA 479, at para. 26.

[23] The Plaintiffs have not alleged conduct on the part of the Moving Defendants that was intended to cause the breach or caused the breach. The Statement of Claim alleges only that the Moving Defendants induced Queens Walk to rely on s. 47 of the APS to breach the agreement. While the Plaintiffs allege that the Moving Defendants did not act bona fide, or acted outside the scope of their authority, no facts are alleged to support this conclusory statement.

Misrepresentation and Deceit

[24] Similarly, the Plaintiffs have not alleged any particulars in support of their claim for misrepresentation or deceit. Under r. 25.06(8) of the Rules of Civil Procedure, where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading must contain full particulars. In order to state a claim for negligent misrepresentation, a plaintiff must plead with particularity the material facts supporting the requisite elements of the tort, specifically: (i) the alleged misrepresentation; (ii) when, where, how, by who and to whom it was made; (iii) its falsity; (iv) the inducement; (v) the intention that the Plaintiff should rely on it; (vi) the Plaintiffs’ alteration of their position in reliance on the misrepresentation; and (vii) the resulting loss or damage to the Plaintiffs. For a claim of deceit, the Plaintiff must also allege that the Defendant knew of the falsity of their statement: Lana International Ltd. v. Menasco Aerospace Ltd. (1996), 28 O.R. (3d) 343, at paras. 21-22 (Gen. Div.).

[25] The Plaintiffs have failed to plead the requisite elements of a cause of action for negligent misrepresentation, including the basic elements of who, what, when, where and to whom. In the Statement of Claim, the Plaintiffs allege that the Moving Defendants either misrepresented that the other dentist would be leaving the building, or a failed to make full disclosure regarding the other dentist. If the Plaintiffs relied upon a misrepresentation made by the Moving Defendants, one would expect that they would know what the misrepresentation was.

[26] Moreover, the above allegations pertaining to the “personal” or “individual” defendants are insufficient to state a cause of action against the Moving Defendants personally. A plaintiff cannot avoid having their pleading struck by making allegations against the defendants generally: 460635 Ontario Ltd. v. 1002953 Ontario Inc. (1999), 127 O.A.C. 48 (Ont. C.A.), at paras. 7-8. In 460635 Ontario Ltd., the Court of Appeal held that “‘properly pleaded’ as it relates to personal liability of corporate directors, officers and employees must be read as ‘specifically pleaded’, a separate claim must be stated against the individual in his personal capacity” (at para. 8). In TSSC Corporation No. 2123 v. Times Group Corporation, 2018 ONSC 4799, at para. 82, Allen J. stated that a pleading “written en masse not differentiating the particular allegations made against each of them” does not allow individual defendants to appreciate the case against them and is not a proper pleading. Here, the Plaintiffs have not differentiated among the Moving Defendants or alleged any particular conduct on the part of any particular defendant.

Negligence

[27] In respect of the claim in negligence, the Plaintiffs do not allege facts to support the existence of a duty of care between the Moving Defendants and the Plaintiffs. While the Plaintiffs allege a special relationship between them and the Moving Defendants, no facts are pleaded to support the existence of a special relationship. In addition, the Plaintiffs do not allege how the Moving Defendants failed to meet the requisite standard of care.

[28] It is plain and obvious that the Statement of Claim discloses no reasonable cause of action against the Moving Defendants. Accordingly, I grant the Moving Defendants’ motion to strike. The Plaintiffs do not specifically allege any independent tort on the part of the Moving Defendants, other that they acted other than in their capacity as directors or officers of Queens Walk. Many of the allegations in the Statement of Claim are legal conclusions to support personal liability, rather than allegations of facts that would give rise to personal liability. For example, the Plaintiffs allege that the Moving Defendants acted outside the scope of their authority “as they did not have a legal, lawful or cogent reason for acting negligently, deceitfully and intentionally inducing the corporate defendant to breach the APS.” Similarly, the Statement of Claim alleges that the Moving Defendants’ actions “exhibited a separate identity and interest from Queens Walk…” The Plaintiffs, however, do not allege facts to support the allegation of a separate interest being pursued by the Moving Defendants. As a result, I find that the Statement of Claim fails to plead any facts that could support a claim for personal liability on the part of the Moving Defendants: See Ontario Consumers, at para. 69.

Should the Claim For Punitive Damages Against Queens Walk Be Struck?

[29] The only cause of action being pursued against Queens Walk is for breach of contract. Queens Walk seeks to strike the Plaintiffs’ claim for punitive and exemplary damages. The Supreme Court of Canada has held that the facts said to justify punitive damages should be pleaded with some particularity: Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18, at para. 87.

[30] The allegations in the Statement of Claim referring to intentional conduct are all made in relation to the “personal” or “individual” defendants. The only allegation that could support a claim for punitive damages against Queens Walk is paragraph 19, which states: “

The Plaintiffs submit that Defendants[’] high-handed conduct was oppressive, vindictive, reprehensible and malicious such that it offends sense of decency. Such conduct ought to be considered an independent actionable wrong that caused the Plaintiffs damages and that compensatory damages are insufficient. Consequently, the Plaintiffs claim punitive and exemplary damages.

[31] The Plaintiffs allege no material facts regarding Queens Walk’s conduct toward them or the specific consequences suffered by them. As the Statement of Claim does not support a claim for punitive damages against Queens Walk, the claim for punitive and exemplary damages is struck.

[32] Queens Walk also seeks to strike the Individual Plaintiffs, Dr. Hormoz and Dr. Filo, from the Statement of Claim on the basis that they have no claim for breach of contract. As noted above, the APS was entered into by Dr. Hormoz and Dr. Filo in trust for a company to be incorporated. At this stage, it would be premature to strike the Individual Plaintiffs from the Statement of Claim. Moreover, the Individual Plaintiffs have alleged claims against the non-moving defendants, Bridlepath, David Brook and Leor Godfrey, that are not based solely on breach of contract.

Should this Court Grant Leave to Amend?

Claims Against the Moving Defendants

[33] As stated by the Court of Appeal in Miguna v. Ontario (Attorney General) (2005), 205 O.A.C. 257 (Ont. C.A.), at para. 22, “It is only where it is clear that the plaintiff cannot allege further material facts that he knows to be true to support the allegations that leave to amend will be refused.” A court should not exercise its discretion to grant leave to amend where there is no reason to believe that the party’s case could be improved further by amendment: TSSC, at para. 88.

[34] The Plaintiffs have already amended the Statement of Claim twice. In the face of the Moving Defendants’ motion to strike, they delivered an Amended Amended Statement of Claim. They have nonetheless failed to plead an independent cause of action against the Moving Defendants. Based on the previous two attempts to amend the Statement of Claim, and the Plaintiffs’ inability to allege facts to support a claim against the Moving Defendants, there is no reason to believe that their case could be improved by further amendment: Gyamfuaa v. Leblanc, 2015 ONSC 1422, at para. 38. The Statement of Claim as against the Moving Defendants is struck without leave to amend.

Claims Against Queens Walk

[35] Unlike the claims against the Moving Defendants, it is not clear to me that the Plaintiffs would be unable to plead further facts to support a claim against Queens Walk for punitive damages. Leave to amend should only be denied in the clearest of cases: Gyamfuaa, at para. 38; Tran v. University of Western Ontario, 2015 ONCA 295, [2015] O.J. No. 2185, at paras. 25-27. Accordingly, I grant leave to amend in respect of the claim for punitive damages.

[36] The Plaintiffs are also required to amend the Statement of Claim to reflect that the only cause of action being pursued against Queens Walk is breach of contract.

Conclusion

[37] Based on the foregoing, I grant the Moving Defendants’ motion to strike the Statement of Claim against them without leave to amend on the basis that it states no reasonable cause of action. The punitive damages claims against Queens Walk is struck with leave to amend.

Costs

[38] At the hearing of the motion, I received costs outlines from Plaintiffs’ counsel and counsel for Queens Walk and Barry Godfrey. Counsel for Mr. Godfrey and Queens Walk submitted a costs outline for $12,163.68 on a partial indemnity basis. The Plaintiff’s costs on a partial indemnity basis are $7,730.16. Both amounts include disbursements and HST. Counsel for the other Moving Defendants did not have a costs outline but indicated that his costs were comparable to those of Queens Walk.

[39] Pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1), the court has broad discretion when determining the issue of costs. The overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (Ont. C.A.), at para. 26. Rule 57.01(1) of the Rules of Civil Procedure sets out the factors to be considered by the court when determining the costs issue. I have considered these factors, as well as the proportionality principle in r. 1.04(1.1) of the Rules of Civil Procedure, while keeping in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice.

[40] The Plaintiffs claim damages of $3,000,000.00 and punitive damages of $50,000 against each defendant. Both parties submit that the matters were of average complexity and were important to the parties, given the amount at issue in the proceeding and the potential liability of the Moving Defendants. The original motion date of April 25, 2018 was adjourned at the hearing when the Plaintiffs indicated their intention to amend the Statement of Claim. The Moving Defendants were successful in striking the claim against them. Queens Walk was successful in striking the punitive damages claim, although leave to amend was granted.

[41] Given the foregoing, I fix costs of the motion on a partial indemnity basis at $5,000.00, payable to the Defendants, Jason Birnboim, Roy Birnboim, Joel Feldberg; and $4,000.00 payable to the Defendants Barry Godfrey and Queens Walk, to be paid by the Plaintiff within 30 days of this order. The amounts are inclusive of disbursements and HST.

Nishikawa J.

Released: February 27, 2019