Court File and Parties

COURT FILE NO.: CV-17-571518 DATE: 20190114

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

J.A.L. DEVELOPMENTS INC. Plaintiff – and – RESIDENCES OF SPRINGHILL INC., PAUL ROSSETTO, FAUSTO ROSSETTO, STEPHANIE ROSSETTO, ROSSBRO DEVELOPMENTS INC., ROSSBRO PROPERTIES INC., ROSSBRO PROPERTIES LIMITED, EMMA ROSSETTO, MATTHEW ROSSETTO, MPAR HOLDINGS INC. AND SILVIA RICCIARDI Defendants

AND BETWEEN

RESIDENCES OF SPRINGHILL INC. Plaintiff by Counterclaim – and – J.A.L. DEVELOPMENTS INC., PHILIP GORDIN, LAURA GORDIN, JESSICA ROBIN TARR, SUSAN GORDIN AND PHILIP GORDIN PROFESSIONAL CORPORATION Defendants by Counterclaim

COUNSEL: David Winer, for the Plaintiff by Counterclaim/Respondent Mitchell Wine, for Defendants by Counterclaim J.A.L. Developments Inc., Philip Gordin and Philip Gordin Professional Corporation, and appearing on behalf of the Moving Parties on this motion Jessica Tarr, for the Moving Parties/Defendants by Counterclaim Laura Gordin, Jessica Robin Tarr and Susan Gordin

HEARD: December 11, 2018

REASONS FOR DECISION

[1] This is a Rule 21 motion that was brought by the Defendants by Counterclaim, Laura Gordin, Jessica Robin Tarr and Susan Gordin (the “Gordin Family Members”), to strike certain paragraphs of the counterclaim and to dismiss the counterclaim as against them. Jessica Tarr is both a Defendant by Counterclaim and counsel of record for the Gordin Family Members. The motion was argued by co-counsel Mitchell Wine who acts for the Plaintiff and the other three defendants to the counterclaim. Although initially the motion was presented on the basis that the counterclaim should be struck in its entirety and dismissed as against all defendants to it, because that broader relief was not sought in the notice of motion, counsel for Residences of Springhill Inc./Plaintiff by Counterclaim (“RSH”) objected. The motion proceeded on the basis of the relief sought in the Notice of Motion, only in respect of the Gordin Family Members.

[2] For the reasons that follow, I am granting the motion and ordering that the counterclaim be dismissed as against the Gordin Family Members, with costs.

Background

[3] This is a Rule 21 motion and there is no evidence before the court, aside from an affidavit from a representative of RSH attaching documents that he indicates have been referred to in the counterclaim. [^1] The background “facts” described below come from the pleadings and the documents referred to therein.

The Main Action – the Project and Profit Sharing Agreement

[4] The Plaintiff, J.A.L. Developments Inc. (“J.A.L.”) is a private company that invests in business ventures on behalf of Susan Gordin. It is managed by her husband Philip Gordin (“Gordin”). Gordin is a real estate lawyer in Toronto. Gordin acted as the lawyer on transactions for RSH and its principles and affiliates over a number of years.

[5] The main action relates to an investment by J.A.L. in a real estate condominium project (the “Project”) pursuant to a profit sharing agreement between J.A.L. and RSH (under its previous corporate name) dated September 1, 2009 (the “Agreement”). RSH developed the Project, but it was not complete by September 1, 2014, the date on which the Agreement provided for the payment of profits to J.A.L., so J.A.L. agreed to extend the completion (and profit distribution) date.

[6] In November 2016 an amending agreement was entered into that allowed J.A.L. to register security by way of a second mortgage on unsold units in the event that the remaining units were not sold by certain specified dates. The profits that were stated to be payable under the Agreement to J.A.L. at that time totalled $594,115.05. A significant issue in the main action relates to alleged fraudulent conveyances of three of the remaining units in the Project which J.A.L. claims defeated its intended security and ability to recover the profits owing under the Agreement from RSH.

[7] After discovering this, J.A.L. commenced this action and sought and obtained a Mareva injunction. J.A.L. also discovered that there were limited funds in RSH’s bank accounts following payments made to certain of the other defendants. RSH and the other defendants have raised various allegations of breach of trust and breach of fiduciary duty against Gordin and his professional corporation in defence of the claims by J.A.L.

[8] There is a lot of history and acrimony between the J.A.L./Gordin and the Defendants, but none of that needs to (or could) be resolved for purposes of this motion. The issues on this motion relate to a different transaction, unrelated to the Agreement or the development of the Project. They have to do with a purchase in 2013 of one of the condominium units in the Project (“Unit 312”).

The Counterclaim and HST Remittances for the Purchase and Sale of Unit 312

[9] The agreement of purchase and sale for Unit 312 (the “APS”) was originally entered into in June of 2010 with Susan Gordin as the purchaser. There was an interim closing in January of 2013, at which time it was indicated that Jessica Robin Tarr, one of Susan Gordin’s daughters, would be the purchaser. When the purchase of Unit 312 eventually closed, Laura Gordin, Susan Gordin’s other daughter, became the purchaser. The full agreed upon purchase price under the APS of $544,700.00 was paid. $344,700.00 was paid on the closing date of March 27, 2013 and the balance owing of $200,000.00 was paid the next day, on March 28, 2013.

[10] RSH claims that its accountant calculated HST owing to the Canada Revenue Agency (“CRA”) on this purchase and sale transaction based on the initial payment of $344,000 received on March 27, 2013, with the result that RSH did not pay the HST owing on the total actual purchase monies received of $544,700 (having failed to account for the HST payable on the $200,000 second installment of the purchase monies received on March 28, 2013).

[11] RSH claims that it is now liable to pay HST on the sum of $200,000 and seeks damages for that HST payment, together with any assessed penalties and/or interest and for recovery of fees for tax and legal advice relating to the short-payment of HST that was made by RSH in 2013. At the hearing of the motion, RSH’s counsel conceded that the purchase monies that it received for Unit 312 included the HST applicable to the entire amount of the purchase price (including on the $200,000) and that it is not claiming for payment of that HST again. The counterclaim is only for any assessed interest and penalties and related tax and legal fees.

[12] Subsequently, Gordin became a co-owner and then eventually the sole owner of Unit 312, which was sold in August of 2017 for a profit over and above the original purchase price paid of $544,700.

Preliminary Ruling

[13] At the outset of the hearing I was asked to strike Exhibit “J” from the Rossetto Affidavit, which purports to be a notice from the CRA issued October 12, 2018 for the reporting period March 1 – March 31, 2013 calculating HST and penalties and interest (the “CRA notice”). The Defendants by Counterclaim conceded that documents referred to in the pleadings were properly before the court on this Rule 21 motion, but argued that this document could not have been “referred to” in the pleading since it did not exist on November 24, 2017 when the counterclaim was last amended. Further, they argued that it is not clear on its face what property (or properties) the CRA notice relates to, since the indicated amount of the revenue (purchase price adjustment) is $177,170.34. Even when the claimed HST rebate of $19,659.70 is accounted for, the indicated amount does not equate to the $200,000 purchase price differential that the counterclaim is concerned with.

[14] There was also an objection made about the timing of the delivery of the Responding Motion Record in which Exhibit “J” was disclosed for the first time, but no adjournment was sought by the moving parties, and it was conceded that the Responding Motion Record was not short served, so the motion proceeded and I ruled on the objection to this document based on the other grounds raised.

[15] The test applied in my decision about whether to strike this Exhibit was agreed to be whether: 1) the document is referred to in the pleading (in effect incorporated into the pleading and thus not evidence prohibited by Rule 21.01(1)(b)); and 2) the document is relevant to an integral part of the case. (See Web Offset Publications Ltd. v. Vickery, 1998 CarswellOnt 5379, [1998] O.J. No. 6578), at paras. 18-23; affirmed at 1999, CarswellOnt 2280 (CA)). The Defendants by Counterclaim conceded the second part of the test was satisfied so the only issue that I had to decide was whether this CRA notice is “referred to” in the counterclaim.

[16] The court in Web Offset relied upon an earlier decision of Borins, J. (Montreal Trust Co. of Canada v. Toronto Dominion Bank (1992) 40 C.P.C. (3d) 389 (Ont. Gen. Div.) which established that on a Rule 21 motion the court should have before it any documents sufficiently pleaded in order to assess the adequacy of the pleading because, in making reference to a document, the plaintiff is taken to be asserting their contents and facts. What Rule 21.01(2)(b) prohibits is the use of evidence not referred to in the statement of claim.

[17] Paragraph 105 of the counterclaim pleads: “RSH is now liable to pay HST on the sum of $200,000. RSH claims such payment from the defendants to this counterclaim (together with any assessed penalties and/or interest). RSH also claims as against the defendants to counterclaim, for all tax and legal advice related to this issue.”

[18] RSH argued that this pleading is consistent with the Excise Tax Act (R.S.C. 1985, c. E-15) sections 133, 165 and 168, which establish that the liability for payment of HST arose at the time the purchase monies were received back in 2013 (rendering RSH “now liable”). RSH maintains that this is not a “contingent claim”. When the counterclaim was issued, the liability for payment of HST existed. It was only the amount of assessed interest and penalties that was yet to be determined.

[19] I ruled at the hearing that paragraph 105 of the counterclaim can and should be read liberally, to refer to and incorporate the assessment document that reflects this liability and “any assessed penalties and/or interest”. I ruled that the CRA notice at Exhibit “J” (referable to the March 2013 reporting period) appears to correspond with paragraph 105 of the counterclaim (and with the claim in paragraph 79(b) for special damages respecting any HST that RSH may be required to pay to the CRA, together with any assessed interest or penalties thereon). The fact that the document came into existence after the pleading does not mean it cannot be referred to in a plea of an anticipated event (the CRA assessment).

[20] I agree with the observation made during argument by counsel for the Defendants by Counterclaim that the base amount upon which the HST and interest and penalties purport to be calculated in the CRA notice does not exactly match up with the $200,000 purchase price differential and that some further explanation will eventually be required. However, I think the interpretation of “referred to” in this context does not require that level of precision, as long as the document corresponds with the pleading in a general way, as this one does. While Exhibit “J” cannot be taken as “proof” of the amount of the assessed interest and penalties payable by RSH for Unit 312, that does not need to be determined for purposes of this motion.

[21] In light of my earlier ruling, I have considered Exhibit “J”, and the other documents in the Responding Motion Record that are referred to in the counterclaim, in reaching my decision on this motion.

Positions of the Parties

The Position of the Moving Parties (Gordin Family Members)

[22] The Gordin Family Members assert that the counterclaim does not disclose a reasonable cause of action against them. They are collectively (in seriatim) the purchaser under the APS. The total purchase price, inclusive of HST, was paid.

[23] The only pleaded causes of action that are alleged to have caused, or to be connected to, the loss (which in this case arises from the failure to remit HST on the $200,000 balance paid on March 28, 2013) are fraudulent misrepresentation and/or civil fraud (deceit).

[24] There is nothing in the counterclaim to suggest that the Gordin Family Members had anything to do with the preparation of the allegedly fraudulent documents, including the statement of adjustments upon which RSH’s accountant is alleged to have relied. The necessary element of causation is missing.

[25] Although RSH also alleges that the Gordin Family Members as “purchaser” breached the agreement of purchase and sale by failing to provide advance notice to, or to seek the consent of, RSH to the assignments of the APS which led to Laura Gordin taking title to Unit 312 at the closing, there is nothing in the pleading to suggest that this caused the damages or loss pleaded (arising from the HST underpayment). Furthermore, the alleged lack of notice/consent became irrelevant after the transaction closed with Laura Gordin taking title and the payment of the purchase price under the APS having been made in full, irrespective of what is reflected in the allegedly fraudulent documents.

[26] The Defendants by Counterclaim also contend that the counterclaim is premature and fatally flawed as a result because there are no specific damages claimed (damages being a necessary constituent element of the torts of fraudulent misrepresentation and civil fraud). They contend that there can be no cause of action until a CRA reassessment has occurred (and been pleaded). This position was tied to their objection to Exhibit “J”, which I overruled.

The Position of the Responding Party RSH

[27] RSH maintains that a prospective plea of future, as yet undetermined, damages is sufficient for these torts, and also, independently, points to Exhibit “J” which indicates that HST is payable and that penalties and interest have been assessed (even if the precise amounts cannot be ascertained from simply reading it without further explanation). Liability to pay HST was not a contingent liability, it was always a certainty; only the amounts of interest and penalties to be assessed were subject to later determination.

[28] RSH asserts that all of the Defendants to the Counterclaim should be responsible for the interest and penalties imposed by CRA on RSH as a consequence of the underpayment of the HST payable at the time of the sale of Unit 312 in March of 2013. RSH baldly asserts that the Gordin Family Members (as well as Gordin) intentionally misstated the consideration for the purchase of Unit 312.

[29] RSH also alleges breach of contract against the Gordin Family Members – based on the fact that there were assignments between them as “the purchaser” without advance consent or approval from RSH. RSH maintains that these breaches of the APS are what enabled Laura Gordin to purchase Unit 312 and that the stated consideration in her deed was for less than what the APS provided for (even if the full amount was actually paid).

The Rule 21 Test

[30] Rule 21.01(1)(b) allows a party to move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action or defence.

[31] Before striking out a claim under Rule 21:

a. The Court must be satisfied it is plain, obvious and beyond doubt the claim cannot succeed; b. The pleading must be read generously and meritorious claims should not be struck merely for technical drafting deficiencies; and c. Allegation of fact, unless plainly ridiculous or incapable of proof, must be accepted as proven.

(See Cerqueira v. Ontario, 2010 ONSC 3954, 2010 CarswellOnt 5190, at para. 11 (g))

[32] In Golden Oaks Enterprises Inc. v. Lalonde, 2016 ONSC 5313, at paras. 44-50, this court adopted the position that it will not strike a claim where: (a) there is at least a “germ or a scintilla” of a cause of action, and (b) it will allow an amendment to the pleading if the failure to plead an essential element was the result of an oversight.

Analysis

[33] There is no dispute that in March of 2013 the purchaser (stated at various times to be the Gordin Family Members: first, Susan Gordin, then Jessica Robin Tarr and eventually, Laura Gordin) paid the full amount of the purchase price which included all of the HST that RSH, as the vendor, was required to remit to the CRA. RSH received but did not remit to the CRA all of the HST it received. Instead, RSH only remitted the HST payable on the first installment of the purchase price paid at the closing on March 27, 2013.

[34] Gordin was the lawyer acting for all parties at the closing of the APS and he prepared a statement of adjustments and a transfer deed and a form 190 that only reflected the portion of the purchase price received on the March 27, 2013 closing, of $344,700. It is alleged that RSH’s accountant used the statement of adjustments to calculate the HST payable to CRA (based on the notional and fictitious sale price of $344,700) and therefore RSH did not pay the HST on the $200,000 remaining purchase monies received.

No Cause of Action in Tort

[35] RSH asserts that the purchase price installments were intentionally staged, and that the purchase price was intentionally mis-stated on the documents prepared by Gordin, in order to fraudulently minimize the tax obligations of the purchaser. It is alleged that Gordin prepared a form 190 that was filed by Laura Gordin with the CRA indicating that Unit 312 was purchased (at this lower allegedly fictitious purchase price) as her primary residence (rather than as a rental property).

[36] RSH also baldly asserts in paragraph 104 of the counterclaim that the Gordin Family Members intentionally misstated the consideration for the purchase of Unit 312 in order to minimize their tax obligations but no details of how or where they did so are pleaded. These causes of action require intentional acts. (See Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126, at paras. 18-21 and Harland v. Fanscali, 1993 CarswellOnt 909 (S.C.J.) at paras. 11-14, afff’d at 1994 CarswellOnt 765 (O.C.A.)). Intentional torts must be pleaded with clarity and precision; bald or vague assertions of intentional tortious conduct are insufficient to defeat a Rule 21 motion. (See Ceballos v. DCL International Inc., 2018 ONCA 49, at para. 12)

[37] Even on the most generous reading of the counterclaim and documents referred to therein, it was Gordin who allegedly committed the fraud and misrepresentations which are said to have caused RSH’s accountant to submit the wrong amount of HST on behalf of the vendor RSH. Gordin is the one who is alleged to have prepared the documents that mis-stated the total consideration (statement of adjustments, conveyancing documents and form 190), and Gordin is alleged to have prepared the one document (statement of adjustments) that paragraph 101 of the counterclaim pleads was used by RSH’s accountant to calculate the wrong amount of HST based on the indicated sale price of $344,700.

[38] The only pleading that even attempts to link any of the Gordin Family Members to any alleged fraud is the assertion in paragraph 102 of the counterclaim that Laura Gordin completed a false application for an HST rebate (the form 190) which reflected the understated purchase price (the first installment payment). However, that is not a document that is alleged to have been provided to, or relied upon by, RSH’s accountant and it does not appear on its face to have anything to do with the HST remittance by RSH. While RSH alleges that the form 190 was a fraud itself because it is predicated on Unit 312 being Laura Gordin’s primary residence rather than a rental property, that alleged “fraud”, even if committed, has no causal connection to the HST remittance that was made on behalf of RSH. [^2]

[39] Taking the material facts as pleaded, there is no reasonable cause of action disclosed that bears any relationship to the subject matter of the counterclaim (alleged damages and loss arising from the underpayment of HST on Unit 312).

No Cause of Action for Breach of Contract

[40] A claim for breach of contract must contain, among other things, particulars of the damages said to flow from the alleged breach. (See McCarthy Corp. PLC v. KPMG LLP, 2007 CarswellOnt 35, [2007] O.J. No. 32, at para. 26).

[41] The fact that the Gordin Family Members were each at one point either an intended or the eventual purchaser of Unit 312 does not establish the necessary link or causal connection between any of them and the loss or damages claimed, arising from underpayment of HST by RSH. There is no allegation that links or connects the purchaser’s alleged breaches of the APS to the HST payable by RSH – to the contrary, it is admitted that the full purchase price, inclusive of all HST payable by RSH, was paid by the purchaser to RSH in 2013.

[42] Taking the material facts as pleaded, there is no reasonable cause of action for breach of contract disclosed that bears any relationship to the subject matter of the counterclaim (alleged damages and loss arising from the underpayment of HST on Unit 312).

No Leave to Amend

[43] This counterclaim does not plead a germ or scintilla of a cause of action against the Gordin Family Members for the alleged fraud and misrepresentations or breach of contract. This absence of any causal connection between the Gordin Family Members and the HST remittance that was made on behalf of RSH does not appear to be an oversight or drafting deficiency.

[44] The concession of RSH that, despite what may have been erroneously reflected in the closing documents, it received the full purchase price payable under the APS, inclusive of the entire amount of HST that it should have remitted to the CRA, is a full answer to any claim in contract arising from the underpayment of the HST. Further, any breach of contract by the Gordin Family Members for failing to obtain RSH’s advance consent or approval for Laura Gordin to be the purchaser under the APS has been superceded by the closing of the APS with Laura Gordin as the purchaser in any event. It is clear that RSH will not be able to improve its case by any further or proper amendment to this cause of action. Rule 21.01(b) may be used to strike a pleading because there is an unanswerable defence to the claim. (See Guergis v. Novak, 2013 ONCA 449, 38 OAC 96 (C.A), at para. 35)

[45] Despite having had ample opportunity to do so, no credible basis was presented by RSH to address the causal defect that is an obstacle to extending the fraud allegations to the Gordin Family Members. Gordin was involved as the lawyer on that purchase transaction and document(s) he prepared are alleged to have been relied upon in connection with the underpayment of HST by the vendor of Unit 312.

[46] In the face of the plea that Gordin was the one who prepared and is responsible for the allegedly misleading documents, it would not be appropriate to grant leave to amend the counterclaim to plead an untenable and hypothetical cause of action against the individual Gordin Family Members.

[47] I recognize that the usual practice would be to grant RSH leave to amend, but that is applied in cases where the pleading defects are corrigible, which the RSH has not even attempted to satisfy me of in this case. (See Hostmann-Steinberg Ltd. v. 2049669 Ontario Inc., 2010 ONSC 2441, 2010 CarswellOnt 3311, at para. 21). In this case, no further and proper amendment has been identified, which leads me to conclude that it is clear that the plaintiff cannot improve its case. (See Fournier Leasing Co. v. Mercedes-Benz Canada Inc., 2012 ONSC 2752, 2012 CarswellOnt 6068, at para. 46)

[48] Including the Gordin Family Members in the counterclaim appears to me to be tactical and I am not prepared to condone that tactic and require those individuals to continue to defend claims that, in my view, plainly, obviously and without a doubt cannot succeed against them personally.

Disposition

[49] Although the motion seeks to strike out paragraphs 79(b) and 99 to 114 of the counterclaim, since it is continuing against the other defendants to the counterclaim, Philip Gordin and Gordin Professional Corporation, I am not going to strike out any paragraphs of the counterclaim. Rather, I am ordering that the counterclaim be dismissed as against the Gordin Family Members, Laura Gordin, Jessica Robin Gordin and Susan Gordin, with their costs of the counterclaim and of this motion payable by RSH to them.

Costs

[50] At the conclusion of the hearing counsel advised that they would prefer to address the issue of costs after my decision was released. I encourage counsel to attempt to reach an agreement on the costs payable by RSH to the Gordin Family Members that should include any defence costs that they incurred in responding to the counterclaim, and their costs of this motion. These costs should not include any costs of the remaining Defendants by Counterclaim Philip Gordin and Gordin Professional Corporation. If the parties are able to reach an agreement on costs they should advise the court of such by January 21, 2019, and provide a draft order.

[51] If no agreement is reached on costs, then each of RSH and the Gordin Family Members may provide the court with brief written submissions on costs (not to exceed 5 pages double spaced) and their respective costs outlines by January 28, 2019 and each may respond to the other’s in a brief reply submission on costs (not to exceed 2 pages double spaced) by February 1, 2019. All costs submissions should be served on the opposing parties and delivered to my attention at Judges’ Reception, Superior Court of Justice at 361 University Avenue (Room 170), Toronto, Ontario M5G 1T3.

KIMMEL, J. Released: January 14, 2019

Footnotes

[^1]: There was an objection to one of these documents, attached as Exhibit “J” to the Affidavit of Fausto Rossetto sworn December 4, 2018 (the “Rossetto Affidavit”), which I ruled on during the hearing. This ruling is summarized later in these reasons. [^2]: Although not necessary to resolve for purposes of my decision on this motion, I also note that the speculative assertion by RSH that the purchase price on the form 190 and other documents was mis-stated in order to minimize the purchaser’s tax liability does not necessarily follow. The form 190 was to claim an HST rebate, which would have been higher if the actual (higher) purchase price paid had been indicated on that form. Based on the record before me, it appears that the HST rebate on the full purchase price would have been more than the land transfer tax payable on the full purchase price, and it is certainly not obvious that there would be an overall tax savings.