Court File and Parties

COURT FILE NO.: CV-15-00524487 MOTION HEARD: 20181026, 20190304 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Amos Tayts, Plaintiff AND: Gordon Fox, Harvey Shapiro, Maxim Zavet, Levy Zavet Professional Corporation, Kindcann Limited, Kindcann Holdings Limited, Kindcann Realty Limited, Kindcann.com Inc., MZ Prime Holdings Ltd. and White Cedar Pharmacy Corporation, Defendants

AND: Kindcann Limited, Kindcann Holdings Limited, Kindcann Realty Limited and Kindcann.com Inc., Plaintiffs by Counterclaim AND: Amos Tayts and Talya Lev-Mor, Defendants to the Counterclaim

BEFORE: Master B. McAfee

COUNSEL: R. Hine and M. Shahidi, Counsel for the Plaintiff and Defendants to the Counterclaim B. McLeese, Counsel for the Defendants and Plaintiffs by Counterclaim and for the Proposed Defendants Emblem Cannabis Corporation and Emblem Corp.

HEARD: October 26, 2018 and March 4, 2019

Reasons for Decision

[1] This is a motion brought by the plaintiff, defendants to the counterclaim for leave to amend the amended statement of claim in the form of the fresh as amended statement of claim attached as schedule “A” to the notice of the motion.

[2] The defendants, plaintiffs by counterclaim oppose the proposed amendments at paragraphs 4 (only the sentence: “Zavet primarily practices real estate law.”), 34, 35, 38, 39, 40 (only the words “Pursuant to the Zavet Group Terms”), 70 (only the words “pursuant to the Zavet Group Terms”), 74, 83, 84 (second sentence only: “In fact, in an email string between Zavet, Shapiro, Fox and Tayts on March 27, 2014, Zavet stated: “..one of the issues is that the Board of the applicant must have their security clearance which means right now only Harvey and I can sit on the board. Not sure how we work around that. Also I would like someone to represent Amos on the board.”), 85, 86, 87 (last sentence only: “Given that Zavet owned 50% of the Founders Shares at that time, of which 25% was being held in trust for Tayts, Tayts beneficially owned 12,500 of those 100,000 Founders Shares.”), 89 (last sentence only: “Pursuant to the Zavet Group Terms, Zavet controlled Kindcann’s minute book and was handling all of the corporate legal work on Tayts’ behalf.”), 93 (first sentence only: “Based upon Tayts’ 25% interest in the Zavet Group’s 50% ownership interest being held by Zavet in trust for Tayts, 12.5% of those 250,000 founders’ shares, 31,250 shares, should have either been registered in Tayts’ name or held by Zavet directly or indirectly, on Tayts’ behalf.”), 105-107, 120(a) and 120(e).

[3] The balance of the proposed amendments are unopposed. However, the defendants seek costs in the amount of $95,002.15 for their costs of defending the claims that they submit are now abandoned.

[4] Rule 26.01 of the Rules of Civil Procedure provides as follows:

26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[5] There is no evidence of prejudice.

[6] The basis for the opposition to the impugned proposed amendments can be grouped into four main categories:

1. Paragraphs or part of paragraphs 34-35, 38-40, 70, 74, 83, 86-87, 89, 93, 105-107, 120(a) and 120(e) seek to add a claim for breach of the “Zavet Group Terms” after the expiry of the limitation period;
2. Paragraphs or part of paragraphs 39, 87, 93, 105 and 120(e) seek to add a claim of breach of trust after the expiry of the limitation period;
3. Paragraphs or part of paragraphs 84-85 constitute pleadings of evidence rather than material facts;
4. Part of paragraph 4 constitutes a withdrawal of an admission.

Category No. 1

[7] The parties agree that the applicable law is summarized in 1100997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848 (Ont. C.A.) at paras 19-23:

19. A cause of action is “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”: Letang v. Cooper, [1965] 1 Q.B. 232 (Eng. C.A.), at pp. 242-43, as adopted by this court in July v. Neal (1986), 57 O.R. (2d) 129 (Ont. C.A.), at para. 23.

20. In Morden & Perell, The Law of Civil Procedure in Ontario, 2nd ed. (Markham: LexisNexis Canada Inc., 2014), at p. 142, the authors state:

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon which the original right of action is based. [Footnotes omitted.]

21. In Dee Ferraro Ltd. v. Pellizzari, this court noted the distinction between pleading a new cause of action and pleading a new or alternative remedy based on the same facts originally pleaded. The appellants had commenced an action against their lawyer claiming damages for breaches of contract, trust and fiduciary duty and for fraud and negligence. The appellants then sought to amend their pleading. This court, in overturning the motion judge’s dismissal of the motion to amend, concluded that the proposed amendments, such as claims for a mandatory order and a constructive trust over the shares, could be made because they flowed directly from facts previously pleaded.

22. By contrast, a proposed amendment will not be permitted where it advances a “fundamentally different claim” after the expiry of a limitation period: Frohlick v. Pinkerton Canada Ltd., 2009 ONCA 608. In that case, the court did not permit the plaintiff in a wrongful dismissal action to amend the statement of claim to assert a claim for damages for constructive dismissal on the basis that the limitation period had expired. The court dismissed the appeal. The amendment regarding constructive dismissal related to events that occurred prior to the events described in the original statement of claim that were unrelated to that claim. The defendant was unaware of the new allegations prior to the plaintiff seeking the amendments, and the events were not put in issue or encompassed within the original claim.

23. Based on the foregoing, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a “fundamentally different claim” based on facts not originally pleaded.

[8] The defendants argue that while terms of an agreement were previously pleaded, the proposed amendments plead substantially different facts, amounting to a new cause of action. I am satisfied that no new cause of action is advanced to allege a breach of the “Zavet Group Terms.”

[9] The “Zavet Group Terms” are defined at paragraph 35 of the proposed fresh as amended statement of claim. Subparagraphs 35a and d of the proposed fresh as amended statement of claim are identical to subparagraphs 27a and b of the existing amended statement of claim.

[10] This action was and remains primarily an oppression remedy action. Allegations of breach of contract, unjust enrichment, misrepresentation and breach of fiduciary duty are made in the alternative, both before and after the proposed amendments. Both in the existing amended statement of claim and in the proposed fresh as amended statement of claim, the plaintiff maintains that:

a. He and Zavet agreed to work together to found a medical marijuana business in exchange for part ownership; b. The defendants Shapiro and Fox later joined the plaintiff and Zavet in the business; c. The plaintiff, Zavet, Shapiro and Fox all agreed that the plaintiff would receive 12.5% interest in the business, however it was structured, in exchange for the plaintiff’s work and access to his specialized knowledge about the medical marijuana business; d. The plaintiff was lead to believe that Zavet would receive a 50% interest in the business and that the plaintiff would receive 25% of Zavet’s interest. Both before and after the proposed amendments, the plaintiff is seeking a 12.5% interest in the business that was initially owned by Zavet, Shapiro and Fox; e. In reliance on this agreement, the plaintiff invested considerable time and effort to develop the medical marijuana business; f. Zavet, Shapiro and Fox acted oppressively to exclude the plaintiff from his ownership interest and have refused to provide the plaintiff with the ownership interest in the business which he had been promised.

[11] In my view the proposed amendments in this category arise from the same factual matrix being an alleged agreement with respect to a medical marijuana business. The proposed amendments provide particulars of allegations already pleaded or additional facts upon which the original cause of action is based.

[12] Leave to amend is granted with respect to the proposed amendments in this category.

Category No. 2

[13] I am also satisfied that no new cause of action is advanced in this category of proposed amendments. The allegation that the plaintiff’s interest in the business is held in trust for the plaintiff’s benefit formed part of the relief claimed in the existing amended statement of claim at paragraph 1(b)(v).

[14] In the alternative, the defendants argue that the proposed amendments in this category should be denied on the basis that the claim is not certain as to property (see White v. Gicas, 2014 ONCA 490 (Ont. C.A.) at para. 1). The defendants argue that the quantity of shares held in trust is not certain and that the proposed pleading cannot support this cause of action.

[15] I am not satisfied that the defendants’ alternative position is a basis to deny the proposed amendments in this category. White was not a pleadings decision. The plaintiff pleads that he would receive 12.5% interest of the business (see paras. 86 and 87 of the proposed fresh as amended statement of claim), which is in my view is sufficient for the purpose of pleading.

[16] Leave to amend is granted with respect to the proposed amendments in this category.

Category No. 3

[17] The defendants argue that the impugned pleadings are pleadings of evidence contrary to Rule 25.06(1). It is the position of the plaintiff that the pleadings are full particulars of the negligent or intentional misrepresentation claimed at paragraph 1(c) of the fresh as amended claim as required by Rule 25.06(8).

[18] In Mislovitch v. Bloom, 1997 CarswellOnt 5158 (Ont. Gen.Div.) Justice J. Macdonald states as follows:

Rule 25.06(1) is mandatory in requiring that evidence not be pleaded. How is this overlap in mandatory rules to be resolved? In my opinion, pleadings which are full particulars pursuant to Rule 25.06(8) and also evidence contrary to Rule 25.06(1) should be allowed to stand in order to meet to objectives of Rule 25.06(8). These objectives are definition of the issues and disclosure of the case to be met. This interpretation of Rule 25.06 is consistent with Rule 1.04(1). It is also akin to relief, of the kind mentioned in Rule 2.01(1), from the requirements of Rule 25.06(1). This interpretation and application of these Rules means that the ultimate exception to complying with the Rules, found in Rule 2.03, is unnecessary and thus unavailable.

[19] Based on Mislovitch, and the requirement for full particulars pursuant to Rule 25.06(8), leave to amend is granted with respect to the proposed amendments in this category.

Category No. 4

[20] At paragraph 3 of the amended statement of claim, the plaintiff pleads that “Zavet primarily practices real estate law.” The plaintiff seeks to delete this sentence in the proposed fresh as amended statement of claim.

[21] At paragraph 5 of the statement of defence of Zavet, Levy Zavet and MZ Prime, these defendants plead that “Zavet is a licensed lawyer in the Province of Ontario and, prior to founding Kindcann, he practiced real estate and commercial leasing law through the professional corporation Levy Zavet PC, which he founded with his partner Jeff Levy”.

[22] I am not satisfied that an allegation in a statement of claim concerning the field of law in which one of the defendants primarily practices is an admission contemplated by Rule 51.05. The proposed amendment removes a particular or description of Zavet’s area of practice but not a concession to the defendants, who deny this pleading at paragraph 3 of their statement of defence and plead the areas of Zavet’s practice at paragraph 5 of their statement of defence.

[23] Leave to amend is granted with respect to the proposed amendment in this category.

Costs Thrown Away

[24] The defendants seek costs thrown away in the amount of $95,002.15 as follows: full indemnity costs of responding to the spoliation claim in the amount of $10,624.83 or $6,374.90 on a partial indemnity basis; partial indemnity costs of defending proposed abandoned claims in the amount of $50,836.66; and partial indemnity costs of the summary judgment motion in the amount of $33,540.66.

[25] In my view it is premature to determine what costs, if any, are thrown away.

[26] With respect to costs thrown away of the spoliation claim, it is the plaintiff’s position that the issue of spoliation was resolved on consent on a without costs basis. There is nothing in the material referred to in argument confirming an agreement to forego costs. Some or all of the emails at issue may have been producible in the action even if spoliation had not been pleaded. The issue of these costs is reserved to the trial Judge to be dealt with as the trial Judge may direct.

[27] With respect to costs thrown away of defending other proposed abandoned claims, at this stage in the proceedings examinations for discovery have not yet taken place. It is premature to determine what costs, if any, are thrown away as a result of these amendments. The issue of these costs is reserved to the trial Judge to be dealt with as the trial Judge may direct.

[28] With respect to costs thrown away of the summary judgment motion, the summary judgment motion is still pending before a Judge. The issue of these costs is reserved to the Judge determining the summary judgment motion, to be dealt with as the Judge may direct and may be referred to me if so directed by the Judge.

Costs of the Motion

[29] With respect to the costs of the motion, I fix costs of the motion in the all-inclusive sum of $10,000.00, payable by the defendants to the plaintiff. In my view this is a fair and reasonable amount that the defendants could expect to pay for costs having regard to all of the circumstances of the motion including the plaintiff’s success on the contested proposed amendments. In all of the circumstances of the motion, I am also satisfied that an order different than costs payable within 30 days would be more just. Costs are payable by the defendants to the plaintiff in the cause.

Summary of Order Granted

[30] Order to go as follows:

1. Leave is granted to amend the amended statement of claim in the form of the proposed fresh as amended statement of claim attached as schedule “A” to the notice of motion.
2. The issue of costs thrown away, if any, is reserved to the trial Judge, save for the issue of costs thrown away of the summary judgment motion which is reserved to the Judge hearing the summary judgment motion to be dealt with as the Judge may direct and may be referred to me.
3. Costs of this motion are fixed in the all-inclusive sum of $10,000.00 payable by the defendants to the plaintiff in the cause.

Master B. McAfee Date: April 2, 2019