The Nature of the Action

[1] This is a breach of contract action, in which the plaintiff claims general, aggravated and punitive damages for the defendants’ alleged failure to abide by the terms of two agreements, a main agreement and a collateral agreement regarding financing. The defendants dispute the existence of any agreement. The alleged agreements relate to the operation and sale of a pizza franchise in Collingwood, Ontario. The claim was commenced in August, 2017.

The Nature of the Motion

[2] The defendants move to strike out certain paragraphs in the claim under Rules 21.01(1)(b) and 25.06 on the ground that they fail to disclose a reasonable cause of action and fail to plead material facts and elements in support of such causes of action.

[3] The defendants also move to strike out certain other paragraphs in the claim under Rules 25.11(b) and 25.11(c), without leave to amend.

[4] In September, 2017 the defendants’ counsel requested a copy of the main agreement and the option agreement referred to in the claim. He received in return an unsigned document dated March 26, 2010, titled “Store Operating Agreement”.

[5] In October, 2017 the defendants’ counsel requested particulars pursuant to Rule 25.10. He received a response from the plaintiff’s counsel in November, 2017.

[6] It is the defendants’ position that the statement of claim, the Store Operating Agreement, and the responses to the demand for particulars do not disclose a cause of action, or fail to plead material facts, or should be struck as prejudicial or scandalous, frivolous or vexatious.

Paragraphs 9, 11, 12, 14, 15, 16, 17 and 19 of the Claim

[7] The defendants move to strike the foregoing paragraphs of the claim under Rules 21.01(1)(b).

[8] No evidence may be considered in relation to the relief sought: Rule 21.01(2)(b).

[9] The defendants take the position that the document titled “Store Operating Agreement” may be considered on this motion. Their counsel argues that it was provided by the plaintiff in response to a request to examine the agreement referenced in the claim as being made between the parties in November, 2009. However, in her reply to the demand for particulars, the plaintiff stated that she does not possess the signed agreement. The plaintiff said that the corporation has possession of it, and the document titled “Store Operating Agreement” was a draft that had been emailed to her by the defendants. She also stated that the parties entered into a verbal agreement in the fall of 2009, which was reduced to writing and fine-tuned prior to execution.

[10] Accordingly, I do not consider this situation to be the same as that relied on by the defendants in Webb Offset Publications Ltd. v. Vickery, 1998 CanLII 14858 (ON SC), [1998] O.J. No. 6478, in which Kruzick, J. found that certain documents should be deemed to be included in the claim, as they were the subject of the plaintiff’s action, were quoted from in the claim, and as such formed a relevant and integral part of the claim. As the prohibition under Rule 21.01(2)(b) is a reference to evidence not included in the claim, Kruzick J. allowed the documents to be considered on a motion to strike under Rule 21.01(1)(b). In the case before the court, the document produced is alleged to be something different than the alleged final written agreement.

[11] The plaintiff’s reply to the request for particulars asserts that the document titled “Store Operating Agreement” is not the governing agreement between the parties, but, according to her, is evidence that an agreement was being negotiated. Accordingly, contrary to the conclusion reached in Vaughan v. Ontario (Minister of Health) (1996), 49 C.P.C. (3d) 119 (Ont. Gen. Div.), which was relied on in Webb Offset, I cannot conclude that the plaintiff is asserting the contents of the “Store Operating Agreement” to be facts in the case. Rather, I conclude from her reply to the demand for particulars that the document provided may be more properly characterized as evidence of negotiations. As evidence, it is excluded from consideration on this motion.

[12] As the foregoing infers, a demand for particulars and the responses received must be considered on a motion to strike under Rule 21.01(1)(a) or (b). The law is clear that particulars become part of the pleadings and are not evidence: Janssen-Ortho Inc. v. Amgen Canada Inc. 2007 CarswellOnt 9648 (C.A.), paras. 88-92. However, in this case the demand for particulars did not seek particulars for any of paragraphs 9, 11, 12, 14, 15, 16, 17 or 19 of the claim.

[13] The impugned paragraphs of the claim read as follows:

The plaintiff’s work at the restaurant developed the restaurant into a profitable enterprise.
The plaintiff had advised the defendants that she intended to purchase the business in or around July 2015. She was specifically told by the defendant, Neil Rothwell, that there was no rush to purchase the restaurant, given her right of first refusal.
The plaintiff further approached the defendants on a separate occasion with an interest in buying the business along with a business partner. The defendants dissuaded her from purchasing the restaurant with a partner and again remined (sic) her that she had first right of refusal so there was no urgency to make financial arrangements for the purchase of the restaurant.
The defendant sold the restaurant on or around February 2017 with no notice to the plaintiff, in plain violation of their contract with her.
The person to whom the defendants sold the business was the person that the plaintiff had presented to the defendants as a potential partner in the aforementioned discussions.
The plaintiff has accordingly been deprived of benefit from several years of hard work developing the restaurant, despite the protective terms in the plaintiff’s favour within the contract.
The plaintiff pleads that, had she been approached by the defendants regarding a potential sale of the business, she would have exhausted all funding sources in order to secure funding to buy the restaurant.
The plaintiff pleads and relies upon:

a) The Courts of Justice Act and regulations made thereunder.

[14] The leading case governing motions to strike claims that disclose no cause of action is Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990], 2 S.C.R. 959, wherein that court considered a similar rule of practice contained in the British Columbia Rules of Court. The test in Canada governing rules of practice such as Rule 21.01(1)(b) of the Rules of Civil Procedure is this: Assuming that the facts as stated in the statement of claim can be proved, is it “plain and obvious” that the plaintiff’s statement of claim discloses no reasonable cause of action?

[15] In the most recent case on point from the Ontario Court of Appeal, Paton Estate v. Ontario Lottery and Gaming Corp., 2016 ONCA 458, at para. 5, the court affirmed the test for striking an action under Rule 21.01:

In considering a motion under this rule to strike out a statement of claim, the judge must assume that the facts pleaded are true. He must read the statement of claim generously allowing for inadequacies due to drafting deficiencies. Because a cause of action is novel it should not be struck out on this basis. The statement of claim should only be struck out if it is "plain and obvious" and "certain" that the claim will fail.

[16] One of the reasons that the defendants’ motion is problematic is that Rule 21.01(1)(b) only permits an entire pleading to be struck out. It does not authorize the excision of only some of the impugned paragraphs in the claim.

[17] Read as a whole, the claim does not remotely lead to the conclusion that this claim is doomed to fail. It asserts a well-recognized cause of action, being breach of contract. With respect to the primary contract, the additional paragraphs in the claim assert that the parties entered into an agreement whereby the defendants would fund the opening of a Dominos Pizza chain restaurant and the plaintiff would operate it and develop its profitability. The claim goes on to allege that the agreement provided that the plaintiff would be provided with quarterly bonuses, in addition to a modest stipend, and that she would have the option to buy the restaurant at any time during the contract and would have the right of first refusal in favour of a non-party purchaser. With respect to what has been referenced in the claim as a collateral contract, the plaintiff alleges that the defendants would allow her to hold the mortgage with them in the event that she had difficulty obtaining funding sufficient to purchase the restaurant.

[18] The defendants have not met the test under Rule 21.01(1)(b).

[19] The defendants also move under Rule 25.06, presumably alleging that the impugned paragraphs are deficient in the material facts pled, although this rule was not addressed in their factum nor during argument.

[20] The pleading more than satisfies the requirements of Rule 25.06. Even where the defendants argue that it is improper for the plaintiff to allege that certain facts are within the knowledge of the defendants, as she does in her reply to the demand for particulars, this does not offend the rule. There is nothing improper about pleading that certain facts are within the opposing party’s knowledge. The plaintiff’s reply to the demand for particulars notes that the answers to all of counsel’s questions are within the documentation in the defendants’ possession. For that reason, the plaintiff goes on to state in her reply that certain material facts, such as whether the agreement was signed by the individual defendants personally, is something within their knowledge and not hers.

[21] The defendants have not satisfied this court that the claim should be struck on the basis of failing to comply with Rule 25.06(1).

[22] Although the defendant’s counsel has addressed Rule 21.01(3)(d) in his factum, he has not brought his motion under that rule. Even though this ground is not properly before the court, for the same reasons explained below, I find that the action is neither frivolous, vexatious nor an abuse of process.

Paragraphs 5, 6, 7, 8, 10, 13 and 18 of the Claim

[23] The defendants move to have the foregoing paragraphs of the Statement of Claim struck pursuant to Rule 25.11(b) and (c).

[24] The impugned paragraphs read as follows:

In or around November 2009, the defendants entered into an agreement with the plaintiff wherein the defendants would fund the opening of a Domino’s Pizza chain restaurant in Collingwood, Ontario and the plaintiff would operate the restaurant and develop its profitability.
The agreement provided that the plaintiff, in addition to a modest stipend, would be provided with quarterly bonuses based upon the cash flow of the restaurant and the financial documentation disclosing the underlying basis for calculation of the bonuses would be provided.
The agreement further provided that the plaintiff had the option to buy the restaurant at any time during the contract and further held that, should the defendants want to sell the business, the plaintiff would have the right of first refusal in regards to any sale. The clause in the contract between the parties further held that, if an amenable offer was made to the defendants by a non-party, the plaintiff would have the option of purchasing the business at market rate from the defendants without necessarily being required to match the offer provided by the non-party.
The plaintiff pleads that the terms of the agreement entered into by the parties were not carried out in good faith by the defendants and the defendants further breached the terms of the agreement.
The defendants to date have not provided the plaintiff with any bonuses at any time and have not provided financial documentation which would allow the value of any bonuses to be calculated, although repeatedly acknowledging their obligation to provide same.
The defendants and the plaintiff further made a collateral contract where the plaintiff was advised that, should the plaintiff have difficulty obtaining funding sufficient to purchase the restaurant, the defendants would allow her to hold the mortgage with them.
The plaintiff has experienced significant distress given the high-handed and cavalier disregard evidenced by the defendants.

[25] The position of the defendants is that the particulars provided by the plaintiff are insufficient to establish a legally enforceable contract between the parties. The plaintiff should not, according to the defendants, have commenced her claim without knowing the material facts to support her cause of action. The defendants argue that the particulars provided do not support the plaintiff’s claim that she is entitled to a bonus. Further, the defendants assert that no particulars were provided to justify a claim against each or any one of the defendants sufficient to support the claim for aggravated and punitive damages. The defendants also argue that the plaintiff has not pled material facts that would entitle her to pierce the corporate veil or to extend liability to the principals of the corporate defendant. Finally, the defendants argue that the plaintiff’s claim is statute barred.

[26] Rule 25.11 is not a substitute for a motion for summary judgment. At this stage the court must concern itself only with whether all or parts of the claim may prejudice or delay the fair trial of the action, or are scandalous, frivolous or vexatious. The defendants are attempting to have the court engage in an analysis of whether the pleading, with the incorporated reply to the demand for particulars, would survive a motion for summary judgment. The Ontario Court of Appeal has addressed this principle in Baradaran v. Alexanian, 2016 ONCA 533, at para. 15:

The court will only strike out a claim on the basis that it is frivolous or vexatious or an abuse of the process of the court, in the clearest of cases and where it is plain and obvious that the case cannot succeed. One must guard against converting such motions into summary judgment motions: Miguna v. Toronto Police Services Board, 2008 ONCA 799, 243 O.A.C. 62, at paras. 16 and 21…

[27] Evidence is admissible on a motion under Rule 25.11, provided that it is relevant to and considered for the purposes of the motion that is before the court. In this case the plaintiff has filed an affidavit to state that she lost her copy of the agreement, and when she reached out to the defendants for a copy of it, she was provided with an unsigned agreement. She further gave evidence that, upon review of the document provided, she believed it was not the final version of the agreement as she recalled that some of the terms of the final version were more favourable to her. This includes the calculation of her bonus payments. The plaintiff further swore in her affidavit that she spoke with one of the personal defendants on May 11, 2017, who admitted that the copy of the contract that had been given to her was not the final version, and further admitted that the final agreement was somewhat more favourable to her.

[28] The defendants have not filed evidence in response to refute the plaintiff’s evidence that there was a different final agreement reached than the one produced to the plaintiff, or to deny that the final version of the written agreement is within their possession or control.

[29] It is clear to this court that the plaintiff’s claim is neither prejudicial, scandalous, frivolous, nor vexatious. There is no fundamental flaw in the pleading. It will not be dismissed under Rule 25.11.

[30] The plaintiff brought a cross-motion requesting that this court compel production by the defendants of the “operating partner agreement” between the parties, or in the alternative, compelling production of all documents pertaining to the negotiation of the agreement. The motion is identified as being brought pursuant to Rule 30 of the Rules of Civil Procedure.

[31] The plaintiff’s motion is premature and is being dismissed on that basis. Pleadings have not closed and affidavits of documents have not been exchanged. In future it may be appropriate to have recourse to the rules that provide remedies for inadequate documentary disclosure, but the action is not at that stage.

[32] The parties filed cost outlines at the conclusion of argument at the request of the court. If entirely successful, the defendants were seeking partial indemnity costs in the sum of $8,013. If entirely successful the plaintiff was seeking partial indemnity costs in the sum of $4,060 plus HST.

[33] The vast majority of time was spent on the defendants’ motion, which was dismissed in its entirety. In my view it was not a motion that had much prospect of success from the outset given the state of the law. Costs payable by the defendants will be nominally discounted to reflect the fact that the plaintiff’s motion was also dismissed. I fix costs payable to the plaintiff by the defendants in the amount of $4,000 inclusive, payable within 30 days.

Healey, J.

Released: January 16, 2019

Cooke v. Kanagasingham, 2019 ONSC 453

Case Summary

The Nature of the Action

The Nature of the Motion

Paragraphs 9, 11, 12, 14, 15, 16, 17 and 19 of the Claim

Paragraphs 5, 6, 7, 8, 10, 13 and 18 of the Claim

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 3

Legal Tests 2