Court File and Parties

COURT FILE NO.: CV-16-557031

DATE: 20190909

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: WALTER ZUPPINGER and MIN YAN, Plaintiffs/Responding Parties

AND:

TORONTO STANDARD CONDOMINIUM CORPORATION NO. 2139, STEPHANIE CARTY-KEGEL, TED SLIGHTHAM MAXINE BASS, PATTI MILNER, DUNCAN MCEWAN and TATIANA DOUBOVSKY, Defendants/Moving Parties

BEFORE: Justice S. Nakatsuru

COUNSEL: F. Paul Morrison, Anu Koshal, and Avi Bourassa, for the Plaintiffs/Responding Parties

Daniel S. Murdoch, for the Defendant/Moving Party, Tatiana Doubovsky

Aaron Postelnik, for the Defendant/Moving Party, Ted Slightham

HEARD: August 27, 2019

ENDORSEMENT

[1] Tatiana Doubovsky sold her penthouse unit in a condominium building at 1 Bedford Road in Toronto for $2.78 million. Ted Slightham was the real estate agent acting for Ms. Doubovsky. Walter Zuppinger and Min Yan (collectively the “Zuppingers”) moved into this penthouse unit. The Zuppingers allege that the unit was beset by noise and vibration. In 2016, they sued Ms. Doubovsky and Mr. Slightham along with other Co-Defendants, including the Condominium Corporation and its Directors based upon this alleged defect. This action was case-managed. A mediation was conducted. Settlements were reached except for Ms. Doubovsky and Mr. Slightham. After the settlement process, the Zuppingers filed a Fresh as Amended Statement of Claim (the “Claim”).

[2] Ms. Doubovsky and Mr. Slightham bring motions to strike the Claim under rule 21.01(1)(b) and/or dismissed or stayed under rule 21.01(3)(b).

[3] The position of Ms. Doubovsky and Mr. Slightham on these motions are remarkably straightforward: Contrary to the Claim, Ms. Doubovsky did not sell the unit to the Zuppingers, but she sold the unit to a corporation named Domco Group of Canada (“Domco”). As a result, any duty to disclose the noise defect or a duty of care to support a misrepresentation claim is not owed to the Zuppingers because they were not the purchasers of the unit despite what is alleged in the Claim.

[4] Further, with respect to the evidence lead on the rule 21.01(3)(b) motion, the Defendants submit that even though the Zuppingers were the shareholders and controlling mind of Domco, this does not change matters: A wrong to a corporation is actionable by the corporation and not its shareholders: Meditrust Healthcare Inc. v Shoppers Drug Mart, 2002 CanLII 41710 (ON CA), 2002 CarswellOnt 3380 (C.A.).

[5] Thus, Ms. Doubovsky and Mr. Slightham submit that it is plain and obvious that the causes of action have no reasonable chance of success and the Plaintiffs are without legal capacity to commence or continue this action.

[6] The response of the Zuppingers is threefold: 1) The Defendants have misread the Claim and that the causes of action of negligent and fraudulent misrepresentation are being brought by the Zuppingers in their personal capacity as prospective purchasers, beneficial owners, and intended occupants of the unit; 2) Alternatively, as stated in the Reply to the original Statement of Defence, Domco was acting as an agent or a trustee of the Zuppingers; and 3) regardless, this motion should not be heard at all as it was brought in a very untimely manner.

A. THE TEST

[7] Under rule 21.01(1)(b), the defendant must demonstrate that it is plain and obvious that the statement of claim fails to disclose a cause of action and there is no reasonable prospect of success: Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 17. When considering such a motion, the facts as pleaded are assumed true unless the facts are manifestly incapable of being proven. Leave to amend will not be permitted when it is plain and obvious that no tenable cause of action is possible on the facts alleged: Conway v. L.S.U.C., 2016 ONCA 72, [2016] O.J. No. 451 (C.A.).

[8] Iacobucci J. in Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263 at para. 15 characterized this statement of the test by Wilson J. in Hunt v. Carey Canada Inc., [1990] 2.S.C.R. 959 at 980 to be an excellent:

... 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? As in England, if there is a chance that the plaintiff might succeed, then the plaintiff should not be "driven from the judgment seat". Neither the length and complexity of the issues, the novelty of the cause of action, nor the potential for the defendant to present a strong defence should prevent the plaintiff from proceeding with his or her case. Only if the action is certain to fail because it contains a radical defect ... should the relevant portions of a plaintiff's statement of claim be struck out ...

The test is a stringent one. The facts are to be taken as pleaded. When so taken, the question that must then be determined is whether there it is "plain and obvious" that the action must fail. It is only if the statement of claim is certain to fail because it contains a "radical defect" that the plaintiff should be driven from the judgment.

[9] Under rule 21.01(3)(b), the test is that the Defendants must demonstrate that it is plain and obvious that the Plaintiffs do not have the legal capacity to bring their claim: Grant v. Collingwood (Town), 2013 ONSC 1720 affirmed 2013 ONCA 568. Under this rule, unlike rule 21.01(1)(b), I am permitted to consider evidence and not just the pleadings.

[10] In addition, the Plaintiffs argue that the motions should be dismissed under rules 2.02 and 21.02 which prohibit a party from moving to strike a claim after the expiry of a reasonable time or after having taken further steps in the action without leave of the court.

B. ANALYSIS

[11] Before undertaking the analysis, I must be careful in ensuring that the proper evidentiary record is considered under rule 21.01(1)(b) and rule 21.01(3)(b). Regarding the former rule, I have considered only the pleadings and not the evidence. In addition, it is not disputed that the Agreement of Purchase and Sale of the unit where the purchaser is said to be Domco should be considered. Regarding the latter rule, I have considered the affidavits and the cross-examinations.

[12] I have carefully reviewed the Plaintiffs’ pleadings. They must be read generously. In my view, this motion depends largely upon how those pleadings are read. Further, I must be mindful that these are but rule 21 motions and not rule 20 motions.

[13] I will first deal with timeliness. Then, alternatively, I will deal with the motions on their merits.

1. Timeliness

[14] I would not grant leave under rule 2.02 to bring this motion. Ms. Doubovsky and Mr. Slightham have taken numerous steps in the proceeding after knowing and believing that Domco rather than the Zuppingers should be the proper Plaintiff. Without a doubt, a reasonable period of time has passed. Their position that Domco only has standing to bring the claims is found in their Statement of Defence of October 2016. In short, they knew early on that the original Statement of Claim was, in their view, irregular. Since that time, third, fourth, and fifth party claims were added. Documents were exchanged and reviewed. The case was referred to case management on August 31, 2017. Nine or more case management conferences were conducted. Discoveries were conducted. In February of 2018, mediation involving all parties was conducted. After several weeks of negotiations, the Plaintiffs entered into a Pierringer agreement with all Defendants except for Ms. Doubovsky and Mr. Slightham. Further to that agreement, the Plaintiffs amended their Statement of Claim to remove allegations against the other Defendants and issued the Claim in December of 2018.

[15] It was only in January of 2019 that Ms. Doubovsky and Mr. Slightham served their Notices of Motion to Strike. On February 6, 2019, a teleconference was held, the 9th case management conference by Sanfilippo J. to determine the scheduling of these motions.

[16] Thus, these motions were argued before me nearly three years since the Statement of Defence.

[17] The Zuppingers resisted the scheduling of the motions given this delay. Sanfilippo J. gave considered reasons in his Endorsement of March 7, 2019, permitting the motion to be heard. However, Sanfilippo J. expressly left the issue of the timeliness of the motions to be decided by the judge hearing the motions.

[18] Of course, I have a discretion despite the delay and the steps taken to hear the motions.

[19] But I am not persuaded I should exercise my discretion to do so.

[20] First, the claims against Ms. Doubovsky and Mr. Slightham in the Claim are essentially the same as found in the initial Statement of Claim. The defence and the position taken by the Ms. Doubovsky and Mr. Slightham that the Zuppingers have no standing to bring the actions have been the same from the very beginning. I can see no material change in the pleadings that could explain the inordinate delay. The Claim was essentially amended to delete the actions against the other Defendants after settlements were reached. The delay from the initial Statement of Claim is the operative delay: Khavari v. Mizrahi, 2017 ONSC 3245 at para. 5-18.

[21] Second, I find no adequate explanation for why the delay. For instance, it is not suggested that the pre-trial discovery uncovered new information to explain the delay in bringing the motions. Ms. Doubovsky and Mr. Slightham point to the settlement that disposed of so many other defendants and issues, as the reason why this motion was delayed. As it was submitted to Sanfilippo J., they argue that this makes the motion timely now as opposed to before. However, I do not accept that as an adequate reason. The issue raised by Ms. Doubovsky and Mr. Slightham is simple and straightforward. There is no reason why it could not have been promptly raised. For Ms. Doubovsky, it would have meant she would be out of this litigation. The cross-claim also would have been dismissed. While Mr. Slightham was also being sued as a director of the Board (a position he shared with the other directors who were being sued), his main exposure was as the selling agent. If successful, the major allegations against him would be removed. Had Ms. Doubovsky and Mr. Slightham made the motion in a timely way, this issue could have been resolved early and would not have led to the cost and the need for preparation in dealing with this part of the Claim throughout the pre-trial process, mediation, and settlement.

[22] Also, if this issue was dealt with early on, the Zuppingers could have been able to address the issues raised by Ms. Doubovsky and Mr. Slightham in ways other than perhaps defending against these motions. For example, they could have considered amendment. It is true that they may not have done so. But they would have an opportunity to consider their options in circumstances that existed when the commencement of the litigation was still fresh. I note that on these motions, Ms. Doubovsky and Mr. Slightham oppose any leave to amend being granted.

[23] Third, while I fully appreciate Sanfilippo J.’s comments when he permitted the scheduling of these motions, there can be no doubt that this has caused delay. Unlike other cases where motions to strike have been given leave to be heard despite steps being taken in the proceeding, this litigation is very far advanced. By moving at such a late date when Ms. Doubovsky and Mr. Slightham could and should have moved so much earlier, they have created delay. A delay that could have been avoided if the rules had been respected.

[24] Fourth, Ms. Doubovsky and Mr. Slightham argue that motions to strike that will dispose entirely of the action should be treated differently from motions to strike that do not, when it comes to the exercise of my discretion. I accept that this is a valid consideration. However, this is not a determinative factor in the circumstances of this case where there has been such inordinate delay and inadequate explanation.

[25] Fifth, it will not enhance the reputation for the administration of civil justice to permit these motions. One of the purposes of motions to strike is to ensure effective and fair litigation by weeding out unmeritorious claims and to focus attention and resources on the serious ones: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42. This purpose can be undermined if these motions are not brought promptly. To permit them in the circumstances of this case would only encourage other litigants to ignore the purposes of rules 2.02 and 21.02

[26] For this reason, these motions are dismissed.

2. The Merits of the Motion

[27] In addition to this, I would dismiss the motions on their merits. The merits of the motions were fully argued.

[28] To start, I agree with the Zuppingers that the Claim raises only two causes of actions: negligent misrepresentation and fraudulent misrepresentation. While material facts regarding the sale and purchase of the unit are pled and some types of damages pled are more commonly claimed in an alleged breach of contract action, there is no explicit or implicit cause of action for a breach of contract in the Claim.

[29] I will now assess under both rule 21.01(1)(b) and rule 21.01(3)(b) whether the moving parties have met the plain and obvious test.

Fraudulent Misrepresentation

[30] The Claim pleads fraudulent misrepresentation. The elements of the tort of civil fraud are: (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant; (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss. No duty of care based upon a special relationship is required to establish a claim for fraudulent misrepresentation: Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8.

[31] The Claim clearly sets out these requirements. With respect to elements (1) and (2), it is pleaded that Ms. Doubovsky and Mr. Slightham knew about the noise and vibration issues and intentionally misrepresented otherwise to the Zuppingers and their real estate agent. In the pleadings, it is express that these were representations made to the Zuppingers and not Domco. This is a claim of fraudulent misrepresentation made in the Plaintiffs’ personal capacity; not claims made by the corporation or as shareholders of the corporation.

[32] Ms. Doubovsky and Mr. Slightham contend that elements (3) and (4) are not met as it was Domco as the purchaser that acted on the false representations and Domco that suffered the loss. It is argued that the Claim comes apart when it comes to causation.

[33] I find it is not plain and obvious that there is no reasonable prospect of success with respect to these elements. I acknowledge that the Claim states that it was the Zuppingers that made the offer, entered into an agreement with Ms. Doubovsky, and closed the Agreement of Purchase and Sale. Of course, the Agreement of Purchase and Sale says otherwise. Domco was the purchaser. However, the pleading must be read generously. When this Claim and paragraph 5 of the Reply are read together in the context of the Claim as a whole, it is not plain and obvious to me the Plaintiffs cannot succeed on the basis that based upon the falsehoods, the Zuppingers did act in reliance (take steps to and ultimately purchase the unit through the corporate vehicle of Domco) and did suffer damages in their own personal capacity (as opposed to damages to Domco or as shareholders of Domco). The Claim pleads damages for undue hardship, loss of enjoyment of life, loss of use and enjoyment of the unit, and pain and suffering including sleep deprivation. Also claimed are expenses for alternate accommodation and medical care. These damages are personal to the Plaintiffs and not Domco.

[34] While it is true that perhaps not every head of damages sought by the Plaintiffs may have been suffered by the Zuppingers in their personal capacity for this tort, this is a matter that will require proof. It should not to be decided on a motion to strike.

[35] The Claim also makes references to a duty to disclose. However, I agree with the Zuppingers that this duty to disclose is not said to arise from any contractual obligation. Rather, while the term “duty” may be too strongly worded, the failure to disclose is referable to the impugned misrepresentations, whether fraudulent or negligent. Put another way, the failure to disclose the noise and vibration problem was a material part of the tortious misrepresentations alleged against the Defendants.

[36] When I consider the motion brought under rule 21.01(3), my decision remains the same for similar reasons. The evidence lead, does not change the outcome. It is not plain and obvious to me that the Zuppingers do not have the legal capacity to bring this claim of fraudulent misrepresentation in their personal capacity.

Negligent Misrepresentation

[37] Five criteria are required to establish a claim in negligent misrepresentation: (1) There must be a duty of care based upon a “special relationship” between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said representation; (4) the representor must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must be detrimental to the representee in the sense that damages resulted: Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87 at para. 34.

[38] Similar to my above analysis on fraudulent misrepresentation, when it comes to negligent misrepresentation, I find that the Zuppingers are not suing for damages done to them as shareholders of Domco or damages suffered by Domco for any negligent misrepresentations by Ms. Doubovsky and Mr. Slightham. Read generously, the Claim is claiming for losses in their personal capacity because of the negligent misrepresentations: Walters v. Royal Bank, 2000 CarswellOnt 653 at paras. 7-9 (ONCA). Sufficient material facts are pled to establish elements (2) through (5).

[39] Then, there is the issue of the duty of care based on a special relationship. Of course, whether this Claim stands a reasonable prospect of success depends upon material facts pled that shows Ms. Doubovsky and Mr. Slightham owing a duty of care to the Zuppingers in their personal capacity. This requirement is not found in the tort of fraudulent misrepresentation.

[40] Under rule 21.01(1)(b), from the Claim and the Reply and the Agreement of Purchase and Sale, the material facts are that Domco was the legal purchaser of the unit which purchased it “on behalf of and in trust” for the Zuppingers.

[41] Ms. Doubovsky and Mr. Slightham submit that any duty of care owed by the vendor or selling real estate agent is owed to Domco.

[42] The Zuppingers reply that they are not relying upon this duty of care. Rather, they submit that the Defendants owe them a duty of care as prospective buyers, beneficiaries, and/or intended occupants of the unit.

[43] There can be little dispute that the Zuppingers’ claim regarding this duty of care is not as clear cut as the duties in the special relationship that may exist between vendor and purchaser or selling agent and purchaser of real estate.

[44] The existence of a duty of care in tort is a two-part test: (a) whether a prima facie duty of care is owed; and (b) whether that duty, if it exists, is negative or limited by policy considerations: Anns v. Merton London Borough, [1978] AC 728 (H.L.). In the context of a negligent misrepresentation action, to establish a prima facie duty of care requires investigation into the existence of a relationship of proximity or neighbourhood into the representor and representee: Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165 at para. 22.

[45] In my opinion, it is not plain and obvious that no duty of care would exist in the circumstances of this case. In this regard, the Zuppingers rely upon the case of Krawchuk v. Scherback, 2011 ONCA 352 in support of their position that a vendor of the property is in a special relationship with a prospective buyer in the context of a negligent misrepresentation claim. In that case, the vendor with the help of the real estate agent had completed a Seller Property Information Sheet with respect to the property. The Seller Property Information Sheet was intended to provide correct information to prospective buyers. The one in issue in the case did not reveal a material defect in the property. The trial judge concluded that the vendor intended that the representations in the Seller Property Information Sheet would be relied upon by prospective purchasers in deciding whether to submit an offer for the property. He thus found a special relationship that gave rise to a duty of care. This finding was upheld on appeal.

[46] I am mindful that the prospective buyer in Krawchuk v. Scherback went on and purchased the property. This may be an important distinction to the facts of this case. However, these pleadings demonstrate a close and intimate connection between the Zuppingers, the prospective buyers and eventual occupants of the unit, and the corporate entity, Domco, the legal purchaser of the property. In this context, I cannot say that it is plain and obvious that no duty of care arises from the special relationship based on these material facts.

[47] While this issue may not be settled, this does not preclude the Claim going forward. It is not determinative on a motion to strike that the law has not yet recognized a particular claim or that the claim is novel: Paton Estate v. Ontario Lottery and Gaming Corp., 2018 ONCA 458 at para. 12, 48.

[48] Furthermore, the Defendants have not pointed to any authority which on similar facts a court has held that no duty of care is said to have arisen.

[49] Thus, I find that Ms. Doubovsky and Mr. Slightham have not discharged their onus.

[50] Under rule 21.01(3)(b), having regard to the evidence, my reasoning remains the same. The evidence simply supports the nature of the relationships alluded to in the Claim and Reply. Ms. Doubovsky and Mr. Slightham also submit that if the Zuppingers are bringing this cause of action as beneficiaries of a corporate trust, they lack legal capacity as it must be the trustee that brings the action. Beneficiaries are only permitted to do so once the trustee has refused to. I would not give effect to this argument. First, it is not only the trust relationship that forms the basis of the duty of care that is said to exist between the Plaintiffs and the Defendants. There is the duty of care owed to the prospective purchaser and/or intended occupants. Second, having regard to the evidentiary record, I find the Defendants have not discharged their onus that it is plain and obvious that the Zuppingers have no standing to bring such actions because the trustee is the proper party.

[51] For these reasons as well, the motions are dismissed.

[52] I would encourage the issues of costs be resolved between the parties. If it cannot, I will entertain written submissions, each one limited to two pages excluding any attachments (any Bill of Costs, Costs Outline, and authorities). The Zuppingers shall file within 10 days of the release of these reasons. Ms. Doubovsky and Mr. Slightham shall file within 7 days thereafter.

Justice S. Nakatsuru

Released: September 9, 2019