COURT FILE NO.: CV-18-611668

DATE: 20190909

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Tariq Khursheed and 2478627 Ontario Inc., Plaintiffs

AND:

Venedig Capital SAS, 1984597 Ontario Inc., Amir Luis Saab, Alex Nain Saab Moran, Sheryn Saab and John Doe Corporation, Defendants

BEFORE: Nishikawa J.

COUNSEL: Kiri McDermott-Berryman, for the Plaintiffs/Responding Parties

Brian Radnoff, for the Defendants/Moving Parties

HEARD: August 16, 2019

ENDORSEMENT

Overview

[1] The Plaintiffs commenced an action against the Defendants for breach of contract in relation to two agreements entered into between the Plaintiff, 2478627 Ontario Inc. (“247”), and the Defendant, Venedig Capital SAS (“Venedig”).

[2] The Defendants, Amir Luis Saab, Sheryn Saab, and 1984597 Ontario Inc. (“198”) (together, the “Moving Defendants”), bring a motion to strike the Statement of Claim. The remaining Defendants did not participate in this motion. The Defendant, Alex Nain Saab Moran has not been served with the Statement of Claim.

[3] For the reasons that follow, I grant the Moving Defendants’ motion.

Factual Background

[4] 247 is a corporation incorporated under the laws of Ontario. Mr. Khursheed is the principal and controlling mind of 247.

[5] Venedig is a corporation incorporated under the laws of Colombia. According to the Statement of Claim, the individual defendants, Amir Luis Saab and Sheryn Saab, are directors and officers of Venedig.

[6] 198 is a corporation incorporated in Ontario. Ms. Saab is an officer and director of 198.

The Agreements

[7] On February 2, 2018, Venedig entered into a contract under which 247 agreed to develop a turnkey e-commerce platform for coffee beverages for Venedig (the “First Agreement”).

[8] In March 2018, 247 and Venedig entered into a second contract whereby 247 agreed to develop an additional e-commerce platform for the sale of coffee-based products (the “Second Agreement”) (collectively, the “Agreements”).

The Claims Against the Moving Defendants

[9] In December 2018, the Plaintiffs commenced an action against the Defendants for breach of the Agreements.

[10] 198 is not a party to the Agreements. While 198 is named in the action, the Plaintiffs concede that the Statement of Claim lacks any particulars in respect of 198. Accordingly, the claims against 198 are struck as disclosing no reasonable cause of action.

[11] As against Mr. Saab and Ms. Saab, the Plaintiffs allege causes of action for breach of guarantee, unjust enrichment and negligent misrepresentation. The Plaintiffs allege that when 247 and Venedig were negotiating the Agreements, Mr. Saab and Ms. Saab represented and promised to the Plaintiffs that they would be personally responsible for and guarantee any amounts owing to 247 under the Agreements. The Plaintiffs further plead that they would not have entered into the Agreements if not for the representations by Mr. Saab and Ms. Saab that they would guarantee Venedig’s obligations.

Issues

[12] The motion raises the following issues:

(a) Does the Statement of Claim disclose a reasonable cause of action against the Moving Defendants?

(b) Should leave to amend the Statement of Claim be granted?

Analysis

Should the Claims Against the Moving Defendants be Struck?

Test on a Motion to Strike

[13] The Moving Defendants seek to strike the Statement of Claim on the basis that it fails to disclose a reasonable cause of action against them. Specifically, Mr. Saab and Ms. Saab submit that the Plaintiffs have alleged no basis for piercing the corporate veil to hold them personally liable for the alleged breach of contract by Venedig.

[14] On a motion to strike a claim under r. 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, 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 v. Enercare Inc., 2014 ONSC 4154, at para. 10.

Breach of Contract

[15] The Moving Defendants submit that the Statement of Claim fails to disclose a reasonable cause of action against them for breach of contract because the alleged personal guarantees given by Mr. Saab and Ms. Saab would not be enforceable under the Statute of Frauds, R.S.O. 1990, c. S.19.

[16] Section 4 of the Statute of Frauds provides that “[n]o action shall be brought … to charge any person upon any special promise to answer for the debt, default or miscarriage of any other person … unless the agreement upon which the action is brought, or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party.” A guarantee must be in writing to be enforceable: Entry Point Investments v. Invis Inc., 2015 ONSC 2009, at para. 6, aff’d 2015 ONCA 701, at para. 10.

[17] While the Plaintiffs submit that the Statement of Claim does not specifically state that the guarantees were oral, they do not claim that they were written. To the extent that the Plaintiffs rely upon the promises made by Mr. Saab and Ms. Saab as the basis for their claims for negligent misrepresentation, this too suggests that the alleged statements were oral. Moreover, at no time since this motion was brought have the Plaintiffs sought to amend the Statement of Claim to allege that the guarantees were in writing. Since the alleged guarantees were not writing, they would not be enforceable.

[18] The Plaintiffs, relying on cases in which courts refused to strike pleadings based on limitations defences, submit that a statement of claim should not be struck at the pleadings stage based on an affirmative defence such as the Statute of Frauds. In those cases, courts found that it would not be appropriate to strike a statement of claim based on a limitations defence since it was possible that once a statement of defence pleaded a limitations defence, opposing facts might be pleaded in reply: see Collins v. Cortez, 2014 ONCA 685, 39 C.C.L.I. (5th) 1, at para. 10; Spar Roofing & Metal Supplies v. Glynn, 2015 ONSC 3619, at para. 12, rev’d on other grounds 2016 ONCA 296, 401 D.L.R. (4th) 318.

[19] That rationale does not apply here. In this case, the Plaintiffs have alleged guarantees which could only have been oral and would not be enforceable under the Statute of Frauds. It is clear on the face of the pleading that the claim is untenable. Even in respect of a limitations defence, courts have struck claims where the non-viability of a claim was evident based on the allegations in the Statement of Claim; for example, when the limitations period has passed and no discoverability issue could arise. In such cases, waiting for a defence “would serve no purpose”: Torgerson et al. v. Nijem, 2019 ONSC 3320, at para. 10.

[20] The Statement of Claim states no reasonable cause of action against Mr. Saab and Ms. Saab for breach of contract and, accordingly, is struck.

Unjust Enrichment

[21] In order to allege a cause of action for unjust enrichment, a plaintiff must plead: (i) that the defendant was enriched; (ii) that the plaintiff suffered a corresponding deprivation; and (iii) the absence of a juristic reason for the enrichment: Europro (Kitchener) Limited Partnership v. Dream Office Real Estate Investment Trust, 2018 ONSC 7040, at para. 62; Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 32.

[22] The Plaintiffs have alleged only that the Defendants, collectively, were enriched by receiving the Plaintiffs’ work product in electronic and hard copy format. They have not alleged that either Mr. Saab or Ms. Saab was personally enriched because of Venedig’s breach of the Agreements.

[23] In Haggan v. Mad Dash Transport Ltd. et al., Shaw J. held that the plaintiff could not convert a claim for breach of contract and unjust enrichment into a personal action against the directors and officers of the corporation. Liability does not attach to the individual defendants merely by virtue of the possibility that they stood to gain as a result of their positions within the corporation: Haggan v. Mad Dash, 2019 ONSC 3654, 56 C.C.E.L. (4th) 112, at para. 33.

[24] The same applies here. The Statement of Claim discloses no reasonable cause of action for unjust enrichment against Mr. Saab and Ms. Saab.

Lifting the Corporate Veil

[25] The Moving Defendants further submit that the Plaintiffs have alleged no basis for lifting the corporate veil to impose personal liability on Mr. Saab or Ms. Saab. The Plaintiffs dispute that they seek to pierce the corporate veil and argue that they are alleging that Mr. Saab and Ms. Saab made the personal guarantees and misrepresentations not as directors or officers of Venedig, but on their own behalf.

[26] The case law makes 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 ScotiaMcLeod Inc. v. People’s Jewellers Ltd. (1995), 1995 1301 (ON CA), 26 O.R. (3d) 481 (C.A.), at pp. 490-491:

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.

[27] 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”: Scotia McLeod v. People’s Jewellers, at p. 491.

[28] 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), 1999 1527 (ON CA), 43 O.R. (3d) 101 (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: Scotia McLeod v. People’s Jewellers, at p. 491. 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.

[29] Bald allegations that the individual defendants were the guiding minds or alter egos of the corporate defendants or that they dominated or controlled the corporation are not sufficient to pierce the corporate veil: Sauer v. Canada (Attorney General) (2006), 2006 74 (ON SC), 79 O.R. (3d) 19, at para. 89, aff’d on other grounds 2007 ONCA 454, 225 O.A.C. 143; TSCC Corporation No. 2123 v. Times Group Principals, 2018 ONSC 4799, at para. 71. The Statement of Claim does not allege any facts to suggest that Mr. Saab and Ms. Saab were acting other than as directors or officers of Venedig. It does not even make bald allegations that Mr. Saab or Ms. Saab dominated or controlled Venedig or that Venedig was their alter ego.

[30] The Plaintiffs allege no material facts that would support a piercing of the corporate veil. The Statement of Claim discloses no reasonable cause of action for breach of guarantee or unjust enrichment against Mr. Saab or Ms. Saab personally.

Misrepresentation

[31] Based on the foregoing principles, a claim for negligent misrepresentation could constitute independent tortious conduct for which a director or officer may be held personally liable.

[32] In order to plead a claim for negligent misrepresentation, a plaintiff must plead:

(i) The existence of a duty of care based on a special relationship between the representors and the representees;

(ii) That representations were made which were untrue, inaccurate or misleading, including when, where, how, by whom and to whom they were made;

(iii) That the representors acted negligently in making the representations;

(iv) That the representees relied, in a reasonable manner, on the misrepresentations; and

(v) The reliance was detrimental to the representees in the sense that damages resulted.

Deep v. M.D. Management et al., 2007 22655 (ON SC), 35 B.L.R. (4th) 86 (Ont. S.C.), at para. 10, aff’d 2008 ONCA 189, 64 C.C.L.I. (4th) 41.

[33] Rule 25.06(8) provides that where “fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars”.

[34] The Statement of Claim pleads generally that Mr. Saab and Ms. Saab made the personal guarantees to Mr. Khursheed when each Agreement was being negotiated. Other than that, no further particulars are alleged as to when, where and how the alleged misrepresentations were made.

[35] As noted by the Plaintiffs, on a motion to strike, the court is not concerned with whether a duty of care will be recognized, but whether it is plain and obvious that no duty of care could be recognized: Timmis v. Allen-Vanguard Corporation, 2009 41902 (Ont. S.C.), at para. 14. However, the Plaintiffs have failed to plead a special relationship, or any material facts to support the existence of a special relationship, between the Plaintiffs and the Moving Defendants giving rise to a duty of care.

[36] The Statement of Claim fails to disclose a reasonable cause of action for negligent misrepresentation and, accordingly, is struck.

Should this Court Grant Leave to Amend?

Claims Against the Moving Defendants

[37] As stated by the Court of Appeal in Miguna v. Ontario (Attorney General) (2005), 2005 46385 (ON CA), 205 O.A.C. 257 (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.” Leave to amend should only be denied in the clearest of cases: Gyamfuaa v. Leblanc, 2015 ONSC 1422, at para. 38; Tran v. University of Western Ontario, 2015 ONCA 295, at paras. 25-27. 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 Corporation No. 2123 v. Times Group Principals, 2018 ONSC 4799, at para. 88.

[38] The Plaintiffs’ claim for breach of the alleged oral guarantees cannot be improved by further amendment. The only fact that the Plaintiffs could allege that would save their claim would be that the guarantees were written. It is clear from the facts alleged that there were no written guarantees. The claim for breach of guarantee is struck without leave to amend.

[39] Similarly, the Plaintiffs have alleged no factual basis for a claim in unjust enrichment and it is clear that other than Mr. Saab and Ms. Saab having benefitted as directors and officers of Venedig, no further material facts could be alleged. The claim for unjust enrichment is struck without leave to amend.

[40] The same cannot be said in respect of the claim for negligent misrepresentation. While the Moving Defendants submit that if an oral guarantee is not enforceable, there can be no misrepresentation based on an oral guarantee, this does not necessarily follow. Depending on the circumstances, a party could nonetheless be misled into relying on a misrepresentation about such a guarantee. As specified above, the Plaintiffs have generally pleaded some but not all of the elements of a cause of action for negligent misrepresentation. At this stage, it cannot be said that the Plaintiffs cannot allege further material facts to support their claim. Leave to amend is granted in respect of the claim for negligent misrepresentation.

Conclusion

[41] Based on the foregoing, I grant the Moving Defendants’ motion to strike the Statement of Claim. The claims against 198 are struck in their entirety without leave to amend. The claims against Mr. Saab and Ms. Saab are struck, with leave to amend the claim for negligent misrepresentation.

[42] The Plaintiffs shall serve an Amended Statement of Claim within 30 days of this endorsement.

[43] At the hearing, counsel agreed to costs of $6,000.00 to the successful party on the motion. Accordingly, I fix costs of the motion at $6,000.00, all inclusive, payable by the Plaintiffs to the Moving Defendants.

Nishikawa J.

Date: September 9, 2019