Court File and Parties

COURT FILE NO.: CV-18-600085

DATE: 20191021

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Michael Aris Doumouras, Plaintiff

AND:

Vivian Chander, Andrew Levalliant, Dr. V. Chander Dentistry Professional Corporation, 2455244 Ontario Inc., 2228001 Ontario Inc. and Ceramic Dental Labs Inc., Defendants

BEFORE: Pollak J.

COUNSEL: D. Lex Arbesman & Kara Hamilton, for the Plaintiff

Michael Rankin & Timothy Cullen, for the Defendants

HEARD: July 3, 2019

ENDORSEMENT

[1] This is a motion under Rule 21.01(1)(b) by the Defendants, Vivian Chander, Andrew Levalliant, Dr. V. Chander Dentistry Professional Corporation, 2455244 Ontario Inc., 2228001 Ontario Inc. and Ceramic Dental Labs Inc. (the “Defendants”) to strike the Claim of negligent misrepresentation against them, and to strike the Claim for breach of contract in its entirety against the defendants Andrew Levalliant (“Mr. Levalliant”) and Ceramic Dental Labs Inc. (“CDL”). The balance of the Claims for breach of contract and breach of good faith contractual dealings against the other Defendants are not attacked on this motion. The requested order is as follows:

1. “This Court orders that all claims against the Defendant’s Andrew Levalliant and Ceramic Dental Labs Inc., are hereby dismissed, without leave to amend the Statement of Claim; and

2. This Court orders that the Claim in negligent misrepresentation against the remaining 4 Defendants is hereby dismissed, without leave to amend the Statement of Claim.”

[2] The plaintiff’s Claim is for $1,000,000.00 in damages from all the Defendants for breach of contract, negligent misrepresentation, and breach of good faith contractual dealings.

[3] The Plaintiff was employed at Dental Anaesthesia Associates (“DAA”) pursuant to an Agreement with the Defendant, Dr. V. Chander Dentistry Professional Corporation (“DPC”) (the “Agreement”). The Agreement included an option to purchase an interest in DAA (the “Option”).

[4] The defendant Dr. Vivian Chander (“Dr. Chander”) is a dentist and entrepreneur in Ottawa. Dr. Chander is the sole shareholder of DPC.

[5] The Defendant, Mr. Levalliant, is an entrepreneur in Ottawa. He is a director of the defendant Ontario corporations CDL and 2455244 Ontario Inc.

[6] 2455244 Ontario Inc. owns the defendant corporation 2228001 Ontario Inc. Dr. Chander and Mr. Levalliant are the officers and directors of 2228001 Ontario Inc.

[7] The defendant corporations operate the Toronto-based dental practice Dental Anaesthesia Associates (“DAA”). 2228001 Ontario Inc. owns the assets, charts, and goodwill of DAA. CDL provides dental services to DAA, as an in-house laboratory. DAA’s dentistry services are provided by DPC pursuant to an agreement between DPC and 2228001 Ontario Inc.

[8] The Plaintiff was hired by DPC to work as a dentist at DAA’s Bay Street location. The Option provision in the Agreement was to purchase 50% of DAA. The Plaintiff negotiated the Option with the defendants 2455244 Ontario Inc., 2228001 Ontario Inc., DPC, Dr. Chander and two dentists, who are not parties to this action.

[9] The Claim alleges Dr. Chander and Mr. Levalliant misled the Plaintiff about the Option because it was “a ploy to induce the Plaintiff to sign his Agreement with DPC”.

[10] The dispute between the parties arose during negotiations on the Plaintiff’s exercise of the Option. The plaintiff alleges that Dr. Chander and Mr. Levalliant operated the dental practice in a complicated and confusing manner. He pleads that Mr. Levalliant and Dr. Chander made numerous statements and representations to him that the practice was thriving. They also promised to enhance the value of the practice with the Plaintiff having some control over the direction of the practice and that he would be given full access to the information he needed to purchase the practice.

[11] The plaintiff exercised the Option but no agreement to purchase a share of the business was reached with 2455244 Ontario Inc. and 2228001 Ontario Inc., (the owners of DAA).

[12] At the hearing the Plaintiff has agreed to make the following changes to the Claim:

1. “The sum of One Million Dollars ($1,000,000) for breach of contract as against the defendant Vivian Chander, or V. Chander OPC, 2455244 Ontario Inc, 2228001 Ontario Inc, negligent misrepresentation as against V. Chander OPC and Andrew Levalliant and breach of good faith contractual dealings as against Vivian Chander or V. Chander OPC, 2455244 Ontario Inc and 2228001 Ontario Inc”

[13] The Defendants submit that the Plaintiff has not pleaded the specific material facts required by Rule 26 to establish the cause of action of negligent misrepresentation against any Defendants. He did not plead the facts giving rise to a duty of care, the specific “negligent” representations made by each defendant (including the timing and context) and he did not plead detrimental reliance giving rise to damages. As well, there are no allegations of facts to support a claim of negligent misrepresentation against Dr. Chander and Mr. Levalliant personally. He does not specify what damages are sought for each cause of action and against which defendants, contrary to the requirements of Rule 25.06(9).

[14] The Defendants further challenge the fact that there are no facts pleaded to show which defendant was responsible for a misrepresentation and there are no facts to allege that Dr. Chander and Mr. Levalliant made any representations to the Plaintiff in their personal capacities as opposed to their corporate entities. The Defendants argue that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is independent tortious conduct alleged against them. There must be some activity on their part that takes them out of the role of directing minds of the corporation.

[15] Further, the pleadings do not allege any separate facts or independent conduct against Dr. Chander or Mr. Levalliant to support any claim of negligent misrepresentation against them apart from the claims against the corporate defendants DPC, 2455244 Ontario Inc. and 2228001 Ontario Inc. On this motion, the Defendants also allege that the Plaintiff has breached several of the rules for proper pleading.

[16] The Plaintiff argues that the Claim’s “procedural imperfections”, arose because the defendants’ business structure and operations were “murky”, and the Defendants refused to provide the necessary details during the due diligence process. The defendants would not reveal the details of the structure and operations of the defendant companies, in particular, Mr. Levalliant’s involvement, and/or the share division between Dr. Chander and Mr. Levalliant. These details it is submitted, will be produced through the discovery process. I do not accept this general proposition that “details will be provided”.

[17] The Defendant’s also allege that the pleading is deficient for the purposes of Rule 25.06(8) as it lacks the following particularity:

• The alleged misrepresentation itself.

• When, where, how, by whom and to whom it was made.

• Its falsity.

• The inducement.

• The intention that the plaintiff should rely upon it.

• The alteration by the plaintiff of his or her position relying on the representation.

• The resulting loss or damage to the plaintiff.

• If deceit is alleged, an allegation that the defendant knew of the falsity of his statement.

• To the extent these misrepresentations were oral, such conversations/statements are material and Rule 25.06(7) requires, at a minimum, the purport of said conversations to be pleaded.

• The Defendants also submit that the Plaintiff’s claim for relief as “the sum of ONE MILLION DOLLARS ($1,000,000.00) for breach of contract, negligent misrepresentation, and breach of good faith contractual dealings must be particularized.

[18] These issues referred to in paragraph 17 are routinely and should be dealt with by a Master in accordance with the Practice Direction. I am of the view that I can decide this motion without dealing with these issues. Should the Defendants wish to bring a Master’s motion on the issue of Lack of particularity, they may do so if necessary.

[19] As the parties are now agreed on the breach of contract and good faith claims, the issues in this motion are:

• Should the Claim of negligent misrepresentation against the Defendants be struck?

• Should leave to amend be granted?

[20] The parties agree that the test on a motion under Rule 21 is whether, assuming the facts as pleaded have been proved, it is “plain and obvious” that the claim must fail because it discloses no reasonable cause of action. Only if the action is certain to fail because it contains a radical defect that cannot be cured should the Claim or relevant portions of the claim, be struck out.

[21] Leave to amend a Statement of Claim should be granted where a pleading can be fixed by amendment, and no injustice is done in doing so. The jurisprudence is clear that leave to amend should be denied only in the “clearest” of cases: TSI International Group Inc. v. Formosa, 2017 ONCA 261.

[22] The Defendant’s summarizes the defects in the Claim in the same manner as the Court characterized the defects in the Claim in the case of Aristocrat Restaurants Ltd. v. Ontario [2003] O.J. No. 5331, wherein the Court stated:

“The real problem appears to be this. […] the plaintiffs have failed to organize the facts that have been pleaded so that the causes of action are clearly identifiable and are supported by facts material to the establishment of those causes. Moreover, the pleadings do not […] adequately identify the roles allegedly played by the individual defendants. Finally, the claims do not properly set out how the individual defendants are alleged to have caused harm to the plaintiffs and the specific nature of that harm.”

[23] Having reviewed the Claim and considered the submissions of the parties, I agree with this characterization of the Claim.

[24] I do agree with the moving Defendants that the elements and their required supporting material facts for a claim of negligent misrepresentation have not been properly pleaded. The Defendants are entitled to clear pleadings where, if possible, deficiencies have been cured. Each element of the Claim of misrepresentation must be properly pleaded with necessary supporting material facts. As well, the individual Defendants should not be “lumped together” without identifying which Defendants were responsible for the misrepresentations. However, when I consider the Claim and the material facts pleaded as a whole, I cannot conclude that “the defects in the Claim are not capable of being cured by appropriate amendments”. I find that the necessary allegations are present in the Claim either directly or by inference to support the Plaintiffs Claim for negligent misrepresentation.

[25] The parties agree that a Claim for negligent misrepresentation has five legal requirements:

1. there must be a duty of care based on 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 misrepresentation;

4. the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and

5. the reliance must have been detrimental to the representee in the sense that damages resulted.

[26] The Claim must include material facts to establish each of these five requirements. The allegations of negligent misrepresentation are in paragraphs 11, 65, 66, and 75 of the Claim. The Plaintiff did not properly plead the existence or these five requirements as well as the supporting material facts.

[27] The Plaintiff has not pleaded allegations to support the allegation of the existence of a duty of care. As well, there are no facts pleaded to support the existence of a “fiduciary obligation” as alleged in paragraph 14 of the Claim.

[28] The Defendants submit that two elements are necessary in order for such a relationship to arise:

1. the existence of a discretionary power on the part of the fiduciary to affect the vulnerable party’s legal or practical interests that the fiduciary can exercise unilaterally; and

2. an express or implied undertaking by the fiduciary itself that it will exercise this discretionary power in the vulnerable party’s best interests.

[29] The Plaintiff does not dispute this requirement but relies on the Court of Appeal case of Krawchuk v. Scherbak, 2011 ONCA 352. The Plaintiff argues that in this action as a potential purchaser of the shares pursuant to the Option, he relied on the information provided to him by the Defendants, about DAA. This reliance on specific statements made to him created a special relationship between them.

[30] Further, as an associate of the Defendants his employment relationship added an extra layer of reliance on the Defendants further evidence of the ‘special relationship’ between the Plaintiff and the Defendants.

[31] The Plaintiff further submits that his relationship with Dr. Chander and Mr. Levalliant was a special relationship as they controlled not only his renumeration because they were his superiors, but also his financial future as his potential business partners, and/or the vendors of his future dental practice.

[32] With respect to his pleading about the existence of a fiduciary relationship, the Plaintiff argues that there are certain relationships which are fiduciary by their very nature, such as the relationship of trustee/beneficiary, agent/principal, guardian/ward. The courts have recognized that the categories of fiduciary, should not be considered closed. It is the nature of the relationship, which gives rise to the fiduciary duty. A prima facie duty of care will arise if:

a. the defendant ought reasonably to foresee that the plaintiff will rely on their representation; and

b. reliance by the plaintiff on the representation would be reasonable in the circumstances.

[33] The Plaintiff relies on paras. 24, 25, 32, 45 of the Claim where he pleads that representations made to him by the Defendants were either untrue, inaccurate, or misleading. During negotiations, the Defendants assured the Plaintiff that they would purchase a new Cerec machine, would allow him to have significant input as to how DAA operated and would keep CDL operating in the same manner as it had been. The Plaintiff gives examples of statements attributed to Messr. Chander and Levalliant in the Claim that were untrue, inaccurate and misleading. I agree with the Plaintiff that there are enough allegations in the Claim when read as whole so that the Claim can be amended to cure this deficiency.

Damages and detrimental reliance

[34] The Defendants submit that the “most generous interpretation” of the Plaintiff’s Claim is that he was induced to sign the Option agreement by the Defendants’ promises regarding the exercise of the Option. Even if the Plaintiff could establish the Defendants owed him a duty of care in the pre-contractual negotiation of the Option, no damages resulted from the Plaintiff signing the Option itself.

[35] As the Plaintiff never concluded an agreement with the Defendants to purchase a share of DAA, no damages resulted from the Plaintiff’s exercise of the Option. The Plaintiff decided to exercise the Option even when he believed the Defendants had not lived up to their promises.

[36] To the extent the Plaintiff relied upon any representation made by the Defendants, the reliance cannot have been detrimental, as it has not resulted in any damages.

[37] The Plaintiff argues his damages are plain and obvious (paragraphs 76-78 of the Claim). The Defendants made representations and promises which they knew were untrue and that they did not intend to keep. He alleges that he entered into the Agreement and exercised the Option because of the representations made by the Defendants. Further, he committed over a year of his professional career to DAA, “because of the promises and representations made by the Defendants”. I agree that detrimental reliance and damages have not been properly pleaded, but I do find that it is appropriate to grant leave to amend, as these defects can be cured with an appropriate amendment.

[38] To conclude, I find that there are enough allegations in the Claim to grant leave to amend the Claim to properly and clearly plead the Claim of negligent misrepresentations.

[39] For the above reasons, I therefore grant the Defendants’ motion to dismiss the claims of negligent misrepresentation, with leave to amend granted to the Plaintiff. The Plaintiff shall have two weeks from the date of this endorsement to amend the Claim. As I have referred to above, the Defendants may make any appropriate master’s motions with Respect to any Amended Claim.

Costs

[40] The parties reached an agreement on costs at the beginning of the motion. As the Defendants’ motion was successful to strike the misrepresentation Claim, they are entitled to costs pursuant to their agreement.

[41] Should the Defendants wish to make submissions that costs on a higher scale should be awarded, written submissions may be made as follows:

Defendants’ submissions no more than 3 pages in length by 12 p.m. on October 29, 2019 and the Plaintiff’s responding submissions no more than 3 pages in length by 12 p.m. on November 5, 2019.

Pollak J.

Date: October 21, 2019