Court File and Parties

COURT FILE NO.: CV-17-57097200CP

DATE: 20200915

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: ADIL VIRJI, CHRISTINE MCEWAN AND SUZANNE LONG, Plaintiffs

– and –

LANCE KOTTON, PETER SANTOS, TITAN EQUITY GROUP LTD., EXECUTIVE LEASING CAPITAL CORP., SHAN-KAEL GROUP INC. ROY DEEKS, UNITY FINANCIAL MORTGAGE SERVICES INC., BOSLEY FARR ASSOCIATES LTD., ROBERT MARCUTTI, MITCHELL FINKELSTEIN, ADAM SEIF, ANTONIO FRANCO DE BARTOLO, LITOWITZ PETTLE & SILVER LLP, HOWARD LITOWITZ, FRIEDMAN LAW PROFESSIONAL CORPORATION (formally known as FRIEDMAN & ASSOCIATES), YANFRANG GUO, WILLIAM FRIEDMAN SLOANE CAPITAL CORP., STEPHEN FREEDMAN, Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Roderick Winsor, for the Plaintiff

Christopher Afonso, for the Defendants, Bosley Farr Associates Ltd. and Robert Marcutti

HEARD: September 10, 2020

AMENDMENT OF CLAIM

[1] This motion raises the distinction between an amended Statement of Claim introducing a new cause of action and one improving an existing cause of action.

[2] Since the limitation period for the claim is now passed, the distinction is critical to the survival of the amended pleading.

I. The claim against the appraiser

[3] This action was commenced in 2017 by investors in syndicated mortgage investments completed in 2012 and 2013. The Statement of Claim relates that the borrowers defaulted in September 2014, and a receiver was appointed in 2015. The receivership was discharged in January 2016, and the property was sold under a power of sale in June 2016. The proceeds of sale produced insufficient funds to pay the Plaintiffs’ loan investments.

[4] The most extensive claims in the Plaintiffs’ pleading are made against the “Kotton” Defendants. This group of Defendants arranged the five different loan investments to raise money for their development of the property at issue and were themselves the borrowers of the Plaintiff’s funds. The Plaintiffs allege a number of different causes of action against Kotton, including: (a) breach of contract, (b) negligent misrepresentation, (c) fraudulent misrepresentation, (d) breach of fiduciary duty, (e) breach of duty of good faith, (f) conversion, (g) negligence, and (h) unjust enrichment. None of the claims against Kotton are the subject of the present amendments.

[5] Appraisals of the property in issue were done by the Defendants, Bosley Farr Associates Ltd. and Robert Marcutti (“Bosley Farr”). The Statement of Claim alleges that two appraisals done by Bosley Farr were negligently prepared and were relied upon by the Plaintiffs in deciding to enter into the investments. The pleaded appraisals were completed in 2012 and 2014, respectively.

[6] The newly added paragraphs take aim only at Bosley Farr. Consequently, counsel for Bosley Farr are the only ones appearing at the motion to respond to the Plaintiffs’ request to amend.

[7] The proposed amendments set out fraud and conspiracy claims. Bosley Farr’s counsel submits these represent new causes of action that were not contained in the original Statement of Clam. The paragraphs which the Plaintiffs seek to add to their pleading are:

52A. Bosley Farr made the various representations referred to in the Claim knowing or reckless as to the fact, that:

a. Such representations were false;

b. The appraisals were to be used to raise funds from the lenders and investors by misleading them into believing that their investments were secure;

c. The appraisals were part of a plan to raise funds to be used to improperly enrich the promoters and their associates, including Bosley Farr, rather than for the purpose of developing the Property;

d. A reader of the appraisals would read them to reflect the current value of the Property.

52B. The appraisals were prepared pursuant to an agreement between the Bosley Farr and Kotton Defendants with the intent of misleading investors and lenders and thereby inducing them to provide their funds believing that their investments were secure, when the Bosley Farr and Kotton Defendants knew they were not, to the benefit of Bosley Farr and Kotton Defendants, or were reckless as to such facts.

II. The Discontinuance request

[8] The first matter that the Plaintiffs seek is an easy one – they wish to discontinue the claim against a number of Defendants. Counsel for the Plaintiffs advised me at the hearing that some of these Defendants were never served with the claim – specifically, Litowitz Pettle & Silver LLP, Howard Litowitz, Friedman Law Professional Corporation, (formally known as Friedman & Associates), Yanfrang Guo, William Friedman, Mitchell Finkelstein, Adam Seif, and Antonio Franco De Bartolo. The others – specifically, Shan-Kael Group Inc., Executive Leasing Capital Corp., Titan Equity Group Ltd., and Lance Kotton – were served by the Plaintiffs but are subject to a receivership order that would require the Plaintiffs to obtain leave of the court in order to proceed against them. The Plaintiffs have decided not to pursue the claim against either group.

[9] Given these circumstances, there is no issue of costs incurred by either group of Defendants in preparing a defence to the claim. On that basis, I see no reason that the claim cannot be discontinued as against the Defendants against whom the Plaintiffs do not wish to proceed.

III. Is the claim legally tenable?

[10] Since pleadings have closed, Rule 26.02(c) of the Rules of Civil Procedure requires leave of the court in order to amend the Statement of Claim. That said, the Plaintiffs have a right to amend unless certain limited conditions are present. Rule 26.01 is therefore written in mandatory language, followed by a caveat that sets out a small exception to the mandator rule: “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.”

[11] As a preliminary matter, counsel for Bosley Farr contends that the amendments should be denied because the claim cannot possibly succeed at law. Two reasons are given for the ultimate failure of the Plaintiffs’ claim: a) they are precluded because of a disclaimer written into the Bosley Farr appraisals, and b) the appraisals were issued to late for the Plaintiffs to have relied on them in making their investments.

[12] Neither of these arguments is actually aimed at the amended pleading. Rather, they are aimed at the overall claim against Bosley Farr. While I agree with counsel for Bosley Farr that the appraisal documents are incorporated by reference into the pleading and may be referred to in a motion of this type, I do not agree that this argument is being raised as a response to the amended Statement of Claim.

[13] The case law cited in support of the argument to illustrate the supposed effect of the disclaimers comes from certification motions, not from pleadings motions. Bosley Farr will doubtless raise this argument as a response to the Plaintiff’s certification motion, and it is my view that that will be the appropriate time to consider its merits.

[14] The same is true with what Bosley Farr refers to as the “temporal impossibility” argument. Whether Bosley Farr is correct, and whether the Plaintiffs have an answer to the point about the timing of their appraisals vis-à-vis the Plaintiffs’ investment, could potentially determine the entire claim against Bosley Farr. It has virtually nothing to do with the motion to amend the pleadings.

[15] Again, I will doubtless be given the opportunity to address this issue at the certification stage or, perhaps, if Bosley Farr decides at some point to bring a summary judgment motion based on its temporal impossibility theory. Until then, there is no point discussing that argument further. It does not belong in a pleadings motion.

IV. Have limitation periods expired?

[16] The waiver and temporal impossibility clauses appear to have been add-ons to this motion. The real focus of both counsel has been on the question of limitation periods and whether the amendments that the Plaintiffs seek to add to the claim represent new, time-barred claims.

[17] As indicated above, the property was sold in June 2016, which is when the Plaintiffs realized their losses. The claim was commenced by Notice of Action issued in 2017.

[18] Counsel for the Plaintiffs first wrote to counsel for the Defendants suggesting that they were considering amending their claim on January 26, 2020. Two weeks later, on February 10, 2020, counsel for the Plaintiffs provided counsel for the Defendants with most of the wording for the proposed amendments, including the claims for fraudulent misrepresentation and conspiracy. Counsel for the Plaintiffs waited another three and a half months before serving their Motion Record on May 29, 2020, which contained the complete set of proposed amendments.

[19] Counsel for Bosley Farr submits that Rule 26.01 cannot be used to circumvent limitation periods, and that the expiry of a limitation period represents an absolute bar to an amendment that adds a new cause of action: Timbers Estate v. Bank of Nova Scotia, 2011 ONSC 3639 at para. 12. The expiry of a limitation period gives rise to a presumption of prejudice that cannot be displaced by the moving party: Shtaif/Bokserman v. Stevensons LLP, 2019 ONSC 4320 at para. 60. The reason for this is that the addition of a new cause of action after a limitation period has passed is treated no differently than would be the issuance of a new Statement of Claim based on a cause of action that is time barred: Klassen v. Beausoleil, 2019 ONCA 407, at para 26.

[20] Since the Plaintiffs discovered their losses upon sale of the property in June 2016, that is the latest date for which a reasonable person in the investors’ position can be said to have discovered their claim: Limitations Act, 2002, SO 2002, c. 24, Sched. B, section 5(1)(b). As related above, Plaintiffs’ counsel first mentioned the prospect of amending the claim in January 2020, and served the present motion in May 2020 although they had advised counsel for the Defendants of the contents of those proposed amendments in February 2020. Even giving the Plaintiffs the benefit of the earliest of those dates – January 26, 2020 – the proposed amendments came more than two years after discovery of the claim, and so any new cause of action contained therein would be barred under section 4 of the Limitations Act, 2002.

[21] It is Plaintiffs’ counsel’s position that the proposed amendments augment and fill out the claims for fraud and conspiracy, but that those claims were already present in the original Statement of Claim. In making this argument, they rely on the Divisional Court’s judgment in Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources), 2016 ONSC 6359, which indicated that in determining what cause of action has been pleaded it is the entire factual matrix of the pleading, and not the specific words or names of the causes of action, that count. The Divisional Court then went on to point out, at para 31:

[T]he requirement to read a pleading generously, and the concomitant requirement to allow amendments unless they will inflict non-compensable prejudice, means that the presumption is that any amendment, that can reasonably be seen as falling within the four corners of the existing claim, ought to be permitted.

[22] Likewise, Plaintiffs’ counsel rely on 1100997 Ontario Ltd v. North Elgin Centre Inc, 2016 ONCA 848 where, although new facts were pleaded pertaining to the defendant’s motivation, the Court of Appeal found that the claim still arose from the same circumstances set forth in the original pleading. In that circumstance, the Court concluded that the proposed amendments did not raise new causes of action, because they were based on the same actionable facts.

[23] With this background in mind, Plaintiffs’ counsel point to several points in the original Statement of Claim which at least suggest that Bosley Farr was in collusion with Kotton in overstating the appraised value of the property in issue, and that the misrepresentations pleaded against Bosley Farr were not limited to negligent misrepresentations, but included fraudulent misrepresentations. These are:

Paragraph 1(b) – the list of causes of action against all Defendants, without differentiating one from the other, includes “fraud” and “conspiracy”;

Paragraph 35 – it is indicated that the Defendants “knowingly made false representations”;

Paragraph 50 – Bosley Farr knew and was conscious of what it was doing in preparing the false appraisals;

Para 52 – refers to Bosely Farr making misrepresentations, without specifying negligent or intentional misrepresentations; and

Paragraph 55 – refers to “false opinions” by Bosley Farr.

[24] None of these references is particularly compelling. Paragraph 1(b) gives a list of causes of action without explanation and without differentiating what cause pertains to each Defendant. The reference in paragraph 52 to misrepresentations, without indicating whether they were innocent, negligent, or fraudulent misrepresentations, looks more like weak drafting than anything else. I would not attribute any significance to either of those two references.

[25] Paragraph 55’s reference to “false opinions” is ambiguous. As Justice Winkler (as he then was) explained in Toronto Dominion Bank v. Leigh Instruments Ltd., 1998 CanLII 14806 (ON SC), [1998] OJ No 2637, at para 477 (SCJ), that both negligent and fraudulent misrepresentations contain false representations or opinions; however, “[t]he main distinction between the elements of fraudulent misrepresentation and negligent misrepresentation has been touched upon above, namely the dishonest state of mind of the representor.” Given the further observation by Winkler J. that for a pleading of fraud, “[t]he intention to deceive or reckless disregard for the truth is critical”, the critical element cannot be found in paragraph 55.

[26] Accordingly, if the amended pleading is not to be seen as putting forward a new cause of action, an existing claim in fraud and conspiracy would have to be teased out of the language in paragraphs 35 and 50. Both of those suggest that the false representations of value issued by Bosley Farr were knowingly done. Knowledge, of course, is generally considered to be distinct from intention, and so it is questionable whether these two paragraphs really set out something like the causes of action that Plaintiff counsel attributes to them.

[27] That said, context is everything when it comes to matters of interpretation. Under the circumstances, I do not think that what the Plaintiff meant by alleging that Bosley Farr “knowingly” made false representations is that Bosley Farr knew it was making representations of value; rather, I assume that what the Plaintiff meant was that Bosley Farr knew of the falsehood of the representations it was making but made them anyway. Read in this way, there is an element of intentionality embedded in the allegation of “knowingly”.

[28] In addition, in the context of Bosley Farr having been retained to do a valuation by Kotton, the suggestion behind the value having been knowingly misrepresented is that it was done for Kotton’s benefit. While this is only indicated in an oblique fashion, nothing else would really make sense. I cannot assume that the Plaintiff meant to allege that Bosley Farr knowingly misrepresented the value of an investment property just for the sake of doing so. Instead, I understand the allegation to be that it did so for the purpose of collaborating with the party that retained it and that would stand to benefit from the misrepresented value – i.e. Kotton.

[29] With all due respect, there is good reason that the Plaintiffs have sought to amend the Statement of Claim. As originally drafted, it does not convey its own meaning very well. However, if one brings a generous attitude to the task of deciphering it, and one digs deep enough into its barely stated implications, one can see that there is a glimmer of a fraud and conspiracy allegation peeking through the fog.

[30] As Perell J. stated in Kaynes v. BP, PLC, 2019 ONSC 6464, at para 87, where a pleading is sought to be amended after the limitation period has expired, the key to the analysis is “whether substantially all of the material facts of the tendered cause of action have already been pleaded, in which case, the amendment will be allowed, or whether new material facts are sought to be added to support the cause of action, in which case, the amendment will not be allowed or if already pleaded, it will be struck.” The present pleading meets the test of the material facts of fraud and conspiracy having already been pleaded, but just barely.

[31] It is safe to say that had counsel for the Plaintiffs not gone to some effort in this motion to point out the fact that the basic elements of fraud and conspiracy – intentionality and collusion – were already pleaded, I would have missed them. I assume most other readers, including the Defendants, might have missed them as well.

[32] I do not know whether the Statement of Claim was deliberately drafted with this level of understatement or whether the intentionality and collusion ingredients made their way into a couple of paragraphs by chance; however, I do see that now that my attention has been fully drawn to them and to the context in which they are stated. Given this recognition, I am compelled to conclude that the proposed amendments represent embellishments on causes of action that were already contained in the Statement of Claim.

[33] Since causes of action in fraud and conspiracy are not new, they are not limitation barred.

III. Disposition

[34] The Plaintiffs are granted leave to amend the Statement of Claim in the form attached as Schedule “A” of their Motion Record.

[35] The Plaintiffs may discontinue the action without costs as against the Defendants, Litowitz Pettle & Silver LLP, Howard Litowitz, Friedman Law Professional Corporation, (formally known as Friedman & Associates), Yanfrang Guo, William Friedman, Mitchell Finkelstein, Adam Seif, Antonio Franco De Bartolo, Shan-Kael Group Inc., Executive Leasing Capital Corp., Titan Equity Group Ltd., and Lance Kotton. Service on those parties may be dispensed with.

[36] The essence of this motion was the limitations argument. Although I have found in favour of the Plaintiffs on that point, I cannot blame counsel for Bosley Farr for raising it. The factual matrix of the fraud and conspiracy claims was barely visible in the Statement of Claim. If not for this motion, those minimalist pleadings may never have come to the surface. In order to properly pursue claims under those two headings, it was certainly necessary for Plaintiffs’ counsel to do some repair work.

[37] Under those circumstances, there will be no costs of this motion awarded for or against any party.

Morgan J.

Date: September 15, 2020