Court File and Parties

Court File No.: CV-19-00640009-0000 Date: 20210301

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2638023 ONTARIO INC. Plaintiff – and – 1701288 ONTARIO INC, YAO JUN SITU, XIE TAO SU and HUI YING CAO Defendants

Counsel: Ken MacDonald, lawyer for the plaintiff Eric Turkienicz, lawyer for the Defendants, 1701288 Ontario Inc. and Yao Jun Situ Eric Brousseau, lawyer for the Defendants, Xie Tao Su and Hui Ying Cao

HEARD: February 25, 2021

Endorsement

DIAMOND J.:

Overview

[1] In accordance with my handwritten endorsement dated February 25, 2021, the defendants’ joint motions for summary judgment, along with the plaintiff’s cross-motion for injunctive relief, were adjourned to be heard by me on March 24, 2021 with a view to granting Fortis Consulting Ltd. (“Fortis”, the tenant in the subject property described below), the opportunity to participate in the motions for summary judgment.

[2] Notwithstanding the adjournment of the above motions to March 24, 2021, the Rule 21 motion to strike brought by the individual defendants Xie Tao Su and Hui Ying Cao (“the moving defendants”) was argued and completed before me on February 25, 2021.

[3] At the conclusion of the hearing, I took my decision under reserve.

The Plaintiff’s Claim - Generally

[4] While the moving defendants’ motion to strike was brought in response to the allegations in the original Statement of Claim, on consent of all parties the Rule 21 motion was argued before me in light of the draft Amended Statement of Claim recently served upon all defendants.

[5] In summary, the plaintiff purchased a property municipally known as 110 – 120 Mack Avenue, Toronto, Ontario (“the Mack property”) from the defendant 1701288 Ontario Inc. (“170”) for the sum of $9,680,000.00. The Mack property is a warehouse comprised of four units, two of which were leased to tenants at the time of the agreement of purchase and sale (“the agreement”) reached between the plaintiff and 170.

[6] Under the agreement, the plaintiff was required to assume the two existing leases, and as such the agreement required 170 to provide copies of those leases to the plaintiff in advance of closing. The plaintiff alleges that one of the leases provided by 170 (the lease for Unit #2) stated that the tenant (Fortis) was responsible for maintenance including “any structural components of the premises.”

[7] The moving defendants signed a statutory declaration (albeit in their capacity as officers, directors and shareholders of 170) that provided the following:

• The moving defendants had knowledge of the matters to which they hereinafter deposed;
• The leases were valid and subsisting leases which had not been altered or amended in any way;
• All obligations of the landlord (170) had been performed to date; and,
• There was no litigation commenced, pending or threatened by the tenants against 170 with respect to the property, tenancies or leases.

[8] Prior to closing, the plaintiff discovered that the roof of the property was leaking in several areas. The plaintiff also claims that it then learned that Fortis was threatening to sue 170 regarding alleged subsequent water damage to its leased premises. The plaintiff and 170 negotiated a $100,000.00 abatement to the purchase price to reflect the poor condition of the roof.

[9] After the purchase transaction closed, the plaintiff alleges that it discovered that the Fortis lease received from 170 was not the actual lease between the parties. The plaintiff alleges that the actual lease mandated the landlord (i.e. 170, and now the plaintiff) to repair all the areas of the roof which leaked inside the units.

The Claims against the Moving Defendants

[10] The plaintiff sues the moving defendants for false and/or negligent misrepresentation. The plaintiff submits that the moving defendants knew that the statements made in their respective statutory declarations were false or misleading in at least three respects: the attached lease was not the valid lease with Fortis, the valid lease required the landlord to repair the roof, and 170 had not performed its contractually obligated roof repairs.

[11] The Amended Statement of Claim further alleges that the moving defendants caused 170 to knowingly send the wrong Fortis lease to the plaintiff, all with the personal intent to deceive the plaintiff and personally gain from the sale of the property (which was apparently the only asset owned by 170).

[12] The plaintiff alleges that 170 was a motivated seller as it owed approximately $4,900,000.00 to a third party, and that loan was in arrears. As such, the moving defendants allegedly concealed the poor condition of the roof and the fact that the plaintiff would assume the contractual obligation to repair or replace the roof above the Fortis unit.

[13] Accordingly, the plaintiff claims that both the statements made by the moving defendants in their respective statutory declarations, and the delivery of the wrong lease, constitutes fraudulent misrepresentations for which the moving defendants are personally liable.

Rule 21 – Motions to Strike

[14] The test to be employed on a motion to strike is well known. As held by the Supreme Court of Canada in Hunt v. Carey Canada Inc., assuming that the facts as stated in the Amended Statement of Claim can be proven, I must decide whether it is “plain and obvious” that the claim discloses no reasonable cause of action as against the moving defendants. As the pleaded facts are presumed to be true, I can only strike out a claim which has no reasonable prospect of success.

[15] As held by the Court of Appeal in Addison Chevrolet Dealer GMC Limited v. General Motors of Canada Limited, 2016 ONCA 324, the test under Rule 21.01 requires a moving party to show that it is plain and obvious that the pleading discloses no reasonable cause of action, or that the claim has no reasonable prospect of success. Pleadings may be defective when they fail to allege the necessary elements of a claim that, if properly pleaded, would constitute a reasonable cause of action.

[16] In Salehi v. Professional Engineers Ontario, 2014 ONSC 3816, Justice Myers held that a claim is to be read generously with allowance for mere drafting deficiencies. The test on a motion to strike is no doubt a stringent one as I must be satisfied that the claim, or a radical defect therein, is certain to fail.

Claims against Corporate Officers and Directors

[17] A corporation operates only through the actions of its individual officers, directors and/or employees. As held by the Court of Appeal in Normart Management Ltd. v. Westhill Re-Development Co., absent allegations of fraud, deceit, dishonesty or want of authority on the part of officers, directors or employees of a corporation, those individuals will be protected from personal liability unless a pleading properly sets out the actions or omissions of the individuals (a) to be themselves tortious, or (b) exhibit a separate identity of interest from that of the corporation so as to make the impugned act or conduct their own. Simply put, there must be some activity that takes the individuals out of their role of directing minds of a corporation.

[18] In the absence of a factual underpinning to support allegations that individuals acted outside their capacity as officers, directors or employees of a corporation, those individuals cannot be held personally liable for the actions of corporations they can control, direct or work for at the relevant time. That factual underpinning must relate to the actions or omissions of an individual that fall outside of his/her authority, exhibit a separate identity of interest, or are independently tortious and actionable.

[19] As held by Justice Dietrich in Libfeld v. Patica Corporation, 2018 ONSC 3373, latitude for drafting deficiencies is less liberal when the Court assesses the adequacy of claims against corporate representatives. This approach finds support in the Court of Appeal for Ontario’s decision in Piedra v. Copper Mesa Mining Corp, 2011 ONCA 191 where the Court concluded that allegations in a pleading that the acts and omissions of a director are allegedly tortious must withstand a high degree of scrutiny.

Fraudulent Misrepresentation

[20] The necessary elements of the tort of fraudulent misrepresentation are:

(a) the defendant must have made a representation; (b) the representation made by the defendant was false; (c) the defendant knew that the representation was false, or made the representation recklessly without knowing whether it was true or false; and, (d) the representation induced the plaintiff to act to his detriment/prejudice.

[21] The moving defendants submit that the plaintiff’s cause of action against them is based entirely upon its claims against 170, which arise out of contractual negotiations and/or breach of contract. In such circumstances, the jurisprudence mandates that the plaintiff may not hold the moving defendants liable as officers and directors who have caused 170 to allegedly breach the agreement.

[22] The moving defendants argue that the plaintiff’s claims for fraudulent misrepresentation are attempts to convert its cause of action in breach of contract into a personal tort allegedly committed by the moving defendants, and as such the Court should “see through” those efforts and strike out the plaintiff’s claims against the moving defendants.

[23] While there is some merit to the moving defendants’ argument, at the pleadings stage I am not prepared to arrive at the conclusions they suggest. All of the required elements of a claim for fraudulent misrepresentation are set out in the Amended Statement of Claim.

[24] While the representations did arise as a result of the agreement between the plaintiff and 170, the cause of action in fraudulent misrepresentation is sufficiently pleaded to survive this Rule 21 motion. The provision of the “wrong Fortis lease” can be a representation in and of itself, and since the state of the roof was a live issue prior to the closing of the transaction, such an alleged misrepresentation could have had a bearing on the plaintiff’s actions including potential further negotiations for the abatement, or even the transaction not closing at all.

[25] While officers and directors are typically held personally liable when their actions are themselves tortious or exhibit a separate identity of interest from that of a corporation, the jurisprudence does permit claims of fraud, deceit and dishonesty against officers and directors to proceed. This is one of those cases.

[26] For these reasons, the moving defendants’ motion is dismissed.

Costs

[27] As agreed by the moving defendants and the plaintiff, the costs of this motion are reserved to me as the judge hearing the balance of the motions on March 24, 2021.

Diamond J.

Released: March 1, 2021