Court File and Parties
COURT FILE NO.: CV-19-627269 MOTION HEARD: 20210126 REASONS RELEASED: 20210429
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
ANDRIN HILLSBOROUGH LIMITED Plaintiff
- and-
SHOHREH ELIASZADEH and HADI ELIASZADEH Defendants
BEFORE: MASTER M.P. McGRAW
COUNSEL: E. Mehrabi E-mail: mehrabi@mehrabilawoffice.com -for the Defendants
M. Magonet and D. Schatzker E-mail: m@magonetlaw.com -for the Plaintiff
REASONS RELEASED: April 29, 2021
Reasons For Endorsement
I. Introduction
[1] The Defendants have brought a motion for leave to amend their Statement of Defence and to add a Counterclaim. The Plaintiff opposes some of the proposed amendments and brings its own motion seeking to strike some paragraphs of the Original Defence and the Counterclaim in part or in their entirety.
II. The Parties and the Proceedings
[2] The Plaintiff develops and builds residential homes. On December 17, 2016, the Defendant Hadi Eliaszadeh (“Hadi”), a real estate agent acting under a power of attorney for his sister, the Defendant Shoreh Eliaszadeh (“Shohreh”) entered into an Agreement of Purchase and Sale with the Plaintiff for the purchase of a property located at 57 Hydrangea Hollow in East Gwillimbury (the “Property”). The sale did not close as scheduled on July 16, 2019 and the Plaintiff commenced this action by Statement of Claim issued on September 12, 2019. The Plaintiff claims damages of $500,000 and alleges that the Defendants made misrepresentations regarding Shoreh’s employment status, country of residence and ability to obtain financing.
[3] The Defendants were self-represented when they delivered their original Statement of Defence on November 11, 2019 (the “Original Defence”). The Defendants claim that they were initially unable to retain counsel as a result of Hadi’s involvement in a motor vehicle accident on September 19, 2019. The Plaintiff delivered its Reply on November 20, 2019.
[4] The Defendants retained counsel in July 2020 and delivered their draft Amended Statement of Defence and Counterclaim on August 10, 2020. The Defendants allege that the Plaintiff made misrepresentations with respect to the layout, size, shape, materials and drawings regarding the Property. The Defendants also claim that Shohreh was unable to obtain financing due to the Property’s low appraisal value resulting from the Plaintiff’s unilateral changes to the Property, the presence of another development nearby and the Plaintiff’s refusal to agree to an abatement to the purchase price. In their Counterclaim, the Defendants claim the return of their deposit of $126,400 or in the alternative, the same amount for unjust enrichment; special damages of $250,000 for loss of opportunity and profit; special damages in the amount of $2,000,000 for past and future loss of income and loss of employment opportunities; and general, aggravated, exemplary and punitive damages of $250,000.
[5] The Defendants propose amendments to 10 paragraphs of the Amended Defence. The Plaintiff opposes existing references and amendments in 11 paragraphs of the Amended Defence and 2 of the 11 paragraphs in the proposed Counterclaim.
II. The Law and Analysis
[6] Rule 26.01 provides that on a 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.
[7] The contemporary approach to pleadings motions was summarized by Flynn J. in Sleep Clinic London Inc. v. Merchea, 2012 ONSC 3004, [2012] O.J. No. 2471:
“22 Long gone are the days when pleadings motions could be approached in an overly technical manner. Generally speaking, a party should be at liberty to craft a pleading in the manner it chooses, providing that the Rules of pleadings are not violently offended and there is no prejudice to the other side.”
[8] Amendments should be presumptively approved unless they would result in prejudice that cannot be compensated by costs or an adjournment; they are shown to be scandalous, frivolous, vexatious or an abuse of the court's process; or they disclose no reasonable cause of action (Andersen Consulting v. Canada (Attorney General), 2001 CanLII 8587 (ON CA), 2001 CarswellOnt 3139 (C.A.) at para. 37; Schembri v. Way, 2012 ONCA 620 at paras. 25 and 44).
[9] The Court of Appeal summarized the law on pleadings amendment motions in 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42:
“[25] The law regarding leave to amend motions is well developed and the general principles may be summarized as follows:
The rule requires the court to grant leave to amend unless the responding party would suffer non-compensable prejudice; the amended pleadings are scandalous, frivolous, vexatious or an abuse of the court's process; or the pleading discloses no reasonable cause of action.
The amendment may be permitted at any stage of the action.
There must be a causal connection between the non-compensable prejudice and the amendment. In other words, the prejudice must flow from the amendments and not from some other source.
The non-compensable prejudice may be actual prejudice, i.e., evidence that the responding party has lost an opportunity in the litigation that cannot be compensated as a consequence of the amendment. Where such prejudice is alleged, specific details must be provided.
Non-compensable prejudice does not include prejudice resulting from the potential success of the plea or the fact that the amended plea may increase the length or complexity of the trial.
At some point, the delay in seeking an amendment will be so lengthy, and the justification so inadequate, that prejudice to the responding party will be presumed.
The onus to prove actual prejudice lies with the responding party.
The onus to rebut presumed prejudice lies with the moving party.”[citations omitted]
[10] Master MacLeod (as he then was) stated the following regarding the requirement that amendments be legally tenable and compliant with the rules of pleading at paragraph 21 of Plante v. Industrial Alliance Life Insurance Co., 2003 CarswellOnt 2961:
(b) The amended pleading must be legally tenable. It is not necessary to tender evidence to support the claims nor is it necessary for the court to consider whether the amending party is able to prove its amended claim. The court must assume that the facts pleaded in the proposed amendment (unless patently ridiculous or incapable of proof) are true, and the only question is whether they disclose a cause of action. Amendments are to be granted unless the claim is clearly impossible of success. For this purpose amendments are to be read generously with allowance for deficiencies in drafting: [citations omitted].
(c) The proposed amendments must otherwise comply with the rules of pleading. For example, the proposed amendments must contain a "concise statement of material facts" relied on "but not the evidence by which those facts are to be proved" (rule 25.06(1)), the proposed amendments are not "scandalous, frivolous or vexatious" (rule 25.11(b)), the proposed amendments are not "an abuse of the process of the court" (rule 25.11(c)), the proposed amendments contain sufficient particulars -- for example, of fraud and misrepresentation (rule 25.06(8)).”
[11] The approach for determining legal tenability was summarized by Fregeau J. in Essa v. Panontin, 2010 ONSC 691 at para. 8:
“To be allowed, the amendments requested by the Plaintiffs must be tenable at law. On a motion to add a party and/or to amend the statement of claim against existing parties, the court may not consider the factual and evidentiary merits of the proposed new claims. A court is not to concern itself with the credibility of the case set forth by a party seeking an amendment. The court, in its analysis, is not to consider whether the amending party is able to prove the amended claim. The court must assume the facts pleaded in the proposed amendment are true. The only question is whether they disclose a tenable cause of action. The court is not to make findings of fact or weigh evidence. Amendments are to be read generously with allowance for deficiencies in drafting.”
[12] Strathy J. (as he then was) summarized the general principles governing pleadings in Cerqueira v. Ontario, 2010 ONSC 3954:
“11. …I set out some of these principles in Cavarra v. Sterling Studio Lofts Inc., 2010 ONSC 3092, [2010] O.J. No. 2211, and I have added some additional principles:
“(a)the purpose of pleadings is to give notice of the case to be met, to define the matters in issue for the parties and for the court, and to provide a permanent record of the issues raised [citations omitted];
(b)the causes of action must be clearly identifiable from the facts pleaded and must be supported by facts that are material [citations omitted];
(c)every pleading must contain a concise statement of the material facts on which the party relies but not the evidence by which those facts are to be proved: rule 25.06; this includes pleading the material facts necessary to support the causes of action alleged;
12 I accept the submission of Mr. Adair, on behalf of the Extendicare defendants, that while the plaintiffs are entitled to some leeway in the wording of their pleading, and a potentially meritorious claim should not be struck merely because of technical drafting deficiencies, the defendants are entitled to know the case they must meet. The court must be fair to the plaintiff, but it must also be fair to the defendants. In this regard, I respectfully adopt the observation of Cameron J. in Balanyk v. University of Toronto, 1999 CanLII 14918 (ON SC), [1999] O.J. No. 2162 (S.C.J.) at para. 46:
Neither the opposite party nor the court should be forced to nit-pick their way through a long, complex and sometimes redundant and split pleading, parsing each paragraph and each sentence with a view to extracting the claims and related material facts and redrafting them into a clear and precise pleading. It is the responsibility of the party pleading to plead in accordance with the requirements of our law and the purposes of pleading. Bearing in mind National Trust v. Frubacher, [1994] O.J. No. 2385, those purposes are:
(a)to give precise notice to the opposite party of the case which is to be met, sufficient to enable the opposite party to plead;
(b)to assist the court in understanding the material facts alleged and the factual and legal issues in dispute between the parties;
(c)to establish a benchmark against which the parties and the court may determine the relevance of evidence on discovery and at trial and the scope of the evidence which will be required to fairly and efficiently address the issues in dispute.
This requires the party pleading to understand the facts and the law as to what is required to support or defend a cause of action and to then state its position clearly and concisely.” (Cerqueira at paras. 11-12)
[13] In striking certain paragraphs, in some cases with leave to amend, Strathy J. held that the plaintiffs’ Statement of Claim was “a jumble of complaints, some of which are recognized by law and some of which are not”, “in many cases, not asserted as elements of proper causes of action supported by material facts going to either liability or damages” such that “it is almost impossible for the defendants to do anything other than guess about the nature of the plaintiffs' complaints against them” (Cerqueira at para. 14).
[14] The Plaintiff relies in part on Rule 25.11, which states:
“The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,
(a) may prejudice or delay the fair trial of the action;
(b) is scandalous, frivolous or vexatious; or
(c) is an abuse of the process of the court.”
[15] The law with respect to Rule 25.11 can be summarized as follows:
i.) a document that demonstrates a complete absence of material facts will be declared to be frivolous and vexatious;
ii.) portions of a pleading that are irrelevant, argumentative or inserted for colour, constitute bare allegations or that contain only argument and include unfounded and inflammatory attacks on the integrity of a party, and speculative, unsupported allegations or defamation should be struck as scandalous and/or vexatious;
iii.) documents that are replete with conclusions, expressions of opinion, provide no indication whether information is based on personal knowledge or information and belief and contain many irrelevant matters will be rejected in their entirety;
iv.) anything which can have any effect at all in determining the rights of the parties can be proved, and consequently can be pleaded, however, the court will not allow any fact to be alleged which is wholly immaterial and can have no effect on the result;
v.) a pleading of fact will be struck if it cannot be the basis of a claim or a defence in the action and is designed solely for the purpose of atmosphere or if the only purpose is to cast the opposing party in a bad light;
vi.) pleadings of historical facts, whether those facts are true or not, that have no relevance to the proceeding, will be struck;
vii.) one of the purposes of Rule 25.11 is that since pleadings define the issues in an action if a party is required to respond to irrelevant facts, inquire into those facts on discovery and respond to evidence of those facts at trial, the litigation and trial will be diverted by inquires that have no connection to the real issues before the court;
viii.) if the plaintiff does not, at the time of pleading, have knowledge of the facts necessary to support the cause of action, then it is inappropriate to make the allegations in the statement of claim as it is improper to allow conclusions to be pleaded baldly and without any supporting facts;
ix.) a pleading should be read generously with the applicable principles in mind so as not to unfairly deny a party the benefit of the pleading and motions under Rule 25.11 should only be granted in the clearest of cases;
x.) only portions of a pleading that are irrelevant, argumentative or inserted for colour that constitute bare allegations should be struck as scandalous;
xi.) to establish that there is an “abuse of process” the moving party must demonstrate that there is a collateral and improper purpose and a definitive act or threat in furtherance of a purpose not legitimate in the use of the process and some overt act or threat distinct from the proceedings themselves in furtherance of the improper purpose (Ontario Consumers at paras. 12-17; Taylor at paras. 20-31; Balanyk at paras. 27-30; George v. Harris, [2000] O.J. No. 1762 at para. 20; Canadian National Railway v. Brant, 2009 CanLII 32911 (ON SC), [2009] O.J. 2661 at paras. 27-29; National Energy Corporation v. Eco Energy Home Services Inc., 2014 ONSC 3778 at para. 10; Toronto (City) v. MFP Financial Services Ltd., [2005] O.J. No. 3214 at paras. 17-18).
[16] The Plaintiff submits that numerous allegations and claims in the Amended Defence and Counterclaim are improperly pleaded or irrelevant and will cause prejudice by complicating and delaying this action. These include the Defendants’ allegations and claims with respect to bad faith, mental anguish and distress and profit. The Plaintiff initially submitted that some paragraphs should be struck as disclosing no reasonable cause of action under Rule 21.01(b) which can only be granted by a Judge.
[17] In my view, on a generous reading with allowances for drafting deficiencies, the overriding issue with the Amended Defence and Counterclaim is the lack of clarity and precision with respect to some of the causes of action. This can be sufficiently addressed by striking certain paragraphs with leave to amend. I have also concluded that the Plaintiff has not provided any evidence that it would suffer actual prejudice if any of the causes of action, allegations and/or paragraphs are permitted to remain, as amended. The Plaintiff’s assertion that the trial of this action would be longer and more complex does not constitute actual prejudice and the Plaintiff has not demonstrated that it has lost or would lose any opportunities in the litigation particularly at this early stage. Further, I cannot conclude that Rule 25.11(a) is engaged such that a fair trial of this matter would be delayed.
[18] Prior to the motion, the Defendants advised that they will not be asserting a defence based on rectification and agreed to strike paragraph 27 of the Amended Defence without leave to amend. As set out below, the Defendants have also agreed to remove the references to bad faith in paragraphs 14 and 22. The disputed amendments and paragraphs or portions thereof are considered below.
[19] Paragraph 20 (Settlement Privilege) - This paragraph was included in the Original Defence and refers to a letter sent by Plaintiff’s counsel to the Defendants dated August 19, 2019 marked “Without Prejudice” making an offer for an “early resolution” including financial terms. References to settlement offers should not be included in a pleading (Lemonius v. Audmet Canada, 2019 ONSC 4485 at para. 12). I reject the Defendants’ characterization of the letter as a demand and conclude that it satisfies the test for settlement privilege: i.) litigation was contemplated when the letter was sent (one month after the sale did not close and one month before this action was commenced); ii.) the notation “Without Prejudice” demonstrates that it was made with the express or implied intention that it would not be disclosed to the court in the event that negotiations failed; and iii.) the purpose of the letter was to attempt to effect settlement or as the letter states an “early resolution” (Roberts v. Zoomermedia Ltd., 2015 ONSC 1120 at para. 14). Accordingly, I am satisfied that paragraph 20 should be struck. Given the prohibition on pleading settlement discussions, I do not grant leave to amend.
[20] Paragraphs 14, 22, 25, 26, 29, 31, 46 and 47 (Bad Faith and Mental Anguish/Distress) – In the Amended Defence, the Defendants allege that the Plaintiff has at all times acted in bad faith including by unliterally making changes to the orientation and quality of finishings at the Property and refusing to work with the Defendants to conclude the sale (paras. 14, 22, 25, 26, 29 and 31). All but one of these references was present in the Original Defence. In the Counterclaim, the Defendants allege that learning that an Officer of the Plaintiff, Martin Bernholtz, faced allegations of professional misconduct by the CPA Ontario (“CPA”) and that he reached a settlement with the Ontario Securities Commission (‘OSC”), together with “other instances of bad faith behavior from the builder throughout the process” caused Hadi to experience significant mental anguish and distress which caused a lapse of judgement and concentration leading to his “near-death” car accident resulting in serious and permanent injuries, loss of income and loss of ability to pursue career opportunities as a plastic surgeon (para. 46). The Defendants further allege that due to the bad faith behavior of the Plaintiff and the potential loss of all of their assets they have experienced significant emotional and financial stress and have suffered from depression and anxiety (para. 47).
[21] The first difficulty with these paragraphs is the Defendants’ use of the term “bad faith”. It is not clear from the pleading if they are asserting a claim for bad faith or a breach of the duty of good faith and honest performance, or both. The Defendants agreed during submissions to remove the references to bad faith in paragraphs 14 and 22 however, submit that the references in paragraphs 25, 26, 29 and 31 must remain because they go together with paragraphs 46-47 of their Counterclaim to support a claim for breach of the duty of good faith. At the same time, the Defendants argue that if the facts pleaded in these paragraphs are assumed to be true then the Defendants are able to meet the elements of bad faith and that striking them would remove an entire pleading.
[22] The confusion is compounded by the addition of the Defendants’ claims and allegations that the Plaintiff’s bad faith conduct and Mr. Bernholz’s professional misconduct issues with the CPA and the OSC caused mental distress resulting in Hadi’s lapse in judgment and concentration causing his car accident and permanent injuries, loss of income and ability to pursue career opportunities together with the Defendants’ emotional and financial distress.
[23] The term bad faith is a legal conclusion which cannot be pleaded without sufficient particulars. As explained by Spence J. in Deep v. Ontario, [2004] O.J. No. 2734:
“Bad faith is a legal conclusion. It has been held to involve an allegation of an intent to deceive or to make someone believe what is false. It has been said to be equivalent to an allegation of dishonesty. Where a plaintiff's claim includes an allegation of bad faith, the pleading must be supported by sufficient particulars that support a legal conclusion of bad faith. If it does not, the pleading should be struck” (Deep at para. 64; Tabrizi v. Gervais et al, 2015 ONSC 1037 at paras. 36-37).
[24] Pleading bad faith also engages Rule 25.06(8) which provides that where fraud, misrepresentation, breach of trust, malice or intent are alleged, the pleading shall contain full particulars. In my view, in addition to the confusion with respect to what causes of action the Defendants are advancing, they have not pleaded sufficient particulars in support of a claim for bad faith. While some particulars appear to be present, even on a generous reading with allowances for drafting deficiencies, it remains unclear.
[25] The Defendants eventually confirmed that they are in fact advancing a claim for breach of the duty of good faith and honest performance, recently considered by the Supreme Court in C.M. Callow Inc. v. Zollinger, 2020 SCC 45. The Defendants argue that certain paragraphs in their pleading are part of the “narrative” in support of this claim. However, more than a narrative is required. There is no reference in the Amended Defence and Counterclaim to the duty of good faith and honest performance. It seems that the Defendants may have intended to imply that they are claiming that the Plaintiff breached its duty of good faith and honest performance by using the term bad faith. In others, it appears that the Defendants are pleading that the Plaintiff acted in bad faith which, without saying it, resulted in a breach of its duty of good faith and honest performance. Whatever claims the Defendants are advancing, the elements of each cause of action and supporting particulars must be identifiable and stated clearly so that the Plaintiff has notice of what claims are being advanced against it and to articulate the issues for documentary and oral discovery and the ultimate disposition of this action.
[26] The problems with the Defendants’ pleading are compounded by the proposed addition of tort claims for mental anguish and distress related to Hadi’s accident and alleged loss of income and employment opportunities and both Defendants’ emotional and financial distress, depression and anxiety (paras. 46-47). I agree with the Plaintiff that it is difficult to discern, even on a generous reading and quite apart from the confusion around the use of bad faith, whether these are claims for negligence, intentional infliction of mental distress or otherwise. None of the elements for any claims grounded in negligence have been pleaded including: a duty of care; breach of the standard of care; and damages caused by a breach of the standard of care which are not too remote in law (Mustapha v. Culligan of Canada Ltd., 2008 SCC 27 at para. 3). Similarly, the elements of intentional infliction of mental suffering have not been pleaded (Piresferreira v. Ayotte, 2010 ONCA 384 at para. 27).
[27] The Plaintiff submits that some of the Defendants’ claims in these paragraphs are too remote, causation does not exist or there is an absence of evidence such they are clearly impossible of success and not legally tenable. I am not prepared to draw these conclusions at this stage of the proceedings based on the current record and pleadings. The Defendants are entitled to a generous reading with allowances for drafting deficiencies and the flexibility and latitude to draft the Amended Defence and Counterclaim as they see fit. However, in balancing this right, the Defendants must comply with the rules of pleading and the Plaintiff is entitled to notice of the case against it and clearly identifiable causes of action pleaded with a concise statement of material facts and sufficient particulars. More particularity and precision are required to remedy these deficiencies.
[28] In my view, consistent with the case law, even in cases such as Cerqueira where the pleadings were significantly more deficient than in the present case, granting leave to amend is the preferred approach. Accordingly, I conclude that it is reasonable and appropriate in the circumstances to strike the references to bad faith in paragraphs 25, 26, 29 and 31 and to strike paragraphs 46 and 47 in their entirety, all with leave to amend. On consent of the Defendants, the references to bad faith in paragraphs 14 and 22 are struck without leave to amend.
[29] Paragraphs 24 and 35 (Other Allegations) - These paragraphs were included in the Original Defence. The Defendants allege that the Plaintiff knew or ought to have known that another development was being planned in the immediate vicinity of the Property which would lower its value (para. 24). The Defendants further allege that documents they have obtained with respect to the Property demonstrate that the total cost of the house “still leaves the huge margin of $400,000 profit for Andrin, plaintiff compared to the appraised value” (para. 35). The Plaintiff submits that the presence of a proposed development in the vicinity and its profit margin are irrelevant to the underlying issues and that both paragraphs will increase the complexity of this action. In my view, similar to the paragraphs considered above, the real issue is that these paragraphs lack sufficient clarity and precision as currently drafted. The Defendants have pleaded that they were unable to obtain financing due in part to the appraised value of the Property and the Plaintiff’s rejection of their abatement request. The Defendants have also pleaded that one of the reasons the appraised value of the Property was lower was due to the presence of the nearby development (para. 8). What is absent is a link between paragraphs 24 and 35 with the Defendants’ claims and allegations with respect to the appraised value, inability to secure financing and the Plaintiff’s denial of an abatement. Further, paragraph 35 pleads evidence by referring to documents obtained by the Defendants and wording such as “huge margin” unnecessarily adds colour, opinion and exaggeration. As above, I am not satisfied that these allegations, if properly pleaded, will unnecessarily increase the complexity of this action which does not constitute actual prejudice in any event. These paragraphs are struck with leave to amend.
III. Disposition and Costs
[30] Order to go on the terms set out above. The Defendants shall deliver a further amended Amended Defence and Counterclaim within 30 days. The Plaintiff shall deliver an amended Reply and Defence to Counterclaim within 30 days of receipt of the further Amended Defence and Counterclaim.
[31] If the parties are unable to agree on costs, they may file written submissions (not to exceed 3 pages excluding Costs Outlines) pursuant to a timetable agreed upon by counsel. If counsel cannot agree on a timetable, they may schedule a telephone case conference.
Released: April 29, 2021
Master M.P. McGraw