COURT FILE NO.: CV-19-00627474-0000
DATE: 20210803
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MANDEEP SAGGI, NEELAM SAGGI, SUCHA SAGGI
Plaintiffs
– and –
SERGIO GRILLONE, GRILLONE LAW FIRM, GRILLONE BEKIARIS LLP, GEORGE BEKIARIS, 1894931 ONTARIO LIMITED, LISA ROBERTA GATTO
Defendants
David Fogel, lawyer for the Plaintiff
Sergio Grillone, self-represented and acting in person and for Grillone Law Firm
HEARD: July 29, 2021
ENDORSEMENT
DIAMOND J.:
[1] The plaintiffs bring a Rule 21 motion to strike the following two portions of the Amended Statement of Defence and Counterclaim of Sergio Grillone and Grillone Law Firm (collectively “the Grillone defendants”):
a) the last sentence of paragraph 10 of the defence; and,
b) the entire counterclaim, being paragraphs 27-37 of the pleading.
[2] The basis for the plaintiffs’ position is that the said portions of the Grillone defendants’ pleading are routed in the doctrine of ex turpi causa, which (a) has not been properly pleaded, and (b) cannot form the basis of any cause of action to support the counterclaim.
[3] The Grillone defendants oppose the relief sought by the plaintiffs, and take the position that their pleading is sufficiently adequate to avoid the striking of the said portions.
[4] 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. 1990 CanLII 90 (S.C.C.), 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 pleading discloses no reasonable cause of action or defence. As the pleaded facts are presumed to be true, I can only strike out a claim or defence which has no reasonable prospect of success.
[5] 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.
[6] 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 defence, or a radical defect therein, is certain to fail.
[7] A review of the Amended Statement of Claim discloses that between 2017-2019, the plaintiffs made a series of loans to the Grillone defendants (some of which replaced and/or consolidated previous loans), and those loans are now allegedly in default.
[8] In response, the Grillone defendants plead at paragraph 7 of their Amended Statement of Defence and Counterclaim that “each loan was entered into in good faith and the loan proceeds were used to satisfy the day to day financial obligations” of the Grillone law firm.
[9] At paragraph 8 of the Grillone defendants’ Amended Statement of Defence and Counterclaim, the Grillone defendants state that the loan agreements from the plaintiffs were drafted in a manner to meet the needs of the Grillone law firm.
[10] The last sentence of paragraph 10 in the Amended Statement of Defence and Counterclaim states as follows:
“Further, the Grillone defendants state and the fact is, had they known that the source of loan proceeds were obtained by illegal means, which means include but are not limited to a scheme to evade Revenue Canada’s obligations, the Grillone defendants would not have entered into any loan agreements.”
[11] The particulars of the Grillone defendants’ counterclaim, set out at paragraphs 27-37 of their pleading, are as follows:
“27. Grillone and G.L.F. claim:
a) A tracing and accounting to identify the source of the funds advanced as described in the statement of claim,
b) A declaration that the loan instruments identified in the statement of claim are invalid and unenforceable ex turpi causa,
c) Costs
d) Such further and other relief as this Honourable Court may deem just.
Grillone and G.L.F. plead and rely on the allegation in the statement of defence,
The source of funds used to advance the loans from the Plaintiffs to Sergio and G.L.F. include but are not limited to cash payments for legal fees that were not declared to Revenue Canada in contravention of the Income Tax Act,
The source of the funds used to advance the loans from the Plaintiffs to Sergio and G.L.F include but are not limited to cash payments for legal fees that were not reported to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) although legally obligated to do so.
The sources of the funds used to advance the loans from the Plaintiffs to Sergio and G.L.F. include cash monies received by means of illegal enterprises and therefore in contravention of the Criminal Code of Canada.
The Grillone defendants state and the fact is that Mandeep Saggi has to this day never declared all the income he received for legal services rendered to Revenue Canada as he was by law obliged to due.
The Grillone defendants state and the fact is that Mandeep Saggi purchased a $2 million home north of Toronto in or about 2018 and declared that he paid for the “cash” (sic) for the home.
The Grillone defendants state and the fact is that Mandeep Saggi has a fleet of exotic vehicles with an estimated value of $300K.
The Grillone defendants state and the fact is that Mandeep Saggi has a townhouse condominium with a value of $500K.
The Grillone defendants state and the fact is that Mandeep Saggi has accumulated assets in excess of $5 million but has never declared more than $50K a year to revenue Canada.
As a result of the above, the Grillone defendants are entitled to a tracing and accounting of the source of the funds advanced as described in the statement of claim.”
[12] During the hearing, I advised both parties that, in my view, the contents of paragraph 10 and the counterclaim at paragraphs 27-37 could not stand, and the true issue was whether those paragraphs would be struck out with or without leave to amend.
[13] To begin, it is trite to state that the doctrine of ex turpi causa can only be raised as a defence to an action, and cannot form the basis of a cause of action itself. As held by the Supreme Court of Canada in Hall v. Hebert 1993 CanLII 141 (SCC), the ex turpi causa principle operates as a defence since its purpose is to frustrate what would be, had ex turpi causa had no role, a complete cause of action.
[14] The relief sought by the Grillone defendants in their counterclaim consists of (a) a tracing order to identify the source of funds advanced to them by the plaintiffs, and (b) a declaratory order that the loan agreements are invalid and unenforceable by reason of the doctrine of ex turpi causa.
[15] Dealing with the latter relief first, the declaratory relief cannot stand as it is premised upon a cause of action that does not exist in law. That relief is somewhat moot in any event, as the Grillone defendants take the position in their defence that the loan agreements are unenforceable in any event.
[16] With respect to the former relief, the accounting exercise sought by the Grillone defendants is not an independent cause of action, and would be addressed by documentary disclosure obligations in the event that their defence of ex turpi causa is found to be a tenable one.
[17] For these reasons, the Grillone defendants’ counterclaim is struck out without leave to amend.
[18] Dealing with the last sentence of paragraph 10 of the defence, that sentence must be struck out. There is nothing in the defence that raises the issue that the loan agreements (and any promissory notes signed to secure those loans) were entered into for an illegal purpose, or that the loan transactions themselves were illegal. While I am obligated to accept the contents of the Grillone defendants’ pleading as true, reading the pleading as liberally as possible only leads to the conclusion that while the plaintiffs are alleged to have participated in certain undefined illegal schemes, there is simply no nexus or connection between those schemes and the subject loan transactions.
[19] The Grillone defendants do not allege that the loan transactions are a step to aid the plaintiffs in carrying out their alleged illegal scheme. Essentially, the Grillone defendants’ defence raises two sets of transactions: the alleged illegal schemes carried out by the plaintiffs, and the loan transactions. Without a nexus between them, the doctrine of ex turpi causa cannot be relied upon and must be struck out.
[20] The issue is then whether it is even possible for the Grillone defendants to plead the doctrine of ex turpi causa properly. The plaintiffs submit that the contents of paragraphs 7 and 8 of the defence preclude the Grillone defendants from ever alleging such a nexus between the plaintiffs’ alleged illegal scheme and the loan transactions. In my view, while the Grillone defendants may in fact need to consider withdrawing admissions in a potential further amended pleading, I cannot find at this stage of the proceeding that it is beyond doubt that the doctrine of ex turpi causa is unavailable in the circumstances. The fact that pleading a nexus between the alleged illegal scheme and the loan transactions may prove quite difficult does not render it impossible or beyond possibility.
[21] While I would urge the Grillone defendants to carefully consider whether pursuing the defence of ex turpi causa is a reasonable, warranted and/or necessary step, I am not prepared to preclude them from doing so.
[22] For these reasons, the last sentence of paragraph 10 of the Grillone defendants’ statement of defence is struck out with leave to amend.
Costs
[23] If the parties are unable to resolve the costs of this motion, they may serve and file written costs submissions, totaling no more than five pages including a Costs Outline, in accordance with the following schedule:
a) the plaintiffs may serve and file written costs submissions within ten business day of the release of Endorsement; and
b) the Grillone defendants may serve and file their written responding costs submissions within ten business days of the receipt of the plaintiffs’ written costs submissions.
Diamond J.
Released: August 3, 2021
COURT FILE NO.: CV-19-00627474-0000
DATE: 20210803
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MANDEEP SAGGI, NEELAM SAGGI, SUCHA SAGGI
Plaintiffs
– and –
SERGIO GRILLONE, GRILLONE LAW FIRM, GRILLONE BEKIARIS LLP, GEORGE BEKIARIS, 1894931 ONTARIO LIMITED, LISA ROBERTA GATTO
Defendants
ENDORSEMENT
Mr. Justice Diamond
Released: August 3, 2021