OVERVIEW

[1] The defendant, 1521476 Ontario Inc. (“152”), moves under r. 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for an order striking the claim of the plaintiff, 2460907 Ontario Inc. (“246”), against it for damages for wrongful distraint.

[2] The central issue is whether 152 can be liable to 246 for damages allegedly suffered by 246 when 152 wrongfully distrained the chattels of another company, 2456787 Ontario Inc. (“245”). 246 contends that it can recover relational economic loss damages for the profits it was going to earn by using the distrained restaurant equipment in the premises formerly occupied by 245 on the basis that it had a possessory or proprietary interest in the chattels.

[3] These reasons explain why the motion must be allowed. 246 cannot establish the proximity necessary to succeed in a tort claim against 152 because without 152’s consent to an assignment of the lease, which had been withheld, 246 cannot establish a possessory or proprietary interest in the distrained chattels.

FACTS

[4] On or about May 22, 2015, 245 entered into a lease with 152 with respect to property located on Wellesley Street East, in Toronto. The lease commenced on July 1, 2015 and was for a period of five years.

[5] Prior to entering into the lease, 245 purchased the assets and chattels of a restaurant which had been operating on the premises under the name “The Spice Village”. In addition, 245 purchased other restaurant-related chattels, the total value of which it alleges is more than $230,000. During the first few months of the lease, 245 also spent money renovating the interior of the premises.

[6] From about September 2015 until September 2016, 245 operated a café/restaurant on the premises under the name “MicroTime Café”. In September 2016, 245 closed the restaurant. A few months later, in December 2016, 152 and 245 entered into a Lease Amending Agreement under which 152 agreed to undertake renovations to the premises. Those renovations required 152 to obtain a building permit. 246 alleges that 152 knew then that the renovations were being undertaken for a new company which would operate a “Toss Thai” franchise at that location, although 246 is not mentioned anywhere in the Lease Amending Agreement.

[7] By April 2017, 152 had still not obtained the building permit. Unable to afford the rent any longer, 245 stopped paying it. 245 asked 152 to waive or reduce the rent, but 152 refused to do so.

[8] On May 1, 2017, 245 wrote to 152 to advise that the new restaurant to be located in the leased premises would be operated by 246 and requested that the original lease and the amending agreement both be changed to reflect that the tenant would now be 246.

[9] 152 responded by re-entering the premises and distraining the chattels of 245. 245 commenced an action for wrongful distraint against 152 in April 2018. 246 was not a party to that action. The action within which this motion is brought was commenced by 246 in August 2019. The motion was served in September 2019, following which 246 sought an order amending its claim. That order was granted by Master Jolley on August 13, 2020. The foregoing facts are taken from the Amended Statement of Claim.

[10] In its claim, 246 alleges that 152’s distraint was illegal because it unreasonably refused to waive or reduce the rent and, instead, took advantage of its own failure to obtain the building permit in a timely way in order to distrain against 245’s chattels.

[11] 152 has not yet delivered a statement of defence.

ISSUE

[12] 152 moved on the basis that 246’s claim is for damages as a third-party beneficiary of the lease and lease amending agreements between 152 and 245. However, 246 submits that its claim is not a contract claim at all. Rather, it contends that its claim sounds in tort and argues that 152 is liable for relational economic loss caused by its wrongful distraint.

[13] The issue is whether 152 owed 246 a duty of care.

ANALYSIS

[14] Rule 21. 01(1)(b) provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action. The law with respect to motions under r. 21(1)(b) is well-settled. No evidence is admissible on the motion: r. 21.01(2)(b). Instead, the motion is to be determined entirely on the pleading. Our Court of Appeal summarized the applicable principles in Castrillo v. Workplace Safety and Insurance Board, 2017 ONCA 121, 136 O.R. (3d) 654, at para. 14, by quoting the following excerpt from Paul M. Perell and John W. Morden, The Law of Civil Procedure in Ontario, 2d ed. (Markham: LexisNexis Canada Inc., 2014), at p. 532:

The following principles apply to a Rule 21 motion to strike a pleading for failing to disclose a reasonable cause of action or defence: (a) the material facts pleaded must be deemed to be proven or true, except to the extent that the alleged facts are patently ridiculous or incapable of proof; (b) the claim incorporates by reference any document pleaded and the court is entitled to read and rely on the terms of such documents as if they were fully quoted in the pleadings; (c) a claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses; the facts pleaded are the basis upon which the claim is evaluated (d) [the] novelty of the cause of action is of no concern at this stage of the proceeding; (e) the statement of claim must be read generously to allow for drafting deficiencies; and (f) if the claim has some chance of success, it must be permitted to proceed. [Internal citations omitted in the original.]

[15] A claim will only be struck if it is plain and obvious that a pleading discloses no reasonable cause of action: Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 17.

[16] As I stated earlier, 246 contends that its claim sounds in tort, rather than contract. It argues that 152 was negligent. To recover in negligence, a plaintiff must prove four things:

(1) that the defendant owed the plaintiff a duty of care;

(2) that the defendant breached of the duty of care;

(3) that the plaintiff suffered damage; and

(4) that the damage was caused, in fact and in law, by the defendant’s breach.

See 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, 450 D.L.R. (4th) 181, at para. 18.

[17] The question in this case is whether the material facts pleaded by 246 are sufficient to establish a duty of care on the part of 152. 246 submits that its claim falls within a category of cases in which courts have recognized a duty of care towards similarly situated plaintiffs and allowed them to recover damages for tortious acts or omissions related to property belonging to another party. To test that submission, a brief discussion about the legal principles involved in determining the scope of liability in negligence is necessary.

[18] In Kamloops (City of) v. Nielsen, 1984 CanLII 21 (SCC), [1984] 2 S.C.R. 2, the Supreme Court of Canada adopted the two-stage test set out by the House of Lords in Anns v. Merton London Borough Council, [1978] A.C. 728 for determining whether a duty of care exists in a particular case. In Anns, the House of Lords held that, in the first stage, the court must determine whether a prima facie duty of care exists. If a prima facie duty of care is found to exist, the court must go on to the second stage to consider whether such a duty should be recognized as a matter of policy.

[19] The Anns test was further refined by the Supreme Court in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, where the court held that foreseeability in the first stage must be supplemented by proximity. The court held, at paras. 30-31:

At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant’s act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care.

On the first branch of the Anns test, reasonable foreseeability of the harm must be supplemented by proximity. The question is what is meant by proximity. Two things may be said. The first is that “proximity” is generally used in the authorities to characterize the type of relationship in which a duty of care may arise. The second is that sufficiently proximate relationships are identified through the use of categories. The categories are not closed and new categories of negligence may be introduced. But generally, proximity is established by reference to these categories. This provides certainty to the law of negligence, while still permitting it to evolve to meet the needs of new circumstances. [Emphasis in original.]

[20] The damages claimed by 246 are for pure economic loss. Pure economic loss is economic loss that is unconnected to a physical or mental injury to the plaintiff’s person, or to physical damage to the plaintiff’s property: Maple Leaf Foods, at para. 17. Canadian law has been cautious about recognizing tort liability for pure economic loss: Canadian National Railway v. Norsk Pacific Steamship Co. 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021, at paras. 9-12; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 CanLII 307 (SCC), [1997] 3 S.C.R. 1210, at para. 43; A.I. Enterprises Ltd. v. Bram Enterprises Ltd, 2014 SCC 12, [2014] 1 S.C.R. 177, at para. 30; Maple Leaf Foods, at para. 19. While there are a number of reasons for this, the spectre of indeterminate liability is high on the list: Bow Valley Husky, at para. 43.

[21] 246 submits, however, that the nature of its claim has already been recognized in law. It contends that it has suffered the type of relational economic loss referred to in the following excerpt from Cooper, at para. 36:

What then are the categories in which proximity has been recognized? First, of course, is the situation where the defendant's act foreseeably causes physical harm to the plaintiff or the plaintiff's property.

Relational economic loss (related to a contract's performance) may give rise to a tort duty of care in certain situations, as where the claimant has a possessory or proprietary interest in the property, the general average cases, and cases where the relationship between the claimant and the property owner constitutes a joint venture: Norsk Pacific Steamship Co.; Bow Valley Husky ... When a case falls within one of these situations or an analogous one and reasonable foreseeability is established, a prima facie duty of care may be posited. [Citations omitted.]

[22] 246 submits that the material facts pleaded in its claim give rise to a possessory or proprietary interest in the allegedly wrongfully distrained chattels. I am unable to agree.

[23] 246 pleads that it was going to operate a Toss Thai franchise in the premises formerly occupied by 245 and operated as MicroTime Café. To have a possessory or proprietary interest in the chattels, 246 would have had to acquire the right to occupy the restaurant in which the chattels were located. As 246 has pleaded, 152 withheld its consent to an assignment of the lease and refused to enter into any new agreement with 246. For this reason, on the facts pleaded, 246 could not have acquired the necessary possessory or proprietary interest.

[24] 246 has not asked for, nor in my opinion should it be given, an opportunity to amend its claim to try to bring itself within the category of cases in which it says it falls. My reasons are two-fold.

[25] First, as the defendant points out, 246 has already been given an opportunity to amend its claim to plead a reasonable cause of action by virtue of Master Jolley’s order of August 2020.

[26] Second, and more importantly, no amount of amendment will save 246’s claim. It is not possible to do away with the material fact that 152 failed or refused to allow 246 to occupy the premises. This allegation is the very basis for 246’s claim that the distraint was illegal. And so long as that fact remains in the claim, 246 cannot assert a possessory or proprietary interest in the distrained chattels.

CONCLUSION

[27] 246 cannot bring itself within the class of cases in which courts have awarded damages for pure economic loss on the basis that it had a possessory or proprietary interest in the distrained chattels. It could not acquire such an interest so long as 152 withheld its consent to allow 246 to occupy the premises, which is the basis upon which it alleges the distraint was unlawful. The defendant’s motion must, therefore, be allowed.

COSTS

[28] 152 was entirely successful on the motion and I am aware of no reason why it should not be awarded its costs.

[29] Both parties submitted bills of costs. 152’s bill on a partial indemnity basis is $5,626.52. I find this to be a reasonable amount in the circumstances. It is several thousand dollars less than the amount that 246 would have sought for costs on the same scale, had it been successful.

ORDER

[30] The motion is allowed. The plaintiff’s claim is dismissed, without leave to amend.

[31] The plaintiff shall pay costs to the defendant in the amount of $5,626.52.

M.G. Ellies R.S.J.

Released: January 26, 2021

COURT FILE NO.: CV-19-625061

DATE: 2012/01/26

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2460907 Ontario Inc.

Plaintiff

– and –

1521476 Ontario Inc.

Defendant

REASONS FOR DECISION

M.G. Ellies R.S.J.

Released: January 26, 2021

2460907 Ontario Inc. v. 1521476 Ontario Inc., 2021 ONSC 634

Case Summary

OVERVIEW

FACTS

ISSUE

ANALYSIS

CONCLUSION

COSTS

ORDER

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 1

Legal Tests 2

Legislation 1