Court File and Parties
COURT FILE NO.: CV-17-73750
DATE: 2021/12/02
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Salvatore Falsetto, Plaintiff
AND:
Salvatore Fillipo Falsetto a.k.a. Sam Falsetto and Falsetto Homes Inc., 99 Cartier St. Apartments Inc., Clarence Street Apartments Inc., Bronson Ridge Apartments Inc., Defendants
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Raymond Murray and Avery Yandt, for the Plaintiff, moving party
Thomas G. Conway and Chris Trivisonno, for the Defendants, responding parties
HEARD: October 15, 2021
DECISION AND REASONS
[1] The plaintiff seeks leave to amend the statement of claim. This is resisted by the defendants who contend that the plaintiff is seeking to add new causes of action outside the limitation period and that the motion will disrupt the litigation timetable and force the adjournment of the trial scheduled for February. In either case, given the advanced stage of the litigation, the defendants argue that the amendments create prejudice that cannot be addressed by costs alone.
Background
[2] The plaintiff (“Salvatore”) alleges that his son, (“Sam”) has appropriated or misappropriated funds belonging to the plaintiff for the benefit of Sam and the corporate defendants controlled by him. It is Salvatore’s position that Sam misused a power of attorney and misused funds advanced to him by Salvatore to build his own wealth instead of that of his father. Salvatore claims that he always believed Sam was protecting his interests and Salvatore had an ownership interest in the properties and assets acquired using his funds. He claims to have been shocked when he discovered in 2016 that was not the case.
[3] This action was started in 2017. The claim seeks, and has always sought, declaratory relief finding that Sam was a trustee for his father, breached his fiduciary duties and misappropriated Salvatore’s assets. Further relief includes an order that all right, title and interest in certain listed properties are held in trust for the plaintiff, an order for an accounting, a tracing order, a declaration of constructive trust, disgorgement of profits, damages, special damages and punitive damages.
[4] There have been flurries of motion activity related to certificates of pending litigation and to disputes over production and discovery. The action was also case managed. On June 19, 2020, the plaintiff served an amended statement of claim and the defendants consented to those amendments. Although discoveries took place based on those amendments, for some reason the plaintiff never issued the amended claim.
[5] There was a discovery motion earlier this year before Associate Justice Kaufman. In his reasons Kaufman AJ detailed the allegations and the history of the proceeding. He noted that there were amendments that had been agreed upon, but not formalized and a further set of amendments which were opposed.[^1] This motion was subsequently launched to obtain leave for both sets of amendments.
[6] As a consequence, the proposed amended claim contains the amendments that were to have been made in June of 2020 and a further set of amendments which the plaintiff proposes to add now. One of the amendments which is not opposed is to delete the Canadian Imperial Bank of Commerce (CIBC) as a defendant and to remove the relief sought against the bank in the original pleading. The other additions are primarily details of properties owned by Sam or the corporations which the plaintiff wishes to include in the claim. The net result is to almost double the length of the original pleading.
Removal of CIBC as a defendant
[7] Removal of a party from the litigation is governed by Rule 5.04 (2).[^2] Since there is no opposition to deleting CIBC as a party and it simplifies the litigation, it is appropriate to grant leave. CIBC will be removed as a party and the title of the proceedings will be amended accordingly.
The law on Pleading Amendments
[8] Leave to amend a pleading is governed by Rule 26.01. This rule provides that “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.” The rule means what it says. Amendments may be sought at any stage of a proceeding, but only to the extent that it is necessary to impose costs or other terms to remedy prejudice will the court do so.[^3] On the other hand, if costs and other terms are insufficient to address prejudice, an amendment should be denied.[^4]
[9] The jurisprudence is clear that an amendment should be denied if the plaintiff is seeking to add a new cause of action in the face of a limitation period that has clearly expired. Prejudice may also be presumed if the amendment is brought late in the process without an adequate explanation and in any event an amendment will be denied if it is not a proper pleading or is an abuse of process. The principles applicable to such motions were set out in detail by the Court of Appeal in 2017 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: Iroquois Falls Power Corp. v. Jacob Canada Inc., 2009 ONCA 517, [2009] O.J. No. 2642 and Andersen Consulting Ltd. v. Canada (Attorney General), 2001 CanLII 8587 (ON CA), [2001] O.J. No. 3576 (footnotes and hyperlinks not included)
The amendment may be permitted at any stage of the action: Whiten v. Pilot Insurance Co. (1996) 1996 CanLII 8109 (ON SC), O.J. No. 227 (footnotes and hyperlinks not included)
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: Iroquois, at paras. 20-21; and Mazzuca v. Silvercreek Pharmacy Ltd. (2001) 2001 CanLII 8620 (ON CA), O.J. No. 4567 (footnotes and hyperlinks not included)
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: King's Gate Developments Inc. v. Drake (1994) 1994 CanLII 416 (ON CA), O.J. No. 633 and Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1995) 1995 CanLII 7105 (ON SC), O.J. No. 2220 (footnotes and hyperlinks not included)
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: Hanlan v. Sernesky (1996) 1996 CanLII 1762 (ON CA), O.J. No. 4049, and Andersen Consulting. (footnotes and hyperlinks not included)
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: Family Delicatessen Ltd. v. London (City), (2006) 2006 CanLII 5135 (ON CA), O.J. No. 669 (footnotes and hyperlinks not included)
The onus to prove actual prejudice lies with the responding party: Haikola v. Arasenau (1996) 1996 CanLII 36 (ON CA), O.J. No. 231 and Plante v. Industrial Alliance Life Insurance Co. (2003) 2003 CanLII 64295 (ON SC), O.J. No. 3034 (footnotes and hyperlinks not included)
The onus to rebut presumed prejudice lies with the moving party: Family Delicatessen. (footnotes and hyperlinks not included)
Analysis
[10] As I indicated at the outset, there were amendments contained in a proposed amended statement of claim served in June of 2020. Those amendments were not opposed, and discoveries were conducted on the basis of the amended claim. Those amendments will be permitted.
[11] The opposed amendments seek to add many more particulars of properties, assets, loans or transfers of funds which the plaintiff asserts were improper. It is not admitted that all of these additional transactions took place and there is some evidence that some of them were cancelled transactions.
[12] I do not agree with the defendants that adding this additional detail constitutes new causes of action. The action has always sought an accounting for all use of funds, a declaration of trust over all property held directly or indirectly by Sam and a tracing remedy. If Salvatore is successful and Sam has to account and if these newly listed transactions involve funds taken from Salvatore or even funds derived from properties acquired with Salvatore’s funds, they may ultimately fall within the scope of this litigation. For that reason, I would give little weight to the argument advanced by the defendants that some of the records may no longer be available. If Sam is ultimately found to have misappropriated funds, is called upon to account and has not preserved records that will be a significant problem for him, but it is not a reason to deny the amendments in the context of this litigation.
[13] I do agree however that the new amendments are improper, and those portions of the proposed claim should be denied. I reach this conclusion for two reasons. Firstly, as the defendants state, this action was case managed and there is a litigation timetable in place leading up to the trial in February. It is also relevant that the plaintiff will turn 92 when the trial is scheduled to begin and there has been an unreasonable delay in bringing this motion. Expanding the statement of claim to over 200 paragraphs and doubling the number of properties listed in the schedule is bound to require additional production and discovery and would also require those transactions to be explored at trial. Delaying the litigation and lengthening the trial at this stage is prejudicial to the defendants.
[14] Conversely, denying the additional amendments is not prejudicial to the plaintiff. I regard the attempt to add a list of transactions to the statement of claim to be unnecessary. The question at the heart of the litigation is whether Salvatore gifted funds to Sam, approved of Sam’s use of the funds or whether Sam was otherwise entitled to draw on those funds. The question of what use was made of the funds is relevant to proving entitlement to equitable remedies such as tracing or disgorgement of profits, but it is not necessary to plead every possible transaction that might be reached by those remedies. To do so turns the discovery process into a tracing exercise and effectively allows the remedy before entitlement has been proven.
[15] Finally, and perhaps most importantly, I am in full agreement with the defendants that the proposed pleading amendments are an attempt to plead around the decision made by Kaufman AJ on the proper scope of production and discovery and as such they constitute an abuse of process. Although that motion was specifically directed to production of books and records of the corporations in advance of trial, the Associate Judge dealt generally with the issue of “tracing in advance of trial”. It is worth quoting part of that decision which can be found under the heading of “Is the plaintiff entitled to a tracing order before trial”[^5]:
[11] Salvatore argues that where tracing and liability are intertwined, a defendant is not shielded from its discovery obligations merely because the evidence sought amounts to a tracing order. [2] He also argues that the records sought are relevant to his allegation that the defendants conspired with each other to remove his assets and to redirect them to Sam and the corporate defendants’ use. Salvatore argues that he should be given wide latitude to obtain evidence on allegations of conspiracy. [3]
[12] In Waxman v. Waxman,[4] this Court held that a plaintiff seeking a tracing order did not have to call evidence at trial about the transfer of the trust funds into the hands of others. If Courts required parties to call such evidence at trial, the cost and length of litigation would be greatly increased. [5] The defendants were ordered to submit to cross-examination and discovery to permit the plaintiffs to recover the misappropriated trust funds after liability had been proved at trial. Lane J. came to the same conclusion in Cohen v. Debbie Gail Zagdanski Trust.[6] Tracing occurs after the plaintiff has established a proprietary interest at trial and not before: “Until the constructive trust is proved, disclosure for the purposes of tracing is inappropriate”.[7] The Court emphasized that the broad exploration of a defendant’s financial records would be costly, time consuming, highly intrusive, and unnecessary before entitlement was determined.
[13] I accept that disclosure may be appropriate where documents relevant to a tracing order also relate to liability. However, I am not persuaded that the financial records requested here are relevant to liability.
[16] I adopt this statement of principle. Adding numerous unproven transactions to the pleading and to the trial risks making the trial more “costly, time consuming … and unnecessary” before entitlement is determined.
Conclusion and Order
[17] In conclusion, the plaintiff’s motion is granted in part. The statement of claim may be amended to delete the claim against CIBC and may be amended to incorporate the amendments that were either contained in the previous amended claim that was served but not issued. Any additional proposed amendments that were unopposed may also be added, but the amendments that were opposed (highlighted in yellow in the version of the proposed pleading submitted by counsel) shall not be included.
[18] The amended claim is to be delivered within five days and the defendants may, if necessary, amend their defences. Amended defences are to be delivered no later than January 7, 2022.
[19] I do not believe these amendments will give rise to further production and discovery since I was advised that the previous discovery took place on the basis of the prior draft amended claim, but it is possible that some minor issue will have been overlooked or will appear to have more significance once the revised pleadings have been exchanged. In that case each party may have up to two hours of further discovery to be completed by January 21, 2022.
Costs
[20] Counsel may be able to agree on costs or may agree that those costs be determined by the trial judge. The defendants should be entitled to the cost of amending their statements of defence if any and to the cost of conducting a further discovery if that is necessary. I will, if necessary, hear submissions on the costs of the motion.
Mr. Justice C. MacLeod
Date: December 2, 2021
COURT FILE NO.: CV-17-73750
DATE: 2021/12/02
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Salvatore Falsetto, Plaintiff
AND:
Salvatore Fillipo Falsetto a.k.a. Sam Falsetto and Falsetto Homes Inc., 99 Cartier St. Apartments Inc., Clarence Street Apartments Inc., Bronson Ridge Apartments Inc., Defendants
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Raymond Murray and Avery Yandt, for the Plaintiff, moving party
Thomas G. Conway and Chris Trivisonno, for the Defendants, responding parties
DECISION anD REASONS
Regional Senior Justice Calum MacLeod
Released: December 2, 2021
[^1]: See 2021 ONSC 4168 [^2]: Rules of Civil Procedure, RRO 1990, Reg. 194, as amended to October 15, 2021 [^3]: See King’s Gate Developments v. Drake, (1994) 1994 CanLII 416 (ON CA), 17 O.R. (3d) 841, 23 C.P.C. (3d) 137 (CA) [^4]: See Tutt v. Ishakis, 2020 ONSC 5711 (Div Ct.) [^5]: Falsetto v. Salvatore Fillipo Falsetto a.k.a. Sam Falsetto et al, 2021 ONSC 4168 @ paras 11 - 13