COURT FILE NO.: CV-21-88

DATE: 2022/06/21

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Braysan Properties Inc. “In Trust”

Plaintiff

– and –

Garry Muchos, Michael Muchos, Robert Muchos, The Estate of Marion Muchos, George Alexiou, Leslie McCann, Larry Rozak and Vicky Rozak

Defendants

No counsel appearing for the plaintiff

Constantine Alexiou, counsel for the Defendants Garry Muchos, Michael Muchos, Robert Muchos, The Estate of Marion Muchos, Larry Rozak and Vicky Rozak.

James R.G. Cook and Daria Risteska, counsel for the Defendant George Alexiou

Alex Vigneault, counsel for the Defendant Leslie McCann

HEARD: April 26, 2022

DECISION ON MOTIONS

S.K. Stothart J

[1] The defendants, Garry Muchos, Michael Muchos, Robert Muchos, The Estate of Marion Muchos, Larry Rozak and Vicky Rozak have brought motions under Rule 21.01(1)(b), Rule 21.01(3)(d) and Rule 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to strike out the claim against them without leave to amend on the basis that the statement of claim discloses no reasonable cause of action against them and/or it is frivolous, vexatious and an abuse of process. In the alternative, they seek an order for security for costs in this matter.

[2] The defendant, George Alexiou, has brought a motion under Rule 21.01 to strike the statement of claim against him without leave to amend on the basis that it discloses no reasonable cause of action against him and/or it is frivolous, vexatious and an abuse of process.

[3] The defendant, Leslie McCann, has brought a motion seeking an order setting aside the notation in default with respect to her and seeking an order dismissing the action against her. During the hearing of the matter, counsel for Ms. McCann also sought to have the statement of claim against her struck without leave to amend for the reasons expressed by the other defendants.

[4] For the reasons that follow, I have concluded the following:

a. The order noting Leslie McCann should be set aside;

b. The statement of claim as it relates to Robert Muchos, George Alexiou, Leslie McCann, Larry Rozak, Vicky Rozak should be struck in its entirely, without leave to amend;

c. The statement of claim alleging fraud, inducement of breach of contract, constructive breach of contract and interference with contractual relations as it relates to Garry Muchos, Michael Muchos and the Estate of Marion Muchos, should be struck, without leave to amend;

d. The statement of claim alleging breach of contract as it relates to Garry Muchos, Michael Muchos and the Estate of Marion Muchos should be struck, with leave to amend;

e. That the plaintiff should pay into the court the amount of $150,000 as security for costs within 30 days of today’s order; and

f. That the plaintiff should not be permitted to take any further steps in relation to this action, apart from any appeal of this order, until security for costs have been deposited with the court.

A. OVERVIEW

[5] On November 18, 2020, the plaintiff entered into an agreement of purchase and sale (hereinafter referred to as the “APS”) with the Estate of Marion Muchos, Garry Muchos and Michael Muchos to purchase property located at 1932A Lake Joseph Road, Mactier, Ontario. The agreed-upon purchase price was $1,575,000. For a number of reasons that will be detailed later on, the sale of this property has not closed.

[6] On September 17, 2021, the plaintiff commenced an action against the eight defendants by way of a statement of claim alleging fraud, breach of contract/constructive breach of contract and unlawful interference with contractual relations. The plaintiff seeks various headings of damages totaling over 6 million dollars.

B. HISTORY OF THE MOTION TO STRIKE THE PLEADINGS/SECURITY FOR COSTS

[7] The Muchos and the Rozak defendants originally brought this motion on January 10, 2022. At that time they sought the following:

(1) An order of the court striking the plaintiff’s statement of claim without leave to amend;

(2) In the alternative an order striking the statement of claim with leave to amend only following the plaintiff’s retention of counsel;

(3) In the alternative an order that the plaintiff pay into the court an amount as security for costs and that the plaintiff be prevented from taking any steps in the proceeding until the amount was given;

(4) In the alternative an order directing the plaintiff to retain counsel and deliver a notice of appointment of lawyer within 15 days and that the plaintiff be prevented from taking any steps in the proceedings until a lawyer was retained.

[8] On January 10, 2022, J. Brad Maher appeared and requested an adjournment of the motion on behalf of the plaintiff. J. Brad Maher is the son of Francis Maher who is the director of the plaintiff corporation.

[9] J. Brad Maher advised the court that the plaintiff would be seeking leave of the court to be represented by himself as agent. He also advised that the plaintiff required a court date to seek to reinstate the noting in default of some of the defendants and a court date to bring a motion to amend the pleadings.

[10] The matter was adjourned and a timetable was set for the plaintiff’s motions to proceed in advance of the Muchos and Rozak motions as the outcome of those motions could impact the motion to strike and motion for security for costs. The Muchos and Rozak motions were rescheduled to April 26, 2022.

[11] On February 7, 2022, the plaintiff brought a motion to be represented by an agent. On February 9, 2022, the court dismissed the plaintiff’s motion. The court further ordered that the plaintiff be represented by a lawyer in these proceedings and ordered that J. Brad Maher was precluded from taking any further steps in the court proceedings on behalf of the plaintiff.

[12] Although dates were scheduled for the plaintiff’s other proposed motions to amend their pleadings and to re-instate the notations in default, motion materials were never filed and the dates did not proceed.

[13] In the interim, the court received a motion on behalf of the defendant George Alexiou, seeking an order striking out the statement of claim without leave to amend. The motion was ultimately made returnable on April 26, 2022 as the issues were the same as those advanced by the Muchos and Rozak defendants.

[14] On April 20, 2022, the court received a motion on behalf of the defendant, Leslie McCann seeking that a notation in default with respect to her be set aside and that the action against her be dismissed. That motion was also adjourned to the April 26, 2022 date.

[15] On April 26, 2022, a lawyer did not appear on behalf of the plaintiff. J. Brad Maher appeared and requested an adjournment for a variety of reasons that included the fact that it had not yet retained counsel that could appear on its behalf. For oral reasons, I dismissed the request and heard argument on behalf of the Muchos, Rozak, Alexiou and McCann defendants in relation to their motions.

C. ALLEGATIONS CONTAINED IN THE STATEMENT OF CLAIM

[16] On November 18, 2020, the plaintiff entered into an APS with Garry Muchos, Michael Muchos and the Estate of Marion Muchos (“hereinafter referred to as the owners”) to purchase 1932 A Lake Joseph Road (“hereinafter referred to as the Lake Joseph Property”) with a closing date of September 30, 2021. There were certain conditions attached to the APS.

[17] On November 27, 2020, the plaintiff and the owners agreed by way of Addendum #2, to extend the conditional period to January 31, 2021.

[18] On February 26, 2021, the plaintiff and the owners agreed to a further Addendum #3 which moved the closing date forward to August 31, 2021. In this Addendum the plaintiff waived the financing and inspection conditions. The Addendum further provided that the new closing date would be conditional on whether the plaintiff could obtain building permits that were suitable for new construction contemplated by the plaintiff.

[19] In February 2021, Garry Muchos entered into an agreement to purchase a property in Point-au-Baril, Ontario (“hereafter referred to as the Hemlock property”) with the same closing date of August 31, 2021. Garry Muchos intended to use funds received from the sale of the Lake Joseph Property to pay for the Hemlock property.

[20] On July 13, 2021, the plaintiff and the owners entered into Addendum #7-V3, which moved the closing date forward to August 24, 2021. This Addendum provided that the plaintiff would be given 30 days to arrange a first mortgage of $900,000 and the owners would advance the balance as a vendor take-back mortgage. It was agreed that if the plaintiff was not able to obtain a first mortgage, the Addendum would become null and void and the previously accepted APS would be the only agreement in place.

[21] The plaintiff did not obtain a first mortgage within the 30-day period. This reverted the parties back to the APS with the prior Addendums.

[22] Given that it appeared that the sale of the Lake Joseph property was not going to close by the anticipated date of August 31, 2021, Garry Muchos obtained financing from private lenders to complete his purchase of the Hemlock property. This financing was provided by the Rozak defendants and involved placing a mortgage on the Lake Joseph property.

[23] To date the APS with respect to the Lake Joseph property has not closed.

[24] The plaintiff broadly claims that the defendants engaged in a fraudulent scheme whereby they intentionally frustrated its ability to comply with Addendum #7-V3. The plaintiff claims damages for breach of contract, inducement of breach of contract, constructive breach of contract, intentional interference with contractual relations and fraud.

[25] The following sets out the specific allegations as they apply to each of the defendants.

Garry Muchos, Michael Muchos, the Estate of Marion Muchos: breach of contract, constructive breach of contract, inducement of breach of contract, interference with contractual relations and fraud

[26] The plaintiff claims that between July 13, 2021 and August 24, 2021, the owners breached the terms of the APS contract, constructively breached the terms of the contract, induced the plaintiff to breach the contract, and interfered with the contractual relations of the plaintiffs.

[27] Specifically, the statement of claim alleges that the owners breached the terms of the contract (APS) by:

(a) refusing entry onto or into the property to the plaintiff and its agents in writing for site inspections;

(b) refusing entry onto or into the property to the plaintiff and its appraisers for site inspections to be able to complete the financing in Addendum #7-V3 or otherwise;

(c) did not respond to written requests for site inspections at all, and/or in a timely manner;

(d) refused to talk to or communicate with the Sellers Agent for days to organize these site inspections, and just went dark/ and/or failed to do anything else to help the plaintiff complete the transaction;

(e) refused to give keys to the structures on the property to the Agent or plaintiff verbally and in writing, to allow site inspections by the plaintiff;

(f) refused to complete the chattels list, which is part of the contract in paragraph #4 of the main body of the agreement;

(g) refused to deal with the plaintiff in good faith or at all for 2-3 weeks leading up to the closing, and in part writing to the plaintiff on August 26, 2021 and saying “contact me late next week (meaning September 3, 2021; after the anticipated closing) to review the situation; and

(h) that the defaults of the contract are still ongoing.

[28] The plaintiff further alleges that the owners conspired with the other defendants to create circumstances whereby the plaintiff would not be able to obtain the necessary financing to close on the Lake Joseph Property. The plaintiff alleges that this breached the terms of the APS contract, induced a breach of contract, constructively breached the terms of the APS contract, interfered with contractual relations and was an act of fraud.

Robert Muchos: breach of contract, constructive breach contract, inducement a breach of contract, interference with contractual relations and fraud.

[29] In the statement of claim, the plaintiff alleges that the defendant Robert Muchos had “effective control” of the Lake Joseph property along with the owners. The plaintiff alleges that Robert Muchos had authority over the Estate of Marion Muchos and signed as a guarantor for one of the disputed mortgages. As such, the plaintiff claims Robert Muchos is liable for the torts alleged.

Leslie J. McCann: breach of contract, constructive breach of contract, inducement of a breach of contract, interference with contractual relations and fraud.

[30] In the statement of claim the plaintiff alleges that on or about July 16, 2021, the defendant Leslie J. McCann, a licensed mortgage broker, suggested to the plaintiff that her brother might be able to assist with the financing. The plaintiff alleges that Ms. McCann used this discussion as a pretext to gain access to the property and to speak to the owner. On July 27, 2021, Ms. McCann advised that her brother was not interested in providing financing to the plaintiff.

[31] The plaintiff alleges that on or about July 29, 2021, Ms. McCann introduced the plaintiff to the defendants Larry and Vicky Rozak as a potential source of financing. On August 10, 2021, the Rozaks advised the plaintiff that it would not provide financing.

[32] The plaintiff alleges that on or about July 26, 2021, Ms. McCann introduced the Rozaks to the Muchos as a potential source of financing for the Hemlock property.

[33] The plaintiff alleges that Ms. McCann conspired with the other defendants to create circumstances whereby the plaintiff would not be able to obtain the necessary financing to close on the Lake Joseph Property. This involved an “unlawful mortgage conveyance scheme” whereby funds from the Rozaks were diverted from the plaintiff to Garry Muchos so that he could purchase the Hemlock property.

[34] The plaintiff alleges that this “scheme” breached the terms of the APS contract, constructively breached the terms of the APS contract, induced a breach of the APS contract, interfered with contractual relations and was an act of fraud.

Vicky and Larry Rozak: breach of contract, constructive breach of contract, inducement of a breach of contract, interference with contractual relations and fraud.

[35] The plaintiff alleges that Vicky and Larry Rozak acted as if they were interested in providing the plaintiff with financing. They provided the plaintiff a Lenders Term Sheet on August 1, 2021. They requested a site inspection, which took place on August 2, 2021. Following this they failed to provide information to the plaintiff that it needed to complete the request for financing. Ultimately Ms. McCann terminated the Rozak Mortgage Term Sheet on August 10, 2021.

[36] The plaintiff alleges that the Rozaks were part of the “improper and unlawful mortgage conveyance scheme” with the other defendants which created circumstances whereby the plaintiff would not be able to obtain the necessary funds to close on the Lake Joseph Property. This involved taking funds that should have been advanced to the plaintiff and advancing them to Garry Muchos to purchase the Hemlock property.

[37] The plaintiff alleges that this breached the terms of the APS contract, constructively breached the terms of the APS contract, induced a breach of the APS contract, interference with contractual relations and was an act of fraud.

George Alexiou: breach of contract, constructive breach of contract, inducement of a breach of contract, interference with contractual relations and fraud.

[38] The plaintiff alleges that the defendant lawyer George Alexiou provided legal advice to the Muchos with respect to the APS and as such is vicariously liable for the actions of his clients in relation to this contract. The plaintiff further alleges that George Alexiou assisted his clients with various aspects of the mortgage transaction for the purchase of the Hemlock property.

[39] The plaintiff alleges that because George Alexiou acted as the lawyer for the Muchos defendants, he is vicariously liable for their actions which include breach of contract, constructive breach of contract, inducing a breach of contract, interference with contractual relations and fraud.

Damages:

[40] The plaintiff claims:

a. Against each defendant: $1,000,000.000 (general and special damages) for fraud;

b. Against Garry Muchos, Michael Muchos, Robert Muchos and the Estate of Marion Muchos: $2,000,000.000 (general and special damages) for breach of contract:

c. Against each defendant: $2,000,000.000 (general and special damages) for unlawful interference with contractual relations;

d. Against each defendant an accounting of the proceeds of the $900,000 new first mortgage and to deliver up any surplus proceeds of that accounting to the plaintiff;

e. Against each defendant: $200,000.000 (punitive damages).

[41] In its statement of claim, the plaintiff alleges that $798,120.00 reflects mortgage proceeds that were diverted from the plaintiff.

[42] The plaintiff further submits that the actions of the defendants were so egregious and contrary to public interest that they justify censure by way of punitive damages.

D. THE LAW

[43] Pursuant to Rule 19.03(1) the noting of a defendant in default may be set aside by the court on such terms as are just.

[44] Pursuant to Rule 21.01 (b) of the Rules of Civil Procedure, a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action.

[45] Pursuant to Rule 21.01(3)(d) a defendant may move before judge to have an action stayed or dismissed on the grounds that the action is frivolous or vexatious or is otherwise an abuse of the process of the court.

[46] Pursuant to Rule 25.11, a court may strike out or expunge all or part of a pleading or other document, without or without leave to amend, on the grounds that (b) the pleading is scandalous, frivolous or vexatious or (c) is an abuse of the process of the court.

[47] These provisions are designed to allow for an early and expeditious determination of claims that cannot succeed. Because they deny a litigant of a full trial on the merits of the claim, these provisions must be exercised in the clearest of cases. Wernikowksi v. Kirkland, Murphy & Ain 1999 CanLII 3822 (ON CA), [1999] O.J. No. 4812 (Ont.C.A.) at para 12.

Rule 19.03(1) Setting aside the noting in default

[48] The court has a broad discretion to set aside a noting in default based on the factual and contextual circumstances that arise in each case. Factors to be considered include the behaviour of the plaintiff, the behaviour of the defendant, the length of the defendant’s delay in responding to the pleadings, the reasons for delay, and the complexity and value of the claim involved. Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd., 1991 Carswell 828 (Ont.C.A.). at paras. 18-19.

Rule 21.01(b) Motion to strike pleadings:

[49] Pursuant to Rule 21.01 (b) of the Rules of Civil Procedure, a statement of claim may be struck if: 1. a plaintiff pleads allegations that do not give rise to a recognized cause of action, 2. a plaintiff fails to plead the necessary elements of a recognized cause of action, or 3. the allegations in the pleadings are simply conjecture, assumptions, or speculation unsupported by facts, or mere conclusions of law. Hunter v. Bravener, [2003] O.J. No. 1613 (ONCA), at paras. 3-5; Deep v. Ontario, [2004] O.J. No. 2734 (S.C.J.) at paras. 33-34.

[50] If the cause of action pleaded has been recognized in law, the plaintiff must plead all essential elements and provide a concise statement of the material facts it intends to rely on for the claim. Aristocrat Restaurants Ltd. v. Ontario, [2003] O.J. No. 5331 (Ont.S.C.J.) at paras. 19-20.

[51] In determining whether pleadings should be struck, the court must read the pleadings generously in favour of the plaintiff with allowances for drafting deficiencies. Wellington v. Ontario, 2011 ONCA 274 at para. 14, leave to appeal to S.C.C. refused, [2011] S.C.C.A. No. 258 (SCC), Cishecki v. IBM Canada Ltd., [2003] O.J. No. 364 (Ont.C.A.).

[52] Claims for bad faith torts, such as fraud, bring with them a heightened requirement in pleadings. A pleading that shows a complete absence of material facts to support such a claim is considered frivolous and vexatious. Facts that are irrelevant to the issues in the action, are argumentative, inserted only for colour or that consist of bare allegations, should be struck as scandalous. Wilson v. Toronto Police Service, [2001] O.J. No. 2434 (Ont.S.C.J.) at paras. 66-67, aff’d., 2002 CanLII 4770 (ON CA), [2002] O.J. No. 383 (Ont.C.A.); Williams v. Wai-Ping, [2005] O.J. No. 1940 (Ont.SC.J.) at para 3, aff’d [2005] O.J. No. 6186 (Ont.Div.Ct.); George v. Harris [2000] O.J. No. 1762 (Ont.S.C.J.) at para. 20.

[53] In a motion under Rule 21.01(1)(b) the facts in the claim are accepted as proven, and the court is left to consider the legal sufficiency of the plaintiff’s claim as pleaded, subject to the caveat that allegations based on assumptions or speculation do not need to be accepted as true. Deep v. Ontario, supra. at para. 35.

[54] Where it is “plain and obvious” that the claim has no reasonable prospect of success, it may be struck. Hunt v. T&N plc., 1990 SCC 90 at para 33; Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 27; McCreight v. Canada (Attorney General), 2013 ONCA 483 at para. 17.

[55] Whether a plaintiff’s claim discloses a reasonable cause of action should be considered in light of the remedies the plaintiff seeks. In doing so, the court should consider whether the remedies are available, assuming the truth of the pleadings. Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19 at para 49.

Rule 21.01(3)(d)/ Rule 25.11 Motion to stay, dismiss or strike because the action is frivolous, vexatious or is an abuse of the process of the court.

[56] Any action for which there is clearly no merit may qualify for classification as frivolous, vexatious or an abuse of process. A court should only invoke its authority under rule 21.01(3)(d) in the “clearest cases”. Salasel v. Cuthbertson, 2015 ONCA 115 at para. 8.

[57] As part of this analysis, it must be plain and obvious that the claim cannot succeed. The test is not whether it is unlikely to succeed but rather whether there is no chance of success. Miguna v. Ontario (Attorney General), 2008 ONCA 799 at para. 21.

[58] While evidence may be led as part of a motions pursuant to Rule 21.01(3)(d) or Rule 25.11, the court must ensure that it does not weigh or assess the evidence as if the motion were a trial or a request for summary judgement. Baradaran v. Alexanian, 2016 ONCA 533 at para. 15.

[59] I will now turn to the essential legal elements of each claim made by the plaintiff.

Essential elements of the claim of fraud

[60] Civil fraud involves the following elements: (a) a false representation made by the defendant; (b) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (c) the false representation caused the plaintiff to act; and (d) the plaintiff’s action resulted in a loss. Hryniak v. Mauldin, 2014 SCC 8, at para. 21.

[61] Intent is an essential element in conspiracy and fraud. Where fraud, malice or intent is alleged, Rule 25.06(8) of the Rules of Civil Procedure requires that a pleading contain full particulars, setting out precisely each allegation of wrongful conduct, and the “when, what, by whom and to whom” of the alleged misconduct. MacLean v. National CarWash Solutions, 2020 ONSC 6032, at para. 19.

Essential elements of the claim of breach of contract and constructive breach of contract

[62] The essential elements that must be proven to establish the tort of breach of contract are: (a) the existence of a valid contract between the parties and (b) a breach of a term of that contract, Atlantic Lottery Corp. Inc. v. Babstock, 2020, SCC 219 at para 91.

[63] A constructive breach of contract involves the same elements as a breach of contract. It simply alleges that the terms of the contract were constructively breached by a party to the contract.

[64] It is trite law that a stranger to a contract cannot be sued on that contract. Aspiotis v. Coffee Time Donuts Inc., 1995 CarswellOnt 2887 at para 10.

[65] A plaintiff must establish a causal link between the alleged breach of contract and the damages allegedly suffered. Persaud v. Telus Corporation, 2017 ONCA 479 at para. 10.

Essential elements of the claim of interference with contractual relations

[66] The essential elements that must be proven to establish the tort of interference with contractual relations are (a) the defendant engages in unlawful activity against a third party; (b) in committing that unlawful act, the defendant intended to cause economic harm to the plaintiff; and (c) the act causes economic harm to the plaintiff. Kraik v. Ungar, 2020 ONSC 7221 at paras. 41-44.

[67] Conduct is “unlawful” within the meaning of this tort if it would give rise to a civil claim by the third party, or if it would give rise to a civil claim by the third party had the third party suffered a loss as a result of the conduct. Kraik v. Ungar, at para 42.

Essential elements of the claim of inducing a breach of contract

[68] The elements of a claim of inducing breach of contract are: (1) the plaintiff is a party to a valid and enforceable contract; (2) the defendant is aware of the contract and its terms; (3) the defendant intends to procure a breach of the contract; (4) the defendant’s conduct causes the third party to breach the contract, and (5) the plaintiff suffers damages as a consequence of the breach of contract. Alleslev-Krofchak v. Valcom, 2010 ONCA 557 at paras. 92-97, Correia v. Canac Kitchens (2008), 2008 ONCA 506, 91 O.R. (3d) 353 (Ont.C.A.) at para. 92 and 99; Persaud v. Telus Corporation, 2017 ONCA 479 at para 26.

[69] It is not enough that the defendant ought reasonably to have known that its conduct would cause the third party to breach a contract. A defendant must have intended the breach. Further, it is not enough for the conduct to merely hinder full performance of the contract, there must be an actual breach. Correia v. Canac, at para. 99.

Essential elements of the claim of conspiracy

[70] The plaintiff does not explicitly allege the tort of conspiracy in its statement of claim. Despite this, I have taken into consideration the fact that the plaintiff has not been represented by a lawyer in these proceedings and that conspiracy may be indirectly alleged by the wording contained in the statement of claim with the use of the word “improper and unlawful mortgage scheme”.

[71] There are two torts of conspiracy in Canadian law: conspiracy to injure, and conspiracy to commit an unlawful act. The elements of the tort of conspiracy to injure include: (1) that the defendants acted in combination; (2) that the defendants intended to harm the plaintiff; (3) that the defendants’ conduct caused harm to the plaintiff.

[72] The elements of the tort of conspiracy to commit an unlawful act include: (1) that the defendants acted in combination; (2) that the defendants committed an unlawful act, i.e. a crime, tort, or breach of statute; (3) that the defendants knew or should have known that injury to the plaintiff was likely to occur from their misconduct; and (4) that the defendants’ misconduct in furtherance of the conspiracy caused harm to the plaintiff: Robinson v. Medtronic, Inc., 2009 CanLII 56746 (ON SC), [2009] O.J. No. 4366 (Ont.S.C.J.) at para 90-93.

[73] To plead civil conspiracy, a statement of claim must state with precision and clarity the material facts as to: 1. the parties to the conspiracy and their relationship to each other, 2. the agreement among the defendants to conspire, including the particulars of the time, place, and mode of agreement, 3. the precise purpose or object of the conspiracy, 4. the overt acts alleged to have been done by each of the alleged conspirators in pursuance and furtherance of the conspiracy, including the time, place and nature of the acts, and 5. the injury and damage caused to the plaintiff as a result of the conspiracy. Ontario Consumers Home Services Inc. v. EnerCare Inc., [2014] O.J. No. 3285 (Ont.S.C.J.) at para. 24.

[74] Where it is alleged that there was a conspiracy to commit serious wrongdoing, the material facts of conspiracy must be pleaded with “heightened particularity” and a higher level of material facts. It is not sufficient to simply lump defendants together under a bald allegation that “they conspired”. Ontario Consumers Home Services Inc. v. EnerCare Inc., supra. at para 25-26.

E. ANALYSIS

Should the court set aside the noting of Leslie McCann in default

[75] I am satisfied, having considered the circumstances in this matter, that it would be appropriate and just to set aside the noting of Leslie McCann in default.

[76] This proceeding has been complicated by the fact that the plaintiff corporation did not retain counsel to represent it when it filed the statement of claim as required by the Rule 15.01(2) of the Rules of Civil Procedure nor did it seek leave to be represented by an agent until the issue was raised by the defendants.

[77] When the statement of claim was served and filed, the plaintiff listed J. Brad Maher as “agent for the plaintiff” and provided an address, e-mail address, and phone number.

[78] Ms. McCann retained counsel, Alex Vigneault, shortly after being served with the statement of claim. On September 24, 2021, Mr. Vigneault reached out to J. Brad Maher to advise him that he had been retained and that Ms. McCann was requesting a waiver of defence. Mr. Vigneault also requested that the plaintiff not take any steps to note Ms. McCann in default without written notice to counsel.

[79] On October 5, 2021, J. Brad Maher advised Mr. Vigneault that the plaintiff would grant a waiver of defence to Ms. McCann.

[80] In the interim, Mr. Vigneault determined that the plaintiff corporation was not represented by counsel and that the plaintiff corporation had one director, Francis Maher. It was unclear what role J. Brad Maher had in the matter. On October 8, 2021, Mr. Vigneault advised J. Brad Maher that he would not communicate with him further until he received a court order with respect to representation for the plaintiff.

[81] J. Brad Maher advised Mr. Vigneault on October 12, 2021 that the plaintiff would be filing a motion to seek leave to be represented by himself, as agent. Mr. Vigneault received no further communication from the plaintiff.

[82] On October 18, 2021, J. Brad Maher requisitioned the court to have Ms. McCann noted in default. Ms. McCann had not filed a statement of defence and so the registrar noted Ms. McCann in default.

[83] On December 12, 2021, counsel for the Muchos and Rozak defendants advised Mr. Vigneault that Ms. McCann had been noted in default. When Mr. Vigneault’s law firm followed up with the Registrar’s office in January, 2022, they confirmed that indeed Ms. McCann had been noted in default on October 18, 2021.

[84] In February, 2022, Mr. Vigneault wrote to J. Brad Maher expressing his concern that Ms. McCann had been noted in default despite earlier discussions and knowledge that she was represented by counsel and wished to defend the action. Mr. Vigneault indicated that Ms. McCann would now have to bring a motion to set aside the noting in default. On February 4, 2022, J. Brad Maher advised that he would seek the plaintiff’s instructions with respect to consenting to setting aside the notation in default.

[85] On February 9, 2022, the court released its decision and ordered that the plaintiff be represented by counsel and that J. Brad Maher was precluded from taking further steps in the proceedings.

[86] On February 14, 2022, Mr. Vigneault received an e-mail purporting to be from “Francis Maher, interim agent for the plaintiff” advising that he would provide the plaintiff’s position with respect to a request to set aside the noting in default by March 1, 2022.

[87] I am satisfied that Ms. McCann intended to defend the action and took appropriate and timely steps to retain counsel shortly after being served with the statement of claim. Further, I am satisfied that the plaintiff was aware that Ms. McCann was represented by counsel and intended to defend the action. Despite this knowledge, the plaintiff moved forward and requisitioned Ms. McCann to be noted in default without the courtesy of advising Ms. McCann or her counsel.

[88] Further, J. Brad Maher requisitioned the court to note Ms. McCann in default at time when he was aware that he had no authority to represent the corporation in this action.

[89] Given all of the circumstances, I am satisfied that the noting in default for Ms. McCann should be set aside.

Should the claim of fraud be struck

[90] An essential element of the tort of fraud is that the defendant must have made a false representation to the plaintiff that caused the plaintiff to suffer damages.

[91] The plaintiff’s claim sets out that on or about July 29, 2021, the plaintiff was led to believe that the Rozaks “might” provide financing for the first mortgage for the Lake Joseph property. The plaintiff claims that this was a ruse. The Rozaks were never going to provide financing to the plaintiff, instead the financing was going to be diverted to the defendant Garry Muchos to purchase the Hemlock property.

[92] The plaintiff claims that during the period of August 1 to August 10, 2021, Ms. McCann and the Rozaks pretended to be interested in providing financing to the plaintiff and provided some minimal paperwork to start the process. In the meantime, Ms. McCann had already introduced the Rozaks as a source of financing to the Muchos on or around July 26, 2021. By August 10th, the plaintiff was made aware that the Rozaks would not be providing it with financing.

[93] The plaintiff sets out in its statement of claim that between August 3rd to 9th, 2021, it was seeking financing from other potential lenders and by August 9, 2021 it had received various lending commitments from other lenders from whom the plaintiff had borrowed from before that would accommodate the August 24, 2021 closing date.

[94] Based on the pleadings, the plaintiff does not claim that any of the defendants made a false representation. At its highest, the plaintiff claims it was “led to believe” that the Rozaks “might” provide financing. There is nothing to demonstrate that this was false.

[95] In any event, the plaintiff does not allege that it relied on a false representation to its detriment. It did not act, or fail to act, based on the representation that the Rozaks might provide financing. The plaintiff sets out in paragraph 29 of its statement of claim that it actively sought out and obtained commitments from other lenders during the same period it was in discussions with the Rozaks. Indeed, the plaintiff states that it had obtained lending commitments from other lenders that could accommodate the closing date prior to being advised by the Rozaks that they would not provide financing.

[96] Simply put, there is no evidence that the alleged ruse” or “scheme” in any way prejudiced the plaintiff in obtaining the financing it needed to close on the Lake Joseph Property.

[97] Given the essential elements of fraud are not set out in the facts as pleaded by the plaintiff, I conclude that it is plain and obvious that the claim of fraud against all of the defendants has no prospect of success. I also conclude that the claim of fraud is frivolous, vexatious and scandalous as there is simply no basis for this serious claim on the facts as alleged by the plaintiff. As such, the claim of fraud should be struck.

Should the claims of breach of contract and/or constructive breach of contract be struck

[98] It is plain and obvious that the claims of breach of contract or constructive breach of contract as against the defendants Robert Muchos, Leslie McCann, Vicky Rozak, Larry Rozak and George Alexiou cannot succeed. None of these defendants are parties to the contract. They cannot be held liable for a contract that they did not enter into. As such, those claims should be struck as being frivolous and vexatious.

[99] The only defendants against whom a claim of breach of contract and/or constructive breach of contract can be brought are Garry Muchos, Michael Muchos and the Estate of Marion Muchos as they are the signatories to the APS in relation to the Lake Joseph Property. They are the parties to the contract.

[100] With respect to the owners, the plaintiff claims that these defendants breached the terms of the APS by refusing entry onto or into the property to the plaintiff and its agents in writing for site inspections in the time period between July 13, 2021 and September 3, 2021, by not completing a chattels list, and by failing to communicate effectively with the plaintiff in an effort to complete the closing.

[101] With respect to the issue of site inspections, I note that the condition related to site inspections (condition #8) had been waived by the parties in the Addendum #3, dated February 26, 2021.

[102] Assuming there remained a condition in the contract that required the owners to permit site inspections, the plaintiff fails to set out any particulars with respect to requests made for site inspections that were refused by the owners.

[103] The plaintiff states at paragraph 26 of the statement of claim that it attended the property for site inspections on July 26th and July 28th, 2021. This is inconsistent with its earlier claims in paragraph 10.

[104] Finally, the plaintiff fails to establish a causal connection between an alleged failure to permit or assist with site inspections or an alleged failure to complete a chattels list with any damage suffered by the plaintiff as a result.

[105] Given the lack of particulars to support its claim of breach of contract and/or constructive breach of contract and lack of particulars with respect to any damages caused, I conclude that the statement of claim related to these allegations should be struck as against Garry Muchos, Michael Muchos and the Estate of Marion Muchos.

Should the claim of inducement of breach of contract be struck

[106] The claim of inducement of breach of contract is difficult to discern from the pleadings, particularly since the plaintiff claims that this tort was committed by all of the defendants.

[107] In order to find a party liable for inducing a breach of contract the court must find that the defendant induced a third party to breach a contract and that the third party in fact breached the contract. The defendant is, in essence, found to be an accessory to the unlawful conduct by the third party. Alleslev-Krofchak v. Valcom Ltd., 2010 ONCA 557 at para 97.

[108] It is unclear from the pleadings if the plaintiff is alleging that some of the defendants induced the owners to breach the contract; or if the plaintiff is alleging that all of the defendants induced the plaintiff to breach the contract.

[109] There are no facts pleaded by the plaintiff that support scenario number one, where it is alleged that some of the defendants induced the owners to breach the contract. There are no facts pleaded that support a claim that some of the defendants induced the owners to prevent site inspections, to not complete the chattels list, or to effectively communicate with the plaintiff.

[110] There are no facts pleaded by the plaintiff that support scenario number two, where it is alleged that the defendants induced the plaintiff to breach the terms of the contract. The plaintiff does not allege in its statement of claim that it breached the terms of the APS contract. The owners could not have sued the plaintiff for breach of contract by failing to obtain financing. If the plaintiff failed to obtain the necessary financing, Addendum #7 V-3 provided that the parties would simply return to the terms of the earlier APS.

[111] Finally, the plaintiff does not claim that any damages flowed from an inducement to breach the APS contract.

[112] I find that it is plain and obvious that the claim of inducing a breach of contract, whether it be in relation to some defendants, or all of the defendants, has no prospect of success and should be struck without leave to amend. I also conclude that the claim of inducing a breach of contract is frivolous and vexatious as there is simply no basis for this claim.

Should the claim of interference with contractual relations be struck

[113] An essential element of the tort of interference with contractual relations is that the defendant must have engaged in unlawful activity against a third party with the intent of harming the plaintiff economically.

[114] Assuming that all of the facts pleaded in the statement of claim are true, the plaintiff sets out the following facts in support of its claim of interference with contractual relations:

a. There was an agreement with the owners to purchase the Lake Joseph property, subject to conditions;

b. One of those conditions required the plaintiff to obtain suitable financing for a first mortgage;

c. The plaintiff discussed financing with the Rozaks;

d. The Rozaks ultimately did not agree to provide financing to the plaintiff;

e. The plaintiff obtained financing from other lenders; and

f. The Rozaks provided financing to Garry Muchos in relation to a separate purchase of the Hemlock property.

[115] The plaintiff does not allege in the statement of claim that any of the defendants committed an unlawful act against a third party with the intent to harm the plaintiff.

[116] There is no basis to conclude that the agreement by the Rozak defendants to provide financing to Garry Muchos was an unlawful act. The Rozaks are free to lend money to whoever they choose.

[117] While the plaintiff describes this as an “improper and unlawful mortgage scheme” it provides no factual basis to support this claim. The plaintiff’s claim is simply a bald assertion unsupported by any facts upon which a court conclude that the agreement was “unlawful”.

[118] With respect to the claim against George Alexiou, the court notes that Mr. Alexiou was counsel for the Muchos defendants in the course of real estate transactions involving the Lake Joseph property and the Hemlock property. With respect to both transactions, George Alexiou owed no duty of care to the plaintiff in the course of contractual relations. He cannot be held liable for providing legal advice and assistance that was favorable to his clients as part of the contractual relations. 9383859 Canada Ltd. v. Saeed, 2020 ONSC 4883 at para 27.

[119] While there may be narrow and exceptional circumstances where a lawyer can be held to owe a duty of care to a non-client third party, I find that those circumstances do not arise in this case. In this case the plaintiff states that it had its own legal counsel during the real estate transaction involving the Lake Joseph property.

[120] As such, I conclude that it is plain and obvious that the claim of interference with contractual relations as against all defendants has no reasonable prospect of success. Further, I conclude that the claim is frivolous and vexatious as against all parties and as such it should be struck.

Despite not being specifically pled, should the plaintiff be permitted to advance a claim of conspiracy

[121] In the event that the failure to plead conspiracy was a drafting error, I will go on to assess whether there is a basis for this claim such that leave should be granted to amend the claim to include this tort.

[122] Given that the statement of claim refers to a conspiracy to engage in a “unlawful mortgage scheme” I will assume the plaintiff is referring to a conspiracy to perform an unlawful act.

[123] Turning to the essential elements of unlawful conduct conspiracy, the plaintiff must allege that the defendants: (a) acted in combination, by agreement or with a common design; (b) their conduct was unlawful; (c) their conduct was directed at the plaintiff; (d) the defendants knew that, in the circumstances, injury to the plaintiff would likely result; and (e) their conduct caused injury to the plaintiff.

[124] An essential element of the tort of unlawful conduct conspiracy is the existence of an unlawful act. Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460 at paras. 26-28.

[125] I have already concluded that the actions of the defendants in this case, as they relate to the decision not to provide financing to the plaintiff and the decision to provide financing with respect to the Hemlock property, did not amount to an unlawful act. The Rozaks were free to provide financing to whoever they wished.

[126] Further, the plaintiff does not allege in the statement of claim that it could not obtain financing from other lenders or that this has in any way prevented it from closing on the APS. As such, it suffered no harm from as a result of the Rozaks’ decision not to provide financing.

[127] As such, I conclude that it is plain and obvious that any claim related to unlawful conduct conspiracy against any of the defendants has no reasonable prospect of success and should not be permitted.

Should the court grant leave to amend any of the pleadings struck

[128] An amendment can cure a deficient statement of claim. Amendments should be presumptively approved unless they would occasion 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 action: Anderson Consulting Ltd. v. Canada (Attorney General) 2001 CanLII 8587 (ON CA), [2001] O.J. No. 3576 (Ont.C.A.) at para 37.

[129] Leave to amend pleadings should be refused only in the clearest of cases. Piedra v. Copper Mesa Mining Corporation, 2011 ONCA 191 at paras. 93-94; Aristocrat Restaurants Ltd. v. Ontario, supra. at para.85.

[130] As I have outlined above, I have found that all of the claims against the defendants Robert Muchos, George Alexiou, Leslie J. McCann, Larry Rozak and Vicky Rozak are frivolous and vexatious. These defendants were never parties to the APS contract. I find that their actions in relation to the real estate transaction involving the Lake Joseph property could not form the basis for any claim in tort. As such, these claims are struck without leave to amend.

[131] With respect to the claims of fraud and interference with contractual relations against Garry Muchos, Michael Muchos and the Estate of Marion Muchos, I conclude that these claims are frivolous and vexatious. For the reasons outlined above, there is no evidence of fraud. Further, these defendants cannot be held liable for the tort of interfering with contractual relations when they are parties to the actual contract. As such, these claims are struck without leave to amend.

[132] Finally, with respect to the claim of breach of contract, I conclude that the plaintiff has failed to provide sufficient particulars with respect to when and how the contract was allegedly breached (i.e. specific instances when the plaintiff was denied the opportunity to inspect the property, when the failure to complete the chattel list occurred and how the failure to communicate breached a specific term in the contract). Further, the plaintiff has failed to set out how any alleged breach caused the damages it seeks.

[133] The defendants argue that a date had already been scheduled for the plaintiff to amend its statement of claim and the plaintiff chose not to pursue this motion. The defendants argue that the court should not grant leave to amend given the plaintiff has already been given an opportunity to amend its pleadings.

[134] I am mindful that the plaintiff remains unrepresented by counsel, despite the court’s February 9, 2022 order that it retain counsel. I am reluctant to refuse leave to amend the pleadings as they relate to breach of contract on the basis of the failure of the plaintiff to pursue this on an earlier occasion given the lack of legal represenation at that time.

[135] As such, the claim of breach of contract as against Garry Muchos, Michael Muchos and the Estate of Marion Muchos is struck, with leave to amend.

RULE 56.01(1) – MOTION FOR SECURITY FOR COSTS

[136] Given that I have granted leave to amend the statement of claim only as it relates to an allegation of breach of contract against the defendants, Garry Muchos, Michael Muchos and the Estate of Marion Muchos, I must now go on to consider whether the plaintiff should be ordered to provide security for costs.

[137] The defendants submit that Rule 56.01(1)(d) and (e) are applicable in this case. They submit that the plaintiff is a corporation, that the action is frivolous and vexatious and there is good reason to believe it has insufficient assets in Ontario to pay the costs of the defendant.

[138] The defendants point to the following in support of its submission that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant:

a. The action has been brought by a nominal plaintiff, for a beneficiary that has not been disclosed;

b. The defendants have been unable to find any real property owned by Braysan Properties Inc. in Ontario;

c. There are two outstanding costs orders that have not been paid by the plaintiff;

d. When the plaintiff registered a caution on the property it claimed it purchased the Lake Joseph Property for $0, which avoided the necessity of paying the required land transfer tax;

e. The plaintiff provided a fictitious address in the statement of claim;

f. The plaintiff has not retained counsel in this action, despite the court’s February, 2022 order that it was required to do so; and

g. The costs expected to be incurred by the defendants in this action exceed $140,000, on a partial indemnity basis. In support of this, the defendants have provided a draft bill of costs contained at exhibit A to the affidavit of Carolyn Niro dated December 9, 2021.

[139] The defendants further submit that the action is frivolous and vexatious and as such an order for security for costs should be granted.

[140] In a motion pursuant to Rule 56.01, the defendant must only establish that there are reasonable grounds to believe that a plaintiff has insufficient assets to answer for costs. Warren Industrial Feldspar Co. v. Union Carbide Canada Ltd., 1986 CanLII 2683 (ON SC), 1986 CarswellOnt 552 (Ont.H.C.) at para. 23.

[141] A court may exercise its discretion and decline to award security for costs where such an award would be unjust. This discretion should be exercised with caution and based on material that shows special circumstances such as a basis to conclude that such an order would deprive the plaintiff from pursuing a valid cause of action. Warren Industrial Feldspar Co. v. Union Carbide Canada Ltd, supra at para 27.

[142] In the course of these proceedings, the plaintiff has acted in a manner that has caused unnecessary cost and delay to the defendants. This has included a failure to retain counsel as required by the Rules and repeated requests for various forms of relief without proper materials. There have already been two costs awards made against the plaintiff.

[143] Based on the materials filed on behalf of the Muchos defendants, I am satisfied that there is good reason to believe that the corporate plaintiff has insufficient assets to answer an award of costs in this matter.

[144] I am satisfied that it would be appropriate to order that before the plaintiff can take any further steps in these proceedings (other than an appeal of this order) that the plaintiff pay into the court the amount of $150,000 as security for costs.

ORDERS

[145] For the reasons outlined above, the court orders the following:

1. The order noting Leslie McCann is set aside;

2. The statement of claim as it relates to Robert Muchos, George Alexiou, Leslie McCann, Larry Rozak, Vicky Rozak is struck in its entirely, without leave to amend;

3. The statement of claim alleging fraud, inducement of breach of contract, constructive breach of contract and interference with contractual relations as it relates to Garry Muchos, Michael Muchos and the Estate of Marion Muchos, is struck, without leave to amend;

4. The statement of claim alleging breach of contract as it relates to Garry Muchos, Michael Muchos and the Estate of Marion Muchos is struck, with leave to amend;

5. The plaintiff is ordered to pay into the court the amount of $150,000 as security for costs within 30 days of today’s order; and

6. The plaintiff shall not be permitted to take any further steps in relation to this action, apart from any appeal of this order, until security for costs have been deposited with the court.

COSTS OF THIS MOTION

[146] If the parties cannot agree about the matter of costs, they make submission in writing beginning with submissions on behalf of the defendants to be submitted within fifteen (15) days of today date and submissions on behalf of the plaintiff to be submitted ten (10) days from receipt of the defendants’ submissions.

Justice S.K. Stothart

Released: June 21, 2022

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Braysan Properties Inc. “In Trust”

Plaintiff

– and –

Garry Muchos, Michael Muchos, Robert Muchos, The Estate of Marion Muchos, George Alexiou, Leslie McCann, Larry Rozak and Vicky Rozak

Defendants

DECISION ON MOTIONS

Justice S.K. Stothart

Released: June 21, 2022