Court File and Parties
COURT FILE NO.: CV-19-3182-00A1 DATE: 20220120 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Kirubakaran Mahendran, Plaintiff AND: 9660143 Canada Inc., Sandeep Singh, 1713691 Ontario Inc. and Karl Nodel, Defendants AND: The Nationwide Groups Ltd., Third Parties
BEFORE: The Honourable Justice C. Boswell
COUNSEL: Hilary Book and Lia Bortiz for the moving party, The Nationwide Groups Ltd. Sandeep Singh, in person and for 9660143 Canada Inc.
HEARD: January 18, 2022
ENDORSEMENT on Rule 21 Motion
Overview
[1] Civil proceedings in Ontario are governed by the Rules of Civil Procedure. The overarching purpose of the Rules is reflected in r. 1.04: they are designed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.
[2] Sometimes it is plain and obvious that a claim has no merit. The just, most expeditious and least expensive way to deal with meritless claims is to dismiss them summarily. Rule 21 provides the mechanism to do just that. It provides that a party may move to strike out a pleading on the ground that it discloses no reasonable cause of action or defence.
[3] Nationwide moves under r. 21.01(1)(b) to strike the third party claim of Mr. Singh and 9660143 Canada Inc. (“966”) on the basis that the claim discloses no reasonable cause of action against it.
[4] Nationwide is alleged to have prepared an appraisal of the value of a property in Markham owned by a numbered company controlled by Mr. Singh. Mr. Singh had agreed to sell the property to a third party. The third party’s lender commissioned the appraisal. It came back at more than a half a million dollars less than the agreed-upon purchase price. The purchaser refused to close. Mr. Singh resold the property at a loss. He claims Nationwide’s appraisal was negligently performed and he claims damages against them for his losses.
[5] Central to Nationwide’s position is the assertion that it did not owe Mr. Singh or his numbered company a duty of care. It says, moreover, that Mr. Singh and his company did not, at any time, rely on any appraisal report prepared by Nationwide. In the result, any claim against Nationwide, grounded in negligence, will fail.
[6] For the reasons that follow, I agree with Nationwide. The third party claim is struck, without leave to amend.
THE LEGAL FRAMEWORK
Rule 21 Motions
[7] The principles that govern r. 21 motions are straightforward and well-settled.
[8] The motions judge should only strike a claim under r. 21.01(1)(b) if it is plain and obvious that there is no reasonable prospect that it can succeed. See Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990], 2 S.C.R. 959 at para. 33. The motions judge must read the pleadings as generously as possible and accommodate inadequacies insofar as possible. He or she must also proceed on the assumption that the allegations in the claim are true, unless they are patently ridiculous or incapable of proof. See Frank v. Legate, 2015 ONCA 631 at para. 36.
[9] Rule 21.01(2) prohibits the filing of evidence on r. 21 motions. That said, the court is entitled to review the documents referred to in the pleadings as part of the process of assessing the substantive adequacy of the claim. See Gaur v. Datta, 2015 ONCA 151 at para. 5. For the purposes of this motion, that means the court may review the appraisal report in issue.
Negligent Misrepresentation
[10] The third party claim against Nationwide is grounded in the tort of negligent misrepresentation.
[11] The essential elements of a negligent misrepresentation were established by the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465. They include the following: (1) the existence of a special relationship between the person making a statement and the person hearing it; (2) it being reasonable for the person hearing the statement to rely on it: (3) the statement being untrue; (4) the person making the untrue statement being careless in making the statement; and (5) damages being suffered by the person from reasonably relying on the false statement. See Barkley v. Tier 1 Capital Management Inc., 2018 ONSC 1956, aff’d 2019 ONCA 514, at para. 71.
THE FACTS AS PLEADED
[12] The statement of claim, defence and counterclaim, and the third party claim are all drafted in such a way as to make complete comprehension a challenge. I will do my best, however, to provide my understanding of the gist of the pleadings.
The Main Action
[13] In the main action, Mr. Mahendran seeks to enforce a construction lien in the amount of $425,000 registered against a property owned by 966 and located at 252 Church Street, Markham. Mr. Singh is a shareholder and director of 966. Mr. Mahendran claims to have supplied labour and materials to a renovation project carried out on the property. The statement of claim was issued on November 29, 2019.
[14] In defence of the main action, Mr. Singh alleges that he and Mr. Mahendran were business partners. They purportedly were working together to renovate and sell 252 Church Street. The renovation project failed, Mr. Singh says, because Mr. Mahendran failed to carry out his obligations to the partnership.
[15] Mr. Singh advances a counterclaim in the main action. He seeks damages in the amount of $300,000 against Mr. Mahendran for breaching their partnership agreement. More specifically, for failing to complete the renovations on 252 Church Street. The defence and counterclaim is dated December 19, 2019.
[16] Mr. Singh and 966 appear to have served an amended defence and counterclaim on February 17, 2021. It is dated January 14, 2021. It is unclear whether they obtained leave to formally amend their pleading or whether they just delivered a different pleading. At any rate, the counterclaim was expanded. Mr. Singh alleges that he and Mr. Mahendran had a partnership arrangement whereby he would purchase properties under a numbered company and Mr. Mahendran would renovate them. The properties would, in theory at least, be flipped for a profit.
[17] Mr. Singh alleges that Mr. Mahendran breached their partnership agreement in a number of different ways, causing Mr. Singh to lose money on properties at 252 Church Street, 99 Parkway Avenue, Markham and 7450 9th Line, Markham.
[18] The 9th Line property was owned by 938359 Canada Ltd. (“938”). Mr. Singh is, or was, a director and shareholder of 938. The property was listed for sale in December 2018 for $2,599,000.
[19] Mr. Singh says that 938 entered into an agreement with Mr. Mohendran’s sister-in-law, Yasotha Surendran, to develop the 9th Line property. The plan was for 938 to sell the property to Ms. Surendran for $2,050,000. The reduction in the purchase price of roughly $550,000 was to be 938’s investment in the development. It is unclear from the pleadings what the development was to consist of.
[20] In any event, Ms. Surendran refused to complete the purchase transaction. 938 re-listed the property and subsequently sold it for $1,900,000. For reasons not entirely clear to me, Mr. Singh and 938 hold Mr. Mohendran responsible for the loss.
The Third Party Claim
[21] On January 14, 2021 Mr. Singh and 966 commenced a third party claim against Nationwide. They claim the following in damages:
(a) $6,000,000 in “lifetime lost business opportunity” for lost future investments with Ms. Surendran.
(b) $700,000, representing the reduced sale price of the property on the 9th Line in Markham. And,
(c) $300,000 in losses arising from the litigation with the plaintiff over 252 Church Street, Markham.
[22] The allegations against Nationwide are essentially the following:
(a) Nationwide conducted an appraisal of the 9th Line property.
(b) Nationwide’s appraisal was negligently performed. In particular, they relied on non-relevant comparables to arrive at an unreasonably low appraised value.
(c) Ms. Surendran refused to complete the purchase of 9th Line because of the low appraised value. And,
(d) Mr. Singh and 966 suffered significant losses in the result.
[23] It is not clear to me how 966 suffered any losses in relation to the failed 9th Line transaction, since that property was owned by 938.
[24] At any rate, Mr. Singh pleads that Ms. Surendran sought mortgage financing from the Royal Bank of Canada (“RBC”). RBC allegedly retained Nationwide to appraise the value of the property. Nationwide allegedly appraised the property at $1.65 million. They were allegedly negligent in the manner in which they carried out their appraisal.
[25] Mr. Singh further pleads that he thought Nationwide’s appraised value was too low. He says he provided RBC with a copy of an appraisal previously conducted on the property that assessed its value at $2.89 million.
[26] The sale to Ms. Surendran was to close January 25, 2019. But on January 17, 2019 Ms. Surendran’s lawyer advised that she would not complete the transaction given that the Nationwide appraisal was $500,000 less than the agreed-upon purchase price. Mr. Singh pleads that, in the result, he lost out not only on the sale to Ms. Surendran, but also on what he saw as a potentially lucrative ongoing business relationship with her. He envisioned them working together in the grocery business as well as developing further real properties.
[27] There are numerous obvious problems with the third party pleading. For instance, 966, as I noted, did not have any interest in the 9th Line property. The property was owned by 938. 938 is not a party to the main action or the third party claim. The claim is also lacking in a number of specifics, including:
(a) Any explanation as to why the 9th Line property ended up being sold for $1,900,000 when Mr. Singh says its true value was $2,599,000.
(b) Any facts that might connect the Nationwide appraisal, even if negligent, to the property at 252 Church Street. And,
(c) Any explanation was to why Mr. Singh is no longer able to pursue a business relationship with Ms. Surendran on projects apart from developing the 9th Line property.
[28] For the purposes of this motion, and in keeping with appellate direction to read the pleadings generously, I am going to proceed on the basis that the following facts are made out:
(a) Nationwide appraised the value of the 9th Line property.
(b) Nationwide’s appraisal was performed negligently.
(c) The negligent appraisal caused Ms. Surendran to back out of her agreement to purchase the property.
(d) Mr. Singh and 966 suffered a loss in the result.
[29] In my view, the alleged loss of future business opportunities with Ms. Surendran and alleged losses related to 252 Church Street are patently too remote to recover against Nationwide under any circumstance. That said, I am prepared to assume that Mr. Singh will be able to make out that he and 966 suffered some loss as a result of Ms. Surendran’s failure to complete the purchase of 9th Line.
THE APPRAISAL IN ISSUE
[30] The third party claim does not describe the appraisal in issue with sufficient detail to identify it. There are three documents that may potentially constitute the appraisal in issue.
[31] The appraisal commissioned by RBC on the 9th Line property was actually completed by Angela Oliveira of Craig Laine Appraisals Inc., a non-party to the action. Her appraisal is dated December 20, 2018. It values the property at $1,650,000. It contains the following provision:
This APPRAISAL REPORT has been prepared for the sole and exclusive use and benefit of Royal Bank of Canada (hereinafter referred to as the client). Any use of this report by anyone other than the client or for any purpose of function other than the original intent, invalidates the findings and voids all results and or conclusions.
[32] Nationwide prepared a short summary of Ms. Oliveira’s appraisal report for RBC. The summary is undated. It expressly provides that it is for RBC’s internal use only and is not to be provided to the clients.
[33] Nationwide also prepared a review of Ms. Oliveira’s appraisal report at RBC’s request. The review is dated December 27, 2018. It concludes that Ms. Oliveira’s estimated value of $1.65 million was reasonable. It includes the following limiting provision, amongst others:
Neither all, nor any part of the content of the review report, or copy thereof (including the conclusions of the review, the identity of the Reviewer, professional designations, reference to any professional appraisal organizations, or the firm with which the Reviewer is connected), shall be used for any purposes by anyone but the client specified in the review report, its successors and assigns, professional appraisal organizations, any state or federally approved financial institution, any department, agency, or instrumentality of Canada without the previous written consent and approval of the Reviewer.
[34] It is arguable, in the circumstances, that Nationwide did not actually prepare the appraisal that caused Ms. Surendran to back out of the deal to purchase the 9th Line property. As I noted, however, for the purposes of this motion I am prepared to proceed on the basis that Nationwide appraised the 9th Line property at $1.65 million and that they were negligent in doing so.
THE PARTIES’ POSITIONS
[35] The overarching issue, of course, is whether it is plain and obvious that there is no reasonable prospect of the claim of Mr. Singh and 966 succeeding.
[36] Nationwide argues that there are two reasons why any negligence claim advanced against it by Mr. Singh or any of his numbered companies cannot succeed. These two reasons reflect an inability on the part of Mr. Singh to establish at least two of the essential elements of a negligent misrepresentation claim.
[37] First, there was no special relationship between Mr. Singh and Nationwide. In the result, Nationwide did not owe a duty of care to Mr. Singh or any of his numbered companies.
[38] Second, because it is plain and obvious that Mr. Singh did not rely in any way on any appraisal report created by Nationwide. Indeed, he disagreed with it and attempted to persuade RBC that it was too low.
[39] In response to Nationwide’s motion, Mr. Singh emphasized in argument why he thought Nationwide’s appraisal was negligently performed. On the duty of care issue he cited a decision from the British Columbia Supreme Court, Esselmont v. Harker Appraisals Ltd, 1979 CanLII 355, which held that a real estate appraiser owes a duty of care not only to its client but to all other persons to whom the appraisal may be shown and who might be expected to rely upon it. He contends that Esselmont supports his assertion that Nationwide owed him a duty of care. He made no submissions on the issue of reliance.
ANALYSIS
[40] Recall that two of the essential elements of a negligent misrepresentation claim are the existence of a special relationship between the claimant and the defendant and damages arising from the claimant’s reasonable reliance on the misrepresentation. Each of these essential elements is in issue here. Nationwide contends that it is plain and obvious that Mr. Singh and 966 will be unable to establish these elements on a balance of probabilities.
[41] I agree with Nationwide with respect to both elements. I will consider them in turn, beginning with the easier of the two – the issue of reliance.
There Was No Reliance
[42] The question of reliance is easily assessed.
[43] Assuming for the moment that Nationwide owed a duty of care to Mr. Singh and 966, the allegations contained in the third party claim make it evident that Mr. Singh and 966 did not rely on Nationwide’s appraisal to their detriment.
[44] Mr. Singh and 966 have specifically alleged that they disagreed with the amount of Nationwide’s appraisal. At para. 19 of the third party claim, Mr. Singh alleges that he advised RBC’s mortgage specialist that the Nationwide appraisal was negligently prepared. He went even further – he provided RBC with an alternate appraisal prepared earlier by a different appraiser, which valued the property at $2.89 million.
[45] If Mr. Singh and 966 suffered a loss in relation to the resale of the 9th Line property, it is clearly not because they relied on Nationwide’s appraisal. Absent such reliance, their claim against Nationwide for damages for negligent misrepresentation cannot succeed.
No Duty of Care Was Owed
[46] The duty of care issue is somewhat more complex.
[47] The seminal case of Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562 (H.L.) established the general proposition, now well-known to the law of negligence, that one must take reasonable care to avoid acts or omissions that one can reasonably foresee would be likely to injury one’s neighbours. This general proposition is straightforward enough. History has shown, however, that defining the “neighbours” to whom a duty of care is owed can be tricky.
[48] Canadian courts have long applied a two-stage test to the duty of care analysis in negligence cases. The test was first articulated by the House of Lords in Anns v. Merton London Borough Council, [1978] A.C. 728. It has been refined over the years in Canadian jurisprudence, most notably in Cooper and Edwards v. Law Society of Upper Canada, 2001 SCC 80.
[49] The Anns/Cooper framework asks whether (1) a prima facie duty of care exists between the parties; and (2) if so, whether there are any residual policy considerations which should negate or limit the scope of duty, the class of person to whom it is owed, or the damages to which a breach of it may give rise.
[50] The Supreme Court recently revisited the test in Deloitte & Touche v. Livent Inc., 2017 SCC 63. Deloitte confirms that the Anns/Cooper framework is to be applied when determining whether a duty of care exists in the context of a claim of negligent misrepresentation.
[51] Determining whether a prima facie duty of care exists requires an assessment of the concepts of proximity and reasonable foreseeability. These related concepts establish the limits on those to whom duties of care are owed.
Proximity
[52] Proximity is not so much concerned with physical proximity or the level of intimacy in the relationship between the parties as it is with the question of whether the actions of the defendant have a close and direct effect on the plaintiff. See Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41.
[53] The law already recognizes certain categories of relationships as “proximate”. For instance: doctors and patients; solicitors and clients; and motorists and other users of the road. For cases that fall within recognized categories, no further analysis is required. For cases not falling within a recognized category, like the one now before the court, a full proximity analysis is necessary.
[54] I understand Mr. Singh’s argument to be that the law already recognizes that a real estate appraiser owes a duty of care to anyone who might reasonably be expected to read and rely on the appraisal report. He says he is one such person.
[55] Mr. Singh relies on the Esselmont decision in support of his position. Decisions of the B.C. Supreme Court are not binding on this court, but the principles of stare decisis and judicial comity suggest that I should follow the decision unless I am of the view that it is plainly wrong. See R. v. Sullivan, 2020 ONCA 333, at paras. 31-40.
[56] The approach that Canadian courts take to the duty of care issue has evolved significantly since Esselmont was determined. The court in Esselmont obviously did not have the benefit of the Supreme Court’s decisions in Cooper and Livent. I think it unlikely that Esselmont would be decided in the same way today. In light of more recent jurisprudence I consider it to be plainly wrong and I will proceed to assess the duty of care issue in accordance with the Anns/Cooper framework.
[57] Assessing proximity involves asking whether the parties are in such a close and direct relationship that it would be “just and fair having regard to that relationship to impose a duty of care in law”. (Deloitte, para. 25). Asked another way, are the circumstances of the relationship between the parties “of such a nature that the defendant may be said to be under an obligation to be mindful of the plaintiff’s legitimate interests in conducting his or her affairs.” See Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, at para. 24
[58] To determine whether the relationship between Nationwide and Mr. Singh and 966 was sufficiently close and direct to establish proximity, the court must examine all relevant factors arising from the relationship between them. What factors are relevant is context-driven, but courts have recognized that they will include “expectations, representations, reliance, and the property or other interests involved, as well as any statutory obligations.” (Deloitte, para. 29).
[59] Of particular significance to the analysis in this case is the Supreme Court’s instruction at para. 30 of Deloitte, which provides as follows:
In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are determinative in the proximity analysis: the defendant’s undertaking and the plaintiff’s reliance. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care. And, the plaintiff has a right to rely on the defendant’s undertaking to do so.
Reasonable Foreseeability
[60] Assessing reasonable foreseeability involves asking whether an injury to the plaintiff was a reasonably foreseeable consequence of the defendant’s negligence. (Deloitte, para. 32).
[61] Deloitte instructs that an injury to the plaintiff will be reasonably foreseeable if (1) the defendant should have reasonably foreseen that the plaintiff would rely on his or her representation; and (2) such reliance would, in the particular circumstances of the case, be reasonable. Both factors will, of course, be informed by the relationship of proximity between the parties. (Deloitte, para. 35).
[62] Should the court recognize a prima facie duty of care, based on an analysis of proximity and reasonable foreseeability, then the duty of care analysis advances to a second stage. At this stage the court considers whether there are any residual policy considerations that may negate the imposition of a duty of care. (Deloitte, para. 37). It is unnecessary to expound further on this second stage given that I am of the view that Mr. Singh and 966 are unable to establish a prima facie duty of care.
[63] Nationwide was retained by RBC for the purpose of providing RBC with an appraised value of the 9th Line property. The valuation was to be used solely by RBC in its risk assessment regarding the loan application of Ms. Surendran.
[64] Nationwide had no contractual relationship with anyone apart from RBC, including Mr. Singh and 966. It made no undertaking to Mr. Singh or 966 and it did not undertake to perform any services on their behalf.
[65] Nationwide did not invite Mr. Singh or 966 to review or consider its appraisal in relation to the proposed sale of 9th Line to Ms. Surendran or for any other purpose. Indeed, Nationwide expressly disavowed the use or reliance upon the appraisal by anyone apart from RBC.
[66] In my view, there is no proximate relationship between Nationwide and Mr. Singh and 966. Moreover, Nationwide would not reasonably have foreseen that Mr. Singh and 966 would rely in any way on the appraisal they performed exclusively for RBC for mortgage financing purposes. Indeed, Mr. Singh and 966 did not rely on the appraisal in any way.
[67] In the result, Mr. Singh and 966 are unable to establish a prima facie duty of care. This case is, in my view, on all fours with Justice Perrell’s decision in Barkley v. Tier 1, as above.
[68] I conclude that it is plain and obvious that a negligence claim by Mr. Singh and 966 against Nationwide cannot succeed. The third party claim is dismissed.
COSTS
[69] Nationwide seeks its costs of the action, including the motion, on a partial indemnity basis, in the amount of $19,000.
[70] Mr. Singh argues impecuniosity. I do not, however, have any evidence as to his financial circumstances one way or the other.
[71] The awarding of costs in civil proceedings is discretionary. The discretion is grounded in section 131 of the Courts of Justice Act, R.S.O. 1990 c. C.43.
[72] The exercise of the discretion is guided by Rule 57.01 of the Rules of Civil Procedure which sets out a number of factors for the court’s consideration, including:
(a) the complexity of the proceeding;
(b) the importance of the issues;
(c) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;
(d) whether any step in the proceeding was improper, vexatious or unnecessary or taken through negligence, mistake or excessive caution;
(e) the principle of indemnity; and,
(f) the concept of proportionality, which includes at least two factors:
i. the amount claimed and the amount recovered in the proceeding; and,
ii. the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed.
[73] The weight to be applied to any of the enumerated, or other, factors in any given assessment may vary. It is well-settled, however, that the overarching principles to be observed in the exercise of the court’s discretion to fix costs are fairness, proportionality and reasonableness: see Beaver v. Hill, 2018 ONCA 840; Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.); and Moon v. Sher (2004), 2004 CanLII 39005 (ON CA), 246 D.L.R. (4th) 440 (C.A.).
[74] I have reviewed Nationwide’s Bill of Costs. The work done on the file relates essentially to preparing and filing pleadings, preparing and filing materials for this motion (including a motion record and factum), attending on the motion, and responding to a motion brought by a non-party for intervenor status. The intervenor’s motion was withdrawn.
[75] Roughly $2,500 of Nationwide’s claimed costs relate to the withdrawn motion to intervene. They seek costs of that motion against Mr. Singh. It may be that he had some influence on the proposed intervenor, but I lack any evidentiary basis upon which to make that determination. In my view, on the record before me, those costs ought not to be imposed on Mr. Singh.
[76] I would also make some modest reduction in the costs award to reflect the fact that at times two lawyers worked on tasks that I think could have been attended to by a single lawyer.
[77] All things considered, I fix costs at $15,000, all-inclusive. They are payable jointly and severally by Mr. Singh and 966 within 30 days.
C. Boswell J.
Date: January 20, 2022