COURT FILE NO.: CV-21-00654699-0000

DATE: 20220912

ONTARIO SUPERIOR COURT OF JUSTICE

RE: White Point Capital Inc. and Andrew Durnford, plaintiffs

-and-

Communitylend Holdings Inc. and FinanceIt Canada Inc., defendants

BEFORE: Robert Centa J.

COUNSEL: Michael Burgar, for the plaintiffs

Stephen Brown-Okruhlik, for the defendants

HEARD: August 23, 2022

ENDORSEMENT

[1] The plaintiff Andrew Durnford is the principal and CEO of the plaintiff White Point Capital Inc., which provides financial advisory services. The plaintiffs commenced an action against the defendants Communitylend Holdings Inc. and its wholly owned subsidiary, FinanceIt Canada Inc.

[2] The defendants bring this motion pursuant to rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to strike out the plaintiffs’ statement of claim as disclosing no reasonable cause of action. The defendants also ask that the court not grant leave to the plaintiffs to amend the statement of claim.

[3] For the reasons that follow, I dismiss the defendants’ motion.

Procedural History

[4] For purposes of the motion, the defendants filed a motion record that contained a law clerk’s affidavit that exhibited the statement of claim, the defendants’ demand for particulars and the plaintiffs’ response, the defendants’ statement of defence and counterclaim, the plaintiffs’ reply and defence to counterclaim, the defendants’ subsequent demand for particulars, and the plaintiffs’ response to the second demand for particulars.

[5] Unusually, for a motion under rule 21.01(1)(b), the affidavit also attached one document from the plaintiffs’ productions, a notice of motion for a motion for particulars, an endorsement by Diamond J., dated July 27, 2021, scheduling a case conference, an endorsement by Croll J., dated September 24, 2021, declining to consolidate the plaintiffs’ motion for particulars with the defendants’ motion for production and scheduling the particulars motion, two affidavits sworn by Mr. Durnford for use on the motion for particulars, the plaintiffs’ factum on the motion for particulars, and the transcript from the cross-examination of Mr. Durnford on the motion for particulars.

[6] It will be helpful to set out some of the procedural history to explain how I propose to deal with the material filed by the defendants.

[7] The plaintiffs issued their statement of claim on January 13, 2021. The plaintiffs plead that both of the defendants retained them to provide advisory services in exchange for commissions calculated in accordance with two specified contracts. The plaintiffs plead that they provided services required under the agreements between April 2016 and December 2019. Each month, the defendants provided financial data to the plaintiffs that set out the amount of the commissions earned by the plaintiffs. The plaintiffs then sent the defendants an invoice in an amount that, in fees and taxes, matched the information provided by the defendants. The plaintiffs plead that in January 2020, the defendants breached the contract by failing to provide the required financial data and by refusing to pay an invoice rendered in respect of the commission earned for the month of December 2019. The plaintiffs plead that the defendants have not cured the breach and that they have suffered damages. The plaintiffs also challenge the defendants’ calculation of the amount owing under the contracts.

[8] The defendants served a demand for particulars on February 18, 2021. The defendants sought particulars of the damages claim, the timing of the defendants’ retainer of the plaintiffs and the contracts between the parties, particulars of the claim against FinanceIt and the contracts to which it was a party, particulars of the entitlement to commissions and to Mr. Durnford’s entitlement to commissions, particulars of the services provided by the plaintiffs, particulars of the calculation of commission payments, and particulars of the plaintiffs’ audit rights under the contract.

[9] The plaintiffs responded to the demand for particulars on March 10, 2021.

[10] On March 23, 2021, the defendants served a statement of defence and counterclaim. The defendants denied all liability to the plaintiffs. The defendants plead that Communitylend entered into a contract with the plaintiffs to provide consulting services “in connection with the expansion of FinanceIt’s online lending platform” and that the parties agreed that the plaintiffs would “share in the success of the FinanceIt platform.” The defendants plead that FinanceIt is not a party to the agreement and owes no contractual duties to the plaintiffs. The defendants assert that the plaintiff White Point overcharged “the defendants” for the commissions partly because of “inadvertent errors by the defendants” and that “the defendants” paid the incorrectly calculated invoices. The defendants deny that they breached the contract. In the counterclaim, both defendants seek damages “in an amount to be determined at trial” for plaintiffs’ breach of the agreements, negligence and negligent misrepresentation, detinue and conversion, and unjust enrichment.

[11] On April 14, 2021, the plaintiffs served a detailed reply and defence to the counterclaim.

[12] On April 26, 2021, the defendants served a “demand for particulars of the allegations in the reply and defence to counterclaim” and a request to inspect documents referred to therein. The defendants sought particulars of the “method of calculation” of the commissions owed, particulars of the “categories of data or documentation the plaintiffs require to identify and particularize their damages”, particulars of the information required to comply with the plaintiffs’ request for an audit, to “provide copies of the emails and correspondence between the parties that describe the commission methodology” among other emails requested.

[13] On April 28, 2021, the plaintiffs delivered their affidavit of documents and Schedule A productions to the defendants. Counsel for the plaintiffs requested a reply to the defence to counterclaim and the defendants’ affidavit of documents.

[14] On May 11, 2021, the plaintiffs delivered a response to the second demand for particulars, which indicated that the demand was not appropriate and that the plaintiffs had delivered their productions.

[15] On May 28, 2021, the defendants served a notice of motion seeking particulars of certain allegations in each of the statement of claim (to which the defendants had already delivered a defence) and the reply and defence to counterclaim. In the notice of motion, the defendants stated that the plaintiffs’ responses to their demands for particulars were insufficient. The defendants asserted that “it is evident from the plaintiffs’ pleadings and responses to the defendants’ demands for particulars that the plaintiffs intend to use this litigation to conduct a fishing expedition into the defendants’ financial data in the absence of a contractual audit right or any coherent theory of contractual entitlement to support their claim for damages.” The defendants asserted that they needed particulars to permit them to file a reply to the defence to counterclaim and to frame the litigation to allow it to proceed to discoveries.

[16] Sometime before August 9, 2021, the motion for particulars was scheduled to be heard on April 12, 2022.

[17] On April 4, 2022, in response to the motion for particulars, Mr. Durnford swore a 53-paragraph affidavit that attached thirteen exhibits. On April 5, 2022, the plaintiffs delivered their factum on the motion for particulars. On April 6, 2022, Mr. Durnford swore a supplementary affidavit.

[18] On April 8, 2022, the defendants cross-examined Mr. Durnford on his affidavit. The transcript of the cross-examination spans 41 pages. Towards the end of the cross-examination, counsel for the defendants asked counsel for the plaintiffs if the allegations contained in the plaintiffs’ factum and Mr. Durnford’s evidence on the motion could be treated as particulars of the pleading:

MR. BROWN-OKRUHLIK: Mr. Burgar, do you agree that the allegations in your factum, Mr ... and Mr. Durnford's evidence on this motion may be treated as particulars of your pleading?

MR. BURGAR: Certainly, to the extent you accept them, then we would be gratified to get past this particular stage, somehow, someway.

MR. BROWN-OKRUHLIK: Thank you.

[19] Ultimately, the motion for particulars did not proceed on April 12, 2022. Counsel for the defendants submitted that the motion did not proceed based on an agreement between counsel that was contained in an email exchange between them on April 12, 2022. The primary email was from counsel for the plaintiffs, which read:

Further to our discussions I propose the following agreements on process going forward:

1. I will deliver a motion confirmation form on behalf of the parties before 2 pm today advising the motions scheduling unit that the plaintiff motion for productions will be adjourned on consent to a date to be arranged on consent with the motion scheduling unit.

2. You agree that the motion record for your Rule 21 motion will include the two affidavits of Andrew Durnford, his factum on the motion for particulars, and the transcript of the cross of Durnford.

3. You and I will attend CPC court on the earliest mutually available date to obtain a date for your Rule 21 motion and we will arrange a timetable for the delivery of materials well in advance of the hearing date. I am available April 19, 22, 26 or May 3 or 13 for the CPC attendance.

4. Costs of the motion today will be resolved by way of a consent endorsement:

The Moving Defendants no longer intend to proceed with this motion for particulars. The lawyers for the parties have discussed costs of the motion and consent to an Order that costs of this motion shall be in the cause, subject to the right of both sides to argue any matter related to costs of this motion at the conclusion of the cause, whether it be by motion or trial.

[20] Counsel for the defendants relied on this agreement as part of the explanation for why material prepared for the motion for particulars was admissible before me.

[21] In contrast, the plaintiffs’ factum submitted that “There was no agreement between the lawyers or the parties, or Court Order, that particulars were ever necessary or what exact aspects of the affidavit evidence, the factum of the plaintiffs, or the cross-examination answers, were to be taken as the pleadings of the plaintiff and thereby govern the discovery process and trial.”

[22] The defendants then served their notice of motion and motion record for use on this motion.

What material is properly before the court?

[23] The defendants have moved under rule 21.01(1)(b), which permits a party to move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action or defence.

[24] Rule 21.01(2)(b) explicitly states that no evidence is admissible on a motion under rule 21.01(1)(b). Since the judge must take the pleaded facts to be provable and true, evidence is neither necessary nor permissible on such a motion: Bowman v. Ontario, 2022 ONCA 477, 83 C.C.L.T. (4th) 235, at para. 25; McCreight v. Canada (Attorney General), 2013 ONCA 483, 116 O.R. (3d) 429, at para. 29. The basic principle is that the court will look at the statement of claim and nothing more: Pearson v. Inco Ltd., (2001), 16 C.P.C. (5th) 151 (Ont. S.C.), at para. 9. There are very limited exceptions to this principle.

[25] First, a judge hearing a rule 21.01(1)(b) motion may consider any documents that are both incorporated by reference into the pleading and form an integral part of the statement of claim: Montreal Trust Co. of Canada v. Toronto Dominion Bank, (1992), 40 C.P.C. (3d) 389 (Ont. Gen. Div.). This exception is driven by rule 25.06(7), which requires a party to plead the effect of a document as briefly as possible, without pleading the precise words of the document unless those words are material. If a document is incorporated by reference into the pleading and forms an integral part of the factual matrix of the statement of claim, it may be considered as forming part of the pleading and a judge may refer to it on the motion to strike: McCreight, at para. 32. This is necessary to assess the substantive adequacy of the claim and such a document is not considered evidence excluded by operation of rule 21.01(2)(b): Montreal Trust Co., at para. 4.

[26] Second, a judge hearing a rule 21.01(1)(b) motion may consider particulars provided by the plaintiff in response to a defendant’s demand. The particulars provided become part of the pleading, they flesh out the pleading, but they are not themselves evidence: Janssen-Ortho Inc. v. Amgen Canada Inc. (2005), 2005 CanLII 19660 (ON CA), 199 O.A.C. 89 (C.A.), at paras. 89-91; Copland v. Commodore Business Machines Ltd. (1985), 1985 CanLII 2190 (ON SC), 52 O.R. (2d) 586 (S.C.); Rotstein v. Globe & Mail (The) (1997), 18 C.P.C. (4th) 144 (Ont. Gen. Div.)); Owen Sound Lumber Co. v. Seaman Kent Co. (1913), 25 O.W.R. 61 (S.C.), at 94.

[27] This exception, however, has limits. For example, a judge may not consider the content of documents to which the plaintiff refers in its response to a demand for particulars as if the content of that document had been pleaded in the statement of claim: Pearson, at paras. 13 -14.

[28] Because particulars are not evidence, on a motion under rule 21.01(1)(b), I am entitled to consider the particulars provided by the plaintiff either to fill gaps that may exist in the statement of claim or to determine that there is no reasonable cause of action: Janssen-Ortho Inc. For this reason, I can consider the plaintiff’s responses to the demands for particulars delivered on April 14 and May 11, 2021.

[29] The defendants, however, also submit that I should treat the following as particulars of the claim:

a. a document from the plaintiffs’ productions;

b. two affidavits (including exhibits) sworn by Mr. Durnford on the motion for particulars;

c. the transcript of the cross-examination of Mr. Durnford; and

d. the factum filed by the plaintiffs on the motion for particulars.

[30] The problem with the defendants’ submission is that the first three items are, by their very nature, evidence. Evidence must not be pleaded. Particulars must not be evidence. The material filed by the defendants is not “additional bits of information, or data, or detail, that flesh out the ‘material facts’”: Copland, at para. 11.

[31] Pursuant to rule 21.01(2)(b), evidence is not admissible on a motion under rule 21.01(1)(b). In Montreal Trust, at para. 4, Borins J. explained what constitutes prohibited evidence on this type of motion:

In my opinion, evidence is intended to encompass affidavits, transcripts of the evidence of a witness taken under r. 39.03, or other extraneous documents not referred to in the statement of claim and which would be appropriate, for example, to a motion for summary judgment under R. 20.

[32] In my view, the document from the plaintiffs’ productions, Mr. Durnford’s affidavits, the transcript of Mr. Durnford’s cross-examination, and the plaintiffs’ factum on the motion for particulars are not admissible on this rule 21.01(1)(b) motion, regardless of whether or not the parties agreed among themselves to treat this material as particulars. The parties may be able to use this material to guide their approach to discovery, but they cannot by their agreement fundamentally alter the function of a rule 21.01(1)(b) motion.

[33] My concern is not one only of form. The approach on this motion substantively undermines the function of a pleadings motion. The only issue on this motion is the sufficiency in law of the statement of claim: Trendsetter Developments Ltd. v. Ottawa Financial Corp., (1989), 32 O.A.C. 327 (C.A.), at para. 4. The evidence tendered on this motion invites me to move beyond the narrow question of the sufficiency in law of the statement of claim. For example, on cross-examination of Mr. Durnford, counsel for the defendant asked him how he calculated the amount of damages claimed and what evidence he would use to prove those damages. It would completely distort the purpose of rule 21.01(1)(b) to use his answer to determine the legal sufficiency of the pleading. The plaintiffs may or may not be able to prove their damages claim but that is a question for another day.

[34] I am to assume the facts pleaded in the statement of claim to be provable and true. I am to assess whether or not they disclose a reasonable cause of action. I am not to conduct what is essentially a summary judgment motion disguised as a motion under rule 21.01(1)(b).

[35] I therefore exclude and will not consider the document from productions, the affidavits, the cross-examination transcript, and the factum on this motion.

Principles on a rule 21.01(1)(b) motion

[36] On a motion to strike a claim for failing to disclose a cause of action under rule 21.01(1)(b), the test to be applied is: assuming the facts pleaded in the statement of claim are provable and true, is it plain and obvious that the claim cannot succeed? Rule 21.01(1)(b) imposes a very high burden of proof on the moving defendant. It is not sufficient for a moving defendant to demonstrate that it is more probable than not that the plaintiff's pleading does not disclose a reasonable cause of action. The defendant must meet the much higher standard of establishing that the claim as pleaded has no reasonable prospect of success: The Catalyst Capital Group Inc. v. Dundee Kilmer Developments Limited Partnership, 2020 ONCA 272, 150 O.R. (3d) 449, at para. 47.

[37] The following principles apply:

a. All allegations of fact pleaded are assumed to be true unless they are patently ridiculous, manifestly incapable of proof, or amount to bald conclusory statements unsupported by material facts: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at paras. 21-22; Castrillo v. Workplace Safety and Insurance Board, 2017 ONCA 121, 136 O.R. (3d) 654, at para. 15; and Transamerica Life Canada Inc. v. ING Canada Inc. (2003), 2003 CanLII 9923 (ON CA), 68 O.R. (3d) 457 (C.A.), at para. 38;

b. Cases that are unique or novel, that involve matters of law that are unsettled, or that require a detailed analysis of the evidence should not be resolved without a full factual record: Transamerica, at paras. 57-59; Imperial Tobacco, at para. 21; and Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, at pp. 990-91;

c. The pleading must be read generously to allow for drafting deficiencies and the plaintiff's lack of access to key documents and discovery information. The court should err on the side of permitting an arguable claim to proceed to trial: Transamerica, at para. 38; Rausch v. Pickering (City), 2013 ONCA 740, 313 O.A.C. 202, at para. 34;

d. A plaintiff cannot rely on the possibility that new facts may be discovered; it must plead the material facts upon which it relies: Imperial Tobacco, at para. 22; and

e. The pleading will be struck only if it is plain and obvious that the plaintiff cannot succeed or, in other words, if the claim has no reasonable prospect of success: Hunt, at p. 980; Imperial Tobacco, at para. 17.

[38] Defendants seeking to strike a claim under rule 21.01(1)(b) must meet a difficult test. The defendants’ task on this motion is harder still because the plaintiffs’ claim is a breach of contract case and I am to focus only on the legal sufficiency of the pleading: Brozmanova v. Tarshis, 2018 ONCA 523, 81 C.C.L.I. (5th) 1, at paras. 25-26. There is a significant factual component to the interpretation of contracts. A court must always consider the factual matrix that gave rise to a contract, even where its terms are not ambiguous: Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 54

[39] For this reason, motions under rule 21.01(1)(b) are often ill-suited for breach of contract claims. As the Court of Appeal held at para. 41 in The Catalyst Capital Group:

Given that most contractual interpretation claims involve questions of mixed fact and law, rule 21.01(1)(b) usually is ill-suited to dispose of such claims prior to trial. That is due to the restrictions built into the rule that limit its utility for assessing the factual adequacy of a claim. Of greatest significance is the restriction that no evidence is admissible on such a motion: rule 21.01(2)(b). This restriction rubs the wrong way against the jurisprudence's recognition that a party is entitled to lead relevant evidence regarding the circumstances surrounding a contract's formation or its context to aid in its interpretation: McDowell v. Fortress Real Capital Inc., [2019] O.J. No. 509, 2019 ONCA 71, 91 B.L.R. (5th) 181 (C.A.), at para. 83.

[40] My task is limited to assessing whether it is plain and obvious that the facts pleaded by the plaintiffs (which I must take to be provable and true) cannot support, at law, a cause of action for breach of contract. I am not to assess whether or not the contract pleaded by the plaintiffs was formed or how, if it was formed, it should be interpreted: Bowman v. Ontario, 2022 ONCA 477, 83 C.C.L.T. (4th) 235, at paras. 38-42.

Analysis

[41] The defendants have not demonstrated that the claim as pleaded has no reasonable prospect of success. The plaintiffs plead the following facts, which I must assume to be provable and true:

a. they were engaged by both defendants to provide advisory services;

b. they have entered into contracts (the Second Amended and Restated Advisory Services and Strategic Corporate Development Agreement and the Addendum to the Second Amended and Restated Advisory Services and Strategic Corporate Development Agreement) with both defendants;

c. that the contracts set out their entitlement to payment and how that payment is to be calculated.

d. they performed the services required of them;

e. both defendants have obligations under the contracts;

f. the defendants performed their obligations under the agreements until January 2020 when the defendants stopped making payments they owe to the plaintiffs;

g. the defendants breached the agreements and caused damages to them;

h. the plaintiffs’ best estimate of their damages, based on the information available to them at this time is $2.8 million.

[42] The plaintiffs also plead facts that the defendants have also breached obligations under the agreements to provide accountings and detailed reports, to conduct an audit, and to provide financial data and reports. The plaintiffs plead that this has caused damages to them including that they have received less money than the amounts to which they are properly entitled under the agreements and that they are not able to calculate the amount of their damages with more precision at this time.

[43] The plaintiffs have adequately pleaded all the elements of a breach of contract claim: Nanra v. NRI Legal Services, 2017 ONSC 4503, at para. 19.

[44] I do not accept the defendants’ submission that the statement of claim should be struck because the plaintiffs have not calculated their damages claim with sufficient precision. Rule 25.06(9) requires only that a pleading contain the nature of the relief claimed and, where damages are claimed, state the amount claimed for each claimant in respect of each claim. This statement of claim meets that requirement, and more is not required at this time. It is often the case that a plaintiff needs information from a defendant to calculate its breach of contract damages. No plaintiff is required to prove their damages in the statement of claim or in their particulars. Any deficiencies in the plaintiffs’ quantification of the damages claim can be addressed before trial.

[45] I also do not accept the defendants’ submission that I should strike the claim against FinanceIt because the defendants maintain there is no privity of contract between the plaintiffs and FinanceIt. The plaintiffs have pleaded that FinanceIt is bound by the contract. The plaintiffs have pleaded facts that make it clear the two defendants are related entities and are closely intertwined under the agreements at issue. They may or may not be able to prove their claim, but I am not prepared to say that there is no reasonable prospect that they could do so. I note in passing that, in its counterclaim, FinanceIt seeks damages against the plaintiffs “in an amount to be determined at trial” for plaintiffs’ breach of the agreements.

[46] Whether or not the plaintiffs are able to prove that both defendants are bound by the agreements, or that the plaintiffs have correctly interpreted the contract, or that the plaintiffs have suffered damages and in what amount are all matters for trial or a summary judgment motion. The plaintiff should be entitled to lead evidence regarding the circumstances of the formation of the agreements and its context. On this motion, I must assume the facts are provable and true. It is not plain and obvious that the plaintiffs have no chance of success.

[47] Finally, even if I considered the evidence that I excluded, I would not have struck the claim under rule 21.01(1)(b). That evidence may suggest that the plaintiffs’ will face some challenges in proving their claims. Whether or not that remains true after document production and examinations for discovery is a different question. In any event, that evidence does not demonstrate that the plaintiffs pleading is insufficient in law.

[48] The motion is dismissed with costs to the plaintiffs. If the parties are not able to resolve costs, the plaintiff may deliver a costs submission of no more than three double-spaced pages to be emailed to my judicial assistant on or before September 19, 2022. The defendant may file responding submissions of no more than three double-spaced pages on or before September 26, 2022. No reply submissions are to be filed without leave.

Robert Centa J.

Date: September 12, 2022