MOTION HEARD: 20240131
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Rakhi Satish Gawri in her personal capacity and in her capacity as Trustee of the Gawri Family Trust, Suresh Gawri in his personal capacity and in his capacity as Trustee of the Gawri Family Trust, 2560174 Ontario Inc., Plaintiffs
AND:
Ray Rattan Gupta, Sundeep Gupta, Sunray Group Ltd. d.b.a. Sunray Group of Hotels, 2554190 Ontario Inc. and 2554200 Ontario Inc., Defendants
BEFORE: Associate Justice Jolley
COUNSEL: Yigal Rifkind, for the moving party plaintiffs
Micheal Simaan, for the responding party defendants
HEARD: 31 January 2024
REASONS FOR DECISION
Overview
1The plaintiffs bring this motion for leave to amend their statement of claim, including leave to add a number of defendants to the action.
2It became apparent at the outset of the motion that the plaintiffs were not clear which of the eight versions of the statement of claim they had delivered would stand in the event the amendments were not permitted. Without this, the defendants could not know which amendments would be considered new and, therefore, required leave, and which would be considered as already contained in the pleading.
3In order not to lose the booked long motion date by waiting for a clarified blacklined proposed amended pleading, it was agreed that the parties would argue two issues and the remainder of the motion would be adjourned to be heard later before me.
4The parties agreed to argue that portion of the plaintiffs’ motion to validate service of the claim and to argue whether the limitation period for certain of the claims is governed by the Real Property Limitations Act, R.S.O. 1990, c.L.15 (the “RPLA”) or by the Limitations Act, 2002, S.O. 2002, c.24, Sch. B (“Limitations Act, 2002”).
MOTION TO VALIDATE SERVICE
5The plaintiffs seek an order validating service of the original statement of claim issued 9 April 2021 on the defendants Ray Gupta, Sundeep Gupta, Sunray Group Ltd., 2554190 Ontario Inc. and 2554200 Ontario Inc.
6While there is very little in the record before me about the corporate defendants, the original statement of claim alleges that 2554190 Ontario Inc. owns a hotel at 2180 Islington Avenue and 2554200 Ontario Inc. owns a restaurant in the hotel. It is further alleged that Sunray Group managed both numbered companies. The plaintiffs allege that Ray and Sundeep Gupta are the controlling minds of these corporate defendants and that they directed the actions of Sunray Group in particular.
7The plaintiffs were required to serve the defendants with the original statement of claim by 8 October 2021. Despite the defendants’ numerous inquiries about service, the plaintiffs did not serve any of the defendants within that time, primarily because they were considering adding “one or two” more defendants. They advised that they would let counsel know when they were ready to serve the defendants.
8The record does not disclose any further correspondence but does contain affidavits of service serving the original statement of claim on Ray Gupta and on the corporate defendants on 15 November 2021.
9Where a document has been served in a manner other than one authorized by the rules or an order, the court may make an order validating the service where the court is satisfied that (a) the document came to the attention of the person to be served; or (b) the document was served in such a manner that it would have come to the notice of the person to be served, except for the person’s own attempts to evade service (Rule 16.08).
10While I agree with defence counsel that there is no explanation as to why these defendants were not served within the prescribed six months, I am satisfied that the original statement of claim came to their attention and that no prejudice will result if service is validated.
11The same cannot be said for Sundeep Gupta. There is no service of the original statement of claim on Sundeep which the court could validate. There is no explanation for why he was never served nor any evidence that service was attempted. I am not prepared to validate service on him.
APPLICABLE LIMITATION PERIOD
12A live issue on the adjourned portion of the motion is whether the proposed amended claims by the plaintiffs are out of time. The plaintiffs argue that all of their claims are governed by the ten year limitation period in the RPLA. As the parties did not meet until 2016, the plaintiffs argue that none of their claims against the defendants are statute barred.
[13] The defendants argue that the claims against the Schedule C, D and E companies are governed by the Limitations Act, 2002 and are out of time. The conclusion on this issue will determine only whether the plaintiffs can pursue these claims; it does not impact any motion on the appropriateness of the pleading as drafted. Nor should it be taken as any comment on whether the pleading is provable.
14If the claims are governed by the two year limitation period under the Limitations Act, 2002, then the parties are agreed that the plaintiffs would have had to have led evidence that they discovered their claim on a date other than the presumptive date on which the acts in question took place and they have not done so.
15Further, it is also agreed that if the claims are governed by the Limitations Act, 2002, new defendants cannot be added on the theory of misnomer unless some version of their names or identities was included in the original statement of claim.
Analysis
16The parties agree on the applicable law. What they do not agree on is whether the claims pleaded are claims for an interest in land or alternative claims to that interest, such that they are governed by the RPLA.
17Section 4 of the RPLA provides that an action “to recover any land” may be brought within ten years of the date the cause of action arose. The case law is clear that claims for land, including constructive trust claims, are governed by this ten year limitation period. Further, alternative claims to such a constructive trust claim can shelter under section 4. (McConnell v Huxtable, 2014 ONCA 86 at paragraph 40). Remedies for unjust enrichment are restitutionary and may result in a proprietary or a monetary remedy that also falls under the RPLA where there is a link or causal connection between a plaintiff’s contributions and the acquisition, preservation, maintenance or improvement of the property (see McConnell v Huxtable, supra at paragraphs 36 and 38).
18The plaintiffs argue that the defendants’ alleged wrongdoing all relate to real property, over which they assert a constructive trust. They allege that Ray Gupta used profits and assets, in which they had an interest, to invest in other properties through other companies that he owned. His wrongdoing supports a claim for a constructive trust in those properties. As the RPLA covers claims for the recovery of land and claims to ownership of land advanced by way of resulting or constructive trust, the plaintiffs argue that their claims are not statute-barred (Waterstone Properties v Caledon 2017 ONCA 623 at paragraph 32).
19The plaintiffs made claims against multiple companies, which they have divided into various schedules to the pleading. The defendants argue that the claims against the companies listed in Schedules C, D and E are not claims for an interest in land or alternative claims to such an interest and are barred by the Limitations Act, 2002.
20One must turn to the pleading to determine whether the claim asserts a claim to “recover land”, or an alternative to that claim.
(A) Claims against the Schedule C companies
21The plaintiffs plead that they are entitled to a beneficial resulting and constructive trust in the properties owned by the eight Schedule C companies. They plead that Ray Gupta owns all of the Schedule C companies and has diverted funds earned by the jointly owned Schedule B companies to his wholly owned Schedule C companies. Specifically, they allege that Ray Gupta obtained a contract from the City of Toronto to house refugees in one of the hotels owned by a joint Schedule B company. The plaintiffs allege that Ray Gupta (a) directed the City to pay his Schedule C company for the refugee housing work rather than pay the jointly owned Schedule B company; (b) directed the City to send additional refugee business to one of his own Schedule C hotels, and (c) ultimately transferred all the refugee housing business to his own Schedule C companies, under the guise of renovating the Schedule B companies to ensure they could not house the refugees.
22The statement of claim particularizes in great detail the monetary damages the plaintiffs allege they suffered as a result of Ray Gupta’s diversion of the refugee housing business. They plead that the Schedule B joint company received annual room revenue from the City of $5,042,918 and an additional $3,336,226 for meals over that same period (paragraph 77). They allege that Ray failed to return between $4.2M and $4.6M in revenue between August 2017 and January 2019 (paragraph 81) and that the transfer of the refugee contract business to the Schedule C companies deprived them of approximately $1,000,000 in monthly revenue with a profit margin between 84% and 86% (paragraph 84). They further specify that the transfer of the refugee housing business resulted in an initial 36% drop in the Schedule B company’s business and ultimately an 80% drop. They estimate their loss of business at $24 million in revenue (paragraphs 91 and 92).
23The claim pleads that the plaintiffs are entitled to an interest in the real property owned by the Schedule C companies on the basis of their claim to trace these profits. The prayer for relief simply pleads that they seek a declaration that they are entitled to “beneficial resulting and constructive trust interests in … The Schedule C Companies’ Properties … legally described in Schedules I, J, K, L, M, N, O, P” (paragraph 1(a)(iii)) and certificates of pending litigation over those same properties (paragraph 1(a)(hh)(iii)).
24At paragraph 129 of the claim, the plaintiffs plead that they are seeking a constructive trust on one of the Schedule C properties “stemming from Ray’s unlawful transfer and conveyance of the [Schedule B company’s] City Refugee Business” to that Schedule C property.
25At paragraph 165(c)(g), the plaintiffs seek “a declaration that [they] have a constructive or resulting trust interest in the Schedule C companies’ properties both (i) to the extent by which the acquisition and maintenance of these properties can be traced to revenue, profits, proceeds, benefits, opportunities (including revenue from opportunities) unlawfully taken and converted by Ray; as well as with respect to (ii) the added value of the funds to make improvements to the property and assets of the Schedule C properties.”
26Dunphy, J. dealt with a similar issue in Snook v Royal Stone Interlocking Concrete Ltd. 2021 ONSC 3476 in the context of a motion for a certificate of pending litigation. The plaintiff and defendant had started a landscaping business together. When the partners had a falling out, the plaintiff allegedly discovered that the defendant had incorporated numerous other companies under his control, some of which held real estate assets paid for by profits from the parties’ partnership. The plaintiff sued for unjust enrichment and sought a tracing order and a constructive trust over half the assets that had been wrongfully removed from the partnership. Specifically, the claim sought: (a) “an order directed [sic] a detailed accounting and tracing of benefits received and taken from the corporate defendants … a tracing order in respect of such benefits and an order declaring that any assets purchased by such benefits be held in a constructive/resulting trust” in favour of the plaintiff; (b) “an order declaring that any property purchased by such benefits, assets and funds be held in a constructive/resulting trust in favour of” the plaintiff; and (c) an order that certain named corporate defendants hold the listed real property “in trust for Royal Stone Interlocking Concrete Ltd. and/or 1548166 Ontario Ltd. or such other corporate defendants as determined … and/or, alternatively, in trust for [the plaintiff] in accordance with” his percentage share.
27Dunphy, J. held that the claim, as pleaded, could justify the application of tracing remedies or the imposition of a resulting or constructive trust over the lands, such that the claims raised a triable issue regarding an interest in land. (paragraph 39).
28While, on a first reading, the instant pleading smacks of a damages claim against the Schedule C parties for a loss or appropriation of business, that damages claim is pleaded as an alternative to the constructive trust claim. As Dunphy, J. noted at paragraph 41 of Snook, supra, and as is equally applicable here, “Direct claims to trace profits of the partnership into the land in question are advanced in the statement of claim for which the remedy sought is a constructive or resulting trust.”
29I make no finding on this preliminary motion as to whether the claim will succeed or, indeed, whether it is even necessary in light of the constructive trust claims already being pursued against Ray Gupta. However, given that the pleading seeks a constructive or resulting trust and seeks to trace profits of the joint business into the lands held by the Schedule C companies, I find that the limitation period for claims against the Schedule C companies is governed by the RPLA.
(B) Claims against the Schedule D companies
30The plaintiffs also argue that they are entitled to a beneficial resulting and constructive trust in the unidentified properties owned by the three Schedule D companies (paragraph 1(a)(iv)) and certificates of pending litigation over those unidentified properties (paragraph 1(a)(hh)(iv)). The plaintiffs plead that Ray Gupta owns 100% of the Schedule D companies in which they seek a trust interest.
31As to the particulars of their claim against the Schedule D companies, the plaintiffs allege that the Schedule D companies borrowed funds from the Bank of Montreal. To secure that loan, they allege that Ray Gupta improperly had a jointly owned Schedule B company guarantee repayment (paragraph 12). The allegation is not that the Schedule B company was called on the loan but that its guarantee was an unauthorized benefit to Ray’s Schedule D companies and in breach of his fiduciary duties to the plaintiffs.
32Mirroring their claim against the Schedule C companies, the plaintiffs seek at paragraph 165(c)(g) a declaration that they have a constructive or resulting trust interest in the Schedule D companies’ properties “(i) to the extent by which the acquisition and maintenance of these properties can be traced to revenue, profits, proceeds, benefits, opportunities (including revenue from opportunities) unlawfully taken and converted by Ray; as well as with respect to (ii) the added value of the funds to make improvements to the property and assets of the schedule D properties.”
33For the reasons outlined in paragraph 28, infra, I find that the claims asserted against the Schedule D companies are claims for a tracing remedy of the “assets” of the Schedule B companies into the lands owned by the Schedule D companies. As a claim to land, or an alternative claim to the interest in land, I find the claims against the Schedule D companies are also governed by the RPLA.
(C) Claims against the Schedule E Company
34As against the Schedule E company, the plaintiffs plead in paragraphs 13 and 67(k) of the claim that Ray Gupta was to buy a Mississauga hotel property with the plaintiffs, using one of the Schedule B companies. Instead, the Schedule E company bought the property in April 2017. Ray then had the Schedule E company sell the property in September 2018 and made a profit of $7.29 million. The Schedule E company is not a defendant in this action.
35In paragraph 165(m) of the statement of claim, the plaintiffs seek “an order to recover their losses and damages from Ray’s acquisition and resale of the Mississauga hotel property that Ray acquired and resold, through, his Schedule E Company, at a $7.29M profit in breach of his agreement with the Gawris.”
36Unlike the claims against the Schedule C and D companies, the plaintiffs do not seek a beneficial resulting or constructive trust against the Schedule E company. I find that the plaintiffs seek damages simpliciter and not damages as an alternative to a trust claim. I find that the limitation period for claims against the Schedule E company is governed by the Limitations Act, 2002.
CONCLUSION
37Service on the defendants Ray Gupta, Sunray Group Ltd., 2554190 Ontario Inc. and 2554200 Ontario Inc. is hereby validated. The request to validate service on Sundeep Gupta is denied.
38The plaintiffs’ claims against the Schedule C and D companies are governed by the RPLA. The plaintiffs’ claims against the Schedule E company is governed by the Limitations Act, 2002.
COSTS
39The defendants delivered their bill of costs at the conclusion of the hearing. The plaintiffs did not provide a bill of costs but undertook to upload their bill of costs by end of day 31 January 2024. As of the release of this decision, they have not uploaded a bill of costs.
40Costs are reserved to the hearing of the balance of the plaintiffs’ motion.
NEXT STEPS
41The balance of the plaintiffs’ motion will be heard before me in person for the full day of 22 July 2024. If they have not already done so, the plaintiffs shall deliver to the defendants a blacklined version of the proposed fresh as amended claim by 28 March 2024. No new changes are to be made to that version which was provided to me on the motion.
Associate Justice Jolley
Date: 15 March 2024