Court File and Parties

COURT FILE NO.: CV-23-2251 DATE: 2024-05-28

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MAHBOOB SALAM Plaintiff – and – AHMAD SHAKER WALIZADA and KHATOOL LATIFI Defendants

COUNSEL: Masood Fariad, for the Plaintiff Michael Gayed, for the Defendants

HEARD: May 22, 2024

REASONS FOR DECISION

CHARNEY J.:

[1] The Defendants, Ahmad Shaker Walizada and Khatool Latifi, bring this motion for:

a. An Order setting aside any default steps taken by the Plaintiff, Mahboob Salam, with respect to this action; b. An Order striking, staying or dismissing this action; c. In the alternative, an Order staying this action pending the determination of the Lien action between Prompt Builders Inc. and Ahmad Shaker Walizada.

Facts

October 5, 2021 Lien Action

[2] On October 5, 2021, Prompt Builders Inc. issued a Statement of Claim against the Defendants, Ahmad Shaker Walizada and Khatool Latifi, for breach of contract and a claim for a lien in respect of the Defendants’ property in Kleinburg, Ontario. Prompt Builders Inc. sought $523,373.00 in damages pursuant to the provisions of the Construction Act. Prompt Builders Inc. is the only Plaintiff in that action. For ease of reference, I will refer to this as the “Lien action”.

[3] Prompt Builders Inc. registered a lien on the Kleinburg property on June 23, 2021.

[4] Prompt Builders Inc. alleges that it entered into a contract with the Defendants on July 11, 2019, for the construction (rebuilding) of the Defendants’ home in Kleinburg, Ontario. The amount of the agreement was for a total of $1,075,416, plus HST.

[5] Paragraph 8 of the Statement of Claim alleges:

During the course of the Project, the Defendants requested extras from the Plaintiff, which the Plaintiff supplied. As a result, an additional sum of $393,260 plus HST…was payable to the Plaintiff.

[6] Clause 2.4 of the July 11, 2019 agreement states that it “supersedes all prior negotiations, representations or agreements, either written or oral, relating to the work”.

[7] Clause 15.11 of the July 11, 2019 agreement is an “entire agreement” clause. It provides:

This contract, and the documents incorporated herein and any change orders or change directives created per the process outline in article 13, represent the entire agreement between The Contract Documents can only be modified in writing signed and dated by both The Parties. (sic)

[8] The Plaintiff received the sum of $949,263, and is claiming for the balance owing of $523,373 ($1,075,416 + $393,260 = $949,263 + HST).

[9] The July 11, 2019 contract between Prompt Builders Inc. and the Defendant Ahmad Walizada is appended to the Defendants’ motion material since it is referenced in the Statement of Claim and may, therefore, be considered in a motion under Rule 21.01: Del Giudice v. Thompson, 2024 ONCA 70, at para. 18. The July 11, 2019 contract is an agreement between the Plaintiff, Prompt Builders Inc. and the Defendant, Mr. Ahmad Walizada.

[10] The contract is signed by Mahboob Salam on behalf of Prompt Builders Inc. Mr. Salam’s name is not, however, referenced anywhere in the Statement of Claim that commenced the Lien action.

[11] The Defendants served their Statement of Defence to this action on January 5, 2022. In their Statement of Defence, the Defendants admit that they entered into a contract on July 11, 2019 with Prompt Builders Inc. to rebuild their family home, but argue that the Plaintiff breached numerous terms of the agreement, delayed the reconstruction of the home, and failed to complete the work required. They dispute that there were any “extras” beyond some work performed in the laundry room. They allege that they had to retain an alternate contractor to complete the home and correct deficiencies.

[12] The merits of the Lien action are not before me on this motion, but its existence is foundational for the present motion.

May 15, 2023 Salam Action

[13] On May 15, 2023, the Defendants Ahmad Shaker Walizada and Khatool Latifi were served with a second Statement of Claim in relation to the reconstruction of their Kleinberg home. The sole Plaintiff in this Statement of Claim is Mahboob Salam, who identifies himself as the sole owner, director and officer of Prompt Builders Inc. For ease of reference, I will refer to this second action as the “Salam action”.

[14] Mr. Salam claims $3.5 million in damages against the Defendants for breach of contract. He alleges, at para. 7, that “some time prior to July 11, 2019, a general agreement was reached between the Plaintiff and the Defendants”. While not fully explained in the Statement of Claim, counsel for Mr. Salam explained that this “general agreement” was a verbal agreement between Mr. Salam and the Defendants. The verbal “General Agreement” was an agreement to pay for extras that were not included in the Written Agreement that followed on July 11, 2019 and were not approved by the insurer for the rebuild of the property.

[15] Paragraph 8 of the Statement of Claim alleges that, “[i]n addition to the General Agreement, a supplemental and written agreement in respect of labour and materials …was executed between the Defendant(s) and Prompt Builders Inc. on July 11, 2019.” This “Written Agreement” was signed by Mr. Salam “as owner and/or director of the company”.

[16] Thus, the Salam action alleges that there were two contracts: a verbal “General Agreement” for the “extras” and a Written Agreement for the agreed price approved by the insurer. It is unclear how the Salam action arrives at the $3.5 million in damages, but it is clear from paras. 23 – 24 of the Statement of Claim that it includes damages for breach of both the verbal “General Agreement” and the July 11, 2019 Written Agreement. Paragraph 24 of the Salam action Statement of Claim states:

The Defendants breached the terms of all agreements between the parties including the Written Agreement and the General Agreement, when they failed and/or refused to pay the Plaintiff and/or his company further funds beyond the amount of $949,263.19, leaving a significant shortfall of funds to the Plaintiff and/or his company, causing the Plaintiff and/or his company to suffer significant financial distress as well as and including but not limited to business loss and/or personal income loss.

[17] In contrast, the Lien action alleges only one written contract – the July 11, 2019 agreement with Prompt Builders Inc. - and claims damages for both the contract price and the alleged “extras” for breach of this contract.

[18] There are, therefore, two separate actions - one by Prompt Builders Inc. and one by Mr. Salam in his personal capacity - each claiming damages with respect to the same alleged breach of contract(s).

Issues

A. Setting Aside the Noting in Default – Factual Background

[19] The Salam action was served on the Defendants on May 15, 2023.

[20] On May 17, 2023, and again on May 20, 2023, counsel for the Plaintiff emailed the Defendants’ lawyer, stating: “if the Defendants do not respond within the time frame provided by the Rules with their respective pleadings, this email shall serve as notice that we will note the Defendants in default.” [Double emphasis in original.]

[21] By letter dated May 23, 2023, the lawyer for the Defendants indicated that he had received instructions to bring a motion to strike or stay the action and requested confirmation that default steps would not be taken pending the motion.

[22] On May 23, 2023, counsel for the Plaintiff wrote to counsel for the Defendants that he “expects your pleadings to be produced by June 6, 2023”.

[23] On May 26, 2023, counsel for the Defendants emailed the Newmarket trial coordinator, and copied counsel for the Plaintiff, seeking available dates for a two hour motion to strike or stay the action.

[24] In a separate email dated May 26, 2023, counsel for the Defendants advised counsel for the Plaintiff that it would be “improper for you to take default steps in light of my advice regarding a motion to strike/stay the action and my efforts to schedule a motion”.

[25] On May 27, 2023, counsel for the Plaintiff reiterated his intention to note the Defendants in default if “they do not respond to the claim…”.

[26] On June 6, 2023, at 2:10 p.m., counsel for the Defendants served his Notice of Motion to set aside any default steps taken by the Plaintiff “if necessary” and to strike, dismiss or stay this action. Through correspondence with the Court and counsel for the Plaintiff, counsel for the Defendants took steps to try to schedule the motion on the earliest available date.

[27] On June 12, 2023, counsel for the Plaintiff emailed counsel for the Defendants:

Despite repeated requests, no statement of defence or pleadings were delivered by your clients within the time prescribed by the Rules. Kindly be advised that your clients have been Noted in Default on June 6, 2023… A request for default judgment has also been filed. [Double emphasis in original.]

[28] On June 12, 2023, counsel for the Defendants wrote to counsel for the Plaintiff, stating that it was improper for the Plaintiff to note the Defendants in default when the Plaintiff was aware of the Defendants’ intention to bring a motion in relation to the Statement of Claim, and also indicated that the Plaintiff had noted the Defendants in default on June 6, 2023, even though the Plaintiff had given June 6 as the deadline for receiving the Statement of Defence. He requested the Plaintiff’s consent to an Order to set aside the noting in default, failing which he would bring a motion to have the noting in default set aside.

[29] The Plaintiff refused to consent to an Order to set aside the noting in default. The Plaintiff’s position, set out in his factum, is that:

The Defendants were afforded plenty of time and opportunity to respond to the within Claim, and the Defendants were aware of the Plaintiff’s intention to note the Defendants in default failing a response. The Defendants demonstrated no intention to respond.

[30] I do not know when on June 6, 2023 the Plaintiff noted the Defendants in default. Counsel for the Plaintiff advises that he requisitioned the noting in default prior to receiving the Defendants’ Notice of Motion at 2:10 p.m. on June 6, 2023. If that is true, then he did not even wait until his own deadline of June 6, 2023 had expired. If, on the other hand, he waited until the end of day to note the Defendants in default (which he denies), then he noted the Defendants in default even though he had been served with the Notice of Motion. Either way, the Plaintiff’s counsel acted improperly.

Analysis – Setting Aside Noting in Default

[31] Rule 19.03(1) provides:

Setting Aside the Noting of Default

19.03 (1) The noting of default may be set aside by the court on such terms as are just.

[32] The Court of Appeal provided the following summary of the criteria to be applied when deciding a motion to set aside noting in default under Rule 19.03(1) in Franchetti v. Huggins, 2022 ONCA 111, at para. 9:

To summarize the jurisprudence, the following factors have been found to be relevant in considering whether a noting of default should be set aside:

(1) The parties’ behaviour; (2) The length of the defendant’s delay; (3) The reasons for the delay; (4) The complexity and value of the claim; (5) Whether setting aside the noting of default would prejudice a party relying on it; (6) The balance of prejudice as between the parties; and (7) Whether the defendant has an arguable defence on the merits.

[33] In this case, all of the factors favour the Defendants. It is clear, in the circumstances of this case, that the noting in default must be set aside.

[34] Almost immediately upon being served with the Statement of Claim, the Defendants advised the Plaintiff of their intention to bring a motion to dismiss or stay the action, and moved promptly to schedule the motion. They served their Notice of Motion on June 6, 2023 - just 22 days after being served with the Statement of Claim - and the date by which the Plaintiff had demanded the Statement of Defence.

[35] Moreover, it is well established that a motion to stay or dismiss an action is a defence to the action. As Blair J. (as he then was) stated in LeBlanc v. York Catholic District School Board, at paras. 21 – 22:

Mr. LeBlanc submits that the defendants did not defend the action because they had not delivered their statements of defence within the time prescribed by the rules. In his view, the fact that the defendants brought a motion does not constitute “a defence” …

Mr. LeBlanc is mistaken. It is true that the defendants had not delivered their statements of defence, but it is not true that they had not defended the action. It is well accepted that the bringing of a motion before the court to obtain a stay or the dismissal of an action is recognized as a step in the defence of the proceeding: see Cafissi v. Vana, [1973] 1 O.R. 654 at p. 655 (Master). In that case, Senior Master Rodger said:

In my opinion, the default judgment here was irregular and the defendants are entitled to have it set aside ex debito justitiae without being required to explain their default or to show that they have a good defence to this action on the merits. [page 693]

As Senior Master Marriott pointed out in Bruce v. John Northway & Son Ltd., [1962] O.W.N. 150 at p. 151:

After service of a notice of motion, as a general rule, any act done by any party affected by the application which affects the rights of the parties on the pending motion will be ignored by the Court. . .

[36] This principle was affirmed by the Court of Appeal in Male v. The Business Solutions Group, 2013 ONCA 382, at para. 17.

[37] Accordingly, the Defendants’ motion to set aside the noting in default is granted.

B. Motion to Strike or Stay the Action

[38] The Salam action commenced by Mr. Salam in 2023 is clearly duplicative of the Lien action commenced by Prompt Builders Inc. in 2021. As indicated above, both actions claim damages with respect to the same alleged breach of contract. In the Salam action, the sole owner of Prompt Builders Inc. claims damages for amounts owing to Prompt Builders Inc., even though those damages are already claimed by Prompt Builders Inc. in the Lien action. Both actions seek damages for the alleged “extras”.

[39] The relevant portions of Rule 21.01 are as follows:

21.01 (1) A party may move before a judge,

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,

and the judge may make an order or grant judgment accordingly.

(2) No evidence is admissible on a motion,

(b) under clause (1) (b).

(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that,

(c) another proceeding is pending in Ontario or another jurisdiction between the same parties in respect of the same subject matter; or (d) the action is frivolous or vexatious or is otherwise an abuse of the process of the court,

and the judge may make an order or grant judgment accordingly.

[40] In this case the Defendants rely on Rule 21.01(1)(b) and (3)(c) and (d).

[41] The test to be applied under Rule 21.01(1)(b), on a motion to strike a pleading on the ground that it discloses no reasonable cause of action is well-settled:

• the court must accept the facts alleged in the pleading as proven, unless they are patently ridiculous, or incapable of proof;
• it must be “plain and obvious” that the claim cannot succeed – the pleading must have a “radical defect” before the party will be driven from the judgment seat;
• the pleading should be read generously, with allowance for inadequacies due to drafting deficiencies;
• It is important to note Rule 21.01(2)(b), which states that no evidence is admissible on a motion to strike under Rule 21.01(1)(b);
• While evidence is not admissible, documents referred to and relied on in the pleading are not evidence precluded by Rule 21.01 but are, in effect, incorporated into the pleading.

[42] See for example: Kraik v. Ungar, 2020 ONSC 7221, at paras. 14 and 15, and cases cited therein; Harris v. GlaxoSmithKline Inc., 2010 ONSC 2326, at paras. 36 – 41 and cases cited therein.

[43] “Another way of putting the test is that the claim has no reasonable prospect of success. Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial”: Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, at para. 17.

[44] In Knight, at para. 19, the Supreme Court stated that the power to strike out claims that have no reasonable prospect of success “is a valuable housekeeping measure essential to effective and fair litigation. It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial.”

[45] While the pleading must be read generously in favour of the plaintiff, the minimum requirements must be present. The Court cannot draft the Statement of Claim for the Plaintiff. If a material fact necessary for a cause of action is omitted, the statement of claim is bad and the remedy is a motion to strike the pleading, not a motion for particulars: Coote v. Ontario Human Rights Commision, at para. 40.

[46] The Defendants argue that, to the extent that the Salam action seeks damages for breach of the July 11, 2019 Written Agreement signed by Prompt Builders Inc., the action cannot succeed because Mr. Salam is not a party to the July 11, 2019 Written Agreement. It is a basic principle of corporate law that a corporation is a separate legal entity, and that a shareholder, even a sole shareholder cannot sue on behalf of the corporation.

[47] This principle was summarized by the Court of Appeal in Meditrust Healthcare Inc. v. Shoppers Drug Mart, at paras. 12 – 14:

The rule in Foss v. Harbottle provides simply that a shareholder of a corporation -- even a controlling shareholder or the sole shareholder -- does not have a personal cause of action for a wrong done to the corporation. The rule respects a basic principle of corporate law: a corporation has a legal existence separate from that of its shareholders. See [Salomon v. Salomon & Co. Ltd., [1897] A.C. 22, 66 L.J. Ch. 35 (H.L.)]. A shareholder cannot be sued for the liabilities of the corporation and, equally, a shareholder cannot sue for the losses suffered by the corporation.

The rule in Foss v. Harbottle also avoids multiple lawsuits. Indeed, without the rule, a shareholder would always be able to sue for harm to the corporation because any harm to the corporation indirectly harms the shareholders.

Foss v. Harbottle was decided nearly 160 years ago but its continuing validity in Canada has recently been affirmed by the Supreme Court of Canada in Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, 146 D.L.R. (4th) 577 and by this court in Martin v. Goldfarb (1998), 41 O.R. (3d) 161, 163 D.L.R. (4th) 639 (C.A.).

[48] To the extent that Mr. Salam is suing for damages suffered by Prompt Builders Inc. in the Salam action, his action violates the principle in Foss v. Harbottle and is duplicative of the Lien action already brought by Prompt Builders Inc. Mr. Salam has no cause of action with respect to the July 11, 2019 Written Agreement because he was not a party to that agreement: Kumar v. Heather, 2020 ONSC 6911, at para. 40.

[49] The Plaintiff’s response to this argument is that his claim is “unique” and that the damages claimed are “unique to the Plaintiff”. A reading of the Statement of Claim demonstrates that this is not correct. Mr. Salam clearly claims damages suffered by Prompt Builders Inc. for breach of the July 11, 2019 Written Agreement.

[50] To this extent, the Defendants’ motion to strike the Statement of Claim as disclosing no cause of action must be granted.

[51] Moreover, commencing a separate action, rather than amending the Lien action to include a personal claim by Mr. Salam, is contrary to s. 138 of the Courts of Justice Act, which provides:

As far as possible, a multiplicity of legal proceedings is to be avoided.

[52] Mr. Salam does allege that he, not Prompt Builders Inc., was the party to the verbal “General Agreement” in relation to the extras. Assuming the facts alleged in the Statement of Claim to be true, Mr. Salam may have a personal cause of action against the Defendants for breach of contract.

[53] The immediate difficulty here, however, is that this allegation is inconsistent with the allegation contained in the Lien action Statement of Claim, which alleges that the extras were part of the July 11, 2019 Written Agreement, and that the money is owed to Prompt Builders Inc. Indeed, that is why Prompt Builders Inc. was able to register a lien on the property.

[54] I am not prepared to parse each paragraph in the Salam action Statement of Claim and try to disentangle the claims with respect to the verbal “General Agreement” from the claims with respect to the written July 11, 2019 Agreement.

[55] Given s. 138 of the Courts of Justice Act, and Rule 21.01(3)(c), the appropriate remedy in this case is to strike out the Salam Statement of Claim and dismiss the Salam action, without prejudice to the Plaintiff’s right to amend the Lien action Statement of Claim to add Mr. Salam as a plaintiff and incorporate any personal claim Mr. Salam may have against the Defendants. It will be up to the Plaintiff’s counsel to figure out how he can reconcile the inconsistencies in the two Claims if they appear in a single Claim.

[56] I also note that a personal claim by Mr. Salam may jeopardize the lien registered in the name of Prompt Builders Inc. Again, that will be a question for the Plaintiff’s counsel to address if he moves to amend the Lien action Statement of Claim.

[57] The Plaintiff shall provide any proposed amendments to the Defendants within 30 days of the release of this decision. If the Defendants do not consent to the amendments, the Plaintiff shall bring a motion to amend the pleadings within a further 20 days.

[58] If the Statement of Claim is amended, the Defendants shall have the right to further examinations for discovery with respect to the amendments.

Conclusion

[59] This Court Orders:

a. The Plaintiff’s noting of the Defendants in default is set aside. b. The Statement of Claim in Mahboob Salam v. Walizada and Latifi, Court file # CV-23-2251-0000, is struck out in its entirety and the action is dismissed, without prejudice to the Plaintiff’s right to amend the Prompt Builders Inc. v. Walizada and Latifi, Statement of Claim, Court file # CV-21-3404-0000, to add Mr. Salam as a plaintiff and incorporate any personal claim Mr. Salam may have against the Defendants. c. The Plaintiff shall provide any proposed amendments to the Defendants within 30 days of the release of this decision. If the Defendants do not consent to the amendments, the Plaintiff shall bring a motion to amend the pleadings within a further 20 days. d. If the Statement of Claim is amended, the Defendants shall have the right to further examinations for discovery with respect to the amendments.

Costs

[60] The Defendants request costs on a partial indemnity basis in the amount of $7,789, or $10,198 on a substantial indemnity basis. He argues that the costs related to setting aside the noting in default should be on a substantial indemnity basis because the Plaintiff acted improperly in noting the Defendants in default and refused to consent to having the noting in default set aside when given the opportunity. Approximately 25% of his time was spent on this aspect of the motion. The Defendants acknowledge that the balance of the motion should be on a partial indemnity basis.

[61] Counsel for the Plaintiff notes that his costs were only $4,472 on a partial indemnity basis. At the hearing of the motion, he took the position that his client would consent to the setting aside of the noting in default, but only if it was on a without costs basis.

[62] The time for the Plaintiff to offer to set aside the noting in default on a without costs basis was before the Defendants brought the motion, not at the hearing of the motion after the Defendants had made their submissions.

[63] While the Defendants’ costs on this motion were somewhat higher, it is often the case that the moving party’s costs will be somewhat higher than the costs of the responding party. In addition, the Defendants’ factum reflects more legal research that was relevant to the legal issues on this motion.

[64] In my view, the Defendants’ claim for costs is reasonable in the circumstances of this case. The Plaintiff acted improperly in noting the Defendants in default in this case, and should have consented to set aside the noting in default when asked to do so on June 12, 2023. Substantial indemnity costs are appropriate for this portion of the motion.

[65] In addition, the filing of a second duplicative action was, in my view, an abuse of process.

[66] Costs are fixed at $8,500 payable by the Plaintiff to the Defendants within 30 days.

Justice R.E. Charney Released: May 28, 2024