Court File and Parties

COURT FILE NO.: CV-23-92400 DATE: 2024/01/24 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1252020 Ontario Inc., Plaintiff AND The Overbrook of Congregation of Jehovah’s Witnesses Ottawa, Ontario, Defendant

BEFORE: The Honourable Mr. Justice Robert Smith

COUNSEL: Christopher E. Clermont, for the Plaintiff Stephen Cavanagh, for the Defendant

HEARD: January 9, 2024 in Ottawa

Amended Reasons for Decision

The text of the original Reasons for Decision dated January 16, 2024, was amended on January 24, 2024 and the description of the amendment is appended.

R. Smith J

[1] The Defendant, The Overbrook Congregation of Jehovah's Witnesses Ottawa, Ontario, ("Overbrook") seeks an order striking paragraphs 10 to 15(a) and (c) of the statement of claim pursuant to Rule 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”) on the grounds that they may prejudice or delay the fair trial of the action; are scandalous, frivolous or vexatious; or are an abuse of process of the court.

[2] The paragraphs sought to be struck plead that Mr. Syed, the sole director, officer and shareholder of 1252020 Ontario Inc. (“125”), has suffered from bipolar affective disorder over the previous 30 years and was incapable of managing his affairs when the agreement of purchase and sale (“APS”) was signed.

[3] Rule 25.11 of the Rules states as follows:

The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(a) may prejudice or delay the fair trial of the action;

(b) is scandalous, frivolous or vexatious; or

(c) is an abuse of the process of the court.

[4] Overbrook and 125 entered into an agreement of purchase and sale on April 21, 2021 to purchase a property at 258 Durocher Street for a total purchase price of $4,650,000. 125 initially posted a deposit of $250,000 and by September 2021, the deposit was increased to $500,000.

[5] The closing date was extended to January 17, 2022; however, on November 25, 2021, 125 advised the vendor that it was unable to obtain financing. The vendor took the position that 125 had committed an anticipatory breach of the APS and forfeited the deposit of $500,000 (10.7% of the purchase price).

Analysis

[6] Overbrook makes two arguments:

A. The first argument is that the Plaintiff is a limited company which cannot suffer mental distress and cannot recover aggregate damages. As a result, the Defendant argues that any pleadings regarding Mr. Syed’s mental health issues are irrelevant and immaterial and cannot have any affect on the result and therefore, should be struck. The Defendant relies on the cases of Canadian National Railway Company v. Brant, at paras. 27 to 30 and Savary v. Tarion, 2021 ONSC 2409, para. 129.

B. The second argument is that even if Mr. Syed was the Plaintiff personally, it has not pleaded that Overbrook knew or ought to have known that he was suffering from a mental incapacity when he signed the APS.

[7] In Muralin v. Grouleau, 2022 ONSC 2295 at para. 26, the court dismissed the Plaintiff’s claim for the return of her deposit when she alleged she was “struggling with her mental health” when she signed the APS.

[8] In Grant v. Imperial Trust Co. at para. 26 the Supreme Court stated that “Even in cases of mental incompetence, a party seeking to escape the terms of a contract must show not only that he or she was mentally incompetent, but also that the other party knew it or at least was aware of facts that should have put them on notice that the state of the mentally incompetent person was in question”.

[9] Grant makes it clear that to avoid the terms of a contract and to recover a deposit, the purchaser must also prove that the vendor knew or ought to have known that Mr. Syed’s mental capacity to contract was in question.

[10] Rule 25.11 provides that pleadings may be struck "with or without leave to amend". The Plaintiff sought leave to amend its pleadings during submissions. I grant the Plaintiff leave to amend his pleadings within 30 days to plead that Overbrook knew or ought to have known that Mr. Syed lacked the mental capacity to sign the APS when he paid the deposits, if such evidence exists.

[11] I agree with the Defendant's submission that the pleading of facts related to Mr. Syed's mental conditions over the past 30 years is not relevant and should be limited to his mental state in the time period around April 21, 2021 until November 25, 2021 when the amendments, further deposits, and the anticipatory breach occurred. The probative value of evidence of a 30-year mental history is exceeded by the prejudice and delay caused by the introduction of immaterial evidence.

Can a corporation suffer mental incapacity to contract?

[12] In Sleep Clinic London Inc. v. Murchea, 2012 ONSC 657, at para. 420, the court held that pleadings should only be struck on a Rule 25.11 motion “in the clearest of cases where it is plain and obvious that the action cannot succeed”.

[13] In this case, the Plaintiff has pleaded facts that the support a finding that Mr. Syed was the “directing mind” of the corporation and that he was the person who negotiated and signed the APS on behalf of the corporation. A corporation is a separate legal entity which lacks any mental capacity, however it acts through the direction of human beings, who can lack mental capacity depending on the circumstances.

[14] The Defendant was unable to find a case stating that where the directing mind of a corporation lacks mental capacity to contract and the other party knew or ought to have known of the absence of mental capacity, that the contract could not be set aside because it was entered into by a corporation.

[15] In these circumstances, I find that the law in this area is not sufficiently clear to strike the pleadings as requested. Relief from forfeiture is an equitable remedy and is not to plain and obvious that the action cannot succeed if properly pleaded.

Disposition

[16] For the above reasons, order to go as follows:

A. the Plaintiff is granted leave to amend the statement of claim to plead the factual basis to support a finding that Overbrook either knew or ought to have known that Mr. Syed lacked the mental capacity to sign the APS and make the deposits;

B. the pleadings may also be amended to describe Mr. Syed as the “directing mind” of the Plaintiff corporation;

C. the pleadings referring to Mr. Syed’s 30-year mental history are to be limited to his mental state in the time period around April 21, 2021 until November 25, 2021 without prejudice to any rights to discovery by either party;

D. no order as to costs as success was divided; and,

E. the pleadings at paragraphs 10 to 15 (a) and (c) of the Statement of Claim are struck, with leave to amend in accordance with this decision.

Mr. Justice Robert Smith Date: January 24, 2024

Appendix

Paragraph [16] previously stated:

[16] For the above reasons, order to go as follows:

A. the Plaintiff is granted leave to amend the statement of claim to plead the factual basis to support a finding that Overbrook either knew or ought to have known that Mr. Syed lacked the mental capacity to sign the APS and make the deposits;

B. the pleadings may also be amended to describe Mr. Syed as the “directing mind” of the Plaintiff corporation;

C. the pleadings referring to Mr. Syed’s 30-year mental history are to be limited to his mental state in the time period around April 21, 2021 until November 25, 2021; and,

D. no order as to costs as success was divided.

Paragraph [16] now reads as follows:

[16] For the above reasons, order to go as follows:

A. the Plaintiff is granted leave to amend the statement of claim to plead the factual basis to support a finding that Overbrook either knew or ought to have known that Mr. Syed lacked the mental capacity to sign the APS and make the deposits;

B. the pleadings may also be amended to describe Mr. Syed as the “directing mind” of the Plaintiff corporation;

C. the pleadings referring to Mr. Syed’s 30-year mental history are to be limited to his mental state in the time period around April 21, 2021 until November 25, 2021 without prejudice to any rights to discovery by either party;

D. no order as to costs as success was divided; and,

E. the pleadings at paragraphs 10 to 15 (a) and (c) of the Statement of Claim are struck, with leave to amend in accordance with this decision.

Released: January 24, 2024