COURT FILE NO.: CV-21-657503

DATE: 2024 10 23

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CARLOS ERNESTO CAPPELLARO ZAVALETA and GABRIELA RUIZ MORAN, Plaintiffs

- and -

LUISA MARGARITA CAPPELLARO-ZAVALETA, BOJAN POPOVIC and THE TORONTO-DOMINION BANK, Defendants

BEFORE: Associate Justice Todd Robinson

COUNSEL: J. Watts, for the plaintiffs (moving parties)

G. Oddy for the defendants, Luisa Margarita Cappellaro-Zavaleta and Bojan Popovic

HEARD: September 12, 2024

REASONS FOR DECISION (Motion to Further Amend Statement of Claim)

[1] The plaintiffs move to amend their statement of claim to add a claim of $50,000 for aggravated and punitive damages. The action has been set down for trial, with a pre-trial scheduled to proceed this month and trial dates fixed in February 2025. The defendants oppose the proposed amendments.

[2] From the pleadings, the parties’ dispute is over ownership of a property in Toronto. The plaintiffs claim that they are sole beneficial owners under an oral trust agreement entered with the defendants. The defendants deny the trust agreement as alleged by the plaintiffs. They acknowledge that the parties discussed using the property as a joint investment opportunity, but their position is that no investment agreement was entered until after the plaintiffs had already purchased the property. Their position is also that the parties’ subsequent agreement never created a sole ownership interest in favour of the plaintiffs. The plaintiffs were legally tenants pursuant to a signed lease agreement.

[3] The proposed punitive and aggravated damages claim arises from the defendants having allegedly breached the parties’ agreement by commencing four separate applications to the Landlord and Tenant Board (“LTB”) seeking to evict the plaintiffs from the property.

[4] The plaintiffs have put forward well-reasoned arguments for why I should allow the amendments at this late stage of the proceeding. The defendants have equally put forward cogent and compelling arguments for why I should not. Deciding this motion has been challenging. Ultimately, though, I have decided to grant the motion with a tight timetable imposed for additional discoveries.

Analysis

[5] Rule 26.01 of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”) provides that, on motion at any stage of an action, the court shall grant leave to amend a pleading on such terms as are just unless prejudice would result that could not be compensated for by costs or an adjournment. Amendments should be presumptively approved unless they would result in prejudice that cannot be compensated by costs or an adjournment; they are shown to be scandalous, frivolous, vexatious or an abuse of the court's process; or they disclose no reasonable cause of action: 2441799 Ontario Inc. v. 2474187 Ontario Inc., 2024 ONSC 115 at para. 10.

[6] Once an action has been set down for trial, as in this case, subrule 48.04(1) of the Rules requires that leave of the court is required to bring an amendment motion. The test for granting leave has been held by the Court of Appeal to be co-extensive with the test under rule 26.01. The court will consider whether granting leave to bring a motion to amend a pleading would result in prejudice that could not be compensated for by costs or an adjournment: Horani v. Manulife Financial Corporation, 2022 ONSC 2350 at para. 28.

[7] The plaintiffs have already amended their statement of claim three times prior to this motion being brought: first to add a claim for negligent misrepresentation in July 2021, second to add a claim for resulting or constructive trust in the property in February 2022, and third to add an additional damages claim of $250,000 in January 2023. Each of these prior amendments appear to have been on consent of the parties.

[8] The defendants oppose the newly proposed further amendments to add a claim for punitive and aggravated damages. They do so on four main bases, namely:

(a) there is prejudice from the delay in bringing this motion, particularly since the proposed amendments change the scope of litigation, such that further documentary and oral discoveries will be required, jeopardizing the fixed trial dates;

(b) the proposed claim is statute-barred by the Limitations Act, 2002, SO 2002, c 24, Sched B;

(c) there is no independent actionable wrong underlying the new claim for punitive damages; and

(d) the new claim falls within the exclusive jurisdiction of the LTB pursuant to the Residential Tenancies Act, 2006, SO 2006, c 17 (the “RTA”) and is beyond the jurisdiction of this court to decide.

[9] I agree with the plaintiffs that neither of the first two challenges are a sufficient basis to refuse the amendments.

[10] With respect to delay in bringing this motion and the need for additional discoveries, I agree that the plaintiffs have not reasonably explained why they have waited so long to bring this motion. Their reply factum seeks to provide an explanation, but a factum cannot be used to give evidence. No evidence has been tendered to address delay. That delay is relevant in considering prejudice. Prejudice can be presumed where a proposed new claim for punitive damages depends on new facts and arguments that were not pleaded and would jeopardize a trial date due to the need for additional discoveries: Horani, supra at paras. 51-52.

[11] As set out in rule 26.01 of the Rules, the relevant prejudice is prejudice that cannot be compensated for by costs or an adjournment. There is undoubtedly prejudice from permitting an amendment at this late stage, but I am unconvinced that it is non-compensable prejudice. Trial is scheduled to proceed in February 2025. In my view, the amendments are factually narrow. I agree that the defendants should be entitled to discover on them, but there is sufficient time to complete additional discovery steps on the new allegations, albeit on a tight timeline. The defendants’ costs of further pleading and additional examination are compensable. The risk of motions from discoveries can be mitigated by use of subrule 34.12(2) of the Rules for relevance refusals and reliance on subrules 30.08(1) and 31.07(2) of the Rules at trial, which will force the plaintiff to seek leave of the trial judge to tender evidence that is not provided during the additional discoveries. I see nothing in the proposed amendments that would reasonably result in the need for additional trial days.

[12] With respect to the limitations argument, the plaintiffs have proposed a revision to their amended statement of claim that limits the relevant conduct of the defendants to LTB applications since August 28, 2023, which is within two years. On a motion for leave to amend pleadings, the allegations in the pleading are taken to be true and provable and the court is not to consider the factual and evidentiary merits of the proposed new claims: 2441799 Ontario Inc., supra at paras. 15 and 17. On the face of the revised amended pleading, the claim is not statute-barred.

[13] Neither party has tendered any admissible evidence on discoverability of the claim. Arguments have been made primarily based on the draft amended claim and the revision made to it after the defendants’ limitation position was raised. The defendants did seek to tender an unsworn affidavit prepared the day before the hearing after the amended notice of motion was served, but I have concerns with considering such unsworn, last-minute evidence. In my view, it would be improper to decide the limitations issue without a proper evidentiary record on discoverability. The defendants are entitled to plead a limitation defence and argue that, in fact, the plaintiffs discovered the claim at an earlier date, but in my view this motion is not the proper forum to argue a limitations defence that requires factual findings based on an evidentiary record.

[14] With respect to the third challenge, punitive damages are recoverable in a contract dispute only where the plaintiff establishes that the defendant’s conduct giving rise to the claim is itself an independent, actionable wrong: Halupa v. Sagemedica Inc., 2019 ONSC 7411 at para. 31; Geographic Resources Integrated Data Solutions Ltd. v. Peterson, 2015 ONSC 4658at paras. 39-40 (citing Honda Canada Inc. v. Keays, 2008 SCC 39 at para. 62).

[15] The defendants submit that the only independent, actionable wrong disclosed by the proposed amendment is the defendants commencing LTB applications, and that this court should not conclude that the act of commencing a legal proceeding may itself give rise to a cause of action for punitive damages. They argue that such a conclusion is untenable. It is unsupported by any case law and would lead to absurd and undesirable outcomes, since a party cannot be entitled to punitive damages in one proceeding based on conduct in another proceeding.

[16] The plaintiffs do not take the position that commencing the LTB applications is the independent, actionable wrong. Instead, they argue that the independent, actionable wrong is a breach of the parties’ agreement, as pleaded, that the defendants would not evict the plaintiffs from the property. The proposed amended claim specifically pleads that the defendants’ breach of that term was “harsh, vindictive, reprehensible, malicious, oppressive, and high-handed, and departs to a marked degree from ordinary standards of decent behaviour, and constituting an independent actionable wrong.”

[17] I am satisfied that the alleged conduct supports a triable independent, actionable wrong. It is not “plain and obvious” that the plaintiffs’ position that breach of a term of the parties’ agreement (if proven) constitutes an independent, actionable wrong cannot succeed nor do I agree that the position has “no reasonable prospect of success”. Those are the thresholds discussed in the case law for denying a pleading amendments or striking a claim on the basis that a cause of action lacks legal tenability: see, for example, Pantaleo et al. v. Wood et al., 2015 ONSC 1850 at paras. 22-23; R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 20.

[18] With respect to the fourth jurisdictional challenge, both sides have put forward cogent arguments on why the claim does or does not require the court to determine an issue that falls within the exclusive jurisdiction of the LTB. The distinction between their differing positions is narrow and fairly nuanced.

[19] Pursuant to s. 168(2) of the RTA, the LTB has exclusive jurisdiction to determine all applications under the RTA and with respect to all matters in which jurisdiction is conferred by that legislation. The defendants point out that the LTB has jurisdiction to decide and order costs of an application: RTA, s. 204. Rule 23.3 of the LTB’s Rules of Procedure provides that a party who engages in unreasonable conduct which causes undue delay or expense may be ordered to pay costs to another party. As set out in the LTB’s Interpretation Guideline 3: Costs, unreasonable conduct that causes undue expense or delay may include bringing a frivolous or vexatious application or motion, initiating an application or any procedure in bad faith, any misconduct at the hearing or in the proceeding, and maligning another party or unreasonably slurring the character of the other party. The defendants say that the punitive and aggravated damages claim, as framed, is more properly the subject matter of costs.

[20] As a specialized tribunal, the LTB has exclusive jurisdiction to hear disputes between landlords and tenants. That includes having the exclusive jurisdiction to determine whether a person is a “tenant” and if so, to terminate the tenancy and/or evict the tenant. In that context, the LTB can consider and address evidence on whether an alleged tenant is a “co-owner” in determining whether or not that party is a “tenant” under the RTA: Warraich v. Choudhry, 2018 ONSC 1267 (Div Ct) at paras. 30, 41, 49, and 53.

[21] The defendants argue that this court cannot and should not be assessing and deciding the merits of the defendants’ LTB applications, including the defendants’ standing to bring them. They argue that, to decide the proposed punitive and aggravated damages claim, this court will need to decide if the defendants had a right to evict the plaintiffs and, if not, whether it was improper to commence the LTB applications. Those issues are argued to be within the exclusive jurisdiction of the LTB. The conduct complained about should also be sanctioned as costs in the LTB applications.

[22] The plaintiffs submit that the proposed amendments do not deal with the merits of the defendants’ LTB applications, are not a collateral attack on the LTB’s decisions, and are not seeking relief within the jurisdiction of the LTB. The plaintiffs submit that they have already pleaded breach of contract. The proposed amendments only add a new allegation that it was a further term of the parties’ agreement that the defendants would not seek to evict the plaintiffs from the property and that, by commencing applications before the LTB, the defendants breached that term. That breach, and associated threat of eviction, resulted in emotion and mental distress that warrants aggravated damages and condemnation by this court by punitive damages.

[23] Specifically, the plaintiffs argue that punitive and aggravated damages arise from the defendants’ alleged breach of contract, not as a result of the LTB applications themselves. Accordingly, the plaintiffs argue that whether or not the LTB applications had merit is immaterial and, as a result, there is no jurisdictional concern. Claims for breach of contract fall squarely within this court’s jurisdiction.

[24] I have carefully considered the parties’ reasoned and well-argued positions. The distinction between them is nuanced, but I am convinced that the plaintiffs’ proposed claim for punitive and aggravated damages is not solely a matter of costs, and that the underlying factual findings needed for the plaintiffs’ proposed claim do not clearly fall within the exclusive jurisdiction of the LTB. Accordingly, the proposed claims are appropriately considered and decided in this court.

[25] There is no dispute that the parties signed a lease agreement. The defendants are correct that the LTB has exclusive jurisdiction in landlord-tenant disputes and that the LTB may consider and sanction unreasonable conduct in bringing an application. The RTA and the LTB’s Rules of Procedure give the LTB jurisdiction to consider the merits of an application and conduct of a party in deciding costs. However, in my view, the plaintiffs’ proposed punitive and aggravated damages claim does not require the court to determine any particulars of the parties’ landlord and tenant relationship, including whether or not the plaintiffs are “tenants” or whether the defendants are entitled to evict them. Rather, it requires findings on terms of the parties’ oral agreement.

[26] The Superior Court has jurisdiction to decide whether or not the plaintiffs have an ownership interest in the property and the extent of that ownership interest. In this case, the trial judge will be required to make findings on whether the parties entered into a legally binding oral agreement and, if so, the terms of that agreement. Those findings are in the nature of equitable rights and entitlements, which are beyond the jurisdiction of the LTB: Warraich v. Choudhry, supra at para. 49.

[27] The proposed new para. 24 in the draft amended statement of claim states that the defendants’ LTB applications were commenced notwithstanding an express or implied term of the parties’ agreement that the defendants would never and could never seek to or evict the plaintiffs. Whether or not the parties expressly or impliedly agreed to the alleged non-eviction term and, if so, whether it was breached and the manner in which that breach occurred are the central factual determinations that must be made to support the punitive and aggravated damages claim. Those are part of the overall determination that this court must already make on the parties’ agreement (if any) about the plaintiffs’ interest in the property and the terms that governed their relationship with respect to that interest.

[28] In my view, on close consideration, the defendants’ position that the breach of a covenant (if any) not to evict the plaintiffs by reason of commencing the LTB applications cannot support a legal claim for punitive and aggravated damages is properly decided in this court, but on a fulsome evidentiary record. I have been directed to nothing in the RTA and no case law has been put before me supporting that the LTB has jurisdiction, let alone exclusive jurisdiction, to consider and decide (i) disputed terms of the parties’ oral agreement that may impact interpretation of the parties’ lease or their rights under it, (ii) whether such terms were breached, and (iii) any remedies flowing from such a breach. Warraich supports that the LTB does not.

[29] For the above reasons, I am satisfied that the underlying factual and legal determinations that must be made to support the plaintiffs’ proposed punitive and aggravated damages claim are within this court’s jurisdiction. I am accordingly granting leave to amend the statement of claim on terms.

Costs

[30] Prior to the parties’ submissions at the motion hearing, costs were agreed in the event either side was successful. The parties’ agreement was that, if the plaintiffs were successful, then the defendants would pay costs of the motion in the amount of $3,500, including HST and disbursements. The plaintiffs further agreed to pay the reporter fees from further examinations.

Disposition

[31] For the foregoing reasons, the plaintiffs’ motion is granted, with costs payable by the plaintiffs to the defendants in the amount of $3,500, including HST and disbursements.

[32] Counsel had discussed and agreed to a timetable prior to arguing the motion, which was provided to me without prejudice to the defendants’ positions on prejudice from the delay in bringing this motion. That timetable was reasonable, but it requires revision since this decision has taken longer than I had anticipated to release. I have adjusted the agreed timetable. It may be varied on mutual consent pursuant to rule 3.04 of the Rules without the need for further court order. Counsel may also wish to review it with the pre-trial judge.

[33] I am mindful of the upcoming trial dates and the defendants’ concern about the impact of disputes arising from further discoveries. To the extent required, I will endeavour make myself available for a case conference to address any disputes that arise from the additional discovery steps that I am ordering.

[34] I accordingly order as follows:

(a) The plaintiffs are hereby granted leave to amend their statement of claim in the form attached as Schedule A to their amended notice of motion.

(b) The following timetable shall apply, subject to the parties’ mutual agreement to vary it:

(i) The defendants shall serve an amended statement of defence, if any, by November 1, 2024.

(ii) The plaintiffs shall serve a supplementary affidavit documents and Schedule A productions by November 6, 2024.

(iii) The plaintiffs shall produce themselves for further examination for discovery on new issues arising from the amendments by November 22, 2024. Such examinations shall be for up to two (2) hours per plaintiff, for a total of four (4) hours, for which the plaintiffs shall pay the reporter’s fees.

(iv) Absent exceptional circumstances, any question asked during examinations that is objected to on the basis of relevance shall be answered under subrule 34.12(2) of the Rules of Civil Procedure. Failure to comply with this order or abuse of it will be a relevant factor in costs.

(v) Answers to undertakings, if any, from the further examinations shall be given by November 29, 2024.

(c) The defendants shall pay to the plaintiffs their costs of this motion fixed in the amount of $3,500, including HST and disbursements.

(d) This order is effective without further formality.

[35] The draft order submitted is not in Word format, so I cannot readily add the timetable and other terms ordered above. A revised draft order may be submitted to my Assistant Trial Coordinator for my review and signature in Word format, together with a copy of the order approved as to form and content.

ASSOCIATE JUSTICE TODD ROBINSON

DATE: October 23, 2024