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Appellate Litigation

Both the Ontario Superior Court of Justice (“ONSC”) and the Court of Appeal for Ontario (“ONCA”) have each had a share of the ongoing debt collection saga between a judgement creditor and the debtor company in Lo Faso v. Ferracuti. The latest battle, discussed below, deals with the issue of whether, and when, amendments sought to a Statement of Claim raise new causes of action or are just clarifications of the existing factual matrix.

The Facts

The plaintiff had, in 1993, obtained a judgment for $380,000 against a company known as Kelton. He took no steps to enforce it until the year 2000.  It attracted interest at eight percent (8%), and by 2014 the unpaid debt totalled $1,912,000.

An individual, AF, was the majority shareholder of Kelton. Kelton had always represented, on its financial statements, that it held the beneficial interest in the real property known as the “Haines Road” property.

AF was also the majority shareholder of another company, 518391 Ontario Inc. (“518”). 518 held the legal title to the Haines Road property.  Kelton was the sole shareholder of 518. In effect, 518 was a bare trustee of the property for Kelton.

A first mortgage from 518 had encumbered the property since 1989 and debt exceeded the value of the property. Kelton ceased to operate in 1993 but continued to appear as the beneficial owner of the property.

518 had to refinance the property in 1998 to cover the cost of tenant improvements. As there was no equity in the property, AF asked his wife to help out. To secure a charge against his home, a matrimonial home, AF transferred his shares in 518 to his wife who then consented to the transaction. The lender took a second mortgage on the Haines Road property. After this transaction 518, now owned by AF’s spouse, was treated as the owner of the property by everyone but the plaintiff.

It is important to note that there was no signed or even blank documentation transferring the beneficial interest in the property from Kelton to 518.

In 2006, 518 gave a further mortgage on the property, this time to AF. In the same year, Kelton made an assignment into bankruptcy. The plaintiff then obtained orders under s.38 of the Bankruptcy and Insolvency Act to allow him to continue his litigation against Kelton outside of the bankruptcy.

The Action

The action commenced in 2009, sought to recover Kelton’s interest in various real properties including the Haines Road property under the Fraudulent Conveyances Act and the Assignment and Preferences Act. The plaintiff also sought a certificate of pending litigation (“CPL”). The defence countered with a summary judgement motion asking to dismiss the claim to an interest in the property owned by 518.

The defendant’s motion was heard in 2012 and was successful. The plaintiff appealed. The ONCA allowed the appeal in February of 2013 finding that the motions judge had improperly conflated the two transfers and failed to consider materials facts. The transfer of shares and the transfer of the beneficial interest in the property were two separate transactions. Although not pleaded, there was no evidence of any compliance with the Statute of Frauds. There was no written and signed transfer from Kelton as the Act required. There was also no payment of land transfer tax as would be necessary on such a transfer. The court granted the CPL and directed that the matter proceed to trial. It further suggested:

The parties should give consideration to their pleadings particularly with respect to the interplay between s. 2 and s. 4 of the Statute of Frauds.

The Amendment Motion

The plaintiff finally moved in the fall of 2018 to amend the Statement of Claim seeking to add several statutory references to Acts already pleaded, to plead the Statute of Frauds as suggested by the ONCA and as well, other legislation including the Conveyancing and Law of Property Act. The thrust of the amendment was to particularize the requirement in law for a transfer of land to be in writing and signed. No new facts were sought to be added by the plaintiff.

The Ontario Rules of Civil Procedure make such an amendment mandatory unless prejudice would result which could not be alleviated by costs or an adjournment. The defence position was that the amendments raised new causes of action which were now barred by the Limitations Act. They did not argue surprise but rather that the time to make these amendments began to run when the ONCA released its decision which was some five and a half years ago. The time to do so had therefore expired. Limitation periods are substantive, not procedural rights.

The Issue and Disposition on the Amendment Motion

Did the requested amendments amount to the pleading of a new cause of action? The motions judge held they did not. He held that claims made on a common factual matrix already pleaded are distinct from the raising of a new cause of action that depends on facts not already pleaded. Where the proposed amendments arise out of the same facts as previously pleaded, the amendment is to be allowed which was the case here. A new theory of liability based on material facts already pleaded is not a new cause of action.

Accordingly, the amendment was allowed, and this litigation saga will continue to trial, and no doubt further appeals.

At Milosevic & Associates, our team of Toronto corporate commercial lawyers regularly represent clients in complex commercial litigation matters ranging from straightforward contract and partnership disputes and debt collection enforcement to complex multi-party commercial claims including dealing with claims of oppression. Over the years, our team of exceptional litigators has seen it all and has successfully fought for our clients’ rights. Our impressive track record speaks for itself.  Call us at 416-916-1387 or contact us online for a consultation.