



COURT OF APPEAL FOR ONTARIO

CITATION: Mitchell v. Lewis, 2016 ONCA 903

DATE: 20161129

DOCKET: C60938

Weiler, Rouleau and Roberts JJ.A.

BETWEEN

Ryan Mitchell, The Mitchell Consulting Group, and
The Mitchell Consulting Group Inc.

Plaintiffs (Appellants)

and

Robert Lewis, Wendy Lewis, Global Learning Group
Inc. also known as Global Learning Giving Initiative
also known as GLGI, Global Land Consortium Inc.
Ardoch Lake Developments Inc., Colonial
Chevrolet Ltd., 2168368 Ontario Inc., Digital
Consultation Management Services, and 2168368
Ontario Inc., carrying on business as Digital
Consultation Management Services

Defendants (Respondents)

Hossein Niroomand, for the appellants

Michael Magonet, for the respondents

Heard: November 9, 2016

On appeal from the order of Justice L.A. Pattillo of the
    Superior Court of Justice, dated July 31, 2015, with reasons reported at 2015
    ONSC 4614.

L.B.
    Roberts J.A.
:

[1]

The appellants appeal the order of the motions judge striking out all
    but two of the causes of action pleaded in their statement of claim without
    leave to amend.

[2]

The appellants action arises out of a consulting agreement dated June
    23, 2009 between the appellant, The Mitchell Consulting Group, and the
    respondents, Global Learning Group Inc. (GLGI) and its affiliated group of
    companies. The appellants claimed that the respondents breached their
    obligations by failing to pay amounts owing under the agreement.

[3]

In particular, the appellants alleged that the respondents Robert Lewis
    and Wendy Lewis guaranteed GLGIs payment for services rendered under the agreement
    and that they and GLGI further agreed to hold in trust any monies owing to the
    appellants under that agreement. Further, the appellants pleaded that on or
    about November 11, 2011, Ryan Mitchell and Robert Lewis reduced to writing the
    alleged oral trust agreement for funds owed to the appellants up to that time.
    The alleged written trust agreement provided that Robert Lewis would hold three
    lots belonging to Ardoch Lake Developments Inc. in trust for the appellants as
    security for the funds they were owed by GLGI.

[4]

The appellants alleged that Robert and Wendy Lewis fraudulently
    converted monies from GLGI  monies that were owed to and held in trust for the
    appellants  to their own use. In addition to breach of contract and breach of
    trust, the appellants claimed in breach of fiduciary duty, fraud, fraudulent
    misrepresentation, conversion, conspiracy and unjust enrichment.

[5]

The motions judge struck out the appellants Fresh as Amended Statement
    of Claim in its entirety, granting leave to file a Further Fresh as Amended
    Statement of Claim that asserts only the breach of contract claim against GLGI
    and the breach of trust claim against  Robert Lewis in relation to the three
    lots held by Ardoch Lake Developments Inc.

[6]

The motions judge refused the appellants leave to amend the other
    claims. The appellants Fresh as Amended Statement of Claim was the third
    iteration of its pleading. It followed receipt of the defendants detailed factums
    and a prior attendance before the motions judge, which served to point out the
    deficiencies in the appellants pleading. Nevertheless, the appellants were not
    able to correct those deficiencies. As a result, the motions judge concluded: 
    Given the history of the evolution of the Claim, I am not satisfied that
    granting the plaintiffs leave to further amend the Claim to remedy the above
    identified deficiencies will result in a proper pleading that the defendants
    can respond to.

Analysis

[7]

The appellants put forward three main arguments on appeal.

[8]

First, they submit that the motions judge erred in allowing the breach
    of trust claim to go forward only as against Robert Lewis and not also against
    Ardoch Lake Developments Inc. as the owner of the lots which are impressed with
    the alleged trust.

[9]

I agree. In paragraph 51 of the Fresh as Amended Statement of Claim, the
    appellants alleged that the respondents breached the trust agreement by
    diverting funds and failing to perform in accordance with the agreement. They
    pleaded that under this agreement, Ryan Mitchell had an interest in the Ardoch
    Lake Developments lots. These lots are owned not by Robert Lewis but by Ardoch
    Lake Developments Inc. I agree that, to properly plead the breach of trust
    claim in relation to the lots, it is necessary that the appellants be permitted
    to plead it as against the owner of those lots.

[10]

Next, while the appellants take no issue with the motions judges
    statement of the relevant legal principles to be applied, they submit that he erred
    in his application of those principles. Specifically, they submit that there
    were sufficient material facts pleaded to support the claims for unjust
    enrichment, conspiracy, conversion, fraudulent misrepresentation, and fraud
    based on the alleged breach of trust.

[11]

I do not accept this submission. The motions judge found that the
    pleading for those claims was deficient in that it contained mostly bald
    allegations and lacked sufficient particularity in relation to each of the
    defendants. Further, those claims were based on an alleged oral trust for which
    no material facts were pleaded. I agree with the motions judges
    characterization of the pleading with respect to those claims and would not
    interfere. Moreover, I see no error in the motions judges exercise of his
    discretion not to grant the appellants leave to amend their pleading in
    relation to those claims.

[12]

Finally, with respect to the claims of fraudulent diversion of funds and
    unjust enrichment as against Robert and Wendy Lewis personally, the appellants
    submit that the motions judge erred in determining that the pleading could not
    support piercing the corporate veil of the corporations over which Robert and
    Wendy Lewis had control because there was no allegation that the corporations
    were sham corporations.

[13]

As already noted, the motions judge correctly determined that the claim
    against Robert and Wendy Lewis personally, based on the alleged breach of an
    oral trust agreement, was untenable because of the appellants failure to plead
    any material facts.

[14]

However, I agree that the motions judge erred by restricting the
    circumstances in which it would be appropriate to pierce the corporate veil to
    those involving sham corporations and by failing to consider whether the
    appellants pleading of fraudulent and improper conduct against Robert and
    Wendy Lewis could be sufficient to support a finding of personal liability
    against them.

[15]

In paragraph 70 of the Fresh as Amended Statement of Claim, the
    appellants allege that the corporate veil of GLGI and other corporate
    defendants should be pierced and that Robert and Wendy Lewis are personally
    liable for the funds owed to the appellants because, among other things, they
    improperly manipulated the accounts of all of the corporate respondents for
    their own benefit and fraudulently diverted to their own personal use monies
    that were owed to the appellants.

[16]

The motions judge relied on this courts decision in
ScotiaMcLeod
    Inc. v. Peoples Jewellers Limited
(1995), 26 O.R. (3d) 481 (C.A.), at p.
    491, for the following proposition: Those cases in which the corporate veil
    has been pierced usually involve transactions where the use of the corporate
    structure was a sham from the outset or was an afterthought to a deal that had
    gone sour. The motions judge found that as the Fresh as Amended Statement of Claim
    contained no allegations that any of the corporate respondents were a sham and,
    on the contrary, alleged that GLGI was a successful business, the pleading did
    not support piercing the corporate veil.

[17]

In my view, the motions judge adopted too narrow a view of when the
    corporate veil could be pierced.

[18]

While the corporate veil has been pierced in cases involving sham
    corporations, that remedy is not limited to those cases. Most recently, this
    court in
Shoppers Drug Mart Inc. v. 6470360 Canada Inc.
, 2014 ONCA 85,
    372 D.L.R. (4th) 90, at para. 43, confirmed that the appropriate test to apply
    in determining whether the corporate veil should be pierced was stated by
    Laskin J.A. in
642947 Ontario Ltd. v. Fleischer
(2001), 56 O.R. (3d)
    417 (C.A.), at para. 68, as follows:

Typically, the corporate veil is pierced when the company is
    incorporated for an illegal, fraudulent or improper purpose.  But it can also
    be pierced if when incorporated those in control expressly direct a wrongful
    thing to be done:
Clarkson Co. v. Zhelka
at p. 578. Sharpe J. set
    out a useful statement of the guiding principle in
Transamerica Life Insurance
    Co. of Canada v. Canada Life Assurance Co.
(1996), 28 O.R. (3d) 423 at pp.
    433-34 (Ont. Ct. (Gen. Div.)), affd [1997] O.J. No. 3754 (C.A.):  the courts
    will disregard the separate legal personality of a corporate entity where it is
    completely dominated and controlled and being used as a shield for fraudulent
    or improper conduct.
[1]

[19]

In the present case, while not elegantly pleaded and deficient in
    particulars, the Fresh as Amended Statement of Claim does allege that Robert
    and Wendy Lewis, as the operating minds and will of the corporate defendants,
    directed a wrongful thing to be done, namely, to misappropriate monies owing
    to the appellants to the personal use of Robert and Wendy Lewis. If pleaded
    with sufficient particularity, this is the kind of fraudulent or improper
    conduct that has led courts in cases like
Shoppers
to disregard the
    separate legal personality of a corporate entity and to find personal liability
    against those in control.

[20]

The motions judge erred in concluding that the pleading relating to the
    alleged diversion of funds by Robert and Wendy Lewis could not, if properly
    pleaded with sufficient particulars, support a claim for piercing the corporate
    veil and for personal liability against Robert and Wendy Lewis. Reading the Fresh
    as Amended Statement of Claim generously with allowance for inadequacies due to
    drafting deficiencies, the motions judge ought to have granted the appellants
    leave to amend their claim against Robert and Wendy Lewis to plead a cause of
    action arising out of their alleged fraudulent diversion and misappropriation of
    funds.

[21]

Rule 26.01 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg.
    194, allows a court at any stage of an action to 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. While the court retains the
    discretion not to allow an amendment,
the denial
    of leave to amend should only be made in the clearest of cases, when it is
    plain and obvious that no tenable cause of action is possible on the facts as
    alleged:
South Holly Holdings Ltd. v. The Toronto-Dominion Bank
, 2007 ONCA 456, at para. 6;
Conway v. Law
    Society of Upper Canada
, 2016 ONCA 72, 395
    D.L.R. (4th) 100, at para. 16
.

[22]

I recognize that the appellants have had three opportunities to produce a
    proper pleading and that at a certain point, fairness to the respondents and
    respect for the integrity of the judicial process require that the appellants
    not be granted any further indulgences if they cannot deliver a statement of
    claim free from material deficiencies. However, in the present case, the
    possibility of a tenable cause of action in relation to the alleged fraudulent
    diversion of funds by the personal respondents arises from the pleaded facts. I
    also note that the respondents do not allege that a further amendment to the
    pleadings will result in prejudice that cannot be compensated for in costs in
    the event leave to amend were granted.

[23]

Accordingly, the appellants shall be given one last opportunity to
    deliver a statement of claim free from the deficiencies already noted.

Disposition

[24]

For these reasons, I would allow the appeal in part, amending para. 2 of
    the July 31, 2015 order, to allow the appellants leave to file within twenty
    days from the release of these reasons a Further Fresh as Amended Statement of
    Claim which asserts only the breach of contract claim against Global Learning
    Group Inc., also known as Global Learning Giving Initiative, also known as
    GLGI; the breach of trust claim against Robert Lewis and Ardoch Lake
    Developments Inc., relating to the three Ardoch Lake lots; and the personal
    liability claim against Robert and Wendy Lewis for fraudulent diversion and
    misappropriation of corporate funds.

[25]

If the parties cannot agree on the disposition of costs here and below,
    they may make brief written costs submissions of no more than three pages, not
    including bills of costs, as follows:  the appellants shall deliver their submissions
    by December 6, 2016; the respondents shall deliver their submissions by
    December 13, 2016.  There shall be no reply submissions.

Released: November 29, 2016

L.B. Roberts J.A.

I agree K.M. Weiler
    J.A.

I agree Paul Rouleau
    J.A.





[1]

As noted by
    this court in
Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort
    2002 Inc.
, 2009 ONCA 256, 305 D.L.R. (4th) 577, at para. 51, i
n
Transamerica
, at pp. 432-33, Sharpe J. (as he
    then was) accepted the following formulation of the test for lifting the
    corporate veil, set out in Gower,
Modern Company Law
, 5th ed.
    (1992) at pp. 132-33:

There seem to be three
    circumstances only in which the courts can [lift the corporate veil]. These
    are:

(1) When the court is
    construing a statute, contract or other document.

(2) When the court is
    satisfied that a company is a "mere facade" concealing the true
    facts.

(3) When it can be
    established that the company is an authorized agent of its controllers or its
    members, corporate or human.


