



COURT OF APPEAL FOR ONTARIO

CITATION: Pichelli v. Kegalj, 2021 ONCA 445

DATE: 20210622

DOCKET: C68331

Roberts, Zarnett and Sossin JJ.A.

BETWEEN

Peter Pichelli, Todd
    Leslie, Frank Toth

and 958041 Ontario Limited

Plaintiffs

(Appellants)

and

Ante Kegalj
, Anthony V
uletic, John Vuletic,

Embleton Properties
    Corp., 1857325 Ontario Ltd.,

and Brampton G&A
    Hol
dings Inc.

Defendants

(
Respondent
)

Douglas M. Cunningham, for the appellants

Neil Paris, for the respondent

Heard: January 28, 2021 by video conference

On appeal from the order
    of Justice Jamie K. Trimble of the Superior Court of Justice, dated March 20,
    2020, with reasons reported at 2020 ONSC 1705.

REASONS FOR DECISION

Overview

[1]

The appellants appeal from the dismissal of their action against the
    respondent, Ante Kegalj, following the respondents motion for summary judgment.
    Their principal submission is that the motion judge erred in his application of
    the analytical framework set out by the Supreme Court in
Hryniak v. Mauldin
,
    2014 SCC 7, [2014] 1 S.C.R. 87, and in concluding that there are no genuine
    issues requiring a trial.

[2]

The appellants invested and lost hundreds of thousands of dollars in a
    land development scheme that never came to fruition. They allege the scheme was
    fraudulently devised and carried out by the respondent, together with the other
    defendants (except for Brampton G&A Holdings Inc.), and that the respondent,
    together with the defendants, John and Anthony Vuletic (the Vuletics),
    fraudulently used for their own personal enrichment the appellants investments
    and property servicing payments, as well as additional funds obtained by
    heavily mortgaging the property.

[3]

In their statement of claim, the appellants claim judgment against the
    respondent and the other defendants jointly and severally for general damages
    in the amount of $5,000,000 for breach of contract, misrepresentation, deceit,
    fraud, conversion, detinue, breach of fiduciary duty, breach of trust, and
    unjust enrichment. They also seek punitive damages in the amount of $500,000.

[4]

The appellants action was case managed with an action brought by other
    investors (the Caroti plaintiffs) who also lost money in the same land
    development project. The Caroti plaintiffs advance similar claims against the respondent
    and the same group of defendants. While initially intending to bring a summary
    judgment motion in both actions, the respondent only pursued summary judgment
    in this action.

[5]

At the outset of the hearing on the respondents motion for summary
    judgment, the appellants moved to adjourn the motion until the documentary and
    oral discovery processes in both actions were completed. The appellants argued
    that the respondent should not be permitted to proceed with summary judgment in
    only one action because of the risk of adverse factual and legal consequences
    for the absent Caroti plaintiffs. The appellants took the position that the
    respondent was seeking an impermissible form of partial summary judgment. The
    motion judge dismissed the adjournment request and proceeded with the motion.

[6]

The motion judge granted summary judgment and dismissed the appellants
    action against the respondent. The motion judges analysis turned on the
    appellants admissions that they had no knowledge of the respondents alleged role
    in the fraudulent land development scheme during the relevant period. He
    accepted the respondents submission that these admissions precluded recovery
    against the respondent personally. Instead, the motion judge concluded that the
    appellants recourse was against the other defendants. As a result, the motion judge
    determined that there was no genuine issue requiring a trial. Given his disposition
    of the motion, the motion judge did not determine the issue of whether the
    appellants claim was statute-barred.

Issues and the Parties Positions

[7]

The appellants raise several grounds of appeal. The appeal turns on the
    alleged errors in the motion judges approach to summary judgment. It is
    therefore unnecessary to determine whether there was procedural unfairness in
    the motion judges refusal to adjourn the respondents motion or whether he
    erred in granting partial summary judgment.

[8]

The appellants submit that the motion judge effectively converted a
    summary judgment motion into a pleadings motion and thereby failed to assess
    the full evidentiary record. As a result, he failed to appreciate the
    significant credibility issues raised by the conflicting evidence as to the
    respondents alleged involvement in the fraudulent scheme and erred in
    concluding that the respondent owed no duty to the appellants. He wrongly concluded
    that there were no genuine issues requiring a trial.

[9]

The respondent argues that the appellants appeal is a thinly disguised
    attempt to re-litigate the motion; in detailed reasons, the motion judge
    explained why the appellants claims against the respondent could not stand in
    the face of the appellants admissions that they never met, contracted,
    communicated with, or relied on the respondent. The respondent says the motion
    judge correctly determined that there were no material credibility issues and
    that the respondent is not a proper party to this proceeding. According to the respondent,
    there is no basis for appellate intervention.

Fresh Evidence

[10]

The
    appellants also move to admit fresh evidence on their appeal. Some of it is not
    strictly fresh evidence since it was in the record before the motion judge.
    However, the newly obtained evidence, including a series of cheques made out in
    favour of and cashed by the respondent, was produced to the appellants through
    the discovery process after the respondents summary judgment motion. This
    evidence is highly relevant to the issue of the respondents alleged role in and
    benefit from the alleged fraud. The likelihood that new, relevant evidence would
    emerge from the discovery process drove the appellants request to adjourn the
    respondents summary judgment motion as premature. As a result, the admission
    of the fresh evidence is necessary to deal fairly with the issues on appeal and
    declining to admit the evidence could lead to a substantial injustice:
Sengmueller
    v. Sengmueller
, 1994 111 D.L.R. (4th) 19 (Ont. C.A.), at p. 23.

Analysis

[11]

We
    agree with the appellants submission that the motion judges analytical approach
    to summary judgment was flawed. His conclusions are therefore not owed
    deference on appeal:
Hryniak,
at paras. 80-84;
Trotter Estate
,
    2014 ONCA 841, 122 O.R. (3d) 625, at para. 45.

[12]

While
    he set out in some detail the correct framework articulated by the Supreme
    Court in
Hryniak
and subsequent case law, the motion judge did not fully
    follow it. Notably, he failed to engage in the requisite broad assessment of
    the entire record to determine whether summary judgment was appropriate or
    whether a trial would be required. Instead, he focussed on the adequacy of the
    pleadings and the appellants admissions that they had no contact with or
    knowledge of the respondent.

[13]

The
    motion judges narrow approach led him to reject the appellants contention
    that a trial was required to deal with credibility issues. He determined that
    the respondent had carefully drafted this Summary Judgment motion as a
    pleadings motion in which he attacks the factual underpinning of the causes of
    action that the [appellants] advance based on admissions the [appellants] have
    made, or their own answers in cross examination and, [t]o the extent that
    [the respondents] evidence is important, it is uncontested. The motion judge therefore
    concluded that there was no need to resort to
the
    fact-finding powers available under rr. 20.04(2.1) and (2.2)
of the
Rules
    of Civil Procedure
, R.R.O. 1990, Reg. 194.

[14]

This
    restrictive approach also caused the motion judge to misapprehend the nature of
    the appellants fraud allegations and the evidentiary support for them. He erroneously
    found that the appellants claim for fraud and deceit was limited to fraudulent
    misrepresentation and that there was no evidence that the respondent was
    unjustly enriched at the appellants expense or had received any funds that the
    Vuletics received from the mortgages or the appellants. He concluded that even
    if the appellants were correct that the respondent was knowingly involved in a
    massive diversion of equity to the Vuletics, who used the equity for personal
    purposes, the respondent owed duties to Embleton Property Corp. and not to the
    appellants.

[15]

There
    are several difficulties with the motion judges conclusions.

[16]

First,
    while the appellants plead several causes of action, their core fraud allegations
    against the respondent and the other defendants are not limited to fraudulent
    misrepresentation. The appellants plead that the respondent and the other
    defendants knowingly participated in a scheme designed to perpetrate a fraud
    and other unlawful acts on the [appellants] and to prefer their own interests
    over those of the [appellants] and other investors in the Property. The
    statement of claim includes allegations that the respondent knew that mortgage
    and other monies were not being devoted to the development of the Property
    but, instead, those monies were being converted to the personal and other
    non-Property related business uses of [the respondent and other defendants].

[17]

The
    fact that the appellants may not have framed their fraud allegations in perfectly
    pleaded causes of action should not have been the focus of the motion judges
    analysis. There is no suggestion that the appellants have failed to plead fraud
    with sufficient particularity for the purposes of r. 25.06(8) of the
Rules
    of Civil Procedure
and, in any event, this was not a pleadings motion
    under rr. 21 or 25 of the
Rules
. If it had been, the motion judge
    would have been required to accept the appellants allegations as true for the
    purpose of determining the sufficiency of the pleadings. Instead, the motion
    judge was required to determine whether it was appropriate to grant summary
    judgment by engaging with the
Hryniak
analytical framework and taking
    a hard and comprehensive look at the entirety of the record.

[18]

The
    motion judges reliance on the appellants admissions that they did not know
    the respondent or have any dealing with him at the relevant time caused him to
    ignore evidence that, if accepted, supported the respondents participation in
    the alleged fraudulent scheme, his conversion of the fruits of that scheme to
    his own or other purposes, and his unjust enrichment at the appellants
    expense. The motion judge accepted that there was no factual basis to support
    any of the causes of action pleaded in the statement of claim based only on the
    appellants admissions. This was incorrect.

[19]

It
    is of no moment that the appellants were unaware of the respondents existence
    during the relevant period. While the appellants did not know about the
    respondent, they allege that he knew about them and personally benefitted from
    their monetary contributions to the property. It is not surprising that the
    appellants did not know of the respondents role. Obfuscation, deceit and the
    employment of complicated corporate structures are the hallmarks of a
    fraudulent scheme. The appellants are not required to prove that they knew the
    respondent or were aware he played a role in defrauding them in order to make
    out their claims. Whether the respondent acted alone, with others, or through a
    corporate vehicle such as Embleton speaks only to the mechanism by which the
    alleged fraud was perpetrated. A trial judge could find the respondent liable
    for the appellants losses if the appellants were to establish that the
    respondent knowingly participated in a scheme that defrauded the appellants,
    unjustly enriched the respondent, or converted the appellants funds to the
    respondents benefit.

[20]

The
    motion judges misapprehension of the appellants fraud allegations resulted in
    his failure to address the entirety of the evidence concerning the respondents
    role in the scheme, and the conflicts in the evidence. While the respondent denies
    any wrongdoing or knowledge of the appellants existence at the relevant time,
    there is no question that he was involved in the land development scheme,
    including that he was recruited by the Vuletics to devise and market the land
    development scheme. The property was purchased under the respondents name in
    July 2002 and remained registered in his name until February 2012 because he
    had a better credit rating than the Vuletics. He also took out several millions
    of dollars of mortgages on the property. His involvement was such that in 2010
    he brought an action against the Vuletics, asserting that he was a partner with
    them in the development of the property.

[21]

The
    motion judge did not grapple with Mr. Pichellis affidavit evidence that
    conflicted with the respondents denial of wrongdoing. Mr. Pichelli deposed
    that the respondent knew about the appellants and their investments, and that most
    of the mortgage monies obtained by the respondent and the other defendants were
    directed to the personal uses of the respondent and the Vuletics or businesses
    that had nothing to do with the development of the property. His affidavit
    stated that the respondent made a $47,000 investment as a lot purchaser, did
    not pay his share of servicing costs for the lots that he had purchased, and
    received close to $1,000,000 in consideration.

[22]

If
    the motion judge did not accept Mr. Pichellis evidence, he was required to
    explain why he rejected it or why he preferred the respondents evidence where
    they conflicted.
Given the clear contradictions in the
    evidence, it was incumbent on the motion judge to determine whether he could
    resolve them by recourse to
the fact-finding powers under rr. 20.04(2.1)
    and (2.2) or whether they raised genuine issues of credibility that required a
    trial. He did not do so.

[23]

While
Hryniak
requires a robust approach to summary judgment, the
    overarching goal remains to have a fair process that results in a just
    adjudication of disputes: at para. 28. This requires a serious engagement with
    the
Hyrniak
analytical framework and the record. To do otherwise runs
    the risk that in an effort to dispose of a case in a summary fashion, motion
    judges will not properly analyze the evidence:
Royal Bank of Canada v.
    1643937 Ontario Inc.
, 2021 ONCA 98, at paras. 25-27;
Trotter Estate
,
    at para. 49. That is what occurred here.

[24]

When
    the
Hryniak
analytical framework is correctly applied, the evidence
    reveals that there are genuine issues requiring a trial concerning the
    respondents alleged role in the fraudulent scheme. Any deficiencies in the
    pleadings could and should have been resolved by way of amendment.

Disposition

[25]

Accordingly,
    we allow the appeal and set aside the dismissal of the appellants action
    against the respondent.

[26]

If
    the parties cannot resolve the issue of costs on appeal and before the motion
    judge, they may deliver written submissions of no more than two pages, plus a
    costs outline, within ten days of the release of these reasons.

L.B. Roberts J.A.

B. Zarnett J.A.

L. Sossin J.A.


