Executive Summary: Key Legal and Evidentiary Issues

• The plaintiff sought default judgment after the defendants failed to respond to the statement of claim.
   
• Central to the motion was whether the deemed admissions under Rule 19.02 entitled the plaintiff to judgment.
   
• Breach of contract, unjust enrichment, and conversion were the three causes of action pleaded against both defendants.
   
• Evidence showed the promised share certificate was never issued and the gym premises' lease had been terminated.
   
• Punitive damages were sought but ultimately disallowed given the limited evidentiary record.
   
• Costs and disbursements were assessed alongside the principal award and pre- and post-judgment interest.
   

Facts of the case

Hiroshi Kuniyoshi invested $50,000 in Battle416 Inc., also known as Battle Scarborough Inc., at the urging of Clyde Pacis, for a gym concept planned for a Scarborough location. Pacis supplied a disclosure statement including a business description, financial projections, and renderings of the proposed gyms. Kuniyoshi signed a Letter of Intent committing the $50,000 investment in exchange for shares, then forwarded the funds to the corporate defendant. When no share certificate arrived, Kuniyoshi emailed Pacis requesting the certificate and a shareholder meeting to review financials; the email was acknowledged, but no certificate or meeting followed, and no further contact came from the defendants. Kuniyoshi later visited the intended gym location and found a notice indicating the lease had been terminated, naming a different tenant with no apparent connection to Battle416. In the statement of claim, Kuniyoshi alleged breach of contract, unjust enrichment, and conversion against both defendants, asserting that the funds were misappropriated without justification.

Policy and legislative provisions at issue

Because the defendants did not defend the action, the motion turned on Rule 19.02 of the Rules of Civil Procedure, under which an undefended party is deemed to admit the truth of the facts pleaded in the statement of claim. Rule 19.06 qualifies this: a plaintiff is not automatically entitled to judgment merely because the pleaded facts are deemed admitted, unless those admissions actually entitle the plaintiff to judgment as a matter of law. The court also applied the Courts of Justice Act in ordering pre- and post-judgment interest on the award.

Reasoning and analysis

Justice Callaghan applied the three-part test for default judgment from Elekta Ltd. v. Rodkin: identifying the deemed admissions flowing from the pleaded facts, determining whether those admissions entitle the plaintiff to judgment as a matter of law, and, if not, considering whether additional admissible evidence combined with the admissions supports judgment. On breach of contract, the court found the Letter of Intent was an offer accepted by Kuniyoshi through payment of the $50,000, and the corporate defendant's failure to deliver shares breached that agreement. On unjust enrichment, the court held the corporate defendant was enriched by receiving the funds, Kuniyoshi was correspondingly deprived, and no juridical reason justified the enrichment given the breach, citing Moore v. Sweet and Kerr v. Baranow. On conversion, the court cited the Supreme Court of Canada's description in Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce of the tort as wrongful interference with another's goods, and found this applied to both defendants because the funds were never used for the represented investment purpose. The court declined to award punitive damages, noting they are an exceptional remedy under Humphrey v. Mene Inc. and that the limited record did not support such an award. On costs, the court found the partial indemnity costs and disbursements sought were reasonable and proportionate in the circumstances, referencing Apotex Inc. v. Eli Lilly Canada Inc.

Ruling and overall outcome

The court granted default judgment in favour of Hiroshi Kuniyoshi against Battle416 Inc., a.k.a. Battle Scarborough Inc., and Clyde Pacis. The successful party, Kuniyoshi, was awarded $50,000 in damages, plus costs of $5,450 (comprising $4,150 in partial indemnity costs and $1,300 in disbursements, both inclusive of tax), plus pre- and post-judgment interest under the Courts of Justice Act. The request for punitive damages was disallowed.