DATE: 20010503
DOCKET: C34275
COURT OF APPEAL FOR ONTARIO
MORDEN, ROSENBERG, AND SIMMONS JJ.A.
B E T W E E N:
1175777 ONTARIO LIMITED
John Chapman For the appellants
Respondent (Plaintiff)
- and -
MAGNA INTERNATIONAL INC., HERI POLZL AND KURT IRRCHER
R.B. Moldaver Q.C. For the respondent
Appellant (Defendants)
Heard: November 21, 2000
On appeal from an Order of Justice Edward McNeely dated February 18, 2000.
SIMMONS J.A.:
[1] Magna International Inc. and Frank Stronach appeal from an order of a single judge of the Divisional Court dated February 18, 2000 that permitted the respondent to amend its statement of claim. The Divisional Court overruled the decision of a Master dated October 5, 1999. The Master had refused the respondent’s request to amend its statement of claim by adding a claim for damages for intentional interference with economic relations to its existing claims against Magna, and by adding Stronach, Chairman of the Board of Directors of Magna, as a party defendant. The respondent’s proposed claims against Stronach are for damages for intentional interference with economic relations and for conspiracy to injure.
[2] This appeal raises an issue about the nature of conduct that is capable of qualifying as tortious interference with economic relations. A second issue involves the viability of a claim for conspiracy to injure against an officer of a corporation who allegedly instructed a subsidiary corporation not to complete contractual negotiations or, alternatively, not to perform a contract. If both of these grounds fail, the appellants submit the proposed amendments amount to over-broad joinder of claims and should be refused for that reason.
Background
[3] The respondent’s primary claim is for damages for breach of a contract the respondent alleges it made with Decoma International Inc. on October 29, 1996. The respondent says Decoma agreed to lease a building the respondent was constructing. Decoma was a subsidiary of Magna at the time. The proposed occupant of the premises was to be Mytox Manufacturing, a division of Magna. Magna and Decoma amalgamated after this litigation was commenced, and have continued under the name Magna. Magna denies that Decoma entered into the contract alleged. The statement of claim has been amended several times, in part to clarify whether Magna or Decoma was the original contracting party.[^1]
[4] In addition to these claims, the respondent also claims damages against Magna and Heri Polzl for inducing breach of contract and for conspiracy to injure. Polzl is a real estate consultant retained by Magna. The claim against Polzl for inducing breach of contract formed part of the original statement of claim. The claims for conspiracy to injure and the claim against Magna for inducing breach of contract were added as a result of a motion made on October 29, 1997. Stronach was described as a party to the conspiracy in that amendment, but was not named as a defendant.[^2]
[5] The basic factual allegations concerning the conspiracy to injure set out in the statement of claim as amended following the October 1997 motion included the following:
10.1 Within days of the acceptance of the offer, Polzl and Stronach entered into an agreement to conspire against 1175777 the predominant purpose of which was to injure 1175777 and Tiberini [President of 1175777] by depriving 1175777 of the benefits under the Agreement and by facilitating the construction of the Mytox plant by its competitor, New Empire Construction. As part of the conspiracy, Polzl and Stronach agreed to carry out the following acts:
a) coerce 117577 into selling the Talman property to Magna even though they knew that it was not economically viable for 1175777 to do so;
b) induce Decoma to breach the Agreement after allowing it to invest time and money in the development of the Talman property;
c) locate another site for the construction of the Mytox plant; and, [sic]
d) facilitate New Empire’s construction of the Mytox plant;
e) financially gain from New Empire’s construction of the Mytox plant.
14.1 In early November of 1996 in furtherance of the conspiracy Stronach gave his approval to a parcel of land at Aviva Park situated in Woodbridge Ontario selected by Polzl as the new site for the Mytox plant.
14.2 In furtherance of the conspiracy in early November of 1996 during a consulting meeting at Decoma between Polzl, Walker [C.E.O. of Magna] and Powers [President of Decoma], Polzl, intending to cause Decoma to breach the Agreement, or in the alternative, Walker, acting on directions from Stronach, intending to cause Decoma to breach the Agreement told Powers that Decoma could not proceed with the Agreement because Stronach would not permit Decoma to have further dealings with 1175777 and Tiberini.
14.3 At all material times there was an enforceable contract between Decoma and 1175777. Walker and Polzl were aware of the existence of the contract. In instructing Powers not to proceed with the Agreement, Walker or Polzl intended to cause the breach of the Agreement by Decoma.
18 On December 5^th^, 1996, in furtherance of the conspiracy between Polzl and Stronach, on Polzl’s instructions, [a representative of Mytox] informed Tiberini for the first time, that Decoma would not be leasing the property, as the parties had originally agreed to in the Agreement, but instead would offer to purchase the property from Tiberini.
22 Notwithstanding Tiberini’s advice that he would not sell the property, by letter dated December 24^th^, 1996, in furtherance of the conspiracy, Stronach caused Magna Developments offered [sic] to purchase the property from Tiberini. Tiberini did not accept the offer and reiterated his position that the premises were not for sale.
22.1 In or around January 1997 New Empire was awarded the contract to build the Mytox plant at the Aviva Park property.
24.1 The statement made by Polzl or in the alternative, Walker, to Powers during their meeting in early November of 1996 at Magna caused Decoma not to proceed with the Agreement. In inducing the breach of the Agreement Polzl directly or indirectly benefited from his relationship with New Empire and [a principal of New Empire]
25 As a result of Decoma’s breach of its Agreement to lease and Polzl’s or Walker’s inducing the said breach, 1175777 will suffer damages including lost revenue and profits in the amount of $10,000,000.00 and the costs of construction which were specific to Mytox’s needs.
25.2 As a result of the breach of the Agreement which was caused by the conspiracy to injure, Decoma did not exercise its option to lease the 90,000 square feet of additional space (at an average rate of $5.50 per foot), which but for the conspiracy it would have exercised. 1175777 has suffered special damages in the sum of $4,950,000.00 as a result of the conspiracy to injure.
25.3 The actions taken by Polzl in furtherance of the conspiracy were carried out in his capacity as a consultant to Magna and Decoma and in the course of his retainer with Magna and as such, Magna is vicariously liable for the damages occasioned thereby.
[6] The factual allegations which the respondent now seeks to add are as follows:
In the alternative, if there is no binding contract between Decoma and the plaintiff, Frank Stronach personally, and with intention, prevented the consummation of the contract which would have been consummated but for Frank Stronach’s interference to prevent it from going forward by ordering that all necessary signatures not be added to the contract which are allegedly required for its completion. Stronach intentionally interfered with the plaintiff’s economic relations and interests when he stopped the completion of the contract. As a result, the plaintiff suffers and continues to suffer damages including lost revenues and profits… and the costs of construction which were specified to Mytox’s needs …
At all material times, Stronach was acting for and on behalf of Magna and as such, Magna is vicariously liable for Stronach’s intentional interference with the plaintiff’s economic relations and interests.
[7] The Master applied the test in Vaiman v. Yates (1987), 1987 CanLII 4345 (ON SC), 60 O.R. (2d) 696 (H.C.J.) and considered whether the proposed amendments set forth claims that are “tenable at law”. As to the proposed claims against Magna and Stronach for intentional interference with economic relations, he relied on Lineal Group Inc. v. Atlantis Canadian Distributors Inc. (1998), 1998 CanLII 4248 (ON CA), 42 O.R. (3d) 157 (C.A.) which held that there were three elements to this tort, the second being interference with the “plaintiff’s business by illegal means” [emphasis added]. He gave effect to the appellants’ argument that it is not illegal to refrain from completing contractual negotiations. He found no illegal means had been pleaded. As to the claim for conspiracy to injure against Stronach, he referred to ADGA Systems International Ltd. v. Valcom (1999), 1999 CanLII 1527 (ON CA), 168 D.L.R. (4^th^) 351 (C.A.) and Meditrust Healthcare Inc. v. Shoppers Drug Mart, a division of Imasco Retail Inc., 1999 CanLII 2316 (ON CA), [1999] O.J. No. 3243 (C.A.) and said:
Employees and directors can be held liable so long as the pleading alleges tortious conduct of the individual officers or directors …
Here, the plaintiff and defendant were in negotiations over the lease of a property. The plaintiff says they had a contract and the defendant breached it. The defendant says there was no binding contract entered into and therefore it was not required to complete. The scenario has no tortious or unlawful act or means to it. …
He found no tortious conduct had been pleaded against Stronach and held the claim against Stronach for conspiracy to injure to be untenable.
[8] On appeal to the Divisional Court the judge found the proposed amendment to the statement of claim disclosed a cause of action against Stronach, assuming the facts as pleaded to be true. He determined the plaintiff should not be barred from pursuing a claim just because all, or a substantial part of the relief claimed, could be obtained against Magna.
Analysis
Claims for Intentional Interference with Economic Relations
[9] The claims for intentional interference with economic relations are alternative claims to the claim for breach of contract. They assume a finding that the parties did not enter into a binding contract.
[10] The appellants rely on their position before the Master that there is no enforceable obligation on a negotiating party to complete negotiations or even to negotiate in good faith. They therefore assert it is not possible to have a conspiracy not to enter into a contract. Even if there were such an obligation, Stronach asserts he could not be liable
[11] The respondent does not dispute that there is no duty on an arms-length party engaged in negotiations to complete those negotiations. It submits that is not the basis of this claim but rather that third party strangers to the negotiations unlawfully interfered with those negotiations and caused them to fail, thereby causing economic loss. It concedes that the essence of the tort is unlawful interference. However, it submits that unlawful interference is not restricted to criminal conduct or to conduct which is contrary to statute or regulation. The respondent submits that if Stronach interfered in the negotiations, then a trial judge should be entitled to look at all of the circumstances and assess whether constituent elements of the cause of action have been proven. The novel character of the fact situation does not of itself make the claim untenable at law.
[12] I am not persuaded that the rules of pleading concerning this emerging tort can properly be left as open-ended as the respondent suggests. Unlike conspiracy, the tort of intentional interference with economic relations requires more than intention to injure and action taken in furtherance of that intention. It requires unlawful means: Lineal Group Inc. v. Atlantis Canadian Distributors, supra, at page 159. Here, the respondent pleads that Stronach ordered that certain signatures not be affixed to a contract and that his actions were carried out with an intention to injure. Assuming that the scope of what will amount to unlawful conduct may not yet be fully defined,[^3] these allegations do not address the second requisite element of this tort, namely unlawful means.
[13] A plaintiff is required to plead facts capable of supporting each constituent element of the cause of action raised: Normart Management Ltd. v. Westhill Redevelopment Company (1998), 1998 CanLII 2447 (ON CA), 37 O.R. (3d) 97 (C.A.) at 102. Without deciding whether unlawful in this context may encompass conduct such as breach of contract, breach of a statute, contempt of a court order, or breach of fiduciary or other duty, I fail to see any allegation in this pleading of the basis on which it is alleged this conduct is unlawful. I agree with the Master’s finding that this proposed amendment fails to disclose the unlawful means on which the respondent relies.
Claim for Conspiracy to Injure
[14] Stronach submits the rule from the case of Said v. Butt, [1920] 3 K.B. 497 that insulates corporate officers and directors acting in good faith from personal liability for claims for termination of corporate contracts precludes the respondent’s claim against him for conspiracy to injure. The factual basis of the claim for conspiracy to injure against Stronach is that while acting in his capacity as Chairman of the board of directors of Magna, he instructed Decoma, a subsidiary corporation of Magna, not to finalize negotiations for a lease with the respondent, or, if there was an existing lease, to breach the lease. He submits the rule should apply whether the claim against him relates to instructions to terminate negotiations, or to terminate a contract. The policy considerations are the same. Similarly he submits the rule should apply whether he was a director of a parent corporation giving instructions concerning a subsidiary or whether he was a director of the corporation instructed to breach the contract—again he submits the policy considerations are the same, parties entering into contracts with corporations should not be able to sue persons who make the decisions for the corporation about whether to proceed with the contract.
[15] Stronach also relies on the decision in Normart, supra. In that case, claims for conspiracy against directors of the corporate defendants were struck out in an action alleging breach of contract and breach of fiduciary duty against the corporations. The court found there was no factual underpinning to support an allegation that “the personal defendants were at any time acting outside their capacity as directors and officers of the corporations of which they were the directing minds.”
[16] The respondent submits that officers and directors of a corporation are not protected from personal liability even if acting bona fide in the interests of a corporation, if their actions are themselves tortious or exhibit a separate identity or interest from that of the company. The respondent also relies on a strict interpretation of the Said v. Butt exception: only officers or directors of the contracting corporation should be sheltered from civil liability. The interests of a parent and a subsidiary may not be the same. Application of the rule to an officer of a parent would confuse the issue of when an officer might be entitled to a defence. Moreover, an officer is disentitled to the Said v. Butt defence if he was not acting bona fide in the interests of the company. The determination of whether the Said v. Butt defence should be recognized in any particular case is a matter for trial.
[17] I agree with the respondent’s submission that where properly pleaded, officers, directors, and employees of a corporation may be held liable for their personal tortious conduct: ADGA v. Valcom, supra, at 111 to 113. I further agree that, in the context of this case, the question of whether the Said v. Butt exception precludes the respondent’s claim should not be determined on a motion to amend the pleadings.
[18] ADGA was reviewed and explained in Meditrust Healthcare Inc., supra, at paragraphs 12, 13 and 16 as follows:
In ADGA, the plaintiff sued the corporate defendant, its sole director, and two senior employees, claiming that they had raided the plaintiff’s staff and thereby caused economic damages. The action was framed in tort (inducing breach of contract, interfering with economic interests, inducing breaches of fiduciary duty). The individual defendants succeeded in having the action summarily dismissed against them on the basis that they could not be held liable for actions taken in the best interests of the corporation. This court reversed this decision and allowed the claims against the individual defendants to proceed.
Carthy J.A., for the court, reviewed the case law from Canadian and American jurisdictions and stated (at p. 107):
The consistent line of authority in Canada holds simply that, in all events, officers, directors and employees of corporations are responsible for their tortious conduct even though that conduct was directed in a bona fide manner to the best interests of the company, always subject to the Said v. Butt ... exception. [The Said v. Butt exception does not permit a claim for inducement of breach of contract to proceed against a corporate officer or employee where a claim for breach of contract lies against the corporation.]
In ADGA, Carthy J.A. simply relied upon the principles previously enunciated by Finlayson J.A. in ScotiaMcLeod [(1995), 26 O.R. (30) 481]. Both decisions stand for the proposition that a claim in tort may proceed against directors, officers and employees of corporations for acts performed in the course of their duties, provided that (1) the allegations of their personal tortious conduct are properly pleaded and (2) the limited exception in Said v. Butt does not apply.
[19] Carthy J.A. also explained the history and purpose of the Said v. Butt exception in ADGA at paragraphs 12 – 15 as follows:
In Said v. Butt the plaintiff was engaged in a dispute with an opera company which refused to sell him tickets to a performance. The plaintiff purchased a ticket through an agent and when he appeared at the opera the defendant, an employee of the opera company, recognized him and ejected him. The plaintiff sued the employee for wrongfully procuring the company to break a contract made by the company to sell the plaintiff a ticket.
The court held that there was no contract because the company would not knowingly have sold a ticket to the plaintiff. Nevertheless, on the assumption that there was a contract, the court considered the implications to the defendant employee. McCardie J. stated at p. 504:
It is well to point out that Sir Alfred Butt possessed the widest powers as the chairman and sole managing director of the Palace Theatre, Ltd. He clearly acted within those powers when he directed that the plaintiff should be refused admission on December 23. I am satisfied, also, that he meant to act and did act bona fide for the protection of the interests of his company. If, therefore, the plaintiff, assuming that a contract existed between the company and himself, can sue the defendant for wrongfully, procuring a breach of that contract, the gravest and widest consequences must ensue.
After detailing the mischief that would flow from permitting such claims to be made McCardie J. concluded at p. 506:
I hold that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken…Nothing that I have said to-day is … inconsistent with the rule that a director or a servant who actually takes part in or actually authorizes such torts as assault, trespass to property, nuisance, or the like may be liable in damages as a joint participant in one of such recognized heads of tortious wrong.
For present purposes, I extract the following from McCardie J.’s reasons. First, this is not an application of Salomon and Salomon…Second, it provides an exception to the general rule that persons are responsible for their own conduct. That exception has since gained acceptance because it assures that persons who deal with a limited company and accept the imposition of limited liability will not have available to them both a claim for breach of contract against a company and a claim for tortious conduct against the director with damages assessed on a different basis. The exception also assures that officers and directors, in the process of carrying on business, are capable of directing that a contract of employment be terminated or that a business contract not be performed on the assumed basis that the company’s best interest is to pay the damages for failure to perform. By carving out the exception for these policy reasons, the court has emphasized and left intact the general liability of the individual for personal conduct.
[20] The first question is whether the claim as pleaded describes tortious conduct personal to Stronach. The heart of the claim propounded is the assertion of the predominant purpose to injure on the part of the principals to the conspiracy. The judge who heard the motion to amend in October 1997, when this cause of action was originally added against Magna and Polzl, recognized that feature of the claim and permitted the amendment against those defendants. She concluded:
[u]pon a careful review of the pleading, I find that, although it is highly doubtful from the facts and circumstances as pleaded that the primary purpose of the alleged conspiracy is to injure, it is not “plain and obvious” that the plaintiff cannot succeed...
[21] I am satisfied the same reasoning applies to the claim as against Stronach. Though the respondent may have difficulty in proving the allegations set out in paragraph 10.1 of the statement of claim, by attributing a specific intention or purpose to Stronach and alleging steps taken in furtherance of that purpose, the respondent has pleaded tortious conduct personal to him.
[22] The second question is whether the allegations fall within the class of conduct eligible for protection by Said v. Butt. I am satisfied that they do. Though characterized as forming part of a conspiracy to injure, the impugned conduct consists of “depriving 1175777 of the benefits under the Agreement and ... facilitating the construction of the Mytox plant by its competitor”. The remedy sought consists of benefits lost under the Agreement. Reduced to its simplest form, the respondent’s complaint is that Stronach induced a breach of contract, i.e. conduct to which the Said v. Butt exception generally applies. The respondent cannot escape the application of the rule by simply attaching a different label to the impugned conduct.
[23] Furthermore, I can see no reason why the Said v. Butt exception should not apply as well to an officer, director, or employee of a parent corporation who, in the course of his duties, acts for a subsidiary, provided the individual acts in the best interests of the subsidiary. A director of a parent corporation acting on behalf of and in the best interest of a subsidiary would not be a “stranger”, or “a third person”, standing “wholly outside the area of the bargain made between the two contracting parties”.[^4] If the director of a parent corporation can and does act on behalf of a subsidiary, then he or she is not a stranger to the contractual relationship breached, and the policy considerations outlined in AGDA for application of the Said v. Butt exception are properly applicable.
[24] The Said v. Butt exception applies, however, only where a person acts bona fide, in the interests of the corporation, in this instance the subsidiary. Though the respondent has pleaded Stronach was at all times acting for Magna, that is not equivalent to an allegation that he was entitled to and did act for its subsidiary, nor that he acted bona fide in the interests of its subsidiary. As it is not therefore plain and obvious from the statement of claim that the Said v. Butt exception is applicable to Stronach, the claim against him should not be precluded at this stage.
[25] The adequacy of the claim for special damages as a constituent element of the tort of conspiracy to injure was not raised as an issue on appeal. No objection has apparently been taken to the special damages pleading added following the October 1997 motion on the direction of the motions judge. I accordingly make no comment on that issue.
Over-Broad Joinder
[26] Stronach submits that the request to add him as a defendant is an example of over-broad joinder made for tactical reasons only. He asks this court to resort to its inherent jurisdiction to control its own process, or the provisions of rules 1.04 or 5.05, and either refuse the request for joinder or stay the claim as joined on terms that Mr. Stronach be bound by the findings against the other appellants. In particular, he argues that the essence of this claim is for breach of contract. If a contract has been breached, the corporate party will pay damages. Adding Stronach as a defendant will serve no practical purpose.
[27] It is more than a little astonishing that the motion to amend by adding Stronach as a party defendant to the claim for conspiracy to injure was originally made some fifteen months after he was originally identified as a co-conspirator. Nevertheless, I agree with the conclusion of the motions judge in October 1997 that the type of abuse asserted by Stronach is more properly policed with costs sanctions at later stages of a proceeding.
Conclusion
[28] For the reasons given, I would allow the appeal in part and make an order amending paragraph 2 of the order dated February 18, 2000 to provide that leave to amend the statement of claim is limited to adding Frank Stronach as a party defendant and the claim against him for conspiracy to injure. I would also further amend the order by adding a paragraph to provide that the balance of the respondent’s motion to amend is dismissed.
[29] Having regard to the divided success on this motion and the delay to which I have referred, I would make no order with respect to the costs of this appeal.
[30] The Divisional Court ordered costs in the cause fixed at $1,000. I would amend that order to provide that the costs of the appeal to the Divisional Court be in the cause as against Frank Stronach, fixed at $1000.
Released: May 3, 2001 “JWM”
“Simmons J.A.”
“I agree: Morden J.A.”
I agree M. Rosenberg J.A.”
[^1]: The Statement of Claim as amended to date and the proposed version alleges Decoma was the original contracting party.
[^2]: The endorsement granting leave to amend stipulated that the claim for conspiracy to injure in its proposed format was defective in that it failed to plead the special damages suffered as a result of the alleged conspiracy that were distinct from any damages that would flow from a contractual remedy. The endorsement directed that the claim for conspiracy to injure should therefore be struck with leave to amend by providing particulars of the special damages alleged within 30 days. An amended statement of claim that described the special damages allegedly caused by the conspiracy to injure and that claimed those damages against both Magna and Polzl was subsequently delivered. There is no indication the amended format was the subject of any judicial scrutiny. The claims for special damages for conspiracy to injure against Magna and Polzl were not incorporated into the proposed pleading forming the subject matter of this appeal.
[^3]: See for example Rainaldi, Remedies in Tort, vol. 3, release 4, at para. 53.
[^4]: Said v. Butt at 505.