COURT OF APPEAL FOR ONTARIO
LABROSSE, CHARRON and GILLESE JJ.A.
B E T W E E N:
1351428 ONTARIO LIMITED carrying on business as THE WINEYARD, ARIS COKINOS and CHRISTOS ANDROUTSOS, also known as CHRIS ANDROUTSOS
Angela Assuras for the plaintiffs (appellants)
Plaintiffs (Appellants)
- and -
1037598 ONTARIO LTD. and TED TSANAS, also known as THEODOR TSANAS, also known as THEODOROS TSANAS and BRIAN GROVE HOLDINGS LTD.
John O’Sullivan for the respondent Marsh & Co. Hospitality Realty Inc.
Defendants (Respondent on appeal Marsh & Co. Hospitality Realty Inc.)
Heard: January 15, 2003
On appeal from the orders of Justice Bonnie J. Wein of the Superior Court of Justice dated April 18, 2002 and September 24, 2002.
Introduction
1The appellants appeal from the dismissal of their motion to add the respondent Marsh & Co. Hospitality Realty Inc. as a defendant to the proceeding. They also appeal from the costs award in the amount of $7,070.07.
Background
2This action, commenced in September 1999, arises out of an agreement of purchase and sale of a restaurant between the appellant 1351428 Ontario Limited, as purchaser, and the defendant 1037598 Ontario Ltd., as vendor. The individual appellants are shareholders and directors of the corporate purchaser and the individual defendant Ted Tsanas (“Tsanas”) is a shareholder, director and officer of the corporate vendor. The defendant Brian Grove Holdings Ltd was the landlord of the premises in question.
3In October 2001, the appellants sought leave to amend their statement of claim to include additional causes of action against Tsanas arising out of his alleged conduct as real estate agent in respect of the transaction. Leave to amend was granted and no appeal is taken from this order.
4On the same motion, the appellants sought to add the respondent Marsh & Co. Hospitality Realty Inc. (“Marsh”) as a party defendant based, in part, on the allegation that Marsh is vicariously liable for Tsanas’s conduct as a real estate broker employed by, or acting as agent for, Marsh. The proposed pleading against Marsh extended beyond allegations of vicarious liability and included a claim for damages for negligent misrepresentation, breach of fiduciary duty, breach of contract, negligence, and breach of statutory duty. Leave to add Marsh as a defendant to the action was refused and it is that part of the order which is the subject-matter of this appeal.
5Rule 5.04(2) reads as follows:
5.04 (2) At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
6None of the existing defendants to the action opposed the motion to add a party or took part in this appeal.
7In response to the motion, Marsh denied that Tsanas was ever an employee of Marsh. Marsh acknowledged, however, that for a period of time Tsanas had acted as an assistant to one of its real estate agents, Ron Scribner, and as such, that he had had the use of Marsh’s office, letterhead and equipment. Marsh acknowledged further that Scribner, with Tsanas acting as his assistant, had acted as agent for the appellants in respect of two other restaurant properties but not in respect of the restaurant in question in this transaction. Marsh relied on the written agreement of purchase and sale to show that the parties intended that there be no agent on this transaction. Marsh further alleged that it would be irremediably prejudiced if it were added as a party defendant because of the intervening death of Ron Scribner in November 2000.
8The specific allegations of prejudice were set out as follows in affidavits filed by Marsh’s principal, Garry Marsh:
There is no one at Marsh & Co. who can testify as to the details of the working relationship between Mr. Scribner and Mr. Tsanas. Mr. Scribner died in November 2000. That was one year and two months after the plaintiffs commenced this action.
There is no reason I am aware of to believe that Mr. Tsanas exceeded his role as an assistant to Mr. Scribner, as alleged … Mr. Scribner would be the only person at Marsh & Co. who could provide full testimony on this issue in defence of Marsh & Co. Mr. Scribner died in November, 2000, a year after this lawsuit was commenced.
9The motions judge was satisfied that Scribner’s evidence “cannot be replaced by other available evidence” and that Marsh would be irremediably prejudiced, if the motion was allowed. On that ground alone, she was satisfied that the motion should be dismissed. Alternatively, she ruled that, even if she were wrong on the issue of prejudice, she would nonetheless dismiss the motion because of the following circumstances: the nature of the allegations were known at the time the action was commenced; there had been a delay in proceeding with the motion; and, it could be said that there was no tenable cause of action. She based her finding on the latter point on her examination of the written agreement of purchase and sale. Although the document had been signed in Marsh’s office, in contradistinction to earlier agreements of purchase and sale prepared by Marsh, it deleted any reference to agency.
Analysis
10In my respectful view, the motions judge erred in dismissing the motion on either basis. I will deal firstly with the issue of prejudice.
Prejudice
11The form of prejudice that militates against granting leave to add a party under rule 5.04 must be such, as the rule expressly provides, that it “could not be compensated for by costs or an adjournment.” Prejudice may be alleged by one of the existing parties to the action or by the person sought to be added as a party litigant. It is implicit from the very nature of the motion that the prejudice in question must result from the addition of a party to an already existing action and not simply from the fact that the party sought to be added would sue or be sued as the case may be. It is for this reason that, not surprisingly, the most common circumstance that gives rise to an allegation of prejudice in opposition to a rule 5.04 motion is the expiry of a limitation period. While the expiry of a limitation period is by no means the sole circumstance that can justify the refusal of leave under rule 5.04, in this case, the absence of such a circumstance best exemplifies the kind of prejudice that is not contemplated under the rule. I say this for the following reason.
12It is unquestionable that the appellants, at this point in time, can commence a separate action against Marsh based on the same allegations that are contained in their proposed pleading. While Scribner’s intervening death could give rise to some evidentiary issues in the action, it is irrelevant to the appellants’ right to bring an action against Marsh. Further, given the nature of the allegations against Tasanas in the expanded pleading, it is inconceivable in my view that the two actions would not be properly consolidated under rule 6.01. Rule 5.04 cannot be considered in isolation.
13The motions judge accepted Marsh’s argument that non-compensable prejudice would result if the motion were granted because of the intervening death of a potentially important witness. While Marsh’s argument may hold some superficial attraction, it is my respectful view that, in these circumstances, it cannot provide a justification to refuse the appellants’ motion. In fairness to the motions judge, the appellants did not argue the motion on this basis.
14I would add that it is also my respectful view that the record does not support the motions judge’s finding that Scribner was the only person who, in a material way, could address the claim against Marsh. There is no doubt that, based on Marsh’s affidavits, Scribner may well have been a relevant, if not important, witness. The extent of Scribner’s involvement, if any, is, however, disputed by the appellants. Moreover, it is clear from the proposed pleading that the appellants’ claim against Marsh is based on alleged facts that extend far beyond the details of any particular relationship that may have existed between Scribner and Tsanas. In my view, it is not possible to make any determinative finding on Scribner’s involvement, and its relevance, based on the record at this stage of the proceedings.
The Alternative Basis
15It is also my respectful view that the motions judge erred in her alternative basis for denying the motion. As the motions judge herself acknowledged in her reasons, it is clear that the merits of the proposed claim cannot be considered at this stage of the proceedings. While a pleading that does not disclose a reasonable cause of action should not be permitted as an amendment under rule 5.04, this is not the situation here. There is no suggestion that the proposed pleading is defective. The motions judge’s consideration of the written documentation to determine the extent to which it could support the allegation that there was an agency relationship constituted a weighing of the evidence that went beyond the permissible scope of inquiry.
16The remaining considerations regarding the appellants’ knowledge of the relevant facts at the time the action was commenced and their delay in bringing the motion had no bearing on the prejudice alleged by Marsh. Nor could these considerations, in the context of this case, provide an independent basis for denying the motion in the absence of prejudice.
Disposition
17For these reasons, I would allow the appeal, set aside the motions judge’s order and grant leave to add the respondent as a party defendant. I would also set aside the order as to costs and would award no costs on the motion. I would award the appellants their costs of the appeal in the amount of $1,700 as requested.
Released: JAN 27 2003 Signed: “Louise Charron J.A.”
JML “I agree J.-M. Labrosse J.A.”
“I agree E.E. Gillese”
