Griffiths v. Canaccord Capital Corporation, 2005 CanLII 42485 (ON SCDC)

Court File and Parties

COURT FILE NO.: 133/05 DATE: 20051118

SUPERIOR COURT OF JUSTICE - ONTARIO DIVISIONAL COURT

RE: BRADLEY D. GRIFFITHS and PETER A. SHONIKER Appellant (Plaintiffs)

• and -

CANACCORD CAPITAL CORPORATION, CANACCORD INVESTMENT LTD., CANACCORD HOLDINGS LTD., and PETER M. BROWN Respondents (Defendants)

BEFORE: CARNWATH J.

COUNSEL: James C. Orr & Michael Osborne, for the appellants/plaintiffs Donald J. Sorochan & David Mitchell, for the respondents/defendants

HEARD: November 9, 2005

ENDORSEMENT

CARNWATH J.:

1Bradley Griffiths started to work for Canaccord in October 1999, and left the company on July 24, 2001. Pursuant to an employment contract, Canaccord repurchased Mr. Griffiths’ shares in both Canaccord Investment Ltd. and Canaccord Holdings Ltd. Mr. Griffiths sued the companies for wrongful dismissal and for a higher purchase price for his shares than that paid by Canaccord.

2Mr. Griffiths then moved before the Master to amend his Statement of Claim to permit him to plead that he is entitled to retain ownership of the Canaccord shares repurchased by the company. The issue to be decided is whether the Master was “clearly wrong” in refusing the amendment.

3The Master denied leave to amend the statement of claim for several reasons:

1. There was prejudice not compensable by an adjournment or costs;
2. The plaintiff was trying to approbate and reprobate at the same time;
3. The amendment resulted in the withdrawing of an admission;
4. No material was submitted to substantiate the amendment;
5. The matter was strikingly similar to the facts in C.L. v. Dominion of Canada General Co., [1998] O.J. No. 298;
6. The doctrine of laches and the lack of jurisdiction to alter the share capital of foreign corporations supported not granting the amendment; and,
7. The proposed amendment offended the rule in Foss v. Harbottle.

4I have concluded the Master was clearly wrong in refusing the amendment.

There was prejudice not compensable by an adjournment or costs

5Rule 26.01 of provides as follows:

On motion at any stage of an action, the court shall 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. R.R.O. 1990, Reg. 194, r. 26.01.

6Mr. Griffiths sought to add a claim for his continued ownership of shares in the defendants Canaccord. The Master found the amendment respecting ownership of the shares not tenable. He found there were no shares to retain ownership in, the shares having been cancelled and no longer in existence through corporate reorganizations involving the Canaccord companies.

7The following four paragraphs set out the Master’s findings with respect to prejudice:

[41] The defendants first have demonstrated by evidence that the plaintiff has been enriched by the payments made to him for his shares at a minimum in the amount of $2,708,000 and is keeping the money but at the same time wants to retrieve ownership of the shares. I find this in itself to be prejudice which cannot be compensated for by costs or an adjournment.

[42] The plaintiff has assigned $2,678,790 of the monies received to his bank and there is no indication that he can repay the monies if ordered to do so. I find this also in itself to be prejudice which cannot be compensated for by costs or an adjournment.

[43] The plaintiff’s shares as sold have been cancelled and they no longer exist. The corporations themselves no longer exist in the form they were at the time of the sale. The relief he seeks amounts to relief impossible to give. As a consequence of CIL’s amalgamation it is now impossible to trace the plaintiff’s 644,158 shares in CIL in the amalgamated company.

[44] For these reasons alone I refuse the sought after amendment in issue concerning ownership of the shares as it will cause the defendants prejudice which cannot be compensated for by costs or an adjournment.

8With respect, I find the Master to have applied the wrong test in considering the effect of rule 26.01.

9The Ontario Court of Appeal recently stated the law as follows:

… [amendment] should be presumptively approved unless they would occasion prejudice that cannot be compensated by costs or an adjournment; they are shown to be scandalous, frivolous, vexatious or an abuse of the court’s process; or they disclose no reasonable cause of action …

Andersen Consulting Ltd. v. Canada (Attorney General), 2001 8587 (ON CA), [2001] O.J. No. 3576 (C.A.) at para. 37.

10Further, in considering whether to grant leave to amend, the court should not examine whether there is sufficient evidence to sustain the pleading, weigh evidence or make findings of fact. To do so would be to turn the motion into a summary judgment motion: Andersen, supra; Clustercraft Jewellery Manufacturing Co. Ltd. v. Wygee Holdings, Ltd., [2004] O.J. No. 2877 (S.C.J.).

11The Master found that the proposed amendment on its face “appears nonetheless to raise a triable issue although inconsistent with the alternative relief sought and the underpinning therefor as pleaded.” He did not make a finding that the proposed amendment was scandalous, frivolous, vexatious or an abuse of the court’s process. Indeed he found that it was not an abuse of the court’s process in his costs endorsement at para. [12]. His conclusions as to prejudice are founded on his weighing evidence and finding facts. They cannot stand.

The plaintiff was trying to approbate and reprobate at the same time

12At para. [45] the Master is reported as follows:

[45] I also agree with the defendants’ submissions that the plaintiff cannot approbate and reprobate and he is estopped from so doing. See Halsbury’s Laws of England, 4th ed. Reissue, Vol. 16(2), para. 962 and Lord Denning MR in Slough Estates Ltd. v. Slough Borough Council, [1969] 2 Ch 305 (CA) at page 318. Here the plaintiff had a choice between two courses of action, to compel purchase of his shares or to retain them. He chose the former. He may advance a contrary election if the former election can be undone. Here he has made no attempt to undo the former election and has kept the proceeds of the sale and used it to his own end. Further even if he had tendered the return of the funds he has accepted and used, given what has transpired with the two corporations, shares equivalent to those he sold are unavailable. In short the new relief sought respecting the ownership of the shares is incapable of being granted and as such is not tenable at law.

13The following elements must be established to show that a person has made an election:

(a) A person has two or more inconsistent and mutually exclusive rights; (b) that person had knowledge of these rights; and (c) that person unequivocally chose one right over the other.

Alberta Union of Provincial Employees v. Lethbridge Community College, 2002 ABCA 125, [2002] A.J. No. 695 (C.A.), at para. 24.

14It is clear from the elements listed above that whether an election has been made is very much a factual matter. The Ontario Court of Appeal stated in Champlain Ready-Mixed Concrete v. Beaupré, 1971 496 (ON CA), [1971] 3 O.R. 568 at p. 569:

It is a question of fact in every case, whether or not there has been express acceptance of part performance in satisfaction of an obligation; and while the silence of the creditor may be some evidence in deciding whether or not there has been express acceptance, in my view it is not a factor which is singly governing the rights of the parties.

15Moreover, the test for establishing an election is a difficult one to meet. The choice must be unequivocal. The intention of the person alleged to have made an election is an important element: Alberta Union of Provincial Employees, supra.

16I agree with the appellant’s submission that whether Mr. Griffiths made an election by his conduct is a factual matter beyond the scope of the enquiry the Master was permitted to make. His finding that Mr. Griffiths had made such an election might be appropriate on a motion for summary judgment, but not on a motion to amend the pleadings.

The amendment resulted in the withdrawing of an admission

17In finding that it was not open for Mr. Griffiths to withdraw an admission contained in a pleading, the Master applied the rule in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1995), 1995 7105 (ON SC), 25 O.R. (3d) 106, pp. 304-305:

1. The court must be satisfied from material filed in support of the motion that what is proposed to replace the admission sought to be withdrawn, raises a triable issue;
2. The court must be satisfied by material filed that the admission was inadvertent, or the solicitor was wrongly instructed;
3. The material must show that the withdrawal of the admission will not result in an injustice to the other parties in the action, it being understood that if the other parties can be compensated by costs, there is no injustice.

18The Master found that the proposed amendment had the effect of withdrawing admissions, namely that the plaintiff had left the companies and was obligated to sell his shares. Therefore, the only remaining issue in respect of the sale of the shares was the amount of compensation, that is, the purchase price.

19I adopt the statement of Master MacLeod in Hughes v. Toronto-Dominion Bank, [2002] O.J. No. 2145 (S.C.J.) at paras.9-19:

I adopt the definition of an admission as being an unambiguous deliberate concession to the opposing party. Such an admission would be rare in a statement of claim …

20I accept the appellant’s submission that the existing pleadings relating to the Canaccord shares do not constitute unambiguous deliberate concessions in response to Canaccord’s pleadings. The pleadings show that the parties have disputed the facts relating to the shares from the outset and, in particular, the purchase price.

No material was submitted to substantiate the amendment

21Further in his reasons, the Master has reported as follows:

[52] In most instances amendments are sought to clarify or refine a pleading, correct errors however caused or to reflect changes as a result of new information which has come to light usually in the discovery process. Here no material has been tendered to substantiate the amendment on any of the usual basis rather the approach has been bald and amounts to stating Rule 26.01 states we can and thus we do. The evidence tendered by the respondents paints a different picture.

[53] Immediately after the initial public offering became known, the plaintiff changed direction. Up to that time he was content to argue over price. With an imminent public offering and on the facts presented to me I find that the new scenario presented an opportunity whereby the shares could increase by several times book value. The only possible chance the plaintiff could have to capitalize on that potential was to resile from his previous position a position as noted above which both plaintiffs and defendants had acted on. In the case of the plaintiff he took the promissory notes tendered and then used the proceeds to his own benefit. In the case of the defendants they continued with the corporate evolution of the two companies. He then acted by changing solicitors and then seekng an amendment to advance a new cause of action respecting ownership of the shares to take advantage of the public offering.

[54] What is sought herein by the plaintiff bears a striking resemblance to what transpired in C.L. v. Dominion of Canada General Insurance Co. [1998] O.J. No.298. There Justice Platana found that the amendment raised a new cause of action, that the applicant did not file any affidavit material in support of the application and that the amendment was an abuse of process. In Transamerica, supra, Justice Gotlib at page 304 when considering abuse of process agreed that an explanation in the supporting material was needed as to why the amendment was being sought. Here in the bald affidavit filed in support no explanation is given. Here as in C.L. the plaintiff seeks to avoid one result by pleading what amounts to a new cause of action. On the same basis as in C.L. supra, I dismiss the application for leave to amend as it applies to the share ownership claim.

22In para. [52], the Master notes no material has been tendered to substantiate the amendment and the evidence tendered by the respondents “paints a different picture”.

23I respectfully disagree that material must be tendered to substantiate the amendment. I find the evidence tendered by the respondents should not be taken into account. As authority for this proposition I adopt the reasoning of Master MacLeod in Chesnie v. Snider, 2004 34949 (ON SC), [2004] O.J. No. 4462 at para. 7:

7. In Plante I had to consider whether or not evidence should be admitted concerning the merits of the proposed amendments. I concluded that evidence should not be weighed because while it is the role of the court in reviewing proposed amendments to determine that the pleadings are tenable, the analysis is a Rule 25 or Rule 21.01(b) analysis rather than an evidence based summary judgment analysis. The court in other words need only be persuaded that had the pleading been asserted in the first place or in a separate action, the pleading could not be immediately struck on a motion under rule 25 or Rule 21. The pleading must set out the material facts giving rise to a cause of action but it is not necessary to prove those facts. To require the plaintiff to prove the merits of the proposed amendment or to allow the defendant to introduce evidence that the claim will not succeed turns every pleading amendment motion into a summary judgment motion. That is neither efficient nor desirable. Amongst the most obvious disadvantages of that approach is that it would simply encourage parties to commence separate actions and then to seek joinder.

The matter was strikingly similar to the facts in C.L. v. Dominion of Canada General Co., [1998] O.J. No. 298

24I respectfully disagree that the matter before me bears a striking resemblance to what happened in C.L. v. Dominion of Canada General Co., [1998] O.J. No. 298. In that case Platana J. found the amendment was an abuse of process, as it was a collateral attack on an order of the Divisional Court. Since the Master found no abuse of process and since no order of the court was collaterally attacked, I find a considerable difference between the two cases.

The doctrine of laches and the lack of jurisdiction to alter the share capital of foreign corporations supported not granting the amendment

25The Master is reported in para. [55] as follows:

[55] The defendant has also advanced other grounds in opposition to the request for leave to amend, namely laches, that the court has no jurisdiction to alter the share capital of foreign corporations and that the proposed amendments offend the Rule in Foss v. Harbottle. Given my findings and decisions above I do not propose to address each save to say that they too lend support to the defendant’s position.

26For the Master to take into account laches and the alteration of share capital of foreign corporations, would require him to consider evidence and find facts that I have already indicated is more appropriate to a motion for summary judgment as opposed to a motion to amend the pleadings.

The proposed amendment offended the rule in Foss v. Harbottle

27The reference by the Master to Foss v. Harbottle leads to an examination of the proposed amendments 13.6 – 13.10. These paragraphs allege certain improprieties by Canaccord and Peter Brown, the latter apparently an officer and director of Canaccord. If the rule in Foss v. Harbottle applies to these pleadings, a derivative action must be pleaded and leave obtained, pursuant to s. 246 of the Business Corporations Act. If, on the other hand, they support the granting of an oppression remedy, an application must be made to the Court under s. 248 of the Business Corporations Act. Since neither s. 246 nor s. 248 of the Business Corporations Act has been complied with, paras. 13.6 – 13.10 must be struck.

28I direct the plaintiff to prepare an amended Statement of Claim reflecting these reasons and to submit it to the defendants for approval. If agreement cannot be reached, I may be spoken to to arrange an appointment to settle the amended Statement of Claim.

29If the parties are unable to agree on costs, they may make brief written submissions within fifteen days of this endorsement.