CITATION: Steel Tree Structures Ltd. v. Gemco Solar Inc., 2016 ONSC 955

DIVISIONAL COURT FILE NO.: 534/15

DATE: 20160208

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

BETWEEN:

STEEL TREE STRUCTURES LTD. Plaintiff/Appellant

– and –

GEMCO SOLAR INC., GREEN EDGE PRODUCTS INC. and JEAN MICHEL AOUN, FOVERE INVESTMENTS INC., PAUL MARSIGLIO, DARRYL ABBOTT, FOVERE GLENBARRA ENERGY FUND IV LIMITED PARTNERSHIP and FOVERE GLENBARRA ENERGY FUND IV LTD. Defendants

Karey Anne Dhirani, for the Plaintiff/Appellant

Brendan D. Bowles, for the Respondents Lorne Honickman, Robert Griffin, Stephen Barbier and McCague Borlack LLP

HEARD at Toronto: February 4, 2106

C. HORKINS J.

[1] The appellant, Steel Tree Structures Ltd., appeals the final order of Master Pope dated September 22, 2015. This order denied leave to amend the statement of claim to add the appellant’s prior lawyers and paralegal, Lorne Honickman, Robert Griffin, Stephen Barbier and McCague Borlack LLP as defendants. I will refer to the proposed defendants collectively as McCague Borlack.

Overview

[2] The following is a summary of the facts as pleaded in the proposed amended statement of claim that was before Master Pope.

[3] The appellant carries on business as a manufacturer and installer of light gauge structures. At the request of the defendant Gemco Solar Inc. (“Gemco”), the appellant supplied solar racks and a ballast tray to be installed on the roof of a property at 1450 Castlefield Avenue (“the Castlefield property), as part of a solar power system. The appellant states that it is owed $220,484.52 for the supply of the above material.

[4] In October 2013, the appellant retained McCague Borlack to register a construction lien in the amount of $200,709.52 against the Castlefield property.

[5] On October 21, 2013, McCague Borlack registered a construction lien against title to the Castlefield property on the appellant's behalf (the "lien"). McCague Borlack then commenced an action against Gemco and 1450 Castlefield Avenue Limited ("1450") with respect to the lien (the "lien action"). 1450 was the registered owner of the Castlefield property.

[6] Pursuant to the lien, the appellant was seeking payment of monies that Gemco owed for the manufacture and supply of solar racks and ballast trays for a roof top solar power system installed by the roof tenant at the Castlefield property.

[7] On November 15, 2013, the roof tenant posted security and the lien was vacated. McCague Borlack then recommended that the appellant consent to an order discharging the lien and dismissing the lien action as against the registered owner of the Castlefield property. In reliance upon McCague Borlack's advice, the appellant consented to the order.

[8] On February 25, 2014, Master Albert granted an Order, on consent, discharging the lien, dismissing the lien action as against the registered owner of the Castlefield property and ordering the return of the roof tenant's security.

[9] The appellant subsequently discovered that McCague Borlack had failed to properly register the lien because it failed to identify the tenant in the lien.

[10] The appellant states that the failure of McCague Borlack to properly register the lien constituted negligence and/or a breach of contract. Alternatively, if the lien was valid, McCague Borlack's advice that the appellant consent to its discharge constituted negligent advice and/or a breach of contract.

[11] The appellant has been unable to recover the monies owing to it for the materials supplied to the Castlefield project. It is alleged that if the lien had been properly registered against the tenant, the monies that the tenant paid into court would be available to satisfy any judgment in the appellant’s favour.

[12] As a result of the failure of McCague Borlack to register the lien against the tenant, the appellant was required to pursue this action (also referred to as the breach of trust claim) against the existing defendants. It is alleged that after the lien was discharged, the monies that had been paid into court were diverted from the Castlefield property project to other purposes inconsistent with the trust provisions of the Construction Lien Act, R.S.O. 1990, c. C-30.

[13] After the Master denied the appellant’s motion, it was necessary for the appellant to start a separate action against McCague Borlack in order to avoid a limitation period that was about to expire (Court File no. CV-15-537691). The appellant proposes to discontinue this separate action if the appeal is successful and McCague Borlack are added as defendants to this action (Court File No. CV-14-501848).

The Master’s Decision

[14] On September 21, 2015, Master Pope released a final Order denying the appellant's motion to amend their statement of claim to add McCague Borlack and claim against them in negligence and breach of contract. In her reasons, Master Pope stated that it was not just in the circumstances to add McCague Borlack as defendants. The Master gave the following reasons:

(1) The breach of trust action arises out of the alleged breach of contract where the appellant contracted with the existing defendants for the manufacture and supply of solar tracks and ballast trays to be installed on the roof of a property as part of a rooftop solar power system (the breach of trust claim).

(2) The solicitors’ negligence claim against McCague Borlack arises from the appellant's retainer with McCague Borlack LLP to pursue and register a construction lien against the existing defendants. The appellant alleges that McCague Borlack failed to properly register the lien as it failed to identify the tenant in the lien.

(3) Dealing with the similarity between the two claims the Master stated: “the only similarity between the 2 claims is that they both arise out of the same transaction; however, with the distinction that the solicitor negligence claim arises out of the subsequent and distinctly transaction, being the registration of the lien.”

(4) There is “not a common issue of law” between the proposed negligence action and the breach of trust action.

(5) The breach of trust action can proceed to trial without the negligence action being joined as nothing in the breach of trust action hinges on the alleged negligence of the McCague Borlack.

(6) The appellant is within its right to issue a separate action against McCague Borlack at any time.

(7) To add McCague Borlack to the breach of trust action and join the negligence claim with the breach of trust claim will cause delay and possible non-compensatory expense. If the amendment is granted there will be delay for McCague Borlack to deliver a defence and make productions and “get up to speed”. The trial time will be doubled with each group of defendants having no interest in the other claim. All defendants will suffer the added expense and delay of having to sit through a trial involving two different claims and these expenses and the delay may never be recovered.

(8) The liability of McCague Borlack is contingent on the appellant obtaining judgment in the breach of trust action, creating the possibility that the solicitors’ negligence action would be rendered moot if the appellant did not succeed in its action against the existing defendants.

[15] The appellant states that the Master “incorrectly applied the legal test, committed errors in principle and made palpable and overriding errors of fact” in denying the motion to add McCague Borlack as defendants.

standard of review

[16] The standard of review in an appeal from the order of a master is the same as that for an appeal from an order of a judge: correctness for an error of law, palpable and overriding error for an error of fact, and correctness or palpable and overriding error for a question of mixed fact and law, depending on whether there is an extricable legal principle (see Zeitoun v. Economical Insurance Group, 2009 ONCA 415 at para. 1; Wellwood v. Ontario (Provincial Police), 2010 ONCA 386 at para. 28).

analysis

[17] The Master acknowledges that the motion was brought pursuant to rules 26.02 and 5.04(2). However there is no clear articulation of the test that the Master applied.

[18] McCague Borlack acknowledges that the test is not set out in the reasons, but says that when the reasons are considered it is apparent that the Master applied the correct test.

[19] Before considering the parties’ positions, it is important to review the test that applies on a motion under rules 26 and 5.04(2).

[20] Rule 26 deals with amendments to a pleading. A properly framed pleading that is tenable at law “shall” be allowed unless it results in prejudice that cannot be addressed in costs or an adjournment. It states as follows:

26.01 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.

[21] The onus lies upon the defendant to show non-compensable prejudice under the rules. Under Rule 26, it is an error in principle for the court to refuse an amendment in the absence of prejudice that could not be addressed with costs or an adjournment. (see Haikola v. Arsenau, [1996] O.J. No. 231 at para.4).

[22] Rule 5.04(2) is subject to the same legal tests as rule 26.01 but the Court retains discretion to refuse to add a party based upon principles of fairness and judicial efficiency. The rule states:

5.04 (1) …

(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.

[23] In Plante v. Industrial Alliance Life Insurance Co., [2003] O.J. No. 3034, Master MacLeod set out the test for adding a party under rule 5.04(2). The following summary of the test is consistent with the extensive judicial authority concerning the test:

27 The tests for adding a party under rule 5.04(2) may therefore be stated as follows:

a) The proposed amendment must meet all of the tests under Rule 26.01.

b) Joinder should be appropriate under Rule 5.02(2) or required under Rule 5.03. The addition of the parties should arise out of the same transaction or occurrence (Rule 5.02(2)(a)), should have a question of law or fact in common (Rule 5.02(2)(b)), or the addition of the party should promote the convenient administration of justice (Rule 5.02(2)(e)). Adding a party will be particularly appropriate if it is unclear which of the original defendant or the proposed defendant may be liable (Rules 5.02(2)(c) or (d)), or if it is necessary that the proposed defendant be bound by the outcome of the proceeding or his or her participation is otherwise necessary to allow the court to adjudicate effectively (Rule 5.03(1)).

c) Joinder should not be inappropriate under Rule 5.03(6) or 5.05. The addition of a party should not unduly delay or complicate a hearing or cause undue prejudice to the other party. In a case-managed proceeding, it may also be appropriate to withhold consent if it will cause significant disruption to the court-ordered schedule: Belsat Video Marketing Inc. v. Astral Communications Inc. (1999), 86 C.P.R. (3d) 413, 118 O.A.C. 105 (C.A.).

d) Addition of a party will not be permitted if it is shown to be an abuse of process. Abuse of process will exist where the addition of a party is for an improper purpose such as solely to obtain discovery from them, to put unfair pressure on the other side to settle, to harass the other party or for purely tactical reasons. National Trust Co. v. Furbacher, [1994] O.J. No. 2385 (QL) (Gen. Div.); MacRae v. Lecompte (1983), 143 D.L.R. (3d) 219, 32 C.P.C. 78 (Ont. H.C.J.). [Footnote omitted]

[24] The initial question for the court to ask under rules 26 and 5.04(2) is whether the proposed defendant would suffer non-compensable prejudice. While under rule 5.04(2), the court has the discretion to deny the amendment in the absence of non-compensable prejudice, such discretion should not be invoked often. Added complication to the action and increased work and legal expense is not the type of non-compensable prejudice envisioned by rules 26 and 5.04(2) (see Voutour v. Pfizer Canada Inc., [2008] O.J. No. 3070 at para. 21; Mazzuca v. Silvercreek Pharmacy Ltd., [2001] O.J. No. 4567 at paras. 25, 30 and 84; Schembri v. Way, 2012 ONCA 620 at paras. 25-26 and 42-44).

[25] I find that the Master erred in refusing to add McCague Borlack as defendants to this action. For the reasons set out below, the amendment to the pleading to add McCague Borlack should have been permitted. Accordingly I allow the appeal.

[26] While the Master does not clearly articulate the test she applied, the reasons reveal her consideration of some of the essential elements of the test. In my view, she erred in law in applying the test and misapprehended the facts. The latter is a palpable and overriding error.

[27] The starting point for the test under rules 26 and 5.04(2) is whether adding McCague Borlack will result in non-compensable prejudice. The Master found that adding McCague Borlack “will cause delay and possible non-compensatory expense” as follows:

If the amendment is granted there will be delay for [McCague Borlack] to deliver a defence, make productions and get up to speed. The trial time will be double essentially with each group of Defendants having no interest in the other claim. The added expense of having to sit through a trial involving 2 different claims may never be recovered, not to mention the lost time and expense of each Defendant to sit through the trial of the entire action when their only interest is in one part of it.

[28] This consideration of non-compensable prejudice was an error in law. First, the Master had no evidence of non-compensable prejudice. To say that there was “possible non-compensatory prejudice” was speculation. The onus is on the proposed defendant to prove non-compensable prejudice. The affidavit that McCague Borlack filed on the motion did not discuss or allege any form of prejudice. The existing defendants and the others that were added on his motion did not complain of any prejudice if McCague Borlack was added. Second, the type of prejudice that the Master speculated about, is not the type of non-compensatory prejudice that is envisioned by rules 26 and 5.02. As Justice Feldman stated in Schembri v. Way, 2012 ONCA 620 at para.44:

44 The trial judge also found that to join the Way Family Trust would unduly complicate the action and cause significant prejudice to the Trust in having to produce documents and incur accounting and legal expenses. However, this is not the type of prejudice envisioned by the rule. Unfortunately, everyone involved in litigation must endure the time and expense involved in its procedures. In any event, the plaintiffs were not seeking to add a party late in the litigation but at a fairly early stage before examinations and production.

[29] While the court has the discretion to deny the amendment even in the absence of non-compensable prejudice, such discretion should not be invoked often. As the court of Appeal stated in Schembri v. Way at para. 25 “amendments to add parties should be presumptively approved, unless there is abuse of the court process or non-compensable prejudice". In Schembri v. Way, the Court allowed the defendants to be added for the same factual reasons that exist in this case. At para. 26 the court stated:

26 There is neither an allegation of prejudice nor a limitation period issue here, and the action is at an early stage. The plaintiffs could commence a new action against the proposed defendants and then seek to join it with the existing action. The procedure of adding parties to the existing action circumvents the costly and time-consuming process involved in that procedure.

[30] When the Master exercised her discretion to refuse to add McCague Borlack, this was contrary to test for adding parties and contrary to the principles of fairness and judicial efficiency. Following the test as articulated in Plant, it is clear that the amendment ought to have been allowed.

[31] This is not a case where a limitation period has expired against the potential defendant. It is also not a case where the action is about to go to trial. The existing action is at the pleadings stage. It is agreed that the proposed pleading sets out a claim that is tenable at law. There is no basis for suggesting that the addition of McCague Borlack as defendants is an abuse of process.

[32] As the Master stated, the breach of trust claim and the proposed solicitor’s negligence claim against McCague Borlack “both arise out of the same transaction”. It is admitted that there are questions of fact in common between the claims. McCague Borlack has an interest in the appellant successfully pursuing the existing defendants for recovery of monies that are owed to it. The breach of trust claim is the appellant’s effort to mitigate the alleged damages that flow from the alleged negligence of McCague Borlack. McCague Borlack argues that the appellant has a duty to mitigate its losses and clearly has an interest in how this mitigation proceeds.

[33] The Master stated that any liability of McCague Borlack is contingent upon the appellant obtaining a judgment in the breach of trust action and for this reason there is a possibility that the solicitor's negligence action would be rendered moot. This assumption is not reflected in the pleadings. It was an error in fact. The Master has incorrectly characterized the facts pleaded. This goes to the heart of the appellant’s claim for damages against McCague Borlack and is a palpable and overriding error. To the extent that the Master was stating a principle of law, this was wrong.

[34] The liability of McCague Borlack is not contingent upon the outcome of the breach of trust claims. While success and recovery upon the trust claims with respect to the Castlefield project would benefit McCague Borlack, the failure of the breach of trust claim does not mean that McCague Borlack is not liable to the appellant. The appellant claims that the lien was improperly registered whether or not the breach of trust claim action succeeds. It alleges that all costs associated with the lien action were wasted and it has been forced to pursue a complex breach of trust action to attempt to recover its damages given the loss of its lien rights. The increased litigation costs will be claimed as consequential damages against McCague Borlack irrespective of the outcome of the breach of trust claims. If the appellant is unsuccessful on all breach of trust claims, but succeeds on its contract claim with respect to the Castlefield Project, McCague Borlack would be liable for damages if it is found to have been negligent or breached its contract with the appellant.

[35] If McCague Borlack is not added to this action and the appellant is left to pursue McCague Borlack in a separate action, the appellant's contract and breach of trust claims will be the subject of litigation in both actions and costs will be significantly increased. In addition, the appellant will need to lead evidence regarding the conduct and outcome of the breach of trust action in the solicitor's negligence action, to establish its mitigation efforts and the reasonableness of its conduct in the breach of trust action. Such a multiplicity is to be avoided because it creates a risk of inconsistent or contradictory findings by the court on the same factual and legal issues. Indeed McCague Borlack’s counsel confirmed their position during this appeal: they are not bound by the findings of fact in the breach of trust action if they are not added as defendants.

[36] The effect of the Master’s decision necessitated the issuance of a separate action against McCague Borlack to avoid the expiration of a limitation period. The Master accepted that the appellant had the right to issue this action and stated “there is a good likelihood that the action would be stayed pending the outcome of the trust action.”

[37] Finally, the effect of the Master’s decision is contrary to rule 1.04(1) provides:

These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

[38] Rule 1.04(1) is honoured by adding McCague Borlack as defendants to this action. To the extent that there are issues in this action that they have no interest in, they will be able to limit their participation accordingly.

[39] This raises the question of what to do with the separate action that the appellant had to commence against McCague Borlack (Court File No. CV-15-537691). During the hearing of the appeal, the parties agreed that if the appellant is successful on this appeal the separate action commenced against McCague Borlack shall be discontinued and McCague Borlack shall be added as defendants to the breach of trust action effective the date of the motion before the Master (July 29, 2015). The appellant and McCague Borlack do not want consolidation of the two actions.

[40] For the reason set out above, the appeal is granted. The order of Master Pope dated September 22, 2015, as it relates to the dismissal of the appellant’s motion seeking leave to add McCague Borlack LLP, Lorne Honickman, Robert Griffin and Stephen Barbier as defendants to the action CV- 14 501848 is set aside.

[41] Leave is granted to the appellant to add McCague Borlack LLP, Lorne Honickman, Robert Griffin and Stephen Barbier as defendants to action CV-14-501848 and amend the Statement of Claim to add the claims against the said proposed defendants as of the date of the motion on July 29, 2015.

[42] As agreed, Court File No. CV-15-537691 shall be discontinued after McCague Borlack LLP, Lorne Honickman, Robert Griffin and Stephen Barbier are added as defendants to action CV- 14- 501848

[43] The parties have agreed on the costs of this appeal. The costs of the appellant are fixed at $10,000 all-inclusive payable by McCague Borlack LLP, Lorne Honickman, Robert Griffin and Stephen Barbier.

C. Horkins J.

Date: February 8, 2016