Court File No.: CV-15-537074 Date: 2016-08-16 Ontario Superior Court of Justice
Between: NORTHERN CABLES INC., Plaintiff – and – KEVIN PHILPOTT, MARK PHILPOTT, JESUS NUNEZ, JOHN DOE DISPATCHER 1 and JOHN DOE DISPATCHER 2, Defendants
Counsel: Annette Uetrecht-Bain, for the Plaintiff Romesh Hettiarachchi, for the Defendants Kevin Philpott and Mark Philpott
Heard: July 25, 2016
Perell, J.
Reasons for Decision
A. Introduction
[1] The Defendants Kevin Philpott and Mark Philpott bring a motion to have Northern Cables Inc.’s action dismissed as either an abuse of process or for failure to disclose a reasonable cause of action.
[2] For the reasons that follow, it is my opinion that Northern Cables’ action is not an abuse of process, but its Statement of Claim should be struck out in its entirety with leave to amend for the failure to properly plead a reasonable cause of action.
[3] Accordingly, the Philpotts’ motion should be allowed.
B. Factual and Procedural Background
[4] Northern Cables Inc. carries on business as the manufacturer of commercial and industrial power cables. Prior to 2012, Northern Cables used Fastrek Logistics Inc., which was a cartage company, to transport its power cables.
[5] On January 18, 2012, pursuant to a contract of carriage, Northern Cables hired “somebody” carrying on business as Fastrek Logistics to cart 36 skids of AC90 armored cable from Brockville, Ontario, to Burnaby, British Columbia. The somebody with whom Northern Cables was contracting is a contentious, troublesome, and unresolved point in this litigation and in other litigation.
[6] On January 18, 2012, Fastrek Logistics Inc. was an existing corporation that could have entered into a contract with Northern Cables. However, it is not clear whether it was the party contracting with Northern Cables because previously on September 2011, Kevin Philpott for a company to be named later entered into an agreement to purchase the assets of Fastrek Logistics Inc., including its names. The recital of the asset sale agreement, which was a crudely-worded contract drafted without the benefit of legal assistance, stated:
WHEREAS, Dwayne Waddel will as sole shareholder of Fastrek Transportation Services Ltd. and in turn Fastrek Transportation Services Ltd. as a sole shareholder of Fastrek Logistics Inc. and Fastrek Express Inc. as companies described above will be responsible for all liabilities of all kinds of all three companies up to September 30th, 2011 at which time Kevin Philpott, or a company to be named later will assume all future liabilities created by Fastrek Logistics Inc. and any future use of the name Fastrek.
[7] It is now known that on November 8, 2011, Mr. Kevin Philpott did incorporate a corporation to carry on business using the name of Fastrek Logistics. The company was 2305006 Ontario Limited, and it used business stationery that identified itself as Fastrek Logistics.
[8] On November 10, 2011, pursuant to the Business Names Act, R.S.O. 1990, c. B.17, 2305006 Ontario Limited also registered Fastrek Logistics as its business name. 2305006 Ontario Limited carried on business at the former premises of Fastrek Logistics Inc.
[9] In any event, the cargo never arrived, and on December 3, 2012, Northern Cables sued Fastrek Logistics Inc. for $200,000 for negligence, breach of contract, and breach of bailment. Northern Cables’ lawyer of record in the action against Fastrek Logistics Inc. was McCague Borlack LLP.
[10] On June 12, 2013, Fastrek Logistics Inc. delivered its Statement of Defence. Its lawyer of record was DH Professional Corporation. In its defence, Fastrek Logistics Inc. did not deny that it had entered into cartage agreements with Northern Cables. It denied, however, having been hired to deliver the cables to Burnaby, British Columbia.
[11] As will be explained further below, the delivery of the Statement of Defence was the beginning of a procedural misadventure because DH Professional Corporation had not been retained by Fastrek Logistics Inc. Rather, DH Professional Corporation had actually been retained by 2305006 Ontario Limited.
[12] Pleadings having been completed, Northern Cables’ lawyer requested that examinations for discovery be arranged, but within a few months, DH Professional Corporation discovered that it had made a mistake in delivering a pleading on behalf of Fastrek Logistics Inc., for whom it did not act.
[13] On October 3, 2013, Romesh Hettiarachchi of DH Professional Corporation sent an email message to Melissa Rigon and Lia Preyde of McCague Borlack pointing out the alleged mistake or misnomer in the naming of the defendant in Northern Cables’ action.
[14] Mr. Hettiarachchi disclosed that his firm did not act for Fastrek Logistics Inc. and, therefore, ought not to have delivered a Statement of Defence on its behalf. But the law firm did act for 2305006 Ontario Limited which, as noted above, had purchased Fastrek Logistics Inc.’s assets and which was carrying on business using the name Fastrek Logistics. Mr. Hettiarachchi’s message stated:
As outlined in my call to you, it appears that the wrong defendant has been named in the action. I enclose a Corporate Profile Report of Fastrek Logistics Inc. Please note the registered office and mailing address. It is my current understanding that the assets of this corporation were sold to 2305006 Ontario Limited in August 2011 which continued to do business as Fastrek Logistics. In my view this issue may be resolved by either the addition of, or substituting 2305006 Ontario Limited, as defendant to the claim. Please also be advised I am of the understanding that 2305006 Ontario are also entered into bankruptcy proceedings. ….
[15] McCague Borlack did not take up the invitation of amending its Statement of Claim to join the now bankrupt 2305006 Ontario Limited to Northern Cables’ action and decided instead to press on with its claim against Fastrek Logistics Inc.
[16] After Mr. Hettiarachchi threatened to bring on a motion to have what he said was a misnomer in the style of cause corrected, on June 3, 2014, Emily Cohen-Gallant, a student-at-law at the firm sent an email message to Mr. Hettiarachchi indicating that if 2305006 Ontario Limited brought a motion for misnomer, then Northern Cables would bring a cross-motion to add more parties to the action. Her email message stated:
I have reviewed the [Corporate Profile Report] you provided and agree that it states that 230 Ontario conducted business as Fastrek Logistics 2305006 Ontario Limited Inc. 230 Ontario, its owners, and its directors never disclosed to Northern Cables the existence of 230 Ontario o/a Fastrek Logistics. Therefore, should you bring a motion for misnomer, we will likely receive instructions to bring a cross-motion to add the owners, directors, and dispatchers of 230 Ontario, for failing to disclose that Northern Cables was dealing with 230 Ontario and not Fastrek Logistics Inc.
[17] Although it is more relevant to the discussion in the analysis section later, it is convenient here to note that had more defendants been added at this juncture of the action against Fastrek Logistics, then the motion would have been governed by Rule 26 which states:
RULE 26 AMENDMENT OF PLEADINGS
GENERAL POWER OF COURT
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.
WHEN AMENDMENTS MAY BE MADE
26.02 A party may amend the party’s pleading,
(a) without leave, before the close of pleadings, if the amendment does not include or necessitate the addition, deletion or substitution of a party to the action;
(b) on filing the consent of all parties and, where a person is to be added or substituted as a party, the person’s consent; or
(c) with leave of the court.
[18] Returning to the narrative, Northern Cables did not bring a motion to join more parties to the outstanding action against Fastrek Logistics Inc., and Mr. Hettiarachchi did not bring the so-called misnomer motion. Instead, while Northern Cables was still seeking discoveries of Fastrek Logistics Inc., on September 24, 2014, Northern Cables commenced the action now before the court against Kevin and Mark Philpott, Jesus Nunez, John Doe Dispatcher 1, and John Doe Dispatcher 2 for damages of $200,000. Northern Cables was apparently concerned that if it had an action against the Philpotts, it might shortly become statute-barred.
[19] For present purposes, the pertinent paragraphs from the Statement of Claim are as follows:
The Defendants, Kevin Philpott and Mark Philpott, were at all material times the directors of 2305006 Ontario Limited (“230”) operating as Fastrek Logistics, a company incorporated pursuant to the laws of Ontario, carrying on business as a forwarder and carrier of goods, with its offices located in Mississauga, Ontario.
The Plaintiff had an ongoing business relationship with Fastrek Logistics Inc. (“FLI”) …. FLI was entrusted on an ongoing basis for several years to carry and transport goods belonging to the Plaintiff.
On or about September 30, 2011, unbeknownst to the Plaintiff, Kevin Philpott purchased FLI and/or the parent owning the assets of FLI and later incorporated 230.
230 and/or Kevin Philpott failed to advise the Plaintiff of this transaction of purchasing FLI and/or the parent company owning the assets of FLI.
The Plaintiff states that after Kevin Philpott purchased FLI and/or the parent company owning the assets of FLI, he and/or the other Defendants continued to use and send to customers invoices identifying himself or themselves as FLI, and not 230.
Pursuant to a contract of carriage, the Plaintiff contracted the Defendants holding themselves out as FLI to carry the Cargo from the Plaintiff’s distribution warehouse located at 1400 California Avenue, in Brockville, Ontario (the “Warehouse”) to a place of delivery to Westburne W. Burnaby in Burnaby, British Columbia.
On or about January 18, 2012, the Plaintiff contacted FLI at the telephone number listed on previous invoices from FLI, and spoke with a dispatcher, who represented himself as an employee or agent of FLI, to arrange for a pickup of the Cargo.
An individual who represented himself as an employee or agent of FLI attended the Warehouse on January 18, 2012 and picked up the Cargo. However, on or about March 16, 2012, the Plaintiff discovered that the Cargo was never delivered to Westburne W. Burnaby, as intended and as contracted for pursuant to the contract of carriage.
The Plaintiff issued a Statement of Claim against FLI on December 3, 2012 (the “FLI Action”).
FLI delivered a Statement of Defence in the FLI Action on or about June 12, 2013.
In the course of pursuing this claim, in or about October 2013, during a telephone call counsel for FLI advised the Plaintiff of the existence of 230, Kevin Philpott’s purchasing FLI and/or the parent company owning the assets of FLI and that 230 was bankrupt.
The Plaintiff pleads that the Defendants deliberately and intentionally misrepresented themselves as FLI and therefore assumed the liability of FLI.
PERSONAL LIABILITY
The Plaintiff states that Kevin Philpott purchased FLI, ending the corporate existence of FLI, and submits that any actions taken under the name FLI to be a misrepresentation.
The Plaintiff states that the directors, officers, and dispatchers of 230 made themselves out to be representatives of FLI and represented FLI as an active corporation able to complete the aforementioned contract for carriage.
The Plaintiff states that the Defendants had effectively misrepresented themselves to be a non-existent corporation, behind the veil of 230.
The Plaintiff states that pursuant to s. 2(6) of the Business Names Act, that the Defendants represented as FLI to carry out the contract of carriage noted. In failing to properly address the corporate entity, which offers said individuals limited liability, these individuals and/or their corporation misrepresented their corporate organization, warranting the pursuant of personal liability.
The Plaintiff further states that pursuant to s. 2(6) of the Business Names Act, that the Defendants represented as FLI to carry out the contract of carriage noted. In failing to properly address the corporate entity, which offers said individuals limited liability, these individuals and/or their corporation misrepresented their corporate organization, warranting the pursuit of personal liability.
The Plaintiff states that the Defendants deliberately acted behind 230 or a subsidiary of 230 without disclosing the affiliation to 230 and therefore exposed themselves to personal liability for the aforementioned damages.
NEGLIGENCE
- The Plaintiff pleads that the loss of the Cargo was caused by the negligence and breach of duty of the Defendants …. The particulars of the Defendants’ negligence and lack of care are as follows:
(a) they improperly disposed of the Cargo without the Plaintiff’s knowledge or consent;
(b) they failed to reasonably protect the Cargo while it [was] in their care and control;
(c) they failed to deliver the Cargo as required under the terms of the aforesaid carrier contract;
BREACH OF CONTRACT/BAILMENT
- The Plaintiff states that it was an express or implied term of the carrier contract between the Plaintiff and the Defendants that the Defendants would:
(a) transport and store the Cargo in a proper and professional manner;
(b) protect the Cargo while it was in the Defendants’ care, custody and control;
The Plaintiff states that the Defendants have breached their contract with the Plaintiff, as set out herein, and have not reimbursed the Plaintiff for the damages and losses that it has suffered.
In the alternative, the Defendants have caused FLI to breach its contract with the Plaintiff and have not reimbursed the Plaintiff for the damages and losses that it has suffered.
Further, and in the alternative, the Plaintiff pleads that it entered into a contract of bailment with the Defendants. It was an implied or express term of the bailment contract that the Defendants would exercise due care for the safety and security of the Cargo by taking such care as would a prudent person of his or her own possessions. …..
Further, and in the alternative, the Plaintiff pleads the Defendants knowingly misappropriated the Cargo for their own use without the consent of the Plaintiff and/or knowingly aided another individual or corporation in misappropriating the Cargo without the consent of the Plaintiff, and are therefore liable for conversion.
FRAUDULENT MISREPRESENTATION
In entering into the contract for carriage with the Defendants the Plaintiff relied upon the representations made by the Defendants, specifically, but not limited to, that the Defendants … were … the representatives … of FLI, an active corporation able to complete the aforementioned contract for carriage.
The Plaintiff states that it relied on these misrepresentations to its detriment, because as a result of the Defendants’ misrepresentations, the Plaintiff suffered damages in the form of the lost Cargo, and was unable to seek compensation from the party it was led to believe it contracted with, FLI.
OPPRESSION REMEDY
The Plaintiff pleads that the conduct of the Defendants is oppressive or unfairly prejudicial to or that unfairly disregards the interests for the Plaintiff as a creditor and are therefore in contravention of section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 as amended.
The Plaintiff pleads and relies on the provisions of the Highway Traffic Act, R.S.O. 1990, c. H.8, as amended, the Negligence Act, R.S.O. 1990, c. N.1, as amended, the Insurance Act, R.S.O. 1990, c. I.8, as amended, the Mercantile Law Amendment Act, R.S.O. 1990, c. M.10, as amended, the Carriage of Goods, O. Reg. 643/05 as amended, the Bills of Lading Act, R.S.C. 1985, c. B-5, as amended, the Business Names Act, R.S.O. 1990, c. B.17, as amended, the Corporations Act, R.S.O. 1990, c. C.38 as amended and the Business Corporations Act, R.S.O. 1990, c. B.16, as amended and all other applicable statutes and laws.
[20] Over a year passed, and unaware of the action against the Philpotts, on November 13, 2015, in the existing action solely against Fastrek Logistics Inc., DH Professional Corporation brought a motion to remove itself as lawyer of record.
[21] Different counsel for Fastrek Logistics Inc. appeared at the hearing of the removal motion, and by Order dated November 13, 2015, Master Abrams granted the motion. She removed DH Professional Corporation as lawyer of record, and she struck Fastrek Logistics Inc.’s Statement of Defence with leave to deliver a fresh Statement of Defence by January 15, 2016.
[22] At the time of the motion before Master Abrams, Northern Cables did not reveal that it had commenced its action against Kevin and Mark Philpott, Jesus Nunez, John Doe Dispatcher 1 and John Doe Dispatcher 2 for damages of $200,000.
[23] On January 15, 2016, Fastrek Logistics Inc. filed a Fresh Statement of Defence. In its defence, it pleaded that it ceased doing business on September 30, 2011 and that it was not a party to any contract, transaction or wrong pleaded in Northern Cables’ Statement of Claim.
[24] Master Abrams requested costs submissions. Subsequently, Northern Cables sought costs of $24,423.75 to be paid personally by Mr. Hettiarachchi or by his clients the Philpotts.
[25] On February 3, 2016, Northern Cables served the Philpotts with the Statement of Claim in the present action.
[26] On February 25, 2016, Master Abrams released her costs endorsement with respect to DH Professional Corporation’s motion to remove itself as lawyer of record for Fastrek Logistics Inc. Her endorsement stated:
I have considered all of the circumstances here at play, and while they are most unfortunate, they do not attract the censure of the court. While with the benefit of hindsight, Mr. Hettiarachchi might have brought his removal motion earlier then [sic] he did, I do not think that his conduct was such as to merit an award of costs against him personally payable to the plaintiff. He did nothing to mislead the plaintiff. Indeed, the materials filed by him herein evidence repeated and continued efforts to ensure that the plaintiff has its day in court with the "correct" defendant. He urged discussion, in an attempt to break the logjam in a costeffective manner.
For their part, the plaintiff's lawyers chose to deal with Mr. Hettiarachchi and his efforts to persuade in a manner that they thought appropriate. Because Mr. Hettiarachchi was not able to persuade them that they were wrong is not for the account of their client. So long as Mr. Hettiarachchi remained on the record for the defendant, there was confusion. I accept that.
I also accept that all involved might have, and probably should have, addressed these issues differently; but, I do not think either party or Mr. Hettiarachchi or 2305006 Ontario Limited or Mr. Philpott [Kevin] (the latter two being non-parties and 2305006 Ontario Limited being in bankruptcy) ought to be liable any one to the other for costs. There is nothing before me to suggest impropriety on the part of the non-parties, in the circumstances.
That said, I do believe that Fastrek Logistics Inc. ought to recover some reasonable and proportionate costs thrown away, owing to the fact that it needed to respond to the November 12, 2015 motions. Those costs were incurred because of the judgment call made by Mr. Hettiarachchi. Again, I am not ascribing any wrongdoing to Mr. Hettiarachchi; but his decision to stay on the record caused the defendant to incur costs.
I am fixing the defendant's costs thrown away in the amount of $2,000.00 (incl. of HST) and ordering them paid by DH Professional Corporation and/or Mr. Hettiarachchi, by April 29, [20]16.
[27] On March 16, 2016, the Philpotts served a Demand for Particulars. They sought particulars of the alleged contract with Northern Cables. They sought details of what was said that was a misrepresentation and the when, where, how, and by whom the alleged misstatements had been made. They similarly sought particulars of the alleged fraudulent misrepresentations.
[28] On March 24, 2016, the Philpotts also served a Request to Admit, among other things, requesting Northern Cables to admit that the contract referred to in the Statement of Claim was Bill of Lading #BL13839.
[29] On April 12, 2016, Northern Cables advised that it would not respond to the Demand for Particulars because the Philpotts were able to plead without the particulars. On the same day, it responded to the Request to Admit by denying that the Bill of Lading was the contract referred to in the Statement of Claim.
[30] Shortly thereafter, the Philpotts brought the motion now before the court. In that motion, they seek an order: (a) that the deemed undertaking (Rule 30.1) does not apply to the evidence or information provided by Northern Cables in its action against Fastrek Logistics so that they can use this information in this action; (b) for 10 declarations including a declaration that neither of them is liable for any cause of action arising out of the breach of Bill of Lading #BL13839; (c) dismissing that action against them; (d) in the alternative, striking the Statement of Claim without leave to amend; (e) in the alternative, directing Northern Cables to provide particulars of its claim and to respond to their request to inspect documents; and (f) costs.
C. Discussion and Analysis
[31] Before getting underway with a discussion of the merits of the Philpotts’ motion to have Northern Cables’ action dismissed as an abuse of process, I confess that I do not understand how the deemed undertaking has anything to do with the motion now before the court. Both sides relied on the same evidentiary record for this motion without controversy, and, therefore, I am not going to say anything at all about the deemed undertaking.
[32] The Philpotts’ primary argument is that Northern Cables’ action should be dismissed as an abuse of process because its Statement of Claim re-litigates the claim in the action against Fastrek Logistics Inc. and, further, that the Statement of Claim fails to disclose a reasonable cause of action with respect to the allegations of fraud, corporate oppression and negligence. In the alternative, the Philpott Defendants seek an Order that Northern Cables provide particulars of its various causes of action.
[33] The underlying premise of the Philpotts’ abuse of process argument is that because of the positions that Northern Cables took during DH Professional Corporation’s motion to get off the record for Fastrek Logistics Inc. and most particularly because of the positions it took during the determination of costs for that motion, there is an issue estoppel to the effect that Northern Cables contracted only with Fastrek Logistics Inc. and not with the Philpotts, who are non-parties to any claim arising from the loss of the shipment of Northern Cables’ power cables.
[34] Relying on the Court of Appeal’s decision in Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.), 2011 ONCA 125, the Philpotts also contend that it was an abuse of process for Northern Cables to commence a separate action against them rather than moving pursuant to Rule 26 of the Rules of Civil Procedure (amendment of pleadings) to have the Philpotts joined as parties to the existing action against Fastrek Logistics Inc.
[35] The Philpotts submit that the tactic of commencing a separate action against them was abusive because it circumvented the provisions of Rule 26 in which the court would analyze whether the joinder of new parties was proper and because it circumvented the stay of the action that would have been entailed had the bankrupt 2305006 Ontario Limited been added to the existing action against Fastrek Logistics Inc.
[36] Although there is undoubtedly a problem in the immediate case with avoiding a multiplicity of proceedings, I see little merit in the Philpotts’ abuse of process arguments about re-litigation. To date, there has never been a judicial determination on the merits of any of the issues in the immediate action or of the issues in the action against Fastrek Logistics Inc.
[37] I appreciate that Northern Cables is all over the map in terms of inconsistent pleadings and it has pleaded everything but the kitchen sink in an effort to capture a culpable defendant, but there have been no issue estoppels or findings about who the contracting parties were and about whom might be culpable under the myriad of statutory provisions or causes of actions that Northern Cables has pleaded against the Philpotts and others.
[38] Although it has yet to be determined, it may turn out that the contract was only between Northern Cables and the subsequently bankrupt 2305006 Ontario Limited. And it may turn out that the Philpotts are entitled to the normal protections of corporate law. Under those normal principles, subject to piercing the corporate veil and subject to the principle that directors and officers generally cannot be sued for the misdeeds of their corporation absent an independent wrongdoing, it may turn out that both the action against Fastrek Logistics Inc. and the current action against the Philpotts and others will be dismissed. But, it remains to be seen whether that will be the outcome. There has been no determination on the merits of any of the claims against any of the defendants in both actions. At the moment, there is no re-litigation and no abuse of process on that account.
[39] Turning then to the argument that there is an abuse of process because Northern Cables ought to have brought a motion pursuant to Rule 26 to amend its Statement of Claim in the action against Fastrek Logistics Inc. to add defendants rather than bringing a separate action against the Philpotts, I begin the discussion of this argument by observing that the Philpotts’ submission that Northern Cables was attempting to circumvent the automatic stay of an action against bankrupt 2305006 Ontario Limited by commencing a separate action against the Philpotts is incorrect.
[40] Under rule 11.01 of the Rules of Civil Procedure, where the liability of a party is transmitted to another person by bankruptcy, the proceeding shall be stayed with respect to the party whose liability has been transmitted until an order to continue the proceeding has been obtained. It should be noted that under this rule, where there are multiple defendants and the liability of one them is transmitted, the action is stayed only with respect to the defendant whose liability has been transmitted and not generally.
[41] Moving on in the discussion, I concede that Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.), 2011 ONCA 125, supra, provides some traction to the Philpotts’ argument that it was an abuse of process for Northern Cables to bring a separate action against them rather than moving under Rule 26 to have them added to the existing action against Fastrek Logistics Inc.
[42] However, the factual circumstances of Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.), 2011 ONCA 125, supra, were far more compelling than the circumstances of the case at bar for invoking the abuse of process doctrine.
[43] The plaintiffs in Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.) were shareholders in Med-Eng under that company’s employee stock option plan. They sued Med-Eng and the trustee of their shares for breach of the plan and for breaches of fiduciary duty. After discoveries had been completed, due to subsequent events, the plaintiffs wished to add another group of defendants. The plaintiffs sought the consent of the original defendants to amend the statement of claim and to add the new defendants in accordance with Rule 26 of the Rules of Civil Procedure. However, after the original defendants declined to provide their consent, the plaintiffs brought a new action against the same defendants alleging virtually the same causes of action. In the second action, the plaintiffs added the new defendants. Thus, the plaintiffs did not proceed pursuant to Rule 26 but rather proposed advancing two actions, which could be joined together. The Court of Appeal upheld the motions judge’s decision to strike out the second action as an abuse of process.
[44] In her reasons for the Court, Justice Weiler stated at paragraphs 38-40:
In addition to avoiding a multiplicity of actions, the doctrine of abuse of process seeks to uphold the integrity of the administration of justice: see Toronto (City) v. C.U.P.E. at paras. 35-37. In the present case, the plaintiffs' assertions in Claim Six are intricately linked to Claims One through Five, which are already being pursued in the Ongoing Actions. The plaintiffs should have sought leave of the court to name the Added Defendants in the Ongoing Actions and to amend their pleadings to plead any relief they had not already claimed, either pursuant to rule 26.02(c) or rule 26.01. As mentioned, rule 26.01 obliges the court 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."
Instead, the plaintiffs commenced the New Action for the purpose of naming the Added Defendants as parties to the related litigation and sought declaratory relief against them in Claim Six. By doing so, the plaintiffs effectively circumvented the express procedural requirement in rule 26.02(c) that leave of the court be obtained to add a non-consenting party to the proceeding after pleadings have closed. This was an abuse of process. By starting the New Action instead of moving to amend their pleadings in their existing actions to claim "enhanced relief" against the Added Defendants, the plaintiffs circumvented the court's jurisdiction to: (1) assess whether the defendants would be prejudiced by an amendment and to determine whether that prejudice can be compensated for by costs; (2) to impose costs in favour of the defendants for granting the amendment; and (3) to impose other terms that are just.
The filing of the statement of claim in the New Action also placed an inappropriate burden on the defendants who had to bring a motion to strike the New Action, when the onus should have properly been on the plaintiffs to convince the court that leave should be granted to amend their pleadings in the Ongoing Actions.
[45] As appears, Justice Weiler was concerned that the plaintiffs in Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.) had attempted to circumvent the court's jurisdiction to: (1) assess whether the defendants would be prejudiced by an amendment and to determine whether that prejudice can be compensated for by costs; (2) to impose costs in favour of the defendants for granting the amendment; and (3) to impose other terms that are just.
[46] However, in the immediate case, insofar as the existing Defendant in the original action would have been concerned; i.e. Fastrek Logistics Inc., there would have been no prejudice by the joinder of the Philpotts and indeed it would probably have welcomed the joinder because its defence was to deny that it was the contracting party. As for the Philpotts, it is hard to see what prejudice they would have suffered. Although their lawyer was promoting the joinder of the Philpotts’ bankrupt company to the original action, the Philpotts could hardly have been surprised if they too were joined.
[47] In any event, the principle from Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.) is not an absolute rule and its application will depend upon the circumstances of the particular case. For example, the Court of Appeal did not apply the principle from Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.) in Abarca v. Vargas, 2015 ONCA 4.
[48] Abarca v. Vargas was, factually, a very different type of case. In Abarca, a motor vehicle accident case, the plaintiffs sued the driver of the car in which they were passengers along with the driver's insurer. It was subsequently discovered that the driver was potentially underinsured, and the plaintiffs then commenced a new proceeding naming both the driver's insurer and the plaintiffs' own insurer (for the purpose of underinsured automobile coverage). The Court of Appeal set aside the motions judge’s decision striking out the second action as an abuse of process. The Court noted that the complexities of automobile personal injury litigation that involve tort law, contract law, insurance law, and statutory regimes can lead to multiple lawsuits. The Court of Appeal noted that the second action asserted claims against the new defendant that were totally different than the claims against the original defendants. The same may be said in the immediate case where the misrepresentation and fraudulent misrepresentation claims against the Philpotts are different than the contract claims against Fastrek Logistics.
[49] In Abarca v. Vargas, Justice Lauwers stated at paragraphs 34 and 35.
The general objectives of the Rules of Civil Procedure reflect a balancing approach, as this court explained in 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544, 112 O.R. (3d) 67. This court has taken a similar balancing approach to the application of s. 138 of the Courts of Justice Act, which provides that the multiplicity of legal proceedings should be avoided. While the provisions of the Rules of Civil Procedure related to joinder, consolidation, and pleading amendments (Rules 5, 6, and 26) reflect a preference for minimizing the number of proceedings related to a particular claim, this court has not interpreted s. 138 of the Courts of Justice Act as inevitably requiring dismissal of an action where a party has not complied rigorously with the section. See Taylor Made Advertising Ltd. v. Atlific Inc., 2012 ONCA 459, 111 O.R. (3d) 221, at para.36.
In striking the Leivas' claim against Economical Mutual, the motion judge failed to balance the technical procedural requirements of the Rules of Civil Procedure and the Courts of Justice Act in the interests of justice.
[50] The case law demonstrates that the principle from Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.) is not an absolute rule. It was applied in: Living Water (Pressure Wash Services) Ltd. v. Dyballa, 2011 ONSC 5695 and Attayee v. Pickering (City), 2015 ONSC 7701. The principle was not applied in Przysuski v. City Optical Holdings Inc., 2014 ONSC 3686.
[51] If the above analysis is wrong and there was some basis to apply the abuse of process doctrine, I would not in any event apply the doctrine to the circumstances of this case.
[52] In Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, and in Penner v. Niagara (Regional Police Services Board), 2013 SCC 19; the Supreme Court added a discretionary element to res judicata, issue estoppel, and the flexible doctrine of abuse of process. The Supreme Court held that where a party establishes the pre-conditions for an issue estoppel, a court must still determine whether, as a matter of discretion, issue estoppel ought to be applied, and the court should stand back and, taking into account the entirety of the circumstances, consider whether an estoppel in the particular case would work an injustice. See also: Amtim Capital Inc. v. Appliance Recycling Centres of America, 2014 ONCA 62.
[53] I see no injustice in allowing Northern Cables to sue the Philpotts in a separate action that, if necessary, can be consolidated or tried together with the action against Fastrek Logistics Inc. If the Philpotts believe that the claims against them are statute-barred, they can plead that as a part of their defence in the immediate action.
[54] Further, it is somewhat perverse for the Philpotts to submit that there has been an abuse of process when much of the sorry mess that has occurred in this action and in the action against Fastrek Logistics was caused by their failure to instruct their lawyers at DH Professional Corporation properly, which led Mr. Hettiarachchi to deliver a Statement of Defence for clients he did not act for.
[55] I turn next to the Philpotts’ argument, which they connect to their abuse of process argument, that Northern Cables has not pleaded a reasonable cause of action against them.
[56] The failure to establish a cause of action usually arises in one of two ways: (1) the allegations in the statement of claim do not come within a recognized cause of action; or (2) the allegations in the statement of claim do not plead all the elements necessary for a recognized cause of action. In the immediate case, I regard Northern Cables’ kitchen sink of a pleading as an example of the second type of failure.
[57] Given that no corporation is sued in the immediate action, it is not clear how an oppression remedy is available under the Business Corporations Act, and the application of the Corporations Act and the Business Names Act is largely a mystery. Given the corporate veil, it is not clear how it is that the Philpotts have personal liability, and it is not sufficiently elucidated how it is that they came to be contracting parties with Northern Cables. The constituent elements of the claims for fraudulent and negligent misrepresentation are not adequately pleaded, and indeed some of the constituent elements of these torts are not pleaded at all.
[58] The Philpotts have sought particulars of the various causes of action but particulars will not solve the problem of the pleading in the immediate case.
[59] When a pleading fails to meet the requirements of the rules, the appropriate remedy is not particulars but the striking out of the pleading usually with leave to amend: Regional Plaza Inc. v. Hamilton-Wentworth (Regional Municipality) (1990), 12 O.R. (3d) 750 (Gen. Div.); Balanyk v. University of Toronto, [1999] O.J. No. 2162 (S.C.J.); Sun Life Assurance Co. of Canada v. 401700 Ontario Ltd. (1991), 3 O.R. (3d) 684 (Gen. Div.).
[60] There are parts of the current Statement of Claim that are sound, but since I think that much of the pleading is unsound, I shall strike it in its entirety, and I grant leave to Northern Cables to amend by delivering a fresh as amended pleading.
D. Conclusion
[61] For the above reasons I conclude that Northern Cables’ action is not an abuse of process, but its Statement of Claim should be struck out in its entirety with leave to amend for the failure to properly plead a reasonable cause of action.
[62] It is my present view that the costs of this motion should be in the cause, but if the parties disagree and cannot settle the matter of costs, they may make submissions in writing beginning with the Philpotts’ submissions within 20 days of the release of these Reasons for Decision followed by Northern Cables’ submissions within a further 20 days.
Perell, J. Released: August 16, 2016