Court File and Parties
Court File No.: CV-14-1682-A2 Date: 2017 03 20 Superior Court of Justice – Ontario
Re: Antonio Ferrara, in trust for a Corporation to be incorporated, and Astoria Homes Inc., Plaintiffs (defendants by counterclaim), Moving Parties – and – Virginia Marchese and Peter Marchese, Defendants (plaintiffs by counterclaim), Responding Parties – and – Antonio Ferrara, Third Party
Before: Fairburn, J.
Counsel: Justin Baichoo, Counsel for the Plaintiffs/Third Party Robert Centa and Denise Cooney, Counsel for the Defendants
Heard: February 23, 2017
Endorsement
(I) Overview
[1] Virginia and Peter Marchese entered into an agreement of purchase and sale with “Antonio Ferrara, in trust for a corporation to be incorporated without personal liability”. The Marcheses maintain that Mr. Ferrara made a number of representations that led them to agree to sell their property. They say that within days of signing off on the agreement of purchase and sale, they learned that Mr. Ferrara had misled them. They took immediate steps to revoke the agreement to sell.
[2] “Antonio Ferrara, in trust for a corporation to be incorporated” and Astoria Homes Inc. commenced an action against the Marchese couple. [^1] The couple defended and counterclaimed against the plaintiffs. On the eve of the limitation period expiring, the Marcheses also had a third party claim issued against Antonio Ferrara in his personal capacity.
[3] This is an application to strike the third party claim against Mr. Ferrara. The plaintiffs argue that it was obtained in breach of the rules because it was done without the consent of the parties or leave of the court. The moving parties maintain that it constitutes an abuse of process and has caused significant prejudice. They say that the only just and appropriate remedy is to strike the third party claim against Mr. Ferrara.
[4] For the reasons that follow, the application is dismissed.
(II) A Brief History of this Matter
[5] The agreement of purchase and sale was signed on February 15, 2014. The defendants do not dispute that they repudiated the agreement within days of it being signed. They maintain that the repudiation is justified because Mr. Ferrara mislead them on material points, including that he was purchasing the property as a personal investment and had no ownership interest in any other property near the one owned by Virginia and Peter Marchese.
[6] The main action was commenced on April 22, 2014, seeking performance of the agreement of purchase and sale and punitive damages for failing to uphold the contract. By July 2014, the Marcheses had defended the action and commenced a counterclaim. By August, the plaintiffs had replied and defended against the counterclaim. By September, affidavits of documents had been exchanged and by November the Marcheses had also commenced a third party claim against their real estate agent and his brokerage.
[7] The Marcheses discharged their original lawyer in December 2015. They discharged their second lawyer two months later. A new lawyer was retained by February 4, 2016 and the plaintiffs’ counsel was informed of this fact. On the very next day, February 5, 2016, the plaintiffs’ counsel asked the new lawyer for dates so that a motion for summary judgment could be scheduled.
[8] By correspondence dated February 9, 2016, the Marcheses’ new counsel asked that the plaintiffs consent to amendments to the statement of defence and counterclaim. Given the looming limitation period, just over a week away, the defendants counsel also asked the plaintiffs for an indulgence pursuant to s. 22(3) of the Limitations Act, 2002, to suspend the operation of the limitation period while the amendments to the defence and counterclaim were being sorted out.
[9] The defendants did not receive a response to the request for consent to suspend the limitation period. Instead, on February 10, 2016, the plaintiffs served the defendants with the motion record for summary judgment. On the same day, without notice to the plaintiffs or leave of the court, the defendants had a third party claim issued against Mr. Ferrara in his personal capacity. About a week later, the defendants obtained another third party claim against their former lawyer.
[10] While communications regarding amendments to the defence and counterclaim continued, the plaintiffs were not informed that a third party claim had issued against Mr. Ferrara in his personal capacity. On March 1, 2016, the plaintiffs consented to the amendments to the defence and counterclaim. They were served with the third party claim shortly after their consent was given. On April 4, 2016, Mr. Ferrara delivered his defence to the third party claim.
[11] On June 20, 2016, the defendants informed the plaintiffs that they were considering their position as to whether a summary judgment motion was appropriate. On June 21, 2016, they were served with an amended summary judgment motion record.
[12] On August 22, 2016, the plaintiffs served a motion record that sought, for the first time, to strike the third party claim against Mr. Ferrara in his personal capacity. While the motion was adjourned sine die so that the parties could pursue mediation, these efforts proved unsuccessful and the application to strike was heard on almost the one-year anniversary of the third party claim issuing and being served.
(III) General Positions of the Parties
[13] Mr. Ferrara maintains that the defendants have done an “end run around” the rules by having a third party claim issue without consent or leave of the court. He argues that they have behaved unfairly by obtaining a consent to amend the defence and counterclaim, without disclosing that they were sitting on a third party claim. He argues that these actions constitute an abuse of process.
[14] The Marcheses say that they have done nothing wrong. They were up against a limitation period and had to move quickly to have the claim issue. It is often possible to have a third party claim issue outside of the timeline permitted by the rules, even without consent or leave of the court. Even if they were wrong to do so, they say that the defendants took a fresh step in the litigation process and, by doing so, any irregularity was cured. If not, the defendants argue that the motion to strike should still be dismissed and the third party claim issue nunc pro tunc because there has been no abuse of process.
(IV) Analysis
(a) The Operation of Rule 29.02
[15] Rule 29.02(1) and (1.1) govern the time within which a third party claim may issue, being ten days following the delivery of a statement of defence or at any time before a defendant is noted in default. It may also issue within ten days after a plaintiff delivers a reply in the main action to the defendant’s statement of defence. The plaintiffs delivered their reply on August 6, 2014. Therefore, the third party claim should have issued in August of 2014.
[16] Despite the ten-day rule, a third party claim may issue “at any time” provided the plaintiff consents or the court grants leave: rule 29.02(1.2). For purposes of the leave requirement, it “shall” be granted unless the plaintiff would suffer prejudice. Prejudice is defined as something more than simply inconvenience to or added work for the opposing party: Pickering Harbour Co. v. Barton, 2006 ONSC 37135, [2006] O.J. No. 4394 (Sup. Ct.), at para. 14.
(b) Would Leave Have Been Granted?
[17] I have no doubt that had the defendants sought leave in this case, it would have been granted in February 2016. While the plaintiffs maintain that the prejudice to Mr. Ferrara in his personal capacity and to them is palpable, I do not agree. While the third party claim issued on the eve of the limitation period, the litigation process was far from advanced. The examinations for discovery had not taken place and the matter had not been set down for trial. Indeed, this remains true to this day. Moreover, Mr. Ferrara was already part of the litigation process and, as discussed below, his addition to the litigation in a personal capacity is more a function of a legal argument than a factual one.
[18] In this sense, this case is very different than one relied upon by the moving parties: Farrell v. Costco Wholesale, 2015 ONSC 4083. In Farrell, the discoveries were complete, multiple medical examinations had occurred, the trial record had been delivered and the action set down for trial. If the trial date was lost, the earliest trial date that could be provided was eight months down the road. None of these circumstances are present in this case.
[19] Moreover, when considering potential prejudice arising from the addition of a third party claim against Mr. Ferrara in his personal capacity, it is important to note that no challenge has been brought to the third party claim issued on February 18, 2016 against the Marcheses’ lawyer. One would think that any prejudice flowing from the addition of Mr. Ferrara in his personal capacity would be equally, if not more, applicable to the addition of the lawyer as a third party. Yet the third party claim, issued a week after the impugned one on this motion, has been met with silence. This belies the prejudice claim.
[20] As well, Mr. Ferrara swore an affidavit in support of the prejudice claim. He says that he is prejudiced because he now faces a $1.5 million action in his personal capacity. He maintains that had the claim not been commenced in defiance of rule 29.02(1.2) he would not face this personal claim because it would have been barred by the two-year limitation period.
[21] The fact that someone is potentially liable to significant financial loss, depending on the result of a claim, does not, in and of itself, constitute prejudice.
[22] As well, it important to keep in mind that Mr. Ferrara’s argument for prejudice is made in his personal capacity as the third party litigant. Had the defendants moved swiftly to bring a rule 29.02(1.2) motion, the prejudice to the third party would not have been considered because the test under rule 29.02(1.2) is rooted in prejudice to the plaintiffs: leave shall be granted “unless the plaintiff would be prejudiced thereby”. As such, the court does not consider whether the third party will be prejudiced, but whether the plaintiffs will be prejudiced: Pickering Harbour, at para. 8.
[23] I have no doubt that had rule 29.02(1.2) been complied with, leave would have been granted because no prejudice would have inured to the plaintiffs. This begs the question, what if anything turns on the fact that leave was not sought in the face of a looming limitation period?
(c) The Impact of Not Seeking Leave to add the Third Party
[24] The plaintiffs argue that the failure to seek leave constituted an end-run around the rules and that the defendants should be sanctioned by striking the third party claim. They maintain that this is particularly true given that the defendants failed to disclose the existence of the third party claim during a period of time when discussions regarding consent amendments to the defence and counterclaim were taking place, discussions that resulted in consent being given.
[25] The defendants maintain that while rule 29.02(1.2) exists, it reflects an administrative matter and is frequently unheeded. In support of this proposition, they focus on the author’s note in Watson & McGowan, Ontario Civil Practice, Rules of Civil Procedure: “Notwithstanding rule 29.02(1.2), as an administrative matter it is often possible to issue a third party claim late without leave or even consent of the plaintiff or co-defendants.”
[26] The plaintiffs place heavy reliance on Maynes v. Allen-Vanguard Technologies Inc., 2011 ONCA 125, [2011] O.J. No. 644 (C.A.) and, in particular, Weiler J.A.’s comments unfavourable to litigants doing an “end run around the Rules of Civil Procedure”. These comments were made in a different context, where the plaintiffs initiated a brand new action so as to pull added defendants into the claim, thereby circumventing the demands of rule 26.02(c), and “rob[bing] the court of its discretion to grant leave to add parties to an action after pleadings have closed”.
[27] Notwithstanding the fact that the wording of rule 29.02(1.2) seems clear on its face, and that rules should be complied with, I accept that the defendants’ counsel was operating on an understanding that leave need not be sought. I note that it would have been simple to comply. Had the motion under rule 29.02(1.2) been brought, with a request to abridge time, it could have been heard and disposed of ahead of the limitation period expiring. I base this finding on the fact that counsel was retained by February 4, 2016 and the third party claim issued six days later, about a week ahead of the limitation period expiring. As above, had leave been sought, I find that it would have been granted.
[28] At its highest, the failure to obtain leave created an irregularity in the proceedings that was cured when fresh steps were taken. While the moving parties are understandably troubled by the failure to disclose the existence of the third party claim while discussions about amendments to the defence and counterclaim were taking place, discussions that resulted in consent being given, a lot was happening on this case during the relevant period of time. New counsel had just been retained. They were no doubt familiarizing themselves with the matter. A limitation period was looming. They asked for an agreement to hold the limitation period in abeyance in relation to the amendments to the pleadings and were met with service of the motion for summary judgment. If consent to add the third party had been sought, or an agreement to hold the limitation period in abeyance until leave could be obtained under rule 29.02, it is likely that this request would not have been met with enthusiasm.
[29] It is against this factual backdrop that the defendants obtained the third party claim without complying with rule 29.02(1.2). As above, while an irregularity was created, fresh steps were taken that cured the irregularity.
[30] Rule 2.02 precludes a party from attacking a proceeding or step, document or order in a proceeding for irregularity, except with leave of the court, “after the expiry of a reasonable period of time after the moving party knows … of the irregularity” or if the “moving party has taken any further step in the proceeding after obtaining knowledge of the irregularity”. The moving parties knew of the irregularity by no later than March 10, 2016.
[31] A defence to the third party claim was filed on April 4, 2016. The moving parties on this motion maintain that concerns over the third party claim were raised in the context of the defence. I have reviewed these objections. They are tied to the suggestion that the claim was already the subject matter of the main action, thereby creating “an improper multiplicity of proceedings, as the defendants have already commenced a counterclaim in respect of the main action, raising the same allegations as against Mr. Ferrara.”
[32] This is not the time to consider the merits of this defence. Suffice to say that for purposes of this motion, the position taken in the defence, and repeated on this motion, seems to misconstrue the nature of the third party claim. The claim envisages Mr. Ferrara in his personal capacity. While Mr. Ferrara entered the agreement of purchase and sale “in trust for a corporation to be incorporated”, s. 21(2) of the Business Corporations Act allows a corporation to adopt a contract made before it came into existence. When this occurs, the person who purported to act in the name of the corporation will cease to be bound by the contract.
[33] The defendants maintain that, at a minimum, when Astoria Homes Inc. sued them, Astoria adopted the contract. After Astoria adopted the agreement, Mr. Ferrara may have ceased to have personal liability that he may have otherwise had. This issue will have to be sorted out in the main action one day. What is of importance to this motion is that Mr. Ferrara chose to defend and none of the parties chose to bring an application to strike the third party claim. Then, a few months later, the notice of motion for summary judgment was amended, yet another step in the litigation process.
[34] It was not until August 22, 2016 that the motion to strike was brought. This was over five months after the moving parties knew about the third party claim and after two fresh steps had been taken.
[35] The moving parties place heavy reliance upon Gardner v. Toronto Police Services Board, 2006 ONSC 26000, [2006] O.J. No. 3320 (Sup. Ct.), at para. 8, in support of their position that, even if fresh steps have been taken, leave should be granted to permit the application to strike. Even if I were prepared to grant leave to argue why the third party claim should be struck, I would not grant the remedy sought. For the reasons already articulated with respect to the lack of prejudice arising from adding Mr. Ferrara in his personal capacity, I am not prepared to strike the third party claim.
[36] If leave of the court had been sought at the time, I find that it would have been granted because no prejudice would have been caused to the plaintiffs. I find that the absence of prejudice remains to this day. To the extent that there was an irregularity, it has been cured by the fresh steps.
(V) Conclusion
[37] The application to strike is dismissed.
[38] If the parties cannot agree on costs, I will take written submissions of no more than three pages. The defendants will file their costs submissions by no later than March 30 and the moving parties by no later than April 15, 2017.
Fairburn, J. Date: March 20, 2017
[^1]: Astoria Homes was incorporated shortly after the agreement of purchase and sale was signed, seemingly to constitute the “corporation to be incorporated”.