COURT FILE NO.: CV-17-571413 DATE: 20200320 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Prollenium International Corporation and Prollenium Medical Technologies Inc., Plaintiffs (Respondents) AND: Vital Esthetique Sarl aka Sarl Vital Esthetique aka Vital Esthetique, Defendant (Appellant)
BEFORE: Kimmel J.
COUNSEL: Eric Brousseau, for the Plaintiffs (Respondents) Murray Teitel, for the Defendant (Appellant)
HEARD: December 5, 2019
Endorsement and Reasons for Decision
(appeal from master’s decision)
The Order Appealed From and Summary of Disposition
1This is an appeal by the defendant from the order of Master McGraw made May 3, 2019, granting the plaintiffs leave to further amend their Amended Statement of Claim, and granting leave to the defendant Vital Esthetique Sarl (“VES”) leave to plead additional and/or amended defences including limitations defences, if necessary.
2The plaintiffs in this action seek payment of two outstanding invoices for products (dermal fillers) ordered by VES in December 2014. These products were delivered to VES by two shipments, one in February 2015 (invoice dated February 11, 2015 for US $81,535.00) and one in April 2015 (invoice dated April 14, 2015 for US $427,500.00).
3This action was commenced in March 2017. The existing Amended Statement of Claim [1] pleads and relies upon, inter alia, an OBL/OEM Manufacturing Agreement said to have been executed on February 20, 2015 by Prollenium International Inc. (“PIC”) and VES with an effective date of January 1, 2015 (the “2015 Manufacturing Agreement”). PIC is located in Barbados and it researches, develops, manufactures and sells medical devices, including dermal fillers. PIC is a wholly owned subsidiary of Prollenium Medical Technologies Inc. (“PMT”), an Ontario manufacturer of medical products, including dermal fillers. The Amended Statement of Claim also pleads that PIC’s rights and interests under the 2015 Manufacturing Agreement were assigned to PMT in March of 2017.
4The issue on this appeal is whether the plaintiffs should have been granted leave to further amend their statement of claim (by their “Proposed Second Amended Statement of Claim”) to also plead that the same failure by the defendant to pay for the goods ordered, delivered and invoiced also constitutes a breach of an earlier OBL/OEM Agreement signed in April 2013 between VES and PMT (the “2013 Manufacturing Agreement”).
5The main issue on this appeal depends on whether the master erred in his conclusion that the proposed amendments (to plead the breach of the 2013 Manufacturing Agreement) did not constitute a new cause of action. If he had concluded otherwise, this new plea would be barred because it was proposed after the expiry of the applicable two-year limitation period for a breach of contract claim. The plaintiffs essentially conceded that there was no issue about their ability to discover the 2013 Manufacturing Agreement and no special circumstances identified that might rebut the presumption of prejudice. Five other arguments that were made in opposition to the amendments and rejected by the master have also been raised on this appeal.
6For the reasons that follow, I find no error in the master’s decision granting leave to the plaintiffs to issue their Second Amended Statement of Claim, and the defendant’s appeal is dismissed.
Related Procedural Background
7VES has an outstanding motion to stay this action (on grounds of jurisdiction and forum non conveniens) which has been adjourned pending the outcome of this motion. The master had previously adjourned the jurisdiction/forum motion because there are jurisdiction provisions in the 2013 Manufacturing Agreement that might impact that outcome of the jurisdiction motion if the amendments are permitted and the plaintiffs are allowed to plead the 2013 Manufacturing Agreement. In the meantime, VES has not defended this action.
8VES commenced its own separate action in November 2017 for defamation and lost profits arising from the plaintiffs’ change of product certifier. That action initially relied upon the existence and effectiveness of both the 2013 Manufacturing Agreement and the 2015 Manufacturing Agreement, but the statement of claim was subsequently amended to plead that the 2013 Manufacturing Agreement never took effect.
The Pleadings in This Action
9The existing Amended Statement of Claim for the most part refers to the plaintiffs together as “Prollenium International/Prollenium Medical”. Their claim is summarized in paragraph 26 as follows:
26Prollenium International/Prollenium Medical shipped products to Vital [VES] in accordance with the OBL/OEL [ sic ] Manufacturing Agreement [the 2015 Agreement]. In the alternative, Prollenium International/Prollenium Medical shipped products in accordance with the purchase orders. Despite repeated requests for payment, Vital [VES] has refused or neglected to pay the outstanding sums.
10Paragraph 9 of the Amended Statement of Claim identifies the OBL/OEM Manufacturing Agreement as having been executed by PIC and VES on February 20, 2015 with an effective date of January 1, 2015, “so that Vital [VES] could purchase dermal fillers from Prollenium International/Prollenium Medical to sell under Vitals [VES] brand label and trademarks.” That paragraph goes on to describe specific terms of that 2015 Manufacturing Agreement relied upon.
11The Proposed Second Amended Statement of Claim that the master allowed pleads and relies upon both the 2013 and 2015 Manufacturing Agreements, which are separately identified and defined. In paragraph 9, the corresponding terms under the 2013 Manufacturing Agreement are added and they are alleged to be virtually identical in both agreements. Paragraph 26 (and other paragraphs) are revised to refer to both agreements. References throughout the balance of the pleading to “Prollenium International/Prollenium Medical” remain unchanged.
The Issues Raised on this Appeal
12The parties agree on the standard of review. The only bases upon which an appellate court may interfere with a master’s decision are when the master: (a) made an error of law, (b) exercised his or her discretion on the wrong principles, or (c) misapprehended the evidence such that there is a palpable and overriding error. See Zeitoun et al v. Economical Insurance Group (2008), 2008 ONSC 20996, 91 O.R. (3d) 131 (Div. Ct.), at para. 40, aff’d (2009) 96 O.R. (3d) 639, 2009 ONCA 415, at para. 1.
13The test on a Rule 26.01 motion for leave to amend the statement of claim requires the court to grant leave on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. The master outlined the test for leave to amend pleadings under Rule 26.01 (at para. 18 of his reasons, citing from Plante v. Industrial Alliance Life Insurance Co. (2003), 2003 ONSC 64295, 66 O.R. (3d) 74 (Ont. S.C.), at para. 21). The requirements of this test are:
a. The amendments must not result in irremediable prejudice. If a limitation period has expired, the onus is on the party seeking the amendment to lead evidence to explain the delay and to displace the presumption of prejudice;
b. The amended pleading must be legally tenable. It is not necessary to tender evidence to support the claims, nor is it necessary for the court to consider whether the amending party is able to prove its amended claim. The court is to assume that the facts pleaded (unless patently ridiculous or incapable of proof) are true and the only question is whether they disclose a cause of action. Amendments are to be granted unless the claim is impossible of success. For this purpose, amendments are to be read generously with allowance for deficiencies in drafting; and
c. The proposed amendments must otherwise comply with the rules of pleading and not be “scandalous, frivolous, or vexatious” (Rule 25.11(b)) or be “an abuse of the process of the court” (Rule 25.11(c)).
14It is common ground that leave is not readily granted where an amendment asserts a new cause of action after the expiry of a limitation period. The master noted that leave to amend was being sought after the passage of the applicable two-year limitation period under the Limitations Act (2002), S.O. 2002, c. 24, Sched. B and that the plaintiffs essentially conceded that there was no discoverability issue. Thus, the question of whether the Proposed Second Amended Statement of Claim asserts a new cause of action by its reference to the 2013 Manufacturing Agreement was central to the decision below and is central to this appeal.
15Although there is one central issue on this appeal, the appellant raised six grounds of appeal, as follows:
a. Did the master err in his determination that the plea of the 2013 Manufacturing Agreement did not constitute a new cause of action?
b. Did the master err by his failure to apply the clean hands doctrine to prevent the plaintiffs from taking advantage of the allowance for a more generous reading of a pleading, having regard to where the “finger of litigation” is pointing?
c. Did the master err by limiting his consideration of the Proposed Second Amended Statement of Claim to what was pleaded and declining to consider evidence that was before the court about the tenability of the proposed pleading amendments under Rule 26?
d. Did the master err in his decision to defer the determination of the merits of the question of whether the 2013 Manufacturing Agreement is effective, applicable and/or enforceable (as a result of the defendant’s contention that no Quality Agreement was signed) to a trial judge or a judge on a summary judgment motion?
e. Did the master err in his determination that the Proposed Second Amended Statement of Claim is not a nullity or an abuse of process, where the impugned claims for this purpose were pleaded in the existing pleading that VES has not sought to strike?
f. Did the master err in his determination that the Proposed Second Amended Statement of Claim did not give rise to any actual prejudice to VES?
16These are the same six arguments that VES raised in opposition to the motion for leave before the master. I will deal with each in turn.
Did the master err in his determination that the plea of the 2013 Manufacturing Agreement did not constitute a new cause of action?
17The determination of whether a plea of a second agreement constitutes a new cause of action – for breach of a different contract – requires the court to examine the factual matrix pleaded in the existing statement of claim. The parties did not directly address in their submissions whether this is a question of law or a mixed question of fact and law. I understand the respondents’ position to be that it is a mixed question of fact and law and the appellant’s position to be that it is a question of law, based on how they approach the analysis of the issue. In my view, the need to examine the factual matrix makes this a mixed question of fact and law, that requires some deference to be afforded to the master’s findings that characterize the nature of the existing pleading. That said, I find that his analysis and approach was also correct.
18The master made the following findings:
a. Applying the relevant legal principles and on a generous reading, I reject VES’ assertion that the Proposed Amendments constitute a new cause of action. [Master’s reasons, para. 26]
b. However characterized, the Proposed Amendments arise from the same factual matrix pleaded in the existing Second Amended Statement of Claim, are inextricably intertwined and linked with the facts initially pleaded and do not seek to advance a fundamentally different claim. Namely, the Proposed Amendments relate to the same parties, the same Order, the same Invoices, the same time period and in support of the same damages. [Master’s reasons, at para. 26]
c. Like Farmers Oil, the Proposed Amendments are integral to the same dealings and transactions between the parties already pleaded. [Master’s reasons, at para. 26]
d. Further, the plaintiffs seek to plead an alternative form of relief, such that if the Invoices are not owing under the 2015 Agreement, then they are owing under the 2013 Agreement. Both claims are based on contracts and the terms of the 2013 Agreement are substantially similar to the 2015 Agreement including the Quality Agreement and jurisdiction provisions. [Master’s reasons, at para. 26]
e. In addition, applying a broad, purposive, and less technical approach, VES has had notice of the facts giving rise to the Proposed Amendments, the existence and effectiveness of the 2013 Agreement, since it was signed. In fact, VES initially pleaded these facts in the VES Claim. [Master’s reasons, at para. 27]
f. Counsel were unable to identify any case law on point or authorities that stand for the general proposition that an amendment which relies on a new contract not initially pleaded constitutes a new cause of action. The cases relied on by VES, Chrabalowski v. BMO Nesbitt Burns Inc., 2011 ONSC 3392 and Seitz v. BMO Nesbitt Burns, 2012 ONSC 1825, do not stand for this general proposition and are distinguishable from this case. [Master’s reasons at paras. 24 and 28-30]
19The appellant accepts as correct the summary of the applicable law regarding what constitutes a cause of action that the master adopted from the Court of Appeal’s decision in 11000997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848, at paras. 19-22. [Master’s reasons at para. 20]
20The master relied on the case of Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6359 (Div. Ct.) at paras. 22 and 31, and its endorsement of the case of Brand Name Marketing Inc. v. Rogers Communications Inc., 2010 ONSC 2892, at para. 84, for the proposition that:
Equity dictates that if a defendant knows that the “finger of litigation” is pointing in its direction, and an action is commenced on a timely basis based on specific actions, this court ought to take appropriate steps to ensure that the true lis between the parties is addressed, rather than permitting one party to perhaps escape its possible liability by relying on a technical Limitations Act defence.
21The master also relied on the case of 1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505, at paras. 18-24 in support of “a broader, factually-oriented and less technical approach to determining if a new cause of action is pleaded which is consistent with the purposive approach to the interpretation of limitations provisions, in particular, a defendant’s basic entitlement to have notice of the factual matrix from which a claim arises.” [Master’s reasons at para. 22]
22The appellant contends that the master erred in failing to recognize that the new pleading of the existence, effectiveness, applicability and/or enforceability of the 2013 Manufacturing Agreement was a necessary fact upon which any right to be paid pursuant to that agreement would have to be based and that the addition of this “fact”, not pleaded in the existing Second Amended Statement of Claim, was a distinct cause of action based on a different contract. The appellant contends that these amendments add a third cause of action to the existing two, such that there are now three pleaded causes of action:
a. Breach of the 2013 Manufacturing Agreement; and/or
b. Breach of the 2015 Manufacturing Agreement; and/or
c. Breach of a stand-alone contract, pursuant to which product was ordered and there was an agreement to pay a certain price (based on the purchase order).
23The appellant contends that the master failed to recognize that the alleged breaches of these contracts constitute three mutually exclusive causes of action. The issue that the appellant has identified turns on whether the cause of action in this case is characterized as a claim for “breach of contract”, with two (or three) potential contracts that are said to contain the payment terms alleged to have been breached arising from the same order, deliveries, and invoices, or whether the cause of action is characterized as a claim for breach of each specific contract.
24The appellant contends that no judicial authority is required for what it says is an obvious proposition, that each contract, in its breach, creates a distinct cause of action. The appellant contends that, within the factual matrix, the introduction of a third distinct contract that gives rise to a right to payment is a new factual situation and therefore a new cause of action.
25By analogy, the appellant contends that the court recognized this in two cases that the master improperly distinguished:
a. Chrabalowski – in which the court found that an amendment to add a claim for loss of clientele and increased damages (after the expiry of a limitation period) to an existing wrongful termination claim, relying on different contractual provisions was an impermissible addition of a new cause of action;
b. Seitz – in which the court held that an agreement to allow the transition of clients was a distinct contract from an agreement to be given reasonable notice upon dismissal.
26The master observed that these cases do not stand for the general proposition that an amendment which relies on a new contract (or contractual provision) not initially pleaded necessarily constitutes a new cause of action. He distinguished these cases [in his reasons, at paras. 28-30] on the grounds that the findings were predicated on supporting facts not originally pleaded, as well as increased damages based on new theories of damages. In the case of Chrabalowski, it was noted that there was no legal nexus between the proposed new claim for loss of clientele and the original wrongful dismissal claim, and in the case of Seitz, it was noted that the amendments depended upon new representations that were not part of the factual matrix originally pleaded. Further distinguishing features noted included that they arose from different contracts, different breaches and different damages. Importantly, the fact that the claims for wrongful dismissal and loss of clientele were made under different contracts (or different contractual provisions) was not the only consideration in these cases. The focus was on the factual matrix of the complaints.
27The master contrasted the circumstances of those cases with the circumstances of this case, in which he found that:
a. the Proposed Amendments relate to the same parties, the same Order, the same Invoices, the same time period and in support of the same damages. [Master’s reasons, at para. 26]
b. like Farmers Oil, the Proposed Amendments are integral to the same dealings and transactions between the parties already pleaded. [Master’s reasons, at para. 26]
c. the terms of the 2013 Agreement are substantially similar to the 2015 Agreement including the Quality Agreement and jurisdiction provisions. [Master’s reasons, at para. 26]
Which Plaintiff Can Claim Under Which Agreement?
28The appellant challenges the master’s observation in paragraph 26 of his reasons that the proposed amendments relate to the same parties. The Proposed Second Amended Statement of Claim pleads that the 2013 Manufacturing Agreement and the 2015 Manufacturing Agreement were signed by different parties, the former having been signed by PMT and the latter having been signed by PIC (and later assigned to PMT).
29The appellant is right that the analysis of these claims should respect the separate legal identity of corporations and that a contract made by one party cannot be enforced by another, even if they are affiliates, except in specific circumstances, such as a valid assignment. However, in this case both PMT and PIC were plaintiffs claiming breach of contract from the outset. The appellant seeks to distinguish PMT’s standing as a plaintiff in its capacity as a purported assignee of the 2015 Manufacturing Agreement and/or as a necessary party in the supply/delivery chain from what it contends is a proposed new capacity to claim in its own right for alleged breaches of the 2013 Manufacturing Agreement.
30This requires a close examination of the existing Amended Statement of Claim that pleads, albeit inelegantly, all of the original claims and causes of action by both “Prollenium International/Prollenium Medical”, including that:
a. VES started ordering products from Prollenium International/Prollenium Medical in late 2012; [existing claim, para. 6]
b. In or about December 5, 2014, Prollenium International/Prollenium Medical filled an order from VES; [existing claim, para. 7]
c. In early January 2015, Prollenium International/Prollenium Medical divided the December 2014 order into 2 Sale Orders; [existing claim, para. 10]
d. On February 11, 2015, Prollenium International/Prollenium Medical shipped Sale Order 1924 to VES; [existing claim, para. 12]
e. On February 12, 2015, Prollenium International/Prollenium Medical rendered the February Invoice for Sale Order 1924; [existing claim, para. 12]
f. On or about April 14, 2015, Prollenium International/Prollenium Medical shipped Sale Order 1687 to VES; [existing claim, para. 15]
g. On or about April 1, 2015, Prollenium International/Prollenium Medical rendered the April Invoice for Sale Order 1687; [existing claim, para. 16]
h. VES made promises to pay to Prollenium International/Prollenium Medical in April, May, and July 2015; [existing claim, paras. 18-21]
i. On July 31, 2015, Prollenium International/Prollenium Medical informed VES that it would terminate the agreement unless Prollenium International/Prollenium Medical received payment the following week; [existing claim, para. 22]
j. On December 12, 2015, Prollenium International/Prollenium Medical wrote to VES to inform it that Prollenium International/Prollenium Medical was cancelling the OBL/OEM Agreement as a result of a material breach for failure to pay for product and failure to meet the minimum purchase requirements.
31The vagueness with which the existing Amended Statement of Claim was pleaded could have been the subject of a demand for particulars or a motion to strike, but it was not. While this court does not endorse vague and unparticularized pleadings, it is for the parties, not the court to demand that those be clarified and particularized. As it stands, the existing Amended Statement of Claim pleads that both PIC and PMT are claiming for the alleged breaches of contract for the failure of VES to pay for the goods delivered under the February and April Invoices. As the appellant has pointed out, it was the inartful pleading in Farmers Oil that that led to the generous reading of the original pleading in that case (see para 30).
The Finger of Litigation
32The appellant also challenges the master’s consideration of where the “finger of litigation” was pointing and his application of the principles from Farmers Oil and Brand Name Marketing. I find no error in the master’s determinations that:
a. the existing Amended Statement of Claim asserts claims for breach of contract (at first instance and/or by assignment) by both PIC and PMT based upon the 2015 Manufacturing Agreement (which is pleaded to have been made by PIC and assigned to PMT [2]) and/or based on the purchase order issued by VES and the manufacture and delivery of goods pursuant thereto (which is pleaded to have been completed by one or both of PIC/PMT); and
b. the introduction of a plea of the earlier 2013 Manufacturing Agreement whose corresponding terms are said to have been breached by the very same facts and circumstances, transactions and dealings upon which the existing plea is based is not a new cause of action.
33This is a fair and generous reading of the proposed amendments to the statement of claim that was within the master’s discretion to allow for, in reliance on Farmers Oil and Brand Name Marketing.
34The “finger of litigation” was clearly pointing in the direction of VES for its alleged breach of contract in failing to pay for goods (identified in the February Invoice and the April Invoice) sold and delivered to VES by one or the other of PIC or PMT. In the circumstances of this case, and having regard to how loosely it has been pleaded, the master made no error in finding that the introduction of a third contract between VES and one of the plaintiffs that may have been breached as a result of the already pleaded facts and circumstances said to give rise to the breaches of the contracts already pleaded does not constitute a new cause of action.
35Here, VES was aware from the existing Amended Statement of Claim that PMT was pursuing a claim against it for breach of contract and was aware of the specifically alleged breaches. The breaches relied on in the Proposed Second Amended Statement of Claim are not different from the previous pleading, in contrast with the proposed amendments in the case of American Axle & Manufacturing Inc. v. Durable Release Coaters Limited et al, 2010 ONSC 3368, at para. 50 relied upon by the appellant.
36This case is also not like the case of Fuda v. Jim McIntosh Petroleum Engineering Ltd., 2014 ONCA 378 that the appellant relies on. In that case, the Court of Appeal held, at para. 9, that misrepresentation claims, even though already raised in a different proceeding, could not be added to an action after the expiry of the limitation period where they were unconnected to the factual matrix pleaded in the original statement of claim. This case does not stand for the generalized proposition that each document always gives rise to a separate cause of action. It was a claim for alleged misrepresentations where the representations were said to be contained in separate documents, and it was in that context that it was said (for example, at para. 309 of the endorsement of the motion judge at 2013 ONSC 2122) that each cause of action was based on a separate misrepresentation.
37This case is also a different situation than the case of National Industries Inc. v. Kirkwood, 2018 ONSC 1490, at paras. 14-16 relied upon by the appellant, where the new proposed pleading related to conduct from an earlier timeframe that had not been previously referenced.
38The common focal point of these cases is on whether the defendant had notice of the factual matrix out of which the claim arises. In other words, what is the defendant alleged to have done wrong. This is evident from Farmers Oil, citing (at para. 16) Rausch v. Pickering (City), 2013 ONCA 740. The focus in a breach of contract claim is on whether the defendant had notice of the alleged breaches. See American Axle, at para. 50.
39In this case, VES has known since the original statement of claim was issued that both PIC and PMT were suing it for its failure to pay for the February and April Invoices. They knew the factual basis on which the plaintiffs were seeking relief against them from the original and existing Amended Statement of Claim, and that has not changed in the Proposed Second Amended Statement of Claim.
The Cause of Action Was Pleaded
40The master did not accept the appellant’s basic proposition: that the factual matrix out of which the plaintiffs’ claims for breach of contract arise must be ascertained with reference to the specific contract under which the claims are being advanced. He determined that the factual matrix is broader than that, and that the nature of the claims in this case were disclosed in the existing Amended Statement of Claim and merely amplified by reference to the 2013 Manufacturing Agreement.
41The master’s determination is consistent with the definition of a cause of action set out in the case of Timbers Estate v. Bank of Nova Scotia, 2011 ONSC 3639, at para. 13, relied upon by the appellant: This is not a new factual situation giving rise to a new claim and remedy by one person against another. The claim for breach of contract for the non-payment of the value of the invoices was already pleaded by both PIC and PMT against VES. [3] That cause of action was already supported by other contracts pleaded and does not depend upon the existence, effectiveness, applicability and/or enforceability of the 2013 Manufacturing Agreement. Rather, the existing cause of action is expanded upon by this additional contract.
42Arguments about the effect of the second (2015) Manufacturing Agreement on the first (2013) Manufacturing Agreement, and about whether the first (2013) Manufacturing Agreement ever came into force, or if deliveries could be made under it, in the absence of a signed Quality Agreement remain as defences available to VES that have been preserved by the master’s order. They do not determine the question of whether the introduction of the 2013 Manufacturing Agreement into the pleading constitutes a new cause of action.
43I have spent some time on this first ground of appeal as it was the primary focus of the written and oral submissions. I conclude that the master made no reversible error in his determination that, in the circumstances of this case, the additional plea of a new written contract said to have been breached by the same acts alleged to give rise to the breaches of the originally pleaded contracts is not a new cause of action and thus not barred by the Limitations Act.
Did the master err by his failure to apply the clean hands doctrine to prevent the plaintiffs from taking advantage of the allowance for a more generous reading of a pleading?
44Contrary to what the appellant contends, the consideration of where the “finger of litigation” is pointing in determining whether a new plea is barred by a limitation period is not an application of an equitable doctrine. The appellant correctly notes in its factum that equity has nothing to do with limitation periods and the court has no authority to overrule the Limitations Act, if it applies. The appellant relies upon Frohlick v. Pinkerton Canada Limited, 2008 ONCA 3 for this proposition, which the respondents do not take issue with.
45The cases that consider where the “finger of litigation” was pointing in the original pleading are looking at the factual matrix (the true nature of the claims and the knowledge of the parties). They are not invoking equity to override an otherwise valid limitations defence. Thus, the “clean hands” doctrine has no application in this case.
46In any event, the bad faith that VES alleges (putting the public at risk by concealing a switch of certifiers in their products and tax planning/evasion through the use of off-shore entities) [4] are not matters that can be properly determined on a paper record on a pleadings motion. I agree with the master’s conclusion (at para. 33 of his reasons) that a pleadings motion is not the time or the place to determine facts or motives or issues of credibility. The fact that the master did not directly deal with this argument of clean hands in equity is not a reversible error, since the doctrine does not apply.
Did the master err by limiting his consideration of the Proposed Second Amended Statement of Claim to what was pleaded and declining to consider evidence that was before the court about the tenability of the proposed pleading amendments under Rule 26?
47This ground of appeal ties into the court’s consideration of the next ground of appeal, about whether the plea of the 2013 Manufacturing Agreement is a tenable cause of action when the appellant alleges that it never came into effect, or that any deliveries of product could not have been made under it, because the Quality Agreement that it contemplated was never signed.
48The appellant primarily relies on two cases on the procedural question of whether evidence going to the merits of the claims should be considered on a Rule 26 motion for leave to amend a pleading: Swinkels v. American Home Assurance Company, 2012 ONSC 1820, at paras. 14-21 and Belsat Video Marketing Inc. v. Astral Communications Inc., at para. 45. Neither of these cases stand for the proposition that it is relevant to consider evidence going to the merits of the proposed amendments on a Rule 26 motion.
49In both of these cases, there were issues before the court, beyond the Rule 26 leave question, that justified the court’s consideration of whether the allegations (that happened to be contained in proposed amended pleadings) should proceed to a trial on their merits. In Swinkels, the plaintiff needed leave to commence a derivative claim under s. 246(1) of the Business Corporations Act, R.S.O. 1990, c. B.16 (one of the requirements of which is that it must appear to the court to be in the interests of the corporation the action be brought, prosecuted, defended or discontinued). In Belsat, there were two motions for summary judgment before the court along with the leave application to amend the statement of claim.
50The fact that both sides, for various reasons, referred to evidence in the record in their written and oral submissions does not mean that the master was obliged to consider some or any of the evidence when considering the tenability of the proposed amendments. The appellant contends that undisputed evidence can be considered. As discussed in the next section, the master did take into account some evidence about whether the Quality Agreement under the 2013 Manufacturing Agreement had been signed but declined to make findings on contested matters arising from that.
51The master did not make any reversible error in his decision to assess the tenability of the amendments contained in the proposed Second Amended Statement of Claim on the basis that the allegations were assumed to be true. That is the norm for consideration of the viability of a pleading and the court has not been directed to any authority that would support a different approach.
Did the master err in his decision to defer the determination of the merits of the question of whether the 2013 Manufacturing Agreement is effective, applicable and/or enforceable (as a result of the defendant’s contention that no Quality Agreement was signed) to a trial judge or a judge on a summary judgment motion?
52The appellant relies upon the master’s “finding” in his reasons that a Quality Agreement was not signed with respect to the 2013 Manufacturing Agreement. This comes from the evidence in the stay/jurisdiction motion record, based upon which the master found that the parties had proceeded on the understanding that a Quality Agreement had been signed, but later could not locate a copy of it.
53The appellant contends that the failure of the parties to sign a Quality Agreement in respect of the 2013 Manufacturing Agreement renders it ineffective based on the interpretation of a clause in that agreement that states that “No product shall be delivered until a Quality Agreement has been signed.” The appellant argues that this clause, combined with the requirement for all amendments to be in writing, precludes any claim by the plaintiffs for payment for product shipped under the 2013 Manufacturing Agreement and renders any such claim untenable.
54The viability analysis on a Rule 26 motion does not focus on the substance of the amendments (or any factual determinations of their merit) but only on whether they are tenable at law. See Damiani v. Toronto Hydro Corporation, 2019 ONSC 284, at paras. 5-6 and 8 and Kehoe Development Corp. v. Orillia (City), at paras. 1-2.
55The master concluded, based on a generous reading of the allegations contained in the Proposed Second Amended Statement of Claim and a plain reading of the words of the contract (which do not state that the agreement, or deliveries made pursuant to it, would be ineffective if made without a Quality Agreement in place), that the amendments to claim under the 2013 Manufacturing Agreement were tenable. The master concluded that, at the very least, there are triable issues with respect to whether the 2013 Manufacturing Agreement is effective by performance and if the signing of a Quality Agreement was a fundamental term. The master additionally observed that the finding that VES was asking him to make was inconsistent with its own actions under the agreement itself and in the litigation that subsequently ensued. [5]
56I find no reversible error in the master’s findings in this regard. They are correct both as a matter of what the law of contract allows the court to consider (see for example, Colautti Construction Ltd. v. Ottawa (City) (1984), 46 O.R. (2d) 236 (C.A.) and Bayer v. Belfield Investment Corp., 2015 ONSC 5029 at para. 30) and deserving of deference to the extent that they involve a preliminary exercise of contract interpretation.
57The appellant seeks to draw a distinction on this appeal between the question of whether the 2013 Manufacturing Agreement is rendered ineffective by virtue of the absence of a signed Quality Agreement, or whether it simply could not apply to any deliveries made in the absence of the signed Quality Agreement (the appellant relying on the latter). This distinction does not change the analysis, which would still involve the same questions of contract interpretation identified by the master when he considered the question of whether it was rendered ineffective or invalid by the absence of the Quality Agreement.
58As indicated in previous sections, the master made no reversible error in his decision to defer to the trial judge or a judge on a summary judgment motion any determinations about whether the 2013 Manufacturing Agreement is effective and enforceable. The same considerations would apply to the consideration of whether the 2013 Manufacturing Agreement is applicable to the product deliveries in question.
Did the master err in his determination that the Proposed Second Amended Statement of Claim is not a nullity or an abuse of process, where the impugned claims for this purpose were pleaded in the existing pleading that VES has not sought to strike?
59The appellant says that the claims by PMT are a nullity for the following reasons:
a. PIC terminated the 2015 Manufacturing Agreement on December 12, 2015, bringing that contract to an end and leaving it only with a claim for damages. The assignment by PIC of that contract to PMT occurred after it was terminated, when there was no contract to assign; and
b. VES had not been given notice of the purported assignment of the 2015 Manufacturing Agreement when the original statement of claim was issued, and PMT at that time could only have been claiming for performance of a contract arising from the manufacture and delivery of product under the purchase order issued by VES (which the appellant refers to as the stand-alone contract).
60On the basis of the above contentions, the appellant argues that the existing Amended Statement of Claim was a nullity in respect of any claims by PMT. See Cairns v. Dewis, 2009 MBQB 186, paras. 35-40. The appellant argues that this renders the claims by PMT under the 2015 Manufacturing Agreement a nullity. Without having brought a motion or cross-motion to this effect, the appellant nonetheless argues that the court should make this determination, conclude that PMT did not have standing to make the existing claims and, on that basis, decline to allow PMT to amend to plead breaches of the 2013 Manufacturing Agreement.
61The master rejected this argument, on the basis that this should have been raised as a motion to strike the original or Amended Statement of Claim and not in opposition to the motion to amend that claim. The master concluded that the motion to amend should be decided based on the existing pleadings, and the question of whether PMT’s claims are a nullity can be determined at trial or on a summary judgment motion.
62The respondent points out that no case was cited by the appellant in which an amendment was successfully opposed due to the claim being a nullity without a cross-motion for relief. The Cairns case that the appellant relies upon involved a party that was not named in the existing statement of claim at all, and was a summary judgment motion, not just a motion to amend.
63The master made no reversible error in his decision to defer the question of whether the claims of PMT are a nullity, to be determined on their merits after having been put squarely before the court with a proper record.
Did the master err in his determination that the Proposed Second Amended Statement of Claim did not give rise to any actual prejudice to VES?
64The presumption of prejudice where a limitation period has expired was recognized by the master in his articulation of the test under Rule 26.01. However, the master found (and this court has upheld his finding) that the proposed amendments do not amount to a new cause of action, and therefore no limitation period applies to prevent the proposed amendment. The presumption of prejudice therefore does not arise in this case.
65The appellant argues that it has suffered actual prejudice. It contends that evidence has been lost (or not preserved) in relation to the 2013 Manufacturing Agreement that the plaintiffs now seek to plead and rely upon. This lost evidence is said to be the appellant’s emails from prior to December 2014 and dating back to 2012 (the beginning of the contractual relationship between VES and PMT, before PIC was incorporated). The appellant also speculates that evidence of the plaintiffs that, for example, about the change in certifiers which might allow VES to test the reasons why the plaintiffs did not execute the Quality Agreement, may also be lost.
66Relying on guidance from the Court of Appeal about what constitutes non-compensable prejudice (in the cases of 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42, at para. 25 and Anderson Consulting v Canada (Attorney General), 2001 ONCA 1000, 2001 CarswellOnt 3139 (C.A.) at paras. 34 and 37), the master found that there was none in this case. In terms of the loss of records, the master found that records dating back to 2012 and arising during the course of the business relationship and dealings of the parties would have been relevant under the existing Amended Statement of Claim that pleads that VES started to order products in 2012.
67On that basis, the master concluded that the alleged prejudice did not arise from the proposed amendment to plead the 2013 Manufacturing Agreement that came into effect in the middle of this time period. The master also noted that the VES witnesses whose emails are the subject of concern all remain available and he observed that the speculation about missing documents of the plaintiffs was not substantiated (or supported by the fact that they said they could not find one document, the executed Quality Agreement, that VES now contends was in fact never executed by PMT).
68The plaintiffs also point out that the action commenced by VES that itself pleads and relies on the 2013 Manufacturing Agreement would have rendered these same documents relevant and given rise to obligations to preserve them, which is yet another reason why it cannot be said that the prejudice from their absence can be said to arise from the proposed amendment to the statement of claim to rely on the 2013 Manufacturing Agreement in this action. The master’s finding that no actual prejudice had been established by VES has not been shown to have been a palpable and overriding error and is deserving of deference. The master made no reversible error in reaching this conclusion.
Final Disposition and Costs
69The appeal is dismissed. The parties were not in a position to make submissions on costs when the appeal was argued, having not at that time received the master’s decision on costs. I asked the parties to exchange their costs outlines at or shortly after the hearing of the appeal. I encourage counsel to attempt to reach an agreement on costs. If they are able to do so, they should advise the court of such by March 31, 2020 and provide a draft order.
70If no agreement is reached on costs, then each side may make brief written submissions on costs (not to exceed 3 pages double spaced) to be delivered together with their respective costs outlines by April 15, 2020, and each may respond to the other’s in a brief reply submission on costs (not to exceed 1.5 pages double spaced) to be delivered by April 27, 2020. All costs submissions should be served on the opposing parties and delivered to my attention at Judges’ Administration, Superior Court of Justice at 361 University Avenue (Room 140), Toronto, Ontario M5G 1T3.
71If, due to the extraordinary measures in place at the court because of the coronavirus pandemic, the parties become unable to file their costs submissions at Judges’ Administration, they can be emailed to my assistant, linda.bunoza@ontario.ca but should also be filed electronically following whatever current notice to the profession is in place at the time, together with a copy of this final (signed) page of my reasons with a request that the intake office send them to me electronically. In these extraordinary circumstances, the parties may also agree to extend the time lines for costs submissions without the prior approval of the court. The parties are asked to advise the court of any such agreement.
Kimmel J.
Date: March 20, 2020
[1] The original statement of claim was amended shortly after it was issued to plead the assignment of the 2015 Manufacturing Agreement to PMT.
2Another argument raised by the appellant is that the assignment by PIC to PMT occurred after the original statement of claim was issued and that the cause of action could not have been asserted on behalf of PMT in advance of the assignment. This may be a substantive defence available to VES (the master preserved all of its limitations defences in his order allowing the amendments). However, I am not satisfied, based on the authorities and submissions of the parties at this stage, that the master erred in considering the capacities in which PMT was already a plaintiff under the Second Amended Statement of Claim to include not only that it may have delivered product in fulfillment of a purchase order but also that it may be an assignee of the 2015 Manufacturing Agreement. This is discussed further under the “nullity” ground of appeal.
3The remedy is just the conclusion that flows from the cause of action and does not determine the cause of action, so the fact that the remedy is the same (or different) is not determinative of this issue. The master did not find that it was.
4PIC/PMT disputes these allegations and points out that they are not substantiated on the record before the court and thus were not responded to on the merits, because there is no factual basis on which the court could make a finding that PIC/PMT did not have clean hands or acted in bad faith, if that was relevant to the issues to be decided, which the court found it was not.
5It was in this context that the master also declined to make findings regarding the motive that VES sought to attribute to the plaintiffs for not signing the Quality Agreement (due to an alleged undisclosed switch of certifiers), and VES’s contention that only it was proceeding under the mistaken belief that a Quality Agreement had been signed.