Court File and Parties

COURT FILE NO.: CV-18-594159 MOTION HEARD: In Writing SUPPLEMENTARY SUBMISSIONS: 20220216 REASONS RELEASED: 20220315

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

HAMILTON TRAMPOLINE, ULC dba FLYING SQUIRREL HAMILTON Plaintiff

- and-

FIRST DATA CANADA LTD. Defendant

-and-

VANTIV INTEGRATED PAYMENTS CANADA, LLC, VANTIV INTEGRATED PAYMENTS, LLC and VANTIV INTEGRATED PAYMENT SOLUTIONS, INC. Third Parties

BEFORE: ASSOCIATE JUSTICE McGRAW

COUNSEL: D. Neave and T. Urquhart E-mail: david.neave@dlapiper.com -for the Defendant

M. Gelowitz and M. Sheeley E-mail: meglowitz@osler.com -for the Third Parties

T. Brook E-mail: ted.brook@nortonrosefulbright.com -for the Plaintiff

REASONS RELEASED: March 15, 2022

Reasons For Endorsement

I. Introduction

[1] The Defendant, First Data Canada Ltd. (“FD”) brings a motion for leave to amend its Third Party Claim.

II. Background

[2] The Plaintiff, Hamilton Trampoline, ULC (“HT”) is the owner and operator of an indoor trampoline facility (the “Facility”) located in Hamilton doing business as Flying Squirrel Hamilton which opened on November 1, 2016. The Defendant FD provides electronic payment processing services to merchants for debit and credit card payments. The Third Parties Vantiv Integrated Payments Canada, LLC, Vantiv Integrated Payments LLC and Vantiv Integrated Payment Solutions Inc. (collectively, “Vantiv”) provide online gateway services which are used to secure online payment card information between customers, merchants, merchant acquirers or processors and payment card issuing financial institutions.

[3] On April 14, 2016, HT and FD entered into a Merchant Services Agreement pursuant to which FD agreed to provide HT with payment card processing services and point-of-sale equipment to enable HT to accept online and in-person payments from customers. On July 21, 2016, Vantiv entered into an agreement to provide HT with payment gateway services to enable HT to connect with FD’s payment card processing network to facilitate rapid communication with card association and issuing banks so that HT could process online credit card purchases and settle online transactions.

[4] On November 1, 2016, HT opened the Facility and started accepting online payments from customers. HT alleges that on June 19, 2017, it discovered that no online credit card transactions had been settled in its online merchant account from the time its online payment system went live on November 1, 2016. HT commenced this action by Statement of Claim issued on March 16, 2018 for breach of contract and negligence seeking damages of $555,326.99 for rejected online transactions between November 1, 2016-June 30, 2017 and $500,000 for reputational damage and business losses.

[5] FD delivered its Statement of Defence on May 10, 2018. On July 31, 2018, FD issued its Third Party Claim seeking contribution and indemnity from Vantiv (the “Original Claim”). With HT’s consent, FD delivered its Amended Statement of Defence on May 4, 2021 (the “Amended Defence”). FD sought to file an Amended Third Party Claim (the “Amended Claim”) to reflect the amendments to the Amended Defence but Vantiv would not consent.

[6] This motion first came before me on a telephone case conference on June 3, 2021. The parties agreed that the motion would proceed in writing and a timetable was established. As set out in my Interim Endorsement dated August 2, 2021, after reviewing the materials, I concluded that FD had raised issues of discoverability which were not sufficiently addressed in the materials. I invited counsel to file supplementary written submissions or to schedule another case conference.

[7] Counsel scheduled a telephone case conference for September 29, 2021. Counsel advised that FD had filed a Reply Factum which I did not receive that might have resolved the discoverability issues. Another timetable was established for the delivery of supplementary materials which were received by October 24, 2021. Upon reviewing the materials, although FD conceded that discoverability was not at issue, I had numerous remaining substantive questions and I requested that counsel schedule a telephone case conference to make brief oral submissions and answer questions. This proceeded on February 16, 2022.

II. The Law and Analysis

[8] Rules 26.01 and 26.02 state:

“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.

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.

[9] The contemporary approach to pleadings motions was summarized by Flynn J. in Sleep Clinic London Inc. v. Merchea, 2012 ONSC 3004, [2012] O.J. No. 2471:

“22 Long gone are the days when pleadings motions could be approached in an overly technical manner. Generally speaking, a party should be at liberty to craft a pleading in the manner it chooses, providing that the Rules of pleadings are not violently offended and there is no prejudice to the other side.”

[10] Amendments should be presumptively approved unless they would result in prejudice that cannot be compensated by costs or an adjournment; they are shown to be scandalous, frivolous, vexatious or an abuse of the court's process; or they disclose no reasonable cause of action (Andersen Consulting v. Canada (Attorney General), 2001 CarswellOnt 3139 (C.A.) at para. 37; Schembri v. Way, 2012 ONCA 620 at paras. 25 and 44).

[11] The Court of Appeal summarized the law on pleadings amendment motions in 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42:

“ [25] The law regarding leave to amend motions is well developed and the general principles may be summarized as follows:

The rule requires the court to grant leave to amend unless the responding party would suffer non-compensable prejudice; the amended pleadings are scandalous, frivolous, vexatious or an abuse of the court's process; or the pleading discloses no reasonable cause of action.

The amendment may be permitted at any stage of the action.

There must be a causal connection between the non-compensable prejudice and the amendment. In other words, the prejudice must flow from the amendments and not from some other source.

The non-compensable prejudice may be actual prejudice, i.e., evidence that the responding party has lost an opportunity in the litigation that cannot be compensated as a consequence of the amendment. Where such prejudice is alleged, specific details must be provided.

Non-compensable prejudice does not include prejudice resulting from the potential success of the plea or the fact that the amended plea may increase the length or complexity of the trial.

At some point, the delay in seeking an amendment will be so lengthy, and the justification so inadequate, that prejudice to the responding party will be presumed.

The onus to prove actual prejudice lies with the responding party.

The onus to rebut presumed prejudice lies with the moving party.”[citations omitted]

[12] In Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6359, the Divisional Court held that proposed amendments should be permitted where they arise out of the same facts or factual matrix that was pleaded in the original statement of claim (Farmers Oil at para. 22). The Divisional Court concluded that the proposed amendments were integral to the dealings already pleaded, factually intertwined with the existing allegations and part of the same factual matrix:

“In the end result, the requirement to read a pleading generously, and the concomitant requirement to allow amendments unless they will inflict non-compensable prejudice, means that the presumption is that any amendment, that can reasonably be seen as falling within the four corners of the existing claim, ought to be permitted. In that regard, I agree with the sentiment expressed by Master Short in Brand Name Marketing Inc. v. Rogers Communications Inc., 2010 ONSC 2892, [2010] O.J. No. 5430 at para. 84:

I believe 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 upon a technical Limitations Act defence.”(Farmers Oil at para. 31).

[13] The parties both rely on the Court of Appeal’s decision in Klassen v. Beausoleil, 2019 ONCA 407:

“25 The rule is framed in mandatory terms: the court must allow the amendment, unless the responding party would suffer non-compensable prejudice, the proposed pleading is scandalous, frivolous or vexatious, or the proposed pleading fails to disclose a reasonable cause of action: 158844 Ontario Ltd v. State Farm Fire and Casualty Co., 2017 ONCA 42, 135 O.R. (3d) 681, at para. 25; Iroquois Falls Power Corp. v. Jacobs Canada Inc., 2009 ONCA 517, 264 O.A.C. 220, at paras. 15-16.

26 The expiry of a limitation period is one form of non-compensable prejudice. A party cannot circumvent the operation of a limitation period by amending their pleadings to add additional claims after the expiry of the relevant limitation period: Frohlick v. Pinkerton Canada Ltd, 2008 ONCA 3, 88 O.R. (3d) 401, at para. 24; 1100997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848, 409 D.L.R. (4th) 382, at paras. 21-23; United Food and Commercial Workers Canada, Local 175 Region 6 v. Quality Meat Packers Holdings Limited, 2018 ONCA 671, at paras. 64; Davis v. East Side Mario's Barrie, 2018 ONCA 410, at paras. 31-32. In this regard, the "addition of new statute-barred claims by way of an amendment is conceptually no different than issuing a new and separate Statement of Claim that advances a statute-barred claim" (emphasis added): Quality Meat Packers, at para. 64; citing Frohlick, at para. 24.

27 An amendment will be statute-barred if it seeks to assert a "new cause of action" after the expiry of the applicable limitation period: North Elgin, at paras. 19-23, 33; Quality Meat Packers, at para. 65. In this regard, the case law discloses a "factually oriented" approach to the concept of a "cause of action" -- namely, "a factual situation the existence of which entitles one person to obtain from the court a remedy against another person": North Elgin, at para. 19; Quality Meat Packers, at para. 65.

28 An amendment does not assert a new cause of action -- and therefore is not impermissibly statute-barred -- if the "original pleading ... contains all the facts necessary to support the amendments ... [such that] the amendments simply claim additional forms of relief, or clarify the relief sought, based on the same facts as originally pleaded": Dee Ferraro, at paras. 4, 13-14; North Elgin Centre Inc., at paras. 20-21; East Side Mario's Barrie, at paras. 31-32; Quality Meat Packers, at para. 65. Put somewhat differently, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a "fundamentally different claim" based on facts not originally pleaded: North Elgin, at para. 23.

29 The relevant principle is summarized in Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3rd ed. (Toronto: LexisNexis, 2017), at p. 186:

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon [which] the original right of action is based.

30 In the course of this exercise, it is important to bear in mind the general principle that, on this type of pleadings motion, it is necessary to read the original Statement of Claim generously and with some allowance for drafting deficiencies: Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources), 2016 ONSC 6359, 134 O.R. (3d) 390 (Div. Ct.), at para. 23.”

[14] The courts have adopted a broader, factually-oriented and less technical approach to determining if a new cause of action has been pleaded, 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 (1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505 at paras. 18-24).

[15] In summarizing the general principles governing pleadings, Strathy J. (as he then was) held in Cerqueira v. Ontario, 2010 ONSC 3954:

“11. …I set out some of these principles in Cavarra v. Sterling Studio Lofts Inc., 2010 ONSC 3092, [2010] O.J. No. 2211, and I have added some additional principles:

“(a) the purpose of pleadings is to give notice of the case to be met, to define the matters in issue for the parties and for the court, and to provide a permanent record of the issues raised [citations omitted];

12 I accept the submission of Mr. Adair, on behalf of the Extendicare defendants, that while the plaintiffs are entitled to some leeway in the wording of their pleading, and a potentially meritorious claim should not be struck merely because of technical drafting deficiencies, the defendants are entitled to know the case they must meet. The court must be fair to the plaintiff, but it must also be fair to the defendants. In this regard, I respectfully adopt the observation of Cameron J. in Balanyk v. University of Toronto, [1999] O.J. No. 2162 (S.C.J.) at para. 46:

Neither the opposite party nor the court should be forced to nit-pick their way through a long, complex and sometimes redundant and split pleading, parsing each paragraph and each sentence with a view to extracting the claims and related material facts and redrafting them into a clear and precise pleading. It is the responsibility of the party pleading to plead in accordance with the requirements of our law and the purposes of pleading. Bearing in mind National Trust Co. v. Frubacher, [1994] O.J. No. 2385, those purposes are:

(a) to give precise notice to the opposite party of the case which is to be met, sufficient to enable the opposite party to plead;

(b) to assist the court in understanding the material facts alleged and the factual and legal issues in dispute between the parties;

(c) to establish a benchmark against which the parties and the court may determine the relevance of evidence on discovery and at trial and the scope of the evidence which will be required to fairly and efficiently address the issues in dispute.

This requires the party pleading to understand the facts and the law as to what is required to support or defend a cause of action and to then state its position clearly and concisely.” (Cerqueira at paras. 11-12).

[16] Counsel did not cite any cases with respect to amending Third Party Claims generally and could not refer me to any cases in the context of amendments which, as here, had already been made to a third party claimant’s Statement of Defence. I was referred to Placzek v. Green, 2009 ONCA 83 for the general principle that a claim for contribution and indemnity under s. 1 of the Negligence Act is not a damage claim arising out of a tort, but instead is a statutory claim founded on principles of restitution and unjust enrichment and a remedy for the unjust enrichment that arises when a concurrent tortfeasor bears a disproportionate share of the plaintiff's claim (Placzek at paras. 35, 38).

[17] Pursuant to sections 18, 4 and 5 of the Limitations Act (Ontario), subject to discoverability, the limitation period for FD’s claims against Vantiv for contribution and indemnity began to run on May 10, 2018 when FD served the Original Defence (Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429 at paras. 59-71). Given the six-month suspension of all limitation periods between March 16, 2020 and September 14, 2020 due to the COVID-19 pandemic under section 7.1 of the Emergency Management and Civil Protection Act (Ontario), the presumptive applicable two-year limitation period expired on November 9, 2020. FD brought this motion on June 10, 2021.

[18] FD initially took the position that its proposed amendments were the result of information discovered during documentary discovery, raising discoverability issues. FD subsequently confirmed that it is not asserting any discoverability issues. Therefore, the only issue on this motion is whether FD’s proposed amendments to the Original Claim as set out in the Amended Claim (the “Proposed Amendments”) assert a new cause of action and are therefore out of time or if they provide particulars of an allegation already pled or additional facts upon which the original right of action is based.

[19] In the Original Claim, FD alleges that Vantiv, without notice to FD, attempted to set up the online payment gateway for HT using information from a VAR Sheet that FD, at HT’s direction, had prepared and intended for a different online payment gateway services provider, Authorize.net (paras. 11, 13, Original Claim). A VAR Sheet is an information sheet which provides the necessary information to a gateway services supplier like Vantiv to permit its equipment to communicate with FD for the authorization, processing and settlement of online payment card transactions and includes merchant account information, a merchant ID number and bank account information. FD further alleged that Vantiv failed to contact FD to obtain the information to enable HT to use the gateway and would be required to set up the gateway or alternatively, verify that Vantiv could use the information in the VAR Sheet that FD had prepared for Authorize.net before it began to process transactions (Original Claim, paras. 14-15). FD further alleges that as a result of setting up the gateway with the information on the VAR Sheet, daily batches of online payment card transactions were rejected for processing as Vantiv was not an authorized gateway and the corresponding funds were not settled into HT’s bank account (Original Claim, para. 19). HT further alleges that Vantiv knew that the transactions were rejected but failed to advise HT and FD until June 2017 (Original Claim, paras. 18 and 20).

[20] In the Amended Claim, the Proposed Amendments include allegations that on or about November 2, 2016:

i.) HT became aware and advised Vantiv that its payment card transactions were being authorized by the issuer but were showing as rejected when processed by Vantiv (Amended Claim, paras. 18(a)(b));

ii.) Vantiv informed HT that the Authorize.Net VAR Sheet contained an incorrect merchant ID number and that an updated or corrected merchant ID number was required in order for Vantiv’s equipment to communicate electronically with FD’s network and HT advised FD and requested a corrected merchant number (Amended Claim, paras. 18(c)(d));

iii.) HT expressly authorized Vantiv to act on its behalf to obtain the corrected merchant ID number and correct any merchant processing issues and informed FD that it had authorized Vantiv to act as its agent, and Vantiv, acting as agent, requested a corrected merchant ID number; FD corrected the VAR Sheet and provided it to Vantiv and HT and requested that Vantiv confirm whether it required a new VAR Sheet which designated or identified Vantiv as the third party payment gateway provider and Vantiv informed FD that it would correct the merchant ID number for its equipment and that it did not require a new VAR Sheet in order to process HT’s transactions and that Vantiv (Amended Claim, paras. 18(e)-(i)).

[21] The Proposed Amendments also include FD’s allegation that Vantiv did not inform HT or FD that it had not corrected the merchant ID number or that it required a new VAR Sheet or any other information from FD in order to process HT’s online payment card transactions (Amended Claim, para.19); references to Vantiv’s failure to correct the merchant ID number for its equipment despite advising FD that it had done so (Amended Claim, para. 21); and that Vantiv was negligent in otherwise continuing to use the incorrect merchant ID number to process HT’s online payment card transactions (Amended Claim, para. 24(d)).

[22] FD submits that the Proposed Amendments simply reflect the amendments made on consent to its Original Defence and provide further particulars of allegations and assertions of material facts already pleaded in the Original Claim for the period July 2016 to June 2017. FD further argues that the Proposed Amendments support the broad negligence claims it has already made, are additional facts upon which the original right of action is based and do not plead a new cause of action against Vantiv.

[23] Vantiv submits that FD is seeking to add a fundamentally different claim after the expiry of a limitation period and that the Proposed Amendments are inconsistent with the Original Claim. Vantiv argues that factual allegations which are inconsistent with those pleaded in the Original Claim cannot be characterized as mere particulars and support a new theory of negligence, namely that Vantiv failed to update the merchant ID number used to process HT’s online payment card transactions.

[24] Paragraph 6 of the Amended Claim incorrectly states that FD repeats and relies upon the allegations contained in its Statement of Defence. Given the amendment of FD’s Statement of Defence I accept that this was inadvertent and the reference should be to FD’s Amended Statement of Defence (emphasis added). I agree with Vantiv that HT’s consent is not binding on Vantiv, however, I am satisfied that paragraph 6 should be amended to correct this mistake and provide that the Amended Defence is incorporated in the Amended Claim. Vantiv submits that this does not change its opposition to this motion.

[25] FD’s claim against Vantiv in the Original Claim for contribution and indemnity is based on Vantiv’s alleged negligence. This has not changed in the Amended Claim (Amended Claim, paras. 7, 23 and 24). The material differences between the Original Claim and the Amended Claim are the Proposed Amendments regarding the alleged events on or around November 2, 2016 with respect to Vantiv’s use of an incorrect merchant ID number in the VAR Sheet and the allegation of an agency relationship between HT and Vantiv.

[26] In my view, on a generous reading allowing for drafting deficiencies, the Proposed Amendments related to Vantiv’s alleged use of an incorrect merchant ID number in the VAR Sheet can be characterized as additional facts upon which FD’s Original Claim for contribution and indemnity in negligence is based. The Proposed Amendments regarding the merchant ID number are part of the same factual matrix and factually intertwined with FD’s allegations that Vantiv was negligent in setting up the gateway and by using an incorrect VAR Sheet. More specifically, FD alleges in the Original Claim that Vantiv was negligent by improperly using the information on the VAR Sheet and failing to contact FD before it commenced accepting online transactions (Original Claim, paras. 24(b)(c)). I disagree that the new allegations that Vantiv used an incorrect merchant ID number on the VAR Sheet is a fundamentally different claim or a new cause of action where its alleged use of the same incorrect VAR Sheet as part of its negligence in setting up the gateway has already been pleaded. This is an additional fact upon which FD’s original cause of action in negligence is based.

[27] Similarly, I conclude that the Proposed Amendments related to FD’s allegations of an agency relationship between HT and Vantiv are part of the existing factual matrix in the Original Claim with respect to the contractual relationship between HT and Vantiv already pleaded (Original Claim, para. 12). I disagree with FD’s assertion that the allegation of an agency relationship does not constitute a claim directly against Vantiv. However, FD is not privy to the terms of the agreement and the allegation of an agency relationship constitutes another theory of liability arising from facts already pleaded with respect to the existing contractual relationship between HT and Vantiv.

[28] These conclusions are consistent with a purposive, flexible approach to pleadings in which Vantiv is entitled to, and has received, notice of the factual matrix, the claims against it and the case it must meet. It is also consistent with the Rules and the case law such that amendments should be permitted where, as here, no presumption of prejudice arises and Vantiv has not demonstrated that it would suffer any actual prejudice and all issues can be fully canvassed on examinations for discovery. Further, the Proposed Amendments also conform with FD’s claims for contribution and indemnity based on restitution and unjust enrichment for Vantiv’s alleged disproportionate share of any liability FD may incur from HT’s claims.

[29] However, I accept Vantiv’s submissions that in some cases, the Proposed Amendments contradict allegations and pleadings in the Original Claim. For example, paragraph 18 of the Amended Claim alleges that certain events occurred on or about November 2, 2016 regarding the merchant ID number and refers to various communications between FD and Vantiv. This would seem to contradict paragraphs 14 and 24(e) where FD alleges that Vantiv failed to contact FD at any time. I do not accept Vantiv’s submissions that just because some of the Proposed Amendments are inconsistent with the Original Claim it follows that they constitute a new cause of action or a fundamentally different claim being asserted after the passage of a limitation period. Rules 25.06(4) and (5) permit inconsistent allegations to be pleaded in the alternative (as FD did with paragraph 15 of the Original Claim) including by way of amendment. The parties made no submissions with respect to these Rules. In any event, these issues must be addressed. In the circumstances, given the Proposed Amendments reflected in the Amended Defence and my conclusions above, I am satisfied that it is reasonable and consistent with a liberal interpretation of the Rules to ensure the just, most expeditious and cost-effective determination on the merits prescribed by Rule 1.04(1) for FD to address these and any other inconsistent pleadings by way of further amendments.

[30] Having considered all of the relevant factors and circumstances I would allow FD’s motion in part. I grant leave to FD to amend the Original Claim to make the amendments with respect to the merchant ID number and the agency relationship. However, FD shall further amend its Amended Claim to address the inconsistent allegations whether by pleading in the alternative, deleting paragraphs or portions of paragraphs, or as the parties may otherwise agree, and leave is granted for it to do so. Vantiv is granted leave to amend its Defence to the Amended Third Party Claim as necessary.

III. Disposition and Costs

[31] Order to go on the terms set out above. If necessary, counsel may schedule a telephone case conference with me to speak to terms or any further issues or to seek further directions, before or after examinations for discovery, including with respect to undertakings and refusals.

[32] If the parties are unable to agree on costs, they may file written submissions (not to exceed 3 pages excluding Costs Outlines) pursuant to a timetable agreed upon by counsel.

Released: March 15, 2022

Associate Justice McGraw