Huachangda Canada Holdings Inc. v. Solcz Group Inc.

[Indexed as: Huachangda Canada Holdings Inc. v. Solcz Group Inc.]

Ontario Reports Court of Appeal for Ontario Hoy A.C.J.O., Trotter and Jamal JJ.A. August 8, 2019

147 O.R. (3d) 644 | 2019 ONCA 649

Case Summary

Civil procedure — Pleadings — Striking out — Allegations that plaintiff had ulterior motive in bringing action being irrelevant where motive was not element of cause of action or defence — Motion judge not erring in striking allegations from statement of defence without leave to amend on basis that they were frivolous and vexatious.

The plaintiffs brought an action alleging breaches of representations and warranties and fraudulent conduct arising out of a share purchase agreement. The defendant pleaded that the plaintiffs' ulterior motive in bringing the action was not to seek genuine damages for genuine wrongs but rather to seek an adjustment of the purchase price under the share purchase agreement. On a motion by the plaintiffs, the motion judge struck those allegations from the statement of defence without leave to amend. The defendant appealed.

Held, the appeal should be dismissed.

Allegations that a plaintiff had an ulterior motive in bringing an action are irrelevant where motive is not an element of any of the causes of action asserted or any defence. The motion judge did not err in finding that the allegations of ulterior motive in this case were irrelevant and that they were therefore frivolous and vexatious. The motion judge's refusal to grant leave to amend the impugned paragraphs of the statement of defence was discretionary and was entitled to deference.

Tran v. University of Western Ontario, [2015] O.J. No. 2185, 2015 ONCA 295, consd

Other Cases Referred To

• 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., (2017) 135 O.R. (3d) 681, [2017] O.J. No. 241, 2017 ONCA 42, 409 D.L.R. (4th) 75, 64 C.C.L.I. (5th) 1, 274 A.C.W.S. (3d) 745
• BMO Nesbitt Burns Inc. v. Shortt, [2013] O.J. No. 1471, 2013 ONSC 1873 (Master)
• Carney Timber Co. v. Pabedinskas, [2008] O.J. No. 4818, 173 A.C.W.S. (3d) 89
• Conway v. Law Society of Upper Canada, [2016] O.J. No. 451, 2016 ONCA 72, 344 O.A.C. 291, 395 D.L.R. (4th) 100, 261 A.C.W.S. (3d) 826
• Davis v. Toronto (City), 1942 CarswellOnt 170 (H.C.)
• Duryea v. Kaufman (1910), 21 O.L.R. 161 at 165, [1910] O.J. No. 118, 16 O.W.R. 57 (H.C.J.)
• E.O.E. Group Inc. v. Konica Minolta Business Solutions (Canada) Ltd., [2012] O.J. No. 42, 2012 ONSC 197 (Master)
• F. (M.) v. Sutherland, [2000] O.J. No. 2522, 188 D.L.R. (4th) 296, 134 O.A.C. 117, 44 C.P.C. (4th) 193, 98 A.C.W.S. (3d) 59 (C.A.)
• Grigonis v. Toronto Boardsailing Club, [2010] O.J. No. 4232, 2010 ONCA 651, 193 A.C.W.S. (3d) 1115
• Marineland of Canada Inc. v. Niagara Action for Animals, [2004] O.J. No. 3866, [2004] O.T.C. 830, 133 A.C.W.S. (3d) 896
• Refco Futures (Canada) Ltd. v. Keuroghlian, [2002] O.J. No. 2981, 39 C.P.C. (5th) 344 (S.C.J.)
• Welch, Anderson & Co. v. Roberts, [1945] O.J. No. 358, [1946] O.W.N. 5 (H.C.J.)

Rules and Regulations Referred To

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 25.11(b)

APPEAL

From the order of Penny J., [2018] O.J. No. 6939, 2018 ONSC 7373 striking paragraphs of the statement of defence.

Alan Merskey and Stephen Taylor, for appellant.

David Foulds and Wendy Sun, for respondents.

BY THE COURT

Introduction

[1] May a defendant plead in a statement of defence that the plaintiff has an ulterior motive in bringing an action, if the plaintiff's motive is not otherwise an element of any cause of action or defence? That is the issue raised in this appeal.

[2] The motion judge struck out, without leave to amend, two paragraphs in the appellant's statement of defence because they pleaded that the respondents' ulterior motive in bringing the action was to seek an adjustment of the purchase price under a share purchase agreement, rather than to seek genuine damages for genuine wrongs. The motion judge found that the paragraphs were irrelevant to the causes of action pleaded and therefore frivolous and vexatious under rule 25.11(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The appellant now appeals to this court.

[3] We agree with the motion judge's determination. Generally, allegations regarding a plaintiff's personal reasons or motives in bringing an action, however improper, do not in themselves provide a defence to the action and are therefore irrelevant. A court will not inquire into a litigant's private motives in bringing an action. However, a plea of ulterior motive in bringing an action may be permitted where the plea is an essential part of a cause of action or defence, or where it is otherwise relevant, such as where it bears on a claim of abuse of process.

[4] In this case, the respondents' alleged ulterior motive was not an essential part of any cause of action or defence, nor was it otherwise relevant. As such, the plea was properly struck out under rule 25.11(b).

The Pleadings

[5] The respondents assert claims for alleged breaches of representations and warranties and fraudulent conduct arising out of a share purchase agreement.

[6] The appellant, Solcz Group Inc. ("SGI"), an auto parts manufacturer, was the vendor. The respondent, Huachangda Canada Holdings Inc. ("HCH"), was the purchaser.

[7] The respondents' amended statement of claim pleads that under the share purchase agreement ("SPA"), HCH acquired a European auto parts manufacturing business from SGI, by purchasing all the issued and outstanding shares of SGI subsidiaries Valiant Corporation and the respondent Winvalco Limited. HCH thereby became the indirect owner of several Valiant subsidiaries, including the respondents Valiant Holdings GmbH and TMS Turnkey Manufacturing Solutions GmbH. The total value of the transaction, which closed in March 2017, was $410 million.

[8] The amended claim pleads that SGI breached numerous representations and warranties in the SPA by failing to disclose or by concealing serious issues with significant contracts that TMS had with Porsche and Volvo, thereby causing substantial losses to Valiant. As a result, HCH claims that it overpaid SGI for the shares of Valiant and Winvalco and seeks a purchase price adjustment. It also pleads that the losses suffered caused a liquidity crisis at TMS, which placed TMS on the brink of insolvency and thereby injured HCH and Valiant.

[9] The appellant's statement of defence denies these allegations and claims that any losses incurred by the respondents were caused by their own financial mismanagement and by the actions of HCH's principal shareholder, Huachangda Intelligent Equipment Group Inc. ("HCD"), which is not a party to the action.

[10] The statement of defence also pleads that the respondents' motive in suing the appellant was not "to recoup genuine damages for genuine wrongs", but rather to obtain an after-the-fact reduction in the purchase price because of HCH's financial and liquidity issues. Paragraphs 8 and 37 of the statement of defence, which are the subject of the present appeal, read as follows:

8 Subsequently, the Plaintiffs commenced these proceedings raising allegations with respect to the very same disclosure and due diligence process under the SPA. Ultimately, the claims advanced by the Plaintiffs in this proceeding are not an effort to recoup genuine damages for genuine wrongs, but rather an effort to seek an after the fact reduction to the agreed upon purchase price established under the SPA for the benefit of itself and its direct and indirect shareholders, and in response to financial and liquidity issues recently and currently experienced by HCH and those shareholders.

37 HCH's recovery efforts resulted, in part, from direct or indirect pressure placed on HCH to recoup portions of the Purchase Price in order to help address financial difficulties caused by extensive management, regulatory, financial, and liquidity issues experienced by HCD in or around this time. Among other things, HCD was involved in disputes with its former Chairman of the Board, President, and controlling shareholder, Mr. Hua Yan, including with respect to alleged debts in the approximate amount of CNY 3,000,000,000 and Mr. Yan's ultimate resignation, and faced multi-month suspensions in the trading of its stocks in or around both April 2017 and October 2017.

(Emphasis added)

The Motion Judge's Decision

[11] The motion judge struck out the underlined portions of the above two paragraphs, without leave to amend. He found the majority of para. 8 to be improper because "[i]t pleads ulterior motive, which is irrelevant to the causes of action asserted in the statement of claim"; it was therefore "frivolous and vexatious within the meaning of rule 25.11": para. 13. He similarly read para. 37 "as a pleading of motive underlying the plaintiffs' issuance of the statement of claim" and "not, on its face, a pleading that relates to causation of the damages or the alleged liquidity problems suffered by Valiant and Turnkey": para. 16.

[12] However, the motion judge refused to strike out other paragraphs from the statement of defence, finding that they addressed the issue of causation -- that any alleged losses suffered by the respondents, and the alleged liquidity crisis, were caused by the respondents' mismanagement and the financial and other demands of the respondents' shareholder: para. 15.

[13] Finally, the motion judge struck out a counterclaim against the respondent Mr. Tony Sauro, the global chief financial officer of the Valiant group of companies and several of its subsidiaries, on the basis that he was not a necessary and proper party to the counterclaim: paras. 18-26. This ruling is not challenged on appeal.

Issues on Appeal

[14] The appellant raises two issues on appeal:

(1) Did the motion err in striking out paras. 8 and 37 of the statement of defence as improper pleas of ulterior motive?

(2) Did the motion judge err in refusing leave to amend?

Analysis

1. Did the motion judge err in striking out paras. 8 and 37 of the statement of defence as improper pleas of ulterior motive?

[15] Rule 25.11(b) provides in relevant part that the court may strike out or expunge all or part of a pleading, with or without leave to amend, on the ground that the pleading is "scandalous, frivolous or vexatious". A fact that is relevant to a cause of action cannot be scandalous, frivolous or vexatious. On the other hand, a pleading that raises irrelevant or superfluous allegations that cannot affect the outcome of an action is scandalous, frivolous or vexatious, and should be struck out: see F. (M.) v. Sutherland, [2000] O.J. No. 2522, 188 D.L.R. (4th) 296 (C.A.), at para. 67; Carney Timber Co. v. Pabedinskas, [2008] O.J. No. 4818, at para. 16. The courts "will not allow any fact to be alleged which is wholly immaterial and can have no effect in the result": Duryea v. Kaufman (1910), 21 O.L.R. 161, [1910] O.J. No. 118 (H.C.J.), at p. 168 O.L.R., cited in F. (M.) v. Sutherland, at para. 71.

[16] The appellant asserts that the motion judge erred in applying these principles to strike out paras. 8 and 37 under rule 25.11(b), for three reasons.

[17] First, the appellant faults the motion judge for citing no authority and claims that "[t]here is no general rule that any pleading touching on motive is necessarily and irredeemably bad".

[18] We do not accept the appellant's submission. We do not read the motion judge as finding that any plea of ulterior motive is necessarily improper. Rather, he found that the plea of ulterior motive in this case is improper because it is irrelevant to the causes of action asserted in the statement of claim: para. 13.

[19] The motion judge's decision is amply supported by authority.

[20] A plaintiff's motive in bringing an action, however allegedly improper, is not in itself a defence to the action: E.O.E. Group Inc. v. Konica Minolta Business Solutions (Canada) Ltd., [2012] O.J. No. 42, 2012 ONSC 197 (Master), at para. 7. A pleading with respect to the plaintiff's motive in bringing an action is generally improper: BMO Nesbitt Burns Inc. v. Shortt, [2013] O.J. No. 1471, 2013 ONSC 1873 (Master), at para. 18. As noted in Davis v. Toronto (City), 1942 CarswellOnt 170 (H.C.), at para. 1, "[a] litigant's private motives will not be enquired into".

[21] However, a plea of ulterior motive, improper intent, or malice in bringing an action may be permitted where the plea is an essential part of a cause of action or defence: see, e.g., Refco Futures (Canada) Ltd. v. Keuroghlian, [2002] O.J. No. 2981, 39 C.P.C. (5th) 344 (S.C.J.), at para. 38; Welch, Anderson & Co. v. Roberts, [1945] O.J. No. 358, [1946] O.W.N. 5 (H.C.J.), at para. 2. Such a pleading may also be permitted if it is otherwise relevant, such as if it bears on a claim of abuse of process: see, e.g., Marineland of Canada Inc. v. Niagara Action for Animals, [2004] O.J. No. 3866, at para. 29.

[22] Here, the motion judge applied these principles correctly. He found that paras. 8 and 37 of the defence plead the respondents' improper motive in bringing the action. As noted, those paragraphs allege that the respondents were not suing in "an effort to recoup genuine damages for genuine wrongs", but rather to obtain an after-the-fact reduction in the purchase price in response to their own financial and liquidity issues. But whether this allegation is true has no bearing on the outcome of this action: either the respondents have a valid claim under the share purchase agreement, or they do not. The improper motive alleged is therefore irrelevant, such that those paragraphs were properly struck out under rule 25.11(b).

[23] Second, the appellant asserts that the motion judge should have refused to strike out paras. 8 and 37 because they are relevant to the respondents' credibility regarding a material fact, namely, the appellant's claim that the respondents suffered from "buyer's remorse".

[24] We do not accept the appellant's submission. Credibility is an issue in almost every action. If improper motive can be said to be relevant to credibility writ large, without being an element of a cause of action or defence, or without otherwise being relevant to an issue in the action, then an ulterior motive would be relevant and could be pleaded in almost every case. That would be inconsistent with the authorities precluding, as a general matter, a plea of improper motive in bringing an action.

[25] Moreover, "buyer's remorse" is a factual conclusion that the court may reach after hearing all the evidence. It is not itself part of a cause of action or defence.

[26] Third, the appellant asserts that para. 37 is relevant to the issue of causation: whether the respondents' alleged losses were caused by its own mismanagement and the internal financial difficulties of HCH and its shareholder, HCD, rather than by any misrepresentations under the share purchase agreement.

[27] We do not accept the appellant's submission. On its face, para. 37 does not address the cause of the respondents' alleged losses, but rather addresses the respondents' alleged ulterior motive in bringing this action. As we have already found, that is an irrelevant plea. As such, it was properly struck out.

2. Did the motion judge err in refusing leave to amend?

[28] Lastly, the appellant asserts that the motion judge should have granted leave to amend paras. 8 and 37. The appellant says that leave to amend should be denied only in the clearest of cases, and that the motion judge erred in refusing leave to amend without explanation. The appellant cites this court's decision in Tran v. University of Western Ontario, [2015] O.J. No. 2185, 2015 ONCA 295, at paras. 26-27, to contend that a party should be allowed to remedy its deficient pleadings, particularly where there have been no prior amendments.

[29] We do not accept the appellant's submission.

[30] A motion judge's decision as to whether to grant leave to amend is discretionary and entitled to deference on appeal, absent palpable and overriding error of fact or error of law: Conway v. Law Society of Upper Canada, [2016] O.J. No. 451, 2016 ONCA 72, 395 D.L.R. (4th) 100, at para. 16. An appellate court should interfere only if the motion judge erred in principle or acted unreasonably in the exercise of their discretion: Grigonis v. Toronto Boardsailing Club, [2010] O.J. No. 4232, 2010 ONCA 651, at para. 5.

[31] Here, the motion judge refused leave to amend because he concluded that the impugned paragraphs of the appellant's defence were scandalous, frivolous or vexatious and disclosed no reasonable defence. In such circumstances, a court is not required to grant leave to amend: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 135 O.R. (3d) 681, [2017] O.J. No. 241, 2017 ONCA 42, at para. 25.

[32] Nor does this court's decision in Tran assist the appellant. In Tran, this court concluded that a statement of claim in which claims had been struck out did plead certain facts capable of supporting those claims. Because no prior amendments had been made, the court found that it was appropriate to grant leave to amend. Here, by contrast, the appellant's plea of ulterior motive is irrelevant and improper, such that it cannot be cured by amendment.

[33] As such, the motion judge did not err in law in refusing leave to amend.

Disposition

[34] For these reasons, the appeal is dismissed, with costs to the respondents in the amount of $15,000, inclusive of HST and disbursements.

Appeal dismissed.

End of Document