Court File and Parties

Court of Appeal for Ontario Date: 2022-07-13 Docket: C70180

Lauwers, Roberts and Nordheimer JJ.A.

BETWEEN

1734966 Ontario Inc. , 1734934 Ontario Inc., 2187195 Ontario Inc., 2137362 Ontario Inc., 1901164 Ontario Inc., and 1340607 Ontario Inc., 2151175 Ontario Inc. , KE Restaurants Inc. Plaintiffs (Appellants)

and

Tortoise Restaurant Group Inc., Turtle Jack’s Marketing Fund Inc., and Tortoise Restaurant Group (2019) Inc. Defendants (Respondents)

and

11554891 Canada Inc. Added Party (Respondent)

Counsel: Daniel J. MacKeigan and Cole Vegso, for the appellants Adrienne Boudreau and Lauren Baker, for the respondents, Tortoise Restaurant Group Inc., Turtle Jack’s Marketing Fund Inc., and Tortoise Restaurant Group (2019) Inc. Eric Mayzel and Jonathan Shepherd, for the respondent, 11554891 Canada Inc.

Heard: May 31, 2022

On appeal from the order of Justice Mohan Sharma of the Superior Court of Justice dated December 6, 2021, with reasons reported at 2021 ONSC 8014, and from the costs order, dated January 17, 2022, with reasons reported at 2022 ONSC 381.

Nordheimer J.A.:

[1] 1734934 Ontario Inc., 2187195 Ontario Inc., 2137362 Ontario Inc., 1901164 Ontario Inc., and KE Restaurants Inc. appeal from the order of the motion judge, who allowed an appeal from the decision of Associate Judge (formerly Master) Donald Short and set aside his order (i) adding 11554891 Canada Inc. as a defendant and (ii) allowing amendments to the statement of claim relating to supplier contributions to an advertising fund and for production of certain documents relating thereto.

[2] For the following reasons, I would dismiss the appeal.

A. Background

[3] The appellants are several Turtle Jack’s restaurant franchisees. They commenced this action in December 2012. They sought an accounting of the advertising fund as required under their franchise agreements and damages for the misuse of those funds. The appellants claim that the respondents, Tortoise Restaurant Group Inc., Turtle Jack’s Marketing Fund Inc., and Tortoise Restaurant Group (2019) Inc., had exclusive control over the advertising fund, its accounting, and the accounting for each of the franchisees’ locations. The appellants further allege that advertising for Turtle Jack’s consisted primarily of in-store promotions to benefit suppliers, which were created, developed, implemented, and paid for by the advertising fund and/or the franchisees.

[4] This action has a tortured history. There have been many disputes over the production of documents. There was also a partial summary judgment motion, which was converted into a summary trial, that was ultimately unsuccessful. Eventually, a trial date of March 16, 2020 was set for ten days. It was marked peremptory.

[5] The appellants sought to adjourn that trial date, ostensibly to complete documentary production, engage in discoveries, and secure expert reports. Justice Darla Wilson heard the adjournment motion and dismissed it: 1734966 Ontario Inc. v. Tortoise Restaurant Group Inc., 2020 ONSC 888. In her endorsement, she was highly critical of the manner in which the action had proceeded.

[6] However, due to the COVID-19 pandemic, the trial was not heard in March 2020 after all. On December 7, 2020, Justice Todd Archibald, at a case conference, gave the appellants permission to bring the motion to amend their claim which is the subject of this appeal.

[7] The motion to amend the plaintiffs’ claim was heard by the Associate Judge on February 25, 2021. His decision was released on April 13, 2021. As I earlier noted, the Associate Judge allowed the motion, permitted amendments to be made to the statement of claim, ordered additional production, and added Tortoise Restaurant Group (2019) Inc. and 11554891 Canada Inc. (“115”) as defendants. Tortoise Restaurant Group (2019) Inc. did not appeal the order adding it as a party.

[8] A new trial date is now fixed for November 14, 2022, for 15 days.

B. The Decisions Below

[9] The motion judge gave detailed reasons for his decision. He dealt with each of the arguments that the respondents advanced regarding the alleged errors in the Associate Judge’s decision, some of which he rejected.

[10] However, the motion judge concluded that the Associate Judge had erred in law by incorrectly describing the test to add a party. In that regard, the Associate Judge had said that r. 5.03(4) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, provided “that any person whose presence as a party is necessary to enable the court to adjudicate effectively and completely on the issues in the proceeding shall be added as a party” (emphasis in original).

[11] While the Associate Judge appears to have taken this language in the subrule as being mandatory, the use of the word “shall” does not appear in the operative portion of r. 5.03(4). Rather, the subrule uses the permissive language of “may” in relation to the court’s jurisdiction to add a party: “The court may order that any person who ought to have been joined as a party or whose presence as a party is necessary to enable the court to adjudicate effectively and completely on the issues in the proceeding shall be added as a party” (emphasis added). The word “shall” only refers to what the court is to order in the result. The determination of whether to add a party remains a discretionary one: see, e.g., Mazzuca v. Silvercreek Pharmacy Ltd. (2001), 2001 8620 (ON CA), 56 O.R. (3d) 768 (C.A.), at paras. 25-30.

[12] The motion judge reviewed the analysis that the Associate Judge had undertaken regarding adding parties. He found that the Associate Judge had considered some relevant factors but had failed to consider others – notably, abuse of process, which was a critical issue in this case. The motion judge found that the Associate Judge had “misapprehended the evidence with respect to 115’s involvement in this action, which raises abuse of process concerns, particularly given this action’s history.”

[13] On that latter point, the respondents had argued that the appellants had waited for over a year to bring the motion and then brought it only a few months before the trial was scheduled to commence. The respondents also relied on the following facts: (i) 115 did not exist during the years of 2008-2018, the years at issue in the trial; (ii) Tortoise Restaurant Group Inc. had acknowledged that it had not transferred liability to 115; it remained fully responsible for claims in this proceeding; and (iii) only two of the appellant franchisees continued to operate at the time of 115’s involvement.

[14] The motion judge found that the Associate Judge had failed to consider these facts in reaching his conclusion to add 115 as a party. He also found that the failure to consider these facts, as they related to the abuse of process factor, “strongly suggest (a) that the [Associate Judge] did not duly consider whether adding 115 was an abuse of process, or (b) that he misapprehended the evidence with respect to this issue.”

[15] The motion judge found that adding 115 as a party would constitute an abuse of process. In particular, he found that it would add unnecessary costs, require further discoveries, and likely result in further motions for production. Ultimately, it was the motion judge’s view that all of this “would add to the already lengthy procedural history of this case and would be disproportionate to the nature of the dispute and the interests involved, given 115’s potential limited liability, if any.”

[16] In terms of the order to permit amendments to the statement of claim, the motion judge found that the Associate Judge had both failed to provide sufficient reasons for his conclusion and misapprehended the evidence in relation to whether to allow the amendments. In particular, the motion judge found that the Associate Judge had failed to consider whether the amendments were actually adding a new claim rather than just particularizing an existing claim. He noted that the Associate Judge had considered this issue in only one paragraph of his reasons.

[17] As a consequence of these errors, the motion judge proceeded to consider the proposed amendments afresh. He found that the claims sought to be advanced were statute-barred since they had been discovered more than two years prior to seeking the amendments to the statement of claim. The motion judge also found, if he was in error on that point, that the proposed claim was not legally tenable. In that regard, the motion judge noted that article 14.03 of the 2012 franchise agreement expressly states that the franchisees have no claim to monies paid by suppliers to the franchisor.

[18] Lastly, on this point, the motion judge found that permitting the amendments would also constitute an abuse of process, even if they were not statute-barred. On that point, he noted that (i) it would be the sixth time that the appellants had amended their pleading; (ii) the appellants had known of this issue since at least 2016, but the motion was brought just months before an upcoming trial date; and (iii) the number of court attendances in this case “strongly suggest that ‘enough is enough’ and it is time to get on with this trial.”

[19] In light of the errors he found, the motion judge allowed the appeal and set aside the Associate Judge’s order that added 115 as a party and permitted the amendments, along with the production of related documents.

[20] The motion judge ordered the appellants to pay costs of the appeal and the underlying motion to Tortoise Restaurant Group Inc., Tortoise Restaurant Group (2019) Inc., and Turtle Jack’s Marketing Fund Inc. collectively, as well as to 115.

C. Issues on Appeal

[21] The appellants argue that the motion judge erred in: (i) finding 115 was not a necessary party and that adding it to the proceedings would be an abuse of process; (ii) concluding that the supplier contribution amendments were not tenable, statute-barred, and an abuse of process, and that the related productions were therefore not relevant; and (iii) awarding costs of the motion to Tortoise Restaurant Group Inc., Tortoise Restaurant Group (2019) Inc., and Turtle Jack’s Marketing Fund Inc.

D. Analysis

(1) Addition of 115 as a party

[22] I am in general agreement with the analysis undertaken by the motion judge. In terms of the order adding 115 as a party, I agree with the motion judge that it amounts to an abuse of process. The potential liability of 115 to the appellants is dubious, at best. Adding 115 as a party would further delay and complicate a proceeding that has already been significantly delayed in getting to trial. In that regard, I share Justice Wilson’s view that the manner in which this case has wended its way through the justice system over the prior seven (now almost ten) years is “nothing short of disgraceful.”

[23] On that point, I do not accept the appellants’ complaint that the motion judge failed to assess which parties delayed the case or to what extent. The motion judge was not required to embark on the civil equivalent of the detailed analysis undertaken in criminal proceedings when considering whether delay breaches an accused person’s right to trial within a reasonable time under s. 11(b) of the Canadian Charter of Rights and Freedoms. It is unnecessary to allocate delay between the parties since all parties in a civil proceeding bear responsibility for moving the action forward in a timely fashion. While this is also true in a criminal proceeding, unlike in a criminal proceeding, all delay in a civil proceeding is relevant, regardless of its source. It is not just Crown delay or institutional delay that matters.

[24] That being said, in a civil proceeding, the plaintiff bears the principal responsibility for advancing the case since it is the plaintiff who commences the action and it is the plaintiff’s claim that is to be adjudicated. In that regard, this is not an overly complicated action, nor does it involve a lengthy trial. For example, the original trial date was set for only ten days, to be completed by way of summary trial. The fact that we are now approaching the tenth anniversary of the commencement of the action is, by itself, a sufficient reason to find inordinate delay.

[25] Further, I do not accept that the appellants will suffer the degree of prejudice that they claim they will if 115 is not added as a party. The nature of the claim advanced does not directly relate to 115. Rather, it appears that 115 is only sought to be added as a possible additional source for payment of any judgment that the appellants might obtain. This raises concerns about whether the motivation for adding 115 is an abuse of process: Plante v. Industrial Alliance Life Insurance Co. (2003), 2003 64295 (ON SC), 66 O.R. (3d) 74 (S.C.), at para. 27. This is not a judgment enforcement proceeding. On that point, with respect, the Associate Judge’s reliance on Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 8538 (ON CA), 54 O.R. (3d) 161 (C.A.), leave to appeal refused, [2002] S.C.C.A. No. 397, seems entirely misplaced.

[26] Additionally, the basis for the claim against 115 is dubious, as the motion judge noted. Article 9.01 of the 2012 franchise agreement provides:

The Franchisor may assign any or all of its rights arising from this Agreement, provided that the assignee agrees in writing to assume all obligations undertaken by the Franchisor herein relating to the rights so assigned. Upon such assignment and assumption, the Franchisor shall be relieved of all further liability hereunder.

[27] Counsel for the appellants confirmed to us at the hearing that 115 never executed a written agreement to assume all obligations of the franchisor. The appellants argue that that failure, in some fashion, allows them to make a claim against 115. I view that as a doubtful proposition. It would seem, rather, that it simply affects the franchisor’s ability to argue that it is relieved of liability to the franchisees. In any event, that issue does not need to be determined here. It merely reinforces the fact that adding 115 as a party to this action, given the nature of the claim, is not necessary to properly adjudicate the core of the appellants’ claims.

[28] I also do not accept the appellants’ claim that failing to add 115 will result in “unnecessary legal costs, duplicative proceedings, risks of inconsistent findings, estoppel, prejudice, and delays”. Given the limited involvement of 115 in these matters, the legal costs of a separate proceeding against it will not be sufficiently different from the legal costs associated with pursuing the claim in this proceeding. I also do not see the basis for a suggestion that there could be inconsistent findings, nor do I see the application of the estoppel principle or any degree of prejudice. The fact that Tortoise Restaurant Group (2019) Inc. did not appeal the order adding it as a party does not change that analysis. I do accept that there would then possibly be two proceedings instead of one and that the second proceeding will be subsequent to this proceeding. However, those considerations have to be matched against the possibility that the appellants will not succeed in this action, in which case there will be no claim against 115, and the delay that will be occasioned in getting the main claim determined.

(2) Amendments to the statement of claim

[29] On the issue of the amendments to the statement of claim, the appellants’ contention that they are merely particularizing their existing claims does not withstand scrutiny. A comparison of the existing statement of claim with the proposed amended statement of claim reveals that, in fact, the appellants are attempting to add entirely new claims.

[30] For example, in the existing statement of claim, with respect to the advertising fund, the appellants claim “damages in the amount of $5,000,000 for loss of profits as a result of the improper and/or misuse of Advertising Fund contributions”. In the proposed amended statement of claim, the appellants’ claim regarding the advertising fund is, in addition to adding claims for an accounting and various declarations, for “damages in the amount of $20,000,000 for breach of contract, breach of duty to act in good faith, breach of the duty of fair dealing, misuse of Advertising Contributions for supplier promotions and co-branding and loss of profits, payable to the Plaintiffs”.

[31] Further, in the proposed amended statement of claim, the appellants now allege a “further express or implied obligation under the franchise agreements, and duty to deal fairly” in respect of advertising contributions “whether received from suppliers or franchisees”. There are then allegations made regarding breaches of the franchise agreement and breaches of the duty to deal fairly, again in relation to supplier promotions, none of which appear in the existing statement of claim.

[32] The fact is that the appellants are seeking to add new claims to the existing statement of claim. The motion judge was correct in holding that the Associate Judge had failed to consider this issue and, further, had failed, as a consequence, to determine if these new claims were statute-barred. Further still, the Associate Judge failed to consider whether allowing new claims to be added, at this late juncture, constituted an abuse of process.

[33] The motion judge was correct in finding that the Associate Judge erred in not considering these issues. He was also correct in proceeding to consider the proposed amendments afresh and with the proper factors in mind. In that regard, I agree with the motion judge’s conclusion that the claims are statute-barred. The appellants were aware of the facts underlying these claims more than two years prior to bringing the motion to amend. On that point, I note that the expiry of a limitation period is one form of non-compensable prejudice: Klassen v. Beausoleil, 2019 ONCA 407, 34 C.P.C. (8th) 180, at para. 26. Further, it is a basic principle that 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: Klassen, at para. 26.

[34] In any event, to permit such amendments in these circumstances would amount to an abuse of process, for the reasons expressed by the motion judge. A court retains the discretion not to permit amendments that constitute an abuse of process: Belsat Video Marketing Inc. v. Astral Communications Inc. et al. (1999), 1999 1092 (ON CA), 118 O.A.C. 105 (C.A.), at paras. 3-4.

[35] It follows from the conclusion that the amendments ought not to be allowed that the order requiring production of documents relating to those proposed claims had to be set aside.

(3) Costs below

[36] I would not grant leave to appeal costs.

[37] The appellants have not shown that the motion judge made an error in principle or that the costs award is plainly wrong: Hamilton v. Open Window Bakery, 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27. As the motion judge noted, the appellants were “entirely successful in the result” on appeal. As such, they were entitled to their costs of the motion below: St. Jean v. Cheung, 2009 ONCA 9, 45 E.T.R. (3d) 171, at paras. 4-5.

E. Conclusion

[38] I would dismiss the appeal. The respondents, Tortoise Restaurant Group Inc., Turtle Jack’s Marketing Fund Inc., and Tortoise Restaurant Group (2019) Inc. are entitled to their costs of the appeal, which I fix in the amount of $15,000, inclusive of disbursements and H.S.T. The respondent, 115, is entitled to its costs of the appeal, which I fix in the amount of $9,600, inclusive of disbursements and H.S.T.

Released: July 13, 2022 “P.D.L.” “I.V.B. Nordheimer J.A.” “I agree. P. Lauwers J.A.” “I agree. L.B. Roberts J.A.”