COURT FILE NO.: CV-11-419288
DATE: 20120411
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
EWART BROWN and DERRICK V. BURGESS
Plaintiffs
– and –
SAM SPAGNUOLO and LAWRENCE BRADY
Defendants
Charles F. Scott & Christine Muir, for the Plaintiffs (moving parties)
Sarah Shody, for the Defendant, Sam Spagnuolo (responding party)
No one appeared for the Defendant, Lawrence Brady
HEARD: March 28, 2012
LEDERER J.:
[1] This is a motion to strike certain paragraphs of a Statement of Defence.
Introduction
[2] Typically, one would expect that such a motion would be brought pursuant to Rule 25.11 of the Rules of Civil of Procedure and heard by a Master. Under this rule, pleadings that (a) are prejudicial or will delay a fair trial; (b) are scandalous, frivolous or vexatious; or, (c) are an abuse of process, may be struck. This rule runs to the specifics of the pleading. Are the facts referred to irrelevant or immaterial? Are they argumentative and inserted for colour that is prejudicial? The rule is relied on for this motion, but counsel for the plaintiffs (the moving parties) made it clear that the core of his argument is founded on Rule 21.01(1)(b). It addresses the broader and purely legal question of whether the pleading accomplishes its purpose. If it is a Statement of Claim, does it disclose a reasonable cause of action? If it is a Statement of Defence, does it disclose a reasonable defence? A motion brought pursuant to this rule must be heard by a judge. The Court of Appeal has directed that, on motions made under Rule 21, only part of a pleading be struck (see: Dynasty Furniture Manufacturing Ltd. v. Toronto-Dominion Bank 2010 ONCA 514 at paras. 4, 5 and 10; and Heaslip Estate v. Ontario, 2009 ONCA 594 at para. 35).
Background
[3] In this case, the plaintiffs allege that they were defamed. They were, and in the case of Derrick V. Burgess, remain senior members of the government of Bermuda. At the material time, Ewart F. Brown was Premier and Derrick V. Burgess was Minister of Works and Engineering. At present, Derrick V. Burgess is Deputy Premier and Minister of Public Works. The defendant, Sam Spagnuolo, was a Project Architect and Senior Associate with the architecture firm of Carruthers, Shaw and Partners (“CS&P”). Sam Spagnuolo resides, and CS&P is located, in Toronto. In 2007, tenders were called for the construction of a new courthouse and police headquarters to be located in Hamilton, Bermuda. CS&P was the original architect. The contract to construct the building was awarded to Landmark Lisgar Construction, a Bermudian-Canadian joint venture, and, after the Canadian partner withdrew, was taken over by LLC Bermuda Ltd. (referred to collectively as “Landmark Lisgar”). As the administrator of the contract, CS&P was responsible for overseeing and approving payments to be made to Landmark Lisgar. Sam Spagnuolo was the architect most involved in the project. The approvals for payment relied on packages of documentation, referred to as draw-downs. The draw-downs supported the payments, made by Landmark Lisgar, that were being submitted for reimbursement. They included copies of the cheques that had been paid by Landmark Lisgar to its sub-contractors. In late 2008, CS&P began to refuse to approve payments submitted by Landmark Lisgar. On December 2, 2008, CS&P was terminated and removed from the project.
[4] In late 2008 and early 2009, copies of two “purported cheques” relating to the project were discovered in the files of the responsible Ministry. These “purported cheques” were altered copies of legitimate cheques drawn on the bank account of Landmark Lisgar and paid to suppliers and vendors to the project. The altered copies of the cheques had been falsely manipulated so as to appear to be payable to “Dr. E. Brown” and “D. Burgess”. In this action, the plaintiffs allege that Sam Spagnuolo created the false cheques, was part of a conspiracy to plant the cheques in the files of the Ministry and to ensure they would come to public attention. It is said that the cheques defamed the plaintiffs.
[5] Counsel advised the court that it is generally accepted and acknowledged that the cheques are false.
[6] In the Statement of Defence, Sam Spagnuolo pleads that he did not falsify or disseminate the cheques.
The impugned paragraphs
[7] By this motion, the plaintiffs seek to strike out two separate groups of paragraphs (paragraphs 13 to 16 and paragraphs 22 to 37) found in the Statement of Defence that they say disclose no reasonable defence to this action, contain no material facts, are irrelevant and likely to prejudice and delay the fair trial of this action, are scandalous, frivolous and/or vexatious, and an abuse of the court process. In so doing, the plaintiffs encompass the considerations raised by both Rule 21.01(1)(b) and Rule 25.11.
[8] The first group, paragraphs 13 to 16, generally refer to allegations concerning what transpired during the course of the tender process that led to the selection of Landmark Lisgar. These paragraphs suggest Landmark Lisgar was:
- selected despite its bid being incomplete;
- had performed poorly in the past; and,
- had limited experience.
[9] The paragraphs allege that based, among other factors, on Landmark Lisgar’s lack of prior experience and poor performance history, CS&P recommended that the contract should be awarded to another bidder. Contrary to the recommendation of CS&P, the contract was awarded to Landmark Lisgar.
[10] The second group, paragraphs 22 to 37, generally refer to allegations of problems on the job and with the processing of requests for payments made by Landmark Lisgar. The Statement of Defence pleads that these problems began even before the contract was finalized. Landmark Lisgar complained that it was being required to follow what the pleading refers to as “ususal and customary administrative processes…, such as providing the schedules required in the Project specifications and following shop drawing review procedures”. In November 2007, it is alleged that Landmark Lisgar requested an advance of approximately $3,000,000 to $4,000,000 for mobilization. CS&P, with the defendant, Lawrence Brady, declined the request subject to reconsideration after Landmark Lisgar provided a list itemizing what would be ordered with these funds. The Statement of Defence says that the list was never provided.
[11] In this group of paragraphs, it is alleged that there were serious concerns with the work of Landmark Lisgar in that:
- it did not obtain a performance bond in Bermuda, as the contract required;
- it entered into a contract for excavation where the price was well beyond the appropriate market costs for the services of the subcontractor;
- during the early phase of excavation, it was unable to handle soft soil conditions which had been identified in the tender documents;
- with a local engineering firm, it eliminated some of the piling required to support the project, contrary to the views of CS&P and the subcontractor who had developed the structural design;
- it constructed an elevator core for the project, then one-storey high, which was not properly founded and had to be removed;
- it approached Derrick V. Burgess directly to request that the requirement to waterproof the outside of the tank be deleted from the project specifications and to request that funds be released to it despite little progress and a scaling back of specifications; and,
- it submitted inappropriate expenses and charges for reimbursement throughout the project. Its draw-downs frequently contain copies of documents that had been submitted in previous requests for payment.
[12] In the Statement of Defence, it is said that Landmark Lisgar blamed CS&P and its subcontractors for its problems on the project. In the Statement of Defence, it is alleged that Sam Spagnuolo would not certify amounts he found to be inappropriate for reimbursement and would often confirm lesser amounts than were sought by Landmark Lisgar. The engineer of record identified numerous issues with the work that had been done. It determined that Landmark Lismark had not performed in accordance with the contract and directed that work be removed. It is said that this essentially required Landmark Lisgar to re-start the project at its own cost. According to the defendant, in response to some of these problems, Landmark Lisgar went directly to the government. Often throughout the project, Certificates of Payment issued by CS&P were overruled by the Ministry and payments made to Landmark Lisgar for an amount above that which was certified. Landmark Lisgar approached the plaintiff, Derrick V. Burgess, directly with payment and other requests. This was done without consulting CS&P or otherwise following the approved and required processes. Recommendations made by CS&P to refuse the release of funds to Landmark Lisgar and to refuse amendments to the specifications sought by Landmark Lisgar were overruled. The money was paid and changes made as requested by Landmark Lisgar.
[13] In short, the counsel for the plaintiffs submitted that none of this can reflect on whether or not Sam Spagnuolo altered the cheques, disseminated them or ensured that they came to public attention. The manner of selection and the competence of the company chosen to complete the project are not material to those issues. Counsel says the allegations contained in these paragraphs are intended to create a false context and colour, disclose no reasonable defence and, on this basis, should be struck.
Analysis
[14] Counsel for the plaintiffs readily conceded the test is a high one. It must be plain and obvious that the pleading does not disclose a reasonable defence. A Statement of Defence will be subject to a motion to strike if the defendant is unable to establish a defence disentitling the plaintiff from the relief sought, assuming the facts alleged in the defence are true. A pleading that: “demonstrates a complete absence of material facts will be declared to be frivolous and vexatious. Similarly, portions of pleadings that are irrelevant, argumentative or inserted for color, or that constitute bare allegations should be struck out as scandalous. The same applies to a document that contains only argument and includes unfounded and inflammatory attacks on the integrity of a party…” (see: George v. Harris (2000), 97 A.C.W.S. (3d) 225, 2000 CarswellOnt 1714 (S.C.) at para. 20).
[15] In Quizno’s Canada Restaurant v. Kileel Developments Ltd. (2008), 2008 ONCA 644, 92 O.R. (3d) 347, the Court of appeal has provided guidance as to the parameters to be applied on these motions. The case was part of a larger battle between a franchisor and a number of its franchisees. The decision is driven by the determination of a motions judge that certain paragraphs of a Statement of Defence should be struck out, not because they were irrelevant, but because, as she saw it, the prejudice associated with them outweighed their probative value. The Court of Appeal observed:
Pleadings are not the appropriate stage in an action to engage at large in what is essentially a trial judge's exercise for determining the admissibility of evidence at trial – i.e., weighing the probative value versus prejudice of facts. That exercise is not particularly well-suited to defining issues for trial, something which is for the parties to decide. … A fair trial requires that the defendant be able to put forward a ‘full’ defence, not – as the motion judge erroneously concluded – a ‘reasonable’ defence defined in advance by the plaintiff and the court.
A defendant is entitled to plead whatever material facts it chooses to in response to a plaintiff's allegations, provided the allegations are relevant and of at least marginal probative value and their probative value is not outweighed by their prejudicial effect. While the court will look at ‘[the extent to which] the particulars attacked are necessary to enable the defendant to prove its case,’ it is not for the court to prove the case at this stage and limit the allegations to what it considers a ‘reasonable defence’.
A plaintiff cannot claim to be prejudiced when the defendant’s allegations are directly responsive to allegations made in its statement of claim.
(Quizno’s Canada Restaurant v. Kileel Developments Ltd., supra, at paras. 16, 23 and 29)
[16] A key element in the case pleaded against Sam Spagnuolo is fraud:
…fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. ...
(Derry v. Peek, [1886-1890] All E.R. Rep. 1 (H.L.); adopted in Vale v. Sun Life Assurance Co. of Canada, 1998 CanLII 14823 (ON SC), [1998] O.J. No. 6465 (Gen. Div.) at para. 18 (Q.L.); and, Gregory v. Jolley, 2001 CanLII 4324 (ON CA), [2001] O.J. No. 2313 (C.A.), at para. 15 and quoted in Canada v. Granitile Inc., 2008 CanLII 63568 (ON SC), at para. 286)
[17] In this case, it is alleged that Sam Spagnuolo knowingly falsified the cheques, arranged for them to be placed in the files of the government and to be discovered.
[18] Whatever information is forthcoming at trial, it is unlikely that anyone will appear and testify that they were present when the false cheques were created or placed in the draw-down files. Fraud is not, as a rule, implemented in the presence of bystanders. It may be that there will be forensic evidence that will point to the person responsible for the false cheques. Be that as it may, the courts allow that fraud can be found based on circumstantial or inferential evidence:
The respondents would thus seem to contend, indirectly or at least, that the courts cannot find fraud unless it be directly proved. But, for obvious reasons, this proposition is untenable.
There would be very little protection against fraud if such was the law. Those who intend to defraud do all in their power to conceal their intent.
Their acts could not defraud if they were not clothed with the garb of honesty. A maxim of the criminal law, based on the same principle, is that the guilt of the accused is never to be presumed. But that does not mean that a criminal shall not be convicted if he has not taken a witness for his crime.
It is likewise, as a general rule, only by presumptions and circumstantial or inferential evidence that dishonesty can be proved.
(North British & Mercantile Insurance Co. v. Tourville (1895), 1895 CanLII 68 (SCC), 25 S.C.R. 177, at paras. 7-9 and quoted in Canada v. Granitile Inc., at para. 291
[19] In their factum, counsel for the plaintiffs note that “rather than asserting any of the usual defences to a claim of defamation, such as justification or fair comment, Spagnuolo pleads only that he did not falsify and disseminate the cheques.” This is hardly surprising. Practically speaking, there can be no other defence. It is not possible to “justify” fraud or to suggest that a fraud resulted in “fair comment”. Just as fraud can be proven through circumstantial or inferential evidence, so it must be that it can be defended on the same basis.
[20] The Statement of Claim alleges that: “Spagnuolo created and disseminated the false cheques.” From what is this drawn? It relies on allegations that, if proven, would serve to demonstrate that the file, in which the cheques were discovered, had been in the possession of Sam Spagnuolo and was received, from him, by officials of the government. It relies on allegations that, if proven, would serve to suggest that Sam Spagnuolo sought to create an aura of scandal and controversy involving the plaintiffs. It relies on allegations that, if proven, would suggest Sam Spagnuolo sought retribution as a result of the termination that occurred.
[21] The plaintiffs seek to have these things contribute to an inference that the cheques were prepared and disseminated by or under the direction of Sam Spagnuolo in order to demonstrate that the plaintiffs are dishonest and received “kickbacks” from Landmark Lisgar.
[22] In my view, the impugned paragraphs are responsive to inferences and conclusions raised in the Statement of Claim. Sam Spagnuolo seeks to defend the action by reviewing the conduct of CS&P and its relationship with Landmark Lisgar and the Government of Bermuda. This may suggest that there are other inferences to be drawn leading to a submission that the plaintiffs have failed, on a balance of probabilities, to prove that it was Sam Spagnuolo who created the false cheques. The impugned paragraphs, if proven, would suggest that the difficulties with the project, including the selection of Landmark Lisgar, and the work it carried out or was responsible for, were caused by Landmark Lisgar. This could lead to an inference that the government, by overruling recommendations of its architect, was a source of problems with the project. These paragraphs, if proven, could demonstrate that this difficult situation was dealt with by Sam Spagnuolo in a professional and responsible manner. It may be that this will lead to an understanding that, even as it was decided that CS&P’s role in the project was to be terminated, the parties each understood what had occurred and that there was no reason for CS&P to seek retribution and that, whoever caused the false cheques to be created, it was not established to be Sam Spagnuolo.
[23] The Statement of Defence pleads facts that demonstrate how CS&P came to be terminated from the project. It was as a result of long-standing difficulties with the project among CS&P, Landmark Lisgar and the government of Bermuda. The Statement of Defence says that, in the end, it was a termination that was agreeable to both CS&P and the government.
[24] The first of the two groups of paragraphs that the plaintiffs seek to have struck out (paragraphs 13 to 16) set out how the construction contract was awarded to Landmark Lisgar, contrary to the recommendations of CS&P. The second group of paragraphs the plaintiffs seek to strike out (paragraphs 22 to 37) deal with issues concerning the draw-down of payments that persisted throughout the project. They indicate that CS&P was often overruled by the government of Bermuda on its decisions with respect to payment. These paragraphs provide particulars of the issues which formed the conflict between CS&P and Landmark Lisgar and led to the termination.
[25] I should point out that there are two places within these paragraphs which counsel for the defendant concedes should be struck. This refers to paragraph 16 and the second sentence of paragraph 35. These refer to the appointment of two people related to the plaintiffs as silent, non-voting partners of Landmark Lisgar and to the appointment, as construction consultant, of a person who had been the best man at the wedding of one of the two plaintiffs.
[26] Finally, it was submitted that, failing to strike out the paragraphs to which the plaintiffs object, would unduly complicate the action as a whole. This is not a reason to strike relevant portions of a Statement of Defence:
While it will be more than likely that the inclusion of the impugned pleadings will increase the scope of discovery and result in a more complex, lengthy and costly trial, that alone is not a reason to strike a pleading that contains facts that are otherwise relevant and of potential probative value.
(National Public Relations Inc. v. Hill & Knowlton Canada Ltd. 2010 CarswellOnt 9570 (S.C.J.) at para. 20)
[27] To my mind, the paragraphs in question are relevant and have potential probative value. Counsel for the plaintiffs expressed the concern that this will lead to a full inquiry into each of the issues raised within these paragraphs. This ought not to be so. These matters are pertinent only insofar as they can contribute to the issues raised in this proceeding. It may be that the appropriate parameters can be found through the cooperation of counsel but, if not, the question of what part of this history is probative to the issues in this action may be raised in the course of any examination-for-discovery and, again, at trial.
[28] To be the victim of fraud, particularly in a public context, is a difficult and sensitive matter. To be accused of being the perpetrator is no less serious. The parties should be permitted the full breadth of pleading allowed by the Rules of Civil Procedure even if it causes some hardship in the course of the proceeding.
Conclusion
[29] Paragraph 16 and the second sentence of paragraph 35 of the Statement of Defence are struck. The remainder of the motion is dismissed.
Costs
[30] No submissions were made as to costs. If the parties are unable to agree, I will consider written submissions on the following terms:
On behalf of the defendant, Sam Spagnuolo, no later than fifteen days after the release of these reasons. Such submissions are to be no longer than four pages, double-spaced, exclusive of any Bill of Costs, Costs Outline or case law that may be filed;
On behalf of the plaintiff, no later than ten days thereafter. Such submissions are to be no longer than four pages, double-spaced, exclusive of any Bill of Costs, Costs Outline or case law that may be filed; and,
On behalf of the defendant, Sam Spagnuolo, in reply, no later than five days thereafter. Such submissions are to be no longer than two pages, double- spaced.
LEDERER J.
Released: 20120411
COURT FILE NO.: CV-11-419288
DATE: 20120411
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
EWART BROWN and DERRICK V. BURGESS
Plaintiffs
– and –
SAM SPAGNUOLO and LAWRENCE BRADY
Defendants
JUDGMENT
LEDERER J.
Released: 20120411