SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 07-CV-326818PD 3
MOTION HEARD: October 21, 2011 and February 15, 2012

RE: James Rathbun

v.

Sinclair Stevens, Noreen Stevens and Stevens & Stevens

BEFORE: Master Thomas Hawkins

COUNSEL:
Alan B. Merskey
for moving plaintiff
Fax No.: 416-216-3930

Brian N. Radnoff
for responding defendants
Fax No.: 416-867-2412

REASONS FOR DECISION

[1] This is a motion by the plaintiff for leave under rule 26.01 to amend the statement of claim in terms of the draft fresh as amended statement of claim found at tab 1A of the plaintiff’s motion record.

[2] Rule 26.01 provides as follows:

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.

[3] Rule 26.01 contains a reverse onus in favour of granting leave to amend a pleading.

[4] The defendants have agreed that the plaintiff may have leave to amend the statement of claim in terms of the amendments proposed in paragraphs 9, 17, 22, 24, 29, 37 and 40 of the draft fresh as amended statement of claim. So ordered.

[5] The defendants’ first objection is that the plaintiff has set this action down for trial and therefore needs leave under subrule 48.01 (1) to bring this motion.

[6] Subrule 48.04 (1) provides as follows:

Any party who has set an action down for trial and any party who has consented to the action being placed on trial list shall not initiate or continue any motion or form of discovery without leave of the court.

[7] I do not agree that the plaintiff requires leave to bring this motion. Rule 26.01 expressly provides that a motion for leave to amend a pleading may be brought “at any stage of an action”. Rule 26.01, when read with rule 1.04 and rule 2.01 supercedes subrule 48.04(1). See Vladetic v. Silvestri (1990), 42 C.P.C. (2d) 254 (Ont. H.C. per Philp J.)

[8] The plaintiff seeks an order under rule 25.11 striking out portions of the responding affidavit of the defendant Noreen Stevens. Rule 25.11 provides as follows:

The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(a) may prejudice or delay the fair trial of the action;

(b) is scandalous, frivolous or vexations; or

(c) is an abuse of the process of the court

[9] Plaintiff’s counsel submits that portions of Noreen Stevens’ affidavit offend rule 24.1.14 and should be struck out.

[10] I agree that clause 3(e), paragraph 18 third sentence and paragraph 66 third sentence are contrary to rule 24.1.14 in that they disclose communications at the mediation of this action. They are therefore struck out. Rule 24.1.14 provides as follows:

All communications at a mediation session and the mediator’s notes and records shall be deemed to be without prejudice settlement discussions.

[11] The plaintiff also seeks an order striking out paragraphs 22 to 58, 60, and 62 to 65 of Noreen Sinclair’s affidavit. Paragraphs 22 to 53, 56, 60, 62, 63 and 65 of that affidavit deal with the truth or falsity of allegations in the proposed amended statement of claim. Generally speaking, on a motion for leave to amend a pleading the court is not concerned with the truth or falsity of the proposed amendments. .

[12] In A.H.A. Automotive Technologies Corp. v. 589348 Ontario Ltd. (1985), 3 CPC (2d) 9 Clark, M. said (at page 12) that on a motion for leave to amend a pleading the court should not conduct a mini-trial for the purpose of determining whether a proposed amendment is true or false.

[13] I decline to strike out these paragraphs of Noreen Sinclair’s affidavit. However, consistent with the principle laid down in A.H.A. Automotive , I will disregard the challenged paragraphs of her affidavit and not conduct a min-trial to determine if the proposed amendments to the statement of claim are true or false.

[14] One exception to the principle that on a motion for leave to amend a pleading the court is not concerned with the truth or falsity of proposed amendments is the situation where the disparity between sworn evidence of the moving party and the proposed amendments is such that the proposed amendments amount to an abuse of process

[15] In Tarkalas v. Zographos , 2008 46158 (ON SCDC) , [2008] O.J. No. 1047 Kitely J. expressed herself as follows at paragraphs 26 to 28.

26 Counsel for the appellant agreed that the Master may evaluate whether or not the amendments disclose a reasonable, or tenable cause of action. However, counsel argued that the evaluation must be made on the basis of the pleadings themselves, and not on the underlying evidence which may or may not support that pleading. In this case, counsel asserted that the Master erred in paragraph 31 by framing the issue as “whether to permit an amendment that flies in the face of the plaintiff’s evidence, evidence already relied on by her to obtain relief”.

27 I do not agree that framing the issue in that way was an error. The plaintiff had given evidence under oath in support of a CPL; she had been the beneficiary of an order granting the CPL; she had taken advantage of that order for years; and that evidence was inconsistent with the amendment she was proposing. The Master was not “weighing the evidence, interpreting controversial contractual provisions and making findings of fact”. She was relying on evidence by the plaintiff in which two inconsistent versions were advanced. Given the uniqueness of this case, as was observed by the Master, she was looking at whether there was a prima facie meritorious case set forth in the original pleading and the proposed amended pleading. Given the original pleading in March 2000 which had been confirmed in an affidavit and the proposed pleading in December 2005 which had also been confirmed in an affidavit, the two were incompatible.

28 There are occasions when advancing legal and factual theories in the alternative constitutes a tenable pleading, such as where the plaintiff succeeded in amending her statement of claim by adding a legal theory of quantum merit in addition to the original claim for breach of contract, both claims for relief derived from essentially the same factual allegations. Such alternative pleading is anticipated by rule 25.06(4). However, there are occasions when advancing legal and factual theories in the alternative is not tenable. The Master was correct in her conclusion at paragraph 42 that the fundamental inconsistency in the plaintiff’s positions meant that this was one such occasion. The proposed amended pleading, in this case, could not support a successful claim. As Rosenberg J. said in Vaiman v. Yates, this proposed pleading contained a fatal flaw. I agree that the Master was correct in her conclusion that the court ought to refrain from giving its endorsement to conduct that is clearly questionable.

[16] Paragraph 35 of the statement of claim is one of the paragraphs which the plaintiff proposes to amend as follows:

From time to time Rathbun has sought information from Sinclair Stevens and Noreen Stevens in their capacity as … his financial advisors.

[17] Defence counsel took me to questions 159, 160 and 164, to 166 on the plaintiff’s examination for discovery. There the plaintiff testified that he never met Noreen Stevens prior to his examination for discovery on July 21, 2008, that he spoken to Noreen Stevens by telephone only once in 2004 or 2005, and that he never looked to Noreen Stevens for any information or advice with respect to the investments at issue in this action. Plaintiff’s counsel took me to questions 911 to 918 on the plaintiff’s examination. There the plaintiff summarized a brief conversation he had with Noreen Stevens. However it is clear from the plaintiff’s summary of this conversation that Noreen Stevens did not give the plaintiff any financial or investment advice during this conversation.

[18] In my view, there is such a disparity between the plaintiff’s sworn testimony on his examination for discovery in this action and the proposed amendment to paragraph 35 of the statement of claim that it would be an abuse of process to grant the plaintiff leave to amend paragraph 35 as asked. I therefore decline to give the plaintiff leave to amend the statement of claim to allege that he sought information from Noreen Stevens in her capacity as the plaintiff’s financial advisor.

[19] Finally, I note that although the statement of claim amended as proposed alleges that the plaintiff sought information from Noreen Stevens in her capacity as the plaintiff’s financial advisor, the plaintiff does not allege that Noreen Stevens ever actually gave the plaintiff any financial advice at all, let alone financial advice that caused him to suffer some loss.

[20] Defence counsel launched a similar attack on allegations in the proposed amended statement of claim that the defendants or one or more of them acted as the plaintiff’s legal counsel in connection with the investments which are the subject matter of this action. Some of these allegations appeared in the original statement of claim and are not amended in the proposed amended statement of claim. In that sense these unamended allegations are not before me on this motion.

[21] However, proposed paragraph 22 is an amendment and is thus before me on this motion. There the plaintiff proposes to allege as follows:

Rathbun knew and understood that Stevens & Stevens acted as his legal counsel in connection with this transaction. Stevens & Stevens owed Rathbun a fiduciary duty and a duty of care.

[22] Here again, defence counsel submitted that there is such a disparity between this proposed allegation and the plaintiff’s sworn evidence on his examination for discovery that the proposed amendments in paragraph 22 amount to an abuse of process with the result that leave to amend in terms of this paragraph should be denied.

[23] When examined for discovery the plaintiff testified at question 222 that he had no official retainer agreement with Stevens & Stevens, and at questions 241 to 244 that none of the defendants ever sent him a bill. In my view, this evidence does not preclude the possibility of there being a lawyer/client relationship between the plaintiff and one or more of the defendants. I am therefore of the opinion that proposed paragraph 22 is not an abuse of process.

[24] Next, defence counsel submits that the proposed amended statement of claim raises new causes of action in negligence and participating in a breach of trust which are not properly pleaded.

[25] The word “negligence” appears only once in the proposed amended statement of claim, namely in paragraph 1(a). The phrase “duty of care” appears in paragraphs 22, 23, 33 and 42 of the proposed amended statement of claim. However, nowhere does the plaintiff allege what exactly was the nature of that duty of care.

[26] The proposed amended statement of claim does not set forth proper particulars of the claim in negligence. Reduced to its essentials, negligence comprises a duty of care of some particular kind owed by a defendant to a plaintiff, breach of that duty by the defendant, and consequent harm to the plaintiff.

[27] In his proposed amended statement of claim the plaintiff does not allege the nature of the duty of care which one or more of the defendants owed to the plaintiff, what one or more of the defendants did or failed to do that resulted in a breach of that duty of care, or when this occurred.

[28] Subrule 25.06(2) provides as follows:

A party may raise any point of law in a pleading but conclusions of law may be pleaded only if the material facts supporting them are pleaded.

[29] The allegations that one or more of the defendants owed the plaintiff a duty of care are allegations of conclusions of law without all the necessary material facts. These allegations therefore do not comply with subrule 25.06(2). I therefore deny the plaintiff leave to amend to raise a claim in negligence and the related duty of care amendments in proposed paragraphs 1(a), 22, 23, 33 and 42.

[30] In my view the allegations of breach of trust and participating in a breach of trust appearing in the proposed amended statement of claim suffer from the same defects as the allegations of negligence and duty of care. I shall assume that an allegation that a defendant participated in a breach of trust means that such defendant committed a breach of trust.

[31] The original statement of claim had a claim for breach of trust in paragraphs 1(a), 33 and 34. The proposed amended statement of claim has a claim for breach of trust in paragraphs 1(a), 39 and 42. Paragraph 39 appears in the proposed amended statement of claim as a paragraph which is struck out. It was formerly paragraph 33 of the original statement of claim. Paragraph 42 is similar to paragraph 34 in the original statement of claim. However the words “by utilizing for their own benefit and interest [the plaintiff’s investments]” are struck out. These changes in the proposed amended statement of claim have the following problematic result.

[32] The original statement of claim alleged in paragraphs 33 and 34 how the defendants committed a breach of trust: they converted the plaintiff’s investments to their own use. Those allegations are now gone. The proposed amended statement of claim does not allege what the defendants did or failed to do that amounted to a breach of trust nor does it allege when the defendants committed a breach of trust.

[33] Like the allegations of negligence and duty of care, the allegations of breach of trust in the proposed amended statement of claim are allegations of a legal conclusion without the necessary material facts. These allegations therefore do not comply with subrule 25.06(2). I therefore deny the plaintiff leave to amend the breach of trust allegations in the original statement of claim in terms of the breach of trust allegations in the proposed amended statement of claim.

[34] The defendants submit that many of the proposed amendments amount to new causes of action against them which are untenable because they are clearly barred by the Limitations Act, R.S.O. 1990, ch. L.5 of the Limitations Act, 2002, S.O. 2002, ch. 24 Schedule “B ”.

[35] I agree that leave to amend should be denied if a proposed amendment is clearly untenable.

[36] In Rooftek Canada Inc. v. 614730 Ontario Inc. [2007] O.J. No. 4385 MacLeod M. said (at paragraph 12 a)) that if a limitation period has expired and the moving party is seeking to add a new party or claim, evidence must be introduced to demonstrate why the amendment is not statute barred. MacLeod M. gave the example of affidavit evidence of discoverability.

[37] Here there are two affidavits filed in support of the plaintiff’s motion. Neither deals with the subject of discoverability.

[38] In the case of the amended claims for negligence, duty of care and breach of trust, I am unable to say whether a limitation period has expired because the plaintiff has failed to provide necessary particulars of when the defendants were negligent, committed a breach of trust or breached a duty of care. If the plaintiff brings another motion for leave to amend, the subject of whether those amendments are statute barred can be revisited.

[39] In the case of the claim for misrepresentations the plaintiff provides dates the misrepresentations were made in amended paragraph 37. However the plaintiff does not allege when he first knew or ought to have known that the misrepresentations in this paragraph were untrue. That said, amended paragraph 37 is one of the paragraphs in the proposed amended statement of claim to which the defendants do not object. Perhaps the defendants are planning to deal with the subject of whether the amendments in paragraph 37 are statute barred in their motion for summary judgment.

[40] The amendments in proposed paragraphs 23 and 33 are similar. Paragraph 23 deals with the plaintiff’s first investment while paragraph 33 deals with his second investment. In each case the plaintiff proposes to allege that Noreen Stevens was aware of and condoned Sinclair Stevens’ representations. No date or dates are alleged for this awareness and condonation. Such awareness and condonation is not a civil wrong. There is no allegation that Noreen Stevens owed the plaintiff a positive duty to disclose to the plaintiff that any of the representations which Sinclair Stevens made to the plaintiff were untrue. Both paragraphs 23 and 33 allege that Noreen Stevens executed investment certificates in favour of the plaintiff. No dates are given. This is not a civil wrong.

[41] Both paragraphs 23 and 33 end with an allegation that Noreen Stevens owed the plaintiff a duty of care and a fiduciary duty. No particulars are given. These are allegations of conclusions of law without the necessary material facts. They thus offend subrule 25.06(2).

[42] Leave to amend in terms of proposed paragraphs 23 and 33 is therefore denied.

[43] Defence counsel submitted that this motion for leave to amend is made late in this action and that if this motion is successful the defendants will be obliged to change their litigation tactics. I am unable to determine if this need to change litigation tactics is so prejudicial to the defendants that leave to amend should be denied because the evidence before me says nothing about the nature or extent of this need to change litigation tactics. I therefore reject this prejudice argument.

[44] To the extent that I have denied the plaintiff leave to amend, my dismissal of parts of this motion is without prejudice to the right of the plaintiff to bring another motion for leave to amend the statement of claim, provided that such further motion is served within 45 days of the final disposition of this motion.

[45] The parties may have further production of documents and examinations for discovery on the amendments which I have granted the plaintiff leave to make and on any amendments to the statement of defence which the defendants deliver pursuant to subrule 26.05 (1).

[46] The defendants have been substantially successful on the disputed parts of this motion and are entitled to the costs of it. I fix those costs at $6,000 and order the plaintiff to pay such costs to the defendants within 30 days.

Master Thomas Hawkins

DATE: May 15, 2012