SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 10-49085A1
DATE HEARD: June 05, 2012

RE: Canadian Medical Association

v.

Just Energy L.P. and Glen Lancaster and Johnson Controls L.P.

BEFORE: MASTER P. E. ROGER

COUNSEL:
Susan Brown, for the Plaintiff and Third Party (Moving Parties)
Email: Susan.Brown@fmc-law.com
Ph: (613) 783-9658 Fax: (613) 783-9690

Adrian C. Lang, for the Defendants (Responding Parties)
Email: alang@stikeman.com
Ph: (416) 869-5653 Fax: (416) 947-0866

E N D O R S E M E N T

Background

[ 1 ] This is a motion by the Plaintiff and Third Party to:

a. amend the amended amended Statement of Claim in order to plead an alternative theory of liability in negligence, for negligent hiring and supervision by the Defendant Just Energy Ontario L.P. of its sales representative Glen Lancaster; and

b. settle the Discovery Plan in respect of the scope of documentary and oral discovery, concerning specific requests for documentary production.

[ 2 ] The action concerns the validity of, and a claim for damages arising from, four long term multi-million dollar fixed price energy contracts dated June 2008 with the Defendant Just Energy. These contracts were procured by a sales representative, the Co-defendant Lancaster, for two commercial buildings in Ottawa owned by the Canadian Medical Association.

[ 3 ] Just Energy’s business involves the marketing of fixed-rate and variable rate natural gas and electricity contracts to residential and commercial consumers. Lancaster is an independent contractor with Just Energy. His role is to solicit commercial consumers, selling energy contacts on behalf of Just Energy. Lancaster has been an independent contractor for Just Energy since approximately June 2005.

[ 4 ] The Third Party, Johnson Controls L.P. is the on-site superintendent for the Plaintiff’s properties. Johnson Controls employed Cecil Hatt who was the building manager for CMA in Ottawa. Hatt died in September 2009.

[ 5 ] In June 2008 , after a series of meetings and discussions with Lancaster, Hatt executed a series of fixed rate, five year term electricity and natural gas contracts with Just Energy.

[7] This litigation is at an early stage. Pleadings have only recently been completed, and documentary production is still in progress. Examinations for discovery have not yet taken place.

[8] The proposed amendments are in respect to a criminal plea in an unrelated matter made by the Defendant Lancaster and an allegation of negligent hiring by the Defendant Just Energy. The Defendants argue that the proposed amendments should be denied on the basis that they are not relevant, offend the rules of pleadings as they are prejudicial, inappropriate, scandalous and vexatious and, further, not a tenable cause of action.

[9] The Plaintiff and Third Party allege that, as a result of recent inquiries and review of Just Energy’s productions provided in March 2012, they have an alternative theory of Just Energy’s liability based on its negligent hiring and supervision of Lancaster.

[10] It appears that Lancaster pled guilty and was convicted in September 2006 to fraud charges predating 2005 that arise out of Lancaster’s participation in earlier sales. Lancaster was incarcerated and received parole in 2007. Following his parole, Lancaster resumed his job selling energy contracts for Just Energy. Not long after, in June 2008, Lancaster procured the contracts with the Plaintiff that are the subject of this action.

[11] As the pleadings now stand, the fundamental allegations to be resolved in the action are (i) whether the electricity and gas contracts are valid; (ii) whether Hatt had authority to sign the contracts; and (iii) whether Lancaster improperly induced Hatt to do so. The proposed amendments add in essence one additional claim, negligence against Just Energy for negligent hiring and negligent supervision of Lancaster.

[12] The proposed provisions of the Amended Amended Amended Statement of Claim are:

Negligent Hiring and Supervision of Lancaster

25A. At the time Just Energy hired Lancaster as a sales agent in or about June 2005, he had a long criminal record including a prior conviction for fraud, and he was facing new fraud and conspiracy charges for his fraudulent conduct in connection with major sales scams.

25B. The pending fraud charges against Lancaster and his prior criminal record for fraud were known or ought to have been known to Just Energy at the time it hired him. Lancaster’s prior criminal record for fraud and other crimes was readily discoverable through an ordinary background and reference check, and his pending fraud charges in connection with sales scams had received extensive media coverage and were readily discoverable through an internet or press search against Lancaster’s name and location.

25C. In September 2006, Lancaster pleaded guilty to the three new charges of fraud and was sentenced at that time to a three year prison term in a federal penitentiary. Just Energy knew or ought to have known of Lancaster’s three new fraud convictions, as these convictions received extensive additional media coverage and Lancaster took an extended leave from his sales position with Just Energy to serve his prison term in Kingston Penitentiary.

25D. Following Lancaster’s early release on parole in or about January 2007, Just Energy had Lancaster, whom it knew or ought to have known to be a dishonest and untrustworthy person with a lengthy criminal record including convictions for fraudulent sales conduct, resume his position as an unsupervised sales agent for Just Energy.

25E. It was foreseeable that if Just Energy hired and continued to engage dishonest or untrustworthy sales agents with a track record of involvement in sales scams and use of high pressure, improper or unlawful sales practices and dishonest behavior, those being targeted and solicited by such sales agents to sign contracts with Just Energy, including CMA, would be exposed to a material risk of injury by being subjected to such sales practices to improperly induce them to enter into contracts with Just Energy that they would not otherwise enter into. Accordingly, Just Energy owed a duty of care to CMA to take adequate steps:

(a) to avoid hiring or continuing to engage dishonest or untrustworthy sales agents with a track record of involvement in sales scams and use of high pressure, improper or unlawful sales practices and dishonest behavior, and

(b) to train and supervise its sales agents to prevent their use of any such sales practices or dishonest behavior.

25F. Just Energy failed to take any reasonable or adequate precautions to protect members of the public, including CMA, whom Lancaster was targeting and soliciting to sell Just Energy’s contracts, from Lancaster’s use of high pressure, improper or unlawful sales practices and other dishonest behavior calculated to induce them to enter into contracts with Just Energy, despite complaints Just Energy received about such practices and despite Just Energy’s extensive experience in defending litigation and regulatory proceedings relating to the very same practices in North American jurisdictions.

25G. Just Energy’s

(c) negligent hiring and continued engagement of Lancaster, a convicted recidivist sales fraudster, as an unsupervised sales agent.

(d) negligent failure to closely supervise Lancaster upon his resumption of his sales position following his release from prison in January 2007, when based on his criminal record Just Energy knew or ought to have known that there was a material risk that Lancaster would use high pressure, improper or unlawful sales practices or engage in other dishonest behaviour to sell Just Energy’s contracts,

and

(e) negligent failure to take reasonable and adequate precautions to protect the public, including CMA, from Lancaster’s use of high pressure, improper and unlawful sales practices and other dishonest behaviour in the course of his sales work for Just Energy.

all as set out above, enabled and facilitated Lancaster to target and take advantage of Mr. Hatt and as such caused, or alternatively contributed, to the financial loss suffered by CMA in consequence of the Just Energy Contracts.

[13] The parties also disagree over the proper scope of documentary production and proposed area of questioning at upcoming examinations for discovery. As a result, they could not settle the Discovery Plan.

[14] The following is a list of the documents and proposed topics of questioning over which the parties do not agree, taken from the Plaintiff’s factum with the Plaintiff’s references to the pleadings.

Document

Relevance Based on Existing Pleadings and Productions

Relevance Based on Proposed Amendment

Glen Lancaster

Glen Lancaster’s 2008 appointment book and/or calendar and his contact information and cell phone records for communications with the Hatt family members

Amended Amended Statement of Claim paras. 6-15, 21-25, 30 Statement of Defence of Glen Lancaster para. 22

Record of commission payment by Just Energy to Glen Lancaster

Amended Amended Statement of Claim paras. 1(d) and 34

Just Energy

OESC and OEB Codes of Conduct, and OESC training manual and written materials published by OESC for use by the agent, all of which are referred to in JE production #1 - Independent Agent File Information and Agent Certification

Just Energy Production #1 Amended Amended Statement of Claim paras. 21-35, 30

Just Energy's manual and policies related to sales practices, inducements and verification of corporate authority in respect of contracts with corporate customers

Amended Amended Statement of Claim paras. 21-25, 30 Statement of Defence of Just Energy para. 23 Reply to Statement of Defence of Just Energy paras. 6-8 Statement of Defence of Glen Lancaster paras. 18-19, 23 Reply to Statement of Defence of Glen Lancaster paras. 6-13

Paras. 25E-F

The personnel/independent contractor file of Glen Lancaster including his criminal record and other background checks

Amended Amended Statement of Claim para. 4

Paras. 25A-F

The records of Just Energy's sales commission payments to Glen Lancaster

Amended Amended Statement of Claim paras. 1(d) and 34

Complaints and claims records concerning the sales practices of Glen Lancaster and Just Energy

Johnson Controls Defence to Third Party Claim para. 8 Amended Amended Statement of Claim paras. 21-25, 30

Paras. 25A-F

Law and analysis

[15] Rule 26.01 provides that 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.

[16] In Refco Futures (Canada) Ltd. v. Keuroghlian (2002), 39 C.P.C. (5th) 344 , Master Dash provides at para. 8:

This language is mandatory and amendments shall be allowed at any stage provided that:

a) The amendments would not result in uncompensable prejudice. The onus of proving prejudice is on the party resisting the amendments.

b) The claim advanced in the amendment is a "tenable plea" in law, i.e. that it discloses a cause of action. It is not necessary to tender evidence to support the claims nor is it necessary for the court to consider whether the amending party is able to prove its amended claim. The court must assume that the facts pleaded in the proposed amendment (unless patently ridiculous or incapable of proof) are true, and the only question is whether they disclose a cause of action. Amendments are to be granted unless it is shown beyond all doubt that the claim is clearly impossible of success. For this purpose amendments are to be read generously with allowance for deficiencies in drafting: Atlantic Steel Industries v. CIGNA Insurance Co. of Canada (1997), 33 O.R. (3d) 12 .

c) The amendments otherwise comply with the rules of pleading.

[17] On such a motion it is appropriate to consider Rule 25.11, despite the wording of Rule 26.01 which provides that the court shall grant leave to amend: Transamerica Occidental Life Insurance Co. v. Toronto-Dominion Bank (1997), 25 O.T.C. 81 (S.C.) , at para. 2 .

[18] Under Rule 25.11, the court may strike all or parts of a pleading on the ground that the pleading

a. may prejudice or delay the fair trial of the action;

b. is scandalous, frivolous or vexatious; or

c. is an abuse of the process of the court.

[19] A pleading cannot be "scandalous" if it is relevant: Quizno’s Canada Restaurant Corp. v. Kileel Developments Ltd ., 2008 ONCA 644 .

[20] On a motion to amend pleadings, such as this one to add an alternative theory of liability, when assessing whether the amendment is “tenable at law”, the role of the court is not to screen the claim for likelihood of success. A pleading amendment should not be refused as legally untenable unless it is “clearly impossible of success”. See for example: Chinook Group Ltd. v. Foamex International Inc. (2004), 72 O.R. (3d) 381 (S.C.), at para. 13 .

[21] Negligent hiring and supervision of an employee or independent contractor is a recognized theory of liability. See for example: Wilson v. Clarica Life Insurance Co. , 2001 BCSC 1696 ; and Legion Credit Union (Co-Liquidators) v. Marsh & Marsh (1997) .

[22] It is not the role of the court on a pleadings motion seeking to add an alternative theory of liability to disallow amendments simply because it or the defendant thinks that it might not be successful or that it might have been pleaded slightly differently.

[23] Under certain circumstances, a criminal or quasi-criminal conviction and surrounding circumstances, which includes whether or not a guilty plea was entered, can be pleaded in civil proceedings if the conviction is relevant to the issues in the civil action. See: Hutchinson et al. v. York Sanitation Co. Ltd., et al. (1986) .

[24] The facts in this case are different from those in Transamerica Occidental Life Insurance Co. where the third amendment was a claim that the customer involved in the matter had been charged with criminal offences which were irrelevant to the asserted allegations.

[25] Prior similar facts or similar fact evidence may properly be pleaded if relevant.

[26] However, when considering a pleading of similar fact it is important to distinguish between admission of similar fact evidence at trial and pleading of similar fact: Toronto (City) v. MFP Financial Services Ltd. (2005) .

[27] Master MacLeod’s decision in Toronto is extremely useful to this part of the analysis.

[28] A court may strike out portions of a pleading, even where the allegations are relevant, if they are of marginal probative value and their probative value is outweighed by their prejudicial effect.

[29] A pleadings motion is not necessarily the most appropriate stage in the action or forum to determine the admissibility of evidence at trial.

[30] Justice Perrell set out in Kang v Sun Life Assurance Co. of Canada , 2011 ONSC 6335 , a comprehensive list of factors.

[31] The court in Plante v. Industrial Alliance Life Insurance Co. (2003) reinforced the above.

Disposition

a) Proposed amendments to the Statement of Claim

[32] Considering the above and the many authorities brought to my attention during this motion, the proposed amendments are allowed, subject however to the following (references are to the paragraphs of the proposed version provided at the motion and referred to above):

• At 25A, “long” and “for his fraudulent conduct in connection with major sales scams” are not allowed.

• At 25B, “and other crimes” and “in connection with sales scams” are not allowed.

• At 25D, “whom it knew or ought to have known to be a dishonest and untrustworthy person with a lengthy criminal record including convictions for fraudulent sales conduct,” is not allowed.

• At 25E, certain phrases concerning sales scams and dishonest behaviour are not allowed.

• At 25F, “and other dishonest behaviour” and references to extensive litigation and regulatory proceedings are not allowed.

• At 25G (c), “a convicted recidivist sales fraudster” is not allowed.

• At 25G(d), “based on his criminal record” and “or engage in other dishonest behaviour” are not allowed.

• At 25G(e), “and other dishonest behaviour” is not allowed.

[33] The allowed amendments would not result in uncompensable prejudice, are material facts to a tenable plea (at least for purposes of such a motion), and comply with the rules of pleadings.

[34] Some of the allowed amendments might annoy the Defendants, but what is relevant cannot in a legal sense be embarrassing.

[35] I find the amendments relevant to the newly alleged cause of action of negligent hiring and supervision.

[36] The proposed amendments can be distinguished from the facts in Québec v. Maksteel Québec Inc ., 2003 SCC 68 .

[37] The portions not allowed are considered to be not material facts or not necessary for the Plaintiff to prove its case with prejudicial effect outweighing any probative value.

[38] The portion concerning extensive litigation and regulatory proceedings is not allowed.

[39] The portion concerning complaints received about such practices is allowed, limited to complaints against Lancaster.

b) Scope of production

[40] By the time the motion was argued, the parties had reached an agreement to answer: 2, 3 only insofar as the OESC and OEB Codes of Conduct, and 6.

[41] On the outstanding items, I find as follows:

• Item no. 1 is relevant and is allowed/to be answered/provided.

• Outstanding part of no. 3 is relevant and is allowed/to be answered/provided.

• Item no. 4 is relevant and is allowed/to be answered/provided.

• Item no. 5 is relevant but limited to what is in the possession of Just Energy.

• Item no. 7 is relevant and allowed but only insofar as the complaints relate to Lancaster.

[42] The items allowed above are relevant (Rule 30.02) and proportional requests (Rule 29.2).

[43] The only outstanding item is the issue of costs of this motion. If the parties can’t agree, the Moving Parties may provide their written submissions within the next two days and any reply by the Responding Party within the following day.

Master Pierre E. Roger

Date: June 20, 2012